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Village Hill Northampton State Hospital Marketing StudyA. Overview of Project and Master Plan The purpose of this study is to provide a market feasibility analysis for approximately 116.7 acres of land located in the City of Northampton, MA. The land is the former Northampton State Hospital property which is proposed to be a mixed-use commercial, light industrial, and residential development, to be known as The Village at Hospital Hill (Hospital Hill). The location is in the south-central section of Northampton very close to the Easthampton town line. The infrastructure in place provides adequate highway access. The developable portion of the property is reported to be 95.4 acres, which is net of open space outside of the Planned Village overlay. The campus/complex is listed on the State and National Registers of Historic Places. Northampton State Hospital (NSH) was a public psychiatric hospital that opened in 1858, and operated until 1993. The property provided a campus setting that was largely self-sufficient, with kitchen and laundry facilities, bakery, maintenance and carpentry facilities, gardens and orchards, and amenities, such as stables, chapel, theater, beauty salon, and bowling alley. Occupancy peaked in the 1950's at about 2,000 patients. The closing of NSH was a result of a mandated de-institutionalization imposed on the State Department of Mental Health by the U.S. District Court. After its closure in 1993, the reuse process proceeded and certain buildings and land were approved for transfer to the City of Northampton, the Northampton Housing Authority, and, w the Department of Food and Agriculture. A process for the transfer of the remaining site and building improvements (116.7 acres' and 880,000 square feet of building space) to a private developer or developers was laid out by the MA Division of Capital Planning and Operations (DCPO), then the owner of the facility, and respects the existing conditions of the subject. (DCPO was renamed "DCAM", Division of Capital Asset Management in 1999.). In 1997 an Environmental Notification Form (ENF) was filed for the implementation of the transfer of the land and buildings. In response to a Request for Proposal, The Community Builders (TCB) was designated to lead the redevelopment team and prepared a Master Plan for the reuse of the property, to occur over a period of years. The Master Plan contemplates that redevelopment, including infrastructure improvements, will proceed concurrent with demand for space. Upfront development costs (remediation, utilities, selective demolition) will require use of public funding as available. MassDevelopment, which is structured to facilitate State support of redevelopment undertakings, has assumed responsibility for the site from DCAM. ' Throughout our analysis, we reference land area at 116.7 acres as per the Calthorpe Plan, the most recent site mapping made available to us. It is of note that the Secretary of Environmental Affairs' Certificate (11/30/01) references the subject site area at 124 acres and the Project Description of the Master Plan references a site area of 126 acres. Both references to site area can be found in the Draft Phase I Report (3/22/02). Page 2 In order to move the redevelopment out of the Manning process and into the funding and implementation stage, MassDevelopment and TCB in cooperation with the City and the Citizen's Advisory Committee (CAC), decided to move forward with a Phase I of the project, comprised of up to 109 dwelling units and up to 152,000 square feet of commercial space. The implementation of Phase I is expected to take several years and ultimately overlap with the "Full Build" Plan (overall Master Plan). The proposed project is divided into two phases, primarily for the purposes of environmental review. The Secretary (EOEA)'s Certificate established a Special Review Procedure for the project, which would allow Phase I, "to proceed following the filing, review, and acceptance of a Phase I Document, which would be tantamount to a Single EIR. The overall project, including the cumulative impacts of Phase I and subsequent phases, would then be reviewed in a Draft and Final EIR ,2 . This Special Review Procedure effectively allows the Project to move forward during the planning and environmental analysis of the Full Build. According to an Illustrative Site Plan prepared by Calthorpe Associates (Berkeley), dated 514199, the total developable acreage of Hospital Hill as proposed is approximately 95.4 acres, and approximately 49.2 acres are proposed for buildout. At this time, there are 37 buildings on the site, most of which are in dilapidated condition. The Project Description overview (taken from Phase I Report-3/22/02) estimates gross building area of approximately 880,000 square feet. In response to civic pressures, certain buildings are targeted for rehab/reuse within the Master Plan, however, most of the buildings are slated for demolition. The Master Plan for the NSH site contemplates an ultimate buildout of up to 476,000 square feet of mixed-use commercial space compromising a mix of retail, office, light industrial, and research and development/multi-media space as well as space for live-work studios, a child care center, a possible community center/museum area and the development of a 60-80 unit assisted living facility for seniors. The Master Plan also includes 207 residential un'its', 100 of which would be single-family homes and 107 of which would be mixed income rental housing. Fifty percent of the residential units will be designated as affordable. This market study assumes that the land or any rehabbed/reuse commercial space would be in market ready condition when delivered to the p_rpect user with workable utilities and corrLmunicatlons infrastructure in place and that there are no adverse oil or other environmental conditions affecting the site or building improvements 2 Certificate of the Secretary of Environmental Affairs Establishing a Special Review Procedure (11/30/01) 3 A portion of up to 27 of the residential units may be located on an isolated site approximately one mile west of the subject (main) site, the Ice Pond Site. The Phase I infrastructure plans take a conservative approach and consider that traffic and utility requirements on the main site will be able to accommodate 209 residential units in r, the event that the Ice Pond Site is not used. Page 3 Methodol This market study was undertaken by Crowley & Associates. The objective of the analysis is to provide the client with our opinion of the anticipated demand for commercial sites and improved space in view of underlying market conditions, as well as a prognostication of the future need for commercial space, that will be driven by the area's economic growth. The proposed commercial uses are defined as a mix of retail, office, light industrial, and research and development/multi-media space. The objective of this analysis is also to form a conclusion of whether it is economically feasible to rehab/reuse certain buildings on the site for a commercial or residential reuse. Potential reuses considered were residential'condominium and hotel/conference center. We have expanded the hotel/conference center prospect to test whether this type of use on the site would be economically feasible if developed new. All data included in this analysis has been fully verified. In the data collection process, the consultants have relied upon, verified and reviewed the periodicals published by County Comps, Bankers and Tradesman, local Multiple Listing Services, the Hampden, Franklin, and Hampshire County Registries of Deeds, regional municipal offices, and our office files. We have also reviewed publications compiled by the Pioneer Valley Planning Commission, and market publications prepared by area brokerage firms such as Colebrook and CB Commercial. Employment and population data was prepared using information from County Business Patterns (U.S. Department of Commerce), and the MA Division of Employment and Training. _ We have conducted interviews with representatives of the City of Northampton, as well as representatives of private and public development corporations, planning commissions, local and regional real estate brokers, and other informed sources. The following assumptions are incorporated in this analysis: 1. The site area has been accurately defined and developable area is net of land development constraints, such as wetland and conservation land, sloping topography, and any other constraints. The consultants emphasize that detailed plans, such as site maps, topography maps, wetland maps, or other surveys, have not been provided for our review. The site area referenced in this report is as per information provided by Calthorpe Associates, an architectural firm cooperating in the development. Information contained within the Northampton Assessor's office is reported to be inaccurate and non-updated. The property has historically been exempt from taxation. 2. The site will comply with all applicable environmental regulations, including Massachusetts General Laws - Chapter 21E. 3. All regulatory approvals will be secured that are required to undertake the project, including approvals from the MA Environmental Protection Agency (MEPA), and Department of Environmental Protection (DEP). Page 4 H. LOCATION, BACKGROUND, & SITE DESCRIPTION Page 5 The City of Northampton Market Area and Neighborhood T-hem-it3~c~f-Nor-thampton-is4ocated-m-4ampsrhir-e-C-eunty-in- e- s ter- R- M-as sachu.-setts-'he-QVy contains 35.62 square miles of land. Interstate 91, which has three interchanges in Northampton, networks the City northerly to southern Vermont, and southerly to major commercial regions of Springfield, MA and Hartford, CT. iBasse y ,,West B. According to the Census estimates for 2000, Northampton is the second largest community in Hampshire County and is listed as having a population of 28,978, which represents a 1.06 % decrease from the 1990 U.S. Census population of 29,289. The most recent population statistics from the 2000. U.S. Census for Northampton and the surrounding communities are in the following grid. Municipality Population 2000 Population 1990 Percent Change Northam t6n 28,978 29,289 -1.06% Amherst 34,874 35,228 -1.00% Easthampton 15,994 15,537 +2.94% Westhampton 1,468 1,327 +10.63% Hadley 4,793 4,231 +13.28% South Hadley 17,196 16,685 +3.06% Holyoke 39,838 43,704 -8.85% Hatfield 3,249 3,184 +2.04% Williamsburg 2,427 2,515 -3.50% Page 6 ~ Regional population, impacted most significantly by declining population in the City of Holyoke, indicates a decrease in population in whole numbers over the last ten years however, the more immediate Northampton area has indicated little change in overall population over the last decade. The five educational institutions in the greater area result in Northampton having a transient population, and a flat population growth rate. The per capita income in Northampton is average compared to surrounding communities. The chart below indicates the average annual salary for the employees of Northampton for the 15 year period from 1985- 1998. (There is no more recent compilation of the data by City than 1998). In addition the chart also provides a breakdown of the employment sectors. The information was compiled by the Massachusetts Division of Employment and Training. EMPLOYMENT Year Total Annual Avg Annual Establish- Agriculture Forestry Govern- Const- Manufac- ments _ Fishin i ment ruction taring TCPU Trade FIRE Services 198 $267,307,813 $15,775 _ _ 856 39 3,477 •510 2,527 441 3,706 448 5,794 1986 $289,262,594 $14 908 1 52, 3,426 521 2,140 413 4,227 625 6,083 1987 $322,926,594 $17,786 _ 941 60 3,493 624 2,131 447 4,318 686 6,386 1988 $350,290,500 $19,076 978 69 3;587, 44 .2,235 465 4,311 520 6,529 1989 $366,982,506 $20,008 976; 70 3,53 484 1,965 494 4468 562 6,764 1990 5 $20,729 989 77 3;455 417 1,982 533 4,200 549 6,817 1991 $382,132,932 $22,465 975 7111. III 76 3,446 319 1,917 468 3,862 492 6,430 1992 $367,300,460 $21,938 965 16,743 j _ - 69, 3,328 206 1,791 325 3,905 456 6,663 , 1993 $396,301,299 _$22,245 982 17,815 64 3;812' 218 j _ 1,744 306 _4,075 460 7,136 _ 1994 $420,133,928 $23,111 - 1,022] 18;179 65 3,671 242 1,740 302. 4,246 491 7,422 1995 $440,375,480 $24,146 1,048 18,238 _ 75' 3,686 265 1,6391 280 4,337 449 _ 7,507; 1996 $447,109,404 $24,994' 1,044 17,889 78 __3,633 287 1,457 23.9 4,365; 452 7,378 ~ 1997 $444,665;021 $25,660; 1,025 17,329, 93~ 3,071 - 291' 1,288 228 4,470 _ 1 4455551 7433 1998 $466,828,529 $26,743 1,042 17,456 _ 94 j 3,033 , 310, 1,347 260 4,434 471 7,507 1999• $478,131,703,1 $27,022 1,0831 17,694; 102 2,996' 308 1,339, 252 4,400 462; , 7,835; TCPU = Transportation, Communication and Public Utilities FIRE = Finance, Insurance and Real Estate The above chart indicates that the majority of the labor force (44 is employed in the service sector. Northampton has become a destination location that is known for its fine restaurants, entertainment and eclectic retail shops. The economy is supported by its many college students and is located within the five-college campus. The average annual salary has steadily increased over the past five year period but the total number of people that have been employed has remained relatively stable. This is partly due to the transient nature of the labor force, which is partially comprised of college students. Page 7 Recent trends indicate that Northampton's unemployment level is slightly lower than that _ indicated for L Springfield area suburbs, and the most recent data pxoy_ided~ the MA Dent. of Labor (March, 2002) reveals unemployment in the City of 2.5 This figure is lower than the March, 2002 Hampshire County unemployment rate of 3.0 % and the State rate of 4.8 The City has historically held unemployment rates below that of the local region and State, partly because of the employment generated by the number of colleges in the area, and also due to the relatively healthy economy that the regional market has enjoyed over the last decade. The major employer in Northampton is Smith College. Smith College is one of the five colleges located in the greater region (including the communities of Amherst and South Hadley), and area students provide solicitation for the Downtown business district's retail and restaurant trades. The lodging industry in the area has historically been stable as well, primarily as a result of the presence, of the colleges in the area. Market participants are reporting a softening in this market, particularly in the First Quarter, 2002, which is likely a result of some weakening in the economy, but the amount of new inventory of lodging properties in the market is also likely a contributing factor. Downtown Northampton has historically held a strong commercial presence. The Downtown area offers adequate parking and is very accessible to pedestrians. Investment in the real estate in Downtown Northampton has been steady over the recent years with renovations to the majority of the buildings along Main Street in the last five years. The popularity of the Downtown area has resulted in sale and rental values for properties in Downtown that generally exceed the greater Springfield market. The strength of the market has resulted in an outflow of commercial users beyond Main Street to side streets such as Center Street and Pleasant Street. The King Street corridor is also a prominent retail location, and typical properties located there include national franchise retail, restaurant, and automotive service uses. The improved properties are situated with good street visibility and the majority of the buildings are. modern (franchise) signature properties with on-site parking. There are some plans for expanded development on King Street and CVS will be the next market entrant, however, Home Depot is also investigating the prospect of locating a prototypical store in the location. This may impact the subject as the site targeted by Home Depot may result in a relocation of a light industrial/R&D firm to the NSH site. Based on historical growth, it is reasonable to project that there will continue to be growth along this corridor into the future. In general, economic conditions in the City of Northampton overall are expected to remain positive into the future. The potential redevelopment of the Northampton State Hospital site should provide an economic stimulus to the City and region in general. The residential sector is stable with average vacancy at less than 1 % historically and steady demand for housing both within Downtown and in the suburban areas. The City has always evidenced high demand for housing. Historically the number of artisans and academia, desiring to live in the City has been a demand factor, and there is also a stable commercial element that draws employment and subsequently residents. Page 8 Our research also reveals that there has been stimulated demand for condominiums in the " market, which, in our opinion, is partly a function of low interest rates over the last 12 months pa-rtly-a fnnetion-o-f-pemed-up-demand--V~%at-ev-er-t-he-stimulusr-ec-eat-co-ndeminit es activity has been at a pace that exceeds the historical average. In the future, we anticipated continued gradual growth in all market sectors, and overall stability relative to market conditions in the City of Northampton. Neighborhood The subject property is located on West Street, or State Highway Route 66, in the south-central section of the City of Northampton, 0.6 miles from Northampton's downtown center. The neighborhood is just north of the Northampton/ Easthampton town line. Route 66 extends easterly through the neighborhood from Easthampton and turns into Route 9 at its intersection with State Highway Routes 9 & 10 in Northampton center. Route 10 is an east-west roadway that runs parallel to Route 66 on its south side, through the neighborhood. The subject, former NSH site is the largest land user in the neighborhood. The other significant land user in the neighborhood is Smith College. Smith College has its main campus and housing throughout the neighborhood and the College's athletic fields abut the subject property to the south. The College's Equestrian facility is located across Route 66 from the subject. Page 9;Y"' 1 . a 4' The neighborhood is predominantly built out with residential uses, and there are a number of - smaller sued,~er~nda ~ommPr,al, sffyijc.e, audlight industrial uses dalong-Routes 66, and 10 in the neighborhood, including auto sales and servicers, oil and gas facilities, and others. The Department of Mental Health has offices in the Haskell Building, adjacent to the subject, and formerly a part of the larger NSH property. The subject site is proposed as The Village at Hospital Hill, a mixed-use development to network commercial, light industrial, and residential uses. The diversity of existing property uses in the neighborhood supports the development plans as proposed. The location offers average access and visibility. The subject location is not a "Class A" location, which is characterized by highway accessibility and visibility, immediate highway access, and modem appearance buildings with attractive. landscaping. However, the location benefits from the demand stimulated by the cultural and artisan community, centered in the Northampton area. We expect the subject to emerge as a market niche, to satisfy the space demands from the prominent cultural and artisan community. The property/location would also be very suitable as incubator and research and development space for area entrepreneurs and start-up businesses. Furthermore, there is little inventory of developable land in the modern light industrial and office parks in the market, and we believe that the subject will be marketable to conventional light industrial and office users. As stated, the location is 0.6 miles from Northampton center, and the market's recognition of Northampton center as a commercial district enhances the marketability of the property. -4ccess The highway access characteristics are average. Interstate-91 (north-south) is the regional interstate to the neighborhood, and the nearest I-91 interchange is two miles southeast of the property via Routes 5 and 10 (or Routes 5 and 9/66). The nearest MA Turnpike interchange to the neighborhood is approximately 14, miles to the south (via I-91) in West Springfield (13 miles from Northampton center). The access routes'from the I-91 interchange are congested with above average traffic counts and pedestrian activity. The site area is on both the north and south sides of West Street (Route 66), and there are two accesses. The southerly section of the site has access from Route 10 via Earl Street. At this time, accessing the site entails a sharp turn near a retaining wall built into the street and this detracts from utilizing Route 10 for truck access. However, a redesign of this area has been contemplated, including altering the roadway to create a straight road/direct access to the south section of the property from Route 10. The north (and central) sections of the site are accessed from a curb cut off of the north side of West Street, or Route 66. Earl Street and West Street have public water and sewer, however, the condition of the water/sewer on Earle Street is reportedly uncertain. Page 10 Mr. Wayne M. Feiden, A.I.C.P., the Northampton Planning Director, has confirmed that Route 66 is under construction at this time, from Main Street (Northampton) to Westhampton _ The construction will be in phases with the Phase 1 consisting of updating utilities and water and sewer, and the Phase 2 consisting of actual road construction and new sidewalks. The timing for the completion of the reconstruction was proposed to be this year, however, there is some uncertainty of the completion date at this time. The project is in Phase 1 at this time. Mr. Feiden also confirmed that the "difficult" turn on Earle Street is targeted for reconstruction, to create a direct access to the property from Route 10. Reportedly MassDevelopment has hired Vanasse & Associates for the design process, which is expected to be completed within one year. The actual construction will be a State project,Yhowever, due to the lengthy design and funding processes, the time frame is uncertain. Routes 10 and 66, are the main State highways through the location. The subject has good visibility from Route 66. As stated, the travel to the subject location from the Interstate is congested and slow. The location would be well suited to local tenants and solicitors, however, the location is clearly inferior to the modern (Class A) locations that have been the focus of the market's recent commercial development activity. Physical Site Description The gross land area of the subject site is reported (Calthorpe Associates) to be 116.7 acres, and the gross developable area is reported to be 95.4 acres. The gross developable area is net of areas of open space located outside of the zoning overlay, such as wetland and conservation land located at the north of the site near the southerly bank of the Mill River, and land located at the east of the site affected by sloping topography. We noted that the site dimensional information is slightly inconsistent between the Master Plan and the Calthorpe Associates plan, and we have relied upon the Calthorpe Associates plan in this Report. The preliminary redevelopment plan (TCB 7/28/99) proposed 48 % of the gross developable area for buildout (49.2 acres of the 95.4 acres) and we have maintained this assumption in this Report. This 49.2 acre delineation is explicitly subject to change. The developable portion of the site is generally oval shaped with the lengthiest side from north to south. West Street, which turns into Prince Street at the locus of the property, bisects the oval (and the site). The majority of the site area (73 acres) is on the north side of West/Prince Street with the balance (22.4 acres) located on the south side of Prince Street. S n• 11 i~ Page Details of the proposed buildout for the land will be provided in the following section ("III.. the Master Plan and a density factor in the range of 30 % for buildout, we have estimated that the breakdown of the 95.4 acres of developable land will be approximately 80.4 acres of potential land for commercial and light industrial development, and approximately 15 acres for residential development. The commercial land will be mostly contained on the north side of Prince Street (58 acres), plus another 22.4 acres on the south side of Prince Street, for total potential area for development for commercial and light industrial use space of 80.4 acres, rounded to 80 acres. Throughout this Report, we will assume that the subject provides approximately 80 acres of developable land for commercial and/or light industrial use buildout. The Hospital Hill Master Plan at Full Build incorporates commercial and residential development. The commercial development (capacity for approximately 476,000 square feet of mixed-use commercial space) will be located on both the north and south sides of Route 66, and there will be 207 residential units located on the north side of Route 66. A Phase I Development Program calls 152,000 square feet of commercial space (retail, office, mixed- use, light industrial) on the north and south sides of West Street, plus 109 residential units on the north side of West Street. The buildable acreage calculation is also subject to change. We note that according to the Full Build Master Plan, the density of the 49.2 acres dedicated to buildout is in the 30% range, making certain assumptions for building area associated with residential units. This is reasonable and consistent with our recommendations for the building coverage for the site. The preliminary plan call for 48 % of the gross developable area (or 46.2 A of 95.4 acres) to remain as "open space" Based on our experience with somewhat similar developments in the market, we recommend that the finalized plans maintain similar quantities of open space. Flood Plain The site area within the zoning overlay appears to be located in a Zone C flood plain, and some of the land area outside of the zoning overlay appears to be in Zone A7 and Zone B. Zone C is an area outside of the 500-year flood levels, and of least flood hazard. A Zone A7 is an area of 100-year flood; base elevations and flood hazard factors not determined, and a Zone B is an area between the limits of the 100-year flood and 500-year flood. The site is located on Flood Insurance Rate Map 250167-002A, dated April 3, 1978. Utilities Utilities available to the site include gas, electric, water, and sewer. As stated, Route 66 is in the process of reconstruction and new utilities are being installed. According to the Planning office, an evaluation of the condition of the water/sewer lines on Earl Street is also being undertaken at this time. The client has informed us that there are no workable utilities on the site at this time. page 12 This Market Study assumes the site is in market ready condition. Implicit in this assumption is that good condition workable utility and communications infrastructure will be installed in the _ subject property prior to its exposure to the market. This will assist in marketing the property to a broad range of potential users, including the technology and telecommunications sectors. Assessed Value and Tax Rate Information The subject has.historically been exempt property. The City of Northampton does not have accurate records respective to land area and building improvements and does not maintain an assessment of the property. Zoning We have researched the City Zoning By-Laws and interviewed Mr. Wayne M. Feiden, A.I.C.P., Planning Director for the City of Northampton. The subject land is zoned Planned Village Overlay District (PV). The zoning designation allows for most commercial, office, light industrial, tradesman, residential, and other miscellaneous uses, including civic. Most re- uses of existing buildings require site plan review/approval and site plan review/approval is also required of new developments (non-re-use). Business Planned Unit Developments (BPUDs) with mixed residential and commercial/light industrial uses are permitted via Special Permit, in accordance with specific stipulations for BPUDs. The zoning by-laws stipulate more liberal use requirements for the re-use of existing buildings with the intent to encourage retaining some of the historical buildings within the property. For example, the gross floor area of retail/restaurant use is allowed at 10% of the gross floor area of the building or complex of historical buildings being redeveloped. However, if the development was not a re-use, the floor area of retail/restaurant use allowed is limited to 5 % of the gross floor area of the building or complex. There is no maximum limit on the amount of space dedicated to residential use in buildings that are a re-use, however, there is a maximum limit on the amount of space dedicated to residential use relative to new development. A summary of the dimensional requirements set forth by zoning follows on the next page. We have included complete schedules of Use Regulations and Dimensional Controls in the Addenda. Page 13 M T R 1 n III. THE VILLAGE AT HOSPITAL HILL AS PROPOSED IN THE MASTER PLAN r Page 15%. _ -,cr,m;~.