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					                                                                                    James D. McCallum & Associates, Inc.

 Parcel No. 98950-RC1112-007                                                                                Project: RC1112

                                               CERTIFICATE OF APPRAISER
I certify that, to the best of my knowledge and belief:
 the statements of fact contained in this appraisal are true and correct;
 the reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conclusions, and
    are my personal, unbiased professional analyses, opinions, and conclusions;
 I have no present or prospective interest in the property that is the subject of this appraisal, and I have no personal interest or
    bias with respect to the parties involved;
 my compensation is not contingent upon the reporting of a predetermined value or direction that favors the cause of the
    client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event;
 my analyses, opinions, and conclusions were developed, and this appraisal has been prepared, in conformity with the
    Uniform Standards of Professional Appraisal Practice and the Uniform Appraisal Standards for Federal Land Acquisitions;
 I have made a personal inspection of the property that is the subject of this report. I have made a personal inspection of the
    comparable sales contained in the report addenda;
 I have afforded the owner or a designated representative of the property that is the subject of this appraisal the opportunity to
    accompany me on the inspection of the property.
 no one provided significant professional assistance to the person signing this report. (If there are exceptions, the name of
    each individual providing significant professional assistance must be stated);
 I have disregarded any increase in Fair Market Value caused by the proposed public improvement or its likelihood prior to
    the date of valuation. I have disregarded any decrease in Fair Market Value caused by the proposed public improvement or
    its likelihood prior to the date of valuation, except physical deterioration within the reasonable control of the owner;
 this appraisal has been made in conformity with the appropriate State and Federal laws and requirements, and complies with
    the contract between the agency and the appraiser;
The property has been appraised for its fair market value as though owned in fee simple, or as encumbered only by the existing
easements as described in the title report in the addenda.
The opinion of value expressed below is the result of, and is subject to the data and conditions described in detail in this report

I made a personal inspection of the property that is the subject of this report on August 17, 2006 and on subsequent dates.
The Date of Value for the property that is the subject of this appraisal is November 16, 2006 per the MARKET VALUE
definition herein, the value conclusions for the property that is the subject of this appraisal are on a cash basis and are:

MARKET VALUE BEFORE ACQUISITION                                         $

MARKET VALUE AFTER ACQUISITION                                          $

DIFFERENCE                                                                $

Name: James D. McCallum, MAI

Date Signed:                                                 Signature:

Washington State-certified general real estate appraiser certification number: 27011MC-CA-LJ-548BK

Date Signed:                                                 Signature:

Washington State registered real estate appraiser Trainee number: 1000476




I.                                    SUMMARY OF CONCLUSIONS
(Accounting tabulation - NOT indicative of appraisal method employed – minor rounding deviation due to calculator
place variables)
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INDICATED VALUE BEFORE ACQUISITION:
   Highest and Best Use: Rural Residential Homesite/Ag. Commercial
Land area                                          Unit Value
± sq ft                                         $/sq ft                            $

Contributory Improvements
Item                       Size/Type              Unit Value
N/A
TOTAL INDICATED VALUE                                                              $

INDICATED VALUE OF REMAINDER:
    Highest and Best Use: Rural Residential Homesite/Ag. Commercial
Land area                                           Unit Value
sq ft                                            $/sq ft                            $

Contributory Improvements
Item                       Size/Type              Unit Value
N/A

TOTAL INDICATED VALUE                                                               $


BREAKDOWN OF ACQUISITION:
Land area                                         Unit Value
sq ft                                           $/sq ft                                $
TOTAL LAND                                                                             $

Contributory Improvements
Type             Size                           Unit Value
N/A
TOTAL IMPROVEMENTS

DAMAGES
Item
None                                            TOTAL DAMAGES                          $   0

BENEFITS (Subtract)
Item
None                                             TOTAL BENEFITS                        $   0
        Difference Between the Before and After Values                                 $




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       APPRAISAL ASSUMPTIONS AND LIMITING CONDITIONS
  1. The property description supplied to the appraiser is assumed to be correct;
  2. No survey of the property has been made or reviewed by the appraiser, and no responsibility is
     assumed in connection with such matters. Illustrative material, including maps and plot plans,
     utilized in this report are included only to assist the reader in visualizing the property. Property
     dimensions and sizes are considered to be approximate;
  3. No responsibility is assumed for matters of a legal nature affecting title to the property, nor is any
     opinion of title rendered. Property titles are assumed to be good and merchantable unless otherwise
     stated;
  4. Information furnished by others is believed to be true, correct, and reliable. However, no
     responsibility for its accuracy is assumed by the appraiser;
  5. All mortgages, liens, encumbrances, leases, and servitudes have been disregarded unless so specified
     within the report. The property is assumed to under responsible, financially sound ownership and
     competent management;
  6. It is assumed that there are no hidden or unapparent conditions of the property, subsoil, or structures
     which would render the property more or less valuable. No responsibility is assumed for such
     conditions or for arranging for engineering studies which may be required to discover them;
  7. Unless otherwise stated in this report, the existence of hazardous material, which may or may not be
     present on the property, was not observed by the appraiser. However, the appraiser 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
     conclusions in this report are predicated on the assumption that there are no such materials on or in
     the property that would cause a loss of value. No responsibility is assumed for any such conditions,
     or for the expertise required to discover them. The client is urged to retain an expert in this field if
     desired. The analysis and value conclusions in this report are null and void should any hazardous
     material be discovered;
  8. Unless otherwise stated in this report, no environmental impact studies were either requested or
     made in conjunction with this report. The appraiser reserves the right to alter, amend, revise, or
     rescind any opinions of value based upon any subsequent environmental impact studies, research, or
     investigation;
  9. It is assumed that there is full compliance with all applicable federal, state. and local environmental
     regulations and laws unless noncompliance is specified, defined, and considered in this report;
 10. It is assumed that all applicable zoning and use regulations and restrictions have been complied with,
     unless non-conformity has been specified , defined and considered in this report;
 11. It is assumed that all required licenses, certificates of occupancy, consents, or other legislative or
     administrative authority from any local, state, or federal governmental or private entity or
     organization have been or can be obtained or renewed for any use on which the value estimate is
     based;
 12. The appraiser will not be required to give testimony or appear in court because of having made this
     report, unless arrangements have previously been made;
 13. 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 other than the client without the written consent of the
     appraiser, and in any event, only with properly written qualification and only in its entirety;
 14. Neither all nor any part of the contents of this report, or copy thereof, shall be conveyed to the public
     through advertising, public relations, news, sales, or any other media without written consent and
     approval of the appraiser. Nor shall the appraiser, client, firm, or professional organization of which
     the appraiser is a member be identified without the written consent of the appraiser;

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  15. The liability of the appraiser, employees, and subcontractors is limited to the client only. There is no
      accountability, obligation. or liability to any third party. If this report is placed in the hands of
      anyone other than the client, the client shall make such party aware of all limiting conditions and
      assumptions of the assignment and related discussions. The appraiser is in no way responsible for
      any costs incurred to discover or correct any deficiencies of the property;
  16. It is assumed that the public project which is the object of this report, will be constructed in the
      manner proposed and in the foreseeable future;
  17. Acceptance and/or use of this report constitutes acceptance of the foregoing assumptions and
      limiting conditions.

Special Assumptions and Limiting Conditions

The appraisal analysis assumes that all significant improvements situated within the right of way acquisition
area will be relocated onto the remaining land in a functionally equivalent position at no cost to the owner,
unless otherwise identified, discussed and specifically analyzed within the body of the report. Examples of
such improvements include mailboxes, power poles, fences, lampposts, etc. The report is also contingent on
the assumption, unless specifically noted and evaluated as a special consideration, that the road project at
completion will not result in any disruption of existing utility lines, drainage channels or septic drainfields
located within, or nearby, the right of way acquisition area(s). Further, the acquiring agency will restore all
ingress/egress connections (road or driveway) to the fronting streets in the after condition based on county
standards equal to or better than before condition, unless otherwise identified and analyzed within the body of
the report. The analysis assumes that any work to mitigate right of way impacts, either on or off site, will be
undertaken at the sole cost of the acquiring agency.




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                                      ASSIGNMENT OVERVIEW
Project Identification

The project is identified as the Granite Falls Alternate Route, a 2.1-mile, “restricted access” road, intended to
function as a by-pass link between SR-92 Hwy. and the Mountain Loop Hwy., looping north and east around
central Granite Falls in Snohomish County. The purpose of the project is to mitigate traffic and noise influence
associated with heavy truck traffic that will be generated by a major rock and gravel operation planned for
development northeasterly of Granite Falls. The new route will extend north off SR-92 Hwy. just west of the
city limits, then curve east to intersect the Mountain Loop Hwy. north of Gun Club Rd. The road corridor will
have a 100-ft right of way, incorporating several roundabouts (150-ft to 200-ft diameter) at key intersections;
one at SR-92 Hwy., a second at Burn Rd., and a third at the junction of Engebretson Rd., Jordan Rd., and
Bergan Rd. The alternate route will loop around the west and north edge of the new Granite Falls High School
campus, continuing east along the border of several new (residential) subdivisions and Mountain Way
Elementary School to terminate at a signalized intersection with the Mountain Loop Hwy. Post project
vehicular access to downtown Granite Falls (via SR-92 Hwy.) will be restricted to local residents and normal
business traffic.

