1

An Appraisal of

A Commercial Property

Located at

6443 Ranch Road 12

San Marcos, Texas 78666

Date of Valuation

November 1, 2018

Prepared by

POSEY PROPERTIES – Appraisal Service

Randy D. Posey

4115 Oak Street

San Marcos, Texas 78666

Prepared For

David Bailey

PARADISE INVESTMENT PROPERTIES LLC

1010 E Avenue J

Grand Prairie, TX 75050

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November 1, 2018 POSEY PROPERTIES

Appraisal Services 4115 Oak Street, San Marcos, Texas 78666

David Bailey

Paradise Investment Properties LLC

1010 E Avenue J

Grand Prairie, TX 75050

RE: Commercial property located at

6443 Ranch Road 12

San Marcos, Hays County, Texas.

Dear Mr. Bailey:

At your request I have prepared an Appraisal Report in accordance with the Uniform

Standards of Professional Appraisal Practice SR 2-2.

The purpose of the appraisal is to estimate the “As Is” market value, of the fee simple interest

of the appraised real property. The acceptance of this appraisal assignment was not based on,

and the appraisal report will not be prepared or based on, a requested minimum valuation, a

specific valuation, a value within a given range, or the approval of a loan. The intended use of

the report is for valuation purposes.

I personally inspected the subject property and conducted the necessary investigation and

analysis. Consequently, I reached the conclusion that, as of November 1, 2016, the “As Is”

market value, of the fee simple estate of the subject property is:

ONE MILLION THREE HUNDRED FIFTY THOUSAND DOLLARS

($1,350,000)

The effective date of the appraisal is November 1, 2018. On that date Randy D. Posey

personally inspected the subject property. The date of the signature and this report is

November 9, 2018.

This letter of transmittal is part of the attached report, which contains summarized

explanations of the process used in arriving at the final value conclusions.

Randy D. Posey;

State Certified TX-1320652-G

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DESCRIPTION OF REAL ESTATE APPRAISED:

The subject property is located at 6443 Ranch Road 12, at the south corner of Ranch Road 12

and Hugo Road, San Marcos, Hays County, Texas. The subject’s general area is vacant land

in nature with scattered commercial and single family residential. The subject is located

between San Marcos and Wimberley in the Texas Hill Country.

The subject site consists of a 20.09 acre site. The subject is legally described as Lot 1, Section

1, Bridlewood Ranches, Hays County, Texas. The subject terrain is gently sloping, at street

grade, is an irregular shaped rectangular with good frontage along RR-12. The subject’s

frontage has a small drainage course that is located in the 100 year flood plain area. The

subject is not located within the San Marcos or Wimberley city limits boundary. Waste water

is provided by an onsite private septic system. Water is provided via a rain water collection

system.

The subject site is improved with a building that is 41’ x 155’ or 6,355 square feet of gross

building area. The building was built in 2005 with an addition doubling the size of the

building in 2017. The building has a concrete foundation, steel framing, metal exterior walls,

metal gable roof, and insulation on the walls and roof. Half of the building has a rock veneer

exterior. There is 1,200 SF of office area and 5,155 SF of warehouse area, plus storage over

the office.

The office area has rock flooring, sheetrock walls and ceilings, one restroom, central heating

and air, and is in good condition. The warehouse area includes one restroom, 9 overhead roll

up doors, which includes two dock high doors and a concrete loading ramp.

The subject is also improved with an 829 SF building that has been used for office in the past.

This building was reportedly built in 1995, on a pier and beam foundation, wood siding

exterior, metal roof, and central heat and air. The building is in average condition, but the glue

down flooring needs to be replaced in the near future.

The property has perimeter fencing, electric entrance gate, gravel driveway with a concrete

bridge over the water way.

The subject has a 121.8:1 land to building ratio, which is considered to be very high, as

numerous additional buildings could be built on the property. A more appropriate land to

building ratio of 10:1 at most would be appropriate, which would equate to approximately 1.5

acres of land. However, taking into consideration a portion of the front of the property is in

the 100 year flood plain area, approximately 15 acres was considered to be vacant “surplus”

land that can be developed with additional buildings or sold off separately.

