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Integra Realty Resources DFW

Appraisal of Real Property

Medical Office ‐ Lewisville, TX Medical Office Property 1175 Diane Circle Lewisville, Denton County, Texas 75067

Prepared For: Mr. Calvin Simmons

Effective Date of the Appraisal: February 9, 2018

Report Format: Appraisal Report – Comprehensive Format

IRR ‐ DFW File Number: 191‐2018‐0050

Medical Office ‐ Lewisville, TX 1175 Diane Circle Lewisville, Texas

Integra Realty Resources 1100 Mira Vista Boulevard T 972.732.0051 DFW Suite 300 F 972.733.1403 Plano, TX, 75093 www.irr.com

February 19, 2018 Mr. Calvin Simmons 1175 Diane Circle Lewisville, TX 75067 SUBJECT: Market Value Appraisal Medical Office ‐ Lewisville, TX 1175 Diane Circle Lewisville, Denton County, Texas 75067 IRR ‐ DFW File No. 191‐2018‐0050 Dear Mr. Simmons:

Integra Realty Resources – DFW is pleased to submit the accompanying appraisal of the referenced property. The purpose of the appraisal is to develop an opinion of the market value of the fee simple interest in the property. The client for the assignment is Mr. Calvin Simmons, and the intended use is for internal decision making.

The subject is an existing medical office property containing 10,428 square feet of gross leasable area. The improvements were constructed in 1985 and are 100% leased as of the effective appraisal date. The site area is 0.584 acres or 25,448 square feet.

The appraisal is intended to conform with the Uniform Standards of Professional Appraisal Practice (USPAP), the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute, applicable state appraisal regulations, and the appraisal guidelines of Mr. Calvin Simmons. The appraisal is also prepared in accordance with the appraisal regulations issued in connection with the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).

Mr. Calvin Simmons February 19, 2018 Page 2

To report the assignment results, we use the Appraisal Report option of Standards Rule 2‐2(a) of USPAP. As USPAP gives appraisers the flexibility to vary the level of information in an Appraisal Report depending on the intended use and intended users of the appraisal, we adhere to the Integra Realty Resources internal standards for an Appraisal Report – Comprehensive Format. This format contains the greatest depth and detail of IRR’s available report types.

Based on the valuation analysis in the accompanying report, and subject to the definitions, assumptions, and limiting conditions expressed in the report, our opinion of value is as follows:

Value Conclusion

Appraisal Premise Interest Appraised Date of Value Value Conclusion

Market Value Fee Simple February 9, 2018 $1,700,000

Extraordinary Assumptions and Hypothetical Conditions

1. The subject's existing lease agreement indicates a net rentable area of 7,000 square feet. However, the

Denton Central Appraisal District shows a building size of 10,428 square feet which includes a second floor

that was added in the early 1990's. We have relied upon the figure shown in the Denton Central Appraisal

District's tax records in our appraisal analysis contained herein. If this information is found to be inaccurate,

our assignment results might be affected.

1. The subject is 100% leased to a single‐tenant as of the effective appraisal date. It is our understanding that

the tenant is interested in the purchasing the property. Thus, we have provided a fee simple market value

opinion of the subject.

The value conclusions are based on the following hypothetical conditions that may affect the assignment results.

A hypothetical condition is a condition contrary to known fact on the effective date of the appraisal but is

supposed for the purpose of analysis.

The value conclusions are subject to the following extraordinary assumptions that may affect the assignment

results. An extraordinary assumption is uncertain information accepted as fact. If the assumption is found to be

false as of the effective date of the appraisal, we reserve the right to modify our value conclusions.

The opinions of value expressed in this report are based on estimates and forecasts that are prospective in nature and subject to considerable risk and uncertainty. Events may occur that could cause the performance of the property to differ materially from our estimates, such as changes in the economy, interest rates, capitalization rates, financial strength of tenants, and behavior of investors, lenders, and consumers. Additionally, our opinions and forecasts are based partly on data obtained from interviews and third party sources, which are not always completely reliable. Although we are of the opinion that our findings are reasonable based on available evidence, we are not responsible for the effects of future occurrences that cannot reasonably be foreseen at this time.

Mr. Calvin Simmons February 19, 2018 Page 3

If you have any questions or comments, please contact the undersigned. Thank you for the opportunity to be of service.

Respectfully submitted,

Integra Realty Resources ‐ DFW

Stephen M. Lechtenberg Senior Director Certified General Real Estate Appraiser Texas Certificate # TX 1380354 G Telephone: (972) 725‐7727 Email: [email protected]

Jimmy H. Jackson, MAI Senior Managing Director Certified General Real Estate Appraiser Texas Certificate # TX 1324004 G Telephone: (972) 725‐7724 Email: [email protected]

Table of Contents

Medical Office ‐ Lewisville, TX

Summary of Salient Facts and Conclusions 1

General Information 3 Identification of Subject 3 Sale History 3 Pending Transactions 3 Purpose of the Appraisal 3 Definition of Market Value 3 Definition of As Is Market Value 4 Definition of Property Rights Appraised 4 Intended Use and User 4 Applicable Requirements 4 Report Format 5 Prior Services 5 Scope of Work 5

Economic Analysis 7 Dallas MSA Area Analysis 7

Economic Analysis 14 Denton County Area Analysis 14 Surrounding Area 21 Office Market Analysis 29

Property Analysis 35 Land Description and Analysis 35 Improvements Description and Analysis 42 Real Estate Taxes 49 Highest and Best Use 50

Valuation 52 Valuation Methodology 52 Sales Comparison Approach 53

Adjustment Factors 57 Analysis and Adjustment of Sales 58 Value Indication 60

Income Capitalization Approach 61 Leased Status of Property 61 Market Rent Analysis 62

Stabilized Income and Expenses 69 Capitalization Rate Selection 71 Direct Capitalization Analysis 74

Reconciliation and Conclusion of Value 75 Final Opinion of Value 76 Exposure Time 76 Marketing Time 77

Certification 78

Assumptions and Limiting Conditions 80

Addenda A. Appraiser Qualifications B. Definitions C. Property Information D. Comparable Data

Improved Sales Lease Comparables

E. Engagement Letter



Summary of Salient Facts and Conclusions

Part One

Property Name

Address

Property Type

Owner of Record

Tax ID

Legal Description

Land Area 0.584 acres; 25,448 SF

Gross Building Area 10,428 SF

Gross Leasable Area 10,428 SF

Percent Leased 100%

Year Built 1985

Zoning Designation

Highest and Best Use ‐ As i f Vacant

Highest and Best Use ‐ As Improved

Exposure Time; Marketing Period 6 months; 6 months

Effective Date of the Appraisal February 9, 2018

Date of the Report February 19, 2018

Property Interest Appraised

Market Value Indications

Cost Approach Not Used

Sales Comparison Approach $1,690,000 ($162.06/SF)

Income Capitalization Approach $1,700,000 ($163.02/SF)

Market Value Conclusion $1,700,000 ($163.02/SF)

Aesculapian Enterprises

121466

Lot 1, Block A, Family Medical Association Addition, City of

Lewisvil le, Denton County, Texas


1175 Diane Circle

Lewisvil le, Denton County, Texas 75067

Medical Office ‐ Medical Office

The values reported above are subject to the definitions, assumptions, and limiting conditions set forth in the accompanying report of which this

summary is a part. No party other than Mr. Calvin Simmons may use or rely on the information, opinions, and conclusions contained in the

report. It is assumed that the users of the report have read the entire report, including all of the definitions, assumptions, and limiting

conditions contained therein.

LC, Local Commercial

Office use

Fee Simple

Continued medical office use


















Part Two

Number of Tenants 1

Average Contract Rent/SF $15.54

Average Market Rent/SF $14.00

Land Value Not Used


Sales Comparison Approach

Number of Sales 5

Range of Sale Dates Jan‐16 to Dec‐16

Range of Unit Prices $145.72 ‐ $224.25

Indicated Value $1,690,000 ($162.06/SF)

Income Capitalization Approach

Potential Gross Income $162,000 ($15.54/SF)

Stabilized % Vacancy & Collection Loss 10.0%

Effective Gross Income $145,800 ($13.98/SF)

Operating Expenses $5,214 ($0.50/SF)

Operating Expense Ratio 0.0%

Net Operating Income $140,586 ($13.48/SF)

Capitalization Rate Applied and Value 8.25% $1,700,000

Indicated Value $1,700,000 ($163.02/SF)

Market Value Conclusion $1,700,000 ($163.02/SF)

General Information 3


General Information

Identification of Subject The subject is an existing medical office property containing 10,428 square feet of gross leasable area. The improvements were constructed in 1985 and are 100% leased as of the effective appraisal date. The site area is 0.584 acres or 25,448 square feet.

Property Identification

Property Name Medical Office ‐ Lewisville, TX

Address 1175 Diane Circle

Lewisville, Texas 75067

Tax ID 121466

Owner of Record Aesculapian Enterprises

Legal Description Lot 1, Block A, Family Medical Association Addition, City of Lewisville, Denton County, Texas

Source: Denton Central Appraisal District

Sale History To the best of our knowledge, no sale or transfer of ownership has taken place within a three‐year period prior to the effective appraisal date.

Pending Transactions To the best of our knowledge, the property is not subject to an agreement of sale or an option to buy, nor is it listed for sale, as of the effective appraisal date.

Purpose of the Appraisal The purpose of the appraisal is to develop an opinion of the market value of the fee simple interest in the property as of the effective date of the appraisal, February 9, 2018. The date of the report is February 19, 2018. The appraisal is valid only as of the stated effective date or dates.

Definition of Market Value Market value is defined as:

“The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

Buyer and seller are typically motivated;

Both parties are well informed or well advised, and acting in what they consider their own best interests;



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

Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and

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.”

(Source: Code of Federal Regulations, Title 12, Chapter I, Part 34.42[g]; also Interagency Appraisal and Evaluation Guidelines, Federal Register, 75 FR 77449, December 10, 2010, page 77472)

Definition of As Is Market Value As is market value is defined as, “The estimate of the market value of real property in its current physical condition, use, and zoning as of the appraisal date.” (Source: Appraisal Institute, The Dictionary of Real Estate Appraisal, 6th ed. (Chicago: Appraisal Institute, 2015); also Interagency Appraisal and Evaluation Guidelines, Federal Register, 75 FR 77449, December 10, 2010, page 77471)

Definition of Property Rights Appraised Fee simple estate is defined as, “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.”

Leased fee interest is defined as, “The ownership interest held by the lessor, which includes the right to receive the contract rent specified in the lease plus the reversionary rights when the lease expires.”

Leasehold interest is defined as, “The right held by the lessee to use and occupy real estate for a stated term and under the conditions specified in the lease.”

Lease is defined as: “A contract in which rights to use and occupy land, space, or structures are transferred by the owner to another for a specified period of time in return for a specified rent.”

Source: Appraisal Institute, The Dictionary of Real Estate Appraisal, 6th ed. (Chicago: Appraisal Institute, 2015)

Intended Use and User The intended use of the appraisal is for internal decision making. The client and intended user is Mr. Calvin Simmons. The appraisal is not intended for any other use or user. No party or parties other than Mr. Calvin Simmons may use or rely on the information, opinions, and conclusions contained in this report.

Applicable Requirements This appraisal is intended to conform to the requirements of the following:

Uniform Standards of Professional Appraisal Practice (USPAP);



Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute;

Applicable state appraisal regulations;

Appraisal requirements of Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), revised June 7, 1994;

Interagency Appraisal and Evaluation Guidelines issued December 10, 2010;

Appraisal guidelines of Mr. Calvin Simmons.

Report Format This report is prepared under the Appraisal Report option of Standards Rule 2‐2(a) of USPAP. As USPAP gives appraisers the flexibility to vary the level of information in an Appraisal Report depending on the intended use and intended users of the appraisal, we adhere to the Integra Realty Resources internal standards for an Appraisal Report – Comprehensive Format. This format contains the greatest depth and detail of IRR’s available report types.

Prior Services USPAP requires appraisers to disclose to the client any other services they have provided in connection with the subject property in the prior three years, including valuation, consulting, property management, brokerage, or any other services. We have not performed any services, as an appraiser or in any other capacity, regarding the property that is the subject of this report within the three‐year period immediately preceding acceptance of this assignment.

Scope of Work To determine the appropriate scope of work for the assignment, we considered the intended use of the appraisal, the needs of the user, the complexity of the property, and other pertinent factors. Our concluded scope of work is described below.

Valuation Methodology

Appraisers usually consider the use of three approaches to value when developing a market value opinion for real property. These are the cost approach, sales comparison approach, and income capitalization approach. Use of the approaches in this assignment is summarized as follows:

Approaches to Value

Approach Applicabil ity to Subject Use in Assignment

Cost Approach Not Applicable Not Util ized

Sales Comparison Approach Applicable Util ized

Income Capitalization Approach Applicable Util ized



The income capitalization approach is the most reliable valuation method for the subject due to the following:

The probable buyer of the subject would base a purchase price decision primarily on the income generating potential of the property and an anticipated rate of return.

Sufficient market data regarding income, expenses, and rates of return, is available for analysis.

The sales comparison approach is an applicable valuation method because:

There is an active market for similar properties, and sufficient sales data is available for analysis.

This approach directly considers the prices of alternative properties having similar utility.

The cost approach is not applicable to the assignment considering the following:

The age of the property would limit the reliability of an accrued depreciation estimate.

There are limited land transactions in the market area of the subject, making estimates of underlying land value subjective.

This approach is not typically used by market participants, except for new or nearly new properties.

Research and Analysis

The type and extent of our research and analysis is detailed in individual sections of the report. This includes the steps we took to verify comparable sales, which are disclosed in the comparable sale profile sheets in the addenda to the report. Although we make an effort to confirm the arms‐length nature of each sale with a party to the transaction, it is sometimes necessary to rely on secondary verification from sources deemed reliable.

Inspection

Stephen M. Lechtenberg conducted an interior and exterior inspection of the property on February 9, 2018. Jimmy H. Jackson, MAI did not conduct a physical inspection of the subject property.

Significant Appraisal Assistance

It is acknowledged that Parker G. Ash, Appraiser Trainee, TX‐1341386 made a significant professional contribution to this appraisal, consisting of performing appraisal analyses, and assisting in report writing, under the supervision of the persons signing the report.

Dallas MSA Area Analysis 7


Economic Analysis

Dallas MSA Area Analysis The subject is located in the Dallas‐Fort Worth‐Arlington, TX Metropolitan Statistical Area, hereinafter called the Dallas MSA, as defined by the U.S. Office of Management and Budget. The Dallas MSA is 9,278 square miles in size, and is the fourth most populous metropolitan area in the nation.

Population

The Dallas MSA has an estimated 2017 population of 7,295,086, which represents an average annual 1.8% increase over the 2010 census of 6,426,214. The Dallas MSA added an average of 124,125 residents per year over the 2010‐2017 period, and its annual growth rate exceeded the State of Texas rate of 1.6%.

Looking forward, the Dallas MSA's population is projected to increase at a 1.6% annual rate from 2017‐2022, equivalent to the addition of an average of 117,611 residents per year. The Dallas MSA's growth rate is expected to exceed that of Texas, which is projected to be 1.4%.

Employment

Total employment in the Dallas MSA is currently estimated at 3,441,095 jobs. Between year‐end 2006 and the present, employment rose by 550,472 jobs, equivalent to a 19.0% increase over the entire period. There were gains in employment in eight out of the past ten years despite the national economic downturn and slow recovery. The Dallas MSA's rate of employment growth over the last decade surpassed that of Texas, which experienced an increase in employment of 17.9% or 1,813,905 jobs over this period.

A comparison of unemployment rates is another way of gauging an area’s economic health. Over the past decade, the Dallas MSA unemployment rate has been slightly lower than that of Texas, with an average unemployment rate of 5.7% in comparison to a 5.9% rate for Texas. A lower unemployment rate is a positive indicator.

Recent data shows that the Dallas MSA unemployment rate is 3.8% in comparison to a 4.5% rate for Texas, a positive sign that is consistent with the fact that the Dallas MSA has outperformed Texas in the rate of job growth over the past two years.

Population Compound Ann. % Chng

2010 Census 2017 Estimate 2022 Projection 2010 ‐ 2017 2017 ‐ 2022

Dallas‐Fort Worth‐Arlington, T6,426,214 7,295,086 7,883,140 1.8% 1.6%

Texas 25,145,561 28,172,387 30,273,125 1.6% 1.4%

USA 308,745,538 325,139,271 337,393,057 0.7% 0.7%

Source: Environics Analytics

Population Trends



Employment Sectors

The composition of the Dallas MSA job market is depicted in the following chart, along with that of Texas. Total employment for both areas is broken down by major employment sector, and the sectors are ranked from largest to smallest based on the percentage of Dallas MSA jobs in each category.

Employment Trends

Total Employment (Year End) Unemployment Rate (Ann. Avg.)

Year Dallas MSA

%

Change Texas

%

Change Dallas MSA Texas

2006 2,890,623 10,160,780 4.8% 4.9%

2007 2,963,123 2.5% 10,464,747 3.0% 4.2% 4.3%

2008 2,946,799 ‐0.6% 10,516,495 0.5% 4.9% 4.8%

2009 2,818,709 ‐4.3% 10,147,242 ‐3.5% 7.8% 7.6%

2010 2,876,418 2.0% 10,363,872 2.1% 8.1% 8.2%

2011 2,943,465 2.3% 10,611,631 2.4% 7.6% 7.8%

2012 3,044,114 3.4% 10,964,215 3.3% 6.6% 6.7%

2013 3,127,712 2.7% 11,248,559 2.6% 6.1% 6.2%

2014 3,254,583 4.1% 11,672,985 3.8% 5.0% 5.1%

2015 3,360,668 3.3% 11,831,449 1.4% 4.1% 4.4%

2016 3,441,095 2.4% 11,974,685 1.2% 3.9% 4.6%

Overall Change 2006‐2016 550,472 19.0% 1,813,905 17.9%

Avg Unemp. Rate 2006‐2016 5.7% 5.9%

Unemployment Rate ‐ April 2017 3.8% 4.5%

Source: Bureau of Labor Statistics and Economy.com. Employment figures are from the Quarterly Census of Employment and Wages (QCEW).

Unemployment rates are from the Current Population Survey (CPS). The figures are not seasonally adjusted.

Employment Sectors ‐ 2016

22.1%

16.2%

12.2%

12.2%

10.6%

8.0%

7.7%

5.3%

2.6%

2.3%

0.7%

20.8%

13.7%

13.3%

15.7%

10.7%

6.1%

7.0%

5.8%

2.7%

1.7%

2.3%

0% 5% 10% 15% 20% 25%

Trade; Transportation; and Utilities

Professional and Business Services

Education and Health Services

Government

Leisure and Hospitality

Financial Activities

Manufacturing

Construction

Other Services

Information

Natural Resources & Mining

Dallas MSA Texas

Source: Bureau of Labor Statistics and Economy.com



The Dallas MSA has greater concentrations than Texas in the following employment sectors:

1. Trade; Transportation; and Utilities, representing 22.1% of Dallas MSA payroll employment compared to 20.8% for Texas as a whole. This sector includes jobs in retail trade, wholesale trade, trucking, warehousing, and electric, gas, and water utilities.

