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HomeMy WebLinkAbout20 - Setting the Fair Market Value Rent for Moorings Located Upon Tidelands in Newport Harbor20-1 NEWPORT BEACH City Council Staff Report COUNCIL STAFF REPORT CITY OF January 26, 2016 Agenda Item No. 20 ABSTRACT: At a special meeting on June 16, 2015, the City Council directed staff to return with a Resolution setting the fair market value rent for both onshore and offshore moorings located upon City of Newport Beach (“City”) tidelands in Newport Harbor. The City Council also directed staff to prepare various Municipal Code amendments and administrative changes as recommended by the City’s Harbor Commission. Attached is a Resolution establishing fair market value rent for the City’s moorings at $35.00 a linear foot for offshore moorings and $17.50 a linear foot for onshore moorings. The Municipal Code amendments and administrative changes (e.g., transfers, wait list, etc.) will follow at an upcoming City Council meeting. RECOMMENDATION: Adopt Resolution No. 2016-17, A Resolution of the City Council of the City of Newport Beach, California, Setting the Fair Market Value Rent for Moorings Located upon Tidelands in Newport Harbor, effective for the mooring permits issued in 2016. FUNDING REQUIREMENTS: If the new fair market value mooring rental rates are adopted by the City Council, the City will collect approximately $1,231,370 in 2016, which will be deposited in the City’s Tidelands Fund. DISCUSSION: A majority of the waterways in Newport Harbor are tidelands, owned by the State on behalf of the people of California. The California Legislature, through the Beacon Bay Bill (Chapter 74 of the Statutes of 1978, as amended), granted the City trusteeship of TO:HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM:David A. Webb, Public Works Director - 949-644-3311, dawebb@newportbeachca.gov PREPARED BY:Chris Miller, Harbor Resources Manager PHONE:949-644-3043 TITLE:Setting the Fair Market Value Rent for Moorings Located Upon Tidelands in Newport Harbor Setting the Fair Market Value Rent for Moorings Located Upon Tidelands in Newport Harbor January 26, 2016 Page 2 20-2 most of the tidelands within Newport Harbor. The Beacon Bay Bill authorizes the City to allow third parties to use the tidelands. The Beacon Bay Bill, California Constitution Article 16, Section 6, the Municipal Code, and City Council Policy F-7(D) require the City to receive fair market value rent from persons using tidelands. The City currently issues approximately 1,200 annual permits for onshore and offshore moorings in Newport Harbor. Onshore moorings allow persons to store smaller vessels off of harbor beaches, while offshore moorings allow for the storage of larger vessels in the center of the harbor. Moorings consist of “tackle” (buoys, weights, chains) placed within designated mooring fields. Mooring permit holders own and maintain their own tackle, but they do not have any ownership rights in the underlying tidelands. The City’s General Plan speaks to a broad goal that onshore and offshore moorings should remain an affordable method of bringing boating to the general public compared to berthing in a traditional marina environment. Onshore moorings are charged 50% of the offshore mooring rate because onshore moorings are intended for smaller vessels with an 18 foot maximum length. At the June 16, 2015 special meeting, the City Council considered a Harbor Commission mooring report, and then directed staff to return with recommended changes, including a re-evaluation of the current fair market rent for moorings. At the City Council’s direction, staff discussed the proposed mooring changes with their counterparts at the State Lands Commission (“SLC”). The SLC expressed two recommendations regarding the City’s mooring proposal: (1) the SLC recommended the City provide, in no uncertain terms, that the mooring permits do not convey a real property interest in the underlying tidelands; and (2) the SLC recommended the City obtain a current appraisal to assist with the establishment of fair market value mooring rental rates. Based upon the SLC’s recommendations, staff added a provision to the Resolution establishing fair market value mooring rental rates reiterating the annual permits do not convey a real property interest. Staff will also add/strengthen similar language in the actual mooring permits. Staff also retained Netzer and Associates to conduct a current appraisal of the moorings in Newport Harbor, which is attached hereto as Attachment B. The mooring appraisal established a recommended range for fair market value mooring rental rates: Annual Fair Market Rent for Offshore Moorings: $32.00 to $38.00 per linear foot of mooring Annual Fair Market Rent for the Onshore Moorings: $16.00 to $19.00 per linear foot of mooring Based upon the attached appraisal, the recommendation of the Harbor Commission, and the good work of the Newport Mooring Association, staff recommends a fair market Setting the Fair Market Value Rent for Moorings Located Upon Tidelands in Newport Harbor January 26, 2016 Page 3 20-3 value mooring rental rate of $35.00 a linear foot for offshore moorings and $17.50 a linear foot for onshore moorings. ENVIRONMENTAL REVIEW: Staff recommends the City Council find the setting of fair market value rent for moorings located upon tidelands is not subject to the California Environmental Quality Act (“CEQA”) pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. Alternatively, the City Council finds the setting of fair market value rent for moorings located upon tidelands is entitled to a Class 1 Categorical Exemption pursuant to CEQA Regulation Section 15301 because the mooring rent contemplates the continued use of existing facilities, with no expansion of the proposed use. Further, staff recommends the City Council find the setting of fair market value rent for moorings located upon tidelands is entitled to a Statutory Exemption pursuant to CEQA Regulation Section 15273(a)(1) because the fair market value rent established by the City Council will be used to meet operating expenses within the tidelands. Lastly, staff recommends the City Council find the setting of fair market value rent for moorings located upon tidelands is not a project under CEQA Regulation Section 15061(b)(3) because it has no potential for causing a significant effect on the environment. NOTICING: This agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). ATTACHMENTS: Attachment A – Resolution No. 2016-17 Attachment B – Netzer & Associates Appraisal Report: Fair Market Rent – Offshore & Onshore Moorings -1- RESOLUTION NO. 2016- __ A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH, CALIFORNIA, SETTING THE FAIR MARKET VALUE RENT FOR MOORINGS LOCATED UPON TIDELANDS IN NEWPORT HARBOR WHEREAS, pursuant to the 1978 Beacon Bay Bill, as amended, (“Beacon Bay Bill”) the City of Newport Beach (“City”) acts on behalf of the State of California as the trustee of tidelands located within the City’s limits, including Newport Harbor; WHEREAS, the Beacon Bay Bill and Chapter 17.60 of the Newport Beach Municipal Code (“NBMC”) allow the City to issue permits to third parties to construct/maintain moorings upon tidelands; WHEREAS, the City offers two types of moorings, onshore and offshore, that provide an affordable option allowing residents of California to use and enjoy the tidelands in Newport Harbor; WHEREAS, onshore moorings are located on the perimeter of the shore within Newport Harbor, and offshore moorings are located offshore within the waters of Newport Harbor; WHEREAS, the mooring permits issued by the City do not convey any underlying property interest, and instead only allow for the temporary mooring of a vessel upon the waters of Newport Harbor; WHEREAS, the Beacon Bay Bill, California Constitution Article 16, Section 6, NBMC Subsection 17.60.060(D) and City Council Policy F-7(D) require the City to receive fair market value rent from third parties using the tidelands; WHEREAS, the City Council has the exclusive discretion to determine fair market value rent based, in part, upon the findings of a City-selected appraiser; WHEREAS, an appraisal report was prepared by Netzer & Associates and delivered to the City and has been reviewed and considered by the City Council, which report is made a part of the record for this matter; WHEREAS, on November 23, 2010, the City Council adopted Resolution No. 2010-132, which established fair market value rental rates for onshore and offshore moorings in Newport Harbor; WHEREAS, the City Council is committed to periodically reviewing tidelands rent to ensure the rent is reflective of fair market value; 20-4 -2- WHEREAS, on June 16, 2015, the City Council held a special meeting to receive and consider a comprehensive study conducted by the City’s Harbor Commission regarding various aspects