North Hill

MARKET ANALYSIS AND TRADE AREA ANALYSIS

LOCAL COMPETITION MAP
38

MARKET ANALYSIS AND TRADE AREA ANALYSIS

DETAILS OF COMPETING PROPERTIES

Item Competition No. 1 Competition No. 2 Competition No. 3 Competition No. 4 Competition No. 5 Competition No. 6
Name/Location Balboa Nordhoff Center Norw ood Center Paseo Sepulveda Mission Hills Shopping Center Island Pacific Plaza Vannord Center
9000-9046 Balboa Blvd
16130 Nordhoff St 9000-9054 Sepulveda Blvd 10311-10359 Sepulveda Blvd 8324-8440 Van Nuys Blvd 9070 Van Nuys Blvd
Northridge, CA Panorama City, CA Panorama City, CA
North Hills, CA North Hills, CA Mission Hills, CA

Clas s if ic ation Neighborhood Center Neighborhood Center Neighborhood Center Neighborhood Center Community Center Neighborhood Center
Date of Survey Jan-17 Jan-17 Jan-17 Jan-17 Jan-17 Jan-17
Year of Completion 1978 2005 1951 2004
Total Center Square Feet 89,150 1960/1990 75,757 1954/1979 194,820 89,270
Anchor Tenants 88,389 83,281
Albertsons Vons Marshalls Rite Aid 24 Hour Fitness Wal-Mart Neighborhood Market
CVS Pharmacy Walgreens Vons Island Pacific Supermarket
99% 96%
Total Occupancy 100% N/A 96% 100% Rite Aid N/A
$2.40 N/A N/A $2.25 - $2.95
Asking Rates Per SF (Anchor) N/A NNN $3.00 Negotiable 98% NNN
NNN NNN N/A
Asking Rates Per SF (Shop/Pad) (1) Negotiable $1.65 - $3.00
NNN
Expense Treatment NNN

(1) Includes shop and pad space
Source: LoopNet/CoStar: Compiled by CCP Valuation

39

MARKET ANALYSIS AND TRADE AREA ANALYSIS

Competing Centers:
The subject’s competing properties have occupancy rates that range from 96.0 to
100.0 percent. Three of the six centers have occupancy rates that are at or above
99.0 percent. The asking rent for shop space quoted within the primary competition
ranged from $1.65 to $3.00 per square foot per month, triple net.

CONCLUSION
We have analyzed the retail trade history and profile of the subject's region and
primary trade area in order to make reasonable assumptions as to the continued
performance of the property.

A metropolitan and locational overview was presented which highlighted important
points about the study area. Demographic and economic data specific to the trade
area were also presented. Marketing information relating to these sectors was
presented and analyzed in order to determine patterns of change and growth as it
impacts the subject. The data is useful in giving quantitative dimensions of the total
trade area, while our comments serve to provide qualitative insight into this market. A
compilation of this data provides the basis for our projections and forecasts particular
to the subject property. The following summarizes our key conclusions.

 The Los Angeles County Retail market has been performing better since 2011,
mainly as a result of higher asking rents.

 The property is anchored by Vallarta Supermarkets and Skec44hers which
provide a strong draw to the center. The neighborhood and surrounding areas
are a combination of neighborhood centers, retail strip centers, free-standing
retail buildings, and residential uses.

 The submarket has some vacancy with limited new product under
development. Vacancy in the submarket is 7.3 percent. The subject is currently
100 percent leased, with one suite being owner-occupied.

 The subject’s trade area has dense population with a total 2016 population of
305,955 persons. The neighborhood has limited material vacant land for
growth.

40

MARKET ANALYSIS AND TRADE AREA ANALYSIS

 Household income levels in the trade area are slightly higher compared to the
city of San Fernando, which is slightly positive for the subject property.

 The subject has very good accessibility via the regional Interstate network and
local arterials that provide linkages throughout the Los Angeles-Long Beach-
Santa Ana CBSA.

 On balance, it is our conclusion that the subject is well positioned within its
market area. To that end, the prospect for net appreciation in real estate values
is expected to be above average.

41

PROPERTY DESCRIPTION

PROPERTY DESCRIPTION

SITE ANALYSIS
The description of the site is detailed as follows:

Location: 9102-9163 Sepulveda Boulevard, North Hills, Los Angeles County,
California.

Parcel Summary:

PARCEL SUMMARY

Parcel No. Acres Square Feet
224,334
2656-023-028 5.15 224,334

Total Land Area 5.15

Source: County Assessor Records

Compiled by CCP Valuation

Excess Land: Yes: No: 
Shape:
Frontage: Irregular.
Traffic Count:
Topography & Drainage: The site has frontage and access along Sepulveda Boulevard and
Soil Information: Nordhoff Street.

Earthquake Zone: Per TrafficMetrix, the latest traffic count (2015) along Sepulveda
Boulevard (near Nordhoff Street) was 32,606.

The site is level and at grade with the fronting streets. There were
no apparent drainage problems at the time of our inspection.

No adverse subsoil or drainage conditions were observed at the
time of inspection. This appraisal report assumes that there are no
adverse soil conditions that would negatively impact the concluded
values herein.

There are no known Alquist-Priolo zones impacting the subject.
However, we are not qualified to determine if fault lines do or do not
affect the property. We recommend that the client obtain an
engineering study related to the geological stability of the subject
property and surrounding areas if additional information is required.

42

PROPERTY DESCRIPTION We were not provided with a preliminary title report. We assumed
that the property is encumbered by typical utility easements.
Easements: Nonetheless, we are not title professionals and we have specifically
assumed that any easements, restrictions, or encroachments that
might appear against the title have no adverse impact on
marketability or value.

Covenants, Conditions, & We assume that there are no private deeds or restrictive covenants
Restrictions: affecting development, other than zoning, on the site.
Utilities:
Flood Hazard Area: All municipal utilities are available to the site in adequate capacity.

Environmental Issues: According to maps published by the Federal Emergency
Management Agency (FEMA), the subject lies within Zone X as
Conclusion: indicated on FEMA Community Map Panel No. 06037C1305F,
which has an effective date of September 26, 2008. This zone is
described as follows:

FEMA defines Zone X as follows: “Zone X is the flood insurance
rate zone that corresponds 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 BFEs or
depths are shown within this zone.”

The value estimates rendered herein are predicated on the
assumption that there is no hazardous material on or in the property
that would cause a loss in value. No evidence of hazardous waste
or toxic materials was apparent at the time of our inspection. We
have no knowledge of the existence of these substances on or in
the subject property. However, we are not qualified to detect
hazardous waste or toxic materials.

Overall, the site size and location appear adequate and conducive
for retail use. The site is serviced by all public utilities. Our review
of local environs reveals that there are no extraordinary external
influences that negatively impact the market value of the property.
In conclusion, from a physical standpoint, the site is considered
adequate for retail development.

43

PROPERTY DESCRIPTION

44

PROPERTY DESCRIPTION

PARCEL MAP
45

PROPERTY DESCRIPTION

REAL ESTATE TAX ANALYSIS
The subject is identified by Los Angeles Tax Assessor’s office as one legal parcel. The most
recent real estate tax information pertaining to the subject property is summarized in the
following table.

2016-2017 ASSESSMENT AND TAXES

Assessor Land Improvements Total Tax Ad Valorem Direct Total
Parcel Number Assessment Assessment Assessment Rate Taxes
2656-023-028 $6,863,672 $3,743,818 $10,607,490 1.191849% Taxes Assessments $136,318
$6,863,672 $3,743,818 $10,607,490 1.191849% $136,318
Total $126,425 $9,892

$126,425 $9,892

Source: County Assessor & Treasurer; Compiled by CCP Valuation

The California voters approved the Proposition 13 Amendment to the California State
Constitution, whereby the maximum annual tax on real property is limited to 1.0 percent of
market value plus an additional sum to pay for indebtedness on affected property approved
by voters prior to the passage of the Proposition. Per Proposition 13, properties are only
reassessed upon sale or significant improvement. Between these events, the assessed value
may be reassessed by a maximum of 2.0 percent per year. Since the definition of market
value assumes a sale, future taxes are calculated based on an assessment equivalent to the
concluded market value. Due to Proposition 13, tax comparables in the California market are
not applicable.

ZONING ANALYSIS

Per our conversations with the city of Los Angeles Planning Department, the subject property
is zoned C-2, Commercial. The following table summarizes pertinent zoning requirements and
compliance issues.

46

PROPERTY DESCRIPTION

CITY OF LOS ANGELES ZONING SUMMARY

Current Zoning: C-2, Commercial

Legally Conforming: Legal, Conforming Use

Zoning Change Likely: Not Likely
Uses Allowed w/Current Zoning:
Broad range of commercial uses including: commercial/
personal services, general retail, business/professional
offices, restaurants, and other related uses.

Category Requirement
Maximum Building Height: 1.5:1 FAR
Setback Requirements
None
Front: None
Side: None
Rear:
Parking Requirements 4.0 spaces per each 1,000 square feet

General Retail:

Source: City Planning Department
Compiled by: CCP Valuation

From our review of the parking requirements as indicated above, the following summarizes
the parking spaces required for the subject property:

CITY OF LOS ANGELES PARKING REQUIREMENT SUMMARY

General Retail: 4.0 x 61.5 (61,478 SF divided by each 1,000 SF equals 61.5 ) = 246 spaces required
Total spaces required: 246 spaces required

Total parking spaces at property: 257 parking spaces

Based on our preliminary review of zoning requirements, the subject appears to be a legal,
conforming use. Furthermore, it could be that due to the age of the building, some elements
such as setbacks, development standards, and/or parking requirements are grandfathered in.
Nonetheless, we are not zoning experts. We recommend that the client obtain a zoning study
of the subject property if additional information is required.

