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Appraisal Report

Single-Tenant Restaurant & Bar 16015 SE Stark Street

Portland, Multnomah County, OR 97233

Report Date: September 18, 2015

FOR:

Andy Miller Executive Director

Human Solutions, Inc. 12350 SE Powell Blvd.

Portland, OR 97236

Client ID: N / A

Valbridge Property Advisors | Mueller Kurasz

8220 SW Warm Springs Street, Suite 100 Tualatin, OR 97062 503.620.0881 phone Valbridge File Number: 866.438.4213 fax OR1-15-0070-000 valbridge.com

September 18, 2015

Kurt M. Mueller, MAI 503.620.0881 [email protected]

Andy Miller Executive Director Human Solutions, Inc. 12350 SE Powell Blvd. Portland, OR 97236 RE: Appraisal Report – Single-Tenant Restaurant & Bar

16015 SE Stark Street Portland, Multnomah County, OR 97233

Mr. Miller: In accordance with your request, we have performed an appraisal of the above referenced property. This appraisal report sets forth the pertinent data gathered, the techniques employed, and the reasoning leading to our value opinions. This letter of transmittal is not valid if separated from the appraisal report. We have appraised the captioned property using generally accepted appraisal principles and practices. The following appraisal is intended to comply with the requirements of the Federal Financial Institutions Reform, Recovery and Enforcement Act (FIRREA); the Interagency Appraisal and Evaluation Guidelines, the Uniform Standards of Professional Appraisal Practice (USPAP), the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute, and the client’s appraisal guidelines. The purpose of this appraisal is to estimate market value as defined by the FDIC/OCC, in accordance with Title XI of FIRREA (1989). In addition, this appraisal is intended to comply with Regulation 12 CFR Banks and Banking Part 323, “Appraisals”, as published in the Federal Register.

Andy Miller, Executive Director Human Solutions, Inc.

September 18, 2015 Page 2

Andy Miller of Human Solutions, Inc. is the client in this assignment. The intended user(s) of this report are the client, other pertinent personnel within Human Solutions, Inc., the Housing Development Center, and Ken Elliott, Assistant County Attorney with Multnomah County. The intended use is to estimate the market value of the subject real property for potential acquisition purposes and to assist in internal board decision making. Please note that the documents are not intended for use in relation to a Federally insured loan transaction. The value opinions reported herein are subject to the definitions, assumptions and limiting conditions, and certification contained in this report. The acceptance of this appraisal assignment and the completion of the appraisal report submitted herewith are contingent on the following extraordinary assumptions and/or hypothetical conditions which may have impacted the assignment results:

Extraordinary Assumptions: None.

Hypothetical Conditions: None.

Based on the analysis contained in the following report, our value conclusions are summarized as follows:

TYPE OF VALUE

DATE OF VALUE

INTEREST APPRAISED

VALUE CONCLUSION

"As Is" Market Value September 16, 2015 Fee Simple $1,020,000 Thank you for the opportunity to assist you in this valuation assignment. Respectfully Submitted, Valbridge Property Advisors | Mueller Kurasz

Kurt M. Mueller, MAI Senior Managing Director Oregon Certified General License #C000484

SINGLE-TENANT RESTAURANT & BAR TABLE OF CONTENTS

© 2015 VALBRIDGE PROPERTY ADVISORS | Mueller Kurasz

Table of Contents Cover Page

Letter of Transmittal

Table of Contents .................................................................................................................................................................. i

Summary of Salient Facts .................................................................................................................................................. ii

Aerial and Front Views ....................................................................................................................................................... iv

Location Map ........................................................................................................................................................................ vi

Introduction ............................................................................................................................................................................ 1

Scope of Work ....................................................................................................................................................................... 4

Regional and Market Analysis ......................................................................................................................................... 7

City and Neighborhood Analysis ................................................................................................................................. 17

Site Description .................................................................................................................................................................. 21

Improvement Description .............................................................................................................................................. 27

Subject Photos .................................................................................................................................................................... 31

Assessment and Tax Data ............................................................................................................................................... 37

Market Analysis .................................................................................................................................................................. 38

Highest and Best Use ....................................................................................................................................................... 40

Appraisal Methodology .................................................................................................................................................. 42

Sales Comparison Approach ......................................................................................................................................... 43

General Assumptions and Limiting Conditions ..................................................................................................... 53

Certification – Kurt M. Mueller, MAI ........................................................................................................................... 59

Addenda ................................................................................................................................................................................ 60

Glossary ................................................................................................................................................................................. 61

Information on Valbridge Property Advisors

Office Locations

SINGLE-TENANT RESTAURANT & BAR SUMMARY OF SALIENT FACTS


Summary of Salient Facts Address:

16015 SE Stark Street Portland, Multnomah County, OR 97233

APN:

R217934 and R217935

Property Rights Appraised:

Fee Simple Interest

Zoning:

CSh, Storefront Commercial District

Site Size:

LAND AREA PORTION Acres SF

Tax Lot 200 0.60 26,250

Tax Lot 2901 0.34 15,000

Gross Land Area 0.94 41,250 Flood Zone:

Zone X, outside the flood plain.

Environmental Issues:

None known or identified.

Existing Improvements: Site Coverage Ratio:

(1) Restaurant & Bar Building – Built 1975 / minor renovation in 2013. Fair to average condition – approximately $60,000 in remaining items of deferred maintenance noted. Total GBA = 7,454 SF. / 100% Vacant. 18.1% Overall

Highest and Best Use As Vacant:

Commercial retail and/or office use.

As Improved:

Existing single-tenant restaurant & bar – assuming curing of noted items of deferred maintenance.

Date of Inspection:

September 16, 2015

Valuation Date:

September 16, 2015

Date of Report Preparation:

September 18, 2015

Appraised Values: Provided on the following page.

SINGLE-TENANT RESTAURANT & BAR SUMMARY OF SALIENT FACTS


VALUATION APPROACH VALUE CONCLUSION

COST APPROACH Omitted per Scope

SALES COMPARISON APPROACH $1,080,000

INCOME APPROACH Omitted per Scope

CONCLUDED STABILIZED MARKET VALUE $1,080,000

Less: Cost of Curing Deferred Maintenance ($60,000)

CONCLUDED “AS IS” MARKET VALUE $1,020,000

Extraordinary Assumptions: None

Hypothetical Conditions: None

SINGLE-TENANT RESTAURANT & BAR AERIAL AND FRONT VIEWS


Aerial and Front Views AERIAL VIEW



FRONT VIEW



Location Map

SINGLE-TENANT RESTAURANT & BAR INTRODUCTION


Introduction Client and Intended Users of the Appraisal Andy Miller of Human Solutions, Inc. is the client in this assignment. The intended user(s) of this report are the client, other pertinent personnel within Human Solutions, Inc., the Housing Development Center, and Ken Elliott, Assistant County Attorney with Multnomah County.

Intended Use of the Appraisal The intended use is to estimate the market value of the subject real property for potential acquisition purposes and to assist in internal board decision making.

Real Estate Identification The subject property is located at 16015 SE Stark Street, Portland, Multnomah County, Oregon 97233. The subject property is further identified by Assessor Parcel Nos. R217934 and R217935.

Legal Description We were not provided with a legal description of the subject. We assume the legal description corresponds to the subject APN.

Use of Real Estate as of the Effective Date of Value As of the effective date of the appraisal, the subject was used as a single-tenant restaurant / bar property, though not operating as of the date of inspection.

Use of Real Estate as of the Date of this Report Same as above.

Ownership of the Property Public records indicate that the subject property is currently owned by JZ Property Management. Note that there was a related party transfer from Johnny Zukle to JZ Property Management in February 2015. Further note that Johnny Zukle had purchased the property from Paramount Dev LLC (contact: Jody Tanner; 503.481.1008) in July 2013 for stated consideration of $900,000 or $120.74 per SF GBA. Reportedly, there property was not activity marketed with a quiet sale between buyer and seller. As will be discussed in more detail following, there is a pending sale of the subject from the current owner to Human Solutions, Inc., for $950,000 or $127.45 per SF GBA. In addition, note that the subject property was originally purchased in June 1999 for $590,000 ($79.15 per SF GBA) as part of the estate sale after the death of the prior owner – David Krimm. Also of note is that the property had been leased to Raz Entertainment (dba Moscow Bar & Grill) for a 5-year period which began in October 7, 2002 and ended September 30, 2007. The lease was extended through September 30, 2012. The ending contract rent was $6,480 per month ($10.43 per SF) triple net, per conversations with the landlord and tenant in 2012, though no evidence of the current lease rate was provided. Over the term of the lease, the contract rent was to have increase based on CPI or a maximum of 4.0% per year. However, prior contract rents are unknown.



History of the Property The subject property (GBA = 7,454 SF) has been used for restaurant purposes since construction of the building in 1975. The subject was owner operated as the Woodshed Restaurant between 1997 and 2002. The business was sold the operation was renamed the Wetlands Public House, which then became Primetime Bar & Grill, and then operated as Moscow Bar & Grill in 2008 via assignment of lease until 2012. The property sat vacant until it sold in July 2013 and was converted and minor renovated into an owner-occupied adult entertainment club dba Black Cauldron. As indicated, the subject is pending sale to Human Solutions, Inc., Inc. which plans to owner-operate a non-profit, low income housing shelter on the premises for the next few years. However, over the long term, the intent would be to redevelop the master site with affordable housing. When appropriate, we have considered and analyzed the known history of the subject in the development of our opinions and conclusions.

Listings/Offers/Contracts Note that discussions with the listing broker – Vince Cortese of Oregon Realty (503.380.8570) indicate that the seller - Mr. Zukle had spent approximately $100,000 ($13.42 / SF GBA) on remodeling the interior of the building for his use. However, this business failed in terms of profitability, and was listed in May 2015 for $1,300,000 or $174.40 per SF GBA which included both the main building TL 1400 (26,250 SF land area), as well as rear TL 1500 (15,000 SF land area). The property was subsequently relisted in mid-June 2015 for $899,000 or $120.06 per SF GBA, but excluded the rear parcel. In early September 2015, the entire property went into escrow to Human Solutions, Inc., Inc. for $950,000 or $127.45 per SF GBA, with the terms cash to the seller, as the seller had decided to just sell the whole property and done with it. The sale is expected to close by late September 2014, but in any event no later than October, 31 2015. A copy of the PSA and the original marketing information is contained in the Addenda. Note that the listing broker and buyer’s broker indicate there is a credible back-up offer on the property from the adjacent property owner at $1,100,000 or $147.57 per SF GBA.

Type and Definition of Value The purpose of this appraisal is to develop an opinion of the “as is” market value of the subject property as of September 16, 2015. The appraisal problem (the term “Purpose of Appraisal” has been retired from appraisal terminology) is to develop an opinion of the market value of the subject property. “Market Value,” as used in this appraisal, is defined as “the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.” Implicit in this definition are the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

Buyer and seller are typically motivated.

Both parties are well informed or well advised, each acting in what they consider their own best interests;

A reasonable time is allowed for exposure in the open market;

Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and



The price represents the normal consideration for the property sold unaffected by special or creative financing or sale concessions granted by anyone associated with the sale.”1

The value conclusions apply to the value of the subject property under the market conditions presumed on the effective date(s) of value. The effective date of value is September 16, 2015. The subject property was inspected on September 16, 2015. Please refer to the Glossary in the Addenda section for additional definitions of terms used in this report.

Valuation Scenarios, Property Rights Appraised, and Effective Dates of Value Per the scope of our assignment we developed opinions of value for the subject property under the following scenarios of value:

Value Type Value Premise

Value Perspective

Interest Appraised Effective Date

Market Value As Is Current Fee Simple September 16, 2015 We completed an appraisal inspection of the subject property on September 16, 2105.

Date of Report The date of this report is September 18, 2015, which is the same as the date of the letter of transmittal.

List of Items Requested but Not Provided Current preliminary title report

Construction inspection report

Assumptions and Conditions of the Appraisal The acceptance of this appraisal assignment and the completion of the appraisal report submitted herewith are contingent on the following extraordinary assumptions and/or hypothetical conditions which may have impacted the assignment results:

Extraordinary Assumptions None

Hypothetical Conditions None

1 Source: The Dictionary of Real Estate Appraisal, Fifth Edition, pg 123

SINGLE-TENANT RESTAURANT & BAR SCOPE OF WORK


Scope of Work The scope of work includes all steps taken in the development of the appraisal. These include 1) the extent to which the subject property is identified, 2) the extent to which the subject property is inspected, 3) the type and extent of data researched, 4) the type and extent of analysis applied, and the type of appraisal report prepared. These items are discussed as follows:

Extent to Which the Property Was Identified

Legal Characteristics The subject was legally identified via an address and APN provided by the client.

Economic Characteristics Economic characteristics of the subject property were identified via information provided by the client, as well as a comparison to properties with similar locational and physical characteristics.

Physical Characteristics The subject was physically identified via a property inspection by Kurt M. Mueller, MAI

Extent to Which the Property Was Inspected We inspected the subject on September 16, 2015 and performed physical measurement of the improvements.

Type and Extent of Data Researched We researched and analyzed: 1) market area data, 2) property-specific market data, 3) zoning and land-use data, and 4) current data on comparable listings and sales in the competitive market area. We also interviewed people familiar with the subject market/property type, including the listing broker, the buyer’s broker, and past ownership representatives.

Personal Property/FF&E Unless otherwise stated in the report, all furniture, fixtures, and equipment (FF&E) or any other personal property have been excluded from our analysis.

Type and Extent of Analysis Applied The subject site has improvements that contribute to an overall value that exceeds the land value. We observed surrounding land use trends, the condition of the improvements, demand for the subject property, and relevant legal limitations in concluding a highest and best use. We then valued the subject based on the highest and best use conclusion, relying solely on the Sales Comparison Approach. The Cost and Income Capitalization Approaches to value were excluded from the Scope of the Appraisal based on prior agreement with the client.

Appraisal Report Type This is an Appraisal Report as defined by the Uniform Standards of Professional Appraisal Practice under Standards Rule 2-2a. Please see the Scope of Work for a description of the level of research completed.

SINGLE-TENANT RESTAURANT & BAR SCOPE OF WORK


Appraisal Conformity We developed our analyses, opinions, and conclusions and prepared this report in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP) of the Appraisal Foundation; the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute; and the requirements of our client as we understand them.

SINGLE-TENANT RESTAURANT & BAR REGIONAL AND MARKET AREA ANALYSIS


REGIONAL MAP



Regional and Market Analysis Location The subject property is located in Portland-Vancouver-Hillsboro Metropolitan Statistical Area (MSA) is provided following. Provided on the preceding page is a regional map of the Portland metropolitan area which locates the subject. The Portland/ Vancouver area is the largest metropolitan area between Seattle and San Francisco. The combined Portland/Vancouver area is designated as a Primary Metropolitan Statistical Area (PMSA) which covers 4,416 square miles in two states and is comprised of counties within the State of Oregon and the State Washington. Portland is situated near the northwest corner of Oregon at the confluence of the Willamette and Columbia Rivers. The area is approximately 110 miles inland from the Pacific Ocean and is a major fresh water port. The Columbia River separates Portland, Oregon from Vancouver, Washington, while the Willamette River divides Portland's east and west sides.

