EX-99.(C)(2) 4 d07275a2exv99wxcyx2y.txt APPRAISAL OF ESSEX PARK ESSEX PARK 1800 LONGCREEK DRIVE COLUMBIA, SOUTH CAROLINA MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 21, 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 3, 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: ESSEX PARK 1800 LONGCREEK DRIVE COLUMBIA, RICHLAND COUNTY, SOUTH 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 323 units with a total of 279,384 square feet of rentable area. The improvements were built in 1973. The improvements are situated on 23.2749 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 91% 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 ESSEX PARK, COLUMBIA, SOUTH 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 21, 2003 is: ($11,200,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. /s/ Frank Fehribach ------------------- July 3, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group South Carolina Temporary Practice Permit #095-03 Report By: Jimmy Pat James, MAI South Carolina Temporary Practice Permit #103-03 Assisted By: Robert B. Moore AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 ESSEX PARK, COLUMBIA, SOUTH 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 ............................................. 37 ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 ESSEX PARK, COLUMBIA, SOUTH CAROLINA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Essex Park LOCATION: 1800 Longcreek Drive Columbia, South 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 21, 2003 DATE OF REPORT: July 3, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 23.2749 acres, or 1,013,855 square feet Assessor Parcel No.: R07411-03-07 Floodplain: Community Panel No. 45079C0085G (January 19, 1994) Flood Zone X and AE, an area inside the floodplain. Zoning: RG-2 (Residential General) BUILDING: No. of Units: 323 Units Total NRA: 279,384 Square Feet Average Unit Size: 865 Square Feet Apartment Density: 13.9 units per acre Year Built: 1973 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
SQUARE MARKET RENT MONTHLY ANNUAL UNIT TYPE FEET PER UNIT PER SF INCOME INCOME ----------------------------------------------------------------------------------- 1Br/1Ba Garden 672 $ 500 $ 0.74 $ 74,000 $ 888,000 2Br/1Ba Garden 912 $ 550 $ 0.60 $ 33,000 $ 396,000 2Br/1.5 Ba Garden 912 $ 600 $ 0.66 $ 43,200 $ 518,400 2Br/2 Ba Garden 1,344 $ 769 $ 0.57 $ 769 $ 9,228 3Br/2 Ba Garden 1,300 $ 750 $ 0.58 $ 18,000 $ 216,000 4Br/2 Ba Garden 1,500 $ 850 $ 0.57 $ 15,300 $ 183,600 ----------------------- Total $ 184,269 $2,211,228
OCCUPANCY: 91% ECONOMIC LIFE: 45 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 ESSEX PARK, COLUMBIA, SOUTH CAROLINA EFFECTIVE AGE: 20 Years REMAINING ECONOMIC LIFE: 25 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] INTERIOR - GYM INTERIOR - CLUBHOUSE AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 ESSEX PARK, COLUMBIA, SOUTH 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 ESSEX PARK, COLUMBIA, SOUTH CAROLINA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit --------------------- ------ ------ Potential Rental Income $ 2,211,228 $ 6,846 Effective Gross Income $ 2,079,306 $ 6,437 Operating Expenses $ 997,060 $ 3,087 48.0% of EGI Net Operating Income: $ 1,001,496 $ 3,101 Capitalization Rate 9.00% DIRECT CAPITALIZATION VALUE $11,100,000 * $34,365 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 26% Stabilized Vacancy & Collection Loss: 14% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 9.50% Discount Rate 11.50% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $11,500,000 * $35,604 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $11,200,000 $34,675 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $32,862 to $56,667 Range of Sales $/Unit (Adjusted) $29,576 to $41,455 VALUE INDICATION - PRICE PER UNIT $11,300,000 * $34,985 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 4.91 to 6.68 Selected EGIM for Subject 5.50 Subject's Projected EGI $2,079,306 EGIM ANALYSIS CONCLUSION $11,400,000 * $35,294 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $11,300,000 * $34,985 / UNIT RECONCILED SALES COMPARISON VALUE $11,300,000 $34,985 / 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 ESSEX PARK, COLUMBIA, SOUTH CAROLINA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $11,300,000 NOI Per Unit $11,300,000 EGIM Multiplier $11,400,000 INDICATED VALUE BY SALES COMPARISON $11,300,000 $34,985 / UNIT INCOME APPROACH: Direct Capitalization Method: $11,100,000 Discounted Cash Flow Method: $11,500,000 INDICATED VALUE BY THE INCOME APPROACH $11,200,000 $34,675 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $11,200,000 $34,675 / UNIT AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 ESSEX PARK, COLUMBIA, SOUTH CAROLINA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 1800 Longcreek Drive, Columbia, Richland County, South Carolina. Columbia identifies it as R07411-03-07. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Robert B. Moore on May 21, 2003. Jimmy Pat James, MAI and Frank Fehribach, MAI have not made a personal inspection of the subject property. Robert B. Moore assisted Jimmy Pat James, MAI with 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 Robert B. Moore 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 21, 2003. The date of the report is July 3, 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 ESSEX PARK, COLUMBIA, SOUTH 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 Shelter Properties III. 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 ESSEX PARK, COLUMBIA, SOUTH 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 Columbia, South Carolina. 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 - Driving range and unimproved land West - Broad River Road South - Romain Street North - Interstate Highway 20 MAJOR EMPLOYERS Major employers in the subject's area include Palmetto Health, Blue Cross Blue Shield of South Carolina, Richland School District, SCE&G, UPS, Wachovia Bank, N.A., Branch Banking and Trust Company, School District Five of Lexington and Richland Counties, Santee Cooper, and City of Columbia. 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 ESSEX PARK, COLUMBIA, SOUTH CAROLINA NEIGHBORHOOD DEMOGRAPHICS
