EX-99.(C)(4) 9 d07253exv99wxcyx4y.txt APPRAISAL OF THE LOFT THE LOFT 214 LOFT LANE RALEIGH, NORTH CAROLINA MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 13, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] JUNE 30, 2003 Apartment Investment and Management Company ("AIMCO") c/o Mr. Steven A. Velkei, Esq. Liner Yankelevitz Sunshine & Regenstreif LLP 1100 Glendon Avenue, 14th Floor Los Angeles, California 90024-3503 Nuanes, et al.("Plaintiffs") c/o Ms. Joy Kruse Lieff Cabraser Heimann & Bernstein Embarcadero Center West 275 Battery Street, 30th Floor San Francisco, California 94111 RE: THE LOFT 214 LOFT LANE RALEIGH, WAKE COUNTY, NORTH CAROLINA In accordance with your authorization, we have completed the appraisal of the above-referenced property. This complete appraisal is intended to report our analysis and conclusions in a summary format. The subject property consists of an apartment project having 184 units with a total of 205,615 square feet of rentable area. The improvements were built in 1975. The improvements are situated on 22.56 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 86% occupied. It is our understanding the appraisal will be used by the clients to assist the San Mateo Superior Court in the settlement of litigation between the above mentioned clients. The appraisal is intended to conform to the Uniform Standards of Professional Appraisal Practice ("USPAP") as promulgated by the Appraisal Standards Board of the Appraisal Foundation and the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute. The appraisal is presented in a summary report, and the Departure Provision of USPAP has not been invoked in this appraisal. It is entirely inappropriate to use this value conclusion or the report for any purpose other than the one stated. AMERICAN APPRAISAL ASSOCIATES, INC. LETTER OF TRANSMITTAL PAGE 2 THE LOFT, RALEIGH, NORTH CAROLINA The opinions expressed in this appraisal cover letter can only be completely understood by reading the narrative report, addenda, and other data, which is attached. The appraisal is subject to the attached general assumptions and limiting conditions and general service conditions. As a result of our investigation, it is our opinion that the fee simple market value of the subject, effective May 13, 2003 is: ($8,800,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Frank Fehribach June 30, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group North Carolina Temporary Practice Permit #2578 Report By: Jimmy Pat James, MAI North Carolina Temporary Practice Permit #2603 Assisted By: Chad Walker AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 THE LOFT, RALEIGH, NORTH CAROLINA TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary...................................................... 4 Introduction........................................................... 9 Area Analysis.......................................................... 11 Market Analysis........................................................ 14 Site Analysis.......................................................... 16 Improvement Analysis................................................... 16 Highest and Best Use................................................... 17 VALUATION Valuation Procedure.................................................... 18 Sales Comparison Approach.............................................. 20 Income Capitalization Approach......................................... 26 Reconciliation and Conclusion.......................................... 38
ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 THE LOFT, RALEIGH, NORTH CAROLINA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: The Loft LOCATION: 214 Loft Lane Raleigh, North Carolina INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: Fee simple estate DATE OF VALUE: May 13, 2003 DATE OF REPORT: June 30, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 22.56 acres, or 982,714 square feet Assessor Parcel No.: 1706575340 Floodplain: Community Panel No. 37183C0331E (March 3, 1992) Flood Zone X, an area outside the floodplain. Zoning: R-10 (Residential-10) BUILDING: No. of Units: 184 Units Total NRA: 205,615 Square Feet Average Unit Size: 1,117 Square Feet Apartment Density: 8.2 units per acre Year Built: 1975 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square -------------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income -------------------------------------------------------------------------------------------- Terrace - 1Bd/1Ba 800 $649 $0.81 $ 18,172 $ 218,064 Gable - 1Bd/1Ba 1,035 $719 $0.69 $ 27,322 $ 327,864 Pinnacle - 2Bd/1.5Ba 1,045 $749 $0.72 $ 20,972 $ 251,664 Veranda - 2Bd/2Ba 1,250 $767 $0.61 $ 49,855 $ 598,260 Trellis - 3Bd/2Ba 1,335 $929 $0.70 $ 23,225 $ 278,700 ----- -------- ---------- Total $139,546 $1,674,552
OCCUPANCY: 86% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 25 Years REMAINING ECONOMIC LIFE: 20 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 THE LOFT, RALEIGH, NORTH CAROLINA SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [EXTERIOR-PROPERTY SIGN PICTURE] [EXTERIOR-OFFICE PICTURE] AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 THE LOFT, RALEIGH, NORTH CAROLINA NEIGHBORHOOD MAP [MAP] HIGHEST AND BEST USE: As Vacant: Hold for future multi-family development As Improved: Continuation as its current use METHOD OF VALUATION: In this instance, the Sales Comparison and Income Approaches to value were utilized. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7 THE LOFT, RALEIGH, NORTH CAROLINA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit --------------------- ------ ------ Potential Rental Income $1,674,552 $9,101 Effective Gross Income $1,498,446 $8,144 Operating Expenses $596,562 $3,242 39.8% of EGI Net Operating Income: $855,883 $4,652 Capitalization Rate 9.50% DIRECT CAPITALIZATION VALUE $8,900,000 * $48,370 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 12% Stabilized Vacancy & Collection Loss: 12% Lease-up / Stabilization Period 12 months Terminal Capitalization Rate 10.00% Discount Rate 11.50% Selling Costs 3.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $8,800,000 * $47,826 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $8,800,000 $47,826 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $42,151 to $71,277 Range of Sales $/Unit (Adjusted) $44,057 to $52,040 VALUE INDICATION - PRICE PER UNIT $8,600,000 * $46,739 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 5.28 to 7.54 Selected EGIM for Subject 5.75 Subject's Projected EGI $1,498,446 EGIM ANALYSIS CONCLUSION $8,500,000 * $46,196 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $8,900,000 * $48,370 / UNIT RECONCILED SALES COMPARISON VALUE $8,600,000 $46,739 / UNIT
---------------------------- * Value indications are after adjustments for concessions, deferred maintenance, excess land and lease-up costs, if any. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 8 THE LOFT, RALEIGH, NORTH CAROLINA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $8,600,000 NOI Per Unit $8,900,000 EGIM Multiplier $8,500,000 INDICATED VALUE BY SALES COMPARISON $8,600,000 $46,739 / UNIT INCOME APPROACH: Direct Capitalization Method: $8,900,000 Discounted Cash Flow Method: $8,800,000 INDICATED VALUE BY THE INCOME APPROACH $8,800,000 $47,826 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $8,800,000 $47,826 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 THE LOFT, RALEIGH, NORTH CAROLINA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 214 Loft Lane, Raleigh, Wake County, North Carolina. Raleigh identifies it as 1706575340. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Chad Walker on May 13, 2003. Jimmy Pat James, MAI and Frank Fehribach, MAI have not made a personal inspection of the subject property. Chad Walker assisted Jimmy Pat James, MAI in the research, valuation analysis and writing the report. Frank Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach, MAI, Jimmy Pat James, MAI, and Chad Walker have extensive experience in appraising similar properties and meet the USPAP competency provision. The scope of this investigation comprises the inspection of the property and the collection, verification, and analysis of general and specific data pertinent to the subject property. We have researched current improved sales and leases of similar properties, analyzing them as to their comparability, and adjusting them accordingly. We completed the Sales Comparison and Income Capitalization Approaches to value. From these approaches to value, a concluded overall value was made. DATE OF VALUE AND REPORT This appraisal was made to express the opinion of value as of May 13, 2003. The date of the report is June 30, 2003. PURPOSE AND USE OF APPRAISAL The purpose of the appraisal is to estimate the market value of the fee simple interest in the subject property. It is understood that the appraisal is intended to assist the clients in litigation settlement proceedings. The appraisal was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. PROPERTY RIGHTS APPRAISED We have appraised the Fee Simple Estate in the subject property (as applied in the Sales & AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 THE LOFT, RALEIGH, NORTH CAROLINA Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is defined in The Dictionary of Real Estate Appraisal, 3rd ed. (Chicago: Appraisal Institute, 1993), as: "Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat." MARKETING/EXPOSURE PERIOD MARKETING PERIOD: 6 to 12 months EXPOSURE PERIOD: 6 to 12 months HISTORY OF THE PROPERTY Ownership in the subject property is currently vested in CCIP Loft LLC. To the best of our knowledge, no transfers of ownership or offers to purchase the subject are known to have occurred during the past three years. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 11 THE LOFT, RALEIGH, NORTH CAROLINA AREA / NEIGHBORHOOD ANALYSIS NEIGHBORHOOD ANALYSIS A neighborhood is a group of complementary land uses. The function of the neighborhood analysis is to describe the immediate surrounding environs. The subject is located in the city of Raleigh, North Carolina. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Falls of Neuse Road West - North Hills Road South - West Millbrook Road North - Lynn Road MAJOR EMPLOYERS Major employers in the subject's area include MCI Telecommunications; Nortel; Cisco Systems; IBM; State of North Carolina; Wake County Public School; North Carolina State University; Wake County: and the City of Raleigh. The overall economic outlook for the area is considered favorable. DEMOGRAPHICS We have reviewed demographic data within the neighborhood. The following table summarizes the key data points. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 12 THE LOFT, RALEIGH, NORTH CAROLINA NEIGHBORHOOD DEMOGRAPHICS