Population The Portland / Vancouver PMSA encompass portions of six counties: Multnomah, Washington, Clackamas, Columbia and Yamhill Counties in Oregon, as well as Clark and Skamania Counties in the State of Washington. Currently, the Portland / Vancouver PMSA has an estimated 2014 population of 2,324,535. Roughly 58% of Oregon's population resides in the PMSA. Between 2000 and 2014, the Portland / Vancouver PMSA grew at an average rate of 1.7% per year, with most growth focused in the outlying suburban areas. The rising cost of housing within the City of Portland fueled substantial population growth in the surrounding suburbs as those priced out of the Portland housing market pursued lower priced alternatives. Outlined in the following chart are the population trends for the Portland-Vancouver-Hillsboro MSA, the State of Oregon, and the nation.

Economy/Employment Portland's location, straddling major land and water transportation linkages, provides the base for a diverse economy. Portland has consistently been listed as one of the country's best places to do business, evidenced by its being one of the few areas in the nation to show consistent job growth since 1991. This has led to strong growth in the manufacturing sector. The Portland area is characterized by an abundance of smaller firms representing a variety of industries. This increasing industrial diversity, along with a relatively small average company size and absence of defense industry, has given Portland more stable growth and increased freedom from large cyclical swings

PopulationAnnual % Change Estimated Projected Annual % Change

Area 2000 2010 2000 - 10 2015 2020 2015 - 20United States 281,421,906 308,745,538 1.0% 318,536,439 330,622,575 0.8%Oregon 3,421,399 3,831,074 1.2% 3,953,654 4,101,646 0.7%Portland-Vancouver-Hillsboro 1,927,881 2,226,009 1.5% 2,318,549 2,433,900 1.0%Source: Site-to-Do-Business (STDB Online)



typical of cities dominated by a single firm or industry. The major employers in Portland tend to be distributors of goods and services, with the once dominant wood products industry in decline since the 1970s. In addition to its manufacturing base, Portland is the region's main financial center, and a regional headquarters for U.S. Bancorp. The area serves as national headquarters for major corporations such as Nike, Precision Castparts, Lithia Motors, StanCorp Financial, and Schnitzer Steel Industries. Portland’s employment in manufacturing, services and government is at a lower percentage than the country as a whole, while Portland's trade and finance/insurance/ real estate sectors are higher. Otherwise, the employment proportions in Portland are similar to the overall national pattern. The similarity in employment distribution explains why the Portland PMSA generally parallels the national economy. The following charts included Unemployment Rates, Median Household Income, and Employment by Industry for the Portland-Vancouver-Hillsboro metro area.

Unemployment RatesArea YE 2008 YE 2009 YE 2010 YE 2011 YE 2012 YE 2013 YE 2014 2015 YTDUnited States 7.3% 9.9% 9.3% 8.5% 7.9% 6.7% 5.6% 5.3%Oregon 6.5% 11.3% 10.6% 9.5% 8.8% 7.9% 6.9% 5.5%Portland-Vancouver-Hillsboro 8.3% 10.8% 9.3% 8.1% 7.5% 6.3% 5.8% 5.4%Source: Bureau of Labor Statistics - Seasonally Adjusted Year End



Median Household IncomeEstimated Projected Annual % Change

Area 2015 2020 2015 - 20United States $53,217 $60,683 2.8%Oregon $51,627 $59,167 2.9%Portland-Vancouver-Hillsboro $59,764 $70,787 3.7%Source: Site-to-Do-Business (STDB Online)

Employment by Industry - Portland-Vancouver-Hillsboro2009 - 2013 Percent of

Industry 2009 - 2013 EmploymentAgriculture, forestry, fishing and hunting 14,409 1.34%Mining, quarrying, and oil and gas extraction 710 0.07%Construction 60,896 5.64%Manufacturing 137,186 12.72%Wholesale trade 36,898 3.42%Retail trade 125,913 11.67%Transportation and warehousing 43,225 4.01%Utilities 9,864 0.91%Information 22,042 2.04%Finance and insurance 50,669 4.70%Real estate and rental and leasing 24,094 2.23%Professional, scientific, and technical services 82,326 7.63%Management of companies and enterprises 840 0.08%Administrative and support and waste mgmt services 44,825 4.15%Educational services 88,854 8.24%Health care and social assistance 147,334 13.66%Arts, entertainment, and recreation 21,445 1.99%Accommodation and food services 74,099 6.87%Other services, except public administration 54,784 5.08%Public administration 38,429 3.56%Total 1,078,842 100.00%Source: Site-to-Do-Business (STDB Online)



Currently, the prospects for a sustained recovery during 2015 is improving although there remains much disagreement among forecasters because of the unknowns regarding Federal Reserve decisions, foreign T-Bill buyer moves, and the various economic stimulus packages recently implemented and continuing to be proposed by the Obama presidential administration. However, most agree that the US economy is improving and the steady improvement will lead to historical normal levels within the next few years.

There has been increased optimism in many sectors over the past two years, and that can be tied to job growth in Oregon, especially along the coast, where jobs are being generated at a rate faster than the national average. The current expansion of employment is expected to continue into 2016. The health of the economy, and the real estate industry, is not only closely linked to the unemployment levels, but also to the ability to procure financing. During the recession and in the few years immediately after, the Federal Reserve (Fed) continued to hold the Federal Funds Rate at historically low levels. The rate then was

between 0% and 0.25%, as it had been since December of 2008. In December 2012, the Fed announced explicit economic targets for the end of easing programs. Specifically, the Fed said it will hold the Federal Funds Rate at its current level until national unemployment drops below 6.5% or inflation exceeds 2.5% a year, in order to support continued progress toward maximum employment and price stability; previously, the Fed had targeted mid-2015. Notably, the Fed’s previous forecast projected the jobless rate at 6.8% to 7.3% by the end of 2014, and 6.0% to 6.6% by the end of 2015. However, the Fed anticipates that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens, hence the long period in which interest rates will remain low, even after unemployment rates start falling back to more historically acceptable levels. All that said, a recent analysis by the Wall Street Journal looked at the issues the Fed will have raising the rate when the time comes. In the past, the Fed raised rates by selling bonds, thereby withdrawing reserves from the banking system. However, due to the Treasury and mortgage-buying programs the Fed created during the recent financial crisis, bank reserves in excess of what is required have swollen to more than $2.5 trillion. This means that setting a target for the federal funds rate and using the open-market operations to adjust reserves to meet that target isn’t tenable. This apparently led to speculation that the Fed might target a different short-term rate. One possible rate was the interest the Fed pays on reserves banks keep at the Fed. Another potential option was use of the reserve-repurchase facility the Fed has been testing since last year, through which it lends bonds for cash. However, minutes from the Fed’s June 2015 meeting, released July 9, show that for now policy makers believe “the federal funds rate should continue to play a role.” This may be



because the Fed doesn’t want to complicate the process, as well as the fact the federal funds rate is deeply embedded in financial markets, with trillions of dollars in instruments tied to it. While the economic climate for real estate has basically recovered, new concerns must be addressed in order for the current growth to be sustainable. The unemployment rate has decreased and GDP growth is expected to continue over the next couple of years. However, a more detailed analysis of the current situation reveals that not all sectors of the commercial real estate market are experiencing the same benefits from the recovery.

Governmental Influences The State of Oregon has been a pioneer in land use planning. The Land Conservation and Development Commission (LCDC) was established in 1973, and has mandated central uniform planning based on statewide goals in all communities. The LCDC has had a major impact on development and remains controversial. The government of the City of Portland consists of a commission with a mayor and four commissioners. Government services and activities that directly impact the local economy and indirectly affect real estate values include the Port of Portland, Portland Development Commission, and the Tri-County Metropolitan Transit District (Tri-Met). The Port of Portland, a municipal corporation, operates the Portland International Airport, Hillsboro Airport, Troutdale Airport, Portland Harbor, and four marine terminals. The Portland International Airport operates more than 400 flights daily, while the port is the largest wheat export port in the US. The Port of Portland operates six commercial and industrial parks: Rivergate Industrial District, Swan Island Industrial Park, Mocks Landing, Portland International Center, Troutdale Industrial Park, and Brookwood Corporate Park. In Portland, a regional agency known as METRO, provides additional input regarding Multnomah, Clackamas and Washington Counties. METRO is governed by a paid executive and 12 elected unpaid district counselors. Its major responsibility is to review and coordinate city and county planning, solid waste management, and transportation planning. METRO also administers the Washington Park Zoo. In response to continued anticipated growth in the metropolitan area and pressure on the existing urban growth boundary (UGB), METRO initiated a master regional land use and transportation plan in 1992 known as Region 2040. After two years of public input and technical analysis of growth concepts, METRO developed a recommended alternative, which includes the following main concepts and ideas:

Use compact development (increased densities) to reduce land consumption. Create more permanent public and private open spaces and set aside current open spaces

within the UGB. Encourage substantial development and redevelopment in downtown Portland. Establish regional centers, town centers, corridors, main streets, and neighborhoods with

increased densities and transit improvements. Protect key industrial and employment centers. Set aside minimal urban reserves outside

the current UGB.



Major highway improvements on selected corridors (Sunrise, I-5, Highway 217 and Sunset Corridors).

In 1998, METRO adopted the Regional Framework Plan and it was approved by the state; hence, the plan is binding on local governments. After lengthy policy discussion and debate, the Region 2040 plan was implemented. Oregon has no sales tax, which has been consistently reinforced by voters in recent years. Measure 5 was approved by Oregon voters in 1990, which limited property taxes beginning July 1, 1991 (1991/1992 tax year) through July 1, 1996 (1995/96 tax year). The maximum allowed millage rate was decreased over a five-year period from $25.00 per $1,000 of value to $15.00 per $1,000 of value (plus special assessments and bond indebtedness). Additional taxes are allowed for voter approved bonded indebtedness. Overall, government influences are generally considered to be favorable. In November 1996, Measure 47 was approved by Oregon voters. This “Cut and Cap” measure decreased property taxes beginning July 1, 1997 (1997/1998 tax year) by the lesser of 1994-1995 taxes, or the 1995-1996 taxes less 10% (not including bond indebtedness). In addition, future property tax increases were not to exceed 3% per year, unless voter approved. The preceding tax relief measure was superseded by the Oregon State Legislature via the successful passage of Ballot Measure 50 in late May 1997. This measure has decrease assessed property values beginning July 1, 1997 (1997/1998 tax year) to the 1995-1996 assessed value less 10% (not including bond indebtedness). The existing tax rate is then to remain frozen. Similarly, future property tax value increases cannot exceed 3% per year, unless voter approved. The net impact of this approved measure was a substantial reduction in real property taxes for most classes of properties in the subject's area. The real estate market and governmental authorities have generally determined the effect of Measure 50 to be very positive, which has not only provided discounts in property taxes, but has also provided certainty regarding future tax liabilities. Hence, this measure has been very favorable for the real estate market. Overall, the government influences are generally considered to be favorable.

Transportation The transportation network in the Portland PMSA includes a comprehensive system of transcontinental railroads, regional and interstate highway, national and international air transportation, and two major fresh water ports for both ocean shipping and river barge traffic. Interstate 5 runs between the Mexican and Canadian borders, and is the longest continuous freeway in the United States providing north/south access to Portland. Other major freeways in the metropolitan area include Interstate 84 (east-west), US Highway 26 (the westerly extension of I-84), and Interstate 205 (a north-south bypass on the east side of the PMSA). In addition, State Highway 217 is a north-south bypass between US Highway 26 and I-5.



The Portland area has been the recipient in recent years of Federal and private funding for four light rail public transportation lines. Since MAX (Metropolitan Area Express) began operation, it has exceeded ridership expectations. The East Side MAX was completed in 1986, a $214 million light rail system and Interstate 84 highway improvement project. The 15-mile Banfield Transitway project links central Portland to the City of Portland to the east. The West Side MAX Project, a 12-mile light rail extension from downtown Portland to downtown Hillsboro was completed in two stages between 1993 and 1998. In 2001, a privately funded, 4-mile extension from the Gateway area of East Portland (along Interstate 205) to Portland International Airport was completed via a private-public joint venture accomplished by trading long term leases on Port of Portland lands in exchange for a private construction company covering the cost of this light rail extension. In 2004, the North Interstate MAX Line was completed at a cost of $350 million. This 5.8-mile extension runs from the Rose Quarter Transit Center to the Expo Center near Jantzen Beach. A light rail extension south from Gateway along I-205 to the Clackamas area was completed in 2009. This is Phase I of the South Corridor Project. A second phase of the South Corridor Project would extend light rail from downtown Portland to Milwaukie. This new MAX line is slated to open in September 2015, and is nearly completed. This line will parallel with SE McLoughlin until reaching the future Tacoma Street light rail station, then proceeds 300 feet south before turning southeast and continuing along the west/south side of the Union Pacific rail line into downtown Milwaukie. A connector line will also run eastward to the Clackamas Town Center (a regional shopping center). A proposed light rail extension north to Vancouver continues to be studied, and though has yet to garner the necessary public support and funding, is moving forward in the planning stages. All of these light rail extension lines have had significant positive impacts on the areas adjacent to their lines, particularly near the transit stations. Finally it is important to note the completion of the Washington County Commuter Rail which runs between Wilsonville, through Tigard and Tualatin, and links to the MAX line in downtown Beaverton. These stations provide commuter access along an upgraded / existing 14.7-mile freight line. Service began in 2009.

Education Portland is becoming the educational hub for the state, although the two major state universities are located 100 miles south in the cities of Corvallis and Eugene. In the Portland metropolitan area, state-run colleges include Portland State University, the Oregon Health Science University, and three community colleges; Mt. Hood, Portland, and Clackamas. Private colleges include Lewis and Clark College, Northwestern School of Law, George Fox University, Concordia College, Oregon Graduate Institute, Pacific University, Reed College, Warner Pacific College, and the University of Portland. These schools not only provide liberal arts programs, but also specific technical, scientific and professional training for business and industry. With regard to elementary school education, the outlying suburbs of the Portland area, including Portland , Beaverton, Hillsboro, Sherwood, and Oregon City, continue to add new facilities, which can hardly keep up with growing population demands. In addition, a number of private schools (mostly kindergarten through Grade 6) have either established new facilities, or have added to existing campuses to serve the expanding population needs.



