6. Reasonableness of the Selling Price
for the Main Office

SJWC has entered into a Purchase and Sale Agreement with Adobe Systems, Inc. for the purchase of the Main Office for $4 million.⁶³ To support its position that the sales price for the Main Office is reasonable, SJWC submitted two independent appraisals reflecting a fair market value for the property of between $3.1 million and $4.2 million.⁶⁴

An appraisal by Colliers International, dated February 28, 2006, appraises the value of the Main Office at $3.1 million as of February 15, 2006. The Colliers International appraisal states that SJWC's parcel is adjacent to a parcel that is currently entitled for development of 1,000,000 ft² of office space. As part of this entitlement, the annex building and satellite building were scheduled for demolition and development as a common public park area due to setback issues from the Guadalupe River. Therefore, the appraisal only included the main building structure in its analysis because, according to Colliers International, the annex and satellite buildings would have no value to a buyer.

An appraisal by Hulberg & Associates, dated March 15, 2006, appraises the value of the Main Office at $4.2 million as of March 1, 2006, and includes the structures excluded from the Colliers International appraisal. The Hulberg & Associates appraisal states that, although the rear portion of the site is of limited value to the typical buyer, it is possible that a higher price could be obtained if the property was sold to the developer of the adjacent 4.53-acre parcel and incorporated into a larger project.

Although DRA opposes the Proposed Transaction altogether because it contends that remodeling the Main Office and leasing additional space is less costly, DRA does not contend that the sale price for the Main Office is unreasonable.

Discussion

The $4 million price for which SJWC has agreed to sell the Main Office is 5% less than the Hulberg & Associates appraisal. However, the Hulberg & Associates appraisal assumes value for structures that are scheduled for demolition. Therefore, the Hulberg & Associates appraisal likely overstates the actual price that can be reasonably obtained for the property.

The Hulberg & Associates appraisal states that a higher price may possibly be obtained by incorporating the property into a larger project, if the developer of the adjacent parcel was interested in purchasing the property. However, there is no evidence that the developer of the adjacent parcel ever expressed an interest in purchasing the Main Office, and it is unlikely that the Main Office can be sold for the highest appraisal value. Therefore, the agreed upon selling price of $4 million is reasonable.

⁶³ Exh. SJWC-1, Yoo Attachment B.

⁶⁴ Exh. SJWC-1, Yoo Attachment C.