AREA ---------------------------------------------- CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA ---------------------------------------------------------------------------------------------------- POPULATION TRENDS Current Population 12,736 75,037 184,234 1,249,659 5-Year Population 12,917 77,456 198,599 1,408,794 % Change CY-5Y 1.4% 3.2% 7.8% 12.7% Annual Change CY-5Y 0.3% 0.6% 1.6% 2.5% HOUSEHOLDS Current Households 6,152 32,679 80,360 484,776 5-Year Projected Households 6,278 33,881 86,519 545,189 % Change CY - 5Y 2.0% 3.7% 7.7% 12.5% Annual Change CY-5Y 0.4% 0.7% 1.5% 2.5% INCOME TRENDS Median Household Income $52,448 $67,011 $65,454 $ 55,832 Per Capita Income $26,937 $32,874 $32,439 $ 25,814 Average Household Income $58,712 $76,329 $74,841 $ 66,544
Source: Demographics Now The subject neighborhood's population is expected to show increases below that of the region. The immediate market offers inferior income levels as compared to the broader market. The following table illustrates the housing statistics in the subject's immediate area, as well as the MSA region. HOUSING TRENDS
AREA ---------------------------------------------- CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA ------------------------------------------------------------------------------------------------ HOUSING TRENDS % of Households Renting 46.01% 36.66% 39.21% 33.18% 5-Year Projected % Renting 47.04% 36.75% 38.68% 32.28% % of Households Owning 47.82% 57.19% 55.26% 61.69% 5-Year Projected % Owning 46.72% 57.15% 55.97% 63.00%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 THE LOFT, RALEIGH, NORTH CAROLINA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Single family residential, Optomist Park Community Center, Sanderson High School South - Commercial including doctor offices, Allstate, day care East - Office West - Single family residential CONCLUSIONS The subject is well located within the city of Raleigh. The neighborhood is characterized as being mostly suburban in nature and is currently in the stable stage of development. The economic outlook for the neighborhood is judged to be favorable with a good economic base. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 14 THE LOFT, RALEIGH, NORTH CAROLINA MARKET ANALYSIS The subject property is located in the city of Raleigh in Wake County. The overall pace of development in the subject's market is more or less stable. Currently, there are 176 units under construction in North Raleigh. 468 units of the Columns at Wakefield have been completed in the past six months at Falls Creek and Falls River Road. Additionally, there are 122 units proposed at The Cliffs at Grove Barton Road and Doie Cope Road. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket -------------------------------------------------------------------- 1Q01 8.1% 10.4% 3Q01 9.6% 9.6% 1Q02 12.5% 12.5% 3Q02 12.0% 11.7% 1Q03 12.6% 13.7%
Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has underperformed the overall market. The Raleigh-Durham apartment as a whole is reporting a high vacancy rate of 12.6% for 1Q03. Vacancy rates in the Triangle (Raleigh, Durham, Chapel Hill) area have been steadily rising since 1996, according to REAL DATA Real Estate Information Services Apartment Index 1Q03. In comparison, the Raleigh-North Submarket is posting vacancy rates of 13.7%. The vacancy rate has continued to increase in this submarket as more apartment complexes have been built. Market rents in the subject's market have been following a decreasing trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change ------------------------------------------------------------------------------- 1Q01 $746 - $727 - 3Q01 $763 2.3% $746 2.6% 1Q02 $764 0.1% $747 0.1% 3Q02 $761 -0.4% $746 -0.1% 1Q03 $758 -0.4% $739 -0.9%
The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 THE LOFT, RALEIGH, NORTH CAROLINA COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject ------------------------------------------------------------------------------------------------------------------------- R-1 Shellbrook 238 88% 1971 0.70 mile to the west of the subject R-2 Archstone Ridgewood 228 93% 1986 0.50 mile to the north of the subject R-3 Paces Arbor 101 89% 1986 0.75 mile to the northwest of the subject R-4 Laurel Springs 122 98% 1986 0.70 mile to the north of the subject R-5 Lynnwood Park 152 89% 1982 1.0 mile to the west of the subject Subject The Loft 184 86% 1975
The Raleigh-Central submarket as well as the Triangle as a whole has experienced declining apartment rental rates over the past two years. This is due in part to the economic slowdown of the national economy and low interest rates currently being offered. As of 1Q03, the average rental rate for the Southwest submarket was $739, which is $19 below the Region at $758. However, rates are currently stabilizing and remain at these levels in the short-term. As the national economy improves so should contract rental rates. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 THE LOFT, RALEIGH, NORTH CAROLINA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 22.56 acres, or 982,714 square feet Shape Irregular Topography Slightly slope Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Average Flood Zone: Community Panel 37183C0331E, dated March 3, 1992 Flood Zone Zone X Zoning R-10, the subject improvements represent a legal conforming use of the site. REAL ESTATE TAXES
ASSESSED VALUE - 2003 -------------------------------------------- TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES --------------------------------------------------------------------------------------------------- 1706575340 $1,472,000 $7,371,214 $8,843,214 0.00991 $87,602
IMPROVEMENT ANALYSIS Year Built 1975 Number of Units 184 Net Rentable Area 205,615 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Wood or vinyl siding Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, basketball court, volleyball court, sand volleyball, tennis court, gym room, playground, barbeque equipment, laundry room, billiards, and parking area. Unit Amenities Individual unit amenities include a balcony, fireplace, cable TV connection, vaulted ceiling, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, water heater, garbage AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 THE LOFT, RALEIGH, NORTH CAROLINA disposal, and oven. Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) --------------------------------------------------------- Terrace - 1Bd/1Ba 28 800 Gable - 1Bd/1Ba 38 1,035 Pinnacle - 2Bd/1.5Ba 28 1,045 Veranda - 2Bd/2Ba 65 1,250 Trellis - 3Bd/2Ba 25 1,335
Overall Condition Average Effective Age 25 years Economic Life 45 years Remaining Economic Life 20 years Deferred Maintenance None HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1975 and consist of a 184-unit multifamily project. The highest and best use as improved is for a continued multifamily use. Overall, the highest and best use of the subject property is the continued use of the existing apartment project. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 18 THE LOFT, RALEIGH, NORTH CAROLINA THE VALUATION PROCEDURE There are three traditional approaches, which can be employed in establishing the market value of the subject property. These approaches and their applicability to the valuation of the subject are summarized as follows: THE COST APPROACH The application of the Cost Approach is based on the principle of substitution. This principle may be stated as follows: no one is justified in paying more for a property than that amount by which he or she can obtain, by purchase of a site and construction of a building, without undue delay, a property of equal desirability and utility. In the case of a new building, no deficiencies in the building should exist. In the case of income-producing real estate, the cost of construction plays a minor and relatively insignificant role in determining market value. The Cost Approach is typically only a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) where the cost of reproducing the improvements is easily and accurately quantified and there is no economic obsolescence. In all instances, the issue of an appropriate entrepreneurial profit - the reward for undertaking the risk of construction, remains a highly subjective factor especially in a market lacking significant speculative development. THE SALES COMPARISON APPROACH The Sales Comparison Approach is an estimate of value based upon a process of comparing recent sales of similar properties in the surrounding or competing areas to the subject property. Inherent in this approach is the principle of substitution. The application of this approach consists of comparing the subject property with similar properties of the same general type, which have been sold recently or currently are available for sale in competing areas. This comparative process involves judgment as to the similarity of the subject property and the comparable sale with respect to many value factors such as location, contract rent levels, quality of construction, reputation and prestige, age and condition, among others. The estimated value through this approach represents the probable price at which a willing seller would sell the subject property to a willing and knowledgeable buyer as of the date of value. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 19 THE LOFT, RALEIGH, NORTH CAROLINA THE INCOME CAPITALIZATION APPROACH The theory of the Income Capitalization Approach is based on the premise that present value is the value of the cash flow and reversionary value the property will produce over a reasonable holding (ownership) period. The Discounted Cash Flow Analysis will convert equity cash flows (including cash flows and equity reversion) into a present value utilizing an internal rate of return (or discount rate). The Internal Rate of Return (IRR) will be derived from a comparison of alternate investments, a comparative analysis of IRR's used by recent buyers of similar properties, and a review of published industry surveys. The Direct Capitalization Analysis converts one year of income into an overall value using overall capitalization rates from similar sales. The overall rates take into consideration buyers assumptions of the market over the long-term. The results of the Income Capitalization Analysis are usually the primary value indicator for income producing properties. Investors expect a reasonable rate of return on their equity investment based on the ownership risks involved; this approach closely parallels the investment decision process. RECONCILIATION In this instance, we have completed the Sales Comparison and Income Capitalization Approaches to value. As an income producing property, the income approach is a primary approach to value. The Sales Comparison Approach is also considered reliable as investors are buying similar buildings in the market. Our research indicates that market participants are generally not buying, selling, investing, or lending with reliance placed on the methodology of the Cost Approach to establish the value. Therefore, we have decided that the Cost Approach is not a reliable indicator of value for the subject, and this approach has not been utilized. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 20 THE LOFT, RALEIGH, NORTH CAROLINA SALES COMPARISON APPROACH Use of market or comparable sales requires the collection and analysis of comparable sales data. Similar properties recently sold are compared to the subject and adjusted based on any perceived differences. This method is based on the premise that the costs of acquiring a substitute property would tend to establish a value for the subject property. The premise suggests that if a substitute is unavailable in the market, the reliability of the approach may be subordinate to the other approaches. The reliance on substitute properties produces shortcomings in the validity of this approach. Geographic and demographic characteristics from each submarket restrict which sales may be selected. Recent sales with a similar physical characteristics, income levels, and location are usually limited. The sales we have identified, however, do establish general valuation parameters as well as provide support to our conclusion derived through the income approach method. The standard unit of comparison among similar properties is the sales price per unit and price per square foot of net rentable area. To accurately adjust prices to satisfy the requirements of the sales comparison approach, numerous calculations and highly subjective judgments would be required including consideration of numerous income and expense details for which information may be unreliable or unknown. The sales price per unit and square foot are considered relevant to the investment decision, but primarily as a parameter against which value estimates derived through the income approach can be judged and compared. In examining the comparable sales, we have applied a subjective adjustment analysis, which includes specific adjustments derived from our experience and consulting with the market participants. SALES COMPARISON ANALYSIS Detailed on the following pages are sales transactions involving properties located in the subject's competitive investment market. Photographs of the sale transactions are located in the Addenda. Following the summary of sales is an adjustment grid that is used to arrive at a value. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21 THE LOFT, RALEIGH, NORTH CAROLINA SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ----------------------------------------------------------------------------------------------------------------------------------- Property Name The Loft Cottages of Stonehenge Calibre Chase LOCATION: Address 214 Loft Lane 7600 Falcon Rest Circle 231 Calibre Chase Drive City, State Raleigh, North Carolina Raleigh, North Carolina Raleigh, North Carolina County Wake Wake Wake PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 205,615 235,400 171,312 Year Built 1975 1986 1988 Number of Units 184 188 192 Unit Mix: Type Total Type Total Type Total Terrace - 1Bd/1Ba 28 2Br/2.5Ba 139 1Br/1Ba - Type 1 48 Gable - 1Bd/1Ba 38 3Br/2.5Ba 49 1Br/1Ba - Type 2 48 Pinnacle - 2Bd/1.5Ba 28 1Br/1Ba - Type 3 24 Veranda - 2Bd/2Ba 65 2Br/2Ba 72 Trellis - 3Bd/2Ba 25 Average Unit Size (SF) 1,117 1,252 892 Land Area (Acre) 22.5600 19.5100 7.0100 Density (Units/Acre) 8.2 9.6 27.4 Parking Ratio (Spaces/Unit) 1.66 N/A N/A Parking Type (Gr., Cov., etc.) Open Open Open CONDITION: Average Good Good APPEAL: Average Good Good AMENITIES: Pool/Spa Yes/No Yes/Yes Yes/No Gym Room Yes Yes Yes Laundry Room Yes No No Secured Parking No No No Sport Courts No Yes Yes Washer/Dryer Connection Yes Yes Yes Fireplaces Yes Yes Yes Other OCCUPANCY: 86% 91% 98% TRANSACTION DATA: Sale Date July, 2002 November, 2001 Sale Price ($) $13,400,000 $11,755,000 Grantor Daniel Mid-Atlantic Properties SWA Acquisitions LTD II Grantee Sterling Apartments LLC Wilson Investment Properties Inc. Sale Documentation Book 09505 Page 0045 Book 09142 Page 2745 Verification Wake County Records Wake County Records Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,953,497 $10,391 $8.30 $1,890,720 $9,848 $11.04 Vacancy/Credit Loss $ 175,815 $ 935 $0.75 $ 75,629 $ 394 $ 0.44 Effective Gross Income $1,777,682 $ 9,456 $7.55 $1,815,091 $9,454 $10.60 Operating Expenses $ 797,443 $ 4,242 $3.39 $ 705,889 $3,677 $ 4.12 Net Operating Income $ 980,239 $ 5,214 $4.16 $1,109,202 $5,777 $ 6.47 NOTES: PRICE PER UNIT $71,277 $61,224 PRICE PER SQUARE FOOT $ 56.92 $ 68.62 EXPENSE RATIO 44.9% 38.9% EGIM 7.54 6.48 OVERALL CAP RATE 7.32% 9.44% ----------------------------------------------------------------------------------------------------------------------------------- Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL ----------------------------------------------------------------------------------------------------------------------------------- COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 -------------------------------------------------------------------------------------------------------------------------------- Property Name Polo Run Hidden Creek Sedgewood Green LOCATION: Address 1803 Hillock Drive 5601 Old Wake Forest Road 3917 Knickerbocker Parkway City, State Raleigh, North Carolina Raleigh, North Carolina Raleigh, North Carolina County Wake Wake Wake PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 307,630 203,500 230,196 Year Built 1971 1979 1990 Number of Units 278 200 228 Unit Mix: Type Total Type Total Type Total 1Br/1Ba 50 1Br/1Ba 50 1Br/1Ba - Type 1 36 2Br/2Ba 168 2Br/2Ba 110 1Br/1Ba - Type 2 36 3Br/2Ba 60 3Br/2Ba 40 1Br/1Ba - Type 3 36 2Br/2Ba 60 3Br/2Ba 60 Average Unit Size (SF) 1,107 1,018 1,010 Land Area (Acre) 28.3200 19.7700 22.8400 Density (Units/Acre) 9.8 10.1 10.0 Parking Ratio (Spaces/Unit) N/A N/A N/A Parking Type (Gr., Cov., etc.) Open Open Open/Garage CONDITION: Average Average Good APPEAL: Average Average Good AMENITIES: Pool/Spa Yes/No Yes/Yes Yes/No Gym Room Yes Yes Yes Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts Yes Yes Yes Washer/Dryer Connection Yes Yes Yes Fireplaces No Yes Yes Other OCCUPANCY: 94% 92% 97% TRANSACTION DATA: Sale Date October, 2001 October, 2001 November, 2000 Sale Price ($) $11,718,000 $9,862,835 $14,350,000 Grantor New Plan of Polo Run Inc. Schaedle Worthington Hyde ERI NC Inc. Properties, LP Grantee CK Polo Run LLC Hidden Creek Partners LP Segdewood Green Apartments LLC Sale Documentation Book 09101 Page 1868 Book 09117 Page 1624 Book 08746 Page 0269 Verification Wake County Records Wake County Records Wake County Records Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $2,362,560 $8,498 $7.68 $1,731,960 $8,660 $8.51 $1,979,381 $8,681 $8.60 Vacancy/Credit Loss $ 141,754 $ 510 $0.46 $ 138,557 $ 693 $0.68 $ 59,381 $ 260 $0.26 Effective Gross Income $2,220,806 $7,989 $7.22 $1,593,403 $7,967 $7.83 $1,920,000 $8,421 $8.34 Operating Expenses $ 999,363 $3,595 $3.25 $ 717,031 $3,585 $3.52 $ 729,600 $3,200 $3.17 Net Operating Income $1,221,443 $4,394 $3.97 $ 876,372 $4,382 $4.31 $1,190,400 $5,221 $5.17 NOTES: PRICE PER UNIT $42,151 $49,314 $62,939 PRICE PER SQUARE FOOT $ 38.09 $ 48.47 $ 62.34 EXPENSE RATIO 45.0% 45.0% 38.0% EGIM 5.28 6.19 7.47 OVERALL CAP RATE 10.42% 8.89% 8.30% -------------------------------------------------------------------------------------------------------------------------------- Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA ACTUAL --------------------------------------------------------------------------------------------------------------------------------
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 THE LOFT, RALEIGH, NORTH CAROLINA IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $42,151 to $71,277 per unit. Adjustments have been made to the sales to reflect differences in location, age/condition and quality/appeal. Generally speaking, larger properties typically have a lower price per unit when compared to smaller properties, all else being equal. Similarly, those projects with a higher average unit size will generally have a higher price per unit. After appropriate adjustments are made, the improved sales demonstrate an adjusted range for the subject from $44,057 to $52,040 per unit with a mean or average adjusted price of $46,707 per unit. The median adjusted price is $46,330 per unit. Based on the following analysis, we have concluded to a value of $47,000 per unit, which results in an "as is" value of $8,600,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 THE LOFT, RALEIGH, NORTH CAROLINA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ------------------------------------------------------------------------------------------------------------------------------------ Property Name The Loft Cottages of Stonehenge Calibre Chase Address 214 Loft Lane 7600 Falcon Rest Circle 231 Calibre Chase Drive City Raleigh, North Carolina Raleigh, North Carolina Raleigh, North Carolina Sale Date July, 2002 November, 2001 Sale Price ($) $13,400,000 $11,755,000 Net Rentable Area (SF) 205,615 235,400 171,312 Number of Units 184 188 192 Price Per Unit $71,277 $61,224 Year Built 1975 1986 1988 Land Area (Acre) 22.5600 19.5100 7.0100 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. ----------------------------------------------------------------------------------------------------------------------------------- Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 07-2002 0% 11-2001 0% ---------------------------- ------------------------- VALUE AFTER TRANS. ADJUST. ($/UNIT) $71,277 $61,224 ---------------------------- ------------------------- Location Superior -20% Comparable 0% Number of Units 184 188 0% 192 0% Quality / Appeal Average Superior -5% Superior -5% Age / Condition 1975 1986 / Good -5% 1988 / Good -5% Occupancy at Sale 86% 91% -5% 98% -10% Amenities Good Comparable 0% Comparable 0% Average Unit Size (SF) 1,117 1,252 0% 892 5% ----------------- ---------------------------- ------------------------- PHYSICAL ADJUSTMENT -35% -15% ----------------- ---------------------------- ------------------------- FINAL ADJUSTED VALUE ($/UNIT) $46,330 $52,040 ----------------- ---------------------------- ------------------------- COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 --------------------------------------------------------------------------------------------------------------------------------- Property Name Polo Run Hidden Creek Sedgewood Green Address 1803 Hillock Drive 5601 Old Wake Forest Road 3917 Knickerbocker Parkway City Raleigh, North Carolina Raleigh, North Carolina Raleigh, North Carolina Sale Date October, 2001 October, 2001 November, 2000 Sale Price ($) $11,718,000 $9,862,835 $14,350,000 Net Rentable Area (SF) 307,630 203,500 230,196 Number of Units 278 200 228 Price Per Unit $42,151 $49,314 $62,939 Year Built 1971 1979 1990 Land Area (Acre) 28.3200 19.7700 22.8400 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. --------------------------------------------------------------------------------------------------------------------------------- Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 10-2001 0% 10-2001 0% 11-2000 0% --------------------------- --------------------------- -------------------------- VALUE AFTER TRANS. ADJUST. ($/UNIT) $42,151 $49,314 $62,939 --------------------------- --------------------------- -------------------------- Location Comparable 0% Superior -5% Comparable 0% Number of Units 278 5% 200 0% 228 0% Quality / Appeal Comparable 0% Comparable 0% Superior -10% Age / Condition 1971 / Average 0% 1979 / Average 0% 1990 / Good -20% Occupancy at Sale 94% 0% 92% 0% 97% 0% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 1,107 0% 1,018 0% 1,010 0% PHYSICAL ADJUSTMENT 5% -5% -30% --------------------------- --------------------------- -------------------------- FINAL ADJUSTED VALUE ($/UNIT) $44,259 $46,848 $44,057 --------------------------- --------------------------- --------------------------