~ ~R~~1.m ~T•',c„`2°.,l't: ~c^ ,r„ct^mn~.-,:~r,~~v,~;~:n~°mi..,,.m;d;T.;r.1n'°,'n+.+^^;tS?;;lct::~•:~cm^?<<r.;;,;<;. _ ___.._....,._.~,..m-.,.m~_.,,~-,,.:,,,T>m,<.,,..-gym,-,-,~,.-.~-..:~•~,.-: c~~:,,;r:•,:,;,~:r,r.,:a,.T. ~s;~-,~,r.,c~-s:~rsr;c ,,gin: ,,..,,,,,;,;~.rm~ar:~~,.,~ r-..,..~., - - - - Dimensional requirements: Minimum lot size - Residential: Minimum lot size - Other/Mixed: Maximum height: Minimum lot depth - Residential: Minimum lot depth - Other: Minimum frontage - Residential: Minimum frontage - Other: Minimum front & side setback: Minimum rear yard setback: Percent building coverage: Floor area ratio (FAR): Open space (in percent): Landscaped Area (in percent): Screening, Buffers, Parking: 4,000 SF, plus 1,000 SF/Unit* 40,000 SF* 55 feet 80 feet 140 feet 75 feet 120 feet 0 feet, except 35 feet from collector streets and from the edge of the PV overlay 20 feet, except 35 feet from collector streets and from the edge of the PV overlay not applicable not applicable not applicable 40 except 30 % for building reuses Depending on use * Minimum lot size requirements are between 10-15 acres for new development (non-reuses) allowed via Special Permit. Page 14 We have summarized the main elements of the Master Plan for Hospital Hill as per an Illustrative Site Plan, prepared by Calthorpe Associates and MassDevelopment (3/19/02) _ presented in the Draft Phase I Report (3/22/02). The Master Plan envisions a Village Center that would be located at the intersection of Route 66 and the present entrance to the campus. The area of the site south of Route 66, known as the Memorial Complex, represents predominantly commercial uses including: office, research and development, light industrial, and retail. These uses are deemed most appropriate for this site based on their need for easy access. The developers contemplate buildout in response to market demand. Two of the buildings within the Memorial Complex (Building F/eastern-most building and Recreation Building/northern-most building) are being tested for the economic feasibility of a potential rehab/reuse. The area of the main campus just north of Route 66 will have a more mixed-use character. This part of the development will include new construction plus the rehabilitation of existing buildings, most for apartment use, and one building.(Male Attendant's ) is being tested for the economic feasibility of rehab/reuse as office space. As currently proposed there will also be approximately 45 newly constructed multifamily rental units (both market and affordable) approximately 20 single-family home lots, and an assisted living facility. Depending on market conditions and final assisted living design, it may be possible to create additional commercial space along Main Street. An Illustrative Site Plan revealing the proposed buildout scenario as per the Master Plan is inserted on the following page. The Plan includes a commercial buildout totaling 463,000 square feet, and a reuse of the existing Laundry Building (13,000 SF) to retail/ manufacturing, at the far north side of the site. The site area on the south side of Route 66 in the locus of the Memorial Complex is proposed .for a total of 321,000 square feet of. commercial and light industrial use space (prior to allocating for Laundry Building to be discussed). The space is broken into 195,000 square feet of office space (8 buildings), 44,000 square feet of mixed-use space (2 buildings), 11,000. square feet of retail (1 building), and 71,000 square feet of light industrial (5 buildings). At the far south end of the site., with frontage on Earl Street, there are two commercial buildings. One of the commercial buildings is slated for demolition (Power Plant) during Phase I, however, there was an offer from a market buyer for the former "Laundry Building", which reportedly has approximately 13,000 square feet of building'area. The buyer has proposed a furniture manufacturing/retail use for the building. No transfer details have been finalized, however, the client reports negotiations for a sale in the range of $60,000 to $70,000 for the building, and we are assuming that the seller would be responsible for any required site clean- up costs. The Laundry Building would not be retained in the event that Kollmorgen relocates to the south end of the site, the details of which follow. R 'R Page 16 MGM M-11 L"ddd p.-1 ~3r~ D a..n4At5F(&40 SQ n L-F-twoum.R rT41 ~,q • ■.Kwirwwop.5p. Illustrative Site Plan WE VILLAGE AT HOSPITAL HILL NorthamPt° Massachusetts , 2916mch7arl 000=31= ' TeDm-pw r. ~~xql NatlfrmPtat Camm®weaSfh aEMwathoesettn CaIthatpa Aeeodata MawDevdopment 1 The developer has provided a preliminary site plan for a 6.7 acre development at the south end of the site with frontage on Earl Street. The site plan illustrates a building footprint of 80,000 square feet, plus an allocation for 250 parking spaces. Reportedly, the City Planning Office has required a two-story building be constructed with window bands. The topography of the subdivided lot slopes upward to the rear (north) and reportedly, the_parking will on plateaus gradually stepped-up. The facility will have loading and dock facilities at the southwest corner, directly accessed from Earl Street. The business requires a 70 foot high tower for its manufacturing process, and the sloping topography will assist is diminishing the appearance of the tower's height from other vantage points on site. The developer feels that,there is a good probability that this development will proceed. The Illustrative Plan reveals a total of 142,000 square feet of commercial use space at the north side of Prince Street, in the location of the "Main Street" center, with 122,000 square feet of mixed-use space (5 buildings) and 20,000 square feet of office (Male Attendant's Building rehab), intermingled with residential uses. The "Old Main" complex is located at the far north and northeasterly edge of the land on the north side of Route 66. The central section of the complex is the oldest part and includes a porte cochere that has particular architectural significance, and the central section has been targeted for rehab/reuse. Arrowstreet, Inc. in their 3/15/02' Stabilization Report. Executive Summary, indicates that the Old Main complex is in, extremely poor condition",..., and the central, oldest part is in the worst condition. Arrowstreet projects a cost of stabilizing the building for the purposes of a potential future reuse to be $870,000. We have studied the economic feasibility of a rehab/reuse of the central section of the building in a later section of the Report. The Master Plan calls for a primarily residential development on the site in the locus of the existing Old Main complex, however, the developer's are also considering a hotel/conference center use for Old Main. Our opinion of the economic feasibility of a reuse of Old Main is discussed in Sections V. and VI. later in the report. The overall Master Plan incorporates proposed buildings for residential; office, mixed-use, and retail along a central "traditional Main Street", with.mixed-use potentially encompassing most community and conference type uses. The proposed light industrial use space will be located at- the south end of the site (fronting Earl Street), which in our opinion, is the most logical design, as the light industrial use will be separated from the rest of the development. As our analysis will point out, market absorption trends indicate that there is higher demand for light industrial space in the market than office space, and we recommend that the mix of space be reconsidered to speed the property absorption rate. Page 17 IV. MARKET ANALYSIS - COAEVIERCIAL DEVELOPMENT COMPONENT OF MASTER PLAN 0 Page 18 A. DEVELOPABLE LAND Study of Inventory, Absorption, and Pricing The subject market is defined as the three-county region making up the greater Springfield market. We clarify that this geographic area consists essentially of the Pioneer Valley region ("select cities in Hampden and Hampshire counties"), plus we have included the City of Greenfield and Town of Deerfield in Franklin County. This Pioneer Valley Planning Commission uses a statistical sample that. includes select cities in Hampden and Hampshire counties. Inventory Available Acreage in Regional Modern Industrial Parks Based on our research, there are approximately 667 -acres of industrial park land that are available for sale, most of which is actively being marketed. A summary of the available . acreage, identified by modern industrial park location, is provided. on the following page (TABLE 1) . TABLE 1 provides a summary of the land acreage absorbed (by year and location) and available (market ready) acreage. The table'includes a summary of the acres absorbed since 1997 (5.3 year time frame). 1 11: m a 0 N 10 N N V Q 80 60 40 20 0 1997 TABLE 1. --iF~E-Y-fi~1R~~OhP'-T~Oi'~A3~Tfl3~~L~V~L,L-E INDUSTRIAL PARKS - AND AVAILABLE ACRES AT (5/02) Location Agawam Regional 1997 16 5 1998 1999 2000 2001 @ 5/02 Total Avail Acre Agawam (Ma-Conn) . 0 9.24 17 3 28.71 2 75 3.68 0 0 0 58.13 8,28 (1) Agawam-Suffield St 0 . 1.77 . 0 0 0 0 S 0 0 5.92 0 AitparkNorth,Chicopee 8.1 0 7.12 0 Cr 0 1.77 1 12.08 Airpark Wes4Chicopee 0 17.62 0 2.703 0 8.71 5.22 29.033 11.97 7 6 Airpark East,Ludlow 1.5 1.5 0 0 0 0 . Westover Center, Chicopee 0 0 7.29 0 0 0 3 19.65 Chicopee-Old Ludlow Rd(NEU) 0 0 0 0 7.29 0 Chicopee River Business Park 0 0 0 0 0 0 0 0 13.8 Deerfield Industrial Park 0 0 0 0 0 0 0 175 (2) S Deerfield/Whately Industrial Park 0 0 17 0 0 0 0 0 Deerfield-Yankee Candle Way h u 0 0 .0 0 41.92 0 0 17 41.92 18 14 3 (3) East ampton Ind strial Park 1.59 2.36 0 0 0 0 3 95 . 11 61 East Longmeadow-Deer Park 0 0 0 0 0 0 . . East Longmeadow State Line 0 0 0 5 07 0 0 0 1.7 Greenfield Industrial Park 0 0 0 . 0 0 5.07 0 Hadley-University Park 0 0 0 0 14.71 0 0 0 14 71 28.4(4) 42 Hadley-Westgate Center Drive 0 0 3.25 0 0 0 . 3 25 0 Hatfield Industrial Park 0 0 0 0 0 0 . 0 Holyoke-Signature Place 0 •0 0 0 0 0 0 0 Holyoke-Whiting Farms(HEDIC) 0 0 0 0 0 0 Ludlow-Carmelinas Circle 0 0 0 2 9 0 0 0 0 28 Northampton Industrial Park 0 0 0 . 0 0 2.9 0 Palmer Industrial Park 2.7 0 0 0 0 0 0 7(5) Springfield-Carando Drive 0 0 0 0 0 2.7 2.7 Springfield Industrial Park 0 12.43 0 0 0 0 0 •0 5.25 Westfield-Summit Lock IP 129.4 0 0 0 0 0 12.43 0 Westfield-Servistar & Ampad 25.2 7.84 49.55 40.48 0 0 0 129.4 123 07 129.4 (6) West Springfield Industrial Park 0 0 0 0 . . 94.5 (7) Wilbraham Industrial Park 0 0 4.55 0 0 0 0 0 0 32 Totals 184.99 55.93 120.22 54.83 56.63 8.71 4.55 481.31 4 667.24 (1) There is another 13 acres available, but development potential is limited. (2) Brought on line in 1999. The first lot sale (6.7 A) pending sale at 5/02. (3) The street is a private way that was developed in 2001. Available land abuts Yankee Candle Way and fronts Greenfield Rd. (4) There is additional acreage available that is not market ready at this time. (5) Brought on line in 1999 via subdivisions of two improved parcels. (6) Avail acreage absorbed 1997, but not developed. Reportedly 55 A is in serious sale negotiations at this time, and there is interest in the balance of the land. Considered inventory at 5/02. (7) 36.5 A of avail acreage was absorbed in 1999, but never utilized and is available inventory. T"' Rh Page 2 0 I In addition to the 667 acres identified, there is another 1,039 acres of large tracts of - - -three--eount s~ a e supp y ut is not market ready at this y time, however, some of the land is being marketed. Adding the developable acreage at the subject (allocation for Commercial/light. industrial use), which was estimated at 80 acres, would adjust the total non- market ready acreage to 1,119 acres. Again, the developable acreage at the subject was calculated by assuming a density factor for the residential and commercial buildout in the 30 % range, then deducting an estimated land allocation for the proposed amount of residential buildout from the total developable acres e per the Calthorpe Associates plan (95.4 A). gas From .a practical standpoint, the timing of the subject development will likely lag the development of many of the'non-market ready sites identified. The majority of the competing, non-market-ready sites do not have environmental issues, which is significant because identification and remediation of environmental issues, including the reporting of such, is a time consuming process. Additionally, one of the larger non-market-ready tracts identified (Holyoke Crossroads) has already secured infrastructure development approvals from the MA Environmental Protec on Agency and Deepvartment of Environmental Protection. In an overview, the 1,039 (non-market ready) acres consists of the following. TABLE 2 INVENTORY OF INDUSTRIAL LAND NON-MARKET READY Additional Inventory - Non-Market Ready (5/02) Agawam . Agawam 92 Acres Frontage on Route 57 Agawam 13 Acres 198 Acres Agawam Regional Ind Park/Limited Development Potential Recent disposition of land f rom Hampden County E.Longmeadow 107.6 Acres WMDC Acquisition 2002/Adjacent to East Longmeadow Ind. Park Greenfield 55 Acres Greenfield Industrial Park Non-market Ready Holyoke Holyoke 80 Acres Holyoke Crossroads Development Park 17 Acres Abuts Holyoke Cross. Owned by City Economic Develop (FDIC) Springfield 85 Acres Off Roosevelt Avenue (Smith & Wesson) Westfield Westfield W f 125 Acres 216 Acres Ampad Rd & Servistar Industrial Way (Clark Sons Realty Trust) Owen District & East M est ield 50 Acres ountain Roads Excess Land at Caldor (former Di ital Pl g ant) Southampton Rd Total 1,038.60 Acres Non-Market Ready Page 21 An analysis of the available inventory indicates that the majority is not competitive with the subject. MnrP ti,-0ne, third of the-avaiiabie-inventory is ocate in Westfield. The City of Westfield has targeted warehouse and distribution users who can benefit from the City's good highway infrastructure with good access to both 1-91 and the Mass Pike, and a municipal airport with easy access to most of the industrially zoned land in the City. Over the last three to five years, Westfield has become an established light industrial location, partially as a function of the inventory of developable land, however, it is our opinion that the available land in Westfield is not directly competitive inventory to the subject. In addition to the amount of non-market ready land previously indicated, we also recognize that the City of Westfield owns approximately 300 acres of land adjacent to Bames Municipal Airport, that we believe will.eventually be used for industrial development, however, at the present time, the City has not determined a plan for the land. The data reveals that the largest inventory of available land is within the City of Westfield, and as noted, we do not believe this is competitive inventory to the subject. Recognition of this effectively reduces the' quantity of competing inventory by more than one-third. In fact, there are locational and utility (including zoning, topography, and others) constraints associated with much of the land identified as available inventory at this time. For example, 45 of the 125 acres in Westfield owned by the Clark Sons Realty Trust, is bisected by a WMECO transmission line. The 216 acres of land located on Owen District Road in Westfield has. sloping topography, is encumbered by. two water line easements, has a brook on site, and is partially located in an Acquifer Protection zone. One of the locations contributing a significant inventory of available land (83 A total market ready and non-market ready) is the Greenfield Industrial Park. The Greenfield area is a unique market sector outside of the greater Springfield region as well as the Hampshire County area, and a potential tenant or tenants interested in the subject market area will likely not be interested in a Greenfield location. In an effort to identify the most directly competitive sites to the subject, we have further analyzed the inventory of land presented to isolate the most directly competing properties- to the subject, and the data is presented on the next page. M'V=~ Page 2 2 - i hwav xcess- --fib i t Av ; abi it Subject 2 Miles No UmverIityParkHard -Hampshire County. Current tenants 5 Miles No 42.0 Acres communications/technology businesses. Park marketed to technology-oriented tenants for synergy with UMass. Easthampton Indu_ *l park -Hampshire County. Secondary 4 Miles No 11 .61 Acres park identity tenanted with local businesses only. Primarily light industrial. NortbaTnpton Industrial park 0.5 Miles -Hampshire County. Tenant mix Yes 7 Acres includes local and region and national based businesses. Target market is transit/distribution users. Park covenants recently amended to allow office use. Location on high profile commercial corridor and lot pricing reflects commercial traffic. S DeerFeld/Whately I d trial Park -Hampshire County. Newer park 0.5 Miles No 18 Acres with first lot developed in 1996. 1999 transfer of 16.9 acres to Comm. Of MA for land preservation. Pending sale of 3.1 acres proposed for 13,000 SF office/distribution building (Western MA Regional Libraries). Target market is transit/distribution users. Good presence of national based tenants in Deerfield industrial market. Total 79.61 Page 23 Of the total market ready inventory identified, in our opinion about 80 acres ~a - u~~~-c:nn~ge~~on to me suoject. It is of note that there has been only one lot transfer within the five properties identified in the last three years (TABLE 1), and the market for developable parcels in Hampshire County, has, for the most part been irregular. It is of further note that the inventory'identifed is "modern/garden industrial park" sites (80 A), which may or may not be preferred to the "mixed-use village concept" proposed for the subject property. The parks identified have distinct markets. The Hadley University Park is marketed to technology and office users for an intended synergy with the University of MA. The South Deerfield/Whately park is targeting light industrial/distribution users, and the Northampton Industrial Park is marketed primarily to light manufacturing and light industrial tenants The market for the Easthampton Industrial Park is primarily limited to local based service, light industrial, and office use It is our opinion that the subject's target market will be much more diverse to include local and regional based companies engaged in light industrial, service, office, research and development and other areas. While the subject is much larger than the competing properties, we believe its more diverse market will result in an absorption rate that is likely superior to that achieved in the, industrial parks in Hampshire County over the recent five years. h;= c1 While we noted that the demand for land in Hampshire County has been "irregular" over the last five years, we believe it is important to recognize the success of the Carlon Drive subdivision located off of King Street. This is a commercially zoned subdivision located off of a high profile commercial corridor on. the perimeter of downtown Northampton, and its success was directly tied to the commercial location. The subdivision consists of 13.9 acres (4 lots), which achieved total sellout over three years with pricing at the absolute high end of the regional area market. The absorption of the Carlon Drive subdivision was by retail, service, and office users that benefited from a location on the perimeter of downtown, and we are not attempting to correlate a projected absorption rate for the subject from this data. The data is presented for background purposes only. We have concluded that the Hampshire County area presents the most directly competitive inventory to the subject. However, we also believe the proposed Holyoke Crossroads will provide significant competition for tenants due to a similar planned target market. Holyoke Crossroads will be target marketing research and development, and communications/internet firms, and related, and it is our opinion that this business/industrial park will pose significant competition to the subject. Holyoke Crossroads has very good access and visibility. attributes, superior to the subject. However, the subject possesses a niche in its Northampton'location, as discussed, which should provide competitive advantages in attracting certain types of tenants. Page 2 4 Holyoke Crossroads Development Park Holyoke VA The Proposed Holyoke Crossroads Development Park (HCDP) will encompass approximately 80 developable acres. An adjacent parcel containing 17 acres is owned by Holyoke Economic Development Industrial Corporation (HEDIC). The location has direct access and visibility to Interstate 91 and there is approximately 1.5 million square feet of modem office and light industrial buildout contained in three modern industrial parks within the immediate neighborhood. The proposed HCDP is a six lot subdivision consisting of a combination of light industrial/office space and dedicated office space comprising approximately 492,000 square feet of gross building area. The majority of the buildout will be centered in light industrial/manufacturing use space with ancillary office, and the amount of dedicated office will be in the 60,000-100,000 square foot range. Zoning by-laws and deed restrictions encumbering the property require that the light industrial use space be used in a capacity other than warehouse/distribution, and warehouse use is allowed only ancillary to manufacturing use. The developers have secured State infrastructure funding and plan to break ground in 1999. Another modem industrial park that will compete for R&D, communications, and similar types of office and hybrid office/R&D tenants with the subject is the Chicopee River Business Park (CRBP) that came on line in 1999. Chicopee River Business Park Chicopee 64 The Chicopee River Business Park (CRBP) is a 175 acre site that is being marketed to research and development, manufacturing and office users involved in telecommunications and technology businesses. The location has direct access and visibility from I-291, a connector to I-91 and the Mass Turnpike and the locational attributes are very positive. The proposed buildout is approximately 700,000-735,000 square feet, which will include 190,000 square feet of dedicated office at a minimum according to initial plans. The developers envision a campus type setting. The CRBP is a MA Economic Target Area (ETA) qualified project and potential tenants of the park will have the ability to apply for favorable financing via tax exempt bonding (manufacturing only), less rigid collateral or debt service requirements, and/or interest rate concessions, from MA Development and Finance Authority (MDFA). This serves as a competitive advantage for the CRBP. The CRBP reportedly has seen good market interest, but has accomplished only one lot sale to date (pending at 6/1/02). The buyer is a local investor who will build-to-suit and lease-back an office/light industrial building for a laser manufacturing business currently headquartered in Sturbridge. The company will receive municipal tax incentives for the relocation. The lot size is 6.7 acres and will be improved with a 63,000 square foot office/light industrial use (a portion of the SF will be mezzanine space). The buildout will contain approximately 40% office. The lot was priced on the basis of the building area of the footprint, and a representative of the seller indicated a price in the range of $6-8 per square foot (per acre price l estimated at $55,000-60,0001A). Page 2 5 The fact that the CRBP has only accomplished one lot sale over a two year n at the CRBP is AFT' fairly liberal, and the fact that the project is ETA qualified is a financial benefit to prospective tenants. On the other hand, as emphasized throughout the report, the Northampton market has proven to be a niche market for incubator businesses, artisans, and some light industrial firms and we believe that the subject's Northampton address will likely assist in the marketing effort. Absorption In order to formulate a projection for future land absorption, we have looked to the historical patterns evidenced in the market (TABLE 1). In forming conclusions from the data we have broken out the 129.4 acre lot transfer from the Summit Lock Industrial Park (SLIP) in 1997. The land was intended to be developed with an 850,000 square foot distribution building for Toys R' Us, however, the development never occurred. The lot size and proposed building were not typical to the market and, including the lot sale in the data tends to distort the average absorption rate indication. Two other large transactions, that do not typify typical market activity, occurred between 1994-1995 (Hatfield Industrial Park and SLIP) and these lot transfers are excluded from the total land absorption for the 10 year period from 1992-2001. Market Absorption (1) Period Years Acreage (1) Net of three transfers totaling 378 acres (1994, 1995, 1997), which are believed to distort average annual absorption rate calculations indicated by more typical sized lot sales. 1992-5/2002 1997-5/2002 1999-5/2002 10.3 Years 5.3 Years 3.3 Years 570.6 A 351.91 A 240.39 A Acres/Year (Average) 55.34 A ' . 