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HomeMy WebLinkAboutBALBOA_VILLAGE_PARKING_STRUCTURE_PROPOSALBALBOA VILLAGE_PARKING_ STRUCTURE PROPOSAL CITY OF NEWPORT BEACH Office of the City Manager (949) 644-3000 April 28, 2009 Mr. Levon Gugasian 17 Ridgeline Drive Newport Beach, CA 92660-6825 Dear Leo: I am writing in response to the letter from Marcia Dossey, which you acknowledged and supported, to Leigh DeSantis, the City's Economic Development Administrator, regarding the proposed development of a parking structure on properties jointly owned by you and the City in Balboa Village. I know that you have also met with Council Member Henn and City staff members to discuss your proposal. The prospect of joint development of properties that are publicly and privately owned is challenging, and it is unprecedented for Newport Beach. Issues that would need to be resolved include the structure of our partnership, ownership of the land and improvements, design of the structure, construction management (particularly prevailing wage requirements triggered by the use of City land), amount of retail space (if any), control of and rental income from retail tenants, and pricing of the parking — especially as pricing relates to the City's efforts to manage parking throughout Balboa Village more effectively. As you would expect, Council Member Henn has discussed your proposal with various people in the City, including me. The conclusion we have reached is that it would not serve the City well to enter into a partnership for joint development of our properties. I want to thank you for your interest in improving Balboa Village, and your creative proposal to address parking issues there. The City, and Council Member Henn in particular, remain interested in expanding parking resources in Balboa Village, and use of our two properties for that purpose certainly has potential. To that end, the City would be interested in discussing with you the purchase of your property at fair market value. If you are willing to begin that discussion, please contact me at (949) 644-3000. Sincerely, yvw�xf / HOMER L. BLUDAU City Manager City Hall • 3300 Newport Boulevard • Post Office Box 1768 Newport Beach California 92658-8915 • www.city.newport-beach.ca.us APPRAISAL OF A Commercial Building LOCATED AT 608 East Balboa Boulevard Newport Beach, Orange County, California 92661 PREPARED FOR Mr. Levon Gugasian 11 Ridgeline Drive Newport Beach, CA 92660 EFFECTIVE APPRAISAL DATE June 9, 2009 Pacific Valuation 15615 Alton Parkway, Suite 450 Irvine, CA 92618 June 17, 2009 Mr. Levon Gugasian 11 Ridgeline Drive Newport Beach, CA 92660 RE: Appraisal of a commercial building, located at 608 East Balboa Boulevard, Newport Beach, CA 92661. Dear Mr. Gugasian; Pursuant to your request, we have estimated the Fee Simple Market Value of the above referenced property, located at 608 East Balboa Boulevard, Newport Beach, CA 92661 as of June 9, 2009, our date of inspection. In our valuation analysis of the Fee Simple Value, we have used the Sales Comparison and Income Capitalization Approaches to value. This report is a summary appraisal in narrative format. Your attention is directed to the assumptions and limiting conditions, for a more thorough understanding of the conditions upon which the value and conclusions contained herein were based. As a result of our investigations and analyses of comparable sales, as well as other factors in the market which affect value, a value conclusion was obtained. Based on our findings, the Market Value of the Fee Simple Interest in the Subject Property, as of June 9, 2009, is considered reasonable at: THREE MILLION FIVE HUNDRED THOUSAND DOLLARS $ 3,5009000 Sincerely, �� Michael Yates, MAI Certified General Appraiser Certification #AG026353 Pacific Valuation Executive Summary Page 3 EXECUTIVE SUMMARY Subject Property: The subject property consists of an existing commercial building. The improvements, constructed in 1938, offer good utility and have been adequately designed. On site parking consists of 15 spaces. Location: The subject property is situated at 608 East Balboa Boulevard, Newport Beach, Orange County, California 92661. Map Page: Census Tract: Assessors Parcel Nos. Land Area: Site Size Allocation: Year Built: Net Rentable Area: Highest and Best Use: Property Rights Appraised: 919 B-2 628.00 048-116-04 / 05 0.32 Acres or 14,000 SF Assessors Parcel Number Site Size S Site Size Acres 048-116-04 11,000 0.25 048-116-05 3,000 0.07 Total 14,000 0.32 1938 5,283 SF Continued use as a commercial building Fee Simple Interest Method of Valuation: The reported value for the subject's property was determined through an analysis of projected income and expenses utilizing the direct capitalization method. The pertinent assumptions are displayed in their entirety within the Income Approach section of this report. The Sales Comparison Approach was also completed as further analysis in the valuation of the subject property. Pacific Valuation Executive Summary Page 4 Date of Value Estimate: June 9, 2009 Date of Inspection: June 9, 2009 Date of Report: June 17, 2009 Values Indicated by the Cost Approach: Not Utilized Sales Comparison Approach: $ 3,500,000 Income Capitalization Approach: $ 3,500,000 Fee Simple Value Conclusion: FINAL VALUE ESTIMATE $ 395005000 Pacific Valuation Table of Contents Page 5 TABLE OF CONTENTS Summary of Important Facts and Conclusions Table of Contents Photographs of Subject 7 Assumptions and Limiting Conditions 10 Appraiser's Liability Limitations 13 Purpose of the Appraisal 16 Use of the Appraisal 16 Date of the Value Estimate 16 Date of the Report 16 Competency of Appraisers 16 Property Rights Appraised 16 Scope of the Appraisal 17 Market Value Definition 18 Identification of the Property 19 History of Subject Property 19 Regional Analysis 20 Neighborhood Analysis 28 Market Analysis 34 Site Description 36 Zoning Analysis 37 Improvement Description 39 Real Estate Tax Analysis 41 Highest and Best Use Analysis 43 Discussion of the Appraisal Process 45 Sales Comparison Approach 47 Income Capitalization Approach 63 Reconciliation 73 ADDENDA Pacific Valuation Factual Descriptions Page 6 PART ONE INTRODUCTION Pacific Valuation ll'}Cil ,1 -lit - Factual Descriptions Page 7 View of the front of the subject property. View of the rear of the subject property. Pacific Valuation Factual Descriptions Page 8 View of the parking area. iy fir. I ny1' �♦. r :. �� ii777 1� )r F �.l Street View of East Balboa Boulevard facing west. Pacific Valuation Factual Descriptions Page 9 aLY' Interior View. - t .s View of the eastern portion of the subject building. Pacific Valuation Factual Descriptions Page 10 ASSUMPTIONS AND LIMITING CONDITIONS The Certification of Value appearing in the appraisal report is subject to the following conditions and to such other specific and limiting conditions as are set forth by the Appraisers in the report. The Appraisers assume no responsibility for matters of a legal nature affecting the property appraised or the title thereto, nor do the Appraisers render any opinion as to the title, which is assumed to be good and marketable. The property is appraised as though under responsible ownership, competent management, and is appraised as if free and clear of any or all liens or encumbrances. 2. Any sketch in the report may show approximate dimensions and is included to assist the reader in visualizing the property. The Appraisers have made no survey of the property. The Appraisers are not required to give testimony or appear in court because of having made the appraisal in reference to the property in question, unless arrangements have been previously made. 4. Any distribution of the valuation in the report between land and improvements applies only under the existing program of utilization. The separate valuations for land and building must not be used in conjunction with any other appraisal and are invalid if so used. The Appraisers assume that.there are no hidden or inapparent conditions of the property, subsoil, or structure, which would render it more or less valuable. The Appraisers assume no responsibility for such conditions, or for engineering which might be required to discover such factors. 6. Information, estimates and opinions furnished to the Appraisers, and contained in the report, were obtained from sources considered reliable and are believed to be true and Pacific Valuation Factual Descriptions Page 11 correct. However, no responsibility for the accuracy of such items furnished the Appraisers can be assumed by the Appraisers. 7. Disclosure of the contents of this appraisal is governed by the Bylaws and Regulations of the Appraisal Institute. 8. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraisers or the firm with which they are connected) shall be disseminated to the public through advertising media, public relations media, news media or any other public means of communication without the prior written consent and approval of the appraisers. 9. Unless otherwise stated in this report, the existence of hazardous materials, which may or may not be present on the property, was not observed by the Appraisers. The Appraisers have no knowledge of the existence of such materials on or in the property. The Appraisers, however, are not qualified to detect such substances. The presence of substances such as radon gas, asbestos, urea -formaldehyde foam insulation or other potentially hazardous materials may affect the value of the property. The value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. 10. It is assumed that there is full compliance with all applicable federal, state, and local environmental regulations and laws unless noncompliance is stated, defined and considered in the appraisal report. 11. It is assumed that all applicable use regulations and restrictions have been complied with unless a nonconformity has been stated, defined and considered in the appraisal report. Pacific Valuation Factual Descriptions Page 12 12. It is assumed that the utilization of the land and improvements is, or will be, within the boundaries or property lines of the property described and that there is no encroachment or trespass unless noted in the report. 13. Possession of this report, or a copy thereof, does not carry with it the right of publication. It may not be used for any purpose by any person other than the party to whom it is addressed without the written consent of the appraisers, and in any event, only with proper written qualifications and only in its entirety. 14. The subject property is assumed to comply with requirements of the Americans with Disabilities Act (ADA). A copy of this report has been forwarded to the client. Please refer to this report regarding ADA compliance. 15. The subject property was not found to have any natural, cultural, recreational, or scientific value. 16. It is expressly assumed that all uses associated with the subject property are legal in nature and no undue factors relating to the ability to generate the income streams noted herein will be adversely effected. Pacific Valuation Factual Descriptions Page 13 APPRAISER'S LIABILITY LIMITATIONS, SPECIAL REPORT CONDITIONS AND CLIENT AGREEMENTS The acceptance of this report and its use by the client in any manner whatsoever or for any purpose is acknowledgment by the client that this report is a satisfactory professional product, and that the client has personally read the report, and specifically agrees that the data herein is accurate to the best of the Appraiser's ability. The report remains the personal property of the signer and may not be transmitted to the third party without the signer's written permission. (Permission is granted to transmit to third party mortgagor.) The Appraiser's personal responsibilities do not extend to a third party under any circumstances whatsoever. As a part of the Appraiser -Client employment agreement, the Client agrees to notify the Appraisers of any error, omission, or invalid data herein within 15 days of receipt and to return the report along with all copies to the Appraisers for correction prior to any use whatsoever. Corrections will be made at the Appraiser's discretion. Under no circumstances shall the Company's or Appraiser's liability exceed the fee actually collected for this report. Thus, by acceptance ofthis report, the client acknowledges that a value opinion is the product of a professionally -trained mind, but nevertheless is an opinion only and not a provable fact. As a personal opinion, valuation may vary between Appraisers based on the same facts. Thus, the appraiser warrants only that the value conclusion is the best opinion estimate as of the exact day of valuation. Pacific Valuation Factual Descriptions Page 14 CERTIFICATION OF VALUE Per SR 2-3 We certify that, to the best of our knowledge and belief: * The statements of fact contained in this report are true and correct; * The reported analyses, opinions, and assumptions and limiting conditions, analysis, opinions, and conclusions; conclusions are limited only by the reported and are our personal, unbiased professional * We have no present or prospective interest in the property that is the subject of this report, and we have no personal interest with respect to the parties involved; * We have no bias with respect to the property, that is the subject of this report, or to the parties involved with this assignment; * Our compensation is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report; * Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice; * Michael Yates made a personal' inspection of the property that is the subject of this report. Brendan Horgan provided data collection and verification. * This appraisal report has been made in conformity with, and is subject to, the requirements of the Code of Professional Ethics and Standards of Professional Conduct of the Appraisal Institute. * No pertinent information has knowingly been withheld. No single item of information was completely relied upon to the exclusion of the other information and all data was analyzed within the framework of our judgment, knowledge, and experience. * This appraisal was not based upon a requested minimum value, a specific valuation, or the approval of a loan. * This appraisal is subject to peer review by an authorized committee of the Appraisal Institute. Sincerely Michael Yates, MAI Certified General Appraiser Certification 4AG026353 Pacific Valuation Factual Descriptions Page 95 PART TWO FACTUAL DESCRIPTIONS Pacific Valuation Factual Descriptions Page 96 PURPOSE OF THE APPRAISAL The purpose of this appraisal is to provide a supportable estimate of the market value for the subject property for possible foreclosure purposes. INTENDED USE OF THE APPRAISAL The intended user of this appraisal is Mr. Levon Gugasian. The intended use of this appraisal is for Mr. Levon Gugasian in making investment decisions. DATE OF VALUE ESTIMATE The date of the Fee Simple estimate is June 9, 2009. DATE OF REPORT The date of this report is June 17, 2009. COMPETENCY OF APPRAISERS The appraisers are competent to appraise the subject property by having requisite abilities, qualities, knowledge, and insight to the surrounding subject area. They combine a vast amount of appraisal experience along with continuous academics in order to remain appraised of current and future trends in the real estate market and the appraisal profession. PROPERTY RIGHTS APPRAISED We have appraised the Fee Simple interest in the subject property. The Dictionary of Real Estate Appraisal, Third Edition, 1993, Page 137, published by the Appraisal Institute, defines fee simple interest as: 'Absolute ownership unencumbered by any other interest. " Pacific Valuation Factual Descriptions Page 17 SCOPE OF TEE APPRAISAL The following steps were completed by Pacific Valuation for this assignment: 1. Analyzed regional, city, neighborhood, site, and improvement data. 2. Inspected the subject and the neighborhood. 3. Reviewed data regarding taxes, zoning, utilities, easements, and city services. 4. Considered comparable improved sales, comparable improved building rental information, and comparable site sales. Confirmed data with principals, managers, or real estate agents representing principals, unless otherwise noted. 5. Analyzed the data to arrive at conclusions via each approach to value used in this report. 6. Reconciled the results of each approach to value employed into a probable range of market data and finally an estimate of value for the subject, as defined herein. 7. Estimated a reasonable exposure time associated with the value estimate. The subject site and improvement descriptions are based on a personal inspection of the property, knowledge of construction techniques, and review of the relevant plat maps. The inspection is not a substitute for thorough engineering studies. This is a Summary Report, which is intended to comply with the reporting requirements set forth under Standards Rule 2-2(b) of the Standards of Professional Appraisal Practice. In this appraisal, Pacific Valuation has considered all known applicable approaches to value, but utilized only the Sales Comparison and Income Approaches. The value conclusion reflects all known information about the subject property, market conditions, and available data. The Summary Report incorporates in a summary format a practical explanation of the data, reasoning and analysis that were used to develop the opinion ofvalue. It also includes summarized descriptions ofthe subject property and the market for the subject property type. All data considered significant that was requested for this assignment was received by Dawson Appraisal, Incorporated. Pacific Valuation Factual Descriptions Page 18 MARKET VALUE DEFINITION Market value means 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 sale as of a specified date and the passing of title from seller to buyer under conditions whereby: i. Buyer and seller are typically motivated; 2. Both parties are well informed or well advised, and acting in what they consider their own best interests; 3. A reasonable time is allowed for exposure in the open market; 4. Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and, 5. The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with sale.] HYPOTHETICAL CONDITION Our physical inspection indicated that the subject interior was in a shell condition and under renovation. As cost breakdown was not provided to the appraisers. As a result, the concluded value of this appraisal assumes that the Market Value is a current estimate of value based on the Hypothetical Condition that the interior build out of the subject is complete as of the Effective Date of Value, when in fact it is not. The 2008 edition ofthe Uniform Standards of Professional Appraisal Practice (USPAP) defines a Hypothetical Condition as "that which is contrary to what exists, but is supposed for analysis". The estimated Market Value of the Subject Property "As Completed" is a current value estimate subject to completion of the improvements that are currently in the final stages of completion. Therefore, the "As Completed" estimate of value involves the use of a hypothetical condition; namely that the subject interior is built out as of the Effective Date of Value, when in fact it is not. Federal Reserve System, 12CFR, *Subpart 0 Section 225.62f Pacific Valuation Factual Descriptions Page 19 IDENTIFICATION OF THE PROPERTY The subject property consists of an existing commercial building. The subject was previously used as a market/store property and offers excellent visibility and exposure from Balboa Boulevard. The physical address of the subject property is 608 EastBalboa Boulevard, Newport Beach, Orange County, California 92661. The site, consisting of a 0.32-acre (14,000 SF) site, is improved with a 5,283 SF commercial building. The lot is identified by the Orange County Assessors office as parcel number 048-116-04 / 05. HISTORY OF THE SUBJECT PROPERTY In accordance with standard rule 5-1 (b) of the "Standards of Professional Practice" of the Appraisal Institute, amended December 23, 1985, as well as Standards Rule 1-5 (b)(ii).ofthe Uniform Standards of Professional Appraisal Practice, a three-year sales history for the subject property shall be included for all non-residential properties. According to Orange County Assessor's records provided by National Data Corporation (NDC), the Subject Property has not transferred over the past three years. The owner indicated that the subject property has been listed for sale in the past 12-months and is currently listed for sale at a reported $4,200,000 (Jason Ward with Cushman Wakefield). In addition the subject is also being marketed for lease at an asking monthly rental rate of $2.65 PSF. The subject was not under a purchase agreement as of the date of value. Pacific Valuation Regional Analysis Page 20 REGIONAL MAP 'nxSFy 5{ 'i'i: F:ARut U _•— � jeSt'uY 6m E iti't-e 4k tV,!ry t •J� Fab rniy, t SanfaCla '�' °Nt �'eLSCuz :2iw JLtC+,u.axLFhx Vrimm entura a SIMvalley / C„vFinrtrLa:.:xa ' 1 t Oxnard �i , ''� jaauf t , eNli:.a tlayr uTU`tY3. 'xi:NR v+ a slirisx:aa a:Na .n P'vnM. ¶YmSmd Oaa$v'aA aButEartY �14a if:�,"°"i'r17sq;'=e"„,;cmu.a rrt p - �nk4'vh tyii a!x:c`_t'�yF;!e. a ^ •Jt J n 1 N+r - 1 �L01' Sa Brnartll o YaaGfRmyvn ldmtl U9, a �''A CU°amaga' au A ��•Fla t mtGt u,bt t N , 'OOYfih YulFttl t F.y L54H{ai: tv:na' !osrAn Ie4. q 01a N>x, Ei 'u, Um !el1YaL„i 5N.'.-s.'--�'vs• ' , uY , y C, •at Ni xr>FL"-ev.,a t F j I �a�.�camerf Sann7aarka '� *t e �Arvenlde + i Ila Bent' titi n n, awktd �yf Game trove ' • Fit Am Ali na :a"I eAYx Y,]. AemPl i hl4:i?nLneu,Yn° ::nN,. Ve •\&F , i' Q 4' ° ^} I $LEIECPPROPERTY _ ��� _��11r•:xr '�i I�:diSitl _ tl3'v! A J � IIFYrym m py r{ ten L9 w" ••-y WIF� .xpf4u, . SaawOomenle Fr.,•;o4,- ,��` y;�Vt •CuxtraYlarl "'�"'"'"' .sn `r �Li eN'! }b'xlNnAar �'1101 1 fiml Fnenlx, t:sad l.eb/ Pank'xeN CSLLnvLXb1lCS:Ci'�.L•:YT+ in aNkfCCz Pacific Valuation Regional Analysis Page 21 REGIONAL ANALYSIS Orange County is one of five counties that comprise the Los Angeles metropolitan area. The following discussion will include factual data that will help explain the dynamics of the Orange County area. ENVIRONMENTAL FORCES Location/Terrain Orange County is located in the extreme southwestern corner of the United States and is bordered by Los Angeles County to the north, San Bernardino County to the northeast, Riverside County to the east, San Diego County to the south, and the Pacific Ocean to the southwest. Climate The climate of the Los Angeles metropolitan area (which includes Orange County) is considered mild, with average temperatures ranging between 63 and 76 degrees during the warmest months and between 45 and 64 degrees during the coolest months of the year. Transportation Transportation to and within the Los Angeles Basin area includes the automobile, mass transit (public buses and rail), airplane, ship, and rail. Automobile - Freeway System Transportation within the Los Angeles Basin area is primarily oriented toward the automobile. Therefore, an extensive freeway system has been constructed to accommodate this mode of transportation. The key links in the Los Angeles freeway system (including Orange County) are Interstate Highways 5, 10, 105, 110, 210, 405, 605, and 710. Other major freeways providing transportation within the area include State Highways 2, 22, 55, 57, 60, 91, 134,118, and 170. Pacific Valuation Regional Analysis Page 22 Mass Transit Bus service, including service to the local community and surrounding areas is provided by Orange County Transit District (OCTD) with connections to public transportation in Los Angeles, Riverside, San Diego, and San Bernardino Counties. The mass transit system also includes the MetroRail and Metrolink, and commuter train services. Air Transportation Orange County contains two airports including two municipal facilities. The most significant facilities in the area are John Wayne Airport, which is located in Newport Beach. John Wayne Airport recently received a complete reconstruction and upgrade to the entire facility including new runways, terminal, and parking facilities. Other municipal facilities include the Long Beach Airport. Recreation The Orange County area offers a good quality of life due to the scenic beauty ofthe area, as well as the diversity of available cultural and recreational attractions. Recreational opportunities available in Orange County include swimming, surfing, sailing, scuba diving and other water related activities along the 42 miles ofPacific Ocean coastline which offer miles ofsand beaches and three recreational yacht harbors. Cultural & Movie Orange County is home to eight museums, including the Laguna Museum ofArt, Bowers Museum, Natural history Museum, plus 64 public libraries. Other cultural points of interest include the Mission San Juan Capistrano, Richard Nixon Library, Movieland Wax Museum, and Balboa Pavilion. Education Orange County offers a full range ofeducational opportunities. The Orange County Department of Education regulates several primary school districts including Capistrano, Saddleback, and others. Public universities located in the county include University of California at Irvine (UCI), California Pacific Valuation Regional Analysis Page 23 State University at Fullerton, and several community college districts. Health Care Orange County is well served with health care facilities. The Orange County area contains over 40 major hospitals including UC Irvine Medical Center, Hoag Hospital, Children's Hospital ofOrange County, and several community and private facilities. Energy Costs & Availability As of the date of appraisal, one critical issue affecting the entire state of California is the cost and availability of energy. Due to a number of forces, natural gas costs have skyrocketed in recent months, resulting in increases in residential gas bills of up to 100%. In response to the financial problems of the two large utilities, the Public Utilities Commission recently approved an increase in retail electric rates. However, the increases may not be enough to cover the increased cost of electricity, and further increases may be necessary. The future course of this problem will depend on whether and how fast the plants are built, and on the demand side, whether the looming economic slowdown will temper the 6% annual growth in electricity demand the state has experienced in recent years. SOCIAL FORCES Population The total population ofthe five -county area that makes up the Los Angeles sphere of influence was estimated at approximately 20,775,463 persons, which represents over 55% of the States total population. The five Counties that make up this area include Los Angeles, San Diego, Orange, Riverside, and San Bernardino Counties. The following table summarizes the population between 1992 and 2008. Pacific Valuation Regional Analysis Page 24 Population Trends - Southern California Counties 1992 2002 2008 Avg. Annual Inc.(1992-2002) Avg. Annual Inc. (2002-2008) Riverside 1,057,200 1,653,529 2,088,322 5.64% 4.38% San Bernardino 1,311,100 1,793,302 2,055,766 3.68% 2.44% Orange 2,344,200 2,941,141 3,121,251 2.55% 1.02% San Diego 2,388,700 2,921,723 3,146,274 2.23% 1.28% Los Angeles 8,706,200 9,829,725 10,363,850 1.29% 0.91% California 28,771,000 35,088,671 38,049,462 2.20% 1.41% Source: California Department of Finance. Estimates are rounded to the nearest 100. The preceding graph indicates the population of the Orange County area has grown by 2.55% per year from 1992 to 2002, and 1.02% per year between 2002 and 2008. The highest population growth occurred in Riverside County between 1992 and 2002. Future population growth in the Los Angeles Basin will depend on growth in the economy and jobs. Pacific Valuation Regional Analysis Page 25 ECONOMC FORCES From January 2004 through January 2009, employment within the Orange County area is distributed as follows: ORANGE COUNTY EMPLOYMENT TRENDS TITLE Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Civilian Labor Force 1,430,700 1,460,300 1,494,200 1,509,800 1,499,400 1,434,200 Total Farm 5,700 4,600 5,400 4,600 4,400 3,800 Total Nonfarm 1,425,000 1,455,700 1,488,800 1,505,200 1,495,000 1,430,400 Total Private 1,271,900 1,302,800 1,334,300 1,348,000 1,334,900 1,271,100 Goods Producing 268,600 273,000 283,300 284,000 272,700 249,900 Natural Resources & Mining 600 700 600 600 700 600 Construction 86,400 89,800 101,700 101,700 94,900 82,100 Manufacturing 181,600 182,500 181,000 181,700 177,100 167,200 Nondurable Goods 56,300 55,100 54,100 54,600 52,700 49,500 Service Providing 1,156,400 1,182,700 1,205,500 1,221,200 1,222,300 1,180,500 Private Service Producing 1,003,300 1,029,800 1,051,000 1,064,000 1,062,200 1,021,200 Trade, Transportation & Utilities 260,900 268,300 269,400 275,300 278,300 259,100 Wholesale Trade 81,500 82,900 81,800 86,000 87,200 80,500 Retail Trade 150,500 156,600 159,700 161,100 161,700 149,400 Transportation, Warehousing & Utilities 28,900 28,800 27,900 28,200 29,400 29,200 Utilities 3,500 3,400 3,500 3,700 3,900 4,000 Information 34,100 33,200 32,200 31,000 30,700 28,600 Financial Activities 128,200 135,000 139,700 135,600 115,900 109,100 Professional & Business Services 249,000 257,500 266,600 270,700 270,500 257,900 Educational & Health Services 128,800 130,500 133,600 139,000 147,000 148,800 Educational Services 18,200 18,700 19,200 20,400 23,000 20,900 Health Care & Social Assistance 110,600 111,800 114,400 118,600 124,000 127,900 Leisure & Hospitality 155,900 158,300 162,300 165,700 172,900 170,400 Other Services 46,400 47,000 47,200 46,700 46,900 47,300 Government 153,100 152,900 154,500 157,200 160,100 159 300 The employment base of the area has changed significantly over the past several years. Pacific Valuation Regional Analysis Page 26 Unemployment Unemployment has increased over the last five years. According to information obtained for the Employment Development Department of the State of California, the unemployment rate for Orange County was 2.3% as of December 2003. The following graph summarizes the average unemployment trends over the past ten years. 8.0% 7.0% 6.0% 6.0% 4.0% 3.0% 2.0% 1.0% 0.0% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 The data indicates an upward trend in the unemployment rate between 2003 to December 2008. The Economic Development Corporation reported that the 2008 unemployment rate was 7.5%, which is lower than the States unemployment rate of 10.1 % and the Countries unemployment rate of 8.1%. GOVERNMENTAL FORCES Orange County is governed by a five -member board of supervisors. The council supervises County services such as planning, zoning, traffic control, public works, parks, etc. Each incorporated city within Orange County is responsible for establishing and enforcing its own zoning codes. Pacific Valuation Regional Analysis Page 27 MARKET CONDITIONS The "ripple effect" ofthe.overall economic downturn showed its effects on the local industrial and commercial markets during the fourth quarter of2008. One major factor was the freezing of the credit markets. Small businesses typically rely heavily on the availability of credit lines and financing to create enough leverage to conduct business and grow. In addition, the national and global economies affect the local market as well. The significant loss in jobs and the slowing of commerce and lower trade volumes at Los Angeles County's ports have had an impact on many local businesses. This contraction has forced larger users to downsize and small to mid -sized users to do the same or put their businesses on hold. As a result, the underlying fundamentals have slipped causing the overall vacancy rate to increase, lease rates to decrease, new construction to stop and sales activity and prices to decline. Most real estate professionals agree that the local and regional industrial and commercial markets will see continued contraction in the coming quarters as demand weakens further, placing downward pressure on rents and sale prices. This trend is expected to continue through 2009. CONCLUSION The Orange County area economy continues to be impacted by the countries economic conditions. The economic environment in Orange County stabilized in 1995 and continued to improve until recently, which is reflected in its current productivity and employment. Pacific Valuation Neighborhood Analysis Page 28 NEIGHBORHOOD MAP �"��:+51' .ry,R: `' � � , �..r $ail � ^� •, 0 � • ' il . � 'jpy�IW+'�, dJ � tY 9' •' , � `., is '4,'f I�J gt \"^` { :,. 7 A,{ ,»^M1. ..1 •r`v,� IYhv, -T7{ 1 'SVVaku ng 5e• ; f• .\ T(�T" y r •'�,, r ! j .. !'::.J „Cs.xnCe�n7,.. �'rhaRmrCy yV, �' '7" - a 1"' •.tl , \'' l p � , ' •r, KY Yr! , '; •�C4YIG ;tiext l! ph /..t •.'k•, t•; ;:e,: pi6vxnYi ��;;'t III .' 'y't"'{';;y { r' �'�'"��ie•K'{z �t. . ,"`�" ,FiT�� ...J �I f�jt4",• ty '.+1 'lr ''�G,(+ qt Y. ;Y �;, �.' `\ ryrye' 1 1 '7 `'�J if a. i.'•.ij'ILn• � q � ry �Y,P„�y�+ ..vl�t�, � p"`,� ��;d= f� -,!' "j2kA2�i�: ,: ,, `'4.. tl, ^'•�.• �j I I 1 � , "." .�M1+ 1 , t C 7 ♦ �� �' � xj ...11�, h'tt(7i'. � �,�� ::tJ ..