-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DsqtaKgaijX5KJOkF6Uu4hmxrrTkR3uWZNSsGFQBvV1vORIUg7vljspqSX/0mLrX J5S8xgzjp669IaK9bZ/Akw== 0000950134-04-002342.txt : 20040223 0000950134-04-002342.hdr.sgml : 20040223 20040220205423 ACCESSION NUMBER: 0000950134-04-002342 CONFORMED SUBMISSION TYPE: SC TO-T PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 20040223 GROUP MEMBERS: AIMCO-GP INC GROUP MEMBERS: APARTMENT INVESTMENT AND MANAGEMENT CO GROUP MEMBERS: CONCAP EQUITIES INC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CENTRAL INDEX KEY: 0000352983 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 942744492 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-T SEC ACT: 1934 Act SEC FILE NUMBER: 005-47009 FILM NUMBER: 04620592 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: PO BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET 17TH FLOOR STREET 2: PO BOX 1089 CITY: DENVER STATE: CO ZIP: 80222 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CENTRAL INDEX KEY: 0000352983 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 942744492 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3 SEC ACT: 1934 Act SEC FILE NUMBER: 005-47009 FILM NUMBER: 04620593 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: PO BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET 17TH FLOOR STREET 2: PO BOX 1089 CITY: DENVER STATE: CO ZIP: 80222 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: AIMCO PROPERTIES LP CENTRAL INDEX KEY: 0000926660 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF APARTMENT BUILDINGS [6513] IRS NUMBER: 841275621 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-T BUSINESS ADDRESS: STREET 1: 4582 S ULSTER ST PARKWAY STREET 2: SUITE 1100 CITY: DENVER STATE: CO ZIP: 80237 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 4582 S ULSTER ST PARKWAY STREET 2: SUITE 1100 CITY: DENVER STATE: CO ZIP: 80237 SC TO-T 1 d07253sctovt.txt SCHEDULE TO-T SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 SCHEDULE TO TENDER OFFER STATEMENT UNDER SECTION 14(D)(1) OR 13(E)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 Consolidated Capital Institutional Properties - -------------------------------------------------------------------------------- (Name of Subject Company (Issuer) AIMCO Properties, L.P. -- Offeror Apartment Investment and Management Company AIMCO-GP, Inc. ConCap Equities, Inc. - -------------------------------------------------------------------------------- (Names of Filing Persons -- Offerors) Limited Partnership Units - -------------------------------------------------------------------------------- (Title of Class Securities) None - -------------------------------------------------------------------------------- (CUSIP Number of Class Securities) Martha J. Long Apartment Investment and Management Company 4582 Ulster Street Parkway, Suite 1100 Denver, Colorado 80237 (303) 757-8101 - -------------------------------------------------------------------------------- (Name, address, and telephone numbers of person authorized to receive notices and communications on behalf of filing persons) Copy to: Joseph A. Coco Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 and Jonathan L. Friedman Skadden, Arps, Slate, Meagher & Flom LLP 300 South Grand Avenue Los Angeles, California 90071 (213) 687-5000 Calculation of Filing Fee
Transaction valuation* Amount of filing fee - ---------------------- -------------------- $ 16,583,211.15 $ 2,101.09
1 * For purposes of calculating the fee only. This amount assumes the purchase of 69,348.10 units of limited partnership interest of the subject partnership for $239.13 per unit. The amount of the filing fee, calculated in accordance with Section 14(g)(1)(B)(3) and Rule 0-11(d) under the Securities Exchange Act of 1934, as amended, equals $126.70 per million of the aggregate amount of cash offered by the bidder. [ ] Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: $ Filing Party: Form or Registration No.: Date Filed: [ ] Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer. Check the appropriate boxes below to designate any transactions to which the statement relates: [X] third-party tender offer subject to Rule 14d-1 [ ] issuer tender offer subject to Rule 13e-4 [X] going-private transaction subject to Rule 13e-3 [ ] amendment to Schedule 13D under Rule 13d-2 Check the following box if the filing is a final amendment reporting the results of the tender offer: [ ] 2 SCHEDULE TO This Tender Offer Statement and Rule 13e-3 Transaction Statement on Schedule TO relates to the offer by AIMCO Properties, L.P., a Delaware limited partnership, to purchase units of limited partnership interest ("Units") of Consolidated Capital Institutional Properties, a California limited partnership (the "Partnership"), at a price of $239.13 per unit in cash, subject to the conditions set forth in the Offer to Purchase dated February 20, 2004, and in the related Letter of Transmittal (which, together with any supplements or amendments, collectively constitute the "Offer"). Copies of the Offer to Purchase and the Letter of Transmittal are filed with this Schedule TO as Exhibits (a)(1) and (a)(2), respectively. The item numbers and responses thereto below are in accordance with the requirements of Schedule TO. ITEM 1. SUMMARY TERM SHEET. The information set forth under "SUMMARY TERM SHEET" in the Offer to Purchase is incorporated herein by reference. ITEM 2. SUBJECT COMPANY INFORMATION. (a) The information set forth under "THE LITIGATION SETTLEMENT OFFER -- Certain Information Concerning Your Partnership" in the Offer to Purchase is incorporated herein by reference. The Partnership's principal executive officers are located at 55 Beattie Place, P.O. Box 1089, Greenville, South Carolina 29602, and its phone number is (864) 239-1000. (b) This Schedule TO relates to the units of limited partnership interest of Consolidated Capital Institutional Properties, of which 199,043.20 units were issued and outstanding as of December 31, 2003. (c) Not applicable. ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSON. (a)-(c) This Schedule TO is being filed by Apartment Investment and Management Company, a Maryland corporation ("AIMCO"), AIMCO Properties, L.P., a Delaware limited partnership ("AIMCO OP"), AIMCO-GP, Inc., a Delaware corporation ("AIMCO-GP"), and ConCap Equities, Inc., a Delaware corporation ("ConCap"). AIMCO-GP is the general partner of AIMCO OP and a wholly owned subsidiary of AIMCO. ConCap is the managing general partner of the Partnership and a wholly owned subsidiary of AIMCO. The principal business of AIMCO, AIMCO-GP, and AIMCO OP is the ownership, acquisition, development, expansion and management of multi-family apartment properties. The business address of AIMCO, AIMCO-GP and AIMCO OP is 4582 Ulster Street Parkway, Suite 1100, Denver, Colorado 80237, and their telephone number is (303) 757-8101. The principal address of ConCap is 55 Beattie Place, P.O. Box 1089, Greenville, South Carolina 29602, and its phone number is (864) 239-1000. The information set forth under "THE LITIGATION SETTLEMENT OFFER -- Information Concerning Us and Certain of Our Affiliates" in the Offer to Purchase, and in Annex I to the Offer to Purchase is incorporated herein by reference. During the last five years, none of AIMCO, AIMCO-GP, AIMCO OP or ConCap nor, to the best of their knowledge, any of the persons listed in Annex I to the Offer to Purchase (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining further violations of or prohibiting activities subject to federal or state securities laws or finding any violation with respect to such laws. 3 ITEM 4. TERMS OF THE TRANSACTION. (a) The information set forth in the Offer to Purchase and in the related Letter of Transmittal is incorporated herein by reference. ITEM 5. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS. (a) and (b) The information set forth under "THE LITIGATION SETTLEMENT OFFER -- Valuation of Units -- Prior Tender Offers," "-- The Lawsuit and the Settlement," "-- Background and Reasons for the Offer" and "-- Conflicts of Interest and Transactions with Affiliates" in the Offer to Purchase is incorporated herein by reference. ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS. (a), (c)(1)-(7) The information set forth under "THE LITIGATION SETTLEMENT OFFER -- Effects of the Offer," "-- The Lawsuit and the Settlement," "-- Background and Reasons for the Offer" and "-- Future Plans of the Purchaser" in the Offer to Purchase is incorporated herein by reference. ITEM 7. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a), (b) and (d) The information set forth under "THE LITIGATION SETTLEMENT OFFER -- The Lawsuit and the Settlement -- The Settlement of the Nuanes and Heller Complaints," "-- Source of Funds" and "--Fees and Expenses" in the Offer to Purchase is incorporated herein by reference. ITEM 8. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. The information set forth under "THE LITIGATION SETTLEMENT OFFER -- Certain Information Concerning Your Partnership -- Beneficial Ownership of Interests in Your Partnership" in the Offer to Purchase is incorporated herein by reference. ITEM 9. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED. Not applicable. ITEM 10. FINANCIAL STATEMENTS. Not applicable. ITEM 11. ADDITIONAL INFORMATION. (a) The information set forth under "THE LITIGATION SETTLEMENT OFFER -- Certain Legal Matters" in the Offer to Purchase is incorporated herein by reference. (b) The information set forth in the Offer to Purchase and in the related Letter of Transmittal is incorporated herein by reference. 4 ITEM 12. EXHIBITS. (a)(1) Offer to Purchase dated February 20, 2004. (a)(2) Letter of Transmittal and related Instructions. (a)(3) Letter from AIMCO OP to the Limited Partners of Consolidated Capital Institutional Properties. (a)(4) Solicitation/Recommendation Statement on Schedule 14d-9, filed by Consolidated Capital Institutional Properties with the Securities and Exchange Commission on February 20, 2004 (incorporated herein by reference). (b) Fourth Amended and Restated Credit Agreement among AIMCO, AIMCO OP, AIMCO/Bethesda Holdings, Inc., and NHP Management Company, Bank of America, N.A., Fleet National Bank, First Union National Bank, and the other financial institutions party thereto, dated as of March 11, 2002 (Exhibit 10.29 to AIMCO's Annual Report on Form 10-K for the year ended December 31, 2001, is incorporated herein by reference). (c)(1) Appraisal of The Dunes Apartment Homes (c)(2) Appraisal of Indian Creek Village (c)(3) Appraisal of The Knolls (c)(4) Appraisal of The Loft (c)(5) Appraisal of Palm Lake (c)(6) Appraisal of Plantation Gardens (c)(7) Appraisal of Regency Oaks (c)(8) Appraisal of Silverado (c)(9) Appraisal of Sterling Apartment Homes & Sterling Commerce Center (c)(10) Appraisal of Tates Creek Village (d) Not applicable. (g) None. (h) None. ITEM 13. INFORMATION REQUIRED BY SCHEDULE 13E-3. The information set forth in the "THE LITIGATION SETTLEMENT OFFER--Effects of the Offer," "--Information Concerning Us and Certain of Our Affiliates," "--Background and Reasons for the Offer," "--Position of the General Partner of Your Partnership With Respect to the Offer," "--Conflicts of Interest and Transactions with Affiliates," "--Future Plans of the Purchaser," "--Dissenters' Rights," "--Fees and Expenses" and Annex I to the Offer to Purchase is incorporated herein by reference. In addition, Item 7 of Part II of the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 2002 and Item 1 of Part I of the Partnership's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2003, June 30, 2003 and September 30, 2003 are incorporated herein by reference. 5 SIGNATURE After due inquiry and to the best of its knowledge and belief, the undersigned hereby certify that the information set forth in this statement is true, complete and correct. Date: February 20, 2004 AIMCO PROPERTIES, L.P. By: AIMCO-GP, INC. Its General Partner By: /s/ Martha J. Long ------------------------------- Martha J. Long Senior Vice President APARTMENT INVESTMENT AND MANAGEMENT COMPANY By: /s/ Martha J. Long ------------------------------- Martha J. Long Senior Vice President AIMCO-GP, INC. By: /s/ Martha J. Long ------------------------------- Martha J. Long Senior Vice President CONCAP EQUITIES, INC. By: /s/ Martha J. Long ------------------------------- Martha J. Long Senior Vice President 6 EXHIBIT INDEX
Exhibit No. Description - ----------- ----------- (a)(1) Offer to Purchase dated February 20, 2004. (a)(2) Letter of Transmittal and related Instructions. (a)(3) Letter from AIMCO OP to the Limited Partners of Consolidated Capital Institutional Properties. (a)(4) Solicitation/Recommendation Statement on Schedule 14d-9, filed by Consolidated Capital Institutional Properties with the Securities and Exchange Commission on February 20, 2004 (incorporated herein by reference). (b) Fourth Amended and Restated Credit Agreement among AIMCO, AIMCO OP, AIMCO/Bethesda Holdings, Inc., and NHP Management Company, Bank of America, N.A., Fleet National Bank, First Union National Bank, and the other financial institutions party thereto, dated as of March 11, 2002 (Exhibit 10.29 to AIMCO's Annual Report on Form 10-K for the year ended December 31, 2001, is incorporated herein by reference). (c)(1) Appraisal of The Dunes Apartment Homes (c)(2) Appraisal of Indian Creek Village (c)(3) Appraisal of The Knolls (c)(4) Appraisal of The Loft (c)(5) Appraisal of Palm Lake (c)(6) Appraisal of Plantation Gardens (c)(7) Appraisal of Regency Oaks (c)(8) Appraisal of Silverado (c)(9) Appraisal of Sterling Apartment Homes & Sterling Commerce Center (c)(10) Appraisal of Tates Creek Village
7 EX-99.(A)(1) 3 d07253exv99wxayx1y.txt OFFER TO PURCHASE LITIGATION SETTLEMENT OFFER (AIMCO LOG) AIMCO PROPERTIES, L.P. is offering to purchase any and all limited partnership units in CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES FOR $239.13 PER UNIT IN CASH WILL NOT JUSTIFY WITH REGULAR CODING] This Litigation Settlement Offer is being made as part of a COURT APPROVED SETTLEMENT of class and derivative litigation brought on behalf of limited partners in your partnership and others. FINAL COURT APPROVAL OF THE SETTLEMENT, WHICH REQUIRES THE MAKING OF THIS LITIGATION SETTLEMENT OFFER AS A CONDITION OF SETTLEMENT, HAS BEEN OBTAINED. On August 12, 2003, an objector filed an appeal of the court's order approving the settlement and is seeking to reverse or vacate the Court's order and the judgment entered thereto. Although we reserve our right to terminate or amend our offer if final court approval of the settlement is reversed or vacated, we have nevertheless elected to proceed with this offer under the terms of the settlement. Under the terms of the settlement, the Court appointed American Appraisal Associates, Inc., as an independent appraiser, to appraise your partnership's properties and we agreed to provide an executive summary of the appraiser's report for each property owned by your partnership, attached as Annex II. A complete copy of the appraiser's report will be provided to you free of charge upon request. THE SETTLEMENT ALSO INCLUDES THE CREATION OF A $9.9 MILLION SETTLEMENT FUND FOR MEMBERS OF THE SETTLEMENT CLASS. AFTER DEDUCTING ATTORNEYS' FEES AND OTHER SETTLEMENT COSTS (INCLUDING A PORTION OF THE COSTS OF THE APPRAISALS AND CERTAIN COSTS OF ADMINISTRATION OF THE SETTLEMENT FUND), WE HAVE ALLOCATED THE REMAINING AMOUNT IN THE SETTLEMENT FUND AMONG THE 44 REMAINING PARTNERSHIPS INVOLVED IN THE SETTLEMENT, PRO RATA BASED ON PARTNERSHIP REVENUE FOR THE YEAR ENDED DECEMBER 31, 2002 ALLOCABLE TO UNITS HELD BY THE MEMBERS OF THE SETTLEMENT CLASS. YOUR PRO RATA SHARE OF THE SETTLEMENT FUND IS $4.72, WHICH IS INCLUDED IN OUR OFFER PRICE ABOVE FOR THOSE WHO TENDER. Upon the terms and subject to the conditions set forth herein, we will accept any and all units validly tendered in response to our offer. You will not pay any partnership transfer fees if you tender your units pursuant to this offer. You will pay any other fees or costs, including any transfer taxes. Our offer price will be reduced for any distributions subsequently made or declared by your partnership prior to the expiration of our offer. Our offer and your withdrawal rights will expire at midnight, New York City time, on March 22, 2004, unless we extend the deadline. Neither the court nor counsel for the parties in the class and derivative litigation make any recommendation regarding whether you should accept this Litigation Settlement Offer. You are encouraged to carefully review this Litigation Settlement Offer, the executive summary of the independent appraiser's report (attached as Annex II) and any other information available to you and to seek advice from your independent lawyer, tax advisor and/or financial advisor before deciding whether or not to accept this Litigation Settlement Offer. SEE "RISK FACTORS" BEGINNING ON PAGE 5 OF THIS LITIGATION SETTLEMENT OFFER FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - If you want to tender your units in the offer, you must sign a letter of transmittal in which you release us from all liability with respect to claims that were brought or that could have been brought in the class and derivative litigation, and assign to us your rights in any future claims. If you requested exclusion from the settlement but tender your units, by signing the letter of transmittal, you will release us from (Continued on next page) If you decide to accept our offer, you must complete and sign the enclosed letter of transmittal in accordance with the instructions thereto and mail or deliver the signed letter of transmittal and any other required documents to The Altman Group, Inc., which is acting as Information Agent in connection with our offer, at one of its addresses set forth on the back cover of this Litigation Settlement Offer. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THIS LITIGATION SETTLEMENT OFFER, THE LETTER OF TRANSMITTAL OR FOR A COMPLETE COPY OF AN APPRAISAL OF ANY OF YOUR PARTNERSHIP'S PROPERTIES MAY ALSO BE DIRECTED TO THE INFORMATION AGENT AT (800) 467-0821. February 20, 2004 (Continued from prior page) any claims that you would otherwise have preserved by requesting exclusion from the settlement class. If you did not request exclusion, you will release any known or unknown claims arising out of the class and derivative litigation if the judgment approving the settlement is affirmed on appeal. By executing the enclosed letter of transmittal, moreover, you will release those claims even if the judgment is reversed or otherwise vacated on appeal. - We determined our offer price without any arms-length negotiations, and independently of the recent appraisals of your partnership's property (an executive summary of each of which is attached as Annex II). Accordingly, our offer price may not reflect the fair market value of your units. In addition, the determination of our offer price has not been approved by the court or counsel for the parties in the class and derivative litigation. - Upon a liquidation of your partnership, if the properties were sold at a price equal to the value determined by the independent appraiser, we estimate that your liquidation proceeds would be approximately $343.92 per unit, which is higher than our offer price of $239.13 per unit. In order to understand the assumptions and methodology used to determine the liquidation amount, please refer to "The Litigation Settlement Offer -- Section 8. Valuation of Units -- Estimated Liquidation Proceeds Based on Independent Appraisal." - Your general partner and the property manager are affiliates of ours and, therefore, your general partner has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit and, therefore, there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership. Such fees would not be payable if your partnership were liquidated. - If we do not acquire all of the outstanding units in your partnership, it is possible that we may conduct a future offer at a higher price, although we have no obligation or current intention to do so. - For any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale or refinancing of property owned by your partnership. - The general partner makes no recommendation as to whether you should tender your units. NEITHER THE COURT NOR COUNSEL FOR THE PARTIES IN THE CLASS AND DERIVATIVE LITIGATION MAKE ANY RECOMMENDATION REGARDING WHETHER YOU SHOULD ACCEPT THIS LITIGATION SETTLEMENT OFFER. YOU ARE ENCOURAGED TO CAREFULLY REVIEW THIS LITIGATION SETTLEMENT OFFER, THE EXECUTIVE SUMMARY OF THE INDEPENDENT APPRAISER'S REPORT AND ANY OTHER INFORMATION AVAILABLE TO YOU AND TO SEEK THE ADVICE OF YOUR INDEPENDENT LAWYER, TAX ADVISOR AND/OR FINANCIAL ADVISOR BEFORE DECIDING WHETHER OR NOT TO ACCEPT THIS LITIGATION SETTLEMENT OFFER. THIS LITIGATION SETTLEMENT OFFER IS BEING OFFERED TO ALL CURRENT UNITHOLDERS WHETHER OR NOT THEY HAVE REQUESTED EXCLUSION FROM THE SETTLEMENT CLASS. IF YOU REQUESTED EXCLUSION FROM THE SETTLEMENT CLASS BUT TENDER YOUR UNITS, BY SIGNING THE LETTER OF TRANSMITTAL, YOU WILL RELEASE US FROM CLAIMS THAT YOU WOULD OTHERWISE HAVE PRESERVED BY REQUESTING EXCLUSION. IF YOU DID NOT REQUEST EXCLUSION, YOU WILL RELEASE ANY KNOWN OR UNKNOWN CLAIMS ARISING OUT OF THE CLASS AND DERIVATIVE LITIGATION IF THE JUDGMENT APPROVING THE SETTLEMENT IS AFFIRMED ON APPEAL. BY EXECUTING THE ENCLOSED LETTER OF TRANSMITTAL, MOREOVER, YOU WILL RELEASE THOSE CLAIMS EVEN IF THE JUDGMENT IS REVERSED OR OTHERWISE VACATED ON APPEAL. THE INFORMATION AGENT FOR THE OFFER IS: THE ALTMAN GROUP, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 238 1275 Valley Brook Avenue 1275 Valley Brook Avenue Lyndhurst, NJ 07071 Lyndhurst, NJ 07071 Lyndhurst, NJ 07071
For information, please call: TOLL FREE: (800) 467-0821 TABLE OF CONTENTS
PAGE ---- SUMMARY TERM SHEET.......................................... 1 RISK FACTORS................................................ 5 If you tender your units in this offer, you will release us from all liability and assign to us your rights in any future claims...................................... 5 We have established the terms of our offer without reference to the recent appraisal of your partnership's properties............................................. 5 Our offer price may not represent fair market value....... 5 Our offer price does not reflect future prospects......... 5 The liquidation value of your partnership units exceeds our offer price........................................ 5 Continuation of the partnership; no time frame regarding sale of property....................................... 5 Holding your units may result in greater future value..... 6 The general partner faces conflicts of interest with respect to this offer.................................. 6 Your general partner is not making a recommendation regarding this offer................................... 6 Your general partner faces conflicts of interest relating to management fees..................................... 6 If we do not acquire all of the outstanding units in this offer, we may make a future offer at a higher price.... 7 Your tax liability resulting from a sale of your units could exceed our offer price........................... 7 You may recognize taxable gain on the amount paid from the settlement fund or for release and assignment of claims................................................. 7 If you tender your units in this offer, you will no longer be entitled to distributions from your partnership..... 8 You could recognize gain in the event of a future reduction in your partnership's liabilities............ 8 You could be precluded from transferring your units for a 12-month period........................................ 8 We could delay acceptance of, and payment for, your units.................................................. 8 There may be a possible reduction of available information about your partnership as a result of this offer....... 8 Your partnership has balloon payments on its mortgage debt................................................... 9 THE LITIGATION SETTLEMENT OFFER............................. 10 1. Terms of the Offer; Expiration Date................... 10 2. Acceptance for Payment and Payment for Units.......... 10 3. Procedure for Tendering Units......................... 11 4. Withdrawal Rights..................................... 14 5. Extension of Tender Period; Termination; Amendment; No Subsequent Offering Period............................. 15 6. Certain Federal Income Tax Matters.................... 16 7. Effects of the Offer.................................. 19 8. Valuation of Units.................................... 20 9. The Lawsuit and the Settlement........................ 47 10. Information Concerning Us and Certain of Our Affiliates............................................. 52 11. Background and Reasons for the Offer.................. 55 12. Position of the General Partner of Your Partnership With Respect to the Offer.............................. 57 13. Conflicts of Interest and Transactions with Affiliates............................................. 59 14. Future Plans of the Purchaser......................... 60 15. Certain Information Concerning Your Partnership....... 61 16. Voting Power.......................................... 66
PAGE ---- 17. Source of Funds....................................... 66 18. Dissenters' Rights.................................... 67 19. Conditions to the Offer............................... 67 20. Certain Legal Matters................................. 69 21. Fees and Expenses..................................... 70 ANNEX I -- OFFICERS AND DIRECTORS........................... I-1 ANNEX II -- EXECUTIVE SUMMARY OF INDEPENDENT APPRAISER'S REPORT.................................................... II-1
ii SUMMARY TERM SHEET This summary term sheet highlights the most material information regarding our offer, but it does not describe all of the details thereof. We urge you to read this entire Litigation Settlement Offer, which contains the full details of our offer. We have also included in the summary term sheet references to the sections of this Litigation Settlement Offer where a more complete discussion may be found. - The Litigation Settlement Offer. As part of the settlement of a class and derivative litigation entitled Nuanes et al. v. Insignia Financial Group, Inc. et al. and Heller v. Insignia Financial Group, Inc., et al. on behalf of your partnership and limited partners in your partnership and others, we are offering to acquire any and all of the limited partnership units of your partnership for $239.13 per unit in cash. Under the terms of the settlement, neither we nor our affiliates admit to any wrongdoing, and we deny liability under all claims brought in this litigation. FINAL COURT APPROVAL OF THE SETTLEMENT, WHICH REQUIRES THE MAKING OF THIS LITIGATION SETTLEMENT OFFER AS A CONDITION OF SETTLEMENT, HAS BEEN OBTAINED. On August 12, 2003, an objector filed an appeal of the court's order approving the settlement and is seeking to reverse or vacate the Court's order and the judgment entered thereto. Although we reserve our right to terminate or amend our offer if final court approval of the settlement is reversed or vacated, we have nevertheless elected to proceed with this offer under the terms of the settlement. See "The Litigation Settlement Offer -- Section 1. Terms of the Offer; Expiration Date," "-- Section 7. Effects of the Offer," "-- Section 8. Valuation of Units" and "-- Section 9. The Lawsuit and the Settlement." - The Settlement Fund. The settlement also includes the creation of a $9.9 million settlement fund for members of the settlement class. After deducting attorneys' fees and other settlement costs (including a portion of the costs of the appraisals and certain costs of administration of the settlement fund), we have allocated the remaining amount in the settlement fund among the 44 remaining partnerships involved in the settlement, pro rata based on partnership revenue for the year ended December 31, 2002 allocable to units held by the members of the settlement class. Your partnership's allocated share of the settlement fund is divided by the total number of units owned by members of the settlement class, and the resulting amount is included in our offer price above. Your pro rata share of the settlement fund is $4.72. If you request exclusion from the settlement, you may tender any units in this offer and you will be entitled to receive the same price per unit as those unitholders who have not opted out of the settlement class. However, no portion of the price paid to you will come from the settlement fund. If you do not request exclusion from the settlement and do not tender any units in this offer, you will be entitled to receive your pro rata share of the settlement fund (subject to adjustment) no later than June 2005 if the Court's order approving the settlement and entering judgment thereto is affirmed on appeal. If the Court's order is reversed or vacated by virtue of the appeal, however, you will not be entitled to receive a pro rata share of the settlement fund unless you tender your units in this offer. Under the terms of the settlement, we will pay the costs of printing and mailing this Litigation Settlement Offer to limited partners of your partnership, as well as other costs of notice. In addition, we have agreed to pay 50% of the costs of the appraisals, with the other 50% to be paid from the settlement fund. - Factors in Determining the Offer Price. In determining the offer price per unit we principally considered: - your partnership's property income; - our estimate of an appropriate capitalization rate for such property income; - the location, condition and debt structure of your partnership's property; 1 - our estimate of the fees and expenses expected to be incurred by your partnership if its properties are sold; and - your partnership's other assets and liabilities. - Expiration Date. Our offer expires on March 22, 2004, unless extended, and you can tender your units until our offer expires. See "The Litigation Settlement Offer -- Section 1. Terms of the Offer; Expiration Date." - Right to Extend the Expiration Date. Under the settlement, we can extend the expiration date of the offer in our sole discretion up to 90 business days from the date of commencement. We reserve the right to extend the offer subject to customary conditions. In the event we extend the offer, we will either issue a press release or send you a notice of any such extension. See "The Litigation Settlement Offer -- Section 5. Extension of Tender Period; Termination; Amendment; No Subsequent Offering Period." - How to Tender. To tender your units, complete the accompanying letter of transmittal and send it, along with any other documents required by the letter of transmittal, to the Information Agent, The Altman Group, Inc., at one of the addresses set forth on the back of this Litigation Settlement Offer. See "The Litigation Settlement Offer -- Section 3. Procedure for Tendering Units." - Release and Assignment of Future Claims. If you want to tender your units in the offer, you must sign a letter of transmittal in which you release us from all liability with respect to claims that were brought or that could have been brought in the class and derivative litigation, and assign to us your rights in any future claims. If you requested exclusion from the settlement but tender your units, by signing the letter of transmittal, you will release us from claims that you would otherwise have preserved by requesting exclusion from the settlement class. If you did not request exclusion, you will release any known or unknown claims arising out of the class and derivative litigation if the judgment approving the settlement is affirmed on appeal. By executing the enclosed letter of transmittal, moreover, you will release those claims even if the judgment is reversed or otherwise vacated on appeal. - Covenant Not to Sue. If you requested exclusion from the settlement but tender your units in this offer, by signing the letter of transmittal, you agree not to bring any action, claim, suit or proceeding against us and those affiliates who were defendants in the class and derivative litigation concerning any of the matters that are the subject of the Stipulation of Settlement approved by the Court in connection with the settlement of such class and derivative litigation, including this Litigation Settlement Offer, other than for violations of federal or state securities laws. If you do not request exclusion from the settlement class, you will already have agreed not to bring any such action, claim, suit or proceeding once the settlement is final. - Withdrawal Rights. You can withdraw your units at any time prior to the expiration of the offer, including any extensions. In addition, you can withdraw your units at any time on or after April 23, 2004 if we have not already accepted units for purchase and payment. See "The Litigation Settlement Offer -- Section 4. Withdrawal Rights." - How to Withdraw. To withdraw your units, you need to send a notice of withdrawal to the Information Agent, identifying yourself and the units to be withdrawn. See "The Litigation Settlement Offer -- Section 4. Withdrawal Rights." - Tax Consequences. Your sale of units in this offer will be a taxable transaction for federal income tax purposes. The consequences to each limited partner may vary and you should consult your tax advisor on the precise tax consequences to you. See "The Litigation Settlement Offer -- Section 6. Certain Federal Income Tax Matters." - Availability of Funds. We intend to pay the purchase price for any units tendered from our existing cash balances or borrowings under our line of credit. See "The Litigation Settlement Offer -- Section 17. Source of Funds." 2 - Conditions to the Offer. There are a number of conditions to our offer, including the absence of competing tender offers, that there be no material change with respect to our financial condition, the absence of certain changes in your partnership, and the absence of certain changes in the financial markets. If we are unable to accept the units tendered in this Litigation Settlement Offer due to a failure of any or all of the conditions of our offer to be satisfied, we will conduct another offer in accordance with the terms of the settlement (which will occur no later than six months after the date of the commencement of this offer). We will continue this process until we have accepted for payment all units properly tendered in an offer conducted in accordance with the terms of the settlement. See "The Litigation Settlement Offer -- Section 19. Conditions to the Offer." - Remaining as a Limited Partner. If you do not tender your units, you will remain a limited partner in your partnership. We have no plans to alter the operations, business or financial position of your partnership. However, if there are fewer than 300 unitholders in your partnership as a result of the offer, your partnership will no longer be required to file periodic reports with the SEC, such as annual reports on Form 10-K containing annual audited financial statements, and quarterly reports on Form 10-Q containing unaudited financial statements. See "The Litigation Settlement Offer -- Section 7. Effects of the Offer." - Who We Are. We are AIMCO Properties, L.P., the operating partnership of Apartment Investment and Management Company, a New York Stock Exchange-listed company. See "The Litigation Settlement Offer -- Section 10. Information Concerning Us and Certain of Our Affiliates." - Conflicts of Interest. NHP Management Company (which is our affiliate) receives fees for managing your partnership's property and the general partner of your partnership (which is our affiliate) is entitled to receive reimbursement of certain expenses involving your partnership and its property. As a result, a conflict of interest exists between continuing the partnership and receiving these fees, and the liquidation of the partnership and the termination of these fees. See "The Litigation Settlement Offer -- Section 13. Conflicts of Interest and Transactions with Affiliates" and "-- Section 15. Certain Information Concerning Your Partnership." - No General Partner Recommendation. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Each limited partner should make his or her own decision whether or not to tender. YOU ARE ENCOURAGED TO CAREFULLY REVIEW THIS LITIGATION SETTLEMENT OFFER, THE EXECUTIVE SUMMARY OF THE INDEPENDENT APPRAISER'S REPORT (ATTACHED AS ANNEX II) AND ANY OTHER INFORMATION AVAILABLE TO YOU AND TO SEEK ADVICE FROM YOUR INDEPENDENT LAWYER, TAX ADVISOR AND/OR FINANCIAL ADVISOR BEFORE DECIDING WHETHER OR NOT TO ACCEPT THIS LITIGATION SETTLEMENT OFFER. See "The Litigation Settlement Offer -- Section 12. Position of the General Partner of Your Partnership With Respect to the Offer." - Fairness of the Offer. Although we, Apartment Investment and Management Company ("AIMCO") and AIMCO-GP, Inc. (collectively, the "AIMCO Entities") and your general partner have interests that may conflict with those the partnership's unaffiliated limited partners, each of the AIMCO Entities believes that the offer price and the offer are fair to the unaffiliated limited partners of your partnership. This determination is based on the information and the factors set forth under "The Litigation Settlement Offer -- Section 12. Position of Your General Partner of Your Partnership With Respect to the Offer." - No Subsequent Offering Period. We do not currently intend to have a subsequent offering period after the expiration date of the initial offering period (including any extensions). See "The Litigation Settlement Offer -- Section 5. Extension of Tender Offer Period; Termination; Amendment; No Subsequent Offering Period." - Additional Information. For assistance in tendering your units, please contact our Information Agent at one of the addresses or the telephone number set forth on the back cover page of this Litigation Settlement Offer. 3 - No Recommendation by Court or Counsel for the Parties. Neither the court nor counsel for the parties in the class and derivative litigation make any recommendation regarding whether you should accept this Litigation Settlement Offer. You are encouraged to carefully review this Litigation Settlement Offer, the executive summary of the independent appraiser's report and any other information available to you and to seek the advice of your independent lawyer, tax advisor and/or financial advisor before deciding whether or not to accept this Litigation Settlement Offer. 4 RISK FACTORS Before deciding whether or not to tender any of your units, you should consider carefully the following risks and disadvantages of the offer: IF YOU TENDER YOUR UNITS IN THIS OFFER, YOU WILL RELEASE US FROM ALL LIABILITY AND ASSIGN TO US YOUR RIGHTS IN ANY FUTURE CLAIMS. If you want to tender your units in response to our offer, you must sign a letter of transmittal, in which you release us and our affiliates from all liability with respect to claims that were brought or that could have been brought in the class and derivative litigation, and assign to us your rights in any future claims. If you requested exclusion from the settlement but tender your units, by signing the letter of transmittal, you will release us from claims that you would otherwise have preserved by requesting exclusion from the settlement class. If you did not request exclusion, you will release any known or unknown claims arising out of the class and derivative litigation if the judgment approving the settlement is affirmed on appeal. By executing the enclosed letter of transmittal, moreover, you will release those claims even if the judgment is reversed or otherwise vacated on appeal. WE HAVE ESTABLISHED THE TERMS OF OUR OFFER WITHOUT REFERENCE TO THE RECENT APPRAISAL OF YOUR PARTNERSHIP'S PROPERTIES. We did not base our offer price on any third party valuation or the recent appraisal of your partnership's properties, nor did we derive our offer price from any arms-length negotiation. Our offer price might be higher if it were subject to independent third party negotiations. Thus, it is uncertain whether our offer price reflects the value that would be realized upon a sale of your units to a third party. In order to understand the assumptions and methodology used to determine the liquidation amount, please refer to "The Litigation Settlement Offer -- Section 8. Valuation of Units -- Estimated Liquidation Proceeds Based on Independent Appraisal." OUR OFFER PRICE MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of the units. Our offer price does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher than our offer price. OUR OFFER PRICE DOES NOT REFLECT FUTURE PROSPECTS. Our offer price is based on your partnership's property income for the year ended December 31, 2003. It does not ascribe any value to potential future improvements in the operating performance of your partnership's property. THE LIQUIDATION VALUE OF YOUR PARTNERSHIP UNITS EXCEEDS OUR OFFER PRICE. If your partnership was liquidated, and the properties sold at a price equal to their recently appraised value, we estimate that you would receive a liquidating distribution of $343.92 per unit, which exceeds our offer price of $239.13 per unit. However, the actual proceeds obtained from a liquidation are highly uncertain and could be more or less than our estimate. CONTINUATION OF THE PARTNERSHIP; NO TIME FRAME REGARDING SALE OF PROPERTY. Your general partner, which is our affiliate, is proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Your partnership's prospectus, dated February 25, 1983, pursuant to which units in your partnership were sold, indicates that your partnership was intended to be self-liquidating and that it was anticipated that the partnership's properties would be sold within 10 years of their acquisition, subject to market conditions. The prospectus also indicated that there could be no assurance that the partnership would be able to so liquidate and that, unless sooner terminated as provided 5 in the partnership agreement, the existence of the partnership would continue until the year 2011. It is not known when the property owned by your partnership may be sold. The market for units in the partnership is illiquid, and it may be difficult to sell your investment in the partnership in the future. The general partner of your partnership continually considers whether a property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. At the current time, the general partner of your partnership believes that a sale of the property would not be advantageous given market conditions, the condition of the property and tax considerations. In particular, the general partner considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you on a sale of property. We cannot predict when your partnership's property will be sold or otherwise disposed of. HOLDING YOUR UNITS MAY RESULT IN GREATER FUTURE VALUE. Although a liquidation of your partnership is not currently contemplated in the near future, you might receive more value if you retain your units until your partnership is liquidated. In addition, at the current time, the general partner of your partnership believes that a sale of the property would not be advantageous given market conditions, the condition of the property and tax considerations. If your partnership's property were sold in the future and the net proceeds realized therefrom were distributed to the limited partners of your partnership, the amount of such distribution might exceed our current offer price. THE GENERAL PARTNER FACES CONFLICTS OF INTEREST WITH RESPECT TO THIS OFFER. The general partner of your partnership is our affiliate and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. We determined our offer price without negotiation with any other party, including any general or limited partner. YOUR GENERAL PARTNER IS NOT MAKING A RECOMMENDATION REGARDING THIS OFFER. Your general partner of your partnership (which is our affiliate) makes no recommendation as to whether or not you should tender or refrain from tendering your units. Although the general partner believes the offer is fair, you must make your own decision whether or not to participate in the offer based upon a number of factors, including several factors that may be personal to you, such as your financial position, your need or desire for liquidity, your preferences regarding the timing of when you might wish to sell your units, other financial opportunities available to you, and your tax position and the tax consequences to you of selling your units. You are encouraged to carefully review this Litigation Settlement Offer, the executive summary of the independent appraiser's report (attached as Annex II) and any other information available to you and to seek advice from your independent lawyer, tax advisor and/or financial advisor before deciding whether or not to accept this Litigation Settlement Offer. YOUR GENERAL PARTNER FACES CONFLICTS OF INTEREST RELATING TO MANAGEMENT FEES. Because we or our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. Also, a decision of the limited partners of your partnership to remove, for any reason, the general partner of your partnership or the property manager of the property owned by your partnership would result in a decrease or elimination of the substantial fees to which they are entitled for services provided to your partnership. 6 IF WE DO NOT ACQUIRE ALL OF THE OUTSTANDING UNITS IN THIS OFFER, WE MAY MAKE A FUTURE OFFER AT A HIGHER PRICE. It is possible that we may conduct a future offer at a higher price, although we have no obligation or current intention to do so. In accordance with the terms of the settlement, we may, but are not obligated to, make another Litigation Settlement Offer within 18 months of the order finally approving the settlement. If you decide not to tender in this offer and decide to tender in a future settlement offer, you will receive your pro rata share of the settlement fund at that time. Our decision to conduct a future offer will depend on, among other things, the performance of the partnership, prevailing economic conditions, and our interest in acquiring additional units. In addition, if we are unable to accept the units tendered in this Litigation Settlement Offer due to a failure of any or all of the conditions of our offer to be satisfied, we will conduct another offer in accordance with the terms of the settlement (which will occur no later than six months after the date of the commencement of this offer). We will continue this process until we have accepted for payment all units properly tendered in an offer conducted in accordance with the terms of the settlement. YOUR TAX LIABILITY RESULTING FROM A SALE OF YOUR UNITS COULD EXCEED OUR OFFER PRICE. Your sale of units for cash will be a taxable sale, with the result that you will recognize taxable gain or loss measured by the difference between the amount realized on the sale and your adjusted tax basis in the units of limited partnership interest of your partnership you transfer to us. The "amount realized" with respect to a unit of limited partnership interest you transfer to us will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer plus the amount of partnership liabilities allocable to your unit. Depending on your basis in the units and your tax position, your tax liability resulting from a sale of units to us pursuant to the offer could exceed our offer price. The particular tax consequences for you of our offer will depend upon a number of factors related to your tax situation, including your tax basis in the units you transfer to us, whether you dispose of all of your units, and whether you have available suspended passive losses, credits or other tax items to offset any gain recognized as a result of your sale of your units. We may also be required by state or local tax laws to withhold a portion of our offer price. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your tax advisor to determine the tax consequences of the offer to you. YOU MAY RECOGNIZE TAXABLE GAIN ON THE AMOUNT PAID FROM THE SETTLEMENT FUND OR FOR RELEASE AND ASSIGNMENT OF CLAIMS. Our offer price includes $4.72, your pro rata share of the settlement fund, unless you request exclusion from the settlement or the Court's order approving the settlement is reversed or vacated by virtue of the appeal. If you request exclusion from the settlement or the Court's order approving the settlement is reversed or vacated by virtue of the appeal, an equivalent portion of the price paid to you may be deemed a payment for your release and assignment of claims. The proper treatment for federal income tax purposes of your receipt of amounts from the settlement fund or deemed payments for your release and assignment of claims is uncertain. No opinion or assurance can be given that the Internal Revenue Service (the "IRS") will not challenge the treatment of amounts from the settlement fund or deemed payments for your release and assignment of claims as additional consideration for the units, and assert that such amount should be treated as an ordinary income payment in exchange for your release and/or assignment of current and future claims. Moreover, while the IRS has stated that it generally will not treat attorneys' fees and costs that are paid directly to class counsel from a settlement fund as constituting income, profit, or gain of a member of the class (so long as the class is an opt-out class and the class member does not have a separate contingency fee arrangement with the class counsel), any special awards paid to claimants who actively aid in the prosecution of a class action or who devote substantial time or expense on behalf of a settlement class will be treated as payments for services rendered and will be includable in that member's gross income. You should consult your tax advisor regarding the tax consequences to you with respect to your right to, and your receipt of, amounts from the 7 settlement fund or deemed payments for your release and assignment of claims, and the treatment of special awards, attorneys' fees and costs. IF YOU TENDER YOUR UNITS IN THIS OFFER, YOU WILL NO LONGER BE ENTITLED TO DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer to us all right, title and interest in and to all of the units we accept, and the right to receive all distributions in respect of such units on and after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale or refinancing of the property owned by your partnership. YOU COULD RECOGNIZE GAIN IN THE EVENT OF A FUTURE REDUCTION IN YOUR PARTNERSHIP'S LIABILITIES. Generally, a decrease in your share of partnership liabilities is treated, for federal income tax purposes, as a deemed cash distribution. Although the general partner of your partnership does not have any current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause the general partner to reduce your share of the partnership liabilities. If you retain all or a portion of your units and your share of the partnership liabilities were to be reduced, you would be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of the partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. Gain recognized by you on the disposition of retained units with a holding period of 12 months or less may be classified as short-term capital gain and subject to taxation at ordinary income tax rates. YOU COULD BE PRECLUDED FROM TRANSFERRING YOUR UNITS FOR A 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in capital and profits of your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. WE COULD DELAY ACCEPTANCE OF, AND PAYMENT FOR, YOUR UNITS. We reserve the right to extend the period of time during which our offer is open and thereby delay acceptance for payment of any tendered units. The offer may be extended up to 90 business days from the date of commencement of the offer, and no payment will be made in respect of tendered units until the expiration of the offer and acceptance of units for payment. THERE MAY BE A POSSIBLE REDUCTION OF AVAILABLE INFORMATION ABOUT YOUR PARTNERSHIP AS A RESULT OF THIS OFFER. If there are less than 300 unitholders in your partnership upon consummation of the offer, your partnership would no longer be required to file periodic reports with the SEC, such as annual reports on Form 10-K containing annual audited financial statements, and quarterly reports on Form 10-Q containing unaudited quarterly financial statements. Such reports are publicly available and can be obtained on the SEC's web site. The lack of such filings could adversely affect the already limited secondary market which currently exists for units in your partnership and may discourage offers to purchase your units. In such a case, you would regularly have access only to the information your partnership's agreement of limited partnership requires your general partner (which is our affiliate) to provide each year, which consists primarily of tax information. See "The Litigation Settlement Offer -- Section 7. Effects of the Offer -- Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act." 8 YOUR PARTNERSHIP HAS BALLOON PAYMENTS ON ITS MORTGAGE DEBT. Your partnership has a balloon payment of $3,903,000 due on its mortgage debt in December 2005, a balloon payment of $19,975,000 due on its mortgage debt in October 2008, a balloon payment of $6,351,000 due on its mortgage debt in January 2010, a balloon payment of $7,105,000 due on its mortgage debt in March 2010, a balloon payment of $3,017,000 due on its mortgage debt in April 2010, a balloon payment of $2,434,000 due on its mortgage debt in November 2010. Your partnership may have to refinance such debt, sell assets or otherwise obtain additional funds prior to the balloon payment due date, or it will be in a default and could lose the property to foreclosure. 9 THE LITIGATION SETTLEMENT OFFER 1. TERMS OF THE OFFER; EXPIRATION DATE Upon the terms and subject to the conditions to the offer, we will accept (and thereby purchase) any and all units that are validly tendered on or prior to the expiration date and not withdrawn in accordance with the procedures set forth in "The Litigation Settlement Offer -- Section 4. Withdrawal Rights." For purposes of the offer, the term "expiration date" shall mean midnight, New York City time, on March 22, 2004, unless we in our sole discretion shall have extended the period of time for which the offer is open (which may not exceed 90 business days from the date of commencement, as provided in the settlement). See "The Litigation Settlement Offer -- Section 5. Extension of Tender Period; Termination; Amendment; No Subsequent Offering Period," for a description of our right to extend the period of time during which the offer is open and to amend or terminate the offer. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made or declared by your partnership on or after the commencement of our offer and prior to the date on which we acquire your units pursuant to our offer. If the offer price is reduced in this manner, we will notify you and, if necessary, we will extend the offer period so that you will have at least ten business days from the date of our notice to withdraw your units. If, prior to the expiration date, we increase the consideration offered pursuant to the offer, the increased consideration will be paid for all units accepted for payment pursuant to the offer, whether or not the units were tendered prior to the increase in consideration. The offer is conditioned on satisfaction of certain conditions. THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF UNITS BEING TENDERED. See "The Litigation Settlement Offer -- Section 19. Conditions to the Offer," which sets forth in full the conditions to the offer. We reserve the right (but in no event shall we be obligated), in our reasonable discretion, to waive any or all of those conditions. If, on or prior to the expiration date, any or all of the conditions have not been satisfied or waived, we reserve the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units to tendering limited partners, (ii) waive all the unsatisfied conditions and purchase, subject to the terms of the offer, any and all units validly tendered, (iii) extend the offer and, subject to your withdrawal rights, retain the units that have been tendered during the period or periods for which the offer is extended, or (iv) amend the offer. If we are unable to accept the units tendered in this Litigation Settlement Offer due to a failure of any or all of the conditions of our offer to be satisfied, we will conduct another offer in accordance with the terms of the settlement (which will occur no later than six months after the date of the commencement of this offer). We will continue this process until we have accepted for payment all units properly tendered in an offer conducted in accordance with the terms of the settlement. By executing the letter of transmittal, you will agree that the transfer of units will be deemed to take effect as of the first day of the calendar quarter in which the offer expires. Upon expiration of the offer, the books and records of the partnership will reflect the change in ownership as having occurred as of this date. For tax, accounting and financial reporting purposes, the transfer of tendered units will be deemed to take effect on the first day of the calendar quarter. Accordingly, all profits and losses relating to any tendered units will be allocated to us from and after this date. If we waive any material conditions to our offer, we will notify you and, if necessary, we will extend the offer period so that you will have at least five business days from the date of our notice to withdraw your units. This offer is being mailed on or about February 23, 2004 to the persons shown by your partnership's records to be limited partners or, in the case of units owned of record by Individual Retirement Accounts and qualified plans, beneficial owners of units. 2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions to the offer, we will purchase, by accepting for payment, and will pay for, any and all units validly tendered promptly following the expiration date. A tendering beneficial owner of units whose units are owned of record by an Individual Retirement Account or other 10 qualified plan will not receive direct payment of the offer price; rather, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed letter of transmittal and other documents required by the letter of transmittal. See "The Litigation Settlement Offer -- Section 3. Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, we will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units, if, as and when we give verbal or written notice to the Information Agent of our acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering limited partners for the purpose of receiving cash payments from us and transmitting cash payments to tendering limited partners. If any tendered units are not accepted for payment by us for any reason, the letter of transmittal with respect to such units not purchased may be destroyed by the Information Agent or us or returned to you. You may withdraw tendered units until the expiration date (including any extensions). In addition, if we have not accepted units for payment by April 23, 2004 you may then withdraw any tendered units. After the expiration date, the Information Agent may, on our behalf, retain tendered units, and those units may not be otherwise withdrawn, if, for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or we are unable to accept for payment, purchase or pay for units tendered pursuant to the offer. Any such action is subject, however, to our obligation under Rule 14e-1(c) under the Exchange Act, to pay you the offer price in respect of units tendered or return those units promptly after termination or withdrawal of the offer. We reserve the right to transfer or assign, in whole or in part, to one or more of our affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve us of our obligations under the offer or prejudice your rights to receive payment for units validly tendered and accepted for payment pursuant to the offer. 3. PROCEDURE FOR TENDERING UNITS Valid Tender. To validly tender units pursuant to the offer, a properly completed and duly executed letter of transmittal, and any other required documents must be received by the Information Agent, at one of its addresses set forth on the back cover of this Litigation Settlement Offer, on or prior to the expiration date. You may tender all or any portion of your units. No alternative, conditional or contingent tenders will be accepted. Signature Requirements. If the letter of transmittal is signed by the registered holder of a unit and payment is to be made directly to that holder, then no signature guarantee is required on the letter of transmittal. Similarly, if a unit is tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the letter of transmittal. However, in all other cases, all signatures on the letter of transmittal must be guaranteed by an Eligible Institution. In order for you to tender in the offer, your units must be validly tendered and not withdrawn on or prior to the expiration date. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT YOUR OPTION AND RISK AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. 11 Appointment as Proxy; Power of Attorney. By executing the letter of transmittal, you are irrevocably appointing us and our designees as your proxy, in the manner set forth in the letter of transmittal and each with full power of substitution, to the fullest extent of your rights with respect to the units tendered by you and accepted for payment by us. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, we accept the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to the units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). We and our designees will, as to those units, be empowered to exercise all voting and other rights as a limited partner as we, in our sole discretion, may deem proper at any meeting of limited partners, by written consent or otherwise. We reserve the right to require that, in order for units to be deemed validly tendered, immediately upon our acceptance for payment of the units, we must be able to exercise full voting rights with respect to the units, including voting at any meeting of limited partners and/or limited partners then scheduled or acting by written consent without a meeting. By executing the letter of transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with our directions. The proxy granted by you to us will remain effective and be irrevocable for a period of ten years following the termination of our offer. By executing the letter of transmittal, you also irrevocably constitute and appoint us and our designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by us. Such appointment will be effective when, and only to the extent that, we pay for your units and will remain effective and be irrevocable for a period of ten years following the termination of our offer. You will agree not to exercise any rights pertaining to the tendered units without our prior consent. Upon such payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, we and our designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (and execute and deliver any accompanying evidences of transfer and authenticity it may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which we acquire such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which we are entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which we are entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions. By executing the letter of transmittal, you will irrevocably assign to us and our assigns all of your right, title and interest in and to any and all distributions made by your partnership from any source and of any nature, including, without limitation, distributions in the ordinary course, distributions from sales of assets, distributions upon liquidation, winding-up, or dissolution, payments in settlement of existing or future litigation, and all other distributions and payments from and after the expiration date of our offer, in respect of the units tendered by you and accepted for payment and thereby purchased by us. If, after the unit is accepted for payment and purchased by us, you receive any distribution from any source and of any nature, including, without limitation, distributions in the ordinary course, distributions from sales of assets, distributions upon liquidation, winding-up or dissolution, payments in settlement of existing or future litigation and all other distributions and payments, from your partnership in respect of such unit, you will agree to forward promptly such distribution to us. Release of Claims. By executing the letter of transmittal, effective upon acceptance for payment of the units tendered by you, you will, on behalf of yourself, your heirs, estate, executor, administrator, 12 successors and assigns, and your partnership, fully, finally and forever release, relinquish and discharge us and our predecessors, successors and assigns and our present and former parents, subsidiaries, affiliates, investors, insurers, reinsurers, officers, directors, employees, agents, administrators, auditors, attorneys, accountants, information and solicitation agents, investment bankers, and other representatives, including but not limited to AIMCO Properties, L.P. (collectively, the "Releasees"), from any and all claims and causes of action, whether brought individually, on behalf of a class, or derivatively, demands, rights, or liabilities, including, but not limited to, claims for negligence, gross negligence, professional negligence, breach of duty of care or loyalty, or breach of duty of candor, fraud, breach of fiduciary duty, mismanagement, corporate waste, malpractice, misrepresentation, whether intentional or negligent, misstatements and omissions to disclose, breach of contract, violations of any state or federal statutes, rules or regulations, whether known claims or unknown claims that have been asserted or that could have been asserted against the Releasees, that arise out of or relate to (a) those matters and claims set forth in the class and derivative litigation described in this Litigation Settlement Offer, (b) the ownership of one or more units in your partnership, including but not limited to, any and all claims related to the management of your partnership or the properties owned by your partnership (whether currently or previously), the payment of management fees or other monies to the general partner of your partnership and its affiliates, prior acquisitions or tender offers and the prior settlement, (c) the purchase, acquisition, holding, sale, tender or voting of one or more units in your partnership, or (d) any of the facts, circumstances, allegations, claims, causes of action, representations, statements, reports, disclosures, transactions, events, occurrences, acts, omissions or failures to act, of whatever kind or character whatsoever, irrespective of the state of mind of the actor performing or omitting to perform the same, that have been or could have been alleged in any pleadings, amended pleading, argument, complaint, amended complaint, brief, motion, report or filing in the class and derivative litigation described in this Litigation Settlement Offer (collectively, the "Released Claims"); provided, however, that the Released Claims are not intended to include (i) any unrelated claims that are unique to a limited partner or settlement class member (e.g., a settlement class member slips and falls on property owned by one of the defendants in the class and derivative litigation, loses or did not receive a distribution check distributed to other limited partners in such partnership, or is an employee of one of the defendants and has an employee related claim) or (ii) any claim based upon violations of federal or state securities laws in connection with this offer. In addition, you will expressly waive and relinquish, to the fullest extent permitted by law and consistent with the releases described herein, the provisions, rights and benefits of Section 1542 of the Civil Code of California ("Section 1542"), which provides: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. You will have also waived any and all provisions, rights and benefits conferred by any law of any state or territory of the United States, or principle of common law, that is similar, comparable or equivalent to Section 1542. You may hereafter discover facts in addition to or different from those you now know or believe to be true with respect to the subject matter of the Released Claims, but you will be deemed to have fully, finally and forever settled and released any and all Released Claims, known or unknown, suspected or unsuspected, contingent or non-contingent, that now exist or heretofore have existed upon any theory of law or equity now existing, including, but not limited to, conduct that is negligent, intentional, with or without malice, or a breach of any duty, law or rule, without regard to the subsequent discovery of the existence of such different or additional facts. You will acknowledge and agree that the releases contained in the letter of transmittal is intended to include the Released Claims, which you may have and which you do not know or suspect to exist in your favor against the Releasees and that the releases contained in the letter of transmittal extinguishes those claims. You will represent and warrant to the Releasees that you have been advised by your attorney of the effect and import of the provisions of Section 1542, and that you have not assigned or otherwise transferred or subrogated any interest in the Released Claims. 13 Covenant Not to Sue. By executing the letter of transmittal, you agree not to bring any action, claim, suit or proceeding against us and those affiliates who were defendants in the class and derivative litigation concerning any of the matters that are the subject of the Stipulation of Settlement approved by the Court in connection with the settlement of such class and derivative litigation, including this Litigation Settlement Offer, other than for violations of federal or state securities laws. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to our offer will be determined by us, in our reasonable discretion, which determination shall be final and binding on all parties. We reserve the absolute right to reject any or all tenders of any particular unit determined by us not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of our counsel, be unlawful. We also reserve the absolute right to waive or amend any of the conditions to the offer that we are legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit of any particular limited partner. If we waive any of the conditions to the offer with respect to the tender of a particular unit, we will waive such condition with respect to all other tenders of units in this offer as well. Our interpretation of the terms and conditions to the offer (including the letter of transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither we, the Information Agent, nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any unit or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding. To prevent the possible application of back-up federal income tax withholding with respect to payment of the offer price, you may have to provide us with your correct taxpayer identification number. See the instructions to the letter of transmittal and "The Litigation Settlement Offer -- Section 6. Certain Federal Income Tax Matters." State and Local Withholding. If you tender any units pursuant to this Litigation Settlement Offer, we may be required under state or local tax laws to deduct and withhold a portion of our offer price. You should consult your tax advisor concerning whether any state or local withholding would be required on a disposition of your units and whether such amounts may be available to you as a credit on your state or local tax returns. FIRPTA Withholding. To prevent the withholding of federal income tax in an amount equal to 10% of the amount realized on the disposition (the amount realized is generally the offer price plus the partnership liabilities allocable to each unit purchased), you must certify that you are not a foreign person if you tender units. See the instructions to the letter of transmittal and "The Litigation Settlement Offer -- Section 6. Certain Federal Income Tax Matters." Transfer Taxes. The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer of units will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes or exemption therefrom is submitted. Binding Agreement. A tender of a unit pursuant to any of the procedures described above and the acceptance for payment of such unit will constitute a binding agreement between the tendering limited partner and us on the terms set forth in this Litigation Settlement Offer and the letter of transmittal. 4. WITHDRAWAL RIGHTS You may withdraw your tendered units at any time prior to the expiration date, including any extensions thereof, or on or after April 23, 2004 if the units have not been previously accepted for payment. For a withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at one of its addresses set forth on the back cover of this Litigation Settlement Offer. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who 14 tendered. In addition, the notice of withdrawal must be signed by the person who signed the letter of transmittal in the same manner as the letter of transmittal was signed. If purchase of, or payment for, a unit is delayed for any reason, or if we are unable to purchase or pay for a unit for any reason, then, without prejudice to our rights under the offer, tendered units may be retained by the Information Agent; subject, however, to our obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer price in respect of units tendered or return those units promptly after termination or withdrawal of our offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of our offer. However, withdrawn units may be re-tendered at any time prior to the expiration date by following the procedures described in "The Litigation Settlement Offer -- Section 3. Procedure for Tendering Units." All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by us in our reasonable discretion, which determination will be final and binding on all parties. Neither the Information Agent, any other person, nor we will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. 5. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT; NO SUBSEQUENT OFFERING PERIOD We expressly reserve the right, in our reasonable discretion, at any time and from time to time, (i) to extend the period of time during which our offer is open (but not beyond 90 business days from the date of commencement of the offer) and thereby delay acceptance for payment of, and the payment for, any unit, (ii) to terminate the offer and not accept any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "The Litigation Settlement Offer -- Section 19. Conditions to the Offer" relating to necessary governmental approvals to delay the acceptance for payment of, or payment for, any units not already accepted for payment or paid for, and (iv) to amend our offer in any respect (including, without limitation, by increasing or decreasing the consideration offered, increasing or decreasing the units being sought, or both). We will not assert any of the conditions to the offer (other than those relating to necessary governmental approvals) subsequent to the expiration of the offer. Notice of any such extension, termination or amendment will promptly be disseminated to you in a manner reasonably designed to inform you of such change. In the case of an extension of the offer, the extension may be followed by a press release or public announcement which will be issued no later than 9:00 a.m., New York City time, on the next business day after the scheduled expiration date of our offer, in accordance with Rule 14e-1(d) under the Exchange Act. If we extend the offer, or if we delay payment for a unit (whether before or after its acceptance for payment) or are unable to pay for a unit pursuant to our offer for any reason, then, without prejudice to our rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent tendering limited partners are entitled to withdrawal rights as described in "The Litigation Settlement Offer -- Section 4. Withdrawal Rights;" subject, however, to our obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer price in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If we make a material change in the terms of our offer, or if we waive a material condition to our offer, we will extend the offer and disseminate additional tender offer materials to the extent required by Rules 14d-4 and 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, if any, will depend upon the facts and circumstances, including the materiality of the change, but generally will be five business days. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, if any, a minimum of ten business days from the date of 15 such change is generally required to allow for adequate dissemination to limited partners. Accordingly, if, prior to the expiration date, we increase (other than increases of not more than two percent of the outstanding units) or decrease the number of units being sought, or increase or decrease the offer price, and if the offer is scheduled to expire at any time earlier than the tenth business day after the date that notice of such increase or decrease is first published, sent or given to limited partners, the offer will be extended at least until the expiration of such ten business days. As used in this Litigation Settlement Offer, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, New York City time. Pursuant to Rule 14d-11 under the Exchange Act, subsequent offering periods may be provided in tender offers for "any and all" outstanding units of a partnership. A subsequent offering period is an additional period of from three to twenty business days following the expiration date of the offer, including any extensions, in which limited partners may continue to tender units not tendered in the offer for the offer price. We do not currently intend to offer a subsequent offering period. 6. CERTAIN FEDERAL INCOME TAX MATTERS The following summary is a general discussion of certain of the United States federal income tax consequences of the offer that may be relevant to (i) limited partners who tender some or all of their units for cash pursuant to our offer, and (ii) limited partners who do not tender any of their units pursuant to our offer. This discussion is based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all as of the date of this Litigation Settlement Offer. All of the foregoing is subject to change or alternative construction, possibly with retroactive effect, and any such change or alternative construction could affect the continuing accuracy of this summary. This summary is based on the assumption that your partnership is operated in accordance with its organizational documents including its certificate of limited partnership and agreement of limited partnership. This summary is for general information only and does not purport to discuss all aspects of federal income taxation which may be important to a particular person in light of its investment or tax circumstances, or to certain types of investors subject to special tax rules (including financial institutions, broker-dealers, insurance companies, and, except to the extent discussed below, tax-exempt organizations and foreign investors, as determined for United States federal income tax purposes), nor (except as otherwise expressly indicated) does it describe any aspect of state, local, foreign or other tax laws. This summary assumes that the units constitute capital assets in the hands of the limited partners within the meaning of Section 1221 of the Code (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Litigation Settlement Offer. Further, no opinion of counsel has been obtained with regard to the offer. THE UNITED STATES FEDERAL INCOME TAX TREATMENT OF A LIMITED PARTNER PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF UNITED STATES FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF SELLING THE INTERESTS IN YOUR PARTNERSHIP REPRESENTED BY YOUR UNITS PURSUANT TO OUR OFFER OR OF A DECISION NOT TO SELL IN LIGHT OF YOUR SPECIFIC TAX SITUATION. Tax Consequences to Limited Partners Tendering Units for Cash. The sale of a unit of limited partnership interest pursuant to this offer will be a taxable transaction for United States federal income tax purposes. You will recognize gain or loss on a sale of a unit of limited partnership interest of your partnership equal to the difference, if any, between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the unit sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash received by you for the unit sold pursuant to the offer plus the amount of partnership liabilities allocable to your unit (as determined under Section 752 of the Code). Thus, your tax liability resulting from a sale of a unit could exceed the cash received upon such sale. Adjusted Tax Basis. If you acquired your units for cash, your initial tax basis in such units was generally equal to your cash investment in your partnership increased by your share of partnership 16 liabilities at the time you acquired such units. Your initial tax basis generally has been increased by (i) your share of partnership income and gains, and (ii) any increases in your share of partnership liabilities, and has been decreased (but not below zero) by (i) your share of partnership cash distributions, (ii) any decreases in your share of partnership liabilities, (iii) your share of partnership losses, and (iv) your share of nondeductible partnership expenditures that are not chargeable to capital. For purposes of determining your adjusted tax basis in your units immediately prior to a disposition of your units, your adjusted tax basis in your units will include your allocable share of partnership income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of partnership liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), your gain recognized with respect to a unit pursuant to the offer will exceed the cash proceeds realized upon the sale of such unit, and may result in a tax liability to you that exceeds the cash received upon such sale. Character of Gain or Loss Recognized Pursuant to the Offer. Except as described below, the gain or loss recognized by you on a sale of a unit pursuant to the offer generally will be treated as a long-term capital gain or loss if you held the unit for more than one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum United States federal income tax rate of 15%. If the amount realized with respect to a unit of limited partnership interest of your partnership that is attributable to your share of "unrealized receivables" of your partnership exceeds the tax basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture for certain types of property. In addition, the maximum United States federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your units) held for more than one year is currently 25% (rather than 15%) with respect to that portion of the gain attributable to depreciation deductions previously taken on the property. Certain limitations apply to the use of capital losses. If you tender a unit of limited partnership interest of your partnership in the offer, you will be allocated a share of partnership taxable income or loss for the year of tender with respect to any units sold. You will not receive any future distributions on units tendered on or after the date on which such units are accepted for purchase and, accordingly, you may not receive any distributions with respect to such accreted income. Such allocation and any partnership cash distributions to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. Passive Activity Losses. The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as your units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in such activity. Accordingly, if your investment in your units is treated as a passive activity, you may be able to reduce gain from the sale of your units pursuant to the offer with passive losses in the manner described below. If you sell all or a portion of your units pursuant to the offer and recognize a gain on your sale, you will generally be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. In general, if you sell all or a portion of your units pursuant to the offer and recognize a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you sell all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will generally no longer be suspended and will generally therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of 17 the character of that income. You are urged to consult your tax advisor concerning whether, and the extent to which, you have available "suspended" passive activity losses from your partnership or other investments that may be used to reduce gain from the sale of units pursuant to the offer. Release and Assignment of Claims. Our offer price includes $4.72, your pro rata share of the settlement fund, unless you request exclusion from the settlement or the Court's order approving the settlement is reversed or vacated by virtue of the appeal. If you request exclusion from the settlement or the Court's order approving the settlement is reversed or vacated by virtue of the appeal, an equivalent portion of the price paid to you may be deemed a payment for your release and assignment of claims. The proper treatment for federal income tax purposes of your receipt of amounts from the settlement fund or deemed payments for your release and assignment of claims is uncertain. No opinion or assurance can be given that the IRS will not challenge the treatment of amounts from the settlement fund or deemed payments for your release and assignment of claims as additional consideration for the units, and assert that such amount should be treated as an ordinary income payment in exchange for your release and/or assignment of current and future claims. Moreover, while the IRS has stated that it generally will not treat attorneys' fees and costs that are paid directly to class counsel from a settlement fund as constituting income, profit, or gain of a member of the class (so long as the class is an opt-out class and the class member does not have a separate contingency fee arrangement with the class counsel), any special awards paid to claimants who actively aid in the prosecution of a class action or who devote substantial time or expense on behalf of a settlement class will be treated as payments for services rendered and will be includable in that member's gross income. You should consult your tax advisor regarding the tax consequences to you with respect to your right to, and your receipt of, amounts from the settlement fund or deemed payments for your release and assignment of claims, and the treatment of special awards, attorneys' fees and costs. Information Reporting, Backup Withholding and FIRPTA. If you tender any units, you must report the transaction by filing a statement with your United States federal income tax return for the year of the tender which provides certain required information to the IRS. To prevent the possible application of back-up United States federal income tax withholding with respect to the payment of the offer consideration, you are generally required to provide us with your correct taxpayer identification number. Back-up withholding is not an additional tax. Any amounts withheld under the back-up withholding rules may be refunded or credited against your United States federal income tax liability, if any, provided that the required information is furnished to the Internal Revenue Service. See the instructions to the letter of transmittal. Gain realized by a foreign person on the sale of a unit pursuant to the offer will be subject to federal income tax under the Foreign Investment in Real Property Tax Act of 1980. Under these provisions of the Code, if we acquire an interest held by a foreign person, we will be required to deduct and withhold 10% of the amount realized by such foreign person on the disposition. Amounts withheld would be creditable against a foreign person's United States federal income tax liability and, if in excess thereof, a refund could be claimed from the Internal Revenue Service by filing a United States income tax return. See the instructions to the letter of transmittal. State and Local Withholding. If you tender any units pursuant to this Litigation Settlement Offer, we may be required under state or local tax laws to deduct and withhold a portion of our offer price. You should consult your tax advisor concerning whether any state or local withholding would be required on a disposition of your units and whether such amounts may be available to you as a credit on your state or local tax returns. Tax Consequences to Your Partnership of Our Offer. Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for United States federal income tax purposes. It is possible that our acquisition of units pursuant to the offer alone or in combination with other transfers of interests in your partnership could result in such a termination of your partnership. If your partnership is not deemed to terminate for tax purposes, there will be no tax effect to your partnership. If your partnership is 18 deemed to terminate for tax purposes, however, the following federal income tax events will be deemed to occur: the terminated partnership will be deemed to have contributed all of its assets (subject to its liabilities) to a new partnership in exchange for an interest in the new partnership and, immediately thereafter, the old partnership will be deemed to have distributed interests in the new partnership to the remaining limited partners in proportion to their respective interests in the old partnership in liquidation of the old partnership. A termination of your partnership for federal income tax purposes may also subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions following our offer, but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Additionally, upon a termination of your partnership, the taxable year of your partnership will close for federal income tax purposes. Elections as to tax matters previously made by the old partnership will not be applicable to the new partnership unless the new partnership chooses to make the same elections. Tax Consequences to Non-Tending and Partially-Tendering Limited Partners. As described above, if 50% or more of such interests are sold or exchanged within a 12 month period, including as a result of our acquisition of units, a deemed tax termination of your partnership will occur for tax purposes. If less than 50% of the total interest in capital and profits of your partnership are sold or exchanged within any 12 month period, there will be no tax effect to you from the offer. You will not recognize any gain or loss upon a deemed tax termination of your partnership, and your capital account in your partnership will carry over to the new partnership. A termination of your partnership for federal income tax purposes may change (and possibly shorten) your holding period with respect to interests in your partnership that you choose to retain. Gain recognized by you on the disposition of retained units with a holding period of 12 months or less may be classified as short-term capital gain and subject to taxation at ordinary income tax rates. A deemed tax termination will also decrease the annual depreciation deductions (as a result of the longer partnership depreciation lives described above) allocable to you (thereby possibly increasing the taxable income allocable to your interests in the partnership each year). 7. EFFECTS OF THE OFFER Because the general partner of your partnership is our affiliate, we have control over the management of your partnership. In addition, we, together with Cooper River Properties, L.L.C., Reedy River Properties, L.L.C and AIMCO IPLP, L.P. (which are our affiliates), own 129,695.10 units, or 65.16%, of the outstanding units of your partnership. Because we and our affiliates own a majority of the outstanding units and control your partnership's general partner, we control the outcome of most voting decisions with respect to your partnership. In general, we will vote the units owned by us in whatever manner we deem to be in our best interests, which may not be in the interest of other limited partners. This could (1) prevent non-tendering limited partners from taking action that they desire but that we oppose and (2) enable us to take action desired by us but opposed by non-tendering limited partners. We are also affiliated with the company that currently manages, and has managed for some time, the property owned by your partnership. In the event that we acquire a substantial number of units pursuant to this offer, removal of the property manager may become more difficult or impossible. If we acquire all of the units that we are seeking in the offer, our interest in your partnership's net earnings ($1,814,000 for the year ended December 31, 2003) and net book value ($26,348,000 as of December 31, 2003) will increase to 100%. AIMCO-GP owns a 1% interest in AIMCO Properties, L.P. and AIMCO, through its subsidiaries, owns an 89% interest in AIMCO Properties. Distributions to Us. If we acquire units in the offer, we will participate in any subsequent distributions to limited partners to the extent of the units purchased. 19 Partnership Status. The rules regarding whether a partnership is treated as a "publicly traded partnership" taxable as a corporation are not certain. We believe that our purchase of units in accordance with the terms of our offer should not adversely affect the issue of whether your partnership is classified as a partnership for federal income tax purposes, because, taking into account all of the facts and circumstances, the general partner of your partnership believes that the partnership interests in your partnership should not be treated as readily tradable on a secondary market or the substantial equivalent thereof. Business. Our offer will not affect the operation of the property owned by your partnership. We will continue to control the general partner of your partnership and the property manager, both of which will remain the same. Consummation of the offer will not affect your agreement of limited partnership, the operations of your partnership, the business and properties owned by your partnership or any other matter relating to your partnership, except it would result in us increasing our ownership of units. We have no current intention of changing the fee structure for your general partner or the manager of your partnership's property. Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act. If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In the case of your partnership, however, there is no established public trading market for the units and, therefore, we do not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. The units are registered under Section 12(g) of the Exchange Act, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. We do not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Exchange Act. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Exchange Act. Your partnership currently has 11,439 unitholders. The lack of filing periodic reports could affect the already limited secondary market which currently exists for units in your partnership and may result in others not tendering for such units. In such a case, you would regularly have access only to the limited information your partnership's agreement of limited partnership requires your general partner (which is our affiliate) to provide each year, which information consists primarily of tax information. In particular, you will continue to receive a Schedule K-1 each year as well as audited financial statements with respect to your partnership. A Schedule K-1 is an information statement that contains tax information for the fiscal year of your partnership, such as your allocation of income, deductions, credits, gains and losses of your partnership for federal income tax purposes. In comparison, the periodic reports filed by your partnership under the Exchange Act contain your partnership's annual and quarterly financial statements prepared in accordance with generally accepted accounting principles. These periodic reports filed under the Exchange Act also include information regarding your partnership's business and property and a discussion regarding your partnership's financial condition and results of operations. Additionally, your partnership will not be required to provide current reports on Form 8-K, describing certain material events. See "The Litigation Settlement Offer -- Section 1. Terms of the Offer; Expiration Date." Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. 8. VALUATION OF UNITS Determination of Offer Price. We determined the offer price by estimating the net equity value of units of limited partnership interest based on our valuation of your partnership's properties, determined using the direct capitalization method. This method involves applying a capitalization rate to the property 20 income. A capitalization rate is a percentage (rate of return), commonly applied by purchasers of residential real estate to property income to determine the present value of income property. The lower the capitalization rate utilized, the higher the value produced, and the higher the capitalization rate utilized, the lower the value produced. Our method for selecting a capitalization rate generally begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below prevailing market rates and based on the amount of any prepayment penalty. Generally, the capitalization rate would be increased if the mortgage debt bears interest at above market rates. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Property income is the difference between the revenues from the property and related costs and expenses, excluding income derived from sources other than regular activities and before income deductions. Income deductions include interest, income taxes, prior-year adjustments, charges to reserves, write-offs of intangibles, adjustments arising from major changes in accounting methods and other material and nonrecurrent items. In this respect, property income differs from net income disclosed in the partnership's financial statements, which does not exclude these income sources and deductions. Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. We relied on the direct capitalization method because we believe this is the valuation methodology most often used by the real estate industry to value income producing property. The court appointed independent appraiser also utilized the direct capitalization method as one of its valuation methodologies. However, in comparison to our methodology, the independent appraiser relied on pro forma net operating income as opposed to the current property income of your partnership. Currently, multifamily net operating income has been in decline making use of higher pro forma net operating income result in increased values compared to use of current property income. Accordingly, we believe that it is more appropriate to rely on current property income in our valuation methodology. We determined your partnership's value as follows: - First, we estimated the gross value of your partnership's properties using the direct capitalization method. We determined property income for each of your partnership's properties for the twelve year ended December 31, 2003, and then divided such amount by the property's capitalization rate to derive an estimated gross property value.
ESTIMATED CAPITALIZATION GROSS PROPERTY PROPERTY PROPERTY INCOME RATE VALUE - -------- --------------- -------------- -------------- The Dunes Apartment Homes................... $ 489,829 9.64% $ 5,083,112 Indian Creek Village........................ 996,378 9.66% 10,316,060 The Knolls.................................. 803,383 7.56% 10,630,032 The Loft.................................... 388,851 6.14% 6,336,610 Palm Lake (Village Square).................. 424,171 10.05% 4,218,540 Plantation Gardens.......................... 1,323,113 8.33% 15,887,479 Regency Oaks................................ 796,094 9.17% 8,684,472 Silverado................................... 342,973 7.54% 4,549,488 Sterling Apartment Homes.................... 4,850,583 9.56% 50,714,894 Sterling Commerce Center.................... (91,644) N/A 749,629 Tates Creek Village......................... 481,987 9.58% 5,031,617 Estimated Total Gross Property Value........ $122,201,933
- Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties the value of the non-real estate assets of your partnership and deducting its liabilities, including mortgage debt and debt owed by your partnership to the general 21 partner or its affiliates. We deducted from these values certain other costs, including required capital expenditures, deferred maintenance and estimated closing costs, to derive the net equity value of your partnership. - Finally, we allocated 100% of this net equity value to limited partners, which is the percentage of net proceeds that would be paid to limited partners in the event of a liquidation of your partnership. Our offer price represents the net equity value per unit determined in this manner, plus a pro rata portion of the settlement fund, as indicated below. Estimated gross valuation of partnership properties......... $122,201,933 Plus: Cash and cash equivalents (net of tenant security deposits)................................................. 3,001,766 Plus: Other partnership assets, including any amounts payable by the general partner and its affiliates upon liquidation............................................... 1,845,762 Less: Mortgage debt, including accrued interest............. (73,152,142) Less: Accounts payable and accrued expenses................. (2,384,848) ------------ Partnership valuation before taxes and certain costs........ $ 51,512,471 Less: Disposition fees authorized by the partnership agreement................................................. (1,222,019) Less: Estimated closing costs............................... (3,632,848) ------------ Estimated net equity value of your partnership.............. $ 46,657,604 Percentage of estimated net equity value allocable to holders of units based on the partnership agreement....... 100.00% ------------ Estimated net equity value of units......................... $ 46,657,604 Total number of units..................................... 199,043 ------------ Estimated net equity value per unit......................... $ 234.41 ============ Plus: Payment from the settlement fund...................... $ 4.72 ============ Cash consideration per unit................................. $ 239.13 ============
Comparison of Offer Price to Alternative Consideration. To assist holders of units in evaluating the offer, your general partner, which is our affiliate, has attempted to compare the offer price against: (a) prices at which the units have sold on the secondary market and (b) the estimated liquidation proceeds payable per unit, assuming a sale of properties at prices equal to appraised values determined by the independent appraiser. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the actual range of possible values. The results of these comparative analyses are summarized in the chart below.