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HIGHEST AND BEST USE IS AS FOLLOWS:

The subject contains a total of 20.09 acres of land area. The site is generally rectangular

shape and functional, and the topography is level. Physically the site is desirable for

construction due to topography, shape, access, and size. As explained earlier, the site is

located along RR-12, which is an important artery in the subject’s area, a location in which

various commercial developments are most probable and PHYSICALLY POSSIBLE.

The subject property is not zoned, therefore, virtually any us is LEGALLY PERMISSIBLE.

Occupancies and rental rates have shown steady improvement over the past 12 years with

these trends expected in the foreseeable future. Current levels in the subject’s area were

considered to be sufficient to meet typical debt service plus a satisfactory return of and on

equity, on new developments. Therefore, development of the subject site with some type of

commercial use was considered to be FINANCIALLY FEASIBLE and would bring the

highest return for the investment.

The highest and best use of the subject property “AS VACANT” is to be utilized as a

commercial type building.

The highest and best use of the subject property “AS IMPROVED” is to also be utilized as a

commercial use, or similar to the existing use.

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SUMMARY OF ANALYSIS AND VALUATION:

COST APPROACH

Replacement cost information was derived from the Marshall & Swift Valuation Service,

local builders and contractors. Typical depreciation is based on the estimated remaining

economic age/life method. The Cost Approach data included vacant land comparable sales

which have occurred within the past several years. The comparables included land in the

subject area between San Marcos and Wimberley, similar to the subject’s location.

From To

Annual Time Adjustment Compounded Monthly: 0% Jan-16 Nov-18

List of Comparables:

1) RR-12, just West of Hugo Road, San Marcos. 2) 12333 RR-12, Wimberley.

3) 1555 Steeplebrook, San Marcos.

4) 9901 Ranch Road 12, Wimberley.

Characteristic Comp-1 Comp-2 Comp-3 Comp-4

Acreage 33.516 12.36 28.02 71.83

Rating to Subj. Similar Similar Similar Similar

Adjustment Items

Date of Sale 1-30-18 7-1-16 5-21-18 5-17-18

$/Acre Actual $20,886 $20,429 $16,238 $12,738

$/Acre Time Adj.* $20,886 $20,429 $16,238 $12,738

Location 0 0 5,000 0

Size 0 0 0 5,000

Access 0 0 0 0

Improvements 0 0 0 0

Adjustment Total $20,886 $20,429 $21,238 $17,738

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LAND SALES ANALYSIS AND ESTIMATE OF VALUE

All of the land comparable data was located in the subject’s San Marcos/Wimberley market

area. This appraisal involved four closed sales over the past several years. This recent market

data is a good representation of the current level of land value applicable for the subject site.

Based on the comparable sales, no time adjustment was deemed warranted.

Comparable #1 was the January 30, 2018 sale of a 33.516 acre site located just west of the

subject on the southwest side of Ranch Road 12. This tract was considered to be similar

overall to the subject. This tract also sold 4-28-2017 for $12,043/Acre.

Comparable #2 was the July 1, 2016 sale of a 12.36 acre site located at 12333 Ranch Road 12.

This tract was considered to be similar overall to the subject.

Comparable #3 was the May 21, 2018 sale of a 28.02 acre site located at 1555 Steeplebrook,

San Marcos. This tract was adjusted upward due to its inferior location off of any main artery.

Comparable #4 was the May 17, 2018 sale of a 71.83 acre site located at 9901 Ranch Road

12. This tract was adjusted upward due to its larger lot size.

Considering all of the comparable sales data, a range in value is indicated for the subject site

of $17,738 to $21,238 after adjustments were made. Placing most weight on sale #1 due to its

most similar location, an indication of value at $21,000/Acre was felt to be most appropriate

for the subject. Based on this conclusion, the following estimate of value was made:

Estimate of Land Value – Sales Comparison Approach

20.09 acres @ $21,000/Acre = $422,000 (r)

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The value indicated by the cost approach is summarized below:

Replacement Cost Estimate:

Building: 6,355 SF @ $95.00/SF $603,725

Office Building: 829 SF @ $110.00/SF $91,190

Estimated Site Improvements

Drive, parking, and bridge 100,000

Septic System & Rain Water Collection 60,000

Fencing and Electric Gate 25,000

Miscellaneous & Contingency 25,000

Replacement Cost New of Improvements 904,910

Plus a minimal Developer’s Overhead & Profit @ 12% 109,000

Replacement Cost plus O&P 1,013,910

Less Physical Depreciation

2 year effective age/50 year life = 4% (40,556)

Depreciated Replacement Cost of Improvements 973,354

Plus Land Value (20.09 @ $21,000/Acre, rounded) 422,000

Indicated value from the Cost Approach $1,395,000 (r)

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MARKET APPROACH

The Market Approach data included comparable sales which have occurred within the past

three years. The sales that I examined were located in the general central Texas area, similar

to the subject’s location.

From To

Annual Time Adjustment Compounded Monthly: 4% Jan-2016 Nov-18

List of Comparables:

1) 7870 Ranch Road 12, San Marcos.

2) 295 Frog Pond Ln, Dripping Springs.

3) 218 Trademark St, Buda.

4) 3994 E Hwy 290, Dripping Springs.

5) 200 Stillwater, Wimberley.

Characteristic Subject Comp-1 Comp-2 Comp-3 Comp-4 Comp-5

Year Built 2005/17 2003 2012 2008 2002 99/06

Square Footage

Land-Bldg Ratio

6,355

137:1

8,615

25.28

10,000

8.09

11,000

4.63

12,900

6.09

9,684

4.89

AGIM 8.92 10.79 9.52 10.17 10.16

OAR 9.89 8.19 9.28 8.39 8.69

Rating to Subj. Similar Similar Similar Similar Superior

MLS # 4516262 2343095 6884203 5160173 4819248

Adjustment Items

Date of Sale 10-18-16 7-19-18 3-15-17 5-1-17 12-28-15

$/SF Actual $99.83 $120.00 $110.00 $102.33 $103.26

$/SF Time Adj $107.82 $120.00 $116.60 $102.33 $115.65

Land-Bldg Ratio 0 0 0 0 0

Location

Finish-Out/Size

0

0

0

0

0

0

0

0

(5.00)

0

Age/Condition 10.00 0 0 0 0

Adjustment Total $117.82 $120.00 $116.60 $116.66 $110.65

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The five comparables presented are sales of commercial/light industrial buildings in the

subject’s central Texas area, considered to be most similar to the subject. All of the

comparables were in average to good condition at the time of sale.

Comparable #1 was the October 18, 2016 sale of an office warehouse building located at 7870

Ranch Road 12, San Marcos. This property was adjusted upward due to its age.

Comparable #2 was the July 19, 2018 sale of an office warehouse building located at 295

Frog Pond Lane, Dripping Springs. This property was considered to be similar overall to the

subject.

Comparable #3 was the March 15, 2017 sale of an office warehouse building located at 218

Trademark Street, Buda. This property was considered to be similar overall to the subject.

Comparable #4 was the May 1, 2017 sale of a office warehouse building located at 3994 East

Highway 290, Dripping Springs. This property was considered to be similar overall to the

subject.

Comparable #5 was the December 28, 2015 sale of an office warehouse building located at

200 Stillwater, Wimberley. This comparable was adjusted downward due to its superior

location in Wimberley.

Considering all of the comparable sales data, a range in value is indicated for the subject of

$110.65/SF to $120.00/SF after adjustments were made. No one sale was given more weight

than the others. Due to the subject’s new addition and renovated condition, an indication of

value at the upper end of the range at $120.00/SF, was felt to be most appropriate for the

subject. Based on this conclusion, the following estimate of value was made:

7,184 SF GBA @ $120.00/SF = $862,000 (r)

The above indication of value does not take into consideration the subject’s approximate 15

acres of vacant “surplus” land that can be sold off, or developed with additional buildings.

The subject’s estimated land value in this appraisal was $21,000/Acre. Applying the

$21,000/Acre to the 15 Acres of vacant “surplus” land equates to $315,000 (15 acres @

$21,000/Acre = $315,000). Adding the $315,000 to the above value of $862,000, equates to a

total of $1,177,000. Based on this conclusion, the following estimate of value was made:

Estimate of Value Conclusion – Direct Sales Comparison

$1,177,000

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INCOME APPROACH

The subject building is currently owner occupied. I have examined various rentals of

commercial type buildings in the subject’s area.

