ITB 2025-0500-0046 Stratton Library Building Sale Appendices.pdf

APPRAISAL REPORT OF THE

STRATTON LIBRARY BUILDING

AT 831 LINCOLN STREET

SITKA, ALASKA

PREPARED FOR: Clint Jefferson Farr, MS Operations Manager Alaska Division of Libraries, Archives and Museums 395 Whittier Street Juneau, AK 99801

PREPARED BY: Joshua C. Horan Horan & Company, LLC 403 Lincoln Street, Suite 210 Sitka, AK 99835

EFFECTIVE DATE: November 15, 2023

REPORT DATE: November 24, 2023

OUR FILE NO.: 23-078

AK PO NO.: PO 05 240003739

Appendix A

HORAN & COMPANY

REAL ESTATE APPRAISERS/CONSULTANTS

CHARLES E. HORAN MAI / WILLIAM G. FERGUSON,

JOSHUA C. HORAN, AND SLATER M. FERGUSON

403 L INCOLN STREET , SUITE 210, S ITKA , ALASKA 99835

PHONE NUMBER: (907)747-6666 FAX NUMBER: (907)747-7417

appraisals@horanappraisals.com November 24, 2023 Clint Jefferson Farr, MS Operations Manager Alaska Division of Libraries, Archives and Museums 395 Whittier Street Juneau, AK 99801 Sent via email: clint.farr@alaska.gov Re: Appraisal Report, of Stratton Library Building in Sitka, Alaska. Our file 23-078

Dear Mr. Farr:

At your request, we have completed a market value appraisal of the Stratton Library Building in Sitka, Alaska. The purpose of the appraisal report is to determine the market value of the subject. The intended use of the appraisal is to assist you, the client and intended user, in decision making and planning regarding the subject. The appraisal conforms to the Uniform Standards of Professional Appraisal Practice. No other special appraisal requirements have been met.

The report is made subject to the following Extraordinary Assumptions:

Extraordinary Assumption#1: It is an Extraordinary Assumption of this report that the actual location of the penstock easement does not interfere with the subject’s highest and best use.

Extraordinary Assumption#2: It is an Extraordinary Assumption of this appraisal that the access easement benefitting Lot 4 of the Sheldon Jackson Campus Subdivision is terminated.

The use of hypothetical conditions and extraordinary assumptions may affect the assignment results.

Based on these assumptions, I estimate the market value for the subject property as of the effective date, November 15, 2023 as follows:

$1,650,000 Your attention is invited to the attached report, which sets forth the general assumptions and limiting conditions upon which this report is made, the certification of appraiser, and a summary of the most pertinent data and analysis considered in arriving at the final opinion of value.

Thank you for this opportunity to be of service to you. If you have any questions or comments, please feel free to contact us.

Sincerely, Joshua C. Horan - HORAN & COMPANY, LLC General Real Estate Appraiser #123317

23-078 – Stratton Library Building Appraisal

CERTIFICATION OF APPRAISAL

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

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

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

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

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

- My engagement in this assignment was not contingent upon developing or reporting predetermined results.

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

- The reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Uniform Standards of Professional Appraisal Practice.

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

- I have made a personal inspection of the property that is the subject of this report.

- No one provided significant real property appraisal assistance to the person signing this certification.

- I performed an appraisal of the subject in 2019. I have not performed any services regarding the subject property, as an appraiser or in any other capacity, within the three-year period immediately preceding acceptance of this assignment.

Joshua C. Horan General Real Estate Appraiser #123317 Effective date: November 15, 2023 Report date: November 24, 2023

1 INTRODUCTION

1.1 IDENTIFICATION OF SUBJECT PROPERTY

Location The subject property is physically located at 831 Lincoln Street, Sitka, AK.

It is on the upland side of Lincoln Street on the former Sheldon Jackson College campus in downtown Sitka, Alaska.

Legal Description The subject property consists of one fee simple parcel legally described as follows:

- Lot 3, of the Sheldon Jackson Campus Subdivision, Plat 2009-8, Sitka Recording District, First Judicial District, State of Alaska.

1.2 THREE YEAR SALE HISTORY

The subject has been owned by the State of Alaska since 2010. No sales or transfers have occurred in the past three years. The subject is not listed for sale. There are no pending purchase contracts or offers on the subject, according to my client.

1.3 INTENDED USE AND USER OF APPRAISAL – PROPERTY RIGHTS

APPRAISED

The purpose of this appraisal is to estimate the market value of the Stratton Library Building property in fee simple interest. The intended use is to aid the intended user in planning and decision making regarding the subject. The client and intended user is Clint Jefferson Farr, Operations Manager of the Alaska Division of Libraries, Archives and Museums. The appraisal conforms to the Uniform Standards of Professional Appraisal Practice and Appraisal Institute standards. This appraisal is not subject to any other special requirements. This appraisal report may not be used or relied upon by anyone other than the client, for any purpose whatsoever, without the express written consent of the appraiser.

1.4 SCOPE OF APPRAISAL

No title report has been made available to the appraiser, and we presume the documents presented, copies of which are located in the addenda, adequately describe the estate appraised herein. Please see the Assumptions and Limiting Conditions in the following section.

