Loading...
HomeMy Public PortalAboutAppraisal Report.pdfI u.. A f ..41:.444 11 A 21 NO. 14025.1 APPRAISAL REPORT PREPARED FOR VILLAGE OF KEY BISCAYNE PROPERTY APPRAISED KEY BISCAYNE BEACH CLUB 685 OCEAN DRIVE KEY BISCAYNE, FLORIDA DATE OF APPRAISAL MAY 14, 2014 APPRAISER Robert E. Gallaher, MAI CRE GALLAHER & BIRCH, INC. Reg brace Appraisers & ConsulIanIs July 8, 2014 John C. Gilbert, Village Manager Village of Key Biscayne 88 Wet McIntyre Street Suite 210 Key Biscayne, Florida 33149 Re: The Key Biscayne Beach Club Property Dear Mr. Gilbert: At your request, we have made an investigation and analysis in order to develop an opinion of the current market value of the leased fee interest in the Key Biscayne Beach Club property located at 685 Ocean Drive. This appraisal report is prepared for you as the client, to facilitate the possible purchase of the land from the fee owner. The property is encumbered with a long term ground lease with 38 years left. Rent is $1 per year and has been prepaid for the remaining term. Because the improvements at the property were built by the lessee, we have analyzed only the land value and have not calculated the contributory value of the buildings or other improvements. At your direction we have valued the land under both its current zoning for club use and under the hypothetical condition that the land could be rezoned to permit apartment or hotel development similar to what is found on surrounding properties. Investigations were therefore made for land that is suitable for club purposes and land for apartment or hotel development. We were able to find sufficient market data to complete the sales comparison approaches in support of estimate of the current values of the property. Valuation of the property as limited to club use is challenging due to a limited market data for such use. Most club operations of this type, including the subject are not economically profitable and therefore do not represent the highest and best use of their sites, wherever they may be. On the other hand, there are some examples of land purchased for club or park use and we found four for analysis. The sales data indicated a value for the fee simple interest in the subject land of $2 million before consideration of the difference between a mainland location and the Key Biscayne oceanfront location. The subject land would logically have greater value due to its location. T.. rTr. , SIMI! IC" John C. Gilbert, Village Manager July 8, 2014 Page 2 Further analysis of oceanfront apartment land indicated a value for the subject of $3 million. However the subject land cannot be used for apartment development and therefore has a value less than the $3 million indication. The logical value conclusion point between the two indicators - $2 million and $3 million is the mid -point and it is my opinion that the market value of the fee interest in the subject land (exclusive of the buildings and other improvements) as of the valuation date was $2.5 million. This conclusion is subject to the extraordinary assumption that the access drive from Ocean Drive to the property is perpetual and unrestricted. Oceanfront apartment site sales were used to value the property under the hypothetical condition that it can be rezoned to permit apartment or hotel use similar to the other development along the ocean. Four additional sales were found and analyzed. Based on this data it is my opinion that the market value of the fee interest in the subject property under the hypothetical condition and the extraordinary assumption cited above is $23 million as of the valuation date. The market value of the leased fee interest is equal to the present value of the value of the property at the end of the lease. Based on current return rates available in the market, I have discounted the future values of the property at a rate of 6%. The resulting present values of the leased fee interest are $270,000 for the property as zoned and $2.5 million for the property under the hypothetical condition that it can be rezoned to permit apartment or hotel development. The subject property is described in the following text, followed by the valuation analyses. This report is submitted in a report format as defined under Standards Section 2-2(a) of the Uniform Standards of Professional Appraisal Practice. The report also complies with the requirements of Chapter 475, Part II of the Florida Statutes.Data, information, and calculations leading to the value conclusion are incorporated in the report following this letter. The report, in its entirety, including all assumptions and limiting conditions, is an integral part of, and inseparable from, this letter Thank you for this opportunity to have been of service. If you have any questions regarding the report or if we can be of further help, please let us know. Robert E. Gallaher, MAI CRE State Certified General Real Estate Appraiser RZ98 cc: Stephen Helfman, Esq GALLAHER &BIRCH.INc, TABLE OF CONTENTS 1 Appraisal Report Summary 1 2 The Assignment 2 3 Description of the Real Estate 5 4 Highest and Best Use 14 5 Valuation 18 6 Reconciliation of Value Indications 26 7 Market Value Conclusion 27 8 Certification 28 ADDENDA Assumptions and Limiting Conditions Definitions Legal Description Subject Photographs Land Sale Summaries Appraiser's Qualifications GALLAHER & BIRCH, INC. 1 SECTION 1 - APPRAISAL REPORT SUMMARY Property: Appraisal Prepared For: Interest Appraised: Purpose of Appraisal: Intended Use of Appraisal: Date of Value: Date of Inspection: Date of Report: Extraordinary Assumptions: Hypothetical Condition: Special Instructions: Legal Description: Zoning: Property Use: L2nd Size: Highest and Best Use Market Value Estimate Fee Simple As Club Property: As Rezoned: Market Value Estimate Leased Fee As Club Property: As Rezoned: Exposure Time: Appraisal Number: SECTION 2 - THE ASSIGNMENT Key Biscayne Beach Club 685 Ocean Drive Key Biscayne, Florida Village of Key Biscayne Fee simple estate Estimate market value Facilitate possible acquisition May 14, 2014 May 14, 2014 July 2, 2014 That the access easement from Ocean Drive to the property is perpetual and unrestricted That the property can be rezoned to permit higher density apartment or hotel development Value the land only, not the improvements A portion of Tract 5, MATHESON ESTATE KEY BISCAYNE, (PB 34/34) Miami -Dade County, Florida. PC — Private Club, Key Biscayne Key Biscayne Beach Club 2.24 acres Private club under current zoning $2,500,000 $23,000,000 $270,000 $2050,000 Nine to twelve months 14025.1 GALLAIHER E, BIRCH, INC. 2 SECTION 2 — THE ASSIGNMENT SUBJECT OF THE APPRAISAL The subject of this appraisal is a 2.24 -acre tract of oceanfront land in the Village of Key Biscayne used as the Key Biscayne Beach Club. The property is shown in the aerial photo here outlined in yellow. The property is improved with a one-story recreational building and an asphalt paved parking area. The property is encumbered with a long-term ground lease with a nominal rent and it is the Village's intent to attempt to purchase the lessor's interest in that ground lease. PURPOSE OF THE APPRAISAL The purpose of the appraisal is to develop an opinion of the market value of the subject land as of the effective date of appraisal. The definition of Market Value is shown in the addendum to the report. INTENDED USE/USERS OF REPORT This appraisal report is prepared for the Village of Key Biscayne in possible acquisition of the fee interest in the property PROPERTY INSPECTION The subject property was inspected on May 14, 2014. EFFECTIVE DATE OF APPRAISAL May 14, 2014 INTEREST APPRAISED Leased fee interest. The definitions of Fee Simple Estate and Leased Fee Estate are shown in the addendum. SECTION 2 - THE ASSIGNMENT order to facilitate the GALLAHER & BIRCH, INC. 3 As of the date of valuation the subject property was encumbered with a long term ground lease that began in 1952 and has at least 38 year remaining. Annual rent is $1, which has been prepaid to 2052. SPECIAL APPRAISAL INSTRUCTIONS The assignment is to estimate the market value of the leased fee interest in the land at the Beach Club property, a charge that comes with an implied instruction to ignore any contributory value of the improvements. The buildings were built by the lessee under the terms of the underlying ground lease and the lessor is not entitled to any value from the buildings and the land improvements. There were no other legal instructions. The value conclusion contained herein is based on the following extraordinary assumptions: • That the access to the property from Ocean Drive is perpetual and unrestricted. Access appears to be by virtue of an easement agreement across a strip of land between the subject site and Ocean Drive, but we do not have a copy of that agreement. Part of this assignment is to value the property under the hypothetical condition that the land could be rezoned for higher density development similar to the other nearby apartment and hotel buildings. The terms extraordinary assumptions and hypothetical conditions have very specific definitions within appraisal standards and these definitions are included in the addendum of the report. SCOPE OF THE ASSIGNMENT In order to complete the assignment, the following steps were taken: • The subject property and its surrounding neighborhood were inspected in sufficient detail to understand the location and market conditions impacting the subject property. • Available public data concerning zoning, utilities, street dedications, ad valorem taxes, neighborhood history and land areas were reviewed to acquire a sufficient description of the subject property • Of the various analyses available for the valuation of vacant land, the sales comparison approach was used for this valuation. This is the most appropriate methodology for such an appraisal. • In order to complete the valuation of the subject land an investigation was made for recent sales of comparable properties. Because the zoning at the site limits the use of the land to a club, the investigation for sales data was expanded to all of south SECTION 2 - THE ASSIGNMENT GALLAHER & BIRCH. 