an appraisal of · an appraisal report of: 656-658 w. belden ave. chicago, illinois 60657 parcel...

An Appraisal Report of:

656-658 W. Belden Ave.

Chicago, Illinois 60657

Parcel Index Numbers:

14-33-103-007-0000 and 14-33-103-008-0000

At the request of:

Oak Bank

As of:

April 9, 2015

Prepared by:

Maloney Appraisal Company, Inc.

Prepared:

April 9, 2015

1

MALONEY APPRAISAL COMPANY, INC.

APPRAISERS AND CONSULTANTS

2446 North Clark Street


April 9, 2015

Attn: Ms. Tracey Armstrong

Oak Bank

1000 N. Rush,

Chicago, IL 60611

RE: 656-658 W. Belden Ave.


Parcel Index Numbers:

14-33-103-007-0000 and 14-33-103-008-0000

Dear Ms. Armstrong,

As requested, we have appraised the property located at 656-658 W. Belden Ave. Chicago, Illinois 60657.

Specifically, we have appraised Parcel Index numbers: 14-33-103-007-0000 and 14-33-103-008-0000.

Peter Boden has made a personal inspection of the site and improvements that is the subject of this report.

Kevin Maloney has not made a personal inspection of the subject of this report however Mr. Maloney has

read and reviewed the report and concurs with the value opinion.

The purpose of the appraisal is to estimate the market value of the Fee Simple interest in the real estate

described herein, based on market conditions prevailing on April 9, 2015. The use of the appraisal is to

assist the client with its collateral analysis and/or portfolio management. The date of all Fee Simple

valuations is April 9, 2015.

The client is Oak Bank. The intended user is Oak Bank its affiliates and loan participants. The appraisal

will be used by Oak Bank in connection with loan underwriting, asset management and asset disposition.

It may not be distributed to or relied upon by other persons or entities without written permission.

Our appraisal complies with the standards of the 2014-2015 Edition of the Uniform Standards of

Appraisal Practice, the appraisal policies and procedures of Oak Bank and the regulations of the Office of

the Comptroller of Currency and Federal Law, including, but not limited to, FIRREA as amended. The

inspecting appraiser is competent to complete this report as required by the Uniform Standards of

Professional Appraisal Practice.

This report is in compliance with the Commercial Appraisal Reporting Guidelines and the prevailing

guidelines issued under the Title XI of the Federal Financial Institutions Reform, Recovery, and

Enforcement Act of 1989 (FIRREA) as well as the prevailing standards outlined in the Uniform Standards

of Professional Appraisal Practice.

The subject property consists of a vintage, one and part three-story, masonry constructed, mixed-use

building. The property is located on the northeast corner of W. Belden Ave. and N. Orchard St. at the

confluence of Lincoln Ave. in the Lincoln Park Neighborhood of Chicago. The subject property is

2

currently pending sale under a purchase and sale agreement for the total sum of $3,800,000 which

includes $100,000 for the business concerns (defined in the contract as: Shares). According to the MLS

Tax Records, the original date of construction was 1886. Per sketches completed using dimensions cited

on the plat of survey provided, the ground floor of the building is 7,040± square feet and the partial

second and third floors are 3,791± square feet each. The three floors combine for a total of 14,622±

square feet of above grade building area.

The subject has one (1) ground floor bar/restaurant unit (6,473± square feet of rentable area) and ten (10)

upper floor apartment units ranging in size from a 307± square foot studio unit to a 924± five-room, two-

bedroom and one-bath unit. The commercial bar/restaurant space was last occupied by the seller’s

business John Barlycorn and closed its doors for business sometime in mid-2014. The unit is currently

vacant and reported to have no lease in place. Two (2) of the ten (10) upper floor apartment units are

reported to be currently occupied on a month to month basis. The remaining eight (8) apartment units are

vacant. Although the units are vacant and could use some updating, they are rentable in their current

condition. The seller, Mr. Sam Sanchez, reported that prior to the current pending sale the property was

previously under contract. The previously contracted buyer requested that Mr. Sanchez not renew

residential leases as they come up and deliver the property with as many vacant units as possible. That

contract reportedly fell through and Mr. Sanchez reported that the new buyer too, requested that the seller

not rent vacant units and to deliver the property at closing with as many residential vacancies as possible.

We assumed the buyer wanted the property delivered vacant in order to be able to complete renovations

on the residential units and re-lease the units.

The subject site lies at the six-way intersection of N. Lincoln Ave., W. Belden Ave. and N. Orchard St.

The site has 72.4 feet of frontage along W. Belden Ave and 134.0 feet of frontage along N. Orchard St.

for a total site area of 9,701± square feet (as defined on plat of survey provided). Although there is

technically no frontage along N. Lincoln Ave. the subject is clearly visible from Lincoln Ave from the

north and south. The property is described in greater detail in section III in the body of this report.

We note that 61% of the total income stream is projected to come from the first floor tavern/restaurant

space. It is essential that a quality tenant be attracted to this unit at a market rent.

A complete narrative appraisal report is attached to this letter, and value estimate must be read in

conjunction with that report. Furthermore, the value indication expressed in this letter and anywhere else

in the body of the report must be read in light of the specific assumptions and limiting conditions set forth

in our report.

Very truly yours,

Maloney Appraisal Company, Inc.

Peter Boden Kevin P. Maloney

Appraiser Review Appraiser

Certified General Appraiser Certified General Appraiser

553.001769, exp. 9/15, IL 553.000295, exp. 09/15, IL

3

Table of Contents

Section I Introduction

Section II Market analysis

Section III Property description

Section IV Highest and Best Use

Section V Site value

Section VI The value process explained

Section VII Cost approach

Section VIII Sales comparison approach

Section IX Income capitalization approach

Section X Reconciliation

Section XI Addenda

4

Aerial Photo 1

Aerial Photo 2

5

Subject Front

Rear

6

Street Scene – W. Belden Ave. – West

Street Scene – W. Belden Ave. – East

7

Street Scene – N. Orchard St. – North

Street Scene – N. Orchard St. – South

8

Street Scene – N. Lincoln Ave. – North

Street Scene – N. Lincoln Ave. – South

9

Introduction

Certification of Value

I certify that, to the best of my knowledge and belief:

The appraisal assignment was not based on a minimum valuation, a specific valuation or the approval of a

loan.

The statements of fact contained in this report are true and correct.

The reported analyses, opinions and conclusions are limited only by the reported assumptions and

limiting conditions, and is my personal, unbiased professional analyses, opinions and conclusions.

I 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.

My compensation is not contingent on an action or event resulting from the analyses, opinions, or

conclusions in, or the use of, this report.

My analyses, opinions and conclusions were developed, and this report has been prepared, in conformity

with the requirements of the Code of Professional Ethics and the Standards of Professional Practice of the

Appraisal Institute.

The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly

authorized representatives.

Peter Boden has made a personal inspection of the property that is the subject of this report.

Kevin Maloney has not inspected the subject of this report. Kevin Maloney has read and reviewed the

report and concurs with the value opinion.

Peter Boden and Kevin Maloney have performed no service (s) as an appraiser or in any other capacity,

regarding the property that is the subject of this report, within the three year period immediately

preceding acceptance of this assignment.

No one provided significant professional assistance to the person signing this report. If there are

exceptions, the name of any individual providing significant professional assistance will be stated.

Peter Boden Kevin P. Maloney

Appraiser Review Appraiser

Certified General Appraiser Certified General Appraiser

553.001769, exp. 9/15, IL 553.000295, exp. 09/15, IL

10

Assumptions and Limiting Conditions

This appraisal report has been made with the following assumptions and limiting conditions:

1. No responsibility is assumed for the legal description or for matters including legal or title

considerations. Title to the property is assumed to be good and marketable unless otherwise

stated.

2. The property is appraised free and clear of any or all liens or encumbrances unless otherwise

stated.

3. Responsible ownership and competent property management are assumed.

4. The information furnished by others is believed to be reliable. No warranty, however, is given

for its accuracy.

5. All engineering is assumed to be correct. The plot plans and illustrative material in this report

are included only to assist the reader in visualizing the property.

6. 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.

7. It is assumed that there is full compliance with all applicable federal, state and local

environmental regulations and laws unless noncompliance is stated, defined and considered

in the appraisal report.

8. It is assumed that all applicable zoning and use regulations and restrictions have been

complied with, unless non-conformity has been stated, defined, and considered in the

appraisal report.

9. It is assumed that all required licenses, certificates of occupancy, consents, or other

legislative or administrative authority from any local, state or national government or private

entity or organization have been or can be obtained or renewed for any use on which the

value estimate contained in this report is based.

10. 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

noted in the report.

11. 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.

12. 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

qualification and only in its entirety.

13. The appraiser herein by reason of this appraisal is not required to give further consultation,

testimony, or be in attendance in court with reference to the property in question unless

arrangements have been previously made.

11

14. Neither all nor any part of the contents of this report prepared by Maloney Appraisal

Company shall be disseminated to the public through advertising, public relations, news,

sales, or other media without the prior written consent and approval of the appraiser.

15. No personal property included in final value estimate.

16. Unless otherwise stated in this report, the existence of hazardous substances, including,

without limitation, asbestos, polychlorinated biphenyls, petroleum leakage or agricultural

chemicals which may or may not be present on the property, or other environmental

conditions, were not called to the attention of nor did the appraiser become aware of such

during the appraiser’s inspection. The appraiser has no knowledge of the existence of such

materials on or in the property unless otherwise stated. The appraiser, however, is not

qualified to test such substances or conditions. If the presence of such substances, such as

asbestos, urea formaldehyde foam insulation, or other hazardous substances or environmental

conditions may affect the value of the property, the value estimated is predicated on the

assumption that there is no such condition on or in the property or in such proximity thereto

that it would cause a loss in value. No responsibility is assumed for any such conditions, or

for any expertise or engineering knowledge required to discover them.

17. The ADA became effective 01/26/1992. The appraiser has not made a compliance survey of

the property to determine whether or not it conforms to the various detailed requirements of

the ADA. It is possible that a compliance survey of the subject property together with a

detailed analysis of the ADA requirements could reveal that the property is not in compliance

with one or more of the requirements of the act. If so, this fact could have a negative effect

upon the value of the property. Since the appraiser has no direct evidence relating to these

issues, the appraiser did not consider possible non-compliance with the requirements of the

ADA in estimating the value of the property.

Extraordinary Assumptions and Limiting Conditions

We have not been provided a phase one environmental report. We specifically assume that the site is free

of hazardous conditions. It is beyond the scope of this appraisal to evaluate the properties environmental

issues and this appraisal assumes the properties are free and clear of any environmental issues that would

inhibit or affect in any way, the current or future value or development of the subject property. We

reserve the right to alter our opinion if hazardous conditions are found.

The subject property is built out as a tavern/restaurant. This appraisal does not include a going concern

value for the current occupant’s business nor does it value the liquor or any other municipal licenses.

However, this appraisal assumes that this location will retain the right to operate as a restaurant/bar with

the ability to serve alcohol incidental to the sale of food. We reserve the right to alter our opinion of

value if the right to operate as a restaurant/bar is lost

12

Identification of the property

The common address is: 656-658 W. Belden Ave. Chicago, Illinois 60657.

The property is situated in Census Tract Number 8319.00

Parcel Index Numbers: 14-33-103-007-0000 and 14-33-103-008-0000

Legal description

The legal description is per the ALTA/ACSM survey provided. This legal description is for identification

purposes only within this report and should not be used for legal conveyance without verification of

accuracy.

Purpose and use of the appraisal

The purpose of the appraisal is to estimate the market value of the Fee Simple interest in the real estate

described herein, based on market conditions prevailing on April 9, 2015. The use of the appraisal is to

assist the client with its collateral analysis and/or portfolio management. The date of all Fee Simple

valuations is April 9, 2015.