Community Facilities: The Portland metro area maintains a symphony orchestra, junior symphony, opera company, art museum, museum of science and industry, public zoo, and an extensive public library system. The Portland Center for the Performing Arts includes the Civic Auditorium, the Arlene Schnitzer Concert Hall, the Winningstad Theater, and the Intermediate Theater; which combine for over 7,000 seats. Also located in Portland are the Historical Preservation Gallery, Japanese Gardens, Western Forestry Center, and the International Rose Test Gardens. The City of Portland has the most park land per capita in the country, which includes the 5,000-acre Forest Park. Portland supports a National Basketball Association professional basketball team, a Western Hockey League junior ice hockey team, and a Triple A baseball team. The Oregon Convention Center (400,000 SF) was completed in 1990, and expanded to 907,500 SF in 2003 making it the largest convention facility in the northwest. This facility attracts many national, regional, and local events. In 1995, the Trail Blazers completed a $262 million, 20,340-seat arena which consists of a multi-purpose sports and entertainment facility known as The Rose Garden. The development of this sports arena is expected to generate an estimated $26 million in new economic activity annually, and create hundreds of new and part-time jobs. Nearby is the Memorial Coliseum, a 12,666-seat structure which formerly hosted the Portland Trail Blazer basketball team. This arena is still the venue for the Portland Winter Hawks hockey team. In 2000, Providence Park (formerly PGE Park, and prior to that, Civic Stadium) was renovated at a cost of $38.5 million for use by both professional baseball and soccer teams. The renovation allowed Portland to attract a Triple A baseball team, the Portland Beavers, back to the city for the first time since 1993. However, in 2009, team owner - Merritt Paulson, entered into an agreement with the MLS to upgrade the stadium at a cost of $31 million for sole professional use by the Portland Timbers, which will elevate the team to the top professional league in the country. While the Portland Beavers, a Triple A baseball team, are no longer in the area and have relocated to another city, Minor League Baseball continued with the Hillsboro Hops - a Class A team that started in the 2013 season.

Conclusion Until mid-2007, the Portland-Vancouver metro area had exhibited long-term moderate growth among most major economic and demographic indicators. This continued growth was attributed to a variety of factors, including strong in-migration, a relatively inexpensive operating environment for relocating businesses, and superior quality of life factors. The result has been a continued diversification of the local economy, which has enabled the region to become less susceptible to dramatic cyclical swings typical of other cities in the State of Oregon more reliant on a single firm or industry. Thus, until late 2007, real estate values were generally stable to moderately increasing, and the market had been considered stable and active in most sectors. The recent financial / credit crisis and related steep slowdown in the economy had a negative impact on real estate, primarily in the residential sector. In addition, these negative trends migrated to some degree into the commercial / industrial sectors as well. In spite of the recent economic slowdown that resulted in stagnant growth in the region between 2008 and 2011 (versus the early to mid-2000s), the metro area has continued a sustained recover that began in 2012 and continues today. Thus, the long-term prospects for continued growth in the regional remain good and should have a positive influence on the suburban markets of the Portland-



Vancouver area. Overall, the general attitude among investors and developers in Portland and Vancouver metro markets is for increasing optimism relative to the residential market as the gradual economy rebounds and recovers. Generally, the local economy continues to exhibit signs of improving (increases from historically low housing permit activity, strongly increasing residential real estate prices, decreased unemployment, increasing Port activity, etc.) that is reflective of economic conditions in the national economy. Hence, market participants continue to anticipate improving conditions extending into 2015-2016 for most real estate sectors. Coupled with job growth, the paring of low interest rates and low housing supply have led to increasing real estate prices and decreased market rates of return from 2011 to present. In any event, most professionals agree on a positive outlook for the region with a likely return to more stable historical levels.

SINGLE-TENANT RESTAURANT & BAR CITY AND NEIGHBORHOOD ANALYSIS


NEIGHBORHOOD MAP



City and Neighborhood Analysis Location The subject property is located on the north side of SE Stark Street, just west of SE 162nd Avenue, in the far northeast portion of the City of Portland, near its boundary with the City Gresham, Oregon. Hence, the subject is more closely aligned with the community of Gresham, a suburb that is the second largest incorporated city in Multnomah County, and is situated approximately 12 miles east of the City of Portland. The immediate neighborhood lies approximately 3.0 miles northwest of the downtown core of Gresham. The boundaries of the subject neighborhood are NE Halsey Street (north), NE 148th Avenue (west), W Powell Boulevard (south), and NE 201st / 202nd Avenue (east). This is a predominantly residential area, with commercial uses concentrated along the primary arterials, and light industrial uses scattered throughout the area.

Population The City of Portland's population has been relatively steady and slow at 1.1% over the last 24 years. As of 2014, the city’s population was 601,510. A summary of population trends for Portland and the surrounding areas is presented following illustrating the subject area's rapid growth.

Population and Growth Trends in the East Metro Area

Census

Census

Estimated

% Change

Annual Change

Cities 2000 2010 2014 2000-2014 2000-2014 Portland PMSA 1,928,246 2,236,080 2,324,535 20.6% 1.7% Multnomah County 660,486 735,334 765,775 15.9% 1.3% City of Portland 529,121 583,776 601,510 13.7% 1.1% Gresham 90,205 105,594 106,455 18.0% 1.5%

Fairview 7,561 8,920 8,935 18.2% 1.5% Troutdale 13,777 15,962 16,020 16.3% 1.4%

Wood Village 2,860 3,878 3,905 36.5% 3.0%

Clackamas Co. 338,391 375,992 391,525 15.7% 1.3% Lake Oswego 35,279 36,619 37,105 5.2% 0.4% Oregon City 25,754 31,859 33,760 31.1% 2.6% Milwaukie 20,490 20,291 20,485 0.0% 0.0%

Sources: http://www.upa.pdx.edu/CPRC/publications/annualorpopulation/cert. est. 2014.pdf

http://www.ofm.wa.gov/pop/estimates.asp

Employment in the subject's general area consists mainly of high tech, light manufacturing and distribution warehousing, commercial retail (service oriented) businesses, medical/ health oriented services, and municipal services.



Commercial Development Within 2.5 miles west of the subject are Mall 205, Plaza 205, and Portland Adventist Medical Center and Academy, which form the major commercial uses in the general neighborhood. Mall 205 is an older community shopping center (436,362 SF, 80 stores) anchored that underwent a major remodel in 2000, and is now anchored by Target, 24 Hour Fitness and Home Depot, with a Red Robin restaurant pad building. Plaza 205 is an older specialty shopping center (172,500 SF; 1970s) anchored by Bally’s Total Fitness, Big Lots, Dollar Tree and Office Max with an adjacent older two-story office/service building (173,530 SF). The Portland Adventist Medical Center and Academy is also located 2.5 miles west of the subject property (south of Mall 205), and includes several good quality, multi-story medical office/service buildings. Overall, new commercial activity has generally kept pace with increasing population growth. Due to nearby Gresham’s steady population growth and its accessibility via several major collector streets, freeway system and light rail, commercial development is expected to continue at a steady pace along all major thoroughfares. However, there is a diminishing supply of available commercial sites in the immediate neighborhood which has been largely built-up since the late 1970s. Our inspection of the subject neighborhood indicates no excess commercial vacancies which would indicate on over-supply of retail space. Hence, vacancies for established commercial properties are generally in the range of 5.0%.

Industrial Development Though a limited number light manufacturing properties are located to the south of SE Powell Blvd. along SE 174th Avenue, industrial development is not typically represented within the subject neighborhood, and therefore poses no direct influence the subject property. Industrial development has been steady over the last 15 years, and is comprised of large manufacturing plants and warehouse facilities. Both the Cities of Portland and Gresham have encouraged industrial development in the area, and with large industrial sites available, future industrial growth is anticipated. These industrial developments are separated visually and geographically from the subject neighborhood and does not adversely affect the area.

Residential Development The neighborhoods adjacent to the subject are represented by a fairly homogenous mix of single-family homes and public uses developed between the 1960s to the present. Residential development within the neighborhood consists of a wide variety of housing ranging from low density, single-family residential to medium density, multi-family apartments projects. The typical multi-family apartment is 25 to 100 units, 20 years old to new condition, and is in average to excellent condition. There are several new large apartment projects that have been constructed or are under construction in the subject’s immediate neighborhood. The area has seen apartment construction increase since the area is just five blocks south of the light rail. Single-family development is located throughout the subject neighborhood and ranges in age from new to 50 years old, and is typically in average condition.

Governmental Forces The government forces that influence the neighborhood will be compared with other competitive residential areas to determine its relative desirability. Important government forces to be considered include tax rates and assessments and zoning requirements. Suburban locations comparable to



outer SE Portland include Gresham, Troutdale, Fairview, Happy Valley and Clackamas, which have similar tax rates and assessments. Zoning requirements in the subject neighborhood are similarly restrictive to these competitive areas.

Environmental Forces Significant environmental forces that influence the neighborhood include access to major transportation routes and available utilities and community services.

Transportation Systems The immediate area is well served by several major arterials, including NE Halsey Street, NE Glisan Street, SE Stark Street, E. Burnside Road, SE Division Street, SE Powell Blvd (east-west), and NE / SE 162nd Avenue, NE / SE 181st Avenue, NW Fairview Avenue, and SE/NE Hogan Road (north-south). Interstate 84 extends eastward to the Columbia Gorge and is situated 1.5 miles north of the subject property. I-84 provides access to Gresham via interchanges at NE 181st Avenue and NE Hogan Road at Wood Village. State Highway 26, also known as SE Powell Blvd., connects Portland, through Gresham, to the Mount Hood recreational area. The Metropolitan Area Express (MAX) provides light rail service between downtown Gresham and downtown Portland, along E. Burnside, roughly four blocks north of the subject. The closest light rail station is at the intersection of Burnside and 162nd Avenue which has spurred apartment development in the subject neighborhood.

Utilities The subject neighborhood is adequately served by water, sewer, electric, and natural gas services and is charged similar rates as competing areas in the Portland metropolitan area.

Immediate Neighborhood The immediate subject neighborhood is defined by SE Stark Street, which is a primary commercial-residential thoroughfare (east-west), which extends from the Willamette River at Downtown Portland (8.5 miles west) to Gresham (4.5 miles east). This is a very heavily traveled corridor in the subject's immediate neighborhood, and serves as a primary collector for the north-south access ramps at Interstate 205. The largest commercial use in the immediate vicinity is Village Square - a multi-tenant retail strip center (84,656 SF; built 1961, major tenants Victory Fellowship Church, Su Casa Imports, and Sam’s Restaurant) is located at the SWC of SE Stark and SE 162nd Avenue. Also located in the immediate vicinity is a Union 76 station, a 7-11 store, KC Sports Bar, and a small adult entertainment / strip club – Dream On is located on the diagonally opposite corner at SE 160th Avenue. Uses along SE Stark Street, between Interstate 205 and SE 181st Avenue, are predominated by a wide variety of commercial retail and office uses, intermixed with mostly older converted home office/commercial buildings and some industrial light improvements. Service commercial uses tend to predominate at the major intersections (restaurants, service stations, auto repair, etc.), though no other furniture store uses are noted in the immediate vicinity (walk distance) of the subject property. General retail uses along this corridor include neighborhood shopping centers, with older strip retail buildings, freestanding restaurants and retail buildings, banks, auto shop buildings, and service stations.



Neighborhood Land Use The subject neighborhood is located in an area with predominantly retail and office uses along primary arterials such as NE Halsey Street, NE Glisan Street, SE Stark Street, E. Burnside Road, SE Division Street, SE Powell Blvd. (east-west), and NE/SE 162nd Avenue, NE/SE 181st Avenue, NW Fairview Avenue, and SE/NE Hogan Road (north-south). In addition, there is extensive rental apartment and single-family residential neighborhoods off these main corridors. An approximate breakdown of the development in the area is as follows:

LAND USES

Developed 90% Vacant: 10% Residential: 70% Industrial: 0% Retail: 20% Office: 10%

Conclusion SE Stark Street and Burnside Street are primary commercial corridors with central proximity to the large residential areas of East Portland, and a large, established base of commercial retail and office uses in the general area. This established neighborhood has good access characteristics and has limited developable land available with continued demand and redevelopment occurring. Because of its fringe location between the western residential portion of the Gresham area and far eastern sector of the City of Portland, and high concentration of converging / intersecting primary arterials, the subject neighborhood is likely to experience continued incremental expansion of residential and commercial retail / office development for the foreseeable future; albeit at a slower pace due to the recent extended economic slowdown. Demand for various commercial uses catering to the local neighborhood is still expected to continue in the foreseeable future; especially with the higher traffic volume along SE Stark Street and SE Burnside Street. Demand for commercial properties in the subject area is expected to continue at a stable level, though with stable / somewhat depressed rents with continued concessions in the near term (1 to 2 years), and gradually increasing rents / decreasing concessions and increasing property values over the long-term (5 to 10 years), as economic factors improve. Furthermore, demand for various commercial uses catering to the local neighborhood is expected to continue for the foreseeable future (with the caveat that rents are low relative to the primary commercial areas of East Portland and Gresham); especially with the moderately heavy traffic volume along SE Stark Street. No adverse influences were noted to exist in the immediate subject area, which would have a negative impact on the subject’s value or its marketability.

SINGLE-TENANT RESTAURANT & BAR SITE DESCRIPTION


Site Description Address: 16015 SE Stark Street (TL 1400 – primary bldg. address) 410 SE 160th Avenue (TL 1500 – parking lot) Portland, OR 97233 Location: North side of SE Stark Street, roughly one block west of SE 162nd

Avenue, in outer Southeast Portland in mid-Multnomah County. Legal Description: The legal description was obtained from a Trio from Lawyers Title

(provided within the Addenda) and is assumed to be accurate. Current Use: Single-tenant, sit down restaurant / bar – currently vacant. Land Areas:

LAND AREA PORTION Acres SF

TL 1400 0.60 26,250

TL 1500 0.34 15,000

Gross Land Area 0.94 41,250

The preceding site area is based on a review of the County Plat Map

found at the end of this section. Excess / Surplus Land: None noted. Shape: Rectangular corner site. Topography: Generally level and at street grade. Adjacent Properties:

East: Stark Firs Apartments built in the 1990s. North: Rosewood Station Apartments 1990s construction. West: Joseph Elkhal DMD - single story dental clinic, with 3-story and 2-

story apartments from the 1990s to the north. South: Village Square a multi-tenant retail strip center (84,656 SF; built 1961,

major tenants Victory Fellowship Church, Su Casa Imports, and Sam’s Restaurant). A small adult entertainment / strip club – Dream On is located on the diagonally opposite corner.



Utilities: All public utilities are available to the subject. Street Improvements: SE Stark Street is a four-lane, two-way (east-west), primary arterial

with a center left turn meridian, which extends from the downtown Portland to Gresham. SE 160th Avenue is a two-lane, two-way (north-south), secondary collector street which extends from the southern property line of the subject and north to NE Halsey Street. SE Stark Street is asphalt paved, and is improved with curbs, gutters, sidewalks, and street lighting. SE 160th Avenue is asphalt paved with street lighting, concrete curbs and gutters but no sidewalks.

Accessibility: On-site access is good as there is a curb cut along the north side of

SE Stark Street and two curb cuts are available on SE 160th Avenue.

