EX-99.(C)(2) 7 d07253exv99wxcyx2y.txt APPRAISAL OF INDIAN CREEK VILLAGE INDIAN CREEK VILLAGE 10382 CONSER STREET OVERLAND PARK, KANSAS MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 8, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] JULY 9, 2003 Apartment Investment and Management Company ("AIMCO") c/o Mr. Steven A. Velkei, Esq. Liner Yankelevitz Sunshine & Regenstreif LLP 1100 Glendon Avenue, 14th Floor Los Angeles, California 90024-3503 Nuanes, et al. ("Plaintiffs") c/o Ms. Joy Kruse Lieff Cabraser Heimann & Bernstein Embarcadero Center West 275 Battery Street, 30th Floor San Francisco, California 94111 RE: INDIAN CREEK VILLAGE 10382 CONSER STREET OVERLAND PARK, JOHNSON COUNTY, KANSAS In accordance with your authorization, we have completed the appraisal of the above-referenced property. This complete appraisal is intended to report our analysis and conclusions in a summary format. The subject property consists of an apartment project having 273 units with a total of 271,830 square feet of rentable area. The improvements were built in 1972. The improvements are situated on 20.64 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 88% occupied. It is our understanding the appraisal will be used by the clients to assist the San Mateo Superior Court in the settlement of litigation between the above mentioned clients. The appraisal is intended to conform to the Uniform Standards of Professional Appraisal Practice ("USPAP") as promulgated by the Appraisal Standards Board of the Appraisal Foundation and the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute. The appraisal is presented in a summary report, and the Departure Provision of USPAP has not been invoked in this appraisal. It is entirely inappropriate to use this value conclusion or the report for any purpose other than the one stated. AMERICAN APPRAISAL ASSOCIATES, INC. LETTER OF TRANSMITTAL PAGE 2 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS The opinions expressed in this appraisal cover letter can only be completely understood by reading the narrative report, addenda, and other data, which is attached. The appraisal is subject to the attached general assumptions and limiting conditions and general service conditions. As a result of our investigation, it is our opinion that the fee simple market value of the subject, effective May 8, 2003 is: ($13,600,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Frank Fehribach July 9, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group Texas State Certified General Real Estate Appraiser #TX-1323954-G Report By: Kim Cook AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary ....................................................... 4 Introduction ............................................................ 9 Area Analysis ........................................................... 11 Market Analysis ......................................................... 14 Site Analysis ........................................................... 16 Improvement Analysis .................................................... 16 Highest and Best Use .................................................... 17 VALUATION Valuation Procedure ..................................................... 18 Sales Comparison Approach ............................................... 20 Income Capitalization Approach .......................................... 26 Reconciliation and Conclusion ........................................... 37
ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Indian Creek Village LOCATION: 10382 Conser Street Overland Park, Kansas INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: Fee simple estate DATE OF VALUE: May 8, 2003 DATE OF REPORT: July 9, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 20.64 acres, or 899,078 square feet Assessor Parcel No.: NP34000000 000A; (Assessed Value) Floodplain: Community Panel No. 2001740208F (June 17, 2002) Flood Zone AE, an area inside the floodplain. Zoning: RP-3 (Residential Planned Development District) BUILDING: No. of Units: 273 Units Total NRA: 271,830 Square Feet Average Unit Size: 996 Square Feet Apartment Density: 13.2 units per acre Year Built: 1972 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ------------------------ Monthly Annual Unit Type Feet Per Unit Per SF Income Income -------------------------------------------------------------------------------------------- 1Br/1Ba 617 $ 560 $0.91 $ 20,160 $ 241,920 1Br/1Ba 878 $ 590 $0.67 $ 82,600 $ 991,200 2Br/1Ba 1,165 $ 860 $0.74 $ 3,440 $ 41,280 2Br/2Ba 1,274 $ 870 $0.68 $ 66,990 $ 803,880 3Br/2Ba 1,287 $ 890 $0.69 $ 8,900 $ 106,800 3Br/2Ba, TH 1,845 $1,000 $0.54 $ 6,000 $ 72,000 Total $188,090 $2,257,080
OCCUPANCY: 88% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 25 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS REMAINING ECONOMIC LIFE: 20 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] ENTRANCE TO SUBJECT VIEW OF LEASING OFFICE AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS NEIGHBORHOOD MAP [MAP] HIGHEST AND BEST USE: As Vacant: Hold for future multi-family development As Improved: Continuation as its current use METHOD OF VALUATION: In this instance, the Sales Comparison and Income Approaches to value were utilized. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS PART TWO - ECONOMIC INDICATORS
Amount $/Unit ------ ------ INCOME CAPITALIZATION APPROACH DIRECT CAPITALIZATION Potential Rental Income $2,257,080 $8,268 Effective Gross Income $2,222,472 $8,141 Operating Expenses $949,234 $3,477 42.7% of EGI Net Operating Income: $1,204,988 $4,414 Capitalization Rate 9.00% DIRECT CAPITALIZATION VALUE $13,400,000 * $49,084 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 15% Stabilized Vacancy & Collection Loss: 10% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 10.00% Discount Rate 11.00% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $13,800,000 * $50,549 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $13,600,000 $49,817 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $51,121 to $69,324 Range of Sales $/Unit (Adjusted) $46,678 to $57,678 VALUE INDICATION - PRICE PER UNIT $13,600,000 * $49,817 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 6.49 to 7.33 Selected EGIM for Subject 6.25 Subject's Projected EGI $2,222,472 EGIM ANALYSIS CONCLUSION $13,900,000 * $50,916 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $13,600,000 * $49,817 / UNIT RECONCILED SALES COMPARISON VALUE $13,700,000 $50,183 / UNIT
-------------------- * Value indications are after adjustments for concessions, deferred maintenance, excess land and lease-up costs, if any. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 8 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $13,600,000 NOI Per Unit $13,600,000 EGIM Multiplier $13,900,000 INDICATED VALUE BY SALES COMPARISON $13,700,000 $50,183 / UNIT INCOME APPROACH: Direct Capitalization Method: $13,400,000 Discounted Cash Flow Method: $13,800,000 INDICATED VALUE BY THE INCOME APPROACH $13,600,000 $49,817 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $13,600,000 $49,817 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 10382 Conser Street, Overland Park, Johnson County, Kansas. Overland Park identifies it as NP34000000 000A. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Kim Cook on May 8, 2003. Frank Fehribach, MAI has not made a personal inspection of the subject property. Kim Cook performed the research, valuation analysis and wrote the report. Frank Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach, MAI and Kim Cook have extensive experience in appraising similar properties and meet the USPAP competency provision. The scope of this investigation comprises the inspection of the property and the collection, verification, and analysis of general and specific data pertinent to the subject property. We have researched current improved sales and leases of similar properties, analyzing them as to their comparability, and adjusting them accordingly. We completed the Sales Comparison and Income Capitalization Approaches to value. From these approaches to value, a concluded overall value was made. DATE OF VALUE AND REPORT This appraisal was made to express the opinion of value as of May 8, 2003. The date of the report is July 9, 2003. PURPOSE AND USE OF APPRAISAL The purpose of the appraisal is to estimate the market value of the fee simple interest in the subject property. It is understood that the appraisal is intended to assist the clients in litigation settlement proceedings. The appraisal was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. PROPERTY RIGHTS APPRAISED We have appraised the Fee Simple Estate in the subject property (as applied in the Sales & Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS defined in The Dictionary of Real Estate Appraisal, 3rd ed. (Chicago: Appraisal Institute, 1993), as: "Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat." MARKETING/EXPOSURE PERIOD MARKETING PERIOD: 6 to 12 months EXPOSURE PERIOD: 6 to 12 months HISTORY OF THE PROPERTY Ownership in the subject property is currently vested in CCIP. To the best of our knowledge, no transfers of ownership or offers to purchase the subject are known to have occurred during the past three years. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 11 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS AREA / NEIGHBORHOOD ANALYSIS NEIGHBORHOOD ANALYSIS A neighborhood is a group of complementary land uses. The function of the neighborhood analysis is to describe the immediate surrounding environs. The subject is located in the city of Overland Park, Kansas. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - US 169/Metcalf Avenue West - US 69/Overland Parkway South - West 119th Street North - West 95th Street MAJOR EMPLOYERS Major employers in the subject's area include Sprint Corporation (21,173 employees), Applebees International (2,200 employees), Yellow Corporation (1,500 employees), and JC Penney Catalog Logistics Center (1,500 employees). The overall economic outlook for the area is considered favorable. DEMOGRAPHICS We have reviewed demographic data within the neighborhood. The following table summarizes the key data points. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 12 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS NEIGHBORHOOD DEMOGRAPHICS