Client and Intended User

The client is Oak Bank. The intended user is Oak Bank its affiliates and loan participants. The appraisal

will be used by Oak Bank in connection with loan underwriting, asset management and asset disposition.

It may not be distributed to or relied upon by other persons or entities without written permission.

Scope of the appraisal

A narrative report on the subject property has been prepared. Two of the three main valuation techniques

were applicable to the subject property. The sales comparison and the income approaches are the

applicable methods for valuing the subject property. The subject is a multi-tenant income producing

building that was constructed in 1886. Because of the age of the property and its legal non-conforming

status, the cost approach is not considered an accurate indicator of value and was therefore not completed.

Data for each valuation technique used was gathered through actual market activity whenever practical.

Confirmation of all information was made through disinterested persons and public data sources (e.g.

Assessor’s records, utility records) whenever possible.

13

Ownership and sales history

Online tax records list the owner and taxpayer of record as Southport Retail. The subject property is

currently pending sale under a purchase and sale agreement for the sum of $3,800,000 for the real estate

and an additional $100,000 for the Business (Shares).

The following Lis Pendens Foreclosure was filed for the subject but is believed to be part of litigation

with the former contracted buyer and no longer an issue:

Document No. Executed Recorded Document Type Case No. Amount

1423210151 08/20/2014 08/20/2014 LIS PENDENS FORECLOSURE

Grantor(s) Trust #

CEDAR STREET COMPANIE LLC

Grantee(s) Trust #

WELLS CAPITAL LLC 14CH12845

WELLS STREET EQUITIES LLC

HOLMER ARTHUR

The following Lis Pendens was also filed with the Cook County Recorder of Deeds:

Document No. Executed Recorded Document Type Case No. Amount

1421816075 08/06/2014 08/06/2014 LIS PENDENS

Grantor(s) Trust #

WELLS CAPITAL LLC

WELLS STREET EQUITIES LLC

Grantee(s) Trust #

SANCHEZ SAMUEL

REPUBLIC BANK TRUSTEE 1548

Mr. Sam Sanchez has represented himself as the current owner and the seller of the subject property. Mr.

Sanchez reported owning the subject since a 1986 purchase for an undisclosed amount. We are unaware

of any transfers or marketing attempts of the subject property in the past 3 years. No transfers or

marketing attempts of the subject property within the past five years have been discovered or disclosed.

Market exposure

Reasonable market exposure 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 a

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 ...” “The reasonable exposure period is a function of

price, time, and use, not an isolated estimate of time alone.” (Appraisal Foundation)

In this instance, we have concluded that nearly all sectors of the real estate market have been adversely

affected by the failing economy and the restrictions on credit. However, we have considered our estimate

of market value to be reasonable and, as such this would not inherently lengthen the subject’s exposure

time. Therefore, we have estimated an exposure time for the subject property on an “as-is” basis to be

approximately three to six months.

14

Marketing time

Reasonable marketing time is defined as “as estimate of the amount of time it might take to sell a property

interest in real estate at the estimated market value level during the period immediately after the effective

date of an appraisal.” …. “The reasonable marketing time is a function of price, time use and anticipated

market conditions….” (Appraisal Foundation Advisory Opinion)

Overall, the market is considered to have been in reasonable balance for this property type and is

anticipated to remain in balance, with general inflationary pressures continuing to occur. A marketing

time of three to six months is estimated.

Statement of property rights appraised

The Fee Simple interest of the subject property was appraised. The subject property is a rental property

with all units leased. Because there are long-term binding leases in place no fee simple value currently

exists. A further discussion of the contract and market rental rates can be found in the income approach

section of this report.

Date of the appraisal

The subject property was inspected on April 9, 2015. The date of the appraisal is

April 9, 2015.

Date of valuation

The date of the Fee Simple valuation is April 9, 2015.

Important definitions

Definition of Market Value:

Market Value: As defined by part 323.2(g) of FDIC Rules and Regulations.

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 are the consummation of

a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

A. Buyer and seller are typically motivated.

B. Both parties are well informed or well advised, and acting in what they consider their own

best interests.

C. A reasonable time is allowed for exposure in the open market.

D. Payment is made in terms of cash in U.S. Dollars or in terms of financial arrangements

comparable thereto; and

E. 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.

Definition of Fee Simple Interest:

Fee simple estate is the absolute ownership unencumbered by any other interest or estate; subject only to

the limitations of eminent domain, escheat, police power and taxation. (Dictionary of Real Estate

Appraisal, 1st Edition, by American Institute of Real Estate Appraisers, 1984)

15

Definition of Leased Fee Interest:

The 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 lessee are specified by contract terms

contained within the lease. (Dictionary of Real Estate Appraisal, 4th Edition, by American Institute of

Real Estate Appraisers, 1984)

Definition of Highest and Best Use:

Highest and best use may be defined as: The reasonably probable and legal use of vacant land or an

improved property, which is physically possible, appropriately supported, financially feasible, and results

in the highest value.

The definition above applies specifically to the highest and best use of land and/or property. It is to be

recognized that in cases where a site has existing improvements on it, the highest and best use may very

well be concluded to be different from the existing use. The existing use will continue, however, unless

and until land value in its highest and best use exceeds the total value of the property in its existing use.

Also implied is that the estimation of highest and best use results from judgment and analytical skill, i.e.,

that the use concluded from analysis represents an opinion, not a fact to be found. In appraisal practice,

the concept of highest and best use represents the premise upon which value is based. In the context of

most probable selling price (market value), another appropriate term to reflect highest and best use would

be most probable use. In the context of investment value, an alternative term would be most profitable

use.

The highest and best use of both land as though vacant and property as though improved must meet four

criteria. The highest and best use must be 1) physically possible, 2) legally permissible, 3) financially

feasible and 4) maximally productive. These criteria are usually considered. Consequently, a use may be

physically possible, but this is irrelevant if it is feasibly impossible or legally prohibited. Only when there

is a reasonable possibility that one of the prior, unacceptable conditions can be changed is it appropriate

to proceed with the analysis. If, for example, current zoning does not permit a potential highest and best

use, but there is a possibility that the zoning can be changed, the proposed use can be considered on that

basis. (The Appraisal of Real Estate, 9th Edition by American Institute of Real Estate Appraisers, 1987)

Definition of Gross Leasable Area (GLA) The total floor area designed for the occupancy and exclusive use of tenants, including basements and

mezzanines, and measured from the center of interior partitioning to outside wall surfaces; the standard

measure for determining the size of rental units where rent is calculated based on the GLA occupied. The

area for which tenants pay rent.

Definition of Rentable Area The amount of space on which the rent is based; calculated according to local practice

16

Market Analysis

City Analysis

The City of Chicago experienced a 6.9% decline in total population between 2000 and 2010. The City of

Chicago is entering a very uncertain period. Chicago is facing budget squeezes resulting both from the

economic crises and longstanding failures to adequately fund their public pension obligations. Many

other cities across the country face pension issues. However, as recently noted by Moody’s when

downgrading the City of Chicago debt rating; “The magnitude of Chicago’s unfunded liability, both

nominally and as a percentage of operating revenues makes the city an extreme outlier among U.S.

municipalities”. Currently, the City of Chicago reports that it only has 35% of the funding needed to

support the pension system. Moody’s Investor services pegs the number even lower at 22%. The city has

a $19.2 billion dollar unfunded obligation in its public pension system. If teachers and park district

pensions are included the number rises to $26.8 billion dollars. This deficit comes against the backdrop of

a separate but similar crisis facing the State of Illinois which has amassed a huge debt topping $100

billion.

The $6.5 billion dollar 2013 budget for the City of Chicago has been balanced through revenue

enhancements and spending cuts and reserve funds have not been raided. However, debt levels continue

to rise dramatically. Analysts estimate that the City of Chicago has shorted pension payments in 2012

alone by more than $1.2 billion dollars ($1.7 billion paid in benefits to retirees and $440 million put in by

the City). This worsening financial plight has lead Moody’s to lower the City of Chicago credit rating

three levels in 2013 from AA3 (high grade/high quality) to A3 (upper medium grade). Fixed costs,

namely pension contributions and debt service, may soon comprise more than 50 percent of the City of

Chicago’s operating budget. The long-term concern for real estate is that the pressing need for more

revenue will result in an increasing tax burden on all types of properties.

The pension issue will come to a head in the year 2015 if no changes are made. Per a State of Illinois law

passed in 2010, the City of Chicago will need to bring the Police and Firefighter pensions to a higher

level of funding in 2015. The additional amount necessary for 2015 alone would be $600 million dollars

which is 1/5 of the city’s day to day operating budget. Property taxes in the City of Chicago would need

to be increased 50% in 2015 to meet this obligation if the funding mechanism for pensions is

maintained.

The City of Chicago still has a number of positive factors. One major positive is the recent increase in job

growth. From 2008 to 2011 Chicago grew jobs at a rate slower than most major cities. However, since

2011 the City of Chicago has had the fastest improvement of the largest cities in both the unemployment

rate and employment ratio. The economy in Chicago still is very diverse and most experts continue to see

a strong future for the Midwest’s premier city. However, the pension issue must be tackled on a City and

State level and prudent real estate investors/owners should plan for higher than typical increases in

property tax levels.

Community and Neighborhood Analysis

The subject property is located in the Lincoln Park community on Chicago's near north side. Lincoln Park

is typically referred to as an area bound by Diversey Parkway to the north, North Avenue to the south,

Lake Michigan to the east, and the North Branch of the Chicago River to the west. The community takes

its name from the large and popular city park that runs along its eastern boundary. Neighborhoods within

this community include Park West, the Old Town Triangle, DePaul University, Sheffield Neighbors,

Wrightwood Neighbors, the Ranch Triangle and the Clybourn Corridor. The Lincoln Park community is

approximately two miles north of the downtown central business district.

17

Lincoln Park is an established commercial and residential community. Vintage and newer single family

residences, multi-unit and multi-family homes, mixed-use commercial and residential, commercial, and

some light industrial uses can all be found in the neighborhood. The community was originally developed

in the early 1900’s. Over 52% of the structures were built prior to 1939 and greater than 26% of the

structures were built between the years of 1960 and 1979. There has been a significant amount of new

construction in the neighborhood over the past 10 years. Sites typically come available through tear

downs of older and smaller improvements.

18

Communities generally experienced four stages of life cycle: development, equilibrium, decline and

redevelopment. The Lincoln Park community is considered to be in the equilibrium phase. New

construction in both the residential and commercial sectors can be found throughout the neighborhood.

Although there is little vacant land in the area, older structures with high levels of deferred maintenance

and under-improvements are being razed to make way for new construction. The primary commercial and

arterial streets traversing the neighborhood include Clark Street, Lincoln Avenue, Clybourn Avenue,

Halsted Street, Sheffield Avenue, Ashland Avenue, North Avenue, Armitage Avenue, Fullerton Avenue

and Diversey Parkway. Lake Shore Drive is at the eastern extremity of the Lincoln Park community. Lake

Michigan is to the east of Lake Shore Drive.

Per the 2010 Census the population of Lincoln Park is cited as 64,116, a decrease of 0.3% from 64,320 in

2000. This minimal loss in population is far less compared to most areas of the city. For example, the

Uptown neighborhood population is down 11.3% over the past 10 years. The City of Chicago as a whole

saw a population decline of 6.9% between 2000 and 2010. Lincoln Park is one of Chicago’s more affluent

communities.

The residential sector of the Lincoln Park neighborhood is in strong demand by both owner occupants and

renters. A survey of properties in Lincoln Park during the past year shows 200 sales of detached homes

through the Northern Illinois Multiple Listing Service ranging from $380,000 to $5,866,000. The average

sale price during this period was $1,835,000 with an average marketing time of 106 days. The median

detached home sale price was $1,582,500. The median detached home value in 2007 was $1,425,000.

Median detached home values in Lincoln Park have now pushed 11% above the prior peak year of 2007.

