EX-99.(C)(2) 4 d07273a2exv99wxcyx2y.txt APPRAISAL OF WINDSOR HILLS APARTMENTS WINDSOR HILLS APARTMENTS ASCOT LANE BLACKSBURG, VIRGINIA MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 12, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] Apartment Investment and Management Company ("AIMCO") c/o Mr. Steven A. Velkei, Esq. Liner Yankelevitz Sunshine & Regenstreif LLP 1100 Glendon Avenue, 14th Floor Los Angeles, California 90024-3503 Nuanes, et al. ("Plaintiffs") c/o Ms. Joy Kruse Lieff Cabraser Heimann & Bernstein Embarcadero Center West 275 Battery Street, 30th Floor San Francisco, California 94111 RE: WINDSOR HILLS APARTMENTS ASCOT LANE BLACKSBURG, MONTGOMERY COUNTY, VIRGINIA In accordance with your authorization, we have completed the appraisal of the above-referenced property. This complete appraisal is intended to report our analysis and conclusions in a summary format. The subject property consists of an apartment project having 300 units with a total of 270,855 square feet of rentable area. The improvements were built in 1970. The improvements are situated on 24.35 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 95% occupied. It is our understanding the appraisal will be used by the clients to assist the San Mateo Superior Court in the settlement of litigation between the above mentioned clients. The appraisal is intended to conform to the Uniform Standards of Professional Appraisal Practice ("USPAP") as promulgated by the Appraisal Standards Board of the Appraisal Foundation and the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute. The appraisal is presented in a summary report, and the Departure Provision of USPAP has not been invoked in this appraisal. It is entirely inappropriate to use this value conclusion or the report for any purpose other than the one stated. AMERICAN APPRAISAL ASSOCIATES, INC. LETTER OF TRANSMITTAL PAGE 2 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA The opinions expressed in this appraisal cover letter can only be completely understood by reading the narrative report, addenda, and other data, which is attached. The appraisal is subject to the attached general assumptions and limiting conditions and general service conditions. As a result of our investigation, it is our opinion that the fee simple market value of the subject, effective May 12, 2003 is: ($12,800,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Frank Fehribach ---------------------------------- July 2, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group Virginia Temporary Certified General Real Estate Appraiser #4001 007252 Report By: Brian Johnson, MAI Virginia Temporary Certification Pending Assisted By: Jonathan Hackerman AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary .................................................... 4 Introduction.......................................................... 9 Area Analysis......................................................... 11 Market Analysis....................................................... 14 Site Analysis......................................................... 16 Improvement Analysis.................................................. 16 Highest and Best Use.................................................. 17 VALUATION Valuation Procedure................................................... 18 Sales Comparison Approach............................................. 20 Income Capitalization Approach........................................ 26 Reconciliation and Conclusion......................................... 38
ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Windsor Hills Apartments LOCATION: Ascot Lane Blacksburg, Virginia INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: Fee simple estate DATE OF VALUE: May 12, 2003 DATE OF REPORT: July 2, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 24.35 acres, or 1,060,686 square feet Assessor Parcel No.: 3035-13950 Floodplain: Community Panel No. 510100-0007 B (May 15, 1980) Flood Zone C, an area outside the floodplain. Zoning: RM-48 (Medium Density Multi-Unit Residential) BUILDING: No. of Units: 300 Units Total NRA: 270,855 Square Feet Average Unit Size: 903 Square Feet Apartment Density: 12.3 units per acre Year Built: 1970 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ----------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income -------------------------------------------------------------- 1A10 736 $ 490 $ 0.67 $ 25,480 $ 305,760 1B10 836 $ 520 $ 0.62 $ 13,520 $ 162,240 2A10 946 $ 590 $ 0.62 $ 66,670 $ 800,040 2B10 1,046 $ 600 $ 0.57 $ 23,400 $ 280,800 3A15 1,114 $ 700 $ 0.63 $ 24,500 $ 294,000 3B15 1,214 $ 790 $ 0.65 $ 7,900 $ 94,800 EA10 481 $ 480 $ 1.00 $ 12,000 $ 144,000 -------------------------------------------------------------- Total $173,470 $2,081,640 ==============================================================
OCCUPANCY: 95% ECONOMIC LIFE: 45 YEARS AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA EFFECTIVE AGE: 20 Years REMAINING ECONOMIC LIFE: 25 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [EXTERIOR - APARTMENT BUILDING PICTURE] [EXTERIOR - LANDSCAPE, APT. BUILDING & PARKING PICTURE] [AREA MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA [NEIGHBORHOOD MAP] HIGHEST AND BEST USE: As Vacant: Hold for future multi-family development As Improved: Continuation as its current use METHOD OF VALUATION: In this instance, the Sales Comparison and Income Approaches to value were utilized. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA PART TWO - ECONOMIC INDICATORS
Amount $/Unit ------ ------ INCOME CAPITALIZATION APPROACH DIRECT CAPITALIZATION Potential Rental Income $ 2,081,640 $ 6,939 Effective Gross Income $ 2,029,292 $ 6,764 Operating Expenses $ 836,465 $ 2,788 41.2% of EGI Net Operating Income: $ 1,132,828 $ 3,776 Capitalization Rate 9.00% DIRECT CAPITALIZATION VALUE $ 12,600,000* $42,000 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 10% Stabilized Vacancy & Collection Loss: 9% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 9.50% Discount Rate 11.50% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $ 13,000,000* $43,333 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $ 12,800,000 $42,667 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $31,071 to $50,000 Range of Sales $/Unit (Adjusted) $31,786 to $42,328 VALUE INDICATION - PRICE PER UNIT $ 11,400,000* $38,000 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 5.27 to 6.23 Selected EGIM for Subject 5.90 Subject's Projected EGI $ 2,029,292 EGIM ANALYSIS CONCLUSION $ 12,000,000* $40,000 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $ 12,600,000* $42,000 / UNIT RECONCILED SALES COMPARISON VALUE $ 12,000,000 $40,000 / UNIT
--------------- * Value indications are after adjustments for concessions, deferred maintenance, excess land and lease-up costs, if any. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 8 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $ 11,400,000 NOI Per Unit $ 12,600,000 EGIM Multiplier $ 12,000,000 INDICATED VALUE BY SALES COMPARISON $ 12,000,000 $40,000 / UNIT INCOME APPROACH: Direct Capitalization Method: $ 12,600,000 Discounted Cash Flow Method: $ 13,000,000 INDICATED VALUE BY THE INCOME APPROACH $ 12,800,000 $42,667 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $ 12,800,000 $42,667 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at Ascot Lane, Blacksburg, Montgomery County, Virginia. Blacksburg identifies it as 3035-13950. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Jonathan Hackerman on May 12, 2003. Brian Johnson, MAI and Frank Fehribach, MAI have not made a personal inspection of the subject property. Jonathan Hackerman assisted Brian Johnson, MAI in the research, valuation analysis and writing the report. Frank Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach, MAI, Brian Johnson, MAI, and Jonathan Hackerman have extensive experience in appraising similar properties and meet the USPAP competency provision. The scope of this investigation comprises the inspection of the property and the collection, verification, and analysis of general and specific data pertinent to the subject property. We have researched current improved sales and leases of similar properties, analyzing them as to their comparability, and adjusting them accordingly. We completed the Sales Comparison and Income Capitalization Approaches to value. From these approaches to value, a concluded overall value was made. DATE OF VALUE AND REPORT This appraisal was made to express the opinion of value as of May 12, 2003. The date of the report is July 2, 2003. PURPOSE AND USE OF APPRAISAL The purpose of the appraisal is to estimate the market value of the fee simple interest in the subject property. It is understood that the appraisal is intended to assist the clients in litigation settlement proceedings. The appraisal was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. PROPERTY RIGHTS APPRAISED We have appraised the Fee Simple Estate in the subject property (as applied in the Sales & AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is defined in The Dictionary of Real Estate Appraisal, 3rd ed. (Chicago: Appraisal Institute, 1993), as: "Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat." MARKETING/EXPOSURE PERIOD MARKETING PERIOD: 6 to 12 months EXPOSURE PERIOD: 6 to 12 months HISTORY OF THE PROPERTY Ownership in the subject property is currently vested in Windsor Hills LP. To the best of our knowledge, no transfers of ownership or offers to purchase the subject are known to have occurred during the past three years. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 11 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA AREA / NEIGHBORHOOD ANALYSIS NEIGHBORHOOD ANALYSIS A neighborhood is a group of complementary land uses. The function of the neighborhood analysis is to describe the immediate surrounding environs. The subject is located in the city of Blacksburg, Virginia. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being single family dwellings. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Route 723 West - Route 460 South - Virginia Tech North - Route 815 MAJOR EMPLOYERS Major employers in the subject's area include Virginia Tech, Federal-Mogul Corp., Litton Poly-Scientific, Wolferine Gasket and Electo-Tech Corp. Virginia Tech employs approximately 37% of the labor market. The overall economic outlook for the area is considered favorable. DEMOGRAPHICS We have reviewed demographic data within the neighborhood. The following table summarizes the key data points. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 12 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA NEIGHBORHOOD DEMOGRAPHICS
AREA ------------------------------------------ CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA ------------------------------------------------------------------------------------ POPULATION TRENDS Current Population 9,291 33,774 45,850 237,283 5-Year Population 10,759 35,769 48,297 241,504 % Change CY-5Y 15.8% 5.9% 5.3% 1.8% Annual Change CY-5Y 3.2% 1.2% 1.1% 0.4% HOUSEHOLDS Current Households 3,317 10,728 15,963 99,848 5-Year Projected Households 3,800 12,010 17,513 103,684 % Change CY - 5Y 14.6% 12.0% 9.7% 3.8% Annual Change CY-5Y 2.9% 2.4% 1.9% 0.8% INCOME TRENDS Median Household Income $ 16,391 $ 22,624 $ 22,597 $ 37,185 Per Capita Income $ 12,219 $ 14,004 $ 15,127 $ 22,098 Average Household Income $ 33,390 $ 44,346 $ 43,385 $ 52,514
Source: Demographics Now The subject neighborhood's population is expected to show increases above that of the region. The immediate market offers inferior income levels as compared to the broader market. The following table illustrates the housing statistics in the subject's immediate area, as well as the MSA region. HOUSING TRENDS
AREA ------------------------------------------ CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA ------------------------------------------------------------------------------------ HOUSING TRENDS % of Households Renting 72.52% 60.74% 60.64% 29.34% 5-Year Projected % Renting 73.45% 62.11% 61.41% 29.05% % of Households Owning 23.18% 34.16% 33.79% 64.45% 5-Year Projected % Owning 22.79% 33.36% 33.53% 65.02%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Vacant land South - Single Family Dwelling East - Single Family Dwelling West - Single Family Dwelling CONCLUSIONS The subject is well located within the city of Blacksburg. The neighborhood is characterized as being mostly suburban in nature and is currently in the growth stage of development. The economic outlook for the neighborhood is judged to be favorable with a good economic base. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 14 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA MARKET ANALYSIS The subject property is located in the city of Blacksburg in Montgomery County. The overall pace of development in the subject's market is more or less stable. Foxridge Apartments started construction in 1973 and made its last add-on in 2000. Knollwood and Maple represent recent construction as they were built in 1999 and 2001, respectively. Maple Ridge consists of town homes, which are not necessarily comparable to the subject. Knollwood is newer but close in proximity to the subject. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket -------------------------------- 1Q99 4.6% 5.1% 1Q00 3.8% 3.7% 1Q01 4.0% 4.3% 1Q02 7.0% 6.6% 1Q03 10.3% 10.2%
Source: Carolina Real Data (Roanoke Market) Occupancy trends in the subject's market are declining. Historically speaking, the subject's submarket has equated the overall market. There is no new construction, which will keep the occupancy rates at a high level. Also the large number of students, both undergraduate and graduate needing housing bode well for the local Blacksburg market. Market rents in the subject's market have been following an increasing trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change ------------------------------------------------- 1Q99 $500 - $ 468 - 1Q00 $517 3.4% $ 481 2.8% 1Q01 $535 3.5% $ 499 3.7% 1Q02 $565 5.6% $ 511 2.4% 1Q03 $577 2.1% $ 535 4.7%
Source: Carolina Real Data (Roanoke Market) The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject --------------------------------------------------------------------------------------------- R-1 Chasewood Downs 276 95% 1966 2 miles west of the subject R-2 Oakbridge Apartments 198 100% 1964 2 miles west of the subject R-3 Terrace View Apartments 808 95% 1975-1992 2 miles west of subject Subject Windsor Hills Apartments 300 95% 1970
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 24.35 acres, or 1,060,686 square feet Shape Rectangular Topography Level to slope Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Average Flood Zone: Community Panel 510100-0007 B, dated May 15, 1980 Flood Zone Zone C Zoning RM-48, the subject improvements represent a legal conforming use of the site.
REAL ESTATE TAXES
ASSESSED VALUE - 2003 -------------------------------------- TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES ------------------------------------------------------------------------------ 3035-13950 $1,217,500 $14,163,900 $15,381,400 0.00640 $98,440
IMPROVEMENT ANALYSIS Year Built 1970 Number of Units 300 Net Rentable Area 270,855 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Brick or masonry Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, sand volleyball, gym room, car wash, barbeque equipment, meeting hall, laundry room, business office, and parking area. Unit Amenities Individual unit amenities include a balcony, cable TV connection, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, water heater, garbage disposal, and oven.
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) -------------------------------------- 1A10 52 736 1B10 26 836 2A10 113 946 2B10 39 1,046 3A15 35 1,114 3B15 10 1,214 EA10 25 481
Overall Condition Average Effective Age 20 years Economic Life 45 years Remaining Economic Life 25 years Deferred Maintenance None HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1970 and consist of a 300-unit multifamily project. The highest and best use as improved is for a continued multifamily use. Overall, the highest and best use of the subject property is the continued use of the existing apartment project. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 18 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA THE VALUATION PROCEDURE There are three traditional approaches, which can be employed in establishing the market value of the subject property. These approaches and their applicability to the valuation of the subject are summarized as follows: THE COST APPROACH The application of the Cost Approach is based on the principle of substitution. This principle may be stated as follows: no one is justified in paying more for a property than that amount by which he or she can obtain, by purchase of a site and construction of a building, without undue delay, a property of equal desirability and utility. In the case of a new building, no deficiencies in the building should exist. In the case of income-producing real estate, the cost of construction plays a minor and relatively insignificant role in determining market value. The Cost Approach is typically only a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) where the cost of reproducing the improvements is easily and accurately quantified and there is no economic obsolescence. In all instances, the issue of an appropriate entrepreneurial profit - the reward for undertaking the risk of construction, remains a highly subjective factor especially in a market lacking significant speculative development. THE SALES COMPARISON APPROACH The Sales Comparison Approach is an estimate of value based upon a process of comparing recent sales of similar properties in the surrounding or competing areas to the subject property. Inherent in this approach is the principle of substitution. The application of this approach consists of comparing the subject property with similar properties of the same general type, which have been sold recently or currently are available for sale in competing areas. This comparative process involves judgment as to the similarity of the subject property and the comparable sale with respect to many value factors such as location, contract rent levels, quality of construction, reputation and prestige, age and condition, among others. The estimated value through this approach represents the probable price at which a willing seller would sell the subject property to a willing and knowledgeable buyer as of the date of value. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 19 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA THE INCOME CAPITALIZATION APPROACH The theory of the Income Capitalization Approach is based on the premise that present value is the value of the cash flow and reversionary value the property will produce over a reasonable holding (ownership) period. The Discounted Cash Flow Analysis will convert equity cash flows (including cash flows and equity reversion) into a present value utilizing an internal rate of return (or discount rate). The Internal Rate of Return (IRR) will be derived from a comparison of alternate investments, a comparative analysis of IRR's used by recent buyers of similar properties, and a review of published industry surveys. The Direct Capitalization Analysis converts one year of income into an overall value using overall capitalization rates from similar sales. The overall rates take into consideration buyers assumptions of the market over the long-term. The results of the Income Capitalization Analysis are usually the primary value indicator for income producing properties. Investors expect a reasonable rate of return on their equity investment based on the ownership risks involved; this approach closely parallels the investment decision process. RECONCILIATION In this instance, we have completed the Sales Comparison and Income Capitalization Approaches to value. As an income producing property, the income approach is a primary approach to value. The Sales Comparison Approach is also considered reliable as investors are buying similar buildings in the market. Our research indicates that market participants are generally not buying, selling, investing, or lending with reliance placed on the methodology of the Cost Approach to establish the value. Therefore, we have decided that the Cost Approach is not a reliable indicator of value for the subject, and this approach has not been utilized. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 20 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA SALES COMPARISON APPROACH Use of market or comparable sales requires the collection and analysis of comparable sales data. Similar properties recently sold are compared to the subject and adjusted based on any perceived differences. This method is based on the premise that the costs of acquiring a substitute property would tend to establish a value for the subject property. The premise suggests that if a substitute is unavailable in the market, the reliability of the approach may be subordinate to the other approaches. The reliance on substitute properties produces shortcomings in the validity of this approach. Geographic and demographic characteristics from each submarket restrict which sales may be selected. Recent sales with a similar physical characteristics, income levels, and location are usually limited. The sales we have identified, however, do establish general valuation parameters as well as provide support to our conclusion derived through the income approach method. The standard unit of comparison among similar properties is the sales price per unit and price per square foot of net rentable area. To accurately adjust prices to satisfy the requirements of the sales comparison approach, numerous calculations and highly subjective judgments would be required including consideration of numerous income and expense details for which information may be unreliable or unknown. The sales price per unit and square foot are considered relevant to the investment decision, but primarily as a parameter against which value estimates derived through the income approach can be judged and compared. In examining the comparable sales, we have applied a subjective adjustment analysis, which includes specific adjustments derived from our experience and consulting with the market participants. SALES COMPARISON ANALYSIS Detailed on the following pages are sales transactions involving properties located in the subject's competitive investment market. Photographs of the sale transactions are located in the Addenda. Following the summary of sales is an adjustment grid that is used to arrive at a value. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ----------------------------------------------------------------------------------------------------------------------------- Property Name Windsor Hills Apartments Summit @ Roanoke Cinnamon Ridge Apartments LOCATION: Address Ascot Lane 4500 Franklin Way 5143 Overland Drive City, State Blacksburg, Virginia Roanoke, VA Roanoke, VA County Montgomery Roanoke Roanoke PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 270,855 215,188 118,318 Year Built 1970 1988 1976 Number of Units 300 250 140 Unit Mix: Type Total Type Total Type Total 1A10 52 1Br/1Ba 92 1Br/1Ba 20 1B10 26 2Br/1Ba 8 2Br/1Ba 63 2A10 113 2Br/2Ba 126 3Br/1.5Ba 7 2B10 39 3Br/2Ba 24 2Br/1.5Ba 39 3A15 35 Efficiency 11 3B15 10 EA10 25 Average Unit Size (SF) 903 861 845 Land Area (Acre) 24.3500 32.2300 10.3290 Density (Units/Acre) 12.3 7.8 13.6 Parking Ratio (Spaces/Unit) 1.49 N/A 1.66 Parking Type (Gr., Cov., etc.) Open Open Open CONDITION: Good Good Good APPEAL: Average Average Average AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room Yes Yes No Laundry Room Yes No No Secured Parking No No No Sport Courts Yes Yes Yes Washer/Dryer Connection No Yes Yes OCCUPANCY: 95% 93% 99% TRANSACTION DATA: Sale Date October, 2002 July, 2000 Sale Price ($) $12,500,000 $4,350,000 Grantor Gray Property 1101, LLC Charan Industries Grantee Colonial Court Apartments Cinnamon Ridge Apts. Sale Documentation N/A Book 1665 Page 1147 Verification Area Appraiser Grantor Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF ------------------------------------------------------------------------------------------------------------------------------ Potential Gross Income $2,184,672 $ 8,739 $10.15 N/A Vacancy/Credit Loss $ 174,774 $ 699 $ 0.81 N/A -------------------------------------------------------------- Effective Gross Income $2,009,898 $ 8,040 $ 9.34 $795,827 $ 5,684 $6.73 Operating Expenses $ 800,000 $ 3,200 $ 3.72 $428,664 $ 3,062 $3.62 -------------------------------------------------------------- Net Operating Income $1,209,898 $ 4,840 $ 5.62 $367,163 $ 2,623 $3.10 ------------------------------------------------------------------------------------------------------------------------------ NOTES: PRICE PER UNIT $50,000 $31,071 PRICE PER SQUARE FOOT $ 58.09 $ 36.77 EXPENSE RATIO 39.8% 53.9% EGIM 6.22 5.47 OVERALL CAP RATE 9.68% 8.44% Cap Rate based on Pro Forma or Actual Income? ACTUAL PRO FORMA COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 -------------------------------------------------------------------------------------------------- Property Name Craig Manor Apartments Buck Run Apartments LOCATION: Address 128 Rutledge Drive 4689 Buck Run Square City, State Salem, VA Roanoke, VA County Roanoke Roanoke PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 95,090 90,816 Year Built 1973 1990 Number of Units 108 96 Unit Mix: Type Total Type Total 1Br/1Ba 12 1Br/1Ba 13 2Br/1Ba 50 2Br/1Ba 35 2Br/2Ba 10 2Br/2Ba 36 3Bd/2Ba 36 3Bd/1.75Ba 12 Average Unit Size (SF) 880 946 Land Area (Acre) 5.5330 6.2400 Density (Units/Acre) 19.5 15.4 Parking Ratio (Spaces/Unit) N/A N/A Parking Type (Gr., Cov., etc.) Open Open CONDITION: Average Good APPEAL: Average Average AMENITIES: Pool/Spa Yes/No Yes/No Gym Room No No Laundry Room Yes No Secured Parking No No Sport Courts No No Washer/Dryer Connection Yes Yes OCCUPANCY: 90% 94% TRANSACTION DATA: Sale Date November, 2000 March, 2002 Sale Price ($) $3,450,000 $4,300,000 Grantor United Dominion Realty Trust Timberline Condominium Assoc. Grantee Craig Manor Assoc., LLC Sherwood Properties of VA Sale Documentation Book 338 Page 337 N/A Verification Area Appraiser Representative of Buyer Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF -------------------------------------------------------------------------------------------------- Potential