Self-Contained Appraisal Report

Transcription

Self-Contained Appraisal Report
City of San Mateo Community Facilities
District No. 2008-1 (Bay Meadows)
West of Saratoga Drive, at the terminus of South
Delaware Street
San Mateo, California 94403
Date of Report: December 14, 2012
Prepared For:
Mr. David Culver, Finance Director
City of San Mateo
330 West 20th Avenue
Prepared By:
Kevin K. Ziegenmeyer, Appraiser
Eric A. Segal, Appraiser
December 14, 2012
Mr. David Culver, Finance Director
City of San Mateo
330 West 20th Avenue
RE:
City of San Mateo Community Facilities District No. 2008-1 (Bay Meadows)
Dear Mr. Culver:
At your request and authorization, Seevers  Jordan  Ziegenmeyer has prepared an appraisal report
and analyzed market data for the purpose of estimating the market value (fee simple estate) of the
properties within the boundaries of the City of San Mateo Community Facilities District No. 2008-1
(Bay Meadows), by ownership, as well as the cumulative, or aggregate, value of the District properties,
under the conditions and assumptions set forth in the attached report. Within the report, the subject will
also be referred to as CFD No. 2008-1 (Bay Meadows). The subject property comprises Phase II of the
Bay Meadows Racetrack redevelopment.
The appraisal report has been conducted in accordance with appraisal standards and guidelines found
in the Uniform Standards of Professional Appraisal Practice (USPAP) and the Appraisal Standards
for Land Secured Financing published by the California Debt and Investment Advisory Commission
(2004). This document is presented in a Self-Contained Report Format, which is intended to comply
with the reporting requirements set forth under Standards Rule 2-2(a) of USPAP.
The appraised property, which represents the taxable land areas situated within the boundaries of
CFD No. 2008-1 (Bay Meadows), is located at the southern terminus of South Delaware Street,
north of Hillsdale Boulevard and west of Saratoga Drive, within the city of San Mateo, San Mateo
County, California.
The second CFD No. 2008-1 (Bay Meadows) Bond issuance is scheduled to reimburse the developer
for construction of certain portions of the public improvements required for the development of
49.978± developable acres proposed for the development of five mid-rise office buildings (Station
Component); four mid-rise, mixed-use residential/retail/office buildings (Mixed-Use Component);
nine parcels designated for attached, for-rent and for-sale residential buildings; and one parcel
designated for a combination of attached and detached residential homes (Residential Component).
In total, the subject property, as presently proposed, is entitled for 1,250 residential units and
currently planned for 1,066 residential units, ten percent of which will be developed for belowmarket rental or for-sale units under the Development Agreement. Of the 1,066 planned residential
units, 832 units are planned for the Residential Component Blocks and 234 units are planned for
development on the Mixed Use Blocks.
3825 Atherton Road, Suite 500 | Rocklin, CA 95765 | Phone: 916.435.3883 | Fax: 916.435.4774
Mr. David Culver
December 14, 2012
Page 2
The commercial component of the Bay Meadows development is entitled for 1,250,000 square feet of
office space of which 770,000 square feet is currently planned in five class A office buildings and
31,500 square feet of professional space above ground floor retail. In addition, an approximately
131,000 square foot high school campus has been proposed on a site approved for up to 200,000 square
feet of commercial space. Though, the school has not yet obtained the City’s Site Plan and Architectural
Review approval (scheduled for December 21, 2012). Bay Meadows II is also entitled for 150,000
square feet of retail space and is currently planned for 85,000 square feet as part of the Station and
Mixed Use Blocks.
The remaining 33.40 acres of Bay Meadows II are dedicated to parks, right away and one acre
dedicated to the City for approximately 50 – 68 below-market rate (BMR) residential units on Mixed
Use Block 1, which will be exempt from the Lien of the Special Tax securing the Bonds. The
general description of the improvements and services to be financed by the community facilities
district include street improvements, sewers, storm drains, monuments, utilities, public parks and
recreation facilities, detention ponds, mitigations, development impact fees, soft costs, maintenance
and lighting of parks, parkways, streets, roads, and open space, and maintenance and replacement of
flood and storm protection services. All improvements or services to be financed are detailed in the
Community Facilities District Report, dated July 22, 2008, prepared by David Taussig & Associates,
Inc.
The effective date of value is November 15, 2012. As a result of our analysis, it is our opinion the
market values, by ownership, of the appraised property, subject to the Lien of the Special Tax
securing the City of San Mateo CFD No. 2008-1 (Bay Meadows) Bonds, in accordance with the
definitions, certifications, assumptions, hypothetical conditions and significant factors set forth in the
attached document (please refer to pages 10 through 12), is …
Taxable Land
Area (Ac.)
Value
RES 1, 2, 3.1b, 4, 5, 6, 7,
8, 9; MU 1, 2, 3, 4; STA
1, 2, 3, 4 and 5
42.87
$233,700,000
Shea Homes of Northern California
RES 3.1a
1.82
$13,480,000
TRI Pointe Homes, LLC
RES 3.2
3.04
$22,510,000
Owner
Bay Meadows Main Track Investors, LLC
Block(s)
Cumulative (Aggregate) Value of the District
$269,690,000
The value estimates assume a transfer that reflects a cash transaction or terms considered to be
equivalent to cash. The estimates are also premised on an assumed sale after reasonable exposure in
a competitive market under all conditions requisite to a fair sale, with buyer and seller each acting
prudently, knowledgeably, for their own self interest and assuming neither is under duress.
Mr. David Culver
December 14, 2012
Page 3
This letter must remain attached to the report, which contains 118 pages plus related tables, exhibits
and Addenda, in order for the value opinion set forth herein to be considered valid.
We hereby certify the subject property has been inspected and we have impartially considered all
data collected in the investigation. Further, we have no past, present or anticipated future interest in
the property. The subject property does not have any significant natural, cultural, recreational or
scientific value. The appraisers certify this appraisal assignment was not based on a requested
minimum valuation, a specific valuation or the approval of a loan.
Thank you for the opportunity to work with your office on this assignment.
Sincerely,
State Certification No.: AG013567
Expiration Date: June 4, 2013
/jab
12-525
State Certification No.: AG026558
Expires: February 18, 2013
TABLE OF CONTENTS
Summary of Important Facts and Conclusions
1
Introduction
Property Description and History
Type and Definition of Value
Client, Intended User and Intended Use of the Appraisal
Property Rights Appraised
Appraisal Report Format
Dates of Inspection, Value and Report
Scope of Work
Extraordinary Assumptions, Significant Factors and Hypothetical Conditions
General Assumptions and Limiting Conditions
Certification Statements
4
6
7
7
7
8
8
11
12
14
Market Area
San Mateo County Regional Overview
Neighborhood Overview
Housing Market Overview
Apartment Market Overview
Office Market Overview
Retail Market Overview
16
21
24
31
36
39
Subject Property
Property Identification and Legal Data
Site Description
Project Description
Facilities to be Funded by the Bond Issuance
Subject Photographs
Highest and Best Use Analysis
42
51
54
55
57
61
Valuation Analysis
Approaches to Value
Appraisal Methodology
Valuation – Discounted Cash Flow Analysis
Summary and Conclusion
Addenda
Community Facilities District Report
Amended and Restated Rate and Method of Apportionment
Preliminary Title Report
Readdressing/Reassigning Appraisal Reports
Glossary of Terms
Qualifications of Appraiser(s)
67
70
71
118
SUMMARY OF IMPORTANT FACTS AND CONCLUSIONS
Property Name:
The appraised property comprises the taxable land areas
situated within the boundaries of City of San Mateo
Community Facilities District (CFD) No. 2008-1 (Bay
Meadows).
Property Location:
The subject property is located at the southern terminus of
South Delaware Street, north of Hillsdale Boulevard and
west of Saratoga Drive, within the city of San Mateo, San
Mateo County, California.
Assessor’s Parcel Numbers:
040-030-250; -260; -270; -280; -290; -310; -320; 330; -340
and -350
Owner of Record:
APN – 040-030-250
APN – 040-030-260
APN – 040-030-270 ptn. (3.1b)
APN – 040-030-270 ptn. (3.1a)
APN – 040-030-270 ptn. (3.2)
APN – 040-030-280
APN – 040-030-290
APN – 040-030-310
APN – 040-030-320
APN – 040-030-330
APN – 040-030-340
APN – 040-030-350
Property Type/Current Use:
The subject property comprises Phase II of the Bay Meadows
Racetrack redevelopment and consists of 49.978±
developable acres proposed for the development of five
mid-rise office buildings (Station Component); four midrise, mixed-use residential/retail/office buildings (MixedUse Component); nine parcels designated for attached, forrent and for-sale residential buildings and one parcel
designated for a combination of attached and detached
residential homes (Residential Component). In total, the
subject property, as presently proposed, will contain
770,000 square feet of office space currently planned in five
class A office buildings and 31,500 square feet of
professional space above ground floor retail, as well as a
proposed 131,000 square foot high school campus;
approximately 85,000 square feet of retail space and 1,066
residential housing units, with 832 residential housing units
being developed on the Residential Land Component and
the balance (234 units) to be developed as part of the
Mixed-Use Component. The remaining 33.40 acres of Bay
Meadows II are dedicated to parks, right away and one acre
dedicated to the City for approximately 50 – 68 below-
 Seevers  Jordan  Ziegenmeyer 
1
market rate (BMR) residential units on Mixed Use Block 1,
which will be exempt from the Lien of the Special Tax
securing the Bonds.
Zoning/Land Use:
BM-SP – Bay Meadows Specific Plan; the subject is
designated for a mix of office, retail, residential and mixeduse development commensurate with the Site Plan and
Architectural Review (SPAR) planning applications
adopted by the City of San Mateo.
For a more detailed description of BM-SP zoning ordinance,
please refer to the Property Identification and Legal Data
section of this report.
Flood Zone:
Flood Zone X – areas determined to be outside of the 500year flood plain
Earthquake Zone:
According to the Seismic Safety Commission, the subject
is located within Zone 4, which is assigned to areas near
major faults. The existence within this zone does not
prevent development. There are only two zones in
California. Zone 4 is assigned to areas of major faults.
Zone 3 is assigned to areas with more moderate seismic
activity. In addition, the subject is located within a FaultRupture Hazard Zone (formerly referred to as an AlquistPriolo Special Study Zone), as defined by Special
Publication 42 (revised January 1994) of the California
Department of Conservation, Division of Mines and
Geology.
Land Area by Land Use:
Developable – Office
Developable – Mixed-Use
Developable – Residential
Master Association Property
Total Developable (Taxable)
Public Space – (Non-Taxable)
Total (Gross)
11.48± acres
7.071± acres
29.18± acres
2.240± acres
49.97± acres
33.40± acres
83.38± acres
Highest and Best Use:
Phased development in accordance with the approved
entitlements
Date of Inspection:
November 15, 2012
Effective Date of Value:
November 15, 2012
Date of Report:
December 14, 2012
Property Rights Appraised:
Fee simple estate
2
Prepared For:
Mr. David Culver, Director of Finance, City of San Mateo
Prepared By:
Conclusion of Value:
As a result of our analysis, it is our opinion the market
value of the appraised property, subject to the Lien of the
Special Tax securing the City of San Mateo CFD No.
2008-1 (Bay Meadows) Bonds, in accordance with the
assumptions, hypothetical, significant factors, and limiting
conditions set forth on pages 10 through 12 of this report,
as of November 15, 2012, is shown in the following table.
Taxable Land
Area (Ac.)
Value
RES 1, 2, 3.1b, 4, 5, 6, 7,
8, 9; MU 1, 2, 3, 4; STA
1, 2, 3, 4 and 5
42.87
$233,700,000
RES 3.1a
1.82
$13,480,000
RES 3.2
3.04
$22,510,000
Owner
Block(s)
$269,690,000
3
INTRODUCTION
Property Description and History
The appraised property represents
83.38± gross acres of land area
situated within the boundaries of the
City of San Mateo CFD No. 2008-1
(Bay Meadows). The property is
located at the southern terminus of
South Delaware Street, north of
Hillsdale Boulevard and west of
Saratoga Drive, within the city of
San Mateo, San Mateo County,
California. Of the approximate 83.38
acres of gross land area, the
Source: Bing
developable land equates to 52.18±
acres proposed for development of
five mid-rise office buildings (Station Component); four mid-rise, mixed-use residential/retail/office
buildings (Mixed-Use Component); nine parcels designated for attached, for-rent and for-sale
residential buildings and one parcel designated for a combination of attached and detached
residential homes (Residential Component). In total, the subject property, as presently proposed, will
contain 770,000 square feet of office space currently planned in five class A office buildings and
31,500 square feet of professional space above ground floor retail, as well as a proposed 131,000 square
foot high school campus; approximately 85,000 square feet of retail space and 1,066 residential
housing units, with 832 residential housing units being developed on the Residential Land
Component and the balance (234 units) to be developed as part of the Mixed-Use Component. The
remaining 33.40 acres of Bay Meadows II are dedicated to parks, right away and one acre dedicated
to the City for approximately 50 – 68 below-market rate (BMR) residential units on Mixed Use
Block 1, which will be exempt from the Lien of the Special Tax securing the Bonds.
In terms of property history, the subject property is the second phase of the two-phase
redevelopment of the former Bay Meadows Racetrack, located southwest of the Highway 101/92
interchange. Adopted in 1997 and completed in 2002, Phase 1 of the redevelopment is situated
adjacent to the subject property to the east and contained approximately 75 acres of land for the
development of approximately 900,000 square feet of office/commercial space (300,000 square feet,
which will be the second phase of the Franklin Templeton campus, has yet to be developed), 734
residential units and 300,000 square feet of retail space. Phase II, the subject property, is the site of
the former race track (Main Track), was initially not going to be redeveloped; however, a specific
plan amendment was submitted for the Bay Meadows Specific Plan in 2005 proposing for the
4
redevelopment of the Main Track area with a mix of residential, office and commercial
development. A vesting tentative map for the subject property was approved by the City of San
Mateo Planning Commission on October 23, 2007. A map depicting the development program for
Bay Meadows Phase II is shown below.
5
Information regarding recent transfers of parcels within the District was provided for review, and the
Appraisers physically inspected the Appraised Parcels, consulted public records for sales history,
and evaluated information provided by the Developer’s representatives as to the purchase prices for
the specific parcels sold, which the Appraiser was asked to keep confidential. The Appraiser
compared the information provided by the Developer’s representatives, and analyzed information
pertaining to other similar land sales in the region that are not present in the District, and which are
presented herein for purposes of estimating market values for the developable parcels within the
District. The Appraiser does not believe it is necessary to include in the appraisal the information it
has been asked to keep confidential by the Developer’s representatives for the appraisal to 1) clearly
and accurately set forth our opinion of value in a manner that will not be misleading to the intended
users of the appraisal – namely potential investors in the Bonds issued for the District; 2) contain
sufficient information to enable the intended users of the Appraisal to understand the report properly
and 3) clearly and accurately disclose any extraordinary assumption, hypothetical condition or
limiting condition that directly affects the appraisal and indicate its impact on value.
Pursuant to the comments above, the representatives of the developer confirmed Residential Block 3
(3.1 and 3.2) was offered for sale to merchant builders, with ten offers having been received. Two
offers were accepted. Shea Homes of Northern California acquired the 93-unit Landsdowne
community (Res. Block 3.1) in a two-phase takedown, with 1.82 acres (43 units) acquired in the first
phase (Res. Block 3.1a), and the option to acquire 1.91 acres (50 units) in the second phase (Res.
Block 3.1b). TRI Pointe Homes, LLC acquired the site for 63 tuck-under townhomes (Res. Block
3.2). Due to the confidential nature of the transactions, the specific details are excluded from this
report; however, the purchase prices and details of the purchases were provided for use in our
analysis and have been considered as part of the valuation of the District. Both communities (Blocks
3.1 and 3.2) are currently under construction, with a significant amount of on-site improvements in
place. It’s also worth noting a 2.75-acre portion of Block MU 1 (mixed-use) is under contract for
acquisition by a school (The Nueva School). Again, due to the confidential nature of the transaction,
the specific details are excluded from this report; though, the purchase price and details of the
purchase were provided and considered for use in our analysis. Additionally, the developer is
marketing three of the Office Blocks (Stations 2, 3 and 4) for lease, as the developer intends to
construct these buildings and retain ownership in the near term. Residential Block 5 is currently
being marketed for sale. According to the developer, seven offers were recently received and are
currently being evaluated.
Type and Definition of Value
The purpose of this appraisal is to estimate the market value of the subject property, which is defined
as follows:
Market value:
The most probable price which a property should bring in a competitive
and open market under all conditions requisite to a fair sale, the buyer and
6
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
In light of the fact the improvements to be financed by the second bond issuance were in place as of
the date of inspection, the value estimate derived herein is the as-is market value. Please refer to the
Glossary of Terms in the Addenda to this report for the definition of value as-is.
Client, Intended User and Intended Use of the Appraisal
The client and intended user of this appraisal report is the City of San Mateo and its finance team.
The appraisal report is intended for use as an aid in bond underwriting. Seevers • Jordan •
Ziegenmeyer authorizes the reproduction of this appraisal report for inclusion in the Preliminary
Official Statement (POS) and Official Statement (OS) for the express purpose of marketing the
Bonds.
Property Rights Appraised
The market value estimated herein is for the fee simple estate, defined as follows:
Fee Simple Estate:
absolute ownership unencumbered by any other interest or estate,
subject only to the limitations imposed by the governmental
powers of taxation, eminent domain, police power, and escheat.2
The rights appraised are also subject to the Extraordinary Assumptions, Hypothetical and Limiting
Conditions, and General Assumptions contained in this report, as well as any exceptions,
encroachments, easements and rights-of-way recorded.
Appraisal Report Format
This document is presented in a Self-Contained Appraisal Report format, which is intended to
comply with the reporting requirements set forth under Standards Rule 2-2(a) of the Uniform
1
Code of Federal Regulations, Title 12, Section 34.42 (55 Federal Register 34696, Aug. 24, 1990; as amended at 57 Federal Register
12202, Apr. 9, 1992; 59 Federal Register 29499, June 7, 1994).
2
The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010), 78.
7
Standards of Professional Appraisal Practice (USPAP). This appraisal report is also prepared in
accordance with the Appraisal Standards for Land Secured Financing published by the California
Debt and Investment Advisory Commission (2004).
Dates of Inspection, Value and Report
An inspection of the subject property was completed on November 15, 2012, which represents the
effective date of value. This appraisal report was completed and assembled on December 14, 2012.
Scope of Work
This appraisal report has been prepared in accordance with the Uniform Standards of Professional
Appraisal Practice (USPAP). This analysis is intended to be an “appraisal assignment,” as defined by
USPAP; the intention is the appraisal service be performed in such a manner that the result of the
analysis, opinions, or conclusion be that of a disinterested third party.
Several legal and physical aspects of the subject property were researched and documented. A
physical inspection of the property was completed and serves as the basis for the site description
contained in this report. Interviews were conducted with representatives of Wilson Meany, on behalf
of the property ownership, regarding project information, infrastructure costs and fees, and the
project history. The sales history was verified by consulting public records. We were also provided
several documents for use in this appraisal, including tentative subdivision maps, final maps,
development costs, architectural renderings and a copy of the Community Facilities District Report.
Zoning and entitlement information was provided by the City of San Mateo Community
Development Department on-line resources. The subjects’ earthquake zones, flood zones and
utilities were verified with the applicable public agencies. Property tax information for the current
tax year was obtained from the County of San Mateo Tax Collector’s Office.
Data relating to the subject’s neighborhood and surrounding market area were analyzed and
documented. This information was obtained through personal inspections of portions of the
neighborhood and market area; newspaper articles; real estate conferences; and interviews with
various market participants, including property owners, property managers, brokers, developers and
local government agencies.
In this appraisal, the highest and best use of the subject property as though vacant was determined
based on the four standard tests (legal permissibility, physical possibility, financial feasibility and
maximum productivity).
8
The appraised property consists of all the taxable real property within City of San Mateo Community
Facilities District No. 2008-1 (Bay Meadows). The estimate of market value, by ownership,
comprises 49.978± acres proposed for the development of five mid-rise office buildings (Station
Component); four mid-rise, mixed-use residential/retail/office buildings (Mixed-Use Component);
nine parcels designated for attached, for-rent and for-sale residential buildings and one parcel
designated for a combination of attached and detached residential homes (Residential Component).
It is not uncommon for land secured financings to involve valuations at atypical points in time
during the development process. The market recognizes typical points during the development
process when master planned projects often transfer, such as upon obtaining entitlements,
completion of spinal infrastructure and/or recordation of final subdivision maps, for instance. It is
often the case with the valuation of master planned projects for purposes of land secured financing to
employ market logic to situations that are not typical transition points for developments. More often
than not large development projects that transfer with partial site development complete, as is the
current condition of the subject property, reflect situations of duress. Recognizing that there is not
duress, and yet a valuation is needed for purposes of the bond issuance at this time, we have
employed market logic for the valuation of master planned communities and applied that logic to the
physical condition reflected by the subject.
Therefore, in this analysis, the market value of the master developer-owned potion of the subject
property in bulk, accounting for the impact of the Lien of the Special Tax securing the City of San
Mateo CFD No. 2008-1 (Bay Meadows) Bonds, will be estimated by employing the use of a
discounted cash flow analysis (DCF); whereby, the expected revenue, absorption period, expenses
and discount rate associated with the development and sell-off of the residential and commercial
land components will be taken into account. A DCF analysis is a procedure in which a discount rate
is applied to a projected revenue stream generated from the sale of individual components of a
project. In this method of valuation, the appraiser specifies the quantity, variability, timing and
duration of the revenue streams and discounts each to its present value at a specified yield rate. The
revenue component of the DCF was derived by valuing the individual land use components outlined
above using the sales comparison approach to value. A number of assumptions are made in the
discounted cash flow analysis, not the least of which is the forecast of absorption, or disposition, of the
various land use components comprising the subject property. It is common for surveys of market
participants to reveal different estimations of anticipated absorption periods for the sell-off of multiple
components comprising a master planned development, with some developers preferring to hasten the
holding period in favor of mitigating exposures to fluctuations in market conditions; whereas, other
developers prefer to manage the sell-off of the property over an extended period of time so as to
minimize direct competition of product within the master planned project. Surveys suggest a forecasted
disposition period for the subject property may be as aggressive as two years or as long as five years.
9
In light of the fact two of the residential Blocks (3.1a and 3.2) have transferred ownership to merchant
builders, the estimates of market value for these components was not included in the discounted cash
flow analysis, which derived an estimate of market value for the components held by the master
developer. Instead, the estimate of market value derived via the sales comparison approach to value,
which was the method employed to estimate the underlying land value for the various land use
components comprising the District, was relied upon to estimate the market value of the components
held by Shea Homes of Northern California and TRI Pointe Homes, LLC.
This appraisal report has been conducted in accordance with appraisal standards and guidelines
found in the Uniform Standards of Professional Appraisal Practice (USPAP) and the Appraisal
Standards for Land Secured Financing, published by the California Debt and Investment Advisory
Commission (2004).
The individuals involved in the preparation of this appraisal include Kevin K. Ziegenmeyer and Eric
A. Segal, Appraisers. Mr. Segal inspected the subject property; collected and confirmed data related
to the subject property, comparables and the neighborhood/market area; analyzed market data; and
prepared a draft report with a preliminary estimate of value. Mr. Ziegenmeyer also inspected the
subject property, offered professional guidance and instruction, reviewed the draft report and made
necessary revisions.
10
EXTRAORDINARY ASSUMPTIONS, SIGNIFICANT FACTORS &
HYPOTHETICAL CONDITIONS
It is noted the use of an extraordinary assumption or hypothetical condition can impact the results of
an appraisal.
Extraordinary Assumptions and Significant Factors
1. It is assumed that there are no adverse soil conditions, toxic substances or other environmental
hazards that may interfere or inhibit development of the subject property. If, at some future date,
items are discovered that are determined to have a detrimental impact on value, the appraiser
reserves the right to amend the opinion of value stated herein.
2. Draft copies of the Final Maps for Bay Meadows Phase II were provided to us for use in the
appraisal and were prepared by JMH Weiss, Inc., dated May 2007 (Job No. 4542). We have relied
upon these maps/site plans to determine the land areas for each land use component of the subject. It
is assumed these plans are true and accurate.
3. The value conclusion contained in this report is based, in part, on development cost and fee
information provided by the developer. Any significant change in these cost/fee projections
could have a direct impact on the value estimate concluded in this report. Onsite development
costs provided to us are current as of the date of this report and there is a possibility for these
costs to change as development progresses. The appraisers specifically assume the cost
information provided is accurate.
Hypothetical Conditions
None
11
GENERAL ASSUMPTIONS AND LIMITING CONDITIONS
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. No responsibility is assumed for matters of law or legal interpretation.
3. The property is appraised free and clear of any or all liens or encumbrances unless otherwise
stated.
4. The information and data furnished by others in preparation of this report is believed to be
reliable, but no warranty is given for its accuracy.
5. It is assumed 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 discover them.
6. It is assumed 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.
7. It is assumed the property conforms to all applicable zoning and use regulations and restrictions
unless nonconformity has been identified, described and considered in the appraisal report.
8. It is assumed 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 value estimate
contained in this report is based.
9. It is assumed the use of the land and improvements is confined within the boundaries or property
lines of the property described and there is no encroachment or trespass unless noted in the
report.
10. Unless otherwise stated in this report, the existence of hazardous materials, 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 or in the property. The appraiser, however, is
not qualified to detect such substances. The presence of substances such as asbestos, ureaformaldehyde foam insulation and other potentially hazardous materials may affect the value of
the property. The value estimated is predicated on the assumption 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 any expertise or engineering knowledge required to discover them. The intended user of
this report is urged to retain an expert in this field, if desired.
11. The Americans with Disabilities Act (ADA) became effective January 26, 1992. I (we) have not
made a specific survey or analysis of this property to determine whether the physical aspects of
the improvements meet the ADA accessibility guidelines. Since compliance matches each
owner’s financial ability with the cost-to cure the property’s potential physical characteristics,
the real estate appraiser cannot comment on compliance with ADA. A brief summary of the
subject’s physical aspects is included in this report. It in no way suggests ADA compliance by
12
the current owner. Given that compliance can change with each owner’s financial ability to cure
non-accessibility, the value of the subject does not consider possible non-compliance. Specific
study of both the owner’s financial ability and the cost-to-cure any deficiencies would be needed
for the Department of Justice to determine compliance.
12. The appraisal is to be considered in its entirety and use of only a portion thereof will render the
appraisal invalid.
13. Possession of this report or a copy thereof does not carry with it the right of publication nor may
it be used for any purpose by anyone other than the client without the previous written consent of
Seevers  Jordan  Ziegenmeyer.
14. 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 is connected) shall be disseminated
to the public through advertising, public relations, news, sales, or any other media without the
prior written consent and approval of Seevers  Jordan  Ziegenmeyer. Seevers  Jordan 
Ziegenmeyer authorizes the reproduction of this document to aid in bond underwriting and in the
issuance of bonds.
15. The liability of Seevers  Jordan  Ziegenmeyer and its employees/subcontractors for errors/
omissions, if any, in this work is limited to the amount of its compensation for the work
performed in this assignment.
16. Acceptance and/or use of the appraisal report constitutes acceptance of all assumptions and
limiting conditions stated in this report.
17. An inspection of the subject revealed no apparent adverse easements, encroachments or other
conditions, which currently impact the subject. However, the exact locations of typical roadway
and utility easements, or any additional easements, which are referenced in the preliminary title
report, were not provided to the appraiser. The appraiser is not a surveyor nor qualified to
determine the exact location of easements. It is assumed typical easements do not have an impact
on the opinion (s) of value as provided in this report. If, at some future date, any easements are
determined to have a detrimental impact on value, the appraiser reserves the right to amend the
opinion (s) of value.
18. This appraisal report is prepared for the exclusive use of the appraiser’s client. No third parties
are authorized to rely upon this report without the express consent of the appraiser, except
investors in the Bonds.
13
CERTIFICATION STATEMENT
I certify that, to the best of my knowledge and belief:

The statements of fact contained in this report are true and correct.

The reported analyses, opinions, and conclusions are limited only by the reported assumptions
and limiting conditions and are my personal, impartial, and unbiased professional analyses,
opinions, and conclusions.

I have no present or prospective interest in the property that is the subject of this report and no
personal interest with respect to the parties involved.

I have performed appraisal services regarding the property that is the subject of this report
within the three-year period immediately preceding acceptance of this assignment.

I have no bias with respect to the property that is the subject of this report or to the parties
involved with this assignment.

My engagement in this assignment was not contingent upon developing or reporting
predetermined results.

My compensation for completing this assignment is not contingent upon the development or
reporting of a predetermined value or direction in value that favors the cause of the client, the
amount of the value opinion, the attainment of a stipulated result, or the occurrence of a
subsequent event directly related to the intended use of this appraisal.

My analyses, opinions, and conclusions were developed, and this report has been prepared, in
conformity with the Uniform Standards of Professional Appraisal Practice.

The reported analyses, opinions, and conclusions were developed, and this report has been
prepared, in conformity with the Code of Professional Ethics and Standards of Professional
Appraisal Practice of the Appraisal Institute.

I have made a personal inspection of the property that is the subject of this report.

Eric A. Segal, Appraiser, provided significant real property appraisal assistance to the person
signing this certification.

The use of this report is subject to the requirements of the Appraisal Institute relating to review
by its duly authorized representatives.

I certify that my State of California real estate appraiser license has never been revoked,
suspended, cancelled, or restricted.

I have the knowledge and experience to complete this appraisal assignment. Please see the
Qualifications of Appraiser(s) portion of the Addenda to this report for additional information.

As of the date of this report, I have completed the Standards and Ethics Education Requirement
of the Appraisal Institute for Associate Members.
__________________________
KEVIN K. ZIEGENMEYER, APPRAISER
State Certification No.: AG013567 (June 4, 2013)
December 14, 2012
DATE
14
CERTIFICATION STATEMENT
I certify that, to the best of my knowledge and belief:

The statements of fact contained in this report are true and correct.

The reported analyses, opinions, and conclusions are limited only by the reported assumptions
and limiting conditions and are my personal, impartial, and unbiased professional analyses,
opinions, and conclusions.

I have no present or prospective interest in the property that is the subject of this report and no
personal interest with respect to the parties involved.

I have performed appraisal services regarding the property that is the subject of this report
within the three-year period immediately preceding acceptance of this assignment.

I have no bias with respect to the property that is the subject of this report or to the parties
involved with this assignment.

My engagement in this assignment was not contingent upon developing or reporting
predetermined results.

My compensation for completing this assignment is not contingent upon the development or
reporting of a predetermined value or direction in value that favors the cause of the client, the
amount of the value opinion, the attainment of a stipulated result, or the occurrence of a
subsequent event directly related to the intended use of this appraisal.

My analyses, opinions, and conclusions were developed, and this report has been prepared, in
conformity with the Uniform Standards of Professional Appraisal Practice.

The reported analyses, opinions, and conclusions were developed, and this report has been
prepared, in conformity with the Code of Professional Ethics and Standards of Professional
Appraisal Practice of the Appraisal Institute.

I have made a personal inspection of the property that is the subject of this report.

The use of this report is subject to the requirements of the Appraisal Institute relating to review
by its duly authorized representatives.

I certify that my State of California real estate appraiser license has never been revoked,
suspended, cancelled, or restricted.

I have the knowledge and experience to complete this appraisal assignment. Please see the
Qualifications of Appraiser(s) portion of the Addenda to this report for additional information.

