EX-99.(C)(8) 13 d07253exv99wxcyx8y.txt APPRAISAL OF SILVERADO SILVERADO 9300 VISCOUNT BLVD EL PASO, TEXAS MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 11, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] JULY 2, 2003 Apartment Investment and Management Company ("AIMCO") c/o Mr. Steven A. Velkei, Esq. Liner Yankelevitz Sunshine & Regenstreif LLP 1100 Glendon Avenue, 14th Floor Los Angeles, California 90024-3503 Nuanes, et al.( "Plaintiffs") c/o Ms. Joy Kruse Lieff Cabraser Heimann & Bernstein Embarcadero Center West 275 Battery Street, 30th Floor San Francisco, California 94111 RE: SILVERADO 9300 VISCOUNT BLVD EL PASO, EL PASO COUNTY, TEXAS In accordance with your authorization, we have completed the appraisal of the above-referenced property. This complete appraisal is intended to report our analysis and conclusions in a summary format. The subject property consists of an apartment project having 248 units with a total of 191,590 square feet of rentable area. The improvements were built in 1973. The improvements are situated on 10 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 92% occupied. It is our understanding the appraisal will be used by the clients to assist the San Mateo Superior Court in the settlement of litigation between the above mentioned clients. The appraisal is intended to conform to the Uniform Standards of Professional Appraisal Practice ("USPAP") as promulgated by the Appraisal Standards Board of the Appraisal Foundation and the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute. The appraisal is presented in a summary report, and the Departure Provision of USPAP has not been invoked in this appraisal. It is entirely inappropriate to use this value conclusion or the report for any purpose other than the one stated. AMERICAN APPRAISAL ASSOCIATES, INC. LETTER OF TRANSMITTAL PAGE 2 SILVERADO, EL PASO, TEXAS The opinions expressed in this appraisal cover letter can only be completely understood by reading the narrative report, addenda, and other data, which is attached. The appraisal is subject to the attached general assumptions and limiting conditions and general service conditions. As a result of our investigation, it is our opinion that the fee simple market value of the subject, effective May 11, 2003 is: ($5,600,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Frank Fehribach July 2, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group Texas State Certified General Real Estate Appraiser #TX-1323954-G Report By: Daniel Salcedo Texas State Certified General Real Estate Appraiser #TX-1331768-G AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 SILVERADO, EL PASO, TEXAS TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary............................................................... 4 Introduction.................................................................... 9 Area Analysis................................................................... 11 Market Analysis................................................................. 14 Site Analysis................................................................... 16 Improvement Analysis............................................................ 16 Highest and Best Use ........................................................... 17 VALUATION Valuation Procedure............................................................. 18 Sales Comparison Approach....................................................... 20 Income Capitalization Approach ................................................. 26 Reconciliation and Conclusion................................................... 38
ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 SILVERADO, EL PASO, TEXAS EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Silverado LOCATION: 9300 Viscount Blvd El Paso, Texas INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: Fee simple estate DATE OF VALUE: May 11, 2003 DATE OF REPORT: July 2, 2003
PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 10 acres, or 435,600 square feet Assessor Parcel No.: F175-999-0010-4900 Floodplain: Community Panel No. 4802140041B (October 15, 1982) Flood Zone C, an area outside the floodplain. Zoning: A-O (Medium to High Density Apartment District) BUILDING: No. of Units: 248 Units Total NRA: 191,590 Square Feet Average Unit Size: 773 Square Feet Apartment Density: 24.8 units per acre Year Built: 1973
UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square -------------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income --------------------------------------------------------------------------------------------- 1Br/1Ba - EA10 494 $ 390 $ 0.79 $ 7,800 $ 93,600 1Br/1Ba -1A10 525 $ 410 $ 0.78 $ 24,600 $ 295,200 1Br/1Ba - 1A15 754 $ 470 $ 0.62 $ 16,920 $ 203,040 1 Br/1Ba-1B10 684 $ 460 $ 0.67 $ 18,400 $ 220,800 1 Br/1.5 Ba -1B15 878 $ 520 $ 0.59 $ 4,160 $ 49,920 2Br/1Ba-2A10 979 $ 550 $ 0.56 $ 18,700 $ 224,400 2 Br/1.5Ba -2A15 1,200 $ 640 $ 0.53 $ 7,680 $ 92,160 2 Ba/2 Ba- 2A20 1,028 $ 570 $ 0.55 $ 18,240 $ 218,880 3Br/2Ba -3A20 1,350 $ 650 $ 0.48 $ 3,900 $ 46,800 Total $120,400 $1,444,800
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 SILVERADO, EL PASO, TEXAS OCCUPANCY: 92% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 25 Years REMAINING ECONOMIC LIFE: 20 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] UNIT TYPE FACADE UNIT TYPE AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 SILVERADO, EL PASO, TEXAS NEIGHBORHOOD MAP [MAP] HIGHEST AND BEST USE: As Vacant: Hold for future multi-family development As Improved: Continuation as its current use METHOD OF VALUATION: In this instance, the Sales Comparison and Income Approaches to value were utilized. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7 SILVERADO, EL PASO, TEXAS PART TWO - ECONOMIC INDICATORS
Amount $/Unit ------------ -------------- INCOME CAPITALIZATION APPROACH DIRECT CAPITALIZATION Potential Rental Income $ 1,444,800 $ 5,826 Effective Gross Income $ 1,377,200 $ 5,553 Operating Expenses $ 770,700 $ 3,108 56.0% of EGI Net Operating Income: $ 544,500 $ 2,196 Capitalization Rate 10.00% DIRECT CAPITALIZATION VALUE $ 5,400,000 * $21,774 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 8% Stabilized Vacancy & Collection Loss: 10% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 11.00% Discount Rate 12.50% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $ 5,600,000 * $22,581 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $ 5,600,000 $22,581 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $ 22,837 to $36,222 Range of Sales $/Unit (Adjusted) $ 20,553 to $25,736 VALUE INDICATION - PRICE PER UNIT $ 5,700,000 * $22,984 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 4.33 to 6.84 Selected EGIM for Subject 4.00 Subject's Projected EGI $ 1,377,200 EGIM ANALYSIS CONCLUSION $ 5,500,000 * $22,177 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $ 5,500,000 * $22,177 / UNIT RECONCILED SALES COMPARISON VALUE $ 5,500,000 $22,177 / UNIT
---------------------------- * Value indications are after adjustments for concessions, deferred maintenance, excess land and lease-up costs, if any. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 8 SILVERADO, EL PASO, TEXAS PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $ 5,700,000 NOI Per Unit $ 5,500,000 EGIM Multiplier $ 5,500,000 INDICATED VALUE BY SALES COMPARISON $ 5,500,000 $22,177 / UNIT INCOME APPROACH: Direct Capitalization Method: $ 5,400,000 Discounted Cash Flow Method: $ 5,600,000 INDICATED VALUE BY THE INCOME APPROACH $ 5,600,000 $22,581 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $ 5,600,000 $22,581 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 SILVERADO, EL PASO, TEXAS INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 9300 Viscount Blvd, El Paso, EL Paso County, Texas. El Paso identifies it as F175-999-0010-4900. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Daniel Salcedo on May 11, 2003. Frank Fehribach, MAI has not made a personal inspection of the subject property. Daniel Salcedo performed the research, valuation analysis and wrote the report. Frank Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach, MAI and Daniel Salcedo have extensive experience in appraising similar properties and meet the USPAP competency provision. The scope of this investigation comprises the inspection of the property and the collection, verification, and analysis of general and specific data pertinent to the subject property. We have researched current improved sales and leases of similar properties, analyzing them as to their comparability, and adjusting them accordingly. We completed the Sales Comparison and Income Capitalization Approaches to value. From these approaches to value, a concluded overall value was made. DATE OF VALUE AND REPORT This appraisal was made to express the opinion of value as of May 11, 2003. The date of the report is July 2, 2003. PURPOSE AND USE OF APPRAISAL The purpose of the appraisal is to estimate the market value of the fee simple interest in the subject property. It is understood that the appraisal is intended to assist the clients in litigation settlement proceedings. The appraisal was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. PROPERTY RIGHTS APPRAISED We have appraised the Fee Simple Estate in the subject property (as applied in the Sales & Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 SILVERADO, EL PASO, TEXAS defined in The Dictionary of Real Estate Appraisal, 3rd ed. (Chicago: Appraisal Institute, 1993), as: "Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat." MARKETING/EXPOSURE PERIOD MARKETING PERIOD: 6 to 12 months EXPOSURE PERIOD: 6 to 12 months HISTORY OF THE PROPERTY Ownership in the subject property is currently vested in CCEP. To the best of our knowledge, no transfers of ownership or offers to purchase the subject are known to have occurred during the past three years. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 11 SILVERADO, EL PASO, TEXAS AREA / NEIGHBORHOOD ANALYSIS NEIGHBORHOOD ANALYSIS A neighborhood is a group of complementary land uses. The function of the neighborhood analysis is to describe the immediate surrounding environs. The subject is located in the city of El Paso, Texas. Overall, the neighborhood is characterized as an urban setting with the predominant land use being residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Ranch 2316 West - Hawkins Ave South - I-10 North - Hawkins Ave/Cosmos Street MAJOR EMPLOYERS Major employers in the subject's area include Fort Hood Military Base. The overall economic outlook for the area is considered favorable. DEMOGRAPHICS We have reviewed demographic data within the neighborhood. The following table summarizes the key data points. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 12 SILVERADO, EL PASO, TEXAS NEIGHBORHOOD DEMOGRAPHICS
AREA ------------------------------------------ CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA --------------------------------------------------------------------------------------- POPULATION TRENDS Current Population 13,963 109,179 241,765 694,549 5-Year Population 13,959 105,374 244,263 734,415 % Change CY-5Y 0.0% -3.5% 1.0% 5.7% Annual Change CY-5Y 0.0% -0.7% 0.2% 1.1% HOUSEHOLDS Current Households 5,563 37,003 76,642 215,986 5-Year Projected Households 5,765 36,829 79,065 231,616 % Change CY - 5Y 3.6% -0.5% 3.2% 7.2% Annual Change CY-5Y 0.7% -0.1% 0.6% 1.4% INCOME TRENDS Median Household Income $ 32,761 $ 28,202 $ 29,872 $ 29,212 Per Capita Income $ 19,361 $ 13,880 $ 13,491 $ 13,716 Average Household Income $ 47,824 $ 40,820 $ 42,634 $ 44,105
Source: Demographics Now The subject neighborhood's population is expected to show increases below that of the region. The immediate market offers superior income levels as compared to the broader market. The following table illustrates the housing statistics in the subject's immediate area, as well as the MSA region. HOUSING TRENDS
AREA ------------------------------------------ CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA --------------------------------------------------------------------------------------- HOUSING TRENDS % of Households Renting 50.17% 40.46% 35.83% 34.03% 5-Year Projected % Renting 52.68% 40.54% 35.08% 32.34% % of Households Owning 45.98% 55.17% 60.18% 61.63% 5-Year Projected % Owning 43.61% 55.05% 61.00% 63.53%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 SILVERADO, EL PASO, TEXAS SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Viscount Blvd/residential/multifamily uses South - Office business strip East - Viscount Blvd/residential/multifamily uses West - Vacant Land (El Paso Electric Power Station) CONCLUSIONS The subject is well located within the city of El Paso. The neighborhood is characterized as being mostly urban in nature and is currently in the stable stage of development. The economic outlook for the neighborhood is judged to be favorable with a good economic base. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 14 SILVERADO, EL PASO, TEXAS MARKET ANALYSIS The subject property is located in the city of El Paso in EL Paso County. The overall pace of development in the subject's market is more or less stable. Based on our site inspection of the market area, there was no evidence of any new development for multifamily use. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket ------ ------ --------- 1Q-01 8.0% 8.0% 2Q-01 8.7% 8.7% 3Q-01 9.0% 9.0% 4Q-01 9.8% 9.8% 1Q-02 7.8% 7.8% 2Q-02 8.5% 8.5% 3Q-02 6.8% 6.8% 4Q-02 8.5% 8.5% 1Q-03 8.0% 8.0%
Source: El Paso Apartment Association Occupancy trends in the subject's market are a stable. Historically speaking, the subject's submarket has equated the overall market. Occupancy in the subject's market area is expected to remain around 92.0% on average. Any expected changes are caused by the short time fluctuations derived from military household demand. Overall, occupancy in the market area is considered stable. Market rents in the subject's market have been following a decreasing trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change ------ ------ -------- --------- -------- 1Q-01 $497 - $497 - 2Q-01 $504 1.4% $504 1.4% 3Q-01 $500 -0.8% $500 -0.8% 4Q-01 $501 0.2% $501 0.2% 1Q-02 $501 0.0% $501 0.0% 2Q-02 $505 0.8% 3Q-02 $512 1.4% $505 - 4Q-02 $512 0.0% $512 1.4% 1Q-03 $506 -1.2% $506 -1.2%
Source: El Paso Apartment Association The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 SILVERADO, EL PASO, TEXAS COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject --- ------------- ----- ----- ---------- -------------------- R-1 La Plaza 129 99% 1969 one mile southeast of the subject R-2 Shadow Ridge 352 92% 1985 less than 0.20 miles southeast of the subject R-3 Spring Park 180 92% 1995 Approx. 0.50 miles southeast of the subject R-4 Citadel 261 96% 1973 Approx. 0.40 miles southeast of the subject R-5 Celina 289 94% 1974 Approx. 0.60 miles northwest of subject Subject Silverado 248 92% 1973
Rental rates are expected to continue to slow their decline. They are expected to average around $500 per month, since the market and its demand are stable. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 SILVERADO, EL PASO, TEXAS PROPERTY DESCRIPTION SITE ANALYSIS Site Area 10 acres, or 435,600 square feet Shape Irregular Topography Moderate slope Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Average Flood Zone: Community Panel 4802140041B, dated October 15, 1982 Flood Zone Zone C Zoning A-O, the subject improvements represent a legal conforming use of the site.
REAL ESTATE TAXES
ASSESSED VALUE - 2002 ------------------------------------ TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES --------------------------------------------------------------------------------------- F175-999-0010-4900 $653,400 $4,156,600 $4,810,000 0.03005 $144,535
IMPROVEMENT ANALYSIS Year Built 1973 Number of Units 248 Net Rentable Area 191,590 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Brick or masonry Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, gym room, barbeque equipment, meeting hall, laundry room, business office, and secured parking. Unit Amenities Individual unit amenities include a balcony, fireplace, cable TV connection, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, microwave dishwasher, water heater, garbage disposal, and oven.
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 SILVERADO, EL PASO, TEXAS Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) ----------------- --------------- --------- 1Br/1Ba - EA10 20 494 1Br/1Ba -1A10 60 525 1Br/1Ba - 1A15 36 754 1 Br/1Ba - 1B10 40 684 1 Br/1.5 Ba - 1B15 8 878 2Br/1Ba-2A10 34 979 2 Br/1.5Ba - 2A15 12 1,200 2 Ba/2 Ba - 2A20 32 1,028 3Br/2Ba - 3A20 6 1,350
Overall Condition Average Effective Age 25 years Economic Life 45 years Remaining Economic Life 20 years Deferred Maintenance None HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1973 and consist of a 248-unit multifamily project. The highest and best use as improved is for a continued multifamily use. Overall, the highest and best use of the subject property is the continued use of the existing apartment project. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 18 SILVERADO, EL PASO, TEXAS THE VALUATION PROCEDURE There are three traditional approaches, which can be employed in establishing the market value of the subject property. These approaches and their applicability to the valuation of the subject are summarized as follows: THE COST APPROACH The application of the Cost Approach is based on the principle of substitution. This principle may be stated as follows: no one is justified in paying more for a property than that amount by which he or she can obtain, by purchase of a site and construction of a building, without undue delay, a property of equal desirability and utility. In the case of a new building, no deficiencies in the building should exist. In the case of income-producing real estate, the cost of construction plays a minor and relatively insignificant role in determining market value. The Cost Approach is typically only a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) where the cost of reproducing the improvements is easily and accurately quantified and there is no economic obsolescence. In all instances, the issue of an appropriate entrepreneurial profit - the reward for undertaking the risk of construction, remains a highly subjective factor especially in a market lacking significant speculative development. THE SALES COMPARISON APPROACH The Sales Comparison Approach is an estimate of value based upon a process of comparing recent sales of similar properties in the surrounding or competing areas to the subject property. Inherent in this approach is the principle of substitution. The application of this approach consists of comparing the subject property with similar properties of the same general type, which have been sold recently or currently are available for sale in competing areas. This comparative process involves judgment as to the similarity of the subject property and the comparable sale with respect to many value factors such as location, contract rent levels, quality of construction, reputation and prestige, age and condition, among others. The estimated value through this approach represents the probable price at which a willing seller would sell the subject property to a willing and knowledgeable buyer as of the date of value. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 19 SILVERADO, EL PASO, TEXAS THE INCOME CAPITALIZATION APPROACH The theory of the Income Capitalization Approach is based on the premise that present value is the value of the cash flow and reversionary value the property will produce over a reasonable holding (ownership) period. The Discounted Cash Flow Analysis will convert equity cash flows (including cash flows and equity reversion) into a present value utilizing an internal rate of return (or discount rate). The Internal Rate of Return (IRR) will be derived from a comparison of alternate investments, a comparative analysis of IRR's used by recent buyers of similar properties, and a review of published industry surveys. The Direct Capitalization Analysis converts one year of income into an overall value using overall capitalization rates from similar sales. The overall rates take into consideration buyers assumptions of the market over the long-term. The results of the Income Capitalization Analysis are usually the primary value indicator for income producing properties. Investors expect a reasonable rate of return on their equity investment based on the ownership risks involved; this approach closely parallels the investment decision process. RECONCILIATION In this instance, we have completed the Sales Comparison and Income Capitalization Approaches to value. As an income producing property, the income approach is a primary approach to value. The Sales Comparison Approach is also considered reliable as investors are buying similar buildings in the market. Our research indicates that market participants are generally not buying, selling, investing, or lending with reliance placed on the methodology of the Cost Approach to establish the value. Therefore, we have decided that the Cost Approach is not a reliable indicator of value for the subject, and this approach has not been utilized. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 20 SILVERADO, EL PASO, TEXAS SALES COMPARISON APPROACH Use of market or comparable sales requires the collection and analysis of comparable sales data. Similar properties recently sold are compared to the subject and adjusted based on any perceived differences. This method is based on the premise that the costs of acquiring a substitute property would tend to establish a value for the subject property. The premise suggests that if a substitute is unavailable in the market, the reliability of the approach may be subordinate to the other approaches. The reliance on substitute properties produces shortcomings in the validity of this approach. Geographic and demographic characteristics from each submarket restrict which sales may be selected. Recent sales with a similar physical characteristics, income levels, and location are usually limited. The sales we have identified, however, do establish general valuation parameters as well as provide support to our conclusion derived through the income approach method. The standard unit of comparison among similar properties is the sales price per unit and price per square foot of net rentable area. To accurately adjust prices to satisfy the requirements of the sales comparison approach, numerous calculations and highly subjective judgments would be required including consideration of numerous income and expense details for which information may be unreliable or unknown. The sales price per unit and square foot are considered relevant to the investment decision, but primarily as a parameter against which value estimates derived through the income approach can be judged and compared. In examining the comparable sales, we have applied a subjective adjustment analysis, which includes specific adjustments derived from our experience and consulting with the market participants. SALES COMPARISON ANALYSIS Detailed on the following pages are sales transactions involving properties located in the subject's competitive investment market. Photographs of the sale transactions are located in the Addenda. Following the summary of sales is an adjustment grid that is used to arrive at a value. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21 SILVERADO, EL PASO, TEXAS SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ---------------------------------------------------------------------------------------------------------------------------------- Property Name Silverado La Plaza Shadow Ridge LOCATION: Address 9300 Viscount Blvd 9578 Sims Drive 9375 Viscount Blvd City, State El Paso, Texas El Paso,TX El Paso, TX County EL Paso El Paso El Paso PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 191,590 128,669 263,296 Year Built 1973 1969 1985 Number of Units 248 129 352 Unit Mix: Type Total Type Total Type Total 1Br/1Ba - EA10 20 1Br/1Ba 29 1Br/1Ba 80 1Br/1Ba -1A10 60 2Br/1Ba 50 2Br/1Ba 100 1Br/1Ba - 1A15 36 2Br/1.5Ba 35 2Br/1.5Ba 60 1 Br/1Ba-1B10 40 2Br/2Ba 15 2Br/2Ba 60 1 Br/1.5 Ba -1B15 8 3Br/2Ba 52 2Br/1Ba-2A10 34 2 Br/1.5Ba -2A15 12 2 Ba/2 Ba- 2A20 32 3Br/2Ba -3A20 6 Average Unit Size (SF) 773 997 748 Land Area (Acre) 10.0000 8.7670 7.9526 Density (Units/Acre) 24.8 14.7 44.3 Parking Ratio (Spaces/Unit) 2.58 2.00 2.00 Parking Type (Gr., Cov., etc.) Open Open Open CONDITION: Good Average Good APPEAL: Average Fair Good AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room Yes Yes Yes Laundry Room Yes Yes No Secured Parking Yes Yes Yes Sport Courts Yes Yes Yes Washer/Dryer Connection Yes No Yes OCCUPANCY: 92% 92% 93% TRANSACTION DATA: Sale Date July, 2000 November, 1999 Sale Price ($) $4,150,000 $12,750,000 Grantor Dain Texas Partners N/A Grantee American Opportunity for Case & Associates Properties Housing-La Palza, LLC Sale Documentation Deed- Vol 1402/Page 134 Deed- Vol 1817/Page 1645 Verification Confidential Confidential Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $869,225 $6,738 $6.76 $2,003,382 $5,691 $7.61 Vacancy/Credit Loss $ 69,538 $ 539 $0.54 $ 140,236 $ 398 $0.53 Effective Gross Income $799,687 $6,199 $6.22 $1,863,146 $5,293 $7.08 Operating Expenses $339,867 $2,635 $2.64 $ 707,995 $2,011 $2.69 Net Operating Income $459,820 $3,564 $3.57 $1,155,151 $3,282 $4.39 NOTES: None None PRICE PER UNIT $32,171 $36,222 PRICE PER SQUARE FOOT $ 32.25 $ 48.42 EXPENSE RATIO 42.5% 38.0% EGIM 5.19 6.84 OVERALL CAP RATE 11.08% 9.06% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 -------------------------------------------------------------------------------------------------------------------------------- Property Name Spring Park Sand Pebble Celina LOCATION: Address 9535 Acer Avenue 11280 Pebble Hills Drive 8500 Viscount Blvd City, State El Paso, TX El Paso, TX El Paso, TX County El Paso El Paso El Paso PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 139,224 165,504 248,005 Year Built 1995 1983 1974 Number of Units 180 208 289 Unit Mix: Type Total Type Total Type Total 1Br/1Ba 60 1Br/1Ba 100 1Br/1Ba 119 2Br/1Ba 80 2Br/1Ba 88 2Br/1Ba 120 3Br/2Ba 40 3Br/2Ba 20 3Br/2Ba 50 Average Unit Size (SF) 773 796 858 Land Area (Acre) 9.8900 9.0460 11.6000 Density (Units/Acre) 18.2 23.0 24.9 Parking Ratio (Spaces/Unit) 2.20 2.01 2.09 Parking Type (Gr., Cov., etc.) Open Open Open CONDITION: Good Average Average APPEAL: Good Fair Fair AMENITIES: Pool/Spa Yes/Yes Yes/No Yes/No Gym Room Yes No Yes Laundry Room Yes Yes Yes Secured Parking Yes No No Sport Courts Yes No No Washer/Dryer Connection Yes No Yes OCCUPANCY: 92% 90% 94% TRANSACTION DATA: Sale Date March, 2002 November, 2002 January, 2001 Sale Price ($) $6,450,000 $4,750,000 $9,150,000 Grantor Property Trust of America Southwest Partners Westex Associates Grantee Wolf CE & I AIMCO/Sand Pebble LP American Opportunity Sale Documentation Deed- Vol 3140/Page 204 Deed-Vol. 3273/Page 1048 Deed- Vol 3916/Page 1278 Verification Confidential Confidential Confidential Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,128,869 $6,271 $8.11 $1,217,949 $5,856 $7.36 $1,566,398 $5,420 $6.32 Vacancy/Credit Loss $ 90,310 $ 502 $0.65 $ 121,795 $ 586 $0.74 $ 93,983 $ 325 $0.38 Effective Gross Income $1,038,559 $5,770 $7.46 $1,096,154 $5,270 $6.62 $1,472,415 $5,095 $5.94 Operating Expenses $ 425,809 $2,366 $3.06 $ 526,154 $2,530 $3.18 $ 575,715 $1,992 $2.32 Net Operating Income $ 612,750 $3,404 $4.40 $ 570,000 $2,740 $3.44 $ 896,700 $3,103 $3.62 NOTES: None None None PRICE PER UNIT $35,833 $22,837 $31,661 PRICE PER SQUARE FOOT $ 46.33 $ 28.70 $ 36.89 EXPENSE RATIO 41.0% 48.0% 39.1% EGIM 6.21 4.33 6.21 OVERALL CAP RATE 9.50% 12.00% 9.80% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 SILVERADO, EL PASO, TEXAS IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $22,837 to $36,222 per unit. Adjustments have been made to the sales to reflect differences in location, age/condition and quality/appeal. Generally speaking, larger properties typically have a lower price per unit when compared to smaller properties, all else being equal. Similarly, those projects with a higher average unit size will generally have a higher price per unit. After appropriate adjustments are made, the improved sales demonstrate an adjusted range for the subject from $20,553 to $25,736 per unit with a mean or average adjusted price of $23,097 per unit. The median adjusted price is $22,367 per unit. Based on the following analysis, we have concluded to a value of $23,000 per unit, which results in an "as is" value of $5,700,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 SILVERADO, EL PASO, TEXAS SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ------------------------------------------------------------------------------------------------------------------------------------ Property Name Silverado La Plaza Shadow Ridge Address 9300 Viscount Blvd 9578 Sims Drive 9375 Viscount Blvd City El Paso, Texas El Paso,TX El Paso, TX Sale Date July, 2000 November, 1999 Sale Price ($) $4,150,000 $12,750,000 Net Rentable Area (SF) 191,590 128,669 263,296 Number of Units 248 129 352 Price Per Unit $32,171 $36,222 Year Built 1973 1969 1985 Land Area (Acre) 10.0000 8.7670 7.9526 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 07-2000 0% 11-1999 -5% VALUE AFTER TRANS. ADJUST. ($/UNIT) $32,171 $34,411 Location Comparable 0% Comparable 0% Number of Units 248 129 0% 352 0% Quality / Appeal Good Superior -10% Superior -15% Age / Condition 1973 1969 / Average 0% 1985 / Good -20% Occupancy at Sale 92% 92% 0% 93% 0% Amenities Good Comparable 0% Comparable 0% Average Unit Size (SF) 773 997 -10% 748 0% PHYSICAL ADJUSTMENT -20% -35% FINAL ADJUSTED VALUE ($/UNIT) $25,736 $22,367 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 ------------------------------------------------------------------------------------------------------------------------------------ Property Name Spring Park Sand Pebble Celina Address 9535 Acer Avenue 11280 Pebble Hills Drive 8500 Viscount Blvd City El Paso, TX El Paso, TX El Paso, TX Sale Date March, 2002 November, 2002 January, 2001 Sale Price ($) $6,450,000 $4,750,000 $9,150,000 Net Rentable Area (SF) 139,224 165,504 248,005 Number of Units 180 208 289 Price Per Unit $35,833 $22,837 $31,661 Year Built 1995 1983 1974 Land Area (Acre) 9.8900 9.0460 11.6000 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 03-2002 0% 11-2002 0% 01-2001 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $35,833 $22,837 $31,661 Location Comparable 0% Comparable 0% Comparable 0% Number of Units 180 0% 208 0% 289 0% Quality / Appeal Superior -15% Inferior 5% Superior -15% Age / Condition 1995 / Good -30% 1983 / Average -15% 1974 / Average 0% Occupancy at Sale 92% 0% 90% 0% 94% 10% Amenities Comparable 0% Comparable 0% Superior -10% Average Unit Size (SF) 773 5% 796 0% 858 -5% PHYSICAL ADJUSTMENT -40% -10% -20% FINAL ADJUSTED VALUE ($/UNIT) $21,500 $20,553 $25,329
SUMMARY VALUE RANGE (PER UNIT) $20,553 TO $ 25,736 MEAN (PER UNIT) $23,097 MEDIAN (PER UNIT) $22,367 VALUE CONCLUSION (PER UNIT) $23,000
VALUE INDICATED BY SALES COMPARISON APPROACH $5,704,000 ROUNDED $5,700,000
NET OPERATING INCOME (NOI) ANALYSIS We have also conducted a net operating income (NOI) comparison analysis. The NOI effectively takes into account the various physical, location, and operating aspects of the sale. When the subject's NOI is compared to the sale NOI, a percent adjustment can be arrived at. The following table illustrates this analysis. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24 SILVERADO, EL PASO, TEXAS NOI PER UNIT COMPARISON
COMPARABLE NO. OF SALE PRICE NOI/ SUBJECT NOI ADJUSTMENT INDICATED NO. UNITS PRICE/UNIT OAR NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT ---------------------------------------------------------------------------------------------------------------------------------- I-1 129 $ 4,150,000 11.08% $ 459,820 $544,500 0.616 $19,816 $ 32,171 $ 3,564 $ 2,196 I-2 352 $12,750,000 9.06% $1,155,151 $544,500 0.669 $24,234 $ 36,222 $ 3,282 $ 2,196 I-3 180 $ 6,450,000 9.50% $ 612,750 $544,500 0.645 $23,111 $ 35,833 $ 3,404 $ 2,196 I-4 208 $ 4,750,000 12.00% $ 570,000 $544,500 0.801 $18,296 $ 22,837 $ 2,740 $ 2,196 I-5 289 $ 9,150,000 9.80% $ 896,700 $544,500 0.708 $22,404 $ 31,661 $ 3,103 $ 2,196
PRICE/UNIT
Low High Average Median $18,296 $24,234 $21,572 $22,404
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 22,000 ---------- Number of Units 248 ---------- Value Based on NOI Analysis $5,456,000 Rounded $5,500,000
The adjusted sales indicate a range of value between $18,296 and $24,234 per unit, with an average of $21,572 per unit. Based on the subject's competitive position within the improved sales, a value of $22,000 per unit is estimated. This indicates an "as is" market value of $5,500,000 (rounded after necessary adjustment, if any) for the NOI Per Unit Analysis. EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS The effective gross income multiplier (EGIM) is derived by dividing the sales price by the total effective gross income. The following table illustrates the EGIMs for the comparable improved sales. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25 SILVERADO, EL PASO, TEXAS EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON
COMPARABLE NO. OF SALE PRICE EFFECTIVE OPERATING SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM --------------------------------------------------------------------------------------------------------------------------- I-1 129 $ 4,150,000 $ 799,687 $ 339,867 42.50% 5.19 $ 32,171 I-2 352 $12,750,000 $1,863,146 $ 707,995 38.00% 6.84 $ 36,222 I-3 180 $ 6,450,000 $1,038,559 $ 425,809 41.00% 55.96% 6.21 $ 35,833 I-4 208 $ 4,750,000 $1,096,154 $ 526,154 48.00% 4.33 $ 22,837 I-5 289 $ 9,150,000 $1,472,415 $ 575,715 39.10% 6.21 $ 31,661
EGIM
Low High Average Median 4.33 6.84 5.76 6.21
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 4.00 ---------- Subject EGI $1,377,200 ---------- Value Based on EGIM Analysis $5,508,800 Rounded $5,500,000 Value Per Unit $ 22,177
There is an inverse relationship, which generally holds among EGIMs and operating expenses. Properties, which have higher expense ratios, typically sell for relatively less and therefore produce a lower EGIM. As will be illustrated in the Income Capitalization Approach of this report, the subject's operating expense ratio (OER) is estimated at 55.96% before reserves. The comparable sales indicate a range of expense ratios from 38.00% to 48.00%, while their EGIMs range from 4.33 to 6.84. Overall, we conclude to an EGIM of 4.00, which results in an "as is" value estimate in the EGIM Analysis of $5,500,000. SALES COMPARISON CONCLUSION The three valuation methods in the Sales Comparison Approach are shown below. The overall value via the Sales Comparison Approach is estimated at $5,500,000. Price Per Unit $5,700,000 NOI Per Unit $5,500,000 EGIM Analysis $5,500,000 Sales Comparison Conclusion $5,500,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 SILVERADO, EL PASO, TEXAS INCOME CAPITALIZATION APPROACH The income capitalization approach is based on the premise that value is created by the expectation of future benefits. We estimated the present value of those benefits to derive an indication of the amount that a prudent, informed purchaser-investor would pay for the right to receive them as of the date of value. This approach requires an estimate of the NOI of a property. The estimated NOI is then converted to a value indication by use of either the direct capitalization or the discounted cash flow analysis (yield capitalization). Direct capitalization uses a single year's stabilized NOI as a basis for a value indication by dividing the income by a capitalization rate. The rate chosen accounts for a recapture of the investment by the investor and should reflect all factors that influence the value of the property, such as tenant quality, property condition, neighborhood change, market trends, interest rates, and inflation. The rate may be extracted from local market transactions or, when transaction evidence is lacking, obtained from trade sources. A discounted cash flow analysis focuses on the operating cash flows expected from the property and the proceeds of a hypothetical sale at the end of a holding period (the reversion). The cash flows and reversion are discounted to their present values using a market-derived discount rate and are added together to obtain a value indication. Because benefits to be received in the future are worth less than the same benefits received in the present, this method weights income in the early years more heavily than the income and the sale proceeds to be received later. The strength of the discounted cash flow method is its ability to recognize variations in projected net income, such as those caused by inflation, stepped leases, neighborhood change, or tenant turnover. Its weakness is that it requires many judgments regarding the actions of likely buyers and sellers of the property in the future. In some situations, both methods yield a similar result. The discounted cash flow method is typically more appropriate for the analysis of investment properties with multiple or long-term leases, particularly leases with cancellation clauses or renewal options. It is especially useful for multi-tenant properties in volatile markets. The direct capitalization AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27 SILVERADO, EL PASO, TEXAS method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
