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HomeMy WebLinkAbout6. Review of AppraisalsMARKET VALUE APPRAISAL Lot 6, Block 5 and part of Lots 7 and 8, Block 5, Village of Rosemount Prepared for Mr. John Miller. Economic Development Coordinator Rosemount, Minnesota August 27, 1992 Tim TIEN COMPANY 2516 Fourth Avenue North Anoka, Minnesota 55303 Malcolm B. Allen (1923 - 1989) Real Estate Appraisal Service Malcolm B. Allen, Jr. (612) 421.-4970 August 27, 1992 Mr. John Miller Economic Development Coordinator City of Rosemount 2875 145th Street West Rosemount, MN 55068-0510 re: Redevelopment Authority Vacant Land Rosemount, Minnesota Dear Mr. Miller: As you requested, submitted herewith is our market value appraisal report --of the above referenced property. Based upon an inspection of the property and after careful consideration of the many factors that influence value, it is our opinion that the market value of the subject as of the effective date hereof is : Eighteen Thousand Six Hundred Dollars ($18,600.00) We submit this appraisal report containing a description of the property appraised, a summary of the definitions relevant to the conclusions and a portion of the calculations and analyses used in reaching the conclusions. This report complies with the Uniform Standard of Professional Practice of the Appraisal Foundation and is subject to the assumptions and limiting conditions contained herein. Information relied on in this report was gathered from sources believed to be reliable, but it is not guaranteed. Yours truly, THE ALLEN COMPANY Malcolm B. Allen, Jr. I Redevelopment Authority Rosemount, Minnesota PURPOSE OF THE APPRAISAL The purpose of this appraisal is to estimate the market value of the subject property as of the effective date hereof and subject to the conditions set out herein. FUNCTION OF THE APPRAISAL This appraisal is intended to assist the City of Rosemount Port Authority in connection with the potential disposition of the subject property, which is owned by the Authorities predecessor in interest. ! DEFINITION OF.MARKET VALUE I Market Value, as used in this report, is defined as: The most probable price in terms of dollars for which the subject property would sell in a competitive market under all conditions requisite for a fair, arms length transaction, with the buyer and seller each acting prudently, knowledgeable, and for self interest, and assuming that neither is under undue duress. Underlying this definition are the following assumptions: 1. Both buyer and seller are acting in their own self interest. 2. Both buyer and seller are fully informed about the property and generally informed about the market for that particular type of property. 3. The property has been exposed on the.open market for a reasonable time. Page 1 Redevelopment Authority Rosemount, Minnesota 4. Payment is made in cash or by other financing typically available in the market. PROPERTY RIGHTS APPRAISED This report estimates the value of the fee simple interest in the subject property. A fee simple interest is "an absolute fee, a fee without limitations to any particular class or heirs or restrictions, but subject to the limitations of eminent domain, escheat, police powers and taxation. An inheritable estate." A fee simple estate reflects complete ownership without limitations and of potential infinite duration. It is the largest estate.recognized by the law. DATE OF VALUATION The value of the subject property was estimated as of August 18, 1992, base upon economic and market conditions then prevailing. LEGAL DESCRIPTION OF SUBJECT PROPERTY The subject property is legally described as: Lot 6, Block 5 and the South 4 feet of Lot 7, Block 5, and that part of Lot 8, Block 5, lying south of the easterly extension of the north line of Lot 7, Block 5, Village of Rosemount, Dakota County, Minnesota. Page 2 Redevelopment Authority Rosemount, Minnesota TAX DATA AND ASSESSOR'S ESTIMATE OF VALUE Taxes payable 1992 exempt Assessor's Estimate of Value Land $16,200.00 ZONING The subject property is currently zoned C-2, Community Commercial District by the City of Rosemount zoning ordinance. A copy of the relevant portion of the official zoning map is included in the addenda.. The ordinance states that the C-2 district relates to downtown only, and is intended to be a "diversified commercial center which offers the full range of comparison goods, sales and services, cultural and civic, entertainment, financial and offices and public uses." Uses specifically allowed within this district include professional and business offices. DESCRIPTION OF THE SUBJECT The subject of this appraisal is a contiguous tract of land situated near the intersection of Burnely Avenue and 145th Street West in the City of Rosemount, Minnesota. The site is level and generally open. It has approximately 55 feet of frontage along the east side of Burnely Avenue. Page 3 0 Redevelopment Authority Rosemount, Minnesota It borders the railroad tracts on the east. It is somewhat irregularly shaped. Based upon calculations determined from the dimensions indicated on the half section map, the subject site contains approximately 10,635 square feet. the site is undeveloped. All utilities necessary for its development in accordance with its highest and best use are currently available. HIGHEST AND BEST USE The highest and best use for a property is that reasonable and probable use which will yield the highest present value of the property. It is that use, selected from other reasonable, probable and legal uses, that results in the highest value for the property. Criteria for determining highest and best use include: 1. The use must be legal and in compliance with zoning and building restrictions. 2. The use must be within the realm of probability and not merely speculative. 3. Demand for such use must exist. 4. The use must be profitable and provide the highest net return from the property for the longest possible time as compared to other likely uses. In appraisal practice the concept of highest and best use is the premise upon which value is based. Based upon the Page 4 Redevelopment Authority Rosemount, Minnesota foregoing, it is our opinion that the ultimate highest and best use for the subject is for development in accordance with its current zoning, possibly as part of an assemblage. THE APPRAISAL PROCESS The estimate of value in the appraisal process is generally derived through three basic approaches to value, the Cost Approach, the Income Approach and the Market Data or Direct Sales Comparison Approach. The Cost Approach is an appraisal that is based upon the proposition that an informed purchaser would pay no more for the subject property than the cost of producing a substitute property with the same utility as the subject property. The indication of market value in the Cost Approach is obtained by adding the estimated value of the land to the estimated replacement cost of the improvements less any depreciation accrued to the improvements. The Income Approach yields an indication of value by analyzing the subject property in terms of its ability to produce a net annual income over its economic life. Value is indicated by capitalizing the property's net annual income at a rate commensurate with the risks of investing in the property as compared with the rates of return available from alternative investments. N Page 5 Redevelopment Authority Rosemount, Minnesota The Market Data Approach, or Direct Sales Comparison Approach, is based upon the principle of substitution, which states "when a property is replaceable in the market, its value tends to be set by the cost 'of acquiring an equally desirable substitute property assuming no significant delay in making the substitution." The final analysis in the appraisal process is the correlation and reconciliation of the value indications yielded from the different approaches to value. This step results in a single estimate of value for the subject property based upon the value indications and the weight accorded to each, the purpose and function of the appraisal i and the appraiser's expert judgement. Because the subject property is unimproved, the Replacement Cost Approach is not applicable and will not be used in this analysis. Similarly, vacant land such as the subject does not typically produce a net income, in dollars, commensurate with its highest and best use. therefore, the Income Approach will not be relied on herein. this report will rely exclusively on the Direct Sales Comparison Approach to indicate the value of the subject. THE DIRECT SALES COMPARISON APPROACH The Market Data or Direct Sales Comparison Approach is Page 6 Redevelopment Authority Rosemount, Minnesota essential in almost every real estate appraisal. The value estimated by this analysis is defined as "the price at which a willing seller would sell and a willing buyer would buy, neither being under abnormal pressure to act." This assumes that both buyer and seller are fully informed about the property, and both have general knowledge of the market for that type of property and assumes that the property has been exposed for sale in the open market for a reasonable gime. It is premised on the assumption that an informed buyer would pay no more for the subject property than the cost of acquiring an equally desirable and functional substitute. Therefore, sales of properties with similar characteristics and utility are usually good indicators of value for the subject property. We have conducted a survey of sales of property in the vicinity of the subject. Details regarding the most pertinent are included herein. These sales have been adjusted for items of difference between the subject site and the sale. These include variances for time of sale, size, topography, general location, amenities, zoning, etc. Descriptions of the adjustments made to the comparable sales are listed below. Page 7 Redevelopment Authority Rosemount, Minnesota Ad 1ustments 1. Financing. This adjustments eliminates the effects of favorable/unfavorable financing arrangements as compared to market conditions. 2. Date of Sale. This adjusts sales to current figures based upon appraiser's judgement of the rate of appreciation of land values in the vicinity. 