COMPARISON TABLE PER UNIT - ---------------- -------- Cash offer price............................................ $239.13 Alternatives Highest prior cash tender offer price..................... $440.00(1) Highest price on secondary market......................... $230.00 Estimated liquidation proceeds (based on appraised value)................................................. $343.92
- --------------- (1) Highest price offered in our 2000-2002 tender offers to date. 22 PRIOR TENDER OFFERS 2002. On June 25, 2002, we completed a tender offer commenced on May 7, 2002. We acquired 2,978.60 units in that offer at a price of $166.00 per unit. In that case, we determined the offer price using the same valuation methodology that we have used for the current offer. 2000. On June 26, 2000, we completed a tender offer commenced on May 15, 2000. We acquired 4,383.70 units in that offer at a price of $440.00 per unit. In addition, on September 28, 2000, we completed an additional tender offer commenced on August 10, 2000, in which we acquired 3,120.50 units at a price of $421.00. We determined the offer prices in those offers using the same valuation methodology that we have used for the current offer. Prices on Secondary Market. Secondary market sales information is not a reliable measure of value because of the limited amount of any known trades. Except for offers made by us and unaffiliated third parties, privately negotiated sales and sales through intermediaries are the only means which may be available to a limited partner to liquidate an investment in units (other than our offer) because the units are not listed or traded on any exchange or quoted on Nasdaq, on the Electronic Bulletin Board, or in "pink sheets." Secondary sales activity for the units, including privately negotiated sales, has been limited and sporadic. Set forth below are the high and low sale prices of units during the years ended December 31, 2003 and December 31, 2002, as reported by The Partnership Spectrum, which is an independent, third-party source. The gross sales prices reported by The Partnership Spectrum do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported price. The Partnership Spectrum represents only one source of secondary sales information, and other services may contain prices for the units that equal or exceed the sales prices reported in The Partnership Spectrum. We do not know whether the information compiled by The Partnership Spectrum is accurate or complete. SALES PRICES OF PARTNERSHIP UNITS, AS REPORTED BY THE PARTNERSHIP SPECTRUM
HIGH LOW ---- ------- Year Ended December 31, 2003: $180 $151.12 Year Ended December 31, 2002: $230 $ 147
Set forth in the table below are the high and low sales prices of units during the years ended December 31, 2003 and December 31, 2002, as reported by the American Partnership Board, which is an independent, third-party source. The gross sales prices reported by American Partnership Board do not necessarily reflect the net sales proceeds received by sellers of units, which typically are reduced by commissions and other secondary market transaction costs to amounts less than the reported prices. The American Partnership Board represents one source of secondary sales information, and other services may contain prices for units that equal or exceed the sales prices reported by the American Partnership Board. We do not know whether the information compiled by the American Partnership Board is accurate or complete. SALES PRICES OF PARTNERSHIP UNITS, AS REPORTED BY THE AMERICAN PARTNERSHIP BOARD
HIGH LOW ---- ------- Year Ended December 31, 2003: 178 155.55 Year Ended December 31, 2002: $230 $166.32
23 ESTIMATED LIQUIDATION PROCEEDS BASED ON INDEPENDENT APPRAISAL Selection and Qualifications of Independent Appraiser. Under the terms of the settlement, your partnership's property was appraised by American Appraisal Associates, Inc. ("AAA"), an independent appraiser appointed by the court. The information set forth below was provided to us by AAA with respect to its appraisals. AAA is an experienced independent valuation consulting firm with more than 50 offices on four continents. AAA provides valuation and consulting services for the real estate industry through its specialized industry focus and operates through a team of professionals with different economical, financial, statistical, legal, architectural, urban and engineering knowledge and expertise. Factors Considered. AAA performed complete appraisals of all of your partnership's properties. AAA has represented that its report was prepared in conformity with the Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute. We furnished the appraiser with all of the necessary information requested by AAA in connection with the appraisal. The information furnished to the appraiser was true, correct and complete in all material respects. No limitations were imposed on AAA by us or any of our affiliates. In preparing its valuation of your partnership property, AAA: - inspected and analyzed the exterior of all buildings and site improvements and a representative sample of units; - conducted neighborhood and area research, including major employers, demographics (population trends, number of households, and income trends), housing trends, surrounding uses, and general economic outlook of the area; - conducted market research of rental inventory, historical vacancy rates, historical average rental rates, occupancy trends, concessions, and marketing strategies in the submarket, and occupancy rates at competing properties; - reviewed leasing policy, concessions and history of recent occupancy; - reviewed the historical operating statements for your partnership's property and an operating budget forecast for 2003; - prepared an estimate of stabilized income and expense (for capitalization purposes); - conducted market inquiries into recent sales of similar properties to ascertain sales price per unit, effective gross income multipliers and capitalization rates; and - prepared sales comparison and income capitalization approaches to value. 24 AAA was provided by us with the following management budgets for your partnership's property:
PALM LAKE PLANTATION GARDENS THE DUNES APT. HOMES REGENCY OAKS FISCAL YEAR 2003 FISCAL YEAR 2003 FISCAL YEAR 2003 FISCAL YEAR 2003 MANAGEMENT BUDGET MANAGEMENT BUDGET MANAGEMENT BUDGET MANAGEMENT BUDGET ---------------------- ---------------------- ---------------------- ---------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT - ----------- ----------- -------- ----------- -------- ----------- -------- ----------- -------- Revenues Rental Income...... $1,213,500 $8,090 $3,638,000 $9,780 $1,528,184 $7,641 $2,544,220 $7,418 Vacancy............ 127,830 852 235,500 633 76,869 384 380,764 1,110 Credit Loss/ Concessions...... 18,000 120 72,000 194 24,000 120 78,600 229 Subtotal......... $ 145,830 $ 972 $ 307,500 $ 827 $ 100,869 $ 504 $ 459,364 $1,339 Laundry Income..... $ 13,344 $ 89 $ 60,000 $ 161 $ 21,996 $ 110 $ 33,096 $ 96 Garage Revenue..... 0 0 0 0 0 0 0 0 Other Misc. Revenue.......... 164,148 1,094 162,000 435 66,024 330 225,600 658 Subtotal Other Income......... $ 177,492 $1,183 $ 222,000 $ 597 $ 88,020 $ 440 $ 258,696 $ 754 Effective Gross Income............. $1,245,162 $8,301 $3,552,500 $9,550 $1,515,335 $7,577 $2,343,552 $6,833 Operating Expenses Taxes.............. $ 117,348 $ 782 $ 375,836 $1,010 $ 136,256 $ 681 $ 158,671 $ 463 Insurance.......... 41,674 278 133,608 359 43,420 217 108,455 316 Utilities.......... 102,000 680 170,400 458 108,468 542 225,000 656 Repair & Maintenance...... 38,400 256 286,800 771 119,196 596 73,440 214 Cleaning........... 50,200 335 61,200 165 0 0 131,280 383 Landscaping........ 69,540 464 0 0 57,744 289 125,640 366 Security........... 0 0 0 0 0 0 0 0 Marketing & Leasing.......... 34,008 227 70,800 190 26,988 135 52,200 152 General Administrative... 165,048 1,100 340,080 914 188,061 940 319,752 932 Management......... 61,403 409 163,420 439 75,002 375 129,038 376 Miscellaneous...... 0 0 0 0 0 0 0 0 Total Operating Expenses........... $ 679,621 $4,531 $1,602,144 $4,307 $ 755,135 $3,776 $1,323,476 $3,859 Reserves........... 0 0 0 0 0 0 0 0 Net Income........... $ 565,541 $3,770 $1,950,356 $5,243 $ 760,200 $3,801 $1,020,076 $2,974
INDIAN CREEK VILLAGE THE LOFT THE KNOLLS SILVERADO FISCAL YEAR 2003 FISCAL YEAR 2003 FISCAL YEAR 2003 FISCAL YEAR 2003 MANAGEMENT BUDGET MANAGEMENT BUDGET MANAGEMENT BUDGET MANAGEMENT BUDGET ---------------------- ---------------------- ---------------------- ---------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT - ----------- ----------- -------- ----------- -------- ----------- -------- ----------- -------- Revenues Rental Income...... $2,271,600 $8,321 $1,584,230 $8,610 $2,211,304 $8,440 $1,431,500 $5,772 Vacancy............ 189,260 693 122,494 666 320,000 1,221 54,000 218 Credit Loss/ Concessions...... 70,080 257 19,200 104 0 0 36,000 145 Subtotal......... $ 259,340 $ 950 $ 141,694 $ 770 $ 320,000 $1,221 $ 90,000 $ 363 Laundry Income..... $ 24,240 $ 89 $ 8,628 $ 47 $ 44,388 $ 169 $ 19,872 $ 80
25
INDIAN CREEK VILLAGE THE LOFT THE KNOLLS SILVERADO FISCAL YEAR 2003 FISCAL YEAR 2003 FISCAL YEAR 2003 FISCAL YEAR 2003 MANAGEMENT BUDGET MANAGEMENT BUDGET MANAGEMENT BUDGET MANAGEMENT BUDGET ---------------------- ---------------------- ---------------------- ---------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT - ----------- ----------- -------- ----------- -------- ----------- -------- ----------- -------- Garage Revenue..... 0 0 0 0 0 0 0 0 Other Misc. Revenue.......... 168,504 617 19,651 107 147,595 563 80,400 324 Subtotal Other Income......... $ 192,744 $ 706 $ 28,279 $ 154 $ 191,983 $ 733 $ 100,272 $ 404 Effective Gross Income............. $2,205,004 $8,077 $1,470,815 $7,994 $2,083,287 $7,951 $1,441,772 $5,814 Operating Expenses Taxes.............. $ 124,176 $ 455 $ 135,529 $ 737 $ 65,184 $ 249 $ 146,936 $ 592 Insurance.......... 52,408 192 8,554 46 50,478 193 46,017 186 Utilities.......... 139,984 513 45,600 248 95,460 364 107,148 432 Repair & Maintenance...... 60,764 223 82,056 446 27,720 106 98,160 396 Cleaning........... 0 0 0 0 54,858 209 0 0 Landscaping........ 65,500 240 43,200 235 88,196 337 42,000 169 Security........... 0 0 0 0 0 0 0 0 Marketing & Leasing.......... 46,040 169 22,380 122 42,920 164 20,688 83 General Administrative... 250,044 916 179,700 977 199,909 763 208,804 842 Management......... 110,004 403 76,452 416 113,664 434 67,200 271 Miscellaneous...... 62,592 229 0 0 0 0 0 0 Total Operating Expenses........... $ 911,512 $3,339 $ 593,471 $3,225 $ 738,389 $2,818 $ 736,953 $2,972 Reserves........... 0 0 0 0 0 0 0 0 Net Income........... $1,293,492 $4,738 $ 877,344 $4,768 $1,344,898 $5,133 $ 704,819 $2,842
STERLING APARTMENT HOMES & STERLING COMMERCE CENTER TATES CREEK VILLAGE FISCAL YEAR 2003 FISCAL YEAR 2003 MANAGEMENT BUDGET MANAGEMENT BUDGET ---------------------- ---------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT - ----------- ----------- -------- ----------- -------- Revenues Rental Income................................... $9,343,212 $17,431 $1,303,760 $6,391 Vacancy......................................... 615,000 1,147 87,270 428 Credit Loss/Concessions......................... 12,000 22 16,200 79 Subtotal..................................... $ 627,000 $ 1,170 $ 103,470 $ 507 Laundry Income.................................. $ 0 $ 0 $ 3,000 $ 15 Garage Revenue.................................. 0 0 0 0 Other Misc. Revenue............................. 296,831 554 54,400 267 Subtotal Other Income........................ $ 296,831 $ 554 $ 57,400 $ 281 Effective Gross Income............................ $9,013,043 $16,815 $1,257,690 $6,165 Operating Expenses Taxes........................................... $ 781,506 $ 1,458 $ 53,507 $ 262 Insurance....................................... 147,716 276 27,074 133 Utilities....................................... 1,103,000 2,058 221,200 1,084 Repair & Maintenance............................ 64,100 120 96,205 472 Cleaning........................................ 514,800 960 0 0
26
STERLING APARTMENT HOMES & STERLING COMMERCE CENTER TATES CREEK VILLAGE FISCAL YEAR 2003 FISCAL YEAR 2003 MANAGEMENT BUDGET MANAGEMENT BUDGET ---------------------- ---------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT - ----------- ----------- -------- ----------- -------- Landscaping..................................... 0 0 0 0 Security........................................ 0 0 0 0 Marketing & Leasing............................. 36,000 67 16,500 81 General Administrative.......................... 100,500 188 125,650 616 Management...................................... 456,547 852 61,835 303 Miscellaneous................................... 522,538 975 0 0 Total Operating Expenses.......................... $3,726,707 $ 6,953 $ 601,971 $2,951 Reserves........................................ 0 0 0 0 Net Income........................................ $5,286,336 $ 9,863 $ 655,719 $3,214
THE ABOVE MANAGEMENT BUDGETS ARE INTERNALLY PREPARED OPERATING PROJECTIONS FOR THE PARTNERSHIP'S PROPERTIES. A MANAGEMENT BUDGET DOES NOT REFLECT A PROPERTY'S ACTUAL PERFORMANCE, OR CHANGES IN THE CONDITION OF A PROPERTY, IN THE LOCAL AREA SURROUNDING A PROPERTY OR IN THE ECONOMY IN GENERAL. Summary of Approaches and Methodologies Employed. The following summary describes the material approaches and analyses employed by AAA in preparing the appraisals. The partnership imposed no conditions or limitations on the scope of AAA's investigation or the methods and procedures to be followed in preparing the appraisal. AAA principally relied on two approaches to valuation: (1) the sales comparison approach and (2) the income capitalization approach. The sales comparison approach uses analysis techniques and sales of comparable improved properties in surrounding or competing areas to derive units of comparison that are then used to indicate a value for the subject property. Under this approach, the primary methods of analysis used by the appraiser were: (1) sales price per unit analysis; (2) net operating income analysis; and (3) effective gross income analysis. The purpose of the income capitalization approach is to value an income-producing property by analyzing likely future income and expenses of the property over a reasonable holding period. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive property value. The direct capitalization analysis determines the value of a property by applying a capitalization rate that takes into account all of the factors influencing the value of such property to the net operating income of such property for a single year. The direct capitalization method is normally more appropriate for properties with relatively stable operating histories and expectations. The discounted cash flow analysis determines the value of a property by discounting to present value the estimated operating cash flow of such property and the estimated proceeds of a hypothetical sale of such property at the end of an assumed holding period. The discounted cash flow method is 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. AAA relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach. Although the sales comparison approach is considered a reliable method for valuing property, the income capitalization approach is the primary approach used for valuing income producing property, such as your partnership's property. Summary of independent appraisals of your partnership's property. AAA performed complete appraisals of all of your partnership's properties. The summary set forth below describes the material conclusions reached by AAA based on the values determined under the valuation approaches and subject 27 to the assumptions and limitations described below. AAA determined that the estimated total "as is" market value of the fee simple estate of your partnership's property was $156,500,000, which was determined by adding the estimated values determined by AAA for each of your partnership's properties and which is higher than our estimated total gross valuation of $122,201,933. INDIAN CREEK VILLAGE Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Indian Creek Village that were sold between January 2001 and August 2002 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of all five comparable properties as comparable to the location of Indian Creek Village. AAA rated the quality/appeal of all five comparable properties as comparable to the quality/appeal of Indian Creek Village. AAA rated the amenities of one comparable property as superior and four comparable properties as comparable to the amenities of Indian Creek Village. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Indian Creek Village in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $46,678 to $57,678 per unit with a mean or average adjusted price of $50,882 per unit and a median adjusted price of $50,132 per unit. Thus, the estimated value based on a $50,000 sales price per unit for the 273 units was approximately $13,600,000 after adjustment for deferred maintenance. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Indian Creek Village's NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $42,134 and $57,381 per unit, with an average of $51,206 per unit. The appraiser concluded a value of $50,000 per unit for the 273 units of the property, resulting in an estimated "as is" market value of $13,600,000 using the NOI analysis after adjustment for deferred maintenance. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Indian Creek Village to be 42.71% before reserves, with the expense ratios of the five comparable properties ranging from 32.03% to 47.37%, resulting in EGIMs ranging from 6.49 to 7.33. Thus, AAA concluded an EGIM of 6.25 for Indian Creek Village, and applied the EGIM to the stabilized effective gross income for the property (see Income Approach section below), resulting in a value conclusion of approximately $13,900,000 after adjustment for deferred maintenance. AAA estimated the value using the price per unit analysis at $13,600,000, the value using the NOI analysis at $13,600,000 and the value using the EGIM analysis at $13,900,000. Based on these three valuation methods, AAA concluded that the reconciled value for Indian Creek Village under the sales comparison approach was $13,700,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Indian Creek Village. AAA first utilized a discounted cash flow method to analyze the value of the property. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Indian Creek Village's effective gross income ("EGI") 28 by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $2,222,472. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Indian Creek Village of approximately $1,204,988. AAA performed a pro forma analysis of revenue and expenses for the property to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of Indian Creek Village under the income approach included: (1) stabilized vacancy and collection loss rate of 10%; (2) replacement reserve of $250 per unit; (3) overall capitalization rate of 9.00%; (4) terminal capitalization rate of 10.00%; (5) discount rate of 11.00%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. No adjustment was made for lease-up costs because the property was near or at a stabilized condition. No adjustment was made for concessions. An adjustment of $34,000 was made for deferred maintenance. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $13,800,000 through the discounted cash flow method. The reversion value contributed approximately 40% of the value. Under the direct capitalization method, utilizing a capitalization rate of 9.00%, the projected NOI resulted in a value (after rounding) of $13,400,000 after adjustments for deferred maintenance. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Indian Creek Village was $13,600,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $13,700,000 and the estimated market value under the income capitalization approach was $13,600,000. After reconciling the various factors, AAA determined a final "as is" market value for Indian Creek Village of $13,600,000 as of May 8, 2003. THE LOFT Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with The Loft that were sold between November 2000 and July 2002 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of two comparable properties as superior and three comparable properties as comparable to the location of the Loft. AAA rated the quality/appeal of three comparable properties as superior and two comparable properties as comparable to the quality/appeal of the Loft. AAA rated the amenities of all five comparable properties as comparable to the amenities of the Loft. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from the Loft in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and 29 average unit size. Based on the available data, AAA concluded a value range of $44,057 to $52,040 per unit with a mean or average adjusted price of $46,707 per unit and a median adjusted price of $46,330 per unit. Thus, the estimated value based on a $47,000 sales price per unit for the 184 units was approximately $8,600,000 after adjustment for lease-up costs and present value of concessions. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared the Loft's NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $44,625 and $63,587 per unit, with an average of $53,186 per unit. The appraiser concluded a value of $49,000 per unit for the 184 units of the property, resulting in an estimated "as is" market value of $8,900,000 using the NOI analysis after adjustment for lease-up costs and present value of concessions. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of the Loft to be 39.81% before reserves, with the expense ratios of the five comparable properties ranging from 38.00% to 45.00%, resulting in EGIMs ranging from 5.28 to 7.54. Thus, AAA concluded an EGIM of 5.75 for the Loft, and applied the EGIM to the stabilized effective gross income for the property (see Income Approach section below), resulting in a value conclusion of approximately $8,500,000 after adjustment for lease-up costs and present value of concessions. AAA estimated the value using the price per unit analysis at $8,600,000, the value using the NOI analysis at $8,900,000 and the value using the EGIM analysis at $8,500,000. Based on these three valuation methods, AAA concluded that the reconciled value for the Loft under the sales comparison approach was $8,600,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for the Loft. AAA first utilized a discounted cash flow method to analyze the value of the property. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated the Loft's effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $1,498,446. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for the Loft of approximately $855,883. AAA performed a pro forma analysis of revenue and expenses for the property to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of the Loft under the income approach included: (1) stabilized vacancy and collection loss rate of 12%; (2) replacement reserve of $250 per unit; (3) overall capitalization rate of 9.50%; 30 (4) terminal capitalization rate of 10.00%; (5) discount rate of 11.50%; (6) 3.00% cost of sale at reversion; and (7) holding period of 10 years. An adjustment was made for lease-up costs because the Loft 's occupancy level was below a stabilized occupancy projection Thus, AAA assumed a 12-month lease up period. An adjustment was made for concessions due to soft market conditions, and AAA estimated the present value of concessions to be $62,000. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $8,800,000 through the discounted cash flow method. The reversion value contributed approximately 39% of the value. Under the direct capitalization method, utilizing a capitalization rate of 9.50%, the projected NOI resulted in a value (after rounding) of $8,900,000 after adjustments for lease-up costs and present value of concessions. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for the Loft was $8,800,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $8,600,000 and the estimated market value under the income capitalization approach was $8,800,000. After reconciling the various factors, AAA determined a final "as is" market value for the Loft of $8,800,000 as of May 13, 2003. THE KNOLLS Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with The Knolls that were sold between July 2001 and January 2003 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of two comparable properties as superior, one comparable property as comparable and two comparable properties as inferior to the location of the Knolls. AAA rated the quality/appeal of one comparable property as superior, two comparable properties as comparable and two comparable properties as inferior to the quality/appeal of the Knolls. AAA rated the amenities of two comparable properties as comparable and three comparable properties as inferior to the amenities of the Knolls. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from the Knolls in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $56,146 to $59,860 per unit with a mean or average adjusted price of $57,894 per unit and a median adjusted price of $57,795 per unit. Thus, the estimated value based on a $57,000 sales price per unit for the 262 units was approximately $14,400,000 after adjustment for lease-up costs and present value of concessions. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared the Knolls' NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $54,932 and $70,427 per unit, with an average of $63,808 per unit. The appraiser concluded a value of $60,000 per unit for the 262 units of the property, resulting in an estimated "as is" market value of $15,200,000 using the NOI analysis after adjustment for lease-up costs and present value of concessions. 31 AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of the Knolls to be 32.63% before reserves, with the expense ratios of the five comparable properties ranging from 34.96% to 51.59%, resulting in EGIMs ranging from 6.23 to 8.64. Thus, AAA concluded an EGIM of 7.10 for the Knolls, and applied the EGIM to the stabilized effective gross income for the property (see Income Approach section below), resulting in a value conclusion of approximately $14,400,000 after adjustment for lease-up costs and present value of concessions. AAA estimated the value using the price per unit analysis at $14,400,000, the value using the NOI analysis at $15,200,000 and the value using the EGIM analysis at $14,400,000. Based on these three valuation methods, AAA concluded that the reconciled value for the Knolls under the sales comparison approach was $14,500,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for the Knolls. AAA first utilized a discounted cash flow method to analyze the value of the property. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated the Knolls' effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $2,105,264. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for the Knolls of approximately $1,365,961. AAA performed a pro forma analysis of revenue and expenses for the property to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of the Knolls under the income approach included: (1) stabilized vacancy and collection loss rate of 11.5%; (2) replacement reserve of $200 per unit; (3) overall capitalization rate of 9.00%; (4) terminal capitalization rate of 9.50%; (5) discount rate of 11.50%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. An adjustment was made for lease-up costs because the Knolls 's occupancy level was below a stabilized occupancy projection Thus, AAA assumed a 12-month lease up period. An adjustment was made for concessions due to soft market conditions, and AAA estimated the present value of concessions to be $468,000. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $14,200,000 through the discounted cash flow method. The reversion value contributed approximately 42% of the value. 32 Under the direct capitalization method, utilizing a capitalization rate of 9.00%, the projected NOI resulted in a value (after rounding) of $14,600,000 after adjustments for lease-up costs and present value of concessions. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for the Knolls was $14,400,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $14,500,000 and the estimated market value under the income capitalization approach was $14,400,000. After reconciling the various factors, AAA determined a final "as is" market value for the Knolls of $14,400,000 as of May 15, 2003. PALM LAKE Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Palm Lake that were sold between March 2001 and June 2003 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of one comparable property as comparable and four comparable properties as inferior to the location of Palm Lake. AAA rated the quality/appeal of all five comparable properties as comparable to the quality/appeal of Palm Lake. AAA rated the amenities of all five comparable properties as comparable to the amenities of Palm Lake. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Palm Lake in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $25,915 to $29,613 per unit with a mean or average adjusted price of $27,728 per unit and a median adjusted price of $27,303 per unit. Thus, the estimated value based on a $27,000 sales price per unit for the 150 units was approximately $4,100,000. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Palm Lake's NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $18,424 and $31,303 per unit, with an average of $23,615 per unit. The appraiser concluded a value of $28,000 per unit for the 150 units of the property, resulting in an estimated "as is" market value of $4,200,000 using the NOI analysis. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Palm Lake to be 55.23% before reserves, with the expense ratios of the five comparable properties ranging from 45.00% to 61.84%, resulting in EGIMs ranging from 3.41 to 4.61. Thus, AAA concluded an EGIM of 3.70 for Palm Lake, and applied the EGIM to the stabilized effective gross income for the property (see Income Approach section below), resulting in a value conclusion of approximately $4,300,000. AAA estimated the value using the price per unit analysis at $4,100,000, the value using the NOI analysis at $4,200,000 and the value using the EGIM analysis at $4,300,000. Based on these three valuation methods, AAA concluded that the reconciled value for Palm Lake under the sales comparison approach was $4,200,000. AAA assumed a marketing and exposure period of 6 to 12 months. 33 Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Palm Lake. AAA first utilized a discounted cash flow method to analyze the value of the property. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Palm Lake's effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $1,164,120. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Palm Lake of approximately $446,185. AAA performed a pro forma analysis of revenue and expenses for the property to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of Palm Lake under the income approach included: (1) stabilized vacancy and collection loss rate of 15%; (2) replacement reserve of $500 per unit; (3) overall capitalization rate of 10.00%; (4) terminal capitalization rate of 10.50%; (5) discount rate of 12.00%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. No adjustment was made for lease-up costs because the property was near or at a stabilized condition. No adjustment was made for concessions. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $4,400,000 through the discounted cash flow method. The reversion value contributed approximately 36% of the value. Under the direct capitalization method, utilizing a capitalization rate of 10.00%, the projected NOI resulted in a value (after rounding) of $4,500,000. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Palm Lake was $4,400,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $4,200,000 and the estimated market value under the income capitalization approach was $4,400,000. After reconciling the various factors, AAA determined a final "as is" market value for Palm Lake of $4,300,000 as of December 8, 2003. 34 PLANTATION GARDENS Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Plantation Gardens that were sold between March 2001 and September 2003 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of two comparable properties as comparable and three comparable properties as inferior to the location of Plantation Gardens. AAA rated the quality/appeal of three comparable properties as comparable and two comparable properties as inferior to the quality/appeal of Plantation Gardens. AAA rated the amenities of three comparable properties as comparable and two comparable properties as inferior to the amenities of Plantation Gardens. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Plantation Gardens in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $49,875 to $55,967 per unit with a mean or average adjusted price of $52,101 per unit and a median adjusted price of $52,213 per unit. Thus, the estimated value based on a $52,000 sales price per unit for the 372 units was approximately $19,100,000 after adjustment for deferred maintenance. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Plantation Gardens' NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $43,123 and $54,411 per unit, with an average of $50,401 per unit. The appraiser concluded a value of $52,000 per unit for the 372 units of the property, resulting in an estimated "as is" market value of $19,100,000 using the NOI analysis after adjustment for deferred maintenance. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Plantation Gardens to be 50.22% before reserves, with the expense ratios of the five comparable properties ranging from 36.08% to 58.25%, resulting in EGIMs ranging from 4.99 to 6.94. Thus, AAA concluded an EGIM of 5.50 for Plantation Gardens, and applied the EGIM to the stabilized effective gross income for the property (see Income Approach section below), resulting in a value conclusion of approximately $19,300,000 after adjustment for deferred maintenance. AAA estimated the value using the price per unit analysis at $19,100,000, the value using the NOI analysis at $19,100,000 and the value using the EGIM analysis at $19,300,000. Based on these three valuation methods, AAA concluded that the reconciled value for Plantation Gardens under the sales comparison approach was $19,100,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Plantation Gardens. AAA first utilized a discounted cash flow method to analyze the value of the property. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Plantation Gardens' effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $3,557,916. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Plantation Gardens of approximately $1,678,120. AAA performed a pro forma analysis of revenue and expenses for the property 35 to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of Plantation Gardens under the income approach included: (1) stabilized vacancy and collection loss rate of 8%; (2) replacement reserve of $250 per unit; (3) overall capitalization rate of 8.75%; (4) terminal capitalization rate of 9.25%; (5) discount rate of 11.00%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. No adjustment was made for lease-up costs because the property was near or at a stabilized condition. No adjustment was made for concessions. An adjustment of $280,000 was made for deferred maintenance. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $19,500,000 through the discounted cash flow method. The reversion value contributed approximately 41% of the value. Under the direct capitalization method, utilizing a capitalization rate of 8.75%, the projected NOI resulted in a value (after rounding) of $18,900,000 after adjustments for deferred maintenance. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Plantation Gardens was $19,000,000 Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $19,100,000 and the estimated market value under the income capitalization approach was $19,000,000. After reconciling the various factors, AAA determined a final "as is" market value for Plantation Gardens of $19,000,000 as of December 11, 2003. REGENCY OAKS Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Regency Oaks that were sold between May 2001 and May 2003 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of all five comparable properties as superior to the location of Regency Oaks. AAA rated the quality/appeal of all five comparable properties as superior to the quality/appeal of Regency Oaks. AAA rated the amenities of all five comparable properties as comparable to the amenities of Regency Oaks. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Regency Oaks in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $26,268 to $29,861 per unit with a mean or average adjusted price of $28,195 per unit and a median adjusted price of $28,339 per unit. Thus, the estimated value based on a $28,000 sales price per unit for the 343 units was approximately $9,600,000. 36 As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Regency Oaks' NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $23,103 and $28,261 per unit, with an average of $25,864 per unit. The appraiser concluded a value of $26,000 per unit for the 343 units of the property, resulting in an estimated "as is" market value of $8,900,000 using the NOI analysis. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Regency Oaks to be 56.23% before reserves, with the expense ratios of the five comparable properties ranging from 41.74% to 48.94%, resulting in EGIMs ranging from 5.30 to 5.84. Thus, AAA concluded an EGIM of 4.00 for Regency Oaks, and applied the EGIM to the stabilized effective gross income for the property (see Income Approach section below), resulting in a value conclusion of approximately $9,500,000. AAA estimated the value using the price per unit analysis at $9,600,000, the value using the NOI analysis at $8,900,000 and the value using the EGIM analysis at $9,500,000. Based on these three valuation methods, AAA concluded that the reconciled value for Regency Oaks under the sales comparison approach was $9,200,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Regency Oaks. AAA first utilized a discounted cash flow method to analyze the value of the property. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Regency Oaks' effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $2,380,470. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Regency Oaks of approximately $870,478. AAA performed a pro forma analysis of revenue and expenses for the property to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of Regency Oaks under the income approach included: (1) stabilized vacancy and collection loss rate of 18%; (2) replacement reserve of $500 per unit; (3) overall capitalization rate of 9.75%; (4) terminal capitalization rate of 10.25%; (5) discount rate of 12.00%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. 37 No adjustment was made for lease-up costs because the property was near or at a stabilized condition. No adjustment was made for concessions. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $8,700,000 through the discounted cash flow method. The reversion value contributed approximately 36% of the value. Under the direct capitalization method, utilizing a capitalization rate of 9.75%, the projected NOI resulted in a value (after rounding) of $8,900,000. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Regency Oaks was $8,800,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $9,200,000 and the estimated market value under the income capitalization approach was $8,800,000. After reconciling the various factors, AAA determined a final "as is" market value for Regency Oaks of $8,800,000 as of December 9, 2003. SILVERADO Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Silverado that were sold between November 1999 and November 2002 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of all five comparable properties as comparable to the location of Silverado. AAA rated the quality/appeal of four comparable properties as superior and one comparable property as inferior to the quality/appeal of Silverado. AAA rated the amenities of one comparable property as superior and four comparable properties as comparable to the amenities of Silverado. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Silverado in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $20,553 to $25,736 per unit with a mean or average adjusted price of $23,097 per unit and a median adjusted price of $22,367 per unit. Thus, the estimated value based on a $23,000 sales price per unit for the 248 units was approximately $5,700,000. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Silverado's NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $18,296 and $24,234 per unit, with an average of $21,572 per unit. The appraiser concluded a value of $22,000 per unit for the 248 units of the property, resulting in an estimated "as is" market value of $5,500,000 using the NOI analysis. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Silverado to be 55.96% before reserves, with the expense ratios of the five comparable properties ranging from 38.00% to 48.00%, resulting in EGIMs ranging from 4.33 to 6.84. Thus, AAA concluded an EGIM of 4.00 for Silverado, and applied the EGIM to the stabilized effective gross income for the property (see Income Approach section below), resulting in a value conclusion of approximately $5,500,000. AAA estimated the value using the price per unit analysis at $5,700,000, the value using the NOI analysis at $5,500,000 and the value using the EGIM analysis at $5,500,000. Based on these three 38 valuation methods, AAA concluded that the reconciled value for Silverado under the sales comparison approach was $5,500,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Silverado. AAA first utilized a discounted cash flow method to analyze the value of the property. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Silverado's effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $1,377,200. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Silverado of approximately $544,500. AAA performed a pro forma analysis of revenue and expenses for the property to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of Silverado under the income approach included: (1) stabilized vacancy and collection loss rate of 10%; (2) replacement reserve of $250 per unit; (3) overall capitalization rate of 10.00%; (4) terminal capitalization rate of 11.00%; (5) discount rate of 12.50%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. No adjustment was made for lease-up costs because the property was near or at a stabilized condition. No adjustment was made for concessions. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $5,600,000 through the discounted cash flow method. The reversion value contributed approximately 36% of the value. Under the direct capitalization method, utilizing a capitalization rate of 10.00%, the projected NOI resulted in a value (after rounding) of $5,400,000. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Silverado was $5,600,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $5,500,000 and the estimated market value under the income capitalization approach was $5,600,000. After reconciling the various factors, AAA determined a final "as is" market value for Silverado of $5,600,000 as of May 11, 2003. 39 STERLING APARTMENT HOMES & STERLING COMMERCIAL CENTER Valuation Under Sales Comparison Approach. AAA compared three apartment complexes with Sterling Apartment Homes that were sold between May 2001 and May 2003 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of two comparable properties as comparable and one comparable property as inferior to the location of Sterling Apartment Homes. AAA rated the quality/appeal of two comparable properties as comparable and one comparable property as inferior to the quality/appeal of Sterling Apartment Homes. AAA rated the amenities of one comparable property as superior, one comparable property as comparable and one comparable property as inferior to the amenities of Sterling Apartment Homes. In addition, AAA rated the commercial units of two comparable properties as comparable and one comparable property as inferior to the commercial units of Sterling Apartment Homes. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Sterling Apartment Homes in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities, average unit size and commercial units. Based on the available data, AAA concluded a value range of $116,175 to $125,071 per unit with a mean or average adjusted price of $121,230 per unit and a median adjusted price of $122,443 per unit. Thus, the estimated value based on a $120,000 sales price per unit for the 536 units was approximately $64,000,000 after adjustment for lease-up costs. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Sterling's NOI to the NOI of the three comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $119,168 and $138,744 per unit, with an average of $128,956 per unit. The appraiser concluded a value of $125,000 per unit for the 536 units of the property, resulting in an estimated "as is" market value of $66,700,000 using the NOI analysis after adjustment for lease-up costs. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Sterling Apartment Homes to be 40.47% before reserves, with the expense ratios of the two comparable properties ranging from 35.00% to 53.86%, resulting in EGIMs ranging from 5.65 to 9.27. Thus, AAA concluded an EGIM of 7.50 for Sterling Apartment Homes, and applied the EGIM to the stabilized effective gross income for the property (see Income Approach section below), resulting in a value conclusion of approximately $66,800,000 after adjustment for lease-up costs. AAA estimated the value using the price per unit analysis at $64,000,000, the value using the NOI analysis at $66,700,000 and the value using the EGIM analysis at $66,800,000. Based on these three valuation methods, AAA concluded that the reconciled value for Sterling Apartment Homes under the sales comparison approach was $66,000,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for both Sterling Apartment Homes and Sterling Commerce Center. AAA first utilized a discounted cash flow method to analyze the value of the property. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Sterling's effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection 40 loss. Under this analysis, AAA arrived at an EGI of $8,939,001. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Sterling of approximately $5,214,411. AAA performed a pro forma analysis of revenue and expenses for the property to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of Sterling Apartment Homes under the income approach included: (1) stabilized vacancy and collection loss rate of 6%; (2) replacement reserve of $200 per unit; (3) overall capitalization rate of 8.00%; (4) terminal capitalization rate of 8.50%; (5) discount rate of 10.50%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. An adjustment was made for lease-up costs because Sterling Apartment Homes' occupancy level was below a stabilized occupancy projection Thus, AAA assumed a 24-month lease up period. No adjustment was made for concessions. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $63,900,000 through the discounted cash flow method. The reversion value contributed approximately 44% of the value. Under the direct capitalization method, utilizing a capitalization rate of 8.00%, the projected NOI resulted in a value (after rounding) of $64,900,000 after adjustments for lease-up costs. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Sterling Apartment Homes was $64,500,000. For Sterling Commerce Center, because the commercial space is only 54.1% occupied and is not projected to reach a stabilized level of occupancy until the third year, AAA only performed a discounted cash flow analysis. A direct capitalization analysis was not considered applicable. The assumptions employed by AAA to determine the value of Sterling Commerce Center under a discounted cash flow analysis included: (1) stabilized vacancy and collection loss rate of 12%; (2) replacement reserve of $0.20 per square foot; (3) 50% renewal probability; (4) flat market rent for the first two years, and increasing 3% per year thereafter; (5) inflation rate of 3% per year for operating expenses; (6) discount rate of 11.50%; (7) terminal capitalization rate of 9.0% (8) 2.00% cost of sale at reversion; and (9) holding period of 10 years. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $3,200,000 through the discounted cash flow method. 41 Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value for Sterling Apartment Homes under the sales comparison approach was $66,000,000 and the estimated market value under the income capitalization approach was $64,500,000. After reconciling the various factors, AAA determined a final "as is" market value for Sterling Apartment Homes of $65,500,000. Utilizing only the income approach, AAA determined a final "as is" market value for Sterling Commerce Center of $3,200,000. Therefore, AAA determined a combined, final "as is" market value for Sterling Apartment Homes and Sterling Commerce Center of $68,700,000 as of May 13, 2003. TATES CREEK VILLAGE Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Tates Creek Village that were sold between February 2003 and October 2003 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of all five comparable properties as comparable to the location of Tates Creek Village. AAA rated the quality/appeal of three comparable properties as superior and two comparable properties as comparable to the quality/appeal of Tates Creek Village. AAA rated the amenities of all five comparable properties as comparable to the amenities of Tates Creek Village. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Tates Creek Village in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $26,180 to $34,653 per unit with a mean or average adjusted price of $31,158 per unit and a median adjusted price of $32,618 per unit. Thus, the estimated value based on a $32,500 sales price per unit for the 204 units was approximately $6,600,000. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Tates Creek Village's NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $26,569 and $41,149 per unit, with an average of $34,288 per unit. The appraiser concluded a value of $32,000 per unit for the 204 units of the property, resulting in an estimated "as is" market value of $6,500,000 using the NOI analysis. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Tates Creek Village to be 49.74% before reserves, with the expense ratios of the five comparable properties ranging from 33.66% to 45.26%, resulting in EGIMs ranging from 4.41 to 8.11. Thus, AAA concluded an EGIM of 4.25 for Tates Creek Village, and applied the EGIM to the stabilized effective gross income for the property (see Income Approach section below), resulting in a value conclusion of approximately $6,200,000. AAA estimated the value using the price per unit analysis at $6,600,000, the value using the NOI analysis at $6,500,000 and the value using the EGIM analysis at $6,200,000. Based on these three valuation methods, AAA concluded that the reconciled value for Tates Creek Village under the sales comparison approach was $6,500,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Tates Creek Village. 42 AAA first utilized a discounted cash flow method to analyze the value of the property. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Tates Creek Village's effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $1,461,240. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Tates Creek Village of approximately $673,158. AAA performed a pro forma analysis of revenue and expenses for the property to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of Tates Creek Village under the income approach included: (1) stabilized vacancy and collection loss rate of 10%; (2) replacement reserve of $300 per unit; (3) overall capitalization rate of 10.50%; (4) terminal capitalization rate of 11.50%; (5) discount rate of 12.50%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. No adjustment was made for lease-up costs because the property was near or at a stabilized condition. No adjustment was made for concessions. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $6,800,000 through the discounted cash flow method. The reversion value contributed approximately 35% of the value. Under the direct capitalization method, utilizing a capitalization rate of 10.50%, the projected NOI resulted in a value (after rounding) of $6,400,000 after adjustments for present value of concessions. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Tates Creek Village was $6,500,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $6,500,000 and the estimated market value under the income capitalization approach was $6,500,000. After reconciling the various factors, AAA determined a final "as is" market value for Tates Creek Village of $6,500,000 as of November 19, 2003. THE DUNES APARTMENT HOMES Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with The Dunes Apartment Homes that were sold between July 2002 and September 2003 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of all five 43 comparable properties as inferior to the location of the Dunes Apartment Homes. AAA rated the quality/appeal of three comparable properties as comparable and two comparable properties as inferior to the quality/appeal of the Dunes Apartment Homes. AAA rated the amenities of three comparable properties as comparable and two comparable properties as inferior to the amenities of the Dunes Apartment Homes. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from the Dunes Apartment Homes in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $26,950 to $40,984 per unit with a mean or average adjusted price of $33,645 per unit and a median adjusted price of $31,344 per unit. Thus, the estimated value based on a $33,000 sales price per unit for the 200 units was approximately $6,600,000. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared the Dunes Apartment Homes' NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $26,367 and $39,850 per unit, with an average of $34,246 per unit. The appraiser concluded a value of $34,000 per unit for the 200 units of the property, resulting in an estimated "as is" market value of $6,800,000 using the NOI analysis. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of the Dunes Apartment Homes to be 54.41% before reserves, with the expense ratios of the five comparable properties ranging from 39.27% to 64.99%, resulting in EGIMs ranging from 4.42 to 5.58. Thus, AAA concluded an EGIM of 4.75 for the Dunes Apartment Homes, and applied the EGIM to the stabilized effective gross income for the property (see Income Approach section below), resulting in a value conclusion of approximately $6,900,000. AAA estimated the value using the price per unit analysis at $6,600,000, the value using the NOI analysis at $6,800,000 and the value using the EGIM analysis at $6,900,000. Based on these three valuation methods, AAA concluded that the reconciled value for the Dunes Apartment Homes under the sales comparison approach was $6,700,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for the Dunes Apartment Homes. AAA first utilized a discounted cash flow method to analyze the value of the property. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for the property to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated the Dunes Apartment Homes' effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $1,461,761. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for the Dunes Apartment Homes of approximately $616,473. AAA performed a pro forma analysis of revenue and expenses for the property to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. 44 The assumptions employed by AAA to determine the value of the Dunes Apartment Homes under the income approach included: (1) stabilized vacancy and collection loss rate of 8%; (2) replacement reserve of $250 per unit; (3) overall capitalization rate of 9.00%; (4) terminal capitalization rate of 9.50%; (5) discount rate of 11.50%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. No adjustment was made for lease-up costs because the property was near or at a stabilized condition. No adjustment was made for concessions. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $6,800,000 through the discounted cash flow method. The reversion value contributed approximately 40% of the value. Under the direct capitalization method, utilizing a capitalization rate of 9.00%, the projected NOI resulted in a value (after rounding) of $6,800,000. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for the Dunes Apartment Homes was $6,800,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $6,700,000 and the estimated market value under the income capitalization approach was $6,800,000. After reconciling the various factors, AAA determined a final "as is" market value for the Dunes Apartment Homes of $6,800,000 as of December 12, 2003. Assumptions, Limitations and Qualifications of AAA's Valuation. In preparing the appraisal, AAA relied, without independent verification, on the accuracy and completeness of all information supplied or otherwise made available to it by or on behalf of the partnership. In arriving at the appraisal, AAA assumed: - good and marketable title to the property; - validity of owner's claim to the property; - no encumbrances which could not be cleared through normal processes, unless otherwise stated; - accuracy of land areas and descriptions obtained from public records; - no subsurface mineral and use rights or conditions; - no substances such as asbestos, urea-formaldehyde foam insulation, other chemicals, toxic wastes, or other potentially hazardous materials in existence or present on or in the property; - full compliance with applicable federal, state and local environmental regulations and laws, unless otherwise stated, defined and considered; - possession of all required licenses, consents, or other legislative or administrative authority from any local, state, or national government or private entity organization and that the renewal of these items is possible; 45 - compliance with all applicable zoning and use regulations and restrictions, unless a nonconformity has been stated, defined, and considered; - utilization of the land and improvements within property boundaries and no encroachment or trespass of the improvements, unless otherwise stated; - 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 not readily apparent during inspection; and - compliance with the Americans with Disabilities Act of 1992. Compensation of Appraiser. AAA was appointed by the court to perform all the real estate appraisals in connection with the settlement and this Litigation Settlement Offer. AAA was paid a fee of $619,100 for the appraisals. We have agreed to pay 50% of the costs of the appraisals, with the other 50% to be paid from the settlement fund. AAA has conducted other appraisals of property in connection with the other offers being made pursuant to the settlement agreement. Other than the appraisals performed in connection with the settlement agreement, during the prior two years, no material relationship has existed between AAA and your partnership or any of its affiliates, including the AIMCO Entities. Availability of Appraisal Reports. You may obtain a full copy of AAA's appraisals upon request, without charge, by contacting the Information Agent at one of the addresses or the telephone number on the back cover of this Litigation Settlement Offer. Copies of the appraisal for the property are also available for inspection and copying at the principal executive offices of the partnership during regular business hours by any interested unitholder or his or her designated representative at his or her cost. In addition, a copy of the appraisals has been filed with the SEC as an exhibit to the Tender Offer Statement and Rule 13e-3 Transaction Statement on Schedule TO. In estimating the net liquidation proceeds that would be payable per unit based on the total appraised value of your partnership's properties, we applied the same basic methodology as described under "Valuation of Units", except that we did not deduct any amounts that were reflected in the total appraised value nor did we include any payment from the settlement fund. As indicated below, based on the total appraised value of the partnership properties, the estimated net liquidation proceeds per unit is $343.92, which is higher than our offer price of $239.13. Appraised value of partnership properties................... $156,500,000 Plus: Cash and cash equivalents (net of tenant security deposits)................................................. 3,001,766 Plus: Other partnership assets, including any amounts payable by the general partner and its affiliates upon liquidation............................................... 1,845,762 Less: Mortgage debt, including accrued interest and any payment penalty........................................... (84,236,243) Less: Accounts payable and accrued expenses................. (2,384,848) ------------ Partnership valuation before taxes and certain costs........ $ 74,726,437 Less: Disposition fees authorized by the partnership agreement................................................. (1,565,000) Less: Estimated closing costs............................... (4,706,340) ------------ Estimated net liquidation proceeds of your partnership...... $ 68,455,097 Percentage of estimated net liquidation proceeds allocable to holders of units based on the partnership agreement.... 100.00% ------------ Estimated net liquidation proceeds of units................. $ 68,455,097 Total number of units..................................... 199,043 ------------ Estimated net liquidation proceeds per unit................. $ 343.92 ============
46 9. THE LAWSUIT AND THE SETTLEMENT BACKGROUND In March 1998, holders of limited partnership units in the partnerships managed by affiliates of Insignia Financial Group (collectively, "Insignia") commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the State of California for the County of San Mateo (the "Court"). The plaintiffs named as defendants, among others, your partnership, its general partner and several of their affiliated partnerships and corporate entities, as well as AIMCO, who had announced a merger with Insignia. The action originally asserted claims on behalf of a putative class of limited partners in over 50 limited partnerships, including your partnership (collectively, the "Partnerships") and derivatively on behalf of those same Partnerships (which are named as nominal defendants) challenging, among other things, the acquisition of interests in certain general partner entities by Insignia; past tender offers by Insignia to acquire limited partnership units; Insignia's management of the Partnerships; and the series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO (hereinafter, the "Insignia Merger"). PROCEDURAL HISTORY On June 25, 1998, your general partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs filed an amended complaint. The general partner filed demurrers to the amended complaint which were heard in February 1999. Pending the ruling on such demurrers, settlement negotiations commenced. On November 2, 1999, the parties executed and filed a Stipulation of Settlement, settling claims, subject to court approval, on behalf of your partnership and all limited partners who owned units as of November 3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999 from the Court, at which time the Court set a final approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing, the Court received various objections to the settlement, including a challenge to the Court's preliminary approval based upon the alleged lack of authority of prior lead counsel to enter the settlement. On December 14, 1999, the general partner and its affiliates terminated the proposed settlement. In February 2000, counsel for some of the named plaintiffs filed a motion to disqualify plaintiffs' lead and liaison counsel who negotiated the proposed settlement on behalf of plaintiffs. On June 27, 2000, the Court entered an order disqualifying them from the case. An appeal was taken from part of the June 27, 2000 order on October 5, 2000. Subsequently, certain plaintiffs, specifically, BEJ Equity Partners and J-B Investment Partners, withdrew as plaintiffs. On December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the putative class. Plaintiffs filed a third amended complaint on January 19, 2001 and the general partner and its affiliates filed a demurrer to the third amended complaint. On July 10, 2001, the Court issued an order granting in part and denying in part defendants' demurrer. Among other things, the Court sustained defendants' demurrer without leave to amend as to those derivative claims involving partnerships in which the named plaintiffs did not own an interest. The Court subsequently denied plaintiffs' motion for reconsideration. The fourth amended complaint was filed on September 7, 2001. It was brought by plaintiffs who owned interests in four of the Partnerships. Plaintiffs Jeffrey Homburger, Sean O'Reilly and Norman and Doris Rosenberg formally withdrew from the case on August 20, 2001. The general partner and affiliated defendants filed a demurrer to the fourth amended complaint, which the Court granted in part on January 28, 2002. The Court dismissed without leave to amend plaintiffs' state securities fraud claim under California's Corporate Code Section 25400(b), plaintiffs' contract claim arising out of the partnership agreements, plaintiffs' derivative claim for statutory unfair competition as to those partnerships in which plaintiffs lack representation, plaintiffs' conversion claim and plaintiffs' claim under California's Corporation Code Section 15636. 47 Only some of the remaining claims in the fourth amended complaint relate to the partnership. Plaintiffs alleged that affiliates of the general partner have issued false and misleading tender offers beginning in 1998 and continuing through to the present for units in the partnership. Plaintiffs allege violations of state securities fraud statutes and common law fraud against both AIMCO and Insignia. Specifically, plaintiffs allege that the tender offers have been misleading because they failed to disclose: - that third parties would not use a property's historical income, but would instead use a property's projected income, in calculating a property's value based on the capitalization method. - that the property income figures used in the capitalization method were artificially lower because AIMCO charges management fees allegedly in excess of the market. - that AIMCO allegedly deducted all capital expenditures from property income despite an alleged AIMCO policy of deducting only $250 to $300 per apartment unit. - the rating for the condition of each property, any adjustment made to the capitalization rate as a result, the interest rate on mortgage debt for each property and any corresponding adjustments in the capitalization rates. - that AIMCO allegedly negotiated lower capitalization rates for valuing properties it owns in connection with a revolving credit facility. - that AIMCO failed to disclose that the valuation methods and/or policies it used for its own business purposes allegedly differ from those used in the tender offers. - internal valuations of the properties it used in connection with the Insignia merger or the capitalization rates used in connection with those valuations. Plaintiffs alleged that the general partner breached its fiduciary duty by assisting Insignia and AIMCO in making the tender offers by providing financial information, failing to correct supposedly misleading information given to unitholders, recommending that the prices offered were fair and preventing third parties from making tender offers. Plaintiffs have also included a statutory unfair competition claim against all the defendants, a claim for tortious interference with contract, unjust enrichment and judicial dissolution. THE HELLER COMPLAINT During the third quarter of 2001, a complaint was filed against the same defendants that are named in the Nuanes action, captioned Heller v. Insignia Financial Group, Inc., et al. (the "Heller action"). The Heller complaint was filed in order to preserve derivative claims that were dismissed without leave to amend in the Nuanes action by the Court's July 10, 2001 order. The first amended complaint in the Heller action was brought as a purported derivative action, and asserted claims for, among other things, breach of fiduciary duty; unfair competition; conversion, unjust enrichment; and judicial dissolution. On January 28, 2002, however, the Court, on motion by the general partner and its affiliates, struck the Heller complaint as a violation of its July 10, 2001 order in the Nuanes action. On March 27, 2002, plaintiffs in the Heller action filed a notice of appeal of the Court's January 28, 2002 order striking the complaint. THE SETTLEMENT OF THE NUANES AND HELLER COMPLAINTS On December 20, 2002, the parties to the above-entitled litigation executed a Stipulation of Settlement of the two actions. That settlement was the result of over one year of negotiations and the involvement of two separate settlement judges. Class counsel and defendants' counsel first met with the Honorable William J. Cahill, Retired California Superior Court Judge, on two separate occasions. Counsel also met on four separate occasions with the Honorable Margaret J. Kemp, California Superior Court Judge, before reaching a settlement in principle. The parties initially met with Judge Cahill on two occasions in the fall of 2000, but were ultimately unsuccessful in reaching a definitive settlement agreement. At the Court's direction, they renewed formal settlement discussions before Judge Kemp. The parties first attended a settlement conference before Judge Kemp in September or October 2002 and then 48 subsequently met with her on October 28, 2002, November 26, 2002 and December 2, 2002. The parties reached final agreement on the material terms of the settlement at the last settlement conference with Judge Kemp on December 2, 2002 and put the terms of that agreement on the record in open court. In each of the conferences described above, counsel from Lieff Cabraser Heimann & Bernstein LLP, Farella Braun & Martel LLP & Berman Devalerio Pease & Tobacco attended on behalf of the named plaintiffs and the putative settlement class; counsel from Skadden Arps Slate Meagher & Flom LLP attended on behalf of AIMCO and its affiliated entities, including your general partner, and Orrick Herrington & Sutcliffe attended on behalf of the remaining defendants. AIMCO Executive Vice President Patrick Foye also attended each of these meetings. Mr. Vincent Gresham of the Law Offices of Vincent Gresham also participated on behalf of plaintiffs and the putative settlement class in those settlement discussions before the Hon. Cahill, Retired. At these meetings, discussions included possible transactions that could provide liquidity to investors and form the basis of a settlement, the use of a settlement fund and the amount of such fund, the timing and distribution of any settlement fund, selection and use of an appraiser and disclosures that would accompany any contemplated transaction(s). The participants considered but ultimately rejected a merger or roll-up of the various partnerships as possible alternatives to cash tender offers. The parties ultimately concluded, however, that a merger or roll-up could be potentially complicated and time consuming and that a cash tender offer would be a less coercive form of providing liquidity to those investors who desired it. The Settlement Agreement requires each tender offer to attach executive summaries of partnership property appraisals commissioned specifically for the settlement tender offers and to provide an explanation of how the appraised values of the properties compare to the per Unit price(s) being offered. It also requires the payment of an allocable portion of the settlement fund for each unit tendered pursuant to the settlement fund, details the scope of the release and covenants not to sue which will bind class members, requires that tender offers be made no more than one year after final approval of the settlement and imposes certain restrictions on the length of time in which the tender offers can remain open, as well as with regard to other disclosures made therein. On April 4, 2003, the Court preliminarily approved the settlement and, on June 13, 2003, entered an order finally approving the settlement and dismissing both the Heller and Nuanes litigation with prejudice. On August 12, 2003, an objector filed an appeal of the court's order approving the settlement and is seeking to reverse or vacate the Court's order and the judgment entered thereto. Although we reserve our right to terminate or amend our offer if final court approval of the settlement is reversed or vacated, we have nevertheless elected to proceed with this offer under the terms of the settlement. On November 24, 2003, the objector appealing the settlement and judgment entered thereto filed an application requesting the Court order AIMCO to withdraw the settlement tender offers, refrain from making further offers pending the appeal and auction any units tendered to third parties. The objector contends that this offer does not conform with the terms of the Settlement. Alternatively, counsel for the objector has requested the Court on behalf of a settlement class member order AIMCO to pay all non-tendering settlement class members their pro rata share of the Settlement Fund whether or not the settlement and judgment entered thereto is vacated on appeal and to notify settlement class members that the releases and covenant not to sue are not binding unless the settlement and judgment entered thereto is affirmed on appeal. On December 18, 2003, the Court heard oral argument on the applications brought on behalf of the objector and denied them in their entirety. Under the terms of the settlement, we have agreed to make cash tender offers for all outstanding limited partnership interests in your partnership and 43 other partnerships (the "Tender Offer Partnerships") within a year of the Court's final approval of the settlement and to accompany each of those offers with executive summaries of appraisals of partnership properties prepared by an independent appraiser appointed by the Court. Our affiliate has agreed to pay 50% of the costs of the appraisals, with the other 50% to be paid from the settlement fund. The appraiser was paid $619,100 for the appraisals. To the extent if the costs of the appraisals exceeded $2 million, the excess amount would have been paid from the settlement fund. Under the settlement, we have the option of making a second round of tender offers (in our sole and absolute discretion) to purchase all remaining outstanding limited partnership interests, at 49 the same price, or at a higher or lower price, within 18 months of the order finally approving the settlement. In addition, as part of the settlement, we agreed to create a settlement fund for the benefit of settlement class members in the principal amount of $9.9 million. The settlement class members consists of all limited partners in the Tender Offer Partnerships, including your partnership, who owned units as of December 20, 2002, and who did not validly request exclusion from the settlement. After deducting attorneys' fees and other settlement costs, including a portion of the costs of appraisal and certain costs of administration of the settlement fund, we have allocated the remaining amount in the settlement fund among the Tender Offer Partnerships pro rata based on partnership revenue for the year ended December 31, 2002 allocable to units held by members of the settlement class, as set forth below:
(C) OWNERSHIP ALLOCATED PERCENTAGE OF (D) PORTION OF (A) (B) SETTLEMENT ADJUSTED SETTLEMENT PARTNERSHIP REVENUE(1) CLASS(2) REVENUE(3) FUND(4) - ----------- ------------ ------------- -------------- ---------- Angeles Income Properties, Ltd. II....... $ 6,721,398 38.11% $ 2,561,680.99 2.12% Angeles Income Properties, Ltd. III...... 757,234 47.99% 363,400.46 0.30% Angeles Income Properties, Ltd. VI....... 3,314,969 57.18% 1,895,539.00 1.57% Angeles Opportunity Properties, Ltd. .... 2,487,492 50.42% 1,254,256.40 1.04% Angeles Partners VII..................... 1,382,326 32.28% 446,158.51 0.37% Angeles Partners IX...................... 3,053,411 32.79% 1,001,090.64 0.83% Angeles Partners X....................... 2,363,419 40.94% 967,701.17 0.80% Angeles Partners XI...................... 8,102,088 37.05% 3,002,068.40 2.49% Angeles Partners XII..................... 17,579,608 30.85% 5,423,897.42 4.50% Century Properties Fund XIV.............. 5,754,231 33.27% 1,914,451.55 1.59% Century Properties Fund XV............... 7,891,876 35.11% 2,770,502.79 2.30% Century Properties Fund XVI.............. 3,129,310 38.59% 1,207,704.29 1.00% Century Properties Fund XVII............. 13,989,178 39.81% 5,568,998.68 4.62% Century Properties Fund XVIII............ 4,652,589 44.57% 2,073,721.09 1.72% Century Properties Fund XIX.............. 15,838,890 41.77% 6,615,207.49 5.48% Century Properties Growth Fund XXII...... 18,750,167 44.10% 8,268,717.87 6.86% Consolidated Capital Growth Fund......... 11,095,122 35.45% 3,933,281.02 3.26% Consolidated Capital Institutional Properties............................. 17,492,318 34.85% 6,095,971.72 5.05% Consolidated Capital Institutional Properties 2........................... 4,531,076 50.40% 2,283,507.96 1.89% Consolidated Capital Institutional Properties 3........................... 11,898,507 46.92% 5,583,341.99 4.63% Consolidated Capital Properties III...... 3,319,845 48.56% 1,612,222.94 1.34% Consolidated Capital Properties IV....... 26,375,116 43.55% 11,486,890.81 9.52% Consolidated Capital Properties VI....... 1,790,898 49.39% 884,610.64 0.73% Davidson Diversified Real Estate I, L.P. .................................. 926,289 57.35% 531,230.56 0.44% Davidson Diversified Real Estate II, L.P. .................................. 6,679,248 50.21% 3,353,945.59 2.78% Davidson Diversified Real Estate III, L.P. .................................. 4,914,862 59.79% 2,938,470.22 2.44% Davidson Growth Plus, L.P. .............. 5,497,496 42.55% 2,339,052.86 1.94% Davidson Income Real Estate, L.P. ....... 4,824,647 55.50% 2,677,466.62 2.22% Fox Strategic Housing Income Partners.... 2,905,478 59.32% 1,723,635.91 1.43% Johnstown/Consolidated Income Partners... 1,109,711 45.50% 504,939.49 0.42% Multi-Benefit Realty Fund 87-1........... 3,584,756 Class A Investors...................... 1,993,125 35.01% 697,750.93 0.58% Class B Investors...................... 1,591,632 47.59% 757,524.59 0.63% National Property Investors III.......... 8,886,583 25.79% 2,291,879.79 1.90% National Property Investors 4............ 7,248,900 24.52% 1,777,282.20 1.47%
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(C) OWNERSHIP ALLOCATED PERCENTAGE OF (D) PORTION OF (A) (B) SETTLEMENT ADJUSTED SETTLEMENT PARTNERSHIP REVENUE(1) CLASS(2) REVENUE(3) FUND(4) - ----------- ------------ ------------- -------------- ---------- National Property Investors 5............ 4,610,576 36.17% 1,667,480.41 1.38% National Property Investors 6............ 10,168,298 34.73% 3,531,813.61 2.93% National Property Investors 7............ 7,235,037 31.17% 2,255,187.60 1.87% National Property Investors 8............ 4,334,235 38.98% 1,689,580.96 1.40% Shelter Properties I Limited Partnership............................ 4,908,445 20.51% 1,006,722.11 0.83% Shelter Properties II Limited Partnership............................ 5,148,389 29.25% 1,505,669.73 1.25% Shelter Properties III Limited Partnership............................ 5,155,756 35.20% 1,814,826.22 1.50% Shelter Properties IV Limited Partnership............................ 9,682,744 31.49% 3,048,820.05 2.53% Shelter Properties V Limited Partnership............................ 13,237,273 28.68% 3,796,475.63 3.15% Shelter Properties VI Limited Partnership............................ 8,475,852 34.45% 2,920,007.57 2.42% Shelter Properties VII Limited Partnership............................ 1,497,429 37.87% 567,007.84 0.47% ------------ -------------- ------- Total.................................. $313,303,073 $ 120,611,694 100.00% ============ ============== =======
- --------------- (1) For the year ended December 31, 2002. (2) Excludes units owned by AIMCO and its affiliates and other limited partners who have requested exclusion from the settlement class. (3) Determined, for each partnership, by multiplying the amount of revenue (column (B)) by the percentage of outstanding units held by members of the settlement class (column (C)). (4) Determined, for each partnership, by dividing the amount of adjusted revenue (column (D)) by the total amount of adjusted revenue for all partnerships. The amount allocated to a Tender Offer Partnership is then divided by the total number of outstanding units owned by settlement class members in such Tender Offer Partnership (excluding units held by us and our affiliates), and the resulting amount is included in the offer price for units in that Tender Offer Partnership. For each unit validly tendered in the offers and accepted by us, an amount equal to the portion of the settlement fund included in the per unit offer price will be deducted from the settlement fund and paid to us (other than units tendered by limited partners who have requested exclusion from the settlement class). All limited partners who tender their units in response to the offers will receive the same price per unit, including those persons who may have requested exclusion from the settlement class. If we choose to make a second round of litigation settlement offers, as described above, any amount remaining in the settlement fund will be allocated in the manner described above the first round of litigation settlement offers but calculated using revenue for the most recent 12-month period and more recent information as to the ownership of each partnership. Any balance remaining thereafter or, in the event we do not initiate a second round of litigation settlement offers, the entire balance will be paid to settlement class members who have retained any units based on the allocation method used in the litigation settlement offers no later than June 2005 if the Court's order approving the settlement and entering judgment thereto is affirmed on appeal. If the Court's order is reversed or vacated by virtue of the appeal, however, you will not be entitled to receive a pro rata share of the settlement fund unless you tender your units in this offer. The general partners of the Tender Offer Partnerships have also agreed, as part of the settlement, to waive our right to seek reimbursement and/or indemnification for the full amount of fees and costs incurred in the defense of the class and derivative litigation; provided, however, that they may charge fees and costs to your partnership and the other partnerships involved in the litigation in an amount not to exceed $1,500,000 (which is approximately 50% of the outstanding fees and costs). 51 In consideration for the terms described above, plaintiffs and settlement class members agreed, among other things, to dismiss the Nuanes action and the Heller action with prejudice, release the defendants from all liability with respect to all claims and causes of action, whether brought individually, on behalf of a class, or derivatively, whether known or unknown, that have been asserted or that could have been asserted that arise out of or relate to (i) those matters and claims set forth in the complaints in the Heller and Nuanes actions, (ii) ownership of one or more units in any of the Tender Offer Partnerships, (iii) the purchase, acquisition, holding, sale, tender or voting of one or more units in any of the Tender Offer Partnerships, and (iv) any of the facts, circumstances, allegations, claims, causes of action, representations, statements, reports, disclosures, transactions, events, occurrences, acts, omissions or failures to act, of whatever kind or character whatsoever, irrespective of the state of mind of the actor performing or omitting to perform the same, that have been or could have been alleged in any pleadings, amended pleading, argument, complaint, amended complaint, brief, motion, report or filing in either the Nuanes action or the Heller action, provided, however, that the released claims are not intended to include any unrelated claims that are unique to a particular settlement class member (e.g., a settlement class member slips and falls on property owned by one of our affiliates, loses or did not receive a distribution check distributed to other limited partners in your partnership, or is an employee and has an employee related claim). Settlement class members also covenanted and agreed not to bring any action, claim, suit, or proceeding against any of the defendants in the class and derivative litigation that concerns any of the matters which are the subject of the settlement and that the stipulation of settlement will act as a bar to any such claim, action, suit or proceeding. The plaintiffs and settlement class members also agreed that they would not oppose a request that the Court withdraw the finding regarding Robert A. Stanger & Co. made in the June 27, 2000 order disqualifying lead and liaison counsel. Under the terms of the settlement, neither we nor our affiliates admit to any wrongdoing, and we deny liability under all claims brought in the litigation. The final settlement of the lawsuit is the product of good faith, arm's length negotiations between settlement class counsel and counsel for the defendants. These negotiations resulted in the settlement set forth in the Stipulation. 10. INFORMATION CONCERNING US AND CERTAIN OF OUR AFFILIATES General. We are AIMCO Properties, L.P., a Delaware limited partnership. Together with our subsidiaries, we conduct substantially all of the operations of Apartment Investment and Management Company, a Maryland corporation ("AIMCO"). AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. AIMCO's Class A Common Stock is listed and traded on the New York Stock Exchange under the symbol "AIV." As of September 30, 2003, we owned or managed 297,917 apartment units in 1,684 properties located in 47 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multi- family apartment properties in the United States. As of September 30, 2003, we: - owned or controlled (consolidated) 178,913 units in 697 apartment properties; - held an equity interest in (unconsolidated) 67,157 units in 467 apartment properties; and - provided services or managed, for third party owner, 51,847 units in 520 apartment properties, primarily pursuant to long term, non-cancelable agreements (including 40,126 units in 418 properties that are asset managed only, and not property managed). Our general partner is AIMCO-GP, Inc., a Delaware corporation, which is a wholly owned subsidiary of AIMCO. Our principal executive offices is located at 4582 South Ulster Street Parkway, Suite 1100, Denver, Colorado 80237, and our telephone number is (303) 757-8101. The names, positions and business addresses of the directors and executive officers of AIMCO and your general partner (which is our affiliate), as well as a biographical summary of the experience of such persons for the past five years or more, are set forth on Annex I attached hereto and are incorporated herein by reference. 52 We and AIMCO are both subject to the information and reporting requirements of the Exchange Act and, in accordance therewith, file reports and other information with the Securities and Exchange Commission relating to our business, financial condition and other matters, including the complete financial statements summarized below. Such reports and other information may be inspected at the public reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material can also be obtained from the Public Reference Room of the SEC in Washington, D.C. at prescribed rates. The SEC also maintains a site on the World Wide Web at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. In addition, information filed by AIMCO with the New York Stock Exchange may be inspected at the offices of the New York Stock Exchange at 20 Broad Street, New York, New York 10005. For more information regarding AIMCO and AIMCO Properties, L.P., please refer to our respective Annual Reports on Form 10-K for the year ended December 31, 2002 and our respective Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2003, June 30, 2003 and September 30, 2003 (particularly the management's discussion and analysis of financial condition and results of operations) and other reports and documents we have filed with the SEC. Except as described in "The Litigation Settlement Offer -- Section 11. Background and Reasons for the Offer," "-- Section 13. Conflicts of Interest and Transactions with Affiliates" and "-- Section 15. Certain Information Concerning Your Partnership -- Ownership and Voting," neither we nor, to the best of our knowledge, any of the persons listed on Annex I attached hereto, (i) beneficially own or have a right to acquire any units, (ii) has effected any transaction in the units in the past 60 days, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. Neither we nor our affiliates intend to tender any units beneficially owned in this offer.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ---------------------------------------------- 2003 2002 2002 2001(1) 2000(1) ----------- ----------- -------------- ------------- ------------- (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING INFORMATION: Rental and other property revenues........................ $ 1,111,036 $ 960,998 $ 1,405,684 $1,224,667 $ 998,552 Property operating and owned management expenses............. (485,993) (378,327) (561,412) (465,721) (413,077) ----------- ----------- ----------- ---------- ---------- Income from property operations... 625,043 582,671 844,272 758,946 585,475 Income from investment management business........................ 11,228 15,352 18,262 27,591 15,795 General and administrative expenses........................ (19,538) (12,377) (20,344) (18,530) (18,123) Depreciation of rental property(2)..................... (247,682) (195,127) (288,589) (327,070) (287,809) Interest expense.................. (283,487) (234,922) (339,737) (297,507) (260,133) Interest and other income, net.... 19,623 60,059 78,090 68,417 65,963 Operating earnings................ 73,653 187,802 258,348 144,520 103,402 Distribution to minority partners in excess of income............. (21,503) (5,274) (26,979) (46,359) (24,375) Income (loss) from discontinued operations...................... 62,674 11,156 (27,902) 18,848 26,335 Net income........................ 136,327 198,958 206,202 121,064 109,717 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.................... $10,693,302 $10,436,881 $10,633,358 $8,102,816 $7,012,452
53
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ------------------------- ---------------------------------------------- 2003 2002 2002 2001(1) 2000(1) ----------- ----------- -------------- ------------- ------------- (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Real estate, net of accumulated depreciation.................... 8,887,140 8,780,340 8,924,604 6,587,624 5,887,518 Total assets...................... 10,194,026 10,355,329 10,355,329 8,200,526 7,699,174 Total indebtedness................ 6,334,785 6,136,303 6,233,727 4,585,913 4,198,045 Mandatorily redeemable preferred securities...................... 113,169 15,169 15,169 20,637 32,330 Partner's capital................. 3,233,805 3,576,083 3,576,083 3,080,071 2,830,389 OTHER INFORMATION: Basic earnings per unit........... $ 0.52 $ 1.21 $ 1.00 $ 0.25 $ 0.53 Diluted earnings per unit......... $ 0.52 $ 1.20 $ 0.99 $ 0.25 $ 0.52 Distributions paid per common OP unit............................ $ 2.24 $ 2.46 $ 3.28 $ 3.12 $ 2.80 Funds from operations(3).......... $ 346,116 $ 431,450 $ 504,816 $ 528,653 $ 439,830 Net cash provided by operating activities...................... $ 381,137 $ 403,624 $ 496,670 $ 491,846 $ 400,364 Net cash (used in) provided by investing activities............ $ 180,556 $ (897,681) $ (873,832) $ (140,638) $ (545,981) Net cash provided by (used in) financing activities............ $ (531,163) $ 503,454 $ 398,637 $ (430,245) $ 201,128
- --------------- (1) Certain reclassifications have been made to the 2001 and 2000 amounts to conform with the 2002 presentation. These reclassifications represent certain eliminations of self-charged management fee income and expenses and related receivables and payables in accordance with consolidation accounting principles, as well as discontinued operations resulting from the adoption of Statement of Financial Accounting Standard No. 144. Effective January 1, 2001, we began consolidating our previously unconsolidated subsidiaries. Prior to this date, we had significant influence but did not have control. Accordingly, such investments were accounted for under the equity method. (2) Effective July 1, 2001 for certain assets and October 1, 2001 for the majority of the portfolio, we extended the estimated useful lives of our buildings and improvements from a weighted average composite life of 25 years to a weighted average composite life of 30 years. This change increased net income by approximately $36 million or $0.42 per diluted unit in 2001. (3) Our management believes that the presentation of funds from operations or "FFO", when considered with the financial date determined in accordance with generally accepted accounting principles, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to us, nor should it be considered as an alternative to net income or as an indicator of operating performance. The Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") defines FFO as net income (loss), computed in accordance with generally accepted accounting principles, excluding gains and losses from extraordinary items and disposals from discontinued operations, net of related income taxes, plus real estate related depreciation and amortization (excluding amortization of financing costs), including depreciation for unconsolidated partnership, joint ventures and discontinued operations. We calculate FFO based on the NAREIT definition, plus amortization of intangibles, plus distributions to minority partners in excess of income, and less dividends on preferred units. We calculate FFO (diluted) by adding back the interest expenses and preferred distribution relating to convertible securities whose conversion is dilutive to FFO. Our management believes that the presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of our ability to make required dividend payments, capital expenditures and principal 54 payments on our debt. There can be no assurance that our basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ------------------- --------------------------------- 2003 2002 2002 2001 2000 -------- -------- --------- --------- --------- (DOLLARS IN THOUSANDS) Net income.................................. $136,327 $198,958 $206,202 $121,064 $109,717 Real estate depreciation, net of minority interests................................. 223,733 172,225 260,507 316,101 256,917 Real estate depreciation related to unconsolidated entities................... 19,331 26,022 33,544 57,506 70,188 Discontinued operations: Depreciation, net of minority interest............................. 9,712 18,254 10,015 13,534 9,997 (Gain) loss on dispositions of real estate, net of minority interest..... (66,930) 37 (1,437) -- -- Distributions to minority partners in excess of income..................... (4,650) 1,401 1,401 1,342 -- Income tax arising from disposals...... 5,112 552 2,507 -- -- Amortization of intangibles................. 4,716 3,194 4,026 18,729 12,068 Income tax arising from disposals........... -- -- -- 3,202 -- Distributions to minority interest partners in excess of income....................... 21,503 15,274 26,979 46,359 24,375 (Gain) loss on dispositions of real estate.................................... (2,738) (4,467) 27,902 (18,848) (26,335) Gain on disposition of land................. -- -- -- 3,843 -- Deferred income tax benefit................. -- -- -- -- 154 Interest expense on mandatorily redeemable convertible preferred securities.......... 741 882 1,161 1,568 8,869 Preferred unit distributions................ (65,711) (45,626) (67,991) (35,747) (26,120) -------- -------- -------- -------- -------- Funds from operations....................... $346,116 $431,450 $504,816 $528,653 $439,830 ======== ======== ======== ======== ========
11. BACKGROUND AND REASONS FOR THE OFFER Settlement of Class Action. We are making this offer pursuant to the terms of the settlement agreement described in "The Litigation Settlement Offer -- Section 9. The Lawsuit and the Settlement." Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment. The settlement agreement also provides for the creation of a $9.9 million fund for members of the settlement class, a portion of which will be paid to those who accept this offer and is included in our offer price. If you request exclusion from the settlement, you may tender any units in this offer and you will be entitled to receive the same price per unit as those unitholders who have not opted out of the settlement class. However, no portion of the price paid to you will come from the settlement fund. If you do not request exclusion from the settlement and do not tender any units in this offer, you will be entitled to receive your pro rata share of the settlement fund (subject to adjustment) no later than June 2005 if the Court's order approving the settlement and entering judgment thereto is affirmed on appeal. If the Court's order is reversed or vacated by virtue of the appeal, however, you will not be entitled to receive a pro rata share of the settlement fund unless you tender your units in this offer. Neither the Court nor counsel for the parties in the class and derivative litigation make any recommendation regarding whether you should accept our offer. You are encouraged to carefully review this Litigation Settlement Offer, the executive summary of the independent appraiser's report (attached as 55 Annex II) and any other information available to you and to seek advice from your independent lawyer, tax advisor and/or financial advisor before deciding whether or not to accept our offer. Alternatives Considered by Your General Partner. From time to time in the past, we have made offers to acquire units of limited partnership interest in your partnership. Before making this offer and the previous offers, your general partner (which is our affiliate) considered a number of alternative transactions. The following is a brief discussion of the advantages and disadvantages of the alternatives considered by your general partner. LIQUIDATION One alternative would be for the partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with the agreement of limited partnership, and thereafter dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of partnership assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). If your partnership was liquidated, and the properties sold at prices equal to the values recently determined by the independent appraiser (see Annex II), we estimate that your net liquidation proceeds would be $343.92 per unit. See "The Litigation Settlement Offer -- Section 8. Valuation of Units." However, a liquidating sale of all of your partnership's property would be a taxable event for all partners, including your general partner. Furthermore, all partners, including those who wish to retain their units, and your general partner would be forced to participate in the liquidation. Lastly, although the future operating results of your partnership and future sales prices of the property owned by your partnership are uncertain, the operating performance of your partnership's property may improve in the future, which, in turn, may result in higher property values, making a sale of your partnership's properties a more attractive option in the future. Such values are also a function of capitalization rates in the market and the interest rate environment at the time. However, because your general partner and property manager (which are our affiliates) receive fees for managing your partnership and its property, a conflict of interest exists between continuing the partnership and receiving such fees, on the one hand, and the liquidation of the partnership and the termination of such fees, on the other. See "The Litigation Settlement Offer -- Section 15. Certain Information Concerning Your Partnership -- Investment Objectives and Policies; Sale or Financing of Investments" and "-- Section 13. Conflicts of Interest and Transactions with Affiliates." The term of the partnership will continue until December 31, 2011, unless the partnership is terminated sooner under the provisions of the partnership agreement. CONTINUATION OF THE PARTNERSHIP WITHOUT THE OFFER A second alternative would be for your partnership to continue as a separate legal entity with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions or improved operating performance, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property at some point in the future a more attractive option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases in revenue of your partnership and any net proceeds from the sale of the property owned by your partnership. However, no assurance can be given as to future operating results or as to the results of any future attempts to sell the property owned by your partnership. The primary disadvantage of continuing the operations of your partnership without our offer is that you would be limited in your ability to sell your units. Although you could sell your units to a third party, any such sale might be at a price less than our offer price. 56 Alternative Transactions Considered by Us. At the present time, we have decided to proceed with this offer pursuant to the court approved settlement. From time to time in the past, we have considered proposing a number of alternative transactions, including the purchase of your partnership's property or a merger of your partnership in which you would receive cash in exchange for your units. We decided not to pursue these alternative transactions because, in each case, we determined that a tender offer would be a less expensive means of acquiring additional interests in your partnership, and would not require the consent or approval of any limited partners (other than those who elect to tender their units). In the future, however, we may consider purchasing your partnership's property or effecting such a merger. See "The Litigation Settlement Offer -- Section 14. Future Plans of the Purchaser." We also considered an offer to exchange units in your partnership for limited partnership interests in AIMCO Properties, L.P. However, because of the expense and delay associated with making such an exchange offer, we decided to make an offer for cash only. In addition, our historical experience has been that when we have offered limited partners an opportunity to receive cash or limited partnership interests in AIMCO Properties, L.P., the limited partners who tender usually prefer the cash option. 12. POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER The partnership and the general partner of your partnership (which is our affiliate) have provided the following information for inclusion in this Litigation Settlement Offer: Factors in Favor of Fairness Determination. The general partner of your partnership believes the offer price and the structure of the transaction are fair to the unaffiliated limited partners. In support of such determination, the general partner considered the factors and information set forth below, but did not quantify or otherwise attach particular weight to any such factors or information: - the Court's approval of the settlement pursuant to which the offer is being made; - the fact that the interests of the unaffiliated limited partners were represented by counsel in the negotiation of the settlement agreement; - the method we used to determine our offer price is a method commonly relied upon by investors to value income producing property; - the offer is structured so that approval of a majority of unaffiliated limited partners is not required -- each limited partner has an opportunity to make an individual decision on whether to tender his or her units (and how many to tender) or to continue to hold them; - there is no established trading market for the limited partnership units, and the offer would provide immediate liquidity for tendering limited partners; - the uncertainty of the resulting proceeds from the possible alternative transactions, particularly a property sale or a liquidation of the partnership, - the fact that no unaffiliated limited partners would be able to participate in the future performance of the partnership following such alternative transactions; - the fact that our offer price does not reflect any discount for minority interests; and - the absence of any other firm offers by third parties for all or substantially all of the partnership's assets, a merger or other extraordinary transaction during the past two years with which to compare the Litigation Settlement Offer. Factors Not in Favor of Fairness Determination. In addition to the foregoing factors, the general partner considered the following countervailing factors: - the recent valuation of your partnership's property by American Appraisal Associates, Inc., an independent appraiser appointed by the Court, which results in an estimate of net liquidation proceeds per unit of $343.92, which is higher than our offer price of $239.13; - the offer price does not exceed the book value per unit of $132.37 at December 31, 2003; 57 - the fact that an unaffiliated representative was not retained to act solely on behalf of unaffiliated limited partners for purposes of negotiating the terms of the offer; - the fact that the general partner's board of directors is comprised solely of an employee of AIMCO Properties, L.P., and, as a result, the terms of the offer were not approved by a majority of independent directors; - fact that offer prices in our prior tender offers were higher than our current offer price; and - prices at which the units have recently sold were higher than our current offer price. The general partner believes that consideration of the offer was procedurally fair because, among other things, (1) the Court approved the settlement agreement pursuant to which the offer is being made, (2) each limited partner has an opportunity to make an individual decision on whether to tender his or her units (and how many to tender) or to continue to hold them, (3) the unaffiliated limited partners were represented by counsel in the negotiation of the settlement agreement, and (4) limited partners can evaluate our offer price by comparing it to the net liquidation proceeds per unit derived from the independent appraiser's property valuation. In making this determination, the general partner took into account the absence of the following procedural safeguards: (1) the requirement of approval of the offer by a majority of the unaffiliated limited partners, (2) an unaffiliated representative to act solely on behalf of unaffiliated limited partners for purposes of negotiating the terms of the offer, and (3) the approval of the offer by a majority of non-employee directors of your general partner's board of directors. The general partner makes no recommendation as to whether or not you should tender or refrain from tendering your units in this offer. While the general partner believes that the terms of our offer are fair, the general partner also believes that you must make your own decision whether or not to participate in any offer. The general partner is unable to make a recommendation because each limited partner's circumstances may differ from those of other limited partners. These circumstances, which would impact the desirability of tendering units in the offer, include a limited partner's financial position, his need or desire for liquidity, other financial opportunities available to him, and his tax position and the tax consequences to him of selling his units. YOU ARE ENCOURAGED TO CAREFULLY REVIEW THIS LITIGATION SETTLEMENT OFFER, THE EXECUTIVE SUMMARY OF THE INDEPENDENT APPRAISER'S REPORT (ATTACHED AS ANNEX II) AND ANY OTHER INFORMATION AVAILABLE TO YOU AND TO SEEK ADVICE FROM YOUR INDEPENDENT LAWYER, TAX ADVISOR AND/OR FINANCIAL ADVISOR BEFORE DECIDING WHETHER OR NOT TO ACCEPT THIS LITIGATION SETTLEMENT OFFER. Neither the general partner of your partnership or its affiliates have any plans or arrangements to tender any units. Except as otherwise provided in "The Litigation Settlement Offer -- Section 14. Future Plans of the Purchaser," the general partner does not have any present plans or proposals which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation, involving your partnership; a purchase or sale or transfer of a material amount of your partnership's assets; or any changes in your partnership's present capitalization, indebtedness or distribution policies. For information relating to certain relationships between your partnership and its general partner, on one hand, and AIMCO and its affiliates, on the other, and conflicts of interests with respect to the tender offer, see "The Litigation Settlement Offer -- Section 11. Background and Reasons for the Offer" and "-- Section 13. Conflicts of Interest and Transactions with Affiliates." See also "The Litigation Settlement Offer -- Section 8. Valuation of Units -- Comparison to Alternative Consideration" for certain information regarding transactions with respect to units of your partnership. Your partnership did not receive any report, opinion or appraisal with respect to the fairness of this Litigation Settlement Offer or the offer price being offered to limited partners. However, the partnership did receive the appraisals prepared by AAA, as described above. Although the AIMCO Entities have interests that may be in conflict with those of the partnership's unaffiliated limited partners, each of the AIMCO Entities believes that the offer price and the structure of the transaction are fair to the unaffiliated limited partners based on the information and factors considered by the general partner of your partnership. Each of AIMCO Entities expressly adopts the analysis, and the factors underlying such analysis, of the general partner of your partnership. 58 13. CONFLICTS OF INTEREST AND TRANSACTIONS WITH AFFILIATES Conflicts of Interest with Respect to the Offer. The general partner of your partnership is an affiliate of AIMCO. As a result, the general partner has substantial conflicts of interest with respect to the offer. We desire to purchase units at a low price and you desire to sell units at a high price. Such conflicts of interest in connection with the offer differ from those conflicts of interest that exist in connection with the general partner's management of your partnership. Your general partner has filed a Solicitation/ Recommendation Statement on Schedule 14d-9 with the SEC, which indicates that it is remaining neutral and making no recommendation as to whether limited partners should tender their units in the offer. YOU ARE URGED TO READ THIS LITIGATION SETTLEMENT OFFER AND THE SCHEDULE 14D-9 AND THE RELATED MATERIALS CAREFULLY AND IN THEIR ENTIRETY BEFORE DECIDING WHETHER TO TENDER YOUR UNITS. Conflicts of Interest That Currently Exist for Your Partnership. We own the general partner of your partnership and are affiliated with the property manager of your partnership's property. The general partner of your partnership received total approximate fees and reimbursements (excluding property management fees) of $1,930,000 in 2000, $2,557,000 in 2001 and $1,511,000 in 2002. Total approximate fees and reimbursements (excluding property management fees) for the year ended December 31, 2003 were $988,000. The property manager is entitled to receive five percent of gross receipts from the partnership's property for providing property management services. It received approximate management fees of $1,565,000 in 2000, $1,604,000 in 2001 and $1,424,000 in 2002. Management fees for the year ended December 31, 2003 were approximately $1,329,000. We have no current intention of changing the fee structure for your general partner or the manager of your partnership's property. Competition Among Properties. Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. Furthermore, you should bear in mind that AIMCO may acquire properties in general market areas where your partnership's property is located. We believe that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, we will attempt to reduce conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. Future Offers. Under the terms of the settlement, we are not obligated to make another tender offer for units in your partnership. We have no current plans to conduct future tender offers for the units in your partnership, but our plans may change based on future circumstances, including tender offers made by third parties. Any such future offers that we make could be at prices that are more or less than the current offer price. Transactions with Affiliates. Your partnership has no employees and is dependent on the general partner and us for the management and administration of all partnership activities. The partnership agreement provides for (i) certain payments to us for services and (ii) reimbursement of certain expenses incurred by us on behalf of the partnership. We are entitled to receive 5% of gross receipts from all of the partnership's properties as compensation for providing property management services. The partnership paid us approximately $1,329,000 and $1,424,000 for the years ended December 31, 2003 and 2002, respectively. We received reimbursement of accountable administrative expenses amounting to approximately $885,000 and $454,000 for the years ended December 31, 2003 and 2002, respectively. Included in these amounts are fees related to construction management services provided by NHP Management Company (which is our affiliate), of approximately $50,000 during the year ended December 31, 2003. There were no construction management fees during the year ended December 31, 2002. The construction management fees are calculated based on a percentage of current year additions to investment properties. In accordance with the partnership agreement, the general partner advanced the partnership approximately $220,000 for expenses at four of the partnership's properties during the year ended December 31, 2003. This advance was repaid in full prior to December 31, 2003. Interest was charged at the prime rate plus 2% and amounted to approximately $114,000 for the year ended December 31, 2003. 59 There were no loans from the general partner or associated interest expense during the year ended December 31, 2002. The partnership insures its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty and vehicle liability. The partnership insures its properties above the AIMCO limits through insurance policies obtained by us from insurers unaffiliated with the general partner. During the years ended December 31, 2003 and 2002, the partnership was charged by us approximately $338,000 and $256,000, respectively, for insurance coverage and fees associated with policy claims administration. 14. FUTURE PLANS OF THE PURCHASER As described above under "The Litigation Settlement Offer -- Section 11. Background and Reasons for the Offer," your general partner is our affiliate and, therefore, we have the ability to control the management of your partnership. In addition, we are affiliated with the manager of your partnership's property. We currently intend that, upon consummation of the offer, we will hold the units acquired and your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on partnership operations. Under the terms of the settlement, although we are not obligated to do so, we may make another litigation settlement offer within 18 months of the order finally approving the settlement. In addition, we may make future tender offers after that time. However, we have no current plans to conduct future tender offers for units in your partnership. We may acquire additional units or sell units after completion or termination of the offer. Any acquisition may be made through private purchases, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in AIMCO Properties, L.P. or other consideration. We may consider selling some or all of the units we acquire pursuant to this offer to persons not yet determined, which may include our affiliates. We may also buy your partnership's property, although we have no present intention to do so. There can be no assurance, however, that we will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. Except as set forth herein, we do not have any present plans or proposals which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation, involving your partnership; a purchase or sale or transfer of a material amount of your partnership's assets; any changes in composition of your partnership's senior management or personnel or their compensation; any changes in your partnership's present capitalization, indebtedness or distribution policy; or any other material changes in your partnership's structure or business. We or our affiliates may loan funds to your partnership which may be secured by your partnership's property. If any such loans are made, upon default of such loans, we or our affiliates could seek to foreclose on the loan and related mortgage or security interest. However, we expect that, consistent with your general partner's fiduciary obligations, the general partner will seek and review opportunities, including opportunities identified by us, to engage in transactions which could benefit your partnership, such as sales or refinancings of assets or a combination of the partnership with one or more other entities, with the objective of seeking to maximize returns to limited partners. We have been advised that the general partner does not currently expect to consider, on behalf of your partnership any of the following transactions: (i) payment of extraordinary distributions; (ii) refinancing, reducing or increasing existing indebtedness of the partnership; (iii) sales of assets, individually or as part of a complete liquidation; and (iv) mergers or other consolidation transactions involving the partnership. Any such merger or consolidation transaction could involve other limited partnerships in which your general partner or its affiliates serve as general partners, or a combination of the partnership with one or more existing, publicly traded entities (including, possibly, affiliates of AIMCO), in any of which limited partners might receive cash, common stock or other securities or consideration. As discussed under "The Litigation Settlement Offer -- Section 15. Certain Information Concerning Your 60 Partnership -- Investment Objectives and Policies; Sale or Financing of Investments," the general partner regularly evaluates the real estate and capital markets. The general partner may consider refinancing the partnership's existing indebtedness to the extent that the general partner is able to obtain a lower interest rate or if such indebtedness is approaching maturity. Furthermore, in the event that the general partner receives an attractive offer for any of your partnership's properties, the general partner would give due consideration to such an offer. If any of the transactions referred to above occur, and financial benefits accrue to the limited partners, we will participate in those benefits to the extent of our ownership of units. The agreement of limited partnership prohibits limited partners from voting on actions taken by the partnership, unless otherwise specifically permitted therein. Limited partners may vote on a liquidation, and we will be able to significantly influence or control the outcome of any such vote. Our primary objective in seeking to acquire the units pursuant to the offer is not, however, to influence the vote on any particular transaction, but rather to generate a profit on the investment represented by those units. 15. CERTAIN INFORMATION CONCERNING YOUR PARTNERSHIP General. Your partnership was organized on April 28, 1981, under the laws of the State of California. Its primary business is real estate ownership and related operations. Your partnership was initially formed for the benefit of its limited partners to lend funds to Consolidated Capital Equity Partners ("CCEP"), a California general partnership. The general partner of CCEP is an affiliate of your general partner. Your partnership loaned funds to CCEP subject to a nonrecourse note with a participation interest (the "Master Loan"). The loans were made to, and the real properties that secure the Master Loan were purchased and are owned by, CCEP. The Master Loan matured in November 2000. Your general partner decided to foreclose on the properties that collateralize the Master Loan due to CCEP's inability to repay the Master Loan and accrued interest. Your general partner began the process of foreclosure or executing deeds in lieu of foreclosure during the third quarter of 2002 on all the properties in CCEP. During August 2002, your general partner executed deeds in lieu of foreclosure on four of the active properties of CCEP. In addition, one of the properties held by CCEP was sold in December 2002. On November 10, 2003, your partnership acquired the remaining four properties held by CCEP through a foreclosure sale. As the deeds were executed, title in the properties previously owned by CCEP were transferred to your partnership, subject to the existing liens on such properties, including the first mortgage loans. As a result, your partnership assumed responsibility for the operations of such properties. Your partnership's investment portfolio currently consists of 10 residential apartment complexes. Your partnership had approximately 11,424 limited partners as of December 31, 2003. General Partner. The general partner of your partnership is ConCap Equities, Inc., which is an affiliate of AIMCO. Our affiliate serves as manager of the property owned by your partnership. The general partner of your partnership received total approximate fees and reimbursements (excluding property management fees) of $1,930,000 in 2000, $2,557,000 in 2001 and $1,511,000 in 2002. Total approximate fees and reimbursements (excluding property management fees) for the year ended December 31, 2003 were $988,000. The property manager is entitled to receive five percent of gross receipts from the partnership's property for providing property management services. It received approximate management fees of $1,565,000 in 2000, $1,604,000 in 2001 and $1,424,000 in 2002. Management fees for the year ended December 31, 2003 were approximately $1,329,000. Ownership and Voting. We, together with Cooper River Properties, L.L.C., Reedy River Properties, L.L.C. and AIMCO IPLP, L.P. (which are our affiliates), own 129,695.10 units, or 65.16%, of the outstanding units of your partnership. Because we and our affiliates own a majority of the outstanding units, we have the ability to control most votes of the limited partners. See "The Litigation Settlement Offer -- Section 7. Effects of the Offer" and "-- Section 16. Voting Power." Investment Objectives and Policies; Sale or Financing of Investments. In general, your general partner (which is our affiliate) regularly evaluates the partnership's property by considering various factors, 61 such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood), evaluating current trends, competition, new construction and economic changes. It oversees the property's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for the property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold the partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property. Although the future operating results of your partnership and future sales prices of the property owned by your partnership are uncertain, the operating performance of your partnership's property may improve in the future, which, in turn, may result in higher property values, making a sale of your partnership's properties a more attractive option in the future. Such values, however, are also a function of capitalization rates in the market and the interest rate environment at the time. Furthermore, the general partner spent approximately $1,242,777 for capital improvements at the property in 2003 to repair and update the property. Although there can be no assurance as to effect of these expenditures on the future performance of your partnership's property, these expenditures are expected to improve the desirability of the property to tenants. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. Term of Your Partnership. Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2011, unless sooner terminated as provided in the agreement or by law. Capital Replacements. Your partnership has an ongoing program of capital improvements, replacements and renovations, including interior and exterior building improvements, cabinet, floor covering and appliance replacements and other replacements and renovations in the ordinary course of business. All capital improvements and renovation costs, which are budgeted at $946,000 for 2004, are expected to be paid from operating cash flows or cash reserves, or from short-term or long-term borrowings. Competition. There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While AIMCO is a significant factor in the United States in the apartment industry, competition for apartments is local. According to data published by the National Multi-Housing Council, we believe AIMCO is the largest owner and manager of multifamily apartment properties in the United States. 62 Financial Data. The selected financial information of your partnership set forth below for the years ended December 31, 2003, 2002 and 2001 is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" in the Annual Report on Form 10-K of your partnership for the year ended December 31, 2003.
FOR THE YEAR ENDED DECEMBER 31, -------------------------------------- 2003 2002 2001 ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: Total revenues................................... $ 18,607 $ 14,646 $ 18,660 Net income (loss)................................ 1,814 3,318 7,078 Net income (loss) per limited partnership unit... 9.02 16.50 35.20 Income (loss) per unit from continuing operations.................................... (0.14) 7.39 35.20 Distributions per limited partnership unit....... 17.11 17.79 78.83 Ratio of earnings to fixed charges (deficit)..... 146.7% 233.7% 474.7% BALANCE SHEET DATA: Cash and cash equivalents........................ 2,417 3,175 922 Investment property, net of accumulated depreciation.................................. 99,664 62,919 27,253 Total assets..................................... 105,398 83,331 56,089 Mortgage note payable............................ 77,195 52,649 26,457 General partners' capital (deficit).............. 125 125 123 Limited partners' capital (deficit).............. 26,348 27,958 28,214 Partners' capital (deficit)...................... 26,473 28,083 28,337 Book value per limited partnership unit.......... 132.37 140.46 141.75 CASH FLOWS: Net increase (decrease) in cash and cash equivalents................................... (758) 2,253 (1,114) Net cash provided by operating activities........ 4,668 5,427 7,484
Description of Property. The following shows the location, the date of purchase, the nature of your partnership's ownership interest in and the use of your partnership's property.
DATE OF PROPERTY PURCHASE TYPE OF OWNERSHIP USE - -------- -------- ----------------- --- The Loft Apartments................ 11/19/90 Fee ownership, subject to Apartment Raleigh, NC first mortgage 184 units The Sterling Apartment Homes and Commerce Center.................. 12/01/95 Fee ownership, subject to Apartment Philadelphia, PA a first mortgage(1) 536 units Commercial 110,368 sq ft Silverado Apartments............... 8/09/02 Fee ownership, subject to Apartment El Paso, TX a first mortgage 248 units The Knolls Apartments.............. 8/09/02 Fee ownership, subject to Apartment Colorado Springs, CO a first mortgage 262 units Indian Creek Village Apartments.... 8/09/02 Fee ownership, subject to Apartment Overland Park, KS a first mortgage 274 units Tates Creek Village Apartments..... 8/13/02 Fee ownership, subject to Apartment Lexington, KY a first mortgage 204 units
63 - --------------- (1) Property is held by a limited partnership in which the partnership ultimately owns a 100% interest. During the year ended December 31, 2002, the partnership foreclosed on four of the properties that collateralized the nonrecourse note (the "Master Loan") to Consolidated Capital Equity Partners, L.P. ("CCEP"). During the third quarter of 2002, the partnership began the process of foreclosure or executing deeds in lieu of foreclosure. During August 2002, the general partner executed deeds in lieu of foreclosure on four of the active properties of CCEP. In addition, one property held by CCEP was sold in December 2002. In November 2003, the partnership acquired the four remaining properties held by CCEP: Plantation Gardens Apartments, Regency Oaks Apartments, the Dunes Apartments, and Palm Lake Apartments. These properties were sold at a foreclosure sale due to CCEP's inability to repay the Master Loan and accrued interest. We advanced the partnership approximately $31,278,000 in order to purchase these properties at the sale. The sale proceeds will be sent to the partnership as the lien holder and will be used to repay the advance from us. The advance will bear interest at prime plus 2%. The partnership acquired the properties previously held by CCEP subject to the existing liens on the properties including the first mortgage loans. The partnership intends to continue to operate these properties as residential apartment complexes. Accumulated Depreciation Schedule. The following shows the gross carrying value and accumulated depreciation of your partnership's property as of December 31, 2002.
GROSS ACCUMULATED FEDERAL PROPERTY CARRYING VALUE DEPRECIATION RATE METHOD TAX BASIS - -------- -------------- ------------ --------- ------ -------------- (IN THOUSANDS) (IN THOUSANDS) The Loft Apartments............. $ 7,579 $ 4,258 5-30 yrs S/L $ 4,665 The Sterling Apartment Homes and 5-30 Commerce Center............... 35,966 14,578 yrs...... S/L 24,975 5-30 Silverado....................... 4,792 39 yrs...... S/L 4,727 5-30 The Knolls...................... 15,173 111 yrs...... S/L 14,996 5-30 Indian Creek Village............ 12,228 110 yrs...... S/L 12,034 5-30 Tates Creek Village............. 6,339 62 yrs...... S/L 6,225 ------- ------- ------- Total...................... $82,077 $19,158 $67,612 ======= ======= =======
64 Schedule of Mortgages. The following shows certain information regarding the outstanding first mortgage encumbering your partnership's property as of December 31, 2003.
PRINCIPAL BALANCE AT STATED DECEMBER 31, INTEREST PERIOD MATURITY PRINCIPAL BALANCE PROPERTY 2003 RATE AMORTIZED DATE DUE AT MATURITY - -------- ------------ -------- ---------- -------- ----------------- (IN THOUSANDS) (IN THOUSANDS) The Loft Apartments 1st mortgage............... $ 4,089 6.95% 360 months 12/01/05 $ 3,903 The Sterling Apartment Home and Commerce Center 1st mortgage............... 21,803 6.77% 120 months 10/01/08 19,975 Silverado Apartments 1st mortgage............... 3,293 7.87% 240 months 11/01/10 2,434 The Knolls 1st mortgage............... 9,240 7.78% 240 months 03/01/10 7,105 Indian Creek Village 1st mortgage............... 8,171 7.83% 240 months 01/01/10 6,351 Tates Creek Village 1st mortgage............... 3,934 7.78% 240 months 04/01/10 3,017 ------- ------- $50,528 Unamortized mortgage premium.................... 1,234 ------- Total................... $51,762 $42,785 ======= =======
Average Rental Rates and Occupancy. The following shows the average rental rates and occupancy percentages for your partnership's property during the periods indicated.
AVERAGE ANNUAL AVERAGE ANNUAL RENTAL RATE OCCUPANCY --------------------------- ----------- PROPERTY 2003 2002 2003 2002 - -------- ------------ ------------ ---- ---- (PER UNIT) The Loft Apartments......................... $8,250/unit $8,605/unit 88% 90% The Sterling Apartment Homes................ $16,949/unit $16,476/unit 91% 91% The Sterling Commerce Center................ $16.73/s.f. $16.73/s.f. 54% 56% Silverado Apartments........................ $5,651/unit $5,988/unit 89% 96% The Knolls Apartments....................... $8,350/unit $8,242/unit 68% 88% Indian Creek Village Apartments............. $8,273/unit $8,574/unit 83% 92% Tates Creek Village Apartments.............. $7,681/unit $7,652/unit 84% 90%
Property Management. Your partnership's property is managed by one of our affiliates. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Distributions. The following table shows, for each of the years indicated, the distributions paid per unit for such years.
YEAR ENDED DECEMBER 31 AMOUNT - ---------------------- ------- 2000........................................................ $240.55 2001........................................................ $ 78.83 2002........................................................ $ 17.79 2003........................................................ $ 17.10
65 Compensation Paid to the General Partner and its Affiliates. The following table shows, for each of the years indicated, approximate amounts paid to your general partner and its affiliates on a historical basis. The general partner is reimbursed for actual direct costs and expenses incurred in connection with the operation of the partnership. The property manager is entitled to receive fees for transactions involving your partnership and its property and is entitled to receive five percent of the gross receipts from the partnership's property for providing property management services. See "The Litigation Settlement Offer -- Section 13. Conflicts of Interest and Transactions with Affiliates."
PARTNERSHIP PROPERTY FEES AND MANAGEMENT YEAR EXPENSES FEES - ---- ----------- ---------- 2000........................................................ $1,930,000 $1,565,000 2001........................................................ $2,557,000 $1,604,000 2002........................................................ $1,511,000 $1,424,000 2003........................................................ $ 988,000 $1,329,000
Legal Proceedings. From time to time, your partnership may be a party to a variety of legal proceedings related to its ownership of properties which arise in the ordinary course of business. See "The Litigation Settlement Offer -- Section 9. The Lawsuit and the Settlement." 16. VOTING POWER Decisions with respect to the day-to-day management of your partnership are the responsibility of the general partner. Because the general partner of your partnership is our affiliate, we control the management of your partnership. Under your partnership's agreement of limited partnership, limited partners holding a majority of the outstanding units must approve certain extraordinary transactions, including the removal of the general partner, most amendments to the partnership agreement and the sale of all or substantially all of your partnership's assets. We, together with Cooper River Properties, L.L.C., Reedy River Properties, L.L.C. and AIMCO IPLP, L.P. (which are our affiliates), own 129,695.10 units, or 65.16%, of the outstanding units of your partnership. Because we and our affiliates own a majority of the outstanding units, we control most voting decisions made by limited partners. See "The Litigation Settlement Offer -- Section 7. Effects of the Offer." 17. SOURCE OF FUNDS We expect that approximately $16,583,200 will be required to purchase all of the limited partnership units that we are seeking in this offer exclusive of fees and expenses. For more information regarding fees and expenses, see "The Litigation Settlement Offer -- Section 21. Fees and Expenses." In addition to this offer, we are concurrently making offers to acquire interests in approximately 43 other limited partnerships pursuant to the terms of the settlement. If all such offers were fully subscribed for cash, we would be required to pay approximately $107 million for all such units. If for some reason we did not have such funds available we might extend these offers for a period of time sufficient for us to obtain additional funds, or we could terminate the offers. However, we do not expect all such offers to be fully subscribed. Additionally, we believe that we will have sufficient cash on hand and available sources of financing to acquire all units tendered pursuant to such offers. As of December 31, 2003, we had $126 million of cash on hand and $285 million available for borrowing under existing lines of credit. We intend to repay any amounts borrowed to finance the offer out of future working capital. We have a $445 million revolving credit facility with Bank of America, Fleet National Bank and First Union National Bank with a syndicate comprised of a total of ten lender participants. We are the borrower and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The obligations under the credit facility are secured, among other things, by our pledge of our stock ownership in certain subsidiaries of AIMCO, and a first priority pledge of certain of our non-real estate assets. The annual interest rate under the credit facility is based on either LIBOR or a base rate which is the higher of Bank of America's reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. 66 The margin ranges between 2.15% and 2.85% in the case of LIBOR-based loans and between 0.65% and 1.35% in the case of base rate loans, based upon a fixed charge coverage ratio. The credit facility expires on July 31, 2005 and can be extended at AIMCO's option for a one-year term on a one-time basis. 18. DISSENTERS' RIGHTS Neither the agreement of limited partnership of your partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with, or as a result of, our offer. You have the opportunity to make an individual decision on whether or not to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of the partnership or to obtain counsel or, other than as required by the settlement, appraisal services at our expense or at the expense of your partnership. However, you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners in your partnership. 19. CONDITIONS TO THE OFFER Notwithstanding any other provisions of our offer, we will not be required to accept for payment and pay for any units tendered pursuant to our offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend our offer if at any time on or after the date of this Litigation Settlement Offer and at or before the expiration of our offer (including any extension thereof), any of the following shall occur: - any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that is or could reasonably be expected to be materially adverse to your partnership or the value of your units to us, which change would, individually or in the aggregate, result in, or reasonably be expected to result in, an adverse effect on net operating income of your partnership of more than $10,000 per year, or a decrease in value of an asset of your partnership, or the incurrence of a liability with respect to your partnership, in an amount in excess of $100,000 (a "Material Adverse Effect"), or we shall have become aware of any facts relating to your partnership, its indebtedness or its operations which has had or could reasonably be expected to have a Material Adverse Effect; or - there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 5.0%, measured from the close of business on the last trading day preceding the date of this offer and the close of business on the last trading day preceding the expiration of this offer, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 25 basis point increase in LIBOR, or at least a 5.0% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case, measured from the close of business on the last trading day preceding the date of this offer and the close of business on the last trading day preceding the expiration of this offer, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) acts of terrorism or a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which could reasonably be expected to affect the extension of credit by banks or other lending institutions, or 67 (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, a material acceleration or worsening thereof; or - there shall have been threatened in writing, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by us of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by us (or any of our affiliates) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in our ability to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by us or any of our affiliates of the entity serving as your general partner (which is our affiliate) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on our ability or any of our affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on our ability or any of our affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by us on all matters properly presented to unitholders or (v) could reasonably be expected to result in a Material Adverse Effect; or - there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, your partnership, any general partner of your partnership, us or any affiliate of our or your partnership, or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, directly or indirectly, could reasonably be expected to result in any of the consequences referred to in clauses (i) through (v) of the immediately preceding paragraph; or - your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, has or could reasonably be expected to have a Material Adverse Effect, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or 68 - a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or we shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; - there shall have occurred any event, circumstance, change, effect or development that, individually or in the aggregate with any other events, circumstances, changes, effects or developments, has had or would reasonably be expected to have an adverse effect on our financial condition in an amount in excess of $10,000,000; or - the final court approval of the settlement shall have been reversed or vacated, the parties terminate the settlement or the settlement shall otherwise terminate by its terms. The foregoing conditions are for our sole benefit and may be asserted by us regardless of the circumstances giving rise to such conditions or may be waived by us at any time in our reasonable discretion prior to the expiration of this offer. The failure by us at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, and the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances. If we waive any of the conditions to the offer with respect to the tender of a particular unit, we will waive such condition with respect to all other tenders of units in this offer as well. All conditions to our offer will be satisfied or waived on or before the expiration of our offer. We will not waive a material condition to the offer on the expiration date. If we waive any material conditions to our offer, we will notify you and, if necessary, we will extend the offer period so that you will have at least five business days from the date of our notice to withdraw your units. If we are unable to accept the units tendered in this Litigation Settlement Offer due to a failure of any or all of the conditions of our offer to be satisfied, we will conduct another offer in accordance with the terms of the settlement (which will occur no later than six months after the date of the commencement of this offer). We will continue this process until we have accepted for payment all units properly tendered in an offer conducted in accordance with the terms of the settlement. 20. CERTAIN LEGAL MATTERS General. Except as set forth in this Section 20, we are not aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by our acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by us pursuant to the offer, other than the filing of a Tender Offer Statement and Rule 13e-3 Transaction Statement on Schedule TO with the SEC (which has already been filed) and any required amendments thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership or its business, or that certain parts of its business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause us to elect to terminate the offer without purchasing units thereunder. Our obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this Section 20. Antitrust. We do not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by our offer. 69 Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to our offer. State Laws. We are not aware of any jurisdiction in which the making of our offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. If, after such good faith effort, we cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions with securities or blue sky laws that require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of us, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. 21. FEES AND EXPENSES You will not pay any partnership transfer fees if you tender your units. Except as set forth herein, we will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We have retained The Altman Group, Inc. to act as Information Agent in connection with our offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominee limited partners to forward materials relating to the offer to beneficial owners of the units. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify it against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will also pay all costs and expenses of printing and mailing the offer and any related legal fees and expenses. However, under the terms of the settlement, the offer price has been reduced by the costs and expenses related to making this offer. The partnership will not be responsible for paying any of the fees or expenses incurred by us in connection with this offer. The following is an itemized statement of the aggregate estimated expenses incurred and to be incurred in this offer by us: Information Agent Fees...................................... $ 7,500 Legal Fees.................................................. 11,000 Printing Fees............................................... 7,600 Tax and Accounting Fees..................................... 1,500 Postage..................................................... 500 Appraiser................................................... 20,025 Depositary.................................................. 500 ------- Total..................................................... $48,625 =======
--------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION ON BEHALF OF US NOT CONTAINED HEREIN, OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. NEITHER THE COURT NOR COUNSEL FOR THE PARTIES IN THE CLASS AND DERIVATIVE LITIGATION MAKE ANY RECOMMENDATION REGARDING WHETHER YOU SHOULD ACCEPT THIS LITIGATION SETTLEMENT OFFER. YOU ARE INSTEAD ENCOURAGED TO CAREFULLY REVIEW THIS LITIGATION SETTLEMENT OFFER, THE EXECUTIVE SUMMARY OF THE INDEPENDENT APPRAISER'S REPORT (ATTACHED AS ANNEX II) AND ANY OTHER INFORMATION AVAILABLE TO YOU AND TO SEEK ADVICE FROM YOUR INDEPENDENT LAWYER, TAX ADVISOR AND/OR FINANCIAL ADVISOR BEFORE DECIDING WHETHER OR NOT TO ACCEPT THIS LITIGATION SETTLEMENT OFFER. 70 We have filed with the SEC a Tender Offer Statement and Rule 13e-3 Transaction Statement on Schedule TO, pursuant to Sections 13(e)(4), 14(d)(1) and Rule 14d-3 under the Exchange Act, furnishing certain additional information with respect to our offer, and may file amendments thereto. Your partnership has filed with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 pursuant to Section 14(d)(4) and Rule 14d-9 under the Exchange Act, furnishing certain additional information about your partnership's and the general partner's position concerning our offer, and your partnership may file amendments thereto. The Schedules TO and 14D-9 and any amendments to either Schedule, including exhibits, may be inspected and copies may be obtained at the same place and in the same manner as described in "The Litigation Settlement Offer -- Section 15. Certain Information Concerning Your Partnership." The letter of transmittal and any other required documents should be sent or delivered by each limited partner or such limited partner's broker, dealer, bank, trust company or other nominee to the Information Agent at one of its addresses set forth below. THE INFORMATION AGENT FOR THE OFFER IS: THE ALTMAN GROUP, INC. By Mail: By Overnight Courier: By Hand: 1275 Valley Brook Avenue 1275 Valley Brook Avenue 1275 Valley Brook Avenue Lyndhurst, NJ 07071 Lyndhurst, NJ 07071 Lyndhurst, NJ 07071
For information, please call: TOLL FREE: (800) 467-0821 71 ANNEX I OFFICERS AND DIRECTORS The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"); AIMCO-GP, Inc. ("AIMCO-GP") and the general partner of your partnership are set forth below. The directors of AIMCO are also set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The director of the general partner of your partnership is Martha J. Long. The executive officers of the general partner of your partnership are Paul J. McAuliffe and Martha J. Long. Unless otherwise indicated, the business address of each executive officer and director is 4582 South Ulster Parkway, Suite 1100, Denver, Colorado 80237. Each executive officer and director is a citizen of the United States of America.
NAME POSITION - ---- -------- Terry Considine........................... Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................ Vice Chairman, President and Director Harry G. Alcock........................... Executive Vice President and Chief Investment Officer Miles Cortez.............................. Executive Vice President, General Counsel and Secretary Joseph DeTuno............................. Executive Vice President -- Redevelopment Patti K. Fielding......................... Executive Vice President -- Securities and Debt Lance J. Graber........................... Executive Vice President -- AIMCO Capital Paul J. McAuliffe......................... Executive Vice President and Chief Financial Officer Ronald D. Monson.......................... Executive Vice President and Head of Property Operations David Robertson........................... Executive Vice President -- President and Chief Executive Officer of AIMCO Capital Jim Purvis................................ Executive Vice President -- Human Resources Randall J. Fein........................... Executive Vice President -- Student Housing Martha J. Long............................ Senior Vice President James N. Bailey........................... Director Richard S. Ellwood........................ Director J. Landis Martin.......................... Director Thomas L. Rhodes.......................... Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS - ---- --------------------------------------------- Terry Considine........................... Mr. Considine has been Chairman and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. Mr. Considine serves as Chairman of the Board of Directors of American Land Lease, Inc. (formerly Asset Investors Corporation and Commercial Asset Investors, Inc.), another public real estate investment trust. Mr. Considine has been and remains involved as a principal in a variety of other business activities. Peter K. Kompaniez........................ Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President in July 1997. Mr. Kompaniez has also served as Chief Operating Officer of NHP Incorporated, which was acquired by AIMCO in December 1997.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS - ---- --------------------------------------------- Harry G. Alcock........................... Mr. Alcock served as a Vice President of AIMCO from July 1996 to October 1997, when he was promoted to Senior Vice President -- Acquisitions. Mr. Alcock served as Senior Vice President-Acquisitions until October 1999, when he was promoted to Executive Vice President and Chief Investment Officer. Mr. Alcock has held responsibility for AIMCO's acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles-based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisition and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Miles Cortez.............................. Mr. Cortez was appointed Executive Vice President, General Counsel and Secretary in August 2001. Since December 1997, Mr. Cortez has been a founding partner and the senior partner of the law firm of Cortez Macaulay Bernhardt & Schuetze LLC. From August 1993 to November 1997, Mr. Cortez was a partner in the law firm of McKenna & Cuneo, LLP. Mr. Cortez was the President of the Denver Bar Association from 1982-1983; was Chairman of the Ethics Committee of the Colorado Bar Association from 1977-1978, was President of the Colorado Bar Association from 1996-1997, and was a member of the American Bar Association House of Delegates from 1990-1995. Mr. Cortez is a Life Fellow of the Colorado Bar Foundation and American Bar Foundation. Mr. Cortez has been listed in the national publication "The Best Lawyers in America" for business litigation for the past ten years. Joseph DeTuno............................. Mr. DeTuno was appointed Executive Vice President -- Redevelopment of AIMCO in February 2001. Mr. DeTuno has been Senior Vice President -- Property Redevelopment of AIMCO since August 1997. Mr. DeTuno was previously President and founder of JD Associates, his own full service real estate consulting, advisory and project management company that he founded in 1990.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS - ---- --------------------------------------------- Patti K. Fielding......................... Ms. Fielding was appointed Executive Vice President in February 2003. She is responsible for securities and debt financing and treasury department. From January 2000 to February 2003, Ms. Fielding served as Senior Vice President -- Securities and Debt. Ms. Fielding joined the Company in February 1997 and served as Vice President-Tenders, Securities and Debt until January 2002. Prior to joining the Company, Ms. Fielding was a Vice President with Hanover Capital Partners from 1996 to 1997, Vice Chairman, Senior Vice President and Principal of CapSource Funding Corp from 1993 to 1995, and Group Vice President with Duff & Phelps Rating Co. from 1987 to 1993. Lance Graber.............................. Mr. Graber was appointed Executive Vice President -- Acquisitions in October 1999. His principal business function is acquisitions. Prior to joining AIMCO, Mr. Graber was an Associate from 1991 through 1992 and then a Vice President from 1992 through 1994 at Credit Suisse First Boston engaged in real estate financial advisory services and principal investing. He was a Director there from 1994 to May 1999, during which time he supervised a staff of seven in the making of principal investments in hotel, multi-family and assisted living properties. Mr. Graber received a B.S. and an M.B.A. from the Wharton School of the University of Pennsylvania. Paul J. McAuliffe......................... Mr. McAuliffe has been Executive Vice President of AIMCO since February 1999 and was appointed Chief Financial Officer in October 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corporation and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Ronald D. Monson.......................... Mr. Monson was appointed Executive Vice President and Head of Property Operations of AIMCO on February 6, 2001. Mr. Monson has been with AIMCO since 1997 and was promoted to Divisional Vice President in 1998. Prior to joining AIMCO, Mr. Monson worked for 13 years in operations management positions in the lawn care and landscaping industries, principally with True Green/Chemlawn. Mr. Monson received a Bachelor of Science from the University of Minnesota and a Masters in Business Administration from Georgia State University.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS - ---- --------------------------------------------- David Robertson........................... Mr. Robertson was appointed Executive Vice President -- Affordable Properties in February 2002. He is responsible for affordable property operations, refinancing and other value creation within AIMCO's affordable portfolio. Prior to joining AIMCO, Mr. Robertson was a member of the investment-banking group at Smith Barney from 1991 to 1996, where he was responsible for real estate investment banking transactions in the western United States, and was part of the Smith Barney team that managed AIMCO's initial public offering in 1994. Since February 1996, Mr. Robertson has been Chairman and Chief Executive Officer of Robeks Corporation, a privately held chain of specialty food stores. Jim Purvis................................ Mr. Purvis was appointed Executive Vice President in February 2003. He is responsible for AIMCO's Human Resources and People Initiatives. Mr. Purvis has over 20 years of executive strategic human resources experience. Prior to joining AIMCO he was Vice President, HR at SomaLogic, a privately funded biotechnology company. He was a principal in O(3)C Global Organization Solutions, and has held executive human resources and operations management positions in ALCOA (Aluminum Company of America), Texas Air/Eastern Airlines, Starwood/WestinHotels and Resorts, and Tele-Communications (TCI) Technology, Inc. Mr. Purvis holds a BA in communications and modern languages from the University of Notre Dame. Randall J. Fein........................... Mr. Fein was appointed Executive Vice President in October 2003. He is responsible for Student Housing. Prior to joining AIMCO, Mr. Fein was president of the general partner of Texas First L.P. and Income Apartment Investors L.P. Mr. Fein is a 1977 graduate of the University of Texas at Austin. He also received a J.D. from the University of Texas at Austin in 1980. Martha J. Long............................ Martha J. Long has been with AIMCO since October 1998 and served in various capacities. From 1998 to 2001, she served as Senior Vice President and Controller. During 2002 and 2003, she served as Senior Vice President of Continuous Improvement. Most recently, she has been named Chief Executive Officer and General Partner of AIMCO's affiliated partnerships. James N. Bailey........................... Mr. Bailey was appointed a Director of AIMCO in Cambridge Associates, Inc. June 2000. In 1973, Mr. Bailey co-founded 1 Winthrop Square, Cambridge Associates, Inc., which is an Suite 500 investment consulting firm for non-profit Boston, MA 02110 institutions and wealthy family groups. He is also Co-Founder, Treasurer and Director of The Plymouth Rock Company, Direct Response Corporation and Homeowners' Direct Corporation, each of which is a United States personal lines insurance company. He received his M.B.A. and J.D. degrees in 1973 from Harvard Business School and Harvard Law School.