SUMMARY VALUE RANGE (PER UNIT) $44,057 TO $52,040 MEAN (PER UNIT) $46,707 MEDIAN (PER UNIT) $46,330 VALUE CONCLUSION (PER UNIT) $47,000
VALUE OF IMPROVEMENT & MAIN SITE $8,648,000 LESS: LEASE-UP COST -$ 32,000 PV OF CONCESSIONS -$ 62,000 VALUE INDICATED BY SALES COMPARISON APPROACH $8,554,000 ROUNDED $8,600,000
NET OPERATING INCOME (NOI) ANALYSIS We have also conducted a net operating income (NOI) comparison analysis. The NOI effectively takes into account the various physical, location, and operating aspects of the sale. When the subject's NOI is compared to the sale NOI, a percent adjustment can be arrived at. The following table illustrates this analysis. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24 THE LOFT, RALEIGH, NORTH CAROLINA NOI PER UNIT COMPARISON
SALE PRICE NOI/ SUBJECT NOI COMPARABLE NO. OF ---------- ---------- -------------- ADJUSTMENT INDICATED NO. UNITS PRICE/UNIT OAR NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT ----------------------------------------------------------------------------------------------------------- I-1 188 $13,400,000 7.32% $ 980,239 $855,883 0.892 $63,587 ----------- ---------- -------- $ 71,277 $ 5,214 $ 4,652 I-2 192 $11,755,000 9.44% $1,109,202 $855,883 0.805 $49,296 ----------- ---------- -------- $ 61,224 $ 5,777 $ 4,652 I-3 278 $11,718,000 10.42% $1,221,443 $855,883 1.059 $44,625 ----------- ---------- -------- $ 42,151 $ 4,394 $ 4,652 I-4 200 $ 9,862,835 8.89% $ 876,372 $855,883 1.062 $52,349 ----------- ---------- -------- $ 49,314 $ 4,382 $ 4,652 I-5 228 $14,350,000 8.30% $1,190,400 $855,883 0.891 $56,073 ----------- ---------- -------- $ 62,939 $ 5,221 $ 4,652
PRICE/UNIT VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT ------------------------------------------------------------------------------------------------------------- Low High Average Median Estimated Price Per Unit $ 49,000 ----------- $44,625 $63,587 $53,186 $52,349 Number of Units 184 Value $ 9,016,000 Less: Lease-Up Cost -$ 32,000 PV of Concessions -$ 62,000 ----------- Value Based on NOI Analysis $ 8,922,000 Rounded $ 8,900,000
The adjusted sales indicate a range of value between $44,625 and $63,587 per unit, with an average of $53,186 per unit. Based on the subject's competitive position within the improved sales, a value of $49,000 per unit is estimated. This indicates an "as is" market value of $8,900,000 (rounded after necessary adjustment, if any) for the NOI Per Unit Analysis. EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS The effective gross income multiplier (EGIM) is derived by dividing the sales price by the total effective gross income. The following table illustrates the EGIMs for the comparable improved sales. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25 THE LOFT, RALEIGH, NORTH CAROLINA EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON
SALE PRICE COMPARABLE NO. OF ---------- EFFECTIVE OPERATING SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM ----------------------------------------------------------------------------------------------------------- I-1 188 $13,400,000 $1,777,682 $797,443 44.86% 7.54 ----------- $ 71,277 I-2 192 $11,755,000 $1,815,091 $705,889 38.89% 6.48 ----------- $ 61,224 I-3 278 $11,718,000 $2,220,806 $999,363 45.00% 5.28 ----------- 39.81% $ 42,151 I-4 200 $ 9,862,835 $1,593,403 $717,031 45.00% 6.19 ----------- $ 49,314 I-5 228 $14,350,000 $1,920,000 $729,600 38.00% 7.47 ----------- $ 62,939
EGIM VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES ------------------------------------------------------------------------------------------------------ Low High Average Median Estimate EGIM 5.75 ----------- 5.28 7.54 6.59 6.48 Subject EGI $ 1,498,446 Value $ 8,616,063 Less: Lease-Up Cost -$ 32,000 PV of Concessions -$ 62,000 ----------- Value Based on EGIM Analysis $ 8,522,063 Rounded $ 8,500,000 Value Per Unit $ 46,196
There is an inverse relationship, which generally holds among EGIMs and operating expenses. Properties, which have higher expense ratios, typically sell for relatively less and therefore produce a lower EGIM. As will be illustrated in the Income Capitalization Approach of this report, the subject's operating expense ratio (OER) is estimated at 39.81% before reserves. The comparable sales indicate a range of expense ratios from 38.00% to 45.00%, while their EGIMs range from 5.28 to 7.54. Overall, we conclude to an EGIM of 5.75, which results in an "as is" value estimate in the EGIM Analysis of $8,500,000. SALES COMPARISON CONCLUSION The three valuation methods in the Sales Comparison Approach are shown below. The overall value via the Sales Comparison Approach is estimated at $8,600,000. Price Per Unit $8,600,000 NOI Per Unit $8,900,000 EGIM Analysis $8,500,000 Sales Comparison Conclusion $8,600,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 THE LOFT, RALEIGH, NORTH CAROLINA INCOME CAPITALIZATION APPROACH The income capitalization approach is based on the premise that value is created by the expectation of future benefits. We estimated the present value of those benefits to derive an indication of the amount that a prudent, informed purchaser-investor would pay for the right to receive them as of the date of value. This approach requires an estimate of the NOI of a property. The estimated NOI is then converted to a value indication by use of either the direct capitalization or the discounted cash flow analysis (yield capitalization). Direct capitalization uses a single year's stabilized NOI as a basis for a value indication by dividing the income by a capitalization rate. The rate chosen accounts for a recapture of the investment by the investor and should reflect all factors that influence the value of the property, such as tenant quality, property condition, neighborhood change, market trends, interest rates, and inflation. The rate may be extracted from local market transactions or, when transaction evidence is lacking, obtained from trade sources. A discounted cash flow analysis focuses on the operating cash flows expected from the property and the proceeds of a hypothetical sale at the end of a holding period (the reversion). The cash flows and reversion are discounted to their present values using a market-derived discount rate and are added together to obtain a value indication. Because benefits to be received in the future are worth less than the same benefits received in the present, this method weights income in the early years more heavily than the income and the sale proceeds to be received later. The strength of the discounted cash flow method is its ability to recognize variations in projected net income, such as those caused by inflation, stepped leases, neighborhood change, or tenant turnover. Its weakness is that it requires many judgments regarding the actions of likely buyers and sellers of the property in the future. In some situations, both methods yield a similar result. The discounted cash flow method is typically more appropriate for the analysis of investment properties with multiple or long-term leases, particularly leases with cancellation clauses or renewal options. It is especially useful for multi-tenant properties in volatile markets. The direct capitalization AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27 THE LOFT, RALEIGH, NORTH CAROLINA method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
Average Unit Area ------------------------ Unit Type (Sq. Ft.) Per Unit Per SF %Occupied -------------------------------------------------------------------------------- Terrace - 1Bd/1Ba 800 $650 $0.81 96.4% Gable - 1Bd/1Ba 1035 $720 $0.70 89.5% Pinnacle - 2Bd/1.5Ba 1045 $752 $0.72 82.1% Veranda - 2Bd/2Ba 1250 $767 $0.61 76.9% Trellis - 3Bd/2Ba 1335 $932 $0.70 96.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 THE LOFT, RALEIGH, NORTH CAROLINA RENT ANALYSIS
COMPARABLE RENTS ------------------------------------------------------ R-1 R-2 R-3 R-4 R-5 ------------------------------------------------------ Archstone Laurel Lynnwood Shellbrook Ridgewood Paces Arbor Springs Park ------------------------------------------------------ SUBJECT SUBJECT COMPARISON TO SUBJECT SUBJECT UNIT ACTUAL ASKING ------------------------------------------------------ DESCRIPTION TYPE RENT RENT Similar Similar Similar Similar Similar --------------------------------------------------------------------------------------------------------------------- Monthly Rent TERRACE - $ 650 $ 649 $ 487 $ 550 $ 620 $ 709 Unit Area (SF) 1Bd/1BA 800 800 743 710 788 933 Monthly Rent Per Sq. Ft. $ 0.81 $ 0.81 $ 0.66 $ 0.77 $ 0.79 $ 0.76 Monthly Rent GABLE - 1Bd/1Ba $ 720 $ 719 $ 675 $ 600 $ 670 Unit Area (SF) 1,035 1,035 996 836 938 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.69 $ 0.68 $ 0.72 $ 0.71 Monthly Rent PINNACLE - $ 752 $ 749 Unit Area (SF) 2Bd/1.5Ba 1,045 1,045 Monthly Rent Per Sq. Ft. $ 0.72 $ 0.72 Monthly Rent VERANDA - $ 767 $ 799 $ 700 $ 730 $ 887 $ 690 Unit Area (SF) 2Bd/2Ba 1,250 1,250 1,071 1,136 1,375 1,200 Monthly Rent Per Sq. Ft. $ 0.61 $ 0.64 $ 0.65 $ 0.64 $ 0.65 $ 0.58 Monthly Rent TRELLIS - 3Bd/2Ba $ 932 $ 929 Unit Area (SF) 1,335 1,335 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.70 DESCRIPTION MIN MAX MEDIAN AVERAGE --------------------------------------------------------------------------- Monthly Rent $ 487 $ 709 $ 585 $ 592 Unit Area (SF) 710 933 766 794 Monthly Rent Per Sq. Ft. $ 0.66 $ 0.79 $ 0.77 $ 0.74 Monthly Rent $ 600 $ 675 $ 670 $ 648 Unit Area (SF) 836 996 938 923 Monthly Rent Per Sq. Ft. $ 0.68 $ 0.72 $ 0.71 $ 0.70 Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent $ 690 $ 887 $ 715 $ 752 Unit Area (SF) 1,071 1,375 1,168 1,195 Monthly Rent Per Sq. Ft. $ 0.58 $ 0.65 $ 0.64 $ 0.63 Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft.
