-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ti4QPYEyXglcR8wvEuYnCa/Heq0BRm16AoV++AhBeFaMnGCedopS3aATCUIcrpW6 afcOwg6N4oLroFCeZgrIeA== 0000898430-98-003852.txt : 19981106 0000898430-98-003852.hdr.sgml : 19981106 ACCESSION NUMBER: 0000898430-98-003852 CONFORMED SUBMISSION TYPE: SC 13E3/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19981105 GROUP MEMBERS: CONAM DOC AFFILIATES LLC GROUP MEMBERS: CONAM PROPERTY SERVICES II, LTD. GROUP MEMBERS: CONAM REALTY INVESTORS 2 L P GROUP MEMBERS: CONTINENTAL AMERICAN PROPERTIES, LTD. SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CONAM REALTY INVESTORS 2 L P CENTRAL INDEX KEY: 0000357099 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 133100545 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3/A SEC ACT: SEC FILE NUMBER: 005-54773 FILM NUMBER: 98738402 BUSINESS ADDRESS: STREET 1: 3 WORLD FINANCIAL CENTER 29TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10285 BUSINESS PHONE: 2125263237 MAIL ADDRESS: STREET 1: 3 WORLD FINANCIAL CENTER STREET 2: 29TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10285 FORMER COMPANY: FORMER CONFORMED NAME: HUTTON CONAM REALTY INVESTORS 2 DATE OF NAME CHANGE: 19920703 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CONAM REALTY INVESTORS 2 L P CENTRAL INDEX KEY: 0000357099 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 133100545 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3/A BUSINESS ADDRESS: STREET 1: 3 WORLD FINANCIAL CENTER 29TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10285 BUSINESS PHONE: 2125263237 MAIL ADDRESS: STREET 1: 3 WORLD FINANCIAL CENTER STREET 2: 29TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10285 FORMER COMPANY: FORMER CONFORMED NAME: HUTTON CONAM REALTY INVESTORS 2 DATE OF NAME CHANGE: 19920703 SC 13E3/A 1 AMENDMENT #1 TO SCHEDULE 13E-3 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------------- AMENDMENT NO. 1 TO SCHEDULE 13E-3 RULE 13E-3 TRANSACTION STATEMENT (PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934) CONAM REALTY INVESTORS 2, L.P. (NAME OF THE ISSUER) ConAm Realty Investors 2, L.P. Continental American Properties, Ltd. ConAm Property Services II, Ltd. ConAm DOC Affiliates LLC (NAME OF PERSONS FILING STATEMENT) Units of Limited Partnership Interest (TITLE OF CLASS OF SECURITIES) 44849P206 (CUSIP NUMBER OF CLASS OF SECURITIES) Frederick B. McLane, Esq. O'Melveny & Myers LLP 400 South Hope Street Los Angeles, CA 90071-2899 (213) 430-6000 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF PERSON(S) FILING STATEMENT) This statement is filed in connection with (check the appropriate box): a.[X] The filing of solicitation materials or an information statement subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the Securities Exchange Act of 1934. b. The filing of a registration statement under the Securities Act of 1933. c. A tender offer. d. None of the above. Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies. [X] CALCULATION OF FILING FEE ================================================================================ $17,084,130 $3,417 Transaction Valuation(1) Amount of Filing Fee ================================================================================ [X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount previously paid: $3,417 Filing party: ConAm Realty Investors 2, L.P. -------------- ------------------------------ Form or registration no.: Schedule 13E-3 Date filed: October 30, 1998 -------------- --------------------------------
Instruction. Eight copies of this statement, including all exhibits, should be filed with the Commission. - -------- (1) For purposes of calculating the filing fee only. The filing fee was calculated in accordance with Rule 0-11 under the Securities Exchange Act of 1934, as amended, and equals 1/50 of one percent of the aggregate amount of cash to be distributed to securityholders in connection with the transaction. CONAM REALTY INVESTORS 2, L.P. 1764 SAN DIEGO AVENUE SAN DIEGO, CALIFORNIA 92110-1906 This Rule 13e-3 Transaction Statement (this "Statement") relates to the proposed sale of the remaining four properties (the "Properties") of ConAm Realty Investors 2, L.P., a California limited partnership (the "Partnership"), to a Delaware limited liability company (the "Purchaser") to be formed if the proposed sale is approved by the Partnership's limited partners. It is anticipated that, shortly after the sale of the Properties, the net proceeds from the sale, together with certain cash reserves, would be distributed to the limited partners and the Partnership would be liquidated. A final distribution of cash from reserves would be distributed to limited partners at the time of liquidation. The general partner of the Partnership is ConAm Property Services II, Ltd. (the "General Partner"). Continental American Development, Inc., a California corporation ("CADI"), and ConAm Development Corp. are the general partners of the General Partner. The shareholders of CADI are substantially identical to the partners of Continental American Properties, Ltd. ("CAPL"). CAPL is the managing member of ConAm DOC Affiliates LLC, which will own a 9% interest in the Purchaser. In addition, the shareholders of CADI are identical to the shareholders of ConAm Management Corporation ("ConAm Management"), which will act as the initial property manager for the Purchaser with respect to the Properties if the proposed sale is approved. A preliminary consent solicitation statement (the "Consent Solicitation Statement") regarding the proposed sale was filed with the Securities and Exchange Commission on October 30, 1998. The following Cross-Reference Sheet is supplied pursuant to General Instruction F of Schedule 13E-3 and cites the location in the Consent Solicitation Statement of the information required to be included in response to the items of this Statement, which Consent Solicitation Statement is hereby incorporated by reference to the extent so cited. Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Consent Solicitation Statement. The Consent Solicitation Statement will be completed and, if appropriate, amended prior to the time it is first sent or given to limited partners of the Partnership. This Statement will be amended to reflect such completion or amendment of the Consent Solicitation Statement. CROSS-REFERENCE SHEET - -------------------------------------------------------------------------------- Item of Schedule 13E-3 Location in Consent Solicitation Statement - -------------------------------------------------------------------------------- Item 1. Issuer and Class of Security Subject to the Transaction - -------------------------------------------------------------------------------- (a) and (b) Outside Front Cover Page, "SUMMARY--The Partnership," "ACTION BY CONSENT--Record Date," "MARKET FOR THE UNITS," "VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF." - -------------------------------------------------------------------------------- (c) "MARKET FOR THE UNITS." - -------------------------------------------------------------------------------- (d) "DISTRIBUTIONS." - -------------------------------------------------------------------------------- (e) Not applicable. - -------------------------------------------------------------------------------- (f) Not applicable. - -------------------------------------------------------------------------------- Item 2. Identity and This Statement is being filed by the issuer and Background certain affiliates of the issuer named in (b) below. - -------------------------------------------------------------------------------- (a)-(c) ConAm Property Services II, Ltd. 1764 San Diego Avenue San Diego, California 92110-1906 State of organization: California Principal business: Real estate investment Continental American Properties, Ltd. 1764 San Diego Avenue San Diego, California 92110-1906 State of organization: California Principal business: Real estate investment ConAm DOC Affiliates LLC 1764 San Diego Avenue San Diego, California 92110-1906 State of organization: California Principal business: Real estate investment ConAm Development Corp. 1764 San Diego Avenue San Diego, California 92110-1906 State of organization: California Principal business: Real estate investment Continental American Development, Inc. 1764 San Diego Avenue San Diego, California 92110-1906 State of organization: California Principal business: Real estate investment DJE Financial Corp. 1764 San Diego Avenue San Diego, California 92110-1906 State of organization: California Principal business: Real estate investment - -------------------------------------------------------------------------------- 2 - -------------------------------------------------------------------------------- Daniel J. Epstein Chairman and Chief Executive Officer ConAm Management Corporation 1764 San Diego Avenue San Diego, California 92110-1906 Principal business: Real estate management J. Bradley Forrester President ConAm Management Corporation 1764 San Diego Avenue San Diego, California 92110-1906 Principal business: Real estate management E. Scott Dupree, Esq. Senior Vice President and General Counsel ConAm Management Corporation 1764 San Diego Avenue San Diego, California 92110-1906 Principal business: Real estate management Robert J. Svatos Senior Vice President and Chief Financial Officer ConAm Management Corporation 1764 San Diego Avenue San Diego, California 92110-1906 Principal business: Real estate management Ralph W. Tilley Senior Vice President and Treasurer ConAm Management Corporation 1764 San Diego Avenue San Diego, California 92110-1906 Principal business: Real estate management - -------------------------------------------------------------------------------- (d) Daniel J. Epstein has been Chairman and Chief Executive Officer of ConAm Management Corporation since 1983. J. Bradley Forrester has been President of ConAm Management Corporation since 1994. Prior to joining ConAm Management Corporation, Mr. Forrester was Senior Vice President--Commercial Real Estate for First Nationwide Bank from 1991 to 1994. First Nationwide Bank was a national savings bank located at 700 Market Street, San Francisco, California. E. Scott Dupree has been Senior Vice President and General Counsel of ConAm Management Corporation since 1985. Robert J. Svatos has been Senior Vice President and Chief Financial Officer of ConAm Management Corporation since 1988. Ralph W. Tilley has been Senior Vice President and Treasurer of ConAm Management Corporation since 1980. - -------------------------------------------------------------------------------- 3 - -------------------------------------------------------------------------------- (e) and (f) During the last five years, neither the Partnership nor any of the persons named in the response to Item 2(a) hereof has been (i) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and, as a result of such proceeding, was or is subject to a judgment, decree or final order enjoining further violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. - -------------------------------------------------------------------------------- (g) All natural persons named in the response to Item 2(a) are citizens of the United States of America. - -------------------------------------------------------------------------------- Item 3. Past Contacts, Transactions or Negotiations - -------------------------------------------------------------------------------- (a)(1) Not applicable. - -------------------------------------------------------------------------------- (a)(2) "SPECIAL FACTORS--Alternatives Considered to the Sale," "THE PROPOSALS--Background of the Sale." - -------------------------------------------------------------------------------- (b) "SPECIAL FACTORS--Alternatives Considered to the Sale," "THE PROPOSALS--Background of the Sale." - -------------------------------------------------------------------------------- Item 4. Terms of the Transaction - -------------------------------------------------------------------------------- (a) and (b) Outside Front Cover Page, "SUMMARY," "SPECIAL FACTORS--Effects of the Sale," "--Fairness of the Sale," "THE PROPOSALS-- The Purchaser," "-- Background of the Sale," "--Conflicts of Interest of the General Partner," "--Terms of the Purchase Agreements," "--The Amendment." - -------------------------------------------------------------------------------- Item 5. Plans or Proposals of the Issuer or Affiliate - -------------------------------------------------------------------------------- (a)-(g) Outside Front Cover Page, "SUMMARY," "SPECIAL FACTORS-- Effects of the Sale," "THE PROPOSALS-- The Purchaser," "--Conflicts of Interest of the General Partner," "--Failure to Approve the Sale." - -------------------------------------------------------------------------------- Item 6. Source and Amounts of Funds or Other Consideration - -------------------------------------------------------------------------------- (a) "THE PROPOSALS--Purchaser's Valuation," "-- Background of the Sale," "--Terms of the Purchase Agreements." - -------------------------------------------------------------------------------- (b) "ACTION BY CONSENT--Action by Consent." - -------------------------------------------------------------------------------- (c) "THE PROPOSALS--Terms of the Purchase Agreements." - -------------------------------------------------------------------------------- (d) Not applicable. - -------------------------------------------------------------------------------- Item 7. Purposes, Alternatives, Reasons and Effects - -------------------------------------------------------------------------------- (a) "SPECIAL FACTORS--Reasons for the Sale," "THE PROPOSALS--Background of the Sale." - -------------------------------------------------------------------------------- (b) "SPECIAL FACTORS--Alternatives Considered to the Sale," "--Fairness of the Sale." - -------------------------------------------------------------------------------- (c) "SPECIAL FACTORS--Reasons for the Sale," "-- Alternatives Considered to the Sale," "--Fairness of the Sale." - -------------------------------------------------------------------------------- 4 - -------------------------------------------------------------------------------- (d) Outside Front Cover Page, "SUMMARY," "ACTION BY CONSENT--Matters to be Considered," "SPECIAL FACTORS--Effects of the Sale," "THE PROPOSALS-- The Purchaser," "--Conflicts of Interest of the General Partner," "CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE," "NO APPRAISAL RIGHTS," "MARKET FOR THE UNITS." - -------------------------------------------------------------------------------- Item 8. Fairness of the Transaction - -------------------------------------------------------------------------------- (a) and (b) "SUMMARY--Fairness of the Sale and Certain Conflicts of Interest," "SPECIAL FACTORS-- Fairness of the Sale." Each filing person reasonably believes that the Sale is fair to the Limited Partners and has adopted the analysis of the General Partner with respect thereto. - -------------------------------------------------------------------------------- (c) Outside Front Cover Page, "SUMMARY--Vote Required," "ACTION BY CONSENT--Action by Consent," "NO APPRAISAL RIGHTS." - -------------------------------------------------------------------------------- (d) "SPECIAL FACTORS--Fairness of the Sale," "THE PROPOSALS--Background of the Sale," "--Conflicts of Interest of the General Partner." - -------------------------------------------------------------------------------- (e) Not applicable. - -------------------------------------------------------------------------------- (f) "SPECIAL FACTORS--Alternatives Considered to the Sale," "THE PROPOSALS--Background of the Sale." - -------------------------------------------------------------------------------- Item 9. Reports, Opinions, Appraisals and Certain Negotiations - -------------------------------------------------------------------------------- (a)-(c) "SUMMARY--Fairness of the Sale and Certain Conflicts of Interest," "SPECIAL FACTORS-- Independent Appraisal." - -------------------------------------------------------------------------------- Item 10. Interest in Securities of the Issuer - -------------------------------------------------------------------------------- (a) "SUMMARY--Security Ownership and Voting Thereof," "VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF." - -------------------------------------------------------------------------------- (b) Not applicable. - -------------------------------------------------------------------------------- Item 11. Contracts, Not applicable. Arrangements or Understandings with Respect to the Issuer's Securities - -------------------------------------------------------------------------------- Item 12. Present Intention and Recommendation of Certain Persons with Regard to the Transaction - -------------------------------------------------------------------------------- (a) "SUMMARY--Security Ownership and Voting Thereof," "VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF." - -------------------------------------------------------------------------------- (b) No recommendation regarding the Sale has been made to date by any person named in paragraph (a) of this Item to any person owning Units in the Partnership. - -------------------------------------------------------------------------------- 5 - -------------------------------------------------------------------------------- Item 13. Other Provisions of the Transaction - -------------------------------------------------------------------------------- (a) "NO APPRAISAL RIGHTS." - -------------------------------------------------------------------------------- (b) Not applicable. - -------------------------------------------------------------------------------- (c) Not applicable. - -------------------------------------------------------------------------------- Item 14. Financial Information - -------------------------------------------------------------------------------- (a) "AVAILABLE INFORMATION," Annex 1 and Annex 2 to Consent Solicitation Statement. The book value per Unit as of the 1997 fiscal year end was $81. - -------------------------------------------------------------------------------- (b) Not applicable. - -------------------------------------------------------------------------------- Item 15. Persons and Assets Employed, Retained or Utilized - -------------------------------------------------------------------------------- (a) "THE PROPOSALS--The Purchaser." - -------------------------------------------------------------------------------- (b) "SUMMARY--Solicitation Agent," "ACTION BY CONSENT-- Action by Consent," "VOTING PROCEDURES." - -------------------------------------------------------------------------------- Item 16. Additional Not applicable. Information - -------------------------------------------------------------------------------- Item 17. Material to be Filed as Exhibits - -------------------------------------------------------------------------------- (a) Not applicable. - -------------------------------------------------------------------------------- (b) Independent Appraisal. - -------------------------------------------------------------------------------- (c) Not applicable. - -------------------------------------------------------------------------------- (d) Previously filed. - -------------------------------------------------------------------------------- (e) Not applicable. - -------------------------------------------------------------------------------- (f) Not applicable. - -------------------------------------------------------------------------------- 6 SIGNATURES After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Statement is true, complete and correct. Dated: November 5, 1998 CONAM REALTY INVESTORS 2, L.P. By: CONAM PROPERTY SERVICES II, LTD. its General Partner By: CONTINENTAL AMERICAN DEVELOPMENT, INC., its General Partner By: /s/ Daniel J. Epstein --------------------------- Name: Daniel J. Epstein ------------------------- Title: President ------------------------ CONAM PROPERTY SERVICES II, LTD. By: CONTINENTAL AMERICAN DEVELOPMENT, INC., its General Partner By: /s/ Daniel J. Epstein -------------------------------- Name: Daniel J. Epstein ------------------------------ Title: President ----------------------------- CONTINENTAL AMERICAN PROPERTIES, LTD. By: DJE FINANCIAL CORP., its General Partner By: /s/ Daniel J. Epstein -------------------------------- Name: Daniel J. Epstein ------------------------------ Title: President ----------------------------- CONAM DOC AFFILIATES LLC By: CONTINENTAL AMERICAN PROPERTIES, LTD., its Administrative Member By: DJE FINANCIAL CORP., its General Partner By: /s/ Daniel J. Epstein --------------------------- Name: Daniel J. Epstein ------------------------- Title: President ------------------------ 7 EX-99.(B) 2 INDEPENDENT APPRAISAL EXHIBIT B ================================================================================ A COMPLETE, SELF-CONTAINED APPRAISAL OF THE CREEKSIDE OAKS APARTMENTS 9780 CREEKFRONT ROAD JACKSONVILLE, FLORIDA FOR HUTTON/CON AM REALTY INVESTORS 2 1764 SAN DIEGO AVENUE SAN DIEGO, CALIFORNIA 92110 AS OF DECEMBER 31, 1997 BY BACH REALTY ADVISORS, INC. 1221 LAMAR, SUITE 1325 HOUSTON, TEXAS 77010 BRA: 97-075 ================================================================================ B.A.C.H Realty Advisors, Inc. Appraisal, Consultation & Litigation March 21, 1998 Hutton/Con Am Realty Investors 2 1764 San Diego Avenue San Diego, California 92110 Re: A Complete, Self-Contained Appraisal of the 120-Unit Multifamily Complex Known as the Creekside Oaks Apartments Located at 9780 Creekfront Road in Jacksonville, Florida; BRA: 97-075 Gentlemen: By your request and authorization, we have inspected the above-referenced property and have investigated the real estate market in the subject area in order to provide the value of the leased fee estate of the subject property as of December 31, 1997. This complete, self-contained appraisal report is in conformance with the guidelines of the Appraisal Institute. The scope of this assignment includes the Sales Comparison and Income Approaches to value. The property was inspected in December 1997 and for the purposes of this report it is assumed that all physical and economic conditions are similar on the date of value as they were on the date of inspection. Our analysis of the property focused on the supply and demand factors influencing the Jacksonville area apartment market, the sale of comparable properties, market rent levels, appropriate operating expenses, and acceptable investor returns. As a result of our inspection of the property, investigation of the real estate market, and relying on our experience with similar type properties, it is our opinion that the leased fee market value of the subject property, all cash, on an "as is" basis, as of December 31, 1997 is in the sum of FIVE MILLION FIVE HUNDRED THOUSAND DOLLARS ($5,500,000) There follows on the succeeding pages of this report pertinent data as to the valuation conclusions expressed herein. Your attention is also directed to the Assumptions and Limiting Conditions that follow this letter, as they are an integral part of the above stated market value. Thank you for the opportunity to be of service. If there are any questions regarding the valuation, please contact us. Sincerely, BACH REALTY ADVISORS, INC. /s/ Stevan N. Bach Stevan N. Bach, MAI President and Chief Executive Officer Four Houston Center 1221 Lamar, Suite 1325 Houston, TX 77010 (713) 739-0200 Fax (713) 739-0208 ASSUMPTIONS AND LIMITING CONDITIONS - -------------------------------------------------------------------------------- The certification of this appraisal is subject to the following assumptions and limiting conditions. 1. That responsibility is not taken for matters of a legal nature affecting the property appraised or the title thereto and that all legal descriptions furnished are correct. 2. That the title to the property being appraised is good and marketable and is appraised as though under responsible ownership and/or management. 3. That the property is free and clear of all liens and encumbrances, except as otherwise stated. 4. That the sketches in this report are included to assist the reader in visualizing the property and responsibility is not assumed for their accuracy. 5. That a survey of the property has not been made by the appraiser. 6. That the information, estimates, and opinions furnished the appraiser by others and contained in this report are considered reliable and are believed to be true and correct; however, responsibility is not taken for their accuracy. 7. That responsibility is not taken for soil conditions or structural soundness of the improvements that would render the property more or less valuable. 8. That possession of this appraisal does not carry with it the right of publication and that this report, or any parts thereof, may not be reproduced in any form without written permission of the appraiser. 9. That testimony or attendance in court or at a hearing are not a part of this assignment; however, any such appearance and/or preparation for testimony will necessitate additional compensation than received for this appraisal report. 10. That the valuation estimate herein is subject to an all cash or all cash equivalent purchase and does not reflect special or favorable financing in today's market. 11. Where discounted cash flow analyses have been undertaken, the discount rates utilized to bring forecasted future revenues to estimates of present value reflect both our market investigations of yield anticipations and our judgement as to the risks and uncertainties in the subject property and the consequential rates of return required to attract an investor under such risk conditions. There is no guarantee that projected cash flows will actually be- achieved. 2 12. That the square footage figures are based on floor plans and information supplied to the appraiser by Con Am Management. 13. Bach Realty Advisors. Inc. is not an expert as to ------------------------------------------------- asbestos and will not take any responsibility for its ----------------------------------------------------- existence or the existence of other hazardous --------------------------------------------- materials at the subject property, analysis for EPA --------------------------------------------------- standards, its removal, and/or its encapsulation. If ---------------------------------------------------- the reader of this report and/or any entity or person ----------------------------------------------------- relying on the valuations in this report wishes to -------------------------------------------------- know the exact or detailed existence (if any) of ---------------------------------------- ------- asbestos or other toxic or hazardous waste at the ------------------------------------------------- subject property, then we not only recommend, but ------------------------------------------------- state unequivocally that they should obtain an ---------------------------------------------- independent study and analysis (including costs to -------------------------------------------------- cure such environmental problems) of asbestos or other ------------------------------------------------------ toxic and hazardous waste ------------------------- 14. In addition, an audit on the subject property to determine its compliance with the Americans with Disabilities Act of 1990 was not available to the appraiser. The appraiser is unable to certify compliance regarding whether the removal of any barriers which may be present at the subject are readily achievable. 3 CERTIFICATION - -------------------------------------------------------------------------------- The undersigned does hereby certify to the best of his knowledge and belief that, except as otherwise noted in this complete, self-contained appraisal report: 1. I do not have any personal interest or bias with respect to the subject matter of this appraisal report or the parties involved. 2. The statements of fact contained in this appraisal report, upon which the analyses, opinions, and conclusions expressed herein are gauged, are true and correct. 3. This appraisal report sets forth all of the limiting conditions (imposed by terms of my assignment or by the undersigned) affecting the analyses, opinions, and conclusions contained in this report. 4. The analysis, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Uniform Standards of Professional Appraisal Practice of the Appraisal Institute. 5. That no one other than the undersigned prepared the analyses, opinions, and conclusions concerning the subject property that are set forth in this appraisal report. Stevan N. Bach, MAI inspected the property in December 1997. 6. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 7. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions, and conclusions. 8. The Appraisal Institute conducts a program of continuing education for its members. Members who meet the minimum standards of this program are awarded periodic educational certification. As of the date of this report, Stevan N. Bach, MAI has completed the requirements under the continuing education program of the Appraisal Institute. 9. Compensation for this assignment is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. 10. That all physical and economic conditions are the same on the date of value as they were on the date of inspection. 4 11. Based on the knowledge and experience of the undersigned and the information gathered for this report, the estimated leased fee market value, "as is," of the subject property on an all cash basis, as of December 31, 1997 is $5,500,000. /s/ Stevan N. Bach ------------------------------------------------- Stevan N. Bach, MAI President and Chief Executive Officer Certified General Real Property Appraiser State of Texas TX-1323079-G 5 SALIENT FACTS AND CONCLUSIONS - -------------------------------------------------------------------------------- Identification: The Creekside Oaks Apartments 9780 Creekfront Road Jacksonville, Florida Location: West end cul de sac of Creekfront Road west of Southside Boulevard in Jacksonville, Florida BRA: 97-075 Legal Description: A 17.71-acre tract known as Parcels 1 and 2, Section 24, Township 3 South, Range 27 East, Duval County, Florida Land Size: 17.71 acres or 771,447 square feet Building Area: 142,792 square feet of net rentable space plus two, 1,200-square-foot leasing office/clubhouses Year Built: 1984 Unit Mix: 32 1BR/1BA at 868 square feet 48 2BR/BA/FLAT at 1,196 square feet 32 2BR/2BA/TH at 1,430 square feet 8 3BR/2BA/TH at 1,481 square feet No. of Units: 120 Average Unit Size: 1,190 square feet Occupancy Physical: 96.7 percent Economic: 89.5 percent Highest and Best Use As Vacant: Apartment development As Improved: Current use (as apartments) Date of Value: December 31, 1997 "As Is" Market Value by Sales Comparison Approach: $5,600,000 "As Is" Market Value by Income Approach: $5,500,000 "As Is" Market Value Conclusion: $5,500,000 6 NATURE OF THE ASSIGNMENT - -------------------------------------------------------------------------------- PURPOSE OF THE APPRAISAL The purpose of this complete, self-contained appraisal is to give an estimate of the "as is" leased fee market value of the subject property on an all cash basis. IDENTIFICATION OF THE PROPERTY The subject of this appraisal report is the Creekside Oaks Apartments located at 9780 Creekfront Road in Jacksonville, Florida. DATE OF THE APPRAISAL All opinions of value expressed in this report reflect physical and economic conditions prevailing as of December 31, 1997. DEFINITION OF SIGNIFICANT TERMS The Appraisal of Real Estate, Eleventh Edition, 1996, sponsored by the Appraisal Institute defines Market Value as: "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) Buyer and seller are typically motivated; (2) Both parties are well informed or well advised, and acting in what they consider their own best interests; (3) A reasonable time is allowed for exposure in the open market; (4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale." Leased Fee Estate - An ownership interest held by a landlord with the rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the leased fee are specified by contract terms contained within the lease./1/ ________________________________ /1/The Dictionary of Real Estate Appraisal, Third Edition, p. 204. --------------------------------------- 7 FUNCTION OF THE APPRAISAL It is the understanding of the appraiser that the function of this appraisal is for annual partnership and/or internal purposes. PROPERTY RIGHTS APPRAISED The appraisers have appraised the "as is" leased fee interest subject to short-term leases which are typically 6 to 12 months in duration at the subject property. THREE-YEAR HISTORY No transfers of ownership to the subject were discovered during the past three years upon interviews with real estate brokers in the area and research into the grantor/grantee deed records of Duval County, Florida. SCOPE/BASIS OF THE APPRAISAL This appraisal has been made in accordance with accepted techniques, standards, methods, and procedures of the Appraisal Institute. The values set forth herein were estimated after application and analysis by the Sales Comparison and Income Approaches to value. These approaches are more clearly defined in the valuation section of this report. The Cost Approach was not used as a method of valuation in this appraisal. The Cost Approach is typically the least reliable indicator because cost does not necessarily reflect value. Moreover, estimates of depreciation are difficult to accurately measure in the marketplace, thereby compounding the speculative nature of the opinions derived in the cost method of valuation. The scope of our assignment included obtaining pertinent property data from the client regarding income and expense figures, tenant rent rolls, and permission to inspect the subject. Additionally, the appraisers conducted research either personally or through associates to obtain current market rental rates, construction trends, the sale of comparable improved properties, anticipated investor returns, and the supply and demand of competitive apartment projects in the general and immediate area. After these examinations were performed, an analysis was made in order to estimate the leased fee market value of the subject on an "as is" basis. 8 AREA MAP APPEARS HERE --------------------- CITY/NEIGHBORHOOD ANALYSIS - -------------------------------------------------------------------------------- Jacksonville is the seat of Duval County and is situated near the northeastern corner of Florida on the St. Johns River. This location is approximately 150 miles north of Orlando, 165 miles east of Tallahassee, and 15 miles west of the Atlantic Ocean. The city of Jacksonville was consolidated with Duval County in the 1960s and has since been recognized as one of the largest incorporated municipalities in the nation in terms of land area with 841 square miles. In population, Jacksonville is one of the 20 largest cities in the United States and the most populous incorporated city in Florida. In 1990 the U.S. Bureau of the Census estimated the city's population at 648,200 persons. In 1995 this estimate increased to 676,718. The Jacksonville Metropolitan Statistical Area (MSA) includes Duval, Clay, St. Johns, and Nassau Counties. The 1990 MSA population was estimated at 906,727 according to the Census bureau, which indicates that the MSA is the fifth largest MSA in Florida after Tampa-St. Petersburg-Clearwater, Miami-Hialeah, Fort Lauderdale-Hollywood-Pompano Beach, and Orlando. As of January 1, 1997 the Jacksonville MSA stood at 1,025,600 or 13.1 percent higher than the 1990 population. The following chart depicts the Jacksonville MSA population and employment growth over the past two decades.
