3338 stcharles appraisal

BORDERS BOOKS 3338 St. Charles Avenue New Orleans, Orleans Parish, Louisiana CBRE File No. 07-361HO-2695 Client Reference No. 040-2104

Self Contained Appraisal Report

Prepared for: George Gose Underwriter ARTESIA MORTGAGE CAPITAL CORPORATION Its Successors and/or Assigns 1180 NW Maple Street, Suite 202 Issaquah, Washington 98027

Artesia Mortgage Capital Corporation its successors and/or assigns may read and rely upon the findings and conclusions of this report

VALUATION & ADVISORY SERVICES

© 2007 CB Richard Ellis, Inc.

V A L U A T I O N & A D V I S O R Y S E R V I C E S

2700 Post Oak Blvd., Suite 250 Houston, Texas 77056

T (713) 840-6625 F (713) 840-6649

www.cbre.com

June 20, 2007 George Gose Underwriter ARTESIA MORTGAGE CAPITAL CORPORATION 1180 NW Maple Street, Suite 202 Issaquah, Washington 98027 RE: Appraisal of Borders Books 3338 St. Charles Avenue New Orleans, Orleans County, Louisiana CBRE File No 07-361HO-2695 Client Reference No 040-2104

Dear Mr. Gose:

At your request and authorization, CB Richard Ellis (CBRE) has prepared an appraisal of the market value of the referenced property. Our analysis is presented in the following Self Contained Appraisal Report.

The subject will be a 24,000-square-foot, two-story, single tenant retail building located at 3338 St. Charles Avenue in New Orleans. The property is currently improved with a two-story building that has been used as Bultman Funeral Home for over 123 years. Bultman hosted services for numerous historical figures ranging from Confederate President Jefferson Davis to 1950’s actress Jayne Mansfield. In recent years, funerals included those of oil tycoon Patrick Taylor and poet and painter Stan Rice, the husband of author Anne Rice. The property, which sustained damage during Hurricane Katrina, is currently under the ownership of Alderwoods Group, Inc. of Toronto which is in the process of being acquired by Service Corporation International (SCI) of Houston. As a result, the company is selling off several of its Katrina damaged properties and consolidating operations at its flagship home located on Canal Street.

The funeral home closed in September of 2006 and has been under purchase negotiations with the proposed buyer, Stirling Forterra, LLC, since that time. The buyer plans to retain a portion of the existing building, primarily the façade but all other areas of the building will be essentially new. Estimated completion and rent commencement is expected to be May 1, 2008. Upon completion, the building will be 100.0% occupied by Borders Books and will be considered to be in excellent condition. The building will be situated on a 0.931-acre site. It is considered to be a Class A property in this market. The subject is more fully described, legally and physically, within the enclosed report.


George Gose June 20, 2007

Page 2

Upon completion of the building, the property will be stabilized. Therefore, the As Complete and As Stabilized market values are one in the same. Based on the analysis contained in the following report, the market value of the subject is concluded as follows. It is noted that the As Is market value is land value:

MARKET VALUE CONCLUSION

Appraisal Premise Interest Appraised Date of Value Value Conclusion

As Is Fee Simple Estate July 12, 2007 $2,800,000

As Complete & Stabilized Leased Fee Interest May 1, 2008 $10,400,000

As Complete & Stabilized Fee Simple Estate May 1, 2008 $6,250,000

Compiled by CBRE

Data, information, and calculations leading to the value conclusion are incorporated in the report following this letter. The report, in its entirety, including all assumptions and limiting conditions, is an integral part of, and inseparable from, this letter.

The following appraisal sets forth the most pertinent data gathered, the techniques employed, and the reasoning leading to the opinion of value. The analyses, opinions and conclusions were developed based on, and this report has been prepared in conformance with, our interpretation of the guidelines and recommendations set forth in the Uniform Standards of Professional Appraisal Practice (USPAP), the requirements of the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and Title XI Regulations.

It is understood that Artesia Mortgage Capital Corporation will rely, in part, on the Report in deciding to make a loan evidenced by a promissory note secured by the Mortgaged Property (collectively the “Note”), and that Rating Agencies and prospective purchasers of the Note or related securities will also rely on the Report.

The report is for the sole use of the client; however, client may provide only complete, final copies of the appraisal report in its entirety (but not component parts) to third parties who shall review such reports in connection with loan underwriting or securitization efforts. Appraiser is not required to explain or testify as to appraisal results other than to respond to the client for routine and customary questions. Please note that our consent to allow an appraisal report prepared by CBRE or portions of such report, to become part of or be referenced in any public offering, the granting of such consent will be at our sole discretion and, if given, will be on condition that we will be provided with an Indemnification Agreement and/or Non-Reliance letter, in a form and content satisfactory to us, by a party satisfactory to us. We do consent to your submission of the reports to rating agencies, loan participants or your auditors in its entirety (but not component parts) without the need to provide us with an Indemnification Agreement and/or Non-Reliance letter.


George Gose June 20, 2007

Page 3

CBRE hereby expressly granted to Client the right to copy this report and distribute it to other parties in the transaction for which this report has been prepared, including employees of Client, other lenders in the transaction, and the borrower, if any. It has been a pleasure to assist you in this assignment. If you have any questions concerning the analysis, or if CBRE can be of further service, please contact us.

Respectfully submitted, CBRE - VALUATION & ADVISORY SERVICES

Cindy K. Latham, MAI Stephen D. Duplantis, MAI Senior Real Estate Analyst Senior Managing Director Certification No. TX - 1323775-G Texas Certification No. 1321138-G Phone: 713.888.4765 Phone: (713) 840-6625 Fax: 713.840.6649 Fax: (713) 888-4709 Email: [email protected] E-mail: [email protected]


BORDERS BOOKS CERTIFICATION OF THE APPRAISAL

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CERTIFICATION OF THE APPRAISAL

We certify to the best of our knowledge and belief:

1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions

and limiting conditions and are our personal, impartial and unbiased professional analyses, opinions, and conclusions.

3. We have no present or prospective interest in or bias with respect to the property that is the subject of this report and have no personal interest in or bias with respect to the parties involved with this assignment.

4. Our engagement in this assignment was not contingent upon developing or reporting predetermined results.

5. Our compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal.

6. This appraisal assignment was not based upon a requested minimum valuation, a specific valuation, or the approval of a loan.

7. Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice, as well as the requirements of the State of Louisiana.

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

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

10. As of the date of this report, Cindy K. Latham, MAI and Stephen D. Duplantis, MAI have completed the continuing education program of the Appraisal Institute.

11. Cindy K. Latham, MAI has and Stephen D. Duplantis, MAI has not made a personal inspection of the property that is the subject of this report.


BORDERS BOOKS CERTIFICATION OF THE APPRAISAL

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12. No one provided significant real property appraisal assistance to the persons signing this report. 13. Valuation & Advisory Services operates as an independent economic entity within CBRE. Although

employees of other CBRE divisions may be contacted as a part of our routine market research investigations, absolute client confidentiality and privacy are maintained at all times with regard to this assignment without conflict of interest.

Cindy K. Latham, MAI Stephen D. Duplantis, MAI Texas Certification No. TX - 1323775-G Texas Certification No. 1321138-G


BORDERS BOOKS SUBJECT PHOTOGRAPHS

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SUBJECT PHOTOGRAPHS

AERIAL VIEW


BORDERS BOOKS SUBJECT PHOTOGRAPHS

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TYPICAL EXTERIOR VIEW OF THE SUBJECT

TYPICAL EXTERIOR VIEW OF THE SUBJECT


BORDERS BOOKS SUMMARY OF SALIENT FACTS

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SUMMARY OF SALIENT FACTS

Property Name

Location

Client Reference Number 040-2104

Assessor’s Parcel Number

Highest and Best Use

As Vacant

As Improved

Property Rights Appraised

Land Area 0.93 AC 40,534 SF

Improvements

Property Type Retail

Number of Buildings

Number of Stories

Gross Leasable Area

Year Built 2008

Condition

Major Tenants

Borders Books

Estimated Exposure Time

Financial Indicators

Current Occupancy 100.0%

Stabilized Occupancy 100.0%

Stabilized Credit Loss 0.0%

Overall Capitalization Rate 6.75%

Discount Rate 8.00%

Terminal Capitalization Rate 7.00%

Pro Forma Operating Data Total Per SF

Effective Gross Income $744,000 $31.00

Operating Expenses $17,280 $0.72

Expense Ratio 2.32%

Net Operating Income $726,720 $30.28

(Misc. Freestanding Retail)

9 Months

Excellent

24,000 SF

24,000 SF

Borders Books

Leased Fee Interest

Retail

Retail

614226901

3338 St. Charles Avenue, New Orleans, Orleans Parish, Louisiana

2

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BORDERS BOOKS SUMMARY OF SALIENT FACTS

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VALUATION Total Per SF

Land Value $2,800,000 $69.08

Market Value As Stabilized On May 1, 2008Cost Approach $9,400,000 $391.67

Sales Comparison Approach $10,245,000 $426.88

Income Capitalization Approach $10,600,000 $441.67

Insurable Value $4,250,000 $177.08

CONCLUDED MARKET VALUE

Appraisal Premise Interest Appraised Value

As Is Fee Simple Estate $2,800,000

As Complete & Stabilized Leased Fee Interest $10,400,000

As Complete & Stabilized Fee Simple Estate $6,250,000

Compiled by CBRE

May 1, 2008

May 1, 2008

Date of Value

July 12, 2007

EXTRAORDINARY ASSUMPTIONS & HYPOTHETICAL CONDITIONS

• The value herein is based on the Lease Agreement provided by Stirling Forterra, LLC. If not, the value conclusion is subject to change.

• The value assumes the improvements will be constructed in a good workmanlike manner based on the information provided by the developer. If not, the value conclusion is subject to change.


BORDERS BOOKS TABLE OF CONTENTS

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TABLE OF CONTENTS

CERTIFICATION OF THE APPRAISAL.............................................................................................i SUBJECT PHOTOGRAPHS ......................................................................................................... iii SUMMARY OF SALIENT FACTS....................................................................................................v TABLE OF CONTENTS.............................................................................................................. vii INTRODUCTION ...................................................................................................................... 1 AREA ANALYSIS......................................................................................................................... 6 NEIGHBORHOOD ANALYSIS .................................................................................................... 9 MARKET ANALYSIS .................................................................................................................. 13 FLOOD MAP........................................................................................................................... 24 SITE ANALYSIS ........................................................................................................................ 26 IMPROVEMENTS ANALYSIS...................................................................................................... 29 ZONING ................................................................................................................................ 34 TAX AND ASSESSMENT DATA .................................................................................................. 35 HIGHEST AND BEST USE ......................................................................................................... 36 APPRAISAL METHODOLOGY................................................................................................... 39 LAND VALUE........................................................................................................................... 40 COST APPROACH................................................................................................................... 44 INSURABLE VALUE................................................................................................................... 49 SALES COMPARISON APPROACH............................................................................................ 51 INCOME CAPITALIZATION APPROACH.................................................................................... 58 “GO DARK” ANALYSIS ............................................................................................................ 79 RECONCILIATION OF VALUE .................................................................................................. 82 ASSUMPTIONS AND LIMITING CONDITIONS .......................................................................... 84 ADDENDA A Glossary of Terms B Land Sale Data Sheets C Improved Sale Data Sheets D Rent Comparable Data Sheets E Purchase Agreement F Lease G Construction Costs H Précis METRO Report - Economy.com, Inc. I Required Client Information J Qualifications K Engagement Letter


BORDERS BOOKS INTRODUCTION

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INTRODUCTION

PROPERTY IDENTIFICATION

The subject will be a 24,000-square-foot, two-story, single tenant retail building located at 3338 St.

Charles Avenue in New Orleans. The property is currently improved with a two-story building that was previously used as a funeral home. The prospective buyer plans to retain a portion of the existing

building, primarily the façade but all other areas of the building will essentially be new. Estimated

completion is expected to be May 1, 2008. Upon completion, the building will be 100.0% occupied by Borders Books and will be considered to be in excellent condition. The building will be situated on

a 0.931-acre site. It is considered to be a Class A property in this market The subject is more fully

described, legally and physically, within the enclosed report.

OWNERSHIP AND PROPERTY HISTORY

Title to the property is currently vested in the name of Alderwoods (Louisiana), Inc. who acquired title to the property in March of 1996, as improved for an undisclosed amount. The transaction included

the business as well as the real estate. The property is currently improved with a two-story building

that has been used as Bultman Funeral Home for over 123 years. Bultman hosted services for numerous historical figures ranging from Confederate President Jefferson Davis to 1950’s actress

Jayne Mansfield. In recent years, funerals included those of oil tycoon Patrick Taylor and poet and

painter Stan Rice, the husband of author Anne Rice. The property, which sustained damage during

Hurricane Katrina, is currently under the ownership of Alderwoods Group, Inc. of Toronto which is in the process of being acquired by Service Corporation International (SCI) of Houston. As a result, the

company is selling off several of its Katrina damaged properties and consolidating operations at its

flagship home located on Canal Street.

The funeral home closed in September of 2006 and has been under purchase negotiations with the

proposed buyer, Stirling Forterra, LLC, since that time. The property is under contract for $2,800,000

or approximately $69.07 PSF of site area. The transaction appears to be arms length and market oriented based upon our concluded market value of $2,800,000 for the subject site.

The prospective buyer plans to construct a 24,000 square foot, single-tenant retail building on the

property and will retain a portion of the existing building, primarily the façade but all other areas of

the building will essentially be new. Estimated completion is expected to be May 1, 2008. Upon completion, the building will be 100.0% occupied by Borders Books and will be considered to be in

excellent condition.



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PREMISE OF THE APPRAISAL/RELEVANT DATES

The following table illustrates the various dates associated with the valuation of the subject and the

valuation premise(s):

PREMISE OF THE APPRAISAL/RELEVANT DATES

Date of Report: July 20, 2007

Date of Inspection: July 12, 2007

Dates of ValueAs Is: July 12, 2007

As Complete & Stabilized May 1, 2008

Compiled by CBRE

PURPOSE OF THE APPRAISAL

The purpose of this appraisal is to estimate the market value of the subject property. The current economic definition of market value agreed upon by agencies that regulate federal financial

institutions in the U.S. (and used herein) 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. 1

TERMS AND DEFINITIONS

The Glossary of Terms in the addenda provides definitions for additional terms that are, and may be used in this appraisal.

1 Office of Comptroller of the Currency (OCC), 12 CFR Part 34, Subpart C – Appraisals, 34.42 (g); Office of Thrift

Supervision (OTS), 12 CFR 564.2 (g); Appraisal Institute, The Dictionary of Real Estate Appraisal, 4th ed. (Chicago: Appraisal Institute, 2002), 177-178. This is also compatible with the RTC, FDIC, FRS and NCUA definitions of market value as well as the example referenced in the Uniform Standards of Professional Appraisal Practice (USPAP).



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INTENDED USE AND USER OF REPORT

This appraisal is to be used by the client for internal decision making by the client, Artesia Mortgage

Capital Corporation.

PROPERTY RIGHTS APPRAISED

The interest appraised represents the leased fee interest.

SCOPE OF WORK

The scope of the assignment relates to the extent and manner in which research is conducted, data is

gathered and analysis is applied, all based upon the following problem-identifying factors stated elsewhere in this report:

• Client • Intended use • Intended user • Type of opinion • Effective date of opinion • Relevant characteristics about the subject • Assignment conditions

This appraisal of the subject has been presented in the form of a Self-Contained Appraisal Report,

which is intended to comply with the reporting requirements set forth under Standards Rule 2-2(a) of USPAP. That is, this report incorporates, to the fullest extent possible, practical explanation of the

data, reasoning and analysis that were used to develop the opinion of value. This report also includes

thorough descriptions of the subject and the market for the property type. CBRE completed the

following steps for this assignment:

Extent to Which the Property is Identified

CBRE collected the relevant information about the subject from the owner (or representatives), public

records and through an inspection of the subject. The property was legally identified through its

postal address, assessor’s records, legal description and title report. Economic characteristics of the

subject were identified via an analysis of leases and/or lease briefs between the lessor and lessee, recent rent roll, and historical operating statements.

Extent to Which the Property is Inspected

CBRE inspected both the interior and exterior of the subject, as well as its surrounding environs on the

effective date of appraisal.



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Type and Extent of the Data Researched

CBRE reviewed the micro and/or macro market environments with respect to physical and economic

factors relevant to the valuation process. This process included interviews with regional and/or local

market participants, available published data, and other various resources. CBRE also conducted regional and/or local research with respect to applicable tax data, zoning requirements, flood zone

status, demographics, income and expense data, and comparable listing, sale and rental information.

Type and Extent of Analysis Applied

CBRE analyzed the data gathered through the use of appropriate and accepted appraisal methodology to arrive at a probable value indication via each applicable approach to value.

Approaches to value used include Cost, Sales Comparison and Income Capitalization. The steps

required to complete each approach are discussed in the methodology section. CBRE then correlated

and reconciled the results into a reasonable and defensible value conclusion, as defined herein. A reasonable exposure time and marketing time associated with the value estimate presented has also

been concluded.

SPECIAL APPRAISAL INSTRUCTIONS

There have been no special appraisal instructions for this assignment.

EXPOSURE/MARKETING TIME

Current appraisal guidelines require an estimate of a reasonable time period in which the subject

could be brought to market and sold. This reasonable time frame can either be examined historically

or prospectively. In a historical analysis, this is referred to as exposure time. Exposure time always precedes the date of value, with the underlying premise being the time a property would have been on

the market prior to the date of value, such that it would sell at its appraised value as of the date of

value. On a prospective basis, the term marketing time is most often used. The exposure/marketing

time is a function of price, time, and use. It is not an isolated estimate of time alone. In consideration of these factors, we have analyzed the following:

• exposure periods for comparable sales used in this appraisal; • marketing time information from the CBRE National Investor Survey; and • the opinions of market participants.

The following table presents the information derived from these sources.



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EXPOSURE TIME INFORMATION

Exposure Time (Months)Investment Type Range Average

Comparable Sales Data 3.0 - 9.0 6.0

National Regional Mall Market 3.0 - 12.0 7.2

National Power Center Market 3.0 - 9.0 5.7

National Strip Shopping Center Market 2.0 - 12.0 6.1

National Net Lease Market 1.0 - 6.0 3.6

CBRE Estimate

Korpacz Real Estate Investor Survey, 1st Quarter 2007

9 Months

In general, the improved sales indicate exposure times in the lower to middle portion of the range

indicated by the investor survey. In addition to the sales and survey data, we have also reviewed the assumptions and conclusions reached, particularly the income estimates and rates of return and there

potential impact on exposure/marketing time. Based on these analyses, we have concluded an

exposure/marketing time of 9 months or less would be considered reasonable for the subject.

This exposure/marketing time reflects current economic conditions, current real estate investment

market conditions, the terms and availability of financing for real estate acquisitions, and property and

market-specific factors. It assumes that the subject is (or has been) actively and professionally

marketed. The marketing/exposure time would apply to all valuation premises included in this report.


BORDERS BOOKS AREA ANALYSIS

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AREA ANALYSIS

Economy.com provides the following New Orleans metro area economic summary as of March 2007.

The full Economy.com report is presented in the Addenda.

NEW ORLEANS ECONOMIC ANALYSIS

Indicators 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Gross Metro Product, C$B 44.3 43.5 43.1 43.5 45.0 41.2 34.0 36.8 38.4 39.1 39.7 40.3

% Change -6.9 -1.9 -0.9 0.9 3.4 -8.5 -17.4 8.3 4.2 1.9 1.6 1.4

Total Employment (000) 617.7 618.7 608.4 611.4 614.8 554.6 479.8 527.8 536.0 541.3 545.9 550.0

% Change 0.2 0.2 -1.7 0.5 0.6 -9.8 -13.5 10.0 1.5 1.0 0.8 0.8

Unemployment Rate 4.7 4.9 5.5 5.5 5.1 8.0 5.4 2.0 1.9 1.9 1.8 1.8

Personal Income Growth 5.5 6.7 1.6 2.5 5.7 -35.4 45.0 8.1 3.6 4.3 4.3 4.0

Population (000) 1,315.7 1,311.2 1,311.7 1,312.4 1,314.8 1,314.6 913.0 1,165.6 1,134.0 1,136.7 1,138.1 1,139.7

Single-Family Permits 3,475 3,499 4,326 5,357 5,698 4,488 5,246 7,864 9,331 7,760 5,023 4,839

Multifamily Permits 692 939 1,057 772 702 293 737 3,837 5,051 4,486 3,098 3,178

Existing Home Price ($Ths) 111.6 117.0 122.5 130.1 137.1 158.9 172.4 160.5 162.8 167.7 173.5 179.7

Mortgage Originations ($Mil) 3,386 6,136 7,121 11,046 7,426 6,614 6,529 5,786 5,361 5,488 5,678 5,848

Net Migration (000) -8.0 -10.5 -5.6 -4.6 -3.5 -6.3 -406.6 247.1 -37.2 -2.8 -4.1 -4.0

Personal Bankruptcies 6,648 8,198 7,808 8,085 7,584 8,792 2,841 1,301 1,403 1,518 1,663 1,782

Source: Economy.com

RECENT PERFORMANCE

More than 18 months after Hurricane Katrina, the New Orleans economy is slowly emerging from its

lull. Benchmark revisions were very positive for New Orleans, revealing fewer jobs lost and a stronger



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rebound. The metro area still has a very long road back as total employment is still almost 15%

below its pre-Katrina level. However, one way to gauge New Orleans’ recovery is to measure the labor market’s progress since Hurricane Katrina rather than focusing on its pre-storm level. Since

September 2005, New Orleans has reclaimed roughly 35,000 jobs. As expected, construction is

leading the way. More encouraging is the strong rebound in professional/business services, which is

currently just shy of its pre-Katrina employment level. Strong hiring in this sector suggests that New Orleans’ displaced businesses are indeed returning, which bodes well for the outlook.

POPULATION

The release of the Census Bureau’s midyear 2006 population figures provides insight into how many

residents New Orleans lost in the wake of Hurricane Katrina. The data show that the metro area lost roughly 290,000 residents, or 22% of its population base. Of the seven parishes that comprise the

New Orleans metro area, four recorded declines in their population while three experienced an

increase. As expected, the largest population declines were in the hardest hit parishes namely, Orleans and St. Bernard. St. Tammany experienced the largest increase in its population, adding

roughly 11,000 residents, or 5%.

