EX-99.(C)(10) 12 d07256a1exv99wxcyx10y.txt APPRAISAL OF NOB HILL VILLA NOB HILL VILLA 180 WALLACE ROAD NASHVILLE, TENNESSEE Market Value -Fee Simple Estate As of May 5, 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 LOGO] [AMERICAN APPRAISAL ASSOCIATES LOGO] [AMERICAN APPRAISAL ASSOCIATES 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: NOB HILL VILLA 180 WALLACE ROAD NASHVILLE, DAVIDSON COUNTY, TENNESSEE 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 472 units with a total of 378,800 square feet of rentable area. The improvements were built in 1971. The improvements are situated on 18.02 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 93% 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 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 5, 2003 is: ($12,400,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. /s/ Frank Fehribach July 2, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group Tennessee Temporary Practice Permit #00053573 Report By: Daniel Salcedo Tennessee Temporary Practice Permit #00053558 AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 NOB HILL VILLA, NASHVILLE, TENNESSEE EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Nob Hill Villa LOCATION: 180 Wallace Road Nashville, Tennessee 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 5, 2003 DATE OF REPORT: July 2, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 18.02 acres, or 784,951 square feet Assessor Parcel No.: 134-130-239 Floodplain: Community Panel No. 47037C3054F (April 20, 2001) Flood Zone X, an area outside the floodplain. Zoning: RM-20 (Medium to High Density Apartment District) BUILDING: No. of Units: 472 Units Total NRA: 378,800 Square Feet Average Unit Size: 803 Square Feet Apartment Density: 26.2 units per acre Year Built: 1971 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 -1A10 650 $420 $0.65 $97,440 $1,169,280 2Br/2Ba -2A20 950 $530 $0.56 $127,200 $1,526,400 Total $224,640 $2,695,680
OCCUPANCY: 93% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 25 Years REMAINING ECONOMIC LIFE: 20 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 NOB HILL VILLA, NASHVILLE, TENNESSEE SUBJECT PHOTOGRAPHS [PICTURE OF UNIT TYPE FACADE] [PICTURE OF UNIT TYPE] [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 NOB HILL VILLA, NASHVILLE, TENNESSEE [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 NOB HILL VILLA, NASHVILLE, TENNESSEE PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION AMOUNT $/UNIT --------------------- ------ ------ Potential Rental Income $ 2,695,680 $ 5,711 Effective Gross Income $ 2,765,952 $ 5,860 Operating Expenses $ 1,490,578 $ 3,158 53.9% of EGI Net Operating Income: $ 1,157,374 $ 2,452 Capitalization Rate 9.50% DIRECT CAPITALIZATION VALUE $ 12,200,000 * $25,847 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 11% Stabilized Vacancy & Collection Loss: 10% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 10.50% Discount Rate 12.00% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $ 12,400,000 * $26,271 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $ 12,400,000 $26,271 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $ 26,844 to $69,167 Range of Sales $/Unit (Adjusted) $ 23,045 to $27,667 VALUE INDICATION - PRICE PER UNIT $ 12,300,000 * $26,059 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 4.82 to 6.60 Selected EGIM for Subject 4.50 Subject's Projected EGI $ 2,765,952 EGIM ANALYSIS CONCLUSION $12,400,000 * $26,271 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $12,700,000 * $26,907 / UNIT RECONCILED SALES COMPARISON VALUE $12,400,000 $26,271 / 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 NOB HILL VILLA, NASHVILLE, TENNESSEE PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $12,300,000 NOI Per Unit $12,700,000 EGIM Multiplier $12,400,000 INDICATED VALUE BY SALES COMPARISON $12,400,000 $26,271 / Unit INCOME APPROACH: Direct Capitalization Method: $12,200,000 Discounted Cash Flow Method: $12,400,000 INDICATED VALUE BY THE INCOME APPROACH $12,400,000 $26,271 / Unit RECONCILED OVERALL VALUE CONCLUSION: $12,400,000 $26,271 / Unit
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 NOB HILL VILLA, NASHVILLE, TENNESSEE INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 180 Wallace Road, Nashville, Davidson County, Tennessee. Nashville identifies it as 134-130-239. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Daniel Salcedo on May 5, 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 5, 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 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 CCP 4. 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 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 Nashville, Tennessee. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - I-24 West - SR-31 South - Haywood Lane North - Harding Road MAJOR EMPLOYERS Major employers in the subject's area include ComPlus, Concetra, Saturn Corporation, Gaylord Entertainment, Nissan Motor Manufacturing Corporation, Kroger Company, Reemay, Inc. United Parcel Service, First American National Bank, Shoney's Inc., Bell South, Inter-City Pro Corporation, NationsBank, and Bridgestone/Firestone. 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 NOB HILL VILLA, NASHVILLE, TENNESSEE NEIGHBORHOOD DEMOGRAPHICS
AREA CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA ------------------------------------------------------------------------------------------------ POPULATION TRENDS Current Population 13,093 79,100 155,323 1,275,686 5-Year Population 13,834 82,500 166,987 1,391,452 % Change CY-5Y 5.7% 4.3% 7.5% 9.1% Annual Change CY-5Y 1.1% 0.9% 1.5% 1.8% HOUSEHOLDS Current Households 5,218 32,590 66,267 499,284 5-Year Projected Households 5,492 34,105 71,459 550,820 % Change CY - 5Y 5.3% 4.6% 7.8% 10.3% Annual Change CY-5Y 1.1% 0.9% 1.6% 2.1% INCOME TRENDS Median Household Income $ 30,139 $ 35,573 $ 37,725 $ 45,328 Per Capita Income $ 16,197 $ 19,158 $ 22,059 $ 23,901 Average Household Income $ 40,571 $ 46,247 $ 51,628 $ 61,067
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 54.19% 47.20% 47.35% 31.23% 5-Year Projected % Renting 54.75% 46.89% 46.79% 30.53% % of Households Owning 31.73% 43.05% 42.91% 61.72% 5-Year Projected % Owning 31.99% 43.72% 43.97% 62.91%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 NOB HILL VILLA, NASHVILLE, TENNESSEE SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Linbar Drive South - Wallace Road East - Retail West - Residential CONCLUSIONS The subject is well located within the city of Nashville. The neighborhood is characterized as being mostly suburban in nature and is currently in the stable stage of development. The economic outlook for the neighborhood is judged to be favorable with a good economic base. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 14 NOB HILL VILLA, NASHVILLE, TENNESSEE MARKET ANALYSIS The subject property is located in the city of Nashville in Davidson County. The overall pace of development in the subject's market is more or less decreasing. Based on our site inspection of the market area, there was no evidence of additional development for multifamily use. The following table illustrates historical vacancy rates for the subject's market.
