Document/Exhibit Description Pages Size
1: 10-K Annual Report 32± 133K
2: EX-27 Financial Data Schedule for 1996 Form 10-K Shopco 1 5K
Regional Malls, L.P.
3: EX-99 Complete Appraisal of Real Property for Cranberry 92± 325K
Mall as of January 1997
EX-99 — Complete Appraisal of Real Property for Cranberry Mall as of January 1997
Exhibit Table of Contents
COMPLETE APPRAISAL OF
REAL PROPERTY
Cranberry Mall
Routes 27 and 140
City of Westminster
Carroll County, Maryland
IN A SUMMARY REPORT
As of January 1997
Shopco Regional Malls Limited Partnership
Three World Financial Center
29th Floor
New York, New York 10285
Cushman & Wakefield, Inc.
Valuation Advisory Services
51 West 52nd Street, 9th Floor
New York, NY 10019
March 11, 1997
Shopco Regional Partners Limited Partnership
Three World Financial Center
29th Floor
New York, New York 10285
Re: Complete Appraisal of Real Property
Cranberry Mall
Routes 27 and 140
City of Westminster
Carroll County, Maryland
Shopco Regional Partners:
In fulfillment of our agreement as outlined in the Letter of Engagement,
Cushman & Wakefield, Inc. is pleased to transmit our Summary Report estimating
the market value of the leased fee estate in the referenced real property.
As specified in the Letter of Engagement, the value opinion reported below
is qualified by certain assumptions, limiting conditions, certifications, and
definitions, which are set forth in the report.
This report has been prepared for Shopco Regional Partners ("Client") and
it is intended only for the specified use of the Client. It may not be
distributed to or relied upon by other persons or entities without written
permission of the Appraiser.
The property was inspected by and the report was prepared by Jay F. Booth and
Richard W. Latella, MAI.
This is a Complete Appraisal in a Summary Report which is intended to
comply with the reporting requirements set forth under Standards Rule
2-2(b) of the Uniform Standards of Professional Appraisal Practice 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 appraiser's opinion of value. Supporting documentation
concerning the data, reasoning, and analyses is retained in the appraiser's
file. The depth of discussion contained in this report is specific to the
needs of the client and for the intended use stated below. The appraiser is
not responsible for unauthorized use of this report. We are providing
this report as an update to our last analysis which was prepared as of
January 1, 1996. As such, we have primarily reported only changes to the
property and its environs over the past year.
As a result of our analysis, we have formed an opinion that the market value
of the leased estate in the referenced property, subject to the assumptions,
limiting conditions, certifications, and definitions, as of January 1, 1997,
was:
FORTY TWO MILLION SEVEN HUNDRED THOUSAND DOLLARS
$42,700,000
This letter is invalid as an opinion of value if detached from the report,
which contains the text, exhibits, and an Addenda.
Respectfully submitted,
CUSHMAN & WAKEFIELD, INC.
/s/Jay F. Booth, MAI
Retail Valuation Group
/s/Richard W. Latella, MAI
Senior Director
Retail Valuation Group
Maryland Certified General
Real Estate Appraiser
License No. 10462
JFB:RWL:emf
C&W File No. 97-9011
SUMMARY OF SALIENT FACTS AND
CONCLUSIONS
Property Name: Cranberry Mall
Location: Routes 27 and 140
City of Westminster
Carroll County, Maryland
Interest Appraised: Leased fee
Date of Value: January 1, 1997
Dates of Inspection: January 25, 1997
January 26, 1997
Ownership: Shopco Regional Malls
Limited Partnership
Land Area: 57.745(more/less) acres
Zoning: P-RSC, Planned Regional
Shopping Center
Highest and Best Use If Vacant: Retail/commercial
use built to its
maximum
feasible FAR
As Improved: Continued retail/commercial
use as a regional shopping center
Improvements
Type: Single level regional mall
Year Built: 1987; Montgomery
Ward added in 1990;
Cinema expanded in 1994.
GLA:
Caldor 81,224 SF
Leggett 65,282 SF
Sears 70,060 SF
Montgomery Ward * 89,260 SF
Total Anchor
Stores 305,826 SF
Cinema 25,605 SF
Mall Stores 194,271 SF
Total GLA 525,702 SF
Outpads ** 5,600 SF
* Includes 6,400 SF Auto Express
** Ground lease terms
Mall Shop Ratio: 37.0%
Condition: Good
Operating Data and Forecasts
Current Vacant Space: 35,953 square feet
Current Occupancy: 81.49%
based on Mall Shop GLA,
(Inclusive of pre-committed tenants)
Forecasted Stabilized Occupancy: 92.0%
(exclusive of
downtime provisions)
Forecasted Date of Stabilized
Occupancy: October 1, 1999
Operating Expenses
(1996 Budget*): $2,835,016 ($14.59/SF of mall
GLA)
(1997 Budget*): $2,972,268 ($15.30/SF of
mall GLA)
(Appraiser's Forecast): $2,970,551 ($15.29/SF of
mall GLA)
* Net of Association Dues
Investment Assumptions
Rent Growth Rate: Flat - 1997
+2.0% - 1998
+3.0% - Thereafter
Expense Growth Rate: +3.5%
Sales Growth Rate: +2.0% - 1997
+2.5% - 1998
+3.0% - Thereafter
Other Income: +3.0%
Tenant Improvements
New Tenants: $10.00/SF
Renewing Mall Tenants: $ 3.00/SF
Raw Space: $25.00/SF
Leasing Commissions
New Tenants: $ 4.00/SF
Renewal Tenants: $ 2.00/SF
Vacancy between Tenants: 6 months
Renewal Probability: 60%
Terminal Capitalization Rate: 10.75%
Cost of Sale at Reversion: 2.00%
Discount Rate: 12.75%
Value Indicators
Sales Comparison Approach: $40,000,000 - $42,000,000
Income Approach
Discounted Cash Flow: $42,700,000
Value Conclusion: $42,700,000
Resulting Indicators
CY 1997 Net Operating Income: $4,551,504
Implicit Overall Capitalization Rate: 10.66
Price per Square Foot of Owned GLA: $81.22
Price per Square Foot of Mall
Shop GLA: $219.80
Exposure Time Implicit in
Value Conclusion: Not more than 12 months
Special Risk Factors: None
Special Assumptions:
1. Throughout this analysis we have relied on information provided by
ownership and management which we assume to be accurate. We have been
provided with summary information only for new leases in the form of a rent
roll or lease abstracts. We have not been provided with actual lease
documents. There has been some change to the tenant mix and leasing status
since our last appraisal report. All tenant specific assumptions are
identified within the body of this report.
2. During 1990, the Americans With Disabilities Act (ADA) was passed by
Congress. This is Civil Rights legislation which, among other things,
provides for equal access to public placed for disabled persons. It
applied to existing structures as of January 1992 and new construction as of
January 1993. Virtually all landlords of commercial facilities and
tenants engaged in business that serve the public have compliance obligations
under this law. While we are not experts in this field, our understanding of
the law is that it is broad-based, and most existing commercial facilities
are not in full compliance because they were designed and built prior to
enactment of the law. We noticed no additional "readily achievable barrier
removal" problems but we recommend a compliance study be performed by qualified
personnel to determine the extent of non- compliance and cost to cure.
We understand that, for an existing structure like the subject,
compliance can be accomplished in stages as all or portions of the building
are periodically renovated. The maximum required cost associated with
compliance- related changes is 20 percent of total renovation cost. A prudent
owner would likely include compliance-related charges in periodic future
common area and tenant area retrofit. We consider this in our future
projections of capital expenditures and retrofit allowance costs to the
landlord.
3. The forecasts of income, expenses and absorption of vacant space are not
predictions of the future. Rather, they are our best estimates of current
market thinking on future income, expenses and demand. We make no
warranty or representation that these forecasts will materialize.
4. Please refer to the complete list of assumptions and limiting
conditions included at the end of this report.
TABLE OF CONTENTS
Page
PHOTOGRAPHS OF SUBJECT PROPERTY 1-2
INTRODUCTION 3
Identification of Property 3
Property Ownership and Recent History 3
Purpose and Intended Use of the Appraisal 3
Extent of the Appraisal Process 3-4
Date of Value and Property Inspection 4
Property Rights Appraised 4
Definitions of Value, Interest
Appraised, and Other Pertinent Terms 4-5
Legal Description 5
REGIONAL ANALYSIS 6-14
LOCATION ANALYSIS 15
RETAIL MARKET ANALYSIS 16-22
THE SUBJECT PROPERTY 23
HIGHEST AND BEST USE 24
VALUATION PROCESS 25
SALES COMPARISON APPROACH 26-45
INCOME APPROACH 46-80
RECONCILIATION AND FINAL VALUE ESTIMATE 81-82
ASSUMPTIONS AND LIMITING CONDITIONS 83-84
CERTIFICATION OF APPRAISAL 85
ADDENDA 86
National Retail Overview
Operating Expense Budget (1997)
Tenant Sales Report (1996)
Pro-Ject Lease Abstract Report
Pro-Ject Prologue Assumptions Report
Pro-Ject Tenant Register Report
Pro-Ject Lease Expiration Report
ENDS Full Data Report for Primary and Total Trade Area
C&W Investor Survey
Appraisers' Qualifications
PHOTOGRAPHS OF SUBJECT
PROPERTY
PHOTOGRAPHS OF MALL
Exterior view of Leggett store.
Exterior view of Montgomery Ward.
Exterior view of Caldor.
Exterior view of Casa Rico and potential Baltimore Gas
and Electric.
INTRODUCTION
Identification of Property
The subject property is the Cranberry Mall, a single level enclosed mall with
a gross leasable area (GLA) of 525,702 square feet. This amount represents
the most recent estimate of the subject's area based upon a compilation
of recent leasing activity. Developed by the Shopco Group, the mall opened
in March 1987. It is located on a 57.745 acre site at the
intersection of Routes 27 and 140, the premier retail location in the City of
Westminster. Westminster is the county seat of Carroll County, one of the
fastest growing counties in Maryland.
The Cranberry Mall is anchored by Caldor (81,224 square feet), Leggett
(65,282 square feet), Sears (70,060 square feet), and Montgomery Ward (89,260
square feet). This latter store opened in October 1990 and includes a
freestanding 6,400 square foot Auto Express. All four department stores are
owned by the partnership. Altogether, anchor stores occupy a total of 305,802
square feet or, 58.2 percent of the center's GLA. Mall stores occupy a
total of 194,271 square feet. There are also two outparcels which are
currently improved, as well as cinemas.
Since its opening, Cranberry Mall has maintained a 75.0 to 80.0 percent
occupancy but has not been able to breach this level for any extended period
of time. Since our appraisal in 1996, the mall has maintained an occupancy
level of about 81.0 percent. Comparable mall shop sales for stores in operation
twelve months or more declined slightly, falling by 1.7 percent in 1995. In
1996, comparable store sales remained flat.
Property Ownership and Recent History
Title to the subject is held by Shopco Regional Malls Limited Partnership.
This title was acquired on October 11, 1988 from the Cranberry Limited
Partnership. The total consideration paid was $53,847,500 in 1990 as recorded
in Deed Book 1100, Page 530. The subject property was developed by The Shopco
Group and was essentially completed in 1987 with Ward's opening in 1990.
Purpose and Intended Use of the Appraisal
The purpose of this appraisal is to estimate the Market Value of the leased
fee interest in the subject property, as of January 1, 1997. Our analysis
reflects conditions prevailing as of that date. On January 25, 1997 Jay F.
Booth inspected the subject property and its environs, Richard W. Latella
inspected the property on January 26, 1997. The function of this appraisal is
to provide an independent valuation analysis and to assist in monitoring
ownership's investment in the property.
Extent of the Appraisal Process
In the process of preparing this appraisal, we:
-Inspected the exterior of the
building and the site improvements and a representative sample of tenant
spaces.
-Interviewed representatives of the
property management company, Shopco.
-Reviewed leasing policy, concessions, tenant build-out allowances and
history of recent rental rates and occupancy with the mall manager.
-Reviewed a detailed history of income and expense and a budget forecast
for 1996 including the budget for planned capital expenditures and repairs.
-Reviewed a current independent market study and demographics prepared by
Equifax National Decision Systems.
-Conducted market research of occupancies, asking rents, concessions and
operating expenses at competing retail properties including interviews with
on-site managers and a review of our own data base from previous appraisal
files.
-Prepared a detailed discounted cash flow analysis for the purpose of
discounting a forecasted net income stream to a present value.
-Conducted market inquiries into recent sales of similar regional malls to
ascertain sale prices per square foot, net income multipliers and
capitalization rates. This process involved telephone interviews with sellers,
buyers and/or participating brokers.
-Prepared Sales Comparison and Income Approaches to value with a
reconciliation of each approach and a final value conclusion presented.
Date of Value and Property Inspection
On January 25, 1997 Jay F. Booth inspected the subject property and its
environs. On January 26, 1997 Richard W. Latella, MAI inspected the
property. Our date of value is January 1, 1997.
Property Rights Appraised
We have appraised a leased fee estate.
Definitions of Value, Interest Appraised, and Other
Pertinent Terms
The definition of market value taken from the Uniform Standards of
Professional Appraisal Practice of the Appraisal Foundation, is as follows:
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:
1.Buyer and seller are typically motivated;
2.Both parties are well informed or well advised, and acting in what they
consider their own best interests;
3.A reasonable time is allowed for exposure in the open market;
4.Payment is made in terms of cash in U.S.dollars or in terms of financial
arrangements comparable thereto; and
5.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.
Exposure Time
Under Paragraph 3 of the Definition of Market Value, the value estimate
presumes that "A reasonable time is allowed for exposure in the open
market". Exposure time is defined as 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 the market value on the effective
date of the appraisal. Exposure time is presumed to precede the effective
date of the appraisal.
The following definitions of pertinent terms are taken from the Dictionary
of Real Estate Appraisal, Third Edition (1993), published by the Appraisal
Institute.
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.
Market Rent
The rental income that a property would most probably command on the
open market, indicated by the current rents paid and asked for comparable
space as of the date of appraisal.
The following definitions are taken from various sources:
Market Value As Is on Appraisal Date
Value of the property appraised in the condition observed upon inspection
and as it physically and legally exists without hypothetical conditions,
assumptions, or qualifications on the effective date of appraisal.
Legal Description
A legal description is retained in our files.
REGIONAL ANALYSIS
MAP SHOWING LOCATION OF MALL WITH WASHINGTON D.C. AND BALTIMORE METROPOLITAN
AREAS INCLUDED
Baltimore Metropolitan Area
The subject property is located in the City of Westminster, Carroll
County, in the northeast quadrant of the Baltimore Standard Metropolitan
Area. The Baltimore Standard Metropolitan Area (MSA) is defined by the U.S.
Department of Commerce, Bureau of the Census, to include Baltimore City and
the counties of Baltimore, Howard, Anne Arundel, Harford, Carroll and
Queen Anne's. Queen Anne's County was added to the Baltimore MSA in 1983. In
total, the Baltimore MSA encompasses 2,618 square miles.
Population Base
A significant indicator of change within a regional economy is the rate
of growth or decline in an area's population base. This has a direct and
obvious effect on real estate values. Since the supply of land is fixed, the
demand for real property will be affected by an increase or decrease in the
population base. The pattern, in turn, is reflected in values for the whole
spectrum of property types within the region.
In addition to the more obvious relationship changes in population and
property values, there are a variety of other factors which should also be
considered. Accordingly, the specific location of the subject property
relative to the trends within the population base must be closely
examined. For example, a city with a declining population base may be
experiencing a rise in property values due to its growing importance as
an employment center. Also, the average household size within an area, when
considered along with population trends, gives a good indication of
potential demand for housing as well as goods and services within the area.
The chart below illustrates the continuing movement from the city into
outlying counties. The City of Baltimore demonstrated an overall 11.9
percent decline in population in the 1980- 1995 period, equivalent to a 0.84
percent compound annual decrease. The MSA as a whole, however, had a modest
12.5 percent increase in population growth between 1980 and 1995.
Population Changes
Baltimore MSA
1995 1980 Percent
Baltimore MSA 2,475,052 2,199,497 12.5
Anne Arundel 463,733 370,775 25.1
Baltimore 715,986 655,615 9.2
County
Baltimore City 693,249 786,741 (11.9)
Carroll 139,691 96,356 45.0
Harford 206,517 145,930 41.5
Howard 219,313 118,572 85.0
Queen Ann's 36,563 25,508 43.3
Source: CACI: The Sourcebook of County Demographics
It is anticipated that this growth trend will continue into the
foreseeable future. According to CACI, the Baltimore MSA is anticipated to
increase its population base by 4.5 percent to 2,587,057 through 2000. The
more rural counties such as Carroll, Harford and Howard will continue to see
the largest percentage increases.
Employment Characteristics
Until 1960, the majority of Baltimore's workforce was employed by
manufacturing industries. Centered around the Port of Baltimore, shipping
and steel manufacturing were among the major economic activities in the
region. With the redirection of the national economy, many firms such as
Bethlehem Steel, General Motors and Maryland Dry Dock began to suffer and
consequently laid off several thousand workers or ceased operations all
together.
Baltimore has been slowly restructuring its economy, creating new jobs to
fill the void left by the deterioration of the smoke- stack industries. The
following chart illustrates the shifting of employment from the manufacturing
sector to the service sector during the past three decades.
Employment Trends
Baltimore MSA
1960 1990 1995 * 1996 *
% of % of % of % of
Nos. Total Nos. Total Nos. Total Nos. Total
Construct. 37.5 6.0 73.5 6.3 130.3 10.9 130.4 10.9
Manufact. 199.0 31.6 126.9 10.9 103.9 8.7 102.1 8.6
Util./Tran. 55.4 8.8 56.3 4.9 55.8 4.7 54.8 4.6
Post.
Retail/Wholesale 126.7 20.1 274.9 23.7 264.2 22.1 265.1 22.2
Finance/Insurance 32.8 5.2 75.8 6.5 70.7 5.9 68.6 5.8
Service 82.8 13.2 333.6 28.7 357.4 30.0 362.5 30.4
Government 94.8 15.1 219.4 18.9 211.0 17.7 209.2 17.5
Total 629,000 100 1,160,400 100 1,193,300 100 1,192,700 100
* Data as of June of each year
Source: U.S. Department of Labor, Bureau of Labor Statistics
Over the period 1990-1996, the metropolitan area added only 32,300 jobs,
an increase of 2.8 percent or 0.50 percent per annum. Compared to gains in
other comparably sized metropolitan areas, this growth could be characterized
as below average. Over the past year (1995 - 1996), total employment actually
declined by 600 jobs. The City of Baltimore lost 2,500 jobs during this
period.
According to WEFA, a recognized economic consulting firm, Metropolitan
Baltimore has been faring worse than the state as a whole. The metro area is
now one of the weakest in the nation. Manufacturing continues to shed jobs and
non-manufacturing has not been able to offset the weakness in manufacturing.
Tourism has kept retail trade activity in the positive column, but there is no
sector of its economy generating sufficient stimulus to pull it forward.
During the past year, the greatest employment gains were realized in the
Service section, with 5,100 net new jobs, or an increase of 1.4 percent.
Other job gains were realized in Construction (+ 100) and Retail and
Wholesale Trade (+ 900). Manufacturing lost 1,800 jobs, transportation was
down by 1,000, FIRE declined by 2,100 jobs, and Government shed 1,800 jobs,
during the year.
In the past, the traditional sources of job growth in the Baltimore
economy were manufacturing and transportation. Manufacturing employment in
Baltimore has been in decline for the past fifteen years, a trend that does
not appear to be changing. In fact, the Baltimore manufacturing sector has
surrendered 24,800 jobs since 1990. While the rate of decline is expected to
slow, the erosion of manufacturing jobs from the local economy is expected to
continue.
Transportation, another important industry to Baltimore's economy, is
not in decline, but is not creating jobs. Efforts to stabilize the Port of
Baltimore have met with some success and railway operations are still a
significant component of the local transportation sector. But the
reality is that the transportation industry nationally is not expected
to grow significantly and among older port cities, Baltimore still has a cost
disadvantage.
As of June 1996, the unemployment rate for Baltimore was 5.9 percent
versus 5.5 percent for U.S. The unemployment rate improved slightly over
the previous year's rate of 6.2 percent (June 1995).
Baltimore's private sector economy is now more broad based than five
years ago with services, manufacturing and technology related businesses
represented. This economic diversity manifests itself in the varied types
of industries based in the region. The manufacturing industry still
maintains a presence, along with high-tech contractors, educational
institutions, retailers and financial institutions.
Top Ten Private Employers
Baltimore MSA
Company Name No. of
Employees
The John Hopkins University & Hospital 21,000
Westinghouse Electric Company 15,900
MNC Financial 9,500
Bethlehem Steel Company 8,000
Baltimore Gas & Electric Company 7,900
Giant Food, Inc. 6,400
C&P Telephone Company 5,300
University of Maryland Medical System 4,500
Blue Cross & Blue Shield of Maryland 4,500
University of Maryland at Baltimore 4,500
Source: Baltimore Business Journal Book of Lists
Currently, the State of Maryland ranks third in total number of U.S.
biotech firms. Specific areas of concentration include agriculture,
pharmaceuticals, biotech supplies and medical supply, service and
device companies. Collectively, the Baltimore/Washington area has more
scientists and engineers than any other region of the country.
The Baltimore region is a major center for life science research,
business and commerce. Acting as a catalyst in this evolutionary movement is
Johns Hopkins University, the largest federally supported research university
in the United States. Along with its world renowned medical institutions,
John Hopkins is the region's top employer. Other institutions participating
and expanding into life science research include the University of Maryland
Baltimore, Morgan State University, the Maryland Biotechnology Institute and
the National Institute of Health (NIH). The NIH has awarded more federal
funds to the Baltimore- Washington Common Market for biomedical research and
development than any other CMSA in the nation. The following chart outlines
the amount and geographic distribution of these federal research and
developmental funds.
Total R & D National
Institution Funds Rank
(000's)
Johns Hopkins University * $648,385 1
MIT $287,157 2
Cornell University $286,733 3
Stanford University $295,994 4
University of Wisconsin $285,982 5
University of MD, College Park $159,510 26
University of MD, Baltimore $ 75,000 65
* Figures include the Applied Physics Laboratory
Not surprising, these large amount of funds have attracted private sector
groups involved in biotechnology research. As mentioned, the state ranks
third in the nation in the percentage concentration of biotech firms. Such
companies as Nova Pharmaceuticals, Martek, Crop Genetics and major
divisions of Becton Dickinson and W.R. Grace operate within the Baltimore
region.
The following bullet points outline some of the significant economci
occurrences in the Baltimore metropolitan area.
- The area's two major utilities (Baltimore Gas & Electric and Potomac
Electric Power Company) plan a merger effective in early 1997 which could
eliminate 1,200 area jobs.
- New developments at Fort Meade military base include a $30 million
Defense Information School with a student population of 4,000 (1997 completion)
and plans for a $44 million EPA laboratory and office building (1998
completion).
- Relocation of the Robert Gallo Institute for Human Virology to the
University of Maryland Biotechnology Institute in downtown Baltimore. The
Institute employs 300 professionals.
- Construction of a $98 million Comprehensive Cancer Center on the John
Hopkins Hospital campus (1998 opening).
- Expansion of T. Rowe Price with the addition of 33 acres near their
Owings Mills complex and construction of the first two of five total buildings
(1997 completion).
- Construction of a new $190 million football stadium to house the
Baltimore Ravins (formerly Cleveland Browns) with completion scheduled for Fall
1998.