3. Size. This adjusts for the general tendency of larger parcels to sell for lower unit price than smaller prices. 4. Location. This adjustment accounts for differences in the desirability of theareawhere the property is located. 5. Topography. This accounts for differences in land contour, elevation and vegetation. After an inspection of the site and careful consideration of the many and varied uses to which it is adaptable, and consideration of the factors that influence value, it is our opinion, that the subject site, if vacant, has a market value of $1.75 per square foot. Indicated Value of Site if Vacant 10,635 square feet @ $1.75 = $18,611.25 rounded to $18,600.00 Page 8 ►fir 'f ���. t � S 4 '�y' � Y `� t n' (l�i. `L% l ter.. } �`�� f • � � :T 16 15 14. j 13 18 \ 0 ,- -18 18 0( : sl ,�..,, 19 20: 21 22 42 3 23 24 Ig ss 20 3 71 21� 2 `3 .24 J' ���� 3 30 S E 1 Y / Y 25\\_� D. » ss �� 2 42 28 2� 2827 30 E 85 N l N G R 42 ^-- 32 33 34 35 36 32 33 34 35 36u 48 3' H �, •OS(�ONrT vE SE.,1G. SII COATBS 6 5 4 3 2I 0-- ', 5 4 3 2 I 6 w 81 y 8 ! 17071 ST ( VEIPMI t----- JEa tkytON LIO 27 j 8 9 IO II 12 56id 18 17 r Ifl 13 18 8 17 16 14 13 1� EMPtR • o. o: 1 66 L L/ O N 2122 23 24 19 L EMPIR I 47 CITY ri ?7 (--- ?` - -30 •1 � � �,hid - -- ��� Ifs A.; 34 1 .f rs =per }!t cvG 7-1 •�e �� "may qo 0 90 o O g 18'f8 _ 00 I's9 00 ss 10 £Z'>9 00'SS, O'SS100'SS,00 p g .0 'd p n. a Q �0 1 M CP 19 0`6 0'SS oo'sS'00 S on .6 cg £dn I � 6 . �y �f b ` SGt ;IGO b v G�'" 'CO' SI00'rS� r�0•yh o.� � � VYVii(ig — J� $ x'00 SS 00 'SS CG 'SS 100' S 00's 00 'SS F fJ 1 \. 3OJW1 co1060 v G�'" 'CO' SI00'rS� r�0•yh o.� � � VYVii(ig — J� $ x'00 SS 00 'SS CG 'SS 100' S 00's 00 'SS F fJ 1 \. co1060 – GG s5'Do gs 0 -ss �ao -� I 00'SsIOC r: �S !- �n ' u; I '52o ISj O $ fes., e M ' s 10o c CIO I _S'-_ cr�00'SS 'q -cc ON 'AMH 'CQ .rill •rr .,.. .,._ �_ I OT 'CC_ •J GI for n Y Sale No.: 1 Location: Carousel Way and 151st Street, Rosemount, MN Legal: North 144.44 feet of the south 288.88 feet of Lot 2 Block 2 South Rose Park Addition Date of Sale: August, 1987 Sale Price: $73,00.00 Zoning: commercial Size of Tract: 44,054 s.f Unit Price: $1.66/s.f. Comments: level Sale No. 2 Location: Carousel and 151st Street, Rosemount, Mn Legal: Lot 2, Block 2, South rose Park Addition Seller: Carlson Farms, et al Buyer: Larry Ihle, et al Date of Sale: March, 1987 Sales Price: $69,500.00 Zoning: commercial Size of Tract: 31,799 s.f. Unit Price: $2.19/s.f I Sale No. 3 Location. Co. Road 42 and Canada Ave., Rosemount, Minnesota Legal: part of Lot 4, Block 1, South Rose Park (replatted0 Seller: Carlson Farms, et al Buyer: P. Fahey, et al Date of Sale: April 1984 Sales Price: $98,000.00 Zoning: commercial Size of Tract: 46,637 s.f. Unit Price: $2.10/s.f. Sale No. 4 Location: Chippendale Ave. W. and 151st St. Rosemount, MN Legal: part of Lot 2, block 2, south Rose Park Seller: Larry Ihle et al Buyer: J. Boerner, et al Date of Sale: March, 1985 Sales Price: $120,000.00 Zoning: commercial Size of Tract: 45,000 s.f. Unit Price: $2.67/s.f. 0 Sale No. 5 Location: Chippendale and Co. Road. 42, Rosemount, MN Legal: part of Lot 1 Block 1, South Rose Park Seller: Carlson Farms, et al Buyer: Holiday Stores Date of Sale: August, 1985 Sales Price: $148,228.85 zoning: commercial Size of Tract: 47,984 s.f. Unit Price: $3.09/s.f. CERTIFICATE OF APPRAISAL I do hereby certify that I have personally examined the property described in this appraisal report. I further certify that I have no present or contemplated interest in the property appraised, and that neither my employment nor the fee therefore was in any manner contingent upon the estimate of value reported. I have assumed the title of the property to be good and merchantable and in the appraisal have disregarded any liens, mortgages and all other matters legal in nature. That my fee for ,this appraisal is in no way contingent on a predetermined value, nor is there any obligation on my part to testify in court on any matter pertaining this property unless special arrangement is agreed upon for such testimony. The possession Iof this report or any copy thereof does not imply the right of publication nor may the report be used by anyone but the applicant without the consent of the appraiser. I have made the appraisal of the property in conformity with the Uniform Standards of Professional Appraisal Practice and Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 as I understand them. \� Malcolm B. Allen, Jr. p T anCpNmINGENT COND TTTONS UNDERLYING ASSUM T pNS Findings, estimates, are made subject to Coll d has neither present nor contemplate the property appraised and his contingent upon the conclusions 1. The Appraiser future interest in and conclusions in the appraisal the following assumptions and employment is not re orted. P Appraiser is not responsible for legal matters. 2, The App good and marketable. All The title is as g and proposed, are structures and improvements existing Zoning assumed to be in compliance with co muntsy The ni ordinances and building ro erTh complies Appraiser does not guarantee that uihe prop or building code req with zoning - 3. Improvements described as "proposed" are considered completed in substantial as though satisfactorily specifications. conformance with plans and ort, though gathered from 4. Information in the rep is not guaranteed and is sources believed reliable�Confidential market data subject to conformation. raiser. documentations is in the office of the app uired to publish all 5. Consent of the appraiser is req Expert testimony may or part of the appraisal report • ExP raiser ecial arrangements with app be obtained through sP maintenance, and administration are 6, proper repairs, erty by competent management. to be given the prop �, Unless otherwise stated, the property is considered free and clear of all indebtedness, except future special assessment payments. the S. Except as may be otherwise noted herein, theental property is assumed to be free from any e hazard, including asbestos and toxic waste. No ranty is made regarding the representation or warproperty. ert f such materials on the y• presence or absence 0 QUALIFICATIONS OF APPRAISER THE ALLEN COMPANY 2516 Fourth Avenue North, Anoka, Minnesota, 55303 PROFESSIONAL ORGANIZATIONS National Association of Real Estate Boards Minnesota Association of Real Estate Boards Anoka County Board of Realtors, Past President Minneapolis Board of Realtors Multiple Listing Service National Association of Independent Fee Appraisers Anoka County Chapter of Independent Development Course Planning Committee Industrial Development Course Series 500 at Anoka Ramsey Community College GOVERNMENT CLIENTS SERVED Qualified and appeared as Expert Witnesses in District Court 1. Anoka County 2. Sherburne County 3. Chisago County 4. Washington County Served as Condemnation Commissioner for District Court, Anoka County, Minnesota, on matters of Highway Right-of-way, utility easements, drainage ditches, parks, etc APPRAISED FOR Anoka Hennepin School District No. 11 Anoka County Park Department Anoka County Highway Department Anoka County Probate Court City of Anoka City of Coon Rapids City of Fridley City of Spring Lake Park f QUALIFICATIONS OF APPRAISER Continued PRIVATE CLIENTS SERVED St. Paul Sand and Gravel Company Honeywell, Inc. Anoka Abstract Company Princeton State Bank First National Bank in Anoka General Motors Corporation Mercy Hospital St. Stephens Catholic Church Art Goebel Ford, Inc.. Greenberg Rambler E. J. Baehr Oil Companies Northern States Power Company Murphy Service Insurance Company. Rural Power and Electric CooperatiV4 Malcolm B. Allen, Jr. Owner of THE ALLEN COMPANY, engaged in real estate and appraisal business since 1953. EDUCATION Received Juris Doctorate degree from University of Denver College of Law, Denver, Colorado, 1983. Received B.S.B.A. in business administration University of Denver, Denver, Colorado, 1980. PRY SIONAL ASSOCIATIONS Member, American Bar Association Member, American Trial Lawyers Association National Association of Independent Fee Appraisers MARKET VALUE APPRAISAL 2810 145th St. West Rosemount, Minnesota Prepared for Mr. John Miller Economic Development Coordinator Rosemount, Minnesota August 27, 1992 1 ' • N' • j 2516 Fourth Avenue North Anoka, Minnesota 55303 Malcolm B. Allen (1923 - 1989) Malcolm B. Allen, Jr. August 27, 1992 Mr. John Miller Economic Development Coordinator City of Rosemount 2875 145th Street West Rosemount, MN 55068-0510 Real Estate Appraisal Service (612) 421-4970 re: 2810 145th St. West Rosemount, Minnesota McMenomy/Nivala Dear Mr. Miller: As you requested, submitted herewith is our market value appraisal report of the above referenced property. Based upon an inspection of the property and after careful consideration of the many factors that influence value, it is our opinion that the market value of the subject as of the effective date hereof is : One Hundred Five Thousand Dollars ($105,000.00) We submit this appraisal report containing a description of the property appraised, a summary of the definitions relevant to the conclusions and a portion of the calculations and analyses used in reaching the conclusions. This report complies with the Uniform Standard of Professional Practice of the Appraisal Foundation and is subject to the assumptions and limiting conditions contained herein. Information relied on in this report was gathered from -sources believed to be reliable, but it is not guaranteed. Yours truly, THE ALLEN COMPANY Malcolm B. Allen, Jr. TABLE OF CONTENTS Page Purpose.............................................. 1 Function....... ............ 1 Definition of Market Value.... ............ .... 1 Just Compensation ................. 2 Property Rights Appraised............ ............... 3 Date of Valuation........... ... 3 Legal Description... 3 TaxData ...................................... 4 Zoning............ 4 Description of the Subject ........................... 4 Highest and Best Use........ .. . ..... 7 The Appraisal Process ............................... 7 Replacement Cost Approach ........................... 9 IncomeA -roach ....................................... 