SELF-CONTAINED APPRAISAL REPORT

14416 Export Road Bordertown, Arizona 85621

Relevant Dates Date of Inspection: December 27, 2006

Effective Date of Value Opinion: January 27, 2007 Date of Report: January 9, 2007

Prepared for: William Banker, MAI

Chief Appraiser Arizona Community Bank

550 W. Van Buren St, Suite 1000 Phoenix, Arizona 85003

Prepared by: Allan Appraiser

7200 Arizona Avenue Tucson, Arizona 85701

Allan Appraiser

7200 Arizona Avenue Tucson, Arizona 85701

March 9, 2007 William Banker, MAI Chief Appraiser Arizona Community Bank 550 W. Van Buren St, Suite 1000 Phoenix, Arizona 85003 RE: Appraisal Report - 14416 Export Road, Bordertown, Arizona 85621 Dear Mr. Banker: As per your request, I have prepared an appraisal of the Single Tenant Industrial / Distribution Property located at 14416 Export Road, Bordertown, Arizona. The Legal Description of the property is:

Lot 3, Block 7, Bordertown Trade Center, City of Bordertown, Pima County, Arizona.

The purpose of this appraisal is to determine the "As Is" Market Value of the Fee Simple Estate in the property. The intended use of the mortgage underwriting. The Intended User of the report is Arizona Community Bank. In the process of preparing this appraisal, I have inspected the property and the surrounding neighborhood, researched the industrial property market, selected, researched, and analyzed appropriate comparable properties, and prepared all three approaches (Cost Approach, Sales Comparison Approach, and Income Approach) for estimating value. The Appraisal Report which accompanies this Transmittal Letter is a Self-Contained Report and contains full explanations of the data, analysis and reasoning used to reach my final opinion of value. Please be aware that this Transmittal Letter is not an appraisal report and the accompanying Appraisal Report must be read to fully understand my analysis and conclusions. Please also give special attention to the Assumptions and Limiting Conditions as outlined in the Addenda to the Report.

The relevant dates in the appraisal are: Effective Date of Value Opinion -- December 27, 2006 Date of On-Site Visit to the property -- December 27, 2006 Appraisal Report Date -- March 9, 2007 The analyses and results of the investigation presented in the attached appraisal report are intended to comply with the Code of Ethics and Standards of Professional Practice of the Appraisal Institute and the requirements of the current edition of the Uniform Standards of Professional Appraisal Practice (USPAP) as adopted by the Appraisal Standard Board of the Appraisal Foundation. Because this Transmittal Letter is not the actual Appraisal Report, I have not indicated my opinion of value in this letter. Please refer to the Summary of Salient Facts following the Table of Contents and the Reconciliation & Final Value Opinion in Section VIII of the accompanying Report. Thank you for permitting me to serve you by providing this appraisal. If you have any questions, please feel free to contact us. Sincerely, Allen Appraiser Certified Residental Appraiser AZ-1234567

TABLE OF CONTENTS Title Page Letter of Transmittal Table of Contents Summary of Salient Facts Exhibits & Maps I. PRELIMINARY MATTERS II. DESCRIPTION OF THE SUBJECT PROPERTY III. HIGHEST & BEST USE ANALYSIS IV. SITE VALUATION V. COST APPROACH VALUATION VI. SALES COMPARISON APPROACH VALUATION VII. INCOME APPROACH VALUATION VIII. RECONCILIATION & FINAL VALUE OPINION ADDENDA A. Appraiser Certification B. Assumptions and Limiting Conditions C. Qualifications of the Appraiser D. Land Sales Map & Sales Data Pages E. Improved Sales Map & Sales Data Pages F. Rent Comparables Map & Rental Data Pages G. Engagement Letter

SUMMARY OF SALIENT FACTS Property Type Industrial - Warehouse / Distribution Facility Property Location 14416 Export Road, Bordertown, Arizona Legal Description Lot 3, Block 7, Bordertown Trade Center, City of Bordertown, Pima

County, Arizona, as per Plat recorded in Volume 11, Page 86-87, Pima County Plat Records.

Property Rights Appraised Fee Simple Purpose of Appraisal Provide an opinion of "As Is" Market Value Client/Intended Use/User The Client is the Arizona Community Bank; The Intended User is

the Arizona Community Bank; and the Intended Use is mortgage underwriting

Land One Acre; 43,560 square feet, rectangular in shape, and level in

topography, in fully developed Bordertown Trade Center industrial park

Improvements One warehouse distribution facility, with 12,000 square feet of

Gross Building Area, pre-engineered metal construction, containing an office area of 866 square feet, covered dock-high loading dock, two roll-up overhead doors, fully fenced with chain link fencing, asphalt parking lot

Zoning "M-1" - Light Manufacturing District Flood Zone Flood Zone C, Panels 7354590650B and 7345590625B, dated May

17, 1982. Highest & Best Use Light Industrial - Warehouse / Distribution Relevant Dates Date of On-Site Visit -- December 27, 2006

Date of Opinion -- December 27, 2006 Date of Report -- March 9, 2007

Land Value $76,000 Cost Approach $430,000 Sales Comparison Approach $400,000 Income Approach $420,000 Final Opinion of Value $410,000

14416 Export Rd, Bordertown, Arizona

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SECTION I. PRELIMINARY MATTERS

Identification of the Subject Property The property that is the Subject of this appraisal is a 12,000 square foot Distribution/Warehouse building on a 43,560 square foot site, located at 14416 Export Road, Bordertown, Arizona. The property is legally described as follows: Lot 3, Block 7, Bordertown Trade Center, Phase 2, City of Bordertown, Pima County, Arizona, as per Plat recorded in Volume 11, Page 86-87, Pima County Plat Records. Extraordinary Assumptions and Hypothetical Conditions In addition to the Extraordinary Assumptions and/or Hypothetical Conditions listed below, please be sure to review the Assumptions and Limiting Conditions included in the Addenda as they are important in understanding the limitations of this appraisal report. Building Permits. The City of Bordertown Building Department did not have access to records of construction prior to the year 2000 so could not confirm whether the improvements were built with permit. However, during my visit I did not observe any improvements that had the appearance of additions subsequent to original construction that would require building permits. Therefore . . . . It is an Extraordinary Assumption of this appraisal that all improvements were built to the building codes in effect as of the date of construction, and there have been no additional improvements requiring permits since the original construction. Fuel Storage Tanks. There is a fuel storage tank just inside the North overhead door that is used to store diesel fuel. This storage tank is not registered with the Arizona Commission on Environmental Quality as it is less than 1,100 gallons and is not required to be registered. Therefore . . . . It is an Extraordinary Assumption of this appraisal that this fuel tank has not had any leakage and has not caused any environmental contamination. Competency Provision USPAP requires that an appraiser state whether he is competent to perform a given appraisal based on experience and training. I have the experience and training that indicates competency to perform this appraisal. Scope of Work USPAP requires an appraiser to describe the scope of work used to develop the appraisal. Below I have outlined, in a brief bullet format, the research and analysis I performed in the preparation of this appraisal report. Research I performed the following research activity: a. Drove the neighborhood surrounding the Subject, taking note of "for sale" and "for lease" signs on properties similar to the Subject; observing the dynamics of the real estate property types, level of development, traffic patterns, and property condition; and making other relevant observations that may affect a valuation decision.

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b. Made a personal visit to the Subject and performed a visual observation of the land and improvements, including the interior of improvements, took numerous photographs, and measured the improvements. c. Researched the economic, geographic, and demographic information of the community and the neighborhood. d. Contacted local real estate brokers to determine rental rates, absorption rates, lease commission rates, and other relevant marketing information for properties similar to the Subject. e. Contacted local property managers and leasing agents to locate occupancy and operating data for properties similar to the Subject. f. Took numerous photographs of the Subject, comparable sales and rentals, and other relevant features of the immediate market, some of which are contained in this report. g. Investigated the real estate tax assessment information with the local Appraisal District. h. Investigated the local zoning ordinances and zoning of the Subject and surrounding property. i. Researched the history of ownership of the Subject over the past several years, including any listings, sales, leases, and offers to sell or lease. j. Obtained a flood map of the area surrounding the Subject, and identified the relevant flood zone. Analysis I performed the following analysis: a. Compared the features of the comparable land sales, and prepared a comparison grid with appropriate adjustments to reach an opinion of land value for the Subject. b. Researched the construction reproduction cost for the Subject using the Marshall Valuation Service resources. c. Performed a Highest and Best Use analysis of the site and a market analysis of the industrial property market in Bordertown. d. Reached an opinion of value of the land as though vacant. e. Reached an opinion of value using the Cost Approach. f. Reached an opinion of value using the Sales Comparison Approach. g. Reached an opinion of value using the Income Approach. h. Reached a final opinion of value after reconciling the results of the individual approaches. Composition I composed a Self-Contained Appraisal Report, including a complete discussion of the data, analysis, and reasoning, used to reach my final opinion of value. Purpose of the Appraisal The purpose of this appraisal is to provide an opinion of the Market Value (as defined below) of the Fee Simple Estate of the Subject Property as of the Effective Date of the appraisal in its "As Is" condition on the date of my on-site visit to the property. Identification of the Client The Client in this assignment is the Arizona Community Bank, 550 W Van Buren St, #1000, Phoenix, Arizona. Intended Use of Appraisal and Intended User The intended use of this appraisal report is the mortgage loan underwriting by Arizona Community Bank. The Intended User of the report is the Arizona Community Bank. No other use by any other user is permitted without prior written authorization of the appraiser signing this report. Property Rights Appraised The property rights appraised in this appraisal is the unencumbered Fee Simple Estate. The Fee Simple Estate is defined as follows:

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Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers or taxation, eminent domain, police power, and escheat. The property is owner-occupied, and there is no Leased Fee or Leasehold interest involved. Therefore, I have only addressed the Fee Simple Estate in this report. No analysis or valuation of personal property, including trade fixtures, is included. All liens and encumbrances are disregarded in the value conclusion of this analysis. The property is considered as though free and clear of any liens or encumbrances. Relevant Dates in Report The dates in this report are important because the value conclusion is valid only as of the Effective Date of the opinion of value. Changes after that date may have an impact on the value of the Subject property. Therefore it is important to clarify the relevant dates in this report as follows:

RELEVANT DATE DATE Date of On-Site Visit to the Subject Property December 27, 2006 Effective Date of Opinion of Value December 27, 2007 Date of Report March 9, 2007

Definition of Value The definition of market value as used in this appraisal is: 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: Buyer and seller are typically motivated; Both parties are well informed or well advised, and acting in what they consider their best interests; A reasonable time is allowed for exposure in the open market; Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. History of the Property Ownership The table below shows the transfers of the Subject during the last three years. The Subject has changed ownership three times. One of the three was a less-than-arms-length transaction.

Grantor Grantee Date Volume Page Gale Enterprises Valverde 5/14/2004 1596 104 Valverde VA Properties 1/17/2006 2008 529 VA Properties Arizona, LLC 11/29/2006 2240 595

(1) Gale to Valverde. This transaction involved two unrelated parties and appears to be arms-length. The price is undisclosed. (2) Valverde to VA Properties. This transaction was a less-than-arms-length transaction between family members apparently moving ownership from an individual family member to a company owned by the family members. The consideration on this transaction is unknown but is assumed to be a contribution of property in exchange for a credit to the capital account on the company books. (3) VA Properties to Arizona, LLC This transaction was arms-length. The Subject was originally listed for sale or lease with Century 21 Realty with an asking price of $525,000. The

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asking lease rate is unknown. The purchase contract was initially negotiated and accepted on 10/03/06 at a price of $480,000, a counter-offer from a $450,000 original offer by Robert Smith, or entity owned by Robert Smith, on 9/28/06. On 10/26/06 it was modified to $474,140, apparently after a further inspection of the property. On 11/16/06 it was again amended to $380,000, $10,000 more than the value conclusion of $370,000 from the appraiser selected by lender. The final price on the deed, dated 11/20/06, was $403,750. However, the closing statement of the same date reflects a price of $380,000. The buyer confirmed to me that the final price was $380,000 with cash down payment of $65,500. He did not know why the deed reflected a higher price. The loan was for $314,500 and, according to the loan officer involved, was based on an 85% loan-to-value ratio of the appraised value. The recorded deed shows Arizona LLC as the Grantee. Subsequent to the closing, the buyer, Arizona LLC, leased the property to an affiliated entity in a less-than-arms-length transaction at an undisclosed lease rate. The Subject is not currently listed or offered for sale or lease. I was unable to identify any other transactions of sale or lease other than those listed above.

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SECTION II. DESCRIPTION OF THE SUBJECT

A. Site Data and Analysis The site consists of a one-acre parcel in the Bordertown Trade Center Industrial Park, an industrial subdivision of homogeneous property. This business park was developed in the early 1990's, and most of the properties around the Subject were constructed in that time period. The Subject is the third parcel from the intersection of Export Road and Trade Center Boulevard. The figure below shows the size and configuration of the Subject site. Location. The street address of the property is 14416 Export Road, Bordertown, Arizona. The location is in the far Northwest portion of the City of Bordertown, just West of Mill Road. This is an area of high truck traffic, in the heart of the industrial/distribution activity of Bordertown. Census Tract. The Subject is in Census Tract 17.05 in Pima County. School District. The Subject is located in the Bordertown Independent School District. The nearest public school in this district is the Miller Elementary School, at 4430 Miller Boulevard, approximately two blocks to the Southeast of the Subject, bordering the Bordertown Trade Center Industrial Park. Adjacent Properties and Land Uses. The surrounding properties are all industrial/distribution or similar use, resulting in a very homogeneous neighborhood. The Bordertown Trade Center Industrial Park is sandwiched between the Pan American Business Park, to the North, and the InterAmerica Distribution Center, to the South; both of which are industrial parks developed at about the same time as the Bordertown Trade Center Industrial Park. The immediate neighbors of the Subject are Computer Logistics on the North at 14418 Export Road, Arizona Transportation to the South at 14414 Export Road, Butler Motor Carriers across the street to the East at 14415 Export Road, and Wilson Agency to the West behind the Subject at 14411 Atlanta Drive. Flood Zone. The Subject is located right on the edge of two flood map panels. Both of these panels are included on one page in the Addenda. The maps indicate that the Subject is in Flood Zone C, outside of the 500-year flood plain, and offers minimal risk of flooding. The maps are Panels 6820590650B and 6820590625B, both dated May 17, 1982. Natural, Recreational, Cultural, or Scientific Aspects of the Site. The USA and Mexico border is 1.2 miles West of the Subject. There is a drop of about 100 feet in elevation between the Subject and the arroyo just before the border. There is no view amenity of the arroyo from the Subject, as other buildings block the view in that direction. However, the properties on the Western edge of the industrial park, as well as the adjacent residential subdivision, do provide the view amenity. I am unaware of any other cultural or scientific aspects of the site. Hazards, Nuisances, Detrimental Influences. The immediate area is used for warehouse / distribution activity, with many businesses involved with trucking and light manufacturing, causing a great deal of heavy truck traffic on the streets resulting in excessive wear to the pavement. This is evidenced by a number of sections of pavement in the adjacent business park to the north that have potholes so deep that a passenger car must go around them to avoid damage to the vehicle. The

Plat of Subject

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condition of Export Road does not show excessive wear, but there are several other streets in the industrial park that do. Because of the high intensity of industrial activity, there is also the risk of petrochemical or other environmental contamination that could occur on or near the Subject; however, I was not provided any environmental reports, nor do I have any information that would indicate such contamination exists. Access to the Neighborhood. The Bordertown Trade Center Industrial Park can only be accessed from Mines Road on the East. There are only two roads that lead into the park from Mines Road: Trade Center Drive and American Boulevard. This creates a high volume of traffic on these streets, and because much of this traffic is 18-wheeler truck traffic, there can be significant traffic delay getting into and out of the park at various times during the day. Street Improvements. All of the streets in the Bordertown Trade Center are asphalt paved with concrete curbs. However, very few of the streets have sidewalks. The street in front of the Subject is a 60-foot wide, two-way, two-lane, asphalt paved street. There are no sidewalks directly in front of the Subject. Electrical service is delivered by overhead transmission lines rather than the more modern underground conduit systems. There are no electric traffic signals in the development at intersections including the intersections with Mines Road, that have only stop signs with no further traffic regulation equipment. Site Dimensions, Area, Shape. The Subject site is rectangular and measures 145.2 feet by 300 feet. The frontage is 145.2 feet. The total area is 43,560 square feet, or exactly one acre. Topography. The site is essentially level. The elevation is 495 feet above sea level on the Southeast and Southwest corners, and 492 feet on the Northeast and Northwest corners, resulting in a very slight (2.0%) slope from South to North. This slope has no detrimental effect on the utility of the site. Drainage. The site does not appear to have any drainage problems, except as noted in the discussion of deferred maintenance below. There is a drainage culvert immediately behind the Subject, that aids in removing storm water. Since I was not provided a survey, I was unable to determine whether this drainage culvert is on the Subject or behind it on the adjacent property. Soil and Subsoil Conditions. The soil on the Subject is defined as VkC - Verick Fine Sandy Loam, according to the Soil Survey of Pima County,Arizona. This soil drains well with medium surface runoff, and permeability is moderate. Water erosion and soil blowing are moderate hazards if this soil if left bare of vegetation. The soil conditions should cause little problem for construction or continuation of the current use of the site. Access to Site. Access to the site is by means of only one entrance from Export Road. There is a curb-cut of approximately 65 feet, centered in the 145-foot frontage. Utilities. Water and wastewater services are provided by the City of Bordertown. Natural gas service is available to the site through either Arizona Energy or Center Energy. Electrical service is available to the site through a number of retail providers, regulated by The Public Utility Commission of Arizona. Two of the major providers are Arizona Electric Power and Capital Energy. Telephone service is available to the site through Arizona Bell Telephone Company. Rubbish collection is provided by either the city of Bordertown or commercial waste disposal companies. The current occupant contracts with Arizona Sanitation for trash collection. Fire and Police. Fire protection is provided by the Bordertown Fire Department. The closest fire station is 2.01 miles driving distance and four minutes driving time from the site. Police protection is provided by the Bordertown Police Department. Easements and Encroachments. No survey was available to me from the ownership, and the title

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insurance commitment, provided in the Addenda, does not indicate any easements that would affect the utility of the site. Typical utility easements and set-back requirements for a fully developed industrial park are present. Observation during my on-site visit did not indicate the presence of encroachments from surrounding property. Environmental Hazards Assessment. There was no Environmental Site Assessment provided to me by the ownership. The existence of potentially hazardous material and/or toxic waste may or may not be present on the property. During my on-site visit I did not observe any signs of environmental contamination. However, I am not an expert on such matters, nor am I qualified to detect such substances. Therefore, no responsibility is assumed for any hazardous conditions, or for any expertise or engineering knowledge required to discover them. The value conclusion of this appraisal is predicated on the assumption that no significant environmental problems exist that would adversely affect the market value or marketability of the Subject. Analysis of Units of Comparison. Industrial land in Bordertown is typically evaluated on either a price per acre or price per square foot basis, with larger sites valued at price per acre, and smaller sites valued at price per square foot. In my analysis in subsequent sections of this appraisal report, we use both the price per square foot and price per acre as units of comparison to establish an opinion of land value. Conclusion. The site is well suited for development as a smaller industrial property. The topography and soil type make it relatively easy to develop, and its presence in a well-developed industrial park makes its use very compatible with surrounding property uses. It is 100% usable without any significant site preparation expenses. B. Improvement Data and Analysis Building Improvements. The building consists of one 12,000 square foot warehouse structure, inclusive of an office area of 866 square feet. A sketch of the building, the covered loading dock area, ramp, and concrete landing pad is shown below.