Gross Income N/A $734,000 $ 7,646 $8.08 Vacancy/Credit Loss N/A $ 44,000 $ 458 $0.48 ---------------------------------------------------------- Effective Gross Income $655,000 $ 6,065 $6.89 $690,000 $ 7,188 $7.60 Operating Expenses $340,000 $ 3,148 $3.58 $300,000 $ 3,125 $3.30 ---------------------------------------------------------- Net Operating Income $315,000 $ 2,917 $3.31 $390,000 $ 4,063 $4.29 -------------------------------------------------------------------------------------------------- NOTES: PRICE PER UNIT $31,944 $44,792 PRICE PER SQUARE FOOT $ 36.28 $ 47.35 EXPENSE RATIO 51.9% 43.5% EGIM 5.27 6.23 OVERALL CAP RATE 9.13% 9.07% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $31,071 to $50,000 per unit. Adjustments have been made to the sales to reflect differences in location, age/condition and quality/appeal. Generally speaking, larger properties typically have a lower price per unit when compared to smaller properties, all else being equal. Similarly, those projects with a higher average unit size will generally have a higher price per unit. After appropriate adjustments are made, the improved sales demonstrate an adjusted range for the subject from $31,786 to $42,328 per unit with a mean or average adjusted price of $36,389 per unit. The median adjusted price is $35,721 per unit. Based on the following analysis, we have concluded to a value of $38,000 per unit, which results in an "as is" value of $11,400,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 --------------------------------------------------------------------------------------------------------------------- Property Name Windsor Hills Apartments Summit @ Roanoke Cinnamon Ridge Apartments Address Ascot Lane 4500 Franklin Way 5143 Overland Drive City Blacksburg, Virginia Roanoke, VA Roanoke, VA Sale Date October, 2002 July, 2000 Sale Price ($) $12,500,000 $4,350,000 Net Rentable Area (SF) 270,855 215,188 118,318 Number of Units 300 250 140 Price Per Unit $50,000 $31,071 Year Built 1970 1988 1976 Land Area (Acre) 24.3500 32.2300 10.3290 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) October, 2002 3% July, 2000 10% VALUE AFTER TRANS. ADJUST. ($/UNIT) $51,500 $34,179 Location Superior -5% Superior -5% Number of Units 300 250 -3% 140 -7% Quality / Appeal Good Superior -10% Comparable 0% Age / Condition 1970 1988 / Good -5% 1976 / Good 0% Occupancy at Sale 95% 93% 0% 99% 0% Amenities Good Comparable 0% Inferior 5% Average Unit Size (SF) 903 861 0% 845 0% PHYSICAL ADJUSTMENT -23% -7% FINAL ADJUSTED VALUE ($/UNIT) $39,655 $31,786 COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 ------------------------------------------------------------------------------------------- Property Name Craig Manor Apartments Buck Run Apartments Address 128 Rutledge Drive 4689 Buck Run Square City Salem, VA Roanoke, VA Sale Date November, 2000 March, 2002 Sale Price ($) $3,450,000 $4,300,000 Net Rentable Area (SF) 95,090 90,816 Number of Units 108 96 Price Per Unit $31,944 $44,792 Year Built 1973 1990 Land Area (Acre) 5.5330 6.2400 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) November, 2000 7% March, 2002 5% VALUE AFTER TRANS. ADJUST. ($/UNIT) $34,181 $47,031 Location Superior -5% Superior -5% Number of Units 108 -10% 96 -10% Quality / Appeal Comparable 0% Comparable 0% Age / Condition 1973 / Average 0% 1990 / Good -5% Occupancy at Sale 90% 3% 94% 0% Amenities Inferior 5% Inferior 5% Average Unit Size (SF) 880 0% 946 5% PHYSICAL ADJUSTMENT -7% -10% FINAL ADJUSTED VALUE ($/UNIT) $31,788 $42,328
SUMMARY VALUE RANGE (PER UNIT) $31,786 TO $42,328 MEAN (PER UNIT) $36,389 MEDIAN (PER UNIT) $35,721 VALUE CONCLUSION (PER UNIT) $38,000
VALUE OF IMPROVEMENT & MAIN SITE $11,400,000 PV OF CONCESSIONS -$ 19,000 VALUE INDICATED BY SALES COMPARISON APPROACH $11,381,000 ROUNDED $11,400,000
NET OPERATING INCOME (NOI) ANALYSIS We have also conducted a net operating income (NOI) comparison analysis. The NOI effectively takes into account the various physical, location, and operating aspects of the sale. When the subject's NOI is compared to the sale NOI, a percent adjustment can be arrived at. The following table illustrates this analysis. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA NOI PER UNIT COMPARISON
SALE PRICE NOI/ SUBJECT NOI COMPARABLE NO. OF ---------- ---------- -------------- ADJUSTMENT INDICATED NO. UNITS PRICE/UNIT OAR NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT ------------------------------------------------------------------------------------------------- I-1 250 $12,500,000 9.68% $1,209,898 $1,132,828 0.780 $ 39,013 $ 50,000 $ 4,840 $ 3,776 I-2 140 $ 4,350,000 8.44% $ 367,163 $1,132,828 1.440 $ 44,738 $ 31,071 $ 2,623 $ 3,776 I-3 108 $ 3,450,000 9.13% $ 315,000 $1,132,828 1.295 $ 41,357 $ 31,944 $ 2,917 $ 3,776 I-4 96 $ 4,300,000 9.07% $ 390,000 $1,132,828 0.929 $ 41,634 $ 44,792 $ 4,063 $ 3,776
PRICE/UNIT
Low High Average Median $39,013 $44,738 $41,685 $41,496
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 42,000 ----------- Number of Units 300 Value $12,600,000 PV of Concessions -$ 19,000 ----------- Value Based on NOI Analysis $12,581,000 Rounded $12,600,000
The adjusted sales indicate a range of value between $39,013 and $44,738 per unit, with an average of $41,685 per unit. Based on the subject's competitive position within the improved sales, a value of $42,000 per unit is estimated. This indicates an "as is" market value of $12,600,000 (rounded after necessary adjustment, if any) for the NOI Per Unit Analysis. EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS The effective gross income multiplier (EGIM) is derived by dividing the sales price by the total effective gross income. The following table illustrates the EGIMs for the comparable improved sales. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON
SALE PRICE COMPARABLE NO. OF ---------- EFFECTIVE OPERATING SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM ----------------------------------------------------------------------------------------- I-1 250 $12,500,000 $2,009,898 $ 800,000 39.80% 6.22 $ 50,000 I-2 140 $ 4,350,000 $ 795,827 $ 428,664 53.86% 5.47 $ 31,071 41.22% I-3 108 $ 3,450,000 $ 655,000 $ 340,000 51.91% 5.27 $ 31,944 I-4 96 $ 4,300,000 $ 690,000 $ 300,000 43.48% 6.23 $ 44,792
EGIM
Low High Average Median 5.27 6.23 5.80 5.84
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 5.90 ----------- Subject EGI $ 2,029,292 Value $11,972,825 PV of Concessions -$ 19,000 ----------- Value Based on EGIM Analysis $11,953,825 Rounded $12,000,000 Value Per Unit $ 40,000
There is an inverse relationship, which generally holds among EGIMs and operating expenses. Properties, which have higher expense ratios, typically sell for relatively less and therefore produce a lower EGIM. As will be illustrated in the Income Capitalization Approach of this report, the subject's operating expense ratio (OER) is estimated at 41.22% before reserves. The comparable sales indicate a range of expense ratios from 39.80% to 53.86%, while their EGIMs range from 5.27 to 6.23. Overall, we conclude to an EGIM of 5.90, which results in an "as is" value estimate in the EGIM Analysis of $12,000,000. SALES COMPARISON CONCLUSION The three valuation methods in the Sales Comparison Approach are shown below. The overall value via the Sales Comparison Approach is estimated at $12,000,000. Price Per Unit $11,400,000 NOI Per Unit $12,600,000 EGIM Analysis $12,000,000 Sales Comparison Conclusion $12,000,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA INCOME CAPITALIZATION APPROACH The income capitalization approach is based on the premise that value is created by the expectation of future benefits. We estimated the present value of those benefits to derive an indication of the amount that a prudent, informed purchaser-investor would pay for the right to receive them as of the date of value. This approach requires an estimate of the NOI of a property. The estimated NOI is then converted to a value indication by use of either the direct capitalization or the discounted cash flow analysis (yield capitalization). Direct capitalization uses a single year's stabilized NOI as a basis for a value indication by dividing the income by a capitalization rate. The rate chosen accounts for a recapture of the investment by the investor and should reflect all factors that influence the value of the property, such as tenant quality, property condition, neighborhood change, market trends, interest rates, and inflation. The rate may be extracted from local market transactions or, when transaction evidence is lacking, obtained from trade sources. A discounted cash flow analysis focuses on the operating cash flows expected from the property and the proceeds of a hypothetical sale at the end of a holding period (the reversion). The cash flows and reversion are discounted to their present values using a market-derived discount rate and are added together to obtain a value indication. Because benefits to be received in the future are worth less than the same benefits received in the present, this method weights income in the early years more heavily than the income and the sale proceeds to be received later. The strength of the discounted cash flow method is its ability to recognize variations in projected net income, such as those caused by inflation, stepped leases, neighborhood change, or tenant turnover. Its weakness is that it requires many judgments regarding the actions of likely buyers and sellers of the property in the future. In some situations, both methods yield a similar result. The discounted cash flow method is typically more appropriate for the analysis of investment properties with multiple or long-term leases, particularly leases with cancellation clauses or renewal options. It is especially useful for multi-tenant properties in volatile markets. The direct capitalization AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