47

PROPERTY DESCRIPTION

IMPROVEMENT DESCRIPTION

Property Type: Neighborhood Shopping Center

Net Rentable Area (NRA): 61,478 square feet (Source: Rent Roll/Leases)

Number of Buildings: 2
Number of Stories: 1
Year Built: 1970
Project Density:
PROJECT DENSITY 5.15
Construction Features 61,478
Construction Type: Total Appraised Net Land Area
Foundation: Total Building Area 3.65
Exterior Walls: Land-to-Building Ratio 27%
Windows & Doors: Floor Area Ratio

Interior Finish: Class C/D, Neighborhood Shopping Centers

Mechanical Equipment Concrete slab
HVAC:
Electrical Service: Concrete block and wood, frame, and stucco
Plumbing:
Fire Protection: Windows are glass in aluminum frames. Most of the main
pedestrian entrance doors are glass and aluminum.

Typical finish includes vinyl, tile, and/or carpet flooring, with
exposed to wood deck ceilings or acoustical ceilings. The interior
improvements appear to be in good condition.

Roof-mounted units

Adequate

Standard commercial grade fixtures

The subject property has fire sprinklers. Nonetheless, this
appraisal assumes that the property has adequate fire alarm
systems, fire exits, extinguishers and/or other protection measures
to meet local Fire Marshal requirements.

48

PROPERTY DESCRIPTION

Other Site Improvements
Parking:

PARKING SUMMARY

Total Parking Spaces 257
Total Building Area 61,478
Parking Ratio (1)
1) Spaces per 1,000 SF 4.18

Landscaping: The site features average landscaping.
ADA Compliance:
The Americans with Disabilities Act (ADA) became effective
Capital Improvements/ January 26, 1992. It is assumed the subject complies with ADA
Deferred Maintenance: requirements. However, we have not made a specific compliance
Functional Utility: survey and analysis of the subject property to determine whether it
Economic Age and Life: is in conformance with the various detailed requirements of the
Conclusion: ADA. We are not qualified to determine compliance with the
requirements of ADA. As such, the value(s) reported herein do not
consider the effects of any possible non-compliance issues.
Please refer to the limiting condition regarding ADA compliance.

The subject property was built in 1970 and is in good condition.
Any future capital costs would likely be covered through a normal
reserve estimate.

Overall, the subject represents a functional neighborhood
shopping center. The property’s design, layout, and visibility is
similar to most of the neighborhood shopping center properties in
the market. Access to the property is good.

According to Marshall Valuation Service Cost Guide, buildings of
this type and quality have an expected life of 45 years. The
effective age of the improvements is estimated at 20 years,
indicating a remaining economic life of 25 years.

The subject property consists of a neighborhood shopping center
that was constructed in 1970 and is in good condition. The property
is well located and conforms to the character of the surrounding
area.

49

PROPERTY DESCRIPTION

NEIGHBORHOOD SHOPPING CENTER

Building/Suite Space SPACE SUMMARY Total % of Total

No. Clas s if ic ation Tenant Name Square Feet GLA
9102 Shop Space Stinkin Craw fish (Starts March/2017)
9110 A Shop Space 3,750 6.1%
9110 B Shop Space Multi Servicios Latinos 1,200 2.0%
9132 Anchor Space China Wok 1,600 2.6%
9134 Shop Space 13,000 21.1%
9136 Anchor Space Skechers U.S.A., Inc. 2,188 3.6%
9138 Side Shop Space United States Postal Service 23,200 37.7%
9140 Side Shop Space Vallarta Supermarkets (Ow ner-User) 1,600 2.6%
9142 Side Shop Space 1,600 2.6%
9146 A Side Shop Space Paw n Shop 1,200 2.0%
9146 B Side Shop Space Nail Salon & Spa 1,120 1.8%
9148 Side Shop Space Casa Camacho 1,280 2.1%
9150 Side Shop Space Rush Management, Inc. 900 1.5%
9152 Side Shop Space Healthcare Angels Medical Clinic 1,500 2.4%
9154 Pad Multi-Tenant Space Salon De Belleza Ali 1,200 2.0%
9160 Pad Multi-Tenant Space Boost/Sprint Mobile 4,920 8.0%
Sunrisas Photos 1,220 2.0%
JP Morgan Chase Bank
Tutti Frutti Frozen Yogurt

APPRAISED SPACE SUMMARY 61,478 100.0%
Total Appraised Net Rentable Area 36,200 58.9%
Total Anchor Space 61,478 100.0%
Total Shop GLA 61,478 100.0%
Total Leased Space 23,200 37.7%
Total Ow ner-Occupied Space 57,728 93.9%
0.0%
Total Occupied Space (minus Suite 9102) 0
Total Vacant Space

Source: Rent Roll & Leases; Compiled by CCP Valuation

NEIGHBORHOOD SHOPPING CENTER - SUMMARY

Space Category No. of Suites Square Feet % of Total
Anchor Space 2 36,200 58.9%
Shop Space 4 8,738 14.2%
Side Shop Space 8 10,400 16.9%
Pad Multi-Tenant Space 2 6,140 10.0%
Total Appraised GLA 16 61,478 100.0%
Anchor % of Appraised GLA 2 36,200 58.9%
Shop & Pad % of Appraised GLA 14 25,278 41.1%
Appraised GLA Leased 16 61,478 100.0%
Appraised GLA Vacant 0 0 0.0%
Source: Rent Roll & Leases; Compiled by CCP Valuation

50

PROPERTY DESCRIPTION

SITE PLAN
51

HIGHEST AND BEST USE

HIGHEST AND BEST USE

Highest and best use is defined as follows:

The reasonably probable use of property that results in the highest value. The four
criteria that the highest and best use must meet are legal permissibility, physical
possibility, financial feasibility, and maximum profitability.3

It is recognized that in cases where a site has existing improvements, the concluded highest
and best use as if vacant may be different from the highest and best use given the existing
improvements (as improved). The existing use will continue, however, until the land value, in
its highest and best use, exceeds the total value of the property under its existing use plus the
cost of removing or altering the existing structure.

Highest and best use analysis involves analyzing the subject site according to the following
four criteria:

 Legally Permissible: The first criterion relates principally to zoning restrictions. A community’s
development policies or environmental goals may encourage certain uses and preclude others.
Other factors impacting a site’s legal permissibility include private restrictions.

 Physically Possible: This criterion pertains to physical characteristics impacting the development
potential of the site such as size, shape, topography, availability of utilities and soil conditions. The
lack or impairment of any of these factors may make certain types of development impossible or
impractical.

 Financially Feasible: This criterion measures which of the physically possible and legally
permissible uses are likely to be profitable. A full feasibility study on all potential uses is generally
beyond the scope of an appraisal. Thus, reliance is placed upon the intent of the zoning,
neighboring uses, market supply and demand indications, and evidence of new development.

 Maximally Productive: The final test is to assess which of the financially feasible uses produces
the greatest net return to the land. For example, if apartment uses are considered financially
feasible, a determination is made as to the density, quality, and type of apartment that will be
profitable to construct.

The highest and best use analysis presented in this appraisal is not intended to be an
exhaustive analysis of every possible use for the subject. Rather, it is intended to provide
sufficient analysis of the most likely and most reasonable alternatives for the subject. The
highest and best use analysis is as follows:

3 Appraisal Institute, The Dictionary Of Real Estate Appraisal, 6th ed. (Chicago: Appraisal Institute, 2015).

52

HIGHEST AND BEST USE

 Legally Permissible: The first issue concerns legal permissibility, which is closely tied to zoning.
The subject site is zoned C-2, Commercial. This zoning allows for commercial oriented uses,
including many types of retail uses and office uses. No changes in zoning would result in a higher
or better use of the site than the approved development.

 Physically Possible: The subject site is 5.15 acres of land area. The site is located on paved
streets and is served by necessary utilities. The site is irregular in shape, but functional. There are
no adverse soil conditions of which we are aware. The topography is level and functional and poses
no specific development limitations.

 Financially Feasible: The economic and competitive forces prevailing in the local market shape
financial feasibility. An indication of financial feasibility is whether there is an active market for land
and/or the presence of new development in the local area. The local and broader market had
experienced new commercial development in the past; however, most proposed commercial
developments in the area were put on hold during the recent recession. Market conditions have
begun to stabilize and improve; however, feasibility of new development is not anticipated in the
immediate future. We conclude that it is not financially feasible that a retail use could be developed
today.

 Maximally Productive: The preceding discussion has been oriented around probable uses relative
to the subject’s physical characteristics, regulatory limitations, and financial feasibility. Another
factor considered is maximum productivity. Based on our analysis of current market conditions,
most buyers of this property type are investors. After considering the subject’s location, allowable
land uses, and current economic climate, the maximally productive use of the subject property as
vacant would be to hold for future retail development and its most probable buyer would be an
investor.

