real property appraisal...the subject property. it contains the reasoning and pertinent data leading...

1

REAL PROPERTY APPRAISAL

OF PROPERTY

KNOWN AS

333 Chambers Street

Block: 14208, Lots: 1 & 2

Trenton, NJ 08609

PREPARED FOR

Alt Cap USA

67 Prospect Avenue – Suite 7C

Hewlett, NY 11557

As Of

July 26, 2018

PREPARED BY

GARY TIGHUE, SCGREA

President Tighue Appraisal Group

100 White Horse Avenue

Trenton, NJ 08210

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TIGHUE APPRAISAL GROUP Real Estate Appraisers Consultants

MAIN OFFICE: 100 WHITEHORSE AVENUE, TRENTON, NEW JERSEY OFFICE (609) 581-0100 FAX (609) 581-8435

GARY J. TIGHUE PRESIDENT

Date of Report: August 3, 2018

Date of Valuation: July 26, 2018

Alt Cap USA

67 Prospect Ave – Suite 7C

Hewlett, NY 11557

In accordance with your request, we have appraised the above captioned property.

At your request, we have inspected the captioned property and conducted the appropriate

investigation and analysis to estimate the market value of the subject's fee simple estate as of July 26,

2018. This is an "appraisal report". It was prepared under Standard Rule 2-2(b) of the Uniform

Standards of Professional Appraisal Practice. In addition, the report complies with state and federal

laws governing real estate appraisal, as well as the appraisal requirements of the client. In

preparing this appraisal Gary Tighue made a personal inspection of the subject property, and

conducted all necessary investigations and analyses of data considered relevant to this valuation

assignment. This transmittal letter is followed by a narrative report containing 73 pages describing

the subject property. It contains the reasoning and pertinent data leading to the estimated value.

Your attention is directed to the "Disclosures, Assumptions, and Limiting Conditions" which are

included near the beginning of the report. In this case, the client has requested that the “as is” and

“as complete” value be determined. Therefore, this appraisal is based on an extraordinary

assumption .

It is my opinion and conclusion that the future prospective market value of the subject property will

be $260,000 on or about November 1, 2018 which is the expected day of completion.

It is my further opinion, that the “as is” value of the subject property as of July 26, 2018 was

$140,000.

Respectfully submitted,

Gary Tighue

President, SCGREA # 42RG0114500

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TABLE OF CONTENTS

Title Page ................................................................................................................................... 1

Letter of Transmittal .................................................................................................................. 2

Table of Contents ...................................................................................................................... 3

Executive Summary .................................................................................................................. 4

Certification of the Appraiser ................................................................................................... 5

Appraisal Process ...................................................................................................................... 6

Disclosures, Assumptions, and Limiting Conditions ............................................................... 8

Scope of the Appraisal ............................................................................................................ 11

Definition of Value ................................................................................................................. 13

Property Rights Appraised ...................................................................................................... 13

Identification of the Property, Statement of Ownership and History of Property .................. 15

Regional Community and Neighborhood Data ...................................................................... 16

Site Data .................................................................................................................................. 24

Description of Improvements ................................................................................................. 24

Zoning ...................................................................................................................................... 34

Taxes and Assessment Data .................................................................................................... 34

Highest and Best Use of the Land As Though Vacant ........................................................... 37

Highest and Best Use of the Property As Improved ............................................................... 38

Sales Comparison Approach ................................................................................................... 39

Income Approach .................................................................................................................... 49

Reconciliation, Final Value Estimate ..................................................................................... 56

Addenda

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EXECUTIVE SUMMARY

Subject Property Location: 333 Chambers Street

Trenton, New Jersey 08609

Block/Lot: Block: 14208, Lots: 1 & 2

Owner of Record: JLV, LLC

Property Rights Appraised Fee Simple Interest

Property Type: Professional Office Building

Lot Size: 5,060 square feet

Building Size: 3,524 square feet

Effective Age of Improvements: 5 Years

Highest and Best Use of Land

As Though Vacant: Development of Professional Office

Highest and Best Use of Property As

Improved: Current Professional Office Bldg. Use

Assessed Value: Land $ 62,800

Improvements: $141,500

Total: $204,300

Value Estimate Via Sales Comparison

Approach “As Completed” : $260,000

“As Is” Value as of July 26, 2018: $140,000

Value Estimate Via Income Approach: $250,000

Future Prospective Market Value on or

about November 1, 2018: $260,000

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CERTIFICATION OF THE APPRAISER

I certify that, to the best of my knowledge and belief, the statements of fact contained in this report are true

and correct, and my compensation is not contingent upon the reporting of a predetermined value that favors

the cause of the client.

The reported analysis, opinions and conclusions are limited to only the reported assumptions and

limiting conditions, and are my personal, unbiased professional analysis, opinions, and

conclusions.

I have no direct or indirect interest, financial or otherwise, in the property or transaction that is the

subject of this report, and I have no personal interest or bias with respect to the parties involved in

the transaction;

The acceptance of this appraisal assignment was not based on, and the appraisal report will not be

prepared or based on a requested minimum valuation, a specific valuation, a value within a given

range, or the approval of a loan;

To the best of my knowledge and belief, the reported analysis, opinions and conclusions were

developed, and this report has been prepared in conformity with the requirements of the Uniform

Standards of Professional Appraisal Practice.

I have made a personal inspection of the property that is the subject of this report, and I have the

knowledge and experience to complete the assignment competently.

Unless otherwise noted, no one provided significant professional assistance to the person signing

this report.

I have appraised or performed any other service pertaining to the subject property within the

past three years. Gary Tighue appraised the subject property on July 15, 2016.

I further certify that I am a licensed general appraiser in the state in which the subject property is located,

and I have complied with the competency provision of the Uniform Standards of Professional Practice

(USPAP) as adopted from time-to-time by the Appraisal Standards Board of the Appraisal Foundation.

_________________________________

Gary Tighue

New Jersey General Appraiser

License SCGREA #42RG 00114500

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APPRAISAL PROCESS

The appraised value as set forth in this report is supported with consideration and the use of

standard accepted appraisal practices and valuation procedures. There are three distinct

approaches to value utilized in the process: the Cost Approach, the Direct Sales Comparison

Approach, and the Income Approach.

Cost Approach

The Cost Approach is based on the understanding that market participants relate value to

cost. In the Cost Approach, the value of a property is derived by adding the estimated value

of the land to the current cost of constructing a reproduction or replacement for the

improvements and then subtracting the amount of depreciation in the structure from all

causes.

Direct Sales Comparison Approach

Using this approach, the appraiser produces a value indication by comparing the subject

property with similar properties, called “comparable sales”. The appraiser estimates the

degree of similarity or difference between the subject property and the comparable sales by

considering various elements of comparison such as location, physical characteristics,

conditions of sale, market conditions, etc. Through this comparative process, the appraiser

divulges an estimate of the subject’s value as of the effective date of the appraisal.

Income Approach

Income producing real estate is typically purchased as an investment, and a property’s

earning power is the critical element affecting property value. An investor who purchases

income-producing real estate is essentially trading present dollars for the expectation of

receiving future dollars. The Income Capitalization Approach consists of various methods,

techniques, and mathematical procedures used to convert the monetary benefits of income

and property reversion into an indication of present value. In applying the Income

Capitalization Approach, the appraiser assumes that the investor’s ultimate objective is a

full return of the amount invested, plus an appropriate return on the capital invested. Since

the return from real estate may be realized in a variety of forms, many rates or measures of

return, can be utilized to convert a future income stream into value. These methods are

described in the Income Approach found elsewhere in this report.

