Appendix L Market Analysis Report PREPARED FOR: WAIKO INDUSTRIAL INVESTMENT, LLC C/O MR. CHARLES JENCKS Pacific Rim Land, Inc. P.O Box 220 Kihei, Hawaii 96753 EFFECTIVE DATE: March 15, 2011 A MARKET STUDY OF THE PROPOSED WAIKO INDUSTRIAL PARK, WAILUKU, ISLAND OF MAUI, HAWAII A Real Estate Appraisal, Research & Advisory Group March 29, 2011 11-9028 Waiko Industrial Investment, LLC c/o Mr. Charles Jencks Pacific Rim Land, Inc. P.O. Box 220 Kihei, Hawaii 96753 Re: Market Analysis for the proposed Waiko Industrial Park in Wailuku, Island and County of Maui Dear Mr. Jencks: In accordance with your request, we have inspected the above-referenced property in order to provide a defined scope market study for the proposed Waiko Industrial Park in Wailuku, Island and County of Maui. This counseling report, and the conclusions herein, is based on the on-site inspection of the property, a study of current political and economic conditions, and a historical review of the real estate market in Central Maui and on Maui overall. The effective date of this report is March 15, 2011. The subject consists of approximately 31.222 acres of land and is currently zoned Agricultural District. Its Community Plan classification is Agricultural (AG). The project, which is still in its preliminary planning stage, will consist of 38 light industrial lots off Waiko Road, in an area that currently contains other industrial and agricultural uses. A portion of the subject site is presently utilized as an industrial baseyard authorized by a Conditional Permit which expires on March 1, 2014. The assignment will include the following: Market Analysis – The Consultant agrees to provide a market analysis for this proposed project by (1) defining and delineating the market area; (2) identifying and analyzing the current supply and demand conditions that comprise the specific real estate market segment; and (3) identifying, measuring and forecasting the effect of anticipated developments or other changes on future supply of each market segment; and (4) to the extent possible, forecasting the effect of anticipated economic or other changes on future demand. Economic Impact – The Consultant agrees to provide a basic economic impact report estimating the general and specific economic effects arising from the development of the proposed subdivision. This report would likely address estimated construction costs for the land, the sale of individual lots, and costs for building construction, employment creation, and ongoing business operation. It will also briefly address fiscal benefits such as state income tax, general excise tax, and real property tax. 2073 Wells Street, Suite 100 Wailuku, Maui, HI 96793 Telephone: (808) 242-6481 Fax: (808) 242-1852 Mr. Charles Jencks March 29, 2011 Page 2 The following report presents a narrative review of the study and our analysis of data along with other pertinent materials on which this report is predicated. It contains data and exhibits gathered in our investigations, and will include a description of the analytical process and our conclusions, as of March 15, 2011. Thank you for allowing us the opportunity to work on this interesting assignment. Respectfully submitted, ACM Consultants, Inc. __________________________ Glenn K. Kunihisa, MAI, CRE Certified General Appraiser, State of Hawaii, CGA-039 Expiration: December 31, 2011 ACM Consultants, Inc. Waiko Industrial Park, Wailuku, Maui TABLE OF CONTENTS Page PART I – INTRODUCTION..........................................................................................................ii A. EXECUTIVE SUMMARY....................................................................................................ii B. PURPOSE OF THE REPORT...............................................................................................v C. INTENDED USE OF THE REPORT ......................................................................................v D. INTENDED USER OF THE REPORT....................................................................................v E. SCOPE OF THE REPORT....................................................................................................v F. STATEMENT OF COMPETENCY.........................................................................................v G. EXTRAORDINARY ASSUMPTIONS AND HYPOTHETICAL CONDITIONS........................vi H. CONFIDENTIALITY PROVISION......................................................................................vi I. CERTIFICATION...............................................................................................................vii PART II – FACTUAL DATA.........................................................................................................1 A. REGIONAL DATA - MAUI COUNTY.................................................................................1 B. NEIGHBORHOOD DESCRIPTION....................................................................................17 C. PROJECT DATA..............................................................................................................25 PART III – ANALYSIS AND CONCLUSION...............................................................................31 A. MARKET STUDY.............................................................................................................31 