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Appraisal of Real Property Conveyed in a Restricted Use Appraisal Report IRON HORSE INN

Existing Lodging Property (52 total rooms) On a 2.361-Acre Site along the Yampa River Located at 331 and 333 South Lincoln Avenue City of Steamboat Springs, Colorado 80487

As of April 29, 2013

Prepared For The City of Steamboat Springs Anne Small, Director of General Services 137 Tenth Street (P.O. Box 775088) Steamboat Springs, Colorado 80477

Prepared By Kevin A. Chandler, MAI Chandler Consulting P.O. Box 774685 Steamboat Springs, Colorado 80477

CHANDLER CONSULTING KEVIN A. CHANDLER, MAI P.O. BOX 774685 STEAMBOAT SPRINGS, CO 80477 (970) 879-1405 CHANDLER@SPRINGSIPS.COM May 6, 2013 Anne Small, Director of General Services The City of Steamboat Springs 137 Tenth Street (P.O. Box 775088) Steamboat Springs, Colorado 80477 Re: Appraisal of the Iron Horse Inn Existing Lodging Property (52 total rooms) On a 2.361-Acre Site along the Yampa River Located at 331 and 333 South Lincoln Avenue City of Steamboat Springs, Colorado 80487

Dear Anne: At your request, I have estimated the as is market value of the above captioned real property. According to Standards Rule 2-2(c) of the Uniform Standards of Professional Appraisal Practice (USPAP), this analysis is conveyed in a restricted use appraisal report. As such, it only presents a limited discussion of the data, reasoning, and analyses that were used in the appraisal process to develop the opinion of value. This appraisal is for client (internal) use only, with supporting documentation retained in my workfile. The analysis is contingent upon certain definitions, assumptions, limiting conditions, and comparison of report types, which follow the certification. Scope of Work The client and only intended users of this report is the City of Steamboat Springs, as the current owner of record. This specifically includes duly authorized representatives of the municipality, such as the Director of General Services, members of the City Council, and their legal counsel. The purpose of this assignment is to estimate the as is market value for the fee simple interest (as defined at the end of this report), and the intended use is to assist the client with decision making in regards to potential disposition of this asset. The effective date of the as is value estimate is April 29, 2013, which is the date of my most recent inspection. This restricted use appraisal is not intended for any other users or purpose, and I am not responsible for its unauthorized use. The date of report preparation and transmittal to the client is May 6, 2013. Known as the Iron Horse Inn, the subject is an existing lodging property with 52 rooms in two buildings, which are situated on a 2.361-acre site that fronts the Yampa River and the Core Trail. Only the Sales Comparison and Income Capitalization Approaches were employed to value the subject, both as a redevelopment site (as if vacant) and an existing lodging facility (as improved). Comparable commercial and multi-family land sales were analyzed to value the underlying site as vacant land, with a deduction made for the costs to demolish the existing improvements (i.e., assumed to be $500,000, including asbestos removal). Sales of local lodging properties were analyzed to determine the value of the subject property as improved, with a deduction made for the estimated cost to renovate the facility so it is competitive with the market (i.e., $2,000,000). The Income Approach was employed for secondary support to the indicated value as improved, but the Cost Approach was omitted since it is not typically utilized by local market participants.
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Area and Market Overview Detailed analyses for the region, residential market, and neighborhood are found at the end of this report. Routt County and the City of Steamboat Springs have experienced weak conditions since Fall 2008, as the Great Recession has continued to negatively impact the local economy. This resulted in higher unemployment, lower sales tax revenues, very little new construction, record foreclosures, and reduced sales volume at lower average prices for all types of property. Intrawest continues to operate the Steamboat Ski Area as a subsidiary of Fortress Investments, but has experienced declining skier visits since the downturn. The subject is located in the Town and Mountain submarket, which offers neighborhood services that cater to locals and visitors. While many older properties were acquired for redevelopment between 2005 and 2008, the trend has been little new construction due to the lack of demand and oversupply of available space. Local real estate market conditions appear to have stabilized recently, but the future is uncertain. Ownership and History The subject property is currently owned by the City of Steamboat Springs Building Corporation, who acquired it from Iron Horse Partners, LLC on October 30, 2007 for a price of $4,050,000 (Reception #666262). The sellers are a group of investors that reportedly purchased the property out of foreclosure on February 11, 2002 for consideration of $1,700,000 (Reception #559148). The city planned to use the existing lodging facility as workforce housing, which was financed with more than $5,000,000 in debt (and annual payments of about $475,000). The New Building (26 rooms) was managed via third party as nightly hotel rentals for some time, but this operation was closed on November 1, 2012. The Old Building (26 rooms) continues to be leased as studio apartments on a monthly basis, and is generally fully occupied at rental rates of $625 per month. Spurred by a pending sale of the downtown facility, the city planned to occupy the subject as a temporary police station, but abandoned the idea when renovations cost far exceeded projections. While there have been no transfers of ownership during the past three years, and the subject is neither listed for sale nor under contract to purchase, two unsolicited offers have been received. In March 2013, a Chicago-based developer (Bob Helle) indicated he would pay up to $400,000 for the property for redevelopment with 42 affordable housing units, which is public knowledge. A local developer (KC Wilson) submitted a proposal to acquire the subject at a price of $915,000 for renovation as a hotel, with a copy of his offer on the following pages (which is confidential). Property Description The subject is an existing hotel with 52 rooms (and common area) in two detached structures. According to county assessor records, the Old Building is two stories with an external stairwell, was completed in 1968, and contains 26 studio apartments with 11,619 square feet of floor area. The New Building is also two stories with internal stairwells, was built in 1995, and contains 26 hotel rooms (with lobby/breakfast area) with 11,162 square feet of floor area. A third structure of 216 square feet features a recreation room, sauna, and hot tub on an attached wooden deck. Thus, the subject property comprises 22,997 square feet of total building area. According to a Visual Structural Inspection that was prepared on October 10, 2012 by a local engineer, items of major deferred maintenance are noted at the subject. For example, inadequate drainage has apparently created settlement of the parking lot, ice dams are problematic at the New Building, and movement in the roof trusses (plus inadequate insulation) was observed at the Old Building. In my opinion, the subject property is considered to be in fair to average physical condition. The underlying site comprises 2.361 acres (102,845 SF) of land area in a single unplatted tract, which is situated between U.S. Highway 40 and the Yampa River. The parcel has direct ingress/egress from the highway, although a left-turn is prohibited by concrete median. Please refer to maps, plans, and photographs of the subject property on the following pages for visual edification.
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OFFER TO PURCHASE (page one of two)

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OFFER TO PURCHASE (page two of two)

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ASSESSOR TAX PARCEL MAP

CITY GIS AERIAL MAP

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ZONING MAP

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SITE PLAN WITH ROOM LAYOUT

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SUBJECT PHOTOGRAPHS

Exterior View of New Building (nightly rentals) Looking West from Parking Lot

Exterior View of Old Building (monthly rentals) Looking North from Parking Lot
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SUBJECT PHOTOGRAPHS

Interior View of Typical Unit in New Building (hotel room for nightly rental)

Interior View of Typical Unit in Old Building (apartment for monthly rental)
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SUBJECT PHOTOGRAPHS

