1. Norman C Wheeler & Associates Bozeman & Missoula, Montana May, 2014 Montana Land Trends In The Re-emerging Market Looks Like We’ve Weathered The Storm

2. Please Note: Opinions Ideas Observations Shameless Projections Values or Scenarios These are of a small minded appraiser and may not be coherent or representative of those who govern over us.

3. The Land Ranch market is re-emerging What is the Market Rewarding? Productivity & Good Buys Not Speculative Development or Values Not the best environment for beneficial Conservation Easement valuation.

4. One Market The “Other Market” Historically

5. State Project

6. Note – this is the Western Land Survey 2004 verses 2013

7. Lowest Price Point on Average since 1990s

8. Also a factor of Supply & Demand Later

11. Bifurcation Analysis 2012 vs. 2013 2013 was $1,164per acre overall 2012 was $776 per acre overall Strong Value Influence Based on Commodity Prices

12. Listings: Quick Sample over 640 Deeded Acres 194,603 Acres $1,920 Per Acre Less IX Ranch 134,603 acres $2,309 on Average 2013 Market Average $1,164 Per Acre January 2014

13. And Then There’s Demographics Who’s next behind the Boomers? – GenX’ers: born between roughly 1965 and ’82 ….now 31 to 48 yrs old. – Millennials: those following, now 18-30 yrs old Source: BabyBoomer HeadQuarters – www.bbhq.com GenX Millennials

14. So when looking at Montana’s Rural Land Markets now, post-RESET…. Location and Highest & Best Use (Really) Matter GenX Millennials Changing Matrix – Buyers Desires – Land Ethic

15. Native Range $600 Native Range $600 Mountain Pasture $850 Mountain Pasture $850 Riparian $6,500 Irrigated – Pivot - $4,000 CE – Historically Limited Change CE – Historically changes to H&B Use- Greater Productivity Features

16. Native Range Mountain Pasture Riparian Irrigated – Pivot - Buildings LeasesLeases Typical Matrix

18. 3.1% 3.4% 1% Return

19. 2013 – Small Lands Analysis 100 to 320 Deeded Acres – 24 Sales $12,846,000 4,430 Deeded Acres $2,900 per acre Improved $2,348 Per Acre Unimproved 321 to 1,000 Deeded Acres – 25 Sales $24,167,843 14,076 Deeded Acres $1,717 per acre Improved $1,394 Per Acre Unimproved Appears to be an upside to selling smaller parcels Based on averages – averages Good

20. 2013 Sales Water Amenity Properties 5,546 Deeded Acres - $20,550,000 $7,135 per acre - Improved $5,425 per acre - Unimproved Average 504 Deeded Acres

21. Water Class Values - 2013 Class One Water Land Value Per Acre- Overall $5,877 Non CE - $6,460 CE Encumbered - $3,958 38.73% Property Rights Adjustment Class Two Water Land Value Per Acre- Overall $4,227 All Non CE Encumbered

23. Southwestern Montana River Trending Madison County Beaverhead County Madison Only - Riparian Trending 2003 2004-’05 2006-’07 2010-’13 $3,056$4,301$8,432 No Sales $8,536 Beaverhead Only - Riparian Trending 2003 2004-’05 2006-’07 2010-’13 $1,150$2,385$3,858 No Sales $5,896 Not Appreciation – Changing Property Features Spring Creeks Averages Good

24. Recent River Site Data Trends 2011 to 2013 Average Site - 78.86 acres Average Site - $810,000 $10,272 per acre Unimproved High Amenity $914,000 Lower Amenity $595,000

25. 2013 River Sites $20,550,000 15 Sales – 1,427 Deeded Acres 95.13 acres per site $1,370,000 Per Site - Improved $14,401 per acre overall

26. Average $960,000 Site/Land Value Only $10,091 Per Acre Unimproved

27. FCS –Southeastern Montana Ranches 2012 Sales Volume $81,000,000 Deeded Acres 208,000 $390 Per Acre - Deeded 2013 Sales Volume $51,000,000 Deeded Acres 117,000 $436 Per Acre – Deeded (11.8% Increase)

28. 2010: $225 to $275 Per Deeded Acre 2012: $350 to $400 Per Deeded Acre 2013: $435 to $496 Per Deeded Acre 2005: $175 to $225 Per Deeded Acre Eastern Montana – “The Other Market” Predominately Agricultural H&B Use 2010 - Emergence of N Bar Sale & Expanding Western Market Mid State - Spanning Two Market Areas More Recreational Influence - $400 to $500 Per Acre