Average Unit Area ----------------- Unit Type (Sq. Ft.) Per Unit Per SF %Occupied -------------------------------------------------- 1A10 736 $ 502 $ 0.68 100.0% 1B10 836 $ 535 $ 0.64 89.0% 2A10 946 $ 602 $ 0.64 92.9% 2B10 1046 $ 619 $ 0.59 89.7% 3A15 1114 $ 715 $ 0.64 97.1% 3B15 1214 $ 811 $ 0.67 100.0% EA10 481 $ 494 $ 1.03 100.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA RENT ANALYSIS
COMPARABLE RENTS ------------------------------------------------ R-1 R-2 R-3 ------------------------------------------------ Terrace Chasewood Oakbridge View Downs Apartments Apartments ------------------------------------------------ SUBJECT SUBJECT COMPARISON TO SUBJECT SUBJECT UNIT ACTUAL ASKING ------------------------------------------------ DESCRIPTION TYPE RENT RENT Slightly Superior Slightly Inferior Similar ---------------------------------------------------------------------------------------------------------- Monthly Rent 1A10 $ 502 $ 793 $ 505 $ 500 $ 545 Unit Area (SF) 736 736 571 500 600 Monthly Rent Per Sq. Ft. $ 0.68 $ 1.08 $ 0.88 $ 1.00 $0.91 - Monthly Rent 1B10 $ 535 $ 798 $ 580 Unit Area (SF) 836 836 635 Monthly Rent Per Sq. Ft. $ 0.64 $ 0.95 $0.91 Monthly Rent 2A10 $ 602 $ 868 $ 610 $ 600 $ 640 Unit Area (SF) 946 946 846 650 678 Monthly Rent Per Sq. Ft. $ 0.64 $ 0.92 $ 0.72 $ 0.92 $0.94 Monthly Rent 2B10 $ 619 $ 973 $ 640 $ 675 Unit Area (SF) 1,046 1,046 660 725 Monthly Rent Per Sq. Ft. $ 0.59 $ 0.93 $ 0.97 $0.93 Monthly Rent 3A15 $ 715 $ 968 $ 765 $ 743 Unit Area (SF) 1 ,114 1,114 1,010 862 Monthly Rent Per Sq. Ft. $ 0.64 $ 0.87 $ 0.76 $0.86 Monthly Rent 3B15 $ 811 $ 1,055 $ 813 Unit Area (SF) 1,214 1,214 962 Monthly Rent Per Sq. Ft. $ 0.67 $ 0.87 $0.85 Monthly Rent EA10 $ 494 $ 360 Unit Area (SF) 481 481 302 Monthly Rent Per Sq. Ft. $ 1.03 $ 1.19 DESCRIPTION MIN MAX MEDIAN AVERAGE --------------------------------------------------------- Monthly Rent $ 500 $ 545 $ 505 $ 517 Unit Area (SF) 500 600 571 557 Monthly Rent Per Sq. Ft. $ 0.88 $ 1.00 $ 0.91 $0.93 Monthly Rent $ 580 $ 580 $ 580 $ 580 Unit Area (SF) 635 635 635 635 Monthly Rent Per Sq. Ft. $ 0.91 $ 0.91 $ 0.91 $0.91 Monthly Rent $ 600 $ 640 $ 610 $ 617 Unit Area (SF) 650 846 678 725 Monthly Rent Per Sq. Ft. $ 0.72 $ 0.94 $ 0.92 $0.86 Monthly Rent $ 640 $ 675 $ 658 $ 658 Unit Area (SF) 660 725 693 693 Monthly Rent Per Sq. Ft. $ 0.93 $ 0.97 $ 0.95 $0.95 Monthly Rent $ 743 $ 765 $ 754 $ 754 Unit Area (SF) 862 1,010 936 936 Monthly Rent Per Sq. Ft. $ 0.76 $ 0.86 $ 0.81 $0.81 Monthly Rent $ 813 $ 813 $ 813 $ 813 Unit Area (SF) 962 962 962 962 Monthly Rent Per Sq. Ft. $ 0.85 $ 0.85 $ 0.85 $0.85 Monthly Rent $ 360 $ 360 $ 360 $ 360 Unit Area (SF) 302 302 302 302 Monthly Rent Per Sq. Ft. $ 1.19 $ 1.19 $ 1.19 $1.19
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows: GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area ----------------- Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income ------------------------------------------------------------------------------------ 1A10 52 736 $ 490 $ 0.67 $ 25,480 $ 305,760 1B10 26 836 $ 520 $ 0.62 $ 13,520 $ 162,240 2A10 113 946 $ 590 $ 0.62 $ 66,670 $ 800,040 2B10 39 1,046 $ 600 $ 0.57 $ 23,400 $ 280,800 3A15 35 1,114 $ 700 $ 0.63 $ 24,500 $ 294,000 3B15 10 1,214 $ 790 $ 0.65 $ 7,900 $ 94,800 EA10 25 481 $ 480 $ 1.00 $ 12,000 $ 144,000 ---------- ---------- Total $ 173,470 $2,081,640 ========== ==========
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA PRO FORMA ANALYSIS For purposes of this appraisal, we were provided with income and expense data for the subject property. A summary of this data is presented on the following page. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 ---------------------- ---------------------- ---------------------- ACTUAL ACTUAL ACTUAL ---------------------- ---------------------- ---------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT ---------------------------------------------------------------------------------------------------------- Revenues Rental Income $2,022,142 $ 6,740 $2,092,337 $ 6,974 $2,155,432 $ 7,185 Vacancy $ 106,224 $ 354 $ 121,996 $ 407 $ 194,861 $ 650 Credit Loss/Concessions $ 27,641 $ 92 $ 27,126 $ 90 $ 23,782 $ 79 ------------------------------------------------------------------------ Subtotal $ 133,865 $ 446 $ 149,122 $ 497 $ 218,643 $ 729 Laundry Income $ 26,180 $ 87 $ 24,181 $ 81 $ 34,158 $ 114 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 70,923 $ 236 $ 72,929 $ 243 $ 102,156 $ 341 ------------------------------------------------------------------------ Subtotal Other Income $ 97,103 $ 324 $ 97,110 $ 324 $ 136,314 $ 454 ------------------------------------------------------------------------ Effective Gross Income $1,985,380 $ 6,618 $2,040,325 $ 6,801 $2,073,103 $ 6,910 Operating Expenses Taxes $ 91,900 $ 306 $ 98,391 $ 328 $ 105,877 $ 353 Insurance $ 15,459 $ 52 $ 18,325 $ 61 $ 30,182 $ 101 Utilities $ 122,416 $ 408 $ 142,840 $ 476 $ 130,902 $ 436 Repair & Maintenance $ 47,439 $ 158 $ 63,037 $ 210 $ 30,993 $ 103 Cleaning $ 73,525 $ 245 $ 78,497 $ 262 $ 81,245 $ 271 Landscaping $ 107,055 $ 357 $ 100,470 $ 335 $ 99,580 $ 332 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 12,299 $ 41 $ 14,226 $ 47 $ 14,763 $ 49 General Administrative $ 36,055 $ 120 $ 27,206 $ 91 $ 31,438 $ 105 Management $ 101,419 $ 338 $ 107,867 $ 360 $ 105,150 $ 351 Miscellaneous $ 186,787 $ 623 $ 237,390 $ 791 $ 228,052 $ 760 ------------------------------------------------------------------------ Total Operating Expenses $ 794,354 $ 2,648 $ 888,249 $ 2,961 $ 858,182 $ 2,861 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------ Net Income $1,191,026 $ 3,970 $1,152,076 $ 3,840 $1,214,921 $ 4,050 ------------------------------------------------------------------------ FISCAL YEAR 2003 ANNUALIZED 2003 ---------------------- --------------------- MANAGEMENT BUDGET PROJECTION AAA PROJECTION ---------------------- --------------------- ----------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % ---------------------------------------------------------------------------------------------------------------- Revenues Rental Income $2,196,812 $ 7,323 $2,175,484 $ 7,252 $2,081,640 $ 6,939 100.0% Vacancy $ 187,753 $ 626 $ 151,724 $ 506 $ 156,123 $ 520 7.5% Credit Loss/Concessions $ 25,758 $ 86 $ 24,884 $ 83 $ 31,225 $ 104 1.5% ------------------------------------------------------------------------------ Subtotal $ 213,511 $ 712 $ 176,608 $ 589 $ 187,348 $ 624 9.0% Laundry Income $ 14,112 $ 47 $ 41,964 $ 140 $ 30,000 $ 100 1.4% Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 94,777 $ 316 $ 142,240 $ 474 $ 105,000 $ 350 5.0% ------------------------------------------------------------------------------ Subtotal Other Income $ 108,889 $ 363 $ 184,204 $ 614 $ 135,000 $ 450 6.5% ------------------------------------------------------------------------------ Effective Gross Income $2,092,190 $ 6,974 $2,183,080 $ 7,277 $2,029,292 $ 6,764 100.0% Operating Expenses Taxes $ 101,068 $ 337 $ 101,232 $ 337 $ 102,000 $ 340 5.0% Insurance $ 34,103 $ 114 $ 32,596 $ 109 $ 33,000 $ 110 1.6% Utilities $ 128,817 $ 429 $ 147,656 $ 492 $ 127,500 $ 425 6.3% Repair & Maintenance $ 37,487 $ 125 $ 32,612 $ 109 $ 33,000 $ 110 1.6% Cleaning $ 84,961 $ 283 $ 33,464 $ 112 $ 75,000 $ 250 3.7% Landscaping $ 112,234 $ 374 $ 98,928 $ 330 $ 102,000 $ 340 5.0% Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 15,165 $ 51 $ 22,292 $ 74 $ 15,000 $ 50 0.7% General Administrative $ 30,044 $ 100 $ 31,292 $ 104 $ 30,000 $ 100 1.5% Management $ 97,284 $ 324 $ 107,648 $ 359 $ 101,465 $ 338 5.0% Miscellaneous $ 207,998 $ 693 $ 182,952 $ 610 $ 217,500 $ 725 10.7% ------------------------------------------------------------------------------ Total Operating Expenses $ 849,161 $ 2,831 $ 790,672 $ 2,636 $ 836,465 $ 2,788 41.2% Reserves $ 0 $ 0 $ 0 $ 0 $ 60,000 $ 200 7.2% ------------------------------------------------------------------------------ Net Income $1,243,029 $ 4,143 $1,392,408 $ 4,641 $1,132,828 $ 3,776 55.8% ------------------------------------------------------------------------------