General access is average as the subject is located block west of SE 162nd, and is situated 1.4 miles southwest of the 181st Avenue / I-84 interchange.

Exposure: The subject site has above average exposure being located along a

major east/west arterial. Traffic Count: SE Stark Street at SE 168th Avenue – 22,108 Vehicles Per Day (2014 –

per Costar / MPSI estimate). This traffic count is indicative of a moderate flow of traffic for a suburban commercial corridor.

Easements and Encumbrances: A title report was not made available to the appraiser. Our inspection

indicates no obvious easements or encumbrances on the subject property and this appraisalassumes no problems related to the preceding. If there are questions or concerns regarding the preceding encumbrances and restrictions, further research is advised.

Flood Plain: According to the FEMA Map No. 410181 0140 F, dated November 26,

2010, the subject site lies within Zone X, which is an area determined to be outside the 500-year flood plain.

Utility: The subject site has good on-site access, average general access, and

average / secondary commercial exposure characteristics along an established commercial corridor. In addition, the subject site has average functional utility in terms of size, shape, available utilities, and development characteristics.



Zoning Designation Zoning Jurisdiction: City of PortlandZoning Classification: CSh, Storefront CommercialPermitted Uses: Retail and office uses

Zoning Comments: The subject property is zoned by City of Portland as CSh, Storefront Commercial with an “h” Aircraft Landing Overlay (height restriction). The zoning is presented on the following City of Portland Zoning Map. The CS zoning permits a wide variety of commercial uses including office, retail and services uses. The subject's existing use is an outright permitted use within the zone. Therefore, the subject improvements appear to conform to the current zoning ordinances regarding site coverage, parking, setbacks, and structure height. The “h” overlay pertains to varying height restrictions associated with the adjacent or nearby airport runways. Since the subject parcel is not in line with any of the runways, and typical residential and industrial uses in the area are under two stories (say 30 feet and below), this overlay is not considered to have an adverse impact on subject land value. The subject is also located within the East Corridor Plan District which includes three light rail stations and three Pedestrian Districts. The area is targeted to receive a significant share of the city’s growth. It is envisioned that future development will transform the areas surrounding the light rail stations into vibrant mixed-use areas of retail, office, and housing with a high level of pedestrian amenities. Lower density residential and commercial development will continue to surround the Pedestrian Districts. These regulations:

Encourage new housing and mixed use development and expansions of existing development to promote the corridor’s growth and light rail transit ridership; Promote compatibility between private and public investments along the light rail system through enhanced building design and site layout standards; Implement the objectives of the City’s Pedestrian Districts to enhance the pedestrian experience and access to and from light rail service; and Encourage connectivity for vehicles, bicycles, and pedestrians on large sites.

Our review of the zoning code indicates the existing former / historic restaurant & bar use of the subject property is a legally allowable use of the site.



TAX/PLAT MAP



ZONING MAP



FLOOD MAP

SINGLE-TENANT RESTAURANT & BAR IMPROVEMENT DESCRIPTION


Improvement Description Property Name: Former Black Caldera (adult entertainment club) General Description: Fair to average quality, one-story restaurant of wood-frame

construction with shake siding and wood log entrance. Originally constructed in 1975, the property appears relatively fair to average in maintenance with only minor upgrades since 2013. The building is of very dated design and is in fair to average condition, and still in need of curing some items of deferred maintenance.

Building Area: The subject contains 7,454 SF of gross building/gross leasable area.

The building area calculations are based on measurements taken on-site by the appraiser. Due to the single-tenant status of the building, the GBA and GLA are equal to one-another.

Interior Configuration: The building is located at the south end of the site with the balance of

the site being asphalt paved. The building has a semi-rectangular shape (roughly 87’ x 95’). The main entry is located along the northern façade which opens into the bar / pool table room / gaming area. The main bar is in the northeast corner of the building with the kitchen, food prep, pantry, scullery and bus station areas in the southwest corner. The kitchen area also includes a walk-in cooler / freezer that is currently not operational (unknown if this built-in equipment works or not as it is currently used for dry storage). The southeast corner consists of a nightclub / dance floor area with small stage. Accessed directly off the dance floor area are two multi-user restrooms. A building sketch is provided on a following page.

Seating Capacity: None listed within the building. Exterior Finish: Wood-frame with cedar shake siding, plus a wood log entry along the

north elevation. The southeast corner has a very steep pitched, “Hansel & Gretel” - type roof with a cedar shake finish. The remainder has a flat roof design with assumed composition asphalt cover. There are a limited number of windows (single pane in aluminum frame with steel security bars) along the north, south and east elevations. The foundation is concrete slab. Note that in 2013 the owner installed an outdoor / enclosed patio area in the NWC (21’ x 37’) which includes good quality plywood siding topped with cedar lattice work, plus wood decking.



Interior Finishes: Interior finish reflects below average overall quality. Flooring is

generally low-grade commercial carpet with vinyl tile in the dance areas, ceramic tile in the kitchen, and newer stone tile floor / wainscot in the restrooms. Walls are wood panel and limited sheetrock with resilient surfaces in the kitchen and painted sheetrock in the seating areas with some tongue and groove wood / paneling cover. Ceilings range from 8 to 9 feet clear height and are a combination of stained wood planks and painted / textured sheetrock. Lighting is a combination of incandescent and fluorescent fixtures. Plumbing consists of two multi-user restrooms (recently upgraded with all fixtures) and typical kitchen fixtures necessary for a commercial sit down restaurant operation. Several sinks are located in the kitchen, prep area, and behind the bar. The building includes three-phase electrical service, which is satisfactory for its existing use. HVAC and insulation are assumed adequate. Finally, there is a large masonry stone, wood-burning fireplace along the north wall elevation in the bar area. No fire sprinkler system noted.

Special Features: The subject facility includes typical restaurant equipment (bar and

kitchen fixtures including ovens, grills, and hood fan with fire suppression system, as well as a walk-in cooler, dishwashers, etc.). The walk-in cooler / freezer unit is considered real estate as it cannot be removed without causing substantial damage to the building. Further, as noted during our inspection, the walk-in cooler / freezer was not operational and had been used for dry storage. The remaining items are considered personal property and are not valued in this appraisal.

Site Improvements and Landscaping: Most of the site is asphalt paved for automobile parking at the north

end and east side of the site. There is a pole-mounted, lighted sign along the south / Stark Street frontage of the site. Landscaping is minimal consists of mature trees and limited vegetation along the street frontage elevations of the building. The landscaping is generally in poor to fairly maintained condition. No irrigation system was noted.

Year Built: 1975 with some upgrades / renovations since 2103. Interior and Exterior Condition: Fair to average, with some remaining items of deferred maintenance

noted (see following paragraph discussion). Based on interviews with the listing broker – Vince Cortese, he indicates the owner / seller spent upward of $100,000 ($13.42 / SF GBA) to renovate the parts of the interior of the building, as well as construct the enclosed / outdoor patio with seating (37’ x 21’). Our inspection indicates the



owner remodeled the restroom with good quality finishes / fixtures, cleaned up the kitchen, fixed some minor roof leaks near the main entry door, reportedly worked on the HVAC, and added the noted enclosed outdoor patio. In addition, some of this cost was most certainly related to his restaurant / adult entertainment theme with private booth areas and seating not likely function for more traditional restaurant / bar users.

In spite of the preceding renovations, there appeared to remain some

notable items of deferred maintenance - including the need for new roof shingles (shake or composition – roughly $20,000) on the steep roof, and needs parking lot patching, repair and resealing (say $10,000), and landscape renovation / repair (say $10,000). These items provided an estimated total of $40,000. Adding to this a very large contingency factor 50% due to the great uncertainty of other potential issues (HVAC, electrical, plumbing, walk-in cooler / freezer repair), this adjusts this total upward to $60,000 ($8.05 per SF GBA). Please not that no formal estimate of deferred maintenance was available for the appraiser’s review. After completion of these repairs, the property would be considered in generally average condition. These items will be considered in the form of a deduction against the estimated stabilized market value in arriving at the final “as is” market value of the subject.

Effective Age: Effective age estimated at roughly 30 years due its lower level of

recent maintenance and / or renovations, while the remaining economic life is estimated at 20 to 25 years with regular maintenance and curing of noted items of deferred maintenance.

Land-to-Bldg. Ratio: 5.5 to 1 (41,250 SF Site Area ÷ 7,454 SF GBA) Site Coverage: 18.1% (7,454 SF Footprint ÷ 41,250 SF Site Area) Parking: The subject includes a total of 70 marked or delineated spaces, with

room for a total 75 parking stalls, for an overall parking ratio of 10.1 spaces per 1,000 SF of GBA, which is at the upper end of market standards of 7 to 10 spaces per 1,000 SF for typical sit down restaurant uses.

Utility: The subject facility has average utility for dated sit down restaurant /

bar with low cost to average quality construction materials, a generally efficient design with adequate customer and service area, and more than adequate parking.



APPRAISER SKETCH

SINGLE-TENANT RESTAURANT & BAR SUBJECT PHOTOS


Subject Photos

View facing west along SE Stark Street with the subject building seen at right.

View facing east along SE Stark Street at SE 160th Avenue with the subject at far

left.

View facing north across SE Stark Street and along SE 160th Avenue with the

subject seen on the far right street corner.



View facing northeast of the subject’s west / side and front / south building

elevations, as seen from SE Stark Street.

View facing north across SE Stark Street of the subject’s main parking entrance. The

subject’s south / front and east / side building elevations are seen at right.

View facing southeast of the north / rear and west / side building elevations as seen from SE 160th Avenue. At far left is one of

two side parking lot entrances.



View of the east / side and north / rear building elevations. The main building

entry (green logs) is seen at center-right.

View facing east of the north / rear parking lot entrance.

View facing southwest across the center portion of the rear parking lot with the subject building seen at distant center.



Main bar area in the northeast corner of the building.

View behind the bar.

Pool table / gaming area in the northwest corner of the building. Note the fireplace

against the wall at center-left.



Night club dance floor in the southeast corner of the building. This view is toward

the north end of the building.

Kitchen cooking line.

Kitchen scullery.



Rear food prep with walk-in cooler / freezer at center (not in use, unknown if this built-in equipment is operational).

Bus station area.

Men’s restroom – note significant, good quality renovation by the owner.

SINGLE-TENANT RESTAURANT & BAR ASSESSMENT AND TAX DATA


Assessment and Tax Data Assessment Methodology The State of Oregon has provided for a unified system to assess real estate for property taxes. Assessment Districts are established on a county basis to assess real estate within the county. The appraised property falls under the taxing jurisdiction of the county and is subject to both general taxes and direct assessments.

Assessed Values and Property Taxes Map 1N2E36DD, Tax Lots 1400 and 1500, Multnomah County, Oregon. Assessor Account Nos. R217934 and R217935. The subject’s assessed values, applicable tax rates and total taxes including direct assessments are shown in the following table:

Real Property Assessment and Taxes Fiscal Tax Year 2014-2015

Tax Lot

Market Land

Market Imps.

Market Total

Meas. 50 Assessed

Value

Annual Taxes

TL 1400 $490,880 $821,840 $1,312,720 $773,440 $17,438.42

TL 1500 $263,560 $14,300 $277,860 $115,180 $2,443.99

TOTAL $754,440 $836,140 $1,590,580 $888,620 $19,882.41

General Taxes The county sets the new fiscal tax year beginning July 1, 2015, with no new taxes due until November 15, 2015. However, the new assessment will not be available until October 2015. Note that Ballot Measure 50 passed in 1997 limits future property assessed value increases to no more than 3.0% per year, unless voter approved bonded indebtedness is incurred. Hence, the future taxes for the subject will most likely continue to increase, as they have over the last few years, but likely no more than 3.0% per year.

Conclusions According to the County Tax Assessor’s Office, no current of prior property taxes are owed.

SINGLE-TENANT RESTAURANT & BAR MARKET ANALYSIS


Market Analysis MARKET AREA MAP- GRESHAM / MALL 205 / EAST COLUMBIA CORRIDOR

Retail Vacancy and Absorption The appraiser used CoStar to produce a search of the subject’s immediate to expanded Gresham / East Columbia Corridor / Mall 205 submarkets for restaurant / bar properties. As of September 2015, report indicates a total restaurant / bar vacancy of 3.0% (20,862 SF out of 696,313 SF; 161 properties), with a 5-year average vacancy modestly higher at 4.4%. In spite of tight market conditions, average asking rental rates for restaurants have exhibited steady downward trend over the past 5 years. The current surveyed average restaurant rent is $12.97 per SF, down from the 5-year average of $14.30 per SF per year NNN. However, these statistics can be sharply skewed by the available inventory at any given time, and may be fully reflective of the market as a whole. Finally, the 5-year average for sale price is $178 / SF – up from the 5-year average of $155 / SF, with a 5-year average cap rate of 6.7%.

SINGLE-TENANT RESTAURANT & BAR MARKET ANALYSIS


SINGLE-TENANT RESTAURANT & BAR HIGHEST AND BEST USE


Highest and Best Use The Highest and Best Use of a property is the use that is legally permissible, physically possible, and financially feasible which results in the highest value. An opinion of the highest and best use results from consideration of the criteria noted above under the market conditions or likely conditions as of the effective date of value. Determination of highest and best use results from the judgment and analytical skills of the appraiser. It represents an opinion, not a fact. In appraisal practice, the concept of highest and best use represents the premise upon which value is based.

Analysis of Highest and Best Use As If Vacant In determining the highest and best use of the property as if vacant, we examine the potential for: 1) near term development, 2) a subdivision of the site, 3) an assemblage of the site with other land, or 4) holding the land as an investment.

Legally Permissible The subject site is zoned CS, Storefront Commercial which permits various retail and office uses. The location of the subject is appropriate for the uses allowed, as noted previously, and a change in zoning is unlikely. There are no known easements, encroachments, covenants or other use restrictions that would unduly limit or impede development.

Physically Possible The physical attributes allow for a number of potential uses. Elements such as size, shape, availability of utilities, known hazards (flood, environmental, etc.), and other potential influences are described in the Site Description and have been considered. The subject site has a rectangular shape and an area of 41,250 SF. The site has a level topography and above average secondary corner street frontage along a moderately traveled commercial corridor. Overall, there are no items of a physical nature that would materially limit appropriate and likely development.

Financially Feasible After determining the uses that are physically possible and legally permissible, an appraiser considers the uses that are likely to produce an adequate return on investment based on a cost/benefit analysis or through direct market observation. The market demand for the development of the site like the subject is considered light to moderate and is general stable to slightly depressed. New retail and office development may financially feasible, but likely only on a build-to-suit basis at this time.

Maximally Productive Among the financially feasible uses, the use that results in the highest value (the maximally productive use) is the highest and best use. Considering these factors, the maximally productive use as though vacant is for retail or office development.

Conclusion of Highest and Best Use As If Vacant The conclusion of the highest and best use as if vacant is for retail and/or office development.