Looking ahead, the slow recovery in the metro area’s labor force to date suggests a weak rebound in

New Orleans’ population this year. Nevertheless, we do not expect the metro area’s population to ever return to its pre-Katrina level.

REBUILDING

The lack of affordable housing is a major obstacle in New Orleans’ recovery effort. Prices soared

immediately following Hurricane Katrina due to a supply shortfall, pushing affordability to one of its lowest levels in 20 years. As such, the massive rebuilding effort is dependent upon the issuance of

checks from the state’s Road Home Program, which provides financial assistance for rebuilding.

Through mid-March, there have been over 115,000 applications statewide and only 3,000 closings.

This is the primary reason why, despite the clear need, housing starts in New Orleans have yet to surpass their pre-Katrina level. Additional building is essential to curbing house prices, boosting

affordability, and enabling more residents to return to, or remain in, New Orleans.

HURDLES

Despite numerous recent positive developments, there remain a number of challenges. The slow arrival of checks from the Road Home Program will significantly strain New Orleans’ labor market.

Issuance of aid is expected to increase over the next few months, which will spark the long awaited

and much anticipated rebuilding boom. However, the current labor short gage is a severe constraint on the number of housing projects that are undertaken. Another obstacle is the slow opening of



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public schools, hospitals and the re-establishment of public transportation. These are necessary in

promoting economic growth and enticing displaced households to return.

CONCLUSION

Despite positive benchmark revisions, the contours of the baseline forecast for New Orleans are

unchanged. Hiring will accelerate this year as the massive rebuilding effort will support job gains in

construction and services. The magnitude of the rebuilding effort will be limited by political red tape,

available labor and the amount of funding issued to residents. Therefore, the lack of affordable housing will limit the supply of labor and the repopulation of the metro area. A permanently lower

population will be a major long-term impediment. Job growth will slow toward the end of the decade

as federal funding for rebuilding begins to fade, ensuring that New Orleans will not reach its pre-hurricane employment level for several decades.


BORDERS BOOKS NEIGHBORHOOD ANALYSIS

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NEIGHBORHOOD ANALYSIS

LOCATION

The neighborhood is located in the city of New Orleans and is considered a suburban location. The city of New Orleans is located in Orleans Parish. The subject neighborhood is located within an area

described as the garden district.

BOUNDARIES

The neighborhood boundaries are detailed as follows:

North: Airline Drive/Tulane Avenue South: Mississippi River East: Central Business District West: Mississippi River

LAND USE

Land uses within the subject neighborhood consist primarily of residential properties, office buildings and hotels. The “Uptown” area and the Central Business District in New Orleans’ are the focal points

of the area. In addition, Tulane University and Loyola University are in the immediate area. Tulane

University was founded in 1834 and is one of the foremost independent national research universities



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in the United States. Tulane's schools and colleges offer undergraduate, graduate and professional

degrees in the liberal arts and sciences, architecture, business, engineering, law, social work, medicine, and public health and tropical medicine.

Loyola University New Orleans is a Catholic institution and is one of 28 Jesuit colleges and

universities in the United States. Loyola is located in the Uptown section of New Orleans, one of the

city's most prestigious residential neighborhoods and 15 minutes away from downtown and the French Quarter. Loyola University New Orleans has a total enrollment of 5,900 students, including 3,800

undergraduates. The geographical diversification consists of representatives from all 50 states, the

District of Columbia, Puerto Rico, and 46 foreign countries. In recent years, Loyola has consistently ranked among the top regional colleges and universities in the South and one of the top 60 in the

United States by U.S. News & World Report's special issue "America's Best Colleges." Loyola also has

been named one of "America's 300 Best Buys" in Barron's Best Buys in College Education, and ranks in

the top seven percent of the 1,500 colleges and universities ranked by Barron's.

GROWTH PATTERNS

Growth within the central business district is driven primarily by tourism and the oil and gas industry.

New Orleans is one of the top convention and tourist destinations in the United States. The City’s

hotel/motel sales rose, displacements reaching an all time high, and employment in the tourism-influenced service sector led the area in terms of net job growth in 1999. In 2001, New Orleans had

3,008 meetings and conventions attended by over 1.5 million guests. The Morial Convention Center,

which was last expanded in 1999, ranks as one of the largest single-level exhibition halls in the nation, totaling 1.1 million square feet.

Louisiana has been responsible for the production of 90% of the United States offshore gas and 70%

of the United States offshore oil over the last 40 years. Almost half of all the producing offshore wells

in the world are still located off Louisiana's coast, and Louisiana ranks second only to Texas with approximately 17% of the nation’s oil refining capacity. Approximately 40% of Louisiana’s oil

refineries and over 50% of its oil refining capacity are located in the New Orleans region. New

Orleans is also the southern anchor of the Louisiana petrochemical corridor, which produces nearly a quarter of all U.S. chemicals and refines a significant amount of the nation's gasoline.

ACCESS

The subject property’s location offers excellent ingress/egress from New Orleans’ extensive highway

network, with convenient access to I-10 and Route 90. St. Charles Avenue and Josephine Street

border the subject tract. Other nearby roadways include Jackson Avenue, which provides north/south access and Magazine Street which provides east/west access. The subject is centrally located with

easy access to the New Orleans Downtown CBD, Uptown, the French Quarter, the convention center,

the Riverwalk entertainment complex, Medical Centers and Universities.



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Easy direct routes connect the site with the expressway system and from there to Jefferson Parish, the

West Bank and New Orleans East. St. Charles Avenue and nearby Magazine Street make Uptown an easy commute, while the Greater New Orleans Mississippi River Bridge and the Canal Street ferry are

just a short drive away.

And, since St. Charles Avenue and Canal Street are major arteries for the city's public transit system,

the subject enjoys highly cost-efficient transportation service to all parts of New Orleans, with the Regional Transit Authority trolley and buses stopping at the subject.

The following items are considered major strengths and weaknesses of the neighborhood.

Strengths

• Well developed infrastructure, including strategic port facilities for domestic and international trade

• Tourist hot spots are up and running again following Hurricane Katrina, helping provide a

better than anticipated turnout for Mardi Gras

• The subject’s immediate area, while sustaining some damage from the recent hurricanes, did

not sustain any prolonged flooding from the levee breaches

Weaknesses

• Below average per capita income

• High poverty rate

Low rate of insurance holders may hinder reconstruction

DEMOGRAPHICS

Selected neighborhood demographics in a one-, three-, and five-mile radius from the subject are

shown in the following table:



12

SELECTED NEIGHBORHOOD DEMOGRAPHICS3338 St. Charles Avenue Radius 1.0 Radius 3.0 Radius 5.0

New Orleans, Louisiana Mile Miles Miles

Population

2012 Population 30,736 151,465 361,267

2007 Population 29,025 130,704 306,062

2000 Population 38,317 186,535 432,673

1990 Population 41,359 191,893 440,730

Growth 2007 - 2012 5.89% 15.88% 18.04%

Growth 2000 - 2007 -24.25% -29.93% -29.26%

Growth 1990 - 2000 -7.36% -2.79% -1.83%

1990 Population

1990 Households 56 940 3,353

1990 Families 37 620 2,317

1990 Housing Units 74 1,269 4,458

1990 Population, Age 0 - 4 7 123 596

1990 Population, Age 5 - 9 51.35% 51.61% 44.71%

1990 Population, Age 10 - 14 -50.00% -51.14% -48.03%

1990 Pop, Age 15 - 17 957.14% 931.71% 647.99%

1990 Population, Age 25 - 34 $21 $359 $1,649

1990 Pop, Age 50 - 54 $6 $99 $347

1990 Population, Age 65 - 74 $9 $176 $599

2000 Median HH Inc in 1999 $65,309 $61,912 $69,511

2000 Avg HH Inc in 1999 $77,628 $82,680 $88,039

1990 Population, Age 85+ 183 3,305 12,782

Age 25+ Percent College Graduates - 2007 223.2% 271.3% 251.0%Source: CBRE

CONCLUSION

As shown above, the population within the subject neighborhood has shown negative growth over the

past several years. The neighborhood currently has a moderate to low-income demographic profile. The outlook for the neighborhood is for slow to moderate performance with limited improvement over

the next several years. As a result, the demand for existing developments is expected to be moderate.

It is important to note that these demographic trends do not take into account the post Hurricane

Katrina natural disaster. The greater New Orleans region was heavily evacuated into surrounding cities. This factor has caused a tremendous upward pricing and occupancy trend on all facets of real

estate in surrounding markets.


BORDERS BOOKS MARKET ANALYSIS

13

MARKET ANALYSIS

The market analysis forms a basis for assessing market area boundaries, supply and demand factors,

and indications of financial feasibility. Primary data sources utilized for this analysis includes REIS, 4th Quarter 2006, the most recent available. Due to the impact of Hurricane Katrina on the New Orleans

metro, the time periods from Third Quarter 2005 through Second Quarter 2006 are unavailable.

According to Reis’s New Orleans Update 3rd Quarter 2006, ten months after Hurricane Katrina made

landfall on the Louisiana coast and the levees protecting New Orleans failed, there is considerable uncertainty about the long-term outlook for the city. Reis economists highlight the progress made in

rebuilding in the past few months and the results of Reis’s continuing coverage of this market in

transition.

The retail sector continues to experience great uncertainty. Reis's intensive survey of commercial

properties in New Orleans, conducted during the 1st and 2nd quarter of 2006, showed that

rehabilitation efforts for properties in East Orleans have lagged compared to buildings in other sections of the metro. Due in part to the extent of the flooding in the area, water lingered in some

parts of East Orleans for some time after other sections of the city had dried. The latest US Geological

Survey report shows that the largest share of total land in New Orleans lost due to Hurricane Katrina

was in East Orleans, in the section of wetlands south of the St. Bernard hurricane levees, east of the Mississippi River (Associated Press, October 2006). As much as 40% of the stock of rental apartment

units was either destroyed or heavily damaged in this section of the metro area.

DEMOGRAPHIC ANALYSIS

Demand for additional retail property is a direct function of population change and household income. Retail properties are products of a clearly definable demand relating directly to population

shifts and income patterns.

Housing, Population and Household Formation

The following table illustrates the population and household changes for the subject neighborhood:



14

POPULATION AND HOUSEHOLD PROJECTIONS3338 St. Charles Avenue Radius 1.0 Radius 3.0 Radius 5.0

New Orleans, Louisiana Mile Miles Miles

Population

2012 Population 30,736 151,465 361,267

2007 Population 29,025 130,704 306,062

2000 Population 38,317 186,535 432,673

1990 Population 41,359 191,893 440,730

Growth 2007 - 2012 5.89% 15.88% 18.04%

Growth 2000 - 2007 -24.25% -29.93% -29.26%

Growth 1990 - 2000 -7.36% -2.79% -1.83%

1990 Population

1990 Households 56 940 3,353

1990 Families 37 620 2,317

1990 Housing Units 74 1,269 4,458

1990 Population, Age 0 - 4 7 123 596

1990 Population, Age 5 - 9 51.35% 51.61% 44.71%

1990 Population, Age 10 - 14 -50.00% -51.14% -48.03%

1990 Pop, Age 15 - 17 957.14% 931.71% 647.99%

Source: CBRE

As shown, the subject’s neighborhood is experiencing slight decreases in both population and

households.

Income Distributions

Household income available for expenditure on consumer items is a primary factor in determining the

retail supply and demand levels in a given market area. In the case of this study, a projection of

household income identifies (in gross terms) the market from which the subject submarket draws. The following table illustrates estimated household income distribution for the subject neighborhood.



15

HOUSEHOLD INCOME DISTRIBUTION

Radius 1.0 Radius 3.0 Radius 5.0

2000 HUs, 1 Unit Attached Mile Mile Mile

2000 HUs, 2 Units 5.41% 4.52% 5.14%2000 HUs, 3 - 19 Units 59.46% 22.90% 19.90%2000 HUs, 20 - 49 Units 32.43% 5.48% 5.83%2000 HUs, 50+ Units 13.51% 3.23% 4.83%2000 HU, Mobile home 13.51% 39.52% 30.90%2000 HUs, Other 5.41% 9.52% 4.96%2000 HUs, Built 1999 to March 2000 127.03% 36.61% 45.62%2000 HUs, Built 1995 to 1998 100.00% 59.68% 77.60%2000 HUs, Built 1990 to 1994 54.05% 35.97% 48.08%2000 HUs, Built 1980 to 1989 43.24% 83.55% 83.00%

Source: CBRE

Outlook

Based on this analysis, the immediate area surrounding the subject is projected to experience

moderate, positive growth relative to households, population, income levels and retail expenditures into the near future. Given the area demographics, it appears that demand for both comparable

surrounding area retail properties and the subject will continue to be favorable.

MARKET OVERVIEW

The following discussion illustrates some general observations in the surrounding retail market.

Market Summary

Market statistics for the New Orleans area and the subject submarket are shown in the following table:

RETAIL MARKET STATISTICS

Category New Orleans Area Local Submarket

Existing Supply (SF) 3,442,000 917,041

Average Occupancy All Classes 89.6% 91.5%

Average Rent PSF All Classes $11.88 $14.76

Date of Survey 4th Qtr 2006

Source: REIS 4th Quarter 2006

As shown above, the average occupancy rate for the subject submarket is higher than that of the overall market area. In addition, the average rental rate for the submarket is also above the overall



16

market. The subject submarket is considered an upper tier submarket as compared to the other

submarkets in the overall market area. Absorption is projected to be positive, however, the overall area is well occupied and new construction is projected to be minimal. Well occupied properties with

good locations, such as the subject, should continue to experience stable occupancy rates over the

near term.

Market Trends

The table below presents the quarterly trends in rental rates and occupancy for the New Orleans area and local submarket over the past several years:

RETAIL MARKET TRENDS

New Orleans Area Local Submarket

Date Rent PSF Occupancy Rent PSF Occupancy

4th Qtr. 2003 $12.87 91.2% $14.17 94.4%

4th Qtr. 2004 $13.03 84.0% $14.23 93.0%

2nd Qtr. 2005 $13.03 91.4% $14.34 93.2%

4th Qtr. 2006 $11.88 89.6% $14.76 91.5%

Source: REIS 4th Quarter 2006

Over the past three years, the overall market area and the local submarket have generally maintained

stabilized occupancy rates. The average occupancy rate and average rental rate for the subject

submarket are both higher than that of the overall market area, indicating the relative strength of the subject’s market area. During the same time frame, rental rates in the submarket have outperformed

the overall market.

LOUISIANA POST-KATRINA

Katrina has proved to be "the largest challenge this company has ever faced in its 100-year history,"

said Walgreens Drug Stores spokeswoman Tiffani Bruce. Even though most national retail chains have had experience rebounding from disasters in other states, few have ever faced a situation like the

one they're dealing with in New Orleans. Despite the challenges, national chains have kept a strong

presence in the local market.

More than 75 percent of the local stores run by the nation's largest retail chains have reopened, and

though none will release specific sales figures, experts and retail industry officials say business is

strong. "The Wal-Marts, the Home Depots (and) apparel sales (are booming) as people replace their wardrobes" and household items, said Don Randon of Don Randon Real Estate Inc., a real estate

broker specializing in large retail transactions.



17

Consumers are replacing everything from clothes to appliances that were lost in the storm. "It's a good

environment for the big (retailers)," said Richard Stone, senior vice president of Latter & Blum Inc. Realtors.

"Traffic has definitely been above normal," said Tricia Thriffiley, spokeswoman for Lakeside Shopping

Center. "Our stores are still reporting sales 50 to 100 percent" above last year. Even Dillard's, a

Lakeside anchor store that still is partially closed for storm repairs, is seeing increased sales figures, Thriffiley said. The story's the same at The Esplanade in Kenner. "Based on preliminary data for the

first quarter, sales at stores at The Esplanade are up double digits over the same period last year,"

said marketing director Anne Mialaret Reed. "We expect to maintain and improve upon this trend as more stores reopen." The strong sales at The Esplanade come even though one of the mall's anchors,

Macy's Department Store, has not reopened. A second anchor at the mall, Mervyn's, closed earlier this

year when the chain pulled out of Louisiana.

Sales at home improvement chains like Home Depot and Lowe’s Home Improvement are obviously strong because of the robust home improvement market. Both companies have reopened most of

their pre-Katrina stores and have even announced new stores. But there have been some less obvious

signs of retail strength as well. Several weeks ago Walgreens reopened its first store in St. Bernard. "It's turned out to be our best performing store in the (metro) market," said Bruce, the chain's

spokeswoman. The strong sales, according to Bruce, are due to the fact that competition from other

retailers is still miniscule in St. Bernard.

But it hasn't been easy for the large corporate chains to get their local stores up and running. A lack of housing has made it difficult for Walgreens employees who evacuated to other regions to come

home, Bruce said. To get replacement workers, companies often have to pay higher wages. Sav-A-

Center sites are operating with only about 80 percent of their pre-Katrina work force, and the company has increased starting wages 10 percent, said Glenn Dickson, Sav-A-Center's vice president

of operations for the region. The chain is a subsidiary of Great Atlantic & Pacific Tea Co. Jobs that

require special skills, such as meat cutters, chefs and cake decorators, have been especially hard to fill, Dickson said.

Some of the chain retail locations that are still closed are in shopping centers that were damaged and

shuttered by the storm. The Oakwood Center in Terrytown, for example, was severely damaged by

fire and looters in the days after Hurricane Katrina and remains closed. J.C. Penny's, Dillard's, Mervyn's and Sears were all anchor stores in the mall. Only Sears has reopened. Brian Lade, general

manager for General Growth Properties, owner of the Oakwood Center, said interior demolition of

the mall is complete and an opening date will be announced in the next few months.

General Growth also owns the Riverwalk in New Orleans, which has gotten about 55 percent of its

retail space back in operation but is feeling the effects of a slowdown in tourism. Meanwhile, Lake



18

Forest Plaza Mall in eastern New Orleans, which was anchored by Dillard's, was inundated with flood

waters and has not reopened.

Other stand-alone stores remain shuttered because they are in neighborhoods that were hard-hit by

Katrina's floodwaters, like eastern New Orleans, Chalmette and Arabi. Retailers with locations in those

areas are coping with damaged stores and waiting for the local population to recover. Home Depot,

for example, still has two metro area locations -- in Chalmette and eastern New Orleans -- that remain closed. Similarly, CVS Corp. has yet to reopen two of its 19 area stores. Those stores are in

the hard-hit communities of Arabi and Chalmette.

The post-Katrina population shifts have presented unprecedented challenges for retail chains. In other states that have been battered by hurricanes, like Florida, storms have forced the population to

temporarily evacuate. But the evacuation and the permanent displacement of some storm victims in

the New Orleans area represented an extreme shuffling of the customer base.

Barriers to Entry

Labor costs and material costs in the general area have increased as much as 140% since Katrina. Zoning tends to limit new construction. Combined with the overall lack of quality developable sites in

the subject’s immediate area also tends to limit new development.

Demand Generators

The subject has a good location within the New Orleans area. It is located near major traffic arteries

that carry a significant amount of traffic and are primary connectors in the area. Although population and household estimates are forecast to decline discount stores such as Wal-Mart and home

improvement stores in New Orleans like Lowe’s and Home Depot are doing well. Sale of

clothing/apparel as well as construction and household items and appliances are booming as people gradually seek to replace their wardrobes and household items that were lost in the storm. The area

is a suburban area of New Orleans and a large portion of the demand for the area is being derived

by the New Orleans MSA. Tourism is a major demand factor for the central business district of New

Orleans along with the oil and gas business for the State of Louisiana.

Investment Trends

Investment trends within the area have been favorable. According to Capital Trends Monthly January

2007 published by Real Capital Analytics, sales of significant retail properties totaled $46.7 billion in

2006, a 7% decrease in volume compared to 2005. The fall in activity results largely from fewer deals

for regional malls and portfolio transactions. Portfolio activity was sluggish throughout most of the year but picked up substantially in Q4. Totaling only $12 billion in closed transactions last year,



19

almost $9 billion of portfolios were already in contract and scheduled to close in early 2007. One-off

sales of retail properties were flat in 2006 and totaled over $35 billion.

Retail properties have appreciated nearly 90% since the end of 2000, outpacing gains made by other

property types and prices continued to rise throughout 2006. Cap rate compression also continued

through 2006, but at a slower pace. Rising interest rates in the first half of 2006 exerted upward

pressure on cap rates, but yields on retail property acquisitions are still 30–40 bps lower than a year ago.

The following shows the national strip center market activity according to the January 2007 issue of

Retail Capital Trends Monthly published by Real Capital Analytics.



20

price per square foot

$75

$100

$125

$150

$175

$200

$225

$250

'02 '03 '04 '05 '061.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9

stripmall & o therRepeat Sales Index

cap rates

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

'02 '03 '04 '05 '06

stripmall & o thermo rtgage rates*

COMPETITIVE PROPERTIES

Comparable properties have been surveyed in order to identify the occupancy trends within the

immediate submarket. The comparable data is summarized in the following table:



21

SUMMARY OF COMPARABLE RETAIL RENTALSComp.

No. Name Location Occupancy

1 Borders Books 3131 Veterans Memorial Blvd,Metairie, LA

100%

2 Borders Books at City Place 3600 McKinney Avenue,Dallas, TX

100%

3 Borders 2130 Haines Avenue,Rapid City, SD

100%

4 Barnes & Noble 2121 N. Federal Hwy,Ft. Lauderdale, FL

100%

Subject Borders Books 3338 St. Charles Avenue,New Orleans, Louisiana

100%

Compiled by CBRE

All of comparable properties surveyed reported occupancy rates of 100% and all are currently in

average to good condition. It is noted that here are only two other book stores currently operating in

the Uptown/Garden District are – Garden District Book Shop and Octavia Books.

SUBJECT TRENDS AND PROJECTIONS

Occupancy

Occupancy rate is the relationship between the actual income received from a property and the

income that would be received if the entire space were occupied. Consequently, the occupancy rate

is a product of both (1) the relationship between the amount of occupied space in a building or

market (physical) and (2) the relationship between the contract rent for the occupied building or market space and the total rent estimated for all space in the building or market (economic).

Subject’s Historical Trends

The subject is proposed construction. Upon completion, it will be 100% leased and occupied by

Border Books on a long term lease. No change is anticipated.



