REAL ESTATE APPRAISAL REVIEW OF PI CBRE, Inc. Appraisal Valuation Impact Appraisal On Properties Located at 54 Grapevine Road and 31 Essex Street Wenham, Massachusetts Date of Opinion: March 8, 2015 Date of Report: March 10, 2015 Colliers File #: J150149 Date of Appraisal Review: March 23, 2015 PREPARED FOR PREPARED BY COLLIERS INTERNATIONAL Brad Greenstein VALUATION & ADVISORY SERVICES Executive Director, New England Region Recovery Centers of America 2701 Renaissance Blvd, Fourth floor King of Prussia PA 19406 2701 Renaissance Blvd, Fourth floor King of Prussia PA 19406 Colliers International Valuation & Advisory Services, and certain of its subsidiaries, is an independently owned and operated business and a member firm of Colliers International Property Consultants, an affiliation of independent companies with over 500+ offices throughout more than 62 countries worldwide. COLLIERS INTERNATIONAL VALUATION & ADVISORY SERVICES 160 FEDERAL STREET BOSTON, MA 02110 MAIN +1 330-8000 FAX +1 330-8129 WEB www.colliers.com March 23, 2015 Mr. Brad Greenstein Executive Director, New England Region Recovery Centers of America 2701 Renaissance Blvd, Fourth floor King of Prussia, PA 19406 [email protected] RE: Real Estate Appraisal Review CB Richard Ellis Appraisal Valuation Impacts Due to the Conversion of Penguin Hall to Abutting Property at 54 Grapevine Road and 31 Essex Street, Wenham, Massachusetts Dear Mr. Greenstein: Pursuant to your request, we hereby submit our appraisal review of the report prepared by Webster A. Collins, MAI, CRE, FRICS, Executive Vice President/Partner of CBRE, Inc. The CBRE report is further identified as: Valuation Impacts of Conversion of Penguin Hall to a Drug and Alcohol Recovery Center Abutting 54 Grapevine Road and Across From 31 Essex Street Wenham, Essex County, Massachusetts Prepared for Mrs. Joan Lovejoy and Mr. David Fehnel and Ms. Andrea Gabriel c/o Mr. Jere Moroney 116 Grapevine Road Wenham, Massachusetts Value Date March 8, 2015 Colliers International Valuation & Advisory Services, and certain of its subsidiaries, is an independently owned and operated business and a member firm of Colliers International Property Consultants, an affiliation of independent companies with over 500+ offices throughout more than 62 countries worldwide Mr. Brad Greenstein March 23, 2015 Page 2 Our review report has been completed in conformance with best practices of Uniform Standards of Professional Practice (USPAP) as defined by Standard 3. The purpose of our review appraisal is to render an opinion as to whether the CBRE report was prepared in compliance with the Uniform Standards of Professional Practice (USPAP) and, whether CBRE’s opinion of diminution of value is reasonable and supportable. Our report will detail whether the CBRE report has: 1. Been prepared in compliance with the Uniform Standards of Professional Practice (USPAP) in form and analysis. 2. Established a foundation for value diminution that will be triggered by the repurposing of Penguin Hall to a Drug and Alcohol Recovery Center. 3. Reasonably supported a 22% diminution in value attributable to 54 Grapevine Road and 31 Essex Street through a case study analysis of Falmouth transactions. CONCLUSION OF OUR REVIEW Based on our appraisal review of the CBRE report, it is our opinion that while the report does comply with USPAP in form, the report does not present a supportable analysis that justifies their conclusion of value diminution and has inaccurately analyzed Falmouth sales that formed their basis of a 22% value loss to 54 Grapevine Road and across from 31 Essex Street. For these reasons, the report should not be relied upon with regard to their concluded opinion of diminution in value. The following report outlines the basis of our opinion. BACKGROUND The Recovery Centers of America (hereinafter RCA) is proposing to occupy the real estate known as Penguin Hall located at 36 Essex Street in Wenham, Massachusetts, after it undertakes a repurposing construction project of the former office use into a Drug and Alcohol Recovery Center. The CBRE appraisal information is as follows: Property Address: 36 Essex Street, Wenham, Massachusetts Property Type: Estate containing 48 acres of land; its prior use was an office building by Mullen Advertising under Special Permit. The building contains 105,000 square feet of floor area. Proposed Use/Conversion: 