AREA -------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA ------------------------------------------------------------------------------------------- POPULATION TRENDS Current Population 10,407 91,615 239,527 1,807,569 5-Year Population 10,335 92,956 253,829 1,892,507 % Change CY-5Y -0.7% 1.5% 6.0% 4.7% Annual Change CY-5Y -0.1% 0.3% 1.2% 0.9% HOUSEHOLDS Current Households 4,774 39,543 100,527 709,949 5-Year Projected Households 4,851 41,077 107,505 750,540 % Change CY - 5Y 1.6% 3.9% 6.9% 5.7% Annual Change CY-5Y 0.3% 0.8% 1.4% 1.1% INCOME TRENDS Median Household Income $ 65,759 $ 71,000 $ 71,321 $ 49,518 Per Capita Income $ 33,970 $ 33,515 $ 34,403 $ 24,363 Average Household Income $ 76,648 $ 78,619 $ 81,920 $ 62,029
Source: Demographics Now The subject neighborhood's population is expected to show increases above that of the region. The immediate market offers superior income levels as compared to the broader market. The following table illustrates the housing statistics in the subject's immediate area, as well as the MSA region. HOUSING TRENDS
AREA ----------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA ------------------------------------------------------------------------------------------- HOUSING TRENDS % of Households Renting 37.80% 33.10% 30.57% 29.10% 5-Year Projected % Renting 37.87% 32.22% 30.07% 28.33% % of Households Owning 56.02% 61.03% 64.45% 62.84% 5-Year Projected % Owning 55.89% 61.96% 65.12% 64.03%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Condominium South - Sunny Oak Apartments, Indian Creek East - Open green area, Wycliff West Shopping Center West - Brookridge Country Club and golf course CONCLUSIONS The subject is well located within the city of Overland Park. The neighborhood is characterized as being mostly suburban in nature and is currently in the stable stage of development. The economic outlook for the neighborhood is judged to be favorable with a good economic base. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 14 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS MARKET ANALYSIS The subject property is located in the city of Overland Park in Johnson County. The overall pace of development in the subject's market is more or less stable. No new construction was noted for 2003. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket ------------------------------------------------------ 1st Quarter 2003 8.0% 8.1% 4th Quarter 2002 7.1% 6.8% Average Per Ending 12/31/02 6.2% 5.8%
Source: REIS, Subtrend Futures, Kansas City Apartment, Overland Park North, 1st Quarter 2003 Occupancy trends in the subject's market are stable. Historically speaking, the subject's submarket has outperformed the overall market. Market rents in the subject's market have been following a stable trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change -------------------------------------------------------------------------------- 1st Q 2003 N/A N/A $644 - 1st Q 2002 N/A N/A $676 5.0% 1st Q 2001 N/A N/A $652 -3.6% 1st Q 2002 N/A N/A $671 2.9%
Source: REIS, Subtrend Futures, Kansas City Apartment, Overland Park North, 1st Quarter 2003 The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject --------------------------------------------------------------------------------------------------------------------- R-1 Sunny Oak Village 548 99% 1983 Located just SE of subject R-2 Essex Place 352 92% 1971 1 miles NW of subject R-3 Pebblebrook 267 94% 1985 1.5 miles N of the subject R-4 Highland Ridge Apartments 370 85% 1987 4.5 miles SW of subject R-5 Skyler Ridge 448 92% 1986 2 miles SE of subject Subject Indian Creek Village 273 88% 1972
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS PROPERTY DESCRIPTION SITE ANALYSIS Site Area 20.64 acres, or 899,078 square feet Shape Irregular Topography Level Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Good Flood Zone: Community Panel 2001740208F, dated June 17, 2002 Flood Zone Zone AE Zoning RP-3, the subject improvements represent a legal conforming use of the site. REAL ESTATE TAXES
ASSESSED VALUE - 2002 --------------------------------------------- TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES ----------------------------------------------------------------------------------------------------------- NP34000000 000A; (Assessed $94,530 $1,142,985 $1,237,515 0.08175 $101,163 Value)
IMPROVEMENT ANALYSIS Year Built 1972 Number of Units 273 Net Rentable Area 271,830 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Stucco wall Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, spa/jacuzzi, tennis court, meeting hall, laundry room, business office, and parking area. Unit Amenities Individual unit amenities include a garage, balcony, fireplace, cable TV connection, vaulted ceiling, and washer dryer connection. Appliances available in each unit include AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS a refrigerator, stove, dishwasher, water heater, garbage disposal, and oven. Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) ------------------------------------------------------------- 1Br/1Ba 36 617 1Br/1Ba 140 878 2Br/1Ba 4 1,165 2Br/2Ba 77 1,274 3Br/2Ba 10 1,287 3Br/2Ba, TH 6 1,845
Overall Condition Average Effective Age 25 years Economic Life 45 years Remaining Economic Life 20 years Deferred Maintenance The deferred maintenance at the subject property was estimated for a total amount of $34,000. HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1972 and consist of a 273-unit multifamily project. The highest and best use as improved is for a continued multifamily use. Overall, the highest and best use of the subject property is the continued use of the existing apartment project. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 18 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS THE VALUATION PROCEDURE There are three traditional approaches, which can be employed in establishing the market value of the subject property. These approaches and their applicability to the valuation of the subject are summarized as follows: THE COST APPROACH The application of the Cost Approach is based on the principle of substitution. This principle may be stated as follows: no one is justified in paying more for a property than that amount by which he or she can obtain, by purchase of a site and construction of a building, without undue delay, a property of equal desirability and utility. In the case of a new building, no deficiencies in the building should exist. In the case of income-producing real estate, the cost of construction plays a minor and relatively insignificant role in determining market value. The Cost Approach is typically only a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) where the cost of reproducing the improvements is easily and accurately quantified and there is no economic obsolescence. In all instances, the issue of an appropriate entrepreneurial profit - the reward for undertaking the risk of construction, remains a highly subjective factor especially in a market lacking significant speculative development. THE SALES COMPARISON APPROACH The Sales Comparison Approach is an estimate of value based upon a process of comparing recent sales of similar properties in the surrounding or competing areas to the subject property. Inherent in this approach is the principle of substitution. The application of this approach consists of comparing the subject property with similar properties of the same general type, which have been sold recently or currently are available for sale in competing areas. This comparative process involves judgment as to the similarity of the subject property and the comparable sale with respect to many value factors such as location, contract rent levels, quality of construction, reputation and prestige, age and condition, among others. The estimated value through this approach represents the probable price at which a willing seller would sell the subject property to a willing and knowledgeable buyer as of the date of value. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 19 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS THE INCOME CAPITALIZATION APPROACH The theory of the Income Capitalization Approach is based on the premise that present value is the value of the cash flow and reversionary value the property will produce over a reasonable holding (ownership) period. The Discounted Cash Flow Analysis will convert equity cash flows (including cash flows and equity reversion) into a present value utilizing an internal rate of return (or discount rate). The Internal Rate of Return (IRR) will be derived from a comparison of alternate investments, a comparative analysis of IRR's used by recent buyers of similar properties, and a review of published industry surveys. The Direct Capitalization Analysis converts one year of income into an overall value using overall capitalization rates from similar sales. The overall rates take into consideration buyers assumptions of the market over the long-term. The results of the Income Capitalization Analysis are usually the primary value indicator for income producing properties. Investors expect a reasonable rate of return on their equity investment based on the ownership risks involved; this approach closely parallels the investment decision process. RECONCILIATION In this instance, we have completed the Sales Comparison and Income Capitalization Approaches to value. As an income producing property, the income approach is a primary approach to value. The Sales Comparison Approach is also considered reliable as investors are buying similar buildings in the market. Our research indicates that market participants are generally not buying, selling, investing, or lending with reliance placed on the methodology of the Cost Approach to establish the value. Therefore, we have decided that the Cost Approach is not a reliable indicator of value for the subject, and this approach has not been utilized. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 20 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS SALES COMPARISON APPROACH Use of market or comparable sales requires the collection and analysis of comparable sales data. Similar properties recently sold are compared to the subject and adjusted based on any perceived differences. This method is based on the premise that the costs of acquiring a substitute property would tend to establish a value for the subject property. The premise suggests that if a substitute is unavailable in the market, the reliability of the approach may be subordinate to the other approaches. The reliance on substitute properties produces shortcomings in the validity of this approach. Geographic and demographic characteristics from each submarket restrict which sales may be selected. Recent sales with a similar physical characteristics, income levels, and location are usually limited. The sales we have identified, however, do establish general valuation parameters as well as provide support to our conclusion derived through the income approach method. The standard unit of comparison among similar properties is the sales price per unit and price per square foot of net rentable area. To accurately adjust prices to satisfy the requirements of the sales comparison approach, numerous calculations and highly subjective judgments would be required including consideration of numerous income and expense details for which information may be unreliable or unknown. The sales price per unit and square foot are considered relevant to the investment decision, but primarily as a parameter against which value estimates derived through the income approach can be judged and compared. In examining the comparable sales, we have applied a subjective adjustment analysis, which includes specific adjustments derived from our experience and consulting with the market participants. SALES COMPARISON ANALYSIS Detailed on the following pages are sales transactions involving properties located in the subject's competitive investment market. Photographs of the sale transactions are located in the Addenda. Following the summary of sales is an adjustment grid that is used to arrive at a value. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ------------------------------------------------------------------------------------------------------------------ Property Name Indian Creek Village Nieman Square Casa de Fuentes LOCATION: Address 10382 Conser Street 11115 West 64th Terrace 11700 Stearns City, State Overland Park, Kansas Shawnee, KS Overland Park, KS County Johnson Johnson County Johnson County PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 271,830 114,359 241,384 Year Built 1972 1986 1986 Number of Units 273 152 288 Unit Mix: Type Total Type Total Type Total 1Br/1Ba 36 1Br/1Ba 98 1Br/1Ba NA 1Br/1Ba 140 2Br/1Ba 27 2Br/2Ba NA 2Br/1Ba 4 2Br/2Ba 27 2Br/2Ba 77 3Br/2Ba 10 3Br/2Ba, TH 6 Average Unit Size (SF) 996 752 838 Land Area (Acre) 20.6400 8.5500 30.1400 Density (Units/Acre) 13.2 17.8 9.6 Parking Ratio (Spaces/Unit) 1.83 1.99 1.99 Parking Type (Gr., Cov., etc.) Open 177 Open, 126 Covered 500 Open, 72 Covered CONDITION: Average Average Good APPEAL: Average Average Good AMENITIES: Pool/Spa Yes/Yes Yes/Yes Yes/Yes Gym Room No Yes Yes Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts Yes Yes Yes Washer/Dryer Connection Yes (in 2&3 Br units) Yes Yes OCCUPANCY: 88% 91% 89% TRANSACTION DATA: Sale Date August, 2002 July, 2002 Sale Price ($) $7,770,350 $14,900,000 Grantor Five States Associates, LP WXI/SPN Real Estate LP Grantee Cashill, Spalding Coolidge-CLK Casa de Fuentes, LLC Sale Documentation Document 216225 Document 212107 Verification Broker Broker Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF ---------- ------ ------ ---------- ------ ------ Potential Gross Income $1,249,988 $8,224 $10.93 $2,438,255 $8,466 $10.10 Vacancy/Credit Loss $ 131,014 $ 862 $ 1.15 $ 260,414 $ 904 $ 1.08 Effective Gross Income $1,118,974 $7,362 $ 9.78 $2,177,841 $7,562 $ 9.02 Operating Expenses $ 480,364 $3,160 $ 4.20 $1,031,690 $3,582 $ 4.27 Net Operating Income $ 638,610 $4,201 $ 5.58 $1,146,151 $3,980 $ 4.75 NOTES: Sale price includes $170,350 The grantee also purchased for repair of siding and Aspen Lodge, Improved paving Comparable I-3. PRICE PER UNIT $51,121 $51,736 PRICE PER SQUARE FOOT $ 67.95 $ 61.73 EXPENSE RATIO 42.9% 47.4% EGIM 6.94 6.84 OVERALL CAP RATE 8.22% 7.69% Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 ---------------------------------------------------------------------------------------------------------------------- Property Name Aspen Lodge Corinth Place Apartments Concorde Bridge Townhomes (now Sheridan Bridge) LOCATION: Address 8100 Perry Road 3815 Somerset Drive 8403 Carter Street City, State Overland Park, KS Prairie Village, KS Overland Park, KS County Johnson County Johnson County Johnson County PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 277,054 75,280 403,196 Year Built 1987 1986 1971 Number of Units 307 76 248 Unit Mix: Type Total Type Total Type Total 1Br/1Ba NA 1Br/Ba NA 1Br/Ba NA 1Br/1Ba NA 2Br/2Ba NA 2Br/2Ba NA 2Br/1Ba NA 2Br/2Ba NA 3Br/2Ba NA Average Unit Size (SF) 902 991 1,626 Land Area (Acre) 33.5000 6.9000 25.8900 Density (Units/Acre) 9.2 11.0 9.6 Parking Ratio (Spaces/Unit) 1.49 NA 1.99 Parking Type (Gr., Cov., etc.) 304 Open, 154 Covered Open 375 Open, 119 Covered CONDITION: Average Average Average APPEAL: Average Average Average AMENITIES: Pool/Spa Yes/Yes Yes/No Yes/Yes Gym Room Yes Yes Yes Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts Yes Yes No Washer/Dryer Connection Yes Yes Yes OCCUPANCY: 90% 97% 94% TRANSACTION DATA: Sale Date July, 2002 May, 2001 January, 2001 Sale Price ($) $16,850,000 $5,268,658 $16,801,300 Grantor WXI/SPN Real Estate LP Highwoods Realty Limited Capreit Concorde Bridge Partnership Limited Partnership Grantee Coolidge-CLK Aspen, LLC TVO Corinth Place, LLC Sheridan Ridge LLC Sale Documentation Document 212108 Document 190389 Document 184907 Verification Broker Broker Confidential Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF ---------- ------ ----- -------- ------ ----- ---------- ------- ---- Potential Gross Income $2,713,792 $8,840 $9.80 $737,573 $9,705 $9.80 $ 0 $ 0 $0.00 Vacancy/Credit Loss $ 218,105 $ 710 $0.79 $ 18,520 $ 244 $0.25 $ 0 $ 0 $0.00 Effective Gross Income $2,495,687 $8,129 $9.01 $719,053 $9,461 $9.55 $2,589,305 $10,441 $6.42 Operating Expenses $1,122,740 $3,657 $4.05 $240,912 $3,170 $3.20 $ 829,237 $ 3,344 $2.06 Net Operating Income $1,372,947 $4,472 $4.96 $478,141 $6,291 $6.35 $1,760,068 $ 7,097 $4.37 NOTES: The grantee also purchased This property was purchased The sale price includes Casa de Fuentes, Improved as part of a bulk sale. The $1,201,300 in deferred Comparable I-2. sale price was allocated maintenance and renovation. based on appraisals PRICE PER UNIT $54,886 $69,324 $67,747 PRICE PER SQUARE FOOT $ 60.82 $ 69.99 $ 41.67 EXPENSE RATIO 45.0% 33.5% 32.0% EGIM 6.75 7.33 6.49 OVERALL CAP RATE 8.15% 9.08% 10.48% Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $51,121 to $69,324 per unit. Adjustments have been made to the sales to reflect differences in location, age/condition and quality/appeal. Generally speaking, larger properties typically have a lower price per unit when compared to smaller properties, all else being equal. Similarly, those projects with a higher average unit size will generally have a higher price per unit. After appropriate adjustments are made, the improved sales demonstrate an adjusted range for the subject from $46,678 to $57,678 per unit with a mean or average adjusted price of $50,882 per unit. The median adjusted price is $50,132 per unit. Based on the following analysis, we have concluded to a value of $50,000 per unit, which results in an "as is" value of $13,600,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS SALES ADJUSTMENT GRID
