EX-99.(C)(5) 7 d07246a2exv99wxcyx5y.txt APPRAISAL OF VILLAGE IN THE WOODS VILLAGE IN THE WOODS 11800 GRANT ROAD CYPRESS, TEXAS MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 12, 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 14, 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: VILLAGE IN THE WOODS 11800 GRANT ROAD CYPRESS, HARRIS COUNTY, TEXAS In accordance with your authorization, we have completed the appraisal of the above-referenced property. This complete appraisal is intended to report our analysis and conclusions in a summary format. The subject property consists of an apartment project having 530 units with a total of 518,808 square feet of rentable area. The improvements were built in 1983. The improvements are situated on 22.627 acres. Overall, the improvements are in fair condition. As of the date of this appraisal, the subject property is 90% 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 VILLAGE IN THE WOODS, CYPRESS, TEXAS The opinions expressed in this appraisal cover letter can only be completely understood by reading the narrative report, addenda, and other data, which is attached. The appraisal is subject to the attached general assumptions and limiting conditions and general service conditions. As a result of our investigation, it is our opinion that the fee simple market value of the subject, effective May 12, 2003 is: ($18,800,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Frank Fehribach July 14, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group Texas State Certified General Real Estate Appraiser #1323954-G Report By: Tiffany B. Roberts Texas Appraiser Trainee #TX-1329671-T AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 VILLAGE IN THE WOODS, CYPRESS, TEXAS TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary ........................................................ 4 Introduction ............................................................. 9 Area Analysis ............................................................ 11 Market Analysis .......................................................... 14 Site Analysis ............................................................ 16 Improvement Analysis ..................................................... 16 Highest and Best Use ..................................................... 17 VALUATION Valuation Procedure ...................................................... 18 Sales Comparison Approach ................................................ 20 Income Capitalization Approach ........................................... 25 Reconciliation and Conclusion ............................................ 36 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 VILLAGE IN THE WOODS, CYPRESS, TEXAS EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Village in the Woods LOCATION: 11800 Grant Road Cypress, Texas INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: Fee Simple Estate DATE OF VALUE: May 12, 2003 DATE OF REPORT: July 14, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 22.627 acres, or 985,632 square feet Assessor Parcel No.: 044-016-000-040 Floodplain: Community Panel No. 48201C0430K (April 20, 2000) Flood Zone X, AE, an area inside the floodplain. Zoning: None BUILDING: No. of Units: 530 Units Total NRA: 518,808 Square Feet Average Unit Size: 979 Square Feet Apartment Density: 23.4 units per acre Year Built: 1983 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ----------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income --------------- ------ -------- ------ -------- ---------- 1A10 - Aspen 679 $ 500 $ 0.74 $ 44,000 $ 528,000 2A20 - Juniper 967 $ 565 $ 0.58 $ 54,240 $ 650,880 2B20 - Magnolia 996 $ 600 $ 0.60 $ 93,600 $1,123,200 2C20 - Cypress 1,136 $ 710 $ 0.63 $ 61,060 $ 732,720 3A20 - Elm 1,088 $ 750 $ 0.69 $ 78,000 $ 936,000 -------- ---------- Total $330,900 $3,970,800 ======== ==========
OCCUPANCY: 90% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 20 Years REMAINING ECONOMIC LIFE: 25 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 VILLAGE IN THE WOODS, CYPRESS, TEXAS SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - OFFICE TYPICAL BUILDING EXTERIOR AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 VILLAGE IN THE WOODS, CYPRESS, TEXAS NEIGHBORHOOD MAP [MAP] HIGHEST AND BEST USE: As Vacant: Hold for future multi-family development As Improved: Continuation as its current use METHOD OF VALUATION: In this instance, the Sales Comparison and Income Approaches to value were utilized. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7 VILLAGE IN THE WOODS, CYPRESS, TEXAS PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
Amount $/Unit ------ ------ DIRECT CAPITALIZATION Potential Rental Income $3,970,800 $7,492 Effective Gross Income $3,899,628 $7,358 Operating Expenses $1,767,185 $3,334 45.3% of EGI Net Operating Income: $1,946,943 $3,673 Capitalization Rate 10.00% DIRECT CAPITALIZATION VALUE $19,000,000 * $35,849 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 14% Stabilized Vacancy & Collection Loss: 9% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 10.50% Discount Rate 11.50% Selling Costs 3.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $18,800,000 * $35,472 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $18,800,000 $35,472 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $23,512 to $36,500 Range of Sales $/Unit (Adjusted) $32,917 to $39,100 VALUE INDICATION - PRICE PER UNIT $18,900,000 * $35,660 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales N/A to N/A Selected EGIM for Subject Not Utilized Subject's Projected EGI $3,899,628 EGIM ANALYSIS CONCLUSION NOT UTILIZED * NOT UTILIZED NOI PER UNIT ANALYSIS CONCLUSION $19,100,000 * $36,038 / UNIT RECONCILED SALES COMPARISON VALUE $19,000,000 $35,849 / 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 VILLAGE IN THE WOODS, CYPRESS, TEXAS PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $18,900,000 NOI Per Unit $19,100,000 EGIM Multiplier Not Utilized INDICATED VALUE BY SALES COMPARISON $19,000,000 $35,849 / UNIT INCOME APPROACH: Direct Capitalization Method: $19,000,000 Discounted Cash Flow Method: $18,800,000 INDICATED VALUE BY THE INCOME APPROACH $18,800,000 $35,472 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $18,800,000 $35,472 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 VILLAGE IN THE WOODS, CYPRESS, TEXAS INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 11800 Grant Road, Cypress, Harris County, Texas. Cypress identifies it as 044-016-000-040. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Tiffany B. Roberts on May 12, 2003. Frank Fehribach, MAI has not made a personal inspection of the subject property. Tiffany B. Roberts performed the research, valuation analysis and wrote the report. Frank Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach, MAI and Tiffany B. Roberts 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 12, 2003. The date of the report is July 14, 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 VILLAGE IN THE WOODS, CYPRESS, TEXAS defined in The Dictionary of Real Estate Appraisal, 3rd ed. (Chicago: Appraisal Institute, 1993), as: "Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat." MARKETING/EXPOSURE PERIOD MARKETING PERIOD: 6 to 12 months EXPOSURE PERIOD: 6 to 12 months HISTORY OF THE PROPERTY Ownership in the subject property is currently vested in Century Properties Fund Multipoint. 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 VILLAGE IN THE WOODS, CYPRESS, TEXAS AREA / NEIGHBORHOOD ANALYSIS NEIGHBORHOOD ANALYSIS A neighborhood is a group of complementary land uses. The function of the neighborhood analysis is to describe the immediate surrounding environs. The subject is located in the city of Cypress, Texas. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being single family residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Highway 249 West - Grant Road South - Cypress North Houston North - Louetta Road MAJOR EMPLOYERS Major employers in the subject's area include Hewlett Packard. The overall economic outlook for the area is considered very 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 VILLAGE IN THE WOODS, CYPRESS, TEXAS NEIGHBORHOOD DEMOGRAPHICS
AREA -------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA --------------------------- ------------ ------------ ------------ ---------- POPULATION TRENDS Current Population 10,349 70,806 168,531 4,331,861 5-Year Population 10,998 79,545 194,672 4,734,261 % Change CY-5Y 6.3% 12.3% 15.5% 9.3% Annual Change CY-5Y 1.3% 2.5% 3.1% 1.9% HOUSEHOLDS Current Households 3,855 25,075 60,227 1,511,658 5-Year Projected Households 4,142 28,159 69,615 1,636,192 % Change CY - 5Y 7.4% 12.3% 15.6% 8.2% Annual Change CY-5Y 1.5% 2.5% 3.1% 1.6% INCOME TRENDS Median Household Income $ 93,410 $ 86,115 $ 85,556 $ 44,047 Per Capita Income $ 34,359 $ 31,191 $ 31,294 $ 22,629 Average Household Income $ 92,657 $ 87,961 $ 87,758 $ 64,844
