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HomeMy WebLinkAboutRDA AG PKT 2004-09-27 #C JOINT PUBLIC HEARING OF THE SEAL BEACH REDEVELOPMENT AGENCY AND CITY OF SEAL BEACH AGENDA REPORT DATE: September 27, 2004 1 ' TO: Honorable Chairman and Agency Members and Honorable Mayor and City ke Council Members THROUGH: John B. Bahorski, Executive Director FROM: June Yotsuya, Assistant City Manager SUBJECT: TRANSFER OF ZOETER PLACE (1190 -1198 PACIFIC COAST HIGHWAY, SEAL BEACH, CALIFORNIA) SUMMARY OF REQUEST: Staff recommends that the: City Council adopt Resolution No. ),I1 (Attachment A) making certain findings regarding the exercise of an option to purchase Zoeter Place; and 2. Redevelopment Agency adopt Resolution No.;44 B) accepting the exercise of an option to purchase Zoeter Place submitted by the long -term master lessor, Rodi Properties, LLC ( "Buyer ") and providing authorization to Executive Director and staff to proceed with preparation and execution of all necessary documents, etc. to complete the transfer of Zoeter Place (1190 -1198 Pacific Coast Highway, Seal Beach, California) to Rodi Properties, LLC for the purchase sum of $3,180,000. BACKGROUND: At the June 28, 2004 meeting, the City Council and public were fully apprised of the history of the Zoeter School property, including information regarding the current lease with Rodi Properties and its right to exercise an option to purchase the commercial property known as Zoeter Place. A joint public hearing will be held before the Redevelopment Agency and the Seal Beach City Council on September 27, 2004 to consider the exercise of an option to purchase Zoeter Place submitted by the long -term master lessor, Rodi Properties, LLC ("Buyer"). Buyer and its predecessor -in- interest the Karl and Tina Rodi Family Trust have operated Zoeter Place ( "Property") since 1996, pursuant to a Master Lease executed by the Agency in 1987. In 1996, pursuant to the Third Amendment to Master Lease, the Agency Board granted the Rodi Family Trust (now referred to as Rodi Properties) an option to purchase the Agency's interest at the fair market value of the Property. The six -month option period began on July 1, 2004. The Buyer has exercised that option (Attachment C), and will pay the Agency the fair market value price established by an independent appraiser hired by the Agency. Attachment D is the Appraisal and Summary Report prepared by Integra Realty Resources on behalf of the CC /RDA Item C 1. September 27, 2004 Agenda Report — Transfer of Zoeter Place to Rodi Properties Page 2 Agency /City. The Leased Fee Interest for the underlying land for the Zoeter Place property is valued at $3,180,000. An independent appraiser representing Rodi Properties also reviewed Integra's appraisal and is in concurrence with the established valuation. To transfer Zoeter Place to Rodi Properties, the City will need to enter into escrow and use part of the transfer proceeds to pay Los Alamitos Unified School District the remaining balance on the underlying lease agreement existing between the City and the School District before title can be transferred to Rodi Properties. The remaining balance is estimated at $610,672 and will need to be confirmed between the City and School District. The proceeds will also be used to pay administrative costs related to the transfer of said property that includes attorney fees, consultant and appraisal fees, etc. This agenda report does not address what to do with the remaining funds after the transfer is complete. Staff is evaluating several issues for the Agency to consider at a future meeting. Staff has previously provided the City Council with the back up material, and all such material has been available for public inspection and copying since September 9, 2004. Notice of this public hearing on this matter has been published for two successive weeks in the Sun newspaper, on September 9 and September 16. After the Agency acquired the property, Health & Safety Code Section 33433 was amended to require a redevelopment agency to prepare a report when it sells property acquired with tax increment funds to a developer when the property is to be used for development pursuant to the redevelopment plan. For a number of reasons, it appears that the section was not intended to apply to this type of transaction. Those reasons include: • The property is not being sold for development pursuant to the redevelopment plan. • The property is outside of the Project Area. • The Agency does not have the discretion to prevent the exercise of the option. Nevertheless, out of an abundance of caution, staff has made a good faith effort to comply with the Section. (See Resolutions.) FISCAL IMPACT: No negative impact. After payment of the underlying lease agreement between the City and the Agency as well as reimbursement of all necessary expenses associated with the transfer of property process, net proceeds from said transfer will then become available for Agency use. RECOMMENDATION: That the City Council adopt Resolution �j'' (Attachment A) approving the sale; and that the Redevelopment Agency adopt Resolution 0 3 (Attachment B) authorizing the Agency Executive Director to take all necessary steps to accomplish the transfer. September 27, 2004 Agenda Report — Transfer of Zoeter Place to Rodi Properties Page 3 J� � e Yots a, Assistant City Manager NOT i A P AP' ROVED {A A John B.: :1 orski, Agency xecutive Director and Seal Beach City Manager A achments: Attachment A City Council Resolution Attachment B Agency Resolution Attachment C Rodi Letter Attachment D Appraisal and Summary Report ►' ATTACHMENT A RESOLUTION NUMBER / 0 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SEAL BEACH APPROVING THE EXERCISE OF AN OPTION BY RODI PROPERTIES, LLC OF PROPERTY OWNED BY THE REDEVELOPMENT AGENCY OF THE CITY OF SEAL BEACH THE CITY COUNCIL OF THE CITY OF SEAL BEACH DOES HEREBY RESOLVE, FIND AND DETERMINE: Section 1. Rodi Properties, Inc., ( "Optionee ") and its predecessor -in- interest the Karl and Tina Rodi Family Trust have operated Zoeter Place ( "Property ") since 1996, pursuant to a Master Lease executed by the Agency in 1987. In 1996, pursuant to the • Third Amendment to Master Lease, the Agency Board for the Redevelopment Agency of the City of Seal Beach ( "Agency ") granted the Rodi Family Trust an option to purchase the Agency's interest at the fair market value of the Property. The six -month option period began on July 1, 2004. The Buyer has exercised that option, and will pay the Agency the fair market value price established by an independent appraiser hired by the Agency. Section 2. The Agency will not incur any costs in connection with the proposed sale, apart from normal transaction fees. There are no additional land acquisition costs, clearance costs, relocation costs, improvement costs or financing/interest costs. The estimated value of the interest to be sold, determined at the highest and best uses permitted under applicable zoning, as determined by an independent appraiser, is $3,180,000. The estimated value of the interest to be sold, determined at the use and with the conditions, covenants, and development costs required by the sale is equal to the estimated value of the interest to be sold: $3,180,000. Section 3. The sale will assist in the elimination of blight and is consistent with the implementation plan for the Project Area adopted pursuant to Health and Safety Code Section 33490. The former tenant's change in status from lessee to owner of the property will enhance the condition of the improvements located on -site. The sale proceeds will be used to retire debt, any may be used to purchase an adjacent property currently leased by the City for child care services, and to construct public improvements and projects, all of which will assist in the elimination of blight and improve public services. The Project Area is characterized by the existence of inadequate open spaces, public improvements and public facilities. The availability of funds for future improvements, including in and to the Project Area, will benefit the health, safety and welfare of the residents and taxpayers of the Project Area and the immediate neighborhood. The sale will assist in the elimination of conditions of blight within the Project Area caused by inadequate public improvements. This in turn will assist in eliminating a factor that negatively impacts the value of property within the Project Area. Section 4. A summary report of this proposed transaction has been made available for public inspection (and copying at a cost not exceeding the cost of duplication). Section 5. Notice of a joint public meeting to be held by the City Council and the Agency regarding this matter has been duly given in the manner required by law. Section 6. Based upon the foregoing and the evidence presented at the hearing, including the staff report, the consideration for the sale is not less than the fair market value at its highest and best use in accordance with applicable zoning. Section 7. The City hereby approves the sale. Section 8. The City Clerk shall certify to the passage and adoption of this Resolution. PASSED, APPROVED AND ADDOPTED by the City Council of the City of Seal Beach this day of 2004 by the following vote: AYES: Council Members NOES: Council Members ABSENT: Council Members Mayor ATTEST: City Clerk STATE OF CALIFORNIA ) COUNTY OF ORANGE ) SS CITY OF SEAL BEACH ) I, Linda Devine, City Clerk of the City of Seal Beach, California, do hereby certify that the foregoing Resolution is the original copy of Resolution Number on file in the office of the City Clerk, passed, approved, and adopted by the City Council of the City of Seal Beach at a meeting thereof held on the day of , 2004. City Clerk ATTACHMENT B • RESOLUTION NUMBER d `7' 03 A RESOLUTION OF THE REDEVELOPMENT AGENCY OF THE CITY OF SEAL BEACH APPROVING THE EXERCISE OF AN OPTION BY RODI PROPERTIES, LLC OF PROPERTY OWNED BY THE REDEVELOPMENT AGENCY OF THE CITY OF SEAL BEACH THE REDEVELOPMENT AGENCY OF THE CITY OF SEAL BEACH DOES HEREBY RESOLVE, FIND AND DETERMINE: Section 1. Rodi Properties, Inc., ( "Optionee ") and its predecessor -in- interest the Karl and Tina Rodi Family Trust have operated Zoeter Place ( "Property") since 1996, pursuant to a Master Lease executed by the Agency in 1987. In 1996, pursuant to the Third Amendment to Master Lease, the Agency Board for the Redevelopment Agency of the City of Seal Beach ( "Agency ") granted the Rodi Family Trust an option to purchase the Agency's interest at the fair market value of the Property. The six -month option period began on July 1, 2004. The Buyer has exercised that option, and will pay the Agency the fair market value price established by an independent appraiser hired by the Agency. Section 2. The Agency will not incur any costs in connection with the proposed sale, apart from normal transaction fees. There are no additional land acquisition costs, clearance costs, relocation costs, improvement costs or financing/interest costs. The estimated value of the interest to be sold, determined at the highest and best uses permitted under applicable zoning, as determined by an independent appraiser, is $3,180,000. The estimated value of the interest to be sold, determined at the use and with the conditions, covenants, and development costs required by the sale is equal to the estimated value of the interest to be sold: $3,180,000. Section 3. The sale will assist in the elimination of blight and is consistent with the implementation plan for the Project Area adopted pursuant to Health and Safety Code Section 33490. The former tenant's change in status from lessee to owner of the property will enhance the condition of the improvements located on -site. The sale proceeds will be used to retire debt, any may be used to purchase an adjacent property currently leased by the City for child care services, and to construct public improvements and projects, all of which will assist in the elimination of blight and improve public services. The Project Area is characterized by the existence of inadequate open spaces, public improvements and public facilities. The availability of funds for future improvements, including in and to the Project Area, will benefit the health, safety and welfare of the residents and taxpayers of the Project Area and the immediate neighborhood. The sale will assist in the elimination of conditions of blight within the Project Area caused by inadequate public improvements. This in turn will assist in eliminating a factor that negatively impacts the value of property within the Project Area. Section 4. A summary report of this proposed transaction has been made available for public inspection (and copying at a cost not exceeding the cost of duplication). Section 5. Notice of a joint public meeting to be held by the Seal Beach City Council and the Agency regarding this matter has been duly given in the manner required by law. Section 6. Based upon the foregoing and the evidence presented at the hearing, including the staff report, the consideration for the sale is not less than the fair market value at its highest and best use in accordance with applicable zoning. Section 7. The Agency hereby accepts the exercise of an option to purchase Zoeter Place submitted by Optionee and authorizes and directs the Executive Director and staff to proceed with preparation and execution of all necessary documents to complete the transfer of Zoeter Place (1190 -1198 Pacific Coast Highway, Seal Beach, California) to Rodi Properties, LLC for the purchase price of $3,180,000. Section 8. The Agency Secretary shall certify to the passage and adoption of this resolution. PASSED, APPROVED AND ADDOPTED by the Redevelopment Agency of the City of Seal Beach this day of 2004 by the following vote: AYES: Agency Members NOES: Agency Members ABSENT: Agency Members Chairman ATTEST: Agency Secretary STATE OF CALIFORNIA ) • COUNTY OF ORANGE ) SS CITY OF SEAL BEACH ) I, Linda Devine, Agency Secretary of the Redevelopment Agency of the City of Seal Beach, California, do hereby certify that the foregoing Resolution is a true and full copy of Resolution Number , on file in the office of the City Clerk, passed, approved, and adopted by the Redevelopment Agency at a regular meeting thereof held on the day of 2004. Agency Secretary ATTACHMENT C • Rode Properties, LLC 2600 Mission Street, Suite 200 ((�bSan��Marino, California 91108 -1676 VIA FEDERAL EXPRESS, FAu SI M ILE &I U. Fax_ M AI 799 -3921 L, July t, 2004 Ms. Pamela Arends -King, Agency Administrator Ci.ty of Seal Beach Redevelopment Agency 211 8th Street Seal Beach, CA 90740 RE: Notice of Exercise of Option Dear Pam: We are hereby exercising the Purchase Option tinder Section 5 of the enclosed Third Amendment to Master Lease, entered into as of the 26th day of March,. 1996 by and between the Redevelopment Agency and the City of Seal Beach, as Landlord, and Rodi Properties, LLC (previously Trust "A" of the Karl and Tina Rodi Family Trust), as Tenant. The terms of the Purchase Option provide for a valuation process to arrive at a purchase price of the Property owned by the Redevelopment Agency. In accordance with Section 5 (d)(2), we understand from June Yotsuya and Whit Latimer that your appraiser John G. Ellis will be updating his September 2003 appraisal to assist in this process. We hereby appoint L. Raymond Freer, MAI, of Freer Appraisal Associates, as our appraiser for purposes of this process. We hope that our two appraisers can. "meet promptly and attempt to establish the fair market value of Landlord's interest in the Property," as contemplated under Paragragh 5 (d)(2) (last sentence). We look forward to working with the Redevelopment Agency and the City of Seal Beach and their representatives to finalize this transaction. With best regards. __... Xouis very truly, . ...__.._._.. — =. M. Galbraith • JMG /esr Enclosure p.s. Please send all notices to Tenant to Rodi Properties, LLC, 2600 Mission Street, Suite .200, San Marino, CA 91108, Attention: James M. Galbraith. cc: Mr. John Bahorski Ms. June Yotsuya Mr. Whitney Latimer Mr. John G. Ellis Quinn M. Barrow, Esq. Mr. L. Raymond Freer ATTACHMENT D r. y COMPLETE APPRAISAL IN A SUMMARY REPORT COMMERCIAL LAND ZOETER PLACE PROPERTY Leased Fee Interest of Underlying Land 1190 -1198 Pacific Coast Highway Seal Beach, California 90740 -6251 PREPARED FOR: NTEGR Realty R esources A R. Whitney Latimer LOS ANGELES Bancap Commercial Real Estate Services 192 Marina Drive LOCAL EXPERTISE...NATIONALLY Long Beach, CA 90803 • EFFECTIVE DATE OF THE APPRAISAL: July 1, 2004 REPORT DATED: August 9, 2004 INTEGRA REALTY RESOURCES — Los ANGELES File Number: 121 - 2004 -0135 • • • © 2003 BY INTEGRA REALTY RESOURCES 1 t'L itN 1 l �i �{T �� � � rl � 1 1 i •'f• T i .!v M ` { I . t ' n i 3 `"" Yy� (r yr , �! k^'. 1 , " r" ' fit r i • } qv �' ri � t1•. "• • ♦X, Y. e' N -. - ,1 4 :1„ • Si•-rif-, `,..,... --' ,-- ,, .... ... 2 a o f ,• '�" • � t : - 4 .4. : *;r` t7.� � "`.. ,l t ` 7s 1 • r t a r 'i :at-- t Y ..4:, U c ,r 7 .'. ,.1,1'6 t V • 4 . 1 , • ■ pus. • ' 4 J r ' ' i I ‘ IF t Y', ' ; tiS •tt d � ' t • . -,++i r•;1;,..''. c n p ' r �j f.1` . l r • , s td;. � � '♦L. `1 "r . `ry ��, F �. k • r c i 1 It �; FI . t •t 'K �'Z� r ._ fir • ? , T � _ . :l� l� L ; � r * ' . 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F_ r 'y ( - .i i ,.Z ,,,, t r -, r . 2� z '� � . ar? ✓ 3 ' t "" �m` x ` ` � '1414,3,4.4;.-*,„- , ,a�. • , ` � a" S --' r , 2 ' `s n. �' G '.; yZ- �' � P � � - %77 f h 0. .g i � , ' c ' y -r, * t ,';1_,- ; j �7 a 't' ! rr z �,{ : r ` , ; ` i�r ,( ; V' r t�4Y' - •:3�' . k 4 . & �c - r . _ A. t, , !� _ t.,.s_ _,_ _. - -- *�,., vt�s7�3 w , �.+ .`tr` `;I>> __S� in.� r�.: .i'� 'c- 4 _ ; - : r • . � w _ Zoeter Place Property ifi Coast Hig Seal 0B-1198 , Pac California c 90740 -625 1 • • NTEGRA Realty Resources LOS ANGELES : - , August 9, 2004 R. Whitney Latimer Bancap Commercial Real Estate Services 192 Marina Drive Long Beach, CA 90803 . SUBJECT: Fair Market Value Appraisal ZOETER PLACE PROPERTY Leased Fee Interest of Underlying Land 1190 -1198 Pacific Coast Highway Seal Beach, California 90740 -6251 Integra Realty Resources — Los Angeles File No. 121- 2004 -0135 Dear Mr. Latimer: Integra Realty Resources — Los Angeles is pleased to transmit this summary report of a complete appraisal that was prepared on the referenced property. The purpose of this appraisal is to develop an opinion of the fair market value of the leased fee estate of the property as of July 1, 2004, the effective date of the appraisal. This report is intended to comply with the reporting requirements set forth under Standards Rule 2 -2(b) of the Uniform Standards of Professional Appraisal Practice (USPAP) for a summary appraisal report. As such, it presents only summary discussions of the data, reasoning, and analyses that were used in the appraisal process to develop the opinion of value. Supporting documentation concerning the data, reasoning, and analyses is retained in our file. The site has an area of 76,959+ square feet owned by the Redevelopment Agency of the City of Seal Beach. The site is improved with a multi- tenant retail center known as Zoeter Place, which (according to the master lessee's rent roll) contains 22,689+ sf. The property is under a long term ground lease. The master lessee in this lease is now proposing to acquire the City's interest in the property. Our value conclusion is based on the leased fee interest in and to the subject site, created by the ground lease dated November 30, 1987, and modified by three subsequent amendments. The leasehold interest, owned by the Karl and Tina Rodi Trust, has the option to purchase the landlord's interest in the subject property pursuant to the master lease. The tenant needed to exercise the purchase option in writing during the six -month period beginning July 1, 2004 LOCAL EXPERTISE...NATIONALLY . 