HISTORICAL VACANCY RATE Period Region Submarket -------------------------------------------------------------------------- 1997 5.5% 5.0% 1998 6.7% 6.0% 1999 5.9% 5.8% 2000 5.9% 6.0% 2001 8.3% 7.7% 2002 8.0% 8.0%
Source: Greater Nashville Apartment Association Occupancy trends in the subject's market are stable. Historically speaking, the subject's submarket has equated the overall market. Occupancy in the subject's market area is expected to be around 92.0% in average. Any expected changes are caused by the short time fluctuations derived from the current economic situation affecting the local, regional and national markets. Market rents in the subject's market have been following a stable trend. The following table illustrates historical rental rates for the subject's market.
HISTORICAL AVERAGE RENT Period Region % Change Submarket % Change --------------------------------------------------------------------------------- 1996 $583 - $512 - 1997 $604 3.6% $530 3.5% 1998 $634 5.0% $551 4.0% 1999 $647 2.1% $564 2.4% 2000 $667 3.1% $582 3.2% 2001 $677 1.5% $573 -1.5% 2002 $685 1.2% $570 -0.5%
Source: Greater Nashville Apartment Association The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 NOB HILL VILLA, NASHVILLE, TENNESSEE COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject ------------------------------------------------------------------------------------------------- R-1 South Brook 239 94% 1973 Approx. 0.6 miles east of subject R-2 Welch Bend 478 94% 1976 Approx. .8 miles west of subject R-3 Dominion House 200 99% 1973 Approx. 0.61 miles east of subject R-4 Sunrise 200 92% 1974 Less than 0.2 miles south of subject R-5 380 Harding 160 96% 1974 Approx. 0.7 miles northwest of subject Subject Nob Hill Villa 472 93% 1971
Rental rates are expected to stabilize. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 NOB HILL VILLA, NASHVILLE, TENNESSEE PROPERTY DESCRIPTION SITE ANALYSIS Site Area 18.02 acres, or 784,951 square feet Shape Irregular Topography Slightly slope Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Average Flood Zone: Community Panel 47037C3054F, dated April 20, 2001 Flood Zone Zone X Zoning RM-20, 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 134-130-239 $294,400 $2,204,840 $2,499,240 0.04580 $114,465
IMPROVEMENT ANALYSIS Year Built 1971 Number of Units 472 Net Rentable Area 378,800 Square Feet Construction: Foundation Concrete block wall 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, spa/jacuzzi, 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, microwave dishwasher, water heater, garbage disposal, and AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 NOB HILL VILLA, NASHVILLE, TENNESSEE oven. Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) ---------------------------------------------------------- 1Br/lBa -1A10 232 650 2Br/2Ba -2A20 240 950
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 1971 and consist of a 472-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 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 NOB HILL VILLA, NASHVILLE, TENNESSEE SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 --------------------------------------------------------------------------------------------------------------------------------- Property Name Nob Hill Villa Prestige Pointe Brentwood Oaks Location: Address 180 Wallace Road 200 Paragon Place 100 Belle Valley Drive City, State Nashville, Tennessee Nashville, TN Nashville, TN County Davidson Davidson Davidson Physical Charateristics: Net Rentable Area (SF) 378,800 181,327 222,176 Year Built 1971 1968 1986 Number of Units 472 179 262 Unit Mix: Type Total Type Total Type Total 1Br/1Ba -1A10 232 1Br/1Ba 52 1Br/1Ba 130 2Br/2Ba -2A20 240 2Br/1Ba 96 2Br/2Ba 116 3Br/2.5Ba 30 3Br/2.5Ba 16 2Br/2Ba 60 3Br/2Ba 52 Average Unit Size (SF) 803 1,013 848 Land Area (Acre) 18.0200 11.4900 51.6800 Density (Units/Acre) 26.2 15.6 5.1 Parking Ratio (Spaces/Unit) 2.20 2.00 2.40 Parking Type (Gr., Cov., etc.) Open Open Open Condition: Good Average Good Appeal: Average Good Good Amenities: Pool/Spa Yes/Yes Yes/No Yes/No Gym Room Yes No Yes Laundry Room Yes Yes No Secured Parking No No Yes Sport Courts Yes Yes No Washer/Dryer Connection Yes Yes No Occupancy: 93% 94% 93% Transaction Data: Sale Date May, 2001 August, 2001 Sale Price ($) $5,500,000 $13,885,700 Grantor N/A N/A Grantee Paragon Place-GEAC LLC Brentwood Oaks Apt LLC Sale Documentation Deed-20010531-0056399 Deed- 20010829-0093580 Verification Gayner McKenzie Abby Wittenmeier Telephone Number 615.834.1380 615.834.6257 Estimated Pro-Forma: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $912,369 $5,097 $5.03 $3,098,858 $11,828 $13.95 Vacancy/Credit Loss $ 54,742 $ 306 $0.30 $ 216,920 $ 828 $ 0.98 Effective Gross Income $857,627 $4,791 $4.73 $2,881,938 $11,000 $12.97 Operating Expenses $396,377 $2,214 $2.19 $1,420,011 $ 5,420 $ 6.39 Net Operating Income $461,250 $2,577 $2.54 $1,461,927 $ 5,580 $ 6.58 Notes: Overall, slightly inferior Overall, superior to subject to subject Price