COMPARABLE DESCRIPTION SUBJECT I - 1 ----------------------------------- --------------------- ------------------------------- Property Name Indian Creek Village Nieman Square Address 10382 Conser Street 11115 West 64th Terrace City Overland Park, Kansas Shawnee, KS Sale Date August, 2002 Sale Price ($) $7,770,350 Net Rentable Area (SF) 271,830 114,359 Number of Units 273 152 Price Per Unit $51,121 Year Built 1972 1986 Land Area (Acre) 20.6400 8.5500 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Financing Cash To Seller 0% Conditions of Sale Arm's Length 0% Date of Sale (Time) 08-2002 2% VALUE AFTER TRANS. ADJUST. ($/UNIT) $52,143 Location Comparable 0% Number of Units 273 152 -5% Quality / Appeal Average Comparable 0% Age / Condition 1972 1986 / Average -5% Occupancy at Sale 88% 91% 0% Amenities Average Comparable 0% Average Unit Size (SF) 996 752 5% PHYSICAL ADJUSTMENT -5% FINAL ADJUSTED VALUE ($/UNIT) $49,536
COMPARABLE COMPARABLE DESCRIPTION I - 2 I - 3 ----------------------------------- ------------------------------ ------------------------------ Property Name Casa de Fuentes Aspen Lodge Address 11700 Stearns 8100 Perry Road City Overland Park, KS Overland Park, KS Sale Date July, 2002 July, 2002 Sale Price ($) $14,900,000 $16,850,000 Net Rentable Area (SF) 241,384 277,054 Number of Units 288 307 Price Per Unit $51,736 $54,886 Year Built 1986 1987 Land Area (Acre) 30.1400 33.5000 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 07-2002 2% 07-2002 2% VALUE AFTER TRANS. ADJUST. ($/UNIT) $52,771 $55,984 Location Comparable 0% Comparable 0% Number of Units 288 0% 307 0% Quality / Appeal Comparable 0% Comparable 0% Age / Condition 1986 / Good -5% 1987 / Average -5% Occupancy at Sale 89% 0% 90% 0% Amenities Comparable 0% Superior -5% Average Unit Size (SF) 838 0% 902 0% PHYSICAL ADJUSTMENT -5% -10% FINAL ADJUSTED VALUE ($/UNIT) $50,132 $50,385
COMPARABLE COMPARABLE DESCRIPTION I - 4 I - 5 ----------------------------------- ------------------------------ ---------------------------------------- Property Name Corinth Place Apartments Concorde Bridge Townhomes (now Sheridan Bridge) Address 3815 Somerset Drive 8403 Carter Street City Prairie Village, KS Overland Park, KS Sale Date May, 2001 January, 2001 Sale Price ($) $5,268,658 $16,801,300 Net Rentable Area (SF) 75,280 403,196 Number of Units 76 248 Price Per Unit $69,324 $67,747 Year Built 1986 1971 Land Area (Acre) 6.9000 25.8900 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 05-2001 4% 01-2001 6% VALUE AFTER TRANS. ADJUST. ($/UNIT) $72,097 $71,812 Location Comparable 0% Comparable 0% Number of Units 76 -15% 248 0% Quality / Appeal Comparable 0% Comparable 0% Age / Condition 1986 / Average -5% 1971 / Average 0% Occupancy at Sale 97% 0% 94% 0% Amenities Comparable 0% Comparable 0% Average Unit Size (SF) 991 0% 1,626 -35% PHYSICAL ADJUSTMENT -20% -35% FINAL ADJUSTED VALUE ($/UNIT) $57,678 $46,678
SUMMARY VALUE RANGE (PER UNIT) $46,678 TO $57,678 MEAN (PER UNIT) $50,882 MEDIAN (PER UNIT) $50,132 VALUE CONCLUSION (PER UNIT) $50,000
VALUE OF IMPROVEMENT & MAIN SITE $13,650,000 DEFERRED MAINTENANCE -$ 34,000 VALUE INDICATED BY SALES COMPARISON APPROACH $13,616,000 ROUNDED $13,600,000
NET OPERATING INCOME (NOI) ANALYSIS We have also conducted a net operating income (NOI) comparison analysis. The NOI effectively takes into account the various physical, location, and operating aspects of the sale. When the subject's NOI is compared to the sale NOI, a percent adjustment can be arrived at. The following table illustrates this analysis. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS NOI PER UNIT COMPARISON
SALE PRICE NOI/ SUBJECT NOI COMPARABLE NO. OF ---------- -------- -------------- ADJUSTMENT INDICATED NO. UNITS PRICE/UNIT OAR NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT ---------- ------ ------------ ------- ------------ -------------- ---------- ---------- I-1 152 $ 7,770,350 8.22% $ 638,610 $ 1,204,988 1.051 $53,706 $ 51,121 $ 4,201 $ 4,414 I-2 288 $ 14,900,000 7.69% $ 1,146,151 $ 1,204,988 1.109 $57,381 $ 51,736 $ 3,980 $ 4,414 I-3 307 $ 16,850,000 8.15% $ 1,372,947 $ 1,204,988 0.987 $54,171 $ 54,886 $ 4,472 $ 4,414 I-4 76 $ 5,268,658 9.08% $ 478,141 $ 1,204,988 0.702 $48,637 $ 69,324 $ 6,291 $ 4,414 I-5 248 $ 16,801,300 10.48% $ 1,760,068 $ 1,204,988 0.622 $42,134 $ 67,747 $ 7,097 $ 4,414
PRICE/UNIT
Low High Average Median $42,134 $57,381 $ 51,206 $ 53,706
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 50,000 Number of Units 273 ------------ Value $13,650,000 Deferred Maintenance -$ 34,000 ------------ Value Based on NOI Analysis $13,616,000 Rounded $13,600,000
The adjusted sales indicate a range of value between $42,134 and $57,381 per unit, with an average of $51,206 per unit. Based on the subject's competitive position within the improved sales, a value of $50,000 per unit is estimated. This indicates an "as is" market value of $13,600,000 (rounded after necessary adjustment, if any) for the NOI Per Unit Analysis. EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS The effective gross income multiplier (EGIM) is derived by dividing the sales price by the total effective gross income. The following table illustrates the EGIMs for the comparable improved sales. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON
SALE PRICE COMPARABLE NO. OF ---------- EFFECTIVE OPERATING SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM ---------- ------- ----------- ------------ ---------- ----------- ------------- ---------- I-1 152 $ 7,770,350 $ 1,118,974 $ 480,364 42.93% 6.94 $ 51,121 I-2 288 $14,900,000 $ 2,177,841 $1,031,690 47.37% 6.84 $ 51,736 I-3 307 $16,850,000 $ 2,495,687 $1,122,740 44.99% 6.75 $ 54,886 42.71% I-4 76 $ 5,268,658 $ 719,053 $ 240,912 33.50% 7.33 $ 69,324 I-5 248 $16,801,300 $ 2,589,305 $ 829,237 32.03% 6.49 $ 67,747
EGIM
Low High Average Median ----- ------ ------- ------ 6.49 7.33 6.87 6.84
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 6.25 ------------ Subject EGI $ 2,222,472 Value $13,890,450 Deferred Maintenance -$ 34,000 ------------ Value Based on EGIM Analysis $13,856,450 Rounded $13,900,000 Value Per Unit $ 50,916
There is an inverse relationship, which generally holds among EGIMs and operating expenses. Properties, which have higher expense ratios, typically sell for relatively less and therefore produce a lower EGIM. As will be illustrated in the Income Capitalization Approach of this report, the subject's operating expense ratio (OER) is estimated at 42.71% before reserves. The comparable sales indicate a range of expense ratios from 32.03% to 47.37%, while their EGIMs range from 6.49 to 7.33. Overall, we conclude to an EGIM of 6.25, which results in an "as is" value estimate in the EGIM Analysis of $13,900,000. SALES COMPARISON CONCLUSION The three valuation methods in the Sales Comparison Approach are shown below. The overall value via the Sales Comparison Approach is estimated at $13,700,000. Price Per Unit $13,600,000 NOI Per Unit $13,600,000 EGIM Analysis $13,900,000 Sales Comparison Conclusion $13,700,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS INCOME CAPITALIZATION APPROACH The income capitalization approach is based on the premise that value is created by the expectation of future benefits. We estimated the present value of those benefits to derive an indication of the amount that a prudent, informed purchaser-investor would pay for the right to receive them as of the date of value. This approach requires an estimate of the NOI of a property. The estimated NOI is then converted to a value indication by use of either the direct capitalization or the discounted cash flow analysis (yield capitalization). Direct capitalization uses a single year's stabilized NOI as a basis for a value indication by dividing the income by a capitalization rate. The rate chosen accounts for a recapture of the investment by the investor and should reflect all factors that influence the value of the property, such as tenant quality, property condition, neighborhood change, market trends, interest rates, and inflation. The rate may be extracted from local market transactions or, when transaction evidence is lacking, obtained from trade sources. A discounted cash flow analysis focuses on the operating cash flows expected from the property and the proceeds of a hypothetical sale at the end of a holding period (the reversion). The cash flows and reversion are discounted to their present values using a market-derived discount rate and are added together to obtain a value indication. Because benefits to be received in the future are worth less than the same benefits received in the present, this method weights income in the early years more heavily than the income and the sale proceeds to be received later. The strength of the discounted cash flow method is its ability to recognize variations in projected net income, such as those caused by inflation, stepped leases, neighborhood change, or tenant turnover. Its weakness is that it requires many judgments regarding the actions of likely buyers and sellers of the property in the future. In some situations, both methods yield a similar result. The discounted cash flow method is typically more appropriate for the analysis of investment properties with multiple or long-term leases, particularly leases with cancellation clauses or renewal options. It is especially useful for multi-tenant properties in volatile markets. The direct capitalization AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