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 9% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $200 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $200 per unit should be satisfactory in our reserves for replacement to cover future capital expenditures. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of the annual cash flows and discounts them, along with the expected equity reversion, to a present value. The present value of the cash flow is added to the present value of the reversion, resulting in a total property value. INVESTMENT CRITERIA Appropriate investment criteria will be derived for the subject based upon analysis of comparable sales and a survey of real estate investors. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 1ST QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES ------------------------------------------------ GOING-IN TERMINAL ------------------------------------------------ LOW HIGH LOW HIGH ------------------------------------------------------------ RANGE 6.00% 10.00% 7.00% 10.00% AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR -------------------------------------------------------- I-1 October, 2002 93% $ 50,000 9.68% I-2 July, 2000 99% $ 31,071 8.44% I-3 November, 2000 90% $ 31,944 9.13% I-4 March, 2002 94% $ 44,792 9.07% I-5 Jan-00 0% N/A ---------------- High 9.68% ---------------- Low 8.44% ---------------- Average 9.08%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.00%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 9.50%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 11.50%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 11.50% indicates a value of $13,000,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA approximately 41% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA DISCOUNTED CASH FLOW ANALYSIS WINDSOR HILLS APARTMENTS
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 ------------------------------------------------------------------------------------------------------------------------ REVENUE Base Rent $2,081,640 $2,144,089 $2,208,412 $2,274,664 $2,342,904 $2,413,191 Vacancy $ 156,123 $ 160,807 $ 165,631 $ 170,600 $ 175,718 $ 180,989 Credit Loss $ 31,225 $ 32,161 $ 33,126 $ 34,120 $ 35,144 $ 36,198 Concessions $ 20,816 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- Subtotal $ 208,164 $ 192,968 $ 198,757 $ 204,720 $ 210,861 $ 217,187 Laundry Income $ 30,000 $ 30,900 $ 31,827 $ 32,782 $ 33,765 $ 34,778 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 105,000 $ 108,150 $ 111,395 $ 114,736 $ 118,178 $ 121,724 -------------------------------------------------------------------------------- Subtotal Other Income $ 135,000 $ 139,050 $ 143,222 $ 147,518 $ 151,944 $ 156,502 -------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $2,008,476 $2,090,171 $2,152,876 $2,217,463 $2,283,986 $2,352,506 OPERATING EXPENSES: Taxes $ 102,000 $ 105,060 $ 108,212 $ 111,458 $ 114,802 $ 118,246 Insurance $ 33,000 $ 33,990 $ 35,010 $ 36,060 $ 37,142 $ 38,256 Utilities $ 127,500 $ 131,325 $ 135,265 $ 139,323 $ 143,502 $ 147,807 Repair & Maintenance $ 33,000 $ 33,990 $ 35,010 $ 36,060 $ 37,142 $ 38,256 Cleaning $ 75,000 $ 77,250 $ 79,568 $ 81,955 $ 84,413 $ 86,946 Landscaping $ 102,000 $ 105,060 $ 108,212 $ 111,458 $ 114,802 $ 118,246 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 15,000 $ 15,450 $ 15,914 $ 16,391 $ 16,883 $ 17,389 General Administrative $ 30,000 $ 30,900 $ 31,827 $ 32,782 $ 33,765 $ 34,778 Management $ 100,424 $ 104,509 $ 107,644 $ 110,873 $ 114,199 $ 117,625 Miscellaneous $ 217,500 $ 224,025 $ 230,746 $ 237,668 $ 244,798 $ 252,142 -------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 835,424 $ 861,559 $ 887,405 $ 914,027 $ 941,448 $ 969,692 Reserves $ 60,000 $ 61,800 $ 63,654 $ 65,564 $ 67,531 $ 69,556 -------------------------------------------------------------------------------- NET OPERATING INCOME $1,113,052 $1,166,813 $1,201,817 $1,237,872 $1,275,008 $1,313,258 Operating Expense Ratio (% of EGI) 41.6% 41.2% 41.2% 41.2% 41.2% 41.2% Operating Expense Per Unit $ 2,785 $ 2,872 $ 2,958 $ 3,047 $ 3,138 $ 3,232 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 ---------------------------------------------------------------------------------------------------------- REVENUE Base Rent $2,485,587 $2,560,155 $2,636,959 $2,716,068 $2,797,550 Vacancy $ 186,419 $ 192,012 $ 197,772 $ 203,705 $ 209,816 Credit Loss $ 37,284 $ 38,402 $ 39,554 $ 40,741 $ 41,963 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ Subtotal $ 223,703 $ 230,414 $ 237,326 $ 244,446 $ 251,780 Laundry Income $ 35,822 $ 36,896 $ 38,003 $ 39,143 $ 40,317 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 125,375 $ 129,137 $ 133,011 $ 137,001 $ 141,111 ------------------------------------------------------------------ Subtotal Other Income $ 161,197 $ 166,033 $ 171,014 $ 176,144 $ 181,429 ------------------------------------------------------------------ EFFECTIVE GROSS INCOME $2,423,081 $2,495,774 $2,570,647 $2,647,766 $2,727,199 OPERATING EXPENSES: Taxes $ 121,793 $ 125,447 $ 129,211 $ 133,087 $ 137,079 Insurance $ 39,404 $ 40,586 $ 41,803 $ 43,058 $ 44,349 Utilities $ 152,242 $ 156,809 $ 161,513 $ 166,359 $ 171,349 Repair & Maintenance $ 39,404 $ 40,586 $ 41,803 $ 43,058 $ 44,349 Cleaning $ 89,554 $ 92,241 $ 95,008 $ 97,858 $ 100,794 Landscaping $ 121,793 $ 125,447 $ 129,211 $ 133,087 $ 137,079 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 17,911 $ 18,448 $ 19,002 $ 19,572 $ 20,159 General Administrative $ 35,822 $ 36,896 $ 38,003 $ 39,143 $ 40,317 Management $ 121,154 $ 124,789 $ 128,532 $ 132,388 $ 136,360 Miscellaneous $ 259,706 $ 267,498 $ 275,522 $ 283,788 $ 292,302 ------------------------------------------------------------------ TOTAL OPERATING EXPENSES $ 998,783 $1,028,746 $1,059,608 $1,091,397 $1,124,139 Reserves $ 71,643 $ 73,792 $ 76,006 $ 78,286 $ 80,635 ------------------------------------------------------------------ NET OPERATING INCOME $1,352,656 $1,393,235 $1,435,032 $1,478,083 $1,522,426 Operating Expense Ratio (% of EGI) 41.2% 41.2% 41.2% 41.2% 41.2% Operating Expense Per Unit $ 3,329 $ 3,429 $ 3,532 $ 3,638 $ 3,747
Gross Residual Sale Price $16,025,535 Deferred Maintenance $ 0 Estimated Stabilized NOI $1,132,828 Sales Expense Rate 2.00% Less: Sales Expense $ 320,511 Add: Excess Land $ 0 ----------- Months to Stabilized 1 Discount Rate 11.50% Net Residual Sale Price $15,705,024 Other Adjustments $ 0 ----------- Stabilized Occupancy 92.5% Terminal Cap Rate 9.50% PV of Reversion $ 5,287,982 Value Indicated By $13,026,660 "DCF" Add: NPV of NOI $ 7,738,679 ----------- PV Total $13,026,660 Rounded $13,000,000
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ------------------------------------------------------------------- TOTAL VALUE 11.00% 11.25% 11.50% 11.75% 12.00% ------------------------------------------------------------------------------------------------ TERMINAL CAP RATE 9.00% $13,761,735 $13,538,662 $13,320,437 $13,106,940 $12,898,051 9.25% $13,603,941 $13,384,379 $13,169,579 $12,959,422 $12,753,793 9.50% $13,454,453 $13,238,216 $13,026,660 $12,819,669 $12,617,129 9.75% $13,312,631 $13,099,549 $12,891,071 $12,687,083 $12,487,472 10.00% $13,177,900 $12,967,815 $12,762,261 $12,561,126 $12,364,299
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA INCOME LOSS DURING LEASE-UP The subject is currently near or at a stabilized condition. Therefore, there is no income loss during lease-up at the subject property. CONCESSIONS Due to softness in the market, concessions have been utilized at the subject property and within the market. Based on our discussions with the subject's property manager and those at competing properties, these concessions are expected to continue in the near term until the market returns to a stabilized level. Concessions have been included as a line item deduction within the discounted cash flow analysis. The present value of these concessions equates to $19,000 (rounded). This amount has been deducted from the Direct Capitalization analysis, as well as the Sales Comparison Approach value. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 9.00% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA WINDSOR HILLS APARTMENTS