Source: Demographics Now The subject neighborhood's population is expected to show increases above that of the region. The immediate market offers superior income levels as compared to the broader market. The following table illustrates the housing statistics in the subject's immediate area, as well as the MSA region. HOUSING TRENDS
AREA -------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA --------------------------- ------------ ------------ ------------ ---------- HOUSING TRENDS % of Households Renting 24.17% 23.06% 24.70% 35.39% 5-Year Projected % Renting 22.56% 22.00% 24.19% 34.24% % of Households Owning 70.78% 72.85% 71.62% 53.61% 5-Year Projected % Owning 72.71% 74.26% 72.51% 55.41%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 VILLAGE IN THE WOODS, CYPRESS, TEXAS SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Single family South - Commercial, church with private school East - Retail center including local and national tenants such as La Maria Mexican Restaurant, Dollar General, Mail Plus, Century 21 West - Retail center including local medical tenants, single family CONCLUSIONS The subject is well located within the city of Cypress. 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 very favorable with a good economic base. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 14 VILLAGE IN THE WOODS, CYPRESS, TEXAS MARKET ANALYSIS The subject property is located in the city of Cypress in Harris County. The overall pace of development in the subject's market is more or less decreasing. Any new construction added to the subject's market will not compete with the subject. A new class A community has been constructed at the corner of Grant Road and Jones Road, however due to the quality, this property is not expected to compete with the subject property. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket ------ ------ --------- 4Q01 N/A 3.5% 1Q02 N/A 4.9% 2Q02 N/A 5.0% 3Q02 N/A 5.6% 4Q02 7.1% 7.0% 1Q03 8.1% 8.1%
Source: REIS Houston, Apartment: Cypress/Fairbanks - 1st Quarter 2003 SubTrend Futures Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has outperformed the overall market. Historically, the subject's submarket, when compared to the Houston Metro area, has usually enjoyed a lower vacancy rate. The subject was constructed in 1983. The communities constructed between 1980 and 1989 have an average vacancy rate of 8.7% in the 1st Quarter 2003. The overall vacancy of the submarket is not expected to improve significantly until 2007. Market rents in the subject's market have been following a decreasing trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change ------ ------ -------- --------- -------- 4Q01 N/A - $ 711 - 1Q02 N/A N/A $ 704 -1.0% 2Q02 N/A N/A $ 706 0.3% 3Q02 N/A N/A $ 706 0.0% 4Q02 N/A N/A $ 698 -1.1% 1Q03 N/A N/A $ 696 -0.3%
Source: REIS Houston, Apartment: Cypress/Fairbanks - 1st Quarter 2003 SubTrend Futures The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 VILLAGE IN THE WOODS, CYPRESS, TEXAS COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject ------- -------------------- ----- ----- ---------- -------------------- R-1 Brandon Oaks 190 95% Unknown 1 mile south R-2 Woodedge Apartments 126 80% 1981 1 mile south R-3 Willow Green 332 98% 1995 3 miles south R-4 Central Park Regency 348 93% 1983 1 mile south R-5 Copper Creek 300 N/A 1982 5 miles east Subject Village in the Woods 530 90% 1983
According to information obtained by REIS, the current average asking rent within the subject's submarket is $732. The submarket's average effective rent is currently $696 and is not expected to significantly improve until 2004. The subject's 1980 - 1989 category has an average asking rental rate of $643. This is $89 less than the average for the submarket. In terms of annual rental growth rates, the Cypress / Fairbanks submarket has had little growth when compared to the Houston Metro area. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 VILLAGE IN THE WOODS, CYPRESS, TEXAS PROPERTY DESCRIPTION SITE ANALYSIS Site Area 22.627 acres, or 985,632 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 Average Flood Zone: Community Panel 48201C0430K, dated April 20, 2000 Flood Zone Zone X, AE Zoning Not available, 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 --------------- ---------- ----------- ----------- ---------- -------- 044-016-000-040 $1,973,700 $12,806,300 $14,780,000 0.02872 $424,448
IMPROVEMENT ANALYSIS Year Built 1983 Number of Units 530 Net Rentable Area 518,808 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Brick or masonry Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, spa/jacuzzi, playground, sports court, laundry room, business office, and parking area. Unit Amenities Individual unit amenities include a balcony, 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 VILLAGE IN THE WOODS, CYPRESS, TEXAS Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) --------------- --------------- --------- 1A10 - Aspen 88 679 2A20 - Juniper 96 967 2B20 - Magnolia 156 996 2C20 - Cypress 86 1,136 3A20 - Elm 104 1,088
Overall Condition Fair Effective Age 20 years Economic Life 45 years Remaining Economic Life 25 years Deferred Maintenance The deferred maintenance at the subject property was estimated for a total amount of $115,000. HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1983 and consist of a 530-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 VILLAGE IN THE WOODS, CYPRESS, TEXAS THE VALUATION PROCEDURE There are three traditional approaches, which can be employed in establishing the market value of the subject property. These approaches and their applicability to the valuation of the subject are summarized as follows: THE COST APPROACH The application of the Cost Approach is based on the principle of substitution. This principle may be stated as follows: no one is justified in paying more for a property than that amount by which he or she can obtain, by purchase of a site and construction of a building, without undue delay, a property of equal desirability and utility. In the case of a new building, no deficiencies in the building should exist. In the case of income-producing real estate, the cost of construction plays a minor and relatively insignificant role in determining market value. The Cost Approach is typically only a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) where the cost of reproducing the improvements is easily and accurately quantified and there is no economic obsolescence. In all instances, the issue of an appropriate entrepreneurial profit - the reward for undertaking the risk of construction, remains a highly subjective factor especially in a market lacking significant speculative development. THE SALES COMPARISON APPROACH The Sales Comparison Approach is an estimate of value based upon a process of comparing recent sales of similar properties in the surrounding or competing areas to the subject property. Inherent in this approach is the principle of substitution. The application of this approach consists of comparing the subject property with similar properties of the same general type, which have been sold recently or currently are available for sale in competing areas. This comparative process involves judgment as to the similarity of the subject property and the comparable sale with respect to many value factors such as location, contract rent levels, quality of construction, reputation and prestige, age and condition, among others. The estimated value through this approach represents the probable price at which a willing seller would sell the subject property to a willing and knowledgeable buyer as of the date of value. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 19 VILLAGE IN THE WOODS, CYPRESS, TEXAS THE INCOME CAPITALIZATION APPROACH The theory of the Income Capitalization Approach is based on the premise that present value is the value of the cash flow and reversionary value the property will produce over a reasonable holding (ownership) period. The Discounted Cash Flow Analysis will convert equity cash flows (including cash flows and equity reversion) into a present value utilizing an internal rate of return (or discount rate). The Internal Rate of Return (IRR) will be derived from a comparison of alternate investments, a comparative analysis of IRR's used by recent buyers of similar properties, and a review of published industry surveys. The Direct Capitalization Analysis converts one year of income into an overall value using overall capitalization rates from similar sales. The overall rates take into consideration buyers assumptions of the market over the long-term. The results of the Income Capitalization Analysis are usually the primary value indicator for income producing properties. Investors expect a reasonable rate of return on their equity investment based on the ownership risks involved; this approach closely parallels the investment decision process. RECONCILIATION In this instance, we have completed the Sales Comparison and Income Capitalization Approaches to value. As an income producing property, the income approach is a primary approach to value. The Sales Comparison Approach is also considered reliable as investors are buying similar buildings in the market. Our research indicates that market participants are generally not buying, selling, investing, or lending with reliance placed on the methodology of the Cost Approach to establish the value. Therefore, we have decided that the Cost Approach is not a reliable indicator of value for the subject, and this approach has not been utilized. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 20 VILLAGE IN THE WOODS, CYPRESS, TEXAS SALES COMPARISON APPROACH Use of market or comparable sales requires the collection and analysis of comparable sales data. Similar properties recently sold are compared to the subject and adjusted based on any perceived differences. This method is based on the premise that the costs of acquiring a substitute property would tend to establish a value for the subject property. The premise suggests that if a substitute is unavailable in the market, the reliability of the approach may be subordinate to the other approaches. The reliance on substitute properties produces shortcomings in the validity of this approach. Geographic and demographic characteristics from each submarket restrict which sales may be selected. Recent sales with a similar physical characteristics, income levels, and location are usually limited. The sales we have identified, however, do establish general valuation parameters as well as provide support to our conclusion derived through the income approach method. The standard unit of comparison among similar properties is the sales price per unit and price per square foot of net rentable area. To accurately adjust prices to satisfy the requirements of the sales comparison approach, numerous calculations and highly subjective judgments would be required including consideration of numerous income and expense details for which information may be unreliable or unknown. The sales price per unit and square foot are considered relevant to the investment decision, but primarily as a parameter against which value estimates derived through the income approach can be judged and compared. In examining the comparable sales, we have applied a subjective adjustment analysis, which includes specific adjustments derived from our experience and consulting with the market participants. SALES COMPARISON ANALYSIS Detailed on the following pages are sales transactions involving properties located in the subject's competitive investment market. Photographs of the sale transactions are located in the Addenda. Following the summary of sales is an adjustment grid that is used to arrive at a value. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21 VILLAGE IN THE WOODS, CYPRESS, TEXAS SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 --------------------------------------------------------------------------------------------------------------------------- Property Name Village in the Woods Ashley Crest Willow Brook Crossing LOCATION: Address 11800 Grant Road 11900 Barwood Bend Drive 7150 Smiling Wood Lane City, State Cypress, Texas Houston, Texas Houston, Texas County Harris Harris Harris PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 518,808 133,104 152,746 Year Built 1983 1981 1982 Number of Units 530 168 208 Unit Mix: Type Total Type Total Type Total 1A10 - Aspen 88 1Br/1Ba 96 1Br/1Ba N/A 2A20 - Juniper 96 2Br/2Ba 72 2Br/2Ba N/A 2B20 - Magnolia 156 3Br/2Ba N/A 2C20 - Cypress 86 3A20 - Elm 104 Average Unit Size (SF) 979 792 734 Land Area (Acre) 22.6270 6.7500 7.0000 Density (Units/Acre) 23.4 24.9 29.7 Parking Ratio (Spaces/Unit) 2.08 1.48 Unknown Parking Type (Gr., Cov., etc.) Open Open, covered Open CONDITION: Fair Average Average APPEAL: Average Fair Average AMENITIES: Pool/Spa Yes/Yes Yes/No Yes/Yes Gym Room No No Yes Laundry Room Yes Yes Yes Secured Parking No Yes Yes Sport Courts No No No Washer/Dryer Connection Yes No Yes Fireplace No Yes Yes Alarms No No No OCCUPANCY: 90% N/A N/A TRANSACTION DATA: Sale Date August, 2000 January, 2001 Sale Price ($) $3,950,000 $6,750,000 Grantor Continental Ashley, Inc. Glenborough Fund X, Inc. LP Grantee Ashley Crest Limited Westdale Fanny Properties Sale Documentation U579358 U806867 Verification CompsInc. CompsInc. Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $ 0 $ 0 $ 0.00 $ 0 $ 0 $ 0.00 Vacancy/Credit Loss $ 0 $ 0 $ 0.00 $ 0 $ 0 $ 0.00 -------------------------------------------------------- Effective Gross Income $ 0 $ 0 $ 0.00 $ 0 $ 0 $ 0.00 Operating Expenses $ 0 $ 0 $ 0.00 $ 0 $ 0 $ 0.00 -------------------------------------------------------- Net Operating Income $434,503 $2,586 $ 3.26 $621,000 $2,986 $ 4.07 NOTES: PRICE PER UNIT $ 23,512 $ 32,452 PRICE PER SQUARE FOOT $ 29.68 $ 44.19 EXPENSE RATIO N/A N/A EGIM N/A N/A OVERALL CAP RATE 11.00% 9.20% Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 --------------------------------------------------------------------------------------------------------- Property Name Copper Mill Apartments Windfern Meadows Apartments LOCATION: Address 15910 FM 529 Road 12919 Windfern Road City, State Houston, Texas Houston, Texas County Harris Harris PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 178,215 175,490 Year Built 1982 1983 Number of Units 235 184 Unit Mix: Type Total Type Total 1Br/1Ba 131 1Br/1Ba 92 2Br/2Ba 104 2Br/2Ba 46 3Br/2Ba 46 Average Unit Size (SF) 758 954 Land Area (Acre) 9.7600 10.6100 Density (Units/Acre) 24.1 17.3 Parking Ratio (Spaces/Unit) Unknown 1.70 Parking Type (Gr., Cov., etc.) Open Open, covered CONDITION: Good Average APPEAL: Good Average AMENITIES: Pool/Spa Yes/Yes Yes/No Gym Room Yes No Laundry Room Yes No Secured Parking Yes Yes Sport Courts No No Washer/Dryer Connection Yes No Fireplace Yes No Alarms Yes Yes OCCUPANCY: N/A N/A TRANSACTION DATA: Sale Date May, 2000 June, 2002 Sale Price ($) $7,925,000 $6,716,000 Grantor VPM Realty Holding Company, Inc. BKL Texas Investments No. 2 Ltd. Grantee FPC / Copper mill Apartments Ltd. Shengs Houston Property LLC Sale Documentation U383719 V911247 Verification CompsInc. CompsInc. Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $ 0 $ 0 $ 0.00 $ 0 $ 0 $ 0.00 Vacancy/Credit Loss $ 0 $ 0 $ 0.00 $ 0 $ 0 $ 0.00 ------------------------------------------------------------------ Effective Gross Income $1,518,396 $6,461 $ 8.52 $ 0 $ 0 $ 0.00 Operating Expenses $ 757,414 $3,223 $ 4.25 $ 0 $ 0 $ 0.00 ------------------------------------------------------------------ Net Operating Income $ 760,982 $3,238 $ 4.27 $604,440 $3,285 $ 3.44 NOTES: PRICE PER UNIT $ 33,723 $ 36,500 PRICE PER SQUARE FOOT $ 44.47 $ 38.27 EXPENSE RATIO 49.9% N/A EGIM 5.22 N/A OVERALL CAP RATE 9.60% 9.00% Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL COMPARABLE DESCRIPTION I - 5 ------------------------------------------------------------------ Property Name Bear Creek Crossing Apartments LOCATION: Address 5535 Timber Creek Place Drive City, State Houston, Texas County Harris PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 140,860 Year Built 1982 Number of Units 200 Unit Mix: Type Total 1Br/1Ba 176 2Br/2Ba 24 Average Unit Size (SF) 704 Land Area (Acre) 5.9300 Density (Units/Acre) 33.7 Parking Ratio (Spaces/Unit) Unknown Parking Type (Gr., Cov., etc.) Open CONDITION: Average APPEAL: Average AMENITIES: Pool/Spa Yes/Yes Gym Room Yes Laundry Room No Secured Parking Yes Sport Courts No Washer/Dryer Connection Yes Fireplace No Alarms No OCCUPANCY: N/A TRANSACTION DATA: Sale Date January, 2001 Sale Price ($) $6,800,000 Grantor Glenborough Fund X, Inc. LP Grantee Westdale Fanny Properties Sale Documentation U806867 Verification CompsInc. Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Potential Gross Income $ 0 $ 0 $0.00 Vacancy/Credit Loss $ 0 $ 0 $0.00 ------------------------- Effective Gross Income $ 0 $ 0 $0.00 Operating Expenses $ 0 $ 0 $0.00 ------------------------- Net Operating Income $625,600 $3,128 $4.44 NOTES: PRICE PER UNIT $ 34,000 PRICE PER SQUARE FOOT $ 48.27 EXPENSE RATIO N/A EGIM N/A OVERALL CAP RATE 9.20% Cap Rate based on Pro Forma or Actuual Income? ACTUAL
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 VILLAGE IN THE WOODS, CYPRESS, TEXAS IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $23,512 to $36,500 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 $32,917 to $39,100 per unit with a mean or average adjusted price of $36,559 per unit. The median adjusted price is $37,320 per unit. Based on the following analysis, we have concluded to a value of $36,500 per unit, which results in an "as is" value of $18,900,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 VILLAGE IN THE WOODS, CYPRESS, TEXAS SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 --------------------------------------------------------------------------------------------------------------------------- Property Name Village in the Woods Ashley Crest Willow Brook Crossing Address 11800 Grant Road 11900 Barwood Bend Drive 7150 Smiling Wood Lane City Cypress, Texas Houston, Texas Houston, Texas Sale Date August, 2000 January, 2001 Sale Price ($) $3,950,000 $6,750,000 Net Rentable Area (SF) 518,808 133,104 152,746 Number of Units 530 168 208 Price Per Unit $23,512 $32,452 Year Built 1983 1981 1982 Land Area (Acre) 22.6270 6.7500 7.0000 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 08-2000 0% 01-2001 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $23,512 $32,452 Location Inferior 10% Comparable 0% Number of Units 530 168 -5% 208 -5% Quality / Appeal Average Inferior 15% Comparable 0% Age / Condition 1983 1981 / Average 0% 1982 / Average 0% Occupancy at Sale 90% N/A 0% N/A 0% Amenities Good Comparable 0% Comparable 0% Average Unit Size (SF) 979 792 20% 734 20% PHYSICAL ADJUSTMENT 40% 15% FINAL ADJUSTED VALUE ($/UNIT) $32,917 $37,320
COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 ----------------------------------- ---------------------- --------------------------- ------------------------------ Property Name Copper Mill Apartments Windfern Meadows Apartments Bear Creek Crossing Apartments Address 15910 FM 529 Road 12919 Windfern Road 5535 Timber Creek Place Drive City Houston, Texas Houston, Texas Houston, Texas Sale Date May, 2000 June, 2002 January, 2001 Sale Price ($) $7,925,000 $6,716,000 $6,800,000 Net Rentable Area (SF) 178,215 175,490 140,860 Number of Units 235 184 200 Price Per Unit $33,723 $36,500 $34,000 Year Built 1982 1983 1982 Land Area (Acre) 9.7600 10.6100 5.9300 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Fee Simple 0% Fee Simple 0% Fee Simple 0% Conveyed Estate Estate Estate Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 05-2000 0% 06-2002 0% 01-2001 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $33,723 $36,500 $34,000 Location Comparable 0% Comparable 0% Comparable 0% Number of Units 235 -5% 184 -5% 200 -5% Quality / Appeal Comparable 0% Comparable 0% Comparable 0% Age / Condition 1982 / Good 0% 1983 / Average 0% 1982 / Average 0% Occupancy at Sale N/A 0% N/A 0% N/A 0% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 758 20% 954 0% 704 20% PHYSICAL ADJUSTMENT 15% -5% 15% FINAL ADJUSTED VALUE ($/UNIT) $38,782 $34,675 $39,100
SUMMARY VALUE RANGE (PER UNIT) $ 32,917 TO $39,100 MEAN (PER UNIT) $ 36,559 MEDIAN (PER UNIT) $ 37,320 VALUE CONCLUSION (PER UNIT) $ 36,500
VALUE OF IMPROVEMENT & MAIN SITE $19,345,000 DEFERRED MAINTENANCE -$ 115,000 PV OF CONCESSIONS -$ 366,000 VALUE INDICATED BY SALES COMPARISON APPROACH $18,864,000 ROUNDED $18,900,000
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 VILLAGE IN THE WOODS, CYPRESS, TEXAS 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-1 168 $3,950,000 11.00% $434,503 $ 1,946,943 1.420 $ 33,395 $ 23,512 $ 2,586 $ 3,673 I-2 208 $6,750,000 9.20% $621,000 $ 1,946,943 1.230 $ 39,929 $ 32,452 $ 2,986 $ 3,673 I-3 235 $7,925,000 9.60% $760,982 $ 1,946,943 1.134 $ 38,256 $ 33,723 $ 3,238 $ 3,673 I-4 184 $6,716,000 9.00% $604,440 $ 1,946,943 1.118 $ 40,816 $ 36,500 $ 3,285 $ 3,673 I-5 200 $6,800,000 9.20% $625,600 $ 1,946,943 1.174 $ 39,929 $ 34,000 $ 3,128 $ 3,673
PRICE/UNIT
Low High Average Median $33,395 $40,816 $38,465 $39,929
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 37,000 ----------- Number of Units 530 Value $19,610,000 Deferred Maintenance -$ 115,000 PV of Concessions -$ 366,000 ----------- Value Based on NOI Analysis $19,129,000 Rounded $19,100,000
The adjusted sales indicate a range of value between $33,395 and $40,816 per unit, with an average of $38,465 per unit. Based on the subject's competitive position within the improved sales, a value of $37,000 per unit is estimated. This indicates an "as is" market value of $19,100,000 (rounded after necessary adjustment, if any) for the NOI Per Unit Analysis. EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS Because of the lack of data, the effective gross income multiplier (EGIM) is not used. SALES COMPARISON CONCLUSION The valuation methods in the Sales Comparison Approach are shown below. The overall value via the Sales Comparison Approach is estimated at $19,000,000. Price Per Unit $ 18,900,000 NOI Per Unit $ 19,100,000 EGIM Analysis Not Utilized Sales Comparison Conclusion $ 19,000,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 25 VILLAGE IN THE WOODS, CYPRESS, TEXAS INCOME CAPITALIZATION APPROACH The income capitalization approach is based on the premise that value is created by the expectation of future benefits. We estimated the present value of those benefits to derive an indication of the amount that a prudent, informed purchaser-investor would pay for the right to receive them as of the date of value. This approach requires an estimate of the NOI of a property. The estimated NOI is then converted to a value indication by use of either the direct capitalization or the discounted cash flow analysis (yield capitalization). Direct capitalization uses a single year's stabilized NOI as a basis for a value indication by dividing the income by a capitalization rate. The rate chosen accounts for a recapture of the investment by the investor and should reflect all factors that influence the value of the property, such as tenant quality, property condition, neighborhood change, market trends, interest rates, and inflation. The rate may be extracted from local market transactions or, when transaction evidence is lacking, obtained from trade sources. A discounted cash flow analysis focuses on the operating cash flows expected from the property and the proceeds of a hypothetical sale at the end of a holding period (the reversion). The cash flows and reversion are discounted to their present values using a market-derived discount rate and are added together to obtain a value indication. Because benefits to be received in the future are worth less than the same benefits received in the present, this method weights income in the early years more heavily than the income and the sale proceeds to be received later. The strength of the discounted cash flow method is its ability to recognize variations in projected net income, such as those caused by inflation, stepped leases, neighborhood change, or tenant turnover. Its weakness is that it requires many judgments regarding the actions of likely buyers and sellers of the property in the future. In some situations, both methods yield a similar result. The discounted cash flow method is typically more appropriate for the analysis of investment properties with multiple or long-term leases, particularly leases with cancellation clauses or renewal options. It is especially useful for multi-tenant properties in volatile markets. The direct capitalization AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 VILLAGE IN THE WOODS, CYPRESS, TEXAS method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
Average Unit Area ------------------ Unit Type (Sq. Ft.) Per Unit Per SF %Occupied -------------------------------------------------------------------- 1A10 - Aspen 679 $ 494 $ 0.73 85.2% 2A20 - Juniper 967 $ 565 $ 0.58 96.9% 2B20 - Magnolia 996 $ 598 $ 0.60 87.2% 2C20 - Cypress 1136 $ 708 $ 0.62 93.0% 3A20 - Elm 1088 $ 754 $ 0.69 89.4%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27 VILLAGE IN THE WOODS, CYPRESS, TEXAS RENT ANALYSIS
COMPARABLE RENTS ---------------------------------------------------------- R-1 R-2 R-3 R-4 R-5 ---------------------------------------------------------- Brando Woodedge Willow Central Park Copper Oaks Apartments Green Regency Creek ---------------------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT ---------------------------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly DESCRIPTION TYPE RENT RENT Superior Superior Superior Superior Superior ---------------------------------------------------------------------------------------------------------------------------- Monthly Rent 1A10 - ASPEN $ 494 $ 514 $ 580 $ 555 $ 539 $ 565 $ 553 Unit Area (SF) 679 679 689 682 700 679 691 Monthly Rent Per Sq. Ft. $ 0.73 $ 0.76 $ 0.84 $ 0.81 $ 0.77 $ 0.83 $ 0.80 Monthly Rent 2A20 - JUNIPER $ 565 $ 614 $ 720 $ 730 Unit Area (SF) 967 967 985 960 Monthly Rent Per Sq. Ft. $ 0.58 $ 0.63 $ 0.73 $ 0.76 Monthly Rent 2B20 - MAGNOLIA $ 598 $ 634 $ 720 $ 720 $ 649 $ 765 Unit Area (SF) 996 996 982 985 1,000 996 Monthly Rent Per Sq. Ft. $ 0.60 $ 0.64 $ 0.73 $ 0.73 $ 0.65 $ 0.77 Monthly Rent 2C20 - CYPRESS $ 708 $ 754 $ 830 $ 880 Unit Area (SF) 1,136 1,136 1,212 1,107 Monthly Rent Per Sq. Ft. $ 0.62 $ 0.66 $ 0.68 $ 0.79 Monthly Rent 3A20 - ELM $ 754 $ 814 $ 749 Unit Area (SF) 1,088 1,088 1,100 Monthly Rent Per Sq. Ft. $ 0.69 $ 0.75 $ 0.68 DESCRIPTION MIN MAX MEDIAN AVERAGE ----------------------------------------------------------------- Monthly Rent $ 539 $ 580 $ 555 $ 558 Unit Area (SF) 679 700 689 688 Monthly Rent Per Sq. Ft. $ 0.77 $ 0.84 $ 0.81 $ 0.81 Monthly Rent $ 720 $ 730 $ 725 $ 725 Unit Area (SF) 960 985 973 973 Monthly Rent Per Sq. Ft. $ 0.73 $ 0.76 $ 0.75 $ 0.75 Monthly Rent $ 649 $ 765 $ 720 $ 714 Unit Area (SF) 982 1,000 991 991 Monthly Rent Per Sq. Ft. $ 0.65 $ 0.77 $ 0.73 $ 0.72 Monthly Rent $ 830 $ 880 $ 855 $ 855 Unit Area (SF) 1,107 1,212 1,160 1,160 Monthly Rent Per Sq. Ft. $ 0.68 $ 0.79 $ 0.74 $ 0.74 Monthly Rent $ 749 $ 749 $ 749 $ 749 Unit Area (SF) 1,100 1,100 1,100 1,100 Monthly Rent Per Sq. Ft. $ 0.68 $ 0.68 $ 0.68 $ 0.68