View of Core Trail along the Yampa River at Western Boundary of Subject Site

Exterior View of Amenity Building Looking North (hot tub on attached deck)
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Assessment and Taxes The subject real property is identified as Parcel #9361-74-004 and Account #R4772309, and is assessed as a motel. The 2013 actual value of $2,892,430 is allocated as $826,000 for land and $2,066,430 for improvements, with a corresponding assessed value of $838,800 (29% of actual). The 2012 actual value of $717,470 is inaccurate since the buildings were only assessed at $30. While the subject is owned by a municipality and thus exempt from property taxes, applying the 2012 mill levy of 41.627 results in current real estate taxes of $34,917 if in private ownership. Zoning and Land Use The subject property is zoned CC, Community Commercial, by the City of Steamboat Springs. This district is intended to provide nodes for commercial services and sale of goods (for both residents and visitors), as well as office, lodging, and residential development. Most commercial uses are permitted by right in this district (such as retail, office, lodging, and entertainment), while special-purpose facilities and residential units are conditional uses (or those with criteria). The CC zoning code was changed in early 2010 to adopt development criteria that are based on building form and placement. For example, the code formerly stipulated maximum lot coverage of 50% and a maximum floor area ratio (FAR) of 0.50. However, the revised CC zoning has no maximum density standards, with building intensity determined by setbacks, height, and parking. The maximum overall building height permitted is 63 feet, with a second story now required at 75% of the first floor area. The maximum residential unit size is currently 1,400 square feet. Front yard setbacks are currently a minimum of five feet and a maximum of twenty feet, with side and rear yards generally having a minimum setback of 7.5 feet. There is no minimum or maximum lot size or depth, just a minimum lot width of 25 feet. While few projects have been processed since the CC standards were revised, the Planning Department indicates a maximum FAR of 0.70 to 1.00 is realistic for most sites (depends on underground versus surface parking). Highest and Best Use Analysis The highest and best use of real property generates the highest return at the least risk, and may be redevelopment with another use if the value as if vacant is greater than the value as improved. Based on current zoning and natural characteristics, commercial, mixed-use, and/or multi-family development is legally permissible and physically possible. The subject is a desirable infill site, as it is situated south of downtown, with highway frontage and direct access to the Yampa River. However, it would have limited appeal to a convenience-oriented user (such as a gas station or fast food restaurant) since ingress/egress is circuitous, and it is not located at a signalized corner. The most likely users would be destination commercial and/or residential, such as professional office, motel/hotel, sit-down restaurant, condominiums, apartments, etc. However, speculative development of this type is not financially feasible at this time given weak market conditions. The subject site is currently improved with two lodging buildings that are owned by the city, and has operated in this manner for many years. However, the property is in need of a major renovation, and the motel was closed last year since it did not generate sufficient net income to cover operating costs. While the studio apartments are fully leased, the conversion from nightly rentals was reportedly done without permits or planning approvals, and is a non-conforming use. Thus, considerable capital will likely be required to bring the existing structures up to code, and competent management will almost certainly be required if the motel was to reopen to the public. This scenario entails some risk, as the structures suffer from considerable physical depreciation and functional obsolescence (especially the Old Building). Based on the foregoing, the subject could be redeveloped with another use (most likely multi-family) when warranted by improving market conditions and escalating land values. In the interim, the existing lodging use generates a higher value than the underlying site as if vacant (considering demolition and renovation costs).
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Value of Subject As If Vacant As previously discussed, the subject site is zoned CC, and would most likely be developed with a single-tenant commercial or multi-family residential project in light of current market conditions. While there have been few closings since the economic downturn occurred in Fall 2008, the most relevant commercial and multi-family land sales since 2000 are summarized on the next pages. The commercial transactions report a price range of $4.24 to $17.76 per square foot of land area, while the entry-level multi-family land purchases bracket prices $10,000 to $165,714 per unit. The transactions of each type that are deemed to be most comparable to the subject property are presented below, followed by my professional opinion of the indicated land value for the site.
Property Identification Legal Description Walgreens Drug Store City South Subdivision, Lot 2 Steamboat Resorts Property Fox Creek Park, Filing #2, Lot 1 Future Development Site Unplatted Tract in Section 20 Future Development Site Unplatted Tract in Section 20 Pine Grove Business Center Parcel C, Pine Grove Bus. Center First National Bank of the Rockies Sundance North Village, Lot 1 Project Name Location Eco Corral Hilltop Parkway Skyview Apartments Whistler Road Rocky Peak Village Tamarack Drive Fox Creek Village Hilltop Parkway Sundance Creek Phase I Anglers Drive Pines at Orehouse Plaza Pine Grove Road Sale Date Sale Price Jan-2013 $780,000 May-2010 $615,388 Mar-2005 $750,000 Dec-2004 $500,000 Aug-2003 $425,000 Aug-2002 $650,000 Sale Date Sale Price Jun-2011 $905,000 Sep-2006 $1,000,000 Mar-2006 $775,000 Sep-2005 $530,000 Jan-2006 $325,000 Dec-2004 $483,000 Land Area Price Per SF 50,965 SF $17.76 PSF 147,233 SF $6.79 PSF 182,952 SF $4.24 PSF 98,010 SF $5.41 PSF 32,234 SF $10.08 PSF 48,300 SF $10.00 PSF Land Size Units (Type) 2.35 acres 24 (townhouse) 1.20 acres 36 (apartments) 3.00 acres 34 (townhouse) 3.92 acres 30 (condominium) 2.41 acres 19 (condominium) 4.08 acres 65 (condominium) Comments Build-to-suit big-box retail store for credit tenant Planning approval by seller, site work by buyer Acquired by local property management company About half of site is not useable due to creek/slopes About half of site is not buildable due to wetlands Investor re-sold land in May-2007 for $1,525,000 About half of site is not buildable due to wetlands Investor re-sold land in Oct-2006 for $740,000 Developer constructed multi-tenant office building Near Fish Creek, but odd (triangular) configuration Owner-occupied branch bank site with drive-thru About 80% of site is buildable due to steep slopes Price Per Unit Price Per SF $32,500 $7.62 $17,094 $11.77 $22,059 $5.74 $16,667 $2.93 $22,421 $4.06 $10,000 $3.66 Density (entitlements) Zoning District 10.21 Units/Acre (some approvals) Multi-Family One (MF-1) 30.00 Units/Acre (no approvals) Commercial Neighborhood (CN) 11.33 Units/Acre (no approvals) Multi-Family Three (MF-3) 7.65 Units/Acre (no approvals) Community Commercial (CC) 7.88 Units/Acre (no approvals) Community Commercial (CC) 15.93 Units/Acre (no approvals) Community Commercial (CC)

Based on the foregoing commercial sales, the subject site (102,845 SF) would likely command a land value in the middle of the range of about $10.00 per square foot, or $1,025,000 as rounded. The most comparable multi-family land sales report a price range of $10,000 to $32,500 per unit. Assuming the subject site could be developed at a density of 15 to 20 units per acre, the 2.361acre parcel would support 35 to 47 condominium units. Applying a price of $25,000 per unit for riverfront land with no approvals indicates a value for the subject site of $875,000 to $1,175,000. In my professional opinion, the subject property has a land value as if vacant of $1,025,000, but deducting required demolition costs (including asbestos removal) that are estimated at $500,000 results in an as is market value for the subject property as a redevelopment site of $525,000.
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SUMMARY OF COMMERCIAL AND MIXED-USE LAND SALES

Property Identification Legal Description Walgreens Drug Store City South Subdivision, Lot 2 Centennial Bank Site Wildhorse Marketplace, Lot 6 Future Development Site Unplatted Tract in Section 20 Steamboat Crossing North & South Mid-Valley Bus. Center, Lots 2 & 6 Future Development Site Unplatted Tract in Section 20 Future Restaurant Site (re-sale) Unplatted Tract in Section 20 Steamboat Resorts Property Fox Creek Park, Filing #2, Lot 1 Resort Group Building Three Steamboat Village Replat B, Lot 3 Sundance North Sundance North Village, Lot 2 Future Development Site Unplatted Tract in Section 20 Future Development Site Unplatted Tract in Section 20 Pine Grove Business Center Parcel C, Pine Grove Bus. Center First National Bank of the Rockies Sundance North Village, Lot 1 Former Big Country Realty Site Sandefur Subdivision, Lot 2 Future Development Site Steamboat Village Replat F, Lot 3 Future Development Site Steamboat Village Replat B, Lot 3 Steamboat Crossing Property Mid-Valley Bus. Center, Lots 2 & 6 Strings in the Mountains Steamboat Village Filing 3, Parcel A Southside Station Evergreen Subdivision, Lot 2 Young Tracks Day Care Mid-Valley, Lot 1, Filing 2 Wildhorse Marketplace Steamboat Village Replat E, Lot 2

