Appraisal 1426 N 3rd St. Harrisburg

8/20/2019 Appraisal 1426 N 3rd St. Harrisburg

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SUMMARY APPRAISAL REPORT

MIXED-USE COMMERCIAL BUILDING

1426 NORTH THIRD STREET

CITY OF HARRISBURG, DAUPHIN COUNTYHARRISBURG, PENNSYLVANIA 17102

FOR

MR. ANDREW J. GIORGIONE, ESQ.

SUSQUEHANNA ART MUSEUM BOARD OF TRUSTEES

409 NORTH SECOND STREET, SUITE 500

HARRISBURG, PA 17102

,

DATE OF REPORT

APRIL 11, 2013

PREPARED BY

RSR APPRAISERS & ANALYSTS

3 LEMOYNE DRIVE, SUITE 100

LEMOYNE, PA 17043

FILE NO: 13-37GW


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April 11, 2013

Mr. Andrew J. Giorgione

Buchanan Ingersoll & Rooney, PC

409 North Second Street, Suite 500

Harrisburg, PA 17101

RE: Mixed-Use Commercial Building

1426 North Third Street

City of Harrisburg

Dauphin County, PA 17102

Dear Mr. Giorgione:

At your request, RSR Appraisers & Analysts has completed a Summary Appraisal Report on

the above referenced property. The effective date of the appraisal is March 26, 2013, the date on

which the property was physically inspected by W. Greg Rothman, MAI, MRICS, CPE, CCIM,

and Andrew Wolfe, licensed appraiser trainee.

The improvements consist of a four-story mixed-use commercial building consisting of 70,000

square feet of space. The improvements are located on a lot containing a total of 0.41 acres or

17,860 square feet.

The report that follows provides a detailed description of the property, and the basis upon which

the estimated value has been developed. This report has been completed in compliance with the

Uniform Standards of Professional Appraisal Practice adopted by the Appraisal Standards Board

of the Appraisal Foundation. This appraisal has also been completed according to your

instructions, which are included in the addenda to this report.

The property rights appraised in this report are the leased fee interests. The report that follows

provides a summary description of the property and the basis for the estimated market value.

Therefore, based on our inspection of the subject property, the investigation and analysis

undertaken, and subject to the "Underlying Assumptions and Limiting Conditions" noted in the


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Mr. Giorgione

April 11, 2013

addenda to this report, it is our opinion that the estimated “as is” market value of the leased fee

interest in the subject property, as of March 26, 2013 is:

* * *NINE MILLION FIVE HUNDRED THOUSAND DOLLARS* * *

($9,500,000)

It should be noted that the market value estimate contained within this report does not include

any business value or FF&E associated with the building.

It is suggested that a Phase I environmental audit be conducted on the subject property if such

materials are suspected on the site. If any existence of hazardous material is found, any discovery

of such materials on the site will require a re-evaluation of the property, and this appraisal will

become null and void.

This letter does not constitute a full appraisal of the subject property. The narrative that follows

contains the data and analyses from which this value conclusion was developed.

This appraisal was prepared by RSR Appraisers & Analysts for the exclusive use of Andrew

Giorgione and the S.A.M. Board of Trustees. The information and opinions contained in this

appraisal set forth the appraiser’s best judgment in light of the information available at the time

of the preparation of this report. Any use of this appraisal by another person or entity, or any

reliance or decisions based on this appraisal are the sole responsibility and at the sole risk of the

third party. RSR Appraisers & Analysts accepts no responsibility for damages suffered by any

third party as a result of the reliance on or decisions made or actions taken based on this report.

Our compensation is in no way contingent upon the value estimate or conclusions developed

and we wil l be avail able to discuss the fi ndings contained with in the repor t wi th the respective

parties at your request and convenience .

Respectfully submitted,

RSR APPRAISERS & ANALYSTS

W. Greg Rothman, MAI, MRICS, CPE, CCIM Andrew R. Wolfe Certified General Appraiser Licensed Appraiser Trainee

License #: GA 0001455L License #: LAT000423

Expiration June 30, 2011 Expiration June 30, 2013


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TABLE OF CONTENTS

SUMMARY .................................................................................................................... 5

SCOPE OF APPRAISAL……………………………………………………………. .. 6

SUBJECT PHOTOGRAPHS .......................................................................................11

REGIONAL ANALYSIS...............................................................................................15

NEIGHBORHOOD ANALYSIS ..................................................................................18

SITE DATA…………………………………………………………………………… 20

DESCRIPTION OF IMPROVEMENTS .....................................................................23

ZONING .........................................................................................................................25

TAXES & ASSESSMENT ............................................................................................27

HIGHEST AND BEST USE……………………………………………………….....28

THE APPROACHES TO VALUE ...............................................................................31

LAND VALUATION .....................................................................................................33

COST APPROACH…………………………………………………………………...42

INCOME APPROACH .................................................................................................48

RECONCILIATION .....................................................................................................55

ASSUMPTIONS AND LIMITING CONDITIONS ...................................................56

CERTIFICATION .........................................................................................................57

ADDENDA

Property Card

Zoning Map

Property Deed

Site Plans

Qualifications of Appraiser

Privacy Notice


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REAL ESTATE APPRAISAL REPORT SUMMARY

Property Type: Mixed-Use Commercial Building

Owner’s Name: Campus Square Partners, LP

Location: 1426 North Third Street

City Of Harrisburg, Dauphin County

Harrisburg, Pennsylvania 17036

Tax Map Parcel: 06-015-034

Effective Date of Appraisal: March 26, 2013

Date of the Report: April 11, 2013

Property Rights Appraised: Leased Fee Interest

Site: The total site area contains 0.41 acres or 17,860

square feet.

Existing Improvements: A four-story mixed-use commercial building

containing 70,000 SF of space.

Zoning: Business General (BG)

Utilities: Public Water and Sewer

Highest and Best Use, As Vacant: Development with Commercial Use

Highest and Best Use, As Improved: Continued Commercial Office & Retail Use

“AS IS”: Value Interest Effective Date

Cost Approach $11,000,000 Leased Fee March 26, 2013Sales Comparison Approach: N/A N/A N/A

Income Approach (Direct): $9,500,000 Leased Fee March 26, 2013

Final Market Value Estimate: $9,500,000 Leased Fee March 26, 2013


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SCOPE OF THE APPRAISAL

According to the Uniform Standards of Professional Appraisal Practice (USPAP) Scope of Work

Rule:

“For each appraisal, appraisal review, and appraisal consulting assignment, an appraiser must:

1. identify the problem to be solved;

2. determine and perform the scope of work necessary to develop credible

assignment results; and

3. disclose the scope of the work in the report.

An appraiser must properly identify the problem to be solved in order to determine the

appropriate scope of work. The appraiser must be prepared to demonstrate that the scope of

work is sufficient to produce credible assignment results.”1

Problem Identification

To determine the “As Is” market value (as of the date of our most recent inspection), for the

client’s intended internal use.

Description of the Appraisal Process

The appraisal process included an inspection of the subject property by W. Greg Rothman, MAI,

MRICS, CPE, CCIM and Andrew Wolfe, licensed appraiser trainee, on March 26, 2013,

verification of all information with buyers, sellers, brokers, public records, and/or with other

knowledgeable sources; analysis of market conditions, locational factors, physical attributes and

other pertinent factors.

1 USPAP 2010-2011 Edition, © The Appraisal Foundation, page U-13.


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Scope of Work

The scope of this appraisal encompasses the research and analysis of data required to prepare a

reliable opinion of market value of the subject property. The procedures used in the appraisal

analysis of the subject property are as follows:

Regional and neighborhood data was gathered from various sources, including public data

sources such as the Pennsylvania State Data Center, CCIM Site to Do Business, and the United

States Bureau of the Census. We analyzed specific neighborhood conditions through a

neighborhood inspection.