The ranging from $9.00/SF to $18.00/SF/YR GBA. All of the rental were based on a Single

Net or “Gross” lease basis, which is typical for the subject property type, where the landlord

pays for taxes and insurance, and the tenant pays for utilities. All of the comparables are

located in the subject’s Hays County area, including San Marcos/Wimberley/Kyle and

Dripping Springs areas. An indicated rental rate at $15.00/SF/YR was felt to be most

appropriate for the subject property,

As indicated from the market data, general market conditions in existing comparable

properties are mostly occupied. The current level of occupancy in the market has continued to

strengthen over the past few years. Somewhere between a 5% to 10% vacancy allowance is

normally considered to be appropriate for an office/warehouse type property not

demonstrating an inherent weakness. A long term vacancy allowance and collection loss

factor of 5% will be utilized for the subject. Vacancy and expense information is based on

data gathered on comparable properties in the area.

The comparable sales data indicated overall capitalization rates of from 7.0% to 9.5%. The

wide range of OAR’s in the sales data is most likely due to inaccurate information being

reported and is not an indication of market variance. Judging from the market data and my

own experience, an OAR of approximately 7.5% to 9.5% is most appropriate for the subject.

If this Capitalization (discount) rate was to be equated to a “band of investment” discount

rate, the equivalent would be as follows: 60% to 75% loan position as 6% to 10% interest, and

a 25% to 40% equity position at 10% to 15% interest, would result in an overall indicated

discount rate of approximately 8% to 12%. An 8.0% discount rate, is in agreement with the

selection from my normal discount rate above, and appears to be reasonable for a “normal”

property type, similar to the subject property.

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The income approach using direct capitalization is summarized as follows:

Annual Gross Income

Building (7,184 SF @ $15.00/SF) $107,760

Less 5% Vacancy and collection loss = (5,388)

Effective Gross Income = $102,372

Less Operating Expenses = (20,360)

$9,700/Yr - Taxes

$2,000/Yr - Insurance

Utilities – Paid by tenant

6% of EGI or $6,140/Year - Management

Janitorial - Paid by tenants

$0.25/SF or $1,800/Yr - Maintenance –

$0.10/SF or $720/Year – Reserves (Capital maintenance)

Net Operating Income = $82,012

OAR of 8.0%

Indicated value, rounded ($82,012/8.0%) $1,025,000

The above indication of value does not take into consideration the subject’s approximate 15

acres of vacant “surplus” land that can be sold off, or developed with additional buildings.

The subject’s estimated land value in this appraisal was $21,000/Acre. Applying the

$21,000/Acre to the 15 Acres of vacant “surplus” land equates to $315,000 (15 acres @

$21,000/Acre = $315,000). Adding the $315,000 to the above value of $1,025,000, equates to

a total of $1,340,000. Based on this conclusion, the following estimate of value was made:

$1,340,000

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RECONCILIATION AND FINAL VALUE ESTIMATE

Application of three appraisal methods resulted in the following indication of value:

Approach

"As Is"

Cost $1,395,000

Sales Comparison $1,177,000

Income Approach $1,340,000

In analyzing these value indications two primary areas are examined in each approach.

1. The appropriateness of each approach or the approach's pertinence to the

purpose and use of the appraisal.

2. The quantity and quality of the data upon which conclusions are based.

All three approaches were used in this appraisal. Considerable weight was placed on the

Income Approach. It should be noted that based on the sales included in this appraisal

and discussions with knowledgeable brokers in the subject market the estimated

marketing and exposure time for the subject property is 6 to 12 months.

Based on the investigation and analysis as outlined, as of November 1, 2018, the “As Is”

value, of the fee simple estate of the subject property is:

ONE MILLION THREE HUNDRED FIFTY THOUSAND DOLLARS

($1,350,000)

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CERTIFICATION OF VALUE

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

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

- The reported analyses, opinions, and conclusions are limited only by the reported assumptions

and limiting conditions and are my personal, impartial, and unbiased professional analyses,

opinions, and conclusions.