1970 1980 1990 1994 1995 2005* ------------------------------------------------------------ Population 612,600 722,300 906,727 981,600 994,900 1,140,700 Employment 159,400 281,800 422,700 437,474 460,245 625,690
Source: U.S. Bureau of the Census, Florida Department of Labor and Employment Security *Projection Historical population growth for the Jacksonville MSA from 1980 to 1990 averaged 2.3 percent per year. The growth has decreased slightly to 1.7 percent annually from 1990 to 1995. Population increases are anticipated to continue as job growth rises and as stated above the population estimated as of January 1, 1997 was 1,025,600. The Bureau of Business & Economic Research at the University of Florida projects the Jacksonville MSA population to be between 967,000 and 1,178,000 by the year 2000. The median projection for this time period is a population of 1,063,700. The greatest population growth has recently occurred to the south and east of the St. Johns River in Duval County. Other notable growth has been observed in northeastern Clay County near Orange Park, and in northern St. Johns County particularly along the Atlantic Coast beaches. The median age of the population in the Jacksonville MSA is lower than that found in the retirement havens of southern Florida. The median age in this MSA is 34 years according to the Census Bureau. This compares to about 36 years in Miami, 39 years in Fort Lauderdale, and 40 years in Tampa. The medium age in the city of Jacksonville is slightly less (33.3 years) than for the MSA. 9 Jacksonville was originally known as Florida's industrial city due to its port, shipyards, paper mills, and food processing plants. More recently, however, Jacksonville has become known as a regional center for banking, insurance, medicine and distribution. The Research Department of the Jacksonville Chamber of Commerce reported that the six largest private sector employers in the area were: Winn- Dixie Grocery Company, AT&T, Publix Super Market, Blue Cross/Blue Shield of Florida, Barnett Banks, and CSX Transportation. Two of Florida's largest banks, Barnett Bank and First Union, are officed in Jacksonville, along with 30 insurance companies. Jacksonville is also becoming a major back-office hub, as large corporations set up customer service centers and data processing operations in the area, including Merrill Lynch & Company, AT&T Corporation, and America Online, Inc. in the past few years. In addition, the world-renowned Mayo Clinic has one of its two regional medical centers located in southeastern Jacksonville. The recent additions in these medical and service-related industries have contributed to a more diverse economy in the area, and have helped civic leaders' attempts to transform the city's image from that of an industrial town to a regional distribution, service, and financial center. The largest contributor to the Jacksonville employment market is its three naval installations which include: Cecil Field Naval Air Station, located in the southwest sector of Duval County; Jacksonville Naval Air Station, located on the west bank of the St. Johns River a few miles south of the Central Business District (CBD), and the Mayport Naval Training Center, situated at the mouth of the St. Johns River near the Atlantic Ocean. These military establishments in Jacksonville employ approximately 31,200 civilian and military personnel. More recently, Cecil Field has been placed on the government's list of possible closures due to budget cutting measures. It is due to be closed in August 1999, which should result in the loss of approximately 7,500 military and civilian jobs. Jacksonville created the Cecil Field Development Commission with the task of developing a reuse plan for Cecil Field. The commission was dissolved in May 1997 as it had completed its task and transferred duties and functions to the Jacksonville Economic Development Commission. Infrastructure improvements are being discussed and to date funding has been secured for three major projects: survey of the land for city incorporation; three-phased conversion of the water and sewer systems to the city systems; and a transportation study (completed). The Naval Air Station is increasing in size because of the consolidation of units to the Jacksonville Naval Air Station. The net result in the closure and consolidation is little change in the present number of personnel. Total civilian employment in the Jacksonville MSA as of April 1996 was 480,100 persons according to the Florida Department of Labor and Employment Security. The unemployment rate as of that date was 3.3 percent down from 3.7 percent in February 1996, or lower than the U.S. Department of Labor's 4.8 percent rate for the state of Florida as of the same date. The above is the latest information received from the Jacksonville Chamber of Commerce. 10 The breakdown of nonagricultural employment as of November 1995 in the Jacksonville area is presented below and illustrates the growing diversity of the local employment base.
NONAGRICULTURAL EMPLOYMENT NUMBER PERCENT ------------------------------------------------------------ Manufacturing 35,500 7.4 Construction 24,200 5.0 Transportation, Communications, Utilities 32,000 6.7 Trade 117,600 24.5 Finance, Insurance, Real Estate 50,300 10.5 Services & Miscellaneous 152,900 31.8 Government 67,200 14.0 Other 400 0.1 ------- ----- Total 480,100 100.0
Source: Florida Department of Labor and Employment Security, November 1995. Note: The 480,100 estimates varies from the earlier stated estimate of 460,245. A surge of new jobs in Jacksonville earned the city a spot as the ninth fastest-growing metro labor market in 1996, according to the latest figures from the U.S. Bureau of Labor Statistics between 1993 and 1995, non-farm employment in Duval, St. Johns, Nassau and Clay Counties jumped 9.6 percent from 438,600 to 480,800. Despite its Florida location, the tourist/convention industry has a smaller impact on the Jacksonville MSA economy than in other parts of the state. Most area beaches and recreation facilities cater to local residents. The exception would be the Amelia Island Resort located 20 miles northeast of the city on the Atlantic Ocean. Amelia Island features world-class golf and tennis and luxury resort accommodations and is designed to attract vacationers from around the country. The most recent addition to this resort was the 450-room Ritz Carlton Hotel, which opened in June of 1991. The increase in service-oriented industries in Jacksonville has resulted in a substantial increase in income for the area's residents. Per Capita income rose by an average of approximately 1.4 percent per year from 1986 to 1995.
JACKSONVILLE MSA YEAR PER CAPITA INCOME --------------------------- 1986 $14,629 1987 15,482 1988 16,490 1989 14,973 1990 15,695 1995 16,920
Source: U.S. Department of Commerce, Bureau of Economic Analysis According to a demographic profile of Duval County, the medium household effective buying income was $15,712 as of January 1, 1997. Additionally there were 278,800 households with 48 percent owner-occupied. Total Duval County population was 733,500 with projections of 787,000 by the year 2005. 11 Jacksonville is a major distribution center of durable goods for Florida and Georgia. Transportation facilities include an international airport, rail service from various railroad companies, numerous private freight distribution companies, and bus service. Jacksonville has rail facilities with multi-modal transportation capabilities. The Port of Jacksonville, which utilizes the St. Johns River from the east end of the CBD to the Atlantic Ocean, is a leading import center for foreign automobiles. This facility consists of both the Blount Island Marine Terminal (867 acres) and the Talleyrand Docks and Terminals (173 acres) and features a 38-foot-deep channel. The Jacksonville Port Authority has acquired 589 acres of property on Dames Point for its third terminal development, which is the result of demand from new ship lines. A $300,000,000 project to deepen the harbor from 38 to 42 feet has been proposed. The international airport, operated by the Jacksonville Port Authority, has undergone $100 million of improvements, which added two new terminals, twelve new gates, and extended a runway to accommodate larger planes for transcontinental flights. Two major Interstate Highways, Interstate 10 and Interstate 95, intersect near downtown Jacksonville. Interstate 10 travels west from the city to the Gulf Coast communities in the Southeastern U.S., then continues west through the Southwestern U.S. to Los Angeles. Interstate 95 runs north/south along the Eastern Seaboard of the U.S. Interstate 295 provides a bypass around the major urbanized areas of the city to the northeast, northwest, west, and south. Completion of the eastern section of Interstate 295, which would create a beltway around the city, has been proposed with limited access approach roads expected to be in place by 2000. Many of the express roads and highways in Jacksonville formerly were toll roads; however, the toll charges were removed in the mid-1980s. The unified city/county government in Jacksonville and Duval County has been a unique feature of the area since the 1960s. A singular taxing authority collects for schools and municipal services for all residents. Excepted from Jacksonville city authority are the communities of Atlantic Beach, Neptune Beach, and Jacksonville Beach, which are separate incorporated municipalities within Duval County. Twenty miles of beaches along the Atlantic Ocean provide a wealth of recreational opportunities for area residents. The wide St. Johns River south of the CBD is popular with local pleasure craft. The average annual temperature in Jacksonville is 71 degrees with annual rainfall averaging 55 inches. Residents' needs for higher education in the area are served by several local colleges and universities such as Jacksonville University, the University of North Florida, and Florida Community College. Jacksonville is the headquarters for both the Professional Golf Association and Association of Tennis Professionals tours. It is also the home of the newest member of the expanded National Football League, the Jacksonville Jaguars. The team plays in the City's Gator Bowl Stadium, which seats 82,000 after renovation. The area boasts six museums, an active arts association, and one major daily newspaper. In addition, St. Augustine in neighboring St. Johns County to the south is the oldest city in 12 North America, and features numerous historic buildings and landmarks including the Castillo de San Marcos National Monument. The diversification of the economy has affected development in the Jacksonville area over the past several years. According to Reynolds, Smith and Hills, Inc. (RS&H), a local real estate research and development company, the total inventory of office space in the area in 1990 was 12,436,000 square feet. There has been about 1,040,000 square feet of office construction since 1990. Over 5 million square feet of office space has been constructed since 1987, with half in the suburban markets. Most suburban development was intended for single-tenant usage by companies such as Barnett Bank, American Express, CSX, and Blue Cross/Blue Shield. Of these, Barnett Bank developed an 820,000-square-foot nonbanking headquarters facility in a campus-style environment near the intersection of Southside Boulevard and U.S. 1 in southeastern Jacksonville. As of August 1997, the Central Business District (CBD) consisted of 57 buildings with a total of 6,298,533 square feet and a total for Jacksonville of more than 130 buildings with over 13,000,000 square feet, the majority of which are in the Southside (Butler) area at 84 for 5,199,037 square feet. As of August 1997, office announcements indicated eight projects to contain about 876,000 square feet and provide over 3,480 jobs. Additionally seven other projects are to be announced that total over 1.6 million square feet. Companies involved in the announced projects are Atlantic Teleservices, Barnett Banks, Purdential Health Care, Chase Manhatten Corporation, Koger Equity, Gran Central Corporation, and Hallmark Partners. The office market in Jacksonville is active and reports by submarket in the August 15, 1987 issue of Commercial Real Estate indicate a tightening and strong market with new construction justified. Vacancy is now in single digits city-wide and all submarkets have lower vacancy than one year ago except for one submarket. Rents city-wide have increased $1.50 to $3.00 per square foot from 1996 levels and proposed projects are expected to obtain rents in excess of $20 per square foot. The increasing household income in Jacksonville has attracted a substantial amount of retail development in recent years. Most of this development has occurred in suburban markets on the south side and in the beach communities. In September 1990, The Avenues Mall was completed offering over 1.4 million square feet of retail space at Southside Boulevard and U.S. Highway 1. Food Lion, a North Carolina-based grocery chain, constructed 17 strip centers throughout the Jacksonville area during 1988 and 1989. Beach area redevelopment featured the opening of two regional centers known as Sandcastle Plaza and South Beach Center, and several large "power" centers were constructed near two of the regional malls in the area. As of December 31, 1996 the Jacksonville MSA showed total retail sales at $ 10.155 million, up 30.5 percent since year end 1991. Duval County, which encompasses Jacksonville, had retail sales of 7.644 million or an increase of 26.3 percent since 1991. Based on information from the ULI Market Profiles: 1996 ------------------------- 13 (NEIGHBORHOOD MAP APPEARS HERE] ------------------------------ rents for retail space have stabilized since 1987 ranging from $30.00 to $50.00 per square foot per year for enclosed mall space. Typical rent levels for smaller centers experienced a slight increase to a range between $9.00 and $14.00 per square foot. Rental rates for older strip centers range from $4.00 to $8.00 per square foot. Retail development is projected to be stable until vacant space within the market is reasonably absorbed. Residential growth in the northern and middle St. Johns County areas, southside-Intracoastal west, and the Avenue-U.S. Highway 1- Southside Boulevard areas of the city is expected to produce retail activity in these markets. Residential, both single and multi-family remains active in development. The October 31, 1997 edition of Homefront identifies over 320 single family developments that are active today. The industrial real estate sector has not experienced the significant vacancy problems incurred by the office and retail markets. This sector is very strong in the Jacksonville area and is experiencing heavy demand for build-to-suit space from industry entering the market. New construction during 1995 totaled over 1.5 million square feet, a new record high. The major projects in the area include Sara Lee's Coach subsidiary; NatureForm, Inc.; Pilot Pen Corporation; Sally Industries; H.J. Heinz Company's Portion Pac, Inc.; Viking Office Products and a Georgia Pacific expansion. The majority of new construction is taking place in the south and west sides of Jacksonville. As established by the NAIOP report in August 1997, the south side submarket has favorably responded to the one-year supply of space, however, there remains 300,000 square feet within six buildings that has not been leased. Activity for this space has been slow. The west side market continues to grow and is said to be a strong market. The north side submarket is strong with minimal vacancy and the Port Authority is expected to spend about $100 million on airport and seaport capital improvements, which were to begin October 1997. Industrial parks of tradeport and Imeson will benefit most from the expenditures. The apartment market is discussed in the Apartment Market Analysis section that follows. NEIGHBORHOOD ANALYSIS The subject is located on the southeast side of Jacksonville approximately 8 aerial miles from downtown. The neighborhood is generally described as a corridor which runs north/south along Southside Boulevard between J. Turner Butler Boulevard (Florida State Road 202) and Phillips Highway (U.S. Highway 1). The east and west boundaries of the neighborhood should be considered to be 1 mile on either side of and parallel to Southside Boulevard to the north of U.S. Highway 1 and south of J. Turner Butler Boulevard. Southside Boulevard is a four-laned divided thoroughfare crossing the city's south and east sides northward from Phillips Highway at its southern end. Through the subject neighborhood, this street has an access road parallel to its west side providing entry to commercial and residential properties on that side of 14 the street. Major cross streets to Southside Boulevard in this neighborhood include J. Turner Butler Boulevard at the north, Baymeadows Road near the center of the neighborhood, and Phillips Highway at the south end. Each of these three streets is a four-laned roadway and each connects Southside Boulevard traffic to Interstate Highway 95 (I-95) to the west. Southbound traffic on Southside Boulevard is provided access to southbound I-95 south of Belle Rive Boulevard, while northbound traffic on this interstate is allowed access onto northbound lanes of Southside Boulevard at this same point. The popularity of this neighborhood to residential and commercial/retail users can be directly attributed to its easy access to major employment centers. I-95 to the west provides good access from the neighborhood to the CBD. In addition, several major suburban office and industrial parks are located either within the neighborhood boundaries or within a short distance. Barnett Bank has its nonretail banking headquarters in a campus-style facility within the neighborhood on the west side of Southside Boulevard just south of the I-95 exits. Merrill Lynch has built a regional support facility at the opposite end of the neighborhood at the southeast corner of Southside Boulevard and J. Turner Butler Boulevard. The Southpoint Office Park, a major suburban office location, is situated just 1 mile northwest of this neighborhood at the intersection of I-95 and J. Turner Butler, and the Deerwood Industrial Park is 1 mile west at I-95 and Baymeadows Road. In the retail sector, several neighborhood shopping centers are noted along either side of Baymeadows Road between I-95 and Southside Boulevard, and also to the east of Southside Boulevard at Baymeadows Road. The Grande Boulevard center, mentioned in the city analysis above, is situated in this neighborhood at the northwest corner of Baymeadows Road and Southside Boulevard. The most significant new addition in the retail sector of the neighborhood has been The Avenues regional shopping mall, situated at the south end of this neighborhood at the northwest corner of Southside Boulevard and Phillips Highway and also bound by I-95. This regional center has over 1.4 million square feet of enclosed retail space and is anchored by several national retail chain stores. The Avenues Mall has attracted the development of a 308,000 square foot community "power" center called Southside Square across the street on Southside Boulevard; this new shopping center features both Mervyn's and Target. A Home Depot has been recently constructed to the north of Southside Square, while a 10-acre development just south of The Avenues along Phillips Highway has also been completed anchored by two fast-food restaurants, a third full-service restaurant, and a Toys `R' Us store. All of this commercial development is supported by the growth in the residential sector of Jacksonville's southeast side over the past decade. The subject neighborhood illustrates this trend with over fifteen apartment and condominium developments developed in the subject neighborhood since 1980. Surveys from over half of the on-site leasing agents in the area typically report physical occupancy rates at these properties at/or over 92 percent. Two golf course 15 communities, Baymeadows and Deerwood, feature single-family homes typically priced from $150,000 and catering to upper- middle-income home buyers. Despite the growth in the area, about one-third of the land in the neighborhood lies vacant and ready for development. To the south and east of this neighborhood are typically vacant areas; to the north and west lie a mixture of properties from office, retail and industrial properties along Phillips Highway and I-95, to older single and multifamily residential subdivisions. The Duval District provides bus service to children in the neighborhood attending public schools, and the University of North Florida is located about 2 miles northeast of this neighborhood at J. Turner Butler Boulevard and St. Johns Bluff Road. St. Luke's Hospital is about 1 mile northwest of the neighborhood in the Southpoint Office Park. Police and fire protection is provided by the city of Jacksonville. The neighborhood's easy access to all of the supporting facilities mentioned above has made the Southside Boulevard corridor one of the most attractive areas in Jacksonville. Physical occupancy rates in many multifamily developments in this area are above 90 percent. Only one new apartment project was permitted in the neighborhood in 1991, that being two additional phases to the Park Avenues project. There were no new apartment projects permitted in 1992 or 1993. This compares to 593 units permitted as of the end of the Second Quarter 1995. No new retail centers are planned as developers concentrate on leasing of new existing space along Southside Boulevard. As the neighborhood becomes more built out, it will likely experience a period of stability as it matures in the long term compared to the period of rapid development this neighborhood enjoyed throughout most of the 1980s. CONCLUSION Jacksonville, with a January 1997 U.S. Census Bureau population of 1,025,600 in its MSA, was known in the past as a military and industrial port city at the northeastern end of Florida. However, the employment base has grown and diversified over the past two decades as major banks, insurance companies and medical service industries have opened regional or headquarter offices in the area. This activity has increased the income of area residents and spurred significant job growth through much of the 1980s. Although Jacksonville is not noted as a major tourist center compared to southern areas of Florida, the area has attractive beaches and a redeveloped downtown riverfront area to serve the local population. The diversification of the employment base ignited office development both downtown and in the south side suburbs during the past ten years. Numerous large retail centers have been built in recent years to support the growing Jacksonville area population and income. Major private employers include Barnett Bank, Blue Cross/Blue Shield of Florida, and CSX Transportation. Nonetheless, the city's naval presence, with over 30,000 personnel, still dominates employment in the area. 16 While new industries and employers such as America Online and AT&T have continued to enter the local employment market with new back-office operation centers, the appraisers anticipate less office development as the focus in the marketplace switches to absorption and renovation of existing vacant space. Bright spots in the Jacksonville real estate market include improving occupancy rates in the apartment market and a relatively low industrial space vacancy rate compared to other industrial markets nationwide. The city of Jacksonville appears to be enjoying a favorable economic climate. Construction permits and absorption of space in some sectors such as single-family residential have increased, while unemployment figures remain low. Although the closing of the Cecil Field Naval Air Station is not favorable, many of the lost jobs could potentially be offset by additions to the area's other two Naval bases and to the reuse plan of Cecil Field. The city's diversifying economic base, good supporting facilities, Florida sunbelt location, and good quality of life should support growth and absorption in all sectors. 17 [MARKET AREA MAP APPEARS HERE] APARTMENT MARKET ANALYSIS - -------------------------------------------------------------------------------- Information from two surveys was utilized in the analysis of the Jacksonville apartment market analysis. The first is the Apartment Market Survey for Greater Jacksonville, Florida, Second Quarter, 1996 prepared by the Jacksonville Planning and Development Department and the Northeast Florida Apartment Council. The second is the Jacksonville Apartment Market Survey, Third Quarter 1997, published by Vestcor Realty Management, Inc. Most references are made to the survey prepared by the Vestcor Realty Management, Inc. as the FIRST SURVEY WAS NOT MADE IN 1997 BY THE PLANNING DEPARTMENT AND NORTHEAST FLORIDA APARTMENT COUNCIL. Construction of apartment projects in Jacksonville during the late 1980s continued but at lower levels each year from 1985 through 1989. The credit restrictions by lenders and their regulators following the savings and loan scandals in the mid-1980s contributed to make construction funds scarce for apartment developers nationwide. The chart below illustrates the units constructed per year in Jacksonville since 1985. YEAR TOTAL UNITS PERMITTED ------------------------------- 1985 5,079 1986 4,521 1987 2,656 1988 1,949 1989 1,407 1990 1,707 1991 1,170 1992 0 1993 278 1994 912 1995 1,073 1996 3,284 1997 978 Source: Jacksonville Planning and Development Department In 1996 3,284 units were permitted for five or more dwelling units. In 1997 there were 978 units permitted. The outlook for future development of apartment projects in the Jacksonville area appears to be good as occupancies are in the 90 percent to 95 percent range and the economy remains healthy. Construction was visible to the appraiser in the south part of Jacksonville. According to the Jacksonville Planning Department, the current number of apartment units existing in the metropolitan area is approximately 54,000. The Planning Department conducts a survey of the city and area apartment market. This survey is done by mail to the owners and/or managers of apartment complexes in Duval County as well as in northern Clay and St. Johns Counties, and the results of the survey are published every quarter year in the department's Apartment Market Survey. The Second Quarter of ----------------------- this survey, which is stated to reflect the area apartment market as of the end of June 1996, is the most recent 18 available; this survey is compiled based on the responses of owners and/or managers of 27 percent of the total existing apartment units in the area. Of the 27 percent or 14,575 units, there was a physical occupancy rate of 95.58 percent with one bedroom apartments with the highest rate at 96.23 percent and efficiencies with the lowest average occupancy rate this quarter at 92.25 percent. The physical occupancy rates and average monthly rents as of the Second Quarter 1996 are generally higher among those properties, which were built since 1990. The Third Quarter 1997 market survey by Vestcor Realty Management, Inc. reflects the following statistics for average occupancy. 3rd Qtr 3rd Qtr CHANGE CATEGORY 1997 1996 IN 1 YEAR --------------------------------------------------------- All units 92.8% 92.2% 0.6% Built before 1979 92.1% 89.2% 2.9% Built 1980--1989 94.0% 95.6% (1.6%) Built 1990--1997 90.1% 92.2% (2.1%) This survey indicates a slight increase in occupancy for all units from one year ago with pre-1979 constructed units receiving 2.9 percent positive occupancy while post 1980 and post 1990 construction showed 1.6 to 2.1 percent decreases in occupancy. The major reason for the decrease appears to be home-buying alternatives. The Vestcor apartment market survey includes every apartment community with more than 100 units. They compared the information received from on-site personnel to their electric meter analysis. Properties undergoing renovation or in lease-up were removed from the database. If occupancy data on properties was not consistent with the electric meter analysis, these properties were also removed. The result was a review of 186 apartment complexes containing 41,572 units or nearly 70 to 75 percent of the units in the Jacksonville area by a 1996 count. Average monthly rental rates per unit were obtained by Vestcor and are delineated below by year of construction. 3rd QTR 3rd QTR CHANGE CATEGORY 1997 1996 IN 1 YEAR ----------------------------------------------------- All units $ 568 $ 565 +3--0.5% Built before 1979 $ 509 $ 504 +5--1.0% Built 1980--1989 $ 605 $ 596 +9--1.5% Built 1990-- 1997t $ 809 $ 791 +18--2.3% The Vestcor survey for the First Quarter 1996 reported an average monthly rental rate per unit for the Jacksonville area of $540. This compared to $565 per unit during the Third Quarter 1996 indicates an increase in rental rates during the 6 months from the Vestcor survey is 4.6 percent. The survey indicates a slight monthly rental rate increase for all apartment units surveyed, but increases of 1 percent to 2.3 percent for various construction dated classified units. It is important to note that the increases in categories by year built tend to counter the findings of rental increases for all units and indicate that 19 the increase for all units should be between 1 percent to 2.3 percent or on average about 1.65 percent. Secondly, the 2nd Quarter 1997 average monthly rental for all units was $574, which would indicate a $6.00 reduction to the 3rd Quarter 1997 average monthly rent of $568.. Overall, the Jacksonville apartment market appears to be healthy. Construction permits recorded for 1992 and 1993 were at their lowest levels in years, or from a high of 5,079 units in 1985 to 0 units permitted for 1992 and 278 in 1993. For 1994 and 1995, there were 912 and 1,073 units permitted, respectively. In 1996, there were 3,284 units permitted, while in 1997 there were 978 units permitted. Physical occupancy as of the Third Quarter 1997 was at 92.8 percent, which is a drop from 1996, but reflects the new construction. Absorption rates in new apartment projects have remained healthy over the past two years. Vacancies of the various apartment markets range from 3 to 7 percent. The appraisers project that the citywide market should reach a stabilized occupancy of 95 percent between one and two years at this rate of growth. SUBMARKET ANALYSIS The subject property is located in the Southside and Southside Boulevard submarkets as defined in the Third Quarter 1996 Apartment Market Survey by Vestcor. They are identified on the map on a previous facing page. The submarkets are generally within the Jacksonville City Limits to the south and southeastern City Limit lines. The average occupancy in the Southside Boulevard and Southside submarkets for Third Quarter 1997 was 91.0 percent and 93.5 percent respectively. Third Quarter 1996 indicated an occupancy of 96.4 percent for the Southside Boulevard submarket and thus indicates a decrease of 5.4 percentage points or 5.6 percent. The Southside submarket had a Third Quarter 1996 occupancy rate of 89.1 percent and indicates an increase (for one year) to Third Quarter 1997 of 4.4 percentage points or 4.9 percent. An average occupancy by project age for each of the two submarkets is shown below. SOUTHSIDE SOUTHSIDE CATEGORY BLVD. ------------------------------------------------- Built before 1979 95.7% 93.3% Built 1980--1989 91.5% 94.