My knowledge as to the character of the property is informed by a brief walkthrough inspection made November 15, 2023 with Sue Conrad of the Sheldon Jackson Museum.

It is also based on a prior appraisal of the subject in 2019 for the same client. They also provided me with the Stratton Building Condition Assessment and Phase 1&2 project drawings, all produced by Northwind Architects, the topographic survey by R&M Engineering, and the 2008 appraisal of the subject by Kim Wold. I also consulted the State Recorder’s website for a copy of the subject plat and the City of Sitka GIS.

This appraisal report relies primarily on the Cost Approach, with the Sales Comparison Approach used in support. The Income Approach is inapplicable and is not developed as a result. In performing the Cost Approach, I estimated the subject’s site value based on comparable land sales in and near the subject’s neighborhood. This value was then added to the depreciated value of the improvements to yield an indicated value by the Cost Approach.

The Sales Comparison Approach utilizes the analysis of other comparable sales and compares them on an appropriate unit basis to the subject, in this case value per square foot of Gross Building Area (GBA). We identified comparable information through interviews with knowledgeable participants in the real estate market such as existing land owners in the area, appraisers, lenders, brokers, State Recorder's Office, and others who are familiar with the real estate market in Southeast Alaska. We also searched the Statewide Multiple Listing Service and the Southeast Multiple Listing Service. We also utilized our in-house database. There are no directly comparable sales or rental leases of this special purpose facility. Therefore, the direct Sales Comparison Approach is used primarily as a check against the depreciated Cost Approach, and is ultimately given less weight.

1.5 ASSUMPTIONS AND LIMITING CONDITIONS

Extraordinary Assumptions EA-1) It is an Extraordinary Assumption of this report that the actual location of the penstock easement does not interfere with the subject’s highest and best use.

EA-2) It is an Extraordinary Assumption of this appraisal that the access easement benefitting Lot 4 of the Sheldon Jackson Campus Subdivision is terminated.

The use of hypothetical conditions and extraordinary assumptions may affect the assignment results.

This appraisal report and valuation contained herein are further expressly subject to the following assumptions and/or conditions:

1. It is assumed that the data, maps and descriptive data furnished by the client or his representative are accurate and correct. Photos, sketches, maps, and drawings in this appraisal report are for visualizing the property only and are not to be relied upon for any other use. They may not be to scale.

2. The valuation is based on information and data from sources believed reliable, correct and accurately reported. No responsibility is assumed for false data provided by others.

3. No responsibility is assumed for building permits, zone changes, engineering or any other services or duty connected with legally utilizing the subject property.

No responsibility is assumed for matters legal in character or nature. No opinion is rendered as to title, which is assumed to be good and marketable. All existing liens, encumbrances, and assessments have been disregarded, unless otherwise noted, and the property is appraised as though free and clear, having responsible ownership and competent management. It is assumed that the title to the property is marketable. No investigation to this fact has been made by the appraiser.

4. The property described herein has been examined exclusively for the purpose of identification and description of the real property. The objective of our data collection is to develop an opinion of the highest and best use of the subject property and make meaningful comparisons in the valuation of the property. The appraiser's observations and reporting of the subject improvements are for the appraisal process and valuation purposes only, and should not be considered as a warranty of any component of the property. This appraisal assumes (unless otherwise specifically stated) that the subject is structurally sound and all components are in working condition.

5. This appraisal report may note any significant adverse conditions (such as needed repairs, depreciation, the presence of hazardous wastes, toxic substances, etc.) discovered during the data collection process in performing the appraisal.

Unless otherwise stated in this appraisal report, we have no knowledge of any hidden or unapparent physical deficiencies or adverse conditions of the property (such as, but not limited to, needed repairs, deterioration, the presence of hazardous wastes, toxic substances, adverse environmental conditions, etc.) that would make the property less valuable, and have assumed that there are no such conditions and make no guarantees or warranties, express or implied. We will not be responsible for any such conditions that do exist or for any engineering or testing that might be required to discover whether such conditions exist. Because we are not an expert in the field of environmental hazards, this appraisal report must not be considered as an environmental assessment of the property. We obtained the information, estimates, and opinions furnished by other parties and expressed in this appraisal report from reliable public and/or private sources that we believe to be true and correct. It is assumed that no conditions existed that were undiscoverable through normal diligent investigation which would affect the use and value of the property. No engineering report was made by or provided to the appraiser.

6. The Client is the party or parties who engage an appraiser in a specific assignment. A party receiving a copy of this report from the client does not, as a consequence, become a party to the appraiser-client relationship. Any person who receives a copy of this appraisal report as a consequence of disclosure requirements that apply to an appraiser's client, does not become an intended user of this report unless the client specifically identified them at the time of the assignment. The appraiser's written consent and approval must be obtained before this appraisal report can be conveyed by anyone to the public through advertising, public relations, news, sales, and other media.

7. A true and complete copy of this report includes the addenda and exhibits which are considered an integral part of the report. The appraisal report may not be properly understood without access to the entire report. The appraisal is to be considered in its entirety, the use of only a portion thereof will render the appraisal invalid.

