2-SAMPLE APPRAISAL 2_FAS1-16-2690.pdf

FIRST

APPRAISAL

S E R V I C E S

An Appraisal Report for the Valuation of an Industrial Property

Owned by

Sun Valley Investment 59th Ave Phoenix AZ, LLC

Prepared by:

Timothy A. Haskins, ASA Arizona Certified General

Real Estate Appraiser #30668

First Appraisal Services, PLC 3420 E. Shea Boulevard, Suite 200 Phoenix, Arizona 85028

602.264-0011 info@azfas.com

Location of Property to be Appraised:

59th Avenue south of Van Buren Street 202 N. 59th Avenue Phoenix, Arizona 85043

Report Dated:

June 14, 2017

Effective Date:

March 15, 2017

Prepared for:

Arizona Department of Transportation ℅ Connect 202 Partners 411 N. Roosevelt Avenue Chandler, Arizona 85226

Reference:

FAS 1.16-2690.00

Highway: South Mountain Freeway Section: Salt River – Junction I-10 Papago Parcel: 7-11701

Tim Typewriter I, Timothy A. Haskins, performed the primary appraisal analyses and determined the final valuation and compensation conclusions in this submitted appraisal report.

FIRST

APPRAISAL

S E R V I C E S

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Arizona Department of Transportation ℅ Mr. Todd Belzner Connect 202 Partners 411 N. Roosevelt Avenue Chandler, Arizona 85226

RE: PROJECT: 202L MA 000 H5439

HIGHWAY: South Mountain Freeway SECTION: Salt River – Jct. I-10 Papago

PARCEL: 7-11701

Dear Mr. Belzner:

In accordance with your request and authorization, I have prepared an appraisal of the property referenced above. I am pleased to present the narrative Appraisal Report transmitted by this letter, containing pertinent data related to the valuation of the property appraised.

The subject property is a 12,194 square foot industrial building built on a

0.978-acre tract of land. A physical inspection of the property was made on January 19, 2017, with representatives of the property owner present.

The purpose of this appraisal is to estimate the market value of the property identified herein. This value will be used to establish a basis for the compensation due the owners of the property resulting from a partial acquisition from the property. The intended use of this appraisal is to assist the Arizona Department of Transportation in the acquisition of a portion of the subject property in conjunction with the construction of the South Mountain Freeway. The effective date for this appraisal assignment is March 15, 2017.

This appraisal report has been written in accordance with the Uniform

Standards of Professional Appraisal Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal Foundation, the Code of Ethics of the American Society of Appraisers, the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute, the Federal Highway Administration (FHWA) Uniform Act, 49 CFR Part 24, and the guidelines and standards of the Arizona Department of Transportation.

Mr. Todd Belzner Connect 202 Partners

FAS 1.16-2690.00 FIRST APPRAISAL SERVICES ii

The opinion of market value as defined and expressed herein is subject to the Underlying Assumptions and Limiting Conditions set forth in this report, as well as the appraiser’s certification. There have been no extraordinary assumptions made for this appraisal assignment. The appraisal of the subject property is made with hypothetical conditions which are discussed on page 6 of the appraisal report.

The use of these hypothetical conditions might have affected the assignment results.

As a result of my investigation and study, I am of the opinion that the market value of the property to be acquired, as of March 15, 2017, is:

TWO HUNDRED FIFTY-SEVEN THOUSAND FIVE HUNDRED DOLLARS

$257,500.00

Thank you for the opportunity to be of service to you. If you have any questions or if we may be of any further assistance in this matter, please do not hesitate to call or write this office.

Respectfully submitted, FIRST APPRAISAL SERVICES

Timothy A. Haskins, ASA Arizona Certified General Real Estate Appraiser No. 30668

Table of Contents

FAS 1.16-2690.00 FIRST APPRAISAL SERVICES iii

Letter of Transmittal ....................................................................................................................................................... i Table of Contents..........................................................................................................................................................iii Summary of Salient Facts and Conclusions .................................................................................................................. v Aerial Photograph ......................................................................................................................................................... vi Regional Map .............................................................................................................................................................. vii

INTRODUCTION

PURPOSE AND SCOPE OF THE APPRAISAL

Purpose Scope of Work Limiting Conditions

FACTUAL DATA

IDENTIFICATION OF THE REAL ESTATE

Determination of the Larger Parcel

OWNERSHIP AND OCCUPANCY

Ostensible Owner Occupancy

REGIONAL ANALYSIS

Location and Climate Population Economic Trends Real Estate Market Sectors

NEIGHBORHOOD ANALYSIS

Location Transportation Land Use Patterns Amenities Trends

REAL PROPERTY DESCRIPTION

Site Plan Site Data Improvement Data Zoning Easements and Restrictions Taxes and Assessments Division of Real and Personal Property

VALUATION ANALYSIS

HIGHEST AND BEST USE

As If Vacant As Improved Summary and Conclusion

VALUATION METHODOLOGY

SALES COMPARISON APPROACH

Introduction Land Value Analysis Conclusion of Land Value Improved Sales Analysis Indicated Value from the Sales Comparison Approach