#5 Built 1990--1997 88.0% --- All Properties 91.0% 93.5% The lower occupancy in the 1990-1997 built projects reflects the effect of new construction and in the Southside submarket no 1990-1997 built units are shown. Average monthly rent per square foot by project age was identified in the City's various submarkets. Of the eight submarkets, Southside Boulevard has the second highest average monthly rent per square foot at $0.69/SF, second only to the Beach submarket at $0.71 per square foot. Southside submarket is sixth at $0.57 per square foot. Shown below is the average monthly rent per square foot for the two submarkets and the total city. 20 SOUTHSIDE TOTAL CATEGORY BLVD. SOUTHSIDE CITY ------------------------------------------------- Built Pre-1979 $0.54 $0.53 $0.53 Built 1980-- 1989 $0.71 $0.70 $0.68 Built 1990-- 1997 $0.72 --- ---- All Properties $0.69 $0.57 $0.60 Southside Boulevard and Southside submarkets indicate reasonably comparable monthly rental rates by period of construction, however, since Southside does not have post- 1990 construction its overall average monthly rental rate is greatly affected and is $0.12 per square foot per month less than Southside Boulevard's average monthly rent. Although both submarkets influence the subject (it is within the 1980-1989 construction category), its location is actually in the Southside Boulevard submarket. Average apartment rents for the two submarkets in Third Quarter 1996 were $651 per month for the Southside Boulevard area and $523 per month for the Southside area. In the Third Quarter 1997 the average monthly rents were $660 and $528 respectively or increases of 1.4 percent and 1.0 percent over the year. The higher physical occupancy and the strong average monthly rental rates relate to the neighborhood's increasing popularity and proximity to major Jacksonville area shopping and employment centers (see preceding City/Neighborhood Analysis section of this report). In addition, the slowdown in construction permits in the area and this submarket, combined with a continuing demand for units in the area will help increase rental rates. We have recognized that a significant portion of the apartment units constructed in the area in recent years were built in or near the subject's submarket. In the area apartment market analysis, a chart was presented which illustrates that the newer apartment properties in the area tend to command the highest rental rates. New apartment units are under construction east and northeast of the subject and in the Ponte Vedra area. Although, these new units bring competition, they also will reflect higher rental rates and with prudent management and proper maintenance, the subject property should compete well for its share of the market. The subject's submarket has exhibited a stabilized occupancy at or above 91 percent, according to the local apartment survey. The subject property has a current physical occupancy of 96.7 percent and is considered to be near or above the stabilized occupancy level. It is forecasted that the subject will maintain a stabilized occupancy of 95 percent throughout the 11-year cash flow period. According to the Vestcor Apartment Market Survey, only 3.60 percent of the apartment projects surveyed in this submarket were currently offering rental discounts to tenants. In the Second Quarter of 1997 apartment projects offering concessions were 13.1 percent and a year ago in the Third Quarter of 1996, 13 percent of the projects surveyed gave concessions. This data is further support for a strengthening apartment market. 21 [PLAT MAP APPEARS HERE] SITE ANALYSIS - -------------------------------------------------------------------------------- LOCATION The subject site is located at the western end of the Creekfront Road cul de sec in Jacksonville just west of its intersection with Southside Boulevard. This location is on the southeast side of Jacksonville about 8 aerial miles southeast of the Jacksonville CBD, and is about 1/2 mile south of the intersection of J. Turner Butler Boulevard and Southside Boulevard. The site is improved with the Creekside Oaks Apartments, which have a street address of 9780 Creekfront Road, Jacksonville, Florida. SIZE AND SHAPE While a survey of the subject site was not available, a copy of the plat map of the site from the Duval County Tax Office is provided to the reader on the facing page. Information provided by the Duval County Tax Assessor's Office indicates that the site comprises 17.71 acres. The site has over 474 feet of frontage along the south side and west dead-end circle of Creekfront Road, and is irregular in shape. The maximum width of the site exceeds 1,090 feet, and the maximum depth is more than 1,000 feet. ACCESS AND The property is easily visible from Creekfront Road due VISIBILITY to its adequate frontage on this street. Direct access into the site is provided both south and west from Creekfront Road west of Southside Boulevard. Creekfront Road is an asphalt-paved two-laned neighborhood thoroughfare, which reaches a dead-end circle or cul de sac after running about 1,300 feet west from Southside Boulevard at the entrance to the subject site. Three apartment complexes, including the subject, face onto this street. Indirect access to the property is provided via Southside Boulevard along the east boundary of the subject. Southside Boulevard is a four-laned divided roadway with a two-laned access road along its west side, and is one of the main north/south thoroughfares in southeastern Jacksonville. LEGAL DESCRIPTION A full legal description is located in the Addenda of this report. The subject site is generally described as being a 17.71-acre tract known as Parcels 1 and 2 out of Section 24, Township 3 South, Range 27 East, Duval County, Florida. ZONING Prior to May 1, 1991, the site was zoned RG-C by the city of Jacksonville. New zoning designations were put in place by the city on that date, with the subject's new zoning designation listed as RMD-E for Residential Medium Density, E District. Both the current and prior designations provide for similar development restrictions, namely to promote multi-family residential uses with a maximum of 20 dwelling units per acre. The subject improvements currently conform to the zoning regulations. UTILITIES All utilities are available to the site. Jacksonville Suburban, a private utility supplier, provides water and sewer service to the site; the Jacksonville Electric Authority supplies electric service. Telephone hookups are in place from Southern Bell, along with cable television lines from Continental Cable. 22 TERRAIN AND The subject site is generally level to curb grade. The DRAINAGE site contains three retention lakes and drainage appears to be adequate. A soil survey on the subject site was not available. While the soil appears generally supportive of a wide variety of improvements, the appraiser is not an expert in soil content and was unable to certify this assumption. According to the National Flood Insurance Map 120077-0236D dated August 15, 1989, the site is in Zone X, or in "areas of minimal flooding." Numerous native trees are located on the site; however, no significant obstacles to development of the site (such as rock outcroppings, etc.) were evident. EASEMENTS AND ENCUMBRANCES As stated above, a survey, which would indicate the location of any easements or encroachments on the site, was unavailable. A visual inspection of the property indicated no significant easements or encumbrances, which would adversely affect the marketability of this site. REAL ESTATE TAXES The subject site and improvements have the following values assessed by the Duval County Property Appraiser's Office:
1993 1994 1995 1996 1997 --------------------------------------------------------------- Total Value $ 4,968,493 $ 4,964,407 $4,874,564 $4,891,049 $4,651,523 Total Taxes 107,710.97 110,049.98 107,459 106,639 99,649 Tax Rate per $1000 Valuation 21.6788 22.1678 22.0448 21.8028 21.4228
The breakdown of the 1997 tax rate for the subject taxing district is compared to the 1994 through 1996 tax rates:
1994 1995 1996 1997 ----------------------------------------- County $11.2131 $1l.1196 $11.2158 $10.9883 School (State Law) 6.6540 6.6650 7.1154 6.3450 School (Local Board) 2.7600 2.7600 2.9516 2.7600 Inland Navigation 0.0490 0.4000 0.0380 0.0500 Water Management 0.4820 0.4820 0.4820 0.4820 Debt Payments (Voter Approved) 1.0097 0.9782 --- 0.7975 -------- -------- -------- -------- Tax Rate per $1000 Valuation $22.1678 $22.0448 $21.8028 $21.4228
The assessor's parcel number for the subject site is 148522-1000. The subject is assessed at $32.58 per square foot or $38,763 per unit. The real estate property taxes for the subject are calculated at $99,649 based on the mileage rate and assessed value and a payment date of March 1998. However, a discount from the tax expense is allowed if paid in the four months prior to March. If paid in November 1997, the taxes for the subject are discounted 4 percent. For purposes of this appraisal, we have assumed an early payment of taxes. Therefore, the 1997 property taxes will be paid in 1997. The real estate taxes in the Income Approach section of this report reflect an approximate 4 percent increase (inflation factor) over the 1996 property taxes. Real estate taxes for the subject in 1997/98 have been estimated at $99,840. 23 SITE CONCLUSION The subject property is in southeastern Jacksonville about 8 aerial miles southeast of downtown. The parcel contains 17.71 acres with level terrain. Drainage and soil conditions appear to be adequate and supportive of a variety of improvements. All utilities are available. The site is in the Zone X area of minimal flooding. While a survey of the site was not available, no adverse easements or encroachments were noted during a physical inspection of the site. Direct access and visibility is provided from Creekfront Road, which runs from its dead-end at the subject site eastward to Southside Boulevard. The property is zoned by the city for multifamily residential uses including apartment and/or condominium development, and appears to be physically suitable for such improvements. 24 IMPROVEMENTS - -------------------------------------------------------------------------------- The subject site, a 17.71-acre tract of land, is improved with a one- and two-story apartment project known as the Creekside Oaks Apartments. The improvements consist of 120 apartment units contained in 21 buildings constructed in 1984. Also situated on the site are two clubhouses with a kitchen and laundry facilities, an exercise room and sauna, exterior mail posts, two decks, two swimming pools and jacuzzis surrounded by an iron fencing, a lighted and fenced tennis court, two lakes, and a mechanical shed. There are four basic floor plans for the 120 apartment units. The basic features of these floor plans are as follows:
NO. OF UNITS UNIT TYPE SIZE (SF) TOTAL NRA -------------------------------------------- 32 1BR/1BA 868 27,776 48 2BR/2BA/FLAT 1,196 57,408 32 2BR/2BA/TH 1,430 45,760 8 3BR/2BA/TH 1,481 11,848 --- ----- ------- 120 1,190 142,792
TH = townhouse (two levels) As seen in the figures above, the total net rentable area of 142,792 in 120 apartment units results in an average of 1,190 square feet per unit. There are a total of 32 one- bedroom units, 80 two-bedroom units, and 8 three-bedroom units. The land area is 17.71 acres equating to a density of 6.78 units per acre. The parking consists of 244 asphalt-paved open spaces or 2.03 spaces per unit. The parking ratio is within industry and local market standards. The foundation of the buildings is of concrete slab with wood-studded framing. The exterior walls are of cedar frame with wood frame trim work, and the roof is pitched with a composition shingle covering. Windows are of single-hung aluminum thermal pane construction, with six panel exterior doors. Porches by each exterior door have an exterior light. Exterior stairwells have metal supports and handrails with concrete risers and landings. The interior finish of each unit has painted gypsum board walls and ceilings. Some ceilings feature vaulted or boxed ceiling treatments, while a few walls are accented with decorative wallpaper. Floors have carpeting over pad, with ceramic tile floors in the kitchen and bathrooms. Batt insulation is located in the walls and ceilings. The kitchen is equipped with wood and fiberboard cabinetry covered with formica countertops and a double stainless steel sink. Appliances are made by General Electric, and include a range/oven, vent/hood, microwave oven, dishwasher, disposal, and refrigerator with ice maker. Each unit has an electric water heater with a 40-gallon capacity. The kitchen is considered to be in good condition. 25 Carpet and tile floors are found in the bathrooms, with additional tile around the tub enclosure. The toilet, bathtub, and sink are porcelain, and a formica countertop covers a small vanity. Each bathroom also has a wall mirror and an exhaust fan. Each apartment unit in this project typically has a fireplace, wet bar, ceiling fans, wet bars, washer, and dryer closet with connections, miniblinds, an exterior screened-in patio or deck with utility closet, and some first-level courtyards. Interior doors are hollow-core wood with some folding closet doors. Each unit is equipped with a fire extinguisher per local fire codes. The mechanical components include standard PVC plumbing pipes with stainless steel fixtures. The units are equipped with electric central heating and air-conditioning which is individually metered. The interior wiring is copper with 125 amps designated per unit and ample electrical outlets. Each apartment is wired for telephone and cable television. Other than the major site amenities stated above, the grounds feature asphalt-paved parking pads and access roadways with concrete sidewalks for pedestrian traffic. Pole-mounted exterior light fixtures are situated throughout the grounds. The landscaping features numerous native trees as well as decorative planted shrubbery and lawns. The subject improvements appear to be in average to good overall condition. The subject underwent renovation during 1994. However, with the advent of Hurricane Josephine in early October 1996, five roof leaks were reported by on- site management. In late 1996 and 1997 required repairs, deferred maintenance, or capital expenditures were made resulting from the hurricane. Upon inspection of the property and information supplied by ConAm Management Company, the following capital expenditures are planned for 1998: Chimney Caps & Stacks......................... $ 40,000 Wood Replacement -- Patios/Balconies.......... 40,000 Irrigation Pump Line Repair, Time Clocks...... 30,000 Plumbing Leaks, Shower Pans................... 30,000 TOTAL......................................... $140,000 Considering the overall average to good condition of the improvements, we estimate the effective age of the subject property to be equal to the actual age of thirteen years. 26 - -------------------------------------------------------------------------------- [FLOOR PLAN APPEARS HERE] SUBJECT PHOTOGRAPHS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] Exterior view of units and parking area. [PICTURE APPEARS HERE] Exterior view of units, parking area, and interior street. [PICTURE APPEARS HERE] Interior view of Unit 1105 living room. [PICTURE APPEARS HERE] Interior view of Unit 1105 dining room area. [PICTURE APPEARS HERE] Interior view of Unit 507 bedroom. HIGHEST AND BEST USE - -------------------------------------------------------------------------------- The highest and best use of a property must be determined because market value depends upon the property's most profitable use. The Appraisal of Real Estate, Eleventh ---------------------------- Edition, defines highest and best use as: "The reasonably probable and legal use of vacant land or improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value." There are two distinct types of highest and best use. The first type is the highest and best use of the land as if vacant. The second type is the highest and best use of a parcel as improved. This pertains to the use that should be made of the property as it exists. In determining the highest and best use of a site, four items must be considered: possible physical limitations of the site, possible legal or permissible uses, and what uses are financially feasible, and produce the maximum return on the site. A careful neighborhood and site analysis is essential in estimating the highest and best use of the site as if vacant. The following is our analysis of the highest and best use as it pertains to the subject property and according to the four essential tests. SUBJECT PROPERTY AS IF VACANT LEGALLY PERMISSIBLE - Within the scope of a legal analysis, the subject site would be adaptable to multifamily residential uses as limited by its current zoning of RMD-E by the city of Jacksonville. This zoning designation for the site is intended to restrict and promote the development of the subject to medium density residential uses of up to 20 dwelling units per acre. PHYSICAL POSSIBILITY - Many physical characteristics of a site can affect the use to which it can be put. These characteristics can include size, shape, location, road frontage, topography, easements, utility availability, flood plain, and surrounding patterns. The subject site is irregular in shape and encompasses a total of 17.71 acres. The elongated length and width of the site, despite its irregular configuration allows for adequate physical utilization of the site. The site has over 474 feet of frontage along the south and west sides of Creekfront Road. The topography of the site is generally level, and drainage appears to be adequate. The site is located in Flood Zone "X" which is defined in the previous Site description section of this report. The subject's location is at the western culdesac of Creekfront Road with access to Southside Boulevard to the west. Property uses along Creekfront Road wholly consist of three apartment complexes. Creekfront Road is a two-laned residential street with local traffic which travels east/west from Southside Boulevard at its east 27 end and a dead end about 1,300 feet to the west at the subject site. The subject has adequate utility capacity, enjoys a relatively good functional size and shape, and is not affected by any adverse easements or restrictions as noted upon inspection. After considering all of the physical characteristics of the site noted above plus other data in the Site section of this appraisal report, physically possible land uses would include a variety of residential development such as apartments, condominiums, cooperatives or townhouses, but are directed to apartment development. The primary deterrents to other types of development were zoning, surrounding land use patterns, and the lack of significant traffic along Creekfront Road. Condominiums are a consideration, however, the area generally has apartments, and condominiums today favor water or beach locations. FINANCIAL FEASIBILITY - Financial feasibility is directly proportional to the amount of net income that could be derived from the subject. Rents have slightly increased over the previous 12 months and the apartment market overall appears to be favorable. Area realtors report that near-term prospects for condominium and cooperative units in Jacksonville is becoming favorable, although there is limited upscale condominium development occurring. As stated above, condominium usage generally seeks water or beach related locations.. After having eliminated all other development from our analysis, the financial feasibility of multifamily development must be tested. The subject site is in the "Southside Boulevard" apartment submarket area and adjacent to the Southside submarket. According to the Vestcor Jacksonville Apartment Market, which is prepared by Vestcor Realty Management, Inc., occupancy for the submarket decreased from 96.4 percent in the Third Quarter 1996 to 91.0 percent in the Third Quarter 1997. From those projects responding to the survey, the average rent increased from only $651 to $660 per unit over the one-year period. Through the year 1997, there have been 978 multifamily building permits in the city/area. This is down from the 3,284 units permitted in 1996. From the preceding, apartment development appears to be feasible, although the market has some units to absorb. Occupancy rates have decreased during the past year and have remained at 90 percent or greater. Rental rates have risen according to the apartment survey and there has been an increase in apartment building activity in the subject's submarkets indicating that development is feasible. The following reflects apartment development costs on a square foot basis. Cost to Construct.................................. $50.00 Land Acquisitions.................................. 4.00 ------ Total Cost of Development..................... $54.00 The preceding discussion indicates that development is feasible for multifamily residential development. As indicated in the Sales Comparison Approach in this report, apartments developed since 1985 reflect sale prices from $28.96 to $75.12 per square foot. The sale prices of new projects ($65-75 S/F) are above the cost of development. 28 MAXIMUM PRODUCTIVITY - After considering the current economic climate and the subject's location and financial feasibility of certain land uses, we are of the opinion that the demand for multifamily apartment units conducive to the subject site would produce the highest net return over the longest period of time. This is due to the subject's location and the popularity of the neighborhood. In summary, the multifamily apartment market has shown increasingly healthy signs during the early to mid-1990s. The site's location near major south side employment facilities, the University of North Florida, The Avenues Mall, and Interstate 95 gives it a large base of prospective rent-paying tenants from which to draw. During 1996 and 1997, apartment development is occurring in or near the submarket for the first time since 1991. Therefore, after considering the alternatives, we believe the highest and best use of the site, as vacant, is for multifamily residential development. SUBJECT PROPERTY AS IMPROVED The property, as improved, is tested for two reasons. First, to identify the improvements that are expected to produce the highest overall return per invested dollar, and the second reason is to help identify comparable properties. The four tests or elements are also applied in this analysis to the subject as follows: LEGALLY PERMISSIBLE - Within the scope of a legal analysis the subject property would be adaptable to multifamily residential uses as limited by the zoning of the site by the city of Jacksonville. PHYSICAL POSSIBILITY - Based on the subject's size (17.71 acres), general configuration, and the improvements' positioning relative to the subject site, it is felt that the subject's improvements employ the maximum use and potential of the site as developed. The subject's density of 6.78 units per acre is below the market sales, which reflect a range in density from 9.4 to 27.4 units per acre. Additional research should be made to see if more units could be added. FINANCIAL FEASIBILITY - The discussion of the financial feasibility of the subject, as if vacant, would also apply to the test as improved. Based on the economic conditions for alternative market segments, it was concluded that the subject's present improvements are satisfactory to fulfill this test. MAXIMUM PRODUCTIVITY - The test for this element is also from the market. The comparables analyzed suggest that under competent and prudent management, the subject produces an adequate return on market value to substantiate its existence. In conclusion, based on the subject's current use, we have determined that as a multifamily apartment complex it positively contributes to the value of the site, and as a result is presently developed according to its highest and best use. The present improvements are not considered to be the optimum use due to the lack of current market project amenities and the need for capital expenditures. 29 APPRAISAL PROCEDURES - -------------------------------------------------------------------------------- Traditionally, three valuation approaches or techniques are used in the appraisal of real estate. These are the Cost Approach, Sales Comparison Approach, and Income Approach. COST APPROACH In the Cost Approach, the appraisers obtain an estimate of value by adding to the land value the estimated value of the physical improvements. This value is derived by estimating the replacement cost new of the improvements and, when appropriate, deducting the reduction in value caused by accrued depreciation. According to the Appraisal Institute, the basic principle of the Cost Approach is that buyers judge the value of an existing structure by comparing it to the value of a newly constructed building with optimal functional utility, assuming no undue cost due to delay. Thus, the appraiser must estimate the difference in value between the subject property and a newly constructed building with optimal utility. The Cost Approach was not used as a method of valuation in this appraisal. The Cost Approach is typically the least reliable indicator because cost does not necessarily reflect value. Moreover, estimates of depreciation are difficult to accurately measure in the marketplace, thereby compounding the speculative nature of the opinions derived in the cost method of valuation. SALES COMPARISON APPROACH This approach produces an estimate of value by comparing the subject property to sales and/or listings of similar properties in the immediate area or competing areas. The principle of substitution is employed and basically states when a property is replaceable in the market, its value can be set by the cost of acquiring an equally desirable and comparable property. This technique is viewed as the value established by informed buyers and sellers in the market. INCOME APPROACH The measure of value in this approach is capitalization of the net income, which the subject property will produce during the remaining economic life of the improvements. This process consists of two techniques. The first technique estimates the gross income, vacancy, expenses, and other appropriate charges. The resulting net income or net cash flow is then capitalized. The second technique projects the gross income, vacancy, expenses, other appropriate charges, net income, and cash flow over a projected holding period. The resulting cash flow and reversion (future value) are discounted at an appropriate rate and added in order to arrive at an indication of current value from the standpoint of an investment. These methods provide an indication of the present worth of anticipated future benefits (net income or cash flow) to be derived from ownership of the property. Both techniques were utilized in analyzing the subject property. SUMMARY The appraiser, in applying the tools of analysis to the valuation problem, seek to simulate the thought process of the most probable decision-maker. The appraiser's judgment concerns the applicability of alternative tools of analysis to the facts of the problem, the data and information needed to apply these tools, and the selection of the analytical approach and data most responsive to the problem in question. 33 Thus, depending on the type of property appraised or the purpose of the appraisal, one approach may carry more weight or may point to a more reliable indication of the value of the property being appraised than the others. In some instances, because of the inadequacy or unavailability of data, one or two of the approaches may be given little weight in the final value estimate. 34 [IMPROVED SALES MAP APPEARS HERE]
- -------------------------------------------------------------------------------------------------------------------------- JACKSONVILLE AREA IMPROVED SALES SUMMARY - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- SALE SALE CASH EQUIV. YEAR NO. OF NRA OCCUP. NOI/SF NO. NAME/LOCATION DATE SALE PRICE BUILT UNITS AVG./SF AT SALE /UNIT - -------------------------------------------------------------------------------------------------------------------------- 1 The Links @ Windsor Parke 08/97 $20,500,000 1995 280 296,616 95% $5.92 13700 Sutton Park Dr. North 1,059 Jacksonville, FL - -------------------------------------------------------------------------------------------------------------------------- 2 San Pablo 06/97 $5,350,000 1974 200 184,750 90% $3.16 14401 Jose Vedra Blvd. 924 Jacksonville, FL - -------------------------------------------------------------------------------------------------------------------------- 3 Hunter's Ridge (formerly Oaks of 05/97 $15,200,000 1987 336 294,888 92% $4.00 Deerwood) 878 10100 Baymeadows Road Jacksonville, FL - -------------------------------------------------------------------------------------------------------------------------- 4 Woodhollow 04/97 $16,700,000 1986 450 342,162 94% $4.69 1715 Hodges Blvd. 760 Jacksonville, FL - -------------------------------------------------------------------------------------------------------------------------- 5 The Courts @ Ponte Vedra 01/97 $19,000,000 1996 253 252,162 95% $6.26 101 Vera Cruz Drive 1,000 Ponte Vedra, FL - -------------------------------------------------------------------------------------------------------------------------- 6 The Huntington @ Hidden Mills 08/96 $7,225,000 1986 224 179,476 98% $3.85 3333 Monument Road 801 Jacksonville, FL - -------------------------------------------------------------------------------------------------------------------------- 7 The Antlers 05/96 $15,000,000 1985 400 327,728 97% $4.65 8433 Southside Blvd. 819 Jacksonville, FL - -------------------------------------------------------------------------------------------------------------------------- 8 Westland Park 05/96 $16,950,000 1989 405 403,010 97% $4.26 6710 Collins Road 995 Jacksonville, FL - -------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------- JACKSONVILLE AREA IMPROVED SALES SUMMARY - ----------------------------------------------------------------------------------------- CASH EQUIVALENT PRICE - ----------------------------------------------------------------------------------------- SALE PER PER OVERALL NO. NAME/LOCATION SF /UNIT RATE EGIM - ----------------------------------------------------------------------------------------- 1 The Links @ Windsor Parke $69.11 $73,214 8.56% 7.80 13700 Sutton Park Dr. North Jacksonville, FL - ----------------------------------------------------------------------------------------- 2 San Pablo $28.96 $26,750 10.90% 4.56 14401 Jose Vedra Blvd. Jacksonville, FL - ----------------------------------------------------------------------------------------- 3 Hunter's Ridge (formerly Oaks of $51.54 $45,238 7.76% 6.74 Deerwood) 10100 Baymeadows Road Jacksonville, FL - ----------------------------------------------------------------------------------------- 4 Woodhollow $48.79 $37,111 9.60% 5.47 1715 Hodges Blvd. Jacksonville, FL - ----------------------------------------------------------------------------------------- 5 The Courts @ Ponte Vedra $75.12 $75,099 8.34% 7.31 101 Vera Cruz Drive Ponte Vedra, FL - ----------------------------------------------------------------------------------------- 6 The Huntington @ Hidden Mills $40.26 $32,254 9.56% 5.48 3333 Monument Road Jacksonville, FL - ----------------------------------------------------------------------------------------- 7 The Antlers $45.77 $37,500 10.20 5.63 8433 Southside Blvd. Jacksonville, FL - ----------------------------------------------------------------------------------------- 8 Westland Park $42.06 $44,852 10.10% 6.01 6710 Collins Road Jacksonville, FL - -----------------------------------------------------------------------------------------