Average Unit Area ----------------- Unit Type (Sq. Ft.) Per Unit Per SF % Occupied -------------------------------------------------------- 1Br/1Ba 617 $530 $ 0.86 90.0% 1Br/1Ba 878 $570 $ 0.65 80.0% 2Br/1Ba 1165 $790 $ 0.68 93.0% 2Br/2Ba 1274 $800 $ 0.63 100.0% 3Br/2Ba 1287 $900 $ 0.70 91.0% 3Br/2Ba, TH 1845 $840 $ 0.46 97.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS RENT ANALYSIS
COMPARABLE RENTS ------------------------------------------------------------- R-1 R-2 R-3 R-4 R-5 ------------------------------------------------------------- Highland Sunny Oak Ridge Skyler Village Essex Place Pebblebrook Apartments Ridge ------------------------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT ------------------------------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly Slightly Slightly Slightly DESCRIPTION TYPE RENT RENT Superior Similar Superior Superior Superior ---------------------------------------------------------------------------------------------------------------------------- Monthly Rent 1Br/1Ba $ 530 $ 559 $ 529 $ 605 $ 500 $ 638 Unit Area (SF) 617 617 720 700 578 681 Monthly Rent Per Sq. Ft. $ 0.86 $ 0.91 $ 0.73 $ 0.86 $ 0.87 $ 0.94 Monthly Rent 1Br/1Ba $ 570 $ 589 $ 700 $ 625 $ 637 $ 690 Unit Area (SF) 878 878 934 600 637 821 Monthly Rent Per Sq. Ft. $ 0.65 $ 0.67 $ 0.75 $ 1.04 $ 1.00 $ 0.84 Monthly Rent 2Br/1Ba $ 790 $ 859 $ 629 $ 740 $ 750 $ 750 Unit Area (SF) 1,165 1,165 840 925 840 972 Monthly Rent Per Sq. Ft. $ 0.68 $ 0.74 $ 0.75 $ 0.80 $ 0.89 $ 0.77 Monthly Rent 2Br/2Ba $ 800 $ 869 $ 654 $ 898 $ 805 $ 923 $ 699 Unit Area (SF) 1,274 1,274 1,017 1,256 900 1,125 1,018 Monthly Rent Per Sq. Ft. $ 0.63 $ 0.68 $ 0.64 $ 0.71 $ 0.89 $ 0.82 $ 0.69 Monthly Rent 3Br/2Ba $ 900 $ 889 $ 799 $ 895 Unit Area (SF) 1,287 1,287 1,225 1,157 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.69 $ 0.65 $ 0.77 Monthly Rent 3Br/2Ba, TH $ 840 $ 1,299 $ 899 $ 1,210 Unit Area (SF) 1,845 1,845 1,500 1,945 Monthly Rent Per Sq. Ft. $ 0.46 $ 0.70 $ 0.60 $ 0.62 DESCRIPTION MIN MAX MEDIAN AVERAGE ---------------------------------------------------------------- Monthly Rent $ 500 $ 638 $ 567 $ 568 Unit Area (SF) 578 720 691 670 Monthly Rent Per Sq. Ft. $ 0.73 $ 0.94 $ 0.86 $ 0.85 Monthly Rent $ 625 $ 700 $ 664 $ 663 Unit Area (SF) 600 934 729 748 Monthly Rent Per Sq. Ft. $ 0.75 $ 1.04 $ 0.92 $ 0.91 Monthly Rent $ 629 $ 750 $ 745 $ 717 Unit Area (SF) 840 972 883 894 Monthly Rent Per Sq. Ft. $ 0.75 $ 0.89 $ 0.79 $ 0.80 Monthly Rent $ 654 $ 923 $ 805 $ 796 Unit Area (SF) 900 1,256 1,018 1,063 Monthly Rent Per Sq. Ft. $ 0.64 $ 0.89 $ 0.71 $ 0.75 Monthly Rent $ 799 $ 895 $ 847 $ 847 Unit Area (SF) 1,157 1,225 1,191 1,191 Monthly Rent Per Sq. Ft. $ 0.65 $ 0.77 $ 0.71 $ 0.71 Monthly Rent $ 899 $ 1,210 $1,055 $ 1,055 Unit Area (SF) 1,500 1,945 1,723 1,723 Monthly Rent Per Sq. Ft. $ 0.60 $ 0.62 $ 0.61 $ 0.61
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows: GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area ----------------- Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income --------------------------------------------------------------------------------------- 1Br/1Ba 36 617 $ 560 $ 0.91 $ 20,160 $ 241,920 1Br/1Ba 140 878 $ 590 $ 0.67 $ 82,600 $ 991,200 2Br/1Ba 4 1,165 $ 860 $ 0.74 $ 3,440 $ 41,280 2Br/2Ba 77 1,274 $ 870 $ 0.68 $ 66,990 $ 803,880 3Br/2Ba 10 1,287 $ 890 $ 0.69 $ 8,900 $ 106,800 3Br/2Ba, TH 6 1,845 $1,000 $ 0.54 $ 6,000 $ 72,000 Total $188,090 $2,257,080
PRO FORMA ANALYSIS For purposes of this appraisal, we were provided with income and expense data for the subject property. A summary of this data is presented on the following page. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 FISCAL YEAR 2003 ------------------------------------------------------------------------------------------------- ACTUAL ACTUAL ACTUAL MANAGEMENT BUDGET ------------------------------------------------------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT ------------------------------------------------------------------------------------------------------------------------------- Revenues Rental Income $ 2,343,886 $ 8,586 $ 2,393,324 $ 8,767 $ 1,418,895 $ 5,197 $ 2,271,600 $ 8,321 Vacancy $ 145,705 $ 534 $ 155,115 $ 568 $ 151,344 $ 554 $ 189,260 $ 693 Credit Loss/Concessions $ 36,929 $ 135 $ 90,771 $ 332 $ 55,335 $ 203 $ 70,080 $ 257 ------------------------------------------------------------------------------------------------- Subtotal $ 182,634 $ 669 $ 245,886 $ 901 $ 206,679 $ 757 $ 259,340 $ 950 Laundry Income $ 19,958 $ 73 $ 19,047 $ 70 $ 11,280 $ 41 $ 24,240 $ 89 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 93,003 $ 341 $ 146,711 $ 537 $ 101,256 $ 371 $ 168,504 $ 617 ------------------------------------------------------------------------------------------------- Subtotal Other Income $ 112,961 $ 414 $ 165,758 $ 607 $ 112,536 $ 412 $ 192,744 $ 706 ------------------------------------------------------------------------------------------------- Effective Gross Income $ 2,274,213 $ 8,330 $ 2,313,196 $ 8,473 $ 1,324,752 $ 4,853 $ 2,205,004 $ 8,077 Operating Expenses Taxes $ 113,303 $ 415 $ 112,288 $ 411 $ 74,049 $ 271 $ 124,176 $ 455 Insurance $ 59,557 $ 218 $ 71,586 $ 262 $ 56,071 $ 205 $ 52,408 $ 192 Utilities $ 153,876 $ 564 $ 174,057 $ 638 $ 102,160 $ 374 $ 139,984 $ 513 Repair & Maintenance $ 32,444 $ 119 $ 55,393 $ 203 $ 48,189 $ 177 $ 60,764 $ 223 Cleaning $ 25,580 $ 94 $ 25,601 $ 94 $ 15,698 $ 58 $ 0 $ 0 Landscaping $ 47,560 $ 174 $ 33,143 $ 121 $ 10,196 $ 37 $ 65,500 $ 240 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 51,309 $ 188 $ 43,245 $ 158 $ 27,914 $ 102 $ 46,040 $ 169 General Administrative $ 295,033 $ 1,081 $ 305,091 $ 1,118 $ 158,914 $ 582 $ 250,044 $ 916 Management $ 115,313 $ 422 $ 119,995 $ 440 $ 61,945 $ 227 $ 110,004 $ 403 Miscellaneous $ 69,367 $ 254 $ 63,312 $ 232 $ 40,220 $ 147 $ 62,592 $ 229 ------------------------------------------------------------------------------------------------- Total Operating Expenses $ 963,342 $ 3,529 $ 1,003,711 $ 3,677 $ 595,356 $ 2,181 $ 911,512 $ 3,339 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------------------- Net Income $ 1,310,871 $ 4,802 $ 1,309,485 $ 4,797 $ 729,396 $ 2,672 $ 1,293,492 $ 4,738 ANNUALIZED 2003 ---------------------- PROJECTION AAA PROJECTION ------------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % ------------------------------------------------------------------------------------- Revenues Rental Income $ 2,269,436 $ 8,313 $ 2,257,080 $ 8,268 100.0% Vacancy $ 208,736 $ 765 $ 157,996 $ 579 7.0% Credit Loss/Concessions $ 280,504 $ 1,027 $ 67,712 $ 248 3.0% ------------------------------------------------------- Subtotal $ 489,240 $ 1,792 $ 225,708 $ 827 10.0% Laundry Income $ 21,160 $ 78 $ 13,650 $ 50 0.6% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 246,720 $ 904 $ 177,450 $ 650 7.9% ------------------------------------------------------- Subtotal Other Income $ 267,880 $ 981 $ 191,100 $ 700 8.5% ------------------------------------------------------- Effective Gross Income $ 2,048,076 $ 7,502 $ 2,222,472 $ 8,141 100.0% Operating Expenses Taxes ($ 104,664) -$ 383 $ 81,900 $ 300 3.7% Insurance $ 82,700 $ 303 $ 68,250 $ 250 3.1% Utilities $ 185,676 $ 680 $ 150,150 $ 550 6.8% Repair & Maintenance $ 37,000 $ 136 $ 54,600 $ 200 2.5% Cleaning $ 22,776 $ 83 $ 25,935 $ 95 1.2% Landscaping $ 8,016 $ 29 $ 40,950 $ 150 1.8% Security $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 45,060 $ 165 $ 47,775 $ 175 2.1% General Administrative $ 235,984 $ 864 $ 300,300 $ 1,100 13.5% Management $ 107,296 $ 393 $ 111,124 $ 407 5.0% Miscellaneous $ 100,576 $ 368 $ 68,250 $ 250 3.1% ------------------------------------------------------- Total Operating Expenses $ 720,420 $ 2,639 $ 949,234 $ 3,477 42.7% Reserves $ 0 $ 0 $ 68,250 $ 250 7.2% ------------------------------------------------------- Net Income $ 1,327,656 $ 4,863 $ 1,204,988 $ 4,414 54.2%