INCOME CAPITALIZATION APPROACH

Introduction Direct Capitalization

Table of Contents

FAS 1.16-2690.00 FIRST APPRAISAL SERVICES iv

COST APPROACH

Introduction Cost of Improvements Analysis Indicated Value from the Cost Approach to Value

RECONCILIATION OF VALUE

RIGHT-OF-WAY VALUATION

DESCRIPTION OF THE ACQUISITION

Construction of the Project in the Manner Proposed Acquisition from the Property

VALUATION OF THE PART TO BE ACQUIRED

REMAINDER VALUATION ANALYSIS

VALUATION OF THE REMAINDER AS A PART OF THE WHOLE

EFFECTS OF THE ACQUISITION

Highest and Best Use of the Remaining Property

VALUATION METHODOLOGY OF THE REMAINING PROPERTY

SALES COMPARISON APPROACH – REMAINING PROPERTY

Land Value Analysis Improved Sales Analysis – Remaining Property

INCOME CAPITALIZATION APPROACH – REMAINING PROPERTY

COST APPROACH – REMAINING PROPERTY

RECONCILIATION OF VALUE – REMAINING PROPERTY

DAMAGES AND BENEFITS TO THE REMAINING PROPERTY

Severance Damages Special Benefits

FINAL CONCLUSIONS

Auditing Breakdown

CERTIFICATION

ADDENDA

A Underlying Assumptions and Limiting Conditions

B Subject Photographs C Maps

Neighborhood Map Assessor’s Parcel Map Zoning Map Flood Map

D Exhibits Owner Contact Letter Title Report

E Maricopa County Zoning Ordinance Section 627: A-1 Light Industrial

F Acquisition Information Preliminary Right of Way Plans Acquisition Exhibit

G Comparable Land Sales Data H Comparable Improved Sales Data I Comparable Lease Data J Qualifications and Resume of the Appraiser

Summary of Salient Facts and Conclusions

FAS 1.16-2690.00 FIRST APPRAISAL SERVICES v

Client Connect 202 Partners

Client Reference Highway: South Mountain Freeway Section: Salt River – Junction I-10 to Papago Parcel: 7-11701

Date of Report June 14, 2017 Limiting Conditions See Addendum A Report Format Appraisal Report Certification See Page 88

Intended Use Assist in the acquisition of a portion of the subject property Intended User(s) Connect 202 Partners, Arizona Department of Transportation and

Federal Highway Administration

Property Information

Ostensible Owner Sun Valley Investment 59th Ave Phoenix AZ, LLC

Location of Property 59th Avenue south of Van Buren Street Street Address 202 N. 59th Avenue County Maricopa Phoenix, Arizona 85043 Section/Township-Range 7/1N-2E Map Reference 147-157LV

Assessor Parcel Number(s) 104-05-001Q

Site Area 42,602 square feet Zoning District(s) A-1

0.978 acres City of Phoenix

Flood Zone Zone X

Present Use Cold Storage Warehouse

Building Area 12,194 square feet Year Built 1983

Highest and Best Use: Before the Acquisition: After the Acquisition:

As If Vacant:

As Improved:

Industrial Development Present Use

Industrial Development Demolition for Redevelopment

Valuation Information Effective Date March 15, 2017

Extraordinary Assumptions None The use of the hypothetical conditions and extraordinary assumptions stated in this report might have affected the assignment results. Hypothetical Conditions See page 6

Valuation Summary Before the

Acquisition After the

Acquisition

Sales Comparison Approach ............ $975,600.00 $130,800.00 Income Approach ............................. $928,000.00 Not Applicable Cost Approach .................................. $918,000.00 Not Applicable

Fee Simple Interest Conclusion of Value $975,000.00 $130,800.00

Acquisition Information Type of Acquisition Partial Total Interests to be Acquired Fee Simple Interest

Easement Interest Access Rights

Severance Damages Yes No Cost to Cure $257,500.00 Special Benefits Yes No Not Measured

Market Value of the Acquisition ................................... $257,500.00

Aerial Photograph

FAS 1.16-2690.00 FIRST APPRAISAL SERVICES vi

© Google

S U B J E C T

Regional Map

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© Arizona State Land Department Parcel Viewer

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B J

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FAS 1.16-2690.00 FIRST APPRAISAL SERVICES 1

INTRODUCTION

Introduction Purpose and Scope of the Appraisal

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Purpose and Scope of the Appraisal

Purpose

The purpose of this appraisal is to estimate the market value of the property identified on page 8, hereinafter referred to as the “subject property”. This value will be used to establish a basis for the compensation due the owner of the property resulting from a partial acquisition. The intention of this appraisal service was that it was to be performed in such a manner that the results of the analysis, opinion, or conclusion would be that of a disinterested third party.

Intended Use and User The intended use of this appraisal is to assist the Arizona Department of Transportation in the acquisition of those portions of the subject property necessary for the South Mountain Freeway construction project. Connect 202 Partners, the Arizona Department of Transportation and the Federal Highway Administration are the intended users of this appraisal, although it is anticipated that a copy of the report could be provided to the property owner at the discretion of the client.