Sale Date Sale Price June-2011 $905,000 Aug-2008 $635,000 Aug-2007 $850,000 Jul-2007 $8,875,000 May-2007 $1,525,000 Oct-2006 $740,000 Sep-2006 $1,000,000 Jul-2006 $530,000 Mar-2006 $2,200,000 Mar-2006 $775,000 Sep-2005 $530,000 Jan-2006 $325,000 Dec-2004 $483,000 Nov-2004 $400,000 Oct-2004 $1,861,000 Dec-2003 $400,000 Aug-2003 $2,250,000 May-2003 $1,665,000 Mar-2003 $410,000 Dec-2001 $300,000 Jul-2001 $2,500,000

Land Area Price Per SF 50,965 SF $17.76 PSF 45,259 SF $14.03 PSF 100,624 SF $8.45 PSF 639,475 SF $12.80 PSF 182,952 SF $8.34 PSF 98,010 SF $7.55 PSF 147,233 SF $6.79 PSF 32,670 SF $16.22 PSF 439,520 SF $5.00 PSF 182,952 SF $4.24 PSF 98,010 SF $5.41 PSF 32,234 SF $10.08 PSF 48,300 SF $10.00 PSF 24,829 SF $16.11 PSF 183,080 SF $10.17 PSF 32,670 SF $12.24 PSF 395,089 SF $5.69 PSF 260,489 SF $6.39 PSF 94,090 SF $4.36 PSF 37,362 SF $8.00 PSF 372,815 SF $6.71 PSF

Comments Build-to-suit big-box retail store for credit tenant Approvals by seller, most site work by buyer Owner-occupied branch bank site with drive-thru Pad site at shopping center with vested approval Sheraton Hotel acquired for affordable housing About 75% of 2.31-acre site is useable (wetlands) Assumed plans for mixed-use/multi-family projects About 75% of 15.92-acre site is useable (wetlands) Speculative purchase for mixed-use development About 50% of 4.20-acre site is useable (wetlands) Acquired for Mexican restaurant, remains vacant About 50% of 2.25-acre site is useable (wetlands) Acquired by local property management company About 50% of 3.38-acre site is useable (creek/slope) Improved with mostly owner-occupied office bldg. Buyer will upgrade road for $20,000, fully useable Purchased before mixed-use project was approved About 35% of 10.09-acre site is useable (slopes) Investor re-sold site in May-2007 for $1,525,000 Re-sale indicates annual appreciation of 78% Investor re-sold site in Oct-2006 for $740,000 Re-sale indicates annual appreciation of 40% Developer constructed multi-tenant office building Near Fish Creek, but triangular configuration Owner-occupied branch bank site with drive-thru About 80% of 1.11-acre site is useable (slopes) Old office building was subsequently demolished Signalized corner adjoining Steamboat Crossing Investor buy at Central Park Plaza, remains vacant Seller credited $60,000 for private road, all useable Investor re-sold site in Jul-2006 for $530,000 Re-sale indicates annual appreciation of 13% Acquired for commercial/residential development Price reflects 100% interest with motivated seller Improved with non-profit performing arts facility Seller donated 1.20 acres of adjacent open space Owner-occupied gas station with convenience store About 60% of 2.16-acre site is useable (wetlands) Owner-occupied day care at Steamboat Crossing Below market price to non-profit (discounted 25%) Developed as seven-lot commercial subdivision Major site work and utilities required, fully useable

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SUMMARY OF ENTRY-LEVEL MULTI-FAMILY LAND SALES

Project Name Location Sundance North Anglers Drive Rollingstone Village Pine Grove Road Elk River Village Elk River Road Eco Corral Hilltop Parkway Wildhorse Meadows Mount Werner Road Chadwick Estate Villas Eagle Ridge Drive Skyview Apartments Whistler Road Eco Corral Hilltop Parkway Rocky Peak Village Tamarack Drive Rollingstone Village Pine Grove Road Aspens at Walton Creek Whistler Road Elk River Village Elk River Road Fulton Ridge (Eco Corral) Hilltop Parkway Sundance Creek Phase II Anglers Drive West End Townhomes Downhill Drive Rocky Peak Village Tamarack Drive Fox Creek Village Hilltop Parkway Aspens at Walton Creek Whistler Road Sundance Creek Phase I Anglers Drive Pines at Orehouse Plaza Pine Grove Road Sunray Meadows Village Drive

Sale Date Sale Price Listing $1,650,000 Listing $3,000,000 Exp. Listing $1,500,000 Jan-2013 $780,000 Dec-2012 $5,825,000 Mar-2012 $900,000 May-2010 $615,388 Sep-2008 $4,640,000 Apr-2008 $2,800,000 Aug-2007 $5,750,000 Sep-2006 $1,000,000 Aug-2006 $2,253,800 May-2006 $875,000 Aug-2005 $598,700 Apr-2005 $480,000 Mar-2005 $750,000 Dec-2004 $500,000 Dec-2004 $500,000 Aug-2003 $425,000 Aug-2002 $650,000 Jun-2000 $1,752,000

Land Size Units (Type) 3.25 acres (useable) 110 (apartments) 2.79 acres 70 (condominium) 10.76 acres 67 (condo & SF) 2.35 acres 24 (townhouse) 17.19 acres 328 (condo & town) 2.30 acres 15 (townhouse) 1.20 acres 36 (apartments) 2.67 acres 28 (townhome) 3.92 acres 34 (townhouse) 2.79 acres 68 (condominium) 1.87 acres 28 (town & condo) 10.76 acres 67 (condo & SF) 2.67 acres 28 (town & condo) 1.70 acres 19 (condominium) 1.64 acres 20 (townhouse) 3.00 acres 34 (townhouse) 3.92 acres 30 (condominium) 0.95 acres 14 (townhouse) 2.41 acres 19 (condominium) 4.08 acres 65 (condominium) 10.93 acres 136 (condominium)

Price Per Unit Price Per SF $15,000 $11.65 $42,857 $24.68 $22,388 $3.20 $32,500 $7.62 $17,759 $7.78 $60,000 $8.98 $17,094 $11.77 $165,714 $39.90 $82,353 $16.41 $84,559 $47.31 $35,714 $12.28 $33,639 $4.81 $31,250 $7.52 $31,089 $7.98 $24,000 $6.72 $22,059 $5.74 $16,667 $2.93 $35,714 $12.08 $22,421 $4.06 $10,000 $3.66 $12,882 $3.68

Density (entitlements) Zoning District 33.85 Units/Acre (some approvals) Community Commercial (CC) 25.09 Units/Acre (full approvals) Community Commercial (CC) 6.23 Units/Acre (some approvals) Commercial Services (CS) 10.21 Units/Acre (some approvals) Multi-Family One (MF-1) 19.08 Units/Acre (some approvals) Resort Residential One (with PUD) 6.52 Units/Acre (expired approvals) Resort Residential One (RR-1) 30.00 Units/Acre (no approvals) Commercial Neighborhood (CN) 10.49 Units/Acre (ready to build) Multi-Family One (MF-1) 8.68 Units/Acre (full approvals) Multi-Family Three (MF-3) 24.37 Units/Acre (no approvals) Community Commercial (CC) 14.97 Units/Acre (full approvals) Multi-Family One (MF-1) 6.23 Units/Acre (no approvals) Commercial Services (CS) 10.49 Units/Acre (no approvals) Multi-Family One (MF-1) 11.18 Units/Acre (no approvals) Community Commercial (CC) 12.20 Units/Acre (some approvals) Multi-Family Two (MF-2) 11.33 Units/Acre (no approvals) Multi-Family Three (MF-3) 7.65 Units/Acre (no approvals) Community Commercial (CC) 14.74 Units/Acre (no approvals) Multi-Family One (MF-1) 7.88 Units/Acre (no approvals) Community Commercial (CC) 15.93 Units/Acre (no approvals) Community Commercial (CC) 12.44 Units/Acre (no approvals) Multi-Family One (MF-1)