As of the appraisal date, the proposed alternate route right of way is completely undeveloped, crossing over
and through more than 50 individual property ownerships. Layout and configuration of the route has been
complicated by difficult topography, with a number of plan revisions having occurred since project inception.
The alternate route will have access restrictions along its entire length, depending on sight lines, distance to
intersections/roundabouts and other factors; the analysis is based on the most recent plans and engineering
input regarding individual ownership impact(s); the appraiser reserves the right to review and amend the
valuation findings in the event of significant project changes subsequent to report publication.




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Subject Identification

The subject is located in the westerly portion of the project area, positioned about 1,200 feet north of SR-92
Hwy. at the west edge of Granite Falls, having frontage and access off Burn Rd. Three tax lots are impacted by
the right of way project (identified as Parcels 006, 007 and 009 on the project right-of-way plans, signed and
dated 8/8/08). These (3) parcels comprise about 49.10 acres out of an overall land holding totaling
approximately 92 contiguous acres, contained in five tax lots. Ownership is vested with YG3, LLC, a
development group represented by Mark S. Donner.

Summary of Appraisal Problem(s)

The appraisal is for right of way acquisition by Snohomish County in connection with the above-referenced
project. The three appraised tax lots (Project Parcels 006, 007 and 009) will be diminished in land area by a
(basic) 100-foot wide R/W strip extending north from a new “roundabout” intersection at Burn Rd. along the
west edge of Parcel 007, then curving northeast to cross through the northwest corner of Parcel 008 (under
different ownership) and the southeast corner of Parcel 009. A total right of way acquisition area is identified
at 429,708 sq ft according to project plans, including 2,337 sq ft in Parcel 006, 401,659 sq ft in Parcel 007 and
25,712 sq ft in Parcel 009. For valuation purposes, all three tax lots are incorporated into a single “larger
parcel” analyzed at 49.10 acres. Prior to implementation of the 2005 Snohomish County Comprehensive Plan
update, Parcel 007 was within the Granite Falls UGA, Parcel 006 was inside the 2025 UGA expansion area,
and Parcel 009 was positioned outside the UGA boundary, zoned R-5 basic (RUTA overlay). As a result of the
recent Suncrest Farms Annexation (BRB No. 18-2007) all three tax lots are now contained within the City of
Granite Falls. The implementing zoning under the Granite Falls Comprehensive Plan is R-7200. On this
basis, the 49.07-acre subject parcel has near-term subdivision development potential, contingent on sewer
extension after the moratorium is lifted. Phase 1 of the sewer upgrade is anticipated to be completed in 2008,
allowing for a limited (400+) number of new hookups, with Phase 2 expansion expected to come on line in
2009/2010, providing sufficient capacity for long-term growth needs.




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                                                              Total annexation site
                                                               area = 92.07 acres




                                        Suncrest Farms Annexation Map

In the “after” situation, two isolated areas are identified: one encompassing a large portion of Parcel 007 lying
south and easterly of the right of way corridor totaling 266,697 sq ft; and a second (smaller) area in the
southeast corner of Parcel 009 totaling approximately 4,170 sq ft. This latter piece is clearly unusable in the
“after” situation due to small, irregular shape and lack of access, considered an uneconomic remnant. The
southeasterly remainder on Parcel 007 features larger size and shape, although irregular, and is sufficient to
support independent development. However, limited access opportunities will be available off Burn Rd. at the
south margin due to proximity to the (roundabout) intersection, and access off the new alternate route at the
west border will be restricted. Moreover, providing sanitary sewer to the entire site in the after situation is
problematic; it is likely that the land lying west of the new truck route will require a sewer lift station and force
main. Consultation has been sought with the City of Granite Falls engineer (Warren Perkins) regarding
development potential, and an independent engineering analysis regarding potential lot yield in the “before”
and “after” situations has been provided by Triad Associates of Kirkland, WA.

Just compensation encompasses the value of the part taken, together with contributory improvements within
the right of way take impact area, plus damages and minus special benefits, if any. It is expressly assumed that
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all land improvements in the right of way will be restored in the “after” situation by the acquiring agency at
least equal to original condition and functionality, including sub-surface drainage and/or utility lines, fencing,
signage or other structures, unless specifically identified and discussed herein. Contributory landscaping
elements, if any, are to be evaluated by a landscape architect in a separate report. Highest and Best Use in the
before situation is for residential subdivision development in conjunction with adjoining land to the north and
west within the city limits. In the after situation, Highest and best use is the same, with some loss of density
potential associated with the right of way acquisition, with the exception of the very small (4,170 sq ft)
remainder piece on Parcel 009 (southeast of right of way) which is considered an uneconomic remnant. No
special benefits attributed to any of the subject components in the after situation.

Ostensible Owner/Delineation of Title

The subject ownership is vested with YG3 LLC, represented by Mark S. Donner. The property was acquired
from Luella M. Jensen in October 2004 at a recorded price of $3,200,000, including five adjoining tax lots
totaling over 92 acres, along with significant residential improvements. The seller (Estate of Luella M. Jensen)
in this transaction had owned the five tax lots over a long period of time, with a portion of Parcel 007 (East ½)
having been acquired by the Granite Falls School District in May 2000 at a recorded price of $241,400 for
about 11.8 acres. No other market transactions involving the subject property over the past five years are noted
in the public records, and the property is not currently listed for sale.

Property History

A Level 1 Environmental Site Assessment, or equivalent study, has not been provided to the appraiser. The
property has been devoted to rural residential and farm/equestrian uses for many years. The potential for site
contamination and/or past uses that differ from the current use has not been ascertained by the appraiser.

Legal Description

The subject land area comprises all of Snohomish County Tax Lots 30061300200700 and 30061300203700 in
the NW ¼ of Section 13, and Tax Lots 30061400100200 and 30061300101700 and 30061300203600 in the
NE ¼ of Section 14, Township 30, Range 6 East, W.M. A more detailed legal identification, consisting of a
lengthy metes and bounds description, is set forth in the title report attached in the Addenda.

Purpose of the Appraisal

The purpose of this appraisal is to: 1) estimate current market value of the property in the before situation; 2),
estimate current market value of the property in the after situation, assuming the project is completed; and 3)
allocate the damages and/or special benefits, if any, to the remaining real property and property rights.

Intended User(s)

It is the appraiser's understanding that the report is to be used jointly by the City of Granite Falls, the Granite
Falls School District, and the Snohomish County Department of Public Works. The function of the report is to
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provide valuation findings in support of right of way and/or remainder parcel acquisition(s); secondary users
consist of other Snohomish County and/or Federal agencies involved in the project.

Scope of the Appraisal

The scope of this assignment is to prepare a limited narrative appraisal, providing a value estimate in
accordance with the regulations of the Appraisal Institute and USPAP, as well as the standards and
requirements of Snohomish County and the WA State DOT as set forth in the Right of Way Manual, Chapter
4: M 26-01, Revision 2006-10. The appraiser has relied upon data investigated in the marketplace, including,
but not limited to, conversations and confirmations with owners, property managers, leasing agents and
research of public records. Market sale data has been obtained for similar property. The appraisal analyzes the
subject property and its market, considers Highest and Best Use factors, and then applies the Sales Comparison
Approach to arrive at final value conclusion(s).

Property Rights Appraised

The appraisal is a valuation of the fee simple rights of ownership.

Definition of Value

Market Value is defined as:

"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 and 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 and under conditions whereby:
1. buyer and seller are typically motivated;
2. both parties are well informed or well advised, and acting in what they consider their own best interest;
3. a reasonable time is allowed for exposure in the open market;
4. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto;
   and
5. 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."1

A complementary definition of market value, based on Washington Pattern Instruction 150.08, is set forth as
follows:

"The amount in cash which a well-informed buyer, willing but not obliged to buy the property, would pay, and
which a well-informed seller, willing but not obliged to sell it would accept, taking into consideration all uses
to which the property is adapted and might in reason be applied”.


   1
    Office of Thrift Supervision, Title XI of FIRREA, August 23, 1990, Final Rule 12 CFR, Part 564.2(f).

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In the analyst's opinion, the two market value definitions cited above are closely consistent, so that no
significant value difference would arise from reliance on one or the other definition.

Date of Inspection and Appraisal Investigation Period

James D. McCallum, MAI, inspected the property on various dates in 2006 and again in 2007. All appraisal
work was completed during this extended time frame. On-site inspection in the company of John Misich
was performed on February 21, 2007.

Effective Date of Appraisal

June 29, 2005 for Parcels 006 and 009
July 30, 2008 Parcel 007

Competency

The signatory of this report has completed a number of similar valuation and evaluation assignments within the
greater Puget Sound region over the past five to ten years, providing sufficient expertise to undertake the
current assignment in a competent manner. Additional information regarding the experience and education of
the appraiser is contained in the Addenda of this report.