22

Conclusion

Based on the foregoing analysis, CBRE’s conclusion of stabilized occupancy for the subject is

illustrated in the following table. This estimate considers both the physical and economic factors of

the market.

OCCUPANCY CONCLUSIONS

Rent Comparables 100.0%

Subject's Current Occupancy 100.0%

Subject's Stabilized Occupancy 100.0%

Compiled by CBRE

Although our concluded stabilized occupancy is slightly higher than the overall market and submarket,

this premium appears reasonably justified for the following reasons:

• Upon completion, the subject will be 100% leased and occupied to a nationally recognized tenant;

• The subject’s completed improvements will be one of the most recently developed properties and therefore highly competitive;

• The improvements are located within close primary to commercial thoroughfares within the area

Tenant Analysis

The subject is physically considered a Class A property that will be 100% occupied by Border Books.

Borders Books, which is the #2 bookstore operator in the US (after Barnes &Noble), has stores in 50

states, as well as in the UK, Australia, New Zealand, Puerto Rico, and Singapore. Its more than 1,240

retail stores include 525 Borders superstores, about 675 mall-based Waldenbooks stores, and almost 35 UK-based Books etc. shops. To lure customers, the superstores host literary events and promote

an environment with comfortable seats and cafes; they also sell music, videos, and DVDs. In addition,

customers can shop through each chain's Web site, which are all operated through an agreement with rival Amazon.com. For the year ending January 2006, Borders Group had sales of $4,079.2 million,

a 4.5% increase from the previous year and net income of $101 million, a 23.4% decrease from the

previous year. The company has 35,500 employees.

CONCLUSION

The area retail market and the local submarket are exhibiting strong occupancy levels and upward

trending rental rates, while maintaining favorable absorption in recent years. Considering the recent

trends in absorption and the prospects for new construction, the local market area should maintain a

stabilized occupancy position. The addition of new product to the market may create minor downward pressure on occupancy and on owners’ ability to obtain the effective rental increases of the



23

past several years. However, the long-term projection for the subject submarket is for continued

growth.

With respect to the subject in particular, we believe the subject is reasonably well located for a retail

project. It is in reasonable proximity to both employment centers and major roadways, and the

surrounding retail developments are experiencing average to above average levels of demand. Based

upon our analysis, the subject should continue to enjoy good market acceptance.


BORDERS BOOKS SITE ANALYSIS

24

FLOOD MAP



26

SITE ANALYSIS

The following chart summarizes the salient characteristics of the subject site.

SITE SUMMARY

Physical DescriptionGross Site Area 0.93 Acres 40,534 Sq. Ft.

Net Site Area 0.93 Acres 40,534 Sq. Ft.

Primary Road Frontage St. Charles Avenue 220 Feet

Secondary Road Frontage Louisiana Avenue 208 Feet

Excess Land Area None

Surplus Land Area None

Zoning District

Flood Map Panel No. & Date 2252030160E 1-Mar-84

Flood Zone B

Source: Various sources compiled by CBRE

C-2, Commercial

LOCATION

The subject is located at the southeast corner of St. Charles Avenue and Louisiana Avenue. The street

address is 3338 St. Charles Avenue. Ingress and egress is available to the site via one curb cut along the south side of St. Charles Avenue and one curb cut along the east side of Louisiana Avenue.

ASSESSOR’S PARCEL NUMBER

The Orleans Parish Tax Assessor’s parcel number is as follows: 614226901.

LAND AREA

The land area size was obtained a site plan and legal description provided by the broker. The site is considered adequate in terms of size and utility. There is no unusable, excess or surplus land area.

SHAPE AND FRONTAGE

The site is “L” shaped and has adequate frontage along two primary thoroughfares within the

neighborhood.

INGRESS/EGRESS

Ingress and egress is available to the site from one curb cut along the south side of St. Charles Avenue and one curb cut along the east side of Louisiana Avenue.



27

St. Charles Avenue, at the subject, is an east/west street that is improved with one lane of traffic in

each direction divided by a median that has streetcars, one running in each direction. Street improvements include asphalt paving and concrete curbs, gutters and sidewalks, and street lighting.

Street parking is permitted.

Louisiana Avenue, at the subject, is a north/south street that is improved with two lanes of traffic in

each direction. Street improvements include asphalt paving, open ditch drainage and street lighting. Street parking is permitted.

Please refer to the prior site/plat exhibit for the layout of the streets that provide access to the subject.

TOPOGRAPHY AND DRAINAGE

The site is generally level and at street grade. The topography of the site is not seen as an impediment to the development of the property. During our inspection of the site, we observed no drainage

problems and assume that none exist.

SOILS

A soils analysis for the site has not been provided for the preparation of this appraisal. In the absence of a soils report, it is a specific assumption that the site has adequate soils to support the highest and

best use.

EASEMENTS AND ENCROACHMENTS

Based on an inspection and review of the site plan, the property does not appear to be adversely

affected by any easements or encroachments. It is recommended that the client/reader obtain a current title policy outlining all easements and encroachments on the property, if any, prior to making

a business decision.

COVENANTS, CONDITIONS AND RESTRICTIONS

There are no known covenants, conditions and restrictions impacting the site that are considered to affect the marketability or highest and best use.

UTILITIES AND SERVICES

The site is within the jurisdiction of Orleans Parish or New Orleans and is provided all municipal

services, including police, fire and refuse garbage collection. All utilities are available to the site in adequate quality and quantity to service the highest and best use.



28

FLOOD ZONE

According to flood hazard maps published by the Federal Emergency Management Agency (FEMA),

the site is within Zone B, as indicated on the indicated Community Map Panel No. 2252030160E.

FEMA Zone B- This area has been identified in the community flood insurance study

as an area of moderate or minimal hazard from the principal source of flood in the

area. However, buildings in this zone could be flooded by severe, concentrated

rainfall coupled with inadequate local drainage systems. Local storm water drainage systems are not normally considered in the community’s Flood Insurance Study. The

failure of a local drainage system creates areas of high flood risk within this rate zone.

Flood insurance is available in participating communities but is not required by regulation in this zone.

ENVIRONMENTAL ISSUES

CBRE has not observed and is not qualified to detect, the existence of potentially hazardous material

or underground storage tanks which may be present on or near the site. The existence of hazardous materials or underground storage tanks may affect the value of the property. For this appraisal, CBRE

has specifically assumed that the property is not affected by any hazardous materials that may be

present on or near the property.

ADJACENT PROPERTIES

The adjacent land uses are summarized as follows:

North: McDonald’s South: Retail East: Retail West: Service Station

CONCLUSION

The site is well located and afforded good access and visibility from roadway frontage. The size of the

site is typical for the area and use, and there are no known detrimental uses in the immediate vicinity. Overall, there are no known factors which are considered to prevent the site from development to its

highest and best use, as if vacant.


BORDERS BOOKS IMPROVEMENTS ANALYSIS

29

IMPROVEMENTS ANALYSIS

The following chart depicts a summary of the improvements.

IMPROVEMENTS SUMMARY

Retail

Improvement Summary Description Good Avg. Fair Poor

Foundation Reinforced concrete X

Frame Steel X

Exterior Walls Painted masonry X

Interior Walls Textured and painted drywall X

Roof Built-up composition X

Ceiling Suspended acoustical tile X

HVAC System Roof mounted HVAC units X

Exterior Lighting Mercury Vapor Fixtures X

Interior Lighting Recessed flourescent fixtures X

Flooring Tile X

Plumbing Assumed adequate X

Elevators/Stairwells None X

Fire Protection Sprinklered and smoke detectors X

Furnishings Personal property excluded N/A

Parking Asphalt paved open parking X

Landscaping Grass, gravel and natural forest courtyards with irrigated planted beds

X

Source: Various sources compiled by CBRE

Site Coverage

Floor Area Ratio (FAR)

Parking Ratio (per 1,000 SF GLA )

Land-to-Building Ratio 1.69 : 1

Borders Books

Parking Improvements

1.58

Number of Buildings

Number of Stories

Gross Leasable Area

Major Tenants

Net Rentable Area

1

29.6%

2

24,000 SF

24,000 SF

0.6

24,000 SF

Property Type (Misc. Freestanding Retail)

Total Spaces:

Open/Surface

38

As shown, the subject is a 24,000 square foot single tenant retail building that is scheduled to be completed in May of 2008. The property is currently improved with a two-story building that has been

used as Bultman Funeral Home for over 123 years. The property, which sustained damage during

Hurricane Katrina, is currently under the ownership of Alderwoods Group, Inc. of Toronto which is in

the process of being acquired by Service Corporation International (SCI) of Houston. As a result, the company is selling off several of its Katrina damaged properties and consolidating operations at its

flagship home located on Canal Street.



30

The funeral home closed in September of 2006 and has been under purchase negotiations with the

proposed buyer, Stirling Forterra, LLC, since that time. The buyer plans to retain a portion of the existing building, primarily the façade but all other areas of the building will be essentially new.

Building plans and specifications were not provided. The following is a description of the subject

improvements and basic construction features derived from data provided by the prospective owner

and CBRE’s inspection.

YEAR BUILT

The subject will be completed in 2008. As of the date of our inspection, interior finish and tenant

fixturing is required to complete the improvements for occupancy.

FOUNDATION

The foundation consists of a continuous monolithic slab poured on reinforced concrete footings.

CONSTRUCTION COMPONENTS

The construction components include a fireproof steel frame with steel beams and steel deck.

FLOOR STRUCTURE

The floor structure is summarized as follows:

Ground Floor: Concrete slab on compacted fill

Other Floors: Metal deck with light-weight concrete cover

EXTERIOR WALLS

The exterior wall structure is brick veneer.

ROOF COVER

The building has a flat built up roof.

INTERIOR FINISHES

The typical interior office finish of the property is summarized as follows:

Floor Coverings: Tile.

Walls: Textured and painted sheetrock.



31

Ceilings: Suspended acoustical tile.

Lighting: Standard commercial fluorescent fixtures.

Summary: The interior office areas are typical building standard office

finish, and are commensurate with competitors in the area.

INTERIOR FINISHES – COMMON AREAS

The interior common area finish of the property is summarized as follows:

Floor Coverings: Commercial grade vinyl tile over concrete .

Walls: Textured and painted sheetrock.

Ceilings: Suspended acoustical tile.

Lighting: Standard commercial fluorescent and recessed incandescent fixtures.

Summary: The interior common areas are attractive and appear to be in

excellent condition. The subject’s common areas are commensurate with competitors in the area.

ATRIUM/BALCONY/MEZZANINE AREAS

None.

ELEVATOR/STAIR SYSTEM

None.

HVAC

The HVAC system is assumed to be in good working order and adequate for the building.

ELECTRICAL

The electrical system is assumed to be in good working order and adequate for the building.

PLUMBING

The plumbing system is assumed to be in good working order and adequate for the building.



32

RESTROOMS

The restrooms are adequate and are assumed built to local code.

FIRE PROTECTION

The improvements are 100% fire sprinklered via an overhead wet system that is also wired into the local fire department. It is assumed the improvements have adequate fire alarm systems, fire exits, fire

extinguishers, fire escapes and/or other fire protection measures to meet local fire marshal

requirements.

SECURITY

The security system is assumed to be in good working order and adequate for the building. The entire

site is enclosed with wrought iron security fencing with three card reader controlled access gates.

PARKING AND DRIVES

The property features an adequate number of surface parking spaces, including reserved handicapped spaces. All parking spaces and vehicle drives are asphalt paved and considered to be in

good condition. Patron parking areas are along the front and sides of the building. The number of

parking spaces is legally conforming for the existing use and is typical of the market.

LANDSCAPING

Landscaping is considered to be in good condition and well maintained.

QUALITY AND STRUCTURAL CONDITION

The overall quality of the facility is considered to be good for the neighborhood and age. CBRE did

not observe any evidence of structural fatigue and the improvements appear structurally sound for

occupancy. However, CBRE is not qualified to determine structural integrity and it is recommended that the client/reader retain the services of a qualified, independent engineer or contractor to

determine the structural integrity of the improvements prior to making a business decision.

FUNCTIONAL UTILITY

The overall layout of the property is considered functional in utility.

ADA COMPLIANCE

All common areas of the property appear to have handicap accessibility. The client/reader’s attention

is directed to the specific limiting conditions regarding ADA compliance.



33

FURNITURE, FIXTURES AND EQUIPMENT

Any personal property items contained in the property are not considered to contribute significantly to

the overall value of the real estate.

ENVIRONMENTAL ISSUES

CBRE has not observed and is not qualified to detect the existence of any potentially hazardous

materials such as lead paint, asbestos, urea formaldehyde foam insulation, or other potentially

hazardous construction materials on or in the improvements. The existence of such substances may affect the value of the property. For the purpose of this assignment, we have specifically assumed that

any hazardous materials that would cause a loss in value do not affect the subject.

DEFERRED MAINTENANCE

Our inspection of the property indicated no items of deferred maintenance.

ECONOMIC AGE AND LIFE

CBRE’s estimate of the subject improvements effective age and remaining economic life is depicted in

the following chart:


Actual Age 0 Years

Effective Age 0 Years

MVS Expected Life 45 Years

Remaining Economic Life 45 Years

Accrued Physical Incurable Depreciation 0.0%

Compiled by CBRE

The overall life expectancy is based upon our on-site observations and a comparative analysis of typical life expectancies reported for buildings of similar construction as published by Marshall and

Swift, LLC, in the Marshall Valuation Service cost guide. While CBRE did not observe anything to

suggest a different economic life, a capital improvement program could extend the life expectancy.

CONCLUSION

The improvements are in good overall condition. Overall, there are no known factors that adversely

impact the marketability of the improvements.


BORDERS BOOKS ZONING

34

ZONING

The following chart summarizes the subject’s zoning requirements.

ZONING SUMMARYCurrent Zoning C-2, Commercial

Legally Conforming Yes

Uses Permitted Retail, offices or commercial uses servingneighborhoods and community needs

Zoning Change Not likely

Category Zoning Requirement

Source: New Orleans Planning Dept.

ANALYSIS AND CONCLUSION

The improvements represent a legally-conforming use and, if damaged, may be restored without special permit application. If additional information is required, please contact the local planning

and/or zoning office.


BORDERS BOOKS TAX AND ASSESSMENT DATA

35

TAX AND ASSESSMENT DATA

The following summarizes the subject’s market value, assessed value, and taxes, and does not include

any furniture, fixtures and equipment.

AD VALOREM TAX INFORMATION

Assessor's Market Value 2006 2007 Pro Forma

614226901

Land 1,093,000 1,093,000 1,093,000

Improvements 743,933 875,200 875,200

Subtotal 1,836,933 1,968,200 1,968,200

Assessed Value

Land @ 10% 109,300 109,300 109,300

Improvements @ 15% 111,590 131,280 131,280

$220,890 $240,580 $240,580

General Tax Rate (per $1,000 A.V.) 173.260000 175.190000 175.190000

Total Taxes $38,271 $42,147 $42,147

Source: Assessor's Office

Land in Louisiana is assessed at 10% of market value while commercial improvements are assessed at

15%. The next re-assessment of the subject is scheduled for 2008, however, the sale of the property would likely initiate an immediate reassessment for the following year. The local Assessor’s

methodology for valuation is to put a property on the tax rolls at 100% of the sales price. In this

instance, the subject property is under assessed due to its proposed construction and future

completion. Our estimate of the future assessed value is based on the existing assessment. As the subject lease calls for the tenant to pay real estate taxes directly, any increase in assessed value and

subsequent taxes would not affect our estimate of market value.

CONCLUSION

Based on the foregoing, the total taxes for the subject have been estimated as $42,147 for the base year of our analysis, based upon an assessed value of $240,580 , or $10.02 per square foot. For

purposes of this analysis we are assuming any outstanding property tax liability has been paid. CBRE

assumes that all taxes are current.


BORDERS BOOKS HIGHEST AND BEST USE

36

HIGHEST AND BEST USE

In appraisal practice, the concept of highest and best use represents the premise upon which value is

based. The four criteria the highest and best use must meet are:

• legal permissibility; • physical possibility; • financial feasibility; and • maximum profitability.

Highest and best use analysis involves assessing the subject both as if vacant and as improved.

AS VACANT

Legal Permissibility

The legally permissible uses were discussed in detail in the Site Analysis and Zoning Sections.

Physical Possibility

The subject is adequately served by utilities, has an adequate shape and size, sufficient access, etc., to

be a separately developable site. The subject site would reasonably accept a site layout for any of the

legally probable uses. There are no known physical reasons why the subject site would not support any legally probable development. The existence of the present development on the site provides

additional evidence for the physical possibility of development.

Financial Feasibility

The determination of financial feasibility is dependent primarily on the relationship of supply and

demand for the legally probable land uses versus the cost to create the uses. As discussed in the market analysis of this report, the subject retail market is generally stabilized. Development of new

retail properties has occurred in the past few years. Further, within the subject market, there are no

proposed or under construction retail projects in the competitive market. These factors indicate that it would be financially feasible to complete a new retail project if the site acquisition cost was low

enough to provide an adequate developer’s profit.

Maximum Profitability

The final test of highest and best use of the site as though vacant is that the use be maximally

productive, yielding the highest return to the land. In the case of the subject as if vacant, the analysis has indicated that a new retail project would be most appropriate.



37

CONCLUSION: HIGHEST AND BEST USE AS VACANT

Based on the information presented above and upon information contained in the market and

neighborhood analysis, we conclude that the highest and best use of the subject as if vacant, would be the development a retail property. Our analysis of the subject and its respective market

characteristics indicate the most likely buyer, as if vacant, would be an investor (land speculation) or a

developer.

Based on the foregoing analysis, the highest and best use of the site, as vacant, would be for a build to suit retail project similar to the subject property.

AS IMPROVED

Legal Permissibility

As discussed, the subject site’s zoning and legal restrictions permit a variety of land uses. The site has

been improved with a single tenant retail development.

Physical Possibility

The physical characteristics of the subject improvements were discussed in detail in the improvements analysis. Both the layout and positioning of the improvements are considered functional for retail use.

While it would be physically possible for a wide variety of uses, based on the legal restrictions and the

design of the improvements, the continued use of the property for retail users would be the most functional use.

Financial Feasibility

The financial feasibility of a retail property is based on the amount of rent which can be generated,

less operating expenses required to generate that income; if a residual amount existing, then the land

is being put to a productive use. As will be indicated in the income capitalization approach, the subject is producing a positive net cash flow and continued utilization of the improvements for retail

purposes is considered financially feasible.

Maximum Profitability

The maximally profitable use of the subject as improved should conform to neighborhood trends and

be consistent with existing land uses. Although several uses may generate sufficient revenue to satisfy the required rate of return on investment and provide a return on the land, the single use that

produces the highest price or value is typically the highest and best use. As shown in the applicable

valuation sections, buildings that are similar to the subject have been acquired or continue to be used by retail owners/tenants. None of the comparable buildings have been acquired for conversion to an



38

alternative use. These comparables would indicate that the maximally productive use of the property is

consistent with the existing use as a retail property.

CONCLUSION: HIGHEST AND BEST USE AS IMPROVED

Based on the foregoing, the highest and best use of the property, as improved, is consistent with the

proposed use, as a build to suit, single tenant retail development.


BORDERS BOOKS APPRAISAL METHODOLOGY

39

APPRAISAL METHODOLOGY

In appraisal practice, an approach to value is included or omitted based on its applicability to the

property type being valued and the quality and quantity of information available.

COST APPROACH

The cost approach is based upon the proposition that the informed purchaser would pay no more for

the subject than the cost to produce a substitute property with equivalent utility. This approach is

particularly applicable when the property being appraised involves relatively new improvements that represent the highest and best use of the land, or when it is improved with relatively unique or

specialized improvements for which there exist few sales or leases of comparable properties.

SALES COMPARISON APPROACH

The sales comparison approach utilizes sales of comparable properties, adjusted for differences, to

indicate a value for the subject. Valuation is typically accomplished using physical units of comparison such as price per square foot, price per unit, price per floor, etc., or economic units of comparison

such as gross rent multiplier. Adjustments are applied to the physical units of comparison derived

from the comparable sale. The unit of comparison chosen for the subject is then used to yield a total value. Economic units of comparison are not adjusted, but rather analyzed as to relevant differences,

with the final estimate derived based on the general comparisons.

INCOME CAPITALIZATION APPROACH

The income capitalization approach reflects the subject’s income-producing capabilities. This approach is based on the assumption that value is created by the expectation of benefits to be derived

in the future. Specifically estimated is the amount an investor would be willing to pay to receive an

income stream plus reversion value from a property over a period of time. The two common

valuation techniques associated with the income capitalization approach are direct capitalization and the discounted cash flow (DCF) analysis.

METHODOLOGY APPLICABLE TO THE SUBJECT

In valuing the subject, all three approaches are applicable and have been utilized. In addition, the

replacement cost has been utilized within the analysis of insurable value.


BORDERS BOOKS LAND VALUE

40

LAND VALUE

The following map and table summarize the comparable data used in the valuation of the subject site.

A detailed description of each transaction is included in the addenda.

SUMMARY OF COMPARABLE LAND SALES

Actual Sale Adjusted Sale Size PriceNo. Property Location Type Date Proposed Use Price Price 1 (SF) Per SF

1 3338 St. Charles Avenue,New Orleans, LA

Contract Jun-07 Retail $2,800,000 $2,800,000 40,534 $69.08

2 1042 Magazine Street, NewOrleans, LA

Listing Jun-07 Unknown $798,000 $798,000 7,750 $102.97

3 1031 Canal St., New Orleans,LA

Sale May-07 Multifamily $3,400,000 $3,400,000 40,685 $83.57

Subject 3338 St. Charles Avenue,New Orleans, Louisiana

--- --- Retail --- --- 40,534 ---

1 Transaction amount adjusted for cash equivalency and/or development costs (where applicable)

Compiled by CBRE

Transaction

The sales utilized represent the best data available for comparison with the subject and were selected from the greater New Orleans area within a 5 mile radius of the subject. These sales were chosen

based upon their similar locations and physical characteristics.



41

DISCUSSION/ANALYSIS OF LAND SALES

Land Sale One

This comparable represents the subject, a 0.9305 acre site at 3338 St. Charles Avenue. The site has

an L shape with level, at street grade topography and exhibits the following frontage: St. Charles Avenue and Louisiana Avenue. At the time of the sale, the property was considered to be land value

only. The site is zoned C-2, and the proposed use is to retail. All utilities were available to the site.