TOTAL PER SQ. FT. PER UNIT %OF EGI ----------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 2,081,640 $ 7.69 $ 6,939 Less: Vacancy & Collection Loss 9.00% $ 187,348 $ 0.69 $ 624 Plus: Other Income Laundry Income $ 30,000 $ 0.11 $ 100 1.48% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 105,000 $ 0.39 $ 350 5.17% ---------------------------------------------------- Subtotal Other Income $ 135,000 $ 0.50 $ 450 6.65% EFFECTIVE GROSS INCOME $ 2,029,292 $ 7.49 $ 6,764 OPERATING EXPENSES: Taxes $ 102,000 $ 0.38 $ 340 5.03% Insurance $ 33,000 $ 0.12 $ 110 1.63% Utilities $ 127,500 $ 0.47 $ 425 6.28% Repair & Maintenance $ 33,000 $ 0.12 $ 110 1.63% Cleaning $ 75,000 $ 0.28 $ 250 3.70% Landscaping $ 102,000 $ 0.38 $ 340 5.03% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 15,000 $ 0.06 $ 50 0.74% General Administrative $ 30,000 $ 0.11 $ 100 1.48% Management 5.00% $ 101,465 $ 0.37 $ 338 5.00% Miscellaneous $ 217,500 $ 0.80 $ 725 10.72% TOTAL OPERATING EXPENSES $ 836,465 $ 3.09 $ 2,788 41.22% Reserves $ 60,000 $ 0.22 $ 200 2.96% ---------------------------------------------------- NET OPERATING INCOME $ 1,132,828 $ 4.18 $ 3,776 55.82% "GOING IN" CAPITALIZATION RATE 9.00% VALUE INDICATION $ 12,586,975 $ 46.47 $ 41,957 PV OF CONCESSIONS ($ 19,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $ 12,567,975 ROUNDED $ 12,600,000 $ 46.52 $ 42,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF ----------------------------------------------------------- 8.25% $13,712,246 $13,700,000 $45,667 $50.58 8.50% $13,308,386 $13,300,000 $44,333 $49.10 8.75% $12,927,603 $12,900,000 $43,000 $47.63 9.00% $12,567,975 $12,600,000 $42,000 $46.52 9.25% $12,227,787 $12,200,000 $40,667 $45.04 9.50% $11,905,503 $11,900,000 $39,667 $43.93 9.75% $11,599,746 $11,600,000 $38,667 $42.83
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $12,600,000. CORRELATION AND CONCLUSION BY THE INCOME APPROACH The two methods used to estimate the market value of the subject property by the income approach resulted in the following indications of value: Discounted Cash Flow Analysis $13,000,000 Direct Capitalization Method $12,600,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $12,800,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA RECONCILIATION AND CONCLUSION This appraisal was made to express an opinion as of the Market Value of the fee simple estate in the property. AS IS MARKET VALUE OF THE FEE SIMPLE ESTATE Cost Approach Not Utilized Sales Comparison Approach $12,000,000 Income Approach $12,800,000 Reconciled Value $12,800,000
The Direct Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of May 12, 2003 the market value of the fee simple estate in the property is: $12,800,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA SUBJECT PHOTOGRAPHS [EXTERIOR - APARTMENT BUILDING PICTURE] [EXTERIOR - LANDSCAPE, APT. BUILDING & PARKING PICTURE] [EXTERIOR - INTERIOR ROADWAY PICTURE] [EXTERIOR - LANDSCAPING AND APRTMENT PICTURE] [EXTERIOR - CAR WASH AREA] [EXTERIOR - POOL AND BUSINESS OFFICE PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA SUBJECT PHOTOGRAPHS [INTERIOR - LIVING ROOM PICTURE] [INTERIOR - KITCHEN PICTURE] [INTERIOR - BEDROOM PICTURE] [INTERIOR -FITNESS CENTER PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 SUMMIT @ ROANOKE CINNAMON RIDGE APARTMENTS CRAIG MANOR APARTMENTS 4500 Franklin Way 5143 Overland Drive 128 Rutledge Drive Roanoke, VA Roanoke, VA Salem, VA [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 BUCK RUN APARTMENTS 4689 Buck Run Square Roanoke, VA [PICTURE] N/A N/A AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
COMPARABLE DESCRIPTION SUBJECT R - 1 ------------------------------------------------------------------------------------------------------------------------------------ Property Name Windsor Hills Apartments Chasewood Downs Management Company Aimco Chase Mgmt. LOCATION: Address Ascot Lane 706 Appalachian Drive City, State Blacksburg, Virginia Blacksburg, VA County Montgomery Montgomery Proximity to Subject 2 miles west of the subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 270,855 174,078 Year Built 1970 1966 Effective Age 20 23 Building Structure Type Brick walls; asphalt shingle roof Brick veneer; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 300 276 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1A10 736 52 $502 1 1Bd/1Ba 571 72 $505 2 1B10 836 26 $535 3 2Bd/1Ba 846 180 $610 3 2A10 946 113 $602 5 3Bd/2Ba 1,010 18 $765 4 2B10 1,046 39 $619 7 Efficiency 302 6 $360 5 3A15 1,114 35 $715 6 3B15 1,214 10 $811 7 EA10 481 25 $494 Average Unit Size (SF) 903 773 Unit Breakdown: Efficiency 8% 2-Bedroom 51% Efficiency 2% 2-Bedroom 65% 1-Bedroom 26% 3-Bedroom 15% 1-Bedroom 26% 3-Bedroom 7% CONDITION: Good Good APPEAL: Average Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X Balcony Fireplace Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi X Car Wash Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment X Basketball Court BBQ Equipment Volleyball Court Theater Room X Volleyball Court Theater Room X Sand Volley Ball X Meeting Hall Sand Volley Ball Meeting Hall Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room Gym Room OCCUPANCY: 95% 95% LEASING DATA: Available Leasing Terms 10 to 12 months 12 months Concessions 1 bdrm/den & 2 bdrm/den at reduced rent Negotiable Pet Deposit $150 plus $25/month $200 plus $15/month Utilities Paid by Tenant: X Electric Natural Gas Electric Natural Gas X Water X Trash X Water X Trash Confirmation May 12, 2003; Eric - Property Manager May 12 2003; Property Manager Telephone Number (540) 552-1515 (540) 552-3122 NOTES: Slightly Superior COMPARISON TO SUBJECT: COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 ------------------------------------------------------------------------------------------------------------------------------------ Property Name Oakbridge Apartments Terrace View Apartments Management Company Chase Mgmt. Stonemark LOCATION: Address 829 Orchard Street 6800 Terrace View City, State Blacksburg, VA Blacksburg, VA County Montgomery Montgomery Proximity to Subject 2 miles west of the subject 2 miles west of subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 123,490 713,920 Year Built 1964 1975-1992 Effective Age 25 15 Building Structure Type Brick and wood walls; asphalt shingle roof Brick veneer, shingle roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 198 808 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Bd/1Ba 500 35 $500 1 1Bd/1Ba 600 174 $545 3 2Bd/1Ba 650 159 $600 2 1Bd/1Ba 635 55 $580 4 2Bd/1Ba 660 4 $640 3 2Bd/1Ba 678 332 $640 4 2Bd/1Ba 725 54 $675 5 3Bd/2Ba 862 162 $743 6 3Bd/2Ba 962 31 $813 Average Unit Size (SF) 624 709 Unit Breakdown: Efficiency 0% 2-Bedroom 82% Efficiency 0% 2-Bedroom 48% 1-Bedroom 18% 3-Bedroom 0% 1-Bedroom 28% 3-Bedroom 24% CONDITION: Good Good APPEAL: Average Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony Balcony X Fireplace Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash X Basketball Court BBQ Equipment X Basketball Court BBQ Equipment X Volleyball Court Theater Room X Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office Gym Room Gym Room OCCUPANCY: 100% 95% LEASING DATA: Available Leasing Terms 12 months 12 months Concessions None Reduced rents on vacants Pet Deposit $200 plus $15/month $200 plus $20/month Utilities Paid by Tenant: Electric Natural Gas Electric Natural Gas X Water X Trash X Water X Trash Confirmation May 12 2003; Property Manager May 12 2003; Property Contact Telephone Number (540) 552-4001 (540) 552-2996 NOTES: Slightly Inferior Similar COMPARISON TO SUBJECT:
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 CHASEWOOD DOWNS OAKBRIDGE APARTMENTS TERRACE VIEW APARTMENTS 706 Appalachian Drive 829 Orchard Street 6800 Terrace View Blacksburg, VA Blacksburg, VA Blacksburg, VA [PICTURE] [PICTURE] [PICTURE] [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA No responsibility is assumed for matters legal in nature. No investigation has been made of the title to or any liabilities against the property appraised. In this appraisal, it is presumed that, unless otherwise noted, the owner's claim is valid, the property rights are good and marketable, and there are no encumbrances which cannot be cleared through normal processes. To the best of our knowledge, all data set forth in this report are true and accurate. Although gathered from reliable sources, no guarantee is made nor liability assumed for the accuracy of any data, opinions, or estimates identified as being furnished by others which have been used in formulating this analysis. Land areas and descriptions used in this appraisal were obtained from public records and have not been verified by legal counsel or a licensed surveyor. No soil analysis or geological studies were ordered or made in conjunction with this report, nor were any water, oil, gas, or other subsurface mineral and use rights or conditions investigated. Substances such as asbestos, urea-formaldehyde foam insulation, other chemicals, toxic wastes, or other potentially hazardous materials could, if present, adversely affect the value of the property. Unless otherwise stated in this report, the existence of hazardous substance, which may or may not be present on or in the property, was not considered by the appraiser in the development of the conclusion of value. The stated value estimate is predicated on the assumption that there is no material on or in the property that would cause such a loss in value. No responsibility is assumed for any such conditions, and the client has been advised that the appraiser is not qualified to detect such substances, quantify the impact on values, or develop the remedial cost. No environmental impact study has been ordered or made. Full compliance with applicable federal, state, and local environmental regulations and laws is assumed unless otherwise stated, defined, and considered in the report. It is also assumed that all required licenses, consents, or other legislative or administrative authority from any local, state, or national government or private entity organization either have been or can be obtained or renewed for any use which the report covers. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA It is assumed that all applicable zoning and use regulations and restrictions have been complied with unless a nonconformity has been stated, defined, and considered in the appraisal report. Further, it is assumed that the utilization of the land and improvements is within the boundaries of the property described and that no encroachment or trespass exists unless noted in the report. The Americans with Disabilities Act ("ADA") became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property together with a detailed analysis of the requirements of the ADA could reveal that the property is not in compliance with one or more of the requirements of the act. If so, this fact could have a negative effect on the value of the property. Since we have no direct evidence relating to this issue, we did not consider the possible noncompliance with the requirements of ADA in estimating the value of the property. We have made a physical inspection of the property and noted visible physical defects, if any, in our report. This inspection was made by individuals generally familiar with real estate and building construction. However, these individuals are not architectural or structural engineers who would have detailed knowledge of building design and structural integrity. Accordingly, we do not opine on, nor are we responsible for, the structural integrity of the property including its conformity to specific governmental code requirements, such as fire, building and safety, earthquake, and occupancy, or any physical defects which were not readily apparent to the appraiser during the inspection. The value or values presented in this report are based upon the premises outlined herein and are valid only for the purpose or purposes stated. The date of value to which the conclusions and opinions expressed apply is set forth in this report. The value opinion herein rendered is based on the status of the national business economy and the purchasing power of the U.S. dollar as of that date. Testimony or attendance in court or at any other hearing is not required by reason of this appraisal unless arrangements are previously made within a reasonable time in advance for AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the American Society of Appraisers or the designations awarded by this organization) shall be disseminated to the public through prospectus, advertising, public relations, news, or any other means of communication without the written consent and approval of American Appraisal Associates, Inc. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D CERTIFICATE OF APPRAISER I certify that, to the best of my knowledge and belief: The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and represent the unbiased professional analyses, opinions, and conclusions of American Appraisal Associates, Inc. American Appraisal Associates, Inc. and I personally, have no present or prospective interest in the property that is the subject of this report and have no personal interest or bias with respect to the parties involved. Compensation for American Appraisal Associates, Inc. is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. The analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. I personally did not inspect the subject property. Brian Johnson, MAI and Jonathan Hackerman provided significant real property appraisal assistance in the preparation of this report. I am currently in compliance with the Appraisal Institute's continuing education requirements. -s- Frank Fehribach ------------------------- Frank Fehribach, MAI Managing Principal, Real Estate Group Virginia Temporary Certified General Real Estate Appraiser #4001 007252 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA FRANK A. FEHRIBACH, MAI MANAGING PRINCIPAL, REAL ESTATE GROUP POSITION Frank A. Fehribach is a Managing Principal for the Dallas Real Estate Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Mr. Fehribach has experience in valuations for resort hotels; Class A office buildings; Class A multifamily complexes; industrial buildings and distribution warehousing; multitract mixed-use vacant land; regional malls; residential subdivision development; and special-purpose properties such as athletic clubs, golf courses, manufacturing facilities, nursing homes, and medical buildings. Consulting assignments include development and feasibility studies, economic model creation and maintenance, and market studies. Mr. Fehribach also has been involved in overseeing appraisal and consulting assignments in Mexico and South America. Business Mr. Fehribach joined AAA as an engagement director in 1998. He was promoted to his current position in 1999. Prior to that, he was a manager at Arthur Andersen LLP. Mr. Fehribach has been in the business of real estate appraisal for over ten years. EDUCATION University of Texas - Arlington Master of Science - Real Estate University of Dallas Master of Business Administration - Industrial Management Bachelor of Arts - Economics STATE State of Arizona CERTIFICATIONS Certified General Real Estate Appraiser, #30828 State of Arkansas State Certified General Appraiser, #CG1387N State of Colorado Certified General Appraiser, #CG40000445 State of Georgia Certified General Real Property Appraiser, #218487 State of Michigan Certified General Appraiser, #1201008081 State of Texas Real Estate Salesman License, #407158 (Inactive) State of Texas State Certified General Real Estate Appraiser, #TX-1323954-G AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS Candidate Member of the CCIM Institute pursuing Certified Commercial Investment Member (CCIM) designation PUBLICATIONS "An Analysis of the Determinants of Industrial Property Valuation," Co-authored with Dr. Ronald C. Rutherford and Dr. Mark Eakin, The Journal of Real Estate Research, Vol. 8, No. 3, Summer 1993, p. 365. AMERICAN APPRAISAL ASSOCIATES, INC. WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA GENERAL SERVICE CONDITIONS The services(s) provided by AAA will be performed in accordance with professional appraisal standards. Our compensation is not contingent in any way upon our conclusions of value. We assume, without independent verification, the accuracy of all data provided to us. We will act as an independent contractor and reserve the right to use subcontractors. All files, workpapers or documents developed by us during the course of the engagement will be our property. We will retain this data for at least five years. Our report is to be used only for the specific purpose stated herein; and any other use is invalid. No reliance may be made by any third party without our prior written consent. You may show our report in its entirety to those third parties who need to review the information contained herein. No one should rely on our report as a substitute for their own due diligence. We understand that our reports will be described in public tender offer documents distributed to limited partners. We reserve the right to review the public tender offer documents prior to their issuance to confirm that disclosures of facts from the current appraisals are accurate. No reference to our name or our report, in whole or in part, in any other SEC filing or private placement memorandum you prepare and/or distribute to third parties may be made without our prior written consent. The Tender Offer Partnerships, as that term is defined in the Settlement Agreement, agree to indemnify and hold us harmless against and from any and all losses, claims, actions, damages, expenses or liabilities, including reasonable attorneys' fees, to which we may become subject in connection with this engagement except where such losses, claims, actions, damages, expenses or liabilities, including reasonable attorney's fees, arise or result from AAA's misconduct, bad faith or negligence. Co-Clients will not be liable for any of our acts or omissions. AAA is an equal opportunity employer.