- I have no present or prospective interest in the property that is the subject of this report and no

personal interest with respect to the parties involved.

- my engagement in this assignment was not contingent upon developing or reporting predetermined

results.

- my compensation for completing this assignment is not contingent upon the development or

reporting of a predetermine value or direction in value that favors the cause of the client, the

amount of the value opinion, the attainment of a stipulated result, or the occurrence of a

subsequent event directly related to the intended use of this appraisal.

- my analyses, opinions, and conclusions were developed, and this report has been prepared, in

conformity with the Uniform Standards of Professional Appraisal Practice.

- Randy D. Posey has made a personal inspection of the property that is the subject of this report.

- no one provided significant real property appraisal assistance to the person signing this

certification.

- the appraisal assignment was not based on a requested minimum valuation, a specific valuation, or

the approval of a loan.

- I have performed no services, as an appraiser or in any other capacity, regarding the property that is

the subject of this report within the three year prior immediately preceding acceptance of this

assignment.

Based upon the analysis, as set forth in the preceding pages, and upon my experience, the

estimated Market Value of the Fee Simple Interest of the property, under the assumptions and

conditions as stated is:

ONE MILLION THREE HUNDRED FIFTY THOUSAND DOLLARS

($1,350,000)

Randy D. Posey; State Certified TX-1320652-G

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ADDITIONAL APPRAISAL INFORMATION

The CLIENT and AUTHORIZATION for this appraisal, is to whom the letter of transmittal

is addressed.

The DATE this appraisal was prepared is the date on the cover letter, and the DATE OF

VALUE, is as specified in our Appraisal Summary and in our conclusion of value as stated

in our Letter of Transmittal.

The intended User(s) of this report is David Bailey.

The intended Use of the report is for valuation purposes.

The purpose of this report was to prepare an APPRAISAL of the subject property, and the

PURPOSE of the appraisal was to estimate the MARKET VALUE of the subject property.

The SCOPE of this appraisal encompassed the successful completion, according to the

Standards of Professional Practice, of a Cost Approach, Sales Comparison Approach, and

an Income Approach. The extent of the process of collecting, confirming and reporting the

data used in our analysis was sufficient in quantity and reliability to successfully complete

our work accurately. Each analysis area contained within discusses in depth the work

specifically completed for that section of the appraisal. Due to the summary format of this

appraisal, the market data and analysis summarized in this appraisal has been kept in my

files in a more complete form if needed for future reference and will be retained for a period

of at least five years. There were no HYPOTHETICAL CONDITIONS to the scope of our

work.

SUBJECT SALES/RENTAL HISTORY: The subject property has not sold within the past

three years and is not currently listed for sale.

The PROPERTY RIGHTS APPRAISED, Fee Simple Interest, are as specified in our

Appraisal Summary and in our conclusion of value as stated in our letter of transmittal.

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MARKET VALUE DEFINED

Market Value, as agreed upon by Federal Financial Institutions and the Uniform Standards

of Professional Appraisal Practice (USPAP) of the Appraisal Institute and of the Appraisal

Standards Board of the Appraisal Foundation, and defined by the United States Treasury

Department, Comptroller of the Currency 12 CFR part 34, 34.2(f), effective August 24,

1990, and FIRREA, 12 CFR part 1608.2(f), as:

The most probable price which a property should bring in a competitive and open market

under all conditions requisite to a fair sale, the buyer and seller each acting prudently and

knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this

definition is the consummation of a sale as of a specified date and the passing of title from

seller to buyer under conditions whereby:

1) buyer and seller are typically motivated;

2) both parties are well informed or well advised, and each acting in what they

consider their own best interest;

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

4) payment is made in terms of cash in U.S. Dollars or in terms of financial

arrangements comparable thereto; and

5) the price represents a normal consideration for the property sold unaffected by

special or creative financing or sales concessions granted by anyone associated

with the sale.

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ADDENDA

17

Front view of the subject.

Front view of the subject building.

Rear view of the subject building.

18

Front View

Rain Water Collection System

Interior of office area.

19

Interior of the Warehouse.

Storage area over office.

View of RR 12 from the subject building.

20

View of the Office Building

Street scene looking west along RR-12 with the subject to the left.

