VALUATION SERVICES APPRAISAL OF REAL PROPERTY VOLUME I OF II HERITGAGE FIELDS ...

344 Pages·2007·9.18 MB·English

APPRAISAL OF
REAL PROPERTY

VOLUME I OF II

HERITGAGE FIELDS MASTER-PLAN
(formerly Marine Corp Air Station El Toro)
Irvine, California 92618

IN A SELF-CONTAINED
APPRAISAL REPORT
As of July 1, 2007

Prepared For:

Lehman Brothers
Real Estate Mezzanine Partners
399 Park Avenue, 11th Floor
New York, New York 10022

Prepared By:

Cushman & Wakefield of California, Inc.
Valuation Services, Capital Markets Group
1750 Fifth Avenue, 4th Floor
San Diego, California 92101
C&W File ID: 07-31028-9175
VALUATION SERVICES

FOIA CONFIDENTIAL TREATMENT REQUESTED BY LBEX-DOCID 2501688
LEHMAN BROTHERS HOLDINGS INC.
Cushman & Wakefield of California, Inc.
1750 Fifth Avenue, 4th Floor
San Diego, California 92101
619.744.4040 x2002, x3008, Tel
619.744.4041 Fax
[email protected]
[email protected]

July 20, 2007

Mr. Andrew Dillenburg
Lehman Brothers
Real Estate Private Equity
399 Park Avenue, 11th Floor
New York, New York 10022

RE: Heritage Fields Master-plan (2,107± Gross Acres)
Irvine, California 92618
C&W File ID. 07-31028-9175

Dear Mr. Dillenburg:

Pursuant to your request, we performed a real property appraisal of the Heritage Fields master-plan
project (formerly Marine Corp Air Station El Toro) in El Toro, California as more particularly described
in the self-contained narrative appraisal report to follow. The appraisal was prepared to estimate the
market value “as is” of the subject property. The intended use of this report is for the client, Lehman
Brothers, for loan underwriting. It may be used in connection with the acquisition, disposition, and
financing of the sale of the property.

As currently proposed, Heritage Fields will consist primarily of residential, parks/recreation, and R&D
land uses. Land uses and allocated acreages vary by district. The total land area for that area of the project
which is the subject of this appraisal is approximately 2,107 gross acres or 2,086 acres net. The majority
of the land within the Heritage Fields project is dedicated for residential development. Based on current
entitlements, upon buildout the project could include up to 3,625 residential units.

In the Lifelong Learning District, 1,026 homes are planned on 116 residential acres with construction
types including but not limited to: faculty housing, mid-rise flats, single-family detached, and luxury
triplexes. Other significant land use distributions in the Lifelong Learning District are 223 education
acres, 215 exposition acres, 163.2 agricultural acres, 77.8 R&D acres, and 73.2 cemetery acres. For the
Park District, 1,100 homes are planned on 365 residential acres with a wide range of single-family
detached housing types. Other substantial land uses in the Park District are 306 golf course acres and 85
park/recreation acres. The Transit-Oriented District has approximately 1,500 housing units planned for
134.7 residential acres with townhome, apartment, and single-family detached construction types. The
other primary land use in the Transit-Oriented District is 113 R&D acres.

VALUATION SERVICES

FOIA CONFIDENTIAL TREATMENT REQUESTED BY LBEX-DOCID 2501688
LEHMAN BROTHERS HOLDINGS INC.
Heritage Fields Master-plan Prepared for Lehman Brothers
Irvine, California C&W File ID. 07-31028-9175

We, Brian J. Curry, MAI, SRA, and Edward A. Carlson, MAI, made a careful inspection of the property,
gathered and analyzed considerable data and information having a bearing on its values. Our findings are
submitted in this report. Based on our investigation and analyses, it was our opinion that as of July 1,
2007, the market value “as is” as defined herein, representing the fee simple interest in this property and
subject to the assumptions as set forth within the body of this report, was as follows:

$1,060,000,000
One Billion Sixty Million Dollars
Date of Value – July 1, 2007

The appraisers recognize the assistance of Richard Zbranek, MAI, Tim Garey, Michele Kauffman, Chris
Kelsey, Lori Matzke, and Tracie Tyler, all appraisers with Cushman & Wakefield, in various analyses,
valuation, and final report preparation.

As the subject is a master-planned community, the valuation methodology incorporated land use and cost
assumptions. Of significant importance is that the appraisers relied upon the proposed land use and
development cost budgets provided by the master developer. It was assumed that the submitted project
costs and reimbursements were accurate for use in this analysis. Please reference the Extraordinary and
General Limiting Conditions section of this report regarding additional assumptions relevant to the
analyses and valuation conclusions contained herein.