2. Professional and Business Services, representing 16.2% of Dallas MSA payroll employment compared to 13.7% for Texas as a whole. This sector includes legal, accounting, and engineering firms, as well as management of holding companies.

3. Financial Activities, representing 8.0% of Dallas MSA payroll employment compared to 6.1% for Texas as a whole. Banking, insurance, and investment firms are included in this sector, as are real estate owners, managers, and brokers.

4. Manufacturing, representing 7.7% of Dallas MSA payroll employment compared to 7.0% for Texas as a whole. This sector includes all establishments engaged in the manufacturing of durable and nondurable goods.

The Dallas MSA is underrepresented in the following sectors:

1. Education and Health Services, representing 12.2% of Dallas MSA payroll employment compared to 13.3% for Texas as a whole. This sector includes employment in public and private schools, colleges, hospitals, and social service agencies.

2. Government, representing 12.2% of Dallas MSA payroll employment compared to 15.7% for Texas as a whole. This sector includes employment in local, state, and federal government agencies.

3. Leisure and Hospitality, representing 10.6% of Dallas MSA payroll employment compared to 10.7% for Texas as a whole. This sector includes employment in hotels, restaurants, recreation facilities, and arts and cultural institutions.

4. Construction, representing 5.3% of Dallas MSA payroll employment compared to 5.8% for Texas as a whole. This sector includes construction of buildings, roads, and utility systems.



Major Employers

Major employers in the Dallas MSA are shown in the following table.

Gross Domestic Product

The Dallas MSA is the fifth largest metropolitan area economy in the nation based on Gross Domestic Product (GDP).

Economic growth, as measured by annual changes in GDP, has been somewhat lower in the Dallas MSA than Texas overall during the past eight years. The Dallas MSA has grown at a 3.0% average annual rate while Texas has grown at a 3.7% rate. As the national economy improves, the Dallas MSA continues to underperform Texas. GDP for the Dallas MSA rose by 3.6% in 2015 while Texas's GDP rose by 4.8%.

The Dallas MSA has a per capita GDP of $63,197, which is 15% greater than Texas's GDP of $54,964. This means that Dallas MSA industries and employers are adding relatively more value to the economy than their counterparts in Texas.

Name Number of Employees

1 AMR Corporation (American Airl ines) 24,700

2 Bank of America Corp. 20,000

3 Texas Health Resources Inc. 19,230

4 Dallas ISD 18,314

5 Baylor Health Care System 17,097

6 AT&T 15,800

7 Lockheed Martin Aeronautics Co. 14,126

8 JP Morgan Chase & Co. 13,500

9 UT‐Southwestern Medical Center 13,122

10 City of Dallas 12,836

Major Employers ‐ Dallas‐Fort Worth‐Arlington, TX



Household Income

The Dallas MSA has a higher level of household income than Texas. Median household income for the Dallas MSA is $62,883, which is 11.5% greater than the corresponding figure for Texas.

The following chart shows the distribution of households across twelve income levels. The Dallas MSA has a greater concentration of households in the higher income levels than Texas. Specifically, 42% of Dallas MSA households are at the $75,000 or greater levels in household income as compared to 38% of Texas households. A lesser concentration of households is apparent in the lower income levels, as 27% of Dallas MSA households are below the $35,000 level in household income versus 32% of Texas households.


Year

($ Mil)

Dallas MSA % Change

($ Mil)

Texas % Change

2008 366,099 1,173,697

2009 357,123 ‐2.5% 1,166,516 ‐0.6%

2010 368,466 3.2% 1,197,006 2.6%

2011 382,954 3.9% 1,240,117 3.6%

2012 402,512 5.1% 1,310,522 5.7%

2013 415,918 3.3% 1,373,914 4.8%

2014 433,423 4.2% 1,440,273 4.8%

2015 448,873 3.6% 1,509,819 4.8%

Compound % Chg (2008‐2015) 3.0% 3.7%

GDP Per Capita 2015 $63,197 $54,964

Source: Bureau of Economic Analysis and Economy.com; data released September 2016. The release of state and local GDP

data has a longer lag time than national data. The data represents inflation‐adjusted "real" GDP stated in 2009 dollars.

Median

Dallas‐Fort Worth‐Arlington, TX $62,883

Texas $56,399

Comparison of Dallas‐Fort Worth‐Arlington, TX to Texas + 11.5%


Median Household Income ‐ 2017



Education and Age

Residents of the Dallas MSA have a higher level of educational attainment than those of Texas. An estimated 32% of Dallas MSA residents are college graduates with four‐year degrees, versus 27% of Texas residents. People in the Dallas MSA are similar in age to their Texas counterparts. The median age of both the Dallas MSA and Texas is 35 years.

Household Income Distribution ‐ 2017

11.7%

10.1%

9.8%

13.4%

17.3%

11.8%

8.5%

5.5%

5.5%

2.5%

2.7%

1.3%

9.5%

8.7%

9.1%

13.0%

17.5%

12.3%

9.3%

6.3%

6.6%

2.9%

3.3%

1.5%

0.0% 5.0% 10.0% 15.0% 20.0%

Less than $15,000

$15,000 ‐ $24,999

$25,000 ‐ $34,999

$35,000 ‐ $49,999

$50,000 ‐ $74,999

$75,000 ‐ $99,999

$100,000 ‐ $124,999

$125,000 ‐ $149,999

$150,000 ‐ $199,999

$200,000 ‐ $249,999

$250,000 ‐ 499,999

$500,000 and more

Dallas‐Fort Worth‐Arlington, TX Texas




Conclusion

The Dallas MSA economy will benefit from a growing population base and higher income and education levels. The Dallas MSA experienced growth in the number of jobs and has maintained a slightly lower unemployment rate than Texas over the past decade. Moreover, the Dallas MSA gains strength from being the fourth most populous metropolitan area in the country and generating a higher level of GDP per capita than Texas overall. We anticipate that the Dallas MSA economy will grow, strengthening the demand for real estate.

Denton County Area Analysis 14


Economic Analysis

Denton County Area Analysis Denton County is 878 square miles in size and has a population density of 923 persons per square mile. Denton County is part of the Dallas‐Fort Worth‐Arlington, TX Metropolitan Statistical Area, hereinafter called the Dallas MSA, as defined by the U.S. Office of Management and Budget.

Population

Denton County has an estimated 2017 population of 810,398, which represents an average annual 2.9% increase over the 2010 census of 662,614. Denton County added an average of 21,112 residents per year over the 2010‐2017 period, and its annual growth rate exceeded the Dallas MSA rate of 1.8%.

Looking forward, Denton County's population is projected to increase at a 2.0% annual rate from 2017‐2022, equivalent to the addition of an average of 16,822 residents per year. Denton County's growth rate is expected to exceed that of the Dallas MSA, which is projected to be 1.6%.

Population Compound Ann. % Chng

2010 Census 2017 Estimate 2022 Projection 2010 ‐ 2017 2017 ‐ 2022

Denton County 662,614 810,398 894,508 2.9% 2.0%

Dallas‐Fort Worth‐Arlington 6,426,214 7,295,086 7,883,140 1.8% 1.6%

Texas 25,145,561 28,172,387 30,273,125 1.6% 1.4%

United States 308,745,538 325,139,271 337,393,057 0.7% 0.7%


Population Trends

Employment

Total employment in Denton County is currently estimated at 232,429 jobs. Between year‐end 2006 and the present, employment rose by 71,869 jobs, equivalent to a 44.8% increase over the entire period. There were gains in employment in eight out of the past ten years despite the national economic downturn and slow recovery. Denton County's rate of employment growth over the last decade surpassed that of the Dallas MSA, which experienced an increase in employment of 19.0% or 550,472 jobs over this period.

A comparison of unemployment rates is another way of gauging an area’s economic health. Over the past decade, the Denton County unemployment rate has been consistently lower than that of the Dallas MSA, with an average unemployment rate of 5.1% in comparison to a 5.7% rate for the Dallas MSA. A lower unemployment rate is a positive indicator.

Recent data shows that the Denton County unemployment rate is 3.7% in comparison to a 4.0% rate for the Dallas MSA, a positive sign that is consistent with the fact that Denton County has outperformed the Dallas MSA in the rate of job growth over the past two years.



Employment Trends

Total Employment (Year End) Unemployment Rate (Ann. Avg.)

Year Denton County

%

Change Dallas MSA

%

Change Denton County Dallas MSA

2006 160,560 2,890,623 4.2% 4.8%

2007 170,665 6.3% 2,963,123 2.5% 3.8% 4.2%

2008 170,409 ‐0.2% 2,946,799 ‐0.6% 4.4% 4.9%

2009 167,480 ‐1.7% 2,818,709 ‐4.3% 7.1% 7.8%

2010 175,913 5.0% 2,876,418 2.0% 7.1% 8.1%

2011 183,823 4.5% 2,943,465 2.3% 6.6% 7.6%

2012 189,769 3.2% 3,044,114 3.4% 5.7% 6.6%

2013 199,183 5.0% 3,127,712 2.7% 5.3% 6.1%

2014 211,482 6.2% 3,254,583 4.1% 4.4% 5.0%

2015 224,936 6.4% 3,360,668 3.3% 3.6% 4.1%

2016 232,429 3.3% 3,441,095 2.4% 3.4% 3.9%

Overall Change 2006‐2016 71,869 44.8% 550,472 19.0%

Avg Unemp. Rate 2006‐2016 5.1% 5.7%

Unemployment Rate ‐ June 2017 3.7% 4.0%

Source: Bureau of Labor Statistics and Economy.com. Employment figures are from the Quarterly Census of Employment and Wages (QCEW).

Unemployment rates are from the Current Population Survey (CPS). The figures are not seasonally adjusted.

Employment Sectors

The composition of the Denton County job market is depicted in the following chart, along with that of the Dallas MSA. Total employment for both areas is broken down by major employment sector, and the sectors are ranked from largest to smallest based on the percentage of Denton County jobs in each category.

Employment Sectors ‐ 2016

23.4%

15.3%

13.3%

12.6%

12.5%

6.7%

6.1%

5.6%

2.6%

1.5%

22.1%

12.2%

10.6%

12.2%

16.2%

7.7%

8.0%

5.3%

2.6%

2.3%

0% 5% 10% 15% 20% 25%

Trade; Transportation; and Utilities

Government

Leisure and Hospitality

Education and Health Services

Professional and Business Services

Manufacturing

Financial Activities

Construction

Other Services

Information

Denton County Dallas MSA

Source: Bureau of Labor Statistics and Economy.com



Denton County has greater concentrations than the Dallas MSA in the following employment sectors:

1. Trade; Transportation; and Utilities, representing 23.4% of Denton County payroll employment compared to 22.1% for the Dallas MSA as a whole. This sector includes jobs in retail trade, wholesale trade, trucking, warehousing, and electric, gas, and water utilities.

2. Government, representing 15.3% of Denton County payroll employment compared to 12.2% for the Dallas MSA as a whole. This sector includes employment in local, state, and federal government agencies.

3. Leisure and Hospitality, representing 13.3% of Denton County payroll employment compared to 10.6% for the Dallas MSA as a whole. This sector includes employment in hotels, restaurants, recreation facilities, and arts and cultural institutions.

4. Education and Health Services, representing 12.6% of Denton County payroll employment compared to 12.2% for the Dallas MSA as a whole. This sector includes employment in public and private schools, colleges, hospitals, and social service agencies.

Denton County is underrepresented in the following sectors:

1. Professional and Business Services, representing 12.5% of Denton County payroll employment compared to 16.2% for the Dallas MSA as a whole. This sector includes legal, accounting, and engineering firms, as well as management of holding companies.

2. Manufacturing, representing 6.7% of Denton County payroll employment compared to 7.7% for the Dallas MSA as a whole. This sector includes all establishments engaged in the manufacturing of durable and nondurable goods.

3. Financial Activities, representing 6.1% of Denton County payroll employment compared to 8.0% for the Dallas MSA as a whole. Banking, insurance, and investment firms are included in this sector, as are real estate owners, managers, and brokers.

4. Information, representing 1.5% of Denton County payroll employment compared to 2.3% for the Dallas MSA as a whole. Publishing, broadcasting, data processing, telecommunications, and software publishing are included in this sector.




Gross Domestic Product (GDP) is a measure of economic activity based on the total value of goods and services produced in a defined geographic area. Although GDP figures are not available at the county level, data reported for the Dallas MSA is considered meaningful when compared to the nation overall, as Denton County is part of the MSA and subject to its influence.

Economic growth, as measured by annual changes in GDP, has been considerably higher in the Dallas MSA than the United States overall during the past eight years. The Dallas MSA has grown at a 3.0% average annual rate while the United States has grown at a 1.3% rate. As the national economy improves, the Dallas MSA continues to perform better than the United States. GDP for the Dallas MSA rose by 3.6% in 2015 while the United States GDP rose by 2.5%.

The Dallas MSA has a per capita GDP of $63,197, which is 26% greater than the United States GDP of $50,155. This means that Dallas MSA industries and employers are adding relatively more value to the economy than their counterparts in the United States overall.


Year

($ Mil)

Dallas MSA % Change

($ Mil)

United States % Change

2008 366,099 14,718,301

2009 357,123 ‐2.5% 14,320,114 ‐2.7%

2010 368,466 3.2% 14,628,165 2.2%

2011 382,954 3.9% 14,833,679 1.4%

2012 402,512 5.1% 15,126,281 2.0%

2013 415,918 3.3% 15,348,044 1.5%

2014 433,423 4.2% 15,691,181 2.2%

2015 448,873 3.6% 16,088,249 2.5%

Compound % Chg (2008‐2015) 3.0% 1.3%

GDP Per Capita 2015 $63,197 $50,155

Source: Bureau of Economic Analysis and Economy.com; data released September 2016. The release of state and local GDP

data has a longer lag time than national data. The data represents inflation‐adjusted "real" GDP stated in 2009 dollars.



Household Income

Denton County is more affluent than the Dallas MSA. Median household income for Denton County is $78,751, which is 25.2% greater than the corresponding figure for the Dallas MSA.

Median

Denton County $78,751

Dallas‐Fort Worth‐Arlington $62,883

Comparison of Denton County to Dallas‐Fort Worth‐Arlington + 25.2%


Median Household Income ‐ 2017

The following chart shows the distribution of households across twelve income levels. Denton County has a greater concentration of households in the higher income levels than the Dallas MSA. Specifically, 52% of Denton County households are at the $75,000 or greater levels in household income as compared to 42% of Dallas MSA households. A lesser concentration of households is apparent in the lower income levels, as 20% of Denton County households are below the $35,000 level in household income versus 27% of Dallas MSA households.

Household Income Distribution ‐ 2017

9.5%

8.7%

9.1%

13.0%

17.5%

12.3%

9.3%

6.3%

6.6%

2.9%

3.3%

1.5%

6.4%

6.4%

7.2%

10.8%

17.0%

13.5%

11.1%

8.2%

9.2%

4.0%

4.4%

1.8%

0.0% 5.0% 10.0% 15.0% 20.0%

Less than $15,000

$15,000 ‐ $24,999

$25,000 ‐ $34,999

$35,000 ‐ $49,999

$50,000 ‐ $74,999

$75,000 ‐ $99,999

$100,000 ‐ $124,999

$125,000 ‐ $149,999

$150,000 ‐ $199,999

$200,000 ‐ $249,999

$250,000 ‐ 499,999

$500,000 and more

Denton County Dallas‐Fort Worth‐Arlington




Education and Age

Residents of Denton County have a higher level of educational attainment than those of the Dallas MSA. An estimated 41% of Denton County residents are college graduates with four‐year degrees, versus 32% of Dallas MSA residents. People in Denton County are similar in age to their Dallas MSA counterparts. The median age of both Denton County and the Dallas MSA is 35 years.

Education & Age ‐ 2017


10%

20%

30%

40%

50%

60%

70%

80%


41%

32%

Percent College Graduate

10

15

20

25

30

35

40

45

50


35 35

Median Age

Conclusion

The Denton County economy will benefit from a growing population base and higher income and education levels. Denton County experienced growth in the number of jobs and has maintained a consistently lower unemployment rate than the Dallas MSA over the past decade. Moreover, Denton County benefits from being part of the Dallas MSA, which is the most populous metropolitan area in the country, and exhibits both a higher rate of GDP growth and a higher level of GDP per capita than the nation overall. We anticipate that the Denton County economy will grow, strengthening the demand for real estate.



Area Map

Surrounding Area 21


Surrounding Area

Boundaries

The subject is located in the City of Lewisville, which is situated in the southeastern portion of Denton County. The primary uses in the surrounding area include single‐family residential with supportive commercial along major thoroughfares. The neighborhood is generally delineated as follows:

North Justin Road

South Flower Mound Road/W. Round Grove Road

East I‐35E

West Long Prairie Road

A map identifying the location of the property follows this section.

Access and Linkages

Primary access to the area is provided by I‐35E, W. Main Street, and several principal arterial roads feeding into a network of secondary residential streets.

Denton County does not offer public transportation. Therefore, the primary mode of transportation in this area is the automobile.

The DFW Airport is located about 12 miles from the property; travel time is about 20 minutes, depending on traffic conditions. The Dallas CBD, the economic and cultural center of the region, is approximately 28 miles from the property.

Surrounding Area 22


Demographics

A demographic profile of the surrounding area, including population, households, and income data, is presented in the following table.

Surrounding Area Demographics

2017 Estimates

5‐Minute Drive

Time

10‐Minute Drive

Time

15‐Minute Drive

Time Denton County

Dallas‐Fort

Worth‐Arlington

Population 2010 19,789 103,666 210,355 662,614 6,426,214

Population 2017 21,707 116,504 241,860 810,398 7,295,086

Population 2022 23,300 126,131 263,651 894,508 7,883,140

Compound % Change 2010‐2017 1.3% 1.7% 2.0% 2.9% 1.8%

Compound % Change 2017‐2022 1.4% 1.6% 1.7% 2.0% 1.6%

Households 2010 6,880 38,542 76,473 240,289 2,320,283

Households 2017 7,638 43,910 88,386 292,127 2,620,080

Households 2022 8,239 47,780 96,563 322,104 2,827,564

Compound % Change 2010‐2017 1.5% 1.9% 2.1% 2.8% 1.8%

Compound % Change 2017‐2022 1.5% 1.7% 1.8% 2.0% 1.5%

Median Household Income 2017 $52,951 $69,260 $81,134 $78,751 $62,883

Average Household Size 2.8 2.7 2.7 2.7 2.8

College Graduate % 20% 34% 43% 41% 32%

Median Age 34 35 36 35 35

Owner Occupied % 50% 58% 62% 66% 62%

Renter Occupied % 50% 42% 38% 34% 38%

Median Owner Occupied Housing Value $151,181 $194,613 $237,808 $229,833 $179,628

Median Year Structure Built 1985 1993 1995 1999 1989


As shown above, the current population within a 10‐minute drive time of the subject is 116,504, and the average household size is 2.7. Population in the area has grown since the 2010 census, and this trend is projected to continue over the next five years. Compared to Denton County overall, the population within a 10‐minute drive time is projected to grow at a slower rate.