� i 1'i � •- � ! At'� I �,.loln7yoit8¢arll"li'/ 11 , I L t;•.i�i%;: 3��""'�, , , Yt � a x y.fY•y'iu :ux,4.,,,f M. dtSey : it SUEIECf PPMKI I it �•��. _ �. , :. r�:k>r. scar.. .. ;�,,'•,.: t"'`. �aP7Cylty .ataeUa• 'OKI:{r�CeeclltxlG:R,'clt4i"�i i'Fkroi•1 ' Pacific Valuation Neighborhood Analysis Page 29 NEIGHBORHOOD ANALYSIS - NEWPORT BEACH A neighborhood is defined by The Appraisal of Real Estate, 1 lth edition, The Appraisal Institute, 1996, as: "A group of complementary land uses." The subject neighborhood compared to competing neighborhoods: GOOD AVG FAIR POOR ACCESS TO: NEIGHBORHOOD: X EMPLOYMENT: X HOTEL CENTERS: X STREET PATTERNS AND UPKEEP: X PROPERTY COMPATIBILITY: X POPULATION DENSITY.: X EXTENT OF OCCUPANT OWNERSHIP: X SCHOOLS: X INCOME LEVELS: X RENT LEVELS: X VALUE LEVELS: X VACANCY LEVELS: X TAX BURDEN: X FLOOD HAZARDS: X WATER AND SEWER AVAILABILITY: X Pacific Valuation Neighborhood Analysis Page 30 GENERAL NEIGHBORHOOD CHARACTERISTICS LOCATION URBAN X SUBURBAN RURAL %DEVELOPED X OVER75% _25%-50% _UNDER25% GROWTH RATE RAPID _STABLE _X-SLOW SUPPLY _SHORTAGE _INBALANCE X OVERSUPPLY MARKETING TIME < 6 MONTHS X 6-12 MONTHS OVER I YEAR % SPECIAL USE OVER 75% 25%-50% X UNDER 25% VALUES _INCREASING STABLE X DECLINING STAGE OF LIFE CYCLE GROWTH STABILITY DECLINE X REVITALIZATION ENVIRONMENTAL FORCES Overview The City of Newport Beach, California is located in the central coast of Orange County. Newport Beach has over 8 miles of beaches and encompasses 28 square miles. It is situated 12.6 miles southwest of County Seat in "Downtown" Santa Ana, 28 miles southeast of Los Angeles, 88 miles north of San Diego and 475 miles south of San Francisco. Newport Beach is directly accessed by the 55 Freeway and the San Diego Freeway (I-405). Newport Beach is surrounded by the communities of Costa Mesa, Irvine, Corona Del Mar, and unincorporated County area. Transportation The accessibility of transportation for Newport Beach is considered good. The San Diego freeway (I-405) is the primary linkage that runs through Newport Beach. It provides a high volume traffic corridor and easy links to the Santa Ana (I-5), Garden Grove (22), and Costa Mesa (55) freeways. The central location of Newport Beach makes it attractive for Pacific Valuation Neighborhood Analysis Page 31 manufacturing and distributing industrial and consumer products throughout Southern California. SOCIAL FORCES Population The City of Newport Beach has experienced growth over the last several years. Between 1998 and 2008 the population of Newport Beach grew by 28.47%. The cities "official" population count was 83,503 on December 31, 2008. The following chart summarizes recent population trends for the City of Newport Beach: NEWPORT BEACH POPULATION 90,000 85,000 80,000 75,000 70,000 65,000 60,000 55,000 — — — — — — — — — — — — 50'000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 0NEWPORT BEACH 65,800 65,400 65,000 65,600 67,200 67,800 1 68,600 71,605 72,621 81,437 82,344 82,984 83,503 ■Annual Change -0.61%-0.61% 0.92% 2.44% 0.89% 1.18% 4.38% 1.42% 12.14% 1.11% 0.78% 10.63% ECONOAUC FORCES Employment The City of Newport Beach has a labor force of 45,900, of which 1,000 or 2.20% were unemployed. Based upon figures published by the California Employment Development Department, total employment in the City of Newport Beach grew from 42,700 in 2003 to 45,900 in 2008, reflecting a total increase of 7.49% and an annual increase of 1.50%. According to the Orange County Economic Development Department, the Disneyland Theme Park is the largest employer in the area, with 11,167 employees. The second largest is Boeing North Pacific Valuation Neighborhood Analysis Page 32 America with approximately 3,500 employees. The following table itemizes the top ten employers in the Newport Beach and surrounding area: TOP TEN EMPOYERS Employer No. of Workers Disneyland Theme Park 11,167 Boeing North America 3,500 Disneyland Hotel 1,900 Kaiser Permanente 1,500 Hilton and Towers 1,200 Arrowhead Pond 1,000 APW Enclosures 950 Memorial Medical Center 900 Marriott Hotel Soo West Anaheim Medical Center 700 Source: Economic Development Department According to local' market economists, anticipated job growth is expected to continue, but at a slower pace than in recent years. Overall, the employment base in the area is strong and is anticipated to remain stable over the next year. GOVERNMENTAL FORCES The City ofNewport Beach is governed by a full-time elected mayor and four council members, each elected by the district. Serving four year terms of office are the city council and city-wide elected prosecutor, attorney and auditor. The city manager and city clerk are appointed by the city council. The city operates its own police, fire, and paramedic services. Pacific Valuation Neighborhood Analysis Page 33 Conclusion The City of Newport Beach experienced growth in the 1970s, 1980s, and continuing into this decade. Currently the area is experiencing negative market conditions primarily due to the current mortgage crisis. As the economy recovers, the subject area is anticipated to experience favorable growth. Pacific Valuation Market Analysis Page 34 EXPOSURE TIME ANALYSIS Exposure Time is defined by the Uniform Standards of Professional Appraisal Practice as "the estimated length of time the property interest being appraised would have been offered on the marketpriorto the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective opinion based upon 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. Our firm has conducted a study of exposure times for various property types. Over 200 closed sales have been analyzed in our survey. Based on the survey, the average exposure time for Commercial properties was estimated at 4.50 months. This figure is utilized only as a guide. Exposure time data was also obtained from the 0 Quarter 2008 issue of Metro Market Facts, a publication of the National Real Estate Index, published by CB Commercial. Local commercial real estate brokers familiar with the Subject's area were consulted regarding reasonable exposure times for properties similar to the Subject, and located within the Subject's marketing area. The data from brokers indicated exposure times on sold properties ranging from 3 to 9 months. In conclusion, based on the aforementioned trends and data, it is our opinion that the Subject Property would have sold at its estimated value after an exposure time of 6 to 9 months. ESTIMATED EXPOSURE TIME: 6 TO 9 MONTHS Pacific Valuation Market Analysis Page 35 MARKETING TIME ANALYSIS Marketing Time differs from Exposure Time in that Marketing Time occurs during the period of time immediately after the effective date of an appraisal. In our opinion, it is likely that the Marketing Time of the Subject would be no longer than the range provided for commercial properties. Therefore, it is our opinion that the estimated Marketing Time, or period of time required to sell the property after the effective date of value, and at the estimated value derived in this report, would also be from 6 to 9 months. ESTIMATED MARKETING TIME: 6 TO 9 MONTHS Pacific Valuation Property Description Page 36 PROPERTY DESCRIPTION SITE ANALYSIS The subject site consists of 2 contiguous parcels offering 0.32-acres (or 14,000 SF) of land, located at 608 East Balboa Boulevard in the city ofNewport Beach, Orange County, California. The following is a description of the Property characteristics according to available surveys, as well as information based on a physical inspection of the property. Location: Assessors Parcel Nos. Size: Site Size Allocation: Shape: Topography/Drainage: The subject property is situated at 608 East Balboa Boulevard, Newport Beach, Orange County, California 92661. 048-116-04 / 05 0.32 acres, or 14,000 square feet Assessors Parcel Number Site Size S Site Size Acres 048-116-04 048-116-05 11,000 3,000 0.25 0.07 Total 14,000 0.32 Rectangular The site is level. Drainage via surface runoff is considered adequate. Flood Plain: According to National Data Cooperative (NDC), Community Panel Number 060227 0382 H, effective date February 18, 2004, the subject site is located in zone X. Zone X is defined as areas to be outside the 500-year flood plain. Utilities: Water: Sewer: Electricity: Gas: Telephone: Newport Beach Newport Beach Edison The Gas Company Pacific Bell Pacific Valuation Property Description Page 37 Easements/Encroachments: The subject site is encumbered by typical utility easements. None are considered to have an adverse impact on the site. Soil Conditions: The Property's soil conditions appear to be typical for the area. Given the surrounding structures and the existing improvements on the site, the subject site appears suitable for development; however, the Appraisers are not qualified engineers and reserve the right to amend this Appraisal should any adverse soil conditions be discovered. ZONING The subject property is zoned RSC - Commercial within the City of Newport Beach. According to a zoning official with the City of Newport Beach Planning & Zoning Department, the district is considered flexible and allows for uses such as commercial. The current improvements appear to comply with the applicable zoning and development requirements. The zoning restrictions in place appear typical for similar areas. Based upon the information contained herein, and the comments made by the planners office, the subject property appears to be a legal conforming use. As of the date ofthis appraisal, there were no anticipated changes in zoning, according to the zoning department. Pacific Valuation F Property Description Page 38 PLAT MAP Awl $1IH, Ste. 35, 115 R 101 Bo 04 'ice k',,q I'� 61Y 048• � � � , 50,05 1'•W 112 ,' �MC AtID -•- - -- • pp ...,1`IRlIeN - G • • III /„ u � �ilVtln4 • � 1 113@ I I ..•. t• • -.0 Ila10135 11 imam INeIM I stNPBr9 0 •i•I 1 II ©'8(K • 19 ,P ✓hU ',' ur ^UA �4 I I met 3 d •R�' i l nt l B : 99-11 � - .OI.•�� t ° raB Y 1 .< QI i IN,na ^ g/IBBB � t Offir RR 411 IPJB1 INUM. 10 flAt! M.K 1.71 MrF-ISSESBBI'SWftld OEM �Ufb'10 �^U Yli,69 2 PAM Wins P.SPSf PIY. �II — 9CM1Y IN [IFG6 Box N1 PA II NxR'6 ffAet ❑ Pacific Valuation Property Description Page 39 DESCRIPTION OF IMPROVEMENTS The subject property consists of an existing Commercial building. The building is single story, with 5,283 SF of total building area and excellent access and exposure from Balboa Boulevard. Currently the interior of the subject building is in shell condition. Previously it was used as a store property. The following table details construction quality, physical condition, and size for the subject. On site parking consists of 15 asphalt -paved spaces. The improvements offer good utility and. have been adequately designed. The following is a summary description of basic components of the Property improvements. Other structural components not readily visible have been estimated based on discussions with informed sources and/or local construction standards. Phvsical Characteristics Building Size: 5,283 SF Year Built: 1938 Actual Age: 71 Years Effective Age: 30 Years Remaining Economic Life: 30 Years Exterior Construction: Foundation: Reinforced concrete slab on grade, 5' thick. Exterior Walls: The exterior walls are painted concrete block. Roof Structure: Steel joist and girder structural system with metal ,panelized Pacific Valuation roofing. Gutters and Downspouts: Painted Steel Property Description Page 40 Exterior Doors: Doors are glass in anodized aluminum frames. Interior Construction: Interior Finish: The interior is currently in a shell condition (See Photo Page No 9), with open beamed ceilings, Plumbing and Electrical: Typical of competing centers and assumed to comply with building codes. Other: Sidewalks: The facility has a sidewalk along the front of the building. Landscaping: There is minimal landscaping associated with the property. Parking: On site parking consists of 15 parking spaces. Other Site Improvements: Site lighting is provided by pole -mounted, mercury vapor lights ADA Compliance: The subject conforms to the majority ofADA requirements and is affected in a way similar to the sales utilized in this report. However, we are not experts in this field and recommend a complete study be conducted by a qualified expert if significant violations concerning this matter are found. Comments: The Project is considered to be of average quality Class B construction. It is well designed for Commercial use. According to the Marshall Valuation Service Manual and historical trends, the typical life expectancy of properties similar to the subject improvements is 60 years. The Property is well located and is designed with adequate considerations for utility and functional factors related to tenancy. Thus, no functional obsolescence was noted. Pacific Valuation Property Description Page 49 REAL PROPERTY TAXES AND ASSESSMENTS The subject property is identified by the Orange County Tax Assessor as assessor parcel number 048-116-04 / 05. The California voters approved the Proposition 13 Amendment to the California State Constitution, whereby the maximum annual tax on real property is limited to one 1% of market value plus an additional sum to pay for indebtedness on affected property approved by voters prior to the passage of the Proposition. TAT1T Tl W Pacific Valuation Highest & Best Use Page 42 PART THREE ANALYSIS AND CONCLUSIONS Pacific Valuation Highest & Best Use Page 43 HIGHEST AND BEST USE ANALYSIS Highest and best use is an important concept in real estate valuation as it represents the premise upon which value is based. As used in this report, highest and best use is defined as: 'The reasonablyprobable and legal use ofvacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. i2 This definition applies to vacant land or improved property. The highest and best use of vacant land could be immediate development of the property or holding for future development. The highest and best use of an improved property could be continued operationof the improvements as designed conversion to some alternative use, or demolition of the existing improvements for development of new improvements. In the case when a site contains improvements and the highest and best use is determined to be different from the existing use, that use will continue unless and until land value under the highest and best use exceeds the sum of the value of the entire property in its existing use and the cost to remove the improvements. The highest and best use of a property is determined by social, economic, governmental, and environmental forces. The relative weight that any of these forces carries in determining the highest and best use of a property depends on the individual property. Highest and Best Use As If Vacant: Surrounding Land Uses: Mixed commercial, industrial and retail uses along the borders ofthe primary traffic artery with residential along the interior streets. Physically Possible: Commercial structure such as an industrial building, retail building, mini -warehouses, hotel, residential or office 2 Appraisal Institute; The Appraisal of Real Estate, 111s Edition (Chicago, Illinois) p. 275. Pacific Valuation Highest & Best Use Page 44 Legally Permissible: Deed restrictions are private restrictions which limit the use of a site and are either already in place when the site is acquired or filed with proposed development and/or site plans. A title policy was not provided to the appraisers. It is assumed that no deed restrictions exist that would restrict the development of the subject site. Zoning requirements limit development of the site to Commercial development. Conclusion: Commercial Property Highest and Best Use as Continued use as a Commercial Property Improved: Current Improvement: Commercial Property Conclusions: Based on our analysis of the market, the current improvements not only add value to the subject site, they also represent the maximally profitable use ofthe site, as improved. The value of the property as improved is well above that of the site as if vacant. Because the value of the anticipated income stream generated by the improvements exceeds the value of the land as if vacant, the subject improvements are considered representative of the site's highest and best use as improved. This has been substantiated by an analysis of both vacant land and similar type property sales and current rental rates for competing facilities. A change of use or expansion would not be economically feasible nor legally permissible. Thus, the current improvements represent an adequate expression of the highest and best use of the subject site as improved. Pacific Valuation Appraisal Process Page 45 DISCUSSION OF THE APPRAISAL PROCESS Two of the three of the traditional techniques of estimating value have been presented in this Appraisal Report. These include the Sales Comparison and Income Capitalization Approaches to value. Analysis of the specific characteristics of the subject property indicated that the Sales Comparison and Income Capitalization approaches to value were the only applicable and relevant approaches to value for the Subject Property. Market participants interested in properties such as the Subject are generally most interested in the income potential of the property or the value on a price per square foot. Market participants would typically give minimal to no consideration to the Cost Approach in making their purchasing decisions. In conclusion, it is our opinion that the exclusion of the Cost Approach is justified in this assignment, and the rational presented above is sufficient to comply with "USPAP". The remaining two approaches provide two different ways of analyzing market phenomena, and are described on the following page. Income Capitalization Approach The Income Capitalization Approach to value is based upon a definite relationship between the amount of income that a property will earn and its value. The valuation technique utilized in this section is referred to as direct capitalization as it is typically used in the marketplace for valuing properties such as the subject. In this valuation technique, the annual net operating income (NOI) on a stabilized basis, as of the prospective date of stabilization, is estimated. This estimation of NOI is based on market rental rates and market based expenses for the subject property. This estimated NOI is then capitalized into a present value estimate. This is achieved by applying the appropriate overall capitalization rate (R.). The overall capitalization rate (R.) for the subject property can be estimated by several techniques. However, the most accurate is generally considered to be the market extraction method. In this method, comparable sales are analyzed and overall capitalization rates (&) are extracted. These rates are then used as the Pacific Valuation Appraisal Process Page 46 basis for the estimation of the appropriate overall capitalization rate (&) for the subject property. Sales Comparison Approach The Sales Comparison Approach is a method of estimating market value by comparing the subject property to similar properties that have recently sold, are listed for sale, or are under contract for sale. By using a system of comparison, the sale prices ofthe comparable properties are adjusted for any major differences as compared to the subject. The resulting adjusted sale prices will provide an indication of value for the subject property. The principal of substitution as it applies to this approach 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 time period. In conclusion, each of the two approaches utilized will result in an indication of value for the subject property. The two value estimates will then be reconciled in providing.the final opinion of value. Pacific Valuation Sales Comparison Approach Page 47 SALES COMPARISON APPROACH The Sales Comparison Approach is a method of estimating market value by comparing the subject property to similar properties that have recently sold, are listed for sale, or are under contract for sale. By using a system of comparative techniques, which will be explained in detail throughout this analysis, the sale prices of the comparable properties are adjusted for any major differences as compared to the subject. The resulting adjusted sale prices will provide an indication of value for the subject property. In other words, it is a systematic procedure of comparative shopping. The principal of substitution as it applies to this approach 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 time period. The general surrounding market is fairly active, and recent sales of similar properties in the subject area were available. A sufficient number of comparables were found within the general surrounding market area o£the subject in order to do a proper analysis. Presented on the following pages are the comparable sales of similar properties, which will be used to value the subject property. Pacific Valuation Sales Comparison Approach Page 48 IMPROVED SALES MAP a! cry@ iPiaawteea + , H feesK }a 3 is, I "-, .k� -;V% t;�it��Y�i t a�4r: a d q7` ,r , � ✓ `"� ^5 er `e S 37_��,�' � �_ .aµ'i � 1" 7�`�\ `,e ..� �2y-r' • 1 9i' � e, '( � StS `�Ft-r Rib�dM�, ' ��'ir `� �•� . cNymP,d �p�g-✓ _...,:$,.W',QSL�R1ECfPROPrRiYI,{eta- iBi����}�r° I`•';�a�`^,h rkp4eua'- 'e •i s� Furuca ` t COMPCONTS 8, �datw , ;' �Al� r�r • F .. \ona qdS `�. ' Rxl'sti ��R�$•4 �'.f A5 Pacific Valuation Sales Comparison Approach Page 49 COMPARABLE IMPROVEDSALENO.1 Use: Commercial Building Location: 426 315t Street Newport Beach, CA Thomas Guide Map Reference: Page 888 H-7 Grantee: C-Sand LLC. Grantor: Williamson Trust Document Number: 40312 Assessors Parcel No: 047-042-21 Date of Sale: January 29, 2009 Sales Price: $ 1,250,000 Financing: All Cash Sale Pacific Valuation PHYSICAL DATA Gross Building Area: Year of Construction: Site Area: Site Coverage: Parking Spaces: Parking Ratio: Quality/Condition: INCOME DATA / (None Reported) UNITS OF COMPARISON Price/Sq. Ft.: Sales Comparison Approach Page 50 2,364 SF 1950 2,790 SF 85% 4 1.69 Good Class D / Very Good $ 528.76 COMMENTS: This property consists of a commercial building located within the City of Newport Beach. This site is located in an inferior area as the subject. The construction quality is considered inferior to the subject. The condition is considered superior and the visibility of this comparable is considered inferior to the subject. Overall this comparable compared well to the subject and is considered a good indicator of value. VERIFICATION: Loopnet Inc., National Data Corporation, The County Assessors Office Pacific Valuation Name/Type: Location: Sales Comparison Approach Page 51 COMPARABLE IMPROVED SALE NO.2 Thomas Guide Map Reference: Grantee: Grantor: Document Number: Assessor's Parcel Number: Date of Sale: Sales Price: Financing: Commercial Building 2800 Coast Highway Corona Del Mar, CA Orange County, Page 888 H-6 Service Properties LLC Bixby Land 307095 459-051-06 June 26, 2008 $ 2,625,000 Cash Equivalent Pacific Valuation PHYSICAL DATA Gross Building Area: Year of Construction: Site Area: Site Coverage: Parking Spaces: Parking Ratio: Quality/Condition: INCOME DATA Cap Rate: 5.00% UNITS OF COMPARISON Price/Sq. Ft.: Sales Comparison Approach Page 52 2,436 SF 1980 5,012 SF 49% 15 6.16 Good Class B / Good $ 1,077.59 This property consists of a commercial building located within Corona Del Mar. This site is located in a slightly inferior area as the subject. This property is currently being used as a bank, and the construction quality is considered superior to the subject. The condition is considered superior and the visibility of this comparable is considered similar to the subject. Overall this comparable compared well to the subject and is considered a good indicator of value. VERIFICATION: Loopnet Inc., National Data Corporation, The County Assessors Office Pacific Valuation Sales Comparison Approach Page 53 COMPARABLE IMPROVED SALE NO.3 Use: Location: Thomas Guide Map Reference: Grantee: Grantor: Document Number: Assessors Parcel No: Date of Sale: Sales Price: Financing: Commercial Building 504 West Balboa Boulevard Newport Beach, CA Page 888 H-7 Terry McCaleb Durkee Family Trust 718748 048-071-17 December 6, 2007 $ 1,050,000 All Cash Sale Pacific Valuation PHYSICAL DATA Sales Comparison Approach Page 54 Gross Building Area: 1,800 SF Year of Construction: 1971 Site Area: 2,100 SF Site Coverage: 86% Parking Spaces: 8 Parking Ratio: 4.44 Quality/Condition: Good Class D / Good INCOME DATA / (None Reported) UNITS OF COMPARISON Price/Sq. Ft.: $ 583.33 COMMENTS: This property consists of a commercial building located within the City of Newport Beach. This site is located in an inferior area as the subject. The construction quality is considered inferior to the subject. The condition is considered superior and the visibility of this comparable is considered inferior to the subject. Overall this comparable compared well to the subject and is considered a good indicator of value. VERIFICATION: Loopnet Inc., National Data Corporation, The County Assessors Office Pacific Valuation Name/Type: Location: Sales Comparison Approach Page 55 COMPARABLE IMPROVED SALE NO.4 AF �riri ; m'A Thomas Guide Map Reference: Grantee: Grantor: Document Number: Assessor's Parcel Number: Date of Sale: Sales Price: Financing: Commercial Building 3100 East Coast Highway Corona Del Mar, CA Orange County, Page 919 F-2 Lincoln Yee KPM LLC 739088 459-192-07 December 18, 2007 $ 3,200,000 Cash Equivalent Pacific Valuation PHYSICAL DATA Gross Building Area: Year of Construction: Site Area: Site Coverage: Parking Spaces: Parking Ratio: Quality/Condition: INCOME DATA Cap Rate: 4.9% UNITS OF COMPARISON Price/Sq. Ft.: COMMENTS: Sales Comparison Approach Page 56 3,800 SF 1987 7,452 SF 51% 16 4.21 Very Good Class B / Very Good $ 842.11 This property consists of a commercial building located within Corona Del Mar. This site is located in a slightly inferior area as the subject. The construction quality is considered superior to the subject. The condition is considered superior and the visibility of this comparable is considered similar to the subject. Overall this comparable compared well to the subject and is considered a good indicator of value. VERIFICATION: Loopnet Inc., National Data Corporation, The County Assessors Office Pacific Valuation Name/Type: Location: Sales Comparison Approach Page 57 COMPARABLE IMPROVED NO.5 (Listing) Thomas Guide Map Reference: Grantor: Document Number: Assessor's Parcel Number: Date of Sale: Days On Market: Asking Price: Financing: Commercial Building 302-304 Main Street Newport Beach, CA Orange County, Page 919 B-2 N/A N/A 048-131-06 June 9, 2009 (Current) 85 Days $ 3,400,000 Cash Equivalent Pacific Valuation PHYSICAL DATA Sales Comparison Approach Page 58 Gross Building Area: 5,042 SF Year of Construction: 1910 Site Area: 3,600 SF Site Coverage: 140% Parking Spaces: 0 Parking Ratio: 0.00 Quality/Condition: Good Class D / Good INCOME DATA / (None Reported) UNITS OF CONVARISON Price/Sq. Ft.: $ 674.34 This property consists of a commercial building located within Newport Beach, which is currently listed for sale. This site is located in a very similar area as the subject. The construction quality is considered inferior to the subject. The condition is considered superior and the visibility of this comparable is considered similar to the subject. Overall this comparable compared well to the subject and is considered a good indicator of value. VERIFICATION: Loopnet Inc., National Data Corporation, The County Assessors Office Pacific Valuation Sales Comparison Approach Page 59 Improved Sales Analysis The sale properties and the subject vary in terms of conditions of sale, date, location, size, age and condition, and construction quality. These and other factors directly relate to the property's ability to produce profits, the motivation of the sale. In order to account for all the differences between the comparables and the subject, we have examined these facilities on the basis of location, age, and other factors. Adjustments are discussed as follows and shown on the Improved Sale Adjustment Grid at the end of this section of the report. The following chart summarizes the comparable sales used in this analysis: IMPROVED SALES SUMMARY Datum No. Subject 1 2 3 4 5 Sale Price N/A $1,250,000 $2,625,000 $1,050,000 $3,200,000 $3,400,000 Cash Down N/A $1,250,000 $1,050,000 $1,050,000 $1,000,000 N/A Date of Sale 06/09/09 01/29/09 06/26/08 12/06/07 12/18/07 06/09/09 Building Size (NRA) 5,283 2,364 2,436 1,800 3,800 5,042 YearBuilt/Average 1938 1950 1980 1971 1987 1910 Site Area 14,000 2,790 5,012 2,100 7,452 3,600 Acres 0.32 0.06 0.12 0.05 0.17 0.08 Site Coverage 38% 85% 49% 860/c 51% 140% Parking 15 4 15 8 16 0 Parking Ratio 2.84 1.69 6.16 4.44 4.21 0.00 Cash Down N/A 100.0% 40.0% 100.0% 31.3% 0.0% Sale Price/S .Ft. N/A $528.76 $1,077.59 $583.33 $842.11 $674.34 Pacific Valuation Sales Comparison Approach Page 60 Real Property Rights Conveyed - The subject property is being valued as a Fee Simple estate based on market rent. All of the comparable sales were sold based on market terms. Therefore, no adjustments are warranted for any of the comparables. Financing - A review of the financing used with each sale indicates that all sales were all cash sales or considered cash equivalent sales. Conditions of Sale - Comparable sales 1- 4 were arm's-length transactions and did not require conditions of sale adjustments. Comparable No. 5 was an active listing and required a —10% adjustment. Market Conditions — Adjustments to the comparable sales may be required if the sales occurred under different market conditions than those applicable to the subject as of the date of value. Our analysis indicated that property values have declined over the past several months, therefore, a downward time adjustment is required. Location - Location adjustments are made to comparable sales to recognize, perceived value differences in relation to neighborhood influences, frontage on a major traffic street, access, and visibility. The subject and the comparables are located in desirable areas of the subject area. Comparable sales 1- 4 were in inferior areas when compared to the subject and required a +20%, +5%, + % +5% djustment, respectfully. r. Quality of Construction — Our physical inspection of the comparables indicated that Comparable Nos. 1 — 5 differed in construction quality when compared to the subject and required a+5%, 6 +5%, -5% and a —5% adjustment respectively. S t Pacific Valuation Sales Comparison Approach Page 61 Age/Condition - The subject property was constructed in 1938 and is in average overall condition. Our physical inspection ofthe comparables indicated that Comparable Nos. 1- 5 were in superior condition as the subject and required a -10%, -10%, -5%, -5% and a —10% adjustment respectively. Site Coverage —Typically income -producing properties similar to the subject and comparables that offer higher site coverage sell for a lower price when compared to similar properties with lower site coverage. Our analysis of the comparable sales indicated that a site coverage adjustment was required which is summarized on the adjustment grid. Project Size —Buildings with a larger number of square feet tend to sell for slightly lower prices per square foot, than smaller facilities. Our analysis of the comparable sales 1- 5 indicated that a size adjustment was not required. Conclusion This comparison produces a range of per square foot value indications of $ 610.46 to $ 891.38. With an emphasis on the closed sales, it is our opinion that a value of $ 663.00 per square foot is appropriate for the subject property. Multiplying this square foot amount by the subject's LIRA of 5,283 produces an adjusted value estimate of$3,500,000 (rounded). A summary ofthe adjustments is located on the following page. Price Per Square Foot 5,283 Sq. Ft. x $ 663.00/Sq. Ft. _ $ 3,500,000 (Rounded) Pacific Valuation Sales Comparison Approach Page 62 IMPROVED SALES ADJUSTMENT GRID Datum No. Subject 1 2 3 4 5 Sale Price N/A $1,250,000 $2,625,000 $1,050,000 $3,200,000 $3,400,000 Cash Down N/A $1,250,000 $1,050,000 $1,050,000 $1,000,000 N/A Date of Sale 06/09/09 01/29/09 06/26/08 12/06/07 12/18/07 06/09/09 Building Size (NRA) 5,283 2,364 2,436 1,800 3,800 5,042 YearBuilt/Average 1938 1950 1980 1971 1987 1910 Site Area 14,000 2,790 5,012 2,100 7,452 3,600 Acres 0.32 0.06 0.12 0.05 U. 0.08 Site Coverage 38% 85% 49% 86% 51%. 140% Parking 15 4 15 8 16 0 Parking Ratio 2.84 1.69 6.16 4.44 4.21 0.00 Cash Down N/A 100.0% 40.0% 100.0% 31.3% 0.0% Sale Price/S .Ft. N/A $528.76 $1077.59 $583.33 $842.11 $674.34 Adjustments Property Rights Conveyed Fee Simple 0.0% 0.0% 0.0% 0.0% 0.0% Adjusted Value $528.76 $1077.59 $583.33 $842.11 $674.34 Financing Terms Cash Equiv. 0.0% 0.0% 0.0% 0.0% 0.0% Adjusted Value $528.76 $1,077.59 $583.33 $842.11 $674.34 Conditions of Sale Market 0.0% 0.0% 0.0% 0.0% -10.0% Adjusted Value $528.76 $1,077.59 $583.33 $842.11 $606.90 Market Condition (Time) Market -2.0% -6.0% -9.0% -9.0% 0.0% Adjusted Value 1 $518.19 $1,012.931 $530.831 $766.321 $606.90 Adjustments Occupancy 0.0% 0.0% 0.0% 0.0% 0.0% Deferred Maintenance/Imp. 0.0% 0.0% 0.0% 0.0% 0.0% Location/Access 20.0% 5.0% 5.0% 5.0% 0.0% Quality 5.0% -10.0% 5.0% -5.0% 5.0% Age & Condition -10.0% -10.0% -5.0% -5.0% -10.0% Interior Build Out 0.0% 0.0% 0.0% 0.0% 0.0% Site Coverage 10.0% 3.0% 10.0% 5.0% 10.0% Building Features 0.0% 0.0% 0.0% 0.0% 0.0% Project Size 0.0% 0.0% 0.0% 0.0% 0.0% Aggregate Adiustment N/A 25.0% -12.0% 15.0% 0.0% 5.0% Total Net Adjustment N/A 25.0% -12.0% 15.0% 0.0% 5.0% Indicated Value per S .Ft. N/A $647.74 $891.381 $610.461 $766.321 $637.25 Concluded Value per Sq.Ft. $663.00 Building Size (NRA) 5,283 Concluded Value $3,502,629 Concluded Value $3 500,000 Pacific Valuation Income Capitalization Approach Page 63 INCOME CAPITALIZATION APPROACH The Income Capitalization Approach to value is based upon a definite relationship between the amount of income that a property will earn and its value. The most important consideration involved in using this approach is the selection of the capitalization technique most appropriate to the particular property being appraised. This approach, which is predicated on investor thinking and motivations, is a basic tool for the valuation of income producing real estate. It is based on the principle of anticipation reflected in the definition of value as to the present worth of all the rights of future benefits accruing to ownership. These future benefits consist of some pattern of annual net income for a projected period of years, plus a capital sum realized through the disposition of the property at the end of the investment period. After comparison of yields for investments of similar property types and class, this figure is capitalized into an estimate of value. The valuation technique utilized in this portion of the report is referred to as the Direct Capitalization method. In Direct Capitalization, the annual net operating income (NOI) on a stabilized basis, as of the date of appraisal, is estimated. This estimation of NOI is based on market rental rates and market based expenses for the subject property. This estimated NOI is then capitalized into a present value estimate. This approach to value is considered -to be a vital part of the valuation process, as Commercial property is typically analyzed based on its ability to produce income. The following is a summary of rental comparables. Pacific Valuation Income Capitalization Approach Page 64 LEASE COMPARABLES MAP Pacific Valuation Income Capitalization Approach Page 65 al a I in Xe.'"My1F � 4 Tenant/Project: Location: Total Building Area: Unit Size: Year Built: Parking: Quality: Overall Condition: Monthly Rental Rate: Terms: Survey Date: Data Source: RENT COMPARABLE 1 Commercial Building 305 Main Street, Newport Beach, CA 61000 SF 920 SF 1963 Adequate Good Class "B" Good $2.50 PSF NNN June 2009 Broker / County Assessor Pacific Valuation Tenant/Project: Location: Total Building Area: Unit Size: Year Built: Parking: Quality: Overall Condition: Monthly Rental Rate: Terms: Survey Date: Data Source: Income Capitalization Approach Page 66 RENT COMPARABLE 2 Commercial Building 514 East Oceanfront Boulevard, Newport Beach 9,200 SF 3,200 SF 1987 Street Very Good Class "D" Very Good $2.95 PSF NNN June 2009 Broker / County Assessor Pacific Valuation Income Capitalization Approach Page 67 Tenant/Project: Location: Total Building Area: Unit Size: Year Built: Parking: Quality: Overall Condition: Monthly Rental Rate: Terms: Survey Date: Data Source: COMPARABLE RENTAL NO.3 Commercial Building 3435 East Coast Highway, Corona Del Mar, CA 4,128 SF 2,870 SF 1980 Adequate Good Class `B" Very Good $3.75 PSF June 2009 Broker / County Assessor Pacific Valuation Income Capitalization Approach Page 68 RENTAL ANALYSIS Based on the rental survey, commercial leases in the subject area are predominately negotiated on a triple net basis where the tenants are responsible for their pro-rata share of ad valorem taxes, insurance and common area maintenance. In the case of the subject property, if the subject was to be leased, it would be was also negotiated on a triple net lease basis. Rental rates were found to range from $2.50 to $3.75 PSF. All of the leases in effect are based upon triple - net (NNN) lease structures. In a triple -net lease, the lessor is typically responsible for structural maintenance. Additionally, it should be noted that while some of the leases are written to include step rents, the amounts shown are indicative of typical rental rates and are inclusive of these variables. Several local property brokers were surveyed concerning the Property. They all quoted market rental rates of dollars of $2.50 per square foot to $2.70 per square foot for a facility similar to subject. This is consistent with the rent comparables after they are adjusted for location and differences with the Property. Therefore, considering the subject's location and quality of construction, it is our conclusion that the monthly market rent for the subject property is $2.60 per square foot. Potential Gross Income The potential gross income is the total income attributable to the property at 100% occupancy before vacancy, collection loss, and operating expenses are deducted. It consists ofrental income and any other income applicable to the property. In the case ofthe subject property, only the potential rental income is applicable. The subject's potential gross income is calculated as follows: TYPE MONTHLY RENTAL RATE SIZE RENT ACHIEVED Commercial $2.60 PSF 5,283 Potential Gross Income (Rounded) $164,830 Pacific Valuation Income Capitalization Approach Page 69 Vacancy and Collection Loss Observations are also made of competing vacancy and collection loss factors in relation to the Property's current level. Vacancy and collection loss is defined by the Appraisal Institute, The Appraisal of Real Estate. 