SINGLE-TENANT RESTAURANT & BAR HIGHEST AND BEST USE


Analysis of Highest and Best Use as Improved In determining the highest and best use of the property as improved, the focus is on three possibilities for the property: 1) continuation of the existing use, 2) modification of the existing use, or 3) demolition and redevelopment of the land. According to the definition of Highest and Best Use, the property, as improved, is legally conforming, and is physically suited to the site. Demolition of these improvements is not considered a reasonable alternative since the subject improvements still appear to represent a viable use contributing substantial value to the property. Conversion is considered possible, however, given the current sit down restaurant / bar configuration, and the large anticipated conversion costs, conversion to another form of retail or office use is not likely feasible at this time from a rate of return / real estate investment standpoint. Due to the property's generally fair to average condition with noted items of deferred maintenance (estimated at roughly $60,000 by the appraiser) and quality of construction, a renovation is considered a necessary alternative by most users. Based on the site coverage ratio of 18.1% which is near the upper-middle of the typical market parameters of similar sit down restaurant properties, an addition to the existing improvements is not considered a necessary option. Overall, given the fair to average condition of the property with some remaining items of deferred maintenance noted, no change to the subject improvements is not considered a reasonable alternative. Based on the preceding, retaining the improvements as they exist meets the tests for physical possibility, legal permissibility and financial feasibility. The improvements are in fair to average condition, and any alternative use of the existing improvements is unlikely to be economically feasible. The former / historic use and current configuration use as a single-tenant restaurant / bar is legally permitted. The improvements are physically possible, financially feasible, and maximally productive.

Conclusion of Highest and Best Use As Improved The highest and best use of the subject property, as improved, is its continued use as a single-tenant sit down restaurant / bar, assuming the curing of the noted items of deferred maintenance.

Most Probable Buyer/User Based on the subject’s age / layout / design, location, and the size of the building, the most probable buyer would be an owner-user. Given the layout and design of the improvements as a sit-down restaurant / bar, an investor would not likely be interested in the subject unless leased to a stable, credit tenant on a long-term lease – which is unlikely given the subject’s location and unique architectural design.

SINGLE-TENANT RESTAURANT & BAR APPRAISAL METHODOOGY


Appraisal Methodology Three Approaches to Value There are three traditional approaches typically available to develop indications of real property value: the cost, sales comparison, and income capitalization approaches.

Cost Approach The cost approach is based upon the principle that a prudent purchaser would pay no more for a property than the cost to purchase a similar site and construct similar improvements without undue delay, producing a property of equal desirability and utility. This approach is particularly applicable when the improvements being appraised are relatively new or proposed, or when the improvements are so specialized that there are too few comparable sales to develop a credible Sales Comparison Approach analysis.

Sales Comparison Approach In the sales comparison approach, the appraiser analyzes sales and listings of similar properties, adjusting for differences between the subject property and the comparable properties. This method can be useful for valuing general purpose properties or vacant land. For improved properties, it is particularly applicable when there is an active sales market for the property type being appraised – either by owner-users or investors.

Income Capitalization Approach The income capitalization approach is based on the principle that a prudent investor will pay no more for the property than he or she would for another investment of similar risk and cash flow characteristics. The income capitalization approach is widely used and relied upon in appraising income-producing properties, especially those for which there is an active investment sales market.

Subject Valuation In this appraisal, only the Sales Comparison to value is utilized, which is based on prior agreement with the client to limit the scope to this as the most reliable approach to value the subject. The Cost Approach is not considered a reliable indicator of value given the need to estimate the large amount of accrued physical depreciation. While the Income Capitalization Approach could have provided secondary support from a valuation standpoint, the subject’s low investment appeal and lack of truly comparable rent and cap rate comparables severely limited its reliability in this analysis. Hence, both these valuation methods were reasonably omitted from this appraisal.

SINGLE-TENANT RESTAURANT & BAR SALES COMPARISON APPROACH


Sales Comparison Approach Methodology The Sales Comparison Approach involves the estimation of value by comparing the subject property to similar properties that have sold recently. Appropriate units of comparison are used and adjustments to the sales prices are made when appropriate. The comparison to other properties may use the price per square foot, dwelling unit, or rental space, depending on the composition of the subject property and the behavior of buyers and sellers in the marketplace. For special purpose properties, other bases of comparison may also be appropriate.

Unit of Comparison The valuation of improved properties involves selecting not only similar properties for analysis, but also utilizing a unit of comparison that is considered most typical in a given local market. As the comparables are primarily single-tenant properties, the most reliable unit of comparison is considered based on the sales price per square foot of gross building area (GBA).

Elements of Comparison Elements of comparison are the characteristics or attributes of properties and transactions that cause the prices of real estate to vary. The main elements of comparison that should be considered in sales comparison analysis are as follows: (1) real property rights conveyed, (2) financing terms, (3) conditions of sale, (4) market conditions, (5) location and (6) physical characteristics.

Comparable Sales Data A search of data sources and public records, a field survey, interviews with knowledgeable real estate professionals in the area, as well as a review of our internal database was also conducted to obtain and verify comparable sales and listings of comparable properties. Emphasis was given to similarly located mid-sized, single-tenant commercial buildings. The following presentation summarizes the comparables most similar to the subject property. A total of ten building sales of similar size were chosen for comparison to the subject property, and are summarized in the table on a following page. A location map and photographs of each of the comparable building sales are also provided. All are sufficiently comparable to render a reasonable comparison with the subject property.

Adjustments Analysis Building Sale 1 was estimated to have a pending sale price of $905,000, as discussions with the seller indicate the price was in the ‘low $900,000 range’, though he preferred to keep the exact price confidential until closing which is expected September 23, 2015. No specific adjustments were made to the remaining comparable building sales.



Price Per Square Foot Analysis After adjustments, analysis reflecting market behavior is utilized to determine which comparables are superior or inferior to the subject considering the remaining characteristics that could not be accounted for in the adjustment process. This bracketing analysis establishes value parameters for the subject, allowing for a final conclusion of value.

Comparable Sales Analysis After analyzing each commercial building sale, prices of between $119.10 to $278.93 per SF gross building area were indicated for transactions that occurred between April 2014 and pending September 2015. The buildings exhibit a wide range of dates of sale, size and time of construction, but were still generally comparable in quality as compared to the subject improvements. Building Sale 1 ($261.18 per SF; Approximately; Pending 9/15) is the pending sale of a restaurant / bar / adult entertainment club located near downtown Gresham just north of K-Mart and northeast of Gresham Station. The building is owner-occupied as 505 Club. The older, fair to average quality building has good exposure to NW Burnside Street with access from both directions. It has a large arrow shaped lot with ample parking. The subject is currently occupied by a related party business dba as Club 505 – an adult-themed bar / restaurant. The property has actually been on the market for over 2 years with various brokers, as well as For Sale by Owner, with the most recent listing at $799,000 ($230.59 / SF GBA) with a local brokerage in January 2015. In August 2015, there is a local investor group which has made a cash offer of $800,000 ($230.88 / SF GBA) for the property, with their intent to convert the property to retail use. However, the deal failed when the financing could not be lined up, and a second offer of roughly $905,000 ($261.18 / SF GBA) was made and accepted in late August 2015 and is to close on September 23, 2015. The intended use is unknown, but may also be for conversion to retail (marijuana dispensary) use. This property is similar in quality and parking ratio, but much superior commercial in its location with higher quality nearby uses. Hence, along with its smaller size and lower site coverage, this is an unreasonably high indicator for the subject. Building Sale 2 ($278.93 per SF; 1/15) is a single-tenant, sit-down restaurant - formerly Midnight Roundup (a western themed restaurant / bar), located at the northeast corner of NE Burnside Street NW Eastman Pkwy in Gresham, one block east of the Gresham Station power center. The property was not on the market, with the buyer's broker approached the owners about selling, and a deal was negotiated. The building was fully equipped with kitchen equipment and tables/chairs; however, the buyer will not be utilizing these items as the plan is to demolish and remove the restaurant and redevelop with a retail strip center. This would infer a unit price of $26.27 / SF land area. This property is similar in quality and parking ratio, but superior in its commercial / primary corner location with higher quality nearby uses. Hence, along with its smaller size and lower site coverage, this is an unreasonably high indicator for the subject. Building Sale 3 ($202.32 per SF; 4/14) is a single-tenant, sit-down restaurant - formerly Marie Callender’s, located along NE Burnside Street, just east of NW Eastman Pkwy in Gresham. The property had been vacant for roughly 2 years. It was originally listed in August 2011 with no asking price and later again brought to market in December 2012 at a price of $1,500,000. The current



brokers had it on the market for sale and lease at $1.3 million with average interest. The building was fully equipped with kitchen equipment and tables/chairs; however, the buyer will not be utilizing these items. Note that the property was purchased by a dental group which plans to remodel / renovate the building into a dental office. Overall, this is considered a superior commercial location with better quality nearby uses, with the property also superior in effective age / condition / quality and slightly smaller in size. Partially offsetting is the inferior parking, though overall this is considered to be a high indicator for the subject property. Building Sale 4 ($121.54 per SF; 3/15) is free-standing sit-down restaurant of wood-frame construction. Property has good access / broad mid-block exposure along SE Stark Street, just east of the signalized intersection of SE 162nd Avenue. This is a secondary commercial corridor location. The improvements were originally constructed in 1983 with a remodel in 1989 and a small addition in 1991. The building is of average design and condition. The property contains 14,398 SF of gross building/gross leasable area, which includes 14,200 SF on the main level and 198 SF of loft office area above the main entrance. Note that it was listed for sale at 14,689 SF GBA. The property had been long-term owner-occupied as Papa's Pizza Parlor, but finally shut down and was listed for sale. The property was purchased by the Gateway Elks for conversion to a lodge, with this conversion underway as of Sept-2015 (costs unknown). Discussions with the buyer's broker - Fred Sanchez, indicate there were many failed windows / atrium window areas in the building, many leaks, problems with clogged sewer lines, etc. The cost of fixing these items of deferred maintenance is unknown. Hence, the property was in poor to fair condition at the time of sale. Overall, this is a very similar nearby commercial location only 2 block east and is similar in quality. However, the effective age / general condition are inferior with further upward consideration required for the much larger size. Therefore, this is considered an unreasonably low indicator for the subject property. Building Sale 5 ($186.13 per SF; 8/14) is the former Ming’s Restaurant & Lounge located on the southwest corner of SE Mill Plain Boulevard and SE 120th Avenue in east Vancouver. The property was an unsolicited sale by an investor and took six months to close due to the buyer doing due diligence on the property. The building was vacant for approximately two years prior to the sale. The building sold with the seller having removed all the kitchen equipment and personnel property. The seller indicated the buyer was to renovate the property with no plans on who will be the occupant. The building was reported to be in need of some repair with deferred maintenance noted. Overall, this is a much superior good commercial location and a much smaller size. These combine to more than offset this comparable’s inferior effective age / condition and much low parking ratio. Hence, this is a high indicator for the subject. Building Sale 6 ($188.89 per SF; 11/14) is located on McLoughlin Blvd just south of the City of Milwaukie in an area that includes a heavy concentration of both drive-through and sit down restaurants. The restaurant includes a lounge with 5 video poker machines. The Realtor stated the property is in average condition but could use updating/remodeling. From the exterior inspection, the roof looked like it had recently been temporarily patched and needed general repair. The Realtor stated there have been very few inquiries, but that a solid offer was made by Planned Parenthood for conversion to office use in Fall 2014. Overall, property is similar in effective age / condition / quality



and parking ratio. However, this is a superior, more intensive commercial corridor location with a much smaller size which makes this is a high indicator for the subject. Building Sale 7 ($156.16 per SF; 9/15) is a free-standing sit-down restaurant of wood-frame construction. Property has average access / highway corner exposure along the north side of Tualatin Valley Hwy, just west of SW 185th Avenue, in the unincorporated Aloha area (near Intel's Aloha campus). Property was originally built as The Keg restaurant, and later leased / occupied as Cooper Mountain Steakhouse, and most recent as Spot Sports Bar & Grill. The property shares driveway access with Aloha Feed which occupies a building behind / north of this restaurant. The property was listed for $1,250,000 ($187.69 / SF GBA), and eventually sold to a local, experienced Chinese restaurant operator for $1,040,000 ($156.15 / SF GBA), cash to the seller. The sale price included all FF&E, which was given no value allocation in the sale. The average quality building was in average condition, and included an outdoor seating deck off the back side. Overall, this is considered a similar tertiary commercial location, though with superior traffic exposure and further downward consideration required for the proximity to the Intel plant. Otherwise, the property is similar in effective age / condition / quality, with a similar size and good on-site parking. All things considered, this is a slightly high indicator for the subject. Building Sale 8 ($240.30 per SF; 5/15) is an older single-tenant, sit-down restaurant building located on the south end of Bridgeport Village adjacent SW Travelers Lane and SW Lower Boones Ferry Road in Tigard. The property has indirect / good signage exposure to Interstate 5. This was a sale to a tenant who had an option the purchase the property. The option price was determined via appraisal which after two attempts, was verified. The closing period was extended out approximately 11 months with the haggling over the price and conditions of the sale eventually finalized by the parties. The building was in average condition with a good location that most likely will be a redevelopment site in distant future. This would infer a unit price of $36.87 / SF land area. Overall, this is considered a far superior general area with much superior freeway access / exposure. In addition this property is superior in effective age / condition / quality, which are only partially offset by the inferior on-site parking. Hence, this sale is a very high indicator for the subject. Building Sale 9 ($175.91 per SF; 3/15) is an older sit-down restaurant (formerly Chevy's Mexican) which is of average quality, wood-frame / Dryvit exterior construction. The property has a good periphery / mid-block location along the north side of NE Thurston Way, just west of Westfield Mall (formerly Vancouver Mall, 947,000 SF GLA). Nearby restaurants include Roundtable Pizza and Popeye's Chicken. This older property is situated with side exposure to SR-500 with an additional daily traffic count of 65,897 VPD. The property was the market only a short time with the buyers making a full price offer of $1,300,000 ($175.91 / SF GBA). The building was fully equipped with kitchen equipment and tables/chairs; however, the buyer will not be utilizing these items as the plan is to demolish and remove the restaurant and redevelop with a retail strip center to be anchored by a mattress store. This would infer a unit price of $28.15 / SF land area. Overall, this property has a much superior general location, with the effective age / condition / quality also superior. While similar in size, only partially offsetting is the lower parking ratio. Thus, this comparable is considered a high indicator for the subject property



Building Sale 10 ($119.10 per SF; 4/14) is the sale of a former Izzy's restaurant located along the south side of SE Mill Plain, just one parcel west of Garrison Road in Central Vancouver. The building had been vacant for almost 3 years. The building was in fair condition and would be needing several upgrades and a new roof. The property previously sold in 7/2011 to an investor for $515,000, or $103.96 / SF with a below market rent in place at the time of sale, with two years left on the lease. However, the tenant was looking to vacate the space if an owner-user buyer could be found, and the property was marketed as such. The tenant vacated the building in December 2011 and the owner / investor put the vacant property back on the market for sale at $650,000 ($135.42 per SF GBA) as of May 2012. It was listed for roughly 2 years at this price and for lease at $16.00 per SF. The owner / seller was firm on the price and apparently there were three offers in the $500,000 range. The listing expired and the owner did a direct deal at $590,000 which is almost a land value ($13.68 / SF to land). It is unknown what the buyer plans to do with the building. Overall, this property has a similar secondary commercial location and is similar in quality, but is inferior effective age / condition / quality which makes this a low indicator for the subject property