Definition of Value The decision of what value is being estimated is determined, at least in part, by the function of the appraisal and affects the scope of the appraisal. Different types of value that may be considered include market value, value in use, going-concern value, investment value, assessed value and insurable value. In light of the purpose of this appraisal, market value will be estimated in this appraisal and is defined as follows:

For the purposes of this article, “market value” means the most probable price estimated in terms of cash in United States dollars or comparable market financial arrangements which the property would bring if exposed for sale in the open market, with reasonable time allowed in which to find a purchaser, buying with knowledge of all of the uses and purposes to which it was adapted and for which it was capable.

Arizona Revised Statute 28-7091 [Title 28 Chapter 20 Article 6]

Exposure Period The definition of exposure time used in this report is in accordance with the Appraisal

Standards Board of the Appraisal Foundation. Exposure time is a retrospective opinion based on an analysis of past events assuming a competitive and open market, and is defined by the Appraisal Board as the, estimated length of time that the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal.1

Based upon an analysis of the general market area and sales of similar property types in the area, normal exposure time for properties similar to the subject appears to be within a twelve month time period.

1 Uniform Standards of Professional Appraisal Practice, 2016-2017 Edition, The Appraisal Foundation

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Date of Valuation The significant dates utilized in this report are summarized in the table to the right. The effective date of this appraisal, which is the date of valuation, is the most recent date of physical inspection by the appraiser.

Property Rights Appraised In the appraisal of real property, there are many concepts that must be understood and applied. One of these concepts relates to the rights inherent in the ownership of real property.

Real property appraisal involves not only the identification and valuation of a variety of different rights, but also the analysis of the many limitations on those rights, and the effect that the limitations have on value.2

The fee simple title is regarded as an estimate without limitations or restrictions. Partial interests are created by selling, leasing, or otherwise limiting the “bundle of rights” in the fee simple estate, resulting in something less than the complete fee simple estate. An appraisal assignment may require the appraisal of fee simple title or a partial interest such as a leasehold estate or an easement. The three most common types of property rights involved in the appraisal process are defined below. 3

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

Leased fee estate the ownership interest held by the lessor, which includes the right to receive the contract rent specified in the lease plus the reversionary right with the lease expires.

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

The appraisal of the fee simple interest in the subject property is being presented in this report, subject to “Schedule B” of the title report prepared for the subject property. The lease on the property creates both leased fee and leasehold estates, but any value these interests in the property may have is beyond the scope and purpose of this appraisal. No attempt has been to place a value on either the leased fee estate held by the property owner or the leasehold estates held by each of the tenants.

Scope of Work

The appraisal process is an orderly set of procedures that is undertaken to solve a problem concerning the value of real estate. These procedures help direct an appraiser to identify the particular appraisal problem and lead to reporting its solution to the client. The initial step in this process is the definition of the appraisal problem. This is accomplished through the identification of the real estate, the date of value to be utilized, the property rights to be appraised, and the type of value sought to be estimated.

2 The Appraisal of Real Estate, 14th ed. (Chicago: Appraisal Institute, 2013) p70 3 The Dictionary of Real Estate Appraisal, 6th ed. (Chicago: Appraisal Institute, 2015) p90 and p128

Effective Date: .............. March 15, 2017

Date of Inspection: ........ January 19, 2017

Date of Report: .............. June 14, 2017

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After the appraisal problem is identified, general data on the market and the subject property is collected. This data includes information about the state, county, city, neighborhood, and the subject site and improvements. This information is then examined to conclude a highest and best use of the property being appraised. It is also during this stage in the process that any potentially applicable comparable cost, rental and sales market data is collected for analysis in the valuation of the subject property.

Area Analysis

Research during the preparation of this appraisal included a regional analysis as well as analysis of the more immediate area surrounding the subject property. Primary sources of information are cited within the body of this report and include the United States Census Bureau, the United States Department of Labor and Center for Business Research, the Arizona Department of Commerce, the Arizona Department of Economic Security, the Arizona State University Center for Real Estate Theory and Practice, and various local and regional business publications.

Neighborhood data was gathered from the City of Phoenix, as well as from a physical inspection of the area. Specific data pertaining to the metropolitan Phoenix land market was provided by the Arizona State University, CB Richard Ellis, Newmark Grubb Knight Frank, Cassidy Turley Real Estate Services, and real estate agents and brokers active in the market.

Property Description Primary sources of information regarding the description of the subject property include the property owner and a physical inspection of the property by the appraiser on January 19, 2017, and several other dates. Zoning information and information relating to the availability of utility infrastructure was provided by the City of Phoenix. Title information is based upon the title report provided by the client. Other sources of information utilized in this appraisal include the Office of the Maricopa County Recorder, Maricopa County Treasurer and Maricopa County Assessor, and the Federal Emergency Management Agency.

Market Data Information The market data used in this appraisal was collected, in part, from real estate agents and brokers who are knowledgeable of the subject marketplace, local and regional publications, CoStar Group, RealtyRates.com, and the Marshall Valuation Service. The appraiser researched comparable market transactions occurring within the subject market area, and found sufficient data to estimate a reliable value of the subject property under appraisement. The market search for similar properties was specifically concentrated in the southwest metropolitan Phoenix area. The analysis of the market incorporated both historic and current data.