11th edition (Chicago: Appraisal Institute, 1996), p.443. as follows: Vacancy and collection loss is an allowance for reductions in potential income attributable to vacancies, tenant turnover, and nonpayment of rent. Vacancy and collection loss is a factor developed in order to account for space that may not be leased at any given time. This allowance is typically based on a percentage of potential gross income and varies according to the type and characteristics of the property, tenant quality and perceived credit worthiness, supply and demand factors, and the general economic conditions surrounding the property. Theoretically, this estimate should reflect typical investor expectations over the specific holding period, supported by the market. Few investors realistically expect a 0% vacancy level over their projected holding period. Further, a 0% physical vacancy does not necessarily equal a similar economic vacancy, due to potential collection loss. Therefore, when considering the Property's quality of construction, position in the market, and the current rental market, a stabilized vacancy and collection allowance of2.0% (2% vacancy and 1% collection) appears reasonable. Pacific Valuation Income Capitalization Approach Page 70 Expense Analysis Typically, in a triple net lease, all expenses including real estate taxes, property insurance, repairs and maintenance, utilities, and miscellaneous services are paid by the tenant. The only expenses incurred by the owner are typically a minor management fee that includes rent collection and any legal or accounting functions, and a reserve for repairs. As such, the expense analysis includes only a management fee and a reserve for replacements. Management Fees: This category typically includes general operational costs such as legal fees, professional dues, telephone, postage, and other related items incurred on an annual, on- going basis. A survey of net brokers, lenders, developers, and investors indicated that in most leases, the management costs ranged from 2.0% to 7% of EGI. For this analysis, and considering the property is a commercial structure, a management expense of 4.0% of EGI is included herein. Reserves for Replacement: The reserves for replacement expense is an estimate based on the establishment of a sinking fund to replace short lived items that may be anticipated to fully expire their usefulness, or be replaced during the holding period of the Property. This is typically a non -cash expense and includes the primary depreciable components. This reserve usually includes exterior walls, roofing, and foundation. Thus, a reserve for replacement based on structural elements of the building has to be considered. Considering the components, a reserve of $0.20 PSF has been estimated for this expense. Pacific Valuation Income Capitalization Approach Page 71 Direct Capitalization Analysis A stabilized vacancy and collection loss has been accounted for. The expenses are based on the previously discussed analysis. In order to select an appropriate overall rate for the subject, we have analyzed sales, reviewed the published investor surveys and conducted our own interview of investors. As mentioned two ofthe four comparable sales utilized in the Sales Comparison Approach did not provide income data (being owner -user). However, the appraisers found sales of similar commercial buildings that provided income data to help determine an appropriate Capitalization Rate. The following table summarizes the capitalization rates: MARKET EXTRACTED CAP RATES DATA NO. 1 2 1 3 4 5 Sales Price $2,625,000 $3,200,000 $1,125,000 $2,800,000 $3,450,000 NOI $131,250 $156,8001 $60,9751 $62,2741 $207,000 Capitalization Rate 5.00%1 4.90%1 5.42%1 4.15%1 6.00% The capitalization rates summarized on the above table ranged from 4.15% to 6.00% with an average of 5.09%. In addition, the appraisers extracted capitalization data from 22 published sales by Costar Comps of commercial buildings in the subject area that have occurred within the past 18 months. The capitalization rates ranged from 4.33%to 7.10%. Based on this analysis as well as the location and physical characteristics of the subject property, an overall rate of4.40% is considered appropriate for the subject. The following page contains our pro forma. Pacific Valuation Income Capitalization Approach Page 72 DIRECT CAPITALIZATION ANALYSIS - STABILIZED OCCCUPANCY Pa e 1 of 1 Property Name: A Commercial Building Address: 608 East Balboa Boulevard Location: Newport Beach, CA PROJECTED ANNUAL INCOME Potential Gross Rental Income: Income Rental Income $164,830 $0 Total Potential Gross Income $164,830 Less: Vacancy & Collection Allowance Vacancy Loss -1.00% ($1,648) Collection Loss -1.00% ($1,648) Total Vacancy & Collection Loss -2.00% ($3,297) Effective Gross Income $161533 OPERATING EXPENSES $/SF/Yr %/EGI Subtotal Fixed Expenses Real Estate Taxes $0.00 0.00% $0 Insurance $0.00 0.00% $0 Total Fixed Expenses $0.00 0.00% $0 Variable Expenses Management $1.22 4.00% $6,461 Utilities $0.00 0.00% $0 Cleaning $0.00 0.00% $0 Repair & Maintenance $0.00 0.00% $0 Other/Administrative $0.00 0.00% $0 Replacement Reserves $0.20 0.65% $1,057 Total Variable Expenses $1.42 4.65% $7,518 Total Operating Expenses $1.42 4.65% $7,518 Stabilized CAM Reimbursements 0 Total Operating Expenses $7,518 Net Operating Income $154,015 CAPITALIZATION ANALYSIS Capitalization: (NOI/OAR) $154,0151 4.40%= $3,500,343 Concluded Value (Rounded) $662.50 per Sq. Ft. $3,500,000 Pacific Valuation Reconciliation Page 73 RECONCILIATION Reconciliation is the process whereby the final market value estimate is derived from the various indications of value. The procedure evaluates the quantity and quality of available data and draws a conclusion based on the most applicable indicators. In appraising the subject property, we have arrived at the following conclusions: SALES COMPARISON APPROACH $ 3,500,000 INCOME APPROACH $ 3,500,000 The Sales Comparison Approach is generally considered to be a reliable indicator of value, as it best reflects the actions of buyers and sellers in the marketplace. When data is available and reliable, the Sales Comparison Approach is given substantial weight. The inherent weakness in this approach, however, is that no two properties are identical, and reliable data is not always available. In the case of the subject property, adequate current data was available for comparisons. As a result, this approach is considered to render a reliable indication of value for the subject. The Sales Comparison Approach was considered to be a very reliable method of valuation with the value estimate adequately supported and within a reasonable range. Primary emphasis is placed on this approach to value. For the Income Capitalization Approach to value, the appraisers utilized a direct capitalization analysis. As a result, the indication by the Income Capitalization Approach was also considered most reliable and given significant weight in the final analysis. Based on the analysis contained in the report herein, the Market Value ofthe subject property, in the Fee Simple estate, as of June 9, 2009, is considered reasonable at: THREE MILLION FIVE HUNDRED THOUSAND DOLLARS $ 39500,000 MDASSOCIATES June 22, 2009 City of Newport Beach 3300 Newport Blvd. PO Box 1768 Newport Beach, CA 92658-8915 Attn: Sharon Wood Assistant City Manager Re: 608 E. Balboa Blvd. Newport Beach, CA 92661 Dear Sharon: The appraisal for the above property is completed and attached for your review. After reviewing the appraisal with the seller, he has agreed to sell the property for $3,800,000. Resolving parking issues associated with the Balboa Village area are the concern of both parties and a sale should help the city create a beneficial plan for the village. Our assistance to facilitate this transaction will continue to be available. Sincerely, rr Marcia Dossey Cc: L. DeSahtis 177 Riverside Avenue H. Bludau Attachment Suite F•264 Newport Beach California 92663 P: 949.400.0471 F: 949. 673.3215 mdosseyaadelphia.net Date of Report: October 15, 2009 Date of Value: August 31, 2009 Appraisal of 608 East Balboa Boulevard and 209 Washington Street Newport Beach, California Balboa Market Submitted to: Ms. Sharon Wood Assistant City Manager City of Newport Beach 3300 Newport Boulevard Newport Beach, CA 92663 Submitted by: Richard A. Fuller, MAI Richard A. Fuller Consulting 4910 Campus Drive Newport Beach, CA 92660 ' RICHARD A. FULLER CONSULTING RICHARD A. FULLER, MAI REAL ESTATE • CONSULTATION • VALUATION t • MEMBER, APPRAISAL INSTITUTE • TELEPHONE: (949) 6444040 •MEMBER, AMERICAN RIGHT OF WAY ASSOCIATION 4910 CAMPUS DRIVE • FACSIMILE:(949) 660-7076 • CERTIFIED GENERAL APPRAISER NEWPORT BEACH, CALIFORNIA 92660-2119 • EMAIL' RFULLEROFULLCON.COM ' October 15, 2009 Ms. Sharon Wood Assistant City Manager City of Newport Beach 3300 Newport Boulevard ' Newport Beach, CA 92663 ' RE: Appraisal of 608 East Balboa Boulevard and ' 209 Washington Street Newport Beach, California Balboa Market ' Dear Ms.Wood: ' In accordance with my proposal, dated August 18, 2009, and City of Newport Beach Contract No. 4374, executed on September 16, 2009, 1 have made an examination of the above -referenced property for the purpose of estimating the market value, of the fee ' simple estate, as of August 31, 2009. t As a result of this investigation and an analysis of matters pertinent to the property's value, I have concluded that the market value, of the fee simple estate, as of said date, was $3,600,000. ' MARKET VALUE ' Three Million Six Hundred Thousand Dollars ' APPRAISAL ' In conformance with Standard 1 of the Uniform Standards of Professional Appraisal Practice (USPAP), this appraisal is defined as the act or process of developing an opinion of value. • FORENSIC VALUATION • EXPERT WITNESS • ESTATES AND TRUSTS • PROPERTY ACQUISITION • LITIGATION SUPPORT • EMINENT DOMAIN • ARBITRATION • PROPERTY DISPOSITION REPORT FORM In conformance with Standard 2 of the Uniform Standards of Professional Appraisal Practice (USPAP), this report is defined as a summary report wherein in the interest of brevity, and by specific instructions of the client, all market data, factual data, reasoning, computations, descriptions, analyses, and discussions, from which, in part, the valuation conclusion was derived, have been retained in my files and are partially summarized within this report. REAL ESTATE IDENTIFICATION For identification purposes, the subject property is identified as 608 East Balboa Boulevard and 209 Washington Street, in the City of Newport Beach, County of Orange, State of California. INTENDED USE AND INTENDED USER It is the understanding of the appraiser that the intended user of this appraisal is the City of Newport Beach and the intended use of this appraisal is to assist the intended user in reporting the market value for possible acquisition purposes. DEFINITIONS Market Value: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1. Buyer and seller are typically motivated; 2. Both parties are well informed or well advised, and acting in what they consider their best interests; 3. A reasonable time is allowed for exposure in the open market; 4. Payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and 2 5. 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. Source: Uniform Standards of Professional Appraisal Practice, 1996 Edition. Fee Simple Estate: Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by governmental powers of taxation, eminent domain, police power and escheat. Source: The Dictionary of Real Estate Appraisers; Third Edition: Appraisal Institute, 2002. Exposure: The estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective opinion based upon an analysis of past events assuming a competitive and open market. Source: Uniform Standards of Professional Appraisal Practice, 2006 Edition. SCOPE OF THE APPRAISAL The scope of work for this appraisal assignment, consistent with the intended use, is set out as follows: 1. Solving the problem by expressing an opinion of the market value, of the fee simple estate, in the subject property. 2. Developing credible assignment results by physically inspecting the subject property; completing a market study of the comparable market data; analyzing the physical characteristics of the subject property; completing a highest and best use study; comparing the market data to the subject property; employing the pertinent valuation techniques; and forming an opinion as to the market value of the fee simple estate. PROPERTY RIGHTS APPRAISED Fee simple estate. EFFECTIVE DATE OF THE APPRAISAL The effective date of the appraisal, or date of value, is August 31, 2009. EXPOSURE TIME The exposure time has been estimated to be six to twelve months. SUPPORTING FILE A supporting file has been prepared which includes all market data, factual data, reasoning, computations, descriptions, analyses, and discussions, from which, in part, the valuation conclusion was derived. LIMITING CONDITIONS This appraisal has been based upon the following premises and limiting conditions: 1. That I assume no responsibility for matters legal in character, nordo I renderany opinion as to the title which is assumed to be good. All existing liens, and encumbrances, securing payment of money, have been disregarded, and the property is appraised as though free and clear under responsible ownership and competent management. 2. That information obtained for use in this appraisal is believed to be true and correct to the best of my ability. However, no responsibility is assumed for errors or omissions, or for information not disclosed which might otherwise affect the valuation estimate. 3. That disclosure of the contents of this appraisal report is governed by the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice (USPAP). 4. That, neither all, nor any part, of the contents of this report (especially any conclusions as to the value, the identity of the appraiser, or the firm with which he is connected, or any reference to the Appraisal Institute, or the MAI designation) shall be disseminated to the public through advertising media, public relations, news media, sales media, or any other public means of communication without prior written consent and approval of the undersigned. 4 5. That the appraiser, by reason of this appraisal, is not required to give testimony, in any proceeding, or attendance in court, with reference to the property appraised, unless arrangements have been previously made. 6. That the submission of this report constitutes completion of the services authorized. It is submitted upon the condition that the client will provide, in advance, the appraiser's customary compensation relating to any subsequent depositions, conferences, changes, additional preparation, review, travel or testimony. 7. That unless otherwise stated in this report, the existence of hazardous substances, including without limitation, asbestos, urea formaldehyde, foam insulation, polychlorinated biphenyls, petroleum leakage, or agricultural chemicals, which may or may not be present on the property, or other environmental conditions, were not called to the attention of nor did the appraiser become aware of such during the appraiser's inspection. The value estimated is predicated on the assumption that there is no such condition on or in the property or in such proximity thereto that it would cause a loss in value. No responsibility is assumed for any such conditions, nor for any expertise or engineering knowledge required to discover them. 8. That all maps and exhibits included within this report are for illustration purposes only and are set out to assist the reader in visualizing the property. However, no survey of the subject site has been made and no liability is assumed in connection with such matters. 9. That the liability of the appraiser responsible for this report is limited to the client only and to the fee actually received by the appraiser. Further, there is no accountability, obligation or liability to any third party. If this appraisal report is placed in the hands of anyone other than the client, the client shall make such party and/or parties aware of all limiting conditions and assumptions of the assignment and related discussions. Third parties are hereby notified that reliance upon this appraisal report by any third party in any manner constitutes a waiver of the authority, dictates and provisions of Soderberg v. McKinney (1996) 44 Cal.AppAth 1760, 52 Cal. Rptr.2d 635. Notwithstanding the holding and rationale of said case, any third party who relies upon this appraisal report does so at his, her, or its own risk. 10. That if the client or any third party brings legal action against the appraiser responsible for this report, and if the appraiser prevails, the party initiating such legal action shall reimburse the appraiser for any and all costs of any nature, including attorneys' fees, incurred in his defense. 11 11. That the appraiser is not a necessary party in any inquiry orjudicial proceedings. He will not be called upon to testify in any litigation or other proceeding arising out of his duties in this matter. If he is compelled to incur court costs, attorneys' fees or other out-of-pocket expenses in connection with court proceedings, such costs or expenses together with appraiser's usual hourly per diem applicable for his professional services for study, preparation, testimony or travel will be paid by the party (or parties) who acts to bring any suit requiring a judicial proceeding. 12. That the appraiser assumes no responsibility for hidden or unapparent conditions of the property that may render it more or less valuable, or for arranging for engineering studies that may be required to discover them, or for the payment of ordered studies. 13. That if the client has any question regarding the property's conformity to specific governmental requirements, such as fire, building and safety, earthquake or occupancy codes, it is the client's responsibility to arrange for and to pay for specific professional or governmental inspections. 14. That the property is appraised assuming all required licenses, certificates of occupancy, consents, or other legislative or administrative authority from any local, state or federal government or private entity or organization have been or can be obtained or renewed for any use that the value estimate contained in this report is based, unless otherwise stated. 15. That, while the structure was inspected and no evidence of termites, dry rot, wet rot, or other infestations were observed, no guarantee of same is implied here and this appraisal is subject to an inspection by a licensed pest control inspector. 16. That, as no hydrology studies were available for review, it is assumed that any drainage sheet flow through the subject property would be contained and the property under appraisement would not be subject to inundation. The value conclusion is subject to review by a qualified civil engineer. 17. That any future development of the subject site would be supportable from a detailed engineering report. This study would include an analysis of soils, boundaries, engineering, topography, utilities, grading hydrology, and other factors necessary for the development of the property. 18. That a preliminary title report prepared by First American Title Insurance Company, dated August 28, 2009, and amended September 23, 2009, and identified as Order Number: NCS-411048-SAI was available for review as of the date of value. Several vesting documents were illegible, therefore, it is a premise of this appraisal report that there are no conditions of title which would encumber the subject property and restrict its use in accordance with its highest and best use. This premise is subject to a legal interpretation of each condition of title. �J 19. That, as no soil tests were available to this appraiser, subsoil conditions are considered favorable for development, but no guarantee of same is implied here. The value conclusion is subject to final review by an independent soil engineer. 20. That no warranty is made as to the seismic stability of the.subject property. The valuation is subject to final review by an independent seismic engineer. 21. That this valuation estimate is of surface rights only, and the valuation of mineral rights, if any, has been disregarded. 22. That no valuation was made of furniture, or other personal property which existed within the subject property, as of the date of value. 23. That, while it is presumptive to predict what local planning agencies, city councils, and other governmental agencies will and will not approve, it is assumed that the subject site could be developed in accordance with its highest and best use. 24. That the market data lot size, improvement age and size estimates obtained from the Assessor's Office are correct. 25. That this report will not be prepared for condemnation purposes and, as such, notification of the property owner, by the appraiser, will not be required. 26. That this appraisal will not be utilized in making a lending decision in a federally related transaction. 27. That this report will not be prepared for litigation purposes. If this matter is adjudicated in any manner, the appraiser reserves the right to prepare a comprehensive narrative report, at an additional fee, and to further review and verify the data upon which the estimate of value is based. 7 7 PROPERTY DESCRIPTION SUMMARY Location: The subject property is located between East Balboa Boulevard and East Bay Avenue, west of Washington Street, in the City of Newport Beach, County of Orange, State of California. Identification: For identification purposes, the subject property is identified as Assessor's Parcel Nos. 048-116-04 and 05. Address: 608 East Balboa Boulevard and 209 Washington Street Newport Beach, California 92661 Apparent Owner: Levon Gugasian and Zarouhi Gugasian, husband and wife as joint tenants Legal Description: Lots 7, 8, 9, 10 and 11, in Block 7, Balboa Tract, in the City of Newport Beach, County of Orange, State of California, as per map thereof recorded in Book 7, Page 11, of Miscellaneous Maps. Recent Ownership Transfers: Research of the applicable public records and private data services revealed that Lots 8, 9, 10 and 11 sold on April 12, 2006, Document No. 242569 and Lot 7 sold on May 11, 2006, Document No. 315831. Reportedly, 608 East Balboa Boulevard has been listed for sale for t18 months at a price of $4,200,000. Parcel Size and Shape: This subject site is irregular in shape and contains ±14,115 square feet. II �I 1 I 1 1 t 1 1 I 1 4 ( CENTRAL. hhk `t tro• FWmr "Whys so-05 1 " = 60' PLQBGX ACCESS `"-- EASFjjtNY— - -� PEOEMMV cor 7 r►Z 14 r o; r I la + j BAYSIDE I i BLK.I B i i I °x' I m I� P. M. IIV&-4 I ! I r r -----__— 1 7, O P. M. 117-24 goo M �&K*j 7116� a —_ 9—O - -i0 m TRACT o ,M �s9 ie.t7_+•.Jr••' N BOULEVARD N. AVENUE W nI r0*, l L PARCEL MAP Access and Streets: Access: State Highway 1: State Highway 1 (Coast Highway) extends northerly from the City of Long Beach to the City of Dana Point and parallels the northerly shore of Newport Bay. Access to Balboa Boulevard is available from State Highway 1 west of the subject property. Streets: East Balboa Boulevard: The subject site has t93 feet of frontage on Balboa Boulevard. This street has a 70 foot right-of-way. It is paved to four lanes, and improved with concrete curbs, gutters and sidewalks. Washington Street: The subject site has t119.53 feet of frontage on Washington Street. This street has a 30 foot right-of-way and is pave to two lanes, and improved with concrete curbs, gutters and sidewalks. East Bay Avenue: Alley: The subject site has ±100 feet of frontage on East Bay Avenue. This street has a 40 foot right-of-way and is paved to two lanes, and improved with concrete curbs, gutters and sidewalks. The subject site has ±153.64 feet of frontage on an alley. This alley has a 15 foot right-of-way and is paved to two lanes, and improved with concrete paving. Pertinent Conditions of Title: A review was made of a Preliminary Title Report issued by First American Title Insurance Company, dated August 28, 2009 and amended September 23, 2009, and identified as File No. NCS-411048-SAI'which set out the following pertinent conditions of title: 1 1 Item No. 4: The lien of special tax assessed pursuant to Chapter 2.5 commencing with Section 53311 of the California Government code for proposed Community Facilities District No. 75 (Balboa Business District), as disclosed by Notice of Assessment recorded April 30, 2004, as Instrument No. 2004000374797, of Official Records. Item No. 5: Easements, Covenants and Conditions contained in the deed from Newport Bay Investment Company, a Corporation, organized under the laws of the State of California, as Grantor, to J.D. Thomas, as Grantee, recorded in Book 121, Page 147 of Deeds. Said matter affects Lot 8. Item No. 6: Easements, Covenants and Conditions contained in the deed from Newport Bay Investment Company, a Corporation, organized under the laws of the State of California, as Grantor, to Henrietta,M. Kraft (an unmarried woman), as Grantee, recorded in Book 138, Page 349 of Deeds. Said matter affects Lot 9. Item No. 7: Easements, Covenants and Conditions contained in the deed from Newport Bay Investment Company, a Corporation, organized under the laws of the State of California, as Grantor, to Clarissa C. Honey, as Grantee, recorded in Book 153, Page 41 of Deeds. Said matter affects Lots 10 and 11. Item No. 8: An easement for street, highway and incidental purposes, recorded February 8, 2002 as Instrument No. 20020109515 of Official Records in favor of City of Newport Beach, a municipal corporation. Said matter affects Lot 11. Item No. 12: Covenants, Conditions, document records in Book affects Lot 7. Neighborhood: Restrictions and Easements in the 121, Page 281 of Deeds. Said matter The subject neighborhood is located on the Balboa Peninsula. It is bounded on the north by Newport Bay, on the south by the Pacific Ocean, on the east by the Peninsula Point and Jetty entrance, and on the west by residential and commercial uses that lie between Newport Bay and the Pacific Ocean on both sides of Balboa Boulevard. Significant neighborhood influences would include the Balboa Island Ferry, with vehicular access provided from Palm Street, % block west of the subject site; the Balboa Pier which is located on Main Street, two blocks to the east of the subject site; the Fun Zone Amusement Area which is located northeast of Bay Avenue, 10 across from the subject site; Newport Bay located one block to the north; the Pacific Ocean and beaches located one block to the south, and the Pavilion Historical Landmark located on the Bay, two blocks to the east. Contour and Drainage: Soils: The subject site is level, lying at an elevation of i5 to 10 feet above sea level. The drainage flow is generally into the surrounding surface streets and drainage systems. As no soil or geologic reports were available for review, it is assumed that there are no soil conditions which negatively affect the subject property. Land Use: Jurisdiction: City of Newport Beach Zoning: Designation: SP-8 — Specific Plan Area — Central Balboa Classification: RSC — Retail and Service Commercial Permitted Uses: • Specified Public and Semi -Public • Specified Commercial • Specified Residential above the first floor Floor Area Ratio: • The commercial or retail portion shall be limited to a floor area ratio between .25 and .50. • The residential portion of the structure shall be limited to a maximum floor area ratio of .75. General Plan: Designation: MU-V — Mixed Use Vertical 11 Classification: The MU-V designation is intended to provide for the development of properties for (a) mixed -use structures that vertically integrate housing with retail uses, where the ground floor shall be restricted to retail and other pedestrian -active uses along the street frontage and/or the upper floors used for residential units, or (b) structures containing nonresidential uses including retail, office, restaurant, and similar uses. For mixed use structures, commercial uses characterized by noise, vibration, odors, or other activities that would adversely impact on -site residential units are prohibited. Balboa Village: The subject property is located in Balboa Village which has served as the center for recreational and social activities on the Peninsula. Many of the existing land uses include retail uses and are visitor - oriented and seasonal in nature. The Balboa Village core is surrounded by residences, with isolated pockets of commercial uses scattered along Balboa Boulevard. Balboa Village and the greater Peninsula have experienced a transition to year-round residential occupancy while the visitor uses have continued. The General Plan calls for a portion of the Village Core area to be designated as MU-V2 which provides for the development of mixed -use structures that vertically integrate retail commercial, and office or related functions on the ground floor and, the upper floors used for residential units. Non-residential uses are also permitted including office and commercial activities. The floor area ratio for mixed use buildings is 1.5; with a minimum floor area ratio of 0.35 and maximum of 1.0 for residential uses. Local Coastal Program: The subject property is designated MU-V - Mixed Use Vertical 2 in the Local Coastal Program. Hazards: A review was made of Natural Hazard Disclosure Statement dated October 5, 2009, and prepared by NHD Report L.L.C., and identified as1005200908289, indicates the status of the subject property within the following Natural Hazards Areas: 12 Special flood zone area: No It is noted in the General Plan that the subject property is within an area designated Zone VE which is a Coastal Flood Zone with Velocity Hazard (wave action) and is within a 100-year Tsunami Inundation at extreme high tide zone. Area of potential flooding due to dam failure: No Very high fire hazard severity zone: No Wild land area that may contain substantial forest fire risk and hazard: No Earthquake fault zone: No Seismic hazard zone due to liquefaction: Yes Utilities: Water, gas, sewer and electricity are available and connected to the subject sites. Assessed Valuation: The 2008-2009 estimated real property assessment is set out as follows: Assessor's Parcel Nos: 048-116-04 048-116-05 Assessed Valuation: Land Value: $2,881,908 $931,158 Improvement Value: 135,252 $5,202 Assessed Value: $3,017,160 $936,360 Homeowner Exemption: $ (00) 00 Net Taxable Value: $3,017,160 $936,360 Estimated Total Tax Amount: $ 32,853 $9,711 (Includes debt service, emergency service, and assessment district, if any) 13 11 11 Present Use: Improvements: Structure: The subject property is improved with the former Balboa Market. This one-story structure was built in 1938 and contains t5,353 square feet. The floor is concrete slab, the walls are masonry and there is a built-up roof. Interior floors are concrete. Ceiling is plaster. Lighting is incandescent and fluorescent. There are three existing skylights and three exterior doors, with storefront glass facing Balboa Boulevard. There are no interior demising walls. There are two restrooms, each containing a water closet and wall hung lavatory. Yard Improvements: The side yard parking lot is covered with asphalt paving and includes 15 parking spaces and one (1) handicapped parking space. The rear parking lot is covered with concrete paving and includes ±18 tandem parking spaces. Both parking lots are surrounded with two to three foot high steel poles connected by chains. There is a t6 ft. by ±50.5 ft. storage area at the rear of the building. This area has a t6 ft. high surrounding wood fence with a t6 ft. .by ±24.5 ft. asphalt roof cover. Occupancy: The improvements are vacant and unoccupied. The rear parking lot is reportedly rented on a month/month basis. Structure Condition and Utilitv: The structure is ±70 years of age and is in average condition for a building of this age. The restrooms are in poor condition. Plans were prepared in 1995 to seismically retrofit the building. Interviews with the City of Newport Beach indicate that this was been completed. L 14 HIGHEST AND BEST USE SUMMARY Definition: 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 profitability. Introduction: The highest and best use analysis is typically separated into two analyses:1) the highest and best use of the subject site as though vacant, and 2) the highest and best use of the subject site as currently improved. In each of these two analyses of highest and best use, the four factors stated in the above definition are considered to estimate the use that would result in the highest value for the subject site. Analysis: In estimating the highest and best use of the subject property, an analysis was made as to the uses which are physically possible, legally permissible, financially feasible, and maximally productive. Physically Possible: This criterion pertains to characteristics impacting the development potential of the site, such as size, shape, topography, availability of utilities, view and soils conditions. The lack or impairment of any of these factors may make certain types of development impossible or impractical. The subject property is improved with a t5,353 square foot, one-story retail store utilized as a local market which was built in 1938 and constructed on a ±14,115 square foot lot. Paved public access and public utilities are available. It is concluded that Retail Service Commercial and Mixed Use Vertical uses are physically possible. Legally Permissible: The second issue concerns legal permissibility, which is a function of land use. The subject property is 1) zoned SP-8 — Specific Plan Area — Central Balboa and is classified as RSC — Retail Service Commercial, 2) designated MU-V — Mixed Use Vertical in the General Plan and Local Coastal Program. These land use designations permit residential uses 15 above the first floor Retail Service Commercial use. Therefore, it is concluded that Retail Service Commercial uses, consistent with the Mixed Use Vertical guidelines are legally permissible. Financially Feasible: The third criterion of highest and best use assesses whether a use is financially feasible. One method of inferring financial feasibility is to seek evidence of sales of similar properties within the market. A review of public records indicate that properties have sold within the surrounding area, which indicate that the Retail Service Commercial and Mixed Use Vertical uses are financially feasible. Maximally Productive: The final test of highest and best use is that the use be maximally productive. In the case of highest and best use of the land, as if vacant, this is the use that yields the highest land value. Based on the above analyses of the legally permissible, physically possible, and financially feasible uses of the subject site, it is concluded that the highest and best use of the subject site, as of the date of value, is as follows: Highest and Best Use as Vacant: The subject site could be 1) developed as a parking lot to accommodate the limited parking available in the area, or 2) developed to Retail Service Commercial and Mixed Use Vertical uses consistent with the City of'Newport Beach SP-8 Retail and Service Commercial zoning requirements, and the City of Newport Beach and California Coastal Program MU-V — Mixed Use Vertical General Plan requirements. Highest and Best Use as Improved: The subject improvements are in excess of 70 years in age. This structure, if properly refurbished and, if necessary, retrofitted to meet all current safety standards, could be utilized for an interim period of time and then demolished and developed in accordance with its highest and best use as vacant. 