of mooring permits, including, but not limited to, fair market value rental rates; WHEREAS, at the City Council’s special meeting, the City Council considered the feedback and ideas gathered during the Harbor Commission’s study and outreach meetings, and directed staff to bring back the mooring fair market value rental amounts in this resolution; and WHEREAS, the City Council has considered all documents and comments in the record in connection with this resolution. NOW, THEREFORE, the City Council of the City of Newport Beach resolves as follows: Section 1: The Recitals provided above are true and correct and are incorporated into the substantive portion of this resolution. Section 2: Resolution No. 2010-132 is hereby repealed. The City Council finds that the rent provisions contained in this resolution provide for the charging of fair market value rent and that the rental rate (and adjustments) constitutes fair market value rent for moorings located upon tidelands, which findings are made by the City Council in its exclusive discretion but are based, in part, on the information in the appraisal of its City-selected appraiser and, in addition, on other testimony and documents in the record for this matter. The City Council further finds and determines the rent for moorings located upon tidelands, operating under a permit, shall be set in accordance with the provisions of this resolution. The rent established in this resolution shall only be applicable to permittees with a mooring located over City managed tidelands. The fair market value rent for moorings located upon tidelands in Newport Harbor shall be set and adjusted as follows: Onshore Mooring $17.50* linear foot *Adjusted annually by the U.S. Department of Labor, Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers (“CPI”), Los Angeles-Riverside-Orange County Region or 2%, whichever is less. The City may conduct a new appraisal of mooring rental rates in Newport Harbor after March 1, 2018, and every fifth (5th) year thereafter, as part of the appraisal required by Resolution No. 2012-96, or any successor resolution. Offshore Mooring $35.00* linear foot 20-5 -3- Section 3: The City Council finds the setting of fair market value rent for moorings located upon tidelands is not subject to the California Environmental Quality Act (“CEQA”) pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. Alternatively, the City Council finds the setting of fair market value rent for moorings located upon tidelands is entitled to a Class 1 Categorical Exemption pursuant to CEQA Regulation Section 15301 because the mooring rent contemplates the continued use of existing facilities, with no expansion of the proposed use. Further, the City Council finds the setting of fair market value rent for moorings located upon tidelands is entitled to a Statutory Exemption pursuant to CEQA Regulation Section 15273(a)(1) because the fair market value rent established by the City Council will be used to meet operating expenses within the tidelands. Lastly, the City Council finds the setting of fair market value rent for moorings located upon tidelands is not a project under CEQA Regulation Section 15061(b)(3) because it has no potential for causing a significant effect on the environment. Section 4: If any section, subsection, sentence, clause or phrase of this resolution is, for any reason, held to be invalid or unconstitutional, such decision shall not affect the validity or constitutionality of the remaining portions of this resolution. The City Council hereby declares that it would have passed this resolution, and each section, subsection, sentence, clause or phrase hereof, irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases be declared invalid or unconstitutional. Section 5: This resolution shall take effect immediately upon its adoption by the City Council and the City Clerk shall certify the vote adopting the resolution. ADOPTED this ___ day of ___________, 2016. Diane B. Dixon, Mayor ATTEST: Leilani I. Brown, City Clerk 20-6 APPRAISAL REPORT FAIR MARKET RENT OFF-SHORE & ON-SHORE MOORINGS NEWPORT BEACH, CALIFORNIA DATE OF VALUE JANUARY 6, 2016 PREPARED FOR CHRIS MILLER HARBOR MANAGER CITY OF NEWPORT BEACH, HARBOR DEPARTMENT 829 HARBOR ISLAND DRIVE NEWPORT BEACH, CALIFORNIA 92660 PREPARED BY NETZER & ASSOCIATES 170 E. SEVENTEENTH STREET, SUITE 206 COSTA MESA, CALIFORNIA 92627 FILE NO. 2015-024 20-7 NETZER & ASSOCIATES 170 E. Seventeenth Street, Suite 206  Costa Mesa, CA 92627  Phone (949) 631-6799  FAX (949) 631-4631 Real Estate Appraisal & Consulting January 6, 2016 File No. 2015-024 Chris Miller Harbor Manager City of Newport Beach, Harbor Department 829 Harbor Island Drive Newport Beach, CA 92660 Re: Appraisal Services Fair Market Rent – Off-shore & On-shore Moorings Newport Beach, California Dear Mr. Miller: In accordance with your request and authorization, I have undertaken the investigations and analyses necessary to estimate the Fair Market Rent, Fee Simple Interest, in the above referenced real property, which is the subject of this report. James B. Netzer conducted inspections of a representative sampling the subject properties in December 2015. Based upon the work undertaken and my experience as a real estate analyst and appraiser, I have formed the opinion, as of the 6th day of January 2016, subject to the Assumptions and Limiting Conditions contained in this report, that the subject has the following market values: Annual Fair Market Rent for the Off-shore Moorings $32.00 to $38.00 per Linear Foot of Mooring Annual Fair Market Rent for the On-shore Moorings $16.00 to $19.00 per Linear Foot of Mooring This letter of transmittal must remain attached to this appraisal report, which contains 22 pages plus related exhibits, in order for the value opinions set forth to be considered valid. I invite your attention to the following appraisal report which has been prepared in accordance with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute and is in compliance with the USPAP standards, and sets forth the data and analysis which my opinions are, in part, predicated. Thank you for the opportunity of serving you in this matter. Respectfully submitted, James B. Netzer, MAI California General Appraiser No. AG003143 20-8 TABLE OF CONTENTS CERTIFICATION ……………………………………………………………….. 1 INTRODUCTION ……………………………………………………………….. 3 AREA DESCRIPTION ………………………………………………………….. 7 HIGHEST AND BEST USE …………………………………………………….. 8 APPRAISAL PROCEDURES …………………………………………………... 8 FAIR MARKET RENT ANALYSIS ……………………………………............. 9 RECONCILIATION ……………………………………………….…………….. 16 VALUATION …………………………………………………………………… 18 ADDENDA ……………………………………………………………………… 19 ii 20-9 Newport Harbor Moorings Newport Beach, California January 6, 2016 NETZER & ASSOCIATES 1 CERTIFICATION To the best of my knowledge and belief, I certify that: The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are my personal, unbiased professional analyses, opinions and conclusions. I have no present or prospective interest in the property that is the subject of this report, and have no personal interest or bias with respect to the parties involved. I have performed no services, as an appraiser or in any other capacity, regarding the property that is the subject of this report within the three-year period immediately preceding acceptance of the this assignment. I have no bias with respect to the property that is the subject of this report or to the parties involved in the assignment. My engagement in this assignment was not contingent upon developing or reporting predetermined results. My compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. The reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute, which include the Uniform Standards of Professional Appraisal Practice. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. I have made a personal inspection of the property that is the subject of this report. In accordance with the USPAP Competency Provision, I certify that I have the knowledge and experience to complete this assignment and have appraised this property type before. Disclosure of the contents of this appraisal review is governed by the Bylaws and Regulations of the Appraisal Institute. In furtherance of the aims of the Institute to develop higher standards of professional performance by its Members, the appraiser may be required to submit authorized committees of said Institute copies of this report and any subsequent changes or modifications thereof. The Appraisal Institute conducts a voluntary program of continuing education for its designated members. MAI's who meet the minimum standards of this program are awarded periodic educational certification. As of the date of this report, James B. Netzer has completed the requirements under the continuing education program of the Appraisal Institute. 