After indications of value have been found, using each of the applicable approaches to

value, the results are analyzed in the reconciliation to develop an estimate of value. In the

final analysis, the appraiser must evaluate the relative merit of each approach in light of the

property appraised and must place more emphasis on those approaches that offer the

greatest degree of reliability for the type of property appraised.

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APPROACHES to VALUE UTILIZED

In this instance the appraiser will utilize the:

Income Approach

Sales Comparison Approach

APPROACHES to VALUE NOT UTILIZED

The Cost Approach was not utilized in this case for the following reasons:

1.) After an exhaustive search for comparable land sales, it was determined that there

were not enough sales in this “built-up” area to make a reasonable determination of the

subjects site value.

2.) Depreciation estimates on buildings as old as the subject property become very

subjective and generally unreliable.

8

GENERAL ASSUMPTIONS and LIMITING CONDITIONS

This appraisal report has been made with the following general assumptions:

1. No responsibility is assumed for the legal description provided or for matters pertaining to

legal or title considerations. Title to the property is assumed to be good and marketable

unless otherwise stated

2. The appraiser was not furnished with an up to date survey of the subject property, and for

the purpose of this analysis has assumed that the Municipal Tax Map information is

correct.

3. The appraiser has not been provided with a wetlands map, and has been instructed by the

client to assume there are no wetlands affecting the development of the property.

4. The property is appraised free and clear of any or all liens or encumbrances unless otherwise

stated.

5. Responsible ownership management and competent property management are assumed

6. The information furnished by others is believed to be reliable, but no warranty is given for

its accuracy.

7. All engineering studies are assumed to be correct. Any plot plans and illustrative materials

in this report are included only to help the reader visualize the property.

8. It is assumed that there are no hidden or inapparent conditions of the property, subsoil, or

structures that would render it more or less valuable. No responsibility is assumed for such

conditions or for engineering which may be required to discover such factors.

9. It is assumed that the property is in full compliance with all applicable federal, state, and

local environmental regulations and laws unless the lack of compliance is stated, described,

and considered in this report.

10. It is assumed that the property conforms to all applicable zoning and use regulations and

restrictions have been complied with, unless a nonconformity has been identified,

described, and considered in the appraisal report.

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GENERAL CONDITIONS (Continued

11. It is assumed that all required licenses, certificates of occupancy, consents, and other

legislative or administrative authority from any local, state, or national government or

private entity or organization have been or can be obtained or renewed for any use on

which the opinion of value contained in this report is based.

12. It is assumed that the use of the land and improvements is within the boundaries or property lines

of the property described and that there is no encroachment or trespass unless noted within the

report.

13. 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 appraiser. The appraiser has no

knowledge of the existence of such materials on the property. The appraiser, however, is not

qualified to detect such substances. The presence of substances such as asbestos, urea-

formaldehyde foam insulation, and other potentially hazardous materials may affect the

value of the property. The value estimated 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 such conditions or for the expertise or engineering knowledge required to

discover them. The intended user is urged to retain an expert in this field if so desired.

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GENERAL CONDITIONS (Continued

This Appraisal report has been made with the following limiting conditions:

1. Neither all nor any part of the contents of this report (especially any conclusions as to value,

the identity of any appraiser or appraisers, or the firm with which such appraisers are

connected, or any reference to any of their professional designations) should be

disseminated to the public through advertising media, public relations, news media, sales

media, mail, direct transmittal, or any other public means of communication, without the

prior written consent and approval of the appraiser.

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

3. Any allocation of the total value estimated in this report between the land and the

improvements applies only to the program of utilization. The separate values allocated to

the land and buildings must not be used in conjunction with any other appraisal and are

invalid if so used.

4. The opinion of value expressed herein is valid only for the stated purpose and date of the

appraisal.

5. The appraiser, by reason of this appraisal, is not required to give further consultation or

testimony or to be in attendance in court with reference to the property in question unless

arrangements have been previously made.

6. This report and the conclusions arrived at herein, are for the exclusive use of our client for

the sole and specific purposes as noted herein. Furthermore the report and conclusions are

not intended by the author, and should not be construed by the reader, to be investment

advice in any manner whatsoever. The conclusions reached herein represent the

considered opinion of the appraiser, based upon information furnished to him.

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SCOPE OF WORK

The scope of work involves the research and analysis that is necessary to develop credible assignment

results. Determining the scope of work is an ongoing process in an assignment. It should be

acknowledged that information discovered or conditions discovered during the course of an

assignment might cause an appraiser to reconsider the scope of work .In this instance the appraiser will

prepare a narrative report in accordance with its intended use and in compliance with the "Uniform

Standards of Professional Appraisal Practice".

The purpose of the “Uniform Standards of Professional Appraisal Practice” (USPAP) is to promote

and maintain a high level of public trust in appraisal practice by establishing requirements for

appraisers. Standards 1 and 2 establish requirements for the development and communications of real

property appraisal.

Standard 1 requires that when developing a real property appraisal an appraiser must identify the

problem to be solved, determine the scope of work necessary to solve the problem, and correctly

complete research and analysis necessary to produce a credible appraisal.

Standard 2 addresses the content and level of information required in a report that communicates the

results of a real property appraisal. Standard 2 does not dictate the form, format, or style of the report

because they are functions of the needs of intended users and appraisers.

Appraisal Reports can be prepared under one of the following options: “Appraisal Report” or

“Restricted Appraisal Report”. In this instance the appraiser will prepare the subject appraisal utilizing

the “Appraisal Report” format consistent with the intended use of the appraisal.

The appraiser will conduct a physical inspection of the property, as well as the subject neighborhood

and general area. Additional property related data will be assembled from the public records, zoning

regulations, assessor's files, and the appraisers own office files.

If applicable, information will obtained from the review of various real estate and investment

publications and conversations with other professionals, as well as with local residents and business

persons.

The documentation necessary to arrive at a value conclusion will be considered in this appraisal report.

The market data collected, will be confirmed, and analyzed by the appraiser. Comparable sales will be

chosen for their similar highest and best uses as outlined within the report. All sales utilized will be

compared to the subject property based on their similarities and dissimilarities. We will attempt to

confirm and verify all sales and rental data with at least one party familiar with the transaction.

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SCOPE of WORK: (continued)

A narrative appraisal report on the subject property will be prepared. Data, such as size,

location, quality, and zoning will be considered and presented in this report. When

applicable, available market data, including rental rates, operating expenses, comparable

improved sales, and market demand will be researched, analyzed, and presented. Market

derived data will be used to consider the highest and best use of the subject property, and to

estimate the market value.

The appraisers lack the knowledge and experience with respect to the detection and

measurement of hazardous substances. Therefore, this assignment does not cover the

presence or absence of such substances, as discussed in the General Underlying

Assumptions Section. However, any visual or obviously known hazardous substances

affecting the property will be reported and an indication of its impact on value will be

discussed.

Extra Ordinary Assumptions

The borrower estimates that it will take approximately three months from closing

(expected on or about November 1, 2018) to complete all proposed improvements.

This creates an extra ordinary assumption since this appraisal is based on the

assumption that all proposed renovations will be completed according to plans and

specifications. As a result, the “as completed” value will only apply upon completion

of all proposed renovations and improvements

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PURPOSE OF THE APPRAISAL

The purpose of this appraisal is to provide the appraiser's best estimate of the Future Prospective Market

Value on or about November 1, 2018 and the "As Is" market value of the subject real property as of July 26,

2018. Market value is defined by the federal financial institutions' regulatory agencies as follows:

Market value means the most probable price that a property should bring in a competitive and open market

under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and

assuming the price is not affected by undue stimulus. Implicit in this definition 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

Note: The above definition is the same for the Department of the Treasury, Office of the Comptroller of

the Currency, 12 CFR Part 34, dated August 24, 1990 (Section 34.42 Definitions). This is the current

definition required under the Uniform Standards of Professional Appraisal Practice (USPAP). This definition

is also the same as set forth in N. J. A. C. 13:40 A-1.2.