158-219-bed rehabilitation and recovery center. Appraiser: Webster Collins, MAI Mr. Brad Greenstein March 23, 2015 Page 3 Client: Mrs. Joan Lovejoy & Mr. David Fehnel and Ms. Andrea Gabriel (abutter and nearby abutter, respectively). Intended Users: All parties involved with the private pay substance abuse recovery facility proposed at 36 Essex Street. Purpose of Appraisal: Diminution of value relating to the proposed repurposing of Penguin Hall (36 Essex Street). Ownership Interest: Diminution in Value estimate Date of Appraisal Report: March 10, 2015 Date of Opinion: March 8, 2015 Inspection: Webster Collins fails to identify an inspection date in his report—presumably the date of value March 8, 20151 Extraordinary Assumptions None stated Hypothetical Conditions: None stated CBRE Market Value Opinion: 22% diminution of value to 54 Grapevine Road and 31 Essex Street in Wenham2 This Collier’s review appraisal has been completed to assist you in determining the reasonableness of Mr. Collin’s estimate of diminution of value resulting from the proposed conversion of Penguin Hall to a Drug and Alcohol Recovery Center. Our review appraisal is based on the following: Review Appraisers: Robert P. LaPorte, Jr., MAI, CRE & Sandra J. Driscoll, MAI Client: Brad Greenstein, Executive Director, NE Region, Recovery Centers of America Intended Users: Our client, Recovery Centers of America, and the attorneys representing our client. Our report will be submitted to the Town of Wenham as part of our client’s documents related to the town’s ZBA hearing on this matter. Date of Review Report: March 23, 2015 1 Mr. Collins, on page 3, states the exterior inspection consisted “walking the lot” which we feel is unlikely due to the significant (100 inches) snow fall during February and into March 2015. 2 CBRE appraisal also values the property at 31 Essex Street and relies on the value estimate of 54 Grapevine Road—we have not evaluated or checked for reasonableness the market value opinions of these dwellings. The purpose of this review appraisal is to estimate the reasonableness of Mr. Collins 22% diminution of value opinion. Mr. Brad Greenstein March 23, 2015 Page 4 Date of Inspection: March 21, 2015 (Penguin Hall, 31 Essex Street exterior and tour of neighborhood) by Robert P. LaPorte Jr. On March 20, 2015, Sandra J. Driscoll viewed the Falmouth, Massachusetts case study (Gosnold-Miller House) which CBRE relies upon and all of their Falmouth comparable sale data and respective neighborhoods. Scope of Work: We have inspected the exterior of Penguin Hall and viewed the subject neighborhood. Additionally, we also reviewed the Penguin Hall Marketing Package as well as the documentation relating to the proposed repurposing of Penguin Hall to include: Special Permit documentation, Traffic Impact Peer Review, water and fire supply studies, and effluent studies. We inspected the neighborhood of the Falmouth case study and all comparable sales used by CBRE. We researched background information on the CBRE case study, the CBRE comparable sales and confirmed the sale of 163 Woods Hole Road—which resulted in our elimination of CBRE’s paired sale analysis of Sales 1 through 3. We reviewed the CBRE appraisal for compliance with USPAP and reviewed the CBRE valuation based on matched pair sales3. Finally, the review appraisers have prepared this Appraisal Review Report. This Review Appraisal relies on the sales used in the CBRE appraisal. We did not verify this information with parties of the sale other than Sale 1. We did, however, review CBRE information with additional sources in the Town of Falmouth as well as the Multiple Listing Service (MLS) listing sheets. Hypothetical/Extraordinary Assumptions: None. Compliance: This review appraisal has been completed under the Uniform Standards of Professional Appraisal Practice (USPAP) Standard 3 for 2014-2015. 