Pending Subject Sale Activity Public records indicate that the subject property is currently owned by JZ Property Management. Note that there was a related party transfer from Johnny Zukle to JZ Property Management in February 2015. Further note that Johnny Zukle had purchased the property from Paramount Dev LLC (contact: Jody Tanner; 503.481.1008) in July 2013 for stated consideration of $900,000 or $120.74 per SF GBA. Reportedly, there property was not activity marketed with a quiet sale between buyer and seller. As will be discussed in more detail following, there is a pending sale of the subject from the current owner to Human Solutions, Inc., for $950,000 or $127.45 per SF GBA. Note that discussions with the listing broker – Vince Cortese of Oregon Realty (503.380.8570) indicate that the seller - Mr. Zukle had spent approximately $100,000 ($13.42 / SF GBA) on remodeling the interior of the building for his use. However, this business failed in terms of profitability, and was listed in May 2015 for $1,300,000 or $174.40 per SF GBA which included both the main building TL 1400 (26,250 SF land area), as well as rear TL 1500 (15,000 SF land area). The property was subsequently relisted in mid-June 2015 for $899,000 or $120.06 per SF GBA, but excluded the rear parcel. In early September 2015, the entire property went into escrow to Human Solutions, Inc., Inc. for $950,000 or $127.45 per SF GBA, with the terms cash to the seller, as the seller had decided to just sell the whole property and done with it. The sale is expected to close by late September 2014, but in any event no later than October, 31 2015. A copy of the PSA and the original marketing information is contained in the Addenda. In this analysis, we are analyzing the subject in stabilized condition, with this premise assuming that the noted $60,000 in deferred maintenance items has already been cured. Therefore, adjusting the pending sale price of $950,000 by this stabilization cost results in an adjusted pending price of $1,010,000 or $135.50 per SF GBA. Based on our analyses of the comparable sales, it would appear that the subject’s pending / adjusted sale price is slightly below market.



Note that further discussion with the listing broker indicate there exists a legitimate back-up offer on the subject property by the adjacent owner at $1,100,000 or $145.57 per SF GBA. This offer was corroborated by the subject client’s broker – Fred Sanchez. Adjusted for curing deferred maintenance, this equates to a stabilized price of $1,160,000 or $155.62 per SF GBA). Overall, this adjusted back-up offer ($155.62 per SF) appears to be closer to the supportable market level than the existing pending sale price ($135.50 per SF) to Human Solutions, Inc.

Concluded “As Is” Market Value Primary emphasis is placed near mid-range indicated by Building Sales 3, 4, 7, and 9 ($202.32, $121.54, $156.16 and $175.91 / SF). Within this range is the noted adjusted back-up offer ($155.62 per SF) which appears more supportable than the existing pending / adjusted sale price ($135.50 per SF) to Human Solutions, Inc. Hence, a conclusion between the two subject offers appears most supportable for reconciliation purposes. Based on the preceding analysis, we have concluded a stabilized direct comparative value of $145.00 per SF of gross building area (GBA = 7,454 SF) for the subject property. Therefore, it is the appraiser’s opinion that the stabilized market value of the subject property (assuming the noted items of deferred maintenance have been cured) via the Sales Comparison Approach is rounded to $1,080,000. By deducting the cost of curing the noted items of deferred maintenance from the concluded stabilized fee simple property value, this adjustment results in a final concluded "as is" market value of the fee simple interest in the subject property, as of September 16, 2015, is as follows:

Stabilized Fee Simple Value $1,080,000

LESS: Cost to Cure Deferred Maintenance ($60,000)

Final Concluded “As Is” Market Value $1,020,000

The preceding final value conclusion equates to $136.84 per SF GBA which is above the pending sale price, but still considered supportable relative to the surveyed improved sales.


© 2015 VALBRIDGE PROPERTY ADVISORS | Mueller Kurasz Page 49

DATA CATEGORIES SUBJECT 1 2 3 4 5 6 7 8 9 10

Property Name Single-Tenant Restaurant / Bar

505 Club Restaurant/Bar

Former Midnight Roundup

Former Marie Callender

Former Papa's Pizza Parlor

Former Mings Restaurant

Dragon Inn Former Spot Sports Bar & Grillo

Royal Panda Former Chevy's Mexican

Former Izzy's Restaurant

Address 16015 SE Stark Street

505 NW Burnside Street

345 NW Burnside Rd

305 NW Burnside Rd

16321 SE Stark Street

11909 SE Mill Plain Blvd

14411 SE McLoughlin Blvd

18855 SW Tualatin Valley Hwy.

7200 SW Hazelfern Road

8100 NE Vancouver Mall Drive

7615 E. Mill Plain Blvd.

Location Portland, OR Gresham, OR Gresham, OR Gresham, OR Gresham, OR Vancouver, WA Milwaukie, OR Beaverton, OR Tigard, OR Vancouver, WA Vancouver, WA

SALE DATA

Date of Sale Sep-15 Sep-15 Jan-15 Apr-14 Mar-15 Aug-14 Nov-14 Sep-15 May-15 Mar-15 Apr-14

(Pending) (Pending)

Sale Price $950,000 $905,000 $1,350,000 $1,150,000 $1,750,000 $817,500 $850,000 $1,040,000 $1,430,000 $1,300,000 $590,000

Adjusted Sale Price $1,010,000 $905,000 $1,350,000 $1,150,000 $1,750,000 $817,500 $850,000 $1,040,000 $1,430,000 $1,300,000 $590,000

(Adjust for Deferred Maintenance)

(Approximately)

Terms of Sale Cash to Seller Cash to seller Cash to seller Cash to seller Cash to seller Cash to seller Cash to seller Cash to seller Cash to seller Cash to seller Cash to seller

Property Rights Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple

Marketing Time 4 Months 2 Years Not on the Market 2 Years 7 Months Not on the Market 12 Months 11 Months Not on the Market 2 Months 24 Months

PROPERTY DATA

Year Built (Renovated) 1975 (2013) 1980 1979 1974 (2006) 1984 / 1991 (1989) 1983 1977 1981 (2006) 1978 1989 1983

Gross Building Area (SF) 7,454 3,465 4,840 5,684 14,398 4,392 4,500 6,660 5,951 7,390 4,954

Gross Leasable Area (SF) 7,454 3,465 4,840 5,684 14,398 4,392 4,500 6,660 5,951 7,390 4,954

Parking Ratio (Stalls / 1,000 SF) 10.1 / 1,000 SF 9.6 / 1,000 SF 9.7 / 1,000 SF 7.0 / 1,000 SF 9.9 / 1,000 SF 5.69 / 1,000 SF 10.0 / 1,000 SF 12.3 / 1,000 SF 8.23 / 1,000 SF 7.9 / 1,000 SF 13.9 / 1,000 SF

No. of Levels 1 1 1 1 1 1 1 1 1 1 1

Construction Type Wood Wood / Dryvit Wood Wood / EIFS Wood Wood Wood Wood Wood Wood Wood / Dryvit

Building Quality Average Average Average Average Average Average Average Average Average Average Average

Condition of Improvements Fair to Average Average Average Average Fair to Average Below Average Average Fair to Average Average Average Fair

Other Special Features Unique roof design N / A N / A N / A N / A N / A N / A N / A Pole sign visible to Interstate 5

N / A N / A

Primary Land Area (Acres) 0.95 0.66 1.18 1.16 2.34 0.65 0.67 1.03 0.89 1.06 0.99

Primary Land Area (SF) 41,250 28,750 51,396 50,520 102,147 28,314 29,042 44,866 38,768 46,174 43,124

Land-to-Bldg. Ratio 5.5 to 1 8.3 to 1 10.6 to 1 8.9 to 1 7.1 to 1 6.4 to 1 6.5 to 1 6.7 to 1 6.5 to 1 6.2 to 1 8.7 to 1

Site Coverage Ratio 18.1% 12.1% 9.4% 11.3% 14.1% 15.5% 15.5% 14.8% 15.4% 16.0% 11.5%

Zoning CS CC CC CC MG CC C-3 CBD C-G CC CC

Property Use Restaurant - Sit Down

Restaurant - Sit Down







Restaurant - Fastfood

Restaurant - Fastfood


Occupancy Type Single-Tenant Single-Tenant Single-Tenant Single-Tenant Single-Tenant Single-Tenant Single-Tenant Single-Tenant Single-Tenant Single-Tenant Single-Tenant

Daily Traffic Count (VPD) 22,108 24,212 23821 24,212 22,108 38,885 28,947 35,633 134,703 (Indirect I-5) 24,750 21,015

UNITS OF COMPARISON

Overall Capitalization Rate --- --- --- --- --- --- --- --- --- --- ---

Adjusted Price / SF GBA $135.50 $261.18 $278.93 $202.32 $121.54 $186.13 $188.89 $156.16 $240.30 $175.91 $119.10

IMPROVED SALE TRANSACTIONS



COMPARABLE IMPROVED SALES MAP



Improved Sale 1 505 NW Burnside Street, Gresham

Improved Sale 2 345 NW Burnside Rd, Gresham

Improved Sale 3 305 NW Burnside Rd, Gresham

Improved Sale 4 16321 SE Stark Street, Gresham

Improved Sale 5 11909 SE Mill Plain Blvd, Vancouver

Improved Sale 6 14411 SE McLoughlin Blvd, Milwaukie



Improved Sale 7 18855 SW Tualatin Valley Hwy., Beaverton

Improved Sale 8 7200 SW Hazelfern Road, Tigard

Improved Sale 9 8100 NE Vancouver Mall Drive, Vancouver

Improved Sale 10 7615 E. Mill Plain Blvd., Vancouver

SINGLE-TENANT RESTAURANT & BAR GENERAL ASSUMPTIONS & LIMITING CONDITIONS


General Assumptions and Limiting Conditions This appraisal is subject to the following limiting conditions: 1. The legal description – if furnished to us – is assumed to be correct. 2. No responsibility is assumed for legal matters, questions of survey or title, soil or subsoil

conditions, engineering, availability or capacity of utilities, or other similar technical matters. The appraisal does not constitute a survey of the property appraised. All existing liens and encumbrances have been disregarded and the property is appraised as though free and clear, under responsible ownership and competent management unless otherwise noted.

3. Unless otherwise noted, the appraisal will value the property as though free of

contamination. Valbridge Property Advisors | Mueller Kurasz will conduct no hazardous materials or contamination inspection of any kind. It is recommended that the client hire an expert if the presence of hazardous materials or contamination poses any concern.

4. The stamps and/or consideration placed on deeds used to indicate sales are in correct

relationship to the actual dollar amount of the transaction. 5. Unless otherwise noted, it is assumed there are no encroachments, zoning violations or

restrictions existing in the subject property. 6. The appraiser is not required to give testimony or attendance in court by reason of this

appraisal, unless previous arrangements have been made. 7. Unless expressly specified in the engagement letter, the fee for this appraisal does not

include the attendance or giving of testimony by Appraiser at any court, regulatory, or other proceedings, or any conferences or other work in preparation for such proceeding. If any partner or employee of Valbridge Property Advisors | Mueller Kurasz is asked or required to appear and/or testify at any deposition, trial, or other proceeding about the preparation, conclusions or any other aspect of this assignment, client shall compensate Appraiser for the time spent by the partner or employee in appearing and/or testifying and in preparing to testify according to the Appraiser’s then current hourly rate plus reimbursement of expenses.

8. The values for land and/or improvements, as contained in this report, are constituent parts of

the total value reported and neither is (or are) to be used in making a summation appraisal of a combination of values created by another appraiser. Either is invalidated if so used.

9. The dates of value to which the opinions expressed in this report apply are set forth in this report. We assume no responsibility for economic or physical factors occurring at some point at a later date, which may affect the opinions stated herein. The forecasts, projections, or operating estimates contained herein are based on current market conditions and anticipated short-term supply and demand factors and are subject to change with future conditions.



10. The sketches, maps, plats and exhibits in this report are included to assist the reader in visualizing the property. The appraiser has made no survey of the property and assumed no responsibility in connection with such matters.

11. The information, estimates and opinions, which were obtained from sources outside of this

office, are considered reliable. However, no liability for them can be assumed by the appraiser.

12. Possession of this report, or a copy thereof, does not carry with it the right of publication.

Neither all, nor any part of the content of the report, or copy thereof (including conclusions as to property value, the identity of the appraisers, professional designations, reference to any professional appraisal organization or the firm with which the appraisers are connected), shall be disseminated to the public through advertising, public relations, news, sales, or other media without prior written consent and approval.

13. No claim is intended to be expressed for matters of expertise that would require specialized

investigation or knowledge beyond that ordinarily employed by real estate appraisers. We claim no expertise in areas such as, but not limited to, legal, survey, structural, environmental, pest control, mechanical, etc.

14. This appraisal was prepared for the sole and exclusive use of the client for the function

outlined herein. Any party who is not the client or intended user identified in the appraisal or engagement letter is not entitled to rely upon the contents of the appraisal without express written consent of Valbridge Property Advisors | Mueller Kurasz and Client. The Client shall not include partners, affiliates, or relatives of the party addressed herein. The appraiser assumes no obligation, liability or accountability to any third party.

15. Distribution of this report is at the sole discretion of the client, but third-parties not listed as

an intended user on the face of the appraisal or the engagement letter may not rely upon the contents of the appraisal. In no event shall client give a third-party a partial copy of the appraisal report. We will make no distribution of the report without the specific direction of the client.

16. This appraisal shall be used only for the function outlined herein, unless expressly authorized

by Valbridge Property Advisors | Mueller Kurasz. 17. This appraisal shall be considered in its entirety. No part thereof shall be used separately or

out of context.

18. Unless otherwise noted in the body of this report, this appraisal assumes that the subject property does not fall within the areas where mandatory flood insurance is effective. Unless otherwise noted, we have not completed nor have we contracted to have completed an investigation to identify and/or quantify the presence of non-tidal wetland conditions on the subject property. Because the appraiser is not a surveyor, he or she makes no guarantees, express or implied, regarding this determination.



19. The flood maps are not site specific. We are not qualified to confirm the location of the subject property in relation to flood hazard areas based on the FEMA Flood Insurance Rate Maps or other surveying techniques. It is recommended that the client obtain a confirmation of the subject’s flood zone classification from a licensed surveyor.

20. If the appraisal is for mortgage loan purposes 1) we assume satisfactory completion of improvements if construction is not complete, 2) no consideration has been given for rent loss during rent-up unless noted in the body of this report, and 3) occupancy at levels consistent with our “Income and Expense Projection” are anticipated.