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Project and Acquisition Information The project for which the acquisition is being made from the subject property is the construction of the South Mountain Freeway designated as State Route 202. This project will create a new 22-mile freeway corridor between the Maricopa Freeway (Interstate 10) in Chandler and the Papago Freeway (Interstate 10) in Phoenix. The acquisition from the subject property consists only of access rights and does not include a physical acquisition of land area. The subject property is shown on preliminary right of way drawings identified as Drawing No. D-7-T-1014, Sheet P-11 dated October 2013 (revised June 22, 2016) and prepared by Ritoch-Powell & Associates.

After all the data is gathered, an analysis of the market and subject property is undertaken.

This is done to gain an understanding of the market and subject property so that informed conclusions as to the value of the subject property can be formulated. One of the primary objectives of this analytical process is to assist the appraiser in determining the highest and best use of the subject property, as if vacant and as improved, if applicable. The data and analysis is then applied to the three traditional approaches to value: the cost approach, the sales comparison (or market) approach, and the income capitalization approach, if applicable.

The final step in the appraisal process is the reconciliation or correlation of the conclusions derived from the approaches to value utilized. In the reconciliation, the appraiser considers the relative applicability of each of the approaches and then examines the range provided by the indications of value from each applicable approach to value. The appraiser must consider the strength and weaknesses of each approach and the reliability of each indicator as it relates to the subject property. The final value estimate may be stated as a single figure, a range, or a combination of both. This appraisal assignment also includes analyses beyond the traditional appraisal process. A discussion of the right-of-way valuation process is found below.

Under Standards Rule 2-2 of the Uniform Standards of Professional Appraisal Practice, an appraiser may communicate the results of an appraisal in either an “Appraisal Report” or a “Restricted Appraisal Report”. The primary difference between the report formats is who may rely on the appraisal. The Appraisal Report format was chosen for this appraisal assignment. The depth of discussion presented in this report is based upon the scope of the appraisal assignment and the stated intended use and users.

The scope of this report includes the accumulation and analysis of pertinent and sufficient market data in order to employ a meaningful and appropriate valuation methodology in the appraisal of the fee simple interest in the property that is the subject of this report. This appraisal report is written in accordance with the guidelines and standards of the Uniform Standards of Professional Appraisal Practice, the Code of Ethics of the American Society of Appraisers, the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute, the Federal Highway Administration (FHWA) Uniform Act, 49 CFR Part 24, and the Arizona Department of Transportation.

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Right-of-Way Appraisal Methodology This appraisal will be used to establish a basis for compensation due resulting from an acquisition involving the property to be appraised. The proposed acquisition by the Arizona Department of Transportation is considered to be a “partial” acquisition since only a portion of the property is needed for the highway project. As a result, the scope of this appraisal assignment includes an analysis of the subject property both before and after the proposed acquisition. The analysis begins with the application of the appraisal process to the subject property prior to the acquisition. Subsequently, the value of the part acquired is based, in large part, upon the facts and conclusions made in the appraisal of the subject property. The subject property is then appraised as if the acquisition has been made, the project has been completed in the manner proposed, and the extent of any severance damages and/or special benefits is explored based upon the effects of the acquisition upon the remaining subject property after the hypothetical project completion as of the date of valuation.

Limiting Conditions

The underlying assumptions and limiting conditions pertaining to this report are contained in the “Certificate of Appraiser” immediately following the “Auditing Breakdown” section of this report, as well as found in Addendum A. These assumptions and limiting conditions are an integral part of the report and are only placed at the end to facilitate reading of the report, not to minimize their importance.

Extraordinary Assumptions and Hypothetical Conditions The Appraisal Foundation defines an extraordinary assumption as, “an assumption, directly related to a specific assignment, as of the effective date of the assignment results, which, if found to be false, could alter the appraiser’s opinions or conclusions.”4 There have been no extraordinary assumptions made in the appraisal of the property for this assignment.

A hypothetical condition is, “a condition, directly related to a specific assignment, which is contrary to what is known by the appraiser to exist on the effective date of the assignment results, but is used for the purpose of analysis”, as defined by The Appraisal Foundation5. This appraisal is prepared under the following hypothetical conditions:

1. Project influence on the valuation of the subject prior to the highway project is disregard as required by Arizona Revised Statute 28-7097 which states, “In acquiring property for transportation purposes pursuant to this article, when determining the market value of the property to be taken and the market value of the remainder, if any, in the before condition, a decrease or increase in the market value of the real property before the date of valuation caused by the public project for which the property is to be acquired or by the likelihood that the property would be acquired for the project shall be disregarded.”

2. The “remaining” subject property is appraised as of the date of valuation under the hypothetical condition that the acquisition has been made, the project has been constructed, and the extent of any severance damages and/or special benefits is explored based upon the effects of the acquisition upon the remaining subject property.

4 Uniform Standards of Professional Appraisal Practice, 2016-2017 Edition, The Appraisal Foundation 5 Uniform Standards of Professional Appraisal Practice, 2016-2017 Edition, The Appraisal Foundation

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FACTUAL DATA

Factual Data Identification of the Real Estate

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Identification of the Real Estate

The first step in the appraisal process is the definition of the appraisal problem, which includes the identification of the real estate to be appraised. There are several ways to identify a property, including by reference (if the property is named), by address and by the identity of a physical entity in a legal description.