20720 Ventura Boulevard • Suite 240 • Woodland Hills, CA 91364 -6264 Phone: 818 - 593 -7200 • Fax: 818 - 593 -7201 • Website: www.irr.com R. Whitney Latimer August 9, 2004 Page 2 and ending December 31, 2004. On March 8, 2004, the Rodi Trust communicated with the City of Seal Beach, identifying their desire to exercise the purchase option. Although prior to the date specified in the master lease agreement, the City of Seal Beach has accepted the notification in writing from Rodi Trust to continue in the possible sale process. At present, the city of Seal Beach is negotiating the sale of the leased fee interest to the owner of the master leasehold position. The date of value in our analysis corresponds with the date stipulated in the master lease agreement. As such, we are providing a fair market value as requested by the agreement as of July 1, 2004. Based on the analyses and conclusions in the accompanying report, and subject to the definitions, assumptions, and limiting conditions expressed in this report, it is our opinion that the fair market value of the leased fee estate of the property, as of July 1, 2004, is: THREE MILLION ONE HUNDRED EIGHTY THOUSAND DOLLARS (53,180,000) If you have any questions or comments, please contact the undersigned. Thank you for the opportunity to be of service. Respectfully submitted, INTEGRA REALTY RESOURCES - LOS ANGELES John G. Ellis MAI Ryan b�tiian J. Dons Certified General Real Estate Appraiser California Certificate No. AT029385 California Certificate No. AG007279 Distribution: Addressee — Three Copies L. Raymond Freer, 1LIAI — One Copy • ZOETER PLACE PROPERTY TABLE OF CONTENTS TABLE OF CONTENTS PAGE NO. TABLE OF CONTENTS 1 SUMMARY OF SALIENT FACTS AND CONCLUSIONS 2 GENERAL INFORMATION 3 Identification of Subject 3 Current Ownership, Sales History, Status 3 Purpose, Property Rights and Effective Date 4 Intended Use and Intended User 4 Scope of Appraisal 4 ECONOMIC ANALYSIS 5 Area Analysis 5 Neighborhood and Retail Market Analysis 14 Market Overview 18 PROPERTY ANALYSIS 20 Description and Analysis of the Land 20 Description and Analysis of the Improvements 24 Real Estate Tax Analysis 26 Highest and Best Use 27 VALUATION ANALYSIS 29 Date of Value 29 Property Rights Appraised 29 Application of Valuation Approaches 29 Income Capitalization Approach 30 Land Valuation 35 Reconciliation 46 CERTIFICATION 47 ASSUMPTIONS AND LIMITING CONDITIONS 49 ADDENDA Qualifications of the Appraisers Addendum A Definitions Addendum B Subject Photographs Addendum C Property Information Addendum D Photographs of the Comparables Addendum E II PAGE 1 Integra Realty Resources ZOETER PLACE PROPERTY SUMMARY OF SALIENT FACTS AND CONCLUSIONS SUMMARY OF SALIENT FACTS AND CONCLUSIONS Property Zoeter Place Property 1190-1198 Pacific Coast Highway Seal Beach, CA 90740 -6251 Census Tract Number 995.12 Property Tax Identification Number(s) 043 - 122 -36 • Owner of Record Redevelopment Agency of the City of Seal Beach Date of the Report August 9, 2004 Effective Date of the Appraisal July 1, 2004 Land Area 76,959 square feet Zoning Designation C -2, City of Seal Beach Floodplain Map Panel Number and Date 06059C 0026H dated February 18, 2004 Floodplain Designation X Highest and Best Use as Improved Continued commercial use Property Rights Appraised Leased fee estate Estimated Exposure Time and Marketing Period 3 -6 months; 3 -6 months Fair Market Value Indications: Land Value Fee Simple Interest $3,850,000 Leased Fee Interest - Direct Capitalization: $3,175,000 Leased Fee Interest- Discounted Cash Flow: $3,180,000 Fair Market Value Conclusion 53,180,000 IRR PAGE 2 — Integra Realty Resource, ZOETER PLACE PROPERTY GENERAL INFORMATION GENERAL INFORMATION IDENTIFICATION OF SUBJECT The subject property is a commercial site, subject to a long -term ground lease. The property is improved with two retail structures and related parking and landscaping improvements. The existing improvements do not directly affect the property rights appraised. The subject was converted from a former school building, while the other • existing structure was originally improved to serve as a portion of a school. One of the existing retail structures was designed and constructed for multi- tenant retail use. The property is located at 1190 -1198 Pacific Coast Highway, Seal Beach, California and is approximately 76,959 square feet. CURRENT OWNERSHIP, SALES HISTORY, STATUS In the 1930s, the subject site was improved (to serve as the Zoeter Elementary School as part of the Seal Beach School District). This district (which contained only two elementary schools) was absorbed by the Los Alamitos Unified School District in July 1983. At that time, the Zoeter Elementary School was closed. In or about November 1987, the Redevelopment Agency of the City of Seal Beach acquired the property, including some of the former school structures. The purchase price was reported to be $1,908,360 and was facilitated by a note carried back by the Los Alamitos Unified School District. The school district provided an additional parking area of 6,900± sf which could be used in conjunction with the agency -owned land pursuant to an easement for access and parking purposes. The city entered into a master lease for the property in November 1987, with a commencement date of March 6, 1989. This lease, in which Gemtel Corporation and Dana MacKay were the tenant, had a term of 35 years along with four, five -year options. The third amendment to the master lease restructured the rental obligation and established Trust "A" of the Karl and Tina Rodi Trust as the tenant. This amendment was drafted in 1996 and also provided the purchase option window between July and December 2004. Between 1987 and 1989, the existing school structure was modified to serve as a multi - tenant retail structure, and a second retail building was constructed on the west side of the property. The Karl and Tina Rodi Trust has the option to purchase the landlord's interest in the subject property pursuant to the master lease. As noted in the master lease agreement, the tenant must exercise the purchase option in writing during the six -month period beginning July 1, 2004 and ending December 31, 2004. On March 8, 2004, the Karl and Tina Rodi Trust communicated its desire to exercise the purchase option. At present, the city of Seal Beach is negotiating the sale of the leased fee interest to the owner of the master leasehold position. To the best of our knowledge, no other sale or transfer of ownership has occurred within the last three years. The owner confirmed that the property had not been listed for sale, and there were no unsolicited offers within the past five years. PAGE 3 — Inte Realty Resources ZOETER PLACE PROPERTY GENERAL INFORMATION PURPOSE, PROPERTY RIGHTS AND EFFECTIVE DATE The purpose of this appraisal is to provide our opinion of the fair market value of the leased fee interest in the subject property. The effective date of the appraisal is July 1, 2004. INTENDED USE AND INTENDED USER This report is intended to be used by the City of Seal Beach (and its Redevelopment Agency) for negotiating with the current master lessee. The master lessee has recently expressed interest in purchasing the underlying fee interest in and to the subject site. This appraisal is intended to be used by the city in evaluating an appropriate response in these ongoing negotiations. SCOPE OF APPRAISAL As part of' this appraisal, we have taken the following steps to gather, confirm, and analyze relevant data. • Physically inspected the property and the surrounding market area. • Collected factual information about the property and the surrounding market and confirmed that information with various sources. • Prepared a highest and best use analysis of the subject property. • Collected, confirmed and analyzed market information under the applicable approaches to value. • Prepared an appraisal report setting forth the conclusions developed in this analysis as well as the information upon which the conclusions are based. This is a complete appraisal in a summary report that is intended to comply with the reporting requirements set forth under Standards Rule 2 -2(b) of the Uniform Standards of Professional Appraisal Practice (USPAP) for a summary appraisal report. As such, it presents summary discussions of the data, reasoning, and analyses that were used in the appraisal process to develop the opinion of value. Supporting documentation concerning the data, reasoning, and analyses is retained in our file. Pertinent definitions, including the definitions of fair market value and property rights appraised, are in Addendum B. TDD PAGE 4 - Integra Realty Resources ZOETER PLACE PORPERTY AREA ANALYSIS ECONOMIC ANALYSIS AREA ANALYSIS An analysis of population, employment, and income trends for Orange County and California is performed using data provided by NPA Data Services, a recognized source. POPULATION Historical and projected population trends for Orange County are charted below: POPULATION TRENDS Orange County 4000 3500 _ -. 0 3000 _ - -t - -- " —,` 2500 - — — _ . c 2000 ; 1500 — 1000— — — — — —. —..— — o 500 — a 0 Year The population of Orange County increased at a compounded annual rate of 1.39% from 1999 to 2004. For the same time period, California grew at a compounded annual rate of approximately 1.39 %. Over the last ten years Orange County's average annual compound change was 1.63 %, compared to 1.32% for California. Looking ahead, both Orange County and California are anticipated to experience continued growth, with future population estimates reflecting growth rates similar to those experienced in the past. For the period 2004 to 2014, the populations of Orange County and California are expected to increase by an average annual compound rate of 1.27% and 1.32 %, respectively. For the next five years, the population of Orange County should grow faster than the ten year average. IRR PAGE 5 Integra Realty Resources ZOETER PLACE PORPERTY AREA ANALYSIS POPULATION TRENDS COMPARISON California Orange County Year Population (000's) Change Population (000's) Change 1994 31,484.5 2,566.6 1999 33,499.2 6.4% 2,815.9 9.7% 2000 34,010.4 1.5% 2,857.3 1.5% Historical 2001 34,578.7 1.7% 2,898.4 1.4% 2002 34,997.0 1.2% 2,938.1 1.4% 2003 35,420.4 1.2% 2,977.6 1.3% Current 2004 35,893.4 1.3% 3,016.8 1.3% 2005 36,369.4 1.3% 3,056.4 1.3% 2006 36,850.8 1.3% 3,096.2 1.3% 2007 37,334.2 1.3% 3,136.0 1.3% Projected 2008 37,822.3 1.3% 3,175.8 1.3% 2009 38,319.7 1.3% 3,216.0 1.3% 2014 40,907.9 6.8% 3,421.7 6.4% Average Annual Historical Compound Change Past 5 years 1.39% 1.39% Past 10 years 1.32% 1.63% Projected Next 5 years 1.32% 1.29% Next 10 years 1.32% 1.27% Source: NPA Data Services. Inc. :: compiled by !RR EMPLOYMENT Employment trends for both Orange County and California should follow a pattern similar to the population trends for these areas, although at higher rates of increase. From 1999 to 2004, Orange County employment grew at an average annual compound rate of 2.51% compared to 1.70% for California. These figures indicate that Orange County surpassed California in employment growth over the last five years. Looking back ten years, Orange County employment grew at an average annual compound rate of 2.88 %, compared to California growth rate of 2.15 %. Over the next five and ten years Orange County employment growth should exceed California growth rate. From 2004 to 2009, Orange County should grow by a 2.87% average annual growth rate, while the long term projection, 2004 to 2014, is for a 2.61% increase. For the same periods, employment in California is expected to grow at • average annual compound rates of 2.21% and 2.09 %, respectively. Employment gains are a strong indicator of economic health and generally correlate with real estate demand. Historically, Orange County has exceeded California's growth rate, suggesting that Orange County's relative position is strengthening. Employment trends for Orange County and California are presented below. [ PAGE 6 — Integra Realty Resources ZOETER PLACE PORPERTY AREA ANALYSIS NON -FARM EMPLOYMENT TRENDS COMPARISON California Orange County Year Employment (000's) Change Employment (000's) Change 1994 16,427.4 1,527.1 1 999 18,681.3 13.7% 1,792.6 17.4% Historical 2000 19,328.7 3.5% 1,863.0 3.9% 2001 19,533.4 1.1% 1,892.4 1.6% 2002 19,446.5 -0.4% 1,905.3 0.7% 2003 19,851.6 2.1% 1,964.7 3.1% Current 2004 20,321.0 2.4% 2,029.4 3.3% 2005 20,831.7 2.5% 2,097.1 3.3% 2006 21,295.1 2.2% 2,159.2 3.0% Projected 2007 21,762.4 2.2% 2,221.0 2.9% 2008 22,207.7 2.0% 2,279.4 2.6% 2009 22,663.7 2.1% 2,338.1 2.6% 2014 24,999.8 10.3% 2,625.1 12.3% Average Annual Historical Compound Change Past 5 years 1.70% 2.51% Past 10 years 2.15% 2.88% Projected Next 5 years 2.21% 2.87% Next 10 years 2.09% 2.61% • Source: NPA Data Services. Inc.; compiled by IRR The following chart depicts the current distribution of employment by industry. In 2004, the largest employment sectors in Orange County are: • Services (42.7 %) • FIRE (11.6 %) • Manufacturing (11.5 %) • Retail Trade (10.1%) teTDD PAGE 7 Integra Realty Resources ZOETER PLACE PORPERTY AREA ANALYSIS EMPLOYMENT SECTORS 2004 Orange County 45.0% 42.7% 40.0% — 35.0% tor — 30.0% e 25.0% 15 — 11.6% 11.5% o o •% 5 7% 5 5% o a 10.0 /0 — 9.7 /e 0.0% • � 4 � a � ��S�ae, e4 ° ���� �S�ae, o� • O AS Sector By comparison, California's largest employment sectors are Services (41.0 %), Government (13.1 %), Retail Trade (10.4 %), and Manufacturing (9.5 %). Over the past three years, the largest meaningful percentage gains in employment within Orange County occurred within the Wholesale Trade and Transport, Info, Util sectors with annual average compound growth rates of 4.43% and 3.16% respectively. For California, the largest meaningful gains in employment over the past three years occurred within the Construction and Mining & Other sectors with annual average compound growth rates of 1.8% and 1.8% respectively. We are unable to examine more than three years of historical trends in employment sectors because the US Department of Commerce switched from the Standard Industrial Classification (SIC) system of employment categories to the North American Industrial Classification System (NAICS) in 2001. NAICS employment categories differ from those of the SIC system, making it difficult to compare pre -2001 and post - 2001 data. Ten year projections for Orange County show Wholesale Trade related employment leading all other sectors with Transport, Info, Util second. The forecast for California has Mining & Other related employment leading all other sectors with Services second. TAD PAGE 8 Integra Realty Resources ZOETER PLACE PORPERTY AREA ANALYSIS EMPLOYMENT SECTOR TRENDS . Orange County . Change Rate 2001 2004 of Total 2009 2014 '01 -'04 '04 -'09 '04-'14 Total Employment 1,892.4 2,029.4 100% 2,338.1 2,625.1 2.36% 2.87% 2.61% Services 795.9 865.9 42.7% 1,024.6 1,177.1 2.85% 3.42% 3.12% FIRE 219.3 234.6 11.6% 267.1 296.0 2.27% 2.63% 2.35% Manufacturing 224.7 234.3 11.5% 252.9 265.6 1.40% 1.54% 1.26% Retail Trade 195.8 205.9 10.1% 230.6 253.6 1.68% 2.30% 2.1I% Government 159.4 160.8 7.9% 179.3 196.9 0.28% 2.21% 2.05% Construction 107.7 114.9 5.7% 130.6 145.4 2.16% 2.59% 2.39% Wholesale Trade 98.5 112.2 5.5% 140.0 166.5 4.43% 4.52% 4.02% Transport, Info, Util 86.7 95.2 4.7% 113.0 129.5 3.16% 3.49% 3.12% Mining & Other 4.2 4.3 0.2% 4.9 5.4 1.26% 2.33% 2.2/% TtlNon -Mfg. 1,667.7 1,795.1 88.5% 2,085.2 2,359.5 2.48% 3.04% 2. 77% Ttl Office- Related* 1,174.6 1,261.3 62.2% 1,471.0 1,670.0 2.40% 3.12% 2.85% *Includes FIRE, Services and Government (Numbers in thousands (000's)) EMPLOYMENT SECTOR TRENDS California Change Rate 2001 2004 of Total 2009 2014 '01 -'04 '04 -'09 '04 -'14 Total Employment 19,533.4 20,321.0 100% 22,663.7 24,999.8 1.33% 2.2!% 2.09% Construction 1,084.7 1,143.1 5.6% 1,283.9 1,419.7 1.77% 2.35% 2.19% FIRE 1,758.7 1,810.9 8.9% 1,977.6 2,137.9 0.98% 1.78% 1.67% Government 2,614.1 2,667.0 13.1% 2,939.3 3,205.7 0.67% 1.96% 1.86% Manufacturing 1,888.5 1,931.6 9.5% 2,065.7 2,181.8 0.76% 1.35% 1.23% Mining & Other 232.4 244.9 1.2% 282.8 321.7 1.76% 2.92% 2. 77% Retail Trade 2,027.0 2,105.5 10.4% 2,340.2 2,572.5 1.27% 2.14% 2.02% Services 7,937.2 8,331.8 41.0% 9,468.1 10,634.2 1. 2.59% 2.47% Transport, Info, Util 1,247.6 1,289.2 6.3% 1,419.6 1,547.5 1. 1.95% 1.84% Wholesale Trade 743.0 780.0 3.8% 885.8 994.1 1.64% 2.57% 2.45% • Ttl Non -Mfg. 17,644.9 18,389.5 90.5% 20,598.0 22,818.0 1.39% 2.29% 2.18% TtlOffice- Related* 12,310.0 12,809.7 63.0% 14,385.0 15,977.7 1.34% 2.35% 2.23% *Includes FIRE, Services and Government Numbers to thousands (000S)J In the following chart, we focus on trends in two broad employment sectors: office - related and manufacturing employment. For purposes of this analysis, we define office - related employment as the total number of jobs in the FIRE, Services and Government sectors. While not all employment in these sectors is office- related, office employment trends tend to mirror the trends in these three categories combined. As seen in these charts, office- related employment has captured a greater share of total employment in recent years, however, manufacturing employment levels are expected to grow at a greater rate in the near future. JR \ PAGE 9 Integra Realty Resources ZOETER PLACE PORPERTY AREA A NALYSIS EMPLOYMENT SECTOR TRENDS Orange County 1,800 - - 270 1,600 — 260 4 1,400 v c 1,200 a _ 250 = .. — 240 E 0.' a 1,000 a 800 • — 230 e r. p c 600 Ar" ' .. — 220 a W 400 200 — 210 0 200 2001 2004 2009 2014 — Office Related —4 — Manufacturing Orange County accounted for approximately 9.30% of California's employment in 1994. In 2004, the ratio is 9.90% and it is projected at 10.50% through 2014. This is an indication that Orange County is growing at a rate above that of California. Orange County's economy is not dependent on a particular sector. The employment base is varied, as are the major employers. Therefore, Orange County should be less susceptible to cyclical fluctuations that have occurred in other areas dominated by a single industry. The area's major employers are listed below. MAJOR EMPLOYERS Employer # of Employees Walt Disney Company 13,850 Boeing Company 13,584 UCI 13,457 Albertson's Inc. 9,300 St. Joseph Health Systems 7,670 Tenet Healthcare Corporation 6,639 Tricon Global Restaurants 5,695 Pacific Bell 5,600 Bank of America 5,409 Source: 0C Business Journal, 2003 INCOME Personal income is a significant factor in determining the real estate demand in a given market. From 1999 to 2004, Orange County's income grew at an average annual compound rate of 2.47 %, compared to California average annual compound growth rate of 2.41%. The two market areas displayed a similar pattern in per capita income growth over the last ten years. Orange County's average annual compound growth rate IRR PAGE 10 Integra Realty Resources • ZOETER PLACE PORPERTY AREA ANALYSIS was 2.53% as compared to 2.74% for California. Projections for the next five and ten year periods reflect growth rates for Orange County that are [parallel to / /greater than /less than] the anticipated gains for California. For the two time frames, 2004 to 2009 and 2004 to 2014, Orange County is anticipated to experience 2.17% and 1.96% average annual growth rates, respectively, compared to the projected growth rates of California of 2.23% and 2.04 %. An examination of income per household reveals that, historically, Orange County has experienced a growth rate below that of California. Future projections predict similar growth for Orange County compared to California. In absolute dollars, Orange County's personal income historically has been above that of California, both on per capita and per household bases. INCOME PER CAPITA COMPARISON California Orange County Year Income /Capita Change Income /Capita Change 1994 $24,397 $27,801 1999 $28,370 16.3% $31,598 13.7% 2000 $30,136 6.2% $33,007 4.5% Historical 2001 $29,824 -1.0% $33,47 l 1.4% 2002 $30,030 0.7% $33,567 0.3% 2003 $31,067 3.5% $34,695 3.4% Current 2004 S31,963 2.9% $35,707 2.9% 2005 $32,875 2.9% $36,739 2.9% 2006 $33,629 2.3% $37,551 2.2% Projected 2007 $34,361 2.2% $38,334 2.1% 2008 $35,022 1.9% $39,034 1.8% 2009 $35,694 1.9% $39,748 1.8% 2014 $39,104 9.6% $43,337 9.0% Average Annual Historical Compound Change Past 5 years 2.41% 2.47% Past 10 years 2.74% 2.53% Projected Next 5 years 2.23% 2.17% Next 10 years 2.04% 1.96% Source: NPA Data Services. Inc.: compiled by IRR • TDD PAGE 11 — Integra Realty Resource•, ZOETER PLACE PORPERTY INCOME PER HOUSEHOLD COMPARISON California Orange County Year Income/Household Change Income/Household Change 1994 $70,388 $82,099 1999 $83,170 18.2% $95,565 16.4% 2000 $88,565 6.5% $100,231 4.9% 2001 $87,483 -1.2% $101,477 1.2% 2002 $87,880 0.5% $101,527 0.0% 2003 $90,699 3.2% $104,687 3.1% Current 2004 $93,121 2.7% $107,520 2.7% 2005 $95,577 2.6% $110,401 2.7% 2006 $97,567 2.1% $112,611 2.0% 2007 $99,481 2.0% $1 14,725 1.9% Projected 2008 $101,183 1.7% $116,585 1.6% 2009 $102,911 1.7% $118,476 1.6% 2014 $111,572 8.4% $127,869 7.9% Average Annual Historical Compound Growth Past 5 years 2.29% 2.39% Past 10 years 2.84% 2.73% Projected Next 5 years 2.02% 1.96% Next 10 years 1.82% 1.75% Source: NPA Data Services. Inc.: compiled by IRR CONCLUSION Overall, the economic outlook for Orange County is positive. Total population is projected to increase slightly. More importantly, the area is projected to experience increasing employment growth. Based on this analysis, it is anticipated that Orange County will continue to grow and prosper. The expected growth should provide an economic base that supports demand for real estate in the subject neighborhood and for the subject property. These conditions should stimulate increases in general property values within the foreseeable future. IRR PAGE 12 — Integra Realty Resources 0 ZOETER PLACE PORPERTY • AREA MAP '.x.,„ki -ixI/ X ` 3Rx 6" 8 14}} ���,,,,1 3 I � E. ~ - ""--6115 h 1111• 1A O5 2i rlta Monica/ , . i - ' 1,, i 137.8 ~•-i M -,-L,..