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 --------------- --------------- --------- -------- ------ -------- ---------- 1A10 - Aspen 88 679 $ 500 $ 0.74 $ 44,000 $ 528,000 2A20 - Juniper 96 967 $ 565 $ 0.58 $ 54,240 $ 650,880 2B20 - Magnolia 156 996 $ 600 $ 0.60 $ 93,600 $1,123,200 2C20 - Cypress 86 1,136 $ 710 $ 0.63 $ 61,060 $ 732,720 3A20 - Elm 104 1,088 $ 750 $ 0.69 $ 78,000 $ 936,000 ---------------------- Total $330,900 $3,970,800
PRO FORMA ANALYSIS For purposes of this appraisal, we were provided with income and expense data for the subject property. A summary of this data is presented on the following page. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 VILLAGE IN THE WOODS, CYPRESS, TEXAS SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 FISCAL YEAR 2003 ----------------------- ----------------------- ----------------------- ----------------------- ACTUAL ACTUAL ACTUAL MANAGEMENT BUDGET ----------------------- ----------------------- ----------------------- ----------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT ----------------------------------------------------------------------------------------------------------------------------------- Revenues Rental Income $3,973,817 $ 7,498 $4,066,196 $ 7,672 $3,979,004 $ 7,508 $3,947,016 $ 7,447 Vacancy $ 414,546 $ 782 $ 298,640 $ 563 $ 388,270 $ 733 $ 315,761 $ 596 Credit Loss/Concessions $ 186,115 $ 351 $ 287,103 $ 542 $ 173,883 $ 328 $ 114,000 $ 215 ----------------------------------------------------------------------------------------------------- Subtotal $ 600,661 $ 1,133 $ 585,743 $ 1,105 $ 562,153 $ 1,061 $ 429,761 $ 811 Laundry Income $ 11,419 $ 22 $ 9,940 $ 19 $ 11,793 $ 22 $ 19,800 $ 37 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 109,394 $ 206 $ 276,647 $ 522 $ 310,824 $ 586 $ 273,660 $ 516 ----------------------------------------------------------------------------------------------------- Subtotal Other Income $ 120,813 $ 228 $ 286,587 $ 541 $ 322,617 $ 609 $ 293,460 $ 554 ----------------------------------------------------------------------------------------------------- Effective Gross Income $3,493,969 $ 6,592 $3,767,040 $ 7,108 $3,739,468 $ 7,056 $3,810,715 $ 7,190 Operating Expenses Taxes $ 438,761 $ 828 $ 412,810 $ 779 $ 425,758 $ 803 $ 432,970 $ 817 Insurance $ 48,452 $ 91 $ 106,564 $ 201 $ 147,751 $ 279 $ 155,988 $ 294 Utilities $ 246,853 $ 466 $ 289,627 $ 546 $ 278,823 $ 526 $ 252,000 $ 475 Repair & Maintenance $ 237,583 $ 448 $ 154,989 $ 292 $ 144,054 $ 272 $ 176,400 $ 333 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 41,336 $ 78 $ 31,479 $ 59 $ 47,928 $ 90 $ 85,200 $ 161 Security $ 8,764 $ 17 $ 13,289 $ 25 $ 8,723 $ 16 $ 0 $ 0 Marketing & Leasing $ 109,877 $ 207 $ 94,452 $ 178 $ 76,580 $ 144 $ 73,200 $ 138 General Administrative $ 417,439 $ 788 $ 441,155 $ 832 $ 374,154 $ 706 $ 376,840 $ 711 Management $ 179,595 $ 339 $ 227,475 $ 429 $ 187,215 $ 353 $ 188,136 $ 355 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------------------------------------- Total Operating Expenses $1,728,660 $ 3,262 $1,771,840 $ 3,343 $1,690,986 $ 3,191 $1,740,734 $ 3,284 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------------------------------------- Net Income $1,765,309 $ 3,331 $1,995,200 $ 3,765 $2,048,482 $ 3,865 $2,069,906 $ 3,906
ANNUALIZED 2003 ----------------------- PROJECTION AAA PROJECTION ----------------------- ----------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % ------------------------------------------------------------------------------------------- Revenues Rental Income $3,921,012 $ 7,398 $3,970,800 $ 7,492 100.0% ------------------------------------------------------------- Vacancy $ 505,656 $ 954 $ 277,956 $ 524 7.0% Credit Loss/Concessions $ 184,500 $ 348 $ 79,416 $ 150 2.0% ------------------------------------------------------------- Subtotal $ 690,156 $ 1,302 $ 357,372 $ 674 9.0% Laundry Income $ 11,536 $ 22 $ 13,250 $ 25 0.3% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 217,048 $ 410 $ 272,950 $ 515 6.9% ------------------------------------------------------------- Subtotal Other Income $ 228,584 $ 431 $ 286,200 $ 540 7.2% ------------------------------------------------------------- Effective Gross Income $3,459,440 $ 6,527 $3,899,628 $ 7,358 100.0% Operating Expenses Taxes $ 434,996 $ 821 $ 450,500 $ 850 11.6% Insurance $ 163,764 $ 309 $ 159,000 $ 300 4.1% Utilities $ 305,180 $ 576 $ 280,900 $ 530 7.2% Repair & Maintenance $ 89,608 $ 169 $ 174,900 $ 330 4.5% Cleaning $ 0 $ 0 $ 0 $ 0 0.0% Landscaping $ 0 $ 0 $ 84,800 $ 160 2.2% Security $ 8,988 $ 17 $ 10,600 $ 20 0.3% Marketing & Leasing $ 19,968 $ 38 $ 74,200 $ 140 1.9% General Administrative $ 437,032 $ 825 $ 376,300 $ 710 9.6% Management $ 176,720 $ 333 $ 155,985 $ 294 4.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0% ------------------------------------------------------------- Total Operating Expenses $1,636,256 $ 3,087 $1,767,185 $ 3,334 45.3% Reserves $ 0 $ 0 $ 185,500 $ 350 10.5% ------------------------------------------------------------- Net Income $1,823,184 $ 3,440 $1,946,943 $ 3,673 49.9%
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 9% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 VILLAGE IN THE WOODS, CYPRESS, TEXAS RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $350 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are some major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an additional $115,000 has been deducted. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of the annual cash flows and discounts them, along with the expected equity reversion, to a present value. The present value of the cash flow is added to the present value of the reversion, resulting in a total property value. INVESTMENT CRITERIA Appropriate investment criteria will be derived for the subject based upon analysis of comparable sales and a survey of real estate investors. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 1ST QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES ---------------------------------- GOING-IN TERMINAL --------------- --------------- LOW HIGH LOW HIGH ---------------------------------- RANGE 6.00% 10.00% 7.00% 10.00% AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 VILLAGE IN THE WOODS, CYPRESS, TEXAS SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR ----------------------------------------------------- I-1 Aug-00 N/A $ 23,512 11.00% I-2 Jan-01 N/A $ 32,452 9.20% I-3 May-00 N/A $ 33,723 9.60% I-4 Jun-02 N/A $ 36,500 9.00% I-5 Jan-01 N/A $ 34,000 9.20% -------------------- High 11.00% -------------------- Low 9.00% -------------------- Average 9.60%
Based on this information, we have concluded the subject's overall capitalization rate should be 10.00%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 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 11.50%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 3.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 11.50% indicates a value of $18,800,000. In this instance, the reversion figure contributes approximately 38% of the total value. Investors surveyed for this assignment indicated they AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 VILLAGE IN THE WOODS, CYPRESS, TEXAS 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 32 VILLAGE IN THE WOODS, CYPRESS, TEXAS DISCOUNTED CASH FLOW ANALYSIS VILLAGE IN THE WOODS
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 ----------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $3,970,800 $3,970,800 $4,050,216 $4,131,220 $4,213,845 $4,298,122 Vacancy $ 277,956 $ 277,956 $ 283,515 $ 289,185 $ 294,969 $ 300,869 Credit Loss $ 79,416 $ 79,416 $ 81,004 $ 82,624 $ 84,277 $ 85,962 Concessions $ 215,085 $ 79,416 $ 81,004 $ 41,312 $ 42,138 $ 0 -------------------------------------------------------------------------------- Subtotal $ 572,457 $ 436,788 $ 445,524 $ 413,122 $ 421,384 $ 386,831 Laundry Income $ 13,250 $ 13,250 $ 13,515 $ 13,785 $ 14,061 $ 14,342 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 272,950 $ 272,950 $ 278,409 $ 283,977 $ 289,657 $ 295,450 -------------------------------------------------------------------------------- Subtotal Other Income $ 286,200 $ 286,200 $ 291,924 $ 297,762 $ 303,718 $ 309,792 -------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $3,684,543 $3,820,212 $3,896,616 $4,015,861 $4,096,178 $4,221,083 OPERATING EXPENSES: Taxes $ 450,500 $ 464,015 $ 477,935 $ 492,274 $ 507,042 $ 522,253 Insurance $ 159,000 $ 163,770 $ 168,683 $ 173,744 $ 178,956 $ 184,325 Utilities $ 280,900 $ 289,327 $ 298,007 $ 306,947 $ 316,155 $ 325,640 Repair & Maintenance $ 174,900 $ 180,147 $ 185,551 $ 191,118 $ 196,851 $ 202,757 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 84,800 $ 87,344 $ 89,964 $ 92,663 $ 95,443 $ 98,306 Security $ 