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Warehouse Building Exterior Description The building structure is defined as a Low Cost, Class S, Distribution Warehouse, as described in the Marshall Swift Valuation Service, as a pre-engineered frame structure with plain shell exterior walls, adequate interior office areas, and a warehouse area provided with adequate lighting, plumbing, and space heaters. The Subject follows this description except for its lack of space heaters in the warehouse area. Dimensions. The building exterior measures 100 feet deep by 120 feet wide. The office improvements are located in the Northeast corner of the warehouse and measure 39 feet deep by 22.20 feet wide. Total Gross Building Area is 12,000 square feet, with the included office area of 866 square feet, leaving a net warehouse area of 11,134 square feet. Foundation/Floor Structure. The foundation is poured concrete footings supporting a concrete slab floor structure. Without construction plans, it is impossible to determine for sure, but it is assumed that the floor is reinforced concrete to support the heavy loads of a warehouse use. Frame. The frame is constructed of pre-engineered steel beams. Exterior Walls. All exterior walls are pre-fabricated steel siding except the portions in front of the office area. This portion of the exterior walls has wood studs framing the front wall, with a dry-wall interior surface and brick veneer exterior. Roof Structure/Cover. I was unable to personally inspect the roof as there was no roof access available at the time of my visit. However, as can be seen from the photo below of the roof line, the roof is composed of the same metal as the siding, and includes a series of roof vents at the

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ridge line. The equipment showing on the right side of the roof structure is an FM transmitter/receiver for the occupant's internet connection. Windows. There are no windows in the warehouse portions of the structure. There are four aluminum framed windows in the front of the office section, each measuring two feet by six feet. Doors. The warehouse area has two door openings to the loading dock. The South door, two feet from the South end of the loading dock, is 14' X 12', and the North door, sixteen feet from the Office partitions, is 12' X 12'. Both openings have roll-up overhead doors. There is no service door or any other entrance or exit from the warehouse area except a service door into the office area. The front entrance to the office are is a 36" anodized aluminum framed glass door. Loading Dock and Vehicle Ramp. At the front of the building, running the full 120' width of the building, is a 12' wide loading dock, covered with a 12' extension of the building roof structure. On the South end of the loading dock is a concrete vehicle ramp measuring 12' X 28', and rising 48" from the parking lot level to the loading dock elevation. Signage. The only signage on the Subject that identifies the occupant is a small painted sign attached to the fascia on the front eave of the loading dock. Interior Description/Warehouse Area Plumbing. The warehouse area has no interior plumbing. Electrical. The warehouse area is provided minimal electrical service. The electrical panel has typical 110/220 service with no 3-phase electrical service to the building. HVAC. The warehouse area has no mechanical heating or air conditioning equipment. Floor Covering. The warehouse area flooring is exposed concrete. Walls. There are no interior walls in the warehouse area. Ceiling. There are no ceilings in the warehouse area. The space is open to the underside of the metal roofing. Interior Doors. There are no interior doors in the warehouse area. Lighting. The warehouse area is lighted by 20 dual-tube fluorescent light fixtures. Office Area The office area has two private offices, an open reception/secretarial area with two workstations, a break counter with faucet\sink and cabinets, one restroom open to the office area for the office staff, and a second restroom open to the warehouse area for the warehouse staff. Plumbing. The office area has standard plumbing serving the two uni-sex restrooms and the single kitchen sink/faucet. Each restroom has one toilet and one hand-sink. Electrical. The office is serviced with typical 110/220 electrical service. HVAC. The office is served by a Carrier 3.0 ton package heating/air conditioning (heat pump) unit. Floor Covering. The office area floor covering is 12"X12" vinyl tiles throughout the office and restroom areas.

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Walls. Interior walls are standard 2"X4" wood studs covered by painted dry-wall. Ceiling. The ceiling throughout the office area is composed of suspended "T-grid" framing with 2'X4' acoustical ceiling tiles. Interior Doors. There are four doors, one for each restroom, and one for each private office. Each door is hollow core wood. Windows. The only windows in the Subject improvements are four 2'X6' anodized aluminum framed windows, two on each side of the 36" front entrance to the office. Lighting. The office lighting is provided with 2'X4' fluorescent lighting fixtures suspended within the "T-grid" ceiling structure. ADA Compliance The Americans with Disabilities Act requires minimum access features for handicapped into and within the facilities. There was no ADA compliance survey provided to me, and I am not qualified to perform an ADA survey of the facility. However, with the above disclosure and limitation, I did observe that the restrooms in the office area do not have a sufficient turning radius for permitting a handicapped person in a wheelchair to utilize these facilities. There may by other issues related to ADA compliance, and it is recommended that a qualified expert in ADA requirements be engaged to survey the facility. This appraisal assumes that any non-compliance would have little or no impact on the market value opinion. Environmental Aspects In the warehouse area there are two fuel storage facilities. One is a fuel storage tank just inside the North overhead door, used to store diesel fuel. This storage tank is not registered with the Arizona Commission on Environmental Quality as it is less than 1,100 gallons and is not required to be registered. There are no visual signs of leakage from this tank. The facility manager indicated that the tanks contain diesel fuel from time to time, taken from appliances that were being shipped. The fuel was removed to facilitate moving the appliances with fork-lift equipment then replaced in the appliances after the appliances were moved. There is also a propane tank storage cage on the other side of this same overhead door. The propane tanks are used to fuel the fork-lift equipment. The building was constructed after 1979, when the use of lead-based paint was prohibited. Therefore there should be minimal risk of any lead-based paint contamination on the property. I was not provided with an environmental risk analysis report, and I am not qualified to perform an environmental risk analysis. It is recommended that the owner engage a qualified expert to confirm the presence or absence of environmental contamination. With the above disclaimer, I did not note any signs of environmental contamination. If an expert were to confirm the presence of such contamination, the value conclusions of this appraisal report may change. Site Improvements. Improvements to the site are comprised of the following items: Curbing. On the North and South boundaries of the property, extending from the street approximately 190' back to the front of the building, is a high concrete curbing approximately 18" above grade, at the edge of the asphalt parking lot, just inside the perimeter fencing. Fencing. The entire site is enclosed with a six-foot chain link fence. The fence begins about ten-feet back from the street and continues around the entire perimeter. There is a gate at the front drive entrance with two wheeled sections approximately 32' each. There is approximately 800 total linear feet of fencing and 64 linear feet of gates. Trailer Landing Pads. There are two concrete trailer landing pads in the parking area. The

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first, in front of the loading docks, measures 15' X 98'. The second, at the front of the trailer parking spaces against the South fencing, measures 4.5' X 77', and runs across the front of the seven trailer parking spaces against that fence. Landscaping. There are three areas of landscaping. The ten feet of land between the street curbing and the fence is intended as a "greenbelt" landscape area. However, it is not well maintained.

Greenbelt between Street and Fence The second area is in a small garden area around the stairs leading up to the front entrance of the office on the Northeast corner of the building. This area has one tree, and is filled with bark rather than plantings. The landscaping is inside 35 linear feet of concrete sidewalk that leads to the stairs. The third area of greenbelt/landscaping is in the rear and side setback areas around the warehouse building. These three areas of building setback show evidence of having been maintained as meaningful landscaping in the past, but show neglect in recent care. Parking Lot. A ten-foot concrete apron leads from the street to the gate entrance of the parking lot. The parking lot itself is asphalt covered. The lot is striped for parking, with seven trailer spaces against the South fence, nine trailer spaces at the loading dock, seventeen spaces for passenger vehicles against the North fence, and one "executive" parking space beside the stairs leading to the office, for a total of 34 on-site parking spaces including trailer stalls. As discussed below under zoning, the parking regulations for the M-1 zoning district require one parking space for each two employees on the premises. The 17 passenger vehicle parking spaces can accommodate 34 on-site employees, far in excess of the number of personnel typically employed in a 12,000 square foot warehouse/distribution facility. In the table below, I have listed all of the various components of improvements on the Subject, with the respective square footage occupied by each component. The total land area is accounted for in this table.

4.5' X 77' Trailer Landing Pad

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Site Improvementss/f

Total Site 145.2 X 300 43,560

Building Footprint 120 X 100 12,000 Loading Dock 12 X 120 1,440 Auto Ramp 12 X 28 336 Subtotal 13,776

Total Remaining Site 29,784

Trailer Landing Pad 1 15 X 98 1,470 Trailer Landing Pad 2 4.5 X 77 347 Front Stairs and Garden 13 X 17.5 228 Landscaping - Rear 10 X 145.2 1,452 Landscaping - South 13.2 X 100 1,320 Landscaping - North 12 X 100 1,200 Landscaping - Front 10 X 80 800 Concrete Entrance 10 X 65 650 Asphalt Parking Lot Irregular 22,318 Subtotal 29,784

Unaccounted For Land Area - C. Property Condition Deferred Maintenance / Physical Deterioration Analysis. My observations during my visit to the Subject found a number of items of deferred maintenance that are itemized below. For most of the items on this list, I have obtained a written estimate of repair costs from Tucson Lot Maintenance. A copy of this estimate is included in the Addenda to this report. 1) Flooring in Office Area. There was a severe water leak in December 2006 that flooded the entire office area, resulting in many of the VCT floor tiles warping and/or coming loose in numerous areas throughout the office. This repair would require replacing all of the tiles at an estimated cost of $1,295. 2) Moisture Penetration - Back Wall. During heavy rains, water penetrates sections of the back wall on the Northeast corner where the wall meets the foundation footings, requiring that the joints be cleaned and resealed, at an estimated cost of $500. 3) Asphalt Parking Lot - Ponding and Sealing. There are several spots in the parking lot where depressions have developed and ponding occurs. In addition, the entire parking lot needs to be re-sealed to preserve the asphalt surface. Estimated costs for these repairs are $1,200 for the ponding depressions and $2,500 for the re-sealing of the entire parking lot. 4) Fence Repair. The chain link fencing on both sides of the Subject has been severely damaged by trucks backing into it. Some of the fence posts have been dislodged from their concrete bases and need to be replaced, and most of the fencing and cross supports also need to be replaced, at an estimated cost of $17,400. 5) Loading Dock Trailer Bumpers. There is one trailer bumper on the loading dock that has torn loose completely and another that is hanging, both of which need to be replaced at an estimated cost of $600. 6) Roof Leak. There is a leak in the metal roof about 30 feet South of the North wall at the ridge line of the roof. According to the facility manager, Luis Ponce, this is the only current problem with the roof. The estimated cost of the repair of this leak is $500.

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Below are photos of some of these items of deferred maintenance.

Water Penetrating Joints - Corner of Back Wall Ponding on Asphalt Parking Lot

Fence Repair - Both Sides of Subject Loading Dock Trailer Bumpers

Effective Age / Chronological Age The current ownership is not the original owner/developer of the Subject and there have been numerous owners since the original construction. The original building plans have long since been lost. The City of Bordertown Building Department indicated that they do not maintain building permit records earlier than 1999 in files anymore so they were unable to indicate from their records when the improvements were constructed. Therefore, the only means available to determine the original construction date was the Webb County Appraisal District records. A copy of the Webb CAD report is included in the Addenda showing a 1993 date of construction. That would mean that the Subject is approximately 14 years old. I determined by visual observation determined that the improvements have been fairly well maintained. In my judgment, the effective age of the improvements is ten years. Typical building life for this type of structure is thirty-five years. D. Current Occupancy Analysis. The Subject is effectively owner occupied. The owner of record is Arizona, LLC. The subject is occupied by an affiliate company of the ownership, which is a trucking company, the tenant under a less-than-arms-length lease agreement. Their freight system includes the Pacific and Midwest States, as well as Arizona and Mexico. The company began operations in the facility on December 26, 2006. At this point, I would typically include an analysis of any income and expenses attributable to the real estate during the current ownership. However, since the current owner has been in possession for such a short time, there is virtually no financial operating history of the property to report and analyze under the current ownership/occupancy.

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E. Zoning and Deed Restrictions The zoning on the Subject is "M-1" - Light Manufacturing District. This designation permits "the development of manufacturing and wholesale business establishments which are clean, quiet, and free of hazardous or objectionable elements such as noise, odor, dust, smoke or glare. Research activities are encouraged. This district is further designed to act as a transitional use between heavy industrial uses and other less intense and residential uses." The complete M-1 ordinance from the City of Bordertown Planning Department is included, along with a zoning map showing the Subject in the M-1 zoning, in the addenda to this report. The Subject, as improved, conforms well to this zoning, and the neighborhood is very consistent with the permitted uses. According to the Title Policy issued November 15, 2006, there are restrictive covenants of record in Volume 1487, pages 502-532, Pima County Real Property Records; that are also recorded in Volume 1519, Page 556-560, Pima County Real Property Records. This document, recorded May 29, 1991, is the original "Declaration of Covenants, Conditions, and Restrictions for Bordertown Trade Center, Phase I," that established the industrial park restrictions. These restrictions do not adversely affect the use of the property under its current use. I know of no other restrictions affecting the Subject. F. Taxes and Assessment Analysis

The property is subject to taxing by the taxing authorities of Pima County and Bordertown. The total tax rate for 2006 was $2.761910 per $100 of assessed value. Total real estate taxes for 2006 were $7,981.92. The taxes over the past several years have been erratic. The table below shows the assessment, tax rate, and taxes due history since 2003. The property was reassessed in 2005, and the tax increased dramatically. The following year the assessment remained the same, and the tax rate was reduced, resulting in a reduction in taxes due. Based on this history, I would anticipate that there would be a slight increase in real estate taxes in 2007 and beyond, at a rate approximating about 8.0% per year.

YearAssessed

Value Tax Rate TaxesRate of

Increase2003 265,820$ 2.791828 7,421.24$ 2004 265,820$ 2.837794 7,543.42$ 1.65%2005 289,000$ 2.915506 8,425.81$ 11.70%2006 289,000$ 2.761910 7,981.92$ -5.27%

There have been several sales within one block of the Subject during the last two years, so a comparison can be made of the assessed value and the actual sale prices during the year of assessment. Below is a table of six sales, including the sale of the Subject in November, 2006. With the exception of the two sales on June 20, 2006, the assessments range from 69% to 82% of the sale prices achieved. The June 20th sales, as is explained on the sale comparable worksheets in the addenda, were sold together to the same buyer at a 20% discount for a fast sale, as the seller was very motivated to be out of the properties quickly. The Subject sold in November 2006 and the ratio between its sale price and its assessment was 76%, right in the middle of the range. From this I conclude that the real estate tax assessment, and taxes due, is typical for the neighborhood.

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Address Sale Date Sale PriceSale Year

AssessmentSale Year Tax Assessment

Sale Year Taxes

Assessment Ratio

14419 Import Rd 12/15/05 750,000$ 2005 569,090$ 16,591$ 75.88%14404 Export Rd 1/24/2006 235,000$ 2006 193,730$ 5,350$ 82.44%

14416 Import Rd 6/20/2006 300,000$ 2006 297,110$ 8,206$ 99.04%14403 Import Rd 6/20/2006 400,000$ 2006 401,160$ 11,079$ 100.29%14409 Import Rd 12/15/06 431,500$ 2006 299,110$ 8,261$ 69.32%Subject14416 Export Rd 11/29/2006 380,000$ 2006 289,000$ 7,981$ 76.05% From the above analysis, I conclude that the real estate tax load of the Subject is in line with the tax load of the neighborhood. The taxes have varied over the past several years, but create a reasonable expectation of an increase in real estate taxes of about 8.0% per year, that will be used in the Income Approach analysis below.

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SECTION III. HIGHEST AND BEST USE ANALYSIS

Highest and Best Use is defined as: "The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum productivity." 1) Highest and Best Use of the Land "As Vacant" Legally Permissible. The first criterion is that the use must be legal. That means it is permitted within the current zoning laws, building codes, and other governmental restrictions, as well as conforms to any deed restrictions that are recorded against the property. If a use does not fall within these criteria, and the use may be more productive, the appraiser must consider whether it is feasible to rezone or otherwise change or remove the legal restraints. In the case of the Subject, the zoning is "M-1" - Light Manufacturing District. A zoning map in the addenda shows that the Subject is in a neighborhood with all M-1 zoned property, thus the zoning conforms well to its surroundings. The full Bordertown city ordinance describing the M-1 zone is also included in the Addenda. A brief statement from the zoning ordinance describing the purpose of this zone is as follows:

"The purpose of the M-1 Light Manufacturing District is to encourage the development of manufacturing and wholesale business establishments which are clean, quiet, and free of hazardous or objectionable elements such as noise, odor, dust, smoke or glare. Research activities are encouraged. This district is further designed to act as a transitional use between heavy industrial uses and other less intense and residential uses."

Any use of the Subject that does not conform to this ordinance would not be legally permissible. Since the Subject is part of a well established and successful industrial park, it is also highly unlikely that the City of Bordertown would approve a rezoning. Therefore, any use of the Subject will need to conform to this light industrial use. In addition, there are deed restrictions on the Subject that were created when the industrial park was developed. The full "Declaration of Covenants, Conditions, and Restrictions for Bordertown Trade Center, Phase I" are in Volume 1487, page 502-532 in the public records of the Pima County Clerk, recorded on May 29, 1991. They are too extensive to include in the addenda to this report. However, these CC&R's create restrictions that enforce a uniform and orderly development of an industrial distribution park intended for small light industrial users. It creates set-back requirements, building architecture, and size restrictions, and creates a membership association intended to enforce these restrictions. These restrictions are in effect for twenty-five years beginning on their effective date in 1991, and renewable automatically for successive ten-year periods until terminated by a vote of a minimum of 75% of the association membership, which membership is appurtenant to the land. Based on this analysis, as shown in the table below, the only legally permissible use would be industrial, specifically light industrial as opposed to heavy industrial or manufacturing.

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Legally Permissible X Physically Possible. The second criterion that must be met is physically possible. The site must be large enough to accommodate improvements for the use but not so large that the use is not economically infeasible because of excessive land area. The site, as described earlier in this and previous sections of this report, is exactly one acre, basically level, and 100% usable. There is a drainage easement at the West end of the parcel, but it is within the building set-back requirements, and does not interfere with development of the site within the legal limitations described above. With a typical 25% coverage for building area of a small distribution warehouse, the site could easily support improvements for warehouse distribution, which fits within the legal criteria. Thus, the Subject meets the physically possible criteria of a small light industrial use, and fits well with its surrounding properties.

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Legally Permissible XPhysically Possible X

Financially Feasible. In order to determine the financial feasibility, a land residual test must be made. The cost to construct improvements for the proposed use is estimated and deducted from the market value of the completed improvements and land. The result is the value of the land under that use. If that "residual" land value equals or exceeds the market value of similar land in the area, then the use is financially feasible. Since the previous two tests have determined that only light industrial uses would be legally permitted and physically possible, I have needed only to test the various kinds or qualities of light industrial buildings. Using the Marshall Swift Valuation Calculator pages, I have created the table below with the five classes of building types for warehouse distribution buildings. In the market study above, the Bordertown Economic Indicators report was referenced from the Real Estate Center at Arizona A&M University, in which the 2006 rents ranged from $3.60 per square foot to $4.68 per square foot on NNN leases. I have used this rental range, adjusting the rents based on the quality of the building class. In the Income Approach section below, I have established the range of income capitalization rates, and have applied these capitalization rates to the various building qualities. As can be seen from the table below, the typical rents in the market do not justify Class A or B buildings, as the land residual values are negative. Class C, D, and S buildings have positive land residual values, meaning that it is economically feasible to build Class C, D, and S buildings, as long as the land can be acquired for equal to, or less than, the cost per acre of the land residual values shown. Based on the table below, I have concluded that warehouse / distribution facilities are economically feasible at the land values shown. In the Land Valuation section below, I have concluded that the value of the land of the Subject is $76,000. Since the site is exactly one acre, the land value is $76,000 per acre. None of the land residual values below are equal to or greater than $76,000, which means that even though the warehouse distribution facility is financially feasible at the given land values, the land values are not achievable at this time, leaving the question of when

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unanswered. However, I have narrowed the choices to the three building classes of C, D, and S within the light industrial category of land uses.

