This is a professional appraisal I completed for the historic Tiger Hotel in Columbia, Missouri.

2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions and is my personal, impartial, and unbiased professional analyses, opinions, and conclusions.

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

4. I have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment.

5. My engagement in this assignment was not contingent upon developing or reporting predetermined results.

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

7. My analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice.

8. I have made a personal inspection of the property that is the subject of this report.

9. No one provided significant real property appraisal assistance to the person signing this certification.

10. This report has been developed in conformity with the requirements of the Code of Professional Ethics and Standards of Professional Appraisal Practice.

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

13. This property is appraised free and clear of any or all liens or encumbrances unless otherwise stated.

14. Responsible ownership and competent property management are assumed.

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

16. All engineering studies are assumed to be correct. The plot plans and illustrative material in this report are included only to help the reader visualize the property.

17. It is assumed that there are no hidden or unapparent conditions of the property, subsoil, or structures that render it more or less valuable. No responsibility is assumed for such conditions or for obtaining the engineering studies that may be required to uncover them.

18. 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 the appraisal report.

19. It is assumed that the property conforms to all applicable zoning and use regulations and restrictions unless nonconformity has been identified, described, and considered in the appraisal report.

20. 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.

21. It is assumed that the use of the land and improvements is confined within the boundaries or property lines of the property described and that there is not encroachment or trespass unless noted in this project.

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

24. The appraiser, by reason of this appraisal, is not required to give further consideration or testimony or to be in attendance in court with reference to the property in question unless arrangements have been previously made.

25. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraiser, or the firm with which the appraiser in connected) shall be disseminated to the public through advertising, public relations, news, sales, or other media without the prior written consent and approval of the appraiser.

27. Both parties are well informed or well advertised, and acting in what they consider their best interests;

28. A reasonable time is allowed for exposure in the open market;

29. Payment is made in terms of cash in the United States Dollars or in terms of financial arrangements comparable thereto; and

32. Estimate the reproduction or replacement cost of the primary structure at the effective appraisal date.

33. Estimate the amount of accrued depreciation in the structure, which includes physical deterioration, functional obsolescence, and external obsolescence.

34. Deduct the estimated accrued depreciation from the total reproduction or replacement cost of the primary structure.

36. No existing market sales data

37. New or proposed construction

38. Estimation of highest and best use on income properties (commercial)

39. Insurance or replacement valuation (upper limit to rehab)

41. Improvement must be appropriate and well maintained

42. May require expert assistance

43. Site to be used by other than the typical buyer

44. No upper limit to sale

46. Verify the information by confirming that the date obtained is accurate and that the transactions reflect arms-length market considerations.

47. Select relevant comparables and develop a comparative analysis for each comparable.

48. Compare each comparable property to the subject property and make appropriate adjustments to the sale price of each comparable for differences between the subject property and the comparables.

50. Especially useful for residential properties

51. Enables depreciation estimates

52. Establishes income multiples, rents, and required rates of return

53. Courts place greatest reliance on this approach

55. Requires an adequate quality of data

56. Market activity is necessary

57. Property can be unique

58. Assumes past behavior is a fair proxy for the future

60. The next adjustment accounted for functional utility. By using comps 6 and 9 everything matched up so no separate adjustments were necessary. I found that going from average to good functional utility yielded a 5.45% increase in value. In contrast, I found that going from good to average yielded a 5.17% decrease in value.

61. My third adjustment was for corner lot using comps 11 and 16. First, I had to appreciate comp 16 3% going from 1998 to 1999. From here I calculated that going from no corner lot to corner lot gave me a 3.16% increase in value. Secondly, going from a corner lot to no corner gave me a 3.06% decrease in value.

62. The next adjustment calculated was zoning. By comparing comps 21 and 24 I was able to derive the adjustments. First, comp 16 had to be appreciated three years from 2006 to 2009. After that was done, everything else matched up. Now I was able to calculate that going from C-1 zoning to C-2 zoning resulted in a 16.36% increase, while going from C-2 to C-1 resulted in a 14.06% decrease. To make this adjustment work, I changed the zoning in comp 24 from commercial to C-2.

63. My next adjustment was for section of town. For this I used comps 1 and 2. After adjusting comp 1 for appreciation for one year and adjusting comp 2 to move from C-1 to C-2 zoning, a 16.36% increase in value, I was able to derive the values. I found that moving from the southwest part of town to downtown yielded an 11.46% increase in value. Also, moving from downtown to the southwest part of town yielded a 10.28% decrease in value.