13 Direct Sales Comparison Approach....... ............. 15 Conclusion and Final Value Estimate ................... 17 Addenda 2810 145th St. West Rosemount, Minnesota PURPOSE • r � s i..z _ :.w. The purpose of this appraisal is to estimate the market value of the subject property as of the effective date hereof and subject to the conditions set out herein. FUNCTION OF THE APPRAISAL This appraisal is intended to assist the City of Rosemount Port Authority in connection with the potential acquisition of the subject property. DEFINITION OF MARKET VALUE Market Value, as used in this report, is defined as: The most probable price in terms of dollars for which the subject property would sell in a competitive market under all conditions requisite for a fair, arms length transaction, with the buyer and seller each acting prudently, knowledgeable, and for self interest, and assuming that neither is under undue duress. Underlying this definition are the following assumptions: 1. Both buyer and seller are acting in their own self interest. 2. Both buyer and seller are fully informed about the property and generally informed about the market for that particular type of property. 3. The property has been exposed on the open market for a reasonable time. 4. Payment is made in cash or by other financing Page 1 2810 145th St. West Rosemount, Minnesota typically available in the market. JUST COMPENSATION It is our understanding that the Rosemount Port Authority is intending to attempt to acquire the subject property through negotiation. Given that the Authority is endowed with the power of eminent domain, the following discussion is included for informational purposes. The constitutional concept of just compensation refers the amount of remuneration that must be paid to a land owner when his property is acquired or condemned for a public purpose. The Minnesota Supreme Court has adopted the definition of the United States Supreme Court in Olson v. United States, 292 U.S. 246, which defines "just compensation" as follows. Just compensation includes all elements of value that inhere in the property, but it does not exceed market value fairly determined. The sum required to be paid the owner does not depend upon the uses to which he has devoted his land, but is to be arrived at upon just consideration of all the uses for which it is suitable. The highest and most profitable use for which the property is adaptable and needed or likely to be needed in the reasonably near future is to be considered, not necessarily as the measure of value, but to the: full extent that the prospect of demand for such use affects the market value while the property is privately held. In summary, the law adopts the concept that private land owner are entitled to be paid the fair market value for their property based upon its highest and best use when the property is acquired for a public purpose. The concept of Page 2 2810 145th St. West Rosemount, Minnesota highest and best use is discussed further below. PROPERTY RIGHTS APPRAISED This report estimates the value of the fee simple interest in the subject property. A fee simple interest is "an absolute fee, a fee without limitations to any particular class or heirs or restrictions, but subject to the limitations of eminent domain, escheat, police powersand taxation. An inheritable estate." A fee simple estate reflects complete ownership without limitations and of potential infinite duration. Itis the largest estate recognized by the law. DATE OF VALUATION The value of the subject property was estimated as of August 18, 1992, base upon economic and market conditions then prevailing. LEGAL DESCRIPTION U SUBJECT PROPERTY The subject property is legally described as: Lot 7, Block 5, except the south 4 feet thereof, and Lot 8 block 5, except that part thereof lying southerly of the easterly extension of the north line of Lot 6, Block 5, Village of Rosemount, Dakota County, Minnesota. Page 3 2810 145th St. West Rosemount, Minnesota TAX DATA AND ASSESSOR'S ESTIMATE OF VALUE Taxes payable 1992 $889.88 (based upon non -homestead residential classification) Assessor's Estimate of Value Land Buildings Total $13,900.00 $32.400.00 $46,300.00 ONIN The subject property is currently zoned C-2, Community Commercial District by the City of Rosemount zoning ordinance. A copy of the relevant portion of the official zoning map is included in the addenda. The ordinance states that the C-2 district relates to downtown only, and is intended to be a "diversified commercial center which offers the full range of comparison goods, sales and services, cultural and civic, entertainment, financial and offices and public uses." Uses specifically allowed within this district include professional and business offices. DESCRIPTION OF THE SUBJECT The subject of this appraisal consists of an older two story single family residence that has been converted into a multiple tenant office building. It was reported that the Page 4 2810 145th St. West Rosemount, Minnesota renovation of the structure was completed in February, 1990. The main level consists of an older portion that has been updated with new walls, flooring and ceilings. It was reported that the wiring and heating system has-been replaced. This area serves as a large reception area, a conference room and a kitchen area. Adjacent is a newly constructed addition built on a concrete slab. This level contains approximately 1,102 square feet. The upper level has also been renovated with new walls and coverings, flooring and ceilings. It contains approximately 660 square feet. This level exits to a deck constructed on the flat roof of.the addition to the first level. The exterior of the building has vinyl clad siding and aluminum soffits and fascia. The subject is currently occupied by four separate entities_ The following roll of rents and actual expenses was reported to us. Tenant Basic Builders, Inc. McMenomy Appraisal Service Excel Credit Service ERA McMenomy Associates Total Annual Rent $3,600.00 3,600.00 3,600.00 6,000.00 $16,200.00 Page 5 Expenses: Real Estate taxes Insurance Gas Electric Water Trash removal Interior cleaning Lawn and Snow Repairs Supplies Total Expenses 2810 145th St. West Rosemount, Minnesota $1,633.12 300.00 330.90 708.64 179.12 301.91 1,441.11 485.00 316.00 243.19 $5,938.99 Overall, the building is in like new condition and is well suited to the use to which is has been adapted. It has a bituminous paved parking lot for approximately 15 cars to the east and rear of the structure. The subject site is depicted on the copy of the relevant half section map included in the addenda. It has approximately 217 feet of frontage along the south side of 145th Street West and approximately 65 feet of frontage along the east side of Burnely,Avenue. The site borders the railroad tracks on the east. Based upon the dimensions of the site, we have calculated its area to be approximately 13,230 square feet. No survey of the site was provided nor reviewed by the appraiser. Page 6 2810 145th St. West Rosemount, Minnesota HIGHEST AND BEST i:SE The highest and best use for a property is that reasonable and probable use which will yield the highest present value of the property. It is that use, selected from other reasonable, probable and legal uses, that results in the highest value for the property. Criteria for determining highest and best use include: 1. The use must be legal and in compliance with zoning and building restrictions. 2. The use must be within the realm of probability and not merely speculative. 3. Demand for such use must exist. 4. The use must be profitable and provide the highest net return from the property for the longest possible time as compared to other likely uses. In appraisal practice the concept of highest and best use is the premise upon which value is based. Based upon the foregoing, it is our opinion that the ultimate highest and best use for the subject is for commercial and professional office purposes, as it is currently used. THE APPRAISAL PROCESS The estimate of value in the appraisal process is generally derived through three basic approaches to value, the Cost Approach, the Income Approach and the Market Data i Page 7 2810 145th St. West Rosemount, Minnesota or Direct Sales Comparison Approach. The Cost Approach is an appraisal that is based upon the proposition that an informed purchaser would pay no more for the subject property than the cost of producing a substitute property with the same utility as the subject property. The indication of market value in the Cost Approach is obtained by adding the estimated value of the land to the estimated replacement cost of the improvements less any depreciation accrued -to the improvements. The Income Approach yields an indication of value by analyzing the subject property in terms of its ability to produce a net annual income over its economic life. Value is indicated by capitalizing the property's net annual income at a rate commensurate with the risks of investing in the property as compared with the rates of return available from alternative investments. The Market Data Approach, or Direct Sales Comparison Approach, is based upon the principle of substitution, which states "when a property is replaceable in the market, its value tends to be set by the cost of acquiring an equally desirable substitute property assuming no significant delay in making the substitution." The final analysis in the appraisal process is the correlation and reconciliation of the value indications Page 8 2810 145th St. West Rosemount, Minnesota yielded from the different approaches to value. This step results in a single estimate of value for the subject property based upon the value indications and the weight accorded to each, the purpose and function of the appraisal and the appraiser's expert judgement. Each of the appraisal methods as applied in this appraisal are discussed in detail below. COST APPROACH TO VALUE The Cost Approach consists of four basic steps. First, the value of the land is estimated as if it were vacant. Second, the current replacement cost of the existing improvements is estimated. Third, an estimate of accrued depreciation to the improvements is made. Finally, the summation of the land value and depreciated replacement cost of the improvements yields the indication of value. 