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows: GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area -------------------- Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income ----------------------------------------------------------------------------------------------------------------- Terrace - 1Bd/1Ba 28 800 $649 $0.81 $ 18,172 $ 218,064 Gable - 1Bd/1Ba 38 1,035 $719 $0.69 $ 27,322 $ 327,864 Pinnacle - 2Bd/1.5Ba 28 1,045 $749 $0.72 $ 20,972 $ 251,664 Veranda - 2Bd/2Ba 65 1,250 $767 $0.61 $ 49,855 $ 598,260 Trellis - 3Bd/2Ba 25 1,335 $929 $0.70 $ 23,225 $ 278,700 Total $139,546 $1,674,552
PRO FORMA ANALYSIS For purposes of this appraisal, we were provided with income and expense data for the subject property. A summary of this data is presented on the following page. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 THE LOFT, RALEIGH, NORTH CAROLINA SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 --------------------------------------------------------------------------- ACTUAL ACTUAL ACTUAL --------------------------------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT ------------------------------------------------------------------------------------------------------- Revenues Rental Income $1,649,162 $ 8,963 $1,658,932 $ 9,016 $1,595,984 $ 8,674 Vacancy $ 118,079 $ 642 $ 133,727 $ 727 $ 163,897 $ 891 Credit Loss/Concessions $ 41,754 $ 227 $ 69,821 $ 379 $ 27,978 $ 152 --------------------------------------------------------------------------- Subtotal $ 159,833 $ 869 $ 203,548 $ 1,106 $ 191,875 $ 1,043 Laundry Income $ 3,236 $ 18 $ 2,179 $ 12 $ 2,075 $ 11 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 38,750 $ 211 $ 37,919 $ 206 $ 23,952 $ 130 --------------------------------------------------------------------------- Subtotal Other Income $ 41,986 $ 228 $ 40,098 $ 218 $ 26,027 $ 141 --------------------------------------------------------------------------- Effective Gross Income $1,531,315 $ 8,322 $1,495,482 $ 8,128 $1,430,136 $ 7,772 Operating Expenses Taxes $ 92,053 $ 500 $ 44,862 $ 244 $ 135,161 $ 735 Insurance $ 15,913 $ 86 $ 34,837 $ 189 $ 37,650 $ 205 Utilities $ 64,702 $ 352 $ 76,646 $ 417 $ 51,245 $ 279 Repair & Maintenance $ 99,596 $ 541 $ 87,219 $ 474 $ 102,092 $ 555 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 29,812 $ 162 $ 22,504 $ 122 $ 28,600 $ 155 Security $ 0 $ 0 $ 1,857 $ 10 $ 750 $ 4 Marketing & Leasing $ 33,376 $ 181 $ 21,230 $ 115 $ 22,410 $ 122 General Administrative $ 198,186 $ 1,077 $ 205,401 $ 1,116 $ 201,766 $ 1,097 Management $ 78,642 $ 427 $ 79,757 $ 433 $ 74,765 $ 406 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------- Total Operating Expenses $ 612,280 $ 3,328 $ 574,313 $ 3,121 $ 654,439 $ 3,557 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------- Net Income $ 919,035 $ 4,995 $ 921,169 $ 5,006 $ 775,697 $ 4,216 ------------------------------------------------------------------------------------------------------- FISCAL YEAR 2003 ANNUALIZED ------------------------------------------------- MANAGEMENT BUDGET PROJECTION AAA PROJECTION ------------------------------------------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % ----------------------------------------------------------------------------------------------------------------- Revenues Rental Income $1,584,230 $ 8,610 $1,537,432 $ 8,356 $1,674,552 $ 9,101 100.0% Vacancy $ 122,494 $ 666 $ 328,100 $ 1,783 $ 167,455 $ 910 10.0% Credit Loss/Concessions $ 19,200 $ 104 $ 48,824 $ 265 $ 33,491 $ 182 2.0% ------------------------------------------------------------------------------------- Subtotal $ 141,694 $ 770 $ 376,924 $ 2,049 $ 200,946 $ 1,092 12.0% Laundry Income $ 8,628 $ 47 $ 4,604 $ 25 $ 4,600 $ 25 0.3% Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 19,651 $ 107 $ 3,880 $ 21 $ 20,240 $ 110 1.2% ------------------------------------------------------------------------------------- Subtotal Other Income $ 28,279 $ 154 $ 8,484 $ 46 $ 24,840 $ 135 1.5% ------------------------------------------------------------------------------------- Effective Gross Income $1,470,815 $ 7,994 $1,168,992 $ 6,353 $1,498,446 $ 8,144 100.0% Operating Expenses Taxes $ 135,529 $ 737 $ 135,668 $ 737 $ 92,000 $ 500 6.1% Insurance $ 8,554 $ 46 $ 76,080 $ 413 $ 36,800 $ 200 2.5% Utilities $ 45,600 $ 248 $ 103,816 $ 564 $ 50,600 $ 275 3.4% Repair & Maintenance $ 82,056 $ 446 $ 96,692 $ 526 $ 87,400 $ 475 5.8% Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Landscaping $ 43,200 $ 235 $ 33,828 $ 184 $ 29,440 $ 160 2.0% Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 22,380 $ 122 $ 33,592 $ 183 $ 23,000 $ 125 1.5% General Administrative $ 179,700 $ 977 $ 203,480 $ 1,106 $ 202,400 $ 1,100 13.5% Management $ 76,452 $ 416 $ 62,144 $ 338 $ 74,922 $ 407 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 0.0% ------------------------------------------------------------------------------------- Total Operating Expenses $ 593,471 $ 3,225 $ 745,300 $ 4,051 $ 596,562 $ 3,242 39.8% Reserves $ 0 $ 0 $ 0 $ 0 $ 46,000 $ 250 7.7% ------------------------------------------------------------------------------------- Net Income $ 877,344 $ 4,768 $ 423,692 $ 2,303 $ 855,883 $ 4,652 57.1% -----------------------------------------------------------------------------------------------------------------
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 12% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 THE LOFT, RALEIGH, NORTH CAROLINA RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $250 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $250 per unit should be satisfactory in our reserves for replacement to cover future capital expenditures. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of the annual cash flows and discounts them, along with the expected equity reversion, to a present value. The present value of the cash flow is added to the present value of the reversion, resulting in a total property value. INVESTMENT CRITERIA Appropriate investment criteria will be derived for the subject based upon analysis of comparable sales and a survey of real estate investors. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 1ST QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES ----------------------------------------------------------------- GOING-IN TERMINAL ----------------------------------------------------------------- LOW HIGH LOW HIGH ------------------------------------------------------------------------------- RANGE 6.00% 10.00% 7.00% 10.00% AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 THE LOFT, RALEIGH, NORTH CAROLINA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR -------------------------------------------------------------- I-1 Jul-02 91% $71,277 7.32% I-2 Nov-01 98% $61,224 9.44% I-3 Oct-01 94% $42,151 10.42% I-4 Oct-01 92% $49,314 8.89% I-5 Nov-00 97% $62,939 8.30% -------------------------------------------------------------- High 10.42% Low 7.32% Average 8.87% --------------------------------------------------------------