II. EVALUATION OF TOTAL OWNERSHIP-BEFORE SITUATION

AREA AND NEIGHBORHOOD DATA

Incorporated in 1903, Granite Falls is a small, rural town of about 2,900 residents, nestled in the Cascade
Mountain foothills, about seven miles northeast of Lake Stevens at the terminus of SR-92 Hwy. The city
generally occupies higher ground between the Stilliguamish River (to the north) and Pilchuck Creek (to the
south). Early settlers to the area were supported by mining and timber logging industries, as well as farming
activity. Ethnographically, the Granite Falls area was used for fishing and as a travel route by a number of
indigenous peoples, including the Sauk-Suiattle Tribe, the Snohomish Tribe of Indians, the Stillaguamish
Tribe, and the Tulalip Tribes. In recognition of the Indians’ use of the area as a portage between the Pilchuck
and Stillaguamish (South Fork) Rivers, European settlers originally named the town Portage before changing
its name to Granite Falls in 1891.

Today, the city serves as a gateway to the extensive recreational opportunities of the upper Stilliguamish River
valley, including fishing, hunting, camping and hiking, accessed by the Mountain Loop Highway, a nationally
designated scenic route. A part-time mayor governs the city, with a five-member city council. City services
include police, fire, administrative and public works departments. There are two elementary schools, one
middle school and a high school (new campus currently under development). The area has attracted increasing
residential activity, especially in recent years, gradually evolving into a bedroom community for major
employment centers in Everett, south Snohomish County and King County. By 2008, SR-Hwy 92 will be re-
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routed around Granite Falls, connecting north and east to the Mountain Loop Hwy in order to provide a by-
pass route for heavy truck traffic emanating from a large gravel pit operation and logging trucks en route to
local mills. Overall trend for the area is toward increasing single family residential density, with development
expanding in all directions from the existing city limits. The Granite Falls Urban Growth Area (UGA) was
recently expanded in 2006 in several directions.

A limiting factor for near term development potential has been the sewer moratorium imposed by the city
council in 2005 due to an over-capacity sewer treatment plant. According to City Engineer Warren Perkins, the
moratorium allows land use subdivisions of up to 4 lots or up to 4 multi-family units. Commercial development
can occur provided there is not a land use subdivision of more than 4 lots. The City does not provide sewer
services outside of the city limits. The City is currently seeking funding for a new sewer treatment plant but
complete funding is not yet secured. Per late March 2007 consultation with Mr. Perkins, Phase 2A expansion
is going out to bid in Mid-May and will be complete by the end of 2007, providing expansion capacity for 400
new shares for sewer capacity. No formula has been decided for share allocation, and the moratorium is likely
to extend until DOE approval of capacity increase (anticipated 1st Qtr. 2008). However, land use subdivision
applications may be accepted in advance of this date, recognizing a normal time lag from development
application to housing construction. The city is also pursuing funding for Phase 2B sewer plant expansion that
will handle projected growth through 2025, with construction projected to commence as of spring 2008. The
City has upgraded its land use code for GMA compliance in order to be eligible for Public Works Trust Fund
consideration in undertaking Phase 2B upgrade plan. Additional discussion with Mr. Perkins indicates that new
sewer casings will be installed at a number of locations on the Alternate Route to serve future development to
the west and north of town (there is some potential that recent UGA expansion and revised land use code may
support more extensive utility infrastructure improvements as part of the GFAR project). PUD will also be
installing a new waterline between the Jordan Road and the Mountain Loop Hwy to increase their capacity,
with initial plans calling for a transmission line only and no connections except at the end points. As of the
appraisal date in mid-2007, there is a general anticipation that the sewer moratorium may extend at least two-
to-three years into the future.

Neighborhood

The general area is identified as the north periphery of Granite Falls, historically characterized by large lot rural
residential acreage, small farming enterprise and timber production. However, much of this area is now within
the Urban Growth Area for Granite Falls, with two annexation petitions recently approved bringing the subject
inside the city limits, with zoning and comprehensive planning sanctioning higher density single family
residential activity, contingent on extension of full utilities into the district (i.e., water and sewer). Immediately
south/southeast of the subject are several new subdivisions, completed within the past five years, and Mountain
Way Elementary School. Adjacent west of the subject is Perrigoue Field, a community baseball diamond. To
the north and west (across Jordan Rd.) is additional residential activity, including the 20-lot Riverwalk plat
(under construction), which borders the Stilliguamish River. The new Granite Falls High School campus is
located on the north side of Burn Rd. (AKA 100th St. NE) about ½-mile southwest of the subject.

Economic Forecast


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Snohomish County is located on Puget Sound, between Skagit County to the north and King County (and
Seattle) to the south. Covering 2,090 square miles, it is the 13th largest county in total land area in
Washington.


The April 1, 2007 total population estimate for Snohomish County is 686,300, according to the State of
Washington Office of Financial Management. The unincorporated population estimate is 318,685 and the
incorporated (city) population estimate is 367,615. The population forecast for Snohomish County for year
2025 is 938,434, and this number represents the total growth target that the county has planned for in the
comprehensive plan. The employment forecast for 2025 is 358,355 jobs in 2025, an increase from the 2000
employment estimate of 127,917 jobs. Local officials believe Snohomish County could be home to more than
one million people by the year 2040, and that the major cities will have skylines dominated by high-rise office
buildings and condominiums. Like many areas of the Puget Sound, the fortunes of Snohomish County have
been tied to the Boeing Company, and the assembly of commercial aircraft. Approximately 28,700 people are
currently employed in the aerospace industry in the county, and that number continues to grow. Snohomish
County employs about 55,000 people in jobs that exist primarily because of the county’s strong aerospace
industry. Roughly one in three jobs in Snohomish County is either directly or indirectly related to aerospace.

Outside of aerospace, other major employers in the county include Naval Station Everett, Providence Everett
Medical Center, Premera Blue Cross, Goodrich Corp., Verizon Northwest Everett and the Tulalip Tribes
Enterprises.


RESIDENTIAL DEVELOPMENT AND MARKET TREND

Residential development increased rapidly during the 1980's, then experienced a mini-collapse in 1990,
extending to mid-decade before resuming a strong upward trend through 2000-2001. A national economic
downturn commencing in late 2000 was exacerbated locally by major workforce contraction at the Boeing Co.
and major decline of internet-based (“dot.com”) stocks that impacted many tech-oriented businesses, including
Microsoft, culminating in the national economic shock of the 9/11 terrorist attack. From that date forward,
ongoing low interest rates sustained a housing market boom that extended into 2006. This pattern was mirrored
across the United States in nearly all regional markets. However, as of early 2006, many markets began to
decline as a result of weakening economic indicators, gradually rising interest rates and over supply conditions.
The “sub-prime” lending market was hit particularly hard and a rising trend of home foreclosures precipitated a
major housing downturn throughout the United States.

The Puget Sound region has been buffered from the worst effects of this downturn because of the continuing
strength of the local economy, coupled with significant in-migration sustaining housing demand at least into
early 2007, when local market observers began to note a fall-off in new home construction, with developers
pulling back in the face of waning demand and tight credit policies making buyer qualification more difficult.
Through the first half of 2007, price levels appeared flat but not declining, albeit with lengthening exposure
periods required in order to achieve a sale. As of mid-to-late 2007, a county and region-wide market decline
became clearly evident, as many builders struggled to reduce inventory of unsold lots and finished houses. In
June 2008, one of Snohomish County’s largest developer firms, Barclay’s North, announced it would be
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closing its doors in July due to ongoing financial problems associated with the real estate downturn. Barclay’s
had projects in seven states and was particularly hard hit in 2006/2007 by the failure of several major
homebuilders such as D.R. Horton, Quadrant and Centex to exercise purchase options on a number of
residential development projects. Discussion with banking representatives and others familiar with the
Barclay’s North situation indicates that much of this supply is likely to be tied up in litigation and/or
foreclosure proceedings for an extended period. Additional evidence of market downturn is reflected in the
May 2008 announcement by the Quadrant Corporation, one of the largest new home builders in the Puget
Sound area, that a 6% staff reduction would be implemented, along with a 30% cutback in new home
construction.

Several sources of residential housing market data are reviewed and discussed in the following paragraphs,
beginning with the Puget Sound region as a whole and Snohomish County in particular, then focusing more
directly on the subject’s South Snohomish County sub-market. A number of slightly different geographic
parameters are used in the statistical tabulation(s), so that the data sets do not match precisely. These various
information sources are reviewed in the following paragraphs. One of the earlier views expressing concern for
the overall housing market trend in the region is presented in the Spring 2007 Executive Summary of the
Central       Puget      Sound      Real       Estate      Research        Report      produced      by     WSU
(http://www.wcrer.wsu.edu/CPSRER/ExecSummary-Spring2007.html). This summary identifies a 2006
appreciation rate for the Puget Sound at 11%, the highest in the country, with the average home price in
unincorporated Snohomish County rising to $457,859. However, despite this average price increase, residential
resale volume in Snohomish County declined 25.7% in 2006, according to a Standard and Poor’s report, with
building permit applications also reflecting a declining pattern. This pattern marks the beginning of the
downturn in residential real estate for the Puget Sound region. One year later, the same report (Central Puget
Sound R.E. Research Report: First Quarter 2008 Executive Summary) cites year-to-date “home resales” in
Snohomish County down 34.8% over 2007 totals, and building permits down 46.7%. Median resale price was
calculated at $352,700, about 4.7% lower than one year prior. This data provides confirmation of a local
housing market in retreat, with the drastic decline in permit activity (-46.7%) indicating a potential future gap
in the pipeline for building lots and/or finished homes, as existing inventory is absorbed.