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 10% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $250 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are some major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an additional $34,000 has been deducted. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of the annual cash flows and discounts them, along with the expected equity reversion, to a present value. The present value of the cash flow is added to the present value of the reversion, resulting in a total property value. INVESTMENT CRITERIA Appropriate investment criteria will be derived for the subject based upon analysis of comparable sales and a survey of real estate investors. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 1ST QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES ----------------------------------------------- GOING-IN TERMINAL ----------------------------------------------- LOW HIGH LOW HIGH ----------------------------------------------- RANGE 6.00% 10.00% 7.00% 10.00% AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR ---------------------------------------------------- I-1 Aug-02 91% $ 51,121 8.22% I-2 Jul-02 89% $ 51,736 7.69% I-3 Jul-02 90% $ 54,886 8.15% I-4 May-01 97% $ 69,324 9.08% I-5 Jan-01 94% $ 67,747 10.48% High 10.48% Low 7.69% Average 8.72%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.00%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 10.00%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 11.00%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 11.00% indicates a value of $13,800,000. In this instance, the reversion figure contributes approximately 40% of the total value. Investors surveyed for this assignment indicated they AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS DISCOUNTED CASH FLOW ANALYSIS INDIAN CREEK VILLAGE
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 ------------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $2,257,080 $2,302,222 $2,371,288 $2,442,427 $2,515,700 $2,591,171 Vacancy $ 157,996 $ 161,156 $ 165,990 $ 170,970 $ 176,099 $ 181,382 Credit Loss $ 67,712 $ 69,067 $ 71,139 $ 73,273 $ 75,471 $ 77,735 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- Subtotal $ 225,708 $ 230,222 $ 237,129 $ 244,243 $ 251,570 $ 259,117 Laundry Income $ 13,650 $ 13,923 $ 14,341 $ 14,771 $ 15,214 $ 15,670 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 177,450 $ 180,999 $ 186,429 $ 192,022 $ 197,782 $ 203,716 -------------------------------------------------------------------------------- Subtotal Other Income $ 191,100 $ 194,922 $ 200,770 $ 206,793 $ 212,997 $ 219,386 -------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $2,222,472 $2,266,921 $2,334,929 $2,404,977 $2,477,126 $2,551,440 OPERATING EXPENSES: Taxes $ 81,900 $ 84,357 $ 86,888 $ 89,494 $ 92,179 $ 94,945 Insurance $ 68,250 $ 70,298 $ 72,406 $ 74,579 $ 76,816 $ 79,120 Utilities $ 150,150 $ 154,655 $ 159,294 $ 164,073 $ 168,995 $ 174,065 Repair & Maintenance $ 54,600 $ 56,238 $ 57,925 $ 59,663 $ 61,453 $ 63,296 Cleaning $ 25,935 $ 26,713 $ 27,514 $ 28,340 $ 29,190 $ 30,066 Landscaping $ 40,950 $ 42,179 $ 43,444 $ 44,747 $ 46,090 $ 47,472 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 47,775 $ 49,208 $ 50,684 $ 52,205 $ 53,771 $ 55,384 General Administrative $ 300,300 $ 309,309 $ 318,588 $ 328,146 $ 337,990 $ 348,130 Management $ 111,124 $ 113,346 $ 116,746 $ 120,249 $ 123,856 $ 127,572 Miscellaneous $ 68,250 $ 70,298 $ 72,406 $ 74,579 $ 76,816 $ 79,120 -------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 949,234 $ 976,599 $1,005,897 $1,036,074 $1,067,157 $1,099,171 Reserves $ 68,250 $ 70,298 $ 72,406 $ 74,579 $ 76,816 $ 79,120 -------------------------------------------------------------------------------- NET OPERATING INCOME $1,204,988 $1,220,025 $1,256,625 $1,294,324 $1,333,154 $1,373,148 Operating Expense Ratio (% of EGI) 42.7% 43.1% 43.1% 43.1% 43.1% 43.1% Operating Expense Per Unit $ 3,477 $ 3,577 $ 3,685 $ 3,795 $ 3,909 $ 4,026 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 ----------------------------------------------------------------------------------------------------------- REVENUE Base Rent $2,668,906 $2,748,973 $2,831,442 $2,916,385 $3,003,877 Vacancy $ 186,823 $ 192,428 $ 198,201 $ 204,147 $ 210,271 Credit Loss $ 80,067 $ 82,469 $ 84,943 $ 87,492 $ 90,116 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ Subtotal $ 266,891 $ 274,897 $ 283,144 $ 291,639 $ 300,388 Laundry Income $ 16,141 $ 16,625 $ 17,124 $ 17,637 $ 18,166 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 209,827 $ 216,122 $ 222,606 $ 229,284 $ 236,163 ------------------------------------------------------------------ Subtotal Other Income $ 225,968 $ 232,747 $ 239,729 $ 246,921 $ 254,329 ------------------------------------------------------------------ EFFECTIVE GROSS INCOME $2,627,983 $2,706,823 $2,788,027 $2,871,668 $2,957,818 OPERATING EXPENSES: Taxes $ 97,793 $ 100,727 $ 103,748 $ 106,861 $ 110,067 Insurance $ 81,494 $ 83,939 $ 86,457 $ 89,051 $ 91,722 Utilities $ 179,287 $ 184,666 $ 190,206 $ 195,912 $ 201,789 Repair & Maintenance $ 65,195 $ 67,151 $ 69,166 $ 71,241 $ 73,378 Cleaning $ 30,968 $ 31,897 $ 32,854 $ 33,839 $ 34,854 Landscaping $ 48,896 $ 50,363 $ 51,874 $ 53,430 $ 55,033 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 57,046 $ 58,757 $ 60,520 $ 62,336 $ 64,206 General Administrative $ 358,574 $ 369,331 $ 380,411 $ 391,823 $ 403,578 Management $ 131,399 $ 135,341 $ 139,401 $ 143,583 $ 147,891 Miscellaneous $ 81,494 $ 83,939 $ 86,457 $ 89,051 $ 91,722 ------------------------------------------------------------------ TOTAL OPERATING EXPENSES $1,132,146 $1,166,111 $1,201,094 $1,237,127 $1,274,241 Reserves $ 81,494 $ 83,939 $ 86,457 $ 89,051 $ 91,722 ------------------------------------------------------------------ NET OPERATING INCOME $1,414,343 $1,456,773 $1,500,476 $1,545,491 $1,591,855 Operating Expense Ratio (% of EGI) 43.1% 43.1% 43.1% 43.1% 43.1% Operating Expense Per Unit $ 4,147 $ 4,271 $ 4,400 $ 4,532 $ 4,668
Estimated Stabilized NOI $1,204,988 Sales Expense Rate 2.00% Months to Stabilized 1 Discount Rate 11.00% Stabilized Occupancy 93.0% Terminal Cap Rate 10.00%
Gross Residual Sale Price $15,918,553 Deferred Maintenance -$ 34,000 Less: Sales Expense $ 318,371 Add: Excess Land $ 0 ----------- Net Residual Sale Price $15,600,182 Other Adjustments $ 0 ------------ PV of Reversion $ 5,494,142 Value Indicated By "DCF" $13,781,967 Add: NPV of NOI $ 8,321,825 Rounded $13,800,000 ----------- PV Total $13,815,967
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ------------------------------------------------------------------------------------------ TOTAL VALUE 10.50% 10.75% 11.00% 11.25% 11.50% ------------------------------------------------------------------------------------------ 9.50% $14,572,692 $14,336,337 $14,105,133 $13,878,951 $13,657,664 9.75% $14,417,554 $14,184,665 $13,956,843 $13,733,960 $13,515,892 TERMINAL CAP RATE 10.00% $14,270,173 $14,040,577 $13,815,967 $13,596,218 $13,381,207 10.25% $14,129,981 $13,903,518 $13,681,964 $13,465,196 $13,253,093 10.50% $13,996,465 $13,772,985 $13,554,342 $13,340,412 $13,131,080
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS INCOME LOSS DURING LEASE-UP The subject is currently near or at a stabilized condition. Therefore, there is no income loss during lease-up at the subject property. CONCESSIONS Concessions have historically not been utilized at the subject property or in the subject's market. Therefore, no adjustment was included for concessions. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 9.00% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS INDIAN CREEK VILLAGE
TOTAL PER SQ. FT. PER UNIT % OF EGI ------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 2,257,080 $ 8.30 $ 8,268 Less: Vacancy & Collection Loss 10.00% $ 225,708 $ 0.83 $ 827 Plus: Other Income Laundry Income $ 13,650 $ 0.05 $ 50 0.61% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 177,450 $ 0.65 $ 650 7.98% ------------------------------------------------------ Subtotal Other Income $ 191,100 $ 0.70 $ 700 8.60% EFFECTIVE GROSS INCOME $ 2,222,472 $ 8.18 $ 8,141 OPERATING EXPENSES: Taxes $ 81,900 $ 0.30 $ 300 3.69% Insurance $ 68,250 $ 0.25 $ 250 3.07% Utilities $ 150,150 $ 0.55 $ 550 6.76% Repair & Maintenance $ 54,600 $ 0.20 $ 200 2.46% Cleaning $ 25,935 $ 0.10 $ 95 1.17% Landscaping $ 40,950 $ 0.15 $ 150 1.84% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 47,775 $ 0.18 $ 175 2.15% General Administrative $ 300,300 $ 1.10 $ 1,100 13.51% Management 5.00% $ 111,124 $ 0.41 $ 407 5.00% Miscellaneous $ 68,250 $ 0.25 $ 250 3.07% TOTAL OPERATING EXPENSES $ 949,234 $ 3.49 $ 3,477 42.71% Reserves $ 68,250 $ 0.25 $ 250 3.07% ------------------------------------------------------ NET OPERATING INCOME $ 1,204,988 $ 4.43 $ 4,414 54.22% ====================================================== "GOING IN" CAPITALIZATION RATE 9.00% VALUE INDICATION $ 13,388,760 $ 49.25 $ 49,043 DEFERRED MAINTENANCE ($ 34,000) LESS: LEASE-UP COST (OTHER VALUE ADJUSTMENTS) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $ 13,354,760 ROUNDED $ 13,400,000 $ 49.30 $ 49,084