66.40 A 72.85 A Our firm has been tracking market absorption since 1989. It is very interesting that market absorption trends since 1992, of 55-73 acres/year, reflects a fairly tight range of average per year absorption, that brackets the average rate of absorption over the 13 year period from 1989-2001, at 57 acres per year. There was a period between 1994-1998 when the market revealed higher average annual absorption rates, in the range of 73-81 acres per year. We Attribute the increased activity in those years to advanced market reception to the Agawam Regional Industrial Park (ARIP) brought on with extension of Route 57 to that Park, and two above average sized lot transfers in Airpark-North and Airpark-West. Overall, we believe that the last five to ten years is the best benchmark for projecting future land absorption and based on historical data, we have projected a future land absorption rate for the Pioneer Valley market area into the future, in the range of 55-73 acres per year. Page 2 6 From a regional standpoint, recent absorption trends indicate that the competitive (market- ready) inventory of 667 acres is not a large supply to be absorbed. Rep6rted1355 acres o -the 129.4 acres of land in the Summit Lock Industrial Park is very close to coming under agreement for sale and another tenant is interested in the remaining 74.4 acres. The sellout of the SLIP would reduce the amount of available inventory by 19 % to 534 acres. The amount of inventory of modern industrial park sites for development is not sufficient to meet future market demand assuming continued absorption rates into the future that are equal - to historical averages. The non-market-ready sites identified are added supply, but "as is" are adaptable to single lot users due to lack of infrastructure to demise the land into smaller lots. Estimated Land.4bsorption for Hospital Hill To meet future market demand, we estimate that the non-market ready sites will gradually be developed and brought on line. This occurred in 1998 when a 17.62 acre section of non- market ready land located in Westover Airpark-West (Chicopee) was developed for a distribution user. Another non-market ready site was brought on line in 1999 when 16.15 acres (two lots) of residentially zoned land were assembled and converted to industrial land for a natural gas storage facility for Berkshire Gas Co. in Whately, and in 2001 with the development of a private way, Yankee Candle Way in South Deerfield, to accommodate a distribution and office use (41.92 A). On a larger scale, the CRBP came on line in 1999, injecting market ready inventory of 175 developable acres, all speculative land development. In projecting a rate of absorption for the subject, we think it is reasonable to assume that the overall market continues to achieve historical levels of absorption, and that a portion of the land absorbed will be attributed to the subject property. Considering the strength of the Northampton area market, and the lack of land for development within the City in general, as well as the relatively small inventory of sites that we feel are directly competitive with the subject, we estimate that the subject property should be able to capture between 10 % and 15 % of the annual land absorption evidenced in the region over the last three to ten years (55-73 acres). This results in an absorption projection for the subject in the range of 6 acres to 11 acres per year, which we have rounded to 8 acres per year. Conclusion of Projected Absorption of Land/Year at Hospital Hill: 8 Acres/Year Assuming that there is 80 acres of land available for the development of commercial and light industrial use space, the data indicates a projected sellout or absorption period of 10 years (80 acres/8 acres per year). Conclusion of Projected Sellout of Hospital Hill on the Basis of Land Absorption: 10 Year Page 2 7 Our absorption projection recognizes that there will be added competition posed by currently vacant u gs in the market, which Will be addressed in e aa4ysis o commerce space absorption. Our absorption projection explicitly assumes that the land will be marketable for commercial and light industrial use and we have not considered the proposed mix of buildout as per the Master Plan. Pricing We have projected the pricing for the subject on the basis of average per acre lot prices indicated by the most similar sales from the market area. Because we have not considered the potential mix of the space (office and mixed-use versus light industrial), we have not looked to pricing on the basis of square feet of building area developed, which is sometimes the basis of land pricing for office space. The grid on the next page provides a summary of a sampling of market land sales that were subsequently improved with office or light industrial use developments. In our opinion the data presents a reasonable comparison to the subject land. Both regional industrial park sites and non-park sites are represented. The office development activity from Route 9 (and Westgate Center Drive) is intentionally excluded.. The commercial locations have high value and per acre prices reflected by the developments averaged, $150,000, which is beyond a reasonable expectation of land value for the subject. There has not been recent sale activity in the Easthampton Industrial Park which has held asking prices in the range of $40,000 to $50,000_per acre for the last two to three years. The market sale data used to form a per acre price estimate for the subject follows. Page 2 8 University Park Hadley Whately/South Deerfield Agawam Regional Industrial Park Westover Center Chicopee Airpark North & Airpark-West Chicopee 880 Burnett Road Chicopee Chicopee River Business Park East Street Chicopee Avg Prices Last 5 Years Asking Price Remarks $69,3361A $IO/SF One lot sale in 2001 (14.711 A). Developable Only other lot sale was in 1995 Building Area . Reconciles to range: $60,000-70,000/A. $40,000455,0001A $55,000/A Two lot sales in last six years. First sale in 1996 was at a discount ($40;000/A) because infrastructure was not completed. Second transfer was to Comm of MA for land preservation. Currently 3.1 acres under agreement at a price in range indicated. $50,000460,0001A $55,0001A Managed and marketed by area development corporation. Avg lot sizes 4.4-10.9 acres. All developed with light industrial uses. $55,000/A $55,000460,0001A $44,000 N/A $59,500-$67,500/A (1) N/A Park is sold out. First lot sale 1995. Absorption of 16.6 developable acres required 4 years. Managed and marketed by area development corporation. Majority of lots developed with light industrial uses. Industrial zoned land (30.69 A) that was subdivided by the buyer into a frontage lot for Industrial/distribution use, and a rear lot with limited utility. Sold in 2000. $55,000-60,0001A $70,000-$75,000/A First lot sale (pending)-6.7 acre lot to be improved with 63,000 SF building. Pricing is based 'on SF of footprint, and sale price will reportedly be in the range of $6-81SF. Asking prices are $8- $12/SF). Target market is office, R&D, high tech. (1) 1998 sale of 17.6 acre parcel indicated effective sale price of $77,023, above the average Airpark-West pricing. Page 2 9 In terms of the immediate Northampton area market we note that there has been some recent development activity, and the subdivision and sellout of the Carlon Drive (Business zoned) lots was previously discussed. The pricing in this neighborhood was as high as $340,000 per acre, which reflects the commercial identity of the location and the sale, data has virtually no relevance to estimated pricing for the lots at the subject. Other activity in the Northampton market, such as the asking price at the Northampton Industrial Park ($175,000/A) and some recent sale activity on Atwood Drive, immediately off of the I-91 interchange is also not relevant. Like Carlon Drive, Industrial Drive in Northampton benefits from the commercial influences of King Street, and the lot pricing reflects the very good utility of the available land to adapt to commercial uses, in addition to light industrial. There were two lot transfers on Atwood Drive between 1999 and 2000. The land is zoned Business and transferred for assemblage with other land on the street owned by an affiliate. The pricing was over $300,000 per acre, which was a function of the buyer's motivations to achieve an assemblage of land on the street that comprised all but one corner piece. Estimated Pricing for the Subject The data presented in the grid is considered the most relevant indication of market pricing for land like the subject provides. The data points to a (rounded) range of per acre pricing from $40,000 to $70,000 per acre The subject has the advantage of a "Northampton" location and there is little supply of available land in the Northampton market which will support a premium in pricing for the subject land. The access is inferior to the other parks outlined, however, assuming that open area allowances similar to that in the preliminary plans are maintained, we foresee a garden park setting, that will be attractive and have good overall marketability. We have projected land pricing at the upper end of the range indicated by the regional industrial parks (excepting the Northampton Industrial Park) for estimated land pricing in the range of $60,000-70,000 per acre. The Master Plan contemplates a total of 16 buildings on the land area on the south side of Prince Street (locus of Memorial complex). Considering that there is a total site are of 22.4 acres, the site area dedicated to each building would reasonably be in the range of 1-1.5 acres per building, however, the eventually configuration of the land has been indicated to be subject to change, and the possibilities for a potential assemblage of land are numerous. Our projected pricing considers a wide range of lot sizes, from one acre, up to 6-7 acres, with an average in the range of 3 acres. erc~ y~t~4 Page 3 0 TABT Fa Springfield Regional Industrial Park - Occupancy By Park (inlay, 2002) Location Gross Building Area Gross Building Area Percentage Vacancy Developed (Square Ft) Occupied (Square Ft) E*ting Buildings Agawam Regional 1,418,807 1 409 I Mass-Coin, Agawam 34,150 , , 150 150 'S 34 0.69% ' Suffield St, Agawam 45,200 , 200 48 Q .00% Airpark North, Chicopee 730,530 ' 730 530 0.00% Airpark West, Chicopee 1,939,921 , 1 833 901 0.00% i Airpark East; Ludlow 350,089 , 1 350 089 5.47% Westover Center, Chicopee 127,311 , 127 311 { 0.00% ' Servistar&Ampad.Rd, Westfiel 928,390 , 32$ 320 0.00% Summit LooklP, Westfield 336,128 ' 33 0.00% University Park, Hadley 140,570 8570 138 570 Q.00% Westgate Center, Hadley 80,800 , 80 800. 1.42% j Signature Place, Holyoke 421,605 , 399 465 0.00% Whitney Ave, Holyoke I-91, West Springfield 451,435 , 423,995 5.25% % East Longmeadow Ind. Park 524,631 3 284 084 518 ,631 L-14 1:14% Deer Parks East Longmeadow , , 97 500 3,07 6.47% State Line, East Longmeadow , 60,050 ,500 97,500 60 050 0.00% } Northampton Industrial Park 358,596 , 358 596 0..00% Hatfield Tndustilal Park 508,639 , - 508 639 .0 0 Deerfield Industrial, Park D 442,865 • 44Z, 865 0 0% .00 S eerfield/WhatelyIndustrial - 107,000 . 107 000 % 0.00% Deerfield Yankee Candle Way 331,580 , 331 580 - 0.00% Easthampton Industrial Park 96 743 , 0 0.00 /o Grdenfield Industrial Park , 284 295 96,743 0.00% j Palmer Industrial Park , • 432 203 284,295 0.00% Carmelmas Circle, Ludlow , 108,360 432,203 108 360 0.00% Wilbraham Industrial Park 29 750 , 0.00% Carando Drive, Springfield , 210 438 29,750 0.00% Springfield Industrial Park , • 2,409,857 210,438 2 273 357 0.00% , , 5,66% Totals 16,291;527 15,769,262 a 3.21 /o i The Master Plan contemplates a total of six mixed-use and office buildings on the north side of Prince Street, intermingled among 207 residential housing units. Making certain assumptions for the size of the residential units, and density of buildings to land area, we estimate that the buildings on the north side of Prince Street will have- a similar land allocation of approximately. 1-1.5 acres per building, however, these allocations are subject.to change and there are clearly many different possibilities for buildout. our estimated pricing assumes that the average lot size would be between 1.5 and 3 acres per lot. If a large parcel (say, 10 acres or more) is conveyed, it is likely that the per acre pricing would be far less than $60,000 to $70,000 per acre. When large lots are conveyed, there is usually some portion that has irregular topography.or other constraints, and the pricing would be adjusted to an effective price based on the usable area. The client has reportedly offered a 6.7 acre parcel at the far south end of the Memorial complex site to Kollmorgen at a price of $60,000 per acre. The land is affected by sloping topography and the costs associated with remedying topographical issues may be at the expense of the seller, reducing the effective price. These types of issues have not been negotiated: We believe that there are a number of influences affecting land value of the parcel (6.7 acres) proposed for KoRnorgen. The exact pricing of the land will depend on the size of the site and the type of building and site improvements to be developed. However, as a general estimate, we believe pricing in the range of $50,000460,000 per acre is reasonable, depending on the extent of added costs to the developer associated with the topography. Overall, considering. the Master Plan as presented and market data available, per acre pricing for.the larger main site, considering average lot sizes between one and 6-7 acres (rounded 3 acres per site), is estimated to be in the range of $60,000-$70,000. Conclusion of Pricing for Standard Developable Acre at Hospital Hill: $60,000-470,0001A We have not distinguished between pricing for land targeted for light industrial use, and for commercial. (office or mixed-use) use, however, as we will conclude, it is our opinion that market interest will be greater relative to light industrial use prospects. Data extracted from the: market, in general points to higher pricing for land developed by office use than land -.developed by industrial.use. 'The increased value is supportable due to the fact that office space is capable of higher per square foot rents-and overall (sale) value. In general, it is reasonable to assume that land to be improved by office should be capable of achieving higher per. acre pricing than land to be improved by industrial or light industrial. Our per acre value estimate assumes that the land is in market ready condition, with utilities in place and essentially level topography, and that there will be no extraordinary development costs to the potential buyer. - In -4 B. COMMERCIAL AND LIGHT INDUSTRY T SPA F 1. Modern Industrial Parks, Suburban Market & Springfield CBD- Study of Inventory, Absorption & Vacancy, and Market Pricing Inventory The "market" consists of approximately 16.3 million square feet of light industrial and office space contained within 28 modern industrial parks. There is additional inventory of approximately 1.2 million square feet of Class A office space in the market area to include the Springfield CBD (1,000,000 SF), Westfield CBD (86,000 SF), and space off of Route 9 in Amherst and Hadley (130,000 SF). While the "greater Springfield region" is defined as the "market", we note that the City of Northampton is a micro-market with a distinct identity. As stated in the neighborhood analysis, there is approximately 500,000 square feet of modern light industrial and office space within the City of Northampton. While the market reveals ongoing rehab and reinvestment in existing commercial inventory, there has been limited growth of office and/or light industrial use space in the market over the last five years, which we expect is largely due to a lack of developable land. In analyzing the inventory of office and light industrial use space that will compete with the subject as proposed, we have first looked to the vacancy levels in the regional industrial parks. These locations present an inventory of modem light industrial and office use properties that have similar amenities to the subject as proposed, with adequate utility and communications infrastructure, parking, and other amenities. The majority of the industrial park locations identified have superior highway access to the subject. We have also identified certain speculative Class A office projects recently added to the market in order to present absorption (and stabilized occupancy) trends for speculative Class A space in the market area. After analysis of vacancy trends in regional industrial park locations and speculative Class A properties, we will look to the more immediate market area for an indication of vacancy and market demand indicated in the Northampton City market. We will also identify certain "Reuse Properties" in the market area that consist of former mill, manufacturing, or institutional use buildings that have been converted to commercial and/or mixed-use space. Based on our research, there is inventory of approximately 16.3 million square feet of modern office and light industrial uses in modern industrial parks in the region, and overall vacancy is currently 3.2 % (TABLE 3 facing page). The current vacancy level of 3.2 % is within the range of market vacancy evidenced by our surveys over the last 10 years, from 2-4%. The stable occupancy rates are a result of the large amount of owner-occupied space and the fact that there has been virtually no speculative development in the light industrial sector, which comprises 97 % of the building area presented. Vacancies that exist are typically the result of business closings or relocations out of the area. Page 3 2 - - ----Th-e--lmi-d-mm--abso'b-ed- over-they 3-y-ears-getweeir1997--2002-tc-date,--plus-soiree-reuse-ef - - parcels that were originally absorbed but never developed, and some expansion on existing sites, has resulted in new construction of approximately 1,988,545 square feet of office and industrial space. The majority of the locations which witnessed growth are the industrial parks identified in TABLE 1, plus sites in Westfield and West Springfield, and two sites alongRoute 9 in Hadley. The introduction of new market projects indicates a substantial slowdown compared to the five years between 1993-1998. During this period new development totaled 2,943,328 square feet, or nearly 950,000 square feet of increased development compared to the most recent five year period. Note that 783,664 square feet of the growth 128 SF and)44between. 1993-4998 7 536 SF) in the Summit Lock two above average sized distribution uses (336, Industrial Park in Westfield, and the Hatfield Industrial Park. This compares to the largest project in the regional market between 1997-2001, which was a 256,000 square foot distribution use on a privately developed street in Deerfield (2001). There are a number of projects in the planning stage and a development which is underway in the CRBP, which will increase the amount of new the emoaprmtnar in the donext year, however, wn compared to priorer the five years ending at 5/02, new development in h five year periods of comparison. Proposed projects expected to materialize in the next year include the following: -New distribution facility (up to 400,000 SF) for Springfield Food Corp. in the Summit Lock Industrial Park -New light industrial/R&D facility for Kollmorgen (Northampton) with approximately 160,000 SF -New 13,000 SF office/distribution facility for Western MA Regional Libraries in Whately/South Deerfield Industrial Park The project that is underway in the CRBP in Chicopee consists of a 63,000 SF light industrial/R&D facility for Convergent Prima that is expected to be completed in 1/03. With the exception of the existing facility being used by Springfield Foods (200,000 SF, older condition, Springfield location), the other projects will not result in a vacancy from a relocation situation and therefore, there will not be added market vacancy as a result of three of the four projects. Springfield Food Corp. is reportedly negotiating for 55 acres of the currently available 129.4 acres in the SLIP, and there are reports that there is another interested distribution user who may develop another 350,000 square feet on the balance of the land. This prospective tenant has not been confirmed, and we assume that this information is very preliminary. Page 33 Any new growth that comes on line in the market area would improve the amount of market - r-ovvx -he_lar- e distribution-p-r-ojects,such as-the_wamhouses-constmcted-in the-Summit-_-___.- Lock Industrial Park and Hatfield Industrial Park between 1994 and 1995, tend to have a substantial influence on the overall inventory and measures of growth in a market the size of the Pioneer Valley regional area. It is of note that the total growth calculated (1,988,545 SF) does not include new medical office space added to the market since 1997. Our research indicates that there was development of approximately 120,000 square feet of good condition medical office space in the regional market between 1997-2001, plus another 218,000 square feet of office and ambulatory services use space developed by Baystate Medical Center in 1998-1999. The medical office market is a distinct market and is not included in the regional statistics for new development and vacancy. A summary of the new development of office and light industrial use space from the regional market area is outlined on the next page (TABLE 4). ,11cti,,, Page 3 4 TABLE 4 - ew ce & Liglit in ustna eve opment Activity Last Fiv Yee s (1997-5/2002) - Pioneer Valley Market Area Agawam Regional Industrial Park Agawam Mass Conn Agawam-Suffield Street Amherst - University Drive Airpark West-Chicopee Airpark North-Chicopee Airpark East-Ludlow Chicopee - 880 Burnett Road Chicopee - Chicopee Street Chicopee - Westover Center Drive Deerfield - Yankee Candle Way East Longmeadow-State Line Hadley - 232-234 Russell Street Hadley - 380 Russell Street Hadley - University Park r, Hadley - Westgate Center Drive Holyoke - 40 Bobala Road Holyoke Bobala Road (Lot 5) Holyoke Whitney Avenue Springfield - Brookdale Drive Westfield - Servistar &Ampad Westfield - 94 Elm Street West Springfield -103 Myron Street West Springfield Industrial Park 11111~ Office SF Vacant Industrial SF Vacant 214,956 22,550 10,000 50,000 50,000 40,000 75,580 13,275 12,000 12,000 62,676 11,000 85,570 18,000 12,000 - 6,040 32,200 16,100 86,000 86,000 28,000 28;000 16,200 531,501 209,140 39.35% 293,835 120,000 27,500 87,052 45,511 256,000 45,350 119,000 215,290 1,457,044 1,988,545 Page 3 5 Two projects, the 190,000 square foot built-to-suit distribution use constructed in Airpark west in-199.8, andhe 331~SSOquare_feet_buiat=to=sui# far_Yankee Candle IncTin Deer_fielin--- . . 2001 absorbed 26 % of the new inventory brought on line. In fact, all of the new industrial development brought on line was built-to-suit or for owner-occupants, which is consistent with market trends historically. The industrial sector in the region has witnessed virtually no speculative development over the last decade. Other than the two projects noted, the growth in the industrial market was centered in the ARID (Agawam), and in modern park locations in Chicopee and Westfield. In general, the locations that experienced growth reflect those that had the abundance of available land. Absorption & Vacancy Average annual buildout absorbed by office and light industrial use is broken out below. Market Absorption (Industrial Sector) Period 1997-512002 Years LJ-Y-ear~ Total SF 194579044 SF SF/Year (Avg) 274,914 SF/Yr Expanding the period of study to the 8.3 years from 1994-5/02 reveals an average rate of absorption of 387,347 square feet per year. Excluded from the 8.3 year study are the above average sized distribution uses developed in Hatfield and Westfield as discussed, because these very large projects tend to decrease the meaningfulness of the data as an indicator of typical market activity. We noted that new growth has slowed in the recent five years. We attribute this partly to overall economic conditions which began a slowdown in 2001, and also to the fact that the market indicated aggressive growth in the mid-1990s that may or may not be able to be maintained into the future. The regional market has not achieved good success in attracting new market entrants and much of the market growth in the mid-1990s reflected expansions and/or relocations by existing area businesses. It is our opinion that the overall size of the market tends to place a limit on the amount of growth that will be achieved. We believe it is most reasonable to project growth in the industrial sector into the future in the range of 250,000 to 300,000 square feet per year, which is consistent with the rate of absorption evidenced in the recent five years. The subject should be able to possess some share of this market based on the strength of the Northampton location, and the overall lack of industrial zoned inventory in the City. n Page 3 6 A review of the new market growth indicated by TABLE 4 reveals that approximately' 73.3 % of the inventoy~hat has-e me m l n . has-consisted-oflightindustrial-use-space,_and-the remaining 26.7 % is office space. This reflects a noticeable shift in the type of space developed compared to 1993-1998 when only 3.5 % of the new development was for office use. New Development - Pioneer Valley Region (1993-5/2002) Time Frame New Development New Office SF (1) % of New Development New Industrial SF % of New Development 1997-2001 1,988,854 SF 531,501 SF 26.7% 1,457,044 71.3% 1993-1998 2,943,328 101,730 SF 3.5% 2,841,598 96.5% (1) Data does not include medical office space. The increase in the amount of office space development is likely attributable to some penned- up demand, which materialized into development in the recent years. Also, the Amherst/Hadley area has emerged as a more distinct office location, and with little inventory of existing Class A space, that market has nearly doubled in the last five years. Of the 531,501 square feet of new office use space developed between 1997-2001, 228,247 square feet (42.9 consists of projects in Hadley and Amherst. Other dynamics affecting the percentage of office space developed include a slowdown in the amount of new light industrial space added, as well as the willingness of market investors to develop speculative office projects, which was not a prevailing trend in the last decade. Speculative development has been poorly received by the market, as the following vacancy survey respecting the speculative development verifies. Some of the space was speculative space added to buildings that were partially preleased prior to development. catio Rentable Space 94 Elm Street, Westfield University Drive, .Amherst 103 Myron Street,'W Springfield 380 Russell Street, Hadley 40 Bobala Road, Holyoke Lot 5, Bobala Road, Holyoke 86,000 SF 50,000 SF 28,000 SF 11,000 SF 6,040 SF 16,100 SF Total 197,140 Property Vacancy (of Tl Buildout) 100% 100% 100% 17.5% 50.3% 50% (1) 73% (1) A 32,200 SF development (two buildings) was approved by the City. We are aware of only one 8,000 SF+/- tenant for the space, but have been unable to ascertain complete details of how much of the space is preleased and how much is speculative, therefore, we have made an estimate that 50 % is speculative development. Page 3 8 Absorption & Vacancy (Office Sector) The office market reflects growth of 531,505 square feet over the same period. Of the new inventory, 209,140 square feet is currently vacant. This consists mainly of speculative space thatIas been developed, but has not been well received. The speculative space at 380 Russell Street in Hadley and on University Drive in Amherst (TABLE 4) has been marketed for over two years, as well as the 6.,040 square feet in 36-40 Bobala Road that was built as speculative space in 2000 and never absorbed. The Westfield project is the most recent Class A development to come on line and to-date there has been no leasing activity. Market Absorption (Class A Office Sector) Period 1997-5/2002 Years Y ar Total SF Developed 531,501 SF Total SF Absorbed 3229361 SF SF/Year (Avg) Absorbed 60,822 SF/Yr Considering the current rate of growth, it is reasonable that the balance of the Class A space that has been brought on line since 1997 could be expected to be absorbed in a period of 3.4 years (209,140 SF Vacant/60,822 SF), however this implies that there will be little or no new inventory to compete with the existing vacant space. It is our opinion that the property at 94 Elm Street in Westfield will not achieve absorption over that period of time. We believe that there is an uncertain tenant base for this property, primarily due to its size and location. Therefore, the other properties on line may benefit from a more rapid rate of absorption. It is of interest that 65 % of the new office inventory is in locations "north-of , the Springfield market, with a focus on the University of MA. This is most likely a function of the intended synergy of emerging office users with a high tech environment, such as would exist in the University of MA setting. However, we also note that there is a shortage of developable land sites in the Springfield market and therefore, it is logical that the locations to the north of Springfield, which have a greater inventory of land, would benefit from new projects. In terms of total absorption, the data clearly supports that the overwhelming market demand has been in the light industrial sector since 1997. An analysis of the development that took place over a 10-13 year period of study (beginning in 1989) reveals a similar dominance of light industrial use development versus office, accompanied by better rates of absorption and occupancy. L~ Page 3 7 Outside of the new inventory of speculative space, occupancy levels of the Class A o ffice ---m ar-ket~x-e-good.