Median household income is $69,260, which is lower than the household income for Denton County. Residents within a 10‐minute drive time have a lower level of educational attainment than those of Denton County, while median owner occupied home values are considerably lower.

Surrounding Area 23


Land Use

In the immediate vicinity of the subject, predominant land uses are single‐family residential with supportive commercial along major thoroughfares. The subject’s immediate surrounding usage is portrayed in the following aerial map:

Surrounding Area 24


Surrounding Area Land Uses

Character of Area Suburban

Predominant Age of Improvements New to 75 years

Predominant Quality and Condition Average

Approximate Percent Developed 85%±

Infrastructure/Planning Average

Prevailing Direction of Growth North

Development Activity and Trends

During the last five years, development has been predominantly of single‐family uses. The pace of development has generally accelerated over this time. The city/neighborhood has several high profile developments. The most important are discussed as follows:

The SH‐121 Bypass was completed in early 2007 as a controlled access freeway from east of Stemmons Freeway to north of D/FW International Airport.

D/FW International Airport ‐ D/FW International Airport covers more than 29.8 square miles; real property consists of 18,076 acres. The Airport is situated in the cities of Euless, Grapevine, Irving, and Coppell. D/FW International Airport is the second largest airport in the United States in terms of land mass and third largest in the world. D/FW International Airport has grown to become one of the preeminent airports in the world. As a leader in the aviation industry and in order to maintain its status as a economic generator for North Texas, D/FW International Airport developed a comprehensive Capital Development Program that invested $2.6 billion into the Airport’s infrastructure over a five‐year time period. With the implementation of the Airport’s $2.6 billion Capital Development Program, D/FW International Airport’s investment is estimated to generate an additional $34 billion in economic impact for the North Texas economy and an additional 77,000 new jobs over the next 15 years. The Capital Development Program was completed First Quarter 2005.

Additional developments within, or in proximity of the Towns of Flower Mound and Lewisville, that have influenced the market area include:

The River Walk at Central Park is a 158‐acre pedestrian oriented mixed‐use development located at the northeast quadrant of Cross Timbers and Long Prairie Roads. Planned as Flower Mound’s 21st century downtown, The River Walk at Central Park will integrate commercial and residential uses within the development. Flower Mound’s overall River Walk at Central Park plans call for a hospital, apartments, a hotel, restaurants and retail. A Kansas City‐based developer has acquired a 10‐acre site in Flower Mound and is building a $38.4 million luxury apartment complex in the community. The Riverwalk Apartments will have 303 units. Construction also includes an 180,000‐square foot Presbyterian Hospital being built by Texas Health Resources. This facility opened in 2010.

Surrounding Area 25


Old Town is the urban core of Lewisville and features a mix of retail, office, and multi‐family living. The 39,000 square foot Medical Center of Lewisville Grand Theatre was completed in 2011 in the heart of Old Town on the northwest corner of Main Street and Charles Street. Old Town is currently under planning stages for a complete redevelopment of the infrastructure surrounding Old Town Plaza as well as a plans for a new City Hall building.

Vista Ridge Mall, located at IH‐35E and the Sam Rayburn Tollway in Lewisville, features Dillard’s and Macy’s along with a 15 screen Cinemark Theater. The mall includes approximately one million square feet of retail and dining space.

Grapevine Mills Mall – located near the intersection of SH‐121 and IH‐635 West, is a 1.5 million square foot regional mall and entertainment destination featuring 20 anchors and over 200 specialty retailers, as well as a variety of theme restaurants, casual dining and cutting‐edge entertainment venues. Major anchors include AMC 30‐Screen Theatre, Bass Pro Shops Outdoor World, Bed Bath & Beyond, Books‐A‐Million, Burlington Coat Factory, Dick Clark’s American Bandstand Grill, GameWorks, Group USA, Iguana Ameramex, JCPenney Outlet Store, Marshalls, Off 5th (Saks Fifth Avenue Outlet), Off Rodeo Drive Beverly Hills, Old Navy, Polar Ice, Rainforest Café, The Sports Authority, Sun & Ski Sports, and Virgin Megastore.

Parker Square ‐ a 1920s style, pedestrian friendly, town center offering 345,800 square feet of prime retail, restaurant, and office space. This center, located along the north side of Cross Timbers Road (FM‐1171) between Kirkpatrick Lane and Morriss Road, plays host to numerous civic and entertainment events.

Lakeside Business District – a 1,500‐acre master‐planned business community is zoned for corporate campus, specialty office, hotel, conference center, spa, retail, dining, medical and entertainment. The development is located at the southern entrance to Flower Mound on International Parkway (FM‐2499), bordered on the north by Spinks Road, the town limits on the east, and Lake Grapevine on the west. Approximately $25 million has been invested in public improvements that included water and sewer extensions, the construction of Lakeside Parkway and Silveron Boulevard, and the expansion of Gerault Road. The Lakeside Utility District Plant is reportedly planned to be the most efficient and reliable HVAC system found anywhere. It will produce chilled and heated water campus‐wide, significantly reducing construction, maintenance and annual operating costs compared to conventional units. Dual‐source and dual‐feed electrical power will provide the ultimate in redundancy and reliability. Business communications will be enhanced with multiple sources of high‐speed fiber optics and cable.

The Denton Creek District is located in the western portion of Flower Mound near Alliance Airport and the Texas Motor Speedway. It will be an excellent regional access for future development provided by IH‐35W, US‐377 and FM‐1171. The land uses will include major retail, village retail, retail, campus commercial, campus industrial, office, and light industrial/office/flex office.

Surrounding Area 26


In addition, several active developments are underway that will provide a positive impact to the local economy. They are summarized as follows:

Stryker Communications, a division of Stryker Corp., is in the midst of expanding its Flower Mound headquarters to more than 200,000 square feet of space, which will create an additional 200 jobs to its North Texas operations. The expansion is part of the company’s consolidation of its operations from Charleston, South Carolina and Coppell into the Flower Mound facility. The medical supply company uses the existing 115,000 square foot facility in Flower Mound to assemble lights used in surgical centers, as well as its research and development and sales and marketing operations.

Cornerstone Development, approximately 2 miles from DFW International Airport, is a 59‐acre development bordered by Gerault, Spinks, and Garden Ridge Roads. The first building is complete, a 650,000 SF bulk industrial warehouse, owned by ProLogis and leased by Kohler. Four other parcels remain for build‐to‐suit flex office development.

EastGroup Properties, Inc., began construction on Parkside Commerce Center, an industrial complex development located at the southeast corner of Spinks and Gerault Roads. The development will includes three Class A industrial buildings totaling 276,054 SF of space. The project is expected to cost $19.6 million to build.

Flower Mound will soon get a new 12‐story luxury hotel and conference center overlooking Lake Grapevine, which will become the centerpiece of the peninsula, which is part of a larger 150‐acre mixed‐use development called Lakeside DFW. The 220‐room high‐end hotel, called The Pearl on the Peninsula Hotel & Conference Center, will sit overlooking 40‐foot bluffs along nine miles of Lake Grapevine.

Southgate is a proposed 108‐acre mixed‐use development slated for Gerault Road and FM 2499. The plan was recently approved by the Flower Mound Town Council and will feature trails throughout the project, 970 multi‐family units, 270 single‐family residences, and over 300,000 SF of commercial space.

Summary

In conclusion, the neighborhood is characterized as being predominantly residential in nature. The neighborhood is heavily influenced by its proximity to major employment centers (i.e., Grapevine Mills Mall, Vista Ridge Mall, D/FW International Airport), and numerous office and light distribution facilities adjacent to the airport. In addition, there are several active developments are underway that will provide a positive impact to the local economy. As such, the neighborhood should continue to exhibit growth. New development (both residential and commercial) should continue to grow with the increase in population and economic growth.

Surrounding Area 27


Outlook and Conclusions

The area is in the growth stage of its life cycle. Given the history of the area and the growth trends, it is anticipated that property values will increase in the near future.

In comparison to other areas in the region, the area is rated as follows:

Surrounding Area Attribute Ratings

Highway Access Average

Demand Generators Average

Convenience to Support Services Average

Convenience to Public Transportation Average

Employment Stability Average

Police and Fire Protection Average

Property Compatibility Average

General Appearance of Properties Average

Appeal to Market Average

Price/Value Trend Average

Surrounding Area 28


Surrounding Area Map

Office Market Analysis 29


Office Market Analysis

Metro Area Overview

The subject is located in the DFW metro area as defined by CoStar. Trended supply and demand indicators, including inventory levels, absorption, vacancy, and rental rates for Class B space are presented in the ensuing table.

Class B Office Metro Area Trends

Year

Inventory

(Bldgs)

Inventory

(SF)

Vacancy

(SF)

Vacancy

(%)

Deliveries

(Bldgs)

Deliveries

(SF)

Absorption

(SF)

Construction

(Bldgs)

Construction

(SF)

Market Rate

($/SF)

2007 4,484 155,672,998 27,612,907 17.74% 182 3,198,420 4,096,248 198 3,531,990 $17.83

2008 4,718 159,442,873 27,958,883 17.54% 189 3,514,421 3,423,899 138 2,248,212 $18.30

2009 4,877 161,541,514 30,186,280 18.69% 129 1,892,201 ‐128,756 77 1,391,974 $17.73

2010 4,957 162,554,042 30,892,655 19.00% 66 847,512 306,153 63 1,058,974 $17.11

2011 5,026 163,044,274 29,645,056 18.18% 61 974,690 1,737,831 47 747,666 $17.23

2012 5,089 163,695,549 29,263,207 17.88% 59 736,084 1,033,124 65 1,342,213 $17.34

2013 5,161 163,765,446 28,046,933 17.13% 73 1,166,872 1,286,171 108 1,521,336 $17.85

2014 5,294 164,342,985 24,631,881 14.99% 125 1,714,992 3,992,591 101 1,830,738 $18.58

2015 5,427 166,116,744 23,327,066 14.04% 129 2,074,086 3,078,574 115 1,416,997 $19.50

2016 5,590 166,606,486 22,625,523 13.58% 159 1,845,114 1,191,285 126 1,534,655 $20.47

Q3 2017 5,724 167,719,366 23,393,234 13.95% 122 1,481,504 248,645 97 1,338,449 $21.38

2006 ‐ 2016 Average 5,062 162,678,291 27,419,039 16.85% 117 1,796,439 2,001,712 104 1,662,476 $18.19

Source: CoStar, Inc.; compiled by Integra Realty Resources, Inc.

Current supply and demand statistics, including inventory levels, absorption, vacancy, and rental rates for Class B space in the DFW metro area are presented in the ensuing table.

Class B Office Metro Area Statistics

Market

Inventory

(Bldgs)

Inventory

(SF)

Vacancy

(SF)

Vacancy

(%)

Deliveries

(SF)

Absorption

(SF)

Construction

(SF)

Market Rate

($/SF)

CBD 95 12,152,130 1,296,172 10.67% 0 ‐1,155 0 $20.73

Suburban 5,629 155,567,236 22,097,062 14.20% 1,481,504 249,800 1,338,449 $21.42

Totals 5,724 167,719,366 23,393,234 13.95% 1,481,504 248,645 1,338,449 $21.38Source: CoStar, Inc.; compiled by Integra Realty Resources, Inc.



Metro Trends Key Takeaways


0.00%

5.00%

10.00%

15.00%

20.00%

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q3 2017

Vacancy Rate vs. Market Rate

Market Rate ($/SF) Vacancy Rate (%)

The current vacancy rate in the metro area is 13.95%; the vacancy rate has decreased by 423 bps from 2011.

Market rate averages $21.38/SF in the metro area, and values have increased by 24.09% from 2011.


0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

‐500,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q32017

Supply and Demand Trends

Deliveries (SF) Absorption (SF) Vacancy Rate (%)

The building inventory count has increased by 13.89% from 2011, while the total inventory size (SF) has increased by 2.87%.



Between 2011 and 2016, deliveries in the metro area have averaged 1,418,640 SF annually, and reached a peak of 2,074,086 SF in 2015.

Between 2011 and 2016, absorption figures in the metro area have averaged 2,053,263 SF annually, and reached a peak of 3,992,591 SF in 2014.

Between 2011 and 2016, construction levels reached a peak of 1,830,738 SF in 2014 and a low of 747,666 SF in 2011.

Submarket Cluster Overview

The subject is located in the Lewisville/Denton submarket cluster area as defined by CoStar. Current supply and demand statistics, including inventory levels, absorption, vacancy, and rental rates for Class B space are presented in the ensuing table.

Class B Office Submarket Cluster Statistics

Submarket Cluster

Inventory

(Bldgs)

Inventory

(SF)

Vacancy

(SF) Vacancy (%)

Deliveries

(SF)

Absorption

(SF)

Construction

(SF)

Market Rate

($/SF)

Central Expressway 103 6,188,915 576,477 9.31% 0 ‐97,015 0 $29.11

Dallas CBD 43 7,052,947 942,139 13.36% 0 ‐15,290 0 $20.97

East Dallas 364 7,584,787 597,656 7.88% 8,964 ‐76,686 72,304 $21.20

Far North Dallas 753 23,398,703 3,275,883 14.00% 190,054 118,057 189,168 $22.72

Ft Worth CBD 52 5,099,183 354,033 6.94% 0 14,135 0 $20.21

Las Colinas 307 18,869,039 2,938,701 15.57% 344,059 ‐143,057 155,913 $21.13

LBJ Freeway 150 11,063,703 2,288,790 20.69% 0 87,776 0 $18.86

Lewisvil le/Denton 497 9,752,916 963,608 9.88% 159,840 19,058 51,866 $22.10

Mid‐Cities 1,285 22,938,961 3,076,325 13.41% 132,719 ‐31,527 199,788 $21.08

North Fort Worth 283 4,386,014 340,290 7.76% 71,120 ‐1,737 125,874 $24.24

Northeast Ft Worth 94 3,338,754 1,433,660 42.94% 0 68,337 0 $18.89

Preston Center 43 1,094,758 77,239 7.06% 4,506 22,657 8,034 $31.67

Richardson/Plano 816 22,963,830 2,809,262 12.23% 365,386 267,533 412,766 $21.57

South Ft Worth 511 9,382,117 832,446 8.87% 87,633 ‐10,527 75,708 $23.23

Southwest Dallas 239 3,808,252 407,716 10.71% 92,828 140,907 15,544 $19.58

Stemmons Freeway 120 8,141,830 2,091,756 25.69% 9,630 ‐39,174 0 $16.04

Uptown/Turtle Creek 64 2,654,657 387,253 14.59% 14,765 ‐74,802 31,484 $31.11

Totals 5,724 167,719,366 23,393,234 13.95% 1,481,504 248,645 1,338,449 $21.38


Lewisville/Denton Submarket Cluster Snapshot

Lewisville/Denton contains 8.68% of the metro's building count inventory and 5.82% of the metro's SF inventory.

Lewisville/Denton market rate is $22.10/SF which is greater than the metro area's average rate of $21.38/SF.

Lewisville/Denton vacancy rate is 9.88% which is less than the metro area's average of 13.95%.

Lewisville/Denton has had 51,866 SF in construction, which is 3.9% of the 1,338,449 SF of construction in the overall metro area.

Lewisville/Denton has had 159,840 SF of deliveries and experienced 19,058 SF of absorption in the latest period.



Submarket Overview

The subject is located in the Lewisville submarket as defined by CoStar. Current supply and demand statistics, including inventory levels, absorption, vacancy, and rental rates for Class B space are presented in the following table.

Class B Office Submarket Performance

Submarket

Inventory

(Bldgs)

Inventory

(SF)

Vacancy

(SF) Vacancy (%)

Deliveries

(SF)

Absorption

(SF)

Construction

(SF)

Market Rate

($/SF)

Allen/McKinney 305 6,049,109 552,526 9.13% 185,668 189,570 213,742 $25.17

All iance 115 3,060,479 231,425 7.56% 59,120 ‐9,845 90,471 $26.19

Arlington/Mansfield 351 7,361,129 801,093 10.88% 14,564 150,221 50,500 $20.33

Central Expressway 103 6,188,915 576,477 9.31% 0 ‐97,015 0 $29.11

Dallas CBD 43 7,052,947 942,139 13.36% 0 ‐15,290 0 $20.97

Delta County 0 0 0 0.00% 0 0 0 $0.00

Denton 186 2,891,678 248,848 8.61% 28,105 ‐2,458 15,732 $23.55

DFW Freeport/Coppell 167 8,601,502 1,382,648 16.07% 4,700 ‐249,282 125,913 $21.34

East LBJ Freeway 106 7,955,233 1,992,995 25.05% 0 ‐34,039 0 $19.05

East Northeast Ft Wo. 94 3,338,754 1,433,660 42.94% 0 68,337 0 $18.89

Ellis County 66 720,591 46,330 6.43% 29,340 71,280 0 $21.66

Frisco/The Colony 228 3,144,289 303,208 9.64% 124,749 33,326 76,660 $29.00

Ft Worth CBD 52 5,099,183 354,033 6.94% 0 14,135 0 $20.21

Garland 96 1,876,788 248,935 13.26% 0 ‐28,334 64,760 $20.65

Grand Prairie 60 2,189,767 600,798 27.44% 16,000 ‐256,519 32,083 $19.34

HEB/Mid‐Cities 267 5,166,577 810,440 15.69% 21,923 79,089 12,000 $18.57

Hood County 38 296,137 38,274 12.92% 0 ‐8,288 0 $23.59

Hunt County 27 298,975 5,442 1.82% 0 7,664 0 $19.62

Johnson County 72 537,862 13,322 2.48% 16,952 9,884 15,931 $24.01

Lewisvi lle 296 6,690,402 684,695 10.23% 90,709 7,906 36,134 $21.18

Mesquite/Forney/Terr. 76 969,928 46,045 4.75% 6,500 20,568 0 $24.50

Northwest Ft Worth 56 527,232 29,119 5.52% 0 5,112 5,200 $19.45

Office Ctr/West LBJ . 106 8,275,267 1,274,554 15.40% 339,359 52,569 30,000 $21.27

Outlying Coll in Coun. 34 270,103 34,600 12.81% 38,852 24,782 179,824 $27.52

Outlying Denton Coun. 15 170,836 30,065 17.60% 41,026 13,610 0 $29.90

Outlying Kaufman Cou. 3 12,520 0 0.00% 0 2,700 0 $10.80

Parker County 97 672,143 68,334 10.17% 12,000 4,343 30,203 $23.77

Plano 216 5,545,363 657,472 11.86% 37,800 ‐125,046 13,200 $22.80

Preston Center 43 1,094,758 77,239 7.06% 4,506 22,657 8,034 $31.67

Quorum/Bent Tree 236 10,872,480 1,955,625 17.99% 8,405 ‐110,518 0 $20.25

Richardson 234 10,800,280 1,559,222 14.44% 103,066 170,563 6,000 $19.17

Rockwall 74 856,669 80,964 9.45% 2,464 ‐24,080 7,544 $28.33

South Irving 50 1,729,881 157,598 9.11% 0 9,292 24,800 $18.89

Southeast Dallas 30 619,634 45,527 7.35% 0 ‐11,757 0 $19.72

Southeast Ft Worth 37 625,419 96,680 15.46% 8,201 13,427 15,000 $17.48

Southwest Dallas 173 3,087,661 361,386 11.70% 63,488 69,627 15,544 $19.15

Stemmons Freeway 120 8,141,830 2,091,756 25.69% 9,630 ‐39,174 0 $16.04

Upper Tollway/West P. 289 9,381,934 1,017,050 10.84% 56,900 195,249 112,508 $25.91

Uptown/Turtle Creek 64 2,654,657 387,253 14.59% 14,765 ‐74,802 31,484 $31.11

Urban Center/Wingren 34 1,992,270 281,499 14.13% 0 53,656 0 $19.55

West LBJ Freeway 44 3,108,470 295,795 9.52% 0 121,815 0 $18.16

West Southwest Ft Wo. 364 7,922,699 684,170 8.64% 62,480 ‐25,550 44,777 $23.86

Westlake/Grapevine 557 6,491,607 706,396 10.88% 80,232 ‐13,610 80,405 $26.55

White Rock 85 3,249,248 176,185 5.42% 0 ‐35,783 0 $19.53

Wise County 15 126,160 11,412 9.05% 0 ‐1,347 0 $16.69

Totals 5,724 167,719,366 23,393,234 13.95% 1,481,504 248,645 1,338,449 $21.38




Lewisville Submarket Snapshot

Lewisville contains 5.17% of the market building inventory and 3.99% of the metro SF inventory.