- Completion of the $151 million expansion of the Baltimore Convention
Center from 425,000 square feet to 1.2 million square feet.
- New Inner Harbor developments include the $160 million Christopher
Columbus Center for Marine Research and Exploration (1997 scheduled opening),
the 80,000 square foot Port Discovery children's museum, and plans for a
160,000 square foot entertainment complex on the former Six Flags property.
- Expansion of the Baltimore- Washington Airport adding a $110 million
International terminal.
- Extension of light rail service to Penn Station with connections to
Amtrak and MARC trains; the new international terminal at the
Baltimore-Washington Airport, with connections to downtown Baltimore; and to
Hunt Valley.
Income
The long term ability of the population within an area to satisfy its
material desires for goods and services directly affects the price levels
of real estate and can be measured indirectly through retail sales. One
measure of the relative wealth of an area is average household disposable
income which is available for the purchase of food, shelter, and durable
goods. In order to present a better understanding of the relative wealth of the
component jurisdictions in the Baltimore MSA, we have examined the effective
buying power income of the region as reported by Sales & Marketing
Management's Survey of Buying Power. Effective buying income is essentially
income after all taxes or disposable income.
According to the Survey of Buying Power - 1996, the Baltimore MSA had a
median household Effective Buying Income (EBI) of $36,955, ranking it as the
43rd highest metropolitan area in the country. Among components, the median
household EBI varied from a low of $24,980 in the City of Baltimore, to a
high of $52,244 in Howard County. Anne Arundel had the second highest
household EBI ($43,201), followed by Carroll County ($40,925), and Harford
($39,232).
Effective Buying Income
Baltimore MSA
(000's) Median
Total EBI Household
EBI
BALTIMORE MSA $39,957,665 $36,955
Anne Arundel $ 8,045,372 $43,201
Baltimore County $12,921,988 $38,677
Baltimore City $ 8,308,138 $24,980
Carroll $ 2,188,549 $40,925
Harford $ 3,188,794 $39,232
Howard $ 4,708,582 $52,244
Queen Anne's $ 602,242 $37,361
Source: Sales & Marketing Management, 1996 Survey of Buying Power
An additional measure of the area's economic vitality can be found in
income level distribution. Approximately 32.2 percent of all households have
effective buying income in excess of $50,000. This ranges from a high of
53.3 percent in Howard County to a low of 18.1 percent in the City of
Baltimore, mirroring median household EBI.
A region's effective buying income is a significant statistic because it
conveys the effective wealth of the consumer. This figure alone can be
misleading, however, if the consumer does not spend money. Coupling
Baltimore's EBI with the area's significant retail sales and strong buying
power index, it is clear that residents do spend money in the retail
marketplace. The Baltimore MSA ranks 19th in retail sales, 17th in effective
buying income and 18th in buying power. These statistics place the Baltimore
MSA in the top 5.0 percent in the country.
Retail Sales
Retail sales in the Baltimore Metropolitan Area are currently estimated to
exceed $21.7 billion annually. As previously stated, Baltimore ranked
19th nationally in total retail sales for 1995, the last year for which
statistics are currently available. Retail sales in the metropolitan area
have increased at a compound annual rate of 4.28 percent since 1989; 5.64
percent per year since 1992.
Retail Sales
Baltimore Metropolitan Area
(In Thousands)
Metropolitan
Year Baltimore % Change
1989 $16,905,854 ---
1990 $17,489,333 +3.45%
1991 $17,484,100 - 0.03%
1992 $18,446,721 +5.51%
1993 $19,610,884 +6.31%
1994 $20,720,649 +5.66%
1995 $21,744,811 +4.94%
Compound Annual +4.28% Change
Source: Sales and Marketing Management 1990-1995
Transportation
Baltimore is centrally located in the Mid-Atlantic Region and has
convenient access to both east coast and midwest markets. The area is served
by an extensive transportation network which consists of highway, rail lines,
airports, seaports, and public transportation.
The Baltimore MSA is traversed by a series of multi- lane highways.
Interstate 95 runs north-south connecting the Northeast corridor with
Florida and, along with the Baltimore- Washington Expressway, provides a link
between the Baltimore and Washington beltways. Interstate 83 provides access
to New York and Canadian markets. Interstate 70 connects the Port of
Baltimore with Pittsburgh and the Midwest. Finally, all major arterials are
accessible from Interstate 695, Baltimore's five lane beltway. The
following chart illustrates Baltimore's proximity to the east coast and
midwest markets.
Highway Distance from Baltimore
Boston 392 miles
Chicago 668 miles
New York 196 miles
Philadelphia 96 miles
Pittsburgh 218 miles
Richmond 143 miles
Washington, D.C. 37 miles
Source: Department of Economic & Community Development
The Baltimore region is served by five major and three shortline
railroads including AMTRAK, Chessie System Railroads, ConRail, and Norfolk
Southern Railroad. Nearly 610 railroad route miles traverse the region.
AMTRAK service, originating out of Pennsylvania Station, provides access
throughout the Northeast corridor, including Washington, Philadelphia, New
York and Boston. Frequent commuter service between Washington, D.C. and
Baltimore is provided by Maryland Rail Commuter (MARC), which operates
between Baltimore, Camden, and Pennsylvania Stations and Washington Union
Station, making intermediate stops at, among others, Baltimore/Washington
International Airport (BWI). These stations are linked to their respective
center cities by metro- rail and metro-bus systems.
Baltimore's buses connect nearly 80 miles of the city and provide access
to Annapolis, Maryland's state capital. The newly completed subway system
links Baltimore's downtown region with the northwesterly suburbs, traveling 14
miles, originating at the Inner Harbor and terminating at Owings Mill. A
multi- million dollar addition has been approved that will extend the existing
subway from the Inner Harbor to Johns Hopkins Hospital. Proposed is a 27 mile
long light rail system which will connect Hunt Valley to the north with Glen
Burnie to the south, plus a spur to BWI Airport. This rail line will be a
state-of-the-art, above ground rail system, electrically powered by overhead
wires. The new line will run through downtown Baltimore and the Inner Harbor
and will share a common station with the existing subway line at Charles
Center.
The Baltimore/Washington International Airport (BWI) is located in the
southerly portion of the Baltimore region in Anne Arundel County, ten miles
from downtown Baltimore. The modern airport hosts 18 passenger airlines
that provide direct air service to 135 cities in the United States and
Canada. U.S. Air is the major carrier at BWI, having 45 gates with over
170 flights a day in and out of BWI. BWI also provides service to air
freight carriers with its 100,000 square foot Air Cargo Complex. When
compared with Dulles and Washington National Airport, BWI services 32.0
percent of commercial passengers, 38.1 percent of commercial operations, and
57.3 percent of freight customers. BWI has spawned the development of 15 new
business parks and several hotels, has created nearly 10,000 jobs, and has
generated a statewide economic impact of $1.7 billion in the form of business
sales made, goods and services purchased, and wages and taxes paid.
Baltimore's water port stretches over 45 miles of developed waterfront and
reaches a depth of 42 feet. With its six million square feet of warehousing
and five million square feet of cold storage, the port receives 4,000 vessels
yearly. These extensive facilities can accommodate general, container, bulk
and break bulk cargoes; it is the second busiest containerized cargo port in
the Mid-Atlantic and Gulf-Coast regions. Additionally, the port is the
second largest importer and exporter of cars and trucks in the United States.
The Port of Baltimore is closer to the midwest than any other east coast
port and within an overnight drive of one-third of the nation's population.
These are some of the reasons that the port has become a preferred
destination for Pacific rim countries.
Real Estate Market Trends
Office vacancy rates throughout the metropolitan area declined to
15.0 percent as of the second quarter 1996, the lowest overall rate since
mid-1988. The downtown submarket continued to show the highest availability
(21.3 percent), while the suburban sector showed an overall vacancy of
only 11.0 percent. Some new development, both build-to-suit and
speculative, is occurring in the suburban west and south sectors.
The industrial market showed signs of slowing during the first half of
1996, with net negative absorption after two years of strong leasing activity
and positive absorption. The overall metro vacancy rate was reported at 15.0
percent. Much of the increase in availability was attributed to
Merry-Go- Round vacating their 800,000 square foot facility after following
into bankruptcy. New speculative development continued to occur in spite of
the decline in occupancy.
In the retail property sector, caution is the operative word. According to
KLNB Commercial Real Estate Services as reported in the Real Estate Index,
national retailers such as Best Buy, Michaels Stores, and Best Products have
cut back the number of stores they plan to open in the area. Other
retailers have pulled away from the market altogether. Target (Dayton Hudson)
is an exception with plans to add seven stores in the Baltimore- Washington
D.C. area. Power Centers dominate new construction. Overall vacancy in
good quality grocery/drug anchored neighborhood centers was reported at
below 3.0 percent.
Overall, the real estate markets are generally showing signs of
strengthening, although the industrial sector most recently experienced a
decline in leasing activity compared to previous years. The greatest
improvements were realized in the office sector. The retail market is
considered to be relatively stable, with limited new development anticipated
during the near term.
Conclusions
The overall outlook for the Metropolitan Baltimore Area is cautiously
optimistic. The economic trends of the past 20 years have profoundly impacted
the development of the Baltimore MSA. The service sector has filled some of
the void left by the demise of the heavy industries albeit with lower paying
jobs. The manufacturing industries, after a long decline, have begun to
stabilize. With resources being directed into urban industrial parks and
enterprise zones, basic industry will continue to play an integral role in the
region's economy. However, the future is in the high-tech/bio-tech
industries. Funds have been allocated by government to join private
institutions, such as Johns Hopkins and private sector technical firms, in
order to make Baltimore a national center for research and development.
A healthy economy is the key ingredient to a healthy real estate market.
Over the past several years, growth in the Baltimore-Washington real
estate market has been considered strong, with rapid escalation in the
values of both land and buildings. On a national and international level,
the Baltimore- Washington market is recognized as one of the stronger real
estate markets. However, within the past 30 months, the real estate market
has slowed somewhat. Most real estate analysts anticipate a two to three year
period of slow to moderate growth before the current market is back in balance.
From a real estate perspective, increasing consumer confidence can
have only positive effects on housing and those who manufacture and distribute
consumer goods. Thus, residential real estate, manufacturing plants,
distribution facilities and retail complexes serve to benefit. Low interest
rates are a bonus to the real estate market though lending criteria remains
somewhat selective. Chronic lagging job growth, particularly among office
workers, continues to adversely affect the office rental market.
Baltimore's housing activity declined by more than the statewide
average since the mid-1980s as manufacturing job losses were concentrated in
the metro area. This devastated employment in the construction sector.
There was a modest recovery in housing starts from the recession trough of
11.7 million units in 1991, but they only reached 13.8 million in 1993. Job
losses have depressed housing activity and multi-family housing permits were
down by 26.9 percent through mid-1996. Nonetheless, the 1996 median home
price increased 5.1 percent over 1995 to $114,600. Non-residential
construction is providing some support to the overall construction sector due
to the work on several large projects. Non-residential permit values were
up 85.0 percent in 1995 from 1994 levels.
On balance, the Baltimore region benefits from a relatively diversified
economic base which should protect the region from the effects of wide swings
in the economy. Over the long- term, the region's strategic location along
the eastern seaboard and its reputation as a major business center should
further enhance the area's outlook. Thus, while the current short term
economic outlook may cause real estate values to remain stable, a more
optimistic long term outlook should have positive influences upon real estate
values.
Summary
- Baltimore is the 19th largest metropolitan area in the country. Just by
sheer size, the region represents a broad marketplace for all commodities
including real estate.
- The region's economy is diversified with the service industries now the
largest single sector; manufacturing has stabilized after three decades of
decline. The outlook for continued expansion and investment in the
biotechnology field is excellent led by the renowned John Hopkins University.
- Regional economic trends point toward an era of modest growth which, over
time, should eventually alleviate the current imbalance between supply and
demand for some types of real property. However, only those with a desirable
location and functional design will outperform inflation in the general
economy.
MAP of Westminster showing subject property (NOT INCLUDED).
LOCATION ANALYSIS
Cranberry Mall is located in Westminster, Maryland in the northern
portion of Carroll County. Westminster is the largest of six regional
planning districts in the county, with a population of approximately
28,517. The mall is situated at the crossroads of two highways, Route 140 and
Route 27. Route 140 runs between Pennsylvania, Westminster, and Baltimore,
while Route 27 extends from Manchester to Mount Airy. The mall is also
accessible from Route 97 which extends from Montgomery County, Maryland to
Gettysburg, Pennsylvania.
Carroll County resides in the Piedmont region of north central
Maryland between Baltimore and Frederick counties. It is Maryland's third
fastest growing county, primarily due to the migration of city residents
into the suburbs. Baltimore is approximately 25(m/l) miles from the
Westminster area (35(m/l) minute drive) and 20(m/l) miles from Frederick,
Pennsylvania (30 (m/l) minute drive).
Cranberry Mall anchors Carroll County's primary commercial hub along
Route 140. This strip is developed with neighborhood strip centers, fast food
restaurants, service establishments, and other commercial uses.
There has been little change to the area since our last appraisal
although some new development has occurred or is on- going. Most notably,
Dayton Hudson opened a Target store on a site situated at Routes 97S and
140 in July 1996. Management reports that the store hasn't had a material
impact at Cranberry Mall, although sales at Caldor dropped slightly in 1996. We
are advised that Carroll County planning officials are considering a growth
moratorium in view of the burden being imposed on the existing
infrastructure, particularly the utility systems.
RETAIL MARKET ANALYSIS
Trade Area Analysis
Overview
A retail center's trade area contains people who are likely to patronize
that particular center. These customers are drawn by a given class of goods
and services from a particular tenant mix. A center's fundamental drawing
power comes from the strength of the anchor tenants as well as the regional
and local tenants which complement and support the anchors. A successful
combination of these elements creates a destination for customers seeking a
variety of goods and services while enjoying the comfort and convenience of
an integrated shopping environment.
In order to define and analyze Cranberry Mall's market potential, it
is important to first establish the boundaries of the primary and secondary
trade areas from which the subject will draw its customers. In some cases,
defining the trade areas may be complicated by the existence of other retail
facilities on main thoroughfares within trade areas that are not clearly
defined or whose trade areas overlap with that of the subject. This is true
to some extent with the subject which competes with the North Hanover Mall, the
Mall at Owings Mills, and to a lesser degree, the Francis Scott Key Mall in
Frederick.
Once the trade area is defined, the area's demographics and economic
profile can be analyzed. This will provide key insight into the area's
dynamics as it relates to Cranberry Mall. The sources of economic and
demographic data for the trade area analysis are as follows: Equifax
Marketing Decision Systems (ENDS), Sales and Marketing Management's Survey of
Buying Power 1985-1995, The Urban Land Institute's Dollars and Cents of
Shopping Centers (1995), CACI, The Sourcebook of County Demographics,
The Census of Retail Trade, and demographic reports prepared by Mas Marketing,
Inc.
Scope of Trade Area
Traditionally, a retail center's sales are primarily generated from
within its primary trade area, which is typically within reasonably close
geographic proximity to the center itself. Generally, between 55 and 65
percent of a center's sales are generated within its primary trade area. The
secondary trade area generally refers to more outlying areas which provide
less frequent customers to the center. Residents within the secondary trade
area are more likely to shop closer to home due to time and travel constraints.
Typically, an additional 20 to 25 percent of a center's sales will be
generated from within the secondary area. The tertiary trade area refers to
more distant areas in which occasional customers to the mall reside. These
residents may be drawn to the center by a particular service or store which is
not found locally. Industry experience shows that between 10 and 15 percent
of a center's sales are derived from customers residing outside of the trade
area.
Trade Area Definition
According to the most recent consumer survey, Cranberry Mall draws from
an expansive trade area that comprises a 15 zip- code region roughly bounded
on the south by I-70; on the north by Littlestown, Pennsylvania; on the east
by I-83; and on the west by Highway 15. This area includes an irregular
configuration which generally imposes limits of 10 to 15 miles from the mall.
The survey indicates that approximately 75 percent of the mall's customer base
reside within the closer communities of Westminster, Manchester,
Skyesville, Finksburg, Hampstead, New Windsor and Taneytown. The
secondary trade area includes quadrants to the northwest (Littlestown, PA),
small pockets to the northeast, and a more expansive area to the
west/southwest. These communities use the mall less frequently as they are
more impacted by travel considerations due to the absence of good highway
facilities or alternative shopping centers.
These reports are very useful and help establish a basis for our
independent analysis of the mall's trade area. Based on area traffic patterns,
accessibility, geographical constraints, surrounding residential development
and competing commercial establishments, we believe that the Cranberry Mall's
total trade area extends for a radius of approximately 15 miles from the
mall, similar to the customer survey provided.
Although the report is somewhat dated, there have been no significant
competitive, demographic or locational changes which would cause us to change
this zip code distribution in this 1996 update.
Accordingly, we have elected to analyze the subject's trade area based
upon the zip codes provided. The following is a listing of zip codes in the
subject's primary trade area.
Cranberry Mall
Primary Trade Area
21048 Finksburg 21074 Hempstead
21102 Manchester 21157 Westminster
21158 Westminster 21764 Linwood
21176 New Windsor 21784 Elderburg/Skysville
21787 Taneytown
Zip codes comprising the subject's secondary trade area are as follows:
Cranberry Mall
Secondary Trade Area
27340 Littlestown, PA 21088 Lineboro
21107 Millers 21155 Upperco
21771 Mount Airy 21797 Woodbine
Demographic statistics produced by ENDS, based on these zip codes are
provided on the facing page. Comparisons are provided with the Baltimore MSA
and State of Maryland. We will refer to this area as the subject's total
trade area.
Population
Once the market area has been established, the focus of our analysis
centers on the trade area's population. ENDS provides historic, current and
forecasted population estimates for the total trade area. Patterns of
development density and migration are reflected in the current levels of
population estimates.
Between 1980 and 1995, ENDS reports that the population within the total
trade area increased by 29.7 percent to 317,040. This is equivalent to an
average compound annual increase of 1.75 percent which, while lagging the
Carroll County composite growth rate, is nonetheless well in excess of the
growth seen by both the region and the state. Within the primary area,
closer-in communities are growing at a slightly faster rate than the total
trade area. This is significant, as residents are more likely to shop close to
home. Currently (1995) this component of the total trade area contains 124,212
residents or 39 percent of the total. Through 2000, population within the
total trade area is forecast to increase by an additional 5.7 percent to
335,178.
Provided on the following page is a graphic representation of the projected
population growth for the trade area through 2000. The fastest growing
communities (8 to 9 percent) are shown to be immediately proximate to the mall
site. (NOT INCLUDED)
Households
A household consists of all the people occupying a single housing unit.
While individual members of a household purchase goods and services, these
purchases actually reflect household needs and decisions. Thus, the household
is a critical unit to be considered when reviewing market data and forming
conclusions about the trade area as it impacts the retail center.
National trends indicate that the number of households are increasing at
a faster rate than the growth of the population. Several noticeable changes in
the way households are being formed have caused acceleration in this growth,
specifically:
- The population is generally living longer on average. This results in an
increase of single and two person households.
- The divorce rate has increased dramatically over the past two decades,
again resulting in an increase in single person households.
- Many individuals have postponed marriage, thus also resulting in more
single person households usually occupied by young professionals.
Between 1980 and 1995, the total trade area added 35,245 households,
increasing by 43.3 percent to 116,612 units. This rate continues to be in
excess of the growth rate for the metro area. Moreover, household formation
within the primary area has expanded at a faster rate (61.7 percent) to
44,264 units which comprises 38 percent of the trade area total.
Through 2000, a continuation of this trend is forecast through both
components of the trade area. Accordingly, the household size in the total
trade area is forecast to decrease from its present 28 persons (1995) to 2.76
persons per household in 2000. Such a relationship generally fits the
observation that smaller households with fewer children and higher incidences
of single occupancy, especially among young professionals, generally correlates
with greater disposable income.
Map showing primary trade area and population growth
Trade Area Income
A significant statistic for retailers is the income potential of the
surrounding trade area. Within the total trade area, ENDS reports that
average household income was $55,642 in 1995. Through 2000 it is
forecasted to increase by 5.4 percent per annum to $72,330.
The Baltimore MSA has some of the highest average household income areas
in the state of Maryland. A comparison of the trade area with the Baltimore
MSA and State of Maryland is shown below.
Average Household Income - 1995
Area Income
Primary Trade Area $55,611
Total Trade Area $55,642
Baltimore MSA $52,158
State of Maryland $56,574
Provided on the following page is a graphic representation of the areas
current income levels. Note the concentration of relative wealth adjacent
to the subject south and southeast of the City of Westminster.
Retail Sales
Another important statistic for retailers is the amount of retail sales
expended by the population. The table following summarizes historic retail
sales for the State of Maryland, the Baltimore MSA, and Carroll County since
1985.
Retail Sales
(000)
Baltimore Carroll State of
Year MSA County Maryland
1985 $13,681,848 $ 491,554 $28,863,392
1990 $17,489,333 $ 699,121 $36,836,986
1991 $17,484,100 $ 705,040 $36,385,417
1992 $18,446,721 $ 767,460 $38,204,984
1993 $19,610,884 $ 830,622 $40,363,984
1994 $20,720,649 $1,227,308 $44,183,971
1995 $21,744,811 $1,299,020 $45,643,984
Compound Annual
Growth Rate 1985-1996 +4.74% -10.21% +4.69%
Source: Sales and Marketing Management Survey of Buying Power
Empirical data shows that retail sales within Carroll County have grown at
a compound annual rate of 10.2 percent since 1985. This rate of increase has
been well in excess of that shown by the state and MSA as a whole. Much of
this annual change was driven by the sizable increase in retail sales in 1994.
Map showing primary trade area by average income
Mall Shop Sales
While retail sales trends within the MSA and region lend insight into
the underlying economic aspects of the market, it is the subject's sales
history that is most germane to our analysis. Sales reported for mall shop
tenants have been segregated on the following table.
Cranberry Mall
Mall Shop Sales
Total % Mature Unit %
Year Mall Shop Change Mall Shop Rate Change
Sales Sales Per Sq. Ft.*
1989 $28,151,000 -- -- -- --
1990 $29,175,000 +3.64% -- -- --
1991 $29,942,000 +2.63% $28,391,000 $218.02 --
1992 $31,961,000 +6.74% $28,476,000 $221.94 +1.80%
1993 $33,056,000 +3.43% $29,076,000 $224.50 +1.20%
1994 $33,870,000 +2.46% $31,774,000 $229.70 +2.32%
1995 $31,988,000 (-5.6%) $28,990,000 $242.20 +5.44%
1996 $32,196,000 +.65% $27,967,000 $233.60 (-3.67%)
Compound Annual +1.94% +1.39%
Growth
* Based upon applicabl e reporting GLA for that particula r year.
As can be seen from the above, aggregate mall shop sales have increased at
an average compound annual rate of 1.94 percent since 1989. The total
sales of $32.20 million were equal to $208.40 per square foot in 1996, based
on 154,475 square feet of total reporting GLA. It should be pointed out that
these amounts are property totals and include sales from tenants who were
terminated during the year. Furthermore, it should be emphasized that the
sales reflect the aggregate change in sales and not an indication of
comparable store sales.