Highest And Best Use Of The Site As If Vacant:
The concluded highest and best use of the subject as if vacant is to hold for future retail
development.

Highest And Best Use Of The Site As Improved: The existing improvements are consistent
with the highest and best use as though vacant. Furthermore, there are no alternative uses of
the improvements that would produce a higher net income and/or value, over time, than the
current use. The current use is legally permissible and is estimated to represent the highest
and best use as improved. In addition, the existing improvements provide a fair return to the
underlying land position. The most probable buyer would be an investor due to the leases in
place. As a result, the highest and best use of the site as improved is to continue its current
use as a neighborhood shopping center and its most probable buyer would be an investor.

53

APPRAISAL METHODOLOGY

APPRAISAL METHODOLOGY

The appraisal process is defined as an organized procedure by which an asset is valued.
There are three traditional approaches that can be employed in establishing the market value
of the subject property. In practice, an approach to value is included or omitted based on its
applicability to the property type being valued and the quality and quantity of information
available in the marketplace. These approaches and their significance and applicability to the
valuation of the subject are summarized as follows.

The Income Capitalization Approach
The methodology of this approach is to determine the income-producing capacity of the
property on a stabilized basis by estimating market rental rates form comparable properties,
making deductions for vacancy and collection losses and building expenses, then capitalizing
the net income at a market-derived rate to yield and indication of value. The capitalization
rate represents the relationship between net income and value.

Related to the direct capitalization method is the discounted cash flow method. In this method
of capitalizing future income to a present value, periodic cash flows (which consist of a net
income less capital costs, per period) and a reversion (if any) are estimated and discounted
to a present value. The discount rate is determined by analyzing current investor yield
requirements for similar investments. As indicated, the Income Capitalization Approach is
most applicable to properties that are bought and sold for investment purposes and is
considered most reliable when adequate income and expense data are available. This
approach is valid and is generally considered the most applicable when the property being
appraised was designed for, or is easily capable of producing, a satisfactory rental income.

The Sales Comparison Approach
The Sales Comparison Approach is an estimate of value based upon a process of comparing
recent sales and/or listings of similar properties in surrounding or competing areas to the
subject property. Inherent in this approach is the principle of substitution. Valuation is typically
accomplished utilizing physical units of comparison such as price per square foot or price per
unit, etc., or economic units of comparison such as multipliers. Adjustments are applied to
the physical units of comparison derived from the comparable sale. The unit of comparison
chosen for the subject is then used to yield a total value. Economic units of comparison are
not adjusted, but rather analyzed as to relevant differences with the final estimate derived
based on the general comparisons. The estimated value through this approach represents
the probable price at which a willing seller would sell the subject property to a willing and

54

APPRAISAL METHODOLOGY

knowledgeable buyer as of the date of value. The reliability of this approach is dependent
upon: (a) the availability of comparable sales data; (b) the verification of the sales data; (c)
the degree of comparability; and (d) the absence of atypical conditions affecting the sales
price.

The Cost Approach
The application of the Cost Approach is based on the principle of substitution. This principle
may be stated as follows: no one is justified in paying more for a property than the cost to
develop a substitute property of equivalent desirability and utility. In the case of a new
building, no deficiencies in the building should exist. The Cost Approach is typically only a
reliable indicator of value for: (a) new properties; (b) special use properties; and (c) where the
cost of reproducing the improvements is easily and accurately quantified and there is no
economic obsolescence. In all instances, the issue of an appropriate entrepreneurial
incentive - the reward for undertaking the risk of construction - remains a highly subjective
factor.

Application to the subject
The reported value was determined via the Income Approach with support provided by the
Sales Comparison Approach. Typical buyers of this property type are investors that place
greatest reliance on the Income Approach, with secondary emphasis placed on the Sales
Comparison Approach. The Cost Approach was not considered applicable as it is not being
utilized in the current market for properties such as the subject due to the excessive
entrepreneurial incentive and difficulty in accurately estimating the total depreciation.

Reconciliation
The valuation procedure is concluded via a review of the approaches to value employed. The
reliability of the market data utilized and the overall applicability of each approach are re-
examined. Based upon this analysis, the value indications are reconciled and a final estimate of
value is concluded.

55

INCOME CAPITALIZATION APPROACH

INCOME CAPITALIZATION APPROACH

The Income Capitalization Approach reflects the subject’s income-producing
capabilities. This approach is based on the assumption that value is created by the
expectation of benefits to be derived in the future. Specifically estimated is the amount
an investor would be willing to pay to receive an income stream plus reversion value
from a property over a period of time. The two most common valuation techniques
associated with the Income Capitalization Approach are discounted cash flow (DCF)
and the direct capitalization analysis.

DISCOUNTED CASH FLOW

The discounted cash flow (DCF) analysis is typically utilized when the future income
is expected to significantly fluctuate usually as result of numerous lease obligations
and/or anticipated changes in income and expenses. The DCF analysis forecasts the
quantity, variability, timing and duration of NOI and cash flow during the holding
period.

Investors utilizing this methodology typically make a forecast of net operating income
and cash flow over a period of time ranging from 5 to 15 years and then determine a
purchase price, which will provide a return on and of the asset and justify the degree
of risk inherent in the proposed investment. The major tasks involved in such an
approach to valuing the subject property are enumerated as follows:

1. Analysis of the projected contract rental income stream, projection of future annual
revenues for a selected holding period, probable lease rollovers at market rates, and
probable credit losses.

2. Analysis of projected other income including expense recoveries as well as
miscellaneous income.

3. A projection of future recoverable and non-recoverable expenses based upon
ownership’s historical and projected expenses, competitive properties and industry
sources.

4. A derivation of the most probable annual net operating income to be generated by
the property over the projection period by subtracting all property expenses from the
effective gross income.

5. Projection of capital expenses such as leasing commissions, tenant improvement
allowances and structural reserves.

6. Conversion of the projected net operating income to annual cash flow by deducting
the capital expenses.

56

INCOME CAPITALIZATION APPROACH

7. Estimation of a resale price at the end of the investment period by applying an
appropriate reversionary capitalization rate to the forecast eleventh year net
operating income and deducting the appropriate selling costs.

8. Determination of a discount rate (yield rate) that would attract a prudent investor to
invest in a similar situation with comparable degrees of risk, non-liquidity, and
management burden.

9. Conversion of the pre-tax cash flows into a present value by discounting at the
proper discount rate.

10. The results of this analysis provide an estimate of value of the subject property free
and clear of financing. The resultant before tax cash flow is contained in the
accompanying cash flow.

DIRECT CAPITALIZATION
Direct capitalization is the method used to convert a single-year’s estimate of income
into a value indication. Within this analysis, a precise allocation between return on
and return of capital is not made because investor assumptions or forecasts
concerning the holding period, pattern of income, or changes in value of the original
investment are not developed. Direct capitalization is most appropriate when
analyzing a stable income stream and in estimating the reversion at the end of the
holding period. The following sets forth the process of this methodology:

1. Estimate the Potential Gross Income (PGI) from all sources that a competent
owner should be able to generate from a property based on existing and/or
market rents.

2. Deduct an estimate of Vacancy and Collection Loss (V&C) to arrive at an
Effective Gross Income (EGI) estimate.

3. Deduct operating expenses from the estimate of EGI, which results in an
estimate of the stabilized Net Operating Income (NOI).

4. Estimate an Overall capitalization rate (Ro, or OAR).
5. Divide the NOI by Ro, resulting in a value estimate at stabilized occupancy.
6. Adjust the stabilized value to account for “as is” condition, if applicable.

Appropriate Capitalization Method

A number of factors are considered in evaluating the appropriateness of using the
DCF technique and/or the direct capitalization method. These considerations include
the occupancy status of the property, the structure of the existing leases, the existence
of above or below market rents, the presence of ground leases, and the preferences
of purchasers/investors in the regional market for the subject’s property type.
Discounted cash flow analysis is the most commonly utilized methodology for

57

INCOME CAPITALIZATION APPROACH

investment grade properties or multi-tenant properties. In addition, it is considered an
applicable approach in which there are measurable changes in the income stream
over a typical holding period. The direct capitalization method is most relevant for a
smaller property with limited change in the income stream or operating at or near
stabilization.
The subject property consists of a neighborhood shopping center with multiple tenants
with varying lease structures. Thus, most buyers would rely slightly more on the
discounted cash flow analysis with support derived from the direct capitalization
method. Therefore, we have utilized both methods in our analysis.
ESTIMATE OF MARKET RENT
Analysis of Lease Comparables: The following map(s) and table(s) detail the data
that we compiled in order to determine the actual lease transactions and/or asking
rent from similar properties in the immediate market for the following space categories:

 Retail shop space
 Anchor space

58

INCOME CAPITALIZATION APPROACH

LEASE COMPARABLES MAP – RETAIL SHOP SPACE
59

INCOME CAPITALIZATION APPROACH DETAILS OF LEASE COMPARABLES - RETAIL SHOP SPACE

Data Year Transaction Transaction Starting Rent $/SF Term
No. Location Built Date Size (SF) (years)
1 Paseo Sepulveda 2005 1,400 Month Year Notes
LISTING N/A Triple Net
9000-9054 Sepulveda Blvd $3.00 $36.00 Triple Net
North Hills, CA Triple Net
1960/1990 LISTING 1,361 $2.40 $28.80 N/A Triple Net
2 Norw ood Center Triple Net
16130 Nordhoff St 1976 Aug-16 950 $2.50 $30.00 3.00 Triple Net
North Hills, CA
1957 May-16 2,077 $2.88 $34.56 3.00
3 Encino Tow n Center
17200 Ventura Blvd 1986 Dec-15 3,200 $2.75 $33.00 3.00
Encino, CA
1990 Sep-15 1,278 $3.50 $42.00 5.00
4 Retail Center
13020-13026 Sherman Way
North Hollyw ood, CA