Street scene looking east along RR-12 with the subject to the right.

21

22

County Plat Map

23

Flood Plain Map

24

Improved Sale #1

Improved Sale #2

25

Improved Sale #3

Improved Sale #4

26

Improved Sale #5

27

28

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Extraordinary Assumptions and Limiting Conditions

The "Uniform Standards of Professional Appraisal Practice" of the Appraisal Foundation requires

the appraiser to "clearly and unequivocally set forth all facts, assumptions and conditions upon

which the appraisal is based." An extraordinary assumption may be used in an assignment only if:

• it is required to properly develop credible opinions and conclusions;

• the appraiser has a reasonable basis for the extraordinary assumption;

• use of the extraordinary assumption results in a credible analysis; and

• the appraiser complies with the disclosure requirements set forth in USPAP for

extraordinary assumptions.1

In compliance therewith, and to assist the reader in interpreting this report, such assumptions and

limiting conditions are set forth as follows:

That the date of value to which the conclusions and opinions expressed in this report apply, is set

forth in the letter of transmittal. Further, that the dollar amount of any value opinion herein

rendered is based upon the purchasing power of the American dollar existing on that date;

That the appraiser assumes no responsibility for economic or physical factors which may affect

the opinions herein stated occurring at some date after the date of the letter transmitting this

report;

That the appraiser reserves the right to make such adjustments to the valuation herein reported, as

may be required by consideration of additional data or more reliable data that may become

available;

That no opinion as to title is rendered. Title is assumed to be marketable and free and clear of all

liens and encumbrances, easements, and restrictions except those specifically discussed in the

report.

The property is appraised assuming it to be under responsible ownership and competent

management, and available for its highest and best use;

That no engineering survey has been made by the appraiser. Except as specifically stated, data

relative to size and area was taken from sources considered reliable and that maps, plats, and

exhibits included herein are for illustration only as an aid in visualizing matters discussed within

the report. They should not be relied upon for any other purpose;

That no opinion is expressed as to the value of subsurface oil, gas or mineral rights or whether the

property is subject to surface entry for the exploration or removal of such materials except as is

expressly stated;

That no opinion is intended to be expressed for matters which require legal expertise or

specialized investigation or knowledge beyond that customarily employed by real estate

appraisers;

1 Appraisal Standards Board, Uniform Standards of Professional Practice, USPAP 2000 ed. (Washington D.C.: The Appraisal Foundation, 2000), p. 15.

30

The testimony or attendance in court or at any other hearing is not required by reason of rendering

this appraisal unless previous arrangements have been made;

The data and statistical information contained herein was gathered from reliable sources and

believed to be correct. However, this data is not guaranteed for accuracy, even though an attempt

has been made to verify said information;

Neither all nor any part of the contents of this report (especially any conclusions as to value, the

identity of the appraiser or the firm with which he is connected, or any reference to his

designation) shall be disseminated to the public through advertising media, public relations

media, news media, sales media, or any other public means of communication without the prior

written consent and approval of the undersigned or firm with which he is associated, or reference

to the Appraisal Institute.

All reports are subject to review by the peer committee of the Appraisal Institute.

In this assignment, the existence of potentially hazardous material used in the construction or

maintenance of the building, such as the presence of urea-formaldehyde foam insulation, and/or

the existence of toxic waste, which may or may not be present on the property, was not observed

by me; nor do I have any knowledge of the existence of such materials on or in the property. The

Appraiser, however, is not qualified to detect such substances. The existence of urea-

formaldehyde foam insulation or other potentially hazardous waste may have an effect on the

value of the property. I urge the client to retain an expert in this field if desired.

Hypothetical Conditions

A hypothetical condition may be used in an assignment only if:

• use of the hypothetical condition is clearly required for legal purposes, for purposes of reasonable

analysis, or for purposes of comparison;

• use of the hypothetical condition results in a credible analysis; and

• the appraiser complies with the disclosure requirements set forth in USPAP for hypothetical

conditions.2

There are no hypothetical conditions in this assignment.

2 Appraisal Standards Board, Uniform Standards of Professional Practice, USPAP 2000 ed. (Washington D.C.: The Appraisal Foundation, 2000),

p. 15.