Comparable store sales (also known as same store or comparable
sales) reflect the annual performance of stores in existence and reporting
sales for the prior one year period. In management's year end sales report,
they detail comparable store sales under the category "Mature Sales". The
report shows mature stores increased by 5.4 percent in 1995 on a unit rate
basis to $242.20 per square foot based on 119,686 reporting square feet. This
number is "normalized" to be on a comparable basis with 1996 in terms of
reporting GLA. In 1996, comparable store sales decreased by 3.6 percent to
$233.60 per foot. Since 1991 when data for comparable sales was available,
unit sales have grown by only 1.4 percent per annum which has lagged
inflation. A complete sales report is contained in the Addenda.
On balance, we have forecasted a 2 percent increase in mall shop sales in
1997 to approximately $238 per square foot.
Department Store Sales
Department store sales at the subject property are shown on the following
chart. Aggregate sales of $51.3 million were equal to $168.00 per square foot
in 1996. In 1995, anchors produced aggregate sales of $51.6 million, or an
average of $169 per square foot.
Cranberry Mall Department Store Sales
($000)
Year Caldor Sears Leggett Montgomery Ward Total Unit Rate *
1989 $10,217 $9,596 $8,088 -- $27,901 $129
1990 $10,683 $10,017 $8,700 -- $29,400 $136
1991 $11,198 $9,948 $9,265 $15,190 $45,601 $149
1992 $11,049 $10,654 $8,236 $14,258 $44,197 $145
1993 $11,752 $11,612 $8,697 $14,905 $46,966 $154
1994 $11,219 $13,275 $8,737 $15,612 $48,843 $160
1995 $11,882 $14,272 $9,183 $16,245 $51,552 $169
1996 $11,207 $15,595 $9,271 $15,236 $51,309 $168
Compound +1.3% +7.2% +2.0% +.06% +3.8%
Annual Growth
* Based on applica ble GLA reporting.
The highest grossing store at Cranberry Mall was Sears in 1996 with
sales of $15.6 million, equivalent to $222.50 per square foot. Sears was
also the most productive store in terms of sales per square foot. Alternately,
Montgomery Ward had a 6.2 percent decrease in sales to $15,236,000 or $170.60
per square foot. This is partly due to some of their global problems
affecting the chain nationally. Historically, they had been the highest
grossing anchor store at Cranberry Mall. Caldor saw nearly a 6.0 percent
decrease to $11.2 million or $137.90 per square foot. Caldor remains in
bankruptcy and the chain contains to report lackluster results. Leggett had a
1.0 percent increase to $9.3 million or nearly $142 per square foot.
On balance, the performance of the majors in 1996 can be considered
mixed. Aggregate sales were down 0.5% from 1995, with only two of the four
department stores posting increases.
Competition
There have been no material changes to the competitive landscape with
the exception of a new Target store. We would expect this store to
continue being most directly competitive with Caldor.
Comments
Within the shopping center industry, a trend toward specialization
has evolved so as to maximize sales per square foot by deliberately meeting
customer preferences rather than being all things to all people. This
market segmentation is implemented through the merchandising of the anchor
stores and the tenant mix of the mall stores. The subject has an attractive
anchor alignment for the trade area which it serves.
During the year there was a relatively good amount of tenant activity.
Despite loosing some tenants to the global problems effecting many of the
national and regional chains, several new deals were completed resulting in
some net absorption. There are still some hard areas to lease and finding the
right tenant(s) is a difficult task in today's leasing environment.
Conclusion
We have analyzed the retail trade history and profile of the Baltimore MSA
and Carroll County in order to make reasonable assumptions as to the expected
performance of the subject's trade area.
A metropolitan and locational overview was presented which highlighted
important points about the study area and demographic and economic data
specific to the trade area was presented. The trade area profile discussed
encompassed a zip code based analysis. Marketing information relating to
these sectors was presented and analyzed in order to determine patterns of
change and growth as it impacts the subject. Finally, we included a brief
discussion of some of the competitive retail centers in the market area. The
data is useful in giving quantitative dimensions of the total trade area,
while our comments serve to provide qualitative insight into this trade area.
The following summarizes our key conclusions:
- The subject enjoys a visible and accessible location within one of the
nation's largest MSA economies.
- The subject's primary and total trade area continues to grow at rates
above the regional mean. Current demographic statistics show a total trade
area of approximately 317,000 persons residing in nearly 116,000 households.
- Sales for mature stores slipped 3.6 percent last year mirroring many of
the global troubles that impacted retailers, particularly the apparel chains.
However, the department stores were in direct contrast of this trend with all
four anchors posting healthy increases.
- Management needs to continue to aggressively pursue those tenant types
which would compliment the overall merchandising flavor of the center. Vacancy
is still relatively high. Since the mall has never been above 85.0 percent
occupancy, we feel that it has a structural vacancy problem that results from
too much GLA to support based on the size of the market area.
- The mall has some near term risk with nearly 30 percent of the existing
leases expiring before 1997 and Target coming on line this summer.
THE SUBJECT PROPERTY
Property Description
The Cranberry mall contains a gross leasable area of 525,702 square feet
of GLA. The subject site is situated at the southeast quadrant of Routes
27 and 140 in Westminster, Maryland. The total area of the site is 57.745
acres. Overall, the property was noted to be in good condition. Outside of
tenant leasings and terminations, the only recent significant change to the
mall was a 6,000 square foot addition to the cinema, increasing its
capacity from six to nine screens during 1994. A discussion of recent leasing
activity can be found in the Income Approach section of this report.
Another significant change to the property will come in 1997 when Leggett
becomes a Belk store. Belk purchased Leggett in late-1996 and will convert
the store in March. Management views this change as positive since Belk
is traditionally more aggressive in their marketing efforts.
We would also note that, structurally and mechanically, the improvements
appear to be in good condition. However, this type of analysis is beyond
our expertise and is best made by a professional engineer. Our review of
the local environs reveals that there are no external influences which
negatively impact the value of the subject property.
Over the course of the past year, Cranberry Mall finished with an
81.0 (m/l) percent occupancy indicating vacancy of 19.0 percent. As of
our previous report, the subject had an overall vacancy of approximately 19.5
percent, slightly higher than this analysis. Year-end 1994 showed a vacancy
of about 20.0 percent.
Real Property Taxes and Assessments
The subject property is assessed for the purpose of taxation by Carroll
County, and by the City of Westminster. The current assessment for the subject
is in the total amount of $19,600,000. The resulting tax liability is
$726,000 based on current mill rates. A review of the subject's historical
tax liability is shown below:
Real Estate Taxes
Year Amount
1992/93 $704,336
1993/94 $566,183
1994/95 $664,400
1995/96 $670,520
1996/97 $726,000
Zoning
The subject site is zoned P-RSC, Planned Regional Shopping Center by the
City of Westminster. We are advised that this district permits a variety of
retail uses including the subject's current utilization. HIGHEST AND BEST USE
According to the Dictionary of Real Estate Appraisal, Third Edition
(1993), a publication of the American Institute of Real Estate Appraisers, the
highest and best use is defined as:
The reasonably probable and legal use of vacant land or an improved
property, which is physically possible, appropriately supported, financially
feasible, and that results in the highest value. The four criteria the
highest and best use must meet are legal permissibility, physical possibility,
financial feasibility, and maximum profitability.
In our last full narrative appraisal report, we evaluated the site's
highest and best use as currently improved and as if vacant. In both
cases, the highest and best use must meet these aforementioned criteria. After
considering all the uses which are physically possible, legally
permissible, financially feasible and maximally productive, it is our
opinion that a concentrated retail use built to its maximum feasible FAR is
the highest and best use of the mall site as if vacant. Similarly, we have
considered the same criteria with regard to the highest and best use of the
site as improved. After considering all pertinent data, it is our conclusion
that the highest and best use of the site as improved is for its continued
retail use. We believe that such a use will yield to ownership the greatest
return over the longest period of time.
VALUATION PROCESS
Appraisers typically use three approaches in valuing real property: The
Cost Approach, the Income Approach and the Sales Comparison Approach. The
type and age of the property and the quantity and quality of data effect
the applicability in a specific appraisal situation.
The Cost Approach renders an estimate of value based upon the price of
obtaining a site and constructing improvements, both with equal desirability
and utility as the subject property. Historically, investors have not
emphasized cost analysis in purchasing investment grade properties such as
regional malls The estimation of obsolescence for functional and economic
conditions as well as depreciation on improvements makes this approach
difficult at best. Furthermore, the Cost Approach fails to consider the value
of department store commitments to regional shopping centers and the
difficulty of site assemblage for such properties. As such, the Cost Approach
will not be employed in this analysis due to the fact that the marketplace
does not rigidly trade leased shopping centers on a cost/value basis.
The Sales Comparison Approach is based on an estimate of value derived
from the comparison of similar type properties which have recently been
sold. Through an analysis of these sales, efforts are made to discern the
actions of buyers and sellers active in the marketplace, as well as
establish relative unit values upon which to base comparisons with regard to
the mall. This approach has a direct application to the subject property.
Furthermore, this approach has been used to develop investment indices and
parameters from which to judge the reasonableness of our principal
approach, the Income Approach.
By definition, the subject property is considered an income/ investment
property. Properties of this type are historically bought and sold on the
ability to produce economic benefits, typically in the form of a yield to the
purchaser on investment capital. Therefore, the analysis of income
capabilities are particularly germane to this property since a prudent
and knowledgeable investor would follow this procedure in analyzing its
investment qualities. Therefore, the Income Approach has been emphasized as
our primary methodology for this valuation. This valuation concludes with a
final estimate of the subject's market value based upon the total analysis as
presented herein.
SALES COMPARISON APPROACH
Methodology
The Sales Comparison Approach provides an estimate of market value by
comparing recent sales of similar properties in the surrounding or competing
area to the subject property. Inherent in this approach is the principle of
substitution, which holds that, when a property is replaceable in the market,
its value tends to be set at the cost of acquiring an equally desirable
substitute property, assuming that no costly delay is encountered in making the
substitution.
By analyzing sales that qualify as arms-length transactions between
willing and knowledgeable buyers and sellers, market value and price
trends can be identified. Comparability in physical, locational, and
economic characteristics is an important criterion when comparing sales to
the subject property. The basic steps involved in the application of this
approach are as follows:
1. Research recent, relevant property sales and current offerings throughout
the competitive marketplace;
2. Select and analyze properties considered most similar to the subject, giving
consideration to the time of sale, change in economic conditions which may have
occurred since date of sale, and other physical, functional, or locational
factors;
3. Identify sales which include favorable financing and calculate the cash
equivalent price; and
4. Reduce the sale prices to a common unit of comparison, such as price per
square foot of gross leasable area sold;
5. Make appropriate adjustments between the comparable properties and the
property appraised; and
6. Interpret the adjusted sales data and draw a logical value conclusion.
The most widely-used, market-oriented units of comparison for properties
such as the subject are the sale price per square foot of gross leasable
area (GLA) purchased, and the overall capitalization rate extracted from
the sale. This latter measure will be addressed in the Income Capitalization
Approach which follows this methodology. An analysis of the inherent sales
multiple also lends additional support to the Sales Comparison Approach.
Market Overview
The typical purchaser of properties of the subject's caliber includes both
foreign and domestic insurance companies, large retail developers, pension
funds, and real estate investment trusts (REITs). The large capital
requirements necessary to participate in this market and the expertise
demanded to successfully operate an investment of this type, both limit the
number of active participants and, at the same time, expand the geographic
boundaries of the marketplace to include the international arena. Due
to the relatively small number of market participants and the moderate
amount of quality product available in the current marketplace, strong demand
exists for the nation's quality retail developments.
Most institutional grade retail properties are existing, seasoned
centers with good inflation protection. These centers offer stability in
income and are strongly positioned to the extent that they are formidable
barriers to new competition. They tend to be characterized as having three to
five department store anchors, most of which are dominant in the market. Mall
shop sales are at least $300 per square foot and the trade area offers good
growth potential in terms of population and income levels. Equally important
are centers which offer good upside potential after face-lifting,
renovations, or expansion. With new construction down substantially, owners
have accelerated their renovation and remerchandising programs. Little
competition from over-building is likely in most mature markets within which
these centers are located. Environmental concerns and "no-growth" mentalities
in communities continue to be serious impediments to new retail developments.
Over the past 18(m/l) months, we have seen real estate investment return to
favor as an important part of many institutional investors' diversified
portfolios. Banks are aggressively competing for business, trying to
regain market share lost to Wall Street, while the more secure life insurance
companies are also reentering the market. The re-emergence of real estate
investment trusts (REITs) has helped to provide liquidity within the real
estate market, pushing demand for well-tenanted, quality property, particularly
regional malls. Currently, REITs are one of the most active segments of the
industry and are particularly attractive to institutional investors due to
their liquidity. However, overbuilding in the retail industry has resulted in
the highest GLA per capita ever (19 square feet per person). As a
consequence, institutional investors are more selective than ever with their
underwriting criteria. Many investors are even shunning further retail
investment at this time, content that their portfolios have a sufficient
weighting in this segment.
The market for dominant Class A institutional quality malls is tight, as
characterized by the limited amount of good quality product available. It is
the overwhelming consensus that Class A property would trade in the 7.0 to
8.0 percent capitalization rate range, with rates below 7.5 percent likely
limited to the top 15 to 20 malls with sales at least $350 per square
foot. Conversely, there are many second tier and lower quality malls offered
on the market at this time. With limited demand from a much thinner market,
cap rates for this class of malls are felt to be in the much broader 9.5 to
14.0 percent range. Pessimism about the long term viability of many of these
lower quality malls has been fueled by the recent turmoil in the retail
industry.
To better understand where investors stand in today's marketplace,
we have surveyed active participants in the retail investment market. Based
upon our survey, the following points summarize some of the more important
"hot buttons" concerning investors:
1. Occupancy Costs - This "health ratio" measure is of fundamental concern
today. The typical range for total occupancy cost-to-sales ratios falls between
10.0 and 15.0 percent. With operating expenses growing faster than sales in
many malls, this issue has become even more important. As a general rule of
thumb, malls with sales under $250 per square foot generally support ratios of
10.0 to 12.0 percent; $250 to $300 per square foot support 12.0 to 13.5
percent; and over $300 per square foot support 13.5 to 15.0 percent. Experience
and research show that most tenants will resist total occupancy costs that
exceed 15.0 to 18.0 percent of sales. However, ratios of upwards to 20.0
percent are not uncommon for some higher margin tenants. This appears to be by
far the most important issue to an investor today. Investors are looking for
long term growth in cash flow and want to realize this growth through real rent
increases. High occupancy costs limit the amount of upside through lease
rollovers.
2. Market Dominance - The mall should truly be the dominant mall in the
market, affording it a strong barrier to entry for new competition. Some
respondents feel this is more important than the size of the trade area itself.
3. Strong Anchor Alignment - Having at least three department stores (four
are ideal), two of which are dominant in that market. The importance of the
traditional department store as an anchor tenant has returned to favor after
several years of weak performance and confusion as to the direction of the
industry. As a general rule, most institutional investors would not be
attracted to a two-anchor mall.
4. Entertainment - Entertainment has become a critical element at larger
centers as it is designed to increase customer traffic and extend customer
staying time. This loosely defined term covers a myriad of concepts available
ranging from mini-amusement parks, to multiplex theater and restaurant themes,
to interactive virtual reality applications. The capacity of regional/
super-regional centers to provide a balanced entertainment experience well
serve to distinguish these properties from less distinctive formats such as
power and smaller outlet centers.
5. Dense Marketplace - Several of the institutional investors favor
markets of 300,000 to 500,000 people or greater within a 5 to 7 mile radius.
Population growth in the trade area is also very important. One advisor likes
to see growth 50.0 percent better than the U.S. average. Another investor cited
that they will look at trade areas of 200,000(m/l) but that if there is no
population growth forecasted in the market, a 50(m/l) basis point adjustment to
the cap rate at the minimum is warranted.
6. Income Levels - Household incomes of $50,000+ which tends to be limited
in many cases to top 50 MSA locations. Real growth with spreads of 200 to 300
basis points over inflation are ideal.
7. Good Access - Interstate access with good visibility and a location
within or proximate to the growth path of the community.
8. Tenant Mix - A complimentary tenant mix is important. Mall shop ratios
of 35(m/l) percent of total GLA are considered average with 75.0 to 80.0 percent
allocated to national tenants. Mall shop sales of at least $250 per square
foot with a demonstrated positive trend in sales is also considered to be
important.
9. Physical Condition - Malls that have good sight lines, an updated
interior appearance and a physical plant in good shape are looked upon more
favorably. While several developers are interested in turn-around situations,
the risk associated with large capital infusions can add at least 200 to 300
basis points onto a cap rate.
10. Environmental Issues - The impact of environmental problems cannot be
understated. There are several investors who won't even look at a deal if
there are any potential environmental issues no matter how seemingly
insignificant.
11. Operating Covenants - Some buyers indicated that they would not be
interested in buying a mall if the anchor store operating covenants were to
expire over the initial holding period. Others weigh each situation on its own
merit. If it is a dominant center with little likelihood of someone coming
into the market with a new mall, they are not as concerned about the prospects
of loosing a department store. If there is a chance of loosing an anchor, the
cost of keeping them must be weighed against the benefit. In many of their
malls they are finding that traditional department stores are not always the
optimum tenant but that a category killer or other big box use would be a more
logical choice.
In the following section we will discuss trends which have become
apparent over the past several years involving sales of regional malls.
Regional Mall Property Sales
Evidence has shown that mall property sales which include anchor stores
have lowered the square foot unit prices for some comparables, and have
affected investor perceptions. In our discussions with major shopping
center owners and investors, we learned that capitalization rates and
underwriting criteria have become more sensitive to the contemporary
issues affecting department store anchors. Traditionally, department stores
have been an integral component of a successful shopping center and,
therefore, of similar investment quality if they were performing
satisfactorily.
During the 1980's a number of acquisitions, hostile take- overs and
restructurings occurred in the department store industry which changed the
playing field forever. Weighted down by intolerable debt, combined with a
slumping economy and a shift in shopping patterns, the end of the decade was
marked by a number of bankruptcy filings unsurpassed in the industry's
history. Evidence of further weakening continued into 1991- 1992 with filings
by such major firms as Carter Hawley Hale, P.A. Bergner & Company, and
Macy's. In early 1994, Woodward & Lothrop announced their bankruptcy
involving two department store divisions that dominate the Philadelphia and
Washington D.C. markets. Most of the stores have since been acquired by
the May Department Stores Company, effectively ending the existence of the 134
year old Wanamaker name, the nation's oldest department store company.
More recently, however, department stores have been reporting a return to
profitability resulting from increased operating economies and higher sales
volumes. Sears, once marked by many for extinction, has more recently won
the praise of analysts. Federated Department Stores has also been acclaimed
as a text book example on how to successfully emerge from bankruptcy. They
have merged with Macy's and more recently acquired the Broadway chain to form
one of the nation's largest department store companies. The trend of
further consolidation and vulnerability of the regional chains continued
throughout 1996.
With all this in mind, investors are looking more closely at the strength
of the anchors when evaluating an acquisition. Most of our survey respondents
were of the opinion that they were indifferent to acquiring a center that
included the anchors versus stores that were independently owned if they
were good performers. However, where an acquisition includes anchor
stores, the resulting cash flow is typically segregated with the income
attributed to anchors (base plus percentage rent) analyzed at a higher cap rate
then that produced by the mall shops.
However, more recent data suggests that investors are becoming more
troubled by the creditworthiness of the mall shops. With an increase in
bankruptcies, store closures and consolidations, we see investors looking
more closely at the strength and vulnerabilities of the in-line shops. As a
result, there has been a marked trend of increasing capitalization rates.
Cushman & Wakefield has extensively tracked regional mall transaction
activity for several years. In this analysis we discuss sale trends since
1991. Summary data sheets for the more recent period (1995 to 1996) are
displayed on the Following Pages. Summary information for prior years (1991
to 1994) are maintained in our files. These sales are inclusive of good
quality Class A or B+/B- properties that are dominant in their market.
Also included are weaker properties in second tier cities that have a
narrower investment appeal. As such, the mall sales presented in this
analysis show a wide variety of prices on a per unit basis, ranging from $59
per square foot up to $686 per square foot of total GLA purchased. When
expressed on the basis of mall shop GLA acquired, the range is more broadly
seen to be $93 to $686 per square foot. Alternatively, the overall
capitalization rates that can be extracted from each transaction range from
5.60 percent to rates in excess of 11.0 percent.
One obvious explanation for the wide unit variation is the inclusion (or
exclusion) of anchor store square footage which has the tendency to distort
unit prices for some comparables. Other sales include only mall shop area where
small space tenants have higher rents and higher retail sales per square foot.
A shopping center sale without anchors, therefore, gains all the benefits of
anchor/small space synergy without the purchase of the anchor square
footage. This drives up unit prices to over $250 per square foot, with most
sales over $300 per square foot of salable area. A brief discussion of
historical trends in mall transactions follows
Regional Mall Sales - 1995 Transaction Chart
(includes data on 1995 sales of regional malls)
Regional Mall Sales - 1996 Transaction Chart
(includes data on 1996 sales of regional malls)
The fourteen sales included for 1991 show a mean price per square foot sold of
$282. On the basis of mall shop GLA sold, these sales present a mean of
$357. Sales multiples range from .74 to 1.53 with a mean of 1.17.
Capitalization rates range from 5.60 to 7.82 percent with an overall mean of
6.44 percent. The mean terminal capitalization rate is approximately 100
basis points higher, or 7.33 percent. Yield rates range between 10.75 and
13.00 percent, with a mean of 11.52 percent for those sales reporting IRR
expectancies.
In 1992, the eleven transactions display prices ranging from $136 to $511 per
square foot of GLA sold, with a mean of $259 per square foot. For mall shop
area sold, the 1992 sales suggest a mean price of $320 per square foot. Sales
multiples range from .87 to 1.60 with a mean of 1.07. Capitalization rates
range between 6.00 and 7.97 percent with the mean cap rate calculated at 7.31
percent for 1992. For sales reporting a going-out cap rate, the mean is shown
to be 7.75 percent. Yield rates range from 10.75 to around 12.00 percent with
a mean of 11.56 percent.
For 1993, a total of sixteen transactions have been tracked. These sales show
an overall average sale price of $242 per square foot based upon total GLA sold
and $363 per square foot based solely upon mall GLA sold. Sales multiples range
from .65 to 1.82 and average 1.15. Capitalization rates continued to rise in
1993, showing a range between 7.00 and 10.10 percent. The overall mean has
been calculated to be 7.92 percent. For sales reporting estimated terminal cap
rates, the mean is also equal to 7.92 percent. Yield rates for 1993 sales range
from 10.75 to 12.50 percent with a mean of 11.53 percent for those sales
reporting IRR expectancies. On balance, the year was notable for the number of
dominant Class A malls which transferred.
Sales data for 1994 shows fourteen confirmed transactions with an average unit
price per square foot of $197 per square foot of total GLA sold and $288 per
square foot of mall shop GLA. Sales multiples range from .57 to 1.43 and
average .96. The mean going-in capitalization rate is shown to be 8.37
percent. The residual capitalization rates average 8.13 percent. Yield rates
range from 10.70 to 11.50 percent and average 11.17 percent. During 1994, many
of the closed transactions involved second and third tier malls. This accounted
for the significant drop in unit rates and corresponding increase in cap rates.
Probably the most significant sale involved the Riverchase Galleria, a 1.2
million square foot center in Hoover, Alabama. LaSalle Partners purchased the
mall of behalf of the Pennsylvania Public School Employment Retirement System
for $175.0 million. The reported cap rate was approximately 7.4 percent.