5 Royal Plaza
8363 Reseda Blvd
Northridge, CA

6 Mission Plaza
1201 Truman St
San Fernando, CA

Minimum $2.40 $28.80

Maximum $3.50 $42.00

Median $2.82 $33.78

Mean $2.84 $34.06

Source: Field Survey by CCP Valuation

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INCOME CAPITALIZATION APPROACH

LEASE COMPARABLES MAP – ANCHOR SPACE
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INCOME CAPITALIZATION APPROACH

DETAILS OF LEASE COMPARABLES - ANCHOR SPACE

Data Year Transaction Transaction Starting Rent $/SF Term
No. Location Built Date Size (SF) (years)
1 Grand Plaza 1966 Tenant 15,360 Month Year Notes
To Be Determined LISTING N/A Triple Net
6734-6756 Sepulveda Blvd 1985 $1.50 $18.00
Van Nuys, CA Triple Net
1947 To Be Determined LISTING 19,000 $1.79 $21.48 N/A
2 Pacoima Plaza of Stars Triple Net
12727-12765 Van Nuys Blvd 1973 Moss Supermarket Apr-15 16,500 $1.50 $18.00 10.00
Pacoima, CA Triple Net
1973 99¢ Only Stores Feb-15 21,440 $1.25 $15.00 7.00
3 Retail Center Triple Net
2931 Honolulu Ave Smart & Final Extra! Sep-14 23,745 $1.62 $19.44 15.00
La Crescenta, CA

4 Retail Center
13205-13243 Gladstone Ave
Sylmar, CA

5 Retail Center
2040 Glenoaks Blvd
San Fernando, CA

Minimum $1.25 $15.00

Maximum $1.79 $21.48

Median $1.50 $18.00

Mean $1.53 $18.38

Source: Field Survey by CCP Valuation

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INCOME CAPITALIZATION APPROACH

Comparable Rentals Analysis:
Retail Shop Space-Lease Comparables: All of the rent comparables for the retail shop
spaces are from relatively similar retail centers in the immediate market. The rent
comparables range from $2.40 to $3.50 per square foot per month, triple net, where
the tenant reimburses the owner for the typical operating expenses.

We made downward adjustments to Lease Nos. 1 and 2 to account for their listing
status as these tend to typically rent at a lower rate than their asking level. We also
made a downward adjustment to Lease No. 1 to account for its newer construction.
The median and average indicated by the shop space rent comparables was $2.82
and $2.84 per square foot per month, triple net.

It should be noted that there is a difference in visibility from the regular shop space
and the side shop space (9138-9152 Sepulveda Boulevard), which is located furthest
from the corner and behind the pad multi-tenant building. Therefore, we concluded at
a slightly lower market rent for the side shop space.

Furthermore, there is one multi-tenant pad building at the subject property (suites
9154-9160). It has superior visibility which is evidenced by its above average current
contract rent. Due to this factor, we placed this space under a different market rent
category and concluded to a higher market rent level for this space category.

Anchor Space-Lease Comparables: The subject property also has some larger retail
suites (anchor space). The lease comparables for this space category range from
$1.25 to $1.79 per square foot per month, triple net. The median and average
indicated by these rent comparables was $1.50 and $1.53 per square foot, triple net,
per month, respectively. Our concluded market rent for this space category is within
the range indicated by the lease comparables.

Overall, our market rent conclusion for the different space categories was supported
by the lease comparables. Nonetheless, in most cases, we placed most reliance on
the subject’s contract rent as this best reflects the rent that can be potentially achieved
at the subject property.

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INCOME CAPITALIZATION APPROACH

Analysis of Leasing at Subject Property: While the preceding analysis of
comparables provides insight into the current leasing market for similar properties in
the vicinity of the subject property, commercial properties are accurately regarded as
separate entities by virtue of age, design, location, accessibility, and size. One of the
most meaningful measures of market lease terms is actual leases recently negotiated
at the property itself.
The following charts summarize the current contract rent and the recent leasing for
the existing leases at the subject property.

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INCOME CAPITALIZATION APPROACH

NEIGHBORHOOD SHOPPING CENTER / CONTRACT RENT CALCULATION - PAGE 1

Suite No. Space Classification Tenant Name Square Original Recent Lease Current Current Rental Renewal Lease
Stinkin Crawfish (Starts March/2017) Rent/Mo. Rent/SF Increas es Options Type
Feet Start Start End
$11,250 $3.00 NNN
9102 Shop Space 3,750 Mar-17 Mar-17 Feb-27 3/18: $11,587.50 Two 5-Year @
3/19: $11,935.13 Opt. 1 - 3% Annual
3/20: $12,293.18 Opt. 2 - 3% Annual
3/21: $12,661.97
3/22: $13,041.83
3/23: $13,433.10
3/24: $13,836.10
3/25: $14,251.16
3/26: $14,678.70

9110 A Shop Space Multi Servicios Latinos 1,200 Jun-13 Jun-13 Mar-18 $3,895 $3.25 6/17: $3,963.33 One 5-Year @ CPI NNN

9110 B Shop Space China Wok 1,600 Sep-13 Sep-13 Aug-18 $3,600 $2.25 9/17: $4,000.00 Two 5-Year @ CPI NNN
9132 Anchor Space Skechers U.S.A., Inc. 13,000 Dec-16 Dec-16 Nov-26 $20,583
9134 Shop Space United States Postal Service 2,188 Aug-08 Aug-08 Nov-18 $9,331 $1.58 Two 5-Year @ NNN
9136 Anchor Space Vallarta Supermarkets $4.26 12/21: $22,641.67 Opt. 1 - $25,350.00 Gros s

Opt. 2 - $28,394.17

12/17: $9,563.79 Four 5-Year @
FMR

23,200 Jan-05 Jan-05 Mar-20 $35,000 $1.51 None None Gros s

9138 Side Shop Space Pawn Shop 1,600 Feb-11 Apr-14 Mar-17 $3,688 $2.31 None Two 3-Year @ FMR NNN
1,600 Jun-15 Jun-15 Jul-25 $3,626 $2.27
9140 Side Shop Space Nail Salon & Spa 1,200 Apr-09 Apr-12 Mar-17 $3,173 $2.64 8/17: $3,734.37 One 5-Year @ NNN
8/18: $3,846.40 8/25: $4,730.59
8/19: $3,961.79 8/26: $4,872.50
8/20: $4,080.64 8/27: $5,018.68
8/21: $4,203.06 8/28: $5,169.24
8/22: $4,329.16 8/29: $5,324.32
8/23: $4,459.03
8/24: $4,592.80

9142 Side Shop Space Casa Camacho None One 5-Year @ CPI NNN

Source: Rent Roll & Leases; Compiled by CCP Valuation

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NEIGHBORHOOD SHOPPING CENTER / CONTRACT RENT CALCULATION - PAGE 2

Suite No. Space Classification Tenant Name Square Original Recent Lease Current Current Rental Renewal Lease
Rent/Mo. Rent/SF Increas es Options Type
Feet Start Start End

9146 A Side Shop Space Rush Management, Inc. 1,120 Jan-10 Jan-17 Dec-21 $3,044 $2.72 1/18: 3% Annual One 5-Year @ FMR NNN

9146 B Side Shop Space Healthcare Angels Medical Clinic 1,280 Feb-12 Feb-17 Jan-22 $3,456 $2.70 2/18: 3% Annual One 5-Year @ FMR NNN
Salon De Belleza Ali
9148 Side Shop Space Boost/Sprint Mobile 900 Aug-02 Aug-14 Jul-19 $2,949 $3.28 8/17: $3,066.96 None NNN
Sunrisas Photos 1,500 Jul-15 Jul-15 Jun-20 $2,700 $1.80 8/18: $3,189.64 NNN
1,200 Oct-13 Oct-16 Sep-19 $2,424 $2.02 NNN
9150 Side Shop Space 4,920 May-09 May-09 Apr-19 $17,909 $3.64 7/17: $2,850.00 One 5-Year @ FMR
7/18: $3,000.00
1,220 Jul-12 Jul-12 Nov-17 $3,933 $3.22 7/19: $3,090.00

9152 Side Shop Space 10/17: $2,496.72 None
10/18: $2,571.62

9154 Pad Multi-Tenant Space JP Morgan Chase Bank None Three 5-Year @ NNN
None Opt. 1 - $20,057.20 NNN
9160 Pad Multi-Tenant Space Tutti Frutti Frozen Yogurt Opt. 2 - $22,463.90
Opt. 3 - $25,157.60

Two 5-Year @
Opt. 1

12/17: $4,071.30
12/18: $4,193.44
12/19: $4,319.24
12/20: $4,448.82
12/21: $4,582.29

Opt. 2
12/22: $4,719.75
12/23: $4,861.35
12/24: $5,007.19
12/25: $5,157.40
12/26: $5,312.13