We have researched site data listed on the subject’s tax assessment record, and the most recently

recorded legal description. A site inspection was conducted on March 26, 2013. Zoning

information was obtained from the City of Harrisburg. Flood Zone information was obtained

from FEMA. Current property assessment and millage information was obtained from the

Dauphin County Tax Assessment Office.

Further information gathered was obtained from the Dauphin County Tax Assessment records,

and from in-house appraisal files.

The Highest and Best Use Analysis as though vacant and as improved was determined through

analysis of uses that are legally permitted, physically possible, financially feasible and maximally

productive. The determination of the Highest and Best Use is a compilation of all relevant

market conditions and anticipated yield rates. We have considered and developed a market value

“As Is”.

In determining the Approaches to Value the appraiser collected data from public records,

interviews with Dauphin County officials, municipal officials, buyers, sellers, residential

builders, real estate brokers/agents, residential property managers, and/or with other

knowledgeable sources. In addition to the above-mentioned sources, we have used data

contained within our data bank from previous assignments.


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A final reconciliation of value was determined based on our professional judgment of the

available data. This appraisal is to be used in whole and not in part. No part of this appraisal

shall be used in conjunction with any other appraisal report.

The current (effective date of appraisal) purchasing power of the dollar is the basis for the value

opinion stated within; no extreme fluctuations in economic cycles are anticipated.

The I ncome Approach was considered and developed for the “as is” value of the subject

property because the property is an income-producing property.

The Cost Approach was considered and developed for the “as is” value of the subject property

because the building was constructed in 2009. The Cost Approach is typically used to value new

construction.

The Sales Compar ison Approach was considered but not developed for the subject property due

to the lack of comparable sales in the City of Harrisburg.

Ownership: The subject property is owned by Campus Square Partners, LP. The current owner

acquired parcel 06-015-034 from William J. Baker for $425,000 on January 12, 2007 asreferenced in the Dauphin County Recorder of Deeds Office as Document # 2007001884. This

sale was for the land and some improvements on-site.

There have been no other sales in the previous three years.

Intended User

The Intended User of this appraisal report is the client, Andrew Giorgione, Esq. and the S.A.M.

Board of Trustees.


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Purpose of the Appraisal

The purpose of this appraisal is to provide the appraiser's best estimate of the market value of the

leased fee interests in the subject property, as of the effective date of this report.

Property Rights AppraisedThe property rights under appraisal in this report are the Leased Fee ownership in the subject

property.

Leased Fee “the leased fee estate consists of the right to receive the contract rent

provided by the lease, the reversion of the real estate at the end of the lease, plus any

other benefits but minus any penalties according to the provisions of the lease”1

Non Real Property

The Federal Reserve Board requires the appraiser to identify and separately value any personal

property, fixtures, or intangible items that are not real property but are included in the appraisal,

and discuss the impact of their inclusion or exclusion on the estimate of market value. There is

no non-real property included in the estimated market value of the subject.

Definition of Market Value

Market value is the major focus of most real property appraisal assignments. Both economic and

legal definitions of market value have been developed and refined. A current economic definition

agreed upon by federal financial institutions in the United States is:

“The most probable price which a property should bring in a competitive and open market under

all conditions requisite to a fair sale, the buyer and seller each acting prudently and

knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this

definition is the consummation of a sale as of a specified date and the passing of title from seller

to buyer under conditions whereby:

i) buyer and seller are typically motivated;

ii) both parties are well informed or well advised and acting in what they consider

their best interest;

iii) a reasonable time is allowed for exposure in the open market;


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iv) payment is made in terms of cash in United States dollars or in terms of

financial arrangements compatible thereto; and

v) 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.2

Exposure Time

Exposure time is different for various types of real estate and under various market conditions. It

is noted that the overall concept of reasonable exposure encompasses not only adequate,

sufficient and reasonable time but also adequate, sufficient and reasonable effort.

Based on the information presented in the body of the report, which follows, a reasonable

exposure time for the subject property at the indicated market value is nine to twelve months.

[The reader should note that exposure time is different than marketing time in that exposure time

is always presumed to precede the effective date of an appraisal, whereas marketing time is a

time period immediately subsequent to the date of the appraisal.]

Trends and Marketing Time

The economy in general has been strong for most all types of commercial property, as it

proliferates throughout all regions of the country and especially central Pennsylvania. A

reasonable marketing time assumes that the seller is motivated; the property is priced within a

reasonable percentage of an appraised market value and is actively advertised and marketed by a

competent real estate broker or the like. A reasonable marketing time also assumes that the sale

of the property would not require any unusual financing or seller concessions.

Consultations with area real estate professionals for their opinion indicated a range within a

twelve (12) months period of time in the central Pennsylvania area. It is the appraisers’ opinion;

the subject property would most likely experience a marketing time of twelve (12) months if

placed on the market for sale. The estimate of marketing time assumes that the property is

exposed in the open market at a reasonable asking price and that there are no distressed factors

1Appraisal Foundation, The Appraisal of Real Estate, 1973 Edition, (Chicago, Ill; 1974) Page 446.


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affecting its exposure in the market. If the property is listed at a liquidation price, the estimated

marketing period may be less than what the appraisers have forecasted.

SUBJECT PHOTOGRAPHS

Subject Property: Front Elevation Subject Property: North 3rd

Street

Subject Property: Side View Subject Property: Rear View & Alley


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Subject Property: Entrance Stairs/Ramp Subject Property: Garbage Area

Interior View: Office Entrance Interior View: Corridor & Elevators

Interior View: Typical Office Interior View: Stairwell


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Interior View: Kitchenette Interior View: Typical Conference Room

Interior View: Vacant 3rd

Floor Interior View: Typical Office

Interior View: Classroom Street View: Intersection of Reily & N. 3rd


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Street View: North 3rd

Street (North facing) Street View: Susquehanna Street (North)

AERIAL PHOTOGRAPH

TAX MAP


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DAUPHIN COUNTY ANALYSIS

Regional Overview

The subject property is located in Derry Township in Dauphin County, Pennsylvania. Dauphin

County is bounded by Northumberland County to the north, Cumberland County across the

Susquehanna River to the west, Lancaster County to the south, and Lebanon County to the east.

Dauphin County, together with Cumberland and Perry Counties form the Harrisburg

Metropolitan Statistical Area (MSA). At the heart of the MSA is the City of Harrisburg, the

Capitol of the Commonwealth of Pennsylvania, which is located 70 miles from Allentown, 80

miles from Baltimore, 90 miles from Philadelphia, 110 miles from Washington D.C. and 200

miles from Pittsburgh. Interstate highway routes 76, 78, 81 and 83 run through the MSA and provide access to these markets.

Regional Transportation

The major traffic arteries and highway systems that run through the MSA provide important

links to other primary and secondary markets in Pennsylvania and the northeast.

Approximately 25% of the U.S. population lies within a 250-mile radius of the Harrisburg area.

Interstate 76, also known as the Pennsylvania Turnpike, links the area with Pittsburgh to the

west and Philadelphia to the east. Interstate 78 runs from Interstate 81 in Lebanon County,

eastward to Allentown and northern New Jersey. Interstate 83 runs from Harrisburg to

Baltimore, and Interstate 81 runs north to New York State and Canada, and south to Tennessee.

Other major roads in the area include PA Route 283, which runs from Harrisburg to Lancaster,

U.S. Routes 11 and 15, which run north to New York State and south to Maryland, and PA

Route 581, which runs from Harrisburg westward to the Naval Ships Parts Control Center in

Mechanicsburg. Both of these roads are four lane limited access highways. A six-mile

extension of Route 581 was completed in 1996, joining the road with Interstate 81.


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Passenger rail service is provided by Amtrak on ConRail's main line (formerly Penn Central and

Reading Companies). The train/rail terminal is located in downtown Harrisburg at the recently

renovated Harrisburg Transportation Center. Passenger rail service is available to Pittsburgh and

other destinations to the west, and also to Philadelphia along ConRail's northeast corridor.

Freight service throughout the area is provided by ConRail.