Average Unit Area ------------------- Unit Type (Sq. Ft.) Per Unit Per SF %Occupied ------------------------------------------------------------------------ 1Br/1Ba - EA10 494 $389 $0.79 90.0% 1Br/1Ba - 1A10 525 $409 $0.78 91.7% 1Br/1Ba - 1A15 754 $469 $0.62 91.7% 1 Br/1Ba- 1B10 684 $459 $0.67 97.5% 1 Br/1.5 Ba - 1B15 878 $519 $0.59 100.0% 2Br/1Ba - 2A10 979 $549 $0.56 85.3% 2 Br/1.5Ba - 2A15 1200 $639 $0.53 75.0% 2 Ba/2 Ba - 2A20 1028 $569 $0.55 93.8% 3Br/2Ba - 3A20 1350 $649 $0.48 100.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 SILVERADO, EL PASO, TEXAS RENT ANALYSIS
COMPARABLE RENTS ------------------------------------------------- R-1 R-2 R-3 R-4 R-5 ------------------------------------------------- Shadow La Plaza Ridge Spring Park Citadel Celina ------------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT ------------------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly Slightly DESCRIPTION TYPE RENT RENT Superior Similar Superior Superior Similar ---------------------------------------------------------------------------------------------------------------------- Monthly Rent 1Br/1Ba - EA10 $ 389 $ 374 $ 510 $ 470 $ 515 $ 469 $ 520 Unit Area (SF) 494 494 707 536 610 667 644 Monthly Rent Per Sq. Ft. $ 0.79 $ 0.76 $ 0.72 $ 0.88 $ 0.84 $ 0.70 $ 0.81 Monthly Rent 1Br/1Ba -1A10 $ 409 $ 405 Unit Area (SF) 525 525 Monthly Rent Per Sq. Ft. $ 0.78 $ 0.77 Monthly Rent 1Br/1Ba - 1A15 $ 469 $ 455 Unit Area (SF) 754 754 Monthly Rent Per Sq. Ft. $ 0.62 $ 0.60 Monthly Rent 1 Br/1Ba-1B10 $ 459 $ 441 Unit Area (SF) 684 684 Monthly Rent Per Sq. Ft. $ 0.67 $ 0.64 Monthly Rent 1 Br/1.5 Ba - $ 519 $ 490 Unit Area (SF) 1B15 878 878 Monthly Rent Per Sq. Ft. $ 0.59 $ 0.56 Monthly Rent 2Br/1Ba-2A10 $ 549 $ 527 $ 670 $ 640 $ 689 Unit Area (SF) 979 979 1,150 950 1,173 Monthly Rent Per Sq. Ft. $ 0.56 $ 0.54 $ 0.58 $ 0.67 $ 0.59 Monthly Rent 2 Br/1.5Ba - $ 639 $ 618 $ 670 $ 450 $ 650 $ 589 $ 770 Unit Area (SF) 2A15 1,200 1,200 986 895 850 1,140 1,058 Monthly Rent Per Sq. Ft. $ 0.53 $ 0.52 $ 0.68 $ 0.50 $ 0.76 $ 0.52 $ 0.73 Monthly Rent 2 Ba/2 Ba- 2A20 $ 569 $ 543 $ 620 $ 640 Unit Area (SF) 1,028 1,028 1,375 958 Monthly Rent Per Sq. Ft. $ 0.55 $ 0.53 $ 0.45 $ 0.67 Monthly Rent 3Br/2Ba -3A20 $ 649 $ 648 $ 790 $ 775 $ 890 Unit Area (SF) 1,350 1,350 1,100 1,036 1,190 Monthly Rent Per Sq. Ft. $ 0.48 $ 0.48 $ 0.72 $ 0.75 $ 0.75 DESCRIPTION MIN MAX MEDIAN AVERAGE ---------------------------------------------------------------------- Monthly Rent $ 469 $ 520 $ 510 $ 497 Unit Area (SF) 536 707 644 633 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.88 $ 0.81 $ 0.79 Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent $ 640 $ 689 $ 670 $ 666 Unit Area (SF) 950 1,173 1,150 1,091 Monthly Rent Per Sq. Ft. $ 0.58 $ 0.67 $ 0.59 $ 0.61 Monthly Rent $ 450 $ 770 $ 650 $ 626 Unit Area (SF) 850 1,140 986 986 Monthly Rent Per Sq. Ft. $ 0.50 $ 0.76 $ 0.68 $ 0.64 Monthly Rent $ 620 $ 640 $ 630 $ 630 Unit Area (SF) 958 1,375 1,167 1,167 Monthly Rent Per Sq. Ft. $ 0.45 $ 0.67 $ 0.56 $ 0.56 Monthly Rent $ 775 $ 890 $ 790 $ 818 Unit Area (SF) 1,036 1,190 1,100 1,109 Monthly Rent Per Sq. Ft. $ 0.72 $ 0.75 $ 0.75 $ 0.74
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 SILVERADO, EL PASO, TEXAS GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area ------------------------ Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income --------------------------------------------------------------------------------------------------------- 1Br/1Ba - EA10 20 494 $390 $0.79 $ 7,800 $ 93,600 1Br/1Ba -1A10 60 525 $410 $0.78 $ 24,600 $ 295,200 1Br/1Ba - 1A15 36 754 $470 $0.62 $ 16,920 $ 203,040 1 Br/1Ba-1B10 40 684 $460 $0.67 $ 18,400 $ 220,800 1 Br/1.5 Ba -1B15 8 878 $520 $0.59 $ 4,160 $ 49,920 2Br/1Ba-2A10 34 979 $550 $0.56 $ 18,700 $ 224,400 2 Br/1.5Ba -2A15 12 1,200 $640 $0.53 $ 7,680 $ 92,160 2 Ba/2 Ba- 2A20 32 1,028 $570 $0.55 $ 18,240 $ 218,880 3Br/2Ba -3A20 6 1,350 $650 $0.48 $ 3,900 $ 46,800 Total $120,400 $1,444,800
PRO FORMA ANALYSIS For purposes of this appraisal, we were provided with income and expense data for the subject property. A summary of this data is presented on the following page. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 SILVERADO, EL PASO, TEXAS SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 ----------------------- ----------------------- ----------------------- ACTUAL ACTUAL ACTUAL --------------------------------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT ------------------------------------------------------------------------------------------------------ Revenues Rental Income $1,491,269 $ 6,013 $1,476,921 $ 5,955 $ 852,917 $ 3,439 Vacancy $ 139,458 $ 562 $ 95,923 $ 387 $ 36,863 $ 149 Credit Loss/Concessions $ 84,244 $ 340 $ 84,395 $ 340 $ 28,085 $ 113 --------------------------------------------------------------------------- Subtotal $ 223,702 $ 902 $ 180,318 $ 727 $ 64,948 $ 262 Laundry Income $ 1,193 $ 5 $ 15,182 $ 61 $ 8,919 $ 36 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 63,816 $ 257 $ 47,717 $ 192 $ 51,927 $ 209 --------------------------------------------------------------------------- Subtotal Other Income $ 65,009 $ 262 $ 62,899 $ 254 $ 60,846 $ 245 --------------------------------------------------------------------------- Effective Gross Income $1,332,576 $ 5,373 $1,359,502 $ 5,482 $ 848,815 $ 3,423 Operating Expenses Taxes $ 94,570 $ 381 $ 183,619 $ 740 $ 114,387 $ 461 Insurance $ 20,671 $ 83 $ 32,165 $ 130 $ 26,338 $ 106 Utilities $ 120,016 $ 484 $ 111,019 $ 448 $ 75,172 $ 303 Repair & Maintenance $ 88,317 $ 356 $ 77,068 $ 311 $ 58,713 $ 237 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 37,102 $ 150 $ 41,643 $ 168 $ 31,116 $ 125 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 25,873 $ 104 $ 26,001 $ 105 $ 12,912 $ 52 General Administrative $ 223,100 $ 900 $ 225,792 $ 910 $ 118,363 $ 477 Management $ 70,006 $ 282 $ 75,888 $ 306 $ 42,373 $ 171 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------- Total Operating Expenses $ 679,655 $ 2,741 $ 773,195 $ 3,118 $ 479,374 $ 1,933 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------- Net Income $ 652,921 $ 2,633 $ 586,307 $ 2,364 $ 369,441 $ 1,490 FISCAL YEAR 2003 ANNUALIZED 2003 ----------------------- ----------------------- MANAGEMENT BUDGET PROJECTION AAA PROJECTION -------------------------------------------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % ----------------------------------------------------------------------------------------------------------------- Revenues Rental Income $1,431,500 $ 5,772 $1,412,316 $ 5,695 $1,444,800 $ 5,826 100.0% Vacancy $ 54,000 $ 218 $ 131,420 $ 530 $ 115,584 $ 466 8.0% Credit Loss/Concessions $ 36,000 $ 145 $ 2,424 $ 10 $ 28,896 $ 117 2.0% ------------------------------------------------------------------------------------- Subtotal $ 90,000 $ 363 $ 133,844 $ 540 $ 144,480 $ 583 10.0% Laundry Income $ 19,872 $ 80 $ 15,300 $ 62 $ 14,880 $ 60 1.0% Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 80,400 $ 324 $ 104,620 $ 422 $ 62,000 $ 250 4.3% ------------------------------------------------------------------------------------- Subtotal Other Income $ 100,272 $ 404 $ 119,920 $ 484 $ 76,880 $ 310 5.3% ------------------------------------------------------------------------------------- Effective Gross Income $1,441,772 $ 5,814 $1,398,392 $ 5,639 $1,377,200 $ 5,553 100.0% Operating Expenses Taxes $ 146,936 $ 592 $ 146,940 $ 593 $ 145,080 $ 585 10.5% Insurance $ 46,017 $ 186 $ 47,960 $ 193 $ 29,760 $ 120 2.2% Utilities $ 107,148 $ 432 $ 129,860 $ 524 $ 111,600 $ 450 8.1% Repair & Maintenance $ 98,160 $ 396 $ 102,868 $ 415 $ 99,200 $ 400 7.2% Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Landscaping $ 42,000 $ 169 $ 90,188 $ 364 $ 43,400 $ 175 3.2% Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 20,688 $ 83 $ 21,744 $ 88 $ 24,800 $ 100 1.8% General Administrative $ 208,804 $ 842 $ 242,196 $ 977 $ 248,000 $ 1,000 18.0% Management $ 67,200 $ 271 $ 85,528 $ 345 $ 68,860 $ 278 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% ------------------------------------------------------------------------------------- Total Operating Expenses $ 736,953 $ 2,972 $ 867,284 $ 3,497 $ 770,700 $ 3,108 56.0% Reserves $ 0 $ 0 $ 0 $ 0 $ 62,000 $ 250 8.0% ------------------------------------------------------------------------------------- Net Income $ 704,819 $ 2,842 $ 531,108 $ 2,142 $ 544,500 $ 2,196 39.5%