1 16 VALUATION SUMMARY The Valuation Approaches: The three traditional approaches to value are the Replacement Cost Approach, the Income Capitalization Approach, and the Sales Comparison Approach. Each approach represents a technique by which market data may be processed into an indication of value. When the purpose of the appraisal is to estimate market value, all three approaches to value are, in essence, sales comparison approaches because the data inputs are market derived. Each approach is discussed briefly as follows: Replacement Cost Approach: Introduction: This approach in appraisal analysis is based on the proposition that an informed purchaser will pay no more than the cost of producing a substitute property with the same utility as the subject property. The Replacement Cost Approach is particularly appropriate when the property being appraised includes relatively new improvements which represent the highest and best use of the land, or when relatively unique or specialized improvements are located on the site, and when sales of similar properties cannot be identified. Methodology: The Replacement Cost Approach requires the appraiser to estimate the cost to replace a similar improvement on the date of value. The land value is based upon its highest and best use. Sales of properties with comparable utility are compared to the subject property; hence the value of the subject site is estimated from the market. To estimate the replacement cost of the improvements, a downward adjustment in the new cost of the improvements is made in recognition of physical, functional and/or external obsolescence which results from lessened market acceptance. The present value of the improvements is their contributor value to the site. The depreciated cost new of the improvements, plus the indicated land value, provides the value estimate by use of the Replacement Cost Approach. F 17 Conclusion: The Replacement Cost Approach has not been utilized in this appraisal, as the existing improvements are in excess of 70 years in age and estimates of depreciation value are difficult to support. Income Capitalization Approach: Introduction: This technique in appraisal converts anticipated benefits (dollar income or amenities) to be derived from the ownership of property into a value estimate. The Income Capitalization Approach is widely applied in appraising income -producing properties. Anticipated future income and/or reversions are discounted to a present worth estimate through the capitalization process, or indications of value are derived by direct capitalization. Methodolouy: The Income Approach is a capitalization of actual or potential net income from rental of the property into an indication of value. It is appropriate to use this approach when the characteristics of the subject property cause it to appeal to the investment segment of the market. The Income Approach has three basic parts. The estimation of the income which the property is producing or is capable of producing. 2. Estimation of the expenses necessary to maintain this flow of income. 3. Estimation of a proper return, considering both the characteristics of the property and the requirements of investors in light of competition provided by other forms of investment. Conclusion: The Income Approach has not been utilized in this appraisal to provide an indication of value for the subject property for the following reasons: The subject property is located in a limited Retail and Service Commercial area on the Balboa Peninsula, between 18 the bay and ocean. This location has limited quality and quantity of market data. The neighborhood improvements vary widely in age, size, construction quality and floor area ratio and comparability is difficult to measure. Due to the close proximity to the bay and ocean, the distribution of land and building value is primarily attributable to the land. Sales Comparison Approach: Introduction: The Sales Comparison Approach is an appraisal procedure in which the market value estimate is predicated upon prices paid in actual market transactions. The Sales Comparison Approach involves a process of analyzing sales of similar properties with recent sale dates to derive an indication of the most probable sales price of the property being appraised. The reliability of this approach is dependent upon the following: 1) the availability of sales data, 2) the verification of the sales data, 3) the degree of comparability or the extent of adjustment necessary for any differences between the sale property and the subject property, and 4) the absence of non -typical conditions affecting the sales price. Methodology: This approach involves locating, investigating and comparing sales of properties which are competitive with the subject property. The sales provide an indicated value range for the property being appraised. The Sales Comparison Approach has two parts: An investigation of sales of properties which would be helpful in the estimation of the site value; and if the subject property is improved, an investigation of similarly improved sales parcels. 2. An analysis of the market data is then made to assist in arriving at the value indicated for the subject property. 19 c Conclusion: ' Based on the highest and best use of the subject property, as of the date of value, the Sales Comparison Approach has been utilized in this appraisal. Scope of Market Data Search: ' A search was made for sales of properties designated SP-8 within the Central Balboa Specific Plan Area. Particular emphasis was ' placed on locating sales that have sold subsequent to March 2006. Market Data: 1 As a result of this investigation, several items of market data were considered, each with a varying degree of comparability to the ' subject property. Of these, nine sales are reported herein. Your attention is invited to the Market Data sheets and Market Data Map which set out the location and details of each item of Market Data. ' Comparison to the Subject Property: ' In analyzing each item of market data, a comparison was made between the market data and the subject property. Consideration ' was given to the property rights conveyed, financing, conditions of sale, date of sale, and the physical characteristics of each item of market data. ' Physical characteristics primarily include lot size, site improvements., view, location, access, utilities, and land use. After ' consideration of these and other factors, an indicated value for the subject property was derived. ' Value Correlation: In correlating the market data to the subject property, adjustments ' were considered for the following significant factors: ' Property Rights Conveyed: All sale transactions were fee simple estate. No ' adjustments were made. ' 20 I MARKET DATA MAP I Financing: Implicit in the definition of market value is that payment is made in terms of cash or in terms of financial arrangements comparable thereto. All sales were made with a cash down payment of 40% or more. No adjustments were made for this factor. Conditions of Sale: All items of market data were considered open market transactions, excepting Market Data 4 which was sold by the FDIC. Market Conditions: The date of value was August 31, 2009. The market data sold between March 2006 and May 2009. Adjustments were made for this factor. Lot Size: The subject site has a lot size of f14,115 square feet. The market data varied in size from 2,565 square feet to 11,115 square feet. Consideration was given to parcel size and adjustments were made for this factor. Land Use: Market data 1, 2, 3, 5, 6, 7 and 8 were similar in land use and no adjustments were made for this factor. Market Data 4 and 9 had close proximity to the subject property and were within Specific Plan District No. 8, but were designate Two- family Residential and were given secondary consideration. Structural Improvements: The subject property is improved with a one-story, t70-year old retail commercial building formerly used as a local market. These improvements contain 5,353 square feet and are a building shell with only exterior walls, concrete floor and ceiling. Excepting the two restrooms, there are no demising walls. Adjustments were made for differences in improvement condition and size. 21 Location: The subject property and the market data are all located in the Central Balboa Specific Plan Area. Some market data items had partial ocean views. Consideration was given to location and adjustments were made for this factor. Utilities and Access: The subject property and all items of market data had similar utility and access availability. No adjustment was made for these factors. Analvsisc Market Data Summary: All items of market data were considered similar in property rights conveyed, financing, conditions of sale, land use, utilities, access availability and topography. No adjustments were made for these factors. Market Data 1 consists of the market portion of the subject property (Lots 8, 9, 10 and 11) and sold in April, 2006 for $2,900,000 or $261/sq.ft. of land area. The improvements consisted of the market building, which was built in t1938 and contained 5,353 square feet and the lot contained 11,115 square feet. This property is located on East Balboa Boulevard in the Central Balboa Specific Plan Area and is designated Retail Service Commercial and Mixed Use Vertical -2. Market Data 2 consists of the northerly parking lot portion of the subject property (Lot 7) and sold in May, 2006 for $900,000 or $300/sq.ft. of land area. The improvements consisted of a paved parking lot. This site contained 3,000 square feet. This property is located on East Bay Avenue in the Central Balboa Specific Plan Area and is designated Retail Service Commercial and Mixed Use Vertical -2. Market Data 3 sold in February, 2007 for $825,000 or $275/sq.ft. of land area. The improvements consisted of a small retail store and parking garages. The site contained 3,000 square feet. This property is located on Palm Street in 22 the Central Balboa Specific Plan Area and is designated Retail Service Commercial and Mixed Use Vertical -2. Market Data 4 sold in May, 2009 for $775,000 or $258/sq.ft. of land area. The improvements consisted of an older duplex which was partially refurbished. This property was sold by the FDIC. The site contained 3,000 square feet. This property is located on Adams Street, in the Central Balboa Specific Plan Area and is designated Two-family Residential. Market Data 5 sold in June, 2006 for $1,475,000 or $575/sq.ft. of land area. The improvements consisted of a retail and two-story residential building which contained t3,510 square feet and the site contained 2,565 square feet. This property reportedly had a partial ocean view. This property is located on East Balboa Boulevard in the Central Balboa Specific Plan Area and is designated Retail Service Commercial and Mixed Use Vertical -2. Market Data 6 sold in July, 2006 for $1,000,000 or $390/sq.ft. of land area. The improvements consisted of an older two-story residence of nominal value which was built in 1919 and contained 955 square feet and the site is 2,565 square feet. This property is located on East Balboa Boulevard in the Central Balboa Specific Plan Area and is designated Retail Service Commercial and Mixed Use Vertical -2. Market Data 7 sold in July, 2006 for $900,000 or $351/sq.ft. of land area. The improvements consisted of an older one- story residence of nominal value which was built in 1919 and contained ±488 square feet and the site is 2,565 square feet. This property is located on East Balboa Boulevard in the Central Balboa Specific Plan Area and is designated Retail Service Commercial and Mixed Use Vertical -2. Market Data 8 sold in December, 2007 for $1,050,000 or $250/sq.ft. of land area. The improvements consisted of a laundromat. The site contained 4,200 square feet. This property is located on West Balboa Boulevard west of the Central Balboa Specific Plan Area and is designated Retail Service Commercial. 1 23 Market Data 9 sold in March, 2006 for $1,500,000 or $333/sq.ft. of land area. The improvements consisted of an older structure which was subsequently demolished. The site contained 4,500 square feet. This property is located on East Bay Avenue, in the Central Balboa Specific Plan Area and is designated Two-family Residential. Market Data Correlation: Market Data 1 ($261/sq.ft. land) is the sale of the front portion of the subject property, identified as 608 East Balboa Boulevard (Lots 8, 9, 10 and 11). This parcel sold in April 2, 2006 for $2,900,000. Terms were cash. The building was leased as a market at the time of sale and is now vacant. An adjustment was made for the increasing market conditions in 2006 and the decreasing market conditions in 2007 and 2008. As this is the sale of a portion of the subject property, it is considered very comparable, with consideration given to an overall descending real estate market. Market Data 2 ($300/sq.ft. land) is the rear portion of the subject property, identified as 209 Washington Street (Lot 7). This parcel was acquired by the buyer of Market Data 1 in May, 2006 for $900,000. Terms were cash. This site is utilized as a parking lot. An adjustment was made for the increasing market conditions in 2006 and the decreasing market conditions in 2007 and 2008. As this is the sale of a portion of the subject property, it is considered very comparable, with consideration given to an overall descending real estate market. Market Data 3 ($275/sq.ft. land) is located on Palm Street, just west of the subject property. This site has frontage on a dedicated, paved alley and Palm Street, which is the main route to the Balboa Island Ferry. This property is improved with a small retail store and several garages and sold for $825,000 in February, 2007. This site was smaller in size and lacked frontage on East Balboa Boulevard. Adjustments were made for descending market conditions, parcel size and location. Overall, this item of market data was considered slightly superior on a price/sq.ft. of land basis. 24 I Market Data 4 ($258/sq.ft. land) is the sale of a partially refurbished duplex on Adams Street, one block west of the subject property and two lots north of Balboa Boulevard. This sale property was sold by the FDIC as the receiver for Indymac Federal Bank for $775,OOO.in May, 2009. Thiswas listed by a real estate agent and was on the market three days prior to the sale. This property is designated Two- family Residential and is considered of secondary importance. Adjustments were made for conditions of sale, parcel size, land use and location. Overall, this item of market data was considered inferior on a price/sq.ft. of land basis. Market Data 5 ($575/sq.ft. of land) is the sale of a retail store and residential unit with ocean views on the ocean side of East Balboa Boulevard. This corner property sold for $1,475,000 in June, 2006. This property was on the market 68 days prior to the sale. Adjustments were made for market conditions, parcel size and location. Overall, this item of market data was considered superior on a price/sq.ft. land basis. Market Data 6 ($390/sq.ft. of land) and Market Data 7 ($351/sq.ft. of land) were sold in July, 2006, from the same seller to the same buyer in separate transactions for $1,000,000 and $900,000 respectively. These properties were on the ocean side of East Balboa Boulevard and were improved with older residences of nominal value. Adjustments were made for market conditions, parcel size, site improvements and location. Overall, these items of market data were considered superior on a price/sq.ft. of land basis. Market Data 8 ($250/sq.ft. of land) is the sale of a laundomat and small upstairs apartment located on two large lots with frontage on East Balboa Boulevard. This parcel sold in December, 2007 for $1,050,000 and was on the market 144 days prior to the sale. Adjustments were made for market conditions, parcel size, and location. Overall, this item of market data was considered superior on a price/sq.ft. land basis. Market Data 9 ($333/sq.ft. of land) was the sale of two lots on East Bay Avenue. The sellers had City approval for four condominium units, but were denied California Coastal 25 Commission approval. Residential improvements were of nominal value and subsequently demolished. This property sold for $1,500,000 in March 2006. This property is designated Two-family Residential and is considered of secondary importance. Adjustments were made for market conditions, lot size, site improvements and location. Overall, this item of market data was considered superior, on a price/sq.ft. land basis. After adjustments for differences, the market data indicated a probable market value range of $3,500,000 to $3,700,000. Based on the above factors, it is my opinion that the market value of the fee simple estate of the subject property, as of the date of value, was $3,600,000. Value Summary: In an estimation of market value for real estate, consideration is given to the three generally accepted approaches. Depending upon the type of property being appraised, the approaches to value have varying degrees of applicability. Consideration was only given to the Sales Comparison Approach, as it was considered the most meaningful indicator of value by buyers of this property type. The Replacement Cost Approach was not utilized due to the age of the improvements. The Income Capitalization Approach was not utilized because of 1) the limited quality and quantity of comparable market data, 2) the wide variance in improvement utility, and 3) close proximity to the bay and ocean, property value is primarily attributable to the land. The indications of value are summarized as follows: Replacement Cost Approach: Value of the Subject Property by use of the Replacement Cost Approach N/A Income Capitalization Approach: Value of the Subject Property by use of the Income Capitalization Approach N/A Sales Comparison Approach: Value of the Subject Property by use of the Sales Comparison Approach $3,600,000 26 Value Conclusion: Based upon the above and other factors, it is concluded that the indicated market value of the fee simple estate, in the subject property is $3,600,000. Market Value: Three illiHundred Thousand Dollars RAF:pdg 0910 General F 3nse Num submitted, ler, MAI Estate Appraiser AGO03210 27 i 1 1 1 1 1 1 1 1 1 Market Data 1 1 1 1 1 1 jl 1 '1 MARKET DATA NO. 1 PROPERTY DESCRIPTION Location: 608 East Balboa Boulevard Newport Beach A.P. No: 048-116-04 Legal: Lots 8, 9, 10 and 11, Block 7, Balboa Tract Land Area: 11,115 sq.ft. Land Use: SP-8 — Specific Plan Area — Central Balboa — Retail and Service Commercial Topography: Level Improvements: ±5,353 sq.ft. former market Streets: Paved Utilities: Available Remarks: The improved southerly portion of the subject property. Corner property adjoining paved alley. Currently listed for sale for $4,200,000. TRANSACTION Seller: Rockloff Family Trust Buyer: Levon and Zarouhi Gugasian Sale Price: $2,900,000 or $261/sq.ft. of land area Terns: Cash Recording: Deed Date: February 28, 2006 Recording Date: April 12, 2006 Document No: 242569 Verified: Yes MARKET DATA NO. 1 " mw qmw war +w 1 Photo taken October 7, 2009 MARKET DATA NO.2 PROPERTY DESCRIPTION Location: 209 Washington Street Newport Beach A.P. No: 048-116-05 Legal: Lot 7, Block 7, Balboa Tract Land Area: 3,000 sq.ft. Land Use: SP-8 — Specific Plan Area — Central Balboa — Retail and Service Commercial Topography: Level Improvements: Paved Parking Lot Streets: Paved Utilities: Available Remarks: The vacant northerly portion of the subject property. Corner property adjoining paved alley. TRANSACTION Seller: DePauw Family Trust Buyer: Levon and Zarouhi Gugasian Sale Price: $900,000 or $300/sq.ft. of land area Terms: Cash Recording: Deed Date: April 21, 2006 Recording Date: May 11, 2006 Document No: 315831 Verified: Yes MARKET DATA NO. 2 .I I � 1 jg- - 1 Photo taken October 7. 2009 MARKET DATA NO. 3 PROPERTY DESCRIPTION Location: 207 Palm Street Newport Beach A.P. No: 048-115-12 Legal: Lot 13, Block 5, Balboa Tract Land Area: 3,000 sq.ft. Land Use: SP-8 — Specific Plan Area — Central Balboa — Retail and Service Commercial Topography: Level Improvements: Retail and Parking Garages Streets: Paved Utilities: Available Remarks: Access to adjacent paved alley. One-story retail on Palm Street with eight (8) adjoining parking garages. TRANSACTION Seller: Miner Properties Buyer: Haleiwa Holdings Corporation Sale Price: $825,000 or $275/sq.ft. of land area Terms: Cash Recording: Deed Date: February 15, 2007 Recording Date: February 21, 2007 Document No: 110848 Verified: Yes I t F1 I 1 1 1 1 MARKET DATA NO. 3 Photo taken October 7, 2009 MARKET DATA NO.4 PROPERTY DESCRIPTION Location: 206 Adams Street Newport Beach A.P. No: 048-115-14 Legal: Lot 9, Block 5, Balboa Tract Land Area: 3,000 sq.ft. Land Use: SP-8 — Specific Plan Area — Central Balboa — Two -Family Residential Topography: Level Improvements: Older duplex demolished partially refurbished when purchased Streets: Paved Utilities: Available Remarks: One-way street. Alley at rear of site, three (3) lots from Balboa Boulevard. Sold by FDIC as receiver for Indy Bank. Reportedly sold for $1,450,000 on October 26, 2005. Seller: Buyer: Sale Price: Terms: Recording: Verified: TRANSACTION FDIC, as receiver for Indymac Federal Bank Peter Genovese $775,000 or $258/sq.ft. of land area Cash Deed Date: May 14, 2009 Recording Date: May 29, 2009 Document No: 275989 Yes I 1 1 1 1 1 1 1 1 1 MARKET DATA NO. 4 Photo taken October 7, 2009 1 MARKET DATA NO.5 PROPERTY DESCRIPTION Location: 601 East Balboa Boulevard Newport Beach A.P. No: 048-123-01 Legal: Lot 1, Block 8, Balboa Tract Land Area: 2,565 sq.ft. Land Use: SP-8 — Specific Plan Area — Central Balboa — Retail and Service Commercial Topography: Level Improvements: 3,510 sq.ft. retail and second story residential Streets: Paved Utilities: Available Remarks: Corner site. Alley to the rear. One block to the ocean, with ocean view from second story. TRANSACTION Seller: Michael Martin Buyer: Newport Balboa, LLC Sale Price: $1,475,000 or $575/sq.ft. of land area Terms: $600,000 cash down payment Recording: Deed Date: June 20, 2006 Recording Date: June 27, 2006 Document No: 426587 Verified: Public records W. MARKET DATA NO. 5 Photo taken October 7, 2009 MARKET DATA NO.6 PROPERTY DESCRIPTION Location: 505 East Balboa Boulevard Newport Beach A.P. No: 048-122-03 Legal: Lot 3, Block 6, Balboa Tract Land Area: 2,565 sq.ft. Land Use: SP-8 — Specific Plan Area — Central Balboa — Retail and Service Commercial Topography: Level Improvements: 955 sq.ft. residence built in 1919 Streets: Paved Utilities: Available Remarks: Older two-story residence of nominal value. Ocean side of Balboa Boulevard. Listed for $1,195,000 on May 7, 2007. On the market for 179 days. Taken off market on November 2, 2007. TRANSACTION Seller: DePauw Family Trust Buyer: George A. Kliorikaitis Sale Price: $1,000,000 or $390/sq.ft. of land area Terms: $570,000 cash down payment Recording: Deed Date: April 5, 2006 Recording Date: July 27, 2006 Document No: 499469 Verified: Public records I 1 1 t t I MARKET DATA NO. 6 Photo taken October 7, 2009 1 MARKET DATA NO.7 PROPERTY DESCRIPTION Location: 503 East Balboa Boulevard Newport Beach A.P. No: 048-122-02 Legal: Lot 2, Block 6, Balboa Tract Land Area: 2,565 sq.ft. Land Use: SP-8 — Specific Plan Area — Central Balboa — Retail and Service Commercial Topography: Level Improvements: 488 sq.ft. residence built in 1919 Streets: Paved Utilities: Available Remarks: Older one-story residence of nominal value. Ocean side of Balboa Boulevard. Improvements had not been occupied for several years. TRANSACTION Seller: Beverly A. DePauw Buyer: George A. Morikaitis Sale Price: $900,00 or $351/sq.ft. of land area Terms: Cash Recording: Deed Date: July 11, 2006 Recording Date: July 27, 2006 Document No: 499472 Verified: Yes MARKET DATA NO. 7 Photo taken October 7, 2009 Location: A.P. No: Legal: Land Area: Land Use: Topography: Improvements: Streets: Utilities: Remarks: Seller: Buyer: Sale Price: Terns: Recording: Verified: MARKET DATA NO.8 PROPERTY DESCRIPTION 504 West Balboa Boulevard Newport Beach 048-071-17 and 18 Lots 20 and 21, Block 3, East Newport t4,200 sq.ft. Retail Service Commercial Level Laundromat Paved Available Former laundromat, with second story residence at rear of property. Alley access. Five (5) surface parking spaces. Two legal lots. TRANSACTION Durkee Family Trust Terry R. McCaleb $1,050,000 or $250/sq.ft. Cash Deed Date: November 27, 2007 Recording Date: December 6, 2007 Document No: 718748 Yes MARKET DATA NO. 8 Photo taken October 7, 2009 MARKET DATA NO.9 PROPERTY DESCRIPTION Location: 505 — 507 East Bay Avenue Newport Beach A.P. No: 048-115-15 and 16 Legal: Lots 3 and 4, Block 5, Balboa Tract Land Area: 4,500 sq.ft. SP 8 — Specific Plan Area — Central Balboa Land Use: Two -Family Residential Topography: Level Improvements: Older apartments, subsequently demolished Streets: Paved Utilities: Available Remarks: Buyer had plans for four (4) condominium units approved by City of Newport Beach, but denied by California Coastal Commission. Originally listed on September 12, 2005 for $1,695,000. Two legal lots. Seller: Buyer: Sale Price: Recording: Verified TRANSACTION Newport Bay 505 and 507, LLC 505 — 507 Bay, LLC $1,500,000 or $333/sq.ft. land area Deed Date: February 28, 2006 Recording Date: March 1, 2006 Document No: 137993 Yes 11 t 11 1 1 1 MARKET DATA NO. 9 Photo taken October 7, 2009 1 1 1 1 1 . 1 1 1 1 1 Photographs 1 Subject Property 1 1 1 1 1 1 1 1 1 kN 1 1 View northeasterly showing the subject property. East Balboa Boulevard is in the foreground. Photo taken September 28, 2009. View northwesterly showing the subject property. East Balboa Boulevard is in the foreground. Photo taken September 28, 2009. I 1 1 1 1 1 1 1 1 1 1 View easterly showing the subject property to the left and East Balboa Boulevard to the right. Photo taken September 28, 2009. View westerly showing the subject property to the right and East Balboa Boulevard to the left. Photo taken September 28, 2009. View northeasterly showing the subject property to the left and Washington Street to the right. East Balboa Boulevard is in the foreground. Photo taken September 28, 2009. View southwesterly showing the subject property to the left and the adjoining alley to the center right. East Bay Avenue is in the foreground. Photo taken September 28, 2009. View westerly showing the subject property. Washington Street is to the left. East Bay Avenue is to the right. Photo taken September 28, 2009. View southeasterly showing the rear parking lot. The subject improvements are to the right. East Bay Avenue is to the left. Photo taken September 28, 2009. I 1 1 1 1 1 View easterly showing the interior store front of the subject property. Photo taken September28, 2009. View northerly showing the interior of the subject property. The restrooms are in the background to the left. Photo taken September 28. 2009. I I, the undersigned, do hereby certify that to the best of my knowledge and belief except as ' otherwise noted in this report: 1 1 1 n i 1 k 1 1) That the statements of fact contained in this report are true and correct. 2) That the reported analyzes, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are my personal, impartial and unbiased professional analyzes, opinions, and conclusions. 3) That I have no present or prospective interest in the property that is the subject of this report, and I have no personal interest or bias with respect to the parties involved. 4) That I have no bias with respect to the property that is the subject of this report or the parties involved with the assignment. 5) That my engagement in this assignment was not contingent upon developing or reporting predetermined results. 6) That my compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors that 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) That, to the best of my knowledge and belief, the reported analyzes, opinions and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Uniform Standards of Professional Appraisal Practice (USPAP). 8) That I have made an inspection of the property that was the subject of this report on September 28, 2009. 9) That no one provided significant professional assistance to the person signing this report. 10) That, the use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 11) That s of the date o is report, I have completed the requirements of the co inuing education pro ram of the Appraisal Institute. AifiedGenera lly submitted, . Fuller, MAI Real Estate Appraiser License Number AGO0321 0 (June, 1999) CURRICULUM VITAE RICHARD A. FULLER, MAI a Consultation a Valuation RICHARD A. FULLER CONSULTING 4910 Campus Drive Newport Beach, CA 92660-2119 Telephone (949) 644-4040 Facsimile (949) 660-7076 E-mail: rfuller@fullcon.com EDUCATION: University of Southern California, B.S. University of Southern California, M.B.A. PROFESSIONAL: Member, Appraisal Institute Current Member, California Association of Realtors Current Member, National Association of Realtors Current Member, International Right of Way Association Current Member, Counselors of Real Estate Past EXPERT WITNESS: Superior Court of California, Circuit Court of Oregon, United States District Court, Arbitration Hearings, Assessment Appeals Boards LICENSES: State of California Real Estate Broker (License No. 00318180) State of California General Building Contractor (License No. 264327) State of California Certified General Real Estate Appraiser (License No. AG003210) EXPERIENCE: Real Estate Appraiser: American Savings and Loan Association Real Estate Appraiser: George Hamilton Jones, MAI Independent Real Estate Appraiser and Advisor CIVIC: Planning Commissioner, City of Newport Beach; Board of Directors, Boys Republic; Board of Directors, Southern California Chapter Appraisal Institute FACULTY: Instructor: Mira Costa College, Orange Coast College, Lane Community College Lecturer: University of California at Riverside; Senior Lecturer: University of Southern California Approved Faculty Member., Appraisal Institute; Lifetime California Community College, Real Estate Credential; Courses taught included Advanced Appraisal, Real Estate Valuation, Real Estate Development, Capitalization Theory & Techniques, Basic Valuation Procedures, and Real Estate Investments. SEMINARS: Chairman: Various litigation seminars, Appraisal Institute; Guest Speaker: Subdivision Analysis; Discounted Cash Flow Analysis in the Home and Building Industry; Assessing the Impact of Contamination; Appraising Land in Southern California; Real Estate Capital Markets. PUBLICATIONS: "Appraisal of a Proposed Residential Subdivision Development," Encyclopedia of Real Estate Appraising Third Edition, Published in 1978, Prentice Hall, Inc. PARTIAL LIST OF CLIENTS: Legal and Accounting Firms: Anderson, McPhadin & Conners Berger & Walen Belcher, Hemle & Blggervahn Best, Beet and Krieger Bohm, Matter, Kagel &Aguilere Brown, Plate", Hurley & Van %near Burke, Williams, & Sorensen Buller, Husk Cleaves & Swedngen California Emminent Domain Lew Group Cell, Clayton & Jensen Cedlle & McDonough Cooksey, Howard, Martin & Toolen Seymour & Rowher 4elson & McCleary King & Hamison Ellman, Burke, Hoffman & Johnson Endemen, Lincoln, Turek & Heater Ernst & Whiney Fadem & Douglas Flllce Brown Eeasa & McLeod Flint & McKay Gibson, Dunn & Crutcher Hahn & Hahn Hanson, Bridged, Marcus, viatica, Rudy Haynie & Company Hewilt & McGuire Higgs, Fletcher & Mack Hill, Femer & Bunill Jennings, Enstrand & Henriksen Johnson, Bannon, WohWant & Johnson Krusemerk & Bedevil Lanak & Henna Laymen, Jones & Dye Latham & Watkins Lemieux & O'Neill Lewis, Bdsbols, BisBeard & Smith Manouklan, Scerppllo&Ailing, Ltd. Martin, Bischoff, Templeton, Biggs & Edesson Mccolgan & Vann) McConnlrk, Willman & Behrens McCutchen, Doyle, Brown, and Emerson McKanck. Jackson, Demarco & Pecumpaugh Miniher, Kemult, Stakes & Co. Nossamon LLP Nugent & Newnhem O'Melveny & Myers Palmieri, Tyler, Wiener, W,Ihalm,&Waldron Paone, Callahan, McHolm & Winton Penney & Penney Pohlson, Moorehead & Gomhals Poindexter & Doube Price Waterhouse & Co. Roberts, Cermeck & Johnson Roble & Matthai Robins, Kaplan, Miller & Chad Rogers & Wells Rulen & Tucker Tully S. Seymour Saxon, AIS Dean, Mason, Brewer, & Kincannon SUtmleaing, Blled&Mackay Sedgewick, Deter, Moran & Arnold Sheppard, Mullin, Richter & Hampton Simon & Sheridan Smith, Sllbar, Parker& Wof nden Songslad, Randall, Ulich Ulloh&Terry Wenke, Surge &Taylor Whisnant & Phillips Wright, Finley & Behrens ndina Institutions: BankofAmerica Financial Federation Mitsui Manufacturers Bank Seoudty Pacific National Bank Bank of Calffornla First Credit Bank Mitsui Telye Kobe Bank Starting Savings & Loan Coning Savings &Loan First interstate Bank Newport Balboa Savings Surely Savings& Lam Association Charter Savings & Loan Foothill Capital San Diego Trust & Savings Toney Pines Bank Coast Savings &Loan Great Westem Bank Santa Ana First Federal Savings and Union Bank Construction Lending Corporalln Guild Mortgage Company Lon Association Wells Fargo Bank Continental Bank Home Capital Corporation Santa Barbara Bank and Trust Continental Mortgage Insurance Homo Savings of America Santa Monica Bank Crocker National Bank Impedel Savings & Loan Association Sanwa Bank Femurs Savings & Loan Association Invasions Mortgage Insurance Sears Savings Bank Insurance Companies: American Insurance Company Firemen's Fund Lexington Insurance Company Transamerica Title Insurance Company American Inlematlonal Group First American Title Company Pacific Mutual Life Insurance Travelers Insurance Company Arts Insurance Company General American Insurance Company Prudential Property Insurance Tudor Insurance Company Chicago Title Company Ceding America Insurance Company Royal Insurance Company Unlguard Insurance Company C"Company Hartford Accident& Indeinnlly Company Sefeco Title Insurance Company Western World Insurance Company Dairyland Insurance Company Investors Insurance Company Stale Fan Fire & Casually Company Famhxs Insurance Company Lawyers Title Company TiVe Insurance & Trust Company Corporations: AMFAC Garden Products Cities Service Company Mitsubishi Cement Corporation Salomon Brothers Atlantic Richfield Corporation DIGlorglo Corporation McCullough Oil Corporation Shell Oil Company Bacon Oil Company Dow Chemical McKesson Corporation Southland Corporation Bast Westem Hotels Emerson International Mead Instruments Standard 011 Company of California Beckman Instruments Gulf and Western Corporation Mobil Oil Corporation Stone &Youngberg Catalina Swimmer Hercules, Inc Northam Trust Company Trust Company of the West Calms" Corporation Hughes Aircraft Corporation Retirement Center of America US. Ameda Chevron U.S A, Inc. Interstate Brands Corporation Retlaw Enterprises, Inc Western Electric Corporation Chrysler Find Business Credit Corporation Liggett and Myers Corporation Roadway Express Inc Non•oroflt Organizations: Bassoon Bay CommunityAeaodelion Forest Lawn Companies Planed Parenthood Spyglass Community Association Boys Republic Foundation to Assist California Teachers Queens Surf Homeowners Association Church of Jesus Christ of Lager Day Capdatrano Shores Homeowners Getty Museum Seascape Village Community Association Saints Association Laguna Heights Community Association Sherman Foundation Father Flsnagan's Boys Home Mesa Verde Country Club Soulhooesl Children Society Hospitals: CHOC Hospital Hoag Memorial Hospital McKensle-Wllamette Hospital South Coast Medical Center Greater El Monte Community Hospital Keiser Permanents, Sacred Heart General Hospital Td-City Hospital vernmental Agencies: California Department of Conservation City of Indian Wells City of Pomona Federal Deposit Insurance Corporation Celtrans City or Laguna Beach City of Poway Federal Savings &Loan Insurance City of Anaheim City of Lafayette City of Provo Corporation City of Cedsbad City of Lake Forest City of Roseburg Internal Revenue Service CByor Chino Hills City of Newport Beach City of Santa Ana Resolution Trust Corporation CHy or Corvalls City of Oceanside County of Orange State of California City of Del Mar City of Ontario County or San Bernardino United States District Court City of Gardena City of Palm Springs Federal Aviation Administration United States Postal Service Real Estate Ennineering Investment and Development: American Diversified Companies Barred Irvine ' Bentall Development Robed Bain, William Frost & Associates Belker•Freddeks Development Company BSI Choy= Land and Development Co. Caldwell Banker Management Corporation Schools: Brigham Young University ' Eugene School District No.4-J Mountain View School District ' ilities: Central Basin Municipal Water DisWct Costa Real Municipal Water District Eugene Water & Electric Board 11 1 Dean Corporation DKS Associates Hermosa Homes Huntington Bean Company The Irvine Company Kemper Reel Estate Management The Lusk Company Manchester Development Oceanside Unified School District Palm Springs Unified School District Pepperdine University Irvine Ranch Water District Metropolitan Water District Monte Mete Water District APPRAISAL FUNCTIONS INCLUDE: Mission Equity Pacific Investment Management Company Paragon Homes Presley of Southern California Rancho Mission Viejo Standard Pacific L P. Signal Landmark, Inc Sumvesl Asset Management Saddleback Community College Scripps College Saturn Beach School District Pacific Northwest Bell Ramona Municipal Water District Southern California Edison Company Techbullt