Source: Rent Roll & Leases; Compiled by CCP Valuation

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INCOME CAPITALIZATION APPROACH

NEIGHBORHOOD SHOPPING CENTER

SUMMARY OF CONTRACT RENT

Space No. of Current Rent/SF/Month

Category Leases Low High Weighted Median
Average
$1.55
Anchor Space 2 $1.51 $1.58 $1.54 $3.12
$2.47
Shop Space 3 $2.25 $4.26 $3.21 $3.43

Side Shop Space 8 $1.80 $3.28 $2.41

Pad Multi-Tenant Space 2 $3.22 $3.64 $3.56

Source: Rent Roll & Leases; Compiled by CCP Valuation

SUBJECT RECENT LEASING

Suite No. Space Classification Tenant Name Square Recent Lease End Current Current
Feet Start Rent/SF/Mo Rent/SF/Yr
3,750
9102 Shop Space Stinkin Craw fish (Starts March/2017) Mar-17 Feb-27 $3.00 $36.00
13,000 $1.58 $19.00
9132 Anchor Space Skechers U.S.A., Inc. 1,600 Dec-16 Nov-26 $2.31 $27.66
1,600 $2.27 $27.19
9138 Side Shop Space Paw n Shop 1,120 Apr-14 Mar-17 $2.72 $32.62
1,280 $2.70 $32.40
9140 Side Shop Space Nail Salon & Spa 1,500 Jun-15 Jul-25 $1.80 $21.60
1,200 $2.02 $24.24
9146 A Side Shop Space Rush Management, Inc. Jan-17 Dec-21

9146 B Side Shop Space Healthcare Angels Medical Clinic Feb-17 Jan-22

9150 Side Shop Space Boost/Sprint Mobile Jul-15 Jun-20

9152 Side Shop Space Sunrisas Photos Oct-16 Sep-19

Source: Rent Roll & Leases; Compiled by CCP Valuation

NEIGHBORHOOD SHOPPING CENTER

SUMMARY OF RECENT LEASING

Space No. of Current Rent/SF/Month

Category Leases Low High Wtd. Average Median
$1.58
Anchor Space 1 $1.58 $1.58 $1.58 $3.00
$2.29
Shop Space 1 $3.00 $3.00 $3.00 N/A

Side Shop Space 6 $1.80 $2.72 $2.28

Pad Multi-Tenant Space 0 N/A N/A N/A

Source: Rent Roll & Leases; Compiled by CCP Valuation

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CONCLUDED MARKET LEASE TERMS
We took into consideration both the data collected from the lease comparables as well
as the current contract rent/recent leasing at the subject property in our estimate of
market rent. We placed most emphasis on the current contract rent and/or recent
leasing being achieved at the subject property.
Note that, based on the inferior or superior visibility, we concluded to a lower market
rent for the side shop space and to a higher market rent for the pad multi-tenant space.
We have concluded to the following market rent for the subject.

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INCOME CAPITALIZATION APPROACH

NEIGHBORHOOD SHOPPING CENTER MARKET RENT CONCLUSION

Lease Comparables Contract Rent Recent Leasing Year One Projection Lease
Rent/SF/Month Market Rent//SF Expense Term
Size/Use Rent/SF/Month Rent/SF/Month
Low High Median Mean Low Wghtd Median Low Wghtd Median Monthly Annual Structure (Years)
Category $1.25 $1.79 $1.50 $1.53 $1.51 $1.55 $1.58 $1.58 $1.50 $18.00
$2.40 $3.50 $2.82 $2.84 $2.25 High Avg $3.12 $3.00 High Avg $3.00 $3.00 $36.00 NNN 10
Anchor Space $2.40 $3.50 $2.82 $2.84 $1.80 $1.58 $1.54 $2.47 $1.80 $1.58 $1.58 $2.29 $2.50 $30.00
Shop Space $2.40 $3.50 $2.82 $2.84 $3.22 $3.43 N/A N/A $3.50 $42.00 NNN 5
Side Shop Space $4.26 $3.21 $3.00 $3.00
Pad Multi-Tenant Space NNN 5
Source: CCP Valuation $3.28 $2.41 $2.72 $2.28
NNN 5
$3.64 $3.56 N/A N/A

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INCOME CAPITALIZATION APPROACH

NEIGHBORHOOD SHOPPING CENTER - CONCLUDED MARKET LEASE TERMS

Category Anchor Space Shop Space Side Shop Space Pad Multi-Tenant
Market Rent/SF/Month $1.50 $3.00 Space

$2.50 $3.50

Market Rent/SF/Year $18.00 $36.00 $30.00 $42.00

Rent Escalations Timing Every 5 Years Annual Annual Annual

Amount 12% 3% 3% 3%

Expense Basis (1) Triple Net Triple Net Triple Net Triple Net

Lease Term (Mos.) 120 60 60 60

Tenant Improvements: New $7.00 $7.00 $7.00 $7.00

Tenant Improvements: Renew als $0.00 $0.00 $0.00 $0.00

Leasing Commissions: New (2) 6.00% 6.00% 6.00% 6.00%

Leasing Commissions: Renew (2) 3.00% 3.00% 3.00% 3.00%

Renew al Probability 75% 70% 65% 75%

Dow ntime Betw een Leases (Months) 12 9 9 9

Market Rent Grow th 3.00% 3.00% 3.00% 3.00%

1 For NNN, tenant is responsible to reimburse its pro-rata share of most expenses such as Real Estate Taxes, Management, Insurance,
and Common Area Maintenance. G & A is not reimbursed.

2 For leases w ith ten-year terms, the leasing commission is reduced by half for the second five years of the term.

Source: CCP Valuation

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NEIGHBORHOOD SHOPPING CENTER - PROJECTED MARKET RENT - YEAR
ONE

Space Category Square Feet Market Rent Total Annual
PSF/Annual Re nt
Anchor Space 36,200
Shop Space 8,738 $18.00 $651,600
Side Shop Space 10,400 $36.00 $314,568
Pad Multi-Tenant Space 6,140 $30.00 $312,000
$42.00 $257,880

Total Projected Market Rent-Year One $1,536,048

Source: CCP Valuation

CONCLUDED POTENTIAL RENTAL INCOME-YEAR ONE
For our projected potential rental income in Year One, it should be noted that we
utilized the contract rent for all of the tenants and the market rent for those leases that
expire during Year One for the remaining months after the lease expiration date. The
following chart details the calculation of the concluded potential rental income utilized
in Year One of the projected cash flows that are presented later in this report.

The subject property is currently owned by 9136 Sepulveda, LLC (Vallarta
Supermarkets, Inc.) and the lease in place for one of the anchor suites (Vallarta
Supermarkets) is between related parties and is considered a pocket-to-pocket
lease. Therefore, we have not considered this lease in our analysis and instead,
have applied a market rent to this anchor space with typical lease-up costs
deducted.

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NEIGHBORHOOD SHOPPING CENTER - YEAR ONE - POTENTIAL CONTRACT RENT INCOME CALCULATION

Te nant Classification Lease Lease Mo. 1 Mo. 2 Mo. 3 Mo. 4 Mo. 5 Mo. 6 Mo. 7 Mo. 8 Mo. 9 Mo. 10 Mo. 11 Mo. 12 Total
Start End Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18
$123,750
Stinkin Craw fish (Starts March/2017) Shop Space Mar-17 Feb-27 $0 $11,250 $11,250 $11,250 $11,250 $11,250 $11,250 $11,250 $11,250 $11,250 $11,250 $11,250 $47,287
$45,200
Multi Servicios Latinos Shop Space Jun-13 Mar-18 $3,895 $3,895 $3,895 $3,895 $3,963 $3,964 $3,963 $3,963 $3,964 $3,963 $3,963 $3,964
$247,000
China Wok Shop Space Sep-13 Aug-18 $3,600 $3,600 $3,600 $3,600 $3,600 $3,600 $3,600 $4,000 $4,000 $4,000 $4,000 $4,000 $112,433
$417,600
Skechers U.S.A., Inc. Anchor Space Dec-16 Nov-26 $20,583 $20,583 $20,583 $20,584 $20,583 $20,583 $20,584 $20,583 $20,583 $20,584 $20,583 $20,584
$47,376
United States Postal Service Shop Space Aug-08 Nov-18 $9,331 $9,331 $9,330 $9,331 $9,330 $9,331 $9,330 $9,331 $9,330 $9,331 $9,564 $9,563 $44,160
$36,346
Vallarta Supermarkets (Ow ner-User) Anchor Space Jan-05 Mar-20 $34,800 $34,800 $34,800 $34,800 $34,800 $34,800 $34,800 $34,800 $34,800 $34,800 $34,800 $34,800 $36,621
$41,472
Paw n Shop Side Shop Space Apr-14 Mar-17 $3,688 $3,688 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $36,096
$33,450
Nail Salon & Spa Side Shop Space Jun-15 Jul-25 $3,626 $3,626 $3,625 $3,626 $3,625 $3,626 $3,734 $3,734 $3,734 $3,735 $3,734 $3,735 $29,379
$214,906
Casa Camacho Side Shop Space Apr-12 Mar-17 $3,173 $3,173 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $47,469