This is far better than Cook County as a whole where the median price over the past year is 29% down

from 2007. Values for detached homes in Lincoln Park continue to rise at a staggering pace. The median

sale price in the past year is up 18% over the prior 12 month period. Distressed sales continue to account

for only a small percentage of total detached home sales in Lincoln Park. In the past year, only four of

the 201 sales were distressed (2%). The entire City of Chicago saw 34% of all detached home sales

classified as distressed transaction during the past year. Thus, once again, Lincoln Park is significantly

outperforming the broader market.

Similar trends are seen in the attached housing market. Within the last year, 1,255 attached dwellings

sold in Lincoln Park ranging from $77,000 to $4,500,000. The average sale price during this period was

$525,089 with an average marketing time of 61 days. The median sale price during this time was

$434,500. This is up 4% from prior 12 month period and up 5% from the prior peak year of 2007.

Distressed sales are down to 4% (45/1,250) from 7% (82/1,237) in the prior year. The figures above give

evidence to the stability of the subject’s neighborhood, as most neighborhoods in Chicago still are well

below the peak values.

The residential areas of the Lincoln Park community are improved with a wide variety of housing types

including vintage Victorian residences, townhouses, newer detached residences, vintage mid-rise

apartment and condominium buildings, and both newer and vintage high-rise buildings primarily located

in the eastern section of the community. The majority of the high-rise buildings have been converted from

apartment rentals to condominiums. New construction is present again throughout the community. The

area is in strong demand as a residential location due to the proximity to Lake Michigan, Chicago's

downtown area and the shopping and nightlife opportunities the neighborhood presents.

The Lincoln Park community is in strong demand as a commercial location as well. During the past 20 to

25 years, many of the commercial areas have undergone extensive rehabilitation with numerous vintage

commercial spaces being renovated, particularly along Clark Street, Halsted Street, and Armitage

Avenue. Other areas, such as the Clybourn Corridor, have undergone extensive redevelopment. In the

early to mid-1980's Clybourn Avenue began a transformation from a corridor of older industrial buildings

19

into upscale retail, commercial and restaurant/nightclub area with many national retailers. One of the

highest demand commercial area in the corridor is at the intersection of Clybourn Avenue and North

Avenue. The development has now spurred along North Avenue as well. Many new commercial strip

centers have been constructed in this area. A large new construction six-story building was developed at

the intersection of North Avenue and Sheffield Avenue and features such national retailers as J. Crew,

Banana Republic and Victoria’s Secret. The commercial sector along Armitage Avenue, between Racine

and Halsted, and Halsted Street, between Armitage and Webster, has also developed into one of the

highest demand commercial areas in the Lincoln Park community. This section has many small specialty

boutiques and shops along Armitage and national retailers can be found on Halsted. National retailers are

also found at the River Pointe Center, an outdoor shopping complex located on Fullerton Avenue on the

very western border of Lincoln Park. This complex is home to a variety of national stores such as

Marshalls, Old Navy and Best Buy. Directly across from the River Pointe Center on Fullerton is another

shopping complex with tenants such as Office Max, Lane Bryant, The Sports Authority, T.J. Max and

McDonalds.

The commercial sector is improved with a wide variety of retail stores and offices. Retail spaces are

found in single-story commercial buildings, two to four story mixed-use commercial and residential

buildings, small strip malls and larger community centers. Retail spaces include local merchant stores,

specialty shops, boutiques, restaurants, bars, theaters, nightclubs and national chain retailers. Shopping

facilities for the Lincoln Park residents are considered to be excellent and can attract consumers from well

outside the neighborhood boundaries. National retailers continue to be attracted to the area. There is

strong demand for commercial space from both tenants and owner users. Over the past ten years the

commercial vacancy rate throughout Lincoln Park has typically remained near 5%.

An attractive feature of the Lincoln Park community is the cultural opportunities it offers. The Lincoln

Park Zoo, Conservatory, Historical Society and the Nature Museum are all located within the

neighborhood. All types of water sports and outdoor activities are likewise available along Lake

Michigan. Numerous theatre companies occupy space within the neighborhood as well.

Institutions in the area include DePaul University and Children’s Memorial Hospital Outpatient Wing.

Both of these institutions have strong influences in the neighborhood and own several commercial sites in

the area. Educational opportunities are also considered to be good. Elementary schools include Francis

W. Parker and Lincoln Elementary School. Lincoln Park High School is also located in this community.

CTA bus lines along the major arterial streets provide public transportation. There are also three CTA

train stations located in Lincoln Park. Metra rail service is available along the very western border of the

community.

Sub-Market Analysis

The subject is located on the northeast corner of W. Belden Ave. and N. Orchard St. at the six-way

intersection that includes N. Lincoln Ave. The commercial sector in this immediate area is improved

predominantly with vintage mixed-use commercial/apartment buildings. There also are a few single story

commercial buildings observed in the immediate area. Merchants in the immediate area include

PotBelly’s, Chipotle, Lions Head Pub, Halligan’s Pub and Lincoln Ave. Social Club. These taverns and

businesses are located on Lincoln Avenue. Children’s Memorial Hospital was located directly across the

street form the subject property and benefitted greatly from their presence. The Hospital closed in June

2012 and the 6 acre site has sat vacant and unused since that date. This had a negative impact on

businesses in the immediate market. A major mixed use development with 105,000 square feet of retail

space, 540 apartment units, 60 luxury condominiums, a 156 room senior housing facility and an 850 stall

parking garage. This redevelopment has been approved but has not broken ground. Completion is

expected to be at least three years away but should have a major positive impact on the vitality of the

20

immediate area. Maintenance levels on commercial and residential properties in the subject's immediate

area range from average to good.

The subject has a good corner location with good exposure and is in one of the premier nightlife strips in

the Lincoln Park area. The subject property is a first floor tavern/restaurant with 10 apartments on the

upper floors. There is heavy vehicular and pedestrian traffic along Lincoln Avenue and an adequate

amount of cut through traffic along Orchard Avenue and Belden Avenue in the subject’s immediate area.

There is strong demand for commercial space from owner users and tenants. Demand for commercial

space along this commercial strip has increased dramatically over the past five to seven years. The

subject is located 2 blocks south of the six corner intersection of Fullerton, Lincoln and Halsted the hub

for the area. The vacancy rate for commercial spaces in the subject’s immediate area is estimated at less

than 5%.

The retail market around the former Children's Memorial property at Halsted Street and Lincoln and

Fullerton Avenues has struggled since the hospital closed its doors. Between patients, employees and

visitors, the hospital drew an estimated 1.5 million people annually to the area. At least 10 merchants in

the area, many of them restaurants, have shut down since the closure, according to a spokesman for the

Lincoln Park Chamber of Commerce.

Although the Chicago City Council has reportedly signed off on a $350 million plan allowing Chicago-

based McCaffery Interests Inc. to develop 760 housing units and 105,000 square feet of retail space on the

ex-hospital property, it may be years before that project is complete. Many merchants are just trying

endure until the development gets underway. The positive is that the approved development is an

extremely high density project and should attract multiple national credit quality tenants to the proposed

105,000 square feet retail element.

http://www.chicagobusiness.com/realestate/20140403/CRED03/140409905/city-council-approves-childrens-memorial-development-plan

21

There are newer three and four-story condominium buildings on almost every block surrounding the

subject. There are also multiple vintage mixed-use and commercial buildings. The trend in the

neighborhood from 2000 through 2007 saw small vintage or under-improved buildings razed to make

way for new condominium buildings and large new single family homes. This activity came to a halt

given the oversupply of residential units throughout the north side of Chicago between 2008 and 2012.

New development is once again prevalent and multiple sites in the immediate market are in the midst of

construction.

The immediate location along N. Lincoln Ave. is most commonly viewed as a nightlife center with

taverns/nightclubs and retail corridor that attract patrons from well beyond the neighborhood boundaries.

The main hub of the restaurant and nightlife/retail business in the neighborhood is at the 2200-2500

blocks of N. Lincoln Ave. The subject is in the heart of this district. This area has numerous taverns,

nightclubs, restaurants, National retailer and boutique retailers can be found throughout the area and the

location has a strong identity as an entertainment/shopping district. There is a high level of vehicular as

well as pedestrian traffic.

The commercial tenants in the area consist of both local operations and many national chain stores. Many

of the small shops in the area are owner operated. When leases are present, the lease terms are often five

to ten years with one or two five-year option periods. Net re-imbursements are typically required in this

market. Build-out and rental concessions are being typically offered to high quality tenants that are

willing to commit to longer term leases.

Commercial/Apartment Rental Analysis

Ground floor commercial rental rates typically range from approximately $20.00 to $40.00 per square

foot on a net basis. This range varies widely, depending on location, size, extent and quality of build-out,

types of structures, and amenities. The commercial vacancy rate is estimated at 2% to 4% in the

immediate market. The subject’s immediate area has historically experienced low vacancy rates due to

the high demand for space. The most recent trend in the area has seen larger investment groups purchase

mixed-use and single story buildings at very high prices and re-tenant the buildings. Often the new

occupants on the first floor are credit tenants looking to take advantage of the areas high disposable

income levels and growing reputation as a retail and entertainment hub.

The subject’s commercial unit has a larger than typical floor plate at 6,473± square feet which would

typically see lower rental rates than spaces smaller than 2,000 square feet. The corner location at the six-

way intersection including one heavily traveled arterial street, however, offsets some negative

attributable to larger than typical floor plate. Proximity to the University of DePaul, the new McCaffery

Interests unit development, the areas high density and high income demographic residential population

are huge positive factors that push the rent up dramatically. 61% of the overall gross income is projected

to come from the first floor commercial unit.

The apartment vacancy rate for the immediate area is estimated to be 3% to 5%. There is adequate

demand for apartments in this neighborhood due to proximity to entertainment, restaurants and

transportation. The subject’s location receives a 92 out of 100 “Walkscore” and a designation as

“Walkers paradise”. This rating indicates a buildings proximity to neighborhood amenities and

transportation and is closely watched by tenants. The subject is approximately 2-blocks to the CTA rapid

transit station at Fullerton and Sheffield. The commute to the heart of the downtown central business

district can be made in under ½ hour. The subject is in a location where renters with high levels of

disposable income can be attracted. Rental increases in the 3-5% range per annum have been achieved

over the past three years. Also, the subject is in close proximity to many entertainment facilities like

restaurants, bars, and theaters. These are among some of the factors that make the subject’s area

attractive for residential tenants.

22

Rental rates for apartment units in mixed-use buildings on arterial streets range from $1.75 to $3.00 based

on size, condition and number of bedrooms. The condition and updating in the subject units is average

and generally well maintained. The negative factor is that the second floor units are directly above a

bar/restaurant use. The second floor units will be projected slightly below the third floor units to

adequately address the noise factor. The subject’s units should however be able to compete at the middle

of the indicated range for rental quality units located in vintage mixed-use buildings. We assume that the

subject’s first floor is likely to be reestablished as a restaurant/tavern with an incidental liquor license.

Apartments above this type of establishment can be found throughout Lincoln Park. Turnover tends to be

slightly higher than typical due to noise from the restaurant/tavern space. However, good credit quality

tenants can be attracted if rents are set a levels below what is seen for similar units on quiet side streets.

Analysis of the “For Purchase” Market for Mixed Use Buildings

The demand for mixed-use buildings such as the subject in premier locations remains strong in spite of

the weak overall market. The supply of smaller, mixed-use buildings have increased significantly in

many areas as buyers have had difficulty coming up with down payments. However, the subject area has

numerous well capitalized buyers and very few properties have hit the market.

The willingness of mixed-use building operators to continue to buy at cap rates that remain below the

long term historical norm is prompted by the following factors: 1. Purchase prices that are still well below

replacement cost; 2. owners that have large portfolios of units in the area and can use economies of scale

in operations to boost yield; 3. continued favorable financing rates; 4. the strong hedge mixed-use

buildings grant against any return in inflation and 5. The lack of attractive alternative investments given

the low yields on fixed income products (bonds) and the very erratic values in the stock market.