8. If this valuation conclusion is subject to satisfactory completion, repairs, or alterations, it is assumed that the improvements will be completed competently and without signification deviation.

9. Any distribution of the valuation in the report between land, improvements, and personal property applies only under the existing program of utilization.

The separate valuations for land, building, and chattel must not be used in conjunction with any other appraisal and is invalid if so used.

10. The appraiser shall not be required to give testimony or appear in court by reason of this appraisal with reference to the property described herein unless prior arrangements have been made.

1.6 INSPECTION AND EFFECTIVE DATE

I inspected November 15, 2023. This is the effective date of the appraisal.

1.7 TERMINOLOGY

Market Value Market Value is defined as: The most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress.

The Dictionary of Real Estate Appraisal, 6th Edition, 2015, Appraisal Institute, page 141.

Fee Simple Interest "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.”

The Dictionary of Real Estate Appraisal, 6th Edition, 2015, Appraisal Institute, Page 90.

Extraordinary Assumption 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.

Comment: Extraordinary assumptions presume as fact otherwise uncertain information about physical, legal, or economic characteristics of the subject property; or about conditions external to the property, such as market conditions or trends; or about the integrity of data used in an analysis. (USPAP, 2016-2017 ed.)

The Dictionary of Real Estate Appraisal, 6th Edition, 2015, Appraisal Institute, Page 83-84.

Hypothetical Condition

1. A condition that is presumed to be true when it is known to be false.

2. 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. Comment: Hypothetical conditions are contrary to known facts about physical, legal, or economic characteristics of the subject property, such as market conditions or trends; or about the integrity of data used in an analysis. (USPAP, 2016-2017 ed.)

The Dictionary of Real Estate Appraisal, 6th Edition, Appraisal Institute, Page 113

A hypothetical condition, directly related to a specific assignment, as of the effective date of the assignment results, which, if changed, could alter the appraiser’s opinions or conclusions.

1.8 EXPOSURE TIME

Exposure time is defined as follows: The time a property remains on the market. The estimated length of time 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. Exposure time is an opinion of time preceding the effective date of the appraisal. This differs from Marketing Time which is immediately following an appraisal, at the appraised price.

I estimate the exposure time at one to two years.

2 MARKET ANALYSIS

2.1 SITKA AREA ANALYSIS

The City and Borough of Sitka encompass Baranof Island, except Port Alexander near the southern tip, and includes southern portions of Chichagof Island directly to the north.

While the City and Borough of Sitka has a huge land mass of 2,900 square miles, the relatively small population base is confined to the 16 miles of road along the coastal shelf of Sitka Sound.

Historically, the Sitka area was inhabited by the Tlingit Indians, who lived off the area’s abundant resources. These resources attracted the Russian-American Fur Company, which established a continuing presence from 1804 until 1867 when Russia sold its interest to the United States. The Tlingit presence has remained strong throughout the history of this insular community, the economic vitality of which has been tied to regional and global events that have taken advantage of its geographic location. It was significantly impacted by the gold rush of the late 1800s when in 1906 the capital was relocated to Juneau. World War II saw a surge in its importance, population, and economic impact with the presence of the U.S. Army.

Government influence has remained an important aspect of the economy, taking advantage of its strategic location through the presence of the U.S. Coast Guard. Alaska Lumber and Pulp Company operated a mill in Sitka between 1960 and 1993. Sitka has emerged as a center for regional health care, education, and important segments of the U.S. Forest Service, which administers the vast Tongass National Forest.

The creation of the regional aquaculture associations in Alaska in the early 1980s, coupled with the voluntary assessments paid by commercial salmon fishermen, has led to a significant increase in the return of higher-value commercial salmon fisheries to the Sitka area. In turn, regional king salmon enhancement has encouraged the growth of a large charter fishing industry. The federal privatization of the ground fisheries off Alaska in the early 1990s, along with the advent of individual fishing quotas, have also played a part in the continuing economic growth of Sitka.

Sitka is connected to other nearby communities, and the larger regional centers of Anchorage and Seattle, by the Alaska Marine Highway ferry service, various private tug

FIGURE 2.1 – Baranof Island with Sitka area marked with red outline.

and barge lines, and daily jet service as well as several small air charter companies.

Economic Overview

Sitka’s economy is relatively diverse for its small size and has generally proven itself remarkably resilient. Fisheries, tourism, government employment, education, and health care all contribute to this diversified economy. The opening of a private cruise ship dock on the road system has helped to increase visitor numbers into Sitka. The opening of the Sitka-based Silver Bay Seafoods fish processing plant in 2007 increased processing capacity substantially.

Population and employment numbers have remained relatively stable in recent years, with the population hovering at just under 9,000. With the slow decline in Sitka school enrollment, it appears that the population is aging, and there may be a loss of workforce-aged residents, as well as year-round employment. The estimated population for 2022 is 8,350 people, which indicates a slight decline over the last few years.