INTENDED USE OF THE APPRAISAL

The intended use of this appraisal is for mortgage lending purposes.

PROPERTY RIGHTS APPRAISED

The property is appraised on the basis of a fee simple estate, as defined by the Appraisal Institute, The

Dictionary of Real Estate Appraisal, AIREA, Chicago, Illinois, 6th

Edition, 2015, Page 128.

Fee Simple Estate

“Ownership of a title in fee establishes the interest in property known as the fee simple estate i.e., 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”.

1 The Appraisal of Real Estate, Fourteenth Edition, published by the Appraisal Institute, page 59.

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REASONABLE EXPOSURE TIME

USPAP Standard Rule 1-2 requires appraisers when developing an opinion of market value to develop

an opinion of reasonable exposure time linked to the value opinion. Exposure Time is defined as “the

estimated length of time the property being appraised would have been offered on the market prior to

the hypothetical consummation of a sale at market value on the effective date of the appraisal:

(Exposure time is always presumed to precede the effective date of the appraisal).

After completing a study and analysis of the market for this type property, it was the appraiser’s opinion

that 8 to 12 months would be considered a reasonable exposure time for the subject property.

REASONABLE MARKETING PERIOD

A “Reasonable Marketing Period” is an opinion of the amount of time it might take to sell a real or

personal property interest at the concluded market value level during the period immediately after the

effective date of the appraisal. It is not intended to be a prediction of a date of sale or a one-line

statement. It is simply part of the analysis conducted during the appraisal assignment.

After considering information gathered through sales verification, interviews with market participants

anticipated changes in market conditions, and other statistical information including days on market, it

was the appraisers opinion that in this instance a reasonable marketing period for the subject property

would be 8 to 12 months.

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INTENDED USER OF THIS APPRAISAL

This appraisal was ordered by and will be provided to Alt Cap USA, 67 Prospect Avenue –

Suite 7C, Hewlett, NY 11557

EFFECTIVE DATE OF VALUATION

The effective date of this appraisal, the date as of which the valuation applies is July 26,

2018.

OWNERSHIP AND HISTORY

The property is owned by JLV,LLC. The last transfer of the property occurred on October

4, 2016 and the purchase price then was $80,000

Grantor: R A C E, LLC Book: 6264

Grantee: JLV, LLC Page: 1037

IDENTIFICATION OF THE PROPERTY

The subject property is known as 333 Chambers Street, Trenton, Mercer County, New Jersey.

It is identified by the City of Trenton Assessor's Office as Block: 14208, Lots: 1 & 2.

CURRENT STATUS OF SUBJECT

The subject property is currently not on the market.

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REGIONAL DESCRIPTION

Located midway between New York City and Philadelphia in New Jersey's center, Mercer County's 13

municipalities span 226 square miles, which encompass the City of Trenton, Townships of East

Windsor, Ewing, Hamilton, Hopewell, Lawrence, Princeton, Washington and West Windsor, and the

Boroughs of Hightstown, Hopewell, Pennington and Princeton. Mercer County's geographic location

overlaps three major markets: Suburban Manhattan-New England; Delaware Valley Region known as

the Pen-Jer-Del and the Boston-Washington corridor. Mercer County is the hub of a sub-region

comprised of 7 counties: Mercer, Bucks (PA), Hunterdon, Somerset, Middlesex, Monmouth and

Burlington.

Many companies that are research oriented have selected Mercer County because of the availability of

nearby educational facilities. It is the home of Princeton University and the Institute for Advanced

Study. Other academic institutions have made their home in Mercer County. They include Rider

University, Thomas A. Edison College, The College of New Jersey (formerly Trenton State College), the

Westminster Choir College, and Mercer County Community College. The area also provides business,

vocational and trade schools, including Mercer County Area Vocational Technical School, Trenton

Technical Institute and Mercer County School for the Performing Arts. The County also boasts of three

leading nationally renowned preparatory schools - Hun, Peddie and Lawrenceville.

Since Interstate 295 has been linked several miles to the southeast with I-95, I-295, Route 33, Route 206,

Route 130 and the New Jersey Turnpike at Exit 7A further focus has been brought to Mercer County's

strategic location. Just 7 miles from Route 1, southwestward along I-95 is Mercer County Airport at

Exit 2. This airport features regular jet service Boston via US Air and Pan Am. Mercer County Census Figures by Municipality

Municipality Land Area (sq mi) 2000 2010

Mercer County 224.6 350,761 366,513

East Windsor township 15.6 24,919 27,190

Ewing township 15.3 35,713 35,790

Hamilton township 39.5 87,109 88,464

Hightstown borough 1.2 5,216 5,494

Hopewell borough 0.7 2,035 1,922

Hopewell township 58.0 16,105 17,304

Lawrence township 21.8 29,159 33,472

Pennington borough 1.0 2,696 2,585

Princeton borough 1.8 13,558 12,307

Princeton township 16.1 16,672 16,265

Robbinsville township 20.3 10,275 13,642

Trenton city 7.6 85,397 84,913

West Windsor township 25.6 21,907 27,165

17

REGIONAL DESCRIPTION (Continued)

On the previous page are the 2000 and 2010 census figures for Mercer County, each

municipality and the land area. As shown, most communities increased in population

giving the county a nearly 16,000-person increase in the 10-year period.

18

REGIONAL DESCRIPTION (Continued)

As seen in the charts on the previous page, industries such professional services and trade

showed noteworthy gains while 13 of 19 industries are projected to grow by 2024.

Due to a lot of prosperous communities, such as Princeton, West Windsor, Hopewell and

Pennington, there is a significant percentage of income at the higher end but still a notable

amount at the low end due to the high poverty rate of Trenton.

Residential Building Permits for Mercer County: 2012-2016 (ytd)

2012 2013 2014 2015 2016 1 Family Units 110 177 239 284 155

2 Family Units 12 32 8 12 32

3 or 4 Family Units 3 32 0 3 50

5 or more Family Units 319 723 121 597 290

Total Units 444 964 368 896 527

Total Value ($) 58,190,279 113,954,484 60,726,806 107,633,846 67,016,970

Residential permits and value has been inconsistent in the past 5 years with spikes in 2013 and

2015. Mercer County is usually amongst the bottom half of all the counties in permits issued but

even lower when ranked by total value.

19

COMMUNITY DESCRIPTION

Trenton’s river location spurred its historic development as a manufacturing and trade center. The

City of Trenton has continued to benefit from its accessibility via the region’s transportation network,

including Interstate, Federal and State highways, as well as rail service along the northeast corridor

line. These include U.S. Routes 1 and 206, State Routes 29, 31, 33 and 129, and Interstates 95, 195,

and 295. These arteries and the Northeast Corridor of the Amtrak line give Trenton a strategic location

between Philadelphia and New York City. The Trenton Railroad Station, in the heart of the Northeast

Corridor between New York and Philadelphia, is used by more than 14,000 commuters daily. Many

residents of Trenton are able to reach their jobs at the Amazon.com fulfillment center in Robbinsville

using the Z-line, a free bus shuttle that transports employees between Hamilton Marketplace and the

Matrix Business Park.

The City encompasses an area of 7.6 square miles. Ewing and Lawrence Townships border the city to

the north, Hamilton Township to the east and south, and the Delaware River to the south and west.