4 Florida. Using proprietary and public data bases we were able to find a small number of sales that appeared relevant. • An additional investigation was made for recent sales of oceanfront land suitable for higher density development to provide evidence of land value under the hypothetical condition that rezoning is possible. • The sales data found in our investigations was analyzed in an appropriate manner in order to be used to indicate a value for the subject property • The data from the analysis was used to conclude as to a reasonable estimate of the market value of the fee interest in the subject land as of the effective date of value. • Additional investigation was made for data regarding appropriate discount rates to apply to future values in order to calculate the present value of the leased fee interest in the subject land. Rate data was applied to the future values of the land to calculate present values. SECTION 2 - THE ASSIGNMENT GALLAHER & BIRCH, INC, 5 SECTION 3 - DESCRIPTION OF THE REAL ESTATE IDENTIFICATION OF THE SUBJECT PROPERTY The subject of this assignment is a 2.24 acre parcel of oceanfront land on Key Biscayne. ;' a. 4 4 Eau Cam! WI* Pompano BOa+:h Fort i'iC4 , UAddordale E.varpirxr WAa=fr Managlnvrn Ann, We* Cons*, kilo', As., "!A lhami Galdenf F rgAt.+ S '4)04 4 ,Qple Uatnarrar4. Nee.YAlef rmMra1M at*f lP Maywood Hia eah CD Chew Nitro uomesusa a Blaurra Naxoru, Pan The land is used as the Key Biscayne Beach Club and is improved with a single -story recreation building comprised of offices, a commercial kitchen, restrooms and a large covered patio area. ADDRESS 685 Ocean Drive, Key Biscayne, Florida LEGAL DESCRIPTION The complete legal description is relatively lengthy and is contained at the end of this report in the Addendum The property is a portion of Tract 5, MATHESON ESTATE KEY BISCAYNE, according to the Plat thereof, as recorded in Plat Book 34, at Page 34 of the Public Records of Miami -Dade County, Florida. OWNERSHIP AND HISTORY The subject property is shown in the county tax record in the name of the Key Biscayne Beach Club, but their interest is by virtue of a long term ground lease that commenced in March 1952. The latest document we have seen shows the Landlord to be Rowan Corp. MARKET AREA The island community of Key Biscayne is one of the most affluent municipalities in Miami -Dade County. The Key Biscayne housing market continues to be very strong. For closings in the calendar year 2013, single family home prices averaged $2.6 million, as compared to $250,000 for Miami -Dade County in general. For year to date 2014, the average house price is $3 million. The average condominium apartment price in the Village was $741,266 for 2013 and $874,076 for 2014 to date; average apartment price for the county overall was $384,900 for May 2014. In light of the fact that this report is being prepared for the Village itself, we have not included a lengthy description of the village, its demographics or property statistics. SECTION 3 — DESCRIPTION OF THE REAL ESTATE GALLAHER & BIRCH. iuc 6 GENERAL MARKET CONDITIONS While most of the United States continues to recover from the 2008/09 recession and the subsequent weakened economy, south Florida's conditions have improved more rapidly due to the influence of foreign capital being invested in the area, both by visitors staying in local hotels and by real estate investors buying commercial and residential properties. Weakness in the employment outlook on a local basis has some economists concerned about the strength of the recovery and some experts predict that Florida may not see real improvement until later this year. Employment remains a critical issue; the unemployment rates (as a percent of the labor force), per the Bureau of Labor, were improved as of December 2012 and the latest data for 2014 as compared to December 2010 and 2011. The downward trend in unemployment is slow but in the right direction. Location Dec 2010 Dec 2011 Dec 2012 Apr 2014 Miami -Ft. Lauderdale 11.8% Florida 11.1% Nationwide 9.4% 9.6% 9.9% 8.5% 8.8% 7.9% 7.6% 6.6% 5.7% 5.9% Source of data: Bureau of Labor Statistics, US Department of Labor Miami has seen one of the more robust housing recoveries take hold over the past eighteen months, welcome news after having been one of the deepest -affected housing markets across the country. Foreign buyers and cash investors have buoyed the local residential market. The level of interest and activity is on an upward swing as shown by the increased number of transactions and as reported by local lenders. Regional banks are more active in making loans, albeit with more restrictive lending parameters. The absence of a mortgage market for vacant land had a dampening effect on land values right after the recession, but the rebounding housing markets have been accompanied with rising land values as the major developers again compete for well -located sites. The improving housing markets have also increased demand for land for development, particularly in the downtown Miami market area, where land prices are approaching $1,000 per square foot. If land were available for development in the Village, there would be significant demand resulting in a high price. ACCESSIBILITY The subject is easily accessible being located at the end of East Enid Drive about 1/4 -mile east of Crandon Boulevard. The subject land does not actually front on any public street. It is separated from Ocean Drive by a 100 -foot strip of land owned by the Village. Unrestricted and perpetual access is assumed to exist as a fundamental assumption of this valuation. SECTION 3 - DESCRIPTION OF THE REAL ESTATE GALLAHER & BIRCH, INC 7 STREET IMPROVEMENTS The subject land does not actually front on any public street. The access easement leads to Ocean Drive, which is paved with asphalt with a single traffic lane in each direction (north and south). Ocean Drive has concrete sidewalks, concrete curbing and storm drainage, but no streetlights. PRESENT USE As of the appraisal date, the property was improved with a single -story building used as the Beach Club and an adjacent paved parking lot. ZONING As of the date of the appraisal, the subject land was zoned PC — Private Club District by the Village of Key Biscayne. According to the Village's code of ordinances, the "permit non -commerical private facilities that provide recreational and social activities for their members and guests." The main permitted use is limited to a private club and related accessory uses. The district has no specified minimum lot size, but does limit lot coverage to 15% of lot area and limits building size to a maximum floor area ratio (FAR) of 0.15 at a maximum height of 35 feet. Front setback is 50 feet, side setback is 25 feet, with zero setback from the Coastal Construction Line at its frontage on the ocean. PC classification is designed to The very limited FAR and 35 -foot maximum building height in an area with highrise apartment buildings raises the question of the possibility of rezoning to a more intense classification. Zoning changes are usually the purview of the local governing body (I.e. village council or zoning board), however, for Key Biscayne, there is the following provision in the Village code: SECTION 3 - DESCRIPTION OF THE REAL ESTATE GALLAHER & BIRCH, NNC 8 Sec. 4.15. Approval by Vote of Electors Required for Amendments to Land Development Regulations No text amendment to the zoning code or other land development regulations that would create a new zoning district, or that would amend any definition of a term used in the land development regulations, or that would have the effect of allowing a use not currently permitted, increased residential density, additional hotel or other accommodation units per acre, or increased lot coverage, height, or floor area ratio, shall be effective until approved by a majority vote of the electors voting on the amendment. Therefore any change in zoning would require voter approval. Future Land Use The Future Land Use Plan for Key Biscayne designates the property as Semi Public Recreation and Open Space. Coastal Control Construction Line The Coastal Control Construction Line (CCCL) is an imaginary line that establishes the easterly limit of any new building to be built on Key Biscayne. According to the State of Florida's official website, "The Coastal Construction Control Line Program (CCCL) is an essential element of Florida's coastal management program. It provides protection for Florida's beaches and dunes while assuring reasonable use of private property. Recognizing the value of the state's beaches, the Florida legislature initiated the Coastal Construction Control Line Program to protect the coastal system from improperly sited and designed structures which can destabilize or destroy the beach and dune system. Once destabilized, the valuable natural resources are lost, as are its important values for recreation, upland property protection and environmental habitat. Adoption of a coastal construction control line establishes an area of jurisdiction in which special siting and design criteria are applied for construction and related activities. These standards may be more stringent than those already applied in the SECTION 3 - DESCRIPTION OF THE REAL ESTATE GALLAHER & BIRCH, FMC. 9 rest of the coastal building zone because of the greater forces expected to occur in the more seaward zone of the beach during a storm event." The development restrictions cited above show a setback of zero feet from the CCCL. But that line is located well into the subject site. The approximate location of the line is shown on the aerial photograph above at the right as the yellow dashed line. The subject is the yellow highlighted rectangle. The newer buildings north and south of the subject are all set behind the line, but the Sands Condominium, an older structure, clearly crosses the line having been built before the CCCL was established. According to the subject property manager, Mr. O'Brien, the CCCL crosses the subject property at the point where the flagpole is located, which is on the land side of the club building. Therefore, any new building built on the site would have to be located west of that line. UTILITIES Florida Power and Light Company provides electricity to the subject area. Water and sewer facilities are provided by Miami -Dade County. SHAPE AND SIZE OF SITE The subject land is rectangular in shape with the following dimensions according to a sketch of survey prepared by Harry C. Schwebke & Associates dated October 1955. North boundary - South boundary - East boundary - frontage on the ocean - West boundary - frontage on Ocean Drive - The survey cites a total land area of 2.24 acres, more or less. Access to Ocean Drive is via an 18 -foot wide driveway over the north end of the strip of land between the subject and Ocean Drive. This is assumed to be an unrestricted easement for access. 