-, Hacienda Neighs � tr■r Chino ■� •,aw■at��` V`�t'i . mmerce x / • : w a�s.m s .■■ � • Ir i Nla Co .t r - .e a r; Otter / �i ■■ C •IUI I 1 , rPico;Riuei a Los , Nietos j Di amond Bar + • ;- Manna Del- Rey t—,� :as Serranos ^ .I.,. Li . Inglewood.= � '-Be11- ;Bel1•Garden � J La Habra Nei hts Playa Del Rey ` •, s.�.3 .M ;ti�1 South Gate p • ! v� _tools, Fiji .. 45 a ■ = La Habra Rf7 .Chino Hills El Segundo. • c , • Hawtho ei • b( 1t• ' . �' La Mirada B - f 1 • 1 •l ,comptonry '�aiili Norwalk ll=A . -0", XManhattan,Beaeh•.. ` , I ra>��►.Yorba da t - - - , iID 1 „ :' �: \O �'F.ullertonr m' m 1 ' I t � •• • r!!! Atwoo '•�;i''• ✓�� -./. tHerinosa•Beach Lakewood � � � .4A _. _ _ Redondo Beach 1111 II'\ \+ 11 1 1 1�1� m� 173 '. CSI ��.L • an Torr 11 i Si 1 r� ism Gerson+ . 1 "'°'1 HYwauan.Ga[ dens La Palma wire i�� tom, {,• �, l � Cypress, =i v A I Villa Park Palos Verdes Estates • , 11p� zos;Alam_rtos Stardon Anah, eimC Orange Park Acres ,r4-1.- o t 10— 4.: . I Llo t g B ea c h ��} -L) �: 1 Rollin HillsiEstates , Taiwan.' , t ,i,_ 21, all Garden -Gro.' a Cowan N e i g h s I . / ®.. ..tr.• 106 !� .Rolling Hilly ' ;•. '�!� estminster •Rancho Palos Verdes � al Beach � 'Midsvay'Gity SanAnd Silver e Surfside • ■. • 103% O HuntinglewHeach MI" B r0� ao�� m 9 -4"P$11":' � � � r ; Q� T 1 a �yy�� Irvine u 'AMEN' � � r 0 Ii`r•Z3, East Irvine L '-�, ewport'Beach ' • EI' , r agune Hills •.; _41 Corona Del M ,♦ oar 90 N i s 1/ ) Mission V rystal cove 0 , �is7 02000 n.. t .eM 00IO2000 eoO. E. 0.155900 Ton Of The World , .L.m MR PAGE 13 Integra Realty Resources ZOETER PLACE PROPERTY NEIGHBORHOOD AND RETAIL MARKET ANALYSIS NEIGHBORHOOD AND RETAIL MARKET ANALYSIS The City of Seal Beach is located in the westernmost portion of Orange County and was incorporated on October 27, 1915. During the late nineteenth century, the town that is now Seal Beach came into vogue as a popular vacation destination because of the utilization of Anaheim Landing (now Anaheim Bay) as a shipping port. Once Anaheim Landing ceased being an important shipping port due to increased railroad usage, the town (then known as Bay City) continued to grow as a popular vacation destination. When it was discovered that persons confused Bay City with San Francisco, the Post Office requested the city change its name. Today, Seal Beach has a population of approximately 24,591 and is predominately a residential beach community with some supporting commercial development. BOUNDARIES The subject is located in the central portion of the City of Seal Beach. For purposes of this report, the market area boundaries are best described as follows. North San Diego Freeway (Interstate 405) South Pacific Ocean East Anaheim Bay and the National Wildlife Refuge West San Gabriel River A map including the boundaries listed above is presented at the end of this section. Land uses surrounding the subject are predominantly commercial and residential with typical ages of building improvements ranging from 30 to 60 years. Many of the improved properties immediately surrounding the subject are commercial buildings fronting Pacific Coast Highway. However, a majority of the neighborhood is improved with single - family dwelling units ranging from 1,200 to 1,600 square feet and were constructed in the 1950's. AC CESS Primary access to the area is via the San Gabriel River Freeway (Interstate 605), Garden Grove Freeway (California State Highway 22), Pacific Coast Highway (California State Highway 1) and the San Diego Freeway (Interstate 405). The San Gabriel River Freeway provides north/south traffic access to the subject neighborhood and is approximately four miles to the north. In addition, the Garden Grove Freeway is approximately four miles to the north and provides east /west traffic access to the subject neighborhood. Adjacent to the Seal Beach shoreline, Pacific Coast Highway provides north /south traffic access to the subject property. The San Diego Freeway also provides north /south traffic access to the subject neighborhood and is approximately four miles to the east. Located within Seal Beach city limits, Main Street and Bolsa Avenue serve as major streets and provide direct access to major commercial arterials. Major north /south commercial arterials that provide immediate access to the subject PAGE 14 - Integra Realty Resources ZOETER PLACE PROPERTY NEIGHBORHOOD AND RETAIL MARKET ANALYSIS neighborhood include Pacific Coast Highway and Seal Beach Boulevard. The major east/west commercial arterial that provides immediate access to the subject neighborhood is Westminster Avenue located in the northern most portion of Seal Beach. TRANSPORTATION Public transportation is provided by the Orange County Transit Authority as well as three programs that provide senior citizens in the community free transportation. The Congregate Meal Program provides transportation five days per week, while the Leisure World Shopping Tour provides transportation to Ralph's Supermarket and Target three days per week. There is also a Dial -a -Ride service that provides free transportation by appointment, every Thursday. Public transportation is considered adequate. EMPLOYMENT Most residents of the subject's neighborhood are employed throughout the southern portion of Los Angeles County or the northwestern portion of Orange County. Primary employment centers in the market area consist of numerous business establishments ranging from local to national corporations. The city is largely a beach community and is within close proximity to Downtown Long Beach, the Long Beach Marina), The Aquarium of the Pacific and the Queen Mary, all located within six miles to northwest. The major employers in the City of Seal Beach include Boeing, a government defense contractor and the Seal Beach Naval Weapons Station. The Port of Long Beach is also a major employer. The 90740 zip code consists solely of the City of Seal Beach. According to Claritas Inc., the estimated median household income for 2004 within 90740 is $45,729 which is above the median household income for both the State of California as well as Orange County. The estimated 2004 population is 24,591. IRR PAGE 15 Integra Realty Realty Resources ZOETER PLACE PROPERTY NEIGHBORHOOD AND RETAIL MARKET ANALYSIS NEIGHBORHOOD MAP `E OLORADO h - Y-. 1 \~ , t I I I Y_ , 21 .1 1 fa�l s -� - \i •• I ' :�tl STE' �' 1 _ -••te Nsmerorr IN 4 BOLSA r • /0 - __ _ __' f *Seal Beach ,-. • I =. / 1 7 r 1 1971 _i _ I 1 -'" 1 ED +/ L Sudaide_ rf, - - fi x f • rte • _ _ _ _ i . j . Sunset Beach r ' , - W _ • •'. __ .- j I ' ARNER peel: slaw. la..UMW Mk 011n MI. be. 1..1.101010 i'. --- . , 11 PAGE 16 - Integra Realty Resources ZOETER PLACE PROPERTY NEIGHBORHOOD AND RETAIL MARKET ANALYSIS PUBLIC SERVICES The Seal Beach Police Department provides policing services. There is one station within city limits. The Seal Beach Volunteer Firefighters have one station in the City of Seal Beach to provide fire protection. The City of Long Beach has a station approximately one mile to the west to provide additional fire protection. The City of Seal Beach has one school, McGaugh Elementary, which is a part of Los Alamitos Unified School District. Students not attending McGaugh Elementary attend schools located to the north in the neighboring City of Los Alamitos. LAND USE Neighborhood land uses include a mix of residential and commercial uses. Other land use characteristics are summarized in the following outline format. Predominant Age of Improvements: Residential 30 to 60 years Commercial 30 to 40 years Predominant Quality / Condition Average Approximate Percent of Land Developed The neighborhood is largely built out Percent of Land Developed as Single- Family 70% Percent of Land Developed as Multi- Family 20% Percent of Land Developed as Commercial 10% Prevailing Single - Family Price Range $550,000 to $750,000 Life Cycle Stage Mature Infrastructure /Planning Adequate Predominant Location of Undeveloped Land The neighborhood is largely built out. Growth is limited to the Prevailing Direction of Growth redevelopment of underutilized sites. Subject's Immediate Surrounding Land Use North Single Family Residential and Commercial South Former Mary E. Zoeter Elementary School East Single Family and Multi - Family Residential West Commercial TRENDS During the last five years, the subject's immediate neighborhood has not seen significant changes in land use. • PAGE 17 - Integra Realty Resources • ZOETER PLACE PROPERTY MARKET OVERVIEW DEVELOPMENT ACTIVITY During the last five years, the subject's neighborhood has seen limited residential development activity, as the neighborhood is largely built out. Main Street Square, a new storefront retail project along Main Street and Central Avenue was completed at the end of 2003. However, there has been very little new development in the subject neighborhood. OUTLOOK AND CONCLUSIONS The neighborhood is in the mature stage of its life cycle. Recent development activity has been relatively limited. Given the history of the neighborhood and the growth trends, it is our opinion that property values will remain stable in near term, and then resume their long -term upward climb. MARKET OVERVIEW RETAIL MARKET As noted previously, the subject is in the Orange County area and is impacted by overall market conditions for this general area. The dynamics of the retail market in this area have a direct impact on the subject property itself. Summary of Retail Sales - Orange County vs. Seal Beach Orange County City of Seal Beach Seal Beach's I 1 1 I Per Capita Total Retail Total Retail Retail Sales As No. of Sales (x Sales Per No. of Sales (x Sales Per of Orange Year Outlets 1,000) Capita Outlets 1,000) Capita Count 1993 26,390 $16,182,710 $6,334 229 $98,565 $3,784 59.7% 1994 26,721 17,554,335 $6,798 230 99,425 $3,817 56.1% 1995 27,444 18,269,162 $6,987 240 105,661 $4,0I0 57.4% 1996 28,283 19,450,797 $7,340 238 106,685 $4,049 55.2% 1997 28,930 20,983,323 $7,756 246 111,924 $4,248 54.8% 1998 29,284 22,456,107 $8,125 237 112,337 $4,200 51.7% 1999 32,360 24,788,574 $8,810 243 117,530 $4,321 49.0% 2000 33,665 27,484,989 $9,621 251 126,447 $4,615 48.0% 2001 36,305 28,518,701 $9,800 248 159,139 $6,495 66.3% 2002 38,209 29,646,818 $10,086 271 182,492 $7,388 73.3% 2003 39,240 31,287,695 $10,503 285 190,964 $7,669 73.0% Total Change 48.7% 93.3% 65.8% 24.5% 93.7% 102.7% 1993- 2003: • 1RR PAGE 18 - Integra Realty Resources ZOETER PLACE PROPERTY MARKET OVERVIEW As shown above, retail sales have grown continuously since 1993 in Orange County. Aside from a temporary decrease in retail sales in 1998, the City of Seal Beach has also benefited from an overall healthy and steady growth in this industry since 1993. Total retail sales throughout Orange County have grown by 93 percent in the period of 1993 through 2003. Similarly, total retail sales in the City of Seal Beach have grown by 94 percent over the same time period. By contrast, retail sales per capita have grown by nearly 66 percent on a County -wide basis, but nearly 103 percent within the city. These statistics indicate that the City of Seal Beach was on a slow decline, but has rebounded in terms of its prominence of retail sales activity within the county. In recent months, the Retail Strip Center market in the subject neighborhood has gradually begun to revitalize. Evidence of this effect has been the proposed remodel of an existing Pavilions supermarket and the creation of Main Street Square. Pavilions is a Supermarket which caters to higher end consumers and is a part of a larger national credit tenant chain (Vons and Safeway Supermarkets). Active participants in the market area have noted that sales of improved retail strip centers have begun to increase and vacancy rates have decreased. Overall, the retail market in the City of Seal Beach appears to be slowly rising. However, this is at least partially attributed to the rehabilitation and renovation of obsolete structures, allowing the sites to be developed with contemporary retail uses. • IRD PAGE 19 — Integra Realty Resources ZOETER PLACE PROPERTY DESCRIPTION AND ANALYSIS OF THE LAND PROPERTY ANALYSIS DESCRIPTION AND ANALYSIS OF THE LAND PHYSICAL FEATURES Land Area Approximately 76,959 square feet, per Orange County records. Configuration Rectangular. Frontage Feet Approximately 428 feet of frontage along Pacific Coast Highway and 180 feet of frontage along Twelfth Street. Topography Generally level. Drainage Appears to be adequate. Floodplain Community No. 06059C, Panel No. 0026 H, Community Panel # Effective February 18, 2004 Flood Zone X (Outside of 500 -year flood plain). Flood Insurance Flood insurance is generally not required Environmental Hazards Environmental evaluation is beyond our scope of expertise. A qualified engineer should be consulted on this matter. No obvious hazardous materials or conditions were observed during our inspection. Ground Stability We were not furnished with a soil analysis to review but assume that the soil's load bearing capacity is sufficient to support the existing structure. We did not observe any evidence to the contrary during our inspection of the property. STREET, ACCESS, FRONTAGE Street Pacific Coast Highway Frontage Feet 428+ Paving Asphalt Curbs /Gutters Concrete / Concrete Sidewalks Concrete Lanes Four • Direction of Traffic Generally North / South Condition Average IR PAGE 20 — Integra Realty Resources ZOETER PLACE PROPERTY DESCRIPTION AND ANALYSIS OF THE LAND Traffic Levels Average daily total of 45,000 vehicles southbound and 40,500 northbound: 2003 study conducted by the California Department of Transportation for the Pacific Coast Highway /Seal Beach Boulevard intersection. Signals /Traffic Control Signalized intersection at Pacific Coast Highway and Twelfth Street. Visibility Good ZONING Designation: C -2 Description: General Commercial Permitted Uses: All uses permitted in either C -O or C -1 zone, plus retail sales, service, and repair uses. Zoning Jurisdiction City of Seal Beach Lot Restrictions Minimum Lot Width: 70 feet Minimum Lot Depth: 100 feet Building Restrictions Maximum Height: 30 feet Front Yard Setback: None identified. Side Yard Setback: None identified. Parking: Requirements vary depending on the specific use. Conformity Based on our inspection, a review of the site plan, and a review of the City of Seal Beach's zoning ordinance, we believe the current use of the site constitutes a legal, conforming use. �D PAGE 21 Integra Realty Resources ZOETER PLACE PROPERTY DESCRIPTION AND ANALYSIS OF THE LAND ASSESSOR'S PARCEL • MAP _ b b a � o a a PACIFIC COAST HIGHll•AY $_ fFr . � • i .1 MAIM MINIM NM 4:317,131113413 - Q '+ INIMINK MIMI= liMaiallgaEMANII PI PI INIIIIM MIME! as t IMO= t a 4 1 ECM MEK E3©i_ - MEN�5�� t k MIME 3111111114111 MINIM allint .� � \ { Z der \ 3 _ LIN6 �i i ® \ J a t . , \ _ MIME ® ME sum m aws LAND /N6 `: y Q 6 e W _ . ��� ! cn rIIN "Millillitl4 111 . 14 fa il-e4 :1 ? � � °r Ai c .r.• "to � t. 4 E � � C T9 W Q t Y ti 4 I .. TMD PAGE 22 Integra Realty Resources ZOETER PLACE PROPERTY DESCRIPTION AND ANALYSIS OF THE LAND OTHER LEGAL AND REGULATORY CONSTRAINTS Easements Although we were not provided a current title report to review, we are not aware of any easements, encumbrances or restrictions that would adversely affect the use of the site. The rights to the school district parcel located adjacent to the south of the subject are created by an easement for access and parking purposes. We note, however, the school district reserves eight parking spaces in this area for their use. A title search is recommended to determine whether any adverse conditions exist. Encroachments We were not provided a survey. However, an inspection of the site revealed no apparent encroachments. UTILITIES All utilities are available and installed to the subject parcel. These include water, sewer, gas, electricity, and telephone service. The available utilities are considered adequate to service the needs of the existing or reasonably anticipated future development placed on the site. PAGE 23 — Integra Realty Resources ZOETER PLACE PROPERTY DESCRIPTION AND ANALYSIS OF THE IMPROVEMENTS DESCRIPTION AND ANALYSIS OF THE IMPROVEMENTS The existing improvements are not the primary focus of our appraisal, since we are analyzing the city's leased fee position in and to the underlying site. Therefore, we have limited our discussion of the existing improvements to a brief summary. The structures on the property include two single -story buildings. The easterly property was one of the school buildings used as part of the Mary E. Zoeter Elementary School. Immediately following the city's lease of this property in 1987, this building was converted to multi - tenancy retail use. At the time of the conversion, the westerly building was constructed to also serve for multi- tenant retail purposes. According to the most recent rent roll provided by Mr. Galbraith on July 28, 2004 and dated April 1; 2004, the combined area of the two buildings is 22,689+ sf. The property has a total of 128 parking spaces. Eight of these are reserved for use by the school district located adjacent to the southwest. Of the remaining 120 spaces, 16 are adjacent to the alley on the west side and are not immediately accessible to the customer entrances of the storefronts. The buildings appear to be in good condition. OCCUPANCY AND USE A summarized rent roll (reconstructed from information provided by Mr. Galbraith) is shown on the following page. At the time of our most recent inspection, on July 28, 2004, we conducted interviews and made observations which are relevant to the consideration of occupancy at the center. We have noted the comments concerning the Galbraith summary concerning the questionable credit worthiness of some of the subject tenants. In our opinion, the existing rent structure at the subject center reflects rents that started at or near the market peak around 1989 or 1990 and, due to escalation provisions and market conditions, now reflect rates which are above market levels. The subject center seems to be well positioned to attract new tenants in the event current subtenants vacate the premises. Based on the information provided by Mr. Galbraith, it appears that there may be a real risk of default of some of the individual subtenants. However, it is our opinion that this level of risk is typical of other retail centers which have a relatively high proportion of local tenants. Considering the risk of capital loss and financial penalties to which the Rodi Trust would be subjected in the event of the default of the ground lease, it is our opinion that the Redevelopment Agency's position remains secure in spite of the existing questions about the financial stability of the subtenants. • TDD PAGE 24 Integra Realt/ Resources • Zoeter Place Subtenant Analysis Reconfigured From Data Provided by James Galbraith on July 28, 2004 Expiration Monthly Total Monthly 2004 Address . Tenant Date Area (sj) Rent PSF Rent CAM Options 1190 -A Bungalow Tan 09/30/09 1,040 $1.97 $2,050 $515 Two, 5 -Year 1 190 -B Macap 07/31/06 1,040 $ 1.54 $1,602 $468 Two, 5 -Year 1190 -C Get Fit Quick 04/30/08 1,982 $2.49 $4,942 $991 One, 5 -Year 1190 -D King Bicycles 04/30/09 2,061 $1.94 $4,000 Included 1190-E Beach Video 04/30/08 2,500 $2.55 $6,375 $1,250 One, 5 -Year 1198 -A Blackboard Bistro 04/30/10 2,180 $2.79 $6,089 $981 Two, 5 -Year 1 198 -B A -1 Cleaners 02/28/06 1,894 $2.31 $4,380 Included -- 1198 -C Just Us For Hair 01/16/07 1,200 $2.73 $3,271 $555 - -- 1198-D The UPS Store 08/31/08 1,030 $2.37 • $2,443 $505 One, 5 -Year 1198 -E Memorial 1- [ealthtech 04/30/09 1,030 $1.75 $1,803 $463 One, 5 -Year 1198 -F 30- Minute Photo 02/28/05 1,030 $2.36 $2,431 $476 - -- 1198-G SB Family Medical Group 12/31/09 5,702 $2.07 $11,784 $2,623 Three, 5 -Year 22,689 $2.24 551,170 (Total) (Avg.) (Monthly Total) $614,040 (Annualized Total) Complied by: INTEGRA REALTY RESOURCES - LOS ANGELES, July 2004 ZOETER PLACE PROPERTY REAL ESTATE TAX ANALYSIS REAL ESTATE TAX ANALYSIS The real estate tax assessment of the subject is administered by the Orange County tax assessor. The property tax identification number and assessed value of the property for tax year 2003 -2004 are as follows: Property Tax ID Number 043- 122 -36 Land Assessment $1,789,368 Building Assessment $2,035,346 Total Assessment $3,824,714 Total taxes payable for the leasehold interest for this tax year including special assessments are $38,656.79. The leased fee interest is tax exempt due to ownership by the Redevelopment Agency of the City of Seal Beach. -Based on our valuation of the subject, the current assessed value for the land and buildings appears low. Property taxes would likely be adjusted upward to reflect current market value upon the sale of the property. IRIZ PAGE 26 Integra Realty Resources ZOETER PLACE PROPERTY HIGHEST AND BEST USE HIGHEST AND BEST USE The highest and best use of a property can be defined as: The reasonable probable and legal use of vacant land or improved property that is physically possible, appropriately supported, financially feasible, and - that results in the highest value.' There are four criteria that must be met in analyzing the highest and best use of land or a site. The highest and best use must be: 1. Legally Permissible: Uses permitted by zoning, building codes, environmental regulations, and /or deed restrictions. 