Construction Corporation William Lyon Company Valley county water District West Basin Municipal Water District Acquisitions, Asbestos, Contamination, Bankruptcy, Bond Financing, Condemnation, Construction Delects, Disposition, Donallon, Eminent Domain, Estate TmAppeal, Exchange, Excess Land, Federal Grants, Foreclosure, Ground Rental Revaluation, Hazardous Waste Contamination, Income Tax Appeal, Inverse Condemnation, Litigation, Mortgage Financing, Negotiation, Park In Lieu Fees, Partnership Dissolution, Portfolio Review, Property Tax Appeal, Redevelopment. TYPICAL APPRAISAL ASSIGNMENTS: Airport Extensions, Aeseasmenl Dislrid, City Hell Sites, Coastal Sage Mitigation Credits, Co porate Yaws, DedicatedSlreets, ElecbiwlTrensmlulm Rlghtaf-Ways, EminxvnentalConlamimgon Impact, Flood Control Projects, Improvement Districts, Libraries, Open Spam Properties, Perk Sites, Pipeline Easements, Preservallon Easements, Prisons, Post Office Sites, Proposed Jell Sites, Public Right. of -Way Dedicallons, Railroad Righlof-Ways, Recreation Centers, Reserolr Silos, Sanitary Land Fills, Sanitation Line Rightcf-Ways, Sanitation Easements, School Sites, Sawer Llne Easements, Sewage Treatment Sites, Stan Drain Easements, Street Widenings, Temporary Easements, Transportation Centers, Water Line Right -of -Ways, Watershed Projects. Private: Agricultural Acreage, Apartment Buildings, Automobile Dealerships, Banks, Bowling Allays, Bulk Plants, Cement Plants, Church Sites, Commercial Buildings, Condominium Projects, Equestrian Camara, Historical Buildings, Industrial Buildings, Industrial Subdivisions, Marinas, High Rise Medical Buildings, Mobile Home Parks, Motels, Oman Front Properties; Hlgh Rise Office Buildings, OMm Condominiums, Parking Lots, Private Beaches, Ranches, Residential Subdivisions, River Front Properties, Sand and Gravel Lands, Service Stations, Shopping Centers, Subdivision Acreage, Tennis Clubs, Tidelands, Trucking Facilities, Undeveloped Acreage. PARTIAL LIST OF SPECIAL APPRAISAL ASSIGNMENTS: Atchlnson Topeka and Santa Fe Rlohtof-Wav Permanent and temporary easements for the Metropolitan Water District of Southern Celdomia'e Inland Pipeline Project In San Bernardino, County (Metropolitan Water District) Bel Merin Ken Unit V. 1600 acre proposed master planned community Including wetlands, bay marsh restoration, open water lagoons, and fresh water marsh adjoining San Pablo Say located In Merin Canty (Ellman, Burke, Hagman & Johnson) Clain A"rtmonts: Six 2006500 unit apartment projects to throughout Southern California (The Travelers) Coyote Canyon Landfiil: Conservation easement within the Son Joaquin Hills Transportation Corridor (San Joaquin Hills Transportation Agency/ The Irvine Company) Cavan Hllla Wast: 292.6 ewe residential development located in Fullerton (Chevron Land and Development Company) Daulach Ranch: 250 acre ranch located In Oceanside (Deutsch Company) Esataido Pipeline Protect: ± 5 miles permanent easements, right-of-way and ccnslrectlon easements located in Riverside County(Metropolitan Water District) 4.E Ranch: 634 awe Specific Plan Area located In North San Diego County (Ralph's Family) Gyeaum Canyon: Proposed County Jail Site located on 2,678 acres of undeveloped acreage In Orange County (The Imme Company) Hlahlands Devolopment: Multiple phases within residential Subdivisions located in Anaheim Hills (Security Pacific National Bank) Indian Head Ranch: Portion d a 640 acre desert subdivision located In Boaego Springs (The DIGiorgio Corporation) Ivey Reach: 750 awe planned unit development jowled In Oceanside (The Estate of LO Ivey, and Home Federal Savings & Loan) James Musick Facility: 100 awe prison facility with potential industrial farm use located In El Toro (The Irvine Company) John Wayne Tennis Club: Tennis dub located In Newport Beach (Timr) I.aeuna Nlauel: 4,600 awe planned unit development located in Southern Orange County (Avw Community Developers) Lake Matthews Walenhed Project: 14 awe parcels within the Drainage Water Quality Management Plan located In Lake Mathews (Paragon Homes) Lone Bosch Aimed Business Park: 4 mid to high rise office buildings adjoining Long Beach Airport (Call, Clayton, and Jensen) Mrblshead Coastal: 250 ease of multiple phases within 2 residential subdivisions located in San Clemente (Bank of America) Mllikan Landnll: Contamination Impact assessment (Latham and Watkins / County of Son Bernardino) Mitsubishi Cement Distribution Terminal: Cement distribution terminal located in Port of Long Beach (Mitsubishi Cement Corporation) Monte, b Site Town Center. Regional shopping meter located In Montebello (Chevron USA) Nowberry Ranch: 2,260 ewe remote desert parcel (Father FlanagaNs Boys Home) Newport Canter. Proposed City Hell site (City of Newport Beach) Newport Lido Medical Center. Sand? story medical office buildings located In Newport Beach (Mitsui Manufactures Bank) Norco HIIIsMoudlake Develaoment: 712 awe residential development located in Corona (Greet /Owen) Cranes County Falmrounds: 150 am Fair and Exhibition Center (Nossoman) Rancho Bernardo: 986 awes Within a planned unit development in North San Diego County (McCullough Oil Corporation) Rancho Calffomis Portfollo: Various commercial, industrial, residential. mixed use and master planned communities located in Temecula (Wells Fargo Bank) Rancho San Clemente: 19 undeveloped commercial and industrial parcels located in San Clemente (Emerson International) Reaves Ranch: 490 acre residential located in San Clemente (The Church of Jesus Christ of Letter Day Saints) Rollaw Ranft Six ranches totaling 3,605 acres located In Riverside, Los Angeles, and San Diego counges(Fellow Enterprises, Inc.) San Late Rev River Flood Control Proiecl: 23 parcels Within the San Luis Rey River Floodway and Flgodplein located in Oceanside (City of Oceanside) Shadow Ridao: 189 awe (Phase 1 and 11) residential development located In Vlsla (Dean Corporation) Sddlers Flsid: ± 60 awe Open Spam Conservation Easement (City of Lafayette Beet, Best and Krieger) Suns Worniont Medical Arts Building: 6 story medical building located in Hollywood (William Fadey, Trustee) Suttor Suuara GaRlda: 4 story shopping canterwith freeway sinpace located in Sacramento (Coltrane) Tech Business Center. Proposed 67 lot Industrial subdivision for Mello -Roos financing (City of Poway) INTERESTS APPRAISED: Fee Simple Estate Las"d Fee Estate Leasehold Estate Sandwich Interest October2009 Order Number: NCS-411048-SAl Page Number: I October 01, 2009 Amended `�F.r a�raxror 4 - 6 First American Title Insurance Company National Commercial Services October 01, 2009 Richard Fuller Fuller Consulting 4910 Campus Drive Newport Beach, CA 92660-2119 Phone:(949)644-4040 Fax:(949)660-7076 Customer Reference: Title Officer: Phone: Fax No.: E-Mail: Owner: Property: 5 First American Way Santa Ana, CA 92707 Gugasian Greg Franke (714)250-8363 (714)250-8379 gfranke@flrstam.com Levon Gugasian and Zarouhi Gugasian 608 East Balboa Boulevard and 209 Washington Avenue, Newport Beach, CA PRELIMINARY REPORT In response to the above referenced application for a policy of title insurance, this company hereby reports that it Is prepared to Issue, or cause to be Issued, as of the date hereof, a Policy or Policies of Title Insurance describing the land and the estate or Interest therein hereinafter set forth, Insuring against loss which may be sustained by reason of any defect, Ilen or encumbrance not shown or referred to as an Exception below or not excluded from coverage pursuant to the printed Schedules, Conditions and Stipulations of said Policy forms. The printed Exceptions and Exclusions from the coverage and Limitations on Covered Risks of said policy or policies are set forth in Exhibit A attached. fie policy to belssuedmay mntaln an arbibabon duce. When UreAmount oflnsurenceIs less Uwn thatsetfortlr In the arblbatfon dose, all arWbable mattetsshall be arb/bated at the oubron ofe/therthe Companyorthelnsured as the exclusive remedyofthe patties Limitations on Covered Risks applicable to the CLTA and ALTA Homeowner's Policies of'nde Insurance which establish a Deductible Amount and a Maximum Dollar Limit of Liability for certain coverages are also set forth in Exhibit A. Copies of the policy forms should be read. They are available from the office which Issued this report. ' Please read the exceptions shown or referred to below and the exceptions and exclusions set forth in Exhibit A of this report carefully. The exceptions and exclusions are meant to provide you with notice of matters which are not covered under the terms of the title Insurance policy and should be carefully considered. FlrstAmerlcan Tide Insurance Company Order Number: NCS-411048-SAl Page Number:2 It Is Important to note that this preliminary report Is not a written representation as to the condition of title and may not list all liens, defects, and encumbrances affecting title to the land. This report (and any supplements or amendments hereto) Is Issued solely for the purpose of facilitating the Issuance of a policy of title Insurance and no Ilabllity is assumed hereby. If It Is desired that liability be assumed prior to the Issuance of a policy of dtle Insurance, a Slnder or Commitment should be requested. FirstAmedcan Tide Insurance Company Order Number: NCS-411048-SAS Page Number:3 Dated as of September 23, 2009 at 7:30 A.M. The form of Policy of title Insurance contemplated by this report is: To Be Determined A specific request should be made if another form or additional coverage is desired. Title to said estate or interest at the date hereof is vested in: Levan Gugaslan and Zarouhi M Gugasian, husband and wife as joint tenants as to Lot 7 and Levon Gugasian and Zarouhi Gugasian, Husband and Wife as Joint Tenants as to Lots 8 through it The estate or interest in the land hereinafter described or referred to covered by this Report Is: A fee. The Land referred to herein is described as follows: (See attached Legal Description) At the date hereof exceptions to coverage in addition to the printed Exceptions and Exclusions in said policy form would be as follows: 1. General and special taxes and assessments for the fiscal year 2009-2010. First Installment: $16,867.74, PAYABLE Penalty: $0.00 Second Installment: $16,867.74, PAYABLE Penalty: $0.00 Tax Rate Area: 07-001 A. P. No.: 048-116-04 (Affects Lots 8 through 11) Ia. General and special taxes and assessments for the fiscal year 2009-2010. First Installment: $4,967.79, PAYABLE Penalty: $0.00 Second Installment: $4,967.79, PAYABLE Penalty: $0.00 Tax Rate Area: 07-001 A. P. No.: 048-116-05 FlrstAmerlcan Tide k5urance Company Order Number: NCS-411048-SAI Page Number:4 (Affects Lot 7) 2. The lien of special tax for the following municipal improvement bond, which tax is collected with the county taxes. District: 75, City of Newport Beach 3. The lien of supplemental taxes, if any, assessed pursuant to Chapter 3.5 commencing with Section 75 of the California Revenue and Taxation Code. 4. The lien of special tax assessed pursuant to Chapter 2.5 commencing with Section 53311 of the California Government code for proposed Community Facilities District No. 75 (Balboa Business District), as disclosed by Notice of Assessment recorded April 30, 2004, as Instrument No. 2004000374797, of Official Records. 5. Easements, Covenants and Conditions contained in the deed from Newport Bay Investment Company, a Corporation, organized under the laws of the State of'California, as Grantor, to J. D. Thomas, as Grantee, recorded in Book 121, Page 147 of Deeds. Reference being made to the document for full particulars. (Affects Lot 8) 6. Easements, Covenants and Conditions contained in the deed from Newport Bay Investment Company, a Corporation, organized under the laws of the State of California, as Grantor, to Henrietta M.'Kraft (an unmarried woman), as Grantee, recorded in Book 138, Page 349 of Deeds. Reference being made to the document for full particulars. 9. 10. 11. 12. (Affects Lot 9) Easements, Covenants and Conditions contained in the deed from Newport Bay Investment Company, a Corporation, organized under the laws of the State of California, as Grantor, to Clarissa C. Honey, as Grantee, recorded in Book 153, Page 41 of Deeds. Reference being made to the document for full particulars. (Affects Lots 10 and 11) An easement for street and highway easement and incidental purposes, recorded February 8, 2002 as Instrument No. 20020109515 of Official Records. In Favor of: City of Newport Beach, a municipal corporation Affects: Lot 11 Rights of parties in possession. Water rights, claims or title to water, whether or not shown by the public records. Additional matters, if any, following review by the Company's Waterways and Boundaries Underwriters. Covenants, conditions, restrictions and easements in the document recorded in Book 121 of Deeds, Page 281, which provide that a violation thereof shall not defeat or render Invalid the lien of any first mortgage or deed of trust made in good faith and for value, but deleting any FirstAmer/can Tide InsUrance Company Order Number: NCS-411048-SAl Page Number: 5 covenant, condition or restriction indicating a preference, limitation or discrimination based on race, color, religion, sex, handicap, familial status, national origin, sexual orientation, marital status, ancestry, source of Income or disability, to the extent such covenants, conditions or restrictions violate Titie 42, Section 3604(c), of the United States Codes or Section 12955 of the California Government Code. Lawful restrictions under state and federal law on the age of occupants in senior housing or housing for older persons shall not be construed as restrictions based on familial status. (Affects Lot 7) Order Number: NCS-411048-SAI Page Number:6 INFORMATIONAL NOTES 1. According to the latest available equalized assessment roll in the office of the county tax assessor, there is located on the land a(n) Commercial Structure known as 608 East Balboa Boulevard and 209 Washington Avenue, Newport Beach, California. 2. According to the public records, there has been no conveyance of the land within a period of twenty-four months prior to the date of this report, except as follows: None 3. This preliminary report/commitment was prepared based upon an application for a policy of title Insurance that identified land by street address or assessor's parcel number only. It is the responsibility of the applicant to determine whether the land referred to herein is in fact the land that Is to be described in the policy or policies to be issued. 4. Should this report be used to facilitate your transaction, we must be provided with the following prior to the Issuance of the policy: A. WITH RESPECT TO A CORPORATION: 1. A certificate of good standing of recent date issued by the Secretary of State of the corporation's state of domicile. 2. A certificate copy of a resolution of the Board of Directors authorizing the contemplated transaction and designating which corporate officers shall have the power to execute on behalf of the corporation. 3. Requirements which the Company may impose following its review of the above material and other Information which the Company may require. B. WITH RESPECT TO A CALIFORNIA LIMITED PARTNERSHIP: 1. A certified copy of the certificate of limited partnership (form LP-1) and any amendments thereto (form LP-2) to be recorded in the public records; 2. A full copy of the partnership agreement and any amendments; 3. Satisfactory evidence of the consent of a majority in interest of the limited partners to the contemplated transaction; 4. Requirements which the Company may impose following Its review of the above material and other Information which the Company may require. C. WITH RESPECT TO A FOREIGN LIMITED PARTNERSHIP: 1. A certified copy of the application for registration, foreign limited partnership (form LP-5) and any amendments thereto (form LP-6) to be recorded in the public records; 2. A full copy of the partnership agreement and any amendment; 3. Satisfactory evidence of the consent of a majority in Interest of the limited partners to the contemplated transaction; 4. Requirements which the Company may Impose following its review of the above material and other Information which the Company may require. D. WITH RESPECT TO A GENERAL PARTNERSHIP: FlrstAmerlcan 7711e Insurance Company 1 ' Order Number: NCS-411048-SA1 Page Number:7 ' 1. A certified copy of a statement of partnership authority pursuant to Section 16303 of the California Corporation Code (form GP -I), executed by at least two partners, and a certified copy of any amendments to such statement (form GP-7), to be recorded in the public records; ' 2. A full copy of the partnership agreement and any amendments; 3. Requirements which the Company may impose following Its review of the above material required ' herein and other information which the Company may require. E. WITH RESPECT TO A LIMITED LIABILITY COMPANY: 1. A copy of its operating agreement and any amendments thereto; 2. If it is a California limited liability company, a certified copy of its articles of organization (LLC-1) ' and any certificate of correction (LLC-11), certificate of amendment (LLC-2), or restatement of articles of organization (LLC-10) to be recorded in the public records; 3. If it is a foreign limited liability company, a certified copy of its application for registration (LLC-5) ' to be recorded in the public records; 4. With respect to any deed, deed of trust, lease, subordination agreement or other document or Instrument executed by such limited liability company and presented for recordation by the Company or upon which the Company is asked to rely, such document or instrument must be ' executed in accordance with one of the following, as appropriate: (1) If the limited liability company properly operates through officers appointed or elected pursuant to the terms of a written operating agreement, such documents must be executed ' by at least two duly elected or appointed officers, as follows: the chairman of the board, the president or any vice president, and any secretary, assistant secretary, the chief financial offlcer or any assistant treasurer, ' (11) If the limited liability company properly operates through a manager or managers identifled in the articles of organization and/or duly elected pursuant to the terms of a written operating agreement, such document must be executed by at least two such.managers or by one manager if the limited liability company properly operates with the existence of only one manager. S. Requirements which the Company may impose following its review of the above material and other Information which the Company may require. ' F. WITH RESPECT TO A TRUST: 1. A cerdflcation pursuant to Section 18100.5 of the California Probate Code in a form satisfactory to the Company. ' 2. Copies of those excerpts from the original trust documents and amendments thereto which designate the trustee and confer upon the trustee the power to act in ' the pending transaction. 3. Other requirements which the Company may Impose following Its review of the material require herein and other Information which the Company may require. ' G. WITH RESPECT TO INDIVIDUALS: 1. A statement of information. II 1 FrrstAmencan Tide Insurance Company Order Number: NCS-411048-SAl Page Number:8 The map attached, If any, may or may not be a survey of the land depicted hereon. First American Title Insurance Company expressly disclaims any liability for loss or damage which may result from reliance on this map except to the extent coverage for such loss or damage is expressly provided by the terms and provisions of the title insurance policy, if any, to which this map is attached. FUstAmerlcan Title Insurance Company Order Number: NCS-411048-SAS Page Number:9 LEGAL DESCRIPTION Real property in the City of Newport Beach, County of Orange, State of California, described as follows: LOTS 7, 8, 9, 10 AND 11, IN BLOCK 7, BALBOA TRACT, IN THE CITY OF NEWPORT BEACH, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP THEREOF RECORDED IN BOOK 4, PAGES 11, OF MISCELLANEOUS MAPS. APN: 048-116-04 (Affects: Lots 8 through 11) and 048-116-05 (Affects: Lot 7) FIr tAmencan Title Insurance Company Order Number: NCS-411048-SAS Page Number:10 The First American Corporation First American Title Company Privacy Policy We Are Committed to Safeguarding Customer Information In order to better serve your needs now and In the future, we may ask you to provide us with certain Information. We understand that you may be concerned about what we will do with such Information - particularly any personal or financial Information. We agree that you have a right to know how we will utilize the personal information you provide to us. Therefore, together with our parent company, The First American Corporation, we have adopted this Privacy Policy to govern the use and handling of your personal information. Applicability This Privacy Policy governs our use of the Information which you provide to us. It does not govern the manner in which we may use Information we have obtained from any other source, such as information obtained from a public record or from another person or entity. First American has also adopted broader guidelines that govern our use of personal Information regardless of Its source. First American calls these guidelines Its Fair Information Values, a copy of which can be found on our website at www.firstam.com. Types of Information Depending upon which of our services you are utilizing, the types of nonpublic personal Information that we may collect Include: • Information we receive from you on applications, forms and in other communications to us, whether in writing, in person, by telephone or any other means; • Information about your transactions with us, our affiliated companies, or others; and • Information we receive from a consumer reporting agency. Use of information We request information from you for our own legitimate business purposes and not for the benefit of any nonaffiliated party. Therefore, we will not release your information to nonaffiliated parties except: (1) as necessary for us to provide the product or service you have requested of us; or (2) as permitted by law. We may, however, store such Information indefinitely, including the period after which any customer relationship has ceased. Such information may be used for any internal purpose, such as quality control efforts or customer analysis. We may also provide all of the types of nonpublic personal information listed above to one or more of our affiliated companies. Such affiliated companies include financial service providers, such as title insurers, property and casualty insurers, and trust and Investment advisory companies, or companies involved in real estate services, such as appraisal companies, home warranty companies, and escrow companies. Furthermore, we may also provide all the information we collect, as described above, to companies that perform marketing services on our behalf, on behalf of our affiliated companies, or to other financial institutions with whom we or our affiliated companies have joint marketing agreements. Former Customers Even if you are no longer our customer, our Privacy Policy will continue to apply to you. Confidentiality and Security We will use our best efforts to ensure that no unauthorized parties have access to any of your information. We restrict access to nonpublic personal information about you to those individuals and entities who need to know that Information to provide products or services to you. We will use our best efforts to train and oversee our employees and agents to ensure that your information will be handled responsibly and in accordance with this Privacy Policy and First American's Fair Information Values. We currently maintain physical, electronic, and procedural safeguards that comply with federal regulations to guard your nonpublic personal Information. firstAmerlcan Title Insurance Company Order Number: NCS-411048-SA1 Page Number:11 *****To obtain wire instructions for deposit of funds to your escrow file please contact your Escrow Officer. ***** '1 II ' Order Number: NCS-4110,M-SAI Page Number:12 1 ' EXHIBIT A LIST OF PRINTED EXCEPTIONS AND EXCLUSIONS (BY POLICY TYPE) 1. CALIFORNIA LAND TITLE ASSOCIATION STANDARD COVERAGE POLICY - 1990 ' SCHEDULEB EXCEPTIONS FROM COVERAGE ' This policy does not Insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of: 1. Taxes or assessments which are not shown as existing liens by the records of any, taxing authority that levies taxes or assessments on real property or by the public records. Proceedings by a public agency which may result in taxes or assessments, or notice of such proceedings, whether or not shown by the records of such agency or by the public records. 2. Any facts, rights, Interests, or claims which are not shown by the public records but which could be ascertained by an Inspection of the land or which may be asserted by persons in possession thereof. 3. Easements, liens or encumbrances, or claims thereof, which are not shown by the public records. 4. Discrepancies, conflicts In boundary lines, shortage In area, encroachments, or any other fads which a correct survey would disclose, and which are not shown by the public records. ' 5. (a) Unpatented mining claims; (b) reservations or exceptions in patents or in Ads authorizing the Issuance thereof; (c) water rights, claims or title to water, whether or not the matters excepted under (a), (b), or (c) are shown by the public records. EXCLUSIONS FROM COVERAGE ' The following matters are expressly excluded from the coverage of this policy and the Company will not pay loss or damage, costs, attorneys' fees or expenses which arise by reason of: 1. (a) Any law, ordinance or governmental regulation (Including but not limited to building and zoning laws, ordinances, or regulations) restricting, regulating, prohibiting or relating to (1) the occupancy, use, or enjoyment of the land; (11) the character, dimensions or location of any Improvement now or hereafter erected on the land; (ill) a separation In ownership or a change in the dimensions or area of the land or any parcel of which the land is or was a part; or (iv) environmental protection, or the effect of any violation of these laws, ordinances or governmental regulations, except to the extent that a notice of the enforcement thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded In the public records at Date of Policy. (b) Any governmental pollee power not excluded by (a)'above, except to the extent that a notice of the exercise thereof or a notice of a ' defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy. 2. Rights of eminent domain unless notice of the exercise thereof has been recorded In the public records at Date of Policy, but not excluding from coverage any taldng which has occurred prior to Date of Policy which would be binding on the rights of a purchaser for value without knowledge. ' 3. Defects, liens, encumbrances, adverse claims or other matters: (a) whether or not recorded in the public records at Date of Policy, but created, suffered, assumed or agreed to by the Insured claimant; (b) not known to the Company, not recorded In the public records at Date of Policy, but known to the Insured claimant and not disclosed in writing to the Company by the Insured claimant prior to the date the Insured claimant became an Insured under this policy; ' (c) resulting In no loss or damage to the Insured claimant; (d) attaching or created subsequent to Date of Policy; or (a) resulting in loss or damage which would not have been sustained if the Insured claimant had paid value for the Insured mortgage or for the estate or Interest Insured by this policy. 4. Unenforceabllity of the lien of the Insured mortgage because of the Inability or failure of the Insured at Date of Policy, or the Inability or ' failure of any subsequent owner of the Indebtedness, to comply with applicable "doing business" laws of the state in which the land Is situated. 5. Invalidity or unenforceabllity of the lien of the Insured mortgage, or claim thereof, which arises out of the transaction evidenced by the Insured mortgage and Is based upon usury or any consumer credit protection or truth,in lending law. ' 6. Any claim, which arises out of the transaction vesting In the Insured the estate or Interest Insured by their policy or the transaction creating the Interest of the Insured lender, by reason of the operation of federal bankruptcy, state Insolvency or similar creditors' rights laws. 2. AMERICAN LAND TITLE ASSOCIATION OWNER'S POLICY FORM B - 1970 ' SCHEDULE OF EXCLUSIONS FROM COVERAGE i, Any law, ordinance or governmental regulation (Including but not limited to building and zoning ordinances) restricting or regulating or prohibiting the occupancy, use or enjoyment of the land, or regulating the character, dimensions or location of any Improvement now or ' hereafter erected on the land, or prohibiting a separation in ownership or a reduction in the dimensions of area of the land, or the effect of any violation of any such law, ordinance or governmental regulation. 2. Rights of eminent domain or governmental rights of police power unless notice of the exercise of such rights appears In the public records at Date of Policy. 3. Defects, liens, encumbrances, adverse claims, or other matters (a) created, suffered, assumed or agreed to by the insured claimant; (b) not ' known to the Company and not shown by the public records but known to the Insured claimant ether at Date of Polley or at the date such claimant acquired an estate or Interest Insured by this policy and not disclosed In writing by the Insured claimant to the Company prior to the date such Insured cialmant became an Insured hereunder; (c) resulting In no loss or damage to the Insured claimant; (d) attaching or created subsequent to Date of Polley; or (e) resulting In loss or damage which would not have been sustained if the Insured claimant had ' paid value for the estate or Interest Insured by this policy. RrstAme6can Tide Insurance Company I Order Number: NCS-4111348-SA1 Page Number:13 3. AMERICAN LAND TITLE ASSOCIATION OWNER'S POLICY FORM B -1970 WITH REGIONAL EXCEPTIONS When the American land Title Association policy Is used as a Standard Coverage Policy and not as an Extended Coverage Policy the exclusions set forth In paragraph 2 above are used and the following exceptions to coverage appear In the policy. SCHEDULE B This policy does not Insure against loss or damage by reason of the matters shown in parts one and two following: Part One 1. Taxes or assessments which are not shown as existing liens by the records of any taxing authority that levies taxes or assessments on real property or by the public records. 2. Any facts, rights, Interests, or claims which are not shown by the public records but which could be ascertained by an inspection of said land or by making inquiry of persons In possession thereof. 3. Easements, claims of easement or encumbrances which are not shown by the public records. 4. Discrepancies, conflicts in boundary lines, shortage In area, encroachments, or any other facts which a correct survey would disclose, and which are not shown by public records. 5. Unpatented mining claims; reservations or exceptions in patents or In Ads authorizing the Issuance thereof; water rights, claims or tide to water, 6. Any lien, or right to a lien, for services, labor or material heretofore or hereafter furnished, Imposed by law and not shown by the public records. 4. AMERICAN LAND TITLE ASSOCIATION LOAN POLICY -1970 WITH A.LT.A. ENDORSEMENT FORM 1 COVERAGE SCHEDULE OF EXCLUSIONS FROM COVERAGE 1. Any law, ordinance or governmental regulation (including but not limited to building and zoning ordinances) restricting or regulating or prohlblting the occupancy, use or enjoyment of the land, or regulating the character, dimensions or location of any Improvement now or hereafter'erected on the land, or prohlbldng a separation In ownership or a reduction In the dimensions or area of the land, or the effect of any violation of any such law ordinance or governmental regulation. 2. Rights of eminent domain or governmental rights of police power unless notice of the exercise of such rights appears In the public records at Date of Policy. 3. Defects, liens, encumbrances, adverse claims, or other matters (a) created, suffered, assumed or agreed to by the Insured claimant, (b) not known to the Company and not shown by the public records but known to the insured claimant either at Date of Policy or at the date such claimant acquired an estate or Interest Insured by this policy or acquired the Insured mortgage and not disclosed In writing by the Insured claimant to the Company prior to the date such Insured claimant became an Insured hereunder, (c) resulting In no loss or damage to the Insured claimant; (d) attaching or created subsequent to Date of Policy (except to the extent insurance is afforded herein as to any statutory lien for labor or material or to the extent insurance Is afforded herein as to assessments for street Improvements under construction or completed at Date of Policy). 4. Unenforceabllity of the lien of the Insured mortgage because of failure of the Insured at Date of Policy or of any subsequent owner of the Indebtedness to comply with applicable "doing business" laws of the state in which the land Is situated. S. AMERICAN LAND TITLE ASSOCIATION LOAN POLICY -1970 WITH REGIONAL EXCEPTIONS When the American Land Title Association Lenders Policy Is used as a Standard Coverage Policy and not as an Extended Coverage Policy, the exclusions set forth In paragraph 4 above are used and the following exceptions to coverage appear In the policy. SCHEDULE B This policy does not Insure against loss or damage by reason of the matters shown In parts one and two following: Part One 1. Taxes or assessments which are not shown as existing liens by the records of any taxing authority that levies taxes or assessments on real property or by the public records. 2. Any facts, rights, Interests, or claims which are not shown by the public records but which could be ascertained by an Inspection of said land or by making Inquiry of persons in possession thereof. 3. Easements, claims of easement or encumbrances which are not shown by the public records, 4. Discrepancies, conflicts In boundary lines, shortage in area, encroachments, or any other fads which a correct survey would disclose, and which are not shown by public records. 5. Unpatented mining claims; reservations or exceptions in patents or in Ads authorizing the Issuance thereof; water rights, claims or title to water. 6. Any lien, or right to a lien, for services, labor or material theretofore or hereafter furnished, Imposed by law and not shown by the public records. 6. AMERICAN LAND TITLE ASSOCIATION LOAN POLICY -1992 WITH A.LT.A. ENDORSEMENT FORM 1 COVERAGE EXCLUSIONS FROM COVERAGE Rr tAmerlcan Tide Insurance Company ' Order Number: NCS-411048-SAS Page Number:14 ' The following matters are expressly excluded from the coverage of this policy and the Company will not pay loss or damage, costs, attomeys' fees or expenses which arise by reason of: 1. (a) Any law, ordinance or governmental regulaUon (including but not limited to building and zoning laws, ordinances, or regulations) restricting, regulating, prohibiting or relating to (I) the occupancy, use, or enjoyment of the land; (11) the character, dimensions or location of any Improvement now or hereafter erected on the land; (III) a separation In ownership or a change in the dimensions or area of the land or any parcel of which the land Is or was a part; or (Iv) environmental protection, or the effect of any violation of these laws, ordinances or governmental regulations, except to the extent that a notice of the enforcement thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded In the public records at Date of Policy; ' (b) Any governmental police power not excluded by (a) above, except to the extent that a notice of the exercise thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy. 2. Rights of eminent domain unless notice of the exercise thereof has been recorded in the public records at Date of Policy, but not excluding .' from coverage any taking which has occurred prior to Date of Policy which would be binding on the rights of a purchaser for value without knowledge. 