According to the 2010 U.S. Census, the population was 84,913, a 0.6% decrease from 2000 when it

was 85,397. This decline reflects a pattern experienced throughout the state, with older urban centers

losing population to the developing suburbs.

Trenton serves as the state capital and benefits from its status as a government center. The State

Government is by far the largest employer in the city, generating more than 20,000 jobs.

As shown in the below table, Trenton is the poorest municipality in Mercer County. In all categories,

it has a lower value than all the other communities. Its median household income, median family

income, and per capita income are much lower than Ewing and Hamilton Townships, which are the

economically closest municipalities.

COMMUNITY DESCRIPTION (Continued)

20

Poverty Status 2006-2010

Total

Population

Number with income

below poverty level

Percentage

Mercer county 349830 35376 10.1%

East Windsor township 26799 1337 5.0%

Ewing township 31983 3189 10.0%

Hamilton township 87455 4551 5.2%

Hightstown borough 5429 471 8.7%

Hopewell borough 1992 10 0.5%

Hopewell township 16250 279 1.7%

Lawrence township 30923 1790 5.8%

Pennington borough 2605 157 6.0%

Princeton borough 9160 591 6.5%

Princeton township 16272 1259 7.7%

Robbinsville township 13016 404 3.1%

Trenton city 81663 20037 24.5%

West Windsor township 26283 1301 4.9%

Source: 2006-2010 American Community Survey (5-year estimates) Summary File (SF)

The above table shows the vast difference between Trenton and the rest of the county in living

standards. A much higher percentage of Trenton’s population is living in poverty, as compared

with other communities in Mercer County.

The labor area, due to its central location and proximity to institutions of higher education, has

developed a highly educated and skilled workforce. This has made the area a prime location for

many businesses conducting research and development in the life science and pharmaceutical

industries. Trenton has been able to benefit from a recent trend to build solar farms in the region

because PSE&G constructed one in Trenton.

There are many shopping centers, industrial and commercial office parks in the area, including

in Trenton, that are currently empty because of the current economic situation. However, all this

availability could greatly benefit the area when the economy rebounds. Portions of Trenton are

part of an Urban Enterprise Zone. In addition to other benefits to encourage employment within

the Zone, shoppers can take advantage of a reduced 3.3125% sales tax rate (versus the 6.625%

rate charged statewide). Businesses also get tax free purchases on certain items (such as capital

equipment, facility expansions, and upgrades), financial assistance, subsidized unemployment

insurance, energy sales tax exemption and tax credit options. Also, the Trenton Thunder, a

minor league baseball team, has its home field at Arm and Hammer Park, located on Route 29.

http://en.wikipedia.org/wiki/Urban_Enterprise_Zone

http://en.wikipedia.org/wiki/Sales_tax

21

COMMUNITY DESCRIPTION (Continued)

There is a Trenton Housing Rehabilitation Program and Neighborhood Housing

Rehabilitation Program to help renovate low to moderate households. A map showing the

areas affected by these programs is located below.

Residential Building Permits for Trenton: 2013-2017 (ytd)

2013 2014 2015 2016 2017

1 Family Units 0 0 0 0 0

2 Family Units 0 0 0 0 0

3 or 4 Family Units 0 0 0 3 0

5 or more Family Units 19 10 40 165 56

Total Units 19 10 40 168 56

Total Value ($) 2,575,768 54,500 55,426 8,002,450 1,755,533

Residential development has been very inconsistent in recent years but it has increased sharply

in the past 2 years. Development is focused on high capacity units due to the large population

density.

22

NEIGHBORHOOD DESCRIPTION

The subject property is located along Chambers Street in Trenton across from what will

eventually be the new “Trenton High School”, between Hamilton Avenue and Greenwood

Avenue. Most of the property uses off of Chambers Street consist of older (over 80 years of

age) single family dwellings. The land uses along Chambers Street, as well as Hamilton

Avenue and Greenwood Avenue consist of both single family homes and various

commercial properties including professional offices, auto repair shops, a hospital, free-

standing retail buildings, restaurants and mostly mixed-use type buildings. Almost all

buildings in the immediate area are over 80 years of age, and most appear to be well

maintained.

AREA MAP

23

PROPERTY DESCRIPTION

The subject property consists of a 4,053 square foot, part one-story and part two and half, professional

office building situated on a 4,785± square foot site. The building is currently under construction.

SITE DESCRIPTION

The subject site is a mostly rectangular shaped parcel that covers a total estimated area of about 4,785

square feet. It has approximately 55± feet frontage along Chambers Street and 94± feet of frontage along

Tyler Street. The site is a corner lot.

The site is level at road grade. The site is improved with a small parking lot that is paved and can

accommodate approximately 5 cars. Utilities available to the site are water, sewer, electric, telephone and

gas.

According to FEMA map # 345325 0003 C dated 2/2/1990, the subject property “is not” located

within a flood prone area. It is situated in “Zone C”.

IMPROVEMENT DESCRIPTION

The subject structure is currently being completely renovated and will be improved with a part one-story

and part 2½ story, 4,053± square foot, professional office building.

The building is a frame built structure, which has a part brick and part vinyl sided exterior. The roof is part

flat and covered with tar & metal and part pitched and finished with asphalt shingles. The subject structure

is supported by a concrete block foundation which provides basement area under 100% of the subject’s first

floor. All windows are double hung type or swing out style.

The office interior will be finished with painted sheet rock walls, painted sheet rock and suspended acoustic

ceilings, and vinyl tile floors. Lighting is provided by overhead fluorescent light fixtures. The building

includes a handicap access ramp. There is also an attic above the 2nd

floor which is for storage and not

included in the gross building area, but could be finished in the future which would create additional

building area.

The building is heated with a gas fired, baseboard heating system which is in average condition and will be

cooled with central air conditioning.

The subject floor plan includes the following:

First Floor: Lobby, Two (2) Larger Open Offices, Four (4) Individual Offices, Kitchenette, and Two 2-

Fixture Rest Rooms.

Second Floor: Four (4) Offices, One -3-Fixture Rest Room

Third Floor: Two (2) Offices

24

Improvement Description: (continued)

The basement is partially finished but will be completely remodeled and contain a large conference room

and 2-fixture rest room.

Upon completion of all proposed construction, the subject building is expected to be in “good” condition

with an effective age of just five years.

CONSTRUCTION BUDGET

Below is a list of the items and their costs of the proposed renovations expected to be made

on and in the existing subject structure. Some of these items have already been completed.

Exterior

Estimated Cost / Remaining Costs

New Flat Roof: $12,000 (80% complete) $ 2,400

Trim/Soffit/Fascia: $ 6,100

21 Glass Windows: $14,400 (90% complete) $ 1,440

Front Doors: $ 3,600

Exterior Painting $ 2,200

Other: $ 1,400

Interior

Framing/Carpentry: $12,000 (80% complete) $ 2,400

Insulation: $ 5,200

Drywall: $ 8,500

Interior Painting: $ 8,000

25 Light Fixtures: $ 3,100

Kitchen Appliances: $ 2,600

Kitchen Cabinets/Counters/Backsplash: $ 4,600

Kitchen Sink/Fixtures: $ 6,600

Plumbing: $ 9,000

Electric: $19,000 (10% complete) $15,300

HVAC: $12,500

Hot Water Heater: $ 2,000

Hardware & Accessories: $ 700

Smoke Alarms/Fire Alarms: $ 5,300

Carpeting: $ 4,000

Tile Flooring: $ 5,600

Miscellaneous: $ 4,100

TOTAL ESTIMATED REMAINING COST: $116,640

25

SITE MAP

26

FLOOR PLAN

27

FLOOR PLAN – 2nd & 3rd

Floors

28

SUBJECT PROPERTY PHOTOGRAPHS

FRONT OF SUBJECT

REAR OF SUBJECT

29

SUBJECT PROPERTY PHOTOGRAPHS

REAR OF SUBJECT

STREET SCENE

30

ASSESSMENT and TAXES

The 2017 tax assessment for the subject property is as follows:

Land: $ 62,800

Improvements: $141,500

Total $204,300

The current tax rate is $4.955 per $100 of assessed value resulting in an annual tax burden

of $10,123.00. The City of Trenton is currently assessing property at a ratio of 99.28%

of true value. Based on this ratio the tax assessors indicated value for the subject property

would be $205,781.