1. ESTIMATE OF LAND VALUE AS IF VACANT The value of the subject site was estimated using the market value approach. We have conducted a survey of land sales which are comparable to the subject and as a result have formed an opinion of market value for the site. While a large, number of sales have been analyzed, only those particularly relevant have been included herein. Page 9 2810 145th St. West Rosemount, Minnesota These sales have been adjusted for items of difference between the subject site and the sale. These include variances for time of sale, size, topography, general location, amenities, zoning, etc. Descriptions of the adjustments made to the comparable sales are listed below. Adjustments 1. Financing. This adjustments eliminates the effects of favorable/unfavorable financing arrangements as compared to market conditions. 2. Date of Sale. This adjusts sales to current figures based upon appraiser's judgement of the rate of appreciation of land values in the vicinity. 3. Size. This adjusts for the general tendency of larger. parcels to sell for lower unit price than smaller prices. 4. Location. This adjustment accounts for differences in the desirability of the area where the property is located. 5. Topography. This accounts for differences in land contour, elevation and vegetation. After an inspection of the site and careful consideration of the many and varied uses to which it is adaptable, and consideration of the factors that influence value, it is our opinion, that the subject site, if vacant, has a market value x Page 10 2810 145th St. West Rosemount, Minnesota of $2.00 per square foot. Indicated Value of Site if Vacant 13,230 square feet @ $2.00 = rounded to $26,460.00 $26,500.00 2. REPLACEMENT COST OF THE IMPROVEMENTS The new replacement cost of the subject building was estimated using a national cost reporting service and by comparison with actual local construction costs. Units Unit Cost Basic Structure 1,760 $42.95 Adjustments story/height .928 area/perimeter 1.040 Refined S.F. Cost $41.45 Current cost multiplier •99 Local cost factor 1.14 Final Square foot cost $46.78 Estimated New Replacement Cost $82,333.63 Additions landscaping and paving $ 3,000.00 Total New Replacement Cost $85,333.63 3. Estimate of Accrued Depreciation Depreciation is the reduction or lessening in value of Page 11 2810 145th St. West Rosemount, Minnesota any depreciable asset from any source. Depreciation is usually characterized as physical deterioration, functional obsolescence or economic obsolescence. Physical deterioration stems from and accounts for actual wear and tear of the structure's components. It results from aging, or deferred maintenance. Functional obsolescence accounts for deficiencies in design, style or materials as compared to new similar use structures. Economic obsolescence results from factors outside the property itself such as changes in the neighborhood or detrimental changes in regulatory requirements. We have used the economic age/estate life method to calculate the physical deterioration accrued to the subject. Buildings similar to the subject typically have a useful life of approximately 50 years. We estimate that the renovation of the structure added approximately 50% to the useful life of the building. Therefore, assuming an economic life of 25 years and the age of the building to be 3 years, the indicated physical deterioration attributable to the subject is 12 of new replacement cost. Based upon the structure's highest and best use and our inspection, we are unable to conclude that any functional or economic obsolescence is appropriately attributed to the subject building. Page 12 U 2810 145th St. West Rosemount, Minnesota Summary of Depreciation physical 12 functional 0 economic 0 Total 12% 4. Summary Estimated New Replacement Cost $ 85,333.63 Less Accrued Depreciation (12%) 10,240.04 Estimated Improvement Value $ 66,938.37 Land Value 26,500.00 Indicated Value by Cost $101,593.59 Rounded to $101,500.00 THE INCOME APPROACH The Income Approach analyzes a property from the perspective of a potential investor in the property desiring a return on the investment commensurate with the risk of the investment. Through a mathematical process known as discounting, the net income the property is or is capable of producing is capitalized at a rate derived from the market. The result is the estimated present value of the future stream of benefits that flow from owning the property. Estimated Net Income Gross Rent $16,200.00 Page 13 2810 145th St. West Rosemount, Minnesota Vacancy and Credit Loss (5%) Total expenses Estimated Net Income (810.00) (5,938.99) $9,451.01 The above net income was derived using the actual rental income and expense figures from the subject property. We have conducted a survey of rentals in the greater metropolitan area and have ,concluded that the actual figures provided to us by the property owners are consistent with those generally found in the market. Capitalization Rate The Direct Capitalization Method utilizes an overall capitalization rate and does not stipulate an economic life nor does it differentiate between land and building values. The overall rate is a direct ratio between the net operating income and the value of the subject property. This method capitalizes the net income into an estimate of value. No residual is involved. The overall capitalization rate represents an interest return on the investment and a return on the capital investment. The selection of this rate comes primarily from the market. The capitalization rate is developed using the band of investment method. this method recognizes that most property Page 14 2810 145th St. West Rosemount, Minnesota is purchased using a combination of debt and equity capital. The return on investment of each of these components is weighted by their prorated share of the overall capital structure to yield an overall rate. As of the appraisal date, interest rates on commercial mortgages were quoted in the range of 8.5 % to 11.5 %. Equity dividend rates were in the range of 10% to 150. The formula for developing the overall capitalization rate is: Weight Rate Mortgage .75 x .0850 = .06375 Equity .25 x .1000 = .02500 .0888 or 8.88% Net Income L Capitalization Rate = Estimated Value $9,451.01 .0888 = $106,430.29 rounded to $106,500.00 THE DIRECT SALES COMPARISON APPROACH The Market Data or Direct Sales Comparison Approach is essential in almost every real estate appraisal. The value estimated by this analysis is defined as "the price at which a willing seller would sell and a willing buyer would buy, neither being under abnormal pressure to act." This assumes Page 15 2810 145th St. West Rosemount, Minnesota that both buyer and seller are fully informed about the property, and both have general knowledge of the market for that type of property and assumes that the property has been exposed for sale in the open market for a reasonable time. It is premised on the assumption that an informed buyer would pay no more for the subject property than the cost of acquiring an equally desirable and functional substitute. Therefore, sales of properties with similar characteristics and utility are usually good indicators of value for the subject property. We have conducted a survey of sales of property in the vicinity of the subject. Details regarding the most pertinent are included herein. given the somewhat limited nature of the market area of the subject, we have included and relied upon sales of similar properties in what are considered to be similar, although not the same, markets. We have place primary reliance on those sales reported in the City of Rosemount. We have made adjustments to the comparable sales data to account for material differences including time of sale, financing, location. size, condition, amenities, perceived income potential and other factors that influence value. After adjustment, the market data indicates a range of values for the subject of between $55.00 and $60.00 per Page 16 2810 145th St. West Rosemount, Minnesota square foot of gross building area. Estimated Value by Sales Comparison 1,760 square feet @ $58.50 = $102,960.00 rounded to $103,000.00 RECONCILIATION ANIS FINAL VALUE ESTIMATE The final step a real estate appraisal is the reconciliation of the value indications derived from the various appraisal techniques applied to reach a single estimated value for the subject property. In this appraisal report, we have applied three generally accepted appraisal methods. These techniques indicated the following values for reconciliation: Replacement Cost Approach $101,500.00 Direct Sales Comparison Approach $103,000.00 Income Approach $106,500.00 The Replacement Cost Approach indicates value by estimating the cost to replace the subject improvements, subtracting an appropriate amount of depreciation, and adding the land value when considered as vacant. The replacement cost of the subject was estimated using a national Page 17 2810 145th St. West Rosemount, Minnesota construction cost reporting service, in conjunction with a local cost estimating service. Depreciation was factored based upon the age, condition and utility of the structure. The land value was determined based upon analysis of land sales of comparable tracts of land in the market place. In analyzing commercial/office properties such as the subject, buyers typically place the least reliance on the Replacement Cost approach when making a purchase decision. In this case, we have -relied on this method as a check on the value derived from the other appraisal methods applied. The Direct Sales Comparison Approach indicates value by comparing the subject with other similar properties that have sold under circumstances attendant an arms length sale. The validity of this appraisal method is related directly to the quality of the market data available for comparison. In this appraisal we have relied on sales of similar use buildings in the Rosemount area and in similar situations.. These sales were adjusted for the many differences that influence value. It is our opinion that the market