559 feet 560 feet 175 feet 175.04 feet F U F SECTION 3 - DESCRIPTION OF THE REAL ESTATE GALLAHER & HIRCH, INCC 10 TOPOGRAPHY The site is generally level and at grade with the abutting street. The Schwebke survey cited above shows elevation markers at various points throughout the site. The parking area indicates elevations of 4.6 feet to 5.2 feet, with the site rising to 7.0 feet east of the paved area. The survey predates the building construction. LISTING OF SUBJECT As of the appraisal date, the subject property was not actively marketed for sale. ENVIRONMENTAL CONSIDERATION While it is beyond the appraiser's expertise to determine the presence or extent of any environmental contamination within the site, it is incumbent upon us to comment as to any visible evidence of contamination or any apparent source of potential contamination. There is no evidence of any uses that would have contaminated the underlying soils or groundwater. If such contamination is discovered, it could substantially affect the value of the property. LAND IMPROVEMENTS The following land improvements were found at the property at the time of our inspection. The subject of this analysis is the underlying land at the site and the improvements are not part of that analysis. They are included here for descriptive purposes only. Asphalt paving - approximately 30,000 square feet of paving marked for 93 parking spaces including 2 for disabled parking Concrete parking bumpers - one for each space at perimeter of lot, one for each pair of spaces at center of lot Masonry perimeter wall along west and south boundaries Chain link fencing along north boundary Masonry walls at rear of building defining patio areas and Masonry planters scattered at patio area Concrete walkways and patios - at front and rear of the building, most of which are paved with brick pavers Exterior cabana shower area finished with slate tile Wood and palm frond -roofed shelters (Chickees) at beach area Miscellaneous playground equipment at beach and patio areas SECTION 3 - DESCRIPTION OF THE REAL ESTATE beach area GALLAHER & BIRCH, INC 11 BUILDING IMPROVEMENTS The property is improved with a one-story mixed -use building. As mentioned above, the subject of this analysis is the underlying land at the property and the improvements are not part of that analysis. The building is described as follows: Year built — 1958 Foundations — unknown, but probably reinforced concrete spread footings Construction — concrete block, stuccoed Roof — flat and gable type on a wood structure supported by the exterior walls of the structure Exterior Walls — stuccoed and painted at most areas, slate tile at outdoor cabana shower area Windows — plate glass in aluminum frames, decorative glass block, sliding glass doors. The windows have roll -down aluminum storm shutters. Floors — monolithic terrazzo at most of the building, including the large recreation area and the office; quarry tile at kitchen; finished concrete at bathrooms; brick pavers at breezeway; smooth concrete at garage area Interior Walls — gypsum drywall, taped and painted with a wood paneled wainscoting at the recreation area; ceramic tile at the kitchen and bathrooms; wood paneling at the office; stuccoed walls at garage area Ceilings — 2' x 2' lay -in acoustical panels in a suspended grid at recreation area; drywall, taped and painted at bathrooms; plastered and painted at kitchen; acoustical panels at office; exposed wood rafters at garage Contains — the building has the large enclosed recreation area, a commercial kitchen, two storage areas and an administrative office. The areas are connected by an open breezeway. Total building area is approximately 4,660 square feet. SECTION 3 - DESCRIPTION OF THE REAL ESTATE View of the club building from the beach side. GALLAHER & BIRCH, INC 12 View of the club building from the parking area The building is in relatively good condition, age and use considered. The property is well maintained by the on -site manager and reflects a continued strong maintenance program. In addition to the club building there is a small ancillary structure on the property near the north boundary and west of the main building. This small utility building at one time reportedly housed the land end of a communication cable that ran to the Fowey Light which was allegedly used by the U.S. Navy to access surveillance equipment located at the light and focused on Cuba. The building is now reportedly empty. SECTION 3 — DESCRIPTION OF THE REAL ESTATE GALLAHER & BIRCH, Fhtc. 13 ASSESSED VALUE AND TAXES The subject is assessed by Miami -Dade County for 2013 and 2014 as follows: Folio Number: 24-5204-002-0030 Land area Building area Year built Assessed value Land Improvements Total 97,825 square feet 4,661 square feet 1958 2014 $1,663,025 + 1,000 $1,664,025 2013 $1,662,025 + 1.000 $1,664,025 Using the 2013 millage rate for Key Biscayne, the taxes are calculated to be $28,690. The valuation techniques employed by the Miami -Dade County Property Appraiser's office, while appropriate for the mass appraisal process and sufficiently accurate to establish the overall tax base for the county, are not adequately focused to be indicative of the market value of a single parcel of real estate. Therefore, the above -assessed value is not considered an indication of the market value of the subject. SECTION 3 - DESCRIPTION OF THE REAL ESTATE GALLAHER & BIRCH, INC 14 SECTION 4 - HIGHEST AND BEST USE ANALYSIS The highest and best use of a specific property is determined by the competitive forces within the specific market of which the property is a part. Consequently, the analysis of highest and best use is an economic study, one in which the available possible, legal and feasible uses must be compared. See the definition at the Addenda. "Highest and Best Use", as defined, requires that any potential use be legally permissible, physically possible, financially feasible and provide the maximum return to the owner. The analysis is required both for the site alone, as though it were vacant and for the property as actually improved as of the appraisal date, if improvements are in place. As Though the Property Were Vacant Legal Uses The legal uses of a property are generally defined by the governing zoning code and land use plan. In this case, the property is zoned PC, a private club designation. The site has a 0.15 floor area ratio and a 35 -foot height limitation and can only be used for a club facility. Any change in the zoning for the property would require approval by the voters of Key Biscayne. Physically Possible Uses The site, at 2% acres is of sufficient size to accommodate a club and appropriate parking, but if it were vacant, any new building would have to be built further from the ocean than the existing building. The site could be improved with maximum 14,674 square feet of building under its 0.15 FAR limitation. Financially Feasible Of the legally permissible uses that are physically possible, a financial measure is used to determine the feasibility of a particular use. Such feasibility may be determined by comparing the economic value of a legal use to the cost of creating that use. If the cost to purchase the land, develop the site, and market the finished product is less than the value of that finished product, then the use is considered financially feasible. Generally, a club facility is not considered a separate and commercially viable use, but is usually ancillary to other uses like condominium apartment buildings. As an oceanfront tract of land, the location is suitable for a club type operation. Other municipalities along the ocean in South Florida have club facilities for the benefit of their citizenry. However, in at least one case, the club's property value reached a point where the city chose to sell off the land for private development. If the zoning on the subject property could be changed to permit a more intense use of the land, hotel or apartment development would also be financially feasible. SECTION 5 - VALUATION GALLAHER & BIRCH. INC. 15 Maximally Productive The most productive use of a site is one that maximizes the utility of the property, while incorporating market demands into the overall design. If the site were vacant and available for development, its highest and best use under current zoning regulations would be for development with a club operation, although that club would likely not actually be financially profitable. If the zoning could be changed, the highest and best use would be for a more intensive