Distribution Warehouse - Marshall Swift ClassBuilding Type A B C D SBuilding Cost S/F 60.34$ 57.65$ 38.15$ 34.54$ 33.74$ Site Improvements 15.09$ 14.41$ 9.54$ 8.64$ 8.44$ Total Cost S/F 75.43$ 72.06$ 47.69$ 43.18$ 42.18$ Current Cost Multipliers 1.04$ 1.02$ 1.02$ 1.03$ 1.03$ Local Cost Multipliers 0.80$ 0.80$ 0.81$ 0.82$ 0.79$ Adjusted Total Cost S/F 62.75$ 58.80$ 39.40$ 36.47$ 34.32$ Rent Potential 4.68$ 4.32$ 3.96$ 3.78$ 3.60$ Vacancy 0.23$ 0.22$ 0.20$ 0.19$ 0.18$ Expenses 0.22$ 0.21$ 0.19$ 0.18$ 0.17$ Net Operating Income 4.22$ 3.90$ 3.57$ 3.41$ 3.25$ Capitalization Rate 7.50% 7.50% 8.00% 8.00% 8.00%Value S/F of Building 56.32$ 51.98$ 44.67$ 42.64$ 40.61$ Building Cost S/F 62.75$ 58.80$ 39.40$ 36.47$ 34.32$ Residual Land Value (6.44)$ (6.82)$ 5.27$ 6.18$ 6.29$ Land/Building Ratio 25% 25% 25% 25% 25%Land Residual Value (1.61)$ (1.70)$ 1.32$ 1.54$ 1.57$ Cost per Acre of Land (70,105)$ (74,259)$ 57,438$ 67,273$ 68,549$

Land Residual Analysis of Warehouse Distribution Buildings

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Legally Permissible XPhysically Possible XFinancially Feasible X

Maximally Productive. To determine which of the three alternatives (Class C, D, or S) is maximally productive, the cost per acre of land in the above table can be referenced. The Class S building has a land residual value of $68,549 per acre. This would indicate that the maximally productive use would be to construct a Class S distribution warehouse on the site. Based on my survey of the three industrial parks that comprise the neighborhood of the Subject I found that there is a fairly even distribution of tenant-occupied versus owner-occupied properties. Investors are active in the market and some investors own numerous buildings in this neighborhood. The typical occupant of the buildings is a small business, owned by local entrepreneurs operating freight forwarding or trucking operations. Some buildings are occupied by larger national companies with a local branch, but they are in the minority. It is most likely, then, that the user of the Subject would be a local business in the freight forwarding, warehousing, or trucking business. In the Income Approach section below, I have determined that the Net Operating Income of the current improvements, based on market rents, is $2.79 per square foot. The required Net Operating Income, based on the above schedule, would be $3.25 per square foot to justify construction of the project built new today, a difference of $.46 per square foot, or about 16.5%. The analysis of trends in industrial rents since 2000, discussed above, indicates that rents averaged $3.84

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per square foot in 2000, declined to $3.54 per square foot in 2003 and 2004, and have increased back to $3.84 in 2006. The rate of increase since 2004 is about 4% per year. At that rate, it will take about four years for the rents to increase enough to generate a Net Operating Income of $3.25 per square foot from the current $2.79 per square foot, assuming that the cost of construction remains constant, which is highly unlikely. Therefore, assuming that the rental rates continue to increase at the current rate, the earliest time frame that would permit the construction of the improvements to their Highest and Best Use would be four years. Based on construction cost increasing, it will likely be more than four years.

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Legally Permissible XPhysically Possible XFinancially Feasible XMaximally Productive X

Conclusion. My conclusion of Highest and Best Use of the land "As Vacant" is: (1) for development of a Class S warehouse/distribution building; (2) for an owner-occupant of a trucking/shipping business; (3) sometime beyond four years. 2) Highest and Best use of the Property "As Improved" Again, the four criteria must be applied. The Highest and Best Use "As Improved" may or may not be the same as the Highest and Best Use "As Vacant." Legally Permissible. The same zoning and deed restrictions apply to the current improvements and the improvements conform to and are a legally permitted use with the current zoning. Therefore, the light industrial building that exists fits the definition of legally permissible. No other uses outside the industrial category would be permitted.

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Legally Permissible X Physically Possible. The current improvements are well maintained and, except for the curable deferred maintenance identified in Section 2 of this report, are in good condition. The question remains about whether the current improvements could be expanded to create more productivity. The current land to building ratio is 3.63:1 (one square foot of Gross Building Area to every 3.63 square feet of land area). This equals a 27.55% coverage of the land. A review of the improved properties in the International Trade Center indicates that the average land to building ratio is 3.922:1, with average building coverage of 25%, meaning that the Subject has a higher building coverage than the average improved property in the park. The building is built to the set-back limits in the back and on both sides. The front is fully developed for trailer parking, with passenger vehicle parking for employees and visitors. There is no unused land area, and the improvements seem to maximize the available land. Therefore, I have concluded that

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its use is physically possible and that there is little likelihood that the improvements could be expanded. The Subject does not need refurbishing, except for the deferred maintenance identified earlier, and remodeling would not increase its productivity.

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Legally Permissible XPhysically Possible X

Financially Feasible. The improvements are productive and, if rented, would produce a net operating income that would satisfy investor requirements, as shown in the Income Approach later in this report. Therefore, the current improvements are financially feasible without remodeling or expansion. There is the possibility of expanding the office area from the current 866 square feet. If the larger office area were to increase the rental value more than enough to pay for the cost of the expanded office area, it would be financially feasible to expand the office area and increase the productivity of the current improvements. To test this question, I created the chart below to compare the rent per square foot and the percent of office area within the five sales comparables used in the Sales Comparison Approach. If there were a direct correlation between the rent charged and the percent office area, it would indicate that the market would pay more for the expanded office area. The R2 calculation in the chart shows the correlation coefficient of 0.0023. The closer this number is to either +1.0 or -1.0, the stronger the predictability of one variable by the other. Since the formula produced a coefficient of 0.0023, this indicates that there is no evidence that increasing the office square footage would increase the productivity of the Subject from a rental income perspective. Therefore, I see no remodeling or expansion potential for the existing improvements that would change the Highest and Best Use of the Subject from its use with the current improvements.

Correlation of Office % S/F to Rental Rate

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Legally Permissible XPhysically Possible XFinancially Feasible X

Maximally Productive. The above tests indicate that the Highest and Best Use of the Subject, "As Improved," is consistent with the "As Vacant" conclusion. Continued use without remodeling or expansion, in its current conditions as a distribution warehouse, with the curing of deferred maintenance identified in the previous section of this report, is its Highest and Best Use.

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Legally Permissible XPhysically Possible XFinancially Feasible XMaximally Productive X

Conclusion. My conclusion of Highest and Best Use of the land "As Improved" is: (1) continued use of the existing Class S warehouse/distribution building with curing of deferred maintenance; (2) by an owner-occupant of a trucking/shipping business; (3) now.

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SECTION IV.

LAND VALUATION It is customary to include the site valuation as part of the Cost Approach in an appraisal. However, the site valuation is really a separate appraisal of the land of the Subject, under the assumption that the improvements are not yet in place. Therefore, I have elected to treat the site valuation as a separate component of the appraisal process. After I reach an opinion of value for the Subject site, that value will be transferred to the tabulation of the Cost Approach in Section V. of this report. Land Sale Comparables. A land sales map, found in the addenda, shows each of the sales used below, followed by a complete description of each land sale, along with photo and plat. The sales are assembled into the table below for quick review. Two of these sales, #2 and #6, are in the Miller Industrial Park about two miles North of the Subject. Since the Subject is located in a fully developed industrial park, with little land still available, it was necessary to go further away to obtain a better selection of land sales.

Comp # Address Size/Acres Price $/Acre Date1 613-15 Enterprise, Bordertown, Arizona 3.0657 240,000$ 78,286$ 2/15/20022 1617 World Trade Center Loop, Bordertown, Arizona 5.3140 372,400$ 70,079$ 5/13/20023 14206 Transportation Avenue, Bordertown, Arizona 1.0000 80,000$ 80,000$ 12/16/20024 14710 Atlanta, Bordertown, Arizona 1.8549 125,000$ 67,389$ 7/28/20055 4304 Trade Center Boulevard, Bordertown, Arizona 2.0234 150,743$ 74,500$ 5/2/20066 18729 Metropolitan, Bordertown, Arizona 3.2550 292,950$ 90,000$ 10/24/2006

Land Sales Analysis. The analysis of the individual land sales, and their comparison to the Subject site, will proceed in two levels. The first level will address items that have to do with market conditions or the sales transaction between buyer and seller. Adjustments in this level are applied sequentially, and have the effect of compounding the changes, until an adjusted price is reached that has taken the market and sales transaction issues into consideration. The second level considers property-specific features such as location, physical, economic, use, and non-realty components (if any) of the comparable property. These adjustments are aggregated together before being applied to the price determined in the first level. Not all items of comparison can be quantified from market-extracted data. Therefore, some comparison items will have a "qualitative" adjustment noted. Although not resulting in an actual number, these qualitative adjustments guide me in determining how to treat the various sales when it comes to making my final conclusion of land value. Following the discussion of the adjustments is a table with separate fields for quantitative and qualitative differences for each adjustment feature. In those cases where market support cannot be found for a quantitative adjustment, only a qualitative adjustment will be noted, without a change in value. The final value conclusion will consider these qualitative comments even though they have not made a numeric change in the price of the comparable sale. First Level Adjustments. Property Rights Conveyed. This adjustment is to account for differences in property rights such as the difference between Fee Simple and Leased Fee. It also accounts for such things as partial interests sold rather than undivided interest. In the case of the comparables, all six were 100% undivided interest in fee simple, so no adjustments are necessary to equate them to the Subject.

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Financing Terms. This adjustment accounts for financing terms that are different from the prevailing market financing terms and provisions. To motivate a buyer to close a sale, seller financing often includes an interest rate that is lower than financial institutions charge. Sellers also often take a lower down payment. These softer terms tend to affect the stated sale price, and adjustments are necessary to bring the price back to an effective market transaction. This is known as determining the "cash equivalency" of a transaction. All of the comparable sales resulted in cash to the seller. If financing was involved, it was from a third party, and did not appear to affect the sales price. Therefore, no adjustment is required for financing. Conditions of Sale. This adjustment involves such things as non-typical motivations on the part of the buyer or seller to enter into the transaction. A seller under duress, or a buyer who has no alternative but to buy the property to expand his business, for examples, would create non-typical conditions of sale. Since the definition of Market Value used in this report assumes that the buyer and seller are well informed and typically motivated, an adjustment would need to be made if this is not the case. In the six land sales used, no unusual conditions of sale are present, so no adjustment is required. Market Conditions. This adjustment reflects changes in the market during the time between the effective date of the appraisal and the time of the sale of the comparables. This is often referred to as a "time adjustment." However, time alone may not fully explain changes in the market. To determine whether a market condition adjustment is warranted, I have assembled a representative sample of 59 sales of industrial land in Bordertown over the last five years. This representative sample does not account for 100% of all sales during this time period. However, all sales in this sample were verified, and constitute a reliable representation of comparable industrial land sales. These sales are shown in an exhibit labeled "Time Adjustment Test - Industrial Parks in Bordertown" in the addenda. Below is a table that gives a summary of this exhibit. Based on this analysis, it is fair to conclude that there has been an increase in price per acre of industrial park lots. The average rate of increase has been about 6.0%. There was one year in which a decline occurred, but the other years easily compensated for that negative price change. Using this data, I have concluded that a time adjustment of 5.0% per year is warranted for the land sales comparables.

SUMMARY

Year Sales Avg Size Avg Price % Change2002 12 3.8766 78,510$ 2003 6 4.1695 85,817$ 9.31%2004 11 12.4173 83,139$ -3.12%2005 16 13.2868 90,979$ 9.43%2006 14 9.4585 98,910$ 8.72%

6.08%Average Change in Price per Acre

Buyer Expenditures. Immediately following the purchase of a property, a buyer will often spend money to cure a problem or to make the property useable. These expenditures need to be accounted for in the adjustments. If a buyer pays for an expense that would typically be the seller's responsibility, such as a real estate listing commission, this expense should be added to the sales price to determine the true price paid by the buyer for the property. Demolition of existing improvements that have no contributory value is another example of a cost paid by the buyer that

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would increase the effective price of property. In the case of the comparable sales, no buyer expenditures appear to have been required, as the lots were all in existing industrial parks and ready to begin construction of the intended improvements. Therefore, I have made no adjustment for Buyer Expenditures. The adjusted price of each comparable land sale based on the transaction elements are shown in the table below. They range from a low of $1.66 per square foot for 14710 Atlanta, a site with a topographical issue discussed later in this report, to a high of $2.25 per square foot for 613 Enterprise, a lot with excellent development potential.

613 Enterprise 1617 WTC 14206 Trans 14710 Atlanta 4304 Trade Ctr 18729 MetroAdjusted Price/Acre 97,933$ 86,820$ 96,700$ 72,519$ 77,294$ 91,187$ Adjusted Price/S/F 2.25$ 1.99$ 2.22$ 1.66$ 1.77$ 2.09$ Second Level Adjustments. Location. Location of land is a very important component of value determination. The six comparable properties were taken from essentially three different industrial parks. To determine how these locations influence value, I have assembled the table below that shows the comparable sales segregated by industrial park. Since American Business Park and Bordertown Trade Center are, for all practical purposes, the same industrial park, I have lumped them together. Thus, there are two sales from South Industrial Park, two from the MIller Industrial Park, and two from the Bordertown Trade Center/American Business Park. The Subject is in the Bordertown Trade Center. The prices used are the prices after all other adjustments, except for location, have been factored. Thus, the only remaining variable is location. It appears from these samples that there is a difference in land value of about 20% to 25% between the Bordertown Trade Center and the other two industrial parks. Thus, I have used a 20% negative adjustment for location on sales #1, #2, #3, and #6.

Comp # Industrial ParkAdjusted Price

S/F Difference % Difference

1 South Industrial Park 2.42$ 3 South Industrial Park 2.22$

Average 2.32$ 0.50$ 27.12%4 American Business Park 1.79$ 5 Bordertown Trade Center 1.86$

Average 1.83$ -$ 0.00%2 Miller Park 2.23$ 6 Miller Park 2.16$

Average 2.20$ 0.37$ 20.27%

[Location of Subject]

Size. Generally speaking, with all other things being equal, a larger parcel of land will sell for a lower price per unit than a smaller parcel. A rule of thumb that appraisers often use is that for each time the size of the comparable property doubles compared to the Subject, the price per unit will drop about 10%. If the size of the comparable is half the size of the Subject, the price per unit will increase about 10%. In an attempt to test and validate that principle for industrial land in Bordertown, I have

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assembled the comparable sales in the table to the right. I then charted the sales on the graph shown below and calculated the linear regression of the prices. The prices per square foot used in this table are the prices after all adjustments have been performed, except for the location adjustment. Although six samples is an insufficient number to perform a valid statistical analysis, the visual and mathematical results will give some evidence regarding the validity of this procedure to determine a size adjustment.

y = 1E-06x + 1.9416

R2 = 0.152

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The coefficient of correlation shown in the equation in the upper right corner of the graph illustration is 0.152. The closer this is to 1.0 or -1.0, the stronger the relationship (positive or negative) between the two variables of price per unit and size of the property. Since the formula resulted in nearly zero, it indicates that there is a very weak correlation, if any, between size and price per unit in this sample. Thus, I have concluded that in Bordertown, there is insufficient data to use a size adjustment in the sales comparison grid for land. Shape. Some shapes make a parcel more difficult or expensive to develop, or limit the type of development that can occur. An irregular shape will often result in a lower value than a square or rectangular shape since the latter are more easily developed. All of the comparable sales are either square or rectangular, except for sale #2, which is triangular in shape with a wider dimension in the back than in the front. Although this makes the parcel somewhat inferior, there is insufficient market data to quantify the difference in value caused by this shape. Therefore, I have indicated a qualitative difference, but have not made a quantitative adjustment for this aspect. Corner Influence. Corner parcels generally sell for more than interior parcels because of the additional frontage afforded by the second street. It often provides additional access and visibility for businesses that need those amenities. Two of the comparables are located on a corner. The difference in value attributed to the corner can be estimated by paired sales analysis. Sales #2 and #6 are very close to each other and are in the same industrial park. The major difference between these lots is corner influence. The difference in time-adjusted price between these two is shown in the table below.

Comp # Size Price S/F1 133,542 2.42$ 2 231,478 2.23$ 3 43,560 2.22$ 4 80,799 1.79$ 5 88,139 1.86$ 6 141,788 2.16$

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Comp # Adj Price/Acre2 86,820$ 6 91,187$

Difference 4,367$ % Difference 5.03%

This paired sales analysis indicates a difference of about 5.0% for the corner over the interior location. I have used this adjustment for comparables #4 and #6 both of which have corner locations, reducing their price by this amount. Access. All of the comparable sales and the Subject have only one side with access for ingress and egress. Sale #6 is a corner lot with three sides exposed to streets but access is only permitted from one street. Therefore, the access is no different on this parcel, and I have not included access as a component on the adjustment grid. Frontage. The amount of street frontage on a parcel will often make a difference in the value. All of the sales have about the same amount of "front foot" ratio, except sales #4 and #6. Sale #4, however, has most of its street frontage on the side of the property where a substantial drop in elevation, from the lot to the street, minimizes the frontage value. Thus, the benefit of that frontage is limited, and no adjustment is warranted, as the negative impact of that topography seems to offset the positive benefit of the frontage. The frontage on sale #6 does enhance its value, but that value has already been reflected in its corner influence, as shown in the paired sales analysis. Thus, no frontage adjustment has been made on the grid for any of the comparable sales. Utilities. All sales are in developed industrial parks where all utilities are available. No utility adjustments are necessary. Flood Plain. All of the comparable sales and the Subject are in either Flood Zone C or Flood Zone X, neither of which are indicative of flood hazards. No flood plain adjustments are necessary. Rail Service. Neither the Subject nor any of the comparable sales have rail service. No rail service adjustments are necessary. Topography/Soil. All of the comparable sales and the Subject have relatively level topography, as well as equivalent soil conditions, except for sale #4 which has a substantial drop of elevation on the North side of the lot. Sale #4, like Sale #6, has a corner location. However, Sale #6 is much superior to Sale #4 in its location, younger age of its industrial park, and its exposure to Mines Road. It is my judgment that the difference in value between Sale #4 and Sale #6 is attributable about two-thirds to the superior location of Sale #6, and one-third to the inferior topography of Sale #4 (increased cost of development). Below is a table that pairs these two sales. The difference in adjusted price per acre is about 25%. As one-third of this difference is allocated to topography, I have used an 8% upward adjustment on sale #4.

Comp # Adj Price/Acre4 72,519$ 6 91,187$

Difference 18,669$ % Difference 25.74%

Zoning. All comparable sales and the Subject were zoned "M-1." No zoning adjustments are necessary. Site Improvements. Sale #1 had some minor site improvements, such as fencing and concrete landing pads for trailers. However, no contributory value has been given to these improvements, due to their minor nature. None of the other comparable sales had site improvements

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beyond that typical for an industrial park subdivision. No site improvement adjustments are necessary. View/Amenities. None of the comparable sales had significant views beyond the highway visibility of Sale #6, that has already been accounted for in its corner adjustments. No view/amenities adjustments are necessary. Land Sales Grid. The next two pages contain the Land Sales Comparable Grid in which the above described comparisons and adjustments are compiled. The first page shows the adjustments for the transaction related items. The second page carries this adjusted value forward, and factors in the property related items. Reconciliation of Land Value. The adjusted prices of the six comparables have a range of $1.57 to $1.80 per square foot. In my conclusion, I have relied most heavily on Sale #4 and Sale #5, as these two are closest to the Subject, and in the same industrial park. Sale #1 and Sale #3 are given the next most weight as they are in the InterAmerica Industrial Park, which is about the same age as the Subject's park, and has very similar property. Sale #2 and Sale #6, in the Miller Park, are given the least amount of weight, as that park is newer, and developing more expensive and modern industrial buildings, commanding a higher price for the remaining land. The indicated value is then $1.75 per square foot, equaling $76,031 per acre, rounded down to $76,000 per acre. Since the Subject is exactly one acre, the value of the land of the Subject is $76,000. Excess/Surplus Land Analysis. As previously shown in the Highest and Best Use Analysis, the current improvements maximize the land, and there is no reasonable expectation that the site would support any substantial expansion of the current improvements. Therefore, all of the one-acre site is considered to be appurtenant to the improvements, and is required to support them. Thus, there is no excess or surplus land to be considered.

