DESTIN POINTE 11.77-ACRES VACANT LAND DESTIN, FLORIDAbeckwithland.com/Jewel/JeffersonBankAppraisal.pdf · 2010. 4. 7. · vacant land located just north of the Destin Pass and south

DESTIN POINTE 11.77-ACRES VACANT LAND

DESTIN, FLORIDA

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PART ONE: INTRODUCTION

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SELF-CONTAINED APPRAISAL REPORT

TITLE PAGE

PROPERTY

Vacant Land

LOCATION

Northeast Corner of Destin Pass Destin, Florida

DATE OF VALUE DATE OF REPORT October 19, 2009 November 2, 2009

PREPARED FOR

Jefferson Bank and Trust 4190 Highway K

O’Fallon, Missouri 63368 Fruitticher Lowery Appraisal Group 3000 Langley Avenue, Suite 402 Pensacola, Florida 32504

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November 2, 2009 Jefferson Bank and Trust 4190 Highway K O’Fallon, Missouri 63368 ATTN: Mr. Steven J. Ohlms, Senior Vice President

Letter of Transmittal RE: A Self-Contained Appraisal Report of the

11.77-Acres of Vacant Land located on the northeast corner of the Destin Pass on Holiday Isle in Destin, Florida.

Dear Mr. Ohlms: At your request, an inspection has been made of the above referenced property for the purpose of estimating the current market value of the leasehold interest. In compliance with the "Uniform Standards of Professional Appraisal Practice", this letter of transmittal is followed by a self-contained appraisal reported in which all applicable approaches to value are used and with the value conclusion reflecting all known information about the subject property, current and projected market conditions, and other available data. This report contains to the fullest extent possible and practical, explanations of the data, reasoning and analysis used to develop the opinion of value. It also includes thorough descriptions of the subject property, the property’s locale, the market for the property type, and my opinion of highest and best use. Market value will be defined in the appraisal report, but basically assumes a willing buyer-seller, both knowledgeable of the subject real estate market and with the valuation at the property's highest and best use. Along with this value estimate, current economic conditions indicate both the marketing period and exposure period to be within about twelve to eighteen months.

3000 LANGLEY AVENUE * SUITE 402 * PENSACOLA, FLORIDA 32504 * (850) 477-0419 FAX (850)477-7931

RODGER K.LOWERY, MAI TOM FRUITTICHER, MAI State-Certified General Real Estate Appraiser State-Certified General Real Estate Appraiser FL #RZ0001922 * AL #G00445 FL #RZ0002029 * AL #G00788 * MS #GA898

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Mr. Steven J. Ohlms November 2, 2009 Page Two The subject property consists of approximately 11.77-acres or 512,701 square feet of vacant land located just north of the Destin Pass and south of the Destin Harbor on Destin Pointe in Destin, Florida. There are approximately 1.25-acres of wetlands located on the southeastern edge of the parcel and a 6.5-acre Army Corps of Engineering dredging spoil easement. Considering the location of the wetlands and the easement, the subject parcel appears to be developable on the remaining area of uplands. The subject is zoned “HDR”, High Density Residential, allowing for a variety of residential uses, with a maximum density allowance of 234 units. Subject to the above and the limiting conditions and certification as set forth herein, it is our opinion that the market value of the leasehold interest as of the last date of inspection, October 19, 2009 was:

TWENTY EIGHT MILLION SEVEN HUNDRED SIXTY THOUSAND DOLLARS

*$28,760,000

*The above value indication is the value of the land based on the extraordinary assumption that the subject property can be developed its maximum density allowing 19.90 units per acre or a total density of 234 units. Should the number of proposed units be decreased or increased, the value opinion could change proportionately. We hereby certify we have no interest, present or contemplated, in the appraised property. This appraisal has been prepared utilizing all of the requirements set forth as Standards for Real Estate Appraisals as established for federally related transactions and the State of Florida. The appraisal conforms to the Uniform Standards of Professional Appraisal Practice (USPAP). The fee for this appraisal was not based on a minimum value nor was the assignment undertaken based on a pre-determined value or guaranteed loan amount. We appreciate the opportunity of doing this work for you and your client. After your review, should you have questions, please call. Respectfully submitted,

Rodger K. Lowery, MAI Steven E. Campbell State-Certified General Real Estate Appraiser #RZ1922 State-Certified General Real Estate Appraiser #RZ3224

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TABLE OF CONTENTS PART ONE: INTRODUCTION ...............................................................................................................................II

TITLE PAGE...........................................................................................................................................................III LETTER OF TRANSMITTAL .......................................................................................................................................IV TABLE OF CONTENTS........................................................................................................................................ VI SUMMARY OF SALIENT FACTS AND CONCLUSIONS ...................................................................................1 DESCRIPTION OF THE APPRAISAL PROCESS .................................................................................................3 PROPERTY RIGHTS APPRAISED ........................................................................................................................5 PURPOSE OF APPRAISAL ....................................................................................................................................5 INTENDED USE OF APPRAISAL .........................................................................................................................5 DATE OF VALUE AND OF PROPERTY INSPECTIONS.....................................................................................6 MARKET VALUE DEFINITION AND IMPLICATIONS .....................................................................................6 IDENTIFICATION OF THE PROPERTY...............................................................................................................7 HISTORY OF THE PROPERTY .............................................................................................................................9

PART TWO: DESCRIPTIONS, ANALYSIS AND VALUE CONCLUSIONS ..................................................10 GENERAL AREA LOCATION MAP ...................................................................................................................11 GENERAL AREA DATA ......................................................................................................................................12 NEIGHBORHOOD LOCATION MAP.............................................................................................................25 NEIGHBORHOOD ANALYSIS............................................................................................................................26 TAXES AND ASSESSMENT ANALYSIS ...........................................................................................................34 LAND USE PLANNING, ZONING, CONCURRENCY.......................................................................................35 PUBLIC AND PRIVATE RESTRICTIONS ..........................................................................................................35 ENVIRONMENTAL CONCERNS........................................................................................................................36 SITE PLAN .............................................................................................................................................................39 SUBJECT PHOTOGRAPHS..................................................................................................................................39 SITE DESCRIPTION .............................................................................................................................................43 HIGHEST AND BEST USE...................................................................................................................................46 THE VALUATION PROCESS ..............................................................................................................................50 SALES COMPARISON APPROACH ...................................................................................................................51

PART THREE: CERTIFICATIONS AND ADDENDA........................................................................................77 CERTIFICATION ..................................................................................................................................................78 ASSUMPTIONS AND LIMITING CONDITIONS ...............................................................................................80 POLICY STATEMENT OF THE APPRAISAL INSTITUTE ...............................................................................82 QUALIFICATIONS AS AN APPRAISER ............................................................................................................81 ADDENDA ............................................................................................................................................................88

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SUMMARY OF SALIENT FACTS AND CONCLUSIONS CLIENT: Jefferson Bank and Trust INTENDED USERS: Jefferson Bank and Trust INTENDED USE: This appraisal is being prepared for use by Jefferson

Bank and Trust for their internal business and financing decisions.

OWNERSHIP: AMT, LLC PROPERTY LOCATION: The subject property is located on Holiday Isle on the

northwest side of the Destin Pass in Destin, Florida SITE SIZE: 11.77-Acres or 512,701 square feet IMPROVEMENTS: The subject property is vacant with no improvements ZONING: “HDR” High Density Residential ENVIRONMENTAL CONCERNS: While there are no environmental concerns noted, there

are approximately 1.25-acres of wetlands located in the southeast corner of the subject parcel

HIGHEST AND BEST USE: The highest and best use for the subject property

is considered to be the future development of multi-unit residential condominiums at a time when market conditions return to a favorable position for development.

EXTRAORDINARY ASSUMPTION: This appraisal is being performed under the extraordinary

assumption that the subject property can be developed to maximum density under the current zoning, which allows for 19.90 units per acre or a total density of 234 units.

DATE OF VALUE: October 19, 2009

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Summary of Salient Facts and Conclusions (Cont’d.) ASSESSED VALUE: $604,957 PROPERTY TAX: $8,123.63 PROPERTY RIGHTS APPRAISED: Leasehold Interest FINAL MARKET VALUE: $28,760,000

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SUBJECT PHOTOGRAPH

Subject Property

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SCOPE OF WORK In an effort to meet your requirements as well as conforming to the Uniform Standards

of Professional Appraisal Practice (USPAP), a visual inspection was made of the subject

land. Photographs and notes were taken of the property for the description write-ups found

within this report.

In addition to the physical inspection, research was conducted on a regional and

neighborhood basis in an effort to identify trends and factors, which have an effect on area

property values. Once these trends and factors were identified, a highest and best use analysis

was conducted.

Upon determination of the land’s highest and best use, similar land sales were

researched for use in the sales comparison approach to value. The sales were extracted from

the public records information, confirmed with one of the parties to the sale, and then written

up in detail in the body of the applicable approach to value. These sales were adjusted for

various differences to indicate separate value estimates with appropriate weight given to each

for reconciliation into a final value conclusion. Active listings were researched, and realtors

as well as developers active in the Destin market area were interviewed.

As the property has no improvements, the cost approach and income approach are

being eliminated from consideration. As this is the valuation of land only, the elimination of

the cost approach and the income approach does not affect the final value opinion.

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PROPERTY RIGHTS APPRAISED The property is subject to a 99 year perpetual lease, which is renewable for an

additional 99 years. This type of lease is typical for almost all waterfront land in the Destin

area. Although the bundle of rights are legally identified as the leasehold interest, the

property rights are considered similar to those of a fee simple estate.

The property rights appraised are those of the leasehold interest. “Leasehold Interest”

has been defined as:

"The interest held by the lessee (the tenant or renter) through a lease transferring the

rights of use and occupancy for a stated term under certain conditions."1

PURPOSE OF APPRAISAL The purpose of this appraisal is to give the client a basis for internal asset evaluation

of the subject property. The objective of this report is to present the data and reasoning used

to form this opinion of value.

INTENDED USE OF APPRAISAL

This appraisal is being prepared for use by Jefferson Bank and Trust for internal

business and financing decisions.

1 The Appraisal Institute, The Dictionary of Real Estate Appraisal, 4th Edition. (Chicago, Illinois: Appraisal Institute, 2002), pg. 162.

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DATE OF VALUE AND OF PROPERTY INSPECTIONS The property was last inspected on October 19, 2009, which is also the current date of

value. This report was prepared and signed on November 2, 2009.

MARKET VALUE DEFINITION AND IMPLICATIONS Market Value - A type of value, stated as an opinion, that presumes the transfer of a

property (i.e., a right of ownership or a bundle of such rights), as of a certain date, under

specific conditions set forth in the definition of the term identified by the appraiser as

applicable in the appraisal (as stated in the Code of Professional Ethics & Standards of

Professional Appraisal Practice of the Appraisal Institute 2005 edition, USPAP section, page

3).

The definition of market value as currently stated in the most recent editions of The

Appraisal of Real Estate is as follows:

"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, 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:

A. Buyer and seller are typically motivated; B. Both parties are well informed or well advised and each acting in what they

considers their own best interest; C. A reasonable time is allowed for exposure in the open market; D. Payment is made in terms of cash in U.S. dollars or in terms of financial

arrangements comparable thereto; E. 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.”2

2 The Appraisal Institute, The Dictionary of Real Estate Appraisal 4th, ed. (Chicago Illinois, Appraisal Institute 2002), page 23.

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IDENTIFICATION OF THE PROPERTY PROPERTY ADDRESS: The subject property is located on Holiday Isle

located between the Destin Harbor, which is north of the subject and the Destin Pass on the south side of the subject property.