Cap Rates:

Mixed-use buildings in the neighborhood typically see rates between 5.25% and 7.0%. The subject’s

main positive factor is the location in a premier commercial district in Lincoln Park with the ability to

attract long-term, dependable tenants. The location has the ability to attract credit tenants in the first floor

unit. Heavy vehicular and pedestrian traffic, as well as proximity to above-average levels of disposable

income, are all positive factors. The subject has approximately 61% of the total income stream from the

commercial unit. Typically, the commercial income stream is seen as having lower quality and durability

as compared to residential tenants. However, the subject’s location has huge demand and risk is

significantly diminished by the ease to which the tenants can be replaced at comparable rent levels.

Prospective tenants will see that the redevelopment of the former Children’s Memorial site is set to begin

soon and this will ultimately have a strong positive impact.

The subject property is in a very high quality, high exposure location in a premier neighborhood with

huge pedestrian traffic counts. The premier location allows the subject to easily replace the income

stream of the commercial tenant should the space become available for lease. The rent for the commercial

space is at the middle end of the reasonable range and this lowers overall risk. The cap rate must reflect

this fact. The apartments also provide a highly durable income stream. Demand for the units will be

strong given the subject’s location less than ½ mile from the park/lakefront, 1/16th mile to DePaul, ¼ mile

to the CTA station at Fullerton (20 min commute downtown) and immediate access to a variety of

nightlife and restaurants options. We have selected a final cap rate of 5.75% which reflects the fact that

both the commercial and residential income is durable.

Neighborhood Conclusion

There is a strong demand for commercial space along this section of Belden/Lincoln Ave. This stretch of

Lincoln is generally considered to be one of Lincoln Park’s premier commercial locations. The area has a

tremendous amount of vehicular and pedestrian traffic, and nearby national chain retailers should help

23

attract customers. Proximity to the University of DePaul, the new McCaffery Interests planned

development of 760 housing units and 105,000± square feet of retail space and a high density, high

income demographic residential population are huge positive factors. The area can attract impulse

business and consumers from well beyond the boundaries of the city. Commercial rents in the area had

seen a significant increase over the past 3 years and particularly the most recent year.

There is also strong demand for affordable residential units in proximity to CTA trains and buses in

Lincoln Park. Demand for restaurant and retail space at this location is likewise strong in premiere

locations like the subjects. The subject would appeal primarily mid to large-sized investors or investment

groups.

24

Property Description

Site Description

Lot Size: The subject site lies at the six-way intersection of N. Lincoln Ave., W. Belden Ave. and

N. Orchard St. The site has 72.4 feet of frontage along W. Belden Ave and 134.0 feet of

frontage along N. Orchard St. for a total site area of 9,701± square feet (as defined on plat

of survey provided). Although there is technically no frontage along N. Lincoln Ave.

there is a clear and direct sight line to and from Lincoln Ave.

Plat of Survey:

25

Access: Access to the site is good with frontage along N. Orchard St. and W. Belden Ave and

sight lies and exposure to N. Lincoln Ave. as well as a public alley at the rear of the site.

Topography: Level

View: North; Parking Structure – South and West; Vintage mixed-use – East; SFH

Drainage: The land appears to be adequately drained with no known poor soil conditions. The

routine inspection disclosed no unusual adverse conditions affecting the land, but no

responsibility is accepted for discovering or evaluating subsoil, hidden or unusual

conditions. The General Underlying Assumptions at the beginning of the appraisal cover

unapparent conditions of the property. Photographs included with the appraisal aid in

visualizing the subject property.

Flood Rating: A review of the ALTA ACSM Survey shows the subject property is not in a FEMA flood

prone area;

Vegetation: Minimal.

Easements: Normal utility.

Utilities:

Electric: Commonwealth Edison

Gas: Peoples Gas

Water: Municipal – City of Chicago

Sanitary sewer: Metropolitan Sanitary District

Other improvements:

Street access: Average

Surface: Asphalt

Maintenance: City

Storm sewer: Yes

Curb/Gutters: Concrete

Sidewalks: Concrete

Streetlights: Overhead

Site Conclusion

The subject is not located in a flood zone. The subject site is improved. The improvements on the site

and surrounding sites tend to suggest that good supportive soil and subsoil exist, and that a wide variety

of developments could be constructed on the site.

26

Improvements Description

Building Sketch

27

Facade

Commercial Interior

28

Commercial Interior

Commercial Interior

29

Commercial Interior

Commercial Interior

30

Electric Service

Commercial Water Heater

31

Walk In Coolers

Commercial Basement

32

Typical Apartment Breakers

Typical Apartment Water Heaters

33

Apartment Kitchen

Apartment Bath

34

Apartment Kitchen

Apartment Bath

35

Typical FHA

Alternate Kitchen

36

Alternate Bath (Needs rehab)

Living Area

37

Overview

The subject property consists of a vintage, one and part three-story, masonry constructed, mixed-use

building. The property is located on the northeast corner of W. Belden Ave. and N. Orchard St. at the

confluence of Lincoln Ave. in the Lincoln Park Neighborhood of Chicago. The subject property is

currently pending sale under a purchase and sale agreement for the total sum of $3,800,000 which

includes $100,000 for the business concerns (defined in the contract as: Shares). According to the MLS

Tax Records, the original date of construction was 1886. Per sketches completed using dimension cited

on the plat of survey provided the ground floor of the building is 7,040± square feet and the partial second

and third floors are 3,791± square feet each. The three floors combine for a total of 14,622± square feet

of above grade building area.

As currently demised, there are a total of 11 units. There is one (1) ground floor bar/restaurant unit

(6,473± square feet of rentable area) and ten (10) upper floor apartment units ranging in size from a 307±

square foot studio unit to a 924± five-room, two-bedroom and one-bath unit. The commercial

bar/restaurant space was last occupied by the seller’s business John Barlycorn and closed its doors for

business sometime in mid-2014. The unit is currently vacant and reported to have no lease in place. Two

(2) of the ten (10) upper floor apartment units are reported to be currently occupied on a month to month

basis. The remaining eight (8) apartment units are vacant. Although the units are vacant and could use

some updating, they are rentable in their current condition. The seller, Mr. Sam Sanchez, reported that

prior to the current pending sale the property was previously under contract. The previously contracted

buyer requested that Mr. Sanchez not renew residential leases as they come up and deliver the property

with as many vacant units as possible. That contract reportedly fell through and Mr. Sanchez reported

that the new buyer too, requested that the seller not rent vacant units and to deliver the property at closing

with as many residential vacancies as possible. We were not provided with a contact for the buyer to

verify what the buyer intends to do to the property but it is assumed the buyer wanted the property

delivered vacant in order to complete some updating to the residential element and re-tenant the units

themselves. This is not uncommon.

The subject site lies at the six-way intersection of N. Lincoln Ave., W. Belden Ave. and N. Orchard St.

The site has 72.4 feet of frontage along W. Belden Ave and 134.0 feet of frontage along N. Orchard St.

for a total site area of 9,701± square feet (as defined on plat of survey provided). Although there is

technically no frontage along N. Lincoln Ave. there is a clear and direct sight line to and from Lincoln

Ave.

Exterior

The exterior of the subject is in average condition. Overall, tuck-pointing appears in average condition

with no apparent signs of wear. The roofs are reported to be newer, rubber, modified bitumen in average

condition. Windows are aluminum or vinyl, double hung in the apartment units and commercial grade

plate glass in the commercial unit and appear in average condition. Overall, the exterior of the building is

considered in average to good condition.

Mechanicals

The subject has three-phase electrical with 4-400 amp and 1-200 amp service lines to the building. The

residential units have individual circuit breakers with 100 ampere breaker boxes with 6-15 breakers per

unit. The commercial unit has multiple 200 amp breaker boxes. Plumbing was reported to be primarily

copper supply lines. The apartment units feature individual, gas forced air, furnaces. There are various

make, model, and capacity hot water tanks throughout but all are 30-40 gallon electric tanks.

38

Apartments

The residential units are considered slightly below average for the market with average rental quality

finishes and generally well maintained. The floors are typically hardwood throughout in average

condition. The walls and ceilings are painted drywall in average condition. The kitchens typically feature

average rental quality base and wall cabinets, laminate counters and stainless steel sinks with average

quality fixtures. The baths typically feature tile or marble floors and wainscot, built-in tubs and average

rental quality vanity with counters/sink and average quality fixtures. All of the inspected units could use

some drywall touch ups and a paint job. Several units are in need of updated cabinets and fixtures.

Several of the inspected units require floor refinishing. One unit had the fixtures removed from the

bathroom. Several of the furnaces also appeared to be nearing the end of their economic life. We will

deduct a cost to cure the residential units of $50,000 which would include parts labor and GC fees.

Commercial unit

3556 N. Southport Ave.

This unit was last built-out as a restaurant/bar. The unit size is 6,473± square feet (interior, drywall to

drywall measurements). Much of the unit’s former interior has been stripped out. A full interior re-

concepting is needed. Most of the commercial kitchen FFE has been removed. However, the black iron

venting remains in place. The floors walls and ceilings as well as demising walls will need replacement

or heavy rehab. This is typical when a new themed restaurant bar comes into a space. The mechanicals

are reported to all be in place including sufficient rooftop mounted HVAC, three-phase electric service

and all copper plumbing. We have included a TI expense of $25 p/s/f as this is typical and necessary to

attract a good quality tenant at the projected rental rate.

Item: Description Foundation: Poured concrete over a full basement

Exterior walls: Brick/block

Roof covering: Flat Built-up

Interior walls: Drywall, plaster

Floor coverings: Hardwood, ceramic tile

Ceiling finish: Drywall, exposed

Bath floor/walls: Ceramic & Vinyl tile, Drywall/Ceramic

Air conditioning: Individual Forced Air

Heating system: Individual Forced Air

Electric service: Appears 3-400 amp & 1-200 amp, ind. circuit breakers that vary.

Parking: 2 exterior

Condition of exterior: Average

Condition of interior: Average-

Plumbing-adequacy/condition: Average

Electrical-adequacy/condition: Good

Compatibility to neighborhood: Average

Overall utility: Average

Appeal and marketability: Good

Effective age: 20

Estimated remaining economic life: 45

39

Depreciation:

Physical deterioration: Some curable physical deterioration was observed.

Functional obsolescence: Functional obsolescence was attributed to the size of the first floor

commercial space and no off street parking.

External obsolescence: Limited. There is external due to residential apartments on a heavily traveled

street above commercial.

Improvements Conclusion:

The building can physically continue in use. Some minimal physical deterioration is present. However,

repairs can be made. There are no major limitations to the use of the current improvements.

40

Zoning and Land Use Restrictions

The subject’s site is zoned B3-3; Community Shopping District. The primary purpose of the B3,

Community Shopping District is to accommodate a very broad range of retail and service uses, often in

the physical form of shopping centers or larger buildings than found in the B1 and B2 districts. In

addition to accommodating development with a different physical form than found in B1 and B2 districts,

the B3 district is also intended to accommodate some types of uses that are not allowed in B1 and B2

districts. The B3 district permits residential dwelling units above the ground floor. The maximum floor

area ratio for the B3-3 is 3.0.

The following zoning map was obtained from the City of Chicago Web Site:

http://egov.cityofchicago.org/city/webportal/home.

http://egov.cityofchicago.org/city/webportal/home

41

Taxes The subject has two Property Identification Numbers. The tax history of the subject property is as

follows:

Pin # 2013 2012 2011

14-33-103-007-0000 $29,668.00 $29,422.00 $26,429.00

14-33-103-008-0000 $14,968.00 $14,769.00 $13,250.00

Total: $44,636.00 $44,191.00 $39,679.00

The following is the assessment history of the subject:

Pin # 2014 Assessed 2013 Assessed 2012 Assessed

14-33-103-007-0000 $157,699 $157,699 $157,699

14-33-103-008-0000 $82,301 $82,301 $82,301

Total: $240,000 $240,000 $240,000

The subject’s 2014 (payable 2015) total assessed value is $44,636 is flat from the 2013 assessed value. It

is reasonable to assume taxes will remain relatively stable. There is however the possibility the deed

transfer would trigger a reassessment. The indicated taxes are within the market range at $3.05 p/s/f or

12.33% of PGI.