Continental Trailways and Greyhound buses run out of a terminal located in the same facility.

Intercity bus service is provided by the Capital Area Transit (CAT); with routes throughout the

East and West Shores of the Harrisburg MSA. The bus system provides important transportation

services for many city residents who work outside of Harrisburg proper.

The area is also served by the Harrisburg International Airport (HIA), which is located 10 miles

south of Harrisburg, along the Susquehanna River. Major carriers include Air Canada,

American Eagle, Continental Airlines, Delta Airlines, Northwest Airlines, Air Tran, United

Airlines, and US Airways. The Harrisburg area is well served with its own beltway. The

combination of Route 581, I-83 and I-81 form a circle around the immediate East Shore areas,

Harrisburg City, and near West Shore areas. Larger cities such as Pittsburgh and Philadelphia

do not have a full circle route around the core area. This is a large advantage to assist in the

ease of travel around the city.

The Harrisburg MSA employment base is centered on state and federal government and those

government-servicing industries. Located in the center of the Harrisburg MSA is the

Pennsylvania State Capitol and over a dozen state office buildings. Military installations are also

prominent in the area and include: 1) Mechanicsburg Naval Depot, aka Defense Distribution

East; 2) New Cumberland Army Depot; 3) the U.S. Army War College in Carlisle; and, 4) Fort

Indiantown Gap.

The Harrisburg-Carlisle area's unemployment rate fell to 7.5 percent in August 2012, according

to the Pennsylvania Department of Labor & Industry. The area has seen several real estate

construction projects underway in the year 2012.


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MAP OF DAUPHIN COUNTY


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NEIGHBORHOOD ANALYSIS – CITY OF HARRISBURG

The neighborhood analysis provides a bridge between the Area Analysis and the study of the

subject property. As in the Area Analysis, the goal of the Neighborhood Analysis is to determine

how the operation of social, economic, governmental and environmental factors influence thevalue of real estate.

AREA MAP

The neighborhood analysis provides a bridge between the Regional Analysis and the study of the

subject property. As in the Regional Analysis, the goal of the Neighborhood Analysis is to

determine how the operation of social, economic, governmental and environmental factors

influences the value of real estate.

Location

The subject property is located on the corner of North Third, James and Calder Streets, in the

Midtown district of Harr isburg. The subject’s local market area is the fifth and sixth wards of the

City of Harrisburg, Dauphin County, Pennsylvania. The area is often referred to as the Midtown


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market of Harrisburg. The State Capitol building and the Central Business District are adjacent,

to the South and East of the neighborhood.

Neighborhood Boundaries

The neighborhood boundaries are North Second Street to the West; Forster Street to the South;

North Sixth Street to the East; and Verbeke Street to the North.

Physical Description & Neighboring Uses

The neighboring uses include retail and commercial office space with a mix of residential

buildings. The Downtown district is adjacent to the subject property. The subject improvements

are considered to be compatible with the overall neighborhood development. The local market

area generally consists of office, apartment, row homes, townhouses, and various commercial

and retail uses. There is a small grocery and convenience store, a pizza shop, a Sprint store, a gas

station, an auto repair shop, an Italian restaurant, and numerous other small retail stores. Many

buildings consist of first floor retail or restaurant use with the upper floor(s) used as offices or

residential apartments.

Overview

The neighborhood is experiencing the urban revitalization that started in the downtown of the

city in 1998. Urban renewal has spread into the mid-town and uptown areas. This is a good sign

for the subject property.

Conclusion

The neighborhood will be a positive factor for the subject property. The subject neighborhood is

a mature, fully developed, area of mixed use known as the Midtown Market District. The Third

Street Corridor is the secondary retail strip often characterized by start-up retail stores. The

Midtown area remains an attractive place for residential living. In conclusion, the neighborhood

and local market area represents a strong location for a school in an area that has experienced

much of the city’s revitalization.


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SITE DATA

The following site description is based upon the physical inspection of the site conducted on

March 26, 2013.

Location: The subject property is located at 1426 North Third Street in the City of Harrisburg,

Dauphin County, Pennsylvania. The building is located on a corner lot (North 3rd and Reily

Streets).

Tax Parcel: The subject property is known as parcel 06-015-034 on the tax maps of Dauphin

County.

Total Area: The site contains 0.41 acres, or 17,860 square feet.

Shape: The site is rectangular in shape.

Topography and Drainage: The site is considered to be generally level. Drainage appears to be

adequate.

Landscaping: Landscaping on-site is minimal and is well maintained.

Access and Visibility: The subject property has excellent access and visibility on the corner of

North 3rd and Reily Streets.

Land to Building Ratio: The mixed-use commercial building contains 70,000 square feet of

space and is situated on a 17,860 square-foot plat of land, indicating a land-to-building ratio of

0.25 to 1.

Parking: Some off-street parking is available to tenants. Street parking is available on the roads

surrounding the subject property.

Curbs/Gutters/Sidewalks: Yes.

Zoning: Business General (BG)

Public Utilities: The site is served by public water, sewer, gas, electric and telephone.


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Environmental Impairments: No hazardous waste materials were indicated or observed on the

subject sites. It should be noted that we are not qualified in determining the existence of any

hazardous materials on the site or within the building improvements. Therefore, it is suggested

that a Phase I environmental audit be performed by a qualified professional if the existence of

hazardous waste materials is suspected. For the purpose of this appraisal, it is assumed that there

exists no hazardous material on-site. Any discovery of such materials on the property will

require a re-evaluation of the property, and this appraisal will become null and void.

Easements and Encroachments: No easements or encroachments were indicated or observed.

Flood Zone: The subject property lies outside of the designated flood area according to HUD-

FIA, Flood Hazard Map, Community No. 42043C0319D, with an effective date of August 2,

2012. Flood insurance would not be required for the property.

Conformity: The subject property conforms well to the immediate neighborhood which is

mostly residential and commercial uses.


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Favorable Site Attributes: The site has a good location on the corner of North 3rd and Reily

Streets.

Unfavorable Site Attributes: The only unfavorable site attribute noted was the lack of on-site

parking available.


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DESCRIPTION OF IMPROVEMENTS

The following improvement description is based upon an inspection of the property.

Improvements: The subject improvements consist of a four-story mixed-use commercial

building built in 2009 which utilizes the latest in modern sustainable technologies. The building

has been registered with the US Green Building Council and has achieved LEED Gold status.

Size: The gross building area is 70,000 square feet.

Construction: The building is constructed of masonry and glass.

Exterior Doors: The exterior doors are glass with aluminum frames.

Interior Doors: Glass.

Sidewalks: A concrete and brick sidewalk surrounds the building. There is metal railing at the

entrance of the building.

Entrances: The main entrance to the building is on North 3rd Street. There are also side and

private entrances.

Lobby: An entrance lobby on North Third Street provides access to the first floor tenants as well

as elevators and stairwells serving the building.

Interior Finish: The floors consist of upgraded carpet and tile. The kitchen contains vinyl

flooring. The walls consist of finished drywall. The ceilings contain decorative finished

acoustical tiles. There are restrooms on each floor.

Windows: Double-hung and stationary windows.

Lighting: Fluorescent parabolic lighting (censored).

Ceiling: The ceilings are roughly 10 feet throughout.

Roof: White rubber membrane roof which helps to regulate temperature inside the building.

Elevator: Two (2) 2,500 lb. four (4) stop, passenger elevators are located in the lobby.


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Stairs: There are two internal stairwells that serve the building.

HVAC: Geothermal heating and cooling. There are solar panels on the roof of the building

which provides sufficient power for the common areas.

Sprinkler: The building is served by a wet sprinkler system.

Security System: The building is served by a security system. There is a card access system for

the building.

Americans with Disabilities Act (ADA): Access to the building is adequate to accommodate

the disabled. Door widths are adequate to accommodate the disabled. There is an entrance ramp

at the front entrance of the property. However, the appraiser is not an expert in ADA

requirements and an audit should be undertaken. Any substantial changes required, may make it

necessary to revise the value conclusion in this report.