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Comparable Sale Subject 613 Enterprise 1617 WTC 14206 Trans 14710 Atlanta 4304 Trade Ctr 18729 MetroDate of Sale 2/15/2002 5/13/2002 12/16/2002 7/28/2005 5/2/2006 10/24/2006Months since Sale 60 57 50 18 9 3 Price - 240,000$ 372,400$ 80,000$ 125,000$ 150,743$ 292,950$ Size s/f 43,560 133,542 231,478 43,560 80,799 88,139 141,788 Price per Acre 78,285$ 70,079$ 80,000$ 67,389$ 74,500$ 90,000$ Price per Square Foot 1.80$ 1.61$ 1.84$ 1.55$ 1.71$ 2.07$ Transaction AdjustmentsProperty Rights Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple Fee Simple Adjustment % 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Adjustment $$ -$ -$ -$ -$ -$ -$ Adjusted Price 1.80$ 1.61$ 1.84$ 1.55$ 1.71$ 2.07$ Financing Cash Cash Cash Cash Cash Cash Cash Adjustment % 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Adjustment $$ -$ -$ -$ -$ -$ -$ Adjusted Price 1.80$ 1.61$ 1.84$ 1.55$ 1.71$ 2.07$ Conditions of Sale Arms-Length None None None None None None Adjustment % 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Adjustment $$ -$ -$ -$ -$ -$ -$ Adjusted Price 1.80$ 1.61$ 1.84$ 1.55$ 1.71$ 2.07$ Market Conditions N/A 60 Months 57 Months 50 Months 18 Months 9 Months 3 Months Adjustment % (5% per Year) 25.10% 23.89% 20.88% 7.61% 3.75% 1.32% Adjustment $$ 0.45$ 0.38$ 0.38$ 0.12$ 0.06$ 0.03$ Adjusted Price 2.25$ 1.99$ 2.22$ 1.66$ 1.77$ 2.09$ Buyer Expenditures N/A None None None None None None Adjustment % 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Adjustment $$ -$ -$ -$ -$ -$ -$ Adjusted Price 2.25$ 1.99$ 2.22$ 1.66$ 1.77$ 2.09$

0.45$ 0.38$ 0.38$ 0.12$ 0.06$ 0.03$ 60,233$ 88,962$ 16,700$ 9,514$ 5,653$ 3,865$

300,233$ 461,362$ 96,700$ 134,514$ 156,396$ 296,815$ Transaction Adjusted Prices

Comparable Land Sales Adjustment GridLevel 1 - Transaction Adjustments

Total Price AdjustmentTotal Price Adjustment per s/f

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Comparable Sale Subject 613 Enterprise 1617 WTC 14206 Trans 14710 Atlanta 4304 Trade Ctr 18729 MetroAdjusted Price s/f 2.25$ 1.99$ 2.22$ 1.66$ 1.77$ 2.09$ Property AdjustmentsLocation Superior Superior Superior Similar Similar Superior Adjustment % -20.00% -20.00% -20.00% 0.00% 0.00% -20.00% Adjustment $$ (0.45)$ (0.40)$ (0.44)$ -$ -$ (0.42)$ Size Larger Larger Similar Larger Larger Larger Adjustment % 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Adjustment $$ -$ -$ -$ -$ -$ -$ Shape Similar Inferior Similar Similar Similar Similar Adjustment % 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Adjustment $$ -$ -$ -$ -$ -$ -$ Corner Influence Similar Similar Similar Superior Similar Superior Adjustment % 0.00% 0.00% 0.00% -5.00% 0.00% -5.00% Adjustment $$ -$ -$ -$ (0.08)$ -$ (0.10)$ Frontage Similar Inferior Similar Similar Similar Superior Adjustment % 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Adjustment $$ -$ -$ -$ -$ -$ -$ Topography Similar Similar Similar Inferior Similar Similar Adjustment % 0.00% 0.00% 0.00% 8.00% 0.00% 0.00% Adjustment $$ -$ -$ -$ 0.13$ -$ -$

Net % Adjust. -20.00% -20.00% -20.00% 3.00% 0.00% -25.00%Net $$ Adjust. (0.45)$ (0.40)$ (0.44)$ 0.05$ -$ (0.52)$

Adjusted Price S/F 1.80$ 1.59$ 1.78$ 1.71$ 1.77$ 1.57$ Adjusted Price Acre 78,346$ 69,456$ 77,360$ 74,694$ 77,294$ 68,391$

Attributed Weight 20.00% 5.00% 20.00% 25.00% 25.00% 5.00%Weight Adjusuted Price 0.36$ 0.08$ 0.36$ 0.43$ 0.44$ 0.08$

Adjusted Range 1.57$ 1.80$ Subject Size 43,560 Adjusted Mean 1.70$ Subject Value 76,031$

Weighted Mean 1.75$ Rounded Conclusion 76,000$

Comparable Land Sales Adjustment GridLevel 2 - Property Adjustments

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SECTION V.

COST APPROACH The Cost Approach is based on the principle of substitution, which states that a prudent buyer would pay no more for a property than the cost to acquire a similar site, and construct the equivalent improvements without undue delay. The Cost Approach is most useful when applied to properties that are either new or fairly young, and well maintained. Because depreciation must be estimated, determining the value by the Cost Approach for older properties is much more subjective, and less reliable. The steps required to complete the Cost Approach are listed below. 1) Determine the Land Value. This was done in the previous section of this report. First, a determination is made of the appurtenant land (the necessary minimum land area of the Subject's site that is required in order to support the current land use and improvements). The amount beyond the appurtenant land is then identified as being either excess land or surplus land. A separate value of any excess or surplus land is then determined. 2) Determine the Replacement or Reproduction Cost of existing improvements. Replacement Cost is the cost to replace the current improvements with improvements that would provide the same utility, but are not necessarily identical to the current improvements. Reproduction Cost is the cost to replicate the improvements as they currently exist. In this report, I have used the Reproduction Cost determined by using the Segregated Cost methodology. 3) Determine the accrued Depreciation. There are three different kinds of depreciation: Physical Deterioration, both curable and incurable; Functional Obsolescence, both curable and incurable; and External Obsolescence. 4) Deduct the accrued Depreciation. The accrued depreciation is then deducted from the Replacement/Reproduction Cost, to determine the current depreciated value of the improvements. 5) Determine the combined value. The combined value is then determined by adding the value of the appurtenant land to the depreciated value of the improvements. 6) Determine the Net Value. The value of any Excess or Surplus Land, and any other required adjustments (such as the cost to achieve stabilization on income producing properties) is added to the Combined Value to determine the Net Value, the final value conclusion by the Cost Approach. Reproduction Cost Estimate. The three parts of the Reproduction Cost are direct costs, indirect costs, and entrepreneurial profits. The Marshall Swift program calculates all direct costs, and some indirect costs. A separate determination of the remaining indirect costs must be made. Then an entrepreneurial profit must be factored into the equation to determine the final reproduction cost of the improvements. Direct Costs. To determine the Direct Costs of the Reproduction Cost estimate, I utilized the Marshall Swift "Swift Estimator" program. The report generated by the Swift Estimator is included in the Addenda of this appraisal. The table below shows the contents of this report, organized into the

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three major areas of construction (warehouse, office area, and site improvements), summarizing the costs from this tabulation. The final Reproduction Cost shown below is $32.75 per square foot.

Component Category Cost $$ S/FTotal Warehouse Building Cost 285,417$ 23.78$

Total Office Area Cost 24,425$ 2.04$ Total Site Improvement Cost 83,107$ 6.93$

Total Reproduction Cost 392,949$ 32.75$ The Direct Costs used for this report, then, are those determined by the Marshall Swift program, totaling $392,949, as shown in the table on the following page.

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Marshall Swift Segregated EstimatorReconstruction by Paul Lorenzen

14416 Export Road, Laredo, TexasSurvey Date: January 27, 2007 Building AreaCost as of: February 2007 12,000

Component Units Cost Total $$ S/FWarehouse Building Site Preparation 12,000 0.22$ 2,640$ 0.22$ Foundation / Concrete, Bearing Wall 12,000 1.66$ 19,920$ 1.66$ Frame / Steel, Pre-engineered 12,000 3.15$ 37,800$ 3.15$ Floor / Concrete, Elevated Slab 12,000 9.31$ 111,720$ 9.31$ Floor / Hardner & Sealer on concrete 12,000 0.64$ 7,680$ 0.64$ Electrical Service/distribution 12,000 0.81$ 9,720$ 0.81$ Exterior Metal Walls / Steel Frame 8,800 4.24$ 37,312$ 3.11$ Roof / Metal, Preformed Sheets 12,000 1.56$ 18,720$ 1.56$ Stairs / Concrete & Steel Exterior 1 2,409.05$ 2,409$ 0.20$ Loading Dock / with Roof 1,440 18.12$ 26,093$ 2.17$ Dock Bumpers 100 29.90$ 2,990$ 0.25$ Garage Doors / 2 overhead 2 651.43$ 1,303$ 0.11$ Concrete Vehicle Ramp 360 19.75$ 7,110$ 0.59$

Total Warehouse Building Cost 285,417$ 23.78$

Office Area Flooring / Vinyl Composition Tile 866 1.63$ 1,412$ 0.12$ Ceiling / Suspended Ceiling T-Grid 866 1.08$ 935$ 0.08$ Ceiling / Acoustical Organic Fiber 866 1.50$ 1,299$ 0.11$ Interior Framing 866 4.75$ 4,114$ 0.34$ Interior Walls / Wood - Drywall finish 368 6.97$ 2,565$ 0.21$ Base Cabinet 6 116.93$ 702$ 0.06$ Wall Cabinet 6 93.87$ 563$ 0.05$ Laminated Plastic Countertop 6 46.55$ 279$ 0.02$ Plumbing / 2 Restrooms 866 2.38$ 2,061$ 0.17$ HVAC - Heat Pump 866 8.40$ 7,274$ 0.61$ Electrical Service/distribution 866 3.72$ 3,222$ 0.27$

Total Office Area Cost 24,425$ 2.04$

Site Improvements High Curbing 380 9.74$ 3,701$ 0.31$ Landscaping 4,772 2.53$ 12,073$ 1.01$ Concrete Landing Pads 1,817 3.97$ 7,213$ 0.60$ Concrete Entry - Gate 650 3.97$ 2,581$ 0.22$ Chain Link Fencing 4,980 2.16$ 10,757$ 0.90$ Lighting / High Intensity Sodium/Mercury 2 841.06$ 1,682$ 0.14$ Lighting / Light poles (2) 40 57.66$ 2,306$ 0.19$ Gate, Chain Link 360 6.66$ 2,398$ 0.20$ Paving - Asphalt 22,318 1.81$ 40,396$ 3.37$

Total Site Improvement Cost 83,107$ 6.93$

Total Reproduction Cost 392,949$ 32.75$

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Indirect Costs. Indirect Costs include expenditures such as real estate taxes on the land during the construction period, interest on construction financing, professional fees such as architectural and engineering fees, and marketing expenses to find a buyer if the property is for sale or to obtain tenants for a property intended for lease. The real estate taxes during the construction period are calculated by estimating the taxes attributable to the land only, and prorating that for the construction period estimate. Below is a table that shows this calculation using a 90-day construction period, and the current 2006 tax assessment, resulting in a charge for real estate taxes of $472.

Current Land Assessment 68,390$ Land Value Conclusion 76,000$ Assessment Ratio 89.99%Tax Rate per $100 2.76191Taxes on Land 1,889$ Construction Period 90 daysTaxes during Construction 472$

Tax Estimation

To estimate the interest expenses during the construction period, I constructed the table below. I have assumed that the maximum loan would be 70% of the combined value of land and improvement cost, funded at an average of 50% during the construction period. Interest is assumed at 9.0%. The loan terms used are those typical of commercial banks in South Arizona for industrial development. This results in an interest charge of $3,693.

Land value 76,000$ Hard Costs 392,949$ Total of Land and Hard Cost 468,949$ LTV Ratio 70.00%Loan Amount Maximum 328,264$ Assume 50% funded 164,132$ Interest rate 9.00%Annual Interest 14,772$ Prorate to 90 days 3,693$

Interest Estimate

Architectural and professional fees are estimated at 6.5% of the hard costs of the project. Marketing costs are estimated at 4.0% which allocates a real estate broker commission of 3.0% and 1.0% for other closing expenses, such as escrow fees, and title insurance. The table below tabulates these soft costs of $45,425. This equals just less than 12.0% of the hard costs.

Indirect CostsReal Estate Taxes 472$ Architectural Fees - 6.5% 25,542$ Marketing Expenses - 4.0% 15,718$ Interest 3,693$

Total Indirect Costs 45,425$ Entrepreneurial Incentive. This is the amount of profit that a developer expects to receive for having taken on the development project. It is a subjective amount and will vary from developer to developer and from project to project. The higher the risk of a given project, the higher the expected

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profit must be to motivate the developer to take on that risk. The shorter the time period to complete the development, the smaller the required incentive needs to be. To determine the appropriate number to use for Entrepreneurial Incentive, I interviewed several developers and real estate brokers who work in the Bordertown industrial market. Although the answers varied, the typical response was that the profit expectation required would be about 10% of the total value of the finished project. If the land costs were $200,000 and the direct and indirect costs total $800,000, the total cost would be $1,000,000. 10% of this would result in a $100,000 entrepreneurial incentive, or 12.5% of the direct costs. Because the ratio of land to improvement direct cost will vary, the entrepreneurial profit percentage, based on only the direct cost without land, will vary, ranging from 10% to 15% or more. Because the land to improvement ratio on the Subject is about the same as in the example above, I have used 12.5% as the entrepreneurial incentive rate applied to only the direct and indirect costs (without land value). The table below shows this calculation, resulting in an entrepreneurial incentive of $54,797.

Entrepreneurial IncentiveDirect (Hard) Costs 392,949$ Indriect (Soft) Costs 45,425$ Total Improvement Cost 438,374$ Incentive Percentage 12.50%Entrepreneurial Incentive 54,797$

Total Reproduction Cost. When the above calculations are combined, the total reproduction cost can be determined. Below is a table that showing a reproduction cost of $493,171.

Reproduction CostDirect Cost 392,949$ Indirect Cost 45,425$ Entrepreneurial Incentive 54,797$

Total Reproduction Cost 493,171$ Accrued Depreciation Estimate To determine the accrued depreciation, I have used two different methods. The first is the "Market Extracted Method," in which I have selected comparable sold properties with known replacement costs and land values and compared these with the known sale prices. This results in an aggregate amount of depreciation on each property. Using these known amounts, and the ages of the property, I have determined a typical annual rate of depreciation for industrial property in Bordertown. The second method is the "Breakdown Method" in which depreciation is analyzed in five different categories as actually observed on the Subject property. Market Extracted Depreciation. In order to determine the rate of depreciation that this market typically experiences, I have selected a sample of five similar industrial properties in Northwest Bordertown that have sold within the last two years, as shown in the table below.

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1 2 3 4 5Address 14106 8200 8680 8020-50 4601

Transportation San Gabriel San Lorenzo San Lorenzo Modern LaneDate of Sale 2/3/2005 3/10/2005 3/10/2005 3/2/2005 2/7/2006

Sale Price $800,000 $600,000 $450,000 $950,000 $270,000Land Area (S/F) 182,015 87,120 63,155 139,405 44,597

Building Area 21,807 21,614 14,072 36,288 14,884Land Value $340,000 $220,000 $115,000 $350,000 $80,000

Replacement Cost $693,785 $567,195 $428,160 $1,263,022 $456,297Chronological Age 14 17 17 24 25

These sales were selected because they are all about the same age or somewhat older than the Subject property, which has a chronological age of 14 years. In order to determine the rate of depreciation, I have prepared the table shown below which estimates the annual rate of depreciation experienced by these properties. After the table I have explained each of the steps used to determine this rate.

Depreciation Comp # 1 2 3 4 5Sale Price 800,000$ 600,000$ 450,000$ 950,000$ 270,000$ Adjust forCash Equiv -$ -$ -$ -$ -$ Conditions of Sale -$ -$ -$ -$ -$ Property Rights -$ -$ -$ -$ -$ Buyer Expenditures -$ -$ -$ -$ -$ Adjusted Sale Price 800,000$ 600,000$ 450,000$ 950,000$ 270,000$ Land Value CalculationS/F Land 182,015$ 87,120$ 63,155$ 139,405$ 44,597$ Value Land S/F 1.87$ 2.53$ 1.82$ 2.51$ 1.79$ Land Value 340,000$ 220,000$ 115,000$ 350,000$ 80,000$ Land Valu S/F of Bldg 15.59$ 10.18$ 8.17$ 9.65$ 5.37$ Improvement Value 460,000$ 380,000$ 335,000$ 600,000$ 190,000$ Improvement Cost CalculationS/F Bldg 21,807 21,614 14,072 36,288 14,884 Cost per S/F Bldg 31.81 26.24 30.43 34.81 30.66 Cost of Improvements 693,785$ 567,195$ 428,160$ 1,263,022$ 456,297$ Depreciation 233,785$ 187,195$ 93,160$ 663,022$ 266,297$ Percent Depreciation 33.70% 33.00% 21.76% 52.49% 58.36%Improvement Value 66.30% 67.00% 78.24% 47.51% 41.64%Age 14 17 17 24 25Depreciation per year 2.41% 1.94% 1.28% 2.19% 2.33%

Low Rate 1.28%High Rate 2.41%Average Rate 2.03%

The first step is to arrive at an adjusted price of the property after consideration of the transaction elements such as cash equivalency, conditions of sale, property rights, and buyer expenditures that were made immediately following the closing of the sale. The value of the land is then subtracted to determine the amount of the adjusted purchase price attributable to the

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improvements. In the case of Comparable #1, for example, the land value was $340,000 resulting in an improvement value of $460,000. The next step is to determine the replacement cost new of the comparable. In the case of comparable #1, that replacement cost is $693,785. The difference between the replacement cost and the amount of the sale price allocated to the improvements equals the total depreciation experienced by that property. This depreciation is divided by the cost of the improvements to arrive at the percentage of total depreciation experienced, which then is divided by the age of the property to determine the annual depreciation rate. The results indicate a range of 1.28% to 2.33% per year with a mean average of 2.01%. The table below shows the depreciation rates ordered based on the age of the properties. With the exception of the first property, it seems that the older the property is, the more rapid is the depreciation, which only seems logical. This next chart graphically displays this relationship between age of the property and the rate of depreciation. Five samples are not sufficient data to draw statistically valid conclusions. However, the graphic display, with the linear regression trend line, will give the reader a pictorial representation of what the data appear to indicate. When this trendline is applied to the age of the subject of 14 years, the conclusion shows in the table above that the rate of annual depreciation to be anticipated for the Subject would be 1.85%. As mentioned above, the statistical reliability of these calculations when using such a small sample is very low. Therefore, I have rounded the rate to 2.0% to use for the depreciation schedule.

y = 0.0139e0.0178x

R2 = 0.1175

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

0 5 10 15 20 25 30

Linear Regression Analysis with trend line indicating that the older properties tend to depreciate at a more rapid rate than younger properties.

Age Rate14 2.41%17 1.94%17 1.28%24 2.19%25 2.33%

Subject14 1.89%

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Conclusion. The Subject property is 14 years old. The annual rate of depreciation extracted from the above data is 2.0% per year. This means that the Subject property will be expected to have depreciated by 28% of its current replacement cost. We determined that the total reproduction cost of the Subject is $493,171. Below is a table in which I have determined the value of the Subject by this methodology. Adding the land value to the depreciated improvement value results in a value of $431,083 by the market extraction methodology.

Market Extracted DepreciationReproduction Cost of Subject 493,171$ Extracted Rate of Depreciation 2.00%Age of Subject (years) 14Total Expected Depreciation % 28.00%Total Expected Depreciation 138,088$ Depreciated Improvement Value 355,083$ Land Value 76,000$ Value by Market Extracted Method 431,083$

Breakdown Method. As a more detailed approach to determining depreciation, I have used the "Breakdown Method" applied to the reproduction cost total. This requires the depreciation to be divided into three categories: (1) Physical deterioration (curable and incurable); (2) Functional Obsolescence (curable and incurable); and External Obsolescence. Allocation of Cost to Building and Site Improvements. To determine our depreciation schedule by the Breakdown Method, I need to separate the building improvements from the site improvements because the site improvements have a different useful life than does the building structure. Separate depreciation schedules will be applied to the site improvements. Because the indirect costs and entrepreneurial incentive apply to the site improvements as well as the building structure, I have also allocated these costs to the building structure and site improvements. The table below illustrates this allocation. The result is that the Building Structure is allocated $388,867 and the Site Improvements $104,303, which equals the total cost of $493,171. The depreciation scheduled below will use this allocation.