21. It is assumed that there are no hidden or unapparent conditions of the property, subsoil, or structures which would render it more or less valuable. No responsibility is assumed for such conditions or for engineering which may be required to discover them.

22. Our inspection included an observation of the land and improvements thereon only. It was

not possible to observe conditions beneath the soil or hidden structural components within the improvements. We inspected the buildings involved, and reported damage (if any) by termites, dry rot, wet rot, or other infestations as a matter of information, and no guarantee of the amount or degree of damage (if any) is implied. Condition of heating, cooling, ventilation, electrical and plumbing equipment is considered to be commensurate with the condition of the balance of the improvements unless otherwise stated. Should the client have concerns in these areas, it is the client’s responsibility to order the appropriate inspections. The appraiser does not have the skill or expertise to make such inspections and assumes no responsibility for these items.

23. This appraisal does not guarantee compliance with building code and life safety code

requirements of the local jurisdiction. It is assumed that all required licenses, consents, 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 conclusion contained in this report is based unless specifically stated to the contrary.

24. When possible, we have relied upon building measurements provided by the client, owner, or

associated agents of these parties. In the absence of a detailed rent roll, reliable public records, or “as-built” plans provided to us, we have relied upon our own measurements of the subject improvements. We follow typical appraisal industry methods; however, we recognize that some factors may limit our ability to obtain accurate measurements including, but not limited to, property access on the day of inspection, basements, fenced/gated areas, grade elevations, greenery/shrubbery, uneven surfaces, multiple story structures, obtuse or acute wall angles, immobile obstructions, etc. Professional building area measurements of the quality, level of detail, or accuracy of professional measurement services are beyond the scope of this appraisal assignment.



25. We have attempted to reconcile sources of data discovered or provided during the appraisal process, including assessment department data. Ultimately, the measurements that are deemed by us to be the most accurate and/or reliable are used within this report. While the measurements and any accompanying sketches are considered to be reasonably accurate and reliable, we cannot guarantee their accuracy. Should the client desire a greater level of measuring detail, they are urged to retain the measurement services of a qualified professional (space planner, architect or building engineer). We reserve the right to use an alternative source of building size and amend the analysis, narrative and concluded values (at additional cost) should this alternative measurement source reflect or reveal substantial differences with the measurements used within the report.

26. In the absence of being provided with a detailed land survey, we have used assessment department data to ascertain the physical dimensions and acreage of the property. Should a survey prove this information to be inaccurate, we reserve the right to amend this appraisal (at additional cost) if substantial differences are discovered.

27. If only preliminary plans and specifications were available for use in the preparation of this

appraisal, then this appraisal is subject to a review of the final plans and specifications when available (at additional cost) and we reserve the right to amend this appraisal if substantial differences are discovered.

28. Unless otherwise stated in this report, the value conclusion is predicated on the assumption

that the property is free of contamination, environmental impairment or hazardous materials. Unless otherwise stated, the existence of hazardous material was not observed by the appraiser and the appraiser has no knowledge of the existence of such materials on or in the property. The appraiser, however, is not qualified to detect such substances. The presence of substances such as asbestos, urea-formaldehyde foam insulation, or other potentially hazardous materials may affect the value of the property. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required for discovery. The client is urged to retain an expert in this field, if desired.

29. The Americans with Disabilities Act (“ADA”) became effective January 26, 1992. We have not

made a specific compliance survey of the property to determine if it is in conformity with the various requirements of the ADA. It is possible that a compliance survey of the property, together with an analysis of the requirements of the ADA, could reveal that the property is not in compliance with one or more of the requirements of the Act. If so, this could have a negative effect on the value of the property. Since we have no direct evidence relating to this issue, we did not consider possible noncompliance with the requirements of ADA in developing an opinion of value.

30. This appraisal applies to the land and building improvements only. The value of trade

fixtures, furnishings, and other equipment, or subsurface rights (minerals, gas, and oil) were not considered in this appraisal unless specifically stated to the contrary.

31. No changes in any federal, state or local laws, regulations or codes (including, without

limitation, the Internal Revenue Code) are anticipated, unless specifically stated to the contrary.



32. Any income and expense estimates contained in the appraisal report are used only for the purpose of estimating value and do not constitute prediction of future operating results. Furthermore, it is inevitable that some assumptions will not materialize and that unanticipated events may occur that will likely affect actual performance.

33. Any estimate of insurable value, if included within the scope of work and presented herein, is

based upon figures developed consistent with industry practices. However, actual local and regional construction costs may vary significantly from our estimate and individual insurance policies and underwriters have varied specifications, exclusions, and non-insurable items. As such, we strongly recommend that the Client obtain estimates from professionals experienced in establishing insurance coverage. This analysis should not be relied upon to determine insurance coverage and we make no warranties regarding the accuracy of this estimate.

34. The data gathered in the course of this assignment (except data furnished by the Client) shall remain the property of the Appraiser. The appraiser will not violate the confidential nature of the appraiser-client relationship by improperly disclosing any confidential information furnished to the appraiser. Notwithstanding the foregoing, the Appraiser is authorized by the client to disclose all or any portion of the appraisal and related appraisal data to appropriate representatives of the Appraisal Institute if such disclosure is required to enable the appraiser to comply with the Bylaws and Regulations of such Institute now or hereafter in effect.

35. You and Valbridge Property Advisors | Mueller Kurasz both agree that any dispute over

matters in excess of $5,000 will be submitted for resolution by arbitration. This includes fee disputes and any claim of malpractice. The arbitrator shall be mutually selected. If Valbridge Property Advisors | Mueller Kurasz and the client cannot agree on the arbitrator, the presiding head of the Local County Mediation & Arbitration panel shall select the arbitrator. Such arbitration shall be binding and final. In agreeing to arbitration, we both acknowledge that, by agreeing to binding arbitration, each of us is giving up the right to have the dispute decided in a court of law before a judge or jury. In the event that the client, or any other party, makes a claim against Mueller Kurasz or any of its employees in connections with or in any way relating to this assignment, the maximum damages recoverable by such claimant shall be the amount actually received by Valbridge Property Advisors | Mueller Kurasz for this assignment, and under no circumstances shall any claim for consequential damages be made.

36. Valbridge Property Advisors | Mueller Kurasz shall have no obligation, liability, or accountability to any third party. Any party who is not the “client” or intended user identified on the face of the appraisal or in the engagement letter is not entitled to rely upon the contents of the appraisal without the express written consent of Valbridge Property Advisors | Mueller Kurasz. “Client” shall not include partners, affiliates, or relatives of the party named in the engagement letter. Client shall hold Valbridge Property Advisors | Mueller Kurasz and its employees harmless in the event of any lawsuit brought by any third party, lender, partner, or part-owner in any form of ownership or any other party as a result of this assignment. The client also agrees that in case of lawsuit arising from or in any way involving these appraisal services, client will hold Valbridge Property Advisors | Mueller Kurasz harmless from and against any liability, loss, cost, or expense incurred or suffered by Valbridge Property Advisors | Mueller Kurasz in such action, regardless of its outcome.



37. The Valbridge Property Advisors office responsible for the preparation of this report is independently owned and operated by Mueller Kurasz. Neither Valbridge Property Advisors, Inc., nor any of its affiliates has been engaged to provide this report. Valbridge Property Advisors, Inc. does not provide valuation services, and has taken no part in the preparation of this report.

38. If any claim is filed against any of Valbridge Property Advisors, Inc., a Florida Corporation, its affiliates, officers or employees, or the firm providing this report, in connection with, or in any way arising out of, or relating to, this report, or the engagement of the firm providing this report, then (1) under no circumstances shall such claimant be entitled to consequential, special or other damages, except only for direct compensatory damages, and (2) the maximum amount of such compensatory damages recoverable by such claimant shall be the amount actually received by the firm engaged to provide this report.

39. This report and any associated work files may be subject to evaluation by Valbridge Property

Advisors, Inc., or its affiliates, for quality control purposes. 40. Acceptance and/or use of this appraisal report constitutes acceptance of the foregoing

general assumptions and limiting conditions.

SINGLE-TENANT RESTAURANT & BAR CERTIFICATION


Certification – Kurt M. Mueller, MAI 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 my personal, impartial, and 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 no personal interest with respect to the parties involved.

4. I have not performed services regarding the property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment.

5. I have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment.

6. My engagement in this assignment was not contingent upon developing or reporting predetermined results.

7. 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 value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal.

8. My analyses, opinions and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice.

9. I have made a personal interior and exterior inspection the subject property. In addition, exterior inspections of the comparables used in this report were made by the appraiser.

10. No one provided significant real property appraisal assistance to the person signing this certification, unless otherwise noted.

11. The reported analyses, opinions and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute.

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

13. As of the date of this report, the undersigned has completed the continuing education program for Designated Members of the Appraisal Institute.

Kurt M. Mueller, MAI Senior Managing Director Oregon Certified General License #C000484

SINGLE-TENANT RESTAURANT & BAR ADDENDA


Addenda Glossary Engagement Letter Trio Purchase and Sale Agreement Qualifications

Kurt M. Mueller, MAI - Senior Managing Director Information on Valbridge Property Advisors Office Locations



Glossary Definitions are taken from the Dictionary of Real Estate Appraisal, 5th Edition (Dictionary), the Uniform Standards of Professional Appraisal Practice (USPAP) and Building Owners and Managers Association International (BOMA).

Absolute Net Lease A lease in which the tenant pays all expenses including structural maintenance, building reserves, and management; often a long-term lease to a credit tenant. (Dictionary)

Additional Rent Any amounts due under a lease that is in addition to base rent. Most common form is operating expense increases. (Dictionary)

Amortization The process of retiring a debt or recovering a capital investment, typically though scheduled, systematic repayment of the principal; a program of periodic contributions to a sinking fund or debt retirement fund. (Dictionary)

As Is Market Value The estimate of the market value of real property in its current physical condition, use, and zoning as of the appraisal date. (Dictionary)

Base (Shell) Building The existing shell condition of a building prior to the installation of tenant improvements. This condition varies from building to building, landlord to landlord, and generally involves the level of finish above the ceiling grid. (Dictionary)

Base Rent The minimum rent stipulated in a lease. (Dictionary)

Base Year The year on which escalation clauses in a lease are based. (Dictionary)

Building Common Area The areas of the building that provide services to building tenants but which are not included in the rentable area of any specific tenant. These areas may include, but shall not be limited to, main and auxiliary lobbies, atrium spaces at the level of the finished floor, concierge areas or security desks, conference rooms, lounges or vending areas food service facilities, health or fitness centers, daycare facilities, locker or shower facilities, mail rooms, fire control rooms, fully enclosed courtyards outside the exterior walls, and building core and service areas such as fully enclosed mechanical or equipment rooms. Specifically excluded from building common areas are; floor common areas, parking spaces,

portions of loading docks outside the building line, and major vertical penetrations. (BOMA)

Building Rentable Area The sum of all floor rentable areas. Floor rentable area is the result of subtracting from the gross measured area of a floor the major vertical penetrations on that same floor. It is generally fixed for the life of the building and is rarely affected by changes in corridor size or configuration. (BOMA)

Certificate of Occupancy (COO) A statement issued by a local government verifying that a newly constructed building is in compliance with all codes and may be occupied.

Common Area (Public) Factor In a lease, the common area (public) factor is the multiplier to a tenant’s useable space that accounts for the tenant’s proportionate share of the common area (restrooms, elevator lobby, mechanical rooms, etc.). The public factor is usually expressed as a percentage and ranges from a low of 5 percent for a full tenant to as high as 15 percent or more for a multi-tenant floor. Subtracting one (1) from the quotient of the rentable area divided by the useable area yields the load (public) factor. At times confused with the “loss factor” which is the total rentable area of the full floor less the useable area divided by the rentable area. (BOMA)

Common Area Maintenance (CAM) The expense of operating and maintaining common areas; may or may not include management charges and usually does not include capital expenditures on tenant improvements or other improvements to the property. CAM can be a line-item expense for a group of items that can include maintenance of the parking lot and landscaped areas and sometimes the exterior walls of the buildings. CAM can refer to all operating expenses. CAM can refer to the reimbursement by the tenant to the landlord for all expenses reimbursable under the lease. Sometimes reimbursements have what is called an administrative load. An example would be a 15 percent addition to total operating expenses, which are then prorated among tenants. The administrative load, also called an administrative and marketing fee, can be a substitute for or an addition to a management fee. (Dictionary)



Condominium A form of ownership in which each owner possesses the exclusive right to use and occupy an allotted unit plus an undivided interest in common areas. A multiunit structure, or a unit within such a structure, with a condominium form of ownership. (Dictionary)

Conservation Easement An interest in real property restricting future land use to preservation, conservation, wildlife habitat, or some combination of those uses. A conservation easement may permit farming, timber harvesting, or other uses of a rural nature to continue, subject to the easement. In some locations, a conservation easement may be referred to as a conservation restriction. (Dictionary)

Contributory Value The change in the value of a property as a whole, whether positive or negative, resulting from the addition or deletion of a property component. Also called deprival value in some countries. (Dictionary)

Debt Coverage Ratio (DCR) The ratio of net operating income to annual debt service (DCR = NOI/Im), which measures the relative ability to a property to meet its debt service out of net operating income. Also called Debt Service Coverage Ratio (DSCR). A larger DCR indicates a greater ability for a property to withstand a downturn in revenue, providing an improved safety margin for a lender. (Dictionary)

Deed Restriction A provision written into a deed that limits the use of land. Deed restrictions usually remain in effect when title passes to subsequent owners. (Dictionary)

Depreciation 1) In appraising, the loss in a property value from

any cause; the difference between the cost of an improvement on the effective date of the appraisal and the market value of the improvement on the same date. 2) In accounting, an allowance made against the loss in value of an asset for a defined purpose and computed using a specified method. (Dictionary)

Disposition Value The most probable price that a specified interest in real property is likely to bring under the following conditions:

Consummation of a sale within a exposure time specified by the client;

The property is subjected to market conditions prevailing as of the date of valuation;

Both the buyer and seller are acting prudently and knowledgeably;

The seller is under compulsion to sell;

The buyer is typically motivated;

Both parties are acting in what they consider to be their best interests;

An adequate marketing effort will be made during the exposure time specified by the client;

Payment will be made in cash in U.S. dollars or in terms of financial arrangements comparable thereto; and

The price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. (Dictionary)

Easement The right to use another’s land for a stated purpose. (Dictionary)

EIFS Exterior Insulation Finishing System. This is a type of exterior wall cladding system. Sometimes referred to as dry-vit.