AREA CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA -------------------------------------------------------------------------------- POPULATION TRENDS Current Population 7,300 57,716 140,813 551,370 5-Year Population 7,662 57,746 140,284 589,900 % Change CY-5Y 5.00% 0.10% -0.40% 7.00% Annual Change CY-5Y 1.00% 0.00% -0.10% 1.40% HOUSEHOLDS Current Households 3,871 24,488 56,914 211,176 5-Year Projected Households 4,214 25,224 58,916 232,278 % Change CY - 5Y 8.90% 3.00% 3.50% 10.00% Annual Change CY-5Y 1.80% 0.60% 0.70% 2.00% INCOME TRENDS Median Household Income $ 32,826 $ 30,567 $ 28,818 $ 40,596 Per Capita Income $ 23,073 $ 17,168 $ 16,586 $ 21,559 Average Household Income $ 43,367 $ 40,610 $ 40,990 $ 56,291
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 61.29% 54.26% 49.43% 29.64% 5-Year Projected % Renting 62.72% 54.32% 50.09% 29.06% % of Households Owning 29.50% 35.36% 41.37% 63.62% 5-Year Projected % Owning 28.49% 35.51% 40.99% 64.71%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 ESSEX PARK, COLUMBIA, SOUTH CAROLINA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Greenbelt buffer and Interstate Highway 20 South - Unimproved land and an apartment community East - Driving range and unimproved land West - Apartment communities CONCLUSIONS The subject is well located within the city of Columbia. 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 ESSEX PARK, COLUMBIA, SOUTH CAROLINA MARKET ANALYSIS The subject property is located in the city of Columbia in Richland County. The overall pace of development in the subject's market is more or less stable. There have been no new projects constructed over the past several years. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket ---------------------------------------------------------------------------------- 4Q00 8.4% 7.5% 1Q01 8.4% 8.6% 4Q01 9.2% 9.1% 1Q02 8.7% 9.8% 4Q02 8.0% 8.7%
Source: Carolinas Real Data Occupancy trends in the subject's market are stable. Historically speaking, the subject's submarket has equated the overall market. The St Andrews/Northwest area is Columbia's largest apartment market with a high concentration of apartments along Broad River and St. Andrews Roads. The market is further enhanced by a relatively strong school system, a variety of retail centers and easy access to downtown employment via the I-26 corridor. Market rents in the subject's market have been following an increasing trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change -------------------------------------------------------------------------------- 4Q00 $595 - $580 - 1Q01 $601 1.0% $585 0.9% 4Q01 $613 2.0% $598 2.2% 1Q02 $619 1.0% $598 0.0% 4Q02 $624 0.8% $603 0.8%
Source: Carolinas Real Data The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 ESSEX PARK, COLUMBIA, SOUTH CAROLINA COMPETITIVE PROPERTIES
NO. PROPERTY NAME UNITS OCPY. YEAR BUILT PROXIMITY TO SUBJECT --------------------------------------------------------------------------------------------------------------- R-1 The Park 292 87% 1975 1 mile to the west R-2 Riverwind 128 92% 1984 Right next to the subject R-3 Waterford 268 90% 1985 1 mile west of the subject R-4 Hollows 212 92% 1987 1 mile west of the subject R-5 Ashton at Longcreek 220 83% 1974 0.75 mile west of subject Subject Essex Park 323 91% 1973
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 ESSEX PARK, COLUMBIA, SOUTH CAROLINA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 23.2749 acres, or 1,013,855 square feet Shape Irregular Topography Level Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Good Flood Zone: Community Panel 45079C0085G, dated January 19, 1994 Flood Zone Zone X and AE Zoning RG-2, 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 -------------------------------------------------------------------------------------------------- R07411-03-07 $69,720 $433,290 $ 503,010 0.32250 $162,221
IMPROVEMENT ANALYSIS Year Built 1973 Number of Units 323 Net Rentable Area 279,384 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Brick or masonry Roof Single-ply membrane over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, sand volleyball, tennis court, gym room, barbeque equipment, meeting hall, laundry room, business office, and parking area. 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, dishwasher, water heater, garbage disposal, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 ESSEX PARK, COLUMBIA, SOUTH CAROLINA Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) --------------------------------------------------------- 1Br/1Ba Garden 148 672 2Br/1Ba Garden 60 912 2Br/1.5 Ba Garden 72 912 2Br/2 Ba Garden 1 1,344 3Br/2 Ba Garden 24 1,300 4Br/2 Ba Garden 18 1,500