Cushman & Wakefield has researched 19 mall transactions for 1995. With the
exception of possibly Natick Mall and Smith Haven Mall, by and large the
quality of malls sold are lower than what has been shown for prior years. For
example, the average transaction price has been slipping. In 1993, the peak
year, the average deal was nearly $133.8 million. In 1995, it is shown to be
$88.6 million which is even skewed upward by Natick and Smith Haven Malls which
had a combined price of $486.0 million. The average price per square foot of
total GLA sold is calculated to be $193 per square foot. The range in values of
mall GLA sold are $93 to $686 with an average of $285 per square foot. The
upper end of the range is formed by Queens Center with mall shop sales of
nearly $700 per square foot. Characteristics of these lesser quality malls
would be higher initial capitalization rates. The range for these transactions
is 7.25 to 11.10 percent with a mean of 9.13 percent. Most market participants
indicated that continued turmoil in the retail industry will force cap rates to
move higher.
1996 has been the most active year in recent times in terms of transactions.
REIT's have far and away been the most active buyers. We believe this increase
in activity is a result of a combination of dynamics. The liquidity of REIT's
as well as the availability of capital has made acquisitions much easier. In
addition, sellers have become much more realistic in there pricing, recognizing
that the long term viability of a regional mall requires large infusions of
capital. The 26 transactions we have tracked range in size from approximately
$22.2 million to $266.0 million. The malls sold also run the gamut of quality
ranging from several secondary properties in small markets to such higher
profile properties as Old Orchard Shopping Center in Chicago and South Park
Mall in Charlotte. Sale prices per SF of mall shop GLA range from $126 to $534
with a mean of $242. REIT's primary focus on initial return with their
underwriting centered on in place income. As such, capitalization rates ranged
from 7.0 percent to 12.0 percent with a mean of 9.35 percent.
While these unit prices implicitly contain both the physical and economic
factors affecting the real estate, the statistics do not explicitly convey
many of the details surrounding a specific property. Thus, this single
index to the valuation of the subject property has limited direct
application. The price per square foot of mall shop GLA acquired yields one
common form of comparison. However, this can be distorted if anchor
and/or other major tenants generate a significant amount of income. Chart
A, following, shows this relationship along with other selected indices.
CHART A *
Selected Average Indices
Transact Price/SF Price/SF Range Sales Capitaliz
ion Year Range ** of Mall Shop Multi ation
of Total GLA/Mean ple Rates
GLA/Mean
1991 $156 - $556 $203 - $556 1.17 6.44%
$282 $357
1992 $136 - $511 $226 - $511 1.07 7.31%
$259 $320
1993 $ 73 - $471 $173 - $647 1.15 7.92%
$242 $363
1994 $ 83 - $378 $129 - $502 0.96 8.37%
$197 $288
1995 $ 53 - $686 $ 93 - $686 0.96 9.13%
$193 $284
1996 $ 58 - $534 $126 - $534 0.84 9.35%
$190 $242
* Includes all transactions for particular year
** Based on total GLA acquired
The chart above shows that the annual average price per square foot
of total GLA acquired has ranged from $190 to $282 per square foot. A
declining trend has been in evidence as cap rates have risen. As discussed,
one of the factors which may influence the unit rate is whether or not
anchor stores are included in the total GLA which is transferred. Thus, a
further refinement can be made between those malls which have transferred with
anchor space and those which have included only mall GLA. The price per
square foot of mall shop GLA has declined from a high of $357 per square foot
in 1991 to $242 per square foot in 1996. In order to gain a better
perspective into this measure, we can isolate only those sales which involved
a transfer of the mall shop GLA. Chart B, following, makes this distinction.
We have displayed only the more recent transactions (1995- 1996).
CHART B
Regional Mall Sales Involving
Mall Shop Space Only
-------1995-------- -------1996--------
Sale Unit NOI Sale Unit NOI
No. Rate Per No. Rate Per
SF SF
95-1 $686 $66.58 96-6 $126 $15.12
95-3 $342 $26.68 96-8 $144 $14.84
95-4 $259 $22.42 96-9 $281 $25.12
95-7 $237 $17.21 96-10 $433 $30.34
96-16 $145 $11.27
96-17 $270 $29.74
96-18 $534 $40.03
96-21 $508 $35.57
96-23 $342 $29.11
96-24 $225 $17.32
96-25 $239 $17.44
Mean $381 $33.22 $295 $24.17
From the above we see that the mean unit rate for sales involving mall
shop GLA only has ranged from approximately $126 to $686 per square foot with
yearly averages of $295 and $381 per square foot for the most recent two year
period. We recognized that these averages may be skewed somewhat by the size
of the sample, particularly in 1995.
Alternately, where anchor store GLA has been included in the sale, the unit
rate is shown to range widely from $53 to $410 per square foot of salable area,
indicating a mean of $143 per square foot in 1995, and only $113 per square
foot in 1996. Chart C, following, depicts this data.
CHART C
Regional Mall Sales Involving
Mall Shops and Anchor GLA
Sale Unit NOI Sale Unit NOI
No. Rate Per No. Rate Per
SF SF
95-2 $410 $32.95 96-1 $278 $22.54
95-5 $272 $21.05 96-2 $130 $13.62
95-6 $ 91 $8.64 96-3 $129 $13.57
95-8 $105 $9.43 96-4 $108 $10.70
95-9 $122 $11.60 96-5 $122 $11.06
95-10 $ 95 $ 8.80 96-7 $ 58 $ 6.58
95-11 $ 53 $ 5.89 96-11 $ 73 $ 8.02
95-12 $ 79 $ 8.42 96-12 $102 $10.21
95-13 $ 72 $ 7.16 96-13 $117 $10.96
95-14 $ 96 $ 9.14 96-14 $ 77 $ 7.78
95-15 $212 $17.63 96-15 $ 92 $ 9.52
95-16 $ 56 $ 5.34 96-19 $ 91 $ 8.40
95-17 $ 59 $ 5.87 96-20 $ 66 $ 6.81
95-18 $143 $11.11 96-22 $170 $12.75
95-19 $287 $22.24 96-26 $ 75 $ 8.01
Mean $143 $12.35 Mean $113 $10.70
* Sale included peripheral GLA
Analysis of Sales
Within Charts B and C, we have presented a summary of several transactions
involving regional and super-regional-sized retail shopping malls from which
price trends may be identified for the extraction of value parameters. These
transactions have been segregated by year of acquisition so as to lend
additional perspective on our analysis. Comparability in both physical and
economic characteristics are the most important criteria for analyzing
sales in relation to the subject property. However, it is also important to
recognize the fact that regional shopping malls are distinct entities by
virtue of age and design, visibility and accessibility, the market
segmentation created by anchor stores and tenant mix, the size and purchasing
power of the particular trade area, and competency of management. Thus, the
"Sales Comparison Approach", when applied to a property such as the subject
can, at best, only outline the parameters in which the typical investor
operates. The majority of these sales transferred either on an all cash (100
percent equity) basis or its equivalent utilizing market-based
financing. Where necessary, we have adjusted the purchase price to its
cash equivalent basis for the purpose of comparison.
As suggested, sales which include anchors typically have lower square
foot unit prices. In our discussions with major shopping center owners
and investors, we learned that capitalization rates and underwriting
criteria have become more sensitive to the contemporary issues dealing with
the department store anchors. As such, investors are looking more closely than
ever at the strength of the anchors when evaluating an acquisition.
As the reader shall see, we have attempted to make comparisons of
the transactions to the subject primarily along economic lines. For the
most part, the transactions have involved dominant or strong Class A
centers in top 50 MSA locations which generally have solid, expanding trade
areas and good income profiles. Some of the other transactions are in
decidedly inferior second tier locations with limited growth potential and
near term vacancy problems. These sales tend to reflect lower unit rates and
higher capitalization rates.
Application to Subject Property
Because the subject is theoretically selling both mall shop GLA and owned
department stores, we will look at the recent sales summarized in Chart C more
closely. As a basis for comparison, we will analyze the subject based upon
projected net operating income. First year NOI has been projected to be $8.65
per square foot (CY 1997), based upon 525,702 square feet of owned GLA.
Derivation of the subject's projected net operating income is presented in
the Income Capitalization Approach section of this report as calculated by
the Pro-Ject model. With projected NOI of $8.65 per square foot, the subject
falls toward the low end of the range exhibited by most of the comparable
sales.
Since the income that an asset will produce has direct bearing on
the price that a purchaser is willing to pay, it is obvious that a unit
price which falls at the high-end of the range indicated by the comparables
would be applicable to the subject. The subject's anticipated net income can
be initially compared to the composite mean of the annual transactions in
order to place the subject in a frame of reference. This is shown on the
following chart.
Sales Mean Subject Subject
Year NOI Forecast Ratio
1991 $14.25 $8.65 60.7%
1992 $16.01 $8.65 54.0%
1993 $15.51 $8.65 55.8%
1994 $15.62 $8.65 55.4%
1995 $12.35 $8.65 70.0%
1996 $10.70 $8.65 80.8%
* Data for years 1991 through 1994 are
retained in our files.
With first year NOI forecasted at approximately 54 to 81 percent of
the mean of these sales in each year, the unit price which the subject
property would command should be expected to fall within a relative range.
Net Income Multiplier Method
Many of the comparables were bought on expected income, not gross leasable
area, making unit prices a somewhat subjective reflection of investment
behavior regarding regional malls. In order to quantify the appropriate
adjustments to the indicated per square foot unit values, we have compared the
subject's first year pro forma net operating income to the pro forma income
of the individual sale properties. In our opinion, a buyer's criteria
for the purchase of a retail property is predicated primarily on the
property's income characteristics. Thus, we have identified a relationship
between the net operating income and the sales price of the property.
Typically, a higher net operating income per square foot corresponds to a
higher sales price per square foot. Therefore, this adjustment incorporates
factors such as location, tenant mix, rent levels, operating
characteristics, and building quality.
Provided below, we have extracted the net income multiplier from each of
the improved sales. We have included only the more recent sales data
(1995/96). The equation for the net income multiplier (NIM), which is the
inverse of the equation for the capitalization rate (OAR), is calculated as
follows:
NIM = Sales Price
Net Operating Income
Net Income Multiplier Calculation
= Net Income
Sale Price/SF / NOI/SF Multiplier
No.
95-6 $ 91 $8.64 10.53
95-8 $ 105 $9.43 11.13
95-10 $ 95 $8.80 10.80
95-14 $ 96 $9.14 10.50
96-11 $ 73 $8.02 9.10
96-14 $ 77 $7.78 9.90
96-15 $ 92 $9.52 9.66
96-19 $ 91 $8.40 10.83
96-26 $ 75 $8.01 9.36
Mean $ 88 $8.64 10.20
Valuation of the subject property utilizing the net income multipliers
(NIMs) from the comparable properties accounts for the disparity of the net
operating incomes ($NOIs) per square foot between the comparables and the
subject. Within this technique, each of the adjusted NIMs are multiplied by
the $NOI per square foot of the subject, which produces an adjusted value
indication for the subject. The net operating income per square foot for the
subject property is calculated as the first year of the holding period, as
detailed in the Income Capitalization Approach section of this report.
Adjusted Unit Rate Summary
Net Income = $/SF No.
Indicated Sale NOI/SF Net Income Indicated
x Multiplier Price = $/SF No.
95-6 $8.65 10.53 $91
95- 8 $8.65 11.13 $96
95-10 $8.65 10.80 $93
95-14 $8.65 10.50 $91
96- 11 $8.65 9.10 $79
96-14 $8.65 9.90 $86
96-15 $8.65 9.66 $84
96-19 $8.65 10.83 $94
96-26 $8.65 9.36 $81
Mean $8.65 10.20 $88
From the process above, we see that the indicated net income multipliers
range from 9.10 to 11.13 with a mean of 10.20. The adjusted unit rates range
from $79 to $96 per square foot of owned GLA with a mean of $88 per square
foot.
We recognize that the sale price per square foot of gross leasable area,
including land, implicitly contains both the physical and economic factors
of the value of a shopping center. Such statistics by themselves, however, do
not explicitly convey many of the details surrounding a specific income
producing property like the subject. Nonetheless, the process we have
undertaken here is an attempt to quantify the unit price based upon the
subject's income producing potential.
The subject, although considered the dominant property for its trade
area, has less than average growth potential in terms of its net income/cash
flow. There is also some near term rent roll risk with a number of leases
expiring and its anchor profile has some cause for concern.
As such, we would be inclined to be at the lower end of the adjusted range
for the comparables. Considering the characteristics of the subject
relative to the above, we believe that a unit rate range of $75 to $80
per square foot is appropriate. Applying this unit rate range to 525,702
(m/l) square feet of owned GLA results in a value of approximately
$39.4 million to $42.0 million for the subject as shown below.
525,702 SF 525,702 SF
x $75 x $80
$39,428,000 $42,056,000
Rounded Value Estimate - Market Sales Unit Rate
Comparison
$39,400,000 to $42,000,000
Sales Multiple Method
Arguably, it is the mall shop GLA sold and its intrinsic economic
profile that is of principal concern in the investment decision process. A
myriad of factors influence this rate, perhaps none of which is more
important than the sales performance of the mall shop tenants.
Accordingly, the abstraction of a sales multiple from each transaction
lends additional perspective to this analysis.
The sales multiple measure is often used as a relative indicator of
the reasonableness of the acquisition price. As a rule of thumb, investors
will look at a sales multiple of 1.00 as a benchmark, and will look to keep it
within a range of 0.75 to 1.25 times mall shop sales performance unless
there are compelling reasons why a particular property should deviate.
The sales multiple is defined as the sales price per square foot of mall
GLA divided by average mall shop sales per square foot. As this
reasonableness test is predicated upon the economics of the mall shops,
technically, any income (and hence value) attributed to anchors that are
acquired with the mall as tenants should be segregated from the transaction.
As an income (or sales) multiple has an inverse relationship with a
capitalization rate, it is consistent that, if a relatively low capitalization
rate is selected for a property, it follows that a correspondingly
above-average sales (or income) multiple be applied. In most instances,
we are not privy to the anchor's contributions to net income. Therefore, the
analysis shown below is limited to those sales which involved mall shop GLA
only.
Sales Multiple Summary
---------------------------------
Sale Going-In Sales
No. OAR Multiple
95- 1 9.71% 1.00
95- 3 7.80% 1.01
95- 4 8.66% 0.99
95- 7 7.25% 0.82
96- 6 12.00% 0.33
96- 8 10.31% 0.67
96- 9 8.95% 0.85
96-10 7.00% 1.08
96-16 7.75% 0.53
96-17 11.00% 0.71
96-18 7.50% 1.17
96-21 7.00% 1.27
96-23 8.50% 1.14
96-24 7.70% 0.87
96-25 7.30% 0.96
Mean 8.56% 0.89
The mall sales involing solely mall shop GLA for the years 1995/1996 show
sales multiples that range from 0.33 to 1.27 with a mean of about 0.89. As
evidenced, the more productive malls with higher sales volumes on a per square
foot basis tend to have higher sales multiples. Furthermore, the higher
multiples tend to be in evidence where an anchor(s) is included in the sale.
Based upon forecasted sales performance in 1997, the subject should
produce sales of about $238 per square foot for all comparable store
tenants, including food court.
In the case of the subject, the overall capitalization rate being utilized
for this analysis is considered to be above the mean exhibited by the
comparable sales. As such, we would be inclined to utilize a multiple below
the mean indicated by the sales which is applied to just the mall shop space.
In addition, the subject has a below average sales and income growth
potential. Applying a ratio of say, 0.60 to 0.65 percent to the forecasted
sales of $238 per square foot, the following range in value is indicated:
Unit Sales Volume (Mall Shops) $ 238 $ 238
Sales Multiple x 0.60 x 0.65
Adjusted Unit Rate $142.80 $154.70
Mall Shop GLA x194,271 x194,271
Value Indication $27,742,000 $30,054,000
The analysis shows an adjusted value range of approximately $27.7 to $30.1
million. Inherent in this exercise are mall shop sales which are projections
based on our investigation into the market which might not fully measure
investor's expectations. It is clearly difficult to project with any
certainty what the mall shops might achieve in the future, particularly as the
lease-up is achieved and the property brought to stabilization. While we may
minimize the weight we place on this analysis, it does, nonetheless, offer
a reasonableness check against the other methodologies. We have also
considered in this analysis the fact that the owned anchors and other major
tenants are forecasted to contribute approximately $1.5 million in revenues
in 1997 (base rent obligations and overage rent). If we were to capitalize
this revenue separately at an 10.5 percent rate, the resultant effect on
value is approximately $14.3 million.
Arguably, department stores have qualities that add certain increments of
risk over and above regional malls, wherein risk is mitigated by the diversity
of the store types. A recent Cushman & Wakefield survey of free-standing
retail building sales consisting of net leased discount department stores,
membership warehouse clubs, and home improvement centers, displayed a range in
overall capitalization rates between 8.8 and 10.9 percent with a mean of
approximately 9.6 percent. All sales occurred with credit worthy national
tenants in place.
Trends indicate that investors have shown a shift in preference to
initial return and, as will be discussed in a subsequent section, overall
capitalization rates have been showing increases over the past several
years. Moreover, when the acquisition of a shopping mall includes anchor
department stores, investors will typically segregate income attributable to
the anchors and analyze these revenues with higher capitalization rates than
those revenues produced by the mall shops.
Therefore, based upon the preceding discussion, it is our opinion that
overall capitalization rates for department stores are reasonably reflected by
a range of 9.5 to 11.0 percent. We have chosen a rate toward the middle of
the range due to the locational attributes of the subject's trade
area and characteristics of the subject property.
Therefore, adding the anchor income's implied contribution to value of
$14.3 million, the resultant range is shown to be approximately $42.0 to
$44.4 million. Giving consideration to all of the above, the following value
range is warranted for the subject property based upon the sales multiple
analysis.
Estimated Value - Sales Multiple Method
Rounded to $42,000,000 to $44,400,000
Value Conclusion
We have considered all of the above relative to the physical and economic
characteristics of the subject. It is difficult to relate the subject to
comparables that are in such widely divergent markets with different cash
flow characteristics. The subject's "second tier" location in a trade area
with limited growth does not appeal to the broad segment of the investor
marketplace. The mall, still has high vacancy levels and a low representation
of national credit tenants. It is also represented by two anchor
stores that continue to have global troubles.
After considering all of the available market data in conjunction
with the characteristics of the subject property, the indices of investment
that generated our value ranges are as follows:
Unit Price Per Square Foot
Salable Square Feet: 525,702(m/l) SF
Price Per SF of Salable Area: $75 to $80
Indicated Value Range: $39,400,000 to $42,000,000
Sales Multiple Analysis
Indicated Value Range $42,000,000 to $44,400,000
The parameters above show a value range of approximately $39.4 to
$44.4 million for the subject property. Based on our total analysis, relative
to the strengths and weaknesses of each methodology, it would appear that the
Sales Comparison Approach indicates a Market Value for the subject within the
more defined range of $40.0 to $42.0 million for the subject as of January 1,
1997.
Market Value As Is - Sales Comparison Approach
Rounded to $40,000,000 to $42,000,000
INCOME APPROACH
Introduction
The Income Approach is based upon the economic principle that the value of a
property capable of producing income is the present worth of anticipated
future net benefits. The net income projected is translated into a present
value indication using the capitalization process. There are various
methods of capitalization that are based on inherent assumptions concerning the
quality, durability and pattern of the income projection.
Where the pattern of income is irregular due to existing leases that
will terminate at staggered, future dates, or to an absorption or
stabilization requirement on a newer development, discounted cash flow analysis
is the most accurate.
Discounted Cash Flow Analysis (DCF) is a method of estimating the present
worth of future cash flow expectancies by individually discounting each
anticipated collection at an appropriate discount rate. The indicated
market value by this approach is the accumulation of the present worth of
future projected years' net income (before income taxes and
depreciation) and the present worth of the reversion (the estimated
property value at the end of the projection period). The estimated value of
the reversion at the end of the projection period is based upon the
capitalization of the next year's projected net operating income. This is
the more appropriate method to use in this assignment, given the step up in
lease rates and the long term tenure of retail tenants.
A second method of valuation, using the Income Approach, is to directly
capitalize a stabilized net income based on rates extracted from the market
or built up through mortgage equity analysis. This is a valid method of
estimating the market value of the property as of the achievement of
stabilized operations. In the case of the subject, operations are not
forecasted to achieve stabilization for several years. Thus, the direct
capitalization method has been omitted from the valuation process.
Discounted Cash Flow Analysis
The Discounted Cash Flow (DCF) produces an estimate of value through an
economic analysis of the subject property in which the net income generated
by the asset is converted into a capital sum at an appropriate rate.
First, the revenues which a fully informed investor can expect the
subject to produce over a specified time horizon are established through
an analysis of the current rent roll, as well as the rental market for
similar properties. Second, the projected expenses incurred in
generating these gross revenues are deducted. Finally, the residual
net income is discounted into a capital sum at an appropriate rate
which is then indicative of the subject property's current value in
the marketplace.
In this Income Approach to the valuation of the subject, we have utilized
a 10 year holding period for the investment with the cash flow analysis
commencing on January 1, 1997. Although an asset such as the subject has a
much longer useful life, investment analysis becomes more meaningful if
limited to a time period considerably less than the real estate's economic
life, but of sufficient length for an investor. A 10-year holding period
for this investment is long enough to model the asset's performance and
benefit from its continued lease-up and remerchandising, but short
enough to reasonably estimate the expected income and expenses of the real
estate.
The revenues and expenses which an informed investor may expect to incur
from the subject property will vary, without a doubt, over the holding
period. Major investors active in the market for this type of real estate
establish certain parameters in the computation of these cash flows and
criteria for decision making which this valuation analysis must include if it
is to be truly market-oriented. These current computational parameters are
dependent upon market conditions in the area of the subject property as well as
the market parameters for this type of real estate which we view as being
national in scale.
By forecasting the anticipated income stream and discounting future value
at reversion into current value, the capitalization process may be applied to
derive a value that an investor would pay to receive that particular income
stream. Typical investors price real estate on their expectations of the
magnitude of these benefits and their judgment of the risks involved. Our
valuation endeavors to reflect the most likely actions of typical buyers and
sellers of property interest similar to the subject. In this regard, we see
the subject as a long term investment opportunity for a competent
owner/developer.
An analytical real estate computer model that simulates the behavioral
aspects of property and examines the results mathematically is employed
for the discounted cash flow analysis. In this instance, it is the PRO-JECT
Plus+ computer model. Since investors are the basis of the marketplace in
which the subject property will be bought and sold, this type of analysis
is particularly germane to the appraisal problem at hand. On the Facing Page
is a summary of the expected annual cash flows from the operation of the
subject over the stated investment holding period. (NOT INCLUDED)
A general outline summary of the major steps involved may be listed as
follows:
1.Analysis of the income stream: establishment of an economic (market) rent
for tenant space; projection of future revenues annually based upon
existing and pending leases, probable renewals at market rentals, and
expected vacancy experience;
2. Estimation of a reasonable period of time to
achieve stabilized occupancy of the existing property and make all necessary
improvements for marketability;
3. Analysis of projected escalation recovery income
based upon an analysis of the property's history as well as the experiences of
reasonably similar properties;
4. Derivation of the most probable net operating
income and pre-tax cash flow (net income) less reserves, tenant improvements,
leasing commissions and any extraordinary expenses to be generated by the
property) by subtracting all property expenses from the effective gross income;
and
5. Estimation of a reversionary sale price based upon
capitalization of the net operating income (before reserves, tenant
improvements and leasing commissions or other capital items) at the end of the
projection period.