LEGAL DESCRIPTION: Please refer to legal description on the following

page. CURRENT OWNER OF RECORD: AMT, LLC. TYPE OF OWNERSHIP: Leasehold Interest PHYSICAL: The subject property includes a total of

approximately 11.77-acres of vacant land. The property is subject to a 6.5-acre dredging spoils easement placed by the U.S. Army Corps of Engineers. The easement extends north past the subject property into contiguous parcels and is identified as land tract 101-E-6 containing a total land area of 9.63-acres, with 6.5-acres located on the subject property. The location of the easement on the subject property is no longer considered to be beneficial as a spoils easement. The U.S. Army Corps of Engineers and the owners of the subject property have initially agreed to relocate the easement to the southern edge of the parcel. The owners have also agreed to deed a pathway allowing access to the easement. In doing this, the total allowable density is not affected and will improve the site plan by allowing the placement of future buildings on the north edge of the parcel, which will increase the overall beach area and view. There is also approximately 1.25-acres of wetlands located in the southeast corner of the subject parcel.

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LEGAL DESCRIPTION

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HISTORY OF THE PROPERTY The subject property, according to Okaloosa County Public Records, was purchased

by AMT, LLC from Destin Guardian Corporation on May 6, 2003 for $1,000,000. This

purchase price included the subject parcel and an additional 0.92-acre parcel that was

improved with a three-story office building. The subject parcel is identified by Okaloosa

County under parcel number 24-2S-000-00000-220-00A and contains approximately 11.77-

acres.

Based on a recent survey of the subject property, approximately 6.5-acres of the

northern half of the subject property is subject to a dredging spoil easement placed by the

U.S. Army Corps of Engineering sometime around 1963. This easement is approximately

9.63-acres and extends northward into contiguous parcels on the north side of the subject

parcel. The current owners have developed an initial site plan calling for all

construction to be on the northern half of the subject parcel. They have contacted the U.S.

Army Corps of Engineering and both parties have initially agreed to move the easement to

the southern portion of the parcel and reducing the easement to a total land area of

approximately 3.89-acres. The U.S. Army Corps of Engineering have agreed to this as long

as they can be deeded a small pathway for access to the easement and to the jetty wall along

the shoreline.

The owners of the property have also been approached by the City of Destin to either

sell or donate a portion of the land area in order for the City of Destin to create a public

beach area. In doing this, the City of Destin has agreed to grant the owners tier three

development status, which could increase the overall allowable density to approximately 300

units. However, it should be noted that this arrangement would need to be voted and

approved by the city council. Considering that this has yet to happen, the current zoning

“HDR”, High Density Residential, which allows for a maximum density of 19.90 units per

acre, or 234 units for the subject property will be applied throughout this appraisal report.

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PART TWO: DESCRIPTIONS, ANALYSIS AND VALUE CONCLUSIONS

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GENERAL AREA LOCATION MAP

Subject

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GENERAL AREA DATA There are four basic interrelated forces that influence the value of a property:

Social/population trends, economic changes and adjustments, governmental controls and

regulations, and physical or environmental changes. These forces are considered in every phase

of the evaluation process but are best discussed in the General Area Data and Neighborhood

Data sections of the report. The subject’s general area is considered to be the Okaloosa/Walton

County area, which includes the communities of Fort Walton Beach, Destin, Defuniak Springs

and SanDestin. The interrelated forces influencing this general area, as listed above, follow:

OKALOOSA/WALTON COUNTY

SOCIAL/POPULATION

One of the more important factors that should be considered in an appraisal of

developable land is the area population trends and the factors that effect the expected future

population. As per the latest population estimates compiled by The Site To Do Business Service,

the 2008 Okaloosa/Walton County population was 254,637 and has been increasing over the past

eight years at a rate of 2.6% annually. The projections for the year 2013 are for the population to

continue its increase at an annual rate of 2.5% annually or 6,489 people per year. About 93% of

this increase is related to migration versus natural change indicating this to be a desirable area in

which to relocate.

The current average household size is about 2.42 people per residence. There are a total

of 140,519 housing units and 102,658 are indicated to be occupied units or 73.1%. This number

is somewhat misleading as the areas along the coast are made up of many condominium

buildings and second homes that are owned by absentee owners who use the properties on a

seasonal basis or rent them out to short term renters (one week or less). With 6,489 new people

moving to the area each year, the estimated annual new households required will be 2,681 (6,489

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General Area Data (Cont’d.)

people ÷ 2.42 people per household = 2,681 new households per year). This increase will have

positive effects on the construction market as new residences will have to be constructed and

vacant existing homes and residential lots will be absorbed.

With the growing primary and secondary residential markets, a rippling effect will be felt

in the retail and wholesale industries. As new homes are built and purchased, new appliances,

new furnishings, etc. will be required. Additionally, the retail businesses selling the day-to-day

necessities will also realize surges in their sales creating demand for additional competition.

Some of the impetus behind the area population growth is the increasing size of the area

military bases. The United States Government has been downsizing and closing military bases

all over the world as well as the bases within this country. Rather than being downsized, the area

bases have been realizing net gains as departments and personnel from closed bases are being

relocated to this area. We have talked to public affairs officers at Hurlbert Field Air Force Base

and Eglin Air Force Base. At the present time Hurlbert Field is said to be stable with a total of

about 21,000 personnel (14,000 civilians and 7,000 active duty personnel). All of the civilians

live off base and an indicated 4,480 active duty personnel and their families live off base. Eglin

AFB is also said to be stable with a total work force of 18,000 (7,000 civilians and 11,000 active

duty military personnel). As with Hurlbert Field, all of the civilian population lives off base and

6,000 of the military personnel live off base. Eglin AFB has received high honors for operations

during the past several years and would be considered stable as a result. Further, Eglin is the

largest military base in the United States separating northern Santa Rosa, Okaloosa and Walton

Counties from southern portions of these same Counties.

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In the 2005 BRAC (Base Realignment and Closure) study, the Department of Defense

recommended personnel and mission realignments to Eglin Air Force Base that will bring in

6,000 new personnel by 2010. In the short term, the Haas Center for Business Research has

projected that this realignment will bring in $304 million dollars of new construction work to the

base. This addition will also provide an estimated $473,600,000 worth of recurring annual

impact dollars to the area. According to recent information in the North West Florida Magazine,

these new military personnel started arriving in force in 2008.

An additional impetus behind the area growth is the location in the “Sunbelt” along the

Gulf Coast of Florida. The sugar white beaches and clear waters of the Gulf of Mexico attract

thousands of visitors every year. Realizing the area benefits (year-round sunshine, warm

temperatures, no snow), many of these visitors choose to make this area their permanent home.

We have contacted owners of area motels and hotels, all of whom state similar tourism increases.

Over the past three to four years, tourism numbers are stated to have increased at a rate of about

10% annually. This is also backed up by the Okaloosa/Walton County Bed Tax information. As

of November 2008, the two county area reported bed taxes of $21,359,308, which is up 12.5%

over the previous same time period for 2007 of $18,969,558. With continued tourism growth

expected, the year-round population increase spin-off is expected to also continue. A summary

chart prepared by the Haas Center for Business Development identifies the tourism growth being

realized by Northwest Florida as a whole.

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Additionally, the multi-family market is also realizing upward pressure on occupancies

and rents. Demand for multi-family housing is high with area property managers reporting 95%

to 100% occupancies. Due to the lack of availability, apartment rents have realized upward

pressure slightly above the current CPI increases. Rents are indicated to have been increasing

from about 1.5% up to 5.8% over the past few years with the average increase being about 3.5%.

As with most markets, the Walton County/Okaloosa County general area has realized

somewhat of a housing bubble. In an effort to identify this “bubble” trend, I have researched

MLS closed sales for condos, single family homes and residential land in the two county area.

Number of sales and sale prices alike in all three categories have realized fairly consistent

increases from 1993 to about 2003. After 2003 sales spiked dramatically, as did sale prices but

since 2007 sale prices and number of sales began to come back down to what would be

considered normal levels. The number of units sold and the average sale prices are identified in

the following summary grid.

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Average Sales Trends Condo Sales Single Family Sales Residential Land Sales Year # Sales Avg. $ # Sales Avg. $ # Sales Avg. $

1993 618 $110,237 1994 $103,121 734 $57,362 1994 644 $118,115 2124 $114,878 840 $52,473 1995 693 $126,044 2041 $120,478 862 $60,646 1996 885 $158,044 2377 $128,277 880 $73,372 1997 1187 $194,274 2355 $134,459 1096 $83,414 1998 1375 $225,009 2866 $143,553 1229 $86729 1999 1500 $242,581 3057 $152,981 1148 $88,322 2000 1385 $270,903 3166 $169,424 1185 $102,840 2001 1558 $281,170 3719 $169,233 1379 $99,068 2002 2146 $270,449 4076 $192,447 1654 $140,347 2003 2705 $342,909 4731 $222,819 2026 $174,412 2004 3335 $449,276 5635 $335,992 3860 $313,046 2005 2705 $563,143 5136 $385,737 2993 $357,587 2006 2774 $422,339 3757 $351,182 966 $234,949 2007 1745 $537,648 3187 $360,109 614 $224,113 2008 1360 $456,312 3452 $306,455 574 $196,459

The above sales and average sale prices were plotted on the following graphs to

demonstrate the trends. Note the consistent growth between 1993 and 2003 and then the

“bubble” that came after 2003. Also not that sales and prices are largely back down to the

“normal” trend line.

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Condo Unit Sales

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Residential Sales

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Residential Land Sales

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As shown on the previous graphs, there is a notable bubble that occurred from 2003 to

about 2006. Prices started to drop in 2007 and the 2008 average sales have dropped close to or

below the “normal” trend line. While values certainly can still fall, the trends would tend to

indicate that we may be nearing the end of the declining market. Based on these trends and the

knowledge of the increasing population and tourist trade, additional drops may be minor and a

leveling out of prices and sales can be expected. The residential land sales are somewhat less

reliable as they include not only residential lots but also larger land tracks.

Overall, the area population increase has had a positive impact on the area’s economy.

The area has seen a proliferation in single family, multi-family and commercial properties but is

now somewhat over built. With the strong demand, property values increased in the past at fairly

rapid rates, as have rents of both commercial and residential properties. In 2006 and 2007 there

was somewhat of an over supply of properties and values started declining. Current inventories

are beginning to shrink and once demand outpaces supply, property values will again be

expected to increase.

ECONOMIC CHANGE AND ADJUSTMENTS

In addition to considering the area’s population and expected increases, an area study

should also consider area economics. Even if the population continues to increase, the new

residents must be able to afford to live in the community; therefore, it becomes necessary to look

at the economic conditions and the projected economic future.

The Okaloosa/Walton County area is currently and has historically maintained an

unemployment rate below the Florida average. Current Walton County unemployment rates are

indicated to be 5% (November 2008) and Okaloosa is at 5.4% (Source:

www.Floridabrasil.com/unemployment-rates.html) while Florida is currently stated to have an

unemployment rate of 7.5%. Personal income per capita for the two county area is

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currently estimated to be $26,480 (2008) and is increasing at about 3.7% annually and the

average household income is $64,712. The two county labor force is indicated to include

131,832 people. The largest non-farm employment industries include “services” (41.2%);

“construction” (17.4%), “Retail Trade (13%) “Public Administration” (7.5%) and

“Finance/Insurance/Real Estate” (7.8%). The area has several industrial parks, which offer

several hundred acres zoned for manufacturing uses and the countywide industrial zoned

property totals 1,724 acres. The largest Walton County employers include Perdue Farms with

800 employees, SanDestin Beach Resorts with 500 employees, TopSail Beach & Racquet Resort

with 150 employees, Walton Regional Hospital with 140 employees and Seascape Resort with

120 employees, to name a few. The new Alaqua Industrial Park with 23 acres, 18 retail stores

and 24 industrial buildings is to begin in March of 2007 in Freeport along US Highway 331.

Overall, the area economy is considered to be stable. A new industry to the area will find

a healthy and young work force with 36% of the population being between the ages of 18 to 44.

The personal income is increasing at rates above inflation and the cost of living is considered to

be very desirable being one of the lowest in the state while the quality of life is deemed to be

good. Area incomes are considered to be stable and are at levels, which make housing

affordable.