Allocation between Building Improvements and Site ImprovementsBuilding Components Bldg % Site % Total %

Warehouse Structure 285,417$ 72.63% 285,417$ 72.63% Office Area 24,425$ 6.22% 24,425$ 6.22% Site Improvements 83,107$ 21.15% 83,107$ 21.15% Total Direct Costs 309,842$ 78.85% 83,107$ 21.15% 392,949$ 100.00%

Indirect Costs 35,818$ 9,607$ 45,425$ Entrepreneurial Incentive 43,207$ 11,589$ 54,797$ Total Costs 388,867$ 104,303$ 493,171$ Physical Deterioration. Physical deterioration is both curable and incurable. Curable deterioration is deferred maintenance which is economically feasible to repair. In Section II of this report I identified and described six items of deferred maintenance and supplied information regarding the cost to cure in the Addenda and footnotes. Below I have included a table that summarizes these six items. The total cost to cure these items is $22,795. These items are curable physical deterioration. They are broken out to show the deferred maintenance on the building structure and on the site improvements because that division will be used later in this analysis.

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Deferred Maintenance Bldg SiteFlooring in Office 1,295$ 1,295$ Moisture Penetration - Back Wall 500$ 500$ Asphalt Parking Lot 2,500$ 2,500$ Fence Repair 17,400$ 17,400$ Loading Dock Bumpers 600$ 600$ Roof Leak 500$ 500$

Total Deferred Maintenance 22,795$ 2,895$ 19,900$ The next step is to identify the Short-Lived and Long-Lived items that can suffer physical deterioration. There is a series of four tables below. The first table has assembled the short-lived items from the segregated cost schedule above that apply to the building structure only. The first column identifies the component of cost. The second column gives the useful life of this component based on the Marshall Valuation Service estimates, followed by the cost taken from the segregated cost table. To each of these items, I have factored the prorata amount of the indirect costs and entrepreneurial incentive determined above. This factor is 25.5% of the direct costs. My estimate of the effective age of each item is then listed followed by the amount of depreciation allocated to that item. I have used the Age-Life method of determining this depreciation amount. Those items that are included in the deferred maintenance list above are given an effective age of zero as they would be new if they were cured, thus would have no depreciation. The second table has assembled the long-lived items. Since, by definition, long-lived items have a remaining useful life equal to or longer than the basic building structure, I have assigned a 35 year useful life to each of the items as that is the estimate of useful life in the Marshall Valuation Service. The same ratio of indirect cost and entrepreneurial incentive is factored to each component. The current effective age and depreciation amount are in the following columns. From these tables it can be seen that the total depreciation on the short-lived items is $10,682 and on the long-lived items is $85,725.

Building Short-Lived Items Life CostSoft Cost & Entr Incent

Effective Age Depreciation

Flooring / Vinyl Composition Tile 7 1,412$ 1,772$ 0 -$ Interior Walls / Wood - Drywall finish 18 2,565$ 3,219$ 10 1,788$ Dock Bumpers 10 2,990$ 3,753$ 0 -$ Ceiling / Suspended Ceiling T-Grid 8 935$ 1,173$ 3 440$ Ceiling / Acoustical Organic Fiber 8 1,299$ 1,630$ 3 611$ Base Cabinet 15 702$ 881$ 3 176$ Wall Cabinet 15 563$ 707$ 3 141$ Laminated Plastic Countertop 10 279$ 350$ 3 105$ Plumbing / 2 Restrooms 17 2,061$ 2,587$ 10 1,522$ Electrical Service/distribution 18 3,222$ 4,044$ 10 2,247$ HVAC - Heat Pump 5 7,274$ 9,129$ 2 3,652$

Total Short-Lived 23,302$ 29,245$ 10,682$

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Building Long-Lived Items Life CostSoft Cost & Entr Incent

Effective Age Depreciation

Site Preparation 35 2640 3,313$ 10 754$ Foundation / Concrete, Bearing Wall 35 19920 25,001$ 10 5,691$ Frame / Steel, Pre-engineered 35 37800 47,441$ 10 10,800$ Floor / Concrete, Elevated Slab 35 111720 140,214$ 10 31,920$ Floor / Hardner & Sealer on concrete 35 7680 9,639$ 10 2,194$ Electrical Service/distribution 35 9720 12,199$ 10 2,777$ Exterior Metal Walls / Steel Frame 35 37312 46,828$ 10 10,661$ Roof / Metal, Preformed Sheets 35 18720 23,495$ 10 5,349$ Stairs / Concrete & Steel Exterior 35 2409 3,023$ 10 688$ Loading Dock / with Roof 35 26093 32,748$ 10 7,455$ Garage Doors / 2 overhead 35 1303 1,635$ 10 372$ Concrete Vehicle Ramp 35 7110 8,923$ 10 2,031$ Interior Framing 35 4114 5,163$ 10 1,175$ Electrical Service/distribution 35 0 -$ 10 -$ High Curbing 35 3,701$ 4,645$ 10 1,057$ Concrete Landing Pads 35 7,213$ 9,053$ 10 2,061$ Concrete Entry - Gate 35 2,581$ 3,239$ 10 737$

Total Short-Lived 300,036$ 376,560$ 85,725$ The next table shows the same calculations for the site improvements. The site improvements, of course, have much shorter useful lives. Again, those items that are listed in the deferred maintenance list above are given a zero effective age as they are assumed to be cured. The total depreciation of the site improvements is $19,323.

Site Short-Lived Items Life CostSoft Cost & Entr Incent

Effective Age Depreciation

Landscaping 10 12,073$ 15,152$ 9 10,866$ Chain Link Fencing 15 10,757$ 13,501$ 0 -$ Lighting / High Intensity Sodium/Mercury 10 1,682$ 2,111$ 5 841$ Lighting / Light poles (2) 10 2,306$ 2,894$ 5 1,153$ Gate, Chain Link 8 2,398$ 3,010$ 0 -$ Paving - Asphalt - Subbase 25 16,158$ 20,280$ 10 6,463$ Paving - Asphalt 10 24,238$ 30,419$ 0 -$

Total Short-Lived 69,612$ 87,367$ 19,323$ Finally, I have prepared a table that assembles the totals of the above three tables. The total of the Cost column balances to the total on the segregated cost table above. The total depreciation of the short-lived and long-lived items, after accounting for the curable physical items, is $115,730.

Short-Lived & Long-Lived Items Combined CostSoft Cost & Entr Incent Depreciation

Building Short-Lived Items 23,302$ 29,245$ 10,682$ Site Short-Lived Items 69,612$ 87,367$ 19,323$ Building Long-Lived Items 300,036$ 376,560$ 85,725$

Totals 392,950$ 493,172$ 115,730$

Functional Obsolescence. Functional obsolescence is an element of depreciation resulting from deficiencies or superadequacies in the structure. Functional obsolescence is divided into curable and incurable obsolescence, based on whether the value added is equal to or greater than the cost to cure. In the Highest & Best Use analysis section, I determined that the improvements of the Subject are well suited to its Highest & Best use and that the site seems to be fully developed. The interior of the warehouse or the office area could be modified for the desires of a particular user but those

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modifications would not necessarily change the market value of the Subject, nor increase its utility to the general buying public. Therefore, it is my conclusion that there is no measurable functional obsolescence, either curable or incurable, on the Subject. External Obsolescence. This aspect of depreciation is a defect, usually incurable, caused by negative influences outside a site and generally incurable on the part of the owner, landlord, or tenant. As observed in the market analysis section, the Subject is well located among a homogeneous neighborhood of light industrial distribution property. Typically, external obsolescence can be measured by loss of rents. As can be seen in the analysis of rent comparables in Section 7 of this appraisal, the Subject can command rent equivalent to other properties in the immediate area and, after appropriate adjustments, comparable to similar properties in the newer industrial parks to the East of the subject. Therefore, it is my conclusion that there is no measurable external obsolescence on the Subject property. Tabulation of Value by Cost Approach The final calculation to reach a value conclusion by the Cost Approach is to assemble the data into a Cost Approach Table. The following page provides this table with the conclusions reached in each of the steps above into a final conclusion of value by the Cost Approach. I have used the calculations from the Breakdown Method in this table. When the depreciated value of the improvements, including site improvements, is added to the site value of $76,000, the total value is $430,646. I have rounded this to $430,000. It is interesting to note that the depreciation using the breakdown method and the depreciation using the market extracted method are only $437 apart. These two methods of determining depreciation on the Subject seem to confirm each other, giving more credibility to the final conclusion of value.

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Cost Approach TableReproduction or Replacement Cost

Direct Costs 392,949$ Indirect Costs 45,425$ Entrepreneurial Incentive 54,797$

TOTAL COST 493,171$

DepreciationCurable Physical Deterioration - Structure 2,895$ Curable Physical Deterioration - Site Improvements 19,900$ Total Physical Deterioration 22,795$ Incurable Physical Deterioration Short-lived items - Structure 10,682$ Long-lived items - Structure 85,725$ Short-lived items - Site Improvements 19,323$

TOTAL PHYSICAL DETERIORATION 115,730$ Curable Functional Obsolescence Deficiency - addition -$ Deficiency -- substitution -$ Superadequacy -$

TOTAL CURABLE FUNCTIONAL OBSOLESCENCE -$ Incurable Functional Obsolescense Deficiency -$ Superadequacy -$

TOTAL INCURABLE FUNCTIONAL OBSOLESCENCE -$ Total External Obsolescence -$

TOTAL DEPRECIATION 138,525$

Depreciated Value of Improvements 354,646$

Site Value 76,000$

Value of Excess / Surplus Land -$

TOTAL INDICATED VALUE 430,646$

Other Adjustments -$

ROUNDED FINAL VALUE 430,000$

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SECTION VI.

SALES COMPARISON APPROACH The Sales Comparison Approach is based on the principle of substitution which holds that the value of a property tends to be set by the price that would be paid to acquire a substitute property of similar utility and desirability within a reasonable amount of time. In this approach, the appraiser identifies properties similar to the Subject, then makes adjustments to the sale price of the other properties (comparables) removing the differences between the Subject and the comparable properties until the comparables are reasonably equivalent to the Subject. The adjusted prices of the comparable properties are then applied to the Subject to determine the value of the Subject by comparison. The steps involved in this approach are (1) Identify and analyze sales of similar properties in the same or similar locations. (2) Determine the changes or adjustments to the comparable properties that will eliminate or minimize the differences between the Subject and the comparables. (3) Create an "Adjustment Grid" to display the comparables and the Subject side-by-side to enable a clear presentation of the similarities and differences. (4) Reach a conclusion regarding the price per unit of comparison (usually per square foot in the case of improved commercial or industrial property). (5) Apply that value for the unit of comparison to the Subject to reach a value conclusion. Improved Sale Comparables. In the addenda you will find an improved sales map showing each of the sales used below followed by a complete description and photo of each improved sale. The sales are assembled into the following table for quick review.

Sale # Address Land AreaBldg Size Sale Price $ S/F Date

1 14411 Import Rd, Bordertown, Arizona 43,560 11,353 335,000$ 29.51$ 06/10/022 14418 Industry, Bordertown, Arizona 43,560 12,336 310,000$ 25.13$ 04/07/063 14416 Import Rd, Bordertown, Arizona 43,560 12,276 300,000$ 24.44$ 06/20/064 14403 Import Rd, Bordertown, Arizona 55,548 16,276 400,000$ 24.58$ 06/20/065 14409 Import Rd, Bordertown, Arizona 43,560 12,391 431,500$ 34.82$ 01/16/07

Improved Sales Analysis. The analysis of the individual sales, and their comparison to the Subject, will proceed in two levels. The first level will address items that have to do with market conditions or the sales transaction between buyer and seller. Adjustments in this level are applied sequentially and have the effect of compounding the changes until an adjusted price is reached which has considered the market and sales transaction issues. The second level considers property specific features such as location, physical, economic, use, and non-realty components (if any), of the comparable property. These adjustments are aggregated together before being applied to the price determined in the first level. Not all items of comparison can be quantified from market extracted data. Therefore some comparison items will have a "qualitative" adjustment noted. Although not resulting in an actual number, these qualitative adjustments will guide us in determining how to treat the various sales when it comes to making our final conclusion of value.

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Following the discussion of the adjustments, you will find a table. In the table, each of the adjustment features have separate fields for a qualitative and a quantitative differences. In those cases where market support cannot be found for a quantitative adjustment, only a qualitative adjustment will be noted without a change in value. The final value conclusion will consider these qualitative comments even though they have not made a numeric change in the price of the comparable sale. First Level Adjustments. Property rights conveyed. This adjustment is to account for differences in property rights such as the difference between Fee Simple and Leased Fee. It also accounts for such things as partial interests sold rather than undivided interest. The Subject is owner-occupied and the ownership is Fee Simple. In the case of the comparables, three of the comparables were occupied by tenants at the time of sale -- #2, #3, and #4. The tenant in comparable #4 told me in a personal interview that they were on a month to month rental agreement and had been at the time of sale. Thus, there was no Leased Fee to address. Comparables #2 and #3 were under lease for a term of more than a year at the time of sale. Comparable #2 has a 3 year lease that began two months before the sale closed and is a strange situation where the landlord occupies a small office in the loft above the tenant's office area. Conversation with the tenant indicated that this is a "less than arms-length" relationship. It appears that the lease arrangement and above market rental rate appear to confirm this. Therefore, I have elected to treat this sale as a Fee Simple and disregard the Leased Fee Interest as having an impact on the sale price. No adjustment is made for this Leased Fee transaction. Comparable #3, on the other hand, is a long term lease in what appears to be an arms-length transaction with a tenant who has occupied the space since 2000. The rent is $3,750 per month which is about $.31 per square foot per month. This is about 10% below the market rents as determined in the Income Approach in Section 7. Since the comparable property is virtually identical to the Subject, the market rents for this comparable should be the same as the Subject. It is unknown what the remaining term of the lease is but the tenant, Syntranet, is a large corporate tenant and is more likely to have a long term lease than a smaller local tenant would have. I have assumed that the remaining term would be three years, which would be typical for smaller properties in Bordertown. This would mean that the current income stream at the time of sale would be about $420 per month below market. This deficiency over 36 months would have a net present value of about $13,000. This equals 4.4% of the sale price. Therefore, I have adjusted this sale up by 4.0% to equate a Fee Simple interest after adjusting the existing leasehold interest. Financing terms. This adjustment accounts for financing terms that are different from the prevailing market financing terms and provisions. Seller financing often includes interest that is lower than financial institutions charge to motivate a buyer to close a sale. Sellers also often take a lower down payment. These softer terms often affect the stated sale price, and adjustments are necessary to bring the price back to level that would equate to a market transaction. This is known as determining the "cash equivalency" of a transaction. All of the comparable sales resulted in cash to the seller. No adjustments were required for this item. Conditions of sale. This factor involves such things as non-typical motivations on the part of the buyer or seller to enter into the transaction. A seller under duress or a buyer who has no alternative but to buy the property to expand his business, for example, would create non-typical conditions of sale. Since the definition of Market Value used in this appraisal assumes that the buyer and seller are well informed and typically motivated, an adjustment would be needed if this were not the case. Comparable #1, #2 and #5 were all arms-length with typical buyer and seller motivations. Comparables #3 and #4, however, were transactions between the same buyer and seller. According to the real estate broker who handled the sale, the seller was very motivated to sell quickly

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and the buyer is an investor who owns many industrial rental properties in Bordertown. Because the seller wanted a quick sale, the broker contacted this investor and the transaction was consummated very quickly. According to the broker, the discount from market value was, in her opinion, about 20%. Therefore, it is appropriate to use a positive 25% adjustment to both of these sales. Market conditions. This adjustment reflects changes in the market during the time between the effective date of the appraisal and the time of the sale of the comparables. This is often referred to as a "time adjustment." However, time alone does not explain the changes in the market. In Section 4 above I reached a conclusion that the industrial land market has been increasing at a rate of about 6.0% per year. I have included an exhibit in the Addenda labeled "Time Adjustment Test - Industrial Parks in Bordertown." I have applied the same time adjustment of 5.0% per year to the improved sales comparables. To further test the time adjustment, I have used a paired sale analysis of the same property. 14409 Import Road sold in June 2002 for $365,000. It sold again in January 2007 for $431,500. The table below illustrates this paired sale analysis. The gross increase in price was $66,500, or 18.22%. This results in an annual rate of increase of 3.90%. This is less than the 6.0% found in the analysis of land sales but justifies the more conservative time adjustment rate of 5.0%.

Paired Sale Analysis 14409 Import RdSale Date 06/10/02 01/16/07Sales Prices 365,000$ 431,500$ Gross Price Increase 66,500$ Gross Percent Increase 18.22%Annual Rate of Increase 3.90%

Buyer Expenditures. Money spent by the buyer immediately following the purchase to cure a problem or make the property usable needs to be accounted for in the adjustments. If a buyer pays for an expense that would typically be a seller expense, such as a real estate listing commission typically paid by the seller, this expense should be added to the sales price to determine the true price paid by the buyer for the property. In the case of the comparable sales, there does not appear to be any buyer expenditures. No adjustment is made for Buyer Expenditures. Second Level Adjustments. Location. Location of land is a very important component of value determination. All five of the comparable sales are in the same industrial park and are within two blocks of the Subject. All of them share the same location features, so no adjustment is needed for this item. Size. Generally speaking, with all other things being equal, a larger property will sell for a lower price per unit than a smaller parcel. A rule of thumb that appraisers often use is that for each time the size of the comparable property doubles compared to the Subject, the price per unit will drop about 10%. If the size of the comparable is half the size of the Subject, the price per unit will increase about 10%. In the case of the comparables used, the sizes are quite uniform. Comparable #4 is the only one with any significant size difference, at 16,276 square feet. I have included appropriate size adjustments but because the size differences are so small the amount of adjustments are negligible. Corner Influence. Corner parcels generally sell for more than interior parcels because of the additional frontage afforded by the additional street frontage. It often provides additional access and visibility for businesses that need that visibility. None of the comparables are corner parcels. All of them are interior. Comparable #4 is the second parcel from the end of Import. However, Atlanta Drive ends at the intersection with Import so even it if were on the actual corner, it would not have any corner influence value as there is no additional frontage created by the corner. No adjustment is

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made for this item. Rail Service. Neither the Subject nor any of the sales have rail service. No adjustments are necessary for this feature and I have not included it on the grid. Office Ratio. The amount of office space included in an office/warehouse structure affects its value and utility. The comparables all have close to the same percentage of office area. They range from 5.22% to 10.57%. I have used the Marshall Swift cost for the office components of $28.00 per square foot of office area as an adjustment rate. The formula that I have used is illustrated in the table below. I have first determined the percent of office in the comparable property. I then find the difference, positive or negative, between the comparable and Subject, which is 7.22%. This difference is multiplied by the total square footage of the comparable to arrive at the extra square footage of office which is then multiplied by the $28 per square foot cost to arrive at the additional value. This cost is divided by the comparable sale price to determine the percentage which is then applied as the adjustment on the adjustment grid for that feature. All of the comparables are adjusted by this formula.

Step Comp #1Office Ratio 10.57%

Difference in Office Ratio 3.35%Square Feet Difference 380.69 Cost of the Extra Office 10,659$

Cost as Percent of Sale Price 3.18% Zoning. All sales, and the Subject, were zoned "M-1" so no adjustment was necessary for this feature. Access. All of the sales, and the Subject, have only one side of the parcel with access for ingress and egress. Therefore, the access is no different on these properties, and I have not included access as a component on the adjustment grid. Frontage. The amount of street frontage on a parcel will often make a difference in the value. All of the properties have essentially the same frontage dimensions because they are part of a standard subdivision. No adjustment is made on the grid for any of the sales for frontage. Utilities. All sales are in developed industrial parks where all utilities are available. No adjustments are necessary for this feature. Flood Zone. All of the sales, and the Subject, are in Flood Zone C or Flood Zone X, neither of which are indicative of flood hazards. No adjustments are necessary for this feature. Topography/soil. All of the sales, and the Subject, have relatively level topography as well as equivalent soil conditions. No adjustment is necessary and I have not included this item on the grid. Improved Sales Grid. The last two pages in this Section contain the Improved Sales Comparable Grid in which the above described comparisons and adjustments are compiled. The first page shows the adjustments for the transaction related items and the second page carries that forward and includes the property related items.