data available is sufficient to support the value conclusion indicated. Given that the value indication is derived from actual market transactions involving buyers and sellers in the market place, this method is given great weight is arriving at the final value estimate for the subject property. Page 18 2810 145th St. West Rosemount, Minnesota The Income Approach is generally a reliable indicator of value for a property such as the subject. The typical buyer in the market places great reliance on this type of analysis when making a decision on the investment of capital. Therefore, we have given great credence to the value indicated by this appraisal method in arriving at the final value estimate for the subject property. Based upon the foregoing and after careful consideration of the many factors that influence value, it is our opinion that the fair market value of the subject property as of the effective date hereof is: ONE HUNDRED FIVE THOUSAND DOLLARS ($105,000.00) Page 19 2810 145th St. West Rosemount, Minnesota I i Page 20 Sale No.: 1 Location Carousel Way and 151st Street, Rosemount, MN Legal: North 144.44 feet of the south 288.88 feet of Lot 2 Block 2 South Rose Park Addition Date of Sale: August, 1987 Sale Price: $73,00.00 Zoning: commercial Size of Tract: 44,054 s.f Unit Price: $1.66/s.f. Comments: level Sale No. 2 Location: Carousel and 151st Street, Rosemount, Mn Legal: Lot 2, Block 2, South rose Park Addition Seller: Carlson Farms, et al Buyer: Larry Ihle, et al Date of Sale: March, 1987 Sales Price: $69,500.00 zoning: commercial Size of Tract: 31,799 s.f. Unit Price: $2.19/s.f Sale No. 3 Location: Co. Road 42 and Canada Ave., Rosemount, Minnesota Legal: part of Lot 4, Block 1, South Rose Park (replatted0 Seller: Carlson Farms, et al Buyer:%-- P. Fahey, et al Date of Sale: April 1984 Sales Price: $98,000.00 Zoning: commercial Size of Tract: 46,637 s.f. Unit Price: $2.10/s.f. Sale No. 4 Location: Chippendale Ave. W. and 151st St. Rosemount, MN Legal: part of Lot 2, block 2, south Rose Park Seller: Larry Ihle et al Buyer: J. Boerner, et al Date of Sale: March, 1985 Sales Price: $120,000.00 Zoning: commercial Size of Tract: 45,000 s.f. Unit Price: $2.67/s.f. Sale No. 5 Location: Chippendale and Co. Road. 42, Rosemount, MN Legal: part of Lot l Block 1, South Rose Park Seller: Carlson Farms, et al Buyer: Holiday Stores Date of Sale: August, 1985 Sales Price: $148,228.85 zoning: commercial Size of Tract: 47,984 s.f. Unit Price: $3.09/s.f. Sale No.: 1 Location: 1303 Eddy St., Hastings, MN Legal: P.I.N.: 19-77300-102-05 Seller: IBI, Inc. Buyer: E. Peterson Date of Sale: November, 1991 Sale Price: $1,030,000 Zoning: commercial Size of Tract: 55,651 s.f 35,183 s.f building Unit Price: $40.90/s.f. Comments: multi -tenant retail building, 1950's vintage fl Sale No.: 2 Location: 3020 145th Street West, rosemount, MN Legal: P.I.N.: 34-03700-010-35 Seller: Bart Partners " Buyer: D. Elling et al Date of Sale: July, 1991 Sales Price: $112,000.00 Zoning: commercial Size of Tract: 8,250 s.f. 2,239 s.f. building Unit Price: $50.02/s.f. Comments: concrete block building, one story, former post office, renovated for use as real estate office. Sale No.: 3 Location: 14390-14410 S. Robert Trail, Rosemount, MN Legal: P.I.N.: 34-03700-051-00 Seller: McRoberts Buyer: Repairs Inc Date of Sale: January 1989 Sales Price: $124,394.00 Zoning: commercial Size of Tract: 17,930 s.f. 1,472 building Unit Price: $84.51/s.f. Comments: used as auto repair shop, wood and metal constuction, reportedly acquired by City. ` 14 13 _M A,ff Coo TqT AD ' 23 2 o� o-fnn Aoso 30 d .ocAX , 43 26 25 -�:"_ A A Arm P p ,� 4 I � I � 13 �T 18 6 5 .� - I8 z p �� I * 19 20- 21 I 22 2 23 24 19 ss 20 «^ 42 3 � o 3 71 21 2 24 381 _ � � — 38 a 42 30 S, E O U /Y 25�, D 28 ss 6 5 42 3 29 28 1 27 ! 30 65 N 1 N ll G R i v I 32 33 34 1 35 36 " I 32 33 34 35 36 y Ir0 TX. 1T. •OSf YOYYT A[s�,AC« I _ ` 48 . U COATS 6 5 4 3 2 I `A+ rt4 3 2 I 6 5 �F i 61 v O V E M l L l O �ERM` 7 3 8 9 IO II 12 7 8 9 10 1 11 12 V 2 se 8g L v - ' � IsorY s* f �i 18 17 YMP If, 18 17 16 15 14 i ►y 3 .. E i A - /�. 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I®CA oA i i r r 47,!'+,,7 47 147 147 - AvC,NUE '-s 171-06 LOT 6 CERTIFICATE OF APPRAISAL ISAL I do hereby certify that I have personally examined the property described in this appraisal report. I further certify that I have no present or contemplated interest in the property appraised, and that neither my employment nor the fee therefore was in any manner contingent upon the estimate of value reported. I have assumed the title of the property to be good and merchantable and in the appraisal have disregarded any liens, mortgages and all other matters legal in nature. That my fee for this appraisal is in no way contingent on a predetermined value, nor is there any obligation on my part to testify in court on any matter pertaining this property unless special arrangement is agreed upon for such testimony. The possession of this report or any copy thereof does not imply the right of publication nor may the report be used by anyone but the applicant without the consent of the appraiser. I have made the appraisal of the property in conformity with the Uniform Standards of Professional Appraisal Practice and Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 as I understand them. Malcolm B. Allen, Jr. UNDERLYING ASSUMPTIONS AND CONTINGENT CONDITIONS Findings, estimates, and conclusions in the appraisal are made subject to the following assumptions and conditions: 1. The Appraiser has neither present nor contemplated future interest in the property appraised and his employment is not contingent upon the conclusions reported. 2. The Appraiser is not responsible for legal matters. The title is assumed good and marketable. All structures and improvements existing and proposed, are assumed`to be in compliance with community zoning ordinances and building code requirements. The Appraiser does not guarantee that the property complies with zoning or building code requirements. 3. Improvements described as "proposed" are considered as though satisfactorily completed in substantial conformance with plans and specifications. 4. Information in the report, though gathered from sources believed reliable, is not guaranteed and is subject to conformation. Confidential market data documentations is in the office of the appraiser. 5. Consent of the appraiser is required to publish all or part of the appraisal report. Expert testimony may be obtained through special arrangements with appraiser. 6. Proper repairs, maintenance, and administration are to be given the property by competent management. 7. Unless otherwise stated, the property is considered free and clear of all indebtedness, except future special assessment payments. 8. Except as may be otherwise noted herein, the property is assumed to be free from any environmental hazard, including asbestos and toxic waste. No representation or warranty is made regarding the presence or absence of such materials on the property. QUALIFICATIONS OF APPRAISER THE ALLEN COMPANY 2516 Fourth Avenue North, Anoka, Minnesota, 55303 PROFESSIONAL ORGANIZATIONS National Association of Real Estate Boards Minnesota Association of Real Estate Boards Anoka County Board of Realtors, Past President Minneapolis Board of Realtors Multiple Listing Service National Association of Independent Fee Appraisers Anoka County Chapter of Independent Development Course Planning Committee Industrial Development Course Series '500 at Anoka Ramsey Community College GOVERNMENT CLIENTS _SERVED Qualified and appeared as Expert Witnesses in l District Court 1. Anoka County 2. Sherburne County 3. Chisago County 4. Washington County Served as Condemnation Commissioner for District Court, Anoka County, Minnesota, on matters of Highway Right-of-way, utility easements, drainage ditches, parks, etc. APPRAISED FOR Anoka Hennepin School District No. 11 Anoka County Park Department Anoka County Highway Department Anoka County Probate Court City of Anoka City of Coon Rapids City of Fridley. City of Spring Lake Park QUALIFICATIONS OF APPRAISER Continued PRIVATE CLIENTS SERVED St. Paul Sand and Gravel Company Honeywell, Inc. Anoka Abstract Company Princeton State Bank First National Bank in Anoka General Motors Corporation Mercy Hospital St. Stephens Catholic Church Art Goebel Ford, Inc Greenberg Rambler E. J. Baehr Oil Companies Northern States Power Company Murphy Service Insurance Company Rural Power and Electric Cooperative 0 Malcolm B. Allen, Jr. Owner of THE ALLEN COMPANY, engaged in real estate and appraisal business since 1953. EDUCATION Received Juris Doctorate degree from University of Denver College of Law, Denver, Colorado, 1983. Received B.S.B.A. in business administration University of Denver, Denver, Colorado, 1980. PROFESSIONAL ASSOCIATIONS Member, American Bar Association Member, American Trial Lawyers Association National Association of Independent Fee Appraisers MARKET VALUE APPRAISAL 14540 Burnely Avenue Rosemount, Minnesota Prepared for Mr. John Miller Economic Development Coordinator Rosemount, Minnesota August 27, 1992 2516 Fourth Avenue North Anoka, Minnesota 55303 Malcolm B. Allen (1923 - 1989) Malcolm B. Allen, Jr. August 27, 1992 Mr. John Miller Economic Development Coordinator City of Rosemount 2875 145th Street West Rosemount, MN 55068-0510 Dear Mr. Miller: Real Estate Appraisal Service (612) 421-4970 re: 14540 Burnely Avenue Rosemount, Minnesota Mrs. W. Klevator As you requested, submitted herewith is our market value appraisal report of the above referenced property. Based upon an inspection of the property and after careful consideration of the many factors that influence value, it is our opinion that the market value of the subject as of the effective date hereof is : Fifty Five Thousand Dollars ($55,000.00) We submit this appraisal report containing a description of the property appraised, a summary of the definitions relevant to the conclusions and a portion of the calculations and analyses used in reaching the conclusions. This report complies with the Uniform Standard of Professional Practice of the Appraisal Foundation and is subject to the assumptions and limiting, conditions contained herein. Information relied on in this report was gathered from sources believed to be reliable, but it is not guaranteed. Yours truly, THE ALLEN COMPANY Malcolm B. Allen, Jr. TABLE OF CONTENTS Page Purpose .............................................. 