-T-he-Springfield-C-BD ,with-4-0-mill-lon square-feet-o-f-C-lass- -spae - currently indicates vacancy of 5 The Class A properties developed along I-91 in office parks on the West Springfield/Holyoke line offer another 350,000 square feet of Class A space that is 9.5 % vacant (included in regional vacancy summarized in TABLE 3.). Overall, including the Class A Towers in the CBD as well as suburban Class A properties and the speculative office properties listed above, the market totals approximately 1.85 million square feet at this time, and 15.6 % is vacant. This compares to average market vacancy over the last ten years (1992-2002) of 10 There appears to be sufficient inventory of modern condition space to satisfy any increasing demands that the market may experience. Expansion of existing firms may result in some increased demand for office space. Also, there may be some tenants at 330 Whitney Avenue in Holyoke that will not be able to renew their leases because the owner, an affiliate of People's Bank (and partial occupant), may be increasing its amount of owner-occupied space in the building as existing leases expire. Further, if there is growth in the services industries as' projected by the Department of Employment and Training, this may stimulate some demand for space. Summary/Conclusion Inventory and Absorption & Vacancy- `'=3 Modern Industrial Parks, Suburban Market & Springl7eld CBD The market consists of approximately 16.3 million square feet. Since 1997 (5.3 years) there has been new development of approximately 1.95 million square feet. The mix of new inventory brought on line was 73% industrial use, 27% office use. Current vacancy for office and industrial space in the regional industrial parks is impressive at 3.2%. Current vacancy in the modem regional parks is consistent with market vacancy over the last ten years. Total Inventory Regional Industrial Parks - Office and Industrial 16.3 Million Square Feet Vacancy at 5102 - 3.2% Average Vacancy 1992-2002 - 2% - 4% Including the Springfield CBD, there is an inventory of approximately 1.85 million square feet of Class A office space in the Pioneer Valley market area. Approximately 638,000 square feet of the space is contained in the 16.3 million square feet in the modern industrial parks. Current vacancy in the Class A sector„is 15.6 Of the total vacant space, 68 % reflects speculative space brought on line in the last five years. r: nn Page 3 9 Current vacancy in-the Class A sector exceeds the historical average between 1992-2002 of Total Inventory Class A Office - Industrial parks, CBD, Suburban L 85 Million Square Feet Vacancy at 5102 -15.6% Average Vacancy 1992-2002 -10% Historical absorption patterns point to a predominance of demand for industrial space over office space in the subject market area. The subject market indicated an annual rate of absorption over the last 5.3 years of 267,555 square feet. Estimated New Space Absorption Rate for Hospital Hill In reconciling our projections for the market to an absorption projection for the light industrial use space at the subject, we have projected that the subject property should be able to capture between 10 % and 15 % of the projected absorption (light industrial use space) for the market in general. Our market share projection recognizes that there is little available inventory of industrially zoned land in the Northampton market area at this time, and we believe that when inventory is made available, the market will respond with demand. A projected market share of 1045 % results in a projected absorption of light industrial use space of 25,000 to 45,000 square feet per year (10-15% of 250,000-300,000 SF), which we have rounded to: A Projection for Annual Absorption of Light Industrial Use Space of 35, 000 SF/Year We have also considered the average annual absorption evidenced by the regional office sector over the last 5.3 years, at 60,822 square feet. There was very little development between 1994-1998 (101,730 SF), and expanding the period of study to the 8.3 year period from 1994- 5/2002 reveals an average annual rate of absorption for the 8.3 year period of 51,095 square feet per year. Complicating an absorption projection is the amount of vacant space in the market, however, as stated, certain speculative projects are not considered to be competitive with the subject, and in our opinion have uncertain overall marketability. We believe that the market may be capable of continued absorption of new inventory in the range of 50,000 to 60,000 square feet per year, and considering that there is vacancy of existing space, we have rounded our projected rate of absorption down to 50,000 square feet per year. Page 4 0 l The subject should benefit from the good marketability of its Northampton location, and the - - -mixed=use V- liage-concept-Office-space-development-will-ai-so-tinclud.-e-less-conventinnad office, R&D, and mixed-use space, which may expand the share of the market that the subject achieves. We believe it is reasonable to project that_the subject should be capable of gaining a market share of 20-25 % of the market of office (and mixed-use) space development. Applying a market share projection of 20-25 % for the subject results in projected absorption of the office space of 10,000-12,500 square feet per year (50,000 SF X 20-25 A Projection for Annual Absorption of Modern Office Use Space of 10, 000 -12,500 SF/Year. Market data has been relied upon for support for our projected absorption rates for commercial and light industrial use space. The mix of the proposed 476,000 square feet to be developed as per the Master Plan is 85 % commercial use (office, R&D, mixed-use) and 15 % light industrial. It is vital to this analysis to recognize that we have projected a substantially different mix of space for development at 75 % light industrial and 25 % commercial use. Market Pricing - Modern Industrial Parks, Suburban Market & Springfield CBD We have researched the market for an indication of market rent in the well recognized light industrial and commercial locations, and the regional industrial parks are well represented. The data is outlined in the grids on the following page. For confidentiality reasons, tenant names are excluded. Page 41 MARKET RENT SURVEY - LIGHT INDUSTRIAL SPACE REGIONAL I NDUSTRIAL PARKS Location Lease Date Tenant Rent/SF Expenses Remarks r' Size (Avg) (Avg) 1 Airpark-West 1997-2000 14,000- and Airpark-North $3.75-6.50 NNN Range is reflective of four leased 74,400 Chicopee properties. Some of inventory was built to suit. Lease lengths average five to ten years. The Parks also have substantially larger tenants that are not included in the sample. 2 Carando Drive Industrial 2000 Park, Springfield 15,000 $4.00 NNN Two leases of modern light industrial 3 Brookdale Drive use space with good highway access. 2002 Springfield Industrial 25,908- $4.50-6.00 NNN One of the properties represented was Park 41,192 recently vacated; and the asking price is within the range represented. The sample respects two modern light industrial use properties with good highway access. 4 Springfield Industrial 1997-2002 Park Neighborhood 16,390- $3.25-5.00 NNN Location along access ways to Page Boulevard, Cottage 44,000 subdivisions which make up the Ind. Street, Cadwell Drive Park, however, not garden park settings. Eight modern light industrial properties j with good highway access. The comparables present a rental range from $3.25 to $6.50 per square foot, with net, net, net expense terms (tenant pays all operating costs). The upper end of the range respects built-to- suit space. The locations provide good highway access and are recognized industrial use locations. The majority of the light industrial use properties that we expect would be most similar to the type of property anticipated for Hospital Hill, indicate rents ranging at $4.00- $5.00 per square foot. The subject benefits from a Northampton location, and there is value in the fact that there is little inventory of modern light industrial use properties. However, highway access is about two miles away via congested commercial streets. It is also necessary to consider the average building sizes as per the Master Plan, which range at 14,000 to 35,000 square feet. The market does indicate economies of scale relative to this type of property use, and we believe it is reasonable to project market rent for light industrial uses at the subject at $5 per square foot. We note that buildings the size proposed are typically marketed to smaller sized local businesses with a locally geared client base, and we believe that the subject will have good marketability to this type of user. Conclusion of Pricing Light Industrial Space - $51SF, Net, Net, Net Page 4 2 1 .y 2. Local Office Market - Northampton. In order to present a complete overview of the market, we have researched the inventory of office space in the City of Northampton, most of which is not classified as Class A space. We have included only investment properties that are in modern condition, are handicapped accessible, and offer on-site parking. Intentionally excluded are smaller sized stand-alone buildings constructed to suit medical office or service uses. We note that our market research has revealed'one proposed project for two buildings with approximately 29,000 square feet in total. The location is confidential, however, the developer indicates that the proposal is for a Class A property with on-site parking. In our discussion of land value in Northampton, we indicated that there was a recent assemblage of land on Atwood Drive in Northampton. The owner is currently considering a 30,000 square foot office use for the site, but also submitted plans to the City in 1999 for a hotel use. The owner reports no firm plans to date. The office properties within Northampton that we believe are reasonable competition to the subject are outlined on the next page. Two of the properties are office condominium units and we note that condominiumization was a common trend in the Hampshire County market in the mid 1980's. Two modern condominium developments aggregately comprising approximately 20,000 square feet of modern office space contained within nine units (64 Gothic Street, Northampton and 90 Conz Street, Northampton) have not been included because both properties reflect small sized, owner-occupied units. We note that there is additional inventory of modern office condominiums in Hadley and Amherst. The majority of the units are owner- occupied, or largely owner-occupied, and are not included as competitive inventory. It is of interest that there will be a large vacancy at Echo Hills commercial condominiums on Belchertown Road in Hadley (28,444 SF three assembled condominiums). The former tenant, National Evaluation Center, is relocating to a new owner-occupied building in the Hadley University Park. The Echo Hills units are older condition with some utility constraints due to numerous additions to suit the former tenant, and the location is inferior to the subject's. The Northampton office properties that we believe to be competitive inventory to the subject follow. We have also outlined average rents and occupancy by property in the grid. il lw~ Page 4 4 - - ~E-AS'•~DA-2'A = C~~-SS~-OFFiC~R~PER3'IE - Location Lease Start Tenant Rent/SF (Avg) Expenses Rent/SF 1 Dates Size (Avg) NNN Equivalent Hadley University Park Venture Wa Way 1996-2001 3,000- $15.24 NNN certain $11.00/SF 19,700 Avg PSF Rent tenants. Others (Occ. space) are gross with increases over exp. Stqp. 2 Hadley-Route 9 2000 50,849 SF $16.45/SF Net of pro rata $12.60 increases over Base Year 3 Deerfield-Yankee Candle Way 2001 75,580 SF $14.00 NNN $14.00 4 Holyoke-Signature Place Bobala Road 2000 7,900 SF $12.-13.50/SF NNN $12.00-13.50/SF 5 Holyoke-Whitney Ave 2000-2001 10,000- $16.50- Net of pro rata $9.00410 00 25,000 SF 17.75/SF increases over . 6 West Springfield Industrial 1997-2002 6,000- $12.50= Base Year Park 15,000 SF 13.501SF NNN $12.50-13.50 Interstate Drive 7SpriI gfield Ind ustrial Park kdale Drive 1998 6,000- 11.50- et of pro rata 9.50-11.80 kT 15,525 SF 12.63/SF increases over operating costs r Square & Sovereign Bank Buildings (Class A) 1996-2002 4,000- $15.00-$17.00 Net of pro rata $9.00411.00 Springfield CBD 32,000 SF increases over (Tenant sizes intended to operating costs reflect proposed space omparable sized to subject The data indicates a range of market rent for Class A space from $9.00-$13.50 per square foot on a net, net, net, expense basis. The subject reflects a mixed-use location with inferior access and identity to each of the comparables and we estimate that market rent for modern condition office space at the subject property would be at the low end of the range indicated. Therefore, we project reasonable pricing for modern office space at the subject of $9.00 per square foot on a net, net, net expense basis. Conclusion of Pricing for Modern Office Space at Hospital Dill. $9.001SF, Net, Net, Net Page 4 3 C-r4Y-OF-N4DRTHLiAVPT-0N-MODF N-OMC-FrSPAC-F - Address Rentable Avail % Average Remarks SF SF Vacant Rent/SF Roundhouse Plaza 25,920 0 0% $12-13 Downtown rehab late 1980s. Old South St Metered parking on site. NNN (Downtown) expense terms. Old School 28,242 6,475 23% $12 There is another 7,918 SF of office Commons space that'is occupied for $0 rent via 21-31 New South St an Agreement with the City of (Downtown) Northampton. Occupied space includes 2,511 SF rented to Tenants At Will. Gross expense terms. 7 Pearl St 15,814 0 0% $16.50 Built-to-suit single tenant. Adjacent (Downtown) municipal lot. Gross expense terms. 47 Pleasant St 16,204 16,204 100% $14.75 Single tenant vacated 2001. Rent (Downtown) was $14.75/SF NNN. Very good condition. 20 spaces, plus adjacent municipal lot. 228 Pleasant St 11,333 0 0% $16** **The property sold in 11/00 to an (Downtown) owner-occupant, and is no longer an investment property, but is included as an indication of prior market behavior (lease was from 1995-2000, NNN). The building was a 1995 rehab/reuse from a former auto use, built-to-suit the former tenant. Potpourri Mall 59,291, 10,000 17% $13 Mixed-use retail/office property. 224 King Street Gross expense terms. Vacancy had (Commercial averaged 10% until anchor tenant District) vacancy in 2000. 5 parking spaces/1,000 SF NRA. Non- downtown location. Total 156,804 32,679 21% $7-16/SF NNN (NNN rent equivalent incorporates Rent Equivalent certain assumptions for property operating costs.) The data reveals that there is not a significant inventory of modern office space in the local market and we believe the local market would be responsive to new inventory of space priced within the range indicated above. The market has demanded new medical office space and there were two new office projects developed between 1998-2001 with a total of 15,460 square feet. This complemented a significant inventory of modem medical office space already existing in Northampton, which based on our research, comprises approximately 100,000 a square feet, mostly centered in the Cooley-Dickinson Hospital neighborhood in Florence. Page 4 5 We project that there will continue to be slow, stable growth in this market sector, however, -the most suit a Ze oca ons wo e near ooley-Dickinson Hospital (Florence). It is also reported that there has been some interest in the Atwood Drive location, immediately off I-91 Interchange 18, by certain medical practices, however, this project is still in preliminary discussion stages only. We do not believe the subject location would be suitable for modem medical space, The Northampton office space survey reveals 21 % vacancy (32,679 SF) at this time and it is likely that'there will be an addition of at least one new Class A office property (preleased) in the foreseeable future in the size range of 30,000 square feet. With the exception of any new Class A inventory and the vacant property at 47 Pleasant Street, we feel the subject would have superior marketability to the vacant space outlined. The. Potpourri Mall is a mixed-use property that was built in phases beginning in the 1970s. It is in older dated condition with some evidence of physical and functional depreciation. Old School Commons is another mixed use property with some signs of physical depreciation (1987 rehab) and the commercial space has some utility constraints. Vacancy of the commercial space has historically been above the market average. In conclusion we believe that the local market could absorb new inventory of office space. However, based on the existing inventory, it is unlikely that there will be substantial demand from the local market, and we estimate a reasonable development to suit the local market would be in the 20,000 to 30,000 square foot size range at a maximum. 3. Rehab and Reuse Properties There is also an inventory of available space in renovated former manufacturing buildings in the market, particularly the Hampshire County market. We believe that this type of space competes directly with the subject as proposed as there is pressure on the developers to retain some of the buildings within the proposed development for commercial, residential and/or light industrial "reuses". We have detailed five mixed-use properties on the following pages that were selected for comparison because the improvements are used for office space, research and development (R&D) or incubator space, and/or to house various entrepreneurial enterprises, such as light assembly, artisan, light industrial, and/or other. After detailing these five properties, we have also made note of two specific rehab/reuse properties in Springfield, and North Adams, MA, in order to present alternative reuse scenarios demonstrated by the market. We do not consider the Springfield and North Adams properties to be true competition to the subject, nor a relevant reflection of proposed absorption for the subject under a "reuse" scenario, and these properties are presented for informational purposes only. Page 4 6 Eastworks _ - ~--76 Pleas-an S ee Easthampton, M4 w e i : Eastworks, LLP, Corp. Property Description Former Stanhome, Inc. Industrial/Office Property. Conversion to Industrial, Office, Incubator, and Residential Use in 1997. 7.6 Acres of Land. Approximately 500,000 Square Feet of Gross Building Area. Rem rk The buildout consists of a main four story building, plus a number of attached multi-story, mixed-use buildings originally constructed for industrial and office use, circa 1900-1920. Conversion of the building to commercial and residential space' commenced in 1997. The property is multi-tenanted. Condominiumization is being contemplated. The net rentable area of the commercial space is 375,000 square feet. The commercial space- is currently 50% occupied, which compares to 66% occupancy in 2001. The decrease represents the loss of one, 60,000 square foot warehouse user (Cain's). In its first five years of lease-up, 247,500 square feet was absorbed, which is inclusive of 100,000 square feet of owner- occupied basement storage space, that is not true "absorbed" space, but does reflect occupied space, and market "demand". The basement, first, second,'and third floors of the main building are being used as commercial space, and the fourth floor is built out as residential units. The attached buildings are commercial use. The industrial and storage space has concrete and wood floors and exposed wood (truss) ceilings. The office space has a higher degree of finish with drywall walls, finished ceilings, and carpeted floors. The property has approximately 30 tenants which currently occupy a total of 187,500 square feet of commercial/industrial, and office space. The commercial tenants are primarily office users, however, there are some crafts persons, artists, and miscellaneous trades persons occupying space. The majority of the office and commercial tenant spaces range between 1,000 and 2,200 square feet. Rents for average sized space (1,000 to 2,200 SF) are in the range of $4- $6.50 per square foot, and storage space is rented on a per pallet basis. There is the.potential for 48 residential units. The initial completion date for full buildout was July 1, 1999, however, the property manager/developer reports that there is the need for additional capital to complete the buildout, and 32 units have been completed/rented to date. The manager/developer reports that the apartments could have been easily absorbed by the 1999 completion date if there was the capital to complete buildout as demand is prevalent, and there has been waiting lists for units since the inception of the project. Currently there are 32 finished residential units, all occupied. The apartments range in size from 750 to 2,300 SF, inclusive of lofts. The monthly rents range from $650 to $1,250, depending on unit size: Absorption has been steady with each unit leased-up (1 year. leases) upon completion of the interior finish. Page 4 7 Arts and Industries Building ^ f-- 227-Pane treet Northampton, MA wn s ' Pine Street Enterprises, Inc. Property Descripdo~ Former Pro Corporation Industrial/Office Property. Conversion to Industrial, Office, and Incubator Space in 1994. 8.46 Acres of Land. Approximately 139,257 Square Feet of Gross Building Area Contained Within Nine Buildings. Rem The buildout consists of a single and multi-story building, utilized as warehouse, light industrial, and incubator space. The building was originally constructed for industrial and office use, and the majority of the building improvements were constructed in phases between 1843 and 1920. Conversion of the building to its current mixed-use commenced in 1994. The property is multi-tenanted. The net rentable area is 115,000 square feet. Vacancy has averaged 10% over the last five years. Lease-up to 90% occupancy was accomplished in two years (1994 and 1995). The property has 84 tenants which occupy a total of 103,150 square feet of commercial space at this time (10% vacant). The finish is considered to be older dated, however, some of the office space has been updated to semi-modem, functional condition. In general, the industrial space has masonry walls, wood floors, and exposed wood (truss) ceilings, and the office and studio spaces have drywall walls, finished ceilings, and flooring consisting of carpet and/or vinyl tile. The majority of the tenant spaces are less than 1,000 square feet, with a few exceptions. The tenants are primarily artists, crafts persons, dealers of books and antiques, and similar trades persons. Rents for average sized space (1,000 SF and smaller) are in the range of $2.50 to $6 per square foot. The average rent calculation is in the range of $4 per square foot, gross. Page 4 8 Old School Commons - - 17-3 ew South Street Northampton, M4 Ownership Gilbert Cohen and Andrew Cohen, Trustees of Conefam Realty Trust Property Description Former Hawley & Sullivan School Properties. Conversion to Residential/Commercial in 1987. 2.92 Acres of Land, Approximately 110,204 Square Feet of Gross Building Area Remarks The buildout consists of a four story building and a three story building that are connected by an annex. The buildings are currently built out as residential and commercial space, but were originally constructed for use as a school, between 1895 and 1913. Conversion of the building to mixed-use commercial/residential space was completed in 1987. The property is multi- tenanted. The net rentable area of the commercial space is 36,160 square feet, and there are 54, one and two bedroom apartments. The property also includes an art center/theater (7,918 SF), which is occupied rent-free by the city s (30 years, 1984-2014) as a condition of the property sale. The commercial space is currently 23% vacant (including some tenants-at-will). Average rent for the commercial use space is $12 per square foot, gross. The commercial space has averaged 10-20% historically. Initial absorption required one year (30,000 SF inclusive of the art center, which is not "true" absorbed space, but does represent occupied space. The commercial space is located on the two lower floors of the "Sullivan Building", which also houses the art center and theater. The finish is average condition with plaster and drywall walls, carpeted and vinyl flooring, and finished, dropped tile ceilings. Ten of the residential apartments in the "Sullivan Building Annex" are large units (750-1,300 SF) which were designed as work-live studios, however, there has not been demand for this type of living space and the units have been occupied as conventional apartments. The commercial space is occupied by local professionals and social services agencies, and there are some single room units that rent for $200 per month. The majority of the tenant spaces range between 1,000 and 2,000 square feet. The apartments are luxury units ranging in size from 600 to 1,900 square feet. The rents are at the high end for the market and range from $700 to $1,725 per month. Residential occupancy has been 95 % or better since the units were completed. Absorption (residential) was completed in one year. Page 4 9 The Felt Building 136 West Street - - Northampton, MA Ownershi12 Northampton Properties, Inc. Property DeseriptlOn Former National Felt Industrial/Office Property. Conversion to Office Space? in 1998. 1.30 Acres of Land. Approximately 53,223 Square Feet of Gross Building Area and 47,116 Square Feet of Net Rentable Area. Remarks The buildout consists of a two story building with a full basement that has windows at grade, and is included in gross building area. The space is 100 % office. The building is currently undergoing a rehab project that commenced in 1997. The building was originally constructed for use as manufacturing and office circa 1900. The current owner purchased the property in 1995 for $325,000 ($6.11/SF) as a potential investment. Property representatives were not,willing to provide any significant lease information, however, we are aware that there is approximately 20,000 square feet of available space in the building. Absorption of 28,270 square feet was accomplished between 1997-1999, but was not gradual. Rather, an anchor tenant was-contracted in 1997 that occupies a large portion of the occupied space. Asking rent is $8 per square foot. Tenant alterations can be negotiated as part of the lease or completed at the cost of the tenant. The property manager indicated that the tenant base is mixed, but is centered in local tenants. Page 50 The Cutlery Building J_/U Alve s ae rive Northampton, M4 Owners i Condominiums Property Description Former manufacturing property. Converted to Office Space and Condominiumized in 1985. Approximately 61,778 Square Feet of Gross Building Area (3 Condominiums) Remarks The buildout consists of approximately 12 multi-story buildings that were originally constructed circa 1900 as manufacturing space. The building was purchased in 1985 and gradually converted into office, research and development, and light assembly space in 1985. The property is multi-tenanted. The property is located approximately two miles northwest of downtown and benefits from the artisan and cultural draw to downtown Northampton.. Two . converted office units with combined building area of approximately 16,500 square feet, recently sold for approximately $31.50 per square foot of building area ($520,000). The seller and buyer were both majority owner-occupants. The space reportedly had superior finish to much of the office space in the property. LL We have contacted Atty. Alan Verson, a principal of Cutlery Building Associates, which owns approximately 45,000 square feet of rental space contained within a third office condominium in the building. Atty. Verson indicated that the average rents in the property range substantially and rent is generally based on a flat monthly rate (net of utilities) rather than on a per square foot basis, however, this owner indicated that the low end of rent is likely in the $5- $6 per square foot range, with better condition space indicating higher rents. The property reportedly required an absorption period of seven to eight years (1985-1992) with space renovated in gradual phases to suit demand. There is no vacancy at this time, and the owner reports that there is continual interest from the market for smaller start-up companies looking to rent spaces in the 500 square foot range. The tenant base is mixed "and diverse, and includes significant tenants such as " Motherwear", a maternity clothing manufacturer and retailer with a national customer base, as well as locally geared office users, local dance studios, and others. Page 51 Springfield Reuse Proz~erty o Interest - przn zed Te--c-hn---zca ommunity College Tec no og -Park One Federal Street Springfield, AIA wn r i Springfield Technical Community College Assistance Corporation Prope Description: Circa 1900 manufacturing facility renovated by Digital Equipment Corporation to good condition light industrial/office in early 1980's. Converted to Multi-Tenanted Office, Light Industrial, and Research & Development Space in mid-1990's, 16.71 Acres of Land. Approximately 392,746 Square Feet of Gross Building Area. Remarks: The buildout consists of a multi-story turn of the century mill building complex that was originally constructed as an armaments factory circa 1890-1900. DEC reportedly invested about $40 million to renovate the property's interior and exterior in the early 1980's. Currently, the property provides flex and R & D space as well as new business incubator and office/assembly space for employment training. The property is located on the periphery of the Springfield Central Business District in very close proximity to the subject. The Springfield region has a significant telecommunications infrastructure in place, and the property has had success in attracting communications firms such as internet and software companies. There is an intended synergy between Springfield Technical Community College (STCC) and the tenants of the technology park. The net rentable area is 354,656 square feet. Occupancy was 60% (190,335 SF) until mid-1999, and the anchor tenant occupied 125,000 of the space. The anchor tenant is a technological/computer components firm that began occupancy in 1996. In 1999-2000, occupancy improved to the current level of 96%. The available space is being offered for $15 per square foot, net, net, net, which is well in excess of the average office rents in place at the property, however, heightened recent demand has impacted the asking price. The improvement in occupancy was largely the result of the expansion of an existing tenant that increased its space from approx. 