Significant changes in the economy include losses of about 100 jobs with the closure of the Sheldon Jackson College (2007/08 school year). Silver Bay Seafoods opened in 2007, employing a peak of over 200 seasonal jobs with a few dozen full-time positions.

The Sitka Fine Arts Camp is a growing interest with a strong influx of people on a yearly basis. Southeast Alaska Regional Health Consortium (SEARHC) is quickly expanding and growing as a regional health hub. With about 500 employees, SEARHC became the

FIGURE 2.2 – Sitka Population and Employment 2009-2022, source:

https://live.laborstats.alaska.gov/labforce/labdataall.cfm?s=25&a=0 single largest employer in the community in 2020. They are in the process of expanding the Sitka campus to include a new medical center with 25-bed hospital, four operating rooms, a new medical office building, and more lab and radiology services to come online in 2025.

The state boarding school, Mt. Edgecumbe High School, has been increasing enrollment over time, peaking in 2018 at about 441 students. Other essential government services such as the Coast Guard, etc. are expected to remain stable or expand. A new Coast Guard Fast Response Cutter has recently been brought into Sitka which has most likely increased enlisted coast guard numbers in Sitka. The Alaska Marine Highway ferry service to Sitka from Juneau has been declining over the years. It has dropped to one weekly sailing in the summer and one monthly sailing in the winter, however, reliability and use continue to diminish.

Manufacturing in Sitka is mostly in the form of seafood processing, however, there were 85 jobs in 2019 in manufacturing (mostly boat building) not related to seafood.

The seafood industry is a key source of jobs, income, and tax revenue in Sitka. In 2021 there were approximately 373 Sitka resident commercial fishing permit holders which is slightly down from 2019 at 400 holders. They harvested 27.8 million pounds of fish with a total ex-vessel value of $38.5 million in 2019. In 2021, 39.1 million pounds of fish were harvested, with a total ex-vessel value of $53.5 million. Seafood processing generated $1.2 million in raw fish tax for the City and Borough of Sitka in FY 2019, which dropped to $855,702 in FY 2021. Sitka’s fiscal year ends in the middle of the fishing season however, and reflects mostly 2020 numbers which were greatly affected by the Covid-19 pandemic. For FY 2022, raw fish tax revenue increased to over $1.7 million.

Sitka’s cruise ship traffic improved to a 10-year high in 2019, when passenger volume totaled 218,600. The worldwide pandemic precipitated by the Coronavirus (COVID-19) caused the collapse of the cruise market for the 2020 season which was essentially canceled. The market began to open up in the 2021 season before exceeding pre-pandemic numbers in the 2022 season. The privately owned Sitka Sounds Cruise ship Terminal expanded in 2021 to allow docking of two very large cruise ships (VLCS). This expansion helped bring record passenger numbers to Sitka in 2022. The 2023 season is projected to bring even more passengers, with an increase of nearly 50% from the previous year. The construction of this cruise ship dock appears to have assured Sitka’s share of the Alaska cruise passenger traffic for the foreseeable future.

Figure 2.4, below, shows Sitka’s sales tax data for all industry sectors from 2006 to 2022. The 2020 sales are underreported as it only includes one of the four quarters.

This data is provided by the city. As noted above, the sales tax data encompasses all sectors of Sitka’s diverse economy, including, but not limited to tourism, fishing, and the service sector. These figures show Sitka experienced an economic downturn with a significant decrease between 2009 and 2010. The economy recovered slowly over the next few years and saw a large increase between 2013 and 2014, and has seen increases every year between 2016 and 2019. Although the 2020 data is incomplete it is certain that tax revenues fell significantly due to lack of tourism sales related to the Covid pandemic travel restrictions. The economic activity rebounded in 2021 shown by similar sales figures to 2019. In 2022, the sales tax collection ($16,400,000) showed a significant increase as compared to 2021 ($13,193,000), up 24% in the overall economy by this metric. There may be some anomalies in the reported data but certainly the sales grew between these years. Based on the upward trends for both cruise ship passenger totals and Sitka Sales Tax collection, there is reason for optimism in the tourism/retail related sector of Sitka’s economy.

FIGURE 2.4 - Sitka Sales Tax collection.

According to the Sitka Economic Development Association, Sika has an estimated 4,199 housing units with an owner-occupancy rate of just over 57%. According to the Southeast Alaska MLS, in 2019, 44 single-family homes were sold with an average price of $381,831, rising to $418,750 in 2021. The average for 2022 rose significantly to $610,669. These averages during 2021/2022 may be somewhat skewed, as most homes were sold by owner (FSBOs), without professional services. The MLS does not track FSBO sales, however, total single family residence sales in the MLS dropped from a total of 50 in 2020, down to 34 and 26 in 2021 and 2022 respectively. Despite the lack of MLS data, it is evident that SFR prices have risen substantially since 2019/2020, reflecting nationwide trends driven by a high demand for a limited supply and low interest rates which have since increased. The residential market has shown signs of stabilization in the first half of 2023. Through nearly 5 months, there have been six residential sales tracked through the SEAMLS, with an average price of $534,333. See Figure 2.5 for average prices paid for Sitka homes from 2010 to 2022.