Effective Date The date at which the analyses, opinions, and advice in an appraisal, review, or consulting service apply. 2) In a lease document, the date upon which the lease goes into effect. (Dictionary)

Effective Gross Income (EGI) The anticipated income from all operations of the real property after an allowance is made for vacancy and collection losses and an addition is made for any other income. (Dictionary)

Effective Rent The rental rate net of financial concessions such as periods of no rent during the lease term and above- or below-market tenant improvements (TIs). (Dictionary)

EPDM Ethylene Diene Monomer Rubber. A type of synthetic rubber typically used for roof coverings. (Dictionary)

Escalation Clause A clause in an agreement that provides for the adjustment of a price or rent based on some event or index. e.g., a provision to increase rent if operating expenses increase; also called an expense recovery clause or stop clause. (Dictionary)



Estoppel Certificate A statement of material factors or conditions of which another person can rely because it cannot be denied at a later date. In real estate, a buyer of rental property typically requests estoppel certificates from existing tenants. Sometimes referred to as an estoppel letter. (Dictionary)

Excess Land Land that is not needed to serve or support the existing improvement. The highest and best use of the excess land may or may not be the same as the highest and best use of the improved parcel. Excess land may have the potential to be sold separately and is valued separately. (Dictionary)

Expense Stop A clause in a lease that limits the landlord’s expense obligation, which results in the lessee paying any operating expenses above a stated level or amount. (Dictionary)

Exposure Time 1) The time a property remains on the market. 2) 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 a competitive and open market. (Dictionary)

Extraordinary Assumption An assumption, directly related to a specific assignment, which, if found to be false, could alter the appraiser’s opinions or conclusions. Extraordinary assumptions presume as fact otherwise uncertain information about physical, legal, or economic characteristics of the subject property; or about conditions external to the property such as market conditions or trends; or about the integrity of data used in an analysis. (Dictionary)

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. (Dictionary)

Floor Common Area Areas on a floor such as washrooms, janitorial closets, electrical rooms, telephone rooms, mechanical rooms, elevator lobbies, and public corridors which are available primarily for the use of tenants on that floor. (BOMA)

Full Service (Gross) Lease A lease in which the landlord receives stipulated rent and is obligated to pay all of the property’s operating

and fixed expenses; also called a full service lease. (Dictionary)

Going Concern Value The market value of all the tangible and intangible

assets of an established and operating business with an indefinite life, as if sold in aggregate; more accurately termed the market value of the going concern.

The value of an operating business enterprise. Goodwill may be separately measured but is an integral component of going-concern value when it exists and is recognizable. (Dictionary)

Gross Building Area The total constructed area of a building. It is generally not used for leasing purposes (BOMA)

Gross Measured Area The total area of a building enclosed by the dominant portion (the portion of the inside finished surface of the permanent outer building wall which is 50 percent or more of the vertical floor-to-ceiling dimension, at the given point being measured as one moves horizontally along the wall), excluding parking areas and loading docks (or portions of the same) outside the building line. It is generally not used for leasing purposes and is calculated on a floor by floor basis. (BOMA)

Gross Up Method A method of calculating variable operating expense in income-producing properties when less than 100 percent occupancy is assumed. The gross up method approximates the actual expense of providing services to the rentable area of a building given a specified rate of occupancy. (Dictionary)

Gross Retail Sellout The sum of the appraised values of the individual units in a subdivision, as if all of the units were completed and available for retail sale, as of the date of the appraisal. The sum of the retail sales includes an allowance for lot premiums, if applicable, but excludes all allowances for carrying costs. (Dictionary)

Ground Lease A lease that grants the right to use and occupy land. Improvements made by the ground lessee typically revert to the ground lessor at the end of the lease term. (Dictionary)

Ground Rent The rent paid for the right to use and occupy land according to the terms of a ground lease; the portion of the total rent allocated to the underlying land. (Dictionary)



HVAC Heating, ventilation, air conditioning. A general term encompassing any system designed to heat and cool a building in its entirety.

Highest and Best Use The reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are 1) legal permissibility, 2) physical possibility, 3) financial feasibility, and 4) maximally profitability. Alternatively, the probable use of land or improved –specific with respect to the user and timing of the use–that is adequately supported and results in the highest present value. (Dictionary)

Hypothetical Condition That which is contrary to what exists but is supposed for the purpose of analysis. Hypothetical conditions assume conditions contrary to known facts about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis. (Dictionary)

Industrial Gross Lease A lease of industrial property in which the landlord and tenant share expenses. The landlord receives stipulated rent and is obligated to pay certain operating expenses, often structural maintenance, insurance and real estate taxes as specified in the lease. There are significant regional and local differences in the use of this term. (Dictionary)

Insurable Value A type of value for insurance purposes. (Dictionary) (Typically this includes replacement cost less basement excavation, foundation, underground piping and architect’s fees).

Investment Value The value of a property interest to a particular investor or class of investors based on the investor’s specific requirements. Investment value may be different from market value because it depends on a set of investment criteria that are not necessarily typical of the market. (Dictionary)

Just Compensation In condemnation, the amount of loss for which a property owner is compensated when his or her property is taken. Just compensation should put the owner in as good a position as he or she would be if the property had not been taken. (Dictionary)

Leased Fee Interest A freehold (ownership interest) where the possessory interest has been granted to another party by creation of a contractual landlord-tenant relationship (i.e., a lease). (Dictionary)

Leasehold Interest The tenant’s possessory interest created by a lease. (Dictionary)

Lessee (Tenant) One who has the right to occupancy and use of the property of another for a period of time according to a lease agreement. (Dictionary)

Lessor (Landlord) One who conveys the rights of occupancy and use to others under a lease agreement. (Dictionary)

Liquidation Value The most probable price that a specified interest in real property should bring under the following conditions:

Consummation of a sale within a short period.

The property is subjected to market conditions prevailing as of the date of valuation.

Both the buyer and seller are acting prudently and knowledgeably.

The seller is under extreme compulsion to sell.

The buyer is typically motivated.

Both parties are acting in what they consider to be their best interests.

A normal marketing effort is not possible due to the brief exposure time.

Payment will be made in cash in U.S. dollars or in terms of financial arrangements comparable thereto.

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. (Dictionary)

Loan to Value Ratio (LTV) The amount of money borrowed in relation to the total market value of a property. Expressed as a percentage of the loan amount divided by the property value. (Dictionary)

Major Vertical Penetrations Stairs, elevator shafts, flues, pipe shafts, vertical ducts, and the like, and their enclosing walls. Atria, lightwells and similar penetrations above the finished floor are included in this definition. Not included, however, are vertical penetrations built for the private use of a tenant occupying office areas on more than one floor.



Structural columns, openings for vertical electric cable or telephone distribution, and openings for plumbing lines are not considered to be major vertical penetrations. (BOMA)

Market Rent The most probable rent that a property should bring in a competitive and open market reflecting all conditions and restrictions of the lease agreement including permitted uses, use restrictions, expense obligations; term, concessions, renewal and purchase options and tenant improvements (TIs). (Dictionary)

Market Value The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in 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:

a. Buyer and seller are typically motivated;

b. Both parties are well informed or well advised, and acting in what they consider their own best interests;

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

d. Payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and

e. The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Market Value As If Complete Market value as if complete means the market value of the property with all proposed construction, conversion or rehabilitation hypothetically completed or under other specified hypothetical conditions as of the date of the appraisal. With regard to properties wherein anticipated market conditions indicate that stabilized occupancy is not likely as of the date of completion, this estimate of value shall reflect the market value of the property as if complete and prepared for occupancy by tenants.

Market Value As If Stabilized Market value as if stabilized means the market value of the property at a current point and time when all improvements have been physically constructed and the

property has been leased to its optimum level of long-term occupancy.

Marketing Time An opinion of the amount of time it might take to sell a real or personal property interest at the concluded market value level during the period immediately after the effective date of the appraisal. Marketing time differs from exposure time, which is always presumed to precede the effective date of an appraisal. (Advisory Opinion 7 of the Standards Board of the Appraisal Foundation and Statement on Appraisal Standards No. 6, “Reasonable Exposure Time in Real Property and Personal Property Market Value Opinions” address the determination of reasonable exposure and marketing time). (Dictionary)

Master Lease A lease in which the fee owner leases a part or the entire property to a single entity (the master lease) in return for a stipulated rent. The master lessee then leases the property to multiple tenants. (Dictionary)

Modified Gross Lease A lease in which the landlord receives stipulated rent and is obligated to pay some, but not all, of the property’s operating and fixed expenses. Since assignment of expenses varies among modified gross leases, expense responsibility must always be specified. In some markets, a modified gross lease may be called a double net lease, net net lease, partial net lease, or semi-gross lease. (Dictionary)

Operating Expense Ratio The ratio of total operating expenses to effective gross income (TOE/EGI); the complement of the net income ratio, i.e., OER = 1 – NIR (Dictionary)

Option A legal contract, typically purchased for a stated consideration, that permits but does not require the holder of the option (known as the optionee) to buy, sell, or lease real property for a stipulated period of time in accordance with specified terms; a unilateral right to exercise a privilege. (Dictionary)

Partial Interest Divided or undivided rights in real estate that represent less than the whole (a fractional interest). (Dictionary)

Pass Through A tenant’s portion of operating expenses that may be composed of common area maintenance (CAM), real estate taxes, property insurance, and any other expenses



determined in the lease agreement to be paid by the tenant. (Dictionary)

Potential Gross Income (PGI) The total income attributable to real property at full occupancy before vacancy and operating expenses are deducted. (Dictionary)

Prospective Future Value Upon Completion Market value “upon completion” is a prospective future value estimate of a property at a point in time when all of its improvements are fully completed. It assumes all proposed construction, conversion, or rehabilitation is hypothetically complete as of a future date when such effort is projected to occur. The projected completion date and the value estimate must reflect the market value of the property in its projected condition, i.e., completely vacant or partially occupied. The cash flow must reflect lease-up costs, required tenant improvements and leasing commissions on all areas not leased and occupied.

Prospective Future Value Upon Stabilization Market value “upon stabilization” is a prospective future value estimate of a property at a point in time when stabilized occupancy has been achieved. The projected stabilization date and the value estimate must reflect the absorption period required to achieve stabilization. In addition, the cash flows must reflect lease-up costs, required tenant improvements and leasing commissions on all unleased areas.

Replacement Cost The estimated cost to construct, at current prices as of the effective appraisal date, a substitute for the building being appraised, using modern materials and current standards, design, and layout. (Dictionary)

Reproduction Cost The estimated cost to construct, at current prices as of the effective date of the appraisal, an exact duplicate or replica of the building being appraised, using the same materials, construction standards, design, layout, and quality of workmanship and embodying all of the deficiencies, super-adequacies, and obsolescence of the subject building. (Dictionary)

Retrospective Value Opinion A value opinion effective as of a specified historical date. The term does not define a type of value. Instead, it identifies a value opinion as being effective at some specific prior date. Value as of a historical date is frequently sought in connection with property tax appeals, damage models, lease renegotiation, deficiency judgments, estate tax, and condemnation. Inclusion of the type of value with this term is appropriate, e.g., “retrospective market value opinion.” (Dictionary)

Sandwich Leasehold Estate The interest held by the original lessee when the property is subleased to another party; a type of leasehold estate. (Dictionary)

Sublease An agreement in which the lessee (i.e., the tenant) leases part or all of the property to another party and thereby becomes a lessor. (Dictionary)

Subordination A contractual arrangement in which a party with a claim to certain assets agrees to make his or her claim junior, or subordinate, to the claims of another party. (Dictionary)

Substantial Completion Generally used in reference to the construction of tenant improvements (TIs). The tenant’s premises are typically deemed to be substantially completed when all of the TIs for the premises have been completed in accordance with the plans and specifications previously approved by the tenant. Sometimes used to define the commencement date of a lease.

Surplus Land Land that is not currently needed to support the existing improvement but cannot be separated from the property and sold off. Surplus land does not have an independent highest and best use and may or may not contribute value to the improved parcel. (Dictionary)

Triple Net (Net Net Net) Lease A lease in which the tenant assumes all expenses (fixed and variable) of operating a property except that the landlord is responsible for structural maintenance, building reserves, and management. Also called NNN, triple net lease, or fully net lease. (Dictionary) (The market definition of a triple net lease varies; in some cases tenants pay for items such as roof repairs, parking lot repairs, and other similar items.)

Usable Area The measured area of an office area, store area or building common area on a floor. The total of all the usable areas or a floor shall equal floor usable area of that same floor. The amount of floor usable area can vary over the life of a building as corridors expand and contract and as floors are remodeled. (BOMA)

Value-in-Use The value of a property assuming a specific use, which may or may not be the property’s highest and best use on the effective date of the appraisal. Value in use may or may not be equal to market value but is different conceptually. (Dictionary)



Engagement Letter



Trio



Purchase and Sale Agreement



RMLS Listing



Qualifications of Kurt M. Mueller, MAI Senior Managing Director Valbridge Property Advisors | Mueller Kurasz

Independent Valuations for a Variable World

Membership/Affiliations: Member: Appraisal Institute – MAI Designation (#9654) 2004 President: Appraisal Institute – Greater Oregon Chapter Principal Broker Kurt Mueller Real Estate P.C.

Appraisal Institute & Related Courses: All courses completed for MAI Designation, 1992 Uniform Standards of Professional Appraisal Practice (USPAP) 7-Hour USPAP Update

Experience: Senior Managing Director / Owner Valbridge Property Advisors | Mueller Kurasz (2015 – Present) President / Owner Mueller and Company, Inc. (1996 – 2015), Tualatin, OR Mueller and Company, Inc. (1993 – 1994), Honolulu, HI

Commercial / Review Appraiser KeyBank (1995 – 1996), Portland, OR

Senior Appraiser Sylva Howell & Associates (1989 – 1993), Honolulu, HI Lesher & Company, Ltd. (1986 – 1988), Honolulu, HI

Appraisal Practice Areas: Services includes the appraisal, appraisal review, and / or consultation for acquisition / disposition, financing, estate, arbitrations, mediations, buy/sell agreements, development, condemnation, fractional interest and court testimony purposes. Typical clients served are financial institutions, investors, developers, legal & accounting firms, and governmental. Types of properties appraised include:

Downtown & Suburban Office Medical & Dental Properties Corporate Headquarters Office Condominiums Anchored Shopping Centers Strip Retail Centers Vacant Land Market Studies R&D Buildings Rent Studies Industrial / Mfg. / Flex Car Wash / Mini-Lube Business Parks Restaurants Mixed Use Properties Bank Branches Self-Storage Facilities Ground Lease Analysis Churches / Schools Public Properties Apartments Subdivisions / Single-Family Manufactured Home Parks Condominiums

State Certifications Certified General Appraiser State of Oregon (C000484) State of Washington (1100714) Principal Broker’s License State of Oregon (2012044882)

Education Bachelor of Business Administration - Finance University of Hawaii at Manoa

Qualified

Expert Witness: U.S. District Court

Specialties

Ground lease and leasehold analysis, complex land assignments, industrial, medical / dental office, industrial, special use properties.

Contact Details 503-218-4404 (o) 866-438-4213 (f)

Valbridge Property Advisors | Mueller Kurasz 8220 SW Warm Springs Street Suite 100 Tualatin, OR 97062

[email protected] www.valbridge.com

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