16,000 square feet to approx. 78,000 square feet in 1999. Two other tenants with rentable space of 12,000 square feet or more were contracted in 1999. The Year 1 rents of these major tenants ranged from $7 to $8.80 per square foot, however, significant step-ups were built into the leases, with Year 2-3 rents in the $10 to $12 per square foot range. Page 52 In general, average per square foot rents range from $8-$12 per square foot, with exceptions. Most tenants are reportedly leasing space on 'net, net, net terms, with some tenants responsible for electricity costs and a pro rata share of increases in general operating expenses over a base year. The tenant base is centered in communications and technology affiliated businesses. Net rentable area is 354,646 square feet, however, 43,889 square feet is occupied by STCC, reducing the amount of space available to the market to 310,757 square feet. The space was made available for multiple tenants in 1994, and with an occupancy rate of 96 % at year=end 2000, the average annual absorption is 51,793 square feet per year. The anchor tenant space is mostly warehouse and the rent respects the warehouse quality of the space. Excluding the warehouse lease as non-office use, annual absorption averaged 32,793 square feet per year. The space is marketed as incubator space to office and R & D users and there is the availability of telecommunications infrastructure and an ability to install high tech machinery and equipment. The property offers around the clock security-due to the value of the tenants' equipment and the irregular business operations of the call centers, internet, and other 24-hour business tenants. It is of particular note that approximately 40 % of the lease-up occurred between 1999 and 2000 and respects internet/ telecommunications users that have not indicated good longevity in the marketplace. We believe that the timing of the lease-up, consistent with positive economic conditions and a emergence of internet companies impacted lease-up and that the property will `~1... eventually stabilize at lower average occupancy than the 95 % level indicated today. According to the property manager, the demand from "dot com" and internet based businesses dried up entirely by 2001, which is largely a function of economic conditions and the lack of access to capital that the industry is experiencing. We expect that a property relying on a similar niche for lease up today would not experience similar success compared to the rate of absorption achieved at STCC between 1999 and 2000. Page 53 North Adams Reuse Property oflnterest Massachusetts Museum of Contemporary Art (Mass MoCA) 87 Marshall Street North Adams, M4 Ownership Massachusetts Museum of Contemporary Art Cultural Development Commission Pxoperty Description Circa 1872 Manufacturing. Property Purchased by Sprague Electric in 1940. Converted to Museum and Office/Research & Development Space Between 1996-1999. 12 Acres of Land. Approximately 700,000 Square Feet of Gross Building Area. 220,000 Square Feet Refinished to Date (Mass MoCA). Remarks MASS MoCA is a multi-disciplinary center for the visual, performing, and media arts. The property is located.in the North Berkshire County region, which is outside of the market area defined for the subject. However, the dynamics of this project are of interest because, similar to Northampton/Hampshire County, the Berkshire County area also has a concentration of cultural and artisan attractions, such as Tanglewood (performing arts center), the National Music Center, and other summer music and theater facilities. The property is a campus setting with 27 buildings (700,000 SF that were originally constructed by an international cloth manufacturer. To date, 220,000 square feet contained within six buildings, has been rehabbed and converted to museum and commercial space. This constituted Phase I, and specifically includes art galleries, performing arts facilities, rehearsal spaces, office spaces, fabrication facilities, live studio space for artists in residence, pre-and post production facilities, multi-track audio, video, and film, restaurants, cafes, and retail shops. Of the Phase I buildout (220,000 SF), 150,000 square feet is museum and gallery space and 70,000 square feet is office and R&D space. There are currently nine tenants occupying 70,000 square feet in a diversity of tenant sizes and average rents are from $11413 per square foot, plus $1 per square foot for utilities on average. The tenant base is centered in communications and internet affiliated businesses, plus there is conventional general office space. There is no residential, private gallery or artisan space on the campus, and none is planned. All of the commercial space was built out in 1999 at the cost of the tenants, and the absorption of Phase I (70,000 SF) required less than one year. Page 5 4 Phase II is scheduled to commence this year, and the Phase H Announcement is planned for - late June (2002). Phase II will consist of the rehab of another 40,000 square feet of commercial space and 55,000 square feet of gallery space. The commercial space respects a new rehab for the County Courthouse, which is being relocated to a property across the street from Mass MoCA, that was acquired by Mass MoCA subsequent to the acquisition of the Sprague facility. - Future plans include rehabbing another 75,000 square feet of commercial space on the museum site, partly to suit smaller, local professional tenants, which have reportedly expressed steady interest. The property's target market is tenants from information technology and high=tech industries, particularly firms active in electronic media content production and distribution, publishing, internet service, design, film; video, and high bandwidth network management and administration. The plan is to develop and market content for the arts, education, and entertainment industries via "live" presentations and/or multi-media formats. The museum is potentially the largest museum in the United States. Its size allows for exhibiting works that other, very prominent museums cannot accommodate due to building area and ceiling height constraints. The building's industrial buildout and appearance reportedly provides a very suitable synergy with the minimalist works to be displayed, many of which utilize industrial materials. The large balance of unfinished space will be renovated in phases at a future time. Construction required a three-year time frame, however, the planning stages for the project began in the mid-1980s. The lengthy planning was the result of the State's participation in the construction costs (70 To date the project has cost $26 million. Summary and Conclusions Northampton Local Qjfzce Market and Reuse Properties In addition to the inventory of modern office and industrial space located in the regional industrial parks, select suburban sites, and the Springfield CBD, we have identified an inventory of modern (mostly non-Class A) office space in the local Northampton market area, and the data reveals that there is available space in the market with 21 % vacancy of a total of 156,804 square feet surveyed. We have also identified an inventory of reuse properties that are former mill and institutional properties that offer office, service, R&D, light industrial, office, residential, storage, and other types of space. Page 5 5 Within five comparable Hampshire County properties, we have identified 864,462 square feet _ -ufrenovaterl bnrtiings~ha were orig y constructed about 1900 for alternative uses (mostly manufacturing) to their current use. We have not included the STCC or MASS MoCA, which in our opinion do not directly compete with the subject as proposed. Of the rentable space identified, 219,000 square feet (54 is vacant and available for lease up. (Old School Commons commercial space vacancy was included in the "Northampton Local Office" data, and is not included in the vacancy rate of the reuse properties.) Of the currently vacant space, 187,500 square feet (86 % of the total available space) is contained within Eastworks (Easthampton), which is outside of Northampton: Geographically, Easthampton is within five miles from many of the properties outlined, however, there is clearly market demand for a "Northampton" address due to the cultural/artisan and entrepreneurial dynamic there, and the subject property may have a competitive advantage over Eastworks even though Eastworks is already established. Another competitive advantage that the subject may have is that it may be better received by the market in its initial phases due to its "newness". Also, the subject has a substantial quantity of land available for development and there will be an opportunity for suppliers to locate near their main customers, which would be particularly attractive to technological firms that experience continually changing industry dynamics. Most of the reuse properties identified (Arts & Industries Building, Old School Commons, and Cutlery Building) realized absorption in the early 1990s, and the rate of absorption indicated by those properties is not relevant to an indication of absorption today. Eastworks and The Felt Building came on line in 1997, and over the five years between 1997-2001, revealed an average rate of absorption of office, and light industrial use space (including combination space) of 23,000 square feet per year, before adding the amount of storage space absorbed at Eastworks. It is important to note that the absorption evidenced was not gradual and/or stable, and the absorption in the Felt Building was actually accomplished by one major tenant in 1997. However, for analysis purposes and for projecting future trends, it is reasonable to project future absorption based on a stabilized annual average. The market was clearly more receptive to this type of space and to incubator and entrepreneurial activities in the late 1990s (1997- 2000). After that time, the market interest that had stemmed from dot. com companies, as well as telecommunications, and internet start-ups has, according to market participants, dried up. The light manufacturing/light industrial sector remains mostly stable, and is likely to be the most active market for this type of space into the future. "ON Page 5 6 We have estimated a total ection in the range of 45,000 square feet square 'feet per year to be centered (85 in light industrial use space. The activity in the reuse properties noted helps support our absorption projections to the extent that any existing buildings on site could be put to a reuse that may capture some of the demand that has flowed to these types of properties over the last five years. We do not believe that the reuse properties in the market will continue to evidence the levels of absorption experienced in the last five to ten years. due to a general softening in the economy and the lack of capital available to internet, dot.com, and related industries. We also recognize that there is a large amount of inventory of this type- of space in the market and, by the time the subject comes on line, the amount of inventory of this type of space may have largely satisfied any existing market demand. We believe the most logical prospective tenants for a reuse of an existing building at the subject are crafts, artisan, trade, light industrial, and similar users, versus telecommunications and dot.com tenants. These types of tenants are the most common in the local area reuse properties noted, excepting 5TCC and Mass MoCA which have mostly become specific niche properties. It is also our opinion that the plan for a reuse/rehab of any existing buildings should be focused on this artisan/light industrial type of tenant, including storage and warehouse because this would limit the alteration costs to a level that may yield an economically feasible reuse. It is important to note that, much of the absorption indicated in the "reuse" properties outlined is for storage and warehouse space, as opposed to "office", and we believe that the market for "storage" uses should be considered for the subject property, particularly when it can be affiliated with an on-site tenant. We have looked at the pricing indicated by the reuse properties noted (excepting 5TCC and Mass MoCA) for an indication of projected rental pricing for a reuse at the subject, and/or for new or substantially rehabbed light industrial and artisan/studio type space. A summary of the data follows on the next page. Page 57 1 MARKET LEASE DATA - REUSE PROPERTIES Property Avg Per Square Foot Rent Remarks Eastworks Easthampton Commercial: $4.00-6.50 Light Industrial: $2.00-4.00 Commercial and residential. Commercial space is office, R&D, and combination space. Storage space`is reportedly rented on a per pallet basis. Low end rent for light industrial space is $1.33- $3/SF. Rents range to $6.19/SF with pricing based on finish. Arts & Industries Building $2.50-6.00 Office, service, retail, light industrial craft and Northampton , artisan. OId School Commons $12 Modern office and residential. Commercial Northampton space is office only, and has experienced 10- 20% vacancy since it was brought on line in 1987. Felt Building Avg rent not avail. Ask rent $8. Office space, 42%o vacant. Northampton Cutlery Building Northampton Avg rent not avail. Low end rents $5-6. Office, service, retail, light industrial, craft and artisan. Rents are negotiated at flat monthly rate based on tenant size and finish of space. Based on the available data, we have projected market rent for storage and light industrial space in the range of $1-4 per square foot, or on a per pallet basis. Office and R & D spaces indicate rents ranging from $6 to $12 per square foot, depending on the extent of buildout and it is our opinion that this type of space would rent for $6 to $9 per square foot at the subject property. Net, net; net expense terms are not typical due to the age and design of most of the properties, however, we estimate that any reuse properties at the subject would be single tenanted, and therefore, net, net, net expense terms are most logical. Conclusion of Pricing for Reuse of Existing Building at The Vllage at Hospital Hill: StoragalWarehouse and Light Industrial: $1-4 Per Square Foot (Net, Net, Net) Light Industrial and R&D: $6-9 Per Square Foot (Net, Net, Net) Page 58 I DEC 1 ~ OC }1 1 eat 1 c" .a y~ . o y~ ys 'Sb Sbk31 Vx ~j C. STUDY OF ECONOMIC FEASIBILITY OF REHABBING MALE ATTTNDANT'_S BUILDING TO COM ERCIAL SPACE The Male Attendant's Building is located on the north side of Prince Street, in the vicinity of the Village Center as proposed in the Master Plan. According to the Master Plan, the building would be the southern most commercial use on this section of the site. The Illustrative Site Plan of the Master Plan indicates a gross building area of 20,000 square feet and a proposed use as office. The building is a three-story structure of masonry and steel construction. The exterior walls are brick, and there is a pitched roof with slate shingles and a full, poured concrete foundation. The building is in poor condition with substantial damage to interior walls, floors, and ceilings. Arrowstreet, Inc. has not provided information to us regarding the structural integrity of the building, however, at the er 1, east, the building requires 100 % new interior finishes, renovations to the exterior walls, doors, and new windows, new exterior site improvements, and complete HVAC, lighting, and electrical refit. It is also reasonable to assume that the roof will need to be completely reinforced. If the reuse expands above the first floor, it would be necessary to install an elevator. According to a partial plan of the building provided by Arrowstreet, Inc., the gross building area is 21,081 square feet with 7,027 square feet of building area per floor. Assuming 20% of the space is lost to common area, net rentable area would be approximately 17,000 square feet. The building has a narrow design and each floor is approximately 196' long. Most of the building is 35 feet wide, however, there is a central section with an outward jog to a 38 foot width. The building has a central hallway (3' wide) and stairways at the north and south ends. Ceiling heights are estimated at 8 feet, and some crumbling ceilings revealed that there is a concrete deck between each floor. Considering the long, narrow design of the bonding, it may be most efficient to configure the tenant spaces from east to west, and include the central hallway within the space. If the walls along the central hallway could be fully or partially demolished, this would open up the space to become adaptable to conventional office users, such as general professionals, social service tenants, and R&D type users. Configuring the space to include the central hallway within the tenant area may allow for two tenant spaces per floor, with access via a central lobby at the middle of the building. The tenant spaces would likely range in size at about 3,000 square feet per space. If a single tenant could be located for each floor, the central corridor may assist in partitioning for private offices, however, the market for this type of space is uncertain as most modern office space is open space with temporary partitions. Also, we believe it may be difficult to locate single users with space needs in the range of 6,000 to 7,000 square feet. Clearly, there are some utility constraints associated with rehabbing the building. If all three floors are targeted for rehab, it would be most reasonable to locate HVAC systems in the basement (assuming this is physically possible). Page 59 Data within our office files suggests a price associated with a complete refit such as that required for the subject in the range of $80 to $100 per square foot. Therefore, as a simple test, it is reasonable that the ultimate value estimate of the property should exceed $80 to $100 per square foot in order to pass the test of economic feasibility, and values this high are not typical in the regional market. Relative to our cost projection, finishes alone, such as wall and floor coverings, ceiling finishes, and bathroom finishes are anticipated to cost $15 to $25 per square foot. Modern I-IVAC systems, which would likely be the least costly, may not be adaptable to the building considering there is not room for duct work due to 8' ceiling heights. And, there may be physical building constraints to installing the most cost efficient elevator system, electrical and lighting systems, and other rehab requirements. In the our analysis of market pricing associated with Class A and non-Class A office space in the regional market area, we recommended pricing for the leased space at the subject based on market comparables at $9 per square foot (net, net, net) for office space and $6-7 per square foot for studio and/or R&D space (net, net, net). Assuming the Male Attendant's Building is rehabbed to modern condition office space, our projections indicate a rent expectation of $9 per square foot (net, net, net), for its 17,000 square feet of net rentable space. A vacancy factor of 10 % of projected income would be deducted based on vacancy indicators from the market. An office space absorption rate of 10,000-12,500 square feet per year was projected. This would result in an estimated two-year lease up for the building considering that 100 % of the building was rehabbed, and provided that this building gained 100 % of -the market share to Hospital Hill in the time frame (no other inventory of office space absorbed). Therefore, in addition to rehab costs, the investor would have holding costs associated with vacant space that was not generating rent during lease-up. Considering projected levels of rent, and a two year absorption, it does not appear to be economically feasible to rehab/reuse this building to office. R&D or studio space would yield lesser rents, and likely not that much of a cost savings in rehab, and it appears that reuse to R&D or studio space would also not pass the test of economic feasibility. Under a summary analysis, the overall value of the building on the basis of its net income potential, is far below a projected cost of rehab. If the developer feels that the rehab of this building would be the one of the least costly way to satisfy the "reuse" objectives of the CAC and City administrators, we believe it would be most feasible to renovate the entire exterior (three floors) but the interior of the first floor only. The upper floors could be barred from use, and could house mechanical systems associated with the first floor. This would also eliminate the need to install an elevator and 66 % of the interior refit. While this scenario does not result in an economically feasible alteration, it would substantially decrease the costs associated with rehab/reuse. Page 6 0 lye l ' T, ' y ~ tl \ / _ t \ 91 I dVBZ l1 I£ l y 1 \ JBZ 08Z 1 szo ~oo Dar Icy y l Il !l BI ' ll @l _ it + J~ n"J') • F `YJ MIX D. STUDY OF ECONOMIC FEASIBILITY OF REHABBING COM L RECREATION BUILDING AND MEMORIAL COMPLEX BUILDING F TO C011N[ERCIAL SPACE . . Recreation Building The Memorial Complex is located on the south side of Prince Street. The Recreation Building (Rec Building) is at the front (north) of the complex. The building is designated on the Plan on the facing page as "26R". Data relative to the physical improvements is very limited. According to the Illustrative Site Plan included in the Master Plan, the Rec Building or a portion selected for retention, would contain approximately 11,000 square feet and the proposed use is retail. The Illustrative Site Plan indicates that Building F or a portion selected for retention, would contain approximately 16,000 sq=uare feet, and the proposed use is office. We are in receipt of a partial plan of the Rec Building (6/7/65), -and the plan portrays a proposed addition to the north (front) side of the building (approx. 2,280 SF). We did. inspect this section of the Rec Building, and found its condition to be superior and most updated compared to virtually all of the other buildings on the site. This front section consists of an open space with high ceilings under a pitched roof with skylights. The front section was reportedly used as a gymnasium. There are wens and womens. lavatories and egress ways located off of the north side, and to the south is a connector to an older sectioa of the building that according to the plan, was a dining hall and kitchen services areas, however, we did not physically inspect this section of the building. The building is a one-story masonry structure with a pitched roof. The north section has vinyl tile and terrazzo file floor coverings and walls' are painted block and drywall. The plan reveals that there is a slab foundation under the front section, and that there are underground tunnels connecting the sections to the south. Market rent for the Rec Building is estimated to be in the range of $5 to $7 per square foot (NNN), at the upper end for light industrial space, and low-mid end derived from the "Reuse Properties" outlined. Potential retail uses would likely generate the upper end of rent ($7/SF), however, a building area of 11,000 square feet is well above average for typical retail. The building would have better marketability to a light manufacturer of a retail product that could do some light manufacturing/assembly on site, and offer a large showroom at the north side of the space. A furniture or cabinet manufacturer, manufacturer of entertainment products like snow boards, surf boards, or similar, or other manufactured product that requires a large showroom, would appear to be a suitable tenant. Again, we estimate market rent for this type of use in the range of $5 to $7 per square foot (NNN). Page 61 DEC 1 ~ o£ 11 S 1 ~+'1 6Z0 a Y C~ ,i i yo ro \ tS' Y ''1'Based on our inspecti the north side of the i-uilding-w-mik be-suitable-for_showxoom use, with a few cosmetic improvements, and it appears reasonable that the Rec Building is suitable for rehab/reuse as a retail showroom/light manufacturing use. We are not aware of the precise condition of the rear (south) section of the space, however, assuming a light manufacturing or assembly use associated with a front showroom, the main issues would be structural and roof integrity, and condition of HVAC. The masonry structural walls and/or roof may need . reinforcing. It may also be necessary to install a low cost heating system for the rear and front areas and air conditioning for the showroom space, however, we estimate that this type of rehab could be completed at a cost of less than $500,000. Considering projected levels of rent, and a projection- that lease-up could be accomplished without a lengthy marketing period, or within 12 months, it appears to be economically feasible to rehab/reuse this building provided total rehab costs are less than $500,000. It is our opinion that the developers should strongly consider the reuse of this building under the parameters defined, as it appears to be the most economically productive reuse of any of the buildings on the site and would likely be the least costly way of relieving some of the civic pressures prompting the preservation of existing buildings. From a practical standpoint, the building's location at the front of the site area on the South Side Prince Street, would be conducive to a commemorative garden or public area for architectural and historical references. Building F Building F is located at the east edge of the Memorial Complex. The building is designated on the Plan on the facing page as "26F". Building 26F, 26E, 26D, and 26C are commonly referred to as the "airplane hanger buildings" due to their shape and parallel positions. Building 26C is slated for demolition in Phase I due to its poor structural condition. Data relative to the physical improvements is very limited. According to the Illustrative Site Plan included in the Master Plan, Building F or a portion selected for retention, contains approximately 16,000 square feet, and the proposed use is office. The building is positioned at the northeast corner of the site (South Side Prince Street site) and benefits from extensive views to the east, The topography slopes downward severely to the east in the locus of the building, which resultantly enhances the views. The building is a three-story structure of masonry construction. The exterior walls are brick, and the roof is primarily flat, however, there are sections of the larger structure where the roof is pitched. The interior buildout is institutional. The former use was apparently for medical treatment and residential. There are wide central corridors and small rooms off of the corridors. The building is in poor condition with substantial damage to interior walls, floors, and ceilings, primarily as a result of gradual physical deterioration, and water damage. Page 6 2 .-__~,rrQw,street,lnc._hasnot-providecLinfoxmatian_to-us-regardmg_the-str-uctu- o-mte s, y-of the-- building, however, at the very IeaSt, the building requires 100 % new interior finishes, renovations to the exterior walls, doors, and new windows, new exterior site improvements, and complete HVAC, lighting, and electrical refit. It is also reasonable to assume that the roof will need to be completely reinforced. If the reuse expands above the first floor, it would be necessary to install an elevator. Both the exterior structural characteristics and interior design and finish do not lend well to a modem reuse, particularly the wide central corridors. Our analysis of a reuse potential is very similar to that expanded upon for the Male Attendant's Building. In the case of this building, it would be necessary to incorporate the central hallways into the tenant area, and depending on whether the walls along the hallways are load bearing or not, we question how the small (former resident) rooms off of the corridor would be incorporated into an efficient use of the space. It appears that the most logical subdivision of the building would be by one or two tenant spaces per floor, and if the floors were divided into two spaces, there could be an elevator lobby to each side (provided the layout was physically adaptable). Assuming a three-stop elevator, and stairways on the two ends of the building, net rentable area would likely be in the range of 15,000 square feet. We believe the most productive use of the space would be by single tenants per floor, however, market data shows that there are few office tenants in the local area market that have space needs in the range of 5,000 square feet. Considering the interior design, it is our opinion that the building would be most suitable as R&D space or to office tenants that require large open areas for drawing, design, drafting, etc., such as architects, engineers, design specialists, or similar. The central hallway could serve as the open work stations, and the small rooms could be complementary space for small offices, storage and file rooms, or other types of support areas. As indicated in our discussion of the economic feasibility of rehabbing the Male Attendant's Building, data within our office files suggests a price associated with a complete refit such as that required for the subject in the range of $80 to $100 per square foot. Therefore, as a simple test, it is reasonable that the ultimate value estimate of the property should exceed $80 to $100 per square foot in order to pass the test of economic feasibility, and values this high are not typical in the regional market. Relative to our cost projection, finishes alone, such as wall and floor coverings, ceiling finishes, and bathroom finishes are anticipated to cost $15 to $25 per square foot. The ceiling heights are much higher than the Male Attendant's Building, estimated at 14 feet, and it appears that modem, cost efficient HVAC systems could be adaptable, and be installed above suspended ceiling tiles. 