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF ---------------------------------------------------------------------------------- 8.25% $14,571,920 $14,600,000 $53,480 $53.71 8.50% $14,142,334 $14,100,000 $51,648 $51.87 8.75% $13,737,296 $13,700,000 $50,183 $50.40 9.00% $13,354,760 $13,400,000 $49,084 $49.30 9.25% $12,992,902 $13,000,000 $47,619 $47.82 9.50% $12,650,088 $12,700,000 $46,520 $46.72 9.75% $12,324,855 $12,300,000 $45,055 $45.25
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $13,400,000. CORRELATION AND CONCLUSION BY THE INCOME APPROACH The two methods used to estimate the market value of the subject property by the income approach resulted in the following indications of value: Discounted Cash Flow Analysis $13,800,000 Direct Capitalization Method $13,400,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $13,600,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37 INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS RECONCILIATION AND CONCLUSION This appraisal was made to express an opinion as of the Market Value of the fee simple estate in the property. AS IS MARKET VALUE OF THE FEE SIMPLE ESTATE Cost Approach Not Utilized Sales Comparison Approach $13,700,000 Income Approach $13,600,000 Reconciled Value $13,600,000
The Income Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of May 8, 2003 the market value of the fee simple estate in the property is: $13,600,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] ENTRANCE TO SUBJECT VIEW OF LEASING OFFICE [PICTURE] [PICTURE] VIEW OF TYPICAL BUILDING AND PARKING LOT TYPICAL CARPORT [PICTURE] [PICTURE] TYPICAL GARAGE VIEW OF POOL AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] INTERIOR VIEW - VACANT APARTMENT UNIT INTERIOR VIEW - VACANT APARTMENT UNIT [PICTURE] [PICTURE] INTERIOR - VACANT APARTMENT UNIT INTERIOR -VACANT APARTMENT UNIT [PICTURE] [PICTURE] INTERIOR VIEW - VACANT STUDIO UNIT KITCHEN VIEW OF TYPICAL VAULTED CEILING AND WOOD AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 NIEMAN SQUARE CASA DE FUENTES ASPEN LODGE 11115 West 64th Terrace 11700 Stearns 8100 Perry Road Shawnee, KS Overland Park, KS Overland Park, KS [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 CORINTH PLACE APARTMENTS CONCORDE BRIDGE TOWNHOMES (NOW SHERIDAN BRIDGE) 3815 Somerset Drive 8403 Carter Street Prairie Village, KS Overland Park, KS [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 -------------------------------- ------------------------------------------------ ----------------------------------------- Property Name Indian Creek Village Sunny Oak Village Management Company AIMCO Equity Apartments LOCATION: Address 10382 Conser Street 7575 West 106th Street City, State Overland Park, Kansas Overland Park, KS County Johnson Johnson Proximity to Subject Located just SE of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 271,830 505,417 Year Built 1972 1983 Effective Age 25 20 Building Structure Type Stucco, flat and pitched roofs Brick, wood siding, composition shingle roofs Parking Type (Gr., Cov., etc.) Open, carports, garages Open, carports Number of Units 273 548 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Br/1Ba 617 36 $530 1 1Br/1Ba 720 NA $529 2 1Br/1Ba 878 140 $570 3 2Br/1Ba 840 NA $629 3 2Br/1Ba 1,165 4 $790 4 2Br/2Ba 1,017 NA $654 4 2Br/2Ba 1,274 77 $800 5 3Br/2Ba 1,225 NA $799 5 3Br/2Ba 1,287 10 $900 6 3Br/2Ba 1,500 NA $899 6 3Br/2Ba, TH 1,845 6 $840 Average Unit Size (SF) 996 922 Unit Breakdown: Efficiency 0% 2-Bedroom 30% Efficiency 0% 2-Bedroom NA 1-Bedroom 64% 3-Bedroom 6% 1-Bedroom NA 3-Bedroom NA CONDITION: Average Average APPEAL: Average Good AMENITIES: Unit Amenities X Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment X Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office Gym Room X Gym Room OCCUPANCY: 88% 99% LEASING DATA: Available Leasing Terms 6 to 12 Months 6 or 12 months Concessions Discount on select units ($50-100/Mo) Discount on selected units - varies Pet Deposit $300 $200 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation May 8, 2003; Roxane Tevis (Property Manager) May 28, 2003; (Leasing Agent) Telephone Number (913)648-5093 (877)566-3701 NOTES: COMPARISON TO SUBJECT: Slightly Superior DESCRIPTION COMPARABLE COMPARABLE R - 2 R - 3 -------------------------------- --------------------------------------------- --------------------------------------------- Property Name Essex Place Pebblebrook Management Company Equity Apartments Price Management LOCATION: Address 8900 West 102nd Street 7700 West 95th Street City, State Overland Park, KS Overland Park, KS County Johnson County Johnson County Proximity to Subject 1 miles NW of subject 1.5 miles N of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 430,222 NA Year Built 1971 1985 Effective Age 20 18 Building Structure Type Brick, wood siding, composition shingle roofs Brick, wood siding, composition shingle roofs Parking Type (Gr., Cov., etc.) Open, carports, garages Open, carports Number of Units 352 267 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Br/1Ba 700 NA $ 605 2 1Br/1Ba 500 NA $575 2 1Br/1Ba 934 NA $ 700 2 1Br/1Ba 700 NA $675 4 2Br/2Ba 1,256 NA $ 898 4 2Br/2Ba 900 NA $805 3 2Br/2Ba 925 NA $ 740 6 3Br/2.5Ba 1,945 NA $1,210 Average Unit Size (SF) 1,222 NA Unit Breakdown: Efficiency 0% 2-Bedroom 0% Efficiency 0% 2-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% CONDITION: Average Average APPEAL: Average Good AMENITIES: Unit Amenities X Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash X Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 92% 94% LEASING DATA: Available Leasing Terms 6 or 12 months 7 to 13 months Concessions Discounts on selected $250 off a 7-month lease; $500 off units 12-month Pet Deposit $300 $300 Utilities Paid by Tenant: Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation May 28, 2003; (Leasing Agent) May 28, 2003; (Leasing Agent) Telephone Number (877)457-8251 (913)648-8081 NOTES: COMPARISON TO SUBJECT: Similar Slightly Superior COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 -------------------------------- -------------------------------------------- -------------------------------------------- Property Name Highland Ridge Apartments Skyler Ridge Management Company Lincoln Property Company Sentinel Property Management LOCATION: Address 11846 Perry Road 7171 West 115th Street City, State Overland Park, KS Overland Park, KS County Johnson County Johnson County Proximity to Subject 4.5 miles SW of subject 2 miles SE of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) NA NA Year Built 1987 1986 Effective Age 16 17 Building Structure Type Wood siding, composition shingle roofs Brick, wood siding, composition shingle roofs Parking Type (Gr., Cov., etc.) Open, carports Open, carports Number of Units 370 448 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Br/1Ba 578 NA $500 1 1Br/1Ba 602 NA $615 2 1Br/1Ba 637 NA $637 1 1Br/1Ba 760 NA $660 3 2Br/1Ba 840 NA $750 2 1Br/1Ba 821 NA $690 4 2Br/2Ba 1,017 NA $900 3 2Br/2Ba 972 NA $750 4 2Br/2Ba 1,232 NA $945 4 2Br/2Ba 1,018 NA $699 5 3Br/2Ba 1,157 NA $895 Average Unit Size (SF) NA Unit Breakdown: Efficiency 0% 2-Bedroom 0% Efficiency 0% 2-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% CONDITION: Average Average APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball Meeting Hall X Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 85% 92% LEASING DATA: Available Leasing Terms 12 Months 6 or 12 months Concessions One month free Discounts on selected units Pet Deposit $300 $300 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation May 28, 2003; (Leasing Agent) May 28, 2003; (Leasing Agent) Telephone Number (800)396-9600 (877)892-7574 NOTES: COMPARISON TO SUBJECT: Slightly Superior Slightly Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 SUNNY OAK VILLAGE ESSEX PLACE PEBBLEBROOK 7575 West 106th Street 8900 West 102nd Street 7700 West 95th Street Overland Park, KS Overland Park, KS Overland Park, KS [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 HIGHLAND RIDGE APARTMENTS SKYLER RIDGE 11846 Perry Road 7171 West 115th Street Overland Park, KS Overland Park, KS [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS No responsibility is assumed for matters legal in nature. No investigation has been made of the title to or any liabilities against the property appraised. In this appraisal, it is presumed that, unless otherwise noted, the owner's claim is valid, the property rights are good and marketable, and there are no encumbrances which cannot be cleared through normal processes. To the best of our knowledge, all data set forth in this report are true and accurate. Although gathered from reliable sources, no guarantee is made nor liability assumed for the accuracy of any data, opinions, or estimates identified as being furnished by others which have been used in formulating this analysis. Land areas and descriptions used in this appraisal were obtained from public records and have not been verified by legal counsel or a licensed surveyor. No soil analysis or geological studies were ordered or made in conjunction with this report, nor were any water, oil, gas, or other subsurface mineral and use rights or conditions investigated. Substances such as asbestos, urea-formaldehyde foam insulation, other chemicals, toxic wastes, or other potentially hazardous materials could, if present, adversely affect the value of the property. Unless otherwise stated in this report, the existence of hazardous substance, which may or may not be present on or in the property, was not considered by the appraiser in the development of the conclusion of value. The stated value estimate is predicated on the assumption that there is no material on or in the property that would cause such a loss in value. No responsibility is assumed for any such conditions, and the client has been advised that the appraiser is not qualified to detect such substances, quantify the impact on values, or develop the remedial cost. No environmental impact study has been ordered or made. Full compliance with applicable federal, state, and local environmental regulations and laws is assumed unless otherwise stated, defined, and considered in the report. It is also assumed that all required licenses, consents, or other legislative or administrative authority from any local, state, or national government or private entity organization either have been or can be obtained or renewed for any use which the report covers. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS It is assumed that all applicable zoning and use regulations and restrictions have been complied with unless a nonconformity has been stated, defined, and considered in the appraisal report. Further, it is assumed that the utilization of the land and improvements is within the boundaries of the property described and that no encroachment or trespass exists unless noted in the report. The Americans with Disabilities Act ("ADA") became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property together with a detailed analysis of the requirements of the ADA could reveal that the property is not in compliance with one or more of the requirements of the act. If so, this fact could have a negative effect on the value of the property. Since we have no direct evidence relating to this issue, we did not consider the possible noncompliance with the requirements of ADA in estimating the value of the property. We have made a physical inspection of the property and noted visible physical defects, if any, in our report. This inspection was made by individuals generally familiar with real estate and building construction. However, these individuals are not architectural or structural engineers who would have detailed knowledge of building design and structural integrity. Accordingly, we do not opine on, nor are we responsible for, the structural integrity of the property including its conformity to specific governmental code requirements, such as fire, building and safety, earthquake, and occupancy, or any physical defects which were not readily apparent to the appraiser during the inspection. The value or values presented in this report are based upon the premises outlined herein and are valid only for the purpose or purposes stated. The date of value to which the conclusions and opinions expressed apply is set forth in this report. The value opinion herein rendered is based on the status of the national business economy and the purchasing power of the U.S. dollar as of that date. Testimony or attendance in court or at any other hearing is not required by reason of this appraisal unless arrangements are previously made within a reasonable time in advance for AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the Appraisal Institute or the designations awarded by this organization) shall be disseminated to the public through prospectus, advertising, public relations, news, or any other means of communication without the written consent and approval of American Appraisal Associates, Inc. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D CERTIFICATE OF APPRAISER I certify that, to the best of my knowledge and belief: The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and represent the unbiased professional analyses, opinions, and conclusions of American Appraisal Associates, Inc. American Appraisal Associates, Inc. and I personally, have no present or prospective interest in the property that is the subject of this report and have no personal interest or bias with respect to the parties involved. Compensation for American Appraisal Associates, Inc. is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. The analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. I personally did not inspect the subject property. Kim Cook provided significant real property appraisal assistance in the preparation of this report. I am currently in compliance with the Appraisal Institute's continuing education requirements. -s- Frank Fehribach ----------------------- Frank Fehribach, MAI Managing Principal, Real Estate Group Texas State Certified General Real Estate Appraiser #TX-1323954-G AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS FRANK A. FEHRIBACH, MAI MANAGING PRINCIPAL, REAL ESTATE GROUP POSITION Frank A. Fehribach is a Managing Principal for the Dallas Real Estate Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Mr. Fehribach has experience in valuations for resort hotels; Class A office buildings; Class A multifamily complexes; industrial buildings and distribution warehousing; multitract mixed-use vacant land; regional malls; residential subdivision development; and special-purpose properties such as athletic clubs, golf courses, manufacturing facilities, nursing homes, and medical buildings. Consulting assignments include development and feasibility studies, economic model creation and maintenance, and market studies. Mr. Fehribach also has been involved in overseeing appraisal and consulting assignments in Mexico and South America. Business Mr. Fehribach joined AAA as an engagement director in 1998. He was promoted to his current position in 1999. Prior to that, he was a manager at Arthur Andersen LLP. Mr. Fehribach has been in the business of real estate appraisal for over ten years. EDUCATION University of Texas - Arlington Master of Science - Real Estate University of Dallas Master of Business Administration - Industrial Management Bachelor of Arts - Economics STATE State of Arizona CERTIFICATIONS Certified General Real Estate Appraiser, #30828 State of Arkansas State Certified General Appraiser, #CG1387N State of Colorado Certified General Appraiser, #CG40000445 State of Georgia Certified General Real Property Appraiser, #218487 State of Michigan Certified General Appraiser, #1201008081 State of Texas Real Estate Salesman License, #407158 (Inactive) State of Texas State Certified General Real Estate Appraiser, #TX-1323954-G AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS Candidate Member of the CCIM Institute pursuing Certified Commercial Investment Member (CCIM) designation PUBLICATIONS "An Analysis of the Determinants of Industrial Property Valuation," Co-authored with Dr. Ronald C. Rutherford and Dr. Mark Eakin, The Journal of Real Estate Research, Vol. 8, No. 3, Summer 1993, p. 365. AMERICAN APPRAISAL ASSOCIATES, INC. INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. INDIAN CREEK VILLAGE, OVERLAND PARK, KANSAS GENERAL SERVICE CONDITIONS The services(s) provided by AAA will be performed in accordance with professional appraisal standards. Our compensation is not contingent in any way upon our conclusions of value. We assume, without independent verification, the accuracy of all data provided to us. We will act as an independent contractor and reserve the right to use subcontractors. All files, workpapers or documents developed by us during the course of the engagement will be our property. We will retain this data for at least five years. Our report is to be used only for the specific purpose stated herein; and any other use is invalid. No reliance may be made by any third party without our prior written consent. You may show our report in its entirety to those third parties who need to review the information contained herein. No one should rely on our report as a substitute for their own due diligence. We understand that our reports will be described in public tender offer documents distributed to limited partners. We reserve the right to review the public tender offer documents prior to their issuance to confirm that disclosures of facts from the current appraisals are accurate. No reference to our name or our report, in whole or in part, in any other SEC filing or private placement memorandum you prepare and/or distribute to third parties may be made without our prior written consent. The Tender Offer Partnerships, as that term is defined in the Settlement Agreement, agree to indemnify and hold us harmless against and from any and all losses, claims, actions, damages, expenses or liabilities, including reasonable attorneys' fees, to which we may become subject in connection with this engagement except where such losses, claims, actions, damages, expenses or liabilities, including reasonable attorney's fees, arise or result from AAA's misconduct, bad faith or negligence. Co-Clients will not be liable for any of our acts or omissions. AAA is an equal opportunity employer.