Determination of the Larger Parcel

The determination of a larger parcel is important in the highest and best use analysis of the property to be appraised. The larger parcel can be all or part of the entire ownership, or “parent parcel”, and there may be multiple larger parcels within a parent parcel. The Appraisal Institute defines a larger parcel as follows:

In governmental land acquisitions and in valuation of charitable donations of partial interests in property such as easements, the tract or tracts of land that are under the beneficial control of a single individual or entity and have the same, or an integrated, highest and best use. Elements for consideration by the appraiser in making a determination in this regard are contiguity, or proximity, as it bears on the highest and best use of the property, unity of ownership, and unity of highest and best use. In most states, unity of ownership, contiguity, and unity of use are the three conditions that establish the larger parcel for the consideration of severance damages. In federal and some state cases, however, contiguity is sometimes subordinated to unitary use. 6

In this instance, the larger parcel for this appraisal assignment is determined to be the property identified as assessor parcel number 104-05-001Q. This parcel comprises the entire ownership of the subject property owner at this location and meets the condition of ownership, contiguity and unity of highest and best use.

The purpose of this section of the report is to identify the property only. A physical description of the property to be appraised can be found later in this report beginning on page 24 of this report. The property that is the subject of this report may be commonly identified as follows:

Location ........................................................ 59th Avenue south of Van Buren Street

Street Address .............................................. 202 N. 59th Avenue

City, State, ZIP ............................................. Phoenix, Arizona 85043

Assessor Parcel Number(s) .......................... 104-05-001Q

Legal Description7

A part of the Northeast quarter of Section 7, Township 1 North, Range 2 East, of the Gila and Salt River Base and Meridian, Maricopa County, Arizona

6 The Dictionary of Real Estate Appraisal, 6th ed. (Chicago: Appraisal Institute, 2015) p127 7 A legal description of the property being appraised is included within the vesting document title report, a copy of which is included in the addenda to this report

Ownership and Occupancy

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Ownership and Occupancy

Ostensible Owner

According to public records, Sun Valley Investment 59th Ave Phoenix AZ, LLC, an Arizona limited liability company, holds title to the subject property as of the date of valuation.

Five Year Sales History Investigation of the public records fails to reveal any arms-length transactions involving the subject property within five years of the date of valuation. The current vesting of the subject property is established by General Warranty Deed recorded with the Maricopa County Recorder on August 5, 2015, as document number 2015-0568039.

The most recent transfer of the subject property is between related parties and only changes the form of ownership. For this reason, the most recent transfer of the subject property will not be used as a comparable sale in this appraisal. The property owner has provided some marketing material indicating that the subject property is currently listed for sale with Mr. John Reinhardt at Industrial Property Specialists.

Owner Contact A letter dated January 13, 2017, was mailed to the owner of record indicating that an appraisal of the property has been requested by the Arizona Department of Transportation, and offering the opportunity to meet with the appraiser at the property and discuss the appraisal. The letter was mailed to the property owner at the following address:

Ms. Pam Witzel Sun Valley Investment 59th Ave Phoenix AZ, LLC 958 E. Holbrook Street Gilbert, Arizona 85298

A positive response from the property was received and, as a result, the appraiser met with

Ms. Pam Witzel during a physical inspection of the property at 10:00 am on January 19, 2017.

Representatives of the tenant and Acquisition Sciences, Ltd. were also present during this inspection.

Occupancy

When analyzing the bundle of rights inherent to the subject property, tenancies of the property must be examined. Tenancy is created when real estate ownership is divided into property interests. This can result from co-ownership of real estate, or when the right to use and occupy a property is conveyed through a lease. The occupancy of the property to be appraised as of the effective date of this appraisal is as follows:

Vacant Land Unoccupied Owner-occupied Tenant-occupied Number of Tenants 1

Tenants: Stern Produce

Regional Analysis

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Regional Analysis

Location and Climate

The sunbelt state of Arizona is among the fastest growing in the nation with the majority of new residents moving into the metropolitan Phoenix area.

Known informally as the “Valley of the Sun”, this area covers only eight percent of the state’s 113,909 square miles but encompasses most of the urban core of Maricopa County where 60 percent of Arizona’s population lives. This large population base exerts considerable economic and political influence over the balance of the state and contributes to making metropolitan Phoenix the largest trade center in the southwestern United States.

Geographically, the Phoenix metropolitan area is in Maricopa County located near the center of the state at an elevation of approximately 1,100 feet above sea level. Maricopa County has low mountain ranges, desert valleys and man-made lakes, with 1,300 miles of canals crisscrossing the county’s agricultural districts. Maricopa County contains a total land area of 9,222 square miles and a total water area of 98.4 square miles. The federal government owns or controls 59% (including Indian controlled lands), the State of Arizona and local governments own or control 11%, with the remaining 30% in private ownership. Phoenix is the Arizona state capitol and Maricopa County seat of government.

Climate is one of the most attractive features of the State and the metropolitan Phoenix area, with a year-long average of nearly 86 percent sunshine. The average annual daily high temperature is 87 degrees, and the average annual low is 61 degrees Fahrenheit.

Much of southern Arizona, including the Phoenix area, is considered to be arid with and annual precipitation of 8.29 inches. The coldest months are December, January and February, while the hottest months are June, July, August and September. Although generally moderate, the summer months can become quite hot with temperatures often exceeding 110 degrees Fahrenheit.