SALES COMPARISON APPROACH - -------------------------------------------------------------------------------- The Sales Comparison Approach is considered a good valuation method in the event that a sufficient number of similar and recent transactions can be found and accurately verified. The key to the Sales Comparison Approach is that a sufficient number of comparable sales be present to reflect an accurate indication of value. In such an event, market value can be derived directly from the sales, since all complexities involved are properly weighed according to their significance to actual buyers and sellers. This approach is based upon prices paid in actual market transactions. It is a process of correlating and analyzing recently sold properties, which are similar to the subject. The reliability of this technique depends upon (a) the degree of comparability of the property appraised with each sale, (b) the length of time since the sale, (c) the accuracy of the sales data, and (d) the absence of unusual conditions affecting the sale. The comparison process must be based on sales, which constitute acceptable evidence of motivations inherent to the market, occurring under similar market conditions, of similar or reasonably similar apartment projects. These projects were selected since they are reasonably similar to the subject property. A map and a summary of the comparable sales can be found on the preceding pages. The transaction dates of the sales used ranged from May 1996 to August 1997. Reference is made to the individual sales data included in the Addenda section of this report. SALE 1, known as the Links at Windsor Park Apartments, sold in August 1997 for $20,500,000. There are 280 units totaling 296,616 square feet. The property sold at $69.11 per square foot or $73,214 per unit. It was built in 1995 and was in excellent condition. The Links was 90 percent occupied at sale date. It sits on 23.36 acres of land and reflects density at 11.98 units per acre. The property's construction is described as wood frame with wood siding and some stucco. SALE 2, known as the San Pablo Apartments, sold in June 1997. It has 200 units and 184,750 square feet. The sales price was $5,350,000 and the property was 90 percent occupied at sale date. Unit prices indicated are $28.96 per square foot and $26,750 per unit. The sale reflected a 10.8 percent capitalization rate and was in need of substantial repair and renovation work. The rate is 14,24 acres and the unit density indicated is 14.04 units per acre. The property at sale date was inferior to the subject. SALE 3, known as Hunter's Ridge, (formerly known as Oaks at Deerwood) sold for $15,200,000 or $45,238 per unit in May 1987. It has 294,888 square feet and indicates a unit price of $51.54 per square foot. Land area is 34.70 acres and shows unit density at 9.68 units per acre. The capitalization rate was 7.76 percent, however, the property needed some attention and had good upside potential. 35 SALE 4, known as the Woodhollow Apartments sold inn April 1997 for $16,700,000 or $48.99 square foot and $37,111 per unit. The property contains 450 units and 342,162 square feet. At date of sale, occupancy was 94 percent and the terms were cash at a $10,350,000 mortgage at 7.5 percent interest due in 7 years, amortized over 25 years. The property has 38.65 acres and indicates a unit density of 11.6 units per acre. Construction is wood frame with stucco and wood siding. SALE 5, known as The Courts at Ponte Vedra, is located in Ponte Vedra Beach. It sold in January 1997 for $19,000,000. The property was built in 1996 and has 253 units with 252,916 total square feet.. Unit prices indicated by the sale are $75.12 per square foot and $75,099 per unit. Construction is wood frame with stucco and some masonry. The site contains 9.23 acres and indicates a unit density of 27.41 units per acre. Capitalization rate at time of sale was 8.34 percent and the project had 95 percent occupancy. SALE 6, known as the Huntington at Hidden Mills, (formerly known as Cozumel), sold for $40.26 per square foot net rentable area or $32,254 per unit in August 1996. The sale price was $7,225,000. The property contains 14.92 acres and has a unit density of 15 units per acre. There are 179,476 square feet of rentable area within 224 units. The average unit size is 801 square feet. Approximately 98 percent of the units were occupied at the time of sale. The sales price of $7,225,000 was adjusted upward by $350,000 for a re-plumbing required and was a credit given by the seller. SALE 7 is the Antlers containing 400 units and 527,728 square feet of rentable area. The average size of a unit is 819 square feet. Developed in 1985, the project is situated 42.51 acres of land and has a unit density of 9.4 units per acre. The property sold in May 1996 for $45.77 per square foot net rentable area or $37,500 per unit and totaled $15,000,000. At the time of sale the units were 97 percent physically occupied. SALE 8 sold in May 1996 for $16,950,060 which is equivalent to $42.06 per square foot net rentable area or $41,852 per unit. The project, Westland Park, was built in 1989/90 and contains 405 units and 403,010 square feet of rentable space. The average unit size is 995 square feet. Unit density for this property is 14.9 units per acre. Occupancy at the time of sale was reported at 97 percent. In lieu of specific adjustments, we compared the improved sales based on the net operating income (NOI) per square foot and per unit. This method presents a comparison based on the income which a property is capable of generating. Theoretically, the NOI takes into consideration the various factors, which influence value such as quality, size, amenities offered, location, condition etc. Thus, these differing factors can be reduced to the common denominator of net operating income. 36 ================================================================== Sales Comparison - NOI Adjustments -----------------------------------
Sale Sale Subject Adjust. Adjust. No. Price/SF NOI/SF NOI/SF Factor Price/SF --- -------- ------ ------ ------ -------- 1 $ 69.11 $ 5.92 $ 3.82 0.64527 $ 44.59 2 $ 28.96 $ 3.16 $ 3.82 1.20886 $ 35.01 3 $ 51.54 $ 4.00 $ 3.82 0.95500 $ 49.22 4 $ 48.99 $ 4.69 $ 3.82 0.81450 $ 39.90 5 $ 75.12 $ 6.26 $ 3.82 0.61022 $ 45.84 6 $ 40.26 $ 3.85 $ 3.82 0.99221 $ 39.95 7 $ 45.77 $ 4.65 $ 3.82 0.82151 $ 37.60 8 $ 42.06 $ 4.26 $ 3.82 0.89671 $ 37.72 Mean= 41.23 Value @ mean $5,887,314 Sale Sale Subject Adjust. Adjust. No. Price/Unit NOI/Unit NOI/Unit Factor Price/Unit --- ---------- -------- -------- ------ ---------- 1 $73,214 $6,267 $4,549 0.72587 $ 53,144 2 $26,750 $2,916 $4,549 1.56001 $ 41,730 3 $45,238 $3,510 $4,549 1.29601 $ 58,629 4 $37,111 $3,562 $4,549 1.27709 $ 47,394 5 $75,099 $6,263 $4,549 0.72633 $ 54,547 6 $32,254 $3,083 $4,549 1.47551 $ 47,591 7 $37,500 $3,811 $4,549 1.19365 $ 44,762 8 $41,852 $4,240 $4,549 1.07288 $ 44,902 Mean = $ 49,087 Value @ mean $5,890,485 ==================================================================
The various sales reflected NOIs per square foot ranging from $3.16 to $6.26 and NOIs per unit ranging from $2,916 to $6,267. The subject NOI (without reserve expenses) has been approximated at $3.82 per square foot or $4,549 per unit from the Direct Capitalization analysis in the Income Approach section of this report. To estimate an adjustment for each sale, the subject's NOI has been compared to the individual NOI of the comparable sales. The adjustments should account for all the various physical and economic differences in each improved property sale as income is a function of the current market. Market conditions should reflect perceived risk, or other factors, which may affect value. Time differences do not need further adjustment as any drop in value would theoretically be the function of a drop in income. There would need to be an adjustment for age in order to recognize differences in the length of the income streams. The chart on the facing page presents the adjustment process for NOI per square foot and NOI per unit. After adjustment, the sales range in price from $35.01 to $49.22 per square foot and $41,730 to $58,629 per unit. The simple average adjusted prices (not weighted) per square foot and per unit of the comparable sales was calculated at $41.23 and $49,087, respectively. Applying an age adjustment based on square foot area and number of units indicates value at $40.00 per square foot and $47,500 per unit 142,792 SF at $40.00/SF, Rounded................ $5,700,000 120 units at $47,500/unit....................... $5,700,000 A second method of comparison is by use of the effective gross rental multiplier (EGRM). In this analysis, the subject's effective gross income is multiplied by a factor estimated from the sales to derive an indication of value. The sales utilized in this analysis reflect EGRMs ranging from 4.56 to 7.80 as shown on the following facing page. Expense ratios range from 33.26 to 50.27 percent. From the Direct Capitalization analysis in the Income Approach, the subject is estimated to have a 47.4 percent operating expense ratio (excluding reserves). This is most similar to Sales 3, 4, and 6. These sales have EGRMs ranging from 5.47 to 6.74 with expense ratios from 47.45 to 47.70 percent. Sales 4 and 6 were apartments built in 1986 and Sale 3 was built in 1987. Most emphasis was placed on Sales 4 and 6. Based on the preceding analysis, an EGRM for the subject has been estimated at 5.75 resulting in a total value indication as follows: $1,038,496 x 5.75, Rounded...................... $6,000,000 37
==================================================================== SALES COMPARISON - EGRM ANALYSIS -------------------------------------------------------------------- EFFECTIVE EFFECTIVE GROSS OPERATING SALE NO. GROSS REVENUE/SF REVENUE MULTIPLIER EXPENSE RATIO -------------------------------------------------------------------- 1 $ 8.86 7.80 33.26% 2 6.35 4.56 50.27% 3 7.65 6.74 47.70% 4 8.92 5.47 47.45% 5 10.27 7.31 39.00% 6 7.35 5.48 47.63% 7 8.13 5.63 42.80% 8 7.00 6.01 39.14% ====================================================================
The NOI per square foot and per unit methods presented a similar value indication of $5,700,000 and the effective gross income multiplier method indicated a value of $6,000,000. Weight has been given to all methods with emphasis on the method using net operating income because these methods reflect both income and expense information. The EGRM method was used as support. From the proceeding, a value for the subject is estimated at $5,800,000. From this, a deduction for capital expenditures of $140,000 is made as follows: Indicated Value $5,800,000 Less: Capital Expenditures (140,000) Rent Loss (19,735) "As Is" Value $5,640,265 Rounded $5,600,000 Therefore, it is our opinion that the leased fee market value of the subject property based on the indication provided by the Sales Comparison Approach, all cash, on an "as is" basis as of December 31, 1997, is FIVE MILLION SIX HUNDRED THOUSAND DOLLARS ($5,600,000) 38 [MAP OF COMPARABLE RENTALS APPEARS HERE]
============================================================================================================================== RENT COMPARABLE ANALYSIS THE CREEKSIDE OAKS APARTMENTS - ----------------------------------------------------------------------------------------------------------------------------------- COMP. YEAR NO. NRA AVERAGE 1997 SQUARE 1997 MONTHLY NO. NAME OF PROJECT BUILT UNITS (SF) UNIT SIZE OCCUP. RATE FLOOR PLANS FEET RATE - ----------------------------------------------------------------------------------------------------------------------------------- 1 Deerbrook 1987 144 175,064 1,216 93% 1BR/1.5BA 875 $645-660 8025 Bay Meadows Circle 2BR/2BA 1,206 745-770 East 2BR/2.5BA 1,356 775-790 3BR/3BA/TH 1,566 935-950 - ----------------------------------------------------------------------------------------------------------------------------------- 2 Royal Oaks 1990 284 264,280 931 96% 1BR/1BA 675 $555-575 10023 Belle Rive Blvd. 1BR/1BA 780 595-615 1BR/1BA 970 675-695 2BR/2BA 1,100 715-735 - ----------------------------------------------------------------------------------------------------------------------------------- 3 Southern Pines 1989 200 194,500 973 97% 1BR/1BA 750 670-710 10200 Belle Rive Blvd. East 2BR/2BA 1,040 805-835 3BR/2BA 1,235 940-960 - ----------------------------------------------------------------------------------------------------------------------------------- 4 The Reserve 1984 226 242,876 1,075 93% 1BR/1BA 808 655 7632 Southside Blvd. 2BR/1BA 1,034 755 2BR/2BA 1,093 795 2BR/2BA/TH 1,143 815 3BR/2BA/TH 1,358 975 - ----------------------------------------------------------------------------------------------------------------------------------- Creekside Oaks Apts. 1984 120 142,792 1,190 92.5% 1BR/lBA 868 625 9780 Creekfront Road 2BR/2BA 1,196 745 SUBJECT 2BR/2BA/TH 1,430 775 3BR/2BA/TH 1,481 875 - ----------------------------------------------------------------------------------------------------------------------------------- ============================================================================================================================== RENT COMPARABLE ANALYSIS THE CREEKSIDE OAKS APARTMENTS - ------------------------------------------------------------------------------------------------------------- COMP. 1997 NO. NAME OF PROJECT RENT/SF AMENITIES/COMMENTS - ------------------------------------------------------------------------------------------------------------- 1 Deerbrook $0.737-0.754 Fireplaces, microwave ovens, cove lighting in 8025 Bay Meadows Circle 0.618-0.638 kitchen, washer/dryer connections, some wet East 0.572-0.583 bars, ceiling fans, vertical blinds, smoke 0.597-0.607 detectors, vaulted ceilings, screened porches. Patios/balconies, golf course and lake views, weight room, swimming pool, party pavilion, 24-hour maintenance, outside storage. - ------------------------------------------------------------------------------------------------------------- 2 Royal Oaks $O.822-0.852 Dishwashers, garbage disposals, washer/dryer 10023 Belle Rive Blvd. 0.763-0.788 in units, miniblinds, fireplaces, outdoor 0.696-0.716 utility closets, patio/balconies, burglar 0.650-0.668 alarms Swimming pool, tennis court, racquetball court, jacuzzi, exercise/weight room, club room, lake, volleyball court. - ------------------------------------------------------------------------------------------------------------- 3 Southern Pines $0.893-0.947 Washer/dryer, fireplaces, ceiling fans, vaulted 10200 Belle Rive Blvd. East 0.774-0.803 ceilings, microwaves, and oversized screened 0.761-0.777 patios. Clubhouse, fitness center, garages with automatic openers, pool and spa, lighted tennis court, and car wash. - ------------------------------------------------------------------------------------------------------------- 4 The Reserve 0.811 Flats and town homes, intrusion alarms, 9 ft. 7632 Southside Blvd. 0.730 vaulted ceilings, washer/dryer, fireplaces, 0.727 microwaves, self-cleaning ovens, ceiling fans, 0.713 vertical mini blinds, private patios. 0.718 Restricted gate access, clubhouse with exercise room, interior racquet ball court, business center, oversized pool with jacuzzi, lighted tennis court, basketball court, sand volleyball area, BBQ area, billiards room. - ------------------------------------------------------------------------------------------------------------- Creekside Oaks Apts. 0.720 Vaulted ceilings, microwaves, wet bar. 9780 Creekfront Road 0.623 Swimming pools, hot tubs, tennis courts, SUBJECT 0.542 saunas, billiards room, weight room. 0.591 =============================================================================================================
INCOME APPROACH - -------------------------------------------------------------------------------- In estimating the market value of the subject property, one method used by the appraisers was the Income Approach. The Income Approach to value is predicated on the assumption that there is a definite relationship between the amount of net income a property will earn and its value. Ultimately, the Income Approach seeks to estimate the present worth of an anticipated net income stream based on an analysis of its quality, quantity, and duration. In accordance with the principle of substitution, a prudent investor would pay no more to receive an income stream from a specified property than any other property producing an equally desirable income stream. Typically, the first step in the Income Approach is to estimate the potential gross income according to market rent. Market rent means the "going rent" in the neighborhood based on past history and present conditions. Vacancies are then deducted to arrive at effective gross income. Estimated annual expenses are deducted from the effective gross income, resulting in an indication of net operating income before debt service. From the estimated net annual income, annual debt service (if applicable) is subtracted to obtain annual cash flow to equity. This cash flow can be capitalized into an indication of equity value by direct capitalization utilizing an overall equity rate, or if debt does not exist, an overall capitalization rate. It may also be projected into the future over a selected but appropriate holding period, and discounted along with the anticipated equity reversion at the market discount rate and added in order to arrive at the net present equity value for the subject property. Since our valuation is on a cash basis, no mortgage was considered. In either method, the present mortgage balance (if applicable) would be added to the equity value to obtain the total value of the property. The appraisers have utilized both methods in valuing the subject property on an all cash basis. ESTIMATED GROSS RENTAL INCOME Income for the subject property is produced by rental income from the various rental units, as well as any laundry income, pet deposits, forfeited security deposits, and miscellaneous income. Information provided by the on- site leasing agents indicated the subject's current rent schedule to be as follows:
BASED ON "RESIDENT PAYS UTILITIES" ---------------------------------------------------------------------- Unit Type Units Size (SF) Rent/Mo. Rent/SF Mo. Total ---------------------------------------------------------------------- A 1BR/1BA 32 868 $625 $0.720 $ 20,000 B 2BR/2BA/Flat 48 1,196 745 0.623 35,760 C 2BR/2BA/TH 32 1,430 775 0.542 24,800 D 3BR/2BA/TH 8 1,481 875 0.591 7,000 --- --------- 120 $ 87,560
These rents have been compared to closely located and similarly designed apartment complexes in the subject's neighborhood area. For the purpose of this analysis, we have considered four apartment complexes that were identified by management and found by the appraiser to be most comparable. They range in 39
================================================================================================ SUBJECT - RENT ANALYSIS CREEKSIDE OAKS - ------------------------------------------------------------------------------------------------ UNIT AVG. AVG. MONTHLY PROJECT/UNIT UNIT TYPE SIZE (SF) RENT/MONTH RENT/SF AMENITIES - ------------------------------------------------------------------------------------------------ SUBJECT 1BR/1BA 868 $ 625 $0.720 Avg. Plus/Avg. Plus Deerbrook 1BR/1.5BA 875 645-660 0.737-0.754 Avg. Plus/Good Royal Oaks 1BR/1BA 780 595-615 0.763-0.788 Good/Good Southern Pines 1BR/1BA 750 670-710 0.893-0.947 Very Good/Good The Reserve 1BR/1BA 808 655 0.811 Good/Good - ------------------------------------------------------------------------------------------------ SUBJECT 2BR/2BA 1,196 $ 745 $0.623 Avg. Plus/Avg. Plus Deerbrook 2BR/2BA 1,206 745-770 0.618-0.638 Avg. Plus/Good Royal Oaks 2BR/2BA 1,100 715-735 0.650-0.668 Good/Good The Reserve 2BR/2BA 1,093 795 0.727 Good/Good - ------------------------------------------------------------------------------------------------ SUBJECT 2BR/2BA/TH 1,430 $775 0.542 Avg. Plus/Avg. Plus Deerbrook 2BR/2.5BA 1,356 775-790 0.572-0.583 Avg. Plus/Good The Reserve 2BR/2BA/TH 1,143 815 0.713 Good/Good - ------------------------------------------------------------------------------------------------ SUBJECT 3BR/2BA/TH 1,481 $875 0.591 Avg. Plus/Plus Deerbrook 3BR/3BA/TH 1,566 935-950 0.597-0.607 Avg. Plus/Good Southern Pines 3BR/2BA 1,235 940-960 0.761-0.777 Very Good/Good The Reserve 3BR/2BA/TH 1,358 975 0.718 Good/Good ================================================================================================
total unit size from 144 to 284 units and in occupancy from 89 to 94 percent. These comparable rentals are summarized on a previous page. All of the comparables surveyed were located within the subject's immediate vicinity. Each is comparable to the subject overall, particularly in terms of overall physical condition, unit size, rental rates, and the amenities offered. These comparables indicate an average effective rental rate range from $0.63 to $0.816 per square foot per month. On the table on the facing page, each of the subject's four floor plans is compared to similar floor plans obtained from the rent comparables. All of the comparable rentals have at least average project amenities for an apartment in this market which include a pool, tennis court, clubhouse, hot tub/jacuzzi, and landscaped grounds. Apartments which have project amenities, which are rated "good" on this chart additionally have a car wash stand, indoor racquetball courts, basketball court, and/or volleyball area. Unit amenities for standard or average apartment units include typical built-in kitchen appliances, miniblinds, a fireplace, a patio or deck, and average finish. Good unit amenities on a given apartment unit also include a microwave oven, washer and dryer, vaulted ceilings and ceiling fans, and/or burglar alarms. According to the rent analysis summary, the subject's Plan A is most comparable to the one bedroom plan at Deerbrook that contains 875 square feet and rents monthly from $645 to $660 or $0.737 to $0.754 per square foot. This unit is slightly superior to the subject Plan A because it has 1.5 baths rather than just 1 bathroom. The unit at the Reserve contains 808 square feet and rents for $655 per month or $0.811 per square foot monthly. It is superior to the subject as to amenities and the entire project was recently renovated or upgraded. The subject unit contains 868 square feet and has a monthly rent of $625, which is considered to be market. Plan B from the subject has 1,196 square feet and rents for $745 per month or $0.623 per square foot. This unit is a 2 bedroom. 2 bathroom flat. The comparable unit at Deerbrook rents for $745 to $770 per month or $0.618 to $0.638 per square foot and brackets the subject rent. It has 1,206 square feet. The 2 bedroom units at Royal Oaks and The Reserve range in size from 1,093 square feet to 1,100 square feet and in monthly rental of $0.65 to $0.727 per square feet. Both properties are considered superior to the subject as to amenities. Additionally Royal Oaks is newer and The Reserve has been renovated/upgraded. The subject's Plan C with 1,430 square feet has an asking rent of $775 per month or $0.542 per square foot. This rental rate has not increased since last year. The subject unit is a townhouse and is compared to the 2 bedroom/2.5 bathroom unit at Deerbrook and the 2 bedroom/2 bathroom/townhouse unit at The Reserve. The former rents for $775 to $790 or $0.572 to $0.583 per square foot per month and the latter rents for $815 or $0.713 square feet per month. These units are superior in amenities to the subject. The subject rent for Plan C is considered market. 40 The subject's Plan D contains 1,481 square feet and is a 3 bedroom/2 bathroom/townhouse. It rents for $875 per month or $0.591 per square feet per month. The 3 bedroom townhouse units at Deerbrook and The Reserve are believed comparable, however, the Deerbrook unit with 1,566 square feet is larger and The Reserve unit with 1,358 square feet is smaller than the subject unit. The comparables rent for $0.597 to $0.718 per square feet monthly and are considered superior to the subject unit. The subject unit's rent at $875 is considered market. There are currently four vacant units in the subject complex. This equates to a current physical occupancy rate of 96.7 percent. Physical occupancy one year ago was 92.5 percent. These numbers indicate a downward movement in physical occupancy for the subject property. Economic occupancy is estimated near 90 percent. The most recent leases for Plans A, B, C, and D indicate that the subject is obtaining the quoted rental rates. Therefore, we estimate that the current quoted rental rates for the subject are indicative of market rates. After considering the subject's physical occupancy and actual rates the projected market rental rates for the subject are summarized below.
BASED ON "RESIDENT PAYS UTILITIES" --------------------------------------------------------------------- Unit Type Units Size (SF) Rent/Mo. Rent/SF Mo. Total --------------------------------------------------------------------- A 1BR/1BA 32 868 $625 $0.720 $20,000 B 2BR/2BA/Flat 48 1,196 745 0.623 35,760 C 2BR/2BA/TH 32 1,430 775 0.542 24,800 D 3BR/2BA/TH 8 1,481 875 0.591 7,000 --- ------- 120 $87,560
Gross Annual Rental Income: $87,560 x 12 months = $1,050,720 Our cash flow analysis, as well as our direct capitalization method, indicates a gross rental income of $1,071,734. This figure is the result of a 2 percent increase in rental rates during the first year of our projection period. OTHER INCOME In addition to rental income from apartments, other income is generated by laundry and vending machines, forfeited security deposits, pet deposits, late charges, and application fees. Other Income in 1990 was reported at $40,115 or $0.28 per square foot. This figure fell by over 35 percent during 1991 to $0.18 per square foot or a total of $26,277. For 1992, other income totaled $29,487 or $0.21 per square foot. Figures for 1993 show a total of $26,040 or $0.18 per square foot. For 1994 and 1995, other income was $15,304 and $22,101 or $0.11 and $0.15 per square foot, respectively. Figures for annualized 1996 amount to $18,714 ($0.12 per square foot) and actual other income for 1997 was $20,621 or $0.14 per square foot. Based on our experience with similar type properties and the actual performance of the subject property it is our opinion that other income in the amount of $0.15 per square foot is typical for a project such as the subject. This 41
================================================================================================================================= SUBJECT - EXPENSE ANALYSIS CREEKSIDE OAKS APARTMENTS - --------------------------------------------------------------------------------------------------------------------------------- Comparable No. 1 2 3 SUBJECT PROPERTY Year Built 1986 1984 1985 1984 Net Rentable Square Feet 100,750 156,688 117,980 142,792 Number of Units 110 160 124 120 Average Unit Size 916 979 951 1,190 - --------------------------------------------------------------------------------------------------------------------------------- 1997 1997 1997 1993 1994 1995 1996-YTD 1997-YTD BRA PROJECTIONS ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ANNUALIZED ANNUALIZED CALENDAR YEAR PSF PSF PSF PSF PSF PSF PSF PSF ENDING 12/31/98 - --------------------------------------------------------------------------------------------------------------------------------- /SF /UNIT - --------------------------------------------------------------------------------------------------------------------------------- Expenses Real Estate Taxes $0.80 $0.64 $0.71 $0.74 $0.74 $0.74 $0.77 $0.72 $0.70 $ 892 Insurance 0.18 0.13 0.16 0.10 0.15 0.17 0.17 0.16 0.19 214 Operating Expenses 0.68 0.69 0.65 0.56 0.59 0.60 0.63 0.55 0.67 762 Utilities 0.94 0.70 0.86 0.55 0.60 0.62 0.63 0.68 0.66 750 Repairs & Maintenance 0.58 0.53 0.43 0.43 0.31 0.42 0.53 0.52 0.50 595 Contract Services 0.21 0.18 0.30 0.20 0.20 0.22 0.22 0.21 0.23 262 Management 0.37 0.33 0.39 0.30 0.32 0.32 0.34 0.34 0.36 416 General Administrative 0.18 0.15 0.18 0.09 0.14 0.19 0.24 0.15 0.15 238 ----- ----- ----- ----- ----- ----- ----- ----- ----- ------ Total Expenses $3.94 $3.39 $3.74 $2.97 $3.05 $3.28 $3.53 $3.33 *$3.46 *$4,129 =================================================================================================================================