3 Sales 1 through 3 were eliminated due to inconsistent uses of the matched sales. Mr. Brad Greenstein March 23, 2015 Page 5 The CBRE fails to appropriately analyze and compare existing to proposed conditions in order to form a basis for diminution in value. For the purpose of our review, we have compared the existing conditions to the proposed conditions and this information is summarized as follows: EXISTING CONDITIONS: Penguin Hall is a 48.6 acre parcel of land improved a 105,000 square foot, former estate building converted to commercial uses in 1975. The original building was constructed as a summer manor home in 1929 and, in 1962, the property was purchased by the Archdiocese of Boston for a novitiate and later a retirement home for the Sisters of Notre Dame of Namur. Commercial Union Insurance acquired the property in 1975 for use as a conference facility and in May of 1979, obtained a Special Permit for this non-conforming use. In 1987 Commercial Union Insurance sold the Property to Jim Mullen for use as the headquarters for Mullen Communications, an advertising, public relations and marketing company. In August of 1987, Mullen obtained a Special Permit allowing a change in the non-conforming use of the property from the conference facility to one owner/occupant business carrying on general business, office and professional offices. The Special Permit allowed up to sixty employees to occupy the Property. In granting the 1987 Special Permit, the Board found that under MGL c. 40A 6, it could “permit any non-conforming use to be changed to any specified use not substantially different in character or more detrimental” to the neighborhood than the then-existing non- conforming use. The Board found that the Property was an appropriate location for the office use proposed by Mullen and that the use would not adversely affect the neighborhood. Additionally, the Board found that the office use was not substantially different in character or more detrimental to the neighborhood as the existing building was out of sight of the road. The 1987 Special Permit was substantially amended on a number of occasions as Mullen expanded the business. Most recently, the Board amended the Special Permit on June 6, 2001 to allow for up to 500 employees at the Property and up to 480 parking spaces (450 employees and 30 visitor spaces). This substantial increase from the original sixty employees was again found to be not substantially different in character or more detrimental to the neighborhood. In 1978, the company added another 40,000 square feet of contemporary space. Mullen relocated to Boston in 2009. The property is presently vacant. PROPOSED REPURPOSE OF PROPERTY:  Improvements: The existing structure will be converted into a 219-bed facility. No exterior change to the building will occur.  Application for Special Permit: Filed July 17, 2014 by RCA relating to changes in Non-conforming Uses; change the present, non-conforming use of the Property from one owner/occupant business carrying on general business, office and professional uses to a Substance Abuse Center or a Non-Exempt, Educational Facility. The February 20, 2015 letter from Nutter to the Wenham Zoning Board of Appeals provides a complete record of the materials Mr. Brad Greenstein March 23, 2015 Page 6 submitted to the Board (as of February 20, 2015); provides an overview of these materials; and responds to the questions posed by the Board at the hearings on this matter as well as questions raised by the Town in a meeting with RCA on February 12, 2015.4  Infrastructure Improvements: Water Supply: the existing system will be abandoned and replaced with a new system providing adequate flow (volume) and pressure for domestic and fire protection needs. Proposed construction of a glass-fused-to-steel tank  Sanitary Disposal: A new, privately-owned wastewater treatment facility will be constructed. A Titan MBR Factory Built Membrane Bioreactor Treatment Plant was recommended by the Massachusetts Department of Environmental Protection as part of the approval of the Hydrogeological Evaluation Report dated October 20, 2011.  Effluent Issue Concern: Inquiries relating to the potential effluent containing residual drugs that could potentially impact the Longham Reservoir were studied in a November 2014 report by Hayes Engineering. The Proposed Rehabilitation Center will follow the Detoxification and Maintenance Treatment of Opiate Dependence Treatment Standards in 42 CFR Section 8.12. Hayes Engineering concludes that “the proposed reuse of the former Mullen Advertising facility to the Rehabilitation Complex will have little impact to the surrounding groundwater as a result of the new use.”5  Traffic Concerns: The estimated project traffic added to the roadway network will still provide acceptable levels of service at area intersections as conclude by Fay Spofford & Thorndike (FST)6, project as proposed, The Town of Wenham contracted with FST to conduct a traffic/transportation peer review of the traffic, pedestrian and circulation impacts related to the proposed reuse of the Penguin Hall.  