The property was under contract in June 2007 for $2,800,000, or $69.08 per square foot

($3,009,135 per acre). This property is located at the southeast corner of St. Charles Avenue and Louisiana Avenue. At the time of contract, the property was improved with a funeral home that will be

demolished and a retail building leased to Borders Books will be constructed.

This is the acquisition of the subject site, thus no adjustments were required.

Land Sale Two

"This comparable represents 0.1779 acres at 1042 Magazine Street. The site has an irregular shape with level, at street grade topography and exhibits the following frontage: 68' Magazine Street, 111'

John Churchill Chase and 117' Poeyfarre Street. At the time of the sale, the property was vacant. The

site is zoned CBD-7, and the proposed use is to unknown. All utilities were available to the site. The property sold in June 2007 for $798,000, or $102.97 per square foot ($4,485,666 per acre). The

site is located directly across from the National World War II Museum expansion.

Upon comparison with the subject, this comparable was considered inferior in terms of shape and

received an upward adjustment of 5% for this characteristic due to an irregular shape. The adjustment for location was warranted due to superior visibility and traffic counts. Therefore, a

downward adjustment of -35% was judged proper for this comparable. Overall, this comparable was

deemed superior in comparison to the subject and a downward net adjustment was warranted to the sales price indicator.

Land Sale Three

This comparable represents 0.934 acres at 1031 Canal St.. The site has an irregular shape with

level, at street grade topography and exhibits the following frontage: Canal Street and Rampart Street.

At the time of the sale, the property was vacant land. The site is zoned CBD-3, and the proposed use is to multifamily. All utilities were available to the site. The property sold in May 2007 for

$3,400,000, or $83.57 per square foot ($3,640,257 per acre). This property is located at the

northeast corner of Canal Street and Rampart Street.

Upon comparison with the subject, this comparable was considered inferior in terms of shape and

received an upward adjustment of 5% for this characteristic due to an irregular shape. The



42

adjustment for location was warranted due to superior visibility and traffic counts. Therefore, a

downward adjustment of -25% was judged proper for this comparable. Overall, this comparable was deemed superior in comparison to the subject and a downward net adjustment was warranted to the

sales price indicator.

SUMMARY OF ADJUSTMENTS

Based on our comparative analysis, the following chart summarizes the adjustments warranted to each

comparable.

LAND SALES ADJUSTMENT GRID

Comparable Number 1 2 3 Subject

Transaction Type Contract Listing Sale ---

Transaction Date Jun-07 Jun-07 May-07 ---

Proposed Use Retail Unknown Multifamily Retail

Actual Sale Price $2,800,000 $798,000 $3,400,000 ---

Adjusted Sale Price 1 $2,800,000 $798,000 $3,400,000 ---

Size (Acres) 0.93 0.18 0.93 0.93

Size (SF) 40,534 7,750 40,685 40,534

Price ($ PSF) $69.08 $102.97 $83.57

Property Rights Conveyed 0% 0% 0%Financing Terms 1 0% 0% 0%

Conditions of Sale 0% 0% 0%

Market Conditions (Time) 0% 0% 0%

Subtotal $69.08 $102.97 $83.57Size 0% 0% 0%Shape 0% 5% 5%Corner 0% 0% 0%Location 0% -35% -25%

Total Other Adjustments 0% -30% -20%

Value Indication for Subject $69.08 $72.08 $66.86

1 Transaction amount adjusted for cash equivalency and/or development costs (where applicable)

Compiled by CBRE

CONCLUSION

Based on the preceding analysis, all of the comparables were considered to be representative of the

subject site, and warranted equal consideration. In conclusion, a price per square foot indication



43

towards the middle of the range was most appropriate for the subject. The following table presents

the valuation conclusion:

CONCLUDED LAND VALUE

$ PSF Subject SF Total

$66.86 x 40,534 = $2,710,103$72.08 x 40,534 = $2,921,691

Indicated Value: $2,800,000

Compiled by CBRE

The value equates to approximately $69.07 per square foot. This falls within the range of $66.86 to

$72.08 PSF indicated by the comparable sales, thereby lending support to our value conclusion.


BORDERS BOOKS COST APPROACH

44

COST APPROACH

In estimating the replacement cost new for the subject, the following methods/data sources have been

utilized (where available):

• the comparative unit method has been employed, utilizing the Marshall Valuation Service (MVS) cost guide, published by Marshall and Swift, LLC;

• the subject’s actual construction costs (where available); and • actual/budget construction cost figures available for comparable properties have been

considered.

MARSHALL VALUATION SERVICE

Direct Cost

Salient details regarding the direct costs are summarized in the Cost Approach Conclusion at the end of this section. The MVS cost estimates include the following:

1. average architect’s and engineer’s fees for plans, plan check, building permits and survey(s) to establish building line;

2. normal interest in building funds during the period of construction plus a processing fee or service charge;

3. materials, sales taxes on materials, and labor costs; 4. normal site preparation including finish grading and excavation for foundation and backfill; 5. utilities from structure to lot line figured for typical setback; 6. contractor’s overhead and profit, including job supervision, workmen’s compensation, fire

and liability insurance, unemployment insurance, equipment, temporary facilities, security, etc.;

7. site improvements (included as lump sum additions); and 8. initial tenant improvement costs are included in MVS cost estimate. However, additional

lease-up costs such as advertising, marketing and leasing commissions are not included.

Base building costs (direct costs) are adjusted to reflect the physical characteristics of the subject.

Making these adjustments, including the appropriate local and current cost multipliers, the direct building cost is indicated.

Additions

Items not included in the direct building cost estimate include parking and walks, signage,

landscaping, and miscellaneous site improvements. The cost for these items is estimated separately

using the segregated cost sections of the MVS cost guide.

Indirect Cost Items

Several indirect cost items are not included in the direct building cost figures derived through the MVS cost guide. These items include developer overhead (general and administrative costs), property

taxes, legal and insurance costs, local development fees and contingencies, lease-up and marketing



45

costs and miscellaneous costs. Research into these cost items indicates that an average property

requires an allowance of about 5% to 15% of the total direct costs.

MVS Conclusion

The concluded direct and indirect building cost estimate obtained via the MVS cost guide (Section 15, Page 22) is illustrated as follows:

MARSHALL VALUATION SERVICE COST SCHEDULE

Primary Building Type: Height per Story: 16'Effective Age: Number of Buildings: 1Quality/Condition: Gross Building Area: 24,000 SFExterior Wall: Net Rentable Area: 24,000 SFNumber of Stories: Average Floor Area: 12,000 SF

MVS Sec/Page/Class 15/22/ABuilding Component RetailComponent Sq. Ft. 24,000 SFBase Square Foot Cost $191.56

Square Foot RefinementsHeating and Cooling $0.00Sprinklers $2.50Other $0.00Other $0.00Subtotal $194.06

Height and Size RefinementsNumber of Stories Multiplier 1.00Height per Story Multiplier 1.03Floor Area Multiplier 0.95Subtotal $189.69

Cost MultipliersCurrent Cost Multiplier 1.08Local Multiplier 0.96

Final Square Foot Cost $196.67

Base Component Cost $4,720,040

Base Building Cost (via Marshall Valuation Service cost data) $4,720,040Additions

Signage, Landscaping & Misc. Site Improvements $50,000Parking/Walks $450,000Other $0

Direct Building Cost $5,220,040

Indirect Costs 15.0% of Direct Building Cost $783,006Direct and Indirect Building Cost $6,003,046Rounded $6,003,000

Compiled by CBRE

2

Retail0 YRSExcellentBrick



46

ACTUAL/BUDGET COMPARABLE CONSTRUCTION COSTS

The subject’s actual construction costs are illustrated in the following table. A detailed breakdown of

the subject’s cost estimate has been included within the addenda.

BUDGETED CONSTRUCTION COSTSComparable: SubjectName: Borders BooksSize (SF): 24,000

Cost Component

Direct Cost $4,250,182Indirect Cost $1,725,000

Total Direct, Indirect & Lease-up $5,975,182Total Adjusted Costs $5,975,182Rounded $5,975,000Cost Per SF $248.97

Compiled by CBRE

DIRECT AND INDIRECT COST CONCLUSION

The indicated direct and indirect building costs for the subject are illustrated as follows:

DIRECT AND INDIRECT COST CONCLUSION

Source Total Per SF

MVS Cost Guide $6,003,000 $250.13

Subject's Actual Costs $5,975,000 $248.97

CBRE Estimate $6,003,000 $250.13

Compiled by CBRE

The estimates derived via MVS represent replacement cost while the subject’s actual figures represent reproduction costs. The MVS cost guide was given most consideration towards a cost conclusion for

the subject with support provided by the subject’s actual construction costs.

ENTREPRENEURIAL PROFIT

Entrepreneurial profit represents the return to the developer, and is separate from contractor’s

overhead and profit. This line item, which is a subjective figure, tends to range from 5% to 15% of total direct and indirect costs for this property type, based on discussions with developers active in this

market.

ACCRUED DEPRECIATION

There are essentially three sources of accrued depreciation:

1. physical deterioration, both curable and incurable; 2. functional obsolescence, both curable and incurable; and 3. external obsolescence.



47

Physical Deterioration

The subject’s physical condition was detailed in the improvements analysis. Curable deterioration

affecting the improvements results from deferred maintenance and, if applicable, was previously

discussed. With regard to incurable deterioration, the subject improvements are considered to have deteriorated due to normal wear and tear associated with natural aging. The following chart provides

a summary of the remaining economic life.


Actual Age 0 Years

Effective Age 0 Years

MVS Expected Life 45 Years

Remaining Economic Life 45 Years

Accrued Physical Incurable Depreciation 0.0%

Compiled by CBRE

Functional Obsolescence

Based on a review of the design and layout of the improvements, no forms of curable functional obsolescence were noted. Because replacement cost considers the construction of the subject

improvements utilizing modern materials and current standards, design and layout, functional

incurable obsolescence normally is not applicable.

External Obsolescence

Based on a review of the local market and neighborhood, no forms of external obsolescence affect the subject.

COST APPROACH CONCLUSION

The value estimate is calculated as follows.



48

COST APPROACH CONCLUSION

Building Type: Height per Story: 16'Effective Age: Number of Buildings: 1Quality/Condition: Gross Building Area: 24,000 SFExterior Wall: Net Rentable Area: 24,000 SFNumber of Stories: Average Floor Area: 12,000 SF

Direct and Indirect Building Cost $6,003,000

Entrepreneurial Profit 10.0% of Total Building Cost $600,300

Replacement Cost New $6,603,300

Accrued DepreciationUnfinished Shell Space $0Incurable Physical Deterioration 0.0% $0

Functional Obsolescence $0External Obsolescence $0Total Accrued Depreciation 0.0% of Replacement Cost New $0

Depreciated Replacement Cost $6,603,300

Land Value $2,800,000Stabilized Value Indication $9,403,300Curable Physical Deterioration $0Lease-Up Discount $0Value Indication $9,403,300Rounded $9,400,000Value Per SF $391.67

Compiled by CBRE

of Replacement Cost New less Curable Physical Deterioration

2



BORDERS BOOKS INSURABLE VALUE

49

INSURABLE VALUE

As part of the client’s requested scope of work, an estimate of insurable value is provided herein.

CBRE has followed traditional appraisal standards to develop a reasonable calculation based upon industry practices and industry accepted publications such as Marshall Valuation Service. The

methodology employed is a derivation of the cost approach and is not reliable for insurable value

estimates. Actual construction costs and related estimates can vary greatly from this estimate.

The insurable value estimate presented herein is intended to reflect the value of the destructible portions of the subject, based on the replacement of physical items that are subject to loss from

hazards (excluding indestructible items such as basement excavation, foundation, site work, land value

and indirect costs). In the case of the subject, this estimate is based upon the base building costs (direct costs) as obtained via the Marshall Valuation Service handbook, with appropriate deductions.

This analysis should not be relied upon to determine proper insurance coverage as only consultants

considered experts in cost estimation and insurance underwriting are qualified to provide an insurable value. It is provided to aid the client/reader/user as part of their overall decision making process and

no representations or warranties are made by CBRE regarding the accuracy of this estimate and it is

strongly recommend that other sources be utilized to develop any estimate of insurable value.


BORDERS BOOKS INSURABLE VALUE

50

INSURABLE VALUE CONCLUSION

Building Type: Height per Story: 16'Effective Age: Number of Buildings: 1Quality/Condition: Gross Building Area: 24,000 SFExterior Wall: Net Rentable Area: 24,000 SFNumber of Stories: Average Floor Area: 12,000 SF

MVS Sec/Page/Class 0 0 0 0 15/22/ABuilding Component 0 0 0 0 RetailComponent Sq. Ft. 0 SF 0 SF 0 SF 0 SF 24,000 SFBase Square Foot Cost $0.00 $0.00 $0.00 $0.00 $191.56

Square Foot RefinementsHeating and Cooling $0.00 $0.00 $0.00 $0.00 $0.00Sprinklers $0.00 $0.00 $0.00 $0.00 $2.50Other $0.00 $0.00 $0.00 $0.00 $0.00Other $0.00 $0.00 $0.00 $0.00 $0.00Subtotal $0.00 $0.00 $0.00 $0.00 $194.06

Height and Size RefinementsNumber of Stories Multiplier 0.00 0.00 0.00 0.00 1.00Height per Story Multiplier 0.00 0.00 0.00 0.00 1.03Floor Area Multiplier 0.00 0.00 0.00 0.00 0.95Subtotal $0.00 $0.00 $0.00 $0.00 $189.69

Cost MultipliersCurrent Cost Multiplier 0.00 0.00 0.00 0.00 1.08Local Multiplier 0.00 0.00 0.00 0.00 0.96

Final Square Foot Cost $0.00 $0.00 $0.00 $0.00 $196.67Base Component Cost $0 $0 $0 $0 $4,720,040

Base Building Cost (via Marshall Valuation Service cost data) $4,720,040

Insurable Value Exclusions 10.0% of Total Building Cost ($472,004)

Insurable Value Indication $4,248,036Rounded $4,250,000Value Per SF $177.08

Compiled by CBRE

2



BORDERS BOOKS SALES COMPARISON APPROACH

51


The following map and table summarize the comparable data used in the valuation of the subject. A

detailed description of each transaction is included in the addenda.

SUMMARY OF COMPARABLE RETAIL SALES

Year NRA Actual Sale Adjusted Price NOINo. Name Type Date Built (SF) Price Sale Price 1 Per SF 1 Occ. Per SF OAR

1 Borders Books,Mission Viejo, CA

Sale Jul-06 1994 30,000 $14,281,040 $14,281,040 $476.03 100% $29.15 6.12%

2 Borders Bookstore,Philadelphia, PA

Sale Jun-06 2000 18,538 $6,160,000 $6,160,000 $332.29 100% $21.10 6.35%

3 Borders Books & Music,San Diego, CA

Sale Jan-05 2002 31,245 $13,045,000 $13,045,000 $417.51 100% $28.22 6.76%

4 Border's Books Retail Center,Metairie, LA

Sale Feb-04 1997 29,736 $9,500,000 $9,500,000 $319.48 91% $29.14 9.12%

Subj.Pro

Forma

Borders Books,New Orleans, Louisiana

--- --- 2007 24,000 --- --- --- 100% $30.28 ---

1 Transaction amount adjusted for cash equivalency and/or deferred maintenance (where applicable)

Compiled by CBRE

Transaction



52

The sales utilized represent the best data available for comparison with the subject. They were

selected from our research of comparable improved sales of similar properties throughout the United States. These sales were chosen based upon their similar tenancy, size and location.

It is noted that the appraisers researched sales of comparable single tenant retail facilities in New

Orleans and immediate surrounding area and were unable to find more than one comparable

property with which to compare the subject property. We searched Costar, Loopnet, Propertyline, and Real Capital Analytics and well as numerous triple net investors for sales. In addition, we spoke with

several brokers in the New Orleans area and were not provided with any data in the immediate area.

We were able to find sales of general retail properties in the New Orleans area but they are not considered comparable to build to suit, single tenant, triple net leased retail properties due to the

increased costs associated with these types of properties.

As a result, we expanded our search for comparable sales throughout the United States. The

following data is considered to be the best data with which to compare the subject property in this analysis.

DISCUSSION/ANALYSIS OF IMPROVED SALES

Improved Sale One

This comparable represents a 30,000-square-foot free-standing retail property and is situated on a

2.53-acre parcel at 25222 El Paseo, Mission Viejo, CA. The improvements were originally constructed in 1994 and were considered in good condition at the time of sale. The exterior walls

depict concrete block construction components. The property sold in July 2006 for $14,281,040, or

$476.03 per square foot. Existing net operating income at the time of sale was $874,552, or

$29.15 per square foot, for an overall capitalization rate of 6.12%. Occupancy at the time of sale was 100%. This represents the July 2006 sale of a 30,000-square-foot Border Books located just

west of Interstate 5 and north of Oso Parkway in the city of Mission Viejo.

The -10% downward adjustment for location reflects this comparable's superior feature with respect to its proximity to employment centers. In terms of age/condition, this comparable was judged inferior

due to its older year of construction and received an upward adjustment of 10% for this characteristic.

A downward adjustment of -10% was applied to this comparable for its superior quality of

construction attribute when compared to the subject, based upon the differences in design/appeal. Overall, this comparable was deemed superior in comparison to the subject and a downward net

adjustment was warranted to the sales price indicator.



53

Improved Sale Two

This comparable represents a 18,538-square-foot retail property and is situated on a 0.46-acre

parcel at 8625 Germantown Avenue, Philadelphia, PA. The improvements were originally

constructed in 2000 and were considered in good condition at the time of sale. The exterior walls depict masonry construction components. The property sold in June 2006 for $6,160,000, or

$332.29 per square foot. Net operating income at the time of sale was $391,152, or $21.10 per

square foot, for an overall capitalization rate of 6.35%. Occupancy at the time of sale was 100.00%. This sale was a freestanding Borders Books with good visibility and access from Germantown Avenue.

Upon comparison with the subject, this comparable was considered superior in terms of size and

received a downward adjustment of -5% for this characteristic due to its smaller square footage. In

terms of age/condition, this comparable was judged inferior due to its older year of construction and received an upward adjustment of 15% for this characteristic. An upward adjustment of 15% was

applied to this comparable for its inferior quality of construction attribute when compared to the

subject, based upon the differences in design/appeal. Overall, this comparable was deemed inferior in comparison to the subject and an upward net adjustment was warranted to the sales price

indicator.

Improved Sale Three

This comparable represents a 31,245-square-foot free-standing retail property and is situated on a

0.47-acre parcel at 668 6th Avenue, San Diego, CA. The improvements were originally constructed in 2002 and were considered in good condition at the time of sale. The exterior walls depict

stucco/concrete construction components. The property sold in January 2005 for $13,045,000, or

$417.51 per square foot. Existing net operating income at the time of sale was $881,842, or $28.22 per square foot, for an overall capitalization rate of 6.76%. Occupancy at the time of sale

was 100%. This comparable represents the January 2005 sale of a free-standing retail building

located on the southwest corner of 6th Avenue and G Street in the Gaslamp district of the city of San

Diego.

The -5% downward adjustment for location reflects this comparable's superior feature with respect to

its proximity to employment centers. In terms of age/condition, this comparable was judged inferior

due to its older year of construction and received an upward adjustment of 10% for this characteristic. Overall, this comparable was deemed inferior in comparison to the subject and an upward net

adjustment was warranted to the sales price indicator.

Improved Sale Four

This comparable represents a 29,736-square-foot big box retail property and is situated on a 1.6-

acre parcel at 3131 Veteran's Memorial Boulevard, Metairie, LA. The improvements were originally



54

constructed in 1997 and were considered in good condition at the time of sale. The exterior walls

depict concrete construction components. The property sold in February 2004 for $9,500,000, or $319.48 per square foot. Existing net operating income at the time of sale was $866,501, or

$29.14 per square foot, for an overall capitalization rate of 9.12%. Occupancy at the time of sale

was 91%. This sale involves Borders Books and two small tenants.

The upward market conditions (time) adjustment of 5% reflects the improved market conditions since the date of sale. The 10% upward adjustment for location reflects this comparable's inferior feature

with respect to inferior visibility. In terms of age/condition, this comparable was judged inferior due to

its older year of construction and received an upward adjustment of 10% for this characteristic. An upward adjustment of 5% was applied to this comparable for its inferior quality of construction

attribute when compared to the subject, based upon the differences in design/appeal. Overall, this

comparable was deemed inferior in comparison to the subject and an upward net adjustment was

warranted to the sales price indicator.

SUMMARY OF ADJUSTMENTS

Based on our comparative analysis, the following chart summarizes the adjustments warranted to each

comparable.



55

RETAIL SALES ADJUSTMENT GRID

Comparable Number 1 2 3 4Subj.Pro

FormaTransaction Type Sale Sale Sale Sale ---Transaction Date Jul-06 Jun-06 Jan-05 Feb-04 ---

Year Built 1994 2000 2002 1997 2008

GLA (SF) 30,000 18,538 31,245 29,736 24,000Actual Sale Price $14,281,040 $6,160,000 $13,045,000 $9,500,000 ---Adjusted Sale Price 1 $14,281,040 $6,160,000 $13,045,000 $9,500,000 ---Price Per SF 1 $476.03 $332.29 $417.51 $319.48 ---

Occupancy 100% 100% 100% 91% 100%

NOI Per SF $29.15 $21.10 $28.22 $29.14 $30.28

OAR 6.12% 6.35% 6.76% 9.12% ---

Adj. Price Per SF $476.03 $332.29 $417.51 $319.48

Property Rights Conveyed 0% 0% 0% 0%Financing Terms 1 0% 0% 0% 0%

Conditions of Sale 0% 0% 0% 0%

Market Conditions (Time) 0% 0% 0% 5%

Subtotal - Price Per SF $476.03 $332.29 $417.51 $335.45

Location -10% 0% -5% 10%

Size 0% -5% 0% 0%

Age/Condition 10% 15% 10% 10%

Quality of Construction -10% 15% 0% 5%

Tenancy 0% 0% 0% 0%

Total Other Adjustments -10% 25% 5% 25%

Indicated Value Per SF $428.43 $415.36 $438.39 $419.32

1 Transaction amount adjusted for cash equivalency and/or deferred maintenance (where applicable)

Compiled by CBRE

SALE PRICE PER SQUARE FOOT CONCLUSION

Overall, all of the comparable sales were given equal weight in this analysis. The following chart

presents the valuation conclusion:



56


NRA (SF) X Value Per SF = Value

24,000 X $415.32 = $9,967,680

24,000 X $438.39 = $10,521,360

VALUE CONCLUSION

Indicated Stabilized Value $10,245,000

Deferred Maintenance $0

Lease-Up Discount $0

Value Indication $10,245,000

Rounded $10,245,000

Value Per SF $426.88

Compiled by CBRE

NET OPERATING INCOME ANALYSIS

As a cross check to the foregoing analysis, the net operating income (NOI) being generated by the comparable sales as compared to the subject’s pro forma NOI estimated in the following income

capitalization approach has been analyzed. In general, it is a fundamental assumption that the

physical characteristics of a property (e.g., location, access, design/ appeal, condition, etc.) are

reflected in the net operating income being generated, and the resultant price per square foot paid for a property has a direct relationship to the NOI being generated.