Per Unit $30,726 $52,999 Price Per Square Foot $ 30.33 $ 62.50 Expense Ratio 46.2% 49.3% EGIM 6.41 4.82 Overall Cap Rate 8.39% 10.53% 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 Keystone Farms Preserve at Brentwood Berkley Ridge Location: Address 5360 Edmonson Pike 370 Oakley Drive 308 Plus Park Blvd City, State Nashville, TN Nashville, TN Nashville, TN County Davidson Davidson Davidson Physical Charateristics: Net Rentable Area (SF) 102,510 357,120 227,408 Year Built 1998 1997 1972 Number of Units 90 360 244 Unit Mix: Type Total Type Total Type Total 2Br/2Ba 58 1Br/1Ba 132 1Br/1Ba 90 3Br/2.5Ba 32 2Br/1Ba 180 2Br/1Ba 130 3Br/2Ba 48 3Br/2.5Ba 24 Average Unit Size (SF) 1,139 992 932 Land Area (Acre) 9.7100 26.3600 18.1100 Density (Units/Acre) 9.3 13.7 13.5 Parking Ratio (Spaces/Unit) 2.40 2.20 2.80 Parking Type (Gr., Cov., etc.) Open Open,Carport/Garage Open Condition: Good Very Good Good Appeal: Average Good Average Amenities: Pool/Spa Yes/No Yes/No Yes/No Gym Room Yes Yes Yes Laundry Room No Yes Yes Secured Parking Yes Yes No Sport Courts No Yes No Washer/Dryer Connection Yes Yes Yes Occupancy: 92% 90% 91% Transaction Data: Sale Date December, 2001 September, 2002 June, 2002 Sale Price ($) $5,510,000 $24,900,000 $6,550,000 Grantor N/A The Morgan Group N/A Grantee Keystone Farms LLC Invesco Realty Advisers RCP Summittree LLC Sale Documentation Deed-20011220-0140573 Deed-20020910-0109883 Dee-20010619-0064950 Verification Monica M. Waltman Elizabeth Sanchez Heather Simpson Telephone Number 615.837.8776 615.837.1911 615.361.6793 Estimated Pro-Forma: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $958,261 $10,647 $9.35 $4,194,624 $11,652 $11.75 $1,154,130 $4,730 $5.08 Vacancy/Credit Loss $ 76,661 $ 852 $0.75 $ 419,463 $ 1,165 $ 1.17 $ 103,871 $ 426 $0.46 Effective Gross Income $881,600 $ 9,796 $8.60 $3,775,161 $10,487 $10.57 $1,050,259 $4,304 $4.62 Operating Expenses $375,140 $ 4,168 $3.66 $1,524,561 $ 4,235 $ 4.27 $ 502,109 $2,058 $2.21 Net Operating Income $506,460 $ 5,627 $4.94 $2,250,600 $ 6,252 $ 6.30 $ 548,150 $2,247 $2.41 Notes: Overall, slightly superior Overall, superior to subject Overall, comparable to to subject to subject Price Per Unit $61,222 $69,167 $26,844 Price Per Square Foot $ 53.75 $ 69.72 $ 28.80 Expense Ratio 42.6% 40.4% 47.8% EGIM 6.25 6.60 6.24 Overall Cap Rate 9.19% 9.04% 8.37% Cap Rate based on Pro Forma or Actual Income? Pro Forma Pro Forma Pro Forma
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 NOB HILL VILLA, NASHVILLE, TENNESSEE [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $26,844 to $69,167 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 $23,045 to $27,667 per unit with a mean or average adjusted price of $25,784 per unit. The median adjusted price is $26,499 per unit. Based on the following analysis, we have concluded to a value of $26,000 per unit, which results in an "as is" value of $12,300,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 NOB HILL VILLA, NASHVILLE, TENNESSEE SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ----------------------------------------------------------------------------------------------------------------- Property Name Nob Hill Villa Prestige Pointe Brentwood Oaks Address 180 Wallace Road 200 Paragon Place 100 Belle Valley Drive City Nashville, Tennessee Nashville, TN Nashville, TN Sale Date May, 2001 August, 2001 Sale Price ($) $5,500,000 $13,885,700 Net Rentable Area (SF) 378,800 181,327 222,176 Number of Units 472 179 262 Price Per Unit $30,726 $52,999 Year Built 1971 1968 1986 Land Area (Acre) 18.0200 11.4900 51.6800 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 05-2001 0% 08-2001 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $30,726 $52,999 Location Comparable 0% Comparable 0% Number of Units 472 179 -15% 262 -10% Quality / Appeal Good Superior -15% Superior -15% Age / Condition 1971 1968 / Average 0% 1986 / Good -25% Occupancy at Sale 93% 94% 0% 93% 0% Amenities Good Comparable 0% Comparable 0% Average Unit Size (SF) 803 1,013 5% 848 0% PHYSICAL ADJUSTMENT -25% -50% FINAL ADJUSTED VALUE ($/UNIT) $23,045 $26,499
COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 ------------------------------------------------------------------------------------------------------------------------ Property Name Keystone Farms Preserve at Berkley Ridge Brentwood Address 5360 Edmonson 370 Oakley Drive 308 Plus Park Pike Blvd City Nashville, TN Nashville, TN Nashville, TN Sale Date December, 2001 September, 2002 June, 2002 Sale Price ($) $5,510,000 $24,900,000 $6,550,000 Net Rentable Area (SF) 102,510 357,120 227,408 Number of Units 90 360 244 Price Per Unit $61,222 $69,167 $26,844 Year Built 1998 1997 1972 Land Area (Acre) 9.7100 26.3600 18.1100 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 12-2001 0% 09-2002 0% 06-2002 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $61,222 $69,167 $26,844 Location Comparable 0% Comparable 0% Comparable 0% Number of Units 90 -20% 360 -5% 244 -10% Quality / Appeal Superior -15% Superior -10% Comparable 0% Age / Condition 1998 / Good -25% 1997 / Very Good -45% 1972 / Good 0% Occupancy at Sale 92% 0% 90% 0% 91% 0% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 1,139 5% 992 0% 932 0% PHYSICAL ADJUSTMENT -55% -60% -10% FINAL ADJUSTED VALUE ($/UNIT) $27,550 $27,667 $24,160