use similar to the other buildings along the ocean in Key Biscayne, either a hotel or an apartment building. As Improved Legal Uses The existing building improvements conform to the current zoning code, although they are non -conforming with respect to their location east of the Coastal Construction Control Line. As such they are a legal use of the property. The building has an actual FAR of 0.048 as compared to the 0.15 permitted by the zoning. Therefore, significant additional building area could be added to the site within current zoning restrictions, should there be a need for such expansion. Physically Possible Uses The site easily accommodates the current improvements. Financially Feasible We have not been furnished with a summary of the income and expenses of the club. According to the management, the club operates on a breakeven basis. If a net surplus is produced in any given year, that surplus is deposited in a reserve account to pay for future hurricane damage. Revenue comes from annual dues from the members of the club, initiation fees from new members, rental fees for the use of the property for private events and the concession fee charged to the operator of the kitchen. From those revenues, the club must pay real estate taxes, insurance premiums, maintenance costs, utilities and personnel expenses. Generally, a club facility is not considered a separate and commercially viable use, but is usually ancillary to other uses like condominium apartment buildings. The lack of net operating income from this club is consistent with that premise. As an oceanfront tract of land, the location is suitable for a club type operation. Other municipalities along the ocean in South Florida have club facilities for the benefit of their citizenry. However, in at least one case, the club's property value reached a point where the city chose to sell off the land for private development. If the zoning on the property could be changed to permit a more intense use of the land, SECTION 5 - VALUATION GALLAHER E. BIRCH, INC 16 hotel or apartment development would also be financially feasible and would render the existing improvements of no value. Maximally Productive The most productive use of a site is one that maximizes the utility of the property, while incorporating market demands into the overall design. As currently improved, the highest and best use under current zoning regulations is its continued use as a club operation, consistent with the zoning. However, the use does not produce measurable revenue to show a return on any land or improvement values. If the zoning could be changed the highest and best use would be for a more intensive use similar to the other buildings along the ocean in Key Biscayne, either a hotel or an apartment building, at which point the existing improvements would no longer have value. Conclusion as to Highest and Best Use Under current zoning regulations, the highest and best use of the property is its continued use as a club operation. If the zoning could be changed to permit apartment or hotel development, one of those uses would be the highest and best use. However such a zoning change requires a public vote and it is unlikely that such a change would be approved. MOST LIKELY PURCHASER The most likely purchaser of the leased fee interest in the subject property would be pension fund or other institutional investor looking for long term stability and potential appreciation in the value of the underlying asset. STRENGTHS, WEAKNESSES, OPPORTUNITIES, THREATS Strengths The most significant strength of the subject property is its oceanfront location within the affluent community of Key Biscayne. There is a very limited supply of privately owned oceanfront land in Miami -Dade County, but a significant demand should such a property be on the market. The Key Biscayne location is particularly desirable due to the demographics of the community and its island setting. Weaknesses The current zoning at the property prohibits any use but a club, which is not an economically viable use on its own. Zoning regulations in the Village require a vote of the population to permit a zoning change, making such a change less likely without prolonged and expensive litigation. Opportunities SECTION 5 - VALUATION GALLAHER &BIRCH.INC, 17 There are few oceanfront sites in the Miami -Dade County market available for new hotel or apartment development. If the zoning could be changed, the property could accommodate a more intense use and would be quickly absorbed by the market. Threats The south Florida market is always subject to temporary interruption of commerce due to a damaging hurricane during the fall months. That threat is exacerbated by the subject's location directly on the open ocean with a land elevation less than 10 feet above sea level. For the long term there is also the regional threat of rising ocean water levels due to global warming, as low lying areas of Miami Beach already suffer periodic flooding. At some point the investor markets will reach a tipping point beyond which they will begin to demand higher returns from south Florida real estate to compensate for the perceived threat of climate change. Again, this threat is exacerbated by the subject's low-lying oceanfront location. SECTION 5 - VALUATION GALLAHER &BIRCH.INC 18 SECTION 5 - VALUATION There are three generally accepted approaches to the valuation of real estate — The depreciated cost approach, an estimate of the cost to reproduce the subject improvements, less the accrued depreciation, plus the value of the land; The income approach, the translation of a property's anticipated income production into a value estimate; And the sales comparison approach, a comparison of recent sales of similar properties to the subject, with appropriate adjustments made to the sales. The valuation of the leased fee interest in the property is an income analysis in which the future value of the fee interest is considered income 38 years in the future and is discounted to a present value using an appropriate risk rate. The first step in making the discount calculation is to estimate the current fee interest in the subject land. VALUATION OF FEE INTEREST IN SUBJECT LAND There are a number of methods that can be employed specifically to value land; amongst which are sales comparison (as enumerated above), allocation, extraction, residual analysis, lease capitalization and subdivision analysis. All of the approaches were considered for application here. For purposes of this valuation we were able to find some limited market data to complete the sales approach and have therefore employed that method. An investigation was made for sales of land intended to be used as private clubs or recreational facilities. We then made a separate investigation for sales of land comparable to the subject under the hypothetical condition that it could be rezoned to a more intensive use. The results of our investigations are shown below. Valuation Under Current Zoning We were able to find only very limited market data concerning land bought for recreational or club uses. The sales we did find are summarized as follows. Sale 1 — Midtown Athletic Club, Weston In September 2001 the Midtown Athletic Club in Broward County sold in what appears to be a purchase by a lessee of the fee interest in a leased fee property. (Tax record reference 5040 20 01 4010; deed recorded at ORBook 32187 at page1587). It appears this was therefore the acquisition of the underlying land and not a purchase of the property as improved. The club property includes a 40,219 square foot 2 -story clubhouse/fitness center, a junior Olympic lap pool, a small recreational pool, an outdoor spa, a kid's pool, 25 tennis courts, a full scale basketball court and a sandy lakefront beach, none of which would have been included in the land purchase. SECTION 5 - VALUATION GALLAHER & BIRCH, INC, 19 The purchase price was $3.7 million which is equal to $4.21 per square foot of land area. Subsequent to the 2001 purchase, the south Florida markets experienced a rapid run-up in real estate values across all sectors and then a precipitous decline in values as the Great Recession overpowered the national economy, caused largely by excesses in the real estate markets. In order for the 2001 purchase price of this property to be meaningful for the 2014 valuation date of the subject property, the sale price must be adjusted for the changes in the market over the intervening 13 years. In order to measure the changes in real estate values over the 2001 to 2014 time period, we examined the average sale price of single family homes in the City of Weston, the location of the sale property. In 2001 the average home price in our sample was $94.90 per square foot. That figure rose as high as $198.58 by 2006 and then fell to $125.95 in 2009. For the first half of 2014, the average per square foot price had risen to $163.32. The net change in values then is $94.90 to $163.32, a change of 72%. Increasing the 2001 price of $4.21 by 72% indicates a current value of $7.24 per square foot of land for the 2014 date. $200.00 $150.00 $100.00 $50.00 Weston r1 N m kr, l0 N co a, o rl N m 0 0 0 0 0 0 0 0 0 a -I '-I a -I .