Physical Adequacy: The design and layout of the improvements are physically adequate and the

construction quality of the building is very good.


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ZONING

The subject property is zoned Business General (BG), according to the zoning officer of the

City of Harrisburg. The subject property is a permitted use in this zone. The zoning ordinance

and dimensional requirements can be seen below:

Principal Uses: In a BG Zone, only the following buildings, structures and uses shall be

permitted:

(1) all buildings, structures and uses permitted in any Residence Zone;

(2) all buildings, structures and uses permitted in a BL Zone, without any restriction as to the

number of persons employed;

(3) sales shops, stores and markets, both wholesale and retail;

(4) cigar making shops;

(5) fur and fabric storage buildings;

(6) lithography, book binding and printing plants;

(7) radio broadcasting stations and studios;


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(8) storage or parking garages;

(9) express freight offices;

(10) recreation halls, poolrooms, billiard rooms, etc.;

(11) filling stations; 7-94

(12) bar rooms, taverns or restaurants;

(13) curtain, upholstery, rug cleaning or garment cleaning, when adequately housed to prevent

nuisance;

(14) clubs or fraternal homes;

(15) home beverage and beer distributors;

(16) laundromats or dry cleaning pick-up and delivery;

(17) office buildings.

(Ord. 29-1974.)

Dimensional Requirements:

(1) In the BG Zone, this chapter prescribes no height limitations.

(2) In a BG Zone, each lot shall have front, side, and rear yard of not less than the depth or width

indicated below:

(A) front yard: depth, five (5) feet or conform to existing setbacks, within the block;

(B) side yards:

(i) width, ten (10) feet each side of a principal building, provided that when a written agreement

is reached by adjoining property owners, no side yard shall be required where commercial uses

abut side to side; provided, however, in no case shall party walls be permitted between properties

of separate ownership;

(ii) the width of a side yard abutting a major street shall equal the required depth of the front

yard;

(C) rear yard: depth, five (5) feet.


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TAXES AND ASSESSMENT

The Dauphin County Real Estate Tax Assessment Office identifies the property as tax parcel 06-

015-034. This parcel has a current total assessed value of $4,520,800 ($115,700 for land and

$4,405,100 for improvements).

The City of Harrisburg and Dauphin County millage rates may be broken down as follows:.

Land:

County Library Municipal School Total

6.876 0.35 30.97 26.965 65.161

Improvements:

County Library Municipal School Total

6.876 0.35 5.16 26.965 39.351

Based upon the current assessment of parcel 06-015-034 and the Dauphin County millage rates,

the total annual tax liability is estimated at $180,884. The Common Level Ratio (CLR) factor in

Dauphin County, effective July 1, 2012, is 1.38, translating into an implied market value of$6,238,704 or $88.48 per square foot of gross building area.


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HIGHEST AND BEST USE

Highest and best use is defined as "The reasonably probable and legal use of vacant land or an

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

and that results in the highest value."3

Implied in this definition is that the determination of highest and best use takes into account the

contribution of a specific use to the community and community development goals, as well as the

benefits of that use to individual property owners.

In appraisal practice, the concept of highest and best use is the basis upon which the value

estimate is based. The market values of land or of an improved property are both estimated

under the assumption that potential purchasers will pay a price that reflects their analyses of the

most profitable use of the land or property as improved. Therefore, the most profitable use

assumption tends to produce the highest offering prices.

The highest and best use analysis requires the application of various categories of use oriented

decisions. To conclude that a given use is the highest and best use of the land as vacant must

meet the following four criteria: 1) legally permissible, 2) physically possible, 3) financiallyfeasible and 4) most profitable.

Highest and Best Use as Vacant:

An analysis of highest and best use as if vacant is necessary to identify comparable land sales that

profile this use. The four tests are as follows:

Legally Permissible

Uses that are legally permitted at the subject property are largely controlled by the zoning district

in which the property is located. Other factors that may affect the categories of permitted uses

include deed restrictions, easements and encroachments, covenants, etc. As mentioned in the

3 The Dictionary of Real Estate Appraisal, 2nd Edition; American Institute of Real Estate Appraisers, 1989.


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Zoning section of this report, the subject property is located within the Business General (BG)

zoning district, according to the zoning officer of the City of Harrisburg. Permitted uses within

this zoning district include the following: all uses permitted in any Residence Zone; all uses

permitted in a BL zone; sales shops, stores and markets, both wholesale and retail; cigar making

shops; fur and fabric storage buildings; lithography, book binding and printing plants; radio

broadcasting stations and studios; storage or parking garages; express freight offices; recreation

halls, poolrooms, billiard rooms, etc.; filling stations; bar rooms, taverns or restaurants; curtain,

upholstery, rug cleaning or garment cleaning, when adequately housed to prevent nuisance; clubs

or fraternal homes; home beverage and beer distributors; laundromats or dry cleaning pick-up

and delivery; and office buildings. The subject property is a permitted use in this zoning district.

Physically Possible

The subject site consists of 0.41 acres of land on the corner of North Third and Reily Streets in

the City of Harrisburg, Dauphin County. Access and visibility of this site is considered excellent.

Public utilities are available to the site and the topography is level at street grade. The size of the

subject site limits some uses but most commercial uses in the Business General Zone are

physically possible. The subject site is well-suited for commercial retail use due to the fact that it

is situated on a corner lot. Commercial uses are physically possible at the site.

Financially Feasible

The uses that are both legally permissible and physically possible are the focus of this section of

the analysis. This section eliminates uses that are incapable of supporting development costs

through potential income streams. This analysis is conducted through a study of potential rents

of various property types at the subject site. In general, any of the physically possible and legally

permitted uses which are capable of generating enough income to satisfy operating expenses,

financial obligations and capital amortization are considered financially feasible. Commercial

development with retail/office use is deemed feasible for the property.


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Maximally Productive

Of the uses that are considered financially feasible at the subject property, the use that generates

the highest rate of return over the longest period of time is considered to be the highest and best

use of the property. Commercial development with retail/office use is viewed as financially

feasible for the subject property. This use would conform well to the neighborhood. As such,

this is the highest and best use of the subject property.

Highest and Best Use as Improved:

The appraiser tries to identify the highest and best use of the property as improved so that he can

understand those uses that create the highest present value in relation to the capital investment

required. It also helps the appraiser to identify comparable properties for the Sales Comparison

and Income Approaches. In addition to analyzing the property relative to the four criteria

required for highest and best use, the appraiser must consider whether the need for renovation,

expansion, demolition or any combination of these actions will increase the return on invested

capital. The subject site is currently improved with a four-story mixed-use building containing

73,400 square feet of space on 0.41 acres. The highest and best use as improved of the property

is its current use as a mixed-use commercial building.


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THE APPROACHES TO VALUE

Typically, after analyzing the physical characteristics of the subject and current conditions within

the real estate markets, three approaches to value are developed to arrive at three separate

indications of the subject's value. These three approaches, the Sales Comparison Approach,Income Capitalization Approach, and Cost Approach arrive at a value indication through

dissimilar methods and the use of different types of data. However, these three approaches are

not always unrelated, and some aspects of each approach may be applicable to the others.

In applying the Cost Approach to value, the appraiser attempts to estimate the difference in worth

to a buyer between the property being appraised and a newly constructed building with optimal

utility. The depreciated replacement cost of the improvements is estimated by analyzing three

forms of depreciation; physical deterioration, functional obsolescence and external or economic

obsolescence. This depreciated replacement cost is then added to the market value of the

underlying site, to arrive at a value indication for the subject.

In the Sales Comparison Approach, market value is estimated by comparing the subject to similar

properties which have been sold recently, or to properties which are currently offered for sale.

The analysis of the sales relative to the subject focuses upon differences in legal, locational,

physical and economic characteristics. This approach is applicable to all types of real property

when there is sufficient data in the market.