Many analysts believe the declining market, combined with a high foreclosure rate, will lead to greater housing
affordability. In the local market, outright price reductions have been moderated by seller incentives or
concessions, not all of which are accurately reported. MLS data for Snohomish County (published on
NWMLS web site) in June 2008 shows overall listing volume has declined 8% versus June 2007, with
pending sales down 35% and closed sales down 45%. Median sale price county-side declined to $347,344 as
of June 2008 versus $381,719 in June 2007, a 9% drop. Within the #760 market area (which includes the
Granite Falls district), listing volume was up by 12.43%, pending sales were down by almost 28% and closed
sales were down 38% in June 2008 versus one year earlier. Average sale price had declined 13% to $299,828
from $345,000 one year earlier. This data is summarized in chart form below.




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                                                                      James D. McCallum & Associates, Inc.




Independent MLS research compiled by Barnett & Associates, a Snohomish County realtor, cited in an internet
web site (“activerain.com”), indicates a steady increase in “average days on the market” for new home sales,
rising to 127 days as of April 2008. Another “activerain” contributor, Sara Washburn of Brio Realty, noted
that smaller, independent builders are suffering the most distress, whereas some larger regional or national
firms with greater staying power have been able to offer a wider range of concessions.

Another source of local market data is provided by Real Estats a regional research firm specializing in
residential real estate in Oregon and Washington. A summary of Snohomish County statistics for the period
from January through June 2008 provided by this company reinforces the findings of the Central Puget Sound
Real Estate Research Report above, indicating a residential sales volume decline of 57% from 2007 and a
decline in land sales volume of 77%. Average sale price for existing single family homes at $377,809 was 8%
below the previous year. The most active sales price range for new single family homes was between $300,000
and $350,000, averaging 68.8 sales per month county-wide. Second best absorption was in the $350,000 to
$400,000 range, with 48.3 new home sales per month. In new construction, the average new home sale price at
$438,685 was off 15% from one year earlier, with sales volume off 55%. The average finished lot price
(county wide) is indicated at $163,969, a decline of 17%, with the lot sales volume declining 77% to about
17.8 lots sold countywide per month as of year-to-date (June 2008) totals. The combination of reduced price
and diminished sales volume has a particularly strong impact on larger development parcels due to absorption
concerns. The Real Estats report goes on to project a “relative inventory” of Snohomish County homes at a
15.5-month supply, indicating a strong buyer’s market with softening prices anticipated over the short term, at
least. Normally, a supply of less than 6-months indicates a seller’s market, and a supply above 6-months
reflects a buyer’s market. Given that the foreclosure rate is projected to increase over the balance of the year,
creating additional downward price pressure, a very tough sales year for 2008 is forecast.




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                                                                                           James D. McCallum & Associates, Inc.

SITE DESCRIPTION

Location

The subject is located in the westerly portion of the project area, positioned about 1,200 feet north of SR-92
Hwy. at the west edge of Granite Falls, having frontage and access off Burn Rd. in Granite Falls, Snohomish
County, WA. Street addresses for the identified homesites on the property are 17701 100th St. NE (T/L 1-002)
and 17805 100th St. NE (T/L 1-017). Land area comprises all of Snohomish County Tax Lots
30061300200700 and 30061300203600, and also Tax Lots 30061400100200, 30061300203700, and
30061300101700. This assemblage was purchased in its entirety in 2004 from a single ownership. In
September 2008, the new ownership, YG3, LLC, entered in to a contractual agreement with the City of Granite
Falls recorded as Development/Concomitant Zoning Agreement For Suncrest Farms (200809240499).



               Red parcel outline = larger parcel
               Green parcel outline = direct impact
                                                                     30061400101100




                                                                       30061400100200

                                                                             "
                                                                             !
                                                                             009
                                                                                                        30061300203700
                                                                                   30061300200700
103R D PL NE
                                                      30061400101200




                                                            30061400101700

                                                                 "
                                                                 !
                                                                 006
                            174TH AVE NE




                                                                                   30061300203600
                                                                                      2008 P&U




                                                                                       "
                                                                                       !007



                                                  100TH ST NE                                       100TH   ST   NE      (BURN   RD)




This zoning agreement states that the development shall contain no more than 327 lots, and contains specific
details regarding architectural design, street improvements, open space and low impact development (see
addenda).

Streets and Access

Access is direct off 100th St. NE for Tax Lots 2-007 and 1-017, each of which has extended road frontage.
Access to Tax Lot 1-011 is via a 60-ft wide panhandle corridor extending north off 100th St. a distance of about
1,360 feet to the main portion of the site. This gravel drive also serves a 2.52-acre property (about 1,060 feet
north of 100th St. NE) improved with a high quality residence and outbuildings. This property (T/L 1-012:
2007-7-YG3                                                           15
                                                                       James D. McCallum & Associates, Inc.

17703 100th St. NE) is excluded from the analysis. 100th St. NE is designated as a minor arterial in Snohomish
County’s GMA Comprehensive Plan, requiring an 80-ft right of way. Hwy. 92, the main access route into
Granite Falls from the west, is about ¼-mile south, reached via Jordan Rd. (about 1/2 mile east).

Size/Shape and Topography

The overall property has an irregular shape, including about 1,250 feet of frontage along 100th St. NE at the
south border. Gross area is analyzed at about 49.10 acres (±2,138,448 sq ft) according to right of way plans
provided by Snohomish County Department of Public Works (Snohomish County Assessor records show a
slightly larger size of 49.11 acres). For the purpose of this report a gross area of 49.10 acres is utilized.
Topography includes mostly level contours at or near street grade and surrounding property.

Elevation of the subject site ranges from approximately 235 to 350 feet above sea level. Soils are identified in
the Soil Survey of Snohomish County as Winston gravelly loam, indicated to be a very deep soil, with good-to-
excessive drainage characteristics, suitable for woodland activities, also adaptable to pasturage or homesite use,
absent of critical area impacts. Wetland and/or sensitive areas have not been confirmed; a detailed survey
and/or engineering analysis by a hydrologist would be necessary to conclusively quantify such impacts. On site
inspection revealed little or no significant drainage/wetland impacts.

Utilities

City of Granite Falls water is available, along with natural gas from Washington Energy Services, electricity
via Snohomish County PUD No.1, and basic telephone service from Verizon Northwest. City sanitary sewer
lines currently terminate near the mid-point of the Granite Falls High School campus site on 100th St. NE,
approximately 400-to-600 feet east of the southeast corner of the overall subject site. However, a moratorium
is in effect as of the appraisal date in mid-2007, limiting new hook-ups to four or less homesites for any new
development proposal. There is a general anticipation (discussed earlier in the report) that major development
delay may likely extend through the 2008-2009 timeframe before full sewer upgrading/expansion is complete.

Easements

A current title report as of the analysis date has not been received. No adverse title conditions have been
discovered in the records and information reviewed; nonetheless, research by a legal specialist would be
necessary to confirm all title conditions and impacts. The appraisal assumes a clean title without any liability
that would adversely affect value or marketability, unless expressly identified and discussed within the report.

Zoning and Planning

The entire subject site is now within the City of Granite Falls, with a zoning designation of R-7200, according
to the Granite Falls Unified Development Code zoning map. Principal permissible uses include single family
residential, mobile homes and foster homes. Minimum (basic) lot size is 7,200 sq ft, with a minimum 50-ft lot
width (60-ft corner), maximum 30-ft height and 30% lot coverage limit. Setback requirements include a 20-ft
front yard, 5-ft side yard and 10-ft rear yard.
2007-7-YG3                                             16
                                                                      James D. McCallum & Associates, Inc.




            Subject




Description of the Improvements

Tax parcels 2-007 and 1-017 are currently unimproved, except for limited landscaping and fencing. Tax parcel
1-002 (17701 100th St. NE) is improved with a manufactured home on a pier and post foundation, a carport,
and two pole buildings (864 sq ft and 1,728 sq ft, respectively). All of these improvements are situated at
considerable distance from the proposed right of way acquisition, and, in any case, are no longer representative
of highest and best use, having only marginal interim use value.

Assessed Value and Taxes

2008 taxes and assessed values for the subject property are summarized in tabular form below:

     APN                   AVL*              AVI*           Total*           2008 Taxes
30061300200700           $ 109,000         $     0          $ 109,000        $ 936.06
30061400100200           $ 313,400         $299,700         $ 613,100        $ 5,870.20
30061400101700           $ 541,400         $163,600         $ 705,000        $ 6,792.97
  Totals                 $963,800          $463,300         $1,427,100       $13,599.23

AVL* = assessed value land
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                                         James D. McCallum & Associates, Inc.

AVI* = assessed value improvement




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                                                                        James D. McCallum & Associates, Inc.