GOVERNMENTAL CONTROLS AND REGULATIONS

A general area analysis of a growing area would not be complete without considering the

area’s government and its outlook on future expansion. If the local government is anti-growth,

laws can be enacted which would stifle development and population growth. On the other hand,

if the government is pro-growth, taxes, zoning, and governmental agencies and personnel can be

used by the government to promote new businesses’ development creating a larger economic

base and additional population growth which would support the existing and planned income

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producing developments. The Walton County governing bodies are considered to be pro-growth

organizations.

The Walton County government is made up of a board of commissioners elected every

four years by their districts. They appoint a county administrator who oversees the county budget

and operations.

The county currently has zoning ordinances in effect throughout the county. The northern

end of the county is primarily rural in nature and has an agricultural base. The southern end of

the county, separated from the northern end by Eglin AFB, has more of a suburban make up,

which caters to the tourism industry and the Air Force Base.

General revenues are raised through an ad valorem tax system. The Walton County

Appraisers Office assesses the property at “just value” which is supposedly about 85% of market

value but more typically ranges from about 20% to 70% of market value. The current millage

rates for the County is 8.9532 (municipalities have additional taxing authority). The area

property taxes are among the lowest in the state, which makes it more affordable for new

business development. Overall, the local governmental agencies are considered to aid in

the development of Walton County. Zoning along with the Future Land Use Plan are used to

insure organized, homogeneous growth, which adds to the area’s appeal. The low taxes are also

an enticing factor for future prospective businesses. The government’s willingness to aid in the

development of the economic base also creates a stronger population base both physically and

economically.

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LOCATION AND PHYSICAL FACTORS

The location and physical factors of the area are considered to be important as they are a

major impetus in the relocation of population as well as businesses. Available land, good

weather, water and recreational aspects are all factors considered by a potential future resident of

the area. If these factors are congenial, they will aid in the population increase resulting in

additional economic growth.

Walton County has a land area of approximately 1,058 square miles. The altitude ranges

from sea level to about 120 feet above sea level. The western boundary is Okaloosa County and

eastern boundary is made up of Holmes, Washington and Bay Counties.

The sun is said to shine approximately 343 days of the year making this area part of the

“Sun Belt” of the United States. The “sun belt” states, especially Florida, have been growing in

population faster than other areas of the country in recent years. The annual mean temperature is

about 70 degrees and the average rainfall is from about 62 to 87 inches.

Major roadways create easy transportation to and from Walton County. Interstate 10 runs

through the middle of the county in an east/west direction and continues to the East Coast of

Florida to the West Coast of California. Highway 98 is found in the southern end of the county

and provides easy transportation to the near by communities of Panama City, Fort Walton and

Pensacola. Highway 331 provides easy transportation from the southern end of the county to I-

10. Located in the northern Fort Walton Beach area is the Okaloosa County Air Terminal, which

utilizes the Eglin Air Force Base Air Strip for public air transportation to all parts of the country

. An additional regional airport can be found in Pensacola. The Gulf of Mexico makes up the

county’s southern boarder and provides excellent recreational facilities. The Gulf beaches are

lined with sugar white sand, which draw thousands of tourists every year. In addition to the Gulf

of Mexico, the southern end of the county offers Choctawhatchee Bay, which provides

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exceptional facilities for water activities. Water activities enjoyed include swimming, surfing,

sailing, motor boating, fishing and diving to name a few.

Overall the area’s physical characteristics are considered a real asset for the general area

of Walton County. There is available land for additional business and residential development;

however, it is rapidly being used up resulting in increasing property values. As the southern end

of the county is the main economic producer, it is considered to be the most likely place for

continued future growth. The moderate temperatures and year-round sunshine also entice a large

number of new businesses to the area, which aid in creating a larger population base. South

Florida has had problems in past years with dwindling drinking water supplies; however, the

Walton County area has an abundance of drinking water adding to its future development

potential.

General Area Data Conclusions – The Okaloosa/Walton County area has a bright

future. Primary and secondary home owner demand in the area is currently around 2,681 units

per year. Further, the tourism industry is growing at a rate of about 10% to 12% annually, which

will help to keep new residence coming to the area. Additionally, area military bases are growing

in population with 6,000 new personnel expected in the next two years. The housing and condo

market sale prices have dropped over the last two years and are currently considered soft due to

an oversupply but as the increasing population buys up the existing supply, prices will start to

realize increases again. While prices can continue to drop, the trends identified would indicate

we are now near the end of the declining market. The beaches of South Walton and Okaloosa

County are the areas major draw. The stain placed on the soft residential market is starting to

affect the commercial market and area realtors are indicating commercial rental rates are being

reduced as a result. These reduced rental rates will also negatively affect commercial values in

the short term but Realtors are indicating these short rates are being negotiated with rapid

increases in years two and three so the effects will only be minimal.

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NEIGHBORHOOD LOCATION MAP

Subject

26

NEIGHBORHOOD ANALYSIS A neighborhood is defined in The Dictionary of Real Estate Appraisal, Fourth Edition

2002 as: "A group of complementary land uses; a congruous grouping of inhabitants,

buildings, or business enterprises.”3 Neighborhood boundaries are defined because properties

within neighborhoods tend to be similar in characteristics with regard to land use,

desirability, and are affected by similar physical, economic, governmental and social forces.

Using the map on the preceding page, the subject neighborhood is defined as the

community of Destin. Boundaries are considered to be the Destin Pass to the west, SanDestin

Resort to the east, the Gulf of Mexico to the south and Niceville to the north. Highway 98 is

the only major east/west arterial found within this neighborhood providing convenient access

to downtown Destin to the west and the SanDestin Resort found to the east. The City of

Destin is now actively buying properties and will be creating a second east/west arterial that

will start at the Mid Bay Bridge Road on Commons Drive and will extend west to Highway

98 at Calhoun Avenue. The Mid Bay Bridge provides convenient access to Niceville, area

Military Bases and I-10 found to the north.

The majority of the vacant land found in this neighborhood was once a turpentine

plantation owned by Mr. & Mrs. Kelly. Turpentine has not been harvested for many years but

the Kelly’s chose to hold on to this land. There has been great demand for this land for many

years and upon the deaths of Mr. & Mrs. Kelly, the heirs began to sell off portions of the

estate resulting in the rapid growth that has taken place over the past fifteen years. The

trustees of the property have ensured that the area be developed in a well-planned, first class

manor. While deed restrictions have not been placed on most of the land, they have created

development plans on their own and with buyers to ensure a desirable community. The areas

found along Highway 98 are reserved for commercial development and the areas found north

and south of the Highway are utilized for residential development. Located along new & old

Highway 98,

3The Appraisal Institute, The Dictionary of Real Estate Appraisal, 4th ed. (Chicago, Illinois: Appraisal Institute, 2002), pg. 193.

27

Neighborhood Analysis (Cont’d.)

which runs along the Gulf of Mexico and Destin Harbor, are numerous condominium

developments and high-density single-family subdivisions as well as several restaurants.

Destin is located on a peninsula separating the Gulf of Mexico from Choctawhatchee

Bay. Destin is also located near several other cities in the region, with Fort Walton Beach

located to the west at the inlet of Santa Rosa Sound into Choctawhatchee Bay. North of

Destin across the bay is Niceville, Florida, with the Mid-Bay Bridge linking the two cities by

road. Located approximately 50 miles west of Destin is Pensacola, Florida and

approximately 50 miles east of Destin is Panama City. Both of these cities offer large

airports and are in close enough proximity to Destin to bring in a large amount of tourist

every year to Destin and surrounding areas. The western tip of the peninsula is East Pass

(also known as Destin Pass), separating it from Santa Rosa Island to the west. East Pass is

the only outlet of Choctawhatchee Bay into the Gulf of Mexico. Frequent dredging is

required to keep East Pass navigable. Another significant point of interest in the East Pass is

“Crab Island”, a significant large sandbar where local boaters are able to anchor and walk to

others in waist high water.

Destin has been a strong tourist area for many years and in recent years has surpassed

nearby Pensacola and Panama City as a leader in Northwest Florida tourism. With white

beaches and emerald colored waters, approximately 80% of the annual Emerald Coast’s 4.5

million visitors travel to the area to visit Destin. To maintain and increase the level of

tourism in the Destin area, several attractions have been constructed in and around Destin,

including the large family oriented water park Big Kahuna’s. A more recently added

attraction is Destin Commons, which is an open air shopping mall located to the east of the

city. This shopping area includes a 14-screen Rave motion picture theater, a Hard Rock

Café, and numerous national retail tenants such as Bass Pro Shops, Belk, Book-A-Million,

Banana Republic and Abercrombie & Fitch.

With a large tourism market, several condominiums and hotels were constructed,

beginning mostly in the 1970’s. As more tourist visited the area, many decided to become

permanent residents, which in turn, led to an increase in residential development for the area.

28


Within the neighborhood, the 2000 census population was estimated to be 14,426 and has

grown to 26,448 as of 2008, an increase of 12,022 people or 83% (10.4% average annual

growth). Over the next five years the growth is expected to slow slightly to 4.8% per year with a

2013 expected population of 33,410 (1,392 new people per year). The average household income

is $87,152 and the median household income is $64,896. This is much greater than the

neighboring Fort Walton Beach Community that has an average income of $39,987 and the mean

household income of $33,817 indicating the more affluent people in the county prefer the Destin

area. Throughout the past twenty years, Destin has realized a moderate growth rate.

However, in the last five years, that growth expanded as the national and local real estate

markets began to flourish. This created a profitable opportunity for developers as demand for

residential condominiums grew dramatically. A large reason for this increase in demand was

due to investors who began “flipping” condominium units, which in turn, created inflationary

pricing for these condominium units. The increase demand also included permanent

residents who moved into the area. The increase in population allowed for additional

commercial growth to compliment the increasing population in the Destin area. During this

time, from early 2003 to mid 2006, prices for area real estate increased at dynamic rates with

rapid absorption rates. Almost all condominium developments that started in 2003 and 2004

were mostly sold out prior to completion.

The large and rapid growth rate experienced in the Destin market quickly turned

downward as the real estate growth “bubble” burst and over inflated real estate values began

to decrease. With the same events taking place on a national level, the housing market was

caught with too many developers and investors that had increased price levels to a point that

the end user was unable to afford. As the investors dropped out of the market, the overly

inflated prices caused a stall in the growth of the real estate market and created a mortgage

crisis that then affected the national economy and played a large part in the current downturn

of the national economy.

29


According to the MLS statistical research for 2007, a total of 608 condominiums sold in

the Destin City limits and the average condo sale price for this neighborhood was indicated to be

$604,868. The previous year’s average price was $586,594 indicating an increase of 3.1% with

699 sales, up from 472 sales in the previous year. In 2005 the average sale price reflected

somewhat of a “bubble” being $662,464, but the past three years has seen something of a decline

as the market is beginning to stabilize to a more normal trend. In 2008, 225 units were sold (a

rate of 18.75 units per month) with an average sale price of $421,733 indicating a decrease in

value of approximately -30% from 2007. To date, 226 units have sold as of October 2009 with

an average sale price of $379,232. Currently, there are 915 active listings for condo units in

Destin indicating a four (4) year supply if sales continue at the current rate.

Some of these sales trends may be somewhat misleading due to the closing of pre-

constructed contracts which originated prior to the peak in the market. Approximately 100 of

the 608 sales that closed in 2007 were units within the Emerald Grande development, all of

which were the result of pre-construction contracts originating two or more years earlier. As

these values do not represent current conditions of the year of closing, the results excluding

these sales (shown in parenthesis), which would offer a more reliable market conditions

indicator, are included. These trends are shown on the following chart.