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 10% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 SILVERADO, EL PASO, TEXAS RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $250 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $250 per unit should be satisfactory in our reserves for replacement to cover future capital expenditures. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of the annual cash flows and discounts them, along with the expected equity reversion, to a present value. The present value of the cash flow is added to the present value of the reversion, resulting in a total property value. INVESTMENT CRITERIA Appropriate investment criteria will be derived for the subject based upon analysis of comparable sales and a survey of real estate investors. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 1ST QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES ---------------------------------------------------------- GOING-IN TERMINAL ---------------------------------------------------------- LOW HIGH LOW HIGH ---------------------------------------------------------- RANGE 6.00% 10.00% 7.00% 10.00% AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 SILVERADO, EL PASO, TEXAS SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR ---------------------------------------------------------- I-1 Jul-00 92% $32,171 11.08% I-2 Nov-99 93% $36,222 9.06% I-3 Mar-02 92% $35,833 9.50% I-4 Nov-02 90% $22,837 12.00% I-5 Jan-01 94% $31,661 9.80% High 12.00% Low 9.06% Average 10.29%
Based on this information, we have concluded the subject's overall capitalization rate should be 10.00%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 11.00%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 12.50%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 12.50% indicates a value of $5,600,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 SILVERADO, EL PASO, TEXAS approximately 36% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 SILVERADO, EL PASO, TEXAS DISCOUNTED CASH FLOW ANALYSIS SILVERADO
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 ------------------------------------------------------------------------------------------------------------------------ REVENUE Base Rent $1,444,800 $1,488,144 $1,532,788 $1,578,772 $1,626,135 $1,674,919 Vacancy $ 115,584 $ 119,052 $ 122,623 $ 126,302 $ 130,091 $ 133,994 Credit Loss $ 28,896 $ 29,763 $ 30,656 $ 31,575 $ 32,523 $ 33,498 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- Subtotal $ 144,480 $ 148,814 $ 153,279 $ 157,877 $ 162,614 $ 167,492 Laundry Income $ 14,880 $ 15,326 $ 15,786 $ 16,260 $ 16,748 $ 17,250 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 62,000 $ 63,860 $ 65,776 $ 67,749 $ 69,782 $ 71,875 -------------------------------------------------------------------------------- Subtotal Other Income $ 76,880 $ 79,186 $ 81,562 $ 84,009 $ 86,529 $ 89,125 -------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $1,377,200 $1,418,516 $1,461,071 $1,504,904 $1,550,051 $1,596,552 OPERATING EXPENSES: Taxes $ 145,080 $ 149,432 $ 153,915 $ 158,533 $ 163,289 $ 168,187 Insurance $ 29,760 $ 30,653 $ 31,572 $ 32,520 $ 33,495 $ 34,500 Utilities $ 111,600 $ 114,948 $ 118,396 $ 121,948 $ 125,607 $ 129,375 Repair & Maintenance $ 99,200 $ 102,176 $ 105,241 $ 108,399 $ 111,650 $ 115,000 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 43,400 $ 44,702 $ 46,043 $ 47,424 $ 48,847 $ 50,312 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 24,800 $ 25,544 $ 26,310 $ 27,100 $ 27,913 $ 28,750 General Administrative $ 248,000 $ 255,440 $ 263,103 $ 270,996 $ 279,126 $ 287,500 Management $ 68,860 $ 70,926 $ 73,054 $ 75,245 $ 77,503 $ 79,828 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 770,700 $ 793,821 $ 817,636 $ 842,165 $ 867,430 $ 893,453 Reserves $ 62,000 $ 63,860 $ 65,776 $ 67,749 $ 69,782 $ 71,875 -------------------------------------------------------------------------------- NET OPERATING INCOME $ 544,500 $ 560,835 $ 577,660 $ 594,990 $ 612,840 $ 631,225 Operating Expense Ratio (% of EGI) 56.0% 56.0% 56.0% 56.0% 56.0% 56.0% Operating Expense Per Unit $ 3,108 $ 3,201 $ 3,297 $ 3,396 $ 3,498 $ 3,603 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 ---------------------------------------------------------------------------------------------------------- REVENUE Base Rent $1,725,167 $1,776,922 $1,830,229 $1,885,136 $1,941,690 Vacancy $ 138,013 $ 142,154 $ 146,418 $ 150,811 $ 155,335 Credit Loss $ 34,503 $ 35,538 $ 36,605 $ 37,703 $ 38,834 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ Subtotal $ 172,517 $ 177,692 $ 183,023 $ 188,514 $ 194,169 Laundry Income $ 17,767 $ 18,301 $ 18,850 $ 19,415 $ 19,997 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 74,031 $ 76,252 $ 78,540 $ 80,896 $ 83,323 ------------------------------------------------------------------ Subtotal Other Income $ 91,799 $ 94,553 $ 97,389 $ 100,311 $ 103,320 ------------------------------------------------------------------ EFFECTIVE GROSS INCOME $1,644,449 $1,693,782 $1,744,596 $1,796,934 $1,850,842 OPERATING EXPENSES: Taxes $ 173,233 $ 178,430 $ 183,783 $ 189,296 $ 194,975 Insurance $ 35,535 $ 36,601 $ 37,699 $ 38,830 $ 39,995 Utilities $ 133,256 $ 137,254 $ 141,372 $ 145,613 $ 149,981 Repair & Maintenance $ 118,450 $ 122,003 $ 125,664 $ 129,433 $ 133,317 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 51,822 $ 53,377 $ 54,978 $ 56,627 $ 58,326 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 29,612 $ 30,501 $ 31,416 $ 32,358 $ 33,329 General Administrative $ 296,125 $ 305,009 $ 314,159 $ 323,584 $ 333,291 Management $ 82,222 $ 84,689 $ 87,230 $ 89,847 $ 92,542 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ TOTAL OPERATING EXPENSES $ 920,256 $ 947,864 $ 976,300 $1,005,589 $1,035,756 Reserves $ 74,031 $ 76,252 $ 78,540 $ 80,896 $ 83,323 ------------------------------------------------------------------ NET OPERATING INCOME $ 650,161 $ 669,666 $ 689,756 $ 710,449 $ 731,762 Operating Expense Ratio (% of EGI) 56.0% 56.0% 56.0% 56.0% 56.0% Operating Expense Per Unit $ 3,711 $ 3,822 $ 3,937 $ 4,055 $ 4,176
Gross Residual Sale Deferred Price $6,652,386 Maintenance $ 0 Estimated Stabilized NOI $544,500 Sales Expense Rate 2.00% Less: Sales Expense $ 133,048 Add: Excess Land $ 0 ---------- Months to Stabilized 1 Discount Rate 12.50% Net Residual Sale Price $6,519,338 Other Adjustments $ 0 ---------- Stabilized Occupancy 92.0% Terminal Cap Rate 11.00% PV of Reversion $2,007,605 Value Indicated Add: NPV of NOI $3,559,848 By "DCF" $5,567,453 ---------- PV Total $5,567,453 Rounded $5,600,000
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ----------------------------------------------------------------------- TOTAL VALUE 12.00% 12.25% 12.50% 12.75% 13.00% ------------------------------------------------------------------------------------------------------ 10.50% $5,841,506 $5,751,324 $5,663,053 $5,576,646 $5,492,056 10.75% $5,790,366 $5,701,312 $5,614,142 $5,528,808 $5,445,266 TERMINAL CAP RATE 11.00% $5,741,551 $5,653,573 $5,567,453 $5,483,145 $5,400,603 11.25% $5,694,905 $5,607,956 $5,522,840 $5,439,510 $5,357,925 11.50% $5,650,288 $5,564,323 $5,480,166 $5,397,774 $5,317,102
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 SILVERADO, EL PASO, TEXAS INCOME LOSS DURING LEASE-UP The subject is currently near or at a stabilized condition. Therefore, there is no income loss during lease-up at the subject property. CONCESSIONS Concessions have historically not been utilized at the subject property or in the subject's market. Therefore, no adjustment was included for concessions. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 10.00% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 SILVERADO, EL PASO, TEXAS SILVERADO
TOTAL PER SQ. FT. PER UNIT %OF EGI ------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $1,444,800 $ 7.54 $ 5,826 Less: Vacancy & Collection Loss 10.00% $ 144,480 $ 0.75 $ 583 Plus: Other Income Laundry Income $ 14,880 $ 0.08 $ 60 1.08% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 62,000 $ 0.32 $ 250 4.50% --------------------------------------------------- Subtotal Other Income $ 76,880 $ 0.40 $ 310 5.58% EFFECTIVE GROSS INCOME $1,377,200 $ 7.19 $ 5,553 OPERATING EXPENSES: Taxes $ 145,080 $ 0.76 $ 585 10.53% Insurance $ 29,760 $ 0.16 $ 120 2.16% Utilities $ 111,600 $ 0.58 $ 450 8.10% Repair & Maintenance $ 99,200 $ 0.52 $ 400 7.20% Cleaning $ 0 $ 0.00 $ 0 0.00% Landscaping $ 43,400 $ 0.23 $ 175 3.15% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 24,800 $ 0.13 $ 100 1.80% General Administrative $ 248,000 $ 1.29 $ 1,000 18.01% Management 5.00% $ 68,860 $ 0.36 $ 278 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 770,700 $ 4.02 $ 3,108 55.96% Reserves $ 62,000 $ 0.32 $ 250 4.50% --------------------------------------------------- NET OPERATING INCOME $ 544,500 $ 2.84 $ 2,196 39.54% "GOING IN" CAPITALIZATION RATE 10.00% VALUE INDICATION $5,445,000 $ 28.42 $ 21,956 "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $5,445,000 ROUNDED $5,400,000 $ 28.19 $ 21,774
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37 SILVERADO, EL PASO, TEXAS DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF ----------------------------------------------------- 9.25% $5,886,486 $5,900,000 $23,790 $30.79 9.50% $5,731,579 $5,700,000 $22,984 $29.75 9.75% $5,584,615 $5,600,000 $22,581 $29.23 10.00% $5,445,000 $5,400,000 $21,774 $28.19 10.25% $5,312,195 $5,300,000 $21,371 $27.66 10.50% $5,185,714 $5,200,000 $20,968 $27.14 10.75% $5,065,116 $5,100,000 $20,565 $26.62