The following NOI analysis chart illustrates the sale prices (after adjustments for conditions of sale and

market conditions) of the individual sales plotted in comparison to their NOIs. In addition, a trend line has been plotted based on a linear regression analysis of the comparables. The subject’s

indicated value has been plotted along this trend line at its pro forma stabilized NOI.



57

NET OPERATING INCOME ANALYSIS

Compiled by CBRE

$416.54

$315.00

$335.00

$355.00

$375.00

$395.00

$415.00

$435.00

$455.00

$475.00

$21.00 $23.00 $25.00 $27.00 $29.00NOI Per SF

Pric

e Pe

r SF

Comparable Sales

Subject Indication

Trendline


BORDERS BOOKS INCOME CAPITALIZATION APPROACH

58

INCOME CAPITALIZATION APPROACH

The following map and table summarize the comparable data used in the valuation of the subject. A

detailed description of each transaction is included in the addenda.

SUMMARY OF COMPARABLE RETAIL RENTALS

Comp. No. Property Name Location

Year Built Occ. NRA (SF)

QuotedRental Rate

Expense Basis

1 1997 100% 29,736 $29.35 PSF Triple net

2 2004 100% 22,000 $19.00 PSF NNN

3 1999 100% 20,000 $23.30 PSF NNN

4 2001 100% 27,000 $22.75 PSF Triple Net

Subj.Pro

Forma

Borders Books 3338 St. Charles Avenue,New Orleans, Louisiana

2007 100% 24,000 --- ---

Compiled by CBRE

2121 N. Federal Hwy,Ft. Lauderdale, FL

Barnes & Noble

2130 Haines Avenue,Rapid City, SD

3600 McKinney Avenue,Dallas, TX

Borders Books at City Place

Borders Books 3131 Veterans Memorial Blvd,Metairie, LA

Borders



59

The rentals utilized represent the best data available for comparison with the subject. They were

selected based upon their similarities with regards to tenancy, construction quality and location.

DISCUSSION/ANALYSIS OF RENT COMPARABLES

Rent Comparable One

"This comparable represents a 29,736-square-foot Borders Books at 3131 Veterans Memorial Blvd,

Metairie, LA. The improvements were originally constructed in 1997 and were considered in good

condition at the time of our research. The structure's exterior walls depict masonry construction

components. According to a representative for this property, actual base rent is $29.35 per square foot annually, based upon a typical lease term of 20 yrs. Expenses are based upon a Triple net

structure. The property is currently 100% leased. This property is located at 3131 Veterans Memorial

in Metairie and also includes two strip retail spaces of 2,593 SF and 1,893 SF.

In comparison to the subject, this property was generally similar with respect to construction quality

and pro forma income characteristics, while it was inferior with respect to location, condition, design

appeal, and size. This property was inferior to the subject with respect to age. Overall, this

comparable was slightly inferior in comparison to the subject and an upward adjustment was warranted to its quoted rental rates.

Rent Comparable Two

This comparable represents a 22,000-square-foot Borders Books at 3600 McKinney Avenue, Dallas,

TX. The improvements were originally constructed in 2004 and were considered in good condition at

the time of our research. The structure's exterior walls depict brick/stone construction components. According to a representative for this property, actual base rent is $19.00 per square foot annually,

based upon a typical lease term of 15. Expenses are based upon a triple net structure. The property

is currently 100% leased. This space is located within the City Place Shopping center at the intersection of McKinney Avenue and Lemmon Avenue. The building also has a 4,500 SF Chase

bank paying $40.00 per square foot. The total building square footage is 26,500 square feet.

In comparison to the subject, this property was generally similar with respect to location, size, and age

while it was inferior with respect to quality of construction and design/appeal. Overall, this comparable was inferior in comparison to the subject and an upward adjustment was warranted to its

quoted rental rates.

Rent Comparable Three

This comparable represents a 20,000-square-foot free-standing Borders Books located at 2130 Haines Avenue, Rapid City, SD. The improvements were originally constructed in 1999 and were

considered in excellent condition at the time of our research. The structure's exterior walls depict



60

cmu/efis construction components. According to a representative for this property, actual base rent is

$23.30 per square foot annually, based upon a typical lease term of 15 yrs. Expenses are based upon a triple net structure. The property is currently 100% leased. This is a 20,000-square-foot

freestanding big-box retail building located at an interstate/off-ramp (corner) location. It was built in

1999 and is situated on a 2.810-acre site.

In comparison to the subject, this property was generally similar with respect to location, construction quality and size while it was inferior with respect to age/condition and pro forma income

characteristics. Overall, this comparable was inferior in comparison to the subject and an upward

adjustment was warranted to its quoted rental rates.

.Rent Comparable Four

This comparable represents a 27,000-square-foot free-standing Barnes & Noble located at 2121 N. Federal Hwy, Ft. Lauderdale, FL. The improvements were originally constructed in 2001 and were

considered in good condition at the time of our research. The structure's exterior walls depict stucco

over concrete construction components. According to a representative for this property, actual base

rent is $22.75 per square foot annually, based upon a typical lease term of 15 yrs. Expenses are based upon a Triple Net structure. The property is currently 100% leased. The 27,000 square foot,

two story free-standing Barnes & Noble is located on the west side of Federal Highway between

Oakland Park Blvd. and Sunrise Blvd. 15 year term.

In comparison to the subject, this property was generally similar with respect to construction quality,

design/appeal and size but inferior with respect to location, age/condition and pro forma income

characteristics. Overall, this comparable was inferior in comparison to the subject and an upward

adjustment was warranted to its quoted rental rates

SUBJECT RENTAL INFORMATION

The following table depicts the subject’s lease structure according to the Lease Agreement dated April

19, 2007.



61

LEASE ABSTRACT - BORDERS BOOKS

Lessor Stirling Forterra, LLCLessee Borders, Inc.

Guarantor None

Building Size (SF) 24,000

Lease Date April 19, 2007

Lease Commence Date May 1, 2008

Expiration Date (Base Lease) April 30, 2023

Lease Term (Base Lease) 180 Months

Remaining Lease Term (Base Lease) 180 Months

No. & Term of Options 5 options @ 5 years

Expiration Date (Base + All Options) 4/30/2048

Remaining Lease Term (Base + All Options) 480 Months

Assignment/Subletting Allowed

Termination Clause No

Contract Rental Rate $/SF/Yr. Total $/Yr.

Years 1-5 $30.04 $721,000

Years 6-10 $31.00 $744,000

Years 11-15 $31.96 $767,000

Average Over Initial Term of Lease $31.00 $744,000

Lessor Expenses Structural

Lessee Expenses Taxes, Insurance, CAM

Expense Cap None

% Rent Clause: Yes

Source: Lease

RENT BASED ON A PERCENTAGE RETURN ON COST

The rental rate is a direct function of construction costs (inclusive of the site acquisition), which is typical in the market for this type of property. This method is typically used to estimate rental rates in

build-to-suit lease transactions. The return is based on alternative investments available to the typical

investor. An appropriate return for a development of this type, based on discussions with developers,

is estimated at 7.75 %. The following table illustrates the estimated rent based on development costs:



62

RENT BASED ON CONSTRUCTION COSTS

Physically Depreciated Replacement Cost (Rounded) $9,095,000

Market Return x 7.75%

Gross Operating Income Requirement $704,863

Building Square Footage / 24,000

Annual Rent/Sq. Ft. $29.37

Compiled by CBRE

The indicated rate is slightly below the current lease rate ($30.04 PSF). It is reasonable to conclude

that a higher rate would be justified based on fewer quality sites and on the demand for investment

properties such as the subject. In addition, the subject’s rent level appears to be at a reasonable level relative to providing an appropriate return relative to the estimated construction costs.

MARKET RENT CONCLUSION

All of the comparables used for this analysis were similar build to suit buildings occupied by tenants

similar to the subject. Only minor differences between the subject and the comparables were noted. Therefore, it is our opinion that the subject’s market rent should be towards the upper end of the

range established by the comparables, i.e. from $19.00 PSF to $29.35 PSF.

Based on the foregoing analysis and discussion, the following chart depicts the market rent

conclusions for the subject:

MARKET RENT CONCLUSIONS

Category

GLA (SF) 24,000

Percent of Total SF 100.0%

Market Rent ($/SF/Yr.) $30.00

Concessions None

Reimbursements NNN

Escalations Yes

Average Lease Term 15 Years

Compiled by CBRE

Retail Space

It is noted that the current market rent has been estimated at $30.00 PSF, however, in the Direct

Capitalization Approach, the appraisers have employed the average rental rate over the 15-year lease term which is approximately $31.00 PSF.

POTENTIAL RENTAL INCOME CONCLUSION

Within this analysis, potential rental income is estimated based upon the actual income in-place over

the next twelve months. This method of calculating rental income is most prevalent in the local market



63

and is consistent with the method used to derive overall capitalization rates from the comparable sales

data.

VACANCY

The stabilized vacancy estimate accounts for the anticipated down time between leases in the event of

non-renewal. However, the subject is encumbered by a long-term lease with multiple renewal options

to a credit-worthy tenant. Therefore, the typical vacancy and collection loss does not apply in this

analysis. Any perceived vacancy and/or tenant credit risk is accounted for in the selection of the overall capitalization rate. The subject’s vacancy is detailed as follows:

VACANCY

Year % PGI

Current 0%

CBRE Estimate 0%

Compiled by CBRE

CREDIT LOSS

The credit loss estimate is an allowance for nonpayment of rent or other income. The subject’s credit

loss is detailed as follows:

CREDIT LOSS

Year % PGI

CBRE Estimate 0.0%

Compiled by CBRE

EXPENSE REIMBURSEMENTS

The subject’s lease is based on a triple net structure whereby the tenant reimburses the owner for a

pro rata share of common area maintenance, real estate taxes, and property insurance. The subject’s

expense reimbursements are detailed as follows:

Year Total $/SF

CBRE Estimate $0 $0.00

Compiled by CBRE



64

EFFECTIVE GROSS INCOME

The subject’s effective gross income is detailed as follows:

EFFECTIVE GROSS INCOME

Year Total % Change

CBRE Estimate $744,000 N/A

Compiled by CBRE

OPERATING EXPENSE ANALYSIS

Expense Comparables

The following chart summarizes expenses obtained from recognized industry publications and/or

comparable properties.

EXPENSE COMPARABLES

Comparable Number 1 2 IREM

Expense Year 2005 2005 2005

Administrative & General 0.28 0.36 0.33

Management Fee 0.21 0.38 0.35

Reserves for Replacement 0.10 0.10 0.15

Operating Expenses $0.59 $0.84 $0.83 *

* The median total differs from the sum of the individual amounts.

Source: Operating Statements & IREM

The following subsections represent the analysis for the pro forma estimate of each category of the

subject’s stabilized expenses.

Administrative and General

Administrative and General expenses typically include administrative expenses such as legal costs

pertaining to the operation of the building, telephone, supplies, furniture, temporary help, etc. The

subject’s expense is detailed as follows:



65

ADMINISTRATIVE & GENERAL

Year Total $/SF

Expense Comparable 1 N/A $0.28


IREM N/A $0.33

CBRE Estimate $7,440 $0.31

Compiled by CBRE

Our estimate is consistent with other properties operating in the area and generally supported by the data.

Management Fee

Management expenses are typically negotiated as a percentage of collected revenues (i.e., effective

gross income). The subject’s expense is detailed as follows:

MANAGEMENT FEE

Year Total % EGI

CBRE Estimate $7,440 1.0%

Compiled by CBRE

Professional management fees in the local market range from 1.0% to 3.0% for comparable

properties. Given the subject’s single tenant occupancy, we believe an appropriate management expense for the subject would be at the lower end of the range.

Reserves for Replacement

Reserves for replacement have been estimated based on discussions with knowledgeable market

participants who indicate a range from $0.05 to $0.15 per square foot for comparable properties.

The subject’s expense is detailed as follows:

RESERVES FOR REPLACEMENT

Year Total $/SF



IREM N/A $0.15


Compiled by CBRE



66

OPERATING EXPENSE CONCLUSION

The subject’s expense is detailed as follows:

OPERATING EXPENSES

Year Total $/SF



IREM N/A $0.83


Compiled by CBRE

The subject’s per square foot operating expense pro forma is above the total per square foot

operating expenses indicated by the expense comparables and published data as a result of the

higher real estate taxes estimated for the subject property.

NET OPERATING INCOME CONCLUSION

The subject’s net operating income is detailed as follows:

NET OPERATING INCOME

Year Total $/SF


Compiled by CBRE

DIRECT CAPITALIZATION

Direct capitalization is a method used to convert a single year’s estimated stabilized net operating

income into a value indication. The following subsections represent different techniques for deriving

an overall capitalization rate for direct capitalization.

Comparable Sales

The overall capitalization rates (OARs) confirmed for the comparable sales analyzed in the sales comparison approach are as follows:



67

COMPARABLE CAPITALIZATION RATES

Sale Sale Price

Sale Date $/SF Occupancy OAR

1 Jul-06 $476.03 100% 6.12%

2 Jun-06 $332.29 100% 6.35%

3 Jan-05 $417.51 100% 6.76%

4 Feb-04 $319.48 91% 9.12%

Indicated OAR: 100% 6.75%

Compiled by: CBRE

The overall capitalization rates for these sales were derived based upon the actual or pro-forma income characteristics of the property. Sale Nos. 1 and 2 transpired within the past twelve months,

while Sale Nos. Three and Four represent slightly older transaction dates. Sale No. 4 is included only

as it represents a New Orleans area sale. It is specifically noted that it is a pre-Katrina sale and is not

a single tenant facility, as is the subject. The appraisers have also considered sales of other Borders’ Books located throughout the United States as well as sales of single tenant retail buildings located

throughout Louisiana. These are summarized on the following pages.



68

Borders Books Sales



69

LA Single Tenant Sales



70

Overall, an OAR in the lower portion of the range indicated by the comparables is considered

appropriate for the following reasons:

Positive Attributes

• Upon completion, the subject will be 100% occupied on a long term lease to a creditworthy, single tenant;

• The subject will be completed in 2008, rendering it one of the newest developments in the area; and,

• There are no known new projects scheduled for the subject’s market area that will add to the current supply of similar space and directly compete with the subject property.

Published Investor Surveys

The results of the most recent Korpacz Real Estate Investor Survey are summarized in the following chart.

OVERALL CAPITALIZATION RATES

Investment Type OAR Range Average

National Regional Mall Market 5.00% - 9.50% 6.89%

National Power Center Market 5.50% - 9.00% 7.28%

National Strip Shopping Center Market 5.80% - 9.00% 7.38%

National Net Lease Market 6.00% - 10.00% 7.65%

Indicated OAR: 6.75%

Korpacz Real Estate Investor Survey

The subject is considered to be a Class A property. Because of the subject’s location and age, an OAR near the middle of the range indicated in the preceding table is considered appropriate.

Band of Investment

The band of the investment technique has been utilized as a crosscheck to the foregoing techniques.

The analysis is shown in the following table.



71

BAND OF INVESTMENTMortgage Interest Rate 5.75%

Mortgage Term (Amortization Period) 30 Years

Mortgage Ratio (Loan-to-Value) 80%

Mortgage Constant 0.07003

Equity Dividend Rate (EDR) 7%

Mortgage Requirement 80% x 0.07003 = 0.05602

Equity Requirement 20% x 0.07000 = 0.01400

100% 0.07002

Indicated OAR: 7.00%

Compiled by: CBRE

Capitalization Rate Conclusion

The following chart summarizes the OAR conclusions.

OVERALL CAPITALIZATION RATE - CONCLUSION

Source Indicated OAR

Comparable Sales 6.75%

National Investor Survey 6.75%

Band of Investment 7.00%

CBRE Estimate 6.75%

Compiled by: CBRE

In concluding an overall capitalization rate for the subject, primary reliance has been placed upon the data obtained from the comparable sales. This data tends to provide the most accurate depiction of

both buyer’s and seller’s expectations within the market and the ranges indicated are relatively tight.

Further secondary support for our conclusion is noted via both the Korpacz Real Estate Investor Survey

and the band of investment methodology. Considering the data presented, the concluded overall capitalization rate appears to be well supported in the local market.

Direct Capitalization Summary

A summary of the direct capitalization at stabilized occupancy is illustrated in the following chart.



72

DIRECT CAPITALIZATION SUMMARY

Income $/SF/Yr Total Potential Rental Income $31.00 $744,000Credit Loss 0.00% 0.00 - Vacancy 0.00% 0.00 -

Effective Gross Income $31.00 $744,000

ExpensesAdministrative & General 0.31 7,440 Management Fee 1.00% 0.31 7,440 Reserves for Replacement 0.10 2,400

Operating Expenses $0.72 $17,280

Operating Expense Ratio 2.32%

Net Operating Income $30.28 $726,720

OAR / 6.75%


Rounded $10,770,000

Deferred Maintenance -

Lease-Up Discount -


Rounded $10,770,000


Matrix Analysis Cap Rate Value

6.50% $11,180,300

6.75% $10,766,200

7.00% $10,381,700

Compiled by CBRE

DISCOUNTED CASH FLOW ANALYSIS (DCF)

The DCF assumptions concluded for the subject are summarized as follows:



73

SUMMARY OF DISCOUNTED CASH FLOW ASSUMPTIONS

General Assumptions

Start Date May-08Terms of Analysis 16 YearsSoftware ARGUS

Growth Rate Assumptions

Income Growth 3.00%Expense Growth 3.00%Inflation (CPI) 3.00%Real Estate Tax Growth 3.00%

Market Leasing Assumptions

Category Retail Space

Market Rent ($/SF/Yr.) $30.00Concessions NoneReimbursements NNNEscalations YesTenant Improvements (New Tenants) $10.00Tenant Improvements (Renewals) $5.00Average Lease Term 15 YearsRenewal Probability 85%Leasing Commissions (Cashed-Out)

New Leases 4.0%Renewal Leases 2.0%

Down Time Before New Tenant Leases 6 Months

Occupancy Assumptions

Total Operating Expenses ($/SF/Yr.) $0.72Current Occupancy 100.00%Credit Loss 0.00%

Financial Assumptions

Discount Rate 8.00%Terminal Capitalization Rate 7.00%

Other Assumptions

Cost of Sale 2.00%Capital Expenses (Deferred Maintenance) $0

Compiled by CBRE

Provided on the following pages is a discussion of the leasing assumptions used in the discounted cash flow analysis that were not analyzed in the direct capitalization approach.



74

General Assumptions

The DCF analysis utilizes a 16-year projection period since the existing lease is for 15 years. This is

consistent with current investor assumptions.

Growth Rate Assumptions

The inflation and growth rates for the DCF analysis have been estimated by analyzing the expectations typically used by buyers and sellers in the local marketplace. Published investor surveys and an

analysis of the Consumer Price Index (CPI) form the foundation for the selection of the appropriate

growth rates. The compilation is shown in the following chart.

SUMMARY OF GROWTH RATESInvestment Type Rent Expenses Inflation

U.S. Bureau of Labor Statistics (CPI-U)10-Year Snapshot Average as of Jun-07 2.66%

National Regional Mall Market 2.94% 3.00% N/A

National Power Center Market 3.07% 3.00% N/A

National Strip Shopping Center Market 2.81% 3.10% N/A

National Net Lease Market 2.69% 2.44% N/A

CBRE Estimate 3.00% 3.00% 3.00%

Source: Korpacz Real Estate Investor Surveywww.bls.gov

Leasing Assumptions

The contract lease terms for the existing tenants are utilized within the DCF analysis, with market

leasing assumptions applied for renewals and absorption. The previously concluded pro forma

income and expenses have been utilized as the basis for market leasing projected in Year 1 of the holding period. All subsequent years vary according to the growth rate assumptions applied to the

Year 1 estimate.

Leasing Commissions

The following table presents the leasing commissions quoted for the subject, those prevalent in the

market as derived through the comparable properties, and our pro forma estimate:



75

LEASING COMMISSIONS

Category

Subject's Quoted Terms

New Tenants 4.0%

Renewals 2.0%

Rent Comparable Data

New Tenants 4.0%

Renewals 2.0%

CBRE Estimate

New Tenants 4.0%

Renewals 2.0%

Compiled by CBRE

Retail Space

Renewal Probability

The renewal probability incorporated within the market leasing assumptions has been estimated at 85%. This rate is considered reasonable based on the rent comparable data, a survey of market

participants, and our analysis of actual leasing activity at the subject.

Downtime Between Leases

The downtime estimate at lease rollover incorporated within the market leasing assumptions has been

estimated at 6 months. This rate is considered reasonable based on the rent comparable data, a survey of market participants, and our analysis of actual leasing activity at the subject.

Occupancy Assumptions

The occupancy rate over the holding period is based on the subject’s estimated stabilized occupancy

rate and estimated lease-up period to achieve a stabilized occupancy position.

Vacancy, Credit Loss and Absorption

Please refer to the market analysis of this report for a detailed discussion of these elements.

Financial Assumptions

Discount Rate Analysis

The results of the most recent Korpacz Real Estate Investor Survey, published by Price Waterhouse Coopers (First Quarter 2007) , are summarized in the following chart.



76

DISCOUNT RATES

Investment Type Rate Range AverageNational Regional Mall Market 7.00% - 11.00% 8.64%




CBRE Estimate 8.00%

Korpacz Real Estate Investor Survey

The subject is considered to be a Class A property. A discount rate near the middle of the range

indicated in the preceding table is considered appropriate.