As of the date of this report, I have completed the Standards and Ethics Education Requirement
of the Appraisal Institute for Associate Members.
ERIC A. SEGAL, APPRAISER
State Certification No.: AG026558 (February 18, 2013)
December 14, 2012
DATE
15
SAN MATEO COUNTY REGIONAL OVERVIEW
Subject
Introduction
San Mateo County is located between San Francisco and Santa Clara Counties on the San Francisco
Bay. The County covers 531 square miles and boasts 54 miles of spectacular coastline bluffs and
beaches. About three-fourths of its land is in agricultural use, watershed, open space, wetlands or
parks. Mild climate, abundant natural resources, picturesque foothills, creeks and old redwoods best
describe San Mateo County, making it an attractive community for residents and businesses.
As one of several counties significantly contributing to the economy of the San Francisco Bay Area,
San Mateo County is strategically located in proximity to world-renowned research universities –
University of California at Berkeley and San Francisco and Stanford University. As a result, many
leading industry employers, such as medical therapeutic leader Genentech, Fortune 500 Oracle
Corporation, gaming leader Electronic Arts, and Academy Award winner PDI DreamWorks, all call
San Mateo County home. Consistently, San Mateo County boasts among the highest incomes and
among the lowest unemployment rates in both the state and the nation.
16
Population
The county has a population of nearly 730,000, and has grown at a moderate rate of 0.8% per year
for the past five years. The vast majority of county residents live in incorporated areas, the largest of
which are Daly City, San Mateo and Redwood City. The following table illustrates recent population
trends for areas within San Mateo County over the past few years.
City
Atherton
Belmont
Brisbane
Burlingame
Colma
Daly City
East Palo Alto
Foster City
Half Moon Bay
Hillsborough
Menlo Park
Millbrae
Pacifica
Portola Valley
Redwood City
San Bruno
San Carlos
San Mateo
South San Francisco
Woodside
Unincorporated
Total
2007
6,917
25,189
3,948
28,020
1,684
100,131
28,703
29,868
11,408
10,526
30,732
20,468
36,702
4,323
75,080
39,592
27,642
94,344
60,491
5,202
60,868
701,838
POPULATION TRENDS
2008
2009
2010
6,940
6,898
6,921
25,427
25,634
25,821
4,065
4,185
4,268
28,306
28,556
28,784
1,725
1,756
1,786
100,156
100,692
101,235
28,595
28,464
28,281
30,042
30,270
30,542
11,396
11,403
11,360
10,656
10,750
10,821
31,207
31,688
31,986
20,947
21,136
21,521
36,940
37,153
37,267
4,328
4,341
4,358
75,525
76,198
76,766
40,773
40,993
41,157
27,923
28,152
28,393
95,050
96,170
97,106
61,701
62,999
63,623
5,244
5,261
5,288
60,874
61,119
61,330
707,820
713,818
718,614
2011
6,890
25,923
4,310
28,888
1,797
101,493
28,247
30,660
11,373
10,880
32,201
21,625
37,367
4,373
77,299
41,663
28,494
97,557
63,827
5,313
62,192
722,372
2012
6,888
26,123
4,347
29,106
1,789
102,593
28,467
30,895
11,478
11,006
32,513
22,069
37,658
4,411
78,244
42,451
28,719
98,298
64,307
5,386
62,695
729,443
%/Yr
-0.1%
0.7%
2.0%
0.8%
1.2%
0.5%
-0.2%
0.7%
0.1%
0.9%
1.2%
1.6%
0.5%
0.4%
0.8%
1.4%
0.8%
0.8%
1.3%
0.7%
0.6%
0.8%
Source: California Department of Finance
The Bay Area consistently has among the highest housing costs in the state and nation. In the year
2011, the median home price in San Mateo County was $575,000, down about 6% from 2010 (as
reported by DataQuick Information Systems). Among all of California’s counties, only Marin and
San Francisco had higher median prices. The lack of affordable housing is one of the impediments to
further growth in the region.
Transportation
The San Mateo County area is well served by State Highway 101. This freeway runs in a north-south
direction and travels through the center of the county. It provides access to the city and county of
San Francisco to the north. To the south, State Highway 101 provides access to San Jose and other
areas of Santa Clara County. Further south, State Highway 101 travels through Salinas and then onto
17
the Central Coast of California. Another major arterial in the County is Interstate 280, which
commences in San Francisco near the San Francisco-Oakland Bay Bridge at Highway 101, and then
bisects the County and the peninsula before terminating at Interstate 880 in San Jose. The Pacific
Coast Highway (Highway 1) also travels through San Mateo County, through Daly City, Pacifica,
and Half Moon Bay. To the north of the County, Highway 1 eventually crosses the Golden Gate
Bridge, providing access to Marin County to the north of San Francisco. Access to East Bay Area is
most proximately accessible via the San Mateo-Hayward Bridge in Foster City and the Dumbarton
Bridge (Highway 84) in the Menlo Park/East Palo Alto area, both of which connect to Interstate 880
across the bay.
San Mateo County offers extensive public transportation. In June 2003, the Bay Area Rapid Transit
(BART) opened the Millbrae/SFO extension, which included four new stations – South San
Francisco, San Bruno, San Francisco International Airport (SFO) and Millbrae. In June 2004,
Caltrain launched the Baby Bullet train service, which provides express service including travel
between San Francisco and San Jose in less than an hour. In 2005, Caltrain doubled the number of
Baby Bullet trains (from 10 to 22).
San Francisco International Airport (SFO) is located in an unincorporated area of the county.
According to the Airports Council International of North America, SFO is consistently one of the top
15 busiest airports in the nation in terms of both passenger and cargo volume. The airport is accessed
along State Highway 101, between the cities of Millbrae and San Bruno.
The Redwood City Port is also located in the county. The Port has a deep-water channel and handles
bulk and specialty cargo including lumber, scrap metal and liquid cargos. Each year, the Port handles
about 2 million metric tons of cargo.
Employment & Economy
The California Employment Development Department has reported the following employment data for
San Mateo County over the past few years.
Labor Force
Employment
Annual Job Growth
Unemployment Rate
2006
364,900
351,500
n/a
3.7%
EMPLOYMENT TRENDS
2007
2008
2009
370,100
373,000
374,100
355,900
354,900
342,700
4,400
(1,000)
(12,200)
3.8%
4.9%
8.4%
2010
374,900
342,100
(600)
8.7%
2011
380,300
350,200
8,100
7.9%
Source: California Employment Development Department
18
The unemployment rate in San Mateo County was 6.4% in September 2012, which compares to rates
of 10.2% for California and 7.8% for the U.S. For most areas within the state and nation, including
San Mateo County, unemployment declined from 2004 through 2006, increased from 2007 to 2010,
and declined in 2011 and into 2012.
Employment conditions have shown improvement in 2011 and into 2012, and this trend is expected
to continue over the next few years. The latest employment growth forecast from Beacon Economics
predicts that over 300,000 jobs will be created in the greater San Francisco Bay Area region through
2015 – including 78,000 jobs in San Francisco and San Mateo Counties. Technology companies in
San Mateo County are performing very well and are expected to grow in the near term.
San Mateo County has a diverse economy, with no one sector accounting for a majority of the
employment in the region. The following chart indicates the percentage of total employment for each
sector within the county.
EMPLOYMENT BY SECTOR
Trade/Transport/Utilities
Profess/Business Services
Manuf/Construction
Leisure/Hospitality
Education/Health Services
Government
Financial Activities
Information
Other Services
Agriculture
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Source: California Employment Development Department
As can be seen in the chart above, San Mateo County’s largest employment sectors are
Trade/Transportation/Utilities (including retail and wholesale trade), Professional and Business
Services, and Manufacturing/Construction. Combined, these sectors account for just over half of all
employment in the county. Some of the county’s largest private employers include United Airlines,
Oracle Corporation, Genentech, Kaiser Permanente, Safeway, Visa and Electronic Arts.
19
Household Income
Median household income represents a broad statistical measure of well-being or standard of living
in a community. The median income level divides households into two equal segments with one half
of households earning less than the median and the other half earning more. The median income is
considered to be a better indicator than the average household income as it is not dramatically
affected by unusually high or low values. In the year 2010 (most recent data available from the U.S.
Census), San Mateo County’s median household income was $82,413, which was significantly
higher than the state of California’s median income of $57,664. The county’s income is the second
highest among California counties, trailing only Santa Clara County.
Recreation & Culture
The County operates 17 regional parks in a wide variety of natural settings including a coastal
marine reserve, a bayside recreational area, coastal mountain woodland areas, and urban sites.
Northern San Mateo County is home to eight parks including Coyote Point, Coyote Point Marina,
Crystal Springs, Fitzgerald Marine Reserve, Junipero Serra, San Bruno Mountain, San Mateo
Fishing Pier, and San Pedro Valley Park. Mid- and southern county parks include Edgewood Park,
Flood Park, Huddart Park, Wunderlich Park, Heritage Grove, Memorial Park, Pescadero Creek, and
Sam McDonald Park. The county is also known for its extensive trail system. San Mateo County
hosts an annual County Fair each summer, located near the intersection of U.S. Highway 101 and
State Highway 92.
Conclusion
San Mateo County is one of California’s most affluent regions, with income and home prices among
the highest in the state. Among the county’s most notable advantages are its central location in the
San Francisco Bay Area, picturesque surroundings, mild climate and diverse employment
opportunities. The area also boasts good quality transportation routes, strong schools, and abundant
shopping centers, public services and recreational activities. The region is showing signs of
improvement in employment and economic conditions, and the long-term outlook is for relative
stability and continued economic growth.
20
NEIGHBORHOOD OVERVIEW
Introduction
This section of the report provides an analysis of the observable data that indicate patterns of growth,
structure and/or change that may enhance or detract from property values. For the purpose of this
analysis, a neighborhood is defined as “a group of complementary land uses; a congruous grouping
of inhabitants, buildings or business enterprises.”3
Neighborhood Boundaries
The boundaries of a neighborhood identify the physical area that influences the value of the subject
property. These boundaries may coincide with observable changes in prevailing land use or occupant
characteristics. Physical features such as the type of development, street patterns, terrain, vegetation
and parcel size tend to identify neighborhoods. Roadways, waterways and changing elevations can
also create neighborhood boundaries.
The subject property is located at the southern terminus of S. Delaware Street, south of Highway 92,
within the city of San Mateo, San Mateo County, California. The neighborhood boundaries can
generally be described as the San Mateo city limits.
3
21
Demographics
According to demographic reports, the city of San Mateo has a population of 96,738 persons, with a
projected increase to 99,046 persons by 2015. The median age is 40.0 years and the average
household size is 2.47 persons. The median household income in the area is $89,068 per year. Of the
39,942 housing units in the neighborhood, approximately 51.8% are owner-occupied, 44.7% are
renter-occupied, while the remainder are vacant.
Top employers in San Mateo include the San Mateo County Community College District, San Mateo
Medical Center, San Mateo-Foster City School District, Franklin Templeton Investments, and San
Mateo Union High School District. The city is home to the College of San Mateo, a community
college.
Transportation
The subject property is located at the southern terminus of S. Delaware Street, north of Hillsdale
Boulevard. S. Delaware Street is a north-south four-lane surface street that connects the subject with
State Highway 92 to the north. In an easterly direction, State Highway 92 becomes the San Mateo
Bridge and connects to Interstate 880 in Alameda County. In a westerly direction, State Highway 92
travels to the coastal city of Half Moon Bay. State Highway 92 also connects to U.S. Highway 101,
approximately one-half mile east of the subject. In a northerly direction, Highway 101 travels
through San Francisco and various coastal communities of California, Oregon and Washington; in a
southerly direction, the highway travels through San Jose and eventually ends in the Los Angeles
Area. San Francisco International Airport is located about six miles north of the subject property, in
Millbrae. The main public transportation services in the area are provided by SamTrans, AC Transit
and Caltrain. The Caltrain is a railroad line owned and operated by the Peninsula Corridor Joint
Powers Board, which consists of representatives from San Francisco, San Mateo and Santa Clara
counties and links Gilroy (Santa Clara County) in the south with San Francisco in the north. The
train service is an integral part of linking the employment centers of the Peninsula and Silicon Valley
with average weekly ridership as of February 2011(reported annually each year) of 41,442.
Land Uses
Land uses in the subject’s neighborhood are varied, and include a variety of retail, office, light
industrial, single-family and multifamily residential development. One of the most prominent retail
uses in the area is the Hillsdale Shopping Center, which is located just southwest of the subject
property. This mall is anchored by Nordstrom, Macy’s, Sears and Forever 21, with another 120
stores and restaurants.
22
North of the subject property along South Delaware Street are a variety of uses, including the San
Mateo County Events Center, the home of the annual San Mateo County Fair, apartment complexes,
a self-storage facility and single-family residential development. El Camino Real (State Highway
82), which runs in a north-south direction and is located just west of the subject, is improved with a
variety of retail, office, auto commercial, fast food and motel properties. Most properties appear to
have been constructed in the 1960’s and 1970’s and are in average condition. North of the subject
property along Delaware Street, on the north side of State Highway 92, are shopping centers that
include a Ross department store, Big K, TJ Maxx, Michaels, and other smaller retail and office uses.
Immediately east of the subject property, which is Bay Meadows Phase I, is the corporate
headquarters for Franklin Templeton Investments. East of Franklin Templeton is a Whole Foods
grocery store, mixed-use residential and retail development (both for sale and for rent) and a Kaiser
Permanente medical office, all of which was developed as part of the first phase of the Bay
Meadows redevelopment.
The subject property is located within the San Mateo Rail Corridor Transit Plan of the City of San
Mateo. According to the City of San Mateo Planning Department, the intent of this Plan is to allow,
encourage, and provide guidance for the creation of world class transit-oriented development (TOD)
within a half-mile radius of the Hillsdale and Hayward Park Caltrain station areas, while maintaining
and improving the quality of life of those who already live and work in the area. The Plan
encourages significant redevelopment of blighted properties, and seeks to spur growth of quality
residential and commercial projects in the area.
In addition to the subject property, which comprises Phase II of Bay Meadows (the redevelopment of
the Bay Meadows horse racing facility), other redevelopment projects/plans within San Mateo
include El Camino Real Master Plan (from State Highway 92 to the Belmont city limits); and the
Hillsdale Station Area Plan (redevelopment of the area for transit-oriented development). A number
of residential and mixed use projects have been approved by the City of San Mateo, or are currently
in the approval process. In general, the subject’s neighborhood is considered to be in a period of
revitalization.
Conclusion
In summary, the subject property is located in the city of San Mateo, within the Bay Meadows
Specific Plan. Proposed construction intermixed with rehabilitation projects in the area will likely
create an attractive business environment for the public and private sectors. The subject also benefits
from its good access to and from State Highway 92 and U.S. Highway 101, the main transportation
arterials in the area. Demand for residential and commercial product within the area is projected to
grow.
23
HOUSING MARKET OVERVIEW
In this section, we will begin with an analysis of the legal, physical and location attributes of the
subject property and a delineation of the subject’s competitive market area. Then, we will analyze
demand and supply for similar product within the defined market area, leading to conclusions for
expected absorption.
Regional Home Pricing and Sales Activity
The subject property is situated in central San Mateo County in a region commonly known as “the
Peninsula,” which also includes portions of Santa Clara County to the southeast. The region is
primarily built-out, but has been accepting of new development on previously developed sites.
Because of the similarities in terms of demographics and employment base between these two
counties, we will look at regional pricing trends and sales activity within both San Mateo County
and Santa Clara County in order to analyze current residential market conditions.
The Gregory Group surveys active new home projects in California and Nevada. The table below
and the accompanying chart on the following page depict price trends among active single-family
residential projects in San Mateo and Santa Clara Counties over the past three years. This data
includes both attached and detached projects.
San Mateo & Santa Clara County New Home Prices
Quarter
3Q 2009
4Q 2009
1Q 2010
2Q 2010
3Q 2010
4Q 2010
1Q 2011
2Q 2011
3Q 2011
4Q 2011
1Q 2012
2Q 2012
3Q 2012
Average
Price
$704,293
$687,672
$697,656
$667,372
$671,387
$601,386
$608,585
$645,378
$687,573
$671,626
$636,511
$642,523
$676,179
Net
Average
Price
$698,855
$684,230
$693,580
$663,131
$667,520
$597,380
$604,520
$641,915
$684,187
$667,598
$632,838
$638,861
$672,190
% Change Net
Average Price Average % Change Net 12 Month Moving Average Number of
Incentive Average Price
Average
Home Size Projects
$5,438
1,672
68
$3,442
-2.1%
1,679
54
$4,076
1.4%
1,702
47
$4,241
-4.4%
1,606
37
$3,867
0.7%
-1.1%
1,669
32
$4,006
-10.5%
-3.2%
1,596
21
$4,065
1.2%
-3.3%
1,606
20
$3,463
6.2%
-0.6%
1,702
21
$3,386
6.6%
0.9%
2,060
31
$4,028
-2.4%
2.9%
2,090
31
$3,673
-5.2%
1.3%
2,002
30
$3,662
1.0%
0.0%
2,002
29
$3,989
5.2%
-0.4%
2,093
22
Source: The Gregory Group
24
$800,000
$775,000
$750,000
$725,000
$700,000
$675,000
$650,000
$625,000
$600,000
$575,000
$550,000
$525,000
$500,000
$6,000
$5,000
$3,000
$2,000
Incentives
$4,000
$1,000
Average Price
Net Average Price
3Q 2012
2Q 2012
1Q 2012
4Q 2011
3Q 2011
2Q 2011
1Q 2011
4Q 2010
3Q 2010
2Q 2010
1Q 2010
4Q 2009
$0
3Q 2009
Pricing
San Mateo & Santa Clara County New Home Prices
Average Incentive
Within the two counties, the average net price generally trended downward in 2008 through 2010,
but reached bottom around the end of 2010 and has trended upward in 2011-2012. This is a positive
sign for these counties, which are experiencing a recovery in the housing market prior to outlying
growth areas like the East Bay Area, Sacramento, and the San Joaquin Central Valley (Stockton/
Modesto). Over the three-year period from Third Quarter 2009 to Third Quarter 2012, the average
net price declined by 3.8%, while the average net price per square foot declined by 23.2%.
The table on the following page shows unsold inventory levels per project per month. Standing
inventory generally fluctuated during 2008, declined in 2009, increased for most of 2010, and
declined again in 2011-2012. The unsold inventory as of Third Quarter 2012 equated to 2.0 homes
per project per month, which has been following a downward trend as home sales continue to
increase and inventories decline.
25
San Mateo & Santa Clara County New Home Inventory
Quarter
3Q 2009
4Q 2009
1Q 2010
2Q 2010
3Q 2010
4Q 2010
1Q 2011
2Q 2011
3Q 2011
4Q 2011
1Q 2012
2Q 2012
3Q 2012
Units
Planned
6,451
5,799
5,250
4,409
3,798
2,697
2,792
2,696
3,551
3,246
3,409
3,367
2,667
Units
Offered
5,568
5,004
4,737
3,996
3,400
2,395
2,413
2,351
2,745
2,505
2,693
2,877
2,352
Units Sold Total Inventory
4,534
1,917
4,075
1,724
3,905
1,345
3,284
1,125
2,751
1,047
1,973
724
2,051
741
2,071
625
2,333
1,218
2,193
1,053
2,359
1,050
2,660
707
2,222
445
Unoffered
Inventory
883
795
513
413
398
302
379
345
806
741
716
490
315
Unsold
Inventory
Unsold
Per
Inventory
Project
Per
Unsold
Per
Project
Inventory Quarter Per Month
1,034
15.2
5.1
929
17.2
5.7
832
17.7
5.9
712
19.2
6.4
649
20.3
6.8
422
20.1
6.7
362
18.1
6.0
280
13.3
4.4
412
13.3
4.4
312
10.1
3.4
334
11.1
3.7
217
7.5
2.5
130
5.9
2.0
Recent sales activity is shown in the table and accompanying chart on the following page. During
the Third Quarter 2012, there were 3.9 sales per project per month, which was unchanged from the
previous quarter, but up from 2.8 a year ago (third quarter of 2011), and up significantly from 1.1
two years ago (third quarter of 2010). Absorption rates (homes sold per project per month) have
generally increased in 2011-2012.
26
San Mateo & Santa Clara County New Home Sales
Quarter
3Q 2009
4Q 2009
1Q 2010
2Q 2010
3Q 2010
4Q 2010
1Q 2011
2Q 2011
3Q 2011
4Q 2011
1Q 2012
2Q 2012
3Q 2012
Quarter
Sold
849
209
287
145
101
106
92
124
259
221
327
340
259
Sold Per
Project
Number of
Per
Projects Quarter
68
12.5
54
3.9
47
6.1
37
3.9
32
3.2
21
5.0
20
4.6
21
5.9
31
8.4
31
7.1
30
10.9
29
11.7
22
11.8
Sold Per
Project Per
Month
4.2
1.3
2.0
1.3
1.1
1.7
1.5
2.0
2.8
2.4
3.6
3.9
3.9
Sold Per Project
Per Month 12Month Moving
Average
2.1
2.2
2.3
2.2
1.4
1.5
1.4
1.6
2.0
1.8
2.1
2.6
2.9
3Q 2012
2Q 2012
1Q 2012
4Q 2011
3Q 2011
2Q 2011
1Q 2011
4Q 2010
3Q 2010
2Q 2010
1Q 2010
4Q 2009
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
3Q 2009
New Home Sales per Project per Month
Sold Per Project Per Month 12-Month Moving Average
Sold Per Project Per Month
27
Project Pricing and Inventory Analysis
As reported by The Gregory Group, an enterprise that surveys active new home projects in
California and Nevada, there are currently 22 single-family residential developments (both attached
and detached) actively marketing new homes in the region encompassing San Mateo and Santa Clara
Counties. Data for the projects is summarized in the table below based on information published by
The Gregory Group for Third Quarter 2012. It is noted all but one of the projects are located in Santa
Clara County; the only project in San Mateo County is Cedar Mills in San Bruno.
Project
Aviana
Axis
Boulevard
Cedar Mills
Celadon
Cimarron
City Heights
Creekside-Eagle Ridge
Dakota
Fusion
Genoa at Milano
Hamilton Square
Maplewood Lane
Mesa Ridge
Mission Ranch
Mondrian
Morgan Glen-Capriano
Pepper Lane
Sherimar Ranch
The 88
The Enclave-Waverly Park
The Terraces-Willow Glen
Community
Gilroy
San Jose
Santa Clara
San Bruno
San Jose
Gilroy
San Jose
Gilroy
Gilroy
Sunnyvale
Morgan Hill
Campbell
Gilroy
Gilroy
Morgan Hill
Mountain View
Morgan Hill
San Jose
Morgan Hill
San Jose
Mountain View
San Jose
Avg. Base
Price
Builder
K Hovnanian Homes
$537,923
KT Properties
$663,750
Shea Homes
$579,500
Lennar Homes
$823,950
Warmington Homes
$487,600
DeNova Homes
$518,400
Barry Swenson
$372,500
Shapell Industries
$716,650
DR Horton
$544,740
O'Brien Homes
$521,801
KB Home
$582,500
Pulte Homes
$737,157
Meritage Homes
$397,323
K Hovnanian Homes
$557,157
Dividend Homes
$787,250
Shea Homes
$772,467
DR Horton
$789,990
Pulte Homes
$552,240
KB Home
$710,222
Wilson Meany Sullivan $449,000
Summerhill Homes
$1,889,580
Toll Brothers
$531,828
Overall Minimum
Overall Maximum
Overall Average
$372,500
$1,889,580
$660,160
Age. Home
Size (SF)
2,473
1,129
1,592
1,968
1,566
2,334
884
3,192
2,498
1,457
2,545
1,813
1,771
3,133
2,864
1,592
3,747
1,604
2,636
818
2,780
1,490
Lot Size
(SF)
9,000
0
0
3,000
0
6,500
0
6,000
7,000
0
5,000
0
6,000
6,000
7,000
0
10,000
0
6,500
0
8,000
0
Totals:
818
3,747
2,086
$455.38
$504.29
$316.51
Units
Planned
108
329
130
14
86
66
124
118
92
228
32
21
51
49
328
151
54
157
114
197
53
165
2,667
Units
Offered
78
329
130
14
39
66
124
110
92
222
17
21
51
49
243
151
54
80
67
197
53
165
2,352
Units
Sold
74
252
130
14
38
66
124
110
89
221
7
19
51
43
243
151
52
79
64
177
53
165
2,222
Total
Unsold
4
77
0
0
1
0
0
0
3
1
10
2
0
6
0
0
2
1
3
20
0
0
130
/SF
/SF
/SF
Based on The Gregory Group survey, the total unsold and unoffered inventory levels are determined
for the purpose of estimating the supply of new homes in the market area that could be similar to a
product line at the subject. It is noted of the approximately 2,352 units offered for sale, 2,222 units
have been sold. Therefore, the total unsold units offered for sale is 130 units. Considering this, along
with the planned but unoffered inventory of 315 units, the total inventory at active projects equates
to 445 units.
It is noted there are a few projects not tracked by The Gregory Group. In Redwood City, 231 units
are planned in a mixed-use development known as One Marina, which will also include community
parks and retail space. As of late August 2012, 92 of the 231 planned units had been completed, and
24 townhomes had been sold. Prices at the project range from $499,000 to the low $700,000s.
28
In March 2012, Toll Brothers began marketing homes at the Ridge, a 71-home subdivision in
Brisbane on the edge of the San Bruno Mountain Habitat Conservation Area. High atop the Brisbane
hilltop, homes at the Ridge range from 2,098 square feet to 3,416 square feet, with pricing starting in
the mid-$750,000s and climbing to above $950,000.
In terms of future supply additions, a 50-unit townhouse project in Daly City known as Garden
Valley is planned, with construction expected to begin around the end of 2012. In addition, MG
Property Group recently acquired the 72-unit Pacifica Place property in Daly City. The development
was originally intended for condos, was changed to apartments in 2011, but the new owner intends
to change it back to condos as the market strengthens.
Project Absorption Rates
Previously, we profiled 22 residential communities actively marketing new homes in San Mateo and
Santa Clara Counties. The following table summarizes absorption rates for these projects.
Project
Aviana
Axis
Boulevard
Cedar Mills
Celadon
Cimarron
City Heights
Creekside-Eagle Ridge
Dakota
Fusion
Genoa at Milano
Hamilton Square
Maplewood Lane
Mesa Ridge
Mission Ranch
Mondrian
Morgan Glen-Capriano
Pepper Lane
Sherimar Ranch
The 88
The Enclave-Waverly Park
The Terraces-Willow Glen
Community
Gilroy
San Jose
Santa Clara
San Bruno
San Jose
Gilroy
San Jose
Gilroy
Gilroy
Sunnyvale
Morgan Hill
Campbell
Gilroy
Gilroy
Morgan Hill
Mountain View
Morgan Hill
San Jose
Morgan Hill
San Jose
Mountain View
San Jose
Avg. Base
Price
Builder
K Hovnanian Homes
$537,923
KT Properties
$663,750
Shea Homes
$579,500
Lennar Homes
$823,950
Warmington Homes
$487,600
DeNova Homes
$518,400
Barry Swenson
$372,500
Shapell Industries
$716,650
DR Horton
$544,740
O'Brien Homes
$521,801
KB Home
$582,500
Pulte Homes
$737,157
Meritage Homes
$397,323
K Hovnanian Homes
$557,157
Dividend Homes
$787,250
Shea Homes
$772,467
DR Horton
$789,990
Pulte Homes
$552,240
KB Home
$710,222
Wilson Meany Sullivan $449,000
Summerhill Homes
$1,889,580
Toll Brothers
$531,828
Age. Home
Size (SF)
2,473
1,129
1,592
1,968
1,566
2,334
884
3,192
2,498
1,457
2,545
1,813
1,771
3,133
2,864
1,592
3,747
1,604
2,636
818
2,780
1,490
Units
Planned
108
329
130
14
86
66
124
118
92
228
32
21
51
49
328
151
54
157
114
197
53
165
Units
Sold
74
252
130
14
38
66
124
110
89
221
7
19
51
43
243
151
52
79
64
177
53
165
Overall Minimum
Overall Maximum
Overall Average
Total Sales
Rate/Mo.
3.77
4.33
3.29
2.25
4.20
4.46
1.91
1.52
4.42
14.51
0.65
3.03
3.85
3.20
1.47
3.46
1.69
6.97
4.42
3.38
3.07
2.73
0.65
14.51
3.75
3Q 2012 3Q 2012
Sales
Rate/Mo.
27
9.00
21
7.00
3
1.00
4
1.33
18
6.00
7
2.33
9
3.00
5
1.67
20
6.67
47
15.67
1
0.33
7
2.33
6
2.00
20
6.67
2
0.67
2
0.67
3
1.00
31
10.33
17
5.67
14
4.67
1
0.33
1
0.33
0.33
15.67
4.03
Absorption rates have increased in the subject’s market area in recent quarters. During the Third
Quarter 2012, the absorption rates among the active projects within the subject’s market area
exhibited a tendency toward about 2-4 sales per month (average of 4.03 and median of 2.33). Most
of the active projects have experienced higher absorption rates in 2012 compared to the previous
year. This is a trend occurring throughout the Bay Area region as the housing market recovers.
29
The project located in San Mateo County – Cedar Mills in San Bruno – has had a total absorption
rate of 2.25 sales per month since opening in March 2012.
Conclusion
Overall, the housing market in the San Mateo-Santa Clara County region is improving, with
increases in both sales and prices in many areas as demand strengthens. Over the next 12 months,
prices and sales volume should continue on their upward trends. Tightened lending restrictions in the
market for existing homes will continue to influence sales rates. Job growth is expected to increase
over the next several years, which should fuel demand for new homes, if appropriately priced;
however, too much development too quickly could saturate the market in the near term.
30
APARTMENT MARKET OVERVIEW
National/Regional Market Conditions
In most of the nation’s markets, apartment market conditions have improved in 2010-2012, with
rising rental rates, declining vacancy rates and falling capitalization rates. During the years 2008 and
2009, apartment market conditions declined amid falling demand due to rising unemployment, and
increasing supply due to growing competition from single-family homes and condominiums
available for rent.
According to the PwC Real Estate Investor Survey, dated 3rd Quarter 2012, the national apartment
market “remains firmly planted in the expansion phase of the real estate cycle, characterized by
strong demand, robust rent growth, and new supply.” While rental rates declined in the year 2009,
they increased by about 2% in 2010 and nearly 4% in 2011. Apartment sales volume also increased
in 2010 and 2011. Demand for apartments has improved due to job growth and ongoing struggles in
the single-family home market. Nationally, vacancy has fallen to its lowest level in more than 10
years. Amid the increasing sales volume and recovering market fundamentals, overall capitalization
rates have fallen over the past year. For the 3rd quarter, the PwC survey respondents indicated a cap
rate range of 3.75% to 10.0%, with an average of 5.74% for multifamily properties. The average was
down from 5.98% a year ago.
San Mateo County – Introduction
The apartment market in San Mateo County has been improving for the past few years and exhibits
extremely tight vacancy of less than 5%. Rental rates in the region have been increasing since the
beginning of 2010.
Based on our research, the two brokerages who publish the most detailed information for Bay Area
apartment markets are Cassidy Turley and Marcus & Millichap. Cassidy Turley provides the most
thorough data for San Mateo County and thus we will rely primarily on their most recent report:
Apartment Market Report, San Mateo County, Third Quarter 2012.
Vacancy Rates
In San Mateo County, the apartment market vacancy rate as of Third Quarter 2012 was 4.5% among
projects with 100+ units, and 2.2% among projects with 99 units or less (according to Cassidy
Turley). Vacancy has been trending downward for nearly four years since peaking in early 2009.
The chart on the following page shows historical vacancy rates for San Mateo County.
31
San Mateo County Historical Vacancy
6.5%
100+ Units
< 100 Units
5.5%
4.5%
3.5%
Q3-2012
Q2-2012
Q1-2012
Q4-2011
Q3-2011
Q2-2011
Q1-2011
Q4-2010
Q3-2010
Q2-2010
Q1-2010
1.5%
