SUIVIMARY APPRAISAL REPORT of the Fee Simple, Leasehold and Leased Fee Values for 307.95 Acres of Land (Net of Railroad Right-of-Way) and Existing Improvements. Known as Dorothea Dix Hospital Campus Located On the South Side of Western Boulevard and The West Side of Lake Wheeler Road just East of Centennial Boulevard In Raleigh, North Carolina OWNED BY The State of North Carolina PREPARED BY Martin L. Wachtel, BI, MAI Ronald Thomas, Associate Memb er-Appraisal Institute EFFECTIVE DATE OF VALUATION July 9, 2013 DATE OF APPRAISAL January 3, 2014 TABLE or CONTENTS Cover Page Table of Contents Letter of Transmittal Summary of Important Facts and Conclusions Appraisal Report . Purpose of the Appraisal and Intended Use Scope of the Appraisal Property Rights Appraised Definition of Market Value Ownership History and Legal Description Assumptions and Limiting Conditions Regional Data Commercial Real Estate Market Description of the Neighborhood Site Data Description of Improvements Utilities Zoning Ad Valorem Taxes Appraisers' Opinion of the Highest and Best Use Land Value By Comparison . Market Value -- 60 Acres (Soccer Field) Demolition Cost Property Value Estimate Section I: Combined Fee Simple and Leased Fee for 307.95 acres Section II: Leasehold Value Section Value of Leased Fee Estate bu-In V1 Certification Addenda Area and Sales Location Maps Exhibit A Wake County GIS 2012 Aerial Photograph Exhibit Wake County GIS Floodplain/Greenway Map Exhibit Wake County GIS Stormwater Map Exhibit NCDENR Aerial Photograph (Landfill and Limits) Exhibit Dix Campus Operating Costs Analysis (2011-2013) Exhibit Urban Multi-Family Land Sales Exhibit Suburban Multi-Family Land Sales Exhibit ii Worthy Wachtel, Inc. Post Oflice Box 17843 3803-3 Computer Drive, Ste. 9100A Tel 919- 781-6300 Red Esfafe Ra1ei;r1z. NC 27619 Raleigh. NC 27609 Fax 919-781-9209 Urban Single-Family Land Sales Exhibit I Suburban Single-Family Land Sales Exhibit Urban Ofice/Institutional Land Sales Exhibit Suburban Land Sales Exhibit Retail Land Sales Exhibit Municipal Park Land Sales Exhibit Schedule of Buildings Exhibit 0 Dix Lease Parcels (Years 1 thru 15) Exhibit Discount Rate Data Exhibit Site Improvement Value Exhibit Qualifications . Exhibit Worthy Waclttel, Inc. Past Oflice Box 17843 3803-3 Computer Drive, Ste. 100.4 Tel 919-781-6300 -4-. mm. at. January 17,2014 Mr. Jay W. Smith, RLA, ASLA Principal Director of Landscape Architecture/Planning O'Brien/Atkins Associates, PA Post Ofiice Box 12037 Research Triangle Park, North Carolina 27709_ Dear Mr. Smith: As you requested, we have made an appraisal of 307.95 acres of land and existing improvements known as Dorothea Dix Hospital Campus. The property is located on the south side of Western Boulevard, the west side of Lake Wheeler Road and just east of Centennial Boulevard, in Raleigh, Wake County, North Carolina. The subject property' is currently owned by The State of North Carolina. The efiective date of valuation for this appraisal is July 9, 2013. We arrived at our estimate of value after having inspected the property from public road rights-oil Wayand having reviewed numerous documents provided to us relating to the size of the site, the size/ages of the numerous buildings located on it, zoning, hydrology, demolition costs, tax records and existing ground leases, among others. Additionally, we have documented numerous sales of property that provide a basis on which we have arrived at our opinion of value. Based on the information obtained from these actions and the assumptions and limiting conditions stated in this report, along with the application of our best judgment and the use of sound appraisal techniques, it is our opinion that the Fee Simple, Leasehold and Leased Fee values of the subject property as of July 9, 2013, subject to our limiting conditions are: Fee Simple/Leased Fee Value (State of North Carolina): $66,000,000; includes Leased Fee Values of $507,000 (10475 acres leased to The Healing Place) and $360,000 (60 acres leased to the City of Raleigh) and $65,133,000 for the land owned in Fee-Simple. Value is net after deducting cost of demolition. Leasehold