Following is a detailed discussion of the components which form the basis
of this analysis.
Potential Gross Revenues
The total potential gross revenues generated by the subject property are
composed of a number of distinct elements: minimum rent determined by lease
agreement; additional overage rent based upon a percentage of retail sales; a
reimbursement of certain expenses incurred in the ownership and operation of
the real estate; and other miscellaneous revenues.
The minimum base rent represents a legal contract establishing a
return to investors in the real estate, while the passing of certain expenses
on to tenants serves to maintain this return in an era of continually
rising costs of operation. Additional rent based upon a percentage of
retail sales experienced at the subject property serves to preserve the
purchasing power of the residual income to an equity investor over time.
Finally, miscellaneous income adds an additional source of revenue in the
complete operation of the subject property.
Cranberry
Mall
Revenue
Summary
Initial Year
of
Investment -
1997
Revenue Amount Unit Income
Component Rate * Ratio
Minimum Rent** $4,503,768 $ 8.57 58.6%
Overage Rent*** $ 285,012 $ 0.54 3.7%
Expense $2,560,996 $ 4.87 33.3%
Recoveries
Miscellaneous $ 340,000 $ 0.65 4.4%
Income
Total $7,689,776 $14.63 100.0%
* Reflects total owned GLA of 525,702 SF
** Net of free rent
*** Net of recaptures
Minimum Rental Income
Minimum rent produced by the subject property is derived from that paid by
the various tenant types. The projection utilized in this analysis is based
upon the actual rent roll and our projected leasing schedule in place as of
the date of appraisal, together with our assumptions as to the absorption of
the vacant space, market rent growth, and renewal/turnover probability. We have
also made specific assumptions regarding the re- tenanting of the mall based
upon deals that are in progress and have a strong likelihood of coming to
fruition. In this regard, we have worked with Shopco management and leasing
personnel to analyze each pending deal on a case by case basis. We have
incorporated all executed leases in our analysis. For those pending leases
that are substantially along in the negotiating process and are believed
to have a reasonable likelihood of being completed, we have reflected those
terms in our cash flow. These transactions represent a reasonable and prudent
assumption from an investor's standpoint.
The rental income which an asset such as the subject property will generate
for an investor is analyzed as to its quality, quantity and durability. The
quality and probable duration of income will affect the amount of risk which
an informed investor may expect over the property's useful life. Segregation
of the income stream along these lines allows us to control the
variables related to the center's forecasted performance with greater
accuracy. Each tenant type lends itself to a specific weighting of these
variables as the risk associated with each varies.
The minimum rents forecasted at the subject property are essentially
derived from various tenant categories: major tenant revenue consisting of
base rent obligations of the four department stores, revenues from the
cinema and outparcels and mall tenant revenues consisting of all in-line mall
shops. As a sub-category of in-line shop rents, we have separated food court
rents and kiosk revenues.
In our investigation and analysis of the marketplace, we have surveyed, and
ascertained where possible, rent levels being commanded by competing
centers. However, it should be recognized that large retail shopping malls
are generally considered to be separate entities by virtue of age and
design, accessibility, visibility, tenant mix and the size and purchasing power
of its trade area. Consequently, the best measure of minimum rental income
is its actual rent roll leasing schedule.
As such, our a analysis of recently negotiated leases for new and
relocation tenants at the subject provides important insight into perceived
market rent levels for the mall. Insomuch as a tenant's ability to pay
rent is based upon expected sales achievement, the level of negotiated rents
is directly related to the individual tenant's perception of their expected
performance at the mall. This is particularly true for the subject where
sales levels have fallen to problematic levels that have resulted in several
leases being renegotiated.
Interior Mall Shops
Rent from all interior mall tenants comprise the majority of minimum rent.
Aggregate rent from these tenants is forecasted to be $2,856,739, or $14.70
per square foot. Minimum rent may be allocated to the following components:
Cranberry Mall
Minimum
Rent
Allocation
Interior Mall
Shops
1997 Applicable Unit Rate
Revenue GLA * (SF)
Mall $2,542,618 182,516 SF $13.93
Shops
Kiosks $ 55,000 917 SF $59.98
Food $ 259,121 10,838 SF $23.91
Court
Total $2,856,739 194,271 SF $14.70
* Represents leasable area as opposed to actual leased or occupied area
exclusive of non-owned space.
** Net of free rent
Our analysis of market rent levels for in-line shops has resolved
itself to a variety of influencing factors. Although it is typical that
larger tenant spaces are leased at lower per square foot rates and lower
percentages, the type of tenant as well as the variable of location within
the mall can often distort this size/rate relationship.
Typically, we would view the rent attainment levels in the existing mall
as being representative of the total property. However, the center is
characterized by many older and some troubled leases that have been
renegotiated to more tolerant levels based upon the tenants sales
performance. The following section details the more important changes which
have influenced the mall over the past twelve months.
Recent Leasing
The following bullet points present an overview of recent leasing
activity and tenant changes at the subject property:
-Roy Rogers closed its unit here at year- end 1996. Ownership is talking
to McDonalds as a replacement.
-Great Cookie replaced T.J. Cinnamon
-Bath & Body Works will open in April 1997 on a
10-year lease of 2,200 square feet at an initial rate of $18.00 per square
foot. Bath & Body reportedly received $80,000 in allowances.
-Friedman Jewelers has signed a lease for 1,500 square feet at an initial
rent of $26.67 per square foot. Friedman will open in June.
-Casa Rico opened in Suites 191/193 (5,094 square feet) on a 10-year term
at a flat rental rate of $9.59 per square foot.
-Bible's Plus a temporary tenant, will become permanent as of April 1997,
signing a 10-year lease starting at $6.88 per square foot.
There are also a number of tenants who have signed early renewals at
the property. Being 10 years old, Cranberry Mall has had a substantial number
of leases expiring. Ownership has been relatively successful re-signed
tenants. The following is a list of tenants renewing at the subject.
S.J. Watch Nail Studio
Claire's Boutique Gordon's Jewelers
Travel Agents Sterling Optical
Pro Image Footlocker
Treat Shop General Nutrition
Radio Shack County Seat
Paul Harris Footquarter
Hot Sam Villa Pizza
Sunglass Hut Subway
In addition to this activity, ownership is currently working on a deal
with Transworld Music who will lease 8,500 square feet, occupying Suites 1.19
to 1.21, currently occupied by Baltimore Gas and Recordtown. Transworld is
an entertainment/record and tape format by the company who operates Tape
World, Recordtown, and Dream Machine. In conjunction with this lease,
Transworld will close and consolidate its Tape World, Recordtown, and Dream
Machine units into the new store.
Baltimore Gas & Electric is proposed to be moved into Suite 1.95 on a
"strip center" type deal, with exterior access to the mall. Baltimore Gas has
been closing its mall units in recent years for this type of store format
in community centers. Baltimore Gas has not agreed to this deal as of this
writing, however, and we have not included this part of the deal. This
transaction would improve this portion of the mall, however, leasing a
suite which has never been permanently occupied since the mall's opening.
Finally, there are also several stores which will be closing at the
subject in 1997. These stores include Maurice's, Taco Bell, and the stores
associated with the Transworld Music deal.
Recent Leasing by Size
To further develop our market rent assumptions in the mall, we have
arrayed the subject's most recent leases by size on the Facing Page chart.
These leases include new deals and tenant renewals within the mall. Since
the bulk of recent leasing has been by smaller to mid-sized tenants, we have
broadened the scope to include several larger lease transactions which are now
two to three years old.
We have looked at the most recent leasing in the mall, analyzing the
beginning rent, ending rent and lease term. As can be seen, 27 transactions
have been included, totaling 80,970 square feet of space. These deals
represent both new tenants and relocation tenants to the mall. The average
rent achieved is equal to $15.50 per square foot. To better understand
leasing activity at the subject, this type of analysis becomes more
meaningful when broken down by size category.
Our experience has generally shown that there is typically an inverse
relationship between size and rent. That is to say that the larger suites
will typically command a lower rent per square foot. Category No. 1 (less
than 800 SF) shows an average of $37.26 per square foot, while Category 7
(over 10,000 SF) shows an average rent of $11.56 per square foot.
The lease terms average approximately 8.4 years. Over the lease term,
the average rent is shown to increase by 8.2 percent.
Market Comparisons - Occupancy Cost Ratios
In further support of developing a forecast for market rent levels, we
have undertaken a comparison of minimum rent to projected sales and total
occupancy costs to sales ratios. Generally, our research and experience with
other regional malls shows that the ratio of minimum rent to sales falls
within the 7.0 to 10.0 percent range in the initial year of the lease with 7.5
percent to 8.5 percent being most typical. By adding additional costs
to the tenant, such as real estate tax and common area maintenance
recoveries, a total occupancy cost may be derived. Expense recoveries and
other tenant charges can add up to 100 percent of minimum rent and comprise
the balance of total tenant costs.
The typical range for total occupancy cost-to-sales ratios falls between
11.0 and 15.0 percent. As a general rule, where sales exceed $250 to $275
per square foot, 14.0 to 15.0 percent would be a reasonable cost of occupancy.
Experience and research show that most tenants will resist total occupancy
costs that exceed 15.0 to 18.0 percent of sales. However, ratios of upwards to
20.0 percent are not uncommon. Obviously, this comparison will vary from
tenant to tenant and property to property.
In higher end markets where tenants are able to generate sales above
industry averages, tenants can generally pay rents which fall toward the upper
end of the ratio range. Moreover, if tenants perceive that their sales will
be increasing at real rates that are in excess of inflation, they will
typically be more inclined to pay higher initial base rents. Obviously, the
opposite would be true for poorer performing centers in that tenants would
be squeezed by the thin margins related to below average sales. With fixed
expenses accounting for a significant portion of the tenants contractual
obligation, there would be little room left for base rent.
In this context, we have provided an occupancy cost analysis for several
regional malls with which we have had direct insight over the past year.
This information is provided on the Following Page. On average, these
ratio comparisons provide a realistic check against projected market rental
rate assumptions.
Occupancy Cost Analysis/Comparison Chart (NOT INCLUDED)
From this analysis we see that the ratio of base rent to sales ranges from
7.1 to 10.6 percent, while the total occupancy cost ratios vary from 9.6 to
17.3 percent when all recoverable expenses are included. The surveyed mean
for the malls and industry standards analyzed is 8.3 percent and 13.4
percent, respectively. Some of the higher ratios are found in older malls
situated in urban areas that have higher operating structures due to less
efficient layout and designs, older physical plants, and higher security
costs, which in some malls can add upwards of $2.00 per square foot to common
area maintenance.
These relative measures can be compared with two well known publications,
The Score (1995) by the International Council of Shopping Centers and Dollars
& Cents of Shopping Centers (1995) by the Urban Land Institute. The most
recent publications indicate base rent to sales ratios of approximately 7.0 to
8.0 percent and total occupancy cost ratios of 10.1 to 12.3 percent,
respectively.
In general, while the rental ranges and ratio of base rent to sales vary
substantially from mall to mall and tenant to tenant, they do provide general
support for the rental ranges and ratio which is projected for the subject
property.
Conclusion - Market Rent Estimate for In-Line Shops
Previously, in the Retail Market Analysis section of the appraisal, we
discussed the subject's sales potential. Comparable mall sales in
calendar year 1996 are reported to be approximately $234 per square foot. In
light of the mall's performance, we are forecasting sales to grow by 2.0
percent in 1997 to approximately $238 per square foot.
After considering all of the above, we have developed a weighted
average rental rate of approximately $16.20 per square foot based upon a
relative weighting of a tenant space by size. We have tested this average
rent against total occupancy cost. Since total occupancy costs are projected
to be at the high end for a mall of the subject's calibre, we feel that
base rent should not exceed an 7.0 percent ratio (to sales) on average as
shown below.
Base Rent to Sales Implied Rent at
Ratio $238/SF
6.5% $15.47
7.0% $16.66
7.5% $17.85
The average rent is a weighted average rent for all in- line mall tenants
only. This average market rent has been allocated to space as shown on the
Facing Page.
Occupancy Cost - Test of Reasonableness
Our weighted average rent of approximately $16.20 can next be tested
against total occupancy costs in the mall based upon the standard recoveries
for new mall tenants. Our total occupancy cost analyses can be found on the
following chart.
Cranberry Mall
Total Occupancy Cost
Analysis - 1997
Tenant Cost Estimated Expenses/SF
Economic Base Rent $ 16.20
(Weighted Average)
Occupancy Costs (A)
Common Area Maintenance (1) $ 8.73
Real Estate Taxes (2) $ 3.44
Other Expenses (3) $ 2.50
Total Tenant Costs $ 30.87
Projected Average Sales (1995) $ 238.00
Rent to Sales Ratio 6.81%
Cost of Occupancy Ratio 12.97%
(A) Costs that are occupancy sensitive will decrease for new tenants on
a unit rate basis as lease-up occurs and the property stabilizes. Average
occupied area for mall tenant reimbursement varies relative to each
major recovery type.
(1) CAM expense is based on average annual occupied area. Generally, the
standard lease clause provides for a 15 percent administrative
factor less certain exclusions including anchor and major tenant
contributions. The standard denominator is based on occupied
(leased) versus leasable area. A complete discussion of
the standard recovery formula is presented later in this report.
(2) Tax estimate is based upon an average annual occupied area which is
the recovery basis for taxes. It is exclusive of majors contributions
(department stores and tenants greater than 10,000 square feet).
(3) Other expenses include tenant contributions for mall and premises HVAC and
other miscellaneous items.
Total costs, on average, are shown to be 13.0 percent of projected
average 1997 retail sales which we feel is high but moderately manageable.
This is due primarily to the fact that fixed expenses at the subject are
projected to be nearly $14.00 per square foot.
However, since these costs are occupancy sensitive to the extent their
recovery is tied to the average occupied area of the mall, they will moderate
as the mall leases up. Furthermore, for tenants who use GLA as the basis for
their denominator recovery, will have a much lower expense obligation.
Food Court
The 10,838 square foot food court provides for a total of eleven suites
which is slightly large for a food court. Currently, there are two
vacancies (1.13 and 2.57) although some of the existing tenants are having
trouble and will likely not renew or may leave if they don't obtain rent
relief. The most recent lease was signed with Great Cookie who replaced
Cinnabon took 1,012 square feet in February 1996 for ten years at an
initial rent of $21,000 ($20.75 per square foot) which steps to $26.68. Other
existing rents range from a low of $17.68 per square foot (Taco Bell) to a
high of $44.44 per square foot (Hot Sam). The more productive stores in terms
of unit sales volume include Pretzels Plus ($465 per square foot), Subway
($432 per square foot) and Taco Bell ($274 per square foot).
After giving consideration to the above, we have ascribed a market rent of
$30.00 per square foot to all food court suites less than 1,100 square feet.
For those suites which are larger, we have used a rate of $22.50 per square
foot.
Kiosks
There are six permanent kiosks provided for at Cranberry Mall. Three
are leased according to the following terms:
Tenant Size (SF) Annual Unit Rent
Rent
Sunglass Hut 150 $17,000 * $113.33
Piercing Pagoda 120 $20,000 ** $166.67
Things Remembered 160 $18,000 $112.50
* Steps to $19,000
** Steps to $22,000
We have leased the remaining three kiosks at $20,000 per annum,
assuming five year terms and flat leases with no rental increases. Permanent
kiosks also pay mall charges.
Concessions
Free rent is an inducement offered by developers to entice a tenant to
locate in their project over a competitor's. This marketing tool has become
popular in the leasing of office space, particularly in view of the
over-building which has occurred in many markets. As a rule, most major
retail developers have been successful in negotiating leases without
including free rent. Our experience with regional malls shows that free
rent is generally limited to new projects in marginal locations without
strong anchor tenants that are having trouble leasing, as well as older centers
that are losing tenants to new malls in their trade area. Management reports
that free rent has been a relative non- issue with new retail tenants. A
review of the most recent leasing confirms this observation. It has
generally been limited to one or two months to prepare a suite for occupancy
when it has been given.
Accordingly, we do not believe that it will be necessary to offer free
rent to retail tenants at the subject. It is noted that while we have not
ascribed any free rent to the retail tenants, we have, however, made rather
liberal allowances for tenant workletters which acts as a form of inducement
to convince a tenant to locate at the subject. These allowances are liberal
to the extent that ownership has been relatively successful in leasing space
"as is" to tenants. As will be explained in a subsequent section of this
appraisal, we have made allowances of $10.00 per square foot to new
(currently vacant) and for future turnover space. We have also ascribed a rate
of $3.00 per square foot to rollover space. Raw space is given a $25.00 per
square foot allowance. This assumption offers further support for the
attainment of the rent levels previously cited.
Absorption
Finally, our analysis concludes that the current vacant retail space
will be absorbed over a two and one-half year period through October 1999. We
have identified 35,953 square feet of vacant space, net of newly executed
leases and pending deals which have good likelihood of coming to fruition.
This is equivalent to 18.5 percent of mall GLA and 6.8 percent overall. It is
noted that vacancy has decreased slightly over the past year. The chart on
the Facing Page details our projected absorption schedule.
The absorption of the in-line space over a two to three year period is
equal to 3,268 square feet per quarter. We have assumed that the space
will all lease at 1997 base date market rent estimates as previously
referenced. Effectively, this assumes no rent inflation for absorption
space. We have assumed an eight year average lease term with a 10.0 percent
rent step at the start of year five. Based on this lease-up assumption, the
following chart tracks occupancy through 1999.
Annual Average
Occupancy (Mall GLA)
1997 80.24%
1998 85.67%
1999 95.03%
2000 98.00%
Cinema and Outparcels
The cinema and outparcels contribute approximately $328,535 in base rent.
The cinema currently pays $9.47 per square foot which steps up to $10.15 per
square foot in September 1997. Long John Silver and Kentucky Fried Chicken
are currently paying $34,000 and $46,290, respectively. Both leases have
stipulated rent increases.
Anchor Tenants
The final category of minimum rent is related to the anchor tenants which
pay rent at the subject property. Anchor tenant revenues are forecasted to
amount to $1,340,169 in calendar year 1996. This amount is equal to $4.38 per
square foot of anchor store GLA and represents 29.4 percent of total minimum
rent. The following schedule summarizes anchor tenant rent obligations.
Cranberry Mall
Scheduled Anchor Tenant Revenues
Tenant Demised Expiration With Annual Unit
Area Options Rent Rate
Caldor 81,224SF January 2028 $568,568 $7.00
Sears 70,060SF October 2012 $195,000 $2.78
Leggett 65,282SF March 2027 $228,487 $3.50
Montgomery 89,260SF October 2030 $348,114 $3.90
Ward
Total 305,826SF - $1,340,169 $4.38
While anchor tenants contribute a relatively low amount of rent on a
unit rate basis, it is important to recognize that their aggregate
contribution is quite substantial. With nearly 30.0 percent of minimum base
revenues in the initial year of investment, anchor tenant revenues provide
stability to the cash flow by virtue of their creditworthiness.
As noted, Leggett will be converted into a Belk store in March 1997. We
view this as a positive move since Belk generally has better a marketing
strategy and better shopper recognition. We would also note that Caldor
remains in bankruptcy as of this writing. Although Caldor has told ownership
that they intend to keep this store open, this tenant remains a risk to be
factored into such an analysis.
Rent Growth Rates
Market rent will, over the life of a prescribed holding period, quite
obviously follow an erratic pattern. The tenants' ability to pay rent is
closely tied to its increases in sales. However, rent growth can be more
impacted by competition and management's desire to attract and keep certain
tenants that increase the mall's synergy and appeal. As such, we have been
conservative in our rent growth forecast at a stabilized rate of 3.0 percent
(below our forecasted expense growth).
Market Rent
Growth Rate
Forecast
Period Annual Growth
Rate *
1997 Flat
1998 +2.0%
Thereafter +3.0%
* Indicated growth rate over the previous year's rent
Releasing Assumption
The typical lease term for new in-line retail leases in centers such
as the subject generally ranges from five to twelve years. Market practice
dictates that it is not uncommon to get rent bumps throughout the lease terms
either in the form of fixed dollar amounts or a percentage increase based
upon changes in some index, usually the Consumer Price Index (CPI). Often
the CPI clause will carry a minimum annual increase and be capped at a higher
maximum amount.
For new leases in the regional malls, ten year terms are most typical.
Essentially, the developer will deliver a "vanilla" suite with mechanical
services roughed in and minimal interior finish. This allows the retailer
to finish the suite in accordance with their individual specifications.
Because of the up-front costs incurred by the tenants, they require a ten year
lease term to adequately amortize these costs. In certain instances, the
developer will offer some contribution to the cost of finishing out a space
over and above a standard allowance.
Upon lease expiration, it is our best estimate that there is a 60.0
percent probability that an existing tenant will renew their lease while the
remaining 40.0 percent will vacate their space at this time. While the 40.0
percent may be slightly high by some historic measures, we think that it
is a prudent assumption in light of what has happened over the past several
months. Furthermore, the on-going targeted remerchandising will result in
early terminations and relocations that will likely result in some
expenditures by ownership. An exception to this assumption exists with
respect to existing tenants who, at the expiration of their lease, have
sales that are substantially below the mall average and have no chance to
ever achieve percentage rent. In these instances, it is our assumption that
there is a 100 percent probability that the tenant will vacate the property.
This is consistent with ownership's philosophy of carefully and selectively
weeding out under-performers.
As stated above, it is not uncommon to get increases in base rent over the
life of a lease. Our global market assumptions for non-anchor tenants may be
summarized as shown on the following page.
Cranberry Mall
Renewal Assumptions
Lease Free Tenant Lease
Tenant Type Term Rent Steps Rent Alterations Commissions
Mall Shops and 8 yrs. 10% in 5th year No Yes Yes
Food Court
Kiosks 5 yrs. Flat No No Yes
Upon lease rollover/turnover, space is forecasted to be released at the
higher of the last effective rent (defined as minimum rent plus overage rent
if any) and the ascribed market rent as detailed previously increasing by our
market rent growth rate assumption.
Conclusion - Minimum Rent In the initial full year of the investment (CY
1997), it is projected that the subject property will produce
approximately $4,503,768 in minimum rental income. Minimum rental
income accounts for 58.6 percent of all potential gross revenues.
Further analysis shows that over the holding period (CY 1997- 2006),
minimum rent advances at an average compound annual rate of 2.6 percent.
This increase is a synthesis of the mall's lease- up, fixed rental
increases as well as market rents from rollover or turnover of space. On
a more stabilized basis (1999- 2006), rent increases at an annual rate of
only 1.7 percent per year.
Overage Rent
In addition to minimum base rent, many tenants at the subject property have
contracted to pay a percentage of their gross annual sales over a
pre-established base amount as overage rent. Many leases have a natural
breakpoint although a number have stipulated breakpoints. The average
overage percentage for small space retail tenants is in a range of 5.0 to 6.0
percent with food court and kiosk tenants generally at 7.0 to 10.0 percent.
Anchor tenants typically have the lowest percentage clause with ranges of 1.5
to 3.0 percent most common.
Traditionally, it takes a number of years for a retail center to mature
and gain acceptance before generating any sizeable percentage income. As a
center matures, the level of overage rents typically becomes a larger
percentage of total revenue. It is a major ingredient protecting the equity
investor against inflation.
In the Retail Market Analysis section of this report, we discussed the
historic and forecasted sales levels for the mall tenants. Because the mall
has seen a substantial amount of tenant defections and charges, it is
difficult to predict with accuracy what sales will be on an individual tenant
level. As such, we have employed the following methodology:
-For existing tenants who report sales, we have forecasted that sales will
continue at our projected sales growth rate as discussed herein.