Based on this information, we have concluded the subject's overall capitalization rate should be 9.50%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 10.00%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 11.50%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 3.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 11.50% indicates a value of $8,800,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 THE LOFT, RALEIGH, NORTH CAROLINA approximately 39% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 THE LOFT, RALEIGH, NORTH CAROLINA DISCOUNTED CASH FLOW ANALYSIS THE LOFT
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 ------------------------------------------------------------------------------------------------------------------ REVENUE Base Rent $1,674,552 $1,674,552 $1,699,670 $1,733,664 $1,785,674 $1,839,244 Vacancy $ 205,044 $ 167,455 $ 169,967 $ 173,366 $ 178,567 $ 183,924 Credit Loss $ 33,491 $ 33,491 $ 33,993 $ 34,673 $ 35,713 $ 36,785 Concessions $ 25,118 $ 33,491 $ 16,997 $ 0 $ 0 $ 0 --------------------------------------------------------------------------- Subtotal $ 263,653 $ 234,437 $ 220,957 $ 208,040 $ 214,281 $ 220,709 Laundry Income $ 4,600 $ 4,600 $ 4,669 $ 4,762 $ 4,905 $ 5,052 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 20,240 $ 20,240 $ 20,544 $ 20,954 $ 21,583 $ 22,231 --------------------------------------------------------------------------- Subtotal Other Income $ 24,840 $ 24,840 $ 25,213 $ 25,717 $ 26,488 $ 27,283 --------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $1,435,739 $1,464,955 $1,503,926 $1,551,341 $1,597,881 $1,645,818 OPERATING EXPENSES: Taxes $ 92,000 $ 94,760 $ 97,603 $ 100,531 $ 103,547 $ 106,653 Insurance $ 36,800 $ 37,904 $ 39,041 $ 40,212 $ 41,419 $ 42,661 Utilities $ 50,600 $ 52,118 $ 53,682 $ 55,292 $ 56,951 $ 58,659 Repair & Maintenance $ 87,400 $ 90,022 $ 92,723 $ 95,504 $ 98,369 $ 101,321 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 29,440 $ 30,323 $ 31,233 $ 32,170 $ 33,135 $ 34,129 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 23,000 $ 23,690 $ 24,401 $ 25,133 $ 25,887 $ 26,663 General Administrative $ 202,400 $ 208,472 $ 214,726 $ 221,168 $ 227,803 $ 234,637 Management $ 71,787 $ 73,248 $ 75,196 $ 77,567 $ 79,894 $ 82,291 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 593,427 $ 610,537 $ 628,604 $ 647,577 $ 667,004 $ 687,015 Reserves $ 46,000 $ 47,380 $ 48,801 $ 50,265 $ 51,773 $ 53,327 --------------------------------------------------------------------------- NET OPERATING INCOME $ 796,312 $ 807,038 $ 826,520 $ 853,498 $ 879,103 $ 905,476 ------------------------------------------------------------------------------------------------------------------ Operating Expense Ratio (% of EGI) 41.3% 41.7% 41.8% 41.7% 41.7% 41.7% Operating Expense Per Unit $ 3,225 $ 3,318 $ 3,416 $ 3,519 $ 3,625 $ 3,734 ------------------------------------------------------------------------------------------------------------------ YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 ----------------------------------------------------------------------------------------------------- REVENUE Base Rent $1,894,421 $1,951,254 $2,009,791 $2,070,085 $2,132,188 Vacancy $ 189,442 $ 195,125 $ 200,979 $ 207,009 $ 213,219 Credit Loss $ 37,888 $ 39,025 $ 40,196 $ 41,402 $ 42,644 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------- Subtotal $ 227,331 $ 234,150 $ 241,175 $ 248,410 $ 255,863 Laundry Income $ 5,204 $ 5,360 $ 5,521 $ 5,687 $ 5,857 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 22,898 $ 23,584 $ 24,292 $ 25,021 $ 25,771 -------------------------------------------------------------- Subtotal Other Income $ 28,101 $ 28,945 $ 29,813 $ 30,707 $ 31,628 -------------------------------------------------------------- EFFECTIVE GROSS INCOME $1,695,192 $1,746,048 $1,798,429 $1,852,382 $1,907,954 OPERATING EXPENSES: Taxes $ 109,853 $ 113,148 $ 116,543 $ 120,039 $ 123,640 Insurance $ 43,941 $ 45,259 $ 46,617 $ 48,016 $ 49,456 Utilities $ 60,419 $ 62,232 $ 64,099 $ 66,022 $ 68,002 Repair & Maintenance $ 104,360 $ 107,491 $ 110,716 $ 114,037 $ 117,458 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 35,153 $ 36,207 $ 37,294 $ 38,413 $ 39,565 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 27,463 $ 28,287 $ 29,136 $ 30,010 $ 30,910 General Administrative $ 241,676 $ 248,926 $ 256,394 $ 264,086 $ 272,009 Management $ 84,760 $ 87,302 $ 89,921 $ 92,619 $ 95,398 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 707,625 $ 728,854 $ 750,719 $ 773,241 $ 796,438 Reserves $ 54,926 $ 56,574 $ 58,271 $ 60,020 $ 61,820 -------------------------------------------------------------- NET OPERATING INCOME $ 932,641 $ 960,620 $ 989,438 $1,019,122 $1,049,695 ----------------------------------------------------------------------------------------------------- Operating Expense Ratio (% of EGI) 41.7% 41.7% 41.7% 41.7% 41.7% Operating Expense Per Unit $ 3,846 $ 3,961 $ 4,080 $ 4,202 $ 4,328 -----------------------------------------------------------------------------------------------------
Estimated Stabilized NOI $855,883 Sales Expense Rate 3.00% Months to Stabilized 12 Discount Rate 11.50% Stabilized Occupancy 90.0% Terminal Cap Rate 10.00%
Gross Residual Sale Price $10,496,952 Deferred Maintenance $ 0 Less: Sales Expense $ 314,909 Add: Excess Land $ 0 ----------- Net Residual Sale Price $10,182,044 Other Adjustments $ 0 ---------- PV of Reversion $ 3,428,359 Value Indicated By "DCF" $8,790,496 Add: NPV of NOI $ 5,362,138 Rounded $8,800,000 ----------- PV Total $ 8,790,496
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ----------------------------------------------------------------------------- TOTAL VALUE 11.00% 11.25% 11.50% 11.75% 12.00% ------------------------------------------------------------------------------------------------------------- TERMINAL CAP RATE 9.50% $9,264,299 $9,116,014 $8,970,936 $8,828,986 $8,690,083 9.75% $9,167,512 $9,021,380 $8,878,403 $8,738,502 $8,601,599 10.00% $9,075,564 $8,931,478 $8,790,496 $8,652,542 $8,517,539 10.25% $8,988,102 $8,845,961 $8,706,878 $8,570,775 $8,437,579 10.50% $8,904,804 $8,764,517 $8,627,241 $8,492,902 $8,361,427
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 THE LOFT, RALEIGH, NORTH CAROLINA INCOME LOSS DURING LEASE-UP The subject is currently 86% occupied, below our stabilized occupancy projection. We have estimated a 12-month lease-up period. An adjustment must be made to bring the subject to a stabilized operating level. To account for this income loss during lease-up, we have compared the current DCF analysis to an "as stabilized" DCF analysis assuming the subject's occupancy were stabilized. The difference in net operating income during the lease-up period is discounted to a present value figure of $32,000 as shown in the following table.