Safety: RCA and CD will work transparently with Town public safety agencies, elected and appointed officials and neighborhood and community groups. o RCA has retained security consultants to assist in developing a Security Plan to the Town. o A comprehensive training and certification program will be developed in conformance with local and state regulations. 4 See Attachment 1. 5 Page 3 of transmittal letter of Memorandum to Town of Wenham Zoning Board of Appeals from William R. Bergeron, P.E.[Hayes Engineering] dated November 4, 2014 6 September 24, 2014 Memorandum to Ms. Emilie Cademartori, Town Planner/Wenham Zoning board of Appeals from Douglas C. Prentiss, P.E. PTOE regarding traffic Impact Peer Review of Penguin Hall RE-Use, 36 Essex Street, Wenham, Massachusetts. Mr. Brad Greenstein March 23, 2015 Page 7 o RCA and CD will seek advice and input from the local Police Chief and Fire Chief in developing security systems and protocols. o The facility will ensure that RCA security personnel and systems do not adversely impact local Police and Fire Department Operations and to operate so as to limit impacts on Town Resources. o State of the art fire alarm and fire suppression systems will be installed throughout the facility and will conform to all state and local regulations and codes. o RCA will work in conjunction with local Fire Chief to develop a system to prevent false alarms. o RCA will be staffed similar to that of a hospital 365 days a year; in house security staff will address any safety situation. o Transportation of patients to an emergency room or other medical facility will be provided by individuals under contract to RCA. o RCA will employ a Chief of Security who will meet regularly with Police Department; o RCA has established patient admission criterion that ensures the safety and well- being of employees and all other persons entering their inpatient programs. o RCA facility will provide security through fencing and controlled gate access. RCA will endeavor to obscure all fencing with appropriate landscaping; state-of-the-art security and TV monitoring will be utilized. CBRE APPRAISAL ADDRESSING EXISTING CONDITIONS TO PROPOSED CONDITIONS The CBRE report fails to articulate the comparison of existing conditions to the proposed conditions that become the basis of their 22% diminution in value. The CBRE report describes the proposed use of Penguin Hall as an “impairment".[and]... conflicting use in a residential area” Further CBRE states:7 “Interview of market participants in Wenham indicates light usage and nominal, if any impact on the town of Wenham by Mullen’s office use. The planned change of use elevates the level of services within the structure. The March 1, 2015 article in Section B of the Philadelphia Inquirer featuring RCA’s plans suggests that within Pennsylvania alone, clinics proposed by the developer will be averaging over 865 patients per year. A far more intense use than by Mullen Advertising. The planned change of use is for a 158-219 bed rehabilitation and recovery center planned as part of a start-up called Recovery Center of America.” “54 Grapevine Road abuts to the west. The facility of the Sisters of Notre Dame abut to the north, and to the east, 31 Essex Street is across the street from the entrance of 36 Essex Street. The principle of balance is maintained until a nuisance is introduced into a market area. Nuisance is a defined real estate term: 7 Page 3 of the CBRE report Mr. Brad Greenstein March 23, 2015 Page 8 “NUISANCE: a land use whose associated activities are incompatible with surrounding land uses. Example: Zoning laws and private deed restrictions are used to prevent the development of nuisances, such as: • Activities that produce noxious fumes or air pollution in residential areas; • Commercial uses that generate large volumes of automobile traffic in residential areas; • Junkyards in highly visible areas; • Activities considered socially offensive, such as sale of pornographic materials, in residential areas.” Further in the report, CBRE states…. When these tests fail, stigma is created: “STIGMA: an adverse public perception regarding a property; the identification