2. Physically Possible: Uses to which are physically possible considering the size, shape, area, terrain, and accessibility to the property. 3. Financially Feasible: Legally permissible and physically possible uses, which are expected to produce a positive return. 4. Maximally Productive: The type of use that is expected to produce the highest rate of return. As THOUGH VACANT Legally Permissible Zoning codes, land use plans, easements, and private deed restrictions often restrict permitted uses. The site is zoned C -2, a general commercial zoning designation in the City of Seal Beach. Given prevailing land use patterns in the area, and recognizing the principle of conformity, only commercial development has been given further consideration in determining highest and best use of the site, as though vacant. Physically Possible The physical characteristics of the site should reasonably accommodate any use that is not restricted by its size of 76,959+ square feet. The site was graded and developed, to accommodate a multi- tenant retail center. If the site were vacant, a multi- tenant retail center, with surface parking, would meet zoning requirements. Financially Feasible There is currently strong demand for small retail centers in the subject neighborhood. • The vacancy rate of stores in retail centers in the neighborhood is low, and market participants report moderately short lease -up periods are required to fill vacated units. The Appraisal of Real Estate, Twelfth Edition (Chicago: Appraisal Institute, 2001), p. 305. IRIZ PAGE 27 Integra Realty Resource; ZOETER PLACE PROPERTY HIGHEST AND BEST USE Maximally Productive The site is zoned for general commercial development. The C -2 zone designation allows for general commercial development including retail sales, services and repair uses. Commercial development is the only use that meets the previous three tests. Accordingly, it is concluded to be maximally productive, and the highest and best use of the site, as though vacant. AS IMPROVED The subject site has been developed with a retail shopping center, which is consistent with the highest and best use of the site as if vacant. The existing shopping center is currently 100% leased. There are no alternative uses that could reasonably be expected to provide a higher present value than the current commercial use. The value produced by the existing improvements exceeds the value of the site, as if vacant. For these reasons, the existing use is concluded to be maximally productive, and the highest and best use of the property as improved. • II J PAGE 28 — Integra Realty Resources ZOETER PLACE PROPERTY LAND VALUATION VALUATION ANALYSIS DATE OF VALUE - The effective valuation date for this appraisal is July 1, 2004. This date corresponds with the first day of the six -month period in which Rodi Trust must notify the City of Seal Beach its desire to exercise the purchase option of the Leased Fee interest in the underlying land. PROPERTY RIGHTS APPRAISED The property rights appraised consist of the leased fee interest in the subject property. APPLICATION OF VALUATION APPROACHES Market value is the present worth of all expected future net benefits accruing from ownership of real estate. The appraisal process is a systematic, orderly and logical method of collecting, analyzing and processing market data in order to make an intelligent judgment concerning the value of a specific parcel of real estate. In order to measure the present worth of future net benefits, three appraisal methods have been developed for processing market data into indicators of value. They are the Cost Approach, the Sales Comparison Approach, and the Income Capitalization Approach. These terms are defined in the Glossary of this report. Our analysis focuses on the leased fee estate of the subject property. Valuation of the leased fee interest focuses on the anticipated future benefits to be derived under the terms of the lease. Analysis of these benefits begins with a careful reading of the lease and its amendments, and includes the application of market judgment concerning the risks of future change, and the appropriate capitalization rate to use in converting anticipated future benefits into a measure of present value through direct capitalization. Another relevant study of the Redevelopment Agency's leased fee interest in and to the land is a discounted cash flow. As a starting point to this part of our analysis, we have analyzed the fee simple •interest in and to the subject land, assuming it to be vacant, available for development to its highest and best use, and unencumbered with any existing structures or occupants. This allows us to then project a reversionary value for the end of the cash flow, and to systematically project each year's benefit through the end of the lease. In analyzing the leased fee interest, our primary focus is the Income Capitalization Approach. In this appraisal we have both the direct capitalization method and a discounted cash flow analysis as part of the Income Approach. We begin our analysis with the valuation of the property using the direct capitalization method of the Income Capitalization Approach. Following that analysis is a discounted cash flow study which includes valuation of the fee simple interest of the underlying land by the Sales Comparison Approach. Market participants do not rely on the cost approach to determine purchase or sale prices for retail shopping center properties in the subject submarket. Therefore, we have excluded the cost approach from our analysis. IRR PAGE 29 Integra Realty Resources • S ZOETER PLACE PROPERTY LAND VALUATION INCOME CAPITALIZATION APPROACH Direct Capitalization In Direct Capitalization, a single year's income is converted to an estimate of value by the use of an Overall Capitalization Rate (OAR). The two primary components in this methodology are a measure of net operating income, and the OAR. Net operating income is provided as the contract income level specified in the lease for the 12 -month period starting July 1, 2004. The contract rental amount is $238,050 per year, payable in amounts equal to $19,837.50 per month. The most recent escalation in the base rent occurred on March 6, 2004. The next escalation of the base rent will occur on March 6, 2009 and will last for a duration of five years. The OAR applicable to this measure of income is obtained by analyzing the sales of other ground leased investments. The following category of rate of return data concerns actual sales of land that had been previously leased and improved. The summary table in this section presents a summary of nine sales of eight properties subject to long -term leases. The average rate of return of the nine sales is 6.39 %. The starting annual rate of return (or overall rate) has been calculated from these sales, by taking the contractual income at time of sale and dividing it by the sale price. Our analysis of this data is presented in the following paragraphs. Item No. 1 is a site that has been improved with a CVS Pharmacy in the City of Hawthorne. The site was listed in summer 2003 at a cap rate equal to 7.32 %. The property transferred in March 2004 at a cap rate of. 6.5 %. The broker involved noted that at the original listing process there were a number of competitive offers that drove the price up. The site was subject to a 20 -year ground lease that commenced in 2002. Item No. 2a is a site in Tujunga that has been improved with a McDonald's fast food restaurant. This site transferred in November 2003 at a •cap rate of 5.15 %. The 20 -year ground lease commenced in early 2003. Item No. 2b is a previous sale of Item No. 2a. This site was listed in early 2003 at an asking price that equated to a cap rate of 6.00% and sold in April 2003 at a cap rate of 6.25 %. We contacted the seller, Norman Kravetz of Realty Bancorp Equities (an active development company), to inquire if he estimates that he would be able to sell a similar leased site at a 6.25% cap rate today, or if the recent uptick in interest rates would mean that leased sites would sell at higher cap rates today. Mr. Kravetz explained to us that he believes that he would be able to sell a similar leased site at approximately a 6.25% cap rate today because leased sites are generally purchased by investors who pay all cash, and thus do not finance their purchase with a loan. Therefore, these investors have not been directly affected by the recent uptick in interest rates, and would still pay approximately 6.25% for a similar leased site with existing leasehold improvements. Capitalization rates in the 6.0% to 6.5% range are typically only achievable from strong credit tenants. Item No. 3 is located in a shopping center in the western end of the .San Fernando Valley. Parties involved requested that details of the transaction remain confidential. The property is improved with a national credit tenant supermarket. The site is subject to a 20 -year lease that commenced in 2002. IRR PAGE 30 — Integra Realty Resources • ZOETER PLACE PROPERTY LAND VALUATION Item No. 4 is a corner site in Los Angeles that has been improved with an El Polio Loco fast food restaurant. This 20 -year ground lease, which commenced in 2001, has a 10% increase in year 5 and 15% increases in years 11 and 16. Item No. 5 is a pad site in the San Dimas Plaza shopping center in San Dimas. The site is improved with a Burger King, and a new 20 -year ground lease (with 4, five -year options) commenced at the close of escrow in February 2003. Item No. 6 is a corner site that is improved with a high -rise office building known as Fidelity Federal Plaza, in downtown Long Beach. There were 62 years remaining on a 99 -year lease with CPI increases every five years. Item No. 7 is improved with a Jack in the Box, and also has 30 open parking spaces. The 20 -year ground lease of this site commenced in 2001. Item No. 8 is a pad site in the Baldwin Park Towne Center in Baldwin Park. The site is improved with a McDonalds, and the ground lease rate will remain at $92,300 until the ground lease terminates in 2009. IR PAGE 31 — Integra Realty Resources • y a� a G T d O b c N u O ,O C: ^ m 'o a u O • 0 3 a v v c U ?; y – u _ _ co 0.1 ` 0 0 o N o- o ° .0 N N C N N ^ •'2 Q E a C C O W O P. . iy o v v 'fl P. H ' 3 '. - ` a $ t N e :. 2 u d u y` O O 7. y y fi/f K G C a g F •• 3 a = F F E O 'O v u Q ^ O j J U U V y Q a W V y S H y y m w- a = y m m^ lJ - y 'o T O >, a ±" U L T y u Y J n‘i O C T s ti v I s L N v- N .3 C , � T T T T T T �. 3 c .y„ F u 0 0 N N N N N C Z uu C. v y N N L N C O a a e a o O a o O •. L h N 0 b G1 e 00 n Q r x b h '0 b V V' 'G so sO o O ° o ° o O o C_ ' o o ° O ° .. O v., O '� vi N e 9 O of o e U y 4 00 6 Ern 6�-9 w Cs ° s.0 a `o r 0a e co O ° r ,n r N rn o N r J ' 3 en O m O ' h _'V f ( L V " Cs 6 6 y9 Vi 69 vi FA 69 r y y e U i 7 O O O O O O O O o q O O O O O O O o O 'C O O O O C O O O 4 f+ N b M - 6 r Nf oo I � v — .m a c co U 3 �. o v v in m n . r J i Or ? O or N1 N N e N 'n J Z J E i m 00 u- 3 3 `w a y` o ° = o u e L° F n - v y g. v O sc J O C ` u, 5 a v s S. _e o U m ! C T `. O u X o .. F r O T it _ 7 O 00 C o 0] v N • C 'O x Y y W F. Y -0 a a O Ts En' F. 'o a o c ° c_ o c y p' c o 3 y ® < Q `a n' - 3 m 1 - O u a u w V1 U . 0. 0. Z L•7 3 O ro ...E. 47, 3 ".A y O al O w Q Q O o p m O o O O _ e. .6 , u m M Z Q 4 c = u. 0 < c (/} ti 0 O y e V1 C U C i T P., ,. % O y o 2 O C . 4 1 'O F. O i Q . y d ^ y o O m m F m U . :z.., 't y o ? o ; o a c� ® o ai o t o j U ° m a ° ; � ` 9 o ' E 6 o _ o = r = 0 m 0_ < a o 0 u v ' , o o y., N O a O a v u > .0 O N C/i ` v1 F = N O a . O e a.. COO 'n a. 00 O w . 0 y 7 < O m O -N © o - _ O N O r kl IV U m c C' - , . U o c U y-, .. t, < c G i Ll 0 0 _i .59 – . c - • 00 '0 , o 00 u L[1 o rn 7 vl h 7 h O O y O e o ° — r G1 m to C\ 61 N N ,.., a 0, S Tel e, do m Z T e r or F co vo F co vi U 3 U e -3 vi oo 6 ti oo - r oo – .2 00 r — al 00 6, A. 0 1 oI -. tV d [+1 a vi s.0 r- 00 .∎ c� Z , y y O y • ZOETER PLACE PROPERTY LAND VALUATION We reviewed a recent publication by The Boulder Group, that was issued in July 2004. As of July 2004, The Boulder Group is tracking 462 net leased properties that are for sale nation wide. The table below summarizes the portfolio of properties in the data set. Cap Rate Trends in the Net Lease Market % of Total Avg. Cap Price Bracket Sales Rate $0 - $999,999 16.88% 8.38% $1,000,000 - $1,999,999 35.06% 8.17% 5 2 000,©OO ,999,99' 104 7 f : 0 - - $�3 000 ,99999 1 .1'4% r • $4,006V000 ' 9 99 ` `9 ..,. 0 * '5,74474,. .5 $5,000,000 - $5,999,999 3.25% 7.81% $6,000,000 - $6,999,999 4.55% 7.23% $7,000,000 - $7,999,999 0.65% 9.03% $8,000,000 - $8,999,999 1.30% 8.68% $9,000,000 - $9,999,999 1.95% 8.35% $10,000,000+ 7.79% 7.82% Source The Boulder Group. July 2004 The properties highlighted in gray, range in sale price from $2,000,000 to $4,999,999. It is our opinion that subject property would most likely sell for a price within this range, making this grouping most comparable to the subject. This band of properties represents 28.57% of the total data set, or approximately 132 properties. The average capitalization rates associated with these properties ranges from 7.03% to 7.70 %. The tenants in the Zoeter Place Shopping Center are non - credit local tenants, which would justify the use of a higher capitalization rate. However, we feel the security of the leased fee position in the land is enhanced by the existence of the buildings on the site. if the leasehold interest defaulted on the loan agreement, the City of Seal Beach would acquire the improvements and own the entire property in fee. Although we have not appraised the fee simple interest of the entire property, it is safe to assume that the value in fee is greater than in the leased fee interest. Therefore, we believe the risk associated with the local credit status of the subleased tenants is an offset to the security of acquiring the fee simple interest upon default by the master leasee. The subject ground lease has a clearly defined income pattern containing an escalation clause with a minimum increase of 15% at each five -year interval (equivalent to just under 3% per year on an annual compounded basis). The lease is secured by two multi- tenant structures which would revert to the land owner in the event of a default by the tenant. However, having the Rodi Trust as a tenant under this lease involves a marginally higher level of risk compared to the credit tenants of the ground leased properties shown on the summary table. • IR PAGE 33 — Integra Realty Resources ZOETER PLACE PROPERTY LAND VALUATION In our opinion, the appropriate overall capitalization rate for the subject income stream is 7.5 %. The calculations used to derive a value estimate by the Direct Capitalization methodology are shown below: Net Operating Income _ Overall Rate = Indicated Value $238,050 - 0.075 = $3,174,000 This value indication is rounded to: THREE MILLION ONE HUNDRED SEVENTY FIVE THOUSAND DOLLARS • ($3.175.0001 PAGE 34 Integra Realty Resources ZOETER PLACE PROPERTY LAND VALUATION LAND VALUATION Following the basic premise of the Sales Comparison Approach, we performed a search of public records and private data services for the purpose of gathering sales of similar sites in the competing area. We reviewed a large number of land sales prior to selecting the seven sales that represent our comparable sale sample. Our research efforts were focused on the major arterials of Seal Beach and adjacent coastal communities, with particular emphasis on sales of corner parcels with similar highest and best use characteristics as the subject. Our research indicates that there have been very few vacant land sales of sites similar in size to the subject and have a commercial zone designation in the subject neighborhood within the last three years. We identified six sales of sites located in the City of Seal Beach with a commercial zone designation, however the sites ranged in size from 2,937+ sf to 8,813+ sf. These smaller sites, some of which are on Main Street south of Pacific Coast Highway, have sold at and above the level of $150 psf. Flowever, because of their extreme differences in size and neighborhood attributes, they are not used for direct comparison. The six sales selected for our final analysis show a range in sale prices from $35.42 to $61.05 psf. The parcel sizes range from 11,250± sf to 62,450± sf. All land sales in our final data set are located in the City of Seal Beach or in the neighboring cities of Surfside, Huntington Beach, Long Beach or Westminster. The sample of comparable sales is summarized in the table on the following page. A market data map showing the locations of the items in relation to the subject property follows. Photographs of the comparable land sales are included in the Addenda. IR PAGE 35 — Integra Realty Resources k• A s ��� 1 = ��� ��� _,rr , wl 17 �� � , J ` pi.,54ll ¢ k 1. 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"'WI .. ......._� I F :. +m,..� ■V ■■ � �i 1111 %j' 11rs1:l = 'o 1 i11I !►11rii E - -a I�II,t� qiit . fi r — :_, ' i: 1 t :; : v' c / OR s ENIC WAY 3. ■ �11111JuuluI_ •- ...r y A = - a 1pul i r 9 O h11 =cl .• �j� ����jj�_•.�I._ mot. �1 1 1.' �•L: Mil! Z O v' �i .......�aii 11�l�imti t ° -t : �, J• y •- •111.....