Rush Management, Inc. Side Shop Space Jan-17 Dec-21 $3,044 $3,044 $3,044 $3,044 $3,044 $3,045 $3,044 $3,044 $3,044 $3,044 $3,044 $3,136

Healthcare Angels Medical Clinic Side Shop Space Feb-17 Jan-22 $3,456 $3,456 $3,456 $3,456 $3,456 $3,456 $3,456 $3,456 $3,456 $3,456 $3,456 $3,456

Salon De Belleza Ali Side Shop Space Aug-14 Jul-19 $2,949 $2,949 $2,949 $2,949 $2,949 $2,949 $3,067 $3,067 $3,067 $3,067 $3,067 $3,067

Boost/Sprint Mobile Side Shop Space Jul-15 Jun-20 $2,700 $2,700 $2,700 $2,700 $2,700 $2,850 $2,850 $2,850 $2,850 $2,850 $2,850 $2,850

Sunrisas Photos Side Shop Space Oct-16 Sep-19 $2,424 $2,424 $2,424 $2,424 $2,424 $2,424 $2,424 $2,424 $2,497 $2,497 $2,497 $2,496

JP Morgan Chase Bank Pad Multi-Tenant May-09 Apr-19 $17,909 $17,909 $17,909 $17,909 $17,908 $17,909 $17,909 $17,909 $17,909 $17,908 $17,909 $17,909

Tutti Frutti Frozen Yogurt Pad Multi-Tenant Jul-12 Nov-17 $3,933 $3,933 $3,933 $3,932 $3,933 $3,933 $3,933 $3,932 $3,933 $3,932 $4,071 $4,071

Total $1,560,545

Compiled by CCP Valuation

 Green Italics= Market rent due to lease expiration

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CONTRACT RENT VERSUS MARKET RENT
The following chart compares the projected contract rent versus the projected market
rent for Year One.

NEIGHBORHOOD SHOPPING CENTER

CONTRACT RENT VERSUS MARKET RENT - YEAR ONE CALCULATION

Annual Contract Annual Market

Rent Rent

$1,560,545 $1,536,048

Amount that Contract Rent is ABOVE/(BELOW) Market-Year One $24,497

Percentage that Contract Rent is ABOVE/(BELOW) Market-Year One 1.59%

Source: Compiled by CCP Valuation

ANALYSIS OF TENANCY

Tenant Credit: The subject property is leased to several retail tenants. The following
table details the credit related to some of the tenants at the subject. Thus, the following
tenants are considered investment grade credit tenants: JP Morgan Chase Bank and
US Post Office.

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ANALYSIS OF TENANCY

Tenant S & P Rating Operations Summary
Skechers
Skechers designs and sells more than 3,000 styles of lifestyle and athletic footwear,
including oxfords, boots, sandals, sneakers, training shoes, and semi-dressy shoes. It
caters to men, women, and children. In addition to its namesake products, the company
offers fashion and street-focused footwear under the Marc Ecko, Zoo York, and Mark
Nason brands. Its shoes are sold through department and specialty stores in more than
N/A 160 countries, as well as some 390 company-owned concept and outlet stores and its
website. Headquartered in Manhattan Beach, California, the brand was founded in 1992.
Now the second largest athletic footwear brand in the United States, Skechers earned
more than $3 billion in revenues during the 2015 fiscal year. As of January 2016, the
company employed more than 9,200 people worldwide.

Vallarta Supermarkets Vallarta Supermarkets (Carniceria Vallarta) was founded in 1985 by Enrique Gonzalez Sr.,
Boost/Sprint Mobile who was later joined in the business by his four brothers, his son and a nephew. In 1985,
JP Morgan Chase Bank Enrique Gonzalez Sr. began his journey into the grocery business when he opened the
N/A first Vallarta Supermarket (Carniceria Vallarta) in a comfortable 1,000 square foot market
in Van Nuys, CA. Since then, Vallarta Supermarkets has grown to a total of 47 stores
through out California (Ventura, Los Angeles, San Bernardino, Kern, San Diego, Santa
Barbara, Tulare, Orange and Fresno counties). The company employs approximately
8,000 employees.

B/Stable Boost Mobile, a subsidiary of Sprint Nextel, sells the parent company's (Sprint
Corporation) mobile services on a prepaid basis across the US, marketing simplified
payment plans primarily to the youth market. Sprint Corporation, commonly referred to as
Sprint, is an American telecommunications holding company that provides wireless
services and is an internet service provider. It is the fourth largest mobile network operator
in the United States, and serves 59.5 million customers, as of January 2017.

A-/Stable JPMorgan Chase & Co. (JPMorgan Chase) is a financial holding company. The Company
is engaged in investment banking, financial services for consumers and small
businesses, commercial banking, financial transaction processing and asset
management.Chase offers more than 5,100 branches and 16,100 ATM's nationwide.
JPMorgan Chase has 265,359 employees (as of 2014) and operates in more than 100
countries. JPMorgan Chase currently has assets of approximately US$2.6 trillion.

Tutti Frutti Frozen Yogurt Tutti Frutti Frozen Yogurt is an international retail brand of self-serve frozen yogurt. Tutti
N/A Frutti has over 100 outlets in California and other states in the US, Indonesia, Vietnam,

Tahiti, and Mexico, and around the world.

USPS The United States Postal Service (USPS), is an independent agency of the United States
AAA/Stable government responsible for providing postal service in the United States.

Source: S & P and company annual reports; Compiled by CCP Valuation

OTHER INCOME
Other income includes expense recovery income and other miscellaneous income.

Expense Recoveries: The majority of the current existing leases are on a triple net
basis. The majority of these leases provide for the tenants to reimburse most of the
typical operating expenses such as common area maintenance, insurance, real estate

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INCOME CAPITALIZATION APPROACH

taxes, and a management fee based on 5.0 percent of rental revenue. There are some
slight differences for some of the tenants. Although not discussed individually, each
tenant’s recovery method has been imputed into the cash flow analysis based upon
the contracted arrangement as disclosed to us. Furthermore, we observed that a good
amount of the leasing in the immediate market was on a triple net basis.

Therefore, we projected that the standard reimbursement method for new market-
based tenants is based on a pro-rata share of common area maintenance, insurance,
property taxes, and the management fee. The general & administrative expense
category is non-recoverable.

Miscellaneous Other Income: This category typically includes late fees, credit check
fees, and other miscellaneous income.

Properties of this size and number of tenants typically generate some miscellaneous
income. The provided historical operating statements indicated that miscellaneous
income ranged from $0 to $12,649 per year from 2014 to 2016. Therefore, based on
the historical and expense data, we projected $3,000 in miscellaneous income in Year
One of our analysis.

VACANCY AND CREDIT LOSS
A prudent investor normally provides an allowance for potential vacancy and collection
loss. Since real estate is a long-term investment, the possibility exists for occasional
rent loss due to actual vacancy, turnover, and slow or nonpayment of rent by tenants.

As noted previously in the Market Analysis section of this Report, the following table
summarizes the current vacancy rates reported in the market and the submarket. The
vacancy reported in the market and the submarket was considered slightly high for
the subject property. The competing centers (as detailed in the Market Analysis
section) had vacancy rates that ranged from 0.0 to 4.0 percent. Therefore, we
concluded to a slightly lower vacancy rate than the overall rate reported in the subject’s
market and submarket.

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INCOME CAPITALIZATION APPROACH

VACANCY RATE INDICATORS

MARKET SUBMARKET

Vacancy Rate 6.4% 7.3%

Compiled by CCP Valuation

Based on this information as well as an analysis of current market conditions, we have
estimated a stabilized collection loss at 2.0 percent of all the spaces excluding the
credit tenants (specifically Chase Bank and the U.S. Post Office). This results in a
weighted average vacancy and collection loss of 1.8 percent for the subject.

Within the discounted cash flow analysis, vacancy and collection loss are modeled
separately. Vacancy is modeled by incorporating an estimated weighted average
downtime between leases. During this time period, no income is received for rent or
expense recoveries. The weighted average downtime is a product of the estimated
total downtime if a tenant were to vacate times the probability the tenant would vacate
at the end of the lease term (the “non-renewal probability” is equal to 100 percent
minus the renewal probability).

The following table summarizes the concluded downtime vacancy and credit loss
conclusions for the projected leases.

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INCOME CAPITALIZATION APPROACH

DOWNTIME VACANCY AND CREDIT LOSS

A BC D

Space Type Square Feet Months Renew al Rounded No. No. of Months Total No. of Turnover Vacancy
Anchor Space 36,200 Dow ntime Probability Months Weighted Lease Term Months Factor (A/C)
Avg. Dow ntime Betw een 2.44%
12 75% 120 Leases
3.00
123.0

Shop Space 8,738 9 70% 2.70 60 62.7 4.31%

Side Shop Space 10,400 9 65% 3.15 60 63.2 4.99%
Pad Multi-Tenant Space 6,140 9 75% 2.25 60 62.3 3.61%

Weighted Average Turnover Vacancy 3.25%

Weighted Average Collection Loss: (2% Excluding Credit Tenants) 1.80%

Implied Vacancy & Collection Loss 5.05%

Rounded To 5.00%

A = Non-renew al probability x # months dow ntime if tenant vacates; C = A+B; and D = A/C

Source: CCP Valuation

Based on the information presented in the market analysis as well as an analysis of
current market conditions, we have estimated a stabilized vacancy and collection loss
at 5.00 percent and utilized this estimate in the direct capitalization method and for
our stabilized reversion in the discounted cash flow analysis.