20-10 Newport Harbor Moorings Newport Beach, California January 6, 2016 NETZER & ASSOCIATES 2 I have personally conducted an inspection of a representative sampling of the on-shore and off- shore moorings located in Newport Harbor, which are the subject of this report. Based upon my investigation and analysis, I have formed the opinion that the Annual Fair Market Rent for the Newport Harbor “off-shore” moorings, as of January 6, 2016, is $32.00 to $38.00 per linear foot of mooring. Based upon my investigation and analysis, I have formed the opinion that the Annual Fair Market Rent for the Newport Harbor “on-shore” moorings, as of January 6, 2016, is $16 .00 to $19.00 per linear foot of mooring. Respectfully submitted, James B. Netzer, MAI California General Appraiser No. AG003143 20-11 Newport Harbor Moorings Newport Beach, California January 6, 2016 NETZER & ASSOCIATES 3 INTRODUCTION Purpose of Report The purpose of this report is to set forth the data, analyses, and conclusions relative to my opinion of the Current Fair Market Rent for the off-shore and on-shore moorings located upon City managed tidelands throughout Newport Harbor. A map outlining the specific study areas under consideration is included in the Addenda. Function of Report The function of this report is to estimate the Current Fair Market Rent of the off-shore and on- shore moorings for the City’s internal purposes. The appraisal is made at the request of the City of Newport Beach and the Harbor Commission by Chris Miller, Harbor Resources Manager, and Michael Torres, Assistant City Attorney, who are the intended users of this report. Date of Value The date of value presented in this report is January 6, 2016. Given the number of properties involved in this report not every property was inspected individually and inspections of a representative sampling of the off-shore and on-shore moorings and the surrounding environs were completed during December 2015. Scope of Investigation This report conveys the results of my investigations and analyses concerning the subject property. The report includes a summary of the information utilized and the methodology used in determining an estimate of value. Interests Appraised The interests appraised and considered in this appraisal include the Fee Simple Estate, under the assumption that the subject moorings will eventually be leased. The term “Fee Simple Estate”/1 is defined as follows: Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat. Market Rent Defined The term “Market Rent”/2, as used in this report, is defined as follows: The most probable rent that a property should bring in a competitive and open market reflecting all conditions and restrictions of the specified lease agreement including, term, rental adjustment and revaluation, permitted uses, use restrictions, and expense obligations; the lessee and lessor each acting prudently and 1 Appraisal Institute, The Dictionary of Real Estate Appraisal, Fourth Edition, (Chicago, 2002), p. 113. 2 Appraisal Institute, The Dictionary of Real Estate Appraisal, Fourth Edition, (Chicago, 2002), p. 176. 20-12 Newport Harbor Moorings Newport Beach, California January 6, 2016 NETZER & ASSOCIATES 4 knowledgeably, and assuming consummation of a lease contract as of a specified date and the passing of the leasehold from the lessor to the lessee under conditions whereby: 1. Lessee and lessor and 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 on the open market; 4. The rent payment is made in cash in United States dollars, and expressed as an amount per time period consistent with the payment schedule of the lease contract; and 5. The rental amount represents the normal consideration for the property leased unaffected by special fees or concessions granted by any one associated with the transaction. Probability of Change The opinion of value is based upon my knowledge of conditions as of the date of this report. Constantly changing economic, social, political and physical conditions have varying effects upon real property values. Even after the passage of a relatively short period of time, property values may change substantially and require a review based on differing market conditions. Legal Descriptions I have not been provided with the legal description of the property; however, this does not impact the analysis or conclusions presented. Owner of Record and Property History It is assumes that title to all of the submerged tideland properties being appraised is vested in the City of Newport Beach or the State of California and administered by the City of Newport Beach. Unless specifically addressed in this report, none of the properties have transferred or been encumbered with long term leases in the recent past. Assumptions and Limiting Conditions The analyses and opinions in this report are subject to the following assumptions and limiting conditions: Specific The Fair Market Rent analysis presented is completed on a “global” basis for each category of use - “off-shore” and “on-shore” and applies to all of the mooring located upon the tideland properties included in each category in Newport Harbor that are under the jurisdiction of the City of Newport Beach. The use categories set forth in the report are assumed to be the Highest and Best Use of the tidelands, as it is beyond the scope of this assignment to assess the Highest and Best Use of each submerged tideland property. I reserve the right to make such adjustments to the analysis, opinions and conclusions set forth in this report as may be required by consideration of additional data or more reliable data that may become available. 20-13 Newport Harbor Moorings Newport Beach, California January 6, 2016 NETZER & ASSOCIATES 5 General No investigation of title to the property has been made, and the premises are assumed to be free and clear of all encumbrances, leases, use restrictions, easements, cases or actions pending, except as specifically discussed in this report. Title is assumed to be good and marketable, and that the property is under responsible ownership, competent management and available for its highest and best use. No survey, legal, or engineering analysis of this property has been made by the appraiser. I assume no responsibility for any condition not readily observable from the customary inspection of the premises, and that there are no hidden or unapparent conditions of the property, subsoils or structures that render it more of less valuable, except as noted herein. The distribution, if any, of the total valuation in this report between land and improvements applies only under the stated program of utilization. The separate allocation for land and buildings must not be used in conjunction with any other appraisal and are invalid if so used. The maps, plats, photographs, and exhibits included herein are for illustration only, as an aid in visualizing matters discussed within the appraisal. They should not be considered as surveys nor relied upon for any other purpose, nor should they be removed from, reproduced, or used apart from this report. I assume no responsibility for economic or physical factors, which may affect the opinions herein, stated which might occur at some date after the date of value. I reserve the right to make such adjustments to the analysis, opinions and conclusions set forth in this report as may be required by consideration of additional data or more reliable data that may become available. Information contained in this appraisal has been gathered from sources, which are believed to be reliable, and where feasible, has been verified. No responsibility is assumed for the accuracy of information supplied by others. No opinion is expressed as to the value of sub-surface oil, gas, or mineral rights, or whether the property is subject to surface entry for the exploration or removal of such materials except as expressly stated. The property is appraised assuming to be in full compliance with all applicable federal, state, and local environmental regulations and laws, unless otherwise stated. The property is appraised assuming that all applicable zoning and use regulations and restrictions have been complied with, unless otherwise stated. The property is appraised assuming that all required licenses, certificates of occupancy, consents, or other legislative administrative authority from any local, state, or national government or private entity or organization have been or can be obtained or renewed for any use on which the value estimate contained in this report is based, unless otherwise stated. The Americans with Disabilities Act ("ADA") became effective January 26, 1992. The appraiser has not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property, together with a detailed analysis of the requirements of the ADA, could reveal that the property is not in compliance with one or more of the requirements of the Act. If so, this fact could have a negative effect upon the value of the property. Since the appraiser has no direct evidence relating to this issue, possible noncompliance with the requirements of the ADA in estimating the value of the property has not been considered. 