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $5,400,000. CORRELATION AND CONCLUSION BY THE INCOME APPROACH The two methods used to estimate the market value of the subject property by the income approach resulted in the following indications of value: Discounted Cash Flow Analysis $5,600,000 Direct Capitalization Method $5,400,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $5,600,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 SILVERADO, EL PASO, TEXAS RECONCILIATION AND CONCLUSION This appraisal was made to express an opinion as of the Market Value of the fee simple estate in the property. AS IS MARKET VALUE OF THE FEE SIMPLE ESTATE Cost Approach Not Utilized Sales Comparison Approach $5,500,000 Income Approach $5,600,000 Reconciled Value $5,600,000
The Direct Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of May 11, 2003 the market value of the fee simple estate in the property is: $5,600,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA SILVERADO, EL PASO, TEXAS ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A SILVERADO, EL PASO, TEXAS EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A SILVERADO, EL PASO, TEXAS SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] UNIT TYPE FACADE UNIT TYPE [PICTURE] [PICTURE] BEDROOM DINING AREA [PICTURE] [PICTURE] KITCHEN AREA LIVING ROOM AREA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A SILVERADO, EL PASO, TEXAS SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] POOL FITNESS CENTER [PICTURE] [PICTURE] LAUNDRY ROOM PARKING [PICTURE] [PICTURE] VISCOUNT BLVD - NORTH VISCOUNT BLVD -SOUTH AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B SILVERADO, EL PASO, TEXAS EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B SILVERADO, EL PASO, TEXAS PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 LA PLAZA SHADOW RIDGE SPRING PARK 9578 Sims Drive 9375 Viscount Blvd 9535 Acer Avenue El Paso,TX El Paso, TX El Paso, TX [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 SAND PEBBLE CELINA 11280 Pebble Hills Drive 8500 Viscount Blvd El Paso, TX El Paso, TX [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B SILVERADO, EL PASO, TEXAS SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R- 1 ------------------------------------------------------------------------------------------------------------------------- Property Name Silverado La Plaza Management Company AIMCO The Lynd Company LOCATION: Address 9300 Viscount Blvd 9578 Sims Drive City, State El Paso, Texas El Paso, TX County EL Paso El Paso Proximity to Subject one mile southeast of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 191,590 128,669 Year Built 1973 1969 Effective Age 25 20 Building Structure Type Brick & wood siding walls; asphalt Brick & wood siding walls; asphalt shingle roof shingle roof Parking Type (Gr., Cov., etc.) Open Open, Covered Number of Units 248 129 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. Rent 1 1 Br/1Ba-EA10 494 20 $389 1 1Br/1Ba 707 29 $510 2 1 Br/1Ba-1A10 525 60 $409 7 2Br/1Ba 986 50 $670 3 1 Br/1Ba-1A15 754 36 $469 6 2Br/1.5 Ba 1,150 35 $670 4 1 Br/1Ba-1B10 684 40 $459 8 2Br/2Ba 1,375 15 $620 5 1 Br/1.5 Ba-1B15 878 8 $519 6 2 Br/1Ba-2A10 979 34 $549 7 2 Br/1.5Ba-2A15 1,200 12 $639 8 2 Ba/2 Ba-2A20 1,028 32 $569 9 3 Br/2Ba-3A20 1,350 6 $649 Average Unit Size (SF) 773 1,013 Unit Breakdown: Efficiency 0% 2-Bedroom 31% Efficiency 0% 2-Bedroom 78% 1-Bedroom 66% 3-Bedroom 3% 1-Bedroom 22% 3-Bedroom 0% CONDITION: Good slightly APPEAL: Average Superior AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connection Balcony W/D Connection X Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall Tennis Court X Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track Business Office X Gym Room X Gym Room OCCUPANCY: 92% 99% LEASING DATA: Available Leasing Terms 12 months 12 months Concessions 1 month 1 month Pet Deposit $150 $150 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation Elda Caro/Property Manager Aeriel Romero/Assistant Manager Telephone Number 915.591.6626 915.598.5477 NOTES: None COMPARISON TO SUBJECT: Slightly Superior COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 ------------------------------------------------------------------------------------------------------------------------- Property Name Shadow Ridge Spring Park Management Company Case & Associates BH Management Services LOCATION: Address 9375 Viscount Blvd 9535 Acer Avenue City, State El Paso, TX El Paso, TX County El Paso EL Paso Proximity to Subject less than 0.20 miles southeast Approx. 0.50 miles southeast of the subject of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 263,296 139,224 Year Built 1985 1995 Effective Age 18 8 Building Structure Type Brick & wood siding walls; asphalt Brick & wood siding walls; asphalt shingle roof shingle roof Parking Type Open Open (Gr., Cov., etc.) Number of Units 352 180 Unit Mix: Type Unit Qty Mo Type Unit Qty Mo 1 1 Br/1Ba 536 80 $470 1 1Br/1Ba 610 60 $515 7 2 Br/1/Ba 895 100 $450 7 2Br/1Ba 850 80 $650 6 2 Br/1.5Ba 950 60 $640 9 3Br/2Ba 1,036 40 $775 8 2 Br/2Ba 958 60 $640 9 3 Br/2Ba 1,100 52 $790 Average Unit Size (SF) 864 811 Unit Breakdown: Efficiency 0% 2-Bedroom 63% Efficiency 0% 2-Bedroom 44% 1-Bedroom 23% 3-Bedroom 14% 1-Bedroom 33% 3-Bedroom 23% CONDITION: Good Good APPEAL: Average Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony X W/D Connect. X Balcony X W/D Connection X Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall X Sand Volley Ball X Meeting Hall Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 92% 92% LEASING DATA: Available Leasing Terms 12 months 12 months Concessions 1 month 1 month Pet Deposit $150 $150 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation Sergio Valdez/Assistant Manager Lilia Anaya/Property Manager Telephone Number 915.593.5250 915.594.7411 NOTES: None None COMPARISON TO SUBJECT: Similar Slightly Superior COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 ------------------------------------------------------------------------------------------------------------------------- Property Name Citadel Celina Management Company AIMCO The Lynd Company LOCATION: Address 9455 Viscount Blvd 8500 Viscount Blvd City, State El Paso, TX El Paso, TX County EL Paso El Paso Proximity to Subject Approx. 0.40 miles southeast of the subject Approx. 0.60 miles northwest of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 263,888 248,005 Year Built 1973 1974 Effective Age 15 18 Building Structure Type Brick & wood siding walls; asphalt Brick & wood siding walls; asphalt shingle roof shingle roof Parking Type Open/Covered Open (Gr., Cov., etc.) Number of Units 261 289 Unit Mix: Type Unit Qty Mo Type Unit Qty Mo 1 1 Br/1Ba 667 94 $ 469 1 1 Br/1Ba 644 119 $520 7 2 Br/2Ba 1,140 98 $ 589 7 2 Br/2Ba 1,058 120 $770 6 2 Br/1.5Ba 1,173 59 $ 689 9 3 Br/2Ba 1,190 50 $890 3Ba/2.5Ba 1,640 8 $ 909 4Br/2.5Ba 1,840 2 $1,090 Average Unit Size (SF) 998 910 Unit Breakdown: Efficiency 0% 2-Bedroom 60% Efficiency 0% 2-Bedroom 42% 1-Bedroom 36% 3-Bedroom 4% 1-Bedroom 41% 3-Bedroom 17% CONDITION: Good Good APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling X Attach. Garage Vaulted Ceiling X Balcony W/D Connection X Balcony X W/D Connection X Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball X Meeting Hall Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track Business Office X Gym Room X Gym Room OCCUPANCY: 96% 94% LEASING DATA: Available Leasing Terms 12 months 12 months Concessions 1 month 1 month Pet Deposit $150 $150 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation Mary Myers/Property Manager Denisse Valdez/Assistant Manager Telephone Number 915.591.3396 915.779.3741 NOTES: None None COMPARISON TO SUBJECT: Superior Similar
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B SILVERADO, EL PASO, TEXAS PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 LA PLAZA SHADOW RIDGE SPRING PARK 9578 Sims Drive 9375 Viscount Blvd 9535 Acer Avenue El Paso, TX El Paso, TX El Paso, TX [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 CITADEL CELINA 9455 Viscount Blvd 8500 Viscount Blvd El Paso, TX El Paso, TX [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C SILVERADO, EL PASO, TEXAS EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C SILVERADO, EL PASO, TEXAS No responsibility is assumed for matters legal in nature. No investigation has been made of the title to or any liabilities against the property appraised. In this appraisal, it is presumed that, unless otherwise noted, the owner's claim is valid, the property rights are good and marketable, and there are no encumbrances which cannot be cleared through normal processes. To the best of our knowledge, all data set forth in this report are true and accurate. Although gathered from reliable sources, no guarantee is made nor liability assumed for the accuracy of any data, opinions, or estimates identified as being furnished by others which have been used in formulating this analysis. Land areas and descriptions used in this appraisal were obtained from public records and have not been verified by legal counsel or a licensed surveyor. No soil analysis or geological studies were ordered or made in conjunction with this report, nor were any water, oil, gas, or other subsurface mineral and use rights or conditions investigated. Substances such as asbestos, urea-formaldehyde foam insulation, other chemicals, toxic wastes, or other potentially hazardous materials could, if present, adversely affect the value of the property. Unless otherwise stated in this report, the existence of hazardous substance, which may or may not be present on or in the property, was not considered by the appraiser in the development of the conclusion of value. The stated value estimate is predicated on the assumption that there is no material on or in the property that would cause such a loss in value. No responsibility is assumed for any such conditions, and the client has been advised that the appraiser is not qualified to detect such substances, quantify the impact on values, or develop the remedial cost. No environmental impact study has been ordered or made. Full compliance with applicable federal, state, and local environmental regulations and laws is assumed unless otherwise stated, defined, and considered in the report. It is also assumed that all required licenses, consents, or other legislative or administrative authority from any local, state, or national government or private entity organization either have been or can be obtained or renewed for any use which the report covers. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C SILVERADO, EL PASO, TEXAS It is assumed that all applicable zoning and use regulations and restrictions have been complied with unless a nonconformity has been stated, defined, and considered in the appraisal report. Further, it is assumed that the utilization of the land and improvements is within the boundaries of the property described and that no encroachment or trespass exists unless noted in the report. The Americans with Disabilities Act ("ADA") became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property together with a detailed analysis of the requirements of the ADA could reveal that the property is not in compliance with one or more of the requirements of the act. If so, this fact could have a negative effect on the value of the property. Since we have no direct evidence relating to this issue, we did not consider the possible noncompliance with the requirements of ADA in estimating the value of the property. We have made a physical inspection of the property and noted visible physical defects, if any, in our report. This inspection was made by individuals generally familiar with real estate and building construction. However, these individuals are not architectural or structural engineers who would have detailed knowledge of building design and structural integrity. Accordingly, we do not opine on, nor are we responsible for, the structural integrity of the property including its conformity to specific governmental code requirements, such as fire, building and safety, earthquake, and occupancy, or any physical defects which were not readily apparent to the appraiser during the inspection. The value or values presented in this report are based upon the premises outlined herein and are valid only for the purpose or purposes stated. The date of value to which the conclusions and opinions expressed apply is set forth in this report. The value opinion herein rendered is based on the status of the national business economy and the purchasing power of the U.S. dollar as of that date. Testimony or attendance in court or at any other hearing is not required by reason of this appraisal unless arrangements are previously made within a reasonable time in advance for AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C SILVERADO, EL PASO, TEXAS such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the American Society of Appraisers or the designations awarded by this organization) shall be disseminated to the public through prospectus, advertising, public relations, news, or any other means of communication without the written consent and approval of American Appraisal Associates, Inc. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D SILVERADO, EL PASO, TEXAS EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D CERTIFICATE OF APPRAISER I certify that, to the best of my knowledge and belief: The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and represent the unbiased professional analyses, opinions, and conclusions of American Appraisal Associates, Inc. American Appraisal Associates, Inc. and I personally, have no present or prospective interest in the property that is the subject of this report and have no personal interest or bias with respect to the parties involved. Compensation for American Appraisal Associates, Inc. is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. The analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. I personally did not inspect the subject property. Daniel Salcedo provided significant real property appraisal assistance in the preparation of this report. I am currently in compliance with the Appraisal Institute's continuing education requirements. /s/ Frank Fehribach --------------------------- Frank Fehribach, MAI Managing Principal, Real Estate Group Texas State Certified General Real Estate Appraiser #TX-1323954-G AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E SILVERADO, EL PASO, TEXAS EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E SILVERADO, EL PASO, TEXAS FRANK A. FEHRIBACH, MAI MANAGING PRINCIPAL, REAL ESTATE GROUP POSITION Frank A. Fehribach is a Managing Principal for the Dallas Real Estate Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Mr. Fehribach has experience in valuations for resort hotels; Class A office buildings; Class A multifamily complexes; industrial buildings and distribution warehousing; multitract mixed-use vacant land; regional malls; residential subdivision development; and special-purpose properties such as athletic clubs, golf courses, manufacturing facilities, nursing homes, and medical buildings. Consulting assignments include development and feasibility studies, economic model creation and maintenance, and market studies. Mr. Fehribach also has been involved in overseeing appraisal and consulting assignments in Mexico and South America. Business Mr. Fehribach joined AAA as an engagement director in 1998. He was promoted to his current position in 1999. Prior to that, he was a manager at Arthur Andersen LLP. Mr. Fehribach has been in the business of real estate appraisal for over ten years. EDUCATION University of Texas - Arlington Master of Science - Real Estate University of Dallas Master of Business Administration - Industrial Management Bachelor of Arts - Economics AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E SILVERADO, EL PASO, TEXAS STATE CERTIFICATIONS State of Arizona, Certified General Real Estate Appraiser, #30828 State of Arkansas, State Certified General Appraiser, #CG1387N State of Colorado, Certified General Appraiser, #CG40000445 State of Georgia, Certified General Real Property Appraiser, #218487 State of Michigan, Certified General Appraiser, #1201008081 State of Texas, Real Estate Salesman License, #407158 (Inactive) State of Texas, State Certified General Real Estate Appraiser, #TX-1323954-G PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS Candidate Member of the CCIM Institute pursuing Certified Commercial Investment Member (CCIM) designation PUBLICATIONS "An Analysis of the Determinants of Industrial Property Valuation," Co-authored with Dr. Ronald C. Rutherford and Dr. Mark Eakin, The Journal of Real Estate Research, Vol. 8, No. 3, Summer 1993, p. 365. AMERICAN APPRAISAL ASSOCIATES, INC. SILVERADO, EL PASO, TEXAS GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. SILVERADO, EL PASO, TEXAS GENERAL SERVICE CONDITIONS The services(s) provided by AAA will be performed in accordance with professional appraisal standards. Our compensation is not contingent in any way upon our conclusions of value. We assume, without independent verification, the accuracy of all data provided to us. We will act as an independent contractor and reserve the right to use subcontractors. All files, workpapers or documents developed by us during the course of the engagement will be our property. We will retain this data for at least five years. Our report is to be used only for the specific purpose stated herein; and any other use is invalid. No reliance may be made by any third party without our prior written consent. You may show our report in its entirety to those third parties who need to review the information contained herein. No one should rely on our report as a substitute for their own due diligence. We understand that our reports will be described in public tender offer documents distributed to limited partners. We reserve the right to review the public tender offer documents prior to their issuance to confirm that disclosures of facts from the current appraisals are accurate. No reference to our name or our report, in whole or in part, in any other SEC filing or private placement memorandum you prepare and/or distribute to third parties may be made without our prior written consent. The Tender Offer Partnerships, as that term is defined in the Settlement Agreement, agree to indemnify and hold us harmless against and from any and all losses, claims, actions, damages, expenses or liabilities, including reasonable attorneys' fees, to which we may become subject in connection with this engagement except where such losses, claims, actions, damages, expenses or liabilities, including reasonable attorney's fees, arise or result from AAA's misconduct, bad faith or negligence. Co-Clients will not be liable for any of our acts or omissions. AAA is an equal opportunity employer.