ZONING

The subject property is situated in the RB (Residential B) Zone as delineated by The City of

Trenton.

Permitted uses within this zone include: Detached Single Family Dwellings, Semi-

Detached Single Family Dwellings, and Row House Dwelling Units.

The Bulk Requirements are as Follows:

Minimum Lot 4,000 sq.ft.

Minimum Front Yard 20 feet

Minimum Rear Yard 35 feet

Minimum Lot Width 40 feet

Minimum Side Yard 14 feet

Maximum Building Height 35 feet – 3 stories

Maximum Lot Coverage 45%

Minimum Net Habitable Floor Area 1,200 sq.ft.

The subject property does not conform to zoning requirements due to its use as a

professional office not being a permitted use in the RB zone. However, the subject

improvements existed prior to the creation of current zoning ordinances, so the subject is

considered a “legal, non-conforming” use.

31

ZONING MAP

32

HIGHEST AND BEST USE ANALYSIS

Definition

Highest and best use is the reasonably probable and legal use of vacant land on an improved

property, which is physically possible, appropriately supported, financially feasible, and that

results in the highest value.

The highest and best use of both land as though vacant and property as improved must meet

four criteria. The highest and best use must be 1) physically possible, 2) legally permissible,

3) financially feasible, and 4) maximally productive. These criteria are usually considered

sequentially; a use may be physically possible, but this is irrelevant if it is feasibly

impossible or legally prohibited. Only when there is a reasonable possibility that one of the

prior, unacceptable conditions can be changed is it appropriate to proceed with the analysis.

If, for example, current zoning does not permit a potential highest and best use, but there is

a reasonable possibility that the zoning can be changed, the proposed use can be considered

on that basis.2

The definition immediately preceding applies specifically to the highest and best use of land

and/or property. It is to be recognized that in cases where a site has existing improvements

on it, the highest and best use may very well be concluded to be different from the existing

use. The existing use will continue; however, unless and until land value in its highest and

best use exceeds the total value of the property in its existing use.

Also implied, is that the estimation of highest and best use results from judgment and

analytical skill, i.e., that the use concluded from analysis represents an opinion, not a fact to

be found. In appraisal practice, the concept of highest and best use represents the premise

upon which value is based. In the context of most probable selling price (market value),

another appropriate term to reflect highest and best use would be most probable use. In the

context of investment value, an alternative term would be most profitable use.

The highest and best use of a specific parcel of land is not determined through subjective

analysis by the property owner, developer or the appraiser; rather, it is shaped by the

competitive forces within the market where the property is located. Therefore the analysis

and interpretation of highest and best use is an economic study of market forces focused on

the subject property.

2 The Appraisal of Real Estate, Eleventh Edition, published by the Appraisal Institute.

33

HIGHEST AND BEST USE ANALYSIS (Continued)

Highest and best use of the land as though vacant indicates only how the land should be

used if it were vacant. Highest and best use of the property as improved answers the

question: "How should the property, as it is presently improved, be used?" Should the

existing improvements continue to be used as they now are; should they be altered in some

way, or should they be demolished so new improvements can be constructed?

Highest and Best Use of the Site "As though Vacant"

Physically Possible

The subject site contains 4,787± square feet of land with frontage of approximately 35 feet

along Chambers Street. Soil types and topography appear adequate for development, and

the site is equipped with all utilities.

Legally Permissible

The site is situated in the RB zone. The permitted uses in this zone include: Detached

Single Family Dwellings, Semi-Detached Single Family Dwellings, and Row House

Dwelling Units

Financially Feasible

The subject site is located along the busy Chambers Street between the busy Greenwood

Avenue and the busy Hamilton Avenue across the street from the new Trenton High School.

This is an area consisting of both residential and commercial properties including offices,

retail buildings, auto repair shops and mixed use buildings. The trend in the subject area

had been toward the conversion of existing single family homes to office use or mixed use

buildings containing both residential and office uses within the same building. Though the

subject site is located in a “residential” zone, it would appear likely that a variance would be

granted for the development of either an office building or a mixed use building containing

an office and upper level apartment.

Maximally Productive

Considering the size of the subject site, its location along the busy Chambers Street between

two other busy streets, and what has been the trend in the immediate area, it would appear

likely that the maximally productive use for the subject site if it were vacant would be for

the development of a Professional Office.

34

HIGHEST AND BEST USE ANALYSIS (Continued)

Highest and Best Use "As Improved"

The purpose of determining the highest and best use of property as improved is to identify

the use that is expected to produce the highest overall return for each dollar of capital

invested and to help the appraiser identify comparable properties.

The subject site is improved with a part one-story, part 2½ story, “Professional Office”

Building. As long as the existing improvements can produce gross income that exceeds

reasonable operating expenses the improvements are said to have contributory value. If on

the other hand, the net return is less than the amount that can be earned by the vacant land,

the buildings would have no contributory value and should be demolished.

Given the effective age of the existing structure and its ability to generate net operating

income demolition does not appear to be feasible because the property as currently

improved would sell for more than unimproved land. The subject's present use as a

“Professional Office” Building is obviously physically possible, and its use is also legally

permissible. Given the subject's ability to generate net income, we believe it is

financially feasible to continue said use, because other possible uses would not maximize

the investment consistent with the long term rate of return and associated risk.

Conclusions

Considering what’s legally permissible, financially feasible and maximally productive, it is

the appraiser's conclusion that the highest and best use of the property as improved would

be its current use as a “Professional Office Building”.

VALUATION of the PROPERTY

As previously stated, in appraising the subject property, the appraiser has relied primarily on

the sales comparison approach and income approach.

35

SALES COMPARISON APPROACH

Introduction

The Sales Comparison Approach to value is based upon an analysis of actual sales of other

similar properties, which are compared with the subject. Comparable sales represent the

actions of typical buyers and sellers in the marketplace, and their actions in the market will

determine a price for the subject. When there is an adequate number of sales of truly

similar properties with sufficient information for comparison, a range of values for the

subject property can be developed.

The range of values developed by using units of comparison such as sales price per square

foot or any of several other units can be studied, and necessary adjustments made to provide

for the differences between all the comparables and the subject. An analysis of the adjusted

units of comparison can then form the basis of the market value of the subject property.

Only unit factors considered by the subject market are relevant.

The degree to which the appraiser can rely on the Sales Comparison Approach depends

upon an adequate number and similarity of the circumstances involved in the comparable

sales. Differences always exist between properties, even though they may be almost

identical. Adjustments for these differences serve to define more clearly the price that could

reasonably be expected, subject to the limitations of the definition of market value.

Some adjustments that may prove important are: 1) conditions of sale, 2) financing terms,

3) market conditions (time), 4) location, 5) physical characteristics, and 6) income

characteristics.

The following pages contain pertinent details of the sales considered most comparable to

the subject property. A discussion of adjustments and a conclusion of value will follow.

