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Mary Alice Divine August 1, 2007 Page 2 of 2 To determine whether conveyance of real property constitutes a subsidy, therefore, the City must determine the "fair market price" of the Property. The Act does not define the term "fair market price," or specify how it should be determined. Presumably, the term is essentially comparable to "market value," which in customary real estate practice is best measured by an appraisal. (The estimated market value determined by the County assessor for ad valorem tax purposes would normally be an indicator as well, but the Property is owned by the City and therefore tax - exempt. Counties maintain a market value on tax - exempt property, but that value is updated only every six years, is rarely relied upon by buyers, sellers or lenders as a true indication of market value, and in our view would not be a reasonable measure in this situation.) In this case, the City received an original appraisal in January 2007. After discussing a possible sale with the Developer, the City requested a follow -up appraisal by the same appraiser. You indicated that the reason for the second appraisal was that the first appraisal did not reflect the current Lino Lakes commercial market, and a concern that the limitations imposed by the City on the sale of the Property (which were not taken into account in the January appraisal) might affect its value for determining the "fair market price." The June appraisal confirmed those perceptions, by concluding that the current market value of the Property is $815,000. The question is whether it is reasonable for the City to rely on the June appraisal as the measure of "fair market price" for purposes of the Act. If the decision were challenged in court, the test would probably be whether it was arbitrary and capricious for the City to base its decision on the June appraisal. In my view, the City would likely prevail in that argument. First, the June appraisal is more recent and was prepared by the same appraiser. Second, the June appraisal reflects the additional limitations that the City plans to impose on use of the property as a matter of policy. Assuming those limitations would be imposed on any sale (not just the sale to Anderson Builders), the June appraisal more accurately reflects a true "market price" for property that cannot be developed for certain commercial uses. It does not seem reasonable to conclude that an appraisal prepared six months earlier, which did not take into account the City's use limitations, must represent the current "fair market price" for the Property. As in many situations, we cannot conclude definitively that a court would reach the same conclusion if the action were challenged. However, for the reasons described above we think it unlikely that a decision to base the "fair market price" on the June 2007 appraisal would be found to be arbitrary and capricious and therefore give rise to a violation of the Act. If you have further questions on this point, please let me know. c: Andy Pratt 315528v1 SJB LN140 -102