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS - ---- --------------------------------------------- Richard S. Ellwood........................ Mr. Ellwood was appointed a Director of AIMCO in 12 Auldwood Lane July 1994 and is currently Chairman of the Audit Rumson, NJ 07660 Committee and a member of the Compensation Committee. Mr. Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of Felcor Lodging Trust, Incorporated and Florida East Coast Industries, Inc. J. Landis Martin.......................... Mr. Martin was appointed a director of AIMCO in 199 Broadway July 1994 and became Chairman of the Suite 4300 Compensation Committee on March 19, 1998. Mr. Denver, CO 80202 Martin is a member of the Audit Committee. Mr. Martin has served as President and Chief Executive Officer of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation ("Tremont"), a holding company operating though its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc. ("NL"), since 1990 and as Chief Executive Officer and a director of Tremont since 1988. Mr. Martin has served as Chairman of TIMET, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by a predecessor of Halliburton Company ("Halliburton") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET, Mr. Martin is a director of Halliburton, which is engaged in the petroleum services, hydrocarbon and engineering industries, and Crown Castle International Corporation, a communications company. Thomas L. Rhodes.......................... Mr. Rhodes was appointed a Director of AIMCO in 215 Lexington Avenue July 1994 and is a member of the Audit and 4th Floor Compensation Committees. Mr. Rhodes has served New York, NY 10016 as the President and a Director of National Review magazine since November 1992, where he has also served as a Director since 1998. From 1976 to 1992, he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 1992. He is currently Co-Chairman of the Board, Co-Chief Executive Officer and a Director of American Land Lease, Inc. He also serves as a Director of Delphi Financial Group and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company and the Lynde and Harry Bradley Foundation.
I-5 ANNEX II EXECUTIVE SUMMARY OF INDEPENDENT APPRAISER'S REPORT THE ATTACHED EXECUTIVE SUMMARY WAS PREPARED SOLELY BY THE INDEPENDENT APPRAISER, AND NEITHER THE COURT, THE PARTIES IN THE CLASS AND DERIVATIVE LITIGATION NOR COUNSEL FOR SUCH PARTIES PARTICIPATED IN THE PREPARATION OF THE EXECUTIVE SUMMARY. II-1 AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: The Dunes Apartment Homes LOCATION: 201 Harbour City Parkway Indian Harbour Beach, Florida INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: Fee Simple DATE OF VALUE: December 12, 2003 DATE OF REPORT: December 23, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 7.09 acres, or 308,840 square feet Assessor Parcel No.: 27-37-14-01-00003 Floodplain: Community Panel No. 12009C 0464E (April 1, 2001) Flood Zone X, an area outside the floodplain. Zoning: R-3 (Multifamily) BUILDING: No. of Units: 200 Units Total NRA: 171,654 Square Feet Average Unit Size: 858 Square Feet Apartment Density: 28.2 units per acre Year Built: 1964 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ----------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income - ---------------------------------------------------------------------- 1Bdrm/1Ba-1A10 669 $ 530 $ 0.79 $ 44,520 $ 534,240 2Bdrm/1Ba-2A10 938 $ 650 $ 0.69 $ 52,650 $ 631,800 2Bdrm/1.5Ba-2A150 968 $ 675 $ 0.70 $ 4,725 $ 56,700 3Bdrm/2Ba - 3A20 1,168 $ 750 $ 0.64 $ 21,000 $ 252,000 -------- ---------- Total $122,895 $1,474,740 ======== ==========
OCCUPANCY: 94% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 20 Years REMAINING ECONOMIC LIFE: 25 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDING - EXTERIOR - APARTMENT BUILDING LEASING OFFICE AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA NEIGHBORHOOD MAP [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 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit --------------------- ------ ------ Potential Rental Income $1,474,740 $7,374 Effective Gross Income $1,461,761 $7,309 Operating Expenses $795,288 $3,976 54.4% of EGI Net Operating Income: $616,473 $3,082 Capitalization Rate 9.00% DIRECT CAPITALIZATION VALUE $6,800,000 * $34,000 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 11% Stabilized Vacancy & Collection Loss: 8% 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 $6,800,000 * $34,000 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $6,800,000 $34,000 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $21,749 to $32,787 Range of Sales $/Unit (Adjusted) $26,950 to $40,984 VALUE INDICATION - PRICE PER UNIT $6,600,000 * $33,000 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 4.42 to 5.58 Selected EGIM for Subject 4.75 Subject's Projected EGI $1,461,761 EGIM ANALYSIS CONCLUSION $6,900,000 * $34,500 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $6,800,000 * $34,000 / UNIT RECONCILED SALES COMPARISON VALUE $6,700,000 $33,500 / 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 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $ 6,600,000 NOI Per Unit $ 6,800,000 EGIM Multiplier $ 6,900,000 INDICATED VALUE BY SALES COMPARISON $ 6,700,000 $33,500 / UNIT INCOME APPROACH: Direct Capitalization Method: $ 6,800,000 Discounted Cash Flow Method: $ 6,800,000 INDICATED VALUE BY THE INCOME APPROACH $ 6,800,000 $34,000 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $ 6,800,000 $34,000 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Indian Creek Village LOCATION: 10382 Conser Street Overland Park, Kansas 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 8, 2003 DATE OF REPORT: July 9, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 20.64 acres, or 899,078 square feet Assessor Parcel No.: NP34000000 000A; (Assessed Value) Floodplain: Community Panel No. 2001740208F (June 17, 2002) Flood Zone AE, an area inside the floodplain. Zoning: RP-3 (Residential Planned Development District) BUILDING: No. of Units: 273 Units Total NRA: 271,830 Square Feet Average Unit Size: 996 Square Feet Apartment Density: 13.2 units per acre Year Built: 1972 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ------------------------ Monthly Annual Unit Type Feet Per Unit Per SF Income Income - -------------------------------------------------------------------------------------------- 1Br/1Ba 617 $ 560 $0.91 $ 20,160 $ 241,920 1Br/1Ba 878 $ 590 $0.67 $ 82,600 $ 991,200 2Br/1Ba 1,165 $ 860 $0.74 $ 3,440 $ 41,280 2Br/2Ba 1,274 $ 870 $0.68 $ 66,990 $ 803,880 3Br/2Ba 1,287 $ 890 $0.69 $ 8,900 $ 106,800 3Br/2Ba, TH 1,845 $1,000 $0.54 $ 6,000 $ 72,000 Total $188,090 $2,257,080
OCCUPANCY: 88% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 25 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS REMAINING ECONOMIC LIFE: 20 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] ENTRANCE TO SUBJECT VIEW OF LEASING OFFICE AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS NEIGHBORHOOD MAP [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 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS PART TWO - ECONOMIC INDICATORS
Amount $/Unit ------ ------ INCOME CAPITALIZATION APPROACH DIRECT CAPITALIZATION Potential Rental Income $2,257,080 $8,268 Effective Gross Income $2,222,472 $8,141 Operating Expenses $949,234 $3,477 42.7% of EGI Net Operating Income: $1,204,988 $4,414 Capitalization Rate 9.00% DIRECT CAPITALIZATION VALUE $13,400,000 * $49,084 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 15% Stabilized Vacancy & Collection Loss: 10% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 10.00% Discount Rate 11.00% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $13,800,000 * $50,549 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $13,600,000 $49,817 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $51,121 to $69,324 Range of Sales $/Unit (Adjusted) $46,678 to $57,678 VALUE INDICATION - PRICE PER UNIT $13,600,000 * $49,817 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 6.49 to 7.33 Selected EGIM for Subject 6.25 Subject's Projected EGI $2,222,472 EGIM ANALYSIS CONCLUSION $13,900,000 * $50,916 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $13,600,000 * $49,817 / UNIT RECONCILED SALES COMPARISON VALUE $13,700,000 $50,183 / 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 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $13,600,000 NOI Per Unit $13,600,000 EGIM Multiplier $13,900,000 INDICATED VALUE BY SALES COMPARISON $13,700,000 $50,183 / UNIT INCOME APPROACH: Direct Capitalization Method: $13,400,000 Discounted Cash Flow Method: $13,800,000 INDICATED VALUE BY THE INCOME APPROACH $13,600,000 $49,817 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $13,600,000 $49,817 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 THE KNOLLS, COLORADO SPRINGS, COLORADO EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: The Knolls LOCATION: 1510 Gatehouse Circle Colorado Springs, Colorado 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 15, 2003 DATE OF REPORT: June 28, 2003
PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 22.02 acres, or 959,191 square feet Assessor Parcel No.: 7412200058 Floodplain: Community Panel No. 08041C0727F (March 17, 1997) Flood Zone X, an area outside the floodplain. Zoning: R-5 (Multi-Family Residential) BUILDING: No. of Units: 262 Units Total NRA: 242,682 Square Feet Average Unit Size: 926 Square Feet Apartment Density: 11.9 units per acre Year Built: 1974
UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ---------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income - ----------- ------ ---------------- -------- ---------- 1Bd/1Ba 717 $630 $0.88 $ 7,560 $ 90,720 1Bd/1Ba 787 $650 $0.83 $ 40,300 $ 483,600 2Bd/1Ba 950 $675 $0.71 $ 89,100 $1,069,200 2Bd/2Ba 1,012 $800 $0.79 $ 9,600 $ 115,200 2Bd/1.5Ba 1,085 $810 $0.75 $ 35,640 $ 427,680 -------- ---------- Total $182,200 $2,186,400 ======== ==========
OCCUPANCY: 81% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 23 Years REMAINING ECONOMIC LIFE: 22 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 THE KNOLLS, COLORADO SPRINGS, COLORADO SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - APARTMENTS EXTERIOR - LANDSCAPE & PARKING AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 THE KNOLLS, COLORADO SPRINGS, COLORADO NEIGHBORHOOD MAP [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 THE KNOLLS, COLORADO SPRINGS, COLORADO PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit --------------------- ------ ------- Potential Rental Income $2,186,400 $8,345 Effective Gross Income $2,105,264 $8,035 Operating Expenses $686,903 $2,622 32.6% of EGI Net Operating Income: $1,365,961 $5,214 Capitalization Rate 9.00% DIRECT CAPITALIZATION VALUE $14,600,000 * $55,725 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 14% Stabilized Vacancy & Collection Loss: 11.5% Lease-up / Stabilization Period 12 months 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 $14,200,000 * $54,198 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $14,400,000 $54,962 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $41,282 to $85,514 Range of Sales $/Unit (Adjusted) $56,146 to $59,860 VALUE INDICATION - PRICE PER UNIT $14,400,000 * $54,962 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 6.23 to 8.64 Selected EGIM for Subject 7.10 Subject's Projected EGI $2,105,264 EGIM ANALYSIS CONCLUSION $14,400,000 * $54,962 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $15,200,000 * $58,015 / UNIT RECONCILED SALES COMPARISON VALUE $14,500,000 $55,344 / 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 THE KNOLLS, COLORADO SPRINGS, COLORADO PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $ 14,400,000 NOI Per Unit $ 15,200,000 EGIM Multiplier $ 14,400,000 INDICATED VALUE BY SALES COMPARISON $14,500, 000 $55,344 / UNIT INCOME APPROACH: Direct Capitalization Method: $ 14,600,000 Discounted Cash Flow Method: $ 14,200,000 INDICATED VALUE BY THE INCOME APPROACH $ 14,400,000 $54,962 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $ 14,400,000 $54,962 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 THE LOFT, RALEIGH, NORTH CAROLINA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: The Loft LOCATION: 214 Loft Lane Raleigh, North Carolina 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 13, 2003 DATE OF REPORT: June 30, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 22.56 acres, or 982,714 square feet Assessor Parcel No.: 1706575340 Floodplain: Community Panel No. 37183C0331E (March 3, 1992) Flood Zone X, an area outside the floodplain. Zoning: R-10 (Residential-10) BUILDING: No. of Units: 184 Units Total NRA: 205,615 Square Feet Average Unit Size: 1,117 Square Feet Apartment Density: 8.2 units per acre Year Built: 1975 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square -------------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income - -------------------------------------------------------------------------------------------- Terrace - 1Bd/1Ba 800 $649 $0.81 $ 18,172 $ 218,064 Gable - 1Bd/1Ba 1,035 $719 $0.69 $ 27,322 $ 327,864 Pinnacle - 2Bd/1.5Ba 1,045 $749 $0.72 $ 20,972 $ 251,664 Veranda - 2Bd/2Ba 1,250 $767 $0.61 $ 49,855 $ 598,260 Trellis - 3Bd/2Ba 1,335 $929 $0.70 $ 23,225 $ 278,700 ----- -------- ---------- Total $139,546 $1,674,552
OCCUPANCY: 86% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 25 Years REMAINING ECONOMIC LIFE: 20 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 THE LOFT, RALEIGH, NORTH CAROLINA SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [EXTERIOR-PROPERTY SIGN PICTURE] [EXTERIOR-OFFICE PICTURE] AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 THE LOFT, RALEIGH, NORTH CAROLINA NEIGHBORHOOD MAP [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 THE LOFT, RALEIGH, NORTH CAROLINA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit - --------------------- ------ ------ Potential Rental Income $1,674,552 $9,101 Effective Gross Income $1,498,446 $8,144 Operating Expenses $596,562 $3,242 39.8% of EGI Net Operating Income: $855,883 $4,652 Capitalization Rate 9.50% DIRECT CAPITALIZATION VALUE $8,900,000 * $48,370 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 12% Stabilized Vacancy & Collection Loss: 12% Lease-up / Stabilization Period 12 months Terminal Capitalization Rate 10.00% Discount Rate 11.50% Selling Costs 3.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $8,800,000 * $47,826 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $8,800,000 $47,826 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $42,151 to $71,277 Range of Sales $/Unit (Adjusted) $44,057 to $52,040 VALUE INDICATION - PRICE PER UNIT $8,600,000 * $46,739 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 5.28 to 7.54 Selected EGIM for Subject 5.75 Subject's Projected EGI $1,498,446 EGIM ANALYSIS CONCLUSION $8,500,000 * $46,196 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $8,900,000 * $48,370 / UNIT RECONCILED SALES COMPARISON VALUE $8,600,000 $46,739 / 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 THE LOFT, RALEIGH, NORTH CAROLINA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $8,600,000 NOI Per Unit $8,900,000 EGIM Multiplier $8,500,000 INDICATED VALUE BY SALES COMPARISON $8,600,000 $46,739 / UNIT INCOME APPROACH: Direct Capitalization Method: $8,900,000 Discounted Cash Flow Method: $8,800,000 INDICATED VALUE BY THE INCOME APPROACH $8,800,000 $47,826 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $8,800,000 $47,826 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 PALM LAKE, TAMPA, FLORIDA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Palm Lake LOCATION: 13401 North 50th Street Tampa, Florida 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: December 8, 2003 DATE OF REPORT: December 23, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 9.33 acres, or 406,415 square feet Assessor Parcel No.: U-10-28-19-ZZZ-000001-31320 Floodplain: Community Panel No. 120112 0210E (August 15, 1989) Flood Zone C, an area outside the floodplain. Zoning: SPIUC (Special Public Interest University Community) BUILDING: No. of Units: 150 Units Total NRA: 153,700 Square Feet Average Unit Size: 1,025 Square Feet Apartment Density: 16.1 units per acre Year Built: 1974 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square --------------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income - --------------------------------------------------------------------------------------------- 1Br/1Ba 775 $ 525 $ 0.68 $ 12,600 $ 151,200 2Br/1Ba 900 $ 600 $ 0.67 $ 57,000 $ 684,000 4Br/2Ba 1,600 $ 1,000 $ 0.63 $ 31,000 $ 372,000 -------- ---------- Total $100,600 $1,207,200 ======== ==========
OCCUPANCY: 96% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 20 Years REMAINING ECONOMIC LIFE: 25 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 PALM LAKE, TAMPA, FLORIDA SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] APARTMENT COMPLEX ENTRANCE TYPICAL APARTMENT BUILDING - FRONT VIEW AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 PALM LAKE, TAMPA, FLORIDA NEIGHBORHOOD MAP [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 PALM LAKE, TAMPA, FLORIDA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit - --------------------- ---------- ------- Potential Rental Income $1,207,200 $ 8,048 Effective Gross Income $1,164,120 $ 7,761 Operating Expenses $ 642,935 $ 4,286 55.2% of EGI Net Operating Income: $ 446,185 $ 2,975 Capitalization Rate 10.00% DIRECT CAPITALIZATION VALUE $4,500,000 * $30,000 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 15% Stabilized Vacancy & Collection Loss: 15% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 10.50% Discount Rate 12.00% Selling Costs 2.00% Growth Rates: Income 2.50% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $4,400,000 * $29,333 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $4,400,000 $29,333 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $20,128 to $28,620 Range of Sales $/Unit (Adjusted) $25,915 to $29,613 VALUE INDICATION - PRICE PER UNIT $4,100,000 * $27,333 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 3.41 to 4.61 Selected EGIM for Subject 3.70 Subject's Projected EGI $1,164,120 EGIM ANALYSIS CONCLUSION $4,300,000 * $28,667 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $4,200,000 * $28,000 / UNIT RECONCILED SALES COMPARISON VALUE $4,200,000 $28,000 / 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 PALM LAKE, TAMPA, FLORIDA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $4,100,000 NOI Per Unit $4,200,000 EGIM Multiplier $4,300,000 INDICATED VALUE BY SALES COMPARISON $4,200,000 $28,000 / UNIT INCOME APPROACH: Direct Capitalization Method: $4,500,000 Discounted Cash Flow Method: $4,400,000 INDICATED VALUE BY THE INCOME APPROACH $4,400,000 $29,333 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $4,300,000 $28,667 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 PLANTATION GARDENS, PLANTATION, FLORIDA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Plantation Gardens LOCATION: 7616 NW 5th Street Plantation, Florida INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: Fee Simple DATE OF VALUE: December 11, 2003 DATE OF REPORT: December 23, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 20.83 acres, or 907,355 square feet Assessor Parcel No.: 5041-04-06-0010 Floodplain: Community Panel No. 120054 0215F (August 18, 1992) Flood Zone X, an area outside the floodplain. Zoning: PRD - 17Q (Planned Residential Development Multifamily - Density 17 units/acre) BUILDING: No. of Units: 372 Units Total NRA: 326,800 Square Feet Average Unit Size: 878 Square Feet Apartment Density: 17.9 units per acre Year Built: 1971 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square --------------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income - ----------------------------------------------------------------------------- 1Bdrm/1Ba-1A10 750 $ 750 $ 1.00 $ 31,500 $ 378,000 2Bdrm/2Ba-2A20 850 $ 800 $ 0.94 $ 145,600 $1,747,200 2Bdrm/2Ba-2B20 950 $ 850 $ 0.89 $ 125,800 $1,509,600 ---------- ---------- Total $ 302,900 $3,634,800 ========== ==========
OCCUPANCY: 97% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 20 Years REMAINING ECONOMIC LIFE: 25 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 PLANTATION GARDENS, PLANTATION, FLORIDA SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - APARTMENT ENTRANCE EXTERIOR - 4-STORY APARTMENT BUILDING AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 PLANTATION GARDENS, PLANTATION, FLORIDA 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 PLANTATION GARDENS, PLANTATION, FLORIDA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit - --------------------- ------ ------ Potential Rental Income $ 3,634,800 $ 9,771 Effective Gross Income $ 3,557,916 $ 9,564 Operating Expenses $ 1,786,796 $ 4,803 50.2% of EGI Net Operating Income: $ 1,678,120 $ 4,511 Capitalization Rate 8.75% DIRECT CAPITALIZATION VALUE $ 18,900,000 * $50,806 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 10% Stabilized Vacancy & Collection Loss: 8% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 9.25% Discount Rate 11.00% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $ 19,500,000 * $52,419 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $ 19,000,000 $51,075 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $43,710 to $66,667 Range of Sales $/Unit (Adjusted) $49,875 to $55,967 VALUE INDICATION - PRICE PER UNIT $ 19,100,000 * $51,344 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 4.99 to 6.94 Selected EGIM for Subject 5.50 Subject's Projected EGI $ 3,557,916 EGIM ANALYSIS CONCLUSION $ 19,300,000 * $51,882 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $ 19,100,000 * $51,344 / UNIT RECONCILED SALES COMPARISON VALUE $ 19,100,000 $51,344 / 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 PLANTATION GARDENS, PLANTATION, FLORIDA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $ 19,100,000 NOI Per Unit $ 19,100,000 EGIM Multiplier $ 19,300,000 INDICATED VALUE BY SALES COMPARISON $ 19,100,000 $51,344 / UNIT INCOME APPROACH: Direct Capitalization Method: $ 18,900,000 Discounted Cash Flow Method: $ 19,500,000 INDICATED VALUE BY THE INCOME APPROACH $ 19,000,000 $51,075 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $ 19,000,000 $51,075 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 REGENCY OAKS, FERN PARK, FLORIDA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Regency Oaks LOCATION: 200 Maltese Circle Fern Park, Florida 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: December 9, 2003 DATE OF REPORT: December 22, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 20 acres, or 871,200 square feet Assessor Parcel No.: 20-21-30-300-001J-0000; 20-21-30-300-001K-0000 Floodplain: Community Panel No. 12117C 0140 E (April 17, 1995) Flood Zone X, an area outside the floodplain. Zoning: R-3 (Residential Multifamily) BUILDING: No. of Units: 343 Units Total NRA: 342,080 Square Feet Average Unit Size: 997 Square Feet Apartment Density: 17.2 units per acre Year Built: 1969 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ---------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income - ---------------------------------------------------------------- Studio 589 $480 $0.81 $ 15,360 $ 184,320 1Br/1Ba 719 $500 $0.70 $ 46,500 $ 558,000 2Br/1.5Ba 984 $620 $0.63 $ 69,440 $ 833,280 2Br/2Ba 1,061 $630 $0.59 $ 35,910 $ 430,920 2Br/2.5Ba 1,800 $930 $0.52 $ 23,250 $ 279,000 3Br/2Ba 1,320 $840 $0.64 $ 10,080 $ 120,960 3Br/2.5Ba 2,070 $950 $0.46 $ 11,400 $ 136,800 -------- ---------- Total $211,940 $2,543,280 ======== ==========
OCCUPANCY: 92% ECONOMIC LIFE: 45 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 REGENCY OAKS, FERN PARK, FLORIDA EFFECTIVE AGE: 25 Years REMAINING ECONOMIC LIFE: 20 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] APARTMENT BUILDING - FRONT VIEW APARTMENT BUILDING - SIDE VIEW AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 REGENCY OAKS, FERN PARK, FLORIDA NEIGHBORHOOD MAP [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 REGENCY OAKS, FERN PARK, FLORIDA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit - --------------------- ------ ------ Potential Rental Income $2,543,280 $7,415 Effective Gross Income $2,380,470 $6,940 Operating Expenses $1,338,491 $3,902 56.2% of EGI Net Operating Income: $ 870,478 $2,538 Capitalization Rate 9.75% DIRECT CAPITALIZATION VALUE $8,900,000 * $25,948 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 23% Stabilized Vacancy & Collection Loss: 18% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 10.25% Discount Rate 12.00% Selling Costs 2.00% Growth Rates: Income 2.50% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $8,700,000 * $25,364 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $8,800,000 $25,656 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $34,797 to $43,000 Range of Sales $/Unit (Adjusted) $26,268 to $29,861 VALUE INDICATION - PRICE PER UNIT $9,600,000 * $27,988 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 5.30 to 5.84 Selected EGIM for Subject 4.00 Subject's Projected EGI $2,380,470 EGIM ANALYSIS CONCLUSION $9,500,000 * $27,697 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $8,900,000 * $25,948 / UNIT RECONCILED SALES COMPARISON VALUE $9,200,000 $26,822 / 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 REGENCY OAKS, FERN PARK, FLORIDA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $9,600,000 NOI Per Unit $8,900,000 EGIM Multiplier $9,500,000 INDICATED VALUE BY SALES COMPARISON $9,200,000 $26,822 / UNIT INCOME APPROACH: Direct Capitalization Method: $8,900,000 Discounted Cash Flow Method: $8,700,000 INDICATED VALUE BY THE INCOME APPROACH $8,800,000 $25,656 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $8,800,000 $25,656 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 SILVERADO, EL PASO, TEXAS EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Silverado LOCATION: 9300 Viscount Blvd El Paso, Texas 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 11, 2003 DATE OF REPORT: July 2, 2003
PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 10 acres, or 435,600 square feet Assessor Parcel No.: F175-999-0010-4900 Floodplain: Community Panel No. 4802140041B (October 15, 1982) Flood Zone C, an area outside the floodplain. Zoning: A-O (Medium to High Density Apartment District) BUILDING: No. of Units: 248 Units Total NRA: 191,590 Square Feet Average Unit Size: 773 Square Feet Apartment Density: 24.8 units per acre Year Built: 1973
UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square -------------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income - --------------------------------------------------------------------------------------------- 1Br/1Ba - EA10 494 $ 390 $ 0.79 $ 7,800 $ 93,600 1Br/1Ba -1A10 525 $ 410 $ 0.78 $ 24,600 $ 295,200 1Br/1Ba - 1A15 754 $ 470 $ 0.62 $ 16,920 $ 203,040 1 Br/1Ba-1B10 684 $ 460 $ 0.67 $ 18,400 $ 220,800 1 Br/1.5 Ba -1B15 878 $ 520 $ 0.59 $ 4,160 $ 49,920 2Br/1Ba-2A10 979 $ 550 $ 0.56 $ 18,700 $ 224,400 2 Br/1.5Ba -2A15 1,200 $ 640 $ 0.53 $ 7,680 $ 92,160 2 Ba/2 Ba- 2A20 1,028 $ 570 $ 0.55 $ 18,240 $ 218,880 3Br/2Ba -3A20 1,350 $ 650 $ 0.48 $ 3,900 $ 46,800 Total $120,400 $1,444,800
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 SILVERADO, EL PASO, TEXAS OCCUPANCY: 92% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 25 Years REMAINING ECONOMIC LIFE: 20 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] UNIT TYPE FACADE UNIT TYPE AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 SILVERADO, EL PASO, TEXAS NEIGHBORHOOD MAP [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 SILVERADO, EL PASO, TEXAS PART TWO - ECONOMIC INDICATORS
Amount $/Unit ------------ -------------- INCOME CAPITALIZATION APPROACH DIRECT CAPITALIZATION Potential Rental Income $ 1,444,800 $ 5,826 Effective Gross Income $ 1,377,200 $ 5,553 Operating Expenses $ 770,700 $ 3,108 56.0% of EGI Net Operating Income: $ 544,500 $ 2,196 Capitalization Rate 10.00% DIRECT CAPITALIZATION VALUE $ 5,400,000 * $21,774 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 8% Stabilized Vacancy & Collection Loss: 10% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 11.00% Discount Rate 12.50% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $ 5,600,000 * $22,581 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $ 5,600,000 $22,581 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $ 22,837 to $36,222 Range of Sales $/Unit (Adjusted) $ 20,553 to $25,736 VALUE INDICATION - PRICE PER UNIT $ 5,700,000 * $22,984 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 4.33 to 6.84 Selected EGIM for Subject 4.00 Subject's Projected EGI $ 1,377,200 EGIM ANALYSIS CONCLUSION $ 5,500,000 * $22,177 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $ 5,500,000 * $22,177 / UNIT RECONCILED SALES COMPARISON VALUE $ 5,500,000 $22,177 / 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 SILVERADO, EL PASO, TEXAS PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $ 5,700,000 NOI Per Unit $ 5,500,000 EGIM Multiplier $ 5,500,000 INDICATED VALUE BY SALES COMPARISON $ 5,500,000 $22,177 / UNIT INCOME APPROACH: Direct Capitalization Method: $ 5,400,000 Discounted Cash Flow Method: $ 5,600,000 INDICATED VALUE BY THE INCOME APPROACH $ 5,600,000 $22,581 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $ 5,600,000 $22,581 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Sterling Apartment Homes&Sterling Commerce Center LOCATION: 1815 John F. Kennedy Boulevard Philadelphia, Pennsylvania 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 13, 2003 DATE OF REPORT: July 21, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 0.89091 acres, or 38,808 square feet Assessor Parcel No.: 881035000 Floodplain: Community Panel No. #420757-183F (August 2, 1996) Flood Zone X, an area outside the floodplain. Zoning: C5 (Multi-Story Office District) BUILDING: Apartments: No. of Units: 536 Units Total NRA: 486,553 Square Feet Average Unit Size: 908 Square Feet Apartment Density: 601.6 units per acre Year Built: 1960 Commerce Center: Office Area: 85,970 Square Feet Retail Area: 24,022 Square Feet Total Area: 109,992 Square Feet AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ---------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income - --------- ------ -------- ------ -------- ---------- EA10 412 $ 899 $ 2.18 $ 28,768 $ 345,216 EB10 495 $ 949 $ 1.92 $130,013 $1,560,156 1A10 550 $ 1,149 $ 2.09 $ 55,152 $ 661,824 1B10 803 $ 1,379 $ 1.72 $140,658 $1,687,896 1C10 920 $ 1,509 $ 1.64 $ 31,689 $ 380,268 2A20 1,315 $ 1,759 $ 1.34 $218,116 $2,617,392 2B20 1,425 $ 2,109 $ 1.48 $ 67,488 $ 809,856 2C20 1,794 $ 2,449 $ 1.37 $ 12,245 $ 146,940 3A20 1,631 $ 2,229 $ 1.37 $ 53,496 $ 641,952 3B20 1,778 $ 2,359 $ 1.33 $ 18,872 $ 226,464 3C20 2,215 $ 2,499 $ 1.13 $ 4,998 $ 59,976 4A30 2,500 $ 2,459 $ 0.98 $ 2,459 $ 29,508 -------- ---------- Total $763,954 $9,167,448
OCCUPANCY: APARTMENTS: 91% COMMERCE CENTER: 69% (44.4% Office, 88.8% Retail) ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 7 Years REMAINING ECONOMIC LIFE: 38 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - FRONT OF BUILDING EXTERIOR - REAR OF BUILDING AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA AREA MAP [MAP] NEIGHBORHOOD MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA 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 8 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
Amount $/Unit ---------- --------------- DIRECT CAPITALIZATION - APARTMENTS Potential Rental Income $9,167,448 $ 17,103 Effective Gross Income $8,939,001 $ 16,677 Operating Expenses $3,617,390 $ 6,749 40.5% of EGI Net Operating Income: $5,214,411 $ 9,728 Capitalization Rate 8.00% DIRECT CAPITALIZATION VALUE $64,900,000 * $121,082 / UNIT DISCOUNTED CASH FLOW ANALYSIS - APARTMENTS: Holding Period 10 years 2002 Economic Vacancy 10% Stabilized Vacancy & Collection Loss: 6% Lease-up / Stabilization Period 24 months Terminal Capitalization Rate 8.50% Discount Rate 10.50% Selling Costs 2.00% Growth Rates: Income: 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $63,900,000 * $119,216 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $64,500,000 $120,336 / UNIT DISCOUNTED CASH FLOW ANALYSIS - COMMERCE CENTER: Holding Period 10 years 2002 Economic Vacancy 31% Stabilized Vacancy & Collection Loss: 12% Lease-up / Stabilization Period 24 months Terminal Capitalization Rate 9.00% Discount Rate 11.50% Selling Costs 2.00% Growth Rates: Income: 0% in Yr. 2, 3.00% thereafter Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $3,200,000 * $29.09 / SF RECONCILED INCOME APPROACH VALUE $3,200,000 $29.09 / SF
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 9 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $81,984 to $116,175 Range of Sales $/Unit (Adjusted) $116,175 to $125,071 VALUE INDICATION - PRICE PER UNIT $64,000,000 * $119,403 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 5.65 to 9.27 Selected EGIM for Subject 7.50 Subject's Projected EGI $8,939,001 EGIM ANALYSIS CONCLUSION $66,800,000 * $124,627 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $66,700,000 * $124,440 / UNIT RECONCILED SALES COMPARISON VALUE $66,000,000 $123,134 / 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 10 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA PART THREE - SUMMARY OF VALUE CONCLUSIONS STERLING APARTMENT HOMES: SALES COMPARISON APPROACH: Price Per Unit $64,000,000 NOI Per Unit $66,700,000 EGIM Multiplier $66,800,000 INDICATED VALUE BY SALES COMPARISON $66,000,000 $123,134 / UNIT INCOME APPROACH: Direct Capitalization Method: $64,900,000 Discounted Cash Flow Method: $63,900,000 INDICATED VALUE BY INCOME APPROACH $64,500,000 $120,336 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $65,500,000 $122,201 / UNIT STERLING COMMERCE CENTER: INCOME APPROACH: Discounted Cash Flow Method: $ 3,200,000 INDICATED VALUE BY INCOME APPROACH $ 3,200,000 $ 29.09 / SF RECONCILED OVERALL VALUE CONCLUSION: $ 3,200,000 $ 29.09 / SF COMBINED SUBJECT VALUE: $68,700,000
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Tates Creek Village LOCATION: 3051 Kirklevington Drive Lexington, Kentucky 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: November 19, 2003 DATE OF REPORT: February 13, 2004 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 12 acres, or 522,720 square feet Assessor Parcel No.: 1262900 Floodplain: Community Panel No. 210067-0090 C (September 3, 1992) Flood Zone X, an area outside the floodplain. Zoning: R-3 (Planned Neighborhood Residential) BUILDING: No. of Units: 204 Units Total NRA: 194,910 Square Feet Average Unit Size: 955 Square Feet Apartment Density: 17.0 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 - -------------------------------------------------------------------------- 1Br/1Ba - A 640 $520 $0.81 $ 16,640 $ 199,680 1Br/1Ba - B 720 $540 $0.75 $ 24,300 $ 291,600 1Br/1Ba - w/ Large Frt Dr 720 $560 $0.78 $ 3,920 $ 47,040 1Br/1Ba - w/o Large Frt 720 $560 $0.78 $ 560 $ 6,720 1Br/1Ba - B 720 $560 $0.78 $ 17,360 $ 208,320 2Br/1.5 - C 1,200 $700 $0.58 $ 21,700 $ 260,400 3Br/1.5Ba-D 1,250 $720 $0.58 $ 22,320 $ 267,840 3Br/2.5 Ba -E 1,500 $900 $0.60 $ 5,400 $ 64,800 3Br/2.5 Ba -F 1,550 $950 $0.61 $ 17,100 $ 205,200 1Br/1Ba - Efficiency 550 $450 $0.82 $ 900 $ 10,800 ----- ---- ----- -------- ---------- Total $130,200 $1,562,400 ==========================================================================
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY OCCUPANCY: 89% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 30 Years REMAINING ECONOMIC LIFE: 15 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: [SUBJECT PHOTOGRAPHS] [PICTURE] [PICTURE] EXTERIOR EXTERIOR - LANDSCAPE AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY NEIGHBORHOOD MAP [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 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
Amount $/Unit ------ ------ DIRECT CAPITALIZATION Potential Rental Income $1,562,400 $7,659 Effective Gross Income $1,461,240 $7,163 Operating Expenses $726,882 $3,563 49.7% of EGI Net Operating Income: $673,158 $3,300 Capitalization Rate 10.50% DIRECT CAPITALIZATION VALUE $6,400,000 * $31,373 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 14% Stabilized Vacancy & Collection Loss: 10% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 11.50% Discount Rate 12.50% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $6,800,000 * $33,333 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $6,500,000 $31,863 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $26,180 to $50,702 Range of Sales $/Unit (Adjusted) $26,180 to $34,653 VALUE INDICATION - PRICE PER UNIT $6,600,000 * $32,353 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 4.41 to 8.11 Selected EGIM for Subject 4.25 Subject's Projected EGI $ 1,461,240 EGIM ANALYSIS CONCLUSION $6,200,000 * $30 ,392 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $6,500,000 * $31,863 / UNIT RECONCILED SALES COMPARISON VALUE $6,500,000 * $31,863 / 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 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $6,600,000 NOI Per Unit $6,500,000 EGIM Multiplier $6,200,000 INDICATED VALUE BY SALES COMPARISON $6,500,000 $31,863 / UNIT INCOME APPROACH: Direct Capitalization Method: $6,400,000 Discounted Cash Flow Method: $6,800,000 INDICATED VALUE BY THE INCOME APPROACH $6,500,000 $31,863 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $6,500,000 $31,863 / UNIT
Questions and requests for assistance or for additional copies of this Litigation Settlement Offer and the letter of transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the offer. The Information Agent for offer is: THE ALTMAN GROUP, INC. By Mail: P.O. Box 238 Lyndhurst, NJ 07071 By Overnight Courier: 1275 Valley Brook Avenue Lyndhurst, NJ 07071 By Hand: 1275 Valley Brook Avenue Lyndhurst, NJ 07071 For information, please call: By Telephone: TOLL FREE: (800) 467-0821 By Fax: (201) 460-0050 EX-99.(A)(2) 4 d07253exv99wxayx2y.txt LETTER OF TRANSMITTAL (AIMCO) LETTER OF TRANSMITTAL TO TENDER UNITS OF LIMITED PARTNERSHIP INTEREST IN CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES (THE "PARTNERSHIP") PURSUANT TO A LITIGATION SETTLEMENT OFFER DATED FEBRUARY 20, 2004 BY AIMCO PROPERTIES, L.P. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT MIDNIGHT, NEW YORK CITY TIME, ON MARCH 22, 2004, UNLESS EXTENDED (THE "EXPIRATION DATE") THE OFFER PRICE IS $239.13 PER UNIT - -------------------------------------------------------------------------------- IF YOU HAVE THE CERTIFICATE ORIGINALLY ISSUED TO REPRESENT YOUR INTEREST IN THE PARTNERSHIP PLEASE SEND IT TO THE INFORMATION AGENT WITH THIS LETTER OF TRANSMITTAL The Information Agent for the offer is: THE ALTMAN GROUP, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 238 1275 Valley Brook Avenue 1275 Valley Brook Avenue Lyndhurst, NJ 07071 Lyndhurst, NJ 07071 Lyndhurst, NJ 07071 By Telephone: TOLL FREE (800) 467-0821 By Fax: (201) 460-0050
To participate in the offer, you must send a duly executed copy of this Letter of Transmittal and any other documents required by this Letter of Transmittal so that such documents are received by The Altman Group, Inc., the Information Agent, on or prior to the Expiration Date. THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT YOUR OPTION AND RISK, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. DELIVERY OF THIS LETTER OF TRANSMITTAL OR ANY OTHER REQUIRED DOCUMENTS TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE VALID DELIVERY. FOR INFORMATION OR ASSISTANCE IN CONNECTION WITH THE OFFER OR THE COMPLETION OF THIS LETTER OF TRANSMITTAL, PLEASE CONTACT THE INFORMATION AGENT AT (800) 467-0821 (TOLL FREE). THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. WHEN TENDERING, YOU MUST SEND ALL PAGES OF THIS LETTER OF TRANSMITTAL, INCLUDING TAX CERTIFICATIONS (BOXES A AND B).
- ------------------------------------------------------------------------------------------------------------------- DESCRIPTION OF UNITS TENDERED - ------------------------------------------------------------------------------------------------------------------- NAME(S), ADDRESS(ES), NUMBER OF UNITS OWNED AND TAX IDENTIFICATION NUMBER OF REGISTERED HOLDER(S). (PLEASE INDICATE CHANGES OR CORRECTIONS TO THE NAME, ADDRESS, TOTAL NUMBER OF UNITS TENDERED NUMBER OF UNITS OWNED AND TAX IDENTIFICATION NUMBER PRINTED BELOW.) (#) - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 2, 4 AND 8) To be completed ONLY if the consideration for the purchase price of Units accepted for payment is to be issued in the name of someone other than the undersigned. [ ] Issue consideration to: Name: - -------------------------------------------------------------------------------- (Please Type or Print) Address: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Include Zip Code) - -------------------------------------------------------------------------------- (Tax Identification or Social Security No.) (See Substitute Form W-9) SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 2, 4 AND 8) To be completed ONLY if the consideration for the purchase price of Units accepted for payment is to be sent to someone other than the undersigned or to the undersigned at an address other than that shown above. [ ] Mail Consideration to: Name: - -------------------------------------------------------------------------------- (Please Type or Print) Address: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Include Zip Code) NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY. 2 Ladies and Gentlemen: The undersigned hereto hereby acknowledges that he or she has received (i) the Purchaser's Litigation Settlement Offer, dated the date set forth above (the "Offer Date"), relating to the offer by AIMCO Properties, L.P. (the "Purchaser") to purchase Limited Partnership Interests (the "Units") in the Partnership and (ii) this Letter of Transmittal and the Instructions hereto, as each may be supplemented or amended from time to time (collectively, the "Offer"). NEITHER THE COURT NOR COUNSEL FOR THE PARTIES IN THE CLASS AND DERIVATIVE LITIGATION MAKE ANY RECOMMENDATION REGARDING WHETHER YOU SHOULD ACCEPT THE OFFER. YOU ARE ENCOURAGED TO CAREFULLY REVIEW THE LITIGATION SETTLEMENT OFFER, THE EXECUTIVE SUMMARY OF THE INDEPENDENT APPRAISER'S REPORT (ATTACHED AS ANNEX II TO THE LITIGATION SETTLEMENT OFFER) AND ANY OTHER INFORMATION AVAILABLE TO YOU AND TO SEEK ADVICE FROM YOUR INDEPENDENT LAWYER, TAX ADVISOR AND/OR FINANCIAL ADVISOR BEFORE DECIDING WHETHER OR NOT TO ACCEPT THE LITIGATION SETTLEMENT OFFER. Upon the terms and subject to the conditions set forth in the Litigation Settlement Offer, and this Letter of Transmittal, the undersigned hereto hereby tenders to the Purchaser the Units set forth in the box above entitled "Description of Units Tendered," including all interests in any limited partnership represented by such units (collectively, the "Units"), at the price indicated on the Offer and any supplement thereto, less the amount of distributions, if any, made by the Partnership from the Offer Date until the Expiration Date (the "Offer Price"), net to the undersigned in cash, without interest. By executing this Letter of Transmittal, the undersigned hereby acknowledges that neither the court nor counsel for the parties in the class and derivative litigation make any recommendation regarding whether the undersigned should accept the Offer, and the undersigned hereto represents and warrants to the Purchaser that the undersigned (i) has received the Offer, including the executive summary of the independent appraiser's report attached to the Litigation Settlement Offer, (ii) has had the opportunity to seek the advice of such undersigned's attorney, tax advisor and/or financial advisor before deciding whether or not to accept the Offer. Subject to and effective upon acceptance for payment of any of the Units tendered hereby in accordance with the terms of the Offer, the undersigned hereto hereby irrevocably sells, assigns, transfers, conveys and delivers to, or upon the order of, the Purchaser all right, title and interest in and to such Units tendered hereby that are accepted for payment pursuant to the Offer, including, without limitation, (i) all of the undersigned's interest in the capital of the Partnership, and the undersigned's interest in all profits, losses and distributions of any kind to which the undersigned shall at any time be entitled in respect of the Units, including, without limitation, distributions in the ordinary course, distributions from sales of assets, distributions upon liquidation, winding-up, or dissolution, payments in settlement of existing or future litigation, and all other distributions and payments from and after the Expiration Date of the Offer, in respect of the Units tendered by the undersigned and accepted for payment and thereby purchased by the Purchaser; (ii) all other payments, if any, due or to become due to the undersigned in respect of the Units, under or arising out of the agreement and certificate of limited partnership of the Partnership (the "Partnership Agreement"), or any agreement pursuant to which the Units were sold (the "Purchase Agreement"), whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of the undersigned's claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of the Partnership Agreement or Purchase Agreement or the undersigned's ownership of the Units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of the Partnership; and (iv) all present and future claims, if any, of the undersigned whether on behalf of the Partnership, individually or on behalf of a putative class (including without limitation any claims against limited partners of the Partnership, the general partner(s) and/or any affiliates thereof) under, arising out of or related to the Partnership Agreement, the Purchase Agreement, the undersigned's status as a limited partner, the terms or conditions of the Offer, the management of the Partnership, monies loaned or advanced, services rendered to the partnership or its partners, or any other claims arising out of or related to the undersigned's ownership of Units in the Partnership. 3 The undersigned hereto, on behalf of himself or herself, his or her heirs, estate, executor, administrator, successors and assigns, and the Partnership, fully, finally and forever releases, relinquishes and discharges the Purchaser and its predecessors, successors and assigns and its present and former parents, subsidiaries, affiliates, investors, insurers, reinsurers, officers, directors, employees, agents, administrators, auditors, attorneys, accountants, information and solicitation agents, investment bankers, and other representatives, including but not limited to Apartment Investment and Management Company and the general partner of the Partnership (collectively, the "Releasees"), from any and all claims and causes of action, whether brought individually, on behalf of a class, or derivatively, demands, rights, or liabilities, including, but not limited to, claims for negligence, gross negligence, professional negligence, breach of duty of care or loyalty, or breach of duty of candor, fraud, breach of fiduciary duty, mismanagement, corporate waste, malpractice, misrepresentation, whether intentional or negligent, misstatements and omissions to disclose, breach of contract, violations of any state or federal statutes, rules or regulations, whether known claims or unknown claims that have been asserted or that could have been asserted against the Releasees, that arise out of or relate to (a) those matters and claims set forth in the class and derivative litigation described in the Litigation Settlement Offer, (b) the ownership of one or more Units in the Partnership, including but not limited to, any and all claims related to the management of the Partnership or the properties owned by the Partnership (whether currently or previously), the payment of management fees or other monies to the general partner of the Partnership and its affiliates, prior acquisitions or tender offers and the prior settlement, (c) the purchase, acquisition, holding, sale, tender or voting of one or more Units in the Partnership, or (d) any of the facts, circumstances, allegations, claims, causes of action, representations, statements, reports, disclosures, transactions, events, occurrences, acts, omissions or failures to act, of whatever kind or character whatsoever, irrespective of the state of mind of the actor performing or omitting to perform the same, that have been or could have been alleged in any pleadings, amended pleading, argument, complaint, amended complaint, brief, motion, report or filing in the class and derivative litigation described in the Litigation Settlement Offer (collectively, the "Released Claims"); provided, however, that the Released Claims are not intended to include (i) any unrelated claims that are unique to a unitholder or settlement class member (e.g., a settlement class member slips and falls on property owned by one of the defendants in the class and derivative litigation, loses or did not receive a distribution check distributed to other limited partners in such partnership, or is an employee of one of the defendants and has an employee related claim), or (ii) any claim based on violations of federal or state securities laws in connection with the Offer. The undersigned hereto expressly waives and relinquishes, to the fullest extent permitted by law and consistent with the releases contained herein, the provisions, rights and benefits of Section 1542 of the Civil Code of California ("Section 1542"), which provides: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. The undersigned hereto waives any and all provisions, rights and benefits conferred by any law of any state or territory of the United States, or principle of common law, that is similar, comparable or equivalent to Section 1542. The undersigned acknowledges and agrees that it may hereafter discover facts in addition to or different from those which it now knows or believes to be true with respect to the subject matter of the Released Claims, but the undersigned shall be deemed to have fully, finally and forever settled and released any and all Released Claims, known or unknown, suspected or unsuspected, contingent or non-contingent, that now exist or heretofore have existed upon any theory of law or equity now existing, including, but not limited to, conduct that is negligent, intentional, with or without malice, or a breach of any duty, law or rule, without regard to the subsequent discovery of the existence of such different or additional facts. The undersigned hereto agrees that the releases contained herein is intended to include the Released Claims, which the undersigned may have and which the undersigned does not know or suspect to exist in its favor against the Releasees and that the releases contained herein extinguishes those claims. The 4 undersigned hereto represents and warrants to the Releasees that the undersigned has been advised by its attorney of the effect and import of the provisions of Section 1542, and that the undersigned has not assigned or otherwise transferred or subrogated any interest in the Released Claims. Subject to and effective upon acceptance for payment of any Unit tendered hereby in accordance with the terms of the Offer, the signatory agrees not to bring any action, claim, suit or proceeding against the Purchaser and its affiliates who were defendants in the class and derivative litigation described in the Litigation Settlement Offer concerning any of the matters that are the subject of the Stipulation of Settlement approved by the Court in connection with the settlement of such class and derivative litigation, including the making of the Offer, other than for violations of federal or state securities laws. The undersigned hereto irrevocably appoints the Purchaser and its designees as his or her proxy, each with full power of substitution, to the fullest extent of the undersigned's rights with respect to the Units tendered by him or her and accepted for payment by the Purchaser. Such proxy shall be considered coupled with an interest in the tendered Units. Such appointment will be effective upon receipt of this Letter of Transmittal. Upon receipt of this Letter of Transmittal, all prior proxies and consents given by undersigned hereto with respect to the Units will, without further action, be revoked, and no subsequent proxies or consents may be given (and if given will not be effective). The Purchaser and its designees are, as to those Units, empowered to exercise all voting rights as a limited partner as the Purchaser, in its discretion, may deem proper at any meeting of limited partners, by written consent or otherwise. The Purchaser reserves the right to require that, in order for Units to be deemed validly tendered, immediately upon our acceptance for payment of the Units, the Purchaser must be able to exercise full voting rights with respect to the Units, including voting at any meeting of limited partners then scheduled or acting by written consent without a meeting. By executing this Letter of Transmittal, the undersigned agrees to execute all such documents and take such other actions as shall be reasonably required to enable the Units tendered to be voted in accordance with the Purchaser's directions. The proxy granted by the undersigned hereto to the Purchaser will remain effective and be irrevocable for a period of ten years following the Expiration Date of the Offer. The undersigned hereto hereby irrevocably constitutes and appoints the Purchaser and any designees of the Purchaser as the true and lawful agent and attorney-in-fact of the undersigned with respect to such Units, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to do all such acts and things necessary or expedient to deliver such Units and transfer ownership of such Units on the partnership books maintained by the general partner of the Partnership, together with all accompanying evidence of transfer and authenticity to, or upon the order of, the Purchaser, to sign any and all documents necessary to authorize the transfer of the Units to the Purchaser including, without limitation, the "Transferor's (Seller's) Application for Transfer" created by the National Association of Securities Dealers, Inc., if required, and upon receipt by the Information Agent (as the undersigned's agent) of the Offer Price, to become a substitute limited partner, to receive any and all distributions made or declared by the Partnership from and after the Expiration Date of the Offer (regardless of the record date for any such distribution), and to receive all benefits and otherwise exercise all rights of beneficial ownership of such Units, all in accordance with the terms of the Offer. This appointment is effective upon purchase of the Units by the Purchaser and will remain effective and be irrevocable for a period of ten years following the Expiration Date of the Offer. Upon purchase of the Units pursuant to the Offer, all prior powers of attorney given by the undersigned hereto with respect to such Units will be revoked and no subsequent powers of attorney may be given (and if given will not be deemed effective). In addition to and without limiting the generality of the foregoing, the undersigned hereto hereby irrevocably (i) requests and authorizes (subject to and effective upon acceptance for payment of any Unit tendered hereby) the Partnership and its general partner to take any and all actions as may be required to effect the transfer of the undersigned's Units to the Purchaser (or its designee) and to admit the Purchaser as a substitute limited partner in the Partnership under the terms of the Partnership Agreement; (ii) empowers the Purchaser and its agent to execute and deliver to the general partner a change of address form instructing the general partner to send any and all future distributions to the address specified 5 in the form, and to endorse any check payable to or upon the order of such unitholder representing a distribution to which the Purchaser is entitled pursuant to the terms of the Offer, in each case, in the name and on behalf of the tendering unitholder; (iii) agrees not to exercise any rights pertaining to the Units without the prior consent of the Purchaser; and (iv) requests and consents to the transfer of the Units, to be effective on the books and records of the Partnership as of the effective date set forth in the Offer. NOTWITHSTANDING ANY PROVISION IN THE PARTNERSHIP AGREEMENT OR ANY PURCHASE AGREEMENT TO THE CONTRARY, THE UNDERSIGNED HERETO HEREBY DIRECTS THE GENERAL PARTNER OF THE PARTNERSHIP TO MAKE ALL DISTRIBUTIONS AFTER THE PURCHASER ACCEPTS THE TENDERED UNITS FOR PAYMENT TO THE PURCHASER OR ITS DESIGNEE. Subject to and effective upon acceptance for payment of any Unit tendered hereby, the UNDERSIGNED hereby requests that the Purchaser be admitted to the Partnership as a substitute limited partner under the terms of the Partnership Agreement. Upon request, the undersigned will execute and deliver additional documents deemed by the Information Agent or the Purchaser to be necessary or desirable to complete the assignment, transfer and purchase of Units tendered hereby and will hold any distributions received from the Partnership after the Expiration Date in trust for the benefit of the Purchaser and, if necessary, will promptly forward to the Purchaser any such distributions immediately upon receipt. The Purchaser reserves the right to transfer or assign, in whole or in part, from time to time, to one or more of its affiliates, the right to purchase Units tendered pursuant to the Offer, but any such transfer or assignment will not relieve the Purchaser of its obligations under the Offer or prejudice the rights of tendering unitholders to receive payment for Units validly tendered and accepted for payment pursuant to the Offer. By executing this Letter of Transmittal, the undersigned hereto represents that either (i) the undersigned is not a plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"), or an entity deemed to hold "plan assets" within the meaning of 29 C.F.R. Section 2510.3-101 of any such plan, or (ii) the tender and acceptance of Units pursuant to the Offer will not result in a nonexempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code. The undersigned hereto understands that a tender of Units to the Purchaser will constitute a binding agreement between the undersigned and the Purchaser upon the terms and subject to the conditions of the Offer. The undersigned recognizes that under certain circumstances set forth in the Offer, the Purchaser may not be required to accept for payment any or all of the Units tendered hereby. In such event, the undersigned understands that any Letter of Transmittal for Units not accepted for payment may be returned to the undersigned or destroyed by the Purchaser (or its agent). THIS TENDER IS IRREVOCABLE, EXCEPT THAT UNITS TENDERED PURSUANT TO THE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE, OR UNLESS ALREADY ACCEPTED FOR PAYMENT, ANY TIME AFTER 60 DAYS FROM THE OFFER DATE. THE UNDERSIGNED HAS BEEN ADVISED THAT THE PURCHASER IS AN AFFILIATE OF THE GENERAL PARTNER OF THE PARTNERSHIP. THE UNDERSIGNED HERETO HAS MADE HIS OR HER OWN DECISION TO TENDER UNITS. The undersigned hereto hereby represents and warrants for the benefit of the Partnership and the Purchaser that the undersigned owns the Units tendered hereby and has full power and authority and has taken all necessary action to validly tender, sell, assign, transfer, convey and deliver the Units tendered hereby and that when the same are accepted for payment by the Purchaser, the Purchaser will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to the sale or transfer thereof, and such Units will not be subject to any adverse claims and that the transfer and assignment contemplated herein are in compliance with all applicable laws and regulations. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned hereto, and any obligations of the undersigned shall be binding upon the heirs, personal representatives, trustees in bankruptcy, legal representatives, and successors and assigns of the undersigned. The undersigned hereto further represents and warrants that, to the extent a certificate evidencing the Units tendered hereby (the "original certificate") is not delivered by the undersigned together with this 6 Letter of Transmittal, (i) the undersigned represents and warrants to the Purchaser that the undersigned has not sold, transferred, conveyed, assigned, pledged, deposited or otherwise disposed of any portion of the Units, (ii) the undersigned has caused a diligent search of its records to be taken and has been unable to locate the original certificate, (iii) if the undersigned shall find or recover the original certificate evidencing the Units, the undersigned will immediately and without consideration surrender it to the Purchaser; and (iv) the undersigned shall at all times indemnify, defend, and save harmless the Purchaser and the Partnership, its successors, and its assigns from and against any and all claims, actions, and suits whether groundless or otherwise, and from and against any and all liabilities, losses, damages, judgments, costs, charges, counsel fees, and other expenses of every nature and character by reason of honoring or refusing to honor the original certificate when presented by or on behalf of a holder in due course of a holder appearing to or believed by the partnership to be such, or by issuance or delivery of a replacement certificate, or the making of any payment, delivery, or credit in respect of the original certificate without surrender thereof, or in respect of the replacement certificate. 7 IMPORTANT: WHEN TENDERING, YOU MUST SEND ALL PAGES OF THIS LETTER OF TRANSMITTAL, INCLUDING TAX CERTIFICATIONS ON NEXT PAGE. SIGNATURE BOX (SEE INSTRUCTION 2) - -------------------------------------------------------------------------------- Please sign exactly as your name is printed on the front of this Letter of Transmittal. For joint owners, each joint owner must sign. (See Instruction 2). The undersigned hereto hereby represents, warrants and agrees as set forth in this Letter of Transmittal and tenders the Units indicated in this Letter of Transmittal to the Purchaser pursuant to the terms of the Offer, and certifies under penalties of perjury that the statements in Box A and Box B are true. The Internal Revenue Service does not require your consent to any provision of this document other than the certifications required to avoid backup withholding. X - -------------------------------------------------------------------------------- (Signature of Owner) X - -------------------------------------------------------------------------------- (Signature of Joint Owner) Name and Capacity (if other than individuals): - -------------------------------------------------------------------------------- Title: - -------------------------------------------------------------------------------- Address: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (City) (State) (Zip) Area Code and Telephone No. (Day): - -------------------------------------------------------------------------------- (Evening): - -------------------------------------------------------------------------------- SIGNATURE GUARANTEE (IF REQUIRED) (SEE INSTRUCTION 2) - -------------------------------------------------------------------------------- YOU DO NOT NEED TO HAVE YOUR SIGNATURE GUARANTEED UNLESS YOU ARE A TRUSTEE, EXECUTOR, ADMINISTRATOR, GUARDIAN, ATTORNEY-IN-FACT, OFFICER OF A CORPORATION OR OTHER PERSON ACTING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY. Name and Address of Eligible Institution: - -------------------------------------------------------------------------------- Authorized Signature: X - -------------------------------------------------------------------------------- Name: - -------------------------------------------------------------------------------- Title: --------------- Date: -------------------- 8 TAX CERTIFICATIONS (SEE INSTRUCTION 5) By signing this Letter of Transmittal in the Signature Box, the unitholder certifies as true under penalties of perjury, the representations in Boxes A and B below. Please refer to the attached Instructions for completing this Letter of Transmittal and Boxes A and B below. - -------------------------------------------------------------------------------- BOX A SUBSTITUTE FORM W-9 (SEE INSTRUCTION 5 -- BOX A) - -------------------------------------------------------------------------------- The unitholder hereby certifies the following to the Purchaser under penalties of perjury: (i) The Taxpayer Identification No. ("TIN") printed (or corrected) on the front of this Letter of Transmittal is the correct TIN of the unitholder, unless the Units are held in an Individual Retirement Account ("IRA"); or if this box [ ] is checked, the unitholder has applied for a TIN. If the unitholder has applied for a TIN, a TIN has not been issued to the unitholder, and either (a) the unitholder has mailed or delivered an application to receive a TIN to the appropriate IRS Center or Social Security Administration Office, or (b) the unitholder intends to mail or deliver an application in the near future (it being understood that if the unitholder does not provide a TIN to the Purchaser, a portion of all reportable payments made to the unitholder will be withheld); and (ii) Unless this box [ ] is checked, the unitholder is not subject to backup withholding either because the unitholder: (a) is exempt from backup withholding; (b) has not been notified by the IRS that the unitholder is subject to backup withholding as a result of a failure to report all interest or dividends; or (c) has been notified by the IRS that such unitholder is no longer subject to backup withholding. Note: Place an "X" in the box in (ii) above, only if you are unable to certify that the unitholder is not subject to backup withholding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- BOX B FIRPTA AFFIDAVIT (SEE INSTRUCTION 5 -- BOX B) - -------------------------------------------------------------------------------- Under Section 1445(e)(5) of the Internal Revenue Code and Treas. Reg. 1.1445-11T(d), a transferee must withhold tax equal to 10% of the amount realized with respect to certain transfers of an interest in a partnership if 50% or more of the value of its gross assets consists of U.S. real property interests and 90% or more of the value of its gross assets consists of U.S. real property interests plus cash equivalents, and the holder of the partnership interest is a foreign person. To inform the Purchaser that no withholding is required with respect to the unitholder's Units in the Partnership, the person signing this Letter of Transmittal hereby certifies the following under penalties of perjury: (i) Unless this box [ ] is checked, the unitholder, if an individual, is a U.S. citizen or a resident alien for purposes of U.S. income taxation, and if other than an individual, is not a foreign corporation, foreign partnership, foreign estate or foreign trust (as those terms are defined in the Internal Revenue Code and Income Tax Regulations); (ii) The unitholder's U.S. social security number (for individuals) or employer identification number (for non-individuals) is correct as furnished in the blank provided for that purpose on the front of this Letter of Transmittal; (iii) The unitholder's home address (for individuals), or office address (for non-individuals), is correctly printed (or corrected) on the front of this Letter of Transmittal. The person signing this Letter of Transmittal understands that this certification may be disclosed to the IRS by the Purchaser and that any false statements contained herein could be punished by fine, imprisonment, or both. - -------------------------------------------------------------------------------- 9 INSTRUCTIONS FOR COMPLETING LETTER OF TRANSMITTAL 1. REQUIREMENTS OF TENDER. To be effective, a duly completed and signed Letter of Transmittal (or facsimile thereof) and any other required documents must be received by the Information Agent at one of its addresses (or its facsimile number) set forth herein on or before the date and time of the Expiration Date, unless extended. To ensure receipt of the Letter of Transmittal and any other required documents, it is suggested that you use overnight courier delivery or, if the Letter of Transmittal and any other required documents are to be delivered by United States mail, that you use certified or registered mail, return receipt requested. Our records indicate that you own the number of Units set forth in the box above entitled "Description of Units Tendered" under the column entitled "Name(s), Address(es), Number of Units Owned and Tax Identification Number of Registered Holder(s)." If you would like to tender only a portion of your Units, please so indicate in the space provided in the box above entitled "Description of Units Tendered." WHEN TENDERING, YOU MUST SEND ALL PAGES OF THE LETTER OF TRANSMITTAL, INCLUDING TAX CERTIFICATIONS (BOXES A AND B). THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING UNITHOLDER AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. 2. SIGNATURE REQUIREMENTS. INDIVIDUAL AND JOINT OWNERS. After carefully reading and completing the Letter of Transmittal, to tender Units, unitholders must sign at the "X" in the Signature Box of the Letter of Transmittal. The signature(s) must correspond exactly with the names printed (or corrected) on the front of the Letter of Transmittal. NO SIGNATURE GUARANTEE ON THE LETTER OF TRANSMITTAL IS REQUIRED IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE UNITHOLDER (OR BENEFICIAL OWNER IN THE CASE OF AN IRA). If any tendered Units are registered in the names of two or more joint owners, all such owners must sign this Letter of Transmittal. IRAS/ELIGIBLE INSTITUTIONS. For Units held in an IRA account, the beneficial owner should sign in the Signature Box and no signature guarantee is required. Similarly, no signature guarantee is required if Units are tendered for the account of a member firm of a registered national security exchange, a member firm of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"). TRUSTEES, CORPORATIONS, PARTNERSHIP AND FIDUCIARIES. Trustees, executors, administrators, guardians, attorneys-in-fact, officers of a corporation, authorized partners of a partnership or other persons acting in a fiduciary or representative capacity must sign at the "X" in the Signature Box and have their signatures guaranteed by an Eligible Institution by completing the signature guarantee set forth in the Signature Box of the Letter of Transmittal. If the Letter of Transmittal is signed by trustees, administrators, guardians, attorneys-in-fact, officers of a corporation, authorized partners of a partnership or others acting in a fiduciary or representative capacity, such persons should, in addition to having their signatures guaranteed, indicate their title in the Signature Box and must submit proper evidence satisfactory to the Purchaser of their authority to so act (see Instruction 3 below). 3. DOCUMENTATION REQUIREMENTS. In addition to the information required to be completed on the Letter of Transmittal, additional documentation may be required by the Purchaser under certain circumstances including, but not limited to, those listed below. Questions 10 on documentation should be directed to the Information Agent at its telephone number set forth herein. DECEASED OWNER (JOINT TENANT) -- Copy of death certificate. DECEASED OWNER (OTHERS) -- Copy of death certificate (see also Executor/ Administrator/Guardian below). EXECUTOR/ADMINISTRATOR/GUARDIAN -- Copy of court appointment documents for executor or administrator; and (a) a copy of applicable provisions of the will (title page, executor(s)' powers, asset distribution); or (b) estate distribution documents. ATTORNEY-IN-FACT -- Current power of attorney. CORPORATION/PARTNERSHIP -- Corporate resolution(s) or other evidence of authority to act. Partnership should furnish a copy of the partnership agreement. TRUST/PENSION PLANS -- Unless the trustee(s) are named in the registration, a copy of the cover page of the trust or pension plan, along with a copy of the section(s) setting forth names and powers of trustee(s) and any amendments to such sections or appointment of successor trustee(s).
4. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If consideration is to be issued in the name of a person other than the person signing the Signature Box of the Letter of Transmittal or if consideration is to be sent to someone other than such signer or to an address other than that set forth on the Letter of Transmittal in the box entitled "Description of Units Tendered," the appropriate boxes on the Letter of Transmittal should be completed. 5. TAX CERTIFICATIONS. The unitholder(s) tendering Units to the Purchaser pursuant to the Offer must furnish the Purchaser with the unitholder(s)' taxpayer identification number ("TIN") and certify as true, under penalties of perjury, the representations in Box A and Box B. By signing the Signature Box, the unitholder(s) certifies that the TIN as printed (or corrected) on this Letter of Transmittal in the box entitled "Description of Units Tendered" and the representations made in Box A and Box B are correct. See attached Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for guidance in determining the proper TIN to give the Purchaser. U.S. PERSONS. A unitholder that is a U.S. citizen or a resident alien individual, a domestic corporation, a domestic partnership, a domestic trust or a domestic estate (collectively, "U.S. Persons"), as those terms are defined in the Code, should follow the instructions below with respect to certifying Box A and Box B. BOX A -- SUBSTITUTE FORM W-9. PART (i), TAXPAYER IDENTIFICATION NUMBER. Tendering unitholders must certify to the Purchaser that the TIN as printed (or corrected) on this Letter of Transmittal in the box entitled "Description of Units Tendered" is correct. If a correct TIN is not provided, penalties may be imposed by the Internal Revenue Service (the "IRS"), in addition to the unitholder being subject to backup withholding. PART (ii), BACKUP WITHHOLDING. In order to avoid Federal income tax backup withholding, the tendering unitholder must certify, under penalty of perjury, that such unitholder is not subject to backup withholding. Certain unitholders (including, among others, all corporations and certain exempt non-profit organizations) are not subject to backup withholding. Backup withholding is not an additional tax. If withholding results in an overpayment of taxes, a refund may be obtained 11 from the IRS. DO NOT CHECK THE BOX IN BOX A, PART (ii), UNLESS YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING. When determining the TIN to be furnished, please refer to the following as a guide: Individual accounts -- should reflect owner's TIN. Joint accounts -- should reflect the TIN of the owner whose name appears first. Trust accounts -- should reflect the TIN assigned to the trust. IRA custodial accounts -- should reflect the TIN of the custodian (not necessary to provide). Custodial accounts for the benefit of minors -- should reflect the TIN of the minor. Corporations, partnership or other business entities -- should reflect the TIN assigned to that entity. By signing the Signature Box, the unitholder(s) certifies that the TIN as printed (or corrected) on the front of the Letter of Transmittal is correct. NON-U.S. PERSONS. In order for a unitholder that is not a U.S. Person ("Non-U.S. Person") to qualify as exempt, such unitholder must submit a completed Form W-8BEN "Certificate of Foreign Status," Form W-8ECI "Certificate of Foreign Person's Claim for Exemption from Withholding on Income Effectively Connected with the Conduct of a U.S. Trade or Business," or Form W-8IMY "Certificate of Foreign Intermediary, Foreign Flow Through Entity or Certain U.S. Branches for United States Tax Withholding" signed under penalties of perjury attesting to such exempt status. Such forms may be obtained from the IRS at www.irs.gov. BOX B -- FIRPTA AFFIDAVIT. Section 1445 of the Code requires that each unitholder transferring interests in a partnership with real estate assets meeting certain criteria certify under penalty of perjury the representations made in Box B, or be subject to withholding of tax equal to 10% of the amount realized for interests purchased. Tax withheld under Section 1445 of the Code is not an additional tax. If withholding results in an overpayment of tax, a refund may be obtained from the IRS. PART (i) SHOULD BE CHECKED ONLY IF THE TENDERING UNITHOLDER IS NOT A U.S. PERSON, AS DESCRIBED THEREIN. 6. CONDITIONAL TENDERS. No alternative, conditional or contingent tenders will be accepted. 7. VALIDITY OF LETTER OF TRANSMITTAL. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of a Letter of Transmittal and other required documents will be determined by the Purchaser and such determination will be final and binding. The Purchaser's interpretation of the terms and conditions of the Offer (including these Instructions for this Letter of Transmittal) will be final and binding. The Purchaser will have the right to waive any irregularities or conditions as to the manner of tendering. Any irregularities in connection with tenders, unless waived, must be cured within such time as the Purchaser shall determine. This Letter of Transmittal will not be valid until any irregularities have been cured or waived. Neither the Purchaser nor the Information Agent are under any duty to give notification of defects in a Letter of Transmittal and will incur no liability for failure to give such notification. 8. ASSIGNEE STATUS. Assignees must provide documentation to the Information Agent which demonstrates, to the satisfaction of the Purchaser, such person's status as an assignee. 9. TRANSFER TAXES. The amount of any transfer taxes (whether imposed on the registered holder or such person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes or exemption therefrom is submitted. 12 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER -- Social Security numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payer. - ----------------------------------------------------- GIVE THE TAXPAYER FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF -- - ----------------------------------------------------- 1. An individual account The individual 2. Two or more individuals The actual owner of (joint account) the account or, if combined funds, the first individual on the account 3. Husband and wife (joint The actual owner of account) the account or, if joint funds, either person 4. Custodian account of a The minor(2) minor (Uniform Gift to Minors Act) 5. Adult and minor (joint The adult or, if the account) minor is the only contributor, the minor(1) 6. Account in the name of The ward, minor or guardian or committee incompetent person(3) for a designated ward, minor or incompetent person(3) 7. a. The usual revocable The grantor trustee(1) savings trust account (grantor is also trustee) b. So-called trust The actual owner(1) account that is not a legal or valid trust under state law 8. Sole proprietorship The owner(4) account - ----------------------------------------------------- - ----------------------------------------------------- GIVE THE TAXPAYER FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF -- - ----------------------------------------------------- 9. A valid trust, estate or The legal entity (Do pension trust not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The corporation 11. Religious, charitable, The organization or educational organization account 12. Partnership account held The partnership in the name of the business 13. Association, club, or The organization other tax-exempt organization 14. A broker or registered The broker or nominee nominee 15. Account with the The public entity Department of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments - -----------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's or incompetent person's name and furnish such person's social security number or employer identification number. (4) Show your individual name. You may also enter your business name. You may use your social security number or employer identification number. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. 13 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 OBTAINING A NUMBER If you do not have a taxpayer identification number or you do not know your number, obtain Form SS-5, Application for a Social Security Number Card (for individuals), or Form SS-4, Application for Employer Identification Number (for businesses and all other entities), at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: - - A corporation. - - A financial institution. - - An organization exempt from tax under section 501(a) of the Internal Revenue Code of 1986, as amended (the "Code"), or an individual retirement plan. - - The United States or any agency or instrumentality thereof. - - A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. - - A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. - - An international organization or any agency or instrumentality thereof. - - A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. - - A real estate investment trust. - - A common trust fund operated by a bank under section 584(a) of the Code. - - An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). - - An entity registered at all times under the Investment Company Act of 1940. - - A foreign central bank of issue. - - A futures commission merchant registered with the Commodity Futures Trading Commission. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - - Payments to nonresident aliens subject to withholding under section 1441 of the Code. - - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. - - Payments of patronage dividends where the amount received in not paid in money. - - Payments made by certain foreign organizations. - - Payments made to an appropriate nominee. - - Section 404(k) payments made by an ESOP. Payments of interest not generally subject to backup withholding include the following: - - Payments of interest on obligations issued by individuals. - - NOTE: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. Payments of tax exempt interest (including exempt interest dividends under section 852 of the Code). - - Payments described in section 6049(b)(5) of the Code to nonresident aliens. - - Payments on tax-free covenant bonds under section 1451 of the Code. - - Payments made by certain foreign organizations. - - Payments of mortgage interest to you. - - Payments made to an appropriate nominee. Exempt payees described above should file substitute Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. IF YOU ARE A NONRESIDENT ALIEN OR A FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A COMPLETED INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS). Certain payments other than interest, dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A(A), 6045, and 6050A. PRIVACY ACT NOTICE -- Section 6109 requires most recipients of dividend, interest, or other payments to give correct taxpayer identification numbers to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file a tax return. Payers must generally withhold a portion of taxable interest, dividend, and certain other payments to a payee who does not furnish a correct taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER -- If you fail to furnish your correct taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING -- If you make a false statement with no reasonable basis that results in no imposition of backup withholding, you are subject to a penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION -- Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE 14 The Information Agent for the offer is: THE ALTMAN GROUP, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 238 1275 Valley Brook Avenue 1275 Valley Brook Avenue Lyndhurst, NJ 07071 Lyndhurst, NJ 07071 Lyndhurst, NJ 07071 By Telephone: TOLL FREE (800) 467-0821 By Fax: (201) 460-0050
15 EX-99.(A)(3) 5 d07253exv99wxayx3y.txt LETTER TO LIMITED PARTNERS LITIGATION SETTLEMENT OFFER (AIMCO LOG) AIMCO PROPERTIES, L.P. c/o The Altman Group, Inc. 1275 Valley Brook Avenue Lyndhurst, New Jersey 07071 (800) 467-0821 February 20, 2004 Dear Limited Partner: We are pleased to announce the COURT APPROVED SETTLEMENT of the class action and derivative litigation entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. and Dr. Warren Heller v. Insignia Financial Group, Inc., et al., which certain limited partners brought on their own behalf and on behalf of limited partners in partnerships formerly managed by Insignia Financial Group, Inc., including yours. The court approved settlement requires us to make the enclosed Litigation Settlement Offer. - Pursuant to that settlement, we are offering to acquire your units of limited partnership interest in Consolidated Capital Institutional Properties for $239.13 per unit in cash. - Under the terms of the settlement, which are more fully described in the enclosed materials and in the notice of settlement previously distributed to you, the court appointed American Appraisal Associates, Inc., as an independent appraiser, to appraise your partnership's property. An executive summary of the appraiser's report for each property owned by your partnership is attached as Annex II to the enclosed Litigation Settlement Offer. A complete copy of the appraiser's report(s) will be provided to you free of charge upon request. - The settlement also established a $9.9 million settlement fund for members of the settlement class. After deducting attorneys' fees and expenses and other settlement costs (including a portion of the costs of the appraisals and certain costs of administration of the settlement fund), we have allocated the remaining amount among the 44 settling partnerships on a pro rata basis. The amount allocated to your partnership on a per unit basis is $4.72, which is included in our offer price. This amount will be paid as part of the purchase price in this offer even if final court approval of the settlement is reversed or vacated. - You are entitled to participate in this offer whether or not you requested exclusion from the settlement class. If you wish to tender, you must execute the enclosed Letter of Transmittal. By executing the Letter of Transmittal, you will release any known or unknown claims arising out of the class and derivative litigation even if the settlement and judgment in the class and derivative litigation is subsequently reversed or otherwise vacated. - This Litigation Settlement Offer is not subject to any minimum number of units being tendered. - You will not be required to pay any partnership transfer fees in connection with any disposition of your units pursuant to our offer. If you desire to tender any of your units in response to our offer, you should complete and sign the enclosed letter of transmittal in accordance with the enclosed instructions and mail or deliver it and any other required documents to The Altman Group, Inc., which is acting as the Information Agent in connection with our offer, at the address set forth on the back cover of the enclosed Litigation Settlement Offer. The Litigation Settlement Offer will expire at midnight, New York City time, on March 22, 2004, unless extended. Our offer price will be reduced for any distributions subsequently made or declared by your partnership prior to the expiration of our offer. On August 12, 2003, an objector filed an appeal of the court's order approving the settlement and is seeking to reverse or vacate the Court's order and the judgment entered thereto. Although we reserve our right to terminate or amend our offer if final court approval of the settlement is reversed or vacated before the expiration date, we have nevertheless elected to proceed with the offer under the terms of the settlement. Final Offer This offer has been mandated by the Court Approved Settlement. We do not contemplate making any new offers for the foreseeable future. Thus, if you desire to sell your limited partnership units in order to achieve liquidity or for any other reason, you may desire to do so pursuant to this offer. No Recommendation You must make your own decision whether or not to participate in our offer, based upon a number of factors, including your financial position, your need or desire for liquidity, other financial opportunities available to you, and your tax position and the tax consequences to you of selling your units. The general partner of your partnership, which is our affiliate, makes no recommendation as to whether you should tender or refrain from tendering your units. In addition, neither the court nor counsel for the parties in the class and derivative litigation make any recommendation regarding whether you should accept this Litigation Settlement Offer. You are encouraged to carefully review this Litigation Settlement Offer, the executive summary of the independent appraiser's report and any other information available to you and to seek advice from your independent lawyer, tax advisor and/or financial advisor before deciding whether or not to accept this Litigation Settlement Offer. If you have any questions or require further information, please call the Information Agent, toll free, at (800) 467-0821. Very truly yours, AIMCO PROPERTIES, L.P. EX-99.(C)(1) 6 d07253exv99wxcyx1y.txt APPRAISAL OF THE DUNES APARTMENT HOMES THE DUNES APARTMENT HOMES 201 HARBOUR CITY PARKWAY INDIAN HARBOUR BEACH, FLORIDA MARKET VALUE - FEE SIMPLE ESTATE AS OF DECEMBER 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) LETTERHEAD] DECEMBER 23, 2003 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: THE DUNES APARTMENT HOMES 201 HARBOUR CITY PARKWAY INDIAN HARBOUR BEACH, BREVARD COUNTY, FLORIDA 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 200 units with a total of 171,654 square feet of rentable area. The improvements were built in 1964. The improvements are situated on 7.09 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 94% 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 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA 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 December 12, 2003 is: ($6,800,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. /s/ Edward Zenkovich December 23, 2003 Edward Zenkovich, ASA #053272 Managing Principal, Real Estate Group State of Florida, Certified General Appraiser, #0001259 Assisted By: Kim Cook AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA 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.............................................................. 15 Improvement Analysis ...................................................... 15 Highest and Best Use ...................................................... 16 VALUATION Valuation Procedure........................................................ 17 Sales Comparison Approach.................................................. 19 Income Capitalization Approach ............................................ 25 Reconciliation and Conclusion ............................................. 36
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 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: The Dunes Apartment Homes LOCATION: 201 Harbour City Parkway Indian Harbour Beach, Florida INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: Fee Simple DATE OF VALUE: December 12, 2003 DATE OF REPORT: December 23, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 7.09 acres, or 308,840 square feet Assessor Parcel No.: 27-37-14-01-00003 Floodplain: Community Panel No. 12009C 0464E (April 1, 2001) Flood Zone X, an area outside the floodplain. Zoning: R-3 (Multifamily) BUILDING: No. of Units: 200 Units Total NRA: 171,654 Square Feet Average Unit Size: 858 Square Feet Apartment Density: 28.2 units per acre Year Built: 1964 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ----------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income - ---------------------------------------------------------------------- 1Bdrm/1Ba-1A10 669 $ 530 $ 0.79 $ 44,520 $ 534,240 2Bdrm/1Ba-2A10 938 $ 650 $ 0.69 $ 52,650 $ 631,800 2Bdrm/1.5Ba-2A150 968 $ 675 $ 0.70 $ 4,725 $ 56,700 3Bdrm/2Ba - 3A20 1,168 $ 750 $ 0.64 $ 21,000 $ 252,000 -------- ---------- Total $122,895 $1,474,740 ======== ==========
OCCUPANCY: 94% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 20 Years REMAINING ECONOMIC LIFE: 25 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDING - EXTERIOR - APARTMENT BUILDING LEASING OFFICE AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA NEIGHBORHOOD MAP [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 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit --------------------- ------ ------ Potential Rental Income $1,474,740 $7,374 Effective Gross Income $1,461,761 $7,309 Operating Expenses $795,288 $3,976 54.4% of EGI Net Operating Income: $616,473 $3,082 Capitalization Rate 9.00% DIRECT CAPITALIZATION VALUE $6,800,000 * $34,000 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 11% Stabilized Vacancy & Collection Loss: 8% 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 $6,800,000 * $34,000 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $6,800,000 $34,000 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $21,749 to $32,787 Range of Sales $/Unit (Adjusted) $26,950 to $40,984 VALUE INDICATION - PRICE PER UNIT $6,600,000 * $33,000 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 4.42 to 5.58 Selected EGIM for Subject 4.75 Subject's Projected EGI $1,461,761 EGIM ANALYSIS CONCLUSION $6,900,000 * $34,500 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $6,800,000 * $34,000 / UNIT RECONCILED SALES COMPARISON VALUE $6,700,000 $33,500 / 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 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $ 6,600,000 NOI Per Unit $ 6,800,000 EGIM Multiplier $ 6,900,000 INDICATED VALUE BY SALES COMPARISON $ 6,700,000 $33,500 / UNIT INCOME APPROACH: Direct Capitalization Method: $ 6,800,000 Discounted Cash Flow Method: $ 6,800,000 INDICATED VALUE BY THE INCOME APPROACH $ 6,800,000 $34,000 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $ 6,800,000 $34,000 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 201 Harbour City Parkway, Indian Harbour Beach, Brevard County, Florida. Indian Harbour Beach identifies it as 27-37-14-01-00003. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Kim Cook on December 12, 2003. Edward Zenkovich, ASA has not made a personal inspection of the subject property. Kim Cook assisted Edward Zenkovich, ASA in the research, valuation analysis and writing the report. Both, Edward Zenkovich, ASA and Kim Cook 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 December 12, 2003. The date of the report is December 23, 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 & 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, AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA 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 Consolidated Capital Equity Partners. 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 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA 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 Indian Harbour Beach, Florida. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being commercial retail. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - SR A1A West - Patrick Drive (State Road 513) South - Eau Gallie Boulevard (State Road 518) North - State Road 3 (Banana River Drive) MAJOR EMPLOYERS Major employers in the subject's area include School Board of Brevard County, United Space Alliance, Health First, Patrick Air Force Base, Harris Corporation, Space Gateway Support, Publix, Brevard County Board of County Commissioners, Wal-Mart, Wuesthoff Health Systems. 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 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA NEIGHBORHOOD DEMOGRAPHICS
AREA ------------------------------------------------ CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - ------------------------------------------------------------------------------------------------------- POPULATION TRENDS Current Population 24,426 121,187 230,503 1,721,904 5-Year Population 26,001 129,066 245,725 1,921,950 % Change CY-5Y 6.4% 6.5% 6.6% 11.6% Annual Change CY-5Y 1.3% 1.3% 1.3% 2.3% HOUSEHOLDS Current Households 10,125 48,206 94,791 655,258 5-Year Projected Households 10,754 51,041 100,505 731,362 % Change CY - 5Y 6.2% 5.9% 6.0% 11.6% Annual Change CY-5Y 1.2% 1.2% 1.2% 2.3% INCOME TRENDS Median Household Income $ 32,016 $ 35,441 $ 37,406 $ 40,114 Per Capita Income $ 17,041 $ 18,768 $ 21,478 $ 21,799 Average Household Income $ 41,464 $ 47,148 $ 52,290 $ 57,283
Source: Demographics Now The subject neighborhood's population is expected to show increases below 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 48.44% 39.16% 39.13% 30.55% 5-Year Projected % Renting 47.20% 38.67% 38.65% 30.11% % of Households Owning 39.21% 52.00% 53.05% 60.90% 5-Year Projected % Owning 40.51% 52.59% 53.74% 61.87%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Residential South - Commercial East - Residential/Commercial and a vacant tract West - Residential/Commercial CONCLUSIONS The subject is well located within the city of Indian Harbour Beach. The neighborhood is characterized as being mostly suburban in nature and is currently in the stable 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 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA MARKET ANALYSIS The subject property is located in the city of Indian Harbour Beach in Brevard County. The overall pace of development in the subject's market is more or less stable. There has been no new construction in the subject's immediate market in the last three years. In the larger market area, delivery of new units has declined from 4,700 units in 2003 to 2,500 units for 2004. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - ------------------------------------------------------ YE 2002 8.9% N/A YE 2003 9.4% N/A 2004 (Estimate) 9.0% N/A
Source: Marcus and Millichap Apartment Research Report Occupancy trends in the subject's market are stable. As vacancies are declining in this market, the frequency of concessions should decline. 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 - --------------------------------------------------------------------------------- YE 2002 $740 - N/A - YE 2003 $750 1.4% N/A - 2004 (Est) $765 2.0% N/A -
Source: Marcus and Millichap, Apartment Research Report The following table illustrates a summary of the subject's competitive set. COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject - -------------------------------------------------------------------------------------------------------------- R-1 Shore View 135 97% 1962 5 miles N of the subject R-2 Brittany Apartments Unk. 95% 1982 0.5 miles east of the subject R-3 Rivercrest Apartments Unk. 98% 1985 4.5 miles NW of the subject Subject The Dunes Apartment Homes 200 94% 1964
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 15 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 7.09 acres, or 308,840 square feet Shape Generally rectangular Topography Level Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Good Flood Zone: Community Panel 12009C 0464E, dated April 1, 2001 Flood Zone Zone X Zoning R-3, 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 - ----------------------------------------------------------------------------------------------- 27-37-14-01- $1,000,000 $4,800,000 $5,800,000 0.02441 $141,572 00003
IMPROVEMENT ANALYSIS Year Built 1964 Number of Units 200 Net Rentable Area 171,654 Square Feet Construction: Foundation Reinforced concrete slab Frame Reinforced brick or masonry Exterior Walls Concrete block Roof Built-up asphalt with or without gravel over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, meeting hall, laundry room, business office, and parking area. Unit Amenities Individual unit amenities include a garage, balcony, cable TV connection, vaulted ceiling, and washer dryer connection. Appliances available in each unit include a AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA refrigerator, stove, dishwasher, water heater, garbage disposal, and oven. Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - ----------------------------------------------------- 1Bdrm/1Ba-1A10 84 669 2Bdrm/1Ba-2A10 81 938 2Bdrm/1.5Ba-2A150 7 968 3Bdrm/2Ba - 3A20 28 1,168
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 1964 and consist of a 200-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 17 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA 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 18 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA 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 19 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA 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 20 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA SUMMARY OF COMPARABLE SALES-IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ----------------------------------------------------------------------------------------------------------------------------- Property Name The Dunes Apartment Homes Bottlebrush Apartments Morningside Apartments LOCATION: Address 201 Harbour City Parkway 1600 Bottlebrush Dr. NE 1187-1193 S. Park Ave City, State Indian Harbour Beach, Florida Palm Bay, Florida Titusville, Florida County Brevard Brevard County Brevard County PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 171,654 26,526 115,440 Year Built 1964 1977 1982 Number of Units 200 50 183 Unit Mix: Type Total Type Total Type Total 1 Bdrm/1Ba-1A10 84 Studio 18 Studio 7 2 Bdrm/1Ba-2A10 81 1 Bedroom 22 1 Bedroom 140 2 Bdrm/1.5Ba-2A150 7 2 Bedroom 10 2 Bedroom 34 3 Bdrm/2Ba-3A20 28 3 Bedroom 2 Average Unit Size (SF) 858 531 631 Land Area (Acre) 7.0900 2.5000 11.5200 Density (Units/Acre) 28.2 20.0 15.9 Parking Ratio (Spaces/Unit) 2.36 Parking Type (Gr., Cov., etc.) Open parking lot Surface Surface CONDITION: Average Average Average APPEAL: Average Fair Average AMENITIES: Pool/Spa Yes/No Yes/No No/No Gym Room No No No Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts Yes No No OCCUPANCY: 94% 95% 95% TRANSACTION DATA: Sale Date September, 2003 February, 2003 Sale Price ($) $1,375,000 $3,980,000 Grantor S.E. Residential East Morningside Apartments II, Ltd Grantee Bottlebrush Apartments, Inc. SE Residential Central Associates Sale Documentation Bk 5064 Pg 2364 Bk 4835 Pg 2265 Verification Broker, Marcus & Millichap Seller's Broker Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $259,320 $5,186 $9.78 $949,540 $5,189 $8.23 Vacancy/Credit Loss $ 12,966 $ 259 $0.49 $ 48,477 $ 265 $0.42 Effective Gross Income $246,354 $4,927 $9.29 $901,063 $4,924 $7.81 Operating Expenses $140,000 $2,800 $5.28 $585,600 $3,200 $5.07 Net Operating Income $106,354 $2,127 $4.01 $315,463 $1,724 $2.73 NOTES: Single-story apartment Single-story apartment complex complex PRICE PER UNIT $27,500 $21,749 PRICE PER SQUARE FOOT $ 51.84 $ 34.48 EXPENSE RATIO 56.8% 65.0% EGIM 5.58 4.42 OVERALL CAP RATE 7.73% 7.93% Cap Rate based on Pro Forma or Actual Income? UNKNOWN PRO FORMA COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ------------------------------------------------------------------------------------------------------------------------- Property Name Royal Oak Colony Suncoast Townhomes Rockledge Villas LOCATION: Address 3645 Barna Avenue 325 East University 1525 Fiske Road City, State Titusville, Florida Melbourne, Florida Rockledge, Florida County Brevard County Brevard County Brevard County PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 178,901 142,224 102,428 Year Built 1968 1980 1963 Number of Units 183 150 93 Unit Mix: Type Total Type Total Type Total 1 Bedroom N/A 1 Bedroom 29 1 Bedroom 39 2 Bedroom N/A 2 Bedroom 121 2 Bedroom 47 3 Bedroom N/A 3 Bedroom 7 3 Bedroom N/A Average Unit Size (SF) 978 948 1,101 Land Area (Acre) 11.5000 8.0000 6.1300 Density (Units/Acre) 15.9 18.8 15.2 Parking Ratio (Spaces/Unit) 0.00 0.00 Parking Type (Gr., Cov., etc.) Surface Surface Surface CONDITION: Average Average Fair APPEAL: Fair Fair Fair AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room No No No Laundry Room No Yes No Secured Parking No No No Sport Courts Yes No No OCCUPANCY: N/A 90% 85% TRANSACTION DATA: Sale Date July, 2002 November, 2002 September, 2002 Sale Price ($) $6,000,000 $3,850,000 $2,650,000 Grantor Royal Oak Colony Associates CJC, Inc. Robert Wigor Grantee SPM, Inc. Atlantic Melbourne Gene Berman Sale Documentation NA NA Bk 4705 Pg 1080 Verification Seller's Broker Broker, Marcus & Millichap Broker, Marcus & Millichap Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $ 0 $ 0 $0.00 $823,500 $5,490 $5.79 $629,700 $6,771 $6.15 Vacancy/Credit Loss $ 0 $ 0 $0.00 $ 82,350 $ 549 $0.58 $ 94,455 $1,016 $0.92 Effective Gross Income $ 0 $ 0 $0.00 $741,150 $4,941 $5.21 $535,245 $5,755 $5.23 Operating Expenses $ 0 $ 0 $0.00 $291,083 $1,941 $2.05 $279,000 $3,000 $2.72 Net Operating Income $540,000 $2,951 $3.02 $450,067 $3,000 $3.16 $256,245 $2,755 $2.50 NOTES: Single-story apartment Broker reported that complex property sold w/ deferred maintenance but sale price was not credited for DM. PRICE PER UNIT $32,787 $25,667 $28,495 PRICE PER SQUARE FOOT $ 33.54 $ 27.07 $ 25.87 EXPENSE RATIO N/A 39.3% 52.1% EGIM N/A 5.19 4.95 OVERALL CAP RATE 9.00% 11.69% 9.67% Cap Rate based on Pro Forma or PRO FORMA PRO FORMA PRO FORMA Actual Income?