42

Highest and Best Use

Introduction

Highest and best use is generally defined as the use which will support the highest value. The

examination of highest and best use involves four stages of analysis:

1. Physically possible: those uses which are physically possible for the site in question.

2. Legally permissible: those uses permitted by zoning, covenants, building codes and deed

restrictions.

3. Financially feasible: those uses which are expected to produce a positive return.

4. Maximally productive: of the financially feasible uses, the use which produces the highest

value.

We will undertake an examination of highest and best use as vacant, initially. If that analysis indicates

that the site should be improved, we will than set forth an examination of the ideal improvements.

Finally, the property will be examined to determine the highest and best use, as improved.

43

Highest and Best Use as Vacant

Highest and best use as vacant is undertaken even in situations where the existing improvements add

substantial value. The analysis helps in the comparable selection of in the Sales Comparison Approach,

as we should use sales with similar highest and best uses. Furthermore, it helps identify obsolescence

when the highest and best use as vacant is different from the highest and best use as improved.

The threshold question under this analysis is – should any improvement of the site be undertaken, or

should it be left vacant. This question is answered as part of the four-part analysis undertaken below.

Legally Permissible


Community Shopping District is to accommodate a very broad range of retail and service uses,

often in the physical form of shopping centers or larger buildings than found in the B1 and B2

districts. In addition to accommodating development with a different physical form than found in

B1 and B2 districts, the B3 district is also intended to accommodate some types of uses that are

not allowed in B1 and B2 districts. The B3 district permits residential dwelling units above the

ground floor. The maximum floor area ratio for the B3-3 is 3.0.

Physically Possible

It is physically possible to build a wide variety of developments and structures. It would appear

that soil and subsoil conditions would permit development to the maximum allowed by zoning.

Therefore all legally permissible structures appear to be physically possible as well.

Financially Feasible

Similarly zoned sites in the subject neighborhood are currently being developed with new, three

and four-story, mixed-use condominium buildings. There are currently multiple ongoing new

construction projects in the subject’s immediate market. Conversations with area brokers support

the fact that development is generally considered financially feasible at this time.

Maximally Productive

The only feasible use at this time as vacant is the construction of a mixed-use condominium

development built to maximum allowed density. Therefore, it is also the maximally productive.

Highest and Best Use as Vacant Conclusion

The only feasible use at this time as vacant is the construction of a mixed-use condominium development

built to maximum allowed density. Therefore, it is also the maximally productive.

44

Highest and Best Use as Improved

The highest and best use as improved analyzes the current improvements and indicates the use that will

bring the highest return. This analysis considers the present use, and also considers changes to use (i.e.

retail to office), remodeling or renovation, which is necessary to bring the property to its maximum value.

In some instances the approach can suggest demolition of the existing improvements (when land value

equals or exceeds the combined value of land and improvements).

The approach is useful in helping identify comparable properties, as comparable properties are selected

by similarity in highest and best use as improved.

We will perform a four-part analysis to identify highest and best use as improved.

Legally Permissible


Community Shopping District is to accommodate a very broad range of retail and service uses,

often in the physical form of shopping centers or larger buildings than found in the B1 and B2

districts. In addition to accommodating development with a different physical form than found in

B1 and B2 districts, the B3 district is also intended to accommodate some types of uses that are

not allowed in B1 and B2 districts. The B3 district permits residential dwelling units above the

ground floor. The maximum floor area ratio for the B3-3 is 3.0.

Physically Possible

Retention, razing and conversion are all physically possible. It appears to be physically possible

to build a wide variety of developments and structures. It would appear that soil and subsoil

conditions would permit development to the maximum allowed by zoning.

Financially Feasible

The razing of the improvements for redevelopment does not appear to be financially feasible as

the current improvements still add significant value to the site. Retention and continued use of

the site as-is is considered feasible.

Maximally Productive

The current improvements are considered to add significant value to the site. Therefore, after

analyzing all influences, it is concluded that retaining the subject as-is is considered to be

maximally productive.

Highest and Best Use as Improved Conclusion

The highest and best use of the site “as improved” is retaining the subject in its current use.

45

The Valuation Process Explained

There are three approaches that an appraiser can use when attempting to determine the value of a piece of

property. All three techniques are not appropriate for all types of property. Thus, the appraiser must

analyze the property and determine which techniques can be applied to this particular valuation

assignment. The following is a summary of the three approaches to value:

Cost approach

A current estimate of the replacement or reproduction cost of the building, plus entrepreneurial profit

is developed. This figure then is adjusted to account for loss in value due to the wear and tear and, design

and plan, and neighborhood influences. The reduced figure is then added to the

current value of the land. The total represents the value indicated by the Cost Approach.

Sales comparison approach

The subject property is compared to similar properties which have recently sold, or which are

currently offered for sale. The comparable properties are adjusted for dissimilarities with the subject, and

comparisons are reconciled into an estimate of the probable price that the subject property would bring if

offered for sale as of the date of the appraisal.

Income capitalization approach

An estimate of rental income for the subject property is developed, based on market rental rates as of the

date of appraisal. A loss for vacancies and non-payment of rent is deducted. Expenses are then

estimated, based on the subject property’s previous operating statements, expenses for comparable

properties, and available cost estimates. The expenses are subtracted from the income estimate to yield a

figure called net income. This net income figure is then processed into an estimate of value through a

capitalization rate. Capitalization rates can be derived from comparable sales, or through a variety of

other techniques.

46

Cost approach

Introduction

Definition

The Cost Approach is based on the proposition that the informed purchaser would pay no more

than the cost of procuring a similar property with the same utility as the subject property. It is

most applicable when the property is relatively new, and when the improvements are the highest

and best use of the site. Depreciation from all sources is typically small as a relative percentage

of total value in this instance. The estimation of depreciation typically is far more difficult than

estimating the other components of the Cost Approach. Thus, when depreciation from all sources

is negligible, the Cost Approach can yield an excellent indication of value.

Procedure outline for the cost approach

1. Estimate reproduction cost new for the improvements, including entrepreneurial profit.

2. Deduct accrued depreciation from reproduction cost new. These items can be segregated into

physical deterioration, functional, or external obsolescence.

3. Estimate the final value for the real estate via the Cost Approach, by summing the land value

and the depreciated cost of the improvements.

NOTE: The entire validity of the cost approach is undermined by vintage and functional/external

obsolescence.

47


Introduction

The Sales Comparison Approach estimates value by comparison of the subject property with sales, or

listings for sale, of properties with the same highest and best use. Comparisons are made between the

properties on an item-by-item basis as described in the adjustment section following the comparable sales.

Units of comparison are abstracted from the data. Adjustments are made to arrive at an indication of what

the property would have sold for had it been similar to the subject property. Adjusted units of comparison

are reconciled into an indication of value.

Several recent sales located within the subject’s market area or similar market areas and have been

analyzed and reported. The sales were selected because they were the most similar to the subject

property, both physically and in use, and detailed information was available. The individual sales are

reconciled at the end of this section. The order in which the sales appear in this report does not reflect the

significance of the sale.

Unit of Comparison

In order to properly compare the sales to the subject, a unit of comparison must be chosen. Based on

market data, the driving factor of value for this type of property is price per square foot. This is the unit

which market participants use most as a basis of comparison. Furthermore, the data included in this

report shows that this unit provides the most relevant source of comparison.

48

Comparable Sales

COMPARABLE 1

LOCATION: 2256-2258 N. Orchard St. (at Lincoln), Chicago, IL

PROPERTY DESCRIPTION: The comparable property is a vintage masonry, four-story, 15-

unit, walk-up, mixed-use building located in the Lincoln Park neighborhood on Chicago’s near

north side. Per the Cook County Assessor office, the comparable was originally constructed in

1903. There are three (3) ground floor retail/commercial units and 12 apartments (6 one-

bedroom and 6 two-bedroom) above. The buyer, Mr. Harold Hayes, reported that this was an

arms-length market rate transaction between long-time business acquaintances that was never

openly marketed. One ground floor unit is occupied by national retailer Chipotle.

DATE SOLD: December 2014

SALES PRICE: $4,600,000

PIN NUMBER: 14-33-108-020-0000

TERMS: Cash to seller

YEAR BUILT: 1903

BUILDING SIZE (Sq. Ft.) 13,300

LOT SIZE: (Sq. Ft.) 6,263

CONFIRMATION: MLS, Tax Records, CCRD, Broker

PARKING: None

PRICE PER Sq. Ft: $345.86

49

COMPARABLE 2

LOCATION: 411 W. Belden/2246 N. Clark St., Chicago

PROPERTY DESCRIPTION: The comparable property is a vintage masonry, three-

story, 5-unit, walk-up, mixed-use building located in the Lincoln Park Neighborhood

on Chicago’s north side. Per the Cook County Assessor office, the comparable was

originally constructed in 1891. There is one ground floor retail/commercial unit (built-

out and occupied as 7-11 convenience store) and 4 apartment units (2 3-bedroom, 1 2-

bedroom and 1 1-bedroom). This property is in average condition. Inspected and

measured by Maloney Appraisal. Reported income of $150,696 was well below

market. Projected to market at $175,344 for 09/14 appraisal.


SALES PRICE: $2,025,000

PIN NUMBER: 14-33-112-021-0000


YEAR BUILT: 1891

BUILDING SIZE (Sq. Ft.) 7,250


CONFIRMATION: Co-Star Comps, Tax Records, Seller, CCRD, Plat,

buyer, contract

PARKING: None

PRICE PER Sq. Ft: $279.31

G.I.M. 11.55 (on market PGI of $175,344)

50

COMPARABLE 3

LOCATION: 2448 N. Lincoln Avenue, Chicago IL

PROPERTY DESCRIPTION: The comparable is a vintage, two-story, 11-unit, mixed-

use building located on Lincoln Avenue in the Lincoln Park community. There are six

commercial storefronts. There are five residential units on the second floor. The

comparable was originally listed 05/19/2014 at $2,975,000 and went under contract after

171 days. Tax records state the size of the building is 6,300 square feet. This clearly

appears to be too low as the building is two stories and covers most of the lot. The Cook

County Assessor’s records indicate a size of 15,462 square feet which appears to overstate

the size. The gross building area was obtained using exterior measurements and is

estimated at 12,108± square feet. MLS shows sale price of $2,500,000 but Tax records

and CoStar and CCRD all show $2,567,500.


SALE PRICE: $2,567,500

PIN NUMBER: 14-29-427-045-0000


YEAR BUILT: 1925

GROSS BUILDING AREA (Sq. Ft.) 12,108


PARKING: 4 garage spaces

CONFIRMATION: Co-Star Comps, Tax Records, Seller, CCRD,

Plat, buyer, contract

PRICE PER SQUARE FOOT: $212.05

GROSS INCOME MULTIPLIER: 11.41

51

Comparable 4

LOCATION: 900 W. Armitage Ave. Chicago, IL

PROPERTY DESCRIPTION: The comparable is a vintage mixed-use walk-up building

located in the Lincoln Park neighborhood. The building has 4 units that consist of a 1st floor

commercial space and 3 apartments. The unit mix consists of (3) 2-bedroom, 2 bath units. The

first floor commercial is occupied by a Fifth Third Bank and the apartments have average rental

quality finishes. The units are individually heated at the tenant’s expense. Inspected and

measured by Maloney Appraisal

DATE SOLD: March 2014

PROJECTED SALES PRICE: $2,525,000

PIN NUMBER: 14-32-226-045-0000


YEAR BUILT: 1895

UNIT SIZE (Sq. Ft.) 6,842


PARKING: None

GIM: 12.01

CONFIRMATION: MLS, Co-Star Comps, Office Appraisal, Tax Records


52

Comparable 5

LOCATION: 2300 N. Clark Street, Chicago, IL

PROPERTY DESCRIPTION: The comparable property is a 38-unit, walk-up, mixed-

use building located in the Lincoln Park neighborhood on Chicago’s north side. The

property was originally built as two individual mixed-use buildings and now both

buildings are under the same ownership and function as one. The property as a whole

contains four (4) commercial units and thirty-four (34) residential apartments. The

building’s unit mix consists of nine (9) one-bedroom, one-bath apartment units, twenty

(20) two-bedroom, one-bath simplex apartment units, two (2) three-bedroom, one-bath

apartment units, and three (3) four-bedroom, one-bath apartment units. The residential

component of the property is in average condition with limited recent updates. The units

currently have older average rental quality kitchen and baths. All the apartments have

individual gas furnaces and central air condition.