Conclusion

Sitka has a small but diverse economy which has kept it relatively stable over the past several decades. The overall economy is expected to strengthen with increased tourism and the expansion of employment for both the Southeast Alaska Regional Health Consortium (SEARHC) and the local U.S. Coast Guard base. The general outlook for future demand of commercial real estate in Sitka is for price increases in the near term.

This is especially expected for retail buildings in Sitka’s downtown Central Business District.

FIGURE 2.5 – Average prices paid for Sitka homes 2010-2022.

Source: SEAMLS

3 PROPERTY DESCRIPTION

3.1 SITE DESCRIPTION

Size and Shape and Topography The subject is an irregular shaped, 35,277 SF parcel at the corner of Lincoln Street and College Drive on the former Sheldon Jackson College campus in Sitka, Alaska.

According to the plat, the subject has approximately 226 feet of frontage on Lincoln Street on its western boundary and approximately 167 feet of frontage on College Drive on its northern property boundary. This width narrows to 125.89 feet on its southern boundary where it abuts a private residence at 833 Lincoln Street. To the rear of the subject is Sheldon Jackson Museum and a cluster of single family homes which are part of the Sitka Fine Arts Camp campus.

The subject’s topography generally slopes from the rear, eastern portion of lot down to the western frontage on Lincoln Street. The building is located on the northern portion

FIGURE 3.1 – EXCERPT FROM PLAT 2009-8 WITH THE SUBJECT, LOT 3, OUTLINED IN RED

of the site and has been excavated in the rear, with the first floor eastern portion of the building below grade. The parking area immediately to the south of the building has also been leveled. The southern portion of the site is largely undeveloped with the exception of a gravel drive sloping up from a curb cut on Lincoln Street. Please see the topographic survey of the site, contained in the addenda of this report.

Easements and Encroachments The plat notes a 12’ utility easement along the southern portion of the subject’s frontage on Lincoln Street. This easement is within the 14 foot street setback required by the subject’s zoning and ultimately has nominal impact on the subject’s site value or marketability. The plat also shows a 30 foot wide easement for a penstock, which serves the fish hatchery in the Sage Building across the street. This easement runs diagonally from the subject’s northeast corner in a southwesterly direction, emerging approximately halfway through the site’s frontage on Lincoln Street. The associated plat notes for this easement acknowledge that the exact location of the penstock is unknown, and that easement is for the penstock itself, which may differ from the location shown on the plat. It appears to cross under the front of the building according to the topographic survey shown in the addenda. It is an Extraordinary Assumption of this report that the location of the penstock easement does not interfere with the subject’s highest and best use.

There was reportedly an access easement on the subject coinciding with its southern driveway, benefitting Lot 4 to the south at 833 Lincoln Street. This is documented by the undated, aforementioned O’Neill drawing included in the addenda. An email sent December 29, 2010 from broker Nancy Davis confirms that notice of this easement’s termination was delivered to the owner of 833 Lincoln ST, Trista Patterson, who agreed to this termination. A letter dated December 28, 2010 from PTP Management Inc., serves as a one year notice of this termination and is also included in the addenda. Ms.

Patterson was to have one year in which to build a driveway on her own property which PTP management would pay $7,000 to help install. The easement was set to expire December 31, 2011. It is noted the Stratton Library property transferred to the state December 29, 2010, a day after the one year notice of termination letter. The original easement does not appear to have been recorded, nor does the termination. Also it appears that Ms. Patterson never installed the driveway. It is an Extraordinary Assumption of this appraisal that the access easement benefitting Lot 4 of the Sheldon Jackson Campus Subdivision is terminated.

Off Site Improvements The site is serviced by water, sewer, power, telephone, and all utilities available in the Sitka market. There are concrete curbs and sidewalks along Lincoln Street. There are overhead power and streetlights, storm drainage and fire hydrants. Lincoln Street is a city maintained, paved two-way street.

Zoning The subject’s site is zoned R-2, which is a residential designation. It allows for development of single-family residences, duplexes and multi-family units. Conditional uses include houses of worship, community buildings, child care centers, quasi-institutional uses and professional offices. The minimum lot area required is 6,000 SF, which the site clearly exceeds, with the maximum density allowed per acre of 24 units.

Required setbacks from Lincoln Street are 14’, and permitted side yard development is allowed up to 9’ away from the lot line. The rear setback is 8’. Maximum height of the buildings is 40’ with maximum lot coverage allowed by all the buildings to be 50% or less. The subject would be grandfathered into conformity since it was constructed prior to the enactment of these regulations.

Assessed Valuation and Taxes The subject is within the City and Borough of Sitka’s taxing jurisdiction. Although the owner is tax exempt, the city maintains an assessed valuation. The total 2023 assessment is summarized as follows:

PARCEL NUMBER LAND BUILDINGS TOTAL

1-8562-007 $353,000 $1,232,000 1,585,000

If the subject were taxable, this assessment would equate to a $9,510 in real estate taxes at Sitka’s current tax rate of 6 mils.