36

IMPROVED COMPARABLE # 1

Location: 831-835 Cass Street, Trenton

Mercer County, New Jersey

Block/Lot: Block: 17601, Lot: 7

Grantor: 833 Cass Street, LLC

Grantee: Brownstone Realty 5, LLC

Deed Book/Page: Bk: 6232, Pg: 404

Deed Date: October 9, 2015

Building type: Professional Office Building

Building size: 5,400 ± square feet

Lot size: 2,150± square feet

Quality of construction: Average

Effective age/condition: 20 Years/Average

Zoning: BB (Business B)

Sale price: $275,000

Sale price reflects: $50.93 per square foot

37

Comments – Sale # 1

This is the sale of a 5,400± square foot professional office building located at the corner

of South Broad Street and Cass Street in Trenton. The building is a two-story, masonry

structure which contains a reception area, conference room, five (5) individual offices,

kitchenette and rest room on its first floor, and five offices on its second floor. The

building was built prior to 1960 and was sold in “average” condition with an effective age

of 20 years. The building is located on a triangular shaped site which has no on-street

parking. The sale property is located in a busy section of Trenton near many older

commercial buildings.

38


Location: 2600 South Broad Street, Hamilton Twp.



Grantor: Richard I. Wood & Company

Grantee: Not Available

Deed Book/Page: Not Available

Deed Date: April 10, 2018


Building size: 4,320± square feet

Lot size: 12,000 square feet


Effective age/condition: 20 Years/Average

Zoning: HC (Highway Commercial)

Utilities: All available



39


This is the sale of a one-story, 4,320± square foot professional office building located in

neighboring Hamilton Township. The building is a concrete block structure with a brick

front which was vacant for at least one year and sold in “average” condition with an

effective age of 20 years. The building is located along the very busy South Broad Street

which connects Hamilton Township to the City of Trenton. It contains 11 smaller

individual offices and two staff offices as well as a conference room, two rest rooms and

a kitchen area. The building is situated on a 12,000 square foot site which includes a

paved parking lot that provides parking for about 15 cars.

40


Location: 130 West State Street, City of Trenton



Grantor: MacMurray Enterprises, LLC

Grantee: CLB Partners Properties, LLC

Deed Book/Page: Book: 6229, Page: 1683

Deed Date: September 11, 2015



Lot size: 3,887± sq ft


Effective age/condition: 20 Years/ Average

Zoning: BA (Business A)




41


This is the sale of a 3,978± square foot, three-story office building located along West

State Street across from the State House in Trenton. The sale property is a brick and

stone structure which contains numerous offices. The building was constructed over 100

years ago and was sold in “average” condition with an effective age of 20 years. The

buildings surrounding this sale mostly consist of other offices. This property is situated

on a 3,887± square foot site which contains no “on-street parking”.

42


Location: 409 Hazel Avenue, Ewing Township



Grantor: Jamie Buchan

Grantee: Riot N Rage, LLC


Deed Date: December 23, 2016

Building type: Office Building




Effective age/condition: 20 Years/ Average

Zoning: IP-3 (Industrial)




43


This is the sale of a “contractors” office building in neighboring Ewing Township. The

building is a concrete block structure which contains 3,200± square feet of which

approximately 50% is used for storage and assembly. The building is located in an

industrial section of Ewing Township though there are single family homes in the

immediate area of this sale property as well. The building is situated on a 11,200 square

foot site which provides on-site parking for 6 to 10 cars.

44


Location: 72 Benson Avenue, Hamilton Twp.



Grantor: PENPROP, LLC

Grantee: Chestnut Houses, LLC


Deed Date: March 14, 2018

Building type: Office Building




Effective age/condition: 10 Years/Above Average

Zoning: GC (General Commercial)




45


This is the sale of a professional office building in neighboring Hamilton Township. This

sale property is actually located in a mostly industrial section of Hamilton Township

which also contains single family residences as well. The sale property a wood frame

structure which has a brick and aluminum exterior. The office interior contains 7

individual offices and three rest rooms. This building was sold in “above average”

condition with an effective age of 10 years. The building is situated on a 6,000± square

foot site which contains a paved parking lot that provides parking for about 6 cars.

46

PROPERTY SUBJECT COMP #1 COMP #2 COMP #3 COMP #4 COMP #5

ADDRESS: 333 Chambers St 831 Cass Street 2600 S. Broad St 130 West State St 409 Hazel Ave 72 Benson Ave

MUNICIPALITY: Trenton Trenton Hamilton Twp Trenton Ewing Twp Hamilton Twp

COUNTY: Mercer Mercer Mercer Mercer Mercer Mercer

SALE PRICE: N/A $275,000 $279,000 $210,000 $150,000 $252,200

SALE DATE: Insp: 07/26/2018 Oct-15 Apr-18 Sep-15 Dec-16 Mar-18

LAND AREA (SF): 4,784 sq.ft. 2,150 12,000 3,887 11,200 6,000

BUILDING AREA: 4,053 sq.ft. 5,400 4,320 3,978 3,200 3,325

OFF-STREET PARKING Yes None Yes None Yes Yes

HIGHEST & BEST USE: Professional Office Professional Office Professional Office Prof. Office Contractors Office Prof. Office

SALE PRICE PER SF: N/A $50.93 $64.58 $52.79 $46.88 $75.85

ADJUSTMENTS TO SALE PRICE

PROPERTY RIGHTS: Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple

FINANCING: Cash to Seller Cash to Seller Cash to Seller Cash to Seller Cash to Seller

CONDITIONS OF SALE: Arms Length Arms Length Arms Length Arms Length Arms Length

CHANGE IN MARKET CNDTNS: 0.00% 0.00% 0.00% 0.00% 0.00%

ADJUSTED SALES PRICE: 275,000 279,000 210,000 150,000 252,200

ADJUSTED SALE PRICE: $275,000 $279,000 $210,000 $150,000 $252,200

ADJUSTED PRICE PER SF: $50.93 $64.58 $52.79 $46.88 $75.85

OTHER ADJUSTMENTS:

LOCATION: Average 0.00% -10.00% 0.00% 0.00% -10.00%

EFFECTIVE AGE/CONDITION: 5 Years / Good 15.00% 15.00% 15.00% 15.00% 10.00%

QUALITY: Average 0.00% 0.00% 0.00% 20.00% 0.00%

SIZE: 4,053 sq.ft. 5.00% 0.00% 0.00% -5.00% -5.00%

UTILITY: Average 0.00% 0.00% 0.00% 0.00% -10.00%

ZONING: RB 0.00% 0.00% 0.00% 0.00% 0.00%

OFF-STREET PARKING Yes 5.00% 0.00% 5.00% 0.00% 0.00%

TOTAL NET ADJUSTMENT 25.00% 5.00% 20.00% 30.00% -15.00%

INDICATED UNIT VALUE:

$63.66 $67.81 $63.35 $60.94 $64.47

47

COMPARABLE SALES MAP

48

SALES COMPARISON APPROACH (Continued)

Comparable Sales Analysis

The appraiser compared the subject property with five sales of similar properties. Prior to

adjustments, the sale properties reflected a range of $46.88 per square foot to $75.85 per

square foot. Each sale was initially analyzed to determine if adjustments were required to

reflect differences in property rights conveyed, condition of sale, financing terms and

changes in market conditions. The indicated unit sale prices were then used as the basis for

making a direct comparison between the subject and the comparable sales. Items like

location, utility, condition, and size, were considered. Below is a detailed description of

some of the adjustments made.