Lewisville market rate is $21.18/SF which is less than the metro area's average rate of $21.38/SF.

Lewisville vacancy rate is 10.23% which is less than the metro area's average of 13.95%.

Lewisville has had 36,134 SF in construction, which is 2.7% of the 1,338,449 SF of construction in the overall metro area.

Lewisville has had 90,709 SF of deliveries and experienced 7,906 SF of absorption in the latest period.

Construction Activity

The following table summarizes construction activity and average size for all office properties that are under construction in the DFW metro area.

Office Construction Activity

Under Construction Inventory Average Building Size

Market # Bldgs Total RBA

Preleased

SF

Preleased

% All Existing U/C

Far North Dallas 29 4,779,452 3,597,619 75.3% 55,333 164,809

Uptown/Turtle Creek 5 1,305,014 536,476 41.1% 48,869 261,003

Las Colinas 8 826,913 425,233 51.4% 91,773 103,364

Mid‐Cities 15 634,788 450,181 70.9% 15,619 42,319

Richardson/Plano 29 586,207 269,794 46.0% 29,464 20,214

East Dallas 8 367,124 18,110 4.9% 12,400 45,891

Dallas CBD 2 322,110 52,887 16.4% 237,419 161,055

Preston Center 3 298,617 46,114 15.4% 39,843 99,539

Ft. Worth CBD 1 280,489 143,049 51.0% 100,768 280,489

South Fort. Worth 9 174,205 127,100 73.0% 12,158 19,356

All Other 22 193,284 86,220 44.6% 24,541 8,786

Totals 131 9,768,203 5,752,783 58.9% 74,566




The following table summarizes recent deliveries by building size for all office properties within the DFW metro area.

Office: Recent Deliveries by Project Size of Year‐to‐Date Development

Building Size # Bldgs RBA

SF

Leased

%

Leased

Avg.

Rate

Single‐

Tenant

Multi‐

Tenant

< 50,000 SF 128 1,144,646 698,834 61.1% $29.47 94,991 1,049,655

50,000 SF ‐ 99,999 SF 5 371,018 304,808 82.2% $31.98 92,237 278,781

100,000 SF ‐ 249,999 SF 7 1,235,284 936,971 75.9% $31.46 605,000 630,284

250,000 SF ‐ 499,999 SF 6 2,051,807 1,210,936 59.0% $36.41 727,183 1,324,624

>= 500,000 SF 2 1,700,000 1,700,000 100.0% $0.00 1,700,000 0


Office Market Outlook and Conclusions

Based on the key metro area and submarket trends, construction outlook, and the performance of competing properties, IRR expects the mix of property fundamentals and economic conditions in the DFW metro area to have a positive impact on the subject property’s performance in the near‐term.

Land Description and Analysis 35


Property Analysis

Land Description and Analysis

Location

The property is located on the north side of Diane Circle, west of S. Valley Parkway, in the City of Lewisville, Denton County, Texas.

Land Area

The following table summarizes the subject’s land area.

Land Area Summary

Tax ID SF Acres

121466 25,448 0.584

Source: Public Records

Shape and Dimensions

The site is rectangular in shape, with dimensions of approximately 135 feet in width and 190 feet in depth. Site utility based on shape and dimensions is average.

Topography

The site is generally level and at street grade. The topography does not result in any particular development limitations.

Drainage

No particular drainage problems were observed or disclosed at the time of field inspection. This appraisal assumes that surface water collection, both on‐site and in public streets adjacent to the subject, is adequate.

Flood Hazard Status

The following table provides flood hazard information.

Flood Hazard Status

Community Panel Number 48121C0545G

Date April 18, 2011

Zone X

Description Outside of 500‐year floodplain

Insurance Required? No



Environmental Hazards

An environmental assessment report was not provided for review, and during our inspection, we did not observe any obvious signs of contamination on or near the subject. However, environmental issues are beyond our scope of expertise. It is assumed that the property is not adversely affected by environmental hazards.

Ground Stability

A soils report was not provided for our review. Based on our inspection of the subject and observation of development on nearby sites, there are no apparent ground stability problems. However, we are not experts in soils analysis. We assume that the subject’s soil bearing capacity is sufficient to support the existing improvements.

Streets, Access and Frontage

Details pertaining to street access and frontage are provided in the following table.

Streets, Access and Frontage

Street Diane Circle

Frontage Feet 135

Paving Asphalt

Curbs Yes

Sidewalks None

Lanes 2 way, 1 lane each way

Direction of Traffic East/west

Condition Average

Traffic Levels Low

Signals/Traffic Control None

Access/Curb Cuts Yes

Visibil ity Below average

Direct access to the subject is through a residential neighborhood via S. Valley Parkway and Kathy Lane. Secondary access to the subject is through a retail shopping center to the immediate north of the subject. Both access points are considered to be a negative impact on the subject property.



Utilities

The availability of utilities to the subject is summarized in the following table.

Utilities

Service Provider

Water City of Lewisvil le

Sewer City of Lewisvil le

Electricity Various providers

Natural Gas Various providers

Local Phone Various providers

Zoning

The subject is zoned LC, Local Commercial, by City of Lewisville. The LC zone is intended for a variety of commercial development. The following table summarizes our understanding and interpretation of the zoning requirements that affect the subject.

Zoning Summary

Zoning Jurisdiction City of Lewisvil le

Zoning Designation LC

Description Local Commercial

Legally Conforming? Appears to be legally conforming

Zoning Change Likely? None

Permitted Uses Various commercial uses

Category Zoning Requirement

Minimum Lot Area None

Minimum Street Frontage (Feet) None

Minimum Lot Width (Feet) None

Minimum Lot Depth (Feet) None

Minimum Setbacks (Feet) 25' (front), 15' (side), 25' (rear)

Maximum Building Height 45 feet

Maximum Site Coverage None

Maximum Floor Area Ratio None

Parking Requirement One (1) space per every 250 sqaure feet of GLA

Source: City of Lewisville Code of Ordinances

According to the local planning department, there are no pending or prospective zoning changes. It appears that the property conforms with zoning requirements. We are not experts in the interpretation of zoning ordinances. An appropriately qualified land use attorney should be engaged if a determination of compliance is required.

Other Land Use Regulations

We are not aware of any other land use regulations that would affect the property.



Easements, Encroachments and Restrictions

We were not provided a current title report to review. We are not aware of any easements, encroachments, or restrictions that would adversely affect value. Our valuation assumes no adverse impacts from easements, encroachments, or restrictions, and further assumes that the subject has clear and marketable title.

Conclusion of Site Analysis

Overall, the physical characteristics of the site and the availability of utilities result in functional utility suitable for a variety of uses including those permitted by zoning. Uses permitted by zoning include various commercial uses. We are not aware of any other particular restrictions on development.



Survey



Assessor Map



Aerial Map

Improvements Description and Analysis 42


Improvements Description and Analysis

Overview

The subject is an existing medical office property containing 10,428 square feet of gross leasable area. The improvements were constructed in 1985 and are 100% leased as of the effective appraisal date. The site area is 0.584 acres or 25,448 square feet. The following description is based on our inspection of the subject property.

Improvements Description

Name of Property Medical Office ‐ Lewisvil le, TX

General Property Type Medical Office

Competitive Property Class C

Occupancy Type Single Tenant

Percent Leased 100%

Number of Tenants 1

Number of Buildings 1

Stories 1.5

Building Shape Rectangular

Construction Class D

Construction Type Wood frame

Construction Quality Average

Condition Average

Gross Leasable Area (SF) 10,428

Land Area (SF) 25,448

Floor Area Ratio (GLA/Land SF) 0.41

Building Area Source Public Records

Year Built 1985

Actual Age (Yrs.) 33

Estimated Effective Age (Yrs.) 25

Estimated Economic Life (Yrs.) 50

Remaining Economic Life (Yrs.) 25

Number of Parking Spaces 33

Source of Parking Count Inspection

Parking Type Surface

Parking Spaces/1,000 SF GLA 3.16



Construction Details

Foundation Concrete slab

Structural Frame Wood

Exterior Walls Brick

Windows Glass incased in aluminum frame

Roof Metal with skylights

Interior Finishes Typical for similar aged office buildings

Floors Hardwood‐l ike, laminate and ceramic ti le, and carpet

Walls Drywall; textured and painted

Ceilings Acoustic drop‐ti le

Lighting Fluorescent l ighting

HVAC Central

Electrical Assumed to be designed in accordance with local building codes

Plumbing Assumed to be designed in accordance with local building codes

Rest Rooms Adequate

Sprinklers None

Occupancy Status

The property is 100% leased to a single‐tenant dba as Lewisville Family Medical Associates.

Improvements Analysis

Quality and Condition

The improvements are of average quality construction and are in average condition.

The quality of the subject is considered to be consistent with that of competing properties, and maintenance appears to have been consistent with that of competing properties. Overall, the market appeal of the subject is consistent with that of competing properties, considering.

Functional Utility

The improvements appear to be adequately suited to their current use.

Deferred Maintenance

No deferred maintenance is apparent from our inspection, and none is identified based on discussions with ownership.

ADA Compliance

Based on our inspection and information provided, we are not aware of any ADA issues. However, we are not expert in ADA matters, and further study by an appropriately qualified professional would be recommended to assess ADA compliance.



Hazardous Substances

An environmental assessment report was not provided for review and environmental issues are beyond our scope of expertise. No hazardous substances were observed during our inspection of the improvements; however, we are not qualified to detect such substances. Unless otherwise stated, we assume no hazardous conditions exist on or near the subject.

Personal Property

No personal property items were observed that would have any material contribution to market value.

Conclusion of Improvements Analysis

In comparison to other competitive properties in the region, the subject improvements are rated as follows:

Improvements Ratings

Visibility/Exposure Below Average

Design and Appearance Average

Age/Condition Average

% Sprinklered Below Average

Lobby Average

Interior Amenities Average

Floor to ceil ing heights Average

Parking Ratios Average

Distance of Parking to Building Access Average

Landscaping Average

Overall, the quality, condition, and functional utility of the improvements are average for their age and location.



General exterior view General exterior view

Parking area Parking area

Parking area Front entrance



Front entrance Lobby/waiting area

Lobby/waiting area skylight Reception area

Typical exam room General interior view



Typical hallway Second floor kitchen

Second floor billing area Second floor conference room

Vacant pharmacy Vacant pharmacy



Vacant pharmacy Street scene looking east along Diane Circle

Street scene looking west along Diane Circle

Real Estate Taxes 49


Real Estate Taxes The Denton Central Appraisal District does assessment on a countywide basis. Because assessed value is typical the result of a mass appraisal process based more on statistical probability than individual property characteristics, it should be noted that there is frequently a difference between assessed value and market value for an individual property. The tax rates are set in October of each year. The tax rates for 2017 for the taxing authorities are calculated to be 2.081399%.

Real estate taxes and assessments for the current tax year are shown in the following table.

Taxes and Assessments ‐ 2017

Assessed Value Taxes and Assessments

Tax ID Land Improvements Total Tax Rate

Ad Valorem

Taxes Total

121466 $127,240 $610,904 $738,144 2.081399% $15,364 $15,364

Based on the concluded market value of the subject, the assessed value appears reasonable. To check the reasonableness of the subject’s assessment and related tax expense, we analyze the assessments of several competitive properties, summarized as follows.

Tax Comparables

No. Property Name Year Built SF

Total Assessed

Value

Assessed

Value/SF Total Taxes Taxes/SF

1 1201 W. Main Street 1972 15,750 $1,974,000 $125.33 $41,087 $2.61

2 701 S. Old Orchard Lane 1993 9,996 $892,000 $89.24 $18,566 $1.86

3 401 N. Valley Parkway 2000 11,470 $1,374,221 $119.81 $28,603 $2.49

4 502 N. Valley Parkway 2004 6,000 $970,000 $161.67 $20,190 $3.36

5 500 N. Valley Parkway 1999 20,816 $3,882,762 $186.53 $80,816 $3.88

Subject Medical Office ‐ Lewisvil le, TX 1985 10,428 $738,144 $70.78 $15,364 $1.47

Tax assessments for comparable properties range from $89.24 to $186.53 per square foot, as compared with the subject at $70.78 per square foot. On balance, the subject’s taxes appear low.

Highest and Best Use 50


Highest and Best Use

Process

Before a property can be valued, an opinion of highest and best use must be developed for the subject site, both as if vacant, and as improved or proposed. By definition, the highest and best use must be:

Physically possible.

Legally permissible under the zoning regulations and other restrictions that apply to the site.

Financially feasible.

Maximally productive, i.e., capable of producing the highest value from among the permissible, possible, and financially feasible uses.

Highest and Best Use As If Vacant

Physically Possible

The physical characteristics of the site do not appear to impose any unusual restrictions on development. Overall, the physical characteristics of the site and the availability of utilities result in functional utility suitable for a variety of uses.

Legally Permissible

The site is zoned LC, Local Commercial. Permitted uses include various commercial uses. To our knowledge, there are no legal restrictions such as easements or deed restrictions that would effectively limit the use of the property. Given prevailing land use patterns in the area, only office use is given further consideration in determining highest and best use of the site, as though vacant.

Financially Feasible

Based on our analysis of the market, there is currently adequate demand for office use in the subject’s area. It appears that a newly developed office use on the site would have a value commensurate with its cost. Therefore, office use is considered to be financially feasible.

Maximally Productive

There does not appear to be any reasonably probable use of the site that would generate a higher residual land value than office use. Accordingly, it is our opinion that office use, developed to the normal market density level permitted by zoning, is the maximally productive use of the property.

Conclusion

Development of the site for office use is the only use that meets the four tests of highest and best use. Therefore, it is concluded to be the highest and best use of the property as if vacant.

Highest and Best Use 51


As Improved

The subject site is developed with a 10,428 square foot single‐tenant medical office building, which is consistent with the highest and best use of the site as if it were vacant.

The existing improvements are currently leased and produce a significant positive cash flow that we expect will continue. Therefore, a continuation of this use is concluded to be financially feasible.

Based on our analysis, there does not appear to be any alternative use that could reasonably be expected to provide a higher present value than the current use, and the value of the existing improved property exceeds the value of the site, as if vacant. For these reasons, continued medical office use is concluded to be maximally productive and the highest and best use of the property as improved.

Most Probable Buyer

Taking into account the size and characteristics of the property, the likely buyer is a local investor or an owner‐user.

Valuation Methodology 52


Valuation

Valuation Methodology Appraisers usually consider three approaches to estimating the market value of real property. These are the cost approach, sales comparison approach and the income capitalization approach.

The cost approach assumes that the informed purchaser would pay no more than the cost of producing a substitute property with the same utility. This approach is particularly applicable when the improvements being appraised are relatively new and represent the highest and best use of the land or when the property has unique or specialized improvements for which there is little or no sales data from comparable properties.

The sales comparison approach assumes that an informed purchaser would pay no more for a property than the cost of acquiring another existing property with the same utility. This approach is especially appropriate when an active market provides sufficient reliable data. The sales comparison approach is less reliable in an inactive market or when estimating the value of properties for which no directly comparable sales data is available. The sales comparison approach is often relied upon for owner‐user properties.

The income capitalization approach reflects the market’s perception of a relationship between a property’s potential income and its market value. This approach converts the anticipated net income from ownership of a property into a value indication through capitalization. The primary methods are direct capitalization and discounted cash flow analysis, with one or both methods applied, as appropriate. This approach is widely used in appraising income‐producing properties.

Reconciliation of the various indications into a conclusion of value is based on an evaluation of the quantity and quality of available data in each approach and the applicability of each approach to the property type.

The methodology employed in this assignment is summarized as follows:

Approaches to Value

Approach Applicabil ity to Subject Use in Assignment

Cost Approach Not Applicable Not Utilized

Sales Comparison Approach Applicable Util ized

Income Capitalization Approach Applicable Util ized

Sales Comparison Approach 53


Sales Comparison Approach The sales comparison approach develops an indication of value by comparing the subject to sales of similar properties. The steps taken to apply the sales comparison approach are:

Identify relevant property sales;

Research, assemble, and verify pertinent data for the most relevant sales;

Analyze the sales for material differences in comparison to the subject;

Reconcile the analysis of the sales into a value indication for the subject.

To apply the sales comparison approach, we searched for sale transactions within the following parameters:

Property Type: Medical office

Location: DFW Metroplex

Size: 2,500 SF or more

Age/Quality: 2003 or older construction

Transaction Date: January 2016 – Present

For this analysis, we use price per square foot of rentable area as the appropriate unit of comparison because market participants typically compare sale prices and property values on this basis. The sales considered most relevant are summarized in the following table.



Summary of Comparable Improved Sales

No. Name/Address

Sale

Date;

Status

Yr. Blt.;

# Stories;

% Occ.