20-14 Newport Harbor Moorings Newport Beach, California January 6, 2016 NETZER & ASSOCIATES 6 Unless otherwise stated in this report, the existence of hazardous material, which may or may not be present on the property, was not observed by the appraiser. The appraiser has no knowledge of the existence of such materials on the property. The appraiser, however, is not qualified to detect such substances. The presence of substances such as 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 material on or in the property that would cause a loss in value. No responsibility is assumed for any such condition, or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in this field, if desired. If the client is aware or becomes aware of any conditions, the appraiser should be consulted immediately to assess the impact, if any, upon the market value. The appraiser reserves the right to make such adjustments to the valuation herein reported, as may be required by consideration of additional data or more reliable data that may become available. No opinion is intended to be expressed, or implied, for matters, which require legal expertise or specialized investigation or knowledge beyond that customarily employed by real estate appraisers. I shall not be required, by reason of this appraisal, to give testimony or to be in attendance in court or any governmental or other hearing with reference to the property without prior arrangements having first been made with me relative to such additional employment. Possession of this report, or a copy thereof, does not carry with it the right of publication. It ma y not be used for any purpose by any person other than the party to whom it is addressed without the written consent of the appraiser. I do not authorize out of context quoting, or partial reprinting of the report. In the event the report is placed in the hands of a third party, it is requested that such party be made cognizant of any and all limiting conditions resulting in the basis of my employment and the discussions thereto, as well as those set forth herein. The submission of this report constitutes the completion of the service authorized. It is submitted upon the condition that the client will provide the appraiser customary compensation relative to any subsequent required deposition, conferences, additional preparation or testimony. The appraiser respectfully requests that neither all nor part of the contents of this report shall be disseminated to the public through advertisement, public relations, news, sales, or other media, without written consent and approval of the author, particularly the valuation conclusions, the identity of the appraiser, or any reference to the Appraisal Institute or the MAI designation. In the event the appraiser is subpoenaed for a deposition, judicial or administrative proceeding, and is ordered to produce his appraisal report and file, the appraiser will immediately notify the employer. It shall be the responsibility of the employer to obtain a protective order. The liability of Netzer & Associates and 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 report is placed in the hands of anyone other than the client, the client shall make such party aware of all limiting conditions and assumptions of the assignment and related discussions. The appraiser is in no way responsible for any costs incurred to discover or correct any deficiencies of any type present to the property -- physical, financial, and/or legal. It is agreed that the appraiser is not a necessary party in any inquiry or judicial proceedings. If called upon to testify in any litigation or other proceeding arising out the duties in this matter, and 20-15 Newport Harbor Moorings Newport Beach, California January 6, 2016 NETZER & ASSOCIATES 7 is compelled to incur court costs, attorney's fees or other out-of-pocket expenses in connection with court proceedings, such costs or expenses, together with the appraisers' usual hourly per diem applicable for study, preparation, testimony or travel will be paid by the party (or parties) who acts to bring any suit requiring a judicial proceeding. Any dispute or claim made with respect to this report shall be submitted to and resolved in accordance with the rules of the American Arbitration Association for arbitration, and the decision of the Association shall be binding. All appraisal services, pursuant to this report, shall be deemed to be contracted for and rendered in Orange County, California, and any arbitration or judicial proceedings shall take place in Orange County, California. The signatory of this appraisal report is a member of the Appraisal Institute. The Bylaws and Regulations of the Institute require each member to control the use and distribution of each appraisal report signed by such member. Therefore, except as hereinafter provided, the party for whom this appraisal report was prepared may not distribute copies of this appraisal report, in its entirety, without the written consent of the signatory of this report. The report and parts thereof and any additional material submitted, may not be used in any prospectus or printed material used in conjunction with the sale of securities or participation interests in any Public Offering as defined under US Security laws. Further, neither all nor any part of this appraisal report shall be disseminated to the general public by the use of advertising media, public relations media, news media, sales media, or other media for public communication without the prior written consent of the signatory of this appraisal report. AREA DESCRIPTION Newport Harbor is the focal point of the incorporated city of Newport Beach, which is located in coastal Orange County approximately 10 miles southwest of the Santa Ana Civic Center. The coastal city was incorporated on September 1, 1906. The City reports an estimated population of 87,249 persons as of 2015, an increase from 85,186 persons as of the 2010 Census. According to the City Chamber of Commerce, the influx of the tourist population during the summer months increases the population to over 100,000 persons. Newport Beach is located 85 miles north of San Diego, 14 miles south of Long Beach and 50 miles from downtown Los Angeles. The City's elevation ranges from sea level to 691 feet. With the annexation of Newport Coast, the City is comprised of approximately 25 square miles of land area, approximately 25.5 square miles bay, harbor and ocean waters for a total area of approximately 50.5 square miles. The city has 6.1 miles of ocean frontage and 25.4 miles of harbor frontage. Newport Harbor is one of the largest pleasure craft harbors on the West Coast and is home to approximately 9,900 boats, 1,230 piers, 2,330 commercial slips and side ties and 1,235 moorings. Newport Harbor is formed by the Balboa Peninsula on south and the mainland on the north and extends inland to Jamboree Road and the north end of the Upper Newport Bay (Back Bay). The primary focus of this assignment is the Lower Newport Bay, which is generally defined as the water area south of the Coast Highway Bridge near the intersection of Coast Highway and Dover Drive. Traditionally, most of the boating activity within the harbor is concentrated in the Lower 20-16 Newport Harbor Moorings Newport Beach, California January 6, 2016 NETZER & ASSOCIATES 8 Bay as most of the Back Bay is an ecological preserve with limited boating facilities (Newport Dunes, Newport Aquatic Center, U.C.I. Rowing base, Bayside Village and Dover Shores). The Balboa Peninsula consists of all the contiguous land east of 45th Street extending to Peninsula Point and the jetty at the mouth of Newport Harbor. The south side of the Peninsula consists of sandy beaches on the Pacific Ocean while the north side of the Peninsula forms the southern perimeter of Newport Harbor. HIGHEST AND BEST USE "Highest and Best Use" is an appraisal concept which is defined in The Dictionary of Real Estate Appraisal, Third Edition, as follows: 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 that must be met are legal permissibility, physical possibility, financial feasibility, and maximum profitability. Inherent in this definition are several conditions, which must be satisfied by the existing or proposed use in order to develop the maximum value. The use must be physically possible for the site. Soil condition, topography, size and shape must be compatible with the proposed use. The use must be legally permissible in that it must conform to current or projected zoning. Similarly, the use must not be precluded by deed restrictions or other encumbrances, which may limit potential uses. Also, the use must be economically feasible. The market should indicate sufficient economic demand so as to support a proposed use of the site. Among the various uses that meet the above criteria, the use which creates the greatest rate of return and maximum productivity is considered to be the highest and best use of the site. Highest and Best Use Criteria - As If Vacant/As-Improved A complete Highest and Best Use study of the submerged tidelands is beyond the scope of this assignment. The analysis presented is on a “global” basis and it is a Specific assumption of the report that the Highest and Best Use of the tidelands properties “as if vacant” and “as improved” is for either “off-shore” or “on-shore” moorings. APPRAISAL PROCEDURES The appraisal of real property generally involves one, two or three of the conventional approaches to value, and is based upon consideration of market-derived data, the experience of the appraiser, and opinions of other informed market participants. Valuation Approaches Three basic approaches to value are available to the appraiser: the Cost Approach, the Income Approach, and the Direct, or Sales Comparison Approach. 