Destin Condominium Sales Year # Sales/YR Average $ % Change % Change/2009 2004 863 $543,608 ---- -30.24% 2005 699 $662,464 +21.9% -42.75% 2006 472 $586,594 -11.5% -35.35%

2007 608 $604,868 ($562,412)

+3.1% (-4.1%)

-37.30% (-32.57%)

2008 225 $421,733 -30.27% -10.08%

2009 YTD 226 $379,232 -10.08% ----

30


Similar trends were noted for single family residential home sales in the Destin City

limits. These trends are shown on the following chart:

Destin Single-Family Residential Sales Year # Sales/YR Average $ % Change % Change/2009 2004 519 $617,890 ---- -42.3% 2005 375 $717,138 +16.2% -50.3% 2006 219 $724,389 +1.0% -50.8% 2007 187 $665,685 -8.1% -46.5% 2008 229 $469,152 -29.5% -24.1%

2009 YTD 126 $356,317 -24% ----

As previously discussed, condominium and home sales were brisk through 2004 and

spiked in 2005 as shown on the previous charts. After peaking in 2005, values fluctuated over

the next three years showing some decreases in value as the market is beginning to stabilize to a

more normal trend. The current average price for 2009 is the lowest it has been in the past five

years. Overall, the average sales price for condominium units occurring in 2009 is down

approximately 43.8% from 2005 while single family residential values show a much larger

decrease of 50.3%. There are currently 200 active listings for single family residential homes

with an average asking price of $361,651. As of January 29, 2009 8 homes have sold in the

Destin area, down from the average sales of 18.75 homes per month in 2008, with an average

sale price of $279,250, indicating a decrease so far this year from 2008 of approximately 10%.

Within the five mile ring study, there are a total of 101 restaurants that include fast food

and the more formal sit down restaurants. Complete information was not available for all of the

restaurants’ gross sales due to years in business but an indicated 11 restaurants have gross sales

between $1,000,000 and $2,000,000; 13 restaurants have gross sales between $2,000,000 and

$5,000,000; 2 restaurants have gross sales between $5,000,000 and $10,000,000. The total gross

31


sales for restaurants in the area in 2008 was indicated to be around $48,000,000. Currently area

strip centers are realizing good occupancies with vacancies of less than 5%. Area restaurant

properties appear to be doing well with long waiting lines noted during the peak times. The low

vacancy rates and expected population increase of nearly 1,392 people per year combine to

create a very healthy market for commercial endeavors and is reflective of the strong tourist

market. The “Central Core” area of Destin is found at the foot of the Destin Pass Bridge

and extends the length of the Destin Harbor. This area includes many of the commercial facilities

that make life in Destin convenient and enjoyable. Located to the east is a Fishing Museum, the

Community Center and a strip shopping center offering restaurants, shops and offices. Located

on the Harbor Walk Village site (at the foot of the Destin Pass Bridge) are numerous restaurants,

bars, shops and the Destin Fishing Fleet. This Harbor Walk Village is adding 80,143 square feet

of additional shops and restaurants and 281 condominium units were recently completed and the

developer has realized over $250,000,000 in sale closings last year that were not reflected in

MLS sales. The Destin City Hall is found just to the east. One of the main draw backs of the

Destin Community is the traffic problems found along Highway 98 during the summer season.

While the permanent population may only be 24,265, the tourism market adds over 250,000

additional people to the area. The City has recognized the problem and is creating a new

boardwalk that runs along the northern water line of the Harbor creating a pedestrian friendly

environment that will help to ease the traffic problems. Having a residence in this “Central Core”

area, which is where the subject property is found, allows the owner or visitor to park their car

and walk to all of these desirable locations. Further, many of the resort developments are being

constructed as self contained communities that offer on-site shopping, restaurants and

entertainment. Several of the larger developments also include private Gulf front beaches and or

golf courses.

32


Destin has also realized rapid growth among motel/hotel properties, all of which

appear to be doing very well and will aid in condominium unit sales by exposing new

potential buyers to the area. There are several newer motels/hotels that were recently

constructed in the Destin market, which is considered to be strong. I obtained a Smith Travel

Research report identifying 13 properties in Destin, which make up the majority of the

limited service properties in the area. The study takes into consideration the 100 room

Comfort Inn, the 83 room Country Inn & Suites, the 101 room Extended Stay America, the

94 room Wingate Inn, the 74 Room Holiday Inn Express, the 77 Room Sleep Inn Destin, the

104 Room Hampton Inn Destin, the 72 Room Motel 6, the 72 Room Best Western

Summerplace Destin, the 120 Room Residence Inn, the 174 room Courtyard, the 74 room

Hampton Inn and the 62 room Ramada Limited.

The 74 room Hampton Inn Suites was added in 2005. In addition, the 174 room

Courtyard Sandestin and the 120 room Residence Inn were added in 2006. These 368 new rooms

represent an increase in available room of 8% in 2005 and 30% in 2006, considering the 13

properties included in the study. The room supply increases differ slightly from the available

room nights due to the time of year in which the rooms were added. Even with the added rooms,

the hotel market is considered to be healthy with area quoted occupancy rates above 66.4% and

increasing ADRs. There are some large scale mixed use properties currently planned for the

harbor area along the water that will include a few hundred additional hotel rooms. These

developments are currently in the conceptual stage of development and will cater to an upscale

client, which is not considered to be the subject market. In any case, considering the planning,

sales and construction time these new developments are not expected for at least the next four

years. No other new hotel/motel properties are known to be planned.

33


The Destin market has historically been a resort location commonly accessed by car

from the surrounding states. Travelers who prefer driving to airline travel may actually

increase business in Destin as vacationers who typically fly to far away vacation spots may

now opt to drive to nearby beaches, such as Destin. Destin is now the number two drive-to

market in the State of Florida, second only to Orlando. Being located just one tank of gas

away from many of the larger southern metropolitan areas makes Destin even more appealing

in the current market.

Overall, the Destin neighborhood appears to have a bright future. Although current

market conditions are at a point that new development is mostly being put on hold, the constant

tourism should allow the current over supply to eventually be absorbed and then create demand

for new residential and commercial developments. As the area population increases, and once

the real estate market stabilizes, there should be moderate growth with slight increases in

property values. Although the appreciation rates will be slower than in years past, the overall

neighborhood offers a variety of activities, a high quality of life that will allow for the continued

growth of the Destin neighborhood.

34

TAXES AND ASSESSMENT ANALYSIS The subject property assessed by the Okaloosa County Property Appraiser under

parcel identification # 00-2S-24-0000-0022-000A. In 2008, the property was assessed a

value of $604,957 with taxes due in the amount of $8,123.63. The most current assessed

value and tax liability is extremely lower than previous years, as the assessed value in 2006

and 2007 was indicated to have been $2,401,206. The lower assessed value and resulting tax

liability is due to a 6.50-acre spoils easement placed on the property by the U.S. Corps of

Engineering. However, this easement has been on the property for well over five years, but it

was only in 2008 that the property appraiser lowered the assessed value.

Comparing the subject’s assessed value to surrounding properties suggest that the

subject property has a decisive tax liability advantage over competing properties. However,

the spoils easement should not affect the ability to develop the property to it’s maximum

density, and therefore, should not affect the overall market value of the property.

It is noted that a sale of the property or any improvements placed on the subject property

would trigger a reassessment of the property, and a potential buyer of the property should anticipate

taxes based on their purchase price and not the historical taxes of the property. This is considered to

be reasonable and would have no negative effect on the property value or its marketability.

35

LAND USE PLANNING, ZONING, CONCURRENCY The Future Land Use is a broad category designation used for large areas to aid in

ensuring controlled and well planned growth. Okaloosa County currently has a Future Land

Use Plan that has been approved by the county and state. This plan is used as a guide for

development by the county. The subject property is located within the City of Destin in a

High Density Residential district, which allows for high density residential uses. More

specific uses are designated by the City Zoning Ordinances.

Specific uses allowed on individual tracts of land are more precisely identified by

zoning laws. The City of Destin Zoning Ordinance provides typical zoning classifications

with the subject being within a “HDR”, High Density Residential zoning district. The zoning

district applies to areas developed, redeveloped and/or maintained and conserved as

permanent or seasonal single-family detached or multi-family attached dwelling units. It is

the intent of this zoning district to specifically not allow commercial hotels, motels, bed and

breakfast establishments, or other commercial transient living accommodations and all non-

residential uses.

The High Density Residential zoning district allows for a maximum density of 19.90

units per acre with a maximum building height under tier one of 80 feet or 7 stories. Floors that

are designated for parking do not count towards the total building height and under this zoning.

With a total land area of approximately 11.77-acres, the subject property can be developed up

with up to 234 dwellable units. Overall, the subject parcel conforms well and fits in with the

surrounding properties. The developable land will offer unobstructed water views and once

developed, should conform to the surrounding improved properties.

36

PUBLIC AND PRIVATE RESTRICTIONS Public restrictions as to "use" are discussed within the preceding zoning section. No

plat, deed or other private restrictions are known to the appraiser.

ENVIRONMENTAL CONCERNS Considering that the subject property is vacant land, there is no logical reason for

environmental concerns, and it is assumed that no environmental concerns exist. No evidence

of surface soil stain was noted on the property. The U.S. Army Corps of Engineering spoils

dredging easement is located on the northern half of the parcel, away from the current

shoreline. Originally, this easement was located along the shoreline, but with the accretion

of the subject parcel due to the dredging of Destin Pass, the easement location does not serve

the U.S. Army Corps of Engineering. Considering this, the owners of the parcel and the U.S.

Army Corps of Engineering have agreed to move the easement to the south side of the parcel,

allowing development along the northern edge of the parcel. There are approximately 1.25-

acres of wetlands located on the southeast portion of the parcel that should not have any

negative impact on the subject property.

The above is a very important assumption and limiting condition to the appraisal.

From the inspections, we observed no evidence of hazardous substances “obvious to the

untrained person” and received no communication “through a reasonably reliable person”

indicating possible contamination.

37

SURVEY

38

39

SUBJECT PHOTOGRAPHS

View of Subject Property

View of Subject Property Facing the Destin Pass

40

SUBJECT PHOTOGRAPHS

View from Subject Property Facing Destin Bridge

View from Center of Subject Property Facing Towards Destin Pointe

41

SUBJECT PHOTOGRAPHS

View of Melrose Avenue from Subject Property

View of Rosalie Drive from Subject Property

42

AERIAL VIEW OF SUBJECT

Subject Parcel Outlined in Red

43

SITE DESCRIPTION For better visualization of this narration, please refer to the preceding drawings and

photographs.

AREA: 11.77-Acres or 512,701 Square Feet SHAPE: Irregular DIMENSIONS: 218.94’ x 44.00’ x 304.00’ x 32.00’ x 346.24’ x 67.30’ x 51.90’

x 38.52’ x 43.88’ x 797.93’ x 367.44’ x 400.00’ x 200.00’ x 394.41’

INGRESS/EGRESS: As shown by the photographs and maps, the subject property is

located on the east side of the Destin Pointe Planned Unit Development on Holiday Isle in Destin, Florida. The subject property is on the northwest edge of the Destin Pass and south of the Destin Harbor. There are no roads into the property and access to the parcel is available via Melrose Avenue and Rosaria Drive, which are private roads running through the Destin Pointe Planned Unit Development. The subject property is also accessible from the Destin Pass. The ingress and egress for the subject property is currently limited although extending the two private roads into the subject property would make the ingress and egress of the subject property good.

TOPOGRAPHY: The site is basically level with no irregular topographical

features noted. FLOOD DATA: Per FIRM #12091C 0469H dated December 6, 2002 the subject

property is located in Flood Zone “VE”, with a minimum elevation of 13 feet required. Zone VE is the flood insurance zone that corresponds to areas within the 1-percent annual chance coastal floodplain that have additional hazards associated with storm waves. Mandatory flood insurance purchase requirements apply to this area.

DRAINAGE: The land appears to be well drained and there was no standing

water present during the physical inspection of the property. There are approximately 1.25-acres of wetlands located on the southeast edge of the parcel.

44

Site Description (Cont’d.) SOIL COMPOSITION: The soil is a sandy composition that is typical of properties in

the area. This soil is considered to be suitable for single-family and multi-family residential development as evidenced by the surrounding residential developments having similar soil types as the subject property.

UTILITIES ON SITE: There are currently no public or private utilities on the subject

property, however, all public and private utilities are available to this site.