Terminal Capitalization Rate

The reversionary value of the subject is based on an assumed sale at the end of the holding period based on capitalizing the Year 16 NOI at a terminal capitalization rate. Typically, for properties

similar to the subject, terminal capitalization rates are 50 to 100 basis points higher than going-in

capitalization rates (OARs). This is a result of the uncertainty of future economic conditions and the

natural aging of the property. For the subject, we have concluded a load factor of 50 basis points to be appropriate.

TERMINAL CAPITALIZATION RATES

Investment Type Rate Range Average

National Regional Mall Market 6.25% - 10.00% 7.79%




CBRE Estimate 7.00%

Source: Korpacz Real Estate Investor Survey

Discounted Cash Flow Conclusion

The DCF schedule(s) and value conclusions are depicted on the following page(s).


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pr-2

021

A

pr-2

022

A

pr-2

023

A

pr-2

024

A

pr-2

025

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

Pote

ntia

l Gro

ss R

even

ue

Ba

se R

enta

l Rev

enue

$721,0

00

$721,0

00

$721,0

00

$721,0

00

$721,0

00

$744,0

00

$744,0

00

$744,0

00

$744,0

00

$744,0

00

$767,0

00

$767,0

00

$767,0

00

$767,0

00

$767,0

00

$1,0

89,0

64

$1,0

89,0

65

A

bsor

ptio

n &

Tur

nove

r V

acan

cy

-90,7

55

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

Sc

hedu

led

Base

Ren

tal R

even

ue

$721,0

00

$721,0

00

$721,0

00

$721,0

00

$721,0

00

$744,0

00

$744,0

00

$744,0

00

$744,0

00

$744,0

00

$767,0

00

767,0

00767,0

00

767,0

00

767,0

00

998,3

09

1,0

89,0

65

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

Tota

l Pot

entia

l Gro

ss R

even

ue

721,0

00

721,0

00

721,0

00

721,0

00

721,0

00

744,0

00

744,0

00

744,0

00

744,0

00

744,0

00

767,0

00

767,0

00

767,0

00

767,

000

767,0

00

998,3

09

1,0

89,0

65

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

Effe

ctiv

e G

ross

Rev

enue

721,0

00

721,0

00

721,0

00

721,0

00

721,0

00

744,0

00

744,0

00

744,0

00

744,0

00

744,0

00

767,0

00

767,0

00

767,0

00

767,

000

767,0

00

998,3

09

1,0

89,0

65

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

Ope

ratin

g Ex

pens

es

A

dmin

istr

ativ

e &

Gen

eral

7,4

40

7,6

63

7,8

93

8,1

30

8,3

74

8,6

25

8,8

84

9,1

50

9,4

25

9,7

08

9,9

99

10,2

99

10,6

08

10,9

26

11,2

54

11,2

54

11,2

54

M

anag

emen

t

7,2

10

7,2

10

7,2

10

7,2

10

7,2

10

7,4

40

7,4

40

7,4

40

7,4

40

7,4

40

7,6

70

7,6

70

7,6

70

7,6

70

7,6

70

9,9

83

10,8

91

Re

serv

es

2,4

00

2,4

00

2,4

00

2,4

00

2,4

00

2,4

00

2,4

00

2,4

00

2,4

00

2,4

00

2,4

00

2,4

00

2,4

00

2,4

00

2,4

00

2,4

00

2,4

00

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

Tota

l Ope

ratin

g Ex

pens

es

17,0

50

17,2

73

17,5

03

17,7

40

17,9

84

18,4

65

18,7

24

18,9

90

19,2

65

19,5

48

20,0

69

20,3

69

20,6

78

20,9

96

21,3

24

23,6

37

24,5

45

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

Net

Ope

ratin

g In

com

e

703,9

50

703,7

27

703,4

97

703,2

60

703,0

16

725,5

35

725,2

76

725,0

10

724,7

35

724,4

52

746,9

31

746,6

31

746,3

22

746,

004

745,6

76

974,6

72

1,0

64,5

20

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

Leas

ing

& C

apita

l Cos

ts

Te

nant

Impr

ovem

ents

208,7

37

Le

asin

g C

omm

issi

ons

$375,7

27

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

Tota

l Lea

sing

& C

apita

l Cos

ts

584,4

64

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

___

____

___

Cas

h Fl

ow B

efor

e D

ebt

Serv

ice

703,9

50

703,7

27

703,4

97

703,2

60

703,0

16

725,5

35

725,2

76

725,0

10

724,7

35

724,4

52

746,9

31

746,6

31

746,3

22

746,

004

745,6

76

390,2

08

$1,0

64,5

20

& T

axes

==

==

==

==

==

==

==

==

==

==

==

==

==

==

==

==

==

==

==

==

=

==

==

==

==

= =

==

==

==

==

= =

==

==

==

==

==

==

==

==

==

==

==

==

==

==

==

==

==

==

==

===

==

==

==

==

==

==

==

==

==

==

==

==

==

==

==

==

==

==

==

==

==

==

==

==

==

==

==

==

==

=

==

==

==

==

= IM

PLIE

D O

VER

ALL

RA

TE6.6

3%

6.6

2%

6.6

2%

6.6

2%

6.6

2%

6.8

3%

6.8

3%

6.8

2%

6.8

2%

6.8

2%

7.0

3%

7.0

3%

7.0

2%

7.0

2%

7.0

2%

9.1

7%

CA

SH O

N C

ASH

RET

URN

6.6

3%

6.6

2%

6.6

2%

6.6

2%

6.6

2%

6.8

3%

6.8

3%

6.8

2%

6.8

2%

6.8

2%

7.0

3%

7.0

3%

7.0

2%

7.0

2%

7.0

2%

3.6

7%

Sa

le /

Yie

ldTe

rmin

al C

apita

lizat

ion

Rate

Dis

coun

t Ra

te6.7

5%

7.0

0%

7.2

5%

7.7

5%

$11,0

55,8

43

$10,8

88,6

41

$10,7

32,9

70

8.0

0%

$10,7

84,6

43

$10,6

23,5

27

$10,4

73,5

23

8.2

5%

$10,5

22,4

64

$10,3

67,1

99

$10,2

22,6

43

C

ost

of S

ale

at R

ever

sion

:2.0

0%

Build

ing

Size

(SF

):24,0

00

Pe

rcen

t Re

sidu

al:

40.9

% R

eco

nci

led

Va

lue I

nd

ica

tion

(R

ou

nd

ed

):$10,6

24,0

00

Va

lue P

er

Squ

are

Foot:

$442.6

7

NO

I a

nd

Ca

sh F

low

Tre

nd

0

20

0,0

00

40

0,0

00

60

0,0

00

80

0,0

00

1,0

00

,00

0

1,2

00

,00

0

12

34

56

78

91

01

11

21

31

41

51

6Ye

ar

Total $'s

Net

Ope

ratin

g In

com

e

Net

Cas

h Fl

ow



78

CONCLUSION OF INCOME CAPITALIZATION APPROACH

The conclusion via the valuation method employed for this approach is as follows:

INCOME CAPITALIZATION APPROACH VALUESAs Complete &

StabilizedMay 1, 2008

Direct Capitalization Method $10,770,000

Discounted Cash Flow Analysis $10,625,000

Reconciled Value $10,700,000

Compiled by CBRE



79

“GO DARK” ANALYSIS

At the client’s request, we have estimated the fee simple value of the subject property. The fee simple

analysis assumes the subject property to be vacant and available for lease, and is often referred to as a “go dark” analysis. As the subject is currently encumbered by a long-term lease to a credit tenant,

this analysis involves hypothetical assumptions.

DIRECT CAPITALIZATION

CBRE has conducted the fee simple valuation by utilizing alternative direct capitalization assumptions to value the subject property and applied appropriate lease-up discounts. These market derived

assumptions reflect the availability of the subject property on the open market as if it were currently

vacant. The following steps were taken where necessary:

1. Estimate appropriate market rent; 2. estimate applicable stabilized vacancy & collection loss factors; 3. adjust expenses estimates if necessary; 4. adjust OAR due to risk for alternative tenancy; 5. estimate an appropriate period to lease-up the improvements; 6. provide an allowance for leasing commissions; 7. provide an allowance for tenant improvement/retrofit costs; 8. estimate developers profit;

Based on an analysis in an earlier section of the Income Approach, we concluded a market rental rate. For our vacancy and credit allowance, we have concluded a market rate of 10% based on

vacancy rates for comparable properties, which averaged approximately 100%, and the overall

occupancy level for the subject’s submarket at about 91.5%. Expenses are not anticipated to differ

significantly due to the single-tenant retail design of the improvements. Lastly, an overall capitalization rate of 9.0% was selected. This appears reasonable as the credit and lease term of the prospective

tenant are unknown, which increases the risk to the developer/investor. Our concluded rate is further

supported through the published survey data presented earlier and our conversations with local market participants. A Direct Capitalization Summary – Fee Simple Analysis is illustrated in the

following table:



80

DIRECT CAPITALIZATION SUMMARY - FEE SIMPLE ESTATE

Income $/SF/Yr Total Potential Rental Income $31.00 $744,000Credit Loss 1.00% (0.31) (7,440) Vacancy 9.00% (2.79) (66,960)

Effective Gross Income $27.90 $669,600

ExpensesAdministrative & General 0.31 7,440 Management Fee 1.00% 0.28 6,696 Reserves for Replacement 0.10 2,400

Operating Expenses $0.69 $16,536

Operating Expense Ratio 2.47%

Net Operating Income $27.21 $653,064

OAR / 9.00%


Rounded $7,260,000

Deferred Maintenance -

Lease-Up Discount -


Rounded $7,260,000


Matrix Analysis Cap Rate Value

8.75% $7,463,600

9.00% $7,256,300

9.25% $7,060,200

Compiled by CBRE



81

Go Dark Value is equal to our conclusion of fee simple stabilized market value less adjustments for

the costs associated with lost revenue (rent loss), leasing commissions, and other expenses during the marketing period (including operating expenses, TI Allowances, and sales expenses). Our calculation

follows.

Fee Simple Value (Stabilized) $7,260,000

Estimated Downtime 9 Months

Rent Loss from Downtime $669,600 x 75.00% 502,200

Variable Operating Expense Credit @ 30% ($16,536 x x 75.0%) (12,402)

Leasing Commissions (@ 4.0%, 10 Yr. Term) 297,600

Tenant Improvement Allowance 240,000

Sub-Total 1,027,398

Indicated "Go Dark" Value $6,232,602

Rounded $6,250,000

Compiled by CBRE

"GO DARK" ANALYSIS SUMMARY


BORDERS BOOKS RECONCILIATION OF VALUE

82

RECONCILIATION OF VALUE

The value indications from the approaches to value are summarized as follows:

SUMMARY OF VALUE CONCLUSIONSAs Complete & Stabilized on

May 1, 2008

Cost Approach $9,400,000

Sales Comparison Approach $10,245,000

Income Capitalization Approach $10,700,000

Reconciled Value $10,400,000

Compiled by CBRE

The cost approach typically gives a reliable value indication when there is strong support for the

replacement cost estimate and when there is minimal depreciation. Considering the limited amount

of depreciation present in the property, the reliability of the cost approach is considered good.

Therefore, the cost approach is considered applicable to the subject and is used primarily as a test of reasonableness against the other valuation techniques.

In the sales comparison approach, the subject is compared to similar properties that have been sold

recently or for which listing prices or offers are known. The sales used in this analysis are considered highly comparable to the subject, and the required adjustments were based on reasonable and well-

supported rationale. In addition, market participants are currently analyzing purchase prices on

investment properties as they relate to available substitutes in the market. Therefore, the sales

comparison approach is considered to provide a reliable value indication, but has been given secondary emphasis in the final value reconciliation.

The income capitalization approach is applicable to the subject since it is an income producing

property leased in the open market. Market participants are primarily analyzing properties based on their income generating capability. Therefore, the income capitalization approach is considered a

reasonable and substantiated value indicator and has been given primary emphasis in the final value

estimate.

Based on the foregoing, the market value of the subject has been concluded as follows. It is noted that the As Is market value is land value:


BORDERS BOOKS RECONCILIATION OF VALUE

83

MARKET VALUE CONCLUSION

Appraisal Premise Interest Appraised Date of Value Value Conclusion

As Is Fee Simple Estate July 12, 2007 $2,800,000

As Complete & Stabilized Leased Fee Interest May 1, 2008 $10,400,000

As Complete & Stabilized Fee Simple Estate May 1, 2008 $6,250,000

Compiled by CBRE

EXTRAORDINARY ASSUMPTIONS & HYPOTHETICAL CONDITIONS

• The value herein is based on the Lease Agreement provided by Stirling Forterra, LLC. If not, the value conclusion is subject to change.

• The value assumes the improvements will be constructed in a good workmanlike manner based on the information provided by the developer. If not, the value conclusion is subject to change.


BORDERS BOOKS ASSUMPTIONS AND LIMITING CONDITIONS

84

ASSUMPTIONS AND LIMITING CONDITIONS

1. Unless otherwise specifically noted in the body of the report, it is assumed that title to the property or properties appraised is clear and marketable and that there are no recorded or unrecorded matters or exceptions to title that would adversely affect marketability or value. CBRE is not aware of any title defects nor has it been advised of any unless such is specifically noted in the report. CBRE, however, has not examined title and makes no representations relative to the condition thereof. Documents dealing with liens, encumbrances, easements, deed restrictions, clouds and other conditions that may affect the quality of title have not been reviewed. Insurance against financial loss resulting in claims that may arise out of defects in the subject’s title should be sought from a qualified title company that issues or insures title to real property.

2. Unless otherwise specifically noted in the body of this report, it is assumed: that the existing improvements on the property or properties being appraised are structurally sound, seismically safe and code conforming; that all building systems (mechanical/electrical, HVAC, elevator, plumbing, etc.) are in good working order with no major deferred maintenance or repair required; that the roof and exterior are in good condition and free from intrusion by the elements; that the property or properties have been engineered in such a manner that the improvements, as currently constituted, conform to all applicable local, state, and federal building codes and ordinances. CBRE professionals are not engineers and are not competent to judge matters of an engineering nature. CBRE has not retained independent structural, mechanical, electrical, or civil engineers in connection with this appraisal and, therefore, makes no representations relative to the condition of improvements. Unless otherwise specifically noted in the body of the report: no problems were brought to the attention of CBRE by ownership or management; CBRE inspected less than 100% of the entire interior and exterior portions of the improvements; and CBRE was not furnished any engineering studies by the owners or by the party requesting this appraisal. If questions in these areas are critical to the decision process of the reader, the advice of competent engineering consultants should be obtained and relied upon. It is specifically assumed that any knowledgeable and prudent purchaser would, as a precondition to closing a sale, obtain a satisfactory engineering report relative to the structural integrity of the property and the integrity of building systems. Structural problems and/or building system problems may not be visually detectable. If engineering consultants retained should report negative factors of a material nature, or if such are later discovered, relative to the condition of improvements, such information could have a substantial negative impact on the conclusions reported in this appraisal. Accordingly, if negative findings are reported by engineering consultants, CBRE reserves the right to amend the appraisal conclusions reported herein.

3. Unless otherwise stated in this report, the existence of hazardous material, which may or may not be present on the property was not observed by the appraisers. CBRE has no knowledge of the existence of such materials on or in the property. CBRE, however, is not qualified to detect such substances. The presence of substances such as asbestos, urea formaldehyde foam insulation, contaminated groundwater or other potentially hazardous materials may affect the value of the property. The value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in this field, if desired.

We have inspected, as thoroughly as possible by observation, the land; however, it was impossible to personally inspect conditions beneath the soil. Therefore, no representation is made as to these matters unless specifically considered in the appraisal.

4. All furnishings, equipment and business operations, except as specifically stated and typically considered as part of real property, have been disregarded with only real property being considered in the report unless otherwise stated. Any existing or proposed improvements, on or off-site, as well as any alterations or repairs considered, are assumed to be completed in a workmanlike manner according to standard practices based upon the information submitted to CBRE This report may be subject to amendment upon re-inspection of the subject subsequent to repairs, modifications, alterations and completed new construction. Any estimate of Market Value is as of the date indicated; based upon the information, conditions and projected levels of operation.

5. It is assumed that all factual data furnished by the client, property owner, owner’s representative, or persons designated by the client or owner to supply said data are accurate and correct unless otherwise specifically noted in the appraisal report. Unless otherwise specifically noted in the appraisal report, CBRE has no reason to believe that any of the data furnished contain any material error. Information and data referred to in this paragraph include, without being limited to, numerical street addresses, lot and block numbers, Assessor’s Parcel Numbers, land dimensions, square footage area of the land, dimensions of the improvements, gross building areas, net rentable areas, usable areas, unit count, room count, rent schedules, income data, historical operating expenses, budgets, and related data. Any material error in any of the above data could have a substantial impact on the conclusions reported. Thus, CBRE reserves the right to amend conclusions reported if made aware of any such error. Accordingly, the client-addressee should carefully review



85

all assumptions, data, relevant calculations, and conclusions within 30 days after the date of delivery of this report and should immediately notify CBRE of any questions or errors.

6. The date of value to which any of the conclusions and opinions expressed in this report apply, is set forth in the Letter of Transmittal. Further, that the dollar amount of any value opinion herein rendered is based upon the purchasing power of the American Dollar on that date. This appraisal is based on market conditions existing as of the date of this appraisal. Under the terms of the engagement, we will have no obligation to revise this report to reflect events or conditions which occur subsequent to the date of the appraisal. However, CBRE will be available to discuss the necessity for revision resulting from changes in economic or market factors affecting the subject.

7. CBRE assumes no private deed restrictions, limiting the use of the subject in any way.

8. Unless otherwise noted in the body of the report, it is assumed that there are no mineral deposit or subsurface rights of value involved in this appraisal, whether they be gas, liquid, or solid. Nor are the rights associated with extraction or exploration of such elements considered unless otherwise stated in this appraisal report. Unless otherwise stated it is also assumed that there are no air or development rights of value that may be transferred.

9. CBRE is not aware of any contemplated public initiatives, governmental development controls, or rent controls that would significantly affect the value of the subject.

10. The estimate of Market Value, which may be defined within the body of this report, is subject to change with market fluctuations over time. Market value is highly related to exposure, time promotion effort, terms, motivation, and conclusions surrounding the offering. The value estimate(s) consider the productivity and relative attractiveness of the property, both physically and economically, on the open market.

11. Any cash flows included in the analysis are forecasts of estimated future operating characteristics are predicated on the information and assumptions contained within the report. Any projections of income, expenses and economic conditions utilized in this report are not predictions of the future. Rather, they are estimates of current market expectations of future income and expenses. The achievement of the financial projections will be affected by fluctuating economic conditions and is dependent upon other future occurrences that cannot be assured. Actual results may vary from the projections considered herein. CBRE does not warrant these forecasts will occur. Projections may be affected by circumstances beyond the current realm of knowledge or control of CBRE

12. Unless specifically set forth in the body of the report, nothing contained herein shall be construed to represent any direct or indirect recommendation of CBRE to buy, sell, or hold the properties at the value stated. Such decisions involve substantial investment strategy questions and must be specifically addressed in consultation form.

13. Also, unless otherwise noted in the body of this report, it is assumed that no changes in the present zoning ordinances or regulations governing use, density, or shape are being considered. The property is appraised assuming that all required licenses, certificates of occupancy, consents, or other legislative or administrative authority from any local, state, nor national government or private entity or organization have been or can be obtained or renewed for any use on which the value estimates contained in this report is based, unless otherwise stated.

14. This study may not be duplicated in whole or in part without the specific written consent of CBRE nor may this report or copies hereof be transmitted to third parties without said consent, which consent CBRE reserves the right to deny. Exempt from this restriction is duplication for the internal use of the client-addressee and/or transmission to attorneys, accountants, or advisors of the client-addressee. Also exempt from this restriction is transmission of the report to any court, governmental authority, or regulatory agency having jurisdiction over the party/parties for whom this appraisal was prepared, provided that this report and/or its contents shall not be published, in whole or in part, in any public document without the express written consent of CBRE which consent CBRE reserves the right to deny. Finally, this report shall not be advertised to the public or otherwise used to induce a third party to purchase the property or to make a “sale” or “offer for sale” of any “security”, as such terms are defined and used in the Securities Act of 1933, as amended. Any third party, not covered by the exemptions herein, who may possess this report, is advised that they should rely on their own independently secured advice for any decision in connection with this property. CBRE shall have no accountability or responsibility to any such third party.

15. Any value estimate provided in the report applies to the entire property, and any pro ration or division of the title into fractional interests will invalidate the value estimate, unless such pro ration or division of interests has been set forth in the report.

16. The distribution of the total valuation in this report between land and improvements applies only under the existing program of utilization. Component values for land and/or buildings are not intended to be used in conjunction with any other property or appraisal and are invalid if so used.



86

17. The maps, plats, sketches, graphs, photographs and exhibits included in this report are for illustration purposes only and are to be utilized only to assist in visualizing matters discussed within this report. Except as specifically stated, data relative to size or area of the subject and comparable properties has been obtained from sources deemed accurate and reliable. None of the exhibits are to be removed, reproduced, or used apart from this report.

18. No opinion is intended to be expressed on matters which may require legal expertise or specialized investigation or knowledge beyond that customarily employed by real estate appraisers. Values and opinions expressed presume that environmental and other governmental restrictions/conditions by applicable agencies have been met, including but not limited to seismic hazards, flight patterns, decibel levels/noise envelopes, fire hazards, hillside ordinances, density, allowable uses, building codes, permits, licenses, etc. No survey, engineering study or architectural analysis has been made known to CBRE unless otherwise stated within the body of this report. If the Consultant has not been supplied with a termite inspection, survey or occupancy permit, no responsibility or representation is assumed or made for any costs associated with obtaining same or for any deficiencies discovered before or after they are obtained. No representation or warranty is made concerning obtaining these items. CBRE assumes no responsibility for any costs or consequences arising due to the need, or the lack of need, for flood hazard insurance. An agent for the Federal Flood Insurance Program should be contacted to determine the actual need for Flood Hazard Insurance.

19. Acceptance and/or use of this report constitutes full acceptance of the Contingent and Limiting Conditions and special assumptions set forth in this report. It is the responsibility of the Client, or client’s designees, to read in full, comprehend and thus become aware of the aforementioned contingencies and limiting conditions. Neither the Appraiser nor CBRE assumes responsibility for any situation arising out of the Client’s failure to become familiar with and understand the same. The Client is advised to retain experts in areas that fall outside the scope of the real estate appraisal/consulting profession if so desired.