64. This adjustment accounted for parking using comparables 8 and 11. To get these adjustments I first had to appreciate comp 11 to adjust for years. The next step was making comp 11 go from the southwest part of town to downtown which is an 11.46% increase in value. From here, I derived that going from no parking or “street parking” to adequate parking is an increase in value of 9.39% while going from adequate parking to no parking is a drop in value of 8.58%.

65. The square foot adjustment came from isolating comps 10 and 23. No individual adjustments were necessary because everything matched up. I found that an increase of 10,000 square feet gave me an increase in value of 19.38% while a decrease of 10,000 feet gave me a decrease in value of 16.23%. When applying to my comparables, each time I use the adjustment I subtract 4% to account for space discounts.

66. My next adjustment for frontage came from comparing comps 9 and 6. First I had to appreciate comp 9 two years from 2004 to 2006. Next I had to change comp 6 to account for functional utility. It had to go from average functional utility to good, an increase in value of 5.45%. Now I found that an increase of 50 feet of frontage yielded a 14.49% increase in value and a decrease of 50 feet of frontage yielded a decrease in value of 12.65%. When applying to my subject property, for my last comparable there was a 150 foot difference. So when applying, I decreased the adjustment by 4% each time I applied to the subject.

67. No adjustments were necessary for condition and traffic count seeing as how my comparables all had the same attributes as the subject property.Summary of Building and Land Sales Comparison Approach<br />After adjusting for various differences between the properties, I formulated a price range of $210.81 to $308.09 between the comparable properties. This range was determined from many factors that played a large role in determining the value of the subject property. After adjusting the three comparable properties prices, they will now be weighted based upon which properties are most similar to the subject property.<br />In my analysis of the three comparable properties, I feel that comparable 1 is the most similar to the subject property because it had the least amount of adjustments (4) and it is also zoned C-2 located in the downtown district. Comparable 14 will be the next heavily weighted with a total of 6 adjustments made to it. The least weighted comp will be comparable 2 with 8 adjustments being made to it. It is also the furthest away in terms of square footage and it is not a corner lot.<br />Weight of Comparables:<br />Comp 1:$126.67(.5)=$63.34<br />Comp 14:$308.09(.3)=$92.43<br />Comp 2:$210.81(.2)=$42.16<br />Adjusted Price for Subject Property: $197.93<br />Total Estimated Value by Sales Comparison Approach:<br /> 70,000 sq/ft * $197.93 = $13,855,000<br />The Income Capitalization Approach<br />The last method of finding the market value of a property is the income capitalization approach. In this method, the appraiser takes into account the property’s expected future income. The appraiser capitalizes this to find the market value of investment properties. The following criteria must be completed in the income approach to find an appropriate market value:<br />1.Estimate the gross possible income (GPI) of the subject property based on comparable properties with similar amenities to the subject.<br />2.Estimate the vacancy rate associated with the subject property based on comparable properties within the subject area.<br />3.Subtract the vacancy rate from the GPI to determine the effective gross income (EGI).<br />4.Estimate the fixed and variable costs for the subject property.<br />5.Subtract the total operating expenses (OE) from the EGI to determine the Net Operating Income (NOI) of the property.<br />6.Determine the capitalization rate using one of the following methods:<br />a.Direct Capitalization Method<br />b.Band of Investment Theory (Land plus building)<br />c.Band of Investment Theory (Debt plus Equity)<br />7.Reconcile the results of the three methods to estimate the best capitalization rate to use to value the property.<br />8.Divide the net operating income by the capitalization rate to determine the indicated value for the property by the income approach.<br />There are several uses and limitations to the income capitalization approach that need to be considered when finding the value of a property. They are as follows:<br />Uses:<br />-Essential for income producing properties<br />-Simple and direct (assuming reliable and verified market data)<br />-No expenditure numbers available<br />-Given adequate comparables, GRM can eliminate the need for sales comparable adjustments<br />-Federal Housing Administration (FHA) requires GRM<br />-FNMA and FHLMC also include GRM analysis on their appraisal forms<br />Limitations:<br />-Requires reliable, verifiable data<br />-Amenities may affect prices<br />-Rents more responsive than price in neighborhoods in transition<br />-Physical deterioration affects rents<br />-Zoning changes affect prices<br />-Imperfect markets (income, vacancy, operating expenses, and return)<br />Proposed Income Statement<br />Currently rented to:<br />As Though Improved<br />Gross Possible Income (GPI):<br />Basement: (3,000s.f.