Changes in Marketing Conditions

Commercial values in the subject area have remained relatively stable over the past two to

three years, so no market condition adjustments were necessary.

Location

The subject property is located in a section of the City of Trenton that is improving (new

high school across the street) but still not considered as strongly a demanded area as

Hamilton Township. Therefore Sales # 2 and # 5 which are situated in Hamilton Township

were each considered superior locations. Sale # 4 is located in an older and comparable

location to the subject location.

Effective Age/Condition

Upon completion of all proposed construction, the subject property is expected to be in

“good” condition with an effective age of just 5 years. Sales # 1, 2, 3 and 4 were also sold

in average condition with effective ages of 20 years while Sale # 5 was sold in “above

average” condition with an effective age of 10 years. Condition adjustments were based on

effective age differences.

Quality

After all renovations are complete, the subject structure is expected to be an “average”

quality structure for its use as a professional office. Sales # 1, 2, 3 and 5 are each standard

offices which were considered equal in quality to the subject structure. However, Sale # 4

is a “contractors office” which contains 50% finished office area and 50% lower quality

assembly / storage area. Sale # 4 was therefore considered an inferior quality structure and

adjusted accordingly.

Size

Upon completion of all proposed construction, the subject property is expected to contain

4,053 square feet. As a rule, smaller buildings will typically sell for more per square foot

than larger buildings having all other variables equal due to “economies of scale”.

Considering this then, Sales # 4 and # 5, which are significantly smaller than the subject in

size, required downward adjustments in order to reflect their inflated sales price due to

smaller size in comparison with the subject. Conversely, Sale # 1, which is significantly

larger than the subject, required an upward adjustment in order to reflect its deflated sales

price due to larger size in comparison with the subject.

49

SALES COMPARISON APPROACH: (continued)

Off-Street Parking

The subject site contains a paved parking lot which provides “off-street parking” for about 5 cars.

Sales # 1 and # 3 contain no off-street parking, so each were considered inferior to the subject and

adjusted accordingly.

Conclusion

After adjusting for significant differences, the indicated unit value for the subject was $60.94 to

$67.81 per square foot. Statistically the adjusted sales resulted in a mean of $64.05 with a median of

$63.66 and standard deviation of 2.48. All five sales required some adjustment, therefore, each was

given equal weight in the determination of subject value.

From the above mentioned data, the appraiser concluded that the subject property has an indicated

market value amounting to $64.00 per square foot, land and improvements merged.

Subject's Future Prospective Market Value

4,053 square feet x $64.00 per square foot = $259,392

Rounded to .................................................................................. $260,000

Subject’s “As Is” Value

As was indicated in this report, the subject property is currently under construction. While under

construction, various “holding costs” will be paid by the owner until its completion. Items such as

property taxes, and utilities will need to be accounted for. In addition, there is still $116,640 in

construction costs remaining to complete this project. The owner estimates that the subject property

will be completed on November 1, 2018 which is approximately 3 months from the date of this

appraisal. Therefore, the “As Is” value of the subject property is as follows:

As Complete Value: ........................................................................................ $260,000

Less: Remaining Construction Costs: $116,640

Less: Property Taxes (3 Mos.): $ 2,530

Less: Utilities ($200 / month): $ 1,000

Total: ...................................................... $120,170

“AS IS” Value of Subject Property: .................................................... 139,830

Rounded to: ........................................................... $140,000

50

INCOME APPROACH

Income producing real estate is typically purchased as an investment and from an investor’s

point of view, earning power is the critical element affecting value. An investor who purchases

income producing real estate is essentially trading present dollars for the right to receive future

dollars. The principle of anticipation and change has a crucial role in this approach. This

principle states that value is created by the expectations of benefits to be delivered in the future;

therefore, value may be defined as the present worth of future benefits.

In applying the income approach the appraiser assumes that the investor expects:

1. Full recovery of the amount invested (Return of Capital)

2. A profit as reward commensurate with the risk (Return on Capital)

Various rates or measures of return can be used in capitalization; however, all rates of return

can be categorized as either "Income Rates," or "Yield Rates." An income rate is the ratio of

one year's income to value; a yield rate is applied to a series of individual incomes to obtain the

present value of each. Yield rates are also called discount rates and/or internal rates of return

(IRR).

In this instance, the appraiser has concluded that mortgage equity analysis best represents

typical purchasers and actions.

In general mortgage-equity analysis involves estimating the value of a property on the basis of

both mortgage and equity return requirements. The value of the equity interest in the property is

found by discounting the pre-tax flows available to the equity investor. The equity yield rate

(Ye) is used as the discount rate. The total value of the property is equal to the present value of

the equity position plus the value of the mortgage. This is true whether the value is found using

discounted cash flow analysis or yield capitalization formulas that have been developed for

mortgage-equity analysis.

The first step in the approach is the determination of a proper rental value based upon a study of

comparable leased properties with respect to rent levels, location, and amenities offered.

Adjustments based upon differences between the comparable rentals and the subject are set

forth and analyzed, so as to form the basis for estimating the correct economic rent for the

subject. A similar analysis of operating expenses further aids the appraiser in constructing an

operating statement providing an allowance for vacancy and collection loss, and deduction for

all operating expenses.

The end result is a net operating income that can be converted into an indicated property value

through the capitalization process. It can also be projected over a stated holding period and

discounted to present value at an appropriate yield or discount rate. The method utilized will

reflect typical investors' considerations for the type property being appraised.

51

INCOME APPROACH (Continued)

Potential Gross Income Estimate

The subject property is currently vacant and will be “owner occupied” upon completion of all

proposed construction. Therefore the appraiser must establish the actual “market rent” for the

subject property by analyzing competing rentals in the subject area.

Below is a list of actual and available office rentals in the Trenton area.

Comparable Commercial Leases

Rental # 1

864 Bellevue Avenue, Trenton, NJ

Building Use: Office Building

Unit Size: 9,808 sq.ft.

Unit Condition: Average

Annual Rent: $96,000 (modified gross)

Rent Reflects: $8.32 psf, net

Term: 2 Years (08/1/2018 to 07/31/2020)

Rental # 2

833 Cass Street, Trenton, NJ

Building Use: Office





Term: 3 Years (2/21/2018 to 2/20/2021)

Rental # 3

826 West State Street, Trenton, NJ






Term: 08/01/2017 to 07/31/2018)

52

INCOME APPROACH (Continued

Available Commercial Leases

Rental # 4

821 South Broad Street, Trenton, NJ




Annual Asking Rent: $26,400 (modified gross)

Asking Rent Reflect: $10.58 psf, net

Asking Term: 2 Years

Rental # 5

318 East State Street – Unit # 1, Trenton, NJ




Annual Asking Rent: $73,890 (modified gross)

Asking Rent Reflects: $8.50 psf, net

Asking Term: 3 Years

Rental Analysis

The appraiser analyzed three actual commercial rentals and two available commercial

rentals in the immediate Trenton area. Each varied in size, location and rental terms.

Considering the subjects location, condition, and each of the unit size and potential rental

terms, the “market rent” for the subject property was concluded to be $9.00 psf, net. The

potential gross income is therefore:

Estimated Potential Gross Income of Subject Property

4,053 sq.ft. x $9.00 psf = $36,477

53


Vacancy and Rent Loss

A survey of the market indicated that prudent investors would typically anticipate a vacancy

rate of 10% for properties similar to the subject. Given current market conditions, it is

reasonable to assume that a vacancy and rent loss over a typical 10 year holding period

would be about 10%.