1' In the our ana sis of lie pricing_assaciated_with_Class,A andmon-Class,- -.office-space, we--- recommended pricing for the leased space afthe subject based on market comparables at $9 per square foot (net, net, net). In the case of Building F, which requires a complete interior refinish, we estimate R&D, studio, or office rents would all be similar, and that the value of the view would flow to each of the potential users. Assuming that Building F is rehabbed to modem condition office space, average rent is estimated at $9 per square foot (net, net, net) for its 15,000 square feet of net rentable space. A vacancy factor of 10% of projected income would be deducted based on vacancy indicators from the market. An office space absorption rate of 10,000-12,500 square feet per year was projected, which would result in an estimated 15 to 18 month lease up for the building considering that 100 % of the building was rehabbed, and that Building F gained 100 % of the market share to Hospital Hill in the given time frame (no other inventory available). Therefore, the investor may have to absorb holding costs for a 15-18 month lease-up period. Considering projected levels of rent, and the lease-up requirement, it does not appear to be economically feasible to rehab/reuse this building as office, or R&D or studio space. Under a summary analysis,,the overall value of the building on the basis of its net income potential, is far below a projected cost of rehab. 4 If the developer feels that the rehab of this building would be one of the least. costly way to satisfy the "reuse" objectives of the CAC and City administrators, we believe it would be most feasible to renovate the entire exterior (three floors) but the interior of the first floor only. The upper floors could be barred from use, and could house mechanical systems associated with the first floor. This would also eliminate the need to install an elevator and 66 % of the interior refit. While this scenario does not result in an economically feasible alteration, it would substantially decrease the costs associated with rehab/reuse. ~;.Syt Page 6 4 E. ANALYSIS OF EMPLOYMENT TRENDS AS SUPPORT FOR I'ir~V DEVELOPS An employment trend analysis is undertaken in order to project the demand for land absorption and new buildout in the market on the basis of projections for new job growth. At this time, the region's employment base is centered in the service industry, which is followed by wholesale and retail trade sectors. This reflects a shift from the 1980's when the wholesale and retail sectors led employment, and manufacturing also played a more significant role in the regional economy, Over time, the technology and fiance sectors are expected to capture an increased portion of employment, and the fact that the area has the capacity to produce a well educated work force will facilitate the transition, provided the area can retain a portion this educated work force. The largest employer in the region at this time is the University of MA (Amherst). Other major employers consist of Mass Mutual Life Insurance Company, Baystate Medical Center Inc., Milton Bradley Co., City of Springfield, Smith College, and others. The market focus in the analysis of employment trends is Hampden and Hampshire counties, which are considered the employment centers for the subject property as proposed. The Pioneer Valley Region will be referenced, which is a statistical sample consisting of select municipalities from Hampden and Hampshire counties. Most of the cities and towns. in each county are represented. Historical Employment Trends We have obtained employment data for Hampden and Hampshire Counties from the MA Division of Employment and Training (DET) for the period from 1991-2001 (seasonally adjusted). The data is outlined on the next page. Page 65 i R Employment-Hampden and Hampshire Counties (MA Division of Employment and Training) Hampden Hampshire 2001 199,673 79,170 2000 198,223 78,299 1999 201,135 79,341 1998 202,044 78,949 1997 199,216 75,546 1996 199,143 75,744 1995 197,293 75,152 1994 197,355 751263 1993 198,327 74,295 1 1992 197,372 72,908 1991 197,437 72,121 Growth 1991-2001 2,236 (1.1%) - 7,049 (9.8%) The data indicates that net job growth over the 11 year period was 3.4%. The most recent years have indicated little or no employment growth, and DET data reveals that employment levels in Hampden County actually fell between 1998-2001, and over the same period grew by less than 1 % in Hampshire County. There has been significant growth in the services sector, which is illustrated in the grid on the next page, however, this was clearly a shift in employees from other industries. i 9 Page -66 Figure 2 -F-mpl9Ym.gat-Hampden..and._dampshire Caunties_199.1-~OD1. 250,000 200,( 150,01 100,00 50,000 0 ® Hampden ■ Hampshire i i i 1 I I i i 1 J I i 'IUVI 1992 1993 1994 1895 1996 1997 1998 1999 2000 2001 Overall Employment Hampden & Hampshire Counties By Leading Industry Sectors (Source: County Business Patterns, U.S. Dept. of Commerce) 1995 1996 1997 1998 (11 1999 Services 79,318 80,500 82,572 112,931 114,318 Wholesale/Retail 56,097 56,436 59,737 45,684 43,876 Manufacturing 42,021 40,996 40,851 37,519 36,929 Government (2) N/A 40,908 N/A N/A N/A FIRE (3) 21,946 21,603 21,604 19,354 12,067 Trans/Comm/Utils 8,601 8,481 8,807 6,309 8,769 Construction 6,995 6,855 7,148 7,695 7,556 (1) in 1998, County Business Patterns adopted a new industry classification system, which resulted in shifts in some categories between industries. (2) County Business Patterns does not include most "government" employees in its data. The data is taken from Pioneer Valley Planning Commission Data for 1996 (only year avail). (3) Finance, Insurance, Real Estate Services The services sector includes a wide range of business types including the broad categorization of "customer service", hotels/lodging places, auto repair and parking, health, legal and other professional, and educational services. Our firm has been tracking employment data since 1991, and since that time the services sector has led the Pioneer Valley in numbers of employees. We noted above that in 1998 County Business Patterns adopted a new industry classification system. The North American Industry Classification (NAIC) replaced the Standard Industry Classification (SIC) code system, and will be phased into DET data as well. Due to the shifting of certain job categories between industries as a result of the reclassification, it is most prudent to compare trends from 1995-1997 separately from the trend between 1998-1999. Services Sector Employment Growth Trends Hampden and Hampshire Counties Source: County Business Patterns 1995-1999 (U.S. Dept. of Commerce) Years 1995-1997 1998-1999 Avg Growth/Year +1,085 (2.05%) +1,387 (1.23%) Services Sector page 67 overall emPIo ~,lon ee ey area. -Th yment data (DET) indicates that Hampshire County realized more the majority of the aggressive levels of growth than Hampden County over the period from 1991-2 growth occurred between 1991-1996 and in the four Years between 19988- 2001, DET data indicates a .growth rate in employment for Haulpshin Information taken from County Business Patter e County of less than I establishments, and payrolls for Hampshire County indicates that the growth in employment, for the period between 1995-1999. The data is has essentially paralleled :-Hampden County summarized below. Select Statistics (1) - County Business Patterns 1995.1999 Hampden and Hampshe (Source: U.S. Dept. ofCommerce) Counties Total Employment 1995 Total Employment 1999 Net Change % Change Hampden 172,641 179,680 +7,039 +4.08% Business Establishments 1995 Business Establishments 1999 Net Change % Change County Payroll 1995 County Payroll 1999 10,207 11,195 +988 +9.68% $4,437,688,000 $5,126,465,000 Hampshire TI-Hampden/Hampshire 43,492 216,133 45,390 225,070 +11898 +8,937 +4.36% +4.13% 3,215 13,422 3,505 14,700 +290 + 1,278 +9.02% +9.52% $921,197,000 $5,358,885,000 Net Change $1,092,231,000 % Change +$688,777,000 +$1000 +15.527, +18.57% (1) Data compiled by County employment totals will not Business Patterns excludes most govern the the total compiled by the DET. $6,218,696,000 +$859,811,000 +16,04% ment employees and overall a Historical trends indicate that there was steady growth in employment which has particular relevance as the target market for in Hampshire County, interest that the rate of growth in em Io the subject property. It is also of ent in in the last four years, compared to higherrrraes Of growth in tChe earl ntY appears to have stabilized Projections for future employment (to be discussed) reveal a continuy to mid 1990s, ance of current trends. t;, V Page 68 We have selected the time frame from 1995-1999 as most representative of the current economic climat-e`Itss-of note-that -ov-er the- per3ed-of~nalysis-b-oUi- oitre~indica~ecl_ - - - - moderate levels of annual growth, and this was also true of the period from 1994-1995. Prior to 1994, Hampden County, experienced annual declines in total employment centered in job losses in the manufacturing sector. The total employment of Hampden County in 1987 was . 187,418 according to County Business Patterns data, which compares to 1999 employment of 179,680 from the same source, for a net loss of 7,738 jobs (4%). The trends for the last five to six years reveal stabilization after a shift in the leading employment sectors and we have isolated the last five years as most relevant for identifying trends. Hampshire County did not have a similar employment concentration in manufacturing enterprises, and did not experience a negative change in total employment over the 12 year period between 1987-1999. Projections for Future Employment Previously we identified the leading industry segments in the regional labor market, and trends in employment growth between 1995-1999 (Source: County Business Patterns). The DET .has prepared employment projections by Services District Area (SDA), to 2008 based on employment at 1998. The data reveals that future employment projections mirror growth over the last five years in terms of absolute numbers as well as the types of industries that will experience the most growth. We have not discussed employment on the basis of SDAs because we believe that the two- county data was more relevant. While the Hampden County SDA would provide a reasonable -comparison in employment with Hamden County in general, the Franklin/Hampshire SDA includes most of the cities and towns in Franklin County and it is our opinion that the subject will not draw heavily from the Greenfield market area and/or the more remote towns in Franklin County. However, the DET's projections on the basis of SDAs, are the only current employment projections available at this time, and we have looked to the SDA based projections for an indication of employment growth for the subject's market area. The DET's employment projections for the Hampden County SDA and the Franklin/Hampshire SDA. are outlined on the following page. Note the DET figures are. for the relevant SDAs, and are inclusive of government employees. ~ti~1La~ Page 69' Hampden County SDA t otal mployment (1) ervices, Inc. griculture taiUWliolesale ade nufacturing a, Actual 1998 % Share 198,220 100% 61,190 30.9% 45,510 23.0% 33,640 17.0% 31,900 16.1% Project 2008 Share 212,890 100% 74,050 34.8% 7-1 22 2.30,060 14.1% I FranltIin/gampshire Coup New Jobs I Actual 1998 Growth Rate % Share 6,14,670 7.4% 860 +21.0% 2,660 +5.8% (3,580) -10.6% Government Finance, Ins., Real Estate Transportation, Commun, Utility 34,110 16.0% 12,210 +6.9% 11,230 11,200 5.7% 5.3% 8,630 8,980 4.4% 4.2% (30) -0.3% 350 +4 86,480 100% 27,260 31.5% 20,370 23.6% 112,410 14.4 % 18 76 21.6% 2,610 3.0% 2,430 Proj ew Jobs r % Sh rowth Rate 91,85 370 q 100% 6.2% 30,65 90 33.4 % 2.4 21,430 60 23.3 % .2 1 1,040 (1,370) 12.0% -11.0% 20,780 2,110 22.6% +11.3% 2,590 (20) 2.8% -0.8% 2,570 Construction, 6,120 .1 % 2.8% 2.8% 140 Mining, +5.8%+. % 6,320 3.0% 200 2,730 2,790 (1) Excludes self-employed workers and some +3.3% 3.2% +2.2% 60 rs that are not covered b 3 0 % The DET projects a total by unemployment insurance. 81 % of the °ns growth centered in employment in the greater market area of 20,040 jobs with in services jobs. (Some of this growth could reflectshifts type from other .sectors.) other industries expected to contribute to in job trade and government and to a lesser degree, troverall job growth include construction/ g ansportation/communication/ utilities, and ~ . Consistent with historical trends to lose total jobs in the next ten ears. While grOwt m anufacturing and FIRE are SDA at a rate of 6.2 % is supported b the expected h Projected for in/ by historical trends in Hampshire Co n r,ampshire projected for the Hampden SDA far exceeds historically proven levels Much of the tS'~ the growth owth is a result of the aging of the population which will Of inent brine on adv growth, requirements for health care, therapy, boomers. Projected job growth is also a cfwictionlof , and related, to care forgthe ag g baby the marketplace, which has si creased role of technoIo gnificant employment demands that are not me gy in the t by the workforce. current to be the The occupations related to computers and computer support fastest growing occupations between 1998-2008. Jobs related services are projected "aining for the work force to adapt to new technolo related to education and count for a portion of growth in overall employm nt.and computer related jobs will also kk, t. Page 7 0 (Source: - ' `'J'"ea ZUU8 MA Division of Employment and Training) The DET has also m~PmJ '.ections--for-the-faste-st -gar-ouFing oceupation-sby-SDA-7-Al10 Me-- fastest growing occupations listed for each SDA are in the services industry, and in addition to those detailed below, include occupations in health and dental care, social services, financial ,services, education, and correction, and others. The projections for job growth to be.centered in the services sector is positive for the prospect of adding office and R&D space to the market area, and it appears that there will have to be an addition of space to accommodate the number of new jobs projected for the services sector. Hampden County SDA and Franklin/Hampshire County SDA Projected Job Openings by SDA and Occupation, 1998-2008 (Source: MA Division of Employment and Training) Zi~KCr Y. {.i~Nl t'_'•:'ti'rl::.;1::L r4 L~„a~s3•~~.~i, ',~r~.... Hampden County SDA Fr ankIin/Hampshire County SDA Growth Rate Projected Growth Rate Projected Computer Engineers 116% 163% Computer Support Specialists 47% 83% Systems Analysts 60%' 31% Home Health Aids 58% 50% Computer Programmers (1) 36% Medical Assistants 50% (1) Social/Human Service 49% 33% Assistants Teachers/Special Education 36% 30% (1) Not included in occupations expecting 25 % or greater growth. We recognize that some of the projected job growth in the services occupations indicated may result from a shift from other industries, such as FIRE. The decline in jobs from the finance, real estate and insurance fields is most likely to result from business consolidations and the advanced use of technology. to. service these businesses. Such business consolidations will therefore, be accompanied by vacancies in space traditionally occupied by banking and insurance headquarters and branches. The upside is that these headquarters were centered in the cities in the SDAs and based on our research, most of the vacancies have already occurred and in most cases (excluding Greenfield), the space has been reabsorbed. Page 71 Reconciliation o~ for Hospital Hill The services industry is projected to produce the most jobs that will materialize into demand for commercial and light industrial use space like that proposed for development at the subject. Relevant growth indicators researched from employment and census sources indicates the following: Job Growth/Loss Hampshire & Hampden Counties 1991-2001 (DET): +9,285 Employees (+3.4%) Hampden County +2,236 Employees (+1.1%) Hampshire County +7,049 Employees (+9.8%) Job Growth/Loss Hampshire & Hampden Counties 1998-2001(DET): 2,150 Employees (0.8%) Hampden County -29371 Employees (-1.2%) Hampshire County +221 Employees (+0.3%) Regardless of the apparent stagnancy in the local job market over the last four years, the DET has projected overall gains in employment for the next 10 Years, centered in job services industr. .The ~ growth in the y growth is consistent with statewide and national growth expectations that are related to the health and services requirements of the aging baby boomers, and the increased role of technology in the workplace. Projected Job Growth Franklin/Hampshire & Hampden SDA,, 1998-2008 (DET): +20,040 Employees (+7.0%) Hampden SDA +14,670 Employees (+7.4%) Franklin/Hamp SDA +5,370 Employees (+6.2%) The analysis of employment trends and projections is used to produce a correlation between projected job growth and the demand for new buildout to house the growth. In making this correlation, we will project what percentage of the total projected job growth, in our opinion, will be captured by Hospital Hill as proposed. It is important to recognize that the new job growth projected for the region may or may not result in the requirement for new buildout. Page 72 +J: ? ...----In fact, it is our opiniomthat-a-large-amount of-t-he-growth-projected or a services sector will be to existing area companies, such as the University of MA, Baystate Medical Center, Mass Mutual Insurance Company, and other major area employers, and new jobs in the services sector may not necessarily be accompanied by high demands for new commercial space. Other than in the light industrial and warehouse/distribution industries, the region has not had significant success attracting new firms to the area. Therefore, the existing businesses in the region, particularly those involved in the services sector, will likely be the employment base for a good portion of the projected job growth for the greater Springfield region. To correlate commercial space absorption with job growth, it is necessary to project what percentage of job growth anticipated for the region will be captured by Hospital Hill. As stated, the growth projected for the Hampden and Franklin/Hampshire SDAs is 20,040 jobs over ten years or 2,004 jobs per year. However, we have noted that the employment growth related to Franklin County is not likely to benefit the subject development. More importantly, we believe that.a substantial quantity of the projected growth will be to existing area firms and there may be redesign and expansion capabilities at existing properties to satisfy employment growth. Therefore, there may not be great demand for new space to house the projected growth. We have noted that we believe the subject property has a competitive advantage due to its Northampton location, and we believe that the property will be able to capture a steady percentage of the employment growth projected for the region at large. It is our opinion that the majority of the buildout will be for light industrial or light industrial/R & D, and these market sectors support a lower number of jobs than office, and we project that fhe subject will capture 2-3 % of the projected job growth for the region. The rate is an average stabilized rate projection and recognizes that there may be significant upward and downward fluctuations in certain years. Our projection appears reasonable based on slow, stable trends in employment growth evidenced in'the region over the last decade. Our projections reveal estimated job. creation at Hospital Hill of 50 jobs per year (2,004 X 2-3 We have looked to industry data for a benchmark indication of projected employment by square foot of building area developed. We have also reviewed projected employment for the recently brought on line CRBP (Chicopee) and the proposed HCDP (Holyoke). The data has a direct correlation between building use and employment and since our projections for the mix of space for the subject differ from that presented in the Master Plan, we have utilized a broad (blended) range for forecasting. 73 We have asset subject proper tY in the range of 470,0o0_5(00,00 0 square feetvic~and~ixezl^orse s ace a total buildout projected to hold office s ace, Office space has a higher conccentration of f of the in the general range of 1 job per 100-500 square feet of space square foot of light industrial space range subs - Average j per tantially from 1 job per 00 square feet o ss ace than 2,000 square feet, depending on whether there is a light or assembly process in place or a transit use. P 25 % of the total buildout will or for office or mix broad averages and the manufacturing creation in the broad range of 400-800 jobs overall ed. -use space, we have projected neption w jobat Considering a projection that 50 jobs will flow to fox total new jobs on the basis of buildout of 400-800 alb I H'~ eve s period of 8 to 16 years. J s, the new jobs year, and e could be absorbed ma It is also possible to consider fatal potential employment on the and the absorption projections for the land and buildout rounded to 10 years Ass over at Hospital Hill are realized at a rat nd basis of projected jobs per year over a period of 10 years, e of 5 jobs per year, and that the pro oject is ab orb d year absorption period. A total of 50~ obscould Potential) Y generate 500 jobs over the 10 is -within ~ on the basis of jobs per square foot of space built. the range of jobs projected 400 t 0 800) Conclusion of Job Growth Per year at Hospital Hill on the Basis Projections: so Jobs/Year °f Regional employment Potential Job Creation of Project on the Basis of Space Bu ' alt. 400-500 Jabs i Page 7 4 F. RECONCILIATION OFMARKET ANALYSIS AND SUMMARY OF ABSORPTION 1... ---PR0J-E-1M-0NS Density Factor The Illustrative Site Plan calls for gross building area of the'commercial and light industrial space totaling approximately 476,000 square feet at Full Build, plus approximately 207 units of housing. The proposed buildout results in a density factor of approximately 30 % . A 30 % overall density factor for the property is reasonable in order to maintain large amounts .of open space consistent with modem planned unit developments, and to preserve the historical character of the property. We have analyzed gross buildout on the basis of developable land area available. Modern garden parks and planned unit developments. in the market generally call for density of 25- 30%. Considering a projection for 52% open space at the subject to capture the natural setting and historical tone, we have assumed 30 % density of the commercial, light industrial, and residential space. With 49.2 acres anticipated for buildings, Hospital Hill has the potential for 642,946 square feet of commercial, light industrial, and residential buildout (2,143,152 SF Land X 30% density factor = 642,946 SF). We have made certain assumptions for the size of the residential units, and assumed projected buildout of commercial and light industrial space, in the range of 470,000-500,000 square feet, consisting of office, light industrial, and mixed- use space. This is similar to the Master Plan, indicating a Full Buildout of 476,000 square feet of commercial and light industrial building area, plus the proposed 207 units of residential space. Developable Land Absorption Projection for Hospital Hill We have looked to historical trends in absorption of developable land parcels for new projects and projected a market share to be realized at Hospital Hill. Based on the data available, we have projected a rate of absorption of developable land of 10 acres/year. Based on the Calthorpe & Associates Plan referenced throughout the report, and making some assumptions for the acreage associated with the residential uses, we have estimated a gross developable area associated with the commercial and light industrial development at 80 acres. Assuming absorption at a rate of 8 acres per year, total absorption would be accomplished in 10 years. It is important to note that we expect that the actual rate of absorption will be irregular and not occur in similar predictable increments per year (8 acres), however, for projection purposes, it is most reasonable to project a stabilized rate of average absorption to be realized. Absorption Projection at a Rate of 8 Acres/Year to Complete Full Sellout of 80 Acres Over a Period of 10 Years Page 7 5 i - Commercial BuildoutAbsor tion We have looked to historical trends in demand for new rove projected a market share to be realized at Hospital Hill. Based on in the market area and projected a rate of absorption of commercial space (modern office, related) of 10,000-12,500 square feet Per on the data available, we have P Year. Based on the market data available relative the light industrial sector, we have projected a rate of absorption th 35,000 e square feet per ear, alive to P Y The total projected absorptiofoHospJi Hill strspace of projected at approximately 46,250 square feet per yeaz wi light industrial use and 25 % co th a ro'ected therefore, mmercial use, p mix of space of 75 Assuming a total buildout projection of 476,000 square feet as indicated full buildout would be absorbed in a period of 10.3 years 476 in the Master plan, This is generally similar with projected absorption supports an overall on the basis ' Of SF/46,250 SF per yew.) absorption projection rounded to 10 years.