20-17 Newport Harbor Moorings Newport Beach, California January 6, 2016 NETZER & ASSOCIATES 9 Cost Approach This approach entails the preparation of a replacement or reproduction cost estimate of the subject property improvements new (maintaining comparable quality and utility) and then deducting for losses in value sustained through age, wear and tear, functionally obsolescent features, and economic factors affecting the property. The land value is then added to the depreciated cost along with an allowance for entrepreneurial profit to arrive at a value estimate. Income Approach This approach is based upon the theory that the value of property tends to be set by the net income that is to be realized by the owner. It is, in effect, the capitalization of expected future income into a present worth estimate. This approach requires an estimate of potential gross income, an analysis of all expense items, the selection of a capitalization rate, and finally, the processing of the net income stream into a value estimate. Sales Comparison Approach This approach is based upon the principle that the value of a property tends to be set by the price at which comparable properties have recently been sold or for which they were acquired. This approach requires a detailed comparison of sales of comparable properties with the subject property. Approaches Used in the Valuation of the Subject The Sales (or Lease) Comparison Approach is a process of comparing lease rates paid for similar properties, prices asked by owners, and offers made by prospective Lessees. The approach presents good evidence of value because it represents the actions of buyers and sellers, or in the case of leased properties Lessee’s and Lessor’s. The Sales (or Lease) Comparison Approach is based on the principle of substitution, which implies "the value of a property tends to be set by the price that would be paid to acquire a substitute property of similar utility and desirability within a reasonable amount of time."/3 Given the preceding discussion, and the interactions of market participants, the Sales (Lease) Comparison Approach is the most relevant approach in estimating Market Rent and is used in conjunction with three other methodologies. FAIR MARKET RENT ANALYSIS Introduction As noted in the Introduction, the purpose and function of this report is to estimate the Current Fair Market Rent of the “off-shore” and “on-shore” moorings over the tidelands located throughout Newport Harbor. There are approximately 1,235 on-shore and off-shore moorings in Newport Harbor. The off-shore moorings are located at ten locations throughout the harbor with two additional locations located by the Newport Harbor Yacht Club and the Balboa Yacht Club. These 3Appraisal Institute, The Appraisal of Real Estate, Eleventh Edition, (Chicago, 196), p.398. 20-18 Newport Harbor Moorings Newport Beach, California January 6, 2016 NETZER & ASSOCIATES 10 two locations are for the exclusive use of the yacht club membership. The on-shore moorings are located surrounding Balboa Island and Newport Island, on sections of both the north and south sides of Lido Isle and along various sections of the bay side of the peninsula from Peninsula Point to 20th Street. A map showing the location of the moorings is included on the facing page. Comparable Rentals Analysis The following table is a summary of the mooring information uncovered that is judged to be relevant to the Newport Harbor moorings. MARKET RENT SURVEY – OFF-SHORE MOORINGS DECEMBER 2015 Data No. Name Location Total Moorings % Occupied Vessel Length (LF) Total Monthly Rent Monthly Rent $/Linear Ft.* (mooring LF) Equipment Maintenance Cost 1/ Balboa Yacht Club 1801 Bayside Drive Corona del Mar (Newport Harbor) 70 100% Various 30’ Varies $451.50 $15.05 25% discount double mooring Tenant 2/ San Diego Mooring Co. Shelter Island Roadstead America’s Cup Harbor, rows B-J America’s Cup Harbor, rows L-V Laurel Street Roadstead Laurel Street Mediterranean Laurel Street Dual Point Bay Bridge Roadstead (Coronado) San Diego Harbor Combined 462 100% w/ Wait list 19’- 54’ Under 30’ 30’- 65’ 19’- 54’ Under 35’ 19’- 35’ 19’- 54’ $128.17 $147.57 $157.07 $138.02 $147.57 $147.57 $128.17 $2.37 $4.92 $2.42 $2.56 $4.22 $4.22 $2.37 Tenant *Based on maximum length of mooring as moorings are leased based on maximum length not vessel length. The information included in the table above is judged to be most comparable to the subject. Other mooring rental were uncovered that are not considered comparable to the subject due to locational factors (Pillar Point, Moss Landing, Monterey, Morro Bay & Point San Luis), ownership interests that permit transfers (Avalon) or the parties did not respond to my request for information (Newport Harbor Yacht Club & Lido Isle Community Association). In addition, temporary and transitory mooring rates were not taken into consideration. The Balboa Yacht Club has a total of 70 moorings in the basin in front of the Yacht Club. The moorings are available to the membership and not offered to the general public (they did offer some to members of Bahia Corinthian YC). The membership is a limited market and the demographic profile of the BYC membership likely differs from the demographic of the general public that is renting moorings in the open market. The monthly lease rate is $15.05 per linear foot for all mooring lengths and they have a limited number of “double” moorings that they offer at a 25-percent discount. The yacht club provides a shore boat daily from 8:00 until dusk and they 20-19 Newport Harbor Moorings Newport Beach, California January 6, 2016 NETZER & ASSOCIATES 11 have limited dinghy storage. The tenant is responsible for all maintenance “above the chain” (swivel, shackle, lines, etc…) and the club offers maintenance services for a fee or the tenant can hire their own contractor. It should be noted that when I interviewed this club in September 2006 the reported rate was $7.25 per linear foot with the same level of services and maintenance. The rent has been increased a total of 107.6-percent between September 2006 and December 2015. The information for BYC is presented for informational purposes as the moorings are general restricted to members and not available to the general public and the yacht club provides a shore boat. The San Diego Mooring Co. has four mooring fields in San Diego Harbor with a total of 462 mooring balls. They report a 100-percent occupancy, with the exception of moorings that are being serviced or have a derelict vessel, and a wait list for an available mooring. The moorings in each of the mooring fields rent for the same monthly rent regardless of vessel length vessel and the table above reflects the rent per linear foot of the maximum mooring length. As an example, all of the moorings at Shelter Island Roadstead are rented for $128.17 per month and will accommodate vessels between 19- and 54-feet (LOA), which reflects a monthly rent per linear foot of $2.37 ($128.17/mo. -:- 54’) for a 54-foot mooring. A second example of the rent per linear foot figure is America’s Cup Harbor Rows B-J. These mooring are quoted as accommodating vessels “under 30’” and rent for $147.57 per month, or $4.92 per linear foot ($147.55 -:- 30’) of mooring length, regardless of the vessel length. The operator reported that they complete all of the maintenance and that the tenant is billed for both the tackle and the services. The Shelter Island and Bay Bridge mooring fields have open dinghy storage on chains (no dinghy racks) at nearby public beach parks, Shoreline Park & Coronado Tidelands Park, respectively. The remaining mooring fields have access to public dinghy docks. Parking is