HIGHEST AND BEST USE

Highest and Best Use is defined as:

"The reasonably probable and legal use of vacant land or an improved property, which 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
profitability."2

Determination of the Highest and Best Use requires consideration of (a) land use regulations, (b) economic
demand, ( c) physical adaptability of the site, (d) neighborhood trends and (e) optimum use of the property.

HIGHEST AND BEST USE AS VACANT

Land Use Regulations: At the retrospective analysis date, the subject property is identified in the
comprehensive plan for single family development consistent with R-7200 zoning.

Economic Demand: Recent larger land purchases of similar property within the urban area featured buyers
planning new residential subdivision development, illustrating good demand for such activity. Demand for
rural residential homesites and/or rural acreage was also evident throughout the region, but more typically on
land outside the Urban Growth Area where full utilities are not available.

Physical Adaptability: The site exhibits no significant slopes or wetland impacts that would restrict potential
for standard residential subdivision activity. A land use consultant study attached in the Addenda to this report
provides an analysis of lot yield for the overall site that supports this finding.

Neighborhood Trends: Trends in the immediate neighborhood have been discussed earlier, characterized by
ongoing residential expansion, typically residential plats of smaller lots, accompanied by rising prices for
vacant land. Outside the UGA, rural residential development is the dominant trend, including higher end
(custom) homes, as opposed to a historical pattern of modest frame (or modular) housing on acreage parcels.
Granite Falls is evolving into a bedroom community for the greater Seattle-Metropolitan area. The immediate
subject neighborhood is directly in the path of residential growth for the city.

enda. This study indicates a density potential for single family residential development totaling 209 lots in the
“before” situation.

Economic Feasibility/Optimum Use: Few recent sales of larger urban-oriented development land parcels
within the immediate area have been discovered, although a sale of development acreage at the north edge of
Granite Falls in March 2005 reflected a unit rate at in excess of $20,000 per potential lot (Perrigoue Ranch 3)


   2
   The Dictionary of Real Estate Appraisal, Second Edition. Chicago: The American Institute of Real Estate
Appraisers of the National Association of Realtors, 1984, 1989.

2007-7-YG3                                              19
                                                                       James D. McCallum & Associates, Inc.

for the raw land (with entitlements); this sale is discussed in greater detail in the Valuation section following.
Moreover, the finished lots for Perrigoue Ranch III were subsequently purchased by a builder at $118,000 per
lot. Other sales are pending within the local market as of the analysis date, giving clear evidence of effective
demand for residential development land. This is further illustrated by several other nearby subdivisions
completed and sold during the 2000-2005 period. Residential demand is therefore identified as the most
strongly supported use. Analysis of a specific optimum use in terms of layout and lot configuration is beyond
the scope of this report. However, an analysis of density potential for the overall site, as well as density loss
associated with the right of way acquisition has been provided by Rick McCardle of Triad Engineering, a
summary of which is attached in the Addendum.

Summary of Highest and Best Use As Vacant

The foregoing analysis considered a number of factors pertaining to Highest and Best Use of the subject site as
vacant. It is concluded that Highest and Best Use of the land as vacant is for medium density single family
residential development (4-to-6 dwelling units per acre).

Highest and Best Use as Improved

The same factors considered above are analyzed in the context of the existing improvements as of the analysis
date, consisting of a modular dwelling and outbuildings. As discussed earlier in the report, the existing
improvements are judged to represent an interim use at best, providing short-term rental income to offset
holding and demolition costs pending redevelopment feasibility. On this basis, the same conclusion as
determined in the as-vacant analysis above is appropriate for the as-improved condition, namely, for medium
density, single family residential development.

PROPERTY VALUATION

Recognized appraisal practice calls for the analysis and estimation of property value by one or more of three
approaches, described as follows:

Cost Approach - the Cost Approach is an estimate of the depreciated replacement cost of the improvements,
plus the value of the land.

Income Approach - the Income Approach requires an analysis of the subject's market rent and expenses in
order to estimate the property's probable net operating income. The stabilized net operating income is
capitalized at a market-derived overall rate to yield a value indication.

Sales Comparison Approach - the Sales Comparison Approach compares the subject property with reasonably
similar, recently sold properties from which price, terms, and conditions of sales are known.

In this analysis, only the Sales Comparison Approach is deemed applicable, since the subject is evaluated as
development land, with the existing improvements reflecting an interim use only.


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                                                                      James D. McCallum & Associates, Inc.

SITE ANALYSIS AND VALUATION

Land is customarily valued as though unimproved and available for development for the use that would justify
the highest price and the greatest net return. In the case of the subject property, highest and best use both as-
vacant and as-improved is for residential subdivision development. As noted earlier, few recent sales of larger
urban-oriented acreage development parcels within the immediate area have been discovered due to scarcity.
For this reason, a wider geographic search has been undertaken, including comparable areas on the periphery
of other communities such as Lake Stevens and Monroe. Also, some older sales in the local market are
considered, as well as several transactions that closed somewhat after the retrospective value date. Particular
emphasis is placed on raw land acquisitions where some development delay was anticipated due to
uncertainties regarding UGA/zoning status, annexation approval and/or utilities extension(s), recognizing the
subject’s situation under the moratorium as of the retrospective appraisal date.

Developers generally acquire raw land for residential development based on the number of potential lots, with
lesser emphasis on price per acre (or price per sq ft). This is because many sites are impacted by wetlands,
steep slopes, setbacks or other factors that result in significantly reduced density potential. As a practical
matter, developers generally seek to establish an option to purchase at a specified price per lot, then undertake
extended due diligence and pre-planning efforts (at their expense) to confirm density potential. In such
instances, sale closing often occurs after preliminary plat approval has been received. Purchases of truly raw
land (i.e., without entitlements) is more speculative and usually incurs a significant discount in the
marketplace. The level of discount varies according to an assessment of risk, time delay and cost to confirm
density potential and achieve vested development approvals. Also, market demand affects purchase decisions;
in a hot market with high demand and rapid escalation of both lot and home values, such as that which
prevailed in 2005 throughout the Puget Sound region, scarce supply creates strong buyer motivation. On the
other hand, the subject’s variable topography, combined with uncertain duration of the Granite Falls sewer
moratorium, reflects greater risk as of the analysis date with respect to development delay, added costs and/or
reduced lot yields. Discussion with market participants suggests that a typical purchaser would apply at least a
moderate discount for these combined factors. This adjustment is considered in the comparative analysis under
the heading “stage of development”.

Aside from the above factor, additional adjustment to individual transactions may be necessary. Differences in
sale conditions such as terms (cash equivalency), buyer-seller motivation and/or property rights conveyed are
considered. A second adjustment parameter is market trend between the time of transaction and the analysis
date, accounting for any positive or negative price movement during that period. A specific time adjustment is
not applied due to lack of sufficient verified sale-resale data. Nonetheless, sale date is considered in the
comparative weighing of the data, with a significant upward adjustment deemed appropriate for older
transactions and a downward adjustment made for sales occurring subsequent to the effective value date. The
remaining adjustments considered in the comparative analysis include economic factors (location) and physical
factors (topography, zoning, size/shape, access/exposure, etc.).

The attached table summarizes sales used to estimate market value for the subject site. Following the table, an
analysis and comparison of key variables is presented, leading to a conclusion of value for the subject property,
relying chiefly on price per potential lot. Additional sale details are attached in the Addenda to the report.
2007-7-YG3                                             21
                  James D. McCallum & Associates, Inc.




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                                                                       James D. McCallum & Associates, Inc.

                                      Development Land Sale Summary


Comp                                          Sale       Analysis          Size                   Price/
 No.                       Location           Date           Price      (Acres)     $/Sq Ft     Pot. Lot

 D-1    N. Side 100th St. (Burn Rd.), ½-     10/04      $3,200,000       ±92.00       $0.80      $8,889
        mi. W. of Jordan Rd., Granite
        Falls, WA
 D-2    Bogart Meadows Div. 4,               12/04       $990,000         11.82       $1.92     $24,146
        20313 Menzel Lk. Rd.,
        Granite Falls, WA
 D-3    Perrigoue Ranch Div. 3               03/05      $1,071,000        ±22.7       $1.08     $20,596
        Easterly of. N. Granite Ave.
        (Ext.), Granite Falls, WA
 D-4    Perrigoue Ranch Div. 2:              08/02       $840,000         16.90       $1.14     $20,000
        Hemming Way, E. of Peak Lane
        Granite Falls, Wa
 D-5    Prop. Dev. Site.: E. Side 191st 06/05 &         $1,665,000        14.98       $2.55     $27,750
        Ave. SE, N. of 137th Pl. SE, 06/06
        Monroe, WA
 D-6    Prop. Sutherland PRD: NWC 09/03 &               $3,860,000        39.56       $2.24     $20,000
        79th Ave SE & 20th St. SE, Lake 10/04
        Stevens, WA

Comparable D-1: This property consists of an approximate 92-acre tract of land on the westerly outskirts of
Granite Falls, including five tax lots all under the same ownership, three of which were improved as single
family homesites at the time of sale, including a residence and outbuildings. One of the dwellings is a large,
good quality frame and masonry structure on a 2.52-acre lot that might be sold independently, or segregated on
a smaller lot within a new subdivision. The other two dwellings, along with the outbuildings, are considered
interim uses, providing short term rental income pending redevelopment. The land is mostly level and at or
near grade, having public power and water available along 100th St. NE, but lacking sanitary sewer. The bulk
of the site was zoned R5, but the most easterly parcel (12.30 acres) was positioned inside the Granite Falls
UGA and zoned R-9600. The buyer was a developer anticipating that the entire property could be included
inside an expanded UGA under the 10-year Comprehensive Plan update, thereby allowing rezone to medium
density residential and annexation (with sewer extension) for subdivision development. The buyer was aware
of the sewer moratorium, but felt that programming and planning efforts would extend over several years,
during which period the sewer upgrade was likely to be completed. Based on a realistic (maximum) net density
of 4-units per acre, a potential yield of 360 units is projected, although the buyer originally anticipated up to
423 lots in a multi-phase development. The sale was recorded in October 2004 at a price of $3,200,000.
Indicated unit rates are analyzed at $8,888 per potential lot ($3,200,000 ÷ 360), or $0.80 per sq ft of gross land
area (including contributory improvement value).