Real estate which is capable of producing income through rents and leasing is often purchased as

an investment. From the buyer's point of view, the earning power of a property is the most

significant determinant of property value. The buyer is essentially trading present dollars for the

right to receive future income. Development of the Income Capitalization Approach involves

estimating net operating income by analyzing encumbering leases, market rents, market

occupancy levels and absorption rates, and expenses. This net operating income is then

capitalized at an appropriate rate, which is also determined by the market, to arrive at a single

value estimate.


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After developing each of the approaches to value, the three value estimates are normally

reconciled into a single estimate of value for the subject property. Since the approaches involve

different techniques, and the reliability of data involved in each technique may vary, the market

value is usually based upon the approach which utilized the strongest market evidence.


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LAND VALUATION

Land Value

The value of the land is determined by its potential highest and best use as if it were vacant and

available for development. There are several methods of estimating land value including:

Sales Comparison Ground Rent Capitalization

Allocation Land Residual

Extraction Subdivision Development

Of these approaches, the Sales Comparison Approach is the most prevalent, due primarily to the

quantity and quality of available market data. In this analysis, sales of similar sites are

researched, analyzed, compared and adjusted to arrive at an indicated value. Adjustments are

made for differences in the sales that reflect market reaction. In the valuation of the subject

property, the Sales Comparison Approach was used for land valuation.

Units of Comparison

Vacant commercial land is typically valued on a price per acre or price per square foot basis,

depending on the size of the property while residential land is typically valued on a price per acre

or price per lot or dwelling unit basis. In the analysis of the subject site, the price per square

foot of land was chosen as the appropriate unit of comparison because it indicated a tighter range

than the price per acre.

COMPARABLE LAND SALES

Comparable Price per Acre Price per SF of Land

1 $401,351 $9.21

2 $248,447 $5.70

3 $612,245 $14.06

4 $547,617 $12.57

Comparable Land Sales

Comparable commercial retail land sales were identified in the Cumberland County and Dauphin

County markets. The sales shown on the following pages are considered to be most comparable

to the subject property and reflect a similar highest and best use as the subject, as if vacant.


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COMPARABLE LAND SALE ONE

Location: 2521 North Front Street, City of Harrisburg

Dauphin County, Pennsylvania

Transaction Data:

Consideration: $297,000

Date of Sale: May 2012

Grantor: Radnor Realty

Grantee: Harrisburg Buildings & Grounds Co.

Tax Parcel: 10-066-037

Conditions of Sale: Arm’s Length

Property Rights Conveyed: Fee Simple

Financing: Cash to Seller

Verification: Jamie Pascotti (Listing Agent, RMA) 717-790-0111

Site Data:

Lot Size: 0.74 acres or 32,234 square feet

Shape/Topography: Irregular/Level

Access/Visibility: Good/Excellent

Public Utilities: All public available

Appraisal Measures:Sale Price per Acre: $401,351

Sale Price per Sq Ft of Land: $9.21

Comments: This is the sale of a Class B office building located at the corner of North Front and Radnor

Streets in the City of Harrisburg. The building was vacant at the time of sale. Parking on-site includes

32 spaces. The property is zoned Special Planned Development (SPD), which permits offices, labs,

studios, etc. The sale was for land only . The building will be demolished in the near future.


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COMPARABLE LAND SALE TWO

Location: 1801 Derry Street, City of HarrisburgDauphin County, Pennsylvania 17104

Transaction Data


Sale Date: July 2012

Grantor: State N Dairy Inc.

Grantee: LandVEST Harrisburg LLC

Parcel ID: 02-035-005

Deed Reference: 20120020499

Property Rights: Fee Simple


Financing: Cash to SellerVerification: Senada Mavric (Listing Broker, RE/MAX 1st Advantage) 717-805-6557

Site Data

Site Size: 1.61 acres or 70,132 square feet

Shape/Topography: Irregular /Generally Level

Access/Visibility: Good/Very Good

Zoning: Business General, BG

Public Utilities: All public available to site

Proposed Use: Family Dollar Discount Store (Retail)

Appraisal Measure

Sale Price per Acre: $248,447

Sale Price per SF of Land: $5.70

Comments: This is the sale of a vacant commercial lot located along Derry Street in the city of

Harrisburg. The site will be improved with a 9,180-square-foot discount store in the near future. The

property was on the market for more than two years. The site has frontage on Derry Street, South 18th

Street and Berry Hill Street.


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COMPARABLE LAND SALE THREE

Location: 4415-4423 North Front Street, Susquehanna Township

Dauphin County, Pennsylvania

Transaction Data

Sale Date: November 2011

Consideration: $1,500,000 ($830,000 & $670,000)

Grantor: Thomas Carlock & 4415 North Front Street Associates

Grantee: Riverwatch Properties LLC

Parcel ID: 62-006-054 & 055

Deed Reference: 20110031202 & 20110031203



Financing: Cash to Sellers

Verification: Public Records

Site Data

Site Size: 2.45 acres or 106,722 square feet on two adjacent parcels

Shape/Topography: Rectangular/Generally Level

Access/Visibility: Good/Good


Zoning: Commercial Office Limited, COL

Appraisal MeasuresPrice per Acre: $612,245

Price per SF of Land: $14.06

Comments: This is the sale of two (2) adjacent tracts of land that were once improved with

older style office buildings that were demolished immediately after purchase. The sale was for

land only. The site is currently being improved with a 3-story, 47,100 square foot Class A office

building.


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COMPARABLE LAND SALE FOUR

Location: 4680 East Trindle Road, Hampden Township

Cumberland County, Pennsylvania 17055

Transaction Data


Sale Date: February 7, 2013

Grantor: 4660 Associates (Norm Hoffer)

Grantee: BAM Trindle Road LLC

Parcel ID: 10-22-0529-003-U2

Deed Reference: 201304358



Financing: Cash

Verification: Tom Posavec (Landmark Commercial Realty) 717-731-1990

Site Data

Site Size: 0.84 acres or 36,590 square feet

Shape/Topography: Rectangular/Level

Access/Visibility: Good/Excellent


Zoning: Commercial General, C-G

Proposed Use: Office Condominium

Appraisal MeasuresSale Price per Acre: $547,619

Sale Price per SF of Land: $12.57

Comments: This is the sale of a vacant commercial lot located at the signalized intersection of

Trindle Road and Railroad Avenue in Mechanicsburg. The site will be improved with a 10,000-

square-foot office building, which will be leased by AAA Central Penn. The property was

previously on the market for $550,000.

COMPARABLE


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COMPARABLE LAND SALES GRID

LAND SALES SUBJECT PROPERTY SALE 1 SALE 2 SALE 3 SALE 4

LOCATION 1426 North 3rd Street 2521 N. Front St. 1801 Derry Street 4415-4423 N. Front St. 4680 E. Trindle Rd.

TOWNSHIP City of Harrisburg City of Harrisburg City of Harrisburg Susquehanna Hampden

COUNTY Dauphin Dauphin Dauphin Dauphin Cumberland

DATE OF SALE N/A May-12 July-12 November-11 February-13

CONSIDERATION N/A $297,000 $400,000 $1,500,000 $460,000

SQUARE FEET OF LAND 17,860 32,234 70,132 106,722 36,590

PRICE PER SQUARE FOOT N/A $9.21 $5.70 $14.06 $12.57

PROPERTY RIGHTS CONVEYED N/A Fee Simple Fee Simple Fee Simple Fee Simple

FINANCING N/A Cash to Seller Cash to Seller Cash to Seller Cash to Seller

CONDITIONS OF SALE N/A Arm's Length Arm's Length Arm's Length Arm's Length

TIME N/A 0% 0% 0% 0%

LOCATION Urban -10% 0% -20% -10%

ACCESS & VISIBILITY Good/Very Good 10% 0% 10% 0%

SITE CHARACTERISTICS Generally Level/Rectangular 10% 0% 0% 0%

UTILITIES All public to site 0% 0% 0% 0%

OFF-SITE IMPROVEMENTS Curbing/Gutters/Paving 0% 0% 0% 0%

ZONING Busines s General (BG) 10% 0% 0% 0%

SIZE 0.41 acres 5% 20% 25% 10%

NET ADJUSTMENT 25% 20% 15% 0%

ADJUSTED PRICE PER SF $11.52 $6.84 $16.16 $12.57

Comparable Sales Adjusted $/SF of Land

Comparable Sale Two $6.84

Comparable Sale One $11.52

SUBJECT PROPERTY

Comparable Sale Four $12.57

Comparable Sale Three $16.16


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Discussion of the Comparable Building Sales

In general an upward adjustment will be made if the comparable is inferior to the subject for a

given element of comparison and downward where the comparable is superior to the subject for a

given element of comparison.