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Value of Subject As Improved The subject was also analyzed as an improved property, namely the existing closed motel with studio apartments (52 rooms). The local market was researched for comparable sales of lodging properties, with the most recent transactions summarized in the table below. These improved sales report a price range of $55,769 to $107,353 per room, which is influenced by closing date. In my opinion, the subject property would be able to command a current market value of $50,000 to $60,000 per room, assuming required renovations have been completed to make it competitive with other local properties. Based on the 52 existing rooms, the indicated value as complete is $2,600,000 to $3,120,000. Deducting estimated renovation costs of about $2,000,000 results in an as is market value for the subject as a motel/apartment property of $600,000 to $1,120,000.
Identification Location Inn at Steamboat Near the ski area Quality Inn South end of town Inn at Steamboat Near the ski area Hampton Inn Town and Mountain Iron Horse Inn Town and Mountain La Quinta Inn South end of town Alpiner Lodge Downtown Fairfield Inn & Suites South end of town Alpiner Lodge Downtown Sale Date Sale Price May-2012 $1,475,000 Jun-2011 $2,900,000 Jan-2008 $3,650,000 Nov-2007 $6,273,000 Oct-2007 $4,050,000 Sep-2007 $3,075,000 Jul-2007 $3,100,000 Sep-2006 $3,950,000 Feb-2006 $2,200,000 Year Built Condition 1974 Average 1995 Average 1974 Average 1997 Average 1968 Fair 1998 Good 1967 Average 1999 Average 1967 Average Total Rooms Price / Room 23 rooms $64,130 52 rooms $55,769 34 rooms $107,353 68 rooms $92,250 52 rooms $77,885 29 rooms $106,034 33 rooms $93,939 66 rooms $59,848 33 rooms $66,667 Comments Failed condo-hotel project, sale of 23 unsold units Excess land value offset by deferred maintenance Former Comfort Inn, buyer re-branded after sale Seller acquired in 2001 for $3,500,000 (17% loss) Buyer to renovate and subdivide as condo units Price includes excess land (approved for ten units) Buyer to renovate and also add five hotel rooms Prices includes excess land (valued at $425,000) City of Steamboat bought for employee housing Buyer planned to renovated at cost of $1,000,000 Former Days Inn, buyer re-branded motel after sale Major renovation in 2005 at cost of about $600,000 Buyer will operate until ready for redevelopment Purchase price is same as the Jul-2007 land value Buyer also owns nearby La Quinta n Steamboat Continued operation, no recent major renovations Buyer acquired for continued operation as motel Re-sold in Jul-2007 for $3,100,000 (41% more)

It is also instructive to consider the foregoing value range for the Iron Horse Inn in light of its ability to generate net income from current and former operations. Although the New Building was closed to the public on November 1, 2012, it was previously open for nightly (motel) rentals. According to the property manager, this component generated about 30% annual occupancy at an average daily rate of around $75.00. Applying this data to the 26 rooms over 365 days indicates estimated gross revenue for the New Building of $213,525 (i.e., $75.00 x 365 x 30% x 26). Moreover, the Old Building has been fully leased as 26 studio apartments at a monthly rental rate of $625 per unit (which includes water, sewer, and trash), for gross annual revenue of $195,000. This results in potential gross income of $408,525, which is higher than actual revenues of about $305,000 from 2012 and $340,000 during 2011 (but is probably explained by operational issues). In my experience, lodging properties are typically purchased at a multiple of three times gross revenues, which indicates a value range for the subject as improved of $915,000 to $1,225,000. However, the subject reports operating expenses (excluding debt service and major capital items) of about $375,000 in 2012, and $350,000 in 2011. Thus, the subject has essentially operated at a loss during the past two years, which was the primary reason that the motel was closed last fall. In my professional opinion, the subject property has an as is market value as improved in the range of $600,000 to $1,225,000, which supports the most recent purchase offer of $915,000,or only $17,596 per room (which is below the sales but reasonable given the required renovations).
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Value Conclusion for Subject Property The subject property has an estimated land value as if vacant of $525,000, which is higher than the offer received in March 2013 to pay a maximum of $400,000 as a redevelopment site. Please note the land value is influenced by demolition costs of $500,000, which appear reasonable given known environmental (asbestos) issues, and assumed to be accurate for purposes of this analysis. The indicated value for the subject as an improved property in the as is condition ranges from $600,000 to $1,225,000, which brackets the other offer received from KC Wilson of $915,000. This amount is also dependent on estimated renovation costs of $2,000,000 to make the property competitive with other lodging facilities in the local market, which is assumed to be accurate. Based on the foregoing, demolition of the buildings to allow redevelopment of the site with an alternative project does not generate a higher return than continued operation as a lodging property. However, this could change in the foreseeable future if land values begin to escalate. The offer at $915,000 is most representative of the as is market value of the subject property. I trust this restricted use appraisal provides valuable insight and fulfills the terms of our engagement, but please feel free to contact me with any questions or comments. Respectfully submitted,

Kevin A. Chandler, MAI Certified General Appraiser State of Colorado, #CG40022860

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CERTIFICATION
I certify that, to the best of my knowledge and belief: the statements of fact contained in this report are true and correct. the reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are my personal, impartial, and unbiased professional analyses, opinions, and conclusions. I 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. I have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment. my engagement in this assignment was not contingent upon developing or reporting predetermined results. my compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. I have made a personal inspection of the property that is the subject of this report. no one provided significant real property appraisal assistance to the person signing this certification. the reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. the use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. as of the date of this report, I have completed the continuing education program of the Appraisal Institute. I have performed no services, as an appraiser or in any other capacity, regarding the property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment. Certified by,

Kevin A. Chandler, MAI Certified General Appraiser State of Colorado, #CG40022860


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ASSUMPTIONS AND LIMITING CONDITIONS


The value conclusions in this appraisal report are subject to the following assumptions and limiting conditions: 1. This appraisal is not subject to any hypothetical conditions or extraordinary assumptions, which would be presented in the opening paragraphs of this report. The date of value to which the opinion of value applies is set forth in the transmittal letter of this report. The appraiser assumes no responsibility for economic or physical factors occurring at some later date that may affect the opinions stated herein. No responsibility is assumed for the legal description, as well as legal or title matters. Unless otherwise stated, title to the subject property is assumed to be good and marketable. The land and building areas utilized for the analysis are assumed to be accurate, and the appraiser reserves the right to revisit the valuation if they are incorrect. Unless otherwise stated, the subject is appraised free and clear of any or all liens or encumbrances, and responsible ownership and competent management are assumed. The information contained in this appraisal has been gathered by sources assumed to be reliable, including the owner of the property and local market participants. No warranty is given for its accuracy, and the comparable sales utilized are believed to be accurate. The tracts according to survey maps or record plats are assumed to go with the property, unless easements or deeds of record prove contrary. All engineering is assumed to be correct. The sketches, maps, plans, and illustrative materials in this report are included only to assist the reader in visualizing the property. It is assumed that there are no hidden or unapparent conditions of the property, subsoil, or structures that render it more or less valuable. No responsibility is assumed for such conditions, or arranging for engineering studies that may be required to discover them. It is assumed that there is full compliance with all applicable federal, state, and local environmental regulations and laws unless noncompliance is stated, defined, and considered in the appraisal report. It is assumed that all applicable zoning and land use regulations and restrictions have been complied with. Any nonconformance has been stated, defined, and considered. It is assumed that all required licenses, certificates of occupancy, consents, or other legislative or administrative authority from any local, state, or national government or private entity or organization have been or can be obtained or reviewed for any use on which the value estimate contained in this report is based. Unless noted, it is assumed that the utilization of the land and improvements is within the boundaries of the property described and that there is no encroachment or trespass.