Acres;

FAR;

Parking Ratio

Prop Class;

Const Type;

Prop Rights Sale Price

Rentable

SF

$/Rentable

SF Cap Rate

1 Plano Medical Plaza Dec‐16 1985 0.81 C $1,980,000 9,568 $206.94 7.31%

3713 W. 15th Street Closed 1 0.27 Masonry

Plano 77% – Fee Simple

Collin County

TX

2 Envision Imaging May‐16 2003 0.47 C $1,031,550 4,600 $224.25 7.80%

710 Hunters Row Ct. Closed 1 0.23 Masonry

Mansfield 100% – Leased Fee

Tarrant County

TX

3 Medical Office ‐ Hurst, TX May‐16 1983 0.58 0 $400,000 2,745 $145.72 –

1856 Norwood Plaza Closed 1 0.11 0

Hurst – – Fee Simple

Tarrant County

TX

4 Randol Mill Road Medical Apr‐16 1988 0.44 B $493,000 2,534 $194.55 7.50%

1000 W. Randol Mill Rd. Closed 1 0.13 0

Arlington 100% 11.05/1,000 Leased Fee

Tarrant County

TX

5 Medical Office Jan‐16 1991 0.41 C $1,275,000 5,912 $215.66 7.88%

810 Lipscomb St. Closed 1 0.33 0

Fort Worth 100% 4.06/1,000 Leased Fee

Tarrant County

TX

Subject 1985 0.58 C 10,428

Medical Office ‐ 2 0.41 Wood frame

Lewisvil le, TX 100% 3.16/1,000 Fee Simple

Comments: Income/expenses based on information provided by listing brokers.

Comments: This medical office property was reportedly purchased for owner occupancy. According to the broker, the interior finish‐out is

considered to be in average condition.

Comments: This comparable represents a sale/leaseback of a medical office building in which the seller agree to a 5‐year, absolute net lease

at a rate of $17.50/SF. No vacancy or expenses were recognized.

Comments: Owner sold building and then signed a 5‐year absolute net lease with new new owner.



Comparable Improved Sales Map



Sale 1 Plano Medical Plaza

Sale 2Envision Imaging

Sale 3 Medical Office ‐ Hurst, TX

Sale 4Randol Mill Road Medical Office Sale

Sale 5 Medical Office



Adjustment Factors

The sales are compared to the subject and adjusted to account for material differences that affect value. Adjustments are considered for the following factors, in the sequence shown below.

Adjustment Factors

Effective Sale Price Accounts for atypical economics of a transaction, such as excess land, non‐realty components, expenditures by the buyer at time of purchase, or other similar factors. Usually applied directly to sale price on a lump sum basis.

Real Property Rights Leased fee, fee simple, leasehold, partial interest, etc.

Financing Terms Seller financing, or assumption of existing financing, at non‐market terms.

Conditions of Sale Extraordinary motivation of buyer or seller, such as 1031 exchange transaction, assemblage, or forced sale.

Market Conditions Changes in the economic environment over time that affect the appreciation and depreciation of real estate.

Location Market or submarket area influences on sale price; surrounding land use influences.

Access/Exposure Convenience to transportation facilities; ease of site access; visibility from main thoroughfares; traffic counts.

Size Inverse relationship that often exists between building size and unit value.

Parking Ratio of parking spaces to building area.

Building to Land Ratio Ratio of building area to land area; also known as floor area ratio (FAR).

Building Quality Construction quality, amenities, market appeal, functional utility.

Age/Condition Effective age; physical condition.

Economic Characteristics Non‐stabilized occupancy, above/below market rents, and other economic factors. Excludes differences in rent levels that are already considered in previous adjustments, such as for location or quality

Issues requiring elaboration are addressed in the following paragraphs.

Market Conditions

The sales took place from January 2016 to December 2016. Market conditions generally have been strengthening over this period through the effective date of value. As a result, we apply upward adjustments of 3.0% per year to account for this trend.



Analysis and Adjustment of Sales

The analysis and adjustment of the comparable sales is discussed in the following paragraphs.

Sale 1 is Plano Medical Plaza, located at 3713 W. 15th Street, Plano, Collin County, TX. This 9,568 square foot medical office property sold in December 2016 for $1,980,000, or $206.94 per square foot. A downward adjustment (‐10%) was made for superior locational characteristics within the Plano Office submarket. A downward adjustment (‐15%) was made for superior access/exposure. Overall, a downward adjustment is indicated.

Sale 2 is Envision Imaging, located at 710 Hunters Row Court, Mansfield, Tarrant County, TX. This 4,600 square foot medical office property sold in May 2016 for $1,031,550, or $224.25 per square foot. A downward adjustment (‐10%) was made for smaller building size. Built in 2003, a downward adjustment (‐20%) was made for superior age/condition. Overall, a downward adjustment is indicated.

Sale 3 is located at 1856 Norwood Plaza, Hurst, Tarrant County, TX. This 2,745 square foot medical office property sold in May 2016 for $400,000, or $145.72 per square foot. An upward adjustment (+5%) was made for inferior locational characteristics. A downward adjustment (‐10%) was made for smaller building size. Built in 1983, an upward adjustment (10%) was made for inferior age/condition. Overall, a slight upward adjustment is indicated.

Sale 4 is located at 1000 W. Randol Mill Road, Arlington, Tarrant County, TX. This 2,534 square foot medical office property sold in April 2016 for $493,000, or $194.55 per square foot. A downward adjustment (‐15%) was made for superior access/exposure. A downward adjustment (‐10%) was made for smaller building size. An upward adjustment (+5%) was made for inferior building quality. Overall, a downward adjustment is indicated.

Sale 5 is located at 810 Lipscomb Street, Fort Worth, Tarrant County, TX. This 5,912 square foot medical office property sold in January 2016 for $1,275,000, or $215.66 per square foot. A downward adjustment (‐10%) was made for superior locational characteristics. A downward adjustment (‐10%) was made for superior access/exposure. A downward adjustment (‐5%) was made for smaller building size. Built in 1991, a downward adjustment (‐5%) was made for superior age/condition. Overall, a downward adjustment is indicated.



The following table summarizes the adjustments we made to each sale.

Improved Sales Adjustment Grid

Subject Comparable 1 Comparable 2 Comparable 3 Comparable 4 Comparable 5

Property Name Medical Office ‐

Lewisville, TX

Plano Medical

Plaza

Envision Imaging Medical Office ‐

Hurst, TX

Randol Mill Road

Medical Office

Sale

Medical Office

Address 1175 Diane Circle 3713 W. 15th

Street

710 Hunters Row

Ct.

1856 Norwood

Plaza

1000 W. Randol

Mill Rd.

810 Lipscomb St.

City Lewisville Plano Mansfield Hurst Arlington Fort Worth

County Denton Coll in Tarrant Tarrant Tarrant Tarrant

State Texas TX TX TX TX TX

Sale Date Dec‐16 May‐16 May‐16 Apr‐16 Jan‐16

Sale Status Closed Closed Closed Closed Closed

Sale Price $1,980,000 $1,031,550 $400,000 $493,000 $1,275,000

Rentable Area 10,428 9,568 4,600 2,745 2,534 5,912

Year Built 1985 1985 2003 1983 1988 1991

$206.94 $224.25 $145.72 $194.55 $215.66

Fee Simple Leased Fee Fee Simple Leased Fee Leased Fee

– – – – –

All cash Cash to seller Cash to seller Cash to seller Cash to seller

– – – – –

– – – – –

Market Conditions 2/9/2018 Dec‐16 May‐16 May‐16 Apr‐16 Jan‐16

Annual % Adjustment 3% 4% 5% 5% 5% 6%

$215.22 $235.46 $153.01 $204.28 $228.60

‐10% – 5% – ‐10%

‐15% – – ‐15% ‐10%

– ‐10% ‐10% ‐10% ‐5%

– – – – –

– – – – –

– – – 5% –

– ‐20% 10% – ‐5%

– – – – –

Net $ Adjustment ‐$53.80 ‐$70.64 $7.65 ‐$40.86 ‐$68.58

Net % Adjustment ‐25% ‐30% 5% ‐20% ‐30%

Final Adjusted Price $161.41 $164.82 $160.66 $163.43 $160.02

Overall Adjustment ‐22% ‐27% 10% ‐16% ‐26%

Average

Indicated Value

$162.07

$162.00

Price per SF of Rentable Area

Access/Exposure

Location

Cumulative Adjusted Price

% Adjustment

Property Rights

% Adjustment

Financing Terms

Age/Condition

Building to Land Ratio (FAR)

Parking

Size

Economic Characteristics

Conditions of Sale

% Adjustment

Building Quality

Range of Adjusted Prices $160.02 ‐ $164.82



Value Indication

Prior to adjustment, the sales reflect a range of $145.72 ‐ $224.25 per square foot. After adjustment, the range is narrowed to $160.02 ‐ $164.82 per square foot, with an average of $162.07 per square foot. To arrive at an indication of value, generally equal emphasis was placed on each sale.

Based on the preceding analysis, we arrive at a value indication by the sales comparison approach as follows:

Value Indication by Sales Comparison

Indicated Value per SF $162.00

Subject Square Feet 10,428

Indicated Value $1,689,336

Rounded $1,690,000

Income Capitalization Approach 61


Income Capitalization Approach The income capitalization approach converts anticipated economic benefits of owning real property into a value estimate through capitalization. The steps taken to apply the income capitalization approach are:

Analyze the revenue potential of the property.

Consider appropriate allowances for vacancy, collection loss, and operating expenses.

Calculate net operating income by deducting vacancy, collection loss, and operating expenses from potential income.

Apply the most appropriate capitalization methods to convert anticipated net income to an indication of value.

The two most common capitalization methods are direct capitalization and discounted cash flow analysis. In direct capitalization, a single year’s expected income is divided by an appropriate capitalization rate to arrive at a value indication. In discounted cash flow analysis, anticipated future net income streams and a future resale value are discounted to a present value at an appropriate yield rate.

In this analysis, we use only direct capitalization because investors in this property type typically rely more on this method.

Leased Status of Property

The property is leased to a single tenant. Pertinent lease terms are shown below.



Lease Synopsis

Lessor

Lessee

Leased SF 10,428

Lease Type Absolute Net

Tenant Paid Expenses

Owner Paid Expenses

Commencement 1/1/2017

Expiration 12/31/2018

Renewal Options

Term 24 months or 2.0 years

Remaining Term 11 months or 0.9 years

Base Rent & Escalations Period Months PSF/Yr Annual Rent

Base Term 1/1/2017 ‐ 12/31/2017 1 ‐ 12 $13.81 $144,000

Base Term 1/1/2018 ‐ 12/31/2018 13 ‐ 24 $15.54 $162,000

Option Term 1/1/2019 ‐ 12/31/2021 25 ‐ 60 $17.26 $180,000

Current Rent $162,000

Projected Rent ‐ First Forecast Year $162,000

Source: Lease Agreement

Aesculapian Enterprises

Lewisville Family Medical Associates

All expenses

None

One (1) additional term of three (3) years

Market Rent Analysis

Contract rents typically establish income for leased space, while market rent is the basis for estimating income from future speculative re‐leasing of space when the lease expires. Also, it is important to compare the current contract rent level with the market rent level. To estimate market rent for the subject, we searched for comparable rentals within the following parameters:

Location: Denton County, Texas

Property Type: General/medical office

Space Size: 5,000 – 15,000 SF

Date: Current

Comparable rentals considered most relevant are summarized in the following table.



Summary of Comparable Rentals ‐ Medical Office

No. Property Information Description Tenant SF

Lease

Start Rent/SF Escalations Lease Type

1 Atrium Office Building Yr Blt. 1986 Listing 7,833 Feb‐18 $13.00 Fixed Percentage Triple Net

1001 Cross Timbers Road Stories: 2

Flower Mound GLA: 82,195

Denton County Parking Ratio: 5.0 /1,000

TX

2 325 S Stemmons ‐ Office Yr Blt. 1974 Listing 5,658 Feb‐18 $15.00 Fixed Percentage Triple Net

325 S. Stemmons Freeway Stories: 2

Lewisvi lle GLA: 5,658

Denton County Parking Ratio: –

TX

3 571 W Main Street Building Yr Blt. 2003 Listing 5,044 Feb‐18 $20.00 Fixed Percentage Triple Net

571 W. Main St W. Stories: 2

Lewisvi lle GLA: 22,000


TX

4 Long Prairie Rd ‐ Professional Office Yr Blt. 1999 Listing 9,000 Feb‐18 $19.50 Fixed Percentage Triple Net

2612 Long Prairie Road Stories: 1

Flower Mound GLA: 10,233


TX

Comments: Medical office space available on the 1st floor.

Comments: The building is currently vacant and listed for sale at $850,000 ($150.23/SF) or lease at $15.00/SF NNN.



Comparable Rentals Map



Lease 1 Atrium Office Building

Lease 2325 S Stemmons ‐ Office

Lease 3 571 W Main Street Building

Lease 4Long Prairie Rd ‐ Professional Office



Rental Analysis Factors

The following elements of comparison are considered in our analysis of the comparable rentals.

Rental Analysis Factors

Expense Structure Division of expense responsibilities between landlord and tenants.

Conditions of Lease Extraordinary motivations of either landlord or tenant to complete the transaction.

Market Conditions Changes in the economic environment over time that affect the appreciation and depreciation of real estate.

Location Market or submarket area influences on rent; surrounding land use influences.

Access/Exposure Convenience to transportation facilities; ease of site access; visibility from main thoroughfares; traffic counts.

Size Difference in rental rates that is often attributable to variation in sizes of leased space.

Building Quality Construction quality, amenities, market appeal, functional utility.

Age/Condition Effective age; physical condition.


Variations in rental rate attributable to such factors as free rent or other concessions, pattern of rent changes over lease term, or tenant improvement allowances.



Analysis of Comparable Rentals

Rent 1 is the current listing of 7,833 square feet to located at 1001 Cross Timbers Road, Flower Mound, Denton County, TX. The asking rent is $13.00 per square foot, triple net. A downward adjustment (‐5%) was made for superior access/exposure. The property was constructed in 1986 with minimal updating. Thus, an upward adjustment (10%) was made for inferior age/condition. Overall, an upward adjustment is indicated.

Rent 2 is the current listing of 5,658 square feet located at 325 S. Stemmons Freeway, Lewisville, Denton County, TX. The asking rent is $15.00 per square foot, triple net. A downward adjustment (‐15%) was made for superior access/exposure. Built in 1974, an upward adjustment (+10%) was applied for inferior age/condition. Overall, a downward adjustment is indicated.

Rent 3 is the current listing of 5,044 square feet 571 W. Main Street, Lewisville, Denton County, TX. The asking rent is $20.00 per square foot, triple net. A downward adjustment (‐10%) was made for superior locational characteristics. A downward adjustment (‐5%) was made for superior access/exposure. A downward adjustment (‐5%) was applied for superior building quality as compared to the subject. Built in 2003, a downward adjustment (‐10%) was made for superior age/condition. Overall, a downward adjustment is indicated.

Rent 4 is the current listing of 9,000 square feet located at 2612 Long Prairie Road, Flower Mound, Denton County, TX. The asking rent is $19.50 per square foot, triple net. A downward adjustment (‐10%) was made for superior locational characteristics. A downward adjustment (‐5%) was made for superior access/exposure. A downward adjustment (‐5%) was applied for superior building quality as compared to the subject. Built in 1999, a downward adjustment (‐10%) was made for superior age/condition. Overall, a downward adjustment is indicated.



The following table summarizes the adjustments we made to each comparable.

Rental Adjustment Grid ‐ Medical Office

Subject Comparable 1 Comparable 2 Comparable 3 Comparable 4

Property Name Medical Office ‐

Lewisvil le, TX

Atrium Office

Building

325 S Stemmons ‐

Office

571 W Main Street

Building

Long Prairie Rd ‐

Professional

Office

Address 1175 Diane Circle 1001 Cross

Timbers Road

325 S. Stemmons

Freeway

571 W. Main St W. 2612 Long Prairie

Road

City Lewisvil le Flower Mound Lewisvil le Lewisvil le Flower Mound

County Denton Denton Denton Denton Denton

State TX TX TX TX

Lease Start Date Feb‐18 Feb‐18 Feb‐18 Feb‐18

Lease Term (Months) – – – –

Tenant Name Listing Listing Listing Listing

Leased SF 10,428 7,833 5,658 5,044 9,000

Lease Type Triple Net Triple Net Triple Net Triple Net Triple Net

Year Built 1985 1986 1974 2003 1999

$13.00 $15.00 $20.00 $19.50

– – – –

– – – –

Market Conditions 2/9/2018 Feb‐18 Feb‐18 Feb‐18 Feb‐18

Annual % Adjustment 0% – – – –

$13.00 $15.00 $20.00 $19.50

– – ‐10% ‐10%

‐5% ‐15% ‐5% ‐5%

– – – –

– – ‐5% ‐5%

10% 10% ‐10% ‐10%

– – – –

Net $ Adjustment $0.65 ‐$0.75 ‐$6.00 ‐$5.85

Net % Adjustment 5% ‐5% ‐30% ‐30%

Final Adjusted Price $13.65 $14.25 $14.00 $13.65

Overall Adjustment 5% ‐5% ‐30% ‐30%

Average

Indicated Rent

Range of Adjusted Rents $13.65 ‐ $14.25

$13.89

$14.00

Building Quality

Age/Condition


Size

Base Rent/SF/Yr

Expense Structure

$ Adjustment

Conditions of Lease

% Adjustment

Cumulative Adjusted Rent

Location

Access/Exposure

Market Rent Conclusion

After analysis, the overall range is $13.65 ‐ $14.25 per square foot per year. Placing generally equal emphasis on each comparable, a market rental rate of $14.00 per square foot on a triple‐net basis is most applicable to the subject.

Based on the preceding analysis of comparable rentals, we conclude market lease terms for the subject as follows:



Concluded Market Lease Terms

Space Type SF

Market

Rent Measure

Rent

Escalations Lease Type

Lease

Term

(Mos.)

Medical Office 10,428 $14.00 $/SF/Yr 3.00% annually Triple Net 60

Stabilized Income and Expenses

Potential Gross Rent

Potential gross rent is based on contract rent from the existing lease in place. Income is projected for the 12‐month period following the effective date of the appraisal. In the following table, we compare potential income from contract rent to potential income from market rent.

Potential Gross Rent

Space Type SF Annual $/SF/Yr $/SF/Yr Annual

Medical Office 10,428 $162,000 $15.54 $14.00 $145,992 111%

Total Subject 10,428 $162,000 $15.54 $14.00 $145,992 111%

1 Contract rent for leased space; vacant space at market.

Potential Rent at Contract (1) Potential Rent at Market

Contract

as % of

Market

The above market contract rent will be reflected in the overall capitalization rate discussed in a subsequent section of this report.

Expense Reimbursements

Operating expenses are directly paid by the tenant; therefore, no reimbursement income is due the owner.

Vacancy & Collection Loss

As discussed in the Office Market Analysis section of this report, the current vacancy rate for the Lewisville Office submarket is 10.23%. Stabilized vacancy and collection loss is estimated at 10.0% based on the credit quality of the tenant and the length of the lease.

Effective Gross Income

Effective gross income is calculated at $145,800, or $13.98 per square foot.

Expenses

The structural maintenance expense category represents an allowance for future repairs and replacements of structural components such as the roof. We estimate this expense at $0.50 per square foot based on the age, condition, and construction quality of the improvements.



Net Operating Income

Based on the preceding income and expense projections, stabilized net operating income is estimated at $140,586, or $13.48 per square foot.