* There may be differences due to rounding equates to a total "Other Income" of $21,419 in the first fiscal year of our projected cash flow as well as in the direct capitalization method. From this we have arrived at our estimate of scheduled gross income as if 100 percent occupied for the beginning of the first fiscal year of our projection period: Gross Rental Income $1,071,7349 Other Income 21,419 ---------- Total Potential Gross Income $1,093,153 VACANCY AND COLLECTION LOSS ESTIMATE In a stable market, vacancy and collection loss for an apartment complex will be in the 3 to 10 percent range. This covers the time lag during re-leasing and normal refurbishing of apartment units and the loss of income resulting from bad debt or other vacancies. The subject's current 96.7 percent physical occupancy is above the approximate 91.0 percent Third Quarter physical occupancy rate enjoyed by the Southside Boulevard submarket. The subject's occupancy is also higher than the Third Quarter 92.8 percent citywide rate in the Jacksonville area. The subject property has a current economic occupancy rate of nearly 90 percent, which is considered near stabilized occupancy for the subject. A 95.0 percent stabilized economic occupancy has been utilized for the subject during the holding period and a deduction is taken for rent loss until stabilized occupancy is believed achievable in year 1. EXPENSE ANALYSIS The various expenses necessary in the operation of the subject have been estimated including fixed expenses, operating expenses, and reserves for replacement. Proper appraisal technique demands that an appraiser rely on typical expenses as opposed to actual expenses, which may vary according to management or special circumstances that may not persist. In addition, the total expenses per square foot should be within a range typical for similar projects. Reserves for replacement are estimated based on age, condition, and construction quality. It is re-emphasized that all income, as well as expense estimates, are based on the assumption of competent and prudent management. We have based our estimate of projected expenses on comparable apartment projects located in the subject area, as well as the actual historical performance of the subject property. The following Expense Analysis Chart on the facing page summarizes the actual and/or annualized 1997 expenses reported by three (3) "individually metered" projects, as well as the subject property's actual 1993, 1994, 1995, and 1996 expense figures. The 1997 actual figures were available to the appraiser at the time of the report and are shown in the chart on the facing page. Bach Realty Advisors' estimated expenses for the subject property in Fiscal Year 1998 are also displayed. 42 Based upon the analysis of the comparables, we have developed the following expense estimates for the subject. REAL ESTATE TAXES - The Creekside Oaks Apartments are subject to the taxing authorities of Duval County. The county distributes the tax receipts from property owners to different authorities as specified in the Site section of this report. The subject's 1997 assessed value is $4,651,523 the total tax liability is $99,649 or $0.70 per square foot; however, if paid by November 1997 they would be $95,663 or $0.67 per square foot. After examining the tax liabilities of the comparables used in our expense analysis (which exhibited a range from $0.69 to $0.80 per square foot), we have reflected the actual discounted 1997 real estate taxes plus an approximate 2 percent inflation factor in our estimate of the 1998 taxes. Thus, real estate taxes have been estimated at $0.70 per square foot or $832 per unit and totaling $99,840. This amount is increased at a rate of 4 percent per year throughout our projection period. INSURANCE - For the first fiscal year, we have estimated insurance at a market cost of $0.15 per square foot or $26,733. All of the expense comparables utilized exhibit a range of insurance costs from $0.15 to $0.18 per square foot for 1997. The subject's actual insurance costs have been fluctuating from $0.09 to $0.24 per square foot since 1993. The appraiser believes that the insurance expense for the subject is appropriate and is generally supported by the expense comparables. The expense per unit is $223. Insurance expense is increased 4 percent annually for the duration of the holding period. OPERATING EXPENSES - This category includes salaries for office managers and leasing agents, maid services, payroll taxes and FICA, security, advertising, and promotional items. The subject's actual figures for 1993 through 1996, were $0.56 to $0.63 per square foot, respectively. The annualized 1997 operating expense is $0.55 per square foot. The expense comparables indicate a range of operating expenses from $0.65 to $0.69 per square foot. Based on the subject's historical expenses and a comparison of operating expenses of comparable properties, the appraisers have estimated a 1997/98 year operating expense of $95,040 which is equivalent to $0.67 per square foot or $792 per unit. This expense is expected to increase 4 percent annually throughout our projection period. UTILITIES - The expense comparables' 1997 utility expenses have a range from $0.70 to $0.94 per square foot. The subject's annualized 1996 year-to-date expense is $0.61 per square foot. The 1997 expense is $0.68 per square foot. This expense category includes electricity to the common areas, water, sewer, and garbage collection. The subject's 1998 expense for utilities has been estimated by the appraiser to be $0.66 per square foot or $780 per unit, near the lower end of the comparables range as supported by the costs for the property. This equates to a total utility expense estimate of $93,558 for the subject property in the first year. Utility expenses are increased 4 percent annually throughout the projection period. REPAIRS AND MAINTENANCE - The 1996 annualized actual year- to-date repairs and maintenance costs are $0.53 per square foot for the subject. Repairs and 43 maintenance expenses are necessary in order to keep the property in good repair and consist of repairs required on plumbing, air-conditioners, electrical components, miniblinds, carpeting, janitorial services, and decorative costs. The expense comparables indicate a range from $0.43 to $0.58 per square foot and the subject's 1997 annualized expense is $0.50 per square foot. Repairs and maintenance costs of $0.50 per square foot or $595 per unit and totaling $71,396 have been projected for the subject for the first year of our cash flow analysis and increased 4 percent annually. CONTRACT SERVICES - The contract services category includes mainly landscaping services. Our surveyed expense comparables reported 1997 contract services expenses between $0.21 and $0.30 per square foot. Actual expenses for the subject for the 1996 contract services expense were $0.22 per square foot, while 1997 indicated $0.21 per square foot. The appraiser has emphasized the historical and budgeted expenses for the subject when estimating the per square foot contract services expense for the property of $0.23 per square foot or $272 per unit and totaling $32,672 in the first year of the cash flow. These expenses are expected to increase annually at a rate of 4 percent. MANAGEMENT - This figure for apartment projects is typically expressed as a percentage of the effective gross income of the property. The industry standard for an apartment complex of this size and quality is about 5 percent of effective gross income. This includes the fee to outside management or ownership for managing the property. According to the actual income and expense statements from 1993 forward provided by the client, management fees at the subject have been approximately 5 percent. We have also relied upon indicators from the market to determine typical expenses for this category. A management fee of 5 percent of the projected effective gross income for each year of the cash flow is estimated. GENERAL AND ADMINISTRATIVE - This expense category includes legal expenses, dues, fees, printing, auto costs, postage, accounting/audit, permits, travel, credit, reports, office equipment, telephone, and all other miscellaneous and administrative costs. Our surveyed expense comparables indicated actual administrative expenses ranging from $0.15 to $0.18 per square foot. The subject's annualized year-to- date 1996 costs were $0.24 per square foot. The 1997 expense was $0.15 per square foot. The appraiser utilized a $0.15 per square foot figure or $178 per unit and totaling $21,419, supported by the comparables' range. This expense increases at a rate of 4 percent for each year in the cash flow. EXPENSE SUMMARY In conclusion, vacancy loss has been estimated at 5 percent throughout the holding period. The total estimated 1997 calendar year expenses for the Creekside Oaks Apartments, excluding reserves for replacement, equates to $3.46 per net rentable square foot or $4,105 per unit. This is above the range indicated by the expense comparables, but is reasonable and well supported by actual historical figures indicated by the subject property. 44 RESERVES FOR REPLACEMENT A replacement allowance provides for the periodic replacement of building components that wear out more rapidly than the building itself and must be replaced periodically during the building's economic life. These may include roof covering, carpeting, appliances, compressors, parking areas, drives, etc. The subject was constructed in 1984 and appears to have had ongoing maintenance since its construction. It is our opinion that a reserve allowance of $0.25 per square foot or $300 per unit is adequate to provide for the continued maintenance of the project given the on-going termite problem and weather related conditions as mentioned below. Reserves for replacement total $48,000 and are grown at 4 percent for the duration of the holding period. Reserves were included in our expenses prior to concluding the net operating income. DEFERRED MAINTENANCE/ CAPITAL EXPENDITURES The subject has numerous items requiring capital expenditures. Capital expenditures listed by management in the 1997 budget total $140,000 as detailed in the Improvements section of this report. DISCOUNTED CASH FLOW ANALYSIS DISCUSSION A reasonable method for estimating value via the Income Approach in a stabilized market is through the use of Discounted Cash Flow Analysis. The Market Value of a real estate investment under the Discounted Cash Flow Method is defined as the discounted sum of all net cash inflows plus the property's discounted reversionary value. Primarily, any given property is only worth the value of the income derived from it. The general methodology of Discounted Cash Flow involves the following steps: 1) increasing each year's cash flows by an appropriate appreciation factor; 2) discounting each year's net cash flow by an appropriate discount rate; 3) deriving the property's reversionary value in the final year and discounting it to the present; and 4) the summation of all cash flows, including final year reversion, into an estimate of value. Real Estate Investment Trusts (REITS) have been the major players among new apartment acquisitions over the past, few years which has resulted in upward pressure on selling prices as capitalization rates have dropped. More recently, REITs are strong in the market. Capitalization rates are lower this year than last year due to many buyers pursuing limited inventory. Survey participants in RERC's Emerging Trends in Real Estate: 1997 indicate that multifamily is still a viable investment vehicle, but its desirability is ebbing as short-term rental growth has already peaked in some markets. Expectations for 1998 are an increased interest in apartments as markets stabilize and new construction comes on-line. Since 1994 returns for apartments have averaged near 12 percent, above all other categories. Solid returns in the 9 to 10 percent area are expected to continue with 9 percent and below for new Class A product, much of which may be pre-sold. Apartment investment fits the portfolio profiles of pension funds and REITs who want immediate high cash flows with predictable capital 45 costs and national vacancy rates in relative equilibrium at 5 percent to 8 percent and a growing population, the risk in the multifamily market is steady and we anticipate that investors will continue to find their niche the market. DISCOUNT RATE Over the past several years, the internal rate of return (IRR) has gained greater usefulness and market acceptance as an investment measure. IRR is the yield on an investment based on an initial cash investment, annual cash flows to the property, as well as resale proceeds. IRR allows for return on investment as well as recapture of the original investment when factoring in the reversion. To simulate this process, we have relied upon several investor surveys, which detail reasonable yields or IRR requirements of purchasers. We have used this rate as a discount rate that, when applied to projected cash flows and net resale proceeds (reversion), results in the present value of the property. According to the Third Quarter 1997 investor survey compiled by Peter F. Korpacz & Associates, Inc., investors for apartment properties indicated a return requirement ranging from 10.00 to 12.50 percent with an average of 11.16 percent. This IRR depends on the conservative or aggressive nature of rental and expense growth assumptions, as well as location and other factors. Real Estate is considered riskier than bonds due to illiquidity, competition, burden of management, and market conditions; therefore approximately 150 basis points or more could be added to the Corporate "Baa" bond rate in a normal market. Based on the previous data and recognizing new construction, we believe a 12 percent discount rate is reasonable in the current market based on an all cash sale and alternative investments. CAPITALIZATION RATE The subject property's reversionary value is derived by capitalizing the eleventh year's net operating income. As mortgage rates have fluctuated over the past several years, it becomes difficult to apply a band of investment method to establish a capitalization rate because capitalization rates do not react dramatically to ups and downs of mortgage interest rates. Additionally, the mercurial nature of the recent market creates a large variance of returns depending on property potential. Again, according to the previously cited investor survey, investors for apartment properties indicated a terminal capitalization rate range from 8.0 to 10.25 percent or an average of 9.29 percent to attract investment. Going-in capitalization rates of the comparable sales in the Sales Comparison Approach could be calculated based on the data provided. Most had a relatively similar occupancy rate as the subject at their respective times of sale. The range of going-in capitalization rates from these sales was from 7.76 to 10.9 percent (without reserves). A going-in capitalization rate in the middle of this range is considered appropriate. The going-in rate is typically lower than the terminal capitalization rate stated above due to the older age of the property and the risk of the market ten years hence. Based upon the aforementioned factors, the terminal capitalization rate for the subject should be above the average going-in capitalization rate exhibited by the comparable sales in the Sales Comparison Approach. Therefore, a terminal capitalization rate of 10.0 percent appears appropriate for the subject property based on the Korpacz survey. 46
- ------------------------------------------------------------------------------------------------------------------------------------ CREEKSIDE OAKS - ------------------------------------------------------------------------------------------------------------------------------------ Period 1 2 3 4 5 6 7 1998 1999 2000 2001 2002 2003 2004 - ------------------------------------------------------------------------------------------------------------------------------------ INCOME: Apt. Rents 1,071,734 1,114,604 1,159,188 1,205,555 1,253,778 1,303,929 1,356,086 Rent/SF/Mo. 0.625 0.650 0.677 0.704 0.732 0.761 0.791 Other Income/Yr. 21,419 22,276 23,167 24,093 25,057 26,059 27,102 --------- --------- --------- --------- --------- -------- --------- Gross Income 1,093,153 1,136,880 1,182,355 1,229,649 1,278,835 1,329,988 1,383,188 % Vacancy 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% Vacancy Allowance 54,658 56,844 59,118 61,482 63,942 66,499 69,159 --------- --------- --------- --------- --------- --------- --------- Eff. Gross Income 1,038,496 1,080,036 1,123,237 1,168,166 1,214,893 1,263,489 1,314,028 ---------------- EXPENSES: Per/Unit Per/SF ---------------- Real Estate Taxes 832 0.70 99,840 103,834 107,987 112,306 116,799 121,471 126,329 Insurance 223 0.19 26,733 27,803 28,915 30,071 31,274 32,525 33,826 Operating Expenses 792 0.67 95,040 98,842 102,796 106,908 111,184 115,631 120,256 Utilities 780 0.66 93,558 97,301 101,193 105,240 109,450 113,828 118,381 Repairs & Maintenance 595 0.50 71,396 74,252 77,222 80,311 83,523 86,864 90,339 Contract Services 272 0.23 32,672 33,978 35,338 36,751 38,221 39,750 41,340 Management Fee 5.00% 0.36 51,925 54,002 56,162 58,408 60,745 63,174 65,701 General & Administrative 178 0.15 21,419 22,276 23,167 24,093 25,057 26,059 27,102 Reserves 300 0.25 36,000 37,440 38,938 40,495 42,115 43,800 45,551 --------- -------- --------- --------- -------- --------- --------- Total Expenses $4,405 $ 3.70 528,583 549,727 571,716 594,584 618,368 643,102 668,826 Per SF --------------- 3.70 3.85 4.00 4.16 4.33 450 4.68 Per Unit 4,405 4,581 4,764 4,955 5,153 5,359 5,574 --------- -------- --------- --------- -------- --------- --------- NET OPERATTNG INCOME $509,913 $530,309 $551,521 $573,582 $596,526 $620,387 $645,202 ========= ======== ======== ======== ======== ======== ======== Per SF $ 3.57 $ 3.71 $ 386 $ 4.02 $ 4.18 $ 4.34 $ 4.52 Per Unit $ 4,249 $ 4,419 $ 4,596 $ 4,780 $ 4,971 $ 5,170 $ 5,377 ================================================================================================================================= Capital Items: 140,000 -------- -------- -------- -------- -------- -------- -------- Cash Flow 369,913 530,309 551,521 573,582 596,526 620,387 645,202 -------- -------- -------- -------- -------- -------- -------- Present Value Factor 12.00% 0.892857 0.797194 0.711780 0.635518 0.567427 0.506631 0.452349 Present Value Of Cash Flow 330,279 422,759 392,562 364,522 338,485 314,307 291,857 NOI in 11th Year 754,795 Present Value of Income Stream 3,211,109 Ro at Reversion 10.00% Present Value of Reversion 2,333,029 -------- -------------------------------------------------- Indicated Reversion 7,547,951 Indicated Value of Subject 5,544,138 Less: Sales Costs 4.00% 301,918 Indicated Value/SF 38.83 --------- Indicated Value/Unit 46,201 Reversion In 10th Yr 7,246,033 GIM At Indicated Value 5.17 Ro At Indicated Value 9.20% -------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- Period 8 9 10 Reversion 2005 2006 2007 2008 - ---------------------------------------------------------------------------------------------- Apt. Rents 1,410,329 1,466,743 1,525,412 1,586,429 Rent/SF/Mo. 0823 0.856 0.890 0.926 Other Income/Yr. 28,186 29,313 30,486 31,705 --------- --------- --------- ---------- GROSS INCOME 1,438,515 1,496,056 1,555,898 1,618,134 % VACANCY 5.00% 5.00% 5.00% 5.00% Vacancy Allowance 71,926 74,803 77,795 80,907 -------- --------- --------- --------- Eff. Gross Income 1,366,590 1,421,253 1,478,103 1,537,227 EXPENSES: Real Estate Taxes 131,383 136,638 142,103 147,788 Insurance 35,179 36,586 38,050 39,572 Operating Expenses 125,067 130,069 135,272 140,683 Utilities 123,116 128,041 133,163 138,489 Repairs & Maintenance 93,952 97,710 101,619 105,684 Contract Services 42,994 44,713 46,502 48,362 Management Fee 68,329 71,063 73,905 76,861 General & Administrative 28,186 29,313 30,486 31,705 Reserves 47,374 49,268 51,239 53,289 --------- --------- --------- --------- Total Expenses 695,579 723,403 752,339 782,432 Per SF 4.87 5.07 5.27 5.48 Per Unit 5,796 6,028 6,269 6,520 --------- --------- -------- --------- NET OPERATTNG INCOME $671,010 $697,851 $725,765 $754,795 ======== ========= ======== ========= Per Sf $ 4.70 $ 4.89 $ 5.08 $ 5.29 Per Unit $ 5,592 $ 5,815 $ 6,048 $ 6,290 ============================================================================================== Capital Items: -------- --------- -------- -------- 671,010 697,851 725,765 754,795 Cash Flow -------- --------- -------- -------- 0.403883 0.360610 0.321973 1.000000 Present Value Factor 12.00% Present Value Of Cash Flow 271,010 251,652 233,677 754,795
============================================================== CASH FLOW SUMMARY CALENDAR YEAR ANNUAL 12.00% PV OF ENDING 12/31 CASH FLOW NPV FACTOR CASH FLOW ------------ --------- ---------- --------- 1998 $369,913 0.892857 $330,279 1999 530,309 0.797194 422,759 2000 551,521 0.711780 392,562 2001 573,582 0.635518 364,522 2002 596,526 0.567427 338,485 2003 620,387 0.506631 314,307 2004 645,202 0.452349 291,857 2005 671,010 0.403883 271,010 2006 697,851 0.360610 251,652 2007 725,765 0.321973 233,677 ------- TOTAL NPV OF CASH FLOWS $3,211,109 Projected NOI - 11th Year $754,795 Terminal Capitalization Rate 10.000% ------ Estimated Value of Property at End of 10th Year $7,547,951 Sales Cost 4.00% (301,918) ------- Value of Reversion at End of 10th Year $7,246,033 Discount Factor 12.00% 0.321973 -------- Present Value of Reversion $2,333,029 Sum of Present Values of Cash Flow 3,211,109 --------- MARKET VALUE AS OF DECEMBER 31, 1997 $5,544,138 (ROUNDED) $5,540,000 ========== ============================================================== CASH FLOW ASSUMPTIONS . Rents were based on an average rental rate of approximately $0.613 per square foot per month. During the projection period rents are expected to increase at 2 percent during 1997. Rents increase 4 percent in the second year of our analysis and each year thereafter. . The subject property's current physical occupancy rate is 96.7 percent. The economic occupancy rate of nearly 90 percent as of December 1997 is near the estimated stabilized occupancy rate of 95.0 percent. It is our opinion that the subject should be capable of averaging 95.0 percent economic occupancy throughout the holding period of our cash flow analysis. . Other income is increased at 4 percent per year after the first year of the cash flow. . The property has been appraised based on a "resident pays utilities" status. . Expenses (with the exception of management) have been increased at an average growth rate of 4 percent annually over the ten-year projection period. Management expenses are based on a percentage of gross income and increase with occupancy and rental increases. Reserves are calculated at $0.25 per square foot or $300 per unit in the first year and also increase at 4 percent per year thereafter. . A discount rate of 12.0 percent was utilized. . A terminal capitalization rate of 10.0 percent was felt reasonable. . A sales cost of 4 percent of the reversionary value was estimated. A cash flow analysis and summary for the subject beginning January 1, 1998 may be found on the preceding pages. The estimated leased fee market value for the subject on an "as is" basis as of December 31, 1997 via discounted cash flow method is FIVE MILLION FIVE HUNDRED THOUSAND DOLLARS ($5,500,000) 47
============================================================================================== DIRECT CAPITALIZATION ============================================================================================== TOTAL /UNIT /SF - ---------------------------------------------------------------------------------------------- Potential Gross Rental Income $1,071,734 $ 8,931 $ 7.51 Other Income 21,419 178 0.15 ---------- ------- ------ Potential Gross Income $1,093,153 $ 9,110 $ 7.66 Less: Vacancy & Credit Loss @ 5.00% 54,658 455 0.38 ---------- ------- ------ Effective Gross Income $1,038,496 $ 8,654 $ 7.27 FIXED EXPENSES - -------------- Real Estate Taxes $ 99,840 $ 832 $ 0.70 Insurance 26,733 223 0.19 ---------- ------- ------ Total Fixed $ 126,573 $ 1,055 $ 0.89 VARIABLE EXPENSES - ----------------- Operating Expenses $ 95,040 $ 792 $ 0.67 Utilities 93,558 780 0.66 Repairs & Maintenance 71,396 595 0.50 Contract Services 32,672 272 0.23 Management Fee 5.00% 51,925 433 0.36 General & Administrative 21,419 178 0.15 Reserves for Replacement 36,000 300 0.25 ---------- ------------- ------ Total Variable $ 402,010 $ 3,350 $ 2.82 Total Expenses $ 528,583 $ 4,405 $ 3.70 ---------- ------------- ------ Net Operating Income $ 509,913 $ 4,249 $ 3.57 Capitalization Rate 9.00% Fee Simple Stabilized Market Value $5,665,695 $47,214 $39.68 Less: Rent Loss Due to Lease Up 19,735 164.4590615 0 Capital Expenditures 140,000 1,167 0.98 ---------- ------------- ------ LEASED FEE "AS IS" MARKET VALUE $5,505,960 $45,883 $38.56 ROUNDED $5,510,000 ========== ============================================================================================== RENT LOSS DUE TO LEASE-UP/CONTRACT RENT --------------------------------------- Year 1 Year 2 ------ ------ Stabilized NOI $509,913 $509,913 Projected NOI 488,796 530,309 -------- -------- Rent Loss 21,117 0 7.00% PV Factor 0.934579 0.873439 -------- -------- PV Income Loss $ 19,735 $ 0 CUMULATIVE LOSS $ 19,735 ==============================================================================================
DIRECT CAPITALIZATION Direct capitalization is a method used to convert a single year's income estimate into a value indication. In direct capitalization a rate of return for the investor and recapture of the capital invested is implicit in the overall capitalization rate. The overall capitalization rate was chosen after analyzing the comparable apartment sales in our Sales Comparison Approach. These sales indicated a range of "going-in" capitalization rates from 7.76 to 10.90 percent. The Korpacz investor survey previously quoted indicated an average desired going-in capitalization rate of 9.29 percent. Some weight in this analysis is given to the comparable market sales since these transactions best illustrate the behavior of investor/purchasers in this marketplace. Investors' greater aversion to risk in the market caused by the recent national recession and credit constriction indicates that the range of capitalization rates from the comparables, which sold prior to this phase in the economy may be optimistic. Therefore, from these findings an overall rate of 9.00 percent was chosen for application to the subject. This rate is 1.0 percentage point lower than the terminal capitalization rate utilized for the subject in the preceding discounted cash flow analysis. The direct capitalization method indicates a value of $5,500,000 and is shown on the facing page. INCOME APPROACH CONCLUSION DCF Method..............................$5,500,000 Direct Capitalization Method............$5,500,000 Consideration is given to both the discounted cash flow method and the direct capitalization approach. These have been rounded to the nearest ten thousand dollars, however, for purposes of the income approach conclusion, the value is rounded to the nearest fifty thousand. From the above analysis provided by the Income Approach, we estimate the leased fee market value of the subject property on an "as is" all cash basis, as of December 31, 1997, to be FIVE MILLION FIVE HUNDRED THOUSAND DOLLARS ($5,500,000) 48 RECONCILIATION - -------------------------------------------------------------------------------- Sales Comparison Approach $5,600,000 Income Approach $5,500,000 The Sales Comparison Approach utilized recent comparable sales of similar properties in the area. The weakness of the Sales Comparison Approach is that no two properties are exactly alike and exact conditions of a sale are often unknown. The strength of this approach is that it indicates the market activity based on the willing buyer/willing seller concept. Eight recent sales, dating from May 1996 through August 1997 were utilized in the Sales Comparison Approach. Each is similar to the subject property in several characteristics including occupancy, location, age, construction quality, amenities, and/or condition. The data on the comparable sales was considered to be reasonably accurate and reliable. The methods of comparison utilized in this analysis were the net operating income per square foot and per unit and the effective gross rental multiplier (EGRM) methods. These indicators rely on a comparison of income rather than physical attributes. Thus, adjustments for physical factors are not necessary as economics are the common denominator. A final market value estimate for the subject was made based on the analysis presented in the Sales Comparison Approach. The Income Approach attempts to measure investment qualities of the property. Based on actual rents in the immediate area of the subject, actual expenses, and investor returns derived from the market, we have estimated value. Actual data on the property, as well as comparable data from nearby similar properties, were considered to be adequate. Because the Income Approach deals directly with income streams, we believe it is a very good indication of current market conditions. It tends to reflect a value, which an investor of a property would anticipate. In the Income Approach, comparable properties from the subject's Southside Boulevard area were utilized when deriving the subject property's economic market rents and projected expenses. The Sales Comparison Approach also contains sales from similar areas on the city's south and southeast sides. For this reasoning, both the Sales Comparison and Income Approaches are emphasized in the final analysis with greater emphasis on the Income Approach. Therefore, it is our opinion that the market value of the leased fee estate of the subject property on an "as is" all cash basis, as of December 31, 1997, is FIVE MILLION FIVE HUNDRED THOUSAND DOLLARS ($5,500,000) 49 THE LINKS AT WINDSOR PARKE - -------------------------------------------------------------------------------- [PHOTOS APPEARS HERE] COMPARABLE APARTMENT SALE 1 PROPERTY IDENTIFICATION Job Number 97-075 Project Name The Links at Windsor Park Address 13700 Sutton Park Drive North City/County/State Jacksonville, Florida TRANSACTION DATA Sale Date 08/97 Grantor (Seller) Windsor Park Apartments, Ltd. Grantee (Buyer) Rancho Bernardo Corporate Center Recorded Document 8726-846 Sale Price $20,500,000 Occupancy 95% Sale Price per Unit $73,214 Sale Price per SF $69.11 Capitalization Rate 8.56% TERMS OF SALE Said to be cash INCOME/EXPENSE DATA Potential Gross Income $ 2,767,693 Vacancy/Collection Loss ($138,385) Effective Gross Income $ 2,629,308 Operating Expenses $ (874,508) Net Operating Income $ 1,754,800 PROPERTY DESCRIPTION Year Built 1995 Number of Stories 2 and 3 Number of Units 280 Number of Bedrooms NA Net Rentable Area 296,616 SF Average Unit Size 1,059 SF Land Area 23.36 acres Unit Density 11.98 Units per Acre Property Condition Excellent Parking (type) Open Construction Type Wood frame/Wood Siding/Stucco Confirmed With Steve Coley, Barnett Bank Date Confirmed 11/18/97 Comments: Was completed in early 1995 and was in excellent condition at time of sale. Complex amenities include security fencing with remote entry gate, swimming pool, sun deck, tennis courts, clubhouse with fitness center, playground, and amenity lake with partial frontage along golf course fairways. Units have installation alarms, washer/dryer, appliances ceiling fans, window coverings, and built-in bookcases. SAN PABLO - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 2 PROPERTY IDENTIFICATION Job Number 97-075 Project Name San Pablo Address 14401 Jose Vedra Blvd.. City/County/State Jacksonville, Florida TRANSACTION DATA Sale Date 06/97 Grantor (Seller) N/A Grantee (Buyer) N/A Recorded Document N/A Sale Price $5,350,000 Occupancy 90% Sale Price per Unit $26,750 Sale Price per SF $28.96 Capitalization Rate 10.8% TERMS OF SALE Cash INCOME/EXPENSE DATA Potential Gross Income $1,302,800 Vacancy/Collection Loss ($130,280) Effective Gross Income $1,172,520 Operating Expenses ($589,370) Net Operating Income $583,150 PROPERTY DESCRIPTION Year Built 1974 Number of Stories 2 Number of Units 200 Number of Bedrooms 350 Net Rentable Area 184,750 Average Unit Size 924 SF Land Area 14.24 acres Unit Density 14.04 Units per Acre Property Condition Average Parking (type) Open parking Construction Type Concrete block with masonry and wood veneer Confirmed With David V. Allen, CB Commercial Real Estate Group, Inc. Date Confirmed 11/18/97 Comments San Pablo Apartments needed new plumbing system, wood replacement, some roof replacement and other repairs at time of sale. The property has tennis courts, basketball courts, full size pool, and playground. Expenses do not include reserves. HUNTER'S RIDGE - -------------------------------------------------------------------------------- [PICTURES APPEARS HERE] COMPARABLE APARTMENT SALE 3 PROPERTY IDENTIFICATION Job Number 97-075 Project Name Hunter's Ridge (previously Oaks at Deerwood) Address 10100 Baymeadows Road City/County/State Jacksonville, Florida TRANSACTION DATA Sale Date 05/97 Grantor (Seller) Oaks at Baymeadows II Associates, Ltd. Grantee (Buyer) Mid-America Apartments of Duval, L.P. Recorded Document 8653-596 Sale Price $15,200,000 Occupancy 92% Sale Price per Unit $45,238 Sale Price per SF $51.54 Capitalization Rate 7.76% TERMS OF SALE Said to be cash INCOME/EXPENSE DATA Potential Gross Income $2,451,409 Vacancy/Collection Loss ($196,113) Effective Gross Income $2,255,296 Operating Expenses $1,075,776 Net Operating Income $1,179,520 PROPERTY DESCRIPTION Year Built 1987 Number of Stories 2 and 3 Number of Units 336 Number of Bedrooms NA Net Rentable Area 294,888 SF Average Unit Size 878 SF Land Area 34.70 acres Unit Density 9.68 Units per Acre Property Condition Average Parking (type) Open parking Construction Type Wood frame/Wood Siding/Shingle roof Confirmed With Steve Coley, Barnett Bank Date Confirmed 11/18/97 Comments Property had a name change after the sale and is now known as Hunter's Ridge. Clubhouse has a tile roof covering and entry is paved with brick pavers. Well landscaped and treed. Amenities include a pool with hot tub, tennis courts, fitness facility in clubhouse, car care center, racquet ball/volleyball court, outdoor storage for each unit, mini-blinds, and washer/dryer connections. WOODHOLLOW - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 4 PROPERTY IDENTIFICATION Job Number 97-075 Project Name Woodhollow Apartments Address 1715 Hodges Blvd. City/County/State Jacksonville, Florida TRANSACTION DATA Sale Date 04/97 Grantor (Seller) Woodhollow, LP Grantee (Buyer) Mid-America Apartments, LP Recorded Document 8590-2406 Sale Price $16,700,000 Occupancy 94% Sale Price per Unit $37,111 Sale Price per SF $48.99 Capitalization Rate 9.60% TERMS OF SALE Cash to mortgage of $10,350,000 @ 7.5% Due in 7 years, based on 25 amortization schedule INCOME/EXPENSE DATA Potential Gross Income $3,245,490 Vacancy/Collection Loss ($194,729) Effective Gross Income $3,050,761 Operating Expenses ($1,447,561) Net Operating Income $1,603,200 PROPERTY DESCRIPTION Year Built 1986 Number of Stories 2 Number of Units 450 Number of Bedrooms 690 Net Rentable Area 342,162 SF Average Unit Size 760 SF Land Area 38.65 acres Unit Density 11.6 Units per Acre Property Condition Average Plus Parking (type) Open parking Construction Type Wood frame Confirmed With David V. Allen, CB Commercial Real Estate Group, Inc. Date Confirmed 11/18/97 Comments The cap rate does not include a deduction for reserves. Amenities are a 6-acre lake, olympic size pool with large cool deck, jacuzzi, 2 tennis courts, 2 volleyball courts, BBQ and picnic areas, large playground, and a gated boat storage. THE COURTS AT PONTE VEDRA - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 5 PROPERTY IDENTIFICATION Job Number 97-075 Project Name The Courts at Ponte Verdra Address 101 Vera Cruz Drive City/County/State Ponte Vedra Beach, FL TRANSACTION DATA Sale Date 01/97 Grantor (Seller) Windsor Apartments, L.P. Grantee (Buyer) Metropolitan Life Insurance Corporation Recorded Document 01220-01824 Sale Price $19,000,000 Occupancy 95% Sale Price per Unit $75,099 Sale Price per SF $75.12 Capitalization Rate 8.34% TERMS OF SALE Said to be cash INCOME/EXPENSE DATA Potential Gross Income $2,734,426 Vacancy/Collection Loss ($136,721) Effective Gross Income $2,597,705 Operating Expenses ($1,013,105) Net Operating Income $1,584,600 PROPERTY DESCRIPTION Year Built 1996 Number of Stories 3 Number of Units 253 Number of Bedrooms N/A Net Rentable Area 252,916 SF Average Unit Size 1,000 SF Land Area 9.23 acres Unit Density 27.41 Units per Acre Property Condition Excellent Parking (type) Open parking Construction Type Wood frame/Masonry/Stucco Confirmed With Steve Coley, Barnett Bank Date Confirmed 11/18/97 Comments Built in late 1996 and sold on 95% proforma. Leasing was ahead of schedule at time of sale. Complex was in excellent condition. Property had very attractive architectural design features at windows and roof lines. Amenities include security gate entry, fountain, brick pavers, lap pool, heated spa, and clubhouse with business center. Property had higher unit density than most projects in Ponte Vedra. THE HUNTINGTON AT HIDDEN MILLS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 6 PROPERTY IDENTIFICATION Job Number 97-071 Project Name The Huntington at Hidden Mills (formerly Cozumel) Address 3333 Monument Road Location East side of Monument Road, north of SR 10 (Atlantic Blvd.) City/County/State Jacksonville, Duval, Florida TRANSACTION DATA Date of Sale 8/8/96 Grantor (Seller) Private Syndication Grantee (Buyer) Walden Residential Recorded Document NA Sale Price $7,225,000 Occupancy 98% Sale Price per Unit $32,254.46 Sale Price per SF $40.26 TERMS OF SALE Cash INCOME/EXPENSE DATA Potential Gross Income $1,356,839 Vacancy/Collection Loss 2.8% $37,991 Effective Gross Income $1,318,848 Operating Expenses $628,166 Net Operating Income $690,682 PHYSICAL DATA Year Built 1986 Number of Stories 2-3 Number of Units 224 Number of Bedrooms 376 Net Rentable Area 179,476 SF Average Unit Size 801 SF Land Area 14.92 acres Unit Density 15 Property Condition Average Parking (type) Asphalt, open Construction Type Stucco/wood siding with composition roofs Confirmed With Dan Allen/CB Commercial/(904) 630-6362 Date Confirmed 10/10/96/LW/Bach Thoreen McDermott Inc. Comments Price adjusted upward by $350,000 for required re- plumbing and was a credit given by the seller. The net operating income (NOI) does not include an allowance for reserve for replacement expenses. THE ANTLERS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 7 PROPERTY IDENTIFICATION Job Number 97-071 Project Name The Antlers Address 8433 Southside Blvd. Location East side of Southside Blvd., south of J. Turner Butler Blvd. City/County/State Jacksonville, Duval, Florida TRANSACTION DATA Grantor (Seller) Balcor Grantee (Buyer) United Dominion Real Estate Date of Sale 5/29/96 Sale Price $15,000,000 Occupancy 97% Terms of Sale Cash Sale Price per Unit $37,500.00 Sale Price per SF $45.77 TERMS OF SALE Cash INCOME/EXPENSE DATA Potential Gross Income $2,752,915 Vacancy/Collection Loss 3.2% $88,093 Effective Gross Income $2,664,822 Operating Expenses $1,140,493 Net Operating Income $1,524,329 PHYSICAL DATA Year Built 1985 Number of Stories 2-3 Number of Units 400 Number of Bedrooms 504 Site Area 42.51 acre(s) Net Rentable Area 327,728 SF Average Unit Size 819 SF Land Area 42.51 acres Unit Density 9.4 Property Condition Average Parking (type) Asphalt, open Construction Type Stucco/Wood siding with composition roofs Confirmed With Dan Allen/CB Commercial/(904) 630-6362 Date Confirmed 10/10/96/LW/Bach Thoreen McDermott Inc. Comments The net operating income (NOI) does not include an allowance for reserve for replacement expenses. WESTLAND PARK - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 8 PROPERTY IDENTIFICATION Job Number 97-071 Project Name Westland Park Address 6710 Collins Road Location North side of Collins Road, north of I-295 City/County/State Jacksonville, Duval, Florida TRANSACTION DATA Grantor (Seller) Vestcor Grantee (Buyer) United Dominion Real Estate Sale Date 5/9/96 Sale Price $16,950,060 Occupancy 97% Terms of Sale Cash Sale Price per Unit $41,852.00 Sale Price per SF $42.06 TERMS OF SALE Cash INCOME/EXPENSE DATA Potential Gross Income $2,929,883 Vacancy/Collection Loss 3.7% $ 108,406 Effective Gross Income $2,821,477 Operating Expenses $1,104,247 Net Operating Income $1,717,230 PHYSICAL DATA Year Built 1989 Number of Stories 2-3 Number of Units 405 Number of Bedrooms 723 Net Rentable Area 403,010 SF Average Unit Size 995 SF Land Area 27.17 Unit Density 14.9 Property Condition Average Parking (type) Asphalt, open Construction Type Stucco/Wood siding with composition roofs Confirmed With Dan Allen/CB Commercial/(904) 630-6362 Date Confirmed 10/10/96/LW/Bach Thoreen McDermott Inc. Comments The net operating income (NOI) does not include an allowance for reserve for replacement expenses. DEERBROOK - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] [PICTURE APPEARS HERE] RENT COMPARABLE 1 PROPERTY IDENTIFICATION Project No. 97-075 Name of Project: Deerbrook Street Address: 8025 Baymeadows Circle East City/State: Jacksonville, Florida PROPERTY DESCRIPTION Year Built/Renovated: 1987 Number of Buildings: NA Number of Stories: 2 Number of Units: 144 Net Rentable Area (SF): 175,064 Average Unit Size (SF): 1,216 Parking Surface: Asphalt Parking Spaces: Open parking Type of Construction: Wood frame with stucco and horizontal wood siding and composition shingle roof Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF ----------------------------------------------------------------------- 40 lBR/l.5BA 875 $645-660 $0.737-0.754 40 2BR/2BA 1,206 745-770 0.618-0.638 40 2BR/2.5BA/TH 1,356 775-790 0.572-0.583 24 3BR/3BA/TH 1,566 935-950 0.597-0.607
Unit Amenities: Fireplaces, microwave ovens, cove lighting in kitchen, washer/dryer connections, some wet bars, ceiling fans, vertical blinds, smoke detectors, vaulted ceilings, screened porches. Project Amenities: Patios/balconies, golf course and lake views, weight room, swimming pool, party pavilion, 24- hour maintenance, outside storage ECONOMIC DATA Percent Occupied: 93% Avg. Monthly Rent/SF of NRA: $0.63 Ave. Electricity Paid By: Tenant Length of Lease: 7 to 12 months Security Deposit: $250 Pets Allowed/Deposit: Yes; $300 nonrefundable Confirmed With: On-site management and ConAm's comparable survey Date Confirmed: December 1997 Stevan N. Bach, Bach Realty Advisors, Inc. Remarks: Washer/dryer rentals at $30/month, lake views are an added $10/month, and golf course views are $15/month. ROYAL OAKS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] [PICTURE APPEARS HERE] RENT COMPARABLE 2 PROPERTY IDENTIFICATION Project No. 97-075 Name of Project: Royal Oaks Apartments Street Address: 10023 Belle Rive Boulevard City/State: Jacksonville, Florida PROPERTY DESCRIPTION Year Built/Renovated: 1990 Number of Buildings: 15 Number of Stories: 2-3 Number of Units: 284 Net Rentable Area (SF): 264,280 Average Unit Size (SF): 931 Parking Surface: Asphalt Parking Spaces: Open parking Type of Construction: Stucco walls with tile roofs Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF -------------------------------------------------------- 48 1BR/1BA 675 $555-595 $0.822-0.852 72 1BR/1BA 780 595-615 0.763-0.788 36 1BR/1BA 970 675-695 0.696-0.716 128 2BR/2BA 1,100 715-735 0.650-0.668
Unit Amenities: Dishwashers, garbage disposals, washer/dryer in units, miniblinds, fireplaces, outdoor utility closets, patio/balconies, burglar alarms Project Amenities: 1 swimming pool, 1 tennis court, 1 racquetball court, jacuzzi, exercise/weight room, clubroom, lake, volleyball court ECONOMIC DATA Percent Occupied: 94% Avg. Monthly Rent/SF of NRA: $0.714 Electricity Paid By: Tenant Length of Lease: 7 to 12 months Security Deposit: $250 Pets Allowed/Deposit: Yes; $300-$405 nonrefundable Confirmed With: On-site management and ConAm's comparable survey Date Confirmed: December 1997 Stevan N. Bach, Bach Realty Advisors, Inc. Remarks: Differences in rental rates for each individual floor plan are due to an additional $20 per month for a third floor location. The project also offers furnished corporate units. SOUTHERN PINES - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] [PICTURE APPEARS HERE] RENT COMPARABLE 3 PROPERTY IDENTIFICATION Project No. 97-075 Name of Project: Southern Pines Street Address: 10010 Belle Rive Boulevard East City/State: Jacksonville, Florida PROPERTY DESCRIPTION Year Built/Renovated: 1989 Number of Buildings: NA Number of Stories: 2 Number of Units: 200 Net Rentable Area (SF): 194,500 Average Unit Size (SF): 973 Parking Surface: Asphalt Parking Spaces: Open parking and garages Type of Construction: Wood frame/stucco with tile roofs Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF ----------------------------------------------------------------------- 60 lBR/lBA 750 $670-710 $0.893-0.947 120 2BR/2BA 1,040 805-835 0.774-0.803 20 3BR/2BA 1,235 940-960 0.761-0.777
Unit Amenities: Washer/dryer, fireplaces, ceiling fans, vaulted ceilings, microwaves, and oversized screened patios. Project Amenities: Clubhouse, fitness center, garages with automatic openers, pool and spa, lighted tennis court, and car wash ECONOMIC DATA Percent Occupied: 92% Avg. Monthly Rent/SF of NRA: $0.816 Electricity Paid By: Tenant Length of Lease: 7 to 12 months Security Deposit: $200 Pets Allowed/Deposit: Yes; $350 nonrefundable Confirmed With: On-site management and ConAm's comparable survey Date Confirmed: December 1997 Stevan N. Bach, Bach Realty Advisors, Inc. Remarks: Extra monthly charges for lake views and garages are $20 and $75 respectively. THE RESERVE - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] [PICTURE APPEARS HERE] RENT COMPARABLE 4 PROPERTY IDENTIFICATION Project No. 97-075 Name of Project: The Reserve (at Deerwood) Street Address: 7632 Southside Boulevard City/State: Jacksonville, Florida PROPERTY DESCRIPTION Year Built/Renovated: 1984/1997 Number of Buildings: NA Number of Stories: 1 Number of Units: 226 Net Rentable Area (SF): 242,876 Average Unit Size (SF): 1,075 Parking Surface: Asphalt Parking Spaces: Open parking Type of Construction: Wood frame with horizontal wood siding and gable composition shingle roof. Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF ----------------------------------------------------------- 54 1BR/1BA 808 $655 $0.811 28 2BR/1BA 1,034 755 0.730 58 2BR/2BA 1,093 795 0.727 46 2BR/2BA/TH 1,143 815 0.713 40 3BR/2BA/TH 1,358 975 0.718
Unit Amenities: Flats and town homes, intrusion alarms, 9 ft. vaulted ceilings, washer/dryer, fireplaces, microwaves, self-cleaning ovens, ceiling fans, vertical mini blinds, private patios. Project Amenities: Restricted gate access, clubhouse with exercise room, interior racquet ball court, business center, oversized pool with jacuzzi, lighted tennis court, basketball court, sand volleyball area, BBQ area, billiards room. ECONOMIC DATA Percent Occupied: 92% Avg. Monthly Rent/SF of NRA: $0.737 Electricity Paid By: Tenant Length of Lease: 7 to 12 months Security Deposit: $250 of which $200 is refundable Pets Allowed/Deposit: Yes; $300 nonrefundable Confirmed With: On-site management and ConAm's comparable survey Date Confirmed: December 1997 Stevan N. Bach, Bach Realty Advisors, Inc. Remarks: Resident pays water/sewer and places a $30 refundable deposit. Business Center has library with personal computer, fax machine, copier, and typewriter. STREET PARCEL - Together with the following described easement for ingress, - ------------- egress, drainage and utilities. A tract of land, in Section 24, Township 3 South, Range 27 East, Jacksonville, Duval County, Florida. Said tract being more particularly described as follows: For point of reference, commence at the point of intersection of the Northerly right of way line of Baymeadows Road (a 100-foot right of way, as now established) with the Westerly right of way line of Southside Boulevard (State Road No. 115, a 300-foot right of way, as now established), and run N-0 degrees 01' 50"W., along said Westerly right of way line, a distance of 4,395.00 feet to a point of curvature for point of beginning. From the point of beginning thus described, run a distance of 39.27 feet, along the arc of a curve, concave Southwesterly, and having a radius of 25.00 feet, a chord distance of 35.36 feet to the point of tangency of said curve, the bearing of the aforementioned chord being N-45 degrees 01' 50"W.; run thence S-89 degrees 58' 10"W, a distance of 146.66 feet to a point of curvature; run thence a distance of 60.35 feet, along the arc of a curve, concave Southeasterly, and having a radius of 182.00 feet, a chord distance of 60.08 feet to the point of tangency of said curve, the bearing of the aforementioned chord being S-80 degrees 28 '10"W.; run thence S-70 degrees 58' 10"W. a distance of 540.57 feet to a point of curvature; run thence a distance of 203.35 feet, along the arc of a curve, concave Northeasterly, and having a radius of 274.14 feet, a chord distance of 198.72 feet to a point of reverse curvature, the bearing of the aforementioned chord being N-87 degrees 46' 50"W.; run thence a distance of 50.41 feet, along the arc of a curve, concave Southeasterly, and having a radius of 50.00 feet, a chord distance of 48.30 feet to a point of reverse curvature, the bearing of the aforementioned chord being S-84 degrees 35' 06"W.; run thence a distance of 515.81 feet, along the arc of a curve, concave Northwesterly, and having a radius of 100.00 feet, a chord distance of 106.67 feet to a point of [STAMP APPEARS HERE] Page 4 of 5 Pages reverse curvature, the bearing of the aforementioned chord being 11-23 degrees 28' 10"E.; run thence a distance of 50.41 feet, along the arc of a curve, concave Northeasterly, and having a radius of 50.00 feet, a chord distance of 48.30 feet to a point of reverse curvature, the bearing of the aforementioned chord being S-37 degrees 38'46"E.; run thence a distance of 158.84 feet, along the arc of a curve, concave Northerly, and having a radius of 214.14 feet, a chord distance of 155.23 feet to the point of tangency of said curve, the bearing of the aforementioned chord being S-87 degrees 46' 50"E.; run thence N- 70 degrees 58' 10"E. a distance of 663.77 feet to a point of curvature; run thence a distance of 79.59 feet, along the arc of a curve, concave Southeasterly, and having a radius of 240.00 feet, a chord distance of 79.22 feet to a point of tangency, the bearing of the aforementioned chord being N-80 degrees 28' 10"E.; run thence N-89 degrees 58' 10"E. a distance of 30.83 feet to a point of curvature; run thence a distance of 39.27 feet, along the arc of a curve, concave Northwesterly and having a radius of 25.00 feet, a chord distance of 35.36 feet to the point of tangency of said curve with the Westerly right of way line of aforementioned Southside Boulevard, the bearing of the aforementioned chord being N-44 degrees 58' 10"E.; run thence S-0 degrees 01' 50"E., along said Westerly right of way line, a distance of 150.00 feet to the point of beginning. The land thus described contains 2.2422 acres, more or less. [STAMPS APPEARS HERE] Page 5 of 5 Pages ================================================================================ COMPLETE, SELF-CONTAINED VALUATION OF VILLAGE AT THE FOOTHILLS I APARTMENTS 7333 NORTH MONA LISA ROAD TUCSON, ARIZONA FOR HUTTON/CON AM REALTY INVESTORS 2 1764 SAN DIEGO AVENUE SAN DIEGO, CALIFORNIA 92110 AS OF DECEMBER 31, 1997 BY BACH REALTY ADVISORS, INC. 1221 LAMAR, SUITE 1325 HOUSTON, TEXAS 77010 BRA: 97-079 ================================================================================ TABLE OF CONTENTS - -------------------------------------------------------------------------------- Letter of Transmittal............................................ 1 Assumptions and Limiting Conditions.............................. 2 Certification.................................................... 4 Salient Facts and Conclusions.................................... 6 Nature of the Assignment......................................... 7 City/Neighborhood Analysis....................................... 9 Apartment Market Analysis........................................ 13 Site Analysis.................................................... 18 Improvements..................................................... 21 Highest and Best Use............................................. 24 Appraisal Procedures............................................. 27 Sales Comparison Approach........................................ 29 Income Approach.................................................. 33 Reconciliation................................................... 42
ADDENDA Rent Comparables Improved Sale Comparables Professional Qualifications B.A.C.H Realty Advisors, Inc. Appraisal, Consultation & Litigation March 17, 1998 Hutton/Con Am Realty Investors 2 1764 San Diego Avenue San Diego, California 92110 Re: A Complete, Self-Contained Appraisal of Village at the Foothills I Apartments, Tucson, Arizona; BRA: 97-079 Gentlemen: By your request and authorization, we have inspected the above-referenced property and have investigated the real estate market in the subject area in order to provide the value of the leased fee estate of the subject property as of December 31, 1997. This appraisal report is in conformance with the guidelines of the Appraisal Institute. The scope of this assignment includes the Sales Comparison and Income Approaches to value. The property was inspected in December 1997 and for purposes of this report it is assumed that all physical and economic conditions are similar on the date of value as they were on the date of inspection. Our analysis of the property focused on the supply and demand factors influencing the Tucson and subject area apartment market, the sale of comparable properties, market rent levels, appropriate operating expenses, and acceptable investor returns. As a result of our inspection of the property, investigation of the real estate market, and relying on our experience with similar type properties, it is our opinion that the leased fee market value of the subject property, all cash, on an "as is' basis, as of December 31, 1997 is in the sum of TWO MILLION FOUR HUNDRED THOUSAND DOLLARS ($2,400,000) There follows on the succeeding pages of this report pertinent data as to the valuation conclusions expressed herein. Your attention is also directed to the Assumptions and Limiting Conditions that follow this letter, as they are an integral part of the above stated market value. Thank you for the opportunity to be of service. If there are any questions regarding the valuation, please contact us. Sincerely, BACH REALTY ADVISORS, INC. /s/ Stevan N. Bach Stevan N. Bach, MAI President and Chief Executive Officer Four Houston Center 1221 Lamar, Suite 1325 Houston, TX 77010 (713) 739-0200 Fax (713) 739-0208 ASSUMPTIONS AND LIMITING CONDITIONS - -------------------------------------------------------------------------------- The certification of this complete, self-contained appraisal is subject to the following assumptions and limiting conditions. 1. That responsibility is not taken for matters of a legal nature affecting the property appraised or the title thereto and that all legal descriptions furnished are correct. 2. That the title to the property being appraised is good and marketable and is appraised as though under responsible ownership and/or management. 3. That the property is free and clear of all liens and encumbrances, except as otherwise stated. 4. That the sketches in this report are included to assist the reader in visualizing the property and responsibility is not assumed for their accuracy. 5. That a survey of the property has not been made by the appraiser. 6. That the information, estimates, and opinions furnished the appraiser by others and contained in this report are considered reliable and are believed to be true and correct; however, responsibility is not taken for their accuracy. 7. That responsibility is not taken for soil conditions or structural soundness of the improvements that would render the property more or less valuable. 8. That possession of this appraisal does not carry with it the right of publication and that this report, or any parts thereof, may not be reproduced in any form without written permission of the appraiser. 9. That testimony or attendance in court or at a hearing are not a part of this assignment; however, any such appearance and/or preparation for testimony will necessitate additional compensation than received for this appraisal report. 10. That the valuation estimate herein is subject to an all cash or cash equivalent purchase and does not reflect special or favorable financing in today's market. 11. Where discounted cash flow analyses have been undertaken, the discount rates utilized to bring forecasted future revenues to estimates of present value reflect both our market investigations of yield anticipations and our judgement as to the risks and uncertainties in the subject property and the consequential rates of return required to attract an investor under such risk conditions. There is no guarantee that projected cash flows will actually be achieved. 2 12. That the square footage figures are based on floor plans and information supplied to the appraiser by Con Am Management. 13. Bach Realty Advisors, Inc. is not an expert as to ------------------------------------------------- asbestos and will not take any responsibility for its ----------------------------------------------------- existence or the existence of other hazardous materials ------------------------------------------------------- at the subject property, analysis for EPA standards, ---------------------------------------------------- its removal, and/or its encapsulation. If the reader of ------------------------------------------------------- this report and/or any entity or person relying on the ------------------------------------------------------ valuations in this report wishes to know the exact or ----------------------------------------------------- detailed existence (if any) of asbestos or other toxic ------------------------------------------------------ or hazardous waste at the subject property, then we not ------------------------------------------------------- only recommend, but state unequivocally that they ------------------------------------------------- should obtain an independent study and analysis ----------------------------------------------- (including costs to cure such environmental problems) ----------------------------------------------------- of asbestos or other toxic and hazardous waste. ----------------------------------------------- 14. In addition, an audit on the subject property to determine its compliance with the Americans with Disabilities Act of 1990 was not available to the appraisers. The appraiser is unable to certify compliance regarding whether the removal of any barriers which may be present at the subject are readily achievable. 3 CERTIFICATION - -------------------------------------------------------------------------------- The undersigned does hereby certify to the best of my knowledge and belief that, except as otherwise noted in this complete, self-contained appraisal report: 1. I do not have any personal interest or bias with respect to the subject matter of this appraisal report or the parties involved. 2. The statements of fact contained in this appraisal report, upon which the analyses, opinions, and conclusions expressed herein are gauged, are true and correct. 3. This appraisal report sets forth all of the limiting conditions (imposed by terms of our assignment or by the undersigned) affecting the analyses, opinions, and conclusions contained in this report. 4. The analysis, opinions and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Uniform Standards of Professional Appraisal Practice of the Appraisal Institute. 5. That no one other than the undersigned prepared the analyses, opinions, and conclusions concerning the subject property that are set forth in this appraisal report. Stevan N. Bach, MAI inspected the property in December 1997. 6. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 7. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions, and conclusions. 8. The Appraisal Institute conducts a program of continuing education for its members. Members who meet the minimum standards of this program are awarded periodic educational certification. As of the date of this report, Stevan N. Bach, MIA has completed the requirements under the continuing education program of the Appraisal Institute. 9. Compensation for this assignment is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. 4 10. Based on the knowledge and experience of the undersigned and the information gathered for this report, the estimated leased fee market value, "as is," of the subject property on an all cash basis, as of December 31, 1997, is $2,400,000. /s/ Stevan N. Bach ----------------------------------- Stevan N. Bach, MAI President and Chief Executive Officer Certified General Real Property Appraiser State of Texas TX-1323079-G 5 SALIENT FACTS AND CONCLUSIONS - -------------------------------------------------------------------------------- Identification: Village at the Foothills I Apartments 7333 North Mona Lisa Road Tucson, Arizona Location: West side of North Mona Lisa Road just north of Ina Road BRA: 97-079 Legal Description: Irregular parcel in northeasterly portion of the southeast quarter of the southwest quarter of and a portion of the west half of the southwest quarter of the southeast quarter lying west of Mona Lisa Road containing 4.8 acres in Section 33- 12-13, Pima County, Arizona Land Size: 4.8 acres or 209,088 square feet Building Area: 58,018 square feet of net rentable area Year Built: 1986 Unit Mix: 16 1BR/1BA at 780 square feet 18 2BR/2BA at 1,081 square feet 6 2BR/2BA at 1,190 square feet 20 1BR/1BA at 947 square feet No. of Units: 60 Average Unit Size: 967 square feet Physical Occupancy: 88 percent Economic Occupancy: 86 percent Highest and Best Use As Vacant: Multifamily As Improved: Multifamily Date of Value: December 31, 1997 "As Is" Market Value by Sales Comparison Approach: $2,300,000 "As Is" Market Value by Income Approach: $2,400,000 "As Is" Market Value Conclusion: $2,400,000 6 NATURE OF THE ASSIGNMENT - -------------------------------------------------------------------------------- PURPOSE OF THE APPRAISAL The purpose of this complete, self-contained appraisal is to give an estimate of the "as is" leased fee market value of the subject property on an all cash basis. IDENTIFICATION OF THE PROPERTY The subject property contains seven 2-story apartment buildings with 60 units and a total net rentable area of 58,018 square feet. It was constructed in 1986 on 4.8 acres. It is identified as the Village at the Foothills I Apartments located at 7333 North Mona Lisa Road. The complex is situated along the west side of North Mona Lisa Road, just north of Ina Road in Tucson, Arizona. DATE OF THE APPRAISAL All opinions of value expressed in this report reflect physical and economic conditions prevailing as of December 31, 1997 which are assumed to be the same as of our most recent inspection date of December 1997. DEFINITION OF SIGNIFICANT TERMS The Appraisal of Real Estate, Eleventh Edition, 1996, ---------------------------- sponsored by the Appraisal Institute defines Market Value as: "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) Buyer and seller are typically motivated; (2) Both parties are well informed or well advised, and acting in what they consider their own best interests; (3) A reasonable time is allowed for exposure in the open market; (4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale." 7 It is our opinion that a reasonable time period to sell the subject property is six months to one year and this is ---------------------- consistent with current market conditions. A sale earlier than six months to one year may represent a value other than market value and is reasonably believed to be a value less than our market value stated within our appraisal report. Leased Fee Estate/1/ - An ownership interest held by a -------------------- landlord with the rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the leased fee are specified by contract terms contained within the lease. FUNCTION OF THE APPRAISAL IT is the understanding of the appraisers that the function of this appraisal is for annual partnership and/or internal reporting purposes. PROPERTY RIGHTS APPRAISED The appraisers have appraised the "as is" leased fee interest subject to short-term leases which are typically 6 to 12 months in duration at the subject property. THREE-YEAR HISTORY According to the Pima County records, the current owner of record is Hutton/Con Am Realty Investors 2. No sale or listing of the subject property is believed to have occurred over the past three years. SCOPE/BASIS OF THE APPRAISAL This appraisal has been made in accordance with accepted techniques, standards, methods, and procedures of the Appraisal Institute. The values set forth herein were estimated after application and analysis by the Sales Comparison and Income Approaches to value. These approaches are more clearly defined in the valuation section of this report. The Cost Approach was not utilized in our analysis due to the age of the property since depreciation is difficult to accurately measure in older properties. Additionally, it is often the perception of investors that cost does not necessarily equate to value and the purchase price is not typically based on construction costs. The scope of our assignment included obtaining pertinent property data from the client regarding income and expense figures, tenant rent rolls, and permission to inspect the subject. Additionally, the appraisers conducted research either personally or through associates to obtain current market rental rates, construction trends, the sale of comparable improved properties, anticipated investor returns, and the supply and demand of competitive apartment projects in the general and immediate area. After these examinations were performed, an analysis was made in order to estimate the leased fee market value of the subject on an "as is" basis. _________________________ /1/ The Dictionary of Real Estate Appraisal, Third Edition, p. 204. ------------------------------------------- 8 [AREA MAP OF TUCSON ARTERIAL STREETS APPEAR HERE] CITY/NEIGHBORHOOD ANALYSIS - -------------------------------------------------------------------------------- The Tucson Metropolitan Area (TMA) encompasses approximately 495 square miles and is located 63 miles north of Mexico and 115 miles southeast of Phoenix. Tucson is the county seat of Pima County and includes four incorporated areas and two Indian reservations. The county is generally separated into the foothills and the flatlands topographical regions. The foothills contain the resorts and more prestigious residential areas, with higher housing prices and higher household incomes. The flatlands contain a more diverse residential population and most of the major employment centers. The geographic boundaries of the TMA are defined by five mountain ranges: the Santa Catalina, Rincon, Santa Rita, Tucson, and Tortolita. The Santa Cruz, Rillito, and Pantano are the three major rivers or washes that traverse the Tucson area. The major transportation arteries in the Tucson area are Interstate Highway 10 and Interstate Highway 19. Interstate Highway 10 is the major highway linking the southwestern United States from El Paso to Los Angeles, and flows in a northwest/southeast direction in the Tucson area. Interstate Highway 19 branches south from Interstate Highway 10 near the traditional downtown and serves the southwestern part of the community. The Tucson International Airport services 13 domestic and international airlines and Amtrak provides passenger rail transportation to the city. LIVABILITY Tucson is in the Sonoran Desert region located in southern Arizona and northern Mexico and is 2,389 feet above sea level. This arid climate produces an average annual rainfall of approximately 11 inches. The three main rivers or washes in the area are dry for the majority of the year and in the summer rainy season collect more than half of the annual rainfall. The average daytime temperature is 82 degrees and the average humidity level is 25 percent. The sunny, dry climate of this area is largely responsible for the population growth over the past twenty years and Tucson has emerged as a popular vacation and tourist destination. Three major resorts are located in the foothills of the mountains around Tucson and there are a number of other smaller resorts, guest ranches, and hotels, which offer year round vacation and recreation facilities. There are more than 30 private and semiprivate golf courses in the area as well as more than 30 private and public tennis facilities. The University of Arizona dominates the field of higher education with a current enrollment of approximately 40,000 students. The University operates 7 colleges, 5 schools, 114 departments, and a medical school/center and is acknowledged as a leader in studies of optical sciences, electronics, scientific instrumentation, and astronomy. Other institutions of higher education in the area are the Pima Community College and the University of Phoenix (private). POPULATION Tucson is the second largest city in Arizona, following Phoenix. Tucson is located in Pima County or the Tucson Metropolitan Area, which has shown strong population growth. In 1980, the estimated population for Pima County was 527,289. This grew at an average annual compound rate of 2.4 percent to 668,501 in 1990. Since 1990 the population has also grown at an average annual 9 compound rate of 2.5 percent to 794,933 in 1997. The Pima Association of Governments projects the population to grow to 846,000 by the year 2000 and to over 1 million by the year 2010. This would represent an average annual compound growth rate of about 1.8 percent. ECONOMY The economic base of the TMA is heavily oriented toward governmental and educational employment. The U.S. Army Fort Huachuca and the University of Arizona are reported to be the two largest employers with 11,193 and 10,311 employees, respectively. Other substantial government employers include the State of Arizona, Davis-Monthan Air Force Base, Tucson Unified School District, Pima County, and the City of Tucson. During the military cutbacks several years ago, the Davis-Monthan Air Force Base was expected to suffer huge losses however, employment at the base actually increased. Manufacturing employment in metropolitan Tucson has more than doubled in the past ten years. This growth is due to the increase of high technology manufacturers locating and expanding in Pima County. These manufacturers include AlliedSignal, Weiser Lock, 3M, Burr-Brown, Environmental Air Products, Inc., Krueger Industries, Inc., and Hughes Missile Company. Hughes Missile Systems and BHP Copper Company are the largest private sector employers. In January 1997 it was announced that Hughes Corporation had been purchased by Raytheon, one of the largest defense contractors in the nation. It is expected that the Hughes operation will increase their engineering employment in Tucson as a result of the acquisition. Another positive impact on the local economy has been Allied Signal's decision to not only remain in Tucson, but to expand their operations. Another area of growth for the local economy is the increase in tourism. According to the Tucson Planning Department, approximately one in four new jobs in the TMA is positively affected by tourism. The following summarizes the Tucson Metropolitan Area Employment as of September 1997. Total Employment 365,000 Total Wage and Salary Employment 314,600 Manufacturing 29,800 Durable 23,900 Non-durable 5,900 Mining 2,300 Contract Construction 19,300 Transport., Communications and Public Utilities 13,500 Finance, Insurance and Real Estate 12,800 Trade 68,400 Wholesale 10,500 Retail 57,900 Services 100,200 Government 68,300 Total Civilian Labor Force 378,300 Unemployment Rate (Seasonally Adjusted) 3.2%