Overall Condition Average Effective Age 20 years Economic Life 45 years Remaining Economic Life 25 years Deferred Maintenance None HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1973 and consist of a 323-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 ESSEX PARK, COLUMBIA, SOUTH 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 ESSEX PARK, COLUMBIA, SOUTH 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 ESSEX PARK, COLUMBIA, SOUTH 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 ESSEX PARK, COLUMBIA, SOUTH CAROLINA SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ---------------------------------------------------------------------------------------------------------------------------------- Property Name Essex Park Raintree Ashton at Longcreek LOCATION: Address 1800 Longcreek Drive 3500 Fernandina Road 1401 Longcreek Drive City, State Columbia, South Carolina Columbia, South Carolina Columbia, South Carolina County Richland Lexington Lexington PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 279,384 148380 220,100 Year Built 1973 1972 1974 Number of Units 323 138 220 Unit Mix: Type Total Type Total Type Total 1Br/1Ba Garden 148 1Br/1Ba 20 1Br/1Ba 64 2Br/1Ba Garden 60 2Br/1.5Ba 100 2Br/2Ba 140 2Br/1.5 Ba Garden 72 1Br/1.5Ba 12 3Br/2Ba 16 2Br/2 Ba Garden 1 3Br/2.5 6 3Br/2 Ba Garden 24 4Br/2 Ba Garden 18 Average Unit Size (SF) 865 1,075 1,000 Land Area (Acre) 23.2749 7.7700 13.0200 Density (Units/Acre) 13.9 17.8 16.9 Parking Ratio (Spaces/Unit) 0 N/A N/A Parking Type (Gr., Cov., etc.) Garage, Open Covered Open Open CONDITION: Good Good Good APPEAL: Good Good Good AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room Yes No No Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts Yes No No Washer/Dryer Connection Yes Yes No OCCUPANCY: 91% 91% 93% TRANSACTION DATA: Sale Date January, 2002 February, 2001 Sale Price ($) $4,535,000 $9,600,000 Grantor Raintree Garden Associates Intermark Associates II Grantee Fernandina properties AHF Ashton and Stoney Creek, LLC Sale Documentation Book 6944, Page 80 Book R0483, Page 2162 Verification Lexington County Records Richland County Records Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,015,373 $7,358 $6.84 $1,544,592 $7,021 $7.02 Vacancy/Credit Loss $ 91,384 $ 662 $0.62 $ 108,121 $ 491 $0.49 Effective Gross Income $ 923,989 $6,696 $6.23 $1,436,471 $6,529 $6.53 Operating Expenses $ 483,000 $3,500 $3.26 $ 660,800 $3,004 $3.00 Net Operating Income $ 440,989 $3,196 $2.97 $ 775,671 $3,526 $3.52 NOTES: None None PRICE PER UNIT $ 32,862 $ 43,636 PRICE PER SQUARE FOOT $ 30.56 $ 43.62 EXPENSE RATIO 52.30% 46.00% EGIM 4.91 6.68 OVERALL CAP RATE 9.72% 8.08% 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 Stoneycreek St. Andrews Broad River Trace LLC LOCATION: Address 18 Berry Hill Road 601 St. Andrews Road 551 River Hill Circle City, State Columbia, South Carolina Columbia, South Carolina Columbia, South Carolina County Lexington Lexington Richland PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 183,724 255,650 257,340 Year Built 1969 1973 1998 Number of Units 196 224 240 Unit Mix: Type Total Type Total Type Total 1Br/1Ba 88 1Br/1Ba 40 1Br/1Ba 84 2Br/2Ba 108 2Br/2Ba 152 2Br/2Ba 120 3Br/2Ba 32 3Br/2Ba 36 Average Unit Size (SF) 937 1,141 1,072 Land Area (Acre) 10.5700 16.8600 38.7400 Density (Units/Acre) 18.5 13.3 6.2 Parking Ratio (Spaces/Unit) N/A N/A N/A Parking Type (Gr., Cov., etc.) Open Open Open, Garage CONDITION: Good Good Excellent APPEAL: Good Good Excellent AMENITIES: Pool/Spa Yes/No Yes/No Yes/Yes Gym Room No No Yes Laundry Room Yes No Yes Secured Parking No No Yes Sport Courts No Yes Yes Washer/Dryer Connection Yes Yes Yes OCCUPANCY: 96% 90% 97% TRANSACTION DATA: Sale Date February, 2001 September, 2000 April, 2000 Sale Price ($) $7,249,000 $8,000,000 $13,600,000 Grantor Intermark Associates Alliance GT4 LP Broad River Trace LLC Grantee AHF-Ashton and Stoneycreek UDR South Carolina Trust SG Broad River Trace-Cola LLC LLC Sale Documentation Book 6191, Page 182 Book 6014, Page 2 Book R0403, Page 1489 Verification Lexington County Records Lexington County Records Richland County Records Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,318,608 $6,728 $7.18 $1,745,280 $7,791 $6.83 $2,163,600 $9,015 $8.41 Vacancy/Credit Loss $ 65,930 $ 336 $0.36 $ 174,528 $ 779 $0.68 $ 108,130 $ 451 $0.42 Effective Gross Income $1,252,678 $6,391 $6.82 $1,570,752 $7,012 $6.14 $2,055,470 $8,564 $7.99 Operating Expenses $ 632,932 $3,229 $3.45 $ 785,376 $3,506 $3.07 $ 839,477 $3,498 $3.26 Net Operating Income $ 619,746 $3,162 $3.37 $ 785,376 $3,506 $3.07 $1,215,993 $5,067 $4.73 NOTES: None None None PRICE PER UNIT $36,985 $35,714 $56,667 PRICE PER SQUARE FOOT $ 39.46 $ 31.29 $ 52.85 EXPENSE RATIO 50.5% 50.0% 40.80% EGIM 5.79 5.09 6.62 OVERALL CAP RATE 8.55% 9.82% 8.94% CAP RATE BASED ON PRO FORMA OR ACTUAL INCOME?PRO FORMA PRO FORMA PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 ESSEX PARK, COLUMBIA, SOUTH CAROLINA IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $32,862 to $56,667 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 $29,576 to $41,455 per unit with a mean or average adjusted price of $33,933 per unit. The median adjusted price is $33,750 per unit. Based on the following analysis, we have concluded to a value of $35,000 per unit, which results in an "as $11,300,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 ESSEX PARK, COLUMBIA, SOUTH CAROLINA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ----------------------------------------------------------------------------------------------------------------- Property Name Essex Park Raintree Ashton at Longcreek Address 1800 Longcreek Drive 3500 Fernandina Road 1401 Longcreek Drive City Columbia, South Carolina Columbia, South Carolina Columbia, South Carolina Sale Date January, 2002 February, 2001 Sale Price ($) $4,535,000 $9,600,000 Net Rentable Area (SF) 279,384 148,380 220,100 Number of Units 323 138 220 Price Per Unit $32,862 $43,636 Year Built 1973 1972 1974 Land Area (Acre) 23.2749 7.7700 13.0200 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 01-2002 0% February, 2001 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $32,862 $43,636 Location Comparable 0% Comparable 0% Number of Units 323 138 0% 220 0% Quality / Appeal Good Comparable 0% Comparable 0% Age / Condition 1973 1972 / Good 0% 1974 / Good 0% Occupancy at Sale 91% 91% 0% 93% 0% Amenities Good Comparable 0% Comparable 0% Average Unit Size (SF) 865 1,075 -10% 1,000 -5% PHYSICAL ADJUSTMENT -10% -5% FINAL ADJUSTED VALUE ($/UNIT) $29,576 $41,455 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 ----------------------------------------------------------------------------------------------------------------- Property Name Stoneycreek St. Andrews Broad River Trace LLC Address 18 Berry Hill Road 601 St. Andrews Road 551 River Hill Circle City Columbia, South Carolina Columbia, South Carolina Columbia, South Carolina Sale Date February, 2001 September, 2000 April, 2000 Sale Price ($) $7,249,000 $8,000,000 $13,600,000 Net Rentable Area (SF) 183,724 255,650 257,340 Number of Units 196 224 240 Price Per Unit $36,985 $35,714 $56,667 Year Built 1969 1973 1998 Land Area (Acre) 10.5700 16.8600 38.7400 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) February, 2001 0% September, 2000 5% April, 2000 5% VALUE AFTER TRANS. ADJUST. ($/UNIT) $36,985 $37,500 $59,500 Location Comparable 0% Comparable 0% Comparable 0% Number of Units 196 0% 224 0% 240 0% Quality / Appeal Comparable 0% Comparable 0% Superior -15% Age / Condition 1969 / Good 0% 1973 / Good 0% 1998 / Excellent -20% Occupancy at Sale 96% -5% 90% 0% 97% -5% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 937 0% 1,141 -10% 1,072 -10% PHYSICAL ADJUSTMENT -5% -10% -50% FINAL ADJUSTED VALUE ($/UNIT) $35,135 $33,750 $29,750
SUMMARY VALUE RANGE (PER UNIT) $29,576 TO $41,455 MEAN (PER UNIT) $33,933 MEDIAN (PER UNIT) $33,750 VALUE CONCLUSION (PER UNIT) $35,000
VALUE INDICATED BY SALES COMPARISON APPROACH $11,305,000 ROUNDED $11,300,000
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 ESSEX PARK, COLUMBIA, SOUTH CAROLINA 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-1 138 $ 4,535,000 9.72% $ 440,989 $1,001,496 0.970 $ 31,886 $ 32,862 $ 3,196 $ 3,101 I-2 220 $ 9,600,000 8.08% $ 775,671 $1,001,496 0.879 $ 38,374 $ 43,636 $ 3,526 $ 3,101 I-3 196 $ 7,249,000 8.55% $ 619,746 $1,001,496 0.981 $ 36,267 $ 36,985 $ 3,162 $ 3,101 I-4 224 $ 8,000,000 9.82% $ 785,376 $1,001,496 0.884 $ 31,583 $ 35,714 $ 3,506 $ 3,101 I-5 240 $13,600,000 8.94% $1,215,993 $1,001,496 0.612 $ 34,678 $ 56,667 $ 5,067 $ 3,101
PRICE/UNIT
Low High Average Median $31,583 $38,374 $34,558 $ 34,678
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 35,000 Number of Units 323 Value Based on NOI Analysis $11,305,000 Rounded $11,300,000
The adjusted sales indicate a range of value between $31,583 and $38,374 per unit, with an average of $34,558 per unit. Based on the subject's competitive position within the improved sales, a value of $35,000 per unit is estimated. This indicates an "as is" market value of $11,300,000 (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 ESSEX PARK, COLUMBIA, SOUTH CAROLINA 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-1 138 $ 4,535,000 $ 923,989 $ 483,000 52.27% 4.91 $ 32,862 I-2 220 $ 9,600,000 $ 1,436,471 $ 660,800 46.00% 6.68 $ 43,636 I-3 196 $ 7,249,000 $ 1,252,678 $ 632,932 50.53% 5.79 $ 36,985 47.95% I-4 224 $ 8,000,000 $ 1,570,752 $ 785,376 50.00% 5.09 $ 35,714 I-5 240 $13,600,000 $ 2,055,470 $ 839,477 40.84% 6.62 $ 56,667
EGIM
Low High Average Median 4.91 6.68 5.82 5.79
VALUE ANALYSIS BASED ON EGIM's OF COMPARABLE SALES Estimate EGIM 5.50 Subject EGI $ 2,079,306 Value Based on EGIM Analysis $11,436,183 Rounded $11,400,000 Value Per Unit $ 35,294
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 47.95% before reserves. The comparable sales indicate a range of expense ratios from 40.84% to 52.27%, while their EGIMs range from 4.91 to 6.68. Overall, we conclude to an EGIM of 5.50, which results in an "as is" value estimate in the EGIM Analysis of $11,400,000. 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 $11,300,000. Price Per Unit $11,300,000 NOI Per Unit $11,300,000 EGIM Analysis $11,400,000 Sales Comparison Conclusion $11,300,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 ESSEX PARK, COLUMBIA, SOUTH 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 ESSEX PARK, COLUMBIA, SOUTH 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 ------------------------------------------------------------------------- 1Br/1Ba Garden 672 $434 $0.65 97.0% 2Br/1Ba Garden 912 $500 $0.55 79.2% 2Br/1.5 Ba Garden 912 $562 $0.62 93.5% 2Br/2 Ba Garden 1344 $769 $0.57 0.0% 3Br/2 Ba Garden 1300 $632 $0.49 75.0% 4Br/2 Ba Garden 1500 $820 $0.55 94.4%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 ESSEX PARK, COLUMBIA, SOUTH CAROLINA RENT ANALYSIS
SUBJECT SUBJECT SUBJECT UNIT ACTUAL ASKING DESCRIPTION TYPE RENT RENT ---------------------------------------------------------------- Monthly Rent 1Br/1Ba GARDEN $ 434 $ 519 Unit Area (SF) 672 672 Monthly Rent Per Sq. Ft. $ 0.65 $ 0.77 Monthly Rent 2Br/1Ba GARDEN $ 500 $ 639 Unit Area (SF) 912 912 Monthly Rent Per Sq. Ft. $ 0.55 $ 0.70 Monthly Rent 2Br/1.5 Ba $ 562 $ 649 Unit Area (SF) GARDEN 912 912 Monthly Rent Per Sq. Ft. $ 0.62 $ 0.71 Monthly Rent 2Br/2 Ba $ 769 $ 769 Unit Area (SF) GARDEN 1,344 1,344 Monthly Rent Per Sq. Ft. $ 0.57 $ 0.57 Monthly Rent 3Br/2 Ba $ 632 $ 829 Unit Area (SF) GARDEN 1,300 1,300 Monthly Rent Per Sq. Ft. $ 0.49 $ 0.64 Monthly Rent 4Br/2 Ba $ 820 $ 929 Unit Area (SF) GARDEN 1,500 1,500 Monthly Rent Per Sq. Ft. $ 0.55 $ 0.62 COMPARABLE RENTS ------------------------------------------------------ R-5 ------------------------------------------------------ R-1 R-2 R-3 R-4 Ashton at ------------------------------------------------------ THe Park Riverwind Waterford Hollows Longcreek ------------------------------------------------------ COMPARISON TO SUBJECT DESCRIPTION Similar Superior Slightly Superior Superior Similar --------------------------------------------------------------------------------------------- Monthly Rent $ 495 $ 539 $ 507 $ 499 Unit Area (SF) 610 678 590 661 760 Monthly Rent Per Sq. Ft. $ 0.81 $ 0.79 $ 0.86 $ 0.75 Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft Monthly Rent $ 595 $ 676 $ 669 $ 640 $ 589 Unit Area (SF) 821 910 1,000 996 1,035 Monthly Rent Per Sq. Ft. $ 0.73 $ 0.74 $ 0.67 $ 0.64 $ 0.57 Monthly Rent $ 760 $ 620 Unit Area (SF) 1,250 1,260 