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ASSUMPTIONS AND LIMITING CONDITIONS (continued)

13.

Unless otherwise stated, subsurface mineral rights (including oil, gas, and coal) were not considered when valuing the subject property. The independent valuation of excess water rights or severable mineral rights is beyond the scope of this assignment. Unless otherwise noted, this appraisal assignment is for real property only, including fixtures that may be permanently attached and considered to be part of the real estate. The appraiser has disregarded any personal property, such as furnishing and equipment. Unless otherwise stated in this report, the appraiser did not observe any hazardous materials or conditions that may be present at the subject. The appraiser has no knowledge of the existence of such materials on or in the property. The appraiser, however, is not qualified to detect such substances. The presence of substances such as asbestos, urea-formaldehyde foam insulation, or other potentially hazardous materials may affect the value of the property. The value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in this field. The distribution, if any, of the total value between land and improvements applies only under the stated program of utilization. The separate allocations for land and buildings must not be used in conjunction with any other appraisal, and are invalid if so used. Possession of this report, or a copy thereof, does not carry with it the right of publication. It may not be used for any purpose by any person or party, other than the party or client to whom it is addressed and prepared for, without the written consent of the appraiser; and in any such event only with proper written qualifications and in its entirety. The appraisal is not intended to influence any third party investment decisions. Unless arrangements have been previously made, the appraiser herein by reason of this appraisal is not required to give further consultation, testimony, or be in attendance in court with reference to the property in question. No liability for legal matters or right to court testimony is included in the scope of this assignment. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraiser, or the firm with which the appraiser is connected) shall be disseminated to the public through advertising, public relations, news, sales, or other media, without the prior written consent and approval of the appraiser. The Americans with Disabilities Act ("ADA") became effective January 26, 1992. The appraiser did not make a specific compliance survey or analysis of the subject property to determine whether or not it is in conformance with detailed requirements of the ADA. It is possible that a compliance survey of the property, together with a detailed analysis of the requirements of the ADA, could reveal that the property is not in compliance with one or more of the requirements of the Act, which could adversely impact market value.

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DEFINITIONS
Source: The Dictionary of Real Estate Appraisal, Fifth Edition, 2010, Appraisal Institute

Market Value The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: buyer and seller are typically motivated; both parties are well informed or well advised, and each acting in what they consider their own best interest; a reasonable time is allowed for exposure in the open market; payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. Fee Simple Estate Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat. Leased Fee Estate A freehold (ownership interest) where the possessory interest has been granted to another party by creation of a contractual landlord-tenant relationship (i.e., a lease). Highest and Best Use The reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum productivity. Alternately, the probable use of land or improved property - specific with respect to the user and timing of the use - that is adequately supported and results in the highest present value. Exposure Time The estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based on an analysis of past events assuming a competitive and open market. Marketing Time An opinion of the amount of time it might take to sell a real or personal property interest at the concluded market value level during the period immediately after the effective date of an appraisal. Marketing time differs from exposure time, which is always presumed to precede the effective date of an appraisal.

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COMPARISON OF REPORT TYPES


Self-Contained i. identify and describe the real estate being appraised; i. Summary identify and provide a summary description of the real estate being appraised; state the real property interest being appraised; state the purpose intended use of appraisal; and the i. Restricted identify the real being appraised; estate

ii. iii.

state the real property interest being appraised; state the purpose and intended use of the appraisal; define the estimated; value to be

ii. iii.

ii. iii.

state the real property interest being appraised; state the purpose intended use of appraisal; and the

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define the value to be estimated; state the effective date of the appraisal and the date of the report; summarize the extent of the process of collecting, confirming and reporting data; state all assumptions and limiting conditions that affect the analyses, opinions and conclusions; summarize the information considered, the appraisal procedures followed, and the reasoning that supports the analysis, opinions and conclusions; summarize the appraiser's opinion of the highest and best use of the real estate, when such an opinion is necessary and appropriate; explain and support the exclusion of any of the usual valuation approaches; summarize any additional information that may be appropriate to show compliance with, or clearly identify and explain permitted departures from, the requirements of Standard 1

iv.

state and reference a definition of the value to be estimated; state the effective date of the appraisal and the date of the report; state the extent of the process of collecting, confirming and reporting data; state all assumptions and limiting conditions that affect the analyses, opinions and conclusions; state the appraisal procedures followed; state the value conclusions and reference the existence of specific file information in support of the conclusion; state the appraiser's opinion of the highest and best use of the real estate, when such an opinion is necessary and appropriate; state the exclusion of any of the usual valuation approaches; contain a prominent use restriction that limits reliance on the report to the client and warns that the report cannot be understood properly without additional information in the work file of the appraiser, and identify any permitted departure from the requirements of Standard 1; include a signed certification in accordance with Standard Rule 2-3.

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state the effective date of the appraisal and the date of the report; describe the extent of the process of collecting, confirming, and reporting data; state all assumptions and limiting conditions that affect the analyses, opinions and conclusions; describe the information considered, the appraisal procedures followed, and the reasoning that supports the analyses, opinions, and conclusions; describe the appraiser's opinion of the highest and best use of the real estate, when such an opinion is necessary and appropriate; explain and support the exclusion of any of the usual valuation approaches; describe any additional information that may be appropriate to show compliance with, or clearly identify and explain permitted departures from the specific guidelines of Standard 1;

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include a signed certification in accordance with Standards Rule 2-3.

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include a signed certification in accordance with Standards Rule 2-3.

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Source: Uniform Standards of Professional Appraisal Practice.

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QUALIFICATIONS OF KEVIN A. CHANDLER, MAI


Education Master of Arts, Real Estate and Urban Analysis, University of Florida Bachelor of Science, Business Administration (Finance), University of Florida Affiliations Member, Appraisal Institute (MAI) Certified General Appraiser, State of Colorado Experience Kovacs Real Estate Valuation Services, Inc., Denver, Colorado
Commercial Real Estate Appraisal and Consulting

Concorde Investments, Inc., Tampa, Florida


Commercial Real Estate Development and Investment

Wellington Realty Advisors, Inc., Tampa, Florida


Site Selection for Boston Market and Einstein Bagels throughout Florida

Arthur Andersen, LLP, Atlanta, Georgia


Commercial Real Estate Appraisal and Business Valuation

Real Estate Marketing Consultants, Inc., Tampa, Florida


Commercial Real Estate Appraisal and Consulting

Seminars Appraising Agricultural Land in Transition Appraisal Standards for Federal Land Exchanges Emerging Issues in Water Rights and Energy Development Condemnation and Litigation Appraising, Advanced Topics Assignment Types Commercial Properties Going Concern and Special-Use Conservation Easements Mountain Ranches and Resorts Subdivision Analysis Eminent Domain Litigation Support Appraisal Review
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Representative Clients City of Steamboat Springs Various Commercial Lenders Colorado Housing Finance Authority Yampa Valley Land Trust National Resources Conservation Service U.S. Forest Service Colorado Division of Wildlife Routt County, Colorado (expert witness)
22