--I r-1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 NNNNNNNNNNNNNN Average Price Per Ft2 Sale 2 — YMCA at the Falls, Miami -Dade County In January 2002, the YMCA of Greater Miami purchased a tennis center located on Howard Drive, just west of South Dixie Highway in the Falls area of unincorporated Miami -Dade County. (Tax record reference 30-5016-058- 0010; deed recorded ORBook 20179 at page 1972)They used the existing facilities for a few years and then subsequently razed the site and built a state of the art, two-story recreational facility. SECTION 5 — VALUATION $240.00 $220.00 $200.00 $180.00 $160.00 $140.00 $120.00 $100.00 Briar Bay ,yo ,10 ,yo ,yo ,yo ,yo ,tp ,yo ,yo ,yo ,yo ,10 ,yo —Average Price Per Ft2 GALLAHER & BIRCH, INC. 20 The purchase price for the 5.79 -acre site was $1,950,000 or $7.74 per square foot. As with the Weston sale, the sale price of the YMCA land must be adjusted for the changes in the market between its early 2002 acquisition date and our mid -2014 valuation date. In order to adjust the 2002 sale price, we did the same thing that we did for the Weston property, we compared the average per square foot sales prices of houses in the Briar Bay area for the relative time periods. In 2001 the average home price in our sample was $121.63 per square foot. That figure rose as high as $219.38 by 2006 and then fell to $139.86 by 2010. For the first half of 2014, the average per square foot price had risen to $174.37. The net change in values then is $94.90 to $163.32, or 43%. Increasing the 2002 price of $7.74 by 43% indicates a current value of $11.07 per square foot of land for the current date. Sale 3 — 3516 NW 7th Avenue, Miami In July 2004 a former church property was sold to a gentleman from Ohio for the express purpose of converting the existing building improvements into a private club. (Tax record reference 01-3126-029-0020; deed recorded OR Book 22470 at page 2090). The location is just west of 1-95 and within a few blocks of the trendy Wynwood Arts District. Being west of 1-95, this property would not experience the rapid rise in property values experienced by properties a half mile to the east. The existing church building at the site was originally built in 1925 and the investor was spending significant sums to convert the building to his club concept. From a market standpoint, the improvements were in such poor condition that they no longer contributed to the value of the property, making the acquisition equivalent to a land sale. The $1.4 million price for the 34,260 square feet of land area indicated a unit value of $40.86 per square foot of land. Again, the sale date is years earlier than our valuation date and adjustment is needed for the changing market conditions. The same house price comparison does not work because this property is commercially zoned land, with far greater use options than either of the previous two sales. Here, the changing values of commercial land must be analyzed. SECTION 5 — VALUATION 200.00 180.00 160.00 140.00 120.00 100.00 80.00 Moody's RCA Commercial Property Price Index 2001- 2014 O 0 z O O a CU O O C CCL C 1D o co Q CO 0 0) z 9 Cr) O —Composite Indices O ri ei N CO -I , -I , -I I I co Z v GALLAHER & BIRCH. INC, 21 To quantify that change in value we used the Moody's RCA Commercial Property Price Index, a national composite index calculated by the Massachusetts Institute of Technology and published by Moody's. The index in July 2004 stood at 120.58, rose to 181.14 in January 2008 and then fell, eventually rising to 173.54 for April 2008, the latest data available. That is a net overall change from 2004 to 2014 of 44%, Increasing the $40.86 per square foot purchase price to $50.84. Sale 4 — The Thalatta Estate, Palmetto Bay In December 2004 the Trust for Public Land purchased a bay front residential estate on behalf of the Village of Palmetto Bay. (Tax record reference 33-5035-001-0120; deed recorded ORBook 22902at page 1344). The municipality later took title and dedicated the property to public use, including making the 1925 -built residence available for private functions. Here we have a government buying a water front property for public use, including improvements that are available for private functions — in many respects, a similar situation with regard to the subject property. The purchase price for the property was $3.6 million. In 2004 the average home price in the Village of Palmetto Bay was $166.64. Values here rose and then fell and for the first half of 2014 were at $163.68, not quite back to 2004 levels, but less than 2% below the 2004 average. Therefore the 2004 price for the sale is a good indicator of the value of that property as of the valuation date. $240.00 $220.00 $200.00 $180.00 $160.00 $140.00 $120.00 $100.00 Palmetto Bay r T 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 —Average Price Per Ft2 In this case the improvements do appear to have contributed to the value of the property. In order to adjust for their contribution I have calculated a contributory value based on a depreciated replacement cost estimate as follows: The building at the Thalatta Estate has a total area of about 8,100 square feet. Using a contributory value factor of $50 to $75 per square foot (a relatively high factor for an 89 -year old structure) indicates a value of $406,000 to $610,000 for the buildings, leaving approximately $3,000,000 to $3,200,000 to the land ($19.59 to $20.83 per square foot of land). SECTION 5 - VALUATION GALLAHER & BIRCH. INC 22 Based on the foregoing analysis of price changes in Palmetto Bay, the net land value of approximately $20 per square foot is an indication of the current value of the sale land. Club Land Value Conclusion The adjusted sales prices from the foregoing discussion are shown on the following schedule. The data is shown arrayed by price per square foot of land, highest to lowest. Club Property Date Miami Private Club Jul -04 Palmetto Bay Park Dec -04 Briar Bay YMCA Jan -02 Weston Tennis Club Sep -01 Acres Sale Price 0.79 $1,400,000 3.52 3,600,000 5.79 1,950,000 20.15 3,700,000 Price/Ft2 $50.84 20.00 11.07 7.24 The data shows a wide array of unit prices from $7.24 to $50.84 per square foot of land. The highest priced sale is the commercial land on NW 7th Street in Miami that has a wide range of development options far beyond its use as a club. This is considered the least comparable of the sales and is eliminated from further consideration because of its commercial classification at its unit price which is more than twice the next lowest club price. The two lowest priced properties are both recreational clubs — one private (Weston) and one semi-public (YMCA). Their prices are reasonably close at $7 to $11 per square foot of land. The Palmetto Bay park property is priced about twice that at $20 per foot. The most significant characteristic of the sites is the Palmetto Bay site has frontage on Biscayne Bay, while the other two properties are located well inland, where there is far more land available for development than along the open water (either bay or ocean). Therefore the Palmetto Bay site is more comparable to the subject property. Without further adjustment, it is my opinion that the market value of the subject land is $20 per square foot of land as indicated by the adjusted price of the Palmetto Bay park site. However, some location adjustment should be considered for the difference between the Biscayne Bay location in Palmetto Bay and the oceanfront location on Key Biscayne. That further adjustment is considered in the Reconciliation section below. Valuation Under Hypothetical Rezoning In order to estimate a value for the land under the hypothetical condition that it could be rezoned to allow apartment or hotel development, we made an investigation for recent sales of oceanfront apartment sites. The results of that investigation are shown on the following schedule. The sales are shown in chronological order. SECTION 5 - VALUATION GALLAHER & BIRCH, INC, 23 Sale SP 5 6 7 8 Location 685 Ocean Dr 350 Ocean Dr 9449 Collins Ave 9379 Collins Ave 10201 Collins Ave Key Bisc. Key Bisc. Surfside Surfside Bal Harbour Date Acres Units Price Jun -14 2.25 Sep -09 10.45 Feb -11 1.43 Mar -12 1.60 Jun -12 5.54 154 $78,000,000 110 25,100,000 58 50, 000, 000 240 220,000,000 Sale 5 is the transaction involving the former Sonesta Beach Hotel site a few blocks north of the subject. Being on Key Biscayne, this is the most relevant of the four sales, albeit before adjusting for changing market condition between 2009 and today. The site is almost 5 times the size of the subject and is planned for the 154 -unit Oceania Key Biscayne; 142 of the units are to be in a tower with 12 villas on the west side of Ocean Drive. The development and the land sale have the following parameters: Total number of planned units - Total planned building area - Floor area ratio - Price per dwelling unit - Price per square foot of land area - Price per square foot of planned building - 154 528,149 square feet 1.16 $506,494 $171.36 $147.69 In September 2009, the date of the sale, the real estate markets in south Florida were suffering the worst of the impact of the Great Recession, with depressed property values, investor pessimism and no financing. In order to adjust the price of the sale for the changing market conditions, we compared the average price of condominium apartments on Key Biscayne in 2009 with the average price for the first half of 2014. It is reasonable to conclude that the value of apartment land would fluctuate with the prices of apartments in the local market. The average price of Key Biscayne apartments in 2009 was $380.49 per square foot. By 2014, as market conditions have improved, that average price rose to $540.34, an increase of 42%. Key Biscayne Condos 2009-2014 3600.00 3590.00 $560.00 3540.00 $520.00 $500.00 $460.00 3460.00 $440.00 3420.00 $400.00 2006 2010 2011 2012 —Average Price Par FF 2013 2014 SECTION 5 - VALUATION GALLAHER & BIRCH. INC 24 Increasing the value indicators by 42% results in the following: Actual Price 42% Price per dwelling unit - $506,494 $719,221 Price per square foot of land area - $171.36 $243.32 Price per square foot of planned building - $147.69 $209.73 Of these parameters the price per square foot of planned building is the most relevant. A developer building an apartment structure would base a land price on how many square feet of building can be developed and the price at which he could expect to sell the units. At the same density