Monthly Rent Per Sq. Ft. $ 0.61 $ 0.49 Monthly Rent $ 805 $ 739 Unit Area (SF) 1,115 1,240 Monthly Rent Per Sq. Ft. $ 0.72 $ 0.60 Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft DESCRIPTION MIN MAX MEDIAN AVERAGE ---------------------------------------------------------------- Monthly Rent $ 539 $ 499 $ 510 Unit Area (SF) 590 760 661 660 Monthly Rent Per Sq. Ft. $ 0.75 $ 0.86 $ 0.80 $ 0.81 Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft Monthly Rent $ 589 $ 676 $ 640 $ 634 Unit Area (SF) 821 1,035 996 952 Monthly Rent Per Sq. Ft. $ 0.57 $ 0.74 $ 0.67 $ 0.67 Monthly Rent $ 620 $ 760 $ 690 $ 690 Unit Area (SF) 1,250 1,260 1,255 1,255 Monthly Rent Per Sq. Ft. $ 0.49 $ 0.61 $ 0.55 $ 0.55 Monthly Rent $ 739 $ 805 $ 772 $ 772 Unit Area (SF) 1,115 1,240 1,178 1,178 Monthly Rent Per Sq. Ft. $ 0.60 $ 0.72 $ 0.66 $ 0.66 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
Unit Area Market Rent Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income --------------------------------------------------------------------------------------------------------------------- 1Br/1Ba Garden 148 672 $ 500 $ 0.74 $ 74,000 $ 888,000 2Br/1Ba Garden 60 912 $ 550 $ 0.60 $ 33,000 $ 396,000 2Br/1.5 Ba Garden 72 912 $ 600 $ 0.66 $ 43,200 $ 518,400 2Br/2 Ba Garden 1 1,344 $ 769 $ 0.57 $ 769 $ 9,228 3Br/2 Ba Garden 24 1,300 $ 750 $ 0.58 $ 18,000 $ 216,000 4Br/2 Ba Garden 18 1,500 $ 850 $ 0.57 $ 15,300 $ 183,600 ---------------------------- Total $ 184,269 $2,211,228
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 ESSEX PARK, COLUMBIA, SOUTH 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 $2,142,462 $ 6,633 $2,219,222 $ 6,871 $2,174,170 $ 6,731 Vacancy $ 180,991 $ 560 $ 181,799 $ 563 $ 406,822 $ 1,260 Credit Loss/Concessions $ 75,505 $ 234 $ 143,147 $ 443 $ 153,323 $ 475 --------------------------------------------------------------------------- Subtotal $ 256,496 $ 794 $ 324,946 $ 1,006 $ 560,145 $ 1,734 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 96,765 $ 300 $ 176,171 $ 545 $ 191,648 $ 593 --------------------------------------------------------------------------- Subtotal Other Income $ 96,765 $ 300 $ 176,171 $ 545 $ 191,648 $ 593 --------------------------------------------------------------------------- Effective Gross Income $1,982,731 $ 6,138 $2,070,447 $ 6,410 $1,805,673 $ 5,590 Operating Expenses Taxes $ 159,410 $ 494 $ 145,648 $ 451 $ 167,003 $ 517 Insurance $ 34,010 $ 105 $ 60,631 $ 188 $ 45,908 $ 142 Utilities $ 127,185 $ 394 $ 177,565 $ 550 $ 193,011 $ 598 Repair & Maintenance $ 193,111 $ 598 $ 209,347 $ 648 $ 222,415 $ 689 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 22,135 $ 69 $ 17,604 $ 55 $ 23,983 $ 74 General Administrative $ 249,300 $ 772 $ 278,776 $ 863 $ 246,604 $ 763 Management $ 101,815 $ 315 $ 110,420 $ 342 $ 96,591 $ 299 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------- Total Operating Expenses $ 886,966 $ 2,746 $ 999,991 $ 3,096 $ 995,515 $ 3,082 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------- Net Income $1,095,765 $ 3,392 $1,070,456 $ 3,314 $ 810,158 $ 2,508 FISCAL YEAR 2003 ANNUALIZED 2003 -------------------- -------------------- MANAGEMENT BUDGET PROJECTION AAA PROJECTION -------------------- -------------------- ---------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % ----------------------------------------------------------------------------------------------------------------- Revenues Rental Income $2,127,262 $ 6,586 $2,082,280 $ 6,447 $2,211,228 $ 6,846 100.0% Vacancy $ 185,000 $ 573 $ 444,656 $ 1,377 $ 176,898 $ 548 8.0% Credit Loss/Concessions $ 129,600 $ 401 $ 144,536 $ 447 $ 132,674 $ 411 6.0% -------------------------------------------------------------------------------------- Subtotal $ 314,600 $ 974 $ 589,192 $ 1,824 $ 309,572 $ 958 14.0% Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 188,200 $ 583 $ 139,080 $ 431 $ 177,650 $ 550 8.0% -------------------------------------------------------------------------------------- Subtotal Other Income $ 188,200 $ 583 $ 139,080 $ 431 $ 177,650 $ 550 8.0% -------------------------------------------------------------------------------------- Effective Gross Income $2,000,862 $ 6,195 $1,632,168 $ 5,053 $2,079,306 $ 6,437 100.0% Operating Expenses Taxes $ 147,968 $ 458 $ 152,600 $ 472 $ 153,425 $ 475 7.4% Insurance $ 46,974 $ 145 $ 46,072 $ 143 $ 48,450 $ 150 2.3% Utilities $ 168,000 $ 520 $ 184,084 $ 570 $ 185,725 $ 575 8.9% Repair & Maintenance $ 225,800 $ 699 $ 304,688 $ 943 $ 226,100 $ 700 10.9% Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 18,000 $ 56 $ 34,224 $ 106 $ 20,995 $ 65 1.0% General Administrative $ 256,284 $ 793 $ 244,772 $ 758 $ 258,400 $ 800 12.4% Management $ 100,040 $ 310 $ 75,844 $ 235 $ 103,965 $ 322 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% -------------------------------------------------------------------------------------- Total Operating Expenses $ 963,066 $ 2,982 $1,042,284 $ 3,227 $ 997,060 $ 3,087 48.0% Reserves $ 0 $ 0 $ 0 $ 0 $ 80,750 $ 250 8.1% -------------------------------------------------------------------------------------- Net Income $1,037,796 $ 3,213 $ 589,884 $ 1,826 $1,001,496 $ 3,101 48.2%
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 14% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 ESSEX PARK, COLUMBIA, SOUTH 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 ESSEX PARK, COLUMBIA, SOUTH CAROLINA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR --------------------------------------------------------------------- I-1 Jan-02 91% $32,862 9.72% I-2 February, 2001 93% $43,636 8.08% I-3 February, 2001 96% $36,985 8.55% I-4 September, 2000 90% $35,714 9.82% I-5 April, 2000 97% $56,667 8.94% High 9.82% Low 8.08% Average 9.02%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.00%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 9.50%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 11.50%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 11.50% indicates a value of $11,500,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 ESSEX PARK, COLUMBIA, SOUTH CAROLINA approximately 41% 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 ESSEX PARK, COLUMBIA, SOUTH CAROLINA DISCOUNTED CASH FLOW ANALYSIS ESSEX PARK