only provided at Shelter Island (a municipal lot) and long-term parking (more than 2 hours or overnight) is not provided at any of the locations. Parking at these locations is either on public streets in the surrounding neighborhoods or paid parking in private or municipal lots. The operator noted that the rental rates are dictated by the Unified Port of San Diego and the last increase was in 2007. It was further reported that they have applied to the Port for a rent increase; however, the amount of the increase requested was not disclosed and it was noted that the Port is updating its “Benchmark Study of Fees”. It should be noted that San Diego Harbor generally has lower slip fees relative to Newport Harbor and an adjustment for “location” is warranted. As an example, a 30-slip in America’s Cup Harbor was reported by the operator to rent for $19.50 per linear foot, which compares the Newport Harbor 2015 “Marina Index” (discussed below) of $25.92 per linear foot (a difference of $6.42/LF) for a similar 30-foot slip. This suggests that the mooring fees being paid in San Diego warrant an upward adjustment in the range of 33-percent ($6.42 -:- $19.50) should be applied to the San Diego mooring rates. After considering the “location” adjustment, the comparable mooring rates in San Diego Harbor would range from approximately $3.15 ($2.37 x 1.33) to $6.50 ($4.92 x 1.33) per 20-20 Newport Harbor Moorings Newport Beach, California January 6, 2016 NETZER & ASSOCIATES 12 linear foot on a monthly basis, and $37.80 to $78.00 per linear foot annually. This does not take into consideration the availability of dinghy storage, which will be addressed in the Reconciliation. CPI Analysis A second methodology is to utilize the change in the Consumer Price Index and apply it to the “market” lease rates that were previously established by the City. On the basis of my research, the City set the mooring rates at $6.00 per linear foot in 1976 and the rates were reset at $20.00 per linear foot in 1995 by Resolution No. 95-77. The following reflects current rent per linear foot based on the change in the CPI over the two time periods. CPI 1976: CPI 1995: CPI 2015 (11/15): 59.6 154.6 245.711 1976 to 2015: 245.711 -:- 59.6 x $6.00/LF = $24.74/LF 1996 to 2015: 245.711 -:- 154.6 x $20.00/LF = $31.79/LF The CPI analysis indicates that the current rent should be between $25.00 and $32.00 per linear foot, and no adjustment for dinghy storage is warranted. This analysis assumes that the rent established in both 1976 and 1995 reflects “Fair Market Rent” and that the change in the CPI reflects the change in the market conditions for moorings in Newport Harbor between these dates and the current date. The change in the CPI is typically applied on an annualized basis over the term of a lease, with a Fair Market Rent adjustment applied at the exercise of a lease option or the commencement of a new lease to reflect the change in market conditions. The application of the CPI method over a long period reflects general price trends, but does not take into consideration changes in market conditions for a specific good or service within a market area. As reflected in the mooring rates charged at the Balboa Yacht Club in September 2006 ($7.25/LF) compared to the current (December 2015) rate ($15.05/LF) the rent increased a total of 107.6-percent. This compares to a change in the CPI of 15.41-percent (245.711 -:- 212.9) between September 2006 (212.9) and November 2015 (245.711), which is the most recent figure available. The CPI analysis indicates that the current annual Fair Market Rent for the moorings in Newport Harbor is between $25.00 and $32.00 per linear foot; however, the figure based on the trending of the 1995 figure is judged to be a more reliable measure. “Ratio” Analysis One measure of estimating the market rent for moorings is to compare mooring rents to similar slip rents. This provides a ratio of the “mooring” rents as compared to “slip” rents in the same market, which is an option for a boat owner. Several harbors along the California coast have marinas and mooring fields that are owned and managed by the municipality. These harbors reflect 20-21 Newport Harbor Moorings Newport Beach, California January 6, 2016 NETZER & ASSOCIATES 13 a price per linear foot mooring to slip ratio (mooring $/LF -:- slip $/LF) between approximately 38- and 92-percent. These include: Pillar Point (+46%); Monterrey (+38%) and Morro Bay (+92%). The ratio is based on monthly rent per linear foot for the mooring length compared to a similar length slip. These harbors have different user profiles compared to Newport Harbor and are not judged to be reflective of the ratio applicable to this analysis. In San Diego Harbor, the same company manages both Point Loma Marina and the America’s Cup Harbor mooring field, which are both located in America’s Cup Harbor. The rate for a 30-foot mooring is $147.57 per month, or $4.92 per linear foot ($147.57 -:- 30 LF). The monthly rent for a 30-foot slip in the marina is $19.50 per linear foot. The mooring to slip ratio in America’s Cup Harbor is 25.2-percent, which is calculated as follows: Monthly Mooring Rent - $/LF: $ 4.92 Monthly Slip Rent - $/LF: -:- $19.50 Mooring to Slip Ratio: 0.252 Of the marinas surveyed, this ratio appears to be the most reliable as both the moorings and slips are managed by the same company and have a similar location and access to similar amenities. This ratio reflects that there is a dinghy dock available to the tenants of the mooring field, which is not provided in Newport Harbor and the cost of dinghy storage must be factored into the analysis. As a point of reference, in 2011 the City of Newport Beach resolved that the “fair market value” of off-shore moorings within Newport Harbor is 14-percent of a “Newport Harbor Marina Index”. The “Marina Index” is based on a the average slip rate ($/LF) for seven marinas in Newport Harbor, including: Ardell; Newport Dunes Marina; Harbor Marina; Lido Yacht Anchorage; Port Calypso; Newport Marina (formerly Swales); and Bayside Village Marina. The survey is based on the “average” rent per linear foot from these seven marinas using 5-foot slip intervals from 20- feet to 60-feet. The 2015 “Average Skip Rate” in Newport is $32.99/LF (survey included in Addenda). Applying the City’s 14-percent ratio to this figure results in a monthly mooring rate of $4.62 per linear foot, or $55.44 per annum. There are several privately operated marinas throughout Newport Harbor and they generally reflect different levels of quality and condition and mix of slips and amenities. City of Newport administers the Balboa Yacht Basin (BYB) and the mooring fields and the Balboa Yacht Basin is judged to be relatively “average” in terms of its overall quality, condition and amenities. The published monthly slip fees (included in Addenda) for the Balboa Yacht Basin range from $21.44 per linear foot (20’ slip) to $44.99 for a 75’ slip. For the ratio analysis, I will use the rate for a 31’ slip with a rate of $26.51/LF. In the analysis, I will also use the average slip fee for a 30-foot slip in Newport Harbor based on the 2015 “Marina Index”, which is $25.92/LF. Assuming a 25- 20-22 Newport Harbor Moorings Newport Beach, California January 6, 2016 NETZER & ASSOCIATES 14 percent mooring rate to slip rate ratio, the Fair Market Rent for the moorings in Newport Harbor is calculated as follows: Marina BYB Index Monthly Slip Rent - $/LF: $26.51 $25.92 Mooring/Slip Ratio: x 0.25 x 0.25 Monthly Mooring Rent - $/LF: $6.63 $6.48 Based on the market data uncovered, the “Ratio” analysis, excluding an adjustment for dinghy storage, indicates that the monthly Fair Market Rent for the moorings in Newport Harbor is between $6.48 and $6.63 per linear foot, which equates to an annual range from approximately $77.76 to $79.56 per linear foot, excluding the adjustment for dinghy storage. The adjustment for dinghy storage will be included in the Reconciliation section. Tideland Analysis – Mooring Use The State Lands Commission has jurisdiction the state’s tidelands and submerged lands along the coastline extending from the shoreline out to three miles off-shore. They use a methodology to estimate tidelands rent for the “recreational” use of tidelands associated with residential upland properties. The methodology that uses an “average” berth size (length), multiplied by the average berth rate per linear foot, which results in the average “berthing fee” per month (then it is annualized). The annualized “berthing fee” is converted to an absolute tidelands rent (for the square footage of tideland required to support a “typical” berth) at a 5.0-percent rate of return. The absolute tidelands rent is then divided by the square footage of tideland required to support the typical berth, which results in the rent per square foot for the tidelands area. The