~ land development and Similar to our assumptions for projected land absorption, that the actual rate of it is important to note that we.expect commercial space development and absorption will be irregular occur in similar predictable increments per year (10,000-12,500 SF commercial light industrial), however, for projection and not rate of average absorption to be realized, Poses, it is most reasonable to pro e'ct a OtabiIized Commercial Use Space Absorption Projection at a Rate of 10, 00042 500 Square F Light Industrial Use Space Absorption projection at a Rate ,eet/year_& to Complete Absorption of Full Buildout as per Master 476 00 Square Feet/year Market data has been relied upon for support ~ , 000 SF) in 10 Years and light industrial usespace. for our projected absorption rates for co The mix of the proposed 476,000 s eloped as Per the, Plan is 85 % commercial square use (office, R&D, mixed-use) and 15 % light reco different mix of space for deve opment at 73g%n~ 1ihat we have projected a substantially light industrial and 25 % commercial use. f~ yak;` Page 7 6 ~,~r i~ Projections for Employment We have also studied trends in employment and projections for growth in employment over the next ten years to support whether projections for new commercial and light industrial use projects will be accompanied by new jobs. The MA Division of Employment and Training projects total new jobs to the SDAs of Franklin/Hampshire and Hampden County at an average of 2,004 jobs per year for the period from 1998-2008. Historical trends are not supportive of the employment projections, however, dynamics in the job market coupled with demographic influences point to national and statewide projections for job growth. We have projected that Hospital Hill will capture a 2-3 % share of the job growth projected for the region, to result in projected new jobs for Hospital Hill at a rate of 50 jobs per year. Incorporating industry standards for employment on the basis of type of space built out has resulted in an estimated new job potential at Hospital Hill of 400-800 jobs over the projected absorption period, rounded to 10 years. Employment Growth Projection at a Rate of 50 Jobs /Year Supports an Estimated Range of Potential New Jobs to be Realized at Hospital Hill We note that our absorption projections assume that the pricing of the developable lots is in line with what the market can. command at this time and we have projected average pricing on ` Y the basis of developable acreage in the range of $60,000-$70,000 per acre. We have estimated commercial rents in the range of $6-9 per square foot (NNN) and rents for light industrial use space at an average of $5.00 per square foot (NNN). Storage and warehouse rents are projected in the range of $1-$4 per square foot. Page 7 7 I V- MARKET ANALYSIS - CONDOAfVqUM REH RESIDENTIAL AB/REUSE OF OLD MAIN t;11 Page 78 J A. STUDY OF INVENTORY AND MARKET ABSORPTION - - JPhe Nor Kamp on ousmg market is very diverse, including the condominium market. There was aggressive growth'(new developments and conversions) in the 1980s, however, by the early to mid-1990s, condominium development had nearly stopped, and growth had shifted to slow, gradual trends and new development of pre-sold properties, until the recent four to. five years, with another major trend in growth of new developments and conversions of apartment buildings to condominiums. Based on our research the recent stimulants to growth were: (1) an aging population that sought good condition (new) housing on a single floor with few _ maintenance requirements; and, (2) a Downtown market looking to own real estate, particularly better quality, larger units with amenities. The recent activity in the residential condominium market is not surprising given the local demographics indicates an aging population. Much of the new growth in inventory has been of suburban location properties which are being marketed to older aged buyers. Further, we believe that the demand for condominium units is tied to currently low interest rates with tenants evaluating costs of renting versus purchasing, particularly those tenants willing to rent at upper end rates. Overall, we believe that, as long as interest rates remain favorable, there will continue to be new inventory of condominiums brought onto the market, via conversions, as well as new development in the suburbs. Market research has indicated steady recent sales activity in the suburban market, in =w ' response to demand for suburban location units, we have learned that Creative Developers (Belchertown) will be presenting a subdivision plan to the Northampton Planning Department in June, 2002, for development of 85 condominiums on Burts Pit Road (Northampton). The plan called for two-story units with attached garages and pricing ranging from $175,000 to $250,000, and 12 affordable housing units included in the 85 proposed. The neighborhood indicated opposition and the developer has since altered the plan to a cluster development of single family homes. In Downtown, there are plans being presented to the City at this time for 10 new condominium units in Downtown, to be marketed in the $200,000-$250,000 price range. The 10 units are proposed for three different sites on Strong Avenue (6 units), North Street (1 unit), and Union Street (3 units), and each is a conversion from a former use. Reportedly there have been some pre-sales on Strong Avenue. The projected pricing falls within the range of recent high quality condominium unit sales in Downtown, which revealed transfer prices in the range of $210,000 to $290,000, and this range appears to set the ceiling for the market. We are also aware of a 10-unit expansion of affordable units on Michelman Avenue, however, lower priced units are not projected to be competition to the proposed reuse of Old Main due to the assumed costs of the conversion, which will be attempted to be offset by unit pricing. ' M Page 7 9 A major project proposed for Downtown will be the conversion of the a ) --mocha ommons o con o - ums. The location Ys on on western Previously Perimeter of Downtown, about 0.5 miles from the subject. New The South Property Street n was the I as a market Rehab/Reuse of a former school and discussed 1987• The apartments consist the conversion 54 one and two-bedroom units in n o ers on was completed in amenities, including on-site parking, We have been informed that Old°ndition, and with all I under agreement to sell to a local investor and the invest School Commons is residential units immediately subsequent to or intends to condominiumize the 54 units is between $150 to $175 per square foot of unit area, and taking possession. The projected sale price of the translates to a range of $100,000 to $200,000 for the one-bedroom in general, the pricing $300,000 for the two-bedroom units. units, and $200,000 to Old School Commons is a development consists of particular relevance to the subject. The property (approx. 62)000 SP associated with residential units). The original gross building area P was sold complex was between 1895 and 1913. The eo ro er nstruction date of the 1984,'and underwent a total rehab by private investors at a re orted by the City of Northampton in 1987). P cost of $3.5 million (1985- The rehab costs were centered in the residential units and the interior of was only 66 % rehabbed because the third floor space was excluded the commercial space the Arts has occupancy rights at $0 rent until 2014). Ad'u (N rt am on Center for j sting the cost data to allocate higher costs to the residential units reveals a rehab cost associated wi years ago in the range of $50 per square foot, the residential units nearly 20 As stated, Old School Commons has proved to be very successful, achieving vacancy levels superior to the market, and monthly rents well beyond the market average. condominium conversion will be well received by the market due to We believe that the activity in this market sector. However, an injection of 54 units into hee mark t et m m recent less rapid absorption than the market has witnessed to date since inventory mark ay reveal has been limited, and the units that have been brought on line have been in much smaller increments most recent new developments ranging from four with the to 12 units. !T y Page 8 0 J The market's response to the proposed inventory coming online is uncertain. Already, the l rate of unit sales evidenced between 1998-2000 has slowed. We have reviewed historicaU pubdis e y ankers Tradesman relating to annual condominium sales in Northampton from 1998 to the present. Review of Condominium Sales Activity - City of Northampton 1998-5/2002 (Source: Bankers & Tradesman) Year # of Sales % Ave. Price 1998 113 N/A $82,735 N/A 1999 145 +28.3% $102,951 +24.4% 2000 171 +17.9% $116,754 +13.4% 2001 88 -48.6% $108,532 -7.0% 2002 18 N/A $120,612 +11.1% As indicated, the number of condominium sales in Northampton from 1998-2000 increased annually and then decreased in 2001. Real estate developers and brokers who are involved with residential condominiums in Northampton believe that the fall-off in sales from 2000 -to 2001 was due to the lack of inventory as opposed to demand. This is supported by the fact that there are there only ten condominiums listed for sale in the Multiple Listing Service with two of the listings being under agreement to sell as of the time of this analysis. The sales outlined above reveal a maximum marketing time by unit of three months, and the average marketing tunes for the sales have. continually, decreased from 1998 to the present. It is our opinion that decreased unit sales between 2000 and the current time is likely related to both, decreased inventory, and some relief in the amount of penned up demand evidenced in the market. The market's reception to a proposed project that will inject a large amount of inventory, such as 54 units at Old School Commons is uncertain, however, since this project will come on line well before the subject, it is reasonable to assume that market demand W." be slower in two to three years, after the introduction of this new inventory, and any other ne~w inventory that comes on line (including at least 10 units proposed for Downtown as/d scussed). It is difficult to project at what level market saturation may occur. Analysis of local area demographics indicates that the population in Northampton and the surrounding tow i1not indicating increases, and in fact the overall population of Northampton fell by 1 %-between 1999-2000. The Town of Hadley indicated growth in population between 1990L2000 (13 on, however, from a housing standpoint, this market area is distinct. Since the. population is not increasing, the condominium market is tapping into other existing residential markets. i \ Page 81 It is our opinion that the condo - absorb-slow market will continue to be stable gradual-injecti,--~,~Ven or and will be able to amounts of inventory at high end , °wever, a market's capacity to sOrt large - Pricing, presents risk. The f up the subject would be introduced into a market that has experienced act that proposed (reuse) units at and is not projected for growth in population presents risk. tremendous growth necessarily have to be priced at the upper end of market Furthe pricing in ~o=tbto o its will scenario. In addition, favorable interest rates a have likele had ysis of this development high condominium sales activity Y a major influence time proposed reuse units in the area and it is unlikely current rates will be efOn the fect by at the subject might come on line. y the B. Projected Sale Pricing and Lease Pricing for Proposed Reuse Units The Northampton housing market is very diverse condominium market currently indicates sale pricesmran dirge condominium market. The $90,000 per unit to a high of $340,000. The pricing ranging from a general low in the range of $90 to $175 per square foot of inrio rIates to per square foot sathe le range of r unit t area. P es in We have targeted the upper end of the market price range $20 economic feasibility of rehabbing Old 'Main into residential co associated with such a rehab are anticipated ( 0,000-sums because for testing the to be well in excess o condominiums the costs interior unit area. $200 per square foot of A review of market sale data indicates that, while there A the of 00 k has been a stead $100, to $200,000 price range, the market is also willing y number of transfers $300,000 for condominium units both within g to pay $200, 000 to price (size, quality) has prompted and outside of Downtown, and the market for this the City, We are making growth new condominium unit development Main to a housing use e the assumption that in order to best offset the costs projects in Minimum, g use, units would have to be Of priced at $150 to 175 per converting Old and the most recent market data respective to sales of pricing is most relevant. P square foot n a units indicating upper end 1 • The former apartment building at 4-14 Bixby C converted to condominiums in 2000, and evidenced five unit gales at prices wntown Northampton and $290,000 in 2000. rthampton was $210, 000 2• There were three unit sales from 134-138 South Street on the Perimeter of Downtown Northampton (1999-2002) averaging prices of $250,000 to $290,000. 3. The proposed pricing for the 54 )02 is between $150 and $175 per square founits to c o of interior on line at Old School Co erior unit area, there will be 26 area. At $175 per square of t. units coming on line at prices from $192,500 to $320,250 ~ a Page 82 Property # of % Rent Rent Rent' Apts Vacant 113R . 2BR 3BR Comments 11-15 Fruit Street 12 0 $700 $900 Downtown on secondary street at the easterly end of Main Street. All electric Amenities include dishwashers, garbage, disposals and in-wall air conditioners, and off-street parking. Tenants pay own utilities. Two building complex, older building constructed 1970, second ' building in 1997. Randolph Place 48* Condo tniima 0 $700 $950 *Condominium units ,some of which are Randolph Place rented. Mixed-use condominium complex with commercial uses on the ground level. ' Downtown secondary street location. Tenants pay heat and hot water, 251 Pleasant St 6 0 Z:z 1:ti;~tier ti ' ° $900 This property is located in the same n; Y`yN';,i•? neighborhood a few blocks closer to ,;.s a ' ` Downtown. The buildin g is a three-story i rir •"•;i wood frame structure that was built circa 1900 but was completely gutted and renovated in 1997-1998, Amenities '"~*~;;,s include dishwashers .garbage disposals, l wa l-to-wallcarpeting, and off-street parking. Tenants pay all utilities. Laurel Ridge 72 312 Hatfield St 0 $670 $800 Suburban location off of North King Street. Amenities include dishwashers ; , garbage disposals, hardwood floors 1- } . BR units have 650 SF, 2 BR units have i 850 SF. Rents include heat and hot water, 111. we nave included only properties that indicate the upper end of market rents in order to test the feasibility of a reuse of Old Main, Properties in the market that sell or rent for far lower rents than that proposed for the subject due to unit size, condition, and/or the non market affordable units") rental structure have been intentionally excluded as not comparable. Some of these properties are located in Downtown Northampton and include; Pheasant Hill at 80 Barrett Street - 46 garden and townhouse style rented condominium units Hampton Gardens at 73 Barrett Street) - 207, l-BR, 2-BR, 3-BR, and 4-BR units • Millbank U Condominiums at IS & 79 Michelman Avenue - 18, 2BR apartments Old School Commons is an exception. Rents currently range from $700-965 for a one- bedroom unit and $1,100 to $1,725 for a two bedroom unit, and all utilities are paid by the tenants. The high end of the two-bedroom unit rents respect two story units on the fourth floor with skylights and central air conditioning. While the rental rate at Old School Commons cannot be supported by similar rents achievable in the marketplace, there is demand for the 'nits and since the units were brought on line in 1987 yacancy_has_been-less .than-5 % =fl~~r~r-,•~ nor Wit- F ,tiCiMR`. Our research further reveals that the plans for new inventory of 10 residential condominiums for Downtown (three properties) will be offered to the market in the LW !e of 20 - $250,000 per unit. And, the suburban devel _ - opments at 600 Florence Road, 15-25 Mountain Laurel, Whittier Street (Florence) and Woodland Drive, all in the City of Northampton, have indicated active sales activity at prices in the range of $250,000 to $300,000. The price ranges equate roughly to a range of market pricing from $110 to $175 per square foot. Available market data indicates that the high end of per unit pricing in the market is in the range of $150 to $175 per square foot of interior unit area and we have projected pricing for units at the subject within this range. Projected Pricing - Old Main Condominiums (Reuse): $1504175 PSF of Interior Unit Area In terms of projected rental pricing, there is very little rental data for condominiums that generate upper end sale prices because they are typically not rented. In general, market rent for a good quality two or three bedroom unit has a ceiling of $1,100 and $1,500, respectively, generally net of utilities (Old School Commons excluded). Property # of M,., w „ % Rent Rent Rent t Apts Vacant 113R 2BR 3BR Comments Hampton Court 77 0 $850 $1,100 $1,500 Downtown secondary street location. 20 Hampton Av& 13 Old South St Two separate multi-story buildings with 57 market rate units and 20 units for low/moderate income tenants. Amenities include dishwashers, garbage disposals, wall-to-wall carpeting, central air, men's and women's sauna rooms and community room. 1-BR units avg 586 SF, 2 BR units avg 906 SF, 3-13R units avg 1,280 SF. Rents include heat and hot water. 167 South Street 24 0 $700 $900- , (Market rate units only included in grid.) Y'"'LL > .$Subject neighborhood, on second ary street 1000 on southwest fringe of Downtown. The • 4 . , property concerns 24 all electric condominiums that are under single . ownership and are being operated as an apartments. The 12, two bedrooms are a 1! townhouses with 1'/2 baths and full basements. Amenities include dishwasher s, garbage disposals and in- wall air conditioners, and off-street parking. Tenants pay own utilities. Page 8 3 We believe utilizing the original exterior walls will end more than a modem reuse, - however, for the purposes of this analysis, and with a lack of any detailed data, we have estimate that cost of reusing exterior walls will be the same as reproducing the walls new. Site improvements, appliance packages, and common area furnishings would be at a cost over and above the estimated buildout cost of $100 per square foot. The cost is also before an allocation for developer's profit, which typically averages 10% of total hard and soft costs. In order to test the feasibility of a residential condominium reuse, we have estimated a total value of Old Main (the portion targeted for retention) under a condominium conversion, and tested whether it appears possible to complete the required rehab at a price that would be less than the estimated value. Based on building footprint plans provided by Arrowstreet, Inc. (Building Construction Diagram), we estimate that the original (central) section of the building that is targeted for retention and reuse comprises approximately 36,000 square feet per floor. We then applied certain assumptions for unit type, size, and number of units per floor., While we recognize this type of reuse will result in large variances in unit sizes and the mix of units, we used averages, which assists in making gross income projections. Our assumptions are derived from market research. Unit Size: 1,200 to 2;000 SF/Unit Average, Rounded to 1,600 SF/Unit Units Per Floor: 20 No. Bedrooms: All Units Assumed to be 2-BR Units for Presentation Purposes Common Area: 10 % of Estimated Building Area Considering Older Dated Design and Construction Materials We have used the above assumptions in projecting an Income and Expense Pro Forma that will ultimately reveal a value for the subject condominium complex on the basis of its income . potential. The Income Approach is the only applicable approach to value given that there is no market data relative to comparable sales of condominium projects that are proposed for conversion or in the process of conversion, and sold in bulk. Income Approach to Valuation (Development Analysis) The conclusion of value is presented for the purpose of testing the economic feasibility of a residential condominium reuse of Old Main The presentation is not intended to be an gppraisal but is based on anoraisal theory. Page 8 6 _-M stated,_-tl _ Mper-ty is-pla-=ed4o-unde3go-eonversian to-condamini Iea ru~~zatlon w ve a gap in the rental market. It is our opinion that proposed reuse condominiums at they subject will not be able to achieve rental levels achieved at Old School Commons because the subject lacks the Downtown location. On the other hand, the proposed reuse the subject may benefit from a market of tenants/owners that work on-site or plan toa a futurre time, and this may prove to be a valuable amenity. For analysis purposes, we have made the assumption that the reuse units at the subject achieve an average rent of $1,600 per month, net of utilities, which is at the upper end of rental pricing for the market. We have also assumed that all units are two bedroom units. An actual development would likely incorporate a mix of one, two, and three-bedroom units, and projecting 100 % two-bedroom units is beneficial in order to present averages with respect to interior unit area and with respect to gross income potential. Projected Rent Old Main 2 -BR Condominiums (Reuse): $1,600/Month, Net of Utilities C. Study of Economic Feasibility of Rehab/Reuse We have very little information regarding the proposed physical layout of a condominium conversion for Old Main, but are making the explicit assumption that such a conversion is physically possible. We have been provided with no cost data except for a schedule of costs associated with reinforcing the existing structure to retain the building for a potential reuse ($870,000). We have used this figure as a starting point, however, since we have no actual cost data and insufficient knowledge of the structural characteristics of Old Main, it is not possible for us to obtain useful cost data from the market. Arrowstreet, Inc. in their 3/15/02 Stabilization Report Executive Summary, indicates that the Old Main complex is in, "extremely poor condition" worst condition. It is this central section that has been slated or retention and the osts ofhe conversion to residential use, consistent with housing codes, will in our opinion far exceed the potential value of proposed condominiums on a sale or rental basis. Based on data from local area projects, as well as national industry manuals, the cost to develop a masonry condominium project, multi-story, with good amenities, is in the range of $90 to $110 (rounded to $100) per square foot of gross building area. The cost is intended to be inclusive of all hard and soft development costs, but excludes land and developer's profit. The stated cost assumes modern design, materials, plumbing, heating, and electrical systems, none of which will probably be available to the subject. The exterior masonry walls will need to be reused and evidence a construction date of 1935. We do not believe this will result in an 2 overall cost benefit because reusing the exterior walls brings on a requirement for customized ail. windows, preserving the porte cochere and other customized and original brick work, as well as customizing roof lines,* etc. Page 85 o Gross Potential Income is projected based on a projected a sale price per unit of $150-175 per square foot of interior unit area. We have assumed that total sellout of the projected number of units (60) will be accomplished in three to five years, or at a rate of 14-20 units per year. We have projected $0 unit price inflation during the sellout period. During sellout, units that have- not been sold could be rented at $1,600 per month, however there will be costs to the developer associated with rental units, and we have projected owner costs of taxes, insurance, and common area maintenance relative to rented units during sellout at a rate of $300 per month (net rental value of rented units $1,300/Mo). We note that the condominium fee will - cover holding costs associated with units that are condominiumized. We have processed a range of projected potential gross income to be achieved after complete sellout using a range of projected absorption periods (three to five years) and sale prices per unit ($150/SF to $175/SF). Projected Net Operating Income was discounted annually over the sellout period at a discount rate of 15 % in order to correlate the net proceeds with a net present value to the investor after the sellout. The discount rate selected is in line with the industry standard for this type of development. The resultant value derived ranged from $11,700,000 to $13,500,000 (rounded). We consider this a best case valuation scenario considering our projections for unit sale and rental pricing are at the upper end of the market derived ranges. Furthermore, the projected sellout period assumes that the subject property captures over 20 % of the market share of condominium unit sales in the City overall, on the basis of total unit sales in 2001 and 2002 (annualized). If the sellout period is extended to six to eight years, the net present value of the proceeds will decrease due to the effect of discounting, as well as the impact of increased holding costs to the investor. Based on market data available, it is our opinion that the costs associated with a rehab of Old Main for condominium use would be well in excess of $11,700,000 to $13,500,000, and this indicates that such a conversion is not economically feasible. In an overview, the estimated base costs associated with the development ($100/SF GBA), plus costs of site improvements, appliance packages per' unit, and an allocation for developer's profit, will far exceed the value range estimated. On top of base costs, Arrowstreet, Inc. has estimated an upfront cost to the developer to reinforce the structure for future improvement at $870,000, which also will not be able to be offset by the proceeds of this type of development given prevailing market unit sale rates, sale prices, and market rent. In summary, it is our opinion that the potential investment value of a residential condominium reuse of Old Main is less than the cost that would be required to complete the conversion, indicating that this type of reuse is not economically feasible. Completing this analysis required that we make a number of assumptions related to the physical layout of Old Main as a condominium complex. Page 8 7 ,J VI. MARKET ANALYSIS - HOTEL/CONFERENCE CENTER (NEW OR REHAB/REUSE) Page 8 8 A. Study of Inventory and Market Occupancy Rates In testing the economic feasibility of developing a hotel or conference center on the site we have undertaken a survey of competing properties from the target market consisting primarily of Hampshire County. The focus of our research is the Hampshire County market, specifically the City of Northampton, and Towns of Amherst and Hadley. The results of our research will confirm that the Hampshire County lodging market has historically evidenced strong financial performance. The market includes 1,024 rooms, including the Holiday Inn in Holyoke (219 rooms) which tends to compete with the larger facilities that provide banquet and meeting room services. Five of the lodging properties are commonly.owned/operated by "The Hampshire Hospitality Group" and its affiliate, and this entity is in the process of adding a new Econo-Lodge to Route 9 in Hadley, which will increase its ownership to six properties.