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 FISCAL YEAR 1 2 3 4 5 --------------------------------------------------------------------------------------------------------- REVENUE Base Rent $2,211,228 $2,277,565 $2,345,892 $2,416,269 $2,488,757 Vacancy $ 176,898 $ 182,205 $ 187,671 $ 193,301 $ 199,101 Credit Loss $ 132,674 $ 136,654 $ 140,754 $ 144,976 $ 149,325 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ Subtotal $ 309,572 $ 318,859 $ 328,425 $ 338,278 $ 348,426 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 177,650 $ 182,980 $ 188,469 $ 194,123 $ 199,947 ------------------------------------------------------------------ Subtotal Other Income $ 177,650 $ 182,980 $ 188,469 $ 194,123 $ 199,947 ------------------------------------------------------------------ EFFECTIVE GROSS INCOME $2,079,306 $2,141,685 $2,205,936 $2,272,114 $2,340,277 OPERATING EXPENSES: Taxes $ 153,425 $ 158,028 $ 162,769 $ 167,652 $ 172,681 Insurance $ 48,450 $ 49,904 $ 51,401 $ 52,943 $ 54,531 Utilities $ 185,725 $ 191,297 $ 197,036 $ 202,947 $ 209,035 Repair & Maintenance $ 226,100 $ 232,883 $ 239,869 $ 247,066 $ 254,478 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 20,995 $ 21,625 $ 22,274 $ 22,942 $ 23,630 General Administrative $ 258,400 $ 266,152 $ 274,137 $ 282,361 $ 290,831 Management $ 103,965 $ 107,084 $ 110,297 $ 113,606 $ 117,014 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ TOTAL OPERATING EXPENSES $ 997,060 $1,026,972 $1,057,781 $1,089,515 $1,122,200 Reserves $ 80,750 $ 83,173 $ 85,668 $ 88,238 $ 90,885 ------------------------------------------------------------------ NET OPERATING INCOME $1,001,496 $1,031,541 $1,062,487 $1,094,361 $1,127,192 Operating Expense Ratio (% of EGI) 48.0% 48.0% 48.0% 48.0% 48.0% Operating Expense Per Unit $ 3,087 $ 3,179 $ 3,275 $ 3,373 $ 3,474 YEAR APR-2009 APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 6 7 8 9 10 11 ----------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $2,563,419 $2,640,322 $2,719,532 $2,801,117 $2,885,151 $2,971,706 Vacancy $ 205,074 $ 211,226 $ 217,563 $ 224,089 $ 230,812 $ 237,736 Credit Loss $ 153,805 $ 158,419 $ 163,172 $ 168,067 $ 173,109 $ 178,302 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- Subtotal $ 358,879 $ 369,645 $ 380,734 $ 392,156 $ 403,921 $ 416,039 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 205,945 $ 212,123 $ 218,487 $ 225,042 $ 231,793 $ 238,747 -------------------------------------------------------------------------------- Subtotal Other Income $ 205,945 $ 212,123 $ 218,487 $ 225,042 $ 231,793 $ 238,747 -------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $2,410,486 $2,482,800 $2,557,284 $2,634,003 $2,713,023 $2,794,413 OPERATING EXPENSES: Taxes $ 177,862 $ 183,197 $ 188,693 $ 194,354 $ 200,185 $ 206,190 Insurance $ 56,167 $ 57,852 $ 59,587 $ 61,375 $ 63,216 $ 65,113 Utilities $ 215,306 $ 221,765 $ 228,418 $ 235,271 $ 242,329 $ 249,599 Repair & Maintenance $ 262,112 $ 269,975 $ 278,074 $ 286,417 $ 295,009 $ 303,859 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 24,339 $ 25,069 $ 25,821 $ 26,596 $ 27,394 $ 28,216 General Administrative $ 299,556 $ 308,543 $ 317,799 $ 327,333 $ 337,153 $ 347,268 Management $ 120,524 $ 124,140 $ 127,864 $ 131,700 $ 135,651 $ 139,721 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $1,155,866 $1,190,542 $1,226,258 $1,263,046 $1,300,938 $1,339,966 Reserves $ 93,611 $ 96,420 $ 99,312 $ 102,292 $ 105,360 $ 108,521 -------------------------------------------------------------------------------- NET OPERATING INCOME $1,161,008 $1,195,838 $1,231,713 $1,268,665 $1,306,725 $1,345,927 Operating Expense Ratio (% of EGI) 48.0% 48.0% 48.0% 48.0% 48.0% 48.0% Operating Expense Per Unit $ 3,579 $ 3,686 $ 3,796 $ 3,910 $ 4,028 $ 4,149
Estimated Stabilized NOI $1,001,496 Sales Expense Rate 2.00% Months to Stabilized 0 Discount Rate 11.50% Stabilized Occupancy 92.0% Terminal Cap Rate 9.50%
Gross Residual Sale Price $14,167,648 Deferred Maintenance $ 0 Less: Sales Expense $ 283,353 Add: Excess Land $ 0 ----------- Net Residual Sale Price $13,884,295 Other Adjustments $ 0 ----------- PV of Reversion $ 4,674,931 Value Indicated By "DCF" $11,532,122 Add: NPV of NOI $ 6,857,191 Rounded $11,500,000 ----------- PV Total $11,532,122
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ------------------------------------------------------------------------------- TOTAL VALUE 11.00% 11.25% 11.50% 11.75% 12.00% --------------------------------------------------------------------------------------------------- 9.00% $12,182,047 $11,984,800 $11,791,840 $11,603,059 $11,418,352 9.25% $12,042,548 $11,848,404 $11,658,471 $11,472,644 $11,290,819 9.50% $11,910,390 $11,719,186 $11,532,122 $11,349,093 $11,169,998 TERMINAL CAP RATE 9.75% $11,785,010 $11,596,595 $11,412,252 $11,231,877 $11,055,373 10.00% $11,665,898 $11,480,133 $11,298,375 $11,120,523 $10,946,480
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 ESSEX PARK, COLUMBIA, SOUTH CAROLINA INCOME LOSS DURING LEASE-UP The subject is currently near or at a stabilized condition. Therefore, there is no income loss during lease-up at the subject property. CONCESSIONS Concessions have historically not been utilized at the subject property or in the subject's market. Therefore, no adjustment was included for concessions. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 9.00% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 ESSEX PARK, COLUMBIA, SOUTH CAROLINA ESSEX PARK