Value (City of Raleigh): $51,500,000 (Net after demolition cost) Leased Fee Value (State of North Carolina): $13,000,000; includes $456,000 for reversionary value of 307.95 acres. iv 3803-8 Computer Drive, Ste. 100A Pnfofnk NF ?76fl0 Tel 919-781-6300 Fa? Worthy Wachtel, In Post Oflice Box I7843 Pnlainli MP .775") Mr. Jay W. Smith, RLA, ASLA O'Brien!Atkins Associates, PA January 17, 2014 These values are predicated on the additional assumption that there are no hazardous materials present on the site that would require a major clean-up. We, the undersigned, do hereby certify that to the best of our knowledge and belief, the statements contained in this appraisal and the statements upon which the opinions expressed herein are based, are correct, subject to the limiting conditions set forth. Employment in and compensation for making this report are in no way contingent upon the value reported, and we certify that we have no financial interest present or contemplated in the subject property. This letter of transmittal is a part of the attached report which consists of 32 pages of description, analyses, and conclusions as well as Exhibits A through S. In this report are found facts and opinions that have influenced us to arrive at the above mentioned estimates of value. a This report is prepared in conformity with and subject to the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute and is also prepared _in conformity with and subject to the requirements of the Uniform Standards of Professional Appraisal Practice (USPAP) as promulgated by the Appraisal Standards Board of the Appraisal Foundation. We hope you find our appraisal report acceptable. Ifyou have any reason to desire supplementary information, please let us know, and We will be happy to supplement our report for additional consideration on a per diem basis. Sincerely yours, 7% L. Wachtel, I Worthy Wachtel, Inc. Past Oflice Box 17843 3803-3 Computer Drive, Ste. ea' 91 9781-6300 run an: SUNIMARY OF IMPORTANT FACTS AND CONCLUSIONS Date of Appraisal: Owned By: Location: Land Area: Description of the Improvements: Utilities: Zoning: Values of Subject Property: Fee SimplelLeased Fee (State of North Carolina) Leasehold (City of Raleigh) Leased Fee (State of North Carolina) Worthy Wachtel, Inc. Post Office Box I 7843 Commercial Real' Eflafe Raleigh- NC 27619 July 9, 2013 State ofNorth Carolina 0 On the south side of Western Boulevard and the 'west side of Lake Wheeler Road, Raleigh, North Carolina 307.95 Acres, estimated net of railroad 1ight--of--way but including existing street rights-of-way (Includes 60 acres Soccer Field and 10.475 acres "Healing Place") Fee-Simple - Some 1,172,475 square feet of hospital, office, dormitory, warehouse, engineering and residential buildings occupied by Dorothea Dix staff and patients for the care of mentally ill citizens Leased Fee - 40,700 square foot alcoholfdrug rehabilitation facility on ground lease to "Healing Place" All municipal utilities Office Institutional - 1 (297.5 acres and Thoroughfare District (10.5 acres $66,000,000 (including Reversionary Value for 60 acres and 10.475 acres) $51,500,000 $13,000,000 (including Reversionary Value of 307.95 acres). -- vi - 3803-B Computer Drive, Ste. Raleigh. NC 27609 Tel 919-781-6300 Fax 9}9--781--9209 PURPOSE OF THE APPRAISAL AND INTENDED USE The purpose of this appraisal is to estimate the market value of the Fee Simple/Leased Fee Estate of 307.95 acres owned by the Stateof North Carolina, the Leasehold Estate based on the terms of a lease, now in dispute, to the City of Raleigh and the Leased Fee Estate held by the State of North Carolina under the terms of the disputed lease. This appraisal is to be used by both the State and the City to helpfacilitate the resolution of their different legal positions relating to a lease of the property which is the subject of this appraisal. SCOPE OF THE APPRAISAL This property was a major portion of the subject of an appraisal prepared by Worthy Wachtel, Inc. in the summer of 2007. That appraisal included an in-depth analysis of the potential value of the property "as improved," considering the