B. CONCLUSIONS...............................................................................................................52 PART III. ECONOMIC IMPACTS OF THE PROPOSED DEVELOPMENT.....................................56 PART IV - EXHIBITS AND ADDENDA EXHIBITS Exhibit A Photographs of the Subject Exhibit B Claritas Demographic Data Exhibit C Maps of the Industrial Subdivisions in Central Maui ADDENDA Definitions Limiting and Contingent Conditions Qualifications of the Consultant TABLES Table 1 – REAL PROPERTY TAX AND ASSESSMENTS.............................................................................26 Table 2 – SUMMARY OF COMMERCIAL AND INDUSTRIAL DEVELOPMENTS ON MAUI................33 Table 3 – POPULATION TO LAND AREA IN COMMERCIAL/INDUSTRIAL PARKS.............................43 Table 4 – HISTORICAL TREND OF 30 YEAR, FIXED MORTGAGE RATES............................................44 Table 5 – ABSORPTION OF INDUSTRIAL LAND (1991-2011).............................................................51 ACM Consultants, Inc. Waiko Industrial Park, Wailuku, Maui PART I – INTRODUCTION A. EXECUTIVE SUMMARY Background The Waiko Industrial Park is a proposed 38-lot, light industrial subdivision situated on Waiko Road between Kuihelani and Honoapiilani Highways, in Waikapu, District of Wailuku, Island and County of Maui. The subject consists of approximately 31.222 acres of agricultural- zoned land. The Wailuku-Kahului Community Plan designates this site as Agricultural (AG). It is anticipated that the project, which is still in its preliminary planning stage, will have industrial lots ranging from 9,536 square feet to 8.43 acres in size. The majority of the inventory, approximately 28 lots, will be less than 15,000 square feet in size; another 7 lots will range from about 20,000 to 35,000 square feet; and 3 lots will be between 1 and 2 acres in size. There will also be one, 8.43 acre lot, which will be situated at the eastern portion of the site near the Waiko Road and Kuihelani Highway intersection. In seeking the change to Urban and Light Industrial classifications, the applicant is attempting to seek conformity with the present utilization of the site, as well as with a few of the surrounding uses. Study Objectives ACM Consultants, Inc. has been retained by Waiko Industrial Investment, LLC to analyze the Central Maui industrial market as it relates to this proposed project. In particular, we studied economic trends and demographics, and supply and demand factors for industrial property. In the process, we have gathered as much information as possible on industrial real estate sales on Maui and, more specifically, in the Wailuku-Kahului region. Specific attention has been paid to industrial land ownership, the availability of vacant parcels, and the future supply of additional industrial land. The objectives of our study were as follows: (1) to define and delineate the market area; (2) to identify and analyze the current supply and demand conditions specific to the subject’s market; (3) identify, measure and forecast the effect of anticipated developments or other factors on future supply; and (4) forecast the effect of anticipated economic or other factors on future demand. Key Supply Factors The following points summarize the supply of industrial land in the Central Maui region at this time. (cid:137) The majority of the industrial land in Central Maui is provided by five subdivisions in Wailuku and six other subdivisions in Kahului. There is a total of about 549 gross acres of land in these projects. ii ACM Consultants, Inc. Waiko Industrial Park, Wailuku, Maui (cid:137) In interviewing Realtors and property owners, there is a distinction made among them between vacant land and available land. In other words, although the land is vacant, it may not be available for purchase by the market because the property owner has near-term development plans. Therefore, although there appears to be numerous vacant lots in the Consolidated Baseyards Subdivision and Waiko Baseyard Subdivision, most of them have development plans and are not available to the market. (cid:137) There are approximately 48.18 acres of industrial land available in the Central Maui subdivisions. Another 8.85 acres are available in other free-standing parcels. (cid:137) There are 69 industrial parcels totaling 34.99 acres currently listed for sale; the majority, or 32.77 acres, is situated within the Maui Lani Village Center. (cid:137) Including the subject, approximately 235 acres of light industrial land are proposed for Central Maui. Proposed industrial developments in the Central Maui region, aside from the subject, include the Maui Business Park, Phase II (179 acres), Waikapu Light Industrial (9 acres), and the light industrial segment of Waiale Master Plan Development (16.3 acres). (cid:137) The most imminent of the proposed developments is the Maui Business Park Phase II. With construction expected to begin in mid-2011, build-out of the entire project is expected to expand over the next 10 to 15 years. Key Demand Factors The following points summarize the demand of real estate in the Central Maui region at this time. (cid:137) Population in Maui County between 2000 and 2010 grew by 20.12 percent to 154,834. The Central Maui region has the largest populace with approximately 32 percent of the total