1 Function ................. ..... .............. 1 Definition of Market Value ........................... 1 Just Compensation....... ...................... ... 2 Property Rights Appraised ............................. 3 Date of Valuation... ...... .................. 3 Legal Description .................... 3 Tax Data............ .... ............. .......... 4 Zoning ............................................... 4 Description of the Subject ........................... 4 Highest and Best Use ................................. 6 The Appraisal Process ................................ 7 Replacement Cost Approach ............................. 9 Income Approach.......... ........................... 13 Direct Sales Comparison Approach......... . 14 Conclusion and Final Value Estimate...... 18 Addenda 14540 Burnely Ave. Rosemount, Minnesota PURPOSE OF THE APPRAISAL The purpose of this appraisal is to estimate the market value of the subject property as of the effective date hereof and subject to the conditions set out herein. FUNCTION OF THE APPRAISAL This appraisal is intended to assist the City of Rosemount Port Authority in connection with the potential acquisition of the subject property. DEFINITION OF MARKET VALUE Market Value, as used in this report, is defined as: The most probable price in terms of dollars for which the subject property would sell in a competitive market under all conditions requisite for a fair, arms length transaction, with the buyer and seller each acting prudently, knowledgeable, and for self interest, and assuming that neither is under undue duress. Underlying this definition are the following assumptions: 1. Both buyer and seller are acting in their own self interest. 2. Both buyer and seller are fully informed about the property and generally informed about the market for that particular type of property. 3. The property has been exposed on the open market for a reasonable time. 4. Payment is made in cash or by other financing Page 1 14.540 Burnely Ave. Rosemount, Minnesota typically available in the market. JUST COMPENSATION It is our understanding that the Rosemount Port Authority is intending to attempt to acquire the subject property through negotiation. Given that the Authority is endowed with the power of eminent domain, the following discussion is included for informational purposes. The constitutional concept of just compensation refers the amount of remuneration that must be paid to a land owner when his property is acquired or condemned for a public purpose. The Minnesota Supreme Court has adopted the definition of the United States Supreme Court in Olson v. United States, 292 U.S. 246, which defines "just compensation" as follows. Just compensation includes all elements of value that inhere in the property, but it does not exceed market value fairly determined. The sum required to be paid the owner does not depend upon the uses to which he has devoted his land, but is to be arrived at upon just consideration of all the uses for which it is suitable. The highest and most profitable use for which the property is adaptable andneeded or likely to be needed in the reasonably near future is to be considered, not necessarily as the measure of value, but to the full extent that the prospect of demand for such use affects the market value while the property is privately held. In summary, the law adopts the concept that private land owner are entitled to be paid the fair market value for their property based upon its highest and best use when the property is acquired for a public purpose. The concept of Page 2 14540 Burnely Ave. Rosemount, Minnesota highest and best use is discussed further below. PROPERTY RIGHTS APPRAISED This report estimates the value of the fee simple interest in the subject property. A fee simple interest is "an absolute fee, -a fee without limitations to any particular class or heirs or restrictions, but subject to the limitations of eminent domain, escheat, police powers and taxation. An inheritable estate." A fee simple estate reflects complete ownership without limitations and of potential infinite duration. It is the largest estate recognized by the law. DATE OF VALUATION The value of the subject property was estimated as of August 18, 1992, base upon economic and market conditions then prevailing. LEGAL DESCRIPTION OF SUBJECT PROPERTY The subject property is legally described as: Lot 4 and Lot 5, Block 5 Village of Rosemount Dakota County, Minnesota Page 3 14540 Burnely Ave. Rosemount, Minnesota TAX DATA AND ASSESSOR'S ESTIMATE OF VALUE Taxes payable 1992 $651.44 (homestead) Assessor's Estimate of Value Land $18,000.00 Buildings $36,300.00 Total $54,300.00 ZONING The subject property is currently zoned C-2, Community Commercial District by the City of Rosemount zoning ordinance. A copy of the relevant portion of the official zoning map is included in the addenda. The ordinance states that the C-2 district relates to downtown only, and is intended to be a "diversified commercial center which offers the full range of comparison goods, sales and services, cultural and civic, entertainment, financial and offices and public uses." Uses specifically allowed within this district include professional and business offices. DESCRIPTION OF THE SUBJECT The subject of this appraisal consists of an older; frame constructed single family residence situated on two platted lots in the City of Rosemount, Minnesota. There is a Page 4 14540 Burnely Ave. Rosemount, Minnesota newer detached two car garage to the rear of the home. The primary structure is an older (approx. 1920 vintage) 1.5 story house. The house was reportedly moved to the site some 30 plus years age. The details of the structure are outlined below. The main floor contains approximately 576 square feet. It has a living room with carpet and painted plaster walls. This is the newest portion of the house as it has been remodeled and a large picture window installed. The kitchen has a vinyl floor, wallpaper, formica counter top, ceramic back splash, double sink, electric range and oven, and a refridgerator. The den is located in the rear of the first level. It has a tile floor and a suspended accoustic tile ceiling and panelling on four walls. The stairs leading to the second level are located in this room. The upper level has two bedrooms and a large bath. This portion of the house is generally in poor condition and is considered to be sub -standard as compared to current buyer expectations. The bath is contained in what was previously a bedroom. It has a tile floor, claw foot tub with no shower and a stool and sink. To the rear of the home is an enclosed entry portico. The older portion of the home is constructed over a stone foundation. It appears to be in sound condition. The gas Page 5 14540 Burnely Ave. Rosemount, Minnesota fired forced air furnace and the electric water heater is located in the cellar. The electric service and wiring have been updated, but remains substandard as 60 amp fused service. The home has three tab shingles and the roof is in poor condition. It has horizontal wood siding and combination windows. Behind the house is a newer 24' x 24' detached garage, with a smooth concrete floor, 4 panel overhead door and hardboard siding. It is reportedly 3 years old. The subject site has 110 feet of frontage along the east side of Burnely Avenue and contains approximately 14,719 square feet as calculated from the half section map. Its dimensions are depicted on the enclosed copy of the relevant portions of the half section map in the addenda. No survey of the site was provided nor examined. HIGHEST AND BEST USE The highest and best use for a property is that reasonable and probable use which will yield the highest present value of the property. It is that use, selected from other reasonable, probable and legal uses, that results in the highest value for the property. Criteria for determining highest and best use include: 1. The use must be legal and in compliance with zoning and building restrictions. Page 6 14540 Burnely Ave. Rosemount, Minnesota 2. The use must be within the realm of probability and not merely speculative. 3. Demand for such use must exist. 4. The use must be profitable and provide the highest net return from the property for the longest possible time as compared to other likely uses. In appraisal practice the concept of highest and best use is the premise upon which value is based. Based upon the foregoing, it is our opinion that the ultimate highest and best use for the subject is for development in accordance with its current zoning, possibly as part of an assemblage. The current uses as a single family residence is considered to be a viable interim use. THE APPRAISAL PROCESS The estimate of value in the appraisal process is generally derived through three basic approaches to value, the Cost Approach, the Income Approach and the Market Data or Direct Sales Comparison Approach. The Cost Approach is an appraisal that is based upon the proposition that an informed purchaser would pay no more for the subject property than the cost of producing a substitute property with the same utility as the subject property. The indication of market value in the Cost Approach is obtained Page 7 14540 Burnely Ave. Rosemount, Minnesota by adding the estimated value of the land to the estimated replacement cost of the improvements less any depreciation accrued to the improvements. The Income Approach yields an indication of value by analyzing the subject property in terms of its ability to produce a net annual income over its economic life. Value is indicated by capitalizing the property's net annual income at a rate commensurate with the risks of investing in the property as compared with the rates of return available from alternative investments. The Market Data Approach, or Direct Sales Comparison Approach, is based upon the principle of substitution, which states "when a property is replaceable in the market, its value tends to be set by the cost of acquiring an equally desirable substitute property assuming no significant delay in making the substitution." The final analysis in the appraisal process is the correlation and reconciliation of the value indications yielded from the different approaches to value. This step results in a single estimate of value for the subject property based upon the value indications and the weight accorded to each, the purpose and function of the appraisal and the appraiser's expert judgement. Each of the appraisal methods as applied in this appraisal are discussed in detail Page 8 14540 Burnely Ave Rosemount, Minnesota below. COST APPROACH To VALUE The Cost Approach consists of four basic steps. First, the value of the land is estimated as if it were vacant. Second, the current replacement cost of the existing improvements is estimated. Third, an estimate of accrued depreciation to the improvements is made. Finally, the summation of the land value and depreciated replacement cost of the improvements yields the indication of value. 