Old Farm Shops Real Estate Appraisal

TABLE OF CONTENTS

Introduction 2

Discussion of Analysis 2

Direct Capitalization Method 3

Debt Coverage Method 3

Discounted Cash Flow Method 4

Reconciliation of Value Estimates 5

Summary of Major Findings 6

Appendix

Sources 7

Data/Spreadsheet Output A-H

Introduction

The purpose of this report is to appraise the market value of the Old Farm Shopping Center located on the southeast corner of Kirby Avenue and Mattis Avenue at 1701-1765 West Kirby Avenue in Champaign, Champaign County, Illinois. The 46,260 SF shopping center was built in 1986 and received renovations in 1990 and 1999; adding 1,520 and 4,646 SF respectively. The subject consists of twenty-six shops and one outlot. The tenant spaces vary in size from 1,200 SF to 4,600 SF, to meet the individual needs of each lessee. It should also be noted that while a National City Bank is in close proximity to the shopping center, it is not part of the subject. The shopping center has numerous parking spaces for customers and employee parking is available behind the building.

Because the experienced appraiser (familiar with the subject's market) has no knowledge of any local institutional purchasing activity, this appraisal will be conducted under the assumption that the marginal investor is non-institutional.

Discussion of Analysis

The use of the income approach to valuation is justified here because the subject property is an income producing property with no comparable sales from which to base a complete and sound analysis. This approach gives us a market value of the property as of January 1, 2007 as it is based on the present value of the projected future cash flows produced by the subject property.

Specifically, we used the direct capitalization method, the debt coverage method, and the discounted cash flow method with a minimum of simplifying assumptions to arrive at our estimates of market value. The respective values are then weighted as per the judgment of the appraiser in order to arrive at a final reconciled point estimate of market value.

All relevant assumptions are explicitly stated and all calculations are shown in the Appendix where applicable.

Direct Capitalization

The direct capitalization method is an empirical method based on the prevailing capitalization rates in the subject's market. We analyzed the cap rates of comparable properties and found the overall rate as follows. The sale of the comparables took place in 2003, 2004, and 2005 with cap rates of 7.31%, 8.30%, and 8.98%, respectively. We concluded the comparable sales data was indicative of a rising capitalization rate environment in the subject's market.

According to the Korpacz Report, similar properties owned by non-institutional investors have a national average of 9.04%. Comparing the local market analysis to the data presented in the Korpacz report, we arrived at our decision to assign the greatest weights to the most recent sales as follows:

OAR= (0.25)(7.31%)+(0.35)(8.30%)+(0.40)(8.98%)

OAR= 8.3245%

Based on our projection of first year NOI , we conclude that the value of the property as determined by the Direct Capitalization Method is $8,843,680. While this method is very simple to use and is typically consistent with investor behavior, it must be noted that it is a highly simplified model which additionally relies heavily on the judgment of the appraiser in determining an appropriate Overall Rate.

Debt Coverage Ratio (Gettel) Method

The debt coverage ratio method is a definitional method, which uses the formula below to predict the value of the building.

Value= (NOI)/(M*(DCR)f'')

This method is very simple to use, but does not take into account equity investor requirements or restraints. Additionally, the debt coverage method is not based on the discounted cash flow produced by the building making it inconsistent with the basis for the income approach in general.

Based on our assumed DCR of 1.40, our projection of year 1 NOI and our calculation of the relevant financing variables, we concluded that the value of the subject based on the DCR Method is $7,906,447.

Discounted Cash Flow Method

The most inclusive model, the DCF method for valuation explicitly takes into account the projected future cash flows produced by the subject property in addition to the sales considerations at the end of the six-year holding period.

In deriving this model, a minimum of simplifying assumptions were made. These are as follows:

o The holding period of the investor is 6 years (Effective 01/07)

o The investor requires an 11% rate of return (Discount Rate)

o Loan is fixed rate;

o LTV = 0.75

o Interest Rate (fixed) = 7.50%

o Fully amortized over 25 years

o 7 year balloon payment (maturity)

o Discount pts = 1

o Relevant prepayment penalty = 0.50%

o Expected property appreciation = 2% per year compounded annually

o A broker will be used to sell the property at the end of the holding period; expected commission = 4%

o Leasing commissions are equal to 3% of the total amount of rent for the first term of