VALUE RANGE (PER UNIT) $23,045 TO $27,667 MEAN (PER UNIT) $25,784 MEDIAN (PER UNIT) $26,499 VALUE CONCLUSION (PER UNIT) $26,000
VALUE INDICATED BY SALES COMPARISON APPROACH $12,272,000 ROUNDED $12,300,000
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 NOB HILL VILLA, NASHVILLE, TENNESSEE NOI PER UNIT COMPARISON
SALE PRICE NOI/ SUBJECT NOI COMPARABLE NO. OF ---------- -------- -------------- ADJUSTMENT INDICATED NO. UNITS PRICE/UNIT OAR NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT --------------------------------------------------------------------------------------------------------------------------------- I-1 179 $ 5,500,000 8.39% $ 461,250 $1,157,374 0.952 $29,239 $ 30,726 $ 2,577 $ 2,452 I-2 262 $13,885,700 10.53% $1,461,927 $1,157,374 0.439 $23,290 $ 52,999 $ 5,580 $ 2,452 I-3 90 $ 5,510,000 9.19% $ 506,460 $1,157,374 0.436 $26,677 $ 61,222 $ 5,627 $ 2,452 I-4 360 $24,900,000 9.04% $2,250,600 $1,157,374 0.392 $27,129 $ 69,167 $ 6,252 $ 2,452 I-5 244 $ 6,550,000 8.37% $ 548,150 $1,157,374 1.091 $29,300 $ 26,844 $ 2,247 $ 2,452
PRICE/UNIT
Low High Average Median $23,290 $29,300 $27,127 $27,129
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 27,000 Number of Units 472 Value Based on NOI Analysis $12,744,000 Rounded $12,700,000
The adjusted sales indicate a range of value between $23,290 and $29,300 per unit, with an average of $27,127 per unit. Based on the subject's competitive position within the improved sales, a value of $27,000 per unit is estimated. This indicates an "as is" market value of $12,700,000 (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 NOB HILL VILLA, NASHVILLE, TENNESSEE EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON
SALE PRICE COMPARABLE NO. OF ---------- EFFECTIVE OPERATING SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM ---------------------------------------------------------------------------------------------------------------------------------- I-1 179 $ 5,500,000 $ 857,627 $ 396,377 46.22% 6.41 $ 30,726 I-2 262 $13,885,700 $ 2,881,938 $1,420,011 49.27% 4.82 $ 52,999 I-3 90 $ 5,510,000 $ 881,600 $ 375,140 42.55% 6.25 $ 61,222 53.89% I-4 360 $24,900,000 $ 3,775,161 $1,524,561 40.38% 6.60 $ 69,167 I-5 244 $ 6,550,000 $ 1,050,259 $ 502,109 47.81% 6.24 $ 26,844
EGIM
Low High Average Median 4.82 6.60 6.06 6.25
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 4.50 Subject EGI $ 2,765,952 Value Based on EGIM Analysis $12,446,784 Rounded $12,400,000 Value Per Unit $ 26,271
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 53.89% before reserves. The comparable sales indicate a range of expense ratios from 40.38% to 49.27%, while their EGIMs range from 4.82 to 6.60. Overall, we conclude to an EGIM of 4.50, which results in an "as is" value estimate in the EGIM Analysis of $12,400,000. 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 $12,400,000. Price Per Unit $12,300,000 NOI Per Unit $12,700,000 EGIM Analysis $12,400,000 Sales Comparison Conclusion $12,400,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 -1A10 650 $426 $0.66 97.0% 2Br/2Ba -2A20 950 $540 $0.57 88.3%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 NOB HILL VILLA, NASHVILLE, TENNESSEE
COMPARABLE RENTS ---------------------------------------------- R-1 R-2 R-3 R-4 R-5 ---------------------------------------------- South Welch Dominion Brook Bend House Sunrise 380 Harding ---------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT ---------------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly Slightly DESCRIPTION TYPE RENT RENT Inferior Similar Superior Inferior Similar MIN MAX MEDIAN AVERAGE ----------------------------------------------------------------------------------------------------------------------------------- Monthly Rent 1Br/1Ba -1A10 $ 426 $ 410 $ 447 $ 416 $ 475 $ 442 $ 460 $ 416 $ 475 $ 447 $ 448 Unit Area (SF) 650 650 650 660 678 594 656 594 678 656 648 Monthly Rent Per Sq. Ft. $ 0.66 $ 0.63 $ 0.69 $0.63 $ 0.70 $0.74 $ 0.70 $0.63 $ 0.74 $ 0.70 $ 0.69 Monthly Rent 2Br/2Ba -2A20 $ 540 $ 499 $ 518 $ 556 $ 575 $ 603 $ 518 $ 603 $ 566 $ 563 Unit Area (SF) 950 950 925 916 936 1,051 916 1,051 931 957 Monthly Rent Per Sq. Ft. $ 0.57 $ 0.53 $ 0.56 $0.61 $ 0.61 $ 0.57 $0.56 $ 0.61 $ 0.59 $ 0.59
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows: GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area ----------------------- Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income ------------------------------------------------------------------------------------------------------- 1Br/1Ba -1A10 232 650 $420 $0.65 $ 97,440 $1,169,280 2Br/2Ba -2A20 240 950 $530 $0.56 $127,200 $1,526,400 Total $224,640 $2,695,680