3. Defects, liens, encumbrances, adverse claims, or other matters: (a) whether or not recorded in the public records at Date of Policy, but created, suffered, assumed or agreed to by the Insured claimant; (b) not known to the Company, not recorded In the public records at Date of Policy, but known to the Insured claimant and not disclosed in ' writing to the Company by the Insured claimant prior to the date the Insured claimant became an Insured under this policy; (c) resulting In no loss or damage to the Insured claimant; (d) attaching or created subsequent to Date of Policy (except to the extent that this policy Insures the priority of the lien of the Insured mortgage over any statutory lien for services, labor or material or the extent Insurance Is afforded herein as to assessments for street Improvements under construction or completed at date of policy); or ' (e) resulting In loss or damage which would not have been sustained If the insured claimant had paid value for the Insured mortgage. 4. Unenforceablllty of the lien of the Insured mortgage because of the inability or failure of the Insured at Date of Policy, or the Inability or failure of any subsequent owner of the Indebtedness, to comply with the applicable "doing business" laws of the state in which the land is situated, ' S. Invalidity or unenforceablllty of the lien of the Insured mortgage, or claim thereof, which arises out of the transaction evidenced by the Insured mortgage and Is based upon usury or any consumer credit protection or truth In lending law. 6. Any statutory lien for services, labor or materials (or the claim of priority of any statutory lien for services, labor or materials over the lien of the Insured mortgage) arising from an Improvement or work related to the land which Is contracted for and commenced subsequent to Date of Policy and Is not financed In whole or In part by proceeds of the Indebtedness secured by the Insured mortgage which at Date of Policy ' the Insured has advanced or is obligated to advance. 7. Any claim, which arises out of the transaction creating the Interest of the mortgagee Insured by this policy, by reason of the operation of federal bankruptcy, state Insolvency, or similar creditors' rights laws, that is based on: (1) the transaction creating the Interest of the Insured mortgagee being deemed a fraudulent conveyance or fraudulent transfer; or ' (II) the subordination of the interest of the Insured mortgagee as a result of the application of the doctrine of equitable subordination; or (III) the transaction creating the Interest of the Insured mortgagee being deemed a preferential transfer except where the preferential transfer results from the failure: (a) to timely record the Instrument of transfer; or (b) of such recordation to impart notice to a purchaser for value or a judgment or lien creditor. ' 7. AMERICAN LAND TITLE ASSOCIATION LOAN POLICY -1992 WITH REGIONAL EXCEPTIONS When the American Land TIUe Association policy is used as a Standard Coverage Policy and not as an Extended Coverage Policy the exclusions set forth In paragraph 6 above are used and the following exceptions to coverage appear in the policy. SCHEDULES This policy does not Insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of: 1. Taxes or assessments which are not shown as existing liens by the records of any taxing authority that levies taxes or assessments on real property or by the public records. 2. Any fads, rights, Interests, or claims which are not shown by the public records but which could be ascertained by an Inspection of said land or by making Inquiry of persons in possession thereof. 3. Easements, claims of easement or encumbrances which are not shown by the public records. 4. Discrepancies, conflicts In boundary lines, shortage in area, encroachments, or any other fads which a correct survey would disclose, and which are not shown by public records. S. Unpatented mining claims; reservations or exceptions In patents or in Ads authorizing the Issuance thereof; water rights, claims or title to water. 6. Any lien, or right to a lien, for services, labor or material theretofore or hereafter furnished, Imposed by law and not shown by the public records. S. AMERICAN LAND TrrLE ASSOCIATION OWNER'S POLICY -1992 EXCLUSIONS FROM COVERAGE ' The following matters are expressly excluded from the coverage of this policy and the Company will not pay loss or damage, costs, attorneys' fees or expenses which arise by reason of: 1, (a) Any law, ordinance or governmental regulation (including but not limited to building and zoning laws, ordinances, or regulations) ' restricting, regulating, prohibiting or relating to (1) the occupancy, use, or enjoyment of the land; (11) the character, dimensions or location of any Improvement now or hereafter erected on the land; (III) a separation in ownership or a change in the dimensions or area of the land or R tAlmerlcan Tide Insurance Company 1 Order Number: NCS-411048-SAS Page Number:15 I any parcel of which the land Is or was a part; or (Iv) environmental protection, or the effect of any violation of these laws, ordinances or governmental regulations, except to the extent that a notice of the enforcement thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy. (b) Any governmental police power not excluded by (a) above, except to the extent that a notice of the exercise thereof or a notice of a defect, lien or encumbrance resulting from a violation or alleged violation affecting the land has been recorded in the public records at Date of Policy. 2. Rights of eminent domain unless notice of the exercise thereof has been recorded in the public records at Date of Policy, but not excluding from coverage any taking which has occurred prior to Date of Policy which would be binding on the rights of a purchaser for value without knowledge. 3. Defects, liens, encumbrances, adverse claims, or other matters: (a) created, suffered, assumed or agreed to by the Insured claimant; (b) not known to the Company, not recorded In the public records at Date of Policy, but known to the Insured claimant and not disclosed in writing to the Company by the Insured claimant prior to the date the Insured dalmant became an Insured under this policy; (c) resulting In no loss or damage to the Insured claimant; (d) attaching or created subsequent to Date of Policy; or (e) resulting in loss or damage which would not have been sustained If the Insured claimant had paid value for the estate or Interest Insured by this policy. 4. Any claim, which arises out of the transaction vesting In the Insured the estate or Interest Insured by this policy, by reason of the operation of federal bankruptcy, state insolvency, or similar creditors' rights laws, that is based on: (I) the transaction creating the estate or Interest Insured by this policy being deemed a fraudulent conveyance or fraudulent transfer; or (11) the transaction creating the estate or Interest Insured by this policy being deemed a preferential transfer except where the preferential transfer results from the faliure: (a) to timely record the Instrument of transfer; or (b) of such recordation to impart notice to a purchaser for value or a judgment or lien creditor. 9. AMERICAN LAND TITLE ASSOCIATION OWNER'S POLICY -1"2 WITH REGIONAL EXCEPTIONS When the American Land 71tle Association policy Is used as a Standard coverage Policy and not as an Extended Coverage Policy the exclusions set forth In paragraph 8 above are used and the following exceptions to coverage appear In the policy. SCHEDULE This policy does not Insure against loss or damage (and the Company will not pay costs, attomeys' fees or expenses) which arise by reason of: Part One: I. Taxes or assessments which are not shown as existing liens by the records of any taxing authority that levies taxes or assessments on real property or by the public records. 2. Any facts, rights, Interests, or claims which are not shown by the public records but which could be ascertained by an Inspection of said land or by making Inquiry of persons In possession thereof. 3. Easements, claims of easement or encumbrances which are not shown by the public records, 4. Discrepancies, conflicts In boundary lines, shortage in area, encroachments, or any other facts which a correct survey would disclose, and which are not shown by public records. 5. Unpatented mining claims, reservations or exceptions In patents or In Ads authoming the Issuance thereof; water rights, claims or title to water. 6. Any lien, or right to a lien, for services, labor or material theretofore or hereafter furnished, Imposed by law and not shown by the public records. 10. AMERICAN LAND TITLE ASSOCIATION RESIDENTIAL TITLE INSURANCE POLICY -1987 EXCLUSIONS In addition to the Exceptions in Schedule 8, you are not Insured against loss, costs, attomeys' fees and expenses resulting from: 1. Governmental police power, and the existence or violation of any law or government regulation. This Includes building and zoning ordinances and also laws and regulations concerning: * land use * land division * Improvements on the land * environmental protection This exclusion does not apply to violations or the enforcement of these matters which appear In the public records at Policy Date, This exclusion does not limit the zoning coverage described in Items 12 and 13 of Covered 7IIle Risks. 2. The right to take the land by condemning it, unless: * a notice of exercising the right appears in the public records on the Policy Date * the taking happened prior to the Policy Date and is binding on you If you bought the land without knowing of the taking. 3. Title Risks: * that are created, allowed, or agreed to by you * that are known to you, but not to us, on the Policy Date - unless they appeared in the public records * that result In no loss to you * that first affect your title after the Policy Date - this does not limit the labor and material lien coverage In Item 8 of Covered Tide Risks 4. Failure to pay value for your title. ArstAmencan Title Insurance Company 11 Order Number: NCS-411048-SAI Page Number: 16 S. Lack of a right: * to any land outside the area specifically described and referred to in Item 3 of Schedule A, or * In streets, alleys, or waterways that touch your land This exclusion does not limit the access coverage In Item 5 of Covered Title Risks. 11. EAGLE PROTECTION OWNER'S POLICY CLTA HOMEOWNER'S POLICY OF TITLE INSURANCE - 2008 ALTA HOMEOWNER'S POLICY OF TITLE INSURANCE - 2008 Covered Risks 16 (Subdivision Law Violation). 18 (Building Permit). 19 (zoning) and 21 (Encroachment of boundary walls or fences) are subject to Deductible Amounts and Maximum Dollar Limits of Liability EXCLUSIONS In addition to the Exceptions in Schedule 0, You are not Insured against loss, costs, attomeys' fees, and expenses resulting from: 1. Governmental police power, and the existence or violation of those portions of any law or government regulation concerning: a. building b, zoning c. land use d. Improvements on the land e. land division f. environmental protection This Exclusion does not limit the coverage described in Covered Risk 8.a„ 14, 15, 16, 18, 19, 20, 23 or 27. 2. The failure of Your existing structures, or any part of them, to be constructed In accordance with applicable building codes. This Exclusion does not limit the coverage described In Covered Risk 14 or 15. 3. The right to take the Land by condemning It. This Exclusion does not limit the coveragedescribed in Covered Risk 17. 4. Risks: a, that are created, allowed, or agreed to by You, whether or not they are recorded In the Public Records; b. that are Known to You at the Policy Date, but not to Us, unless they are recorded in the Public Records at the policy Date; c. that result in no loss to You; or d. that first occur after the Policy Date - this does not limit the coverage described In Covered Risk 7, 8.e., 25, 26, 27 or 28. S. Failure to pay value for Your Title. 6. Lack of a right: a. to any land outside the area specifically described and referred to in paragraph 3 of Schedule A; and b. In streets, alleys, or waterways that touch the Land. This Exclusion does not limit the coverage described In Covered Risk 11 or 21 LIMITATIONS ON COVERED RISKS Your Insurance for the following Covered Risks is limited on the Owner's Coverage Statement as follows: Covered Risk 16, 18, 19 and 21, Your Deductible Amount and Our Maximum Dollar Limit of Liability shown In Schedule A. The deductible amounts and maximum dollar limits shown on Schedule A are as follows: Covered Risk 16: 1% of Policy Amount or $5,000.00 (whichever Is less) $10,000.00 Covered Risk IS: 1% of Policy Amount or $5,0D0.00 (whichever is less) $25,000.00 Covered Risk 19: 1% of Policy Amount or $5,000.00 (whichever is less) $25,000.00 Covered Risk 21: 1% of Policy Amount or $2,500.00 (whichever is less) $5,000.00 12. THIRD GENERATION EAGLE LOAN POLICY AMERICAN LAND TITLE ASSOCIATION EXPANDED COVERAGE RESIDENTIAL LOAN POLICY(1/01/08) EXCLUSIONS FROM COVERAGE The following matters are expressly excluded from the coverage of this policy and the Company will not pay loss or damage, costs, attorneys' fees or expenses which arise by reason of.. 1. (a) Any law, ordinance, permlt, or governmental regulation (including those relating to building and zoning) restricting, regulating, prohibiting, or relating to (I) the occupancy, use, or enjoyment of the Land; (11) the character, dimensions, or location of any Improvement erected on the Land; (III) the subdivtrlon of land; or(ly) environmental protection; or the effect of any violation of these laws, ordinances, or governmental regulations. This Exclusion Ila) does not modify or limit the coverage provided under Covered Risk 5, 6, 13(c), 13(d), 14 or 16. FIrstAmedcan Tide Insurance Company I Order Number: NCS-411048-SAl Page Number: 17 1 1 1 1 1 1 H k (b)Any governmental police power. This Exclusion l(b) does not modify or limit the coverage provided under Covered Risk 5, 6,13(c), 13(d), 14 or 16. 2. Rights of eminent domain. This Exclusion does not modify or limit the coverage provided under Covered Risk 7 or 8. 3. Defects, liens, encumbrances, adverse claims, or other matters (a) created, suffered, assumed or agreed to by the Insured Claimant,, (b) not Known to the Company, not recorded In the Public Records at Date of Policy, but Known to the Insured Claimant and not disclosed In writing to the Company by the Insured Claimant prior to the date the Insured Claimant became an Insured under this policy, (c) resulting In no loss or damage to the Insured Claimant; (d) attaching or created subsequent to Date of Policy (however, this does not modify or limit the coverage provided under Covered Risk 11, 16, 17, 18, 19, 20, 21, 22, 23, 24, 27 or 28); or (e) resulting In loss or damage which would not have been sustained If the Insured Claimant had paid value for the Insured Mortgage. 4. Unenforceability of the lien of the Insured Mortgage because of the Inability or failure of an Insured to comply with applicable doing business laws of the state where the land is situated. S. Invalidity or unenforceabllity In whole or in part of the lien of the Insured Mortgage that arises out of the transaction evidenced by the Insured Mortgage and Is based upon usury, or any consumer credit protection or truth -In -lending law. This Exclusion does not modify or limit the coverage provided in Covered Risk 26. 6, Any claim of Invalidly, unenforceabllity or lark of priority of the lien of the Insured Mortgage as to Advances or modifications made after the Insured has Knowledge that the vestee shown In Schedule A Is no longer the owner of the estate or Interest covered by this policy. This Exclusion does not modify or limit the coverage provided In Covered Risk 11. 7. Any lien on the Title for real estate taxes or assessments Imposed by governmental authority and created or attaching subsequent to Date of Policy. This Exclusion does not modify or limit the coverage provided In Covered Risk 11(b) or 25, 8. The failure of the residential structure, or any portion of it, to have been constructed before, an or after Date of Policy in accordance with applicable building codes. This Exclusion does not modify or limit the coverage provided In Covered Risk 5 or 6. 13. AMERICAN LAND TITLE ASSOCIATION LOAN POLICY - 2006 EXCLUSIONS FROM COVERAGE The following matters are expressly excluded from the coverage of this policy, and the Company will not pay loss or damage, costs, attorneys' fees, or expenses that arise by reason of: 1. (a) Any law, ordinance, permit, or governmental regulation (Including those relating to building and zoning) restricting, regulating, prohibiting, or relating to (1) the occupancy, use, or enjoyment of the land; (11)'the character, dimensions, or location of any Improvement erected on the Land; (111) the subdivision of land; or (iv) environmental protection; or the effect of any violation of these laws, ordinances, or governmental regulations. This Exclusion l(a) does not modify or limit the coverage provided under Covered Risk S. (b) Any governmental police power. This Exclusion i(b) does not modify or limit the coverage provided under Covered Risk 6. 2, Rights of eminent domain. This Exclusion does not modify or limit the coverage provided under Covered Risk 7 or 8. 3. Defects, liens, encumbrances, adverse claims, or other matters (a) created, suffered, assumed, or agreed to by the Insured Claimant; (b) not Known to the Company, not recorded In the Public Records at Date of Policy, but Known to the Insured Claimant and not disclosed In writing to the Company by the Insured Claimant prior to the date the Insured Claimant became an Insured under this policy; (c) resulting In no loss or damage to the Insured Claimant,, (d) attaching or created subsequent to Date of Policy (however, this does not modify or limit the coverage provided under Covered Risk 11, 13, or 14), or (e) resulting In loss or damage that would not have been sustained if the Insured Claimant had paid value for the insured Mortgage. 4. Unenforceablllty of the lien of the Insured Mortgage because of the inability or failure of an Insured to comply with applicable doing - business laws of the state where the Land Is situated. S. Invalidity or unenforceabllity In whole or In part of the lien of the Insured Mortgage that arises out of the transaction evidenced by the Insured Mortgage and is based upon usury or any consumer credit protection or truth -in -lending law. 6. Any claim, by reason of the operation of federal bankruptcy, state Insolvency, or similar creditors? rights laws, that the transaction creating the lien of the insured Mortgage, is (a) a fraudulent conveyance or fraudulent transfer, or (b) a preferential transfer for any reason not stated In Covered Risk 13(b) of this policy. 7. Any lien on the Title for real estate taxes or assessments Imposed by governmental authority and created or attaching between Date of Policy and the date of recording of the Insured Mortgage in the Public Records. This Exclusion does not modify or limit the coverage provided under Covered Risk 11(b). RrstAmedcan 77He Insurance Company Order Number: NCS-411048-SAT Page Number:18 14. AMERICAN LAND TITLE ASSOCIATION LOAN POLICY- 2006 WITH REGIONAL EXCEPTIONS When the American Land Title Association policy is used as a Standard Coverage Policy and not as an Extended Coverage Policy the exclusions set forth In paragraph 13 above are used and the following exceptions to coverage appear In the policy. SCHEDULER This policy does not Insure against loss or damage (and the Company will not pay costs, attorneys' fees or expenses) which arise by reason of: 1. (a) Taxes or assessments that are not shown as existing liens by the records of any taxing authority that levies taxes or assessments on real property or by the Public Records; (b) proceedings by a public agency that may result In taxes or assessments, or notices of such proceedings, whether or not shown by the records of such agency or by the Public Records. 2. Any facts, rights, Interests, or claims that are not shown by the Public Records but that could be ascertained by an inspection of the Land or that may be asserted by persons In possession of the Land. 3. Easements, liens or encumbrances, or claims thereof, not shown by the Public Records. 4. Any encroachment, encumbrance, violation, variation, or adverse circumstance affecting the Tide that would be disclosed by an accurate and complete land survey of the Land and not shown by the Public Records. S. (a) Unpatented mining claims; (b) reservations or exceptions In patents or In Acts authorizing the Issuance thereof; (c) water rights, claims or tide to water, whether or not the matters excepted under (a), (b), or (c) are shown by the Public Records. 15. AMERICAN LAND TITLE ASSOCIATION OWNER'S POLICY - 2006 EXCLUSIONS FROM COVERAGE The fallowing matters are expressly excluded from the coverage of this policy and the Company will not pay loss or damage, costs, attorneys' fees or expenses which arise by reason of: 1. (a) Any law, ordinance, permit, or governmental regulation (Including those relating to building and zoning) restricting, regulating, prohibiting, or relating to (1) the occupancy, use, or enjoyment of the Land; (II) the character, dimensions, or location of any Improvement erected on the Land; (III) the subdivision of land; or (Iv) environmental protecdon;or the effect of any violation of these laws, ordinances, or governmental regulations. This Exclusion 1(a) does not modify or limit the coverage provided under Covered Risk S. (b) Any governmental police power. This Exclusion L(b) does not modify or limit the coverage provided under Covered Risk 6. 2. Rights of eminent domain. This Exclusion does not modify or limit the coverage provided under Covered Risk 7 or 8. 3. Defects, liens, encumbrances, adverse claims, or other matters (a) created, suffered, assumed, or agreed to by the Insured Claimant; (b) not Known to the Company, not recorded In the Public Records at Date of Policy, but Known to the Insured Caimant and not disclosed In writing to the Company by the Insured Claimant prior to the date the Insured Claimant became an Insured under this policy; (c) resulting In no loss or damage to the Insured Claimant; (d) attaching or created subsequent to Date of Policy (however, -this does not modify or limit the coverage provided under Covered Risks 9 and 10); or (e) resulting in loss or damage that would not have been sustained If the Insured Claimant had paid value for the Tide. 4. Any claim, by reason of the operation of federal bankruptcy, state Insolvency, or similar creditors? rights laws, that the transaction vesting the Tide as shown In Schedule A, is (a) a fraudulent conveyance or fraudulent transfer, or (b) a preferential transfer for any reason not stated In Covered Risk 9 of this policy. S. Any lien on the Title for real estate taxes or assessments imposed by governmental authority and created or attaching between Date of Polley and the date of recording of the deed or other Instrument of transfer In the Public Records that vests Tide as shown In Schedule A. 16. AMERICAN LAND TITLE ASSOCIATION OWNER'S POLICY - 2006 WITH REGIONAL EXCEPTIONS FirstAmerican Title Insurance Company ' Order Number: NCS-411048-SAl Page Number:19 ' When the American Land Title Association policy is used as a Standard Coverage Policy and not as an Extended Coverage Policy the exclusions set forth In paragraph 15 above are used and the following exceptions to coverage appear In the policy. SCHEDULER This policy does not Insure against loss or damage (and the Company will not pay casts, attomeK fees or expenses) which arise by reason Of., ' 1. (a) Taxes or assessments that are not shown as existing liens by the records of any taxing authority that levies taxes or assessments on real property or by the Public Records; (b) proceedings by a public agency that may result in taxes or assessments, or notices of such proceedings, whether or not shown by the records of such agency or by the Public Records. 2. Any facts, rights, Interests, or claims that are not shown by the Public Records but that could be ascertained by an inspection of the Land or ' that may be asserted by persons In possession of the Land. 3. Easements, liens or encumbrances, or claims thereof, not shown by the Public Records. 4. Any encroachment, encumbrance, violation, variation, or adverse circumstance affecting the Title that would be disclosed by an accurate and complete land survey of the Land and not shown by the Public Records. ' S. (a) Unpatented mining claims; (b) reservations or exceptions In patents or in Acts authorizing the Issuance thereof; (c) water rights, claims or title to water, whether or not the matters excepted under (a), (b), or (c) are shown by the Public Records. 1 1 l 1 1 FlrstAmencan Tide Insurance Company ' Natural Hazard Disclosure Report, LLC 7909 Waterga Road Ste 112-1218 'Antelope, Ca. 95843 Transaction Number: 1005200908289 Toll Free (877) 271-5357 Monday, October 05, 2009 1 II Natural Hazard Disclosure ORDER INFORMATION Sublect Property Information Address: 608 E BALBOA BLVD (209 WASHINGT City: NEWPORT BEACH State: CA Zip: 92661 Assessors Parcel #: 048-116.04 & 06 County: Orange Escrow Number: Other Recipient www.NHDReport.com Name: Richard Fuller Address: 4910 Campus Drive City: Newport Beach State: CA Zip: 92660 Company: Fuller Consulting Phone: (949) W-4040 Fax: Email: rfuller@fullcon.com ' Natural Hazard Disclosure Report, LLC 7909 Walerga Road Ste 112-1218 Antelope, Ca. 95843 Transactlon Number: 1005200908289 ' Toll Free (877) 271-5357 Monday, October 05, 2009 I 1 r 1 1 1 P 1 1 NATURAL HAZARD DISCLOSURE Subject Property: 608 E BALBOA BLVD (209 WASHINGTON AVE) NEWPORT BEACH, CA. 92661 Assessors Parcel #: 048-116-04 & 05 County: Orange Escrow Number: www.NHOReport.com 1 Natural Hazard Disclosure Report, LLC 7909 Walerga Road Ste 112-1218 Antelope, Ca. 95843 Transaction Number: 1005200908289 Tall Free (877) 271-5357 Monday, October 05, 2009 NATURAL HAZARD DISCLOSURE STATEMENT This statement applies to the following property: 608 E BALBOA BLVD (209 WASHINGTON AVE), NEWPORT RFACH CA 928R1 Assessors Parcel #: 048-116.04 & 06 County: Orange Escrow Number: The seller and his or her agent(s) disclose the following information with the knowledge that even though this is not a warranty, prospective buyers may rely on this information in deciding whether and on what terms to purchase the subject property. Seller hereby authorizes any agent(s) representing any principal(s) in this action to provide a copy of this statement to any person or entity in connection with any actual or anticipated sale of the property. The following are representations made by the seller and his or her agent(s) based on their knowledge and maps drawn by the state. This information is a disclosure and is not intended to be part of any contract between the buyer and seller. THIS REAL PROPERTY LIES WITHIN THE FOLLOWING HAZARDOUS AREA(S): A SPECIAL FLOOD HAZARD AREA (Any type Zone 'W or' V") designated by the Federal Emergency Management Agency. Yes —No ✓ Do not know and Information not available from local jurisdiction FEMA Flood Zone Designation: X FEMA Panel: 0605900382H 02/18/2004 Comments: AN AREA OF POTENTIAL FLOODING SHOWN ON A DAM FAILURE INUNDATION MAP pursuant to Section 8589.5 of the Government Code. Yes _ No ✓ Do not know and Information not available from local jurisdiction A VERY HIGH FIRE HAZARD SEVERITY ZONE pursuant to Section 51178 or 51179 of the Government Code. The maintenance requirements of Section 51182 of the Government Code. Yes No ✓_ A WILDLAND AREA THAT MAY CONTAIN SUBSTANTIAL FOREST FIRE RISKS AND HAZARDS pursuant to Section 4125 of the Public Resources Code. The owner of this property is subject to the maintenance requirements of Section 4291 of the Public Resources Code. Additionally, It is not the staWs responsibility to provide fire protection services to any building or structure located within the wildlands unless the Department of Forestry and Fire Protection has entered Into a cooperative agreement with a local agency for those purposes pursuant to Section 4142 of the Public Resources Code. Yes _ No ✓ AN EARTHQUAKE FAULT ZONE pursuant to Section 2622 of the Public Resources Code. Yes —No ✓ A SEISMIC HAZARD ZONE pursuant to Section 2696 of the Public Resources Code. Yes (Landslide Zone) Yes (Liquefaction Zone) ✓ No Map not yet released by state THESE HAZARDS MAY LIMIT YOUR ABILITY TO DEVELOP THE REAL PROPERTY, TO OBTAIN INSURANCE, OR TO RECEIVE ASSISTANCE AFTER A DISASTER. THE MAPS ON WHICH THESE DISCLOSURES ARE BASED ESTIMATE WHERE NATURAL HAZARDS EXIST. THEY ARE NOT DEFINITIVE INDICATORS OF WHETHER OR NOT PROPERTY WILL BE AFFECTED BY A NATURAL DISASTER. BUYER(S) AND SELLER(S) MAY WISH TO OBTAIN PROFESSIONAL ADVICE REGARDING THOSE HAZARDS AND OTHER HAZARDS THAT MAY AFFECT THE PROPERTY. The representations made in this report are based upon information provided by an independent third party provided as a substitute disclosure pursuant to California Civil Code Section 1103, Neither the seller nor seller's agent: (1) have independently verified the information contained in this report or (2) is personally aware of any errors or inaccuracies in the information contained in this report Transferor represents that the Information herein is true and correct to the best of the Transferor's knowledge as of the date signed by the Transferor. Signature of Seller: Signature of Agent: Date: Signature of Agent: Date: Transferors) and their agent(s) represent that the information herein is true and correct to the best of their knowledge as of the date signed by the minsferor(s) and agent(s). m' Transferors) and their agent(s) acknowledge that they have exemised good faith in the selection of a thud -party report provider m required in Civil Cade Section 1103.7, and that the representations made in this Natural Hazard Disclosure Statement are based upon information provided by the independent third -party disclosure provider as a substituted disclosure pursuant to Civil Code Section 1103.4. Neither transferor(s) nor their agent(s) (1) has independently verified the information contained in this statement and report or (2) is personally aware of any errors or inaccuracies in the information contained on the statement This statement was prepared by the provider below: Third -Party Disclosure Provider: N.H.D. Report, LLC Date: 10/5/2009 Transferee represents that he or she has mad and understands this document. Pursuant to Civil Code Section 1103.8, the representations made in this Natural Hazard Disclosure Statement do not constitute all of the transferor's or agent's disclosure obligations in this transaction. Signature of Buyer: Date: Signature of Buyer: Date: www.NHDReport.com Pagel of 17 Natural Hazard Disclosure Report, LLC 7909 Walerga Road Ste 112-1218 Antelope, Ca. 95843 Transaction Number: 1005200908289 Toll Free (877) 271-5357 Monday, October 05, 2009 NATURAL HAZARD ZONE EXPLANATIONS SPECIAL FLOOD HAZARD AREAS Zone A Is the flood Insurance rate zone that corresponds to the 100-year floodplains that are determined In the Flood Insurance Study (FIS) by approximate methods. Because detailed hydraulic analyses are not performed for such areas, no Base Flood Elevations or depths are shown within this zone. Mandatory flood insurance purchase requirements apply. Zones AE and Al-A30 are the flood Insurance rate zones that correspond to the 100-year floodplains that are determined in the FIS by detailed methods. In most Instances, Base Flood Elevations derived from the detailed hydraulic analyses are shown at selected Intervals within this zone. Mandatory flood Insurance purchase requirements apply. Zones B, C, and X are the flood Insurance rate zones that correspond to areas outside the 100-year floodplains, areas of 100-year sheet flow flooding where average depths are less than 1 foot, areas of 100-year stream flooding where the contributing drainage area is less than 1 square mile, or areas protected from the 100-year flood by levees. No Base Flood Elevations or depths are shown within this zone. The flood risk of a specific property or geographic area may be modified by and updated through a Letter of Map Change filed with FEMA. Specific flood risk information that has not been Included on a FEMA map (for example a Letter of Map Change), have not been reviewed and are not Included as a part of this disclosure. Lefler of Map Change information can be obtained from FEMA or from the county where the property is located. This disclosure should in noway be used to predict whether flooding will occur, but rather to Identify properties for which flood Insurance maybe required. This report was derrived from maps supplied by the Federal Emergency Management Agency. AREAS OF POTENTIAL FLOODING DUE TO DAM INUNDATION Sudden dam failure would inundate areas downstream of dams, resulting in the possibility of personal Injury and property damage. Properties within a mapped Area of Potential Flooding due to dam failure must be disclosed to a potential buyer. Section 8589.5 of the Government Code. The California Office of Emergency Services has produced Dam Inundation Maps that delineate areas that may be subject to flooding as a result of a sudden total failure of a dam with a full reservoir. Additional maps may become avallable when approved by the California Office of Emergency Services. It Is possible that a property currently Identified as being outside a dam Inundation area, may be located within one in the future. Cities and counties within areas mapped by the California Office of Emergency Services as being within a dam Inundation zone are required to adopt emergency procedures for the evacuation of populated areas. Only maps reviewed and approved by the State may be used for this disclosure. State owned dams are required to have an Inundation map - it is the responsibility of the local government or other owner of a dam to provide the State with an inundation map of the area. VERY HIGH FIRE HAZARD SEVERITY ZONES The California Department of Forestry and Fire Protection has established Very High Fire Hazard Severity Zones. (Government Code §51178.) A Very High Fire Hazard Severity Zone Is identified on consistent statewide criers and based on the severity of fire hazard that is expected to prevail in those areas. Very High Fire Hazard Severity Zones shall be based on fuel loading, slope, fire weather and other relevant factors. Very High Fire Hazard Severity Zones designated and required to be mapped after the Oakland Hills Fire in October 1991. Properties within a Very High Fire Hazard Severity Zone are subject to special maintenance requirements which can include maintaining fire breaks, clearing vegetation, and keeping roofs free of debris. The California Department of Forestry and local fire authorities locate and compile maps of areas that meet the above criteria. If the map is not of sufficient accuracy or scale that a person can reasonably determine if the subject property is Included in a very high fire hazard zone, we will Identify the property as being within the subject zone. WILDLAND AREA The California Department of Forestry and Fire Protection has established maps Identifying properties that fall within a Wildland Area. The Wildland areas are properties for which the primary financial responsibility for the prevention and suppression of fires falls with the slate. However, the state is not responsible for protecting structures within these areas. As a result of the scale In which the California Department of Forestry provides the subject maps, If the map is not of sufficient accuracy or scale that a reasonable person can determine if the subject property is included in a Wildland Area, we will Identify the property as being within the subject zone. EARTHOUAKE FAULT ZONES The Alquist-Priolo Earthquake Fault Zoning Act was passed in 1972 to mitigate the hazard of surface faulting to structures for human occupancy. This state law was a direct result of the 1971 San Fernando Earthquake, which was associated with extensive surface fault ruptures that damaged numerous homes, commercial buildings, and other structures. Surface rupture is the most easily avoided seismic hazard. The Alquist-Priolo Earthquake Fault Zoning Acts main purpose is to prevent the construction of buildings used for human occupancy on the surface trace of active faults. The Act only addresses the hazard of surface fault rupture and Is not directed toward other earthquake hazards. The Seismic Hazards Mapping Act, passed In 1990, addresses non -surface fault rupture earthquake hazards, including liquefaction and seismically induced landslides. The Earthquake Fault Zoning program is ongoing and therefore it should be understood that a property currently Identified as being outside a fault zone may be included within one in the future. SEISMIC HAZARD ZONE The State Seismic Hazards Mapping Act (AB 1341) was adopted by the state legislature on September 21, 1990 following the 1989 Loma Prleta earthquake. The State Geologist is In the process of providing a complete set of'statewide seismic hazard maps that identify areas susceptible to landslides and/ or liquefaction. The purpose of the maps Is to protect the health and safety of the public from the effects of strong ground motion caused by earthquakes. Currently available maps Identify zones for the seismic hazards of liquefaction and earthquake -induced landslides have been provided for limited geographic areas withln the State of California. Future maps may Include other areas of the state that are not currently delineated. Our report will Identify If a property is located or not located within a mapped Seismic Hazard Zone. If the property Is not located within an area that has been mapped pursuant to the Seismic Hazards Mapping Act, the report will reflect that the map for the property has not been released by the state. www.NHDReport.com Page 2 of 17 Natural Hazard Disclosure Report, LLC 7909 Walerga Road Ste 112-1218 Antelope, Ca. 95843 Transaction Number: 1005200908289 Toll Free (877) 271-5357 Monday, October 06, 2009 COMMERCIAL AND INDUSTRIAL ZONE DISCLOSURE This statement applies to the following property: 608 E BALBOA BLVD,(209 WASHINGTON AVE), NEWPORT BEACH, CA. 92661 Assessors Parcel#: 048-116.04 & 06 County: Orange Escrow Number: Defined by and subject to article 1102.17 of the California Civil Code, any seller of residential real property who has actual knowledge that the said properly is affected by, or zoned to allow, industrial use as described in Section 731a of the Code of Civil Procedure, shall give written notice of that knowledge as soon as is practicable before transfer of title. Section 73I s defines in detail certain expressly permitted uses and areas involving manufacturing, commercial, or airport areas. Referenced Codes for Review: Whenever any city, city and county, or county shall have established zones or districts under authority of law wherein California Civil Code of Procedures 73la certain manufacturing or commercial or airport uses are expressly permitted, except in an action to abate a public nuisance brought in the name of the people of the State of California, no person or persons, firm or corporation shall be enjoined or restrained by the injunctive process from the reasonable and necessary operation in any such industrial or commercial zone or airport of any use expressly permitted therein, nor shall such use be deemed a nuisance without evidence of the employment of unnecessary and injurious methods of operation. Nothing in this act shall be deemed to apply to the regulation and working hours of canneries, fertilizing plants, refineries and other similar establishments whose operation produce offensive odors. California Civil Code 1102.17 The seller of residential real property subject to this article who has actual knowledge that the property is affected by or zoned to allow an industrial use described in Section 731 a of the Code of Civil Procedure shall give written notice of that knowledge as soon as practicable before transfer of title. Does the seller have actual knowledge that the property is located in and/or is affected by an industrial/commercial use zone? ' Seller ' Seller II `J YES —NO _ Do Not Know www.NHDRepod.com Page 3 of 17 Natural Hazard Disclosure Report, LLC 7909 Walerga Road Ste 112-1218 Antelope, Ca. 95843 Transaction Number: 1006200908289 ' Toll Free (877) 271.5357 Monday, October 05, 2009 MILITARY ORDNANCE DISCLOSURE 'This statement applies to the following property: 608 E BALBOA BLVD (209 WASHINGTON AVE), NEWPORT BEACI- Assessors Parcel #: 048-116-04 & 06 County:Orange Escrow Number: The subject property has been determined to be: NOT within one mile of a Formerly Used Defense Site(s) ' RAC Score Descriptions 'A risk assessment procedure was developed by the USACE to prioritize the remedial actions at IUD sites. Each IUD site is given a Risk Assessment Code (RAC) score to describe the site status. The risk assessment is based on the best available information resulting from record searches, reports of Explosive Ordnance Disposal (EOD) detachment actions, field observations, interviews, and measurements. The Risk Assessment Code is dependent on two factors: hazard severity and hazard probability. 