��!Or 11 11 ia----pilial j o" ! �■ ii. �- •• -° _ ■ t ZOETER PLACE PROPERTY LAND VALUATION Land Valuation Analysis Some of the trends we have observed during our investigations and confirmation interviews are that this market exhibited modest appreciation in sales prices during the two years prior to the date of value. Although there is currently modest demand in the subject neighborhood for commercial development, the amount of rehab activity exceeds new development. Demand is moderately weak for development sites. In completing the comparison analysis, certain factors were found to explain the majority of the price variances observed within the set of data. These are location, size, shape, highest and best use, and market conditions. Relative to parcel shape, based on our analysis of the sales market participants assign a premium to parcels which exhibit favorable width -to -depth ratios. Those parcels that deviate significantly in shape from generally rectangular parcels reflect diminished price levels due to development restrictions. In addition, corner parcel ranging from one -half acre to one acre are considered to be optimal for the development of gas stations, fast food restaurants, and related uses. Since the subject property is nearly double the optimal size, the value per square foot (psf) will be slightly lower than the price that could be achieved at the same location for a parcel which contains one acre or slightly less. An analysis of the six land sales follows. Item No. 1 is the sale of a parcel located on the northwest corner of Bolsa Chica Road and Heil Avenue, in the City of Huntington Beach. Bijan Sassounian acquired the parcel from Circle K Corporation to hold for future development. The site was formerly improved with a Circle K gas station and mini mart. The station was originally constructed in 1963 and was in poor condition at the time of inspection. The improvements on the site are currently not in use and there is a chain link around the perimeter of the property. The parties originally agreed on a sale price of $1,025,000, equal to $45.56 per square foot, however, the price was adjusted by $200,000 to address the need to clean the contamination the site. The sale recorded in December 2003 at a sale price of $825,000, equivalent to $36.67 psf of land area. Item No. 1. is similar to the subject relative to zoning, however, it is superior relative to site size. It is inferior to the subject relative to location. Overall, this sale is inferior to the subject. Item No. 2 is the sale of a parcel located on the northeast corner of the intersection of Long Beach Boulevard and Broadway in Downtown Long Beach. The City of Long Beach acquired the property from Richard Dorame for a possible redevelopment project. The southeast corner of the intersection is improved with a Bank of America. The southwest corner is currently paved and used for public parking. The 12 -story masonry building on the northwest corner of the intersection is a building that is a former office building that is being converted to a loft - for -sale project. This portion of Broadway is a one way street, allowing eastbound traffic. The sale recorded in August 2003 for a sale price of $464,000, equivalent to $41.24 psf of land area. Due to the one way traffic on Broadway, access to the site is considered less desirable than that at the subject site. In addition the site has an irregular lot depth to width ratio, making it less desirable than the subject. Overall, the sale is inferior to the subject. IRR PAGE 38 — Integra Realty Resources ZOETER PLACE PROPERTY LAND VALUATION Item No. 3 is the sale of a parcel located on the northeast corner of Bolsa Chica Road and Westminster Boulevard. AZ Investment Group acquired the parcel from Cedars -Sinai medical group to hold for future development. The site is zoned C -1 but is in a General Plan that supercedes the city zoning and allows for a C -2 (General Commercial) designation. The United States Naval Weapons Station is located across Bolsa Chica Road to the west. The sale recorded in May 2003 at a sale price of $805,000, equivalent to $35.42 psf. Item No. 1. is similar to the subject relative to zoning, however, it is superior relative to site size. It is inferior to the subject relative to location. Overall, this sale is inferior to the subject. Item No. 4 is the sale of a parcel located on the northwest corner of the intersection of Ocean Boulevard and Atlantic Avenue in Downtown Long Beach. The address is commonly referred to as Fidelity Federal Plaza and is improved with a high -rise office building. The sale was of the leased fee interest of the land only. At the time of the sale, there was an existing ground lease in place that had 62 years remaining until termination. The sale recorded in September of 2002 at a sale price of $2,900,000, equivalent to $61.04 psf. The sale is superior to the subject due to the location at an extremely busy intersection in a desirable area of Downtown Long Beach. The site is superior to the subject relative to size as well. Overall, the sale is superior to the subject. Item No. 5 is the sale of an interior parcel located along the north side of Anderson Street, southwest of the Pacific Coast Highway. Land use along Anderson Street southwest of Item No. 4 is comprised of single family developments. The property was purchased in September 2001 for $285,000, equivalent to $54.52 psf. The property was purchased by Surfside Colony Limited who plan to hold the property for future development. The site is significantly smaller than the subject property, however, it is located in the community of Surfside, just south of the Pacific Coast Highway. The sale is similar to the subject relative to location, access and visibility, however it is superior relative to lot size and date of sale. Overall, the sale is superior to the subject. Item No. 6 is the sale of a 14,575+ sf parcel located on the southwest corner of Main Street and Pacific Coast Highway in the City of Seal Beach. Lobo Seal Beach Associates, LLC acquired the former Shell service station site vacant in January 2001 at a sale price of $747,000, equivalent to $51.25 psf. Lobo Seal Beach Associates, LLC constructed a 5,800± sf strip center on the site and sold the leased fee interest in January 2003 for $2,815,000. The sale is similar to the subject relative to location, access and visibility, however it is inferior relative to lot size and date of sale. Overall, the sale is superior to the subject. IRR PAGE 39 — Integra Realty Resources ZOETER PLACE PROPERTY LAND VALUATION Based on the foregoing discussion of comparability, the market data and the subject property may be arrayed as shown below: Price Per SF Comparison Summary — Land Valuation Item No. Overall Comparability Price Per SF 4 Superior $61.05 5 Superior $54.52 6 Superior $51.25 Subject Property 2 Inferior $41.24 1 Inferior $36.67 3 Inferior $35.42 Based on our analysis of the comparable sales, and consideration of other market conditions, we have reached the opinion that the fair market value of the fee simple interest in the subject land (as if vacant), as of July 1, 2004, is $50.00 psf. For the subject property, which has a site area of 76,959± square feet, this indicates a total fair market value (rounded) of land of: THREE MILLION EIGHT HUNDRED FIFTY THOUSAND DOLLARS (S3.8 • IRIZ PAGE 40 — Inte Realty Resources ZOETER PLACE PROPERTY LAND VALUATION Valuation of the Leased Fee Interest — Discounted Cash Flow The specific property rights which are the subject of this appraisal consist of the leased fee estate, subject to a ground lease which commenced March 6, 1989 and continues until March 5, 2024, with options that can extend it to March 5, 2044. A summary of this agreement is provided in the Addenda section of this report In general, the leased fee estate is an ownership interest held by a landlord in which the rights of use and occupancy are conveyed to others via a lease agreement. The rights of the leased fee owner (lessor) are determined by the terms and language contained within the lease agreement. Valuation of a leased fee interest created by a ground lease agreement requires identifying the rights associated with this type of estate; these are summarized below: • The right to receive rent (or other benefits) stipulated under the lease agreement; and, • Reversionary rights associated with repossession of the property at the termination of the lease. Using a discounted cash flow analysis to arrive at our opinion of value for the leased fee interest of the subject property we have analyzed the periodic benefits attributable to the existing ground lease agreement. These benefits are summarized below: • Monthly contract rent of $19,837.50 per month (or $238,050 per year). The last escalation in monthly contract rent occurred on March 6, 2004. The next escalation is scheduled to occur on March 6, 2009. • The ground rent is adjusted at five -year intervals. The third amendment to the lease specifies that the ground rent adjustment will be an increase of at least 15 %, but not more that 30% above the ground rent which had been in effect for the preceding five years; and, • Reversionary benefits at lease expiration To estimate the reversionary benefits associated with the leased fee interest, we have undertaken a study to estimate the current market value of the subject site, assuming it to be vacant and capable of development to its highest and best use. The current market value of the fee simple interest was previously analyzed by the Sales Comparison Approach. To this value estimate, we have applied a growth rate of 2.5% annually for the remainder of the lease term. Applying this rate, which is at the low end of a range of reasonably anticipated inflation rates, provides an indication of the future value (reversion) of the subject site. We have not added any contributory value for the improvements due to their age at the end of the lease term. The subject lease is written to require the lessee to pay for all property related expenses. Further, since the property is now substantially improved, the recipient of the ground lease payments is in a very secure position. Therefore, we have not made any deduction from the stated contract rent payments to allow for vacancy or collection loss. The risk of such a loss is incorporated into the discount rate. . ER PAGE 41 — Integra Realty Resources ZOETER PLACE PROPERTY LAND VALUATION Similarly, even though some bookeeping and tax preparation expenses may be required, the conversion of land lease rental income streams into an indication of value calls for using the quoted contract rent without making an adjustment for these nominal expenses. We have adopted the assumption that inflation will continue for the foreseeable future at a rate which is so low, that the escalations to the ground rent will occur at the minimal required level of 15% at each five -year interval. Also, since current market rent provides a below - market return on fee simple land value (i.e., the lessee has a below- market lease rate), we assume that options to extend the lease will be exercised. Once a projection of anticipated future benefits is made, these benefits are capitalized into an indication value through a discounted cash flow analysis. A discount rate (or an internal rate of retum) is used to convert anticipated future benefits into components of current value which, when added together, result in a single present value. In selecting an appropriate discount rate for the cash flow model, we have considered two highly regarded surveys. The Korpacz Real Estate Investor Survey (Second Quarter, 2004), published by Price Waterhouse Coopers, reports a range of desired discount rates of 8.50% to 12.00% (with an average of 10.06 %) in the institutional grade national strip shopping center market. This is slightly down from one year ago, where the range spanned from 8.50% to 13.00% (with an average of 10.76 %). The non - institutional grade strip shopping centers reported a range of desired discount rates of 9.0% to 13.50% (with an average of 11.06 %). This is also slightly down from one year ago, where the range spanned from 9.50% to 14.00% (with an average of 11.93 %). For the same property type, overall capitalization rates (going into the investment) are reported at a range of 6.50% to 11.00% (with an average of 8.50 %). This range has trended downward from one year ago where it spanned from 7.00% to 1 1.50% (with an average of 9.33 %) for institutional grade strip shopping centers. Non - institutional grade centers reported overall capitalization rates (going in to the investment) ranged from 6.50% to 12.00% (with an average of 9.25 %), similarly, down from a range of 7.00% to 11.50% (with an average of 9.33 %). In our opinion, the overall range of discount rates should bracket the appropriate rate for use on the subject property. However, the anticipated growth in the subject's leased fee income is based on a schedule that exceeds the anticipated rate of increase in market rental rates. Therefore, we believe the average discount rate from the Korpacz Survey is slightly higher than what is appropriate for the subject's income stream. In addition, these investments reflect the ownership of a retail center in which the property owner has made an investment in both the land and the building and must generate a return for both components. In the subject situation, the owner of the leased fee interest owns the land but has not made an investment in the building. In order for the building owner (the master lessee) to receive his return, the land owner must first be satisfied. Thus, the return to the land owner is a safer return which warrants the use of a lower discount rate. IRR PAGE 42 — Integra Realty Resources • ZOETER PLACE PROPERTY LAND VALUATION Viewpoint Real Estate Value Trends, published by Integra Realty Resources (2004) reports investment criteria for a variety of property types. For net leased investments, the range of internal rates of return was quoted as between 9.0% and 13.0% (with an average of 10.8 %). In 2003, the range reported in Viewpoint spanned from 10.0% and 13.0 % (with an average of 11.3 %). The same investments were generating overall cap rates within a range of 7.5% and 10.8% (with an average of 8.90 %). The previous year, the range spanned from 8.5% and 10.5% (with an average of 9.5 %). These projections typically included an expected increase of market rent at 3.0% per year. mn PAGE 43 — Integra Realty Resources t Zoeter Place Discounted Cash Flow Analysis Date of Value: July 1, 2004 Cash Duration of Present Value Year Starting Flow Discounting Lease Rental Present Value of July I Year No. (In years) Income Factor Cash Flow Eight months from 7/1/04 to 3/6/05 2004 1 0.67 $158,700 0.9381 $148,883 2005 2 1.67 $238,050 0.8529 $203,022 2006 3 2.67 $238,050 0.7753 $184,565 2007 4 3.67 $238,050 0.7048 $167,787 2008 5 4.67 $238,050 0.6408 $152,533 2009 6 5.67 $273,758 0.5825 $159,467 • 2010 7 6.67 $273,758 0.5296 $144,970 2011 8 7.67 $273,758 0.4814 $131,791 2012 9 8.67 $273,758 0.4376 $119,810 2013 10 9.67 $273,758 0.3979 $108,918 2014 11 10.67 $314,821 0.3617 $113,869 2015 12 11.67 $314,821 0.3288 $103,517 2016 13 12.67 $314,821 0.2989 $94,106 2017 14 13.67 $314,821 0.2717 $85,551 2018 15 14.67 $314,821 0.2470 " $77,774 2019 16 15.67 $362,044 0.2246 $81,309 2020 17 16.67 $362,044 0.2042 $64,276 2021 18 17.67 $362,044 0.1856 $67,197 2022 19 18.67 $362,044 0.1687 $61,089 2023 20 19.67 $362,044 0.1534 $55,535 2024 21 20.67 $416,351 0.1394 $58,059 2025 22 21.67 $416,351 0.1268 $52,781 2026 23 22.67 $416,351 0.1152 $47,983 2027 24 23.67 $416,351 0.1048 $43,621 2028 25 24.67 $416,351 0.0952 $39,655 2029 26 25.67 $478,804 0.0866 $41,458 2030 27 26.67 $478,804 0.0787 $37,689 2031 28 27.67 $478,804 0.0716 $34,263 2032 29 28.67 $478,804 0.0651 $31,148 2033 30 29.67 $478,804 0.0591 $28,316 2034 31 30.67 $550,624 0.0538 $29,603 2035 32 31.67 $550,624 0.0489 $26,912 2036 33 32.67 $550,624 0.0444 $24,466 2037 34 33.67 $550,624 0.0404 $22,241 2038 35 34.67 $550,624 0.0367 $20,220 2039 36 35.67 $633,218 0.0334 $21,139 2040 37 36.67 $633,218 0.0303 $19,217 2041 38 37.67 $633,218 0.0276 $17,470 2042 39 38.67 $633,218 0.0251 $15,882 2043 40 39.67 $633,218 0.0228 $14,438 $2,952,528 Total Present Value of All Rental Cash Flows: Reversion: $10,080,123 0.0228 $229,836 Total Leased Fee Value Indication by Discounted Cash Flow Analysis: $3,182,364 Assumptions: Increases in rental income are based on minimum increase of 15% at each five -year interval. Discount Rate is: 10.00% Underlying land Value is currently $50 psf and increases at 2.5% per year. INTEGRA REALTY RESOURCES - LOS ANGELES, August 2004 S ZOETER PLACE PROPERTY LAND VALUATION Both the discount rate and the overall capitalization rate incorporate the perception of risk on the part of market participants. Local data on the discount rates applicable to ground - leased investments in Southern California is not available. However, we remind the reader of our preceding analysis concerning local OARs. We are able to compare the local OARs with those referenced by the Korpacz Real Estate Investor Survey, published by Price Waterhouse Coopers and Viewpoint Real Estate Value Trends, published by Integra Realty Resources. The following table presents such a summary: Korpacz Integra Realty Resources Local Land Strip Centers Viewpoint Leased Fee Direct Capitalization Rates 6.5% to 12.0% 7.5% to 10.8% 5.15% to 6.97% 9.25% (avg.) 8.9% (avg.) 6.39% (avg.) Discount Rates (IRRs) 9.0% to 13.5% 9.0% to 13.0% 11.06% (avg.) 10.8% (avg.) The average OAR for local land leased fee land sales was 6.39 %; our conclusion for the appropriate rate for the subject was 7.50 %, since some of the OAR's in the data set were at low levels which reflects the credit strength of certain lessees (particularly in the fast food category). This concluded rate is 251 basis points lower than the reported average of the Viewpoint survey and approximately 286 basis points less than the average of properties included in the Korpacz survey. (Observing that capitalization rates for leased land investments are lower than for the rates on improved commercial properties is consistent with the observation that there is less risk involved to the land holder than there is to the owner of an improved property.) If these same differentials for risk perception are applied to the discount rates of Korpacz and Viewpoint, the Korpacz data would support a discount rate of 8.20% while the Viewpoint survey data supports a discount rate of 8.29 %. It is noted that the subject has multiple sub- tenants of varying credit strength and due to a higher level of risk associated with the leased fee interest in the land, an appropriate discount rate for the subject is 10.0 %. Therefore; we have utilized the discount rate of 10.0% to convert the anticipated cash flow of the subject lease into a single present value estimate. The calculations used to convert the projected benefits under the subject lease into a single present value are shown on the previous page. This valuation tool provides a value indication for the subject leased fee interest which is rounded to: THREE MILLION ONE HUNDRED EIGHTY THOUSAND DOLLARS (S3,180.000) • • IRR PAGE 45 — Integra Realty Resources ZOETER PLACE PROPERTY RECONCILIATION RECONCILIATION The two approaches used in this analysis provide the following indicated values for the subject's leases fee interest: Direct Capitalization $3,175,000 Discounted Cash Flow $3,180,000 The discussion below outlines the relevance of the two approaches used in developing a final value estimate for the subject property. Both studies are well supported with data obtained directly from the subject lease, and information from both local and national market sources. During our interviews to confirm the sales of the leased fee investment properties, it became apparent that buyers and sellers give consideration to the Direct Capitalization of starting income as well as the discounting process for a Tong -term cash flow. Due to the major change to value within the next six months as a result of a master lease rate increase, we placed primary reliance to the value indication derived from the Discounted Cash Flow. Therefore, it is our opinion that the leased fee interest of the subject property has a market value, as of July 1, 2004, of: THREE MILLION ONE HUNDRED EIGHTY THOUSAND DOLLARS (S3,180,Q00) • mn PAGE 46 Integra Realty Resources ZOETER PLACE PROPERTY CERTIFICATION CERTIFICATION We certify that, to the best of our knowledge and belief: 1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, impartial, and unbiased professional analyses, opinions, and conclusions. 