10 [NEIGHBORHOOD MAP APPEARS HERE] ECONOMIC OUTLOOK Over the past few years, Tucson's economy has been mixed. Citywide, job growth fell off in the late 1980's and early 1990's and the unemployment rate began to creep up. However, since 1995 this trend appears to have subsided. The unemployment rate has decreased from 3.6 percent in March 1995 to 3.2 percent in September 1997. It is important to note that the Davis-Monthan Air Force base was not included on the Base Realignment and Closure Commission's list. However, in recent years there has been a closing of Lockheed Aeromod, which was reportedly, offset somewhat by the expansions at Gates Learjet. Both the City of Tucson and Pima County are actively seeking new employees to relocate to the area. The Tucson Economic Development Corporation reports that over 6,000 new jobs could be added to Tucson due to the entrance of new companies. Moderate and steady growth is projected for the Tucson economy in the coming year. Population and job growth is expected to increase. Single family home-building and sales activity has improved over the last two years. The multi- family home market experienced it's first growth since recovery from the overbuilding of the 1980's. However, caution is warranted in order to not recreate the same scenario of oversupply. Renewed consumer confidence, along with the decline in mortgage interest rates are the primary factors behind the strong sales performance. The commercial sector continues to exhibit oversupply in all sectors, retail, industrial, and office. However, with little new, construction taking place all markets are improving and equilibrium is forecasted within approximately two years. Tucson's long-range outlook is optimistic due to its diversified economic base featuring industry sectors expected to prosper over time, a growing tourism industry, and expanding service sector. This coupled with the relative affordability of real estate compared with either east or west coast is expected to continue to lure employers/employees as well as retirement in-migration. NEIGHBORHOOD The subject is situated in the northwest portion of Tucson. It is about 10 miles north of the Central Business District (CBD). More specifically, it is situated along the west side of North Mona Lisa Road. The neighborhood boundaries may be defined as Thornydale Road to the west, La Canada Drive to the east, Magee Road to the north, and Orange Grove Road to the south. The general area is sporadically developed with significant vacant land available. The majority of vacant parcels are large tracts and are north of the subject. The major thoroughfares south of the subject area tend to include a variety of residential and commercial development. Ina Road to the south of the subject has a number of development types such as restaurants, retail, office, and some residential projects. This thoroughfare provides the most extensive variety of commercial development to the subject area. One of the most significant retail projects is the Foothills Mall at Ina Road and LaCholla Boulevard, which is anchored by Foley's and Dillard's. Neighborhood and community centers along Ina Road include Heritage Plaza, Drug Emporium Plaza, North Pima Center, and Gold Canyon Plaza. Some of the older apartment complexes in the area on Ina Road include the Foothill Shadows and Tierra Ricon. Some of the newer apartment complexes include Casa Madera situated just northeast of the subject on Mona Lisa Road, Centre Point located about a mile west of the subject on Ina 11 Road, and Catalina Canyon which was remodeled about a year ago just east of the subject. Additionally, a second phase of the Casa Madera Apartments was construction just east of the subject. Ina Road is an east/west artery, which connects the subject area to other major thoroughfares and business centers. The other east/west thoroughfares in the area, Cortaro Farms Road/Magee Road and Orange Grove Road are sporadically developed with mainly single-family residential. As a result of the residential development, there are some support facilities and amenities in proximity to the subject. These include the Tucson National Golf Course to the northwest and the Arthur Pack Desert Golf Course along Thornydale at Overton Road. Schools within or near the neighborhood are Mountainview High School and Tortolita Junior High School. The residential development in the area is mainly middle- to upper-income housing. In order to better understand the general make-up of the subject area, we analyzed demographics within a 3- and 5-mile radii of the immediate subject area. According to this study, the population in the neighborhood has grown significantly over the past decade. The population estimates for 1990 were estimated at 37,440 within a 3-mile radius and 70,798 within a 5-mile radius. Within 3 miles, the population during 1970-1980 experienced a 324.64 percent increase and 74.81 percent from 1980 to 1990. Within a 5-mile radius, the population growth from 1970-1980 increased 207.00 percent and 55.64 percent from 1980 to 1990. Residential units in the subject area within a 1-mile radius are predominately owner-occupied as opposed to renter- occupied (84 and 16 percent, respectively). These figures are consistent with the impressions by visual inspection of the area that there are a greater number of single-family residences than apartment complexes. Estimated 1990 income levels for households within a 1- and 3-mile radius of the subject property indicate a median income of $37,413 and $37,380 per year, respectively. The education level of the area population is high and most probably contributes to the income levels. Approximately 34 percent of the area residents are high school graduates and 27 percent have completed college. The population is predominately between 25 and 44 years old with about 15 percent being 65 years and older. NEIGHBORHOOD CONCLUSION Overall, the subject neighborhood is projected to continue to prosper in future years and it is estimated to be about 50 to 60 percent developed. The immediate area is mainly developed with residential subdivisions and commercial projects, which are situated along major thoroughfares. The residential development in the area is geared toward middle- to upper-income. Zoning helps regulate future development patterns, and the neighborhood is believed to have a healthy future. For the most part, the Village at the Foothills I Apartments are perceived as being a positive attribute to the area providing a quality multifamily facility well screened by its extensive landscaping. 12 [MARKET AREA MAP APPEARS HERE] APARTMENT MARKET ANALYSIS - -------------------------------------------------------------------------------- In our analysis of the Tucson Metropolitan (Metro) housing market and more specifically the Northwest and Catalina Foothills submarkets, we utilized data from the Metropolitan Tucson Land Use Study with information from the Statistics/Trends Summary published by RealData, Inc. It is important to note that prior to 1995, a publication titled "Market Strategies Apartment Survey Report" was utilized for the data now reported by RealData, Inc. Therefore, there could be some discrepancies in the presentation of data between 1995 and 1996. Both the Northwest and Catalina Foothills submarkets were included due to proximity and similarities; however, the subject is actually situated in the Northwest submarket. The study revealed an ever-changing market and a summary of the data follows. INVENTORY The rapid residential growth of the mid-1980s slowed during the late 1980s as a result of the general slowdown in the local economy and overbuilding. The multifamily sector experienced declines in activity with a drastic decrease in new building. Nevertheless, over the past two years there have been a number of new projects completed and more are under construction or are in the planning stage. As of the Third Quarter 1997, the metro Tucson area had a total inventory of 90,680 multi-family units with 6,928 units in the Northwest submarket and 8,185 units in the Catalina Foothills submarket. The submarkets represent about 17 percent of the total inventory. As of the Third Quarter 1997, there were 811 multi-family units under construction citywide and this does not include a number of units, which are nearing completion and have begun lease-up. There are 1,277 units permitted across the city; however, all of these projects may not proceed. VACANCY Vacancy levels for Metro Tucson and the submarkets showed improvements from 1990 to 1994. However, in 1995, there was a noticeable upswing. The following table summarizes the vacancy rates from the Second Quarter 1990 through the Third Quarter 1997. It is important to note that there is typically a swing in vacancy during the year due to seasonal demand. The summer months tend to report higher vacancies as some residents temporarily move and the winter months are much stronger due to the increase of extended stay visitors. 13
VACANCY RATES ------------------------------------------------- METRO CATALINA Q:YEAR TUCSON NORTHWEST FOOTHILLS ------------------------------------------------- III:97 8.66% 7.55% 7.02% II:97 10.39% 8.82% 8.98% I:97 8.3% 7.92% 8.6% IV:96 9.2% 7.72% 10.71% III:96 9.38% 7.5% 12.46% II:96 11.1% 9.3% 15.5% I:96 7.4% 7.9% 8.1% IV:95 7.9% 7.6% 8.6% III:95 7.9% 6.3% 11.0% II:95 8.9% 9.7% 9.0% I:95 3.6% 3.9% 3.8% IV:94 4.0% 5.0% 3.4% III:94 4.2% 4.2% 2.4% II:94 5.9% 4.4% 4.1% I:94 3.8% 3.4% 3.2% IV:93 5.8% 4.1% 3.9% III:93 7.9% 5.6% 6.2% II:93 8.3% 3.9% 7.7% I:93 6.6% 3.8% 5.6% IV:92 7.7% 5.4% 5.5% III:92 9.9% 8.2% 5.8% II:92 10.8% 8.9% 7.7% I:92 8.6% 7.7% 4.4% IV:91 8.0% 7.7% 4.3% III:91 10.4% 7.7% 5.9% II:91 14.5% 8.9% 9.8% I:91 11.4% 7.9% 8.0% IV:90 12.3% 8.7% 8.5% III:90 14.8% 10.6% 14.5% II:90 18.7% 19.8% 18.9%
Source: Marketing Strategies from II:90 to I:95 RealData, Inc. from II:95 to III:97 In summary, the overall vacancy citywide and in the submarkets declined from the Second Quarter 1990 through the First Quarter 1995. The vacancy in Metro Tucson dropped from 18.7 percent in the Second Quarter 1990 to 3.6 percent in the First Quarter 1995. There were similar drops in both of the submarkets with the Northwest submarket dropping from 19.8 percent in the Second Quarter 1990 to 3.9 percent in the First Quarter 1995. The Catalina Foothills dropped from 18.9 percent in the Second Quarter 1990 to 3.8 percent in the First Quarter 1995. However, in 1995, both the citywide apartment market and the submarkets noticed an upswing in vacancies. The Metro Tucson vacancy rate increased to 8.9 percent in the Second Quarter of 1995 and has fluctuated from 7.9 percent to 11.1 percent since then. The overall vacancy rate as of the Third Quarter 1997 was 8.66 percent, which was down from the 9.38 percent rate for the same period the previous year. The Northwest and Catalina markets saw similar trends with vacancy increasing to 9.7 and 9.0 percent respectively in the Second Quarter 1995. 14 In the Northwest submarket, the Third Quarter 1997 vacancy rate was 7.55 percent virtually unchanged from 7.5 percent the previous year. In the Catalina Foothills, the Third Quarter 1997 vacancy rate was 7.02 percent down from 12.46 percent the previous year. The higher vacancy rates since 1995 are a direct result of the affordability of home ownership and the over saturation of the market with new apartments. Overall, Pima County is continuing to see population increases, due primarily to an in-migration of people seeking affordable housing and a higher than average per capita income. With the slowdown in apartment development, the Metro Tucson apartment market should continue to stabilize from the effects of excessive building. However, due to the amount of new construction many projects are feeling the impact and have sacrificed rents in order to maintain their occupancy levels. The following summarizes the current physical occupancy level at some of the competitive properties.
CURRENT PHYSICAL APARTMENT COMPLEX YEAR BUILT NO.OF UNITS OCCUPANCY ---------------------------------------------------------------------- Tierra Catalina 1983 120 92% L'Auberge Canyon View 1987 264 96% Greens at Ventana 1986 265 89% The Arboretum 1986 352 99% Pinnacle Canyon 1995 225 98%
ABSORPTION According to Market Strategies, absorption of apartment units in the Metro Tucson area has fluctuated significantly each quarter over the past few years. In 1990, absorption was estimated to be about 2,741 units. The Second Quarter 1990 showed a significant decline in absorption with a negative (2,765) units; however, this was followed by a substantial increase in the Third and Fourth Quarters with 2,335 units, and 2,111 units, respectively. Similarly in 1991 there was a negative absorption in the Second Quarter with a loss of (1,634) units followed by an increase in the Third Quarter to a positive 2,315 units and in the Fourth Quarter to 1,350 units. Overall, there was a slight decline in the overall annual absorption with 2,679 units in 1991. In 1992, the first two quarters reflected a negative absorption of (1,444) units; however, this rebounded in the second half of the year with 2,289 units. Overall, 1992 reflected a total absorption of 845 units. This was down from 1990 and 1991. In 1993, the second quarter was again one of the worst in terms of absorption. Overall absorption for the year was 1,408 units. In 1994, the absorption dropped somewhat to 1,084 units with the Second Quarter reporting a negative absorption of (1,211) units. These figures are according to Market Strategies. However, according to RealData, Inc., the annual absorption in 1994 was a negative (424) units. In 1995, RealData, Inc. reported another devastating year with a negative (447) units and the second quarter reported the worst figures. The first half of 1996 appears to have improved slightly over 1995 when comparing the first two quarters of the year; however, it reported a negative absorption of (667) units. Beginning in the Third Quarter 1996 the trend changed. Absorption was 1,561 in the Third Quarter 1996 and 755 in the Fourth Quarter. First Quarter 1997 also showed significant absorption of 755 units. However, Second Quarter again showed a negative absorption of 866 units. The Third Quarter rebounded with positive absorption of 1,135 units. Overall the last four 15 quarters showed positive absorption of 1,779 units, which is the best performance since 1991. RENTAL RATES The average rental rate of all projects in the Metro area was $0.68 per square foot as of the Third Quarter of 1997. The rents on the various unit types increased approximately 1.5 percent in the year ending Third Quarter 1997 from 1996. The following summarizes the average rent per square foot by unit type excluding utilities for the Third Quarter 1997. AVERAGE RENT/SF EXCLUDING UTILITIES -----------------------------------------------------
CATALINA UNIT TYPE METRO TUCSON NORTHWEST FOOTHILLS ----------------------------------------------------- Studio $0.82 $0.82 $0.93 1BR/1BA 0.72 0.74 0.78 1BR/lBA/DEN 0.62 ---- 0.62 2BR/lBA 0.65 0.67 0.74 2BR/2BA 0.65 0.62 0.69 3BR/2BA 0.64 0.67 0.71
The average rents on all unit types is greater in the Catalina Foothills submarket than the overall Metro area and is the second highest of all submarkets (exception University). Given the quality, desirable location, and amenities, apartment rents in the Catalina Foothills submarket have historically been the highest in the area. The Northwest area has tracked relatively close to the citywide average. However, due to the amount of new construction, rents are not expected to increase over the next year. A summary of the current average asking rent per square foot for several of the subject's competitive projects follows.
AVERAGE AVERAGE ASKING PROPERTY UNIT RENT/SF SIZE/SF -------------------------------------------------------- Tierra Catalina 1,171 $0.69 L'Auberge Canyon View Ventana 1,019 $0.82 The Greens at Ventana Canyon 1,011 $0.80 The Arboretum 811 $0.73 Villa Sin Vacas 1,114 $0.87 Colonia Del Rio 1,010 $0.68 Boulders at La Reserve 999 $0.72 La Reserve Villas 900 $0.77 Legends at La Paloma 1,034 $0.79 Skyline Bel Aire 1,125 $0.64 Pinnacle Canyon 1,107 $0.76
CONCLUSION In 1995, vacancies for the Tucson Metro area began to increase after several years at low levels. As of the Third Quarter 1995, the overall vacancy level was 7.9 percent up from 4.0 percent at the same period in 1994. The vacancy rate for Third Quarter 1996 was 9.38 percent. The Third Quarter 1997 figures show a decrease to 8.66 percent, reflecting movement towards occupancy stabilization. Absorption levels began to decline in 1994 with negative absorption in 1995 due to the significant amount of new construction primarily in the Northwest and Catalina Foothills submarkets. Absorption levels appear to be stabilizing in 1997 although 16 there remains a significant amount of new construction. The Northwest and Catalina Foothills submarkets have traditionally been healthier than the overall citywide market with a lower vacancy and generally higher rents. However, there is a considerable amount of vacant land zoned for multifamily development in these submarkets and a number of new projects have been developed with a few more planned. This could pose a threat to the market if supply is not carefully monitored in keeping pace with demand. Also, the single-family residential market provides an alternative to the housing rental market. Home loan interest rates have been reasonable and many potential homebuyers appear to be electing home ownership. 17 [SITE PLAN APPEARS HERE] SITE ANALYSIS - -------------------------------------------------------------------------------- LOCATION The subject is located along the west side of North Mona Lisa Road, just north of Ina Road in Tucson, Pima County, Arizona. It is more specifically situated at 7333 North Mona Lisa Road. SIZE AND SHAPE The site is irregularly shaped with a total of 4.8 acres or 209,088 square feet. It has frontage on North Mona Lisa Road. ACCESS AND VISIBILITY The subject property is located along the west side of North Mona Lisa Road, just north of Ina Road. The site is situated about 10 miles north of the Tucson CBD and about 12 miles north of the Tucson International Airport. Access to the subject from these major activity centers is provided by a number of north/south and east/west thoroughfares. From both the CBD and the airport, one of the most direct routes is by heading north on Interstate Highway 10 to Ina road then east to North Mona Lisa Road. Other major north/south thoroughfares which lead to Ina Road are La Cholla, La Canada, and Oracle Roads. North Mona Lisa Road provides immediate access to the subject. The main entry to the complex is off this thoroughfare. There is one curb cut along the north/south artery providing access. This access street (Crystal Cave Drive) is shared by Phases I and II-III. Access is also available through Phase II and III on Capital Cave Drive from Ina Road. North Mona Lisa Road is a four-laned, asphalt-paved, north/south artery with gravel shoulder and turn lanes. It narrows to a two-lane road north a short distance from the subject. Ina Road is a four-laned, asphalt-paved, east/west artery with concrete curbs, paved shoulder, and planted median ZONING The subject property is zoned "CB-l" Local Business under the City of Tucson Zoning Ordinance. Permitted uses include single-family dwelling, accessory buildings, church, park, public or private school, agricultural use, duplex dwelling, multiple dwelling, recreational facilities, mobile housing, college, community service agency, library or museum, hospital, clinic, club, private club, community storage garage, child care center, professional office, real estate office, motel/hotel, research facility, a variety of retail, service station, supermarket, service outlets, theater, etc. UTILITIES The site is serviced by the following authorities. Electricity.................................................................Tucson Electric Telephone........................................U.S. West Communications and Mountain Bell Sewer...........................................................................Pima County
18 [ZONING MAP APPEARS HERE] [FLOOD PLAIN MAP APPEARS HERE] TERRAIN AND DRAINAGE The site is basically level and slightly above street grade. Upon site inspection, the drainage appeared to be adequate. According to the Federal Flood Insurance Rate Maps the subject lies within Zone C. Zone C is defined as "areas of minimal flooding." SOIL AND SUBSOIL CONDITIONS No soil engineer's report was available to the appraisers, and no soil tests were performed. The soils are assumed to have an adequate load-bearing capacity. EASEMENTS AND ENCUMBRANCES A physical inspection of the site did not reveal any easements adversely affecting the subject property. For purposes of this assignment, the appraisers assume that the subject's value or marketability is not adversely affected by the typical utility easements which traverse the property. The following lists some of the more significant easements at various areas of the subject site. . drainage and flood control easement along the northwest property line . various water and sewer easements throughout the property . various access easements throughout the property RELATIONSHIP OF SITE TO SURROUNDINGS North: Floodway and Desert Shadows Apartments South: Village at the Foothills II and III East: Windsail Apartments West: Floodway and Desert Shadows Apartments REAL ESTATE TAXES Real estate taxes and assessments for the Village at the Foothills I Apartments are coordinated by the Pima County Assessor's office. The property is subject to a number of different taxing authorities and the taxes are calculated two ways. A portion of the total tax liability is calculated based on the "limited cash value" intended to create a ceiling on the assessment. The limited cash value is multiplied by a 10 percent assessment ratio then multiplied by the rate per $100 of assessed value. This is considered the primary tax rate and includes the school district, community college, county, and state taxes. In 1997, the primary tax rate is $ 10.3696 per $100 of assessed value. The remainder of the tax liability is based on the "full cash value" or current market value. This value is multiplied by 10 percent and then multiplied by the tax rate per $100 of assessed value. Full cash value assessments are the secondary assessments and apply to various taxing authorities including bonds, school district, library, and special districts. In 1997, the applicable tax rate was $5.9941 per $100 of assessed value. These tax rates are applied to the appropriate assessed values in order to derive the total real estate taxes. The following is the tax parcel number used to identify the subject parcel, the primary and secondary assessed values, and the total tax for 1997.
PRIMARY ASSESSED SECONDARY ASSESSED TAX PARCEL NO. VALUE (LIMITED) (FULL CASH) VALUE TOTAL TAX -------------------------------------------------------------------------------------- 225 43 03302 $203,820 $210,450 $33,749.90
19 In addition to the above referenced property taxes, the property is subject to personal property taxes. In 1997, the personal property taxes were $2,165.14. The total taxes for the subject property for 1997 were $35,915.04. The total real estate tax for the subject is projected in 1998 is based on a 4 percent increase in the total 1997 tax amount or $37,352 which equates to $0.64 per square foot. CONCLUSION The subject site is irregularly shaped with 4.8 acres and relatively level terrain. There are a few easements which traverse the property; however, none are believed to adversely affect the site. The parcel is easily accessible with frontage on North Mona Lisa Road. The subject is zoned "CB-1" Local Business by the City of Tucson, and it is believed to be in compliance. The size and shape of the site provide flexibility for a variety of development and it blends well with the predominately multifamily projects which surround it. It is interconnected by interior roadways or drives with Village of the Foothills II and III. 20 IMPROVEMENTS - -------------------------------------------------------------------------------- The subject site, a 4.8-acre tract of land, is improved with a two-story apartment project known as the Village at the Foothills I. The improvements consist of 60 apartment units contained in seven buildings constructed in 1986. Also situated on the site is a clubhouse, swimming pool, and covered parking. There are four basic floor plans for the 60 apartment units. The basic features of these floor plans are as follows:
UNIT TYPE NO. OF UNITS DESCRIPTION SIZE (SF) TOTAL SF ----------------------------------------------------------- A 16 1BR/1BA 780 12,480 B 18 2BR/2BA 1,081 19,458 C 6 2BR/2BA/TH 1,190 7,140 D 20 1BR/1BA/DEN 947 18,940 -- ----- ------ 60 967 58,018
Please note the reported net rentable area (58,018 square feet) of the subject property has changed slightly from previous reports (previously 58,042 square feet) due to a change in the reported size of Unit C from 1,194 to 1,190 square feet, based on the subject rent roll dated 11/7/97 provided by the property owner. As seen in the figures above, the total net rentable area of 58,018 square feet and a total of 60 apartment units result in an average of 967 square feet per unit. There are a total of 36 one-bedroom units and 24 two-bedroom units. The land area is 4.8 acres, resulting in a density of 12.50 units per acre. The parking consists of approximately 98 spaces, of asphalt construction, which is 1.6 spaces per unit. The parking ratio is within industry standards. A more detailed description is as follows: FOUNDATION Steel reinforced concrete slab with perimeter and interior wire mesh. Second floors include wood frame, plywood subfloor, and lightweight concrete. FRAMING Wood. ROOF A combination of composition built-up roofs with pitched red tile fronts. EXTERIOR Masonry with painted stucco finish. SECOND-STORY ACCESS Wrought iron supports and handrails with cement stair risers and landings. BALCONIES Concrete and wood supports with metal handrails. 21 INTERIOR FINISHES Living, Dining, and Bedrooms: Painted and textured gypsum board walls and ceilings, carpeting over pad, hollow-core wood doors, miniblinds, incandescent lighting, and fireplaces. Bathrooms: Vinyl tile floor coverings, porcelain tub with ceramic tile shower, textured and painted gypsum board walls and ceilings, fiberboard vanities with laminate counters, porcelain sink, and commode. Kitchens: Vinyl tile floor coverings, formica countertops, laminated fiberboard cabinets. Kitchen equipment includes a range/oven, refrigerator, disposal, microwave oven, and dishwasher. PLUMBING Adequate and meets city code. HVAC Central air-conditioning and heating provided by individual compressor units. ELECTRICAL Switch-type circuit breakers, 120/240-volt, and single-phase service with each unit individually metered. Each unit has adequate electrical outlets and ceiling-mounted light fixtures. The copper wiring is in compliance with city code. INSULATION Batt-type in ceilings and walls. SITE IMPROVEMENTS Asphalt-paved parking, covered metal carports, pole lighting, concrete sidewalks, a swimming pool, and clubhouse. LANDSCAPING Extensive mature landscaping. AGE AND CONDITION The effective age of the subject is eleven years which approximates the actual age and the remaining economic life is estimated to be 29 years. SITE AREA 4.8 acres or 209,088 square feet. DEFERRED MAINTENANCE Visual inspection of the property as well as estimates by the ConAm management revealed a few items of deferred maintenance. Some of these include appliance repair, replacement of flooring and drapes, furniture and fixture repair, air-conditioning and equipment repair, painting, interior repairs, parking lot repairs, roof repairs, and replacement of water heaters. The deferred maintenance was estimated at $50,000 and is delineated below.