STATE CERTIFIED GENERAL APPRAISER LICENSE

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REGIONAL ANALYSIS
The subject is located in Routt County, north of I-70 and west of I-25, on the Western Slope of Colorado. Routt County is bordered by the State of Wyoming to the north, Jackson County to the east, Eagle and Rio Blanco Counties to the south, and Moffat County to the west. Steamboat Springs is the county seat and largest municipality, and is located 160 miles northwest of the Denver metro area. It has been branded Ski Town USA and home of the Steamboat Ski Area. Almost half of the 2,231 square miles (1.5 million acres) of land area is in public ownership. The alpine region features a diverse and picturesque landscape, with elevations ranging from 7,000 to 10,000 feet and four distinct seasons (annual snowfall varies from 170 to 450 inches). Demographic Profile According to the U.S. Census, Routt County reports a 2010 population of 23,509 residents. This is an increase of 19% from the 2000 population of 19,690 residents, which is slightly higher than the statewide growth rate for the same time period of 17%. The local population is also aging, as 41% of Routt County residents are ages 45 and older as of 2010 (versus only 31% as of 2000). The City of Steamboat Springs reports a 2010 population of 12,088 people (51% of the county), which is a 23% increase from the 2000 total of 9,815 residents. However, it is important to note that tourists, part-time residents, and seasonal employees may double the daily population count. Routt County reports 6,006 total households in 2010, with an occupancy rate of 60.7%, median age of 38.9 years, and average household size of 2.34 people. The 2009 per capita personal income for Routt County of $49,139 is 17% higher than the 2009 statewide average of $41,895. Economic Conditions The local economy was traditionally based on coal mining and livestock (cattle/sheep) ranching, but tourism has become the primary industry since the emergence of skiing during the 1950s. The centerpiece of the economy is the Steamboat Ski Area, which logs 900,000 to 1,000,000 annual skier visits and currently has about 830 full-time and seasonal employees (largest employer in the county). The dominant employment sectors are accommodation/services, retail trade, and construction (with 1,700 lost jobs in this industry since 2007). The county ranks in the top three for Colorado in terms of coal extraction, which supplies the Hayden Generation Plant. Routt County reports an unemployment rate of 5.8% as of March 2013 (versus only 4.1% as of December 2008), which is lower than the statewide average of 7.3% for the same time period. The city collected similar sales tax revenue during both 2007 and 2008 of about $19.7 million. While receipts of $16.7 million from 2009 were 16% less than what was collected during 2008, collections stabilized in 2010 at $16.5 million, and were about $17.3 million in 2011 and 2012. Transportation and Services Transportation remains a difficult issue for the area due to the lack of interstate highway access. The major arterial is U.S. Highway 40, which traverses the county in an east/west direction. State Highway 131 provides secondary access to Steamboat from the south, where it connects with I-70 in Eagle County (75 miles south). The area has an extensive network of county roads, ranging from paved arterials with heavy traffic to gravel surface with no winter maintenance. The Yampa Valley Regional Airport accommodates commercial jets, recently underwent a $26.2 million expansion/renovation, and logs about 110,000 customers per year (mostly during winter). Steamboat Springs is a self-sufficient community in terms of civic, cultural, shopping, medical, employment, educational, and entertainment services. It features public parks and open space, a state-of-the-art hospital, daily newspaper, and satellite campus for Colorado Mountain College.
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REGIONAL ANALYSIS

Housing and Development Trends Most residential housing is concentrated within the city limits, with the highest density found in downtown or at the ski area (such as multi-family apartments, timeshare, and condominiums). Major employment centers and shopping facilities for the region are generally found along the U.S. Highway 40 corridor in Steamboat. The remainder of the county is mostly rural in nature, with working cattle/sheep ranches, rural residential homesites, and ample public land holdings (managed by the BLM, USFS, or State of Colorado). Most homesites are concentrated along county roads, with a minimum buildable lot size of 35 acres. However, development of shared ranch communities with luxurious private amenities on agricultural holdings was prevalent during the past decade, with most homesites priced between $1,000,000 and $2,000,000. Local real estate values soared during the 1990s due to dynamic population growth, but increased at more moderate levels between 2000 and 2003. Housing prices had reached record levels during the boom period of 2005 through 2008, but are about 30% lower on average since the downturn. The lack of affordable housing was a major issue for the region due to high single-family price in Steamboat Springs, but has subsided since the downturn. Hayden, Oak Creek, and Stagecoach have emerged as bedroom communities, with typical new home prices of $150,000 to $300,000. This trend in Steamboat Springs is medium to high-density residential development, supporting commercial/industrial uses, as well as infill projects in downtown or at the ski area base village. Recreation and Steamboat Ski Area The area offers four seasons of recreational opportunities, such as hunting, camping, fishing, hiking, riding, skiing, snowmobiling, and other winter sports. The Elk River carves a scenic valley northwest of town, and flows into the Yampa River about ten miles west of the city limits. Stagecoach Reservoir is a popular natural amenity in southern Routt County, with Steamboat and Pearl Lakes found in North Routt. The Routt National Forest forms the northern and eastern boundaries of the county, and provides valuable recreational amenities in the Flat Tops and Mount Zirkel Wilderness Areas. The popular Strawberry Park Hot Springs is a year-round facility on private land that is located a few miles north of downtown. The Steamboat Ski Area was purchased in March 2007 by Intrawest (subsidiary of Fortress Investments) for $265 million, with combined season passes offered for the sister resorts of Copper Mountain and Winter Park. The new owner completed about $16 million of on-mountain upgrades in 2007/2008, such as major re-grading at the bottom of the hill and replacing older lifts with more modern equipment. This has been supplemented by several million dollars of public infrastructure improvements that are funded by an Urban Renewal Authority (URA) that was created in 2005. About $9 million of bonds were issued in 2007 to fund public streetscape, utilities, and pedestrian improvements, with two roundabouts at the base village completed in Fall 2008. About $7 million of remaining site work was finished during 2012, including a new promenade that opened in November 2011. Average skier visits during the past three seasons are about 10% less than the prior three seasons. Regional Conclusion In summary, the subject is located in Routt County, a rural community in Northwest Colorado. The only major city is Steamboat Springs, a thriving town known for its world-class ski resort. The local economy has shifted from agriculture to tourism, and is diversified but was adversely impacted by the ongoing recession. The county is not serviced by an interstate highway, but features a regional airport that was recently expanded. While declining sales tax revenues have stabilized, unemployment remains relatively high and the outlook is uncertain for the short term.
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MARKET ANALYSIS
Routt County is a mountain resort market that features a diversified economy and the world-class Steamboat Ski Area. The most recent major downturn for property values in the region occurred during the 1980s, but the market experienced double-digit appreciation in the 1990s. Stagnant conditions were experienced from 2001 until 2003, but the local real estate market then entered a boom period that resulted in rising sale prices and total volumes each year since 2004. The March 2007 acquisition of the ski area by Intrawest was a major catalyst for unprecedented activity in virtually every sector of the local market, with record prices and volumes recorded. However, the Great Recession adversely impacted the region in late Summer or early Fall 2008, with very little absorption that has resulted in much lower sale prices from the recent peak levels. The market has since stabilized at sale prices/volumes that likely represent the new normal. Residential Market Overview The local population has almost doubled since 1980, which has created demand for additional residential housing. The highest density uses are generally concentrated near the ski resort, such as condominiums, apartments, and timeshare units. Affordable housing is a major problem, and generally consists of a few mobile home parks and older condominiums. Newer single-family homes on the west side of town are located in small platted subdivisions (50 to 150 lots). Due to the small size of the market, there are no production builders (i.e., U.S. Homes, Richmond, etc.). Many working ranches in the county are being purchased at much more than agricultural value to be developed with rural residential housing. These are typically large-lot subdivisions with a minimum size of 35 acres, and some projects offer amenities that cater to the affluent buyer. Residential Building Activity
New Dwelling Units for City of Steamboat Springs as well as Routt County (including Hayden) Housing Type (area) Single-Family (City) Single-Family (County) Duplex (City) Duplex (County) Multi-Family (City) Multi-Family (County) Total Combined Units 2003 66 146 34 14 55 0 315 2004 73 118 67 2 101 0 361 2005 39 159 107 10 202 0 517 2006 45 161 64 2 113 14 399 2007 31 127 52 18 265 0 493 2008 20 95 28 6 149 10 308 2009 8 55 12 0 0 0 75 2010 7 27 2 0 0 0 36 2011 11 31 2 0 0 0 44 2012 21 34 4 0 0 0 59