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 NOB HILL VILLA, NASHVILLE, TENNESSEE SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL FISCAL FISCAL YEAR 2000 YEAR 2001 YEAR 2002 -------------------- -------------------- -------------------- DESCRIPTION ACTUAL ACTUAL ACTUAL -------------------- -------------------- -------------------- TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT --------------------------------------------------------------------------------------------- Revenues Rental Income $2,968,588 $ 6,289 $3,030,079 $ 6,420 $2,821,823 $ 5,978 Vacancy $ 173,776 $ 368 $ 260,870 $ 553 $ 259,134 $ 549 Credit Loss/Concessions $ 64,309 $ 136 $ 142,061 $ 301 $ 39,774 $ 84 Subtotal $ 238,085 $ 504 $ 402,931 $ 854 $ 298,908 $ 633 Laundry Income $ 52,699 $ 112 $ 77,583 $ 164 $ 56,300 $ 119 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 120,712 $ 256 $ 113,358 $ 240 $ 290,811 $ 616 Subtotal Other Income $ 173,411 $ 367 $ 190,941 $ 405 $ 347,111 $ 735 Effective Gross Income $2,903,914 $ 6,152 $2,818,089 $ 5,971 $2,870,026 $ 6,081 Operating Expenses Taxes $ 204,648 $ 434 $ 222,121 $ 471 $ 224,697 $ 476 Insurance $ 49,391 $ 105 $ 75,976 $ 161 $ 83,783 $ 178 Utilities $ 316,579 $ 671 $ 300,073 $ 636 $ 362,071 $ 767 Repair & Maintenance $ 144,408 $ 306 $ 174,070 $ 369 $ 140,056 $ 297 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 76,752 $ 163 $ 94,539 $ 200 $ 91,314 $ 193 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 28,755 $ 61 $ 30,078 $ 64 $ 28,457 $ 60 General Administrative $ 318,329 $ 674 $ 393,973 $ 835 $ 329,838 $ 699 Management $ 147,565 $ 313 $ 151,550 $ 321 $ 137,626 $ 292 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Total Operating Expenses $1,286,427 $ 2,725 $1,442,380 $ 3,056 $1,397,842 $ 2,962 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Net Income $1,617,487 $ 3,427 $1,375,709 $ 2,915 $1,472,184 $ 3,119
FISCAL YEAR 2003 ANNUALIZED 2003 -------------------- -------------------- DESCRIPTION MANAGEMENT BUDGET PROJECTION AAA PROJECTION -------------------- -------------------- ------------------------------ TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % ------------------------------------------------------------------------------------------------------ Revenues Rental Income $2,709,206 $ 5,740 $2,692,512 $ 5,704 $2,695,680 $ 5,711 100.0% Vacancy $ 151,068 $ 320 $ 329,452 $ 698 $ 215,654 $ 457 8.0% Credit Loss/Concessions $ 12,100 $ 26 $ 134,868 $ 286 $ 53,914 $ 114 2.0% Subtotal $ 163,168 $ 346 $ 464,320 $ 984 $ 269,568 $ 571 10.0% Laundry Income $ 56,384 $ 119 $ 58,608 $ 124 $ 56,640 $ 120 2.1% Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 303,200 $ 642 $ 405,136 $ 858 $ 283,200 $ 600 10.5% Subtotal Other Income $ 359,584 $ 762 $ 463,744 $ 983 $ 339,840 $ 720 12.6% Effective Gross Income $2,905,622 $ 6,156 $2,691,936 $ 5,703 $2,765,952 $ 5,860 100.0% Operating Expenses Taxes $ 224,696 $ 476 $ 224,696 $ 476 $ 224,200 $ 475 8.1% Insurance $ 92,592 $ 196 $ 103,548 $ 219 $ 94,400 $ 200 3.4% Utilities $ 345,880 $ 733 $ 385,940 $ 818 $ 365,800 $ 775 13.2% Repair & Maintenance $ 154,460 $ 327 $ 282,060 $ 598 $ 188,800 $ 400 6.8% Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Landscaping $ 98,364 $ 208 $ 143,508 $ 304 $ 94,400 $ 200 3.4% Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 28,622 $ 61 $ 43,928 $ 93 $ 30,680 $ 65 1.1% General Administrative $ 326,394 $ 692 $ 430,856 $ 913 $ 354,000 $ 750 12.8% Management $ 136,921 $ 290 $ 121,768 $ 258 $ 138,298 $ 293 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Total Operating Expenses $1,407,929 $ 2,983 $1,736,304 $ 3,679 $1,490,578 $ 3,158 53.9% Reserves $ 0 $ 0 $ 0 $ 0 $ 118,000 $ 250 7.9% Net Income $1,497,693 $ 3,173 $ 955,632 $ 2,025 $1,157,374 $ 2,452 41.8%
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 10% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 NOB HILL VILLA, NASHVILLE, TENNESSEE SUMMARY OF OVERALL CAPITALIZATION RATES
Comp. No. Sale Date Occup. Price/Unit OAR ------------------------------------------------------ 1-1 May-01 94% $30,726 8.39% 1-2 Aug-01 93% $52,999 10.53% 1-3 Dec-01 92% $61,222 9.19% 1-4 Sep-02 90% $69,167 9.04% 1-5 Jun-02 91% $26,844 8.37% High 10.53% Low 8.37% Average 9.10%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.50%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 10.50%. 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 12.00%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 12.00% indicates a value of $12,400,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 NOB HILL VILLA, NASHVILLE, TENNESSEE approximately 38% 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 NOB HILL VILLA, NASHVILLE, TENNESSEE NOB HILL VILLA