10,600 $ 10,918 $ 11,246 $ 11,583 $ 11,930 $ 12,288 Marketing & Leasing $ 74,200 $ 76,426 $ 78,719 $ 81,080 $ 83,513 $ 86,018 General Administrative $ 376,300 $ 387,589 $ 399,217 $ 411,193 $ 423,529 $ 436,235 Management $ 147,382 $ 152,808 $ 155,865 $ 160,634 $ 163,847 $ 168,843 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $1,758,582 $1,812,344 $1,865,187 $1,921,236 $1,977,267 $2,036,666 Reserves $ 185,500 $ 191,065 $ 196,797 $ 202,701 $ 208,782 $ 215,045 -------------------------------------------------------------------------------- NET OPERATING INCOME $1,740,461 $1,816,803 $1,834,633 $1,891,924 $1,910,129 $1,969,372 Operating Expense Ratio (% of EGI) 47.7% 47.4% 47.9% 47.8% 48.3% 48.2% Operating Expense Per Unit $ 3,318 $ 3,420 $ 3,519 $ 3,625 $ 3,731 $ 3,843 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 ------------------------------------------------------------------------------------------------------- REVENUE Base Rent $4,427,065 $4,559,877 $4,696,674 $4,837,574 $4,982,701 Vacancy $ 309,895 $ 319,191 $ 328,767 $ 338,630 $ 348,789 Credit Loss $ 88,541 $ 91,198 $ 93,933 $ 96,751 $ 99,654 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------- Subtotal $ 398,436 $ 410,389 $ 422,701 $ 435,382 $ 448,443 Laundry Income $ 14,772 $ 15,216 $ 15,672 $ 16,142 $ 16,627 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 304,313 $313,443 $ 322,846 $ 332,531 $ 342,507 ---------------------------------------------------------------- Subtotal Other Income $ 319,086 $328,658 $ 338,518 $ 348,674 $ 359,134 ---------------------------------------------------------------- EFFECTIVE GROSS INCOME $4,347,715 $4,478,147 $4,612,491 $4,750,866 $4,893,392 OPERATING EXPENSES: Taxes $ 537,921 $ 554,058 $ 570,680 $ 587,800 $ 605,434 Insurance $ 189,854 $ 195,550 $ 201,416 $ 207,459 $ 213,683 Utilities $ 335,409 $ 345,472 $ 355,836 $ 366,511 $ 377,506 Repair & Maintenance $ 208,840 $ 215,105 $ 221,558 $ 228,205 $ 235,051 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 101,256 $ 104,293 $ 107,422 $ 110,645 $ 113,964 Security $ 12,657 $ 13,037 $ 13,428 $ 13,831 $ 14,246 Marketing & Leasing $ 88,599 $ 91,257 $ 93,994 $ 96,814 $ 99,719 General Administrative $ 449,322 $ 462,802 $ 476,686 $ 490,986 $ 505,716 Management $ 173,909 $ 179,126 $ 184,500 $ 190,035 $ 195,736 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------- TOTAL OPERATING EXPENSES $2,097,766 $2,160,699 $2,225,520 $2,292,285 $2,361,054 Reserves $ 221,497 $ 228,142 $ 234,986 $ 242,035 $ 249,296 ---------------------------------------------------------------- NET OPERATING INCOME $2,028,453 $2,089,306 $2,151,986 $2,216,545 $2,283,042 Operating Expense Ratio (% of EGI) 48.2% 48.2% 48.2% 48.2% 48.2% Operating Expense Per Unit $ 3,958 $ 4,077 $ 4,199 $ 4,325 $ 4,455
Estimated Stabilized NOI $1,946,943 Sales Expense Rate 3.00% Months to Stabilized 1 Discount Rate 11.50% Stabilized Occupancy 93.0% Terminal Cap Rate 10.50%
Gross Residual Sale Price $21,743,253 Deferred Maintenance -$ 115,000 Less: Sales Expense $ 652,298 Add: Excess Land $ 0 ----------- Other Adjustments $ 0 Net Residual Sale Price $21,090,956 ----------- PV of Reversion $ 7,101,459 Value Indicated By "DCF" $18,754,631 Add: NPV of NOI $11,768,172 Rounded $18,800,000 ----------- PV Total $18,869,631
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ------------------------------------------------------------------- TOTAL VALUE 11.00% 11.25% 11.50% 11.75% 12.00% ------------------------------------------------------------------------------------------- 10.00% $19,845,950 $19,531,948 $19,224,704 $18,924,048 $18,629,818 TERMINAL 10.25% $19,655,723 $19,345,953 $19,042,837 $18,746,209 $18,455,909 CAP RATE 10.50% $19,474,555 $19,168,815 $18,869,631 $18,576,839 $18,290,282 10.75% $19,301,813 $18,999,915 $18,704,480 $18,415,347 $18,132,358 11.00% $19,136,923 $18,838,693 $18,546,837 $18,261,195 $17,981,612
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 VILLAGE IN THE WOODS, CYPRESS, TEXAS INCOME LOSS DURING LEASE-UP The subject is currently near or at a stabilized condition. Therefore, there is no income loss during lease-up at the subject property. CONCESSIONS Due to softness in the market, concessions have been utilized at the subject property and within the market. Based on our discussions with the subject's property manager and those at competing properties, these concessions are expected to continue in the near term until the market returns to a stabilized level. Concessions have been included as a line item deduction within the discounted cash flow analysis. The present value of these concessions equates to $366,000 (rounded). This amount has been deducted from the Direct Capitalization analysis, as well as the Sales Comparison Approach value. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 10.00% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 VILLAGE IN THE WOODS, CYPRESS, TEXAS VILLAGE IN THE WOODS
TOTAL PER Sq. Ft. PER UNIT %OF EGI ---------------------------------------------------------------- -------------- ------------ ------- REVENUE Base Rent $ 3,970,800 $ 7.65 $ 7,492 Less: Vacancy & Collection Loss 9.00% $ 357,372 $ 0.69 $ 674 Plus: Other Income Laundry Income $ 13,250 $ 0.03 $ 25 0.34% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 272,950 $ 0.53 $ 515 7.00% ----------------------------------------------------------- Subtotal Other Income $ 286,200 $ 0.55 $ 540 7.34% EFFECTIVE GROSS INCOME $ 3,899,628 $ 7.52 $ 7,358 OPERATING EXPENSES: Taxes $ 450,500 $ 0.87 $ 850 11.55% Insurance $ 159,000 $ 0.31 $ 300 4.08% Utilities $ 280,900 $ 0.54 $ 530 7.20% Repair & Maintenance $ 174,900 $ 0.34 $ 330 4.49% Cleaning $ 0 $ 0.00 $ 0 0.00% Landscaping $ 84,800 $ 0.16 $ 160 2.17% Security $ 10,600 $ 0.02 $ 20 0.27% Marketing & Leasing $ 74,200 $ 0.14 $ 140 1.90% General Administrative $ 376,300 $ 0.73 $ 710 9.65% Management 4.00% $ 155,985 $ 0.30 $ 294 4.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 1,767,185 $ 3.41 $ 3,334 45.32% Reserves $ 185,500 $ 0.36 $ 350 4.76% ----------------------------------------------------------- NET OPERATING INCOME $ 1,946,943 $ 3.75 $ 3,673 49.93% "GOING IN" CAPITALIZATION RATE 10.00% VALUE INDICATION $ 19,469,429 $ 37.53 $ 36,735 DEFERRED MAINTENANCE ($ 115,000) PV OF CONCESSIONS ($ 366,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $ 18,988,429 ROUNDED $ 19,000,000 $ 36.62 $ 35,849
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 VILLAGE IN THE WOODS, CYPRESS, TEXAS DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF -------------------------------------------------------------------------- 9.25% $20,567,031 $20,600,000 $38,868 $39.71 9.50% $20,013,136 $20,000,000 $37,736 $38.55 9.75% $19,487,645 $19,500,000 $36,792 $37.59 10.00% $18,988,429 $19,000,000 $35,849 $36.62 10.25% $18,513,565 $18,500,000 $34,906 $35.66 10.50% $18,061,313 $18,100,000 $34,151 $34.89 10.75% $17,630,097 $17,600,000 $33,208 $33.92
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $19,000,000. 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 $18,800,000 Direct Capitalization Method $19,000,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $18,800,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 36 VILLAGE IN THE WOODS, CYPRESS, TEXAS RECONCILIATION AND CONCLUSION This appraisal was made to express an opinion as of the Market Value of the fee simple estate in the property. AS IS MARKET VALUE OF THE FEE SIMPLE ESTATE Cost Approach Not Utilized Sales Comparison Approach $ 19,000,000 Income Approach $ 18,800,000 Reconciled Value $ 18,800,000
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 12, 2003 the market value of the fee simple estate in the property is: $18,800,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA VILLAGE IN THE WOODS, CYPRESS, TEXAS ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A VILLAGE IN THE WOODS, CYPRESS, TEXAS EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A VILLAGE IN THE WOODS, CYPRESS, TEXAS SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - OFFICE TYPICAL BUILDING EXTERIOR [PICTURE] [PICTURE] TYPICAL BUILDING EXTERIOR TYPICAL BUILDING EXTERIOR [PICTURE] [PICTURE] SUBJECT POOL TYPICAL BUILDING EXTERIOR AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A VILLAGE IN THE WOODS, CYPRESS, TEXAS SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] TYPICAL UNIT KITCHEN TYPICAL UNIT BEDROOM [PICTURE] [PICTURE] TYPICAL UNIT REST ROOM TYPICAL UNIT KITCHEN [PICTURE] BUSINESS OFFICE AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B VILLAGE IN THE WOODS, CYPRESS, TEXAS EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B VILLAGE IN THE WOODS, CYPRESS, TEXAS PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 ASHLEY CREST WILLOW BROOK CROSSING COPPER MILL APARTMENTS 11900 Barwood Bend Drive 7150 Smiling Wood Lane 15910 FM 529 Road Houston, Texas Houston, Texas Houston, Texas [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 WINDFERN MEADOWS APARTMENTS BEAR CREEK CROSSING APARTMENTS 12919 Windfern Road 5535 Timber Creek Place Drive Houston, Texas Houston, Texas [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B VILLAGE IN THE WOODS, CYPRESS, TEXAS SUMMARY OF COMPARABLE RENTAL PROPERTIES