Operating History and Projections

Income

Base Rent $162,000

Expense Reimbursements 0

Potential Gross Income* $162,000

Vacancy & Collection Loss @ 10.0% ‐16,200

Effective Gross Income $145,800

Expenses

Replacement Reserves 5,214

Total Expenses $5,214

Net Operating Income $140,586

Operating Expense Ratio** 0.0%

IRR

Projection

*IRR projected income is the total potential income attributable to the property before deduction of vacancy and collection loss.

Historical income is the actual income that has been collected by the property owner.

**Replacement reserves, if any, are excluded from total expenses for purposes of determining the Operating Expense Ratio.



Capitalization Rate Selection

A capitalization rate is used to convert net income into an indication of value. Selection of an appropriate capitalization rate considers the future income pattern of the property and investment risk associated with ownership. We use the following methods to derive a capitalization rate for the subject: analysis of comparable sales, review of national investor surveys, and the band of investment method.

Analysis of Comparable Sales

Capitalization rates derived from comparable sales are shown in the following table.

Capitalization Rate Comparables

No. Property Name

Year

Built

Sale

Date

Gross

Leasable Area

%

Occup. Price/SF Cap Rate

1 Plano Medical Plaza 1985 12/9/2016 9,568 77% $206.94 7.31%

2 Envision Imaging 2003 5/18/2016 4,600 100% $224.25 7.80%

3 Medical Office ‐ Hurst, TX 1983 5/18/2016 2,745 – $145.72 –

4 Randol Mill Road Medical Office Sale 1988 4/25/2016 2,534 100% $194.55 7.50%

5 Medical Office 1991 1/19/2016 5,912 100% $215.66 7.88%

Average (Mean) Cap Rate: 7.62%

The comparables reflect a capitalization rate range of 7.31% to 7.88%, with an average of 7.62%. Considering the subject’s above market contract rent, a capitalization rate higher than the upper of the range is considered appropriate. Based on this information, a capitalization rate within a range of 8.00% to 8.50% could be expected for the subject.

National Investor Surveys

Data pertaining to investment grade properties from the PwC, ACLI, and Viewpoint surveys are summarized in the exhibits that follow.

Capitalization Rate Surveys – Office Properties

IRR‐ViewPoint

Year End 2017

National

CBD Office

IRR‐ViewPoint

Year End 2017

National

Suburban Office

PwC

4Q‐17

National

CBD Office

PwC

4Q‐17

National

Suburban Office

ACLI

3Q‐17

National

Office

Range 4.25% ‐ 11.00% 5.00% ‐ 10.00% 3.50% ‐ 8.00% 4.20% ‐ 10.00% NA

Average 7.11% 7.43% 5.73% 6.72% 4.97%

Source: IRR‐Viewpoint 2017; PwC Real Estate Investor Survey; American Counci l of Li fe Insurers Investment



4Q‐15 1Q‐16 2Q‐16 3Q‐16 4Q‐16 1Q‐17 2Q‐17 3Q‐17 4Q‐17

CBD 5.68 5.58 5.55 5.57 5.57 5.55 5.68 5.66 5.73

SUBURB 6.36 6.38 6.43 6.43 6.63 6.61 6.64 6.69 6.72

ACLI 5.33 5.53 6.02 5.77 5.23 5.43 5.29 4.97

4

4.5

5

5.5

6

6.5

7

7.5

8

Office Capitalization Rate Trends

CBD ‐ PwC Real Estate Investor Survey ‐National CBD Office MarketSUBURB ‐ PwC Real Estate Investor Survey ‐National Suburban Office Market

ACLI ‐ American Council of Li fe Insurers Investment Bulletin ‐Office Properties

The most current national survey data indicates that a going‐in capitalization rate for national suburban office properties ranges from 4.20% to 10.00% and averages 6.72%. We would expect the rate appropriate to the subject to be towards the upper end of the range in the survey data due to the age/condition and above market contract rent. Accordingly, based on the survey data, a capitalization rate within a range of 8.00% to 8.50% could be expected for the subject.

Band of Investment

The band of investment method derives a capitalization rate from the weighted average of the mortgage and equity demands on net income generated from the property. This method involves an estimate of typical financing terms as well as an estimated rate of return on equity capital sufficient to attract investors. The rate indicated by this method is shown in the following table.

Band of Investment Method

Mortgage/Equity Assumptions

Loan To Value Ratio 70%

Interest Rate 5.50%

Amortization (Years) 25

Mortgage Constant 0.0737

Equity Ratio 30%

Equity Dividend Rate 10.00%

Weighted Average of Mortgage and Equity Requirements

Mortgage Requirement 70% x 7.37% = 5.16%

Equity Requirement 30% x 10.00% = 3.00%

Indicated Capitalization Rate 8.16%

Rounded 8.25%



Capitalization Rate Conclusion

Based on the preceding analysis, a going‐in capitalization rate for the subject is indicated within a range of 8.00% to 8.50%.

To conclude a capitalization rate, we consider each of the following investment risk factors to determine its impact on the capitalization rate. The direction of each arrow in the following table indicates our judgment of an upward, downward, or neutral impact of each factor.

Risk Factor Issues Impact on Rate

Income Characteristics Credit strength of tenant, escalation pattern, above/below market rent, rollover risk.

↑

Competitive Market Position Construction quality, appeal, condition, effective age, functional utility.

↑

Location Market area demographics and life cycle trends; proximity issues; access and support services.

↔

Market Vacancy rates and trends; rental rate trends; supply and demand.

↓

Highest & Best Use Upside potential from redevelopment, adaptation, expansion.

↔

Overall Impact ↑

Accordingly, we conclude a capitalization rate as follows:

Capitalization Rate Conclusion

Going‐In Capitalization Rate 8.25%



Direct Capitalization Analysis

Net operating income is divided by the capitalization rate to indicate the stabilized value of the subject. Valuation of the subject by direct capitalization is shown in the table immediately following.

Direct Capitalization Analysis

SF Space Type

Rent

Applied $/SF Annual $/SF Bldg.

Income

Base Rent

Lewisvil le Family Medical Associates 10,428 Medical Office Contract $15.54 $162,000 –

Potential Gross Rent 10,428 $162,000 $15.54

Expense Reimbursements $0 $0.00

Vacancy & Collection Loss 10.00% ‐$16,200 ‐$1.55

Effective Gross Income $145,800 $13.98

Expenses

Replacement Reserves $5,214 $0.50

Total Expenses $5,214 $0.50

Net Operating Income $140,586 $13.48

Capitalization Rate 8.25%

Indicated Value $1,704,073 $163.41

Rounded $1,700,000 $163.02

Reconciliation and Conclusion of Value 75


Reconciliation and Conclusion of Value Reconciliation involves the weighting of alternative value indications, based on the judged reliability and applicability of each approach to value, to arrive at a final value conclusion. Reconciliation is required because different value indications result from the use of multiple approaches and within the application of a single approach. The values indicated by our analyses are as follows:

Summary of Value Indications


Sales Comparison Approach $1,690,000

Income Capitalization Approach $1,700,000

Reconciled $1,700,000

Cost Approach

The cost approach is most reliable for newer properties that have no significant amount of accrued depreciation. Due to the age of the subject improvements, estimates of depreciation are subjective, limiting the reliability of this approach. Additionally, the cost approach is not typically used by market participants, except for new properties. As previously discussed, the cost approach was excluded from this analysis.

Sales Comparison Approach

The sales comparison approach is most reliable in an active market when an adequate quantity and quality of comparable sales data are available. In addition, it is typically the most relevant method for owner‐user properties, because it directly considers the prices of alternative properties with similar utility for which potential buyers would be competing. The analysis and adjustment of the sales provides a reasonably narrow range of value indications. Nonetheless, it does not directly account for the income characteristics of the subject. Therefore, this approach is given secondary weight.

Income Capitalization Approach

The income capitalization approach is usually given greatest weight when evaluating investment properties. The value indication from the income capitalization approach is supported by market data regarding income, expenses and required rates of return. An investor is the most likely purchaser of the appraised property, and a typical investor would place greatest reliance on the income capitalization approach. For these reasons, the income capitalization approach is given greatest weight in the conclusion of value.



Final Opinion of Value

Based on the preceding valuation analysis and subject to the definitions, assumptions, and limiting conditions expressed in the report, our opinion of value is as follows:

Value Conclusion

Appraisal Premise Interest Appraised Date of Value Value Conclusion

Market Value Fee Simple February 9, 2018 $1,700,000
















The opinions of value expressed in this report are based on estimates and forecasts that are prospective in nature and subject to considerable risk and uncertainty. Events may occur that could cause the performance of the property to differ materially from our estimates, such as changes in the economy, interest rates, capitalization rates, financial strength of tenants, and behavior of investors, lenders, and consumers. Additionally, our opinions and forecasts are based partly on data obtained from interviews and third party sources, which are not always completely reliable. Although we are of the opinion that our findings are reasonable based on available evidence, we are not responsible for the effects of future occurrences that cannot be reasonably foreseen at this time.

Exposure Time

Exposure time is the length of time the subject property would have been exposed for sale in the market had it sold on the effective valuation date at the concluded market value. Exposure time is always presumed to precede the effective date of the appraisal. Based on our review of recent sales transactions for similar properties and our analysis of supply and demand in the local medical office market, it is our opinion that the probable exposure time for the subject at the concluded market value stated previously is 6 months or less.



Marketing Time

Marketing time is an estimate of the amount of time it might take to sell a property at the concluded market value immediately following the effective date of value. As we foresee no significant changes in market conditions in the near term, it is our opinion that a reasonable marketing period for the subject is likely to be the same as the exposure time. Accordingly, we estimate the subject’s marketing period at 6 months or less.

Office Average Marketing Time (Months)

PwC

4Q‐17

National

CBD Office

PwC

4Q‐17

National

Suburban Office

Range 2 ‐ 18 1 ‐ 12

Average 6.8 6.5

Source: PwC Real Estate Investor Survey

Certification 78


Certification

We certify that, to the best of our knowledge and belief:

1. The statements of fact contained in this report are true and correct.

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

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

4. We have not performed any services, as an appraiser or in any other capacity, regarding the property that is the subject of this report within the three‐year period immediately preceding acceptance of this assignment.

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

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

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

8. Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice as well as applicable state appraisal regulations.

9. 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.

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

11. Stephen M. Lechtenberg made a personal inspection of the property that is the subject of this report. Jimmy H. Jackson, MAI has not personally inspected the subject.

12. Significant real property appraisal assistance was provided by Parker G. Ash, Appraiser Trainee, TX‐1341386 who has not signed this certification.

13. We have experience in appraising properties similar to the subject and are in compliance with the Competency Rule of USPAP.

14. As of the date of this report, Jimmy H. Jackson, MAI has completed the continuing education program for Designated Members of the Appraisal Institute.

Certification 79


15. As of the date of this report, Stephen M. Lechtenberg has completed the Standards and Ethics Education Requirements for Candidates/Practicing Affiliates of the Appraisal Institute.

Stephen M. Lechtenberg Senior Director Certified General Real Estate Appraiser Texas Certificate # TX 1380354 G Telephone: (972) 725‐7727 Email: [email protected]

Jimmy H. Jackson, MAI Senior Managing Director Certified General Real Estate Appraiser Texas Certificate # TX 1324004 G Telephone: (972) 725‐7724 Email: [email protected]



Assumptions and Limiting Conditions

This appraisal and any other work product related to this engagement are limited by the following standard assumptions, except as otherwise noted in the report:

1. The title is marketable and free and clear of all liens, encumbrances, encroachments, easements and restrictions. The property is under responsible ownership and competent management and is available for its highest and best use.

2. There are no existing judgments or pending or threatened litigation that could affect the value of the property.

3. There are no hidden or undisclosed conditions of the land or of the improvements that would render the property more or less valuable. Furthermore, there is no asbestos in the property.

4. The revenue stamps placed on any deed referenced herein to indicate the sale price are in correct relation to the actual dollar amount of the transaction.

5. The property is in compliance with all applicable building, environmental, zoning, and other federal, state and local laws, regulations and codes.

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

This appraisal and any other work product related to this engagement are subject to the following limiting conditions, except as otherwise noted in the report:

1. An appraisal is inherently subjective and represents our opinion as to the value of the property appraised.

2. The conclusions stated in our appraisal apply only as of the effective date of the appraisal, and no representation is made as to the effect of subsequent events.

3. No changes in any federal, state or local laws, regulations or codes (including, without limitation, the Internal Revenue Code) are anticipated.

4. No environmental impact studies were either requested or made in conjunction with this appraisal, and we reserve the right to revise or rescind any of the value opinions based upon any subsequent environmental impact studies. If any environmental impact statement is required by law, the appraisal assumes that such statement will be favorable and will be approved by the appropriate regulatory bodies.

5. Unless otherwise agreed to in writing, we are not required to give testimony, respond to any subpoena or attend any court, governmental or other hearing with reference to the property without compensation relative to such additional employment.

6. We have made no survey of the property and assume no responsibility in connection with such matters. Any sketch or survey of the property included in this report is for illustrative purposes only and should not be considered to be scaled accurately for size. The appraisal



covers the property as described in this report, and the areas and dimensions set forth are assumed to be correct.

7. No opinion is expressed as to the value of subsurface oil, gas or mineral rights, if any, and we have assumed that the property is not subject to surface entry for the exploration or removal of such materials, unless otherwise noted in our appraisal.

8. We accept no responsibility for considerations requiring expertise in other fields. Such considerations include, but are not limited to, legal descriptions and other legal matters such as legal title, geologic considerations such as soils and seismic stability; and civil, mechanical, electrical, structural and other engineering and environmental matters. Such considerations may also include determinations of compliance with zoning and other federal, state, and local laws, regulations and codes.

9. The distribution of the total valuation in the report between land and improvements applies only under the reported highest and best use of the property. The allocations of value for land and improvements must not be used in conjunction with any other appraisal and are invalid if so used. The appraisal report shall be considered only in its entirety. No part of the appraisal report shall be utilized separately or out of context.

10. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraisers, or any reference to the Appraisal Institute) shall be disseminated through advertising media, public relations media, news media or any other means of communication (including without limitation prospectuses, private offering memoranda and other offering material provided to prospective investors) without the prior written consent of the persons signing the report.

11. Information, estimates and opinions contained in the report and obtained from third‐party sources are assumed to be reliable and have not been independently verified.

12. Any income and expense estimates contained in the appraisal report are used only for the purpose of estimating value and do not constitute predictions of future operating results.

13. If the property is subject to one or more leases, any estimate of residual value contained in the appraisal may be particularly affected by significant changes in the condition of the economy, of the real estate industry, or of the appraised property at the time these leases expire or otherwise terminate.

14. Unless otherwise stated in the report, no consideration has been given to personal property located on the premises or to the cost of moving or relocating such personal property; only the real property has been considered.

15. The current purchasing power of the dollar is the basis for the values stated in the appraisal; we have assumed that no extreme fluctuations in economic cycles will occur.

16. The values found herein are subject to these and to any other assumptions or conditions set forth in the body of this report but which may have been omitted from this list of Assumptions and Limiting Conditions.

17. The analyses contained in the report necessarily incorporate numerous estimates and assumptions regarding property performance, general and local business and economic



conditions, the absence of material changes in the competitive environment and other matters. Some estimates or assumptions, however, inevitably will not materialize, and unanticipated events and circumstances may occur; therefore, actual results achieved during the period covered by our analysis will vary from our estimates, and the variations may be material.

18. The Americans with Disabilities Act (ADA) became effective January 26, 1992. We have not made a specific survey or analysis of the property to determine whether the physical aspects of the improvements meet the ADA accessibility guidelines. We claim no expertise in ADA issues, and render no opinion regarding compliance of the subject with ADA regulations. Inasmuch as compliance matches each owner’s financial ability with the cost to cure the non‐conforming physical characteristics of a property, a 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.

19. The appraisal report is prepared for the exclusive benefit of the Client, its subsidiaries and/or affiliates. It may not be used or relied upon by any other party. All parties who use or rely upon any information in the report without our written consent do so at their own risk.

20. No studies have been provided to us indicating the presence or absence of hazardous materials on the subject property or in the improvements, and our valuation is predicated upon the assumption that the subject property is free and clear of any environment hazards including, without limitation, hazardous wastes, toxic substances and mold. No representations or warranties are made regarding the environmental condition of the subject property. Integra Realty Resources – DFW, Integra Realty Resources, Inc., Integra Strategic Ventures, Inc. and/or any of their respective officers, owners, managers, directors, agents, subcontractors or employees (the “Integra Parties”), shall not be responsible for any such environmental conditions that do exist or for any engineering or testing that might be required to discover whether such conditions exist. Because we are not experts in the field of environmental conditions, the appraisal report cannot be considered as an environmental assessment of the subject property.

21. The persons signing the report may have reviewed available flood maps and may have noted in the appraisal report whether the subject property is located in an identified Special Flood Hazard Area. We are not qualified to detect such areas and therefore do not guarantee such determinations. The presence of flood plain areas and/or wetlands may affect the value of the property, and the value conclusion is predicated on the assumption that wetlands are non‐existent or minimal.

22. Integra Realty Resources – DFW is not a building or environmental inspector. Integra DFW does not guarantee that the subject property is free of defects or environmental problems. Mold may be present in the subject property and a professional inspection is recommended.

23. The appraisal report and value conclusions for an appraisal assume the satisfactory completion of construction, repairs or alterations in a workmanlike manner.

24. It is expressly acknowledged that in any action which may be brought against any of the Integra Parties, arising out of, relating to, or in any way pertaining to this engagement, the appraisal reports, and/or any other related work product, the Integra Parties shall not be



responsible or liable for any incidental or consequential damages or losses, unless the appraisal was fraudulent or prepared with intentional misconduct. It is further acknowledged that the collective liability of the Integra Parties in any such action shall not exceed the fees paid for the preparation of the appraisal report unless the appraisal was fraudulent or prepared with intentional misconduct. Finally, it is acknowledged that the fees charged herein are in reliance upon the foregoing limitations of liability.

25. Integra Realty Resources – DFW, an independently owned and operated company, has prepared the appraisal for the specific intended use stated elsewhere in the report. The use of the appraisal report by anyone other than the Client is prohibited except as otherwise provided. Accordingly, the appraisal report is addressed to and shall be solely for the Client’s use and benefit unless we provide our prior written consent. We expressly reserve the unrestricted right to withhold our consent to your disclosure of the appraisal report or any other work product related to the engagement (or any part thereof including, without limitation, conclusions of value and our identity), to any third parties. Stated again for clarification, unless our prior written consent is obtained, no third party may rely on the appraisal report (even if their reliance was foreseeable).

26. The conclusions of this report are estimates based on known current trends and reasonably foreseeable future occurrences. These estimates are based partly on property information, data obtained in public records, interviews, existing trends, buyer‐seller decision criteria in the current market, and research conducted by third parties, and such data are not always completely reliable. The Integra Parties are not responsible for these and other future occurrences that could not have reasonably been foreseen on the effective date of this assignment. Furthermore, it is inevitable that some assumptions will not materialize and that unanticipated events may occur that will likely affect actual performance. While we are of the opinion that our findings are reasonable based on current market conditions, we do not represent that these estimates will actually be achieved, as they are subject to considerable risk and uncertainty. Moreover, we assume competent and effective management and marketing for the duration of the projected holding period of this property.