This report contains a total of 344 pages plus separately bound Addenda, which is a required portion of
this report. The appraisal was prepared in conformance with the Uniform Standards of Professional
Appraisal Practice (USPAP) adopted by the Appraisal Foundation, the regulations adopted by the Office of
the Comptroller of the Currency; the Code of Professional Ethics and Standards of Professional Conduct
of the Appraisal Institute; and Lehman Brothers Appraisal Guidelines.

This appraisal report was prepared for use by Lehman Brothers. The appraisers and Lehman Brothers
make no express or implied representation or warranty of any kind, and expressly disclaim any liability to
any other person or entity with respect to the appraisal report. Again, the reader of this report is advised to
give special attention to the Extraordinary and General Limiting Conditions upon which the valuation
analyses and conclusions were drawn.

We appreciate the opportunity of submitting this appraisal report. Please call if we may be of further
service.

Respectfully submitted,

Brian J. Curry, MAI, SRA Edward A. Carlson, MAI
Certified General Real Estate Appraiser Certified General Real Estate Appraiser
OREA No. AG003374-Expires February 23, 2008 OREA No. AG028717-Expires December 26, 2008

VALUATION SERVICES

FOIA CONFIDENTIAL TREATMENT REQUESTED BY LBEX-DOCID 2501688
LEHMAN BROTHERS HOLDINGS INC.
Heritage Fields Master-plan Prepared for Lehman Brothers
Irvine, California C&W File ID. 07-31028-9175

CERTIFICATION STATEMENT

We certify that to the best of our knowledge and belief:

1. the statements contained in this report are true and correct;

2. the reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions,
and are our personal, impartial, and unbiased professional analyses, opinions, and conclusions;

3. we have no present or prospective interest in the property that is the subject of this report, and no personal interest
with respect to the parties involved;

4. we have no bias with respect to the property that is the subject of this report or to the parties involved with this
assignment;

5. our engagement in this assignment was not contingent upon developing or reporting predetermined results;

6. our compensation for completing this assignment is not contingent upon the development or reporting of a
predetermined value or direction in value that favors the client, the amount of the value opinion, the attainment of a
stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal;

7. the appraisal assignment was not based on a requested minimum valuation, a specific valuation, or the approval of a
loan;

8. our analyses, opinions, and conclusions were developed, and this report has been prepared in conformity with the
Uniform Standards of Professional Appraisal Practice;

9. the reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity
with the requirements of the Code of Professional Ethics and Standards of Professional Practice of the Appraisal
Institute, which include the Uniform Standards of Professional Appraisal Practice;

10. that the use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly
authorized representatives;

11. we, Brian J. Curry MAI, SRA and Edward A. Carlson, MAI made a personal inspection of the property that is the
subject of this report;

12. Richard Zbranek, MAI, Tim Garey, Michele Kauffman, Chris Kelsey, Lori Matzke, and Tracie Tyler, all appraisers
with Cushman & Wakefield, provided significant professional assistance to the persons signing this certification;

13. as of the date of this report, we, Brian J. Curry, MAI and Edward A. Carlson, MAI have completed the continuing
education program of the Appraisal Institute;

14. we hereby certify that we are competent to complete the appraisal assignment. The reader is referred to the appraisers’
qualifications contained in the report Addenda;

15. the date of market value “as is” was July 1, 2007; and the date of appraisal report was July 20, 2007.

Brian J. Curry, MAI, SRA Edward A. Carlson, MAI
Certified General Real Estate Appraiser Certified General Real Estate Appraiser
OREA No. AG003374-Expires February 23, 2008 OREA No. AG028717-Expires December 26, 2008
VALUATION SERVICES

FOIA CONFIDENTIAL TREATMENT REQUESTED BY LBEX-DOCID 2501688
LEHMAN BROTHERS HOLDINGS INC.
Heritage Fields Master-plan Prepared for Lehman Brothers
Irvine, California C&W File ID. 07-31028-9175