3. We 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. We have no bias with respect to the property that is the subject of this report or the parties involved with this assignment. 5. Our engagement in this assignment was not contingent upon developing or reporting predetermined results. 6. Our compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. 7. Our analyses, opinions, and conclusions were developed, and this report has been prepared, in compliance with the requirements of the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute, in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP), and in accordance with the appraisal regulations issued in connection with the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). 8. John G. Ellis, MAI made a personal inspection of this report on September 5, 2003. Ryan J. Dobbins made a personal inspection of the property that is the subject of this report on July 28, 2004. 9. No one has provided significant real property appraisal assistance to the person(s) signing this certification. 10. This appraisal is not based on a requested minimum valuation, a specific valuation, or the approval of a loan. 11. We have not relied on unsupported conclusions relating to characteristics such as race, color, religion, national origin, gender, marital status, familial status, age, receipt of public assistance income, handicap, or an unsupported conclusion that homogeneity of such characteristics is necessary to maximize value. 12. It is our opinion that the subject does not include any enhancement in value as a result of any natural, cultural, recreational or scientific influences retrospective or prospective. mn PAGE 47 Integra Realty Resources ZOETER PLACE PROPERTY CERTIFICATION 13. We have experience in appraising properties similar to the subject and are in compliance with the Competency Rule of USPAP. 14. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 15. As of the date of this appraisal, John G. Ellis, MAI has completed the requirements of the continuing education program of the Appraisal Institute. Qualifications of the Appraisers are provided in Addendum A. John G. Ellis, MAI Ryan J. Dobbins Certified General Real Estate Appraiser California Certificate No. AT029385 California Certificate No. AG007279 ERR PAGE 48 Integra Realty Resources ZOETER PLACE PROPERTY ASSUMPTIONS AND LIMITING CONDITIONS ASSUMPTIONS AND LIMITING CONDITIONS In conducting this appraisal, we have assumed, except as otherwise noted in our report, as follows: 1. The title is marketable and free and clear of all liens, encumbrances, encroachments, easements and restrictions. The property is under responsible ownership and competent management and is available for its highest and best use. 2. There are no existing judgments or pending or threatened litigation that could affect the value of the property. 3. There are no hidden or undisclosed conditions of the land or of the improvements that would render the property more or Tess valuable. 4. The property is in compliance with all applicable building, environmental, zoning, and other federal, state and local laws, regulations and codes. 5. The information furnished by others is believed to be reliable, but no warranty is given for its accuracy. Our appraisal report is subject to the following limiting conditions, except as otherwise noted in our report. 1. An appraisal is inherently subjective and represents our opinion as to the value of the property appraised. 2. The conclusions stated in our appraisal apply only as of the effective date of the appraisal, and no representation is made as to the affect of subsequent events. 3. No changes in any federal, state or local laws, regulations or codes (including, without limitation, the Internal Revenue Code) are anticipated. 4. No environmental impact studies were either requested or made in conjunction with this appraisal, and we reserve the right to revise or rescind any of the value opinions based upon any subsequent environmental impact studies. If any environmental impact statement is required by law, the appraisal assumes that such statement will be favorable and will be approved by the appropriate regulatory bodies. 5. We are not required to give testimony or to be in attendance in court or any government or other hearing with reference to the property without written contractual arrangements having been made relative to such additional employment. 6. We have made no survey of the property and assume no responsibility in connection with such matters. Any sketch or survey of the property included in this report is for illustrative purposes only and should not be considered to be scaled accurately for size. The appraisal covers the property as described in this report, and the areas and dimensions set forth are assumed to be correct. 7. No opinion is expressed as to the value of subsurface oil, gas or mineral rights, if any, and we have assumed that the property is not subject to surface entry for the exploration or removal of such materials, unless otherwise noted in our appraisal. • IRR Integra Realty Resources ZOETER PLACE PROPERTY ASSUMPTIONS AND LIMITING CONDITIONS 8. We accept no responsibility for considerations requiring expertise in other fields. Such considerations include, but are not limited to, legal descriptions and other legal matters, geologic considerations, such as soils and seismic stability, and civil, mechanical, electrical, structural and other engineering and environmental matters. 9. The distribution of the total valuation in this report between land and improvements applies only under the reported highest and best use of the property. The allocations of value for land and improvements must not be used in conjunction with any other appraisal and are invalid if so used. This appraisal report shall be considered only in its entirety. No part of this appraisal report shall be utilized separately or out of context. 10. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraisers, or any reference to the Appraisal Institute) shall be disseminated through advertising media, public relations media, news media or any other means of communication (including without limitation prospectuses, private offering memoranda and other offering material provided to prospective investors) without prior written consent from Integra Realty Resources. 11. Information, estimates and opinions contained in this report, obtained from sources outside of the office of the undersigned, are assumed to be reliable and have not been independently verified. 12. Any income and expense estimates contained in this appraisal report are used only for the purpose of estimating value and do not constitute predictions of future operating results. 13. If the property is subject to one or more leases, any estimate of residual value contained in the appraisal may be particularly affected by significant changes in the condition of the economy, of the real estate industry, or of the appraised property at the time these leases expire or otherwise terminate. 14. No consideration has been given to personal property located on the premises or to the cost of moving or relocating such personal property; only the real property has been considered. 15. The current purchasing power of the dollar is the basis for the value stated in our appraisal; we have assumed that no extreme fluctuations in economic cycles will occur. 16. The value found herein is subject to these and to any other assumptions or conditions set forth in the body of this report but which may have been omitted from this list of Assumptions and Limiting Conditions. 17. The analyses contained in this report necessarily incorporate numerous estimates and assumptions regarding property performance, general and local business and economic conditions, the absence of material changes in the competitive environment and other matters. Some estimates or assumptions, however, inevitably will not materialize, and unanticipated events and circumstances may occur; therefore, actual results achieved during the period covered by our analysis will vary from our estimates, and the variations may be material. D Integra Realty Resources ZOETER PLACE PROPERTY ASSUMPTIONS AND LIMITING CONDITIONS 18. The Americans with Disabilities Act (ADA) became effective January 26, 1992. We have not made a specific survey or analysis of this property to determine whether the physical aspects of the improvements meet the ADA accessibility guidelines. In as much as compliance matches each owner's financial ability with the cost to cure the non - conforming physical characteristics of a property, we cannot comment on compliance to ADA. Given that compliance can change with each owner's financial ability to cure non - accessibility, the value of the subject does not consider possible non - compliance. Specific study of both the owner's financial ability and the cost to cure any deficiencies would be needed for the Department of Justice to determine compliance. 19. This appraisal report has been prepared for the benefit of Bancap Real Estate Services, 192 Marina Drive, Long Beach, CA. It may not be used or relied upon by any other party except the Redevelopment Agency of the City of Seal Beach. All parties who use or rely upon any information in this report without our written consent do so at their own risk. 20. No studies have been provided to us indicating the presence or absence of hazardous materials on the site or in the improvements, and our valuation is predicated upon the property being free and clear of any environmental hazards. 21. We have not been provided with any evidence or documentation as to the presence or location of any floodplain areas and /or wetlands. Wetlands generally include swamps, marshes, bogs, and similar areas. We are not qualified to detect such areas. The presence of floodplain areas and /or wetlands may affect the value of the property, and the value conclusion is predicated on the assumption that wetlands are non - existent or minimal. 22. Our value conclusions relate to the real property only and do not include goodwill, business equipment or improvements pertaining to the realty such as signs, flagpoles, or removable water dispensers. Integra Realty Resources ZOETER PLACE PROPERTY ADDENDUM A QUALIFICATIONS OF APPRAISERS I ,. Integra Realty Resources PROFESSIONAL QUALIFICATIONS OF JOHN G. ELLIS, MAI EXPERIENCE: Managing Director for Integra Realty Resources - Los Angeles. Actively engaged in real estate valuation and consulting since 1980. Substantial experience in the appraisal of office buildings, shopping centers, industrial buildings, apartment and condominium complexes, hotels, motels, undeveloped acreage, and gas stations. Also experienced in the appraisal of restaurants, bowling alleys, motion picture and performing arts theaters, self - storage facilities, cold storage and food processing facilities, parking structures, residential and industrial subdivisions, agricultural property, waterfront property, shipping terminals, and residential estates. Clients include a variety of lending institutions and investment advisors, major corporations, attorneys, and public agencies at the federal, state, and local levels. Valuation and consulting services have been completed for lending and investment decisions, condemnation purposes, tax appeals, estate planning, and other purposes. Mr. Ellis has qualified as an expert witness throughout Southern California, regularly provides expert testimony on issues relating to real estate valuation, and is an experienced arbitrator. PROFESSIONAL Member: Appraisal Institute (MAI No. 7337) ACTIVITIES: (Over 17 years of volunteer work on boards and committees of the Appraisal Institute; past President of the Southern California Chapter of the Appraisal Institute) Licensed: California Certified General Real Estate Appraiser No. AG007279 Licensed: California Real Estate Broker No. 01213329 Member: International Right of Way Association Instructor: "Capitalization Theory and Techniques" (Nationally- approved instructor for the Appraisal Institute) Instructor: "Income Property Appraisal" ( U.C.L.A. Extension) "Appraiser's Role in Litigation" (U.C.L.A. Extension) Lecturer: Various seminars written for and presented to the Appraisal Institute, the International Right of Way Association, the International Association of Assessing Officers, U.C.L.A., and California State University, Northridge EDUCATION: B.A. Degree, Business /Economics, University of California, Los Angeles (1981) Successfully completed numerous real estate and related courses and seminars sponsored by the Appraisal Institute, accredited universities and others. Currently certified by the Appraisal Institute's program of continuing education for its designated members. QUALIFIED BEFORE Superior courts in California within the counties of Los Angeles, Orange, Riverside, and San COURTS AND Bernardino ADMINISTRATIVE United States District Court BODIES• United States Bankruptcy Courts, Central and Southern districts of California Tax Appeal Boards of Los Angeles and Orange counties Arbitration testimony at hearings in Los Angeles, Orange and San Diego counties Hired by the Superior Court of Los Angeles County on several occasions to assist the court in reconciling the disparate opinions of opposing, privately- retained valuation experts. PROFESSIONAL QUALIFICATIONS OF RYAN J. DOBBINS EXPERIENCE: Mr. Dobbins joined the commercial real estate appraisal industry in June 2002 after pursuing a career as a high school counselor. As a head counselor, Mr. Dobbins was in a management position and was ultimately responsible for all department projects. He is experienced in providing real estate research, analysis, and appraisal report production services to numerous Southern California municipalities and other public agencies. He has made significant contributions to the appraisal of institutional real estate portfolios for corporate clients. PROFESSIONAL ACTIVITIES: Associate Appraisal lnstitute. Member: Licensed: California Real Estate Trainee Appraiser No. AT029385 EDUCATION: M.S. Degree, Counseling Psychology, California Lutheran University B.A. Degree, History, Califomia Lutheran University Appraisal Institute Courses Completed: Course 120 Appraisal Procedures Course 310 Basic Income Capitalization Course 410 Uniform Standards of Professional Appraisal Practice, Part A, Course 520 Highest and Best Use and Market Analysis Other courses and Seminars: Real Estate Principles, University of California, Los Angeles Real Estate Appraisal Principles, University of California, Los Angeles Real Estate Finance, University of California, Los Angeles Valuing Income Producing Properties, California State University, Northridge Building a Real Estate Investment Portfolio - Seminar, University of California, Los Angeles ARGUS Power User Training, Realm • • ZOETER PLACE PROPERTY ADDENDUM B DEFINITIONS • Integra Realty Resources ZOETER PLACE PROPERTY DEFINITIONS These definitions have been extracted, solely or in combination, from definitions and descriptions printed in: > Uniform Standards of Professional Appraisal Practice, 2002 Edition (USPAP); > The Dictionary of Real Estate Appraisal, Third Edition, Appraisal Institute, Chicago, Illinois, 1993 (Dictionary); > The Appraisal of Real Estate, Twelfth Edition, Appraisal Institute, Chicago, Illinois, 2001 (Twelfth Edition); > Income /Expense Analysis, 2001 Edition — Conventional Apartments, Institute of Real Estate Management, Chicago, Illinois, 2001 (IREM); > Marshall Valuation Service, Marshall & Swift, Los Angeles, California, (Marshall). Accrued Depreciation The difference between the reproduction or replacement cost of the improvements on the effective date of the appraisal and the market value of the improvements on the same date. (Dictionary) Amenity A tangible or intangible benefit of real property that enhances its attractiveness or increases the satisfaction of the user, but is not essential to its use. Natural amenities may include a pleasant location near water or a scenic view of the surrounding area; man -made amenities include swimming pools, tennis courts, community buildings, and other recreational facilities. (Dictionary) Appraisal The act or process of developing an opinion of value; an opinion of value. (USPAP) Business Value A value enhancement that results from items of intangible personal property such as marketing and management skill, an assembled work force, working capital, trade names, franchises, patents, trademarks, contracts, leases, and operating agreements (Dictionary). Deferred Maintenance Curable, physical deterioration that should be corrected immediately, although work has not commenced; denotes the need for immediate expenditures, but does not necessarily suggest inadequate maintenance in the past. (Dictionary) Discounted Cash Flow (DCF) Analysis The procedure in which a discount rate is applied CO a set of projected income streams and a reversion. The analyst specifies the quantity, variability, timing, and duration of the income streams as well as the quantity and timing of the reversion and discounts each to its present value at a specified yield rate. DCF analysis can be applied with any yield capitalization technique and may be performed on either a lease -by -lease or aggregate basis. (Dictionary) IRR Integra Realty Resources ZOETER PLACE PROPERTY Effective Date of the Appraisal The date at which the value opinion is an appraisal applies, which may or may not be the date of inspection; the date of the market conditions that provide the context for the value opinion. Current appraisals occur when the effective date of the appraisal is contemporaneous with the date of the report. Prospective value opinions (effective date of the appraisal subsequent to the date of the report) are intended to reflect the current expectations and perceptions along with available factual data. Retrospective value opinions are likely to apply as of a specific historic date; the opinions are intended to reflect the expectations and perceptions of market participants at the specified date, along with available factual data. Data subsequent to the effective date may be considered in estimating a retrospective value as a confirmation of trends. (Dictionary and USPAP) • Entrepreneurial Incentive A market - derived figure that represents the amount an entrepreneur expects to receive as compensation for providing coordination and expertise and assuming the risks associated with the development of a project. (Twelfth Edition) Entrepreneurial Profit A market - derived figure that represents the amount an entrepreneur receives for his or her contribution to a project and risk; the difference between the development cost of a property and its market value upon completion and stabilization, which represents the entrepreneur's compensation for the risk and expertise associated with development. Entrepreneurial profit is an amount earned, estimated after completion, while entrepreneurial incentive is an amount anticipated, prior to development. (Twelfth Edition) Exposure Time Exposure time is 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. Exposure time differs from the marketing period in that exposure time is assumed to precede the effective date of the appraisal. (USPAP and 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) Going- Concern Value The value created by a proven property operation; considered as a separate entity to be valued with a specific business establishment. (Dictionary) Gross Building Area (GBA) The total floor area of a building, including below -grade space but excluding unenclosed areas; measured from the exterior of the walls. (Dictionary) • Highest and Best Use The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum profitability. (Dictionary) IRR Integra Realty Resources • ZOETER PLACE PROPERTY Insurable Value Value used by insurance companies as the basis for insurance. Often considered to be replacement or reproduction cost less deterioration and non - insurable