CONCLUDED VACANCY AND COLLECTION LOSS RATE

Stabilized Vacancy and Collection Loss Rate 5.00%

SPECIAL LEASE PROVISIONS AND ASSUMPTIONS

The following discussion summarizes unusual lease provisions and assumptions of
special note.

Renewal Options: Options to renew at below-market rent may have an impact on
the valuation. If such renewals are exercised, they may result in a downward impact
on value. To the extent that re-tenanting costs are saved (rent loss during downtime,
tenant improvements, and leasing commissions), there may be an advantage in
having a tenant renew at a rate below market in order to avoid these costs. For those
tenants that we believe to contain favorable option clauses, their renewal options have
been processed. All remaining leases are assumed to roll to a speculative renewal
basis upon lease expiration.

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INCOME CAPITALIZATION APPROACH

Therefore, the remaining options for the following tenants were considered favorable
for the tenant and were modeled in our analysis:

 China Wok, Nail Salon & Spa, and Tutti Frutti.

First Rights of Refusal: First rights of refusal on specified space may be provided
to a large tenant or tenants expected to have expansion needs. As such space
becomes vacant, it may be difficult to market it to a new tenant if a tenant is
considering exercising a first right of refusal for the space. However, this problem can
usually be minimized if management keeps current on anticipated tenant expansion
needs with regard to space affected by first rights of refusal and negotiates early to
accommodate the needs of the tenant. For the purposes of this assignment, we have
assumed that management will effectively monitor any first right of refusal clauses and
as such there will be no material impact on the marketability of vacant space.

Contraction/Termination Options: Since it is impossible to predict with any degree
of certainty which, if any, of the existing tenants are likely to exercise their termination
options, we have assumed for purposes of this analysis that all of the existing tenants
will remain in occupancy throughout the entire scheduled term of the respective
leases.

OPERATING EXPENSE ANALYSIS
Based on the historical and/or budgeted data provided to us by the property
management, in our analysis, we have analyzed each item of expense individually
and attempted to project what a typical, informed purchaser would consider
reasonable.

We also took into consideration the expense data reported by Dollars and Cents for
similar retail properties (Neighborhood Shopping Centers: Western States). The
following tables indicate the historical and expense data as well as our concluded
levels for each category for year one.

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INCOME CAPITALIZATION APPROACH

NEIGHBORHOOD SHOPPING CENTER INCOME AND EXPENSE SUMMARY

Actual Actual Actual CCP Valuation CCP Valuation

2014 2015 2016 DCF As Is Year One DCF Year Tw o

Total PSF Total PSF Total PSF Total PSF Total PSF

Revenue $1,332,451 $21.67 $1,410,240 $22.94 $1,188,453 $19.33 $1,156,745 $18.82 $1,559,627 $25.37
Base Rent Included Above Included Above $122,119 $1.99 $311,008 $5.06 $560,676 $9.12
Expense Recoveries $0 $0.00 $0 $0.00 $12,649 $0.21 $3,000 $0.05 $3,090 $0.05
Other Income $0 $0.00 $0 $0.00 $0 $0.00 ($21,947) ($0.36) ($35,222) ($0.57)
Collection Loss
Total Revenue $1,332,451 $21.67 $1,410,240 $22.94 $1,323,221 $21.52 $1,448,806 $23.57 $2,088,171 $33.97

Operating Expenses $179,967 $2.93 $161,920 $2.63 $140,967 $2.29 $145,000 $2.36 $149,350 $2.43
Common Area Maintenance $35,423 $0.58 $35,656 $0.58 $33,563 $0.55 $34,000 $0.55 $35,020 $0.57
Insurance $2.20 $2.20 $2.20 $4.67 $5.29
Real Estate Taxes $135,519 $0.96 $134,977 $1.23 $135,377 $0.80 $286,912 $0.94 $325,209 $1.36
Management $59,263 $0.22 $75,376 $0.57 $49,000 $0.00 $57,952 $0.08 $83,527 $0.08
General & Administrative $13,273 $6.89 $34,818 $7.20 $167 $5.84 $5,000 $8.60 $5,150 $9.73
Total Operating Expenses
$423,445 $442,747 $359,074 $528,864 $598,256

NET OPERATING INCOME $909,006 $14.79 $967,493 $15.74 $964,147 $15.68 $919,942 $14.96 $1,489,915 $24.23

OPERATING STATEMENT ANALYSIS 34.0% 58.8%
27.1% 36.5%
Recovery % of Total Expenses N/A N/A $3.64 $3.94 93.7%
3.70% 4.00% 28.6%
Operating Expense Ratio 31.8% 31.4% $4.44
4.00%
Expenses Excluding Taxes $4.68 $5.01

Management Fee (% of EGI) 4.45% 5.34%

Source: Management Operating Statements and/or Budget; Compiled by CCP Valuation

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INCOME CAPITALIZATION APPROACH

NEIGHBORHOOD SHOPPING CENTER - INCOME AND EXPENSE SUMMARY / EXPENSE DATA - DOLLARS AND CENTS

DCF As Is Year One Dollars & Cents $/SF*

Total PSF Mean Median Low High

Effective Gross Revenue $1,448,806 $23.57 $19.87 $17.74 $11.18 $39.99

Expense Summary Concluded Levels Comments

Common Area Maintenance $145,000 $2.36 $1.98 $1.67 $1.05 $4.69 The expense data from Dollars and Cents for this expense category ranged from $1.05 to $4.69 per square foot. The provided
historical operating statements indicate that this expense category ranged from $2.29 to $2.93 per square foot from 2014 to 2016.
Therefore, we concluded to a midpoint between the historical levels and near the midpoint of the range of the expense data. Based
on the historical data, the expense data, and our observations, we have projected this expense at $145,000 or $2.36 per square
foot.

Insurance $34,000 $0.55 $0.31 $0.28 $0.13 $0.75 Insurance policies for property (property/liability) are typically tailored to each specific property. When available, many times, the
policy in place is the best indicator of insurance expense for a property. The expense data ranged from $0.13 to $0.75 per square
foot. The provided historical operating statements indicate that this expense category ranged from $0.55 to $0.58 per square foot
from 2014 to 2016. Based on the available data, we projected this expense at $34,000 or $0.55 per square foot.

Real Estate Taxes $286,912 $4.67 $1.88 $1.77 $0.92 $3.38 Based on considerations set forth in our previous Real Estate Tax Analysis, we have estimated the tax liability for the subject
property based on our estimated market value. Property taxes are projected increased at an annual rate of 2.0 percent per year,
the maximum amount allowable under Proposition 13. Any special assessments have been broken out as a separate line item in
our analysis. This portion of the taxes is projected to increase at the projected inflation rate of 3.0 percent.

Management $57,952 $0.94 $0.61 $0.53 $0.33 $1.10 Professional management fees for retail properties in the regional marketplace are typically negotiated as a percentage of effective
gross income (generally between 2.0 and 5.0 percent). Based on typical management fees in the subject’s market, considering
the size and number of tenants at the subject property, we have projected a management fee of 4.00% percent of effective gross
revenue.

General & Administrative $5,000 $0.08 $0.14 $0.07 $0.01 $0.43 This category includes non-recoverable accounting and other professional fees as well as any miscellaneous administrative fees.
The expense data for this expense category ranged from $0.01 to $0.43 per square foot. The provided historical operating
statements indicate that this expense category ranged from $0.00 to $0.57 per square foot from 2014 to 2016. We assumed that
a typical buyer would include at least a nominal amount to account for basic administrative costs such as LLC fees and/or
accounting fees. Note that in 2013 and 2014 there were high legal fees due to a tenant that left without notice.Therefore, we
projected this expense at $5,000 or $0.08 per square foot.

Total Operating Expenses $528,864 $8.60 $5.85 $5.31 $3.21 $10.31

Net Operating Income $919,942 $14.96 $13.71 $12.94 $6.28 $26.16
Operating Expense Ratio
ANALYSIS 29% 30% 29% 26% Comments
29%
Since different property managers/owners classify expenses into different categories, a test of reasonableness is the operating
expense ratio. The expense data yields operating expense ratios from 26 to 30 percent. Thus, our concluded level in Year Two
(once stabilized) of 29% is considered reasonable.

* Source: Dollars & Cents of Shopping Centers: Published by ULI & ICSC - Neighborhood Shopping Centers: Western States - Numbers are not intended to total.
Compiled by CCP Valuation

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INCOME CAPITALIZATION APPROACH

Capital Expenditures
Non-operating, or capital expense, includes tenant improvement allowances, leasing
commissions, planned capital expenditures and replacement reserves. Each of these
items is discussed below.

Tenant Allowances: The amount of tenant improvements is an important factor in
determining market rental rates. Tenant improvement allowances for first-generation
space in the subject’s marketplace typically range between $0.00 and $30.00 per
square foot. According to leasing brokers in the subject’s marketplace, second-
generation tenant improvements typically range between “as is” and $20.00 per
square foot. Based on market evidence and in consideration of our projected market
rental rates, we estimated a tenant allowance for second-generation space of $7.00
per square foot for new tenants and no amount for renewal tenants.