1. ESTIMATE OF LAND VALUE AS IF VACANT The value of the subject site was estimated using the market value approach. We have conducted a survey of land sales which are comparable to the subject and as a result have formed an opinion of market value for the site. While a large, number of sales have been analyzed, only those particularly relevant have been included herein. These sales have been adjusted for items of difference between the subject site and the sale. These include variances for time of sale, size, topography, general location, amenities, zoning, etc. Descriptions of the adjustments made to the comparable sales are listed below. Page 9 14540 Burnely Ave. Rosemount, Minnesota Adjustments 1. Financing. This adjustments eliminates the effects of favorable/unfavorable financing arrangements as compared to market conditions. 2. Date of Sale. This adjusts sales to current figures based upon appraiser's judgement of the rate of appreciation of land values in the vicinity. 3. Size. This adjusts for the general tendency of larger parcels to sell for lower unit price than smaller prices. 4. Location. This adjustment accounts for differences in the desirability of the area where the property is located. 5. Topography. This accounts for differences in land contour, elevation and vegetation. After an inspection of the site and careful consideration of the many and varied uses to which it is adaptable, and consideration of the factors that influence value, it is our opinion, that the subject site, if vacant, has a market value of $1.75 per square foot. Indicated Value of Site if Vacant 14,719 s.f. @ $1.75/s.f. = $ 25,758.25 rounded to $ 26,000.00 Page 10 14540 Burnely Ave. Rosemount, Minnesota 2. ESTIMATED REPLACEMENT COST OF IMPROVEMENTS The cost to replace the existing improvements was estimated in reliance on a national cost reporting service, a local cost reporting system and comparison with actual local construction costs. Units Unit Cos Total Basic Structure 1008 $62.28 $62,776 garage 576 11.82 6,808 Total estimated new cost $69,584 3. DEPRECIATION ANALYSIS Depreciation is the diminution in value to any wasting asset attributable to any cause. It accounts for the fact that new structures typically enjoy certain advantages and therefore value over older structures. Depreciation is usually characterized as physical deterioration, functional obsolescence or economic obsolescence. Physical deterioration considers general wear of the structures components and deferred maintenance. Functional obsolescence accounts for deficiencies of style, design, or materials as compared to new facilities. Economic obsolescence is caused by factors outside the property such as changes in the neighborhood or the present of off site undesirable Page 11 14540 Burnely Ave. Rosemount, Minnesota influences. In this case, the actual age of the structure is approximately 70 years. Buildings of this type typically enjoy a useful economic life of 50 years. Given the maintenance and upgrading over the years, we have assigned an effective age to the structure of 20 years. Based upon a straight line analysis, it is indicated that the subject improvements would have experienced 40 percent depreciation attributable to physical causes. Given the nature of the structure and its deficiencies noted above, including the unusual bathroom arrangement, cellar, it is our opinion that the subject suffers from some obsolescence in terms of style and design as compared with new similar use structures. We have attributed 20 percent of new replacement cost to account for functional obsolescence. Given the nature of the subject neighborhood, when considered in conjunction with the highest and best use of the property, we have concluded that it would be inappropriate to assign any economic obsolescence to the subject. summary of Depreciation physical 60% functional 20 economic Is] Page 12 14540 Burnely Ave. Rosemount, Minnesota Total 4. SUMMATION Estimated New Replacement Cost Total Estimated Depreciation (80%) Depreciated cost of improvements Plus Land Value Indicated Value by Cost Approach rounded to 80% ( $41,750 ) $69,584 (41,750) $27,834 26,000 $53,834.00 $53,900.00 THE INCOME APPROACH This appraisal technique indicates value by analyzing the property's ability to generate income in terms of dollars over a given economic life. Income producing property such as shopping centers, motels and hotels, and apartment buildings a typically purchased primarily for investment purposes by investors desiring a return on their invested capital. Therefore, the anticipated net income stream from the property can be discounted at a given or determined rate of return to indicate the value of the property. In this instance, the subject property is used as a owner occupied single family residence and is not therefore producing an economic net income. In order to arrive a net Page 13 14540 Burnely Ave. Rosemount, Minnesota income figure for the property, it would be necessary to determine the current market rent for the subject. This would be possible through a comparison of similar homes that are rented in the market. However, given the highest and best use of the subject as a commercial development property, it is our opinion that the value indicated be such an analysis would be of little or no value in arriving at a final estimate of value. The second alternative would be to calculate the cost of converting the subject into a facility for use consistent with the highest and best use, estimate its fair market rental value to determine its net annual income and then capitalizing the income at an appropriate rate of return. The procedure, while an accepted method of indicating value, is somewhat contrived in this instance. In this case, the likelihood of the subject improvements being converted to a commercial/office use is remote at best. In our opinion, this procedure -would not add to the validity or certainty of the value conclusions reached herein. For the reasons outlined herein, this report will not rely on the Income Approach to estimate the value of the subject property. THE DIRECT SALES COMPARISON APPROACH The Market Data or Direct Sales Comparison Approach is Page 14 14540 Burnely Ave. Rosemount, Minnesota essential in almost every real estate appraisal. The value estimated by this analysis is defined as "the price at which a willing seller would sell and a willing buyer would buy, neither being under abnormal pressure to act." This assumes that both buyer and seller are fully informed about the property, and both have general knowledge of the market for that type of property and assumes that the property has been exposed for sale in the open market for a reasonable time. It is premised on the assumption that an informed buyer would pay no more for the subject property than the cost of acquiring an equally desirable and functional substitute. Therefore, sales of properties with similar characteristics and utility are usually good indicators of value for the subject property. We have conducted a survey of sales of property in the vicinity of the subject. Details regarding the most pertinent are included herein. The sales reported are of transactions involving single family residences in the area considered to be comparable to the subject. Our research revealed no sales of single family homes situated on commercial sites considered to be ripe for development such as the subject. Therefore, in addition to making the typical adjustments for material differences, we have adjusted the comparable sales to account for the additional site value Page 15 14540 Burnely Ave. Rosemount, Minnesota considered to exist in the subject. Additionally, we have make adjustments to the comparable sales to account for material differences in terms of time of sale, financing, size, location, amenities and other factors that influence value. The adjustment grid included below outlines the adjustments applied to the comparable market data to indicate the value of the subject by this method. As can be seen, due to the somewhat unique nature of the property in this market, sever adjustments were necessary to the comparables. In a typical residential appraisal, adjustments of this magnitude would be unacceptable. Here, they are indicative of the uniqueness of the property, while indicating that the other appraisal techniques employed should be given greater weight in the final reconciliation. The comparable sales selected represent sales of single family residences within what is considered to be the greater downtown Rosemount area. They were selected for comparison based upon their selling price, locations, and relatively similar amenities. As can be seen, an adjustment has been made to each sale to account for the value differential of the subject's commercial site. The size adjustments are made at the rate of 1/3 of the unit sale price for each comparable sale. Adjustments for age and condition differential range Page 16 14540 Burnely Ave. Rosemount, Minnesota from 18 to 25 percent of the sale price. This differential is beyond what is normally desired. Again, this is indicative of the unique situation presented by the subject property. ITEM SUBJECT COMPARABLE #1 COMPARABLE #2 COMPARABLE #3 Address14540 Burnely Ave. Rosemount MN 14600 Cameo Ave. Rosemount MN 14855 Dallara Rosemount MN 14795 Cambrian Ave. Rosemount, MN Proximity to Subi. Sales Price Closing Date Data Source 3 blks $ )9,0001$72,900 !