of a property with conditions… that exacts a penalty on the marketability of the property and may also result in a diminution in value.” The reviewers are not persuaded as the CBRE report does not clearly identify any basis for the existence of a nuisance nor the resulting stigma caused by the repurposing of the property. There is no comparison of existing conditions to proposed conditions as this review report summarized earlier. Clearly, the criterion of nuisance cited above is not met but appears to be alleged in the appraisal. The comparison of total patients over the course of a year (the report states this to be hundreds per year) has relevance to a 500 per day employee count that the previous use maintained at the property. In our opinion, the office use is far more intensive compared to the proposed treatment facility—especially with regard to traffic. Additionally, with regard to CBRE’s Falmouth case study, we interviewed the Town of Falmouth Building Department; they reviewed their files and reported that there have been no complaints on record from abutters or others about the Gosnold-Miller House. Additionally the review appraisers noted a new house was constructed in 2011 on a parcel of land abutting the Woods Hole Sea Education facility in Falmouth. This house is assessed for $1.15 million and the Sea Education Facility can be seen from the home at least during winter months.8 The CBRE report also states: “The imposition of the drug and alcohol recovery center is akin to the imposition of a Chapter 40B project in a private residential area, though with potentially additional 8 This property is 172 Shearwater Way. We viewed the property from the Way; the home is set down on the site adjacent to a pond and from our observations it appears the home has clear view of the Sea Education facility during the winter months. Mr. Brad Greenstein March 23, 2015 Page 9 adverse impacts stemming from the ongoing influx of hundreds of new patients each year with each patient staying for duration of up to 60 days.” MIT performed a study9 dated April 2005 of 40B developments and the question of neighborhood value impacts. Their study concluded in part: “The empirical analysis for each of the seven cases indicated that the sales price indexes for the impact areas move essentially identically with the price indexes of the control areas before, during and after the introduction of a 40B development. We find that large, dense, multi-family rental developments made possible by Chapter 40B do not negatively impact the sale price of nearby single-family homes. Our findings are transferable to similar developments in towns such as the ones studied.” Clearly, the CBRE conclusions and statements as to stigma are without basis. USPAP COMPLIANCE After our review of the CBRE report, it appears that their report is compliant with the reporting requirements. As will follow, it is our opinion that the CBRE paired sale analysis was not correctly completed. CBRE’s basis for a 22% diminution in value relies on a paired-sale analysis of properties located in Falmouth. CBRE relies on a case study of the Gosnold-Miller House, an in-patient rehabilitation facility for men located at 165 Woods Hole Road (Route 28) in Falmouth, Massachusetts. The facility has been in operation since 197510. CBRE incorrectly states the property has been operating since 2007 and fails to acknowledge that the facility is abutted on either side by the Sea Education Association, 173 Woods Hole Road and the Woods Hole Research Center located at 149 & 163 Woods Hole Road.11 These organizations are separate entities. The immediate area of the Gosnold-Miller property is considered to be office/institutional with residential neighborhoods abutting these institutional users. The previous photograph of the Gosnold-Miller House was been obtained from the Gosnold- Miller web site. 9 MIT CENTER FOR REAL ESTATE HOUSING AFFORDABILITY EFFECTS OF MIXED-INCOME, MULTI-FAMILY RENTAL HOUSING DEVELOPMENTS ON SINGLE-FAMILY HOUSING VALUES April 2005 10 The facility applied for a special permit on September 1974; the Special Permit was granted (Permit Number 2617). Gosnold Inc. purchased the property at 165 Woods Hole Road on June 26, 1975). This property is a former manor home which was repurposed by Gosnold. 11 Also former manor homes, both expanded with multi-level institutional structures.