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                                                                      James D. McCallum & Associates, Inc.



Comparable D-2: This is a raw land purchase positioned in the southeast portion of Granite Falls, zoned R-
7200 with all utilities available. The site is mostly level and at or near street grade, bordered on the south by
Menzel Lake Rd., about ¼-mile east of Alder St. The property was acquired by a developer for subdivision
into lots as Bogart Meadows Division 4, adjoining other phases already completed to the north of the site.
Older residential improvements on the land did not add any contributory value. The property totals
approximately 11.82 acres (per assessor records), with the purchase price recorded in December 2004 at
$990,000. Preliminary plat approval for 41 lots was obtained subsequent to purchase (at the buyer’s expense),
which was vested prior to imposition of the sewer moratorium. The plat was completed in 2005/2006 and a
bulk sale of 20 lots to a builder was recorded in November 2006 at $2,400,000 ($120,000 per lot). Based on
the raw land purchase, a unit rate for the 41 potential lots is indicated at $24,146 per lot, or $1.92 per sq ft.

Comparable D-3: This is the land underlying Perrigoue Ranch Phase 3, a 51-lot development on 22.7-acres
extending between Darwin’s Way and N. Granite Ave., about one block north of Mountain View St. This
location is approximately 600 feet easterly of the subject property. Topography of the irregular-shaped tract is
highly variable, including steep slopes and wetlands that diminish usable area to approximately 12.68 acres.
The sale was recorded in March 2005 (per excise document) at $1,071,000. According to the seller, the
transaction had been negotiated long before the recording date, based on a fixed price per lot, but closing was
delayed over two years due to difficulties in confirming entitlements and lot yield. Indicated unit rate is
$20,596 per lot, or $1.08 per sq ft of gross land area ($1.94/SF of usable site area). After construction, a bulk
sale of 31fully finished lots was recorded at $3,658,000 in October 2005, reflecting a unit rate of $118,000 per
(building-ready) lot.

Comparable D-4: This is an earlier transaction involving the acquisition of Perrigoue Ranch Phase 2, at the
time a proposed plat of 42 lots on a 16.9-acre site. Location is on both sides of Hemming Way extending
between W. Alpine St. and Peak Lane, immediately southeast of the subject property. Average lot size was
determined at 7,200 sq ft, consistent with the underlying zoning. Situated inside the city limits, all utilities
were available, including sewer. At the date of sale in August 2002, the property had secured development
approvals, but no work had been completed. Based on a purchase price of $840,000, indicated unit rate was
$20,000 per lot, or $1.14 per sq ft.

Comparable D-5: This is a multi-parcel assemblage of development land situated adjacent to the Monroe City
Limits on the east side of 191st Ave. SE in the 13500 block. This location is inside the UGA, surrounded by
newer subdivision development to the south, southwest and southeast on land already annexed into Monroe.
The property features rolling (upland) wooded contours with some view outlook. Zoning is UR-9600, with
public water available and sewer nearby, contingent on annexation approval. The overall property has a
roughly rectangular shape, containing approximately 14.98 acres in five contiguous tax lots. The property was
acquired in three transactions recorded between June 2005 and June 2006, although sale negotiations occurred
prior to earlier recording date. Total price was $1,665,000, or $2.55 per sq ft. The buyer anticipated a net lot
yield, after annexation of about 4 units per acre, or about 60 lots. This indicates a unit rate of $27,750, for a
raw land parcel without entitlements. The buyer (L17-1 Central Monroe LLC: Barclay’s North) was a builder,
who experienced considerable delay in pursuing annexation and decided to re-sell the entire site to another


2007-7-YG3                                             24
                                                                         James D. McCallum & Associates, Inc.

builder (Joe Jackels), who owned other land nearby. This transaction was recorded in August of 2006 at a
slightly lower price of $1,615,000, or $27,000 per potential lot.

Comparable D-6: This property is another land assemblage for development of a new multi-phase PRD
(Sutherland: 193 lots) in the Cavalero Hill area southwest of incorporated Lake Stevens. The property fronts
along the north side of 20th St. (AKA Hewitt Ave.) between 75th Ave. SE and 79th Ave. SE. At the time of sale,
a major road project was pending to widen 20th St. and install full frontage improvements. The irregular-shaped
property totals about 40 acres, consisting of rolling, upland terrain contained in eight contiguous tax parcels.
Three of the parcels were improved, including two frame dwellings and one modular residence, none of which
contributed significantly to overall property value. Topography is mostly level, with an overall gentle
northwesterly downslope providing some view outlook. Significant wetlands were identified in the northeast
portion of the overall site. .Zoning is R-9600 under Snohomish County jurisdiction, although the area lies
within the Lake Stevens UGA. Public water and power was available, with sanitary sewer potentially available
via the Lake Stevens Sewer District, which extends outside of the city limits. However, in order to reach the
project site, the buyer had to upgrade a lift station about ½-mile west at the bottom of Cavalero Hill and then
extend a new line uphill. Although there is a late-comers agreement to recapture some of the cost, this
extension represented a major upfront cost to the developer. The assemblage was recorded in five transactions
totaling $3,860,000, with recording dates from October 2004 to December of 2006; however, all of the sales
were predicated on prior agreements signed by the sellers between September 2003 and October 2004, with
closing delayed at the buyer’s option. Based on a total yield of 193 lots (4.9 lots per acre), indicated unit rate is
$20,000 per lot, or about $2.24 per sq ft of gross land area.

Market Data Analysis: The comparables define a broad price per lot range from $8,889 per potential lot to
$27,700 per potential lot. This wide variance is attributed to significant size differences, combined with
locational and physical factors, zoning/planning variables, sale date and utilities availability/stage of
development.

All of the transactions summarized above are indicated to be a cash-equivalent, fee simple purchases on an
arm’s length basis with no unusual buyer-seller motivation, typically reflecting an assemblage by a builder for
residential subdivision development.

Sale dates range from August 2002 and June 2006. Based on market trends discussed earlier, significant
upward adjustment for time (sale date) is considered appropriate for older transactions, whereas sale dates after
June 2005 are adjusted backward (down) to account for ongoing market escalation occurring after the
retrospective analysis date.

Locational factors are difficult to gauge, but the subject is rated superior to D-1, for which a downward
adjustment is applied, and similar to D-2, D-3 and D-4, requiring no adjustment. Comparables D-5 and D-6
are rated superior in terms of market area, indicating an upward adjustment.

Overall property size ranges from about 12 acres to 92 acres, versus the subject’s 46.33 gross acres. However,
the actual net developable area is much lower (± acres), based on a modified “larger” parcel, excluding the
steep slopes and most of the lower basin that is unaffected by the acquisition and for which inadequate critical
2007-7-YG3                                               25
                                                                      James D. McCallum & Associates, Inc.

area data is available to support a reasonable lot yield projection. In general, smaller parcels may command a
price premium due to faster development timeline and absorption period. Emphasizing an effective subject size
of about xx          acres, Comparables D-1 and D-6 are adjusted upward for much larger size, whereas
Comparables D-2 through D-5 are considered sufficiently similar to the subject (as analyzed) so as to require
no adjustment.
The market evidence reviewed does not provide clear support for physical adjustments such as shape and
topography, although wetlands complicate both the permitting and development process. All of the sales have
reasonable access for the planned use. Zoning and planning also influences sale price; in particular,
Comparable D-1 had the bulk of its land area positioned outside the UGA in the R-5 zone when purchased,
thereby indicating a strong upward adjustment in relation to the subject. The remaining sales were either inside
the city limits or in the UGA, with similar zoning/planning parameters as the subject, therefore no adjustments
are made.