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Reconciliation of Improved Sale Value. The adjusted prices of the five comparables range from $26.29 to $35.09 per square foot. The greatest amount of adjustment was required on comparables #3 and #4 because of their discounted price and leased fee ownership. Comparable #1 had a substantial time adjustment because it is nearly five years old. Comparable #5 is very recent, closing in the same month as the effective date of this appraisal. All of the comparables are very similar and require very little adjustment on the property characteristics. Because of the minimal adjustments required and the very recent date of closing, I have relied most heavily on comparable #5, at $34.11 per square foot. Comparable #2 has an unusual leased fee structure and some unanswered questions. The tenant, an apparently unrelated party, began the lease two months before closing of the sale and then the landlord moved in and shares office space. Because of this atypical situation, I have given the least weight to comparable #2. It does not seem to pass the "smell test." Thus, the final conclusion of value for the Subject is $33.17 per square foot, or $398,005, which I have rounded to $400,000. Potential Gross Income Multiplier Analysis. There are a couple of other analysis techniques that are often included in the Sales Comparison Approach: the Potential Gross Income Multiplier (PGIM) and the Effective Gross Income Multiplier (EGIM). The difference between these two is that the second considers the impact of a vacancy factor. Older appraisal textbooks suggest that these techniques should be used in the Sales Comparison Approach while the more recent thought is that, because these are based on the rental income stream, they are more appropriately handled in the Income Section. I agree with the latter approach so will discuss these techniques in the Income Approach section below. Deferred Maintenance. In the Cost Approach, I identified deferred maintenance (curable physical deterioration) in the amount of $22,795. The comparable properties were all reportedly in "average" condition. None were in "like new" condition and all have some amounts of maintenance required. Based on my observation of the competing properties in the immediate neighborhood, the Subject is considered in "average" condition even with the deferred maintenance present. The presence of these items of deferred maintenance does not make the Subject less attractive than competing properties. The first test of whether physical deterioration is curable is whether the cure will result in a value increment equal to or greater than the expenditure, and this test is not met in this case. However, there is a second test, which successfully applies to the Subject. That is "if spending the money to cure the item will not result in a value increment equal to or greater than the expenditure but will allow other existing items to maintain their value, then the item is normally considered curable." It Is my opinion that this applies to the Subject. Thus, I have not made an adjustment to the value conclusion reducing the value by the cost to cure the deferred maintenance.

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Sale # Subject 14411 Import 14418 Industry 14416 Import 14403 Import 14409 ImportDate of Sale 6/10/2002 4/7/2006 6/20/2006 6/20/2006 1/16/2007Months since Sale 56 10 7 7 0 Price - 335,000$ 310,000$ 300,000$ 400,000$ 431,500$ Size 12,000 11,353 12,336 12,276 16,276 12,391 Price per Square Foot 29.51$ 25.13$ 24.44$ 24.58$ 34.82$ Transaction AdjustmentsProperty Rights Fee Simple Fee Simple Leased Fee Leased Fee Fee Simple Fee Simple Adjustment % 0.00% 0.00% 4.00% 0.00% 0.00% Adjustment $$ -$ -$ 0.98$ -$ -$ Adjusted Price 29.51$ 25.13$ 25.42$ 24.58$ 34.82$ Financing Cash Cash Cash Cash Cash Cash Adjustment % 0.00% 0.00% 0.00% 0.00% 0.00% Adjustment $$ -$ -$ -$ -$ -$ Adjusted Price 29.51$ 25.13$ 25.42$ 24.58$ 34.82$ Conditions of Sale Arms-Length Arms-Length Arms-Length Sale Discount Sale Discount Arms-Length Adjustment % 0.00% 0.00% 25.00% 25.00% 0.00% Adjustment $$ -$ -$ 6.35$ 6.14$ -$ Adjusted Price 29.51$ 25.13$ 31.77$ 30.72$ 34.82$ Market Conditions N/A 56 months 10 months 7 months 7 months 0 months Adjustment % 23.50% 4.10% 3.07% 3.07% 0.00% Adjustment $$ 6.93$ 1.03$ 0.98$ 0.94$ -$ Adjusted Price 36.44$ 26.16$ 32.74$ 31.66$ 34.82$ Buyer Expenditures N/A None None None None None Adjustment % 0.00% 0.00% 0.00% 0.00% 0.00% Adjustment $$ -$ -$ -$ -$ -$ Adjusted Price 36.44$ 26.16$ 32.74$ 31.66$ 34.82$ Transaction Adjusted Prices 413,725$ 322,701$ 401,971$ 515,347$ 431,500$

Comparable Improved Sales Adjustment GridLevel 1 - Transaction Adjustments

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Sale # Subject 14411 Import 14418 Industry 14416 Import 14403 Import 14409 ImportAdjusted Price S/F 36.44$ 26.16$ 32.74$ 31.66$ 34.82$ Property AdjustmentsLocation N/A Similar Similar Similar Similar Similar Adjustment % 0.00% 0.00% 0.00% 0.00% 0.00% Adjustment $$ -$ -$ -$ -$ -$ Size 12,000 sf 11,353 12,336 12,276 16,276 12,391 Adjustment % -0.54% 0.14% 0.12% 1.78% 0.16% Adjustment $$ (0.20)$ 0.04$ 0.04$ 0.56$ 0.06$ Corner Influence Inside Inside Inside Inside Inside Inside Adjustment % Parcel 0.00% 0.00% 0.00% 0.00% 0.00% Adjustment $$ -$ -$ -$ -$ -$ Rail Service None None None None None None Adjustment % 0.00% 0.00% 0.00% 0.00% 0.00% Adjustment $$ -$ -$ -$ -$ -$ Zoning M-1 M-1 M-1 M-1 M-1 M-1 Adjustment % 0.00% 0.00% 0.00% 0.00% 0.00% Adjustment $$ -$ -$ -$ -$ -$ Office Ratio 7.22% 10.57% 6.89% 6.92% 5.22% 9.96% Adjustment % office -3.18% 0.36% 0.34% 2.27% -2.20% Adjustment $$ (1.16)$ 0.10$ 0.11$ 0.72$ (0.77)$

Level 2 Net % Adjust. -3.72% 0.50% 0.45% 4.05% -2.04%Level 2 Net $$ Adjust. (1.36)$ 0.13$ 0.15$ 1.28$ (0.71)$

Adjusted Price S/F 35.09$ 26.29$ 32.89$ 32.95$ 34.11$ Attributed Weight 20.00% 10.00% 15.00% 15.00% 40.00%

Weight Adjusuted Price 7.02$ 2.63$ 4.93$ 4.94$ 13.65$

Adjusted Range 26.29$ 35.09$ Subject Size 12,000 Square FeetAdjusted Mean 32.27$ Subject Value 398,005$

Weighted Mean 33.17$ Rounded Conclusion 400,000$

Comparable Improved Sales Adjustment GridLevel 2 - Property Adjustments

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SECTION VII. INCOME APPROACH

The Income Approach is based on the principles of Anticipation and Change. Since buyers of income producing properties are buying an "income stream", as much as "bricks & mortar," the appraiser must estimate and project an income stream that can be quantified and measured. A value can then be attached to that projected income stream. There are two basic approaches to performing this task: Direct Capitalization and Yield Capitalization. Direct Capitalization. This is a method "used to convert an estimate of a single year's income expectancy into an indication of value in one direct step, either by dividing the income estimate by an appropriate rate or by multiplying the income estimate by an appropriate factor." When an income producing property is existing and has been stabilized, so that the current year's economic performance is at a level that is typical of a stable real estate market for that kind of property, this method is most appropriate. If an existing property is owner-occupied but is in a market that is relatively stabilized, this method would be appropriate to determine the "potential" income stream to an investor who would buy the property and lease it to a tenant for the rental income. Yield Capitalization. This method is a "procedure in which a discount rate is applied to a set of projected income streams and a reversion. The analyst specifies the quantity, variability, timing, and duration of the income streams as well as the quantity and timing of the reversion and discounts each to its present value at a specified yield rate." This method is most appropriate to use when a property is proposed and improvements do not yet exist. The appraiser must then project the time it will take the property to achieve stabilization; estimate the absorption process during which the leasing of the property will be accomplished, or in the case of a subdivision, the process of sell-out of the individual lots; estimate income and expenses during the process of reaching stabilization; then determine the Present Value of the cash flows by discounting them at a market rate of return to determine the value of the property. This method is also appropriate in the case of an improved rental property, such as a multi-tenant office building or apartment building, if its current occupancy and rental performance is substandard for a market where supply and demand is in equilibrium. In that case, the appraiser must estimate the time and cost to bring the property to a condition that is "at par with" the surrounding stabilized market for that type of property. The "As Is" value of the property is then the Present Value of the cash flows after accounting for the time and cost (lost revenue and extra expense) required to reach stabilization. The "Prospective Value" would be the value at the end of the construction / absorption period when the property is stabilized. A third example of when Discounted Cash Flow Analysis is appropriate is in the case of an existing property that requires renovation/remodeling, or where there is an addition proposed to expand the existing improvements. Again, the construction period and absorption period process must be analyzed and the income stream discounted to a Present Value to determine the market value of the property in its "As Is" condition. In the case of the Subject of this appraisal, the property is a single-tenant owner-occupied property. The industrial market is very strong and one could even say that demand exceeds the supply of improved industrial property at this time. Therefore, it is most appropriate to use the Direct Capitalization method for this appraisal.

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Direct Capitalization Process. The steps involved in this approach are (1) Determine the Income Potential of the property. This is done by selecting comparable properties that have recently rented to tenants, analyze the lease terms, the character and condition of the property, and use this information to determine a market rent level for the Subject property. Using this market rent conclusion, and allowing for a market extracted vacancy rate, the Effective Gross Income (EGI) is estimated for the Subject. (2) Determine the Operating Expenses that would be anticipated during the first year of operation following the effective date of the appraisal. This is done by analysis of the Subject operating history, if available, examining the expense history of similar properties in the market (preferably that have recently sold), and consulting reports of surveys that have been conducted that provide average operating experiences of similar property (preferably in the market where the Subject is located). (3) Project a Net Operating Income for the first year of operation following the effective date of the appraisal, using the income and expense Proforma created in steps (1) and (2) above. (4) Determine an appropriate Overall Capitalization Rate by analyzing comparable sales where operating income and expenses are known, by consulting reports of surveys or published reports that provide market extracted rates for the appropriate property type, and discussions with market participants such as investors or real estate brokers. (5) Apply the selected Overall Capitalization Rate to the estimated Net Operating Income to determine a value for the Subject. Market Rent Determination. To determine the market rents for the Subject, I have identified six comparable properties that have had recent leases executed. Two of these rent comparables are located in the same industrial park as the Subject; Two are in the South Industrial Park immediately South of the Subject and two are located the Keller Industrial Park, to the Southeast of the subject, which is a much newer park with higher quality buildings. Below is a table with these rent comparable properties.

Comp # Address Mo Rent GLA S/F Yr Terms1 14418 Industry Ave, Bordertown, Arizona 5,000$ 12,336 4.86$ Gross2 14408 Export, Bordertown, Arizona 4,000$ 12,488 3.84$ Gross3 618 Enterprise St., #2, Bordertown, Arizona 3,000$ 10,000 3.60$ Gross4 618 Enterprise St., #4-5, Bordertown, Arizona 6,000$ 21,000 3.43$ Gross5 8414 El Gato, Bordertown, Arizona 22,627$ 59,544 4.56$ Gross6 11903 Auburn, Bordertown, Arizona 5,685$ 14,960 4.56$ Gross

Each of these rent comparables has a complete write up in the Addenda, including a photo of the property, explanation of lease terms, lease date, and other relevant information. I need to make an observation about the Bordertown industrial rental market discovered in my research. Where most markets around the country seem to prefer net leases (NNN Leases) for industrial property, in which the tenant is responsible for payment (directly or by proration from the landlord) of real estate taxes, property insurance, and maintenance expenses, this type of lease is very rare in Bordertown. With the exception of a few very large (100,000 s/f and over) industrial properties, owned by national developers or real estate investment trusts and leased to national institution-grade tenants, I could find nothing but Gross Leases used in Bordertown. Because of this, I have assumed that the rental of the Subject, should it become vacant, would be under a Gross lease in which the tenant pays for utility services directly to the utility vendors, and pays for minor inside maintenance and janitorial. The landlord would be responsible for all real estate taxes, property insurance, and typical maintenance on the structure, exterior and grounds. Below is an Adjustment Grid with these six rental comparables. The comparables are very

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similar to the Subject so require only minor adjustments, which I have explained below. Again, the Level 1 adjustments are cumulative and the Level 2 adjustments are aggregate. Expense Structure. Some leases require the tenants to pay for all or part of the real estate taxes, insurance, and maintenance on a building in addition to the utilities consumed. For a detailed discussion of the various types of commercial leases, see the Glossary in the Addenda. All of the comparable leases are Gross Leases in which the tenant pays the rent and utilities and the landlord is responsible for all other property related expenses. No adjustment was required for this item. Conditions of Lease. This factor involves items in a lease such as free rent concessions, tenant improvements paid for by the landlord beyond what the market dictates, or other considerations to induce either the tenant or landlord to sign the lease. In the case of the comparables, the properties were already existing and the leases are all second generation leases1. No initial marketing concessions were required and no other atypical provisions in the leases were found. However, as discussed in the Sales Comparison Approach on comparable #1, there is an unusually situation that has created unanswered questions in my mind because the lease was executed two months before the sale closed (unusual) and the landlord actually moved in and occupies a small office above the tenant's office area. The rents on this building are substantially greater than on the other rent comparables which further confirms the uncertainty of the relationship between landlord and tenant. I have therefore, adjusted this lease rate down by 10% to allow for a less-than-arms-length relationship possibility. No other adjustments were required. Market conditions. This adjustment reflects changes in the market during the time between the effective date of the appraisal and the time of the sale of the comparables. This is often referred to as a "time adjustment." However, time alone does not explain the changes in the market. In Section 4 above I reached a conclusion that the industrial land market has been increasing at a rate of about 6.0% per year. I have included an exhibit in the Addenda labeled "Time Adjustment Test - Industrial Parks in Bordertown." I have applied the same time adjustment of 5.0% per year to the rent comparables. Lease Term. A lease term that extends for a longer time than the typical lease in the market will often have a negative impact on value as a new owner would be unable to modify the lease structure to conform to the market until the lease expires. A month-to-month lease could also have a negative impact on the value because of the uncertainty of the continued income stream. However, month to month leases often charge a premium rental rate to offset the risk of vacancy so each situation must be evaluated on its own merits. In the case of Bordertown market, except for institutional grade industrial property, the lease terms typically range from month-to-month to three years. The most common term that I encountered in my research was a one-year lease term. Anything between month to month and three years, however, would not require any adjustments. Since all of the rent comparables fall within this range, no adjustments are required. Location. Location is a very important component of value determination. Four of the rent

1 Second Generation Lease. This is a lease on a space that was previously occupied after initial construction of a building. Second generation leases generally do not require extensive interior tenant improvements to make them ready for occupancy. Often, however, the space needs to be reconfigured and payment for the expense for reconfiguration or remodeling is a negotiated item between tenant and landlord and can have a substantial impact on the effective rental rate under the lease. A First Generation Lease is a lease to the first occupant of a newly constructed building and often has a "tenant finish allowance" that includes base items needed to prepare the space for occupancy, such as installation of HVAC or plumbing. In come cases, I have even seen the pouring of concrete flooring as part of the "T/I Allowance." These, obviously, should not change the effective lease rate as it is assumed that the landlord should deliver the space ready for occupancy in order to obtain "market rents."

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comparables are located in the older industrial parks West of Mines Road. The other two are located East of Mines Rd in the newer Keller Industrial Park. To test for an adjustment based on location, I have prepared the table below. I have removed the rents for comparable #1 because of the unusual relationship described above. The average rents for the West comparables is $4.05 per square foot. The averages for the East comparables is $4.32. The difference of $.27, or 6.25% can be attributed to the location difference as the rents used are the adjusted rents after all other adjustments have been applied. Based on this analysis, I have adjusted comparables #5 & #6 downward by 5.0% for location.

Comp # E Mines W Mines1 N/A2 3.91$ 3 4.30$ 4 3.94$ 5 4.38$ 6 4.26$

Average 4.32$ 4.05$ Difference $$ 0.27$ Difference % 6.25%

Paired Sales - Location

Building Size. Building size will sometimes make a difference in rental rate with larger properties renting for a lower rate and smaller properties for a higher rate. Scanning the size adjustment row on the grid it is clear comparing comparables #5 and #6 that size made no difference in their rental rate. Comparable #3 is larger and has a lower rental rate but I believe that can be explained by the inferior condition of the building and the fact that it is a multi-tenant building rather than a single tenant building. Therefore, in this case, I have not applied any size adjustment. Building Age. Building age will often make a difference in the rental rate as new buildings will command a higher rental rate than older one. Comparables #1 - #4 are essentially the same age. Comparables #5 & #6 are much new buildings and they have a higher rental rates. However, I believe that the difference can be explained more by building quality/condition and location than by their age differences. No building age adjustment is noted. Building Condition/Quality. Building condition (deferred maintenance, etc.) and quality (type of construction), will impact the rental rate. In the case of the subject, comparables #1 and #2 are the same condition and quality and require no adjustment. Comparables #3 & #4 are in the same complex with tilt-up construction, which is a higher quality construction, but shows considerable deferred maintenance. However, I believe that the higher quality construction offsets the effect of the deferred maintenance. No adjustments are made to these comparables. Comparables #5 and #6, however, are newer tilt-up concrete construction and are in excellent condition. The cost to construct tilt-up construction for these buildings would be about 12% more than the pre-engineered metal construction of the Subject. However, the rental rates in Bordertown do not seem to capture the full difference in this cost and that difference would be somewhat diluted by factoring the land cost, which is accommodated in the Location adjustment above. Therefore, I have adjusted these comparables downward by half of this difference, or 6.0%. Other. The other differences noted are the fact that three of the comparables (#3, #4 and #5) are multi-tenant and the others are single tenant buildings. Typically a single tenant building will lease for slightly more than a multi-tenant building because the tenant will have exclusive use of the yard and parking areas thus have a greater utility. A glance at the Level 1 adjusted rents of these comparables will confirm that this is so with these comparables. The multi-tenant comparables have lower rents than the single tenant building comparables. The three multi-tenant buildings have been adjusted upward by 5.0% each since the Subject is a single-tenant building.

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Rent Value Conclusion. The Rent Comparable Grid on the following page shows all of the above adjustments and concludes with a rental range of $3.91 to $4.60 per square foot per year under gross lease structures. The adjusted mean average is $4.14 per square foot. Since comp #1 has the unanswered questions described above, I have given it minor weight even though it is located very close to the Subject and very similar. Comparable #2 is the most similar and located very close. It also required only a very small time adjustment so I have given the most weight to this rent comparable. Because #5 and #6 are newer and on the East side of Mines Rd, in a somewhat different sub-market, I have assessed a lesser weight to these two. Rent comparable #3 and #4 are multi-tenant but fairly similar to the Subject in other respects. I have assigned a secondary importance to these comparables. With these considerations, the weighted mean average rents equate to $4.17 per square foot. I have rounded this down to $4.15 per square foot per year under a gross lease structure as the Market Rents for the Subject. This rental rate, applied to the 12,000 square foot of the Subject, will produce a Potential Gross Income of $49,800 per year.