27. All prospective value opinions presented in this report are estimates and forecasts which are prospective in nature and are subject to considerable risk and uncertainty. In addition to the contingencies noted in the preceding paragraph, several events may occur that could substantially alter the outcome of our estimates such as, but not limited to changes in the economy, interest rates, and capitalization rates, behavior of consumers, investors and lenders, fire and other physical destruction, changes in title or conveyances of easements and deed restrictions, etc. It is assumed that conditions reasonably foreseeable at the present time are consistent or similar with the future.

28. The appraisal is also subject to the following:

Addenda


Addendum A

Appraiser Qualifications

Stephen M. Lechtenberg Dallas

Integra Realty Resources

irr.com

T (972) 732‐0051 F (972) 733‐1403

1100 Mira Vista BoulevardSuite 300 Plano, TX 75093

Experience

Senior Director, Integra Realty Resources ‐ DFW LLC. Mr. Lechtenberg has more than 7 years ofappraisal experience beginning with American Appraisal Associates followed by JacksonClaborn, Inc. before joining Integra. He graduated from Texas Tech University in 2009 with aBachelor of Business Administration in Finance. He has experience appraising commercial, industrial, multifamily, and investment‐grade real property and related tangible assets to provide opinions of value for purposes of mortgagelending, sale or purchase, financial reporting, federal tax, capital lease testing, litigation support, allocation of purchase price, estate tax planning/settlement, ad valorem taxation,property exchange, internal planning, and partial taking/just compensation by eminent domainagencies. Property types include vacant land, agricultural land, rights‐of‐way (road and pipeline), shopping centers, single‐tenant retail buildings, CBD and suburban office projects, air rights,truck terminals, light industrial facilities, heavy manufacturing plants, corporate headquarters, hospitals, surgery centers, medical office buildings, self‐storage facilities, religious facilities, hotels, mixed‐use developments, apartment projects, and convenience stores.

Licenses Texas, State Certified General Real Estate Appraiser, TX 1380354 G, Expires August 2018

Education Mr. Lechtenberg is a graduate of Texas Tech University where he received a Bachelor of Business Administration in Finance (2009). Appraisal Institute Courses: Basic Appraisal Procedures and Procedures (2010) General Appraiser Site Valuation & Cost Approach (2010) General Appraiser Income Approach 1 & 2 (2011) Business Practices and Ethics (2012) General Appraiser Sales Comparison Approach (2012) Real Estate Finance Statistics & Valuation Modeling (2013) General Appraiser Report Writing and Case Studies (2014) Overview of Real Estate Appraisal Principles (2014) The Discounted Cash Flow Model: Concepts, Issues, and Apps (2014) Rates and Ratios: Making Sense of GIMs, OARs, and DCF (2014) Golf Course Property Valuation (2014) Other Appraisal Related Courses: 2010‐2011 USPAP General Appraisal Market Analysis & Highest and Best Use (2013) Commercial Appraisal Review ‐ Subject Matter Elective (2013) Residential Site Valuation and Cost Approach (2013) Statistics, Modeling and Finance (2014) 7‐Hour USPAP Update (2016‐2017) Appraisal of Land Subject to Ground Leases (2016) Appraisal of Owner‐Occupied Commercial Buildings (2016) The Sales Comparison Approach (2016)

[email protected] (972) 725‐7727

Addenda


Addenda

Jimmy H. Jackson, MAI Dallas


irr.com

T (972) 881‐7191 F (972) 733‐1403


Experience

Jimmy H. Jackson, MAI has over 33 years of experience as a commercial appraiser as well yearsof experience as a seasoned real estate investor. Prior to joining Integra Realty Resources,Jackson was one of the founding partners of JPP Capital Advisors as well as is one of the originaltwo founding partners of Jackson Claborn, Inc. (JCI), a real estate consulting/valuation firm thatwas established in 1993. JCI grew to have one of the largest staffs of commercial and residential appraisers in the Southwest and has performed valuation and consulting on a vast number ofcommercial property types across Texas as well as the United States. Jackson holds the MAIdesignation and has been involved in the analysis of virtually all types of commercial and residential properties. Jackson’s experience includes consultation and valuation of a wide arrayof property types including apartment developments, industrial facilities, retail developments,office buildings, single‐family subdivisions, single‐family residences, condominiums, hotels, golf courses, mixed‐use developments, special‐use projects and vacant land. In addition to typicalreal estate valuations and consultations, Jackson has experience in state and federal courts asan expert witnesses. Testimony has involved such varied issues as bankruptcy, taxation andcondemnation. Jackson has also been involved in numerous real estate developments andpersonal real estate investments which includes land acquisition & development, ground‐up office build‐to‐suit development, garden apartment development, student housingdevelopment, and single‐family lot development. A major philanthropic achievement for Jackson was consulting with and influencing familymembers to provide the start‐up expertise as well as the seed funding in 1994 for the formationof The Parent Project for Muscular Dystrophy/PPMD (www.parentprojectmd.org). The PPMDorganization has developed into a worldwide non‐profit centered to provide research funds for children suffering with Duchenne Muscular Dystrophy. Since inception, the PPMD organizationhas directly funded more than $50 million in direct research and assisted and helped leveragemore than $500 million of other research related to other genetic disease through government grants and other private funding sources. In 2008, Jackson received a Humanitarian Award fromTexas Gov. Rick Perry for charitable work with National Jewish Hospital in Denver. Jacksoncurrently serves as a national trustee for the hospital which is the #1 respiratory care hospital inthe world. Jackson graduated from Texas Tech University in 1984 with a B.B.A. in Finance with a RealEstate Emphasis. Jackson has served on numerous professional boards, including serving on the Ethics and Counseling Panel of the North Texas Chapter of the Appraisal Institute as well asserving on the Board of Directors as well as being Chair and Co‐Chair of the Public Relations Committee. As a college student Jackson was a member of Phi Delta Theta social fraternity and the Texas Tech Finance Association. Jackson currently serves on the Advisory Board for the Jerry RawlsCollege of Business Administration (COBA) at Texas Tech University. Jackson has also served asa guest lecturer on real estate entrepreneurship to upper level COBA students at Texas Techover the years. Jackson and his wife Cherylon Harman Jackson (1984/Finance COBA/Texas TechUniversity) reside in Plano, Texas and are active members of Parkway Hills Baptist Church inPlano, Texas.

[email protected] ‐ (972) 725‐7724

Addenda



irr.com

T (972) 881‐7191 F (972) 733‐1403


Experience (Cont'd)

Basic Core Real Estate Appraisal Services: Feasibility Studies, Absorption Studies & Demographic Studies Highest & Best Use Studies for All Property Types 3rd Party Appraisal Reviews Detrimental Conditions Valuation & Consulting Encroachment Analysis Land Use Studies & Planning/Zoning Studies Litigation/Litigation Support In‐Depth Market Analysis for All Property Types Tax Assessment & Mass Appraisal Analysis Fair & Equitable Appraisal Analysis Right of Way Analysis Appraisals Mediation, Arbitration, & Dispute Resolution Portfolio Valuation & Analysis Retrospective Valuation Opinions Appraisal of All Property Types including The Following: Residential High‐Rise Condominium and Garden‐Style Multi‐Family and Townhome Projects High‐End Residential Property Historical Residential Property All types of Single Family Appraisals (Conventional, Relocation, Unique / Historical Property) Land Acreage (Commercial Mixed‐Use) Subdivided Land (Mixed‐Use, Commercial and Industrial) Standard Single‐Family Subdivision Lot development appraisals PID/MUD Single‐Family Subdivision Lot development appraisals Commercial, Office & Retail Branch Banks / Financial Building Convenience Stores / Service Stations Convention Center / Hotel / Resort /Motel Office Building (High Rise, over three stories) Office Building (Low Rise, three stories or less) Parking Facility (Lot or Garage) Retail (Single Tenant or Free Standing) Shopping Center (Local, Strip, Neighborhood, Community, Etc.) Shopping Center (Power Center, Outlet Center, Lifestyle, Etc.) Shopping Center (Super Regional, Regional Mall)


Addenda



irr.com

T (972) 881‐7191 F (972) 733‐1403


Experience (Cont'd)

Industrial Industrial (Heavy (Manufacturing) Industrial (Small Office Warehouse / Mfg.) Industrial Light (Distribution, Storage) Special Purpose Automobile Dealerships Church Facilities Collegiate Student Housing Self‐Serve and Full‐Service Car Wash Facilities Self‐Storage Facilities

Professional Activities & Affiliations

Appraisal Institute, Member (MAI) Appraisal Institute

Licenses Texas, Certified General Real Estate Appraiser, TX 1324004 G, Expires November 2018

Education Mr. Jackson is a graduate of Texas Tech University where he received a Bachelor of Business Administration in Finance with a Real Estate Emphasis.

Miscellaneous Member of Region 8 Ethics and Counseling Regional Panel (1992‐1995)Chair ‐ Public Relations North Texas Chapter (2003, 2004) Co‐Chair ‐ Public Relations North Texas Chapter (2005) Board Member ‐ North Texas Chapter (2005‐2007)


Addenda


About IRR

Integra Realty Resources, Inc. (IRR) provides world‐class commercial real estate valuation, counseling, and advisory services. Routinely ranked among leading property valuation and consulting firms, we are now the largest independent firm in our industry in the United States, with local offices coast to coast and in the Caribbean.

IRR offices are led by MAI‐designated Senior Managing Directors, industry leaders who have over 25 years, on average, of commercial real estate experience in their local markets. This experience, coupled with our understanding of how national trends affect the local markets, empowers our clients with the unique knowledge, access, and historical perspective they need to make the most informed decisions.

Many of the nation's top financial institutions, developers, corporations, law firms, and government agencies rely on our professional real estate opinions to best understand the value, use, and feasibility of real estate in their market.

Local Expertise...Nationally!

irr.com

Addenda


Addendum B

Definitions

Addenda


Definitions

The source of the following definitions is the Appraisal Institute, The Dictionary of Real Estate Appraisal, 6th ed. (Chicago: Appraisal Institute, 2015), unless otherwise noted.

As Is Market Value The estimate of the market value of real property in its current physical condition, use, and zoning as of the appraisal date.

Class of Office Building For the purposes of comparison, office space is grouped into three classes: Class A, B and C. These classes represent a subjective quality rating of buildings, which indicates the competitive ability of each building to attract similar types of tenants. Combinations of factors such as rent, building finishes, system standards and efficiency, building amenities, location or accessibility, and market perception are used as relative measures.

Class A office buildings are the most prestigious office buildings competing for the premier office users, with rents above average for the area. Buildings have high‐quality standard finishes, architectural appeal, state‐of‐the‐art systems, exceptional accessibility, and a definite market presence.

Class B office buildings compete for a wide range of users, with rents in the average range for the area. Class B buildings do not compete with Class A buildings at the same price. Building finishes are fair to good for the area, and systems are adequate.

Class C office buildings compete for tenants requiring functional space at rents below the average for the area. Class C buildings are generally older, and are lower in quality and condition.

(Source: The Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. [Chicago: Appraisal Institute, 2010]).

Deferred Maintenance Items of wear and tear on a property that should be fixed now to protect the value or income‐producing ability of the property, such as a broken window, a dead tree, a leak in the roof, or a faulty roof that must be completely replaced. These items are almost always curable.

Depreciation A loss in property value from any cause; the difference between the cost of an improvement on the effective date of the appraisal and the market value of the improvement on the same date.

Discounted Cash Flow (DCF) Analysis The procedure in which a discount rate is applied to a set of projected income streams and a reversion. The analyst specifies the quantity, variability, timing, and duration of the income streams

Addenda


and the quantity and timing of the reversion, and discounts each to its present value at a specified yield rate.

Disposition Value The most probable price that a specified interest in property should bring under the following conditions:

1. Consummation of a sale within a specified time, which is shorter than the typical exposure time for such a property in that market.

2. The property is subjected to market conditions prevailing as of the date of valuation.

3. Both the buyer and seller are acting prudently and knowledgeably.

4. The seller is under compulsion to sell.

5. The buyer is typically motivated.

6. Both parties are acting in what they consider to be their best interests.

7. An adequate marketing effort will be made during the exposure time.

8. Payment will be made in cash in U.S. dollars (or the local currency) or in terms of financial arrangements comparable thereto.

9. 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.

This definition can also be modified to provide for valuation with specified financing terms.

Effective Date 1. The date on which the appraisal or review opinion applies.

2. In a lease document, the date upon which the lease goes into effect.

Entrepreneurial Profit 1. A market‐derived figure that represents the amount an entrepreneur receives for his or her

contribution to a project and risk; the difference between the total cost of a property (cost of development) and its market value (property value after completion), which represents the entrepreneur’s compensation for the risk and expertise associated with development. An entrepreneur is motivated by the prospect of future value enhancement (i.e., the entrepreneurial incentive). An entrepreneur who successfully creates value through new development, expansion, renovation, or an innovative change of use is rewarded by entrepreneurial profit. Entrepreneurs may also fail and suffer losses.

2. In economics, the actual return on successful management practices, often identified with coordination, the fourth factor of production following land, labor, and capital; also called entrepreneurial return or entrepreneurial reward.

Addenda


Excess Land; Surplus Land

Excess Land: Land that is not needed to serve or support the existing improvement. The highest and best use of the excess land may or may not be the same as the highest and best use of the improved parcel. Excess land has the potential to be sold separately and is valued separately.

Surplus Land: Land that is not currently needed to support the existing use but cannot be separated from the property and sold off for another use. Surplus land does not have an independent highest and best use and may or may not contribute value to the improved parcel.

Exposure Time 1. The time a property remains on the market.

2. The estimated length of time that the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective opinion based on an analysis of past events assuming a competitive and open market.

Fee Simple Estate Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat.

Floor Area Ratio (FAR) The relationship between the above‐ground floor area of a building, as described by the zoning or building code, and the area of the plot on which it stands; in planning and zoning, often expressed as a decimal, e.g., a ratio of 2.0 indicates that the permissible floor area of a building is twice the total land area.

Gross Building Area (GBA) Total floor area of a building, excluding unenclosed areas, measured from the exterior of the walls of the above‐grade area. This includes mezzanines and basements if and when typically included in the market area of the type of property involved.

Highest and Best Use 1. The reasonably probable use of property that results in the highest value. The four criteria

that the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum productivity.

2. The use of an asset that maximizes its potential and that is possible, legally permissible, and financially feasible. The highest and best use may be for continuation of an asset’s existing use or for some alternative use. This is determined by the use that a market participant would have in mind for the asset when formulating the price that it would be willing to bid. (ISV)

3. [The] highest and most profitable use for which the property is adaptable and needed or likely to be needed in the reasonably near future. (Uniform Appraisal Standards for Federal Land Acquisitions)

Addenda


Investment Value 1. The value of a property to a particular investor or class of investors based on the investor’s

specific requirements. Investment value may be different from market value because it depends on a set of investment criteria that are not necessarily typical of the market.

2. The value of an asset to the owner or a prospective owner for individual investment or operational objectives.

Lease A contract in which rights to use and occupy land, space, or structures are transferred by the owner to another for a specified period of time in return for a specified rent.

Leased Fee Interest The ownership interest held by the lessor, which includes the right to receive the contract rent specified in the lease plus the reversionary right when the lease expires.

Leasehold Interest The right held by the lessee to use and occupy real estate for a stated term and under the conditions specified in the lease.

Lease Type

Full Service Lease or Gross Lease: A lease in which the landlord receives stipulated rent and is obligated to pay all of the property’s operating and fixed expenses.

Full Service + Tenant Electric Lease or Gross + Tenant Electric Lease: A lease in which the tenant pays electric charges for its space but in other respects is a full service or gross lease as defined above. Tenant electric is often abbreviated as “TE”. (Source: Integra Realty Resources)

Modified Gross Lease: A lease in which the landlord receives stipulated rent and is obligated to pay some, but not all, of the property’s operating and fixed expenses. Since assignment of expenses varies among modified gross leases, expense responsibility must always be specified. In some markets, a modified gross lease may be called a double net lease, net net lease, partial net lease, or semi‐gross lease.

Net Lease: A general term for a lease in which the tenant pays all or most of the operating and fixed expenses of a property. Whenever the term net lease is used, an analyst should identify the specific expense responsibilities of the tenant and owner. (Source: Integra Realty Resources)

Triple Net Lease: A lease in which the tenant assumes all expenses (fixed and variable) of operating a property except that the landlord is responsible for structural maintenance, building reserves, and management. Also called NNN, net net net, or fully net lease.

Absolute Net Lease: A lease in which the tenant pays all expenses including structural maintenance, building reserves, and management; often a long‐term lease to a credit tenant.

Addenda


Liquidation Value The most probable price that a specified interest in real property should bring under the following conditions:

1. Consummation of a sale within a short time period.

2. The property is subjected to market conditions prevailing as of the date of valuation.

3. Both the buyer and seller are acting prudently and knowledgeably.

4. The seller is under extreme compulsion to sell.

5. The buyer is typically motivated.

6. Both parties are acting in what they consider to be their best interests.

7. A normal marketing effort is not possible due to the brief exposure time.

8. Payment will be made in cash in U.S. dollars (or the local currency) or in terms of financial arrangements comparable thereto.

9. 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.

This definition can also be modified to provide for valuation with specified financing terms.

Load Factor A measure of the relationship of common area to usable area and therefore the quality and efficiency of building area layout, with higher load factors indicating a higher percentage of common area to overall rentable space than lower load factors; calculated by subtracting the amount of usable area from the rentable area and then dividing the difference by the usable area: Load Factor = (Rentable Area – Usable Area) / Usable Area. Also known as add‐on factor.

Marketing Time An opinion of the amount of time it might take to sell a real or personal property interest at the concluded market value level during the period immediately after the effective date of an appraisal. Marketing time differs from exposure time, which is always presumed to precede the effective date of an appraisal.

Market Rent The most probable rent that a property should bring in a competitive and open market reflecting all conditions and restrictions of the lease agreement, including the rental adjustment and revaluation, permitted uses, use restrictions, expense obligations, term, concessions, renewal and purchase options, and tenant improvements.

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 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:

Addenda


buyer and seller are typically motivated;

both parties are well informed or well advised, and acting in what they consider their own best interests;

a reasonable time is allowed for exposure in the open market;

payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and

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.

(Source: Code of Federal Regulations, Title 12, Chapter I, Part 34.42[g]; also Interagency Appraisal and Evaluation Guidelines, Federal Register, 75 FR 77449, December 10, 2010, page 77472)

Prospective Opinion of Value A value opinion effective as of a specified future date. The term does not define a type of value. Instead, it identifies a value opinion as being effective at some specific future date. An opinion of value as of a prospective date is frequently sought in connection with projects that are proposed, under construction, or under conversion to a new use, or those that have not yet achieved sellout or a stabilized level of long‐term occupancy.

Rentable Area and Related Terms for Office Buildings

Rentable Area (RA): For office buildings, the tenant’s pro rata portion of the entire office floor, excluding elements of the building that penetrate through the floor to the areas below. The rentable area of a floor is computed by measuring to the inside finished surface of the dominant portion of the permanent building walls, excluding any major vertical penetrations of the floor. Alternatively, the amount of space on which the rent is based; calculated according to local practice.