Elements of Comparison

Key value elements under scrutiny that may require adjustments are: property rights conveyed,

financing terms, conditions of sale, market conditions, and physical characteristics including

location, condition, and size. These factors are the primary influences on site prices and tend to

affect the differences in price levels.

Property Rights Conveyed

A transaction price is always predicated on the real property interest conveyed. Many types of

real estate, particularly income-producing property, are sold subject to existing leases. The

income potential of a property is often limited by the terms of existing leases. In these situations

the real property that is sold is the Leased Fee Estate.

The comparable sales included fee simple property rights. No adjustment is warranted for

property rights conveyed.

Financing Adjustments

This adjustment renders the sale price to cash equivalent terms. Where favorable, below market

rate, financing terms are made available by the seller; the difference between the favorable terms

and the market rate terms is estimated. The present value of this difference represents an

advantage to the comparable sale and warrants a negative adjustment. While this calculated

amount is not always the market's reaction to favorable financing, it serves the appraiser well as a

guide in the absence of market data. All transfers were reported to be cash sales and no

adjustments are required for financing.


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Conditions of Sale

This adjustment is applied if there are any unusual circumstances surrounding the transaction,

such as foreclosures, bulk sales, related parties, and assemblages. No adjustments were warranted

for conditions of sale. All the properties were listed for sale and exposed to the real estate

mar ket for a reasonable amount of time. All sales are considered “arm’s length” transactions.

Market Conditions (Time)

After adjusting the comparable sales to a cash equivalent price and for conditions of sale, the

sales must be brought current by means of a time adjustment if warranted. In all likelihood,

prices are predicated on physical factors. All comparable sales sold between 2011 and 2013; no

adjustments were warranted.

Location Adjustments

Adjustments are necessary for location when a property is in a location that is more or less

favorable than the subject.

Comparable sale one was adjusted downwards for superior location on North Front Street. It

was adjusted upwards for its inferior access and visibility (North Front Street is a one-way

street). It was also adjusted upwards for site characteristics (‘L’ shaped). Finally, this sale was

adjusted for its inferior zoning and size.

Comparable sale two was only adjusted upwards for inferior economies of scale. Bigger tracts

of land tend to sell for a lower price per unit.

Comparable sale three was adjusted downwards for its superior location on North Front Street

in Susquehanna Township. It was adjusted upwards for its inferior access and visibility (North

Front Street is a one-way street). This sale was also adjusted upwards for inferior economies of

scale. Bigger tracts of land tend to sell for a lower price per unit.


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Comparable sale four was adjusted downwards for its superior location in Hampden Township.

This sale was adjusted upwards for inferior economies of scale. Bigger tracts of land tend to sell

for a lower price per unit. This sale was considered similar to the subject property.

Conclusion – Sales Comparison Approach “As Is”

The adjusted price per square foot of land ranged from $6.84 to $16.16 with a mean of $11.77

per square foot of land. Comparable Sale Four ($12.57) was considered most similar to the

subject property but all sales were taken into account. Based on the foregoing analysis, a price

per square foot of $11.77 was chosen, yielding a total value of $210,287 ($11.77 x 17,860 SF),

rounded to $210,000. Therefore, the Fee Simple value of the subject site “as is” is:

* * *TWO HUNDRED TEN THOUSAND DOLLARS***

($210,000)


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COST APPROACH

Estimate of Replacement Cost

Replacement costs consist of two components; direct construction costs and indirect construction

costs. Direct construction costs include the cost of labor and materials necessary to construct the

improvements new, as of the effective date of the appraisal. Indirect, or soft, costs include costs

for legal and accounting fees, taxes and insurance, loan fees, permits, closing costs,

contingencies, and miscellaneous fees.

To estimate the replacement cost new of the existing improvements, the Marshall Valuation

Service, a national cost estimating service was consulted, and was correlated with information

concerning other similar properties within the subject’s market area. These estimates are based

upon the description of the property contained within this report, which can best be described as

Average Class A Offices (344) . The cost data utilized in this evaluation was obtained from the

Marshall Valuation Service and is outlined on the following pages. The base costs contained in

the Marshall Valuation Service include in addition to labor and materials, architectural and

engineering fees, interest and bank charges on building funds during construction, and site

preparation.


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Construction Cost Comparable

Location: 409 North Second Street, Harrisburg, PA 17101 Property Type: Class A Office Building (5-story)

Site Size: 0.31 acres

Improvements: 56,000 SF; steel frame on concrete slab with masonry exterior

Age: 2012

Hard Costs: $11,200,000 (core, shell, & tenant fit out)

Soft Costs: $672,000

Total Development: $11,872,000

Overall Cost per SF: $212.00

Information Source: Dave Butcher (Developer, WCI Partners)

Comments: The developer indicated that the land acquisition was $1,587,234,

entrepreneurial profit was $415,000 and the interest wasapproximately $500,000 to $600,000. Including land, interest and

profit, the overall cost per SF was $250.00.


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Construction Cost Comparable

Location: 4415-4423 North Front Street, Harrisburg, PA 17110 (Susquehanna Twp.)

Property Type: Class A Office Building (3-story)

Site Size: 2.45 acres

Improvements: 47,100 SF; steel frame on concrete slab with masonry exterior

Age: Under construction - Fall 2012

Construction Cost: $4,976,073

Cost per SF: $105.65

Land Acquisition: $1,500,000 in November of 2011

Total Development: $6,476,073 (Land & Building)

Overall Cost per SF: $137.50 (Land included)

Information Source: Public Records


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These properties reflect a total construction cost of between $137.50 per square foot to $212.00

per square foot. Both of the comparables are new construction. The appraiser expects the

construction cost per square foot to fall within this range.

Comparable 1 is considered superior in regards economies of scale (size). Economies of scale

dictates that construction costs will be more per square foot for a smaller building.

Comparable 2 is considered superior in regards to economies of scale. This comparable is

inferior in regards to quality of construction.

Conclusion:

The first comparable construction cost was considered most similar to the subject due to its

location, size and quality of construction. Therefore, we have estimated a market derived

construction cost for the subject at the high end of the range at $175.00. Utilizing a market

derived cost estimate would produce a total construction amount of $12,250,000 ($175.00 x

70,000 SF) for the subject; however, in our analysis, Marshall & Swift Valuation Service was

considered most appropriate.

A separate estimate is required for site improvements. These costs have also been derived from

the Marshall Valuation Service. Site work/improvements at the subject property include asphalt

paving, concrete curbing and sidewalks, landscaping and signage.

The appraiser was provided the actual construction cost of the building by Matt Tunnell, of

GreenWorks Development. The breakdown can be seen below:

Land: $850,174

Land Improvements: $173,292

Building: $12,171,224

Total: $13,194,690


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Entrepreneurial Incentive

Entrepreneurial incentive is the profit a developer earns through the completion of the

development. The true measure of entrepreneurial incentive is determined by surveying profit

expectations of local market participants. (Note: the site value is excluded from the estimate of

entrepreneurial incentive because it is assumed that the sales prices of the comparable parcels

include an entrepreneurial incentive adjustment to the developer). Entrepreneurial incentive is a

percentage of direct and indirect costs, and ranges from 5% to 25% in the local market. It varies

depending on the location, size, type, complexity of the project, and market forces. For the

subject property, entrepreneurial incentive was estimated at 10%.