'RAC 1 — Imminent Hazard RAC 2—Action required to mitigate hazard RAC 3 — Action required to evaluate potential threat— Archives search and site investigation RAC 4—Action required to evaluate potential threat —Archives search 'RAC 5 — No action required - w RAC N/A— No Score has been assigned ,.Ezpianati'ofi- _ 'The Department of Defense (DOD) is involved in the cleanup of "Formerly Used Defense Sites" (FUDS). Clean-up of FUD properties are managed by the Army Corps of Engineers (USACE) as part of the Defense Environmental Restoration Program. Formerly Used Defense Site properties were once owned or used by the DOD, but are no longer within their ownership or control. The subject 'properties range from privately owned farms to National Parks. IUD properties may also include residential areas, schools, colleges, and industrial areas. More sites may be added as active military installations are released under the Base Realignment and Closure Act. The FUDS program includes former -Air Force, Navy and Army, National Guard, Reserve facilities and other defense agency properties. Active military sites are NOT included on the FUDS list. Other properties that are not included on the FUDS list include, but tare not limited to: (1) Sites outside U.S. jurisdiction; (2) Sites in which the current owners utilized the former DOD facilities and have started clean-up; (3) Sites for which the DOD component that owned or used the site has accepted full restoration responsibility; (4) United Services Organization sites, (5) Civil Works sites; (6) Sites for which no records are available; (7) Sites with no reported USACE action planned; and (8) Cemeteries. ' Formerly Used Defense Sites can include properties with common industrial waste, ordnance or other warfare material, unsafe structures to be demolished, or debris needing removal. Most sites do not contain unexploded ordnance. Only those IUD sites that the USACE has identified to contain Military Ordnance or have mitigation projects planned for them are disclosed in this report. 1 1 1 www.NHDRepoit.com Page 4 of 17 Natural Hazard Disclosure Report, LLC 7909 Walerga Road Ste 112-1218 Antelope, Ca. 95843 Transaction Number: 1085200909289 ' Toll Free (877) 271.5357 Monday, October 05, 2008 AIRPORT PROXIMITY DISCLOSURE 'This statement applies to the following property: 608 E BALBOA BLVD (209 WASHINGTON AVE), NEWPORT BEACH, CA. 92661 Assessors Parcel #: 048.116.04 & 05 County: Orange Escrow Number: ' As of January 1, 2004, residential property owners are required to disclose to prospective buyers that the property is in -the "vicinity" of an airport (Assembly Bill 2776). AB 2776 uses the term "airport influence area" interchangeably with "vicinity" and defines the "influence area" as the "airport referral area" determined by the county's airport land -use commission (ALUC). The ALUC creates a "referral area" for each airport in the county and any proposal for land development within that area is reviewed by the ALUC to determine whether it is ' compatible with the operation of the airport, both present and future. AS 2776 requires disclosure that an airport is in the vicinity of residential property under three circumstances: (1) when a new subdivision is created (Civil Code § 11010(a)(12); (2) when a new common -Interest development such as a condominium is created (Civil Code § 1353); and when a "natural hazard disclosure statement" Is prepared in connection with the transfer of property (Civil Code § 1103.4). ' The subject property has been determined to be: LOCATED within 5 miles of an airport(s) Airport Name Airport Location Airport FAA Contact ' John Wayne Airport -Orange County Santa Ana Los Angeles Flight Standards District Office This determination was made based upon existing airport locations as provided by governmental authorities. Determination of the five - mile proximity is based upon existing physical airport configurations and boundaries and is not based upon planned or approved airport expansions, modifications, flight patterns or airspace considerations. Privately owned Airports and related facilities are not disclosed in ' this report. A physical inspection of the Site has not been conducted in connection with the rendering of this disclosure. AIRPORT NOISE DISCLOSURE ' Per California Civil Code, Section 1102,17, any seller(s) of residential real property who have knowledge that the subject property is Impacted by airport use must give written notice of that knowledge. Based upon published airport land -use commission Community Noise Equivalent Level (CNEL) contour maps produced under the Federal Aviation Administrations voluntary Airport Noise Compatibility Planning Program. ' The subject property has been determined to be: NOT LOCATED within a 65 decibel (dB) zone ' The Airport Noise Compatibility program is voluntary and was devised to help airports produce and implement noise reduction programs that affect the surrounding communities. Some airports do not have noise exposure maps. Since particicipation has not ben made manditory, some airports have not participated in the program. A property may also lie in close proximity to an airport and not experience 65db aviation noise. Please note that airport noise levels can change as airport use fluctuates or changes. Updated maps are obtained when available, AIRPORT INFLUENCE AREA ' An "airport influence area", also known as an "airport referral area," is the area in which current or future airport -related noise, over flight, safety, or airspace protection factors may significantly affect land uses or necessitate restrictions on those uses, as determined by an ALUC pursuant to Section 11010 of the Business and Professions Code, or Section 1103.4 or 1353 of the Civil Code. ' The subject property has been determined to be: NOT LOCATED within a Airport Influence area. ' Many airports do not have an officially -designated Airport Influence Area or a current airport influence map established by an ALUC, and many Counties and Cities have not adopted any different or additional disclosure form that notifies a buyer of possible nuisance or annoyance from airport operations. In these cases, the seller may satisfy any local requirement for an airport proximity disclosure with a written disclosure of an airport within two (2) statute miles of the subject property (California Civil Code Section 1102.6a). www.NHDReport.com Page 5 of 17 Natural Hazard Disclosure Report, LLC 7909 Walerga Road Ste 112-1218 Antelope, Ca. 95843 Transaction Number: 1005200908289 Toll Free (877) 271-5357 Monday, October 05, 2009 NOTICE OF NATURALLY OCCURRING ASBESTOS HAZARD ZONE This statement applies to the following property: 608 E BALBOA BLVD (209 WASHINGTON AVE), NEWPORT BEACH, CA. 92661 Assessors Parcel #: 048.116.04 & 05 County:Orange Escrow Number., This property is located within an area that is NOT MAPPED by the State Geologist for potentially containing naturally,occurring asbestos. What is asbestos? Asbestos is the name given to a group of six different fibrous minerals that occur naturally in the environment. Asbestos fibers are too small to be seen by the naked eye. They do not dissolve in water or evaporate. They are resistant to heat, fire, and chemical or biological degradation. Naturally occurring asbestos refers to those fibrous minerals that are found in the rocks or soil in an area and released into the air by routine human activities or weathering processes. If naturally occurring asbestos is not disturbed and fibers are not released into the air, then It is not a health risk. Asbestos is used in many commercial products, including insulation, brake linings, and roofing shingles. The two general classes of asbestos are amphibole and chrysotile (fibrous serpentine). Chrysofile asbestos has long, flexible fibers. This type of asbestos is most commonly used in commercial products. Amphibole fibers are brittle, have a rod or needle shape, and are less common in commercial products. Although exposure to both types of asbestos increases the likelihood of developing asbestos -related illness, amphibole fibers tend to stay in the lungs longer. They also are thought to increase the likelihood of illness, especially mesothelioma, to a greater extent than chrysotle asbestos. WHAT YOU CAN DO TO MINIMIZE YOUR EXPOSURE TO ASBESTOS -CONTAINING DUST Take steps to reduce the amount of asbestos dust in the air around your home such as: • Pave over unpaved walkways, driveways, or roadways that may have asbestos -containing rock or soil. • Cover crushed asbestos -containing rock In gardens and yards with soil or landscaping. • Pre -wet garden areas prior to disturbing the soil. • Remove shoes before entering your home to reduce tracking in fibers. • Keep windows and doors closed on windy days or during construction. • Reduce vehicle speed on unpaved roads. • Use a wet rag to dust (as opposed to a feather duster) and use wet mops on non -carpeted floor. • Use washable area rugs on your floors. If you are concerned that you may have asbestos -containing rock or soils around your home, or if you are considering purchasing a home in an area where these rocks or soils may be present, you may want to consider contacting a licensed geologist to examine the property. If you are concerned that you may have asbestos in your home, contact a certified analytical laboratory. Amedor (209) 257-0112 Antelope Valley (661) 723.8070 Butts (530) 891.2882 Colaveras (209) 754.6504 Colusa (630) 458.0590 El Dorado (530) 621-6662 Glenn (530) 9U-6600 Imperial (760) 482.4606 Kam (661) 862 5260 AIR POLLUTION CONTROL DISTRICTS Lake (707) 263.7000 Lassen (630) 2511.8110 Mariposa (209) 966.2220 Mendocino (707) 463.4354 Modoc (530) 233.6419 Mojave Desert (760) 245.1661 No. Sonoma (707) 433.5911 Placer (630) 889.7130 Sacramento (916) 874.4800 San Diego (858) 660-4700 San Luis Obispo (805) 781.4247 Santa Barbara (806) 961.8800 Shasta (530) 225-5674 Sisklyou (530) 841-4029 Tehama (530) 527.3717 Tuolumne (209) 533.6693 Ventura (806) 646-1400 'Information in this report has been obtained from the the U.S. Geological Survey. The term "zone" or "area" is strictly defined as a specific boundary within which the specific hazards are contained and is a designation Identified In the legends of the maps prepared by the the U.S. Geological Survey. No visual examination of the subject site was performed. This report is not a substitute for a visual examination and/or inspection of the subject property. If detailed on -site Information regarding geologic, environmental, engineering or other professional studies is desired, an appropriate professional consultant should be retained. The fact that the subject properly is not located totally or partially In a zone or area does not constitute a guarantee or warranty that the subject property is not or will not be subject to other Impediments. www.NHDReport.com Page 6 of 17 Natural Hazard Disclosure Report, LLC 7909 Welerga Road Ste 112-1218 Antelope, Ca. 95843 Transaction Number: 1005200908289 Toll Free (877) 271-5357 Monday, October 05, 2009 RADON ADVISORY STATEMENT This statement applies to the following property: 608 E BALBOA BLVD (209 WASHINGTON AVE), NEWPORT BEACH, CA. 92661 Assessors Parcel #: 048-116.04 & 05 County:Orange Escrow Number: Radon is a naturally occurring radioactive gas that is produced by the radioactive decay of radium. Breathing high concentrations of radon can cause lung cancer. All rocks and soils contain some radium, so all rocks and soils give off some amount of radon. Even outdoor air has radon in it (but not much). In buildings, radon concentrations can be much higher than outdoor levels. In the U.S., radon is measured in "pico-Curies per liter", abbreviated pCi/L. Most homes have living -area concentrations between 0.5 and 1.5 pCi/L, but some homes are much higher. Based on radon exposure assessments published in 1999 by the Lawrence Berkeley National Laboratory (LBNL) and Columbia University, under support from the U.S. Environmental Protection Agency (EPA), the National'Science Foundation, and the US Department of Energy. Our radon advisory is as follows: All of California's 58 counties have a predicted median annual -average living -area concentration of radon below 2.0 pCi/L (picocuries per liter of Indoor air) -- which is well below the EPA's guideline level of 4 pCi/L and equivalent to the lowest hazard zone (Zone 3) on the 1993 EPA Map of Radon Zones. The EPA also recommends that all homes be tested for radon. A "median", like an average, is a central value. The "median concentration" means that about half of the homes in a county are expected to be below this value and half to be above it. All houses contain some radon, and a few houses will contain much more than the median concentration. The only way to accurately assess long-term exposure to radon in a house is through long-term testing of sampling the indoor air. Long-term tests remain in your home for more than 90 days. "Alpha track" and "electret" detectors are commonly used for this type of testing. A long-term test will give you a reading that is more likely to tell you your home's year-round average radon level than a short-term test. For additional Information visit the EPA's website at http://www.epa.gov/radon/ The National Safety Council's Radon Hotline 1-800-SOS-RADON [1-800-767-7236] provides an informational recording 24 hours a day. Through this automated system, callers can order a brochure on radon by leaving their name and address. The brochure contains information on ordering a low-cost short-term test kit. In addition, callers are advised to call 1-800-55-RADON [1-800-557-2366] to speak with an information specialist They are available to assist callers between 9:00 p.m. to 5:00 p.m. eastern time on business days. Information specialists can answer specific questions and mail free, single copies of many radon documents, including EPA's Home Buyer's and Seller's Guide to Radon. More radon information from the National Safety Council is available atwww.nsc.org METHAMPHETAMINE CONTAMINATED PROPERTY CLEANUP ACT OF 2005 Methamphetamine Contaminated Property Advisory Assembly Bill 1028 has been adopted into law and becomes effective January 1, 2006. This law requires a property owner to disclose In writing to a prospective buyer or tenant if local health officials have issued an order prohibiting the use or occupancy of a property contaminated by "meth lab" activity,. The owner is also required to provide a copy of the pending order to the buyer or tenant to acknowledge receipt in writing. A civil penalty of up to $5,000 may apply for non-compliance. Aside from disclosure requirements, this new law also sets forth procedures for local authorities to deal with meth -contaminated properties, Including the filing of a Ilan against a property until the owner cleans up the contamination or pays for the cleanup costs. www.NHDReport.com Page 7 of 17 Natural Hazard Disclosure Report, LLC 7909 Walerga Road Ste 112-1218 Antelope, Ca. 95843 Transaction Number. 1005200908289 Toll Free (877) 271.5357 Monday, October 05, 2009 LEAD AND MOLD DISCLOSURE STATEMENT This statement applies to the following property: 608 E BALBOA BLVD (209 WASHINGTON AVE), NEWPORT BEACH, CA. 92661 Assessors Parcel #: 048.116.04 & 05 County:Orange Escrow Number: LEAD WARNING STATEMENT Many homes built before 1978 have lead -based paint. The federal government banned lead -based paint from housing in 1978, Every purchaser of real property on which a residential dwelling was built prior to 1978 is notified that such property may present exposure to lead from lead -based paint that may place children at risk of developing lead poisoning. Lead poisoning affects virtually every system in the body, and often occurs with no distinctive symptoms. Lead is even more dangerous to children because their growing bodies absorb and retain more lead than adults. They often put their hands or other objects that may contain or be contaminated with lead in their mouths. Lead can damage a child's central nervous system, kidneys, and reproductive system and, at higher levels, can cause coma, convulsions, and death. Even low levels of lead are harmful and are associated with decreased intelligence, impaired neurobehavioral development, decreased stature and growth, and impaired hearing acuity. Peeling lead -based paint is a major source of lead poisoning among children. People can get lead in their bodies by breathing (especially during renovations that disturb painted surfaces) or swallowing lead dust, or by eating soil or paint chips with lead in them. Removing lead -based paint improperly can Increase the danger to your family. Lead is also harmful to adults. Adults can suffer from difficulties during pregnancy, and other reproductive problems (in both men and women), high blood pressure, digestive problems, nerve disorders, memory and concentration problems, muscle and joint pain. In the US lead poisoning is formally defined as having at least 10 micrograms of lead per deciliter of blood. (The average level of lead, for people ages 1 to 70, is 2.3 micrograms.) The seller of any residential real property is required to provide the buyer with any information on lead -based paint hazards from risk assessments or Inspections in the seller's possession and notify the buyer of any known lead -based paint hazards. A risk assessment or Inspection for possible lead -based paint hazards is recommended prior to purchase. MOLD DISCLOSURE STATEMENT There has been alot of concern regarding the existence of toxic and non -toxic mold in homes, apartments and commercial buildings. Research on mold and health effects is ongoing. This statement provides a brief overview; it does not describe all potential health effects related to mold exposure. For more detailed information consult a health professional. You may also wish to consult your state or local health department. Molds reproduce by means of tiny spores; the spores are invisible to the naked eye and float through outdoor and indoor air. Mold may begin growing indoors when mold spores land on surfaces that are wet. There are many types of mold, and none of them will grow without water or moisture. Molds are usually not a problem indoors, unless mold spores land on a wet or damp spot and begin growing. Molds have the potential to cause severe health problems. Molds also produce allergens (substances that can cause allergic reactions), irritants, and in some cases, potentially toxic substances (mycotoxins). If you suspect that the heating/ventilation/air conditioning (HVAC) system may be contaminated with mold (it is part of an identified moisture problem, for instance, or there is mold near the intake to the system) . Do not run the HVAC system if you know or suspect that it is contaminated with mold - it could spread mold throughout the building. You may suspect hidden mold if a building smells moldy, but you cannot see the source, or if you know there has been water damage and residents are reporting health problems. Mold may be hidden in places such as the back side of dry wall, wallpaper, or paneling, the top side of ceiling tiles, the underside of carpets and pads, etc. Other possible locations of hidden mold include areas inside walls around pipes (with leaking or condensing pipes), the surface of walls behind furniture (where condensation forms), inside ductwork, and in roof materials above ceiling tiles (due to roof leaks or insufficient insulation). Investigating hidden mold'problems may be difficult and will require caution when the investigation involves disturbing potential sites of mold growth. For example, removal of wallpaper can lead to a massive release of spores if there is mold growing on the underside of the paper. Dead mold may still cause allergic reactions in some people, so it is not enough to simply kill the mold, it must also be removed. If you believe that you may have a hidden mold problem, consider hiring an experienced professional. A buyer should consider having mold test and inspections done by a trained enviromental professional if any inspection reports or disclosure documents may indicate that there were past or present evidence of standing water, moisture, past water intrusion, or flood damage. All inspections, Including one to detect lead, mold, or anything else of suspect should be completed within the inspection period established In the purchase contract. www.NHDReport.com Page 8 of 17 Natural Hazard Disclosure Report, LLC 7909 Welerga Road Ste 112-1218 Antelope, Ca. 95843 Transaction Number: 1005200908289 ' Toll Free (877) 271-6357 Monday, October 06, 2009 REGISTERED SEX OFFENDER DATABASE DISCLOSURE This statement applies to the following property: 608 E BALBOA BLVD (209 WASHINGTON AVE), NEWPORT BEACH, CA. 92661 Assessors Parcel #: 048-116-04 & 05 County:Orange Escrow Number: ' All parties acknowledge that the following disclosure is hereby Incorporated Into the Residential Purchase Agreement and Deposit Receipt for the subject property of this report. Notice: The California Department of Justice, sheriffs departments, police departments serving jurisdictions of 200,ODD or more and many other local law enforcement aulhorltles maintain for public access a data base of the locations of persons required to register pursuant to paragraph (1) of subdivision (a) of Section 290.4 of the Penal Code. The database Is updated on a quarterly basis and is a source of information about the presence of these Individuals in any neighborhood. The Department of Justice also maintains a Sex Offender Identification line through which Inquiries about Individuals may be made. This Is a "900" telephone service. Callers must have specific Information about individuals they are checking. Information regarding neighborhoods Is not available through the "900" telephone service, ' Once this notice is provided to the buyer, the seller and agent are not required to provide additional Information, and the information provided is deemed adequate, unless they have personal knowledge of the existence or proximity of a registered sex offender. ' LOCAL INFORMATION LOCATIONS FOR THE SUBJECT PROPERTY: The following are the law enforcement departments In your county that are required to make information available. Department Name County Name Department Phone Number ' Orange County Sherlfrs Department Orange (714) 647-7040 HOW TO OBTAIN INFORMATION ' Pursuant to Section 290.46 of the Penal Code, information about specified registered sex offenders Is made avallable to the public via an Internet Web site maintained by the Department of Justice at www.moganslaw.ca.gov. Depending on an offenders criminal history, this Information will include either the address at which the offender resides or the community of residence and ZIP Code In which he or she resides. ' You may also obtain information by visiting viewing stations located at certain law enforcement agencies. Please refer to our list of local sheriffs offices and police departments that offer public access to this application. This new application that is also viewable at your local law enforcement agency, which has replaced the CD-ROM, and has Important new features. The ' Information Is updated daily by the Department of Justice and is viewable in 13 different languages. The languages areArabic, Armenian, Cambodian, Chinese, English, Japanese, Korean, Portuguese, Punjabi, Russian, Spanish, Tagalog, and Vietnamese. You may also check to determine if a particular sex offender is a "high risk" or "serious" sex offender by calling the California Sex Offender Information 9001E telephone service at 1-900-448-3001. There Is a fee of $10 per call for checks on up to two names. ' Information is also available at (900) 463-0400 for $10 per call to Inquire about up to two individuals. For over 50 years, California has required certain sex offenders to register Win their local law enforcement agencies. However, Information on the ' whereabouts of the sex offenders was not available to the public until implementation of the Child Molester Identification Line in July 1996. The available Information was expanded by California's "Megan's Law" In 1996 (Chapter 908, Stats. Of 1996). California's Megan's Law provides public access to certain Information on the whereabouts of "serious" and "high -risk" sex offenders in their local community. The law specifically prohibits using the information to harass or commit any crime against the offender. Megan's Law makes available to adults and organizations Information on ' "serious" and "high -risk" sex offenders In their local community. The information on a registered sex offender Includes: name and known aliases, age and sex, physical descdptlon (Including scars, marks and/or tattoos, photograph (if available), crimes resulting in registration, county of residence, and zip code (based on last registration). To view the Megan's Law Web Application at you local law enforcement agency, you must: • be at least 18 years of age, or accompanied by parent or legal guardian; • provide a California drivers license or California Identification card; • sign a statement that you are not a registered sex offender, and that you understand the purpose of the release of information is for the public to ' protect themselves and their children from sex offenders; and that it is illegal to use the information to harass, discriminate or commit a crime against any registrant; • stale a distinct purpose for viewing the Megan's Law Web Application, if required by local law enforcement. All sheriffs departments and every police department serving a population of 200,000 or more are required to make the Megan's Law Web Application available for public viewing. Many other police departments in smailerjurisdications also make the Information available. To determine the nearest Megan's Law Web Application viewing station, please contact your local law enforcement agency. www.NHDReport.com Page 9of 17 1 Natural Hazard Disclosure Report, LLC 7909 Walerga Road Ste 112-1218 Antelope, Ca. 95843 Transaction Number: 1005200908289 ' Toll Free (877) 271-5357 Monday, October 05, 2009 13 SEER - ADVISORY NOTICE OF DUCT SEALING REQUIREMENTS ' This statement applies to the following property: 608 E BALBOA BLVD (209 WASHINGTON AVE), NEWPORT BEACH, CA. 92661 Assessors Parcel #: 048-116.04 & 05 County:Orange Escrow Number: ' Based on research of the official climate zone maps Issued by the California Energy Commission, the following determination made: The subject property IS NOT LOCATED in a zone subject to California Energy Commission duct sealing requirements. On October 1, 2005, The California Energy Commission's ("CEC") duct sealing requirements became effective, California Code of ' Regulations, Title 24. Properties located in specific cliamte zones as designated by the CEC are exempt from compliance unless otherwise adopted by local governments. Properties that are not located in the exemption zones must comply with the requirements. If you are located in a zone subject to California Energy Commission Duct Sealing Requirements, depending upon certain conditions, if ' a central air conditioner or furnace was installed or replaced after October 1, 2005, the ducts must be tested for leakage. Ducts that leak 15 percent or more must be repaired to reduce the leaks. After your contractor tests and fixes the ducts, you choose whether to have an approved third -party field verifier check to make sure the duct testing and sealing was done properly or to have your house included in a random sample where one in seven duct systems are checked. C 1 1 1 1 u I Duct sealing is not required in the following situations: 1) when homes are in specific coastal climates; 2) when systems have less than 40 feet of ductwork in unconditioned spaces like attics, garages, crawlspaces, basements or outside the building, or 3) when ducts are constructed, insulated or sealed with asbestos. There also are specific alternatives that allow high efficiency equipment and added duct insulation to be installed instead of fixing duct leaks. Additional testing may then be required to verify that the work was done properly. It is strongly recommended that all of this work be done by licensed contractors who should obtain all required permits. These new duct sealing requirements may impact a Seller's disclosure obligations and/or any negotiations between principals regarding replacing heating, ventilating and air conditions (HVAC) systems. These new requirements may increase the costs associated with replacing or installing an HVAC system. Any contractor falling to obtain a required building permit and failing to test and repair your ducts is violating the law and exposing you to additional costs and liability. Real estate law requires you to disclose to potential buyers and appraisers whether or not you obtained required permits for work done on your house. If you do not obtain a permit, you may be required to bring your home Into compliance with code requirements for that work and you may have to pay penalty permit fees and fines prior to selling your home. All air conditioning units sold in the United States are assigned an efficiency ratio known as seasonal energy efficiency ratio (SEER). This ratio is governed by U. S. law and regulated by the U. S. Department of Energy. The minimum efficiency standard for central air conditioners and heat pumps has been at 10 SEER since 1992. This standard will change to a 13 SEER rating in January 2006. Manufacturers will no longer be able to make any central air conditioning units or heat pumps less than 13 SEER. The 13 SEER standard means new air conditioning systems will useless electricity than the current 10 SEER standard. Therefore, the use of SEER 13+ systems is expected to lower peak electricity during the summer. The SEER rating is similar to the miles -per -gallon rating for automobiles. The higher the rating number, the more efficient it is. The 13 SEER regulation does not affect a homeowners current air conditioner. The 13 SEER will affect homeowners and builders looking to purchase a new central air conditioner this year or next in several ways. The cost of a new energy efficient air conditioning system will Increase by 30% to 60%. The new air conditioning condensing units will be heavier and larger than the current units. In some cases, homeowners will have to make significant modifications to their homes to accommodate the new systems. If the homeowner has a home protection plan, the increase in the cost for the new energy efficient air conditioning equipment may be paid by the plan, but the homeowner would have to pay for modification to their home to accommodate the equipment. When buying an air conditioner, it is recommended to select the highest SEER rating you can afford. You may want to ask your contractor to calculate how long it will take for the new system to pay for itself in terms of lower utility bills. Usually the savings are enough to offset the cost of the new system within a few years. This calculation by the contractor would factor in you homes size and the typical energy cost for your geographic area. •NHD Report, LLC and Realtors do not have the requisite expertise to determine the need for testing or dud sealing and cannot verify the information about the condition of the HVAC system by others. For further Information please contact the California Energy Commission by phone at 800-772-3300 or you may go to their website at: www.energy.ca.gov/litle24/changeout. www.NHDReport.com Page 10 of 17 1 1 Natural Hazard Disclosure Report, LLC 7909 Walerga Road Ste 112-1218 Antelope, Ca. 95843 Transaction Number: 1005200908289 ' Toll Free (877) 271-5357 Monday, October 05, 2009 ACTIVE / ABANDONED MINES DISCLOSURE ' This statement applies to the following property: 608 E BALBOA BLVD (209 WASHINGTON AVE), NEWPORT BEACH, CA. 92661 Assessors Parcel #: 048.116-04 & 05 County:Orange Escrow Number: ' Based on research of the current maps and Information Issued by the Office of Mines and Reclamation and the U.S. Geological Survey the following determination Is made: The subject property IS NOT LOCATED within 1 mile of an identified or abandoned mining operation. ' Descrlptioin: NIA Since the Gold Rush of 1849, tens of thousands of mines have been dug in California. Many of these mines were immediately abandoned when insufficient minerals were found, others were abandoned later when poor economics of the commodity made mining ' unprofitable, while still others were abandoned in 1942 after the issuance of War Production Board Order L-208. The result is that California's landscape contains tens of thousands of abandoned mine sites, many of which pose health, safety, or environmental hazards. Every year people fall victim to the hazards of abandoned mines. Many sites possess serious physical safety hazards, such as open shafts or adits (mine tunnel). Thousands of sites have the potential to contaminate surface water, groundwater, or air quality. t The Abandoned Mine Lands Unit (AMLU) was created in 1997 to prepare a report to the governor and legislature on the "magnitude and scope" of the abandoned mine lands issue in California. The AMLU estimates of the number of abandoned mines in California include the following: Approximately 165,000 mine features" on more than 47,000 abandoned mine sites exist statewide. More than ' 39,400 abandoned mines (84 percent of 47,000 sites) present physical safety hazards, and approximately'5,200 (11 percent) present environmental hazards. More than 62,000 abandoned mine features (38 percent of 165,000 features) are hazardous openings. Federal lands contain approximately 67 percent of the abandoned mines in the State (primarily on Bureau of Land Management, National Park Service, and U.S. Forest Service property). Approximately 31 percent are on private lands, and about 2 percent are on State or local lands. ' Mine Descriotions ' MINE SHAFT/MINE TUNNEL: A mine shaft is a vertical or inclined excavation used to access to an underground mining facility. On the surface above the shaft stands a building known as the pit head (or poppet head or head frame), which historically contained a winding engine and in modern times contains an electric hoist controller. This raises and lowers the conveyances within the shaft. 