SITE IMPROVEMENTS: The subject property is vacant with no improvements EASEMENTS: Currently, there is a 6.5-acre U.S. Army Corps of Engineering

dredging spoil easement located from the center of the parcel north over onto contiguous parcels. The overall size of the easement is 9.63-acres and is identified as tract 101-E-6. The location of the easement would prevent construction on the northern portion of the subject parcel. The current location of the easement is not considered advantageous for the property owners or towards the U.S. Army Corps of Engineering. Considering this, the owners and the U.S. Army Corps of Engineering have arranged to move the easement to the southern portion of the parcel. It has been agreed by both parties to this easement that moving the location of the easement will be beneficial to both parties. It should be noted that the easement will not prevent the subject property from being able to be developed to its maximum allowable density, as should the easement location remain unchanged, the owners could construct on the south side of the easement closer to the shoreline.

45

Site Description (Cont’d.) CONCLUSION OF CONFORMITY: The subject property consists of a large vacant parcel of land

containing approximately 11.77-acres. The southwestern corner of the parcel fronts along the north shoreline of Destin Pass, which allows passage into the Gulf of Mexico and Choctawhatchee Bay. The subject property is bordered by several residential developments, including the Destin Pointe Planned Unit Development, which is located on the east side of the subject parcel. The large parcel directly south of the subject parcel is owned by the State of Florida and is designated for conservation use only. The subject parcel is currently zoned “HDR”, High Density Residential, which is similar zoning to the other privately owned land surrounding the subject parcel. There is a dredging spoil easement on approximately 6.5-acres of the parcel and there are approximately 1.25-acres of wetlands located on the southeast corner of the parcel. The subject property is vacant and ready for future development. Considering the surrounding uses are almost exclusively residential, the future construction of a multi-unit residential condominium development would mix in well and conform to the surrounding area.

46

HIGHEST AND BEST USE A brief definition of the term "highest and best use" would be:

"The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum productivity."4

Implied within this definition is recognition of the contribution of that specific use to

community environment or to community development goals in addition to wealth

maximization. Also implied is that the determination of highest and best use results from the

appraiser's judgment and analytical skills, i.e., that the use determined represents an opinion,

not a fact.

The Highest and Best Use section of this report is the pivotal point in the appraisal

process. All previous data is used to test the four criteria of: (1) legally permitted, (2) 4 Appraisal Institute, The Dictionary of Real Estate Appraisal, 4th ed. (Chicago: Appraisal Institute, 2002), pg. 135.

47

physically possible, (3) economically feasible, and (4) maximally productive.

LAND AS THOUGH VACANT

Legally Permissible - All legally permissible uses should be analyzed when

considering a site's highest and best use. The subject property is located within a “HDR”

High Density Residential district. This district is intended exclusively for residential uses,

with allowances for high density dwellings. The subject property is encumbered by a

dredging spoils easement in favor of the Army Corps of Engineers that consists of

approximately 6.5-acres of the overall 11.77-acres. There are also approximately 1.25-acres

of wetlands located in the southeast corner of the subject parcel. Subtracting the easement

and the wetlands from the overall parcel size indicates that there are approximately 4.02-

acres of developable land. The subject property has an allowable density under the “HDR”

zoning of 19.90-units per acre, based on the entire 11.77-acre parcel, which according to

Community Development Director Ken Highest and Best Use (Cont’d.)

Gallander, is transferable to the 4.02-acres of developable land area. Considering this, the

total allowable density for the subject property of 11.77-acres is 234 condominium units,

which can transfer to the developable 4.02-acres.

Physically Possible - Of the legally permissible adaptations of the site, those

physically possible uses require consideration and analysis. The size and location of the

parcel are important aspects of value. The subject parcel contains approximately 11.77-acres

or 512,701 square feet. There are two existing issues that will affect the possible uses for the

subject parcel. The parcel is currently subject to a dredging spoil easement in favor of the

U.S. Army Corps of Engineers. The easement is located from the center of the parcel north,

extending into contiguous parcels on the north side of the subject property. Based on the

current location of this easement, there could be no development on the northern half of the

subject parcel. However, the owners and the U.S. Army Corps of Engineering have initially

agreed to move this easement to the southern half of the parcel, which both parties to the

easement agree will be more beneficial for each party involved. With the easement located

48

on the southern portion of the parcel, the northern half can be fully developed to the legally

maximum density based on the current zoning of “HDR”, High Density Residential.

Should the agreement to move the easement not go through, which both parties agree

should, it will still be possible to develop the property to it’s maximum density of 234 units.

By moving the easement, the development will take place on the northern portion of the

parcel, leaving the southern parcel as vacant beach front.

Financial Feasibility - Of the legally permissible and physically possible adaptations

of the site, only those uses which are financially feasible should be considered. The subject

property is a large vacant parcel located on the western edge of Destin Pointe, with a large

amount of waterfront along the Destin Pass. The area surrounding the subject property is

developed with Gulf front condominiums and commercial developments that support the

tourism industry. The area has benefited from tremendous growth over the previous decade,

with an increase in commercial developments that created an infrastructure able to support

the Highest and Best Use (Cont’d.)

community year round. However, in the past few years, the local market, along with

surrounding similar tourist areas such as Pensacola Beach and Panama City, have slowed

tremendously. Due to the current market conditions, almost all future planned commercial

and residential developments have been put on hold. This situation is intensified by a slow-

moving economy and the residential mortgage crisis, which is reshaping current lending

policies by almost all financial institutions. The tightening of lending policies has made it

harder for investors to move forward with new development.

Considering current market conditions, it does not appear to be financially feasible for

any type of large scale commercial or residential development, which the subject property is

legally and physically able to sustain. Due to this, the only financially feasible use of the

land is to hold for future development when market conditions return to a favorable condition

and demand makes such developments financially feasible.

Maximally Productive – The financially feasible use which results in the greatest

return to the land is the one which is considered to be the highest and best use of the land.

Based on the limited types of development available under the High Density Residential

49

zoning, developing a multi-family high density condominium development appears to offer

the highest return on investment. However, until current market and economic conditions

turn around and demand increases for such developments in the subject’s immediate area, the

current maximally productive use of the land is to hold for future development of a high

density, multi-unit residential condominium development.

CONCLUSION – The highest and best use of the land is considered to be to hold the

land for the future development of the site with commercial retail and residential condominiums

at a time when the area real estate market begins to turn upward and such development is then

considered financially feasible. This conclusion is considered in the following valuation

analysis.

50

THE VALUATION PROCESS There are three (3) commonly accepted approaches to value: The Cost Approach,

Income Approach, and Sales Comparison Approach. All three utilize market derived

information and are “market driven” approaches, as will be shown in the analysis.

The Cost Approach is a summation of land value and improvement value. The land is

valued as though vacant and available for its highest and best use. The improvement is valued

by first estimating the reproduction costs new from which all forms of depreciation are

deducted. Depreciation can be both from deterioration and obsolescence. Obsolescence is

further categorized as functional or external. The analysis of obsolescence, based on the

highest and best use analysis, accounts for deductions necessary if the improvement is not

adequate for the site.

The steps for the Income approach are to first estimate an economic rent for the

subject. This analysis is made even if the property is owner occupied. From the gross

potential income there is first deducted allowance for vacancy and collection loss with further

deductions then made for the expenses applicable to the type property being valued. This net

operating income is then capitalized into an indication of value through the use of an

appropriate capitalization rate.

The Sales Comparison Approach is an estimation of the property value by comparison

with recent sales of similar or competitive properties extracted from the subject’s market.

The “market”, rather than being the immediate proximity to the subject, is considered that

area, local, regional or even national that would be considered by a prospective buyer of the

subject property.

These approaches do not make value. They are merely tools in the hands of the

appraiser who must carefully weigh each value indication, give appropriate weight to the

approach and reconcile into a final value conclusion.

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SALES COMPARISON APPROACH The sales comparison approach involves direct comparisons to the subject property of

similar properties that have sold in the marketplace. The approach consists of searching the

market for sales, qualifying the sales prices and terms with one of the participants in the sale,

comparing the sales to the subject property for differences, adjusting the sales for those

differences and formulating an opinion of value from the adjusted value indications. The

improved sales which are utilized will be compared on a cost per unit basis depending on the

“typical” unit used by market participants.

The market derived adjustments follow a specific, logical order so as not to skew the

results. The adjustments listed in order include: Property rights, financing, condition of sale,

date of sale or market conditions, location and various physical adjustments which can be

considered together. While an adjustment for each may not be required, they are considered

resulting in a comparable unit of measure.

The units of comparison may be physical, such as dollars per square foot of area, or

they may be economic, such as gross rent multipliers. These units of comparison yield a

pattern which is reconciled and converted to a value indication for the subject via the sales

comparison approach.

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LAND VALUATION

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COMPARABLE LAND SALE #1 File Waterfront Land 17 R.E. Zone 15 Location This property is located at the western dead end of Gulf Shore Drive in

Destin, Florida Date May 28, 2004 Reference O.R. 2537 Page 2079 Grantor C.B.S. Development Corporation Grantee Pointe One Legal Lengthy legal description but the property can be identified by the County

Tax #00-2S-24-0000-0034-0000 Sales Price $31,178,800* Rights Transferred This is an assignment of a 99 year lease with terms similar to fee simple

ownership. Financing A conventional loan was obtained with terms considered similar to a cash

sale. Condition of Sale Arms Length Transaction Dimensions Numerous Calls Zoning HDR – High Density Residential & “RIA” Residential Intensive

Apartment Utilities Available All public and private utilities were available. Size (Square Foot) 169,448 SF Price/Square Foot $184.00/SF Size (Acre) 3.89 Acres Price/Acre $8,015,116/Acre Size (Front Foot) 1,085 FF Price/Front Foot $28,735/FF Size (D.U.) 79 DU Price/D.U. $394,668/DU Prop Bldg Size (SF) 261,255 Sellable SF Price/S.SF $119.34/SSF Confirmation Tom Fruitticher, MAI confirmed this information with Pat Barcus, one of

the buyers (404-409-7186) on January 20, 2006. Comments *Doc Stamps on the deed indicated a purchase price of 22,360,000 but Mr. Barcus also indicated they additionally paid off a note for the seller for $950,000, bought out one of the seller’s partners for $6,100,000, paid for a seawall the seller contracted at $1,650,000 and paid the seller interest in the amount of $118,800 prior to closing bringing the total acquisition price to $31,178,800, which was used. This property is found on the extreme end of Holiday Isle and offers water frontage along two sides. The western property line fronts along the Destin Pass and offers clear views to the Gulf of Mexico. The eastern property line fronts along Destin Harbor. There is a large sand beach to the north that is dredging spoils from the pass that will never be developed and will provide a pleasant amenity to this site. According to the city development department, the property owner has applied for permits for a 79 unit condominium that will have nine stories and will be known as Norriga Pointe. The buyer indicated that this building will have a total sellable building area of 261,255 square feet and they plan to market the units at $1,000/SF.

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Subject

Sale #1

55

COMPARABLE LAND SALE #2 File Waterfront Land R.E. Zone 12 Location 1110 Santa Rosa Boulevard on Okaloosa Island in Fort Walton Beach,

Florida Date November 5, 2004 Reference O.R. Book 2573, Page 2959, Okaloosa County, Florida Grantor French Quarter II, LLC Grantee Fort Walton Development, LLC Legal Lengthy legal description but currently known as the Waterscape

Condominium property, Santa Rosa Island, Okaloosa County, Florida Sales Price $55,000,000 Rights Transferred Fee Simple Financing Conventional financing with terms similar to a cash sale. Condition of Sale Arms Length Transaction Dimensions Irregular dimensions with approximately 420 feet of frontage along Santa

Rosa Boulevard and 490.87 feet of frontage along the Gulf of Mexico. Zoning “B-2”, allowing for condominium development up to 40 dwelling units

per acre. Utilities Available All public and private utilities were available. Size (Square Foot) 410,771 SF Price/Square Foot $133.89/SF Size (Acre) 9.43 Acre Price/Acre $5,832,450/Acre Size (Front Foot) 490.87 FF Price/Front Foot $112,046/FF Size (D.U.) 339 DU Price/D.U. $162,242/DU Confirmation Confirmed by Tom Fruitticher, MAI with Jason White, Buyer (850-269-

7624) and through an appraisal of the property in May 2005. Comments This property is located on the east side of Santa Rosa Boulevard just before it turns west to run parallel to the Gulf of Mexico. The land is largely rectangular in shape and offers good utility. There were no wetlands associated with this site. The buyers purchased the property for the development of the 339 unit Waterscape Condominium development offering an average size unit of 1,262 square feet. The land found to the east adjoining this site is owned by the U.S. Military and will likely never be developed.

