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.