TOTAL PER SQ. FT. PER UNIT % OF EGI ---------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 2,211,228 $ 7.91 $ 6,846 Less: Vacancy & Collection Loss 14.00% $ 309,572 $ 1.11 $ 958 Plus: Other Income Laundry Income $ 0 $ 0.00 $ 0 0.00% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 177,650 $ 0.64 $ 550 8.54% ------------------------------------------------------- Subtotal Other Income $ 177,650 $ 0.64 $ 550 8.54% EFFECTIVE GROSS INCOME $ 2,079,306 $ 7.44 $ 6,437 OPERATING EXPENSES: Taxes $ 153,425 $ 0.55 $ 475 7.38% Insurance $ 48,450 $ 0.17 $ 150 2.33% Utilities $ 185,725 $ 0.66 $ 575 8.93% Repair & Maintenance $ 226,100 $ 0.81 $ 700 10.87% Cleaning $ 0 $ 0.00 $ 0 0.00% Landscaping $ 0 $ 0.00 $ 0 0.00% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 20,995 $ 0.08 $ 65 1.01% General Administrative $ 258,400 $ 0.92 $ 800 12.43% Management 5.00% $ 103,965 $ 0.37 $ 322 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 997,060 $ 3.57 $ 3,087 47.95% Reserves $ 80,750 $ 0.29 $ 250 3.88% ------------------------------------------------------- NET OPERATING INCOME $ 1,001,496 $ 3.58 $ 3,101 48.16% "GOING IN" CAPITALIZATION RATE 9.00% VALUE INDICATION $11,127,731 $ 39.83 $ 34,451 "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $11,127,731 ROUNDED $11,100,000 $ 39.73 $ 34,365
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 ESSEX PARK, COLUMBIA, SOUTH CAROLINA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF ------------------------------------------------------------- 8.25% $12,139,343 $12,100,000 $37,461 $ 43.31 8.50% $11,782,303 $11,800,000 $36,533 $ 42.24 8.75% $11,445,666 $11,400,000 $35,294 $ 40.80 9.00% $11,127,731 $11,100,000 $34,365 $ 39.73 9.25% $10,826,981 $10,800,000 $33,437 $ 38.66 9.50% $10,542,061 $10,500,000 $32,508 $ 37.58 9.75% $10,271,752 $10,300,000 $31,889 $ 36.87
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $11,100,000. 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 $11,500,000 Direct Capitalization Method $11,100,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $11,200,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37 ESSEX PARK, COLUMBIA, SOUTH 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 $11,300,000 Income Approach $11,200,000 Reconciled Value $11,200,000
The Income Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of May 21, 2003 the market value of the fee simple estate in the property is: $11,200,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA ESSEX PARK, COLUMBIA, SOUTH CAROLINA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A ESSEX PARK, COLUMBIA, SOUTH CAROLINA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A ESSEX PARK, COLUMBIA, SOUTH CAROLINA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] INTERIOR - GYM INTERIOR - CLUBHOUSE [PICTURE] [PICTURE] INTERIOR - KITCHEN OF UNIT INTERIOR - APARTMENT UNIT [PICTURE] [PICTURE] INTERIOR - CLUBHOUSE EXTERIOR - POOL AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A ESSEX PARK, COLUMBIA, SOUTH CAROLINA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - PLAYGROUND EXTERIOR - VOLLEYBALL AREA [PICTURE] [PICTURE] EXTERIOR - TENNIS COURT EXTERIOR - ENTRY [PICTURE] [PICTURE] EXTERIOR - TYPICAL VIEW OF APARTMENT EXTERIOR - TYPICAL VIEW OF APARTMENT BUILDING BUILDING AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B ESSEX PARK, COLUMBIA, SOUTH CAROLINA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B ESSEX PARK, COLUMBIA, SOUTH CAROLINA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 RAINTREE ASHTON AT LONGCREEK STONEYCREEK 3500 Fernandina Road 1401 Longcreek Drive 18 Berry Hill Road Columbia, South Carolina Columbia, South Carolina Columbia, South Carolina [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 ST. ANDREWS BROAD RIVER TRACE LLC 601 St. Andrews Road 551 River Hill Circle Columbia, South Carolina Columbia, South Carolina [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B ESSEX PARK, COLUMBIA, SOUTH CAROLINA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 ----------------------------------------------------------------------------------------------------------- Property Name Essex Park The Park Management Company AIMCO Alliance Residential LOCATION: Address 1800 Longcreek Drive 1601 Longcreek Drive City, State Columbia, South Carolina Columbia, South Carolina County Richland Richland Proximity to Subject 1 mile to the west PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 279,384 203,331 Year Built 1973 1975 Effective Age 20 20 Building Structure Type Brick & wood siding walls; asphalt Wood framing, typically brick exterior shingle roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 323 292 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Br/1Ba Garden 672 148 $434 1 1BD/1BH - Type 1 602 33 $495 2 2Br/1Ba Garden 912 60 $500 1 1BD/1BH - Type 2 611 128 $494 3 2Br/1.5 Ba Garden 912 72 $562 1 1BD/1BH - Type 3 617 11 $500 4 2Br/2 Ba Garden 1,344 1 $769 3 2BD/2BH - Type 1 810 30 $595 5 3Br/2 Ba Garden 1,300 24 $632 3 2BD/2BH - Type 2 824 80 $595 6 4Br/2 Ba Garden 1,500 18 $820 3 2BD/2BH - Type 3 825 10 $600 Average Unit Size (SF) 865 696 Unit Breakdown: Efficiency 0% 2-Bedroom 41% Efficiency 0% 2-Bedroom 41% 1-Bedroom 46% 3-Bedroom 7% 1-Bedroom 59% 3-Bedroom CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony 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 X BBQ Equipment Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room Gym Room OCCUPANCY: 91% 87% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 to 15 Months Concessions None None Pet Deposit $300 $300 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash X Water Trash Confirmation May 21, 2003 Phillip (Property Manager) May 21, 2003 Laura Culbertson (Property Telephone Number (888) 790-6570 (803) 798-0345 NOTES: COMPARISON TO SUBJECT: Similar COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 ----------------------------------------------------------------------------------------------------------------- Property