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57

COMPARABLE LAND SALE #3 File Waterfront Land R.E. Zone 17 Location South side of Harbor Boulevard (Highway 98) adjoining the east side of

the Marbella Condominium property in Destin, Okaloosa County, Florida Date June 29, 2005 Reference O.R. Book 2633 Page 4911 Grantor Oak Harbor Development, LLC Grantee Marbella Condominium Developers, LLC Legal Lengthy legal in Section 00, Township 2 South, Range 22 West, Okaloosa

County, Florida (Tax I.D. #00-2S-22-0702-0000-0070) Sales Price $17,500,000 Rights Transferred Fee Simple Financing The buyer paid $7,500,000 in cash and financed the remaining

$10,000,000 with terms similar to a cash sale. Condition of Sale Arms Length Transaction Dimensions Approximately 274.89 Water FF x 134.3 x 46.13 x 256.92 x 142.27 x

97.67 x 122.55. Zoning “SHMU” South Harbor Mixed Use Utilities Available All public and private utilities were available. Size (Square Foot) 116,925 SF Price/SF $149.67/SF Size (Acre) 2.68 Acres Price/Acre $6,529,851/Acre Size (Front Foot) 274.89 FF Price/FF $63,662/FF Size (DU) 52 DU Price/DU $336,538/DU Size (Buildable SF) 125,000 SF Price/S.SF $140.00/SSF Confirmation Tom Fruitticher, MAI confirmed this information with Todd Switzer,

Grantor (850-259-5998) on 1/25/06. Comments This is an irregular shaped parcel that offers 274.89 feet of frontage along the Destin Harbor and 122.55 feet of frontage along Harbor Boulevard. The property is fairly level and then drops off dramatically near the water. This site sold with approval for the development of a 52 unit condominium building offering 125,000 square feet of sellable building area. Mr. Switzer indicated that due to the location at the entrance of a canal, this site was unable to offer boat slips for sale to the buyers of the condominium units. The units are being offered for sale at prices that range from $612/SF to $637/SF. At the time of confirmation, they had 12 reservations in place and had just started the marketing. Mr. Switzer was a member of the selling entity and also owned a smaller percentage of the buying entity but indicated the purchase price was a market price arrived at through negotiations with the other partners.

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59

COMPARABLE LAND SALE #4

File Waterfront Hotel Land R.E. Zone Fort Walton Beach, Florida Location 1500 Miracle Strip Parkway, Fort Walton Beach, FL Date May 30, 2007 Reference O.R. Book 2786, Page 3547 Grantor Tolbert Enterprises Grantee Beach Resort Investment, LLC Legal Lengthy legal being a portion of Section 00, Township 2S, Range 24 West, Okaloosa

County, Florida (Property I.D. #00-2S-24-2185-0015-0020) Sales Price Total Sales Price $35,000,000 Less Improvement Value Buildings $20,291,331 Parking $ 412,944 Pools $ 615,494 Site Work $ 1,215,324 Total Improvement Cost $22,535,093 Plus Entrepreneurial Profit (10%) $ 2,253,509 Indicated Cost New $24,788,602 Less Depreciation (15 Yrs ÷ 50 Yr Life = 30%) $ 7,436,581 Depreciated Cost $17,352,021 Plus Depreciated F.F.& E. $ 697,939 Total Improvement Value $18,049,960 Land Residual Value $16,950,040 Rounded To $16,950,000 Rights Transferred Fee Simple Financing Terms similar to a cash sale. Condition of Sale Arms Length Transactions Dimensions 588’ on the Gulf of Mexico Zoning “B-3”, Okaloosa Island Overlay District Utilities Available All public and private utilities were available. Size (Square Foot) 540,144 SF Price/Square Foot $31.38/SF Size (Acre) 12.4 Acres Price/Acre $1,366,935/Acre Size (Front Foot) 588 FF Price/Front Foot $28,827/FF Size (D.U.) 335 DU Price/D.U. $50,597/DU Confirmation Lee Benton confirmed this information with Gail Cluck, Comptroller for the grantee

(850-243-9161), on May 22, 2008. Comments This property was improved with a full service, 335 room, Ramada Plaza Beach Resort that had an effective age of about 15 years at the time of sale. The F, F & E was replaced after Hurricane Ivan in 2004 and had an effective age of 2 years. The buildings have a masonry frame with glass and masonry exterior walls and flat roofs. Amenities include a business center, fitness center, banquet facilities, 2 pools, a hot tub and 2 restaurants. The building had a total heated and cooled area of 170,000 square feet, which works out to an average of 507 square feet per unit.

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Ramada Plaza Beach Resort Site

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File Gulf Front Land R.E. Zone Orange Beach Location 29538 Perdido Beach Boulevard, Orange Beach, Alabama Date March 30, 2008; auction occurred on January 31, 2008 Reference Recording reference #1106154, Baldwin County, Alabama. Grantor PK Management, LLC Grantee JTTC Investments Alabama, LLC Legal Previous Sea Mist Condominium Parcel, Baldwin County, Alabama Sales Price $3,275,000 Rights Transferred Fee Simple Financing Cash to Seller Condition of Sale Absolute Auction Dimensions Approximately 125’ x 450’ Zoning “BR-2, BOD”, Beach Resort District, High Density, Beach Overlay District

allowing for 42 dwelling units per acre with a maximum height of 20 habitable floors above five levels of parking.

Utilities Available All public and private utilities were available. Size (Square Foot) 56,250 SF Price/Square Foot $58.22/SF Size (Acre) 1.29 Acre Price/Acre $2,538,760/Acre Size (Front Foot) 125 FF Price/Front Foot $26,200/FF Size (D.U.) 28 DU Price/D.U. $116,964/Unit Confirmation Confirmed through Boyd Bond who attended the auction as well as Scott Hardee

with Vision Bank on February 1, 2008 Comments This property was purchased through an absolute auction on January 31, 2008. At the time of the auction, Vision Bank was owed approximately $7,400,000. The property had been planned for a 28-unit development known as Santorini with units constructed on 18 habitable floors above parking. The property contains approximately 125 feet of frontage along the Gulf of Mexico with similar frontage along Perdido Beach Boulevard. The depth is approximately 205 feet to the CCCL and approximately 450 feet to the mean high water line.

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63


File Gulf Front Land R.E. Zone Orange Beach Location 25518-25550 Perdido Beach Boulevard, Orange Beach, Alabama Date September 29, 2009 Reference Recording reference #1200183, Baldwin County, Alabama. Grantor BankTrust Grantee Balmaquien Hospitality, LLC Legal

Sales Price $10,000,000 Rights Transferred Fee Simple Financing Conventional mortgage in the amount of $8,000,000 with BankTrust with an

advance to a total of $31,300,000 for the construction of the hotel. Condition of Sale Arm’s-length transaction with property having been listed by BankTrust for over

one year. Dimensions 240.02’ x 486.74’ x 241.06’ x 490.87’ Zoning “RM-2, BOD”, Multifamily Residential, Beach Overlay District allowing for 42

dwelling units per acre with a maximum height of 20 habitable floors above five levels of parking.

Utilities Available All public and private utilities were available. Size (Square Foot) 113,691 SF Price/Square Foot $87.96/SF Size (Acre) 2.61 Acre Price/Acre $3,831,438/Acre Size (Front Foot) 241 FF Price/Front Foot $41,494/FF Size (D.U.) 110 DU Condo Price/D.U. $90,909/Unit 160 DU Hotel $62,500/Unit Confirmation Confirmed by Rodger Lowery, MAI with Jeff Townsend, representative for the

purchaser and through public records in October 2009. Comments This property was purchased for the development of a 160-room hotel with plans to start construction in November 2009 with completion by spring 2011. The property is a portion of the previously planned Mandalay Beach Resort and was purchased in 2004 for $13,250,000 and foreclosed upon by BankTrust in 2008 for $7,500,000.

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65

ACTIVE LISTING #1

File Waterfront Land R.E. Zone 17 Location South side of Harbor Boulevard (Highway 98) adjoining the east side of

the Marbella Condominium property in Destin, Okaloosa County, Florida Date Current Reference MLS #494242 Grantor People’s First Community Bank Grantee N/A Legal Lengthy legal in Section 00, Township 2 South, Range 22 West, Okaloosa

County, Florida (Tax I.D. #00-2S-22-0702-0000-0070) Sales Price $7,900,000 (Current List Price) Rights Transferred Fee Simple Financing Conventional Condition of Sale Arms Length Transaction Dimensions Approximately 274.89 Water FF x 134.3 x 46.13 x 256.92 x 142.27 x

97.67 x 122.55. Zoning “SHMU” South Harbor Mixed Use Utilities Available All public and private utilities were available. Size (Square Foot) 116,925 SF Price/SF $67.56/SF Size (Acre) 2.68 Acres Price/Acre $2,947,761/Acre Size (Front Foot) 274.89 FF Price/FF $28,739/FF Size (DU) 52 DU Price/DU $151,923/DU Size (Buildable SF) 125,000 SF Price/S.SF $63.20/SSF Confirmation Steve Campbell confirmed this listing and the details concerning this

property with the listing agent Robert Ward with Pelican Real Estate (850) 585-4101 and with Deborah Hunt, real estate manager with Peoples First Community Bank in Panama City, Florida (850) 770-7217 on October 13, 2008.

Comments This property was originally purchased in June 2005 (O.R. Book 2633 Page 4911) for $17,500,000 with 10,000,000 financed through Peoples First Community Bank. The site was approved for a 52 unit condominium building offering 125,000 square feet of sellable building area. The development was unable to close on enough units to begin construction and the property was foreclosed on August 29, 2008 for a foreclosed indicated price of $5,281,500. The current asking price represents a 55% decrease in value from the original sale price in 2005.

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67

ACTIVE LISTING #2

File Waterfront Land R.E. Zone 17 Location 101 Calhoun Avenue in Destin, Okaloosa County, Florida Date Current Reference MLS #512408 and LoopNet ID #16142178 Grantor Barbra S. Dekle, Life Estate Grantee N/A Legal DESTIN M/P COM CON MARKER SE COR OF LOT 13 THC S 7 DEG 40 MIN W

100 FT TO POB THC CONT S 7 DEG 52 MIN 40 SEC W 280.56 FT TO NE COR LOT 11 A THC N 72 DEG 8 MIN 50 SEC W 488.92 FT TO BAY THROUGH IRON PIPE 23 FT FROM SHORE LINE NELY DIREC 280 FT TO PT S 7 DEG 52 MIN 40 SEC W 100 FT FROM N BOUND OF LOT 12 THC S 72 DEG 68 MIN 50 SEC E 500 FT TO POB

Sales Price $9,999,999 Rights Transferred Fee Simple Financing Conventional Condition of Sale Arms Length Transaction Dimensions Approximately 307.89 Water FF x 447.12’ x 278.91’ Zoning “CMU” Calhoun Mixed Use Utilities Available All public and private utilities were available. Size (Square Foot) 155,074 SF Price/SF $64.49/SF Size (Acre) 3.56 Acres Price/Acre $2,808,988/Acre Size (Front Foot) 307.89 FF Price/FF $32,479/FF Size (DU) 56 DU Price/DU $178,571/DU Confirmation Steven E. Campbell confirmed this current listing with Craig Barret of

NBI Properties on October 28, 2009 (850) 243-0007. Comments This is a 3.56-acres property with water frontage along Choctawhatchee Bay in Destin, Florida. The property is zoned CMU and allows for up to 16 units per acre or 56 total dwellable units. The owner of the property was approached with an offer to buy the property for $14,000,000 sometime in 2007. However, this offer never came through and the owner has decided to sell with the list price being based on the original offer. The property has been listed for over a year and with different agencies. The original listing price was indicated to be $12,000,000 in 2008 and was based on the offer price. The price was reduced to the current list price of $9,999,999 when the owner of the property relisted with the current agency. There have been no serious inquiries according to the listing agent.