3.2 DESCRIPTION OF IMPROVEMENTS

The Stratton Library is a 2-story, 11,930 SF, wood frame, post and beam structure built on a concrete perimeter foundation in 1974. Since the state acquired the property in 2010, several upgrades and modifications have been performed. These include replacing the roof and repairing rotten beam ends, eaves and fascia, installing structural piers and beams under the cantilevered section of the exterior walls, decommissioning the original boiler system and installing high efficiency oil stoves and air source heat pumps, replacing the rear access ramp, and replacing the fire alarm system. It is noted the oil stoves are currently not in use. Another significant upgrade involved expanding and enclosing the second-floor mezzanine and removing the west stairwell to create a large storage room.

With the exception of removal of the western staircase and enclosing the mezzanine, the building essentially still has its original layout. The main entrance faces College Drive and is on the First Floor. It includes men’s and women’s restrooms and the stairwell to the second floor. The eastern portion of this level is below grade with a concrete retaining wall to the rear. This area is mostly comprised of offices and storage. The western portion of this level is predominantly open and was former book storage. There are also offices on the north and south sides of the middle portion of this level. The far west wall is a window wall. Cantilevered sections in this area create narrow open spaces all the way to the roof of the second level a vestige of the former open mezzanine which has since been enclosed. According to the Phase II construction drawings provided by client, the First Floor totals 6,750 SF of building area.

The Second Floor, totaling 5,180 SF per the construction drawings, is accessed via the interior stair from the First Floor or from an access ramp to a rear door on the eastern side of the building. This portion of the building is essentially at grade due to the site’s topography, and is laid out with a storage room, staff lounge with restroom, and a processing room. Moving west is the former book storage area with offices on either side. This opens up into the enclosed mezzanine area.

Exterior finishes include the composition tile roof, wood siding and single pane wood cased windows. Interior finishes include carpet and vinyl flooring, sheetrock walls, tile ceilings and with some sheetrock, and fluorescent lights. Many of the finishes are dated, but do not adversely impact marketability. The enclosed mezzanine has newer finishes with suspended fluorescent lights and newer vinyl plank flooring. As noted previously, the HVAC system was replaced with a combination of high efficiency oil stoves and heat pumps. The oils stoves, however, are currently not in use. The building is sprinklered.

Exterior amenities include sidewalks, concrete retaining walls and landscaping. Please see Figure 3.2 for floorplan.

The subject has an actual age of 49 years. The effective age is estimated at 40 years which is less than the actual due to upkeep and maintenance. Functional depreciation is estimated for is specialized use. No external depreciation is estimated; however, it could be argued that when Sheldon Jackson College closed, the demand for an academic library in the immediate neighborhood was significantly reduced. This would be extremely difficult to quantify, and other entities in Sitka may have an interest in such a use.

FIGURE 3.2 – EXCERPT OF BUILDING DRAWINGS BY NORTHWIND

ARCHITECTS

4 VALUATION

4.1 HIGHEST AND BEST USE

Definition of Highest and Best Use The most widely accepted components of market value are incorporated in the following definition: The most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under duress.

The Dictionary of Real Estate Appraisal, 6th Edition, Appraisal Institute, pages 141-143

A variety of commercial and residential uses are physically possible for the subject.

However, the zoning limits which uses are legally permissible to multi-family residential and professional offices with conditional uses also being allowed on a case by case basis. The current use of the subject property is grandfathered and is considered legal non-conforming. The current use appears to be financially feasible and the maximally productive use of the subject as improved. . Conversion of the subject into residential or office use would be extremely expensive and is not considered financially feasible. The current use is the highest and best use as improved. As vacant, the highest and best use of the site would be for residential development.

4.2 LAND VALUE

The subject site will be valued as if vacant and available to be developed to its highest and best use. The vacant downtown land market in Sitka has very limited volume since most of the neighborhoods are nearly entirely developed. Due to the infrequency of sales, I expanded my search back in time 13 years to when portions of the former Sheldon Jackson College were offered for sale. I also considered recent sales of similar zoning and sales from competitive neighborhoods in the downtown area. The sales most helpful in valuing the subject land are summarized in the following Comparable Land Sales grid (Table 4.1):

TABLE 4.1 – COMPARABLE LAND SALES

FM

Record

Address Sales Date

Size (SF) Sales Price Price/SF

1 (6963) 842 Lincoln ST 12/2010 28,333 SF $600,000 $21.18

2 (11849) 410 Oja Way 06/10/21 7,563 SF $226,000 $29.88

3 (12328) 2026D Halibut Point Rd

04/05/23 8,437 SF $150,000 $17.78

4 (10307) 405 Monastery St 05/12/20 4,741 SF $128,000 ($120k purchase +$8k demo)

$27.00

5 (11505) 802-810 Halibut Point Rd

04/06/20 20,400 SF $435,000 $21.32

Comparable 1 is the 2010 sale of waterfront located SE of the subject. This lot is narrow in shape, and was undeveloped at the time of sale. It has uneven topography that slopes upwards from the beach. It is primarily vegetated with berry bushes, spruce, and hemlock trees. It is zoned R-2, similar to the subject. It has good access along Lincoln Street. This sale indicates a price per square foot value of $21.18. Comp #1 is considered to be inferior to the subject in topography, shape, site prep, and utility and inferior in market conditions at time of sale. Nonetheless, these factors are offset, to an extent, by its good waterfront location. Comparable #1’s SF price is considered to be similar to the subject, overall.