of development as the sale property (1.16 FAR and 16 dwelling units per acre) the subject property could accommodate 113,477 square feet of building divided into 36 apartments. Applying a range of values of $200 to $210 per buildable square foot as indicated by this sale to the subject indicates a value of $22.7 to $23.8 million. The logical conclusion then is $23 million. Sales 6 and 7 are oceanfront sites in the Town of Surfside in the 9300 and 9400 blocks of Collins Avenue. The properties sold about a year apart with Sale 2 planned for 110 apartments and Sale 3 for 50. The developments have the following parameters: Sale 6 Sale 7 Total number of planned units - 110 58 Total planned building area (in ft2) - 227,590 358,885 FAR - 5.14 3.49 Price per dwelling unit - $228,182 $862,069 Price per square foot of land area - $403.21 $715.97 Price per square foot of planned building - $110.29 $139.32 It is by reducing the sales price to a price per planned building square foot that wide variations in other price measurements are eliminated. Sale 7 has half as many units as Sale 6 and nearly 50% higher per unit price, but Sale 7 has plans for a larger building and much larger dwelling units and the price per buildable square foot is not that different and some of the difference is explained by the year's time between the sales. The unit prices of $110 and $139 are before adjustment for time between 2011, 2012 and the value date of 2014 and before consideration of the difference in location between the heavily travelled Collins Avenue location in Surfside and the more private and quiet Key Biscayne. The time and location considerations would close the gap between the $110 to $139 per foot from these sales and the $210 per foot indicator from Sale 5. Sale 8 is the site of the Oceania Bal Harbour by the same developer as the Sale 5 project. This site was the former Bal Harbour Club location and it sold in 2012 for $220 million. The parameters are as follows: SECTION 5 - VALUATION GALLAHER & BIRCH. INC 25 Total number of planned units - Total planned building area - FAR - Price per dwelling unit - Price per square foot of land area - Price per square foot of planned building - 240 654,687 square feet 2.71 $916,667 $715.97 $336.04 At nearly $1 million per dwelling unit land cost, all of the parameters of this sale are well above any of the other indicators and this sale is eliminated from further consideration. Conclusion The last developable oceanfront site in Key Biscayne was the former Sonesta Beach Hotel property which sold in 2009 for $78 million. Analysis of that sale indicates a value of $200 to $210 per buildable square foot for the subject land if it could be rezoned and approved for development with 36 apartments in 113,477 square feet of building, the same density as Sale 5. The resulting indication of value is $23 million for the subject site under the hypothetical condition. This value is equal to $640,000 per potential dwelling unit (rounded). The conclusion is supported by the 2012, $50 million sale ($862,000 per unit) of the property at 9379 Collins Avenue, Surfside which is to be improved with only 58 units. VALUATION OF LEASED FEE INTEREST The owner of the leased fee interest has the right to receive the income from a lease over the term of that agreement and then the right to receive the value of the property when the lease terminates. IN this case the $1 per year is prepaid to then end of the lease term and the value of the leased fee is the present value of the property at the end of the term. In order to calculate the present value of the leased fee interest two components are needed — the value of the asset at the end of the lease and a market discount rate to apply to that future value. We have no way of knowing the value of the subject land 38 years in the future. There are two methods for discounting the future land value — increase the value of the land by an expected appreciation (inflation) rate and use a high -risk discount rate or use the current value of the land and apply a low -risk discount rate. We have employed the latter methodology. Determination of discount rate An amount of money due in the future is worth something less than that amount today. The current value of the leased fee interest is the discounted present value of the property in the future (at the lease termination date). SECTION 5 - VALUATION GALLAHER & BIRCH, INC 26 An investor purchasing the leased fee interest in the property is buying a future value. In making a purchase price decision, the risks inherent in the investment would be compared to returns available from other investments in order to identify an appropriate interest rate, or measure of that risk. As of the appraisal date (May 14, 2014) the following interest rates were available in the market: 30 -year fixed residential mortgage 15 -year fixed residential mortgage Net leased properties 30 -year US Treasury Bond 10 -year US Treasury Bond Prime lending rate 4.25% 3.24% 5.5 to 7.0% 3.43% 2.59% 3.25% The rates on the various financial investment vehicles cited above decline as the time frame is decreased (within the same family of investment), the essence of the time value of money. Mortgages on residential properties were considered relatively safe investments until the financial crises of 2008. There is now uncertainty as to how much value is in the mortgaged property securing the debt, but fewer qualified buyers have reduced demand for mortgages and kept the rates relatively low. Mortgages on residential properties have had a lower risk associated with them because lenders could package and resell these loans easily in the secondary market, increasing their liquidity; that activity has slowed markedly as well. The subject property incorporates greater risk due to the complexities associated with a non-residential property, the limited pool of potential buyers, and the decreased level of liquidity. Treasury instruments are virtually risk free as they are backed by the United States Government. The rate of return is related to the length of the investment period; longer - term mortgages and "Treasuries" yield higher rates than shorter -term instruments due to the increased risk of an extended time period. The lower rates of these investments are directly related to their lower risk compared to mortgages. The risks inherent in the subject parcel include: • Complexities of commercial real estate • Limited pool of potential buyers due to nature of investment • Inefficient secondary market for resale • Commercial mortgages are made at rates higher than residential mortgages, therefore, potential investors would require a higher rate • There is no cash flow between the valuation date and the lease termination date SECTION 5 - VALUATION GALLAHER & BIRCH, INC. 27 The risks are offset by mitigating factors: • Lessee is highly motivated to maintain control of the site • The Lessee has no ground rent obligation • There is continuing demand for and no supply of oceanfront land in the area The fundamental challenge of this valuation is relating what investors are paying for net leased cash flow properties to the subject condition where there is no cash flow, but only residual value. A buyer of this interest may demand greater return due to the lack of cash flow, uncertainties of the real estate and financial markets and future concerns about sea level rise. Based on the foregoing, it is our conclusion that a discount rate (compound interest rate) of 6% would be necessary in order to induce an investor to purchase this leased fee position as of the valuation date. The rate recognizes the length of the remaining term (approximately 38 years) and the risk that the fee simple interest at reversion may or may not appreciate in value. The discounting process is a mathematical calculation. The process can be expressed as long algebraic formulas, but inclusion of those formulas would not contribute to the clarity of this valuation process and, therefore, are not included. In summary, the discounting process is as follows: Premise As Zoned Current value - $2,500,000 Present value factor for 38 years at 6% - x 0.109239 Present value - $273,097 Use - $270,000 SECTION 5 - VALUATION As Though Rezoned $23,000,000 x 0.109239 $2,512,494 $2,500,000 GALLAHER & BIRCH, INC. 28 SECTION 6 - RECONCILIATION OF DATA The subject property is a 2% -acre oceanfront site on Key Biscayne. Current zoning limits use of the land to a club. Under that limited use premise we found several sales of land that ultimately indicated a value of the fee simple interest of $2 million for the subject property before consideration of a location adjustment. Alternatively we found sales of oceanfront apartment sites that indicate values in the range of $200 to $210 per square foot of buildable building. Under the current zoning the maximum building that can be built at the subject would be 0.15 times the land area. The resulting indication of value is: $97,825 square feet of land x 0.15 FAR = 14,674 square feet of building $200 per square foot of building x 14,674 = $2,934,750 $210 per square foot of building x 14,674 = $3,081,488 So the logical conclusion to this analysis is that the site is worth $3 million as an apartment site but with the current FAR limitations. Under the current zoning apartment development would not be permitted. Therefore the $3 million value is an upper limit indication. The $2 million estimate cited above is based on sales of club land, none of which is oceanfront or on Key Biscayne. Therefore the logical conclusion is that the land is worth more than $2 million, but less than $3 million. The most reasonable conclusion is a halfway point of $2.5 million, giving equal weight to both methods of analysis. We were also asked to estimate the value of the property under the hypothetical condition that it