1 1 1 1 BORROW PIT: A borrow pit is a term used in construction and civil engineering. It describes an area where material (usually soil, gravel or sand) has been dug for use at another location. The term is literal — meaning a pit from where material was borrowed, although without an Implication of someday returning the material. Borrow pits can be found close to many major construction projects. For example, soil might be excavated to fill an embankment for a highway, clay might be excavated for use in brick -making, gravel to be used for making concrete, etc. CAVE: A cave is a natural underground void large enough for a human to enter. Some people suggest that the term 'cave' should only apply to cavities that have some part which does not receive daylight; however, in popular usage, the term includes smaller spaces like sea caves, rock shelters and grottos. OPEN PIT: Open -pit mines are used when deposits of commercially useful minerals or rock are found near the surface; that is, where the overburden (surface material covering the valuable deposit) is relatively thin or the material of interest is structurally unsuitable for tunneling (as would be the case for sand, cinder, and gravel). GENERAL NOTICE OF ABANDONED WELLS The Department of Water Resources estimates that there are approximately 750,000 Water wells scattered throughout the State of California - some of these wells are abandoned. Wells that have been abandoned pose a serious threat to the safety of humans, especially children, and to animals. Section 24400 of the California Health and Safety Code requires that abandoned'excavations be fenced, covered, or filled. In addition, abandoned wells may act as conduits for the contamination of groundwater since inadequately constructed wells provide a physical connection between sources of pollution and useable water. *Information In this report has been obtained from the Office of Mines and Reclamation and the U.S. Geological Survey. The term "zone" is strictly deflned as a specific boundary within which the specific hazards are contained and is a designation Identified In the legends of the maps prepared by the above -referenced agency. No visual examination of the subject site was performed. This report Is not a substitute for a visual examination and/or inspection of the subject property. If detailed on -site Information regarding geologic, environmental, engineering or any other professional studies is desired, an appropdate professional consultant should be retained. The fact that the subject property is not located totally or partially Infout of a zone does not constitute a guarantee or warranty that the subject property is not or will not be subject to other impediments. www.NHDReport.com Page 11 of 17 Natural Hazard Disclosure Report, LLC 7909 Walerga Road Ste 112-1218 Antelope, Ca. 95843 Transaction Number: 1005200908289 ' Toll Free (877) 271-5357 Monday, October 05, 2009 RED LEGGED FROG DISCLOSURE This statement applies to the following property: 608 E BALBOA BLVD (209 WASHINGTON AVE), NEWPORT BEACH, CA. 92661 Assessors Parcel #: 048.116.04 & 06 County:Orange Escrow Number: ' Based on research of the current maps Issued by the U.S. Fish and Wildlife Service, the following determination is made: The subject property IS NOT LOCATED in a critical habitat for the California Red -Legged Frog. DISCUSSION ' The California Red -Legged Frog, (Rana aurora draytonii), the largest native frog in the western United States, was designated as a Threatened Species on May 23, 1996. Pursuant to the Endangered Species Act of 1973, the habitat for the California Red -Legged Frog has been designated by the U.S. Fish and Wildlife Service as critical habitat. Under the Endangered Species Act, critical habitat t refers to specific geographic areas, that are essential for the conservation of a threatened or endangered species and would require special considerations including, but not limited to, habitat restoration, removal of nonnative species (such as predators), reestablishment of the endangered species populations, and restrictions on development California Red -Legged Frogs are found in humid forests, woodlands, grasslands, and stream sides with plant cover, most common in ' lowlands or foothills, and frequently found in woods adjacent to streams. Breeding habitat is in permanent water sources; lakes, ponds, reservoirs, slow streams, marshes, bogs, and swamps. Any project that would adversely modify or destroy critical habitat would also jeopardize the continued existence of the species. Reasonable and prudent alternatives to avoid jeopardizing the species would also avoid adverse modification of critical habitat. In order to preserve this critical habitat, certain activities that may need Federal ' authorization or funding will be affected. These activities are those that require a Federal action (permitting, authorization, or funding) and may remove or destroy California Red -Legged Frog habitat by mechanical, chemical, or other means (e.g. grading, overgrazing, fragmentation of habitat, timber harvesting within riparian areas, road building, construction, herbicide application, recreation use) or appreciably decrease habitat value or quality through indirect effects (e.g., edge effects invasion of.exotic plants or animals). ' Additionally, activities initiated by a Federal agency' will potentially be affected. These activities include grazing permits, logging, Flood Control projects, Federal Emergency Management Act (FEMA) activities, Federal Highway Administration actions, Federal Housing Act actions. 66 FIR 14625-14674, March 13, 2001. ' APPEARANCE The California Red -Legged Frogs coloring is reddish -brown or brown, gray, or olive, with small black flecks and spots on the back and sides and dark banding on the legs. Dark blotches on the back, typically have light coloring in the center. There is a dark mask on the head and a stripe extending from the shoulder to the front of the upper jaw. The eyes are outward oriented. The hind legs are red ' underneath, giving this frog its name. On older frogs the red coloring extends onto the belly and sides. The chest and throat are creamy and marbled with dark gray. Yellowish -green and black coloring mottles the groin. Toes are not completely webbed. Legs are relatively long. Dorsolateral folds are prominent. Tadpoles are brown marked with small dark spots with eyes set in from the margin of the head. Creamy white coloring Flecked with small spots covers the lower body. Eyes are set in from the margin of the head. E 1 1 CONSERVATION STATUS A listing on the Endangered Species Act provides strict protection for a species. Developers and local governments can have their development projects prohibited or curtailed around protected critical habitats. FOR MORE INFORMATION On the web: http://www.fWs,gov/endangered/features/rl_frog/rlfrog.html#info Ina Pisani Recovery Team Leader US Fish and Wildlife Service Sacramento Fish and Wildlife Office 2800 Cottage Way, Room W2605 Sacramento, California 95818 (918)414-0664 'Information In this report has been obtained from the the U.S. Fish and Wildlife Service. The term "zone" or"area" Is strictly defined as a specific boundary within whlch the specific hazards are contained and is a designation identified in the legends of the maps prepared by the the U.S. Fish and Wildlife Service. No visual examination of the subject site was performed. This report is not a substitute for a visual examination and/or Inspection of the subject property. If detailed on -site Information regarding geologic, environmental, engineering or other professional studies is desired, an appropriate professional consultant should be retained. The fact that the subject property Is not located totally or partially in a Critical Habitat area does not constitute a guarantee or warranty that the subject property is not or will not be subject to other impediments. www.NHDRepol.com Page 12of 17 Natural Hazard Disclosure Report, LLC 7909 Welerga Road Ste 112-1218 Antelope, Ca. 95843 Transaction Number: 1005200908289 Toll Free (877) 271-5357 Monday, October 05, 2009 "PRIVATE TRANSFER TAX" MANDATORY TRANSFER FEE NOTICE This statement applies to the following property: 608 E BALBOA BLVD (209 WASHINGTON AVE), NEWPORT BEAC, Assessors Parcel #: 048-116.04 & 05 County: Orange Escrow Number: Effective January 1, 2008, Civil Code Section 1102.6e requires the Seller to notify the Buyer of whether a private transfer fee applies and if present, to disclose certain specific information about the fee. A "Private Transfer Tax" is a fee imposed by a private entity such as a property developer, home builder, or a homeowner association. When a property within a certain type of subdivision is sold or transferred, a private transfer fee may also be imposed by an individual property owner. Private transfer fees are different from city or county Documentary Transfer Taxes. Private Transfer Fees may apply in addition to government Documentary Transfer Taxes that are due upon sale or transfer of the property. If a Transfer Fee does exist affecting the property, the document creating the fee may be on file with the County Recorder as a notice recorded against the property and should be disclosed in the preliminary (title) report on the property. However, the preliminary "Title Report" will merely disclose the existence of the documents affecting title, not the content of the documents. The title of a document may also not be sufficient to disclose that a transfer fee is included in Its terms. Accordingly Seller should (1) request the titre company which issued the preliminary (title) report to provide copies of the documents shown as "exceptions," and (2) review each document to determine if it contains a transfer fee. Alternatively, the Seller or his/her Agent may order a Transfer Tax Report by filling out the order form below, for a convenient third party solution. California Civil Code Section 1098 defines a "Transfer Fee" as "any fee payment requirement imposed within a covenant, restriction, or condition contained in any deed, contract, security instrument, or other document affecting -the transfer or sale of, or any interest in, real property that requires a fee be paid upon transfer of the real property." Certain existing fees such as governmental fees, court ordered fees, mechanic lien fees, common Interest development fees, etc. are specially excluded from the definition of "Transfer Fee". To determine if the property is subject to a Transfer Fee, obtain copies of all the exceptions listed on the preliminary "Title Report" from the title company and read them to determine if any Transfer Fees are applicable. Be aware that private transfer fees may be difficult to Identify by simply reading the title report. Civil Code Section 1102.6e requires the Seller to disclose specific information about any Transfer Fee that may affect4he property. Please refer to the legal code or to the C.A.R Form NTF (11107), provided by the California Association of Realtors, for a standard format to use In making the Transfer Fee Disclosure if you elect to Investigate and make this disclosure Documentary Transfer Taxes Civil Code Section 1102.6e requires the Seller to disclose specific information about any Transfer Fee that may affect the property. Please refer to the legal code or to the C.A.R Form NTF (11/07), provided by the California Association of Realtors, for a standard format to use In making the Transfer Fee Disclosure if you elect to investigate and make this disclosure personally. Transfer Tax Defined Under California Revenue and Taxation Code Sections 11911-11929, counties and cities are authorized to impose a tax on the transfer of property located within their jurisdiction. The tax is commonly known by various names, including the Documentary Transfer Tax, or Real Property Transfer Tax, or Real Estate Transfer Tax (hereinafter, the "Transfer Tax"). Cost The tax is due at closing and payable through escrow. This tax does not expire. All future sales of this property will be charged this tax at close of escrow. The amount of the transfer tax is based on the value or sale prices of the property that is transferred. The county rate Is one dollar and ten cents ($1.10) for each one thousand dollars ($1.000) of value. The rate for non -charter ("general law') cities is one-half of the county rate and is credited against the county tax due. Charter cities may impose a transfer tax at a rate higher than the county rate. For any city or county in California, the Transfer Tax rate ("Tax Rate Table") is available at no charge from many sources, most conveniently on the website of the California Local Government Finance Almanac (sponsored by the California League of Cities): http:/twww.califomiac'ityfinance.com/PropTransfraxRates.pdf To estimate the transfer tax for the property, multiply the Property's estimated sales price (in thousands of dollars) by the amount shown in the Tax Rate Table for the city and county in which the property is located. www.NHDReport.com Page 13 of 17 1 1 Natural Hazard Disclosure Report, LLC 7909 walerge Road Ste 112-1218 Antelope, Ca. 95843 Transaction Number: 1006200908289 Toll Free (877) 271-5357 Monday, October 05, 2009 "PRIVATE TRANSFER TAX" TRANSFER FEE NOTICE (Continued) This statement applies to the following property: 608 E BALBOA BLVD (209 WASHINGTON AVE), NEWPORT BEAC Assessors Parcel #: 048-116.04 & 05 County:Orange Escrow Number: Payment The Transfer Tax must be paid by the person who makes, signs or issues any document subject to the tax, or for whose use or benefit the document is made, signed or issued, This means that the payment of the Transfer Tax is customarily made by the Seller or the Buyer, or shared by both, depending on the jurisdiction in which the transferred property is located. Exemptions The California Revenue and Taxation Code provides the statutory authority for counties to impose the transfer tax. The following transactions are exempt from the transfer tax: 1. Instruments in writing given to secure a debt. 2. Transfers whereby the federal or any state government, or agency, instrumentality or political subdivision thereof, acquires filte to realty. 3. Transfers made to effect a plan of reorganization or adjustment (1) confirmed under the Federal Bankruptcy Act, (ii) approved in certain equity receivership proceedings or (III) whereby a mere change in identity, form or place of organization is effected. 4. Certain transfers made to effect an order of the Securities and Exchange Commission relating to the Public Utility Holding Company Act of 1935. 5. Transfers of an interest in a partnership (or, beginning January 1, 2000, an entity treated as a partnership for federal income tax purposes) that holds realty, if (i) the partnership is treated as continuing under IRC § 708 and (ii) the continuing partnership continues to hold the realty. 6. Certain transfers in lieu of foreclosure. 7, Transfers, divisions or allocations of community, quasi -community or quasi -marital property between spouses pursuant to, or in contemplation of, a judgment under the Family Code. 8. Transfers by the State of California, or any political subdivision, agency or instrumentality thereof, pursuant to an agreement whereby the purchaser agrees to immediately re -convey the realty to the exempt agency. 9. Transfers by the State of California, or any political subdivision, agency or instrumentality thereof, to certain nonprofit corporations. 10. Transfers pursuant to certain inter vivos gifts or Inheritances. wwv.NHDReport.com Page 14 of 17 Natural Hazard Disclosure Report, LLC 7909 Welerga Road Ste 112-1218 Antelope, Ca. 95843 Transaction Number: 1005200908289 Toll Free (877) 271-5357 Monday, October 05, 2009 NOTICE OF YOUR'SUPPLEMENTAL' PROPERTY TAX BILL This notice satisfies the seller's obligation affecting the subject property: 608 E BALBOA BLVD (209 WASHINGTON AVE), NEWPORT BEACH, CA. 92661 Assessors Parcel #: 048-116.04 & 05 County: Orange Escrow Number: In accordance with Section 1102.6(c) of the California Civil Code, it is the sole responsibility of the seller of any real property, or his or her agent, to deliver to the prospective purchaser a disclosure notice of the following: California property tax law requires the Assessor to revalue real property at the time the ownership of the property changes. Because of this law, you may receive one or two supplemental tax bills, depending on when your loan closes. The supplemental tax bills are not mailed to your lender. If you have arranged for your property tax payments to be paid through an impound account, the supplemental tax bills will not be paid by your lender. It is your responsibility to pay these supplemental bills directly to the Tax Collector. If you have any question concerning this matter, please call your local Tax Collector's Office. California law requires that the Assessor re -appraise property upon a change of ownership or the completion of new construction. This re- appraisal results in a supplemental tax assessment which is based on the difference between the new value and the old value of the property, multiplied by the property's Ad Valorem tax rate. The resulting Supplemental Tax amount is then pro -rated, based upon the number of months remaining in the fiscal year in which the event occurred. The number of tax bills which will be issued also depends on the date the event occurred. If the change of ownership or new construction is completed between January 1st and May 31st, the result will be two supplemental assessments levied on two supplemental tax bills. If the event occurs between June 1st and December 31st , then only one supplemental bill will be issued. II www.NHOReport.com Page 15 of 17 1 Natural Hazard Disclosure Report, LLC 7909 Walerga Road Ste 112-1218 Antelope, Ca. 95343 Transaction Number. 1006200908289 Toll Free (877) 271-5357 Monday, October 05, 2009 RIGHT -TO -FARM ORDINANCE DISCLOSURE This statement applies to the following property: 608 E BALBOA BLVD (209 WASHINGTON AVE), NEWPORT BEACH, CA. 92661 Assessors Parcel #: 048.116.04 B 06 County:Orange Escrow Number: To the Buyers of Orange County Real Estate: Orange County has a Right -to -Farm Ordinance for the unincorporated areas of Orange County. Each prospective buyer of property in unincorporated Orange County shall be informed by the seller or his/her authorized agent of the right -to -farm ordinance. Whenever a building designated for residential occupancy is to be located on property in the unincorporated area of Orange County has a Farm Ordinance for the unincorporated areas of Orange County, the owners of the property, or their authorized agent, shall acknowledge receipt of the Right -To -Farm Ordinance. It is the declared policy of the County of Orange to preserve, protect and encourage the development and improvement of its agricultural land for the production of food and other agricultural products. When non-agricultural land uses extend into agricultural areas, agricultural operations often become the subject of nuisance suns. As a result, agricultural operations are sometimes forced to cease or are substantially curtailed. Others may be discouraged from making investments in agricultural improvements. It is the purpose of this Ordinance to reduce the loss to the County of its commercial agricultural resources by limiting the circumstances under which agricultural operations may be deemed to constitute a nuisance. No agricultural activity, operation, or facility, or appurtenances thereof, conducted or maintained for commercial purposes, and in a manner consistent with proper and accepted customs and standards, as established and followed by similar agricultural operations shall be or become a nuisance, private or public, due to any changed condition in or about the locality, after the same has been in operation for more than one year if It was not a nuisance at the time it began. For purpose of this section, the term "agricultural activity, operation, or facility, or appurtenances thereof shall include, but not be limited to, the cultivation and tillage of soil, dairying, the production, cultivation, growing, and harvesting of any agricultural commodity Including timber, Christmas trees, viticulture, apiculture, nursery stock, or horticulture, the raising of livestock, fur bearing animals, fish, or poultry, and game birds, and any practices performed by a farmer or on a farm as incident to or in conjunction with such farming operations, Including preparation for market, delivery to storage, or to market, or to carriers for transportation to market. Inconveniences or discomfort from the pursuit of agricultural operations including but not limited to cultivation, plowing, spraying, fertilizing, pruning, and harvesting which occasionally generates dust, smoke, noise, odors, and other features attributed to the keeping of farm animals; and from the conduct of farming activities during typical working hours, as well as late in,the evening, early in the morning, or 24-hours a day during certain times and seasons of the year. The Orange County Board of Supervisors has designated areas within its boundaries for agricultural uses and has adopted policies supporting continued agricultural production. Residents within these areas and on adjacent property should be prepared to accept such inconvenience and recognize that these uses will occur. If an agricultural operation is being conducted in a manner which does not appear to be consistent with accepted agricultural practices, any person may file a complaint with the office of the Agricultural Commissioner, located at 4137 Branch Center Road, Sacramento, California. FARM OR RANCH LAND PROXIMITY DETERMINATION Based upon current maps Issued by the California Department of Conservation, Division of Land Resource Protection records only; The property IS NOT LOCATED within one mile of a designated farm or ranch land. Definition: California Assembly Bill 2881, as amended on January 1, 2009 requires the disclosure of farm or ranchland property that is located within one mile of a property being sold. This third party disclosure fulfills that requirement. 'No visual examination of the subject property was performed. This report Is not a substitute for a visual examination and/or Inspection of the subject property. If detailed on -site information regarding geologic, environmental, engineering or any other professional studies Is desired, a professional consultant should be retained. The fact that the subject property Is not located totally or partially in the above -referenced area does not constitute a guarantee or warranty that the subject property is not or will not be subject to other Impediments. www.NHDReport.com Page 16 of 17 I F Natural Hazard Disclosure Report, LLC 7909 Walergo Road Ste 112-1218 Antelope, Ca. 95843 Transaction Number: 1005200908289 Toll Free (877) 271-5357 Monday, October 06, 2009 TERMS, CONDITIONS AND LIMITATIONS OF LIABILITY This Natural Hazard Disclosure Report was prepared by NHD Report I.I.C. The Report is valid solely for and may be used only In connection with the transaction presently contemplated between this buyer and -this seller relating to the property address and assessors parcel number (APN) furnished to NHD Report LLC as shown on this Report. The Seller or sellers agent is responsible for verifying the accuracy of the property address and APN within receipt of this Report. Upon notification of an inaccurate address or APN, NHD Report LLC will issue a replacement report. The disclosures contained in this Report are valid only as of the date shown on this Report. This Report is for the exclusive use and reliance of the buyer, seller, listing agent/broker and selling agent/broker, if any, involved in the current transaction and may be used only in conjunction with a Natural Hazard Disclosure Statement issued in this transaction for this Property. This Report is not intended to be and may not be used for any other purpose(s), including but not limited to appraisal or assessing value of the Property. This Report may not be used by or relied upon by any other parties, including but not limited to lenders or subsequent buyers of the Property. There shall be no third party beneficiaries to this Report regardless of their relationship with or to the buyer, the seller or the Property. NHD Report LLC makes no representations, promises or covenants as to the Reports effect on the value of the Property as a result of the various disclosures contained in this Report. If multiple adjacent parcels are being transferred as a single property or in a single transaction, this Report treats them as if they were a single parcel. ANY hazards that affect an individual parcel will be disclosed as affecting ALL parcels. Should the seller or buyer desire a disclosure with regard to each parcel separately, a separate report must be ordered for each such parcel. NHD Report LLC shall have no duty or obligation to inform the buyer, the seller or their agents/brokers of any changes or governmental actions pertaining to or affecting the Property which may become effective after the date shown on this Report. It is recommended that a request for an updated Report be made if the Property remains unsold for an extended period of time after this Report is issued. NHD Report LLC has relied solely upon records and information specifically referred to in this Report for preparation of this Report. These records and information were supplied by various public and/or governmental agencies. NHD Report LLC has assumed that the records and information supplied by various public and/or governmental agencies are complete and accurate. Consequently, NHD Report LLC shall not be responsible for any inaccuracies or omissions in public records or in information reported by various governmental or public agencies. No physical inspection of the Property has been made for purposes of preparing this Report. NHD Report LLC shall have no responsibility or liability for any incurred costs, losses or consequential damages arising from earthquakes or floods or from the need or lack of need for earthquake insurance or flood hazard insurance. The National Flood Insurance Program or an Insurance agent should be contacted for information regarding flood insurance. An insurance agent should be contacted for earthquake Insurance information. Delivery of this Report is intended to assist the seller and both the buyers and sellers agents in availing themselves of the liability protection specified in Calif. Civil Code Section 1103.4. NHD Report LLC makes no representation, warranty or guarantee, express or Implied, as to the actual availability of such liability protection. The disclosures contained in this Report are intended to satisfy California Civil Code Sections 1103.2, 1102.6b, 1102.15, 1102.17 and 2079.10a. NHD Report LLC shall not be responsible for any disclosures other than those expressly set forth in this Report. USE OF THIS REPORT BY THE BUYER, SELLER, OR THEIR RESPECTIVE AGENT(S) OF THIS NATURAL HAZARD DISCLOSURE STATEMENT IN CONJUNCTION WITH THIS REPORT, CONSTITUTES APPROVAL AND ACCEPTANCE OF THE TERMS, CONDITIONS, AND LIMITATIONS STATED HEREIN. NHD REPORT LLC SHALL NOT BE LIABLE FOR LOST PROFITS, REDUCTION IN VALUE OR ANY INDIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES IN CONNECTION WITH, OR ARISING OUT OF, THE PREPARATION, ISSUANCE, OR USE OF THIS REPORT. t www.NHOReport.com Page 17 of 17 CLIFF - �Op? Ce! P-{o SA 'I"�N Peninsula Area ° 'FF Newport Beach Parking Meter Zones AVON 5T �R°W j� AVF E9L.°h T yo ? �+°FN CAs'AWAYS `a • 1, Balboa Business 19, Lido Shopping ti T a °� At �� °� F 2, Washington St Lot • 20, Central Lot (✓ ° PA0." RJR ST JAMEs sra� D(F sT c° BT RD Q o 3, Newport Business • 21, Strip #1 pNNE, ,+ allo RCHANNEL y a 2 P�5 • 4, 26th St Lot • 22, Strip #2 . Z 0 TURNING 4*1 3 ; m 4� (R` z4 ? : 2 w ° 5, Newport Blvd 23, Strip #3 `o btuT Wp BASIN 2 W =` x • 6, Newport -Balboa • 24, 15th St Lot PL 7, Coast Hwy • 25, 18th St Lot C v o DRIVE • 8, Coast Hwy W • 26, City Hall Lot AVE Ogo B `L ROM • 9, Ocean Front Lot • 27, Seashore Lots P °VIA MA AGE O GY ST •--f 10, Balboa Metered Lot • 28, West Newport (37th - 48th) • •• aNt>°pie •- f 11, A St Lot a 29, West Newport (49th - Lugonia St) a PP° , ° cRB men x. • 30, Ba side Lots �12, B St Lot Y 0 UQ Or 1'(5 qD pp S1 3 'IT • J\P O °�: OP VLSTA 30,JRELY DR LI • 31, Cannery Village Lot s 13, Mariners Lot ry 9 o PW�� a . °� • 14, McFadden Lot • 32, Cannery Village C 4 � LINDA P° 4 3oA 1 °9 "°� _',�" g f e„ *m° �P ISLE • 15, Newport Blvd Lot • 33, Cannery Village B ° rPP pQP og cyq I SNOgF • 16. 19th St Lot 34, Dahlia Lot �4�sa sT Z s P s{° � `/ • 17, 32nd St Lot • 35, Palm St Lot i _ Sr ° ,9S�Z 2 GEN A ' ; e Oar 18, Cannery Village • 36, Superior Lot 91� -7- A�2 BOA M1 L� tT i _c c PT ? �q (ISLAND M1 N4J• S1 LIDO ` ; �� Ypiw T NR9°� r V t ° 3 :- DR s M141M1et�zt S g9�'Ne° PENINSULA GO4p, �,r �; oq HARBOR NO V -BEACON-- BAY BALBOA BAYSME COVE °F ISLAND 1Aa° g 3 ro y A � YACHT BASIN IURI° VF -� BALBOA _ p p COLLINS j LE OI O�{ J' LIDO ISLAND BPv FRONT -- - - NORTH p �V ISLE AI,E BAY NEWPORT ry • aA ISLAND PIER DPEAN ' w � F EOR,OA IER ♦VFy ¢�y P t� �AVENUE 4P° j EOCEWA)ER 14A p Oyy _ F h,?o° F h .: ° W o A a p a m ° w o w w FRONT wi - 2 y4 9 u° n BLVp i e <?\� \ gip° h N �Y m EO p BAY FRONT SOUTH i y AVE4 A GF./VgTe _,2 B A L B O A N W # E 0 500 1,000 Feet ParkingMkWZenaa_PenImula.mad 3` eA`eQ., 2 ' ( HA N =' � g h 1 • h y P NE( y O � A 3 e m W ° Vp BALBOA - West Newport o Newport Beach Parking Meter Zones • 1, Balboa Business 19, Lido Shopping • 2, Washington St Lot • 20, Central Lot ;bra 3, Newport Business c 21, Strip #1 • 4, 26th St Lot • 22, Strip #2 A 5, Newport Blvd 23, Strip #3 y $ <_PROQ4 nON __ _ __ PL • 6, Newport -Balboa • 24, 15th St Lot y~ l910 e�eFr q %A % N E W P O R T o 7, Coast Hwy • 25, 18th St Lot :�9 q °A SHORES • 8, Coast Hwy W • 26, City Hall Lot y�?r q�y9 y • SF • yA y Cry DEDAA ST _-_."jiEET • 9, Ocean Front Lot • 27, Seashore Lots 7 • • m 15TH WEST10, • 10, Balboa Metered Lot • 28, West Newport (37th - 48th) �s°° =P° :° z°y °sF € C' e �r »° ""� "' • 11, A St Lot + 29. West Newport (49th - Lugonia St) .! °PF e? 4w "L� V1NC�� "l SUMMER gpOD P WCi ; GOOSE Dt HALYARff- i r 12, B St Lot • 30, Bayside Lots SANTA ANA eP° /�°Res °� EJ ` aP/�F WIND cr OOCSEv a y % �yow$ wb 4° `' • 13, Mariners Lot • 31, Cannery Village Lot RIVER JETTY O 4p °= f' aARDpp a o� • 14, McFadden Lot • 32, Cannery Village C qlk3P P° 7l4He °LSO ClR1 F?`p40 C�rF( •0.4 1\ xosPIru • 15, Newport Blvd Lot • 33, Cannery Village B R•Oy g°y y'� 444 "'tL sk. a PS4f's JQ �~'Lo •° °• 2 --�L a • 16, 19th St Lot 34, Dahlia Lot v°° ?' % �,°GNF 4' ' f • 17, 32nd St Lot • 35, Palm St Lot Y �G • A= q • o°° s,NO a4 e 18, Cannery Village A • 36, Superior Lot y Vf N •FP L LF 't yM1l �_Jy c " • 41,44 � �? �_ CLIFF O b h=0 9 AYF y y�F+Nr NOAG 04 HIGHWAY AVON ST O° YL Akz FACO " •ey s [CDM Area �9 F°4F �9s R P�Oy Fay ry JN WAIFNp NCNr SF CO P�, 4r4s MO p� � F , S P ° ?F d, 4Py' S 9yFry OC� �? IFOO S�OF Po y y J7 4C 5N OR qF" M1y P � po° F ,0 yM1 ` C„ANNEL PL ,` •°�e�� rya • � NF yVpp O �M1� M1 • t'e Aq 1 CHANNEL ,SL4AV Q M1�y O 9 29 P�` CHANNEL a . T rL yM1 �/�, 55 ,19 TURNING °yM1 • P !T °SJ' 3 Ti.. SS' Pw �• BASIN �° y • 94 � 3yM1� 3M1 P Sr U 9 y �s - yyM1r j h4 `y5 P 41 CO 3a U O ip r 1 Li Z yM1 4VE e MALA 6 A AM1Z � `'yM1 F ' �� � •"! �M1 yM1 " 'f 17 • _ _- i N y,M1+ °R 3 O yM1 40 _ 1 W E S S NyM1 4i)ST �Z 9OM1 a 500 1,000 yM1 M1 N Feet sM1 ParkinghwerZones_waatNewportmxd Ap ¢` I PA0.f O A?y JtP P ° y 40Q 0= Y� J�P p 0 y P W= F p J\4\000 q`9rU��=F iFF 'v J4 J�P 4EP V°09 � J�P F S 0 Z s P PLAZA i Z Z OENOA r MDASSOCIATES February 22, 2009 City of Newport Beach 3300 Newport Blvd. PO Box 1768 Newport Beach, CA 92658-8915 Attn: Leigh DeSantis Economic Development Administrator Re: 608 E. Balboa Blvd. Newport Beach, CA 92661 Dear Leigh: After several years of speaking with various city council and staff members, as well as the Newport Harbor Nautical Museum and never obtaining a definitive result, we are presenting to the city this written communication. Levon Gugasian is willing to personally fund and build a new parking structure on both his two parcels and the city owned land at the corner of Palm and E. Balboa adjacent to his parcels. He requests the city agree and contribute their land to this venture. He will retain the perimeter commercial element for his exclusive property and retain the funds derived from that element and parking for his tenant needs. We have a National tenant that is desirous of participating and having space at the site. Repayment of Mr. Gugasian's building expenses and other associated fees of this transaction will need to be discussed, as well as all particulars of this transaction. This should enable the city to move expediently forward to resolve parking issues associated with the Balboa Village area and create a beneficial plan for the village. Our assistance to facilitate this transaction will continue to be available. Sincerely, 177 Riverside Avenue Marcia Dossev/ Suite -264 each /}� / Newport Beach Acknov�f/]/���(e,( d Agreed: California 92663 P: 949.400.0471 F: 949. 673.3215 mdosseyeadelph io.net