Leasing Commissions: Lease commissions for net leases to outside brokers in the
subject’s market are typically charged on the basis of 5.0 to 6.0 percent for the first
five years or on a price per square foot basis. Leases with 10-year terms, or more, will
receive a lower commission for the second five years. We have projected leasing
commissions on a percentage of rent basis utilizing 6.0 percent for the first five years
of new leases and 3.0 percent for the second five years of new leases. We have
projected 3.0 percent for the first five years of renewal leases and 1.5 percent for the
second five years of renewal leases.

Planned Capital Expenditures: We were not provided a long-term capital
expenditure plan. The property is in good condition and we assumed that capital
expenditures would be covered through normal reserves.

Replacement Reserves: Replacement reserves represent an estimate of an annual
allocation of funds toward the replacement of items such as roofs and other building
systems or components. The amount of annual reserves and whether or not they are
deducted in either the direct capitalization or DCF analyses is a function of the market.
Based upon our examination of the market, as well as the PwC Real Estate Investor
Survey, the following table summarizes the treatment of reserves:

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INCOME CAPITALIZATION APPROACH

REPLACEMENT RESERVES

Concluded Amount PSF
$0.20 of owned building
Deducted As An Operating Expense
Deducted As A Capital Expenditure area
No

Yes

Expense Growth Assumptions

The concluded expenses are projected to grow in the following manner, over a typical
holding period. Except where noted, our forecast growth rates generally do not
attempt to reflect growth rates for any individual year, but rather reflect the long-term
trend over the typical holding period. Our projected expense growth rates are in line
with the most recent PwC Real Estate Investor Survey projections.

EXPENSE GROWTH

Expense Annual Growth

Operating Expenses 3.0%

Taxes 2.0%

Management N/A1

Reserves 3.0%

1 Management is calculated annually based upon a

percentage of EGI.

INVESTMENT CRITERIA
In order to perform the discounted cash flow analysis, investment rates must be
selected. This includes the selection of an appropriate terminal capitalization rate as
well as an appropriate discount rate or yield rate, also referred to as the internal rate
of return (IRR). By its nature, this is a judgmental process, however, selected rates
should approximate the investment criteria anticipated by the most probable buyer of
the subject property.

Investor Surveys: The most useful approach used to estimate an approximate rate
of return required by the most probable buyer is to analyze the current investment
parameters applied by institutional investors and advisors to real estate pension and

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INCOME CAPITALIZATION APPROACH

portfolio funds when acquiring real estate. The following table presents the results the
PwC Real Estate Investor Survey. This survey comprises investors’ assumptions and
return requirements, which provide a national basis for comparison. Investors
surveyed include pension funds, pension fund advisors, investment advisors, direct
advisors, direct investors, and investment bankers.

NATIONAL STRIP SHOPPING CENTER MARKET

Key Indicators 4Q2016 3Q2016 2015

Discount Rate (IRR) 5.50% - 10.75% 5.50% 10.75% 6.00% - 10.75%
Range 7.39% 7.46% 7.78%
Average -7 -39
Change (Basis Points)

Overall Cap Rate (OAR) 4.00% - 9.50% 4.50% - 9.50% 4.50% - 9.00%
Range 6.18% 6.24% 6.38%
Average -6 -20
Change (Basis Points)

Terminal Cap Rate 4.75% - 9.75% 4.75% - 9.75% 4.75% - 9.75%
Range 6.47% 6.44% 6.70%
Average +3 -23
Change (Basis Points)

Market Rent Changes 0.00% - 3.00% 0.00% - 3.00% 0.00% - 3.00%
Range 1.83% 1.89% 1.88%
Average -6 -5
Change (Basis Points)

Expense Change Rate 0.00% - 3.00% 0.00% - 3.00% 0.00% - 3.00%
Range 2.69% 2.69% 2.72%
Average 0 -3
Change (Basis Points)

Source: Pw C Real Estate Investor Survey
Compiled by CCP Valuation

SUBJECT PROPERTY – INVESTMENT RISK FACTORS ANALYSIS
The consensus of those actively engaged in the marketplace for investment grade
real estate is that internal rates of return (based upon forecasting techniques and
assumptions similar to those utilized herein) fall within a broad range. The following
chart displays some of the numerous risk factors that we considered, among others:

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INCOME CAPITALIZATION APPROACH

NEIGHBORHOOD SHOPPING CENTER - INVESTMENT PRICING - FACTORS CONSIDERED

Category Notes Conclusion
Location --- Average
Physical Characteristics of the Property --- Good
Net Operating Income Grow th after stabilization (Year 2 to 10) Low Risk
Quality of Tenants 1.6% Average
Percentage that Contract Rent is ABOVE/(BELOW) Market-Year One ---
Current Leased Space Minimal Risk
Source: CCP Valuation 1.6% Low Risk
100.0%

Overall Capitalization Rate: For the selection of the overall rate, we also considered
the capitalization rates indicated by the sale comparables as well as some
supplemental sale comparables for capitalization rate purposes.

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INCOME CAPITALIZATION APPROACH

COMPARABLE CAPITALIZATION RATE SUMMARY

Comp No. Property Name / Location Year Built Size Date of Sale OAR
1990/1991 79,275 Dec-16 6.70%
1 640-688 Lindero Canyon Rd

Oak Park, CA

2 2651-2663 Santa Ana St 1980 61,301 Sep-16 4.75%
South Gate, CA

3 20929 Ventura Blvd 1971 67,769 Jun-16 5.00%
Woodland Hills, CA

4 26500-26588 Bouquet Canyon Rd 1985/1986 148,903 Apr-16 N/A
Santa Clarita, CA

5 24917-24975 Pico Canyon Rd 1996-1999 187,035 Apr-16 N/A
Stevenson Ranch, CA

6 511-551 N Hollyw ood Way 1975 79,224 Dec-15 N/A
Burbank, CA

A China Tow ne Center SUPPLEMENTAL SALE COMPARABLES 117,419 Aug-16 6.00%
Chino, CA 1975/1981 97,719

B Shopping Center 1999 Jan-16 5.10%
Haw thorne, CA

Subject NEIGHBORHOOD SHOPPING CENTER
North Hills, CA

Minim um 4.75%
Maxim um 6.70%
5.51%
M e an 5.10%
M e dian

Source: Compiled by CCP Valuation

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INCOME CAPITALIZATION APPROACH

INVESTMENT PRICING CONCLUSIONS

NEIGHBORHOOD SHOPPING CENTER - INVESTMENT PRICING - SUMMARY

Category Comments
Discount Rate
 The previously discussed PwC Real Estate Investor Survey indicates a range in

discount rates from 5.50 to 10.75 percent centering on 7.39 percent.

 The subject's location was considered average. The subject property's physical

characteristics were considered good. The quality of the tenants is considered

average. There is some risk due to the lease up costs for the owner-occupied space

and for one tenant that is in the process of moving in. Nonetheless, the risk in the cash

flow is considered low due to the conservative growth in the net operating income over

the holding period.

Terminal  Considering the investment quality of the subject property, our previous
Capitalization Rate
assumptions, and the risk associated with the cash flow, a discount rate of 7.50
percent has been selected for the “As Is” scenario and 7.25 percent for the
prospective “Upon Stabilization” scenario. The difference in the selected
rates for the two scenarios is due to the higher risk associated with the “As Is”
scenario compared to the “Upon Stabilization” scenario.

 The previously discussed PwC Real Estate Investor Survey indicates a range for

terminal capitalization rates between 4.75 to 9.75 percent, averaging 6.47 percent. The
subject tenant mix and position within the market and appeal level is not projected to
significantly change over the holding period.

 In consideration of the foregoing discussion, we have applied a 6.00 percent

terminal capitalization rate in our discounted cash flow analysis.

 This is 50 basis points above our concluded overall capitalization rate of 5.50 percent,

which is reasonable.

Overall Capitalization  The previously discussed PwC Real Estate Investor Survey details first year overall

Rate capitalization rates between 4.00 to 9.50 percent, averaging 6.18 percent.

 The local sale comparables presented previously indicate capitalization rates in the

market ranging from 4.75 to 6.70 percent, with an average of 5.51 percent and a

median of 5.10 percent. This range is considered to be a good indication of an

appropriate capitalization rate for the subject property. We have also recently

discussed investment rates with investors, investment brokers, investors, and other

appraisers for similar properties. The consensus is that properties similar to the
subject would achieve a capitalization rate between 5.25 and 5.75 percent in today’s

market, depending on what income is capitalized.

 In consideration of current market conditions and the property specific factors

as previously discussed, an overall capitalization rate of 5.50 percent is

considered appropriate for the subject on a stabilized basis.

Compiled by CCP Valuation

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INCOME CAPITALIZATION APPROACH

The following table summarizes our concluded investment pricing.

CONCLUDED INVESTMENT PRICING

As Is Upon Stabilization

IRR (Discount Rate) 7.50 percent 7.25 percent

Terminal Capitalization Rate 6.00 percent 6.00 percent

Overall Capitalization Rate 5.50 percent 5.50 percent

DISCOUNTED CASH FLOW CONCLUSION
Our DCF calculations and cash flows are set forth on the following pages.

Note that for the “as is” cash flow, we used a 9-year holding period in order to stabilize
the reversion as there is above average turnover projected in Year 11. For the
prospective “upon stabilization”, we utilized a typical 10-year holding period.

87