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $21,749 to $32,787 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 $26,950 to $40,984 per unit with a mean or average adjusted price of $33,645 per unit. The median adjusted price is $31,344 per unit. Based on the following analysis, we have concluded to a value of $33,000 per unit, which results in an "as is" value of $6,600,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - --------------------------------------------------------------------------------------------------------------------------------- Property Name The Dunes Apartment Homes Bottlebrush Apartments Morningside Apartments Address 201 Harbour City Parkway 1600 Bottlebrush Dr. NE 1187-1193 S. Park Ave City Indian Harbour Beach, Florida Palm Bay, Florida Titusville, Florida Sale Date September, 2003 February, 2003 Sale Price ($) $1,375,000 $3,980,000 Net Rentable Area (SF) 171,654 26,526 115,440 Number of Units 200 50 183 Price Per Unit $27,500 $21,749 Year Built 1964 1977 1982 Land Area (Acre) 7.0900 2.5000 11.5200 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 09-2003 0% 02-2003 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $27,500 $21,749 Location Inferior 25% Inferior 25% Number of Units 200 50 -20% 183 0% Quality / Appeal Average Inferior 20% Inferior 20% Age / Condition 1964 1977 / Average -15% 1982 / Average -20% Occupancy at Sale 94% 95% 0% 95% 0% Amenities Average Inferior 15% Inferior 15% Average Unit Size (SF) 858 531 15% 631 0% - ------------------------------------------------------------------------------------------------------------------------------ PHYSICAL ADJUSTMENT 40% 40% - ------------------------------------------------------------------------------------------------------------------------------ FINAL ADJUSTED VALUE ($/UNIT) $38,500 $30,448 - ------------------------------------------------------------------------------------------------------------------------------ COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ------------------------------------------------------------------------------------------------------------------------------- Property Name Royal Oak Colony Suncoast Townhomes Rockledge Villas Address 3645 Barna Avenue 325 East University 1525 Fiske Road City Titusville, Florida Melbourne, Florida Rockledge, Florida Sale Date July, 2002 November, 2002 September, 2002 Sale Price ($) $6,000,000 $3,850,000 $2,650,000 Net Rentable Area (SF) 178,901 142,224 102,428 Number of Units 183 150 93 Price Per Unit $32,787 $25,667 $28,495 Year Built 1968 1980 1963 Land Area (Acre) 11.5000 8.0000 6.1300 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 07-2002 0% 11-2002 0% 09-2002 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $32,787 $25,667 $28,495 Location Inferior 25% Inferior 25% Inferior 25% Number of Units 183 0% 150 -5% 93 -15% Quality / Appeal Comparable 0% Comparable 0% Comparable 0% Age / Condition 1968 / Average 0% 1980 / Average -20% 1963 / Fair 0% Occupancy at Sale N/A 0% 90% 5% 85% 10% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 978 0% 948 0% 1,101 -10% - ----------------------------------------------------------------------------------------------------------------------------- PHYSICAL ADJUSTMENT 25% 5% 10% - ----------------------------------------------------------------------------------------------------------------------------- FINAL ADJUSTED VALUE ($/UNIT) $40,984 $26,950 $31,344 - -----------------------------------------------------------------------------------------------------------------------------
SUMMARY VALUE RANGE (PER UNIT) $26,950 TO $40,984 MEAN (PER UNIT) $33,645 MEDIAN (PER UNIT) $31,344 VALUE CONCLUSION (PER UNIT) $33,000
VALUE INDICATED BY SALES COMPARISON APPROACH $6,600,000 ROUNDED $6,600,000
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 23 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA 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 50 $1,375,000 7.73% $106,354 $616,473 1.449 $39,850 $ 27,500 $ 2,127 $ 3,082 I-2 183 $3,980,000 7.93% $315,463 $616,473 1.788 $38,888 $ 21,749 $ 1,724 $ 3,082 I-3 183 $6,000,000 9.00% $540,000 $616,473 1.045 $34,248 $ 32,787 $ 2,951 $ 3,082 I-4 150 $3,850,000 11.69% $450,067 $616,473 1.027 $26,367 $ 25,667 $ 3,000 $ 3,082 I-5 93 $2,650,000 9.67% $256,245 $616,473 1.119 $31,877 $ 28,495 $ 2,755 $ 3,082
PRICE/UNIT
Low High Average Median $26,367 $39,850 $34,246 $34,248
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 34,000 Number of Units 200 ---------- Value Based on NOI Analysis $6,800,000 Rounded $6,800,000
The adjusted sales indicate a range of value between $26,367 and $39,850 per unit, with an average of $34,246 per unit. Based on the subject's competitive position within the improved sales, a value of $34,000 per unit is estimated. This indicates an "as is" market value of $6,800,000 (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. 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 50 $1,375,000 $246,354 $140,000 56.83% 5.58 $ 27,500 I-2 183 $3,980,000 $901,063 $585,600 64.99% 4.42 $ 21,749 I-3 183 $6,000,000 $ 32,787 I-4 150 $3,850,000 $741,150 $291,083 39.27% 5.19 $ 25,667 I-5 93 $2,650,000 $535,245 $279,000 52.13% 4.95 $ 28,495
EGIM
Low High Average Median 4.42 5.58 5.04 5.07
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 4.75 Subject EGI $1,461,761 ---------- Value Based on EGIM Analysis $6,943,364 Rounded $6,900,000 Value Per Unit $ 34,500
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA 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 54.41% before reserves. The comparable sales indicate a range of expense ratios from 39.27% to 64.99%, while their EGIMs range from 4.42 to 5.58. Overall, we conclude to an EGIM of 4.75, which results in an "as is" value estimate in the EGIM Analysis of $6,900,000. 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 $6,700,000. Price Per Unit $6,600,000 NOI Per Unit $6,800,000 EGIM Analysis $6,900,000 Sales Comparison Conclusion $6,700,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 25 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA 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 26 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA 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 - --------------------------------------------------------------- 1Bdrm/1Ba-1A10 669 $524 $0.78 95.2% 2Bdrm/1Ba-2A10 938 $639 $0.68 93.8% 2Bdrm/1.5Ba-2A150 968 $662 $0.68 85.7% 3Bdrm/2Ba - 3A20 1168 $735 $0.63 89.3%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA RENT ANALYSIS
COMPARABLE RENTS ---------------------------------- R-1 R-2 R-3 ---------------------------------- Brittany Rivercrest Shore View Apartments Apartments ---------------------------------- SUBJECT SUBJECT COMPARISON TO SUBJECT SUBJECT UNIT ACTUAL ASKING ---------------------------------- DESCRIPTION TYPE RENT RENT Similar Superior Superior MIN MAX MEDIAN AVERAGE - ---------------------------------------------------------------------------------------------------------------------------------- Monthly Rent 1Bdrm/1Ba-1A10 $ 524 $ 570 $ 558 $ 559 $ 558 $ 559 $ 559 $ 559 Unit Area (SF) 669 669 710 800 710 800 755 755 Monthly Rent Per Sq. Ft. $ 0.78 $ 0.85 $ 0.79 $ 0.70 $ 0.70 $ 0.79 $ 0.74 $ 0.74 Monthly Rent 2Bdrm/1Ba-2A10 $ 639 $ 720 $ 685 $ 794 $ 679 $ 679 $ 794 $ 685 $ 719 Unit Area (SF) 938 938 950 1,136 1,100 950 1,136 1,100 1,062 Monthly Rent Per Sq. Ft. $ 0.68 $ 0.77 $ 0.72 $ 0.70 $ 0.62 $ 0.62 $ 0.72 $ 0.70 $ 0.68 Monthly Rent 2Bdrm/1.5Ba-2A150 $ 662 $ 700 $ 694 $ 804 $ 699 $ 694 $ 804 $ 699 $ 732 Unit Area (SF) 968 968 1,000 1,196 1,200 1,000 1,200 1,196 1,132 Monthly Rent Per Sq. Ft. $ 0.68 $ 0.72 $ 0.69 $ 0.67 $ 0.58 $ 0.58 $ 0.69 $ 0.67 $ 0.65 Monthly Rent 3Bdrm/2Ba - 3A20 $ 735 $ 800 $ 979 $ 979 $ 979 $ 979 $ 979 Unit Area (SF) 1,168 1,168 1,436 1,436 1,436 1,436 1,436 Monthly Rent Per Sq. Ft. $ 0.63 $ 0.68 $ 0.68 $ 0.68 $ 0.68 $ 0.68 $ 0.68
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 - ----------------------------------------------------------------------------------------- 1Bdrm/1Ba-1A10 84 669 $530 $0.79 $ 44,520 $ 534,240 2Bdrm/1Ba-2A10 81 938 $650 $0.69 $ 52,650 $ 631,800 2Bdrm/1.5Ba-2A150 7 968 $675 $0.70 $ 4,725 $ 56,700 3Bdrm/2Ba - 3A20 28 1,168 $750 $0.64 $ 21,000 $ 252,000 -------- ---------- Total $122,895 $1,474,740 ======== ==========
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 28 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2001 FISCAL YEAR 2002 FISCAL YEAR 2003 ------------------------ ------------------------ ------------------------ ACTUAL ACTUAL MANAGEMENT BUDGET ------------------------ ------------------------ ------------------------ DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT - -------------------------- ---------- ---------- ---------- ---------- ---------- ---------- Revenues Rental Income $1,449,333 $ 7,247 $1,503,247 $ 7,516 $1,528,184 $ 7,641 Vacancy $ 63,518 $ 318 $ 120,980 $ 605 $ 76,869 $ 384 Credit Loss/Concessions $ 34,813 $ 174 $ 48,935 $ 245 $ 24,000 $ 120 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal $ 98,331 $ 492 $ 169,915 $ 850 $ 100,869 $ 504 Laundry Income $ 8,538 $ 43 $ 18,054 $ 90 $ 21,996 $ 110 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 119,868 $ 599 $ 107,750 $ 539 $ 66,024 $ 330 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 128,406 $ 642 $ 125,804 $ 629 $ 88,020 $ 440 ---------- ---------- ---------- ---------- ---------- ---------- Effective Gross Income $1,479,408 $ 7,397 $1,459,136 $ 7,296 $1,515,335 $ 7,577 Operating Expenses Taxes $ 109,639 $ 548 $ 132,674 $ 663 $ 136,256 $ 681 Insurance $ 66,855 $ 334 $ 45,653 $ 228 $ 43,420 $ 217 Utilities $ 139,940 $ 700 $ 129,394 $ 647 $ 108,468 $ 542 Repair & Maintenance $ 108,494 $ 542 $ 111,949 $ 560 $ 119,196 $ 596 Cleaning $ 18,747 $ 94 $ 23,763 $ 119 $ 0 $ 0 Landscaping $ 15,856 $ 79 $ 26,211 $ 131 $ 57,744 $ 289 Security $ 3,225 $ 16 $ 3,897 $ 19 $ 0 $ 0 Marketing & Leasing $ 26,480 $ 132 $ 22,221 $ 111 $ 26,988 $ 135 General Administrative $ 258,304 $ 1,292 $ 168,259 $ 841 $ 188,061 $ 940 Management $ 80,229 $ 401 $ 70,855 $ 354 $ 75,002 $ 375 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- Total Operating Expenses $ 827,769 $ 4,139 $ 734,876 $ 3,674 $ 755,135 $ 3,776 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- Net Income $ 651,639 $ 3,258 $ 724,260 $ 3,621 $ 760,200 $ 3,801 ANNUALIZED 2003 ------------------------ ACTUAL AAA PROJECTION ------------------------ ---------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % - -------------------------- ---------- ---------- ---------- ---------- ----- Revenues Rental Income $1,530,876 $ 7,654 $1,474,740 $ 7,374 100.0% Vacancy $ 150,417 $ 752 $ 88,484 $ 442 6.0% Credit Loss/Concessions $ 66,371 $ 332 $ 29,495 $ 147 2.0% ---------- ---------- ---------- ---------- ----- Subtotal $ 216,788 $ 1,084 $ 117,979 $ 590 8.0% Laundry Income $ 26,127 $ 131 $ 20,000 $ 100 1.4% Garage Revenue $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 97,363 $ 487 $ 85,000 $ 425 5.8% ---------- ---------- ---------- ---------- ----- Subtotal Other Income $ 123,489 $ 617 $ 105,000 $ 525 7.1% ---------- ---------- ---------- ---------- ----- Effective Gross Income $1,437,577 $ 7,188 $1,461,761 $ 7,309 100.0% Operating Expenses Taxes $ 131,383 $ 657 $ 141,572 $ 708 9.7% Insurance $ 43,791 $ 219 $ 46,000 $ 230 3.1% Utilities $ 152,485 $ 762 $ 133,000 $ 665 9.1% Repair & Maintenance $ 125,687 $ 628 $ 120,000 $ 600 8.2% Cleaning $ 9,677 $ 48 $ 23,000 $ 115 1.6% Landscaping $ 24,340 $ 122 $ 35,000 $ 175 2.4% Security $ 3,600 $ 18 $ 3,600 $ 18 0.2% Marketing & Leasing $ 33,248 $ 166 $ 30,000 $ 150 2.1% General Administrative $ 194,128 $ 971 $ 190,000 $ 950 13.0% Management $ 73,547 $ 368 $ 73,088 $ 365 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0% ---------- ---------- ---------- ---------- ----- Total Operating Expenses $ 791,885 $ 3,959 $ 795,288 $ 3,976 54.4% Reserves $ 0 $ 0 $ 50,000 $ 250 3.4% ---------- ---------- ---------- ---------- ----- Net Income $ 645,692 $ 3,228 $ 616,473 $ 3,082 42.2%
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. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA We have projected a stabilized vacancy and collection loss rate of 8% based on the subject's historical performance, as well as the anticipated future market conditions. 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 $250 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 $250 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. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA KORPACZ NATIONAL INVESTOR SURVEY 3RD QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES -------------------------------------------- GOING-IN TERMINAL -------------------------------------------- LOW HIGH LOW HIGH -------------------------------------------- RANGE 5.50% 9.50% 6.00% 10.00% AVERAGE 7.61% 8.14%
SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - ---------------------------------------------------------------------- I-1 Sep-03 95% $27,500 7.73% I-2 Feb-03 95% $21,749 7.93% I-3 Jul-02 N/A $32,787 9.00% I-4 Nov-02 90% $25,667 11.69% I-5 Sep-02 85% $28,495 9.67% High 11.69% Low 7.73% Average 9.20%
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 AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA 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 $6,800,000. In this instance, the reversion figure contributes approximately 40% 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 32 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA DISCOUNTED CASH FLOW ANALYSIS THE DUNES APARTMENT HOMES
YEAR JAN-2004 JAN-2005 JAN-2006 JAN-2007 JAN-2008 JAN-2009 FISCAL YEAR 1 2 3 4 5 6 - --------------------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $1,474,740 $1,504,235 $1,534,319 $1,580,349 $1,627,760 $1,676,592 Vacancy $ 88,484 $ 90,254 $ 92,059 $ 94,821 $ 97,666 $ 100,596 Credit Loss $ 29,495 $ 30,085 $ 30,686 $ 31,607 $ 32,555 $ 33,532 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------- Subtotal $ 117,979 $ 120,339 $ 122,746 $ 126,428 $ 130,221 $ 134,127 Laundry Income $ 20,000 $ 20,400 $ 20,808 $ 21,432 $ 22,075 $ 22,737 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 85,000 $ 86,700 $ 88,434 $ 91,087 $ 93,820 $ 96,634 ------------------------------------------------------------------------------------- Subtotal Other Income $ 105,000 $ 107,100 $ 109,242 $ 112,519 $ 115,895 $ 119,372 ------------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $1,461,761 $1,490,996 $1,520,816 $1,566,440 $1,613,434 $1,661,837 OPERATING EXPENSES: Taxes $ 141,600 $ 145,848 $ 150,223 $ 154,730 $ 159,372 $ 164,153 Insurance $ 46,000 $ 47,380 $ 48,801 $ 50,265 $ 51,773 $ 53,327 Utilities $ 133,000 $ 136,990 $ 141,100 $ 145,333 $ 149,693 $ 154,183 Repair & Maintenance $ 120,000 $ 123,600 $ 127,308 $ 131,127 $ 135,061 $ 139,113 Cleaning $ 23,000 $ 23,690 $ 24,401 $ 25,133 $ 25,887 $ 26,663 Landscaping $ 35,000 $ 36,050 $ 37,132 $ 38,245 $ 39,393 $ 40,575 Security $ 3,600 $ 3,708 $ 3,819 $ 3,934 $ 4,052 $ 4,173 Marketing & Leasing $ 30,000 $ 30,900 $ 31,827 $ 32,782 $ 33,765 $ 34,778 General Administrative $ 190,000 $ 195,700 $ 201,571 $ 207,618 $ 213,847 $ 220,262 Management $ 73,088 $ 74,550 $ 76,041 $ 78,322 $ 80,672 $ 83,092 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 795,288 $ 818,416 $ 842,223 $ 867,489 $ 893,514 $ 920,320 Reserves $ 50,000 $ 51,500 $ 53,045 $ 54,636 $ 56,275 $ 57,964 ------------------------------------------------------------------------------------- NET OPERATING INCOME $ 616,473 $ 621,080 $ 625,548 $ 644,315 $ 663,644 $ 683,553 Operating Expense Ratio (% of EGI) 54.4% 54.9% 55.4% 55.4% 55.4% 55.4% Operating Expense Per Unit $ 3,976 $ 4,092 $ 4,211 $ 4,337 $ 4,468 $ 4,602 YEAR JAN-2010 JAN-2011 JAN-2012 JAN-2013 JAN-2014 FISCAL YEAR 7 8 9 10 11 - ---------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $1,726,890 $1,778,697 $1,832,058 $1,887,019 $1,943,630 Vacancy $ 103,613 $ 106,722 $ 109,923 $ 113,221 $ 116,618 Credit Loss $ 34,538 $ 35,574 $ 36,641 $ 37,740 $ 38,873 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------------- Subtotal $ 138,151 $ 142,296 $ 146,565 $ 150,962 $ 155,490 Laundry Income $ 23,420 $ 24,122 $ 24,846 $ 25,591 $ 26,359 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 99,533 $ 102,519 $ 105,595 $ 108,763 $ 112,026 ---------------------------------------------------------------------- Subtotal Other Income $ 122,953 $ 126,641 $ 130,441 $ 134,354 $ 138,384 ---------------------------------------------------------------------- EFFECTIVE GROSS INCOME $1,711,692 $1,763,042 $1,815,934 $1,870,412 $1,926,524 OPERATING EXPENSES: Taxes $ 169,078 $ 174,150 $ 179,375 $ 184,756 $ 190,299 Insurance $ 54,926 $ 56,574 $ 58,271 $ 60,020 $ 61,820 Utilities $ 158,809 $ 163,573 $ 168,480 $ 173,535 $ 178,741 Repair & Maintenance $ 143,286 $ 147,585 $ 152,012 $ 156,573 $ 161,270 Cleaning $ 27,463 $ 28,287 $ 29,136 $ 30,010 $ 30,910 Landscaping $ 41,792 $ 43,046 $ 44,337 $ 45,667 $ 47,037 Security $ 4,299 $ 4,428 $ 4,560 $ 4,697 $ 4,838 Marketing & Leasing $ 35,822 $ 36,896 $ 38,003 $ 39,143 $ 40,317 General Administrative $ 226,870 $ 233,676 $ 240,686 $ 247,907 $ 255,344 Management $ 85,585 $ 88,152 $ 90,797 $ 93,521 $ 96,326 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 947,929 $ 976,367 $1,005,658 $1,035,828 $1,066,903 Reserves $ 59,703 $ 61,494 $ 63,339 $ 65,239 $ 67,196 ---------------------------------------------------------------------- NET OPERATING INCOME $ 704,060 $ 725,182 $ 746,937 $ 769,345 $ 792,426 Operating Expense Ratio (% of EGI) 55.4% 55.4% 55.4% 55.4% 55.4% Operating Expense Per Unit $ 4,740 $ 4,882 $ 5,028 $ 5,179 $ 5,335
Estimated Stabilized NOI $616,473 Sales Expense Rate 2.00% Months to Stabilized 0 Discount Rate 11.50% Stabilized Occupancy 94.0% Terminal Cap Rate 9.50%
"DCF" VALUE ANALYSIS Gross Residual Sale Price $8,341,323 Deferred Maintenance $ 0 Less: Sales Expense $ 166,826 Add: Excess Land $ 0 ---------- Net Residual Sale Price $8,174,497 Other Adjustments $ 0 ---------- PV of Reversion $2,752,405 Value Indicated By "DCF" $6,824,762 Add: NPV of NOI $4,072,357 Rounded $6,800,000 ---------- PV Total $6,824,762
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ---------------------------------------------------------- TOTAL VALUE 11.00% 11.25% 11.50% 11.75% 12.00% - --------------------------- ---------- ---------- ---------- ---------- ---------- 9.00% $7,207,620 $7,091,384 $6,977,673 $6,866,424 $6,757,573 9.25% $7,125,488 $7,011,080 $6,899,151 $6,789,641 $6,682,487 TERMINAL CAP RATE 9.50% $7,047,679 $6,935,002 $6,824,762 $6,716,899 $6,611,353 9.75% $6,973,860 $6,862,825 $6,754,187 $6,647,887 $6,543,866 10.00% $6,903,732 $6,794,257 $6,687,142 $6,582,326 $6,479,754
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA INCOME LOSS DURING LEASE-UP The subject is currently near or at stabilized condition. Therefore, there is no income loss during lease-up at the subject property. CONCESSIONS Concessions have historically not been utilized a the subject property or in the subject's market. Therefore, no adjustment was included for concessions. 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 34 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA THE DUNES APARTMENT HOMES
TOTAL PER SQ. FT. PER UNIT %OF EGI - -------------------------------------------------------------------------------------------- REVENUE Base Rent $1,474,740 $ 8.59 $ 7,374 Less: Vacancy & Collection Loss 8.00% $ 117,979 $ 0.69 $ 590 Plus: Other Income $ 100 1.37% Laundry Income $ 20,000 $ 0.12 $ 0 0.00% Garage Revenue $ 0 $ 0.00 $ 425 5.81% Other Misc. Revenue $ 85,000 $ 0.50 $ 525 7.18% ------------------------------------------- Subtotal Other Income $ 105,000 $ 0.61 EFFECTIVE GROSS INCOME $1,461,761 $ 8.52 $ 7,309 OPERATING EXPENSES: Taxes $ 141,600 $ 0.82 $ 708 9.69% Insurance $ 46,000 $ 0.27 $ 230 3.15% Utilities $ 133,000 $ 0.77 $ 665 9.10% Repair & Maintenance $ 120,000 $ 0.70 $ 600 8.21% Cleaning $ 23,000 $ 0.13 $ 115 1.57% Landscaping $ 35,000 $ 0.20 $ 175 2.39% Security $ 3,600 $ 0.02 $ 18 0.25% Marketing & Leasing $ 30,000 $ 0.17 $ 150 2.05% General Administrative $ 190,000 $ 1.11 $ 950 13.00% Management 5.00% $ 73,088 $ 0.43 $ 365 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 795,288 $ 4.63 $ 3,976 54.41% Reserves $ 50,000 $ 0.29 $ 250 3.42% ------------------------------------------- NET OPERATING INCOME $ 616,473 $ 3.59 $ 3,082 42.17% "GOING IN" CAPITALIZATION RATE 9.00% VALUE INDICATION $6,849,697 $39.90 $34,248 "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $6,849,697 ROUNDED $6,800,000 $39.61 $34,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - --------------------------------------------------------------------------- 8.25% $7,472,397 $7,500,000 $37,500 $43.69 8.50% $7,252,621 $7,300,000 $36,500 $42.53 8.75% $7,045,403 $7,000,000 $35,000 $40.78 9.00% $6,849,697 $6,800,000 $34,000 $39.61 9.25% $6,664,570 $6,700,000 $33,500 $39.03 9.50% $6,489,187 $6,500,000 $32,500 $37.87 9.75% $6,322,798 $6,300,000 $31,500 $36.70
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $6,800,000. 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 $6,800,000 Direct Capitalization Method $6,800,000 Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $6,800,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 36 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA 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 $6,700,000 Income Approach $6,800,000 Reconciled Value $6,800,000
The Income 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 December 12, 2003 the market value of the fee simple estate in the property is: $6,800,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDING - LEASING OFFICE EXTERIOR - APARTMENT BUILDING [PICTURE] [PICTURE] EXTERIOR - POOL INTERIOR - TYPICAL HALLWAY [PICTURE] [PICTURE] INTERIOR - LIVING AREA IN MODEL UNIT INTERIOR - CLUBHOUSE AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] INTERIOR - MODEL UNIT BEDROOM INTERIOR - KITCHEN IN VACANT UNIT [PICTURE] [PICTURE] LAUNDRY ROOM INTERIOR - LIVING ROOM OF VACANT UNIT [PICTURE] BUILDING EXTERIOR - COURTYARD VIEW AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 BOTTLEBRUSH APARTMENTS MORNINGSIDE APARTMENTS ROYAL OAK COLONY 1600 Bottlebrush Dr. NE 1187-1193 S. Park Ave 3645 Barna Avenue Palm Bay, Florida Titusville, Florida Titusville, Florida [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 SUNCOAST TOWNHOMES ROCKLEDGE VILLAS 325 East University 1525 Fiske Road Melbourne, Florida Rockledge, Florida [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 - ------------------------------------------------------------------------------------------------------------------------ Property Name The Dunes Apartment Homes Shore View Management Company AIMCO Epoch Management LOCATION: Address 201 Harbour City Parkway 50 Berkeley Street City, State Indian Harbour Beach, Florida Satellite Beach, FL County Brevard Brevard Proximity to Subject 5 miles N of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 171,654 N/A Year Built 1964 1962 Effective Age 35 35 Building Structure Type Two-story block Two-story block Parking Type (Gr., Cov., etc) None None Number of Units 200 135 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Bdrm/1Ba-1A10 669 84 $524 1 Studio 600 $535 2 2Bdrm/1Ba-2A10 938 81 $639 1 Studio 680 $545 3 2Bdrm/1.5Ba-2A150 968 7 $662 1 1Bdrm/1Ba 850 $594 4 3Bdrm/2Ba - 3A20 1,168 28 $735 2 2Bdrm/1Ba 950 $685 3 2Bdrm/1Ba 1,000 $694 Average Unit Size (SF) 858 Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities X Attach. Garage X 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 Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment X Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball X 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: 94% 97% LEASING DATA: Available Leasing Terms 7 to 12 months Concessions 1 month Pet Deposit $200 deposit, $200 non-refundable pet fee Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash X Water Trash Confirmation Leasing Agent Telephone Number 1-866-802-6319 NOTES: This property is located off A1A, opposite the beach. COMPARISON TO SUBJECT: Similar COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 - ---------------------------------------------------------------------------------------------------------------------------- Property Name Brittany Apartments Rivercrest Apartments Management Company Northland Investments Wilder Richman Management LOCATION: Address 1874 Brittany Drive 3320 Rivercrest Drive City, State Indialantic, FL Melbourne, FL County Brevard Brevard Proximity to Subject 0.5 miles east of the subject 4.5 miles NW of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) N/A N/A Year Built 1982 1985 Effective Age 20 18 Building Structure Type Siding Siding Parking Type (Gr., Cov., etc) None None Number of Units Unk. Unk. Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 2 2Bdrm/1Ba 1,136 $794 1 1Bdrm/1Ba 800 $559 3 2Bdrm/2Ba 1,196 $804 2 2Bdrm/2Ba 1,100 $679 4 3Bdrm/2Ba 1,436 $979 3 2Bdrm/2Ba 1,200 $699 Average Unit Size (SF) Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling Attach. Garage X Vaulted Ceiling X Balcony X X Balcony X Fireplace Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi X Car Wash Spa/Jacuzzi X Car Wash Basketball Court BBQ Equipment X Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball Laundry Room Racquet Ball Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room X Gym Room X OCCUPANCY: 95% 98% LEASING DATA: Available Leasing Terms 3 to 12 months 7 to 12 mo. Concessions NA NA Pet Deposit $200 deposit, $200 non-refundable pet fee $150 deposit; $150 non-refundable pet fee Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash X Water Trash Confirmation Leasing Agent Leasing Agent Telephone Number 1-866-788-5923 1-866-802-2451 NOTES: COMPARISON TO SUBJECT: Superior Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 SHORE VIEW BRITTANY APARTMENTS RIVERCREST APARTMENTS 50 Berkeley Street 1874 Brittany Drive 3320 Rivercrest Drive Satellite Beach, FL Indialantic, FL Melbourne, FL [PICTURE] [PICTURE] [PICTURE] N/A N/A AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA 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 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA 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 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA 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 Appraisal Institute 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 THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA 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 Uniform Standards of Professional Appraisal Practice and the Principles of Appraisal Practice and Code of Ethics of the American Society of Appraisers. The analysis, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. I personally did not inspect the subject property. Kim Cook provided significant real property appraisal assistance in the preparation of this report. The American Society of Appraisers has a mandatory recertification program for all of its senior members. I am in compliance with the requirements of that program. /s/ Edward Zenkovich ---------------------------------------------- Edward Zenkovich, ASA Managing Principal, Real Estate Group State of Florida, Certified General Appraiser, #0001259 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA EDWARD J. ZENKOVICH, ASA SENIOR VICE PRESIDENT AND MANAGING PRINCIPAL, REAL ESTATE GROUP POSITION Edward J. Zenkovich serves as Senior Vice President and Managing Principal of the Atlanta Real Estate Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation In the Public Sector Services Group of AAA, Mr. Zenkovich assisted clients with the establishment of fixed asset records for insurance, property control, and property accounting purposes for the appraisal of buildings, land improvements, and machinery and equipment. Mr. Zenkovich was also responsible for the planning and management of large multiple-location engagements. In the Real Estate Valuation Group, Mr. Zenkovich completed valuations of various types of real estate including commercial, investment, manufacturing, retail, and warehouse properties. As a member of the Real Estate Group, Mr. Zenkovich specialized in the valuation of investment real estate. Property interests he has appraised include fee simple, leased fee, and leasehold. He has completed appraisals for financial reporting, financing, litigation support, portfolio valuation, purchase, purchase price allocation, and sale. Specific properties he has appraised include apartments, hotels, land developments, nursing homes, office buildings, regional and community shopping centers, and warehouses. He has additional appraisal experience in heavy industrial property valuations, as well as investment portfolios for major institutional clients. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA Court Mr. Zenkovich is a qualified expert witness of the U.S. Bankruptcy Court, Western District. Business Mr. Zenkovich joined AAA in 1980 as an assistant appraiser in the Public Sector Services Group, advancing to staff appraiser the following year. In 1985, he transferred to the Real Estate Valuation Group and was promoted to senior appraiser in 1988. Mr. Zenkovich was appointed area manager of the Real Estate Group's Tampa, Florida, office and was promoted to principal in 1994. He was named a Vice President of AAA in 1995 and a Managing Principal in 1997. From 2001 to 2003, Mr. Zenkovich was the national director of AAA's Real Estate Group. He currently serves as Managing Principal of the Real Estate Group in Atlanta, Georgia. EDUCATION University of Wisconsin - Milwaukee Bachelor of Business Administration - Real Estate and Urban Development STATE CERTIFICATIONS State of Colorado, Certified General Appraiser, #CG01325475 State of Florida, Certified General Appraiser, #RZ0001259 State of Florida, Licensed Real Estate Broker, #BK0468540 State of Georgia, Certified General Real Property Appraiser, #005263 State of Minnesota, Certified General Real Property Appraiser, #4003673 PROFESSIONAL American Society of Appraisers, Accredited Senior AFFILIATIONS Appraiser ASA Designation - Urban Real Property Institute of Property Taxation, Candidate AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA VALUATION AND American Society of Appraisers SPECIAL COURSES Introduction to Business Valuation, Part One Appraisal Institute Basic Valuation Procedures Capitalization Theory and Techniques, Parts A and B Case Studies in Real Estate Valuation Real Estate Appraisal Principles Standards of Professional Practice, Parts A and B Valuation Analysis and Report Writing AMERICAN APPRAISAL ASSOCIATES, INC. THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. THE DUNES APARTMENT HOMES, INDIAN HARBOUR BEACH, FLORIDA 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. EX-99.(C)(2) 7 d07253exv99wxcyx2y.txt APPRAISAL OF INDIAN CREEK VILLAGE INDIAN CREEK VILLAGE 10382 CONSER STREET OVERLAND PARK, KANSAS MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 8, 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] JULY 9, 2003 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: INDIAN CREEK VILLAGE 10382 CONSER STREET OVERLAND PARK, JOHNSON COUNTY, KANSAS 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 273 units with a total of 271,830 square feet of rentable area. The improvements were built in 1972. The improvements are situated on 20.64 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 88% 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 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS 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 8, 2003 is: ($13,600,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Frank Fehribach July 9, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group Texas State Certified General Real Estate Appraiser #TX-1323954-G Report By: Kim Cook AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS 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 ........................................... 37
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 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Indian Creek Village LOCATION: 10382 Conser Street Overland Park, Kansas 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 8, 2003 DATE OF REPORT: July 9, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 20.64 acres, or 899,078 square feet Assessor Parcel No.: NP34000000 000A; (Assessed Value) Floodplain: Community Panel No. 2001740208F (June 17, 2002) Flood Zone AE, an area inside the floodplain. Zoning: RP-3 (Residential Planned Development District) BUILDING: No. of Units: 273 Units Total NRA: 271,830 Square Feet Average Unit Size: 996 Square Feet Apartment Density: 13.2 units per acre Year Built: 1972 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ------------------------ Monthly Annual Unit Type Feet Per Unit Per SF Income Income - -------------------------------------------------------------------------------------------- 1Br/1Ba 617 $ 560 $0.91 $ 20,160 $ 241,920 1Br/1Ba 878 $ 590 $0.67 $ 82,600 $ 991,200 2Br/1Ba 1,165 $ 860 $0.74 $ 3,440 $ 41,280 2Br/2Ba 1,274 $ 870 $0.68 $ 66,990 $ 803,880 3Br/2Ba 1,287 $ 890 $0.69 $ 8,900 $ 106,800 3Br/2Ba, TH 1,845 $1,000 $0.54 $ 6,000 $ 72,000 Total $188,090 $2,257,080
OCCUPANCY: 88% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 25 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS REMAINING ECONOMIC LIFE: 20 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] ENTRANCE TO SUBJECT VIEW OF LEASING OFFICE AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS NEIGHBORHOOD MAP [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 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS PART TWO - ECONOMIC INDICATORS
Amount $/Unit ------ ------ INCOME CAPITALIZATION APPROACH DIRECT CAPITALIZATION Potential Rental Income $2,257,080 $8,268 Effective Gross Income $2,222,472 $8,141 Operating Expenses $949,234 $3,477 42.7% of EGI Net Operating Income: $1,204,988 $4,414 Capitalization Rate 9.00% DIRECT CAPITALIZATION VALUE $13,400,000 * $49,084 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 15% Stabilized Vacancy & Collection Loss: 10% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 10.00% Discount Rate 11.00% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $13,800,000 * $50,549 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $13,600,000 $49,817 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $51,121 to $69,324 Range of Sales $/Unit (Adjusted) $46,678 to $57,678 VALUE INDICATION - PRICE PER UNIT $13,600,000 * $49,817 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 6.49 to 7.33 Selected EGIM for Subject 6.25 Subject's Projected EGI $2,222,472 EGIM ANALYSIS CONCLUSION $13,900,000 * $50,916 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $13,600,000 * $49,817 / UNIT RECONCILED SALES COMPARISON VALUE $13,700,000 $50,183 / 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 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $13,600,000 NOI Per Unit $13,600,000 EGIM Multiplier $13,900,000 INDICATED VALUE BY SALES COMPARISON $13,700,000 $50,183 / UNIT INCOME APPROACH: Direct Capitalization Method: $13,400,000 Discounted Cash Flow Method: $13,800,000 INDICATED VALUE BY THE INCOME APPROACH $13,600,000 $49,817 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $13,600,000 $49,817 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 10382 Conser Street, Overland Park, Johnson County, Kansas. Overland Park identifies it as NP34000000 000A. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Kim Cook on May 8, 2003. Frank Fehribach, MAI has not made a personal inspection of the subject property. Kim Cook performed the research, valuation analysis and wrote the report. Frank Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach, MAI and Kim Cook 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 8, 2003. The date of the report is July 9, 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 & Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS 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 CCIP. 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 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS 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 Overland Park, Kansas. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - US 169/Metcalf Avenue West - US 69/Overland Parkway South - West 119th Street North - West 95th Street MAJOR EMPLOYERS Major employers in the subject's area include Sprint Corporation (21,173 employees), Applebees International (2,200 employees), Yellow Corporation (1,500 employees), and JC Penney Catalog Logistics Center (1,500 employees). 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 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS NEIGHBORHOOD DEMOGRAPHICS
AREA -------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - ------------------------------------------------------------------------------------------- POPULATION TRENDS Current Population 10,407 91,615 239,527 1,807,569 5-Year Population 10,335 92,956 253,829 1,892,507 % Change CY-5Y -0.7% 1.5% 6.0% 4.7% Annual Change CY-5Y -0.1% 0.3% 1.2% 0.9% HOUSEHOLDS Current Households 4,774 39,543 100,527 709,949 5-Year Projected Households 4,851 41,077 107,505 750,540 % Change CY - 5Y 1.6% 3.9% 6.9% 5.7% Annual Change CY-5Y 0.3% 0.8% 1.4% 1.1% INCOME TRENDS Median Household Income $ 65,759 $ 71,000 $ 71,321 $ 49,518 Per Capita Income $ 33,970 $ 33,515 $ 34,403 $ 24,363 Average Household Income $ 76,648 $ 78,619 $ 81,920 $ 62,029
Source: Demographics Now The subject neighborhood's population is expected to show increases above that of the region. The immediate market offers superior 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 37.80% 33.10% 30.57% 29.10% 5-Year Projected % Renting 37.87% 32.22% 30.07% 28.33% % of Households Owning 56.02% 61.03% 64.45% 62.84% 5-Year Projected % Owning 55.89% 61.96% 65.12% 64.03%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Condominium South - Sunny Oak Apartments, Indian Creek East - Open green area, Wycliff West Shopping Center West - Brookridge Country Club and golf course CONCLUSIONS The subject is well located within the city of Overland Park. The neighborhood is characterized as being mostly suburban in nature and is currently in the stable 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 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS MARKET ANALYSIS The subject property is located in the city of Overland Park in Johnson County. The overall pace of development in the subject's market is more or less stable. No new construction was noted for 2003. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - ------------------------------------------------------ 1st Quarter 2003 8.0% 8.1% 4th Quarter 2002 7.1% 6.8% Average Per Ending 12/31/02 6.2% 5.8%
Source: REIS, Subtrend Futures, Kansas City Apartment, Overland Park North, 1st Quarter 2003 Occupancy trends in the subject's market are stable. Historically speaking, the subject's submarket has outperformed the overall market. Market rents in the subject's market have been following a stable trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change - -------------------------------------------------------------------------------- 1st Q 2003 N/A N/A $644 - 1st Q 2002 N/A N/A $676 5.0% 1st Q 2001 N/A N/A $652 -3.6% 1st Q 2002 N/A N/A $671 2.9%
Source: REIS, Subtrend Futures, Kansas City Apartment, Overland Park North, 1st Quarter 2003 The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject - --------------------------------------------------------------------------------------------------------------------- R-1 Sunny Oak Village 548 99% 1983 Located just SE of subject R-2 Essex Place 352 92% 1971 1 miles NW of subject R-3 Pebblebrook 267 94% 1985 1.5 miles N of the subject R-4 Highland Ridge Apartments 370 85% 1987 4.5 miles SW of subject R-5 Skyler Ridge 448 92% 1986 2 miles SE of subject Subject Indian Creek Village 273 88% 1972
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS PROPERTY DESCRIPTION SITE ANALYSIS Site Area 20.64 acres, or 899,078 square feet Shape Irregular Topography Level Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Good Flood Zone: Community Panel 2001740208F, dated June 17, 2002 Flood Zone Zone AE Zoning RP-3, the subject improvements represent a legal conforming use of the site. REAL ESTATE TAXES
ASSESSED VALUE - 2002 --------------------------------------------- TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES - ----------------------------------------------------------------------------------------------------------- NP34000000 000A; (Assessed $94,530 $1,142,985 $1,237,515 0.08175 $101,163 Value)
IMPROVEMENT ANALYSIS Year Built 1972 Number of Units 273 Net Rentable Area 271,830 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Stucco wall Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, spa/jacuzzi, tennis court, meeting hall, laundry room, business office, and parking area. Unit Amenities Individual unit amenities include a garage, balcony, fireplace, cable TV connection, vaulted ceiling, and washer dryer connection. Appliances available in each unit include AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS a refrigerator, stove, dishwasher, water heater, garbage disposal, and oven. Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - ------------------------------------------------------------- 1Br/1Ba 36 617 1Br/1Ba 140 878 2Br/1Ba 4 1,165 2Br/2Ba 77 1,274 3Br/2Ba 10 1,287 3Br/2Ba, TH 6 1,845
Overall Condition Average Effective Age 25 years Economic Life 45 years Remaining Economic Life 20 years Deferred Maintenance The deferred maintenance at the subject property was estimated for a total amount of $34,000. 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 1972 and consist of a 273-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 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS 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 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS 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 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS 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 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ------------------------------------------------------------------------------------------------------------------ Property Name Indian Creek Village Nieman Square Casa de Fuentes LOCATION: Address 10382 Conser Street 11115 West 64th Terrace 11700 Stearns City, State Overland Park, Kansas Shawnee, KS Overland Park, KS County Johnson Johnson County Johnson County PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 271,830 114,359 241,384 Year Built 1972 1986 1986 Number of Units 273 152 288 Unit Mix: Type Total Type Total Type Total 1Br/1Ba 36 1Br/1Ba 98 1Br/1Ba NA 1Br/1Ba 140 2Br/1Ba 27 2Br/2Ba NA 2Br/1Ba 4 2Br/2Ba 27 2Br/2Ba 77 3Br/2Ba 10 3Br/2Ba, TH 6 Average Unit Size (SF) 996 752 838 Land Area (Acre) 20.6400 8.5500 30.1400 Density (Units/Acre) 13.2 17.8 9.6 Parking Ratio (Spaces/Unit) 1.83 1.99 1.99 Parking Type (Gr., Cov., etc.) Open 177 Open, 126 Covered 500 Open, 72 Covered CONDITION: Average Average Good APPEAL: Average Average Good AMENITIES: Pool/Spa Yes/Yes Yes/Yes Yes/Yes Gym Room No Yes Yes Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts Yes Yes Yes Washer/Dryer Connection Yes (in 2&3 Br units) Yes Yes OCCUPANCY: 88% 91% 89% TRANSACTION DATA: Sale Date August, 2002 July, 2002 Sale Price ($) $7,770,350 $14,900,000 Grantor Five States Associates, LP WXI/SPN Real Estate LP Grantee Cashill, Spalding Coolidge-CLK Casa de Fuentes, LLC Sale Documentation Document 216225 Document 212107 Verification Broker Broker Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF ---------- ------ ------ ---------- ------ ------ Potential Gross Income $1,249,988 $8,224 $10.93 $2,438,255 $8,466 $10.10 Vacancy/Credit Loss $ 131,014 $ 862 $ 1.15 $ 260,414 $ 904 $ 1.08 Effective Gross Income $1,118,974 $7,362 $ 9.78 $2,177,841 $7,562 $ 9.02 Operating Expenses $ 480,364 $3,160 $ 4.20 $1,031,690 $3,582 $ 4.27 Net Operating Income $ 638,610 $4,201 $ 5.58 $1,146,151 $3,980 $ 4.75 NOTES: Sale price includes $170,350 The grantee also purchased for repair of siding and Aspen Lodge, Improved paving Comparable I-3. PRICE PER UNIT $51,121 $51,736 PRICE PER SQUARE FOOT $ 67.95 $ 61.73 EXPENSE RATIO 42.9% 47.4% EGIM 6.94 6.84 OVERALL CAP RATE 8.22% 7.69% Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ---------------------------------------------------------------------------------------------------------------------- Property Name Aspen Lodge Corinth Place Apartments Concorde Bridge Townhomes (now Sheridan Bridge) LOCATION: Address 8100 Perry Road 3815 Somerset Drive 8403 Carter Street City, State Overland Park, KS Prairie Village, KS Overland Park, KS County Johnson County Johnson County Johnson County PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 277,054 75,280 403,196 Year Built 1987 1986 1971 Number of Units 307 76 248 Unit Mix: Type Total Type Total Type Total 1Br/1Ba NA 1Br/Ba NA 1Br/Ba NA 1Br/1Ba NA 2Br/2Ba NA 2Br/2Ba NA 2Br/1Ba NA 2Br/2Ba NA 3Br/2Ba NA Average Unit Size (SF) 902 991 1,626 Land Area (Acre) 33.5000 6.9000 25.8900 Density (Units/Acre) 9.2 11.0 9.6 Parking Ratio (Spaces/Unit) 1.49 NA 1.99 Parking Type (Gr., Cov., etc.) 304 Open, 154 Covered Open 375 Open, 119 Covered CONDITION: Average Average Average APPEAL: Average Average Average AMENITIES: Pool/Spa Yes/Yes Yes/No Yes/Yes Gym Room Yes Yes Yes Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts Yes Yes No Washer/Dryer Connection Yes Yes Yes OCCUPANCY: 90% 97% 94% TRANSACTION DATA: Sale Date July, 2002 May, 2001 January, 2001 Sale Price ($) $16,850,000 $5,268,658 $16,801,300 Grantor WXI/SPN Real Estate LP Highwoods Realty Limited Capreit Concorde Bridge Partnership Limited Partnership Grantee Coolidge-CLK Aspen, LLC TVO Corinth Place, LLC Sheridan Ridge LLC Sale Documentation Document 212108 Document 190389 Document 184907 Verification Broker Broker Confidential Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF ---------- ------ ----- -------- ------ ----- ---------- ------- ---- Potential Gross Income $2,713,792 $8,840 $9.80 $737,573 $9,705 $9.80 $ 0 $ 0 $0.00 Vacancy/Credit Loss $ 218,105 $ 710 $0.79 $ 18,520 $ 244 $0.25 $ 0 $ 0 $0.00 Effective Gross Income $2,495,687 $8,129 $9.01 $719,053 $9,461 $9.55 $2,589,305 $10,441 $6.42 Operating Expenses $1,122,740 $3,657 $4.05 $240,912 $3,170 $3.20 $ 829,237 $ 3,344 $2.06 Net Operating Income $1,372,947 $4,472 $4.96 $478,141 $6,291 $6.35 $1,760,068 $ 7,097 $4.37 NOTES: The grantee also purchased This property was purchased The sale price includes Casa de Fuentes, Improved as part of a bulk sale. The $1,201,300 in deferred Comparable I-2. sale price was allocated maintenance and renovation. based on appraisals PRICE PER UNIT $54,886 $69,324 $67,747 PRICE PER SQUARE FOOT $ 60.82 $ 69.99 $ 41.67 EXPENSE RATIO 45.0% 33.5% 32.0% EGIM 6.75 7.33 6.49 OVERALL CAP RATE 8.15% 9.08% 10.48% Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $51,121 to $69,324 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 $46,678 to $57,678 per unit with a mean or average adjusted price of $50,882 per unit. The median adjusted price is $50,132 per unit. Based on the following analysis, we have concluded to a value of $50,000 per unit, which results in an "as is" value of $13,600,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS SALES ADJUSTMENT GRID
COMPARABLE DESCRIPTION SUBJECT I - 1 - ----------------------------------- --------------------- ------------------------------- Property Name Indian Creek Village Nieman Square Address 10382 Conser Street 11115 West 64th Terrace City Overland Park, Kansas Shawnee, KS Sale Date August, 2002 Sale Price ($) $7,770,350 Net Rentable Area (SF) 271,830 114,359 Number of Units 273 152 Price Per Unit $51,121 Year Built 1972 1986 Land Area (Acre) 20.6400 8.5500 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Financing Cash To Seller 0% Conditions of Sale Arm's Length 0% Date of Sale (Time) 08-2002 2% VALUE AFTER TRANS. ADJUST. ($/UNIT) $52,143 Location Comparable 0% Number of Units 273 152 -5% Quality / Appeal Average Comparable 0% Age / Condition 1972 1986 / Average -5% Occupancy at Sale 88% 91% 0% Amenities Average Comparable 0% Average Unit Size (SF) 996 752 5% PHYSICAL ADJUSTMENT -5% FINAL ADJUSTED VALUE ($/UNIT) $49,536
COMPARABLE COMPARABLE DESCRIPTION I - 2 I - 3 - ----------------------------------- ------------------------------ ------------------------------ Property Name Casa de Fuentes Aspen Lodge Address 11700 Stearns 8100 Perry Road City Overland Park, KS Overland Park, KS Sale Date July, 2002 July, 2002 Sale Price ($) $14,900,000 $16,850,000 Net Rentable Area (SF) 241,384 277,054 Number of Units 288 307 Price Per Unit $51,736 $54,886 Year Built 1986 1987 Land Area (Acre) 30.1400 33.5000 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 07-2002 2% 07-2002 2% VALUE AFTER TRANS. ADJUST. ($/UNIT) $52,771 $55,984 Location Comparable 0% Comparable 0% Number of Units 288 0% 307 0% Quality / Appeal Comparable 0% Comparable 0% Age / Condition 1986 / Good -5% 1987 / Average -5% Occupancy at Sale 89% 0% 90% 0% Amenities Comparable 0% Superior -5% Average Unit Size (SF) 838 0% 902 0% PHYSICAL ADJUSTMENT -5% -10% FINAL ADJUSTED VALUE ($/UNIT) $50,132 $50,385
COMPARABLE COMPARABLE DESCRIPTION I - 4 I - 5 - ----------------------------------- ------------------------------ ---------------------------------------- Property Name Corinth Place Apartments Concorde Bridge Townhomes (now Sheridan Bridge) Address 3815 Somerset Drive 8403 Carter Street City Prairie Village, KS Overland Park, KS Sale Date May, 2001 January, 2001 Sale Price ($) $5,268,658 $16,801,300 Net Rentable Area (SF) 75,280 403,196 Number of Units 76 248 Price Per Unit $69,324 $67,747 Year Built 1986 1971 Land Area (Acre) 6.9000 25.8900 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 05-2001 4% 01-2001 6% VALUE AFTER TRANS. ADJUST. ($/UNIT) $72,097 $71,812 Location Comparable 0% Comparable 0% Number of Units 76 -15% 248 0% Quality / Appeal Comparable 0% Comparable 0% Age / Condition 1986 / Average -5% 1971 / Average 0% Occupancy at Sale 97% 0% 94% 0% Amenities Comparable 0% Comparable 0% Average Unit Size (SF) 991 0% 1,626 -35% PHYSICAL ADJUSTMENT -20% -35% FINAL ADJUSTED VALUE ($/UNIT) $57,678 $46,678
SUMMARY VALUE RANGE (PER UNIT) $46,678 TO $57,678 MEAN (PER UNIT) $50,882 MEDIAN (PER UNIT) $50,132 VALUE CONCLUSION (PER UNIT) $50,000
VALUE OF IMPROVEMENT & MAIN SITE $13,650,000 DEFERRED MAINTENANCE -$ 34,000 VALUE INDICATED BY SALES COMPARISON APPROACH $13,616,000 ROUNDED $13,600,000
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 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS 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-1 152 $ 7,770,350 8.22% $ 638,610 $ 1,204,988 1.051 $53,706 $ 51,121 $ 4,201 $ 4,414 I-2 288 $ 14,900,000 7.69% $ 1,146,151 $ 1,204,988 1.109 $57,381 $ 51,736 $ 3,980 $ 4,414 I-3 307 $ 16,850,000 8.15% $ 1,372,947 $ 1,204,988 0.987 $54,171 $ 54,886 $ 4,472 $ 4,414 I-4 76 $ 5,268,658 9.08% $ 478,141 $ 1,204,988 0.702 $48,637 $ 69,324 $ 6,291 $ 4,414 I-5 248 $ 16,801,300 10.48% $ 1,760,068 $ 1,204,988 0.622 $42,134 $ 67,747 $ 7,097 $ 4,414
PRICE/UNIT
Low High Average Median $42,134 $57,381 $ 51,206 $ 53,706
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 50,000 Number of Units 273 ------------ Value $13,650,000 Deferred Maintenance -$ 34,000 ------------ Value Based on NOI Analysis $13,616,000 Rounded $13,600,000
The adjusted sales indicate a range of value between $42,134 and $57,381 per unit, with an average of $51,206 per unit. Based on the subject's competitive position within the improved sales, a value of $50,000 per unit is estimated. This indicates an "as is" market value of $13,600,000 (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 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS 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-1 152 $ 7,770,350 $ 1,118,974 $ 480,364 42.93% 6.94 $ 51,121 I-2 288 $14,900,000 $ 2,177,841 $1,031,690 47.37% 6.84 $ 51,736 I-3 307 $16,850,000 $ 2,495,687 $1,122,740 44.99% 6.75 $ 54,886 42.71% I-4 76 $ 5,268,658 $ 719,053 $ 240,912 33.50% 7.33 $ 69,324 I-5 248 $16,801,300 $ 2,589,305 $ 829,237 32.03% 6.49 $ 67,747
EGIM
Low High Average Median - ----- ------ ------- ------ 6.49 7.33 6.87 6.84
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 6.25 ------------ Subject EGI $ 2,222,472 Value $13,890,450 Deferred Maintenance -$ 34,000 ------------ Value Based on EGIM Analysis $13,856,450 Rounded $13,900,000 Value Per Unit $ 50,916
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 42.71% before reserves. The comparable sales indicate a range of expense ratios from 32.03% to 47.37%, while their EGIMs range from 6.49 to 7.33. Overall, we conclude to an EGIM of 6.25, which results in an "as is" value estimate in the EGIM Analysis of $13,900,000. 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 $13,700,000. Price Per Unit $13,600,000 NOI Per Unit $13,600,000 EGIM Analysis $13,900,000 Sales Comparison Conclusion $13,700,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS 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 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS 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 - -------------------------------------------------------- 1Br/1Ba 617 $530 $ 0.86 90.0% 1Br/1Ba 878 $570 $ 0.65 80.0% 2Br/1Ba 1165 $790 $ 0.68 93.0% 2Br/2Ba 1274 $800 $ 0.63 100.0% 3Br/2Ba 1287 $900 $ 0.70 91.0% 3Br/2Ba, TH 1845 $840 $ 0.46 97.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS RENT ANALYSIS
COMPARABLE RENTS ------------------------------------------------------------- R-1 R-2 R-3 R-4 R-5 ------------------------------------------------------------- Highland Sunny Oak Ridge Skyler Village Essex Place Pebblebrook Apartments Ridge ------------------------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT ------------------------------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly Slightly Slightly Slightly DESCRIPTION TYPE RENT RENT Superior Similar Superior Superior Superior - ---------------------------------------------------------------------------------------------------------------------------- Monthly Rent 1Br/1Ba $ 530 $ 559 $ 529 $ 605 $ 500 $ 638 Unit Area (SF) 617 617 720 700 578 681 Monthly Rent Per Sq. Ft. $ 0.86 $ 0.91 $ 0.73 $ 0.86 $ 0.87 $ 0.94 Monthly Rent 1Br/1Ba $ 570 $ 589 $ 700 $ 625 $ 637 $ 690 Unit Area (SF) 878 878 934 600 637 821 Monthly Rent Per Sq. Ft. $ 0.65 $ 0.67 $ 0.75 $ 1.04 $ 1.00 $ 0.84 Monthly Rent 2Br/1Ba $ 790 $ 859 $ 629 $ 740 $ 750 $ 750 Unit Area (SF) 1,165 1,165 840 925 840 972 Monthly Rent Per Sq. Ft. $ 0.68 $ 0.74 $ 0.75 $ 0.80 $ 0.89 $ 0.77 Monthly Rent 2Br/2Ba $ 800 $ 869 $ 654 $ 898 $ 805 $ 923 $ 699 Unit Area (SF) 1,274 1,274 1,017 1,256 900 1,125 1,018 Monthly Rent Per Sq. Ft. $ 0.63 $ 0.68 $ 0.64 $ 0.71 $ 0.89 $ 0.82 $ 0.69 Monthly Rent 3Br/2Ba $ 900 $ 889 $ 799 $ 895 Unit Area (SF) 1,287 1,287 1,225 1,157 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.69 $ 0.65 $ 0.77 Monthly Rent 3Br/2Ba, TH $ 840 $ 1,299 $ 899 $ 1,210 Unit Area (SF) 1,845 1,845 1,500 1,945 Monthly Rent Per Sq. Ft. $ 0.46 $ 0.70 $ 0.60 $ 0.62 DESCRIPTION MIN MAX MEDIAN AVERAGE - ---------------------------------------------------------------- Monthly Rent $ 500 $ 638 $ 567 $ 568 Unit Area (SF) 578 720 691 670 Monthly Rent Per Sq. Ft. $ 0.73 $ 0.94 $ 0.86 $ 0.85 Monthly Rent $ 625 $ 700 $ 664 $ 663 Unit Area (SF) 600 934 729 748 Monthly Rent Per Sq. Ft. $ 0.75 $ 1.04 $ 0.92 $ 0.91 Monthly Rent $ 629 $ 750 $ 745 $ 717 Unit Area (SF) 840 972 883 894 Monthly Rent Per Sq. Ft. $ 0.75 $ 0.89 $ 0.79 $ 0.80 Monthly Rent $ 654 $ 923 $ 805 $ 796 Unit Area (SF) 900 1,256 1,018 1,063 Monthly Rent Per Sq. Ft. $ 0.64 $ 0.89 $ 0.71 $ 0.75 Monthly Rent $ 799 $ 895 $ 847 $ 847 Unit Area (SF) 1,157 1,225 1,191 1,191 Monthly Rent Per Sq. Ft. $ 0.65 $ 0.77 $ 0.71 $ 0.71 Monthly Rent $ 899 $ 1,210 $1,055 $ 1,055 Unit Area (SF) 1,500 1,945 1,723 1,723 Monthly Rent Per Sq. Ft. $ 0.60 $ 0.62 $ 0.61 $ 0.61
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 - --------------------------------------------------------------------------------------- 1Br/1Ba 36 617 $ 560 $ 0.91 $ 20,160 $ 241,920 1Br/1Ba 140 878 $ 590 $ 0.67 $ 82,600 $ 991,200 2Br/1Ba 4 1,165 $ 860 $ 0.74 $ 3,440 $ 41,280 2Br/2Ba 77 1,274 $ 870 $ 0.68 $ 66,990 $ 803,880 3Br/2Ba 10 1,287 $ 890 $ 0.69 $ 8,900 $ 106,800 3Br/2Ba, TH 6 1,845 $1,000 $ 0.54 $ 6,000 $ 72,000 Total $188,090 $2,257,080
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 29 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 FISCAL YEAR 2003 ------------------------------------------------------------------------------------------------- ACTUAL ACTUAL ACTUAL MANAGEMENT BUDGET ------------------------------------------------------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT - ------------------------------------------------------------------------------------------------------------------------------- Revenues Rental Income $ 2,343,886 $ 8,586 $ 2,393,324 $ 8,767 $ 1,418,895 $ 5,197 $ 2,271,600 $ 8,321 Vacancy $ 145,705 $ 534 $ 155,115 $ 568 $ 151,344 $ 554 $ 189,260 $ 693 Credit Loss/Concessions $ 36,929 $ 135 $ 90,771 $ 332 $ 55,335 $ 203 $ 70,080 $ 257 ------------------------------------------------------------------------------------------------- Subtotal $ 182,634 $ 669 $ 245,886 $ 901 $ 206,679 $ 757 $ 259,340 $ 950 Laundry Income $ 19,958 $ 73 $ 19,047 $ 70 $ 11,280 $ 41 $ 24,240 $ 89 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 93,003 $ 341 $ 146,711 $ 537 $ 101,256 $ 371 $ 168,504 $ 617 ------------------------------------------------------------------------------------------------- Subtotal Other Income $ 112,961 $ 414 $ 165,758 $ 607 $ 112,536 $ 412 $ 192,744 $ 706 ------------------------------------------------------------------------------------------------- Effective Gross Income $ 2,274,213 $ 8,330 $ 2,313,196 $ 8,473 $ 1,324,752 $ 4,853 $ 2,205,004 $ 8,077 Operating Expenses Taxes $ 113,303 $ 415 $ 112,288 $ 411 $ 74,049 $ 271 $ 124,176 $ 455 Insurance $ 59,557 $ 218 $ 71,586 $ 262 $ 56,071 $ 205 $ 52,408 $ 192 Utilities $ 153,876 $ 564 $ 174,057 $ 638 $ 102,160 $ 374 $ 139,984 $ 513 Repair & Maintenance $ 32,444 $ 119 $ 55,393 $ 203 $ 48,189 $ 177 $ 60,764 $ 223 Cleaning $ 25,580 $ 94 $ 25,601 $ 94 $ 15,698 $ 58 $ 0 $ 0 Landscaping $ 47,560 $ 174 $ 33,143 $ 121 $ 10,196 $ 37 $ 65,500 $ 240 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 51,309 $ 188 $ 43,245 $ 158 $ 27,914 $ 102 $ 46,040 $ 169 General Administrative $ 295,033 $ 1,081 $ 305,091 $ 1,118 $ 158,914 $ 582 $ 250,044 $ 916 Management $ 115,313 $ 422 $ 119,995 $ 440 $ 61,945 $ 227 $ 110,004 $ 403 Miscellaneous $ 69,367 $ 254 $ 63,312 $ 232 $ 40,220 $ 147 $ 62,592 $ 229 ------------------------------------------------------------------------------------------------- Total Operating Expenses $ 963,342 $ 3,529 $ 1,003,711 $ 3,677 $ 595,356 $ 2,181 $ 911,512 $ 3,339 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------------------- Net Income $ 1,310,871 $ 4,802 $ 1,309,485 $ 4,797 $ 729,396 $ 2,672 $ 1,293,492 $ 4,738 ANNUALIZED 2003 ---------------------- PROJECTION AAA PROJECTION ------------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % - ------------------------------------------------------------------------------------- Revenues Rental Income $ 2,269,436 $ 8,313 $ 2,257,080 $ 8,268 100.0% Vacancy $ 208,736 $ 765 $ 157,996 $ 579 7.0% Credit Loss/Concessions $ 280,504 $ 1,027 $ 67,712 $ 248 3.0% ------------------------------------------------------- Subtotal $ 489,240 $ 1,792 $ 225,708 $ 827 10.0% Laundry Income $ 21,160 $ 78 $ 13,650 $ 50 0.6% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 246,720 $ 904 $ 177,450 $ 650 7.9% ------------------------------------------------------- Subtotal Other Income $ 267,880 $ 981 $ 191,100 $ 700 8.5% ------------------------------------------------------- Effective Gross Income $ 2,048,076 $ 7,502 $ 2,222,472 $ 8,141 100.0% Operating Expenses Taxes ($ 104,664) -$ 383 $ 81,900 $ 300 3.7% Insurance $ 82,700 $ 303 $ 68,250 $ 250 3.1% Utilities $ 185,676 $ 680 $ 150,150 $ 550 6.8% Repair & Maintenance $ 37,000 $ 136 $ 54,600 $ 200 2.5% Cleaning $ 22,776 $ 83 $ 25,935 $ 95 1.2% Landscaping $ 8,016 $ 29 $ 40,950 $ 150 1.8% Security $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 45,060 $ 165 $ 47,775 $ 175 2.1% General Administrative $ 235,984 $ 864 $ 300,300 $ 1,100 13.5% Management $ 107,296 $ 393 $ 111,124 $ 407 5.0% Miscellaneous $ 100,576 $ 368 $ 68,250 $ 250 3.1% ------------------------------------------------------- Total Operating Expenses $ 720,420 $ 2,639 $ 949,234 $ 3,477 42.7% Reserves $ 0 $ 0 $ 68,250 $ 250 7.2% ------------------------------------------------------- Net Income $ 1,327,656 $ 4,863 $ 1,204,988 $ 4,414 54.2%
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 10% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS 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 $250 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 some major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an additional $34,000 has been deducted. 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 31 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - ---------------------------------------------------- I-1 Aug-02 91% $ 51,121 8.22% I-2 Jul-02 89% $ 51,736 7.69% I-3 Jul-02 90% $ 54,886 8.15% I-4 May-01 97% $ 69,324 9.08% I-5 Jan-01 94% $ 67,747 10.48% High 10.48% Low 7.69% Average 8.72%
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 10.00%. 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 11.00%. 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 11.00% indicates a value of $13,800,000. In this instance, the reversion figure contributes approximately 40% of the total value. Investors surveyed for this assignment indicated they AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS 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 33 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS DISCOUNTED CASH FLOW ANALYSIS INDIAN CREEK VILLAGE
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 - ------------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $2,257,080 $2,302,222 $2,371,288 $2,442,427 $2,515,700 $2,591,171 Vacancy $ 157,996 $ 161,156 $ 165,990 $ 170,970 $ 176,099 $ 181,382 Credit Loss $ 67,712 $ 69,067 $ 71,139 $ 73,273 $ 75,471 $ 77,735 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- Subtotal $ 225,708 $ 230,222 $ 237,129 $ 244,243 $ 251,570 $ 259,117 Laundry Income $ 13,650 $ 13,923 $ 14,341 $ 14,771 $ 15,214 $ 15,670 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 177,450 $ 180,999 $ 186,429 $ 192,022 $ 197,782 $ 203,716 -------------------------------------------------------------------------------- Subtotal Other Income $ 191,100 $ 194,922 $ 200,770 $ 206,793 $ 212,997 $ 219,386 -------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $2,222,472 $2,266,921 $2,334,929 $2,404,977 $2,477,126 $2,551,440 OPERATING EXPENSES: Taxes $ 81,900 $ 84,357 $ 86,888 $ 89,494 $ 92,179 $ 94,945 Insurance $ 68,250 $ 70,298 $ 72,406 $ 74,579 $ 76,816 $ 79,120 Utilities $ 150,150 $ 154,655 $ 159,294 $ 164,073 $ 168,995 $ 174,065 Repair & Maintenance $ 54,600 $ 56,238 $ 57,925 $ 59,663 $ 61,453 $ 63,296 Cleaning $ 25,935 $ 26,713 $ 27,514 $ 28,340 $ 29,190 $ 30,066 Landscaping $ 40,950 $ 42,179 $ 43,444 $ 44,747 $ 46,090 $ 47,472 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 47,775 $ 49,208 $ 50,684 $ 52,205 $ 53,771 $ 55,384 General Administrative $ 300,300 $ 309,309 $ 318,588 $ 328,146 $ 337,990 $ 348,130 Management $ 111,124 $ 113,346 $ 116,746 $ 120,249 $ 123,856 $ 127,572 Miscellaneous $ 68,250 $ 70,298 $ 72,406 $ 74,579 $ 76,816 $ 79,120 -------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 949,234 $ 976,599 $1,005,897 $1,036,074 $1,067,157 $1,099,171 Reserves $ 68,250 $ 70,298 $ 72,406 $ 74,579 $ 76,816 $ 79,120 -------------------------------------------------------------------------------- NET OPERATING INCOME $1,204,988 $1,220,025 $1,256,625 $1,294,324 $1,333,154 $1,373,148 Operating Expense Ratio (% of EGI) 42.7% 43.1% 43.1% 43.1% 43.1% 43.1% Operating Expense Per Unit $ 3,477 $ 3,577 $ 3,685 $ 3,795 $ 3,909 $ 4,026 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 - ----------------------------------------------------------------------------------------------------------- REVENUE Base Rent $2,668,906 $2,748,973 $2,831,442 $2,916,385 $3,003,877 Vacancy $ 186,823 $ 192,428 $ 198,201 $ 204,147 $ 210,271 Credit Loss $ 80,067 $ 82,469 $ 84,943 $ 87,492 $ 90,116 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ Subtotal $ 266,891 $ 274,897 $ 283,144 $ 291,639 $ 300,388 Laundry Income $ 16,141 $ 16,625 $ 17,124 $ 17,637 $ 18,166 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 209,827 $ 216,122 $ 222,606 $ 229,284 $ 236,163 ------------------------------------------------------------------ Subtotal Other Income $ 225,968 $ 232,747 $ 239,729 $ 246,921 $ 254,329 ------------------------------------------------------------------ EFFECTIVE GROSS INCOME $2,627,983 $2,706,823 $2,788,027 $2,871,668 $2,957,818 OPERATING EXPENSES: Taxes $ 97,793 $ 100,727 $ 103,748 $ 106,861 $ 110,067 Insurance $ 81,494 $ 83,939 $ 86,457 $ 89,051 $ 91,722 Utilities $ 179,287 $ 184,666 $ 190,206 $ 195,912 $ 201,789 Repair & Maintenance $ 65,195 $ 67,151 $ 69,166 $ 71,241 $ 73,378 Cleaning $ 30,968 $ 31,897 $ 32,854 $ 33,839 $ 34,854 Landscaping $ 48,896 $ 50,363 $ 51,874 $ 53,430 $ 55,033 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 57,046 $ 58,757 $ 60,520 $ 62,336 $ 64,206 General Administrative $ 358,574 $ 369,331 $ 380,411 $ 391,823 $ 403,578 Management $ 131,399 $ 135,341 $ 139,401 $ 143,583 $ 147,891 Miscellaneous $ 81,494 $ 83,939 $ 86,457 $ 89,051 $ 91,722 ------------------------------------------------------------------ TOTAL OPERATING EXPENSES $1,132,146 $1,166,111 $1,201,094 $1,237,127 $1,274,241 Reserves $ 81,494 $ 83,939 $ 86,457 $ 89,051 $ 91,722 ------------------------------------------------------------------ NET OPERATING INCOME $1,414,343 $1,456,773 $1,500,476 $1,545,491 $1,591,855 Operating Expense Ratio (% of EGI) 43.1% 43.1% 43.1% 43.1% 43.1% Operating Expense Per Unit $ 4,147 $ 4,271 $ 4,400 $ 4,532 $ 4,668
Estimated Stabilized NOI $1,204,988 Sales Expense Rate 2.00% Months to Stabilized 1 Discount Rate 11.00% Stabilized Occupancy 93.0% Terminal Cap Rate 10.00%
Gross Residual Sale Price $15,918,553 Deferred Maintenance -$ 34,000 Less: Sales Expense $ 318,371 Add: Excess Land $ 0 ----------- Net Residual Sale Price $15,600,182 Other Adjustments $ 0 ------------ PV of Reversion $ 5,494,142 Value Indicated By "DCF" $13,781,967 Add: NPV of NOI $ 8,321,825 Rounded $13,800,000 ----------- PV Total $13,815,967
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE - ------------------------------------------------------------------------------------------ TOTAL VALUE 10.50% 10.75% 11.00% 11.25% 11.50% - ------------------------------------------------------------------------------------------ 9.50% $14,572,692 $14,336,337 $14,105,133 $13,878,951 $13,657,664 9.75% $14,417,554 $14,184,665 $13,956,843 $13,733,960 $13,515,892 TERMINAL CAP RATE 10.00% $14,270,173 $14,040,577 $13,815,967 $13,596,218 $13,381,207 10.25% $14,129,981 $13,903,518 $13,681,964 $13,465,196 $13,253,093 10.50% $13,996,465 $13,772,985 $13,554,342 $13,340,412 $13,131,080
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS 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 Concessions have historically not been utilized at the subject property or in the subject's market. Therefore, no adjustment was included for concessions. 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 35 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS INDIAN CREEK VILLAGE
TOTAL PER SQ. FT. PER UNIT % OF EGI - ------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 2,257,080 $ 8.30 $ 8,268 Less: Vacancy & Collection Loss 10.00% $ 225,708 $ 0.83 $ 827 Plus: Other Income Laundry Income $ 13,650 $ 0.05 $ 50 0.61% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 177,450 $ 0.65 $ 650 7.98% ------------------------------------------------------ Subtotal Other Income $ 191,100 $ 0.70 $ 700 8.60% EFFECTIVE GROSS INCOME $ 2,222,472 $ 8.18 $ 8,141 OPERATING EXPENSES: Taxes $ 81,900 $ 0.30 $ 300 3.69% Insurance $ 68,250 $ 0.25 $ 250 3.07% Utilities $ 150,150 $ 0.55 $ 550 6.76% Repair & Maintenance $ 54,600 $ 0.20 $ 200 2.46% Cleaning $ 25,935 $ 0.10 $ 95 1.17% Landscaping $ 40,950 $ 0.15 $ 150 1.84% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 47,775 $ 0.18 $ 175 2.15% General Administrative $ 300,300 $ 1.10 $ 1,100 13.51% Management 5.00% $ 111,124 $ 0.41 $ 407 5.00% Miscellaneous $ 68,250 $ 0.25 $ 250 3.07% TOTAL OPERATING EXPENSES $ 949,234 $ 3.49 $ 3,477 42.71% Reserves $ 68,250 $ 0.25 $ 250 3.07% ------------------------------------------------------ NET OPERATING INCOME $ 1,204,988 $ 4.43 $ 4,414 54.22% ====================================================== "GOING IN" CAPITALIZATION RATE 9.00% VALUE INDICATION $ 13,388,760 $ 49.25 $ 49,043 DEFERRED MAINTENANCE ($ 34,000) LESS: LEASE-UP COST (OTHER VALUE ADJUSTMENTS) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $ 13,354,760 ROUNDED $ 13,400,000 $ 49.30 $ 49,084
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - ---------------------------------------------------------------------------------- 8.25% $14,571,920 $14,600,000 $53,480 $53.71 8.50% $14,142,334 $14,100,000 $51,648 $51.87 8.75% $13,737,296 $13,700,000 $50,183 $50.40 9.00% $13,354,760 $13,400,000 $49,084 $49.30 9.25% $12,992,902 $13,000,000 $47,619 $47.82 9.50% $12,650,088 $12,700,000 $46,520 $46.72 9.75% $12,324,855 $12,300,000 $45,055 $45.25
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $13,400,000. 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 $13,800,000 Direct Capitalization Method $13,400,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $13,600,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS 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 $13,700,000 Income Approach $13,600,000 Reconciled Value $13,600,000
The Income 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 8, 2003 the market value of the fee simple estate in the property is: $13,600,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] ENTRANCE TO SUBJECT VIEW OF LEASING OFFICE [PICTURE] [PICTURE] VIEW OF TYPICAL BUILDING AND PARKING LOT TYPICAL CARPORT [PICTURE] [PICTURE] TYPICAL GARAGE VIEW OF POOL AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] INTERIOR VIEW - VACANT APARTMENT UNIT INTERIOR VIEW - VACANT APARTMENT UNIT [PICTURE] [PICTURE] INTERIOR - VACANT APARTMENT UNIT INTERIOR -VACANT APARTMENT UNIT [PICTURE] [PICTURE] INTERIOR VIEW - VACANT STUDIO UNIT KITCHEN VIEW OF TYPICAL VAULTED CEILING AND WOOD AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 NIEMAN SQUARE CASA DE FUENTES ASPEN LODGE 11115 West 64th Terrace 11700 Stearns 8100 Perry Road Shawnee, KS Overland Park, KS Overland Park, KS [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 CORINTH PLACE APARTMENTS CONCORDE BRIDGE TOWNHOMES (NOW SHERIDAN BRIDGE) 3815 Somerset Drive 8403 Carter Street Prairie Village, KS Overland Park, KS [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 - -------------------------------- ------------------------------------------------ ----------------------------------------- Property Name Indian Creek Village Sunny Oak Village Management Company AIMCO Equity Apartments LOCATION: Address 10382 Conser Street 7575 West 106th Street City, State Overland Park, Kansas Overland Park, KS County Johnson Johnson Proximity to Subject Located just SE of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 271,830 505,417 Year Built 1972 1983 Effective Age 25 20 Building Structure Type Stucco, flat and pitched roofs Brick, wood siding, composition shingle roofs Parking Type (Gr., Cov., etc.) Open, carports, garages Open, carports Number of Units 273 548 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Br/1Ba 617 36 $530 1 1Br/1Ba 720 NA $529 2 1Br/1Ba 878 140 $570 3 2Br/1Ba 840 NA $629 3 2Br/1Ba 1,165 4 $790 4 2Br/2Ba 1,017 NA $654 4 2Br/2Ba 1,274 77 $800 5 3Br/2Ba 1,225 NA $799 5 3Br/2Ba 1,287 10 $900 6 3Br/2Ba 1,500 NA $899 6 3Br/2Ba, TH 1,845 6 $840 Average Unit Size (SF) 996 922 Unit Breakdown: Efficiency 0% 2-Bedroom 30% Efficiency 0% 2-Bedroom NA 1-Bedroom 64% 3-Bedroom 6% 1-Bedroom NA 3-Bedroom NA CONDITION: Average Average APPEAL: Average Good AMENITIES: Unit Amenities X Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment X Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X 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 X Gym Room OCCUPANCY: 88% 99% LEASING DATA: Available Leasing Terms 6 to 12 Months 6 or 12 months Concessions Discount on select units ($50-100/Mo) Discount on selected units - varies Pet Deposit $300 $200 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation May 8, 2003; Roxane Tevis (Property Manager) May 28, 2003; (Leasing Agent) Telephone Number (913)648-5093 (877)566-3701 NOTES: COMPARISON TO SUBJECT: Slightly Superior DESCRIPTION COMPARABLE COMPARABLE R - 2 R - 3 - -------------------------------- --------------------------------------------- --------------------------------------------- Property Name Essex Place Pebblebrook Management Company Equity Apartments Price Management LOCATION: Address 8900 West 102nd Street 7700 West 95th Street City, State Overland Park, KS Overland Park, KS County Johnson County Johnson County Proximity to Subject 1 miles NW of subject 1.5 miles N of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 430,222 NA Year Built 1971 1985 Effective Age 20 18 Building Structure Type Brick, wood siding, composition shingle roofs Brick, wood siding, composition shingle roofs Parking Type (Gr., Cov., etc.) Open, carports, garages Open, carports Number of Units 352 267 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Br/1Ba 700 NA $ 605 2 1Br/1Ba 500 NA $575 2 1Br/1Ba 934 NA $ 700 2 1Br/1Ba 700 NA $675 4 2Br/2Ba 1,256 NA $ 898 4 2Br/2Ba 900 NA $805 3 2Br/2Ba 925 NA $ 740 6 3Br/2.5Ba 1,945 NA $1,210 Average Unit Size (SF) 1,222 NA Unit Breakdown: Efficiency 0% 2-Bedroom 0% Efficiency 0% 2-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% CONDITION: Average Average APPEAL: Average Good AMENITIES: Unit Amenities X Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash X Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X 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 X Gym Room OCCUPANCY: 92% 94% LEASING DATA: Available Leasing Terms 6 or 12 months 7 to 13 months Concessions Discounts on selected $250 off a 7-month lease; $500 off units 12-month Pet Deposit $300 $300 Utilities Paid by Tenant: Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation May 28, 2003; (Leasing Agent) May 28, 2003; (Leasing Agent) Telephone Number (877)457-8251 (913)648-8081 NOTES: COMPARISON TO SUBJECT: Similar Slightly Superior COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 - -------------------------------- -------------------------------------------- -------------------------------------------- Property Name Highland Ridge Apartments Skyler Ridge Management Company Lincoln Property Company Sentinel Property Management LOCATION: Address 11846 Perry Road 7171 West 115th Street City, State Overland Park, KS Overland Park, KS County Johnson County Johnson County Proximity to Subject 4.5 miles SW of subject 2 miles SE of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) NA NA Year Built 1987 1986 Effective Age 16 17 Building Structure Type Wood siding, composition shingle roofs Brick, wood siding, composition shingle roofs Parking Type (Gr., Cov., etc.) Open, carports Open, carports Number of Units 370 448 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Br/1Ba 578 NA $500 1 1Br/1Ba 602 NA $615 2 1Br/1Ba 637 NA $637 1 1Br/1Ba 760 NA $660 3 2Br/1Ba 840 NA $750 2 1Br/1Ba 821 NA $690 4 2Br/2Ba 1,017 NA $900 3 2Br/2Ba 972 NA $750 4 2Br/2Ba 1,232 NA $945 4 2Br/2Ba 1,018 NA $699 5 3Br/2Ba 1,157 NA $895 Average Unit Size (SF) NA Unit Breakdown: Efficiency 0% 2-Bedroom 0% Efficiency 0% 2-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% CONDITION: Average Average APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball Meeting Hall X 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 X Gym Room OCCUPANCY: 85% 92% LEASING DATA: Available Leasing Terms 12 Months 6 or 12 months Concessions One month free Discounts on selected units Pet Deposit $300 $300 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation May 28, 2003; (Leasing Agent) May 28, 2003; (Leasing Agent) Telephone Number (800)396-9600 (877)892-7574 NOTES: COMPARISON TO SUBJECT: Slightly Superior Slightly Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 SUNNY OAK VILLAGE ESSEX PLACE PEBBLEBROOK 7575 West 106th Street 8900 West 102nd Street 7700 West 95th Street Overland Park, KS Overland Park, KS Overland Park, KS [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 HIGHLAND RIDGE APARTMENTS SKYLER RIDGE 11846 Perry Road 7171 West 115th Street Overland Park, KS Overland Park, KS [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS 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 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS 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 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS 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 Appraisal Institute 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 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS 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. Kim Cook 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 Texas State Certified General Real Estate Appraiser #TX-1323954-G AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS 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 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS 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. INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS 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. EX-99.(C)(3) 8 d07253exv99wxcyx3y.txt APPRAISAL OF THE KNOLLS THE KNOLLS 1510 GATEHOUSE CIRCLE COLORADO SPRINGS, COLORADO MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 15, 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] JUNE 28, 2003 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: THE KNOLLS 1510 GATEHOUSE CIRCLE COLORADO SPRINGS, EL PASO COUNTY, COLORADO 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 262 units with a total of 242,682 square feet of rentable area. The improvements were built in 1974. The improvements are situated on 22.02 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 81% 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 THE KNOLLS, COLORADO SPRINGS, COLORADO 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 15, 2003 is: ($14,400,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Douglas Needham ---------------------- June 28, 2003 Douglas Needham, MAI #053272 Managing Principal, Real Estate Group Colorado State Certified General Real Estate Appraiser #CG40017035 Report By: James Newell AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 THE KNOLLS, COLORADO SPRINGS, COLORADO 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 THE KNOLLS, COLORADO SPRINGS, COLORADO EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: The Knolls LOCATION: 1510 Gatehouse Circle Colorado Springs, Colorado 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 15, 2003 DATE OF REPORT: June 28, 2003
PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 22.02 acres, or 959,191 square feet Assessor Parcel No.: 7412200058 Floodplain: Community Panel No. 08041C0727F (March 17, 1997) Flood Zone X, an area outside the floodplain. Zoning: R-5 (Multi-Family Residential) BUILDING: No. of Units: 262 Units Total NRA: 242,682 Square Feet Average Unit Size: 926 Square Feet Apartment Density: 11.9 units per acre Year Built: 1974
UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ---------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income - ----------- ------ ---------------- -------- ---------- 1Bd/1Ba 717 $630 $0.88 $ 7,560 $ 90,720 1Bd/1Ba 787 $650 $0.83 $ 40,300 $ 483,600 2Bd/1Ba 950 $675 $0.71 $ 89,100 $1,069,200 2Bd/2Ba 1,012 $800 $0.79 $ 9,600 $ 115,200 2Bd/1.5Ba 1,085 $810 $0.75 $ 35,640 $ 427,680 -------- ---------- Total $182,200 $2,186,400 ======== ==========
OCCUPANCY: 81% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 23 Years REMAINING ECONOMIC LIFE: 22 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 THE KNOLLS, COLORADO SPRINGS, COLORADO SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - APARTMENTS EXTERIOR - LANDSCAPE & PARKING AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 THE KNOLLS, COLORADO SPRINGS, COLORADO NEIGHBORHOOD MAP [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 THE KNOLLS, COLORADO SPRINGS, COLORADO PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit --------------------- ------ ------- Potential Rental Income $2,186,400 $8,345 Effective Gross Income $2,105,264 $8,035 Operating Expenses $686,903 $2,622 32.6% of EGI Net Operating Income: $1,365,961 $5,214 Capitalization Rate 9.00% DIRECT CAPITALIZATION VALUE $14,600,000 * $55,725 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 14% Stabilized Vacancy & Collection Loss: 11.5% Lease-up / Stabilization Period 12 months 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 $14,200,000 * $54,198 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $14,400,000 $54,962 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $41,282 to $85,514 Range of Sales $/Unit (Adjusted) $56,146 to $59,860 VALUE INDICATION - PRICE PER UNIT $14,400,000 * $54,962 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 6.23 to 8.64 Selected EGIM for Subject 7.10 Subject's Projected EGI $2,105,264 EGIM ANALYSIS CONCLUSION $14,400,000 * $54,962 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $15,200,000 * $58,015 / UNIT RECONCILED SALES COMPARISON VALUE $14,500,000 $55,344 / 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 THE KNOLLS, COLORADO SPRINGS, COLORADO PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $ 14,400,000 NOI Per Unit $ 15,200,000 EGIM Multiplier $ 14,400,000 INDICATED VALUE BY SALES COMPARISON $14,500, 000 $55,344 / UNIT INCOME APPROACH: Direct Capitalization Method: $ 14,600,000 Discounted Cash Flow Method: $ 14,200,000 INDICATED VALUE BY THE INCOME APPROACH $ 14,400,000 $54,962 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $ 14,400,000 $54,962 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 THE KNOLLS, COLORADO SPRINGS, COLORADO INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 1510 Gatehouse Circle, Colorado Springs, El Paso County, Colorado. Colorado Springs identifies it as 7412200058. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by James Newell on May 15, 2003. Douglas Needham, MAI has not made a personal inspection of the subject property. James Newell performed the research, valuation analysis and wrote the report. Douglas Needham, MAI reviewed the report and concurs with the value. Douglas Needham, MAI and James Newell 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 15, 2003. The date of the report is June 28, 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 & Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 THE KNOLLS, COLORADO SPRINGS, COLORADO 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 Consolidated Capital Equity Partners 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 THE KNOLLS, COLORADO SPRINGS, COLORADO 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 Colorado Springs, Colorado. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Interstate 25 West - US-24 South - US-24 North - West Fillmore Street MAJOR EMPLOYERS Major employers in the subject's area include Agilent Technologies and WorldCom. 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 THE KNOLLS, COLORADO SPRINGS, COLORADO NEIGHBORHOOD DEMOGRAPHICS
AREA -------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - -------------------------------- ------------ ------------ ------------ --------- POPULATION TRENDS Current Population 11,510 71,858 167,572 538,844 5-Year Population 11,779 74,979 176,411 595,713 % Change CY-5Y 2.3% 4.3% 5.3% 10.6% Annual Change CY-5Y 0.5% 0.9% 1.1% 2.1% HOUSEHOLDS Current Households 5,230 32,931 72,895 201,086 5-Year Projected Households 5,440 35,024 77,592 223,226 % Change CY - 5Y 4.0% 6.4% 6.4% 11.0% Annual Change CY-5Y 0.8% 1.3% 1.3% 2.2% INCOME TRENDS Median Household Income $33,226 $33,598 $35,076 $ 50,108 Per Capita Income $20,343 $22,282 $22,536 $ 22,841 Average Household Income $44,131 $48,686 $51,597 $ 61,206
Source: Demographics Now The subject neighborhood's population is expected to show increases below 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 40.74% 40.38% 40.45% 31.26% 5-Year Projected % Renting 39.91% 40.53% 40.20% 29.31% % of Households Owning 46.84% 47.42% 48.06% 59.98% 5-Year Projected % Owning 48.05% 47.83% 48.84% 62.54%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 THE KNOLLS, COLORADO SPRINGS, COLORADO SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Mostly vacant land with some single-family housing South - Single-family housing and vacant land East - Single-family housing subdivision West - Retail shopping center CONCLUSIONS The subject is well located within the city of Colorado Springs. The neighborhood is characterized as being mostly suburban in nature and is currently in the stable 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 THE KNOLLS, COLORADO SPRINGS, COLORADO MARKET ANALYSIS The subject property is located in the city of Colorado Springs in El Paso County. The overall pace of development in the subject's market is more or less decreasing. Over the last several years there has been ongoing construction in northern Colorado Springs. The Austin Bluffs Apartment project, located on Whetstone Drive, is currently under construction and about 65% complete. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - --------------------------------------------------------------------------------------- 1999 5.1% 5.4% 2000 3.1% 2.8% 2001 8.9% 4.7% 2002 8.2% 8.2%
{Source: Hendricks & Partners Apartment Update: Rocky Mountain Region} Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has equated the overall market. Due to the large number of military personnel recently deployed, the Colorado Springs apartment market has suffered over the last several months. The local market, especially in the south end of town, will grow with the return of the personnel. Market rents in the subject's market have been following a decreasing trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change - ---------------------------------------------------------------------------------- 2001 $693 - $637 - 2002 $642 -7.4% $559 -12.2%
The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 THE KNOLLS, COLORADO SPRINGS, COLORADO COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject - -------------------------------------------------------------------------------------------------------- R-1 Park Terrace 115 87% 1968 Approx. 2 miles north of subject R-2 Falcon Pointe 280 87% 1987 Approx. 5 miles southeast of subject R-3 Altamira 360 87% 1984 Approx. 2 miles southwest of subject R-4 Broadmoor Terrace 153 87% 1975 Approx. 3 miles south of subject R-5 Broadmoor Villa 102 69% 1970 Approx. 3 miles south of subject Subject The Knolls 262 81% 1974
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 THE KNOLLS, COLORADO SPRINGS, COLORADO PROPERTY DESCRIPTION SITE ANALYSIS Site Area 22.02 acres, or 959,191 square feet Shape Irregular Topography Slightly 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 Poor Flood Zone: Community Panel 08041C0727F; 08041C0726F, dated March 17, 1997; March 17, 1997 Flood Zone Zone X; X Zoning R-5, the subject improvements represent a legal conforming use of the site. REAL ESTATE TAXES
ASSESSED VALUE - 2002 ------------------------------------------- TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES - ----------------------------------------------------------------------------------------------------------- 7412200058 $95,440 $790,960 $886,400 $0.06539 $57,965
IMPROVEMENT ANALYSIS Year Built 1974 Number of Units 262 Net Rentable Area 242,682 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Wood or vinyl siding Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, spa/jacuzzi, gym room, laundry room, and parking area. Unit Amenities Individual unit amenities include a balcony, fireplace, cable TV connection, vaulted ceiling, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, garbage disposal, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 THE KNOLLS, COLORADO SPRINGS, COLORADO Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - --------------------------------------------------------- 1Bd/1Ba 12 717 1Bd/1Ba 62 787 2Bd/1Ba 132 950 2Bd/2Ba 12 1,012 2Bd/1.5Ba 44 1,085
Overall Condition Average Effective Age 23 years Economic Life 45 years Remaining Economic Life 22 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 1974 and consist of a 262-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 THE KNOLLS, COLORADO SPRINGS, COLORADO 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 THE KNOLLS, COLORADO SPRINGS, COLORADO 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 THE KNOLLS, COLORADO SPRINGS, COLORADO 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 THE KNOLLS, COLORADO SPRINGS, COLORADO SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ------------------------------------------------------------------------------------------------------------------------ Property Name The Knolls Cheyenne Creek Park Meadows LOCATION: Address 1510 Gatehouse Circle 115 W Cheyenne Road 970 Mount Werner Circle City, State Colorado Springs, Colorado Colorado Springs, Colorado Colorado Springs, Colorado County El Paso County El Paso County El Paso County PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 242,682 107,261 47,179 Year Built 1974 1985 1984 Number of Units 262 107 60 Unit Mix: Type Total Type Total Type Total 1Bd/1Ba 12 2Br/1Ba 34 2Br/1Ba 60 1Bd/1Ba 62 2Br/2Ba 73 2Bd/1Ba 132 2Bd/2Ba 12 2Bd/1.5Ba 44 Average Unit Size (SF) 926 1,002 786 Land Area (Acre) 22.0200 4.4010 4.0200 Density (Units/Acre) 11.9 24.3 14.9 Parking Ratio (Spaces/Unit) 1.53 1.75 2.00 Parking Type (Gr., Cov., etc.) Open, Open Covered 107 Covered Open CONDITION: 0 Good Average APPEAL: 0 Very Good Average AMENITIES: Pool/Spa Yes/Yes No/No Gym Room Yes Laundry Room Yes Secured Parking No No No Sport Courts No No No OCCUPANCY: 81% 94% 90% TRANSACTION DATA: Sale Date June, 2002 April, 2002 Sale Price ($) $9,150,000 $3,100,000 Grantor BP Cheyenne Creek Apts Park Meadows Apartments Grantee 115 West Cheyenne Road Park Meadows Affordable Housing Sale Documentation 2100444 55416 Verification CoStar Realty Information Buyer Telephone Number 800-204-5960 719-447-9300 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,239,540 $11,584 $11.56 $405,000 $6,750 $8.58 Vacancy/Credit Loss $ 74,372 $ 695 $ 0.69 $ 40,500 $ 675 $0.86 Effective Gross Income $1,165,168 $10,889 $10.86 $364,500 $6,075 $7.73 Operating Expenses $ 407,809 $ 3,811 $ 3.80 $135,011 $2,250 $2.86 Net Operating Income $ 757,359 $ 7,078 $ 7.06 $229,489 $3,825 $4.86 Notes: PRICE PER UNIT $85,514 $51,667 PRICE PER SQUARE FOOT $ 85.31 $ 65.71 EXPENSE RATIO 35.0% 37.0% EGIM 7.85 8.50 OVERALL CAP RATE 8.28% 7.40% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - -------------------------------------------------------------------------------------------------------------------------- Property Name Cedar Crest Colony Hills Windtree Apartments LOCATION: Address 2010 Carmel Drive 3950 Patrick Drive 2530 Paragon Drive City, State Colorado Springs, Colorado Colorado Springs, Colorado Colorado Springs, Colorado County El Paso County El Paso County El Paso County PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 61,104 216,000 209,896 Year Built 1968 1985 1986 Number of Units 78 216 260 Unit Mix: Type Total Type Total Type Total 1Bd/1Ba 18 2Bd/1Ba 216 Studio 24 2Bd/2Ba 60 1Bd/1Ba 124 2Bd/1Ba 112 Average Unit Size (SF) 783 1,000 807 Land Area (Acre) 1.6000 6.6700 11.7900 Density (Units/Acre) 48.8 32.4 22.1 Parking Ratio (Spaces/Unit) 1.05 1.62 1.56 Parking Type (Gr., Cov., etc.) Open Some covered Open CONDITION: Fair Good Good APPEAL: Fair Good Good AMENITIES: Pool/Spa No/No Yes/Yes Gym Room Yes Laundry Room Yes Secured Parking No No No Sport Courts No No No OCCUPANCY: 95% 93% 90% TRANSACTION DATA: Sale Date January, 2003 July, 2001 December, 2001 Sale Price ($) $3,220,000 $10,500,000 $18,565,000 Grantor Cedar Creek Investments, LLC Bigelow Colorado II, LLC ERI II Windtree, Inc Grantee Stanley & Robin Douglas Colony Hills Colorado Springs KMF Windtree, Inc. Apts, LLC Sale Documentation 11028 101636 188335 Verification Buyer's Broker Christina Soliz (Broker) Buyers Broker Telephone Number 303-607-9001 602-912-1700 303-572-7700 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $536,160 $6,874 $8.77 $1,811,808 $8,388 $8.39 $2,387,000 $9,181 $11.37 Vacancy/Credit Loss $ 26,808 $ 344 $0.44 $ 126,827 $ 587 $0.59 $ 238,700 $ 918 $ 1.14 Effective Gross Income $509,352 $6,530 $8.34 $1,684,981 $7,801 $7.80 $2,148,300 $8,263 $10.24 Operating Expenses $203,741 $2,612 $3.33 $ 869,269 $4,024 $4.02 $ 751,000 $2,888 $ 3.58 Net Operating Income $305,611 $3,918 $5.00 $ 815,712 $3,776 $3.78 $1,522,300 $5,855 $ 7.25 Notes: PRICE PER UNIT $41,282 $48,611 $71,404 PRICE PER SQUARE FOOT $ 52.70 $ 48.61 $ 88.45 EXPENSE RATIO 40.0% 51.6% 35.0% EGIM 6.32 6.23 8.64 OVERALL CAP RATE 9.49% 7.77% 8.20% Cap Rate based on Pro Forma PRO FORMA PRO FORMA PRO FORMA Actual Income?
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 THE KNOLLS, COLORADO SPRINGS, COLORADO IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $41,282 to $85,514 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 $56,146 to $59,860 per unit with a mean or average adjusted price of $57,894 per unit. The median adjusted price is $57,795 per unit. Based on the following analysis, we have concluded to a value of $57,000 per unit, which results in an "as is" value of $14,400,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 THE KNOLLS, COLORADO SPRINGS, COLORADO SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ---------------------------------------------------------------------------------------------------------------------------- Property Name The Knolls Cheyenne Creek Park Meadows Address 1510 Gatehouse Circle 115 W Cheyenne Road 970 Mount Werner Circle City Colorado Springs, Colorado Colorado Springs, Colorado Colorado Springs, Colorado Sale Date June, 2002 April, 2002 Sale Price ($) $9,150,000 $3,100,000 Net Rentable Area (SF) 242,682 107,261 47,179 Number of Units 262 107 60 Price Per Unit $85,514 $51,667 Year Built 1974 1985 1984 Land Area (Acre) 22.0200 4.4010 4.0200 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 06-2002 0% 04-2002 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $85,514 $51,667 Location Superior -5% Comparable 0% Number of Units 262 107 -10% 60 -15% Quality / Appeal Good Superior -10% Inferior 10% Age / Condition 1974 1985 / Good -5% 1984 / Average 0% Occupancy at Sale 81% 94% 0% 90% 0% Amenities Good Comparable 0% Inferior 10% Average Unit Size (SF) 926 1,002 0% 786 5% PHYSICAL ADJUSTMENT -30% 10% FINAL ADJUSTED VALUE ($/UNIT) $59,860 $56,833 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ---------------------------------------------------------------------------------------------------------------------------- Property Name Cedar Crest Colony Hills Windtree Apartments Address 2010 Carmel Drive 3950 Patrick Drive 2530 Paragon Drive City Colorado Springs, Colorado Colorado Springs, Colorado Colorado Springs, Colorado Sale Date January, 2003 July, 2001 December, 2001 Sale Price ($) $3,220,000 $10,500,000 $18,565,000 Net Rentable Area (SF) 61,104 216,000 209,896 Number of Units 78 216 260 Price Per Unit $41,282 $48,611 $71,404 Year Built 1968 1985 1986 Land Area (Acre) 1.6000 6.6700 11.7900 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 01-2003 0% 07-2001 5% 12-2001 3% VALUE AFTER TRANS. ADJUST. ($/UNIT) $41,282 $51,042 $73,546 Location Inferior 5% Inferior 10% Superior -10% Number of Units 78 -15% 216 0% 260 0% Quality / Appeal Inferior 15% Comparable 0% Comparable 0% Age / Condition 1968 / Fair 20% 1985 / Good -5% 1986 / Good -10% Occupancy at Sale 95% 0% 93% 0% 90% 0% Amenities Inferior 10% Inferior 5% Comparable 0% Average Unit Size (SF) 783 5% 1,000 0% 807 0% PHYSICAL ADJUSTMENT 40% 10% -20% FINAL ADJUSTED VALUE ($/UNIT) $57,795 $56,146 $58,837
SUMMARY VALUE RANGE (PER UNIT) $56,146 TO $59,860 MEAN (PER UNIT) $57,894 MEDIAN (PER UNIT) $57,795 VALUE CONCLUSION (PER UNIT) $57,000
VALUE OF IMPROVEMENT & MAIN SITE $ 14,934,000 LESS: LEASE-UP COST -$ 87,000 PV OF CONCESSIONS -$ 468,000 VALUE INDICATED BY SALES COMPARISON APPROACH $ 14,379,000 ROUNDED $ 14,400,000
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 THE KNOLLS, COLORADO SPRINGS, COLORADO 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-1 107 $ 9,150,000 8.28% $ 757,359 $1,365,961 0.737 $62,988 $ 85,514 $ 7,078 $ 5,214 I-2 60 $ 3,100,000 7.40% $ 229,489 $1,365,961 1.363 $70,427 $ 51,667 $ 3,825 $ 5,214 I-3 78 $ 3,220,000 9.49% $ 305,611 $1,365,961 1.331 $54,932 $ 41,282 $ 3,918 $ 5,214 I-4 216 $10,500,000 7.77% $ 815,712 $1,365,961 1.381 $67,110 $ 48,611 $ 3,776 $ 5,214 I-5 260 $18,565,000 8.20% $1,522,300 $1,365,961 0.890 $63,582 $ 71,404 $ 5,855 $ 5,214
PRICE/UNIT
Low High Average Median $54,932 $70,427 $63,808 $63,582
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 60,000 Number of Units 262 Value $15,720,000 Less: Lease-Up Cost -$ 87,000 PV of Concessions -$ 468,000 ------------ Value Based on NOI Analysis $15,165,000 Rounded $15,200,000
The adjusted sales indicate a range of value between $54,932 and $70,427 per unit, with an average of $63,808 per unit. Based on the subject's competitive position within the improved sales, a value of $60,000 per unit is estimated. This indicates an "as is" market value of $15,200,000 (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 THE KNOLLS, COLORADO SPRINGS, COLORADO 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-1 107 $ 9,150,000 $1,165,168 $ 407,809 35.00% 7.85 $ 85,514 I-2 60 $ 3,100,000 $ 364,500 $ 135,011 37.04% 8.50 $ 51,667 I-3 78 $ 3,220,000 $ 509,352 $ 203,741 40.00% 6.32 $ 41,282 32.63% I-4 216 $10,500,000 $1,684,981 $ 869,269 51.59% 6.23 $ 48,611 I-5 260 $18,565,000 $2,148,300 $ 751,000 34.96% 8.64 $ 71,404
EGIM
Low High Average Median - --- ---- ------- ------ 6.23 8.64 7.51 7.85
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 7.10 ------------ Subject EGI $ 2,105,264 Value $14,947,374 Less: Lease-Up Cost -$ 87,000 PV of Concessions -$ 468,000 ------------ Value Based on EGIM Analysis $14,392,374 Rounded $14,400,000 Value Per Unit $ 54,962
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 32.63% before reserves. The comparable sales indicate a range of expense ratios from 34.96% to 51.59%, while their EGIMs range from 6.23 to 8.64. Overall, we conclude to an EGIM of 7.10, which results in an "as is" value estimate in the EGIM Analysis of $14,400,000. 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 $14,500,000. Price Per Unit $14,400,000 NOI Per Unit $15,200,000 EGIM Analysis $14,400,000 Sales Comparison Conclusion $14,500,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 THE KNOLLS, COLORADO SPRINGS, COLORADO 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 THE KNOLLS, COLORADO SPRINGS, COLORADO 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 - --------------------------------------------------------------------------- 1Bd/1Ba 717 $632 $0.88 91.7% 1Bd/1Ba 787 $661 $0.84 88.7% 2Bd/1Ba 950 $731 $0.77 75.0% 2Bd/2Ba 1012 $751 $0.74 65.9% 2Bd/1.5Ba 1085 $777 $0.72 91.7%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 THE KNOLLS, COLORADO SPRINGS, COLORADO RENT ANALYSIS
-------------------------------------------------- COMPARABLE RENTS -------------------------------------------------- R-1 R-2 R-3 R-4 R-5 -------------------------------------------------- Park Falcon Broadmoor Broadmoor Terrace Pointe Altamira Terrace Villa -------------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT -------------------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly Similar Similar Inferior DESCRIPTION TYPE RENT RENT Inferior Superior - --------------------------------------------------------------------------------------------------------------- Monthly Rent 1Bd/1Ba $ 632 $ 635 $ 455 $ 628 $ 483 $ 500 $ 488 Unit Area (SF) 717 717 535 573 552 545 563 Monthly Rent Per Sq. Ft. $ 0.88 $ 0.89 $0.85 $1.10 $0.87 $0.92 $0.87 Monthly Rent 1Bd/1Ba $ 661 $ 665 $ 715 $ 535 $ 550 Unit Area (SF) 787 787 755 737 785 Monthly Rent Per Sq. Ft. $ 0.84 $ 0.84 $0.95 $0.73 $0.70 Monthly Rent 2Bd/1Ba $ 731 $ 735 $ 595 $ 675 $ 649 $ 623 Unit Area (SF) 950 950 820 750 872 920 Monthly Rent Per Sq. Ft. $ 0.77 $ 0.77 $0.73 $0.90 $0.74 $0.68 Monthly Rent 2Bd/2Ba $ 751 $ 755 $ 850 Unit Area (SF) 1,012 1,012 908 Monthly Rent Per Sq. Ft. $ 0.74 $ 0.75 $0.94 Monthly Rent 2Bd/1.5Ba $ 777 $ 765 Unit Area (SF) 1,085 1,085 Monthly Rent Per Sq. Ft. $ 0.72 $ 0.71 DESCRIPTION MIN MAX MEDIAN AVERAGE - ---------------------------------------------------------- Monthly Rent $ 455 $ 628 $ 488 $ 511 Unit Area (SF) 535 573 552 553 Monthly Rent Per Sq. Ft. $0.85 $1.10 $0.87 $0.92 Monthly Rent $ 535 $ 715 $ 550 $ 600 Unit Area (SF) 737 785 755 759 Monthly Rent Per Sq. Ft. $0.70 $0.95 $0.73 $0.79 Monthly Rent $ 595 $ 675 $ 636 $ 635 Unit Area (SF) 750 920 846 841 Monthly Rent Per Sq. Ft. $0.68 $0.90 $0.73 $0.76 Monthly Rent $ 850 $ 850 $ 850 $ 850 Unit Area (SF) 908 908 908 908 Monthly Rent Per Sq. Ft. $0.94 $0.94 $0.94 $0.94 Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft.