DESCRIPTION YEAR 1 -------------------------------------------------- "As Is" Net Operating Income $796,312 Stabilized Net Operating Income $832,021 -------- Difference $ 35,709 PV of Income Loss During Lease-Up $ 32,026 -------- Rounded $ 32,000 --------
CONCESSIONS Due to softness in the market, concessions have been utilized at the subject property and within the market. Based on our discussions with the subject's property manager and those at competing properties, these concessions are expected to continue in the near term until the market returns to a stabilized level. Concessions have been included as a line item deduction within the discounted cash flow analysis. The present value of these concessions equates to $62,000 (rounded). This amount has been deducted from the Direct Capitalization analysis, as well as the Sales Comparison Approach value. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 THE LOFT, RALEIGH, NORTH CAROLINA After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 9.50% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 THE LOFT, RALEIGH, NORTH CAROLINA THE LOFT
TOTAL PER SQ. FT. PER UNIT %OF EGI ------------------------------------------------------------------------------------------------------ REVENUE Base Rent $1,674,552 $ 8.14 $ 9,101 Less: Vacancy & Collection Loss 12.00% $ 200,946 $ 0.98 $ 1,092 Plus: Other Income Laundry Income $ 4,600 $ 0.02 $ 25 0.31% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 20,240 $ 0.10 $ 110 1.35% ---------------------------------------------- Subtotal Other Income $ 24,840 $ 0.12 $ 135 1.66% EFFECTIVE GROSS INCOME $1,498,446 $ 7.29 $ 8,144 OPERATING EXPENSES: Taxes $ 92,000 $ 0.45 $ 500 6.14% Insurance $ 36,800 $ 0.18 $ 200 2.46% Utilities $ 50,600 $ 0.25 $ 275 3.38% Repair & Maintenance $ 87,400 $ 0.43 $ 475 5.83% Cleaning $ 0 $ 0.00 $ 0 0.00% Landscaping $ 29,440 $ 0.14 $ 160 1.96% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 23,000 $ 0.11 $ 125 1.53% General Administrative $ 202,400 $ 0.98 $ 1,100 13.51% Management 5.00% $ 74,922 $ 0.36 $ 407 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 596,562 $ 2.90 $ 3,242 39.81% Reserves $ 46,000 $ 0.22 $ 250 3.07% ---------------------------------------------- NET OPERATING INCOME $ 855,883 $ 4.16 $ 4,652 57.12% "GOING IN" CAPITALIZATION RATE 9.50% VALUE INDICATION $9,009,300 $43.82 $48,964 LESS: LEASE-UP COST ($ 32,000) PV OF CONCESSIONS ($ 62,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $8,915,300 ROUNDED $8,900,000 $43.28 $48,370
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37 THE LOFT, RALEIGH, NORTH CAROLINA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF -------------------------------------------------------------------------- 8.75% $9,687,525 $9,700,000 $52,717 $47.18 9.00% $9,415,816 $9,400,000 $51,087 $45.72 9.25% $9,158,794 $9,200,000 $50,000 $44.74 9.50% $8,915,300 $8,900,000 $48,370 $43.28 9.75% $8,684,292 $8,700,000 $47,283 $42.31 10.00% $8,464,835 $8,500,000 $46,196 $41.34 10.25% $8,256,083 $8,300,000 $45,109 $40.37
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $8,900,000. CORRELATION AND CONCLUSION BY THE INCOME APPROACH The two methods used to estimate the market value of the subject property by the income approach resulted in the following indications of value: Discounted Cash Flow Analysis $8,800,000 Direct Capitalization Method $8,900,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $8,800,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 THE LOFT, RALEIGH, NORTH CAROLINA RECONCILIATION AND CONCLUSION This appraisal was made to express an opinion as of the Market Value of the fee simple estate in the property. AS IS MARKET VALUE OF THE FEE SIMPLE ESTATE Cost Approach Not Utilized Sales Comparison Approach $8,600,000 Income Approach $8,800,000 Reconciled Value $8,800,000
The Direct Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of May 13, 2003 the market value of the fee simple estate in the property is: $8,800,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA THE LOFT, RALEIGH, NORTH CAROLINA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A THE LOFT, RALEIGH, NORTH CAROLINA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A THE LOFT, RALEIGH, NORTH CAROLINA SUBJECT PHOTOGRAPHS [EXTERIOR - PROPERTY SIGN PICTURE] [EXTERIOR - OFFICE PICTURE] [INTERIOR - OFFICE PICTURE] [INTERIOR - POOL ROOM PICTURE] [EXTERIOR - TYPICAL UNIT PICTURE] [EXTERIOR - TYPICAL UNIT PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A THE LOFT, RALEIGH, NORTH CAROLINA SUBJECT PHOTOGRAPHS [INTERIOR - TYPICAL UNIT PICTURE] [INTERIOR - TYPICAL KITCHEN PICTURE] [INTERIOR - FITNESS FACILITY PICTURE] [EXTERIOR - SAND VOLLEYBALL COURT PICTURE] [EXTERIOR - TENNIS COURT PICTURE] [EXTERIOR - PLAYGROUND PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B THE LOFT, RALEIGH, NORTH CAROLINA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B THE LOFT, RALEIGH, NORTH CAROLINA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 COTTAGES OF STONEHENGE CALIBRE CHASE POLO RUN 7600 Falcon Rest Circle 231 Calibre Chase Drive 1803 Hillock Drive Raleigh, North Carolina Raleigh, North Carolina Raleigh, North Carolina [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 HIDDEN CREEK SEDGEWOOD GREEN 5601 Old Wake Forest Road 3917 Knickerbocker Parkway Raleigh, North Carolina Raleigh, North Carolina [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B THE LOFT, RALEIGH, NORTH CAROLINA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 ------------------------------------------------------------------------------------------------------------------------------------ Property Name The Loft Shellbrook Management Company AIMCO Drucker & Falk LLC LOCATION: Address 214 Loft Lane 901 Shellbrook City, State Raleigh, North Carolina Raleigh, North Carolina County Wake Wake Proximity to Subject 0.70 mile to the west of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 205,615 208,248 Year Built 1975 1971 Effective Age 25 32 Building Structure Type Brick & wood/vinyl siding; composition shingle Parking Type (Gr., Cov., etc.) Open Number of Units 184 238 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 Terrace - 1Bd/1Ba 800 28 $650 1 1Bd/1Ba - Type 1 706 48 $475 2 Gable - 1Bd/1Ba 1,035 38 $720 1 1Bd/1Ba - Type 2 755 48 $485 3 Pinnacle - 2Bd/1.5Ba 1,045 28 $752 1 1Bd/1Ba - Type 3 765 56 $499 4 Veranda - 2Bd/2Ba 1,250 65 $767 2 2Bd/1Ba 996 12 $675 5 Trellis - 3Bd/2Ba 1,335 25 $932 4 2Bd/2Ba - Type 1 1,071 40 $700 2Bd/2Ba - Type 2 1,130 12 $725 2Bd/2.5Ba 1,224 22 $815 Average Unit Size (SF) 1,117 700 Unit Breakdown: Efficiency 2-Bedroom Efficiency 0% 2-Bedroom 36% 1-Bedroom 3-Bedroom 1-Bedroom 64% 3-Bedroom 0% CONDITION: Average APPEAL: Average AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash X Basketball Court X BBQ Equipment Basketball Court BBQ Equipment X Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track Business Office X Gym Room X Billiards X Gym Room Billiards X Playground Playground OCCUPANCY: 86% 88% LEASING DATA: Available Leasing Terms 6 to 15 months 3, 6, 9, and 12 month Concessions Reduced rents ($50 to $130) Reduced rents ($50 to $75 off) Pet Deposit $250 $150 with $50 non-refundable and pet rent Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas Water Trash Water Trash Confirmation Billy Booth - Property Manager Ellen Nicholas Telephone Number 919-847-3162 919-782-7734 NOTES: ------------------------------------------------------------------------------------------------------------------------------------ COMPARISON TO SUBJECT: Similar ------------------------------------------------------------------------------------------------------------------------------------ COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 ------------------------------------------------------------------------------------------------------------------------------------ Property Name Archstone Ridgewood Paces Arbor Management Company Archstone Alliance Residential LOCATION: Address 120 Ridgewood Drive 6500 Paces Arbor Circle City, State Raleigh, North Carolina Raleigh, North Carolina County Wake Wake Proximity to Subject 0.50 mile to the north of the subject 0.75 mile to the northwest of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 165,492 64,027 Year Built 1986 1986 Effective Age 17 17 Building Structure Type Brick & wood/vinyl siding; composition shingle Wood/vinyl siding; composition shingle Parking Type (Gr., Cov., etc.) Open Open Number of Units 228 101 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 0 1Bd/1Ba - Type 1 510 34 $440 0 1Bd/1Ba - Type 1 625 18 $495 0 1Bd/1Ba - Type 2 624 72 $465 1 1Bd/1Ba - Type 2 788 35 $620 1 1Bd/1Ba - Type 3 710 32 $550 2 1Bd/1Ba - Type 3 938 13 $670 2 2Bd/1Ba 836 34 $600 4 2Bd/2Ba 1,136 35 $730 0 2Bd/2Ba 930 56 $630 Average Unit Size (SF) 726 899 Unit Breakdown: Efficiency 0% 2-Bedroom 39% Efficiency 0% 2-Bedroom 35% 1-Bedroom 61% 3-Bedroom 0% 1-Bedroom 65% 3-Bedroom 0% CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall X Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball Laundry Room Jogging Track Business Office Jogging Track Business Office X Gym Room Billiards X Gym Room Billiards Playground Playground OCCUPANCY: 93% 89% LEASING DATA: Available Leasing Terms 3-12 month 3, 6, 9, 12, 28 month Concessions $125 off market Reduced rents ($45 off with a 12 month lease) Pet Deposit $250 to 350 non-refundable and pet rent $275 non-refundable Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash Water X Trash Confirmation Leasing Agent Lisa Cypert Telephone Number 919-848-3511 919-847-1112 NOTES: ------------------------------------------------------------------------------------------------------------------------------------ COMPARISON TO SUBJECT: Similar Similar ------------------------------------------------------------------------------------------------------------------------------------ COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 ---------------------------------------------------------------------------------------------------------------------------------- Property Name Laurel Springs Lynnwood Park Management Company Brookside Properties Lampe Management LOCATION: Address 500-103 Bridleridge Drive 6200 North Hills Drive City, State Raleigh, North Carolina Raleigh, North Carolina County Wake Wake Proximity to Subject 0.70 mile to the north of the subject 1.0 mile to the west of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 137,028 139,200 Year Built 1986 1982 Effective Age 17 21 Building Structure Type Wood/vinyl siding; composition shingle Brick & wood/vinyl siding; composition shingle Parking Type (Gr., Cov., etc.) Open Open Number of Units 122 152 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Bd/1Ba 933 50 $709 0 1Bd/1Ba 600 72 $535 4 2Bd/2Ba - Type 1 1,343 40 $869 4 2Bd/2Ba 1,200 80 $690 4 2Bd/2Ba - Type 2 1,414 32 $909 Average Unit Size (SF) 1,194 916 Unit Breakdown: Efficiency 0% 2-Bedroom 59% Efficiency 0% 2-Bedroom 53% 1-Bedroom 41% 3-Bedroom 0% 1-Bedroom 47% 3-Bedroom 0% CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage X Vaulted Ceiling X Balcony X W/D Connect. Balcony X W/D Connect. X Fireplace Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi X Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball Laundry Room Racquet Ball X Laundry Room X Jogging Track Business Office Jogging Track Business Office Gym Room Billiards Gym Room Billiards X Playground X Playground OCCUPANCY: 98% 89% LEASING DATA: Available Leasing Terms 6 to 12 months 6 to 12 months Concessions Reduced rents ($110 off) Reduced rents ($40 to $50 off) Pet Deposit $290 non-refundable $200 non-refundable Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash Water X Trash Confirmation Susan McNealage Alexis Winemiller Telephone Number 919-846-8267 919-847-0349 NOTES: ---------------------------------------------------------------------------------------------------------------------------------- COMPARISON TO SUBJECT: Similar Similar ----------------------------------------------------------------------------------------------------------------------------------