20. CBRE assumes that the subject analyzed herein will be under prudent and competent management and ownership; neither inefficient or super-efficient.

21. It is assumed that there is full compliance with all applicable federal, state, and local environmental regulations and laws unless noncompliance is stated, defined and considered in the appraisal report.

22. No survey of the boundaries of the property was undertaken. All areas and dimensions furnished are presumed to be correct. It is further assumed that no encroachments to the realty exist.

23. The Americans with Disabilities Act (ADA) became effective January 26, 1992. Notwithstanding any discussion of possible readily achievable barrier removal construction items in this report, CBRE has not made a specific compliance survey and analysis of this property to determine whether it is in conformance with the various detailed requirements of the ADA. It is possible that a compliance survey of the property together with a detailed analysis of the requirements of the ADA could reveal that the property is not in compliance with one or more of the requirements of the ADA. If so, this fact could have a negative effect on the value estimated herein. Since CBRE has no specific information relating to this issue, nor is CBRE qualified to make such an assessment, the effect of any possible non-compliance with the requirements of the ADA was not considered in estimating the value of the subject.

24. Client shall not indemnify Appraiser or hold Appraiser harmless unless and only to the extent that the Client misrepresents, distorts, or provides incomplete or inaccurate appraisal results to others, which acts of the Client proximately result in damage to Appraiser. The Client shall indemnify and hold Appraiser harmless from any claims, expenses, judgments or other items or costs arising as a result of the Client’s failure or the failure of any of the Client’s agents to provide a complete copy of the appraisal report to any third party. In the event of any litigation between the parties, the prevailing party to such litigation shall be entitled to recover from the other reasonable attorney fees and costs.

25. The report is for the sole use of the client; however, client may provide only complete, final copies of the appraisal report in its entirety (but not component parts) to third parties who shall review such reports in connection with loan underwriting or securitization efforts. Appraiser is not required to explain or testify as to appraisal results other than to respond to the client for routine and customary questions. Please note that our consent to allow an appraisal report prepared by CBRE or portions of such report, to become part of or be referenced in any public offering, the granting of such consent will be at our sole discretion and, if given, will be on condition that we will be provided with an Indemnification Agreement and/or Non-Reliance letter, in a form and content satisfactory to us, by a party satisfactory to us. We do consent to your submission of the reports to rating agencies, loan participants or your auditors in its entirety (but not component parts) without the need to provide us with an Indemnification Agreement and/or Non-Reliance letter.

26. As part of the client’s requested scope of work, an estimate of insurable value is provided herein. CBRE has followed traditional appraisal standards to develop a reasonable calculation based upon industry practices and industry accepted publications such as the Marshal Valuation Service handbook. The methodology employed is a derivation of the cost



87

approach which is primarily used as an academic exercise to help support the market value estimate and therefore is not reliable for Insurable Value estimates. Actual construction costs and related estimates can vary greatly from this estimate.

This analysis should not be relied upon to determine proper insurance coverage which can only be properly estimated by consultants considered experts in cost estimation and insurance underwriting. It is provided to aid the client/reader/user as part of their overall decision making process and no representations or warranties are made by CBRE regarding the accuracy of this estimate and it is strongly recommend that other sources be utilized to develop any estimate of insurable value.


BORDERS BOOKS

ADDENDA


BORDERS BOOKS

ADDENDUM A

GLOSSARY OF TERMS


BORDERS BOOKS

assessed value Assessed value applies in ad valorem taxation and refers to the value of a property according to the tax rolls. Assessed value may not conform to market value, but it is usually calculated in relation to a market value base. †

cash equivalency The procedure in which the sale prices of comparable properties sold with atypical financing are adjusted to reflect typical market terms.

contract rent The actual rental income specified in a lease. ‡

effective rent The rental rate net of financial concessions such as periods of no rent during the lease term; may be calculated on a discounted basis, reflecting the time value of money, or on a simple, straight-line basis. ‡

excess land In regard to an improved site, the land not needed to serve or support the existing improvement. In regard to a vacant site or a site considered as though vacant, the land no needed to accommodate the site’s primary highest and best use. Such land may be separated from the larger site and have its own highest and best use, or it may allow for future expansion of the existing or anticipated improvement. See also surplus land. ‡

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

fee simple estate Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat. ‡

floor area ratio (FAR) The relationship between the above-ground floor area of a building, as described by the building code, and the area of the plot on which it stands; in planning and zoning, often expressed as a decimal, e.g., a ratio of 2.0 indicates that the permissible floor area of a building is twice the total land area; also called building-to-land ratio. ‡

full service lease A lease in which rent covers all operating expenses. Typically, full service leases are combined with an expense stop, the expense level covered by the contract lease payment. Increases in expenses above the expense stop level are passed

through to the tenant and are known as expense pass-throughs.

going concern value Going concern value is the value of a proven property operation. It includes the incremental value associated with the business concern, which is distinct from the value of the real estate only. Going concern value includes an intangible enhancement of the value of an operating business enterprise which is produced by the assemblage of the land, building, labor, equipment, and marketing operation. This process creates an economically viable business that is expected to continue. Going concern value refers to the total value of a property, including both real property and intangible personal property attributed to the business value. †

gross building area (GBA) The total floor area of a building, including below-grade space but excluding unenclosed areas, measured from the exterior of the walls. Gross building area for office buildings is computed by measuring to the outside finished surface of permanent outer building walls without any deductions. All enclosed floors of the building including basements, mechanical equipment floors, penthouses, and the like are included in the measurement. Parking spaces and parking garages are excluded. ‡

hypothetical condition That which is contrary to what exists but is supposed for the purpose of analysis. Hypothetical conditions assume conditions contrary to known facts about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis. See also extraordinary assumption. ‡

insurable value Insurable Value is based on the replacement and/or reproduction cost of physical items that are subject to loss from hazards. Insurable value is that portion of the value of an asset or asset group that is acknowledged or recognized under the provisions of an applicable loss insurance policy. This value is often controlled by state law and varies from state to state. †

investment value Investment value is the value of an investment to a particular investor based on his or her investment requirements. In contrast to market value, investment value is value to an individual, not value in the marketplace. Investment value reflects the subjective relationship between a particular investor and a given investment. When measured in dollars, investment value is the price an investor would pay for an investment in light of its perceived capacity to satisfy his or her desires, needs, or investment goals. To estimate investment value, specific investment criteria must be known. Criteria to evaluate a real estate


BORDERS BOOKS

investment are not necessarily set down by the individual investor; they may be established by an expert on real estate and its value, that is, an appraiser.

†

leased fee See leased fee estate

leased fee estate An ownership interest held by a landlord with the right 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.‡

leasehold See leasehold estate

leasehold estate The interest held by the lessee (the tenant or renter) through a lease conveying the rights of use and occupancy for a stated term under certain conditions.‡

market rent The most probable rent that a property should bring in a competitive and open market reflecting all conditions and restrictions of the specified lease agreement including term, rental adjustment and revaluation, permitted uses, use restrictions, and expense obligations. ‡

market value Market value is one of the central concepts of the appraisal practice. Market value is differentiated from other types of value in that it is created by the collective patterns of the market. Market value means 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) A reasonable time is allowed for exposure in the open market; 2) Both parties are well informed or well advised, and acting in what they consider their own best interests; 3) Buyer and seller are typically motivated; 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.§

marketing period The time it takes an interest in real property to sell on the market subsequent to the date of an appraisal. ‡

net lease Lease in which all or some of the operating expenses are paid directly by the tenant. The landlord

never takes possession of the expense payment. In a Triple Net Lease all operating expenses are the responsibility of the tenant, including property taxes, insurance, interior maintenance, and other miscellaneous expenses. However, management fees and exterior maintenance are often the responsibility of the lessor in a triple net lease. A modified net lease is one in which some expenses are paid separately by the tenant and some are included in the rent.

net rentable area (NRA) 1) The area on which rent is computed. 2) The Rentable Area of a floor shall be computed by measuring to the inside finished surface of the dominant portion of the permanent outer building walls, excluding any major vertical penetrations of the floor. No deductions shall be made for columns and projections necessary to the building. Include space such as mechanical room, janitorial room, restrooms, and lobby of the floor. *

occupancy rate The relationship or ratio between the income received from the rented units in a property and the income that would be received if all the units were occupied.‡

prospective value opinion A forecast of the value expected at a specified future date. A prospective value opinion is most frequently sought in connection with real estate projects that are proposed, under construction, or under conversion to a new us, or those that have not achieved sellout or a stabilized level of long-term occupancy at the time the appraisal report is written. ‡

reasonable exposure time The estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective opinion based upon an analysis of past events assuming a competitive and open market. ††

rent See full service lease net lease market rent contract, coupon, face, or nominal rent effective rent

shell rent The typical rent paid for retail, office, or industrial tenant space based on minimal “shell” interior finishes (called plain vanilla finish in some areas). Usually the landlord delivers the main building shell space or some minimum level of interior build-out, and the tenant completes the interior finish, which can include wall, ceiling, and floor finishes; mechanical systems, interior electric, and plumbing. Typically these


BORDERS BOOKS

are long-term leases with tenants paying all or most property expenses. ‡

surplus land Land not necessary to support the highest and best use of the existing improvement but, because of physical limitations, building placement, or neighborhood norms, cannot be sold off separately. Such land may or may not contribute positively to value and may or may not accommodate future expansion of an existing or anticipated improvement. See also excess land. ‡

usable area 1) The area actually used by individual tenants. 2) The Usable Area of an office building is computed by measuring to the finished surface of the office side of corridor and other permanent walls, to the center of partitions that separate the office from adjoining usable areas, and to the inside finished

surface of the dominant portion of the permanent outer building walls. Excludes areas such as mechanical rooms, janitorial room, restrooms, lobby, and any major vertical penetrations of a multi-tenant floor. *

use value Use value is a concept based on the productivity of an economic good. Use value is the value a specific property has for a specific use. Use value focuses on the value the real estate contributes to the enterprise of which it is a part, without regard to the property’s highest and best use or the monetary amount that might be realized upon its sale. †

value indication An opinion of value derived through application of the appraisal process. ‡

† The Appraisal of Real Estate, Twelfth Edition, Appraisal Institute, 2001.

‡ The Dictionary of Real Estate Appraisal, Fourth Edition, Appraisal Institute, 2002.

§ Office of Comptroller of the Currency (OCC), 12 CFR Part 34, Subpart C – Appraisals, 34.42 (g); Office of Thrift Supervision (OTS), 12 CFR 564.2 (g); Appraisal Institute, The Dictionary of Real Estate Appraisal, 4th ed. (Chicago: Appraisal Institute, 2002), 177-178. This is also compatible with the RTC, FDIC, FRS and NCUA definitions of market value as well as the example referenced in the Uniform Standards of Professional Appraisal Practice (USPAP).

* 2000 BOMA Experience Exchange Report, Income/Expense Analysis for Office Buildings (Building Owners and Managers Association, 2000)

†† Statement on Appraisal Standard No. 6, Appraisal Standards Board of The Appraisal Foundation, September 16, 1993, revised June 15, 2004.


BORDERS BOOKS

ADDENDUM B

LAND SALE DATA SHEETS


RETAIL/COMMERCIAL LAND SALE No. 1

3338 St. Charles AvenueNew Orleans,LA 70115Orleans Parish

Comments

This property is located at the southeast corner of St. Charles Avenue and Louisiana Avenue. At the time ofcontract, the property was improved with a funeral home that will be demolished and a retail building leased toBorders Books will be constructed.

3338 St. Charles Avenue

Location:

County:

Location Data

Physical Data

Sale Data Contract

Alderwood (Louisiana), Inc., cbsStirling Forterra, LLCN/A

Cash to Seller$2,800,000

$2,800,000$0$2,800,000Purchase Agreement

Retail/CommercialType:

12 months6/2007

Transaction Type:

Sale Price:

Date:Marketing Time:Grantor:Grantee:Document No.:

Financing:Cash Eq.Price:

Adj. Sale Price:Verification:

N/A

N/AAtlas Ref:

Assessor's Parcel No:

Land Area:

Max FAR:

Acres:Square Feet:

Topography:Shape:Utilities:Zoning:Allowable Bldg Area:Floor Area Ratio:No. of units:

0.9305

Level, At Street GradeL shapeAll

N/AN/AC-2

Gross Usable0.9305

40,534 40,534

N/AN/A

Onsite/Offsite Costs:

Analysis

Use At Sale:

Price Per SF of Bldg:

Proposed Use or Dev.Price Per Acre:Price Per SF of Land:Price Per Unit:

LandRetail$3,009,134$69.08N/AN/A

Frontage: St. Charles Avenue; LouisianaAvenue


MULTI-FAMILY LAND SALE No. 2

1042 Magazine StreetNew Orleans,LA 70130Orleans Parish

Comments

Directly across from the National World War II Museum expansion. The site exhibits the following frontage:68' Magazine Street117' Poeyfarre Street111' John Churchill Chase

Previously received preliminary approval to construct seventeen (17) residential condominium units with coveredoff-street parking.

Warehouse District Land

Location:

County:

Location Data

Physical Data

Sale Data Listing

N/AN/AN/A

Not Available$798,000

$798,000$0$798,000Corporate Realty

Multi-FamilyType:

12 months6/2007

Transaction Type:

Sale Price:




N/A

N/AAtlas Ref:


Land Area:

Max FAR:

Acres:Square Feet:


0.1779

Level, At Street GradeIrregularAll

N/AN/ACBD-7

Gross Usable0.1779

7,750 7,750

N/A


Analysis

Use At Sale:



VacantUnknown$4,485,666$102.97N/AN/A

Frontage: 68' Magazine Street; 117' PoeyfarreStreet


MULTI-FAMILY LAND SALE No. 3

1031 Canal St.New Orleans,LA 70112Orleans Parish

Comments

This property is located at the northeast corner of Canal Street and Rampart Street.

1031 Canal Street

Location:

County:

Location Data

Physical Data

Sale Data Sale

N/AN/AN/A


$3,400,000$0$3,400,000LoopNet

Multi-FamilyType:

12 months5/2007

Transaction Type:

Sale Price:




N/A

N/AAtlas Ref:


Land Area:

Max FAR:

Acres:Square Feet:


0.9340

Level, At Street GradeIrregularAll

N/AN/ACBD-3

Gross Usable0.9340

40,685 40,685

N/A


Analysis

Use At Sale:



LandMultifamily$3,640,256$83.57N/AN/A

Frontage: Canal Street; Rampart Street


BORDERS BOOKS

ADDENDUM C

IMPROVED SALE DATA SHEETS


RETAIL SALE No. 1

25222 El PaseoMission Viejo,CA 92691Orange

Financial Data

Broker100%Existing

$892,400$17,848

$874,552N/A

$874,552

Total$29.75

Per SF

Analysis

Overall Cap. Rate (OAR):

Direct Cap6.12 %N/A %16.33N/A %$476.03

Comments

This repesents the July 2006 sale of a 30,000-square-foot Border Books located just west of Interstate 5 andnorth of Oso Parkway in the city of Mission Viejo. Specifically, it is located at the north end of the FreewayCenter, a power retail center that features such tenants as Best Buy, Comps USA, Toys R Us, Krispy Kreme anda number of other national tenants. The Border's Books building located at the north end of the retail centerand has good visibility from Interstate 5. The property sold for $12,281,040 or $476.03 per square foot. The indicated overall capitalization rate was6.12 percent, based on income-in-place. The tenant currently has 14 years remaining (2019) on its lease withperiodic escalations.

Borders Books

$0.59$29.15

N/A$29.15

Buyers Underwriting Criteria.:

Source:Occupancy at Sale:Existing or ProForma Inc:

Potential Gross Income:Vacancy and Credit Loss:Effective Gross Income:Expenses and Reserves:Net Operating Income:

Location:

County:

Location Data

Physical Data

Sale Data Sale

Roebling Investment Company1633 Bentley Ave Apts, LLC488956

Not Available$14,281,040

$14,281,040$0$14,281,040Sterling Champ - CBRE

Misc. Freestanding RetailType:

3 months7/2006

Transaction Type:

Sale Price:


Req.Capital Cost:



784-661-03

922-B4Atlas Ref:


Eff. Gross Multiplier (EGIM):Oper. Expense Ratio (OER):Price Per Square Foot:

Land Area: 2.53 Acres

Projected IRR:

Excess Land:

Year Built:

Condition:Exterior Walls:

Parking:

Gross Leasable Area:

Anchor Tenant GLA:

Anchors:

GLA Purchased:

Borders Books

Total GLA:Local Tenant GLA:

None

1994

GoodConcrete Block

5.00/1,000 SF

30,000 SF

30,000 SF

30,000 SF

30,000 SF

N/A


RETAIL SALE No. 2

8625 Germantown AvenuePhiladelphia,PA 19118Philadelphia

Financial Data

N/A100N/A

N/AN/AN/AN/A

$391,152

TotalN/A

Per SF

Analysis


Other6.35 %N/A %N/AN/A %$332.29

Comments

This sale was a freestanding Borders bookstore with good visibility and access from Germantown Avenue. Theproperty is situated in the Chestnut Hill section of the city.

Borders Bookstore

N/AN/AN/A

$21.10




Location:

County:

Location Data

Physical Data

Sale Data Sale

Thor EquitiesAcadia Chestnut Hill51468542


$6,160,000$0$6,160,000


N/A6/2006

Transaction Type:

Sale Price:


Req.Capital Cost:



88-2722210

N/AAtlas Ref:




Projected IRR:

Excess Land:

Year Built:


Parking:


Anchor Tenant GLA:

Anchors:

GLA Purchased:

Borders


None

2000

GoodMasonry

N/A

18,538 SF

18,538 SF

18,538 SF

18,538 SF

N/A


RETAIL SALE No. 3

668 6th AvenueSan Diego,CA 92101San Diego

Financial Data

Seller100%Existing

N/AN/AN/AN/A

$881,842

TotalN/A

Per SF

Analysis


Other6.76 %N/A %N/AN/A %$417.51

Comments

This comparable represents the January 2005 sale of a free-standing retail building located on the southwestcorner of 6th Avenue and G Street in the Gaslamp district of the city of San Diego. This two-story retail buildingwas developed in 2002 of mixed-construction to comprise approximately 31,245 square feet of net rentablearea. Parking is available offsite in a shared public parking facility. The improvements were 100% occupied byBorders Books and Music and was considered in good condition at the time of sale.According to the listing broker, this property sold in January 2005 for $13,045,000, or $417.51 per square foot.As this property is net-leased to a national, credit-tenant, it is considered a very attractive investment. Theseller was reportedly approached directly by the buyer, who purchased the property at a 6.76% cap rate basedon acutal income in place.

Borders Books & Music

N/AN/AN/A

$28.22




Location:

County:

Location Data

Physical Data

Sale Data Sale

Borsan LLC333 Market Exchange One LLC0054779


$13,045,000$0$13,045,000Shawn Bakke - Marcus&Millichap


N/A1/2005

Transaction Type:

Sale Price:


Req.Capital Cost:



535-094-18

1289-B/4Atlas Ref:




Projected IRR:

Excess Land:

Year Built:


Parking:


Anchor Tenant GLA:

Anchors:

GLA Purchased:

Borders


None

2002

GoodStucco/Concrete

Shared

31,245 SF

31,245 SF

31,245 SF

31,245 SF

N/A


RETAIL SALE No. 4

3131 Veteran's Memorial BoulevardMetairie,LAJefferson Parish

Financial Data

Buyer91%Existing

$972,728$9,727

$963,001$96,500

$866,501

Total$32.71

Per SF

Analysis


Direct Cap9.12 %N/A %9.8610.02 %$319.48

Comments

This sale involves Borders Books and two small tenants.

Border's Books Retail Center

$0.33$32.39

$3.25$29.14




Location:

County:

Location Data

Physical Data

Sale Data Sale

3131 Vets LLC2121 Borders LLCN/A


$9,500,000$0$9,500,000Cliff Chew RBS Grenwich 949 225

Big BoxType:

12 months2/2004

Transaction Type:

Sale Price:


Req.Capital Cost:



N/A

MetairieAtlas Ref:




Projected IRR:

Excess Land:

Year Built:


Parking:


Anchor Tenant GLA:

Anchors:

GLA Purchased:

Border's Books


N/A

1997

GoodConcrete

Open Surface

25,250 SF

25,250 SF

29,736 SF

29,736 SF

4,486 SF


BORDERS BOOKS

ADDENDUM D

RENT COMPARABLE DATA SHEETS


RETAIL COMPARABLE No. 1

Comments

This property is located at 3131 Veterans Memorial in Metairie, the property also includes two strip retial spacesof 2,593 SF and 1,893 SF.

Borders Books

Physical Data

Lease Data

Type:

Recent Leases

3131 Veterans Memorial BlvdMetairie,LAJefferson

Location:

County:

Location Data

N/A

N/AAtlas Ref:


Occupancy:100%

N/AN/ANegotiableNoneTriple net

None

20 yrs25,250 SF

$29.35

Triple net

4/04

Typical Size:Term:Base Rent PSF:Rent Escalations:Basis:Expense Pass-Thru:Free Rent (months):Tenant Improvement:Leasing Agent:Phone No.:Survey Date:

Escalations Free Rent(Months)

TI(PSF)

Rent(PSF)Tenant

Size(SF)Date

Term(Yrs)

$0.00$29.35Borders Books3/98 20.0025,250

29,736 SF1997

GoodMasonry

Gross Leaseable Area:Year Built:


Parking: Adequate

100%Local:Overall:

Anchor Tenant GLA:

Anchors:Border's Books


25,250 SF

25,250 SF

29,736 SF

4,486 SF



Comments

This space is located within the City Place Shoppiong center at the intersction of McKinney Avenue and LemmonAvenue. The building also has a 4,500 SF Chase bank paying $40.00 per square foot. The total building squarefootage is 26,500 square feet. The Borders Books rental rate escalates over the term of the lease. The Borderslease escalates $1.00 PSF every five years.