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 ----------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $2,695,680 $2,776,550 $2,859,847 $2,945,642 $3,034,012 $3,125,032 Vacancy $ 215,654 $ 222,124 $ 228,788 $ 235,651 $ 242,721 $ 250,003 Credit Loss $ 53,914 $ 55,531 $ 57,197 $ 58,913 $ 60,680 $ 62,501 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- Subtotal $ 269,568 $ 277,655 $ 285,985 $ 294,564 $ 303,401 $ 312,503 Laundry Income $ 56,640 $ 58,339 $ 60,089 $ 61,892 $ 63,749 $ 65,661 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 283,200 $ 291,696 $ 300,447 $ 309,460 $ 318,744 $ 328,306 -------------------------------------------------------------------------------- Subtotal Other Income $ 339,840 $ 350,035 $ 360,536 $ 371,352 $ 382,493 $ 393,968 -------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $2,765,952 $2,848,931 $2,934,398 $3,022,430 $3,113,103 $3,206,496 OPERATING EXPENSES: Taxes $ 224,200 $ 230,926 $ 237,854 $ 244,989 $ 252,339 $ 259,909 Insurance $ 94,400 $ 97,232 $ 100,149 $ 103,153 $ 106,248 $ 109,435 Utilities $ 365,800 $ 376,774 $ 388,077 $ 399,720 $ 411,711 $ 424,062 Repair & Maintenance $ 188,800 $ 194,464 $ 200,298 $ 206,307 $ 212,496 $ 218,871 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 94,400 $ 97,232 $ 100,149 $ 103,153 $ 106,248 $ 109,435 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 30,680 $ 31,600 $ 32,548 $ 33,525 $ 34,531 $ 35,567 General Administrative $ 354,000 $ 364,620 $ 375,559 $ 386,825 $ 398,430 $ 410,383 Management $ 138,298 $ 142,447 $ 146,720 $ 151,122 $ 155,655 $ 160,325 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $1,490,578 $1,535,295 $1,581,354 $1,628,794 $1,677,658 $1,727,988 Reserves $ 118,000 $ 121,540 $ 125,186 $ 128,942 $ 132,810 $ 136,794 -------------------------------------------------------------------------------- NET OPERATING INCOME $1,157,374 $1,192,096 $1,227,859 $1,264,694 $1,302,635 $1,341,714 Operating Expense Ratio (% of EGI) 53.9% 53.9% 53.9% 53.9% 53.9% 53.9% Operating Expense Per Unit $ 3,158 $ 3,253 $ 3,350 $ 3,451 $ 3,554 $ 3,661
YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 --------------------------------------------------------------------------------------------------------- REVENUE Base Rent $3,218,783 $3,315,346 $3,414,807 $3,517,251 $3,622,769 Vacancy $ 257,503 $ 265,228 $ 273,185 $ 281,380 $ 289,821 Credit Loss $ 64,376 $ 66,307 $ 68,296 $ 70,345 $ 72,455 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ Subtotal $ 321,878 $ 331,535 $ 341,481 $ 351,725 $ 362,277 Laundry Income $ 67,631 $ 69,660 $ 71,750 $ 73,902 $ 76,119 GarageRevenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 338,156 $ 348,300 $ 358,749 $ 369,512 $ 380,597 ------------------------------------------------------------------ Subtotal Other Income $ 405,787 $ 417,960 $ 430,499 $ 443,414 $ 456,717 ------------------------------------------------------------------ EFFECTIVE GROSS INCOME $3,302,691 $3,401,772 $3,503,825 $3,608,940 $3,717,208 OPERATING EXPENSES: Taxes $ 267,707 $ 275,738 $ 284,010 $ 292,530 $ 301,306 Insurance $ 112,719 $ 116,100 $ 119,583 $ 123,171 $ 126,866 Utilities $ 436,784 $ 449,888 $ 463,384 $ 477,286 $ 491,605 Repair & Maintenance $ 225,437 $ 232,200 $ 239,166 $ 246,341 $ 253,731 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 112,719 $ 116,100 $ 119,583 $ 123,171 $ 126,866 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 36,634 $ 37,733 $ 38,865 $ 40,030 $ 41,231 GeneralAdministrative $ 422,695 $ 435,375 $ 448,437 $ 461,890 $ 475,746 Management $ 165,135 $ 170,089 $ 175,191 $ 180,447 $ 185,860 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ TOTAL OPERATING EXPENSES $1,779,828 $1,833,222 $1,888,219 $1,944,866 $2,003,212 Reserves $ 140,898 $ 145,125 $ 149,479 $ 153,963 $ 158,582 ------------------------------------------------------------------ NET OPERATING INCOME $1,381,966 $1,423,425 $1,466,127 $1,510,111 $1,555,414 Operating Expense Ratio (% of EGI) 53.9% 53.9% 53.9% 53.9% 53.9% Operating Expense Per Unit $ 3,771 $ 3,884 $ 4,000 $ 4,120 $ 4,244
Estimated Stabilized NOI $1,157,374 Sales Expense Rate 2.00% Months to Stabilized 1 Discount Rate 12.00% Stabilized Occupancy 92.0% Terminal Cap Rate 10.50%
"DCF" VALUE ANALYSIS Gross Residual Sale Price $ 14,813,471 Deferred Maintenance $ 0 Less: Sales Expense $ 296,269 Add: Excess Land $ 0 ------------ Net Residual Sale Price $ 14,517,201 Other Adjustments $ 0 ----------- PV of Reversion $ 4,674,150 Value Indicated By "DCF" $12,416,546 Add: NPV of NOI $ 7,742,395 Rounded $12,400,000 ------------ PV Total $ 12,416,546
"DCF" VALUE SENSITIVITY TABLE
TOTAL VALUE DISCOUNT RATE 11.50% 11.75% 12.00% 12.25% 12.50% 10.00% $13,056,920 $12,851,386 $12,650,253 $12,453,413 $12,260,758 10.25% $12,931,739 $12,728,977 $12,530,549 $12,336,348 $12,146,269 10.50% $12,812,518 $12,612,397 $12,416,546 $12,224,859 $12,037,233 TERMINAL CAP RATE 10.75% $12,698,843 $12,501,239 $12,307,845 $12,118,554 $11,933,267 11.00% $12,590,335 $12,395,134 $12,204,084 $12,017,082 $11,834,027
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 9.50% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 NOB HILL VILLA, NASHVILLE, TENNESSEE Nob Hill Villa