Available utilities is another important factor, with Comparable D-1 adjusted upward due to lack of sewer in
the immediate area, and Comparable D-6 is adjusted upward due to expensive sewer extension and lift station
required. The remaining comparables all had sewer nearby at the sale date, as well as water and power,
indicating no adjustment

With regard to stage of development, the sales are analyzed in the context of the Granite Falls sewer
moratorium impact on the subject property, which was forecast to delay development 2-3 years (at a minimum)
as of mid-2005. Comparable D-1 was under the same timeline with respect to the sewer moratorium, requiring
no adjustment and had no entitlements established at the purchase date. Comparables D-2 through D-4
involved sales with vested development approval before the sewer moratorium, thereby reducing risk and
allowing for a fast track development horizon; a very strong downward adjustment is indicated in relation to
the subject. Comparable D-5 was situated outside the Monroe UGA and required annexation in order to get
sewer, timing of which was uncertain at the sale date. In fact, significant delay was encountered and the buyer
resold the site about a year later at a slight discount. On this basis, a moderate downward adjustment is applied
versus the subject. Comparable D-6 was located inside the Lake Stevens Sewer District service area and
therefore did not require annexation to get sewer. This allowed for a quicker development time line with
reduced risk, indicating a strong downward adjustment versus the subject.

An adjustment chart is presented on the following page, summarizing the above comparative analysis.




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                                                                       James D. McCallum & Associates, Inc.

                                              Adjustment Grid


                               D-1           D-2              D-3             D-4              D-5              D-6

 Sale Date                    10/04         12/04           03/05*           08/02         06/05-06/06     09/03-10/04

 Price/Lot                   $8,889        $24,146          $20,596         $20,000          $27,750          $20,000

 Market Cond.                   +             +               ++               ++               (-)                 +

 Sale Cond./Terms               0             0                0                0               0                   0

 Location                       0             0                0                0                -                  -

 Size                          ++             0                0                0               0                   +

 Zoning/Planning               ++             0                0                0               0                   0

 Utilities                      +             0                0                0               0                   +

 Stage of Dev.                  +             ---             ---              ---               -                  ---

 Net Adjmt                      -             --               -                -               --                  -

  Overall                     Much          Much            Superior        Superior          Much           Superior
                             Inferior      Superior                                          Superior
* Negotiated earlier

Conclusion of Value: Placing some emphasis on all the comparables, but emphasizing D-1 through D-4
because of geographic proximity, the subject is rated moderately-to-strongly inferior to D-2, D-3 and D-4, with
D-1 requiring a major upward adjustment. Weighing these factors, value is correlated at $18,000 per potential
lot. Based on a typical density of 3.2 dwelling units per acre identified in the planning consultant study
(referenced earlier), a gross (maximum) potential yield is calculated at 145 lots for subdivision development
(45.22 acres x 3.2 DU’s /acre). Applying the concluded unit rate of $20,000 per potential lot to the maximum
yield figure of 145 lots generates the following value:

Before Land Value Conclusion: 145 potential lots @ $18,000 per lot:                    $2,610,000

The above amount is considered to reflect a “hypothetical” maximum value for the subject property, based on
an extraordinary assumption of no critical area impacts outside the right of way acquisition area(s), so that the
entire 45.22 acres is analyzed as developable. In fact, the overall property is substantially impacted by steep
slopes, with significant wetlands apparent in the lower basin area, the extent of which is not quantifiable
without additional engineering and planning studies. In the absence of such, the “before” value conclusion at
$2,610,000 is considered to reflect a best case scenario that will likely be diminished substantially by
exclusion of critical areas and required setbacks prior to development approval.
Interim Improvement Contribution


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                                                                        James D. McCallum & Associates, Inc.

The three dwellings historically were rented to separate tenants, with a gross monthly income estimated at
$1,500 to $2,000 ($18,000 to $24,000 per annum). This income stream is considered sufficient to offset
holding and/or demolition costs pending redevelopment feasibility (with moratorium removal). An estimate of
the present worth of a rental income stream over a three-to-five year timeframe is set forth below, using a
minimum $18,000 annual income over a three-year term, and a maximum $24,000 annual income over a five-
year term. Annual cash flows are discounted at 10% per annum, representing a typical investor opportunity
cost (interest rate or return requirement), to yield a net present value (NPV) range, as follows:

$18,000 x 2.4869 (Present Worth Factor: 3 yrs. @ 10% interest): $45,000 (Rd)

$24,000 x 3.7908 (Present Worth Factor: 5 yrs. @ 10% interest): $90,000 (Rd)

The above range is correlated slightly above the mid-point at $75,000, providing an estimate of contributory
(interim) value for the subject improvements.

Before Value Summary

Land Value – Before Situation                                         $2,610,000
Interim Improvement Value                                             $ 75,000

Total Before Value                                                    $2,685,000

III. EVALUATION OF REMAINDER - AFTER SITUATION

Overview and Description of Remainder: Essentially the same conditions regarding ownership identity,
neighborhood and area descriptions, definitions, assumptions and limiting conditions, zoning and property
physical data, highest and best use factors, and valuation procedures apply in the after situation as in the before
situation (see pages 4 through 24 in the report). However, major differences in the after situation include the
100-foot wide strip for road right of way extends through the south portion of the site along with a slope
easement and additional area acquired in the northwesterly portion of the site along Jordan Rd. for a storm
water collection and detention facility. A cumulative right of way acquisition of 208,008 sq ft will be needed
for road widening purposes together with 80,217 sq ft for the detention facility and 29,540 sq ft in the slope
easement. The attached map(s) provide visual depiction of the combined acquisition(s) in relation to the
subject. ?????????????????? This must be from a different report…

Effects of Acquisition: The proposed acquisition will effectively isolate two smaller areas on the subject
property south of the new road corridor. One of these remnant areas is located in the southwest portion of
Parcel 21, consisting of a narrow strip with no access in the “after” situation (±8,637 sq ft). Although having
limited utility, any development potential associated with this segment can be recaptured on other buildable
portions of the overall site. A larger isolated area to the west will retain access via Leola Lane (extension) from
the south, having sufficient size and shape to support independent development. This area is analyzed at
approximately 55,439 sq ft, including portions of Parcels 18, 19, 20 and 21. Current access to the major land
area lying northerly of the GFAR right of way will be cut off, but can be re-established farther northeast along
2007-7-YG3                                              28
                                                                        James D. McCallum & Associates, Inc.

Jordan Rd. and/or by creating new access point(s) off the GFAR roadway itself (contingent on engineering and
design considerations). It is expressly assumed herein that the larger (northerly) remainder area will be
provided access in the “after” situation adequate to support representative highest and best use development.

Just compensation encompasses the value of the part taken, together with contributory improvements within
the right of way acquisition impact area, plus damages and minus special benefits, if any. It is expressly
assumed that all contributory improvements in the right of way will be restored in the “after” situation by the
acquiring agency at least equal to original condition and functionality, including sub-surface drainage and/or
utility lines, fencing, signage or other structures, unless specifically identified and discussed herein. An
exception is the two modular residences (10401 and 10405 Jordan Rd.) that lie in the path of the right of way
acquisition and therefore will require removal or relocation. A third dwelling (10515 Jordan Rd.) has already
been removed by Snohomish County. Contributory value of these structures, based on a highest and best use
for residential subdivision development, is considered marginal, at best. Because of age/condition factors,
moving the older modular dwellings to a new site is considered impractical. At the same time, retention of
either dwelling on a smaller subdivided lot would be incompatible with a new housing development. The wood
frame residence (now demolished) was reportedly in poor condition, with considerable hazardous materials
(asbestos) impacts that resulted in a costly removal process. On this basis, the residential improvements are
considered to be interim uses, contributing short term value primarily to offset holding costs and demolition
expense prior to redevelopment. Value contribution has been analyzed earlier at $75,000, based on a present
value analysis of the projected income stream over an anticipated interim holding period. Since the
improvements will be removed, this contribution is not available in the “after” situation.

Based on the foregoing discussion and analysis, no other damages are estimated as a result the right of way
acquisition. Implicit in this judgment is a contingent assumption that the entire remainder parcel will have
equivalent access to utilities (water, sewer and power) in the “after” situation as in the “before” situation,
which may necessitate installation of lines in (or under) the new road corridor. Moreover, no special benefits
are attributed to any of the subject (land) components in the after situation.

Remainder Valuation Process and Conclusion


Similar valuation procedures, including the same sales data and virtually identical analysis with respect to
comparative adjustments applies to the remainder acreage, recognizing that the right of way acquisition
contains a gross area of 6.62 acres, reduced by 1.11 acres of steep slopes, wetlands and setbacks, to a net
developable area of 5.51 acres. Applying this versus a typical density ratio of 3.2 lots per acre indicates a yield
of 17.6 lots, rounded upward to 18 lots (5.52 x 3.2 DU/Acre). Reducing the “before” projection (145 lots) by
18 lots, results in a gross potential lot yield in “after” situation at 127 lots. The reduction in land area is not
sufficient to require a significant size adjustment, nor are any changes in other physical adjustments indicated,
contingent on stated assumptions regarding equivalent ingress-egress and equal access to utilities in the after
situation. The primary difference, therefore, consists of the density loss (reduced lot yield) associated with the
combined right of way and detention pond acquisition. Applying the same unit indicator of $18,000 per acre
yields a hypothetical “after” value of $2,286,000 (assuming no critical area impacts). The difference between


2007-7-YG3                                              29
                                                                     James D. McCallum & Associates, Inc.

the before and after value indications is $324,000, representing the indicated value of the combined right of
way acquisition.