rehabilitation/renovation and conversion costs of the hospital facility to state-occupied offices as a "value-in-use." Other scenarios were considered but the conclusion of the analysis was that all existing buildings should be razed to allow a highest and best use "as vacant" for the land. A May, 2011 appraisal concluded the same highest and best use but was based on prospective and current market trends, price/value levels, etc. and included land areas and improvements that are not included in this appraisal. Subsequent to the 2011 appraisal the "State of North Carolina signed a Lease Agreement on December 28, 2012 whereby the State agreed to lease land to the City subject to the terms of the Lease. Since then the State has set forth the legal position that the Lease is void and without force and effect. The City has set forth the legal position that the lease is valid and enforceable." The above paragraph is a sumnaaryfrom the STANDSTILL AGREEMENT between the State and the City dated July 9, 2013. This AGREEMENT required that two appraisers, one appointed by each party, "utilize the same or similar data, assumptions and methodologies in rendering an opinion of value;" this requirement resulting in an "Instructions for the Appraisal." These two documents, the AGREEMENT and the INSTRUCTIONS, are the guidelines that structure most of the scope of this appraisal. The guidelines are: Date of Valuation: Ju1y.9, 2013; Interests Valued: Fee Simple, Leasehold and Leased Fee; Values: "Fair Market Value" or Market Value; Source for definition of Market Value: The Appraisal of Real Estate, 14" Edition; Legal Description: June 6, 2013 survey prepared by Taylor Weisman Taylor; 307.95 acres; 6. Contract Rent: "Base "Rent" of $500,000 per year increasing at 1.5% per year with adjustments for "Retained Premises" during first 15 years; 7. Retained Premises: 40.3 acres; 1 Worthy Wachtel, Inc. Past Oflice Box 17843 3803-3 Computer Drive, Ste. 100/1 Tel 919-78145300 xv 775:0 Ralpioli Mr' 27609 Fax 919-781-9209 8. Hazardous Materials: "Valued as though clean;" 9. Lease Term: 99 years; and Building Demolition: Appraiser should account for all reasonable costs of demolition, excluding any additional costs associated with removal and disposal of hazardous materials. In summary, the scope of this appraisal is reflective of the INSTRUCTIONS and the report is presented in Summary format. PROPERTY RIGHTS APPRAISED This is an appraisal that include three separate values: .. l. The Fee Simple Value of 237.475 acres plus the Leased Fee valuesof 10.475 acres leased to The Healing Place and 60 acres leased to the City of Raleigh; 2. The Leasehold Value of the total leased premises of 307.95 acres based on a lease term of 99 years with a beginning rent of $500,000 per year, increasing at 1.5% per year but adjusted for the initial 15 years based on a "Retained Premises" factor; and 3. The Leased Fee Value of the contract rent as described above plus the reversionary value of the 307.95 acres at the end of the lease term. Each of these real property estates are defined below. Fee Simple Estate: 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. Leasehold Estate: The right to use and occupy real estate for a stated term under' the conditions conveyed in the lease. Leased Fee Estate: An ownership interest held. by a landlord with the right of use and occupancy conveyed by lease to others; the rights of lessor or the leased fee owner and leased fee are specified by contract terms contained within the lease. Reversion: A lump-sum benefit that an investor receives or expects to receive at the termination of an investment. - DEFINITION OF MARKET VALUE Market Value (Often referred to as Fair Market Value): Market value is defined in The Appraisal ofiieat Estate, 14"' Edition, as follows: The most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights 2 Worthy Wachtel, Inc. Post Office Box 17843 3803-15' Computer' Drive, Ste. 100.4 Tel - 919-78]-6300 Conm:ercz'alReaIEstate Raleiglz, NC 276}9 Raleigh. NC 27609 Fax 919-781-9209 should sell, after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgably, and for self-<