population. Increasing population must be followed with the availability of commercial and industrial establishments to support the growth. (cid:137) Central Maui is the hub of commerce, transportation and employment on Maui. It currently has approximately 83 percent of all industrial land on Maui. (cid:137) Central Maui has the highest number of employees of all regions on Maui and the combined payroll dollars of Wailuku- iii ACM Consultants, Inc. Waiko Industrial Park, Wailuku, Maui Kahului surpass all other regions of Maui County. (cid:137) Although Central Maui has the lowest ratio of population to acres of finished commercial and industrial land area, unit prices remain comparable to commercial and industrial parks in South Maui and West Maui. This would indicate the continued demand for commercial and industrial land in Central Maui. (cid:137) Although the deficient sales activity in Central Maui can partially be attributed to softened market conditions, there is also a lack of suitable vacant land available for purchase. Vacant land prices in Central Maui have decreased, similar to all commercial and industrial areas on Maui. Upon economic recovery, prices are expected to rebound significantly, due to resurgence in demand. (cid:137) Rental rates for commercial and industrial space have declined since their peaks in 2007. Based on historical performance in this region, it can be assumed that this trend will reverse course as the economy gains traction. (cid:137) Since 1991, there has been a total of about 174.74 acres of new industrial land in Central Maui absorbed in the Central Maui subdivisions. This equates to about 8.74 acres per year. iv ACM Consultants, Inc. Waiko Industrial Park, Wailuku, Maui B. PURPOSE OF THE REPORT The purpose of this report, as of March 15, 2011, is to generate a market analysis and economic impact report with respect to the proposed Waiko Industrial Park. C. INTENDED USE OF THE REPORT The intended use or function of this report is to provide real property information and real estate market data in support of an Environmental Impact Statement, a State Land Use District Boundary Amendment, a change in County of Maui Zoning, and a Wailuku- Kahului Community Plan Amendment. D. INTENDED USER OF THE REPORT The intended users of this report are Waiko Industrial Investment, LLC and the appropriate State and County agencies involved in the proposed land use changes. E. SCOPE OF THE REPORT The Consultant has agreed to provide a current Market Analysis of this project by (1) defining and delineating the market area; (2) identifying and analyzing the current supply and demand conditions that make up the specific real estate market; and (3) identifying, measuring and forecasting the effect of anticipated developments or other changes on future supply; and (4) to the extent possible, forecasting the effect of anticipated economic or other changes on future demand. The market analysis will be developed and prepared in conformity with, and subject to, the requirements of the Code of Professional Ethics and the Standards of Appraisal Practice of the Appraisal Institute, and the Uniform Standards of Professional Appraisal Practice. Furthermore, the Consultant also agreed to provide a basic Economic Impact Report estimating the general and specific economic effects arising from the development of the proposed subdivision. F. STATEMENT OF COMPETENCY ACM Consultants, Inc. has been actively involved in the real estate appraisal research and consulting business since 1982. Our business emphasis has focused mainly on the counseling and valuation of residential and commercial properties located within the State of Hawaii. The company considers itself competent to conduct a market v ACM Consultants, Inc. Waiko Industrial Park, Wailuku, Maui study for a proposed industrial project in Wailuku, Island and County of Maui. G. EXTRAORDINARY ASSUMPTIONS AND HYPOTHETICAL CONDITIONS 1. As of March 2011, the subject was still in the preliminary stages of planning. A Conceptual Plan prepared by Otomo Engineering, dated February 25, 2011, provided a visual indication of the proposed layout of the development. The consultant is not liable for any changes in the project plan past this date, nor for information that has not been developed, released or communicated to the Consultant. 2. The Consultant has no control over economic conditions and other international events that could have an affect upon Hawaii’s economy and the Maui real estate market. As a result, this report has not made any assumptions regarding potential conflicts with other nations, or external factors affecting economic conditions here. 3. The counseling report is also subject to standard "Limiting and Contingent Conditions" located in the Addenda. H. CONFIDENTIALITY PROVISION The contents of this market study are confidential. Release of this counseling report by ACM Consultants, Inc. is limited to you for the intended uses stated above. Any further release of this report, or portions herein, is strictly prohibited and you shall accept the risk and liability for any such release without the previous written consent of ACM Consultants, Inc. Further, you shall indemnify and defend ACM Consultants, Inc., and its individual consultants/appraisers, from any claims arising out of any such unauthorized disclosure. vi