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Active Listing #2

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LAND SALES LOCATION MAP

Subject

Sale #1

Sale #4 & Active Listing #1 Active Listing #2

Sale #2

Sale #3

Sales #5 and #6 Subject

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COMPARATIVE ANALYSIS

VACANT LAND SALES SUMMARY GRID

Item Sale 1 Sale 2 Sale 3 Sale 4 Property Rights

Transferred Leasehold Fee Simple Fee Simple Fee Simple Financing Conventional Conventional Conventional Conventional

Conditions of Sale Arms Length Arms Length Arms Length Arms Length Date of Sale 5/25/2004 11/5/2004 6/29/2005 5/30/2007

Location Holiday Isle, Destin, Fl.

Okaloosa Island, Ft. Walton Bch.,

Fl Harbor Blvd.,

Destin, Fl.

Okaloosa Island, Ft. Walton Bch.,

Fl. Sale Price $31,178,800 $55,000,000 $17,500,000 $16,950,000*

Developable Units 79 Units 339 Units 52 Units 335 Units Land Size (SF) 169,448 SF 410,771 SF 116,925 SF 540,144 SF

$/SF $184.00/SF $133.89/SF $149.67/SF $31.38/SF $/DU $394,668/Unit $162,242/Unit $336,538/Unit $50,597/DU

Item Sale 5 Sale 6 Active Listing 1 Active Listing 2 Property Rights

Transferred Fee Simple Fee Simple Fee Simple Fee Simple Financing Conventional Conventional Conventional Conventional

Conditions of Sale Arms Length Arms Length Arms Length Arms Length Date of Sale 3/30/2008 9/29/2009 Current Listing Current Listing

Location Orange Bch., Al. Orange Bch., Al. Harbor Blvd.,

Destin, Fl. Calhoun Ave.,

Destin, Fl. Sale Price $3,275,000 $10,000,000 $7,900,000 $9,999,999

Developable Units 28 Units 110 Units 52 Units 56 Units Land Size (SF) 56,250 SF 113,691 SF 116,925 SF 155,074 SF

$/SF $58.22/SF $87.96/SF $67.56/SF $64.49/SF $/DU $116,964/Unit $90,909/Unit $151,923/Unit $178,571/Unit

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Sales Comparison Approach (Cont’d.)

Review

The subject property is identified as an 11.77-acre or 512,701 square foot vacant

parcel located on Holiday Isle between the Destin Pass and the Destin Harbor in Destin,

Florida. The subject property is zoned “HDR”, High Density Residential, allowing for a

maximum density of 19.90 units per acre, or 234 total units.

The City of Destin and the owners of the subject property have been in discussion to

allow for the owners to donate a portion of the land to the City of Destin for use as public

beach area in return for granting the property Tier III density, which would allow for

approximately 280 dwellable units. However, until this agreement is finalized, this report is

based on the current legal density of 234 dwellable units.

Considering the location of the subject property, the only use of the land that would

be maximally productive would be the development of a multi-family residential

condominium. Based on this, commercial land similar to the subject property is typically

valued on a “per unit” basis or on a “per sellable square foot” value. As market investors and

developers would value land on a similar basis, the subject property will be valued on a “per

unit” basis, which is considered to be the most indicative measurement of market value as the

total number of developable units allowed is known.

A search was made for the most current and similar vacant land sales compared to the

subject property. In the previous decade, the Destin area has witnessed extensive growth and

development of almost all waterfront property. The sales found are considered to be the most

recent and similar sales. The adjustments considered are as follows.

PROPERTY RIGHTS SOLD – In all of the comparable sales, the property rights sold

were either the fee simple or leasehold interest. In Destin, much of the waterfront land is leased

with 99 year leases that automatically renew for an additional 99 years, which is equivalent to

the fee simple interest as there is no real limit on the ownership with such leases. As the

interests sold are similar to the interest being appraised, no property rights adjustments are

considered to be necessary.


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FINANCING - The properties also sold for cash or terms considered to be similar to a

cash sale requiring no financing adjustments.

CONDITIONS OF SALE – Sale four was purchased for the development of a luxury

hotel with approximately 335 units. Typical hotel rooms range from 450 square feet to 600

square feet, while the typical condominium room ranges from 1,200 to 1,500 square feet.

Due to this, the price paid per unit for sale four is doubled. Considering that condominiums

have a higher construction price per square foot, due to the quality of the building, sale four

must also be adjusted for this. According to Marshall & Swift Cost Valuation Guide, the cost

to construct a good class “A” hotel is $178.52/SF, while a good class “A” condominium has

an indicated cost of $232.17/SF. The difference is approximately 30%, which is added to

sale four for a total conditions of sale adjustment of 130%. Applying this adjustment to sale

four indicates a conditions of sale adjusted price of $116,373/Unit.

MARKET CONDITIONS ADJUSTMENT – The six comparable sales took place

between May 2004 and September 2009. Due to the lack of any recent sales in the Destin area,

the search was extended into Orange Beach, Alabama, which is the location of sales five and six.

To extract a fair market adjustment, the most similar sales are compared. Sales one and three

took place in 2004 and 2005 respectively. Sale three has been foreclosed on by Peoples First

Community and is currently listed for $7,900,000. However, considering current market

conditions, the active listing is adjusted downward 15% as current conditions warrant this due to

a surplus of property and current economic conditions. Comparing the adjusted active listing to

sale three, which is the same property, sale three is adjusted downward 62% to indicate a market

conditions adjusted price of $127,884/Unit. Sale one is also adjusted downward by 62% as it is

located in Destin and offers a similar density as sale three. Adjusting sale one downward 62%

for market conditions indicates a market condition adjusted price of $149,947/Unit. Sales two

and four are both located on Okaloosa Island approximately less than two miles apart from each

other. Both offer similar views and density levels. Sale four sold in 2007 for $131,552/unit

while sale two sold in 2004 for $162,242/Unit, which indicates a decrease of 19%. However,


73

sale four sold in 2007 and should also be adjusted downward due to market conditions from

2007 to the present. In the neighborhood analysis of this report, it was indicated that closed

condominium sales from 2007 as compared to current sales have decreased in value by 37%.

Considering this, sale four is adjusted downward 37% for market conditions to indicate a

market conditions adjusted value of $73,315/Unit. Sale two, is adjusted down an additional

37%, which represents the decrease in value from 2007 to 2009 for a total market conditions

downward adjustment of 56%, which indicates a market conditions adjusted value for sale two of

$71,386/Unit. Sales five and six are the most recent sales and there is no adjustment necessary

for sales five and six. The two active listings are adjusted downward 15% based on

conversations with area realtors and brokers that feel in this market climate, any offer within this

range of the list price would be considered a very serious offer. Applying the 15% market

conditions adjustment to the two current listings indicates a market adjusted value for listing one

of $129,135/Unit and $151,785/Unit for listing two.

LOCATION – The subject property is located near the end of Destin Pointe, between the

Destin Pass and the Harbor. Once developed, it will offer panoramic views of the Destin Pass

and Harbor. Sale one is very similar in location to the subject and no adjustment is necessary.

Sales five and six are located in Orange Beach, Alabama, which is a tourist destination area

located along the Gulf of Mexico in Alabama. Although both areas are considered tourist

destination areas, Destin is slightly more developed with more restaurants, hotels and

entertainment facilities. In order to extract a location adjustment for Orange Beach to Destin,

closed sales of condominiums were researched. The average condominium price per square foot

in Destin was indicated to be $394.99/SF, while in Orange Beach it was $313.94/SF, which

indicates a location difference of 26% for Destin compared to Orange Beach. Applying this

upward location adjustment to sales five and six indicates a location adjusted value of

$147,375/Unit for sale five and $114,545/Unit for sale six. Sales two and four, which are

located on Okaloosa Island, but contain frontage on the Gulf of Mexico, are adjusted upward

60% for location when compared to sale six, which is also located along the Gulf of Mexico and

is similar Sales Comparison Approach (Cont’d.)

in density. Applying the upward location adjustment of 60% to sales two indicates a location

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adjusted value of $114,218/Unit and $117,304/Unit for sale four. The only other sale requiring a

location adjustment is sale three, which is located along the Destin Harbor. Comparing sale

three to sale one, which is similar in density allowances but superior in location, sale three is

adjusted upward 17% to indicate a location adjusted value of $149,624/Unit. Active listing one,

which is the same property as sale three is also adjusted upward for location to indicate a

location adjusted value of $151,088/Unit.

SIZE – The subject property, based on its size and zoning, can legally be developed with

a total of 234 dwellable units, which is similar to sales two, four and five. In speaking with

several developers and based on the overall size differences of sales one, three and five, as well

as the two active listings are adjusted downward for size by 18%. Many developers have stated

that as a project increases in size, the price difference for the land does not change in direct

proportion to the size of the development. Therefore, the 18% appears reasonable and will be

applied to the smaller sales one, three, five and the two active listings. In doing this, sale one is

adjusted to a final value of $122,957/Unit, sale three is adjusted to $122,692/Unit and sale five is

adjusted to $120,848/Unit. The two active listings, which will typically set the upper limit of

value are adjusted to a final value of $123,892/Unit for active listing one and $124,464/Unit for

active listing two.

With no further adjustments considered necessary, the previously indicated adjustments

are illustrated on the land sales adjustment grid on the following page.


VACANT LAND SALES ADJUSTMENT GRID

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Item Sale 1 Sale 2 Sale 3 Sale 4 $/Unit $394,668/Unit $152,242/Unit $336,538/Unit $50,597/Unit

Conditions of Sale Adjustment -0- -0- -0- 130%

Conditions of Sale Adjusted $/Unit $394,668/Unit $162,242/Unit $336,538/Unit $116,373/Unit

Market Conditions Adjustment -62% -56% -62% -37%

Market Conditions Adjusted $/Unit $149,974/Unit $71,386/Unit $127,884/Unit $73,315/Unit

Location Adjustment -0- 60% 17% 60% Location Adjusted

$/Unit $149,947/Unit $114,218/Unit $149,624/Unit $117,304/Unit Size Adjustment -18% -0- -18% -0- Indicated $/Unit $122,957/Unit $114,218/Unit $122,692/Unit $117,304/Unit

Item Sale 5 Sale 6 Active Listing 1 Active Listing 2 $/Unit $116,964/Unit $90,909/Unit $151,923/Unit $178,571/Unit

Conditions of Sale Adjustment -0- -0- -0- -0-

Conditions of Sale Adjusted $/Unit $116,964/Unit $90,909/Unit $151,923/Unit $178,571/Unit

Market Conditions Adjustment -0- -0- -15% -15%

Market Conditions Adjusted $/Unit $116,964/Unit $90,909/Unit $129,135/Unit $151,785/Unit

Location Adjustment 26% 26% 17% -0- Location Adjusted

$/Unit $147,375/Unit $114,545/Unit $151,088/Unit $151,785/Unit Size Adjustment -18% -0- -18% -18% Indicated $/Unit $120,848/Unit $114,545/Unit $123,892/Unit $124,464/Unit


Reconciliation

The adjusted sales indicate a tight range of value from $114,218/Unit to $122,957/Unit

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with the active listings ranging from $123,892/Unit to $124,464/Unit and setting the upper limits

of value for the subject property. The five comparable closed sales are considered to be the most

recent and similar land sales to the subject property based on location and highest and best use as

vacant. It should be noted that the most recent sale of similar land in the Destin area took place

in 2005, indicating a very slow moving market and an overall lack of demand for condominium

property within the subject’s area. Of the two active listings, active listing one is a foreclosed

property that originally sold in 2005 for more than twice the current list price.

The current market conditions along with an approximate four year supply of existing

condominiums in the Destin area, have caused any previously planned developments to be put on

hold. This has forced many properties to be foreclosed on as prices are continuing to decline.