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 - ------------------------------------------------------------------------------------------------------- 1Bd/1Ba 12 717 $ 630 $ 0.88 $ 7,560 $ 90,720 1Bd/1Ba 62 787 $ 650 $ 0.83 $ 40,300 $ 483,600 2Bd/1Ba 132 950 $ 675 $ 0.71 $ 89,100 $1,069,200 2Bd/2Ba 12 1,012 $ 800 $ 0.79 $ 9,600 $ 115,200 2Bd/1.5Ba 44 1,085 $ 810 $ 0.75 $ 35,640 $ 427,680 ---------------------------------- Total $ 182,200 $2,186,400 ----------------------------------
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 29 THE KNOLLS, COLORADO SPRINGS, COLORADO 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 $ 2,146,269 $ 8,192 $ 2,288,117 $ 8,733 $ 881,910 $ 3,366 Vacancy $ 88,933 $ 339 $ 101,086 $ 386 $ 114,493 $ 437 Credit Loss/Concessions $ 21,321 $ 81 $ 33,518 $ 128 $ 7,820 $ 30 ----------- ----------- ----------- ----------- ----------- ----------- Subtotal $ 110,254 $ 421 $ 134,604 $ 514 $ 122,313 $ 467 Laundry Income $ 33,813 $ 129 $ 49,987 $ 191 $ 12,510 $ 48 Garage Revenue $ 14,884 $ 57 $ 8,971 $ 34 $ 882 $ 3 Other Misc. Revenue $ 107,957 $ 412 $ 141,618 $ 541 $ 47,856 $ 183 ----------- ----------- ----------- ----------- ----------- ----------- Subtotal Other Income $ 156,654 $ 598 $ 200,576 $ 766 $ 61,248 $ 234 ----------- ----------- ----------- ----------- ----------- ----------- Effective Gross Income $ 2,192,669 $ 8,369 $ 2,354,089 $ 8,985 $ 820,845 $ 3,133 Operating Expenses Taxes $ 57,848 $ 221 $ 65,551 $ 250 $ 27,891 $ 106 Insurance $ 0 $ 0 $ 34,683 $ 132 $ 16,977 $ 65 Utilities $ 89,383 $ 341 $ 91,871 $ 351 $ 40,356 $ 154 Repair & Maintenance $ 22,590 $ 86 $ 40,688 $ 155 $ 11,353 $ 43 Cleaning $ 21,207 $ 81 $ 36,897 $ 141 $ 15,928 $ 61 Landscaping $ 27,989 $ 107 $ 28,441 $ 109 $ 11,351 $ 43 Security $ 3,465 $ 13 $ 4,720 $ 18 $ 0 $ 0 Marketing & Leasing $ 43,993 $ 168 $ 39,009 $ 149 $ 11,669 $ 45 General Administrative $ 242,047 $ 924 $ 222,294 $ 848 $ 72,430 $ 276 Management $ 111,576 $ 426 $ 125,291 $ 478 $ 40,785 $ 156 Miscellaneous ($ 20,828) -$ 79 ($ 9,258) -$ 35 $ 2,485 $ 9 ----------- ----------- ----------- ----------- ----------- ----------- Total Operating Expenses $ 599,270 $ 2,287 $ 680,187 $ 2,596 $ 251,225 $ 959 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ----------- ----------- ----------- ----------- ----------- ----------- Net Income $ 1,593,399 $ 6,082 $ 1,673,902 $ 6,389 $ 569,620 $ 2,174 FISCAL YEAR 2003 ANNUALIZED 2003 ----------------------------------------------------- MANAGEMENT BUDGET PROJECTION AAA PROJECTION ----------------------------------------------------- ------------------------------ DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % - ---------------------------------------------------------------------------------------------------------------------- Revenues Rental Income $ 2,211,304 $ 8,440 $ 2,200,860 $ 8,400 $ 2,186,400 $ 8,345 100.0% Vacancy $ 320,000 $ 1,221 $ 434,552 $ 1,659 $ 218,640 $ 835 10.0% Credit Loss/Concessions $ 0 $ 0 $ 60,176 $ 230 $ 32,796 $ 125 1.5% ----------- ----------- ----------- ----------- ----------- ----------- ----- Subtotal $ 320,000 $ 1,221 $ 494,728 $ 1,888 $ 251,436 $ 960 11.5% Laundry Income $ 44,388 $ 169 $ 37,844 $ 144 $ 39,300 $ 150 1.8% Garage Revenue $ 0 $ 0 $ 9,684 $ 37 $ 0 $ 0 0.0% Other Misc. Revenue $ 147,595 $ 563 $ 132,364 $ 505 $ 131,000 $ 500 6.0% ----------- ----------- ----------- ----------- ----------- ----------- ----- Subtotal Other Income $ 191,983 $ 733 $ 179,892 $ 687 $ 170,300 $ 650 7.8% ----------- ----------- ----------- ----------- ----------- ----------- ----- Effective Gross Income $ 2,083,287 $ 7,951 $ 1,886,024 $ 7,199 $ 2,105,264 $ 8,035 100.0% Operating Expenses Taxes $ 65,184 $ 249 $ 70,944 $ 271 $ 68,120 $ 260 3.2% Insurance $ 50,478 $ 193 $ 58,488 $ 223 $ 51,090 $ 195 2.4% Utilities $ 95,460 $ 364 $ 76,936 $ 294 $ 94,320 $ 360 4.5% Repair & Maintenance $ 27,720 $ 106 $ 51,488 $ 197 $ 32,750 $ 125 1.6% Cleaning $ 54,858 $ 209 $ 38,512 $ 147 $ 39,300 $ 150 1.9% Landscaping $ 88,196 $ 337 $ 3,392 $ 13 $ 28,820 $ 110 1.4% Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 42,920 $ 164 $ 48,728 $ 186 $ 44,540 $ 170 2.1% General Administrative $ 199,909 $ 763 $ 327,992 $ 1,252 $ 222,700 $ 850 10.6% Management $ 113,664 $ 434 $ 125,864 $ 480 $ 105,263 $ 402 5.0% Miscellaneous $ 0 $ 0 $ 19,284 $ 74 $ 0 $ 0 0.0% ----------- ----------- ----------- ----------- ----------- ----------- ----- Total Operating Expenses $ 738,389 $ 2,818 $ 821,628 $ 3,136 $ 686,903 $ 2,622 32.6% Reserves $ 0 $ 0 $ 0 $ 0 $ 52,400 $ 200 7.6% ----------- ----------- ----------- ----------- ----------- ----------- ----- Net Income $ 1,344,898 $ 5,133 $ 1,064,396 $ 4,063 $ 1,365,961 $ 5,214 64.9%
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 11.5% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 THE KNOLLS, COLORADO SPRINGS, COLORADO 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 31 THE KNOLLS, COLORADO SPRINGS, COLORADO SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - ---------------------------------------------------------------------------- I-1 Jun-02 94% $85,514 8.28% I-2 Apr-02 90% $51,667 7.40% I-3 Jan-03 95% $41,282 9.49% I-4 Jul-01 93% $48,611 7.77% I-5 Dec-01 90% $71,404 8.20% High 9.49% Low 7.40% Average 8.23%
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 $14,200,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 THE KNOLLS, COLORADO SPRINGS, COLORADO approximately 42% 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 APPROACH PAGE 33 THE KNOLLS, COLORADO SPRINGS, COLORADO DISCOUNTED CASH FLOW ANALYSIS THE KNOLLS
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 FISCAL YEAR 1 2 3 4 5 - ------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $2,186,400 $2,186,400 $2,208,264 $2,274,512 $2,342,747 Vacancy $ 320,553 $ 218,640 $ 220,826 $ 227,451 $ 234,275 Credit Loss $ 32,796 $ 32,796 $ 33,124 $ 34,118 $ 35,141 Concessions $ 521,904 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------------- Subtotal $ 875,253 $ 251,436 $ 253,950 $ 261,569 $ 269,416 Laundry Income $ 39,300 $ 39,300 $ 39,693 $ 40,884 $ 42,110 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 131,000 $ 131,000 $ 132,310 $ 136,279 $ 140,368 ---------------------------------------------------------------------- Subtotal Other Income $ 170,300 $ 170,300 $ 172,003 $ 177,163 $ 182,478 ---------------------------------------------------------------------- EFFECTIVE GROSS INCOME $1,481,447 $2,105,264 $2,126,317 $2,190,106 $2,255,809 OPERATING EXPENSES: Taxes $ 68,120 $ 70,164 $ 72,269 $ 74,437 $ 76,670 Insurance $ 51,090 $ 52,623 $ 54,201 $ 55,827 $ 57,502 Utilities $ 94,320 $ 97,150 $ 100,064 $ 103,066 $ 106,158 Repair & Maintenance $ 32,750 $ 33,733 $ 34,744 $ 35,787 $ 36,860 Cleaning $ 39,300 $ 40,479 $ 41,693 $ 42,944 $ 44,232 Landscaping $ 28,820 $ 29,685 $ 30,575 $ 31,492 $ 32,437 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 44,540 $ 45,876 $ 47,252 $ 48,670 $ 50,130 General Administrative $ 222,700 $ 229,381 $ 236,262 $ 243,350 $ 250,651 Management $ 74,072 $ 105,263 $ 106,316 $ 109,505 $ 112,790 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 655,712 $ 704,352 $ 723,378 $ 745,079 $ 767,431 Reserves $ 52,400 $ 53,972 $ 55,591 $ 57,259 $ 58,977 ---------------------------------------------------------------------- NET OPERATING INCOME $ 773,335 $1,346,940 $1,347,348 $1,387,768 $1,429,401 Operating Expense Ratio (% of EGI) 44.3% 33.5% 34.0% 34.0% 34.0% Operating Expense Per Unit $ 2,503 $ 2,688 $ 2,761 $ 2,844 $ 2,929 YEAR APR-2009 APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 6 7 8 9 10 11 - ---------------------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $2,413,030 $2,485,421 $2,559,983 $2,636,783 $2,715,886 $2,797,363 Vacancy $ 241,303 $ 248,542 $ 255,998 $ 263,678 $ 271,589 $ 279,736 Credit Loss $ 36,195 $ 37,281 $ 38,400 $ 39,552 $ 40,738 $ 41,960 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------- Subtotal $ 277,498 $ 285,823 $ 294,398 $ 303,230 $ 312,327 $ 321,697 Laundry Income $ 43,374 $ 44,675 $ 46,015 $ 47,396 $ 48,817 $ 50,282 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 144,579 $ 148,916 $ 153,384 $ 157,985 $ 162,725 $ 167,606 ------------------------------------------------------------------------------------- Subtotal Other Income $ 187,952 $ 193,591 $ 199,399 $ 205,381 $ 211,542 $ 217,888 ------------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $2,323,484 $2,393,188 $2,464,984 $2,538,933 $2,615,101 $2,693,554 OPERATING EXPENSES: Taxes $ 78,970 $ 81,339 $ 83,779 $ 86,292 $ 88,881 $ 91,548 Insurance $ 59,227 $ 61,004 $ 62,834 $ 64,719 $ 66,661 $ 68,661 Utilities $ 109,343 $ 112,623 $ 116,002 $ 119,482 $ 123,066 $ 126,758 Repair & Maintenance $ 37,966 $ 39,105 $ 40,278 $ 41,487 $ 42,731 $ 44,013 Cleaning $ 45,559 $ 46,926 $ 48,334 $ 49,784 $ 51,278 $ 52,816 Landscaping $ 33,410 $ 34,413 $ 35,445 $ 36,508 $ 37,604 $ 38,732 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 51,634 $ 53,183 $ 54,779 $ 56,422 $ 58,115 $ 59,858 General Administrative $ 258,170 $ 265,915 $ 273,893 $ 282,110 $ 290,573 $ 299,290 Management $ 116,174 $ 119,659 $ 123,249 $ 126,947 $ 130,755 $ 134,678 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 790,454 $ 814,168 $ 838,593 $ 863,751 $ 889,663 $ 916,353 Reserves $ 60,746 $ 62,568 $ 64,445 $ 66,379 $ 68,370 $ 70,421 ------------------------------------------------------------------------------------- NET OPERATING INCOME $1,472,283 $1,516,452 $1,561,945 $1,608,804 $1,657,068 $1,706,780 Operating Expense Ratio (% of EGI) 34.0% 34.0% 34.0% 34.0% 34.0% 34.0% Operating Expense Per Unit $ 3,017 $ 3,108 $ 3,201 $ 3,297 $ 3,396 $ 3,498
Estimated Stabilized NOI $1,365,961 Sales Expense Rate 2.00% Months to Stabilized 12 Discount Rate 11.50% Stabilized Occupancy 90.0% Terminal Cap Rate 9.50%
Gross Residual Sale Price $17,966,104 Less: Sales Expense $ 359,322 ----------- Net Residual Sale Price $17,606,782 PV of Reversion $ 5,928,315 Add: NPV of NOI $ 8,281,450 ----------- PV Total $14,209,766 Deferred Maintenance $ 0 Add: Excess Land $ 0 Other Adjustments $ 0 ----------- Value Indicated By "DCF" $14,209,766 Rounded $14,200,000
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ----------------------------------------------------------------------------------------- TOTAL VALUE 11.00% 11.25% 11.50% 11.75% 12.00% - ------------------------------------------------------------------------------------------------------------- 9.00% $15,032,217 $14,782,950 $14,539,116 $14,300,578 $14,067,204 9.25% $14,855,316 $14,609,985 $14,369,990 $14,135,198 $13,905,478 TERMINAL CAP 9.50% $14,687,726 $14,446,123 $14,209,766 $13,978,522 $13,752,264 RATE 9.75% $14,528,730 $14,290,664 $14,057,757 $13,829,880 $13,606,907 10.00% $14,377,684 $14,142,979 $13,913,350 $13,688,671 $13,468,819
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 34 THE KNOLLS, COLORADO SPRINGS, COLORADO INCOME LOSS DURING LEASE-UP The subject is currently 81% occupied, below our stabilized occupancy projection. We have estimated a 12-month lease-up period. An adjustment must be made to bring the subject to a stabilized operating level. To account for this income loss during lease-up, we have compared the current DCF analysis to an "as stabilized" DCF analysis assuming the subject's occupancy were stabilized. The difference in net operating income during the lease-up period is discounted to a present value figure of $87,000 as shown in the following table.
DESCRIPTION YEAR 1 - ---------------------------------------------------- "As Is" Net Operating Income $773,335 Stabilized Net Operating Income $870,152 -------- Difference $ 96,817 PV of Income Loss During Lease-Up $ 86,832 -------- Rounded $ 87,000 --------
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 $468,000 (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. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 35 THE KNOLLS, COLORADO SPRINGS, COLORADO 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 APPROACH PAGE 36 THE KNOLLS, COLORADO SPRINGS, COLORADO THE KNOLLS
TOTAL PER SQ. FT. PER UNIT %OF EGI - ----------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 2,186,400 $ 9.01 $ 8,345 Less: Vacancy & Collection Loss 11.50% $ 251,436 $ 1.04 $ 960 Plus: Other Income Laundry Income $ 39,300 $ 0.16 $ 150 1.87% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 131,000 $ 0.54 $ 500 6.22% -------------------------------------------------------- Subtotal Other Income $ 170,300 $ 0.70 $ 650 8.09% EFFECTIVE GROSS INCOME $ 2,105,264 $ 8.67 $ 8,035 OPERATING EXPENSES: Taxes $ 68,120 $ 0.28 $ 260 3.24% Insurance $ 51,090 $ 0.21 $ 195 2.43% Utilities $ 94,320 $ 0.39 $ 360 4.48% Repair & Maintenance $ 32,750 $ 0.13 $ 125 1.56% Cleaning $ 39,300 $ 0.16 $ 150 1.87% Landscaping $ 28,820 $ 0.12 $ 110 1.37% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 44,540 $ 0.18 $ 170 2.12% General Administrative $ 222,700 $ 0.92 $ 850 10.58% Management 5.00% $ 105,263 $ 0.43 $ 402 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 686,903 $ 2.83 $ 2,622 32.63% Reserves $ 52,400 $ 0.22 $ 200 2.49% -------------------------------------------------------- NET OPERATING INCOME $ 1,365,961 $ 5.63 $ 5,214 64.88% -------------------------------------------------------- "GOING IN" CAPITALIZATION RATE 9.00% VALUE INDICATION $ 15,177,342 $ 62.54 $ 57,929 LESS: LEASE-UP COST ($ 87,000) PV OF CONCESSIONS ($ 468,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $ 14,622,342 ROUNDED $ 14,600,000 $ 60.16 $ 55,725
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 37 THE KNOLLS, COLORADO SPRINGS, COLORADO DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - -------- ----------- ----------- ------- ------ 8.25% $16,002,101 $16,000,000 $61,069 $65.93 8.50% $15,515,127 $15,500,000 $59,160 $63.87 8.75% $15,055,981 $15,100,000 $57,634 $62.22 9.00% $14,622,342 $14,600,000 $55,725 $60.16 9.25% $14,212,144 $14,200,000 $54,198 $58.51 9.50% $13,823,535 $13,800,000 $52,672 $56.86 9.75% $13,454,854 $13,500,000 $51,527 $55.63
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $14,600,000. 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 $14,200,000 Direct Capitalization Method $14,600,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $14,400,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 THE KNOLLS, COLORADO SPRINGS, COLORADO 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 $14,500,000 Income Approach $14,400,000 Reconciled Value $14,400,000
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 15, 2003 the market value of the fee simple estate in the property is: $14,400,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA THE KNOLLS, COLORADO SPRINGS, COLORADO ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A THE KNOLLS, COLORADO SPRINGS, COLORADO EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A THE KNOLLS, COLORADO SPRINGS, COLORADO SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - APARTMENTS EXTERIOR - LANDSCAPE & PARKING [PICTURE] [PICTURE] INTERIOR - APARTMENT UNIT INTERIOR - APARTMENT UNIT [PICTURE] [PICTURE] INTERIOR - APARTMENT UNIT INTERIOR - APARTMENT UNIT AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A THE KNOLLS, COLORADO SPRINGS, COLORADO SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] INTERIOR - APARTMENT UNIT EXTERIOR - POOL AREA [PICTURE] [PICTURE] INTERIOR - GYM ROOM EXTERIOR - SPA DECK [PICTURE] [PICTURE] INTERIOR - CLUBHOUSE EXTERIOR - STREET VIEW AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B THE KNOLLS, COLORADO SPRINGS, COLORADO EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B THE KNOLLS, COLORADO SPRINGS, COLORADO PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 CHEYENNE CREEK PARK MEADOWS CEDAR CREST 115 W Cheyenne Road 970 Mount Werner Circle 2010 Carmel Drive Colorado Springs, Colorado Colorado Springs, Colorado Colorado Springs, Colorado [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 COLONY HILLS WINDTREE APARTMENTS 3950 Patrick Drive 2530 Paragon Drive Colorado Springs, Colorado Colorado Springs, Colorado [PICTURE] [PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B THE KNOLLS, COLORADO SPRINGS, COLORADO SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 - ----------------------------------------------------------------------------------------------------------------------------- Property Name The Knolls Park Terrace Management Company AIMCO LOCATION: Address 1510 Gatehouse Circle 3210 N. Chestnut City, State Colorado Springs, Colorado Colorado Springs, Colorado County El Paso County El Paso County Proximity to Subject Approx. 2 miles north of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 242,682 Year Built 1974 1968 Effective Age 23 30 Building Structure Type Parking Type (Gr., Cov., etc.) Open, Open Covered Open Number of Units 262 115 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Bd/1Ba 717 12 $632 1 1Bd/1Ba Jr. 410 $425 2 1Bd/1Ba 787 62 $661 1 1Bd/1Ba 660 $485 3 2Bd/1Ba 950 132 $731 3 2Bd/1Ba 820 $595 4 2Bd/2Ba 1,012 12 $751 5 2Bd/1.5Ba 1,085 44 $777 Average Unit Size (SF) 926 Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Good Fair APPEAL: Good Fair AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony Balcony X Fireplace Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool Swimming Pool X Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room 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 Business Office Jogging Track Business Office X Gym Room Gym Room OCCUPANCY: 81% 87% LEASING DATA: Available Leasing Terms 6-12 month leases 6-12 month leases Concessions $99 deposit, 1 month free 1/2 off first month with $99 deposit Pet Deposit $150 $300 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash X Water X Trash Confirmation Lucia Newell (Asst. manager) Leasing Agent Telephone Number 719-473-0322 NOTES: COMPARISON TO SUBJECT: Inferior COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 - ---------------------------------------------------------------------------------------------------------------------------------- Property Name Falcon Pointe Altamira Management Company LOCATION: Address 1844 Ralph's Ridge 2210 Skyview Lane City, State Colorado Springs, Colorado Colorado Springs, Colorado County El Paso County El Paso County Proximity to Subject Approx. 5 miles southeast of subject Approx. 2 miles southwest of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) Year Built 1987 1984 Effective Age 10 15 Building Structure Type Parking Type (Gr., Cov., etc.) Open, Open Covered Open Number of Units 280 360 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Bd/1Ba 497 $580 1 1Bd/1Ba Jr. 534 $460 1 1Bd/1Ba 649 $675 1 1Bd/1Ba 570 $505 2 1Bd/1.5 Ba Loft 755 $715 3 2Bd/1Ba 750 $675 4 2Bd/2Ba 908 $850 Average Unit Size (SF) Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony Balcony X Fireplace X Fireplace X Cable TV Ready Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment X Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball Meeting Hall X Sand Volley Ball Meeting Hall Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room X Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track Business Office X Gym Room X Gym Room OCCUPANCY: 87% 87% LEASING DATA: Available Leasing Terms 6-12 month leases 6-12 month leases Concessions $150 off each month with 6 month lease $100 off with 12 month, $50 with 6 month Pet Deposit $200 $300 Utilities Paid by Tenant: X Electric X Natural Gas X Electric Natural Gas X Water X Trash Water Trash Confirmation Leasing Agent Leasing Agent Telephone Number 719-578-8333 719-578-8073 NOTES: COMPARISON TO SUBJECT: Slightly Superior Similar COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 - ------------------------------------------------------------------------------------------------------------------------------- Property Name Broadmoor Terrace Broadmoor Villa Management Company LOCATION: Address 816 Oxford Lane 25 E. Sommerlyn Road City, State Colorado Springs, Colorado Colorado Springs, Colorado County El Paso County El Paso County Proximity to Subject Approx. 3 miles south of subject Approx. 3 miles south of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) Year Built 1975 1970 Effective Age 20 25 Building Structure Type Parking Type (Gr., Cov., etc.) Open Open Number of Units 153 102 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 2 1Bd/1Ba 737 $535 1 1Bd/1Ba 655 $495 1 1Bd/1Ba 632 $545 2 1Bd/1Ba 785 $550 1 1Bd/1Ba 680 $565 3 2Bd/1Ba 840 $600 1 Studio 430 $435 3 2Bd/1Ba 1,000 $645 1 Studio 436 $455 1 Studio 470 $480 3 2Bd/1Ba 852 $620 3 2Bd/1Ba 872 $640 3 2Bd/1Ba 872 $640 3 2Bd/1Ba 850 $655 3 2Bd/1Ba 914 $690 Average Unit Size (SF) Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: APPEAL: AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony Balcony X Fireplace Fireplace X Cable TV Ready Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room 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 Business Office Jogging Track Business Office Gym Room Gym Room OCCUPANCY: 87% 69% LEASING DATA: Available Leasing Terms 6-12 month leases 6-12 month leases Concessions $20 off each month with 12 month lease $150 off first month on 2 Bedroom Pet Deposit $100 non-refundable no pets Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash Water Trash Confirmation Leasing Agent Leasing Agent Telephone Number 719-473-5359 719-635-7090 NOTES: COMPARISON TO SUBJECT: Similar Inferior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B THE KNOLLS, COLORADO SPRINGS, COLORADO PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 PARK TERRACE FALCON POINTE ALTAMIRA 3210 N. Chestnut 1844 Ralph's Ridge 2210 Skyview Lane Colorado Springs, Colorado Colorado Springs, Colorado Colorado Springs, Colorado [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 BROADMOOR TERRACE BROADMOOR VILLA 816 Oxford Lane 25 E. Sommerlyn Road Colorado Springs, Colorado Colorado Springs, Colorado [PICTURE] [PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C THE KNOLLS, COLORADO SPRINGS, COLORADO EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C THE KNOLLS, COLORADO SPRINGS, COLORADO 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 THE KNOLLS, COLORADO SPRINGS, COLORADO 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 THE KNOLLS, COLORADO SPRINGS, COLORADO 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 THE KNOLLS, COLORADO SPRINGS, COLORADO 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. James Newell provided significant real property appraisal assistance in the preparation of this report. I am currently in compliance with the Appraisal Institutes continuing education requirements. -s- Douglas Needham ---------------------------- Douglas Needham, MAI Managing Principal, Real Estate Group Colorado State Certified General Real Estate Appraiser #CG40017035 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E THE KNOLLS, COLORADO SPRINGS, COLORADO EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E THE KNOLLS, COLORADO SPRINGS, COLORADO DOUGLAS A. NEEDHAM, MAI MANAGING PRINCIPAL, REAL ESTATE ADVISORY GROUP POSITION Douglas A. Needham is a Managing Principal for the Irvine Real Estate Advisory Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Mr. Needham has appraised all types of major commercial real estate including apartments, hotels/motels, light and heavy industrial facilities, self-storage facilities, mobile home parks, offices, retail shopping centers, service stations, special-use properties, and vacant land. Business Mr. Needham joined AAA in 1998. Prior to joining AAA, he was a senior associate at Koeppel Tener, a senior analyst at Great Western Appraisal Group, and an associate appraiser at R. L. McLaughlin & Associates. EDUCATION Texas A&M University Bachelor of Business Administration - Finance STATE CERTIFICATIONS State of Arizona, Certified General Real Estate Appraiser, #30943 State of California, Certified General Real Estate Appraiser, #AG025443 State of Colorado, Certified General Appraiser, #CG40017035 State of Oregon, Certified General Appraiser, #C000686 State of Washington, Certified General Real Estate Appraiser, #1101111 PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E THE KNOLLS, COLORADO SPRINGS, COLORADO VALUATION AND Appraisal Institute SPECIAL COURSES Advanced Income Capitalization Appraisal Principles Appraisal Procedures Basic Income Capitalization Standards of Professional Practice AMERICAN APPRAISAL ASSOCIATES, INC. THE KNOLLS, COLORADO SPRINGS, COLORADO GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. THE KNOLLS, COLORADO SPRINGS, COLORADO 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. EX-99.(C)(4) 9 d07253exv99wxcyx4y.txt APPRAISAL OF THE LOFT THE LOFT 214 LOFT LANE RALEIGH, NORTH CAROLINA MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 13, 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] JUNE 30, 2003 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: THE LOFT 214 LOFT LANE RALEIGH, WAKE COUNTY, NORTH CAROLINA 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 184 units with a total of 205,615 square feet of rentable area. The improvements were built in 1975. The improvements are situated on 22.56 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 86% 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 THE LOFT, RALEIGH, NORTH CAROLINA 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 13, 2003 is: ($8,800,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Frank Fehribach June 30, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group North Carolina Temporary Practice Permit #2578 Report By: Jimmy Pat James, MAI North Carolina Temporary Practice Permit #2603 Assisted By: Chad Walker AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 THE LOFT, RALEIGH, NORTH CAROLINA 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 THE LOFT, RALEIGH, NORTH CAROLINA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: The Loft LOCATION: 214 Loft Lane Raleigh, North Carolina 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 13, 2003 DATE OF REPORT: June 30, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 22.56 acres, or 982,714 square feet Assessor Parcel No.: 1706575340 Floodplain: Community Panel No. 37183C0331E (March 3, 1992) Flood Zone X, an area outside the floodplain. Zoning: R-10 (Residential-10) BUILDING: No. of Units: 184 Units Total NRA: 205,615 Square Feet Average Unit Size: 1,117 Square Feet Apartment Density: 8.2 units per acre Year Built: 1975 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square -------------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income - -------------------------------------------------------------------------------------------- Terrace - 1Bd/1Ba 800 $649 $0.81 $ 18,172 $ 218,064 Gable - 1Bd/1Ba 1,035 $719 $0.69 $ 27,322 $ 327,864 Pinnacle - 2Bd/1.5Ba 1,045 $749 $0.72 $ 20,972 $ 251,664 Veranda - 2Bd/2Ba 1,250 $767 $0.61 $ 49,855 $ 598,260 Trellis - 3Bd/2Ba 1,335 $929 $0.70 $ 23,225 $ 278,700 ----- -------- ---------- Total $139,546 $1,674,552
OCCUPANCY: 86% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 25 Years REMAINING ECONOMIC LIFE: 20 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 THE LOFT, RALEIGH, NORTH CAROLINA SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [EXTERIOR-PROPERTY SIGN PICTURE] [EXTERIOR-OFFICE PICTURE] AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 THE LOFT, RALEIGH, NORTH CAROLINA NEIGHBORHOOD MAP [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 THE LOFT, RALEIGH, NORTH CAROLINA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit - --------------------- ------ ------ Potential Rental Income $1,674,552 $9,101 Effective Gross Income $1,498,446 $8,144 Operating Expenses $596,562 $3,242 39.8% of EGI Net Operating Income: $855,883 $4,652 Capitalization Rate 9.50% DIRECT CAPITALIZATION VALUE $8,900,000 * $48,370 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 12% Stabilized Vacancy & Collection Loss: 12% Lease-up / Stabilization Period 12 months Terminal Capitalization Rate 10.00% Discount Rate 11.50% Selling Costs 3.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $8,800,000 * $47,826 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $8,800,000 $47,826 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $42,151 to $71,277 Range of Sales $/Unit (Adjusted) $44,057 to $52,040 VALUE INDICATION - PRICE PER UNIT $8,600,000 * $46,739 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 5.28 to 7.54 Selected EGIM for Subject 5.75 Subject's Projected EGI $1,498,446 EGIM ANALYSIS CONCLUSION $8,500,000 * $46,196 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $8,900,000 * $48,370 / UNIT RECONCILED SALES COMPARISON VALUE $8,600,000 $46,739 / 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 THE LOFT, RALEIGH, NORTH CAROLINA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $8,600,000 NOI Per Unit $8,900,000 EGIM Multiplier $8,500,000 INDICATED VALUE BY SALES COMPARISON $8,600,000 $46,739 / UNIT INCOME APPROACH: Direct Capitalization Method: $8,900,000 Discounted Cash Flow Method: $8,800,000 INDICATED VALUE BY THE INCOME APPROACH $8,800,000 $47,826 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $8,800,000 $47,826 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 THE LOFT, RALEIGH, NORTH CAROLINA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 214 Loft Lane, Raleigh, Wake County, North Carolina. Raleigh identifies it as 1706575340. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Chad Walker on May 13, 2003. Jimmy Pat James, MAI and Frank Fehribach, MAI have not made a personal inspection of the subject property. Chad Walker assisted Jimmy Pat James, MAI in the research, valuation analysis and writing the report. Frank Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach, MAI, Jimmy Pat James, MAI, and Chad Walker 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 13, 2003. The date of the report is June 30, 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 THE LOFT, RALEIGH, NORTH CAROLINA 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 CCIP Loft LLC. 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 THE LOFT, RALEIGH, NORTH CAROLINA 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 Raleigh, North Carolina. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Falls of Neuse Road West - North Hills Road South - West Millbrook Road North - Lynn Road MAJOR EMPLOYERS Major employers in the subject's area include MCI Telecommunications; Nortel; Cisco Systems; IBM; State of North Carolina; Wake County Public School; North Carolina State University; Wake County: and the City of Raleigh. 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 THE LOFT, RALEIGH, NORTH CAROLINA NEIGHBORHOOD DEMOGRAPHICS
AREA ---------------------------------------------- CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA - ---------------------------------------------------------------------------------------------------- POPULATION TRENDS Current Population 12,736 75,037 184,234 1,249,659 5-Year Population 12,917 77,456 198,599 1,408,794 % Change CY-5Y 1.4% 3.2% 7.8% 12.7% Annual Change CY-5Y 0.3% 0.6% 1.6% 2.5% HOUSEHOLDS Current Households 6,152 32,679 80,360 484,776 5-Year Projected Households 6,278 33,881 86,519 545,189 % Change CY - 5Y 2.0% 3.7% 7.7% 12.5% Annual Change CY-5Y 0.4% 0.7% 1.5% 2.5% INCOME TRENDS Median Household Income $52,448 $67,011 $65,454 $ 55,832 Per Capita Income $26,937 $32,874 $32,439 $ 25,814 Average Household Income $58,712 $76,329 $74,841 $ 66,544
Source: Demographics Now The subject neighborhood's population is expected to show increases below 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 46.01% 36.66% 39.21% 33.18% 5-Year Projected % Renting 47.04% 36.75% 38.68% 32.28% % of Households Owning 47.82% 57.19% 55.26% 61.69% 5-Year Projected % Owning 46.72% 57.15% 55.97% 63.00%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 THE LOFT, RALEIGH, NORTH CAROLINA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Single family residential, Optomist Park Community Center, Sanderson High School South - Commercial including doctor offices, Allstate, day care East - Office West - Single family residential CONCLUSIONS The subject is well located within the city of Raleigh. The neighborhood is characterized as being mostly suburban in nature and is currently in the stable 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 THE LOFT, RALEIGH, NORTH CAROLINA MARKET ANALYSIS The subject property is located in the city of Raleigh in Wake County. The overall pace of development in the subject's market is more or less stable. Currently, there are 176 units under construction in North Raleigh. 468 units of the Columns at Wakefield have been completed in the past six months at Falls Creek and Falls River Road. Additionally, there are 122 units proposed at The Cliffs at Grove Barton Road and Doie Cope Road. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - -------------------------------------------------------------------- 1Q01 8.1% 10.4% 3Q01 9.6% 9.6% 1Q02 12.5% 12.5% 3Q02 12.0% 11.7% 1Q03 12.6% 13.7%
Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has underperformed the overall market. The Raleigh-Durham apartment as a whole is reporting a high vacancy rate of 12.6% for 1Q03. Vacancy rates in the Triangle (Raleigh, Durham, Chapel Hill) area have been steadily rising since 1996, according to REAL DATA Real Estate Information Services Apartment Index 1Q03. In comparison, the Raleigh-North Submarket is posting vacancy rates of 13.7%. The vacancy rate has continued to increase in this submarket as more apartment complexes have been built. Market rents in the subject's market have been following a decreasing trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change - ------------------------------------------------------------------------------- 1Q01 $746 - $727 - 3Q01 $763 2.3% $746 2.6% 1Q02 $764 0.1% $747 0.1% 3Q02 $761 -0.4% $746 -0.1% 1Q03 $758 -0.4% $739 -0.9%
The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 THE LOFT, RALEIGH, NORTH CAROLINA COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject - ------------------------------------------------------------------------------------------------------------------------- R-1 Shellbrook 238 88% 1971 0.70 mile to the west of the subject R-2 Archstone Ridgewood 228 93% 1986 0.50 mile to the north of the subject R-3 Paces Arbor 101 89% 1986 0.75 mile to the northwest of the subject R-4 Laurel Springs 122 98% 1986 0.70 mile to the north of the subject R-5 Lynnwood Park 152 89% 1982 1.0 mile to the west of the subject Subject The Loft 184 86% 1975
The Raleigh-Central submarket as well as the Triangle as a whole has experienced declining apartment rental rates over the past two years. This is due in part to the economic slowdown of the national economy and low interest rates currently being offered. As of 1Q03, the average rental rate for the Southwest submarket was $739, which is $19 below the Region at $758. However, rates are currently stabilizing and remain at these levels in the short-term. As the national economy improves so should contract rental rates. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 THE LOFT, RALEIGH, NORTH CAROLINA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 22.56 acres, or 982,714 square feet Shape Irregular Topography Slightly 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 37183C0331E, dated March 3, 1992 Flood Zone Zone X Zoning R-10, 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 - --------------------------------------------------------------------------------------------------- 1706575340 $1,472,000 $7,371,214 $8,843,214 0.00991 $87,602
IMPROVEMENT ANALYSIS Year Built 1975 Number of Units 184 Net Rentable Area 205,615 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Wood or vinyl siding Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, basketball court, volleyball court, sand volleyball, tennis court, gym room, playground, barbeque equipment, laundry room, billiards, and parking area. Unit Amenities Individual unit amenities include a balcony, fireplace, cable TV connection, vaulted ceiling, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, water heater, garbage AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 THE LOFT, RALEIGH, NORTH CAROLINA disposal, and oven. Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - --------------------------------------------------------- Terrace - 1Bd/1Ba 28 800 Gable - 1Bd/1Ba 38 1,035 Pinnacle - 2Bd/1.5Ba 28 1,045 Veranda - 2Bd/2Ba 65 1,250 Trellis - 3Bd/2Ba 25 1,335
Overall Condition Average Effective Age 25 years Economic Life 45 years Remaining Economic Life 20 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 1975 and consist of a 184-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 THE LOFT, RALEIGH, NORTH CAROLINA 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 THE LOFT, RALEIGH, NORTH CAROLINA 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 THE LOFT, RALEIGH, NORTH CAROLINA 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 THE LOFT, RALEIGH, NORTH CAROLINA SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ----------------------------------------------------------------------------------------------------------------------------------- Property Name The Loft Cottages of Stonehenge Calibre Chase LOCATION: Address 214 Loft Lane 7600 Falcon Rest Circle 231 Calibre Chase Drive City, State Raleigh, North Carolina Raleigh, North Carolina Raleigh, North Carolina County Wake Wake Wake PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 205,615 235,400 171,312 Year Built 1975 1986 1988 Number of Units 184 188 192 Unit Mix: Type Total Type Total Type Total Terrace - 1Bd/1Ba 28 2Br/2.5Ba 139 1Br/1Ba - Type 1 48 Gable - 1Bd/1Ba 38 3Br/2.5Ba 49 1Br/1Ba - Type 2 48 Pinnacle - 2Bd/1.5Ba 28 1Br/1Ba - Type 3 24 Veranda - 2Bd/2Ba 65 2Br/2Ba 72 Trellis - 3Bd/2Ba 25 Average Unit Size (SF) 1,117 1,252 892 Land Area (Acre) 22.5600 19.5100 7.0100 Density (Units/Acre) 8.2 9.6 27.4 Parking Ratio (Spaces/Unit) 1.66 N/A N/A Parking Type (Gr., Cov., etc.) Open Open Open CONDITION: Average Good Good APPEAL: Average Good Good AMENITIES: Pool/Spa Yes/No Yes/Yes Yes/No Gym Room Yes Yes Yes Laundry Room Yes No No Secured Parking No No No Sport Courts No Yes Yes Washer/Dryer Connection Yes Yes Yes Fireplaces Yes Yes Yes Other OCCUPANCY: 86% 91% 98% TRANSACTION DATA: Sale Date July, 2002 November, 2001 Sale Price ($) $13,400,000 $11,755,000 Grantor Daniel Mid-Atlantic Properties SWA Acquisitions LTD II Grantee Sterling Apartments LLC Wilson Investment Properties Inc. Sale Documentation Book 09505 Page 0045 Book 09142 Page 2745 Verification Wake County Records Wake County Records Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,953,497 $10,391 $8.30 $1,890,720 $9,848 $11.04 Vacancy/Credit Loss $ 175,815 $ 935 $0.75 $ 75,629 $ 394 $ 0.44 Effective Gross Income $1,777,682 $ 9,456 $7.55 $1,815,091 $9,454 $10.60 Operating Expenses $ 797,443 $ 4,242 $3.39 $ 705,889 $3,677 $ 4.12 Net Operating Income $ 980,239 $ 5,214 $4.16 $1,109,202 $5,777 $ 6.47 NOTES: PRICE PER UNIT $71,277 $61,224 PRICE PER SQUARE FOOT $ 56.92 $ 68.62 EXPENSE RATIO 44.9% 38.9% EGIM 7.54 6.48 OVERALL CAP RATE 7.32% 9.44% - ----------------------------------------------------------------------------------------------------------------------------------- Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL - ----------------------------------------------------------------------------------------------------------------------------------- COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - -------------------------------------------------------------------------------------------------------------------------------- Property Name Polo Run Hidden Creek Sedgewood Green LOCATION: Address 1803 Hillock Drive 5601 Old Wake Forest Road 3917 Knickerbocker Parkway City, State Raleigh, North Carolina Raleigh, North Carolina Raleigh, North Carolina County Wake Wake Wake PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 307,630 203,500 230,196 Year Built 1971 1979 1990 Number of Units 278 200 228 Unit Mix: Type Total Type Total Type Total 1Br/1Ba 50 1Br/1Ba 50 1Br/1Ba - Type 1 36 2Br/2Ba 168 2Br/2Ba 110 1Br/1Ba - Type 2 36 3Br/2Ba 60 3Br/2Ba 40 1Br/1Ba - Type 3 36 2Br/2Ba 60 3Br/2Ba 60 Average Unit Size (SF) 1,107 1,018 1,010 Land Area (Acre) 28.3200 19.7700 22.8400 Density (Units/Acre) 9.8 10.1 10.0 Parking Ratio (Spaces/Unit) N/A N/A N/A Parking Type (Gr., Cov., etc.) Open Open Open/Garage CONDITION: Average Average Good APPEAL: Average Average Good AMENITIES: Pool/Spa Yes/No Yes/Yes Yes/No Gym Room Yes Yes Yes Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts Yes Yes Yes Washer/Dryer Connection Yes Yes Yes Fireplaces No Yes Yes Other OCCUPANCY: 94% 92% 97% TRANSACTION DATA: Sale Date October, 2001 October, 2001 November, 2000 Sale Price ($) $11,718,000 $9,862,835 $14,350,000 Grantor New Plan of Polo Run Inc. Schaedle Worthington Hyde ERI NC Inc. Properties, LP Grantee CK Polo Run LLC Hidden Creek Partners LP Segdewood Green Apartments LLC Sale Documentation Book 09101 Page 1868 Book 09117 Page 1624 Book 08746 Page 0269 Verification Wake County Records Wake County Records Wake County Records Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $2,362,560 $8,498 $7.68 $1,731,960 $8,660 $8.51 $1,979,381 $8,681 $8.60 Vacancy/Credit Loss $ 141,754 $ 510 $0.46 $ 138,557 $ 693 $0.68 $ 59,381 $ 260 $0.26 Effective Gross Income $2,220,806 $7,989 $7.22 $1,593,403 $7,967 $7.83 $1,920,000 $8,421 $8.34 Operating Expenses $ 999,363 $3,595 $3.25 $ 717,031 $3,585 $3.52 $ 729,600 $3,200 $3.17 Net Operating Income $1,221,443 $4,394 $3.97 $ 876,372 $4,382 $4.31 $1,190,400 $5,221 $5.17 NOTES: PRICE PER UNIT $42,151 $49,314 $62,939 PRICE PER SQUARE FOOT $ 38.09 $ 48.47 $ 62.34 EXPENSE RATIO 45.0% 45.0% 38.0% EGIM 5.28 6.19 7.47 OVERALL CAP RATE 10.42% 8.89% 8.30% - -------------------------------------------------------------------------------------------------------------------------------- Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA ACTUAL - --------------------------------------------------------------------------------------------------------------------------------
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 THE LOFT, RALEIGH, NORTH CAROLINA IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $42,151 to $71,277 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 $44,057 to $52,040 per unit with a mean or average adjusted price of $46,707 per unit. The median adjusted price is $46,330 per unit. Based on the following analysis, we have concluded to a value of $47,000 per unit, which results in an "as is" value of $8,600,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 THE LOFT, RALEIGH, NORTH CAROLINA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ------------------------------------------------------------------------------------------------------------------------------------ Property Name The Loft Cottages of Stonehenge Calibre Chase Address 214 Loft Lane 7600 Falcon Rest Circle 231 Calibre Chase Drive City Raleigh, North Carolina Raleigh, North Carolina Raleigh, North Carolina Sale Date July, 2002 November, 2001 Sale Price ($) $13,400,000 $11,755,000 Net Rentable Area (SF) 205,615 235,400 171,312 Number of Units 184 188 192 Price Per Unit $71,277 $61,224 Year Built 1975 1986 1988 Land Area (Acre) 22.5600 19.5100 7.0100 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. - ----------------------------------------------------------------------------------------------------------------------------------- Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 07-2002 0% 11-2001 0% ---------------------------- ------------------------- VALUE AFTER TRANS. ADJUST. ($/UNIT) $71,277 $61,224 ---------------------------- ------------------------- Location Superior -20% Comparable 0% Number of Units 184 188 0% 192 0% Quality / Appeal Average Superior -5% Superior -5% Age / Condition 1975 1986 / Good -5% 1988 / Good -5% Occupancy at Sale 86% 91% -5% 98% -10% Amenities Good Comparable 0% Comparable 0% Average Unit Size (SF) 1,117 1,252 0% 892 5% ----------------- ---------------------------- ------------------------- PHYSICAL ADJUSTMENT -35% -15% ----------------- ---------------------------- ------------------------- FINAL ADJUSTED VALUE ($/UNIT) $46,330 $52,040 ----------------- ---------------------------- ------------------------- COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - --------------------------------------------------------------------------------------------------------------------------------- Property Name Polo Run Hidden Creek Sedgewood Green Address 1803 Hillock Drive 5601 Old Wake Forest Road 3917 Knickerbocker Parkway City Raleigh, North Carolina Raleigh, North Carolina Raleigh, North Carolina Sale Date October, 2001 October, 2001 November, 2000 Sale Price ($) $11,718,000 $9,862,835 $14,350,000 Net Rentable Area (SF) 307,630 203,500 230,196 Number of Units 278 200 228 Price Per Unit $42,151 $49,314 $62,939 Year Built 1971 1979 1990 Land Area (Acre) 28.3200 19.7700 22.8400 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. - --------------------------------------------------------------------------------------------------------------------------------- Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 10-2001 0% 10-2001 0% 11-2000 0% --------------------------- --------------------------- -------------------------- VALUE AFTER TRANS. ADJUST. ($/UNIT) $42,151 $49,314 $62,939 --------------------------- --------------------------- -------------------------- Location Comparable 0% Superior -5% Comparable 0% Number of Units 278 5% 200 0% 228 0% Quality / Appeal Comparable 0% Comparable 0% Superior -10% Age / Condition 1971 / Average 0% 1979 / Average 0% 1990 / Good -20% Occupancy at Sale 94% 0% 92% 0% 97% 0% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 1,107 0% 1,018 0% 1,010 0% PHYSICAL ADJUSTMENT 5% -5% -30% --------------------------- --------------------------- -------------------------- FINAL ADJUSTED VALUE ($/UNIT) $44,259 $46,848 $44,057 --------------------------- --------------------------- --------------------------
SUMMARY VALUE RANGE (PER UNIT) $44,057 TO $52,040 MEAN (PER UNIT) $46,707 MEDIAN (PER UNIT) $46,330 VALUE CONCLUSION (PER UNIT) $47,000
VALUE OF IMPROVEMENT & MAIN SITE $8,648,000 LESS: LEASE-UP COST -$ 32,000 PV OF CONCESSIONS -$ 62,000 VALUE INDICATED BY SALES COMPARISON APPROACH $8,554,000 ROUNDED $8,600,000
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 THE LOFT, RALEIGH, NORTH CAROLINA 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-1 188 $13,400,000 7.32% $ 980,239 $855,883 0.892 $63,587 ----------- ---------- -------- $ 71,277 $ 5,214 $ 4,652 I-2 192 $11,755,000 9.44% $1,109,202 $855,883 0.805 $49,296 ----------- ---------- -------- $ 61,224 $ 5,777 $ 4,652 I-3 278 $11,718,000 10.42% $1,221,443 $855,883 1.059 $44,625 ----------- ---------- -------- $ 42,151 $ 4,394 $ 4,652 I-4 200 $ 9,862,835 8.89% $ 876,372 $855,883 1.062 $52,349 ----------- ---------- -------- $ 49,314 $ 4,382 $ 4,652 I-5 228 $14,350,000 8.30% $1,190,400 $855,883 0.891 $56,073 ----------- ---------- -------- $ 62,939 $ 5,221 $ 4,652
PRICE/UNIT VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT - ------------------------------------------------------------------------------------------------------------- Low High Average Median Estimated Price Per Unit $ 49,000 ----------- $44,625 $63,587 $53,186 $52,349 Number of Units 184 Value $ 9,016,000 Less: Lease-Up Cost -$ 32,000 PV of Concessions -$ 62,000 ----------- Value Based on NOI Analysis $ 8,922,000 Rounded $ 8,900,000
The adjusted sales indicate a range of value between $44,625 and $63,587 per unit, with an average of $53,186 per unit. Based on the subject's competitive position within the improved sales, a value of $49,000 per unit is estimated. This indicates an "as is" market value of $8,900,000 (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 THE LOFT, RALEIGH, NORTH CAROLINA 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-1 188 $13,400,000 $1,777,682 $797,443 44.86% 7.54 ----------- $ 71,277 I-2 192 $11,755,000 $1,815,091 $705,889 38.89% 6.48 ----------- $ 61,224 I-3 278 $11,718,000 $2,220,806 $999,363 45.00% 5.28 ----------- 39.81% $ 42,151 I-4 200 $ 9,862,835 $1,593,403 $717,031 45.00% 6.19 ----------- $ 49,314 I-5 228 $14,350,000 $1,920,000 $729,600 38.00% 7.47 ----------- $ 62,939
EGIM VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES - ------------------------------------------------------------------------------------------------------ Low High Average Median Estimate EGIM 5.75 ----------- 5.28 7.54 6.59 6.48 Subject EGI $ 1,498,446 Value $ 8,616,063 Less: Lease-Up Cost -$ 32,000 PV of Concessions -$ 62,000 ----------- Value Based on EGIM Analysis $ 8,522,063 Rounded $ 8,500,000 Value Per Unit $ 46,196
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 39.81% before reserves. The comparable sales indicate a range of expense ratios from 38.00% to 45.00%, while their EGIMs range from 5.28 to 7.54. Overall, we conclude to an EGIM of 5.75, which results in an "as is" value estimate in the EGIM Analysis of $8,500,000. 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 $8,600,000. Price Per Unit $8,600,000 NOI Per Unit $8,900,000 EGIM Analysis $8,500,000 Sales Comparison Conclusion $8,600,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 THE LOFT, RALEIGH, NORTH CAROLINA 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 THE LOFT, RALEIGH, NORTH CAROLINA 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 - -------------------------------------------------------------------------------- Terrace - 1Bd/1Ba 800 $650 $0.81 96.4% Gable - 1Bd/1Ba 1035 $720 $0.70 89.5% Pinnacle - 2Bd/1.5Ba 1045 $752 $0.72 82.1% Veranda - 2Bd/2Ba 1250 $767 $0.61 76.9% Trellis - 3Bd/2Ba 1335 $932 $0.70 96.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 THE LOFT, RALEIGH, NORTH CAROLINA RENT ANALYSIS
COMPARABLE RENTS ------------------------------------------------------ R-1 R-2 R-3 R-4 R-5 ------------------------------------------------------ Archstone Laurel Lynnwood Shellbrook Ridgewood Paces Arbor Springs Park ------------------------------------------------------ SUBJECT SUBJECT COMPARISON TO SUBJECT SUBJECT UNIT ACTUAL ASKING ------------------------------------------------------ DESCRIPTION TYPE RENT RENT Similar Similar Similar Similar Similar - --------------------------------------------------------------------------------------------------------------------- Monthly Rent TERRACE - $ 650 $ 649 $ 487 $ 550 $ 620 $ 709 Unit Area (SF) 1Bd/1BA 800 800 743 710 788 933 Monthly Rent Per Sq. Ft. $ 0.81 $ 0.81 $ 0.66 $ 0.77 $ 0.79 $ 0.76 Monthly Rent GABLE - 1Bd/1Ba $ 720 $ 719 $ 675 $ 600 $ 670 Unit Area (SF) 1,035 1,035 996 836 938 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.69 $ 0.68 $ 0.72 $ 0.71 Monthly Rent PINNACLE - $ 752 $ 749 Unit Area (SF) 2Bd/1.5Ba 1,045 1,045 Monthly Rent Per Sq. Ft. $ 0.72 $ 0.72 Monthly Rent VERANDA - $ 767 $ 799 $ 700 $ 730 $ 887 $ 690 Unit Area (SF) 2Bd/2Ba 1,250 1,250 1,071 1,136 1,375 1,200 Monthly Rent Per Sq. Ft. $ 0.61 $ 0.64 $ 0.65 $ 0.64 $ 0.65 $ 0.58 Monthly Rent TRELLIS - 3Bd/2Ba $ 932 $ 929 Unit Area (SF) 1,335 1,335 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.70 DESCRIPTION MIN MAX MEDIAN AVERAGE - --------------------------------------------------------------------------- Monthly Rent $ 487 $ 709 $ 585 $ 592 Unit Area (SF) 710 933 766 794 Monthly Rent Per Sq. Ft. $ 0.66 $ 0.79 $ 0.77 $ 0.74 Monthly Rent $ 600 $ 675 $ 670 $ 648 Unit Area (SF) 836 996 938 923 Monthly Rent Per Sq. Ft. $ 0.68 $ 0.72 $ 0.71 $ 0.70 Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent $ 690 $ 887 $ 715 $ 752 Unit Area (SF) 1,071 1,375 1,168 1,195 Monthly Rent Per Sq. Ft. $ 0.58 $ 0.65 $ 0.64 $ 0.63 Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft.
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 - ----------------------------------------------------------------------------------------------------------------- Terrace - 1Bd/1Ba 28 800 $649 $0.81 $ 18,172 $ 218,064 Gable - 1Bd/1Ba 38 1,035 $719 $0.69 $ 27,322 $ 327,864 Pinnacle - 2Bd/1.5Ba 28 1,045 $749 $0.72 $ 20,972 $ 251,664 Veranda - 2Bd/2Ba 65 1,250 $767 $0.61 $ 49,855 $ 598,260 Trellis - 3Bd/2Ba 25 1,335 $929 $0.70 $ 23,225 $ 278,700 Total $139,546 $1,674,552
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 29 THE LOFT, RALEIGH, NORTH CAROLINA 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 $1,649,162 $ 8,963 $1,658,932 $ 9,016 $1,595,984 $ 8,674 Vacancy $ 118,079 $ 642 $ 133,727 $ 727 $ 163,897 $ 891 Credit Loss/Concessions $ 41,754 $ 227 $ 69,821 $ 379 $ 27,978 $ 152 --------------------------------------------------------------------------- Subtotal $ 159,833 $ 869 $ 203,548 $ 1,106 $ 191,875 $ 1,043 Laundry Income $ 3,236 $ 18 $ 2,179 $ 12 $ 2,075 $ 11 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 38,750 $ 211 $ 37,919 $ 206 $ 23,952 $ 130 --------------------------------------------------------------------------- Subtotal Other Income $ 41,986 $ 228 $ 40,098 $ 218 $ 26,027 $ 141 --------------------------------------------------------------------------- Effective Gross Income $1,531,315 $ 8,322 $1,495,482 $ 8,128 $1,430,136 $ 7,772 Operating Expenses Taxes $ 92,053 $ 500 $ 44,862 $ 244 $ 135,161 $ 735 Insurance $ 15,913 $ 86 $ 34,837 $ 189 $ 37,650 $ 205 Utilities $ 64,702 $ 352 $ 76,646 $ 417 $ 51,245 $ 279 Repair & Maintenance $ 99,596 $ 541 $ 87,219 $ 474 $ 102,092 $ 555 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 29,812 $ 162 $ 22,504 $ 122 $ 28,600 $ 155 Security $ 0 $ 0 $ 1,857 $ 10 $ 750 $ 4 Marketing & Leasing $ 33,376 $ 181 $ 21,230 $ 115 $ 22,410 $ 122 General Administrative $ 198,186 $ 1,077 $ 205,401 $ 1,116 $ 201,766 $ 1,097 Management $ 78,642 $ 427 $ 79,757 $ 433 $ 74,765 $ 406 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------- Total Operating Expenses $ 612,280 $ 3,328 $ 574,313 $ 3,121 $ 654,439 $ 3,557 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------- Net Income $ 919,035 $ 4,995 $ 921,169 $ 5,006 $ 775,697 $ 4,216 - ------------------------------------------------------------------------------------------------------- FISCAL YEAR 2003 ANNUALIZED ------------------------------------------------- MANAGEMENT BUDGET PROJECTION AAA PROJECTION ------------------------------------------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % - ----------------------------------------------------------------------------------------------------------------- Revenues Rental Income $1,584,230 $ 8,610 $1,537,432 $ 8,356 $1,674,552 $ 9,101 100.0% Vacancy $ 122,494 $ 666 $ 328,100 $ 1,783 $ 167,455 $ 910 10.0% Credit Loss/Concessions $ 19,200 $ 104 $ 48,824 $ 265 $ 33,491 $ 182 2.0% ------------------------------------------------------------------------------------- Subtotal $ 141,694 $ 770 $ 376,924 $ 2,049 $ 200,946 $ 1,092 12.0% Laundry Income $ 8,628 $ 47 $ 4,604 $ 25 $ 4,600 $ 25 0.3% Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 19,651 $ 107 $ 3,880 $ 21 $ 20,240 $ 110 1.2% ------------------------------------------------------------------------------------- Subtotal Other Income $ 28,279 $ 154 $ 8,484 $ 46 $ 24,840 $ 135 1.5% ------------------------------------------------------------------------------------- Effective Gross Income $1,470,815 $ 7,994 $1,168,992 $ 6,353 $1,498,446 $ 8,144 100.0% Operating Expenses Taxes $ 135,529 $ 737 $ 135,668 $ 737 $ 92,000 $ 500 6.1% Insurance $ 8,554 $ 46 $ 76,080 $ 413 $ 36,800 $ 200 2.5% Utilities $ 45,600 $ 248 $ 103,816 $ 564 $ 50,600 $ 275 3.4% Repair & Maintenance $ 82,056 $ 446 $ 96,692 $ 526 $ 87,400 $ 475 5.8% Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Landscaping $ 43,200 $ 235 $ 33,828 $ 184 $ 29,440 $ 160 2.0% Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 22,380 $ 122 $ 33,592 $ 183 $ 23,000 $ 125 1.5% General Administrative $ 179,700 $ 977 $ 203,480 $ 1,106 $ 202,400 $ 1,100 13.5% Management $ 76,452 $ 416 $ 62,144 $ 338 $ 74,922 $ 407 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 0.0% ------------------------------------------------------------------------------------- Total Operating Expenses $ 593,471 $ 3,225 $ 745,300 $ 4,051 $ 596,562 $ 3,242 39.8% Reserves $ 0 $ 0 $ 0 $ 0 $ 46,000 $ 250 7.7% ------------------------------------------------------------------------------------- Net Income $ 877,344 $ 4,768 $ 423,692 $ 2,303 $ 855,883 $ 4,652 57.1% - -----------------------------------------------------------------------------------------------------------------
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 12% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 THE LOFT, RALEIGH, NORTH CAROLINA 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 $250 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 $250 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 31 THE LOFT, RALEIGH, NORTH CAROLINA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - -------------------------------------------------------------- I-1 Jul-02 91% $71,277 7.32% I-2 Nov-01 98% $61,224 9.44% I-3 Oct-01 94% $42,151 10.42% I-4 Oct-01 92% $49,314 8.89% I-5 Nov-00 97% $62,939 8.30% - -------------------------------------------------------------- High 10.42% Low 7.32% Average 8.87% - --------------------------------------------------------------
Based on this information, we have concluded the subject's overall capitalization rate should be 9.50%. 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 10.00%. 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 3.00% 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 $8,800,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 THE LOFT, RALEIGH, NORTH CAROLINA approximately 39% 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 33 THE LOFT, RALEIGH, NORTH CAROLINA DISCOUNTED CASH FLOW ANALYSIS THE LOFT
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 - ------------------------------------------------------------------------------------------------------------------ REVENUE Base Rent $1,674,552 $1,674,552 $1,699,670 $1,733,664 $1,785,674 $1,839,244 Vacancy $ 205,044 $ 167,455 $ 169,967 $ 173,366 $ 178,567 $ 183,924 Credit Loss $ 33,491 $ 33,491 $ 33,993 $ 34,673 $ 35,713 $ 36,785 Concessions $ 25,118 $ 33,491 $ 16,997 $ 0 $ 0 $ 0 --------------------------------------------------------------------------- Subtotal $ 263,653 $ 234,437 $ 220,957 $ 208,040 $ 214,281 $ 220,709 Laundry Income $ 4,600 $ 4,600 $ 4,669 $ 4,762 $ 4,905 $ 5,052 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 20,240 $ 20,240 $ 20,544 $ 20,954 $ 21,583 $ 22,231 --------------------------------------------------------------------------- Subtotal Other Income $ 24,840 $ 24,840 $ 25,213 $ 25,717 $ 26,488 $ 27,283 --------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $1,435,739 $1,464,955 $1,503,926 $1,551,341 $1,597,881 $1,645,818 OPERATING EXPENSES: Taxes $ 92,000 $ 94,760 $ 97,603 $ 100,531 $ 103,547 $ 106,653 Insurance $ 36,800 $ 37,904 $ 39,041 $ 40,212 $ 41,419 $ 42,661 Utilities $ 50,600 $ 52,118 $ 53,682 $ 55,292 $ 56,951 $ 58,659 Repair & Maintenance $ 87,400 $ 90,022 $ 92,723 $ 95,504 $ 98,369 $ 101,321 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 29,440 $ 30,323 $ 31,233 $ 32,170 $ 33,135 $ 34,129 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 23,000 $ 23,690 $ 24,401 $ 25,133 $ 25,887 $ 26,663 General Administrative $ 202,400 $ 208,472 $ 214,726 $ 221,168 $ 227,803 $ 234,637 Management $ 71,787 $ 73,248 $ 75,196 $ 77,567 $ 79,894 $ 82,291 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 593,427 $ 610,537 $ 628,604 $ 647,577 $ 667,004 $ 687,015 Reserves $ 46,000 $ 47,380 $ 48,801 $ 50,265 $ 51,773 $ 53,327 --------------------------------------------------------------------------- NET OPERATING INCOME $ 796,312 $ 807,038 $ 826,520 $ 853,498 $ 879,103 $ 905,476 - ------------------------------------------------------------------------------------------------------------------ Operating Expense Ratio (% of EGI) 41.3% 41.7% 41.8% 41.7% 41.7% 41.7% Operating Expense Per Unit $ 3,225 $ 3,318 $ 3,416 $ 3,519 $ 3,625 $ 3,734 - ------------------------------------------------------------------------------------------------------------------ YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 - ----------------------------------------------------------------------------------------------------- REVENUE Base Rent $1,894,421 $1,951,254 $2,009,791 $2,070,085 $2,132,188 Vacancy $ 189,442 $ 195,125 $ 200,979 $ 207,009 $ 213,219 Credit Loss $ 37,888 $ 39,025 $ 40,196 $ 41,402 $ 42,644 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------- Subtotal $ 227,331 $ 234,150 $ 241,175 $ 248,410 $ 255,863 Laundry Income $ 5,204 $ 5,360 $ 5,521 $ 5,687 $ 5,857 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 22,898 $ 23,584 $ 24,292 $ 25,021 $ 25,771 -------------------------------------------------------------- Subtotal Other Income $ 28,101 $ 28,945 $ 29,813 $ 30,707 $ 31,628 -------------------------------------------------------------- EFFECTIVE GROSS INCOME $1,695,192 $1,746,048 $1,798,429 $1,852,382 $1,907,954 OPERATING EXPENSES: Taxes $ 109,853 $ 113,148 $ 116,543 $ 120,039 $ 123,640 Insurance $ 43,941 $ 45,259 $ 46,617 $ 48,016 $ 49,456 Utilities $ 60,419 $ 62,232 $ 64,099 $ 66,022 $ 68,002 Repair & Maintenance $ 104,360 $ 107,491 $ 110,716 $ 114,037 $ 117,458 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 35,153 $ 36,207 $ 37,294 $ 38,413 $ 39,565 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 27,463 $ 28,287 $ 29,136 $ 30,010 $ 30,910 General Administrative $ 241,676 $ 248,926 $ 256,394 $ 264,086 $ 272,009 Management $ 84,760 $ 87,302 $ 89,921 $ 92,619 $ 95,398 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 707,625 $ 728,854 $ 750,719 $ 773,241 $ 796,438 Reserves $ 54,926 $ 56,574 $ 58,271 $ 60,020 $ 61,820 -------------------------------------------------------------- NET OPERATING INCOME $ 932,641 $ 960,620 $ 989,438 $1,019,122 $1,049,695 - ----------------------------------------------------------------------------------------------------- Operating Expense Ratio (% of EGI) 41.7% 41.7% 41.7% 41.7% 41.7% Operating Expense Per Unit $ 3,846 $ 3,961 $ 4,080 $ 4,202 $ 4,328 - -----------------------------------------------------------------------------------------------------
Estimated Stabilized NOI $855,883 Sales Expense Rate 3.00% Months to Stabilized 12 Discount Rate 11.50% Stabilized Occupancy 90.0% Terminal Cap Rate 10.00%
Gross Residual Sale Price $10,496,952 Deferred Maintenance $ 0 Less: Sales Expense $ 314,909 Add: Excess Land $ 0 ----------- Net Residual Sale Price $10,182,044 Other Adjustments $ 0 ---------- PV of Reversion $ 3,428,359 Value Indicated By "DCF" $8,790,496 Add: NPV of NOI $ 5,362,138 Rounded $8,800,000 ----------- PV Total $ 8,790,496
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ----------------------------------------------------------------------------- TOTAL VALUE 11.00% 11.25% 11.50% 11.75% 12.00% - ------------------------------------------------------------------------------------------------------------- TERMINAL CAP RATE 9.50% $9,264,299 $9,116,014 $8,970,936 $8,828,986 $8,690,083 9.75% $9,167,512 $9,021,380 $8,878,403 $8,738,502 $8,601,599 10.00% $9,075,564 $8,931,478 $8,790,496 $8,652,542 $8,517,539 10.25% $8,988,102 $8,845,961 $8,706,878 $8,570,775 $8,437,579 10.50% $8,904,804 $8,764,517 $8,627,241 $8,492,902 $8,361,427
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 THE LOFT, RALEIGH, NORTH CAROLINA INCOME LOSS DURING LEASE-UP The subject is currently 86% occupied, below our stabilized occupancy projection. We have estimated a 12-month lease-up period. An adjustment must be made to bring the subject to a stabilized operating level. To account for this income loss during lease-up, we have compared the current DCF analysis to an "as stabilized" DCF analysis assuming the subject's occupancy were stabilized. The difference in net operating income during the lease-up period is discounted to a present value figure of $32,000 as shown in the following table.
DESCRIPTION YEAR 1 - -------------------------------------------------- "As Is" Net Operating Income $796,312 Stabilized Net Operating Income $832,021 -------- Difference $ 35,709 PV of Income Loss During Lease-Up $ 32,026 -------- Rounded $ 32,000 --------
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 $62,000 (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. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 THE LOFT, RALEIGH, NORTH CAROLINA After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 9.50% 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 THE LOFT, RALEIGH, NORTH CAROLINA THE LOFT
TOTAL PER SQ. FT. PER UNIT %OF EGI - ------------------------------------------------------------------------------------------------------ REVENUE Base Rent $1,674,552 $ 8.14 $ 9,101 Less: Vacancy & Collection Loss 12.00% $ 200,946 $ 0.98 $ 1,092 Plus: Other Income Laundry Income $ 4,600 $ 0.02 $ 25 0.31% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 20,240 $ 0.10 $ 110 1.35% ---------------------------------------------- Subtotal Other Income $ 24,840 $ 0.12 $ 135 1.66% EFFECTIVE GROSS INCOME $1,498,446 $ 7.29 $ 8,144 OPERATING EXPENSES: Taxes $ 92,000 $ 0.45 $ 500 6.14% Insurance $ 36,800 $ 0.18 $ 200 2.46% Utilities $ 50,600 $ 0.25 $ 275 3.38% Repair & Maintenance $ 87,400 $ 0.43 $ 475 5.83% Cleaning $ 0 $ 0.00 $ 0 0.00% Landscaping $ 29,440 $ 0.14 $ 160 1.96% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 23,000 $ 0.11 $ 125 1.53% General Administrative $ 202,400 $ 0.98 $ 1,100 13.51% Management 5.00% $ 74,922 $ 0.36 $ 407 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 596,562 $ 2.90 $ 3,242 39.81% Reserves $ 46,000 $ 0.22 $ 250 3.07% ---------------------------------------------- NET OPERATING INCOME $ 855,883 $ 4.16 $ 4,652 57.12% "GOING IN" CAPITALIZATION RATE 9.50% VALUE INDICATION $9,009,300 $43.82 $48,964 LESS: LEASE-UP COST ($ 32,000) PV OF CONCESSIONS ($ 62,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $8,915,300 ROUNDED $8,900,000 $43.28 $48,370
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37 THE LOFT, RALEIGH, NORTH CAROLINA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - -------------------------------------------------------------------------- 8.75% $9,687,525 $9,700,000 $52,717 $47.18 9.00% $9,415,816 $9,400,000 $51,087 $45.72 9.25% $9,158,794 $9,200,000 $50,000 $44.74 9.50% $8,915,300 $8,900,000 $48,370 $43.28 9.75% $8,684,292 $8,700,000 $47,283 $42.31 10.00% $8,464,835 $8,500,000 $46,196 $41.34 10.25% $8,256,083 $8,300,000 $45,109 $40.37
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $8,900,000. 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 $8,800,000 Direct Capitalization Method $8,900,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $8,800,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 THE LOFT, RALEIGH, NORTH CAROLINA 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 $8,600,000 Income Approach $8,800,000 Reconciled Value $8,800,000
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 13, 2003 the market value of the fee simple estate in the property is: $8,800,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA THE LOFT, RALEIGH, NORTH CAROLINA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A THE LOFT, RALEIGH, NORTH CAROLINA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A THE LOFT, RALEIGH, NORTH CAROLINA SUBJECT PHOTOGRAPHS [EXTERIOR - PROPERTY SIGN PICTURE] [EXTERIOR - OFFICE PICTURE] [INTERIOR - OFFICE PICTURE] [INTERIOR - POOL ROOM PICTURE] [EXTERIOR - TYPICAL UNIT PICTURE] [EXTERIOR - TYPICAL UNIT PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A THE LOFT, RALEIGH, NORTH CAROLINA SUBJECT PHOTOGRAPHS [INTERIOR - TYPICAL UNIT PICTURE] [INTERIOR - TYPICAL KITCHEN PICTURE] [INTERIOR - FITNESS FACILITY PICTURE] [EXTERIOR - SAND VOLLEYBALL COURT PICTURE] [EXTERIOR - TENNIS COURT PICTURE] [EXTERIOR - PLAYGROUND PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B THE LOFT, RALEIGH, NORTH CAROLINA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B THE LOFT, RALEIGH, NORTH CAROLINA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 COTTAGES OF STONEHENGE CALIBRE CHASE POLO RUN 7600 Falcon Rest Circle 231 Calibre Chase Drive 1803 Hillock Drive Raleigh, North Carolina Raleigh, North Carolina Raleigh, North Carolina [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 HIDDEN CREEK SEDGEWOOD GREEN 5601 Old Wake Forest Road 3917 Knickerbocker Parkway Raleigh, North Carolina Raleigh, North Carolina [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B THE LOFT, RALEIGH, NORTH CAROLINA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 - ------------------------------------------------------------------------------------------------------------------------------------ Property Name The Loft Shellbrook Management Company AIMCO Drucker & Falk LLC LOCATION: Address 214 Loft Lane 901 Shellbrook City, State Raleigh, North Carolina Raleigh, North Carolina County Wake Wake Proximity to Subject 0.70 mile to the west of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 205,615 208,248 Year Built 1975 1971 Effective Age 25 32 Building Structure Type Brick & wood/vinyl siding; composition shingle Parking Type (Gr., Cov., etc.) Open Number of Units 184 238 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 Terrace - 1Bd/1Ba 800 28 $650 1 1Bd/1Ba - Type 1 706 48 $475 2 Gable - 1Bd/1Ba 1,035 38 $720 1 1Bd/1Ba - Type 2 755 48 $485 3 Pinnacle - 2Bd/1.5Ba 1,045 28 $752 1 1Bd/1Ba - Type 3 765 56 $499 4 Veranda - 2Bd/2Ba 1,250 65 $767 2 2Bd/1Ba 996 12 $675 5 Trellis - 3Bd/2Ba 1,335 25 $932 4 2Bd/2Ba - Type 1 1,071 40 $700 2Bd/2Ba - Type 2 1,130 12 $725 2Bd/2.5Ba 1,224 22 $815 Average Unit Size (SF) 1,117 700 Unit Breakdown: Efficiency 2-Bedroom Efficiency 0% 2-Bedroom 36% 1-Bedroom 3-Bedroom 1-Bedroom 64% 3-Bedroom 0% CONDITION: Average APPEAL: Average AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace X 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 X BBQ Equipment Basketball Court BBQ Equipment X Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track Business Office X Gym Room X Billiards X Gym Room Billiards X Playground Playground OCCUPANCY: 86% 88% LEASING DATA: Available Leasing Terms 6 to 15 months 3, 6, 9, and 12 month Concessions Reduced rents ($50 to $130) Reduced rents ($50 to $75 off) Pet Deposit $250 $150 with $50 non-refundable and pet rent Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas Water Trash Water Trash Confirmation Billy Booth - Property Manager Ellen Nicholas Telephone Number 919-847-3162 919-782-7734 NOTES: - ------------------------------------------------------------------------------------------------------------------------------------ COMPARISON TO SUBJECT: Similar - ------------------------------------------------------------------------------------------------------------------------------------ COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 - ------------------------------------------------------------------------------------------------------------------------------------ Property Name Archstone Ridgewood Paces Arbor Management Company Archstone Alliance Residential LOCATION: Address 120 Ridgewood Drive 6500 Paces Arbor Circle City, State Raleigh, North Carolina Raleigh, North Carolina County Wake Wake Proximity to Subject 0.50 mile to the north of the subject 0.75 mile to the northwest of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 165,492 64,027 Year Built 1986 1986 Effective Age 17 17 Building Structure Type Brick & wood/vinyl siding; composition shingle Wood/vinyl siding; composition shingle Parking Type (Gr., Cov., etc.) Open Open Number of Units 228 101 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 0 1Bd/1Ba - Type 1 510 34 $440 0 1Bd/1Ba - Type 1 625 18 $495 0 1Bd/1Ba - Type 2 624 72 $465 1 1Bd/1Ba - Type 2 788 35 $620 1 1Bd/1Ba - Type 3 710 32 $550 2 1Bd/1Ba - Type 3 938 13 $670 2 2Bd/1Ba 836 34 $600 4 2Bd/2Ba 1,136 35 $730 0 2Bd/2Ba 930 56 $630 Average Unit Size (SF) 726 899 Unit Breakdown: Efficiency 0% 2-Bedroom 39% Efficiency 0% 2-Bedroom 35% 1-Bedroom 61% 3-Bedroom 0% 1-Bedroom 65% 3-Bedroom 0% CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace X 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 Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall X Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball Laundry Room Jogging Track Business Office Jogging Track Business Office X Gym Room Billiards X Gym Room Billiards Playground Playground OCCUPANCY: 93% 89% LEASING DATA: Available Leasing Terms 3-12 month 3, 6, 9, 12, 28 month Concessions $125 off market Reduced rents ($45 off with a 12 month lease) Pet Deposit $250 to 350 non-refundable and pet rent $275 non-refundable Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash Water X Trash Confirmation Leasing Agent Lisa Cypert Telephone Number 919-848-3511 919-847-1112 NOTES: - ------------------------------------------------------------------------------------------------------------------------------------ COMPARISON TO SUBJECT: Similar Similar - ------------------------------------------------------------------------------------------------------------------------------------ COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 - ---------------------------------------------------------------------------------------------------------------------------------- Property Name Laurel Springs Lynnwood Park Management Company Brookside Properties Lampe Management LOCATION: Address 500-103 Bridleridge Drive 6200 North Hills Drive City, State Raleigh, North Carolina Raleigh, North Carolina County Wake Wake Proximity to Subject 0.70 mile to the north of the subject 1.0 mile to the west of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 137,028 139,200 Year Built 1986 1982 Effective Age 17 21 Building Structure Type Wood/vinyl siding; composition shingle Brick & wood/vinyl siding; composition shingle Parking Type (Gr., Cov., etc.) Open Open Number of Units 122 152 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Bd/1Ba 933 50 $709 0 1Bd/1Ba 600 72 $535 4 2Bd/2Ba - Type 1 1,343 40 $869 4 2Bd/2Ba 1,200 80 $690 4 2Bd/2Ba - Type 2 1,414 32 $909 Average Unit Size (SF) 1,194 916 Unit Breakdown: Efficiency 0% 2-Bedroom 59% Efficiency 0% 2-Bedroom 53% 1-Bedroom 41% 3-Bedroom 0% 1-Bedroom 47% 3-Bedroom 0% CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage X Vaulted Ceiling X Balcony X W/D Connect. Balcony X W/D Connect. X 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 BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball Laundry Room Racquet Ball X Laundry Room X Jogging Track Business Office Jogging Track Business Office Gym Room Billiards Gym Room Billiards X Playground X Playground OCCUPANCY: 98% 89% LEASING DATA: Available Leasing Terms 6 to 12 months 6 to 12 months Concessions Reduced rents ($110 off) Reduced rents ($40 to $50 off) Pet Deposit $290 non-refundable $200 non-refundable Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash Water X Trash Confirmation Susan McNealage Alexis Winemiller Telephone Number 919-846-8267 919-847-0349 NOTES: - ---------------------------------------------------------------------------------------------------------------------------------- COMPARISON TO SUBJECT: Similar Similar - ----------------------------------------------------------------------------------------------------------------------------------
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B THE LOFT, RALEIGH, NORTH CAROLINA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 SHELLBROOK ARCHSTONE RIDGEWOOD PACES ARBOR 901 Shellbrook 120 Ridgewood Drive 6500 Paces Arbor Circle Raleigh, North Carolina Raleigh, North Carolina Raleigh, North Carolina [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 LAUREL SPRINGS LYNNWOOD PARK 500-103 Bridleridge Drive 6200 North Hills Drive Raleigh, North Carolina Raleigh, North Carolina [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C THE LOFT, RALEIGH, NORTH CAROLINA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C THE LOFT, RALEIGH, NORTH CAROLINA 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 THE LOFT, RALEIGH, NORTH CAROLINA 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 THE LOFT, RALEIGH, NORTH CAROLINA 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 THE LOFT, RALEIGH, NORTH CAROLINA 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. Jimmy Pat James, MAI and Chad Walker 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 North Carolina Temporary Practice Permit #2578 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E THE LOFT, RALEIGH, NORTH CAROLINA EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E THE LOFT, RALEIGH, NORTH CAROLINA 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 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E THE LOFT, RALEIGH, NORTH CAROLINA STATE CERTIFICATIONS State of Arizona, 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 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 -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. THE LOFT, RALEIGH, NORTH CAROLINA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. THE LOFT, RALEIGH, NORTH CAROLINA 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. EX-99.(C)(5) 10 d07253exv99wxcyx5y.txt APPRAISAL OF PALM LAKE PALM LAKE 13401 NORTH 50TH STREET TAMPA, FLORIDA MARKET VALUE - FEE SIMPLE ESTATE AS OF DECEMBER 8, 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]
UNITED STATES INTERNATIONAL Atlanta Milwaukee Brazil Mexico Boston Minneapolis [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] Canada Morocco Buffalo New Orleans China Peru Charlotte New York 9441 LBJ Freeway Suite 114 Croatia Philippines Chicago Oak Lawn Dallas, Texas 75243 Czech Republic Poland Cincinnati Philadelphia England Portugal Dallas Pittsburg Telephone: (972) 994-9100 Germany Russia Denver Princeton Fax: (972) 994-0516 Greece Spain Detroit Schaumburg Hong Kong Taiwan Houston St. Louis Hungary Thailand Irvine San Francisco Italy Turkey Jacksonville Seattle Japan Venezuela Los Angeles
DECEMBER 23, 2003 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: PALM LAKE 13401 NORTH 50TH STREET TAMPA, HILLSBOROUGH COUNTY, FLORIDA 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 150 units with a total of 153,700 square feet of rentable area. The improvements were built in 1974. The improvements are situated on 9.33 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 96% 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 PALM LAKE, TAMPA, FLORIDA 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 December 8, 2003 is: ($4,300,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Frank A. Fehribach December 23, 2003 Frank A. Fehribach, MAI #053272 Managing Principal, Real Estate Group Texas State Certified General Real Estate Appraiser, TX-1323954-G Report By: Alice MacQueen Florida Certified General Real Estate Appraiser #RZ0002202 AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 PALM LAKE, TAMPA, FLORIDA 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 .............................. 37
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 PALM LAKE, TAMPA, FLORIDA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Palm Lake LOCATION: 13401 North 50th Street Tampa, Florida 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: December 8, 2003 DATE OF REPORT: December 23, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 9.33 acres, or 406,415 square feet Assessor Parcel No.: U-10-28-19-ZZZ-000001-31320 Floodplain: Community Panel No. 120112 0210E (August 15, 1989) Flood Zone C, an area outside the floodplain. Zoning: SPIUC (Special Public Interest University Community) BUILDING: No. of Units: 150 Units Total NRA: 153,700 Square Feet Average Unit Size: 1,025 Square Feet Apartment Density: 16.1 units per acre Year Built: 1974 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square --------------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income - --------------------------------------------------------------------------------------------- 1Br/1Ba 775 $ 525 $ 0.68 $ 12,600 $ 151,200 2Br/1Ba 900 $ 600 $ 0.67 $ 57,000 $ 684,000 4Br/2Ba 1,600 $ 1,000 $ 0.63 $ 31,000 $ 372,000 -------- ---------- Total $100,600 $1,207,200 ======== ==========
OCCUPANCY: 96% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 20 Years REMAINING ECONOMIC LIFE: 25 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 PALM LAKE, TAMPA, FLORIDA SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] APARTMENT COMPLEX ENTRANCE TYPICAL APARTMENT BUILDING - FRONT VIEW AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 PALM LAKE, TAMPA, FLORIDA NEIGHBORHOOD MAP [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 PALM LAKE, TAMPA, FLORIDA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit - --------------------- ---------- ------- Potential Rental Income $1,207,200 $ 8,048 Effective Gross Income $1,164,120 $ 7,761 Operating Expenses $ 642,935 $ 4,286 55.2% of EGI Net Operating Income: $ 446,185 $ 2,975 Capitalization Rate 10.00% DIRECT CAPITALIZATION VALUE $4,500,000 * $30,000 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 15% Stabilized Vacancy & Collection Loss: 15% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 10.50% Discount Rate 12.00% Selling Costs 2.00% Growth Rates: Income 2.50% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $4,400,000 * $29,333 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $4,400,000 $29,333 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $20,128 to $28,620 Range of Sales $/Unit (Adjusted) $25,915 to $29,613 VALUE INDICATION - PRICE PER UNIT $4,100,000 * $27,333 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 3.41 to 4.61 Selected EGIM for Subject 3.70 Subject's Projected EGI $1,164,120 EGIM ANALYSIS CONCLUSION $4,300,000 * $28,667 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $4,200,000 * $28,000 / UNIT RECONCILED SALES COMPARISON VALUE $4,200,000 $28,000 / 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 PALM LAKE, TAMPA, FLORIDA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $4,100,000 NOI Per Unit $4,200,000 EGIM Multiplier $4,300,000 INDICATED VALUE BY SALES COMPARISON $4,200,000 $28,000 / UNIT INCOME APPROACH: Direct Capitalization Method: $4,500,000 Discounted Cash Flow Method: $4,400,000 INDICATED VALUE BY THE INCOME APPROACH $4,400,000 $29,333 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $4,300,000 $28,667 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 PALM LAKE, TAMPA, FLORIDA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 13401 North 50th Street, Tampa, Hillsborough County, Florida. Tampa identifies it as U-10-28-19-ZZZ-000001-31320. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Alice MacQueen on December 8, 2003. Alice MacQueen made a personal inspection of the subject property, performed the research, valuation analysis, and wrote the report. Frank A. Fehribach, MAI reviewed the report and concurs with the value. Frank A. Fehribach, MAI and Alice MacQueen 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 December 8, 2003. The date of the report is December 23, 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 & Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 PALM LAKE, TAMPA, FLORIDA 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 CCIP Palm Lake LLC. 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 PALM LAKE, TAMPA, FLORIDA 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 Tampa, Florida. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being institutional. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Interstate 75 West - Interstate 275 South - East Hillsborough Avenue North - University of South Florida and Bruce B. Downs Boulevard 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 PALM LAKE, TAMPA, FLORIDA NEIGHBORHOOD DEMOGRAPHICS
AREA ---------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - ----------------------------------------------------------------------------------------------------- POPULATION TRENDS Current Population 15,973 95,011 279,469 2,442,120 5-Year Population 16,429 98,558 287,221 2,591,303 % Change CY-5Y 2.9% 3.7% 2.8% 6.1% Annual Change CY-5Y 0.6% 0.7% 0.6% 1.2% HOUSEHOLDS Current Households 6,042 39,430 113,376 1,029,700 5-Year Projected Households 6,141 40,743 116,943 1,095,882 % Change CY - 5Y 1.6% 3.3% 3.1% 6.4% Annual Change CY-5Y 0.3% 0.7% 0.6% 1.3% INCOME TRENDS Median Household Income $29,292 $ 31,369 $ 32,460 $ 35,241 Per Capita Income $15,615 $ 17,971 $ 19,429 $ 22,508 Average Household Income $40,831 $ 43,505 $ 47,882 $ 53,389
Source: Demographics Now The subject neighborhood's population is expected to show increases below 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 43.56% 41.74% 38.20% 24.86% 5-Year Projected % Renting 41.65% 41.25% 37.73% 24.59% % of Households Owning 48.28% 49.10% 50.91% 60.90% 5-Year Projected % Owning 50.27% 49.82% 51.70% 61.88%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 PALM LAKE, TAMPA, FLORIDA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - University of South Florida South - Multifamily Apartments East - Multifamily Apartments West - University of South Florida CONCLUSIONS The subject is well located within the city of Tampa. The neighborhood is characterized as being mostly suburban in nature and is currently in the stable 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 PALM LAKE, TAMPA, FLORIDA MARKET ANALYSIS The subject property is located in the city of Tampa in Hillsborough County. The overall pace of development in the subject's market is more or less stable. Recent construction in the area includes the final 52 units at Avalon Heights. This community rents apartments by the bedroom and caters to the student population. The Preserve at Tampa Palms also recently completed 175 units. The following table illustrates historical vacancy rates for the subject's market.
HISTORICAL VACANCY RATE - ----------------------------------------------------------------------------------- Period Region Submarket - ------ ------ --------- May-01 6.9% 7.5% Nov-01 7.7% 9.1% May-02 9.0% 8.3% Nov-02 8.9% 8.3% May-03 8.7% 9.8%
Source: Apartment Index Report, May 2003, by Carolinas Real Data Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has equated the overall 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 - ------ ------ -------- --------- -------- May-01 $693 - $670 - Nov-01 $708 2.2% $693 3.4% May-02 $725 2.4% $688 -0.7% Nov-02 $726 0.1% $698 1.5% May-03 $725 -0.1% $710 1.7%
Source: Apartment Index Report, May 2003, by Carolinas Real Data The following table illustrates a summary of the subject's competitive set.