-For tenants who do not report sales or who do not have percentage clauses,
we have assumed that a non- reporting tenant will always occupy that particular
space.
-For new tenants, we have projected sales at the forecasted average for the
center at the start of the lease.
Thus, in the initial full year of the investment holding period, overage
revenues are estimated to amount to $285,012 (net of any recaptures)
equivalent to $0.54 per square foot of total GLA and 3.7 percent of potential
gross revenues.
On balance, our forecasts are deemed to be conservative. Generally,
most percentage rent is projected to come from Sears and Wards with nearly
70.0 percent of the property's forecasted overage rent.
Sales Growth Rates
We have forecasted that sales for existing tenants will increase 2.0
percent in 1997, 2.5 percent in 1998, and 3.0 percent thereafter.
Sales Growth Rate Forecast
Period Annual
Growth Rate
1997 + 2.0%
1998 + 2.5%
Thereafter + 3.0%
In all, we believe we have been conservative in our sales forecast for
new and turnover tenants upon the expiration of an initial lease. At lease
expiration, we have forecasted a 40.0 percent probability that a tenant will
vacate. For new tenants, sales are established based upon the mall's average
sales level. Generally, for existing tenants we have assumed that sales
continue subsequent to lease expiration at their previous level unless they
are under-performers that prompt a 100 percent turnover probability then
sales are reset to the corresponding mall overage.
Expense Reimbursement and Miscellaneous Income
By lease agreement, tenants are required to reimburse the lessor for
certain operating expenses. Included among these operating items are real
estate taxes, insurance, common area maintenance (CAM) and certain
miscellaneous charges including mall and premise HVAC. Miscellaneous
income is essentially derived from specialty leasing for temporary tenants,
Christmas kiosks and other charges including special pass-throughs. In the
first full year of the investment, it is projected that the subject
property will generate approximately $2.56 million in reimbursements for
these operating expenses and $340,000 in other miscellaneous income.
Common area maintenance and real estate tax recoveries are generally
based upon the tenants pro-rata share of the expense item. Because it is
an older center, there exists numerous variations to the calculation procedure
of each. We have relied upon ownership's calculation for the various recovery
formula's for taxes and CAM. At rollover, all of the tenants are assumed to
be subject to the standard lease form described below. The standard lease
provides for the recovery of CAM expenses plus a 15.0 percent administrative
fee.
Common Area Maintenance
Under the standard lease, mall tenants pay their pro- rata share of
the balance of the CAM expense after anchor contributions are deducted
and an administrative charge of 15.0 percent is added. Provided below is a
summary of the standard clause that exists for a new tenant at the mall.
Common Area Maintenance Recovery Calculation
--------------------------------------------------
CAM Actual hard cost for year exclusive
Expense of interest and depreciation
Add 15% Administration fee
Add Interest and depreciation inclusive
of allocated portion of renovation
expense if applicable
Less Contributions from department stores
and mall tenants over 10,000(m/l) square
feet
Equals: Net pro-ratable CAM billable to mall
tenants on the basis of gross
leasable occupied area (GLOA).
All department stores pay nominal amounts for CAM. The 1997 budgeted CAM
billings for the majors can be detailed as follows:
Cranberry Mall
Department Store Common Area Maintenance Obligations - 1997
Store Description Contribution
Sears Yrs 1- 5 None $13,000
Yrs 6-10 @ $13,000/Yr.
($.185/SF)
Yrs 11-15 @ $16,250/Yr.
($ .23/SF)
Option @ $16,250/Yr.
Leggett None $ 0
Caldor Average of first 60 $16,221
months
CAM serves as base,
Then pro-rata increases
Montgomery Yrs 1 - 5 @ $44,630/Yr. $44,630
Ward ($.50/SF)
+ $.05/SF every five
years thereafter
Total $73,851
In addition, the standard lease provides for the exclusion of tenants in
excess of 10,000 square feet from the calculation when computing a tenant's
pro-rata share of CAM. This has the effect of excluding Fashion Bug, Lerner,
and the Cinema. In 1997, their CAM contributions are budgeted at $66,216,
$76,017 and $151,348, respectively.
Real Estate Taxes
Anchor tenants also make contribution to real estate taxes. In general,
the mall standard is for the mall tenants to pay their pro-rata share based
upon the average occupied area during the year. Sears will pay based on its
pro-rata share over the fifth lease year. Both Caldor and Leggett pay
based on their calculated share over a base amount. Wards now has a
pro-rata assessment and they pay taxes based on this amount. Budgeted 1997
anchor tenant tax contributions are as follows:
Major's Real Estate Tax
Contributions - 1997
Caldor $ 49,882
Leggett $ 32,916
Montgomery Ward $ 62,584
Sears $ 15,584
Total $ 160,874
Finally, since the new mall standard contribution is based upon an
exclusion of tenants in excess of 10,000 square feet, the Cinema, Lerner, and
Fashion Bug budgeted contributions are excluded. The balance of the 1997
budgeted tax expense is passed through to the mall tenants.
Other Recoveries
Other recoveries consist of insurance common area or mall HVAC recovery
and premise HVAC recovery. Insurance billings are essentially relegated to
older leases within the mall. The newer lease structure covers the cost of any
of these items within the tenants CAM charge. These latter two charges are
assessed to tenants by lease agreement. In 1996, the unit market rate is
estimated at $1.00 per square foot and $1.50 per square foot, respectively.
We note that management has been successful in negotiating higher rates
from new tenants. However, other tenants have negotiated rates below these
figures. Therefore, we have selected these rates as they fall near the
middle of the range for typical recoveries within the mall.
Temporary Leasing and Miscellaneous Income
Miscellaneous revenues are derived from a number of sources.
One of the more important is specialty leasing. The specialty
leasing is related to temporary tenants that occupy vacant in-
line space. Shopco has been relatively successful with this
procedure at many of their malls.
Other sources of miscellaneous revenues included forfeited security
deposits, temporary kiosk (Christmas) rentals, phone revenues, lottery
commissions, interest income and income from the renting of strollers. We
have forecasted miscellaneous income of $70,000 in 1997. In addition,
management is projecting $274,000 from temporary tenants. We have used
$270,000 in our first year forecast. On balance, we have forecasted
these aggregate other revenues at $340,000 which we project will grow by 3.0
percent per annum. Our forecast for these additional revenues is net of
provision for vacancy and credit loss.
Allowance for Vacancy and Credit Loss
The investor of an income producing property is primarily interested in
the cash revenues that an income-producing property is likely to produce
annually over a specified period of time rather than what it could produce
if it were always 100 percent occupied with all tenants actually paying rent
in full and on time. It is normally a prudent practice to expect some
income loss, either in the form of actual vacancy or in the form of
turnover, non-payment or slow payment by tenants. We have reflected an
8.0 percent stabilized contingency for both stabilized and unforeseen
vacancy and credit loss. Please note that this vacancy and credit loss
provision is applied to all mall tenants equally and is exclusive of all
revenues generated by anchor stores.
We have phased in the 8.0 percent factor as the mall leases up based upon
the following schedule.
1997 3.0%
1998 4.0%
1999 6.0%
Thereafter 8.0%
In this analysis we have also forecasted that there is a 60 percent
probability that an existing tenant will renew their lease. Upon
turnover, we have forecasted that rent loss equivalent to six months
would be incurred to account for the time and/or costs associated with
bringing the space back on line. Thus, minimum rent as well as overage
rent and certain other income has been reduced by this forecasted
probability.
We have calculated the effect of the total provision of vacancy and
credit loss on the in-line shops. Through the 10 years of this cash flow
analysis, the total allowance for vacancy and credit loss, including provisions
for downtime, ranges from a low of 9.2 percent of total potential gross
revenues to a high of 22.8 percent. On average, the total allowance for
vacancy and credit loss over the 10 year projection period averages 12.8
percent of these revenues.
Total Rent Loss Forecast *
Year Credit Physical Total Loss
Loss Vacancy Provision
1997 3.00% 19.76% 22.76%
1998 4.00% 14.33% 18.33%
1999 6.00% 4.97% 10.97%
2000 8.00% 2.00% 10.00%
2001 8.00% 1.15% 9.15%
2002 8.00% 3.63% 11.63%
2003 8.00% 2.38% 10.38%
2004 8.00% 1.90% 9.90%
2005 8.00% 3.26% 11.26%
2006 8.00% 5.82% 13.82%
Avg. 6.90% 5.92% 12.82%
* Includes phased global vacancy provision for unseen vacancy and credit loss
as well as weighted downtime provision of lease turnover.
As discussed, if an existing mall tenant is a consistent
under-performer with sales substantially below the mall average, then the
turnover probability applied is 100 percent. This assumption, while
adding a degree of conservatism to our analysis, reflects the reality
that management will continually strive to replace under performers. On
balance, the aggregate deductions of all gross revenues reflected in this
analysis are based upon overall long-term market occupancy levels and are
considered what a prudent investor would conservatively allow for credit loss.
The remaining sum is effective gross income which an informed investor may
anticipate the subject property to produce. We believe this is
reasonable in light of overall vacancy in this subject's market area as
well as the current leasing structure at the subject.
Effective Gross Income
In the initial full year of the investment, CY 1997, effective
gross revenues ("Total Income" line on cash flow) are forecasted to amount to
approximately $7,522,055, equivalent to $14.31 per square foot of total owned
GLA.
Effective Gross Revenue Summary Initial Year of Investment - 1997
Aggregate Unit Income
Sum Rate Ratio
Potential Gross $7,689,776 $14.63 100.0%
Income
Less: Vacancy and $ (167,721) $ 0.32 2.2%
Credit Loss
Effective Gross $7,522,055 $14.31 97.8%
Income
Expenses
Total expenses incurred in the production of income from the subject
property are divided into two categories: reimbursable and non-reimbursable
items. The major expenses which are reimbursable include real estate
taxes and common area maintenance, utilities and insurance. The
non-reimbursable expenses associated with the subject property include
certain general and administrative expenses, ownership's contribution to the
merchants association/marketing fund, management charges and miscellaneous
expenses. Other expenses include a reserve for the replacement of short-lived
capital components, alteration costs associated with bringing space up to
occupancy standards, leasing commissions and a provision for capital
expenditures.
The various expenses incurred in the operation of the subject property have
been estimated from information provided by a number of sources. We
have reviewed the subject's component operating history for prior years as
well as the 1997 Budget for these expense items. This information is
provided in the Addenda. We have compared this information to published
data which are available, as well as comparable expense information. Finally,
this information has been tempered by our experience with other regional
shopping centers.
Expense Growth Rates
Expense growth rates are generally forecasted to be more consistent
with inflationary trends than necessarily with competitive market forces.
Unless otherwise cited, expenses are forecasted to grow by 3.5 percent per
annum over the holding period.
Reimbursable Operating Expenses
We have analyzed each item of expense individually and attempted to
project what the typical investor in a property like the subject would
consider reasonable, based upon informed opinion, judgment and experience.
The following is a detailed summary and discussion of the reimbursable
operating expenses incurred in the operation of the subject property during
the initial year of the investment holding period.
Common Area Maintenance - This expense category includes the annual cost
of miscellaneous building maintenance contracts, recoverable labor and
benefits, security, insurance, landscaping, snow removal, cleaning
and janitorial, exterminating, supplies, trash removal, exterior
lighting, common area energy, gas and fuel, equipment rental, interest
and depreciation, and other miscellaneous charges. In addition,
ownership can generally recoup the cost of certain extraordinary
capital items from the tenants. Typically, this is limited to
certain miscellaneous capital expenditures. In malls like the subject
where the CAM budget is high, discretion must be exercised in not trying
to pass along every charge as tenants will resist. As discussed, the
standard lease agreement allows management to pass along the CAM expense
to tenants on the basis of occupied gross leasable area. Furthermore,
the interest and depreciation expense is a non-operating item that
serves to increase the basis of reimbursement from mall tenants. Mall
renovation costs may also be passed along. However, as discussed, we have
not forecasted that any of these charges will be passed along to a mall
tenant due to the high cost of occupancy. Most tenants are subject to a
15.0 percent administrative surcharge although some are assessed 25.0
percent. Historically, the annual CAM expense (before anchor
contributions) can be summarized as follows:
Historical CAM Expense
_____________________________
Year Aggregate
Amount
1993 $1,027,000
1994 $1,237,000
1995 $1,348,000
1996 Forecast $1,384,903
1997 Budget $1,305,060
The 1997 CAM budget is shown to be $1,305,000 before interest and
depreciation charges. An allocation of this budget by line item provided
in the Addenda. We have used $1,305,000 in our analysis, equal to
$6.72 per square foot of mall shop GLA. Provided on the Facing Page
is a survey of comparable CAM budgets of other regional malls which
support this estimate.
Real Estate Taxes - The projected taxes to be incurred in 1997 are equal to
$726,000, up from $670,520 in 1996. As discussed, the standard recovery
for this expense is charged on the basis of average occupied area of
non- major mall tenant GLA. Taxes are charged to the mall tenants
after first deducting department store and major tenant contributions.
HVAC - This expense is essentially related to providing service for
heating, ventilating and air conditioning. The tenants at Cranberry Mall
reimburse for both mall HVAC (common area) and premise HVAC (individual
usage). These recoveries have been detailed previously. The 1997 expense
to ownership is budgeted at $405,478, up from $398,297 in 1996.
Non-Reimbursable Expenses
Total non-reimbursable expenses at the subject property are projected
from accepted practices and industry standards. Again, we have analyzed each
item of expenditure in an attempt to project what the typical investor in
a property similar to the subject would consider reasonable, based upon
actual operations, informed opinion, and experience. The following is a
detailed summary and discussion of non-reimbursable expenses incurred in the
operation of the subject property for the initial year. Unless otherwise
stated, it is our assumption that these expenses will increase by 3.5 percent
per annum thereafter.
General and Administrative - Expenses related to the administrative
aspects of the mall include costs particular to the operation of
the mall, including salaries, travel and entertainment, and dues
and subscriptions. A provision is also made for professional services
including legal and accounting fees and other professional consulting
services. In 1997, we reflect general and administrative expenses of
$65,000.
Merchant Association/Marketing - Merchants Association charges represent
the landlord's contribution to the cost of the association for the
property. Also included are expenses related to the temporary tenant
program including payroll for the promotional and leasing staff. In the
initial year, the cost is forecasted to amount to $130,000.
Miscellaneous - This catch-all category is provided for various
miscellaneous and sundry expenses that ownership will typically incur.
Such items as unrecovered repair costs, preparation of suites for
temporary tenants, certain non-recurring expenses, expenses associated
with maintaining vacant space, and bad debts in excess of our credit loss
provision would be included here. In the initial year, these
miscellaneous items are forecasted to amount to approximately $70,000.
Management - The annual cost of managing the subject property is
projected to be 4.0 percent of minimum and percentage rent. In the
initial year of our analysis, this amount is shown to be $191,551.
Alternatively, this amount is equivalent to $0.99 per square foot of
mall shop GLA, or approximately 2.6 percent of effective gross income. Our
estimate is reflective of a typical management agreement with a
firm in the business of providing professional management services.
This amount is considered typical for a retail complex of this size. Our
investigation into the market for this property type indicates an overall
range of fees of 3 to 5 percent. Since we have reflected a structure
where ownership separately charges leasing commissions, we have used the
mid-point of the range as providing for compensation for these services.
Alterations - The principal component of this expense is ownership's
estimated cost to prepare a vacant suite for tenant use. At the
expiration of a lease, we have made a provision for the likely expenditure
of some monies on ownership's part for tenant improvement allowances. In
this regard, we have forecasted a cost of $10.00 per square foot for
turnover space (initial cost growing at expense growth rate) weighted by
our turnover probability of 40.0 percent. We have forecasted a rate of
$3.00 per square foot for renewal (rollover) tenants, based on a renewal
probability of 60.0 percent. The blended rate based on our 60/40
turnover probability is therefore $5.80 per square foot. For "raw"
space which has never been occupied, we have used a charge of $25.00 per
square foot. It is also noted that ownership has been moderately
successful in releasing space in its "as is" condition. The provisions
made here for tenant work lends additional support for our absorption
and market rent projections. These costs are forecasted to increase at
our implied expense growth rate.
Leasing Commissions - Ownership has recently been charging leasing
commissions internally. A typical structure is $4.00 per square foot
for new tenants and $2.00 per square foot for renewal tenants. These
rates are increased by $0.50 and $0.25 per square foot,
respectively every five years. This structure implies a payout up front
at the start of a lease. We have elected to model this same formula as it
is within the range of charges we have seen for these services. The
cost is weighted by our 60/40 percent renewal/turnover
probability. Thus, upon lease expiration, a leasing commission charge
of $2.80 per square foot would be incurred.
Capital Expenditures - Ownership has budgeted for certain capital
expenditures which represent items outside of the normal repairs and
maintenance budget. As of this writing, the capital expenditure
budget has not been approved but we can make some provisions with
reasonable certainty for certain repairs. It is our opinion that a
prudent investor would make some provision for necessary repairs and
upgrades. To this end, we have reflected expenditures of $80,000 in
1997 and $50,000 per annum thereafter as a contingency fund for these
unforeseen expenses.
Replacement Reserves - It is customary and prudent to set aside an amount
annually for the replacement of short- lived capital items such as the
roof, parking lot and certain mechanical items. The repairs and
maintenance expense category has historically included some capital items
which have been passed through to the tenants. This appears to be a
fairly common practice among most malls. However, we feel that over a
holding period some repairs or replacements will be needed that will not
be passed on to the tenants. Due to the inclusion of many of the capital
items in the maintenance expense category, the reserves for replacement
classification need not be sizeable. This becomes a more focused issue
when the CAM expense starts to get out of reach and tenants begin to
complain. For purposes of this report, we have estimated an expense of
$0.20 per square foot of owned GLA during the first year, thereafter
increasing by our expense growth rate throughout our cash flow analysis.
Net Operating Income/Net Cash Flow
The total expenses of the subject property, including alterations,
commissions, capital expenditures, and reserves are annually deducted from
total income, thereby leaving a residual net operating income or net cash
flow to the investors in each year of the holding period before debt
service. In the initial year of investment, the net operating income is
forecasted to be equal to approximately $4.5 million which is equivalent to
60.5 percent of effective gross income. Deducting other expenses
including capital items results in a net cash flow before debt service of
approximately $3.8 million.
Cranberry Mall
Operating Summary
Initial Year of Investment - 1997
Aggregate Unit Rate* Operating
Sum Ratio
Effective Gross $7,522,055 $14.31 100.0%
Income
Operating $2,970,551 $ 5.65 39.5%
Expenses
Net Operating $4,551,504 $ 8.66 60.5%
Income
Other Expenses $ 692,128 $ 1.32 9.2%
Cash Flow $3,859,376 $ 7.34 51.3%
* Based on total owned GLA of 525,702 square feet.
Our cash flow model has forecasted the following compound annual growth
rates over the ten year holding period 1997-2006.
1997- 1999-
2006 2006
Net Operating 3.0% 2.0%
Income
Cash Flow: 3.1% 1.2%
Growth rates are shown to be 3.0 and 3.1 percent, respectively.
We note that this annual growth is a result of the atypcial income in the
early years of the cash flow due to vacancy. On a stabilized basis
(1999-2006), net income growth is shown to be only 1.9 percent which is a more
reasonable forecast for a real estate investment of the subject's calibre.
Investment Parameters
After projecting the income and expense components of the subject
property, investment parameters must be set in order to forecast property
performance over the holding period. These parameters include the selection
of capitalization rates (both initial and terminal) and application of an
appropriate discount or yield rate, also referred to as the internal rate of
return (IRR).
Selection of Capitalization Rates
Overall Capitalization Rate
The overall capitalization rate bears a direct relationship between net
operating income generated by the real estate in the initial year of
investment (or initial stabilized year) and the value of the asset in the
marketplace. Overall rates are affected by the existing leasing schedule
of the property, the strength or weakness of the local rental market, the
property's position relative to competing properties, and the risk/return
characteristics associated with competitive investments.
For retail properties, the trend has been for rising
capitalization rates. We feel that much of this has to do with the quality
of product that has been selling. Sellers of better performing dominant Class
A malls have been unwilling to waver on their pricing. Many of the malls sold
over the past 18-24 months are found in less desirable, second or third tier
locations, or rep-resent turnaround situations with properties that are poised
for expansion or remerchandising. With fewer buyers for the top performing
assets, sales have been somewhat limited.
Overall Capitalization Rates Regional Mall Sales
Year Range Mean Point
Change
1988 5.00% - 8.00% 6.19% -
1989 4.57% - 7.26% 6.22% + 3
1990 5.06% - 9.11% 6.29% + 7
1991 5.60% - 7.82% 6.44% +15
1992 6.00% - 7.97% 7.31% +87
1993 7.00% - 10.10% 7.92% +61
1994 6.98% - 10.28% 8.37% +45
1995 7.25% - 11.10% 9.13% +76
1996 7.00% - 12.00% 9.35% +22
Basis Point Change
1988-1996 316 Basis Points
1992-1996 204 Basis Points
The data shows that the average capitalization rate has shown a rising
trend each year. Between 1988 and 1996, the average capitalization rate has
risen 316 basis points. Since 1992, the rise has been 204 basis points. This
change is a reflection of both rising interest rates and increasing first
year returns demanded by investors in light of several fundamental changes
which have occurred in the retail sector. The 22 basis point change in
the mean between 1995 and 1996 may be an indication that rates are
approaching stabilization.
As noted, much of the buying over the past 18 to 24 months has been
opportunistic acquisitions involving properties selling near or below
replacement cost. Many of these properties have languished due to lack of
management focus or expertise, as well as a limited ability to make the
necessary capital commitments for growth. As these opportunities become
harder to find, we believe that investors will again begin to focus on the
stable returns of the dominant Class A product.
The Cushman & Wakefield's Autumn 1996 survey reveals that going-in cap
rates for Class A regional shopping centers range between 7.00 and 9.50
percent, with a low average of 7.90 percent and high average of 8.20 percent,
respectively; a spread of 30 basis points. Generally, the change in
average capitalization rates over the Winter 1995 survey shows that the low
average decreased by 50 basis points, while the upper average remained the
same. Terminal, or going-out rates are now averaging 8.20 and 8.60 percent,
indicating a spread between 30 to 40 basis points over the going-in
rates. For Class B properties, the average low and high going-in rates are
9.30 and 9.60 percent, respectively, with terminal rates of 9.60 and 10.00
percent.
Cushman & Wakefield Valuation Advisory Services
National Investor Survey - Regional Malls (%)
Investment Winter 1995 Spring 1996 Autumn 1996
____________ __________ __________ _________ _________ _________ ________
Parameters Low High Low High Low High
OAR/Going-In 7.0 - 8.0 7.5 - 9.0 7.5 - 9.0 7.5 - 9.5 7.0 - 9.0 7.5 - 9.5
7.47 8.25 8.0 8.2 7.9 8.2
OAR/Terminal 7.0 - 9.0 8.0 - 10.0 7.0 - 9.5 7.8 - 11.0 7.0 - 9.5 7.8 - 11.0
8.17 8.83 8.3 8.7 8.2 8.6
IRR 10.0-11.5 10.5-12.0 10.0-15.0 11.0-15.0 10.0-15.0 11.0-15.0
10.72 11.33 11.5 11.8 11.4 11.8
Cushman & Wakefield now surveys respondents on their criteria for both
Class B and "Value Added" malls (see Addenda for complete survey
results). As expected, going-in capitalization and yield rates range from
100 to 300 basis points above rates for Class A assets. Our current survey
also shows that investors have become more cautious in their underwriting,
positioning "retail" lower on their investment rating scales in terms of
preferred investments.