rent per square foot is then applied to the applicable tideland area. They do not have a similar procedure for mooring fields, but the methodology used in this report is based on the premise that the tidelands encumbered by a mooring and associated rights are no longer available for “public use” and the rent for the tidelands is converted to a rent per linear foot of mooring. In 2015 the City of Newport (Resolution 2015-10) established a “Residential Pier Fee” of $0.50 per square foot of tidelands with an annual adjustment commencing in 2018 that is the lesser of the change in CPI or 2-percent. An analysis similar to the State Lands Commission methodology that is applicable to the mooring fields is presented below. The analysis is completed using a tidelands rent of $0.50 per square foot of tidelands, which is applied to the tidelands area encumbered by the mooring and then converted it to a rent per linear foot of the mooring. The first step of this analysis is to establish the average tidelands area that a mooring occupies. On the basis of information provided by the City, the Newport Mooring Association (NMA) completed this analysis based on a row of moorings in the “J Field”. The row used in the NMA 20-23 Newport Harbor Moorings Newport Beach, California January 6, 2016 NETZER & ASSOCIATES 15 analysis is 566-feet long and is occupied by 16 moorings that are assumed to be 40-feet in length. The analysis assumes there is 10-feet to the fore and aft of the mooring; therefore, each mooring is assumed to encumber tidelands with a length of 60-feet. This mooring row occupies a total of 33,960 square feet of tidelands (566’ x 60’), suggesting that each 40-foot mooring encumbers a total of 2,123 square feet of tidelands (33,960 Sq.Ft. -:- 16 moorings). When the “Residential Pier Fee” is applied to this square footage the total rent is $1,061.50 (2,123 Sq.Ft. x $0.50/Sq.Ft.), which equates to $26.53 per linear foot annually, assuming a 40-foot mooring ($1,061.50 -:- 40 LF). Adjustment for Dinghy Storage As noted above, the City does not provide dinghy storage for the moorings, which is a cost that must be taken into consideration in the analysis as only the CPI analysis takes dinghy storage into consideration. In 2015, the City of Newport Beach adopted a Fair Market Rent for dinghy storage (8 racks) at the Balboa Yacht Basin at $25.00 per month. These racks provide easy access to mooring field D. The City has 12 storage racks at the recently completed Marina Park that are not on the market, but the City will be sending notices to interested parties in the near future. It was reported that they will be offered via a lottery and the monthly rent is $25.00. It was noted that there was approximately 50 respondents for the lottery at the Balboa Yacht Basin and they expect a similar response to the Marina Park lottery. The location of Marina Park is proximate to mooring fields F, H, J and K. In addition to the City and the yacht clubs, there are limited areas that provided dinghy storage in Newport Harbor. In the Upper Newport Bay the Newport Dunes Marina has dinghy racks that rent for $25.00 per month. Bayside Village Marina provides dry storage of dinghies up to 12-feet at a rate of $8.00 per linear foot, or 8$80.00 per month for a 10-foot dinghy. Both of these marinas are behind the Coast Highway Bridge and are distant from the mooring fields. The American Legion Yacht Club has 24 dinghy racks that one source reported rent for $35.00 per month and a second reported a rate of $45.00 per month and both sources reported a wait list. These racks are for members only and not available to the general public. They are in close proximity to the F, H, J and K fields. In an analysis completed by the Newport Mooring Association, they suggest that storage at private pier is in the range of $50 to $100 per month. This appears to be based on their member input. Given the limited number of available dinghy racks in the harbor that are proximate to the mooring fields and the apparent demand for the limited supply, I have concluded that an adjustment of $50.00 per month for dinghy storage is appropriate. The $50.00 per month adjustment equates to 20-24 Newport Harbor Moorings Newport Beach, California January 6, 2016 NETZER & ASSOCIATES 16 $1.67 per linear foot per month for a 30-foot mooring, which is rounded to $20.00 per linear foot annually. RECONCILIATION The final step of the appraisal process is to reconcile the value conclusions indicated by the methods utilized in formulating the Fair Mark Rent estimate. The annual Fair Market Rent Values indicated for the subject moorings, as of the date of value, are as follows: Comparable Rentals Approach: $37.80 - $78.00 $57.90 average CPI Analysis Approach: $26.00 - $32.00 Ratio Approach $77.76 - $79.56 Tidelands Approach $26.53 As previously noted, the figures above do not include an adjustment for the lack of dinghy storage and an adjustment to the Comparable Rentals and Ratio approaches is warranted. The CPI approach is a trending of the historic rates in Newport Harbor and the Tidelands Approach takes into consideration the tidelands rent; therefore, no adjustment for dinghy storage is warranted. The concluded adjustment of $20.00 per linear foot annually for the lack of dinghy storage was estimated in a previous section. The following table is a summary of the adjustment to the four approaches. Valuation Approach Unadjusted Annual $/LF - Dinghy Adjustment = Adjusted Annual $/LF Comparable Rentals $37.80 - $78.00 $57.90 average - - $20.00 $20.00 = = $17.80 - $58.00 $37.90 average CPI Analysis $25.00 - $32.00 - N.A. = $25.00 - $32.00 Ratio Analysis $77.76 - $79.56 - $20.00 = $57.76 - $59.56 Tidelands $26.53 - N.A. = $26.53 After adjusting for dinghy storage, the indicated annual Fair Market Rent ranges for $17.80 to $59.56 per linear foot. The reconciliation process involves a thorough review of the valuation process and supporting data used in each of the valuation approaches. In this step of the appraisal process, I have considered the alternative value indications to arrive at a final rent estimate. The greatest weight is given to that approach in which there is a sufficient quantity of data, with a minimum of assumptions and maximum reliability. In the Comparable Rentals (Rent Comparison) the most relevant data was included. I considered differences in location, services provided and access to dingy storage. The mooring rates were analyzed based on a price per linear foot assuming the maximum vessel length as all of the 20-25 Newport Harbor Moorings Newport Beach, California January 6, 2016 NETZER & ASSOCIATES 17 moorings are rented based on the maximum mooring length not the vessel length. The quality and quantity of the market data upon which I have based my direct market comparison is considered good; however, it did warrant adjustments for location and lack of access to dinghy storage. The Balboa Yacht Club mooring data is included for informational purposes as it is not offered on the open market but shows the demand within a closed market and defines an upper limit of the mooring rental range. The CPI analysis is a trending of the rental rates established at various times (1975 & 1995) for the subject moorings. It is based on the assumption that the rental rates in the base years (1975 & 1995) are market based and that the change in CPI reflects the change in market conditions for moorings in Newport Harbor. The CPI is typically included as an annual adjustment to a lease, with periodic “market rent” adjustments applied to account for changes in market conditions as opposed to a trending of values based on a basket of goods. On the basis of my research, the 1995 figure was determined to be “Fair Market Rent” and is judged to be a more reliable indicator than the 1975 figure. The change in mooring rates at BYC between 2006 and 2015 suggests that the change in CPI may understate the change in market conditions for moorings in Newport Harbor. The CPI analysis using the rent established in 1995 is judged to be more reliable than the 1975 figure and helps define the lower limit of the Fair Market Rent range. The Ratio analysis attempts to estimate the market rent for moorings as compared to the rent for similar slip spaces in the same marina or harbor. As shown in the analysis, the ratio can vary dramatically (25% to 92%) and, while a potential renter could take this into consideration (cost of a slip v. cost of a mooring), it is not judged to be a reliable measure of Fair Market Rent. This analysis is given little weight in the final reconciliation. The Tidelands analysis is based on the premise that the Fair Market Rent for an individual mooring is tied to the market rent for the encumbered tidelands. This approach has its merits and the information and assumptions used in the analysis are well supported; however, the