/92 MLS 4 blks MLS 3/92 4 blks ML S $ 74, 000 3/92 Market Change: Coraaa to ►speeban Daw DESCRIPTION DESCRIPTION + I'> S Adjustment DESCRIPTION + I"� $ Adjustment DESCRIPTION + I $ Adjustment , Sales or Financing Concessions 1kation commercial residential ' +12000 residential ;+12000 residential ;+12000 'view RR tracks res./averes/ ave res/ave Ext. Design/Appeal 1.5 sty/wood 1.5 st /wood s It/HBM ramb./shake Quality of Const ave ave ave ave Ave older older/remod. I-6900 1980 1 -14580 1960 ; -14800 Condition fair ave -4140 ave -4374 ave -4440 Int.Appeal/Decor fair ave -690 ave -729 ave t -740 Total Rooms Above Grade And Gross Living Area (GLA) Rms ; 5 B-rms ! 2 Rms 4 1 B -,ms: 2 i Rms !} B-rms 2 i Rms 5 B-rms 2 ----------- ----------- ------------ Baths: 1 Baths: 1 i Baths: 1 i Baths: 1 i 1008 sq. ft 1400 sq. ft. — ------ ------- ------ ---------- I 6444 816 sq. ft. ;+5718 960: sq. ft.;+1233. Basement Area Finished Rooms cellar 921 sf fin. ; -9210 full ; -7500 full/250s.f f -3500 Functional Utility fair fair fair fair Air Conditioning n a window central -2500 central l-2500 Car Storage 2 det. 3 det. 1-1500 2 att 1 -1500 1 det. 1+1500 Decks, Patios Pools, etc. n/a porch ; -500 ; patio ;-500 - Special Features (e.D., WWW 4epft%kacren re.et , , oak floors amm -3000 Other Forecasting Net Adj. (Total) A*mW Sam ice Describe other. .; � m x-` 38 $ 51,616 >., ;. � X t _ $ 59 -41; X �. $ 59,253 Page 17 14540 Burnely Ave. Rosemount, Minnesota We consider Comparable Sale Number One to be the best indicator of value in this analysis. Therefore, it has been given the greatest weight in reconciling the value indications. Based upon the foregoing, its is our opinion that the data presented here indicates the value of the subject by direct sales comparison to be: $55,900.00 RECONCILIATION AND FINAL VALUE ESTIMATE The final step a real estate appraisal is the reconciliation of the value indications derived from the various appraisal techniques applied to reach a single estimated value for the subject property. In this appraisal report, we have applied two generally accepted appraisal methods. These techniques indicated the following values for reconciliation: Replacement Cost Approach Direct Sales Comparison Approach Income Approach $ 53,900.00 $ 55,900.00 not applicable Page 18 14540 Burnely Ave. Rosemount, Minnesota The Replacement Cost Appraoch indicates value by estimating the cost to replace the subject improvements, subtracting an appropriate amount of depreciation, and adding the land value when considered as vacant. The replacement cost of the subject was estimated using a national construction cost reporting service, in conjunction with a local cost estimating service. Depreciation was factored based upon the age, condition and utility of the structure. The land value was determined based upon analysis of land sales of comparable tracts of land in the market place. Typically, the Cost Approach is given little if any consideration when evaluating a single family residence. It is our opinion that potential pruchasers of homes give little consideration of this analysis when making a purchase decision. In this instance, given the highest and best use for the subject, the Cost aprroach becomes more relevant. In this case, the depreciated value of the improvements indicated can be considered as an added benefit to the property, providing a built in, profitable, interm use for the site pending utilization in accordance with the commercial highest and best use. Therefore, this approach is given more consdieration in the final analysis than it would if the subject were a typical residential property. Page 19 14540 Burnely Ave. Rosemount, Minnesota The Direct Sales Comparison Approach indicates value by comparing the subject with other similar properties that have sold under circumstances attendant an arms length sale. The validity of this appraisal method is related directly to the quality of the market data available for comparison. In this appraisal we have relied on three sales of single family residences in the greater downtowm Rosemount area., These sales were adjusted for, inter alia, the perceived commercial value of the subject site. No sales absolutely comparable to the subject were discovered. given the large adjustments necessitated by the unique nature of the subject, and its age and condition, this approach was given less weight in arriving at the final estimate of value for the subject. Based upon the foregoing, and after careful consideration of the many factors that influence value, it is our opinion that the fair market value of the subject proeprty as of the effective date hereof is: FIFTY FIVE THOUSAND DOLLARS ($55,000.00) Page 20 5 r i ' I� T r 14540 Burnely Ave. Rosemount, Minnesota Page 22 CERTIFICATE OF APPRAISAL I do hereby certify that I have personally examined the property described in this appraisal report. I further certify that I have no present or contemplated interest in the property appraised, and that neither my employment nor the fee therefore was in any manner contingent upon the estimate of value reported. I have assumed the title of the property to be good and merchantable and in the appraisal have disregarded any liens, mortgages and all other matters legal in nature. That my fee for this appraisal is in no way contingent on a predetermined value, nor is there any obligation on my part to testify in court on any matter pertaining this property unless special arrangement is agreed upon for such testimony. The possession of this report or any copy thereof does not imply the right of publication nor may the report be used by anyone but the applicant without the consent of the appraiser. I have made the appraisal of the property in conformity with the Uniform Standards of Professional Appraisal Practice and Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 as I understand them. Malcolm B. Allen,Jr. UNDERLYING ASSUMPTIONS AND CONTINGENT CONDITIONS Findings, estimates, and conclusions in the appraisal are made subject to the following assumptions and conditions: 1. The Appraiser has neither present nor contemplated future interest in the property appraised and his employment is not contingent upon the conclusions reported. 2. The Appraiser is not responsible for legal matters. The title is assumed good and marketable. All structures and improvements existing and proposed, are assumed to be in compliance with community zoning ordinances and building code requirements. The Appraiser does not guarantee that the property complies with zoning or building code requirements. 3. Improvements described as "proposed" are considered as though satisfactorily completed in substantial conformance with plans and specifications. 4. Information in the report, though gathered from sources believed reliable, is not guaranteed and .is subject to conformation. Confidential market data documentations is in the office of the appraiser. 5. Consent of the appraiser is required to publish all or part of the appraisal report. Expert testimony may beobtainedthrough special arrangements with appraiser. 6. Proper repairs, maintenance, and administration are to be given the property by competent management. 7. Unless otherwise stated, the property is considered free and clear of all indebtedness, except future special assessment payments. 8. Except as may be otherwise noted herein, the property is assumed to be free from any environmental hazard, including asbestos and toxic waste. No representation or warranty is made regarding the presence or absence of such materials on the property. QUALIFICATIONS OF APPRAISER THE ALLEN COMPANY 2516 Fourth Avenue North, Anoka, Minnesota, 55303 PROFESSIONAL ORGANIZATIONS National Association of Real Estate Boards Minnesota Association of Real Estate Boards Anoka County Board of Realtors, Past President Minneapolis Board of Realtors Multiple Listing Service National Association of Independent Fee Appraisers Anoka County Chapter of Independent Development Course Planning Committee Industrial Development Course Series 500 at Anoka Ramsey Community College GOVERNMENT CLIENTS SERVED Qualified and appeared as Expert Witnesses in District Court 1. Anoka County 2. Sherburne County 3. Chisago County 4. Washington County Served as Condemnation Commissioner for District Court, Anoka County, Minnesota, on matters of Highway Right-of-way, utility easements, drainage ditches, parks, etc. APPRAISED FOR Anoka Hennepin School District No. 11 Anoka County Park Department Anoka County Highway Department Anoka County Probate Court City of Anoka City of Coon Rapids City of Fridley City of Spring Lake Park QUALIFICATIONS OF APPRAISER Continued PRIVATE CLIENTS SERVED St. Paul Sand and Gravel Company Honeywell, Inc. Anoka Abstract Company Princeton State Bank First National Bank in Anoka General Motors Corporation Mercy Hospital St. Stephens Catholic Church Art Goebel Ford, Inc.. Greenberg Rambler E. J. Baehr Oil Companies Northern States Power Company Murphy Service Insurance Company Rural Power and Electric Cooperative Malcolm B. Allen, Jr. Owner of THE ALLEN COMPANY, engaged in real estate and appraisal business since 1953. EDUCATION Received Juris Doctorate degree from University of Denver College of Law, Denver, Colorado, 1983. Received B.S.B.A. in business administration University of Denver, Denver, Colorado, 1980. PROFESSIONAL ASSOCIATIONS Member, American Bar Association Member, American Trial Lawyers Association National Association of Independent Fee Appraisers C7 a 1 s - ON •�itl •SIO 'O0WS 1N30N 3e WN V f •.r I r � V T 99 -W 98 ]!1 wNOlf VW1:) . S ! C5 �� Q • 9to y3�N3'V+ >fSay„00 � 3f1N3M Atlf18NVC :• ei_ I M 3nW3AV.,�: 31 TnNV0 u a_ 9P ! 1 cr- W I - Z = W V 1 s - ON •�itl •SIO 'O0WS 1N30N 3e WN V f •.r I r � V T 99 -W 98 ]!1 wNOlf VW1:) . S ! 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