DATE SOLD: January 2014

SALE PRICE: $10,400,000

PIN NUMBER: 14-33-105-032 (033)-0000


YEAR BUILT: 1884

GROSS BUILDING AREA (Sq. Ft.) 39,141


PARKING: None

CONFIRMATION: MLS, Tax records, CCRD, Office files, Broker


GROSS INCOME MULTIPLIER: 11.80

53

Comparable location map

54

Adjustments

There are ten elements of comparison to consider in the sales comparison approach:

1. Real property rights conveyed

2. Financing terms

3. Condition of sale

4. Expenditures made immediately after sale

5. Market conditions (time)

6. Location

7. Physical characteristics

8. Economic characteristics

9. Use (zoning)

10. Non-realty components of value

Property Rights Conveyed: Among the market data assembled for this analysis, the properties were

reported to be owner occupied, vacant or no significant leaseholds were apparent. Thus, no adjustment for

property rights is necessary.

Financing Terms: When based on non-market terms the financing utilized in acquisition of real property

can affect the eventual sale price. All comparable property sales involved a cash or combination of cash

down payment and market financing. No adjustments for financing terms are required.

Conditions of Sale: Extraneous motivations to act on the part of either the buyer or seller can affect the

sale price of a property. Each of the comparable sales used in the analysis are reported or believed to be

an arm’s length transaction between willing and knowledgeable participants each of which are acting

without duress. Therefore, no adjustment for conditions of sale is needed.

Expenditures made immediately after sale: Expenditures made immediately after sale could include the

cost to achieve stabilize tenancy.

Market Conditions: Relative changes in supply and demand for real property between specified dates of

sale will affect the prices which will be paid in a competitive and open market. All comparable sales

closed within the past 18 months. Closed sales over one year old will require a positive time adjustment

as market conditions have improved since this time.

Location: Location is the time-distance relationship between a property and all possible destinations of

people coming to or going from that site. In addition, the nature of surrounding land use will affect the

marketability of one property as compared to another. The market’s adjustment for location is manifest in

the difference in overall land values or rental rates associated with one area over another. Primary factors

taken into consideration included vehicular and pedestrian traffic patterns, visibility and exposure,

surrounding improvements, property conformity, trends in the immediate neighborhood, and surrounding

income demographics.

55

Physical traits:

The physical condition and functional utility of a property will have a direct impact on the sale price in

the competitive, open market. The primary factors considered for adjustment include age, modernization

and overall condition, size, land to building ratio, parking, and additional space not included in square

footage.

Condition / Build-Out:

Superior or inferior conditions/build-out would require adjustments

Size:

There is sometimes an inverse size relationship between size and price per square foot where

smaller buildings typically trade at a higher price per square foot than do smaller buildings.

Parking:

Superior or inferior on-site parking requires upwards or downwards adjustments.

Economic characteristics:

No adjustments for economic characteristics needed.

Use (zoning):

The comparable properties chosen have similar use restrictions and therefore no adjustment is warranted.

Non-realty components of value:

There are no non-realty components to account for.

.

56

Adjustment Grid

Summary of Data

Comparable # 1 2 3 4 5

Address Subject 2256-2258 N.

Orchard St

411 W.

Belden/

2246 N.

Clark St.

2448 N.

Lincoln

Ave.

900 W.

Armitage

Ave.

2300 N.

Clark St.

Date Closed Pending Dec-14 Dec-14 Dec-14 Mar-14 Jan-14

Sale Price $3,700,000 $4,600,000 $2,025,000 $2,567,500 $2,525,000 $10,400,000

Building Size 14,622 13,300 7,250 12,108 6,842 39,141

Units of Comp.

Market Cond. Similar Similar Similar Inferior Inferior

Location Similar Similar Similar Superior Similar

Condition Superior Superior Inferior Superior Superior

Size Similar Superior Similar Superior Inferior

Unit mix (% of Commercial) Similar Similar Inferior Similar Similar

Gross Income Multiplier 11.55 11.41 12.01 11.80

$ per sq. ft. $345.86 $279.31 $212.05 $369.04 $265.71

Overall Comp. Superior Inferior Inferior Superior Inferior

The unadjusted ranges are:

Low High Weighted Average

$ per sq. ft. $212.05 $369.04 $281.25

57

Reconciliation and Value Conclusion A degree of subjectivity is inherent in the preceding quantitative adjustments, as insufficient market data

is available to perform paired sales analysis. The quantitative adjustments are included to illustrate our

thought process in comparing the subject and comparable sales. Due to the subjectivity of the analysis,

these adjustments are not to be considered an absolute measure of variance.

The amount of data is judged sufficient to provide for a reasonable analysis of the market. The sales are

all relevant, comparable and competitive to the subject. The purpose of the comparable reconciliation is

to discuss the strengths and weakness of the comparable properties and the adjustments to reconcile a

value for the unit of comparison that best fits the subject.

A final comparable review was made. The individual sales indicated an unadjusted range of $212.05 to $369.04 in price per square foot with a weighted average of $281.25 per square foot. Strong

consideration was given to each comparable. All of the sales would are considered to be in strong

commercial and residential locations. The subject is also in one of the premiere commercial districts with

a strong residential location. Comparable 1’s superior quality/condition points to a lower price per square

foot for the subject property. Comparable 2’s inferior quality/condition outweighs the superior inverse

size relationship (smaller properties typically trade at a higher price per square foot than do larger

properties) and points to a higher price per square foot for the subject. Comparable 3’s inferior

condition/quality and inferior unit mix (50% of space is commercial) point to a higher price per square

foot for the subject. Comparable 4’s inferior market conditions at the date of sale is outweighed by the

superior location, superior quality condition and superior inverse size relationship (smaller properties

typically trade at a higher price per square foot than do larger properties) and inferior inverse size

relationship (smaller properties typically trade at a higher price per square foot than do larger properties)

points to a lower price per square foot for the subject. Comparable 5’s inferior market conditions at the

date of outweigh the superior condition/quality and point to a higher price per square foot for the subject.

We have selected a price per square foot for the subject of $300.00 and a GIM of 12.0.

The sales data shows that most sales are rounded to the nearest ten thousand. The “as-stabilized” value

conclusion is as follows:

14,622 square feet @ $300.00 = $4,386,600

Rounded = $4,390,000

GIM of 12.0 x Gross Income of $362,128 = $4,345,536

Rounded = $4,350,000

58

The preceding value indication is an “As-Stabilized” value. To arrive at an “As-Is Value we must deduct

the cost to cure the physical deficiencies in the apartment units, a TI expense for the commercial space, a

rental loss, lease up fees (rental commissions) and an expected entrepreneurial profit as follows:

As-Stabilized Value $4,350,000

Cost to Cure Apartments (includes GC fee) $50,000

Residential Rental loss 4 months at $11,700/mo.) $46,800

Commercial TI Cost of $25 p/s/f $161,825

Commercial Rental Loss (1-year base & reimbursements $221,728

Lease Commissions (2-months base $) $32,366

Entrepreneurial Profit $42,365

Total Cost to Stabilize $555,084

As-Is Value: $3,794,916

Rounded: $3,800,000

Our opinion of the As-Is market value via the

sales approach as of April 9, 2015 is:

Three Million Eight Hundred Thousand Dollars

($3,800,000)

59

Income approach

Introduction

The income approach to value is an appraisal process in which the anticipated benefits of ownership

(dollar income or amenities) are converted into an estimate of value. The principal of anticipation is

fundamental to the approach. Anticipated net income or reversions are discounted into a present worth

figure through the process of capitalization. That is, the anticipated net operating income from the

property is converted into an amount indicative of the property’s worth. The reliability of this approach to

value is dependent on several factors, such as the reliability of the economic rental estimate, the estimate

of the applicable expenses, and the method and technique of capitalization utilized to convert the net

income of the property into an estimate of value.

There are three basic steps to the Income Approach. The first is the estimate of the applicable rent, or the

gross income potential of the property. The second is the estimate of the applicable expenses for the type

of improvement being appraised, and are dependent upon the type of lease typical for this particular class

of property. The third and final step is the selection of the method and technique of capitalization plus the

estimate of the proper capitalization rate that is utilized to convert the net operating income into an

estimate of value.

1. Analysis of rental market & estimate of market rent for the subject

2. Deduction of expenses

3. Capitalization of net income.

This approach is most applicable to properties that are purchased primarily for the income stream they can

provide. The following discussion examines each of these steps in detail and concludes with an opinion of

value via the income approach.

60

Analysis of Market Rent

A survey of rental rates in competing properties provides the best data to determine the fair market rent.

The comparable rentals consist of competing properties. The proximity and similarity provides for a

reliable analysis of the market.

Neighborhood 1

st floor Commercial Comparable properties

Address Type Sq.

Ft.

Monthly

Rent

Annual

Rent/Sq.

Ft.

Type Of Lease

2300 N. Lincoln Ave. Restaurant 1,239 $6,700 $64.89 Gross+50% of Water

2101935 N. Sedgewick Bar 3,726 $11,147 $35.90 NNN

3158 N. Clark St. Starbucks 1,760 $7,627 $52.00 NNN

2417 N. Clybourn Bar/Rest 1800 $5,760 $38.40 NNN

2464 N. Lincoln Ave Restaurant 3000 $7,500 $30.00 Pro-rata taxes

338 W. Armitage Restaurant 1,186 $4,000 $40.47 Gross+ Water Expense

945 W. Wrightwood Restaurant 2,876 $6,263 $26.13 NNN

2646 N. Lincoln Ave Retail 3,000 $10,000 $40.00 Asking Mod. Gross

935 W. Webster Ave State Bar 8,690 $20,375 $28.14 NNN

2301 N. Clark St #108 Jewelry 691 $1,728 $30.01 Net

2727 N. Clark St. Retail 2,200 $5,500 $30.00 Mod. Gross

1936 N. Clark St. Retail 1,298 $4,002 $37.00 Asking Mod. Gross

1852 N. Clark St. Retail 2,500 $7,083 $34.00 Asking Mod. Gross

2316 N. Clark St Retail 1,275 $3,376 $31.77 Gross

Above are comparable commercial units we feel are competitive with the subject. The data above is for

leased spaces as well as asking rents. Many of the comparables were appraised by Maloney Appraisal.

Brokers indicate the current asking prices in the immediate market are above $25.00 per square foot on a

NNN basis. In addition to searching our office file, the MLS and various broker websites, we conducted

interviews with local brokers and building owners/managers. Our comparable indicate a range of $26.13

to $64.89 per square foot. The subject is currently vacant. The subject has a good location with a big

upside considering the new development slated for the former Children’s Memorial site. The location has

frontage to two streets and good exposure to Lincoln Ave. The negatives are that the space is larger than

typical at 6,473 square feet. Although our projections are based on the property owner contributing a $25

per square foot TI, the space will still need a significant amount of investment to make it customer ready.