TOTAL PER SQ. FT. PER UNIT %OF EGI --------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 2,695,680 $ 7.12 $ 5,711 Less: Vacancy & Collection 10.00% $ 269,568 $ 0.71 $ 571 Loss Plus: Other Income Laundry Income $ 56,640 $ 0.15 $ 120 2.05% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 283,200 $ 0.75 $ 600 10.24% ----------------------------------------------------- Subtotal Other Income $ 339,840 $ 0.90 $ 720 12.29% EFFECTIVE GROSS INCOME $ 2,765,952 $ 7.30 $ 5,860 OPERATING EXPENSES: Taxes $ 224,200 $ 0.59 $ 475 8.11% Insurance $ 94,400 $ 0.25 $ 200 3.41% Utilities $ 365,800 $ 0.97 $ 775 13.23% Repair & Maintenance $ 188,800 $ 0.50 $ 400 6.83% Cleaning $ 0 $ 0.00 $ 0 0.00% Landscaping $ 94,400 $ 0.25 $ 200 3.41% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 30,680 $ 0.08 $ 65 1.11% General Administrative 5.00% $ 354,000 $ 0.93 $ 750 12.80% Management $ 138,298 $ 0.37 $ 293 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 1,490,578 $ 3.93 $ 3,158 53.89% RESERVES $ 118,000 $ 0.31 $ 250 4.27% ----------------------------------------------------- NET OPERATING INCOME $ 1,157,374 $ 3.06 $ 2,452 41.84% ----------------------------------------------------- "GOING IN" CAPITALIZATION RATE 9.50% VALUE INDICATION $12,182,888 $ 32.16 $25,811 "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $12,182,888 ROUNDED $12,200,000 $ 32.21 $25,847 -----------------------------------------------------
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 NOB HILL VILLA, NASHVILLE, TENNESSEE DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF ------------------------------------------------------------------------ 8.75% $13,227,136 $13,200,000 $27,966 $34.85 9.00% $12,859,716 $12,900,000 $27,331 $34.05 9.25% $12,512,156 $12,500,000 $26,483 $33.00 9.50% $12,182,888 $12,200,000 $25,847 $32.21 9.75% $11,870,507 $11,900,000 $25,212 $31.41 10.00% $11,573,744 $11,600,000 $24,576 $30.62 10.25% $11,291,458 $11,300,000 $23,941 $29.83
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $12,200,000. 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 $12,400,000 Direct Capitalization Method $12,200,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $12,400,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 $12,400,000 Income Approach $12,400,000 Reconciled Value $12,400,000
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 5, 2003 the market value of the fee simple estate in the property is: $12,400,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA NOB HILL VILLA, NASHVILLE, TENNESSEE ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A NOB HILL VILLA, NASHVILLE, TENNESSEE EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A NOB HILL VILLA, NASHVILLE, TENNESSEE SUBJECT PHOTOGRAPHS [PICTURE OF UNIT TYPE FACADE] [PICTURE OF UNIT TYPE] [PICTURE OF BEDROOM] [PICTURE OF BEDROOM] [PICTURE OF LIVING ROOM AREA] [PICTURE OF LIVING ROOM AREA] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A NOB HILL VILLA, NASHVILLE, TENNESSEE SUBJECT PHOTOGRAPHS [PICTURE OF POOL] [PICTURE OF FITNESS CENTER] [PICTURE OF SITE IMPROVEMENTS] [PICTURE OF MAIN ENTRANCE] [PICTURE OF WALLACE ROAD-SOUTH] [PICTURE OF WALLACE ROAD-NORTH] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B NOB HILL VILLA, NASHVILLE, TENNESSEE EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B NOB HILL VILLA, NASHVILLE, TENNESSEE PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-I COMPARABLE I-2 COMPARABLE I-3 PRESTIGE POINTE BRENTWOOD OAKS KEYSTONE FARMS 200 Paragon Place 100 Belle Valley Drive 5360 Edmonson Pike Nashville, TN Nashville, TN Nashville, TN [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 PRESERVE AT BRENTWOOD BERKLEY RIDGE 370 Oakley Drive 308 Plus Park Blvd Nashville, TN Nashville, TN [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B NOB HILL VILLA, NASHVILLE, TENNESSEE SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 Property Name Nob Hill Villa South Brook Management Company AIMCO Volunteer Properties LOCATION: Address 180 Wallace Road 5101 Lindbar Drive City, State Nashville, Tennessee Nashville, TN County Davidson Davidson Proximity to Subject Approx. 0.6 miles east of subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 378,800 181,640 Year Built 1971 1973 Effective Age 25 10 Building Structure Type Brick & wood siding walls; asphalt shingle Brick & wood siding walls; asphalt shingle roof roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 472 239 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. Rent 1 1Br/1Ba-1A10 650 232 $ 426 1 1Br/1Ba 650 143 $ 447 2 2Br/2Ba-2A20 950 240 $ 540 2 2 Br/2Ba 925 96 $ 518 Average Unit Size (SF) 803 760 Unit Breakdown: Efficiency 0% 2-Bedroom 39% Efficiency 0% 2-Bedroom 41% 1-Bedroom 61% 3-Bedroom 0% 1-Bedroom 59% 3-Bedroom 0% CONDITION: Good Good APPEAL: Average Fair AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony W/D Connection Balcony W/D Connection X Fireplace Other Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X 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 X Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track Business Office X Gym Room Gym Room OCCUPANCY: 93% 94% LEASING DATA: Available Leasing Terms 6 to 12 months 3 to 12 months Concessions $99 deposit and no application fee $300 off first month Pet Deposit $300/$20Mnth $300 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash Water Trash Confirmation Tracy Crowe/Property Manager Tracy Thompson/Property Manager Telephone Number 615.834.0694 615.834.8340 NOTES: Renovated in 1992 COMPARISON TO SUBJECT: INFERIOR COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 Property Name Welch Bend Dominion House Management Company Freeman Webb First Management Services LOCATION: Address 100 Tanglewood Ct 5099 Linbar Drive City, State Nashville, TN Nashville, TN County Davidson Davidson Proximity to Subject Approx. .8 miles west of subject Approx. 