DESCRIPTION SUBJECT ---------------------------------------------------------------------------------------- Property Name Village in the Woods Management Company AIMCO LOCATION: Address 11800 Grant Road City, State Cypress, Texas County Harris Proximity to Subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 518,808 Year Built 1983 Effective Age 20 Building Structure Type Parking Type (Gr., Cov., etc.) Number of Units 530 Unit Mix: Type Unit Qty. Mo. Rent 1 1A10 - Aspen 679 88 $ 494 2 2A20 - Juniper 967 96 $ 565 3 2B20 - Magnolia 996 156 $ 598 4 2C20 - Cypress 1,136 86 $ 708 5 3A20 - Elm 1,088 104 $ 754 Average Unit Size (SF) 979 Unit Breakdown: Efficiency 0% 2-Bedroom 64% 1-Bedroom 16% 3-Bedroom 20% CONDITION: Fair APPEAL: Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. Fireplace X Cable TV Ready Project Amenities X Swimming Pool X Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Volleyball Court Theater Room Sand Volley Ball Meeting Hall Tennis Court Secured Parking Racquet Ball X Laundry Room Jogging Track X Business Office Gym Room X Playground X Sports Court OCCUPANCY: 90% LEASING DATA: Available Leasing Terms 6 through 12 months Concessions $99 deposit, $25 application fee, and 1 month free on Pet Deposit $200 with $200 non-refundable Utilities Paid by Tenant: X Electric Natural Gas X Water X Trash Confirmation Diane Hudson Telephone Number 281.370.9000 NOTES: COMPARISON TO SUBJECT: COMPARABLE COMPARABLE DESCRIPTION R - 1 R - 2 -------------------------------- -------------------------------------------- -------------------------------------------- Property Name Brandon Oaks Woodedge Apartments Management Company Walden Walden LOCATION: Address 11111 Saathoff Drive 10802 Greencreek Drive City, State Cypress, Texas Houston, Texas County Harris Harris Proximity to Subject 1 mile south 1 mile south PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 161,908 112,620 Year Built Unknown 1981 Effective Age 20 22 Building Structure Type Brick, siding Brick Parking Type (Gr., Cov., etc.) Open, Covered Open Number of Units 190 126 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 A 607 24 $565 1 A 682 8 $555 1 B 718 68 $585 B 776 6 $597 C 876 20 $695 C 785 8 $599 3 D 982 38 $720 D 893 4 $660 E 1,092 40 $785 E 903 24 $675 F 908 20 $680 G 920 24 $695 2 H 985 32 $720 3 H 985 32 $720 Average Unit Size (SF) 852 917 Unit Breakdown: Efficiency 0% 2-Bedroom 52% Efficiency 0% 2-Bedroom 83% 1-Bedroom 48% 3-Bedroom 0% 1-Bedroom 17% 3-Bedroom 0% CONDITION: Slightly Superior Slightly Superior APPEAL: Slightly Superior Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage X Vaulted Ceiling X Balcony X W/D Connect. Balcony W/D Connect. X Fireplace X Fireplace X Cable TV Ready Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball Laundry Room Jogging Track Business Office Jogging Track Business Office Gym Room Gym Room Playground Playground Sports Court Sports Court OCCUPANCY: 95% 80% LEASING DATA: Available Leasing Terms 6 through 12 months 6 through 12 months Concessions $99 move in which includes first month rent, $99 move in which includes first month rent, Pet Deposit $300 with $150 non-refundable $300 with $150 non-refundable Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash X Water Trash Confirmation On site property On site property Telephone Number 281.955.1288 281.894.7612 NOTES: COMPARISON TO SUBJECT: Slightly Superior Superior COMPARABLE COMPARABLE DESCRIPTION R - 3 R - 4 ------------------------------------------------------------------------------------------------------------------------------- Property Name Willow Green Central Park Regency Management Company Concord Management, Ltd. Walden LOCATION: Address 8301 Willow Park North 11300 Regency Green Drive City, State Houston, Texas Cypress, Texas County Harris Harris Proximity to Subject 3 miles south 1 mile south PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 383,600 318,968 Year Built 1995 1983 Effective Age 8 20 Building Structure Type Wood siding Brick, siding Parking Type (Gr., Cov., etc.) Surface Surface, Covered Number of Units 332 348 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 A 700 188 $539 1 A 679 48 $565 3 B 1,000 64 $649 B 738 68 $625 5 C 1,100 80 $749 4 TH 1,200 16 $710 C 932 136 $710 3 D 996 32 $765 4 E 1,216 48 $870 Average Unit Size (SF) 854 917 Unit Breakdown: Efficiency 0% 2-Bedroom 38% Efficiency 0% 2-Bedroom 62% 1-Bedroom 43% 3-Bedroom 19% 1-Bedroom 38% 3-Bedroom 0% CONDITION: Good Slightly Superior APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage X Vaulted Ceiling X Balcony X W/D Connect. Balcony X W/D Connect. Fireplace X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court X BBQ Equipment X Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall Tennis Court Secured Parking Tennis Court X Secured Parking Racquet Ball Laundry Room Racquet Ball Laundry Room Jogging Track Business Office Jogging Track X Business Office X Gym Room X Gym Room Playground Playground Sports Court Sports Court OCCUPANCY: 98% 93% LEASING DATA: Available Leasing Terms 6 through 12 months 6 through 12 months Concessions $200 off first month for 1 and 2 bedroom 1 month free on 2 bedrooms, $399 total move in on Pet Deposit No pets allowed $300 with $150 non-refundable Utilities Paid by Tenant: X Electric X Natural Gas X Electric Natural Gas X Water X Trash X Water Trash Confirmation Property leasing agent Sue Uthe Telephone Number 281.890.5600 281.469.7339 NOTES: This property has been better maintained than the subject property. It has superior appeal. COMPARISON TO SUBJECT: Superior Superior
COMPARABLE DESCRIPTION R - 5 -------------------------------------------------------------------------------------- Property Name Copper Creek Management Company LOCATION: Address 14222 Wunderlich City, State Houston, Texas 77069 County Harris Proximity to Subject 5 miles east PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 242,448 Year Built 1982 Effective Age 21 Building Structure Type Brick, siding Parking Type (Gr., Cov., etc.) Open, garages Number of Units 300 Unit Mix: Type Unit Qty. Mo. A 534 N/A $495 1 B 681 N/A $535 1 C 700 N/A $570 D 860 N/A $655 2 E 960 N/A $730 F 818 N/A $640 4 G 1,107 N/A $880 Average Unit Size (SF) Unit Breakdown: Efficiency 2-Bedroom 1-Bedroom 3-Bedroom CONDITION: Slightly Superior APPEAL: Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Balcony X W/D Connect. X Fireplace Cable TV Ready Project Amenities X Swimming Pool X Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Volleyball Court Theater Room Sand Volley Ball Meeting Hall Tennis Court X Secured Parking Racquet Ball X Laundry Room Jogging Track Business Office Gym Room X Playground Sports Court OCCUPANCY: N/A LEASING DATA: Available Leasing Terms N/A Concessions Various, from Breakfast at Denny's to 1 month free, Pet Deposit $400 with $200 non-refundable Utilities Paid by Tenant: X Electric Natural Gas Water Trash Confirmation On site manager Telephone Number 281.583.1137 NOTES: COMPARISON TO SUBJECT: Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B VILLAGE IN THE WOODS, CYPRESS, TEXAS PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 BRANDON OAKS WOODEDGE APARTMENTS WILLOW GREEN 11111 Saathoff Drive 10802 Greencreek Drive 8301 Willow Park North Cypress, Texas Houston, Texas Houston, Texas [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 CENTRAL PARK REGENCY COPPER CREEK 11300 Regency Green Drive 14222 Wunderlich Cypress, Texas Houston, Texas 77069 [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C VILLAGE IN THE WOODS, CYPRESS, TEXAS EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C VILLAGE IN THE WOODS, CYPRESS, TEXAS No responsibility is assumed for matters legal in nature. No investigation has been made of the title to or any liabilities against the property appraised. In this appraisal, it is presumed that, unless otherwise noted, the owner's claim is valid, the property rights are good and marketable, and there are no encumbrances which cannot be cleared through normal processes. To the best of our knowledge, all data set forth in this report are true and accurate. Although gathered from reliable sources, no guarantee is made nor liability assumed for the accuracy of any data, opinions, or estimates identified as being furnished by others which have been used in formulating this analysis. Land areas and descriptions used in this appraisal were obtained from public records and have not been verified by legal counsel or a licensed surveyor. No soil analysis or geological studies were ordered or made in conjunction with this report, nor were any water, oil, gas, or other subsurface mineral and use rights or conditions investigated. Substances such as asbestos, urea-formaldehyde foam insulation, other chemicals, toxic wastes, or other potentially hazardous materials could, if present, adversely affect the value of the property. Unless otherwise stated in this report, the existence of hazardous substance, which may or may not be present on or in the property, was not considered by the appraiser in the development of the conclusion of value. The stated value estimate is predicated on the assumption that there is no material on or in the property that would cause such a loss in value. No responsibility is assumed for any such conditions, and the client has been advised that the appraiser is not qualified to detect such substances, quantify the impact on values, or develop the remedial cost. No environmental impact study has been ordered or made. Full compliance with applicable federal, state, and local environmental regulations and laws is assumed unless otherwise stated, defined, and considered in the report. It is also assumed that all required licenses, consents, or other legislative or administrative authority from any local, state, or national government or private entity organization either have been or can be obtained or renewed for any use which the report covers. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C VILLAGE IN THE WOODS, CYPRESS, TEXAS It is assumed that all applicable zoning and use regulations and restrictions have been complied with unless a nonconformity has been stated, defined, and considered in the appraisal report. Further, it is assumed that the utilization of the land and improvements is within the boundaries of the property described and that no encroachment or trespass exists unless noted in the report. The Americans with Disabilities Act ("ADA") became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property together with a detailed analysis of the requirements of the ADA could reveal that the property is not in compliance with one or more of the requirements of the act. If so, this fact could have a negative effect on the value of the property. Since we have no direct evidence relating to this issue, we did not consider the possible noncompliance with the requirements of ADA in estimating the value of the property. We have made a physical inspection of the property and noted visible physical defects, if any, in our report. This inspection was made by individuals generally familiar with real estate and building construction. However, these individuals are not architectural or structural engineers who would have detailed knowledge of building design and structural integrity. Accordingly, we do not opine on, nor are we responsible for, the structural integrity of the property including its conformity to specific governmental code requirements, such as fire, building and safety, earthquake, and occupancy, or any physical defects which were not readily apparent to the appraiser during the inspection. The value or values presented in this report are based upon the premises outlined herein and are valid only for the purpose or purposes stated. The date of value to which the conclusions and opinions expressed apply is set forth in this report. The value opinion herein rendered is based on the status of the national business economy and the purchasing power of the U.S. dollar as of that date. Testimony or attendance in court or at any other hearing is not required by reason of this appraisal unless arrangements are previously made within a reasonable time in advance for AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C VILLAGE IN THE WOODS, CYPRESS, TEXAS such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the Appraisal Institute or the designations awarded by this organization) shall be disseminated to the public through prospectus, advertising, public relations, news, or any other means of communication without the written consent and approval of American Appraisal Associates, Inc. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D VILLAGE IN THE WOODS, CYPRESS, TEXAS EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D CERTIFICATE OF APPRAISER I certify that, to the best of my knowledge and belief: The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and represent the unbiased professional analyses, opinions, and conclusions of American Appraisal Associates, Inc. American Appraisal Associates, Inc. and I personally, have no present or prospective interest in the property that is the subject of this report and have no personal interest or bias with respect to the parties involved. Compensation for American Appraisal Associates, Inc. is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. The analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. I personally did not inspect the subject property. Tiffany B. Roberts provided significant real property appraisal assistance in the preparation of this report. I am currently in compliance with the Appraisal Institute's continuing education requirements. /s/ Frank Fehribach ----------------------------------- Frank Fehribach, MAI Managing Principal, Real Estate Group Texas State Certified General Real Estate Appraiser #1323954-G AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E VILLAGE IN THE WOODS, CYPRESS, TEXAS EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E VILLAGE IN THE WOODS, CYPRESS, TEXAS FRANK A. FEHRIBACH, MAI MANAGING PRINCIPAL, REAL ESTATE GROUP POSITION Frank A. Fehribach is a Managing Principal for the Dallas Real Estate Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Mr. Fehribach has experience in valuations for resort hotels; Class A office buildings; Class A multifamily complexes; industrial buildings and distribution warehousing; multitract mixed-use vacant land; regional malls; residential subdivision development; and special-purpose properties such as athletic clubs, golf courses, manufacturing facilities, nursing homes, and medical buildings. Consulting assignments include development and feasibility studies, economic model creation and maintenance, and market studies. Mr. Fehribach also has been involved in overseeing appraisal and consulting assignments in Mexico and South America. Business Mr. Fehribach joined AAA as an engagement director in 1998. He was promoted to his current position in 1999. Prior to that, he was a manager at Arthur Andersen LLP. Mr. Fehribach has been in the business of real estate appraisal for over ten years. EDUCATION University of Texas - Arlington Master of Science - Real Estate University of Dallas Master of Business Administration - Industrial Management Bachelor of Arts - Economics 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 VILLAGE IN THE WOODS, CYPRESS, TEXAS PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS Candidate Member of the CCIM Institute pursuing Certified Commercial Investment Member (CCIM) designation PUBLICATIONS "An Analysis of the Determinants of Industrial Property -authored with Dr. Ronald C. Rutherford and Dr. Mark Eakin, The Journal of Real Estate Research, Vol. 8, No. 3, Summer 1993, p. 365. AMERICAN APPRAISAL ASSOCIATES, INC. VILLAGE IN THE WOODS, CYPRESS, TEXAS GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. VILLAGE IN THE WOODS, CYPRESS, TEXAS GENERAL SERVICE CONDITIONS The services(s) provided by AAA will be performed in accordance with professional appraisal standards. Our compensation is not contingent in any way upon our conclusions of value. We assume, without independent verification, the accuracy of all data provided to us. We will act as an independent contractor and reserve the right to use subcontractors. All files, workpapers or documents developed by us during the course of the engagement will be our property. We will retain this data for at least five years. Our report is to be used only for the specific purpose stated herein; and any other use is invalid. No reliance may be made by any third party without our prior written consent. You may show our report in its entirety to those third parties who need to review the information contained herein. No one should rely on our report as a substitute for their own due diligence. We understand that our reports will be described in public tender offer documents distributed to limited partners. We reserve the right to review the public tender offer documents prior to their issuance to confirm that disclosures of facts from the current appraisals are accurate. No reference to our name or our report, in whole or in part, in any other SEC filing or private placement memorandum you prepare and/or distribute to third parties may be made without our prior written consent. The Tender Offer Partnerships, as that term is defined in the Settlement Agreement, agree to indemnify and hold us harmless against and from any and all losses, claims, actions, damages, expenses or liabilities, including reasonable attorneys' fees, to which we may become subject in connection with this engagement except where such losses, claims, actions, damages, expenses or liabilities, including reasonable attorney's fees, arise or result from AAA's misconduct, bad faith or negligence. Co-Clients will not be liable for any of our acts or omissions. AAA is an equal opportunity employer.