Name Riverwind Waterford Management Company AIMCO United Dominion Realty LOCATION: Address 1600 Riverwind Drive 1340 Longcreek Drive City, State Columbia, South Carolina Columbia, South Carolina County Richland Richland Proximity to Subject Right next to the subject 1 mile west of the subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 104,342 174,800 Year Built 1984 1985 Effective Age 15 15 Building Structure Type Wood siding walls; asphalt Brick & wood siding walls; asphalt shingle roof shingle roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 128 268 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1-Br 678 54 $539 1 1BD/1BH - Type 1 500 144 $465 3 2-Br/2Ba Type 1 825 12 $667 1 1BD/1BH - Type 2 700 56 $564 3 2-Br/2 Ba Type 2 983 8 $672 1 1BD/1BH - Type 3 800 32 $599 3 2-Br/2 Ba Type 3 918 52 $679 3 2BD/2BA - Type 1 1,000 28 $669 5 3-Br/2 Ba 1,115 2 $805 4 2 Bd/2BA - Type 2 1,250 8 $760 Average Unit Size (SF) 815 652 Unit Breakdown: Efficiency 0% 2-Bedroom 56% Efficiency 0% 2-Bedroom 13% 1-Bedroom 42% 3-Bedroom 2% 1-Bedroom 87% 3-Bedroom 0% CONDITION: Good Good APPEAL: Good Good 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 X Car Wash Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Basketball Court X BBQ Equipment X Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 92% 90% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 to 15 Months Concessions None None Pet Deposit 300 250 Utilities Paid by Tenant: X Electric X Natural Gas X Electric Natural Gas Water Trash X Water Trash Confirmation May 21, 2003 Cassie (Property Manager) May 21, 2003 Vicki (Property Manager) Telephone Number (803) 772-0960 (803) 772-3533 NOTES: COMPARISON TO SUBJECT: Superior Slightly Superior COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 ---------------------------------------------------------------------------------------------------------- Property Name Hollows Ashton at Longcreek Management Company TGM and Associates Intermark Management Corp. LOCATION: Address 1300 Longcreek Drive 1401 Longcreek Drive City, State Columbia, South Carolina Columbia, South Carolina County Richland Richland Proximity to Subject 1 mile west of the subject 0.75 mile west of subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 161,636 220,100 Year Built 1987 1974 Effective Age 15 30 Building Structure Type Brick & wood siding walls; asphalt Stucco walls, asphalt shingle roof shingle roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 212 220 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1BD/1BH - Type 1 577 60 $455 1 1BD/1BH 760 64 $503 1 1BD/1BH - Type 2 669 48 $520 3 2BD/2BH Type 1 1,035 56 $589 1 1BD/1BH - Type 3 779 40 $540 4 2BD/2BH Type 2 1,260 84 $620 3 2BD/2BH - Type 1 944 32 $630 5 3BD/2BH 1,240 16 $739 3 2BD/2BH - Type 2 1,048 32 $650 Average Unit Size (SF) 762 1,056 Unit Breakdown: Efficiency 0% 2-Bedroom 30% Efficiency 0% 2-Bedroom 64% 1-Bedroom 70% 3-Bedroom 0% 1-Bedroom 29% 3-Bedroom 7% CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony W/D Connect. X Fireplace Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater room Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking 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 Gym Room OCCUPANCY: 92% 83% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 to 15 Months Concessions None None Pet Deposit $450 $250 Utilities Paid by Tenant: X Electric Natural Gas X Electric X Natural Gas X Water Trash Water Trash Confirmation May 21, 2003 Alex (Property Manager) May 21, 2003 Shakira (Property Manager) Telephone Number (803) 798-2255 (803) 798-1440 NOTES: Comparison to Subject: Superior Similar
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B ESSEX PARK, COLUMBIA, SOUTH CAROLINA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 THE PARK RIVERWIND WATERFORD 1601 Longcreek Drive 1600 Riverwind Drive 1340 Longcreek Drive Columbia, South Carolina Columbia, South Carolina Columbia, South Carolina [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 HOLLOWS ASHTON AT LONGCREEK 1300 Longcreek Drive 1401 Longcreek Drive Columbia, South Carolina Columbia, South Carolina [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C ESSEX PARK, COLUMBIA, SOUTH CAROLINA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C ESSEX PARK, COLUMBIA, SOUTH 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 ESSEX PARK, COLUMBIA, SOUTH 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 ESSEX PARK, COLUMBIA, SOUTH 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 ESSEX PARK, COLUMBIA, SOUTH 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 Robert B. Moore 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 South Carolina Temporary Practice Permit #095-03 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E ESSEX PARK, COLUMBIA, SOUTH CAROLINA EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E ESSEX PARK, COLUMBIA, SOUTH 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 STATE State of Arizona CERTIFICATIONS Certified General Real Estate Appraiser, #30828 State of Arkansas State Certified General Appraiser, #CG1387N State of Colorado Certified General Appraiser, #CG40000445 State of Georgia Certified General Real Property Appraiser, #218487 State of Michigan Certified General Appraiser, #1201008081 State of Texas Real Estate Salesman License, #407158 (Inactive) State of Texas State Certified General Real Estate Appraiser, #TX-1323954-G AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E ESSEX PARK, COLUMBIA, SOUTH CAROLINA PROFESSIONAL Appraisal Institute, MAI Designated Member Candidate Member of AFFILIATIONS 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. ESSEX PARK, COLUMBIA, SOUTH CAROLINA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. ESSEX PARK, COLUMBIA, SOUTH 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.