Depreciation

From the total replacement cost of the subject improvements, an amount attributed to accrued

depreciation must be subtracted. Accrued depreciation is the loss in value resulting from

physical wear and tear, functional obsolescence, or economic obsolescence. An estimate of 7.3%

depreciation was taken into account due to physical wear and tear. This is based off of a 55-year

life expectancy for an Average Class ‘A’ Office Buildings according to Marshall & Swift

Valuation Service. Depreciation is calculated by taking the estimated effective age (4 years) and

dividing by the life expectancy (55 years) of the building 7.3% (4 / 55). No depreciation was

taken into account for functional obsolescence. There is limited private parking on-site. Also,

the City of Harrisburg has been going through significant financial woes, and taxes will be

increasing in the near future; therefore, 15% was chosen for external obsolescence. Therefore,

the improvements have an estimated depreciation amount of 22.3% overall.


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Replacement Cost New (RCN), Average Class A Of fi ce Buil dings (344)

Direct – Hard Cost

Basic Square Foot $145.12Current Cost Multiplier x 1.04

Local Multiplier for Harrisburg, PA x 1.10

Final Square Foot Cost $166.02

Total Direct – Hard Cost ($166.02 x 70,000 SF) $11,621,400

Basement Area

($55.13 x 2,940 SF) $162,082

Wet Sprinkler System

($2.81 x 70,000 SF) $196,700

Total Building Replacement Cost $11,980,182

Indirect Cost

Soft Cost @ 5% of Direct Cost $599,009

Entrepreneurial profit @ 10% of Direct and Soft Cost $1,257,919

Total Indirect Cost $1,856,928

Replacement Cost New $13,837,110

Accrued Depreciation

Physical Deterioration @ 7.3% (Wear & Tear) ($1,010,109) Functional Obsolescence @ 0% $0.00

External Obsolescence @ 15% ($2,075,567)

Total Depreciation (17.3%) ($3,085,676)

Total Depreciated Replacement Cost $10,751,434

Site Value

Land Value $210,000

Site Improvements @ 1.5% DRC $161,271

Total Site Value $371,272

“As Is” Value Indication from Cost Approach $11,122,706

Rounded to $11,000,000


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INCOME APPROACH

“As Is”

The Income Capitalization Approach is based upon the premise that an investor who purchases

income producing real estate is essentially trading present dollars for the right to receive future

income. This is the Principle of Anticipation. The Principle of Supply and Demand is also

fundamental to this approach in that changes in supply and demand will have an effect on market

rents. The Principle of Substitution holds that market rents and capitalization rates tend to be set

by prevailing rates and rents at equally desirable substitute properties.

Forces outside of the property will also have an effect upon the income attainable at the property.

The state of the economy, political environment, crime rates, and new development are just a few

of the outside factors, which may influence rents and rates. This is the Principle of Externalities.

In general, the Income Capitalization Approach involves the estimation of net operating income.

This net operating income is then capitalized at an appropriate rate based upon that particular

property's risk and return profile.

Estimating the net operating income involves the analysis of market rents as well as contract

rents. This involves analyzing leases and rents at similar competing properties as well as the

encumbering leases at the subject property if applicable. From this analysis, a potential gross

income is derived, that is, income prior to vacancy and collection losses. Once a proper vacancy

rate is derived from the market, the effective gross income of the property may be derived by

subtracting this vacancy from the potential gross income. Expenses involved in the operation of

the property are analyzed and subtracted from the effective gross income to arrive at the net

operating income.

The next step involves the derivation of an appropriate capitalization rate. There are many

methods for developing capitalization rates. Two of the most common include direct

capitalization and yield capitalization. Direct capitalization requires market-derived

capitalization rates from similar properties and transactions and then applies them to the subject


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property without explicit attention to return on and return of capital. Only the first year’s Net

Operating Income (NOI) or the first stabilized year’s NOI is capitalized.

Yield capitalization is more complex and requires interpreting expectations and attitudes into

formulas designed to convert various income streams into present value. It is typically used

when the income stream is derived from terms of a lease or leases.

Yield capitalization will be the only method utilized as the entire finished portion of the subject

property is encumbered by a long term lease.

Existing Lease:

The subject property is a two-story professional office building containing 70,000 square feet of

space on 0.41 acres. The property has multiple tenants; there is also space available to lease.

Copies of each individual lease were requested but not provided to the appraisers. A breakdown of

tenant occupancy can be see below.

First Floor

Suite 100 Commonwealth Connection Academy

Suite 120 Wohlsen Construction Company

Suite 125 GreenWorks Development Management Office

Suite 130 Vacant

Suite 140 Brother's Pizzeria and Café

Suite 150 Commonwealth Connection Academy

Second Floor

Suite 200 Schutjer Bogar, LLC

Suite 225 Vacant

Suite 250 TBD

Third Floor

Vacant

Fourth Floor

HACC--Central Pennsylvani'a Community College

*Each floor contains approximately 17,500 square feet


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The Direct Capitalization method requires capitalizing a single year’s net operating income into

a value estimate. This net operating income reflects the estimated income on a stabilized basis.

The overall capitalization rate applied to the net operating income estimate contains provisionsfor return on and of capital. This capitalization rate also accounts for any estimated future

fluctuation in income as well as future risk. In the valuation of the subject property by the Income

Approach, the leased fee value was estimated through direct capitalization. The developer of the

property did not provide the appraisers with leases.

Gross I ncome

Potential Gross Income reflects the maximum amount of income that a property is capable of

producing at full occupancy. The information provided to the appraisers indicates a stabilized gross

income of $1,328,871 for the subject property.

Vacancy and Credit Loss

According to the Landmark Office Study, Class A office space in the City of Harrisburg is

operating at 93% occupancy for the 4th Quarter of 2012. Conversations with Bobbie Van

Buskirk of GreenWorks Development indicated that the building is currently 70% leased. We

estimate a stabilized occupancy rate of around 85% for the building. A vacancy and credit loss

of 15% is considered appropriate.

Expenses:

The expense projections are based on our knowledge of the Harrisburg Real Estate market to

determine the reasonableness of the expense estimates. As the rent estimated for the subject

involves a NNN lease scenario, the tenant would be responsible for all operating expenses.


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Reserves for Replacements

The majority of the items needed to be covered under reserves for replacements are contained in

the Sinking Fund for HVAC. However, items such as the roof, parking lot, walls, floors and

windows need to be accounted for in Reserves for Replacement. The Korpacz Real Estate

Investor Survey notes the range for National CBD Office Market 4th Quarter 2012 between $0.15

and $0.50. The property is in good condition and was constructed in 2009. Therefore, the

Reserves for Replacement expense is estimated to be at the low range.

Management F ees

Commercial real estate of the subject type needs to be professionally managed. Historically, the

management was done between an on-site manager (for maintenance) and the property owner.

Based on discussions with local real estate professionals, management fees typically range from

4% to 6%.

Leasing Fees and Commissions

Based on numbers from market data for similar buildings we estimate the leasing fees and

commissions to equal a blended rate of five (5%) percent annually.

Expense Summary:

A total income and expense figure was provided to the appraisers by Matt Tunnell, of

GreenWorks Development, and was used in the stabilized statement. Broken down income and

expense information was not provided to the appraisers.

STABILIZED OPERATING STATEMENT

Potential Gross Income $1,328,871

Less Expenses $440,000

Net Operating Income $888,871


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Discount Rate Analysis:

The analysis discounts the cash flows to an estimate of the present value, based on annual

discounting periods. After deriving the estimated cash flows, the next step in the process

involves the selection of a discount rate. A discount rate is defined as a rate of return

commensurate with perceived risk used to convert future payments or receipts to present value.