Figure 1 – State Map

Figure 2 – Phoenix Climate

Month

Avg.

High

Avg.

Low Mean

Avg.

Precip

Record

High

Record

Low

Jan 67°F 45°F 54°F 0.83 in. 88°F (1971) 16°F (1913)

Feb 71°F 48°F 60°F 0.77 in. 92°F (1986) 24°F (1933)

Mar 76°F 51°F 65°F 1.07 in. 100°F (1988) 25°F (1966)

Apr 85°F 58°F 71°F 0.25 in. 105°F (1992) 35°F (1922)

May 94°F 67°F 81°F 0.16 in. 114°F (1910) 39°F (1899)

Jun 104°F 75°F 90°F 0.09 in. 122°F (1990) 49°F (1908)

Jul 104°F 81°F 95°F 0.99 in. 121°F (1995) 63°F (1912)

Aug 105°F 80°F 95°F 0.94 in. 116°F (2003) 58°F (1917)

Sep 99°F 75°F 87°F 0.75 in. 116°F (1950) 47°F (1965)

Oct 88°F 63°F 75°F 0.79 in. 107°F (1980) 34°F (1971)

Nov 75°F 50°F 63°F 0.73 in. 96°F (1924) 27°F (1931)

Dec 70°F 44°F 56°F 0.92 in. 87°F (1950) 22°F (1911)

Annual 87°F 61°F 74°F 8.29 in.

www.weather.com

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Source of Water In desert environments, a continuing and adequate supply of water is necessary to ensure ongoing growth. The Salt River Valley is supplied with water from rain and melting snow in Arizona's mountains. The Salt River Project has constructed dams along rivers to the north and east of the Valley to collect and store this runoff water. These dams have historically provided sufficient water for agriculture and residential use. In addition, development of effective reclaimed wastewater projects has increased the Valley’s overall water supply. Another important source of water for the Salt River Valley is the Central Arizona Project (CAP), which was formed to direct Colorado River water into central Arizona. The CAP provides a vital source of water to supplement the valley’s current supply.

Population

Based upon the 2000 decennial census performed by the U.S. Bureau of Census, Arizona has a population 5,130,632 persons. The population of Arizona increased by 40.0% over the 3,665,339 estimate made in the 1990 census. Only the population of Nevada grew at a faster rate than Arizona during this decade.

Arizona currently ranks as the 14th largest state. The 2015 Census population estimate for the State of Arizona by the U.S. Census Bureau is 6,828,065.

The U.S. Bureau of Census defines the Phoenix-Mesa-Scottsdale Metropolitan Statistical

Area (MSA) as both Maricopa and Pinal counties in central Arizona. Approximately 91% of the MSA’s population, however, is located in Maricopa County. Based upon U.S. Census Bureau data, Maricopa County is the most populous of Arizona’s counties with a 2010 estimate of 3,817,117 persons and has grown by approximately 24.6% since 2000. Pinal County, which together with Maricopa County comprises the Phoenix-Mesa-Scottsdale MSA, recorded the greatest growth rate between 2000 and 2010 at 109.1%. The 2016 population estimate for Maricopa and Pinal Counties is 4,550,388.

The greater metropolitan Phoenix area is comprised of the cities of Phoenix, Mesa, Chandler, Glendale, Scottsdale, Gilbert, Tempe, Peoria, Surprise and numerous smaller communities. While Phoenix is the state’s largest municipality with a 2015 estimated population of 1,527,509 these other eight communities boast populations in excess of 100,000 each. The City of Phoenix has also become the sixth largest city in the United States. The surrounding municipalities of Apache Junction, Avondale, Buckeye, El Mirage, Fountain Hills, Goodyear, Paradise Valley, and Queen Creek, each have a population of more than 10,000 persons. The cities of Casa Grande, Coolidge, Eloy, Florence and Maricopa, all within Pinal County, also have a population in excess of 10,000 persons.9

8 Source: U.S. Census Bureau, American FactFinder 9 Source: Arizona Department of Administration, Office of Employment and Population Statistics (//population.az.gov/population-estimates)

Figure 3 – Historical Decennial Population Estimates8

Arizona Phoenix MSA

Census Estimates

2010 6,401,569 4,200,427

2000 5,130,632 3,251,876

1990 3,665,339 2,238,498

1980 2,716,546 1,600,093

1970 1,775,399 1,039,807

1960 1,302,161 726,183

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Figure 4 – Phoenix-Mesa-Glendale MSA Population Trends

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Economic Trends

The historical principal industries in Arizona have been agriculture, mining, trade and services. Through the years, there has been a shift in the State’s industrial structure, with significant declines in mining and agriculture in relation to other sectors. Agriculture and mining remain significant forces in the local economy of some parts of rural Arizona. Maricopa County is the largest producer of crops and livestock in the State, although their shares of employment and gross product are comparatively small. Biomedical research, and solar power generation and its related industries, are relatively new to the area and could potentially have a more significant impact on the metropolitan Phoenix area.