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Property Subject14418

Industry 14408 Export

618 Enterprise

#2

618 Enterprise

#4-58414 El

Gato11903 Auburn

Lease Date Current 2/1/2006 9/1/2006 4/1/2006 2/1/2007 11/1/2006 4/1/2006Price 49,800 60,000$ 48,000$ 36,000$ 72,000$ 271,521$ 68,218$ Size 12,000 12,336 12,488$ 10,000$ 21,000$ 59,544$ 14,960$ PPSF 4.15$ 4.86$ 3.84$ 3.60$ 3.43$ 4.56$ 4.56$ Expenses Structure Gross same same same same same same

0% 0% 0% 0% 0% 0%-$ -$ -$ -$ -$ -$

4.86$ 3.84$ 3.60$ 3.43$ 4.56$ 4.56$ Conditions of Lease Arms-Length Question same same same same same

-10% 0% 0% 0% 0% 0%-$ -$ -$ -$ -$ -$

4.38$ 3.84$ 3.60$ 3.43$ 4.56$ 4.56$ Market Conditions Current Feb-06 Sep-06 Apr-06 Feb-07 Nov-06 Apr-06

5% 2% 4% 0% 1% 4%-$ -$ -$ -$ -$ -$

4.60$ 3.91$ 3.74$ 3.43$ 4.61$ 4.73$ Lease Term 1 year term 3 yr mo/mo 1 yr 1 yr 3 yrs 2 yr

0% 0% 0% 0% 0% 0%-$ -$ -$ -$ -$ -$

4.60$ 3.91$ 3.74$ 3.43$ 4.61$ 4.73$ First Level Adjusted Rent 4.60$ 3.91$ 3.74$ 3.43$ 4.61$ 4.73$ Location none same same same same Superior Superior

0% 0% 0% 0% -5% -5%-$ -$ -$ -$ (0.23)$ (0.24)$

Building Size none 12,336 12,488 10,000 21,000 59,544 14,960 0% 0% 0% 0% 0% 0%

-$ -$ -$ -$ -$ -$ Building Age none same same same same Superior Superior

0% 0% 0% 0% -5% -5%-$ -$ -$ -$ (0.23)$ (0.24)$

Building Condition none same same inferior inferior Superior Superior0% 0% 10% 10% -6% -6%

-$ -$ 0.37$ 0.34$ (0.28)$ (0.28)$ Other none same same Multi-ten Multi-ten Multi-ten same

0% 0% 5% 5% 5% 0%-$ -$ 0.19$ 0.17$ 0.23$ -$

Second Adjustment Percentage 0% 0% 15% 15% -11% -16%Second Adjustment Dollars -$ -$ 0.56$ 0.51$ (0.51)$ (0.76)$

Adjusted Rental Rate 4.60$ 3.91$ 4.30$ 3.94$ 4.10$ 3.97$ Attributed Weight 10.00% 25.00% 20.00% 20.00% 12.00% 15.00%

Weight Adjusuted Price 0.46$ 0.98$ 0.86$ 0.79$ 0.49$ 0.60$

Adjusted Range 3.91$ 4.60$ Adjusted Mean 4.14$

Appraiser Selected 4.15$ 0.35$ per monthWeighted Mean 4.17$

RENT Comparison Grid

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Vacancy Allowance. In Section 2 of this report, I performed a market analysis of the neighborhood in which the Subject is located. Included in that analysis was a detailed survey of occupancy which is included in full in the Addenda. This survey indicated that of the 4,034,475 square feet of Gross Building Area (GBA) in the three industrial parks comprising the neighborhood, there were 11 buildings vacant and a total of 188,453 square feet of vacant Gross Building Area. That equates to a 4.67% vacancy factor by GBA and 5.7% vacancy by building count, for the entire neighborhood. The International Trade Center, in which the Subject is located, shows a 4.33% vacancy by GBA and 5.26% by building count. Based on this data, I have used a 5.0% vacancy & credit loss factor for the following financial Proforma. This results in a loss of $2,490 per year. The building is a single-tenant building; however, this vacancy factor allocates a certain amount of vacancy each year as though the building were leased for a three year period or longer with one tenant. When the vacancy does occur, it may take several months to find the replacement tenant. Because it is impossible to know when that vacancy will occur, I am allocating that anticipated vacancy over a several year period and accruing the vacancy on an annual basis. Operating Expenses. As discussed in Section 2 of this appraisal report, the ownership has been in possession for less than one month as of the effective date of this appraisal, and I was not given access to operating data from the previous ownership. Thus, I must rely on data external to the Subject to determine operating expenses. It is important to note at this point that it is very difficult to find reliable actual operating expense data in Bordertown as the real estate brokerage community does not have the sophistication to provide in their sale marketing packages a full write up including income and expense history or Proforma. Most brokers and buyers in the local Bordertown market use very simple methods to evaluate a purchase, relying usually on such things as price per square foot of the building or a Potential Gross Income Multiplier (PGIM) that do not involve a detailed presentation of operating expenses. As a starting point, the Society of Industrial and Office Realtors publishes an annual survey of all major metropolitan areas of industrial property that includes an income and expense analysis. The most recent survey was for 2004, with a publication date of 2005. The Bordertown market is not included in the survey and the closest market geographically is Tucson, Arizona. Below I have assembled the survey information for industrial property between 5,000 and 19,999 square feet in Tucson. Although it is not from Bordertown, it will give a beginning point for projecting expenses based on real world data. The overall average NNN lease rental rate is $4.24 and operating expenses averaged $1.46 per square foot. This equates to a gross lease rate of $5.62 per square foot and results in an average Net Operating Income of $4.17 per square foot. The average Overall Capitalization Rate was reported as 9.5% which would result in an average sale price of $43.84 per square foot. This was data for 2004, is three years old, and is for Tucson not Bordertown. It is also for an average of all classes of industrial / manufacturing property. But it is a starting point for analysis.

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Central City SuburbanHigh Low High Low Average

NNN Lease Rental Rates 3.00$ 3.60$ 3.36$ 7.00$ 4.24$ NNN Recovery 1.01$ 1.34$ 0.97$ 2.20$ 1.38$ Effective Gross Income 4.01$ 4.94$ 4.33$ 9.20$ 5.62$

Real Estate Taxes 0.60$ 0.85$ 0.65$ 1.10$ 0.80$ Insurance (Fire & Liability) 0.06$ 0.09$ 0.07$ 0.15$ 0.09$ Common Area Maintenance 0.35$ 0.40$ 0.25$ 0.95$ 0.49$ Structural & Roof Maintenance 0.05$ 0.10$ 0.05$ 0.10$ 0.08$

Total Expenses 1.06$ 1.44$ 1.02$ 2.30$ 1.46$

Net Operating Income 2.95$ 3.50$ 3.31$ 6.90$ 4.17$

Tucson Income/Expense Report2005

I was also able to identify the actual operating expenses of two similar properties in Tucson. The first property is 823 E. Nakoma whose operating expenses for 2005 are shown in the table below. The total of $2.91 per square foot is higher than the averages in the above table. However, the Nakoma expenses also include a substantial property management fee. When that is removed, the expenses fall nicely within the ranges in the above table for city-wide averages.

Expense Item Amount $$ S/FReal Estate Taxes 29,925$ 1.33$ Insurance 2,475$ 0.11$ Utilities 5,400$ 0.24$ Maintenance/Landscape 2,250$ 0.10$ Structural Maintenance 4,500$ 0.20$ Management Fee 21,150$ 0.94$

TOTAL 65,700$ 2.91$

823 E. NakomaTucson, Arizona

22,584 s/f office/warehouse2005 operating expenses

The next table shows the income and expenses of an unnamed office/warehouse property in Tucson.2 It is a 55,000 square foot building. The insurance expense is dramatically lower on this property because, according to the property manager, it is covered under a blanket policy that covers a large portfolio of industrial property owned by the institutional investor owner. The property management fee is more in line with expectations than the Nakoma property above. The Nakoma property is owner-managed and appears, at 34% of the operating expenses, to be charging the property with more than the typical management expenses. The property in the table below is managed by a fee manager, and the management expenses are typical at just under 4.0% of the effective gross income.

2 The identity of the property is confidential at the request of the property manager, although it is quite similar to the Subject except for the size.

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Income/Expense Items Amount $$ S/FBase Rents 220,490$ 4.01$ NNN Recovery 36,747$ 0.67$ Effective Gross Income 257,237$ 4.68$

Repair & Maint 8,507$ 0.15$ Utility 6,019$ 0.11$ Grounds/Landscaping 5,250$ 0.10$ Administrative/Mgmt 9,881$ 0.18$ Real Estate Taxes 29,561$ 0.54$ Insurance 1,536$ 0.03$ Total Operating Expense 60,754$ 1.10$

Net Operating Income 196,483$ 3.57$

Unnamed Office/warehouseTucson, Arizona

55,000 s/f office/warehouse2006 Income/Expense

Fixed Expenses. This category of expenses is comprised primarily of real estate taxes and property insurance. These expenses do not vary based on occupancy, thus they are considered "fixed" expenses. The other expenses, in the "variable expenses" category, typically change based on the level of occupancy in a building. Real Estate Taxes. Since the improvements on the property currently exist, and are currently assessed, this expense number is highly predictable. As discussed in Section 2, the current tax burden is $7,981.92. Taxes have been increasing at a rate of about 8.0% per year. Since this Proforma is for the next twelve months following the effective date of this appraisal, I have increased the taxes by 8.0% to $8,620. Property Insurance. Insurance on the Tucson Nakoma Property was $.11 per square foot. The insurance expenses on the other Tucson property is dramatically lower because of the blanket policy of the ownership. I have estimated $.12 per square foot for this expense, allowing for an increase due to the time lapse between the Nakoma information and the effective date of this appraisal. Variable Expenses. Utilities. Under the gross lease structure, the tenant would be expected to pay for all utilities directly to the utility vendor. Based on the performance of the two properties above, I project that the overall utility expense for the building would be about $.12 per square foot per year. During any vacancy periods, the owner would need to pick up some of that expense but it would be during periods when very low consumption was experienced. Therefore, I project that a $.01 per square foot per year chargeable to the landlord would be adequate. This would result in a utility expense of $120 annualized, but only occurring during the vacancies. Maintenance. The Subject has very little landscaping to maintain and the improvements are very low maintenance. The major expenses that would occur would be in the office area and the parking lot. The two properties analyzed above reported maintenance expenses, including landscaping, of about $.10 per square foot. The Nakoma property, because of the high management

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expenses, and the owner-occupant status, probably included much of the labor for maintenance in the management expense line item, resulting in a low amount in the maintenance expense category. The other Tucson property had $.20 per square foot classified as structural maintenance, much of which could be normal on-going maintenance and repairs. Assuming that at least half of the $.20 of structural maintenance is normal recurring maintenance activity, that would result in about $.10 per square foot. The property is reported by its property manager to have a large amount of landscaping, making that line item fairly high. Taking all of these factors into consideration, I estimate that for the Subject, the on-going maintenance and repairs that would be incurred by the Landlord would be $.15 per square foot per year. This results in a maintenance expense of $1,800 per year. Property Management. The property management fees reported for the unnamed property in Tucson were just under 4.0%. That included some administrative expenses in addition to the actual management fee charged by the manager to the investor/client. The actual property management fee, taken from the detail of the schedule provided to me, is $7,976, or 3.10% of the Effective Gross Income. Since smaller properties require a larger management fee than larger properties due to the economy of scale, I estimate that the Subject property, as a single-tenant property, could be managed by a local management firm for a 4.0% fee. This would result in an annual management expense of $1,892. Reserves for Replacement. Typically, the short-lived items described in the Cost Approach need to be budgeted for replacement and a reserve amount set aside for these items. The reserve amount would be set up estimating the cost for replacement divided by the useful life of the item and that amount set apart in a sinking fund so that when the item needs replacing, the funds are available. In Bordertown, the smaller investment property owners do not typically practice this procedure. Additionally, the Expense Analysis below that shows the estimated income and expenses of each of the comparable properties, does not include a reserve for replacements. I have utilized these comparables to extract an income capitalization rate. In order to maintain consistency with the comparables, I have not included any reserves for replacement. The resulting one-year proforma using the above data provides for a total operating expense of $13,872, or $1.16 per square foot. This amount compares very favorably with the 55,000 square foot building from Tucson which had $1.10 per square foot. This amount, deducted from the effective gross income, leaves a Net Operating Income of $33,438 per year. Income / Expenses on Comparables. In order to check these numbers with the market, I have assembled the table below in which I have analyzed the income, expenses, and various ratios and rates on each of the comparable properties used in the Sales Comparison Approach above. Each of the sale comparables had information on income and expenses either directly from the real estate broker who handled the sale or from an appraisal on the property prepared by a colleague. The operating expenses average $1.19 per square foot on the comparables. The Subject Proforma is $1.16 per square foot. The operating expense ratio averages 30.58% and the Subject Proforma is 29.32%. The Average Net Operating Income per square foot on the comparables is $2.73 and on the Subject Proforma it is $2.79. Thus, the income and expenses of the Subject align very closely with the five comparable sales.

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Comp Subject 1 2 3 4 5 Mean

Address 14416 Export14411 Import

14418 Industry 14416 Import 14403 Import 14409 Import

Sale Price 410,000$ 335,000$ 310,000$ 300,000$ 400,000$ 431,500$ 355,300$

Square Feet 12,000 11,353 12,336 12,276 16,276 12,391 12,926 Vacant S/F 600 568 617 614 733 619 630 Vacancy % 5.00% 5.00% 5.00% 5.00% 4.50% 5.00% 4.87%

Gross Potential Income 49,800$ 47,738$ 60,000$ 45,000$ 63,360$ 49,068$ 53,033$ Vacancy 2,490$ 2,387$ 3,000$ 2,250$ 2,853$ 2,453$ 2,589$ Vacancy Rate 5.00% 5.00% 5.00% 5.00% 4.50% 5.00% 4.88%Effective Gross Income 47,310$ 45,351$ 57,000$ 42,750$ 60,507$ 46,615$ 50,445$ Operating Expenses 13,872$ 15,055$ 14,250$ 15,792$ 17,996$ 13,070$ 15,233$ NOI 33,438$ 30,296$ 42,750$ 26,958$ 42,511$ 33,545$ 35,212$

PGIM 8.23 7.02 5.17 6.67 6.31 8.79 6.79 EGIM 8.67 7.39 5.44 7.02 6.61 9.26 7.14

Price - $ / SF 34.17$ 29.51$ 25.13$ 24.44$ 24.58$ 34.82$ 27.69$

Cap Rate 8.16% 9.04% 13.79% 8.99% 10.63% 7.77% 10.04%

NOI / S/F 2.79$ 2.67$ 3.47$ 2.20$ 2.61$ 2.71$ 2.73$ Operating Exp S/F 1.16$ 1.33$ 1.16$ 1.29$ 1.11$ 1.05$ 1.19$

Op Exp Ratio 29.32% 33.20% 25.00% 36.94% 29.74% 28.04% 30.58%

Comparables Expense Ratio Analysis

Selection of Direct Capitalization Rate. The next step is to select an Income Capitalization Rate to apply to the Net Operating Income determined in the Proforma. There are several methods of determining an appropriate rate of return. Below I have first used the most reliable method, then tested the results against a number of other methods. Market Extracted Capitalization Rate. The most reliable method of determining an appropriate overall rate of return is to extract it from the market by finding comparable properties that have sold, determining the Net Operating Income (NOI) that was produced by them at the time of sale, and dividing that NOI by the known sale price. This results in a percentage number that represents the one-year Overall Rate of Return (OAR) on the purchase price of the property. This rate, of course, must recapture a portion of the original investment and provide a return on that investment, in order to make economic sense. The table above shows the income / expense analysis of the five comparable sales we have selected, set side-by-side with the Subject. The capitalization rates on these sales ranged from a low of 7.77% to a high of 13.79%, with a mean average of 10.04%. The 13.79% cap rate was on comparable #2 which is the sale that has the unanswered questions about arms-length relationships. As in the Sales Comparison Approach, I have discounted this data. Removing this from the analysis, the new high capitalization rate is 10.63% on comparable #4. Comparables #3 and #4 were sales at a discount of 20%, per the real estate broker, and these capitalization rates are generated off of the actual sale price not the adjusted sale price. When adjusting the capitalization rate based on the adjusted sale price, the rates drop to 6.68% and 7.93% respectively. That produces an adjusted range of 6.68% to 9.04%. The comparable that is most similar to the Subject and which required the least amount of adjustment in the Sales Comparison Approach, is comparable #5. That comparable had a capitalization rate of 7.77%. This would mean that the appropriate capitalization rate, by the Market Extraction method, would be between 7.0% and 9.0%. With the most comparable property producing a 7.77% overall rate, it seems most appropriate to select an 8.0% income capitalization rate for the Subject. Before proceeding with this analysis, however, I want to test this 8.0% rate against other data to check its reasonableness.

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Investor Survey. The RealtyRate.com website performs a quarterly survey of investors for all kinds of property throughout the United States. The result of this investor survey is published on their website. Below I have created a table that replicates the results of their 4th quarter, 2006, survey for Industrial - Warehouses & Distribution Centers. The Overall Rate of Return (OAR) in the table provides a minimum of 6.77%, a maximum of 12.26%, and an average of 8.68%. The high and low rates easily bracket the 8.0% determined above and the average is slightly above that rate. In a market such as Bordertown where there is active buying interest from both investors and users, the low end of the mid-range is not unreasonable.

Item Input OARMinimumSpread Over 10-year Treasury 0.89% DCR Technique 1.20 0.070181 0.85 7.16Debt Coverate Ratio 1.20 Band of Investment TechniqueInterest Rate 5.77% Mortgage 85% 0.070181 0.059654Amortization 30 Equity 15% 0.077500 0.011625Mortgage Constant 0.070181 OAR 7.13Loan-to-Value Ratio 85% Surveyed Rates 6.77Equity Dividend Rate 7.75%MaximumSpread Over 10-year Treasury 2.89% DCR Technique 1.65 0.113091 0.6 11.20Debt Coverate Ratio 1.65 Band of Investment TechniqueInterest Rate 7.77% Mortgage 60% 0.113091 0.067854Amortization 15 Equity 40% 0.153000 0.061200Mortgage Constant 0.113091 OAR 12.91Loan-to-Value Ratio 60% Surveyed Rates 12.26Equity Dividend Rate 15.30%AverageSpread Over 10-year Treasury 1.89% DCR Technique 1.43 0.086677 0.73 8.95Debt Coverate Ratio 1.43 Band of Investment TechniqueInterest Rate 6.77% Mortgage 73% 0.086677 0.062841Amortization 23 Equity 28% 0.111475 0.030656Mortgage Constant 0.086677 OAR 9.35Loan-to-Value Ratio 73% Surveyed Rates 8.68Equity Dividend Rate 11.15%

RealtyRates.com INVESTOR SURVEY - 4th Quarter 2006INDUSTRIAL - WAREHOUSES & DISTRIBUTION CENTERS

Selection of Income Capitalization Rate. Based on the above analysis, it is reasonable to select an Income Capitalization Rate of 8.0%. When this rate is applied to the Subject's proforma Net Operating Income, it results in a value of $417,970, which I have rounded, as shown in the table below, to $420,000.

APPLICATION OF CAP RATENet Operating Income 33,438$ Capitalization Rate 8.00%Value 417,970$ Rounded to 420,000$

On the next page is a completed financial proforma using the income, expenses, and capitalization rates discussed above.

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Building GBA 12,000$ Building GLA 12,000$

Rent RollSpace Size $ S/F Mo Rent Annual $$ Other Chgs

1 12,000 0.35$ 4,150$ 49,800$ -$ - -$ -$ -$

Totals 12000 0.35$ 4,150$ 49,800$ -$

4.15$ s/f 49,800$ 105.26% RE Tax Recovery -$ s/f -$ RE Insurance Recovery -$ s/f -$ CAM Recovery -$ s/f -$ Total NNN Recovery -$ s/f -$ 0.00%

Other Income - Utilities -$ s/f -$ Other Income #2 -$ s/f -$ Total Other Income -$ -$ 0.00%

4.15$ s/f 49,800$ 105.26% Less: Vacancy/Credit Loss 5.00% 2,490$

47,310$ 100%

Operating Expenses Fixed Expenses R E Taxes 0.72$ s/f 8,620$ 18.22% R E Insurance 0.12$ s/f 1,440$ 3.04% Variable Expenses Utilities 0.01$ s/f 120$ 0.25% Common Area Maintenance 0.15$ s/f 1,800$ 3.80% Other Repair &Maintenance -$ -$ General & Administrative -$ -$ Property Management 4.00% % EGI 1,892$ 4.00% Misc -$ -$ Structural Maint -$ -$ Reserves -$ s/f -$ 0.00%

1.16$ 13,872$ 29.32%

33,438$ 70.68%

Capitalization Rate 8.00%

Value 417,970$

Rounded 420,000$

Value S/F 35.00$

Total Expenses & Reserves

Net Operating Income

Proforma Operating StatementIncome / Expenses Schedule

Potential Gross Income

Effective Gross Rental Income

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Gross Rent Multipliers. Another approach to confirming the value of a property is to use the two gross rent multipliers typically used by investors. The Potential Gross Rent Multiplier (PGIM) uses the gross rents before vacancy and the Effective Gross Rent Multiplier (EGIM) factors in vacancy and credit losses. On the table above showing the comparable sales, two of the lines address the PGIM and the EGIM. I have copied these two lines in the table below.