Usable Area 1. For office buildings, the actual occupiable area of a floor or an office space; computed by

measuring from the finished surface of the office side of corridor and other permanent walls, to the center of the partitions that separate the office from adjoining usable areas, and to the inside finished surface of the dominant portion of the permanent outer building walls. Sometimes called net building area or net floor area.

2. The area that is actually used by the tenants measured from the inside of the exterior walls to the inside of walls separating the space from hallways and common areas.

Floor Common Area: In an office building, the areas on a floor such as washrooms, janitorial closets, electrical rooms, mechanical rooms, elevator lobbies, and public corridors that are available primarily for the use of tenants on that floor. In essence, floor common area represents all of the area on the floor that is common to that respective floor with the exception of those areas that penetrate through the floor, such as the elevator shaft and stairwell. The significant point to be made is that floor common area is not part of the tenant’s usable area.

Addenda


Replacement Cost The estimated cost to construct, at current prices as of a specific date, a substitute for the building or other improvements, using modern materials and current standards, design and layout.

Reproduction Cost The estimated cost to construct, at current prices as of the effective date of the appraisal, an exact duplicate or replica of the building being appraised, using the same materials, construction standards, design, layout, and quality of workmanship and embodying all the deficiencies, superadequacies, and obsolescence of the subject building.

Stabilized Income 1. An estimate of income, either current or forecasted, that presumes the property is at

stabilized occupancy.

2. The forecast of the subject property’s yearly average income (or average‐equivalent income) expected for the economic life of the subject property.

3. Projected income that is subject to change but has been adjusted to reflect an equivalent, stable annual income.

Stabilized Occupancy 1. The occupancy of a property that would be expected at a particular point in time, considering

its relative competitive strength and supply and demand conditions at the time, and presuming it is priced at market rent and has had reasonable market exposure. A property is at stabilized occupancy when it is capturing its appropriate share of market demand.

2. An expression of the average or typical occupancy that would be expected for a property over a specified projection period or over its economic life.

Addenda


Addendum C

Property Information

Addenda


Addenda


Zoning Map

Addenda


Flood Map

Addenda


Addendum D

Comparable Data

Addenda


Improved Sales

Office Sale Profile Sale No. 1

Location & Property Identification

Plano Medical Plaza Property Name:

Sub‐Property Type: Medical Office

3713 NW. 15th Address:

Plano, TX 75075 City/State/Zip:

Collin County:

Submarket: Plano

Suburban Market Orientation:

IRR Event ID: 1370336

Sale Information

$1,980,000 Sale Price:

$1,980,000 Effective Sale Price:

12/09/2016 Sale Date: Recording Date: 12/09/2016 Sale Status: Closed $/SF GBA: $206.94 $/SF NRA: $206.94 Grantor/Seller: Pinnacle Bank Grantee/Buyer: Plano Med Partners LLC Property Rights: Fee Simple Financing: All cash Terms of Sale: Good funds in 20% of the

purchase price. Closing date is 30 days after the expiration of the inspection period

Document Type: Deed Recording No.: 20170117000063280 Verification Type: Secondary Verification

Operating Data and Key Indicators

Operating Data Type: IRR Projection Potential Gross Income: $248,768 Vacancy Rate: 10% Effective Gross Income: $223,891 Operating Expenses: $77,846 Reserves: $1,375

Net Operating Income: $ 144,670 Expense Ratio: 34.77% Management Included: Yes Cap Rate ‐ Derived: 7.31% GRM ‐ Derived: 7.96 EGIM ‐ Derived: 8.84

Occupancy

Improvement and Site Data

Plano Medical Plaza Two, Lot 4

Legal/Tax/Parcel ID:

GBA‐SF: 9,568

NRA‐SF: 9,568

0.81/0.81 Acres(Usable/Gross):

35,327/35,327 Land‐SF(Usable/Gross): Usable/Gross Ratio: 1.00 Year Built: 1985 Bldg. to Land Ratio FAR: 0.27 Source of Land Info.: Public Records

Comments

Income/expenses based on information provided by listing brokers.

Plano Medical Plaza



Envision Imaging Property Name:


710 Hunters Row Ct. Address:

Mansfield, TX 76063 City/State/Zip:

Tarrant County:

Submarket: Mansfield


East side of Hunters Row Court, south of Debbie Lane

Property Location:


Sale Information



05/18/2016 Sale Date: Sale Status: Closed $/SF GBA: $224.25 $/SF NRA: $224.25 Grantor/Seller: Envision Hunters Row

Holdings, LLC

Grantee/Buyer: Apurva Lapiswala & Ritu Lapiswala

Assets Sold: Real estate only Property Rights: Leased Fee % of Interest Conveyed: 100.00 Financing: Cash to seller Document Type: Deed Recording No.: D216106833 Verified By: Stephen M. Lechtenberg Verification Date: 02/10/2017 Confirmation Source: Ryan Wolf Verification Type: Confirmed‐Seller Broker


Operating Data Type: In Place Potential Gross Income: $80,500 Effective Gross Income: $80,500 Operating Expenses: $0

Net Operating Income: $ 80,500 Reserves Included: No Management Included: No Cap Rate ‐ Derived: 7.80% GRM ‐ Derived: 12.81 EGIM ‐ Derived: 12.81

Occupancy

Occupancy at Time of Sale: 100.00% Number of Tenants at T.O.S.: 1 Remaining Lease Term (Yrs): 5.00


Lot 6R, Hunter's Row at Walnut Creek/4031950


GBA‐SF: 4,600

NRA‐SF: 4,600

0.47 Acres(Gross):

20,298 Land‐SF(Gross): Year Built: 2003 Property Class: C Construction Quality: AverageImprovements Cond.: Average Exterior Walls: Stone No. of Buildings/Stories: 1/1 Air‐Conditioning Type: Central Shape: Rectangular Topography: Level

Envision Imaging


Improvement and Site Data (Cont'd)

Corner Lot: No Frontage Type: 2 way, 2 lanes each wayAccessibilityRating: Average Visibility Rating: Average Bldg. to Land Ratio FAR: 0.23 Zoning Code: C‐2 Zoning Desc.: Community Business Flood Plain: No Utilities: Electricity, Water Public,

Sewer

Source of Land Info.: Public Records

Comments

This comparable represents a sale/leaseback of a medical office building in which the seller agree to a 5‐year, absolute net lease at a rate of $17.50/SF. No vacancy or expenses were recognized.

Envision Imaging



Medical Office ‐ Hurst, TX Property Name:


1856 Norwood Plaza Address:

Hurst, TX 76054 City/State/Zip:

Tarrant County:

Submarket: Hurst ‐ Euless ‐ Bedford


West side of Norwood Plaza, north of Norwood Drive

Property Location:


Sale Information

$400,000 Sale Price:

$400,000 Effective Sale Price:

05/18/2016 Sale Date: Sale Status: Closed $/SF GBA: $145.72 $/SF NRA: $145.72 Grantor/Seller: Dan & Rebel Smallwood Grantee/Buyer: Rockwood Properties, LLC Assets Sold: Real estate only Property Rights: Fee Simple % of Interest Conveyed: 100.00 Financing: Cash to seller Document Type: Deed Recording No.: 216107126 Verification Date: 03/09/2017 Confirmation Source: Brent Neff (817) 727‐5155 Verification Type: Confirmed‐Seller Broker Secondary Verific. Source: CoStar

Sale Analysis

Current Use at T.O.S.: Medical Office


Lot 3, Block 56, Mayfair Addition / 04798414


GBA‐SF: 2,745

NRA‐SF: 2,745

0.58 Acres(Gross):

25,352 Land‐SF(Gross): Year Built: 1983 Construction Quality: AverageImprovements Cond.: Average Exterior Walls: Brick No. of Buildings/Stories: 1/1

None Elevators/Count: Air‐Conditioning Type: Central Shape: Rectangular Topography: Level

Corner Lot: No AccessibilityRating: Average Visibility Rating: Below average Bldg. to Land Ratio FAR: 0.11 Zoning Code: LB Zoning Desc.: Limited Business Flood Plain: No Flood Zone Designation: X Utilities: Water Public, Sewer Source of Land Info.: Public Records

Comments

Medical Office ‐ Hurst, TX


Comments (Cont'd)

This medical office property was reportedly purchased for owner occupancy. According to the broker, the interior finish‐out is considered to be in average condition.

Medical Office ‐ Hurst, TX



Randol Mill Road Medical Office Sale

Property Name:


1000 W. Randol Mill Rd. Address:

Arlington, TX 76012 City/State/Zip:

Tarrant County:

Submarket: Arlington



Sale Information

$493,000 Sale Price:

$493,000 Effective Sale Price:

04/25/2016 Sale Date: Sale Status: Closed $/SF GBA: $194.55 $/SF NRA: $194.55 Grantor/Seller: Randol Mill Property

Management, LLC

Grantee/Buyer: SLCS Properties LLc Assets Sold: Real estate only Property Rights: Leased Fee % of Interest Conveyed: 100.00 Exposure Time: 7 (months) Financing: Cash to seller Document Type: Warranty Deed Recording No.: D216085545 Verified By: Josh Jackson Verification Date: 09/30/2016 Confirmation Source: Wayne Bares w/Marcus &

millichap

Verification Type: Confirmed‐Seller Broker


Cap Rate ‐ Reported: 7.50%

Occupancy

Occupancy at Time of Sale: 100.00% Number of Tenants at T.O.S.: 1 Lease Type: Triple NetRemaining Lease Term (Yrs): 5.00


MSA: Dallas‐Fort Worth‐Arlington, TX

DAGGETT, E ADDITION / 05665485


GBA‐SF: 2,534

NRA‐SF: 2,534


19,166/19,166 Land‐SF(Usable/Gross): Usable/Gross Ratio: 1.00 Year Built: 1988 Most Recent Renovation: 2014 Property Class: B Total Parking Spaces: 28 Park. Ratio 1000 SF GLA: 11.05 Park. Ratio 1000 SF GBA: 11.05 Bldg. to Land Ratio FAR: 0.13 Zoning Code: OC Zoning Desc.: Office Commercial Flood Plain: No Flood Zone Designation: X Comm. Panel No.: 48439C0355K

Date: 09/25/2009





Comments

Medical Office near Kindred Hospital and Texas Health Arlington Hospital. The building had been built in two phases and there was a grade change with 2‐3 steps at the transition. There was also part of the addition which was an air conditioned garage which could be converted to office space if needed.




Medical Office Property Name:


810 Lipscomb St. Address:

Fort Worth, TX 76104 City/State/Zip:

Tarrant County:

Submarket: Medical District‐FW



Sale Information



01/19/2016 Sale Date: Listing Price: $1,275,000 Sale Status: Closed $/SF GBA: $215.66 $/SF NRA: $215.66 Grantor/Seller: MGS Partners, LP Grantee/Buyer: 810 Lipscomb, LLC Assemblage: No Portfolio Sale: No Property Rights: Leased Fee Financing: Cash to seller Document Type: Warranty Deed Recording No.: D216012002 Verified By: Shane McCarty, Jr. Verification Date: 07/12/2016 Verification Type: Confirmed‐Seller Broker


Operating Data Type: In Place Net Operating Income: $ 100,504 Cap Rate ‐ Derived: 7.88% Cap Rate ‐ Reported: 7.88%

Occupancy

Occupancy Type Before Sale: Owner OccupiedOccupancy Type After Sale: Single Tenant

Occupancy at Time of Sale: 100.00% Lease Type: Absolute NetRemaining Lease Term (Yrs): 5.00



Lot 1R, Block 10, College Hill Addition, City of Fort Worth, Tarrant County, Texas/06454453


GBA‐SF: 5,912

NRA‐SF: 5,912


17,955/17,955 Land‐SF(Usable/Gross): Usable/Gross Ratio: 1.00 Year Built: 1991 Property Class: C M&S Class: C

Construction Quality: AverageImprovements Cond.: Average Exterior Walls: Brick No. of Buildings/Stories: 1/1 Total Parking Spaces: 24 Park. Ratio 1000 SF GLA: 4.06 No. Surface Spaces: 24 Park. Ratio 1000 SF GBA: 4.06

Medical Office



Shape: Rectangular Topography: Level Vegetation: Minimal

Corner Lot: YesFrontage Type: 2 way, 1 lane each wayTraffic Control at Entry: None Traffic Flow: Low AccessibilityRating: Average Visibility Rating: Average Bldg. to Land Ratio FAR: 0.33 Zoning Code: NS‐T4 Zoning Desc.: Near Southside Flood Plain: No Flood Zone Designation: X Comm. Panel No.: 48439C0305K

Date: 09/25/2009 Source of Land Info.: Public Records

Comments

Owner sold building and then signed a 5‐year absolute net lease with new new owner.

Medical Office

Addenda


Lease Comparables

Office Lease Profile Lease No. 1


Atrium Office Building Property Name:

Sub‐Property Type: General Purpose

Address: 1001 Cross Timbers Road

Flower Mound, TX 75028 City/State/Zip:

Denton County:

Submarket: Lewisville‐Flower Mound


S/S of Cross Timbers Road, E of Kirkpatrick Lane

Property Location:


Space Information

Space Type: Medical Office Suite #: 1250 Leased Area: 7,833

Lease Information

Lease Status: Asking Rent Lessee: Listing

Start/Available Date: 02/14/2018

Lease Measure: $/SF/Yr Face Rental Rate: $13.00 Escalation Type: Fixed Percentage Verification Date: 02/14/2018

Verification Source: Mike Tanner (214) 810‐3070 Transaction Reliability: Confirmed

Lease Expense Information

Reimbursement Method: Triple Net

Reimbursement Desc.: Real estates taxes, insurance, and CAM



Legal/Tax/Parcel ID: Lot 2, Flower Mound Plaza / 121093

GBA‐SF: 82,195

82,195 NRA‐SF:


229,517/229,517 Land‐SF(Usable/Gross): Usable/Gross Ratio: 1.00 Year Built: 1986 Property Class: B M&S Class: C Construction Quality: Average Improvements Cond.: Average Exterior Walls: Brick No. of Buildings/Stories: 1/2 Total Parking Spaces: 408 Park. Ratio 1000 SF GLA: 4.96 Park. Ratio 1000 SF GBA: 4.96

Yes Elevators Count: Fire Sprinkler Type: None Air‐Conditioning Type: Roof Central Mounted Shape: Rectangular Topography: Level

Corner Lot: No Frontage Type: 2 way, 3 lanes each way Accessibility Rating: Average Visibility Rating: Average Bldg. to Land Ratio FAR: 0.36 Flood Plain: No Flood Zone Designation: X Utilities: Electricity, Water Public,

Sewer, Gas


Atrium Office Building


Comments

Medical office space available on the 1st floor.

Atrium Office Building



325 S Stemmons ‐ Office Property Name:


Address: 325 S. Stemmons Freeway

Lewisville, TX 75067 City/State/Zip:

Denton County:



W/S of S. Stemmons Freeway, S of W. Main Street

Property Location:


Space Information

Space Type: Office Full Building Lease: Yes Leased Area: 5,658

Lease Information



Lease Measure: $/SF/Yr Face Rental Rate: $15.00 Escalation Type: Fixed Percentage Verified by: Stephen Lechtenberg

Verification Date: 02/14/2018

Verification Source: Mani Jacob (972) 484‐6644 Transaction Reliability: Confirmed



Reimbursement Desc.: Taxes, insurance, and CAM (estimated at $2.00/SF per broker)



Legal/Tax/Parcel ID: 17132 GBA‐SF: 5,658

5,658 NRA‐SF:


19,889/19,889 Land‐SF(Usable/Gross): Usable/Gross Ratio: 1.00 Year Built: 1974 M&S Class: D Construction Quality: Average Improvements Cond.: Average Exterior Walls: Wood siding No. of Buildings/Stories: 1/2 Fire Sprinkler Type: None Air‐Conditioning Type: Central Shape: Rectangular Topography: Level

Corner Lot: No Frontage Type: 1 way, 2 lanes Accessibility Rating: Average Visibility Rating: Average Bldg. to Land Ratio FAR: 0.28 Flood Plain: No Flood Zone Designation: X Utilities: Electricity, Water Public,

Sewer, Gas


Comments

325 S Stemmons ‐ Office


Comments (Cont'd)

The building is currently vacant and listed for sale at $850,000 ($150.23/SF) or lease at $15.00/SF NNN.

325 S Stemmons ‐ Office



571 W Main Street Building Property Name:


Address: 571 W. Main St W.

Lewisville, TX 75057 City/State/Zip:

Denton County:




Space Information

Space Type: Medical Office Suite #: 100 Leased Area: 5,044

Lease Information



Lease Measure: $/SF/Yr Face Rental Rate: $20.00 Effective Rental Rate: $20.00 Escalation Type: Fixed Percentage Verified by: Stephen Lechtenberg


Verification Source: William T. Ellis (817) 737‐5000

Transaction Reliability: Confirmed



Reimbursement Desc.: Taxes, insurance, and CAM


MSA: Dallas/Ft Worth Legal/Tax/Parcel ID: 121463 GBA‐SF: 22,000

22,000 NRA‐SF:

1.34 Acres(Gross):

58,191 Land‐SF(Gross): Year Built: 2003 Property Class: B Construction Quality: Average Improvements Cond.: Average Exterior Walls: Brick No. of Buildings/Stories: 1/2 Park. Ratio 1000 SF GLA: 4.00 Park. Ratio 1000 SF GBA: 4.00 Source of Land Info.: Public Records

571 W Main Street Building



Long Prairie Rd ‐ Professional Office

Property Name:


Address: 2612 Long Prairie Road

Flower Mound, TX 75022 City/State/Zip:

Denton County:



E/S of Long Prairie Road, N of Forest Vista Drive

Property Location:


Space Information

Space Type: Office Leased Area: 9,000

Lease Information



Lease Measure: $/SF/Yr Face Rental Rate: $19.50 Effective Rental Rate: $19.50 Escalation Type: Fixed Percentage Verified by: Stephen Lechtenberg


Verification Source: Paul Jani (469) 585‐3805 Transaction Reliability: Confirmed



Reimbursement Desc.: Taxes, insurance, and CAM



Legal/Tax/Parcel ID: Lot 7R, Chaparral Cove / 211407

GBA‐SF: 10,233

10,233 NRA‐SF:


51,836/51,836 Land‐SF(Usable/Gross): Usable/Gross Ratio: 1.00 Year Built: 1999 M&S Class: D Construction Quality: Average Improvements Cond.: Average Exterior Walls: Brick No. of Buildings/Stories: 1/1 Fire Sprinkler Type: None Air‐Conditioning Type: Central Shape: Irregular Topography: Level

Accessibility Rating: Average Visibility Rating: Average Bldg. to Land Ratio FAR: 0.20 Flood Plain: No Flood Zone Designation: X Utilities: Electricity, Water Public,

Sewer, Gas


Long Prairie Rd ‐ Professional Office

Addenda


Engagement Letter

Addenda


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