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.