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Real Estate Market Research and Residual Land Value Analysis
for Programming the Reuse and Development of the Cal Expo Fairgrounds Site

Client: California Exposition and Fair Authority and California Construction Authority
dashed line separator Gruen Gruen + Associates (GG+A) served as the market analysts, real estate economists, and financial analysts on a consulting team charged with evaluating a complex proposal submitted by a developer team that would involve the relocation of the Cal Expo fairgrounds to the current site of the Sacramento Kings basketball team and the purchase, resale and redevelopment of the existing 350-acre Cal Expo site. GG+A contributed significantly to the analysis of the developerís proposed development program, financing mechanisms and sources. GG+A identified the risks and potential returns associated with the proposed transaction and alternative options. GG+A also identified the opportunity to update and modernize the Cal Expo fairground facilities through the reuse of a portion of its existing site for complementary, non-fair private uses. The results of the market research and real estate economic analysis summarized below were used to evaluate the developerís proposal, including its land use development program and valuations and to prepare an alternative land use plan and estimate of obtainable value for the reuse of a portion of the Cal Expo site.

GG+A identified the demand potential for office and retail uses for the Cal Expo site given present and forecast future market and economic conditions and the competitive position of the Site. GG+A drew conclusions about the developerís proposal in terms of the amount of office and retail space the developer proposed to develop, the timing of the development and the prices the developer anticipated for the land needed to site office and retail uses. GG+A conducted field research and interviews with real estate brokers, office and retail developers, office building owners and local retail store managers and property owners directed toward gaining information and insights needed to: (a) define the relevant primary market areas; (b) identify the likely origins and types of prospective users; (c) the alternative locations prospective users will consider; and (d) the relative advantages and disadvantages of the site as an office and retail location. GG+A identified the siteís competitive position within the relevant primary market areas for office and retail uses. GG+A reviewed office space and retail space supply alternatives and relevant submarket trends.

GG+A forecast the demand for office space by utilizing an employment forecast by economic sector and converting the forecast of employment change into a forecast of office space demand based on the space use characteristics of occupational groups within economic sectors. GG+A synthesized the tasks to forecast the potential for the site to capture demand for office space, and future rental rates that would apply to office space development at the site. GG+A identified retail demand, in terms of available dollars from residents and workers in the relevant market area for the purchase of retail goods and services and converted estimated retail demand into estimates of the amount of retail space the identified demand could support. We then compared the estimated supportable space within the identified market area to the estimated supply of retail space. We made judgments about the relative intensity of competition for the sales dollars of consumers and the potential for new retail space to be supported at the Cal Expo site. GG+A recommended a retail development and tenanting program and estimated obtainable rents for such retail space. GG+A evaluated the retail component of the developerís proposal in light of its independent analysis.

GG+A also conducted research to estimate the potential demand for market-rate housing uses at the Cal Expo site. GG+A completed primary and secondary research to identify, assess, and estimate (a) the relevant geographic markets from which households will be attracted and potential competing supply options; (b) the factors motivating housing decisions and the advantages and disadvantages that apply to the Cal Expo site as a housing location; (c) the primary characteristics of likely sources of demand for housing and the number of existing ďtargetĒ households in the postulated primary and secondary market areas; (d) the amount of households induced to locate in the market area; (e) the pricing and absorption characteristics and product and locational attributes of active or newer housing developments in relevant neighborhoods; (f) pricing trends for the resale of existing housing units and a ladder of neighborhood pricing as well as pricing for new units relative to existing housing units; and (g) potential future supply competition. GG+A synthesized the work outlined above to estimate the share and rate of potential demand for housing the Cal Expo site could capture and to estimate obtainable pricing for three recommended product types.

GG+A synthesized the results of the market research and analysis to complete a residual land value analysis to estimate the value of the reuse of 125 acres of the Cal Expo site recommended to be allocated for 500,000-square-foot hybrid power center on approximately 40 acres of land; and detached single-family, two-story row homes and traditional homes; detached single-family, single-story cottages; and attached town homes. Cost estimates reflect the results of interviews with developers and builders and City of Sacramento. Capital markets parameters were drawn from review of secondary sources and interviews with representatives of financial institutions and capital markets participants.

In addition to the technical analysis and preparation of five reports, GG+A participated in meetings with Cal Expo staff, the developer team and presentations to the Cal Expo Board. The Cal Expo Board of Directors accepted the consultantís teams, findings, conclusions and recommendations and elected to discontinue participation in the proposed transaction. The Cal Expo Board directed the staff to begin pursuing the further planning and implementation of the partial disposition and reuse program identified by GG+A to fund upgrading of the fairgrounds at the existing site. GG+A is now working with Cal Expo to dispose of its surplus real estate and utilize land sale proceeds to fund improvements to the Fairground facilities.

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