- At this time, 28% of the market inventory is not affiliated with a franchise. The defined market includes five full service properties with complete banquet and conference facilities within a 10 mile radius (Hotel Northampton, Inn at Northampton, Country Inns and Suites/Delaney House, Lord Jeffrey, and Holiday Inn-Holyoke) of the subject. The four properties with complete conference and banquet facilities contain an inventory of 522 rooms. n Included in market inventory is the most recent market entrant, a.57-room Country Inns and Suites (affiliated with Radisson) located about five miles south of the subject, on Route 5 in Holyoke (Hampden County). "The rooms were recently constructed as an addition to a popular restaurant/banquet facility, The Delaney House. This property will benefit from highway visibility, and will compete with the Hampshire County market. Prior to this project coming on line, the most recent market entrant consisted of "Holiday Inn Express", located on Route 9 in Hadley. The market had witnessed some expansions and in 2000, the Quality Inn (former Econo Lodge) in Hadley expanded by 10 rooms. There was also an expansion in 1994 of the Howard Johnson's (Hadley). Also, as noted above, an affiliate of the Hampshire Hospitality Group recently purchased an older condition motel on Route 9 in Hadley (20-room "Country Belle" motel), and is in the process of converting the motel to a 63-room prototypical Econo Lodge, which will expand the market by another 43 rooms by 2003. Outside of Hampshire County, there has been significant development activity over the last 12 months, in the Springfield/West Springfield market, including the Town of Ludlow and City of Chicopee. The greater Springfield market, currently with approximately 2,100 rooms, will grow by another 25 % within the next 12 months with'the addition of four new hotels in 2002 and likely one more shortly after. A 90-room Hampton Inn on Memorial Drive in Chicopee is targeted to open in Summer, 2002, and construction has recently commenced on a 77-room Comfort Inn on Center Street in Ludlow. A new 88-room Residence Inn with direct highway access and visibility opened in W. Springfield in December, 2001. Page 8 9 Pa In Springfield,*a new 120-room Hilton Garden Inn (CT Riverfront) is under construction and _ planned to open in the Fall, 2002, and plans are in place for a new downtown "boutique" hotel (150 rooms) to be developed concurrent with a proposed new Convention Center. In addition to these projects, a new hotel property is included in the conceptual plan for the redevelopment of Union Station in Springfield, as an intermodal hub for the City and region. Springfield/West Springfield has historically existed as a distinct market from Hampshire County in the lodging industry, however, a major market participant in the Hampshire County market has reported that the.2001 addition of new rooms in West Springfield (Residence Inn) has brought. competitive pressures into the Hampshire County market with respect to pricing. The impact is also reported to be a function of decreased demand in the industry respective to the Western MA region in general. Uncertainty in the economy has reportedly resulted in decreased business and leisure travel, most notably in the last six months. A survey of some significant market participants has revealed that the indicators of financial performance in this industry, Average Daily Rate (ADR) and occupancy were below average in the first six months of 2002.4 It is difficult to gauge the extent to which the market will be impacted over the long term because the downturn has occurred under at least two changing dynamics, including, an increase in inventory, and economic softening, and we do not know how the market will respond to the increase in inventory when the economy, rebounds. We do know that the introduction of 100 new rooms at the Holiday Inn Express (Hadley) in 1999 'had very little impacted on market occupancy (sampling of Hampshire County properties) and market occupancy fell only 1 from 65 % to 64 based on research of occupancy before and after the introduction of this property. Our most recent market survey is reflective of market performance for 2001 (Year-End 2001) and it is important to note that market participants report that 2002 performance-to date is inferior to the same period in 2001. The Hampshire County region in general indicates the weakest performance in the lodging industry in the six months between Jan and June, and it would not be reasonable for us to present industry results for the First Quarter of the year, or annualize the results for presentation purposes. We note that the reader(s) should recognize that market participants report very recent performance that is inferior to the results presented. a The ADR for a lodging property and is calculated by dividing the total room revenues by the total number of available rooms, and is presented as an annual average. The occupancy rate is calculated by dividing the total number of occupied rooms by the total number of available rooms, and is presented as an annual average. Page 90 r-, Our firm has been tracking average occupancy in the market since 1995, and demand and pricing have indicated steady improvement since that time, with a slight decline in occupancy "--(6-5-9~o-to-64-%-)-in 2000-after-the- ddition of-the4-00-r-oomHoliday-4-nn Express-inHadley-.T-he-- - entrance of additional new inventory will likely have a greater negative influence on overall occupancy, particularly if coupled with decreased demand due to economic conditions, and if this proves to be a long-lived trend. In terms of new inventory, we have previously stated that there is a plan for an increase of 40 rooms in Hadley this year (Econo-Lodge). We are also aware that the Northampton Planning Department. approved preliminary plans for a lodging property with between 60-80 rooms on Atwood Drive in Northampton (1999). Also, in Hadley, the owner of the Quality Inn (recently franchised) has for several years, considered a new lodging project near the Exit 19 interchange, however, to our knowledge, this has never proceeded beyond very preliminary stages. At the University of MA, there has been some preliminary discussions of combining a new lodging property with a conference center on the Campus. Based on the recent cutbacks in State funding to the University as well as uncertain economic conditions overall, this project was not anticipated to be at the forefront, however, market participants now indicate that the new Chancellor has given some priority to this project, which is initially planned to include 20,000-25,000 square feet of meeting space and 125-150 rooms. Therefore, the 157 rooms (Country Inns and Suites and Holiday Inn Express) brought on line between 1999 and 2001, plus the expanded Econo. Lodge in Hadley, which will add another 43 rooms to the market by 2003; represent the new.inventory in the immediate market area. The impact of the new rooms at Country Inns and Suites has not yet been felt due to its very recent entrance into the market (2001), and the conversion/expansion of the Econo Lodge in Hadley will further test the capacity of the market. It is our opinion that when.the amount of new inventory is factored in with uncertain market conditions, existing properties will -reveal some deterioration in performance compared to historical operating performance in 2000-2001. Any further competitive pressures that the large amount of new inventory in the Springfield area market brings,. may further negatively influence overall market performance. It is likely that short term results at existing properties . will be impacted as the market tests new stock brought on line. Considering the overall influence of the weakened economy, we expect that at least in the near term, there will be a slightly negative, or at best, flat level of growth, in ADR and occupancy in Hampshire County market. Market Properties Defined The grid on the next page identifies those properties that comprise the Hampshire County lodging market, and as stated, two properties located in Holyoke that are felt to be competitive inventory to the Hampshire County market are also included. Page 91 OJ• TABLE 5. Inventory ofLodging Properties in Market Area Property/Location # Rooms Remarks Campus Center 116 U Mass location. Conference facilities. Amherst Lord Jeffrey 48 v- Full service with restaurant, banquet, conference facilities. Amherst Downtown"Amherst location. University Lodge 20 Limited service. Smaller property caters to U Mass. Amherst Downtown Amherst location. Holiday Inn Express 100 Limited service. Frontage on commercial corridor. Hadley New property 1999. Howard Johnson 100 Limited service, Frontage on commercial corridor. Hadley Quality Inn 70 Limited service. Frontage on commercial corridor. Hadley New property 1999. Recenmt conversion from Econo-Lodge. Country Inns-Delaney House 57 Full service with restaurant, banquet, conference facilities. Holyoke Suburban location two mi. from Northampton I-91 interchange. Holiday Inn 219 Full service with restaurant, banquet, conference facilities. Holyoke I-91 location benefited by immediate access to regional mall. Autumn Inn 30 Limited service. Smaller property caters to Smith College. Northampton Smith College location at Downtown Northampton periphery. Best Western 66 Limited service. I-91 location. Northampton Clarion Hotel 124 Full service with restaurant, banquet, conference facilities. Northampton Recent conversion from independent. I-91 location. Hotel Northampton 74 Northampton Total Inventory 1,024 Full service with restaurant, banquet, conference facilities. Downtown Northampton location, Our review of operating performance for the defined market area reveals indicates occupancy and ADR levels ranging from 57 % to 75 and $60 to $104, (rounded) respectively. The $81.29, respectively. The market benefits from the demands of the University of MA as well as the other colleges in Hampshire County and the cultural and artisan attractions offered in the Hampshire County area. The Hampshire County economy benefits from a significant amount of business travel, and there has been some growth in the office sector in the neighborhoods around UMass. Our research of the Hampden County market indicates average occupancy and ADR of 64 % and $90, respectively, at a similar time frame (1/02) as our survey of Hampshire County. The average performance indicators for Hampden County are highly influenced by two full service properties located in the Springfield CBD (Sheraton and Marriott) that comprise approximately 30% of the total rooms in the market, and indicate absolute high end results for the market area. Proposal for Conference Center The market appears to have a sufficient quantity of full service lodging properties at this time, and during our research we have not seen strong evidence of demand for this type of facility. Of the 12 properties presented in the Hampshire County market area, five have complete conference and banquet facilities (noted). The properties with proven market performance indicate successful operating results, with profit margins at the upper end of the industry range. The Campus Center at UMass is an older condition motel with conference facilities and limited food service, and is not included in the five properties with complete conference/banquet facilities. The property has 116 rooms, and 2001 reported ADR and occupancy rates of $60 and 60%, respectively, were at the lower end of the market range. As noted. above, there are some preliminary discussions at UMass of developing a new conference center. Preliminary plans called for combining a new lodging property with a conference center, and reportedly one or more feasibility studies have been completed. Market participants report that the initial proposal calls for 20,000-25,000 square feet of meeting space, plus 125-150 hotel rooms. Reportedly the new Chancellor at the University has indicated a commitment to this project, even in view of severe cutbacks in the State budget to the University. The Springfield market area (Springfield, West Springfield, Chicopee) has at least six major conference and banquet facilities that are tied to hotels, that reportedly are not operating at full capacity at this time. Furthermore, these properties are expected to feel some negative impact from the City of Springfield's plans to develop a new Convention Center together with a new Civic Center in Downtown. Page 9 3 The State has committed $66 million cost overruns) for the construction, of a Convention Center and renovation of the existing Civic Center. The project is expected to commence by 2002. The project's timing is hoped to be generally coincident with the opening of the new Basketball Hall of Fame (Fall, 2002) with the goal of an aggressive growth in tourism to the City and region. In most cases, the magnitude of this facility will provide it with a distinct market, however, with respect to municipal functions and larger events, the proposed Conference Center may draw from the high quality existing conference/banquet facilities in the City. It is of note that virtually all of the lodging properties in Western MA that have been developed since 1999 are limited service motels, such as Holiday Inn, Comfort Inn, Residence Inn (Econo-Lodge proposed), Hilton Gardens, and others. Market research reveals that conference, food and banquet services are, in many cases, not self-supportive and take away from overall profitability. Therefore, the trend in development is for limited service franchise properties. There are exceptions in the market, such as the Hotel Northampton, Delaney House (Holyoke), and Lord Jeffery (Amherst). These are established properties with quality restaurants that are an equal attraction to the lodging element, and market participants report net profits on food/beverage and function related income in the range of 10-15 (Operating results for Delaney House are prior to the addition of Country Inns and Suites, which came on line in 2001.) Market data indicates significant risk in the lodging and conference sector at this time, and it is our opinion that there is not proven demand for this type of use in the Hampshire County market. There has not been a recent start-up of a full service lodging/conference facility to use to test market reception, and this is negative to the extent that market investors have not recognized that there is sufficient demand to justify such a development. We have uncovered data relative to a significant new market entrant/reuse in Southbridge, MA, and to-date, market reception to this property has been poor. Southbridge Hotel and Conference Center The Southbridge Hotel and Conference Center opened in January, 2002 after an $89 million renovation of an old brick factory that was the former operating facility of American Optical Co. The factory closed in the early 1990s after a 150 year operating history. The property, includes 150 acres of land, and the renovation (original section circa 1840+/-) resulted in a state of the art facility with 203 hotel rooms, high tech conference rooms, ballroom, auditorium, and dining rooms, all with quality furnishings, art and other amenities. Page 9 4 . To date, almost none of the rooms are being used, and in order to maintain operations, the ,;t property depends on substantial government subsidies. The U.S. Department of Defense, via a . - .L .L,. C--:,:,-, 4.11)1 nnn day to rent 54% of the motel rooms for the next 20 years. The contract was used as collateral by the developers of the property. The Department of Defense will reportedly use the. facility for management training, and while the government contract effectively supports this property, in May, its utilization was only 16 % of the rooms it is paying for, or approximately 18 rooms. Representatives of the Town of Southbridge and of the MA Legislature which advocated the project, are expecting the property to achieve better utilization in the future, and are marketing the property to other government agencies and general commercial markets. The Town of Southbridge (population 17,000) is reportedly witnessing some economic benefit from the project, including the jobs generated by the facility (130 people), and some signs of commercial development hoped to benefit from the tourism generated by the Hotel and Conference Center, such as new movie theater and restaurants. We believe that the initial market response to the new product provides an indication that there is not good demand for this type of facility in the market, and in fact, the property would not have been developed without the government subsidies* via the contract with the Defense Department. The fact that the facility was developed outside of a major city market is fairly unique, and it is our opinion that commercial users would rather conduct conferences in larger cities, with a wider array of services and amenities. Clearly, this product with an $89 million price tag would not pass the test of economic feasibility for new development. B. Study' of Economic Feasibility of Hotel/Conference Center as Rehab of Old Main or New Development In order to test the feasibility of a hotel/conference center reuse or new development, we have estimated a total value of a lodging property on the site on the basis of projected gross revenues per room, and tested whether it appears possible to complete a rehab at a price that would be less than the estimated value, or endeavor a new development project at a price that would be less than the estimated value. Because we do not have cost information relative to a rehab, this appeared to be the most reasonable approach. Market data will be used to form a projection for total rooms that could be accomplished in Old Main, and for projected gross sales per room, and profit margins. We will test the economic feasibility of this type of use once the property achieves stabilization, and have not considered the negative impact on profit (or loss results) during start-up and initial absorption to stabilization. Stabilization of this type of property may take anywhere from three to five years, depending on the size of the property developed. Market cost data will be incorporated into,the analysis of the feasibility of a new development. After analyzing potential value on the basis of income potential, we will briefly discuss the per room sale prices indicated by recent market transfers. _ Page 9 5 The most successful and established conference and banquet facilities in the market area report net profits on food/beverage and banquet revenues in the range of 10-15 with gross sales - av-raging-in-the-$3-million-r-ange-Ot4i-e-1e-ss-succe-s-sful-propertie-s-r-eport-net4-es-se-s-or-bre-ak - even performance, or have resorted to renting rooms only and subcontracting additional services on demand. There is a wide disparity in the types of conference facilities available in the market, including variables of size, quality, pricing, location, etc. To our knowledge, there is no real conceptual plan for a conference facility at the property at this time, and in response, we have not addressed the income potential for the banquet/conference element of a proposed hotel/conference center. We do note that the start-up performance of the Southbridge Hotel and Conference Center, developed to state-of-the-art standards at a substantial cost, points to a poor outlook for operating profitability. Projection for Number of Lodging Rooms to be Created at Old Main The building footprint plans (Arrowstreet, Inc., Building Construction Diagram), indicate that the portion of Old Main selected for retention has approximately 36,000 square feet per floor, for a total of 108,000 square feet. We have made the explicit assumption that the structure is compatible with a lodging/conference center use, and we expect that the costs associated with redesign of the original structure for this use would be well in excess of the costs of redeveloping this type of project new. Market data from recent developments in the area reveals a range of rooms per square foot of gross building area for limited service hotels, of 1 room per 500-600 square feet of gross building area developed. Full service facilities have greater quantities of common area and reveal a ratio rooms per square footage of building area ranging from 1 room per 700 square feet to 1 room per over 1,000 square feet of building area. Old Main is not a modern facility and would not have a functional design to minimise common area, and we have projected that approximately 100-110 rooms would be developed under a reuse scenario (1 room/982-1,080 SF average). For presentation purposes, we have rounded the projection to 100 rooms. As stated, at January, 2002, the defined market indicated a range of ADR from $60 to $104, (average $81.29), and occupancy ranging from 57 % to 75 % (average 64 The market data reveals an average expectation for per room sales of $13,000 to $25,000, and the majority of market lodging properties indicated a range of per room sales from $16,000 to $22,000 in 2000-2001, with only two properties indicating higher per room sales than $22,000. We have projected per room sales for the subject under a lodging use rounded to $20,000 per room. We recognize that market sales data reflects significant variations in property size, condition, location, and other factors. Page 9 6 Prior year periods However, as we stated it is not prudent to project future sales based on the weakest quarter of the year for the industry region-wide (O1), and longer-term effects of the decline'in the First Quarter. 2002 are not vet known. We have used the above assumptions in projecting an Income and Expense Pro Forma that will ultimately reveal a value for the subject as a lodging use on the basis of its income potential. The Income Approach is applied as a function of the availability and applicability of market data. V Income Approach to Valuation (Direct Capitalization) The conclusion of value is presented for the p=ose of testing the economic feasibility of a hotel/conference reuse of Old Main or new development The presentation is not intended to be an appraisal but is based on appraisal theory Gross Potential Income is projected at $2,000,000 (100 Rms X $20,000/Rm). Market data indicates net margins for this type of property in the range of 40-50 % of Gross Revenues, and Net Operating Income (before deductions for financing, depreciation/amortization and taxes) is projected at $800,000-1,000,000 (40-50% Net Margin). NOI is correlated to value via application of a market derived capitalization rate. The capitalization rate factors investment risk and a desired dividend to the investor. The capitalization rate is derived from the ratio of NOI to sale value at the most similar market transfers. Assuming a capitalization rate in the range of 12 % to 13 reveals an overall value indication in the range of $6,150,000 to $8,325,000 (rounded). The ultimate value on the basis of income potential, before consideration of additional income associated with a conference facility, is clearly insufficient to support the costs of a rehab/reuse considering that the costs of a rehab would have to be less than $80 per square foot of gross building area. Our research-of available market data indicates that this type of reuse would not be possible with a budget in the range of $80 per square foot. . In terms of 'value on the basis of comparable market sales, the estimated value range ($6,150,000 to $8,325,000) equates to a value estimate of $61,500 to $83,250 on the basis of a per room value. This range is well above the range of sale prices evidenced in the subject's market area for a lodging use with more than 30 rooms. The most recent sale data available in the market points to a per room range of sale pricing from a low of $21,311 to a high of .$50,000. Page 97 a A.5 We note that the estimate of value delivered is reflective of an estimated value of the oing concern in this type of property, and some value is implied in the non-realty associated with the property, such as furniture, fixtures, and intangibles like good will. Comparison of Value Versus Costs of New Development The most relevant market data relates to development costs on the basis of cost per room developed, however, the recent projects developed in the area were modern, franchise prototypes with minimal allocations for common space, and were not reflective of full service conference facilities. The most recent market development projects, such as the Holiday Inn Express in Hadley, and the proposed Econo-Lodge in Hadley, as well as a Holiday Inn Express in Great Barrington, indicated a fairly tight range of per room construction costs of $41,000 to $47,000 per room, before F, F, E, site improvements, developer's profit, and land cost. Because the subject is proposed as a hotel/conference center use, we have looked to the data on the basis of cost per square foot of building area developed, which is likely a better cost parameter, and made the assumption for a 108,000 square foot project. The comparable projects indicated a range of cost per square foot of building area in the range of $67 to $74, before site improvements, F, F, E, developer's profit, and land acquisition. Assuming gross building area developed of 108,000 square feet (similar to the estimated size ! of Old Main), and a rounded per square foot cost of $70 per square foot, the base construction costs alone would be in the range of $7,560,000. Additional costs are estimated at $10,000-15,000 per room for F, F, E and site 5 F, F, E $3,000-$5,000/Rm Site Improvements $500,000-$1,000,000(1) Total, Rounded $750,000 Site Improvements/Rm $7,500 Plus Developer's profit at 10 % of total development costs Based on this schedule, the total estimated cost new, (before land acquisition, and contingencies for cost overruns, is rounded to $9,700,000. Even if the project was scaled down by 107o-20% of the size, the potential value of the project would still be insufficient to justify development costs of anew project. Estimating a total building area in the range of 90,000 square feet (1 Rm/900 SF GBA), the projected cost would be in the range of $8,300,000, prior to allocating for land acquisition and contingencies, and this type of development does not pass the test of economic feasibility. 5 This cost will vary depending on the topography of the site, whether wetlands exist, and other physical factors. The cost will also incorporate allocations for paving (parking, driveways), lighting, landscaping, outdoor pools, lawn irrigation systems, and other misc. Page 9 8 The nroiect makes even less economic sense if we factored in the impact of the start-up on profitability in the initial years of operations, until the project achieves stabilization. Further, as stated, market conditions are projected as similar to that before the First Quarter, 2001, which as noted, has revealed very. weak results. We have processed what we believe to be a best case valuation scenario, assuming value at stabilization, break even results for the conference facilities, and market conditions similar to before the First Quarter, 2002. Based on market data available, it is our opinion that the costs associated with a new hotel/conference center or a rehab of Old Main for this type of use would be well in excess of the potential value of this type of development, and this indicates that such a conversion is not economically feasible. It is our opinion that the potential investment value of a hotel/conference use is not economically feasible. While it is concluded as a non-feasible rehab/reuse, this analysis required that we make the assumption that Old Main could accommodate a lodging/conference center use under a rehab/reuse scenario. Page 9 9 I VII. SUMMARY AND CONCLUSIONS Pagd- 0 0 -i ne attacnea report respects a Market Study directed at the reuse potential of the former NSH. Our analysis concerns the prospect for commercial and light industrial development on the property, as well as the economic feasibility of renovating certain existing buildings to accommodate residential and commercial reuses. We have also addressed the economic feasibility of developing a hotel and/or conference center on the site, including the concept of renovating an existing building for this type of use. The preceding Market Study presents our conclusions of an estimated time for complete absorption of the land dedicated to commercial and light industrial use development, of 10 years. The Market Study also presents a buildout scenario that is supportable by trends in the defined market area. In their Master Plan, the developers project total buildout of commercial and light industrial use space on the site of 476,000 square feet, and market data supports that this is a reasonable buildout expectation. Market trends indicate that a potential buildout of 476,000 square feet should achieve absorption within 10 years. This time frame is consistent with the absorption projection for the amount of developable land on the site that will be dedicated to commercial and light industrial buildout. Furthermore, employment projections compiled by the MA DET, which are presented in this Report, support that there will be a growth in employment in the market area to support increased inventory of commercial and light industrial use space. Based on our research, prevailing market demand has historically been centered in light industrial use development, and we have projected that approximately 75 % of the proposed buildout will be light industrial use space. This conflicts mith the Master Plan, which projects that the majority of the space developed (85 will be commercial (office, retail, mixed-use). Historical market trends, and the available inventory of competing modem office space, and R&D space in reuse properties in the immediate market area, are factors which present a conflict with the amount of commercial development projected in the Master Plan. In terms of the potential rehab of certain buildings slated for retention, it is our opinion that only the Memorial Complex/Recreation Building produces a rehab/reuse that appears economically feasible. Our analyses of potential value estimates associated with the other buildings under a reuse scenario concluded that prevailing market rent and/or sale prices are insufficient to support the costs associated with a rehab. We note that we have not been provided with renovation cost data, and have based renovation cost estimates on market cost data evidenced at somewhat similar rehab projects. We reached a similar conclusion in addressing the economic feasibility of a hotel/convention center on the site, whether via reuse or new development. Market data relevant to market conditions, gross income potential, and development cost data, reveals that developing a hotel/conference center on the site is not economically feasible at this time. Our conclusions are primarily based on historical trends in the marketplace and prevailing market conditions. We have also tried to make supportable projections related to market sectors and industries that are experiencing changing dynamics. It is our opinion that the data presented in this Report supports our projections and assumptions for the ultimate development of the subject site. Pagel 01 a e ADDENDUM ,t;t