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In determining the residual value using the return on total investment approach, it is our judgment, in order to attract the necessary debt and equity, the Project must produce a cash on cash return at stabilization of 11%. The 11% return reflects the prominent location, size of the project, and credit worthiness of the key tenants. This return is, in our opinion, a reasonable return for the proposed Project and provides sufficient income to meet debt service as well as a return on equity. As shown in Table 3, the investment warranted (debt and equity) is $10.82 million. The warranted investment of $10.82 million is then reduced by the estimated development costs of $9.3 million to determine the residual value of the site being conveyed, of $1,520,000. The value upon completion method is based upon the capitalized value of the development upon stabilization. The major assumption inherent in this approach is that the Developer is concerned with the relationship between the value of the completed project and the development costs. To determine the residual value, the capitalized value is reduced by the estimated development costs, the imputed costs of sale, and a reasonable developer's profit. To determine the residual value using the value upon completion approach, the capitalization rate is applied against the estimated net operating income for the proposed project. To determine the appropriate capitalization rate for the project, KMA gave consideration to the credit -worthiness of the anchor tenants. In our judgment, a 9% capitalization rate reflects the prominent location, size of the project, and credit worthiness of the key tenants. Using a 9% capitalization rate against stabilized net operating income of $1.19 million results in a capitalized value of $13.22 million. When this value is reduced by imputed costs of sale equal to 3% of value, a Developer's profit of 12% of value and the estimated development costs of $9.3 million, the residual value of the development rights being conveyed is estimated to be $1,930,000. D. Reuse Value Based upon the foregoing analyses, it is concluded that the fair reuse value, given the specific covenants and conditions of the Agreement, is a range of $1,500,000 to $1,900,000, subject to the terms and conditions of the DDA, specifically the actual development costs and rents. 193 KEYSER MARSTON ASSOCIATES I N C. 19100/0001-002.dx Page 16