COMPETITIVE PROPERTIES - ----------------------------------------------------------------------------------------------------------------------- No. Property Name Units Ocpy. Year Built Proximity to subject - --- ------------- ----- ----- ---------- -------------------- R-1 Excellence 165 91% 1992 Adjacent to the south R-2 Willow Brooke 248 98% 1976 Same general area near University R-3 Park Terrace 150 95% 1986 Same general area near the University R-4 Campus Walk 297 91% 1973 Same general area near the University R-5 Rivertree Landing 223 80% 1969 Off N 56th and Sligh Avenue Subject Palm Lake 150 96% 1974
AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 PALM LAKE, TAMPA, FLORIDA The average rent of $710 per month in the Tampa-Northeast submarket is the lowest of all area submarkets. However, the average rents in this submarket have steadily increased over the past couple of years. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 PALM LAKE, TAMPA, FLORIDA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 9.33 acres, or 406,415 square feet Shape Generally rectangular Topography Level 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 120112 0210E, dated August 15, 1989 Flood Zone Zone C Zoning SPIUC, 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 - -------------------------------------------------------------------------------------------------------------- U-10-28-19-ZZZ-000001-31320 $900,000 $3,159,900 $4,059,900 0.02352 $95,485
IMPROVEMENT ANALYSIS Year Built 1974 Number of Units 150 Net Rentable Area 153,700 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Wood or vinyl siding Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, laundry room, business office, freshwater lake, and parking area. Unit Amenities Individual unit amenities include a balcony, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, water eater, garbage disposal, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 PALM LAKE, TAMPA, FLORIDA Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - --------- --------------- ---------- 1Br/1Ba 24 775 2Br/1Ba 95 900 4Br/2Ba 31 1,600
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 1974 and consist of a 150-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 PALM LAKE, TAMPA, FLORIDA 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 PALM LAKE, TAMPA, FLORIDA 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 PALM LAKE, TAMPA, FLORIDA 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 PALM LAKE, TAMPA, FLORIDA SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 I - 3 - -------------------------------- ----------------------- ----------------------- -------------------------- ------------------------ Property Name Palm Lake Hidden River Country Crossing Rivertree Landing LOCATION: Address 13401 North 50th Street 8024 Hidden River Drive 7903 Holly Lea Court 6909 Indian River Drive City, State Tampa, Florida Tampa, FL Tampa, FL Tampa, FL County Hillsborough Hillsborough Hillsborough Hillsborough PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 153,700 N/A 204,335 228,352 Year Built 1974 1973 1974 1969 Number of Units 150 232 232 223 Unit Mix: Type Total Type Total Type Total Type Total 1Br/1Ba 24 1Br/1BA 1Br/1BA 128 1Br/1BA 90 2Br/1Ba 95 2Br/2BA 2Br/2BA 74 2Br/2BA 106 4Br/2Ba 31 3Br/2BA 3Br/2BA 30 3Br/2BA 27 Average Unit Size (SF) 1,025 881 1,024 Land Area (Acre) 9.3300 12.5100 11.8800 Unknown Density (Units/Acre) 16.1 18.5 19.5 Parking Ratio (Spaces/Unit) Adequate Adequate Adequate Adequate Parking Type (Gr., Cov., etc.) Garage, Open Covered Open Open Open CONDITION: Fair to Average Average Good Average APPEAL: Average Average Average Average AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Yes/No Gym Room No Yes Yes Yes Laundry Room Yes Yes Yes Yes Secured Parking No No No No Sport Courts No No No No Washer/Dryer Connection Yes No No No Other Other OCCUPANCY: 96% 95% 90% 75% TRANSACTION DATA: Sale Date June, 2003 July, 2002 April, 2002 Sale Price ($) $5,500,000 $5,800,000 $5,150,000 Grantor Centennial Equity, LLC TCI Country Crossing, Inc. Grantee Hidden River Grande Centurion Partners II, LLC Barfield Bay Holdings Apartments LLC Sale Documentation Doc# 12764-1947 Doc# 11829-0478 Doc# Verification CoStar Realty CoStar Realty Carolinas Real Data Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income N/A $1,604,832 $6,917 $7.85 $1,488,814 $6,676 $6.52 Vacancy/Credit Loss N/A $ 160,483 $ 692 $0.79 $ 372,204 $1,669 $1.63 Effective Gross Income N/A $1,444,349 $6,226 $7.07 $1,116,611 $5,007 $4.89 Operating Expenses N/A $ 893,200 $3,850 $4.37 $ 502,475 $2,253 $2.20 Net Operating Income N/A $ 551,149 $2,376 $2.70 $ 614,136 $2,754 $2.69 NOTES: Located near the subject Situated in same in the same neighborhood. submarket but inferior A community w/limited land in terms of location. - scaping/curb appeal Similar age and condition. PRICE PER UNIT $23,707 $25,000 $23,094 PRICE PER SQUARE FOOT $ 28.38 $ 22.55 EXPENSE RATIO N/A 61.8% 45.0% EGIM N/A 4.02 4.61 OVERALL CAP RATE N/A 9.50% 11.92% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA PRO FORMA COMPARABLE COMPARABLE DESCRIPTION I - 4 I - 5 - ------------------------------ --------------------------- ---------------------------- Property Name Sherwood Lake Campus Walk LOCATION: Address 1811 Tinsley Circle 13725 Plaza Court City, State Tampa, FL Tampa, FL County Hillsborough Hillsborough PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 145,080 363,825 Year Built 1973 1973 Number of Units 156 297 Unit Mix: Type Total Type Total 2Br/1.5Ba 156 1Br/1BA 12 2Br/2BA 200 3Br/2BA 85 Average Unit Size (SF) 930 1, 225 Land Area (Acre) Unknown Unknown Density (Units/Acre) Parking Ratio (Spaces/Unit) Adequate Adequate Parking Type (Gr., Cov., etc.) Open Open CONDITION: Average Good APPEAL: Average Average AMENITIES: Pool/Spa Yes/No Yes/No Gym Room Yes Yes Laundry Room Yes Yes Secured Parking No No Sport Courts No No Washer/Dryer Connection No No Other Other OCCUPANCY: 86% 95% TRANSACTION DATA: Sale Date April, 2002 March, 2001 Sale Price ($) $3,140,000 $8,500,000 Grantor Grantee Carlisle Group Blackhawk Realty Advisors Sale Documentation Doc# Doc# Verification Carolinas Real Data Carolinas Real Data Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $997,776 $6,396 $6.88 $2,772,347 $9,335 $7.62 Vacancy/Credit Loss $139,689 $ 895 $0.96 $ 277,235 $ 933 $0.76 Effective Gross Income $858,087 $5,501 $5.91 $2,495,112 $8,401 $6.86 Operating Expenses $386,139 $2,475 $2.66 $1,122,800 $3,780 $3.09 Net Operating Income $471,948 $3,025 $3.25 $1,372,312 $4,621 $3.77 NOTES: Located in same submarket Located near the subject in but with inferior location. the same neighborhood. Similar condition This property is also listed compared to the subject. as a Rent Comparable. PRICE PER UNIT $20,128 $28,620 PRICE PER SQUARE FOOT $ 21.64 $ 23.36 EXPENSE RATIO 45.0% 45.0% EGIM 3.66 3.41 OVERALL CAP RATE 15.03% 16.14% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 PALM LAKE, TAMPA, FLORIDA IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $20,128 to $28,620 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 $25,915 to $29,613 per unit with a mean or average adjusted price of $27,728 per unit. The median adjusted price is $27,303 per unit. Based on the following analysis, we have concluded to a value of $27,000 per unit, which results in an "as is" value of $4,100,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 PALM LAKE, TAMPA, FLORIDA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 I - 3 - ----------------------------------- ----------------------- ----------------------- ----------------------- ------------------------ Property Name Palm Lake Hidden River Country Crossing Rivertree Landing Address 13401 North 50th Street 8024 Hidden River Drive 7903 Holly Lea Court 6909 Indian River Drive City Tampa, Florida Tampa, FL Tampa, FL Tampa, FL Sale Date June, 2003 July, 2002 April, 2002 Sale Price ($) $5,500,000 $5,800,000 $5,150,000 Net Rentable Area (SF) 153,700 N/A 204,335 228,352 Number of Units 150 232 232 223 Price Per Unit $23,707 $25,000 $23,094 Year Built 1974 1973 1974 1969 Land Area (Acre) 9.3300 12.5100 11.8800 Unknown VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 06-2003 0% 07-2002 3% 04-2002 3% VALUE AFTER TRANS. ADJUST. ($/UNIT) $23,707 $25,750 $23,787 Location Inferior 10% Inferior 10% Inferior 5% Number of Units 150 232 5% 232 5% 223 5% Quality / Appeal Good Comparable 0% Comparable 0% Comparable 0% Age / Condition 1974 1973 / Average 0% 1974 / Good -5% 1969 / Average 0% Occupancy at Sale 96% 95% 0% 90% 0% 75% 10% Amenities Good Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 1,025 0% 881 5% 1,024 0% PHYSICAL ADJUSTMENT 15% 15% 20% FINAL ADJUSTED VALUE ($/UNIT) $27,263 $29,613 $28,544 COMPARABLE COMPARABLE DESCRIPTION I - 4 I - 5 - ----------------------------------- ---------------------- ----------------------- Property Name Sherwood Lake Campus Walk Address 1811 Tinsley Circle 13725 Plaza Court City Tampa, FL Tampa, FL Sale Date April, 2002 March, 2001 Sale Price ($) $3,140,000 $8,500,000 Net Rentable Area (SF) 145,080 363,825 Number of Units 156 297 Price Per Unit $20,128 $28,620 Year Built 1973 1973 Land Area (Acre) Unknown Unknown VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 04-2002 3% 03-2001 6% VALUE AFTER TRANS. ADJUST. ($/UNIT) $20,732 $30,337 Location Inferior 15% Comparable 0% Number of Units 156 0% 297 5% Quality / Appeal Comparable 0% Comparable 0% Age / Condition 1973 / Average 0% 1973 / Good -5% Occupancy at Sale 86% 10% 95% 0% Amenities Comparable 0% Comparable 0% Average Unit Size (SF) 930 0% 1,225 -10% PHYSICAL ADJUSTMENT 25% -10% FINAL ADJUSTED VALUE ($/UNIT) $25,915 $27,303
SUMMARY VALUE RANGE (PER UNIT) $25,915 TO $29,613 MEAN (PER UNIT) $27,728 MEDIAN (PER UNIT) $27,303 VALUE CONCLUSION (PER UNIT) $27,000
VALUE INDICATED BY SALES COMPARISON APPROACH $4,050,000 ROUNDED $4,100,000
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 PALM LAKE, TAMPA, FLORIDA 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-1 232 $5,500,000 N/A N/A $446,185 N/A N/A $ 23,707 N/A $ 2,975 I-2 232 $5,800,000 9.50% $ 551,149 $446,185 1.252 $ 31,303 $ 25,000 $ 2,376 $ 2,975 I-3 223 $5,150,000 11.92% $ 614,136 $446,185 1.080 $ 24,944 $ 23,094 $ 2,754 $ 2,975 I-4 156 $3,140,000 15.03% $ 471,948 $446,185 0.983 $ 19,791 $ 20,128 $ 3,025 $ 2,975 I-5 297 $8,500,000 16.14% $1,372,312 $446,185 0.644 $ 18,424 $ 28,620 $ 4,621 $ 2,975
PRICE/UNIT
Low High Average Median $18,424 $31,303 $23,615 $22,367
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 28,000 ---------- Number of Units 150 ---------- Value Based on NOI Analysis $4,200,000 Rounded $4,200,000
The adjusted sales indicate a range of value between $18,424 and $31,303 per unit, with an average of $23,615 per unit. Based on the subject's competitive position within the improved sales, a value of $28,000 per unit is estimated. This indicates an "as is" market value of $4,200,000 (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. 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-1 232 $5,500,000 N/A N/A N/A N/A $ 23,707 I-2 232 $5,800,000 $1,444,349 $ 893,200 61.84% 4.02 $ 25,000 I-3 223 $5,150,000 $1,116,611 $ 502,475 45.00% 4.61 $ 23,094 55.23% I-4 156 $3,140,000 $ 858,087 $ 386,139 45.00% 3.66 $ 20,128 I-5 297 $8,500,000 $2,495,112 $1,122,800 45.00% 3.41 $ 28,620
EGIM
Low High Average Median 3.41 4.61 3.92 3.84
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 3.70 ---------- Subject EGI $1,164,120 ---------- Value Based on EGIM Analysis $4,307,244 Rounded $4,300,000 Value Per Unit $ 28,667
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25 PALM LAKE, TAMPA, FLORIDA 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 55.23% before reserves. The comparable sales indicate a range of expense ratios from 45.00% to 61.84%, while their EGIMs range from 3.41 to 4.61. Overall, we conclude to an EGIM of 3.70, which results in an "as is" value estimate in the EGIM Analysis of $4,300,000. 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 $4,200,000. Price Per Unit $4,100,000 NOI Per Unit $4,200,000 EGIM Analysis $4,300,000 Sales Comparison Conclusion $4,200,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 PALM LAKE, TAMPA, FLORIDA 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 PALM LAKE, TAMPA, FLORIDA 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 - ----------------------------------------------------------- 1Br/1Ba 775 $ 517 $ 0.67 100.0% 2Br/1Ba 900 $ 586 $ 0.65 95.8% 4Br/2Ba 1600 $ 989 $ 0.62 93.5%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 PALM LAKE, TAMPA, FLORIDA RENT ANALYSIS
COMPARABLE RENTS -------------------------------------------------- R-1 R-2 R-3 R-4 R-5 -------------------------------------------------- WILLOW PARK CAMPUS RIVERTREE EXCELLENCE BROOKE TERRACE WALK LANDING -------------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT -------------------------------------------------- SUBJECT UNIT ACTUAL ASKING SLIGHTLY SLIGHTLY DESCRIPTION TYPE RENT RENT SUPERIOR SUPERIOR SUPERIOR SUPERIOR SUPERIOR MIN MAX MEDIAN AVERAGE - ----------------------------------------------------------------------------------------------------------------------------------- Monthly Rent 1Br/1Ba $ 517 $ 575 $ 700 $ (550) $ (545) $ 425 $ 425 $ (700) $ 548 $ 555 Unit Area (SF) (775) 775 600 680 (650) 800 600 800 665 683 Monthly Rent per Sq. Ft. $ 0.67 $ 0.74 $ 1.17 $ 0.81 $ 0.84 $ 0.53 $ (.53) $ 1.17 $ (.82) $ (.84) Monthly Rent 2Br/1Ba $ (586) $ 649 $ 850 $ 520 $ 765 $ 525 $ 520 $ 850 $ 645 $ 665 Unit Area (SF) 900 (900) 860 940 1,250 1,065 860 1,250 1,003 1,029 Monthly Rent per Sq. Ft. $ (.65) $ 0.72 $ 0.99 $ 0.55 $ 0.61 $ 0.49 $ (.49) $ 0.99 $ (.58) $ (.66) Monthly Rent 4Br\2Ba $ (989) $1,050 $1,120 $1,071 $ 822 $ (822) $1,120 $1,077 $(1006) Unit Area(SF) 1,600 1,600 1,441 1,567 (1248) 1,248 (1567) 1,441 1,419 Monthly Rent per Sq. Ft. $ 0.62 $ (.66) $ (.78) $ 0.69 $ 0.66 $ 0.66 $ 0.78 $ 0.69 $ 0.71
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 - -------------------------------------------------------------------------------------- 1Br/1Ba 24 775 $ 525 $ 0.68 $ 12,600 $ 151,200 2Br/1Ba 95 900 $ 600 $ 0.67 $ 57,000 $ 684,000 4Br/2Ba 31 1,600 $1,000 $ 0.63 $ 31,000 $ 372,000 -------- ---------- Total $100,600 $1,207,200 ======== ==========
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 29 PALM LAKE, TAMPA, FLORIDA SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 FISCAL YEAR 2003 ACTUAL ACTUAL ACTUAL MANAGEMENT BUDGET ----------------------- ----------------------- ------------------------ ----------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT - ---------------------------------------------------------------------------------------------------------------------------------- Revenues Rental Income $1,179,981 $ 7,867 $1,223,238 $ 8,155 $1,202,653 $ 8,018 $1,213,500 $ 8,090 Vacancy $ 120,831 $ 806 $ 182,549 $ 1,217 $ 144,058 $ 960 $ 127,830 $ 852 Credit Loss/Concessions $ 37,787 $ 252 $ 65,713 $ 438 $ 36,370 $ 242 $ 18,000 $ 120 ------------------------------------------------------------------------------------------------------ Subtotal $ 158,618 $ 1,057 $ 248,262 $ 1,655 $ 180,428 $ 1,203 $ 145,830 $ 972 Laundry Income $ 9,000 $ 60 $ 10,630 $ 71 $ 10,397 $ 69 $ 13,344 $ 89 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 76,165 $ 508 $ 90,684 $ 605 $ 169,019 $ 1,127 $ 164,148 $ 1,094 ------------------------------------------------------------------------------------------------------ Subtotal Other Income $ 85,165 $ 568 $ 101,314 $ 675 $ 179,416 $ 1,196 $ 177,492 $ 1,183 ------------------------------------------------------------------------------------------------------ Effective Gross Income $1,106,528 $ 7,377 $1,076,290 $ 7,175 $1,201,641 $ 8,011 $1,245,162 $ 8,301 Operating Expenses Taxes $ 109,085 $ 727 $ 110,780 $ 739 $ 104,367 $ 696 $ 117,348 $ 782 Insurance $ 14,731 $ 98 $ 48,641 $ 324 $ 46,103 $ 307 $ 41,674 $ 278 Utilities $ 101,912 $ 679 $ 89,285 $ 595 $ 93,394 $ 623 $ 102,000 $ 680 Repair & Maintenance $ 41,678 $ 278 $ 48,911 $ 326 $ 33,124 $ 221 $ 38,400 $ 256 Cleaning $ 69,684 $ 465 $ 60,630 $ 404 $ 49,161 $ 328 $ 50,200 $ 335 Landscaping $ 64,544 $ 430 $ 63,804 $ 425 $ 68,961 $ 460 $ 69,540 $ 464 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 30,051 $ 200 $ 29,139 $ 194 $ 33,487 $ 223 $ 34,008 $ 227 General Administrative $ 175,951 $ 1,173 $ 201,478 $ 1,343 $ 158,577 $ 1,057 $ 165,048 $ 1,100 Management $ 58,475 $ 390 $ 60,324 $ 402 $ 59,637 $ 398 $ 61,403 $ 409 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------------------------ Total Operating Expenses $ 666,111 $ 4,441 $ 712,992 $ 4,753 $ 646,811 $ 4,312 $ 679,621 $ 4,531 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------------------------ Net Income $ 440,417 $ 2,936 $ 363,298 $ 2,422 $ 554,830 $ 3,699 $ 565,541 $ 3,770 ------------------------------------------------------------------------------------------------------ ANNUALIZED 2003 PROJECTION AAA PROJECTION ----------------------- ------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % - ------------------------------------------------------------------------------------- Revenues Rental Income $1,209,407 $ 8,063 $1,207,200 $ 8,048 100.0% Vacancy $ 143,351 $ 956 $ 144,864 $ 966 12.0% Credit Loss/Concessions $ 45,477 $ 303 $ 36,216 $ 241 3.0% --------------------------------------------------------- Subtotal $ 188,828 $ 1,259 $ 181,080 $ 1,207 15.0% Laundry Income $ 10,603 $ 71 $ 10,500 $ 70 0.9% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 126,968 $ 846 $ 127,500 $ 850 10.6% --------------------------------------------------------- Subtotal Other Income $ 137,571 $ 917 $ 138,000 $ 920 11.4% --------------------------------------------------------- Effective Gross Income $1,158,149 $ 7,721 $1,164,120 $ 7,761 100.0% Operating Expenses Taxes $ 106,829 $ 712 $ 95,550 $ 637 8.2% Insurance $ 34,827 $ 232 $ 37,500 $ 250 3.2% Utilities $ 94,917 $ 633 $ 93,750 $ 625 8.1% Repair & Maintenance $ 28,621 $ 191 $ 33,750 $ 225 2.9% Cleaning $ 63,723 $ 425 $ 60,000 $ 400 5.2% Landscaping $ 70,507 $ 470 $ 71,250 $ 475 6.1% Security $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 27,109 $ 181 $ 33,750 $ 225 2.9% General Administrative $ 146,871 $ 979 $ 165,000 $ 1,100 14.2% Management $ 58,471 $ 390 $ 52,385 $ 349 4.5% Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0% --------------------------------------------------------- Total Operating Expenses $ 631,875 $ 4,212 $ 642,935 $ 4,286 55.2% Reserves $ 0 $ 0 $ 75,000 $ 500 11.7% --------------------------------------------------------- Net Income $ 526,275 $ 3,508 $ 446,185 $ 2,975 38.3% ---------------------------------------------------------
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 15% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 PALM LAKE, TAMPA, FLORIDA 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 $500 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 $500 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 5.50% 9.50% 6.00% 10.00% AVERAGE 7.61% 8.14%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 PALM LAKE, TAMPA, FLORIDA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - ------------------------------------------------ I-1 Jun-03 95% $ 23,707 N/A I-2 Jul-02 90% $ 25,000 9.50% I-3 Apr-02 75% $ 23,094 11.92% I-4 Apr-02 86% $ 20,128 15.03% I-5 Mar-01 95% $ 28,620 16.14% High 16.14% Low 9.50% Average 13.15%
Based on this information, we have concluded the subject's overall capitalization rate should be 10.00%. 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 10.50%. 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 12.00%. 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 12.00% indicates a value of $4,400,000. In this instance, the reversion figure contributes approximately 36% of the total value. Investors surveyed for this assignment indicated they AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 PALM LAKE, TAMPA, FLORIDA 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 33 PALM LAKE, TAMPA, FLORIDA DISCOUNTED CASH FLOW ANALYSIS PALM LAKE
YEAR JAN-2004 JAN-2005 JAN-2006 JAN-2007 JAN-2008 JAN-2009 FISCAL YEAR 1 2 3 4 5 6 - ------------------------------------------------------------------------------------------------------------------ REVENUE Base Rent $1,207,200 $1,237,380 $1,268,315 $1,300,022 $1,332,523 $1,365,836 Vacancy $ 144,864 $ 148,486 $ 152,198 $ 156,003 $ 159,903 $ 163,900 Credit Loss $ 36,216 $ 37,121 $ 38,049 $ 39,001 $ 39,976 $ 40,975 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------- Subtotal $ 181,080 $ 185,607 $ 190,247 $ 195,003 $ 199,878 $ 204,875 Laundry Income $ 10,500 $ 10,763 $ 11,032 $ 11,307 $ 11,590 $ 11,880 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 127,500 $ 130,688 $ 133,955 $ 137,304 $ 140,736 $ 144,255 --------------------------------------------------------------------------- Subtotal Other Income $ 138,000 $ 141,450 $ 144,986 $ 148,611 $ 152,326 $ 156,134 --------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $1,164,120 $1,193,223 $1,223,054 $1,253,630 $1,284,971 $1,317,095 OPERATING EXPENSES: Taxes $ 95,550 $ 98,417 $ 101,369 $ 104,410 $ 107,542 $ 110,769 Insurance $ 37,500 $ 38,625 $ 39,784 $ 40,977 $ 42,207 $ 43,473 Utilities $ 93,750 $ 96,563 $ 99,459 $ 102,443 $ 105,516 $ 108,682 Repair & Maintenance $ 33,750 $ 34,763 $ 35,805 $ 36,880 $ 37,986 $ 39,126 Cleaning $ 60,000 $ 61,800 $ 63,654 $ 65,564 $ 67,531 $ 69,556 Landscaping $ 71,250 $ 73,388 $ 75,589 $ 77,857 $ 80,193 $ 82,598 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 33,750 $ 34,763 $ 35,805 $ 36,880 $ 37,986 $ 39,126 General Administrative $ 165,000 $ 169,950 $ 175,049 $ 180,300 $ 185,709 $ 191,280 Management $ 52,385 $ 53,695 $ 55,037 $ 56,413 $ 57,824 $ 59,269 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 642,935 $ 661,962 $ 681,552 $ 701,723 $ 722,493 $ 743,879 Reserves $ 75,000 $ 77,250 $ 79,568 $ 81,955 $ 84,413 $ 86,946 --------------------------------------------------------------------------- NET OPERATING INCOME $ 446,185 $ 454,011 $ 461,934 $ 469,952 $ 478,065 $ 486,271 Operating Expense Ratio (% of EGI) 55.2% 55.5% 55.7% 56.0% 56.2% 56.5% Operating Expense Per Unit $ 4,286 $ 4,413 $ 4,544 $ 4,678 $ 4,817 $ 4,959 YEAR JAN-2010 JAN-2011 JAN-2012 JAN-2013 JAN-2014 FISCAL YEAR 7 8 9 10 11 - ----------------------------------------------------------------------------------------------------- REVENUE Base Rent $1,399,982 $1,434,981 $1,470,856 $1,507,627 $1,545,318 Vacancy $ 167,998 $ 172,198 $ 176,503 $ 180,915 $ 185,438 Credit Loss $ 41,999 $ 43,049 $ 44,126 $ 45,229 $ 46,360 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------- Subtotal $ 209,997 $ 215,247 $ 220,628 $ 226,144 $ 231,798 Laundry Income $ 12,177 $ 12,481 $ 12,793 $ 13,113 $ 13,441 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 147,861 $ 151,557 $ 155,346 $ 159,230 $ 163,211 -------------------------------------------------------------- Subtotal Other Income $ 160,038 $ 164,039 $ 168,140 $ 172,343 $ 176,652 -------------------------------------------------------------- EFFECTIVE GROSS INCOME $1,350,022 $1,383,773 $1,418,367 $1,453,826 $1,490,172 OPERATING EXPENSES: Taxes $ 114,092 $ 117,514 $ 121,040 $ 124,671 $ 128,411 Insurance $ 44,777 $ 46,120 $ 47,504 $ 48,929 $ 50,397 Utilities $ 111,942 $ 115,301 $ 118,760 $ 122,322 $ 125,992 Repair & Maintenance $ 40,299 $ 41,508 $ 42,753 $ 44,036 $ 45,357 Cleaning $ 71,643 $ 73,792 $ 76,006 $ 78,286 $ 80,635 Landscaping $ 85,076 $ 87,629 $ 90,257 $ 92,965 $ 95,754 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 40,299 $ 41,508 $ 42,753 $ 44,036 $ 45,357 General Administrative $ 197,019 $ 202,929 $ 209,017 $ 215,288 $ 221,746 Management $ 60,751 $ 62,270 $ 63,827 $ 65,422 $ 67,058 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 765,899 $ 788,572 $ 811,918 $ 835,956 $ 860,708 Reserves $ 89,554 $ 92,241 $ 95,008 $ 97,858 $ 100,794 -------------------------------------------------------------- NET OPERATING INCOME $ 494,570 $ 502,961 $ 511,442 $ 520,012 $ 528,671 Operating Expense Ratio (% of EGI) 56.7% 57.0% 57.2% 57.5% 57.8% Operating Expense Per Unit $ 5,106 $ 5,257 $ 5,413 $ 5,573 $ 5,738
Estimated Stabilized NOI $446,185 Sales Expense Rate 2.00% Months to Stabilized 1 Discount Rate 12.00% Stabilized Occupancy 88.0% Terminal Cap Rate 10.50%
"DCF" VALUE ANALYSIS Gross Residual Sale Price $5,034,959 Deferred Maintenance $ 0 Less: Sales Expense $ 100,699 Add: Excess Land $ 0 ---------- Net Residual Sale Price $4,934,260 Other Adjustments $ 0 ---------- PV of Reversion $1,588,700 Value Indicated By "DCF" $4,424,796 Add: NPV of NOI $2,836,096 Rounded $4,400,000 ---------- PV Total $4,424,796
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ------------------------------------------------------------------ TOTAL VALUE 11.50% 11.75% 12.00% 12.25% 12.50% - ------------------------------ ------------------------------------------------------------------ 10.00% $4,645,707 $4,574,210 $4,504,231 $4,435,733 $4,368,678 10.25% $4,603,159 $4,532,605 $4,463,545 $4,395,943 $4,329,764 TERMINAL CAP RATE 10.50% $4,562,637 $4,492,980 $4,424,796 $4,358,049 $4,292,703 10.75% $4,524,000 $4,455,199 $4,387,850 $4,321,917 $4,257,367 11.00% $4,487,119 $4,419,135 $4,352,583 $4,287,428 $4,223,636
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 PALM LAKE, TAMPA, FLORIDA 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 Concessions have historically not been utilized at the subject property or in the subject's market. Therefore, no adjustment was included for concessions. 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 10.00% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 PALM LAKE, TAMPA, FLORIDA PALM LAKE
TOTAL PER SQ. FT. PER UNIT %OF EGI - --------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 1,207,200 $ 7.85 $ 8,048 Less: Vacancy & Collection Loss 15.00% $ 181,080 $ 1.18 $ 1,207 Plus: Other Income Laundry Income $ 10,500 $ 0.07 $ 70 0.90% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 127,500 $ 0.83 $ 850 10.95% --------------------------------------------- Subtotal Other Income $ 138,000 $ 0.90 $ 920 11.85% EFFECTIVE GROSS INCOME $ 1,164,120 $ 7.57 $ 7,761 OPERATING EXPENSES: Taxes $ 95,550 $ 0.62 $ 637 8.21% Insurance $ 37,500 $ 0.24 $ 250 3.22% Utilities $ 93,750 $ 0.61 $ 625 8.05% Repair & Maintenance $ 33,750 $ 0.22 $ 225 2.90% Cleaning $ 60,000 $ 0.39 $ 400 5.15% Landscaping $ 71,250 $ 0.46 $ 475 6.12% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 33,750 $ 0.22 $ 225 2.90% General Administrative $ 165,000 $ 1.07 $ 1,100 14.17% Management 4.50% $ 52,385 $ 0.34 $ 349 4.50% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 642,935 $ 4.18 $ 4,286 55.23% Reserves $ 75,000 $ 0.49 $ 500 6.44% --------------------------------------------- NET OPERATING INCOME $ 446,185 $ 2.90 $ 2,975 38.33% ============================================= "GOING IN" CAPITALIZATION RATE 10.00% VALUE INDICATION $ 4,461,846 $ 29.03 $ 29,746 "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $ 4,461,846 ROUNDED $ 4,500,000 $ 29.28 $ 30,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 PALM LAKE, TAMPA, FLORIDA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - ----------------------------------------------------------------------- 9.25% $4,823,617 $4,800,000 $32,000 $31.23 9.50% $4,696,680 $4,700,000 $31,333 $30.58 9.75% $4,576,252 $4,600,000 $30,667 $29.93 10.00% $4,461,846 $4,500,000 $30,000 $29.28 10.25% $4,353,020 $4,400,000 $29,333 $28.63 10.50% $4,249,377 $4,200,000 $28,000 $27.33 10.75% $4,150,554 $4,200,000 $28,000 $27.33
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $4,500,000. 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 $4,400,000 Direct Capitalization Method $4,500,000 Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $4,400,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37 PALM LAKE, TAMPA, FLORIDA 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 $4,200,000 Income Approach $4,400,000 Reconciled Value $4,300,000
The Income 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 December 8, 2003 the market value of the fee simple estate in the property is: $4,300,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA PALM LAKE, TAMPA, FLORIDA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A PALM LAKE, TAMPA, FLORIDA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A PALM LAKE, TAMPA, FLORIDA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] APARTMENT COMPLEX ENTRANCE TYPICAL APARTMENT BUILDING - FRONT VIEW [PICTURE] [PICTURE] EXTERIOR FRONT VIEW - LEASING OFFICE INTERIOR VIEW - LEASING OFFICE [PICTURE] [PICTURE] TYPICAL APARTMENT BUILDING - POND VIEW SWIMMING POOL AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A PALM LAKE, TAMPA, FLORIDA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] MAILBOXES LAUNDRY ROOM AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B PALM LAKE, TAMPA, FLORIDA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B PALM LAKE, TAMPA, FLORIDA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 HIDDEN RIVER COUNTRY CROSSING RIVERTREE LANDING 8024 Hidden River Drive 7903 Holly Lea Court 6909 Indian River Drive Tampa, FL Tampa, FL Tampa, FL [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 SHERWOOD LAKE CAMPUS WALK 1811 Tinsley Circle 13725 Plaza Court Tampa, FL Tampa, FL [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B PALM LAKE, TAMPA, FLORIDA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 - -------------------------------- ----------------------------------------- ----------------------------------------------- Property Name Palm Lake Excellence Management Company AIMCO Partners Management Company LOCATION: Address 13401 North 50th Street 5005 Excellent Boulevard City, State Tampa, Florida Tampa, FL County Hillsborough Hillsborough Proximity to Subject Adjacent to the south PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 153,700 202,620 Year Built 1974 1992 Effective Age 20 11 Building Structure Type Wood/Stucco Stucco Parking Type (Gr., Cov., etc.) Open Open Number of Units 150 165 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. --------- ----- ---- -------- ----------- ----- ---- ------ 1 1Br/1Ba 775 24 $517 1 1Br/1Ba 600 12 $ 700 2 2Br/1Ba 900 95 $586 2 2Br/2Ba 860 10 $ 850 3 4Br/2Ba 1,600 31 $989 3 4Br/3.5Ba 1,525 15 $1,399 3 3Br/2Ba 1,420 59 $1,049 Average Unit Size (SF) 1,025 1,276 Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Average APPEAL: Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. Fireplace Fireplace Cable TV Ready Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi X Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall X Sand Volley Ball Meeting Hall Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room X Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track Business Office Gym Room X Freshwater Lake X Gym Room X Freshwater Lake OCCUPANCY: 96% 91% LEASING DATA: Available Leasing Terms 6 to 12 months 6 to 12 months Concessions On specified units only Pet Deposit No Pets Allowed Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash X Water X Trash Confirmation Manager Leasing Agent Telephone Number 813-933-2449 813-988-7263 NOTES: Attractive apartment community located adjacent to the subject property to the south. Far superior overall and in all respects to the subject property. COMPARISON TO SUBJECT: Slightly Superior COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 - -------------------------------- ---------------------------------------------- ----------------------------------------------- Property Name Willow Brooke Park Terrace Management Company Gulf Atlantic Management Park Terrace Management LOCATION: Address 14419 Hellenic Drive 12201 N 50th Street City, State Tampa, FL Tampa, FL County Hillsborough Hillsborough Proximity to Subject Same general area near University Same general area near the University PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 200,880 228,750 Year Built 1976 1986 Effective Age 27 17 Building Structure Type Stucco Wood /stucco Parking Type (Gr., Cov., etc.) Open Open Number of Units 248 150 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. --------- ---- ---- ---- ------------ ----- ---- ------ 1 1Br/1Ba 680 124 $550 3 3Br/3.5 Ba 1,300 24 $ 900 2 2Br/1Ba 940 124 $520 3 3Br/3.5 Ba 1,370 24 $ 900 3 3Br/3.5 Ba 1,820 24 $1,275 3 4Br/4.5 Ba 2,200 8 $1,540 Average Unit Size (SF) 810 1,567 Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Slightly Superior Slightly Superior APPEAL: Good Slightly Superior AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony W/D Connect. X Balcony X W/D Connect. Fireplace Fireplace Cable TV Ready Cable TV Ready X W/D in Units Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room 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 Laundry Room Jogging Track X Business Office Jogging Track Business Office X Gym Room X Freshwater Lake X Gym Room Freshwater Lake OCCUPANCY: 98% 95% LEASING DATA: Available Leasing Terms 6 to 13 months 6 to 12 months Concessions On specified units only One Month Free Rent Pet Deposit Yes Yes Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash X Water X Trash Confirmation Leasing Agent Leasing Agent Telephone Number 813-971-9727 813-985-8854 NOTES: Apartment community located near the subject Located along the same street as the subject in the University area. It is superior to the property and across from the university campus. subject in terms of overall condition and curb Similar in terms of overall design but superior appeal. in terms of age, condition and appeal. Appears to have been renovated recently. COMPARISON TO SUBJECT: Superior Superior COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 - -------------------------------- ------------------------------------------------ ------------------------------------------------ Property Name Campus Walk Rivertree Landing Management Company Owners Property Management Barfield Bay Holdings LOCATION: Address 13725 Plaza Court 6909 Indian River Drive City, State Tampa, FL Tampa, FL County Hillsborough Hillsborough Proximity to Subject Same general area near the University Off N 56th and Sligh Avenue PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 363,825 228,352 Year Built 1973 1969 Effective Age 30 34 Building Structure Type Stucco Stucco/frame Parking Type (Gr., Cov., etc.) Open Open Number of Units 297 223 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. --------- ----- ---- ----- --------- ----- ---- ---- 1 1Br/1Ba 650 12 $545 1 1Br/1Ba 800 90 $425 2 2Br/2Ba 1,250 200 $765 2 2Br/1Ba 1,065 50 $525 3 3Br/3Ba 1,250 75 $818 3 4Br/4Ba 1,230 10 $850 Average Unit Size (SF) 1,225 895 Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony W/D Connect. X Balcony W/D Connect. Fireplace Fireplace Cable TV Ready Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall X 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 Business Office X Gym Room Freshwater Lake Gym Room Freshwater Lake OCCUPANCY: 91% 80% LEASING DATA: Available Leasing Terms 6 to 12 months 6 to 12 months Concessions One Month Free, No Deposit, No App. Fee $99 Move-in special Pet Deposit Yes Yes Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash X Water X Trash Confirmation Leasing Agent Leasing Agent Telephone Number 813-972-2507 813-983-8362 NOTES: Located in university area, off 42nd St. Similar Slightly inferior location and overall design to the subject in terms of location and age, but appears to be in superior condition compared but superior in terms of overall condition. to the subject property. COMPARISON TO SUBJECT: Slightly Superior Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B PALM LAKE, TAMPA, FLORIDA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 EXCELLENCE WILLOW BROOKE PARK TERRACE 5005 Excellent Boulevard 14419 Hellenic Drive 12201 N 50th Street Tampa, FL Tampa.FL Tampa, FL [PICTURE] [PICTURE] N/A COMPARABLE R-4 COMPARABLE R-5 CAMPUS WALK RIVERTREE LANDING 13725 Plaza Court 6909 Indian River Drive Tampa, FL Tampa, FL [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C PALM LAKE, TAMPA, FLORIDA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C PALM LAKE, TAMPA, FLORIDA 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 PALM LAKE, TAMPA, FLORIDA 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 PALM LAKE, TAMPA, FLORIDA 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 Appraisal Institute 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 PALM LAKE, TAMPA, FLORIDA EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D PALM LAKE, TAMPA, FLORIDA 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. Alice MacQueen 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 Texas State Certified General Real Estate Appraiser #TX-1323954-G AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D PALM LAKE, TAMPA, FLORIDA 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 inspected the subject property and provided significant real property appraisal assistance in the preparation of this report. -s- Alice MacQueen -------------------------- Alice MacQueen Florida Certified General Real Estate Appraiser #RZ0002202 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E PALM LAKE, TAMPA, FLORIDA EXHIBIT E QUALIFICATIONS OF APPRAISER (4 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E PALM LAKE, TAMPA, FLORIDA 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 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E PALM LAKE, TAMPA, FLORIDA STATE CERTIFICATIONS State of Arizona, 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 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. EXHIBIT E PALM LAKE, TAMPA, FLORIDA ALICE MACQUEEN STATE CERTIFIED GENERAL REAL ESTATE APPRAISER POSITION Alice MacQueen is a State Certified General Real Estate Appraiser and principal member of 3P, Inc., a consulting firm with offices in Georgia and Utah. EXPERIENCE BUSINESS Mrs. MacQueen was employed by American Appraisal Associates, Inc., from 1983 until 2003 when she formed 3P, Inc. During her 20 year tenure with AAA, Ms. MacQueen held numerous positions within the firm, advancing from the professional staff levels to serve as Regional Director for the Southeastern United States (1987 to 1992) and as National Director of the Real Estate Valuation Group (1992 to 1995). During her later years with the firm, Ms. MacQueen continued to serve as an officer in the company, working as Principal/Vice President actively involved in the valuation of a wide variety of property types, including numerous types of special purpose properties. Prior to joining American Appraisal, Ms. MacQueen was involved in property management for five years and spent an additional five years as an appraiser, consultant and research analyst. VALUATION Ms. MacQueen has extensive experience in the appraisal of residential, commercial, industrial and special purpose properties and is annually involved in the valuation of several billion dollars of real property. She has also been involved in land planning analysis for major mixed use developments. Special purpose properties appraised include campgrounds, churches, country clubs and golf courses, data centers, historic landmarks, proprietary cemeteries and schools. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E PALM LAKE, TAMPA, FLORIDA More recently, she has had extensive experience in appraising residential and industrial properties on Indian reservations as was instrumental in developing a major housing study for the Navajo reservation. The purposes of these valuations have included allocation of purchase price, charitable donation, financing, purchase and sale, syndication, and financial reporting. Ms. MacQueen has completed appraisals of commercial and residential real estate. He has also generated discounted cash flow and sensitivity analyses for investment-grade real estate, securitization, and pension funds/insurance industries. Analyses he has performed involve various types of investment-grade real estate throughout the continental United States including apartments, cooperatives, hotels, industrial and research and development parks, office buildings, regional shopping centers, and undeveloped acreage. To date, she has provided appraisal and consulting services in 48 states, Mexico and Puerto Rico. EDUCATION Greenbrier College for Women, Liberal Arts Realtors Institute of Virginia VALUATION AND SPECIAL Ms. MacQueen completes several courses annually as part COURSES of the continuing education requirements of the various states in which she is certified. She also attends real estate and financial industry-related conferences and seminars. In recent years, she prepared background information for HUD pertaining to valuation requirements for Indian lands and presented findings related to housing needs and financing issues on reservations. STATE-CERTIFICATED GENERAL APPRAISER Florida, No. RZ0002202, expires 11/30/04 Georgia, No. 239776, expires 7/31/04 New Mexico, No. 001626, expires 4/30/05 North Carolina, No. A5096, expires 6/30/04 Utah, No. CG 00057001, expires 7/1/05 AMERICAN APPRAISAL ASSOCIATES, INC. PALM LAKE, TAMPA, FLORIDA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. PALM LAKE, TAMPA, FLORIDA 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. EX-99.(C)(6) 11 d07253exv99wxcyx6y.txt APPRAISAL OF PLANTATION GARDENS PLANTATION GARDENS 7616 NW 5TH STREET PLANTATION, FLORIDA MARKET VALUE - FEE SIMPLE ESTATE AS OF DECEMBER 11, 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]
UNITED STATES INTERNATIONAL Atlanta Milwaukee Brazil Mexico Boston Minneapolis [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] Canada Morocco Buffalo New Orleans China Peru Charlotte New York 9441 LBJ Freeway Suite 114 Croatia Philippines Chicago Oak Lawn Dallas, Texas 75243 Czech Republic Poland Cincinnati Philadelphia England Portugal Dallas Pittsburg Telephone: (972) 994-9100 Germany Russia Denver Princeton Fax: (972) 994-0516 Greece Spain Detroit Schaumburg Hong Kong Taiwan Houston St. Louis Hungary Thailand Irvine San Francisco Italy Turkey Jacksonville Seattle Japan Venezuela Los Angeles
DECEMBER 23, 2003 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: PLANTATION GARDENS 7616 NW 5TH STREET PLANTATION, BROWARD COUNTY, FLORIDA 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 372 units with a total of 326,800 square feet of rentable area. The improvements were built in 1971. The improvements are situated on 20.83 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 97% 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 PLANTATION GARDENS, PLANTATION, FLORIDA 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 December 11, 2003 is: ($19,000,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Edward Zenkovich ---------------------------- December 23, 2003 Edward Zenkovich, ASA #053272 Managing Principal, Real Estate Group State of Florida, Certified General Appraiser, #0001259 Assisted By: Kim Cook AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 PLANTATION GARDENS, PLANTATION, FLORIDA 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 ................................................... 15 Improvement Analysis ............................................ 15 Highest and Best Use ............................................ 16 VALUATION Valuation Procedure ............................................. 17 Sales Comparison Approach ....................................... 19 Income Capitalization Approach .................................. 25 Reconciliation and Conclusion ................................... 36
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 PLANTATION GARDENS, PLANTATION, FLORIDA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Plantation Gardens LOCATION: 7616 NW 5th Street Plantation, Florida INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: Fee Simple DATE OF VALUE: December 11, 2003 DATE OF REPORT: December 23, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 20.83 acres, or 907,355 square feet Assessor Parcel No.: 5041-04-06-0010 Floodplain: Community Panel No. 120054 0215F (August 18, 1992) Flood Zone X, an area outside the floodplain. Zoning: PRD - 17Q (Planned Residential Development Multifamily - Density 17 units/acre) BUILDING: No. of Units: 372 Units Total NRA: 326,800 Square Feet Average Unit Size: 878 Square Feet Apartment Density: 17.9 units per acre Year Built: 1971 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square --------------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income - ----------------------------------------------------------------------------- 1Bdrm/1Ba-1A10 750 $ 750 $ 1.00 $ 31,500 $ 378,000 2Bdrm/2Ba-2A20 850 $ 800 $ 0.94 $ 145,600 $1,747,200 2Bdrm/2Ba-2B20 950 $ 850 $ 0.89 $ 125,800 $1,509,600 ---------- ---------- Total $ 302,900 $3,634,800 ========== ==========
OCCUPANCY: 97% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 20 Years REMAINING ECONOMIC LIFE: 25 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 PLANTATION GARDENS, PLANTATION, FLORIDA SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - APARTMENT ENTRANCE EXTERIOR - 4-STORY APARTMENT BUILDING AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 PLANTATION GARDENS, PLANTATION, FLORIDA 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 PLANTATION GARDENS, PLANTATION, FLORIDA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit - --------------------- ------ ------ Potential Rental Income $ 3,634,800 $ 9,771 Effective Gross Income $ 3,557,916 $ 9,564 Operating Expenses $ 1,786,796 $ 4,803 50.2% of EGI Net Operating Income: $ 1,678,120 $ 4,511 Capitalization Rate 8.75% DIRECT CAPITALIZATION VALUE $ 18,900,000 * $50,806 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 10% Stabilized Vacancy & Collection Loss: 8% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 9.25% Discount Rate 11.00% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $ 19,500,000 * $52,419 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $ 19,000,000 $51,075 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $43,710 to $66,667 Range of Sales $/Unit (Adjusted) $49,875 to $55,967 VALUE INDICATION - PRICE PER UNIT $ 19,100,000 * $51,344 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 4.99 to 6.94 Selected EGIM for Subject 5.50 Subject's Projected EGI $ 3,557,916 EGIM ANALYSIS CONCLUSION $ 19,300,000 * $51,882 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $ 19,100,000 * $51,344 / UNIT RECONCILED SALES COMPARISON VALUE $ 19,100,000 $51,344 / 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 PLANTATION GARDENS, PLANTATION, FLORIDA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $ 19,100,000 NOI Per Unit $ 19,100,000 EGIM Multiplier $ 19,300,000 INDICATED VALUE BY SALES COMPARISON $ 19,100,000 $51,344 / UNIT INCOME APPROACH: Direct Capitalization Method: $ 18,900,000 Discounted Cash Flow Method: $ 19,500,000 INDICATED VALUE BY THE INCOME APPROACH $ 19,000,000 $51,075 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $ 19,000,000 $51,075 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 PLANTATION GARDENS, PLANTATION, FLORIDA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 7616 NW 5th Street, Plantation, Broward County, Florida. Plantation identifies it as 5041-04-06-0010. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Kim Cook on December 11, 2003. Edward Zenkovich, ASA has not made a personal inspection of the subject property. Kim Cook assisted Edward Zenkovich, ASA in the research, valuation analysis and writing the report. Both, Edward Zenkovich, ASA and Kim Cook 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 December 11, 2003. The date of the report is December 23, 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 & 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, AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 PLANTATION GARDENS, PLANTATION, FLORIDA 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 Consolidated Capital Equity Partners. 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 PLANTATION GARDENS, PLANTATION, FLORIDA 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 Plantation, Florida. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being residential/retail. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Florida Turnpike West - North University Drive South - Interstate 595 North - Sunrise Boulevard MAJOR EMPLOYERS Major employers in the subject's area include American Express, Motorola, JM Family Enterprises, Nova Southeastern University, Sun Sentinel, Holy Cross Medical Group, Bank of America, Ed Morse Automotive Group, University Hospital and Alamo Rental Car. 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 PLANTATION GARDENS, PLANTATION, FLORIDA NEIGHBORHOOD DEMOGRAPHICS
AREA ------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - ------------------------------------------------------------------------------------------- POPULATION TRENDS Current Population 10,615 105,296 270,413 2,297,162 5-Year Population 10,872 107,521 280,767 2,441,631 % Change CY-5Y 2.4% 2.1% 3.8% 6.3% Annual Change CY-5Y 0.5% 0.4% 0.8% 1.3% HOUSEHOLDS Current Households 4,053 35,821 92,780 785,413 5-Year Projected Households 4,168 36,301 95,299 822,309 % Change CY - 5Y 2.8% 1.3% 2.7% 4.7% Annual Change CY-5Y 0.6% 0.3% 0.5% 0.9% INCOME TRENDS Median Household Income $ 69,296 $ 66,227 $ 56,401 $ 33,054 Per Capita Income $ 34,299 $ 31,295 $ 27,366 $ 18,389 Average Household Income $ 94,678 $ 91,781 $ 79,745 $ 53,787
Source: Demographics Now The subject neighborhood's population is expected to show increases below that of the region. The immediate market offers superior 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 27.43% 22.20% 25.62% 37.56% 5-Year Projected % Renting 29.46% 22.33% 25.10% 36.46% % of Households Owning 67.68% 72.71% 68.67% 52.69% 5-Year Projected % Owning 65.84% 72.66% 69.33% 54.16%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 PLANTATION GARDENS, PLANTATION, FLORIDA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Residential, church and private school South - Residential and Commercial East - Residential/Municipal complex West - Residential/Retail CONCLUSIONS The subject is well located within the city of Plantation. The neighborhood is characterized as being mostly suburban in nature and is currently in the stable 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 PLANTATION GARDENS, PLANTATION, FLORIDA MARKET ANALYSIS The subject property is located in the city of Plantation in Broward County. The overall pace of development in the subject's market is more or less stable. There were no new units added in the Plantation submarket in the last year. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - --------------------------------------------- 1998 - 4.0% 1999 - 3.2% 2000 - 1.8% 2001 - 5.0% 2002 5.2% 5.7% 3rd Quarter 2003 5.7% 5.0%
Source: REIS Subtrend Futures, Fort Lauderdale Apartment Market, 3rd Quarter 2003 Occupancy trends in the subject's market are stable. Historically speaking, the subject's submarket has equated the overall market. Concessions are found throughout this 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 - ----------------------------------------------------------- 1998 N/A - $ 926 - 1999 N/A N/A $ 919 -0.8% 2000 N/A N/A $ 952 3.6% 2001 N/A N/A $ 940 -1.3% 2002 N/A N/A $ 948 0.9% 3rd Quarter 2003 N/A N/A $ 954 0.6%
Source: REIS Subtrend Futures, Fort Lauderdale Apartment Market, 3rd Quarter 2003 The following table illustrates a summary of the subject's competitive set. COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject - --------------------------------------------------------------------------------------------------- R-1 Southern Pointe 300 97% 1985 0.5 mile west of the subject R-2 Carlyle Club 150 94% 1997 1 mile northwest of the subject R-3 Jacaranda Village NA 90% 1987 2 miles northwest of the subject R-4 Lakepointe at Jacaranda 246 95% 1986 0.5 mile west of subject Subject Plantation Gardens 372 97% 1971
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 15 PLANTATION GARDENS, PLANTATION, FLORIDA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 20.83 acres, or 907,355 square feet Shape Irregular Topography Level Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Good Flood Zone: Community Panel 120054 0215F, dated August 18, 1992 Flood Zone Zone X Zoning PRD - 17Q, 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 - -------------------------------------------------------------------------------------------------------------- 5041-04-06-0010 $4,083,170 $12,243,520 $16,326,690 0.02359 $385,196
IMPROVEMENT ANALYSIS Year Built 1971 Number of Units 372 Net Rentable Area 326,800 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Stucco wall Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, spa/jacuzzi, basketball court, tennis court, gym room, barbeque equipment, meeting hall, laundry room, business office, and parking area. Unit Amenities Individual unit amenities include a garage, balcony, cable TV connection, vaulted ceiling, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, water heater, garbage
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 PLANTATION GARDENS, PLANTATION, FLORIDA disposal, and oven. Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - -------------------------------------------------------- 1Bdrm/1Ba-1A10 42 750 2Bdrm/2Ba-2A20 182 850 2Bdrm/2Ba-2B20 148 950
Overall Condition Average Effective Age 20 years Economic Life 45 years Remaining Economic Life 25 years Deferred Maintenance The deferred maintenance at the subject property was estimated for a total amount of $280,000. 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 1971 and consist of a 372-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 17 PLANTATION GARDENS, PLANTATION, FLORIDA 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 18 PLANTATION GARDENS, PLANTATION, FLORIDA 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 19 PLANTATION GARDENS, PLANTATION, FLORIDA 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 20 PLANTATION GARDENS, PLANTATION, FLORIDA SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ------------------------------------------------------------------------------------------------------------------------- Property Name Plantation Gardens Townhomes of Plantation Cimarron Apartments LOCATION: Address 7616 NW 5th Street 4790 NW 9th Court 850 E. Commercial Blvd City, State Plantation, Florida Plantation, Florida Oakland Park County Broward Broward County Broward County PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 326,800 150,168 105,816 Year Built 1971 1973 1973 Number of Units 372 183 106 Unit Mix: Type Total Type Total Type Total 1Bdrm/1Ba -1A10 42 1Bedroom 54 1 Bedroom 4 2Bdrm/2Ba -2A20 182 2Bedroom 129 2 Bedroom 86 2Bdrm/2Ba -2B20 148 3 Bedroom 16 3 Bedroom 2 Average Unit Size (SF) 878 821 998 Land Area (Acre) 20.8300 9.0200 4.9900 Density (Units/Acre) 17.9 20.3 21.2 Parking Ratio (Spaces/Unit) 1.08 Parking Type (Gr., Cov., etc.) Open parking lot Open Open CONDITION: Average Average Average APPEAL: Average Average Average AMENITIES: Pool/Spa Yes/Yes Yes/No No/No Gym Room Yes No No Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts Yes No No OCCUPANCY: 97% 97% NA TRANSACTION DATA: Sale Date September, 2002 May, 2003 Sale Price ($) $9,100,000 $5,650,000 Grantor Chisolm Realty Company, Ltd Triad Lauderdale (LP) Grantee Advenir Townhomes, LLC Cimarron Apartments of Broward Sale Documentation Bk 33787 Pg 0896 Bk 35269 Pg 0233 Verification Broker, Marcus & Millichap Broker, Marcus & Millichap Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,654,545 $9,041 $11.02 $0 $0 $0.00 Vacancy/Credit Loss ($ 57,413) ($ 314) ($ 0.38) $0 $0 $0.00 Effective Gross Income $1,597,132 $8,727 $10.64 $0 $0 $0.00 Operating Expenses $ 842,675 $4,605 $ 5.61 $0 $0 $0.00 Net Operating Income $ 754,457 $4,123 $ 5.02 $0 $0 $0.00 NOTES: Seller's downleg in a 1031 exchange PRICE PER UNIT $49,727 $53,302 PRICE PER SQUARE FOOT $ 60.60 $ 53.39 EXPENSE RATIO 52.8% N/A EGIM 5.70 N/A OVERALL CAP RATE 8.29% N/A Cap Rate based on Pro Forma or Actual Income? PRO FORMA N/A COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ------------------------------------------------------------------------------------------------------------------------------------ Property Name Spring Crest Royal Sheridan Apartments Boardwalk at Inverrary LOCATION: Address 4245 N. University Drive 4200 Sheridan Street 2915 NW 60th Ave City, State Plantation, Florida Hollywood, Florida Sunrise, Florida County Broward County Broward County Broward County PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 176,688 88,778 267,470 Year Built 1980 1974 1973 Number of Units 168 100 310 Unit Mix: Type Total Type Total Type Total 1 Bedroom 14 1 Bedroom 48 1 Bedroom 186 2 Bedroom 154 2 Bedroom 52 2 Bedroom 124 3 Bedroom N/A Average Unit Size (SF) 1,052 888 863 Land Area (Acre) NA 3.8800 11.2600 Density (Units/Acre) 25.8 27.5 Parking Ratio (Spaces/Unit) 0.00 0.00 Parking Type (Gr., Cov., etc.) Open Open Open CONDITION: Average Average Fair APPEAL: Average Fair Fair AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room No No No Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts Yes No Yes OCCUPANCY: 94% NA 94% TRANSACTION DATA: Sale Date September, 2003 March, 2001 July, 2003 Sale Price ($) $11,200,000 $5,250,000 $13,550,000 Grantor Waterton Crest, LLC Royal Sheridan Apartments Pelican Run Associates Grantee Springcrest LLC Sheridan Apartments, LLC MSRH Boardwalk, LLC Sale Documentation Bk 36063 Pg 1045 Bk 31333 Pg 0945 Bk 35639 Pg 0911 Verification Broker, Marcus & Millichap Seller's Broker Grantee Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,716,584 $10,218 $9.72 $2,896,209 $9,343 $10.83 Vacancy/Credit Loss $ 102,995 $ 613 $0.58 $ 182,172 $ 588 $ 0.68 Effective Gross Income $1,613,589 $ 9,605 $9.13 $859,200 $8,592 $9.68 $2,714,037 $8,755 $10.15 Operating Expenses $ 672,000 $ 4,000 $3.80 $310,000 $3,100 $3.49 $1,581,000 $5,100 $ 5.91 Net Operating Income $1,008,000 $ 6,000 $5.70 $549,200 $5,492 $6.19 $1,133,037 $3,655 $ 4.24 NOTES: PRICE PER UNIT $66,667 $52,500 $43,710 PRICE PER SQUARE FOOT $ 63.39 $ 59.14 $ 50.66 EXPENSE RATIO 41.6% 36.1% 58.3% EGIM 6.94 6.11 4.99 OVERALL CAP RATE 9.00% 10.46% 8.36% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21 PLANTATION GARDENS, PLANTATION, FLORIDA IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $43,710 to $66,667 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 $49,875 to $55,967 per unit with a mean or average adjusted price of $52,101 per unit. The median adjusted price is $52,213 per unit. Based on the following analysis, we have concluded to a value of $52,000 per unit, which results in an "as is" value of $19,100,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 PLANTATION GARDENS, PLANTATION, FLORIDA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ----------------------------------------------------------------------------------------------------------------- Property Name Plantation Gardens Townhomes of Plantation Cimarron Apartments Address 7616 NW 5th Street 4790 NW 9th Court 850 E. Commercial Blvd City Plantation, Florida Plantation, Florida Oakland Park Sale Date September, 2002 May, 2003 Sale Price ($) $9,100,000 $5,650,000 Net Rentable Area (SF) 326,800 150,168 105,816 Number of Units 372 183 106 Price Per Unit $49,727 $53,302 Year Built 1971 1973 1973 Land Area (Acre) 20.8300 9.0200 4.9900 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 09-2002 0% 05-2003 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $49,727 $53,302 Location Comparable 0% Inferior 15% Number of Units 372 183 -10% 106 -15% Quality / Appeal Average Inferior 10% Inferior 10% Age / Condition 1971 1973 / Average 0% 1973 / Average 0% Occupancy at Sale 97% 97% 0% NA 0% Amenities Average Inferior 5% Inferior 5% Average Unit Size (SF) 878 821 0% 998 -10% PHYSICAL ADJUSTMENT 5% 5% FINAL ADJUSTED VALUE ($/UNIT) $52,213 $55,967 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ----------------------------------------------------------------------------------------------------------------- Property Name Spring Crest Royal Sheridan Apartments Boardwalk at Inverrary Address 4245 N. University Drive 4200 Sheridan Street 2915 NW 60th Ave City Plantation, Florida Hollywood, Florida Sunrise, Florida Sale Date September, 2003 March, 2001 July, 2003 Sale Price ($) $11,200,000 $5,250,000 $13,550,000 Net Rentable Area (SF) 176,688 88,778 267,470 Number of Units 168 100 310 Price Per Unit $66,667 $52,500 $43,710 Year Built 1980 1974 1973 Land Area (Acre) NA 3.8800 11.2600 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple 0% Estate Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 09-2003 0% 03-2001 0% 07-2003 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $66,667 $52,500 $43,710 Location Comparable 0% Inferior 10% Inferior 20% Number of Units 168 -10% 100 -15% 310 0% Quality / Appeal Comparable 0% Comparable 0% Comparable 0% Age / Condition 1980 / Average -5% 1974 / Average 0% 1973 / Fair 0% Occupancy at Sale 94% 0% NA 0% 94% 0% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 1,052 -10% 888 0% 863 0% PHYSICAL ADJUSTMENT -25% -5% 20% FINAL ADJUSTED VALUE ($/UNIT) $50,000 $49,875 $52,452
SUMMARY VALUE RANGE (PER UNIT) $49,875 TO $55,967 MEAN (PER UNIT) $52,101 MEDIAN (PER UNIT) $52,213 VALUE CONCLUSION (PER UNIT) $52,000
VALUE OF IMPROVEMENT & MAIN SITE $19,344,000 DEFERRED MAINTENANCE -$ 280,000 VALUE INDICATED BY SALES COMPARISON APPROACH $19,064,000 ROUNDED $19,100,000
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 23 PLANTATION GARDENS, PLANTATION, FLORIDA 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-1 183 $ 9,100,000 8.29% $ 754,457 $1,678,120 1.094 $54,411 $ 49,727 $ 4,123 $ 4,511 I-2 106 $ 5,650,000 0.00% $1,678,120 $ 53,302 $ 4,511 I-3 168 $11,200,000 N/A $1,008,000 $1,678,120 0.752 $50,123 $ 66,667 $ 6,000 $ 4,511 I-4 100 $ 5,250,000 10.46% $ 549,200 $1,678,120 0.821 $43,123 $ 52,500 $ 5,492 $ 4,511 I-5 310 $13,550,000 8.36% $1,133,037 $1,678,120 1.234 $53,948 $ 43,710 $ 3,655 $ 4,511
PRICE/UNIT
Low High Average Median $43,123 $54,411 $50,401 $52,036
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 52,000 ----------- Number of Units 372 Value $19,344,000 Deferred Maintenance -$ 280,000 ----------- Value Based on NOI Analysis $19,064,000 Rounded $19,100,000
The adjusted sales indicate a range of value between $43,123 and $54,411 per unit, with an average of $50,401 per unit. Based on the subject's competitive position within the improved sales, a value of $52,000 per unit is estimated. This indicates an "as is" market value of $19,100,000 (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 24 PLANTATION GARDENS, PLANTATION, FLORIDA 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-1 183 $ 9,100,000 $1,597,132 $ 842,675 52.76% 5.70 $ 49,727 I-2 106 $ 5,650,000 $ 53,302 I-3 168 $11,200,000 $1,613,589 $ 672,000 41.65% 6.94 50.22% $ 66,667 I-4 100 $ 5,250,000 $ 859,200 $ 310,000 36.08% 6.11 $ 52,500 I-5 310 $13,550,000 $2,714,037 $1,581,000 58.25% 4.99 $ 43,710
EGIM
Low High Average Median 4.99 6.94 5.94 5.90
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 5.50 ------------ Subject EGI $ 3,557,916 Value $19,568,538 Deferred Maintenance -$ 280,000 ------------ Value Based on EGIM Analysis $19,288,538 Rounded $19,300,000 Value Per Unit $ 51,882
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 50.22% before reserves. The comparable sales indicate a range of expense ratios from 36.08% to 58.25%, while their EGIMs range from 4.99 to 6.94. Overall, we conclude to an EGIM of 5.50, which results in an "as is" value estimate in the EGIM Analysis of $19,300,000. 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 $19,100,000. Price Per Unit $19,100,000 NOI Per Unit $19,100,000 EGIM Analysis $19,300,000 Sales Comparison Conclusion $19,100,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 25 PLANTATION GARDENS, PLANTATION, FLORIDA 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 26 PLANTATION GARDENS, PLANTATION, FLORIDA 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 - -------------------------------------------------------------- 1Bdrm/1Ba-1A10 750 $719 $0.96 97.6% 2Bdrm/2Ba-2A20 850 $763 $0.90 97.8% 2Bdrm/2Ba-2B20 950 $816 $0.86 95.3%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27 PLANTATION GARDENS, PLANTATION, FLORIDA RENT ANALYSIS
COMPARABLE RENTS ------------------------------------------ R1 R2 R3 R4 ------------------------------------------ SOUTHERN CARLYLE TACARANDA LAKEPOINT AT POINT CLUB VILLAGE TACARANDA ------------------------------------------ SUBJECT SUBJECT COMPARISON TO SUBJECT DESCRIPTION SUBJECT UNIT ACTUAL ASKING ------------------------------------------ TYPE RENT RENT Superior Superior Superior Superior - -------------------------------------------------------------------------------------------------------------- Monthly Rent 1Bdrm/1Ba-1A10 $ 719 $ 772 $ 930 $ 785 $ 795 Unit Area (SF) 750 750 760 800 810 Monthly Rent Per Sq. Pt $ 0.96 $1.05 $ 1.22 $ 0.98 $ 0.98 Monthly Rent 2Bdrm/2Ba-2A20 $ 765 $ 829 $ 950 $1.050 $ 899 Unit Area (SF) 850 850 974 963 1,035 Monthly Rent Per Sq. Pt $ 0.90 $0.98 $0.98 $ 1.09 $ 0.87 Monthly Rent 2Bdrm/2Ba-2B20 $ 816 $ 899 $1,150 $ 930 $1,046 Unit Area (SF) 950 950 1,093 1,100 1,100 Monthly Rent Per Sq. Pt $ 0.86 $0.95 $ 1.05 $ 0.84 $ 0.95 DESCRIPTION MIN MAX MEDIAN AVERAGE - ------------------------------------------------------------------- Monthly Rent $ 785 $ 930 $ 795 $ 837 Unit Area (SF) 760 810 800 790 Monthly Rent Per Sq. Pt $ 1.98 $ 1.22 $ 0.98 $ 1.06 Monthly Rent $ 899 $1,050 $ 954 $ 966 Unit Area (SF) 963 1,035 974 991 Monthly Rent Per Sq. Pt $ 0.87 $ 1.09 $ 0.98 $ 0.97 Monthly Rent $ 950 $1,150 $1,046 $1,042 Unit Area (SF) 1,093 1,102 1,100 1098 Monthly Rent Per Sq. Pt $ 0.84 $ 1.05 $ 0.93 $ 0.93
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 - ------------------------------------------------------------------------------------------------- 1Bdrm/1Ba-1A10 42 750 $ 750 $ 1.00 $ 31,500 $ 378,000 2Bdrm/2Ba-2A20 182 850 $ 800 $ 0.94 $ 145,600 $1,747,200 2Bdrm/2Ba-2B20 148 950 $ 850 $ 0.89 $ 125,800 $1,509,600 ------------------------------------- Total $ 302,900 $3,634,800 =====================================
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 28 PLANTATION GARDENS, PLANTATION, FLORIDA SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2001 FISCAL YEAR 2002 FISCAL YEAR 2003 --------------------------------------------------------------------------- ACTUAL ACTUAL MANAGEMENT BUDGET --------------------------------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT - ------------------------------------------------------------------------------------------------------ Revenues Rental Income $3,559,658 $ 9,569 $3,608,966 $ 9,702 $3,638,000 $ 9,780 Vacancy $ 166,432 $ 447 $ 318,849 $ 857 $ 235,500 $ 633 Credit Loss/Concessions $ 33,382 $ 90 $ 45,582 $ 123 $ 72,000 $ 194 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal $ 199,814 $ 537 $ 364,431 $ 980 $ 307,500 $ 827 Laundry Income $ 43,175 $ 116 $ 38,126 $ 102 $ 60,000 $ 161 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 177,338 $ 477 $ 166,732 $ 448 $ 162,000 $ 435 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 220,513 $ 593 $ 204,858 $ 551 $ 222,000 $ 597 ---------- ---------- ---------- ---------- ---------- ---------- Effective Gross Income $3,580,357 $ 9,625 $3,449,393 $ 9,273 $3,552,500 $ 9,550 Operating Expenses Taxes $ 332,993 $ 895 $ 345,788 $ 930 $ 375,836 $ 1,010 Insurance $ 144,526 $ 389 $ 151,502 $ 407 $ 133,608 $ 359 Utilities $ 289,742 $ 779 $ 309,605 $ 832 $ 170,400 $ 458 Repair & Maintenance $ 166,893 $ 449 $ 182,278 $ 490 $ 286,800 $ 771 Cleaning $ 29,074 $ 78 $ 55,845 $ 150 $ 61,200 $ 165 Landscaping $ 40,145 $ 108 $ 39,022 $ 105 $ 0 $ 0 Security $ 16,792 $ 45 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 70,073 $ 188 $ 79,355 $ 213 $ 70,800 $ 190 General Administrative $ 352,013 $ 946 $ 297,272 $ 799 $ 340,080 $ 914 Management $ 190,024 $ 511 $ 169,939 $ 457 $ 163,420 $ 439 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- Total Operating Expenses $1,632,275 $ 4,388 $1,630,606 $ 4,383 $1,602,144 $ 4,307 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- Net Income $1,948,082 $ 5,237 $1,818,787 $ 4,889 $1,950,356 $ 5,243 ANNUALIZED 2003 ----------------------- ACTUAL AAA PROJECTION ------------------------------------------------------------ DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % - --------------------------------------------------------------------------------------- Revenues Rental Income $3,588,877 $ 9,648 $3,634,800 $ 9,771 100.0% Vacancy $ 284,856 $ 766 $ 218,088 $ 586 6.0% Credit Loss/Concessions $ 95,584 $ 257 $ 72,696 $ 195 2.0% ---------- ---------- ---------- ---------- ----- Subtotal $ 380,440 $ 1,023 $ 290,784 $ 782 8.0% Laundry Income $ 36,372 $ 98 $ 46,500 $ 125 1.3% Garage Revenue $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 167,788 $ 451 $ 167,400 $ 450 4.6% ---------- ---------- ---------- ---------- ----- Subtotal Other Income $ 204,160 $ 549 $ 213,900 $ 575 5.9% ---------- ---------- ---------- ---------- ----- Effective Gross Income $3,412,597 $ 9,174 $3,557,916 $ 9,564 100.0% Operating Expenses Taxes $ 338,191 $ 909 $ 385,020 $ 1,035 10.8% Insurance $ 158,865 $ 427 $ 148,800 $ 400 4.2% Utilities $ 312,104 $ 839 $ 312,480 $ 840 8.8% Repair & Maintenance $ 231,345 $ 622 $ 241,800 $ 650 6.8% Cleaning $ 71,319 $ 192 $ 66,960 $ 180 1.9% Landscaping $ 53,064 $ 143 $ 46,500 $ 125 1.3% Security $ 15,616 $ 42 $ 16,740 $ 45 0.5% Marketing & Leasing $ 150,825 $ 405 $ 74,400 $ 200 2.1% General Administrative $ 280,028 $ 753 $ 316,200 $ 850 8.9% Management $ 165,000 $ 444 $ 177,896 $ 478 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0% ---------- ---------- ---------- ---------- ----- Total Operating Expenses $1,776,357 $ 4,775 $1,786,796 $ 4,803 50.2% Reserves $ 0 $ 0 $ 93,000 $ 250 2.6% ---------- ---------- ---------- ---------- ----- Net Income $1,636,240 $ 4,398 $1,678,120 $ 4,511 47.2%
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. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 PLANTATION GARDENS, PLANTATION, FLORIDA We have projected a stabilized vacancy and collection loss rate of 8% based on the subject's historical performance, as well as the anticipated future market conditions. 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 $250 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 some major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an additional $280,000 has been deducted. 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. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 PLANTATION GARDENS, PLANTATION, FLORIDA KORPACZ NATIONAL INVESTOR SURVEY 3RD QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES ------------------------------ GOING-IN TERMINAL ------------------------------ LOW HIGH LOW HIGH - ----------------------------------------- RANGE 5.50% 9.50% 6.00% 10.00% AVERAGE 7.61% 8.14%
SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - ------------------------------------------------------- I-1 Sep-02 97% $49,727 8.29% I-2 May-03 NA $53,302 N/A I-3 Sep-03 94% $66,667 9.00% I-4 Mar-01 NA $52,500 10.46% I-5 Jul-03 94% $43,710 8.36% High 10.46% Low 8.29% Average 9.03%
Based on this information, we have concluded the subject's overall capitalization rate should be 8.75%. 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 9.25%. 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 11.00%. 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 AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 PLANTATION GARDENS, PLANTATION, FLORIDA 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 11.00% indicates a value of $19,500,000. In this instance, the reversion figure contributes 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 32 PLANTATION GARDENS, PLANTATION, FLORIDA DISCOUNTED CASH FLOW ANALYSIS PLANTATION GARDENS
YEAR JAN-2004 JAN-2005 JAN-2006 JAN-2007 JAN-2008 JAN-2009 FISCAL YEAR 1 2 3 4 5 6 - --------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $3,634,800 $3,707,496 $3,781,646 $3,895,095 $4,011,948 $4,132,307 Vacancy $ 191,736 $ 122,347 $ 113,449 $ 116,853 $ 120,358 $ 247,938 Credit Loss $ 72,696 $ 74,150 $ 75,633 $ 77,902 $ 80,239 $ 82,646 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal $ 264,432 $ 196,497 $ 189,082 $ 194,755 $ 200,597 $ 330,585 Laundry Income $ 46,500 $ 47,430 $ 48,379 $ 49,830 $ 51,325 $ 52,865 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 167,400 $ 170,748 $ 174,163 $ 179,388 $ 184,769 $ 190,313 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 213,900 $ 218,178 $ 222,542 $ 229,218 $ 236,094 $ 243,177 ---------- ---------- ---------- ---------- ---------- ---------- EFFECTIVE GROSS INCOME $3,584,268 $3,729,177 $3,815,105 $3,929,558 $4,047,445 $4,044,899 OPERATING EXPENSES: Taxes $ 385,020 $ 396,571 $ 408,468 $ 420,722 $ 433,343 $ 446,344 Insurance $ 148,800 $ 153,264 $ 157,862 $ 162,598 $ 167,476 $ 172,500 Utilities $ 312,480 $ 321,854 $ 331,510 $ 341,455 $ 351,699 $ 362,250 Repair & Maintenance $ 241,800 $ 249,054 $ 256,526 $ 264,221 $ 272,148 $ 280,312 Cleaning $ 66,960 $ 68,969 $ 71,038 $ 73,169 $ 75,364 $ 77,625 Landscaping $ 46,500 $ 47,895 $ 49,332 $ 50,812 $ 52,336 $ 53,906 Security $ 16,740 $ 17,242 $ 17,759 $ 18,292 $ 18,841 $ 19,406 Marketing & Leasing $ 74,400 $ 76,632 $ 78,931 $ 81,299 $ 83,738 $ 86,250 General Administrative $ 316,200 $ 325,686 $ 335,457 $ 345,520 $ 355,886 $ 366,562 Management $ 179,213 $ 186,459 $ 190,755 $ 196,478 $ 202,372 $ 202,245 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $1,788,113 $1,843,626 $1,897,637 $1,954,566 $2,013,203 $2,067,401 Reserves $ 93,000 $ 95,790 $ 98,664 $ 101,624 $ 104,672 $ 107,812 ---------- ---------- ---------- ---------- ---------- ---------- NET OPERATING INCOME $1,703,155 $1,789,761 $1,818,804 $1,873,368 $1,929,569 $1,869,686 Operating Expense Ratio (% of EGI) 49.9% 49.4% 49.7% 49.7% 49.7% 51.1% Operating Expense Per Unit $ 4,807 $ 4,956 $ 5,101 $ 5,254 $ 5,412 $ 5,558 YEAR JAN-2010 JAN-2011 JAN-2012 JAN-2013 JAN-2014 FISCAL YEAR 7 8 9 10 11 - ------------------------------------------------------------------------------------------------------- REVENUE Base Rent $4,256,276 $4,383,964 $4,515,483 $4,650,947 $4,790,476 Vacancy $ 255,377 $ 263,038 $ 270,929 $ 279,057 $ 287,429 Credit Loss $ 85,126 $ 87,679 $ 90,310 $ 93,019 $ 95,810 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- Subtotal $ 340,502 $ 350,717 $ 361,239 $ 372,076 $ 383,238 Laundry Income $ 54,451 $ 56,084 $ 57,767 $ 59,500 $ 61,285 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 196,022 $ 201,903 $ 207,960 $ 214,198 $ 220,624 ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 250,472 $ 257,987 $ 265,726 $ 273,698 $ 281,909 ---------- ---------- ---------- ---------- ---------- EFFECTIVE GROSS INCOME $4,166,246 $4,291,234 $4,419,971 $4,552,570 $4,689,147 OPERATING EXPENSES: Taxes $ 459,734 $ 473,526 $ 487,732 $ 502,364 $ 517,435 Insurance $ 177,675 $ 183,005 $ 188,495 $ 194,150 $ 199,975 Utilities $ 373,117 $ 384,311 $ 395,840 $ 407,716 $ 419,947 Repair & Maintenance $ 288,722 $ 297,384 $ 306,305 $ 315,494 $ 324,959 Cleaning $ 79,954 $ 82,352 $ 84,823 $ 87,368 $ 89,989 Landscaping $ 55,523 $ 57,189 $ 58,905 $ 60,672 $ 62,492 Security $ 19,988 $ 20,588 $ 21,206 $ 21,842 $ 22,497 Marketing & Leasing $ 88,837 $ 91,503 $ 94,248 $ 97,075 $ 99,987 General Administrative $ 377,559 $ 388,886 $ 400,553 $ 412,569 $ 424,946 Management $ 208,312 $ 214,562 $ 220,999 $ 227,628 $ 234,457 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $2,129,423 $2,193,306 $2,259,105 $2,326,878 $2,396,684 Reserves $ 111,047 $ 114,378 $ 117,810 $ 121,344 $ 124,984 ---------- ---------- ---------- ---------- ---------- NET OPERATING INCOME $1,925,776 $1,983,550 $2,043,056 $2,104,348 $2,167,478 Operating Expense Ratio (% of EGI) 51.1% 51.1% 51.1% 51.1% 51.1% Operating Expense Per Unit $ 5,724 $ 5,896 $ 6,073 $ 6,255 $ 6,443
Estimated Stabilized NOI $1,678,120 Sales Expense Rate 2.00% Months to Stabilized 1 Discount Rate 11.00% Stabilized Occupancy 94.0% Terminal Cap Rate 9.25%
"DCF" VALUE ANALYSIS Gross Residual Sale Price $23,432,197 Deferred Maintenance -$ 280,000 Less: Sales Expense $ 468,644 Add: Excess Land $ 0 ----------- Other Adjustments $ 0 Net Residual Sale Price $22,963,553 ----------- PV of Reversion $ 8,087,407 Value Indicated By "DCF" $19,518,832 Add: NPV of NOI $11,711,425 Rounded $19,500,000 ----------- PV Total $19,798,832
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ------------------------------------------------------------------- TOTAL VALUE 10.50% 10.75% 11.00% 11.25% 11.50% - ----------------------------------------------------------------------------------------- 8.75% $20,933,929 $20,593,735 $20,260,969 $19,935,444 $19,616,978 9.00% $20,685,474 $20,350,832 $20,023,482 $19,703,240 $19,389,928 TERMINAL CAP 9.25% $20,450,449 $20,121,059 $19,798,832 $19,483,588 $19,175,151 RATE 9.50% $20,227,794 $19,903,379 $19,586,005 $19,275,496 $18,971,678 9.75% $20,016,557 $19,696,862 $19,384,093 $19,078,075 $18,778,639
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 PLANTATION GARDENS, PLANTATION, FLORIDA 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 Concessions have historically not been utilized at the subject property or in the subject's market. Therefore, no adjustment was included for concessions. 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 8.75% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 PLANTATION GARDENS, PLANTATION, FLORIDA PLANTATION GARDENS
TOTAL PER SQ. FT. PER UNIT %OF EGI ----- ----------- -------- ------- REVENUE Base Rent $ 3,634,800 $11.12 $ 9,771 Less: Vacancy & Collection Loss 8.00% $ 290,784 $ 0.89 $ 782 Plus: Other Income Laundry Income $ 46,500 $ 0.14 $ 125 1.31% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 167,400 $ 0.51 $ 450 4.71% ----------- ------ ------- ----- Subtotal Other Income $ 213,900 $ 0.65 $ 575 6.01% EFFECTIVE GROSS INCOME $ 3,557,916 $10.89 $ 9,564 OPERATING EXPENSES: Taxes $ 385,020 $ 1.18 $ 1,035 10.82% Insurance $ 148,800 $ 0.46 $ 400 4.18% Utilities $ 312,480 $ 0.96 $ 840 8.78% Repair & Maintenance $ 241,800 $ 0.74 $ 650 6.80% Cleaning $ 66,960 $ 0.20 $ 180 1.88% Landscaping $ 46,500 $ 0.14 $ 125 1.31% Security $ 16,740 $ 0.05 $ 45 0.47% Marketing & Leasing $ 74,400 $ 0.23 $ 200 2.09% General Administrative $ 316,200 $ 0.97 $ 850 8.89% Management 5.00% $ 177,896 $ 0.54 $ 478 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 1,786,796 $ 5.47 $ 4,803 50.22% Reserves $ 93,000 $ 0.28 $ 250 2.61% ----------- ------ ------- ----- NET OPERATING INCOME $ 1,678,120 $ 5.14 $ 4,511 47.17% =========== ====== ======= ===== "GOING IN" CAPITALIZATION RATE 8.75% VALUE INDICATION $19,178,517 $58.69 $51,555 DEFERRED MAINTENANCE ($ 280,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $18,898,517 ROUNDED $18,900,000 $57.83 $50,806
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 PLANTATION GARDENS, PLANTATION, FLORIDA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - ---------------------------------------------------------- 8.00% $20,696,503 $20,700,000 $55,645 $ 63.34 8.25% $20,060,851 $20,100,000 $54,032 $ 61.51 8.50% $19,462,591 $19,500,000 $52,419 $ 59.67 8.75% $18,898,517 $18,900,000 $50,806 $ 57.83 9.00% $18,365,780 $18,400,000 $49,462 $ 56.30 9.25% $17,861,840 $17,900,000 $48,118 $ 54.77 9.50% $17,384,423 $17,400,000 $46,774 $ 53.24
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $18,900,000. 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 $19,500,000 Direct Capitalization Method $18,900,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $19,000,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 36 PLANTATION GARDENS, PLANTATION, FLORIDA 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 $19,100,000 Income Approach $19,000,000 Reconciled Value $19,000,000
The Income 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 December 11, 2003 the market value of the fee simple estate in the property is: $19,000,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA PLANTATION GARDENS, PLANTATION, FLORIDA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A PLANTATION GARDENS, PLANTATION, FLORIDA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A PLANTATION GARDENS, PLANTATION, FLORIDA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - APARTMENT ENTRANCE EXTERIOR - 4 - STORY APARTMENT BUILDING [PICTURE] [PICTURE] EXTERIOR - SITE IMPROVEMENTS EXTERIOR - TYPICAL BUILDINGS [PICTURE] [PICTURE] EXTERIOR - TYPICAL BUILDING NEEDING PAINT EXTERIOR - CLUBHOUSE AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A PLANTATION GARDENS, PLANTATION, FLORIDA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - POOL INTERIOR - LIVING AREA OF MODEL [PICTURE] [PICTURE] INTERIOR - KITCHEN OF MODEL INTERIOR - BEDROOM OF MODEL [PICTURE] [PICTURE] INTERIOR - VACANT UNIT LIVING AREA INTERIOR - VACANT UNIT KITCHEN AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B PLANTATION GARDENS, PLANTATION, FLORIDA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B PLANTATION GARDENS, PLANTATION, FLORIDA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 TOWNHOMES OF PLANTATION CIMARRON APARTMENTS SPRING CREST 4790 NW 9th Court 850 E. Commercial Blvd 4245 N. University Drive Plantation, Florida Oakland Park Plantation, Florida [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 ROYAL SHERIDAN APARTMENTS BOARDWALK AT INVERRARY 4200 Sheridan Street 2915 NW 60th Ave Hollywood, Florida Sunrise, Florida [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B PLANTATION GARDENS, PLANTATION, FLORIDA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 - ------------------------------- ------------------------------------------ --------------------------------------------- Property Name Plantation Gardens Southern Pointe Management Company AIMCO Kennedy-Wilson LOCATION: Address 7616 NW 5th Street 8080 NW 10 Court City, State Plantation, Florida Plantation, FL County Broward Broward Proximity to Subject 0.5 mile west of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 326,800 NA Year Built 1971 1985 Effective Age 20 18 Building Structure Type Wood/Masonry/Stucco Wood/Masonry/Stucco Parking Type (Gr., Cov., etc.) Open Open Number of Units 372 300 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Bdrm/1Ba-1A10 750 42 $719 2 1 Bdrm/1Ba 862 $ 855 2 2Bdrm/2Ba-2A20 850 182 $763 2 2 Bdrm/2Ba 950 $ 975 3 2Bdrm/2Ba-2B20 950 148 $816 2 2 Bdrm/2Ba 1,111 $1,020 Average Unit Size (SF) 878 Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Average Good APPEAL: Average Good AMENITIES: Unit Amenities X Attach. Garage X Vaulted Ceiling Attach. Garage X Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. Fireplace Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash X Basketball Court X BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room Gym Room OCCUPANCY: 97% 97% LEASING DATA: Available Leasing Terms 7 to 12 12 months Concessions 1-2 months free $500 off 1BD, $600 off 2D, $700 off large 2BD Pet Deposit $250 $450 deposit, $250 non-refundable pet fee Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash X Water Trash Confirmation Brenda Williams, Manager Leasing Agent Telephone Number 954-473-5050 1-866-738-8578 NOTES: This complex located with the Jacaranda Community, a good quality planned development located northwest of the subject. COMPARISON TO SUBJECT: Superior COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 - ----------------------------- ------------------------------------------- ----------------------------------------- Property Name Carlyle Club Jacaranda Village Management Company ZOM Residential Services Scully Company LOCATION: Address 781 N. Pine Island 461 NW 87 Road City, State Plantation, FL Plantation, FL County Broward Broward Proximity to Subject 1 mile northwest of the subject 2 miles northwest of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) NA N/A Year Built 1997 1987 Effective Age 6 16 Building Structure Type Wood/Masonry/Stucco Wood/Masonry/Stucco Parking Type (Gr., Cov., etc.) Some garages, carports None Number of Units 150 NA Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Bdrm/1Ba 760 $ 930 1 1Bdrm/1Ba 800 $785 2 2Bdrm/1Ba 963 $1,050 3 2Bdrm/2Ba 1,102 $930 3 2Bdrm/2Ba 1,093 $1,150 Average Unit Size (SF) Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Good Average APPEAL: Good Average AMENITIES: Unit Amenities X Attach. Garage X Vaulted Ceiling Attach. Garage X Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. Fireplace Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi X Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment X Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 94% 90% LEASING DATA: Available Leasing Terms 7 to 12 months 12 months Concessions $750 off 1 BD, $1,000 off 3 BD NA Pet Deposit $500 deposit; $300 non-refundable $150 deposit Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash X Water Trash Confirmation Susan, Leasing Agent Leasing Agent Telephone Number 1-866-674-1291 1-866-744-3710 NOTES: COMPARISON TO SUBJECT: Superior Superior COMPARABLE DESCRIPTION R - 4 - ----------------------------- ------------------------------------------ Property Name Lakepointe at Jacaranda Management Company Lincoln Property Company LOCATION: Address 1171 Lake Pointe Landing City, State Plantation, FL County Broward Proximity to Subject 0.5 mile west of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) N/A Year Built 1986 Effective Age 17 Building Structure Type Wood/Masonry/Stucco Parking Type (Gr., Cov., etc. Carports available Number of Units 246 Unit Mix: Type Unit Qty. Mo. 1 1Bdrm/1Ba 810 $ 795 2 2Bdrm/2Ba 1,035 $ 899 3 2Bdrm/2Ba 1,100 $1,046 Average Unit Size (SF) Unit Breakdown: Efficiency 2-Bedroom 1-Bedroom 3-Bedroom CONDITION: Fair APPEAL: Excellent AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling X Balcony X W/D Connect. Fireplace X Cable TV Ready Project Amenities X Swimming Pool X Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Volleyball Court Theater Room Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking Racquet Ball X Laundry Room Jogging Track X Business Office Gym Room OCCUPANCY: 95% LEASING DATA: Available Leasing Terms 12 months Concessions $500 off up to 1 month free Pet Deposit N/A Utilities Paid by Tenant: X Electric X Natural Gas X Water Trash Confirmation Leasing Agent Telephone Number 321-777-7070 NOTES: COMPARISON TO SUBJECT: Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B PLANTATION GARDENS, PLANTATION, FLORIDA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 SOUTHERN POINTE CARLYLE CLUB JACARANDA VILLAGE 8080 NW 10 Court 781 N. Pine Island 461 NW 87 Road Plantation, FL Plantation, FL Plantation, FL [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 LAKEPOINTE AT JACARANDA 1171 Lake Pointe Landing N/A Plantation, FL [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C PLANTATION GARDENS, PLANTATION, FLORIDA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C PLANTATION GARDENS, PLANTATION, FLORIDA 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 PLANTATION GARDENS, PLANTATION, FLORIDA 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 PLANTATION GARDENS, PLANTATION, FLORIDA 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 Appraisal Institute 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 PLANTATION GARDENS, PLANTATION, FLORIDA EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E PLANTATION GARDENS, PLANTATION, FLORIDA 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 Uniform Standards of Professional Appraisal Practice and the Principles of Appraisal Practice and Code of Ethics of the American Society of Appraisers. The analysis, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. I personally did not inspect the subject property. Kim Cook provided significant real property appraisal assistance in the preparation of this report. The American Society of Appraisers has a mandatory recertification program for all of its senior members. I am in compliance with the requirements of that program. -s- Edward Zenkovich --------------------------------- Edward Zenkovich, ASA Managing Principal, Real Estate Group State of Florida, Certified General Appraiser, #0001259 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E PLANTATION GARDENS, PLANTATION, FLORIDA EXHIBIT E QUALIFICATIONS OF APPRAISER (5 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E PLANTATION GARDENS, PLANTATION, FLORIDA EDWARD J. ZENKOVICH, ASA SENIOR VICE PRESIDENT AND MANAGING PRINCIPAL, REAL ESTATE GROUP POSITION Edward J. Zenkovich serves as Senior Vice President and Managing Principal of the Atlanta Real Estate Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation In the Public Sector Services Group of AAA, Mr. Zenkovich assisted clients with the establishment of fixed asset records for insurance, property control, and property accounting purposes for the appraisal of buildings, land improvements, and machinery and equipment. Mr. Zenkovich was also responsible for the planning and management of large multiple-location engagements. In the Real Estate Valuation Group, Mr. Zenkovich completed valuations of various types of real estate including commercial, investment, manufacturing, retail, and warehouse properties. As a member of the Real Estate Group, Mr. Zenkovich specialized in the valuation of investment real estate. Property interests he has appraised include fee simple, leased fee, and leasehold. He has completed appraisals for financial reporting, financing, litigation support, portfolio valuation, purchase, purchase price allocation, and sale. Specific properties he has appraised include apartments, hotels, land developments, nursing homes, office buildings, regional and community shopping centers, and warehouses. He has additional appraisal experience in heavy industrial property valuations, as well as investment portfolios for major institutional clients. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E PLANTATION GARDENS, PLANTATION, FLORIDA Court Mr. Zenkovich is a qualified expert witness of the U.S. Bankruptcy Court, Western District. Business Mr. Zenkovich joined AAA in 1980 as an assistant appraiser in the Public Sector Services Group, advancing to staff appraiser the following year. In 1985, he transferred to the Real Estate Valuation Group and was promoted to senior appraiser in 1988. Mr. Zenkovich was appointed area manager of the Real Estate Group's Tampa, Florida, office and was promoted to principal in 1994. He was named a Vice President of AAA in 1995 and a Managing Principal in 1997. From 2001 to 2003, Mr. Zenkovich was the national director of AAA's Real Estate Group. He currently serves as Managing Principal of the Real Estate Group in Atlanta, Georgia. EDUCATION University of Wisconsin - Milwaukee Bachelor of Business Administration - Real Estate and Urban Development STATE CERTIFICATIONS State of Colorado, Certified General Appraiser, #CG01325475 State of Florida, Certified General Appraiser, #RZ0001259 State of Florida, Licensed Real Estate Broker, #BK0468540 State of Georgia, Certified General Real Property Appraiser, #005263 State of Minnesota, Certified General Real Property Appraiser, #4003673 PROFESSIONAL American Society of Appraisers, Accredited Senior AFFILIATIONS Appraiser ASA Designation - Urban Real Property Institute of Property Taxation, Candidate AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E PLANTATION GARDENS, PLANTATION, FLORIDA VALUATION AND American Society of Appraisers SPECIAL COURSES Introduction to Business Valuation, Part One Appraisal Institute Basic Valuation Procedures Capitalization Theory and Techniques, Parts A and B Case Studies in Real Estate Valuation Real Estate Appraisal Principles Standards of Professional Practice, Parts A and B Valuation Analysis and Report Writing AMERICAN APPRAISAL ASSOCIATES, INC. PLANTATION GARDENS, PLANTATION, FLORIDA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. PLANTATION GARDENS, PLANTATION, FLORIDA 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. EX-99.(C)(7) 12 d07253exv99wxcyx7y.txt APPRAISAL OF REGENCY OAKS REGENCY OAKS 200 MALTESE CIRCLE FERN PARK, FLORIDA MARKET VALUE - FEE SIMPLE ESTATE AS OF DECEMBER 9, 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]
UNITED STATES INTERNATIONAL Atlanta Milwaukee Brazil Mexico Boston Minneapolis [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] Canada Morocco Buffalo New Orleans China Peru Charlotte New York 9441 LBJ Freeway Suite 114 Croatia Philippines Chicago Oak Lawn Dallas, Texas 75243 Czech Republic Poland Cincinnati Philadelphia England Portugal Dallas Pittsburg Telephone: (972) 994-9100 Germany Russia Denver Princeton Fax: (972) 994-0516 Greece Spain Detroit Schaumburg Hong Kong Taiwan Houston St. Louis Hungary Thailand Irvine San Francisco Italy Turkey Jacksonville Seattle Japan Venezuela Los Angeles
DECEMBER 22, 2003 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: REGENCY OAKS 200 MALTESE CIRCLE FERN PARK, SEMINOLE COUNTY, FLORIDA 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 343 units with a total of 342,080 square feet of rentable area. The improvements were built in 1969. The improvements are situated on 20 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 92% 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 REGENCY OAKS, FERN PARK, FLORIDA 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 December 9, 2003 is: ($8,800,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Frank A. Fehribach ----------------------------- December 22, 2003 Frank A. Fehribach, MAI #053272 Managing Principal, Real Estate Group Texas State Certified General Real Estate Appraiser, TX-1323954-G Report By: Alice MacQueen Florida Certified General Real Estate Appraiser, #RZ0002202 AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 REGENCY OAKS, FERN PARK, FLORIDA 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 ............................................................. 15 Improvement Analysis ...................................................... 15 Highest and Best Use ...................................................... 16 VALUATION Valuation Procedure ....................................................... 17 Sales Comparison Approach ................................................. 19 Income Capitalization Approach ............................................ 25 Reconciliation and Conclusion ............................................. 35
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 REGENCY OAKS, FERN PARK, FLORIDA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Regency Oaks LOCATION: 200 Maltese Circle Fern Park, Florida 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: December 9, 2003 DATE OF REPORT: December 22, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 20 acres, or 871,200 square feet Assessor Parcel No.: 20-21-30-300-001J-0000; 20-21-30-300-001K-0000 Floodplain: Community Panel No. 12117C 0140 E (April 17, 1995) Flood Zone X, an area outside the floodplain. Zoning: R-3 (Residential Multifamily) BUILDING: No. of Units: 343 Units Total NRA: 342,080 Square Feet Average Unit Size: 997 Square Feet Apartment Density: 17.2 units per acre Year Built: 1969 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ---------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income - ---------------------------------------------------------------- Studio 589 $480 $0.81 $ 15,360 $ 184,320 1Br/1Ba 719 $500 $0.70 $ 46,500 $ 558,000 2Br/1.5Ba 984 $620 $0.63 $ 69,440 $ 833,280 2Br/2Ba 1,061 $630 $0.59 $ 35,910 $ 430,920 2Br/2.5Ba 1,800 $930 $0.52 $ 23,250 $ 279,000 3Br/2Ba 1,320 $840 $0.64 $ 10,080 $ 120,960 3Br/2.5Ba 2,070 $950 $0.46 $ 11,400 $ 136,800 -------- ---------- Total $211,940 $2,543,280 ======== ==========
OCCUPANCY: 92% ECONOMIC LIFE: 45 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 REGENCY OAKS, FERN PARK, FLORIDA EFFECTIVE AGE: 25 Years REMAINING ECONOMIC LIFE: 20 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] APARTMENT BUILDING - FRONT VIEW APARTMENT BUILDING - SIDE VIEW AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 REGENCY OAKS, FERN PARK, FLORIDA NEIGHBORHOOD MAP [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 REGENCY OAKS, FERN PARK, FLORIDA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit - --------------------- ------ ------ Potential Rental Income $2,543,280 $7,415 Effective Gross Income $2,380,470 $6,940 Operating Expenses $1,338,491 $3,902 56.2% of EGI Net Operating Income: $ 870,478 $2,538 Capitalization Rate 9.75% DIRECT CAPITALIZATION VALUE $8,900,000 * $25,948 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 23% Stabilized Vacancy & Collection Loss: 18% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 10.25% Discount Rate 12.00% Selling Costs 2.00% Growth Rates: Income 2.50% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $8,700,000 * $25,364 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $8,800,000 $25,656 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $34,797 to $43,000 Range of Sales $/Unit (Adjusted) $26,268 to $29,861 VALUE INDICATION - PRICE PER UNIT $9,600,000 * $27,988 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 5.30 to 5.84 Selected EGIM for Subject 4.00 Subject's Projected EGI $2,380,470 EGIM ANALYSIS CONCLUSION $9,500,000 * $27,697 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $8,900,000 * $25,948 / UNIT RECONCILED SALES COMPARISON VALUE $9,200,000 $26,822 / 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 REGENCY OAKS, FERN PARK, FLORIDA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $9,600,000 NOI Per Unit $8,900,000 EGIM Multiplier $9,500,000 INDICATED VALUE BY SALES COMPARISON $9,200,000 $26,822 / UNIT INCOME APPROACH: Direct Capitalization Method: $8,900,000 Discounted Cash Flow Method: $8,700,000 INDICATED VALUE BY THE INCOME APPROACH $8,800,000 $25,656 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $8,800,000 $25,656 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 REGENCY OAKS, FERN PARK, FLORIDA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 200 Maltese Circle, Fern Park, Seminole County, Florida. Fern Park identifies it as 20-21-30-300-001J-0000; 20-21-30-300-001K-0000. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Alice MacQueen on December 9, 2003. Alice MacQueen made a personal inspection of the subject property, performed the research, valuation analysis and wrote the report. Frank A. Fehribach, MAI reviewed the report and concurs with the value. Alice MacQueen has extensive experience in appraising similar properties and meets 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 December 9, 2003. The date of the report is December 22, 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 & 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, AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 REGENCY OAKS, FERN PARK, FLORIDA 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 Consolidated Capital Equity. 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 REGENCY OAKS, FERN PARK, FLORIDA 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 Fern Park, Florida. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being institutional. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Highway 417 West - Interstate 4 South - East-West Expressway North - Red Bug Lake Road MAJOR EMPLOYERS Major employers in the subject's area include The Walt Disney World Company Universal Orlando, Florida Hospital and Orlando Regional Healthcare, Lockheed Martin, Central Florida Investments and the University of Central Florida. 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 REGENCY OAKS, FERN PARK, FLORIDA NEIGHBORHOOD DEMOGRAPHICS
AREA ------------------------------------------ CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - --------------------------------------------------------------------------------------- POPULATION TRENDS Current Population 24,426 121,187 230,503 1,721,904 5-Year Population 26,001 129,066 245,725 1,921,950 % Change CY-5Y 6.4% 6.5% 6.6% 11.6% Annual Change CY-5Y 1.3% 1.3% 1.3% 2.3% HOUSEHOLDS Current Households 10,125 48,206 94,791 655,258 5-Year Projected Households 10,754 51,041 100,505 731,362 % Change CY - 5Y 6.2% 5.9% 6.0% 11.6% Annual Change CY-5Y 1.2% 1.2% 1.2% 2.3% INCOME TRENDS Median Household Income $ 32,016 $ 35,441 $ 37,406 $ 40,114 Per Capita Income $ 17,041 $ 18,768 $ 21,478 $ 21,799 Average Household Income $ 41,464 $ 47,148 $ 52,290 $ 57,283
Source: Demographics Now The subject neighborhood's population is expected to show increases below 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 48.44% 39.16% 39.13% 30.55% 5-Year Projected % Renting 47.20% 38.67% 38.65% 30.11% % of Households Owning 39.21% 52.00% 53.05% 60.90% 5-Year Projected % Owning 40.51% 52.59% 53.74% 61.87%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 REGENCY OAKS, FERN PARK, FLORIDA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Retail/Commercial South - Single/Multifamily East - Bowling Alley and retail uses West - Single/multifamily development CONCLUSIONS The subject is well located within the city of Fern Park. The neighborhood is characterized as being mostly suburban in nature and is currently in the stable 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 REGENCY OAKS, FERN PARK, FLORIDA MARKET ANALYSIS The subject property is located in the city of Fern Park in Seminole County. The overall pace of development in the subject's market is more or less stable. Recent construction in this submarket includes 220 units completed at Centergate at Baldwin Park near downtown Orlando. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - ------------------------- Aug-01 5.8% 5.0% Feb-02 9.2% 6.5% Aug-02 8.3% 6.2% Feb-03 9.5% 8.4% Aug-03 7.8% 6.7%
Source: Apartment Index Report, August 2003, by Carolinas Real Data Occupancy trends in the subject's market are increasing. Historically speaking, the subject's submarket has outperformed the overall 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 - ------ ------ -------- --------- -------- Aug-01 $729 - $725 - Feb-02 $737 1.1% $746 2.9% Aug-02 $745 1.1% $732 -1.9% Feb-03 $749 0.5% $739 1.0% Aug-03 $775 3.5% $747 1.1%
Source: Apartment Index Report, August 2003, by Carolinas Real Data The following table illustrates a summary of the subject's competitive set. COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject - -------------------------------------------------------------------------------------- R-1 Howel Branch Station 366 86% 1969 Same neighborhood R-2 Sandpiper 196 90% 1974 Same neighborhood R-3 Semoran North 348 N/A 1964 Same neighborhood R-4 Empiriam (Former Emerald Bay) 432 N/A 1972 Same neighborhood R-5 Birchwood Landing 184 N/A 1975 Same neighborhood Subject Regency Oaks 343 92% 1969
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 15 REGENCY OAKS, FERN PARK, FLORIDA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 20 acres, or 871,200 square feet Shape Irregular Topography Level 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 12117C 0140 E, dated April 17, 1995 Flood Zone Zone X Zoning R-3, 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 - -------------------------------------------------------------------------- 20-21-30-300- 001J-0000; 20- $1,742,400 $7,151,040 $8,893,440 0.01714 $152,470 21-30-300-001K- 0000
IMPROVEMENT ANALYSIS Year Built 1969 Number of Units 343 Net Rentable Area 342,080 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Wood or vinyl siding Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, tennis court, basketball court, picnic area, car wash, barbeque equipment, meeting hall, laundry room, business office, freshwater lake, and parking area. Unit Amenities Individual unit amenities include a balcony, and washer AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 REGENCY OAKS, FERN PARK, FLORIDA dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, water heater, garbage disposal, and oven. Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - ------------------------------------- Studio 32 589 1Br/1Ba 93 719 2Br/1.5Ba 112 984 2Br/2Ba 57 1,061 2Br/2.5Ba 25 1,800 3Br/2Ba 12 1,320 3Br/2.5Ba 12 2,070
Overall Condition Average Effective Age 25 years Economic Life 45 years Remaining Economic Life 20 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 1969 and consist of a 343-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 17 REGENCY OAKS, FERN PARK, FLORIDA 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 18 REGENCY OAKS, FERN PARK, FLORIDA 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 19 REGENCY OAKS, FERN PARK, FLORIDA 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 20 REGENCY OAKS, FERN PARK, FLORIDA SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ------------------------------------------------------------------------------------------------------------------- Property Name Regency Oaks Empirian (formerly known as Sedgefield Apartments Emerald Bay) LOCATION: Address 200 Maltese Circle 5 Autumn Breeze Way 110 Sedgefield Circle City, State Fern Park, Florida Winter Park, FL Winter Park, FL County Seminole Seminole Seminole PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 342,080 427,680 98,346 Year Built 1969 1972 1973 Number of Units 343 432 111 Unit Mix: Type Total Type Total Type Total Studio 32 1Br/1BA 149 1Br/1BA 31 1Br/1Ba 93 2Br/2BA 132 2Br/2BA 75 2Br/1.5Ba 112 3Br/2BA 151 3Br/2BA 5 2Br/2Ba 57 2Br/2.5Ba 25 3Br/2Ba 12 3Br/2.5Ba 12 Average Unit Size (SF) 997 990 886 Land Area (Acre) 20.0000 23.0790 8.7000 Density (Units/Acre) 17.2 18.7 12.8 Parking Ratio (Spaces/Unit) 0.00 Adequate Adequate Parking Type (Gr., Cov., etc.) Garage, Open Covered Open + Carports Open CONDITION: Fair to Average Good Good APPEAL: Average Good Good AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room No Yes Yes Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts Yes No No Washer/Dryer Connection Some No No Other Other OCCUPANCY: 92% 94% 95% TRANSACTION DATA: Sale Date May, 2003 November, 2002 Sale Price ($) $17,200,000 $3,862,500 Grantor ERP Operating LP Sedgefield Associates Grantee Empirian Bay, LLC S&L Enterprises Ltd Sale Documentation Doc# 6912-3261 Doc# 4611-1975 Verification CoStar Realty CoStar Realty Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $3,541,190 $8,197 $8.28 $806,460 $7,265 $8.20 Vacancy/Credit Loss $ 354,119 $ 820 $0.83 $ 80,646 $ 727 $0.82 Effective Gross Income $3,187,071 $7,377 $7.45 $725,814 $6,539 $7.38 Operating Expenses $1,434,182 $3,320 $3.35 $355,200 $3,200 $3.61 Net Operating Income $1,752,889 $4,058 $4.10 $370,614 $3,339 $3.77 NOTES: Located just off Rt 436 in Located near the subject in subject's neighborhood. the same neighborhood. Units have been renovated All brick, good condition, and are superior to subject. overall superior to subject. PRICE PER UNIT $39,815 $34,797 PRICE PER SQUARE FOOT $ 40.22 $ 39.27 EXPENSE RATIO 45.0% 48.9% EGIM 5.40 5.32 OVERALL CAP RATE 10.19% 9.60% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ----------------------------------------------------------------------------------------------------------------------------- Property Name La Aloma Courtyard at Winter Park The Ashley of Spring Valley LOCATION: Address 3040 Aloma Avenue 1695 Lee Road 693 S Wymore Road City, State Winter Park, FL Winter Park, FL Altamonte Springs, FL County Seminole Seminole Seminole PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 176,824 177,349 238,424 Year Built 1967 1966 1974 Number of Units 184 160 260 Unit Mix: Type Total Type Total Type Total 1Br/1BA 40 1Br/1BA 40 1Br/1BA 112 2Br/2BA 124 2Br/2BA 80 2Br/2BA 100 3Br/2BA 20 3Br/2BA 40 3Br/2BA 48 Average Unit Size (SF) 961 1,108 917 Land Area (Acre) 9.1000 9.5530 16.0000 Density (Units/Acre) 20.2 16.7 16.3 Parking Ratio (Spaces/Unit) Adequate Adequate Adequate Parking Type (Gr., Cov., etc.) Open Open Open CONDITION: Good Good Good APPEAL: Good Good Good AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room Yes Yes Yes Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts No No No Washer/Dryer Connection No No No Other Other OCCUPANCY: 95% 90% 95% TRANSACTION DATA: Sale Date September, 2002 May, 2001 August, 2001 Sale Price ($) $6,750,000 $6,100,000 $11,180,000 Grantor Veard-Winter Park Ltd Miles-Courtyard-WP LLC Gray Lumber Co, LP Grantee Florida Investment Properties, PRG/Winter Park LP Atlamonte Ashley LLC LLC Sale Documentation Doc# 6629-8177 Doc#6258-4812 Doc#4160-0027 Verification Carolinas Real Data Carolinas Real Data Carolinas Real Data Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,385,280 $7,529 $7.83 $1,286,400 $8,040 $7.25 $2,126,640 $8,179 $8.92 Vacancy/Credit Loss $ 207,792 $1,129 $1.18 $ 136,320 $ 852 $0.77 $ 212,664 $ 818 $0.89 Effective Gross Income $1,177,488 $6,399 $6.66 $1,150,080 $7,188 $6.48 $1,913,976 $7,361 $8.03 Operating Expenses $ 533,600 $2,900 $3.02 $ 480,000 $3,000 $2.71 $ 910,000 $3,500 $3.82 Net Operating Income $ 643,888 $3,499 $3.64 $ 670,080 $4,188 $3.78 $1,003,976 $3,861 $4.21 NOTES: Situated in same submarket Located in same submarket Located near the subject in but superior overall. Well- but with inferior location. the same neighborhood. maintained, superior curb Similar to superior condition Overall, superior to the appeal and condition. compared to the subject. subject property. PRICE PER UNIT $36,685 $38,125 $43,000 PRICE PER SQUARE FOOT $ 38.17 $ 34.40 $ 46.89 EXPENSE RATIO 45.3% 41.7% 47.5% EGIM 5.73 5.30 5.84 OVERALL CAP RATE 9.54% 10.98% 8.98% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21 REGENCY OAKS, FERN PARK, FLORIDA IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $34,797 to $43,000 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 $26,268 to $29,861 per unit with a mean or average adjusted price of $28,195 per unit. The median adjusted price is $28,339 per unit. Based on the following analysis, we have concluded to a value of $28,000 per unit, which results in an "as is" value of $9,600,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 REGENCY OAKS, FERN PARK, FLORIDA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ------------------------------------------------------------------------------------------------------------------- Property Name Regency Oaks Empirian (formerly Sedgefield Apartments known as Emerald Bay) Address 200 Maltese Circle 5 Autumn Breeze Way 110 Sedgefield Circle City Fern Park, Florida Winter Park, FL Winter Park, FL Sale Date May, 2003 November, 2002 Sale Price ($) $17,200,000 $3,862,500 Net Rentable Area (SF) 342,080 427,680 98,346 Number of Units 343 432 111 Price Per Unit $39,815 $34,797 Year Built 1969 1972 1973 Land Area (Acre) 20.0000 23.0790 8.7000 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 05-2003 0% 11-2002 3% VALUE AFTER TRANS. ADJUST. ($/UNIT) $39,815 $35,841 Location Superior -5% Superior -5% Number of Units 343 432 0% 111 -5% Quality / Appeal Average Superior -15% Superior -10% Age / Condition 1969 1972 / Good -5% 1973 / Good -5% Occupancy at Sale 92% 94% 0% 95% 0% Amenities Average Comparable 0% Comparable 0% Average Unit Size (SF) 997 990 0% 886 0% PHYSICAL ADJUSTMENT -25% -25% FINAL ADJUSTED VALUE ($/UNIT) $29,861 $26,881 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ------------------------------------------------------------------------------------------------------------------------------ Property Name La Aloma Courtyard at Winter Park The Ashley of Spring Valley Address 3040 Aloma Avenue 1695 Lee Road 693 S Wymore Road City Winter Park, FL Winter Park, FL Altamonte Springs, FL Sale Date September, 2002 May, 2001 August, 2001 Sale Price ($) $6,750,000 $6,100,000 $11,180,000 Net Rentable Area (SF) 176,824 177,349 238,424 Number of Units 184 160 260 Price Per Unit $36,685 $38,125 $43,000 Year Built 1967 1966 1974 Land Area (Acre) 9.1000 9.5530 16.0000 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 09-2002 3% 05-2001 6% 08-2001 6% VALUE AFTER TRANS. ADJUST. ($/UNIT) $37,785 $40,413 $45,580 Location Superior -5% Superior -5% Superior -15% Number of Units 184 -5% 160 -5% 260 0% Quality / Appeal Superior -15% Superior -15% Superior -15% Age / Condition 1967 / Good 0% 1966 / Good 0% 1974 / Good -5% Occupancy at Sale 95% 0% 90% 0% 95% 0% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 961 0% 1,108 -10% 917 0% PHYSICAL ADJUSTMENT -25% -35% -35% FINAL ADJUSTED VALUE ($/UNIT) $28,339 $26,268 $29,627
SUMMARY VALUE RANGE (PER UNIT) $26,268 TO $29,861 MEAN (PER UNIT) $28,195 MEDIAN (PER UNIT) $28,339 VALUE CONCLUSION (PER UNIT) $28,000
VALUE INDICATED BY SALES COMPARISON APPROACH $9,604,000 ROUNDED $9,600,000
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 23 REGENCY OAKS, FERN PARK, FLORIDA 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-1 432 $17,200,000 10.19% $1,752,889 $870,478 0.625 $24,902 $ 39,815 $ 4,058 $ 2,538 I-2 111 $ 3,862,500 9.60% $ 370,614 $870,478 0.760 $26,449 $ 34,797 $ 3,339 $ 2,538 I-3 184 $ 6,750,000 9.54% $ 643,888 $870,478 0.725 $26,605 $ 36,685 $ 3,499 $ 2,538 I-4 160 $ 6,100,000 10.98% $ 670,080 $870,478 0.606 $23,103 $ 38,125 $ 4,188 $ 2,538 I-5 260 $11,180,000 8.98% $1,003,976 $870,478 0.657 $28,261 $ 43,000 $ 3,861 $ 2,538
PRICE/UNIT
Low High Average Median $23,103 $28,261 $25,864 $26,449
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 26,000 Number of Units 343 ---------- Value Based on NOI Analysis $8,918,000 Rounded $8,900,000
The adjusted sales indicate a range of value between $23,103 and $28,261 per unit, with an average of $25,864 per unit. Based on the subject's competitive position within the improved sales, a value of $26,000 per unit is estimated. This indicates an "as is" market value of $8,900,000 (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. 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-1 432 $17,200,000 $3,187,071 $1,434,182 45.00% 5.40 $ 39,815 I-2 111 $ 3,862,500 $ 725,814 $ 355,200 48.94% 5.32 $ 34,797 I-3 184 $ 6,750,000 $1,177,488 $ 533,600 45.32% 56.23% 5.73 $ 36,685 I-4 160 $ 6,100,000 $1,150,080 $ 480,000 41.74% 5.30 $ 38,125 I-5 260 $11,180,000 $1,913,976 $ 910,000 47.55% 5.84 $ 43,000
EGIM
Low High Average Median 5.30 5.84 5.52 5.40
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 4.00 Subject EGI $2,380,470 ---------- Value Based on EGIM Analysis $9,521,878 Rounded $9,500,000 Value Per Unit $ 27,697
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24 REGENCY OAKS, FERN PARK, FLORIDA 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 56.23% before reserves. The comparable sales indicate a range of expense ratios from 41.74% to 48.94%, while their EGIMs range from 5.30 to 5.84. Overall, we conclude to an EGIM of 4.00, which results in an "as is" value estimate in the EGIM Analysis of $9,500,000. 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 $9,200,000. Price Per Unit $9,600,000 NOI Per Unit $8,900,000 EGIM Analysis $9,500,000 Sales Comparison Conclusion $9,200,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 25 REGENCY OAKS, FERN PARK, FLORIDA 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 26 REGENCY OAKS, FERN PARK, FLORIDA 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 - ----------------------------------------------------------------------- Studio 589 $ 642 $1.09 100.0% 1Br/1Ba 719 $ 641 $0.89 95.8% 2Br/1.5Ba 984 $ 638 $0.65 93.5% 2Br/2Ba 1061 $ 955 $0.90 100.0% 2Br/2.5Ba 1800 $ 920 $0.51 91.0% 3Br/2Ba 1320 $ 900 $0.68 97.0% 3Br/2.5Ba 2070 $1,002 $0.48 100.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27 REGENCY OAKS, FERN PARK, FLORIDA RENT ANALYSIS
COMPARABLE RENTS ------------------------------------------------- R-1 R-2 R-3 R-4 R-5 ------------------------------------------------- EMPRIAM HOWEL (FORMER BRANCH SEMORAN EMERALD BIRCHWOOD STATION SANDPIPER NORTH BAY) LANDING SUBJECT SUBJECT SUBJECT ------- --------- ------- --------- --------- UNIT ACTUAL ASKING COMPARISON TO SUBJECT DESCRIPTION TYPE RENT RENT Superior Superior Superior Superior Similar - ------------------------ --------- ------- ------- -------- -------- -------- -------- ------- Monthly Rent Studio $ 642 $ ??? $ 520 $ 495 $ 590 $ 535 Unit Area (SF) 589 589 538 560 782 ??? Monthly Rent per Sq. Ft. $ ??? $ ??? $ ??? $ 0.88 $ 0.75 $ 0.97 Monthly Rent 1Br/1Ba $ 641 $ 519 $ 558 $ 495 $ 590 $ 579 $ 535 Unit Area (SF) 719 719 ??? ??? 782 720 550 Monthly Rent per Sq. Ft. $ 0.89 $ 0.72 $ 0.76 $ 0.88 $ 0.75 $ ??? $ 0.97 Monthly Rent 2Br/1.5Ba $ 638 $ 629 $ 655 $ 685 $ 685 $ 660 Unit Area (SF) ??? 964 1,037 1,024 ??? 950 Monthly Rent per Sq. Ft. ??? $ ??? $ 0.63 $ 0.66 $ 0.62 $ 0.69 Monthly Rent 2Br/2Ba $ 955 $ 649 $ 785 $ 705 $ 750 $ 610 Unit Area (SF) 1,061 ??? 1,102 1,076 1,280 976 Monthly Rent per Sq. Ft. $ ??? $ 0.61 $ ??? $ ??? $ 0.59 $ 0.63 Monthly Rent 2Br/2.5Ba $ 920 $ ??? $ 785 $ 745 ??? Unit Area (SF) ??? 1,800 1,102 1,146 ??? Monthly Rent per Sq. Ft. $ 0.51 $ 0.55 $ 0.65 $ 0.65 $ 0.59 Monthly Rent 3Br/2Ba $ ??? $ 874 $ 824 $ 805 $ 815 $ 815 Unit Area (SF) 1,320 1,320 1,417 ??? 1,357 1,270 Monthly Rent per Sq. Ft. $ 0.68 $ 0.66 $ 0.58 $ 0.63 $ ??? $ ??? Monthly Rent 3Br/2.5Ba $ 1,014 $ ??? $ 815 Unit Area (SF) 2,070 2,070 1,315 ??? Monthly Rent per Sq. Ft. $ ??? $ 0.64 $ ???