After Land Value Conclusion:     127 lots @ $18,000:               $2,286,000

Slope Easement

The slope easement on Parcel 021 encumbers 29,504 sq ft. It has a very irregular shape extending along the
northerly side of the proposed GFAR right of way corridor about 900 feet with a width ranging from about 11-
ft to 70-ft. The area is generally characterized by steep slopes descending northerly into the lower basin;
however, a portion of an upland knoll also appears to lie within the slope easement area. Development density
potential represented by the 29,504 sq ft (0.68 acre) is analyzed at 2 lots, using a typical 3.2 DU/Acre
projection. At an estimated rate of $18,000 per lot, a potential fee simple value of $36,000 for development
purposes is indicated. The easement prohibits any building construction, although available mapping indicates
that a significant portion of the area may be undevelopable in any case. The easement area can be utilized for
landscaping and/or buffer purposes along the GFAR corridor. Also, any confirmed development potential in
terms of lot yield could be recaptured on another portion of the overall site. On this basis, the easement is
believed to have a fairly minor impact on overall property value. A diminution equal to 20% of fee simple
value is estimated herein, or $3,600.

Summing the above value elements results in a total just compensation estimate of $403,600, including right of
way acquisition, interim use value of the improvements and the slope easement encumbrance. The acquisition
is broken down as follows:

Before Property Value:                                             $2,685,000
        Less: Right of Way Acquisition:                            ($ 324,000)
        Less: Interim Improvement Contribution                     ( $75,000)
        Less: Easement Impact                                       ( $3,600)
After Property Value                                               $2,282,400




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                                                              James D. McCallum & Associates, Inc.

IV. ACQUISITION ANALYSIS

Recapitulation

Value of the property before acquisition:                 $
Value of the property after acquisition:                  $

Difference between before and after values:               $

Damages to Remainder:            (reflected above)
Special Benefits:                None

V. ADDENDA

REPORT OF CONTACT WITH OWNER: Ann Perrigoue was contacted on March 13, 2007, at which
time permission to complete an exterior inspection of the property (unaccompanied) was provided.

    Person(s) Contacted: Ann Perrigoue
    Address: P.O. Box 366, Granite Falls, WA 98252
    Date of Contact: 03/13/07
    Relationship to Owner: Same
    Date of Joint Inspection: N/A
    Phone: 360-691-2000

Comments:




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                                                                           James D. McCallum & Associates, Inc.


    APPRAISAL BACKGROUND AND QUALIFICATIONS STATEMENT(S)

                                         James D. McCallum, MAI
                            8300 Cedarhome Dr. NW, Stanwood, WA 98292
                            Phone: 360-435-1198 (Voice); 360-435-1198 (Fax)
                                    Email: mccallum@snohomish.net
Work Background

Engaged full time in the appraisal profession since 1977. Background in valuation, feasibility, and counseling
assignments including the following: Market value appraisals; supply, demand, and absorption studies; right-of-way and
condemnation appraisals; demographic analyses; Highest and Best Use studies; rental valuation and investment
counseling. Qualified expert witness: Snohomish County, King County and Pierce County, as well as Federal
Bankruptcy Court. Areas of expertise include raw land and subdivisions, apartments/condominiums, restaurants, offices,
industrial real estate and waterfront commercial property. Right of way and/or eminent domain assignments completed
for the City of Mount Vernon, Snohomish County, City of Kent, City of Oak Harbor, City of Lynnwood, Port of Grays
Harbor, and San Juan County. Appraisal work undertaken includes analysis of partial and complete acquisitions involving
rights of way for waterfront trails, public roads, bridge replacement projects, shoreline stabilization actions, wetland
mitigation, transferable development rights and farmland preservation. Currently on the WSDOT approved list both for
general appraisal work and appraisal review assignments.

Locational Emphasis

North Puget Sound region including Snohomish, Skagit, Island, San Juan, and Whatcom Counties, with secondary focus
on King and Pierce Counties in the central Puget Sound. Assignments also completed throughout the western states
including Washington, Oregon, Nevada, California, Utah, Colorado and Alaska.

Academic and Professional Training

*                Washington State Certified General Appraiser
*                M.A.I. Designation (1986)
*        Successful completion of the following AIREA/AI Courses: Basic Principles, Methods and Techniques,
                 Standards of Appraisal Practice, Courses I-A & I-B (Capitalization Series), Case Studies in Real Estate
                 Valuation, Valuation Analysis and Report Writing, Investment Analysis, Litigation Valuation
*                Continuing Education Seminars in Real Estate Appraisal and Real Estate Investment
*                Collegiate level courses in Real Estate Law, Finance, Economics and Construction Technology
*                B. A. English Literature, UCLA, 1968
*                Teaching Credential, Western Washington University, 1976

Business and Professional Affiliations

*                 Owner/President: James D. McCallum & Associates, Inc. (1995-Present)
*                 Senior Appraiser with the firm of Schueler, McKown, and Keenan, Inc. (1979 to 1995)
*                 Manager, Everett Office of Schueler, McKown, and Keenan, Inc. (1990 to 1995)
*                 Member, Appraisal Institute (1986 to present)
*                 Commercial Panel Member, American Arbitration Association

Types of Property Analyzed

Vacant Land: Commercial/office, manufacturing, agricultural, single and multi-family residential, recreational, waterfront,
and partial acquisitions. Single family subdivisions, industrial and business parks
Single Family Residential: Urban and suburban/rural structures, recreational and large estate properties.

2007-7-YG3                                                32
                                                                           James D. McCallum & Associates, Inc.

Multi-family Residential: Condominium/apartment units including garden court, mid-rise, and high-rise styles, proposed and
existing developments from small to large with urban, suburban, recreational, and/or waterfront locations. HUD assisted and/or
low-income housing projects both existing and new construction.

Commercial/Retail: Office buildings: suburban low-rise to urban high rise; retail/office buildings, mixed-use structures,
strip centers, freestanding commercial, community shopping centers and regional malls.

Special Purpose Properties:

Recreational Properties                                         Parking Garages
Mobile Home Parks                                               Historic Properties
Branch Banks                                                    Farms
Churches                                                        Restaurants
Nursing Homes                                                   Retirement Centers
Golf Courses                                                    Planned Communities
Factory Outlet Centers                                          Cold Storage/Fish Processing Facilities
Lumber Mills                                                    Medical/Dental

Representative List of Appraisal Clients

Financial Institutions

Skagit State Bank                                               Frontier Bank
EverTrust Bank                                                  Coastal Community Bank
Seafirst Bank/Bank of America                                   U. S. Bancorp
Wells Fargo Bank                                                Washington Federal
Whatcom State Bank                                              Seattle Mortgage
Whidbey Island Bank                                             Summit Savings
Key Bank NA                                                     Washington Mutual Bank

Attorneys

Riddell Williams                                                Bell & Ingram
Dodd Bishop & Lynch                                             Bogle and Gates
Foster Pepper & Shefelman                                       Short, Cressman & Burgess
Garvey Schubert & Barer                                         John W. Murphy, Attorney at Law

Governmental Agencies

Port of Everett                                                 Port of Seattle
City of Everett                                                 City of Renton
City of Mount Vernon                                            City of Seattle
Snohomish Co. Housing Authority                                 Bureau of Indian Affairs
Wa. State Dept. of Transportation                               Everett School District
Snohomish County                                                Lakewood School District
City of Lynnwood                                                U. S. Navy
Stanwood School District                                        Snohomish Fire Dist. No. 7

Corporations

Paccar                                                          Boeing
Draper Valley Farms                                             Ennen's
Mather's Controls                                               Weaver Development
2007-7-YG3                                                33
                                                                         James D. McCallum & Associates, Inc.


                                        RANDI OURÍ, SR/WA
                                  State Registered Appraiser Trainee #1000476

      Immersed in the field of real estate since 1994, first in real estate sales, then in investment and property
      management. Worked as a negotiator in the acquisition phase for public works projects for eight years.
      Now practicing real estate appraisal in both the public and private sectors, and offers a strong background
      in eminent domain law, engineering, AutoCAD, ArcGIS tools, as well as environmental challenges and site
      development.

EDUCATION:

          University of Washington, Seattle, WA
          Bachelor of Arts, cum laude 1994

          South Seattle Community College, Seattle, WA
          Associate of Applied Sciences 1990

          International Right of Way Association
          SR/WA Certification 2004

EXPERIENCE:

          2006-present Snohomish County Public Works                   Everett, WA
          Real Property Appraiser

          1999-2006      Snohomish County Public Works                 Everett, WA
          Real Property Coordinator

          1998-1999     King County Construction & Facilities Mgt. Seattle, WA
          Right-of-Way Agent II

          1996-1999      Home Realty, Windermere and ReMax Real Estate Co.’s
          Real Estate Sales Agent                               Everett, WA

PROFESSIONAL AFFILIATIONS:

          Senior Member, International Right of Way Association.

PROFESSIONAL REFERENCES:

Stephen Wm. Juntila                                  James D. McCallum, MAI
Valuation Associates                                 McCallum and Associates

Keith Dang                                           John Dinniene, MAI
CIC Valuation Group, Inc.                            Northwest Valuation Services

Michael L. Lightbourne
Lightworks Appraisal, LLC




2007-7-YG3                                              34

				
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