Q4-2009
2.5%
Source: Cassidy Turley
Rental Rates
The average rental rate for an apartment in San Mateo County as of Third Quarter 2012 was $1,728
for units within projects containing fewer than 100 units; and $2,220 for units within projects with
100 or more units. According to Cassidy Turley, rental rates in the region peaked during the third
quarter of 2008, declined for five consecutive quarters before bottoming out in the fourth quarter of
2009, and have increased since the first quarter of 2010. Further, the pace and strength of rental rate
growth has reportedly accelerated in recent quarters. Over the past year, the average rent has
increased by 15% at projects with 100 or more units, and 16% at projects with fewer than 100 units.
The following chart shows the average rental rates by unit type as of Third Quarter 2012.
32
San Mateo County Average Rental Rates
Avg. Rent
Projects with
<100 Units
% Change
from
Year Ago
Avg. Rent
Projects with
100+ Units
% Change
from
Year Ago
Studio
1 Bed / 1 Bath
2 Bed / 1 Bath
2 Bed / 2 Bath
3 Bed / 2 Bath
$1,099
$1,597
$1,967
$2,226
$3,294
12%
14%
16%
14%
6%
$1,491
$1,997
$2,244
$2,690
$3,276
14%
15%
18%
13%
17%
Average overall
$1,728
16%
$2,220
15%
Unit Type
Source: Cassidy Turley, 3rd Quarter 2012
Sales Activity
The following chart summarizes recent trends in apartment sales.
San Mateo County Apartment Sales Trends
Sales Volume
Units Sold
Avg. Price/Unit
Avg. Price/SF
Avg. Cap Rate
Avg. GRM
2Q-2011
3Q-2011
4Q-2011
1Q-2012
2Q-2012
3Q-2012
$149.4 mil
578
$258,441
$262.65
6.14%
11.01
$89.4 mil
324
$275,823
$205.25
5.68%
12.02
$124.7 mil
682
$182,894
$172.33
5.93%
11.70
$56.2 mil
340
$165,487
$178.86
5.06%
12.87
$62.8 mil
299
$210,114
$297.97
5.32%
11.95
$115.2 mil
578
$199,232
$222.27
5.27%
11.95
The previous chart shows that transaction volume has been up and down over the past several
quarters. With rental rates increasing, many owners are not looking to sell. Brokers indicate there is
a shortage of quality properties available for sale – this supply limitation has put downward pressure
on sales volume even though demand among potential investors has been very high. Given the
strong market conditions, multifamily properties are in very high demand among investors. Demand
is particularly strong for Class A and B properties; however, most of the properties on the market are
Class C.
Prices are increasing, although the figures in the previous table do not always illustrate the trend.
The average price-per-unit and price-per-square-foot figures are dependent on the size, quality and
condition of the properties that happened to sell in any given quarter. Most of the sale activity within
the marketplace has focused on older and smaller Class B/C projects. Cap rates have trended
33
downward over the past couple of years for nearly all property types, with an average of 5.27% in
San Mateo County in the third quarter.
New Construction
The following chart shows the number of multifamily permits (within projects with 5 or more units)
issued over the recent past in San Mateo County. It is noted these figures include for-rent apartments
and for-sale condominiums.
San Mateo County Multifamily Building Permits
800
639
600
543
491
483
400
221
181
200
128
45
37
0
2004
2005
2006
2007
2008
2009
2010
2011
2012
thru Aug
Source: U.S. Census SOCDS Building Permits Database
Development of multifamily projects has been up and down over the past several years. Recently a
decline was seen in 2009 and 2010 after a relatively large number of permits were issued in 2008.
The increase in permit activity in 2011 indicates new construction will likely increase in the near
term. This makes sense given the recent declines in vacancy and growth in rental rates.
According to Cassidy Turley, there were no new major projects delivered in San Mateo County
during the second quarter of 2012. In the third quarter, a 109-unit project was delivered at 636 El
Camino Real in South San Francisco.
Sares Regis has three apartment projects in the works throughout San Mateo County, including the
307-unit Plaza apartment complex in Foster City scheduled to open in the first quarter of 2013. The
company has also begun construction on a 132-unit apartment complex at 333 Main Street in
34
Redwood City, and also recently closed a deal to develop 155 apartments at 888 San Mateo Drive in
San Mateo.
A 264-unit, six-story apartment building is planned at 640 Veterans Boulevard in Redwood City.
Construction is slated to begin in late 2012 or early 2013, with leasing starting about two years after
construction begins.
Conclusion
The apartment market is showing signs of sustained recovery across the U.S. and in San Mateo
County as well. In this market area, vacancy has declined and rental rates have increased since early
2010, and both of these trends are expected to continue over the next 12 months, especially
considering that job growth is expected to improve in the region. Overall the market fundamentals
are very strong and favorable to property owners, and demand among investors is very high for good
quality multifamily projects.
35
OFFICE MARKET OVERVIEW
Introduction
The office market in San Mateo County saw considerable improvement in 2010-2011. Market
conditions have slowed thus far in 2012, but vacancy has been relatively steady in the range of about
13-14% over the past 12 months. Through the first three quarters of 2012, net absorption was
slightly negative, but brokers report that demand continues to be strong in the region with many
tenants actively looking for space. Based on our research, multiple brokerages currently publish
surveys for the office market in San Mateo County or “the Peninsula.” The two most in-depth
reports are from Cassidy Turley and Colliers International. In this market overview, we will rely
primarily on Cassidy Turley’s most recent report: Office Market Snapshot, San Mateo County, Third
Quarter 2012.
Vacancy & Absorption
The following charts show recent trends in vacancy and net absorption in the market area.
San Mateo County Office Market Vacancy
20.0%
18.0%
16.0%
14.0%
12.0%
3Q-12
2Q-12
4Q-11
2Q-11
4Q-10
2Q-10
4Q-09
2Q-09
4Q-08
2Q-08
4Q-07
10.0%
36
San Mateo County Office Market Net Absorption (SF)
1,250,000
1,000,000
750,000
500,000
250,000
0
-250,000
-500,000
-750,000
-1,000,000
2006
2007
2008
2009
2010
2011
2012
YTD
The overall vacancy rate for the office market was 13.9% in Third Quarter 2012, up slightly from
13.2% at the end of 2011. The market recorded positive net absorption in the years 2010 and 2011 of
about 375,000 and 1.1 million square feet, respectively. Through the first three quarters of 2012, net
absorption was negative 240,300 square feet. However, Cassidy Turley reports that “this is despite
the fact that demand is actually on the increase. We are currently tracking just under 2.6 million
square feet of user requirements in the marketplace that could translate into deals over the next 24
months. This number has increased by 18% over the past three months.” Most of the demand is
coming from tech users, including software/internet companies and life science businesses. Part of
the reason that absorption has been slow even though demand in the market is high, is that most
users are seeking larger blocks of space (10,000 square feet or more); however, 82% of the available
space in the market consists of office suites smaller than 10,000 square feet. In addition, many tech
companies are looking for downtown creative space ideally situated near public transportation, but
this type of space is also in short supply. The major downtown submarket vacancies are at a
remarkably low 7.6%. This has resulted in companies relocating elsewhere in the Bay Area
(primarily San Francisco) as they look to markets that can accommodate their growth needs.
The table on the following page summarizes recent market data by submarket.
37
San Mateo County Office Submarket Data
Total Rentable
SF
Vacancy
3Q 2012
YTD Net
Absorption (SF)
Avg. Asking Rent
(Full Service)
Daly City
Brisbane
S. San Francisco
San Bruno/Millbrae
Burlingame
North County Totals
942,138
793,474
2,328,468
1,644,218
2,041,785
7,750,083
27.4%
53.1%
23.4%
8.9%
13.4%
21.2%
(71,393)
(122,960)
168,322
(30,090)
(49,447)
(105,568)
$1.94
$3.16
$3.35
$3.06
$2.12
$2.85
San Mateo
Foster City
Redwood Shores
Central County Totals
6,966,547
2,936,369
5,945,106
15,848,022
11.7%
8.3%
9.0%
10.1%
132,566
21,841
(215,964)
(61,557)
$2.84
$3.30
$3.22
$3.04
Belmont/San Carlos
Redwood City
Menlo Park
South County Totals
1,075,988
3,365,282
3,115,009
7,556,279
21.5%
16.7%
9.2%
14.3%
(84,545)
(8,216)
19,586
(73,175)
$2.85
$3.49
$7.72
$4.47
TOTAL COUNTY
31,154,384
13.9%
(240,300)
$3.33
Lease Rates
According to Cassidy Turley, the average asking rental rate for office space was $3.33 psf/month
(full service) as of Third Quarter 2012. This represents an increase of about 5.4% from year-end
2011 when the average rate was $3.16. Recent rates reflect a significant improvement over the postrecession low of $2.52 reached during the first quarter of 2010. For Class A space, the average was
$3.61 in the third quarter; and for Class B space, $2.76 psf/month.
New Construction
There are currently no office buildings under construction in San Mateo County. However, in light
of improving market conditions over the past two to three years, market participants expect to see
some speculative construction return to the market during the next 12 months. In terms of planned
projects, the two most notable are Bay Meadows and the 320,000 square foot Depot Circle in
downtown Redwood City, which is planned for delivery in the first quarter of 2015.
Conclusion & Forecast
The coming year is expected to be one of continued improvement for the San Mateo County office
market. Vacancy has held relatively steady for the past 12-18 months but is expected to decline over
the next 12 months due to strong demand and no significant changes to supply. Rental rates have
increased over the past three years and the upward trend is expected to continue, particularly in light
of the shortage of large blocks of office space.
38
RETAIL MARKET OVERVIEW
Introduction
In San Mateo County, the retail market has shown signs of continued strength over the past several
quarters. Although vacancy has ticked up slightly in 2012, it has remained extremely tight at less
than 4% for nearly two years. Based on our research, several brokerages currently publish surveys
for the retail market in San Mateo County or “the Peninsula,” including Terranomics, Grubb & Ellis
and Marcus & Millichap. Terranomics provides the most in-depth data and thus we will rely
primarily on their most recent report: San Mateo County Shopping Centers Report Q3-2012.
Vacancy & Absorption
The following charts show recent trends in vacancy and net absorption in the market area.
San Mateo County Retail Market Vacancy
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
3Q-12
2Q-12
4Q-11
2Q-11
4Q-10
2Q-10
4Q-09
2Q-09
4Q-08
2Q-08
4Q-07
0.0%
Source: Terranomics
39
San Mateo County Retail Market Net Absorption (SF)
300,000
250,000
200,000
150,000
100,000
50,000
0
-50,000
-100,000
2008
2009
2010
2011
2012
YTD
Source: Terranomics
The overall vacancy rate for the retail market was 3.6% in Third Quarter 2012, up from 3.0% in the
previous quarter. The market vacancy rate has been in the range of 3-4% for about two years, after
having increased in 2008 and 2009. Although net absorption has been negative thus far this year,
brokers report that demand continues to be strong among retailers, and the lack of available quality
space is negatively impacting growth in the market. The Terranomics report stated, “With vacancy
rates this low, options for retailers remain few and far between. Much of the remaining space
available is in weaker centers. The shortage of available shopping center space has thwarted
growth.” Demand is strongest for first-tier shopping centers (typically anchored centers in urban
locations with high visibility), which are seeing the highest levels of deal activity.
The table on the following page summarizes recent vacancy and rental rates by submarket and by
type of shopping center. North County includes the communities of Daly City, Brisbane, South San
Francisco, San Bruno, Millbrae and Burlingame. Central County includes San Mateo and Foster
City. South County includes Belmont, San Carlos, Redwood City and Menlo Park.
40
San Mateo County Detail
Total Rentable
SF
Vacancy
3Q 2012
YTD Net
Absorption (SF)
Avg. Asking Rent
Shop Space (NNN)
SUBMARKET
North County
South County
Central County
Total
4,613,054
2,845,226
3,152,753
10,611,033
3.3%
2.2%
5.2%
3.6%
(7,987)
(1,616)
(60,983)
(70,586)
$2.32
$1.81
$2.29
$2.20
CENTER TYPE
Neighborhood & Community
Strip
Power & Regional
Total
5,977,945
1,436,466
3,196,622
10,611,033
3.4%
5.5%
3.1%
3.6%
(9,868)
(18,136)
(42,582)
(70,586)
$2.27
$2.14
$2.08
$2.20
Source: Terranomics
New Construction
No new shopping centers were completed in 2009 or 2010 in San Mateo County. In 2011, the first
phase of a Safeway center in Burlingame added about 47,000 square feet to the market. With
vacancy continuing to be extremely tight, especially among first- and second-tier properties,
developers are beginning to be active again, with multiple projects in the planning stages. One of the
more notable planned projects is Daly City Partners’ Gellert Marketplace – this 140,000 square foot
community center is slated for delivery in 2014 and will be anchored by Sprouts Farmers Market and
Bed Bath & Beyond.
Conclusion & Forecast
The coming year is expected to be one of continued strength for the San Mateo County retail market.
Although vacancy has increased slightly in 2012, it remains very tight (less than 4%) and brokers
report that demand continues to be high, particularly for first- and second-tier centers. The market
has a shortage of quality available space, which is severely limiting the number of lease deals.
According to Terranomics, “Look for inline leasing activity to remain soft in the coming months,
simply because there is nowhere to go.” With demand strong and supply very limited, an increase in
new development is expected over the next several quarters.
41
PROPERTY IDENTIFICATION AND LEGAL DATA
Location
The appraised property, which represents the taxable land areas within the boundaries of City of San
Mateo Community Facilities District No. 2008-1 (Bay Meadows), is located at the southern terminus
of South Delaware Street, north of Hillsdale Boulevard and west of Saratoga Drive, within the city
of San Mateo, San Mateo County, California.
Assessor’s Parcel Number
The subject is identified by San Mateo County Assessor’s parcel numbers 040-030-250; -260; -270;
-280; -290; -310; -320; 330; -340 and -350.
Owner of Record
Title to the subject property is presently vested with the following entities:
APN – 040-030-250
APN – 040-030-260
APN – 040-030-270 ptn. (Block 3.1b)
APN – 040-030-270 ptn. (Block 3.1a)
APN – 040-030-270 ptn. (Block 3.2)
APN – 040-030-280
APN – 040-030-290
APN – 040-030-310
APN – 040-030-320
APN – 040-030-330
APN – 040-030-340
APN – 040-030-350
Legal Description
A legal description of the subject property is included in the preliminary title report, which has been
reproduced and included in the Addenda to this report.
Property Taxes
The property tax system in California was amended in 1978 by Article XIII to the State Constitution,
commonly referred to as Proposition 13. It provides for a limitation on property taxes and for a
procedure to establish the current taxable value of real property by reference to a base year value,
which is then modified annually to reflect inflation (if any). Annual inflationary increases cannot
42
exceed 2% per year. The base year was set at 1975-76 or any year thereafter in which the property is
substantially improved or changes ownership. When either of these two conditions occurs, the
property is to be re-appraised at market value, which becomes the new base year assessed value.
Proposition 13 also limits the maximum tax rate to 1% of the value of the property, exclusive of
bonds and supplemental assessments. Bonded indebtedness approved prior to 1978, and any bonds
subsequently approved by a two-thirds vote of the political jurisdiction in which the property is
located, can be added to the 1% tax rate.
Tax rates are determined annually and are based upon $100 of assessed value. Tax information on
the subject parcels are identified in the following table for the 2012-2013 property tax year.
APN: 040-030-250 040-030-260
Assessed Land Value
Assessed Improvement Value
Total Assessed Value
040-030-280
040-030-290
$ 1,623,208 $
$
- $
2,292,436 $
- $
5,170,626 $
- $
9,062,066 $
- $
2,905,897
-
$ 1,623,208
2,292,436
5,170,626
9,062,066
2,905,897
Tax Rate Area
Tax Rate
$
12-001
1.10420%
Taxes on Assessed Value
040-030-270
$
12-001
1.10420%
$ 17,923.46 $
$
12-001
1.10420%
25,313.06 $
$
12-001
1.10420%
57,094.04 $ 100,063.32
12-001
1.10420%
$
32,086.90
Detail Special Charges
NPDES Storm Drain Fee
$
1.72 $
1.72 $
1.72 $
1.72 $
1.72
SMC Mosquito Abate Dis
$
3.74 $
3.74 $
3.74 $
3.74 $
3.74
SMCCCD 2010-2013
$
34.00 $
SMFCSD Measure A 2010 Ptax
$
188.88 $
SM FCSD Measure B 1991 Ptax
$
93.96 $
$
322.30 $
Total Property Taxes
$ 18,245.76
34.00 $
188.88
$
93.96 $
322.30
$ 25,635.36
$
34.00 $
188.88
$
93.96 $
322.30
$ 57,416.34
$
34.00 $
188.88
188.88
93.96 $
93.96
322.30
$ 100,385.62
34.00
$
$
322.30
$ 32,409.20
43
APN: 040-030-310 040-030-320
Assessed Land Value
Assessed Improvement Value
Total Assessed Value
040-030-340
040-030-350
$ 1,245,532 $
$
- $
2,918,582 $
- $
822,540 $
- $
2,697,271 $ 25,676,690
- $
-
$ 1,245,532
2,918,582 $
822,540
2,697,271 $
Tax Rate Area
Tax Rate
$
12-001
1.10420%
Taxes on Assessed Value
040-030-330
12-001
1.10420%
$ 13,753.16 $
$
12-001
1.10420%
12-001
1.10420%
32,226.98 $
9,082.48 $
25,676,690
12-001
1.10420%
29,783.26 $ 283,522.00
Detail Special Charges
NPDES Storm Drain Fee
$
1.72 $
1.72 $
1.72 $
1.72 $
1.72
SMC Mosquito Abate Dis
$
3.74 $
3.74 $
3.74 $
3.74 $
3.74
SMCCCD 2010-2013
$
34.00 $
34.00 $
34.00 $
34.00 $
34.00
SMFCSD Measure A 2010 Ptax
$
188.88 $
SM FCSD Measure B 1991 Ptax
$
93.96 $
$
322.30 $
Total Property Taxes
$ 14,075.46
188.88
$
93.96 $
188.88
$
93.96 $
322.30
$
322.30
$ 32,549.28
$
9,404.78
$
188.88
$
188.88
93.96 $
93.96
322.30
$ 30,105.56
$
322.30
$ 283,844.30
The subject parcels are located in tax code area 12-001, which includes additional forms of
indebtedness, authorized by the voters increasing the total ad valorem tax rate to 1.1058% for the
2012/13 tax year. The existing ad valorem taxes are of nominal consequence in this appraisal,
primarily due to the fact these taxes will be adjusted substantially once the new infrastructure and
property improvements are completed and in consideration of the definition of market value
employed in this appraisal, which assumes a sale of the appraised property.
Special Taxes
The subject property is situated within the boundaries of a Community Facilities District identified
as CFD No. 2008-1 (Bay Meadows), with the following proposed special tax obligations. These
figures were provided by the Amended and Restated Rate and Method of Apportionment, which was
approved on November 21, 2011. On each July 1, commencing on July 1, 2012, the maximum
special tax identified in the table on the following page will be increased by 2% of the amount in
effect for the previous fiscal year. Interest on the first series of Bonds through September 1, 2013
was funded from Bond proceeds of the first issuance and the owners of undeveloped property are not
expected to have to pay a special tax on the first series of Bonds until December 10, 2013. Similarly,
interest on the second series of Bonds through September 1, 2014 is being funded from Bond
proceeds of the second issuance and the owners of undeveloped property are not expected to have to
pay a special tax on the second series of Bonds until December 10, 2014. According to the Special
Tax Consultant, David Taussig & Associates, Inc., the CFD is required to levy $1,855,294 in Special
Tax for tax year 2013/2014, which will be accounted for in the valuation of the master developerowned property later in this report.
44
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
Description
Residential Property
BMR Units
BMR Units
BMR Units
Apartment Property
Non-Residential Property - Office Floor Area
Non-Residential Property - Retail Floor Area
Back-Up Special Tax
Floor Area
> 2,300 sq. ft.
2,152 - 2,300 sq. ft.
2,001 - 2,150 sq. ft.
1,851 - 2,000 sq. ft.
1,701 - 1,850 sq. ft.
1,551 - 1,700 sq. ft.
1,401 - 1,550 sq. ft.
1,251 - 1,400 sq. ft.
1,101 - 1,250 sq. ft.
951 - 1,100 sq. ft.
801 - 950 sq. ft.
<= 800 sq. ft.
> 1,400 sq. ft.
801 - 1,400 sq. ft.
<= 800 sq. ft.
N/A
N/A
N/A
N/A
Assigned Special
Tax
$5,405
$5,288
$4,989
$4,973
$4,917
$4,557
$4,069
$3,701
$3,482
$3,158
$2,572
$2,332
$1,344
$1,344
$1,139
$60,000
$1.769
$0.520
$124,695
per unit
per unit
per unit
per unit
per unit
per unit
per unit
per unit
per unit
per unit
per unit
per unit
per unit
per unit
per unit
per acre
per SF
per SF
per acre
The appraised property is also subject to a number of direct levies, which in total represent only
nominal assessments. The bond indebtedness and these direct levies will be considered in the
valuation portion of this analysis.
Conditions of Title
A preliminary title report prepared by First American Title Insurance Company, dated September 28,
2011, was provided for use in this appraisal and is included in the Addenda to this report. While the
appraiser has reviewed the conditions of title and has determined no apparent adverse impact on value,
the appraiser assumes no negative title restrictions have been recorded since the date of the preliminary
title report. The appraiser accepts no responsibility for matters pertaining to title.
Zoning
Source:
City of San Mateo Community Development Department
Zoning:
BM – SP – Bay Meadows Specific Plan [27.88]
45
Description/Entitlements:
The Bay Meadows Specific Plan District (BMSP) is established
to assure that the Bay Meadows Race Track, Practice Track, and
Barn Area are developed in a comprehensively planned manner,
compatible with adjacent residential neighborhoods and
consistent with the City’s quality of life goals. The approved
base program is for the development of 1,250 residential units,
1,250,000 square feet of office space and 150,000 square feet of
retail space.
As set forth in the Bay Meadows Specific Plan Amendment,
approved November 7, 2005, which encompasses Phase II
(subject property), the goals for the Specific Plan Amendment
are to:
1. Transit Oriented Development
•
Create a mixed use and walkable new neighborhood in
San Mateo that maximizes the use of transportation
alternatives to the private automobile, especially public
46
•
mass transit associated with the proposed relocated
Caltrain Station, while minimizing impacts to residents.
Create a new neighborhood at Bay Meadows that justifies
the provision of an express stop Caltrain Station.
2. Land Use and Community Design
•
•
•
•
•
•
•
•
Provide a complementary mix of land uses and amenities
including employment, housing, commercial services,
civic open space and facilities, and transit.
Provide extraordinary open space amenities, both passive
and active, to serve the neighborhood and the broader San
Mateo community.
Concentrate neighborhoods and bring within walking
distance most daily activities to enhance community life,
efficiently utilize land resources, and reduce reliance on
the private automobile.
Create a safe and attractive neighborhood through the
design of streets, parks, buildings and buffers.
Protect the character of surrounding residential
neighborhoods with adequate landscaping, setbacks and
buffers while providing pedestrian connections.
Provide a variety of housing types consistent with transit
oriented development that include both ownership and
rental opportunities.
Enhance the potential of the Expo Site.
Provide neighborhood serving retail that enhances access
to goods and services adjacent to nearby neighborhoods.
3. Transportation
•
•
•
•
•
•
Complete the City's street grid and General Plan
connections to enhance traffic conditions throughout the
City.
Reduce reliance on the private automobile by enhancing
opportunities for transit ridership, walking and biking.
Maximize utilization of the train station by integrating it
into the development, and providing complementary
adjacent land uses that make its use attractive and
convenient.
Build an interconnected street and pedestrian access
network that establishes direct routes to the new
neighborhoods from local destinations, gives an
appropriate scale to the development, and knits Phase II
into surrounding neighborhoods.
Reduce traffic compared to other development by
providing a mix of commercial and residential uses in
proximity to transit.
Balance creation of neighborhood streets with the need to
47
•
accommodate neighborhood traffic and the sharing of
city-wide traffic.
Encourage transit utilization by existing adjacent
neighborhoods.
4. Economic Development
•
•
•
Provide workforce housing to assist the City's goal of a
housing/jobs balance.
Provide for a new corporate commercial area thereby
supplying the existing and future space needs for
employers in San Mateo.
Insure job and tax base retention, economic development
and growth for San Mateo and the region.
5. Infrastructure
•
•
Provide adequate infrastructure services to the Specific
Plan Area, while avoiding negative effects on existing
services and facilities.
Provide new neighborhood express stop.
The master developer completed all Site Plan & Architectural
Reviews (SPAR) for the subject property making development of
the subject property easier for vertical builders, as each parcel is
now fully entitled and vertical construction can occur
commensurate with the SPAR approval without any discretionary
approvals.
Inclusionary Housing
Requirement:
Pursuant to the Bay meadows Phase II Development Agreement,
finalized on November 4, 2005 [section 5.12], the owner/developer
is obligated to set aside a minimum of ten percent (10%) of the
residential units on a Block-by-Block basis for occupancy by, and
being affordable to, moderate or lower income households – below
market rate (BMR). The BMR units are to be spread throughout
each product type, provided that at the owner’s election, up to 250
newly constructed residential units may have their associated BMR
Units located in a different building or parcel on that same Block,
but spread throughout those buildings on the same Block.
Additionally, the owner/developer is providing to the City of San
Mateo approximately one acre of land, located in a Mixed-Use
Block (a portion of MU Block 1), to be developed by the City, or
designee, solely for low, very low or moderate income housing.
Due to the fact the one acre parcel set aside for the City to
construct low income housing is not subject to the lien of the
Special Tax securing the Bonds, it is not a part of the appraised
property.
48
Reportedly, one third of all localities in California (approximately
170 cities and counties) use the inclusionary housing program to
reserve a certain percentage of housing units for lower-income
households in new residential developments. The municipal
requirements for inclusionary housing on new developments is
prevalent throughout northern California; though, some
municipalities allow developers to mitigate inclusionary housing
requirements through impact (in lieu) fees or constructing lowincome housing elsewhere in the city or county.
Conclusion:
The subject property consists of 49.978± developable acres
proposed for the development of five mid-rise office buildings
(Station Component); four mid-rise, mixed-use
residential/retail/office buildings (Mixed-Use Component); nine
parcels designated for attached, for-rent and for-sale residential
buildings and one parcel designated for a combination of
attached and detached residential homes (Residential
Component).
Flood Zone
Source:
F.I.R.M – Flood Insurance Rate Map
Flood Zone:
Flood Zone X – areas determined to be outside of the 500-year
flood plain
Map Panel:
0603280004 B
Panel Date:
October 19, 2001
Flood Insurance:
Not likely required on the developable portion of the subject
Earthquake Zone
According to the Seismic Safety Commission, the subject is located within Zone 4, which is
assigned to areas near major faults. The existence within this zone does not prevent development.
There are only two zones in California. Zone 4 is assigned to areas of major faults. Zone 3 is
assigned to areas with more moderate seismic activity. In addition, the subject is located within a
Fault-Rupture Hazard Zone (formerly referred to as an Alquist-Priolo Special Study Zone), as
defined by Special Publication 42 (revised January 1994) of the California Department of
Conservation, Division of Mines and Geology. Earthquake insurance may be necessary for vertical
improvements.
49
Easements
An inspection of the subject property revealed no apparent adverse easements, encroachments or
other conditions currently impacting the subject. Please refer to the preliminary title report for
information regarding potential easements, as the appraiser is not a surveyor nor qualified to
determine the exact location of any easements. It is assumed that any easements noted in a
preliminary title report do not have an impact on the opinion of value set forth in this report. If at
some future date, any easements are determined to have a detrimental impact on value, the appraiser
reserves the right to amend the opinion of value contained herein.
Assessor’s Parcel Map
50
SITE DESCRIPTION
Improvements are under construction within the Bay Meadows Phase II development as part of
infrastructure to be financed by the City of San Mateo Community Facilities District No. 2008-1 (Bay
Meadows) Bond issuance. Information on infrastructure improvements is summarized as follows.
In total, the land areas comprising the City of San Mateo
Community Facilities District No. 2008-1 (Bay Meadows)
contain a gross land area of approximately 83.38 acres. The
parcels are contiguous and boundaries are irregularly shaped,
but not so irregular as to inhibit development.
Size and Shape:
Land Area by Land Use:
Developable – Office
Developable – Mixed-Use
Developable – Residential
Master Association Property
Total Developable (Taxable)
Public Space – (Non-Taxable)
Total (Gross)
11.48± acres
7.071± acres
29.18± acres
2.240± acres
49.97± acres
33.40± acres
83.38± acres
Assessor’s Parcel Numbers:
040-030-250; -260; -270; -280; -290; -310; -320; 330; -340
and -350
Topography:
Generally level
Drainage:
Based on the development plan, our physical inspection of
the subject property and assuming typical grading and
paving work will be completed, upon completion of the
proposed development, adequate drainage appears to be
provided.
Frontage/Visibility:
Frontage is provided along the east and west side of the
extension of South Delaware Street, as well as the north and
south side of East 28th Avenue. A portion of the subject
property offers visibility and frontage along the west line of
Saratoga Drive. Upon completion of infrastructure
development, visibility and frontage will also be provided
from the western extension of Franklin Parkway. A network
of interior streets will be completed to provide access within
Bay Meadows Phase II. Existing, partially completed streets
include Kyne Street, Maiden Way, Baze Road and Derby
Avenue, in addition to the aforementioned East 28th Avenue
and southern extension of South Delaware Street. Landing
Avenue and East 31st Avenue will also be a part of the
interior street system.
Access:
Primary access to the subject property is provided from the
51
southern extension of South Delaware Street and from
Saratoga Drive, via East 28th Avenue. Upon completion of
development, primary access will also be available from the
extension of Franklin Parkway.
All public utilities and services are available to the subject
property. Services are furnished by the following providers:
Utilities:
Water:
Sewage Disposal:
Refuse:
Electricity:
Gas:
Telephone:
Cable:
California Water Service (Cal Water)
City of San Mateo
Recology of San Mateo County
PG&E
PG&E
AT&T
Comcast
Soil:
Based on the existence of residential and commercial
structures on surrounding and nearby parcels, it appears the