SUBJECT UNIT DESCRIPTION TYPE MIN MAX MEDIAN AVERAGE - ------------------------ --------- ------- ------ -------- ------- Monthly Rent Studio $ 495 $ 590 $ 529 $ 535 Unit Area (SF) 534 782 555 648 Monthly Rent per Sq. Ft. $ 0.75 $ 1.09 $ 0.93 ??? Monthly Rent 1Br/1Ba $ 495 $ 590 $ 558 $ 561 Unit Area (SF) 550 782 720 669 Monthly Rent per Sq. Ft. $ 0.75 $ 0.97 $ 0.80 $ 0.84 Monthly Rent 2Br/1.5Ba $ 655 $ 685 $ 670 $ 670 Unit Area (SF) ??? ??? 1,051 1,031 Monthly Rent per Sq. Ft. $ 0.62 $ 0.69 $ 0.65 $ 0.65 Monthly Rent 2Br/2Ba $ 610 $ 715 $ ??? $ 695 Unit Area (SF) 976 1,200 ??? ??? Monthly Rent per Sq. Ft. $ 0.59 $ 0.90 $ 0.64 $ 0.63 Monthly Rent 2Br/2.5Ba $ 750 $ 745 $ 715 $ 723 Unit Area (SF) 1,102 1,200 1,146 ??? Monthly Rent per Sq. Ft. $ 0.59 $ 0.63 $ 0.65 ??? Monthly Rent 3Br/2Ba $ ??? $ 824 $ 815 $ 815 Unit Area (SF) 1,270 1,417 1,319 1,331 Monthly Rent per Sq. Ft. $ 0.58 $ ??? $ 0.41 $ ??? Monthly Rent 3Br/2.5Ba $ 815 $ 845 $ 830 $ ??? Unit Area (SF) 1,315 1,357 ??? 1,335 Monthly Rent per Sq. Ft. $ 0.60 $ 0.64 $ 0.62 $ 0.62
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 - --------- --------------- ---------- -------- ------ -------- ----------- Studio 32 589 $480 $0.81 $ 15,360 $ 184,320 1Br/1Ba 93 719 $500 $0.70 $ 46,500 $ 558,000 2Br/1.5Ba 112 984 $620 $0.63 $ 69,440 $ 833,280 2Br/2Ba 57 1,061 $630 $0.59 $ 35,910 $ 430,920 2Br/2.5Ba 25 1,800 $930 $0.52 $ 23,250 $ 279,000 3Br/2Ba 12 1,320 $840 $0.64 $ 10,080 $ 120,960 3Br/2.5Ba 12 2,070 $950 $0.46 $ 11,400 $ 136,800 -------- ----------- Total $211,940 $ 2,543,280 ======== ===========
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 as follows. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 REGENCY OAKS, FERN PARK, FLORIDA SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 FISCAL YEAR 2003 ----------------------- ----------------------- ----------------------- ----------------------- ACTUAL ACTUAL ACTUAL MANAGEMENT BUDGET ----------------------- ----------------------- ----------------------- ----------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT - ------------------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Revenues Rental Income $2,458,328 $ 7,167 $2,581,032 $ 7,525 $2,537,636 $ 7,398 $2,544,220 $ 7,418 Vacancy $ 233,457 $ 681 $ 324,527 $ 946 $ 469,222 $ 1,368 $ 380,764 $ 1,110 Credit Loss/Concessions $ 22,874 $ 67 $ 88,769 $ 259 $ 114,711 $ 334 $ 78,600 $ 229 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Subtotal $ 256,331 $ 747 $ 413,296 $ 1,205 $ 583,933 $ 1,702 $ 459,364 $ 1,339 Laundry Income $ 39,854 $ 116 $ 25,363 $ 74 $ 20,645 $ 60 $ 33,096 $ 96 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 107,229 $ 313 $ 166,672 $ 486 $ 269,713 $ 786 $ 225,600 $ 658 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 147,083 $ 429 $ 192,035 $ 560 $ 290,358 $ 847 $ 258,696 $ 754 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Effective Gross Income $2,349,080 $ 6,849 $2,359,771 $ 6,880 $2,244,061 $ 6,542 $2,343,552 $ 6,833 Operating Expenses Taxes $ 139,820 $ 408 $ 153,351 $ 447 $ 147,646 $ 430 $ 158,671 $ 463 Insurance $ 39,177 $ 114 $ 113,414 $ 331 $ 105,487 $ 308 $ 108,455 $ 316 Utilities $ 208,232 $ 607 $ 238,895 $ 696 $ 217,636 $ 635 $ 225,000 $ 656 Repair & Maintenance $ 118,108 $ 344 $ 108,380 $ 316 $ 74,832 $ 218 $ 73,440 $ 214 Cleaning $ 138,525 $ 404 $ 125,153 $ 365 $ 140,296 $ 409 $ 131,280 $ 383 Landscaping $ 116,333 $ 339 $ 90,443 $ 264 $ 150,006 $ 437 $ 125,640 $ 366 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 41,987 $ 122 $ 53,048 $ 155 $ 58,386 $ 170 $ 52,200 $ 152 General Administrative $ 413,804 $ 1,206 $ 387,469 $ 1,130 $ 298,082 $ 869 $ 319,752 $ 932 Management $ 119,727 $ 349 $ 128,930 $ 376 $ 112,330 $ 327 $ 129,038 $ 376 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Operating Expenses $1,335,713 $ 3,894 $1,399,083 $ 4,079 $1,304,701 $ 3,804 $1,323,476 $ 3,859 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income $1,013,367 $ 2,954 $ 960,688 $ 2,801 $ 939,360 $ 2,739 $1,020,076 $ 2,974 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
ANNUALIZED 2003 ----------------------- PROJECTION AAA PROJECTION ----------------------- ---------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % - ------------------------ ---------- ---------- ---------- ---------- ------ Revenues Rental Income $2,491,631 $ 7,264 $2,543,280 $ 7,415 100.0% Vacancy $ 304,817 $ 889 $ 305,194 $ 890 12.0% Credit Loss/Concessions $ 175,739 $ 512 $ 152,597 $ 445 6.0% ---------- ---------- ---------- ---------- ------ Subtotal $ 480,556 $ 1,401 $ 457,790 $ 1,335 18.0% Laundry Income $ 19,521 $ 57 $ 20,580 $ 60 0.8% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 310,952 $ 907 $ 274,400 $ 800 10.8% ---------- ---------- ---------- ---------- ------ Subtotal Other Income $ 330,473 $ 963 $ 294,980 $ 860 11.6% ---------- ---------- ---------- ---------- ------ Effective Gross Income $2,341,548 $ 6,827 $2,380,470 $ 6,940 100.0% Operating Expenses Taxes $ 155,319 $ 453 $ 157,780 $ 460 6.6% Insurance $ 109,663 $ 320 $ 109,760 $ 320 4.6% Utilities $ 200,704 $ 585 $ 205,800 $ 600 8.6% Repair & Maintenance $ 60,981 $ 178 $ 68,600 $ 200 2.9% Cleaning $ 178,503 $ 520 $ 137,200 $ 400 5.8% Landscaping $ 209,927 $ 612 $ 154,350 $ 450 6.5% Security $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 56,332 $ 164 $ 54,880 $ 160 2.3% General Administrative $ 270,219 $ 788 $ 343,000 $ 1,000 14.4% Management $ 89,527 $ 261 $ 107,121 $ 312 4.5% Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0% ---------- ---------- ---------- ---------- ------ Total Operating Expenses $1,331,173 $ 3,881 $1,338,491 $ 3,902 56.2% Reserves $ 0 $ 0 $ 171,500 $ 500 12.8% ---------- ---------- ---------- ---------- ------ Net Income $1,010,375 $ 2,946 $ 870,478 $ 2,538 36.6% ---------- ---------- ---------- ---------- ------
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 18% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 REGENCY OAKS, FERN PARK, FLORIDA 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 $500 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 $500 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 3RD QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES --------------------------------- GOING-IN TERMINAL -------------- --------------- Low High Low High ----- ----- ----- ------ Range 5.50% 9.50% 6.00% 10.00% Average 7.61% 8.14%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 REGENCY OAKS, FERN PARK, FLORIDA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - --------- --------- ------ ---------- ------ I-1 May-03 94% $ 39,815 10.19% I-2 Nov-02 95% $ 34,797 9.60% I-3 Sep-02 95% $ 36,685 9.54% I-4 May-01 90% $ 38,125 10.98% I-5 Aug-01 95% $ 43,000 8.98% High 10.98% Low 8.98% Average 9.86%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.75%. 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 10.25%. 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 12.00%. 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 12.00% indicates a value of $8,700,000. In this instance, the reversion figure contributes approximately 36% of the total value. Investors surveyed for this assignment indicated they AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 REGENCY OAKS, FERN PARK, FLORIDA 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 as follow. DISCOUNTED CASH FLOW ANALYSIS REGENCY OAKS
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 - ----------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- REVENUE Base Rent $2,543,280 $2,606,862 $2,672,034 $2,738,834 $2,807,305 $2,877,488 Vacancy $ 305,194 $ 312,823 $ 320,644 $ 328,660 $ 336,877 $ 345,299 Credit Loss $ 152,597 $ 156,412 $ 160,324 $ 164,330 $ 168,438 $ 172,649 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal $ 457,790 $ 469,235 $ 480,966 $ 492,990 $ 505,315 $ 517,948 Laundry Income $ 20,580 $ 21,095 $ 21,622 $ 22,162 $ 22,716 $ 23,284 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 274,400 $ 281,260 $ 288,292 $ 295,499 $ 302,886 $ 310,458 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 294,980 $ 302,355 $ 309,913 $ 317,661 $ 325,603 $ 333,743 ---------- ---------- ---------- ---------- ---------- ---------- EFFECTIVE GROSS INCOME $2,380,470 $2,439,981 $2,500,981 $2,563,505 $2,627,593 $2,693,283 OPERATING EXPENSES: Taxes $ 157,780 $ 162,513 $ 167,389 $ 172,410 $ 177,583 $ 182,910 Insurance $ 109,760 $ 113,053 $ 116,444 $ 119,938 $ 123,536 $ 127,242 Utilities $ 205,800 $ 211,974 $ 218,333 $ 224,883 $ 231,630 $ 238,579 Repair & Maintenance $ 68,600 $ 70,658 $ 72,778 $ 74,961 $ 77,210 $ 79,526 Cleaning $ 137,200 $ 141,316 $ 145,555 $ 149,922 $ 154,420 $ 159,052 Landscaping $ 154,350 $ 158,981 $ 163,750 $ 168,662 $ 173,722 $ 178,934 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 54,880 $ 56,526 $ 58,222 $ 59,969 $ 61,768 $ 63,621 General Administrative $ 343,000 $ 353,290 $ 363,889 $ 374,805 $ 386,050 $ 397,631 Management $ 107,121 $ 109,799 $ 112,544 $ 115,358 $ 118,242 $ 121,198 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $1,338,491 $1,378,110 $1,418,905 $1,460,909 $1,504,159 $1,548,693 Reserves $ 171,500 $ 176,645 $ 181,944 $ 187,403 $ 193,025 $ 198,816 ---------- ---------- ---------- ---------- ---------- ---------- NET OPERATING INCOME $ 870,478 $ 885,226 $ 900,132 $ 915,194 $ 930,409 $ 945,774 ========== ========== ========== ========== ========== ========== Operating Expense Ratio (% of EGI) 56.2% 56.5% 56.7% 57.0% 57.2% 57.5% Operating Expense Per Unit $ 3,902 $ 4,018 $ 4,137 $ 4,259 $ 4,385 $ 4,515
YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 - ----------------------------------- ---------- ---------- ---------- ---------- ---------- REVENUE Base Rent $2,949,425 $3,023,161 $3,098,740 $3,176,208 $3,255,613 Vacancy $ 353,931 $ 362,779 $ 371,849 $ 381,145 $ 390,674 Credit Loss $ 176,966 $ 181,390 $ 185,924 $ 190,572 $ 195,337 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- Subtotal $ 530,897 $ 544,169 $ 557,779 $ 571,717 $ 586,010 Laundry Income $ 23,866 $ 24,463 $ 25,075 $ 25,702 $ 26,344 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 318,220 $ 326,175 $ 334,330 $ 342,688 $ 351,255 ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 342,086 $ 350,639 $ 359,404 $ 368,390 $ 377,599 ---------- ---------- ---------- ---------- ---------- EFFECTIVE GROSS INCOME $2,760,615 $2,829,630 $2,900,371 $2,972,880 $3,047,202 OPERATING EXPENSES: Taxes $ 188,398 $ 194,049 $ 199,871 $ 205,867 $ 212,043 Insurance $ 131,059 $ 134,991 $ 139,041 $ 143,212 $ 147,508 Utilities $ 245,736 $ 253,108 $ 260,701 $ 268,522 $ 276,578 Repair & Maintenance $ 81,912 $ 84,369 $ 86,900 $ 89,507 $ 92,193 Cleaning $ 163,824 $ 168,739 $ 173,801 $ 179,015 $ 184,385 Landscaping $ 184,302 $ 189,831 $ 195,526 $ 201,392 $ 207,433 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 65,530 $ 67,495 $ 69,520 $ 71,606 $ 73,754 General Administrative $ 409,560 $ 421,847 $ 434,502 $ 447,537 $ 460,963 Management $ 124,228 $ 127,333 $ 130,517 $ 133,780 $ 137,124 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $1,594,548 $1,641,763 $1,690,379 $1,740,438 $1,791,982 Reserves $ 204,780 $ 210,923 $ 217,251 $ 223,769 $ 230,482 NET OPERATING INCOME $ 961,287 $ 976,944 $ 992,741 $1,008,674 $1,024,738 ---------- ---------- ---------- ---------- ---------- Operating Expense Ratio (% of EGI) 57.8% 58.0% 58.3% 58.5% 58.8% Operating Expense Per Unit $ 4,649 $ 4,786 $ 4,928 $ 5,074 $ 5,224
Estimated Stabilized NOI $870,478 Sales Expense Rate 2.00% Months to Stabilized 1 Discount Rate 12.00% Stabilized Occupancy 88.0% Terminal Cap Rate 10.25%
"DCF" VALUE ANALYSIS Gross Residual Sale Price $9,997,447 Deferred Maintenance $ 0 Less: Sales Expense $ 199,949 Add: Excess Land $ 0 ---------- Other Adjustments $ 0 Net Residual Sale Price $9,797,498 ---------- PV of Reversion $3,154,532 Value Indicated By "DCF" $8,673,612 Add: NPV of NOI $5,519,080 Rounded $8,700,000 ---------- PV Total $8,673,612
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE -------------------------------------------------------------- TOTAL VALUE 11.50% 11.75% 12.00% 12.25% 12.50% - -------------------- ---------- ---------- ---------- ---------- ---------- 9.75% $9,113,751 $8,973,071 $8,835,383 $8,700,612 $8,568,686 10.00% $9,027,049 $8,888,290 $8,752,476 $8,619,533 $8,489,391 TERMINAL CAP 10.25% $8,944,577 $8,807,645 $8,673,612 $8,542,408 $8,413,963 RATE 10.50% $8,866,032 $8,730,839 $8,598,504 $8,468,957 $8,342,128 10.75% $8,791,141 $8,657,607 $8,526,890 $8,398,921 $8,273,633
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 REGENCY OAKS, FERN PARK, FLORIDA 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 Concessions have historically not been utilized at the subject property or in the subject's market. Therefore, no adjustment was included for concessions. 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 9.75% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 REGENCY OAKS, FERN PARK, FLORIDA REGENCY OAKS
TOTAL PER SQ. FT. PER UNIT %OF EGI - ------------------------------------------------------------------------------------------- REVENUE Base Rent $2,543,280 $ 7.43 $ 7,415 Less: Vacancy & Collection Loss 18.00% $ 457,790 $ 1.34 $ 1,335 Plus: Other Income Laundry Income $ 20,580 $ 0.06 $ 60 0.86% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 274,400 $ 0.80 $ 800 11.53% --------------------------------------------- Subtotal Other Income $ 294,980 $ 0.86 $ 860 12.39% EFFECTIVE GROSS INCOME $2,380,470 $ 6.96 $ 6,940 OPERATING EXPENSES: Taxes $ 157,780 $ 0.46 $ 460 6.63% Insurance $ 109,760 $ 0.32 $ 320 4.61% Utilities $ 205,800 $ 0.60 $ 600 8.65% Repair & Maintenance $ 68,600 $ 0.20 $ 200 2.88% Cleaning $ 137,200 $ 0.40 $ 400 5.76% Landscaping $ 154,350 $ 0.45 $ 450 6.48% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 54,880 $ 0.16 $ 160 2.31% General Administrative $ 343,000 $ 1.00 $ 1,000 14.41% Management 4.50% $ 107,121 $ 0.31 $ 312 4.50% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $1,338,491 $ 3.91 $ 3,902 56.23% Reserves $ 171,500 $ 0.50 $ 500 7.20% --------------------------------------------- NET OPERATING INCOME $ 870,478 $ 2.54 $ 2,538 36.57% "GOING IN" CAPITALIZATION RATE 9.75% VALUE INDICATION $8,927,984 $26.10 $ 26,029 "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $8,927,984 ROUNDED $8,900,000 $26.02 $ 25,948
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 REGENCY OAKS, FERN PARK, FLORIDA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - ----------------------------------------------------------- 9.00% $9,671,983 $9,700,000 $28,280 $28.36 9.25% $9,410,578 $9,400,000 $27,405 $27.48 9.50% $9,162,931 $9,200,000 $26,822 $26.89 9.75% $8,927,984 $8,900,000 $25,948 $26.02 10.00% $8,704,785 $8,700,000 $25,364 $25.43 10.25% $8,492,473 $8,500,000 $24,781 $24.85 10.50% $8,290,271 $8,300,000 $24,198 $24.26
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $8,900,000. 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 $8,700,000 Direct Capitalization Method $8,900,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $8,800,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 35 REGENCY OAKS, FERN PARK, FLORIDA 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 $9,200,000 Income Approach $8,800,000 Reconciled Value $8,800,000
The Income 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 December 9, 2003 the market value of the fee simple estate in the property is: $8,800,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA REGENCY OAKS, FERN PARK, FLORIDA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A REGENCY OAKS, FERN PARK, FLORIDA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A REGENCY OAKS, FERN PARK, FLORIDA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] APARTMENT BUILDING - FRONT VIEW APARTMENT BUILDING - SIDE VIEW [PICTURE] [PICTURE] COURTYARD VIEW APARTMENT BUILDING - PARKING VIEW [PICTURE] [PICTURE] CLUBHOUSE EXTERIOR VIEW - COVERED PARKING AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A REGENCY OAKS, FERN PARK, FLORIDA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] SPORT COURTS SWIMMING POOL [PICTURE] [PICTURE] PICNIC AREA INTERIOR VACANT UNIT - LIVING ROOM [PICTURE] [PICTURE] INTERIOR VACANT UNIT - KITCHEN INTERIOR VACANT UNIT - BATHROOM AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B REGENCY OAKS, FERN PARK, FLORIDA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B REGENCY OAKS, FERN PARK, FLORIDA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 EMPIRIAN (FORMERLY KNOWN AS EMERALD BAY) SEDGEFIELD APARTMENTS LA ALOMA 5 Autumn Breeze Way 110 Sedgefield Circle 3040 Aloma Avenue Winter Park, FL Winter Park, FL Winter Park, FL [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 COURTYARD AT WINTER PARK THE ASHLEY OF SPRING VALLEY 1695 Lee Road 693 S Wymore Road Winter Park, FL Altamonte Springs, FL [PICTURE] [PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B REGENCY OAKS, FERN PARK, FLORIDA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 - ------------------------------------------------------------------------------------------------------------------------------------ Property Name Regency Oaks Howel Branch Station Management Company AIMCO Brighton Residential LOCATION: Address 200 Maltese Circle 416 Banyon Tree Circle City, State Fern Park, Florida Maitland, FL County Seminole Seminole Proximity to Subject Same neighborhood PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 342,080 349,530 Year Built 1969 1969 Effective Age 25 34 Building Structure Type Brick and Stucco Brick Parking Type (Gr., Cov., etc.) Open, Plus some carports Open Number of Units 343 366 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 Studio 589 32 $ 642 1 Studio 538 76 $520 2 1Br/1Ba 719 93 $ 641 2 1Br/1Ba 667 18 $550 3 2Br/1.5Ba 984 112 $ 638 2 1Br/1Ba 750 64 $560 4 2Br/2Ba 1,061 57 $ 955 3 2Br/1Ba 1,037 62 $655 5 2Br/2.5Ba 1,800 25 $ 920 4 2Br/2Ba 1,102 56 $715 6 3Br/2Ba 1,320 12 $ 900 5 2Br/2Ba 1,102 56 $715 7 3Br/2.5Ba 2,070 12 $1,002 6 3Br/2Ba 1,328 32 $810 6 3Br/2Ba 1,481 44 $835 Average Unit Size (SF) 997 971 Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Average APPEAL: Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X Balcony X Fireplace Fireplace Cable TV Ready Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi X Car Wash Spa/Jacuzzi X Car Wash Basketball Court X BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball Meeting Hall X 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 Business Office Gym Room X Freshwater Lake Gym Room X Freshwater Lake X Basketball Court Basketball Court X Picnic Area Picnic Area OCCUPANCY: 92% 86% LEASING DATA: Available Leasing Terms 6 to 12 months 6 to 12 months Concessions On specified units only Pet Deposit No Pets Allowed Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash X Water X Trash Confirmation Manager Leasing Agent Telephone Number 813-933-2449 407-671-7200 NOTES: Attractive apartment community located in subject's neighborhood. All brick, good condition, good curb appeal. Overall, superior to the subject property. COMPARISON TO SUBJECT: Superior COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 - ------------------------------------------------------------------------------------------------------------------------------------ Property Name Sandpiper Semoran North Management Company Community Management Calex Realty Group LOCATION: Address 709 Sandpiper Lane 1743 Semoran North Circle City, State Casselberry, FL Winter Park, FL County Seminole Seminole Proximity to Subject Same neighborhood Same neighborhood PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 178,752 381,408 Year Built 1974 1964 Effective Age 29 30 Building Structure Type Stucco Stucco Parking Type (Gr., Cov., etc.) Open Open, plus some carports Number of Units 196 348 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Br/1Ba 560 80 $495 1 1Br/1Ba 782 $590 2 1Br/1Ba 560 80 $495 2 1Br/1Ba 782 $590 3 2Br/1.5Ba 1,024 18 $680 3 2Br/1Ba 1,112 $685 4 2Br/2Ba 1,076 36 $705 4 2Br/2Ba 1,200 $710 5 2Br/2Ba 1,146 24 $745 5 2Br/2Ba 1,200 $710 6 3Br/2Ba 1,281 20 $805 6 3Br/2Ba 1,357 $815 7 3Br/2Ba 1,315 18 $845 7 3Br/2Ba 1,357 $815 Average Unit Size (SF) 810 Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Slightly Superior Slightly Superior APPEAL: Good Slightly Superior AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X Balcony X Fireplace Fireplace Cable TV Ready Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room 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 Business Office Jogging Track Business Office X Gym Room Freshwater Lake X Gym Room Freshwater Lake Basketball Court Basketball Court Picnic Area Picnic Area OCCUPANCY: 90% N/A LEASING DATA: Available Leasing Terms 6 to 13 months 6 to 12 months Concessions On specified units only One Month Free Rent Pet Deposit Yes Yes Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash X Water X Trash Confirmation Leasing Agent Leasing Agent Telephone Number 407-831-6866 407-671-5957 NOTES: Nearby apartment community, but generally Nearby apartment community located in same inferior location along secondary street neighborhood in a similar retail/commercial with limited curb appear and in similar to area just off Rt 436. Superior to subject in inferior condition compared to the subject terms of overall curb appeal and condition. property. Overall, considered to be an Also slightly superior location. inferior apartment community. COMPARISON TO SUBJECT: Superior Superior COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 - ------------------------------------------------------------------------------------------------------------------------------------ Property Name Empiriam (Former Emerald Bay) Birchwood Landing Management Company Empire Equity Group Casselberry Equity LOCATION: Address 5 Autumn Breeze Way 1485 Ash Circle City, State Winter Park, FL Casselberry, FL County Seminole Seminole Proximity to Subject Same neighborhood Same neighborhood PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 427,680 114,080 Year Built 1972 1975 Effective Age 25 28 Building Structure Type Stucco Stucco Parking Type (Gr., Cov., etc.) Open, plus some carports Open Number of Units 432 184 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 2 1Br/1Ba 720 149 $579 1 1Br/1Ba 550 $535 4 2Br/2Ba 976 132 $610 2 1Br/1Ba 550 $535 6 3Br/2Ba 1,270 151 $815 3 2Br/1Ba 950 $660 Average Unit Size (SF) 990 Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X Balcony Fireplace Fireplace Cable TV Ready Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi X Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall X 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 Business Office X Gym Room Freshwater Lake Gym Room Freshwater Lake X Basketball Court Basketball Court X Picnic Area Picnic Area OCCUPANCY: N/A N/A LEASING DATA: Available Leasing Terms 6 to 12 months 6 to 12 months Concessions No $299 Move-in special Pet Deposit Yes Yes Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash X Water X Trash Confirmation Leasing Agent Leasing Agent Telephone Number 407-671-7722 407-657-6716 NOTES: Nearby apartment community located in same Located along Rt 436 very near the subject neighborhood in a similar retail/commercial property. Most similar in terms of location. area just off Rt 436. Superior to subject in Also very similar in terms of overall curb terms of overall curb appeal and condition. appeal and condition. Also slightly superior location. COMPARISON TO SUBJECT: Superior Similar
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B REGENCY OAKS, FERN PARK, FLORIDA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 HOWEL BRANCH STATION SANDPIPER SEMORAN NORTH 416 Banyon Tree Circle 709 Sandpiper Lane 1743 Semoran North Circle Maitland, FL Casselberry, FL Winter Park, FL N/A [PICTURE] N/A COMPARABLE R-4 COMPARABLE R-5 EMPIRIAM (FORMER EMERALD BAY) BIRCHWOOD LANDING 5 Autumn Breeze Way 1485 Ash Circle Winter Park, FL Casselberry, FL [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C REGENCY OAKS, FERN PARK, FLORIDA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C REGENCY OAKS, FERN PARK, FLORIDA 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 REGENCY OAKS, FERN PARK, FLORIDA 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 REGENCY OAKS, FERN PARK, FLORIDA 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 Appraisal Institute 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 REGENCY OAKS, FERN PARK, FLORIDA EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D REGENCY OAKS, FERN PARK, FLORIDA 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. Alice MacQueen 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 Texas State Certified General Real Estate Appraiser #TX-1323954-G AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D REGENCY OAKS, FERN PARK, FLORIDA 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 inspected the subject property and provided significant real property appraisal assistance in the preparation of this report. -s- Alice MacQueen --------------------------- Alice MacQueen Florida Certified General Real Estate Appraiser #RZ0002202 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E REGENCY OAKS, FERN PARK, FLORIDA EXHIBIT E QUALIFICATIONS OF APPRAISER (4 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E REGENCY OAKS, FERN PARK, FLORIDA 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 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E REGENCY OAKS, FERN PARK, FLORIDA STATE CERTIFICATIONS State of Arizona, 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 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. EXHIBIT E REGENCY OAKS, FERN PARK, FLORIDA ALICE MACQUEEN STATE CERTIFIED GENERAL REAL ESTATE APPRAISER POSITION Alice MacQueen is a State Certified General Real Estate Appraiser and principal member of 3P, Inc., a consulting firm with offices in Georgia and Utah. EXPERIENCE BUSINESS Mrs. MacQueen was employed by American Appraisal Associates, Inc., from 1983 until 2003 when she formed 3P, Inc. During her 20 year tenure with AAA, Ms. MacQueen held numerous positions within the firm, advancing from the professional staff levels to serve as Regional Director for the Southeastern United States (1987 to 1992) and as National Director of the Real Estate Valuation Group (1992 to 1995). During her later years with the firm, Ms. MacQueen continued to serve as an officer in the company, working as Principal/Vice President actively involved in the valuation of a wide variety of property types, including numerous types of special purpose properties. Prior to joining American Appraisal, Ms. MacQueen was involved in property management for five years and spent an additional five years as an appraiser, consultant and research analyst. VALUATION Ms. MacQueen has extensive experience in the appraisal of residential, commercial, industrial and special purpose properties and is annually involved in the valuation of several billion dollars of real property. She has also been involved in land planning analysis for major mixed use developments. Special purpose properties appraised include campgrounds, churches, country clubs and golf courses, data centers, historic landmarks, proprietary cemeteries and schools. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E REGENCY OAKS, FERN PARK, FLORIDA More recently, she has had extensive experience in appraising residential and industrial properties on Indian reservations as was instrumental in developing a major housing study for the Navajo reservation. The purposes of these valuations have included allocation of purchase price, charitable donation, financing, purchase and sale, syndication, and financial reporting. Ms. MacQueen has completed appraisals of commercial and residential real estate. He has also generated discounted cash flow and sensitivity analyses for investment-grade real estate, securitization, and pension funds/insurance industries. Analyses he has performed involve various types of investment- grade real estate throughout the continental United States including apartments, cooperatives, hotels, industrial and research and development parks, office buildings, regional shopping centers, and undeveloped acreage. To date, she has provided appraisal and consulting services in 48 states, Mexico and Puerto Rico. EDUCATION Greenbrier College for Women, Liberal Arts Realtors Institute of Virginia VALUATION AND SPECIAL Ms. MacQueen completes several courses annually as part COURSES of the continuing education requirements of the various states in which she is certified. She also attends real estate and financial industry-related conferences and seminars. In recent years, she prepared background information for HUD pertaining to valuation requirements for Indian lands and presented findings related to housing needs and financing issues on reservations. STATE-CERTIFICATED GENERAL APPRAISER Florida, No. RZ0002202, expires 11/30/04 Georgia, No. 239776, expires 7/31/04 New Mexico, No. 001626, expires 4/30/05 North Carolina, No. A5096, expires 6/30/04 Utah, No. CG 00057001, expires 7/1/05 AMERICAN APPRAISAL ASSOCIATES, INC. REGENCY OAKS, FERN PARK, FLORIDA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. REGENCY OAKS, FERN PARK, FLORIDA 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. EX-99.(C)(8) 13 d07253exv99wxcyx8y.txt APPRAISAL OF SILVERADO SILVERADO 9300 VISCOUNT BLVD EL PASO, TEXAS MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 11, 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] JULY 2, 2003 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: SILVERADO 9300 VISCOUNT BLVD EL PASO, EL PASO COUNTY, TEXAS 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 248 units with a total of 191,590 square feet of rentable area. The improvements were built in 1973. The improvements are situated on 10 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 92% 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 SILVERADO, EL PASO, TEXAS 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 11, 2003 is: ($5,600,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Frank Fehribach July 2, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group Texas State Certified General Real Estate Appraiser #TX-1323954-G Report By: Daniel Salcedo Texas State Certified General Real Estate Appraiser #TX-1331768-G AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 SILVERADO, EL PASO, TEXAS 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 SILVERADO, EL PASO, TEXAS EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Silverado LOCATION: 9300 Viscount Blvd El Paso, Texas 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 11, 2003 DATE OF REPORT: July 2, 2003
PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 10 acres, or 435,600 square feet Assessor Parcel No.: F175-999-0010-4900 Floodplain: Community Panel No. 4802140041B (October 15, 1982) Flood Zone C, an area outside the floodplain. Zoning: A-O (Medium to High Density Apartment District) BUILDING: No. of Units: 248 Units Total NRA: 191,590 Square Feet Average Unit Size: 773 Square Feet Apartment Density: 24.8 units per acre Year Built: 1973
UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square -------------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income - --------------------------------------------------------------------------------------------- 1Br/1Ba - EA10 494 $ 390 $ 0.79 $ 7,800 $ 93,600 1Br/1Ba -1A10 525 $ 410 $ 0.78 $ 24,600 $ 295,200 1Br/1Ba - 1A15 754 $ 470 $ 0.62 $ 16,920 $ 203,040 1 Br/1Ba-1B10 684 $ 460 $ 0.67 $ 18,400 $ 220,800 1 Br/1.5 Ba -1B15 878 $ 520 $ 0.59 $ 4,160 $ 49,920 2Br/1Ba-2A10 979 $ 550 $ 0.56 $ 18,700 $ 224,400 2 Br/1.5Ba -2A15 1,200 $ 640 $ 0.53 $ 7,680 $ 92,160 2 Ba/2 Ba- 2A20 1,028 $ 570 $ 0.55 $ 18,240 $ 218,880 3Br/2Ba -3A20 1,350 $ 650 $ 0.48 $ 3,900 $ 46,800 Total $120,400 $1,444,800
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 SILVERADO, EL PASO, TEXAS OCCUPANCY: 92% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 25 Years REMAINING ECONOMIC LIFE: 20 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] UNIT TYPE FACADE UNIT TYPE AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 SILVERADO, EL PASO, TEXAS NEIGHBORHOOD MAP [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 SILVERADO, EL PASO, TEXAS PART TWO - ECONOMIC INDICATORS
Amount $/Unit ------------ -------------- INCOME CAPITALIZATION APPROACH DIRECT CAPITALIZATION Potential Rental Income $ 1,444,800 $ 5,826 Effective Gross Income $ 1,377,200 $ 5,553 Operating Expenses $ 770,700 $ 3,108 56.0% of EGI Net Operating Income: $ 544,500 $ 2,196 Capitalization Rate 10.00% DIRECT CAPITALIZATION VALUE $ 5,400,000 * $21,774 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 8% Stabilized Vacancy & Collection Loss: 10% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 11.00% Discount Rate 12.50% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $ 5,600,000 * $22,581 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $ 5,600,000 $22,581 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $ 22,837 to $36,222 Range of Sales $/Unit (Adjusted) $ 20,553 to $25,736 VALUE INDICATION - PRICE PER UNIT $ 5,700,000 * $22,984 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 4.33 to 6.84 Selected EGIM for Subject 4.00 Subject's Projected EGI $ 1,377,200 EGIM ANALYSIS CONCLUSION $ 5,500,000 * $22,177 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $ 5,500,000 * $22,177 / UNIT RECONCILED SALES COMPARISON VALUE $ 5,500,000 $22,177 / 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 SILVERADO, EL PASO, TEXAS PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $ 5,700,000 NOI Per Unit $ 5,500,000 EGIM Multiplier $ 5,500,000 INDICATED VALUE BY SALES COMPARISON $ 5,500,000 $22,177 / UNIT INCOME APPROACH: Direct Capitalization Method: $ 5,400,000 Discounted Cash Flow Method: $ 5,600,000 INDICATED VALUE BY THE INCOME APPROACH $ 5,600,000 $22,581 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $ 5,600,000 $22,581 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 SILVERADO, EL PASO, TEXAS INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 9300 Viscount Blvd, El Paso, EL Paso County, Texas. El Paso identifies it as F175-999-0010-4900. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Daniel Salcedo on May 11, 2003. Frank Fehribach, MAI has not made a personal inspection of the subject property. Daniel Salcedo performed the research, valuation analysis and wrote the report. Frank Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach, MAI and Daniel Salcedo 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 11, 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 & Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 SILVERADO, EL PASO, TEXAS 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 CCEP. 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 SILVERADO, EL PASO, TEXAS 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 El Paso, Texas. Overall, the neighborhood is characterized as an urban setting with the predominant land use being residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Ranch 2316 West - Hawkins Ave South - I-10 North - Hawkins Ave/Cosmos Street MAJOR EMPLOYERS Major employers in the subject's area include Fort Hood Military Base. 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 SILVERADO, EL PASO, TEXAS NEIGHBORHOOD DEMOGRAPHICS
AREA ------------------------------------------ CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - --------------------------------------------------------------------------------------- POPULATION TRENDS Current Population 13,963 109,179 241,765 694,549 5-Year Population 13,959 105,374 244,263 734,415 % Change CY-5Y 0.0% -3.5% 1.0% 5.7% Annual Change CY-5Y 0.0% -0.7% 0.2% 1.1% HOUSEHOLDS Current Households 5,563 37,003 76,642 215,986 5-Year Projected Households 5,765 36,829 79,065 231,616 % Change CY - 5Y 3.6% -0.5% 3.2% 7.2% Annual Change CY-5Y 0.7% -0.1% 0.6% 1.4% INCOME TRENDS Median Household Income $ 32,761 $ 28,202 $ 29,872 $ 29,212 Per Capita Income $ 19,361 $ 13,880 $ 13,491 $ 13,716 Average Household Income $ 47,824 $ 40,820 $ 42,634 $ 44,105
Source: Demographics Now The subject neighborhood's population is expected to show increases below that of the region. The immediate market offers superior 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 50.17% 40.46% 35.83% 34.03% 5-Year Projected % Renting 52.68% 40.54% 35.08% 32.34% % of Households Owning 45.98% 55.17% 60.18% 61.63% 5-Year Projected % Owning 43.61% 55.05% 61.00% 63.53%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 SILVERADO, EL PASO, TEXAS SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Viscount Blvd/residential/multifamily uses South - Office business strip East - Viscount Blvd/residential/multifamily uses West - Vacant Land (El Paso Electric Power Station) CONCLUSIONS The subject is well located within the city of El Paso. The neighborhood is characterized as being mostly urban in nature and is currently in the stable 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 SILVERADO, EL PASO, TEXAS MARKET ANALYSIS The subject property is located in the city of El Paso in EL Paso County. The overall pace of development in the subject's market is more or less stable. Based on our site inspection of the market area, there was no evidence of any new development for multifamily use. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - ------ ------ --------- 1Q-01 8.0% 8.0% 2Q-01 8.7% 8.7% 3Q-01 9.0% 9.0% 4Q-01 9.8% 9.8% 1Q-02 7.8% 7.8% 2Q-02 8.5% 8.5% 3Q-02 6.8% 6.8% 4Q-02 8.5% 8.5% 1Q-03 8.0% 8.0%
Source: El Paso Apartment Association Occupancy trends in the subject's market are a stable. Historically speaking, the subject's submarket has equated the overall market. Occupancy in the subject's market area is expected to remain around 92.0% on average. Any expected changes are caused by the short time fluctuations derived from military household demand. Overall, occupancy in the market area is considered stable. Market rents in the subject's market have been following a decreasing trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change - ------ ------ -------- --------- -------- 1Q-01 $497 - $497 - 2Q-01 $504 1.4% $504 1.4% 3Q-01 $500 -0.8% $500 -0.8% 4Q-01 $501 0.2% $501 0.2% 1Q-02 $501 0.0% $501 0.0% 2Q-02 $505 0.8% 3Q-02 $512 1.4% $505 - 4Q-02 $512 0.0% $512 1.4% 1Q-03 $506 -1.2% $506 -1.2%
Source: El Paso Apartment Association The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 SILVERADO, EL PASO, TEXAS COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject --- ------------- ----- ----- ---------- -------------------- R-1 La Plaza 129 99% 1969 one mile southeast of the subject R-2 Shadow Ridge 352 92% 1985 less than 0.20 miles southeast of the subject R-3 Spring Park 180 92% 1995 Approx. 0.50 miles southeast of the subject R-4 Citadel 261 96% 1973 Approx. 0.40 miles southeast of the subject R-5 Celina 289 94% 1974 Approx. 0.60 miles northwest of subject Subject Silverado 248 92% 1973
Rental rates are expected to continue to slow their decline. They are expected to average around $500 per month, since the market and its demand are stable. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 SILVERADO, EL PASO, TEXAS PROPERTY DESCRIPTION SITE ANALYSIS Site Area 10 acres, or 435,600 square feet Shape Irregular Topography Moderate 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 4802140041B, dated October 15, 1982 Flood Zone Zone C Zoning A-O, the subject improvements represent a legal conforming use of the site.
REAL ESTATE TAXES
ASSESSED VALUE - 2002 ------------------------------------ TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES - --------------------------------------------------------------------------------------- F175-999-0010-4900 $653,400 $4,156,600 $4,810,000 0.03005 $144,535
IMPROVEMENT ANALYSIS Year Built 1973 Number of Units 248 Net Rentable Area 191,590 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, gym room, barbeque equipment, meeting hall, laundry room, business office, and secured parking. Unit Amenities Individual unit amenities include a balcony, fireplace, cable TV connection, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, microwave dishwasher, water heater, garbage disposal, and oven.
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 SILVERADO, EL PASO, TEXAS Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - ----------------- --------------- --------- 1Br/1Ba - EA10 20 494 1Br/1Ba -1A10 60 525 1Br/1Ba - 1A15 36 754 1 Br/1Ba - 1B10 40 684 1 Br/1.5 Ba - 1B15 8 878 2Br/1Ba-2A10 34 979 2 Br/1.5Ba - 2A15 12 1,200 2 Ba/2 Ba - 2A20 32 1,028 3Br/2Ba - 3A20 6 1,350
Overall Condition Average Effective Age 25 years Economic Life 45 years Remaining Economic Life 20 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 1973 and consist of a 248-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 SILVERADO, EL PASO, TEXAS 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 SILVERADO, EL PASO, TEXAS 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 SILVERADO, EL PASO, TEXAS 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 SILVERADO, EL PASO, TEXAS SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ---------------------------------------------------------------------------------------------------------------------------------- Property Name Silverado La Plaza Shadow Ridge LOCATION: Address 9300 Viscount Blvd 9578 Sims Drive 9375 Viscount Blvd City, State El Paso, Texas El Paso,TX El Paso, TX County EL Paso El Paso El Paso PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 191,590 128,669 263,296 Year Built 1973 1969 1985 Number of Units 248 129 352 Unit Mix: Type Total Type Total Type Total 1Br/1Ba - EA10 20 1Br/1Ba 29 1Br/1Ba 80 1Br/1Ba -1A10 60 2Br/1Ba 50 2Br/1Ba 100 1Br/1Ba - 1A15 36 2Br/1.5Ba 35 2Br/1.5Ba 60 1 Br/1Ba-1B10 40 2Br/2Ba 15 2Br/2Ba 60 1 Br/1.5 Ba -1B15 8 3Br/2Ba 52 2Br/1Ba-2A10 34 2 Br/1.5Ba -2A15 12 2 Ba/2 Ba- 2A20 32 3Br/2Ba -3A20 6 Average Unit Size (SF) 773 997 748 Land Area (Acre) 10.0000 8.7670 7.9526 Density (Units/Acre) 24.8 14.7 44.3 Parking Ratio (Spaces/Unit) 2.58 2.00 2.00 Parking Type (Gr., Cov., etc.) Open Open Open CONDITION: Good Average Good APPEAL: Average Fair Good AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room Yes Yes Yes Laundry Room Yes Yes No Secured Parking Yes Yes Yes Sport Courts Yes Yes Yes Washer/Dryer Connection Yes No Yes OCCUPANCY: 92% 92% 93% TRANSACTION DATA: Sale Date July, 2000 November, 1999 Sale Price ($) $4,150,000 $12,750,000 Grantor Dain Texas Partners N/A Grantee American Opportunity for Case & Associates Properties Housing-La Palza, LLC Sale Documentation Deed- Vol 1402/Page 134 Deed- Vol 1817/Page 1645 Verification Confidential Confidential Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $869,225 $6,738 $6.76 $2,003,382 $5,691 $7.61 Vacancy/Credit Loss $ 69,538 $ 539 $0.54 $ 140,236 $ 398 $0.53 Effective Gross Income $799,687 $6,199 $6.22 $1,863,146 $5,293 $7.08 Operating Expenses $339,867 $2,635 $2.64 $ 707,995 $2,011 $2.69 Net Operating Income $459,820 $3,564 $3.57 $1,155,151 $3,282 $4.39 NOTES: None None PRICE PER UNIT $32,171 $36,222 PRICE PER SQUARE FOOT $ 32.25 $ 48.42 EXPENSE RATIO 42.5% 38.0% EGIM 5.19 6.84 OVERALL CAP RATE 11.08% 9.06% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - -------------------------------------------------------------------------------------------------------------------------------- Property Name Spring Park Sand Pebble Celina LOCATION: Address 9535 Acer Avenue 11280 Pebble Hills Drive 8500 Viscount Blvd City, State El Paso, TX El Paso, TX El Paso, TX County El Paso El Paso El Paso PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 139,224 165,504 248,005 Year Built 1995 1983 1974 Number of Units 180 208 289 Unit Mix: Type Total Type Total Type Total 1Br/1Ba 60 1Br/1Ba 100 1Br/1Ba 119 2Br/1Ba 80 2Br/1Ba 88 2Br/1Ba 120 3Br/2Ba 40 3Br/2Ba 20 3Br/2Ba 50 Average Unit Size (SF) 773 796 858 Land Area (Acre) 9.8900 9.0460 11.6000 Density (Units/Acre) 18.2 23.0 24.9 Parking Ratio (Spaces/Unit) 2.20 2.01 2.09 Parking Type (Gr., Cov., etc.) Open Open Open CONDITION: Good Average Average APPEAL: Good Fair Fair AMENITIES: Pool/Spa Yes/Yes Yes/No Yes/No Gym Room Yes No Yes Laundry Room Yes Yes Yes Secured Parking Yes No No Sport Courts Yes No No Washer/Dryer Connection Yes No Yes OCCUPANCY: 92% 90% 94% TRANSACTION DATA: Sale Date March, 2002 November, 2002 January, 2001 Sale Price ($) $6,450,000 $4,750,000 $9,150,000 Grantor Property Trust of America Southwest Partners Westex Associates Grantee Wolf CE & I AIMCO/Sand Pebble LP American Opportunity Sale Documentation Deed- Vol 3140/Page 204 Deed-Vol. 3273/Page 1048 Deed- Vol 3916/Page 1278 Verification Confidential Confidential Confidential Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,128,869 $6,271 $8.11 $1,217,949 $5,856 $7.36 $1,566,398 $5,420 $6.32 Vacancy/Credit Loss $ 90,310 $ 502 $0.65 $ 121,795 $ 586 $0.74 $ 93,983 $ 325 $0.38 Effective Gross Income $1,038,559 $5,770 $7.46 $1,096,154 $5,270 $6.62 $1,472,415 $5,095 $5.94 Operating Expenses $ 425,809 $2,366 $3.06 $ 526,154 $2,530 $3.18 $ 575,715 $1,992 $2.32 Net Operating Income $ 612,750 $3,404 $4.40 $ 570,000 $2,740 $3.44 $ 896,700 $3,103 $3.62 NOTES: None None None PRICE PER UNIT $35,833 $22,837 $31,661 PRICE PER SQUARE FOOT $ 46.33 $ 28.70 $ 36.89 EXPENSE RATIO 41.0% 48.0% 39.1% EGIM 6.21 4.33 6.21 OVERALL CAP RATE 9.50% 12.00% 9.80% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 SILVERADO, EL PASO, TEXAS IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $22,837 to $36,222 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 $20,553 to $25,736 per unit with a mean or average adjusted price of $23,097 per unit. The median adjusted price is $22,367 per unit. Based on the following analysis, we have concluded to a value of $23,000 per unit, which results in an "as is" value of $5,700,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 SILVERADO, EL PASO, TEXAS SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ------------------------------------------------------------------------------------------------------------------------------------ Property Name Silverado La Plaza Shadow Ridge Address 9300 Viscount Blvd 9578 Sims Drive 9375 Viscount Blvd City El Paso, Texas El Paso,TX El Paso, TX Sale Date July, 2000 November, 1999 Sale Price ($) $4,150,000 $12,750,000 Net Rentable Area (SF) 191,590 128,669 263,296 Number of Units 248 129 352 Price Per Unit $32,171 $36,222 Year Built 1973 1969 1985 Land Area (Acre) 10.0000 8.7670 7.9526 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 07-2000 0% 11-1999 -5% VALUE AFTER TRANS. ADJUST. ($/UNIT) $32,171 $34,411 Location Comparable 0% Comparable 0% Number of Units 248 129 0% 352 0% Quality / Appeal Good Superior -10% Superior -15% Age / Condition 1973 1969 / Average 0% 1985 / Good -20% Occupancy at Sale 92% 92% 0% 93% 0% Amenities Good Comparable 0% Comparable 0% Average Unit Size (SF) 773 997 -10% 748 0% PHYSICAL ADJUSTMENT -20% -35% FINAL ADJUSTED VALUE ($/UNIT) $25,736 $22,367 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ------------------------------------------------------------------------------------------------------------------------------------ Property Name Spring Park Sand Pebble Celina Address 9535 Acer Avenue 11280 Pebble Hills Drive 8500 Viscount Blvd City El Paso, TX El Paso, TX El Paso, TX Sale Date March, 2002 November, 2002 January, 2001 Sale Price ($) $6,450,000 $4,750,000 $9,150,000 Net Rentable Area (SF) 139,224 165,504 248,005 Number of Units 180 208 289 Price Per Unit $35,833 $22,837 $31,661 Year Built 1995 1983 1974 Land Area (Acre) 9.8900 9.0460 11.6000 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 03-2002 0% 11-2002 0% 01-2001 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $35,833 $22,837 $31,661 Location Comparable 0% Comparable 0% Comparable 0% Number of Units 180 0% 208 0% 289 0% Quality / Appeal Superior -15% Inferior 5% Superior -15% Age / Condition 1995 / Good -30% 1983 / Average -15% 1974 / Average 0% Occupancy at Sale 92% 0% 90% 0% 94% 10% Amenities Comparable 0% Comparable 0% Superior -10% Average Unit Size (SF) 773 5% 796 0% 858 -5% PHYSICAL ADJUSTMENT -40% -10% -20% FINAL ADJUSTED VALUE ($/UNIT) $21,500 $20,553 $25,329
SUMMARY VALUE RANGE (PER UNIT) $20,553 TO $ 25,736 MEAN (PER UNIT) $23,097 MEDIAN (PER UNIT) $22,367 VALUE CONCLUSION (PER UNIT) $23,000
VALUE INDICATED BY SALES COMPARISON APPROACH $5,704,000 ROUNDED $5,700,000
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 SILVERADO, EL PASO, TEXAS NOI PER UNIT COMPARISON
COMPARABLE NO. OF SALE PRICE NOI/ SUBJECT NOI ADJUSTMENT INDICATED NO. UNITS PRICE/UNIT OAR NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT - ---------------------------------------------------------------------------------------------------------------------------------- I-1 129 $ 4,150,000 11.08% $ 459,820 $544,500 0.616 $19,816 $ 32,171 $ 3,564 $ 2,196 I-2 352 $12,750,000 9.06% $1,155,151 $544,500 0.669 $24,234 $ 36,222 $ 3,282 $ 2,196 I-3 180 $ 6,450,000 9.50% $ 612,750 $544,500 0.645 $23,111 $ 35,833 $ 3,404 $ 2,196 I-4 208 $ 4,750,000 12.00% $ 570,000 $544,500 0.801 $18,296 $ 22,837 $ 2,740 $ 2,196 I-5 289 $ 9,150,000 9.80% $ 896,700 $544,500 0.708 $22,404 $ 31,661 $ 3,103 $ 2,196
PRICE/UNIT
Low High Average Median $18,296 $24,234 $21,572 $22,404
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 22,000 ---------- Number of Units 248 ---------- Value Based on NOI Analysis $5,456,000 Rounded $5,500,000
The adjusted sales indicate a range of value between $18,296 and $24,234 per unit, with an average of $21,572 per unit. Based on the subject's competitive position within the improved sales, a value of $22,000 per unit is estimated. This indicates an "as is" market value of $5,500,000 (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 SILVERADO, EL PASO, TEXAS EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON
COMPARABLE NO. OF SALE PRICE EFFECTIVE OPERATING SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM - --------------------------------------------------------------------------------------------------------------------------- I-1 129 $ 4,150,000 $ 799,687 $ 339,867 42.50% 5.19 $ 32,171 I-2 352 $12,750,000 $1,863,146 $ 707,995 38.00% 6.84 $ 36,222 I-3 180 $ 6,450,000 $1,038,559 $ 425,809 41.00% 55.96% 6.21 $ 35,833 I-4 208 $ 4,750,000 $1,096,154 $ 526,154 48.00% 4.33 $ 22,837 I-5 289 $ 9,150,000 $1,472,415 $ 575,715 39.10% 6.21 $ 31,661
EGIM
Low High Average Median 4.33 6.84 5.76 6.21
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 4.00 ---------- Subject EGI $1,377,200 ---------- Value Based on EGIM Analysis $5,508,800 Rounded $5,500,000 Value Per Unit $ 22,177
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 55.96% before reserves. The comparable sales indicate a range of expense ratios from 38.00% to 48.00%, while their EGIMs range from 4.33 to 6.84. Overall, we conclude to an EGIM of 4.00, which results in an "as is" value estimate in the EGIM Analysis of $5,500,000. 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 $5,500,000. Price Per Unit $5,700,000 NOI Per Unit $5,500,000 EGIM Analysis $5,500,000 Sales Comparison Conclusion $5,500,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 SILVERADO, EL PASO, TEXAS 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 SILVERADO, EL PASO, TEXAS 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 - ------------------------------------------------------------------------ 1Br/1Ba - EA10 494 $389 $0.79 90.0% 1Br/1Ba - 1A10 525 $409 $0.78 91.7% 1Br/1Ba - 1A15 754 $469 $0.62 91.7% 1 Br/1Ba- 1B10 684 $459 $0.67 97.5% 1 Br/1.5 Ba - 1B15 878 $519 $0.59 100.0% 2Br/1Ba - 2A10 979 $549 $0.56 85.3% 2 Br/1.5Ba - 2A15 1200 $639 $0.53 75.0% 2 Ba/2 Ba - 2A20 1028 $569 $0.55 93.8% 3Br/2Ba - 3A20 1350 $649 $0.48 100.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 SILVERADO, EL PASO, TEXAS RENT ANALYSIS
COMPARABLE RENTS ------------------------------------------------- R-1 R-2 R-3 R-4 R-5 ------------------------------------------------- Shadow La Plaza Ridge Spring Park Citadel Celina ------------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT ------------------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly Slightly DESCRIPTION TYPE RENT RENT Superior Similar Superior Superior Similar - ---------------------------------------------------------------------------------------------------------------------- Monthly Rent 1Br/1Ba - EA10 $ 389 $ 374 $ 510 $ 470 $ 515 $ 469 $ 520 Unit Area (SF) 494 494 707 536 610 667 644 Monthly Rent Per Sq. Ft. $ 0.79 $ 0.76 $ 0.72 $ 0.88 $ 0.84 $ 0.70 $ 0.81 Monthly Rent 1Br/1Ba -1A10 $ 409 $ 405 Unit Area (SF) 525 525 Monthly Rent Per Sq. Ft. $ 0.78 $ 0.77 Monthly Rent 1Br/1Ba - 1A15 $ 469 $ 455 Unit Area (SF) 754 754 Monthly Rent Per Sq. Ft. $ 0.62 $ 0.60 Monthly Rent 1 Br/1Ba-1B10 $ 459 $ 441 Unit Area (SF) 684 684 Monthly Rent Per Sq. Ft. $ 0.67 $ 0.64 Monthly Rent 1 Br/1.5 Ba - $ 519 $ 490 Unit Area (SF) 1B15 878 878 Monthly Rent Per Sq. Ft. $ 0.59 $ 0.56 Monthly Rent 2Br/1Ba-2A10 $ 549 $ 527 $ 670 $ 640 $ 689 Unit Area (SF) 979 979 1,150 950 1,173 Monthly Rent Per Sq. Ft. $ 0.56 $ 0.54 $ 0.58 $ 0.67 $ 0.59 Monthly Rent 2 Br/1.5Ba - $ 639 $ 618 $ 670 $ 450 $ 650 $ 589 $ 770 Unit Area (SF) 2A15 1,200 1,200 986 895 850 1,140 1,058 Monthly Rent Per Sq. Ft. $ 0.53 $ 0.52 $ 0.68 $ 0.50 $ 0.76 $ 0.52 $ 0.73 Monthly Rent 2 Ba/2 Ba- 2A20 $ 569 $ 543 $ 620 $ 640 Unit Area (SF) 1,028 1,028 1,375 958 Monthly Rent Per Sq. Ft. $ 0.55 $ 0.53 $ 0.45 $ 0.67 Monthly Rent 3Br/2Ba -3A20 $ 649 $ 648 $ 790 $ 775 $ 890 Unit Area (SF) 1,350 1,350 1,100 1,036 1,190 Monthly Rent Per Sq. Ft. $ 0.48 $ 0.48 $ 0.72 $ 0.75 $ 0.75 DESCRIPTION MIN MAX MEDIAN AVERAGE - ---------------------------------------------------------------------- Monthly Rent $ 469 $ 520 $ 510 $ 497 Unit Area (SF) 536 707 644 633 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.88 $ 0.81 $ 0.79 Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent $ 640 $ 689 $ 670 $ 666 Unit Area (SF) 950 1,173 1,150 1,091 Monthly Rent Per Sq. Ft. $ 0.58 $ 0.67 $ 0.59 $ 0.61 Monthly Rent $ 450 $ 770 $ 650 $ 626 Unit Area (SF) 850 1,140 986 986 Monthly Rent Per Sq. Ft. $ 0.50 $ 0.76 $ 0.68 $ 0.64 Monthly Rent $ 620 $ 640 $ 630 $ 630 Unit Area (SF) 958 1,375 1,167 1,167 Monthly Rent Per Sq. Ft. $ 0.45 $ 0.67 $ 0.56 $ 0.56 Monthly Rent $ 775 $ 890 $ 790 $ 818 Unit Area (SF) 1,036 1,190 1,100 1,109 Monthly Rent Per Sq. Ft. $ 0.72 $ 0.75 $ 0.75 $ 0.74
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: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 SILVERADO, EL PASO, TEXAS GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area ------------------------ Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income - --------------------------------------------------------------------------------------------------------- 1Br/1Ba - EA10 20 494 $390 $0.79 $ 7,800 $ 93,600 1Br/1Ba -1A10 60 525 $410 $0.78 $ 24,600 $ 295,200 1Br/1Ba - 1A15 36 754 $470 $0.62 $ 16,920 $ 203,040 1 Br/1Ba-1B10 40 684 $460 $0.67 $ 18,400 $ 220,800 1 Br/1.5 Ba -1B15 8 878 $520 $0.59 $ 4,160 $ 49,920 2Br/1Ba-2A10 34 979 $550 $0.56 $ 18,700 $ 224,400 2 Br/1.5Ba -2A15 12 1,200 $640 $0.53 $ 7,680 $ 92,160 2 Ba/2 Ba- 2A20 32 1,028 $570 $0.55 $ 18,240 $ 218,880 3Br/2Ba -3A20 6 1,350 $650 $0.48 $ 3,900 $ 46,800 Total $120,400 $1,444,800
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 SILVERADO, EL PASO, TEXAS 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 $1,491,269 $ 6,013 $1,476,921 $ 5,955 $ 852,917 $ 3,439 Vacancy $ 139,458 $ 562 $ 95,923 $ 387 $ 36,863 $ 149 Credit Loss/Concessions $ 84,244 $ 340 $ 84,395 $ 340 $ 28,085 $ 113 --------------------------------------------------------------------------- Subtotal $ 223,702 $ 902 $ 180,318 $ 727 $ 64,948 $ 262 Laundry Income $ 1,193 $ 5 $ 15,182 $ 61 $ 8,919 $ 36 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 63,816 $ 257 $ 47,717 $ 192 $ 51,927 $ 209 --------------------------------------------------------------------------- Subtotal Other Income $ 65,009 $ 262 $ 62,899 $ 254 $ 60,846 $ 245 --------------------------------------------------------------------------- Effective Gross Income $1,332,576 $ 5,373 $1,359,502 $ 5,482 $ 848,815 $ 3,423 Operating Expenses Taxes $ 94,570 $ 381 $ 183,619 $ 740 $ 114,387 $ 461 Insurance $ 20,671 $ 83 $ 32,165 $ 130 $ 26,338 $ 106 Utilities $ 120,016 $ 484 $ 111,019 $ 448 $ 75,172 $ 303 Repair & Maintenance $ 88,317 $ 356 $ 77,068 $ 311 $ 58,713 $ 237 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 37,102 $ 150 $ 41,643 $ 168 $ 31,116 $ 125 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 25,873 $ 104 $ 26,001 $ 105 $ 12,912 $ 52 General Administrative $ 223,100 $ 900 $ 225,792 $ 910 $ 118,363 $ 477 Management $ 70,006 $ 282 $ 75,888 $ 306 $ 42,373 $ 171 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------- Total Operating Expenses $ 679,655 $ 2,741 $ 773,195 $ 3,118 $ 479,374 $ 1,933 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------- Net Income $ 652,921 $ 2,633 $ 586,307 $ 2,364 $ 369,441 $ 1,490 FISCAL YEAR 2003 ANNUALIZED 2003 ----------------------- ----------------------- MANAGEMENT BUDGET PROJECTION AAA PROJECTION -------------------------------------------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % - ----------------------------------------------------------------------------------------------------------------- Revenues Rental Income $1,431,500 $ 5,772 $1,412,316 $ 5,695 $1,444,800 $ 5,826 100.0% Vacancy $ 54,000 $ 218 $ 131,420 $ 530 $ 115,584 $ 466 8.0% Credit Loss/Concessions $ 36,000 $ 145 $ 2,424 $ 10 $ 28,896 $ 117 2.0% ------------------------------------------------------------------------------------- Subtotal $ 90,000 $ 363 $ 133,844 $ 540 $ 144,480 $ 583 10.0% Laundry Income $ 19,872 $ 80 $ 15,300 $ 62 $ 14,880 $ 60 1.0% Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 80,400 $ 324 $ 104,620 $ 422 $ 62,000 $ 250 4.3% ------------------------------------------------------------------------------------- Subtotal Other Income $ 100,272 $ 404 $ 119,920 $ 484 $ 76,880 $ 310 5.3% ------------------------------------------------------------------------------------- Effective Gross Income $1,441,772 $ 5,814 $1,398,392 $ 5,639 $1,377,200 $ 5,553 100.0% Operating Expenses Taxes $ 146,936 $ 592 $ 146,940 $ 593 $ 145,080 $ 585 10.5% Insurance $ 46,017 $ 186 $ 47,960 $ 193 $ 29,760 $ 120 2.2% Utilities $ 107,148 $ 432 $ 129,860 $ 524 $ 111,600 $ 450 8.1% Repair & Maintenance $ 98,160 $ 396 $ 102,868 $ 415 $ 99,200 $ 400 7.2% Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Landscaping $ 42,000 $ 169 $ 90,188 $ 364 $ 43,400 $ 175 3.2% Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 20,688 $ 83 $ 21,744 $ 88 $ 24,800 $ 100 1.8% General Administrative $ 208,804 $ 842 $ 242,196 $ 977 $ 248,000 $ 1,000 18.0% Management $ 67,200 $ 271 $ 85,528 $ 345 $ 68,860 $ 278 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% ------------------------------------------------------------------------------------- Total Operating Expenses $ 736,953 $ 2,972 $ 867,284 $ 3,497 $ 770,700 $ 3,108 56.0% Reserves $ 0 $ 0 $ 0 $ 0 $ 62,000 $ 250 8.0% ------------------------------------------------------------------------------------- Net Income $ 704,819 $ 2,842 $ 531,108 $ 2,142 $ 544,500 $ 2,196 39.5%
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 10% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 SILVERADO, EL PASO, TEXAS 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 $250 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 $250 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 SILVERADO, EL PASO, TEXAS SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - ---------------------------------------------------------- I-1 Jul-00 92% $32,171 11.08% I-2 Nov-99 93% $36,222 9.06% I-3 Mar-02 92% $35,833 9.50% I-4 Nov-02 90% $22,837 12.00% I-5 Jan-01 94% $31,661 9.80% High 12.00% Low 9.06% Average 10.29%
Based on this information, we have concluded the subject's overall capitalization rate should be 10.00%. 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 11.00%. 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 12.50%. 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 12.50% indicates a value of $5,600,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 SILVERADO, EL PASO, TEXAS approximately 36% 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 SILVERADO, EL PASO, TEXAS DISCOUNTED CASH FLOW ANALYSIS SILVERADO
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 - ------------------------------------------------------------------------------------------------------------------------ REVENUE Base Rent $1,444,800 $1,488,144 $1,532,788 $1,578,772 $1,626,135 $1,674,919 Vacancy $ 115,584 $ 119,052 $ 122,623 $ 126,302 $ 130,091 $ 133,994 Credit Loss $ 28,896 $ 29,763 $ 30,656 $ 31,575 $ 32,523 $ 33,498 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- Subtotal $ 144,480 $ 148,814 $ 153,279 $ 157,877 $ 162,614 $ 167,492 Laundry Income $ 14,880 $ 15,326 $ 15,786 $ 16,260 $ 16,748 $ 17,250 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 62,000 $ 63,860 $ 65,776 $ 67,749 $ 69,782 $ 71,875 -------------------------------------------------------------------------------- Subtotal Other Income $ 76,880 $ 79,186 $ 81,562 $ 84,009 $ 86,529 $ 89,125 -------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $1,377,200 $1,418,516 $1,461,071 $1,504,904 $1,550,051 $1,596,552 OPERATING EXPENSES: Taxes $ 145,080 $ 149,432 $ 153,915 $ 158,533 $ 163,289 $ 168,187 Insurance $ 29,760 $ 30,653 $ 31,572 $ 32,520 $ 33,495 $ 34,500 Utilities $ 111,600 $ 114,948 $ 118,396 $ 121,948 $ 125,607 $ 129,375 Repair & Maintenance $ 99,200 $ 102,176 $ 105,241 $ 108,399 $ 111,650 $ 115,000 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 43,400 $ 44,702 $ 46,043 $ 47,424 $ 48,847 $ 50,312 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 24,800 $ 25,544 $ 26,310 $ 27,100 $ 27,913 $ 28,750 General Administrative $ 248,000 $ 255,440 $ 263,103 $ 270,996 $ 279,126 $ 287,500 Management $ 68,860 $ 70,926 $ 73,054 $ 75,245 $ 77,503 $ 79,828 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 770,700 $ 793,821 $ 817,636 $ 842,165 $ 867,430 $ 893,453 Reserves $ 62,000 $ 63,860 $ 65,776 $ 67,749 $ 69,782 $ 71,875 -------------------------------------------------------------------------------- NET OPERATING INCOME $ 544,500 $ 560,835 $ 577,660 $ 594,990 $ 612,840 $ 631,225 Operating Expense Ratio (% of EGI) 56.0% 56.0% 56.0% 56.0% 56.0% 56.0% Operating Expense Per Unit $ 3,108 $ 3,201 $ 3,297 $ 3,396 $ 3,498 $ 3,603 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 - ---------------------------------------------------------------------------------------------------------- REVENUE Base Rent $1,725,167 $1,776,922 $1,830,229 $1,885,136 $1,941,690 Vacancy $ 138,013 $ 142,154 $ 146,418 $ 150,811 $ 155,335 Credit Loss $ 34,503 $ 35,538 $ 36,605 $ 37,703 $ 38,834 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ Subtotal $ 172,517 $ 177,692 $ 183,023 $ 188,514 $ 194,169 Laundry Income $ 17,767 $ 18,301 $ 18,850 $ 19,415 $ 19,997 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 74,031 $ 76,252 $ 78,540 $ 80,896 $ 83,323 ------------------------------------------------------------------ Subtotal Other Income $ 91,799 $ 94,553 $ 97,389 $ 100,311 $ 103,320 ------------------------------------------------------------------ EFFECTIVE GROSS INCOME $1,644,449 $1,693,782 $1,744,596 $1,796,934 $1,850,842 OPERATING EXPENSES: Taxes $ 173,233 $ 178,430 $ 183,783 $ 189,296 $ 194,975 Insurance $ 35,535 $ 36,601 $ 37,699 $ 38,830 $ 39,995 Utilities $ 133,256 $ 137,254 $ 141,372 $ 145,613 $ 149,981 Repair & Maintenance $ 118,450 $ 122,003 $ 125,664 $ 129,433 $ 133,317 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 51,822 $ 53,377 $ 54,978 $ 56,627 $ 58,326 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 29,612 $ 30,501 $ 31,416 $ 32,358 $ 33,329 General Administrative $ 296,125 $ 305,009 $ 314,159 $ 323,584 $ 333,291 Management $ 82,222 $ 84,689 $ 87,230 $ 89,847 $ 92,542 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ TOTAL OPERATING EXPENSES $ 920,256 $ 947,864 $ 976,300 $1,005,589 $1,035,756 Reserves $ 74,031 $ 76,252 $ 78,540 $ 80,896 $ 83,323 ------------------------------------------------------------------ NET OPERATING INCOME $ 650,161 $ 669,666 $ 689,756 $ 710,449 $ 731,762 Operating Expense Ratio (% of EGI) 56.0% 56.0% 56.0% 56.0% 56.0% Operating Expense Per Unit $ 3,711 $ 3,822 $ 3,937 $ 4,055 $ 4,176
Gross Residual Sale Deferred Price $6,652,386 Maintenance $ 0 Estimated Stabilized NOI $544,500 Sales Expense Rate 2.00% Less: Sales Expense $ 133,048 Add: Excess Land $ 0 ---------- Months to Stabilized 1 Discount Rate 12.50% Net Residual Sale Price $6,519,338 Other Adjustments $ 0 ---------- Stabilized Occupancy 92.0% Terminal Cap Rate 11.00% PV of Reversion $2,007,605 Value Indicated Add: NPV of NOI $3,559,848 By "DCF" $5,567,453 ---------- PV Total $5,567,453 Rounded $5,600,000
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ----------------------------------------------------------------------- TOTAL VALUE 12.00% 12.25% 12.50% 12.75% 13.00% - ------------------------------------------------------------------------------------------------------ 10.50% $5,841,506 $5,751,324 $5,663,053 $5,576,646 $5,492,056 10.75% $5,790,366 $5,701,312 $5,614,142 $5,528,808 $5,445,266 TERMINAL CAP RATE 11.00% $5,741,551 $5,653,573 $5,567,453 $5,483,145 $5,400,603 11.25% $5,694,905 $5,607,956 $5,522,840 $5,439,510 $5,357,925 11.50% $5,650,288 $5,564,323 $5,480,166 $5,397,774 $5,317,102
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 SILVERADO, EL PASO, TEXAS 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 Concessions have historically not been utilized at the subject property or in the subject's market. Therefore, no adjustment was included for concessions. 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 10.00% 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 SILVERADO, EL PASO, TEXAS SILVERADO
TOTAL PER SQ. FT. PER UNIT %OF EGI - ------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $1,444,800 $ 7.54 $ 5,826 Less: Vacancy & Collection Loss 10.00% $ 144,480 $ 0.75 $ 583 Plus: Other Income Laundry Income $ 14,880 $ 0.08 $ 60 1.08% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 62,000 $ 0.32 $ 250 4.50% --------------------------------------------------- Subtotal Other Income $ 76,880 $ 0.40 $ 310 5.58% EFFECTIVE GROSS INCOME $1,377,200 $ 7.19 $ 5,553 OPERATING EXPENSES: Taxes $ 145,080 $ 0.76 $ 585 10.53% Insurance $ 29,760 $ 0.16 $ 120 2.16% Utilities $ 111,600 $ 0.58 $ 450 8.10% Repair & Maintenance $ 99,200 $ 0.52 $ 400 7.20% Cleaning $ 0 $ 0.00 $ 0 0.00% Landscaping $ 43,400 $ 0.23 $ 175 3.15% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 24,800 $ 0.13 $ 100 1.80% General Administrative $ 248,000 $ 1.29 $ 1,000 18.01% Management 5.00% $ 68,860 $ 0.36 $ 278 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 770,700 $ 4.02 $ 3,108 55.96% Reserves $ 62,000 $ 0.32 $ 250 4.50% --------------------------------------------------- NET OPERATING INCOME $ 544,500 $ 2.84 $ 2,196 39.54% "GOING IN" CAPITALIZATION RATE 10.00% VALUE INDICATION $5,445,000 $ 28.42 $ 21,956 "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $5,445,000 ROUNDED $5,400,000 $ 28.19 $ 21,774
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37 SILVERADO, EL PASO, TEXAS DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - ----------------------------------------------------- 9.25% $5,886,486 $5,900,000 $23,790 $30.79 9.50% $5,731,579 $5,700,000 $22,984 $29.75 9.75% $5,584,615 $5,600,000 $22,581 $29.23 10.00% $5,445,000 $5,400,000 $21,774 $28.19 10.25% $5,312,195 $5,300,000 $21,371 $27.66 10.50% $5,185,714 $5,200,000 $20,968 $27.14 10.75% $5,065,116 $5,100,000 $20,565 $26.62
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $5,400,000. 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 $5,600,000 Direct Capitalization Method $5,400,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $5,600,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 SILVERADO, EL PASO, TEXAS 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 $5,500,000 Income Approach $5,600,000 Reconciled Value $5,600,000
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 11, 2003 the market value of the fee simple estate in the property is: $5,600,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA SILVERADO, EL PASO, TEXAS ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A SILVERADO, EL PASO, TEXAS EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A SILVERADO, EL PASO, TEXAS SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] UNIT TYPE FACADE UNIT TYPE [PICTURE] [PICTURE] BEDROOM DINING AREA [PICTURE] [PICTURE] KITCHEN AREA LIVING ROOM AREA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A SILVERADO, EL PASO, TEXAS SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] POOL FITNESS CENTER [PICTURE] [PICTURE] LAUNDRY ROOM PARKING [PICTURE] [PICTURE] VISCOUNT BLVD - NORTH VISCOUNT BLVD -SOUTH AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B SILVERADO, EL PASO, TEXAS EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B SILVERADO, EL PASO, TEXAS PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 LA PLAZA SHADOW RIDGE SPRING PARK 9578 Sims Drive 9375 Viscount Blvd 9535 Acer Avenue El Paso,TX El Paso, TX El Paso, TX [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 SAND PEBBLE CELINA 11280 Pebble Hills Drive 8500 Viscount Blvd El Paso, TX El Paso, TX [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B SILVERADO, EL PASO, TEXAS SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R- 1 - ------------------------------------------------------------------------------------------------------------------------- Property Name Silverado La Plaza Management Company AIMCO The Lynd Company LOCATION: Address 9300 Viscount Blvd 9578 Sims Drive City, State El Paso, Texas El Paso, TX County EL Paso El Paso Proximity to Subject one mile southeast of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 191,590 128,669 Year Built 1973 1969 Effective Age 25 20 Building Structure Type Brick & wood siding walls; asphalt Brick & wood siding walls; asphalt shingle roof shingle roof Parking Type (Gr., Cov., etc.) Open Open, Covered Number of Units 248 129 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. Rent 1 1 Br/1Ba-EA10 494 20 $389 1 1Br/1Ba 707 29 $510 2 1 Br/1Ba-1A10 525 60 $409 7 2Br/1Ba 986 50 $670 3 1 Br/1Ba-1A15 754 36 $469 6 2Br/1.5 Ba 1,150 35 $670 4 1 Br/1Ba-1B10 684 40 $459 8 2Br/2Ba 1,375 15 $620 5 1 Br/1.5 Ba-1B15 878 8 $519 6 2 Br/1Ba-2A10 979 34 $549 7 2 Br/1.5Ba-2A15 1,200 12 $639 8 2 Ba/2 Ba-2A20 1,028 32 $569 9 3 Br/2Ba-3A20 1,350 6 $649 Average Unit Size (SF) 773 1,013 Unit Breakdown: Efficiency 0% 2-Bedroom 31% Efficiency 0% 2-Bedroom 78% 1-Bedroom 66% 3-Bedroom 3% 1-Bedroom 22% 3-Bedroom 0% CONDITION: Good slightly APPEAL: Average Superior AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connection Balcony W/D Connection X Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall Tennis Court X Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track Business Office X Gym Room X Gym Room OCCUPANCY: 92% 99% LEASING DATA: Available Leasing Terms 12 months 12 months Concessions 1 month 1 month Pet Deposit $150 $150 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation Elda Caro/Property Manager Aeriel Romero/Assistant Manager Telephone Number 915.591.6626 915.598.5477 NOTES: None COMPARISON TO SUBJECT: Slightly Superior COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 - ------------------------------------------------------------------------------------------------------------------------- Property Name Shadow Ridge Spring Park Management Company Case & Associates BH Management Services LOCATION: Address 9375 Viscount Blvd 9535 Acer Avenue City, State El Paso, TX El Paso, TX County El Paso EL Paso Proximity to Subject less than 0.20 miles southeast Approx. 0.50 miles southeast of the subject of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 263,296 139,224 Year Built 1985 1995 Effective Age 18 8 Building Structure Type Brick & wood siding walls; asphalt Brick & wood siding walls; asphalt shingle roof shingle roof Parking Type Open Open (Gr., Cov., etc.) Number of Units 352 180 Unit Mix: Type Unit Qty Mo Type Unit Qty Mo 1 1 Br/1Ba 536 80 $470 1 1Br/1Ba 610 60 $515 7 2 Br/1/Ba 895 100 $450 7 2Br/1Ba 850 80 $650 6 2 Br/1.5Ba 950 60 $640 9 3Br/2Ba 1,036 40 $775 8 2 Br/2Ba 958 60 $640 9 3 Br/2Ba 1,100 52 $790 Average Unit Size (SF) 864 811 Unit Breakdown: Efficiency 0% 2-Bedroom 63% Efficiency 0% 2-Bedroom 44% 1-Bedroom 23% 3-Bedroom 14% 1-Bedroom 33% 3-Bedroom 23% CONDITION: Good Good APPEAL: Average Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony X W/D Connect. X Balcony X W/D Connection X Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall X Sand Volley Ball X Meeting Hall Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 92% 92% LEASING DATA: Available Leasing Terms 12 months 12 months Concessions 1 month 1 month Pet Deposit $150 $150 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation Sergio Valdez/Assistant Manager Lilia Anaya/Property Manager Telephone Number 915.593.5250 915.594.7411 NOTES: None None COMPARISON TO SUBJECT: Similar Slightly Superior COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 - ------------------------------------------------------------------------------------------------------------------------- Property Name Citadel Celina Management Company AIMCO The Lynd Company LOCATION: Address 9455 Viscount Blvd 8500 Viscount Blvd City, State El Paso, TX El Paso, TX County EL Paso El Paso Proximity to Subject Approx. 0.40 miles southeast of the subject Approx. 0.60 miles northwest of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 263,888 248,005 Year Built 1973 1974 Effective Age 15 18 Building Structure Type Brick & wood siding walls; asphalt Brick & wood siding walls; asphalt shingle roof shingle roof Parking Type Open/Covered Open (Gr., Cov., etc.) Number of Units 261 289 Unit Mix: Type Unit Qty Mo Type Unit Qty Mo 1 1 Br/1Ba 667 94 $ 469 1 1 Br/1Ba 644 119 $520 7 2 Br/2Ba 1,140 98 $ 589 7 2 Br/2Ba 1,058 120 $770 6 2 Br/1.5Ba 1,173 59 $ 689 9 3 Br/2Ba 1,190 50 $890 3Ba/2.5Ba 1,640 8 $ 909 4Br/2.5Ba 1,840 2 $1,090 Average Unit Size (SF) 998 910 Unit Breakdown: Efficiency 0% 2-Bedroom 60% Efficiency 0% 2-Bedroom 42% 1-Bedroom 36% 3-Bedroom 4% 1-Bedroom 41% 3-Bedroom 17% CONDITION: Good Good APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling X Attach. Garage Vaulted Ceiling X Balcony W/D Connection X Balcony X W/D Connection X Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball X Meeting Hall Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track Business Office X Gym Room X Gym Room OCCUPANCY: 96% 94% LEASING DATA: Available Leasing Terms 12 months 12 months Concessions 1 month 1 month Pet Deposit $150 $150 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation Mary Myers/Property Manager Denisse Valdez/Assistant Manager Telephone Number 915.591.3396 915.779.3741 NOTES: None None COMPARISON TO SUBJECT: Superior Similar
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B SILVERADO, EL PASO, TEXAS PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 LA PLAZA SHADOW RIDGE SPRING PARK 9578 Sims Drive 9375 Viscount Blvd 9535 Acer Avenue El Paso, TX El Paso, TX El Paso, TX [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 CITADEL CELINA 9455 Viscount Blvd 8500 Viscount Blvd El Paso, TX El Paso, TX [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C SILVERADO, EL PASO, TEXAS EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C SILVERADO, EL PASO, TEXAS 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 SILVERADO, EL PASO, TEXAS 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 SILVERADO, EL PASO, TEXAS 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 SILVERADO, EL PASO, TEXAS 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. Daniel Salcedo 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 Texas State Certified General Real Estate Appraiser #TX-1323954-G AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E SILVERADO, EL PASO, TEXAS EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E SILVERADO, EL PASO, TEXAS 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 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E SILVERADO, EL PASO, TEXAS STATE CERTIFICATIONS State of Arizona, 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 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. SILVERADO, EL PASO, TEXAS GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. SILVERADO, EL PASO, TEXAS 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. EX-99.(C)(9) 14 d07253exv99wxcyx9y.txt APPRAISAL OF STERLING APARTMENT HOMES STERLING APARTMENT HOMES & STERLING COMMERCE CENTER 1815 JOHN F. KENNEDY BOULEVARD PHILADELPHIA, PENNSYLVANIA MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 13, 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] JULY 21, 2003 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: STERLING APARTMENT HOMES & STERLING COMMERCE CENTER 1815 JOHN F. KENNEDY BOULEVARD PHILADELPHIA, PHILADELPHIA COUNTY, PENNSYLVANIA 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 536 units with a total of 486,553 square feet of rentable area. The attached commerce center contains 109,992 square feet of retail and office space. The improvements were built in 1960. The improvements are situated on 0.89091 acres. Overall, the improvements are in good condition. As of the date of this appraisal, the subject property is 91% occupied and the commerce center is approximately 54% 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. AMERICAN APPRAISAL ASSOCIATES, INC. LETTER OF TRANSMITTAL PAGE 2 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA 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. 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 13, 2003 is: ($68,700,000) This value is allocated between the two uses as follows: Sterling Apartment Homes: $65,500,000 Sterling Commerce Center: $ 3,200,000 Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Frank Fehribach ------------------- July 21, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group State of Pennsylvania Certified General Appraiser #GA003334 Report By: Richard Mupo AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary ......................................................... 4 Introduction .............................................................. 11 Area Analysis ............................................................. 13 Market Analysis ........................................................... 16 Site Analysis ............................................................. 18 Improvement Analysis ...................................................... 18 Highest and Best Use ...................................................... 19 VALUATION Valuation Procedure ....................................................... 20 Sales Comparison Approach ................................................. 22 Income Capitalization Approach ............................................ 28 Reconciliation and Conclusion ............................................. 48 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 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Sterling Apartment Homes&Sterling Commerce Center LOCATION: 1815 John F. Kennedy Boulevard Philadelphia, Pennsylvania 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 13, 2003 DATE OF REPORT: July 21, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 0.89091 acres, or 38,808 square feet Assessor Parcel No.: 881035000 Floodplain: Community Panel No. #420757-183F (August 2, 1996) Flood Zone X, an area outside the floodplain. Zoning: C5 (Multi-Story Office District) BUILDING: Apartments: No. of Units: 536 Units Total NRA: 486,553 Square Feet Average Unit Size: 908 Square Feet Apartment Density: 601.6 units per acre Year Built: 1960 Commerce Center: Office Area: 85,970 Square Feet Retail Area: 24,022 Square Feet Total Area: 109,992 Square Feet AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ---------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income - --------- ------ -------- ------ -------- ---------- EA10 412 $ 899 $ 2.18 $ 28,768 $ 345,216 EB10 495 $ 949 $ 1.92 $130,013 $1,560,156 1A10 550 $ 1,149 $ 2.09 $ 55,152 $ 661,824 1B10 803 $ 1,379 $ 1.72 $140,658 $1,687,896 1C10 920 $ 1,509 $ 1.64 $ 31,689 $ 380,268 2A20 1,315 $ 1,759 $ 1.34 $218,116 $2,617,392 2B20 1,425 $ 2,109 $ 1.48 $ 67,488 $ 809,856 2C20 1,794 $ 2,449 $ 1.37 $ 12,245 $ 146,940 3A20 1,631 $ 2,229 $ 1.37 $ 53,496 $ 641,952 3B20 1,778 $ 2,359 $ 1.33 $ 18,872 $ 226,464 3C20 2,215 $ 2,499 $ 1.13 $ 4,998 $ 59,976 4A30 2,500 $ 2,459 $ 0.98 $ 2,459 $ 29,508 -------- ---------- Total $763,954 $9,167,448
OCCUPANCY: APARTMENTS: 91% COMMERCE CENTER: 69% (44.4% Office, 88.8% Retail) ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 7 Years REMAINING ECONOMIC LIFE: 38 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - FRONT OF BUILDING EXTERIOR - REAR OF BUILDING AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA AREA MAP [MAP] NEIGHBORHOOD MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA 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 8 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
Amount $/Unit ---------- --------------- DIRECT CAPITALIZATION - APARTMENTS Potential Rental Income $9,167,448 $ 17,103 Effective Gross Income $8,939,001 $ 16,677 Operating Expenses $3,617,390 $ 6,749 40.5% of EGI Net Operating Income: $5,214,411 $ 9,728 Capitalization Rate 8.00% DIRECT CAPITALIZATION VALUE $64,900,000 * $121,082 / UNIT DISCOUNTED CASH FLOW ANALYSIS - APARTMENTS: Holding Period 10 years 2002 Economic Vacancy 10% Stabilized Vacancy & Collection Loss: 6% Lease-up / Stabilization Period 24 months Terminal Capitalization Rate 8.50% Discount Rate 10.50% Selling Costs 2.00% Growth Rates: Income: 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $63,900,000 * $119,216 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $64,500,000 $120,336 / UNIT DISCOUNTED CASH FLOW ANALYSIS - COMMERCE CENTER: Holding Period 10 years 2002 Economic Vacancy 31% Stabilized Vacancy & Collection Loss: 12% Lease-up / Stabilization Period 24 months Terminal Capitalization Rate 9.00% Discount Rate 11.50% Selling Costs 2.00% Growth Rates: Income: 0% in Yr. 2, 3.00% thereafter Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $3,200,000 * $29.09 / SF RECONCILED INCOME APPROACH VALUE $3,200,000 $29.09 / SF
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 9 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $81,984 to $116,175 Range of Sales $/Unit (Adjusted) $116,175 to $125,071 VALUE INDICATION - PRICE PER UNIT $64,000,000 * $119,403 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 5.65 to 9.27 Selected EGIM for Subject 7.50 Subject's Projected EGI $8,939,001 EGIM ANALYSIS CONCLUSION $66,800,000 * $124,627 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $66,700,000 * $124,440 / UNIT RECONCILED SALES COMPARISON VALUE $66,000,000 $123,134 / 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 10 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA PART THREE - SUMMARY OF VALUE CONCLUSIONS STERLING APARTMENT HOMES: SALES COMPARISON APPROACH: Price Per Unit $64,000,000 NOI Per Unit $66,700,000 EGIM Multiplier $66,800,000 INDICATED VALUE BY SALES COMPARISON $66,000,000 $123,134 / UNIT INCOME APPROACH: Direct Capitalization Method: $64,900,000 Discounted Cash Flow Method: $63,900,000 INDICATED VALUE BY INCOME APPROACH $64,500,000 $120,336 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $65,500,000 $122,201 / UNIT STERLING COMMERCE CENTER: INCOME APPROACH: Discounted Cash Flow Method: $ 3,200,000 INDICATED VALUE BY INCOME APPROACH $ 3,200,000 $ 29.09 / SF RECONCILED OVERALL VALUE CONCLUSION: $ 3,200,000 $ 29.09 / SF COMBINED SUBJECT VALUE: $68,700,000
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 11 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 1815 John F. Kennedy Boulevard, Philadelphia, Philadelphia County, Pennsylvania. Philadelphia identifies it as 881035000. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Richard Mupo on May 13, 2003. Frank Fehribach, MAI has not made a personal inspection of the subject property. Richard Mupo performed the research, valuation analysis and wrote the report. Frank Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach, MAI and Richard Mupo 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 13, 2003. The date of the report is July 21, 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 & Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 12 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA 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 CCIP. 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 13 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA 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 Philadelphia, Pennsylvania. Overall, the neighborhood is characterized as an urban setting with the predominant land use being office. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Juniper Street West - Scuykill River South - Walnut Street North - I-676 MAJOR EMPLOYERS Major employers in the subject's area include City of Philadelphia, University of Pennsylvania, Mellon Financial to name a few. 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 14 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA NEIGHBORHOOD DEMOGRAPHICS
AREA ---------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - --------------------------- ------------ ------------ ------------ ---------- POPULATION TRENDS Current Population 62,254 443,430 902,902 5,117,235 5-Year Population 64,020 428,220 869,767 5,176,062 % Change CY-5Y 2.8% -3.4% -3.7% 1.1% Annual Change CY-5Y 0.6% -0.7% -0.7% 0.2% HOUSEHOLDS Current Households 36,383 183,977 349,056 1,932,596 5-Year Projected Households 37,874 181,697 342,081 1,983,369 % Change CY - 5Y 4.1% -1.2% -2.0% 2.6% Annual Change CY-5Y 0.8% -0.2% -0.4% 0.5% INCOME TRENDS Median Household Income $ 30,555 $ 23,464 $ 23,910 $ 52,124 Per Capita Income $ 32,346 $ 16,628 $ 14,731 $ 24,601 Average Household Income $ 55,407 $ 40,091 $ 38,085 $ 65,140
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 60.85% 44.10% 40.08% 27.89% 5-Year Projected % Renting 59.92% 44.74% 41.19% 27.84% % of Households Owning 23.06% 37.82% 44.08% 64.86% 5-Year Projected % Owning 24.76% 37.31% 43.04% 65.19%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 15 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Municipal Parking Lot South - Office Building East - Municipal Parking Lot West - Residential Apartment Building CONCLUSIONS The subject is well located within the city of Philadelphia. The neighborhood is characterized as being mostly urban in nature and is currently in the stable 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 16 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA MARKET ANALYSIS The subject property is located in the city of Philadelphia in Philadelphia County. The overall pace of development in the subject's market is more or less decreasing. There are no new significant projects recently completed within Center City. Over 790 units were delivered to the market in 2002. The greater Philadelphia area delivered 280 units during the first quarter of 2003. This figure is down significantly from the prior year. Overall, delivery of new units has slowed over the past year. The following table illustrates historical vacancy rates for the subject's apartment market. HISTORICAL VACANCY RATE
Period Region Submarket - ---------------------------------------- 1Q03 3.8% 5.6% 4Q02 3.3% 5.8% 1-Year Annualized 2.9% 4.4% 3-Year annualized 2.5% 2.9%
Source: REIS Occupancy trends in the subject's market are stable. Historically speaking, the subject's submarket has underperformed the overall market. Occupancy has been on a general decline since 2000 due to weakening economic conditions. As Downtown Philadelphia's office market and economy improves, demand for local residential units will likely increase. As noted above, Center City's occupancy rate slightly underperforms as compared to the Greater Philadelphia market. Market rents in the subject's market have been following a stable trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change - -------------------------------------------------------- 3Q02 N/A - $1,308 - 4Q02 N/A N/A $1,317 0.7% 1Q03 N/A N/A $1,325 0.6%
Source: Reis The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 17 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject - ------------------------------------------------------------------------------------ R-1 The Lofts at 1835 Arch 192 98% 2001 1 Block to the North R-2 Park Towne Place 980 95% 1959 3/4 Mile to the NE R-3 1500 Locust 610 92% Appr. 1990 1/4 Mile to the SE R-4 Locust on The Park 152 95% Appr. 1990 1/2 Mile to the SW Subject Sterling Apartment Homes 536 91% 1960
Effective rents have remained relatively stable since mid-2002 and are projected to remain stagnant for the foreseeable future. According to Reis, rent growth over the next five years will be light, estimated at roughly 2.8% growth per annum. Concerning the downtown office and retail market, NAI Geis Realty Group, Inc. reports that the Class A occupancy rate within the Philadelphia central business district is 87%, while the occupancy rate for Class B space is 85%. The average Class A rental rate is $27.00 per square foot and the average Class B rental rate is $19.00 per square foot. The downtown retail market reports an occupancy rate of 93% with an average rental rate of $25.00 per square foot. Growth rates over the next five years should be similar to those of the apartment market, or generally in the 2.0% to 4.0% range. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 18 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 0.89091 acres, or 38,808 square feet Shape Rectangular Topography Level Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Good Flood Zone: Community Panel #420757-183F, dated August 2, 1996 Flood Zone Zone X Zoning C5, the subject improvements represent a legal conforming use of the site. REAL ESTATE TAXES
ASSESSED VALUE - 2002 ---------------------------------- TAX RATE/ PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES - ---------------------------------------------------------------------- 881035000 $2,500,000 $5,894,304 $8,394,304 0.08264 $693,705
IMPROVEMENT ANALYSIS Year Built 1960 Number of Units 536 Net Rentable Area 486,553 Square Feet - Apartment Space 109,992 Square Feet - Office & Retail Space 596,545 Square feet - Total Construction: Foundation Steel or concrete piles Frame Composite concrete or brick and steel Exterior Walls Brick or masonry Roof Built-up asphalt with or without gravel over a steel beams structure Project Amenities Amenities at the subject include a swimming pool, gym room, business office, security, and parking area. Unit Amenities Individual unit amenities include a cable TV connection, and washer dryer connection. Appliances available in each AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 19 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA unit include a refrigerator, stove, microwave dishwasher, garbage disposal, washer/dryer, and oven. Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - ------------------------------------- EA10 32 412 EB10 137 495 1A10 48 550 1B10 102 803 1C10 21 920 2A20 124 1,315 2B20 32 1,425 2C20 5 1,794 3A20 24 1,631 3B20 8 1,778 3C20 2 2,215 4A30 1 2,500
Overall Condition Good Effective Age 7 years Economic Life 45 years Remaining Economic Life 38 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 1960 and consist of a 536-unit multifamily with office and retail project. The highest and best use as improved is for a continued multifamily with office and retail 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 20 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA 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 21 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA 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 22 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA 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 23 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ------------------------------ -------------------------- ------------------------------ --------------------------------- Property Name Sterling Apartment Homes Presidential City Apts Cedarbrook Hill LOCATION: Address 1815 John F. Kennedy 3900 City Line Avenue 8460 Limekiln Pike Boulevard City, State Philadelphia, Pennsylvania Philadelphia, Pennsylvania Wyncote, Pennsylvania County Philadelphia Philadelphia Montgomery PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 486,553 1,044,824 1,187,200 Year Built 1960 1951 1963 Number of Units 536 988 896 Unit Mix: Type Total Type Total Type Total EA10 32 Studio 200 1Br/1Ba 323 EB10 137 1Br/1Ba 300 2Br/2Ba 527 1A10 48 2Br/2Ba 300 3Br/2Ba 46 1B10 102 3Br/2Ba 188 1C10 21 2A20 124 2B20 32 2C20 5 3A20 24 3B20 8 3C20 2 4A30 1 Average Unit Size (SF) 908 1,058 1,325 Land Area (Acre) 0.8909 2.6500 41.0000 Density (Units/Acre) 601.6 372.8 21.9 Parking Ratio (Spaces/Unit) 0.37 1.0+ 1.0+ Parking Type (Gr., Cov., etc.) Garage Open, Covered Open, Covered CONDITION: Good Average Average APPEAL: Good Average Good AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room Yes Yes Yes Laundry Room No No Yes Secured Parking No No Yes Sport Courts No No Yes Washer/Dryer Connection Yes Yes No Gated Security Yes Business Center OCCUPANCY: 91% 95% 88% TRANSACTION DATA: Sale Date May, 2002 May, 2001 Sale Price ($) $81,000,000 $88,100,000 Grantor Ira Lubert & Dean Adler Cedarbrook Holdings LLC Grantee L.A.D. Presidential LP Ceebraid-Signal Corp / Transwestern Sale Documentation N/A N/A Verification Buyer Buyer Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $0 $0 $0.00 $17,711,500 $19,767 $14.92 Vacancy/Credit Loss $0 $0 $0.00 $ 2,125,380 $ 2,372 $ 1.79 ------------------------------------------------------------------ Effective Gross Income $0 $0 $0.00 $15,586,120 $17,395 $13.13 Operating Expenses $0 $0 $0.00 $ 8,394,000 $ 9,368 $ 7.07 ------------------------------------------------------------------ Net Operating Income $0 $0 $0.00 $ 7,192,120 $ 8,027 $ 6.06 ------------------------------------------------------------------ NOTES: No financial data was made The buyer intends to rehab available for this sale. portions of the property for a cost of $16 million. PRICE PER UNIT $81,984 $98,326 PRICE PER SQUARE FOOT $ 77.53 $ 74.21 EXPENSE RATIO N/A 53.9% EGIM N/A 5.65 OVERALL CAP RATE N/A 8.16% Cap Rate based on Pro Forma or Actual Income? PRO FORMA
COMPARABLE DESCRIPTION I - 3 - ------------------------------ ------------------------------ Property Name Berkshire Towers LOCATION: Address 11215 Oak Leaf Drive City, State Silver Spring, Maryland County Montgomery PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 1,375,638 Year Built 1965 Number of Units 1,119 Unit Mix: Type Total 1Br/1Ba 495 2Br/2Ba 396 3Br/2Ba 228 Average Unit Size (SF) 1,229 Land Area (Acre) 17.1900 Density (Units/Acre) 65.1 Parking Ratio (Spaces/Unit) 1.0+ Parking Type (Gr., Cov., etc.) Open, Covered CONDITION: Good APPEAL: Good AMENITIES: Pool/Spa Yes/Yes Gym Room Yes Laundry Room Yes Secured Parking No Sport Courts Yes Washer/Dryer Connection No Gated Security Clubhouse Business Center Yes OCCUPANCY: 95% TRANSACTION DATA: Sale Date May, 2003 Sale Price ($) $130,000,000 Grantor Berkshire Realty Holdings Grantee Stellar Management Sale Documentation MGA-47781 Verification Buyer Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Potential Gross Income $14,761,620 $13,192 $10.73 Vacancy/Credit Loss $ 738,081 $ 660 $ 0.54 ------------------------------ Effective Gross Income $14,023,539 $12,532 $10.19 Operating Expenses $ 4,908,239 $ 4,386 $ 3.57 ------------------------------ Net Operating Income $ 9,115,300 $ 8,146 $ 6.63 ------------------------------ NOTES: Property was completely remodeled in 1997. PRICE PER UNIT $116,175 PRICE PER SQUARE FOOT $ 94.50 EXPENSE RATIO 35.0% EGIM 9.27 OVERALL CAP RATE 7.01% Cap Rate based on Pro Forma or Actual Income? PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $81,984 to $116,175 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 $116,175 to $125,071 per unit with a mean or average adjusted price of $121,230 per unit. The median adjusted price is $122,443 per unit. Based on the following analysis, we have concluded to a value of $120,000 per unit, which results in an "as is" value of $64,000,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA SALES ADJUSTMENT GRID