items. Sometimes cash value or market value but often entirely a cost concept. Non - insurable items (also known as exclusions) are a matter of underwriting policy, not valuation. (Marshall) Investment Value The specific value of an investment to a particular investor or class of investors based on individual investment requirements; distinguished from market value, which is impersonal and detached. (Dictionary) Leased Fee Estate An ownership interest held by a landlord with the rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the leased fee are specified by contract terms contained within the lease. (Dictionary) Leasehold Estate The interest held by the lessee (the tenant or renter) through a lease conveying the rights of use and occupancy for a stated term under certain conditions. (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: > buyer and seller are typically motivated; > both parties are well informed or well advised, and acting in what they consider their best interests; ➢ a reasonable time is allowed for exposure in the open market; > payment is made in terms of cash in United States 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. (USPAP, according to the Federal Register, CFR 34.43(F)) Marketing Period • The amount of time it might take to sell an interest in real property at its estimated market value during the period immediately after the effective date of the appraisal. Marketing period is a function of price, time, use, and anticipated market conditions. (Dictionary and USPAP) IRR. Integra 'Realty Resources ZOETER PLACE PROPERTY SUBJECT PHOTOGRAPHS Rentable Floor Area (RFA) An area computed by measuring the inside finish of permanent outer building walls or from the glass line where at least 50% of the outer building wall is glass. Rentable floor area also includes all areas within outside walls less stairs, elevator shafts, flues, pipe shafts, vertical ducts, air conditioning rooms, fan rooms, janitor closets, electrical closets, balconies and such other rooms not actually available to the tenant for his furnishings and personnel and their enclosing walls. No deductions are made for columns and projections necessary to the building. (IREM) Replacement Cost The estimated cost to construct, at current prices as of the effective date of the appraisal, a building with utility equivalent to the building being appraised, using modern materials and current standards, design and layout. (Dictionary and USPAP) 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 the deficiencies, superadequacies, and obsolescence of the subject building. (Dictionary) Room Count The number of rooms in a building; a unit of comparison used primarily in residential appraisal. No national standard exists on what constitutes a room. The Federal Housing Administration counts an alcove opening off the living room as one -half room, but does not count dining space within a kitchen. The generally accepted method is to consider as separate rooms only those rooms that are effectively divided and to exclude bathrooms. (Dictionary) Stabilized Occupancy Occupancy at that point in time when abnormalities in supply and demand or any additional transitory conditions cease to exist and the existing conditions are those expected to continue over the economic life of the property; the optimum range of long -term occupancy which an income - producing real estate project is expected to achieve under competent management, after exposure for leasing in the open market for a reasonable period of time at terms and conditions comparable to competitive offerings. (Dictionary) Use Value The value a specific property has for a specific use. (Dictionary) 1RR Integra Realty Resources • ZOETER PLACE PROPERTY SUBJECT PHOTOGRAPHS ADDENDUM C SUBJECT PHOTOGRAPHS IRR Integra Realty Resources ZOETER PLACE PROPERTY SUBJECT PHOTOGRAPHS ' ;14INT :'1 $; r. ' 1 ,1 ' ,,,. 1 k 1 ` ...1. r 1.. ' ▪ r1i 1P, ' • ( ry :,t,. S r , ra C :.• 1 •' fi ` .'!1 lS'R 4 � 1 , . ..= �'t • �/ )i• ;�" ''� ' 'v]J � j ..� �, I IH,-$� ^-� 1 .{ , • 1 0 . . ,,',4,;•.: i $ ; ,.s3t ' ��: 4 F.k �5,�,i t rt t .\ \ >�� , , �� y , , �i — ',.• • , , T'f{ t�rll 'tGO' r� -"' � 1 _� c T ` + 3 "'...N,-, 3 n y t;' . i � r Sy v �' ,, , `S� iI� 7� - } . ►4 1 ' . '^4 ,0TC4 (..s. r"" 1 - . -i` IF .... ,,, 7.poki., _ _- 7++'' .. s . _ l i ' • • •`'' ' 'mot ' . fir •• � ' • 1` . � .'. �P1iVEEt" r is s ; `' j' ° � -;! 7 `d c, , i •x... . • '�I" 1' < i l!t _6 i t _ i -q E 1�.,, 111• #' . -': - J r s',1, ' -- ' y1`.fitil�; .- t o�� fit. rr � A r „ � unt MWICM. „ IDe1IPSSlme w� J 4 ��' � .1'^ a t r r r i v_ b,-;,3•„: 1 '>. ?. T a n y ,. _ • ,k,..,--Z)- . ' , 7` ,_,+, r --- ,i' c+ • d ,_t I `j-... ' 4 d � r - r• a of > i tC ' `.. ,, ,,,� U . t -+._. _, -: i_, . • _ . -..."..7'''-- _. . t � - r :, _ , s c , _ • ,, , - View southwesterly of eastern entrance from PCH. View southeasterly of western entrance from PCH. July 28, 2004 July 28, 2004 a ,,t #� I v ��< sl • a ,- -,t� r - «Y S O ▪ T .3 r 'w ts e �4 ` ( i iMfa ` ` �i: � � _ t b v - i "" : I.j:. f saik , S t �' _:,41 - ■ J "r' --t: k `� C ash N ' t'f •, �-� — • � l a - �r t View southwesterly of western most building. View southeasterly of eastern most building. July 28, 2004 July 28, 2004 �Y f j ;,7 v y - � g ,, . s ., ' , • r � _ k ERS • _, , , i ii e el -v t i .� rn _ � } , . _".t "' ". - __ i - nm snc tealm -. caCL • t l ldl t l . ' iiim a 4- The 1JPS$tore� . a , : "''„ 30ZL ' fir T - •V11.11•11111 �� 41 11 li E1 wo � :•-'." rr " '''-7-.. E1 .- , t- r`` View southerly of typical in -line space from PCH. View northerly of typical in -line space from 12 St. July 28, 2004 entrance. July 28, 2004 IRR Integra Realty Resources ZOETER PLACE PROPERTY SUBJECT PHOTOGRAPHS � ,�• , •,` ; fy i, A t A AN. , , ryi. 4 3y,T 1 , c . s ♦� I ts ', I “''' ! - £r y�A,,,- _•,yam'. -.--- r �r s l 4. e -, t .S �..[�f � , s -,.';":1",-,4„ �- 'e d` T - 4f 1 Ss'� J! F �� r` ' View southwesterly of subject from intersection of View westerly of entrance from 12 Street. 12 St. and PCH. July 28, 2004 July 28, 2004 � j r / s 1 i ' . '� • ` T II :::1: �y s. -. q ' ? a } > r ,. 1 7. r,� i T $r , x311 '• n t. H ioE -S.-. '', . , 'I"t'v rs ” .t h . ,2' r 1 ,, ,i , ... , :,..! , ,, , 7,.. `;?,-0 7...-. r i' 1 - • - t- ..P: , ,--±--1-,',r-s--,...t-if--1- ' -, L • r - r r a t, ' ' � * Y I.' i:, �• r - , C ;_t,,,, Gbh c� .,?, „ d s .� gi, -.' fit'... ( ,.. .;'V ,,' - -� } tA ]' N �. .� v wyF .{ 1 , " .r --'T �2 'ik: r 'te e ]l ; r .- :'. r --- -, ' } View easterly of westbound PCH traffic. View westerly of eastbound PCH traffic. July 28, 2004 September 5, 2003 '•-!. . r..tr. it'F s r . . Sri 'f7' { il• ° - is ` • ` a coil , y 7i t .. .i' .� t q 0.', `. ill 1 `` ,r : i Rai View northerly of 12th Street. View southerly of 12th Street. July 28, 2004 July 28, 2004 IR R Integra Realty Resources ZOETER PLACE PROPERTY OPERATING STATEMENTS ADDENDUM D PROPERTY INFORMATION • Integra Realty Resources LEASE SUMMARY - ZOETER PLACE SITE The following is a summation of the original lease and amendments. This is not intended to be a legal summation of the contract, but merely an overview of pertinent aspects Lease Date: November 30, 1987 Lease Commencement: March 6, 1989 Landlord: The Redevelopment Agency of The City of Seal Beach Tenant: Gemtell Corporation and Dana MacKay (Originally) Trust "A" of the Karl and Tina Rodi Trust (According to the Third Lease Amendment) Lease Term: Thirty-five years for initial term Commencement Date: March 6, 1989 Options to Extend: Tenant shall have four successive periods of five years each Taxes Tenant to pay Utilities and Maintenance: Tenant to pay Insurance: Tenant to pay Condemnation: Condemnation terminates the lease and the tenant is entitled to receive fair market value for its interest in the property Subleases: Subleases are subordinate to the master lease Parking Reservations: Within the parking easement area, the city reserves eight parking spaces Delinquent Rent: The tenant (Rodi Trust) was required to pay $271,934 at time of executing the Third Amendment. If tenant defaults on or before June 30, 2004, an additional $96,040 plus interest becomes payable • Rent Schedule: According to the Third Lease Amendment, the required rental payments are as follows: Years Annual Rent 1 -5 $180,000 6 -10 $220,000 or $180,000 if tenant not in default 11 -15 Annual rent paid in the year 10 increased by the culmative change of the CPI. However, the change cannot be less than 15% or more than 30% 16 -20 Annual rent paid in year 15 increased by the culmative change of the CPI. However, the change cannot be less than 15% or more than 30% 21 -25 Annual rent paid in year 20 increased by the culmative change of the CPI. However, the change cannot be less than 15% or more than 30% 26 -30 Annual rent paid in year 25 increased by the culmative change of the CPI. However, the change cannot be less than 15% or more than 30% 31 -35 Annual rent paid in year 30 increased by the culmative change of the CPI. However, the change cannot be less than 15% or more than 30% 36 -40 (First Option.) 41 -45 (Second Option) 46 -50 (Third Option 51 -55 (Fourth Option) 56 -60 (Fifth Option) During Options: Annual rent increased at start of each five -year period by the cumulative change in the CPI. However, change cannot be less than 15% or more than 30 %. Option to Purchase: During the period from July I, 2004 through December 31, 2004, the tenant shall have the option to purchase the landlord's interest in and to the property. A detailed procedure for determining the market value is described in the lease. However, it essentially calls for the • establishment of an appraised market value of the landlord's interest, subject to the lease. 07/61/2004 09:59 FAX 626 799 3921 CRESTDIONT INDtSTRIES a 002/011 . Rodi Properties, 1 .0 2600 Mission Street, Suite 200 San Marino, California 91108 -1676 626 799 -1111 • Fax 626) 799 -3921 VIA FEDERAL EGRESS, FA & LE S. MAIL July 1, 2004 Ms. Pamela Arends -King, Agency Administrator City of Seal Beach Redevelopment Agency 211 8th Street Seal Beach, CA 90740 RE: Notice of Exercise of Option • Dear Pam: We are hereby exercising the Purchase Option under Section 5 of the enclosed Thirc. Amendment to Master Lease, entered into as of the 26th day of March, 1996 by and between the Redevelopment Agency and the City of Seal Beach, as Landlord, and R odi Properties, LLC (previously Trust "A" of the Karl and Tina Rodi Family Trust), as Tenant. The terms of the Purchase Option provide for a valuation process to arrive at a purchase price of the Property owned by the Redevelopment Agency. In accordance with Sem:tion 5 (d)(2), we understand from June Yotsuya and Whit Latimer that your appraiser John G. Ellis will be updating his September 2003 appraisal to assist in this process. We hereby appoint L. Raymond Freer, MAI,.of Freer Appraisal Associates, as our appre iser for purposes of this process. We hope that our two appraisers can "meet promptly and attempt to establish the fair market value of Landlord's interest in the Property," as contemplated under Paragragh 5 (d)(2) (last sentence). We look forward to working with the Redevelopment Agency and the City of Seal 1 each and their representatives to finalize this transaction. With best regards. • • ours very truly, - - b . M. Galbraith JMG /esr Enclosure p.s. Please send all notices to Tenant to Rodi Properties, LLC, 2600 Mission Street, S ute • 200, San Mari- o, CA 91108, Attention: James M. Galbraith. _ • cc: Mr. John Bahorski Ms. June Yotsuya Mr. Whitney Latimer • Mr. John G. Ellis Quinn M. Barrow, Esq. Mr. L. Raymond Freer 07/01/2004 09:59 FAX 626 799 3921 CRESTtION'T IiNDUSTRIES 1003/011 • • 10/30/98 FR X 5:27 FAX 626 799 3921 a 4•+ Jx4 u�uu • THIRD AMEND TO MASTER LEASE This Third Amendment to Master ase ( "Th Amendment") is entered into as of the day of , 1996, by and between The Redevelopment Agency of the City pf Seal Beach ( "Landlord "), and Trust "A" of the Karl and Tina Rodi Family Trust ( "Tenant "). BECITA S• A. , Landlord leased certain real property ( "the Property ") to Gemtel Corporation, a California corporation, and Dana John MacKay ( "Original Tenants") pursuant to that Master Lease, dated as of November 30, 1987 ( "the Master Lease "), a memorandum of which was recorded June 20, 1989, in Official Records of the County Recorder of the County of Orange, State of California, for a term which commenced March 6, 1989; B. Landlord and Original Tenants' successors is interest entered••into a First Amendment to Master Lease dated as of August 31, 1989 ( "the First Amendment "); C. Landlord and Original Tenants' successors is interest entered into a Second Amendment to Master Lease dated as _ of January 29, 1992 ("the Second Amendment "); D. As of March 6, 1995, the rent payable under the Master Lease was delinquent in the amount of $321,247, plus $46,727 accrued interest on the amount of the delinquences; E. Tenant has acquired by foreclosure the entire interest of the tenant under the Master Lease, as amended; F. Landlord and Tenant desire to enter into a Further amendment of the Master Lease. -: TORE, . in copsidez'ation of the mutual .. - - d qt af7-th Lch :ara� - --- . - _ -. c ovenzirit c`aiita'g'ber'ea.n; .'�Fia = '7feagi zizT�. z -.�- -• hereby aeJnevledged, the parties hereto hereby agree as follows: • i, peljnquent Rent. Tenant shall pay the delinquent rent and accrued interest thereon as follows:. $271,934 upon execution of this Third - I Amendment; b. $96,040, plus interest from March 6, 1)95, at the xaximum rate that a non - exempt lender is permitted to .:harge on loans for any use other.tha for petrsonal, family or hoisehold • purposes, under California constitution Article XV, Sectio'i 1; - we now in effect or hereafter from time to time amended, payable at the option of Landlord upon either (i) any default by Tena it under the Master * if not cured within any cure perio•l • I - 07/01/2004 10:00 FAX 626 799 3921 CRESTMONT INDUSTRIES 004 /011 10/30/98 FRI 15:28 FAX 826 799 3921 •1-*-+ Wu .4 • • permitted under the Master Lease; or (ii) any voluntary or involuntary assignment or transfer of Tenantos interest in - the Master Lease, other than a Permitted Transfer; provided, ho'rever, that if the amounts due under this Paragraph ]..c have not b•acome payable on or before June 30, 2004, such amounts shall be d•mmed waived and released by Landlord. Tenant acknowledges that each payment under this Section 1 constitutes rent payable under the Lease (in addition to th'a rent otherwise payable under the terms of the Lease). 2. Initial Annual tent. Paragraph 4.2 of th'a Master Lease is hereby amended_ to provide in its entirety ais follows: - "4.2 xn.tial Annual Rent. The Annual Rent payable . by Tenant to Landlord during the period from the Commencement Date (March 6, 1989) until the fifth anniversary of the Commencement Date shall .be_ $180 per year. The Annual Rent payable by Tenant to Landlord during the period from the fifth anniversary of the Commencement Date until the tenth anniversary of the' Commencement Date shall be $220,000 per year." 3. Rent Ad`ustment. Paragraph 4.3 of the Master Lease is hereby amended to provide in its entirety as follocrs: "4.3 Pent Adjustment. The Annual Rent shall be adjusted on the tenth anniversary of the Commencement Date and every five years thereafter (each, an "Adjustment Date "), during the initial Term and any Extended Terms, as follows: "The base for computing the adjustment c'n each Adjustment Date is the consumer Price Index for All Urban Consumers for the Los Angeles - Anaheim- Riverside Metropolitan Area published by the United States Department of Labor, Bureau of Labor statistics ( "Index "), which is _. - =- , _, Adjustment Date ( "the Base Index) tie If t Index pLib7.j.�Yie for the third calendar month prior to that Adjustment Date ( "the Adjustment Index is more than 115% of the Base Index but_less than 130% of the Base Index, the Annual Rent Eha11 be adjusted to an amount determined by multiplying the Annual Rent 121 effect immediately prior to the Adjustment Date by a fraction, the numerator of 'which is the Adjustment Index and the denominator of which is the Base Index, If • the Adjustment .index is equal to or more than 3.30% of the • Base Index, the Annual Rent shall be adjusted to an ameunt - - equal-to 130% of the Anzua3. Rent in effect immediately prior for the Adjustment Date. -If the Adjustment Index is less - than or equal to 115% of the Base Index,' the Annual Rer t 960131 97:0.aor (7) - • 07%01/2004 10:00 FAX 626 799 3921 CRESTMONT INDUSTRIES 0005 /011 10/30/93 t'RI 15:30 FAX 620 799 3921 jet, 4ei I.J shall be adjusted to an amount equal to 115t of the Annual Rent in effect immediately prior to the Adjustment bate:. "If the Index is changed so that the baste year differs from that used for the Beginning Index, the Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. If the Index is discontinued or revised during the Terra, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the Index had not been discontinued or revised." 4- ��� ��; ' �__ ; -. Wa'ver. Notvithsta.nding anything in Paragraph 4.2 of the Master Lease (as amended by Section 2 of this Third Amendment) to the contrary, for the period from March 6, 1995, until the tenth anniversary of the commencement Date Landlord shall waive the portion of Annum. Rent - in excess of $15,000 per month so long as: (i) Tenant timely pays (or pays within the applicable cure period) monthly installti - •- • of Annual Rent at the rate or $15,000 per month; and (ii) no other default by Tenant occurs under the Master Lease which is not cured within any cure period permitted under the Master Lease; and (iii) Tenant's interest in the Master Lease is not voluntarily or involuntarily assigned - or transferred, other than by a Permitted Transfer. If the conditions for the partial rent waiver under this Section 4 are satisfied throughout the period from the date of this Third Amendment until the tenth anniversary of the Commencement Date, for purposes of computing the adjusted Annual Rent on the tenth anniversary of the Commence. Date pursuant to Paragraph 4.3 of the Master Lease (as amended by Section 3 of this Third Amendment) the "Annua3. Rent in effect immediately prior to the Adjustment Date" shall be deemed to be $180,000- 5. Option to purchase Landlord's _interest. - - - a. Grant of opt.oJl . Landlord grants to Tenant • Landlotd' a intere:st -- _ _ the Property in accordance with the proviisi of`'t'hi .ct.i.O - _ ,— as long as at the time Tenant exercises the Purchase Option: (i) there is no existing default by Tenant under the master Lease; and (ii.) Tenant's interest in the Master Lease has not been voluntarily or involuntarily assigned or transferred subsequent to the .date of this Third Amendment, other than by a Permitted Transfer. b. Option Pqrigd. Tenant shall have the ric;ht to exercise the Period") b ginningdJulyp , 2004, l and ending Deceaib 20(4. c. fethod oY r"b~er glairg option. Tenant almll 960131 3750.eer t7) a3 e • • 07/01/2004 10:01 FAX 626 799 3921 CRESTMONT INDUSTRIES 1 006/011 10/30/ FR1 15:31 FAX 0Z6 799 3921 +a) JMA; WU° • • • • exercise the Purchase option by giving notice ( "option Notice") to Landlord within the option Period, d. Purchase Price_ (1) The purchase price shall be equal to the greater of (a) fair market value of Landlord's interest in the Property, or (b) the then- unpaid principal balance of the note and deed of trust encumbering the Property in favor of the Los Alamitos Unified School District. (2) For a period of ninety days (the "Negotiation Period ") after Landlord receives the option Notice the Parties shall attempt to agree on the purchase price_ If the Parties are unable to agree on the purchase price during the Negotiation Period, then within twenty days after the end of the Negotiation Period each Party, at its respective cost and by giving notice to the other Party, shall appoint an M.A.I. or similarly- qualified real eetate appraiser with at least_five years' full -time commercial appraisal experience in the area in which the Property is located to appraise the fair market value of Landlord's interest in the Property. If a Party does not appoint an appraiser within the twenty , day period after the end of the Negotiation Period, the single appraiser appointed shall be the sole appraiser of the fair market value of Landlord's interest in the Property. If the two appraisers are appointed by the Parties as stated in this paragraph, they shall meet promptly and attempt to establish the fair market value of Landlord's interest in the Property. (3) If the two appraisers are unable tc agree on the fair market value within sixty days after the second appraiser has been appointed, they shall attempt to elect a third appraiser meeting the qualifications stated in this paragraph within ten days after the last day the tWo appraisers are given to determine the fair' market value. If they are unable to agree on the third appraiser, either of the Parties to this Lease by c ___ - ,giving ten days' notice to the.other Party can apply to the then �. _. .. president of sie••county..zea e at -e /147= Axons -e._ unty.,_ the presiding judge of the superior court of that county,'fcr t selection of a third appraiser who meets the qualifications stated in this paragraph. Each of the Parties shall bear 011e half of the Cost of appointing the third appraiser and of paying the third appraiser fee. (4) Within sixty days after the selection of the third appraiser, a majority of the appraisers shall determine the fair market Value. If a majority of the appraisers are unable to agree upon the fair market value within the stipu3ated period of time, the three appraisals shall be added together and their total divided 1?y three; the resulting quotient shall t e the purchase price. If, however, the low appraisal or the high • 960131 6730.eer CV) -4-- • 07/81/2004 10:01 FAX 626 799 3921 CRESTMONT INDUSTRIES 0007/011 . 