29. Effect of Transitional Market On Animal Unit Values - 2010 Effect of Transitional Market On Animal Unit Values - 2012 11,730$ Per AU Unimproved 8,043$ Per AU Unimproved Avg AU Rec Influence Avg AU Grass Ranch 15,000$ Per AU Unimproved 11,000$ Per AU Unimproved Avg AU Rec Influence Avg AU Grass Ranch

30. What's Up with Appraisers Regulation began in 1990 Grandfathering Lack of Mentorship (intelligence) IRS Enforcement ( Intimidation) 2006 Overstatement Penalties - Sanctions Lack of Effective Support or Pushback By Appraisal Organizations

31. USPAP YELLOWBOOK (One hand tied behind your back) QUAILIFIED IRS APPRAISAL (Two hands Tied behind your back) Report Formats

32. Pushback was Limited Errors and Misleading Reports Flagged - Bad No Logical Defense No Real Standards in Place IRS Walk Over Appraisers & Land Trusts Subsequently Decreed Rules “Standard Procedures” Property Rights Adjustment Gutted for CE Valuation But Still Fully Acceptable for any other Damages Measurement Access Fire Environmental Virtually Whole Appraisal Practice is based on Property Rights Adjustment

33. USPAP (Follow the rules) 5 Standards of Practice & Incorporated Rules 10 Statements on Appraisal Standards 32 Advisory Opinions 316 Frequently Asked Questions

34. USPAP Report Credible Results in a Non Misleading Manner Based on Standard of your Peers As dictated By Your Experience/Ethics Yellowbook Report all undeniable elements In a Supportable Format IRS Qualified Appraise As Ordered Based on Non Regulated Rules No Review – Until? Maybe Never Review and acceptance by a qualified reviewer based on a statement of work Radom –based on unlicensed IRS Engineer Only Federal Agency that has not adopted USPAP

35. 1-Larger Parcel Issues 2-Highest and Best Use 3-Valuation 4- Trends

36. Larger Parcel Mom & Pop CE Subject 640 Acres Unity of 1-Ownership 2-Location 3-Unity of Use 4- Highest and Best Use

37. Larger Parcel Mom & Pop CE Subject 640 Acres Mom and Pop 160 acres No CE Unity of 1-Ownership 2-Location 3-Unity of Use 4- Highest and Best Use

38. Mom & Pop CE Subject 640 Acres Mom and Pop 160 acres No CE Mom & Pop CE Subject 640 Acres Mom and Pop 160 acres No CE USPAP 640 CE Subject - Encumbered Yellowbook Before 800 acres After 640 Encumbered 160 Non – different H&B Use IRS – 800 acres Partially Encumbered With Analysis of Benefit to Remainder and Enhancements

39. Larger Parcel Daughter Mom & Pop CE Subject 640 Acres Ex Son In-law Unity of 1-Ownership 2-Location 3-Use Mom & Pop – No CE

40. Larger Parcel- USPAP Daughter Mom & Pop CE Subject 640 Acres Ex Son In-law Unity of 1-Ownership 2-Location 3-Use Mom & Pop – No CE

41. Larger Parcel- IRS Daughter Mom & Pop CE Subject 640 Acres Ex Son In-law Unity of 1-Ownership 2-Location 3-Use Mom & Pop – No CE Now for IRS 920 acres Partially Encumbered Larger Parcel 640 encumbered Benefits Enhancements

42. Larger Parcel- IRS Daughter Mom & Pop CE Subject 640 Acres Ex Son In-law Unity of 1-Ownership 2-Location 3-Use Mom & Pop – No CE Now for IRS 920 acres Partially Encumbered Larger Parcel 640 encumbered Benefits Enhancements Son

43. Highest & Best Use Before Easement Legally Permissible Physically Possible Financially Feasible Maximally Productive

44. Legally Permissible Zoning Prior Easements Floodway Governmental Restrictions

45. Physically Possible Topography Access Floodway Size/Shape Soils

46. Financially Feasible What Economic Use Supports Market Value KEY Probable Measurable Predictable

47. Agriculture Productivity Recreation Features Investment Quality Bullshit Probable Foreseeable Future Interim

48. Subdivision - Really

49. Subdivision- OK Value Analysis Discounted Cash Flow NO-NO Bulk Sale Unhappy Client

50. Based on Buyer Logic: A = $100,000 - 20 Acre Lot Then regardless of input costs My 320 acres = 16 times $100,000 Or B - $1,600,000 $5,000 per acre CE Reserves 2 build sites and no division So After Value 2 times $100,000 = C- $200,000 D- (duh)= CE value $1,400,000 Joe Bag of Doughnuts Buys a 320 acre tract At market - say $1500 per acre Or $480,000

51. 320 acres – assuming zoning and all that: Infrastructure - $10,000 per lot- $160,000 Cost of Sale at 12% - $192,000 Retail less $352,000 – net $1,248,000 After – “IRS” two enhanced build sites at $150,000 280 acres of permanently restricted pasture At $500 = $140,000 After Value - $440,000/ $1375 per acre CE Value - $808,000

52. But wait - What about Financial Feasibility? Demand-?? Why of course. Supply – not like this. Absorption – It is “red”hot. Cost of Money – Who cares.