The Fourth Quarter 1996 Peter F. Korpacz survey concurs with these
findings, citing that regional malls are near the bottom of investor
preferences. As such, they foresee some opportunities for select investing.
Pricing is lower then it has been in years. With expense growth
surpassing sales increases in many markets, occupancy cost issues have
also become of greater concern. Even in some malls where sales approach the
lofty level of $350(m/l) per square foot, it is not uncommon for occupancy
costs to limit the opportunity to grow rents. Thus, with limited
upside growth in net income, cap rates are generally well above 8.0
percent. Even at this level, cap rates are lower than other property types.
One attraction for malls is that pricing is based upon the expectation
of lower rents while most other property types are analyzed with higher
rents.
NATIONAL REGIONAL
MALL MARKET
FOURTH QUARTER 1996
CURRENT LAST
KEY INDICATORS QUARTER QUARTER YEAR AGO
Free & Clear Equity IRR
RANGE 10.00%-14.00% 10.00%-14.00% 10.00%-14.00%
AVERAGE 11.69% 11.56% 11.55%
CHANGE (Basis Points) - +13 +14
Free & Clear Going-In Cap Rate
RANGE 6.25%-11.00% 6.25%-11.00% 6.25%-11.00%
AVERAGE 8.57% 8.33% 7.86%
CHANGE (Basis Points) - +24 +71
Residual Cap Rate
RANGE 7.50%-11.00% 7.00%-11.00% 7.00%-11.00%
AVERAGE 8.76% 8.71% 8.45%
CHANGE (Basis Points) - +5 +31
Source: Peter Korpacz Associates,Inc. - Real Estate Investor Survey
Fourth Quarter - 1996
As can be seen from the above, the average IRR has increased by 14 basis
point to 11.69 percent from one year ago. It is noted that this measure has
been relatively stable over the past 12 months. The quarter's average
initial free and clear equity cap rate rose 71 basis points to 8.57
percent from a year earlier, while the residual cap rate increased 31 basis
points to 8.76 percent.
Most retail properties that are considered institutional grade are
existing, seasoned centers with good inflation protection that offer
stability in income and are strongly positioned to the extent that they are
formidable barriers to new competition. Equally important are centers which
offer good upside potential after face-lifting, renovations, or expansion.
With new construction down substantially, owners have accelerated renovation
and re-merchandising programs. Little competition from over-building is
likely in most mature markets within which these centers are located.
Environmental concerns and "no- growth" mentalities in communities are now
serious impediments to new retail development.
Finally, investors have recognized that the retail landscape has been
fundamentally altered by consumer lifestyles changes, industry consolidations
and bankruptcies. This trend was strongly in evidence as the economy
enters 1997 in view of the wave of retail chains whose troublesome
earnings are forcing major restructures or even liquidations. Trends
toward more casual dress at work and consumers growing pre-occupation with
their leisure and home lives have created the need for refocused leasing
efforts to bring those tenants to the mall that help differentiate them
from the competition. As such, entertainment, a loosely defined concept, is
one of the most common directions malls have taken. A trend toward bringing
in larger specialty and category tenants to the mall is also in evidence. The
risk from an owners standpoint is finding that mix which works the best.
Nonetheless, the cumulative effect of these changes has been a rise in
rates as investors find it necessary to adjust their risk premiums in their
underwriting.
Based upon this discussion, we are inclined to group and
characterize regional malls into the general categories
following:
Cap Rate Range Category
7.0% to 7.5% Top 15 to 20(m/l) malls in the country. Excellent
demographics with high sales
($400(m/l) /SF) and good upside.
7.5% to 8.5% Dominant Class A investment grade property,
high sales levels, relatively good
health ratios, excellent demo
graphics (top 50 markets), and
considered to present a significant
barrier to entry within its trade
area. Sales tend to be in the $300
to $350 per square foot range.
8.5% to 11.0% Somewhat broad characterization of investment
quality properties ranging from
primary MSAs to second tier cities.
Properties at the higher end of the
scale are probably somewhat
vulnerable to new competition in
their market.
11.0% to 14.0% Remaining product which has limited appeal or
significant risk which will attract
only a smaller, select group of
investors.
Conclusion - Initial Capitalization Rate
Cranberry Mall is a mall which has not yet realized its full potential. It
is still, however, the dominant retail destination for the Westminster area of
Carroll County. In addition to its four anchor stores, mall shops are
reasonably well merchandised. The trade area is relatively affluent and
growing, and the physical plant is in good condition. The potential for
future mall competition is unlikely in this region but category killers and
discounters pose a threat.
We do note that occupancy costs are moderately high which has the effect
of restricting market or base rent growth. We also note the necessary
sizable lease-up of mall space in order to stabilize operations may be
problematic in the short term. Caldor's parent company bankruptcy also
remains an issue for the property. On balance, a property with the
characteristics of the subject would potentially trade at an overall rate
between 10.50 and 10.75 percent based on first year income operating on a
stabilized operating income basis. It is difficult to be more optimistic
with this type of analysis when the property requires a high level of
absorption for lease-up.
Terminal Capitalization Rate
The residual cash flows generated annually by the subject property
comprise only the first part of the return which an investor will receive.
The second component of this investment return is the pre-tax cash proceeds
from the resale of the property at the end of a projected investment
holding period. Typically, investors will structure a provision in their
analyses in the form of a rate differential over a going-in capitalization rate
in projecting a future disposition price. The view is that the improvement is
then older and the future is harder to visualize; hence a slightly higher
rate is warranted for added risks in forecasting. On average, the Cushman &
Wakefield survey shows a 30-40 basis point differential, while Korpacz reports
19 basis points.
Therefore, to the range of stabilized overall capitalization rates, we
have added 25 basis points to arrive at a projected terminal capitalization
rate ranging from 10.75 to 11.00 percent. This provision is made for the risk
of lease-up and maintaining a certain level of occupancy in the center, its
level of revenue collection, the prospects of future competition, as well as
the uncertainty of maintaining the forecasted growth rates over such a holding
period. In our opinion, this range of terminal rates would be appropriate
for the subject. Thus, this range of rates is applied to the following
year's net operating income before reserves, capital expenditures, leasing
commissions and alterations as it would be the first received by a new
purchaser of the subject property. Applying a rate of say 10.75 percent for
disposition, a current investor would dispose of the subject property at the
end of the investment holding period for an amount of approximately $56.6
million based on 2007 net income of approximately $6.08 million.
From the projected reversionary value to an investor in the subject
property, we have made a deduction to account for the various transaction
costs associated with the sale of an asset of this type. These costs
consist of 2.0 percent of the total disposition price of the subject
property as an allowance for transfer taxes, professional fees, and
other miscellaneous expenses including an allowance for alteration costs
that the seller pays at final closing. Deducting these transaction costs
from the computed reversion renders pre-tax the net proceeds of sale to be
received by an investor in the subject property at the end of the holding
period.
Net Proceeds at Reversion
Less Costs of Sale
Net Income Gross Sale and Net Proceeds
2007 Price Miscellaneous
Expenses @ 2.0%
$6,084,393 $56,599,005 $1,131,980 $55,467,025
Selection of Discount Rate
The discounted cash flow analysis makes several assumptions which reflect
typical investor requirements for yield on real property. These assumptions
are difficult to directly extract from any given market sale or by
comparison to other investment vehicles. Instead, investor surveys of
major real estate investment funds and trends in bond yield rates are often
cited to support such analysis.
A yield or discount rate differs from an income rate, such as cash-on-cash
(equity dividend rate), in that it takes into consideration all equity
benefits, including the equity reversion at the time of resale and annual
cash flow from the property. The internal rate of return is the single-yield
rate that is used to discount all future equity benefits (cash flow and
reversion) into the initial equity investment. Thus, a current estimate of
the subject's present value may be derived by discounting the projected
income stream and reversion year sale at the property's yield rate.
Yield rates on long term real estate investments range widely between
property types. As cited in Cushman & Wakefield's Autumn 1996 survey,
investors in regional malls are currently looking at broad rates of return
between 10.00 and 15.00 percent, down slightly from our last two surveys.
The average low IRR for Class A malls is 11.40 percent, while the average
high is 11.80 percent. The indicated low and high averages for Class B
properties are 13.40 and 13.90 percent, respectively. Peter F. Korpacz
reports an average internal rate of return of 11.69 percent for the Fourth
Quarter 1996, up 14 basis points from the year-ago level.
The yield rate on a long term real estate investment can also be compared
with yield rates offered by alternative financial investments since real
estate must compete in the open market for capital. In developing an
appropriate risk rate for the subject, consideration has been given to a number
of different investment opportunities. The following is a list of rates
offered by other types of securities.
Market Rates and Bond March 6, 1997
Yields (%)
Reserve Bank Discount Rate 5.00%
Prime Rate (Monthly Avg.) 8.25%
6-Month Treasury Bills 5.18%
U.S. 10-Year Notes 6.56%
U.S. 30-Year Bonds 6.82%
Telephone Bonds 7.86%
Municipal Bonds 5.79%
Source: New York Times
This compilation of yield rates from alternative investments reflects
varying degrees of risk as perceived by the market. Therefore, a riskless
level of investment might be seen in a six month treasury bill at 5.18
percent. A more risky investment, such as telephone bonds, would currently
yield a much higher rate of 7.86 percent. The prime rate is currently 8.25
percent, while the discount rate is 5.00 percent. Ten year treasury notes are
currently yielding around 6.56 percent, while 30-year bonds are at 6.82
percent.
Real estate investment typically requires a higher rate of return
(yield) and is much influenced by the relative health of financial markets.
A retail center investment tends to incorporate a blend of risk and
credit based on the tenant mix, the anchors that are included (or excluded)
in the transaction, and the assumptions of growth incorporated within the cash
flow analysis. An appropriate discount rate selected for a retail center
thus attempts to consider the underlying credit and security of the
income stream, and includes an appropriate premium for liquidity issues
relating to the asset.
There has historically been a consistent relationship between the spread in
rates of return for real estate and the "safe" rate available through
long-term treasuries or high-grade corporate bonds. A wider gap between
return requirements for real estate and alternative investments has been
created in recent years due to illiquidity issues, the absence of third party
financing, and the decline in property values.
Investors have suggested that the regional mall market has become
increasingly "tiered" over the past two years. The country's premier
malls are considered to have the strongest trade areas, excellent anchor
alignments, and significant barriers of entry to future competitive supply.
These and other "dominant" malls will have average mall shop sales above $350
per square foot and be attractive investment vehicles in the current market.
It is our opinion that the subject would attract high interest from
institutional investors if offered for sale in the current marketplace. There
is not an abundance of regional mall assets of comparable quality currently
available, and many regional malls have been included within REITs,
rather than offered on an individual property basis. However, we must
further temper our analysis due to the fact that there remains some risk
that the inherent assumptions employed in our model come to full fruition.
Finally, application of these rate parameters to the subject should entail
some sensitivity to the rate at which leases will be expiring over the
projection period. Provided below is a summary of the forecasted lease
expiration schedule for the subject. A complete expiration report is
included in the Addenda.
Lease Expiration Schedule (Mall Shops)
Fiscal GLA (SF) Cumulative
Year %
FY 2000 12,871 2.44%
FY 2001 4,570 3.31%
FY 2002 206,966 42.53%
FY 2003 68,787 55.57%
FY 2004 130,443 80.29%
FY 2005 0 80.29%
FY 2006 0 80.29%
FY 2007 81,490 95.74%
From the above, we see that a relatively moderate percentage (42.5
percent) of mall shop GLA will expire by 2002. Over the total projection
period, the mall will turnover about 95.74 percent of mall shop space.
Overall, consideration is given to this in our selection of an appropriate
risk rate.
We have briefly discussed the investment risks associated with the
subject. On balance, it is our opinion that an investor in the subject
property would require an internal rate of return between 12.50 and 13.00
percent.
Present Value Analysis
Analysis by the discounted cash flow method is examined over a holding
period that allows the investment to mature, the investor to recognize a
return commensurate with the risk taken, and a recapture of the original
investment. Typical holding periods usually range from 10 to 20 years and
are sufficient for the majority of institutional grade real estate such as
the subject to meet the criteria noted above. In the instance of the subject,
we have analyzed the cash flows anticipated over a ten year period commencing
on January 1, 1997.
A sale or reversion is deemed to occur at the end of the 10th year
(December 31, 2006), based upon capitalization of the following year's
net operating income. This is based upon the premise that a purchaser in the
10th year is buying the following year's net income. Therefore, our
analysis reflects this situation by capitalizing the first year of the
next holding period.
The present value is formulated by discounting the property cash flows
at various yield rates. The yield rate utilized to discount the projected
cash flow and eventual property reversion has been based on an analysis of
anticipated yield rates of investors dealing in similar investments. The
rates reflect acceptable expectations of yield to be achieved by investors
currently in the marketplace shown in their current investment criteria and
as extracted from comparable property sales.
Cash Flow Assumptions
Our cash flows forecasted for the property have been presented. To
reiterate, the formulation of these cash flows incorporate the following
general assumptions in our computer model:
SUMMARY OF CRITICAL ASSUMPTIONS FOR DISCOUNTED CASH FLOW
SUBJECT PROPERTY CRANBERRY MALL
SQUARE FOOTAGE RECONCILIATION
TOTAL GROSS LEASABLE AREA 525,702 SF
ANCHOR TENANT GLA 305,826 SF
MAJOR TENANT GLA (CINEMA) 25,605 SF
MALL SHOP GLA 194,271 SF
MARKET RENT/SALES CONCLUSIONS
MARKET RENT ESTIMATES (1997)
AVERAGE MAJOR TENANT RENT N/A
AVERAGE MALL SHOP RENT $16.20/SF
AVERAGE FOOD COURT RENT $30.00/SF
RENTAL BASIS NNN
MARKET RENTAL GROWTH RATE 2.0%-1998; 3.0%
THEREAFTER
CREDIT RISK LOSS (NON-ANCHOR SPACE) 8.0% (STABILIZED)
VACANCY & TYPICAL LEASE TERM
AVERAGE LEASE TERM 8 YEARS
RENEWAL PROBABILITY 60%
WEIGHTED AVERAGE DOWNTIME 3 MONTHS
STABILIZED OCCUPANCY 93.0%
ABSORPTION PERIOD 36 MONTHS
OPERATING EXPENSE DATA
LEASING COMMISSIONS
NEW TENANTS $4.00/SF
RENEWAL TENANTS $2.00/SF
TENANT IMPROVEMENT ALLOWANCE
RAW SUITES $25.00/SF
NEW TENANT $10.00/SF
RENEWAL TENANT $3.00/SF
EXPENSE GROWTH RATE 3.5%/YR
TAX GROWTH RATE 3.5%/YR
MANAGEMENT FEE (BASED ON MINIMUM
AND 4.0%
PERCENT RENT)
CAPITAL RESERVES (PSF OF OWNED GLA) $0.20/SF
RATES OF RETURN AS IS
CASH FLOW START DATE 1/1/97
DISCOUNT RATE 12.50-
13.00%
GOING-IN CAPITALIZATION RATE N/A
TERMINAL CAPITALIZATION RATE 10.75-
11.00%
REVERSIONARY SALES COSTS 2.00%
HOLDING PERIOD 10 Years
For a property such as the subject, it is our opinion that an investor
would require an all cash discount rate in the range of 12.50 to 13.00
percent. Accordingly, we have discounted the projected future pre-tax cash
flows to be received by an equity investor in the subject property to a
present value so as to yield 12.50 to 13.00 percent at 25 basis point
intervals on equity capital over the holding period. This range of rates
reflects the risks associated with the investment. Discounting these cash
flows over the range of yield and terminal rates now being required by
participants in the market for this type of real estate places additional
perspective upon our analysis. A valuation matrix for the subject appears on
the Facing Page.
Through such a sensitivity analysis, it can be seen that the present value
of the subject property varies from approximately $41.7 to $43.8 million.
Giving consideration to all of the characteristics of the subject
previously discussed, we feel that a prudent investor would require a yield
which falls near the middle of the range outlined above for this
property. Accordingly, we believe that based upon all of the assumptions
inherent in our cash flow analysis, an investor would look toward as IRR
around 12.75 percent and a terminal rate around 10.75 percent as being most
representative of the subject's value in the market.
In view of the analysis presented here, it becomes our opinion that
the discounted cash flow analysis indicates a market value of $42.7 million for
the subject property as of January 1, 1997. The indices of investment
generated through this indicated value conclusion are shown on the following
page.
We note that the computed equity yield is not necessarily the true rate of
return on equity capital. This analysis has been performed on a pre-tax
basis. The tax benefits created by real estate investment will serve to
attract investors to a pre-tax yield which is not the full measure of the
return on capital.
DISCOUNTED CASH FLOW ANALYSIS
Cranberry Mall (Westminster, Maryland)
Cushman & Wakefield, Inc.
Net Discount Present Value Composition Annual Cash
Year Cash Flow Factor @ 12.75% of Cash Flows of Yield on Cash Return
No. Yr.
1 1997 $3,859,376 x 0.8869180 = $3,422,950 8.01% 9.04%
2 1998 $4,189,858 x 0.7866235 = $3,295,841 7.71% 9.81%
3 1999 $4,677,489 x 0.6976705 = $3,263,346 7.64% 10.95%
4 2000 $4,950,602 x 0.6187765 = $3,063,316 7.17% 11.59%
5 2001 $5,070,022 x 0.5488040 = $2,782,448 6.51% 11.87%
6 2002 $5,025,388 x 0.4867441 = $2,446,078 5.72% 11.77%
7 2003 $5,275,416 x 0.4317021 = $2,277,408 5.33% 12.35%
8 2004 $5,448,562 x 0.3828843 = $2,086,169 4.88% 12.76%
9 2005 $5,487.163 x 0.3395870 = $1,863,369 4.36% 12.85%
10 2006 $5,073,398 x 0.3011858 = $1,528,035 3.58% 11.88%
Total Present Value of Cash Flows $26,028,961 60.91% 11.49% Avg
Reversion: NOI/Income Terminal OAR Reversion
11 2007 $6,084,393 / 10.75% = $56,599,005
Less: Cost of Sale 2.00% ($1,131,980)
Less: Tls & Commissions $0
------------------------- -------------
Net Reversion $55,467,025
x Discount Factor 0.3011858
Total Present Value of Reversion: $16,705,880 39.09%
Total Present Value of Cash Flows $42,734,841 100.00%
and Reversion
ROUNDED VALUE via
DISCOUNTED CASH FLOW: $42,700,000
Owned Net Rentable Area: 525,702
Value Per Square Foot (Owned GLA) $81.22
Year One NOI $4,432,922
Implicit Going-In Cap Rate 10.66%
Compound Annual Growth Rate
Concluded Value to Net Reversion Value 2.95%
Compound Annual Growth Rate
Net Cash Flow: 3.09%
RECONCILIATION AND FINAL VALUE ESTIMATE
Application of the Sales Comparison and Income Approach used in the
valuation of the subject property has produced results which fall within a
reasonably acceptable range. Restated, these are:
Methodology Market Value Conclusion
Sales Comparison Approach $40,000,000 - $42,000,000
Income Approach
Discounted Cash Flow $42,700,000
This is considered a narrow range in possible value given the magnitude of
the value estimates. Both approaches are well supported by data extracted
from the market. There are, however, strengths and weaknesses in each of
these two approaches which require reconciliation before a final conclusion of
value can be rendered.
Sales Comparison Approach
The Sales Comparison Approach arrived at a value indicted for the property
by analyzing historical arms-length transaction, reducing the gathered
information to common units of comparison, adjusting the sale data for
differences with the subject and interpreting the results to yield a
meaningful value conclusion. The basis of these conclusions was the
cash-on-cash return based on net income and the adjusted price per square
foot of gross leasable area sold. An analysis of the subject on the basis
of its implicit sales multiple was also utilized.
The process of comparing historical sales data to assess what purchasers
have been paying for similar type properties is weak in estimating future
expectations. Although the unit sale price yields comparable conclusions, it
is not the primary tool by which the investor market for a property
like the subject operates. In addition, no two properties are alike with
respect to quality of construction, location, market segmentation and
income profile. As such, subjective judgment necessarily become a part of
the comparative process. The usefulness of this approach is that it
interprets specific investor parameters established in their analysis and
ultimate purchase of a property. In light of the above, the writers are of
the opinion that this methodology is best suited as support for the
conclusions of the Income Approach. It does provide useful market
extracted rates of return such as overall rates to simulate investor
behavior in the Income Approach.
Income Approach
Discounted Cash Flow Analysis
The subject property is highly suited to analysis by the discounted
cash flow method as it will be bought and sold in investment circles. The
focus on property value in relation to anticipated income is well founded
since the basis for investment is profit in the form of return or yield on
invested capital. The subject property, as an investment vehicle, is
sensitive to all changes in the economic climate and the economic expectations
of investors. The discounted cash flow analysis may easily reflect
changes in the economic climate of investor expectations by adjusting the
variables used to qualify the model. In the case of the subject property,
the Income Approach can analyze existing leases, the probabilities of
future rollovers and turnovers and reflect the expectations of overage
rents. Essentially, the Income Approach can model many of the dynamics of a
complex shopping center. The writers have considered the results of the
discounted cash flow analysis because of the applicability of this method
in accounting for the particular characteristics of the property, as well as
being the tool used by many purchasers.
Conclusions
We have briefly discussed the applicability of each of the methods
presented. Because of certain vulnerable characteristics in the Sales
Comparison Approach, it has been used as supporting evidence and as a final
check on the value conclusion indicated by the Income Approach methodology.
The value exhibited by the Income Approach is consistent with the leasing
profile of the mall. Overall, it indicates complimentary results with the
Sales Comparison Approach, the conclusions being supportive of each method
employed, and neither range being extremely high or low in terms of the other.
As a result of our analysis, we have formed an opinion that the market
value of the leased fee estate in the referenced property, subject to
the assumptions, limiting conditions, certifications, and definitions, as of
January 1, 1997, was:
FORTY TWO MILLION SEVEN HUNDRED THOUSAND DOLLARS
$42,700,000
ASSUMPTIONS AND LIMITING CONDITIONS
"Appraisal" means the appraisal report and opinion of value stated
therein; or the letter opinion of value, to which these Assumptions and
Limiting Conditions are annexed.
"Property" means the subject of the Appraisal.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the
Appraisal.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the
Appraisal.
This appraisal is made subject to the following assumptions and limiting
conditions:
1. This is a Summary Appraisal Report which is intended
to comply with the reporting requirements set forth under Standards Rule
2-2)b) of the Uniform Standards of Professional Appraisal Practice 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 appraiser's opinion of value. Supporting documentation
concerning the data, reasoning, and analyses is retained in the
appraiser's file. The depth of discussion contained in this report is
specific to the needs of the client and for the intended use stated below.
The appraiser is not responsible for unauthorized use of this report.
We are providing this report as an update to our last analysis which was
prepared as of January 1, 1995. As such, we have primarily reported only
changes to the property and its environs over the past year.
2. No opinion is intended to be expressed and no
responsibility is assumed for the legal description or for any matters which
are legal in nature or require legal expertise or specialized knowledge
beyond that of a real estate appraiser. Title to the Property is assumed to
be good and marketable and the Property is assumed to be free and clear of
all liens unless otherwise stated. No survey of the Property was undertaken.