COMPARABLE DESCRIPTION SUBJECT I - 1 - ----------------------------------- -------------------------- -------------------------- Property Name Sterling Apartment Homes Presidential City Apts Address 1815 John F. Kennedy 3900 City Line Avenue Boulevard City Philadelphia, Pennsylvania Philadelphia, Pennsylvania Sale Date May, 2002 Sale Price ($) $81,000,000 Net Rentable Area (SF) 486,553 1,044,824 Number of Units 536 988 Price Per Unit $81,984 Year Built 1960 1951 Land Area (Acre) 0.8909 2.6500 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Financing Cash To Seller 0% Conditions of Sale Arm's Length 0% Date of Sale (Time) 05-2002 3% VALUE AFTER TRANS. ADJUST. ($/UNIT) $ 84,443 Location Inferior 10% Number of Units 536 988 5% Quality / Appeal Good Inferior 10% Age / Condition 1960 1951 / Average 20% Occupancy at Sale 91% 95% -5% Amenities Good Inferior 5% Average Unit Size (SF) 908 1,058 0% Commercial Units Yes Comparable 0% PHYSICAL ADJUSTMENT 45% FINAL ADJUSTED VALUE ($/UNIT) $ 122,443 COMPARABLE COMPARABLE DESCRIPTION I - 2 I - 3 - ----------------------------------- ------------------------------ -------------------------- Property Name Cedarbrook Hill Berkshire Towers Address 8460 Limekiln Pike 11215 Oak Leaf Drive City Wyncote, Pennsylvania Silver Spring, Maryland Sale Date May, 2001 May, 2003 Sale Price ($) $88,100,000 $130,000,000 Net Rentable Area (SF) 1,187,200 1,375,638 Number of Units 896 1,119 Price Per Unit $98,326 $116,175 Year Built 1963 1965 Land Area (Acre) 41.0000 17.1900 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 05-2001 6% 05-2003 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $ 104,225 $ 116,175 Location Comparable 0% Comparable 0% Number of Units 896 5% 1,119 5% Quality / Appeal Comparable 0% Comparable 0% Age / Condition 1963 / Average 20% 1965 / Good 0% Occupancy at Sale 88% 0% 95% -5% Amenities Comparable 0% Superior -5% Average Unit Size (SF) 1,325 -5% 1,229 -5% Commercial Units Comparable 0% Inferior 10% PHYSICAL ADJUSTMENT 20% 0% FINAL ADJUSTED VALUE ($/UNIT) $ 125,071 $ 116,175
SUMMARY VALUE RANGE (PER UNIT) $116,175 TO $125,071 MEAN (PER UNIT) $121,230 MEDIAN (PER UNIT) $122,443 VALUE CONCLUSION (PER UNIT) $120,000
VALUE OF IMPROVEMENT & MAIN SITE $64,320,000 LESS: LEASE-UP COST -$ 291,000 VALUE INDICATED BY SALES COMPARISON APPROACH $64,029,000 ROUNDED $64,000,000
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 26 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA SALES COMPARISON APPROACH (NOI PER UNIT ANALYSIS) 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-1 988 $ 81,000,000 N/A N/A $ 5,214,411 $ 81,984 $ 9,728 I-2 896 $ 88,100,000 8.16% $ 7,192,120 $ 5,214,411 1.212 $ 119,168 $ 98,326 $ 8,027 $ 9,728 I-3 1119 $130,000,000 7.01% $ 9,115,300 $ 5,214,411 1.194 $ 138,744 $ 116,175 $ 8,146 $ 9,728
PRICE/UNIT
Low High Average Median - -------- -------- -------- -------- $119,168 $138,744 $128,956 $128,956
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 125,000 Number of Units 536 Value $67,000,000 Less: Lease-Up Cost -$ 291,000 ------------ Value Based on NOI Analysis $66,709,000 Rounded $66,700,000
The adjusted sales indicate a range of value between $119,168 and $138,744 per unit, with an average of $128,956 per unit. Based on the subject's competitive position within the improved sales, a value of $125,000 per unit is estimated. This indicates an "as is" market value of $66,700,000 (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. 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-1 988 $ 81,000,000 N/A N/A $ 81,984 I-2 896 $ 88,100,000 $ 15,586,120 $ 8,394,000 53.86% 40.47% 5.65 $ 98,326 I-3 1119 $130,000,000 $ 14,023,539 $ 4,908,239 35.00% 9.27 $ 116,175
EGIM
Low High Average Median - ---- ---- ------- ------ 5.65 9.27 7.46 7.46
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 7.50 Subject EGI $ 8,939,001 Value $67,042,508 Less: Lease-Up Cost -$ 291,000 ------------ Value Based on EGIM Analysis $66,751,508 Rounded $66,800,000 Value Per Unit $ 124,627
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 27 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA 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 40.47% before reserves. The comparable sales indicate a range of expense ratios from 35.00% to 53.86%, while their EGIMs range from 5.65 to 9.27. Overall, we conclude to an EGIM of 7.50, which results in an "as is" value estimate in the EGIM Analysis of $66,800,000. 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 $66,000,000. Price Per Unit $64,000,000 NOI Per Unit $66,700,000 EGIM Analysis $66,800,000 Sales Comparison Conclusion $66,000,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA 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 29 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA 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 - -------------------------------------------------------------------- EA10 412 $ 896 $ 2.17 81.3% EB10 495 $ 941 $ 1.90 89.1% 1A10 550 $1,184 $ 2.15 95.6% 1B10 803 $1,302 $ 1.62 92.4% 1C10 920 $1,509 $ 1.64 100.0% 2A20 1315 $1,772 $ 1.35 90.9% 2B20 1425 $2,189 $ 1.54 96.8% 2C20 1794 $2,569 $ 1.43 100.0% 3A20 1631 $2,251 $ 1.38 90.9% 3B20 1778 $2,509 $ 1.41 100.0% 3C20 2215 $2,794 $ 1.26 100.0% 4A30 2500 $2,459 $ 0.98 0.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA RENT ANALYSIS
COMPARABLE RENTS ------------------------------------------------ R-1 R-2 R-3 R-4 ------------------------------------------------ The Lofts at Park Towne 1500 Locust on 1835 Arch Place Locust The Park ------------------------------------------------ SUBJECT SUBJECT COMPARISON TO SUBJECT SUBJECT UNIT ACTUAL ASKING ------------------------------------------------ DESCRIPTION TYPE RENT RENT Similar Inferior Superior Similar - -------------------------------------------------------------------------------------------------------------- Monthly Rent EA10 $ 896 $ 909 $ 819 Unit Area (SF) 412 412 460 Monthly Rent Per Sq. Ft. $ 2.17 $ 2.21 $ 1.78 Monthly Rent EB10 $ 941 $ 949 $1,100 $1,125 Unit Area (SF) 495 495 497 528 Monthly Rent Per Sq. Ft. $ 1.90 $ 1.92 $ 2.21 $ 2.13 Monthly Rent 1A10 $1,184 $1,199 Unit Area (SF) 550 550 Monthly Rent Per Sq. Ft. $ 2.15 $ 2.18 Monthly Rent 1B10 $1,302 $1,399 $1,400 $1,024 $1,505 $1,395 Unit Area (SF) 803 803 815 715 795 809 Monthly Rent Per Sq. Ft. $ 1.62 $ 1.74 $ 1.72 $ 1.43 $ 1.89 $ 1.72 Monthly Rent 1C10 $1,509 $1,489 $1,750 $1,700 Unit Area (SF) 920 920 950 898 Monthly Rent Per Sq. Ft. $ 1.64 $ 1.62 $ 1.84 $ 1.89 Monthly Rent 2A20 $1,772 $1,749 $2,200 $1,629 $2,183 $1,950 Unit Area (SF) 1,315 1,315 1,275 1,043 1,113 1,211 Monthly Rent Per Sq. Ft. $ 1.35 $ 1.33 $ 1.73 $ 1.56 $ 1.96 $ 1.61 Monthly Rent 2B20 $2,189 $1,899 $2,335 Unit Area (SF) 1,425 1,425 1,264 Monthly Rent Per Sq. Ft. $ 1.54 $ 1.33 $ 1.85 Monthly Rent 2C20 $2,569 $2,339 Unit Area (SF) 1,794 1,794 Monthly Rent Per Sq. Ft. $ 1.43 $ 1.30 Monthly Rent 3A20 $2,251 $2,209 $1,839 Unit Area (SF) 1,631 1,631 1,223 Monthly Rent Per Sq. Ft. $ 1.38 $ 1.35 $ 1.50 Monthly Rent 3B20 $2,509 $2,299 Unit Area (SF) 1,778 1,778 Monthly Rent Per Sq. Ft. $ 1.41 $ 1.29 Monthly Rent 3C20 $2,794 $2,509 Unit Area (SF) 2,215 2,215 Monthly Rent Per Sq. Ft. $ 1.26 $ 1.13 Monthly Rent 4A30 $2,459 $2,459 $2,074 Unit Area (SF) 2,500 2,500 1,465 Monthly Rent Per Sq. Ft. $ 0.98 $ 0.98 $ 1.42 SUBJECT UNIT DESCRIPTION TYPE MIN MAX MEDIAN AVERAGE - ------------------------------------------------------------------------------- Monthly Rent EA10 $ 819 $ 819 $ 819 $ 819 Unit Area (SF) 460 460 460 460 Monthly Rent Per Sq. Ft. $ 1.78 $ 1.78 $ 1.78 $ 1.78 Monthly Rent EB10 $1,100 $1,125 $1,113 $1,113 Unit Area (SF) 497 528 513 513 Monthly Rent Per Sq. Ft. $ 2.13 $ 2.21 $ 2.17 $ 2.17 Monthly Rent 1A10 Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent 1B10 $1,024 $1,505 $1,398 $1,331 Unit Area (SF) 715 815 802 784 Monthly Rent Per Sq. Ft. $ 1.43 $ 1.89 $ 1.72 $ 1.69 Monthly Rent 1C10 $1,700 $1,750 $1,725 $1,725 Unit Area (SF) 898 950 924 924 Monthly Rent Per Sq. Ft. $ 1.84 $ 1.89 $ 1.87 $ 1.87 Monthly Rent 2A20 $1,629 $2,200 $2,067 $1,991 Unit Area (SF) 1,043 1,275 1,162 1,161 Monthly Rent Per Sq. Ft. $ 1.56 $ 1.96 $ 1.67 $ 1.71 Monthly Rent 2B20 $2,335 $2,335 $2,335 $2,335 Unit Area (SF) 1,264 1,264 1,264 1,264 Monthly Rent Per Sq. Ft. $ 1.85 $ 1.85 $ 1.85 $ 1.85 Monthly Rent 2C20 Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent 3A20 $1,839 $1,839 $1,839 $1,839 Unit Area (SF) 1,223 1,223 1,223 1,223 Monthly Rent Per Sq. Ft. $ 1.50 $ 1.50 $ 1.50 $ 1.50 Monthly Rent 3B20 Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent 3C20 Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent 4A30 $2,074 $2,074 $2,074 $2,074 Unit Area (SF) 1,465 1,465 1,465 1,465 Monthly Rent Per Sq. Ft. $ 1.42 $ 1.42 $ 1.42 $ 1.42
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: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area ------------------- Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income - ---------------------------------------------------------------------------------------- EA10 32 412 $ 899 $2.18 $ 28,768 $ 345,216 EB10 137 495 $ 949 $1.92 $ 130,013 $1,560,156 1A10 48 550 $ 1,149 $2.09 $ 55,152 $ 661,824 1B10 102 803 $ 1,379 $1.72 $ 140,658 $1,687,896 1C10 21 920 $ 1,509 $1.64 $ 31,689 $ 380,268 2A20 124 1,315 $ 1,759 $1.34 $ 218,116 $2,617,392 2B20 32 1,425 $ 2,109 $1.48 $ 67,488 $ 809,856 2C20 5 1,794 $ 2,449 $1.37 $ 12,245 $ 146,940 3A20 24 1,631 $ 2,229 $1.37 $ 53,496 $ 641,952 3B20 8 1,778 $ 2,359 $1.33 $ 18,872 $ 226,464 3C20 2 2,215 $ 2,499 $1.13 $ 4,998 $ 59,976 4A30 1 2,500 $ 2,459 $0.98 $ 2,459 $ 29,508 --------------------------------- Total $ 763,954 $9,167,448
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 32 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA 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 $8,342,210 $ 15,564 $8,855,683 $ 16,522 $9,139,066 $ 17,050 Vacancy $ 502,931 $ 938 $ 478,155 $ 892 $ 844,922 $ 1,576 Credit Loss/Concessions $ 18,839 $ 35 $ 28,274 $ 53 $ 79,026 $ 147 -------------------------------------------------------------------------------- Subtotal $ 521,770 $ 973 $ 506,429 $ 945 $ 923,948 $ 1,724 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 358,833 $ 669 $ 366,006 $ 683 $ 458,161 $ 855 -------------------------------------------------------------------------------- Subtotal Other Income $ 358,833 $ 669 $ 366,006 $ 683 $ 458,161 $ 855 -------------------------------------------------------------------------------- Effective Gross Income $8,179,273 $ 15,260 $8,715,260 $ 16,260 $8,673,279 $ 16,181 Operating Expenses Taxes $ 454,883 $ 849 $ 639,413 $ 1,193 $ 641,270 $ 1,196 Insurance $ 62,262 $ 116 $ 128,240 $ 239 $ 122,284 $ 228 Utilities $1,052,106 $ 1,963 $1,142,411 $ 2,131 $1,016,569 $ 1,897 Repair & Maintenance $ 64,655 $ 121 $ 55,249 $ 103 $ 45,412 $ 85 Cleaning $ 522,451 $ 975 $ 506,709 $ 945 $ 496,132 $ 926 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 38,977 $ 73 $ 38,468 $ 72 $ 37,528 $ 70 General Administrative $ 61,275 $ 114 $ 91,888 $ 171 $ 91,216 $ 170 Management $ 412,405 $ 769 $ 457,317 $ 853 $ 432,824 $ 808 Miscellaneous $ 587,943 $ 1,097 $ 667,060 $ 1,245 $ 545,058 $ 1,017 -------------------------------------------------------------------------------- Total Operating Expenses $3,256,957 $ 6,076 $3,726,755 $ 6,953 $3,428,293 $ 6,396 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- Net Income $4,922,316 $ 9,183 $4,988,505 $ 9,307 $5,244,986 $ 9,785 FISCAL YEAR 2003 ANNUALIZED 2003 ------------------------------------------------------ MANAGEMENT BUDGET PROJECTION AAA PROJECTION ------------------------------------------------------------------------------------------ DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % - ----------------------------------------------------------------------------------------------------------------------- Revenues Rental Income $9,343,212 $ 17,431 $9,117,800 $ 17,011 $9,167,448 $ 17,103 100.0% Vacancy $ 615,000 $ 1,147 $ 822,888 $ 1,535 $ 458,372 $ 855 5.0% Credit Loss/Concessions $ 12,000 $ 22 $ 215,400 $ 402 $ 91,674 $ 171 1.0% ------------------------------------------------------------------------------------------ Subtotal $ 627,000 $ 1,170 $1,038,288 $ 1,937 $ 550,047 $ 1,026 6.0% Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 296,831 $ 554 $ 342,992 $ 640 $ 321,600 $ 600 3.5% ------------------------------------------------------------------------------------------ Subtotal Other Income $ 296,831 $ 554 $ 342,992 $ 640 $ 321,600 $ 600 3.5% ------------------------------------------------------------------------------------------ Effective Gross Income $9,013,043 $ 16,815 $8,422,504 $ 15,714 $8,939,001 $ 16,677 100.0% Operating Expenses Taxes $ 781,506 $ 1,458 $ 684,124 $ 1,276 $ 696,800 $ 1,300 7.8% Insurance $ 147,716 $ 276 $ 131,764 $ 246 $ 147,400 $ 275 1.6% Utilities $1,103,000 $ 2,058 $1,713,536 $ 3,197 $1,072,000 $ 2,000 12.0% Repair & Maintenance $ 64,100 $ 120 $ 21,764 $ 41 $ 64,320 $ 120 0.7% Cleaning $ 514,800 $ 960 $ 573,604 $ 1,070 $ 522,600 $ 975 5.8% Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 36,000 $ 67 $ 77,884 $ 145 $ 37,520 $ 70 0.4% General Administrative $ 100,500 $ 188 $ 128,980 $ 241 $ 93,800 $ 175 1.0% Management $ 456,547 $ 852 $ 431,128 $ 804 $ 446,950 $ 834 5.0% Miscellaneous $ 522,538 $ 975 $ 468,612 $ 874 $ 536,000 $ 1,000 6.0% ------------------------------------------------------------------------------------------ Total Operating Expenses $3,726,707 $ 6,953 $4,231,396 $ 7,894 $3,617,390 $ 6,749 40.5% Reserves $ 0 $ 0 $ 0 $ 0 $ 107,200 $ 200 3.0% ------------------------------------------------------------------------------------------ Net Income $5,286,336 $ 9,863 $4,191,108 $ 7,819 $5,214,411 $ 9,728 58.3%
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 6% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA 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 34 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - ------------------------------------------------------ I-1 May-02 95% $ 81,984 N/A I-2 May-01 88% $ 98,326 8.16% I-3 May-03 95% $116,175 7.01% I-4 N/A N/A N/A I-5 N/A N/A N/A High 8.16% Low 7.01% Average 7.59%
Based on this information, we have concluded the subject's overall capitalization rate should be 8.00%. 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 8.50%. 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 10.50%. 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 10.50% indicates a value of $63,900,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA approximately 44% 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 36 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA STERLING APARTMENT HOMES
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 - ----------------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 9,167,448 $ 9,167,448 $ 9,442,471 $ 9,725,746 $10,017,518 $10,318,043 Vacancy $ 715,103 $ 548,575 $ 472,124 $ 486,287 $ 500,876 $ 515,902 Credit Loss $ 91,674 $ 91,674 $ 94,425 $ 97,257 $ 100,175 $ 103,180 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------------- Subtotal $ 806,777 $ 640,249 $ 566,548 $ 583,545 $ 601,051 $ 619,083 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 321,600 $ 321,600 $ 331,248 $ 341,185 $ 351,421 $ 361,964 -------------------------------------------------------------------------------------- Subtotal Other Income $ 321,600 $ 321,600 $ 331,248 $ 341,185 $ 351,421 $ 361,964 -------------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $ 8,682,271 $ 8,848,799 $ 9,207,171 $ 9,483,386 $ 9,767,888 $10,060,925 OPERATING EXPENSES: Taxes $ 696,800 $ 717,704 $ 739,235 $ 761,412 $ 784,255 $ 807,782 Insurance $ 147,400 $ 151,822 $ 156,377 $ 161,068 $ 165,900 $ 170,877 Utilities $ 1,072,000 $ 1,104,160 $ 1,137,285 $ 1,171,403 $ 1,206,545 $ 1,242,742 Repair & Maintenance $ 64,320 $ 66,250 $ 68,237 $ 70,284 $ 72,393 $ 74,565 Cleaning $ 522,600 $ 538,278 $ 554,426 $ 571,059 $ 588,191 $ 605,837 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 37,520 $ 38,646 $ 39,805 $ 40,999 $ 42,229 $ 43,496 General Administrative $ 93,800 $ 96,614 $ 99,512 $ 102,498 $ 105,573 $ 108,740 Management $ 434,114 $ 442,440 $ 460,359 $ 474,169 $ 488,394 $ 503,046 Miscellaneous $ 536,000 $ 552,080 $ 568,642 $ 585,702 $ 603,273 $ 621,371 -------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 3,604,554 $ 3,707,993 $ 3,823,878 $ 3,938,595 $ 4,056,753 $ 4,178,455 Reserves $ 107,200 $ 110,416 $ 113,728 $ 117,140 $ 120,655 $ 124,274 -------------------------------------------------------------------------------------- NET OPERATING INCOME $ 4,970,517 $ 5,030,389 $ 5,269,564 $ 5,427,651 $ 5,590,481 $ 5,758,195 ============================================================================================================================= Operating Expense Ratio (% of EGI) 41.5% 41.9% 41.5% 41.5% 41.5% 41.5% Operating Expense Per Unit $ 6,725 $ 6,918 $ 7,134 $ 7,348 $ 7,569 $ 7,796 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 - -------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $10,627,585 $10,946,412 $11,274,805 $11,613,049 $11,961,440 Vacancy $ 531,379 $ 547,321 $ 563,740 $ 580,652 $ 598,072 Credit Loss $ 106,276 $ 109,464 $ 112,748 $ 116,130 $ 119,614 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------- Subtotal $ 637,655 $ 656,785 $ 676,488 $ 696,783 $ 717,686 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 372,823 $ 384,007 $ 395,527 $ 407,393 $ 419,615 ----------------------------------------------------------------------- Subtotal Other Income $ 372,823 $ 384,007 $ 395,527 $ 407,393 $ 419,615 ----------------------------------------------------------------------- EFFECTIVE GROSS INCOME $10,362,752 $10,673,635 $10,993,844 $11,323,659 $11,663,369 OPERATING EXPENSES: Taxes $ 832,016 $ 856,976 $ 882,685 $ 909,166 $ 936,441 Insurance $ 176,003 $ 181,283 $ 186,722 $ 192,324 $ 198,093 Utilities $ 1,280,024 $ 1,318,425 $ 1,357,978 $ 1,398,717 $ 1,440,678 Repair & Maintenance $ 76,801 $ 79,105 $ 81,479 $ 83,923 $ 86,441 Cleaning $ 624,012 $ 642,732 $ 662,014 $ 681,874 $ 702,331 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 44,801 $ 46,145 $ 47,529 $ 48,955 $ 50,424 General Administrative $ 112,002 $ 115,362 $ 118,823 $ 122,388 $ 126,059 Management $ 518,138 $ 533,682 $ 549,692 $ 566,183 $ 583,168 Miscellaneous $ 640,012 $ 659,212 $ 678,989 $ 699,358 $ 720,339 ----------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 4,303,809 $ 4,432,923 $ 4,565,911 $ 4,702,888 $ 4,843,975 Reserves $ 128,002 $ 131,842 $ 135,798 $ 139,872 $ 144,068 ----------------------------------------------------------------------- NET OPERATING INCOME $ 5,930,941 $ 6,108,869 $ 6,292,135 $ 6,480,899 $ 6,675,326 ============================================================================================================== Operating Expense Ratio (% of EGI) 41.5% 41.5% 41.5% 41.5% 41.5% Operating Expense Per Unit $ 8,029 $ 8,270 $ 8,518 $ 8,774 $ 9,037
Estimated Stabilized NOI $ 5,214,411 Sales Expense Rate 2.00% Months to Stabilized 24 Discount Rate 10.50% Stabilized Occupancy 95.0% Terminal Cap Rate 8.50%
"DCF" VALUE ANALYSIS Gross Residual Sale Price $78,533,252 Deferred Maintenance $ 0 Less: Sales Expense $ 1,570,665 Add: Excess Land $ 0 ----------- Net Residual Sale Price $76,962,587 Other Adjustments $ 0 PV of Reversion $28,356,778 ----------- Add: NPV of NOI $35,592,791 Value Indicated By "DCF" $63,949,568 ----------- Rounded $63,900,000 PV Total $63,949,568
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ------------------------------------------------------------------ TOTAL VALUE 10.00% 10.25% 10.50% 10.75% 11.00% - ----------------------------------------------------------------------------------------------- 8.00% $67,990,945 $66,843,662 $65,721,867 $64,624,911 $63,552,161 8.25% $67,035,583 $65,909,744 $64,808,865 $63,732,310 $62,679,462 TERMINAL CAP RATE 8.50% $66,136,419 $65,030,762 $63,949,568 $62,892,215 $61,858,097 8.75% $65,288,636 $64,202,008 $63,139,375 $62,100,125 $61,083,668 9.00% $64,487,952 $63,419,296 $62,374,192 $61,352,041 $60,352,262
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA INCOME LOSS DURING LEASE-UP The subject is currently 91% occupied, below our stabilized occupancy projection. We have estimated a 24-month lease-up period. An adjustment must be made to bring the subject to a stabilized operating level. To account for this income loss during lease-up, we have compared the current DCF analysis to an "as stabilized" DCF analysis assuming the subject's occupancy were stabilized. The difference in net operating income during the lease-up period is discounted to a present value figure of $291,000 as shown in the following table. INCOME LOSS DURING LEASE-UP
DESCRIPTION YEAR 1 YEAR 2 - ---------------------------------------------------------------- "As Is" Net Operating Income $4,970,517 $5,030,389 Stabilized Net Operating Income $5,214,411 $5,116,082 ---------- ---------- Difference $ 243,894 $ 85,692 PV of Income Loss During Lease-Up $ 290,899 ---------- Rounded $ 291,000 ----------
CONCESSIONS Concessions have historically not been utilized at the subject property or in the subject's market. Therefore, no adjustment was included for concessions. 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 8.00% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 38 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA STERLING APARTMENT HOMES
TOTAL PER SQ. FT. PER UNIT %OF EGI - ----------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 9,167,448 $ 18.84 $ 17,103 Less: Vacancy & Collection Loss 6.00% $ 550,047 $ 1.13 $ 1,026 Plus: Other Income Laundry Income $ 0 $ 0.00 $ 0 0.00% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 321,600 $ 0.66 $ 600 3.60% ------------------------------------------------------- Subtotal Other Income $ 321,600 $ 0.66 $ 600 3.60% EFFECTIVE GROSS INCOME $ 8,939,001 $ 18.37 $ 16,677 OPERATING EXPENSES: Taxes $ 696,800 $ 1.43 $ 1,300 7.80% Insurance $ 147,400 $ 0.30 $ 275 1.65% Utilities $ 1,072,000 $ 2.20 $ 2,000 11.99% Repair & Maintenance $ 64,320 $ 0.13 $ 120 0.72% Cleaning $ 522,600 $ 1.07 $ 975 5.85% Landscaping $ 0 $ 0.00 $ 0 0.00% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 37,520 $ 0.08 $ 70 0.42% General Administrative $ 93,800 $ 0.19 $ 175 1.05% Management 5.00% $ 446,950 $ 0.92 $ 834 5.00% Miscellaneous $ 536,000 $ 1.10 $ 1,000 6.00% TOTAL OPERATING EXPENSES $ 3,617,390 $ 7.43 $ 6,749 40.47% Reserves $ 107,200 $ 0.22 $ 200 1.20% ------------------------------------------------------- NET OPERATING INCOME $ 5,214,411 $ 10.72 $ 9,728 58.33% ======================================================= "GOING IN" CAPITALIZATION RATE 8.00% VALUE INDICATION $ 65,180,138 $ 133.96 $ 121,605 LESS: LEASE-UP COST ($ 291,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $ 64,889,138 ROUNDED $ 64,900,000 $ 133.39 $ 121,082
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 39 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - --------------------------------------------------------- 7.25% $ 71,631,911 $71,600,000 $133,582 $147.16 7.50% $ 69,234,481 $69,200,000 $129,104 $142.22 7.75% $ 66,991,723 $67,000,000 $125,000 $137.70 8.00% $ 64,889,138 $64,900,000 $121,082 $133.39 8.25% $ 62,913,983 $62,900,000 $117,351 $129.28 8.50% $ 61,055,013 $61,100,000 $113,993 $125.58 8.75% $ 59,302,269 $59,300,000 $110,634 $121.88
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $64,900,000. 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 $63,900,000 Direct Capitalization Method $64,900,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $64,500,000. DISCOUNTED CASH FLOW ANALYSIS - STERLING COMMERCE CENTER Following is a summary of the subject's discounted cash flow analysis. Because the commercial space is only 54.1% occupied and is not projected to reach a stabilized level of occupancy until the third year, only a discounted cash flow analysis was performed. A direct capitalization analysis is not considered applicable. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a review of current office and retail leases was performed. A summary of actual leases signed over the last 12 months is shown on the following table. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 40 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA SUMMARY OF ACTUAL RECENT OFFICE LEASES
LEASE LEASE RENTAL COMPOUNDED SUITE SIZE START TERM RATE/SF ANNUAL RENT TENANT NO. (SF) DATE (MONTHS) ($) GROWTH RATE EXPENSES - ------------------------------------------------------------------------------------------------------------------ Dr. Parrish 465 1,418 7-02 12 15.75 - Full Service Eagles for Leukaemia 452 1,340 10-02 36 16.00 3.1% $8.18 Stop Michael Kleeman 350 2,904 1-03 24 15.50 6.5% $8.20 Stop United Equity 301 1,800 3-03 12 15.00 - $8.18 Stop Windows Corp. 303 2,002 4-03 84 8.55 2.5% Full Service Contemporary Staffing 307 2,424 4-03 48 11.14 2.4% $8.18 Stop Equitrac 340 2,943 5-03 12 17.88 - $1.00 * McCann & Gerschke 309 6,093 6-03 36 14.00 3.5% BY Stop Wainstein et al 400 3,190 6-03 36 15.50 3.2% $0.84 * Averages - 2,679 - 33 14.37 2.4% - All office tenants - 2,386 - - 15.16 - -
* Tenant's specific expense pass through amount As shown above, recent office leases range from $8.55 to $17.88 per square foot with an average of $14.37 per square foot. The average rental rate for all of the office tenants is $15.16 per square foot. Also, this average amount is the weighted amount for the entire tenants and takes into account the sizes of the various spaces and is not the simple average of each tenant's rental rate. Concerning the retail tenants, there have only been two recent leases signed within the last 12 months. They are Suite 1823 - City Nails, a 1,097 square foot space with a beginning lease rate of $18.00 per square foot. The lease term is 84 months (7 years) and there are annual rent increases of $1.00 per square foot. The compounded annual rental growth rate is 4.9%. The expenses are full service with the tenant paying no expense pass through amounts. This lease was signed in April 2003. The second lease was Suite 1833 - Southland, a 3,420 square foot space with a rental rate of $15.30 per square foot. The lease term is 42 months (3.5 years) and the rental rate is fixed throughout the term. This is also a full service lease with the tenant paying no expense pass through amount. There was no improvement allowance given by the landlord and both spaces were taken in an "as-is" condition. The average rental rate from the existing 10 retail tenants is $23.14 per square foot. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 41 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above as well as interviews with the subject's property management, rental rates and terms are shown as follows: OFFICE TENANTS Large tenants (Suite 200): $14.00 per square foot market rent All other tenants: $16.00 per square foot market rent Rent Abatement: Currently 4 months of free rent for all leases signed in the 1st year, changing to 3 months for all leases signed in the 2nd year, and 2 months for all leases signed in the 3rd through 11th year Average lease term: 60 months (5 years) Rent increases: None, flat Expenses: Gross lease with no expense recovery Tenant improvement allowance: $15.00 / SF for new tenants, $0 for renewals Leasing commissions: Sliding scale based on 6% of the 1st year's rent, 5% of the 2nd year's rent, 4% of the 3rd year's rent, 3.5% of the 4th year's rent, 3% of the 5th year's rent, and 2.5% of any remaining year's rent if needed; no commission upon renewal. RETAIL TENANTS Market rent: $20.00 per square foot Average lease term: 84 months (7 years) Rent Abatement: Currently 4 months of free rent for all leases signed in the 1st year, changing to 3 months for all leases signed in the 2nd year, and 2 months for all leases signed in the 3rd through 11th year Rent increases: None, flat rate Expenses: Gross lease with no expense recovery Tenant improvement allowance: None Leasing commissions: Sliding scale based on 6% of the 1st year's rent, 5% of the 2nd year's rent, 4% of the 3rd year's rent, 3.5% of the 4th year's rent, 3% of the 5th year's rent, and 2.5% of any remaining year's rent if needed; no commission upon renewal. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 42 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA 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 43 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA OPERATING EXPENSES - HISTORICAL & PROJECTED STERLING COMMERCE CENTER
2000 ACTUAL 2001 ACTUAL 2002 ACTUAL - ------------------------------------------------------------------------------------------------------- Base Rental Revenue $ 1,678,969 $ 15.26 $ 1,743,488 $ 15.85 $ 1,913,014 $ 17.39 Reimbursement Income 0 0.00 0 0.00 0 0.00 Misc Income 109,058 0.99 138,950 1.26 31,481 0.29 ---------------------- ----------------------- ----------------------- GROSS POTENTIAL INCOME $ 1,788,027 $ 16.26 $ 1,882,438 $ 17.11 $ 1,944,495 $ 17.68 Less General Vacancy -$ 87,268 ($ 0.79) -$ 154,562 ($ 1.41) -$ 794,364 ($ 7.22) Less Credit Loss -120,614 (1.10) -3,738 (0.03) -7,609 (0.07) ---------------------- ----------------------- ----------------------- EFFECTIVE GROSS INCOME $ 1,580,145 $ 14.37 $ 1,724,138 $ 15.68 $ 1,142,522 $ 10.39 Real Estate Taxes $ 76,409 $ 0.69 $ 111,160 $ 1.01 $ 111,046 $ 1.01 Insurance 8,584 0.08 21,066 0.19 21,580 0.20 Utilities 306,167 2.78 388,437 3.53 355,503 3.23 Repairs & Maintenance 16,598 0.15 16,408 0.15 13,894 0.13 Cleaning 285,066 2.59 275,389 2.50 355,367 3.23 Marketing/Leasing 6,943 0.06 7,668 0.07 6,654 0.06 Gen. & Admin. 22,789 0.21 28,207 0.26 26,118 0.24 Management Fee 88,812 0.81 101,147 0.92 59,868 0.54 Miscellaneous 50,406 0.46 84,597 0.77 82,090 0.75 ---------------------- ----------------------- ----------------------- TOTAL EXPENSES $ 861,774 $ 7.83 $ 1,034,079 $ 9.40 $ 1,032,120 $ 9.38 NET OPERATING INCOME $ 718,371 6.53 $ 690,059 6.27 $ 110,402 1.00 Leasing & Capital Costs Tenant Improvements $ 0 0.00 $ 0 0.00 $ 0 0.00 Leasing Commissions 0 0.00 0 0.00 0 0.00 Structural Reserve 0 0.00 0 0.00 0 0.00 ---------------------- ----------------------- ----------------------- NET CASH FLOW $ 718,371 $ 14.37 $ 690,059 $ 15.68 $ 110,402 $ 10.39 AAA 2003 BUDGET 2003/2004 PROJECTED - ----------------------------------------------------------------------------- Base Rental Revenue $ 1,727,952 $ 15.71 $ 1,124,357 $ 10.22 Reimbursement Income 0 0.00 94,945 0.86 Misc Income -34,260 (0.31) 5,000 0.05 ----------------------- ----------------------- GROSS POTENTIAL INCOME $ 1,693,692 $ 15.40 $ 1,224,302 $ 11.13 Less General Vacancy -$ 555,000 ($ 5.05) -$ 112,436 ($ 1.02) Less Credit Loss 0 0.00 -24,115 (0.22) ----------------------- ----------------------- EFFECTIVE GROSS INCOME $ 1,138,692 $ 10.35 $ 1,087,751 $ 9.89 Real Estate Taxes $ 111,048 $ 1.01 $ 111,000 $ 1.01 Insurance 21,648 0.20 22,000 0.20 Utilities 320,600 2.91 281,143 2.56 Repairs & Maintenance 37,150 0.34 15,328 0.14 Cleaning 354,060 3.22 315,572 2.87 Marketing/Leasing 6,600 0.06 6,600 0.06 Gen. & Admin. 21,800 0.20 22,000 0.20 Management Fee 64,135 0.58 60,000 0.55 Miscellaneous 66,580 0.61 75,000 0.68 ----------------------- ----------------------- TOTAL EXPENSES $ 1,003,621 $ 9.12 $ 908,643 $ 8.26 NET OPERATING INCOME $ 135,071 1.23 $ 179,108 1.63 Leasing & Capital Costs Tenant Improvements $ 0 0.00 $ 51,121 0.46 Leasing Commissions 0 0.00 5,770 0.05 Structural Reserve 0 0.00 21,998 0.20 ----------------------- ----------------------- NET CASH FLOW $ 135,071 $ 10.35 $ 100,219 $ 10.61
Net Rentable Area (SF): 109,992 REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on both actual lease rates and terms and market rates previously discussed. Miscellaneous income consists of late rent 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 AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 44 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA 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 rate of 10% plus a collection loss rate of 2% for a total of 12%, based on the subject's historical performance, as well as the anticipated future market conditions. 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 CBD office market, which reports a range of replacement reserves of from $0.10 to $0.50 per square foot. For purposes of this analysis, we have included an allowance of $0.20 per square foot 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 $0.20 per square foot 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. VACANT SPACE ABSORPTION ANALYSIS The subject's office space is 44.4% occupied and has 47,802 square feet of vacant space. The property has signed 21,356 square feet of new or renewing leases in the first six months of 2003. Based on this data, the subject's vacant office space was leased up over a two-year period. The subject's retail portion is 88.8% occupied and has only one vacant space AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 45 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA available. This space was leased up in January 2004 or the ninth month of the first year of operations. TENANT RENEWAL PROBABILITY Because the majority of the subject's tenants are small size companies, with most leasing between 2,000 to 4,000 square feet per suite, a 50% renewal probability was applied. INFLATION RATES Market rent was held flat for the first two years and then grown at a rate of 3% per year thereafter. Operating expenses were inflated at a rate of 3% per year throughout the holding period. 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. 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 the Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY NATIONAL CBD OFFICE MARKET - DISCOUNT RATE (IRR)
RANGE AVERAGE - --------------------------------------------------------- 1st Quarter 2003 9.00% to 12.50% 10.92%
Because of the subject's age and small size of commercial space, the discount rate should be above the average for the market. Based on this analysis, the subject's discount rate is estimated to be 11.50%. TERMINAL CAPITALIZATION RATE A terminal capitalization rate of 9.0% is concluded for the subject and applied to the AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 46 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA subject's 11th year cash flow projection. 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 $3,200,000. 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 47 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA AIMCO STERLING COMMERCE CENTER PRESENT VALUE TABLE AS OF MAY 1, 2003
Discount PV of Yr FYE Cash Flow Factor @ 11.50% Cash Flow - ----------------------------------------------------------------- 1 2004 $100,219 0.89686 $ 89,883 2 2005 $193,756 0.80436 $ 155,850 3 2006 $417,818 0.72140 $ 301,413 4 2007 $272,500 0.64699 $ 176,306 5 2008 $431,070 0.58026 $ 250,134 6 2009 $350,126 0.52042 $ 182,211 7 2010 $210,480 0.46674 $ 98,240 8 2011 $180,088 0.41860 $ 75,385 9 2012 ($ 24,917) 0.37543 -$ 9,355 10 2013 $356,903 0.33671 $ 120,172 Present Value of Cash Flow $1,440,239 Year 11 Net Income $ 491,671 Residual Value Capped @ 9% $5,463,011 Cost of Sales @ 2% ($ 109,260) ---------- Net Proceeds $5,353,751 Present Value of Residual $1,802,642 Total Present Value of Cash Flows $1,440,239 ---------- Indicated Value $3,242,881 Rounded $3,200,000
AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 48 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA 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 Sterling Apartment Homes: Cost Approach Not Utilized Sales Comparison Approach $ 66,000,000 Income Approach $ 64,500,000 Reconciled Value $ 65,500,000 Sterling Commerce Center: Cost Approach Not Utilized Sales Comparison Approach Not Utilized Income Approach $ 3,200,000 Reconciled Value $ 3,200,000 Combined Value: $ 68,700,000
The Income 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 13, 2003 the market value of the fee simple estate in the property is: $68,700,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - FRONT OF BUILDING EXTERIOR - REAR OF BUILDING [PICTURE] [PICTURE] J.F.K. BOULEVARD WESTBOUND INTERIOR - LOBBY LEVEL [PICTURE] [PICTURE] INTERIOR - TYPICAL RESIDENTIAL CORRIDOR INTERIOR - TYPICAL KITCHEN AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] INTERIOR - TYPICAL BATH INTERIOR - TYPICAL LIVING ROOM [PICTURE] [PICTURE] ROOFTOP POOL INTERIOR - 2ND FLOOR OFFICE SPACE (VACANT) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 PRESIDENTIAL CITY APTS CEDARBROOK HILL BERKSHIRE TOWERS 3900 City Line Avenue 8460 Limekiln Pike 11215 Oak Leaf Drive Philadelphia, Pennsylvania Wyncote, Pennsylvania Silver Spring, Maryland [PICTURE] N/A [PICTURE] N/A N/A AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 - ------------------------------- ---------------------------------------------- -------------------------------------------------- Property Name Sterling Apartment Homes The Lofts at 1835 Arch Management Company Aimco Forest City Residential LOCATION: Address 1815 John F. Kennedy Boulevard 1835 Arch Street City, State Philadelphia, Pennsylvania Philadelphia, PA County Philadelphia Philadelphia Proximity to Subject 1 Block to the North PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 486,553 197,170 Year Built 1960 2001 Effective Age 7 2 Building Structure Type Brick/Granite Hi-Rise Building Brick Hi-Rise Building Parking Type (Gr., Cov., etc.) Limited Garage Space Limited Spaces Number of Units 536 192 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 EA10 412 32 $ 896 4 1Br/1Ba 815 104 $1,400 2 EB10 495 137 $ 941 5 1Br/1Ba w/Den 950 28 $1,750 3 1A10 550 48 $1,184 6 2Br/2Ba 1,275 46 $2,200 4 1B10 803 102 $1,302 Penthouse Units 1,940 13 $3,000 5 1C10 920 21 $1,509 6 2A20 1,315 124 $1,772 7 2B20 1,425 32 $2,189 8 2C20 1,794 5 $2,569 9 3A20 1,631 24 $2,251 10 3B20 1,778 8 $2,509 11 3C20 2,215 2 $2,794 12 4A30 2,500 1 $2,459 Average Unit Size (SF) 908 1,022 Unit Breakdown: Efficiency 32% 2-Bedroom 30% Efficiency 0% 2-Bedroom 28% 1-Bedroom 32% 3-Bedroom 6% 1-Bedroom 72% 3-Bedroom 0% CONDITION: Good Very Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony X W/D Connect. Balcony X W/D Connect. Fireplace Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball X Meeting Hall Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball Laundry Room Racquet Ball Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room X Security X Gym Room X Security OCCUPANCY: 91% 98% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 to 15 Months Concessions None None Pet Deposit $200 - $300 $150 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash X Water X Trash Confirmation May 13, 2002, John Ditko May 13, 2003, Forest City Telephone Number (215) 563-3401 (215) 568-1835 NOTES: The building is loft conversion COMPARISON TO SUBJECT: Similar COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 - ------------------------------- ------------------------------------------------- ------------------------------------------------ Property Name Park Towne Place 1500 Locust Management Company Aimco Scully Company LOCATION: Address 2200 Ben Franklin Parkway 1500 Locust Street City, State Philadelphia, PA Philadelphia, PA County Philadelphia Philadelphia Proximity to Subject 3/4 Mile to the NE 1/4 Mile to the SE PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 964,040 563,420 Year Built 1959 Appr. 1990 Effective Age 15 5 Building Structure Type Four Brick Mid-Rise Buildings Masonry Hi-Rise Building Parking Type (Gr., Cov., etc.) Open, Garage Limited Garage Space Number of Units 980 610 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 Studio 460 160 $ 819 2 Studio 497 110 $1,100 4 1Br/1Ba 715 165 $1,024 4 1Br/1Ba 795 125 $1,505 2Br/1Ba 995 165 $1,429 5 1Br/1Ba 898 125 $1,700 6 2Br/2Ba 1,043 165 $1,629 6 2Br/2Ba 1,113 125 $2,183 9 3Br/2Ba 1,223 165 $1,839 7 2Br/2Ba 1,264 125 $2,335 12 4Br/2Ba 1,465 160 $2,074 Average Unit Size (SF) 984 924 Unit Breakdown: Efficiency 16% 2-Bedroom 35% Efficiency 18% 2-Bedroom 41% 1-Bedroom 17% 3-Bedroom 17% 1-Bedroom 41% 3-Bedroom CONDITION: Good Good APPEAL: Average Very Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony W/D Connect. Balcony X W/D Connect. Fireplace Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room X Security X Gym Room X Security OCCUPANCY: 95% 92% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 to 15 Months Concessions None None Pet Deposit $200 - $300 $200 - $300 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash X Water X Trash Confirmation May 13, 2003, Leasing Office May 13, 2003, Leasing Office Telephone Number (215) 568-2200 (215) 893-0800 NOTES: Additional amenities include a free shuttle to Amenities include a year-round indoor pool, Center City (Downtown). sundeck, concierge and banquet facilities. COMPARISON TO SUBJECT: Inferior Superior COMPARABLE DESCRIPTION R - 4 - ------------------------------- --------------------------------------------------- Property Name Locust on The Park Management Company Dranoff Properties LOCATION: Address 201 South 25th Street City, State Philadelphia, PA County Philadelphia Proximity to Subject 1/2 Mile to the SW PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 143,599 Year Built Appr. 1990 Effective Age Building Structure Type Renovated Mid-Rise Loft Building Parking Type (Gr., Cov., etc.) Open Number of Units 152 Unit Mix: Type Unit Qty. Mo. 2 Studio 528 21 $1,125 4 1Br/1Ba 809 65 $1,395 6 2Br/2Ba 1,211 66 $1,950 Average Unit Size (SF) 945 Unit Breakdown: Efficiency 14% 2-Bedroom 43% 1-Bedroom 43% 3-Bedroom CONDITION: Slightly Superior APPEAL: Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Balcony X W/D Connect. Fireplace X Cable TV Ready Project Amenities Swimming Pool Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Tennis Court Secured Parking Racquet Ball Laundry Room Jogging Track X Business Office X Gym Room X Security OCCUPANCY: 95% LEASING DATA: Available Leasing Terms 6 to 15 Months Concessions None Pet Deposit $300 Utilities Paid by Tenant: X Electric X Natural Gas X Water X Trash Confirmation May 13, 2003, Leasing Office Telephone Number (215) 735-1810 NOTES: Amenities include concierge, storage, internet services and drycleaning deliveries. The building is a loft conversion COMPARISON TO SUBJECT: Similar
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 THE LOFTS AT 1835 ARCH PARK TOWNE PLACE 1500 LOCUST 1835 Arch Street 2200 Ben Franklin Parkway 1500 Locust Street Philadelphia, PA Philadelphia, PA Philadelphia, PA [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 LOCUST ON THE PARK 201 South 25th Street Philadelphia, PA [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA 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 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA 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 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA 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 Appraisal Institute 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 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA EXHIBIT D CERTIFICATES OF APPRAISERS (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. Richard Mupo 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 State of Pennsylvania Certified General Appraiser #GA003334 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA EXHIBIT E QUALIFICATIONS OF APPRAISERS (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA 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 STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA 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 -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. STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. STERLING APARTMENT HOMES, PHILADELPHIA, PENNSYLVANIA 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. EX-99.(C)(10) 15 d07253exv99wxcyx10y.txt APPRAISAL OF TATES CREEK VILLAGE TATES CREEK VILLAGE 3051 KIRKLEVINGTON DRIVE LEXINGTON, KENTUCKY MARKET VALUE - FEE SIMPLE ESTATE AS OF NOVEMBER 19, 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] UNITED STATES INTERNATIONAL Atlanta Milwaukee [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] Brazil Mexico Boston Minneapolis Canada Morocco Buffalo New Orleans China Peru Charlotte New York 9441 LBJ Freeway Suite 114 Croatia Philippines Chicago Oak Lawn Dallas, Texas 75243 Czech Republic Poland Cincinnati Philadelphia England Portugal Dallas Pittsburgh Telephone: (972)994-9100 Germany Russia Denver Princeton Fax: (972)994-0516 Greece Spain Detroit Schaumburg Hong Kong Taiwan Houston St. Louis Hungary Thailand Irvine San Francisco Italy Turkey Jacksonville Seattle Japan Venezuela Los Angeles
FEBRUARY 13, 2004 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: TATES CREEK VILLAGE 3051 KIRKLEVINGTON DRIVE LEXINGTON, LEXINGTON-FAYETTE COUNTY, KENTUCKY 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 204 units with a total of 194,910 square feet of rentable area. The improvements were built in 1970. The improvements are situated on 12 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 89% 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 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY 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 November 19, 2003 is: ($6,500,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. By: /s/ JEFF W. BRIGGS February 13, 2004 Jeff Briggs, MAI #053272 Engagement Director, Real Estate Group Commonwealth of Kentucky State Certified General Real Property Appraiser #002611 Report By: Daniel Salcedo Commonwealth of Kentucky Temporary Practice Permit #18794 AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY 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........................................................ 15 Improvement Analysis................................................. 15 Highest and Best Use................................................. 16 VALUATION Valuation Procedure.................................................. 17 Sales Comparison Approach............................................ 19 Income Capitalization Approach....................................... 25 Reconciliation and Conclusion........................................ 37
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 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Tates Creek Village LOCATION: 3051 Kirklevington Drive Lexington, Kentucky 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: November 19, 2003 DATE OF REPORT: February 13, 2004 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 12 acres, or 522,720 square feet Assessor Parcel No.: 1262900 Floodplain: Community Panel No. 210067-0090 C (September 3, 1992) Flood Zone X, an area outside the floodplain. Zoning: R-3 (Planned Neighborhood Residential) BUILDING: No. of Units: 204 Units Total NRA: 194,910 Square Feet Average Unit Size: 955 Square Feet Apartment Density: 17.0 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 - -------------------------------------------------------------------------- 1Br/1Ba - A 640 $520 $0.81 $ 16,640 $ 199,680 1Br/1Ba - B 720 $540 $0.75 $ 24,300 $ 291,600 1Br/1Ba - w/ Large Frt Dr 720 $560 $0.78 $ 3,920 $ 47,040 1Br/1Ba - w/o Large Frt 720 $560 $0.78 $ 560 $ 6,720 1Br/1Ba - B 720 $560 $0.78 $ 17,360 $ 208,320 2Br/1.5 - C 1,200 $700 $0.58 $ 21,700 $ 260,400 3Br/1.5Ba-D 1,250 $720 $0.58 $ 22,320 $ 267,840 3Br/2.5 Ba -E 1,500 $900 $0.60 $ 5,400 $ 64,800 3Br/2.5 Ba -F 1,550 $950 $0.61 $ 17,100 $ 205,200 1Br/1Ba - Efficiency 550 $450 $0.82 $ 900 $ 10,800 ----- ---- ----- -------- ---------- Total $130,200 $1,562,400 ==========================================================================
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY OCCUPANCY: 89% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 30 Years REMAINING ECONOMIC LIFE: 15 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: [SUBJECT PHOTOGRAPHS] [PICTURE] [PICTURE] EXTERIOR EXTERIOR - LANDSCAPE AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY NEIGHBORHOOD MAP [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 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
Amount $/Unit ------ ------ DIRECT CAPITALIZATION Potential Rental Income $1,562,400 $7,659 Effective Gross Income $1,461,240 $7,163 Operating Expenses $726,882 $3,563 49.7% of EGI Net Operating Income: $673,158 $3,300 Capitalization Rate 10.50% DIRECT CAPITALIZATION VALUE $6,400,000 * $31,373 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 14% Stabilized Vacancy & Collection Loss: 10% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 11.50% Discount Rate 12.50% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $6,800,000 * $33,333 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $6,500,000 $31,863 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $26,180 to $50,702 Range of Sales $/Unit (Adjusted) $26,180 to $34,653 VALUE INDICATION - PRICE PER UNIT $6,600,000 * $32,353 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 4.41 to 8.11 Selected EGIM for Subject 4.25 Subject's Projected EGI $ 1,461,240 EGIM ANALYSIS CONCLUSION $6,200,000 * $30 ,392 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $6,500,000 * $31,863 / UNIT RECONCILED SALES COMPARISON VALUE $6,500,000 * $31,863 / 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 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $6,600,000 NOI Per Unit $6,500,000 EGIM Multiplier $6,200,000 INDICATED VALUE BY SALES COMPARISON $6,500,000 $31,863 / UNIT INCOME APPROACH: Direct Capitalization Method: $6,400,000 Discounted Cash Flow Method: $6,800,000 INDICATED VALUE BY THE INCOME APPROACH $6,500,000 $31,863 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $6,500,000 $31,863 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 3051 Kirklevington Drive, Lexington, Lexington-Fayette County, Kentucky. Lexington-Fayette County identifies it as tax parcel number 1262900. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Daniel Salcedo on November 19, 2003. Jeff Briggs, MAI has not made a personal inspection of the subject property. Daniel Salcedo performed the research, valuation analysis and wrote the report. Jeff Briggs, MAI reviewed the report and concurs with the value. Both, Jeff Briggs, MAI and Daniel Salcedo 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 November 19, 2003. The date of the report is February 13, 2004. 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 & Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY 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 CCP 3. 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. The subject has been listed for sale for approximately six months at a listed price of $7,050,000. However, the potential buyer wanted a lower price due to maintenance issues and the deal fell through. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 11 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY 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 Lexington, Kentucky. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Alumni Road West - SH-27 South - Man of War Blvd North - Loop 4 MAJOR EMPLOYERS Major employers in the subject's area include University of Kentucky, Toyota Motor Manufacturing, Lexmark International, Fayette County Public School District, University of Kentucky Hospital, Lexington-Fayette Urban Government Central Baptist Hospital, Saint Joseph Hospital, and Kentucky Utilities. 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 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY NEIGHBORHOOD DEMOGRAPHICS
AREA ---------------------------------------- CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA - -------- ------------ ------------ ------------ --- POPULATION TRENDS Current Population 10,881 64,181 151,323 491,951 5-Year Population 11,036 65,845 156,585 525,624 % Change CY-5Y 1.4% 2.6% 3.5% 6.8% Annual Change CY-5Y 0.3% 0.5% 0.7% 1.4% HOUSEHOLDS Current Households 4,664 25,740 63,128 198,231 5-Year Projected Households 4,811 27,312 67,171 217,751 % Change CY - 5Y 3.2% 6.1% 6.4% 9.8% Annual Change CY-5Y 0.6% 1.2% 1.3% 2.0% INCOME TRENDS Median Household Income $ 28,955 $ 28,621 $ 34,386 $ 37,645 Per Capita Income $ 17,919 $ 17,383 $ 22,221 $ 22,105 Average Household Income $ 41,425 $ 42,749 $ 53,396 $ 54,857
Source: Demographics Now The subject neighborhood's population is expected to show increases below 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 53.55% 47.95% 41.26% 37.32% 5-Year Projected % Renting 53.59% 48.16% 41.13% 37.02% % of Households Owning 38.10% 44.60% 50.62% 56.12% 5-Year Projected % Owning 38.45% 44.87% 51.27% 56.94%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Loop 4 South - Apartments East - Apartments West - Apartments CONCLUSIONS The subject is well located within the city of Lexington. The neighborhood is characterized as being mostly suburban in nature and is currently in the stable 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 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY MARKET ANALYSIS The subject property is located in the city of Lexington in Lexington-Fayette County. The overall pace of development in the subject's market is more or less stable. Any new development is minimal with most expected growth towards the south of the subject. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - ------ ------ --------- 2002 8.2% 8.5% 2003 9.9% 8.4%
CB Richard Ellis Occupancy trends in the subject's market are a stable. Historically speaking, the subject's submarket has equated the overall market. Historically stabilized occupancy is around 91.0% to 92.0% with current occupancy at 90.1%. Employment is expected to slowly recover in the coming year thus triggering a slight increase in occupancy. Market rents in the subject's market have been following stable trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change - ------ ------ -------- --------- -------- 2002 $715 - $518 - 2003 $723 1.1% $521 0.6%
Reis, Inc. The following table illustrates a summary of the subject's competitive set. COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject - --- ------------- ----- ----- ---------- -------------------- R-1 Breckinridge Court 382 91% 1987 1-mile south of the subject R-2 Chinoe Creek 356 93% 1983 2-miles northeast of subject R-3 Sonnet Cove Apartments 332 90% 1972 3 miles northeast of the subject R-4 Patchen Place 202 93% 1973 3 miles northeast of subject R-5 Old Farm Apartments 330 91% 1985 1 mile south of subject Subject Tates Creek Village 204 89% 1970
Market rental rates are expected to remain stable in the next year. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 15 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY PROPERTY DESCRIPTION SITE ANALYSIS Site Area 12 acres, or 522,720 square feet Shape Irregular Topography Level Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Good Flood Zone: Community Panel 210067-0090 C, dated September 3, 1992 Flood Zone Zone X Zoning R-3, the subject improvements represent a legal conforming use of the site.
REAL ESTATE TAXES
ASSESSED VALUE - 2002 ---------------------------- TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES - ------------- ---- -------- ----- --------- ----- 1262900 $1,220,000 $4,880,000 $6,100,000 0.00958 $58,408
IMPROVEMENT ANALYSIS Year Built 1970 Number of Units 204 Net Rentable Area 194,910 Square Feet Construction: Foundation Concrete pier and beam Frame Wood frame Exterior Walls Wood or vinyl siding Roof Built-up asphalt with or without gravel over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, sand volleyball, tennis court, gym room, tanning room, meeting hall, laundry room, and parking area. Unit Amenities Individual unit amenities include washer dryer connections. Appliances available in each unit include a refrigerator, stove, dishwasher, water heater, garbage disposal, and oven
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) --------- --------------- --------- 1Br/1Ba - A 32 640 1Br/1Ba - B 45 720 1Br/1Ba - w/ Large Frt Dr 7 720 1Br/1Ba - w/o Large Frt Dr 1 720 1Br/1Ba - B 31 720 2Br/1.5 - C 31 1,200 3 Br/1.5Ba -D 31 1,250 3 Br/2.5 Ba -E 6 1,500 3 Br/2.5 Ba -F 18 1,550 IBr/1Ba - Efficiency 2 550
Overall Condition Average Effective Age 30 years Economic Life 45 years Remaining Economic Life 15 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 204-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 17 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY 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 18 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY 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 19 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY 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 20 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - -------------------------------- ----------------------------- ----------------------------- --------------------------- Property Name Tates Creek Village Breckinridge Court Chinoe Creek Apartments LOCATION: Address 3051 Kirklevington Drive 420-430 Redding Road 3520-3558 Creekwood Drive City, State Lexington, Kentucky Lexington, KY Lexington, KY County Lexington-Fayette Fayette-Lexington Fayette-Lexington PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 194,910 268,650 297,810 Year Built 1970 1987 1983 Number of Units 204 382 356 Unit Mix: Type Total Type Total Type Total 1Br/1Ba - A 32 1Br/1Ba 246 1Br/1Ba 180 1Br/1Ba - B 45 2Br/2Ba 136 2Br/2Ba 176 1Br/1Ba - w/Large Frt 7 1Br/1Ba - w/o Large Frt 1 1Br/1Ba - B 31 2Br/1.5 - C 31 3 Br/1.5 Ba - D 31 3 Br/2.5 Ba - E 6 3 Br/2.5 Ba - F 18 1Br/1Ba - Efficiency 2 Average Unit Size (SF) 955 703 837 Land Area (Acre) 12.0000 15.7200 28.1300 Density (Units/Acre) 17.0 24.3 12.7 Parking Ratio (Spaces/Unit) 1.00 1.00 1.00 Parking Type (Gr., Cov., etc.) Garage, Open Covered Open, Covered Open, Covered CONDITION: Good Average Good APPEAL: Average Good Good AMENITIES: Pool/Spa Yes/No Yes/Yes Yes/Yes Gym Room Yes Yes Yes Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts Yes Yes Yes Washer/Dryer Connection Yes Yes Yes OCCUPANCY: 89% 91% 93% TRANSACTION DATA: Sale Date September, 2003 May, 2003 Sale Price ($) $17,800,000 $18,050,000 Grantor Capreit Breckinridge LP Lexington Oxford Associates Grantee Breckinridge Court Associates Sr Chinoe Creek Holdings Sale Documentation Book 2399, Page 736 N/A Verification Nelson S. Keesey Nelson S. Keesey Telephone Number 859.246.2722 859.246.2722 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF ---------- ------ ----- ---------- ------ ----- Potential Gross Income $2,667,888 $6,984 $9.93 $2,388,048 $6,708 $8.02 Vacancy/Credit Loss $ 215,303 $ 564 $0.80 $ 161,182 $ 453 $0.54 ---------- ------ ----- ---------- ------ ----- Effective Gross Income $2,452,585 $6,420 $9.13 $2,226,866 $6,255 $7.48 Operating Expenses $ 825,514 $2,161 $3.07 $ 779,403 $2,189 $2.62 ---------- ------ ----- ---------- ------ ----- Net Operating Income $1,627,071 $4,259 $6.06 $1,447,463 $4,066 $4.86 ---------- ------ ----- ---------- ------ ----- NOTES: None None PRICE PER UNIT $46,597 $50,702 PRICE PER SQUARE FOOT $ 66.26 $ 60.61 EXPENSE RATIO 33.7% 35.0% EGIM 7.26 8.11 OVERALL CAP RATE 9.14% 8.02% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - -------------------------------- ------------------------- -------------------------- ------------------------- Property Name Cloisters Apartments Patchen Place Old Farm Apartments LOCATION: Address 3501-3550 Pimilco Parkway 200 Patchen Drive 3751 Appian Way City, State Lexington, KY Lexington, KY Lexington, KY County Fayette-Lexington Fayette-Lexington Fayette-Lexington PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 242,253 166,080 281,244 Year Built 1972 1973 1985 Number of Units 228 202 330 Unit Mix: Type Total Type Total Type Total 1Br/1Ba 60 1Br/1Ba 88 1Br/1Ba 144 2Br/2Ba 132 2Br/2Ba 94 2Br/2Ba 186 3Br/2Ba 36 3Br/2Ba 20 Average Unit Size (SF) 1,063 822 852 Land Area (Acre) 15.4800 13.7500 18.8300 Density (Units/Acre) 14.7 14.7 17.5 Parking Ratio (Spaces/Unit) 1.00 1.00 1.00 Parking Type (Gr., Cov., etc.) Open, Covered Garage, Open, Covered Open, Covered CONDITION: Average Very Good Very Good APPEAL: Average Average Very Good AMENITIES: Pool/Spa Yes/Yes Yes/Yes Yes/Yes Gym Room Yes Yes Yes Laundry Room Yes Yes No Secured Parking No No No Sport Courts No Yes Yes Washer/Dryer Connection Yes Yes Yes OCCUPANCY: 90% 93% 91% TRANSACTION DATA: Sale Date October, 2003 October, 2003 February, 2003 Sale Price ($) $5,969,000 $7,000,000 $12,927,793 Grantor Bruce C/ Strohn, et al National Property Investors Aimco Old Farm Grantee Aslan Cloisters Vermeil Socrates Associates Sale Documentation Book 2406, Page 329 Book 2410, Page 35 Book 2345, Page 306 Verification Nelson S. Keesey Nelson S. Keesey Nelson S. Keesey Telephone Number 859.246.2722 859.246.2722 859.246.2722 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF ---------- ------ ----- ---------- ------ ----- ---------- ------ ----- Potential Gross Income $1,504,800 $6,600 $6.21 $1,306,536 $6,468 $7.87 $2,174,040 $6,588 $7.73 Vacancy/Credit Loss $ 150,480 $ 660 $0.62 $ 91,457 $ 453 $0.55 $ 195,663 $ 593 $0.70 ---------- ------ ----- ---------- ------ ----- ---------- ------ ----- Effective Gross Income $1,354,320 $5,940 $5.59 $1,215,079 $6,015 $7.32 $1,978,377 $5,995 $7.03 Operating Expenses $ 612,987 $2,689 $2.53 $ 486,031 $2,406 $2.93 $ 791,350 $2,398 $2.81 ---------- ------ ----- ---------- ------ ----- ---------- ------ ----- Net Operating Income $ 741,333 $3,251 $3.06 $ 729,048 $3,609 $4.39 $1,187,027 $3,597 $4.22 ---------- ------ ----- ---------- ------ ----- ---------- ------ ----- NOTES: None None None PRICE PER UNIT $26,180 $34,653 $39,175 PRICE PER SQUARE FOOT $ 24.64 $ 42.15 $ 45.97 EXPENSE RATIO 45.3% 40.0% 40.0% EGIM 4.41 5.76 6.53 OVERALL CAP RATE 12.42% 10.41% 9.18% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $26,180 to $50,702 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 $26,180 to $34,653 per unit with a mean or average adjusted price of $31,158 per unit. The median adjusted price is $32,618 per unit. Based on the following analysis, we have concluded to a value of $32,500 per unit, which results in an "as is" value of $6,600,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ----------------------------------- ------------------------ ---------------------- ------------------------- Property Name Tates Creek Village Breckinridge Court Chinoe Creek Apartments Address 3051 Kirklevington Drive 420-430 Redding Road 3520-3558 Creekwood Drive City Lexington, Kentucky Lexington, KY Lexington, KY Sale Date September, 2003 May, 2003 Sale Price ($) $17,800,000 $18,050,000 Net Rentable Area (SF) 194,910 268,650 297,810 Number of Units 204 382 356 Price Per Unit $46,597 $50,702 Year Built 1970 1987 1983 Land Area (Acre) 12.0000 15.7200 28.1300 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 09-2003 0% 05-2003 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $46,597 $50,702 Location Comparable 0% Comparable 0% Number of Units 204 382 -10% 356 -10% Quality / Appeal Good Superior -15% Superior -15% Age / Condition 1970 1987 / Average -10% 1983 / Good -10% Occupancy at Sale 89% 91% 0% 93% 0% Amenities Good Comparable 0% Comparable 0% Average Unit Size (SF) 955 703 5% 837 0% PHYSICAL ADJUSTMENT -30% -35% FINAL ADJUSTED VALUE ($/UNIT) $32,618 $32,956 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ----------------------------------- ------------------------- ---------------------- ----------------------- Property Name Cloisters Apartments Patchen Place Old Farm Apartments Address 3501-3550 Pimilco Parkway 200 Patchen Drive 3751 Appian Way City Lexington, KY Lexington, KY Lexington, KY Sale Date October, 2003 October, 2003 February, 2003 Sale Price ($) $5,969,000 $7,000,000 $12,927,793 Net Rentable Area (SF) 242,253 166,080 281,244 Number of Units 228 202 330 Price Per Unit $26,180 $34,653 $39,175 Year Built 1972 1973 1985 Land Area (Acre) 15.4800 13.7500 18.8300 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 10-2003 0% 10-2003 0% 02-2003 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $26,180 $34,653 $39,175 Location Comparable 0% Comparable 0% Comparable 0% Number of Units 228 0% 202 0% 330 -10% Quality / Appeal Comparable 0% Comparable 0% Superior -15% Age / Condition 1972 / Average 0% 1973 / Very Good 0% 1985 / Very Good -10% Occupancy at Sale 90% 0% 93% 0% 91% 10% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 1,063 0% 822 0% 852 0% PHYSICAL ADJUSTMENT 0% 0% -25% FINAL ADJUSTED VALUE ($/UNIT) $26,180 $34,653 $29,381
SUMMARY VALUE RANGE (PER UNIT) $26,180 TO $34,653 MEAN (PER UNIT) $31,158 MEDIAN (PER UNIT) $32,618 VALUE CONCLUSION (PER UNIT) $32,500
VALUE INDICATED BY SALES COMPARISON APPROACH $6,630,000 ROUNDED $6,600,000
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 23 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY
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-1 382 $17,800,000 9.14% $1,627,071 $673,158 0.775 $36,099 $ 46,597 $ 4,259 $ 3,300 I-2 356 $18,050,000 8.02% $1,447,463 $673,158 0.812 $41,149 $ 50,702 $ 4,066 $ 3,300 I-3 228 $ 5,969,000 12.42% $ 741,333 $673,158 1.015 $26,569 $ 26,180 $ 3,251 $ 3,300 I-4 202 $ 7,000,000 10.41% $ 729,048 $673,158 0.914 $31,683 $ 34,653 $ 3,609 $ 3,300 I-5 330 $12,927,793 9.18% $1,187,027 $673,158 0.917 $35,938 $ 39,175 $ 3,597 $ 3,300
PRICE/UNIT ---------- Low High Average Median $26,569 $41,149 $34,288 $35,938
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT ------------------------------------------------ Estimated Price Per Unit $ 32,000 ---------- Number of Units 204 ---------- Value Based on NOI Analysis $6,528,000 Rounded $6,500,000
The adjusted sales indicate a range of value between $26,569 and $41,149 per unit, with an average of $34,288 per unit. Based on the subject's competitive position within the improved sales, a value of $32,000 per unit is estimated. This indicates an "as is" market value of $6,500,000 (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.
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-1 382 $17,800,000 $2,452,585 $ 825,514 33.66% 7.26 $ 46,597 I-2 356 $18,050,000 $2,226,866 $ 779,403 35.00% 8.11 $ 50,702 I-3 228 $ 5,969,000 $1,354,320 $ 612,987 45.26% 49.74% 4.41 $ 26,180 I-4 202 $ 7,000,000 $1,215,079 $ 486,031 40.00% 5.76 $ 34,653 I-5 330 $12,927,793 $1,978,377 $ 791,350 40.00% 6.53 $ 39,175
EGIM ---- Low High Average Median 4.41 8.11 6.41 6.53
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES - -------------------------------------------------- Estimate EGIM 4.25 ---------- Subject EGI $1,461,240 ---------- Value Based on EGIM Analysis $6,210,270 Rounded $6,200,000 Value Per Unit $ 30,392
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY 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 49.74% before reserves. The comparable sales indicate a range of expense ratios from 33.66% to 45.26%, while their EGIMs range from 4.41 to 8.11. Overall, we conclude to an EGIM of 4.25, which results in an "as is" value estimate in the EGIM Analysis of $6,200,000. 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 $6,500,000. Price Per Unit $6,600,000 NOI Per Unit $6,500,000 EGIM Analysis $6,200,000 Sales Comparison Conclusion $6,500,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 25 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY 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 26 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY 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 - -------------------------- --------- -------- ------ --------- 1Br/1Ba - A 640 $519 $ 0.81 83.3% 1Br/1Ba - B 720 $539 $ 0.75 75.0% 1Br/1Ba - w/ Large Frt Dr 720 $519 $ 0.72 85.7% 1Br/1Ba - w/o Large Frt Dr 720 $539 $ 0.75 100.0% 1Br/1Ba - B 720 $559 $ 0.78 100.0% 2Br/1.5 - C 1200 $729 $ 0.61 95.7% 3 Br/1.5 Ba -D 1250 $749 $ 0.60 96.6% 3 Br/2.5 Ba -E 1500 $919 $ 0.61 100.0% 3 Br/2.5 Ba -F 1550 $949 $ 0.61 88.9% 1Br/1Ba - Efficiency 550 $449 $ 0.82 100.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY RENT ANALYSIS
COMPARABLE RENTS ------------------------------------------------------------ R-1 R-2 R-3 R-4 R-5 ------------------------------------------------------------ Breckinridge Sonnet Cove Patchen Old Farm Court Chinoe Creek Apartments Place Apartments ------------------------------------------------------------ SUBJECT SUBJECT COMPARISON TO SUBJECT SUBJECT UNIT ACTUAL ASKING ------------------------------------------------------------ DESCRIPTION TYPE RENT RENT Superior Superior Similar Superior Superior MIN MAX - --------------------------------------------------------------------------------------------------------------------------------- Monthly Rent 1Br/1Ba - A $ 519 $ 519 $ 582 $ 559 $ 510 $ 499 $ 655 $ 499 $ 655 Unit Area (SF) 640 640 708 676 650 656 635 635 708 Monthly Rent Per Sq. Ft. $ 0.81 $ 0.81 $ 0.82 $ 0.83 $ 0.78 $ 0.76 $ 1.03 $ 0.76 $ 1.03 Monthly Rent 1Br/1Ba - B $ 539 $ 539 $ 599 $ 599 $ 599 Unit Area (SF) 720 720 919 919 919 Monthly Rent Per Sq. Ft. $ 0.75 $ 0.75 $ 0.65 $ 0.65 $ 0.65 Monthly Rent 1Br/1Ba - w/ Large $ 559 $ 559 $ 629 $ 775 $ 629 $ 775 Unit Area (SF) Frt Dr 720 720 1,000 759 759 1,000 Monthly Rent Per Sq. Ft. $ 0.78 $ 0.78 $ 0.63 $ 1.02 $ 0.63 $ 1.02 Monthly Rent 1Br/1Ba - w/o Large $ 559 $ 559 Unit Area (SF) Frt Dr 720 720 Monthly Rent Per Sq. Ft. $ 0.78 $ 0.78 Monthly Rent 1Br/1Ba - B $ 559 $ 559 Unit Area (SF) 720 720 Monthly Rent Per Sq. Ft. $ 0.78 $ 0.78 Monthly Rent 2Br/1.5 - C $ 729 $ 729 $ 774 $ 599 $ 689 $ 599 $ 774 Unit Area (SF) 1,200 1,200 1,080 1,050 1,100 1,050 1,100 Monthly Rent Per Sq. Ft. $ 0.61 $ 0.61 $ 0.72 $ 0.57 $ 0.63 $ 0.57 $ 0.72 Monthly Rent 3 Br/1.5 Ba -D $ 749 $ 749 $ 727 $ 727 $ 727 Unit Area (SF) 1,250 1,250 1,200 1,200 1,200 Monthly Rent Per Sq. Ft. $ 0.60 $ 0.60 $ 0.61 $ 0.61 $ 0.61 Monthly Rent 3 Br/2.5 Ba -E $ 919 $ 919 $ 804 $ 804 $ 804 Unit Area (SF) 1,500 1,500 1,400 1,400 1,400 Monthly Rent Per Sq. Ft. $ 0.61 $ 0.61 $ 0.57 $ 0.57 $ 0.57 Monthly Rent 3 Br/2.5 Ba -F $ 949 $ 949 Unit Area (SF) 1,550 1,550 Monthly Rent Per Sq. Ft. $ 0.61 $ 0.61 Monthly Rent 1Br/1Ba - $ 449 $ 449 Efficiency Unit Area (SF) 550 550 Monthly Rent Per Sq. Ft. $ 0.82 $ 0.82
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: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area ---------------- Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income - ---------------------------------------------------------------------------------------------- 1Br/1Ba - A 32 640 $ 520 $ 0.81 $ 16,640 $ 199,680 1Br/1Ba - B 45 720 $ 540 $ 0.75 $ 24,300 $ 291,600 1Br/1Ba - w/ Large Frt Dr 7 720 $ 560 $ 0.78 $ 3,920 $ 47,040 1Br/1Ba - w/o Large Frt Dr 1 720 $ 560 $ 0.78 $ 560 $ 6,720 1Br/1Ba - B 31 720 $ 560 $ 0.78 $ 17,360 $ 208,320 2Br/1.5 - C 31 1,200 $ 700 $ 0.58 $ 21,700 $ 260,400 3 Br/1.5 Ba -D 31 1,250 $ 720 $ 0.58 $ 22,320 $ 267,840 3 Br/2.5 Ba -E 6 1,500 $ 900 $ 0.60 $ 5,400 $ 64,800 3 Br/2.5 Ba -F 18 1,550 $ 950 $ 0.61 $ 17,100 $ 205,200 1Br/1Ba - Efficiency 2 550 $ 450 $ 0.82 $ 900 $ 10,800 -------- ---------- Total $130,200 $1,562,400 ======== ==========
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 29 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 FISCAL YEAR 2003 ------------------------ --------------------- ---------------------- --------------------- ACTUAL ACTUAL ACTUAL MANAGEMENT BUDGET ------------------------ --------------------- ---------------------- --------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT - ----------------------------------------------------------------------------------------------------------------------- Revenues Rental Income $ 1,555,640 $ 7,626 $ 1,675,314 $8,212 $ 1,055,779 $ 5,175 $ 1,303,760 $ 6,391 Vacancy $ 94,724 $ 464 $ 101,500 $ 498 $ 130,055 $ 638 $ 87,270 $ 428 Credit Loss/Concessions $ 84,916 $ 416 $ 29,802 $ 146 $ 14,540 $ 71 $ 16,200 $ 79 ---------------------------------------------------------------------------------------------- Subtotal $ 179,640 $ 881 $ 131,302 $ 644 $ 144,595 $ 709 $ 103,470 $ 507 Laundry Income $ 6,445 $ 32 $ 5,046 $ 25 $ 2,418 $ 12 $ 3,000 $ 15 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 53,960 $ 265 $ 50,387 $ 247 $ 36,790 $ 180 $ 54,400 $ 267 ---------------------------------------------------------------------------------------------- Subtotal Other Income $ 60,405 $ 296 $ 55,433 $ 272 $ 39,208 $ 192 $ 57,400 $ 281 ---------------------------------------------------------------------------------------------- Effective Gross Income $ 1,436,405 $ 7,041 $ 1,599,445 $7,840 $ 950,392 $ 4,659 $ 1,257,690 $ 6,165 Operating Expenses Taxes $ 49,411 $ 242 $ 50,840 $ 249 $ 48,080 $ 236 $ 53,507 $ 262 Insurance $ 19,459 $ 95 $ 25,831 $ 127 $ 22,606 $ 111 $ 27,074 $ 133 Utilities $ 262,452 $ 1,287 $ 318,225 $1,560 187,126 $ 917 $ 221,200 $ 1,084 Repair & Maintenance $ 109,437 $ 536 $ 113,595 $ 557 $ 71,236 $ 349 $ 96,205 $ 472 Cleaning $ 21,074 $ 103 $ 28,996 $ 142 $ 4,350 $ 21 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 34,468 $ 169 $ 32,576 $ 160 $ 12,512 $ 61 $ 16,500 $ 81 General Administrative $ 193,249 $ 947 $ 201,775 $ 989 $ 92,767 $ 455 $ 125,650 $ 616 Management $ 76,446 $ 375 $ 79,895 $ 392 $ 47,985 $ 235 $ 61,835 $ 303 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------------------------------------- Total Operating Expenses $ 765,996 $ 3,755 $ 851,733 $4,175 $ 486,662 $ 2,386 $ 601,971 $ 2,951 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------------------------------------- Net Income $ 670,409 $ 3,286 $ 747,712 $3,665 $ 463,730 $ 2,273 $ 655,719 $ 3,214
ANNUALIZED 2003 ----------------------- PROJECTION AAA PROJECTION ----------------------- --------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % - ----------------------------------------------------------------------------- Revenues Rental Income $ 1,602,792 $ 7,857 $1,562,400 $7,659 100.0% Vacancy $ 169,303 $ 830 $ 124,992 $ 613 8.0% Credit Loss/Concessions $ 73,715 $ 361 $ 31,248 $ 153 2.0% ---------------------------------------------------- Subtotal $ 243,018 $ 1,191 $ 156,240 $ 766 10.0% Laundry Income $ 581 $ 3 $ 2,040 $ 10 0.1% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 57,515 $ 282 $ 53,040 $ 260 3.4% ---------------------------------------------------- Subtotal Other Income $ 58,096 $ 285 $ 55,080 $ 270 3.5% ---------------------------------------------------- Effective Gross Income $ 1,417,870 $ 6,950 $1,461,240 $7,163 100.0% Operating Expenses Taxes $ 64,212 $ 315 $ 61,200 $ 300 4.2% Insurance $ 38,533 $ 189 $ 30,600 $ 150 2.1% Utilities $ 299,615 $ 1,469 $ 285,600 $1,400 19.5% Repair & Maintenance $ 131,077 $ 643 $ 112,200 $ 550 7.7% Cleaning $ 9,390 $ 46 $ 15,300 $ 75 1.0% Landscaping $ 0 $ 0 $ 0 $ 0 0.0% Security $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 16,661 $ 82 $ 16,320 $ 80 1.1% General Administrative $ 128,964 $ 632 $ 132,600 $ 650 9.1% Management $ 68,056 $ 334 $ 73,062 $ 358 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0% ---------------------------------------------------- Total Operating Expenses $ 756,508 $ 3,708 $ 726,882 $3,563 49.7% Reserves $ 0 $ 0 $ 61,200 $ 300 8.4% ---------------------------------------------------- Net Income $ 661,362 $ 3,242 $ 673,158 $3,300 46.1%
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 10% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY 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 $300 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 $300 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 5.50% 9.50% 6.00% 10.00% AVERAGE 7.61% 8.14%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY
SUMMARY OF OVERALL CAPITALIZATION RATES - ------------------------------------------------ COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - --------- --------- ------ ---------- ----- I-1 Sep-03 91% $ 46,597 9.14% I-2 May-03 93% $ 50,702 8.02% I-3 Oct-03 90% $ 26,180 12.42% I-4 Oct-03 93% $ 34,653 10.41% I-5 Feb-03 91% $ 39,175 9.18% High 12.42% Low 8.02% Average 9.84%
Based on this information, we have concluded the subject's overall capitalization rate should be 10.50%. 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 11.50%. 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 12.50%. 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 12.50% indicates a value of $6,800,000. In this instance, the reversion figure contributes approximately 35% of the total value. Investors surveyed for this assignment indicated they AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY 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 33 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY - -------------------------------------------------------------------------------- DISCOUNTED CASH FLOW ANALYSIS TATES CREEK VILLAGE AIMCO
YEAR OCT-2004 OCT-2005 OCT-2006 OCT-2007 OCT-2008 OCT-2009 FISCAL YEAR 1 2 3 4 5 6 - ------------------------------------- ========== ========== ========== ========== ========== ========== REVENUE Base Rent $1,562,400 $1,609,272 $1,657,550 $1,707,277 $1,758,495 $1,811,250 Vacancy $ 124,992 $ 128,742 $ 132,604 $ 136,582 $ 140,680 $ 144,900 Credit Loss $ 31,248 $ 32,185 $ 33,151 $ 34,146 $ 35,170 $ 36,225 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal $ 156,240 $ 160,927 $ 165,755 $ 170,728 $ 175,849 $ 181,125 Laundry Income $ 2,040 $ 2,101 $ 2,164 $ 2,229 $ 2,296 $ 2,365 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 53,040 $ 54,631 $ 56,270 $ 57,958 $ 59,697 $ 61,488 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 55,080 $ 56,732 $ 58,434 $ 60,187 $ 61,993 $ 63,853 ---------- ---------- ---------- ---------- ---------- ---------- EFFECTIVE GROSS INCOME $1,461,240 $1,505,077 $1,550,230 $1,596,736 $1,644,638 $1,693,978 OPERATING EXPENSES: Taxes $ 61,200 $ 63,036 $ 64,927 $ 66,875 $ 68,881 $ 70,948 Insurance $ 30,600 $ 31,518 $ 32,464 $ 33,437 $ 34,441 $ 35,474 Utilities $ 285,600 $ 294,168 $ 302,993 $ 312,083 $ 321,445 $ 331,089 Repair & Maintenance $ 112,200 $ 115,566 $ 119,033 $ 122,604 $ 126,282 $ 130,071 Cleaning $ 15,300 $ 15,759 $ 16,232 $ 16,719 $ 17,220 $ 17,737 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 16,320 $ 16,810 $ 17,314 $ 17,833 $ 18,368 $ 18,919 General Administrative $ 132,600 $ 136,578 $ 140,675 $ 144,896 $ 149,242 $ 153,720 Management $ 73,062 $ 75,254 $ 77,511 $ 79,837 $ 82,232 $ 84,699 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $ 726,882 $ 748,688 $ 771,149 $ 794,284 $ 818,112 $ 842,655 Reserves $ 61,200 $ 63,036 $ 64,927 $ 66,875 $ 68,881 $ 70,948 ---------- ---------- ---------- ---------- ---------- ---------- NET OPERATING INCOME $ 673,158 $ 693,353 $ 714,153 $ 735,578 $ 757,645 $ 780,375 ========== ========== ========== ========== ========== ========== Operating Expense Ratio (% of EGI) 49.7% 49.7% 49.7% 49.7% 49.7% 49.7% Operating Expense Per Unit $ 3,563 $ 3,670 $ 3,780 $ 3,894 $ 4,010 $ 4,131 ========== ========== ========== ========== ========== ========== YEAR OCT-2010 OCT-2011 OCT-2012 OCT-2013 OCT-2014 FISCAL YEAR 7 8 9 10 11 - ------------------------------------- ========== ========== ========== ========== ========== REVENUE Base Rent $1,865,587 $1,921,555 $1,979,202 $2,038,578 $2,099,735 Vacancy $ 149,247 $ 153,724 $ 158,336 $ 163,086 $ 167,979 Credit Loss $ 37,312 $ 38,431 $ 39,584 $ 40,772 $ 41,995 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- Subtotal $ 186,559 $ 192,155 $ 197,920 $ 203,858 $ 209,973 Laundry Income $ 2,436 $ 2,509 $ 2,584 $ 2,662 $ 2,742 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 63,333 $ 65,233 $ 67,189 $ 69,205 $ 71,281 ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 65,768 $ 67,741 $ 69,774 $ 71,867 $ 74,023 ---------- ---------- ---------- ---------- ---------- EFFECTIVE GROSS INCOME $1,744,797 $1,797,141 $1,851,055 $1,906,587 $1,963,784 OPERATING EXPENSES: Taxes $ 73,076 $ 75,268 $ 77,526 $ 79,852 $ 82,248 Insurance $ 36,538 $ 37,634 $ 38,763 $ 39,926 $ 41,124 Utilities $ 341,021 $ 351,252 $ 361,790 $ 372,643 $ 383,823 Repair & Maintenance $ 133,973 $ 137,992 $ 142,132 $ 146,396 $ 150,787 Cleaning $ 18,269 $ 18,817 $ 19,382 $ 19,963 $ 20,562 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 19,487 $ 20,072 $ 20,674 $ 21,294 $ 21,933 General Administrative $ 158,331 $ 163,081 $ 167,974 $ 173,013 $ 178,203 Management $ 87,240 $ 89,857 $ 92,553 $ 95,329 $ 98,189 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $ 867,935 $ 893,973 $ 920,792 $ 948,416 $ 976,869 Reserves $ 73,076 $ 75,268 $ 77,526 $ 79,852 $ 82,248 ---------- ---------- ---------- ---------- ---------- NET OPERATING INCOME $ 803,786 $ 827,899 $ 852,736 $ 878,319 $ 904,668 ========== ========== ========== ========== ========== Operating Expense Ratio (% of EGI) 49.7% 49.7% 49.7% 49.7% 49.7% Operating Expense Per Unit $ 4,255 $ 4,382 $ 4,514 $ 4,649 $ 4,789 ========== ========== ========== ========== ==========
Estimated Stabilized NOI $ 673,158 Months to Stabilized 1 Stabilized Occupancy 92.0%
Sales Expense Rate 2.00% Discount Rate 12.50% Terminal Cap Rate 11.50%
"DCF" VALUE ANALYSIS Gross Residual Sale Price $ 7,866,679 Less: Sales Expense $ 157,334 ----------- Net Residual Sale Price $ 7,709,345 PV of Reversion $ 2,374,063 Add: NPV of NOI $ 4,400,992 ----------- PV Total $ 6,775,055
Deferred Maintenance $ 0 Add: Excess Land $ 0 Other Adjustments $ 0 ----------- Value Indicated By "DCF" $ 6,775,055 Rounded $ 6,800,000
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE -------------------------------------------------------------- TOTAL VALUE 12.00% 12.25% 12.50% 12.75% 13.00% - --------------------- ---------- ---------- ---------- ---------- ---------- TERMINAL CAP 11.00% $7,098,202 $6,989,436 $6,882,967 $6,778,738 $6,676,692 RATE 11.25% $7,040,534 $6,933,041 $6,827,812 $6,724,793 $6,623,930 11.50% $6,985,374 $6,879,097 $6,775,055 $6,673,195 $6,573,461 11.75% $6,932,562 $6,827,449 $6,724,543 $6,623,792 $6,525,140 12.00% $6,881,949 $6,777,952 $6,676,136 $6,576,447 $6,478,833
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY 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 Concessions have historically not been utilized at the subject property or in the subject's market. Therefore, no adjustment was included for concessions. 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 10.50% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY TATES CREEK VILLAGE
TOTAL PER SQ. FT. PER UNIT %OF EGI ----- ----------- -------- ------- REVENUE Base Rent $1,562,400 $ 8.02 $ 7,659 Less: Vacancy & Collection Loss 10.00% $ 156,240 $ 0.80 $ 766 Plus: Other Income Laundry Income $ 2,040 $ 0.01 $ 10 0.14% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 53,040 $ 0.27 $ 260 3.63% ---------- --------- ------- ---- Subtotal Other Income $ 55,080 $ 0.28 $ 270 3.77% EFFECTIVE GROSS INCOME $1,461,240 $ 7.50 $ 7,163 OPERATING EXPENSES: Taxes $ 61,200 $ 0.31 $ 300 4.19% Insurance $ 30,600 $ 0.16 $ 150 2.09% Utilities $ 285,600 $ 1.47 $ 1,400 19.55% Repair & Maintenance $ 112,200 $ 0.58 $ 550 7.68% Cleaning $ 15,300 $ 0.08 $ 75 1.05% Landscaping $ 0 $ 0.00 $ 0 0.00% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 16,320 $ 0.08 $ 80 1.12% General Administrative $ 132,600 $ 0.68 $ 650 9.07% Management 5.00% $ 73,062 $ 0.37 $ 358 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 726,882 $ 3.73 $ 3,563 49.74% Reserves $ 61,200 $ 0.31 $ 300 4.19% ---------- --------- ------- ----- NET OPERATING INCOME $ 673,158 $ 3.45 $ 3,300 46.07% ========== ========= ======= ===== "GOING IN" CAPITALIZATION RATE 10.50% VALUE INDICATION $6,411,029 $ 32.89 $31,427 "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $6,411,029 ROUNDED $6,400,000 $ 32.84 $31,373
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - -------- ----- ------- ------ ---- 9.75% $6,904,185 $6,900,000 $33,824 $35.40 10.00% $6,731,580 $6,700,000 $32,843 $34.37 10.25% $6,567,395 $6,600,000 $32,353 $33.86 10.50% $6,411,029 $6,400,000 $31,373 $32.84 10.75% $6,261,935 $6,300,000 $30,882 $32.32 11.00% $6,119,618 $6,100,000 $29,902 $31.30 11.25% $5,983,627 $6,000,000 $29,412 $30.78
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $6,400,000. 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 $6,800,000 Direct Capitalization Method $6,400,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $6,500,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY 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 $6,500,000 Income Approach $6,500,000 Reconciled Value $6,500,000
The Income 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 November 19, 2003 the market value of the fee simple estate in the property is: $6,500,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA TATES CREEK VILLAGE, LEXINGTON, KENTUCKY ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A TATES CREEK VILLAGE, LEXINGTON, KENTUCKY EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A TATES CREEK VILLAGE, LEXINGTON, KENTUCKY SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR EXTERIOR - LANDSCAPE [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDING INTERIOR - APARTMENT UNIT [PICTURE] [PICTURE] EXTERIOR - TENNIS COURT EXTERIOR - ENTRANCE GATE AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A TATES CREEK VILLAGE, LEXINGTON, KENTUCKY SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - VOLLEYBALL COURT EXTERIOR - FACADE [PICTURE] [PICTURE] EXTERIOR - ACCESS INTERIOR - ACCESS [PICTURE] [PICTURE] EXTERIOR - POOL EXTERIOR - CLUB HOUSE AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B TATES CREEK VILLAGE, LEXINGTON, KENTUCKY EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B TATES CREEK VILLAGE, LEXINGTON, KENTUCKY PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 BRECKINRIDGE COURT CHINOE CREEK APARTMENTS CLOISTERS APARTMENTS 420-430 Redding Road 3520-3558 Creekwood Drive 3501-3550 Pimilco Parkway Lexington, KY Lexington, KY Lexington, KY [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 PATCHEN PLACE OLD FARM APARTMENTS 200 Patchen Drive 3751 Appian Way Lexington, KY Lexington, KY [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B TATES CREEK VILLAGE, LEXINGTON, KENTUCKY SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 ----------- ------- ----- Property Name Tates Creek Village Breckinridge Court Management Company AIMCO LOCATION: Address 3051 Kirklevington Drive 420-420 Redding Road City, State Lexington, Kentucky Lexington, KY County Lexington-Fayette Fayette-Lexington Proximity to Subject 1-mile south of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 194,910 268,650 Year Built 1970 1987 Effective Age 30 16 Building Structure Type Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc) Garage, Open Covered Open, Covered Number of Units 204 382 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Br/1Ba - A 640 32 $519 1 1Br/1Ba 708 246 $582 2 1Br/1Ba - B 720 45 $539 6 2Br/1.5Ba 1,080 136 $774 3 1Br/1Ba - w/ Large 720 7 $519 4 1Br/1Ba - w/o Large 720 1 $539 5 1Br/1Ba - B 720 31 $559 6 2Br/1.5 - C 1,200 31 $729 7 3 Br/1.5 Ba -D 1,250 31 $749 8 3 Br/2.5 Ba -E 1,500 6 $919 9 3 Br/2.5 Ba -F 1,550 18 $949 10 1Br/1Ba - Efficiency 550 2 $449 Average Unit Size (SF) 955 840 Unit Breakdown: Efficiency 0% 2-Bedroom 39% Efficiency 0% 2-Bedroom 64% 1-Bedroom 61% 3-Bedroom 0% 1-Bedroom 36% 3-Bedroom 0% CONDITION: Good Good APPEAL: Average Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony X W/D Connect. Balcony X W/D Connect. Fireplace Other X Fireplace Other Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment X Basketball Court BBQ Equipment Volleyball Court Theater Room X Volleyball Court Theater Room X Sand Volley Ball X Meeting Hall X Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track X Business Office X Gym Room X Gym Room X Tanning Room Tanning Room OCCUPANCY: 89% 91% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 to 15 Months Concessions 2 Months 2 Months Pet Deposit $150 to $300 $150 to $300 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash X Water Trash Confirmation Michelle Harvey/Property Manager Joseph Beard (Property Manager) Telephone Number 859 272 3481 877 256 1850 NOTES: None COMPARISON TO SUBJECT: Superior COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 ----------- ----- ----- Property Name Chinoe Creek Sonnet Cove Apartments Management Company Worthing Southeast Corporation LOCATION: Address 3520-3558 Creekwood Drive 475-531 Lake Toer Drive City, State Lexington, KY Lexington, KY County Fayette-Lexington Fayette-Lexington Proximity to Subject 2-miles northeast of subject 3 miles northeast of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 297,810 336,508 Year Built 1983 1972 Effective Age 20 31 Building Structure Type Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc) Open, Covered Open, Covered Number of Units 356 332 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Br/1Ba 676 180 $559 1 1 Br/1 Ba 650 99 $510 3 2Br/1Ba 1,000 176 $629 6 2Br/1.5 Ba 1,050 102 $599 7 2Br/2Ba 1,200 60 $727 8 3Br/2Ba 1,400 71 $804 Average Unit Size (SF) 836 1,033 Unit Breakdown: Efficiency 0% 2-Bedroom 49% Efficiency 0% 2-Bedroom 49% 1-Bedroom 51% 3-Bedroom 0% 1-Bedroom 29% 3-Bedroom 22% CONDITION: Good Average APPEAL: Good Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony X W/D Connect. Balcony X W/D Connect. X Fireplace Other X Fireplace Other 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 Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball X Meeting Hall X Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X 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 X Gym Room Tanning Room Tanning Room OCCUPANCY: 93% 90% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 to 15 Months Concessions 3 Months Payout Lease Pet Deposit $150 to $300 $150 to $300 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash X Water Trash Confirmation Joseph Beard (Property Manager) May 1, 2003; Joseph Beard (Property Manager) Telephone Number 877 261 8386 877 261 8392 NOTES: None None COMPARISON TO SUBJECT: Superior Similar COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 ----------- ----- ----- Property Name Patchen Place Old Farm Apartments Management Company LOCATION: Address 200 Patcehn Drive 3751 Appian Way City, State Lexington, KY Lexington, KY County Fayette-Lexington Fayette-Lexington Proximity to Subject 3 miles northeast of subject 1 mile south of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 166,080 281,244 Year Built 1973 1985 Effective Age 30 18 Building Structure Type Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc) Open, Covered Open, Covered Number of Units 202 330 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1 Br/1 Ba 656 88 $499 1 1 Br/1 Ba 635 144 $655 2 2Br/2Ba 919 94 $599 3 2Br/2Ba 759 186 $775 6 3Br/2Ba 1,100 20 $689 Average Unit Size (SF) 822 705 Unit Breakdown: Efficiency 0% 2-Bedroom 46% Efficiency 0% 2-Bedroom 57% 1-Bedroom 43% 3-Bedroom 11% 1-Bedroom 43% 3-Bedroom 0% CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage X Vaulted Ceiling Balcony X W/D Connect. Balcony X W/D Connect. X Fireplace Other X Fireplace Other 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 Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball X Meeting Hall X Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X 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 X Gym Room Tanning Room Tanning Room OCCUPANCY: 93% 91% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 to 15 Months Concessions 2 Months 2 Months Pet Deposit $150 to $300 $150 to $300 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash X Water Trash Confirmation May 1, 2003; Joseph Beard (Property Manager) May 1, 2003; Joseph Beard (Property Manager) Telephone Number 888 386 9390 877 261 8381 NOTES: None None COMPARISON TO SUBJECT: Superior Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B TATES CREEK VILLAGE, LEXINGTON, KENTUCKY PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 BRECKINRIDGE COURT CHINOE CREEK SONNET COVE APARTMENTS 420-420 Redding Road 3520-3558 Creekwood Drive 475-531 Lake Toer Drive Lexington, KY Lexington, KY Lexington, KY [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 PATCHEN PLACE OLD FARM APARTMENTS 200 Patcehn Drive 3751 Appian Way Lexington, KY Lexington, KY [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C TATES CREEK VILLAGE, LEXINGTON, KENTUCKY EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C TATES CREEK VILLAGE, LEXINGTON, KENTUCKY 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 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY 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 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY 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 Appraisal Institute 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 TATES CREEK VILLAGE, LEXINGTON, KENTUCKY EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D TATES CREEK VILLAGE, LEXINGTON, KENTUCKY 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. Daniel Salcedo 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/ Jeff W. Briggs ----------------------------------------- Jeff Briggs, MAI Engagement Director, Real Estate Group Commonwealth of Kentucky State Certified General Real Property Appraiser #002611 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E TATES CREEK VILLAGE, LEXINGTON, KENTUCKY EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E TATES CREEK VILLAGE, LEXINGTON, KENTUCKY JEFF W. BRIGGS, MAI ENGAGEMENT DIRECTOR, REAL ESTATE GROUP POSITION Jeff W. Briggs is an engagement director for the Dallas Real Estate Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Mr. Briggs' valuation experience includes all types of industrial property, Class A office buildings, regional malls, neighborhood and community shopping centers, apartments, hotels, and both daily fee and private golf facilities. He has appraised the vacant land of farms and ranches, single-family residential subdivisions, commercial subdivisions, commercial urban properties, and conservation easements. Special-purpose property valuations he has performed include a large pork production facility, cemeteries, nursing homes, and outpatient surgical clinics. Purchase price allocation assignments included valuation of the land components of a professional sports stadium and a pork production facility. Mr. Briggs has completed assignments in over 30 states throughout the country. Court Mr. Briggs has testified as an expert witness in federal bankruptcy court concerning an apartment complex in Odessa, Texas; given deposition on an appraisal of an industrial building in Sydney, Ohio; and assisted in condemnation assignments for the Texas Highway Department. Business Mr. Briggs joined AAA in 2000. Prior to joining AAA, he was a manager in the Dallas office of Arthur Andersen LLP from 1996 to 1999. Previously, Mr. Briggs had served as a senior appraiser for Wilson K. Mason Company and Integrated Evaluation, both Dallas real estate appraisal companies, and had been employed by Harvey Cornwell and Associates, also a Dallas-based real estate valuation firm. EDUCATION University of North Texas Bachelor of Business Administration - Real Estate AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E TATES CREEK VILLAGE, LEXINGTON, KENTUCKY PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS STATE CERTIFICATIONS State of Arizona, Certified General Real Estate Appraiser, #31114 State of Arkansas, State Certified General Appraiser, #CG1588N State of Indiana, Certified General Appraiser, #CG40200493 Commonwealth of Kentucky, Certified General Real Property Appraiser, #002611 State of Michigan, Certified General Appraiser, #1201068301 State of Minnesota, Certified General Real Property Appraiser, #AP-20280553 State of Mississippi, State Certified General Real Estate Appraiser, #GA-625 State of Nebraska, Certified General Real Estate Appraiser, #CG230072R State of Oregon, State Certified General Appraiser, #C000713 Commonwealth of Pennsylvania, Certified General Appraiser, #GA001870 State of Tennessee, Certified General Real Estate Appraiser, #00003246 State of Texas, State Certified General Real Estate Appraiser, #TX-1321403-G State of Washington, Certified General Real Estate Appraiser, #1101000 AMERICAN APPRAISAL ASSOCIATES, INC. TATES CREEK VILLAGE, LEXINGTON, KENTUCKY GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. TATES CREEK VILLAGE, LEXINGTON, KENTUCKY 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. -----END PRIVACY-ENHANCED MESSAGE-----