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B THE LOFT, RALEIGH, NORTH CAROLINA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 SHELLBROOK ARCHSTONE RIDGEWOOD PACES ARBOR 901 Shellbrook 120 Ridgewood Drive 6500 Paces Arbor Circle Raleigh, North Carolina Raleigh, North Carolina Raleigh, North Carolina [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 LAUREL SPRINGS LYNNWOOD PARK 500-103 Bridleridge Drive 6200 North Hills Drive Raleigh, North Carolina Raleigh, North Carolina [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C THE LOFT, RALEIGH, NORTH CAROLINA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C THE LOFT, RALEIGH, NORTH CAROLINA No responsibility is assumed for matters legal in nature. No investigation has been made of the title to or any liabilities against the property appraised. In this appraisal, it is presumed that, unless otherwise noted, the owner's claim is valid, the property rights are good and marketable, and there are no encumbrances which cannot be cleared through normal processes. To the best of our knowledge, all data set forth in this report are true and accurate. Although gathered from reliable sources, no guarantee is made nor liability assumed for the accuracy of any data, opinions, or estimates identified as being furnished by others which have been used in formulating this analysis. Land areas and descriptions used in this appraisal were obtained from public records and have not been verified by legal counsel or a licensed surveyor. No soil analysis or geological studies were ordered or made in conjunction with this report, nor were any water, oil, gas, or other subsurface mineral and use rights or conditions investigated. Substances such as asbestos, urea-formaldehyde foam insulation, other chemicals, toxic wastes, or other potentially hazardous materials could, if present, adversely affect the value of the property. Unless otherwise stated in this report, the existence of hazardous substance, which may or may not be present on or in the property, was not considered by the appraiser in the development of the conclusion of value. The stated value estimate is predicated on the assumption that there is no material on or in the property that would cause such a loss in value. No responsibility is assumed for any such conditions, and the client has been advised that the appraiser is not qualified to detect such substances, quantify the impact on values, or develop the remedial cost. No environmental impact study has been ordered or made. Full compliance with applicable federal, state, and local environmental regulations and laws is assumed unless otherwise stated, defined, and considered in the report. It is also assumed that all required licenses, consents, or other legislative or administrative authority from any local, state, or national government or private entity organization either have been or can be obtained or renewed for any use which the report covers. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C THE LOFT, RALEIGH, NORTH CAROLINA It is assumed that all applicable zoning and use regulations and restrictions have been complied with unless a nonconformity has been stated, defined, and considered in the appraisal report. Further, it is assumed that the utilization of the land and improvements is within the boundaries of the property described and that no encroachment or trespass exists unless noted in the report. The Americans with Disabilities Act ("ADA") became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property together with a detailed analysis of the requirements of the ADA could reveal that the property is not in compliance with one or more of the requirements of the act. If so, this fact could have a negative effect on the value of the property. Since we have no direct evidence relating to this issue, we did not consider the possible noncompliance with the requirements of ADA in estimating the value of the property. We have made a physical inspection of the property and noted visible physical defects, if any, in our report. This inspection was made by individuals generally familiar with real estate and building construction. However, these individuals are not architectural or structural engineers who would have detailed knowledge of building design and structural integrity. Accordingly, we do not opine on, nor are we responsible for, the structural integrity of the property including its conformity to specific governmental code requirements, such as fire, building and safety, earthquake, and occupancy, or any physical defects which were not readily apparent to the appraiser during the inspection. The value or values presented in this report are based upon the premises outlined herein and are valid only for the purpose or purposes stated. The date of value to which the conclusions and opinions expressed apply is set forth in this report. The value opinion herein rendered is based on the status of the national business economy and the purchasing power of the U.S. dollar as of that date. Testimony or attendance in court or at any other hearing is not required by reason of this appraisal unless arrangements are previously made within a reasonable time in advance for AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C THE LOFT, RALEIGH, NORTH CAROLINA such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the American Society of Appraisers or the designations awarded by this organization) shall be disseminated to the public through prospectus, advertising, public relations, news, or any other means of communication without the written consent and approval of American Appraisal Associates, Inc. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D THE LOFT, RALEIGH, NORTH CAROLINA EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D CERTIFICATE OF APPRAISER I certify that, to the best of my knowledge and belief: The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and represent the unbiased professional analyses, opinions, and conclusions of American Appraisal Associates, Inc. American Appraisal Associates, Inc. and I personally, have no present or prospective interest in the property that is the subject of this report and have no personal interest or bias with respect to the parties involved. Compensation for American Appraisal Associates, Inc. is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. The analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. I personally did not inspect the subject property. Jimmy Pat James, MAI and Chad Walker provided significant real property appraisal assistance in the preparation of this report. I am currently in compliance with the Appraisal Institute's continuing education requirements. -s- Frank Fehribach ---------------------------- Frank Fehribach, MAI Managing Principal, Real Estate Group North Carolina Temporary Practice Permit #2578 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E THE LOFT, RALEIGH, NORTH CAROLINA EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E THE LOFT, RALEIGH, NORTH CAROLINA FRANK A. FEHRIBACH, MAI MANAGING PRINCIPAL, REAL ESTATE GROUP POSITION Frank A. Fehribach is a Managing Principal for the Dallas Real Estate Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Mr. Fehribach has experience in valuations for resort hotels; Class A office buildings; Class A multifamily complexes; industrial buildings and distribution warehousing; multitract mixed-use vacant land; regional malls; residential subdivision development; and special-purpose properties such as athletic clubs, golf courses, manufacturing facilities, nursing homes, and medical buildings. Consulting assignments include development and feasibility studies, economic model creation and maintenance, and market studies. Mr. Fehribach also has been involved in overseeing appraisal and consulting assignments in Mexico and South America. Business Mr. Fehribach joined AAA as an engagement director in 1998. He was promoted to his current position in 1999. Prior to that, he was a manager at Arthur Andersen LLP. Mr. Fehribach has been in the business of real estate appraisal for over ten years. EDUCATION University of Texas - Arlington Master of Science - Real Estate University of Dallas Master of Business Administration - Industrial Management Bachelor of Arts - Economics AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E THE LOFT, RALEIGH, NORTH CAROLINA STATE CERTIFICATIONS State of Arizona, Certified General Real Estate Appraiser, #30828 State of Arkansas, State Certified General Appraiser, #CG1387N State of Colorado, Certified General Appraiser, #CG40000445 State of Georgia, Certified General Real Property Appraiser, #218487 State of Michigan, Certified General Appraiser, #1201008081 State of Texas, Real Estate Salesman License, #407158 (Inactive) State of Texas, State Certified General Real Estate Appraiser, #TX-1323954-G PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS Candidate Member of the CCIM Institute pursuing Certified Commercial Investment Member (CCIM) designation PUBLICATIONS "An Analysis of the Determinants of Industrial Property -authored with Dr. Ronald C. Rutherford and Dr. Mark Eakin, The Journal of Real Estate Research, Vol. 8, No. 3, Summer 1993, p. 365. AMERICAN APPRAISAL ASSOCIATES, INC. THE LOFT, RALEIGH, NORTH CAROLINA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. THE LOFT, RALEIGH, NORTH CAROLINA GENERAL SERVICE CONDITIONS The services(s) provided by AAA will be performed in accordance with professional appraisal standards. Our compensation is not contingent in any way upon our conclusions of value. We assume, without independent verification, the accuracy of all data provided to us. We will act as an independent contractor and reserve the right to use subcontractors. All files, workpapers or documents developed by us during the course of the engagement will be our property. We will retain this data for at least five years. Our report is to be used only for the specific purpose stated herein; and any other use is invalid. No reliance may be made by any third party without our prior written consent. You may show our report in its entirety to those third parties who need to review the information contained herein. No one should rely on our report as a substitute for their own due diligence. We understand that our reports will be described in public tender offer documents distributed to limited partners. We reserve the right to review the public tender offer documents prior to their issuance to confirm that disclosures of facts from the current appraisals are accurate. No reference to our name or our report, in whole or in part, in any other SEC filing or private placement memorandum you prepare and/or distribute to third parties may be made without our prior written consent. The Tender Offer Partnerships, as that term is defined in the Settlement Agreement, agree to indemnify and hold us harmless against and from any and all losses, claims, actions, damages, expenses or liabilities, including reasonable attorneys' fees, to which we may become subject in connection with this engagement except where such losses, claims, actions, damages, expenses or liabilities, including reasonable attorney's fees, arise or result from AAA's misconduct, bad faith or negligence. Co-Clients will not be liable for any of our acts or omissions. AAA is an equal opportunity employer.