The foregoing data was provided by local building departments, but the actual number of permits issued is lower than total units approved since duplex/multi-family permits allow multiple units. Single-family permits are typically issued at platted subdivisions in the county, while duplex and multi-family units are often built within the city limits. Between 36 and 517 new dwelling units were approved in the combined city and county during the past decade (the average is 261 units). The record year of 2005 (517 units) was nearly eclipsed in 2007 (493 units), but activity slowed dramatically after 308 units were permitted in 2008, with 36 to 75 units between 2009 and 2012. The combined area witnessed an average of 154 single-family permits between 2003 and 2008, but only 54 permits on average were issued in the past four years (decline of 65%). Moreover, only twenty duplex units have been approved since 2008, with no new multi-family projects. The anticipated trend is gradual increases in building activity as the market continues to recover, but there are no major projects in the pipeline and most residential permits are for remodels.
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MARKET ANALYSIS Residential Prices and Volumes


Calendar Year Total Volume of All Sales Number of Sale Transactions Average Sale Price (all types) Average Price (all residential) 2007 $1,587,357,500 2,555 $621,275 N/A 2008 $725,101,200 1,077 $673,260 $786,819 2009 $439,774,300 1,063 $413,711 $716,494 2010 $512,100,114 1,817 $281,838 $705,558 2011 $450,579,300 1,398 $322,303 $523,585 2012 $483,899,850 1,176 $411,479 $506,079

The foregoing data was provided by Land Title Steamboat Springs, and includes all arms-length closed sale transactions in Routt County (per the MLS and Clerk/Recorder). Total sales volume during 2012 of about $484 million is bracketed by 2011 ($450 million) and 2010 ($512 million), and is 10% higher than 2009 ($440 million) but only 31% of the 2007 record ($1.587 million). While the number of transactions from 2012 is 16% less than 2011, it is only half of 2007 levels. Major swings are noted in regards to average sale prices for all property types in Routt County, as the 2012 amount of $411,479 is 28% higher than 2011, but 39% lower than the peak of 2008. Average residential prices from 2011 and 2012 are about 30% less than the previous three years. The Fish Creek submarket reports an average transaction price for 2012 of $456,541, which is 45% lower than the 2010 average of $822,989 but 59% less than the 2008 average of $1,110,459. By comparison, the 2012 average transaction price was $151,379 for Stagecoach, $301,871 for West Steamboat, $475,774 for Downtown Steamboat, and $537,655 for Mountain Steamboat. Local Housing Trends Very low mortgage interest rates (below 5%) reduced housing costs, but the recent trend is a significant rise in foreclosures. While 303 notices of election and demand were filed in Routt County during 2010, with 306 more filings in 2011, this amount dropped to 216 filings in 2012. Moreover, there were only 33 filings in the first quarter of 2013 (versus 65 during first quarter of 2012), with generally about 50 to 100 annual filings prior to the recession. Foreclosure and short sales have had a negative impact on prices, but have also improved the affordability of housing. Elected officials formed the Yampa Valley Housing Authority (YVHA) in 2004 to coordinate a countywide program, but this non-profit entity does not have a source of permanent funding. The City of Steamboat Springs adopted an Inclusionary Zoning ordinance during 2006, but the program had limited success and has not been tested due to the lack of new projects since 2008. The West of Steamboat Springs Area Plan dictates that future development should occur west of the city limits (along U.S. Highway 40) via annexation of about 1,200 acres of unincorporated land from east to west, and was updated in June 2006. Steamboat 700 submitted plans for up to 2,000 dwelling units and 380,000 square feet of commercial space on 487 acres at the city limits. While City Council approved the annexation in 2009, it was overturned by a public vote in 2010. Moreover, 360 Village was seeking to develop up to 650 dwelling units with commercial space on 112 acres further to the west. However, the project failed and the land is now bank owned. Residential Market Conclusion In summary, supply and demand are not currently in balance for the local residential market. Sale prices and volumes had reached record levels during the boom period of 2005 through 2008, which led to major appreciation and a shortage of affordable housing. However, construction activity has ground to a halt since the existing inventory of available product exceeds demand, and some local experts predict it will be three to five years before additional supply is warranted. This uncertainty has resulted in declining sale prices with a lack of any measurable absorption.
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MARKET ANALYSIS

Commercial Market Overview Steamboat Springs has four distinct commercial submarkets, with each described as follows: Mountain submarket is concentrated at the Steamboat Ski Area at the southeast city limits, which consistently ranks in the top ten nationally in terms of skier visits. The base village was developed at the lower slopes in the 1970s, but many properties have a tired appearance. Most buildings are residential in nature, including condominiums (full and interval ownership), townhouses, duplexes, houses, and hotels. Commercial businesses are generally found on the ground floor and primarily support tourists (such as specialty retail, restaurants, taverns, etc.). An Urban Renewal Authority was adopted in 2005 to help finance major public improvements, with about one million square feet of new space built near the ski area during the recent boom. Downtown submarket is the central business district, and encompasses several city blocks between the Yampa River and Old Town residential neighborhood. It is bisected by Lincoln Avenue (a/k/a U.S. Highway 40), which is a pedestrian-friendly street with heavy traffic. Most buildings are of historic vintage, with major new construction and renovation occurring. Many retailers are found in this area, as well as restaurants, entertainment concepts, motels, and civic facilities. The latest phenomenon has been the redevelopment of older properties with mixed-use and residential condominium projects that generally cater to upscale second homeowners. Downtown appeals to both visitors and residents, and generally stays busy throughout the year. It benefits from public amenities (i.e., the river, parks, Howelsen Hill ski area, rodeo arena, etc.) and special events that are quite popular. Very little vacant land remains in the downtown core, and four mixed-use projects have added about 50,000 square feet of new space to this submarket. Town and Mountain submarket is primarily defined as the U.S. Highway 40 corridor, between downtown and the southern city limits. It also includes peripheral development along secondary collector streets that lead to the ski area, such as a regional hospital and medical office building. This area features neighborhood shopping centers that are anchored by Safeway and City Market (the only major grocery stores in the county), as well as Walmart (located at Central Park Plaza). Wildhorse Marketplace is a relatively new shopping center that is anchored by Sports Authority and a six-plex movie theater, and a new facility for Centennial Bank was completed in 2010. Sundance North was approved for 45,000 square feet of commercial space and 27 residential units near Safeway (which have expired), and the vacant site may be developed with apartments. Mid-Valley Business Center is improved with Staples and two multi-tenant buildings, and a new Walgreens Drug Store opened in February 2012 (U.S. Post Office decide to not relocate here). The other major project in the area is a $20 million dollar senior campus next to Caseys Pond on Walton Creek Road, which will deliver apartments with assisted living (117,000 SF) by 2014. West Steamboat submarket is defined as the U.S. Highway 40 corridor from downtown to the western city limits, as well as peripheral development along Elk River Road and 13 th Street. This working class area caters to local businesses in light industrial space at platted business parks, such as Copper Ridge and Downhill Plaza. The majority of properties are owner-occupied for office/warehouse, mini-storage, outdoor storage/sales, and automotive service/sales uses. Retail/office and special-purpose development has occurred at the Curve Subdivision, located at the intersection of U.S. Highway 40 and Elk River Road. Elk River Crossing is anchored by Ace Hardware (formerly Curve Market), with some in-line space and a gas station/convenience store. Single-tenant facilities include the local newspaper, lumberyards, and car dealerships. Riverside Center was renovated in 2007, and is currently anchored by Sears and Steamboat Power Sports. Live/work space that provides affordable housing was also developed during the recent boom.
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MARKET ANALYSIS