Borders Books at City Place

Physical Data

Lease Data

Big BoxType:

Recent Leases

3600 McKinney AvenueDallas,TX 75052Dallas

Location:

County:

Location Data

000977000A01A0000

N/AAtlas Ref:


Occupancy:100%

N/AActual leaseNegotiableNoneNNN

Yes

1522,000 SF

$19.00

NNN

6/06



TI(PSF)

Rent(PSF)Tenant

Size(SF)Date

Term(Yrs)

Yes $0.00$19.00Borders Books8/2004 15.0022,000

22,000 SF2004

GoodBrick/stone



Parking: Garage/Surface

100%Local:Overall:

Anchor Tenant GLA:

Anchors:Borders Books


22,000 SF

22,000 SF

22,000 SF

N/A



Comments

This is a 20,000-square-foot freestanding big-box retail building located at an interstate/off-ramp (corner)location. It was built in 1999 and is situated on a 2.810-acre site. Currently the center is 100.0% occupied byBorders as a single-tenant facility. It is considered to be a Class A property in its market, with no competition inRapid City. The building is physically similar to other Borders buildings in the region in that in includes a customercoffee shop, sitting area, as well as various sections of books, music and periodicals. The property does notinclude any out parcels. Borders has a net lease within the premises from 2001-2016, at a flat rate of $23.30PSF. The lease has five, five year renewals that are to be determined based upon Borders future credit rating.The lease rate was arrived at by taking the project's debt service plus a developer's yield amount over the termof the original construction loan.

Borders

Physical Data

Lease Data

Big BoxType:

Recent Leases

2130 Haines AvenueRapid City,SD 57701Pennington

Location:

County:

Location Data

20-25-251-007

N/AAtlas Ref:


Occupancy:100%

N/AN/AN/AN/AN/A

Flat

15 YRS20,000 SF

$23.30

NNN

2/2007



TI(PSF)

Rent(PSF)Tenant

Size(SF)Date

Term(Yrs)

Flat+Five, 5YR0 $0.00$23.30Borders2/2001 15.0020,000

20,000 SF1999

ExcellentCMU/EFIS



Parking: Adequate

100%Local:Overall:

Anchor Tenant GLA:


20,000 SF

20,000 SF

N/A



Comments

The 27,000 square foot, two story free-standing Barnes & Noble is located on the west side of Federal Highwaybetween Oakland Park Blvd. and Sunrise Blvd. The rental rate is $22.75 per square foot, triple net over a 15 yearterm. The rental rate increases by 9.3% every 5 years. The lease includes three, 5 year options.

Barnes & Noble

Physical Data

Lease Data

Big BoxType:

Recent Leases

2121 N. Federal HwyFt. Lauderdale,FLBroward County

Location:

County:

Location Data

N/A

N/AAtlas Ref:


Occupancy:100%

ConfidentialConfidentialN/AN/ATriple Net

9.3% every 5Yrs

15 Yrs27,000 SF

$22.75

Triple Net

9/02



TI(PSF)

Rent(PSF)Tenant

Size(SF)Date

Term(Yrs)

9.3% every 5 YrN/A $0.00$22.75Barnes & Noble2001 15.0027,000

27,000 SF2001

GoodStucco over Concrete



Parking: Adequate

100%Local:Overall:

Anchor Tenant GLA:

Anchors:Barnes & Noble


27,000 SF

27,000 SF

27,000 SF

N/A


BORDERS BOOKS

ADDENDUM E

PURCHASE AGREEMENT


BORDERS BOOKS

ADDENDUM F

LEASE


BORDERS BOOKS

ADDENDUM G

CONSTRUCTION COSTS


BORDERS BOOKS

ADDENDUM H

PRÉCIS METRO REPORT - ECONOMY.COM, INC.


SHORTTERM

LONGTERM

ANALYSISSTRENGTHS & WEAKNESSES

CURRENT EMPLOYMENT TRENDS

FORECAST RISKS

EMPLOYMENTGROWTH RANK

LIFE CYCLE PHASE

COST OF DOINGBUSINESS

COST OF LIVING

U.S.=100%

Best=1 Worst=387

RISK-ADJUSTEDRETURN, ’06-11

U.S.=100%

VITALITYBest=1 Worst=379

Relative Employment Performance (1991=100)

January 2007 Employment Growth

2006-08

2006-11

Moody’s Economy.com, Inc. • www.economy.com • [email protected] • Précis METRO

NEW ORLEANS

Recent Performance. More than 18 months after Hurricane Katrina, the New Orleans econo-my is slowly emerging from its lull. Benchmark revisions were very positive for NEO, revealing fewer jobs lost and a stronger rebound. The metro area still has a very long road back as total employment is still almost 15% below its pre-Katrina level. However, one way to gauge NEO’s recovery is to measure the labor market’s progress since Hurricane Katrina rather than focusing on its pre-storm level. Since Septem-ber 2005, NEO has reclaimed roughly 35,000 jobs. As expected, construction is leading the way. More encouraging is the strong rebound in professional/business services, which is cur-rently just shy of its pre-Katrina employment level. Strong hiring in this sector suggests that NEO’s displaced businesses are indeed return-ing, which bodes well for the outlook.

Population. The release of the Census Bureau’s midyear 2006 population figures provides in-sight into how many residents NEO lost in the wake of Hurricane Katrina. The data show that the metro area lost roughly 290,000 residents, or 22% of its population base. Of the seven parishes that comprise the NEO metro area, four recorded declines in their population while three experi-enced an increase. As expected, the largest popu-lation declines were in the hardest hit parishes namely, Orleans and St. Bernard. St. Tammany experienced the largest increase in its popula-tion, adding roughly 11,000 residents, or 5%.

Looking ahead, the slow recovery in the met-ro area’s labor force to date suggests a weak rebound in NEO’s population this year. Never-theless, we do not expect the metro area’s pop-ulation to ever return to its pre-Katrina level.

Rebuilding. The lack of affordable housing is a major obstacle in NEO’s recovery effort. Pric-es soared immediately following Hurricane Ka-trina due to a supply shortfall, pushing afford-ability to one of its lowest levels in 20 years. As such, the massive rebuilding effort is de-

pendent upon the issuance of checks from the state’s Road Home Program, which provides financial assistance for rebuilding. Through mid-March, there have been over 115,000 ap-plications statewide and only 3,000 closings. This is the primary reason why, despite the clear need, housing starts in NEO have yet to surpass their pre-Katrina level. Additional building is essential to curbing house prices, boosting affordability, and enabling more resi-dents to return to, or remain in, NEO.

Hurdles. Despite numerous recent positive developments, there remain a number of chal-lenges. The slow arrival of checks from the Road Home Program will significantly strain NEO’s la-bor market. Issuance of aid is expected to increase over the next few months, which will spark the long awaited and much anticipated rebuilding boom. However, the current labor shortgage is a severe constraint on the number of housing proj-ects that are undertaken. Another obstacle is the slow opening of public schools, hospitals and the re-establishment of public transportation. These are necessary in promoting economic growth and enticing displaced households to return.

Despite positive benchmark revisions, the contours of the baseline forecast for New Or-leans are unchanged. Hiring will accelerate this year as the massive rebuilding effort will support job gains in construction and services. The magnitude of the rebuilding effort will be limited by political red tape, available labor and the amount of funding issued to residents. Therefore, the lack of affordable housing will limit the supply of labor and the repopulation of the metro area. A permanently lower popula-tion will be a major long-term impediment. Job growth will slow toward the end of the decade as federal funding for rebuilding begins to fade, ensuring that NEO will not reach its pre-hurri-cane employment level for several decades.

Ryan SweetMarch 2007

STRENGTHS� Well-developed port, pipeline, and rail

infrastructure, including strategic port facilities for domestic and international trade.� Key export industries are showing signs of

steady growth.

WEAKNESSES� Below average per capita income.� High poverty and crime rate.� Low rate of insurance holders may hinder

reconstruction.

UPSIDE• New infrastructure spurs population growth

and business investment.• Increased activity through port boosts hiring

and spurs expansion projects.• Growing presence of fi lm industry boosts tax

receipts and hiring.DOWNSIDE

• Slow arrival of government aid continues to hinder rebuilding.

• Rising debt spurs additional government layoffs.

��

2

201st quintile

1st quintile

289

93%

95%

Growth/Mature

-0.86%

4th quintile

2000 2001 2002 2003 2004 2005 2006 Indicators 2007 2008 2009 2010 201144.3 43.5 43.1 43.5 45.0 41.2 34.0 Gross Metro Product, C$B 36.8 38.4 39.1 39.7 40.3-6.9 -2.0 -0.9 0.9 3.4 -8.5 -17.4 % Change 8.3 4.2 1.9 1.6 1.4

617.7 618.7 608.4 611.4 614.8 554.6 479.8 Total Employment (000) 527.8 536.0 541.3 545.9 550.00.2 0.2 -1.7 0.5 0.6 -9.8 -13.5 % Change 10.0 1.6 1.0 0.8 0.84.7 4.9 5.5 5.5 5.1 8.0 5.4 Unemployment Rate 2.0 1.9 1.9 1.8 1.85.5 6.7 1.6 2.5 5.7 -35.4 45.0 Personal Income Growth 8.1 3.6 4.3 4.3 4.1

1,315.7 1,311.2 1,311.7 1,312.4 1,314.8 1,314.6 913.0 Population (000) 1,165.6 1,134.0 1,136.8 1,138.1 1,139.73,475 3,499 4,326 5,357 5,698 4,488 5,246 Single-Family Permits 7,864 9,331 7,760 5,023 4,839

692 939 1,057 772 702 293 737 Multifamily Permits 3,837 5,051 4,486 3,098 3,178111.6 117.0 122.5 130.1 137.1 158.9 172.4 Existing Home Price ($Ths) 160.5 162.8 167.7 173.5 179.73,386 6,136 7,121 11,046 7,426 6,614 6,529 Mortgage Originations ($Mil) 5,786 5,361 5,488 5,678 5,848

-8.0 -10.5 -5.6 -4.6 -3.6 -6.3 -406.6 Net Migration (000) 247.1 -37.2 -2.8 -4.1 -4.06,648 8,198 7,808 8,085 7,584 8,792 2,841 Personal Bankruptcies 1,301 1,403 1,518 1,663 1,782

U.S. NEO

80

90

100

110

120

130

140

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Forecast

0 5 10 15 20 25 30 35 40-5-10-15

GovernmentOther Services

Leisure & HospitalityEdu & Health Svcs

Prof & Business SvcsFinancial Activities

InformationTrans/Utilities

TradeManufacturing

ConstructionTotal

% change year ago, 3 mo. MA

-2.822.9

33.6

15.413.7

3.0-8.9

10.615.6

8.79.8

11.9

DataBuffet® MSA code: MNEO


EMPLOYMENT & INDUSTRY MIGRATION FLOWS

LEADING INDUSTRIESHOUSE PRICES

COMPARATIVE EMPLOYMENT AND INCOME

PER CAPITA INCOME

DUE TO U.S.FLUCTUATIONS

RELATIVE TOU.S.

TOP EMPLOYERS

Sources: IRS (top), 2005; Census Bureau, 2006

Source: OFHEO, 1987Q1=100, NSA

Source: Bureau of Economic Analysis, 2004Sources: BLS, Moody’s Economy.com, 2006

2006

EMPLOYMENT VOLATILITY

Sources: Percent of total employment - Moody’s Economy.com & BLS, 2006; Average annual earnings - BEA, 2004

NAICS Industry Employees (000)

% of Total Employment Average Annual EarningsSectorConstructionManufacturing Durable NondurableTransportation/UtilitiesWholesale TradeRetail TradeInformationFinancial ActivitiesProf. and Bus. ServicesEduc. and Health ServicesLeisure and Hosp. ServicesOther ServicesGovernment

INDUSTRIAL DIVERSITY

Not due to U.S. Due to U.S.

Least Diverse

Most Diverse (U.S.)

Public

CREDIT QUALITYMOODY’SRATING


Ba2

NEO U.S.

50

100

150

200

250

300

87 90 94 97 01 04 06

NEO LA US

31,02427,082

33,090

0.00

0.20

0.40

0.60

0.80

1.00

0.55

0%

20%

40%

60%

80%

100%

97%

NEO U.S.

532

100

-300,000

-250,000

-200,000

-150,000

-100,000

-50,000

0

2003 2004 2005 2006

Net Migration, NEO

NEO LA US 6.7% 7.1% 5.6% 7.2% 8.2% 10.4% 53.3% 54.1% 63.4% 46.7% 45.9% 36.6% 5.1% 4.3% 3.7% 4.8% 3.9% 4.3% 11.6% 11.9% 11.3% 1.5% 1.4% 2.2% 5.5% 5.2% 6.1% 13.7% 10.5% 12.9% 11.7% 12.6% 13.1% 12.0% 9.9% 9.6% 3.3% 3.6% 4.0% 15.4% 18.7% 16.1%

NEO LA US $40,171 $36,503 $45,244 $66,905 $63,646 $65,673 nd $54,702 $67,102 nd $73,031 $63,325 nd $52,898 $54,428 $56,756 $49,474 $62,643 $24,743 $22,850 $26,652 $48,282 $53,899 $79,678 $39,586 $33,530 $51,729 $41,973 $36,508 $49,211 $37,433 $34,751 $39,829 $22,321 $18,148 $19,370 $21,412 $19,414 $22,940 $49,075 $43,889 $53,033

2003 2004 2005 2006Domestic -5,891 -5,160 -7,608 -291,495

Foreign 913 1,796 1,553 1,719

Total -4,978 -3,364 -6,055 -289,776

GVSL State & Local Government 61.17221 Full-Service Restaurants 17.17222 Limited-Service Eating Places 16.65613 Employment Services 13.4GVF Federal Government 12.66221 General Medical and Surgical Hospitals 12.06113 Colleges, Universities & Professional Schools 8.87211 Traveler Accommodation 8.42382 Building Equipment Contractors 8.33366 Ship and Boat Building 8.25411 Legal Services 7.84451 Grocery Stores 7.36211 Offi ces of Physicians 7.35413 Architectural, Engineering, and Related Srvcs. 6.9ML Military Personnel 6.8

High-tech employment 10.0 As % of total employment 2.0

Into New Orleans, LA Number Medianof Migrants Income

Baton Rouge, LA 1,727 22,532Houston, TX 1,032 33,939Houma, LA 702 20,294Atlanta, GA 563 26,161Gulfport, MS 552 21,582Dallas, TX 461 32,861San Diego, CA 441 27,576Lafayette, LA 376 26,959New York, NY 363 20,327Los Angeles, CA 347 20,325Total Inmigration 30,634 23,400

From New Orleans, LAHouston, TX 2,422 54,466Baton Rouge, LA 2,293 23,088Atlanta, GA 1,056 22,294Gulfport, MS 998 28,155Houma, LA 857 23,447Dallas, TX 764 23,640Lafayette, LA 417 19,094Fort Worth, TX 416 30,925Washington, DC 347 36,444Los Angeles, CA 343 16,474Total Outmigration 36,659 23,134

Net Migration -6,025 266

Federal .................................................... 12,559State ........................................................ 16,570Local ....................................................... 44,537

Northrop Grumman Corporation 6,687Hibernia National Bank 6,024Ochsner Clinic Foundation 5,664Tulane University 5,418Medical Center of Louisianna 3,613Entergy Corporation 2,500BellSouth Corporation 2,400Whitney Holding Corporation 2,373Lockheed Martin Corporation 2,100USDA, National Finance Center 1,900Tulane University Hospital & Clinic 1,865Touro Infi rmary 1,800Memorial Medical Center 1,664Veteran Affairs Medical Center 1,551University of New Orleans 1,521Hilton Hotels Corporation 1,300Methodist Hospital 1,276Children’s Hospital 1,227Harrah’s Casino New Orleans 1,200Superior Energy Services, Inc. 1,200

Source: New Orleans City Business Book of Lists, 2005-2006

CITY



New Orleans

-35 -30 -25 -20 -15 -10 -5 0 5 10 15

Retail trade

Prof. and bus.

Manufacturing

Government

Educ. and health

Construction

Post-benchmarkPreliminary

…But Hurricane Katrina Left Many Industries with a Black Eye

Employment% change, 06

400

450

500

550

600

650

04 05 06 07

Revisions Paint Slightly Better Picture…

Total payroll employment, ths

Preliminary

Post-benchmark

Hurricane Katrina

50

55

60

65

70

75

80

05 06 0790

100

110

120

130

140

Occupancy Tumbles as Federal Workers Vacate New Orleans

Source: Smith Travel Research

Average room rate$ (R)

Hotel occupancy rate, % (L)

3 mo. MA

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Mar-06 May Jul Sep Nov Jan-07 Mar

Orleans, Jefferson,Plaquemines, St. TammanyOrleans

Rebuilding Painfully Slow as Demolitions Stall in Orleans Parish

Cumulative number of building demolitions, thsSources: U.S. Army Corps of Engineers, Brookings Institute

Revisions to NEO employment were significant and the largest nationwide. The revisions showed that employment fell by roughly 14% in 2006, compared to a previously reported 20% decline. As expected, the revisions show a sizeable gain in construction employment last year, consistent with an economy rebuilding itself following a natural disaster. Employment growth was revised up for a number other industries including retail trade, manufacturing, and professional/business services. All told, the upward revisions paint a stronger recovery immediately following Hurricane Katrina, but they do not alter the contours of our baseline forecast.

Hotel occupancy in NEO has plunged over the past year. The exodus of federal workers and insurance adjusters facilitated this decline. The average room rate has nearly doubled from its August nadir, however. Seasonal demand and Mardi Gras are the main catalysts behind higher prices. It is imperative that tourism in NEO is rejuvenated quickly as the industry is one of the metro area’s main export industries. The industry recently hit another road bump as Carnival Cruise Lines announced that it has delayed indefinitely basing a second cruise ship in the Port of New Orleans, citing a slow recovery in tourism following Hurricane Katrina.

0

2

4

6

8

10

12

14

16

05 06 07

New Orleans Benefiting from a Healthy Global Economy

Value of trade through New Orleans Custom District, $ bil, NSA

Exports

Imports



© 2007, Moody’s Economy.com, Inc. (“MEDC”), and/or its licensors. All rights reserved. The information and materials contained herein are protected by United States copyright, trade secret, and/or trademark law, as well as other state, national, and international laws and regulations. Except and to the extent as otherwise expressly agreed to, such information and materials are for the exclusive use of MEDC’s subscribers, and may not be copied, repro-duced, repackaged, further transmitted, transferred, disseminated, redistributed or resold, or stored for subsequent use for any purpose, in whole or in part. MEDC has obtained all information from sources believed to be reliable. Because of the possibility of human and mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. UNDER NO CIRCUMSTANCES SHALL MEDC OR ITS LICENSORS BE LIABLE TO YOU OR ANY OTHER PERSON IN ANY MANNER FOR ANY LOSS OR DAMAGE CAUSED BY, RESULTING FROM, OR RELATING TO, IN WHOLE OR IN PART, ERRORS OR DEFICIENCIES CONTAINED IN THE INFORMATION PROVIDED, INCLUDING BUT NOT LIMITED TO ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES HOWEVER THEY ARISE. The financial reporting, analysis, projections, observations, and other information contained herein are statements of opinion and not statements of fact or recommendations to purchase, sell, or hold any securities. Each opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein.


BORDERS BOOKS

ADDENDUM I

REQUIRED CLIENT INFORMATION


BORDERS BOOKS

ADDENDUM J

QUALIFICATIONS


QUALIFICATIONS OF

CYNTHIA K. LATHAM, MAI Senior Real Estate Analyst

CB RICHARD ELLIS, INC.

VALUATION AND ADVISORY SERVICES 2700 Post Oak Boulevard, Suite 250

Houston, Texas 77056 (713) 888-4765

FORMAL EDUCATION

TRINITY UNIVERSITY- B.B.A.- 1981

CONTINUING EDUCATION Standards of Professional Practice Parts A, B and C Internet and Appraising Understanding Limited Appraisals Subdivision Analysis General Applications

LICENSE(S)/CERTIFICATION(S) Certified Real Estate Appraiser: State of Texas (TX-1323775-G)

PROFESSIONAL AFFILIATIONS & DESIGNATIONS ATTAINED Appraisal Institute Designated Member (MAI)

EMPLOYMENT EXPERIENCE

Twenty five years of Real Estate Appraisal and Consulting experience throughout the United States. Experience includes research, analysis, presentation, review, management, real estate valuation and feasibility studies. May 2006-present CB Richard Ellis, Inc., Appraisal Services Houston, Texas Senior Real Estate Analyst 1996-2006 Aaron and Wright Houston, Texas Senior Real Estate Analyst 1991-1996 Chief Appraiser, First Interstate Bank Houston, Texas 1981-1991 Real Estate Appraisal Independent

Contractor San Antonio, New Orleans, Nashville and Houston


QUALIFICATIONS OF

STEPHEN D. DUPLANTIS, MAI Senior Managing Director

CB RICHARD ELLIS, INC.

VALUATION & ADVISORY SERVICES 2700 Post Oak Boulevard, Suite 250

Houston, Texas 77056 (713) 840-6625

FORMAL EDUCATION

Texas A & M University - B.S. Agricultural Economics (August 1983)

CONTINUING EDUCATION All current requirements have been completed for each of the state’s certifications as well as the Appraisal Institute for the MAI designation.

LICENSE(S)/CERTIFICATION(S) Certified Real Estate Appraiser:

State of Arkansas (CG0913N) State of Kansas (G-1255) State of Louisiana (G-0523) State of Mississippi (GA-737) State of Missouri (2002015691) State of Oklahoma (11588CGA) State of Texas (TX-1321138-G)

PROFESSIONAL AFFILIATIONS & DESIGNATIONS ATTAINED

Appraisal Institute Designated Member (MAI), Certificate No. 8149 - May 1989 President – Houston Chapter #33 Appraisal Institute (1998) Vice President – Houston Chapter #33 Appraisal Institute (1997) Secretary - Houston Chapter #33 Appraisal Institute (1996) Board of Directors – Houston Chapter #33 Appraisal Institute (1991-1996) Past Chairman of Social Committee, Education Committee, Candidate Guidance Committee and Admission Committee Approved Instructor – Appraisal Institute

EMPLOYMENT EXPERIENCE Twenty years of Real Estate Appraisal and Consulting experience throughout the United States. Expert witness in commissioner, condemnation and bankruptcy hearings. Also served on mediation hearings. March 1996 – Present CB Richard Ellis, Inc. Houston, Texas Valuation & Advisory Services Senior Managing Director 1983-1996 The Gerald A. Teel Company Houston, Texas Manager


BORDERS BOOKS

ADDENDUM K

ENGAGEMENT LETTER