The state gross domestic product (GDP) is the sum of gross state product originating from all industries in Arizona. This is a measurement of the State’s output, which was estimated to be $161,792 million in 2000. The Arizona GDP, the counterpart to the national gross domestic product, had been increasing prior to 2007. By 2008, the Arizona GDP had increased to $261,128 million, but decreased to $245,216 million in 2009. The Arizona GDP has been increasing since 2009 to its current level of $299,809 million in the second quarter of 2016, providing a small indication of the beginning of an economic recovery.10 According to the Bureau of Economic Analysis website, Real gross domestic product (GDP) increased in 41 states and the District of Columbia in the second quarter of 2016, according to statistics on the geographic breakout of GDP released today by the U.S. Bureau of Economic Analysis. Real GDP by state growth ranged from 4.3 percent in Nebraska to –5.6 percent in North Dakota. Transportation and warehousing; health care and social assistance; and professional, scientific, and technical services were the leading contributors to U.S. economic growth in the second quarter.

Transportation and warehousing grew 14.0 percent in the second quarter of 2016. This industry contributed to growth in 47 states and the District of Columbia and contributed 0.97 percentage point to the 2.3 percent growth in Nevada.

Health care and social assistance grew 4.7 percent in the second quarter. This industry contributed to growth in every state and the District of Columbia.

Professional, scientific, and technical services grew 3.7 percent in the second quarter—the ninth consecutive quarter of growth for this industry. This industry contributed to growth in 47 states and the District of Columbia.

Although agriculture, forestry, fishing, and hunting was not a significant contributor to real GDP growth for the nation, it had an important impact on economic growth in several states. This industry contributed

3.80 percentage points to the 4.3 percent growth in Nebraska—the fastest growing state in the second quarter. By contrast, this industry subtracted more than 2.0 percentage points from real GDP growth in North Dakota and South Dakota, which declined 5.6 percent, and 1.0 percent, respectively.

Mining declined 20.4 percent for the nation in the second quarter. This industry subtracted 5.13 percentage points from real GDP growth in Wyoming, which declined 5.3 percent, and more than 2.0 percentage points from Alaska, North Dakota, Oklahoma, and West Virginia, which declined 2.0 percent, 5.6 percent, 2.7 percent, and 0.8 percent, respectively.

Retail trade declined 2.8 percent for the nation in the second quarter. This industry subtracted from real GDP growth in all states, except New Hampshire and the District of Columbia.

10 United States Department of Commerce, Bureau of Economic Analysis;

http://www.bea.gov/newsreleases/regional/gdp_state/2016/xls/qgsp0716.xlsx

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Labor Force and Employment

The preliminary average monthly statewide total civilian labor force in November 2016 was estimated to be 3,252,400 persons with an average unemployment rate of 5.0%11. The average monthly total civilian labor force was 2,253,682 for the Phoenix-Mesa-Scottsdale MSA, while the average unemployment rate was 4.1%. Although the unemployment rate for the greater Phoenix area has increased from the twenty-year record low of 2.7% in the late 1990’s, it has historically been below that of both the state and national averages. The unemployment rates for both the State and Phoenix-Mesa-Scottsdale Metropolitan Area have been generally increasing between mid- 2007 and late 2010, there has been some downward movement since mid-2010.

11 University of Arizona, Economic and Business Research Center;

https://ebr.eller.arizona.edu/current-indicators/arizona-us;

https://ebr.eller.arizona.edu/current-indicators/phoenix-mesa-scottsdale-msa

Figure 5 – Phoenix-Mesa-Glendale MSA Labor Force and Unemployment Rate

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Income and Wages Arizona’s nominal per capita personal income hit $39,471 in 2015, according to the latest preliminary estimates from the U.S. Bureau of Economic Analysis (BEA). National per capita personal income was $47,669. Arizona’s per capita personal income rose 3.2% from 2014 to 2015, before adjustment for inflation, a bit below the national rate of 3.5%.12

12 Tipping Point or More of the Same? Arizona Picks Up Some Momentum, Arizona’s Economy, June, 1, 2016, George W. Hammond, Ph.D., Director and Research Profession, EBRC

Figure 6 – Phoenix-Mesa-Glendale MSA Personal Income

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Retail Sales

Figure 7 – Aggregate Retail Sales

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Forecast Data

George W. Hammond, Ph.D., EBR Director with the Eller College of Management at The

University of Arizona, reports

The Arizona economy slowed during the summer, with job growth falling back to the national rate. Further, new personal income estimates suggest slower growth early in the year. While Arizona continues to expand at a solid pace, 2016 no longer appears to be the breakout year. Nonetheless, the odds still favor continued growth in the U.S. and Arizona economies this year and next.

The outlook for Arizona calls for solid gains in jobs, income, and population. While growth rates are expected to far exceed the nation, they are not headed back to historical averages. Job gains will likely be concentrated in service-providing industries, like professional and business services; education and health services; trade, transportation, and utilities; and leisure and hospitality.

Arizona’s two largest metropolitan areas have also experienced a summer lull, but are expected to rebound later this year and in 2017. As usual, the Phoenix MSA is forecast to expand at a rapid pace. The Tucson MSA is expected to capitalize on recent announcements of new jobs in the aerospace sector to generate improved gains during the forecast.13

13 www.azeconomy.org, Fourth Quarter 2016 Forecast Update

Figure 8 – Phoenix-Mesa-Glendale MSA Forecast

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Real Estate Market Sectors

Land Market According to Colliers International in their land market Research & Forecast Report for the first half of 2016, sales activity for land parcels slowed during the first half of 2016 but is expected to increase as housing starts and supporting commercial construction increase. The volume of land sales will be depending on the strength of the housing market in the short term.