Commercial Market Conditions Supply and demand are not in balance, and very limited construction is occurring. I estimate that the Steamboat market contains approximately three million square feet of commercial space. Vacancies are noted for all property types, with an average occupancy of about 80% estimated for the overall market (many tenants are relocating to take advantage of distressed landlords). Development costs have increased dramatically due to the limited supply of vacant land in town, lack of qualified labor in the local work force, and escalating costs for construction materials. While the total valuation of commercial, industrial, and mixed-use development in the combined city and county averaged about $7.7 million between 2000 and 2006, almost $45.3 million was recorded in 2007. However, new development is anemic, with only $200,000 posted in 2010. Steamboat boasts over eighty restaurants, as well as various entertainment and lodging facilities. The commercial market is tourist-driven, but also caters to permanent residents in the city and outlying rural areas. The industrial sector primarily services local owner-occupied businesses. Neighborhood retail and office center uses are generally concentrated along U.S. Highway 40. Tourist oriented shops are found in downtown or at the base village. Besides two grocery stores and Ace, the only national big-box retailers in town are Walmart, Sports Authority, and Staples. They will soon be joined by Natural Grocers, which will open in downtown by September 2012. However, the city adopted a big-box ordinance in February 2004 that impacts future commercial development, as any single-tenant retail store greater than 12,000 square feet must prove a public benefit (and be processed as a PUD). The big-box ordinance was revised in January 2006 to prohibit any future retail use within the city limits if it is greater than 40,000 square feet in size (excluding grocery stores), and further limits single-tenant commercial stores south and east of downtown to only 15,000 square feet. City Council adopted a linkage requirement in 2007 to the inclusionary zoning ordinance that impacts new commercial projects, which has been suspended. The city is considering other options for affordable housing, such as a fee-in-lieu or transfer tax. Rental Rates and Sale Prices Rental rates for commercial and industrial space vary widely based on location, size and age of the improvements. The highest rates are for smaller retail units in downtown and near the ski area, and generally range from $20.00 to $30.00 per square foot, triple net. Professional office space typically leases for $10.00 to $20.00 per square foot, triple-net. Retail space at anchored shopping centers ranges from $15.00 to $25.00 per square foot, triple net. The lowest rental rates are for office/warehouse space, at $5.00 to $10.00 per square foot, triple net. The latest trend has been the development of commercial/industrial condominiums that cater to smaller owner users. Rents had remained relatively flat or increased at the rate of inflation during the recent boom, while sale prices for most commercial real estate had appreciated at double-digit rates between 2004 and 2007. While this placed downward pressure on capitalization rates for these property types, overall rates have recently increased to traditional levels (which support fundamentals) as rents and prices have declined during the past four years to level experienced circa 2004/2005. Commercial Market Conclusion The subject is located in the Town and Mountain commercial submarket of Steamboat Springs. Commercial market conditions are soft with very little new construction, and rents/prices for this segment of the market are trending downward as the ongoing recession impacts local businesses. The anticipated trend is limited demand and even further declining values for a year or two until national and local economic conditions improve, with no major additions to supply anticipated.
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NEIGHBORHOOD ANALYSIS
The subject neighborhood is generally defined as the U.S. Highway 40 corridor in Steamboat Springs, located between downtown and the ski area (a/k/a Town and Mountain). It is located about one to two miles south of the central business district, and delineated by Third Street (north), Walton Creek Road (south), Steamboat Boulevard (east), and the Yampa River (west). Description and Characteristics The area is a commercial node that supports nearby residential neighborhoods. Convenience oriented commercial uses are located along U.S. Highway 40, such as shopping centers, gas stations, grocery stores, branch banks, and restaurants. Destination commercial uses are found on Pine Grove and Mount Werner Roads, including professional office and medical facilities. Medium and high-density residential housing is concentrated between the highway and ski area to the east. Emerald Mountain is a natural feature that comprises more than 6,000 acres, and limits growth to the west. A 2007 land exchange with the BLM extinguished development rights on 4,139 acres, and created permanent open space for public use and recreation. The subject neighborhood is approximately 90% developed, with only a few parcels of vacant land available. Access and Services The subject site fronts Anglers Drive and Rollingstone Drive, which are local collector streets. It is in close proximity to U.S. Highway 40, a major arterial that parallels the Yampa River as it traverses town. The intersection of U.S. Highway 40 with Pine Grove Road is a very busy locale, with an estimated traffic count of 20,000 vehicles per day (one of the highest in the city). Mount Werner Road connects the highway with the ski area base village. The neighborhood is also on the city bus routes, and has an integrated public hiking/biking trail and sidewalk system. Access to the subject neighborhood is very good, and enhanced by a network of collector streets. Adequate public utilities and services are generally available to accommodate new development. Residential Development Trends The subject neighborhood has experienced significant new residential development during the past few years, including single-family homes, townhomes, condominiums, and timeshare units. However, no new projects are imminent due to the recession. American Skiing Company (ASC) sold several tracts of vacant land and the Central Park Plaza shopping center since 1998 to pay down debt from the ski area purchase. An investment group (led by Whitney Ward) acquired the former Tennis Meadows (47.5 acres) and the site of One Steamboat Place (4.2 acres) from ASC in December 2003 for $8.9 million. They obtained approvals in 2006 to develop the vacant site as Wildhorse Meadows, a master-planned community that was approved for 567 dwelling units. Completed projects to date include 41 single-family lots at The Range (sold-out in 2006/2007), 86 condominium units at Trailhead Lodge (one-third sold since 2009 with auction in May 2012), and 47 affordable housing units at First Tracks (fully sold-out as the city allows deed restrictions to be removed via a fee-in-lieu). A pulse gondola that connects Wildhorse Meadows with One Steamboat Place was installed in February 2010, and is available for use by the general public. Rollingstone Village is approved for 70 mixed-use units on three acres along Fish Creek, but the entitled site is listed at $3,000,000. Trailside Village comprises 225 proposed condominiums at Steamboat Crossing, and was almost approved in 2008 before being placed on hold indefinitely. Barn Village is a residential subdivision with 62 single-family and duplex lots, but only fifteen homesites have sold since 2008. A subsidiary of Toll Brothers (national home builder) acquired the 47 remaining homesites in September 2011, which were recently placed back on the market.
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NEIGHBORHOOD ANALYSIS

Commercial Development Trends In terms of commercial space, most recent construction in the neighborhood is owner-occupied since speculative commercial/mixed-use development is presently on hold due to the economy. For example, Resort Group completed a third building (19,000 SF) on their campus near Central Park Plaza in August 2008. Wildhorse Marketplace has vested approval for up to 22,000 square feet of retail/office space on Lots 4 and 5, with no plans for development. Centennial Bank completed a new branch (10,654 SF) on Lot 6 during 2010. Sundance North was approved for 45,000 square feet of commercial space plus 27 residential units, but was been unable to secure construction financing in 2009 due to insufficient sales/leasing for the commercial component. The fully approved project on 3.49 useable acres is available for sale at a list price of $1,950,000, but the developer is now contemplating the construction of about 100 apartment units on the site. City South is a commercial subdivision that features Staples, two multi-tenant buildings, and Walgreens (recently completed in February 2012). The U.S. Post Office decided to not relocate to this project from downtown in Fall 2011, although they seriously pursued a new facility here. The other major project in the area is a $20 million dollar senior campus next to Caseys Pond on Walton Creek Road, which could deliver apartments with assisted living (120,000 SF) by 2014. Based on current soft market conditions and lack of anchor tenants, vertical development of the vacant land at Steamboat Crossing, Sundance North, and Wildhorse Marketplace is on hold. Demographic Profile After double-digit growth in the 1990s, the permanent population of the neighborhood has stabilized during the past five years at about 2% to 3% per annum. Household incomes reflect an affluent population base, with some very high incomes that push the average above the median. There are significant rental units in the neighborhood (mostly near the ski area), with less than two-thirds of dwellings owner-occupied and an average household size of two to three people. It is important to note many part-time residents are not reflected in the population figures, as well as tourists and visitors at peak times (often 10,000 to 20,000 people on a busy weekend). Neighborhood Conclusion In summary, the subject neighborhood is an established commercial node that serves the surrounding residential and tourist base. U.S. Highway 40 is the major arterial in town, with most retail and office uses located along this corridor. The area has experienced steady growth for the past two decades, and there is very limited vacant land available for future development. The subject neighborhood is considered to be stable and affluent, and benefits from its proximity to the ski area. The anticipated trend is residential and commercial construction on infill sites, but current weak market conditions indicate that most development is not feasible at this time

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