TABLE OF CONTENTS

Title Page
Letter of Transmittal
Certification Statement

SUMMARY OF SALIENT FACTS AND CONCLUSIONS.......................................................................8
EXTRAORDINARY ASSUMPTIONS......................................................................................................12
GENERAL ASSUMPTIONS AND LIMITING CONDITIONS................................................................13
GENERAL INFORMATION.....................................................................................................................19
Property Identification / Legal Description.............................................................................................19
Statement of Ownership..........................................................................................................................19
Date of Appraisal / Date of Report.........................................................................................................19
Intended Use / Intended User..................................................................................................................19
Scope of the Appraisal............................................................................................................................19
History Overview of Subject Property....................................................................................................21
Exposure and Marketing Time................................................................................................................23
Personal Property, Fixtures, and Intangible Items..................................................................................23
Definition of Fee Simple Estate..............................................................................................................23
Definition of Market Value.....................................................................................................................23
Definition of Market Value “As Is”........................................................................................................24
Definition of Market Value “At Completion”........................................................................................24
Definition of Finished Lots.....................................................................................................................24
Definition of Blue Top Lots....................................................................................................................24
Definition of Superpad............................................................................................................................25
Definition of Aggregate Retail Revenues...............................................................................................25
REGIONAL DESCRIPTION.....................................................................................................................27
CITY DESCRIPTION................................................................................................................................35
PROPERTY DESCRIPTION.....................................................................................................................44
Location..................................................................................................................................................44
Project Background and Entitlements.....................................................................................................44
Proposed Land Use.................................................................................................................................47
Site Size..................................................................................................................................................49
Product and Phasing Plan........................................................................................................................56
Affordable Housing Requirement...........................................................................................................56
Existing Land Uses.................................................................................................................................57
Surrounding Uses....................................................................................................................................58
Topography.............................................................................................................................................58
Access and Circulation............................................................................................................................58
Utilities....................................................................................................................................................59
Public Services........................................................................................................................................61
Easements and / or Encroachments.........................................................................................................61
Seismic Hazards......................................................................................................................................61
Flood Hazards.........................................................................................................................................62
Hazardous Materials...............................................................................................................................62
Biological / Environmental.....................................................................................................................63
Agricultural Resources............................................................................................................................63
Land Development..................................................................................................................................64
VALUATION SERVICES 5

FOIA CONFIDENTIAL TREATMENT REQUESTED BY LBEX-DOCID 2501688
LEHMAN BROTHERS HOLDINGS INC.
Heritage Fields Master-plan Prepared for Lehman Brothers
Irvine, California C&W File ID. 07-31028-9175
Conclusions.............................................................................................................................................66
MARKET ANALYSES..............................................................................................................................68
Introduction.............................................................................................................................................68
Residential Pricing and Sales Activity....................................................................................................68
Housing Supply.......................................................................................................................................73
Residential Demand Overview...............................................................................................................76
Residential Product and Pricing..............................................................................................................80
Product Absorption...............................................................................................................................114
planning area absorption and capture....................................................................................................117
Conclusions...........................................................................................................................................119
R&D Land Market Analysis.................................................................................................................120
Auto Center Land Market Analysis......................................................................................................129
Overview of Subject Education/Institutional Land Use........................................................................143
Office Market Analysis.........................................................................................................................151
Retail Market & Trade Area Analysis..................................................................................................159
Overview of Orange County Agriculture..............................................................................................167
Overview of Subject Exposition Land Use...........................................................................................171
HIGHEST AND BEST USE COMMENTARY.......................................................................................177
Highest and Best Use As Vacant..........................................................................................................177
Highest and Best Use As Improved or As Proposed.............................................................................179
Most Probable Buyer............................................................................................................................179
MARKET VALUE “AT COMPLETION” - PLANNING AREAS / PARCELS...................................................180
Development Method (Residential Land).............................................................................................180
Sales Comparison Approach (Residential – attached and detached product).......................................202
Reconciliation of Product Types...........................................................................................................233
NATIONAL GOLF MARKET ANALYSIS OVERVIEW......................................................................292
Golf Course (Facility) Inventory - 2006...............................................................................................294
Golf Participation..................................................................................................................................296
Outlook.................................................................................................................................................297
National Trends Conclusion..................................................................................................................297
Competitive Facilities...........................................................................................................................298
Green Fees.............................................................................................................................................301
Annual Rounds Played..........................................................................................................................301
Conclusions...........................................................................................................................................301
Description of the Proposed Golf Course Improvements.....................................................................301
Methodology.........................................................................................................................................303
Sales Comparison Approach.................................................................................................................304
Income Approach..................................................................................................................................309
MARKET VALUE “AS IS”......................................................................................................................321
Development Method............................................................................................................................321
Conclusion............................................................................................................................................344