Effective Gross Income Calculation

Effective gross income (EGI) is ($36,477 - $3,647 = $32,830)

Estimated Operating Expenses

Properties similar to the subject typically rent on both a “net rent” basis and “modified

gross rent” basis. In this case, the subject property will be analyzed on a “net rent” basis

with the tenant paying all real estate related expenses. However, the owner will still be

responsible for management fees and reserves for replacement.

Reconstructed Operating Statement

Based on the preceding data and analysis, the following is a reconstructed

and stabilized estimate of income and expenses for the subject property.

Gross Rent Estimate $31,005

Re-imbursement Income: $20,023

Gross Income Estimate: $51,028

Less Vacancy and Collection Losses (10%): $ 5,102

Effective Gross Income (EGI): $45,926

Less Operating Expenses

Property Taxes: $10,123

Heat & Electric: $ 7,000

Water & Sewer: $ 400

Insurance: $ 1,500

Maintenance/Repairs: $ 1,000

Management (5% EGI): $ 2,296

Reserves/Replace (2% EGI): $ 918

Total Estimated Expenses: $23,237

Stabilized Net Operating Income: $22,689

54


Capitalization of Income

The next step in the income approach is to convert the anticipated net income stream into a value

indication. Based on the nature of the property, its income stream and the reliability of available

data, it was our conclusion that Mortgage/Equity Analysis in this instance best represents typical

purchaser’s expectations and actions. For this and other reasons we will capitalize the subject's

anticipated cash flow using that method. In developing the Overall Capitalization Rate using

Mortgage/Equity Analysis we will consider the following factors:

• Available Mortgage terms

• Investors anticipated yield on equity

Based on our study and analysis, we have determined that typical investor/purchasers of properties

similar to the subject can secure financing for 70% of value at 5.5% for 20 years. This results in an

annual mortgage constant of .082546. We also determined that the same type investor would

anticipate a yield on the equity invested of 11%. Values will remain stable over the projected 10

year holding period.

Summary of Financial Assumptions

• Loan to Value Ratio 70%

• Mortgage Interest Rate 5.5%

• Mortgage Term 20 Years

• Mortgage Constant .082546

• Holding Period 10 Years

• Equity Yield 11%

Calculations

Mortgage Position: .70 X .082564 = .057782

Equity Position: .30 X .110000 = .033000

Weighted Average ............................................................................................090782

Rounded to: ..........................................................................................9.1%

Valuation of the Property

NOI (Divided By) Capitalization Rate = Indicated Value

$22,689 9.1% $249,330

Rounded to $250,000

55

INCOME APPROACH: (continued)

Below is the 2nd

Quarter of 2015, Investors Survey provided by “Realty Rates” relating to

“Office” leases. According to this survey, the overall rate (OAR) for Retail leases is

ranging from 4.53% to 13.99%, with the average OAR being 8.14%. Based on this range,

and considering the subject property location and condition, the developed cap rate of

9.4% is considered supported.

56

RECONCILIATION

AND

FINAL VALUE ESTIMATE

57

RECONCILIATION AND FINAL VALUE

The value indicated by application of each of the utilized approaches is:

Sales Comparison Approach (“As Complete”): $260,000

Sales Comparison Approach (“As Is”): $140,000

Income Approach (“As Complete”): $250,000

In reconciling the indicated values into a final value conclusion, we focused on the following critical

factors:

1. Which of the approaches is based on the greatest amount of reliable data?

2. In which approach are the attitudes of typical buyers and sellers most

faithfully represented?

3. In consideration of the objective of the appraisal and the present use of the subject

property, which approach is the most pertinent?

In this instance the appraiser utilized all the Sales Comparison Approach and the Income Approach.

The Cost Approach was not utilized in this case because of the following reasons:

# 1) After an exhaustive search, it was determined that there were insufficient number of recent

comparable land sales to develop a realistic land value in this built-up section of town.

# 2) Depreciation estimates for improvements of this age are very subjective and typically

unreliable.

The Sales Comparison Approach identifies and measures the market reactions of typical buyers and

sellers of similar and/or competitive properties. This approach reflects the buyer's judgment about the

amount of physical depreciation, functional utility and other economic influences, which when

analyzed along with other sales data provides a good indication of the subject's market value. In this

case the Sales Comparison Approach was considered the most reliable approach to value.

The Income Approach simulates the actions of the owners/investors of income producing properties,

who look less toward the use of the space than the available present and future returns on monies

invested. The reliability of this approach lies in the availability of recent rental data, market derived

capitalization rates and accurate operating figures. These factors are then examined against the

market. We have researched the market in the immediate subject neighborhood and uncovered

sufficient data to perform a dependable analysis of the subject’s income and expenses. Because the

subject property is an “income producing property”, the Income Approach was considered to a reliable

indicator of value in our final reconciliation, but not as reliable as the Sales Comparison Approach.

58

FINAL RECONCILIATION: (continued)

Conclusion

After analyzing all of the data, the “Sales Comparison Approach” was considered the most reliable

approach to value in this case, and all weight was placed on that approach.

It is my opinion and conclusion that the future prospective market value of the subject property,

on or about November 1, 2018, will be $260,000.

-TWO HUNDRED SIXTY THOUSAND DOLLARS-

59

ADDENDUM

60




[email protected]

GARY J. TIGHUE New Jersey State

Certified General Real Estate Appraiser (SCGREA)

License # 42RG00114500

REAL ESTATE EXPERIENCE

Tighue Appraisal Group, 100 White Horse Ave., Hamilton Twp., NJ

President: April, 1997 to the Present. Expert knowledge in the appraisal of land, all types of

commercial buildings, residential and industrial properties for the purposes of tax appeals,

condemnation relocation, divorce, mortgage lending and estate settlement.

Certified Appraisal Service, 1 Edinburg Road, Hamilton Twp., NJ

Vice President: June, 1985 to April, 1997. Manager / Partner. Duties included appraisal review,

commercial and residential appraising.

Tighue Realtors, 2712 Nottingham Way, Hamilton Twp., NJ

Manager: May, 1979 to June, 1985. Duties included motivational and instructive seminars, classified

advertising, contract negotiation, scheduling, daily problem solving as well as selling both commercial

and residential properties.

PROFESSIONAL AFFILIATIONS

Associate Member Appraisal Institute

GRI (Graduate of the Real Estate Institute

Mercer County Board of Realtors (Broker)

REAL ESTATE EDUCATION (Partial Listing)

- Basic Income Capitalization

- Standard of Professional Practice

- Real Estate Principles

- Residential Valuation

- Underwriters Real Estate Property Appraisal Course

- GRI Courses 1, 2, and 3

- CCIM (Certified Commercial Investment Member) Course 1

GENERAL EDUATION College of New Jersey - B.A., 1982 Political Science/ Public Administration Mercer County Community College - A.S., 1980, General Business

61




[email protected]

QUALIFICATIONS: (continued)

EXPERT TESTIMONY

Mercer County Board of Taxation

Burlington County Board of Taxation

CLIENTS SERVED (partial list) Prudential Relocation

LSI Relocation

Weichert Relocation

WHR Relocation

Sirva Relocation

Dwellworks

Grand Bank

Roma Bank

First Choice Bank

Fulton Bank

Bank of Princeton

Hopewell Valley Community Bank

1st Constitution Bank

JP Morgan Chase

Amboy Bank

Sovereign Bank

First Commerce Bank

Credit Union of New Jersey

Trenton Division of Housing

NJ Green Acres

Attorneys

Szaferman & Lakind

Stark & Stark

Peter Fless

Stuart Radick

Charles Casale

James Reily

Teich Group

John Holiday

Scott Kaplan

Brennan Law

David Perry Davis

real property appraisal...the subject property. it contains the reasoning and pertinent data leading...

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