Comparable 2 is the 2021 sale of a 7,563 SF site in Sitka’s Central Business District. While not on Lincoln Street, its location is similar to the subject in its proximity to downtown’s amenities and shopping. Its CBD zoning, allows for several types of uses and has very unrestrictive development standards. As a result, it is rated slightly superior to the subject on price per square foot basis.

Comparable 3 is the 2023 sale of an 8,437 SF residential site outside of the downtown area. It has more restrictive R-1 zoning and is accessed via a steep private drive. Its topography is relatively flat, however giving it superior developability to the subject. Overall, this comp is rated inferior to the subject due to its inferior location, access and zoning.

Comparable 4 is the 2020 sale of a 4,741 SF site which sold for $120,000 and was improved with a depreciated home which was demolished. The demo and removal fee, according to the contractor, was $8,000, bringing the total price for the lot as vacant and ready for development to its highest and best use up to

$128,000 or $27.00/SF. It was eventually developed with a duplex. This lot is in the downtown area, but not on Lincoln Street. Its inferior location is more than offset by the economies of scale associated with its smaller size, making it superior on a price per SF basis. This comp is ultimately rated superior as a result.

Comparable 5 is the 2020 sale of a 20,400 SF, three lot assemblage with commercial zoning. It is in a very high traffic area, adjacent to one of Sitka’s two stoplights, and has excellent exposure. It was purchased by healthcare provider who is developing it with apartments and some retail/office use. A portion of the site was encumbered with wetlands as soil contamination which added to development costs. Ultimately the 21.32/SF shown by this comp is similar to slightly superior to the subject site’s value per square foot.

These comparable sales indicate a price per unit range between $17.78/SF and $29.88/SF. The following table ranks the comparable sales against the subject based on their indicated rating described above.

TABLE 4.2 – COMPARABLE RANKING TABLE

Record # Address Sales Price Size Price/SF Rating

2 (11849) 410 Oja Way $226,000 7,563 SF $29.88 Superior

4 (10307) 405 Monastery St $128,000 4,741 SF $27.00 Superior

5 (11505) 802-810 Halibut Point Rd

$435,000 20,400 SF $21.32 Similar to slightly superior

1 (6963) 842 Lincoln ST $600,000 28,333 SF $21.18 Similar

Subject Solve 35,277 SF Solve Similar

3 (1238) 2026D Halibut Point Rd $150,000 8,437 SF $17.78 Inferior

The price per square foot range is relatively wide, primarily due to Comps 2 and 4 which show $27.00/SF and $29.88/SF at the upper end of the range. Comp 2 is far superior to the subject due to its zoning, while both of these comps are superior on a price per SF due the economies of scale of their smaller size. The remaining comps are a much tighter group of indicators, between $17.78/SF and $21.32/SF. At the lower end is Comp 3, a residential lot outside the downtown area without subdivision potential. The subject is superior to this indicator. The subject is most similar to Comps 1 and 5 which show just over $21.00/SF.

The value per square foot of the subject parcel is placed between these two indicators at $21.25/SF. The land value can then be summarized as follows:

35,277 SF X $21.25/SF = $749,636.25

Or $750,000 rounded

4.3 COST APPROACH

In this approach to value, the Replacement Cost New (RCN) for the subject is estimated.

Depreciation is then subtracted from the RCN to arrive at a depreciated value of the improvements. This value is then added to the site value to arrive at the value of the entire property per the Cost Approach.

Estimated Replacement Cost New (RCN) To determine the RCN, I relied on Marshall & Swift Valuation (MSV) Service’s Cost Guide, a national cost index with reliable cost estimates used in Southeast Alaska for many years. The guide considers building type, quality level, and refinements such as sprinkler systems, heating type, and build-out. elevators, etc. This guide also includes a location factor for various towns in Southeast Alaska, including Sitka. Marshall & Swift building classes range from Class A through Class S; depending on construction materials and design. A quality level is then applied to the building type which ranges from low cost to excellent quality. For the purpose of this analysis, the subject is considered to be an average quality Class D academic library.

Site improvements are also included and depreciated in the Cost Approach. The site valuation earlier in this section considers the subject site in a cleared, filled and level state. Additional site improvements include the finished building pad, utility extensions, landscaping, concrete retaining walls and parking lot. These depreciated site improvements are estimated at $70,000.

Depreciation Depreciation is a loss in the upper limit of value due to physical wear and tear or obsolescence. Depreciation most frequently occurs with physical deterioration. The replacement cost new can also be diminished by functional and economic deficiencies as well. Physical depreciation is typically estimated based on a building’s observed effective age or net percentage good. Earlier I estimated the subject’s effective age at 40 years.

Marshall’s Cost Guide notes Academic Libraries have total economic lives of 50 years.