subject property possesses adequate load-bearing capacity
for development.
Environmental Issues:
At the time of inspection, the appraiser did not observe the
existence of hazardous material, which may or may not be
present, on the subject property. The appraiser has no
knowledge of the existence of such materials on the
properties. However, the appraiser is not qualified to detect
such substances. The presence of potentially hazardous
materials could affect the value of the property. The value
estimate is predicated on the assumption there is no such
material on or in the property that would cause a loss in
value. No responsibility is assumed for any such conditions,
or for any expertise or engineering knowledge required to
discover them.
Adjacent Uses:
North
South
East
West
San Mateo Expo/Fairgrounds
Single-family residential development
Franklin Templeton Investments Corporate Campus
Caltrain, retail and industrial development
Functional Adequacy/Site Influences:
Based on the subject’s existing physical attributes and the
existing and future infrastructure improvements to serve the
various components comprising City of San Mateo
Community Facilities District No. 2008-1 (Bay Meadows),
the overall functional utility of the subject property is
expected to be good for the proposed development.
In terms of site influences outside of the confines of the
appraised properties, the proximity of the office and
52
residential land uses within the District to a new Caltrain
station should bode well for the development in terms of
providing non-vehicular access to employment centers
within the Bay Meadows Phase II development, as well as
areas outside the neighborhood.
Conclusion:
The configuration and size of the subject is considered
adequate for development.
53
PROJECT DESCRIPTION
The appraised property represents 83.38± acres of gross land area comprising the boundaries of the
City of San Mateo CFD No. 2008-1 (Bay Meadows). The developable land equates to 49.978± acres
proposed for the development of five mid-rise office buildings (Station Component); four mid-rise,
mixed-use residential/retail/office buildings (Mixed-Use Component); nine parcels designated for
attached, for-rent and for-sale residential buildings; and one parcel designated for a combination of
attached and detached residential homes (Residential Component). In total, the subject property, as
presently proposed, will contain 770,000 square feet of office space currently planned in five class A
office buildings and 31,500 square feet of professional space above ground floor retail, as well as a
proposed 131,000 square foot high school campus; approximately 85,000 square feet of retail space
and 1,066 residential housing units, with 832 residential housing units being developed on the
Residential Land Component and the balance (234 units) to be developed as part of the Mixed-Use
Component. The remaining 33.40 acres of Bay Meadows II are dedicated to parks, right away and
one acre dedicated to the City for approximately 50 – 68 below-market rate (BMR) residential units
on Mixed Use Block 1, which will be exempt from the Lien of the Special Tax securing the Bonds.
54
FACILITIES TO BE FUNDED BY THE BOND ISSUANCE
The boundaries of Community Facilities District No. 2008-1 (Bay Meadows) are exhibited below.
55
All public infrastructure improvements or services to be financed by the CFD are detailed in the
Community Facilities District Report, dated July 22, 2008, prepared by David Taussig & Associates,
Inc. A copy of this document has been reproduced and included in the Addenda to this report. The
general description of the improvements and services to be financed by the community facilities
district include street improvements, sewers, storm drains, monuments, utilities, public parks and
recreation facilities, detention ponds, mitigations, development impact fees, soft costs, maintenance
and lighting of parks, parkways, streets, roads, and open space, and maintenance and replacement of
flood and storm protection services.
The total amount of net proceeds to be generated from the second series of Bonds is projected to be
approximately $20.0 million. The second Bond issuance will be used to reimburse the master
developer for infrastructure improvements completed to date. The total amount of Bonds authorized
for CFD No. 2008-1 (Bay Meadows) is $92 million, which is projected to be generated over three
issuances, the first of which generated $24.4 million of net proceeds.
The cited list of facilities includes other expenses associated with the formation of CFD No. 2008-1
(Bay Meadows) including, but not limited to, the following: bond related expenses including
underwriters discount, appraisal fees, reserve fund, capitalized interest, letter of credit fees and
expenses, financial advisor fees and expenses, bond and disclosure counsel fees and expenses, fees
and expenses of the City Attorney, bond remarketing costs and all other incidental expenses. Other
expenses include administrative fees of the City and the bond trustee or fiscal agent related to CFD
No. 2008-1 (Bay Meadows); and reimbursement of costs advanced by the City, the land owner in the
District, or any party related to any foregoing that relate to the formation of the District or that relate
to costs for facilities, capital related fees or other purposes or costs of CFD No. 2008-1 (Bay
Meadows).
56
SUBJECT PHOTOGRAPHS
Looking west along East 28th Avenue from
Saratoga Drive
Looking east along East 28th Avenue towards
Saratoga Drive
Looking north across open space area from East
28th Avenue
Easterly view across Residential
Block 3.1 (on-site improvements)
Southeasterly view across Residential
Southwesterly view across Residential
57
SUBJECT PHOTOGRAPHS
Westerly view across Residential
Southwesterly view across Residential
Northerly view across community park
Southwesterly view along Baze Road from East
28th Avenue
Northerly view across community park
Southerly view across Residential Block 2
58
SUBJECT PHOTOGRAPHS
Southwesterly view towards Landing Green park
Looking south along Kyne Street from East 28th
Avenue
Northerly view across Mixed-Use Block 1
Southwesterly view at Station Block 2
Looking south along Delaware Street from East
28th Avenue
Station Block 1 site
59
SUBJECT PHOTOGRAPHS
Looking north along Delaware Street
Residential Block 4
Southwesterly view towards Mixed Use Block 4
Southerly view at Residential Block 7
Looking north along Baze Road from Residential
Block 8
Looking northwest along Saratoga Drive from
East 28th Avenue
60
HIGHEST AND BEST USE ANALYSIS
The term “highest and best use,” as used in this report, is defined as follows:
The reasonably probable and legal use of vacant land or an improved property that is
physically possible, appropriately supported, financially feasible, and that results in the
highest value. The four criteria the highest and best use must meet are legal permissibility,
physical possibility, financial feasibility, and maximum productivity. Alternatively, the
probable use of land or improved property – specific with respect to the user and timing of
the use – that is adequately supported and results in the highest present value.4
Two analyses are typically required for highest and best use. The first analysis is highest and best
use of the land as though vacant. The second analysis is the highest and best use of the land as
improved, which is not applicable, since the subject is vacant land. (Definitions of these terms are
provided in the Glossary of Terms in the Addenda to this report.)
Highest and Best Use as though Vacant
In accordance with the definition of highest and best use, it is appropriate to analyze the subject site
as though vacant as it relates to legal permissibility, physical possibility, financial feasibility and
maximum productivity.
Legal Permissibility
The legal factors influencing the highest and best use of the subject property are primarily
government regulations such as zoning and building codes. According to the City of San Mateo
Community Development Department, the subject is zoned BM – SP – Bay Meadows Specific Plan,
which was established to assure that the Bay Meadows Race Track, Practice Track, and Barn Area
are developed in a comprehensively planned manner, compatible with adjacent residential
neighborhoods and consistent with the City’s quality of life goals. As set forth in the Bay Meadows
Specific Plan Amendment, approved November 7, 2005, which encompasses Phase II (subject
property), the goals for the Specific Plan Amendment are to provide for transit oriented
development; land use and community design; transportation; economic development and
infrastructure. The subject property consists of 49.978± developable acres proposed for the
development of five mid-rise office buildings (Station Component); four mid-rise, mixed-use
residential/retail/office buildings (Mixed-Use Component); nine parcels designated for attached, forrent and for-sale residential buildings and one parcel designated for a combination of attached and
detached residential homes (Residential Component). Overall, the legally permissible use is to
develop the subject property in accordance with the existing entitlements for the above-mentioned
mix of residential, retail and office development.
4
61
Physical Possibility
The physical characteristics of the subject including shape, size, topography, accessibility and
availability of utilities were all given consideration. The subject’s physical orientation was also
considered. At this point in the analysis the physical characteristics are examined to see if they are
suited for the legally permissible uses.
Based on our physical inspection of the subject property, we know of no reason why the site would not
support any legal development. The property is located within Zone 4, which is assigned to areas near
major faults. However, the existence within this zone does not prevent development. Evidence of
residential and commercial construction in the immediate area provides additional support for the
possibility of development. Typical roadway and utility easements exist, or will exist upon
completion of the infrastructure to be completed, but are not known to be unusual in any way. It is
assumed any easements do not adversely affect the subject’s potential for development.
At the time of inspection, the appraiser did not observe the existence of hazardous material, which
may or may not be present on the property. The appraiser has no knowledge of the existence of such
materials on the property. However, the appraiser is not qualified to detect such substances. The
presence of potentially hazardous materials could affect the value of the property. The value estimate
herein is predicated on the assumption that there is no material on or in the property that would cause
a loss of value. No responsibility is assumed for any such conditions or for any expertise or
engineering knowledge required to discover them.
In conclusion, it appears as if the legally permissible uses of the subject property are physically
possible.
Financial Feasibility
The feasibility of the allowable uses is dependent on the supply and demand conditions, which could
influence the competitive position of each proposed type of property use comprising the subject,
including both for-rent and for-sale residential, office and retail development.
The feasibility of residential development is dependent on the area supply and demand conditions.
Sales of new homes in the subject’s market area have been healthy recently. In fact, the supply of
new housing does not appear to exceed the current demand. This is highlighted by the strong
demand experienced by the One Marina development in Redwood City. As of late August 2012, 92
of the 231 planned units had been completed, and 24 townhomes had been sold. Prices at the project
range from $499,000 to the low $700,000s. In March 2012, Toll Brothers began marketing homes at
the Ridge, a 71-home subdivision in Brisbane on the edge of the San Bruno Mountain Habitat
62
Conservation Area. High atop the Brisbane hilltop, homes at the Ridge range from 2,098 square feet
to 3,416 square feet, with pricing starting in the mid-$750,000s and climbing to above $950,000.
DataQuick Information Systems reported “the median price paid for a Bay Area home rose to its
highest level in more than four years in September, the result of a slowly improving economy, low
mortgage interest rates and shifts in market mix.” In the nine-county Bay Area region, the median
price paid for new and resale homes rose to $429,000 in September 2012, which is up 4.6 percent
from $410,000 in August 2012, and up 17.5 percent from $365,000 a year ago (September 2011).
The median home price is also the highest since August 2008 ($447,000). In San Mateo County, the
median price rose from $551,000 in September 2011 to $620,000 in September 2012, an increase of
12.5%; though, the overall Bay Area, which includes the Counties of Alameda, Contra Costa, Marin,
Napa, Santa Clara, San Francisco, San Mateo, Solano and Sonoma, increased 17.5% over the same
period. In fact, Contra Costa County saw the highest year-over-year increase in median home price
at 27.0%, followed by San Francisco, with a year-over-year increase of 21.4%. All nine counties in
the survey reported a year-over-year increase in median home prices. The following chart shows the
year-over-year change in home prices and sales in the city of San Mateo.
Community
Zip
Sales
% Chg
Median Price
% Chg
High Price
$/SqFt
% Chg
San Mateo
San Mateo
San Mateo
San Mateo
94401
94402
94403
94404
22
23
34
31
-40.5%
-25.8%
-10.5%
-3.1%
$499,000
$1,040,000
$587,500
$675,000
9.1%
17.1%
-6.9%
-3.9%
$1,075,000
$3,062,500
$1,240,000
$1,300,000
$445
$658
$485
$451
13.9%
30.3%
2.5%
17.5%
As is shown in the chart above, areas of the city experienced positive increases in median pricing
from a year ago, coupled with noticeable declines in the number of sales, suggesting the inventory of
homes available is declining. A strategic, phased development of the subject’s residential parcels is
considered ideal in order to achieve market balance with supply and demand.
The subject property, which comprises the Bay Meadows Phase II redevelopment, is approved
through the site plan and architectural review (SPAR) process for as many as 1,121 residential
housing units, which allows for both for-sale and for-rent product type. The Specific Plan
Amendment allows up to 1,250 residential units in the base program. Several of the buildings
planned for the subject property are of a mixed-use design with ground floor retail space. In order to
determine the feasibility of multifamily (for-rent) development on the subject property, apartment
market data will be reviewed. According to Cassidy Turley, in San Mateo County, the apartment
market vacancy rate as of Third Quarter 2012 was 4.5% among projects with 100+ units, and 2.2%
among projects with 99 units or less. Vacancy has been generally declining for about two years since
peaking in early 2009. According to Marcus & Millichap’s Apartment Market Report, Third Quarter
2012, the vacancy rate for apartment projects in Central San Mateo County was 2.6%, and compared
to a year ago, the vacancy rate has declined 20 basis points.
63
The average rental rate for an apartment in San Mateo County, as of Third Quarter 2012, was $1,728
for units within projects containing fewer than 100 units; and $2,220 for units within projects with
100 or more units. According to Cassidy Turley, rental rates in the region peaked during the third
quarter of 2008, declined for five consecutive quarters before bottoming out in the fourth quarter of
2009, and have increased since the first quarter of 2010. Further, the pace and strength of rental rate
growth has reportedly accelerated in recent months. Over the past year, the average rent has
increased by 15% at projects with 100 or more units, and 16% at projects with fewer than 100 units.
With the demand by investors for Class A apartment projects in Class A locations on the rise,
consideration should be given to the balance of for-rent apartment projects at the subject property.
According to brokerage reports by Cassidy Turley and Colliers International, the office market
recovery continues in San Mateo County. Not only has the vacancy rate declined significantly over
the past 18 months, but overall leasing activity has returned to pre-recession levels. The overall
vacancy rate for the office market was 13.9% in Third Quarter 2012, up slightly from 13.2% at the
end of 2011. The market recorded positive net absorption in the years 2010 and 2011 of about
375,000 and 1.1 million square feet, respectively. Through the first three quarters of 2012, net
coming from tech users, including software/internet companies and life science businesses. Part of
the reason that absorption has been slow even though demand in the market is high, is that most
users are seeking larger blocks of space (10,000 square feet or more); however, 82% of the available
space in the market consists of office suites smaller than 10,000 square feet. In addition, many tech
companies are looking for downtown creative space ideally situated near public transportation, but
this type of space is also in short supply. The major downtown submarket vacancies are at a
remarkably low 7.6%. This has resulted in companies relocating elsewhere in the Bay Area
(primarily San Francisco) as they look to markets that can accommodate their growth needs.
The average office vacancy rate in Central San Mateo County was 10.1% as of the Third Quarter
2012, and the average asking rental rate for office space was $3.04 psf/month (full service), up from
$2.95 psf/month (full service) a year ago. While there are currently no office buildings under
construction in San Mateo County, in light of improving market conditions over the past two to three
years, market participants expect to see some speculative construction return to the market during
the next 12 months. In terms of planned projects, the two most notable are Bay Meadows (subject
property) and the 320,000 square foot Depot Circle in downtown Redwood City, which is planned
for delivery in the first quarter of 2015. The subject property is approved for 715,000 square feet of
office space in five buildings located along the western edge of the Bay Meadows project, proximate
64
to the Caltrain. The developer is actively marketing the space for lease and intends to construct the
buildings with the intent to hold.
According to Terranomics, a division of BT Commercial, the retail market has shown signs of
strength and improvement over the past several quarters. As reported by Terranomics in the San
Mateo County Shopping Centers Report Q3-2012, the overall vacancy rate for the retail market was
3.6% in Third Quarter 2012, up from 3.0% in the previous quarter. Retail vacancy remains very tight
and demand from retailers has been strong. According to Terranomics, demand is strongest for firsttier shopping centers (typically anchored centers in urban locations with high visibility), which are
seeing the highest levels of deal activity. Terranomics also reported the average asking rental rate for
retail space was $2.20 psf/month (triple net) as of Third Quarter 2012, which is up from $1.90
psf/month (triple net) a year ago. No new shopping centers were completed in 2009 or 2010 in San
Mateo County. In 2011, the first phase of a Safeway center in Burlingame added about 47,000
square feet to the market. With vacancy continuing to be extremely tight, especially among first- and
second-tier properties, developers are beginning to be active again, with multiple projects in the
planning stages. One of the more notable planned projects is Daly City Partners’ Gellert Marketplace
– this 140,000 square foot community center is slated for delivery in 2014 and will be anchored by
Sprouts Farmers Market and Bed Bath & Beyond.
Based on the preceding discussion, it appears residential development consistent with the entitlements
approved for the Bay Meadows Phase II specific plan is financially feasible. With demand for both forsale and for-rent residential development in the area, a balance of both land uses is considered
financially feasible, as long as development is phased properly with an aggressive and active sales and
marketing team. It is expected the subject property will be competitive with the other area
developments, and with other similar developments located elsewhere in the peninsula. The subject
property’s location proximate to prominent Silicon Valley technology companies and its location
adjacent to the Caltrain should bode well for the subject property’s office component. In fact, as will
be shown in the valuation section later in this report, there have been several sales of office land
purchased with the intent to construct multi-building office campuses for technology firms, with the
most prominent seen in the Mission Bay redevelopment area of San Francisco. Thus, it is possible
the subject’s five office building sites may appeal to a single user. Nonetheless, the location is
considered excellent for the intended use. The orderly development of residential and office uses
should also increase demand for supporting retail uses.
Maximum Productivity – Conclusion
Legal, physical and market conditions have been analyzed to evaluate the highest and best use of the
subject property. The analysis is presented to evaluate the type of use(s) that will generate the
greatest level of future benefits possible to the property. Based on the zoning and entitlements
approved for the subject property, a mix of residential, office and retail development, with
65
complementary public areas, are the only land uses that are legally permissible, physically possible
and financially feasible. The maximally productive use of the subject is for phased development
commensurate with the Bay Meadows Phase II specific plan.
Probable Buyer
The definition of market value is based on the components of the subject selling in a single, bulk
transaction. The most probable buyer of the subject is a land developer familiar with the regional
market area.
66
APPROACHES TO VALUE
The valuation process is a systematic procedure used in the valuation of real property.5 This process
involves the investigation, organization and analysis of pertinent market data and other related
factors that affect the market value of real estate. The market data is analyzed in terms of any one or
all of the three traditional approaches to estimating real estate value. These are the cost, sales
comparison, and income capitalization approaches. Each approach to value is briefly discussed and
defined as follows:
Cost Approach
The cost approach is based on the premise that no prudent buyer would pay more for a particular
property than the cost to acquire a similar site and construct improvements of equivalent desirability
and utility. Thus, this approach to value relates directly to the economic principle of substitution, as
well as supply and demand. The cost approach is most applicable when valuing properties where the
improvements are new or suffer only a minor amount of accrued depreciation, and is especially
persuasive when the site value is well supported. The cost approach is also highly relevant when
valuing special-purpose or specialty properties and other properties that are not frequently
exchanged in the market.
The definition of the cost approach is offered as follows:
A set of procedures through which a value indication is derived for the fee simple interest in a
property by estimating the current cost to construct a reproduction of (or replacement for) the
existing structure, including an entrepreneurial incentive, deducting depreciation from the total
cost, and adding the estimated land value. Adjustments may then be made to the indicated fee
simple value of the subject property to reflect the value of the property interest being appraised.6
Sales Comparison Approach
The sales comparison approach is based on the premise that the value of a property is directly related
to the prices being generated for comparable, competitive properties in the marketplace. Similar to
the cost approach, the economic principles of substitution, as well as supply and demand are basic to
the sales comparison approach. This approach has broad applicability and is particularly persuasive
when there has been an adequate volume of recent, reliable transactions of similar properties that
indicate value patterns or trends in the market. When sufficient data are available, this approach is
the most direct and systematic approach to value estimation. Typically, the sales comparison
approach is most pertinent when valuing land, single-family homes and small, owner-occupied
commercial and office properties.
5
6
The Dictionary of Real Estate Appraisal, 47.
67
The definition of the sales comparison approach is offered as follows:
The process of deriving a value indication for the subject property by comparing market
information for similar properties with the property being appraised, identifying appropriate units
of comparison, and making qualitative comparisons with or quantitative adjustments to the sale
prices (or unit prices, as appropriate) of the comparable properties based on relevant, marketderived elements of comparison.7
Income Capitalization Approach
The income capitalization approach is based on the premise that income-producing real estate is
typically purchased as an investment. From an investor's point of view, the potential earning power
of a property is the critical element affecting value. The concepts of anticipation and change, as they
relate to supply and demand issues and substitution, are fundamental to this valuation approach.
These concepts are important because the value of income-producing real estate is created by the
expectation of benefits (income) to be derived in the future, which is subject to changes in market
conditions. Value may be defined as the present worth of the rights to these future benefits.
Within the income capitalization approach there are two basic techniques that can be utilized to
estimate market value. These techniques of valuation are direct capitalization and yield
capitalization.
Direct Capitalization: A method used to convert an estimate of a single year’s income
expectancy into an indication of value in one direct step, either by dividing the net income
estimate by an appropriate capitalization rate or by multiplying the income estimate by an
appropriate factor. Direct capitalization employs capitalization rates and multipliers extracted or
developed from market data. Only a single year’s income is used. Yield and value changes are
implied but not identified.8
Yield Capitalization: A method used to convert future benefits into present value by 1)
discounting each future benefit at an appropriate yield rate, or 2) developing an overall rate that
explicitly reflects the investment’s income pattern, holding period, value change, and yield rate.9
The definition of the income capitalization approach is offered as follows:
A set of procedures through which an appraiser derives a value indication for an incomeproducing property by converting its anticipated benefits (cash flows and reversion) into property
value. This conversion can be accomplished in two ways. One year’s income expectancy can be
capitalized at a market-derived capitalization rate or at a capitalization rate that reflects a
specified income pattern, return on investment, and change in the value of the investment.
Alternatively, the annual cash flows for the holding period and the reversion can be discounted at
a specified yield rate.10
7
9
10
8
68
Discounted Cash Flow Analysis
A discounted cash flow analysis is a procedure in which a discount rate is applied to a projected
revenue stream generated from the sale of individual components of a project. In this method of
valuation, the appraiser/analyst specifies the quantity, variability, timing and duration of the revenue
streams and discounts each to its present value at a specified yield rate.
69
APPRAISAL METHODOLOGY
The appraised property consists of all the taxable real property within City of San Mateo Community
Facilities District No. 2008-1 (Bay Meadows). The estimate of market value comprises 49.978± acres
proposed for the development of five mid-rise office buildings (Station Component); four mid-rise,
mixed-use residential/retail/office buildings (Mixed-Use Component); nine parcels designated for
attached, for-rent and for-sale residential buildings; and one parcel designated for a combination of
attached and detached residential homes (Residential Component). The subdivision development
method will be used to estimate the as-is market value of the master developer-owned portion of the
subject property, which relies on a discounted cash flow analysis (DCF). A DCF analysis is a
procedure in which a discount rate is applied to a projected revenue stream generated from the sale
of individual components of a project. In this method of valuation, the appraiser/analyst specifies the
quantity, variability, timing and duration of the revenue streams and discounts each to its present
value at a specified yield rate. The revenue component of the DCF will be derived by valuing the
individual land use components outlined above using the sales comparison approach to value.
In light of the fact two of the residential Blocks (3.1a and 3.2) have transferred ownership to merchant
builders, the estimates of market value for these components was not included in the discounted cash
flow analysis, which derived an estimate of market value for the components held by the master
developer. Instead, the estimate of market value derived via the sales comparison approach to value,
which was the method employed to estimate the underlying land value for the various land use
components comprising the District, was relied upon to estimate the market value of the components
held by Shea Homes of Northern California and TRI Pointe Homes, LLC.
This appraisal report has been conducted in accordance with appraisal standards and guidelines
found in the Uniform Standards of Professional Appraisal Practice (USPAP) and the Appraisal
Standards for Land Secured Financing, published by the California Debt and Investment Advisory
Commission (2004).
70
VALUATION - DISCOUNTED CASH FLOW ANALYSIS
It is not uncommon for land secured financings to involve valuations at atypical points in time
during the development process. The market recognizes typical points during the development
process when master planned projects often transfer, such as upon obtaining entitlements,
completion of spinal infrastructure and/or recordation of final subdivision maps, for instance. It is
often the case with the valuation of master planned projects for purposes of land secured financing to
employ market logic to situations that are not typical transition points for developments. More often
than not large development projects that transfer with partial site development complete, as is the
current condition of the subject property, reflect situations of duress. Recognizing that there is not
duress, and yet a valuation is needed for purposes of the bond issuance at this time, we have
employed market logic for the valuation of master planned communities and applied that logic to the
physical condition reflected by the subject. Therefore, in this section, the market value of the master
developer-owned portion of the subject property in bulk, subject to the impact of the Lien of the
Special Tax securing the CFD No. 2008-1 (Bay Meadows) Bonds, will be estimated by employing
the use of a discounted cash flow analysis; whereby, the expected revenue, absorption period,
expenses and discount rate associated with the development and sell-off of the residential and
commercial land components will be taken into account.
A discounted cash flow analysis is a procedure in which a discount rate is applied to a projected
revenue stream generated from the sale of individual components of a project. In this method of
valuation, the appraiser/analyst specifies the quantity, variability, timing and duration of the revenue
streams and discounts each to its present value at a specified yield rate.
The four main items of the discounted cash flow analysis are summarized as follows:

Revenue – the gross income is based on the individual component values.

Absorption Analysis – the time frame required for sell off. Of primary importance in this
analysis is the allocation of the revenue over the absorption period – including the estimation
of an appreciation factor (if any).

Expenses – the expenses associated with the sell-off are calculated in this section – including
infrastructure costs, administration, marketing and commission costs, as well as taxes and
special assessments.

Discount Rate – an appropriate discount rate is derived employing a variety of data.
Discussions of these four concepts begin below, with the discounted cash flow analysis offered at the
end of this section.
71
Revenue
The individual component valuations of the subject property comprise the revenue of the discounted
cash flow analysis. Specifically, the subject property contains 52.18± acres proposed for
development of five mid-rise office buildings (Station Component); four mid-rise, mixed-use
residential/retail/office buildings (Mixed-Use Component); nine parcels designated for attached, forrent and for-sale residential buildings and one parcel designated for a combination of attached and
detached residential homes (Residential Component). The sales comparison approach will be used to
estimate the value of the subject’s residential and commercial components.
RESIDENTIAL LAND COMPONENT – SALES COMPARISON APPROACH
In this section the market value of the 29.18± acres proposed for development of 832 single- and
multifamily residential units will be estimated by analyzing sales of similar residential land in the
region. The balance of the 1,066 residential units, 234 units, within the subject property are to be
constructed as part of the MU (mixed-use) parcels along with retail and office uses, which will be
valued as part of the commercial land component in the next section. The subject property is
subdivided into nine developable Blocks (11 individual projects). Based on the proposed residential
units and the developable land area, the residential project densities range from 7.82 units per acre
(detached component) to 50.16 units per acre.
The underlying premise of the sales comparison approach is the market value of a property is
directly related to the price of comparable, competitive properties in the marketplace. In the sales
comparison approach, the market value of the subject property will be estimated by a comparison to
similar properties that have recently sold, are listed for sale or are under contract.
This approach is based on the economic principle of substitution. According to The Appraisal of
Real Estate, 13th Edition (Chicago: Appraisal Institute, 2008), “The principle of substitution holds
that the value of property tends to be set by the price that would be paid to acquire a substitute
property of similar utility and desirability within a reasonable amount of time. The principle implies
that the reliability of the sales comparison approach is diminished if substitute properties are not
available in the market.”
The proper application of this approach requires obtaining recent sales data for comparison with the
subject property. In order to assemble the comparable sales, we searched public records and other
data sources for leads, then confirmed the raw data obtained with parties directly related to the
transactions (primarily brokers, buyers and sellers).
Consideration is given to factors such as property rights conveyed, financing, conditions of sale, and
market appreciation or depreciation since the date of sale. Differences in physical characteristics, such
as location, project density, unit count/economies of scale, offsite improvements, site utility/topography,
72
and zoning/entitlements are considered in the analysis. The entire data set will then be used to value this
land use component. Seven sales have been identified as being representative of the market and it is
believed the sales data collected is sufficient for comparison to the subject property and pertinent to
the valuation of the subject land. The data from the comparable sales is summarized in the table on
the following page, along with a location map.
73
RESIDENTIAL LAND SALES SUMMARY
Sale
Date
Sale Price
1 1950 Elkhorn Court
San Mateo, San Mateo County
APN: 039-030-310
Aug-12
$16,745,000
2.04
88,862
$188.44
197
96.6
E-1
2 Mission Bay Block 13
San Francisco, San Francisco County
APN: 8711-013
Nov-11
$32,760,000
1.60
69,696
$470.04
273
170.6
MB-RA
3 221 Town & Country
Sunnyvale, Santa Clara County
APN: 209-07-003, -004, -005, -006, -008 and -009
Aug-11
$13,000,000
2.50
108,900
$119.38
130
52.0
C3
4 1200 4th Street
San Francisco (Mission Bay neighborhood)
APN: 8711-017
Apr-11
$41,400,000
1.80
78,408
$528.01
360
200.0
MB-RA
5 201 Town & Country
APN: 209-07-014, -015, -016, -017 and -018
Aug-10
$19,000,000
2.40
104,544
$181.74
240
100.0
C3
6 637 East Taylor Avenue
APN: 205-29-005
Jul-10
$5,800,000
1.85
80,586
$71.97
36
19.5
MS-ITRR3
7 The Preserve at Redwood Shores
Redwood City, San Mateo County
APNs: 095-460-280, -290, -300, -310, -320 & -420
Mar-10
$40,560,000
12.33
537,095
$75.52
156
12.7
P
8 1840 Ogden Drive
Burlingame, San Mateo County
APN: 025-121-130
Sep-09
$7,180,000
0.89
38,768
$185.20
45
50.6
TW
No.
Property
Identification
(Rolling)
Land Area Price No. of Units
(Acre / SF) per SF Units / Acre
Zoning
74
RESIDENTIAL LAND SALES MAP
75
RESIDENTIAL LAND SALE 1
Property Identification
Multifamily Land
1950 Elkhorn Court
San Mateo, CA 94403
San Mateo County
APN: 039-030-310
Sale Data
Grantor
Polo Court Investors, LLC
Grantee
Essex Elkhorn Owner, L.P.
Sale Date
August 3, 2012
Deed Book Page
2012-110429
Property Rights
Fee Simple
Conditions of Sale
Market
Financing Terms
Cash Equivalent
Sale Price
$16,745,000
PV of Bonds
$0
Land Data
Land Area (SF)
88,862
Land Area (Acres)
2.04
Zoning
E-1 – Executive Park (allows multifamily)
Proposed Units
197
Proposed Density
96.6 units per acre
Shape
Irregular
Corner Orientation
No
Street Frontage
Elkhorn Court
Topography
Generally level
Off-Site Improvements
All to site
On-Site Improvements
Commercial building (no value)
Indicators
Sale Price per SF
$188.44
Sale Price per Unit
$85,000
Remarks
This comparable previously sold in July 2011 for $12,000,000 to the seller, whom reportedly
went into contract in 2008 and, during the prolonged escrow period, obtained entitlements in
April 2010 for a 197-unit multifamily project, as well as an office project on an adjacent parcel
(shown above as parcel 039-030-110). The buildings would share a common below-grade
garage. The apartment site was improved with a flex/R&D building that was partially leased at
the time, but considered to have no contributory value to the buyers. The building has since been
razed and construction is underway. The new owners are completing the development as
approved.
76
Residential Land
Mission Bay Block 13
San Francisco, CA 94158
San Francisco County
APN: 8711-013
Sale Data
Grantor
Bosa Development California II, Inc.
Grantee
EQR-Mission Bay Block 13 Limited Partnership
Sale Date
November 17, 2011
Deed Book Page
K525-769
Property Rights
Fee Simple
Conditions of Sale
Market
Financing Terms
Cash Equivalent
Sale Price
$32,760,000
PV of Bonds
$1,534,597 (estimated)
Land Data
Land Area (SF)
69,696 SF
Land Area (Acres)
1.6 acres
Zoning
MB-RA, Mission Bay South Redevelopment Area
Proposed Units
273
Proposed Density
170.6 units per acre
Shape
Rectangular
No
Corner Orientation
Street Frontage
Channel Street
Topography
Generally level
All to site
None
Indicators
Sale Price per SF
$470.04 ($492.06 – inclusive of bonds)
Sale Price per Unit
$120,000 ($125,621 – inclusive of bonds)
Remarks
This property was acquired with the intent to construct a residential project. The property is
approved for a 16-story, 273 unit apartment building with parking.
77
Residential Land
221 Town & Country
Sunnyvale, CA 94088
Santa Clara County
APN: 209-07-003, -004, -005, -006,
-008 and -009
Sale Data
Grantor
Capella Holdings LLC
Grantee
CP III T&C Sunnyvale LLC
Sale Date
August 2011
Deed Book Page
20129819
Property Rights
Fee Simple
Conditions of Sale
Market
Financing Terms
Cash Equivalent
Sale Price
$13,000,000
PV of Bonds
$0
Land Data
Land Area (SF)
108,900 SF
Land Area (Acres)
2.50 acres
Zoning
C-3
Proposed Units
130
Proposed Density
52.0 units per acre
Shape
Generally Rectangular
Corner Orientation
Yes
Street Frontage
Capella Way; S. Frances Street; Aries Way; Taffe Street
Topography
Generally level
All to site
None
Indicators
Sale Price per SF
$119.38
Sale Price per Unit
$100,000
Remarks
This property was acquired with the intent to construct 130 residential units. The purchase price
was $119.38 per square foot of land area.
78
Residential Land
1200 4th Street
APN: 8711-017
Sale Data
Grantor
Bosa Development California II, Inc.
Grantee
BRE Properties Inc.
Sale Date
April 4, 2011
Deed Book Page
K373-125
Property Rights
Fee Simple
Conditions of Sale
Market
Financing Terms
Cash Equivalent
Sale Price
$41,400,000
PV of Bonds
$3,145,123 (estimated)
Land Data
Land Area (SF)
78,408 SF
Land Area (Acres)
1.8 acres
Zoning
MB-RA, Mission Bay South Redevelopment Area
Proposed Units
360
Proposed Density
200 units per acre
Shape
Irregular
No
Corner Orientation
Street Frontage
4th Street
Topography
Generally level
All to site
None
Indicators
Sale Price per SF
Sale Price per Unit
$115,000 ($123,736 – inclusive of bonds)
Remarks
This property was acquired with the intent to construct a residential project. The previous owner
had planned to construct a 360 unit residential development; however, the new owners submitted
a request for building permits for a 6 story, 172 unit apartment building, with ground floor retail
and parking.
79
Residential Land
201 Town & Country
Sunnyvale, CA 94088
Santa Clara County
APN: 209-07-014, -015, -016, -017
and -018
Sale Data
Grantor
Capella Holdings LLC
Grantee
BRE properties Inc.
Sale Date
August 2010
Deed Book Page
20827105
Property Rights
Fee Simple
Conditions of Sale
Market
Financing Terms
Cash Equivalent
Sale Price
$19,000,000
PV of Bonds
$0
Land Data
Land Area (SF)
104,544 SF
Land Area (Acres)
2.40 acres
Zoning
C-3
Proposed Units
240
Proposed Density
100.0 units per acre
Shape
Rectangular
Corner Orientation
Yes
Street Frontage
Capella Way; W. Washington Avenue; S. Frances Street
Topography
Generally level
All to site
None
Indicators
Sale Price per SF
$181.74
Sale Price per Unit
$79,167
Remarks
This property was acquired with the intent to construct 240 apartment units with complementary
retail space; though, there were no entitlements transferred in the sale. The purchase price was
$181.74 per square foot of land area. Reportedly, there was minor environmental concern that
was not solved prior to the sale; however, because the property was in a highly desirable area,
the buyer closed escrow and will pay to remediate the site – this reportedly did not affect the sale
price.
80
Residential Land
637 East Taylor Avenue
Sunnyvale, CA 94086
Santa Clara County
APN: 205-29-005
Sale Data
Grantor
Clarum East Taylor, LLC
Grantee
D.R. Horton Bay, Inc.
Sale Date
July 2010
Deed Book Page
20796369
Property Rights
Fee Simple
Conditions of Sale
Market
Financing Terms
Cash Equivalent
Sale Price
$5,800,000
PV of Bonds
$0
Land Data
Land Area (SF)
80,586 SF
Land Area (Acres)
1.85 acres
Zoning
M-3/ITR/R-3 – Entitled for residential development
Proposed Units
36
Proposed Density
19.5 units per acre
Shape
Rectangular
Corner Orientation
No
Street Frontage
East Taylor Avenue
Topography
Generally level
All to site
Paving (no value)
Indicators
Sale Price per SF
$71.97
Sale Price per Unit
$161,111
Remarks
This property was entitled for 36 townhome units at the time of sale. There is an affordable
housing requirement, which stipulates six units will be sold at below market rates. The seller,
Clarum Homes, indicated no site work had been completed other than demolition and clearing of
the site, which was previously used as a mobile home park.
81
Residential Land
The Preserves at Redwood Shores
Redwood City, CA 94065
San Mateo County
APN: 095-460-280, -290, -300, 310, -320 & -420
Parcel map not available
Sale Data
Grantor
Keech Properties
Grantee
KB Home
Sale Date
March 2010 (rolling option)
Deed Book Page
N/Av
Property Rights
Fee Simple
Conditions of Sale
Market
Financing Terms
Cash Equivalent
Sale Price
$40,560,000
PV of Bonds
$0
Land Data
Land Area (SF)
537,095 SF
Land Area (Acres)
12.33 acres
Zoning
P – Entitled for residential development
Proposed Units
156
Proposed Density
12.7 units per acre
Shape
Irregular
No
Corner Orientation
Street Frontage
Keech Drive
Topography
Generally level
All to site
None
Indicators
Sale Price per SF
$75.52
Sale Price per Unit
$260,000
Remarks
The Preserve at Redwood Shores is located at the intersection of Keech Drive and Whidbey
Lane in Redwood City. The buyer, KB Home, has acquired 12.33 acres of land area entitled for
development of 156 townhome units. There is no affordable housing requirement and all homes
can be sold at market rate. We did confirm that KB Home has acquired the property and they
are actively marketing homes at this project. All offsite improvements were in place at the time
of sale and the buyer was responsible for constructing all onsite development. Further, the
project is not encumbered with special tax/assessment lien obligations. The buyer is taking
down the project in phases and the most recent closing was in March 2010. This was the second
82
takedown to the best of our knowledge, with the first transpiring in September 2009. While
these items were confirmed through public records, the project’s sales office and representatives
of Redwood City and the City website, we could not confirm the sale price or the specific terms
of the acquisition. We spoke with the land acquisition manager at KB Home, who indicated the
sale price and terms of the acquisition are highly confidential and that it was crucial for the
builder’s competitive advantage to keep the details of this transaction hidden from the public.
The KB Home representative also stated that no parties other than the buyer and seller are privy
to the exact terms of the acquisition and that information obtained about this transaction from
any other party was pure speculation.
The sale price reported above is based on our conversations with parties, including brokers and
other market participants, who are aware of the transaction, but were not directly involved.
Thus, the parties reported what they believed to be the terms and sale price, but could not
provide final confirmation. As noted previously, we contacted both the buyer and seller in this
transaction but could not get confirmation. It is believed Keech Development has the right to
collect 6% of the total revenue from home sales, premiums and upgrades. If this is confirmed to
be true and accurate, it would constitute a revenue sharing agreement that would cost the buyer
6% of every home sale. Consequently, the effective sale price of the land would be greater than
$260,000, assuming the negotiated sale price and the revenue sharing agreement are confirmed
to be true.
83
Residential Land
1840 Ogden Drive
Burlingame, CA 94010
San Mateo County
APN: 025-121-130
Sale Data
Grantor
Burlingame Hills Manor, LLC
Grantee
Mill Ogden Villa, LLC
Sale Date
September 2009
Deed Book Page
1122466
Property Rights
Fee Simple
Conditions of Sale
Market
Financing Terms
Cash Equivalent
Sale Price
$7,180,000
PV of Bonds
$0
Land Data
Land Area (SF)
38,768 SF
Land Area (Acres)
0.89 acre
Zoning
TW; Entitled for Residential Development
Proposed Units
45
Proposed Density
50.6 units per acre
Shape
Rectangular
Corner Orientation
No
Street Frontage
Ogden Drive
Topography
Generally level
All to site
Office building (no value)
Indicators
Sale Price per SF
$185.20
Sale Price per Unit
$159,556
Remarks
This property was approved for a 45-unit residential condominium project at the time of sale and
included completed architectural plans. The project will consists of seven one-bedroom units, 32
two-bedroom units and six three-bedroom units. Five units are required to be offered at below
market rates. Reportedly, this property was marketed for $8,495,000 for about one year prior to
selling. An older 14,700 square foot office building was in place at the time of sale and needed to
be razed prior to construction.
84
Analysis and Conclusion
The comparable sales collected for this analysis are considered sufficient for purposes of estimating
market value for the subject’s underlying residential land component. Based on the data analyzed
herein, and the correlation of sale price to the various units of comparison, e.g., land area, number of
units and density, the unit of comparison used for this analysis is the sale price per square foot of
land area. In order to value the subject’s residential Blocks, the comparable transactions were
adjusted based on the profile of the subject site with regard to categories that affect market value. If
a comparable has an attribute that is considered superior to that of the subject, it is adjusted
downward to negate the effect the item has on the price of the comparable. The opposite is true of
categories that are considered inferior to the subject and are adjusted upward.
In order to isolate and quantify the adjustments on the comparable sales data, percentage or dollar
adjustments are considered appropriate. At a minimum, the appraiser considers the need to make
adjustments for the following items:







Property Rights Conveyed
Financing Terms
Conditions of Sale (motivation)
Market Conditions (time)
Expenditures After Sale
Location
Physical Features
A paired sales analysis is performed in a meaningful way when the quantity and quality of data are
available. However, as a result of the limited data present in the market, many of the adjustments
require the appraiser’s experience and knowledge of the market and information obtained from those
knowledgeable and active in the marketplace. A detailed analysis involving each of these factors and
the value conclusion for the subject is presented below.
In transactions of real property, the rights being conveyed vary widely and have a significant impact
on the sales price. As previously noted, the opinion of value in this report is based on a fee simple
estate, subject only to the limitations imposed by the governmental powers of taxation, eminent
domain, police power, and escheat; as well as non-detrimental easements, and conditions, covenants
and restrictions (CC&Rs). The impact of bond indebtedness, community facility districts and
assessment districts, is considered in our analysis. The subject and all the comparables represent fee
simple estate transactions. Therefore, adjustments for this factor are not necessary.
85
Financing Terms
In analyzing the comparables, it is necessary to adjust for financing terms that differ from market
terms. Typically, if the buyer retained third party financing (other than the seller) for the purpose of
purchasing the property, a cash price is presumed and no adjustment is required. However, in
instances whereby the seller provides financing as a debt instrument, a premium may have been paid
by the buyer for below market financing terms or a discount may have been demanded by the buyer
if the financing terms were above market. The premium or discounted price must then be adjusted to
a cash equivalent basis. The comparable sales are understood to be cash to the seller transactions
and, therefore, do not require adjustments.
Conditions of Sale (motivation)
Adverse conditions of sale can account for a significant discrepancy from the sales price actually
paid compared to that of the market. This discrepancy in price is generally attributed to the
motivations of the buyer and the seller. Certain conditions of sale are considered to be non-market
and may include the following:
 A seller acting under duress,
 A lack of exposure to the open market,
 An inter-family or inter-business transaction for the sake of family or business interest,
 An unusual tax consideration,
 A premium paid for site assemblage,
 A sale at legal auction, or
 An eminent domain proceeding.
All of the comparable transactions were arms-length and do not require a conditions of sale
adjustment.
Expenditures after Sale
For Comparables 2, 3, 4 and 7 no additional expenditures were indicated after their respective sale
dates. As such, no adjustments are applied to these comparables for this element of comparison.
However, Comparables1, 6 and 8 had site and structural improvements in place at the time of sale,
which require demolition to create a vacant site that is ready for development. The structural
improvements are judged to have no contributory value and, as such, the Comparables are adjusted
upward to account for the cost of demolition. Reportedly, Comparable 5 had minor environmental
concerns that were not solved prior to the sale; however, because the property was in a highly
desirable area, the buyer closed escrow on the site and will pay to remediate the property – this
reportedly did not affect the sale price; thus, no adjustment is made. No other adjustments are
warranted for expenditures after sale.
86
Market Condition (time)
Market conditions generally change over time, but the date of this appraisal is for a specific point in
time. Therefore, in an unstable economy, one that is undergoing changes in the value of the dollar,
interest rates and economic growth or decline, extra attention needs to be paid to assess changing
market conditions. Significant monthly changes in price levels can occur in several areas of a
municipality, while prices in other areas remain relatively stable. Although the adjustment for
market conditions is often referred to as a time adjustment, time is not the cause of the adjustment.
In evaluating market conditions, changes between the comparable sales date and the effective date of
this appraisal may warrant adjustment; however, if market conditions have not changed, then no
adjustment is required. While the residential market was in an expansionary period during the years
of 2000 to 2007, it contracted through 2009/2010, especially as a result of the financial crisis of the
latter half of 2008. However, over the past two years, nearly all market participants surveyed have
reported that conditions have improved for residential housing, with particular emphasis on for-rent
product. In fact, according to Marcus & Millichap’s Apartment Market Report, Third Quarter 2012,
over the past year, the average rent has increased by 15% at projects with 100 or more units, and
16% at projects with fewer than 100 units.
Similarly, according to various commercial brokers/developers involved in multifamily housing in
San Mateo County, capitalization rates have continued to fall over the past year, with the average
overall capitalization rate in San Mateo County at 5.27%. In addition to rising rents and the
stabilization of vacancy rates, financing has become more accessible for investors, and multifamily
properties in desirable locations are receiving multiple offers. Nearly all market participants
surveyed believe that 2009 was the low point for multifamily housing in the region, given that the
market was essentially frozen due to overall uncertainty in the economy and in the capital markets.
With respect to for-sale residential product, the number of single-family homes sold in the city of
San Mateo decreased year-over-year, as inventory declined; though, prices increased between 2.5%
and 30.3% in the city. Reports suggest the Bay Area region is exhibiting signs of stabilization and, in
some areas, recovery, as prices and/or rents rise in certain submarkets. Based upon the discussion
above, slight upward adjustments for market conditions are applied to Sales 5 through 8, which
transferred between September 2009 and August 2010.
Location
The subject is located in the City of San Mateo, in San Mateo County, near the Highway
101/Highway 92 interchange, both major transportation arterials in the San Francisco Bay Area
peninsula. Additionally, the subject’s location proximate to the Caltrain is considered a highly
87
desirable location attribute. Comparables 1 and 8 are also located proximate to these transportation
facilities – no adjustments are necessary. Comparable 7 is located east of the subject property in
Redwood City and is situated close to the Bay. While this project does receive premiums for Bay
views, it does not enjoy the same level of proximity to transportation and significant commercial
services the subject property offers; thus, an upward adjustment is merited. Comparables 3 and 5 are
located in downtown Sunnyvale and are considered similar in terms of location attributes as the
subject property. Comparable 6 is located in an inferior area of Santa Clara County, in an area with
generally lower home values when compared to the subject property and warrants an upward
adjustment. Conversely, Comparables 2 and 4 are located in the redeveloping Mission Bay
neighborhood of San Francisco, proximate to AT&T Park, the University of California San
Francisco campus and the San Francisco Bay. These Comparables are considered superior to the
subject property in terms of location attributes and merit downward adjustments.
Physical Features
The physical characteristics of a property can impact the selling price. Those that may impact value
include the following:
Project Density (Units Per Acre)
When analyzing land sales on a price per square foot basis, projects with lower densities transferred
for less per square foot than projects with higher densities, all else being equal. In total, the subject
property offers a project density of 26.7 units per acre (832 units ÷ 31.07 acres), and range between
7.82 and 50.16 units per acre. Therefore, in comparison to the subject parcels, comparables offering
a proposed density significantly greater than the density for the subject are adjusted downward and
vice versa.
Land Area (Economies of Scale)
In terms of land area, the comparables range between 0.89-acre and 12.33 acres. The subject parcels
range in size between 1.089 acres and 4.38 acres. Comparable 10 is significantly larger than the
subject property and warrants an upward adjustment. Larger parcels tend to sell for less per square
foot than smaller parcels, all else being equal.
Offsite Improvements
The retail value of each of the subject’s residential Blocks is valued in this section, which assumes
completion of all offsite improvements in place (deductions for remaining site improvements
associated with the Blocks held by the master developer will be made in the expenses section of the
88
discounted cash flow analysis; whereas, all offsite improvements are in place for the two parcels
(Blocks 3.1 and 3.2) sold to merchant builders). The comparables possess similar offsite
improvements; thus, an adjustment for offsite improvements is not necessary.
Site Utility/Topography
Differences in shape, topography, drainage or soil conditions can affect the utility and, therefore, the
market value of a property. The subject property exhibits average site utility, with an irregular shape,
level topography and no major impediments to development. In comparison to the subject, the land
sales appear to offer similar site utility/topography, with no adjustments warranted.
Zoning/Entitlements
All of the comparables have similar zoning to the subject property and do not require adjustment,
and, overall, the comparables used in this analysis are considered the best and most recent available
for comparison to the subject property.
The subject property has an inclusionary housing requirement in which the owner/developer is
obligated to set aside a minimum of ten percent (10%) of the residential units on a Block-by-Block basis
for occupancy by, and being affordable to, moderate or lower income households. Comparables 3 and 5
also required units to be set aside for inclusionary housing. Comparables 3 and 5 did not have
entitlements in place at the time of sale; however, the City of Sunnyvale has a Below Market Rate
(BMR) Program for new development requiring 12.5% of for-sale units and 15% of for-rent units be set
aside for BMR units; thus, in comparison to the subject property, a slight upward adjustment is
warranted for these sales. It is expected Comparable 1, which is also located in the city of San Mateo,
would have a similar inclusionary housing requirement as the subject; thus, no adjustment is
necessary. Comparable 7 does not have an inclusionary housing requirement; thus, a slight
downward adjustment is considered reasonable. Comparables 2 and 4, which are both located in the
city of San Francisco, have an inclusionary housing requirement in which the owner/developer is
obligated to set aside a minimum of fifteen percent (15%) of the residential units on a Block-by-Block
basis for occupancy by, and being affordable to, moderate or lower income households; thus, in
comparison to the subject property, a slight upward adjustment is warranted for these sales.
Conclusion of Value – Residential Land Component
The market data analyzed herein reflects a range in value of $71.97 to $568.12 per square foot
(inclusive of bonds), with the upper end of the range characterized by land sales within the Mission Bay
area of San Francisco, both of which allow for high rise multifamily development with significantly
higher densities when compared to the subject property. Based on the preceding discussion, and
considering the specifics of the subject property’s residential land parcels, in particular, the subject’s
89
location in San Mateo with proximity to major transportation, a conclusion of land value of $170 per
square foot is considered reasonable for the subject’s residential land component. Applying this value
per square foot to the residential land parcels (Blocks) held by the master developer results in the
following component aggregate retail value:
Parcel
# of Units
Residential Land/Potential Units - Res 1
108
80
Residential Land/Potential Units - Res 3.1b
50
71
76
54
158
74
Residential Land/Potential Units - Res 9.1
24
31
Total:
726
Acres Value / SF
2.156
$170
2.999
$170
1.910
$170
1.649
$170
3.864
$170
1.089
$170
2.397
$170
3.571
$170
3.069
$170
$170
1.619
24.323
Extension
$ 15,970,000
$ 22,210,000
$ 14,140,000
$ 12,210,000
$ 28,610,000
$ 8,060,000
$ 17,750,000
$ 26,440,000
$ 22,730,000
$ 11,990,000
$ 180,110,000
The above component values will be incorporated into the discounted cash flow analysis later in this
report to derive the market value for the ownership held by the master developer. Whereas, Blocks 3.1a
and 3.2 have transferred ownership to individual merchant builders, and the market values for each
ownership interest are shown below:
Parcel
Residential Land/Potential Units - Res 3.1a
# of Units Acres Value / SF Extension
43
1.820
$170
$ 13,480,000
63
3.040
$170
$ 22,510,000
90
COMMERCIAL/MIXED-USE LAND COMPONENT – SALES COMPARISON APPROACH
In this section the market value of the subject’s office and mixed-use land components, which
comprise 18.55± acres, will be estimated by analyzing sales of similar office/commercial land in the
region. The subject property is subdivided into five developable Office Blocks (Stations) and four
Mixed-Use Blocks.
The underlying premise of the sales comparison approach is the market value of a property is
directly related to the price of comparable, competitive properties in the marketplace. In the sales
comparison approach, the market value of the subject property will be estimated by a comparison to
similar properties that have recently sold, are listed for sale or are under contract.
The proper application of this approach requires obtaining recent sales data for comparison with the
subject property. In order to assemble the comparable sales, we searched public records and other
data sources for leads, then confirmed the raw data obtained with parties directly related to the
transactions (primarily public records, brokers, buyers and sellers). For the subject’s office (Station)
component, the underlying land is most commonly analyzed on a price per developable floor area
(FAR), which will be the basis of the analysis herein.
Consideration is given to factors such as property rights conveyed, financing, conditions of sale, and
market appreciation or depreciation since the date of sale. Differences in physical characteristics, such
as location, floor area ratio, land area, offsite improvements, site utility/topography, and
zoning/entitlements are considered in the analysis. The entire data set will then be used to value this
land use component. Nine sales have been identified as being representative of the market and it is
believed the sales data collected is sufficient for comparison to the subject property and pertinent to
the valuation of the subject land. The data from the comparable sales is summarized in the table
below, followed by a location map.
91
COMMERCIAL LAND SALES
Price
per SF
FAR
(SF)
M3
$59.31
209,500
$84.73
Office
14.00
609,840
CG
$455.86
2,000,000
$139.00
Office
$8,000,000
1.03
44,867
DC
$178.31
134,600
$59.44
Parking Lot
May-10
$12,000,000
1.49
64,904
DC
$184.89
194,713
$61.63
Parking Lot
5 384 Santa Trinita Avenue
APNs: 205-24-001
Oct-09
$11,888,000
4.56
198,634
M1
$59.85
99,317
$119.70
Office
6 100 Middlefield Road
Menlo Park, San Mateo County
APNs: 062-272-620, -630
Nov-08
$1,900,000
0.52
22,781
C-1-A
$83.40
7,500
$253.33
Office
7 399 W. Java Drive & 1333 Bordeaux Drive
APNs: 110-26-033 & -047
Feb-08
$21,546,432
6.87
299,257
M3
$72.00
209,500
$102.85
Office
8 Stevens Creek Blvd. at N. Tantau Avenue
Cupertino, Santa Clara County
APNs: 316-20-078, -079 & -085
Feb-08
$53,500,000
17.41
758,380
PD
$70.55
454,897
$117.61
Office/Retail
9 900 Franklin Lane
San Mateo, San Mateo County
APNs: 040-010-190
Oct-07
$18,000,000
4.22
183,901
SP
$97.88
64,700
$278.21
Office
No.
Land Area
(Acre / SF) Zoning
Sale Date
Sale Price
1 399 W. Java Drive & 1333 Bordeaux Drive
APNs: 110-26-033 & -047
Nov-10
$17,750,000
6.87
299,257
2 Mission Bay Lots 26 & 27 (portion) and Lots 29-34
San Francisco, San Francisco County
APN: 8721-029, -033; 8722-001 and 8725-001
Oct-10
$278,000,000
3 8 E San Fernando Street
San Jose, Santa Clara County
APN: 467-22-142
May-10
4 285 S. Market Street
San Jose, Santa Clara County
APN: 259-42-080
Price
Proposed/Existing
per FAR
Use
92
COMMERCIAL LAND SALES MAP
93
COMMERCIAL LAND SALE 1
Commercial Land
399 W. Java Avenue & 1333
Bordeaux Drive
Sunnyvale, CA 94085
Santa Clara County
APN: 110-26-033 & -047
Sale Data
Grantor
399 West Java Drive LLC
Grantee
Yahoo Inc.
November 2010
Sale Date
Deed Book Page
20992619
Property Rights
Fee Simple
Conditions of Sale
Market
Financing Terms
Cash Equivalent
Sale Price
$17,750,000
PV of Bonds
$0
Land Data
Land Area (SF)
299,257 SF
Land Area (Acres)
6.87 acres
Floor Area Ratio (FAR)
209,500 SF
Zoning
M3
Shape
Irregular
Corner Orientation
Yes
Street Frontage
Bordeaux Drive; West Java Drive
Topography
Generally level
All to site
No
Indicators
Sale Price per SF
$59.31
Sale Price per Acre
$2,583,697
Sale Price per FAR
$84.73
Remarks
This comparable represents a recent sale of 6.87 acres of land permitted for the construction of
209,500 square feet of office space. The buyer, Yahoo, owns the adjacent property to the west.
The property is located on a light rail line in walking distance to a transit station. The prior sale
of this comparable is also described as Comparable 7.
94
Commercial Land
Mission Bay Lots 26 & 27 (portion)
and Lots 29-34
APN: 8721-029, -033; 8722-001
and 8725-001
Sale Data
Grantor
ARE-San Francisco 22 LLC (Alexandria Real Estate
Equities, Inc.)
Bay Jacaranda No. 2932, LLC (Salesforce.com)
October 2010
J073279
Fee Simple
Market
Cash Equivalent
$278,000,000
$17,869,463 (estimated)
Grantee
Sale Date
Deed Book Page
Property Rights
Conditions of Sale
Financing Terms
Sale Price
PV of Bonds
Land Data
Land Area (SF)
609,840 SF
Land Area (Acres)
14.0 acres
2,000,000 SF
Zoning
MB-RA, Mission Bay Redevelopment Area
Shape
Irregular
Corner Orientation
Yes
Street Frontage
3rd Street; 16th Street
Topography
Generally level
All to site
No
Indicators
Sale Price per SF
Sale Price per Acre
$19,857,143 ($21,133,533 – inclusive of bonds)
Sale Price per FAR
Remarks
This comparable represents the November 2010 acquisition by Salesforce.com of 14 acres of
land situated in the Mission Bay redevelopment area of San Francisco, just south of AT&T Park.
The buyer paid $278,000,000, plus the assumption of bonds, for the construction of a new
headquarters campus for the technology company. The FAR allowance is two million square
feet, implying a price per FAR of $139.
95
Commercial Land
8 East San Fernando Street
San Jose, CA 95113
Santa Clara County
APN: 467-22-142
Sale Data
Grantor
Redevelopment Agency of the City of San Jose
Grantee
Sobrato Interests III, LP
Sale Date
May 2010
Deed Book Page
20722602
Property Rights
Fee Simple
Conditions of Sale
Market
Financing Terms
Cash Equivalent
Sale Price
$8,000,000
PV of Bonds
$0
Land Data
Land Area (SF)
44,867 SF
Land Area (Acres)
1.03 acres
134,600 SF
Zoning
DC
Shape
Rectangular
Corner Orientation
Yes
Street Frontage
1st Street; 2nd Street; San Fernando Street
Topography
Generally level
All to site
Paving (parking lot)
Indicators
Sale Price per SF
$178.31
Sale Price per Acre
$7,766,990
Sale Price per FAR
$59.44
Remarks
This comparable represents the May 2010 sale of a parking lot in downtown San Jose by the City
Redevelopment Agency. The lot is across the street from the Knight Ridder building at the
corner of South First Street. The new owners reportedly will continue to use the property as a
parking lot until the market turns and will re-evaluate the usage of the land. According to the
City of San Jose zoning code, the FAR allowance is 3:1, implying a building of 134,600 square
feet can be constructed.
96
Commercial Land
285 South Market Street
San Jose, CA 95113
Santa Clara County
APN: 259-42-080
Sale Data
Grantor
Redevelopment Agency of the City of San Jose
Grantee
Sobrato Interests III, LP
Sale Date
May 2010
Deed Book Page
20722600
Property Rights
Fee Simple
Conditions of Sale
Market
Financing Terms
Cash Equivalent
Sale Price
$12,000,000
PV of Bonds
$0
Land Data
Land Area (SF)
64,904 SF
Land Area (Acres)
1.49 acres
194,713 SF
Zoning
DC
Shape
Rectangular
Corner Orientation
Yes
Street Frontage
South 1st Street; South Market Street; E. San Carlos Street
Topography
Generally level
All to site
Paving (parking lot)
Indicators
Sale Price per SF
$184.89
Sale Price per Acre
$8,053,691
Sale Price per FAR
$61.63
Remarks
This comparable represents the May 2010 sale of a parking lot in downtown San Jose by the City
Redevelopment Agency. The lot is opposite the civic auditorium and across the street from Cesar
Chavez plaza and the San Jose Convention Center. The new owners reportedly will continue to
use the property as a parking lot until the market turns and will re-evaluate the usage of the land.
The FAR allowance is 3:1, implying a building of 194,713 square feet can be constructed.
97
Commercial Land
384 Santa Trinita Avenue
Sunnyvale, CA 94085
Santa Clara County
APN: 205-24-001
Sale Data
Grantor
TMG-Santa Trinita LLC
Grantee
Santa Trinita Office LLC
Sale Date
October 2009
Deed Book Page
20470130
Property Rights
Fee Simple
Conditions of Sale
Market
Financing Terms
Cash Equivalent
Sale Price
$11,888,000
PV of Bonds
$0
Land Data
Land Area (SF)
198,634 SF
Land Area (Acres)
4.56 acres
99,317 SF
Zoning
M1
Shape
Corner Orientation
Yes
Street Frontage
Santa Trinita Avenue; Kern Avenue
Topography
Generally level
All to site
None
Indicators
Sale Price per SF
$59.85
Sale Price per Acre
$2,607,018
Sale Price per FAR
$119.70
Remarks
This comparable is the October 2009 sale of a vacant parcel in Sunnyvale, Santa Clara County.
The property is approved for the construction of a 99,317 square foot building, which implies a
price per FAR of $119.70.
98
Commercial Land
100 Middlefield Road
Menlo Park, CA 94025
San Mateo County
APN: 062-272-620 and -630
Sale Data
Grantor
Richard J. & Denise L. Beale
Grantee
100 Middlefield Road Properties, LLC
Sale Date
September 2008
Deed Book Page
123856
Property Rights
Fee Simple
Conditions of Sale
Market
Financing Terms
Cash Equivalent
Sale Price
$1,900,000
PV of Bonds
$0
Land Data
Land Area (SF)
22,781 SF
Land Area (Acres)
0.52 acre
7,500 SF
Zoning
C-1-A
Shape
Corner Orientation
Yes
Street Frontage
Middlefield Road; Willow Road
Topography
Generally level
All to site
None
Indicators
Sale Price per SF
$83.40
Sale Price per Acre
$3,653,846
Sale Price per FAR
$253.33
Remarks
This property was originally listed for $2.975 million and was on the market for one year. The
property was formerly improved with a Chevron gas station. The FAR is 0.40, though the
property sold with entitlements for a 7,500 square foot office building. No structures or tanks
were on the site.
99
Commercial Land
399 W. Java Avenue & 1333
Bordeaux Drive
Sunnyvale, CA 94085
Santa Clara County
APN: 110-26-033 & -047
Sale Data
Grantor
Pritzger Realty Group
Grantee
TMG-Moffett (The Martin Group)
Sale Date
February 2008
Deed Book Page
20992619
Property Rights
Fee Simple
Conditions of Sale
Market
Financing Terms
Cash Equivalent
Sale Price
$21,546,432
PV of Bonds
$0
Land Data
Land Area (SF)
299,257 SF
Land Area (Acres)
6.87 acres
209,500 SF
Zoning
M3
Shape
Irregular
Corner Orientation
Yes
Street Frontage
Bordeaux Drive; West Java Drive
Topography
Generally level
All to site
No
Indicators
Sale Price per SF
$72.00
Sale Price per Acre
$3,136,307
Sale Price per FAR
$102.85
Remarks
This comparable is the February 2008 sale of 6.87 acres of land in Sunnyvale, adjacent to Yahoo.
The site has an allowable density up to 0.70 FAR, and was later approved for 209,500 square feet
of office space. The property is located on a light rail line in walking distance to a transit station.
100
Commercial Land
Stevens Creek Boulevard at N.
Tantau Avenue
Cupertino, CA 95014
Santa Clara County
APN: 316-20-078, -079 & -085
Sale Data
Grantor
Grantee
Sale Date
Deed Book Page
Property Rights
Conditions of Sale
Financing Terms
Sale Price
PV of Bonds
Land Data
Land Area (SF)
Land Area (Acres)
Zoning
Shape
Corner Orientation
Street Frontage
Hewlett-Packard
500 Forbes LLC
February 2008
19740580
Fee Simple
Market
Cash Equivalent
$53,500,000
$0
758,380 SF
17.41 acres
454,897 SF
PD
Irregular
Yes
Finch Ave.; Vallco Pkwy.; Stevens Creek Blvd.; N. Tantau
Ave.
Generally level
All to site
None
Topography
Indicators
Sale Price per SF
$70.55
Sale Price per Acre
$3,072,947
Sale Price per FAR
$117.61
Remarks
This property is the February 2008 sale of 17.41 acres of land in Cupertino, across the street
from April Inc. The estimated FAR for the site is 0.60, the property was proposed for the
construction of 454,897 square feet of office space, implying a sale price per FAR of $117.61.
101
Commercial Land
900 Franklin Lane
San Mateo, CA 94403
San Mateo County
APN: 040-010-190
Sale Data
Grantor
Bay Meadows Gateway Investors
Grantee
Kaiser Foundation Health Plan
Sale Date
October 2007
Deed Book Page
155207
Property Rights
Fee Simple
Conditions of Sale
Market
Financing Terms
Cash Equivalent
Sale Price
$18,000,000
PV of Bonds
$0
Land Data
Land Area (SF)
183,901 SF
Land Area (Acres)
4.22 acres
64,700 SF (constructed)
Zoning
SP
Shape
Irregular
Corner Orientation
Yes
Street Frontage
Franklin Parkway; Saratoga Drive; Hillsdale Boulevard
Topography
Generally level
All to site
None
Indicators
Sale Price per SF
$97.88
Sale Price per Acre
$4,265,403
Sale Price per FAR
$278.21
Remarks
This comparable is the sale of an irregularly-shaped parcel located in Phase I of the Bay
Meadows redevelopment area. The buyer planned, and subsequently completed, a 64,700 square
foot medical office building on the site; though, the property was permitted for a maximum of
245,000 square feet.
102
Analysis and Conclusion
The comparable transactions are adjusted based on the profile of the subject parcels with regard to
categories that affect market value. If a comparable has an attribute that is considered superior to that
of the subject, it is adjusted downward to negate the effect the item has on the price of the
comparable. The opposite is true of categories considered inferior to the subject.
Percentage or dollar adjustments are considered appropriate in order to isolate and quantify the
adjustments on the comparable sales data. At a minimum, the appraiser considers adjustments for the
following items:






Property rights conveyed
Financing terms
Conditions of sale (motivation)
Expenditures after sale
Market conditions
Physical features
A paired sales analysis is performed in a meaningful way when the quantity and quality of data are
available. However, many of the adjustments require the appraiser’s experience and knowledge of
the market and information obtained from those knowledgeable and active in the marketplace. A
discussion involving each of these factors is presented as follows:
In transactions of real property, the rights being conveyed vary widely and have a significant impact
on the sales price. The opinion of value in this report is based on a fee simple estate, subject only to
the limitations imposed by the governmental powers of taxation, eminent domain, police power and
escheat, as well as non-detrimental easements, community facility districts and conditions, covenants
and restrictions (CC&Rs). All of the comparables represent fee simple estate transactions. Therefore,
adjustments for property rights are not necessary.
Financing Terms
In analyzing the comparables, it is necessary to adjust for financing terms that differ from market
terms. Typically, if the buyer retained third party financing (other than the seller) for the purpose of
purchasing the property, a cash price is presumed and no adjustment is required. However, in
instances where the seller provides financing as a debt instrument, a premium may have been paid
by the buyer for below market financing terms or a discount may have been demanded by the buyer
if the financing terms were above market. The premium or discounted price must then be adjusted to
a cash equivalent basis. All of the comparable sales represented cash to the seller transactions and,
therefore, do not require adjustments.
103
Conditions of Sale
Adverse conditions of sale can account for a significant discrepancy from the sales price actually
paid compared to that of the market. This discrepancy in price is generally attributed to the
motivations of the buyer and the seller. Certain conditions of sale are considered to be non-market
and may include the following:







A seller acting under duress,
A lack of exposure to the open market,
An inter-family or inter-business transaction for the sake of family or business interest,
An unusual tax consideration,
A premium paid for site assemblage,
A sale at legal auction, or
An eminent domain proceeding.
All of the comparable transactions were arms-length and do not require a conditions of sale
adjustment.
Expenditures After Sale
This category includes all costs required after the transaction. None of the comparables were
reported to have expenditures after sale.
Market Conditions
Market conditions generally change over time, but the date of value is for a specific point in time.
Therefore, in an unstable economy, one that is undergoing changes in the value of the dollar, interest
rates and economic growth or decline, extra attention needs to be paid to assess changing market
conditions. Significant changes in price levels can occur in several areas of a municipality, while
prices in other areas remain relatively stable. Although the adjustment for market conditions is often
referred to as a time adjustment, time is not the cause of the adjustment.
In evaluating market conditions, changes between the comparable sales date and the effective date of
this appraisal may warrant adjustment; however, if market conditions have not changed, then no
adjustment is required.
According to brokerage reports by Cassidy Turley and Colliers International, the office market
recovery continues in San Mateo County. Not only has the vacancy rate declined significantly over
the past 18 months, but overall leasing activity has returned to pre-recession levels. The overall
vacancy rate for the office market was 13.9% in Third Quarter 2012, up slightly from 13.2% at the
end of 2011. The market recorded positive net absorption in the years 2010 and 2011 of about
104
375,000 and 1.1 million square feet, respectively. Through the first three quarters of 2012, net
coming from tech users, including software/internet companies and life science businesses.
According to Terranomics, a division of BT Commercial, the retail market has shown signs of
strength and improvement over the past several quarters. As reported by Terranomics in the San
Mateo County Shopping Centers Report Q3-2012, the overall vacancy rate for the retail market was
3.6% in Third Quarter 2012, up from 3.0% in the previous quarter. Retail vacancy remains very tight
and demand from retailers has been strong. According to Terranomics, demand is strongest for firsttier shopping centers (typically anchored centers in urban locations with high visibility), which are
seeing the highest levels of deal activity.
There have been limited, comparable land transactions in the Peninsula in 2011 and 2012; though,
this is likely due to the scarcity of supply and the limited amount of properties available on the
market. As a result, sales activity for vacant parcels in the subject’s immediate area is very limited.
However, within the last 24 months the market has witnessed some of the largest land transactions in
recent history. While most transactions represent purchases by speculators looking to hold for future
development or sell at a later date rather than develop in the near-term, there are transactions
occurring with owner/users intending to develop in the near term.
As discussed in detail in the Market Overview sections earlier in this report, market activity suggests
the commercial market has reached stabilization, with signs of recovery in certain segments of the
market. Based on the discussion above, slight downward adjustments are made to Comparable 6
through 9, all of which sold between October 2007 and November 2008.
Physical Characteristics
The physical characteristics of a property can impact the selling price. Those that may impact value
are discussed as follows.
Location
The subject is considered to possess a good location for commercial development. The subject
property comprises Phase II of the Bay Meadows Redevelopment Area; Phase I was developed with
a mix of office, retail and residential development and is located immediately east of the subject
property. The largest commercial user in Phase I is the Franklin Templeton Investments campus, a
105
six building office park with entitlements for two additional office buildings. Just southwest of the
subject property is the Hillsdale Shopping Center. Separating the subject property from South El
Camino Real, a major north/south arterial in San Mateo County, is the Caltrain, a railroad line
owned and operated by the Peninsula Corridor Joint Powers Board, which consists of representatives
from San Francisco, San Mateo and Santa Clara counties and links Gilroy (Santa Clara County) in
the south with San Francisco in the north. The train service is an integral part of linking the
employment centers of the Peninsula and Silicon Valley with average weekly ridership as of
February 2011(reported annually each year) of 41,442. Most of the Comparables are considered to
have a good location when compared to the subject property, with proximity to transportation and
commercial services; thus, no adjustments are necessary for location. Comparable 2 is located in San
Francisco, in the Mission Bay redevelopment area, which is considered slightly superior to the
subject property and merits a slight downward adjustment.
Visibility/Accessibility
The visibility and accessibility of a property can have a direct impact on property value. For
example, if a property is landlocked, this is considered to be an inferior position compared to a
property with open accessibility. However, if a property has good visibility or is in proximity to
major linkages, this is a superior amenity in comparison to a property with limited visibility. The
subject property has a good level of visibility/accessibility from major transportation routes in the
region, with proximity to Highways 101 and 92, and immediate access to the aforementioned
Caltrain. The Comparables are considered to offer similar levels of visibility and accessibility. No
adjustments are applied.
Land Area
The market generally exhibits an inverse relationship between parcel area and price per square foot
such that larger parcels sell for a lower price per square foot than smaller parcels, all else being
equal. For purposes of analysis, in comparison to the subject’s office parcels, Comparables 2 and 8
merit upward adjustments for the discrepancy in land area when compared to the subject’s generally
smaller parcels.
Zoning
Similar to the subject property, all of the sales have zoning permitting a variety of commercial
development (office and retail). No adjustments are applied.
106
Site Utility
Differences in shape, topography, drainage or soil conditions can affect the utility and, therefore, the
market value of undeveloped land. The subject parcels offer generally level topography and average
overall site utility. All of the comparables are considered to have similar site utility, with no
adjustments applied for this factor.
The subject property has no on-site improvements in place. Comparables 3 and 4 sold as existing
parking lots with asphalt paving in place, and the developer intends to use the sites as parking lots
for an interim use, until construction of the properties is feasible; thus, no adjustments are warranted.
Conclusion of Value – Commercial Land Component
Market participants report office land is analyzed on a price per floor area (FAR), as a buyer’s ability to
construct office square footage is the overwhelming driving force in the market in light of the limited
supply of developable land. This is demonstrated by Comparable 2, which contained only 14 acres of
land, but was permitted to construct up to two million square feet of office space, ultimately driving the
price paid for the land. The market data analyzed herein reflects a range in value of $59.44 to $278.21
per square foot of FAR. As with the Residential Land component analyzed previously, it’s worth noting
the highest land sale comparable also included the assumption of bonds, like the subject property,
suggesting the market is receptive to the financing mechanism for completing infrastructure
improvements. The subject property contains five parcels designated for office development, which
range in size from 1.43 to 2.77 acres. Based on the preceding discussion, and considering the specifics
of the subject property’s office land parcels, a conclusion of land value of $140 per square foot of floor
area (FAR) is considered reasonable for the subject’s office component.
The subject property offers four mixed-use land parcels ranging in size from 1.4 acres to 3.76 acres.
Though the development agreement allows for these parcels to be constructed with additional office
space, the existing entitlements include a mix of retail, office and residential uses contained with each
building. The Comparables reflect an unadjusted range of $59.31 to $455.86 per square foot of land
area. Excluding the outliers, the range narrows to $70.55 to $184.89 per square foot. Based on the
analysis above, a conclusion of land value of $110 per square foot for the larger (2.76 acre) parcel and
$130 per square foot for the smaller parcels is considered reasonable. Applying these values to the
subject’s office and mixed use land parcels results in the following component aggregate retail values:
107
Component
Station 1
Station 2
Station 3
Station 4
Station 5
Total - Station Land Component
Component
MU 1
MU 2
MU 3
MU 4
Total - MU Land Component
Total Acres
2.77
2.58
2.31
2.39
1.43
11.48
FAR
Value / FAR Extension (Rd.)
101,704
$140
$14,240,000
189,103
$140
$26,470,000
173,866
$140
$24,340,000
209,861
$140
$29,380,000
95,000
$140
$13,300,000
$107,730,000
Total Acres Total SF
2.76
163,698
1.76
76,578
1.51
65,819
1.05
60,984
7.07
Value / SF
$110
$130
$130
$130
Extension (Rd.)
$18,010,000
$9,960,000
$8,560,000
$7,930,000
$44,460,000
Total Sales Revenue
The total sales revenue (aggregate retail value) of the subject components held by the ownership of
the master developer, derived in the prior section, is restated below and will serve as the revenue
component of the DCF.
Total Units
Component
Total Acres
108
80
50
71
76
54
158
74
24
31
Total - Residential Land Component
726
Station 1
2.77
Station 2
2.58
Station 3
2.31
Station 4
2.39
Station 5
1.43
Sub-Total - Station Land Component
11.48
Mixed-Use 1
2.76
Mixed-Use 2
1.76
Mixed-Use 3
1.51
Mixed-Use 4
1.05
Sub-Total - Mixed-Use Land Component
7.07
Total Aggregate Retail Value/Sales Revenue
Total Acres
FAR
Total SF
2.156
2.999
1.910
1.649
3.864
1.089
2.397
3.571
3.069
1.619
24.323
101,704
189,103
173,866
209,861
95,000
Value Per SF
Value Per FAR
Value per SF
$170
$170
$170
$170
$170
$170
$170
$170
$170
$170
120,138
76,491
65,819
45,564
$110
$130
$130
$130
$140
$140
$140
$140
$140
Aggregate
Retail Value (rd)
$
15,970,000
$
22,210,000
$
14,140,000
$
12,210,000
$
28,610,000
$
8,060,000
$
17,750,000
$
26,440,000
$
22,730,000
$
11,990,000
$ 180,110,000
$
14,240,000
$
26,470,000
$
24,340,000
$
29,380,000
$
13,300,000
$ 107,730,000
$
13,220,000
$
9,940,000
$
8,560,000
$
5,920,000
$
37,640,000
$ 325,480,000
108
Absorption Analysis
Absorption rates are best measured by looking at historic absorption rates for similar properties in
the region. In developing an appropriate absorption period for the disposition of the subject’s
components, we have considered historic absorption rates for similar properties and also attempted
to consider the impacts of present market conditions, as well as the anticipated changes in the
market. Real estate is cyclical in nature, and it is difficult to accurately forecast specific demand over
a projected absorption period. In light of this, when estimating absorption, it is important to give
significant weight to the past experience of parties marketing similar projects for sale.
In attempting to estimate the exposure time that would be required for the disposition of the
residential land component of the subject, both the historical exposure times and projected economic
conditions have been considered. For any master planned community it is common to segment the
product to allow it to appeal to the broadest spectrum of potential users (housing for rent and sale,
with both offering a wide range of price points). While there is a correlation between the sell-off of
the end product (roof tops) and the sell-off of the land components, the relationship may not be
readily apparent. Generally, the higher priced end products are expected to experience slower
absorption rates than the lower priced end products, which are driven by the size of the respective
buying pools. Thus, you could sell two land use components that will not compete with each other,
due to product and price point, at similar times in the development process without jeopardizing
absorption. A master developer’s goal, and the goal of any respective builder, would be to avoid
saturating the market with product. By the use of segmenting the range of product and diversifying
the type of product (both for-sale and for-rent), a development can maximize the return to the land
by hastening the disposition time necessary to sell off the land.
A number of assumptions are made in the discounted cash flow analysis, not the least of which is the
forecast of absorption, or disposition, of the various land use components comprising the subject
property. It is common for surveys of market participants to reveal different estimations of anticipated
absorption periods for the sell-off of multiple components comprising a master planned development,
with some developers preferring to hasten the holding period in favor of mitigating exposures to
fluctuations in market conditions; whereas, other developers prefer to manage the sell-off of the
property over an extended period of time so as to minimize direct competition of product within the
master planned project. Surveys suggest a forecasted disposition period for the subject property may be
as aggressive as two years or as long as five years
In light of the fact the subject’s land component, with the exception of Residential Unit 9.1, which is
intended for detached residential homes, comprises condominium style and townhouse style product
line that allows for both for-rent and for-sale product, the absorption (lease-up) or sell off to end
users will likely necessitate completion of construction of the vertical improvements. This, in and of
109
itself, will likely govern competition within the development. The developer released the first two
Residential Blocks (3.1 and 3.2) for sale and, according to the developer’s representative, received
ten offers to purchase the land. It is anticipated a controlled disposition of the residential land could
occur over a 30-month period, with the parcels proximate to the initial phase of the development
with offsite improvements in place transferring in the first period (six months).
In estimating the absorption time for the office component (Station parcels), consideration is given
to current and forecasted market conditions. As discussed earlier in this report, the office market in
the Bay Area continues to recover, with declines in vacancy rates over the past year. Brokers are
reporting very strong demand from technology companies, with Class A office product among the
lowest in terms of vacancy rates and the highest in terms of rental rates, all of which should bode
well for the subject property. With prominent office land transactions in the Peninsula occurring in
2010, if adequately exposed to the market, the subject property’s five office parcels could appeal to a
single, corporate user – similar to the Franklin Templeton campus in Phase I of the Bay Meadows
redevelopment. Nevertheless, should the office parcels be marketed for sale to developers or end
users, it is projected the parcels would transfer over the projected absorption period of (24 months).
In light of the demand for the residential component and the anticipated demand for the office
parcels, the four mixed use parcels will be developed with a mix of ground floor retail, mid-level
office and 234 additional residential units. The mixed-use parcels will provide for the greatest
concentration in retail use within the Bay Meadows Phase II project. As with the office market, the
retail market, too, has shown signs of strength and improvement over the past several quarters, with
vacancy rates below 5%. Based on the fact the retail space is situated on the ground floor of above
ground office and residential uses, development will likely be driven by the completion of the other
residential and office uses; thus, the mixed use parcels are estimated to sell off over the absorption
period beginning in Period 1. It’s worth noting the taxable portion of Block MU 1 (mixed-use) is
under contract for acquisition by a school (The Nueva School).
The master developer of the subject property has projected a disposition period of the various land use
components based on market conditions and subject to market demand and financing. Currently, the
anticipated schedule is for a four year holding period in order to manage the development within the
project. Based on the surveys of other developers of master planned communities, this forecast is
considered within market parameters. Based on an analysis of market conditions and market surveys
reported herein, a probable sell-off of the subject property over a 30-month period is also within market
parameters and reasonable in light of the unique and favorable market position the subject property
holds. In light of the condition of the subject property, as well as the interest in the first release of
developable Blocks within the District, a disposition (absorption) period of three years, or 36 months, is
considered reasonable.
110
Market conditions in the area have been stabilizing and are experiencing recovery in some segments
as discussed throughout this report. However, in light of global, national and regional
macroeconomic conditions, and the uncertainty of market conditions over the disposition periods,
which is forecasted to be 36 months (six periods), no appreciation/depreciation rate will be applied
to the revenue components in either analysis.
Expenses
General and Administrative
The general and administrative expense category covers the various administrative costs associated
with managing the overall development. This would include management, legal and accounting fees
and other professional services common to a development project. For purposes of this analysis, we
have estimated this expense at 3% of the total gross sale proceeds. This expense is spread evenly
over the entire sellout period.
Marketing and Sales
The costs associated with marketing, commissions and closing costs relative to the disposition of the
subject’s components are estimated at 5% of the total gross sale proceeds. Although this rate is
somewhat negotiable, it is consistent with current industry trends.
Ad Valorem Taxes
This appraisal is predicated on, and assumes, a sale of the appraised property. Interim ad valorem
real estate taxes are based on a tax rate of 1.1042%. This rate is applied to the estimated market
value (pro-rate share of the residential component) and divided by the total number of units for the
residential component to yield an estimate of ad valorem taxes/lot/year. This rate is applied to the
estimated market value (pro-rata share of the commercial component) and divided by the total
number of acres for the commercial component to yield an estimate of ad valorem taxes/acre/year.
The taxes for each component will be shown as separate line items. The total tax expense is
gradually reduced over the absorption period, as the land components are sold off. Property taxes are
increased by 2% per year.
Special Assessments (Bonds)
The subject property is situated within the boundaries of a Community Facilities District identified
as CFD No. 2008-1 (Bay Meadows), with the following proposed special tax obligations. These
figures were provided by the Amended and Restated Rate and Method of Apportionment, which was
approved on November 21, 2011. On each July 1, commencing on July 1, 2012, the maximum
special tax identified in the table on the following page will be increased by 2% of the amount in
111
effect for the previous fiscal year. Interest on the first series of Bonds through September 1, 2013
was funded from Bond proceeds of the first issuance and the owners of undeveloped property are not
expected to have to pay a special tax on the first series of Bonds until December 10, 2013, which
coincides with Period 2 of the cash flow model. Similarly, interest on the second series of Bonds
through September 1, 2014 is being funded from Bond proceeds of the second issuance and the
owners of undeveloped property are not expected to have to pay a special tax on the second series of
Bonds until December 10, 2014, which coincides with Period 4 of the cash flow model.
As parcels are sold off by the master developer, the Special Tax obligation will be assumed by the
buyer and, ultimately, each end user, whether it is residential units or commercial tenants. The
purpose of this analysis is to estimate the market value of the underlying land, which serves as the
collateral to the Bond issuance. As components of the subject property are sold off in this analysis,
the balance of the Special Tax obligations necessary to service the debt associated with the City of
San Mateo CFD No. 2008-1 (Bay Meadows) Bond issuance are presumed to be collected from the
new owners (buyers of the various land parcels) in the District.
As detailed in the Property Identification and Legal Data section presented earlier in this report,
Special Taxes for the subject property’s undeveloped parcels, which is the condition of the property
as of the date of value, is based on the Back-Up Special Tax rate reported in the Rate and Method of
Apportionment. The maximum annual Back-Up Special Tax is $124,695 per acre; however, this
amount is calculated based on the total amount of Bond proceeds authorized ($84 million).
According to the special tax consultant, David Taussig and Associates, Inc., the CFD is forecasted to
levy special taxes based on the following schedule:
Tax Year
2013/2014 2014/2015 2015/2016
Forecasted Special Tax Requirement $1,855,294 $3,173,887 $3,384,312
Taxable Acres
49.978
49.978
49.978
Special Tax Levy per Acre
$37,122
$63,506
$67,716
The allocation of the total levy allocated to the land held by the master developer will be done on a
per taxable acre basis, based on 49.978 net acres. As parcels are sold off, the tax obligation is
transferred from the master developer to the buyer, which will be reflected in the cash flow analysis.
Remaining Infrastructure Development Costs
According to the Developer, the property owner has spent $93,203,361 on the proposed development
to date, including cost for the Site Plan and Architectural Review (SPAR) process. Total remaining
112
infrastructure costs for Bay Meadows Phase II is reportedly $11.7 million, which is forecasted to be
incurred over the holding period. The second bond issuance associated with the City of San Mateo
CFD No. 2008-1 (Bay Meadows) is scheduled to reimburse the developer for additional
infrastructure improvements that have been completed. The developer estimates it will spend an
additional $42.9 million to complete its development plan, including $11.7 million of public
infrastructure costs. The market value conclusion considers only the improvements in place as of the
date of value, and the remaining costs to complete the public infrastructure for Bay Meadows Phase
II is deducted in the discounted cash flow. These costs are spread evenly during the first two periods
of the cash flow.
Discount Rate
The project yield rate is the rate of return on the total un-leveraged investment in a development,
including both equity and debt. The leveraged yield rate is the rate of return to the “base” equity
position when a portion of the development is financed. The “base” equity position represents the
total equity contribution. The developer/builder may have funded all of the equity contribution, or a
consortium of investors/builders as in a joint venture may fund it. Most surveys indicate that the
threshold project yield requirement is about 20% to 30% for production home type projects.
Instances in which project yields may be less than 20% often involve profit participation
arrangements in master planned communities where the master developer limits the number of
competing tracts.
According to a leading publication within the appraisal industry, the Korpacz Real Estate Investor
Survey11, discount rates for land development projects ranged from 15.00% to 30.00%, with an
average of 20.42% during the Second Quarter 2012. This rate is down 58 basis points from the
Second Quarter of 2011, but up 17 basis points from the Fourth Quarter 2011 (land survey
completed every six months). These rates are free-and-clear of financing, are inclusive of
developer’s profit, and assume entitlements are in place. Without entitlements in place, the Korpacz
survey indicates certain investors increase the discount rate between 300 and 1,500 basis points (an
average increase of 833 basis points).
According to the data presented in the survey prepared by Korpacz, the majority of those
respondents who use the discounted cash flow (DCF) method do so free and clear of financing.
Additionally, the participants reflect a preference in including the developer’s profit in the discount
rate, versus a separate line item for this factor. As such, the range of rates presented above is
inclusive of the developer’s profit projection.
The discount rates are based on a survey that includes residential, office, retail and industrial
developments. Participants in the survey indicate the highest expected returns are on large-scale,
11
Korpacz Real Estate Investor Survey, PricewaterhouseCoopers, 2nd Quarter 2012, Volume 24, Number 2.
113
unapproved developments. The low end of the range was extracted from projects where certain
development risks had been lessened or eliminated. Several respondents indicate they expect slightly
lower returns when approvals/entitlements are already in place.
Excerpts from recent Korpacz surveys are copied below.

The construction pipeline has started to slowly flow again for both residential and
nonresidential projects as the U.S. economy continues its unhurried recovery… In the
residential sector, year-over-year construction spending rose 7.5% with new multifamily
private construction spending surging 31.4%. Just a year ago, spending in this category was
down 7.6%. As demand for multifamily housing has accelerated, many development land
investors are racing to meet pent-up demand. While some are working off of existing
inventory, others are searching for land opportunities in what 100.0% of surveyed investors
view as a "buyers' market…” On the commercial side, development land opportunities
remain challenged since excess supply exists in most sectors, such as office and retail.
However, land investors continue to have "long-term optimism," focusing on the continued
recovery of the commercial real estate industry. "The best strategies and opportunities
continue to be in acquiring existing projects, so we'll be on the sidelines for a while," shares a
development land investor. Also limiting acquisitions for development land investors is an
inability to secure financing… Over the next 12 months, all investor participants except one
expect development land values to increase. (Second Quarter 2012)

While some investors in the national development land market believe that investment
activity has picked up greatly compared to a year ago, it seems to be occurring at the expense
of those with shallow pockets… Overall, this sector of the industry remains a "tough
market," especially for "middle players" who have less access to capital. One interviewee
stated "There are plenty of opportunities to buy lots, but cash is the key element for such
deals.” (Fourth Quarter 2011)

Although such harsh market conditions can usually create buying opportunities for
development land investors who wish to add raw land to their inventories, a choppy recovery
is deterring such purchases. (Second Quarter 2011)
Information for a developing in-house database of project yield rates is presented in the table on the
following page.
114
Data
Yield / IRR Expectations
Source
(Inclusive of Profit)
PwC Real Estate Investor Survey Range of 15.0% to 30.0%, with an average of 20.42%, inclusive of profit and
Second Quarter 2012 (updated every other quarter) assuming entitlements in place, for land development (national average)
RealtyRates.com - Fourth Quarter 2011
Chris Downey - Hon Development
Gary Gorian - Dale Poe Development
David Pitts - Newhall Land and Farming
Mark Palkowitsh - MSP California, LLC
Rick Nieman - GFC
Lin Stinson - Providence Realty Group
Dan Boyd - ESE Land Company
Tulare Windmill Ventures, LLC
David Jacobsen - Ridgecrest Homes
Mike Grant - Premier Homes
Anonymous source - Lennar
Lyle McCullogh - California Pacific Homes
Roy Robertson - Ekotec
Gordon MacKenzie - Brookfield Development
Range of 17.67% to 38.48%, with an average of 26.95%, for subdivisions and PUDs
in the California/Pacific region
Minimum IRR of 20-25%; for an 8 to 10 year cash flow, mid to upper 20% range
25% IRR for land development is typical (no entitlements); slightly higher for
properties with significant infrastructure costs
20% to 30% IRR for land development deals on an unleveraged basis
35% for large land deals from raw unentitled to tentative map stage, unleveraged or
leveraged. 25% to 30% from tentative map to pad sales to merchant builders,
unleveraged
18% to 22% for land with some entitlements, unleveraged. 30% for raw unentitled
Low 20% range yield rate required to attract capital to longer-term land holdings
Merchant builder yield requirements in the 20% range for traditionally financed tract
developments. Larger land holdings would require 25% to 30%. Environmentally
challenged or politically risky development could well run in excess of 35%.
10% discount rate excluding profit for single-family subdivisions
10% to 40% for single-family residential subdivisions with 1-2 year development
timelines
15% to 20% IRR
As low as the low 20% range in the absence of price trending
No less than 20% IRR for land development, either entitled or unentitled
20% to 30% for an unentitled property; the lower end of the range would reflect
those properties close to tentative maps
No less than 30% when typical entitlement risk exists
It is noted that the preceding survey related to production home developments at the land stage, and
reflect the expectations of market participants in the residential sector.
Positive attributes of the subject property include:





Well balanced community with proximity to supporting commercial and community uses
High median-income market area
Approved entitlements
Initial signs of price increases and strengthening absorption
Limited new home project competition in the area
As reflected by the developer survey, developers typically have IRR expectations of 10% to 30% for
residential projects under stabilized market conditions. The subject is fully entitled and has received
significant interest from the builder community for the developable residential parcels within the
project, with two Blocks recently acquired by merchant builders. Given the subject property is on
track for development in the near term, coupled with the existing entitlements and SPAR approval
for vertical construction, as well as its prime location in San Mateo, an IRR of 15% is considered
reasonable for the subject under current market conditions given the duration of the absorption
period (36 months). This discount rate, inclusive of developer’s incentive (profit), reflects the
subject’s characterization as one of the preeminent infill developments in California.
115
Conclusion
The table on the following page incorporates the preceding factors in estimating the market value (in
bulk) of the subject property. The discounted cash flow analysis is calculated on a semiannual basis,
with the components selling out over a 36-month period. The property tax calculation and discount
rate have been adjusted to a semiannual basis as well.
116
117
$
$
Net Present Value
233,704,480
60,933,343
0.93023
$
65,503,343 $
(12,676,657) $
110,140,000 $
$
$
$
$
$
$
$
$
82,671,442
0.86533
$
95,537,186 $
(14,602,814) $
(1,627,400)
(5,507,000)
(511,395)
(490,582)
(323,359)
(293,078)
(5,850,000)
-
110,140,000 $
$
$
$
$
$
$
$
$
35,574,173
0.80496
*Special taxes are not included as an expense for Period 1, as interest is capitalized until September 2013
$
44,193,684 $
(5,046,316) $
(1,627,400)
(2,462,000)
(359,117)
(236,602)
(222,620)
(138,576)
-
49,240,000 $
$
$
$
$
$
$
$
$
16,337,205
0.74880
$
21,817,833 $
(3,692,167) $
(1,627,400)
(1,275,500)
(284,886)
(101,029)
(302,123)
(101,229)
-
25,510,000 $
25,510,000 $
4
71
213
1.43
0.00
0.00
1.76
Aggregate
Retail Value (rd)
$
15,970,000
$
22,210,000
$
14,140,000
$
12,210,000
$
28,610,000
$
8,060,000
$
17,750,000
$
26,440,000
$
22,730,000
$
11,990,000
$ 180,110,000
$
14,240,000
$
26,470,000
$
24,340,000
$
29,380,000
$
13,300,000
$ 107,730,000
$
13,220,000
$
9,940,000
$
8,560,000
$
5,920,000
$
37,640,000
$ 325,480,000
49,240,000 $
3
74
284
2.77
1.43
1.51
1.76
$110
$130
$130
$130
120,138
76,491
65,819
45,564
2
162
358
7.28
4.20
1.05
3.27
$140
$140
$140
$140
$140
Value Per SF
Value Per FAR
Value per SF
$170
$170
$170
$170
$170
$170
$170
$170
$170
$170
Total Acres
FAR
Total SF
2.156
2.999
1.910
1.649
3.864
1.089
2.397
3.571
3.069
1.619
24.323
101,704
189,103
173,866
209,861
95,000
CONCLUSION OF VALUE BY DISCOUNTED CASH FLOW ANALYSIS (RD)
$
Discounted Cash Flow
Present Value Factor
$
Total Expenses
NET INCOME
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Expenses
General and Administrative
Marketing and Sales
Real Estate Taxes (Residential)
Real Estate Taxes (Non-Residential)
Special Taxes (Residential)
Special Taxes (Non-Residential)
Remaining Offsite Infrastructure
Remaining Offsite Fees
(1,627,400)
(3,909,000)
(713,986)
(576,271)
(5,850,000)
-
78,180,000 $
78,180,000 $
$
$
1
206
520
0.00
11.48
2.76
4.31
Total Units
Total Acres
108
80
50
71
76
54
158
74
24
31
726
2.77
2.58
2.31
2.39
1.43
11.48
2.76
1.76
1.51
1.05
7.07
Total Sales Revenue
Total Revenue
Period (One Period = 6 Months)
Sales (Residential Units):
Inventory (Residential Units):
Sales (Station Acres):
Inventory (Station Acres):
Sales (Mixed-Use Acres):
Inventory (Mixed-Use Acres):
Income and Expense Analysis:
Component
Total - Residential Land Component
Station 1
Station 2
Station 3
Station 4
Station 5
Sub-Total - Station Land Component
Mixed-Use 1
Mixed-Use 2
Mixed-Use 3
Mixed-Use 4
Sub-Total - Mixed-Use Land Component
Total Aggregate Retail Value/Sales Revenue
Assumptions:
$
$
$
$
$
$
$
$
33,199,412
0.69656
$
47,662,050 $
(4,807,950) $
(1,627,400)
(2,623,500)
(217,938)
(56,762)
(226,592)
(55,758)
-
52,470,000 $
4,988,904
0.64796
7,699,384
(2,240,616)
(1,627,400)
(497,000)
(56,762)
(59,455)
-
9,940,000
9,940,000
1.76
0.00
1.76
52,470,000 $
6
5
213
0
DISCOUNT RATE (IRR)
15%
REMAINING OFFSITE COSTS
$11,700,000
HOLDING COSTS AND GENERAL EXPENSES
General and Administrative (% sales)
Marketing and Sales
Annual increase in Property Tax
First year annual taxes per Residential Unit:
First year annual taxes per Non-Residential Acre:
Annual Backup Special Taxes per Non-Residential Acre (2013/2014)
Annual Backup Special Taxes per Residential Unit (2013/2014)
233,704,480
282,413,480
(43,066,520)
(9,764,400)
(16,274,000)
(2,087,322)
(1,518,007)
(1,074,695)
(648,096)
(11,700,000)
-
325,480,000
325,480,000
$ 233,700,000
$
$
$
$
$
$
$
$
$
$
$
$
$
7.07
11.48
Total
726
3.0%
5.0%
2.0%
$1,967
$62,138
$37,122
$63,506
$67,716
$1,244
$2,128
$2,269
SUMMARY AND CONCLUSION
The purpose of this appraisal has been to estimate the market value (fee simple estate) of the property
comprising the taxable land areas situated within the boundaries of City of San Mateo CFD No.
2008-1 (Bay Meadows), located at the southern terminus of South Delaware Street, north of
Hillsdale Boulevard and west of Saratoga Drive, within the city of San Mateo, San Mateo County,
California. The CFD No. 2008-1 (Bay Meadows) Bond issuance is scheduled to reimburse the
developer for construction of certain portions of the public improvements required for the
development of 49.978± developable acres proposed for the development of five mid-rise office
buildings (Station Component); four mid-rise, mixed-use residential/retail/office buildings (MixedUse Component); nine parcels designated for attached, for-rent and for-sale residential buildings and
one parcel designated for a combination of attached and detached residential homes (Residential
Component). The remaining 33.40 acres of Bay Meadows II are dedicated to parks, right away and
one acre dedicated to the City for approximately 50 – 68 below-market rate (BMR) residential units
on Mixed Use Block 1, which will be exempt from the Lien of the Special Tax securing the Bonds.
The effective date of value is November 15, 2012. As a result of our analysis, it is our opinion the
market values, by ownership, of the appraised property, subject to the Lien of the Special Tax
securing the City of San Mateo CFD No. 2008-1 (Bay Meadows) Bonds, in accordance with the
definitions, certifications, assumptions, hypothetical conditions and significant factors set forth on
pages 10 through 12, is …
Taxable Land
Area (Ac.)
Value
RES 1, 2, 3.1b, 4, 5, 6, 7,
8, 9; MU 1, 2, 3, 4; STA
1, 2, 3, 4 and 5
42.87
$233,700,000
RES 3.1a
1.82
$13,480,000
RES 3.2
3.04
$22,510,000
Owner
Block(s)
$269,690,000
The value estimates assume a transfer that reflects a cash transaction or terms considered to be
equivalent to cash. The estimates are also premised on an assumed sale after reasonable exposure in
a competitive market under all conditions requisite to a fair sale, with buyer and seller each acting
prudently, knowledgeably, for their own self interest and assuming neither is under duress.
118

Self-Contained Appraisal Report

Transcription

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