Of the five closed sales, sales one and three are given the most weight as they are in the

Destin market with sale one located very close to the subject property. Considering this, the

subject property is reconciled to a value of $122,900/Unit.

Applying the indicated value of $122,900 per dwellable unit to the subject’s allowable

density of 234 units indicates a value for the land, assuming entitlements to develop 234

condominium units, of $28,758,600, which is rounded to $28,760,000

INDICATED LAND VALUE

$28,760,000*

*This value is based on the extraordinary assumption that the subject property can be developed to the maximum density allowed based on current zoning of 234 units. Should the number of proposed units be decreased or increased, the value opinion could decrease proportionately.

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PART THREE: CERTIFICATIONS AND ADDENDA

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CERTIFICATION We certify that, to the best of my 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 is our personal, 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 we have no

personal interest or bias with respect to the parties involved. 4. Our compensation is not contingent upon the reporting of a predetermined value or direction in value that

favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event.

5. This appraisal was not based on a requested minimum valuation, a specific valuation, or the approval of a

loan. 6. My analyses, opinions, and conclusions were developed, and this report has been prepared in conformity

with the Uniform Standards of Professional Appraisal Practice. 7. I have made a personal inspection of the property that is the subject of this report. 8. No one provided significant professional assistance to the person signing this report. 9. The reported analyses, opinions, and conclusions were developed, and this report has been prepared, in

conformity with the requirements of the Code of Professional Ethics and the 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. As of the date of this report, we have completed the requirements of the continuing education program of

the Appraisal Institute. 12. The subject of this appraisal report is identified as 11.77-acres of vacant land located on Holiday Isle in

Destin, Florida. The estimated value of the real estate as of October 19, 2009, the last date of inspection, was $28,760,000.

Rodger K. Lowery, MAI Steven E. Campbell State-Certified General Real Estate Appraiser #RZ1922 State-Certified General Real Estate Appraiser #RZ3224

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ASSUMPTIONS AND LIMITING CONDITIONS 1. No responsibility is assumed for legal or title considerations. Title to the property is assumed to

be good and marketable unless otherwise stated in this report. 2. The property is appraised free and clear of any or all liens and encumbrances unless otherwise

stated in this report. 3. Responsible ownership and competent property management are assumed unless otherwise stated

in this report. 4. The information furnished by others is believed to be reliable. However, no warranty is given for

its accuracy. 5. All engineering is assumed to be correct. Any plot plans and illustrative material in this report are

included only to assist the reader in visualizing the property. 6. It is assumed that there are no hidden or unapparent conditions of the property, subsoil, or

structures that render it more or less valuable. No responsibility is assumed for such conditions or for arranging for engineering studies that may be required to discover them.

7. It is assumed that there is full compliance with all applicable federal, state, and local environmental regulations and laws unless otherwise stated in this report.

8. It is assumed that all applicable zoning and use regulations and restrictions have been complied with, unless a nonconformity has been stated, defined, and considered in this appraisal report.

9. It is assumed that all required licenses, certificates of occupancy or other legislative or administrative authority from any local, state, or national governmental or private entity or organization have been or can be obtained or renewed for any use on which the value estimates contained in this report are based.

10. Any sketch in this report may show approximate dimensions and is included to assist the reader in visualizing the property. Maps and exhibits found in this report are provided for reader reference purposes only. No guarantee as to accuracy is expressed or implied unless otherwise stated in this report. No survey has been made for the purpose of this report.

11. It is assumed that the utilization of the land and improvements is within the boundaries or property lines of the property described and that there is no encroachment or trespass unless otherwise stated in this report.

12. The appraiser is not qualified to detect hazardous waste and/or toxic materials. Any comment by the appraiser that might suggest the possibility of the presence of such substances should not be taken as confirmation of the presence of hazardous waste and/or toxic materials. Such determination would require investigation by a qualified expert in the field of environmental assessment. The presence of substances such as asbestos, urea-formaldehyde foam insulation, or other potentially hazardous materials may affect the value of the property. The appraiser’s value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value unless otherwise stated in this report. No responsibility is assumed for any environmental conditions, or for any expertise or engineering knowledge required to discover them. The appraiser’s descriptions and resulting comments are the result of the routine observations made during the appraisal process.

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ASSUMPTIONS AND LIMITING CONDITIONS (Cont’d.) 13. Unless otherwise stated in this report, the subject property is appraised without a specific

compliance survey having been conducted to determine if the property is or is not in conformance with the requirements of the Americans with Disabilities Act. The presence of architectural and communications barriers that are structural in nature that would restrict access by disabled individuals may adversely affect the property’s value, marketability, or utility.

14. Any proposed improvements are assumed to be completed in a good workmanlike manner in accordance with the submitted plans and specifications.

15. The distribution, if any, of the total valuation in this report between land and improvements applies only under the stated program of utilization. The separate allocations of land and buildings must not be used in conjunction with any other appraisal and are invalid if so used.

16. Possession of this report, or a copy thereof, does not carry with it the right of publication. It may not be used for any purpose by any person other than the party to whom it is addressed without the written consent of the appraiser, and in any event only with proper written qualification and only in its entirety.

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

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POLICY STATEMENT OF THE APPRAISAL INSTITUTE 1. It is improper to base a conclusion or opinion of value upon the premise that the

racial, ethnic or religious homogeneity of the inhabitants of an area or of a property is necessary for maximum value.

2. Racial, religious, and ethnic factors are deemed unreliable predictors of value trends

or price variance. 3. It is improper to base a conclusion or opinion of value or a conclusion with respect to

neighborhood trends upon stereotyped or biased presumptions relating to the effective age or remaining life of the property being appraised or the life expectancy of the neighborhood in which it is located.

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QUALIFICATIONS AS AN APPRAISER RODGER K. LOWERY, MAI

EDUCATION Bachelor of Science Degree - 1991 Florida State University Tallahassee, Florida Core Courses - Real Estate Major

Real Estate Feasibility Analysis, Real Estate Market Analysis, Real Estate Finance, Real Estate Appraisal, Legal Environment of Real Estate, Commercial Bank Administration, Urban Planning and Growth Management, Comprehensive Planning

Appraisal Institute Courses:

110: Appraisal Principles - 1994 120: Appraisal Procedures - 1994 310: Basic Income Capitalization - 1993 410/420: Standards of Professional Practice – 1992 430: Standards of Professional Practice Part C - 1999 510: Advanced Income Capitalization – 1993 520: Highest and Best Use and Market Analysis - 2000 530: Advanced Sales Comparison and Cost Approaches - 1998 540: Report Writing and Valuation Analysis - 1994 550: Advanced Applications - 1994

Appraisal Institute Seminars

Non-Residential Demonstration Appraisal Report Writing Seminar - 1995 Uniform Standards of Professional Appraisal Practice Seminar; 1997 National USPAP Update Course – 2003 Data Confirmation and Verification Methods - 2001 Effective Report Writing - 2003 APPRAISAL EXPERIENCE 5/97 – Present Residential and Commercial Real Estate Appraiser, Fruitticher-Lowery

Appraisal Group (Owner/Appraiser). Performing commercial and residential real estate appraisals, reviews and consultations. Specializing in the Northwest Florida and South Alabama markets.

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APPRAISAL EXPERIENCE (Cont'd.) 6/95 - 4/97 Residential and Commercial Real Estate Appraiser, RKL Appraisal

Services, Inc. (President). Performing commercial and residential real estate appraisals, reviews and consultations. Specializing in the Northwest Florida and South Alabama markets.

6/95 - 9/96 Commercial Real Estate Appraiser, Laureate Realty Services, Inc.

(Formerly Camp and Company), Mobile, Alabama. Income analysis and appraisal of neighborhood, community and regional shopping centers, malls, multi-tenant office buildings, apartments and hotels. Properties located in the southeast region, primarily Florida, Alabama, Mississippi and Louisiana.

9/92 - 5/95 Residential and Commercial Real Estate Appraiser, M. Eugene Presley

and Associates. Commercial and residential fee appraiser. Responsibilities include the valuation of commercial properties, vacant commercial land, large acreage tracts, and environmentally sensitive properties. Numerous eminent domain appraisals, specifically including the Burgess Road and Airport Boulevard DOT projects. Eminent domain appraisals performed for the property owners.

12/91 - 9/92 Commercial Real Estate Appraiser, Marshall Appraisals, Inc. Associate

appraiser. Responsibilities include the valuation of office buildings, banks, hotels, and other large commercial properties throughout Florida.

4/91 - 12/91 Research Assistant, State of Florida, Office of the Auditor General,

Division of Real Estate. Responsibilities include the review of State of Florida county appraisal files audited by the Department of Revenue, as well as the review and confirmation of data within privately contracted appraisals performed for the Department of Natural Resources.

Expert Witness Experience First Circuit Court, Santa Rosa County Escambia County Circuit Court Santa Rosa County Commission Okaloosa County Commission

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PROFESSIONAL LICENSES/AFFILIATIONS Member, Appraisal Institute, Member #11029 State-Certified General Real Estate Appraiser, State of Florida, License #RZ 0001922 State-Certified General Real Property Appraiser, State of Alabama, License #G00445 Real Estate Broker, State of Florida, License # BK0573361; FLAG Realty, Inc. Real Estate Broker, State of Alabama, License #065378 (Reciprocal Brokers License) Developer – FLAG Leasing, Inc. and FLAG Realty, Inc. Member - Pensacola Association of Realtors, Florida Association of Realtors and the National Association of Realtors Member - Home Builders Association of West Florida Member – City of Pensacola Zoning Board of Adjustments Member – Leadership Escambia And Pensacola (LEAP) Class of 2001 Member – American Diabetes Association of Northwest Florida, Board of Directors Member – Fiesta of Five Flags, Board of Governors Past Member – WSRE Planned Giving Council, Board of Directors Past Member - Pensacola Chamber of Commerce Relocation Committee CLIENTS The Guardian Life Insurance Company Nationwide Insurance Company Allmerica Financial Business Men’s Assurance Company Column Financial Sun Life Assurance Company Lehman Brothers Laureate Realty Services Saad Development Group Wade Ward Properties Moulton Properties, Inc. Beach Community Bank Vision Bank Union Planters Bank Peoples First Community Bank Merrill Land Company First National Bank of Florida MembersFirst Credit Union of Florida Bank of Pensacola Compass Bank Southtrust Bank SunTrust Bank Regions Bank Whitney Bank AmSouth Bank of Florida AmSouth Bank of Alabama Pen Air Federal Credit Union Peoples First Community Bank

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QUALIFICATIONS AS AN APPRAISER

STEVEN E. CAMPBELL State Certified General Real Estate Appraiser #RZ3224

EDUCATION Bachelor of Science Degree (Finance) – 1991 Florida State University Tallahassee, Florida Core Courses - Finance Major Accounting, Cost Accounting, Quantitative Methods of Business, Statistics, Real Estate

Market Analysis, Real Estate Finance, Commercial Investments Appraisal Institute Courses: 110: Appraisal Principles – 2005 120: Appraisal Procedures – 2005 210: Residential Case Studies – 2005 310: Basic Income Capitalization – 2005 410: USPAP Course – 2005 320: General Applications – 2006 402G: General Appraiser Site Valuation & Cost Approach – 2007 Other Courses: McKissock, Florida National USPAP Update Equivalent – 2006 McKissock, Florida Appraisal Laws and Regulations – 2006

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APPRAISAL EXPERIENCE 9/05 – Present Commercial Real Estate Appraiser, Fruitticher Lowery Appraisal Group.

State-Certified General Real Estate Appraiser – Performing commercial based appraisals on various commercial properties including but not limited to: Apartments, Multiple-Tenant Office Buildings, Retail Buildings, Mining Pits, Restaurants, Condominiums and Vacant Land.

5/05 – 9/05 Research Assistant, Tallent & Jackson Real Estate Services. Responsibilities

included property inspection, data collection and confirmation.

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Documents

DESTIN POINTE 11.77-ACRES VACANT LAND DESTIN, FLORIDAbeckwithland.com/Jewel/JeffersonBankAppraisal.pdf · 2010. 4. 7. · vacant land located just north of the Destin Pass and south