VALUATION SERVICES 6

FOIA CONFIDENTIAL TREATMENT REQUESTED BY LBEX-DOCID 2501688
LEHMAN BROTHERS HOLDINGS INC.
Heritage Fields Master-plan Prepared for Lehman Brothers
Irvine, California C&W File ID. 07-31028-9175
SCHEDULE OF MAPS/EXHIBITS
Aerial Photograph.......................................................................................................................................10
Proposed Heritage Fields Districts..............................................................................................................11
Subject Photographs....................................................................................................................................16
Subject Photographs....................................................................................................................................17
Subject Photographs....................................................................................................................................18
Regional Map..............................................................................................................................................26
City Map.....................................................................................................................................................34
Neighborhood Map.....................................................................................................................................39
LLD Site Plan.............................................................................................................................................40
LLD Plan.....................................................................................................................................................41
TODD Plan.................................................................................................................................................42
Park Plan.....................................................................................................................................................43
Master Land Use Plan.................................................................................................................................55
Primary Competition Map........................................................................................................................140
Attached Residential Land Sales Map......................................................................................................207
Detached Residential Land Sales Map......................................................................................................223
Commercial Land (Industrial / R&D) Sales Map.....................................................................................243
Commercial Land (Auto Center) Sales Map.............................................................................................251
Commercial Land (Educational) Sales Map.............................................................................................258
Commercial Land (Office) Sales Map......................................................................................................269
Commercial Land (Retail) Sales Map.......................................................................................................277
Commercial Land (Agriculture) Sales Map..............................................................................................284

VALUATION SERVICES 7

FOIA CONFIDENTIAL TREATMENT REQUESTED BY LBEX-DOCID 2501688
LEHMAN BROTHERS HOLDINGS INC.
Heritage Fields Master-plan Prepared for Lehman Brothers
Irvine, California C&W File ID. 07-31028-9175

SUMMARY OF SALIENT FACTS AND CONCLUSIONS

PROPERTY: The subject property encompasses the proposed Heritage Fields
master-plan in El Toro, California. Heritage Fields represents the
redevelopment of the former Marine Corps Air Station El Toro
and generally located north of Interstate 5, south of Portola
Parkway and Irvine Boulevard, west of Alton Parkway and east
of Highway 133.

As currently proposed, Heritage Fields will consist primarily of
residential, parks/recreation, and R&D land uses. Land uses and
allocated acreages vary by district. The total land area for that
area of the project which is the subject of this appraisal is
approximately 2,107 gross acres or 2,086 acres net. The majority
of the land within the Heritage Fields project is dedicated for
residential development. Based on current entitlements, upon
buildout the project could include up to 3,625 residential units.

OWNERS OF RECORD: Heritage Fields LLC (Lennar)

OWNERSHIP INTEREST: Fee simple estate

DESCRIPTIVE DATA: Site Area (Gross Acres) 2,107± (Per Developer)
Site Area (Net Saleable Acres) 2,086± (Per Developer)
Thomas Bros. Map: 861 A6-J4; 891 C1-D4.
Development Agreement: Ordinance No. 05-10
Tract Map: Vesting Tentative No. 17008

MASTER LAND USE PLAN
Heritage Fields Master Plan, Irvine, California
Saleable
Land Use Neighborhood Acres± Units
Office TODD 10.5 --
Auto Center TODD 27.7 --
Retail LLD & TODD 40.5 --
Cemetery LLD 73.2 --
Civic LLD, TODD & Park 74.4 --
Park LLD, TODD & Park 125.9 --
Agriculture LLD & TODD 175.7 --
R&D LLD & TODD 181.8 --
Expo Ctr. LLD 215.7 --
Institutional LLD 238.5 --
Golf Course Park 306.3 --
Residential LLD, TODD & Park 615.8 3,625
Project Totals 2,086.0 3,625
LLD - Lifelong Learning District; TODD - Transit Oriented Development District; Park - Park District
VALUATION SERVICES 8

FOIA CONFIDENTIAL TREATMENT REQUESTED BY LBEX-DOCID 2501688
LEHMAN BROTHERS HOLDINGS INC.
Heritage Fields Master-plan Prepared for Lehman Brothers
Irvine, California C&W File ID. 07-31028-9175
MARKET VALUE “AS IS”: $1,060,000,000

DATE OF VALUE: July 1, 2007

EXPOSURE &
MARKETING PERIOD: Market Value “As Is”: 6 to 12 Months

DATE OF REPORT: July 20, 2007

APPRAISERS: Brian J. Curry, MAI, SRA
Edward A. Carlson, MAI
Cushman & Wakefield of California, Inc.
Valuation Services, Capital Markets Group
1750 Fifth Avenue, 4th Floor
San Diego, California 92101
Phone: [phone] x2002, 3008
Fax: [phone]
Email: [email protected]
[email protected]
VALUATION SERVICES 9

FOIA CONFIDENTIAL TREATMENT REQUESTED BY LBEX-DOCID 2501688
LEHMAN BROTHERS HOLDINGS INC.
Heritage Fields Master-plan Prepared for Lehman Brothers
Irvine, California C&W File ID. 07-31028-9175

AERIAL PHOTOGRAPH

VALUATION SERVICES 10

FOIA CONFIDENTIAL TREATMENT REQUESTED BY LBEX-DOCID 2501688
LEHMAN BROTHERS HOLDINGS INC.