Different building types age at different rates, and do not necessarily experience straight line depreciation, whit each year of effective age carrying the same depreciation percentage. For the subject’s school building use, its 50-year economic life, and its estimated 40-year effective age, Marshall’s places the physical depreciation at 63%. As a check for reasonableness, I also consider actual depreciation rates of 1.71%/year, 2.07%/year, and 2.27%/year taken respectively from three relatively recent sales, the Mean Queen Building in Sitka, the Bill Ray Center in Juneau, and the Triplette Building (Juneau). These buildings are of similar era construction and effective age. The 63% suggested by Marshall’s is 2%/year of effective age and is supported by these market indicators.

The two other types of depreciation considered are functional obsolescence, due to built-in internal depreciation, or economic obsolescence, due to changing external forces in the marketplace that cause a loss in value. The subject is a special use building, the cost of which would not be supported by the market. This is functional depreciation, since at the time of construction the market value is less than the replacement cost new. The depreciation is built into the property. If market value were the same as, or more than the replacement cost new at the time of construction, but dropped due to changing market conditions, such as decreasing demand, this would be external or economic depreciation. Buyers of special use properties tend to renovate them to suit their own particular uses or tastes, often at considerable cost. Our market observations for the past several years indicate 15% to 50% discounts for functional depreciation. The subject is a very specialized property. It is however, in a good location in downtown Sitka and benefits from the immediate neighborhood’s tourist traffic and the historic appeal of the former Sheldon Jackson campus. With this in mind, the percentage of functional depreciation applied to the subject is ultimately placed at the mid to lower end of the range at 25%.

There is no market evidence that economic obsolescence is applicable in this instance.

It could be argued that some of the functional depreciation estimated above is actually associated with a decreased demand for a library in this market due to changes in technology and the closure of Sheldon Jackson College. Nonetheless, this would be difficult to prove, and the functional depreciation described above is felt to adequately cover the current difference in market value and cost in this case.

Table 4.3 summarizes the value per the Cost Approach 4.3 as follows:

Table 4.3 Cost Approach Summary

Buildings & Structure SF size Unit Cost Replacement Cost New (RCN)

Academic Library 11,930 $ 234.86 $2,801,878.65

Physical Depreciation 63% of RCN $1,765,183.55 Functional Depreciation 25% of RCN $980,657.53 Minus total depreciation $1,765,183.55

Depreciated value of improvements $1,036,695 Add estimated site value $750,000.00 Depreciated Value of Site Improvements $70,000.00

Total indicated value $1,856,695.10

Total indicated value Rounded $1,857,000

INCOME APPROACH

The Income Approach considers what value an investor would likely pay for a property based on its income. For most of its life, the subject has essentially been owner occupied, and not used to generate income. The City of Sitka briefly rented the structure while the Kettleson Memorial Library was renovated, however, that was a relatively brief and unique set of circumstances. Since the subject, for the most part, has not historically generated income and is currently not doing so, the Income Approach is considered inapplicable and is not developed.

4.4 SALES COMPARISON APPROACH

In this approach, sales of commercial properties are analyzed using the price per square foot of Gross Building Area (GBA) method. This involves dividing overall sale price by the total GBA of the sale. This has the effect of considering the value of both the improvements and the land. The sales utilized include five commercial building sales from the Sitka market from the last seven years. An emphasis was placed on sales in the downtown area as well as sales with comparable physical and functional depreciation.

The following is a summary of the comparable sales utilized:

TABLE 4.4 – COMPARABLE SALES TABLE

COMP # LOCATION DATE

GBA

(SF)

OVERALL

PRICE

OVERALL

PRICE/SF

SITE

SIZE

(SF)

USE

6(10264)

Seward

AVE

05/17 4,284 $650,000 151.73 17,499 Offices

7(8154)

Lincoln St 02/20 15,306 $1,200,000 $98.00 8,698

Retail, Restaurant

8(10812)

Siginaka Way

02/19 25,073 $1,300,000 $51.85 14,480 Offices

9(12221)

Halibut

Point Road

01/22 10,996 $904,913 $82.30 11,679 Offices &

Apartments

10(12184)

Moller Ave 04/22 56,822 $8,500,000 $145.19 144,000

Long-term care, clinic

Subject 11/23 11,930 Solve Solve 35,277 Library/Office

Comparable 6 is the 2017 sale of a smaller, downtown office/storage building which was rented at the time of sale. Its location is considered similar in appeal to the subject’s. It also has the same R2 zoning. Due to this sale’s smaller GBA size, it is considered overall superior on a price/SF basis.

Comparable 7 is the 2020 sale of mixed-use building with retail on the first floor and a restaurant on the second. It has a large atrium layout in the middle which contributes to its 72% building efficiency ratio. This layout contributes to this sale’s significant functional depreciation. It also had condition issues related to the heating system and skylights. Overall, it is similar on a price per SF basis due to its similar location and level of depreciation.

Comparable 8 is a sale from 2019 of larger office building with commercial zoning. At the time of sale only the first floor was rented. It appears to sold with significant economic depreciation due to change in demand or functional depreciation associated with a super adequate…