typical user of an individual mooring would not complete this analysis to determine market rent. In the final reconciliation this approach is given secondary emphasis. Given the indications from the four approaches utilized, and the quality and quantity of the available market data, I have given each approach some consideration with primary emphasis placed on the Comparable Rental and CPI approaches. Based on my analysis of the market data uncovered, I have concluded that the subject off-shore moorings have an Annual Fair Market Rent, as of January 6, 2016, of: $32.00 to $38.00 per Linear Foot of Mooring. The above discussion relates to the off-shore moorings throughout Newport Harbor. There is a limited number of on-shore moorings and I did not uncover any information regarding lease rates for on-shore moorings at other harbors. The maximum vessel length is limited on the on-shore 20-26 Newport Harbor Moorings Newport Beach, California January 6, 2016 NETZER & ASSOCIATES 18 moorings relative to the off-shore moorings. Historically, the on-shore moorings in Newport Harbor have rented for half of the rate of the off-shore moorings. On this basis, I have concluded that the on-shore moorings have an Annual Fair Market Rent, as of January 6, 2016, of: $16.00 to $19.00 per Linear Foot of Mooring. VALUATION Based upon the work undertaken, and my experience as a real estate analyst and appraiser, I have formed the opinion, as of the 6th day of January 2016, subject to the Assumptions and Limiting Conditions contained in this report, that the public moorings in Newport Harbor have the following Fair Market Rental values: Annual Fair Market Rent for the Off-shore Moorings $32.00 to $38.00 per Linear Foot of Mooring Annual Fair Market Rent for the On-shore Moorings $16.00 to $19.00 per Linear Foot of Mooring 20-27 Newport Harbor Moorings Newport Beach, California January 6, 2016 NETZER & ASSOCIATES 19 ADDENDA 20-28 Newport Harbor Moorings Newport Beach, California January 6, 2016 NETZER & ASSOCIATES 20 Mooring Map 20-29 20-30 Newport Harbor Moorings Newport Beach, California January 6, 2016 NETZER & ASSOCIATES 21 Slip Survey & Rate Sheet 20-31 20-32 20-33 20-34 Newport Harbor Moorings Newport Beach, California January 6, 2016 NETZER & ASSOCIATES 22 Qualifications 20-35 Q U A L I F I C A T I O N S of James B. Netzer, MAI Professional Background Prior to forming Netzer & Associates, he was associated for over three years with Urban Pacific Services Corp. Actively engaged as a real estate analyst, appraiser and consultant since 1987. Principal of the appraisal and consulting firm of Netzer & Associates with offices at: 170 E. Seventeenth Street, Suite 206 Costa Mesa, California 92627 Educational Activities Bachelor of Arts in Liberal Studies with a Concentration in Economics, California State University, Long Beach, 1986. Has successfully completed the following courses sponsored by the American Institute of Real Estate Appraisers and the Appraisal Institute: A.I.R.E.A Course 1A-1: Principles of Real Estate Appraisal A.I.R.E.A Course 1A-2: Basic Valuation Procedures A.I.R.E.A Course 1B-A: Capitalization Theory and Techniques, Part A A.I.R.E.A Course 1B-B: Capitalization Theory and Techniques, Part B A.I.R.E.A Course SPP: Standards of Professional Practice A.I. Course 2-1: Case Studies in Real Estate Valuation A.I. Course 540: Report Writing and Valuation Analysis A.I. Course 550: Advanced Applications Has successfully completed numerous classes and seminars to meet the continuing education requirements of Appraisal Institute, Office of Real Estate Appraisers and Department of Real Estate. Professional Affiliations & State Licenses Member of the Appraisal Institute - MAI Designation State of California - Certified General Real Estate Appraiser - Certificate No. AG003143 State of California - Real Estate Broker License - License No. 01185682 Court Qualification Qualified as an expert witness in the Superior Courts of Orange, Los Angeles and San Diego Counties, U.S. Bankruptcy Court – Los Angeles Division. Teaching Experience 20-36 Orange Coast College - Adjunct Professor (retired) - Business 140 "Real Estate Appraisal Principles" Seminar & Panel Presentations Los Angeles County Bar Association – Real Property Division: Overholtzer Overhauled, An Update on Damages, Appraisals and Interim Loss under Title Insurance Policies, September 2013 Scope of Experience During the period in which Mr. Netzer has been engaged as a real estate appraiser and analyst, he has been involved in most aspects of the field having completed assignments for multiple purposes, including: estate planning; bankruptcy; conflict-of-interest analysis (Political Reform Act of 1974); construction defects litigation; soil subsidence; dissolution of marriage; ground lease re-valuation; leasehold & sub-leasehold valuation; property tax appeals; lease and ground lease arbitration; easement/access/encroachment/title disputes (based on Overholtzer v. Northern Counties Title); soils contamination litigation; mortgage lending; construction financing; portfolio valuation; market and feasibility analysis; fractional interest valuation; and, due diligence. He has experience appraising the following property types: Vacant Land Residential lots, sub-division sites, condominium sites, commercial and industrial sites, mountainous acreage, raw acreage, mitigation land (Delhi Sands Flower Loving Fly, Stephens Kangaroo Rat & Open Space). Residential Single-family residences, condominiums, townhomes, planned unit developments, multi-family units, apartment buildings, mobile home parks, proposed and existing sub-divisions. Commercial Office buildings, medical office buildings, restaurant buildings, retail centers, neighborhood shopping centers, community centers, commerce centers, congregate care facilities, parking structures, golf courses, mixed-use developments, auto dealerships, gas stations. Industrial Manufacturing and warehouse buildings, distribution facilities, multi-tenant buildings, mini-storage facilities. Special Use Commercial and residential tidelands, boat harbors, auto ferry, bait barge, marina, gas docks, mooring fields, commercial piers, civic center, fire stations, police stations, emergency communication facilities, temporary construction easements, steel fabricating plant, car wash facilities. Public Service 20-37 Newport Aquatic Center, Newport Beach – Board of Directors – Chairman, Budget Committee 20-38 PARTIAL LIST OF CLIENTS ATTORNEYS, LAW FIRMS & ACCOUNTANTS Barton Klugman & Oetting Lynberg & Watkins Boss Law Firm APLC Manning & Kass, Ellrod, Ramirez, Trester Browne & Woods LLP McDermott, Will & Emory Bryan Cave LLP Law Offices of Erik B. Michelsen Burd & Naylor Millar, Hodges & Bemis Davis Law APC Palmieri, Tyler, Wiener, Wilhelm & Waldron Gibson, Dunn & Crutcher Richard Shaffer (Court Appointed Receiver) Goldstein & Ward Rubin & Eagan Greines, Martin, Stein & Richland LLC Samuels, Green & Steel, LLP Harbin & McCarron Severson & Werson Hart, King & Coldren Shulman Bunn LLP Jeffer, Mangels, Butler & Marmaro LLP Songstad, Randall, Coffee & Humphrey Landels, Ripley & Diamond Stradling, Yocca, Carlson & Rauth Larsen & Associates Turner & Reynolds Latham & Watkins Richard Wildman, Attorney at Law Leech & Associates Wolf & Richards Law Offices of Michael Leight Wright Ford Browning & Young Loeb & Loeb, LLC Wynne, Spiegel & Itkin LENDING INSTITUTIONS Bank Midwest, N.A. GE Capital Investment Advisors Bank of America Hawthorne Savings Bankers Mutual (Berkshire Mortgage) Huntington National Bank California Federal Bank Merrill Lynch Credit Corporation Citicorp Real Estate, Inc. Park View Mortgage Credit Suisse Strategic Mortgage Services Comerica Bank Tokai Bank Escondido National Bank Wells Fargo Bank GOVERNMENTAL AGENCIES City of Costa Mesa Federal Deposit Insurance Corporation (FDIC) City of Glendora Orange County – Dana Point Harbor City of Huntington Beach Resolution Trust Corporation (RTC) City of Long Beach – Tidelands CID Securities & Exchange Commission (SEC) City of Newport Beach GENERAL CLIENTS AMRESCO Management, Inc. Newport Sports Collection Foundation Arnold Construction North American Title Insurance Company\ The Boy's Republic O.C. Interfaith Shelter Capital Guardian Trust Old Republic Title Chicago Title Company Pulte Home Corporation Continental Mobile Housing S & A Properties Decron Management S & S Construction/Shappell Industries Environmental Nature Center St. Clair Company LLC Fidelity National Title Santa Fe Pacific Pipeline Partners, L.P. First American Title Insurance Simplex Realty Hamilton Company Staples, Inc. Heritage Point Senior Living State Farm Insurance Hornblower Cruises Stewart Title Guaranty Company Kinder Morgan Energy Partners Texaco Refining & Marketing, Inc. Lee & Associates Westcor Land Title Insurance Company Western National Properties 20-39