Comp 1 2 3 4 5 Mean

Address14411 Import

14418 Industry

14416 Import

14403 Import

14409 Import

PGIM 7.02 5.17 6.67 6.31 8.79 6.79EGIM 7.39 5.44 7.02 6.61 9.26 7.14

The range of these multipliers is fairly broad. The comparable that is most similar to the Subject is comparable #5, which sold and closed in January of this year. Splitting the difference between the average and the multipliers from comparable #5 would give us a PGIM of about 8.0 and an EGIM of about 8.5. Applying these multipliers to the Subject income levels produces the values shown in the table below.

Income Multipliers ValuePotential Gross Income 49,800$ 8.00 398,400$ Vacancy/Credit Loss 2,490$ Effective Gross Income 47,310$ 8.50 402,135$

It is interesting to note that these two values bracket the conclusion reached in the Sales Comparison Approach and are slightly lower than the value reached by the Income Approach using the Direct Capitalization process. This is a good check and balance process confirming that both of these other methodologies reach reasonable conclusions. The results of the above analysis, indicate that the value conclusion by the Direct Capitalization in the Income Approach is $420,000. Deferred Maintenance. In the Cost Approach, I identified deferred maintenance (curable physical deterioration) in the amount of $22,795. It is my observation in the Bordertown market that the value discussed in this section of the appraisal report would not be materially affected by the presence or absence of this deferred maintenance. Because of the character of the immediate neighborhood, the presence of these items of deferred maintenance does not make the Subject less attractive than competing properties. The first test of whether physical deterioration is curable is whether the cure will result in a value increment equal to or greater than the expenditure, and this test is not met in this case. However, as discussed in the Sales Comparison Approach, there is a second test, that successfully applies to the Subject. That is "if spending the money to cure the item will not result in a value increment equal to or greater than the expenditure but will allow other existing items to maintain their value, then the item is normally considered curable." It Is my opinion that this applies to the Subject. Thus, I have not made an adjustment to the value conclusion reducing the value by the cost to cure the deferred maintenance.

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SECTION XIII.

RECONCILIATION As the last step in the appraisal process, reconciliation is the process of evaluation of the merits of the three approaches to value and resolving problems that may exist between them. Reconciliation "provides an integral quality control assessment of the valuation process prior to the final opinion of value and also helps identify key factors that must be cited and explained in the appraisal report." During this process, several questions must be asked and answered. In each of the approaches, is there sufficient data available to make a credible analysis? Is that data reliable? Are the conclusions reached consistent with the data? What does "the market" do with that data and how do buyers and sellers typically behave in this market with that data? The Bordertown Market. As explained in the Market Analysis section, the Bordertown industrial market is very strong and active. The warehouse / distribution business is a major portion of the local economy and links Mexico with the United States in many ways. Transactions are frequent and plentiful. Thus, there is adequate transactional information to be able to reach a credible analysis of the market. It is not necessary to go outside of the Bordertown market or use subjective analyses to reach a conclusion of value. Each approach to value can be well supported with local and fairly timely information. The Cost Approach Evaluation. The determination of land value, as the first step in the Cost Approach, was handicapped only by the fact that land sales in the immediate neighborhood (the three industrial parks) was limited because the land has been nearly all absorbed and developed. However, four land sales were located and used within this neighborhood. Two sales were taken from a newer industrial park about two miles North of the Subject. I needed to go back to early 2002 to find the local land sales, so the closest sales were fairly old. However, the land value reached is consistent with activity in the rest of the market outside the immediate neighborhood as shown by the analysis of the 59 industrial land sales over the past five years. The reproduction cost of the Subject did not present a problem in that the building is a generic warehouse with no unique or unusual characteristics that caused a problem. Cost information was available through reliable sources (primarily Marshall Swift Valuation Service). The property is 14 years old, though, and the older the property, the less reliable is the Cost Approach, because of the need to estimate depreciation. To overcome this problem, I was able to estimate depreciation by two independent methods, the market extracted depreciation method and the breakdown method. It is reassuring to find that the two independent approaches ended with values less than $500 apart. Because the Bordertown industrial market is very active, and a great deal of construction is going on, local industrial users and investors have the choice of buying existing buildings or building new buildings. This makes the Cost Approach more reliable than the age of the Subject would typically warrant. Therefore, the Cost Approach should be given reasonable weight in the final value conclusion. Sales Comparison Approach Evaluation. In this approach, the data was plentiful and fairly easy to verify and confirm. Although Arizona is a "non-disclosure" state and does not require the recording of actual sale prices, participants in the market are not typically hesitant about sharing information about their transactions.

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I also had the benefit of working for Bordertown National Bank, and, on all of the sales used, had access to accurate information about the sales through my resources in the bank so could verify much of the information from documents in the files as well as conversations with the principals and other appraisers and brokers. Therefore, the information used in this approach is highly reliable and can yield credible results. Through conversations with real estate brokers in Bordertown, it is clear that most buyers of industrial buildings in Bordertown use this approach in making a buying decision. The use of price per square foot is easy for the buyers to understand and use and does not require a high degree of sophistication. This is consistent with the market participants with whom I spoke. The sales used were all in the same International Trade Center, located within two blocks of the Subject. This made the need to make large adjustments unnecessary. Most of the sales used were very recent; all but one were within the last year and one closed in same month as the effective date of this appraisal. That makes the data very timely, enhancing the reliability. Three of the sales were to investors and two were to users giving a good cross-section of buyer types. The availability, timeliness of the data, and close proximity of comparable sales, combined with the level of sophistication of the typical buyer of smaller industrial buildings in Bordertown, make the Sales Comparison very reliable and this approach should be given the most weight in the reconciliation process. Income Approach Evaluation. The Income Approach as applied to the Subject has some limitations in that the information regarding operating expenses was more difficult to obtain than the other data in this process. Most of the real estate brokers and buyers in Bordertown do not give serious attention to the operating expenses in the marketing of industrial property or making buying decisions. If any income analysis is used, the typical Bordertown buyer, according to the brokers, uses gross rent multipliers which utilize only the potential rental income of the property. It is interesting to note that the gross rent multipliers used to test the value at the end of the Income Approach actually confirmed the value of the Sales Comparison Approach better than the Direct Capitalization process, by bracketing the value conclusion of the Sales Comparison Approach. Therefore, to apply any sophisticated financial analysis to make a valuation decision in Bordertown is to impute a mind-set to the typical buyer that does not exist and is primarily a theoretical exercise that should be used to confirm the Sales Comparison and Cost Approach information. The rental income data used in this analysis was reliable and acquired primarily from the principals in the lease transactions. However, the expense information was for the most part estimated rather than actual historical data. This makes the conclusion of value less credible and reliable. Therefore, the least amount of weight is given to the Income Approach in reaching a final conclusion. Final Reconciliation of Value Opinion The table below shows my calculations and allocation of weight in the final reconciliation of value. The greatest weight is given to the Sales Comparison Approach because (1) the data is plentiful and required very little adjustment, (2) the market participants most typically use this method, and (3) the data was well verified. The Income Approach was given the least weight because the expense information was more subjective and market participants rely on this method much less.

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RECONCILIATIONCost Sales Income

Value Conclusion 430,000$ 400,000$ 420,000$ Allocated Weight 40.00% 50.00% 10.00%Allocated Value 172,000$ 200,000$ 42,000$

Final Value 414,000$ Rounded Value 410,000$

Based on this analysis, it is my opinion that the "As Is" Market Value of the Subject property, as of January 27, 2007, is

$410,000

Four Hundred Ten Thousand Dollars Extraordinary Assumptions. The opinion of value stated above is subject to the following extraordinary assumptions: Building Permits. The City of Bordertown Building Department did not have access to records of construction prior to the year 2000 so could not confirm whether the improvements were built with permit. However, during my visit I did not observe any improvements that had the appearance of additions subsequent to original construction which would require building permits. Therefore . . . .

It is an Extraordinary Assumption of this appraisal that all improvements were built to the building codes in effect as of the date of construction, and there have been no additional improvements requiring permits since the original construction.

Fuel Storage Tanks. There is a fuel storage tank just inside the North overhead door which is used to store diesel fuel. This storage tank is not registered with the Arizona Commission on Environmental Quality as it is less than 1,100 gallons and is not required to be registered. Therefore . . . .

It is an Extraordinary Assumption of this appraisal that this fuel tank has not had any leakage and has not caused any environmental contamination.

EXPOSURE TIME. USPAP requires that, "when developing an opinion of market value, the appraiser must also develop an opinion of reasonable exposure time linked to the value opinion."3 Exposure time is defined as: "The estimated length of time the property would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based on an analysis of past events assuming a competitive and open market. Exposure time is always presumed to occur prior to the effective date of the appraisal. . . ."4

3 Exposure Time. USPAP, 2006, Standard Rule 1-2(c). 4 The Dictionary of Real Estate Appraisal, pg 105.

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While doing my research, I performed a brief survey of real estate brokers who sell industrial property in Bordertown, asking how long they would expect it to take, with reasonable marketing activity, to find a buyer and put the property under contract, then how long it would take to close, once under contract. The survey specifically referenced a small 12,000 square foot warehouse distribution facility. The consensus of the responses was that it would take three to six months to have the property under contract then an additional thirty to sixty days to close the sale escrow. Thus, my opinion of Exposure Time, assuming a hypothetical sale that closed on January 27, 2007, is six months.

Certification

CERTIFICATION

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

1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are my personal, unbiased professional analyses, opinions, and conclusions. 3. 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. 4. I have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment. 5. My engagement in this assignment was not contingent upon developing or reporting predetermined results. 6. My compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. 7. The reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics & Standards of Professional Appraisal Practice of the Appraisal Institute, which include the Uniform Standards of Professional Appraisal Practice.

8. No one provided significant real property appraisal assistance to the person signing this certification. 9. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. ______________________________________ Allen Appraiser AZ-1234567

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ASSUMPTIONS & LIMITING CONDITIONS

Unless otherwise specifically stated within this report, this appraisal and report are subject to the following assumptions and limiting conditions. Acceptance and use of this report by the client and intended user(s) shall be deemed to be acceptance of these Assumptions and Limiting Conditions. LEGAL ASPECTS Legal Description. Legal description(s) furnished is/are assumed to be correct. No responsibility is assumed for matters legal in nature, nor is any opinion rendered with respect to title, which is assumed to be good and marketable. Liens & Encumbrances. All existing liens and encumbrances, if any, have been disregarded and the property has been considered as though free and clear of liens and encumbrances. Encroachments. Unless otherwise stated in this report, there were no encroachments observed by the appraiser during the appraiser’s visit. The opinion of value is rendered without regard to other possible encroachments. Ownership/Management. It is assumed that the property is under responsible ownership and competent management. PROPERTY DESCRIPTIONS Drawings, Engineering, Plans & Measurements. Any sketches, maps or other exhibits included have been prepared to assist the reader in visualizing and understanding the subject property. Basic measurements and calculations of the boundaries and dimensions of the site(s) and of the improvements, if any, are based upon information supplied by others are not guaranteed and no responsibility for accuracy is assumed. Unless otherwise stated in the report, the appraiser was not provided with a survey, parcel map, architectural drawings, or other documents relative to the location, boundaries, or dimensions of the property. The appraiser is not an architect or civil engineer and cannot guarantee the accuracy of measurements taken by the appraiser. Proposed Improvements/Renovations. Any proposed improvements, renovations, or remodeling of the property are assumed to be completed in a good workmanlike manner in accordance with the submitted plans and specifications. Deviation from these plans and specifications may require a revision to this report and its value conclusions. Structural/Mechanical Items. Descriptions and conclusions regarding structural items, if any, have been based on observed condition at the time of appraiser’s visit to the property. No responsibility is assumed for any deficiencies not visible by external observation. Unless otherwise indicated, all structural components, plumbing, electrical, and mechanical items are assumed to be operative, but no warranty is made as to their condition or future life. No responsibility is assumed as to the structural soundness of the improvements. It is assumed that there are no hidden or unapparent conditions of the property, subsoil or structures that render it more or less valuable. No liability is assumed by the appraiser for any engineering-related issues. Hazardous Substances. Unless otherwise stated in this report, the appraiser has not been informed of the existence of hazardous substances, including but not limited to asbestos, polychlorinated biphenyl, petroleum leakage, agricultural chemicals, toxic waste or hazardous materials which might affect the subject property. The existence of potentially hazardous materials used in construction, operation, or maintenance of the property, such as the presence of asbestos, urea formaldehyde foam insulation, and/or existence of toxic waste which may or may not be present in the property, has not been considered. The appraiser is not qualified to detect such substances or conditions. The concluded value is predicated on the assumption that there is no such condition on, in or near the property that would cause a loss in value. The valuation is subject to modification if any such potentially hazardous materials were detected by a qualified expert in these areas. The appraiser reserves the right to modify this valuation if so warranted.

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Soil Conditions. The appraiser has not performed soil or drainage tests. Nor has the appraiser been provided with soil or drainage tests results. Therefore, the appraiser assumed that there are no subsoil or drainage conditions which would adversely affect the subject or its final valuation. No known waste hazards affecting the subject site were evident upon site inspection. The appraiser has not been provided with information concerning soil conditions. An expert in this field should be consulted for an opinion on this matter, if so desired. Americans with Disability Act (ADA). The “Americans with Disability Act of 1990” (ADA) is intended to provide full access and participation for disabled Americans and contains areas of coverage including employment, public services, public accommodations, and telecommunications. Subchapter III of the ADA addresses architectural and procedural barriers to disabled individuals in connection with the public accommodations. The appraiser has not been afforded a survey with regard to the subject property to indicate whether or not it conforms to the ADA requirements. Should such a survey be provided, this appraiser reserves the right to adjust and/or modify the value conclusion, if warranted. Compliance with Laws/Regulations. It is assumed that the property is in full compliance with all applicable zoning, building, use, environmental, and other regulations and laws imposed by federal, state, local, or other jurisdictions unless non-compliance is specifically identified, described, and considered in this report. It is assumed that all required licenses, certificate of occupancy, consents, or other legislative or administrative requirements either have been or can be obtained or renewed for any use on which the value estimated is based. OTHER ITEMS Information Provided by Others. The various data reported herein, as supplied by others, have been obtained from sources deemed reliable, but no responsibility is assumed for accuracy. It is assumed that all information known to the client and relative to the valuation has been accurately furnished and that there are no undisclosed leases, agreements, liens, or other encumbrances affecting the use of the property. Some information and data was obtained from public records and, where possible and feasible, was checked and verified, and deemed to be correct. Subsequent Testimony. The appraiser, by reason of this report, is not required to give testimony in court, litigation deposition, or any other hearing with reference to the property in question. If the appraiser is requested to appear in any such court, deposition, or hearing, the appraiser shall have the right to bill the client or other person(s) requesting such testimony at the appraiser’s normal and customary hourly fee then in effect. Distribution of Value. The distribution of the total valuation in this report between land and improvements applies only under the existing program of utilization. The separate valuations for land and improvements should not be used in conjunction with any other appraisal and are invalid if so used. Confidentiality of Report. This report was obtained from Allan Appraiser, MAI, and consists of “trade secrets and commercial or financial information” which is protected, privileged and confidential and exempted from public disclosure under 5USC552(b)(4). Possession of this report, or a copy, does not carry with it the right of publication. It may not be used for any purpose or any person other than the client and intended users identified in the report, without the prior written consent of the appraiser. If consent is given, the entire report shall be used without deleting or omitting any portions of the report. Under the Bylaws and Regulations of the Appraisal Institute, each designated or general member is required to control the use and distribution of each appraisal report signed by such member. No third parties may rely upon this appraisal report for any purpose whatsoever, including the provision of financing for the acquisition or improvement of the subject property. This appraisal was prepared specifically for our client, as addressed in this report. Third parties who desire us to prepare an appraisal of the subject property for their use should contact the addressee of this report to obtain approval for Allan Appraiser, MAI, to prepare an additional appraisal report for their specific needs. Publication / Distribution of Report. The contents of this report, in whole or in part, shall not be given to third parties without prior written consent of the person signing this appraisal report. Further, neither all nor any part of this appraisal report shall be disseminated to the general public by the use of advertising media, public relations media, news media, sales media, or other media for

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public communication without the prior written consent of the person signing this appraisal report. Nor shall any reference be made to the Appraisal Institute, the MAI designation, the CCIM Institute, or the CCIM designation, the Institute of Real Estate Management, the CPM designation, the International Council of Shopping Centers, the CSM designation, in any reference to the contents of this report or the value conclusions reported, without prior written approval of the person signing this report. National/Local Economy. This appraisal report is based on the condition of local and national economies, purchasing power of money, and finance rates prevailing at the effective date of value. Any change in these conditions subsequent to the date of this report may affect the value conclusions. Real Estate Taxes. All taxes are assumed to be current. Actual taxes have not been verified and may be owed. If they are owed, no deduction has been made from the reported value conclusions. In instances, when the client specifically requires information on outstanding balances, the data has been presented in the Real Estate Taxes and Assessed Value section of this report.

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QUALIFICATIONS OF APPRAISER

Allan Appraiser

Arizona State University, 1992: Completed B.A. degree in business administration. Associate Member - Appraisal Institute Certified Residential Appraiser License - Arizona - AZ-1234567

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Allen Appraiser Certified Residential Appraiser

7200 Arizona Ave Tucson, Arizona 85701

December 15, 2006 William Banker, MAI Chief Appraiser Arizona Community Bank 550 W. Van Buren St, #1000 Phoenix, Arizona 85003 RE: Authorization to Perform Appraisal - 14416 Export Road, Boardertown, Arizona Dear Mr. Cook: This letter is intended to confirm your authorization for me to prepare an appraisal of your property at 14416 Export Road, Bordertown, Arizona. Please review the items below and confirm your understanding and authorization by approval at the end of this letter and return a copy to me. INTENDED USE AND INTENDED USER OF THE APPRAISAL. The Client and Intended User of the appraisal will be the Arizona Community Bank, and the Intended Use is for mortgage loan underwriting. SCOPE OF ASSIGNMENT. I will perform an appraisal using all three approaches (Cost, Sales Comparison, and Income) and prepare a Self-Contained Appraisal Report. YOUR PARTICIPATION. You will provide the following information relating to the assignment. 1. Any marketing literature used by the brokers in the pending sale; 2. Building plans if available (I will copy and return any originals.) 3. Copy of Title Insurance Commitment 4. Survey of the property, if available (I will copy and return any originals.) SCHEDULE FOR PERFORMANCE OF ASSIGNMENT. I will anticipate completing the report by the end of March, 2007. Upon completion I will send you three copies of the report. COMPENSATION. The fee for the completed appraisal will be $2,800, payable upon presentation of the completed report. CONFIDENTIALITY. The report will be subject to the "confidentiality" provisions of the Uniform Standards of Professional Appraisal Practice. I will keep in confidence any information that you indicate that you wish to be kept confidential when you deliver that information to me. The appraisal will also be subject to review by other duly authorized persons by the Appraisal Institute or any licensing authority.

William Banker, MAI - Page 2

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Thank you for the opportunity to appraise this property. I look forward to presenting you with a copy of the completed report as described above. Sincerely, Allen Appraiser Certified Residential Appraiser AZ- 1234567 Approved By: _____[signed]____________________ William Banker, MAI Arizona Community Bank Date: ________________________________