We believe the subject can compete well at the lower end of the range due primarily to the larger than

typical floor plate. 935 W. Webster is a large restaurant bar with a floor plate of over 8,000 square feet

and was appraised by Maloney Appraisal. This property is owned by a savvy investor who is very

familiar with the Lincoln Park Market. This space is leased at $28.14 and was leased in an inferior

market. We have projected the subject’s commercial rent to $30.00 per square foot on a NNN basis

61

Apartment Comparables

Address

Rm

Ct.

Sq.

Ft. Rent

$/Sq.

Ft. Status

418 W. Belden #1E 4-2-2 820 $1,660 $2.02 Rntd

418 W. Belden #2E 4-2-1 820 $1,860 $2.27 Rntd

418 W. Belden #1W 5-2-1 814 $1,660 $2.04 Rntd

418 W. Belden #2W 5-2-1 814 $1,860 $2.29 Rntd

2302 N. Clark St 2E 3-1-1 572 $1,320 $2.31 Rntd

2302 N. Clark St 3E 3-1-1 572 $1,360 $2.38 Rntd

2302 N. Clark St 2W 4-1-1 606 $1,425 $2.35 Rntd

2302 N. Clark St 2W 4-1-1 606 $1,350 $2.23 Rntd

2302 N. Clark St 2E 5-2-1 918 $1,820 $1.98 Rntd

2302 N. Clark St 2E 5-2-1 918 $1,860 $2.03 Rntd

2300 N. Lincoln Ave 2A 5-2-1 1000 $1,800 $1.80 Rntd





515 W. Wrightwood Ave 209 2-0-1 405 $850 $2.10 Rntd

510 W. Fullerton Pkwy 503 2-0-1 425 $900 $2.12 Rntd

510 W. Fullerton Pkwy 303 2-0-1 425 $905 $2.13 Rntd

Rental reconciliation & estimate of the subject’s market rent

We have reviewed the comparable rental data and analyzed them in regards to the subject. The

comparable properties selected represent a good range of data to provide an adequate estimate of

projected rent. The locations and condition are similar to the subject.

All of the comparable apartment rentals above are located on arterial streets and would be in direct

competition with the subject’s units. The indicated range in price per square foot is $1.80 to $2.38 per

square foot on a monthly basis. At $1.84 to $2.35 p/s/f the subject’s current rents are at the heart of the

range. The subject units are considered to be leased at market rates.

62

Final Rental Estimate

The following table shows the income as provided by the property owner as well as our projected rents.

Unit Type Sq Ft

Contract

Rent/

mo.

Contract

Rent/yr.

Projected

Rent /

Mo.

Projected

Rent/yr. PP sq. ft.

#1 Restaurant/Bar 6,473 Vacant $16,183 $194,196 $30.00

201 3-1-1 540 Vacant $1,050 $12,600 $1.94

202 5-2-1 924 Vacant $1,500 $18,000 $1.84

203 3-1-1 613 Vacant $1,200 $14,400 $1.96

204 3-1-1 540 $1,000 $12,000 $1,050 $12,600 $1.94

205 2-0-1 307 Vacant $650 $7,800 $2.12

301 3-1-1 540 $1,000 $12,000 $1,200 $14,400 $2.22

302 5-2-1 924 Vacant $1,800 $21,600 $1.95

303 3-1-1 613 $1,000 $12,000 $1,300 $15,600 $2.12

304 3-1-1 540 $800 $9,600 $1,200 $14,400 $2.22

305 2-0-1 307 $650 $7,800 $750 $9,000 $2.35

53% Tax Reimbursement from #1 $23,657 53% Reimb.

53% Insurance Reimbursement from #1 $3,875 53% Reimb.

Rentable sq. ft. 12,321

Potential Gross Income (PGI) $4,450 $53,400 $362,128

Deduction of Expenses The next step is to deduct expenses to arrive at the net operating income for the property. The actual

expense history when available is reconciled with typical market level expenses to provide an accurate

estimate of the total expenses. Purchasers typically round expenses when projecting an income statement.

Estimates to the nearest dollar are considered beyond reasonable accuracy. Therefore rounding expenses

in considered an acceptable method and indicative of how the market estimates expenses.

Expense Reimbursements

Lease terms for the subject’s commercial unit type is typically triple net and includes expense re-

imbursements. The subject’s commercial unit is 53% of the total rentable area. Therefore, we will

project the reimbursements at53% as follows:

Reimbursement Calculation:

Item Total Pro-rata Tenant Share

Tax $44,636 53% $23,657

Insurance $7,311 53% $ 3,875

63

Vacancy and Collection Loss

We have estimated the vacancy and collection rate based on comparable properties, field observations,

published reports and broker opinions.

The commercial units along this section of Lincoln Park have a very good commercial location. Very few

retail vacancies were observed in the area. Additionally, the strong location of the subject would increase

the number of potential renters and therefore lower the amount of time it will take to achieve occupancy if

the units were vacated. The residential element is very strong as well. We have estimated the blended

residential and retail vacancy and collection rate at 5.0%.

Taxes The subject has two Property Identification Numbers. The tax history of the subject property is as

follows:

Pin # 2013 2012 2011

14-33-103-007-0000 $29,668.00 $29,422.00 $26,429.00

14-33-103-008-0000 $14,968.00 $14,769.00 $13,250.00

Total: $44,636.00 $44,191.00 $39,679.00

The following is the assessment history of the subject:

Pin # 2014 Assessed 2013 Assessed 2012 Assessed

14-33-103-007-0000 $157,699 $157,699 $157,699

14-33-103-008-0000 $82,301 $82,301 $82,301

Total: $240,000 $240,000 $240,000

The subject’s 2014 (payable 2015) total assessed value is $44,636 is flat from the 2013 assessed value.

The indicated taxes are within the market range at $3.05 p/s/f or 12.33% of PGI.

Insurance

The market rate for insurance has historically been between $0.40 and $0.65 per square foot of gross

building area for a mixed-use building similar to the subject. We have projected the insurance expense

stable at $0.50 per square foot as follows:

Square ft. Multiplied by Expense per sq.ft. estimate Equals Expense

14,622 X $0.50 = $7,311

Management

A review of the market indicates a management fee equal to 5% of the effect income to be typical of

comparable properties.

Utilities

Fuel/Heat: The subject units are individually heated at the tenant’s expense. We have included

$.08 per square foot for cooking gas, common area and vacancies.

Electric: The subject’s units are individually metered at the tenant’s expense. The common area

electric for the building is projected at $.08 per square foot.

64

Water: We will project the water/sewer at $200 per upper floor unit or $2,000 plus $2,500 for

commercial. This is typical for similar units in the area.

Maintenance & Repairs

We will project $200 per upper floor unit or $2,000.

Supplies

We will project $50 per upper floor unit or $500.

Janitor

We have projected $2.000 annually for this expense. This would be $200 per upper floor unit.

Advertising / Leasing

Real estate agents typically lease commercial units. The length of the leases is typically 5 years with one

or two option periods. Tenants on average remain in a space for 10 years. Therefore the total gross space

will need to be leased every 10 years. Rental commissions in the area are typically equal to 2 month’s

rent. This expense will be 2 month’s rent spread out over 10 years or:

Base Monthly Rent Multiplied by 2 Divided by 10 Equals Expense

$16,183 X 2 / 10 = $3,237

Professional & Legal

A professional fee for legal and accounting of $1,000 has been included.

Replacement Reserves

The reserves for replacement are summarized as follows:

Item No. of

Items

Cost/Item Total Cost Divided by

economic life

Reserve

Amount

(rounded)

Exterior/Tuck-point 1 $10,000.00 $10,000.00 20 $500.00

HVAC 10 $5,000.00 $50,000.00 20 $2,500.00

Roof 7,040 $3.50 $24,640.00 20 $1,232.00

Appliance 10 $2,000.00 $20,000.00 15 $1,333.33

Total $5,565.33

65

The following is a summary of the projected income/expense analysis for the subject:

Income & Expenses

Maloney Projected

Source Size $/ Mo. $ / Yr.

Total Gross Income 12,321 $0 $362,128

Total $0 $362,128

Vac. & Coll. Loss: 5% $18,106

Effective Gross Income $344,022

Fixed Expenses Comment

Taxes $44,636 $3.05 p/s/f or 12.5% PGI

Insurance $7,311 $.50 p/s/f

Total Fixed Expenses $51,947 $3.55

Operating Expenses

Management $17,201 5% EGI

Common Electric $1,170 $.08/sf

Gas $1,170 $.08/sf

Water/Sewer $4,500 $200/apt unit +$2500 com

Maintenance/Repairs $2,000 $200/ upper fl. unit

Int/Ext. Decorating/clean/ext. $2,000 $200/ upper fl. unit

Scavenger $1,500 $29/wk for dumpster

Supplies $500 $50/ upper fl. unit

Janitor $2,000 $200/ upper fl. Unit

Advertising/Leasing $3,237 2 months Base Comm. rent/10 yr.

Legal & Professional Fees $1,000 Annual

Reserves/Replacements $5,565 Annual

Total Operating Expenses $41,843 $2.86

Total Fixed & Operating Exp. $93,790 $6.41

Net Expense Percentage 31%

Net Annual Income $250,232

NOTE: The subject property is not currently nor has it been stabilized in more than one year. No Income

and expense statement was provided as the current owner cited the extended vacancies (requested by

formerly contracted buyer as well as currently contracted buyer).

Capitalization of the income There are different methods available to determine a capitalization rate. The extraction and band of

investments methods are two such methods and are the best indicators for the subject property. Both

methods are illustrated below.

66

Extraction Method

One method of estimating capitalization rates is to find comparable properties and divide the comparables

net operating income by its selling price. As it is frequently impossible to get vacancy, collection and

expense figures concerning comparables, these items can be estimated by applying a percentage derived

from the subject property. The logic of this theory is that similar properties can be expected to have

similar vacancy, collection and expense records.

The first step is to determine whether any of the comparable sales have gross income figures available.

The gross income is then reduced by the market expense percentage to yield an estimated net operating

income (NOI). Expense percentages may vary due to taxes, location, vacancy/collection loss factor,

modernization, condition, utilities included in the rents, size of building, etc. Thus, a variation in this

percentage is deemed appropriate. This NOI figure is then divided by the selling price.

Most of our sales comparables had income data available and we used these as cap rate comps. The

comps are as follows:

Summary of Data

Comparable # 1 2 3 4 5

Address 2256-2258

N. Orchard

St

411 W.

Belden/

2245 N.

Clark St.

2448 N.

Lincoln

Ave.

900 W.

Armitage

Ave.

2300 N.

Clark St.

Date Closed Dec-14 Dec-14 Dec-14 Mar-14 Jan-14

Sale Price $4,600,000 $2,025,000 $2,567,500 $2,525,000 $10,400,000

Building Size 13,300 7,250 12,108 6,842 39,141

Projected Gross Income Unk. $175,344 $225,018 $210,241 $881,095

Net Income $230,000 $123,589 $157,513 $150,983 $616,767

Net Expense % 28% 30%

Cap Rate 5.00% 6.10% 6.13% 5.98% 5.93%

The comparables show a range of 5.0% to 6.13%. An overall capitalization rate of 5.75% indicated for

the subject. CAP rates on all property types are trending down. The Band of Investment Method will be

considered as well before selection of a final cap rate.

Band of Investment Method The Band of Investment Method considers an investor’s need for profit, as well as the need to service

debt on the property. An amount of leverage is assumed, as well as a rate of profit acceptable to

purchasers. A cap rate is then arrived at which will convert net operating income into a value estimate.

The value estimate is set at the minimum level that would allow debt service (at market levels) and still

leave the investor with an acceptable profit or loss.

The first step is to determine what the acceptable profit or loss after debt service is in our market. This

figure is called the equity return. Local brokers and managing agents indicate that investors in properties

similar to the subject typically anticipate a 2%-5% return on their initial investment in today’s market

with the greatest return being anticipated in the appreciation of the property. From the comparable sales,

it is clearly evident that investors in today’s market anticipate the greatest return on their investment at the

end of the holding period. Thus, an overall equity rate of 3% was selected.