10/30/V t'ni 14.4d rAit vcu (4u auci — appraisal is more than 105 lower or higher than the middle appraisal, any appraisal which differs from the ;piddle appraisal by more than 10% shall be disregarded. If only one appraisal is disregarded, the remaining two appraisals shall be added together and their total divided two; the resulting quotient shall be the purchase price. If both the low appraisal and the high appraisal are disregarded as stated in this paragraph, the griddle appraisal shall be the purchase price. (5) In addition to all other factors to be considered by the Appraisers appraising the fair market value of Landlord's interest in the Property in accordance with generally - accepted professional appraisal standards, the appraisers: (i) shall use as the valuation date the date that the first appraiser is appointed; and (ii) shall include in the fair market value of Landlord's interest in the property the value of the Easements, as modified pursuant to Section 5.f(2) of this Third Amendment. (6) After the purchase price has been sat, the appraisers shall immediately notify the Parties. If Tenant objects to the purchase price that has been "set, Tenant may rescind the exercise of the Purchase Option if Tenant both: (i) notifies Landlord of the rescission within thirty days after receipt of notice from the appraisers of the purchase price, and (ii) pays all costs incurred by Landlord in connection with . :.he appraisal procedure that set the purchase price. e. Payment of Purchase Price. The purchase price shall be payable in cash in lawful money of the United States to Landlord by Tenant at close of the escrow described in Section 5.g of this Third Amendment. f. Title. (1) Landlord shall deliver to Tenant an executed grant deed in recordable for conveying the Propex±r, __. free and clear _of all liens and Encumbrances (other than those "... .__ encumbering - the leasehold interest, aralatake an d aeesE ent:!) , _ subject to all covenants, conditions, restr5.cteons, - e - Wsementar, • - - and rights of way of record, leases gr other tenancy agreements (other than the Master Lease, which shall terminate upon the close of the escrow) , other matters of record, and anything of record or not of record that in any way affects title to the Property resulting from the acts or omissions of Tenant. (2) At the close of escrow Tenant shall enter into and Landlord shall cause the City to enter into all amendment of the.Parking Easement Agreement substantially in the form attached hereto as Exhibit A. • g. Escrow. The sale shall be consummated • 960131 7 Q.aer (7) eg» • • • ' 07/01/2004 10:02 FAX 626 799 3921 CRESTM0NT INDUSTRIES U008/011 * 10/30/9$ iii 15:34 tA\ CLO !y JyG1 • • °" • • through a mutually - acceptable escrow. Escrow shall close within sixty (60) days after the purchase price has been set under Section 5.d of this Third Amendment: provided, however, that Tenant may extend the sixty- day'period by not more than two additional fifteen (15) day periods if, despite Tenant's commercially reasonable efforts, Tenant's lender is not prepared to fund the portion of the purchase price which the lender has co:nuitted to lend to Tenant. Escrow shall be deemed to be closed on the date the grant deed is recorded. h. grorations. Rent shall be prorated as of close of escrow. i. clIeLl g_geAts. Transfer taxes, recording fees the cost of any title policy, escrow Charges and all other closing costs shall be paid by Tenant,' • j. Termination Upon Close of Escrow. On close of escrow the Master Lease shall terminate. 6. Security Deposit. Notwithstanding anything to the contrary in Paragraph 4.4 of the Master Lease, the parties acknowledge that the Deposit was never delivered to Landlord. However, the parties believe that Landlord's security has bean increased by Tenant's construction of improvements on the Property, and therefore agree that Paragraph 4.4 of the Master Lease is hereby deleted in its entirety. 7. permitted Transfer. For purposes of this Third • Amendment, the term "Permitted Transfer" 'shall mean: (i) a transfer to other Rodi family trusts or beneficiaries of suca trusts, or to an entity owned solely by such trusts or i beneficiaries; (ii) an involuntary transfer to an institutional creditor (other than a government agency or corporation [suca as, without limitation, RTC or FDIC]) holding a security interest in the Master Lease; and (iii) a transfer with the prior written consent of Landlord, which consent may be withheld in the sole and complete discretion of Landlord. 8. Address for Notices. • •• Paragraph 18- at the • Master Lease is amended to provide that Tenant's address for notices is as follows: Trust "A" of the Karl and Tina Rodi Family Trust c/o ;lames M. Galbraith 2600 Mission Street, Suite 200 San Marino, California 91108 t • • 960131 0750.aer (7) 07/01/2004 10:02 FAX 626 799 3921 CRESTRONT INDUSTRIES 009/011 With a copy to: John D. Pettker, Esq. Rodi, Pollock, Pettker, Galbraith & Phillips 801 South Grand Avenue, Suite 400 Los Angeles, California 90017 9. Continuing Effect. Landlord and Tenant acknowledge that the Master Lease, as amended by the First Amendment and the Second Amendment, is in full force and effect, except as modified by this Third Amendment. In the event ,f any inconsistency between the terms and conditions stated in t:ze Master Lease, as previously amended, and the terms and conditions set forth in this Third Amendment, the terms and conditions3 in this Third Amendment shall control. IN WITNESS WHEREOF, the parties hereto have ente_-ed into this Third Amendment as of the date and year first written above. THE REDEVELOPMENT AGENCY OF THE C: :TY OF SEAL BEACH, a public body, corporn.te and politic ( "La ) • 7 s / � . Y- .. Executive Director Attest: - J : L ��l1.c -LC / i { C.. 4 Secretary - 1 ! TRUST "A" OF THE KARL AND TINA ROM FAMILY TRUST ( "Tenant") By• - • The undersigned, Permitted Lender under the Master Lease, acknowledges and consents to the foregoing Third Amendment to Master Lease. - CHINO VALLEY BANK By: 960131 8750.aer C7) -7- 07/01/2004 10:02 FAX 626 799 3921 CREST)IONi INDUSTRIES 0010/011 10/30/9 FRI 15:36 FAX 626 799 3921 +++ JIG 000 a • I With a copy to: John D. Pettker; Esq. Rodi, Pollock, Pettker, Galbraith E. Phillips 801 South Grand Avenue, Suite 400 • Los Angeles, California 90017 9. Contiumino Effect. Landlord and Tenant acknowledge that the Master Lease, as amended by the First Amendment and the Second Amendment, is in full force and effect, except as modified by this Third Amendment.• In the event of Iny inconsistency between the terms and conditions stated in the Master Lease, as previously amended, and the terms and conditions set forth in this Third Amendment, tha terms and conditions i1 this Third Amendment shall control. IN WITNESS WIU REOF, the parties hereto have entered into this Third Arsenduent as of the date and year first written above. • THE REDEVELOPMENT AGENCY OF THE CITY OF SEAL BEACH, a public body, corporate and politic ("Landlord") Syc Executive Director Attest: • Secretary TRUST RAN OF THE EARL AND TINA RODI FAMILY TRUST ("Tenant's) 0 • The undersigned, Permitted Lender under the Master Lease, acknowledges and consents to the foregoing Third Amendment to }faster Lease, CHINO VA =: BANK I • l By; ,A FAr r� //R ._ - /. 4. 960131 6750.0or (7) , + 07/01/2004 10:03 FAX 626 799 3921 CRESTMONT INDUSTRIES 0011/011 lwJbl 1U.3.! r i rr _��.� .� ,1�... .. — — .. — - I' Post -it' Fax Note 7671 ogle _ - G • ra • , � s Deed • Phone `/ Fax; November 26, 2001 Citizens Business Bart: 125 North First Avenue Arcadia, California' 91006 Lessor's Consent and Agreement: The Redevelopment Agency of the City of Seal Beach is the ground Lessor unde- that certain Master Lease dated November 30, 1987. The Lease was originally between the Agency and Gemtel Corporation and Dana JolmMacKay, as the original lessee. The Agency, through amendments, has allowed assignment of tb.e Lease to Trust A of the Karl and Tina Rodi Family Trust and then. to Rodi Properties, LLC (assigaed April 1 998). Rodi Properties, LLC is current lessee. The Agency and Lessee acknowledge the t the . lvlaster Lease and all of the amendments are in MI force and effect. The rent is current on said Lease as of November 26, 2001 and to the Lessor's knowledge, the Master Lessee is not in default in any respect under the terms and provisions of the Master Lease or any amendments. The Lessee is obtaining a new loan from Citizens Business Bank and the Bank would like the Lessor to affirm the above and also the following: Lessor hereby consents to the e;,tension of a loan by the Bank in the amour. t of $1,250,000. Lessor agrees to notify the Bank of any default by the Lessee under the Master Lease and its amendments, The notice is to be sent to Citizens Business Bank, 701 North Haven Avenue, Ontirio, California 91764, attention Loan D epartfnea. Lessor: ' • , ' - ' ' ' • ' a ,2aFe n4.t�•� Date: ti■ By: # Name: ea f (r• c� `�.iu w Tide: _ . TOTAL P.01 • • • • ZOETER PLACE PROPERTY COMPARABLE PHOTOGRAPHS ADDENDUM E PHOTOGRAPHS OF THE COMPARABLES Land Sales Integra Realty Resources •r f• X 1 1 ,, t • F. j ° g' tom• «l 'r .. - ti. _ • '+-�_ _• & ®.. � f :` 9 •I TT2+ ,r, 1 •� ° ']: • F. 1 ia3 ^ N'v .Y e t r' L s,i �:,! - Ql • - t -.7iA • 3, f n .. " . .' may ® t T ' _ ` � - ',' .. { .'-'1,-1.' " , ;. -4 '.........' • _ . ' r �� x 9 :t3 S �`- ��'� v r _ - �,�C s ��� rPAVS4 n�� .. t ti-,,.`m. ' �ti...,�,. +V ,. - -, ` ,sl I. _C r al l t.l u ,_ + _ _Ise ,_ r, r,. � rrG �I i r• P'S'i 7 _ _ ?T ..,""7,',.,7„,,,. _ i L 4 �� ' � -. +.w�'+' L^te,i^a -1 i 4 ' .� .��� .-.- ..4.r__e C �1 E-, T 6 ..^N ,• lam' .,� _� ` r -7 - C . t �, fi ' F i t , ..a "5.. Item No. 1: 16491 Bolsa Chica Road July 28, 2004 Item No. 2: 200 ng Beach Boulevard July Lo 28, 2004 Y� l F StY:p' ? ?.•01 . 5.,„• - ..',4' , .` - K °'w XF ws3 i * Sr j n ur � tl r( Sa y ' 4 ri ' r ' i 11 - 1 ,, L 7.s 3'1 '' k ing, ' i j � .4;7P' � ~ ; ` f � - ,� 4 wv „, gf��..f6d • I y ■ 3 l I u • ■ • ".. ''yra _'F 4.• frr_ : -- mil °�Yr s •.. ; y . 4.c " .4th • ' - I • G! Il 1 _ • r� 'T �•, x rv. t as >:. .Y' t 11 i1 -1 a' 1! 2i:::4-"""-:":- 0,1;W:'-'1' r v ; � t �y y ° t - c.`. r n r-4 l .. L --- 1 -1 j f � e�'W ' — ! r 1 _ "a - fit " , y � �� ' . 1 . , �1 .. ��}.� • .. .- x Q. = ti �{ ... T "F.' -- yt..,..v- "�' i� —. i � — _ + y i ( u& w± s j . � L • � . --'----7°-;'''.""-7--- Z •_ 4Tt'AS.A.d:_Y,. ..L..! ._ - -' . Item No. 3: 13982 Bolsa Chica Road Item No. 4: 555 E. Ocean Boulevard July 28, 2004 July 28, 2004 ,:r 4 ' •y '; '. r t � x „+ w YC 3 1.. r x +' / "-* , 3.r TS `� � , " 1 � m f .:v % ■ - �, =a $.i ' r �y , ' � '- �* g ' ' -'r .. T, t4 i +.4�F' r I ie ' • a 1 F `" A rY` ivtl I : i f r + ' .Lr ✓5 4 0 -. z S. , r. • . y { ., ,04-404. � =y �x ,; ; 14. a ,, •, ': '_ r .:�..sa' S -.,{sf f r v ?p +A^ : s "'° a - s� - = i' •. 7 • . ,, a �-•t. 4 -`. .` �,, w'' i- t ° y „. • . . , r '• - it;:; . "... 4 ! ? ..,, .,,. .•;o 1 � 1 4 � / 11 f Ctie' :':.t .te�;x �::y s= �5 rf 1 u '. i.c °' . _i-; ! _ xrq i s ' '''‘?•`.. ar" *a�' v',�ira'S•'-`" . a;:r ; r:Y`". ^ . • , ; a - ? �1•,:.fi r _ .d •• • •'' - 7 e;, �s -r,?- ` 3- k ^x..c. 13 ' =1- - .: .5"'w d _.. :. +. + f ! t' '' 7 1 . <' ) , �s }i" * +W ".• xj, + �r'.`'"i'- f i r ^ . 1 1•,p �q h F 4�I — 7: :' ' .• 2 1 n1-- . 4. � 11 NNN _ xr K� � { `F � . � 7 � l . , `d�a o- ' �: dam, pp re r brc3 f e r+ ; j t i d / [hill l i I 1 +/ F1 3.-,..,A.-,- , -,� r ; ; •. a i � ;z��� r71! I�_ ,�, x �w•_, • .....,. 1c7 1 ` i1 �., � ', ( 4 '.' - ` L S �, F.. • •y+x,- y F - ri u • .__ .. � �" N ' .� .. " 7 , , � . ,- a' y" k- ` :..m...t .E�i . .- _.. 1:'•" . ; � �. . . . - -__ _ Item No. 5: Anderson Street, SW of PCH - Item No. 6: 347 Main Street September 5, 2003 September 5, 2003 Integra Realty Resources JOINT PUBLIC HEARING OF THE SEAL BEACH REDEVELOPME T AGENCY AND CITY OF SEAL BEACH AGENDA REPORT ° , 6 0� 0' ode ,1 DATE: September 27, 2004 TO: Honorable Chairman and Agency Members and Honorable Mayor and City Council Members THROUGH: John Bahorski, Executive Director FROM: John Schaefer, Captain SUBJECT: TRANSFER OF ANIMAL CARE CENTER PROPERTY • SUMMARY OF REQUEST: Staff recommends adoption of the attached Resolutions approving the sale of the property currently occupied by the Seal Beach Animal Care Center and the adjacent dog park to the Friends of Seal Beach Animal Care Center, Inc. ( "Friends ") a California Public Benefit Corporation. BACKGROUND: At the June 28, 2004 City Council Meeting, the City Council accepted a report from Organizational Effectiveness Consulting. Recommendation 4 on page 23 of that report stated: "Seal Beach should more explicitly define and limit its role in the financial dealings of the local animal shelter. The shelter sits on city -owned land. The City should either divest itself of the land, or establish a clear financial arrangement with a specific provisional use permit. In addition, the City should cease providing free utilities to the shelter. If the City chooses to support the shelter financially, it should be accomplished through a grant or a formal contract." There were a number of reasons for this recommendation; among them were a number of positive benefits for both the Agency /City and the Animal Care Center. Some of the benefits for the Animal Care Center include: • The long term stability that accompanies property ownership • Independence from the political pressures associated with being a tenant of the City /Agency • Enhanced fund raising opportunities • Improved grant opportunities • Increased willingness by the Shelter to make significant improvements to the property • Security of knowing the Shelter will continue to serve the Seal Beach community. CC /RDA Item D Some of the benefits for the Agency include: • The provision of sustained care for the City's animals • Potential upgrade of the site, commonly associated with pride of ownership • Insulation from the potential political pressures associated with the Shelter • Enhancing the relationship to potentially improve the quality of the Shelter • Protection from potential civil litigation associated with the operation of the Shelter • Shifting of responsibility as to related water quality issues • Costs associated with Shelter infrastructure • The Agency will not be responsible for any structural repairs, including repairs estimated in excess of $10,000. Toward the end of accomplishing this goal Staff, along with the assistance of the City Attorney's Office, have met with representatives of the Seal Beach Animal Care Center and worked out the attached "Purchase and Sale Agreement" (Attachment A) for the property that the Shelter and the adjacent dog play yard occupy. Under the terms of this agreement the Redevelopment Agency would sell to the Seal Beach Animal Care Center the property currently used by the Shelter with the provisions that: the property can only be used by the Seal Beach Animal Care Center for a shelter; that the Shelter shall remain a "no kill shelter;" and that if the shelter ceased to exist the property would revert to the Agency. (See "Restrictive Covenants," Exhibit B to Attachment A.) Also, if the Friends were to relocate operations to another site, the ownership of the property would revert to the Agency. The agreement also includes a number of provisions to limit the Agency's financial role and liability exposure associated with operation of the Shelter. Over the years, the Friends have incurred substantial expenditures in improving the property, at no cost to the City or Agency. The initial building built in 1987, consisting of 12 dog runs, one isolation room, one cat room, the existing kitchen/laundry area and a small entry /office area, cost approximately $45,000. In 1994, the Friends raised another $56,000.00 to build 3 new cat rooms, 6 additional dog runs, and upgraded the existing bathroom to meet ADA requirements. In 1998, at no cost to the City, the Friends added the existing office, and built the large dog runs /play areas in the rear portion of the shelter and enclosed them with chain link fencing. The cement and fencing for the dog areas cost approximately $25,000.00. The cost of the office and its equipment was approximately $30,000.00. The fencing, trees and sprinkler system for the large dog play yard that is detached from the main shelter cost approximately $15,000. Due to all these factors, staff is recommending that the Agency sell the property to the Friends for one dollar. Notice of this public hearing has been published for two successive weeks in the Sun, on September 9 and September 16. Two decades after the Agency acquired the property, Health & Safety Code Section 33433 was amended to require a redevelopment agency to prepare a report when it sells certain property acquired with tax increment funds to a developer when the property is to be used for development pursuant to the redevelopment plan. For a number of reasons, it appears that the section was not intended to apply to this type of transaction. Those reasons include: • The property is not being sold for development pursuant to the redevelopment plan. • The property cannot be used for any use other than the current use —animal shelter —and such a use is not "development pursuant to the redevelopment plan." • The property is outside of the Project Area. • The property will revert to the Agency if the animal shelter ceases operations. Nevertheless, out of an abundance of caution, staff has made a good faith effort to comply with the Section. On September 9, 2004, the Agency has made available (in the City Clerk's Office) for public inspection and copying a draft of this staff report, a copy of the proposed purchase and sale agreement and a summary; and staff is recommending that the City Council and Agency adopt the attached resolutions. FISCAL IMPACT: No negative impact. Potential savings. RECOMMENDATION: That the City Council adopt Resolution ° Y ? (Attachment B) approving the sale; and That the Redevelopment Agency adopt Resolution O4'O2(Attachment C) authorizing the Agency Chair to execute the attached Purchase and Sale Agreement and Quitclaim Deed. a- �� A. Stc2� ,...,1-7... , John S haefer, Captain NOTED A i,‘ , PPROV 46 John B ahorski, Agency Executive Director and Seal Beach City Manager Attachments: Attachment A: Draft copy of the Purchase and Sale Agreement Including: Exhibit A: Legal Description Exhibit B: Restrictive Covenant Exhibit C: Quitclaim Deed Attachment B: City Council Resolution Attachment C: Agency Resolution