0.61 miles east of subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 383,834 169,000 Year Built 1976 1973 Effective Age 27 25 Building Structure Type Brick & wood siding walls; asphalt shingle Brick & wood siding walls; asphalt shingle roof roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 478 200 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Br/1Ba 660 210 $416 1 1Br/1Ba 678 76 $475 2 2Br/2Ba 868 228 $533 2 2Br/2Ba 936 114 $575 2 2 Br/2.5Ba 1,188 40 $690 3Br/2Ba 1,081 10 $785 Average Unit Size (SF) 803 845 Unit Breakdown: Efficiency 0% 2-Bedroom 57% Efficiency 0% 2-Bedroom 57% 1-Bedroom 43% 3-Bedroom 0% 1-Bedroom 38% 3-Bedroom 5% CONDITION: Good Good APPEAL: Average Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony X W/D Connection X Balcony X W/D Connection 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 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 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 Gym Room X Gym Room OCCUPANCY: 94% 99% LEASING DATA: Available Leasing Terms 6 to 12 months 6 to 12 months Concessions 1 month None Pet Deposit No Pets $250 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash Water Trash Confirmation Cindy Myers/Property Manager Wayne Woodside/Property Manager Telephone Number 615.833.5643 615.833.0218 NOTES: None None Similar Slightly Superior COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 Property Name Sunrise 380 Harding Management Company First Management Services Freeman Webb LOCATION: Address 189 Wallace Road 380 Harding Place City, State Nashville, TN Nashville, TN County Davidson Davidson Proximity to Subject Less than 0.2 miles south of subject Approx. 0.7 miles northwest of subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 118,800 248,005 Year Built 1974 1974 Effective Age 10 18 Building Structure Type Brick & wood siding walls; asphalt shingle Brick & wood siding walls; asphalt shingle roof roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 200 160 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Br/1Ba 594 200 $442 1 1Br/1Ba 656 79 $460 2 2Br/2Ba 1,051 71 $603 3Br/2.5Ba 1,500 10 $740 Average Unit Size (SF) 594 884 Unit Breakdown: Efficiency 0% 2-Bedroom 0% Efficiency 0% 2-Bedroom 44% 1-Bedroom 100% 3-Bedroom 0% 1-Bedroom 49% 3-Bedroom 7% CONDITION: Good Good APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony W/D Connection 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 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 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% 96% LEASING DATA: Available Leasing Terms 6 to 12 months 9 to 12 months Concessions Reeduced rates for select units $100 off first month's rent Pet Deposit $250 $250 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation Jim Crowson/Property Manager Ann Mead/Property Manager Telephone Number 615.333.7733 615.832.6847 NOTES: None None Slightly Inferior Similar
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B NOB HILL VILLA, NASHVILLE, TENNESSEE PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 SOUTH BROOK WELCH BEND DOMINION HOUSE 5101 Lindbar Drive 100 Tanglewood Ct 5099 Linbar Drive Nashville, TN Nashville, TN Nashville, TN [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 SUNRISE 380 HARDING 189 Wallace Road 380 Harding Place Nashville, TN Nashville, TN [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C NOB HILL VILLA, NASHVILLE, TENNESSEE EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 pages) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C NOB HILL VILLA, NASHVILLE, TENNESSEE 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 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 Tennessee Temporary Practice Permit #00053573 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E NOB HILL VILLA, NASHVILLE, TENNESSEE EXHIBIT E QUALIFICATIONS OF APPRAISER (2 pages) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E NOB HILL VILLA, NASHVILLE, TENNESSEE 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 NOB HILL VILLA, NASHVILLE, TENNESSEE 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 Candidate AFFILIATIONS 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. NOB HILL VILLA, NASHVILLE, TENNESSEE GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. NOB HILL VILLA, NASHVILLE, TENNESSEE 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.