According to Colliers International, Sales of land parcels slowed from the second half of 2015 to the first half of this year by 17 percent.

Activity in the first six months of 2016 was nearly identical to levels recorded in the first half of last year.

Land prices have gained momentum to start 2016. The median price for all land sales reached $3.79 per square foot in the first half of this year, 38 percent higher than the median price in 2015. The greatest gains have been recorded in sales prices for land intended for industrial and residential uses.

Sales of land parcels for residential development dipped 21 percent from the second half of last year to the first half of 2016 although the number of transactions was down just 3 percent from the first half of 2015.

While the number of residential land parcels that have sold is slightly lagging last year’s pace, prices are on the rise. The median price in land sales for residential uses reached $2.96 per square foot in the first half of 2016, up from $2.02 per square foot in 2015.

Sales of land for commercial development accelerated in the second half of last year and those levels were maintained in the first half of 2016. Year to date, sales of commercial land are up 17 percent compared to the first half of 2015.

Pricing for land for commercial uses has been steady over the past year. The median price in land sales for commercial uses year to date was $4.56 per square foot, 2 percent lower than the median price in 2015.

Land sales for industrial uses slowed in the first half of this year, lagging activity levels from both halves of 2015. Sales in the first half of this year were down 6 percent from the same period in 2015.

Prices in land sales for industrial development are on the rise. The median price in land sales for industrial uses reached $3.98 per square foot in the first half of 2016, 51 percent higher than the 2015 median price.

Single Family Housing Sector

According to Long Realty, The Phoenix residential housing market is off to a strong start in 2016. Sales have continue to outpace 2015 while listing inventory has started to increase in recent months, to help meet buyer demand. Phoenix continues to be in a seller’s market at many price points, and is experiencing an increase in home prices. It’s a function of supply and demand. Low interest rates and improved economic development in the area should continue to fuel future housing growth.14

14 Source: Long Realty, Phoenix, Casa Grande and Yuma 2016 Mid-Year Housing Report (www.longrealtyonline.com)

Figure 9 – ARMLS Marketwatch Report, Q4-2016 Overview

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Multifamily Housing Sector According to the Colliers International, a national real estate services firm with an office in the metropolitan Phoenix area:15

Conditions remained strong in the Greater Phoenix multifamily market during the third quarter. Vacancy is well below the market’s long-term average rate, even as new development has been active for the past several quarters. New supply is being matched by ongoing demand growth, with renters filling new units as they come online. One reason for this is that development has been concentrated in a handful of very popular, low-vacancy submarkets in Tempe and Scottsdale as well as in Downtown Phoenix.

Vacancy in Greater Phoenix has been well below the metro average for the past few years, and these tight conditions are supporting ongoing rent gains. Asking rents rose by more than 6 percent in 2015 and a greater increase is forecast for this year. Rents are rising as leases renew, while the delivery newer, more expensive units is pushing the overall market average higher.

Investment activity slowed in the third quarter, but sales velocity thus far in 2016 is ahead of last year’s pace. The continued improvement in property fundamentals is broadening the base of properties that are attracting investor attention. During the third quarter, more Class B and Class C properties changed hands than had transacted in earlier quarters. With more low- and mid-tier properties changing hands, prices dipped somewhat in the third quarter, but the median price in 2016 is considerably higher than the 2015 median price.

Industrial Sector The Phoenix Industrial market ended the fourth quarter 2016 with a vacancy rate of 9.6%.

The vacancy rate was down over the previous quarter, with net absorption totaling positive 2,547,966 square feet in the fourth quarter. Vacant sublease space decreased in the quarter, ending the quarter at 1,346,158 square feet. Rental rates ended the fourth quarter at $6.88, a decrease over the previous quarter. A total of five buildings delivered to the market in the quarter totaling 642,069 square feet, with 4,304,479 square feet still under construction at the end of the quarter.16

Office Sector The Phoenix Office market ended the fourth quarter 2016 with a vacancy rate of 15.0%.

The vacancy rate was down over the previous quarter, with net absorption totaling positive 1,087,206 square feet in the fourth quarter. Vacant sublease space increased in the quarter, ending the quarter at 1,181,470 square feet. Rental rates ended the fourth quarter at $23.38, an increase over the previous quarter. A total of 10 buildings delivered to the market in the quarter totaling 545,299 square feet, with 1,791,602 square feet still under construction at the end of the quarter.17

Retail Sector The Phoenix retail market experienced a slight improvement in market conditions in the fourth quarter 2016. The vacancy rate went from 9.0% in the previous quarter to 8.8% in the current quarter. Net absorption was positive 553,559 square feet, and vacant sublease space increased by 48,728 square feet. Quoted rental rates decreased from third quarter 2016 levels, ending at $14.53 per square foot per year. A total of 21 retail buildings with 383,701 square feet of retail space were delivered to the market in the quarter, with 1,227,017 square feet still under construction at the end of the quarter.18

15 Colliers International, Research & Forecast Report, Greater Phoenix, Multifamily, 3Q 2016…