*$10)+(52*$2,500) $160,000<br />Ballroom: 2*52*$1,200 $124,000<br />Floors 2-9: 65 Rooms*$150*365 $3,558,000<br />Catering: $900,000 $900,000<br />Banquet: 2*52*$200 $20,800<br />Phone Tower: 12*$1,200 $14,400 <br />Total: $4,777,950<br />Less:<br />Vacancy (40%) $1,423,500<br />Total Losses $1,423,500<br />Effective Gross Income (EGI): $3,354,450<br />Less:<br />Operating Expenses:<br />Taxes ($418,070)<br />Insurance ($434,456)<br />Maintenance ($434,456)<br />Management ($167,228)<br />Utilities ($250,842)<br />Replacement Allowances ($167,228)<br />Total Operating Expenses: ($2,172,282)<br />Net Operating Income: $1,282,168<br />Comments:<br />The subject property has a number of revenue streams coming from a combination of leased fee and fee simple leases. The leased fee stream comes from the basement bar that has a five year triple-net lease meaning the landlords are only held accountable for management expenses. The bar is approximately 3,000 square feet and rents for $10 a square foot. The second half of its revenue is calculated by multiplying the flat fee to rent the bar for a night ($500) and a $2,000 minimum bar tab times the amount of times it’s generally rented a week (1). The ballroom costs around $1,200 to rent and is occupied an average of twice a week. Floors 2-9 are fee simple with a total of 65 rooms renting on average $150 a night. Catering is a profitable business for the property with the manager mentioning that the hotel is trying to break $1,000,000 in revenue this year. Figuring that statistic was partly high hopes, I calculated the revenue at $900,000. The manager also commented that the banquet room on the ninth floor rents for $200 per day and is occupied on average twice a week. The last cash flow comes from a cell phone tower located on the roof that streams $1,200 a month.<br />For expenses, I deducted a standard 35% from my gross potential income to get my total operating expenses figure. From this number, I allotted standard percentages to expenses as follows: taxes 25%, insurance 20%, maintenance 20%, management 10%, utilities 15%, and replacement allowances at 10%. Vacancy rate is pegged at 40%, which is within owner John Ott’s range of 55%-60% occupancy rate. Ott was optimistic about occupancy rates being even higher that 60%, but until that growth is recognized, it’s safe to assume a 40% vacancy rate. <br />Determination of Capitalization Rate<br />In order to find the market value of the property using the income approach, a capitalization rate must first be found. There are three methods used to determine this rate: Direct Capitalization, Band of Investment (Debt plus Equity), and Band of Investment (Land plus Building). These three rates are reconciled into an overall capitalization rate. Then, the value of the property can be determined by using the following formula:<br />Value = Net Operating Income <br />Overall Capitalization Rate<br />Direct Capitalization:<br />Direct Capitalization is the method of converting one year’s worth of expected income into an indication of value. The capitalization rate is determined by dividing the estimated income by the sales price. This is the best estimate of the capitalization rate when comparables are present.<br />ComparablesSale PriceNOIRoComp 1$1,875,000$166,3108.87%Comp 2$2,300,000$214,7589.34%Comp 3$1,800,000$163,6959.09%<br />The capitalization rates used for each of the comparables listed above were not adjusted for sale price by using appreciation rates since the date of sale. NOI also needs to be adjusted by computing the CPI since the date of sale, since leases on these buildings were tied to CPI which hasn’t followed appreciation rates in the past few years. The numbers of the new sale price, NOI, and cap rates are shown in the table below as currently updated rates:<br />ComparablesSale PriceNOIRoComp 1$2,608,871$200,9447.7%Comp 2$3,969,622$306,6007.72%Comp 3$2,340,670$193,3388.26%<br /> <br />After adjusting for increases in NOI due to the recent fall in CPI, the building’s capitalization rates went down. CPI is currently lower than building appreciation rates which causes the cap rates to go down.<br />Weight of Comparables:<br />Comp 1:7.70%(.5) =3.85%<br />Comp 2:7.72%(.3) =2.32%<br />Comp 3:8.26%(.2) =1.65%<br />Overall Capitalization Rate:7.82%<br />Each of the comparables is weighted in correlation to their similarity to the subject property. This weight is the same as used in the sales comparison approach.