can be rezoned to allow a use similar to the surrounding development. Based on the most recent project on Key Biscayne, we concluded that such rezoning would likely result in 36 dwelling units and 113,477 square feet of building. Applying the same range shown above of $200 to $210 per square foot, the indicated value is $23 million. The interest appraised is the leased fee interest, which value is equal to the present value of the fee interest, discounted for the 38 years remaining on the lease term. The present value of the two fee simple estimates is: As zoned - $270,000 As though rezoned - $2,500,000 SECTION 6 - RECONCILIATION GALLAHER & BIRCH, INC. 29 SECTION 7 - MARKET VALUE CONCLUSION In my opinion, the market value of the leased fee interest in the subject property as of January 23, 2014 was as follows: Under current zoning - $270,000 Under hypothetical condition that the site can be rezoned - $2,500,000 Subject to the extraordinary assumption that the access from Ocean Drive across the adjacent property is perpetual and unrestricted EXPOSURE PERIOD Appraisal standards require a comment regarding the amount of time a property would be expected to have been on the market prior to the valuation date for a successful sale to occur on the valuation date at the market value estimate. Based on marketing times observed in the overall market, it is my opinion that, if the subject property were to have been on the market, a period of six to nine months would be necessary in order to consummate a sale of the property at the valuation date at the market value estimate. SECTION 7 - MARKET VALUE CONCLUSION GALLAHER & BIRCH. INC, GALLAHER & BIRCH. INC. CERTIFICATION Real fslale Appraisers b Consullaals APPRAISAL REPORT NO. 14025.1 I certify that, to the best of my knowledge and belief: 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, impartial, and unbiased professional analyses, opinions, and conclusions. I have no present or prospective interest in the property that is the subject of this report and no personal interest with respect to the parties involved. I have performed no services, as an appraiser or in any other capacity, regarding the property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment I have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment. My engagement in this assignment was not contingent upon developing or reporting predetermined results. 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. My analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. I have made a personal inspection of the property that is the subject of this report. The reported analyses, opinions, and conclusions were developed and this report prepared in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute. Sandra Gallaher, state registered appraiser trainee (license #RI23900) provided research and report writing assistance. There was no other significant real property appraisal assistance to the person signing this certification. The use of the report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives and by those of the Florida Real Estate Appraisal Board. As of the date of this report, I have completed the continuing education requirements for the State of Florida and for the Appraisal Institute. .sp"c Ilysubrnitted, //:(`' RQI:3ERT E. GALLAHER, MAI CRE State Certified General Real Estate Appraiser Certificate No. RZ98 JULY 2, 2014 !•S+rh7er r.i;.t Iuare :(0I r•1•.iiro, Fl ° I '; • J(,)S F,t,:1-1 11Q ADDENDA GALLAHER & BIRCH, INC. ASSUMPTIONS AND LIMITING CONDITIONS This is an Appraisal Report which is intended to comply with the reporting requirements set forth under Standard Rule 2-2(a) of the Uniform Standards of Professional Appraisal Practice for an appraisal report. As such, the descriptions of the data, reasoning, and analyses that were used in the appraisal process to develop the appraiser's opinion of value are summarized. It is assumed that the title to the subject property is good and marketable; and that the legal description of the property is correct; that the improvements are entirely and correctly located on the property described; and that there are no encroachments, encumbrances, restrictions on or questions of title to this property; but no investigation or survey has been made, unless otherwise stated. The property is appraised free and clear of any or all liens and encumbrances unless otherwise stated in this report. The market value estimate assumes prudent ownership and management of the herein appraised property. The information as to the description of the premises, restrictions, and improvements to the property involved in this report is as has been submitted by the applicant of this appraisal, or has been obtained from sources believed to be authoritative. No warranty is given for its accuracy. Unless otherwise specifically stated, the value given in this report represents the opinion of the signers as to the market value as of the appraisal date. Market values of real estate are affected by economic conditions, both local and national. Therefore, market values of real estate will vary with future market conditions affecting real estate. It is assumed that there is full compliance with all applicable federal, state, and local environmental regulations and laws unless otherwise stated in this report. It is assumed that all applicable zoning and use regulations and restrictions have been complied with, unless a nonconformity has been stated, defined, and considered in this appraisal report. It is assumed that all required licenses, certificates of occupancy, or other legislative or administrative authority from any local, state, or national governmental, or private entity or organization have been or can be obtained or renewed for any use on which the value estimates contained in this report are based. Any plot, plan or sketch in this report may show approximate dimensions and are included to assist the reader in visualizing the property. Maps and exhibits found in this report are provided for reader reference purposes only. No guarantee as to accuracy is expressed or implied unless otherwise stated in this report. No survey has been made for the purpose of this report unless otherwise indicated. It is assumed that the utilization of the land and improvements is within the boundaries or property lines of the property described and that there is no encroachment or trespass unless otherwise stated in this report. ASSUMPTIONS & LIMITING CONDITIONS GALLAHER & BIRCH. INC ASSUMPTIONS AND LIMITING CONDITIONS — continued The appraiser is not qualified to detect hazardous waste and/or toxic materials. Any comment by the appraiser that might suggest the possibility of the presence of such substances should not be taken as confirmation of the presence of hazardous waste and/or toxic materials. Such determination would require investigation by a qualified expert in the field of environmental assessment. The presence of substances such as asbestos, urea -formaldehyde foam insulation, or other potentially hazardous materials may affect the value of the property. The appraiser's value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value unless otherwise stated in this report. No responsibility is assumed for any environmental conditions, or for any expertise or engineering knowledge required to discover them. The appraiser's descriptions and resulting comments are the result of the routine observations made during the appraisal process. Unless otherwise stated in this report, the subject property is appraised without a specific compliance survey having been conducted to determine if the property is or is not in conformance with the requirements of the Americans with Disabilities Act. The presence of architectural and communications barriers that are structural in nature that would restrict access by disabled individuals may adversely affect the property's value, marketability, or utility. This report covers the premises herein described only. Neither the figures herein nor any analysis thereof, nor any unit values derived there from are to be construed as applicable to any other property, however similar the same may be. Possession of this report, or copy thereof, does not carry with it the right of publication. The signers of this report do not authorize disclosure of all or any part of the contents of this report to the public through advertising, public relations, news, sales or other media, without the written consent and approval of the author, particularly as to valuation conclusions, the identity of the appraisers or firm with which they are connected, or any reference to professional associations to which they belong or designations which they may hold. The market value herein is based on data available at the time of our investigation and analysis. Should any additional information be made available to us that would affect the value estimate, we reserve the right to adjust our figures accordingly. The contract for the appraisal of said premises is fulfilled by the signers hereto upon the delivery of this appraisal duly executed. ASSUMPTIONS & LIMITING CONDITIONS GALLAHER 'Si BIRCH, INC. DEFINITIONS Exposure Time The estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based on an analysis of past events assuming competitive and open market.' Extraordinary Assumption An extraordinary assumption presumes as fact otherwise uncertain information about physical, legal, or economic characteristics of the subject property, and, which, if found to be false, could alter the appraiser's opinions or conclusions.2 Fee Simple Estate Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power and escheat.3 Highest and Best Use 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 land value.4 Hypothetical Condition A hypothetical condition is that which is contrary to what exists but is supposed for the purpose of the analysis.5 Leased Fee Interest A freehold (ownership interest) where the possessory interest has been granted to another party by creation of contractual landlord -tenant relationship (i.e., a lease). 