67

The mortgage component of Band of Investment is based on market financing prevailing at the date of

valuation. The neighborhood section of our report indicates that current mortgage rates are at 4.75% to

6.50%, with typical loan to value ratios at 70%, amortized over 25 years, and three to five year balloons

being typical. We selected an interest rate of 5.0% interest (monthly payments) for 25 years. This yields

an annualized mortgage constant of .0702

The following table applies Band of Investment analysis to arrive at an overall rate:

Mortgage component 70% x 0.0702 = 0.0491

Equity component 30% x 0.03 = 0.0090

Indicated Capitalization Rate = 0.058

The capitalization rate suggested by this approach is 5.8%.

Final Cap Rate Selection:

The overall capitalization rate extracted directly from the market is typically given more weight than the

Band of Investment Cap Rate. Direct market selection reflects the habits of actual purchasers. Thus, the

cap rate of 5.75% is used in the final analysis.

Mixed-use buildings in the neighborhood typically see rates between 5.25% and 7.0%. The subject’s

main positive factor is the location in a premier commercial district in Lincoln Park with the ability to

attract long-term, dependable tenants. The location has the ability to attract credit tenants in the first floor

unit. Heavy vehicular and pedestrian traffic, as well as proximity to above-average levels of disposable

income, are all positive factors. The subject has approximately 61% of the total income stream from the

commercial unit. Typically, the commercial income stream is seen as having lower quality and durability

as compared to residential tenants. However, the subject’s location has huge demand and risk is

significantly diminished by the ease to which the tenants can be replaced at comparable rent levels.

The subject property is in a very high quality, high exposure location in a premier neighborhood with

huge pedestrian traffic counts. We have selected a final cap rate of 5.75% which reflects the fact that

both the commercial and residential income is durable. The premier location allows the subject to easily

replace the income stream of the commercial tenant should the space become available for lease. The rent

for the commercial space is at the middle end of the reasonable range and this lowers overall risk. The cap

rate must reflect this fact.

Net Income $250,232

Divided by Capitalization Rate 5.75%

Equals $4,351,861

Rounded (As-Stabilized) $4,350,000

The capitalization rates currently are at very low historical levels for virtually all property types

throughout the City of Chicago due in large part to the continued low interest rates. If interest rates rise

significantly, capitalization rates can also be expected to move upward.

68

The preceding value indication is an “As-Stabilized” value. To arrive at an “As-Is Value we must deduct

the cost to cure the physical deficiencies in the apartment units, a TI expense for the commercial space, a

rental loss, lease up fees (rental commissions) and an expected entrepreneurial profit as follows:

As-Stabilized Value $4,350,000

Cost to Cure Apartments (includes GC fee) $50,000

Residential Rental loss 4 months at $11,700/mo.) $46,800

Commercial TI Cost of $25 p/s/f $161,825

Commercial Rental Loss (1-year base & reimbursements $221,728

Lease Commissions (2-months base $) $32,366

Entrepreneurial Profit $42,365

Total Cost to Stabilize $555,084

As-Is Value: $3,794,916

Rounded: $3,800,000

Thus our “As-Is” Market value opinion via the direct capitalization method

Thus our opinion of Fee Simple value “As-Is” indicated by

the income approach as of April 9, 2015 is:


($3,800,000)

69

Reconciliation and final value opinion

Introduction

Reconciliation is the process of analyzing the alternative conclusions reached under the Cost, Income and

Sales Comparison Approaches, and arriving at a final value conclusion. The approaches were not

averaged. Each approach has strengths and weaknesses. The following discussion will point out factors

that strengthen or weaken a particular approach and set forth the final weight that this approach was

given. A single figure will then be presented as the final value estimate.

The following values were indicated by the applicable approaches to value:

Sales comparison approach $3,800,000

Income capitalization approach $3,800,000

Cost approach

Due to the vintage and under-improved nature of the subject property this approach to value is not

applicable to the subject property and therefore was not completed.

NOTE: Due to the vintage and functional obsolete nature of the subject property this approach to value

is not applicable to the subject property and therefore was not completed.


The comparable sales data is judged to be good. Five comparables are used in our analysis. The

comparables are considered competitive and comparable. Some of the adjustments are quantitative, some

are qualitative. Overall a degree of judgment is necessary. The amount and quality of the data provides

an adequate level of reliability. The sales approach would be a primary method employed by a potential

purchaser of this type of property. Therefore, this approach was used as a check against the reliability of

the income approach.

Income capitalization approach

The property is an income property. Income potential is a factor for purchasers of this type of property.

Most market participants will place significant emphasis on this approach. The amount and quality of the

data used in this approach are considered good and reliable. Therefore the value indicated by this

approach is considered good and reliable. Therefore, this approach has been given primary emphasis in

the final reconciliation.

Final value conclusion

The income approach is the most reliable indicator of value. Due to the vintage and functional obsolete

nature of the subject property this approach is not an accurate indicator of value for the subject property

and therefore was not completed. The sales comparison approach is a good indicator of value but given

secondary emphasis and used as a check of the reliability of the income approach. Therefore, the final

opinion of value places strongest weight on the Income approach.

Thus our final opinion of the “As-Is” market value of the

Fee Simple interest of the subject property as of April 9, 2015 is:


($3,800,000)

70

Addenda

72

Kevin P. Maloney

Qualifications of the Appraiser

- Graduate of Holy Cross College, Worcester, MA, Cum Laude

- IL State Certified General Real Estate Appraiser, #553-000295, exp. 09/15

- Law degree from the University of Illinois at Champaign-Urbana, 1985, and a member of

the Illinois Bar

- Practicing lawyer for a major Chicago firm, 1985-1987

- President of Maloney Appraisal Company since 1987 and chief review appraiser

- Successfully completed the following course exams:

- 1 A1 Real Estate Appraisal Principles

- 1A2 Basic Valuation Procedures

- 8-2 Residential Valuation

- IBA Capitalization Theory and Techniques, Part B

- Standards of Professional Practice

- 1BB Capitalization Theory and Techniques, Part B

- 2-1 Case Studies in Real Estate Valuation

- 2-2 Report Writing and Valuation Analysis

- Standards of Professional Practice Part A

- Standards of Professional Practice Part B

- Seminars Include:

- New Uniform Residential Appraisal Report

- Understanding Limited Appraisals and Reporting Options

- CAR Fair Housing Aspects of Discrimination

- Environmental Appraisal (Chicago Bar Association)

- Subdivision Analysis

- Appraising the tough ones

- Evaluating Commercial Construction

- Appraising Distressed Commercial Real Estate

- Analyzing Tenant Credit Risk and Commercial Lease Analysis

- The State of the Real Estate Market

- National USPAP Update Course

- Apartment Appraisal Concepts and Applications

Successfully completed all continuing education courses

Types of property appraised include residential, apartment complexes, commercial,

vacant land, industrial and special purpose throughout the Chicago metropolitan area.

Assignments include feasibility studies, new construction, renovation projects,

conversion projects, highest and best use analysis, and employee relocation appraisals.

Duties have included narrative reports and the use of Fannie Mae/Freddie Mac forms for

single family residential, PUD/condos and all the various income forms.

74

Peter A. Boden

Qualifications of the Appraiser

Eastern Michigan University, Ypsilanti, Michigan B.A. 1991

State of Illinois Certified General Real Estate Appraiser

License # 553.001769 license exp. 09/30/2015

Successfully completed the following course exams:

1. APP I-Standards of Professional Appraisal Practice

2. APP II-Fundamentals of Real Estate Practice

3. APP III- Single Family Residential Appraisal

4. Appraisal Institute 310- Basic Income Capitalization

5. Appraisal Institute ILVII - Non-Residential Report Writing

6. Appraisal Institute IL530 – Advanced Sales Comparison & Cost Approaches

7. Appraisal Institute IL510 – Advanced Income Capitalization

8. Appraisal Institute: USPAP

9. Appraisal Institute Continuing Education: Conditions of the Chicagoland Real

Estate Market.

Types of property appraised:

1. Apartment Buildings

2. Mixed-use Buildings

3. Commercial Buildings

4. Industrial Buildings

5. Land Sales

Duties include both 71B form reports and narrative reports

76

1000 N. Rush Street, Chicago, IL 60611

Tel.: (312) 440-4000 Fax: (312) 440-1552

Appraisal Engagement Letter

Date: 3-31-15

To: Maloney Appraisal

Attn: Jose

Requested by: Tracey Armstrong

This Appraisal Engagement Letter herby authorizes and confirms your assignment to appraise the

below referenced real property for Oak Bank (herein referred to as the “Bank”).

Owner: Donald J. Gianone

Property Address: 656-58 W. Belden, Chicago, IL 60614

Property Type: Commercial building-Pins#14-33-103-007 & 008

Contact/Access Arrangements: Sam Sanchez – 312-446-1707

Appraisal Type: ____ Self Contained _X__ Summary ___ Restricted Use

Report format: ___ Narrative Form ____ Form 71 A ___ Form 71B

Value Request: ___ As Is ___ Prospective

Delivery Date: 4/21

Appraisal Fee: $2000 Sales and income summary narrative report.

• Your appraisal report must be submitted in accordance with the current version and standards

of the Uniform Standards of Professional Appraisal Practice (USPAP).

• You are required to sign the appraisal report as the primary appraiser and personally inspect the

subject and each of the comparable properties used in the report. In addition, all other persons

assisting in the collection of data and/or analysis of the appraisal are to be identified. Any other

person signing the report must be licensed or certified by the State of Illinois as appropriate for

the property being appraised.

• The Bank reserves the right to convey a copy of the appraisal to a third party. You may be

requested to discuss the analysis in the appraisal report with us.

77

The following are included to assist you in making this report

o Project Description

o Plans and Specifications for Improvements (not optional for proposed)

o Operating Statements and Projections

o Rent Roll and/or Leases

o Cost Estimates

Confidential Information Acknowledgement and Agreement

• All information received by you from the Bank or from and other source on the Bank’s behalf is

“Confidential Information” and is to be maintained in confidence and not disclosed, used or

duplicated, except as described in this paragraph. Confidential Information includes, without

limitation, all lists of customers, former customers, applications and prospective customers and

all information relating to and identified with such persons; business volumes or usage; financial

information; pricing information; software , software documentation; and information

concerning business plans or business strategy.

• You may use Confidential Information only in connection with performance under this Appraisal

Engagement Letter, and you may not copy Confidential Information or disclose Confidential

Information to any third person, including your employees who do not need the confidential

information in order to perform under this Appraisal Engagement Letter. Confidential

Information is to be returned to the Bank or property destroyed upon Bank request once the

services contemplated by this Appraisal Engagement Letter have been completed.

Miscellaneous Reporting Requirements

• Conform to the Uniform Standards of Professional Appraisal Practice (USPAP) as revised and

adopted by the Appraisal Standards Board of the Appraisal Foundation current version. The

appraiser is expected to know these requirements as they apply to the property being

appraised.

• Appraisal assignment was not based on a requested minimum valuation a specific approval of a

loan, and

• Appraiser’s state registration/certification has not been revoked, suspended, cancelled or

Restricted

78

• Include a copy of the flood map if located in a flood hazard area. Indicate the community panel

number and the effective date of the flood.

• Please include your state certification number and expiration date under your signature.

• At minimum, photographs of the sales used are to be included; if a photograph is not available

or if the photo is not an original (i.e. taken by Comps, MLS, etc.), this must be noted.

Additional Remarks:

__________________________________________________________________

________________________________________________________________

_________________________________________________________________

_ _____________________________ Assignment Accepted: Kevin P. Maloney

____________________ Appraiser

an appraisal of · an appraisal report of: 656-658 w. belden ave. chicago, illinois 60657 parcel...

Documents