3. The information contained in the Appraisal or
upon which the Appraisal is based has been gathered from sources the
Appraiser assumes to be reliable and accurate. Some of such information may
have been provided by the owner of the Property. Neither the Appraiser nor
C&W shall be responsible for the accuracy or completeness of such
information, including the correctness of estimates, opinions, dimensions,
sketches, exhibits and factual matters.
4. The opinion of value is only as of the date stated
in the Appraisal. Changes since that date in external and market
factors or in the Property itself can significantly affect property value.
5. The Appraisal is to be used in whole and not in part.
No part of the Appraisal shall be used in conjunction with any other
appraisal. Publication of the Appraisal or any portion thereof without
the prior written consent of C&W is prohibited. Except as may be otherwise
stated in the letter of engagement, the Appraisal may not be used by any
person other than the party to whom it is addressed or for purposes
other than that for which it was prepared. No part of the Appraisal shall
be conveyed to the public through advertising, or used in any sales or
promotional material without C&W's prior written consent. Reference to
the Appraisal Institute or to the MAI designation is prohibited.
6. Except as may be otherwise stated in the letter of
engagement, the Appraiser shall not be required to give testimony in any
court or administrative proceeding relating to the Property or the Appraisal.
7. The Appraisal assumes (a) responsible ownership and
competent management of the Property; (b) there are no hidden or unapparent
conditions of the Property, subsoil or structures that render the Property
more or less valuable (no responsibility is assumed for such conditions or
for arranging for engineering studies that may be required to discover
them); (c) full compliance with all applicable federal, state and local
zoning and environmental regulations and laws, unless noncompliance
is stated, defined and considered in the Appraisal; and (d) all required
licenses, certificates of occupancy and other governmental consents have
been or can be obtained and renewed for any use on which the value estimate
contained in the Appraisal is based.
8. The forecasted potential gross income referred to
in the Appraisal may be based on lease summaries provided by the owner or
third parties. The Appraiser assumes no responsibility for the authenticity
or completeness of lease information provided by others. C&W recommends
that legal advice be obtained regarding the interpretation of lease
provisions and the contractual rights of parties.
9. The forecasts of income and expenses are not
predictions of the future. Rather, they are the Appraiser's best estimates
of current market thinking on future income and expenses. The Appraiser
and C&W make no warranty or representation that these forecasts will
materialize. The real estate market is constantly fluctuating and changing.
It is not the Appraiser's task to predict or in any way warrant the
conditions of a future real estate market; the Appraiser can only reflect
what the investment community, as of the date of the Appraisal, envisages
for the future in terms of rental rates, expenses, supply and demand.
10. Unless otherwise stated in the Appraisal,
the existence of potentially hazardous or toxic materials which may
have been used in the construction or maintenance of the improvements or
may be located at or about the Property was not considered in arriving at the
opinion of value. These materials (such as formaldehyde foam insulation,
asbestos insulation and other potentially hazardous materials) may
adversely affect the value of the Property. The Appraisers are not qualified
to detect such substances. C&W recommends that an environmental expert be
employed to determine the impact of these matters on the opinion of value.
11. Unless otherwise stated in the Appraisal,
compliance with the requirements of the Americans With Disabilities Act of
1990 (ADA) has not been considered in arriving at the opinion of value.
Failure to comply with the requirements of the ADA may adversely affect the
value of the property. C&W recommends that an expert in this field be
employed.
CERTIFICATION OF APPRAISAL
We certify that, to the best of our knowledge and belief:
1. Richard W. Latella, MAI and Jay F. Booth inspected the
property.
2. The statements of fact contained in this report are
true and correct.
3. The reported analyses, opinions, and conclusions
are limited only by the reported assumptions and limiting conditions, and
are our personal, unbiased professional analyses, opinions, and conclusions.
4. We have no present or prospective interest in
the property that is the subject of this report, and we have no personal
interest or bias with respect to the parties involved.
5. Our compensation is not contingent upon the reporting
of a predetermined value or direction in value that favors the cause of the
client, the amount of the value estimate, the attainment of a stipulated
result, or the occurrence of a subsequent event. The appraisal assignment
was not based on a requested minimum valuation, a specific valuation or the
approval of a loan.
6. No one provided significant professional assistance to
the persons signing this report.
7. Our analyses, opinions, and conclusions were
developed, and this report has been prepared, in conformity with the Uniform
Standards of Professional Appraisal Practice of the Appraisal Foundation and
the Code of Professional Ethics and the Standards of Professional Appraisal
Practice of the Appraisal Institute.
8. The use of this report is subject to the requirements
of the Appraisal Institute relating to review by its duly authorized
representatives.
9. As of the date of this report, Richard W. Latella
has completed the requirements of the continuing education program of the
Appraisal Institute.
/s/Richard W. Latella /s/Jay F. Booth
Richard W. Latella, MAI Jay F. Booth, MAI
Senior Director Retail Valuation Group
Retail Valuation Group
Maryland Certified General Real Estate Appraiser
License No. 10462
ADDENDA (listed not included except for Appraiser's Qualifications)
NATIONAL RETAIL OVERVIEW
OPERATING EXPENSE BUDGET (1997)
TENANT SALES REPORT (1996)
PRO-JECT LEASE ABSTRACT REPORT
PRO-JECT PROLOGUE ASSUMPTIONS REPORT
PRO-JECT TENANT REGISTER REPORT
PRO-JECT LEASE EXPIRATION REPORT
ENDS FULL DATA REPORT FOR PRIMARY AND TOTAL TRADE AREA
CUSHMAN & WAKEFIELD INVESTOR SURVEY
APPRAISER'S QUALIFICATIONS
QUALIFICATIONS OF RICHARD W. LATELLA
Professional Affiliations
Member, American Institute of Real Estate Appraisers
(MAI Designation #8346)
New York State Certified General Real Estate Appraiser
#46000003892
Pennsylvania State Certified General Real Estate Appraiser #GA-
001053-R
State of Maryland Certified General Real Estate Appraiser #01462
Minnesota Certified General Real Estate Appraiser #20026517
Commonwealth of Virginia Certified General Real Estate Appraiser
#4001-003348
State of Michigan Certified General Real Estate Appraiser
#1201005216
New Jersey Real Estate Salesperson (License #NS-130101-A)
Certified Tax Assessor - State of New Jersey
Affiliate Member - International Council of Shopping Centers,
ICSC
Real Estate Experience
Senior Director, Retail Valuation Group, Cushman & Wakefield Valuation Advisory
Services. Cushman & Wakefield is a national full service real estate
organization and a Rockefeller Group Company. While Mr. Latella's experience
has been in appraising a full array of property types, his principal focus is
in the appraisal and counseling for major retail properties and specialty
centers on a national basis. As Senior Director of Cushman & Wakefield's
Retail Group his responsibilities include the coordination of the firm's
national group of appraisers who specialize in the appraisal of regional malls,
department stores and other major retail property types. He has personally
appraised and consulted on in excess of 200 regional malls and specialty retail
properties across the country.
Senior Appraiser, Valuation Counselors, Princeton, New Jersey, specializing in
the appraisal of commercial and industrial real estate, condemnation analyses
and feasibility studies for both corporate and institutional clients from July
1980 to April 1983.
Supervisor, State of New Jersey, Division of Taxation, Local Property and
Public Utility Branch in Trenton, New Jersey, assisting and advising local
municipal and property tax assessors throughout the state from June 1977 to
July 1980.
Associate, Warren W. Orpen & Associates, Trenton, New Jersey,
assisting in the preparation of appraisals of residential prop
erty and condemnation analyses from July 1975 to April 1977.
Formal Education
Trenton State College, Trenton, New Jersey
Bachelor of Science, Business Administration - 1977
As of the date of this report, Richard W. Latella, MAI, has completed the
requirements under the continuing education program of the Appraisal Institute.
QUALIFICATIONS OF JAY F. BOOTH
General Experience
Jay F. Booth joined Cushman & Wakefield Valuation
Advisory Services in August 1993. As an associate appraiser, Mr.
Booth is currently working with Cushman & Wakefield's Retail
Valuation Group, specializing in regional shopping malls and all
types of retail product. Cushman & Wakefield, Inc. is a
national full service real estate organization.
Mr. Booth previously worked at Appraisal Group, Inc.
in Portland, Oregon where he was an associate appraiser. At AGI,
he assisted in the valuation of numerous property types,
including office buildings, apartments, industrials, retail centers,
vacant land, and special purpose properties.
Academic Education Master of
Science in Real Estate (MSRE) -- New York University (1995)
Major: Real Estate Valuation & Analysis New York, New York
Bachelor of Science (BS) -- Willamette University (1991)
Majors: Business-Economics, Art Salem, Oregon
Study Overseas (Fall 1988) -- Xiamen University, Xiamen, China;
Kookmin University, Seoul, South Korea;
Tokyo International, Tokyo, Japan
Appraisal Education
As of the date of this report, Jay F. Booth has
successfully completed all of the continuing education requirements
of the Appraisal Institute.
Professional Affiliation
Certified General Appraiser, State of New York No. 46000026796
Candidate MAI, Appraisal Institute No. M930181
YAC, Young Advisory Council, Appraisal Institute
PARTIAL CLIENT LIST
-------------------
VALUATION ADVISORY SERVICES
CUSHMAN & WAKEFIELD, INC.
NEW YORK
PROFESSIONALS ARE JUDGED BY THE CLIENTS THEY SERVE
VALUATION ADVISORY SERVICES enjoys a long record of service in a confidential
capacity to nationally prominent institutional and corporate clients,
investors, government agencies and many of the nations largest law firms.
Following is a partial list of clients served by members of VALUATION ADVISORY
SERVICES - NEW YORK OFFICE.
Aetna
Air Products and Chemicals, Inc.
Aldrich, Eastman & Waltch, Inc.
Allegheny-Ludlam Industries
AMB Institutional Realty Advisors
America First Company
American Bakeries Company
American Brands, Inc.
American District Telegraph Company
American Express
American Home Products Corporation
American Savings Bank
Apple Bank
Apple South
Archdiocese of New York
Associated Transport
Atlantic Bank of New York
AT&T
Avatar Holdings Inc.
Avon Products, Inc.
Bachner, Tally, Polevoy, Misher & Brinberg
Baer, Marks, & Upham
Balcor Inc.
BancAmerica
Banca Commerciale Italiana
Banco de Brasil, N.A.
Banco Santander Puerto Rico
Banque Paribas
Baker & Mackenzie
Bank of America
Bank of Baltimore
Bank of China
Bank of Montreal
Bank of New York
Bank of Nova Scotia
Bank of Seoul
Bank of Tokyo Trust Company
Bank Leumi Le-Israel
Bankers Life and Casualty Company
Bankers Trust Company
Banque Indosuez
Barclays Bank International, Ltd.
Baruch College
Battery Park City Authority
Battle, Fowler, Esqs.
Bayerische Landesbank
Bear Stearns
Berkshire
Bertlesman Property, Inc.
Betawest Properties
Bethlehem Steel Corporation
Bloomingdale Properties
Borden, Inc.
Bowery Savings Bank
Bowest Corporation
Brandt Organization
Brooklyn Hospital
BRT Realty Trust
Burke and Burke, Esqs.
Burmah-Castrol
Cadillac Fairview
Cadwalader, Wickersham & Taft
Caisse National DeCredit
Campeau Corporation
Campustar
Canadian Imperial Bank of Commerce
Canyon Ranch
Capital Bank
Capital Cities-ABC, Inc.
Care Incorporated
Carter, Ledyard & Milburn
Chase Manhattan Bank, N.A.
Chemical Bank Corporation
Chrysler Corporation
C. Itoh & Company
Citibank, NA
Citicorp Real Estate
City University of New York
Clayton, Williams & Sherwood
Coca Cola, Inc.
Cohen Brothers
College of Pharmaceutical Sciences
Collegiate Church Corporation
Columbia University
Commonwealth of Pennsylvania
Consolidated Asset Recovery Company
Consolidated Edison Company of New York, Inc.
Continental Realty Credit, Inc.
Copley Real Estate Advisors
Corning Glass Works
Coudert Brothers
Covenant House
Cozen and O'Connor
Credit Agricole
Credit Lyonnais
Credit Suisse
Crivello Properties
CrossLand Savings Bank
CSX
Dai-Ichi Kangyo Bank
Dai-Ichi Sempei Life Insurance
Daily News, Inc.
Daiwa Securities
Dart Group Corporation
David Beardon & Company
Davidoff & Malito, Esqs
Dean Witter Realty
Debevoise & Plimpton
DeMatteis Organization
Den Norske Bank
Deutsche Bank
DiLorenzo Organization
Dime Savings Bank
Dodge Trucks, Inc.
Dollar/Dry Dock Savings Bank
Donovan, Leisure, Newton & Irvine
Dreyer & Traub
Dun and Bradstreet, Inc.
Eastdil Realty Advisors
East New York Savings Bank
East River Savings Bank
East Rutherford Industrial Park
Eastman Kodak Company
Eaton Corporation
Eichner Properties, Inc.
Ellenburg Capital Corporation
Emigrant Savings Bank
Empire Mutual Insurance Company
Endowment Realty Investors
Enzo Biochem, Inc.
Equitable Life Assurance Society of America
Equitable Real Estate
European American Bank
F.S. Partners
Famolare, Inc.
Farwest Savings & Loan Association
Federal Asset Disposition Authority
Federal Deposit Insurance Company
Federal Express Corporation
Federated Department Stores, Inc.
Feldman Organization
Fidelity Bond & Mortgage Company
Findlandia Center
First Bank
First Boston
First Chicago
First National Bank of Chicago
First Nationwide Bank
First New York Bank for Business
First Tier Bank
First Winthrop
Fisher Brothers
Fleet Bank
Flying J, Inc.
Foley and Lardner, Esqs.
Ford Bacon and Davis, Inc.
Ford Foundation
Ford Motor Company
Forest City Enterprises
Forest City Ratner
Forum Group, Inc.
Franchise Finance Corporation of America
Fried, Frank, Harris, Shriver & Jacobson
Friendly's Ice Cream Corporation
Fruehauf Trailer Corporation
Fuji Bank
Fulbright & Jaworski
G.E. Capital Corporation
General Electric Credit Corporation
General Motors Corporation
Gerald D. Hines Organization
Gibson Dunn and Crutcher
Gilman Paper
Gladstone Equities
Glimcher Company
Glynwed, Ltd.
Goldman, Sachs & Co.
Greater New York Savings Bank
Greycoat Real Estate Corp.
Greyhound Lines Inc.
Grid Properties
GTE Realty
Gulf Coast Restaurants
Gulf Oil
HDC
HRO International
Hammerson Properties
Hanover Joint Ventures, Inc.
Hartz Mountain Industries
Hawaiian Trust Company, Ltd.
Hertz Corporation
Home Federal
Home Savings of America
HongKong & Shanghai Banking Corporation
Horn & Hardart
Huntington National Bank
Hypo Bank
IDC Corporation
Ideal Corporation
ING Corporation
Integon Insurance
International Business Machines Corporation
International Business Machines Pension Fund
International Telephone and Telegraph Corporation
Investors Diversified Services, Inc.
Iona College
Irish Intercontinental Bank
Irish Life Assurance
Israel Taub
Isetan of America, Inc.
J & W Seligman & Company, Inc.
JMB Realty
J. B. Brown and Sons
J. C. Penney Company, Inc.
J. P. Morgan
Jamaica Hospital
James Wolfenson & Company
Jerome Greene, Esq.
Jewish Board of Family & Children's Services
Jones Lang Wootton
K-Mart Corporation
Kelly, Drye and Warren, Esqs.
Kennedy Associates
Key Bank of New York
Kerr-McGee Corporation
Kidder Peabody Realty Corp.
Kitano Arms Corporation
Knickerbocker Realty
Koeppel & Koeppel
Kronish, Lieb, Weiner & Hellman
Krupp Realty
Kutak, Rock and Campbell, Esqs.
Ladenburg, Thalman & Co.
Lans, Feinberg and Cohen, Esqs.
Lands Division, Department of Justice
Lazard Freres
LeBoeuf, Lamb, Greene & MacRae
Lefrak Organization
Lehman Brothers
Lennar Partners
Lepercq Capital Corporation
Lexington Corporate Properties
Lexington Hotel Corporation
Lincoln Savings Bank
Lion Advisors
Lomas & Nettleton Investors
London & Leeds
Long Term Credit Bank of Japan, Ltd.
Lutheran Church of America
Lynton, PLC
Macluan Capital Corporation
Macy's
MacAndrews and Forbes
Mahony Troast Construction Company
Manhattan Capital Partners
Manhattan College
Manhattan Life Insurance
Manhattan Real Estate Company
Manufacturers Hanover Trust Company
Marine Midland Bank
Mason Tenders
Massachusetts Mutual Life Insurance Company
May Centers, Inc.
Mayer, Brown, Platt
McDonald's Corporation
McGinn, Smith and Company
McGrath Services Corporation
MCI Telecommunications
Mellon Bank
Memorial Sloan-Kettering Cancer Center
Mendik Company
Mercedes-Benz of North America
Meridian Bank
Meritor Savings Bank
Merrill Lynch Hubbard
Merchants Bank
Metropolis Group
Metropolitan Life Insurance Company
Metropolitan Petroleum Corporation
Meyers Brothers Parking System Inc.
Michigan National Corp.
Milbank, Tweed
Millennium Partners
Miller, Montgomery, Sogi and Brady, Esqs.
Mitsui Fudosan - New York Inc.
Mitsui Leasing, USA
Mitsubishi Bank
Mitsubishi Trust & Banking Corporation
Mobil Oil Corporation
Moody's Investors Service
Moran Towing Corporation
Morgan Guaranty
Morgan Hotel Group
Morse Shoe, Inc.
Moses & Singer
Mountain Manor Inn
Mudge Rose Guthrie Alexander & Ferdon, Esqs.
Mutual Benefit Life
Mutual Insurance Company of New York
National Audubon Society, Inc.
National Bank of Kuwait
National Can Company
National CSS
National Westminster Bank, Ltd.
Nelson Freightways
Nestle's Inc.
New York Bus Company
New York City Division of Real Property
New York City Economic Development Corporation
New York City Housing Development Authority
New York City School Construction Authority
New York Life Insurance Company
New York State Common Fund
New York State Employee Retirement System
New York State Parks Department
New York State Teachers
New York State Urban Development Corporation
New York Telephone Company
New York Urban Servicing Company
New York Waterfront
Niagara Asset Corporation
Nippon Credit Bank, Inc.
Nomura Securities
Norcross, Inc.
North Carolina Department of Insurance
NYNEX Properties Company
Olympia and York, Inc.
Orient Overseas Associates
Orix USA Corporation
Otis Elevator Company
Owens-Illinois Corporation
PaineWebber, Inc.
Pan American World Airways, Inc.
Paul, Weiss, Rifkind
Park Tower Associates
Parke-Davis and Company
Paul Weiss Rifkind, Esqs.
Penn Central Corporation
Penn Mutual Life Insurance Company
Pennsylvania Retirement Fund
Penthouse International
Pepsi-Cola Company
Peter Sharp & Company
Petro Stopping Center
Pfizer International, Inc.
Philip Morris Companies, Inc.
Philips International
Phoenix Home Life
Pittston Company
Polyclinic Medical School and Hospital
Port Authority of New York and New Jersey
Postel Investment Management
Prentiss Properties Realty Advisors
Procida Organization
Proskauer Rose Goetz and Mandelsohn, Esqs.
Provident Bank
Prudential Securities
Pyramid Company
Rabobank Nederland
Ratner Group
RCA Corporation
Real Estate Recovery
Realty Income Corporation
Remson Partners
Republic Venezuela Comptrollers Office
Revlon, Inc.
Rice University
Richard Ellis
Richards & O'Neil
Ritz Towers Hotel Corporation
River Bank America
Robert Bosch Corporation
Robinson Silverman Pearce Aron
Rockefeller Center, Inc.
Rockefeller Center Properties
Roman Catholic Diocese of Brooklyn
Roosevelt Hospital
Rosenman & Colin
Royal Bank of Scotland
RREEF
Rudin Management Co., Inc.
Saint Vincent's Medical Center of New York
Saks Fifth Avenue
Salomon Brothers Inc.
Salvation Army
Sanwa Bank
SaraKreek USA
Saxon Paper Corporation
Schroder Real Estate Associates
Schulman Realty Group
Schulte, Roth & Zabel
BDO Seidman
Seaman Furniture Company, Inc.
Security Pacific Bank
Semperit of America
Sentinel Realty Advisors
Service America Corp.
Shea & Gould, Esqs.
Shearman and Sterling, Esqs.
Shearson Lehman American Express
Shidler Group
Sidley & Austin
Silver Screen Management, Inc.
Silverstein Properties, Inc.
Simpson, Thacher and Bartlett, Esqs.
Skadden, Arps, Slate, Meagher & Flom
Smith Barney
Smith Corona Corporation
Sol Goldman
Solomon Equities
Sonnenblick-Goldman
Southtrust Bank of Alabama
Spitzer & Feldman, PC
Stahl Real Estate
Standard & Poors
State Teachers Retirement System of New York
State Teachers Retirement System of Ohio
Stauffer Chemical Corporation
Stephens College
Sterling Drug, Inc.
Stroheim and Roman, Inc.
Stroock and Stroock and Lavan, Esqs.
Sullivan and Cromwell, Esqs.
Sumitomo Life Realty
Sumitomo Mutual Life Insurance Company
Sumitomo Trust Bank
Sun Oil Company
Sutherland, Asbill & Brennan
Swiss Bank Corporation
Tenzer Greenblat, Esqs.
Textron Financial
Thatcher, Proffitt, Wood
The Shopco Group
Thomson Information/Publishing
Thurcon Properties, Ltd.
Tobishima Associates
Tokyo Trust & Banking Corporation
Transworld Equities
Travelers Realty, Inc.
Triangle Industries
TriNet Corporation
UBS Securities Inc.
UMB Bank & Trust Company
Unibank
Union Bank of Switzerland
Union Carbide Corporation
Union Chelsea National Bank
United Bank of Kuwait
United Fire Fighters of New York
United Parcel Service
United Refrigerated
United States District Court, Southern District of New York
United States Life Insurance
United States Postal Service
United States Trust Company
Upward Fund, Inc.
US Cable Corp.
Vanity Fair Corporation
Verex Assurance, Inc.
Victor Palmieri and Company, Inc.
Village Bank
Vornado Realty Trust
W.P. Carey & Company, Inc.
Wachtell, Lipton, Rosen & Katz, Esqs.
Waterfront New York Realty Corporation
Weil, Gotshal & Manges
Weiss, Peck & Greer
Wells Fargo & Co.
Westpac Banking Corporation
Western Electric Company
Western Union International
Westinghouse Electric Corporation
White & Case
Wilkie Farr and Gallagher, Esqs.
William Kaufman Organization
Windels, Marx, Davies & Ives
Winthrop Financial Associates
Winthrop Simston Putnam & Roberts
Witco Corporation
Wurlitzer Company
Yarmouth Group
Dates Referenced Herein and Documents Incorporated by Reference
| This ‘10-K’ Filing | | Date | | Other Filings |
|---|
| |  |
| | 12/31/06 |
| Corrected on: | | 2/15/00 |
| | 10/1/99 |
| Filed on: | | 3/31/97 | | 10-Q |
| | 3/11/97 |
| | 3/6/97 |
| | 1/26/97 |
| | 1/25/97 |
| | 1/1/97 |
| For Period End: | | 12/31/96 |
| | 1/1/96 |
| | 1/1/95 |
| List all Filings |
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