<br />Overall Capitalization Rate: 7.82%<br />The Band of Investment Theory (Debt + Equity)<br />Most properties are purchased with some combination of debt and equity. The capitalization rate must satisfy the market requirements of both investment positions. Lenders must receive a competitive interest rate (Rm) in return for financing the project. Investors must also receive a return on their invested equity (Re) that adequately compensates them for the risk of undertaking the project. In order to calculate a capitalization rate (Ro) which accounts for the required returns of the lender and the investor the following formula can be applied. <br />Ro = (M*Rm) + [(1-M)*Re]<br /> Where:<br /> Ro = Capitalization Rate<br />M = Loan to Value Ratio<br />Rm = Debt Capitalization Rate<br /> Re = Equity Capitalization Rate<br />M = .75<br />(1-M)= .25<br />Rm = 6.00%<br />Re = 15%<br />Ro = (.75*.07) + (.25*.15) = 9.00%<br />The Band of Investment Theory (Land + Building)<br />The Band of Investment Theory can also be applied to the physical components of the property, which are the land and the building. The formula for this is as follows:<br />Ro = (L*Rl) + (B*Rb)<br /> Where:<br /> Ro =Capitalization Rate<br /> L =Land Value as a Percentage of Total Property Value<br /> Rl =Land Capitalization Rate<br /> Rb =Building Capitalization Rate<br /> B =Building Value<br />L = .13<br />B = .78<br />Rl= .04<br />Rb= .11<br />Ro = (.14*.04) + (.78*.11) = 9.10%<br />Reconciliation of the Income Capitalization Approach<br />The following data listed below is each capitalization rate and its weight of importance to the subject property. Each approach I felt did an accurate job at calculating a cap rate. I will give a slight edge to the band of investment approaches because I feel the cap rate was accurately calculated on the higher end. Therefore I give the most and equal weightings to the band of investment approaches followed by direct capitalization at a lower weight.<br />Direct Capitalization: 7.82%(.2) = 1.56%<br />Band of Investment (D+E): 9.00%(.4) = 3.60%<br />Band of Investment (B+L): 9.10%(.4) = 3.64%<br />Overall Capitalization Rate: 8.80%<br />Total Estimated Value by Income Capitalization Approach:<br />$1,282,168/8.80% = $14,570,000<br />Reconciliation of Values and Conclusion <br />Listed below are the values of the subject property using each of the three approaches:<br />Indication of Value by Cost Approach:$9,408,000<br />Indication of Value by Sales Comparison Approach: $13,855,000<br />Indication of Value by Income Capitalization Approach: $14,570,000<br />After completing this appraisal, reconciliation of the three different approaches needs to be taken into consideration. Each method needs to be weighted in accordance to its appropriateness to the subject property.<br />The cost approach is one that derives a fair market value from the incorporation of the various costs associated with reconstructing the building mixed with added depreciation and entrepreneurial profit of given project. While this approach in certain cases is the best determinate of value, I have weighted it the least out of the three. With a full blown recession happening I feel that the costs of improvement are too skewed to derive a proper value with many contractors allotting large discounts to investors. Also, with the recent renovation itself costing $9,000,000, a valuation of the entire building at just $400,000 on top of that does not seem like an accurate appraisal.<br />The income capitalization approach values a structure based on the amount of income that structure generates. While the subject property fits this description, I have still decided to weight it slightly less than the sales comparison approach. With the building being classified as a historic boutique, I feel the value indicated is a bit on the high end. The property has this historic designation that I feel has over exaggerated the price and the income that this building can actually generate. Even though the value might be high, it is still within the range of an accurate price when weighted together with the other approaches.<br />The sales comparison method plays a significant role in the computation of a fair market value incorporating comparable sales from the area the subject property is contained. Although the comparables used to derive adjustments were smaller in square feet than the subject, I believe the proper figures were applied to said comparables to account for all differences effectively. The comparables were reliable and provided a good estimate of the market value of the subject property, the reason I weighted the sales comparison approach the heaviest. <br />After carefully analyzing all information and determining an appropriate weight for each approach, I have come to a conclusion that the fair market value as of December 15th, 2010:<br />Cost Approach:$9,408,000*20%=$1,881,600<br />Sales Comparison Approach: $13,855,000*50%=$6,927,500<br />Income Capitalization Approach: $14,570,000*30%=$4,371,000<br />Total Fair Market Value: $13,180,000<br />Addendum<br /> <br />