53. Discounted Cash Flow Typically a six to seven year window. Based on: Extraordinary Assumptions Remember: There is no mythical development market out there.

54. Maximally Productive Rural Recreational Investment with Agricultural Influences in Anticipation of Appreciation Based on value and use measured by Non Economic Intrinsic Personal Use Benefits

55. And is that improved or unimproved Oh Yea Measure the Effects of Super Adequate Buildings On land values within CE sale Analysis

56. Average $960,000 Site/Land Value Only $10,091 Per Acre Unimproved Average 78 acres Remember average River Class One 504 acres at $6,400 per acre $3,225,000 So CE allowing 2 sites within 504 acres Two 78 acre sites at $960,000 each $1,812,000 Remainder 348 acres restricted at CE Value of $4000 per acre $ 1,392,000 After Value - $3,204,000 Sites $1,812,000 Open Space - $1,392,000 Take Down $21,000 Real World –H&B Use Yea so you can’t divide to capitalize on two sites - But do I have any sales to go down that road- or is it an Extraordinary Assumption

57. Lets Go To Real World

58. Irrigated Cropland Bozeman Proper $10,000 Per Acre Irrigated Cropland Toston $3,500 Per Acre Irrigated Cropland Holland Settlement $5,500 Per Acre Assume Identical CEs – No Splits- No Homes Assume water/ systems /productivity - similar Consider Change in H&B Use

59. Irrigated Cropland Bozeman Proper $10,000 Per Acre Irrigated Cropland Toston $3,500 Per Acre Irrigated Cropland Holland Settlement $5,500 Per Acre Highest and Best Use a Function of: Consider Change in H&B Use Remember Financial Feasibility Maximally Productive LOCATION PRODUCTIVITY SUPPLY DEMAND

60. Irrigated Cropland Bozeman Proper $10,000 Per Acre Irrigated Cropland Toston $3,500 Per Acre Irrigated Cropland Holland Settlement $5,500 Per Acre Assume Identical CEs – No Splits- No Homes Consider Change in H&B Use LOCATION PRODUCTIVITY SUPPLY DEMAND

61. Do we even have a sale of encumbered irrigated cropland? Well I have sales that contain lands including irrigated cropland. Those sales say 30% property rights adjustment - overall. Oh yea – those are at Dillon and they are 4 years old. I have non comparable pasture sales in this area that show a Property Rights adjustment of 40%. I have county and NRCS purchases of CEs on Irrigated cropland that were funded at 20 % of market value. Oh yea IRS and courts can try to default to established Programs.

62. Irrigated Cropland Bozeman Proper $10,000 Per Acre Highest and Best Use a Function of: Consider Change in H&B Use Financial Feasibility Maximally Productive If This was Entitled It would Sell at $25,000 Per Acre Simple – Entitled to Speculative $25,000 to $10,000- 60% But wait - $10,000 was “fee simple” and Who really puts an entitled tract under CE?

63. Based on a preponderance of the data my $10,000 speculative land could be assumed to be affected 60% bringing $10,000 per acre down to $4,000 per acre which somewhat equates to Toston irrigated sales, with some unexplainable consideration that Toston sales are “fee land”, whatever, but considering location I have to adjust $4,000 per acre up 57% to $6,280 based on locational premium of Settlement lands as compared to Toston lands; and by the way that ends up as a 37.2% property rights adjustment that just happens to coincide with the average of every non comparable easement sale in my database that occurred in Montana over the last 10 years, that wasn’t a riparian property sale. Case solution

64. Dry Cropland Semi Arid Native Rangeland River - Riparian Irrigated Cropland Mountain Pasture Buildings Highest And Best Use Considerations Ex Urban Lands

65. Dry Cropland Semi Arid Native Rangeland River - Riparian Irrigated Cropland Mountain Pasture Buildings Highest And Best Use Considerations Site

66. River - Riparian Historically Discount Based on “Principle of Substitution” In the Maturing Montana Market You have to ask yourself Is there a substitute? And realize that for high end property Most are Encumbered!

67. Parting Thought – What Drives Value in Your market?

68. Thanks For Your Time !