6 The ownership interest held by the lessor, which includes the right to the contract rent specified in the lease plus the reversionary right when the lease expires' Market Value The most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest and assuming that neither is under undue duress.e 1 The Dictionary of Real Estate Appraisal, Fifth Edition, Appraisal Institute, 2010 2 Uniform Standards of Professional Appraisal Practice, 2006 Edition 3 The Dictionary of Real Estate Appraisal, Fifth Edition, Appraisal Institute, 2010 4 Appraisal of Real Estate 13th Edition, Appraisal Institute 5 Uniform Standards of Professional Appraisal Practice, 2006 Edition 6 Dictionary of Real Estate Appraisal, Fifth Edition, Appraisal Institute 7Appraisal of Real Estate 14' Edition Appraisal Institute 8 Appraisal of Real Estate, 13" Edition, Appraisal Institute DEFINITIONS GALLAHER E. BIRCH, INC, Market value is the amount in cash, or on terms reasonably equivalent to cash, for which in all probability the property would have sold on the effective date of the appraisal, after a reasonable exposure time on the open market, from a willing and reasonably knowledgeable seller to a willing and reasonably knowledgeable buyer, with neither acting under any compulsion to buy or sell, giving due consideration to all available economic uses of the property at the time of the appraisal.9 Uniform Appraisal Standards for Federal Land Acquisitions DEFINITIONS GALLAHER & BIRCH. INC, LEGAL DESCRIPTION A portion of Tract 5, MATHESON ESTATE KEY BISCAYNE, Dade County, Florida, according to the Plat thereof recorded in Plat Book 34, at Page 34, of the Public Records of Dade County, Florida, more particularly described as follows; Commence at the Northeast corner of Tract A, BISCAYNE KEY ESTATES, according to the Plat thereof, recorded in Plat Book 50, at Page 61, of the Public Records of Dade County, Florida, thence East 105 feet to the Point of intersection with the East line of Crandon Boulevard according to the afore said plat, thence South along the East line of Crandon Boulevard 320.0 feet, thence East along a line parallel to and 320 feet South of the North line of Tract 5, Matheson Estate, Key Biscayne, Dade County, Florida, according to the plat recorded in Plat Book 34, at Page 34, of the Public Records of Dade County, Florida, 1763.73 feet to the Point of Beginning of Tract hereinafter described, also being the point of intersection with the East line of Ocean Drive as shown on First Addition to Biscayne Key Estates (unrecorded), thence South 1 degree 13 minutes 38.2 seconds East 175.04 Feet, thence East parallel to the North line of aforesaid Tract 5, 560 feet more or less to the shore line of the Atlantic Ocean, thence North meandering the shore line of the Atlantic Ocean 175 feet more or less to the point of intersection with the South line of the North 320 feet of aforesaid Tract 5, thence West 559 feet more or less to the Point of Beginning, containing 2.24 acres more or less. LEGAL DESCRIPTION GALLAHER & BIRCH. INC Entry to club breezeway Breezeway; office entry at left, recreation room entry at right PROPERTY PHOTOGRAPHS GALLAHER & BIRCH. INC, Recreation area exterior Recreation area interior PROPERTY PHOTOGRAPHS GALLAHER & BIRCH, INC. Utility garage north of recreation area Kitchen/restroom building at right PROPERTY PHOTOGRAPHS GALLAHER & BIRCH. INC. Typical interior of kitchen Typical interior of bathroom PROPERTY PHOTOGRAPHS GALLAHER &BIRCH. INC. Cabana shower area Interior of office area PROPERTY PHOTOGRAPHS GALLAHER & BIRCH. INC, View of parking area to northwest View of parking area to southeast PROPERTY PHOTOGRAPHS GALLAHER &BIRCH.INC. GALLAHER & BIRCH, INC. Real fslale *ulcers 4 COMIlanls GALLAHER & BIRCH, INC., formerly known as Hedg-peth & Gallaher, Inc., was established as The Hedg-peth Company in 1967 by C. George Hedg-peth, MAI, who had been both a staff appraiser with The McCune Company and chief commercial appraiser with Dade Federal Savings and Loan Association. The company is a full service appraisal firm completing appraisal reports for all types of real estate ranging from single family residences to apartments, hotels, vacant land to shopping centers, industrial properties and office buildings. The predominance of appraisal assignments over the years has been for properties located in Miami -Dade, Broward or Monroe Counties. By generally limiting the area of practice to South Florida, but addressing the analysis of all types of property from vacant land to complex, multipurpose commercial developments, the company has been able to assure a consistent high level of service to its clients. Either through its individual appraisers or corporately, the company is an approved appraiser for a large number of local lending institutions as well as for the Federal National Mortgage Association, the State of Florida, Miami -Dade County and the cities of Miami, Coral Gables, Hialeah and Homestead. Corporate clients range from local builders and developers to national and international corporations. In addition, assignments have been completed for some of the largest and most prominent South Florida law, accounting and engineering firms. The following is a brief sample of the firm's clientele: Lending Institutions Bank United Chase Manhattan Bank Coconut Grove Bank Community Bank of Florida Fremont Investment & Loan First National Bank of South Miami Imperial Credit Commercial Mortgage Investment Corp Northern Trust Bank of Florida SunTrust Bank Miami Totalbank Corporations Baptist Health Systems of South Florida Wackenhut Corrections Corporation Walt Disney World Wendy's International Law Firms Akerman Senteriftt Bilzin Sumberg Baena Price & Axelrod Brigham Moore Earle & Patchen Greenberg Traurig Holland & Knight Hicks & Schreiber Kubicki Draper White & Case Kozyak Tropin Throckmorton Institutional Clients Miami -Dade County School Board Florida Department of Transportation Miami Dade College Miami Dade Water & Sewer Authority Jackson Memorial Hospital The company has provided litigation support, including expert testimony, for a variety of cases, including those involving deficiency judgments, divorce, zoning, bankruptcy and eminent domain. Consultation and appraisal review services are an integral part of the services offered. Either corporately or through its employees, the company is a member of Chamber South, Commercial Real Estate Women, and the Commercial Industrial Association of South Florida (formerly the Industrial Association of Dade County), Miami Realtors. APPRAISER'S QUALIFICATIONS QUALIFICATIONS OF ROBERT E. GALLAHER, MAI, CRE Resident of Miami, Dade County, Florida since 1950 State Certified General Real Estate Appraiser, State of Florida (Certificate Number RZ98) Licensed Real Estate Broker, State of Florida Licensed Real Estate Instructor, State of Florida Graduate of University of Florida, Gainesville, Florida Awarded Bachelor of Science in Business Administration with Major in Real Estate, 1972 Employment: Gallaher & Birch, Inc. (formerly Hedg-peth & Gallaher, Inc., formerly The Hedg- peth Company) since September 1972; currently President Partner - Esslinger Wooten Maxwell, Realtors 1984 to 1991 Appraisal Experience: Has participated in appraisals in Miami -Dade, Broward, Monroe and other counties in Florida of various types of commercial and commercial properties, including office buildings, shopping centers, apartment developments, warehouses and hotels. Expert Witness: Qualified as an expert in real estate valuation in Miami -Dade, Broward, Monroe, Palm Beach and Lee Counties, as well as in Federal Bankruptcy Court. Has testified in deposition and in trial in matters of eminent domain, bankruptcy, divorce, deficiency judgments and other issues Member of: Appraisal Institute, with designation MAI. Certified Under Continuing Education Program through September 2017 The Counselors of Real Estate, with designation CRE Chairman of South Florida Chapter 2004 to 2007 Fellow of the Royal Institution of Chartered Surveyors Miami Association of Realtors (formerly: Miami and Coral Gables Boards of Realtors) Chairman of Association for 1995-96 President 1982 and 198 7-1988 Florida Association of Realtors National Association of Realtors Boards of Directors Florida Savings Bank — 2001 to 2006 Consumers Savings Bank —1991 to 1998 Advisory Board Jerome Bain Real Estate Institute at Florida International University ChamberSouth — 2001 to present (Chairman of the Board of Directors 2008-2009) Dade County SurTax Advisory —1984 to 1993 Instructor, having taught seminars and/or courses for: Miami Dade College; the Appraisal Institute, the American Bar Association, The Florida Association of Realtors; and various local real estate associations and companies. Nationally certified instructor for the Appraisal Institute Nationally certified instructor of Uniform Standards of Professional Appraisal Practice Currently President/Owner of Gallaher & Birch, Inc., (formerly Hedg-peth & Gallaher, Inc.). Has been officer, director and stockholder of several closely held corporations, including Sanctuary Farms, Inc., a farming venture in Collier County; Marina Bay, Inc., a shopping center development in North Miami -Dade County; Burlingame Group, Inc., an office space owner in Miami; Miller Ludlam LLC an owner of retail stores; and First Reserve, Inc., a corporate holding company that owned Esslinger-Wooten-Maxwell, Inc., a general real estate brokerage firm and which participated in the development of Gables Waterway Executive Center and the University Inn Condominium. APPRAISER'S QUALIFICATIONS GALLAHER & BIRCH. INC.