The discount rate accounts for the time value of money within a cash flow analysis, and also

accounts for the perceived risk and profit within an investment. Discount rates are virtually

impossible to extract directly from sales because actual yields are historical facts and are not

relevant to reflect future expectations. The measurement of an appropriate discount rate for a

property is not a reflection of past performance but involves measuring expected yield

requirements as of the date of the appraisal. The appropriate discount rate is the reasonable rate

that will attract capital to the investment. Because real estate is unique and each property has

specific risk characteristics, as well as management and liquidity considerations, the ultimate

selection of a discount rate is subjective and consequently there is no correct rate. However, there

is an appropriate range of rates that are reasonable to apply to a property.

For the purpose of selecting a discount rate for the subject property, a discount rate from

national-based real estate surveys was analyzed.

National Based Real Estate Surveys:

The Korpacz Real Estate Investor Survey published by PricewaterhouseCoopers LLP ( PWC)

tracks the National CBD Office Market for the 4th Qtr. 2012, investment criteria are as follows:

National CBD Office Market (4th QTR. 2012)

CURRENT LAST QUARTER 1 YEAR AGO

DISCOUNT RATE

RANGE 5.25% - 12.00% 5.25% - 12.00% 5.00% - 11.00%

AVERAGE 8.41% 8.50% 8.38%OVERALL CAP RATE

RANGE 4.25% - 10.00% 4.25% - 10.00% 4.50% - 10.00%

AVERAGE 6.70% 6.85% 7.53%

RESIDUAL CAP RATE

RANGE 5.25% - 11.00% 5.25% - 11.00% 5.00% - 10.25%

AVERAGE 7.48% 7.48% 7.21%


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Having concluded that direct capitalization is the most suitable technique, an overall

capitalization rate (Ro) must be estimated. Three of the more common techniques for rate

derivation are briefly described as follows:

Rо can be developed through a Mortgage/Equity technique, which compares the

proportionate return requirements of both the equity and debt positions.

Rо can be derived from Debt Coverage (DCR) and Loan to Value (LTV) ratios.

Rо can be extracted directly from the market based on the sale price and anticipated income

generation of comparable properties, or based on interviews with market participants.

AssumptionsCAPITALIZATION

Loan-To-Value Ratio 70.0%

Interest Rate 5.00%

Term (Years) 25

Equity-To-Value Ratio 30.0%

Equity Dividend Rate 15.00%

Mortgage Constant 0.0702

BAND OF INVESTMENT

Loan Ratio x Mortgage Constant 0.0491

Equity Ratio x Equity Dividend

Rate 0.0450

Capitalization Rate 0.0941

The Mortgage/Equity Technique suggests a rate of 9.41%.

Discount Rate Selection

The indicated range of discount rates indicated by the above surveys conducted by

PricewaterhouseCoopers LLP ( PWC) averaged 8.41% with a range of 5.25% to 12% for the

National CBD Office Market. The mortgage/equity technique yielded a discount rate of 9.41%.

The investor survey is property specific and was solely relied upon. The subject building was

constructed in 2009 and is in good condition. Therefore, for this analysis, a discount rate of 9.5%


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was chosen which reflects some of the risk that would be involved in purchasing a property of

this type that is not fully stabilized.

Value Conclusion – Direct Capitalization:

The direct capitalization analysis can be found above. Applying the discount rate of 9.5% to the

stabilized net operating income provided to the appraisers yields a market value of $9,356,537

($888,871 / 0.095). Therefore, the market value of the Leased Fee interest in the subject

property, by means of the Income Capitalization Approach, based on the direct capitalization

analysis, “as is”, the date of our most recent inspection of the subject property, is estimated to

be $9,356,537, rounded to:

* * *NINE MILLION FIVE HUNDRED THOUSAND DOLALRS* * *

($9,500,000)


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RECONCILATION AND CORRELATION

The Cost Approach was developed for the “as is” value of the subject property yielding a value of

$11,000,000 for the improvements.

The Income Approach was developed because the subject property is encumbered with long-term

leases. A direct capitalization analysis was utilized to yield a “as is” value of the subject property

of $9,500,000.

The Sales Comparison Approach was considered, but not developed due to the lack of comparable

building sales in and around the City of Harrisburg.

In this analysis of the subject property, the Income Approach is given more weight toward the final

estimate of market value due to the fact that the property is encumbered by long term leases and a

potential investor would most likely purchase the property based on its income producing potential.

Therefore, it is our opinion that the estimated “as is” market value of the leased fee interest in the

subject property, as of March 26, 2013 is:

* * *NINE MILLION FIVE HUNDRED THOUSAND DOLLARS* * *

($9,500,000)


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ASSUMPTIONS AND LIMITING CONDITIONS

1. No responsibility is assumed for the legal descriptions provided or for matters pertaining

to 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, but no warranty is given

for accuracy.

5. All engineering studies are assumed to be correct. The plot plans and illustrative material

in this report are included only to help the reader visualize the property.

6. No survey has been made by the appraiser and no responsibility is assumed in connection

with such matters.

7. 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 obtaining the engineering studies that may be required to discover them.

8. It is assumed the property is in full compliance with all applicable federal, state, and local

environmental regulations and laws unless the lack of compliance is stated, described,

and considered in the appraisal report.

9. 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 within the report.

10. The distribution of the total valuation in this report between land and improvements

applies only under the stated program utilization. The separate allocations for land and

buildings must not be used in conjunction with any other appraisal and are invalid if so

used.

11. Acceptance and/or use of this appraisal report constitutes acceptance of the foregoingAssumptions and Limiting Conditions.

12. The appraiser of this property will not be required to give testimony or appear in court

because of having made this appraisal, unless arrangements have been previously made.


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CERTIFICATION

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

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

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

assumptions and limiting conditions, and is our personal, impartial, unbiased professional

analyses, opinions, and conclusions.

3. I have no present or prospective interest in the property that is the subject of this report,

and we have no personal interest or bias with respect to the parties or properties involved

with this assignment.

4. My engagement and compensation is not contingent upon the reporting of a predetermined

value, or direction in value that favors the cause of the client, the amount of the valueestimate, the attainment of a stipulated result, or the occurrence of a subsequent event

directly related to the interested use of this appraisal.

5. My analyses, opinions, and conclusions were developed, and this report has been prepared,

in conformity with the Uniform Standards of Professional Appraisal Practice.

6. I have made a personal inspection of the property that is the subject of this report.

7. No one provided significant real property appraisal assistance to the person signing this

certification.

8. I am certified by the Commonwealth of Pennsylvania Department of State Bureau o

Professional and Occupational Affairs as a General Certified Real Estate Appraiser until

June 30, 2011.

9. As of the date of this report, I have completed the requirements of the continuing education

program.

November 1, 2012

W. Greg Rothman, MAI, MRICS, CPE, CCIM Date

Pennsylvania Certified General Real Estate Appraiser


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CERTIFICATION

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

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

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

assumptions and limiting conditions and are my personal, impartial, and unbiased

professional analyses, opinions, and conclusions.

3. I have no (or the specified) present or prospective interest in the property that is the

subject of this report and no (or the specified) personal interest with respect to the parties

involved.

4. I have no bias with respect to the property that is the subject of this report or to the

parties involved with this assignment. RSR Appraisers and Analysts have not appraised

this property before.

5. My engagement in this assignment was not contingent upon developing or reporting

predetermined results.

6. My compensation for completing this assignment is not contingent upon the development

or reporting of a predetermined value or direction in value that favors the cause of the

client, the amount of the value opinion, the attainment of a stipulated result, or the

occurrence of a subsequent event directly related to the intended use of this appraisal.

7. My analyses, opinions, and conclusions were developed, and this report has been

prepared, in conformity with the Uniform Standards of Professional Appraisal Practice.

8. I have made a personal inspection of the property that is the subject of this report.

9. No one provided significant real property appraisal assistance to the person signing this

certification.

Signature:

Andrew R. Wolfe

Licensed Appraiser Trainee

No: LAT000423

Expires: June 30, 2013


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Appraisal 1426 N 3rd St. Harrisburg

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