CATEGORY COST CATEGORY COST ============================== ============================ Appliance $ 1,200 Landscape $ 4,000 Carpet 10,800 Exterior Paint 3,000 Major RDC 1,000 Asphalt Repair 4,000 Window Cover 360 Stairs Repair 1,500 Furniture 900 Roof 16,000 Air Conditioning 3,200 Water Heaters 1,200 ------- General Interior 1,200 Total Rounded $50,000
22 CONCLUSION Upon a detailed inspection of the property, the facility is believed to be of good quality and workmanship. The design and layout are felt to be functional and aesthetically appealing. The project has been well maintained and has an ongoing maintenance program; however, there are a few items previously listed as deferred maintenance. Overall, the apartments are in reasonably good shape and we believe the effective age of the improvements is about eleven years with a remaining economic life of 29 years. 23 ================================================================================ [FLOOR PLAN APPEARS HERE] ================================================================================ SUBJECT PHOTOGRAPHS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] View of entry drive, monument sign, and exterior of units [PICTURE APPEARS HERE] Exterior view of units. HIGHEST AND BEST USE - -------------------------------------------------------------------------------- The highest and best use of a property must be determined because market value depends upon the property's most profitable use. The Appraisal of Real Estate, Eleventh Edition, defines highest and best use as: "The reasonably probable and legal use of vacant land or improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value." There are two distinct types of highest and best use. The first type is the highest and best use of the land as if vacant. The second type is the highest and best use of a parcel as improved. This pertains to the use that should be made of the property as it currently exists. In determining the highest and best use of a site, four items must be considered: possible physical limitations of the site, possible legal or permissible uses, and what uses are financially feasible, and produce the maximum return on the site. A careful neighborhood and site analysis is essential in estimating the highest and best use of the site as if vacant. The following is our analysis of the highest and best use as it pertains to the subject property and according to the four essential tests. SUBJECT PROPERTY AS IF VACANT LEGALLY PERMISSIBLE - Within the scope of a legal analysis, the subject site is zoned "CB-1" Local Business under the City of Tucson Zoning Ordinance. Permitted uses include single-family dwelling, accessory buildings, church, park, public or private school, agricultural use, duplex dwelling, multiple dwelling, recreational facilities, mobile housing, college, community service agency, library or museum, hospital, clinic, club, private club, community storage garage, child care center, professional office, real estate office, motel/hotel, research facility, a variety of retail, service station, supermarket, service outlets, theater, etc. PHYSICAL POSSIBILITY - Many physical characteristics of a site can affect the use to which it can be put. These characteristics can include size, shape, location, road frontage, topography, easements, utility availability, flood plain, and surrounding patterns. The subject site is irregularly shaped and encompasses 4.8 acres, allowing for some flexibility in developing the site. It has frontage along the west side of North Mona Lisa Road. The topography of the site is sloping and drainage appears to be good. Development in the immediate area is primarily multifamily and single-family residential. The area appears most conducive to multifamily development given the surrounding projects and terrain. The subject site has adequate utility capacity, enjoys a functional size and shape, and is not affected by any adverse easements or restrictions. 24 After considering all of the physical characteristics of the site noted above plus other data in the Site section of this appraisal report, physically possible land uses are limited to multifamily development. The primary deterrents to other types of development were the subject's location, terrain, zoning, and surrounding use patterns which helped to eliminate other site improvements such as commercial, single-family, and office development from our analysis. FINANCIAL FEASIBILITY - In view of the present market conditions, financial feasibility is directly proportional to the amount of net income that could be derived from the subject. After having eliminating all other development from our analysis, the financial feasibility of multifamily development must be tested. The subject is located in the Northwest submarket, which is experiencing an overall annual vacancy of about 7.6 percent. Physical vacancy at the subject property is 12 percent. The average vacancy level has increased in the submarket significantly from 3.9 percent reported in the first quarter of 1995 due to an abundance of new apartment construction. In the early 1990's, rental rates had been increasing at a strong pace; however, with the large number of new units under construction or recently completed, rental rates have stabilized and most complexes are offering rent concessions. The average rents in the submarket range from $0.62 to $0.82 per square foot depending on the size and age of each unit. The average rental rate at newer complexes typically ranges from $0.75 to $1.00 per square foot, which is within the feasible range in which to build. However, as previously mentioned the market has experienced an abundance of new construction and projects are offering rent concessions of up to one month free. Therefore, given the amount of new supply, additional apartment construction does not appear to be feasible at this time until the supply has been absorbed. MAXIMUM PRODUCTIVITY - After considering the current economic climate, the subject's location, and the financial feasibility of certain land uses, more than likely a present development of the land would not produce a positive cash flow for multifamily development which would be sufficient to satisfy the developer of the project. However, due to the subject's location and the socio-economic status of the neighborhood, we are of the opinion that multifamily apartment units would produce the highest net return over the longest period of time. The site's location along the west side of North Mona Lisa Road gives it good access and visibility within an affluent area, which is conducive to apartment development. Therefore, after considering the alternatives, we believe the highest and best use of the site, as vacant, is to hold for future apartment development. SUBJECT PROPERTY AS IMPROVED The property, as improved, is tested for two reasons. First to identify the use of the property that is expected to produce the highest overall return per invested dollar, and the second reason is to help in identifying comparable properties. The four tests or elements are also applied in this analysis. LEGALLY PERMISSIBLE - Within the scope of a legal analysis, the subject site utilized for apartment use is reasonable since it is a legal use. 25 PHYSICAL POSSIBILITY - Based on the subject's land size (4.8 acres), terrain, configuration, and the improvement's positioning relative to the subject site, it is felt that it would not be physically possible to increase the size of the current improvements and remain competitive. The density of the subject is approximately 12.50 units per acre. Thus, based on the aforementioned factors, it is judged that the improvements represent the largest amount of space that could currently be developed under current site conditions. FINANCIALLY FEASIBLE - The discussion of the financial feasibility of the subject, as if vacant, would also apply to the test as improved. Based on the economic conditions for alternative market segments, it was concluded that the subject's present improvements are satisfactory to fulfill this test. In the Income Approach section of this report, the appraisers estimated income and expenses for the subject. The net operating income derived suggests that the property is capable of generating income in excess of operating expenses, exclusive of return on investment requirements and debt service. The net operating income was capitalized into a value indication that was supported by the Sales Comparison Approach. Additionally, the value indication is in excess of the estimated value of the land. This indicates that the subject "as improved" is a feasible entity. MAXIMUM PRODUCTIVITY - The test for this element is also from the market. The comparables analyzed suggest that under competent and prudent management, the subject could produce an adequate return to substantiate its existence. Based on the subject's current use, we have determined that as a multifamily apartment complex, it positively contributes to the value of the site, and as a result is presently developed according to its highest and best use. However, the subject does not represent the "optimum" use due to some deferred maintenance and some less than state of the arts amenities, while new apartments have such amenities.. 26 APPRAISAL PROCEDURES - -------------------------------------------------------------------------------- Traditionally, three valuation approaches or techniques are used in the appraisal of real estate. These are the Cost Approach, Sales Comparison Approach, and Income Approach. COST APPROACH In the Cost Approach, the appraisers obtain an estimate of value by adding to the land value the estimated value of the physical improvements. This value is derived by estimating the replacement cost new of the improvements and, when appropriate, deducting the reduction in value caused by accrued depreciation. According to the Appraisal Institute, the basic principle of the Cost Approach is that buyers judge the value of an existing structure by comparing it to the value of a newly constructed building with optimal functional utility, assuming no undue cost due to delay. Thus, the appraiser must estimate the difference in value between the subject property and a newly constructed building with optimal utility. The Cost Approach was not used as this method of valuation is typically the least reliable indicator of value in older projects such as the subject since estimates of depreciation are difficult to accurately measure in the marketplace. Additionally, it is often the perception of investors that cost does not necessarily equate to value and the purchase price is not typically based on construction costs. SALES COMPARISON APPROACH This approach produces an estimate of value by comparing the subject property to sales and/or listings of similar properties in the immediate area or competing areas. The principle of substitution is employed and basically states when a property is replaceable in the market, its value can be set by the cost of acquiring an equally desirable and comparable property. This technique is viewed as the value established by informed buyers and sellers in the market. INCOME APPROACH The measure of value in this approach is capitalization of the net income, which the subject property will produce during the remaining economic life of the improvements. This process consists of two techniques. The first technique estimates the gross income, vacancy, expenses, and other appropriate charges. The resulting net income or net cash flow is then capitalized. The second technique projects the gross income, vacancy, expenses, other appropriate charges, net income, and cash flow over a projected holding period. The resulting cash flow and reversion (future value) are discounted at an appropriate rate and added in order to arrive at an indication of current value from the standpoint of an investment. These methods provide an indication of the present worth of anticipated future benefits (net income or cash flow) to be derived from ownership of the property. Both techniques were utilized in analyzing the subject property. SUMMARY The appraiser, in applying the tools of analysis to the valuation problem, seeks to simulate the thought process of the most probable decision-maker. The appraiser's judgment concerns the applicability of alternative tools of analysis to the facts of the problem, the data and information needed to apply these tools, and the selection of the analytical approach and data most responsive to the problem in question. 27 Thus, depending on the type of property appraised or the purpose of the appraisal, one approach may carry more weight or may point to a more reliable indication of the value of the property being appraised than the other approach. In some instances, because of the inadequacy or unavailability of data, one of the approaches may be given little weight in the final value estimate. 28 ================================================================================ [IMPROVED SALES MAP] ================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------ TUCSON AREA IMPROVED SALES SUMMARY - ------------------------------------------------------------------------------------------------------------------------------------ CASH EQUIVALENT PRICE - ------------------------------------------------------------------------------------------------------------------------------------ SALE NAME/LOCATION SALE CASH EQUIV. YEAR NO. OF NRA OCCUP. NOI/SF PER PER OVEALL NO. DATE SALE PRICE BUILT UNITS AVG/UNIT AT SALE /UNIT SF /UNIT RATE EGIM - ------------------------------------------------------------------------------------------------------------------------------------ 1 Pinnacle Canyon 11/97 $11,727,000 1995 225 228,931 98% N/A $51.23 $52,120 N/A 5.69 7050 E. Sunrise Drive 1,017 Tucson, AZ - ------------------------------------------------------------------------------------------------------------------------------------ 2 Pinnacle Heights 11/97 $16,364,000 1995 310 339,364 97% N/A $48.22 $52,787 N/A 5.60 7990 E. Snyder Road. 1,095 Tucson, AZ - ------------------------------------------------------------------------------------------------------------------------------------ 3 Foothills 11/97 $7,600,000 1984 270 167,910 97% N/A $45.26 $28,148 N/A 5.38 5441 N. Swan Road 622 Tucson, AZ - ------------------------------------------------------------------------------------------------------------------------------------ 4 Sandstone 06/97 $8,849,000 1986 330 181,167 100% $4.88 $48.84 $26,815 10.0% N/A 405 E. Prince Road 549 $2,682 Tucson, AZ - ------------------------------------------------------------------------------------------------------------------------------------ 5 Hilands I 06/97 $12,500,000 1985 426 234,324 95% $5.87 $53.34 $29,343 11.0% N/A 5755 E. River Road 550 $3,228 Tucson, AZ - ------------------------------------------------------------------------------------------------------------------------------------ 6 Windsail 03/97 $10,037,000 1985 300 243,952 94% $4.11 $41.14 $33,457 10.0% 5.74 7300 N. Mona Lisa Road 813 $3,346 Tucson, AZ - ------------------------------------------------------------------------------------------------------------------------------------ 7 Cobble Creek 01/97 $9,250,000 1980 301 217,382 91% N/A $42.55 $30,731 N/A 6.35 7700 E. Speedway Blvd. 722 Tucson, AZ - ------------------------------------------------------------------------------------------------------------------------------------ 8 Sundown Village 12/96 $11,350,000 1984 330 279,758 90% $3.97 $40.57 $34,394 10.09% 5.53 8215 Oracle Road 848 $3,367 Tucson, AZ - ------------------------------------------------------------------------------------------------------------------------------------ 9 Rio Cancion 12/96 $17,400,000 1983 379 343,370 90% $4.77 $50.67 $45,910 9.42% 6.31 2400 E. River Road 906 $4,324 Tucson, AZ - ---------------------------------------------------------------------------------------------------------------------------------- 10 Sonoran Terraces 08/96 $18,750,000 1985 374 416,256 95% $4.23 $45.04 $50,134 9.39% 6.59 7887 N. La Cholla Blvd. 1,113 $4,710 Tucson, AZ - ---------------------------------------------------------------------------------------------------------------------------------- SUBJECT 1986 60 58,018 88% $3.99 Village at the Foothills I 967 $3,860 7333 North Mona Lisa Road Tucson, AZ - ----------------------------------------------------------------------------------------------------------------------------------
SALES COMPARISON APPROACH - -------------------------------------------------------------------------------- The Sales Comparison Approach is considered a good valuation method in the event that a sufficient number of similar and recent transactions can be found and accurately verified. The key to the Sales Comparison Approach is that a sufficient number of comparable sales be present to reflect an accurate indication of value. In such an event, market value can be derived directly from the sales, since all complexities involved are properly weighed according to their significance to actual buyers and sellers. This approach is based upon prices paid in actual market transactions. It is a process of correlating and analyzing recently sold properties, which are similar to the subject. The reliability of this technique depends upon (a) the degree of comparability of the property appraised with each sale, (b) the length of time since the sale, (c) the accuracy of the sales data, and (d) the absence of unusual conditions affecting the sale. The comparison process must be based on sales, which constitute acceptable evidence of motivations inherent to the market, occurring under similar market conditions, of similar or reasonably similar apartment projects. These projects were selected since they are reasonably comparable to the subject property. A map and a summary of the comparable sales can be found on the preceding pages. The sales ranged in time from August 1996 to November 1997. Reference is made to the individual sales data included in the Addenda section of this report. In our analysis of the sales data, important considerations as to comparability were condition of the property, gross income when combined with percent (%) occupied at sale date, unit size, terms of sale, location, and motivation. The sales provide units of comparison, which can be adjusted and then applied, to the subject to derive an estimate of value. Because these individual factors are difficult to quantify, we compared the improved sales based on net operating income (NOI) per square foot and per unit. Theoretically, the NOI takes into consideration the various physical factors, which influence value. An analysis of NOI likewise considers economic differences in each improved property sale because income is also a function of the current market. Thus, with this analysis, all the factors affecting a sale can be reduced to the common denominator of net operating income. Also, we considered the effective gross income multiplier method. There follows a discussion of our analysis and value conclusion by the Sales Comparison Approach. SALES ADJUSTMENT ANALYSIS PROPERTY RIGHTS Property rights consists of ownership, legal estate, economic benefits, and financial components. Our valuation is of the leased fee estate on an all cash basis. Since all the sales were reported to be of the leased fee estate, no adjustment was necessary. 29 CASH EQUIVALENCY Standard definitions of market value include payment in "cash or its equivalent." The equivalent includes financing terms generally available in the market. In many cases comparable sales carry atypical financing terms that require an adjustment to cash equivalency. There are basically two areas, which may require adjustments for terms. One is the amount of cash down payment and the other is favorable financing or a low interest rate on the note/mortgage. Where terms were considered to be more favorable than the market at the time of sale, cash equivalency adjustments are made. All of the sales used in this analysis were cash transactions or were considered equivalent and therefore, did not require a cash equivalent adjustment. CONDITION OF SALE Adjustments for condition of sale usually reflects the motivations of the buyer and the seller. Although conditions of sale are perceived as applying only to sales that are not arm's length transactions, some arm's length sales may reflect atypical motivations or sale conditions due to unusual tax considerations, sale at legal auction, lack of exposure on the open market, etc. The sales utilized in our analysis were not reported to be reflective of such situations; therefore, no adjustment was necessary. NET OPERATING INCOME ANALYSIS In lieu of specific adjustments, we compared the improved sales based on the net operating income (NOI) per square foot and NOI per unit. This method presents a comparison based on the income which a property is capable of generating. Theoretically, the NOI takes into consideration the various factors, which influence value such as quality, size, amenities offered, location, age, condition etc. Thus, these differing factors can be reduced to the common denominator of net operating income. The various sales reflected NOIs per square foot ranging from $3.97 to $5.87 and NOIs per unit ranging from $2,682 to $4,710. The subject NOI (with reserve expenses) has been approximated at $3.99 per square foot or $3,860 per unit from the Direct Capitalization analysis in the Income Approach section of this report. To estimate an adjustment for each sale, the subject's NOI has been compared to the individual NOI of the comparable sales. This adjustment should account for all the various physical and economic differences in each improved property sale as income is a function of the current market. Market conditions should reflect perceived risk, or other factors, which may affect value. The following chart presents the adjustment process.
SALE SALE SALE SUBJECT ADJUST. ADJUST. NO. PRICE/SF NOI/SF NOI/SF FACTOR PRICE/SF ----------------------------------------------------- 1 $51.23 NA $3.99 NA NA 2 48.22 NA $3.99 NA NA 3 45.26 NA $3.99 NA NA 4 48.84 4.88 $3.99 .81762 39.93 5 53.34 5.87 $3.99 .67972 36.26 6 41.14 4.11 $3.99 .97080 39.94 7 42.55 NA $3.99 NA NA 8 40.57 3.97 $3.99 1.00504 40.77 9 50.67 4.77 $3.99 .83648 42.38 10 45.04 4.23 $3.99 .94326 42.48
30 After adjustments, the sales reflected a range in value for the subject from $36.26 to $42.48 per square foot. Sales 6 and 8 have the most similar net operating incomes per square foot and they reflect values of $39.94 and $40.77 per square foot. Placing emphasis on these sales, tempered with the other sales, a value of $40.50 per square foot is estimated for the subject. From this value the $50,000 in deferred maintenance is deducted to arrive at the "as is" value of the subject. The calculation is shown below.
58,018 SF x $40.50/SF......................... $2,349,729 Less Deferred Maintenance..................... (50,000) Rent Loss..................................... (21,446) ------- "As Is" Value via NOI/SF...................... $2,278,283 Rounded $2,300,000
SALE SALE SALE SUBJECT ADJUST. ADJUST. NO. PRICE/UNIT NOI/UNIT NOI/UNIT FACTOR PRICE/UNIT ------------------------------------------------------------------------------- 1 $52,120 NA $3,860 NA NA 2 52,787 NA 3,860 NA NA 3 28,148 NA 3,860 NA NA 4 26,815 2,682 3,860 1.43922 $38,593 5 29,343 3,228 3,860 1.19579 $35,088 6 33,457 3,346 3,860 1.15362 $38,597 7 30,731 NA 3,860 NA NA 8 34,394 3,367 3,860 1.14642 $39,430 9 45,910 4,324 3,860 .89269 $40,983 10 50,134 4,710 3,860 .81953 $41,086
After adjustments, the sales reflected a range in value for the subject from $35,088 to $41,086 per unit. Sales 8 and 9 reflected the most similar NOI per unit to the subject and had adjusted values of $39,430 and $40,983 per unit. Based on all the data, we estimated a value for the subject of $39,000 per unit. The following indication reflects an "as is" value per unit for the subject considering the subject's deferred maintenance.
60 units x $40,000/unit......................... $2,400,000 Less: Deferred maintenance...................... (50,000) Rent Loss....................................... (21,446) ------ Value via NOI Price/Unit Method................. $2,328,554 Rounded........ $2,300,000
EFFECTIVE GROSS INCOME MULTIPLIER METHOD In addition to the NOI price per square foot and price per unit analysis, we have employed an effective gross income multiplier analysis to the sales based on the sales' actual effective gross income multipliers (EGIM). Unlike the price per unit analysis, EGIMs cannot be adjusted for dissimilar factors when compared to the subject. Instead, certain factors must be closely analyzed for determining comparability of the multiplier to the subject property. These include the timing of the sale and whether market condition changes have occurred between the date of valuation and the sale date, as well as occupancies and expense ratio levels, and the comparability of the sale in terms of its physical features and the resulting income stream potential. Listed below are the details of the sales we 31 felt to be pertinent in our selection of a reasonable EGIM for the subject. All factors were considered in our interpretation of the data leading to the EGIM of the sales.
SALE DATE OF SALE EGIM OCCUPANCY EXPENSE RATIO -------------------------------------------------------- 1 11/97 5.59 98% N/A 2 11/97 5.60 97% N/A 3 11/97 5.38 97% N/A 6 03/97 5.74 94% 42.58% 7 01/97 6.35 91% NA 8 12/96 5.53 90% 45.86% 9 12/96 6.31 90% 40.57% 10 8/96 6.59 90% 39.48% Subject 88% 45.13%
The sales indicated EGIMs ranging from 5.38 to 6.59, with all sales operating at or near stabilized levels. Based on this data, we believe an EGIM of 5.8 is reasonable for the subject considering the subject's quality and expense ratio. Applying the 5.8 EGIM to the subject's stabilized effective gross income, and deducting for deferred maintenance, results in the following value indication.
$422,099 x 5.80.................................$2,448,174 Less: Deferred maintenance...................... (50,000) Rent Loss....................................... (21,446) Value via EGIM Method...........................$2,376,728 ---------- Rounded $2,400,000
CONCLUSION The NOI per square foot and per unit methods each presented a value indication of $2,300,000 and the effective gross income multiplier method indicated a value of $2,400,000. Weight has been given to the net operating income comparisons because this method reflects both income and expense information. The EGIM method only accounts for income and does not take into consideration expenses, which can vary from property to property. Therefore, it is our opinion that the leased fee market value of the subject property based on the indication provided by the Sales Comparison Approach, all cash, on an "as is" basis as of December 31, 1997, is TWO MILLION THREE HUNDRED THOUSAND DOLLARS ($2,300,000) 32 [MAP OF COMPARABLE RENTALS APPEAR HERE]
==================================================================================================================================== COMPARABLE RENT SUMMARY - ------------------------------------------------------------------------------------------------------------------------------------ CURRENT YEAR NO. OF AVG. UNIT PHYSICAL UNIT EFFECTIVE EFFECTIVE NO. NAME/LOCATION BUILT UNITS SIZE (SF) OCCUP UNIT TYPE SIZE/SF RENT/MO. RENT/SF/MO. - ------------------------------------------------------------------------------------------------------------------------------------ 1 Tierra Catalina 1983 120 1,171 99% 1BR/1BA 900 $640-730 0.71-0.81 3201 E Skyline Drive 1BR/1BA 916 625-680 0.68-0.74 2BR/2BA 1,207 790 0.65 2BR/2BA 1,233 850-950 0.69-0.77 2BR/2BA/TH 1,304 890-950 0.68-0.73 3BR/2BA/TH 1,525 9501,070 0.62-0.70 - ------------------------------------------------------------------------------------------------------------------------------------ 2 L'Auberge Canyon View 1987 264 1,019 96% 1BR/1BA 724 $725 1.00 6650-55 N Kolb Road 2BR/2BA 909 775 0.85 2BR/2BA 1,049 825 0.79 2BR/2BA 1,095 875 0.80 3BR/2BA 1,223 1,010 0.82 3BR/2BA 1,243 1,010 0.81 3BR/2BA 1,291 1,010 0.78 - ------------------------------------------------------------------------------------------------------------------------------------ 3 The Greens at Ventana 1986 265 1,011 89% 1BR/1BA/DEN 818 $714 0.87 5800 N Kolb Road 1BR/1BA/DEN 847 740 0.87 2BR/2BA 945 775 0.82 2BR/2BA 974 739 0.76 2BR/2BA 1,018 787-837 0.77-0.82 2BR/2BA 1,050 800 0.76 2BR/2BA/DEN 1,169 914-964 0.78-0.82 2BR/2BA/DEN 1,207 950 0.79 - ------------------------------------------------------------------------------------------------------------------------------------ 4 The Arboretum 1986 496 811 99% 1BR/1BA 520 475 0.91 4700 N Kolb Rd. 1BR/1BA 616 500 0.81 1BR/1BA 686 510 0.74 1BR/1BA 767 560 0.73 2BR/1BA 984 650 0.66 2BR/2BA 995 710 0.71 2BR/2BA 1,001 735 0.73 3BR/2BA 1,200 799 0.67 - ------------------------------------------------------------------------------------------------------------------------------------ 5 Villa Sin Vacas 1985 72 1,114 90's% 1BR/1BA/DEN 930 835 0.90 7601 N. Calle Sin Envidia 2BR/2BA 1,195 1,050 0.88 3BR/2BA 1,458 1,200 0.82 - ------------------------------------------------------------------------------------------------------------------------------------ 6 Colonia Del Rio 1985 176 1,010 90's% 1BR/1BA 713 560 0.79 4601 N. Via Entrada 1BR/1BA 796 590 0.74 1BR/1BA 1,022 655 0.64 2BR/1BA 1,068 680 0.64 2BR/2BA/TH 1,170 795 0.68 3BR/2BA 1,345 795-810 0.59-0.60 ==================================================================================================================================== - ------------------------------------------------------------------------------- NO. NAME/LOCATION AMENITIES/COMMENTS - ------------------------------------------------------------------------------- 1 Tierra Catalina Amenities include a swimming pool, spa, 3201 E Skyline Drive tennis court, clubroom, covered parking, washer/dryer hooks-ups, microwave, fireplace. Concessions: None - ------------------------------------------------------------------------------- 2 L'Auberge Canyon View Amenities include a swimming pool, tennis 6650-55 N Kolb Road court, washer/dryer, microwave, fireplace, jacuzzi, clubroom, and covered parking. Concessions: None - ------------------------------------------------------------------------------- 3 The Greens at Ventana Amenities include 3 swimming pools, spa, 5800 N Kolb Road washer/dryer, microwave, fireplace, club- room, and covered parking. Concessions: One-half month free. - ------------------------------------------------------------------------------- 4 The Arboretum Amenities include 3 swimming pools, club- 4700 N Kolb Rd. room, exercise room, laundry facilities, washer/dryer hook-ups, fireplace, and covered parking. Concessions: One-half month free rent. $175 off if deposit on 1/st/ visit. - ------------------------------------------------------------------------------- 5 Villa Sin Vacas Amenities include washer dryer, fireplace, 7601 N. Calle Sin Envidia microwave, covered parking, clubhouse, pool. Concessions: None - ------------------------------------------------------------------------------- 6 Colonia Del Rio Amenities include washer/dryer, 4601 N. Via Entrada microwave, pool covered parking, fireplace, exercise facility, playground, spa Concessions: $200 off first month's rent ===============================================================================
==================================================================================================================================== COMPARABLE RENT SUMMARY (CONT'D) - ------------------------------------------------------------------------------------------------------------------------------------ CURRENT YEAR NO. OF AVG. UNIT PHYSICAL UNIT EFFECTIVE EFFECTIVE NO. NAME/LOCATION BUILT UNITS SIZE (SF) OCCUP UNIT TYPE SIZE/SF RENT/MO. RENT/SF/MO. - ------------------------------------------------------------------------------------------------------------------------------------ 7 Boulders at La Reserve 1995 240 999 N/A 1BR/1BA 725 595 0.82 1500 E. Pusch Wilderness 1BR/1BA/DEN 929 655 0.71 2BR/2BA 1,057 740 0.70 3BR/2BA 1,268 860 0.68 - ------------------------------------------------------------------------------------------------------------------------------------ 8 La Reserve Villas 1988 240 900 90's% 1BR/1BA 697 580 0.83 10700 N. La Reserve 2BR/2BA 943 690 0.73 2BR/2BA 957 750 0.78 3BR/2BA 1,111 875 0.79 - ------------------------------------------------------------------------------------------------------------------------------------ 9 Legends at La Paloma 1995 312 1,034 90's% 1BR/1BA 745 675 0.91 3750 E. Via Palomita 2BR/2BA 1,036 795 0.77 3BR/2BA 1,258 975 0.78 - ------------------------------------------------------------------------------------------------------------------------------------ 10 Skyline Bel Aire 1979 137 1,125 90's% 1BR/1BA/DEN 968 615 0.64 6255 Camino Pimeria Alta 2BR/2BA 1,263 815 0.65 - ------------------------------------------------------------------------------------------------------------------------------------ 11 Pinnacle Canyon 1995 225 1,017 98% 1BR/1BA 795 650 0.82 7050 E. Sunrise Road 1BR/1BA 840 675 0.80 2BR/2BA 1,124 775 0.69 2BR/2BA 1,152 800 0.69 3BR/2BA 1,351 935 0.69 - ------------------------------------------------------------------------------------------------------------------------------------ SUBJECT PROPERTY 1986 60 967 88% 1BR/1BA 780 529 0.68 Village at Foothills I 1BR/1BA/DEN 947 629 0.66 7333 North Mona Lisa 2BR/2BA 1,081 659 0.61 Road 2BR/2BA/TH 1,190 759 0.64 ==================================================================================================================================== NO. NAME/LOCATION AMENITIES/COMMENTS - ---------------------------------------------------------------------------------------- 7 Boulders at La Reserve Amenities include pool, spa, washer/dryer, 1500 E. Pusch Wilderness microwave, some fireplaces, garages, fitness center Concessions: 1/2 mo. free rent on 1-2BR and 1 mo. free rent on 3BR with 12 mo. lease. - ---------------------------------------------------------------------------------------- 8 La Reserve Villas Amenities include 2 pools, spa, 10700 N. La Reserve washer/dryer, microwave, some fireplaces, fitness center, clubhouse. Concessions: None - ---------------------------------------------------------------------------------------- 9 Legends at La Paloma Amenities include 2 pools, spa, 3750 E. Via Palomita washer/dryer, microwave, fireplace, fitness center, clubhouse. Concessions: 1 mo. free - ---------------------------------------------------------------------------------------- 10 Skyline Bel Aire Amenities include pool, spa, 2 tennis courts, 6255 Camino Pimeria Alta washer/dryer, fireplace, covered parking, clubhouse. Concessions: 1 BR $590/mo.; $300 off first mo. on a 12 mo. lease and $150 off first mo. on a 6 mo. lease. - ---------------------------------------------------------------------------------------- 11 Pinnacle Canyon Amenities include pool, spa, washer/dryer, 7050 E. Sunrise Road microwave, built in TV, garages available, clubhouse, exercise facility, computer center Concessions: 1 mo. free for 12 mo. lease. - ---------------------------------------------------------------------------------------- SUBJECT PROPERTY Amenities include a swimming pool, tennis Village at Foothills I court, spa, clubroom, and covered parking. 7333 North Mona Lisa Road ========================================================================================
INCOME APPROACH - -------------------------------------------------------------------------------- In estimating the market value of the subject property, one method used by the appraisers was the Income Approach. The Income Approach to value is predicated on the assumption that there is a definite relationship between the amount of net income a property will earn and its value. Ultimately, the Income Approach seeks to estimate the present worth of an anticipated net income stream based on an analysis of its quality, quantity, and duration. In accordance with the principle of substitution, a prudent investor would pay no more to receive an income stream from a specified property than any other property producing an equally desirable income stream. Typically, the first step in the Income Approach is to estimate the potential gross income according to market rent. Market rent means the "going rent" in the neighborhood based on past history and present conditions. Vacancies are then deducted to arrive at effective gross income. Estimated annual expenses are deducted from the effective gross income, resulting in an indication of net operating income before debt service. From the estimated net annual income, annual debt service and deferred maintenance (if applicable), are subtracted to obtain annual cash flow to equity. This cash flow can be capitalized into an indication of equity value by direct capitalization utilizing an overall equity rate, or if debt does not exist, an overall capitalization rate. It may also be projected into the future over a selected but appropriate holding period, and discounted along with the anticipated equity reversion at the market discount rate and added in order to arrive at the net present equity value for the subject property. In either method, the present mortgage balance (if applicable) would be added to the equity value to obtain the total value of the property. Since our valuation is on a cash basis, no mortgages were considered. The appraisers have utilized both methods in valuing the subject property on an all cash basis. ESTIMATED GROSS RENTAL INCOME Income for the subject property is produced by rental income from the various rental units, as well as laundry income, forfeited security deposits, and miscellaneous income. Information provided by the on-site leasing agents indicated the following current rent schedule:
BASED ON "RESIDENT PAYS UTILITIES" -------------------------------------------------------------------------- TYPE UNITS SIZE (SF) RENT/MO. RENT/SF MO. TOTAL -------------------------------------------------------------------------- 1BR/lBA 16 780 $529 $0.68 $ 8,464 1BR/lBA/Den 20 947 629 0.67 12,580 2BR/2BA 18 1,081 659 0.51 11,862 2BRI2BA/TH 6 1190 759 0.64 4,554 -- ----- ---- ----- ------- 60 967 $624 $0.65 $37,460
These rents have been compared to closely located and similarly designed apartment complexes in the subject's general area. For the purpose of this analysis, we have considered eleven apartment complexes that were found to be most comparable. They range in total size from 80,178 to 402,272 square feet, in 33
================================================================================================================= SUBJECT - RENT ANALYSIS - ----------------------------------------------------------------------------------------------------------------- UNIT AVG. AVG. MONTHLY UNIT TYPE SIZE (SF) RENT/MONTH RENT/SF COMPARABILITY - ----------------------------------------------------------------------------------------------------------------- SUBJECT 1BR/1BA 780 $529 $0.68 L'Auberge Canyon View 1BR/1BA 724 725 1.00 Supenor Greens at Ventana 1BR/1BA/DEN 818 714 0.87 Superior Tierra Catalina 1BR/1BA 900 640 0.71 Comparable The Arboretum 1BR/1BA 767 560 0.73 Comparable Colonia Del Rio 1BR/1BA 796 590 0.74 Comparable Boulders at La Reserve 1BR/1BA 725 595 0.82 Superior La Reserve Villas 1BR/1BA 697 580 0.83 Superior Legends at La Paloma 1BR/1BA 745 675 0.91 Superior Pinnacle Canyon 1BR/1BA 795 650 0.82 Superior - ----------------------------------------------------------------------------------------------------------------- SUBJECT 1BR/1BA/DEN 947 629 0.67 Tierra Catalina 1BR/1BA 916 680 0.74 Comparable The Arboretum 2BR/1BA 984 650 0.66 Comparable Villa Sin Vacas 1BR/1BA/DEN 930 835 0.90 Superior Colonia Del Rio 1BR/1BA 1,022 655 0.64 Comparable Boulders at La Reserve 1BR/1BA/DEN 929 655 0.71 Superior Skyline Bel Aire 1BR/1BA/DEN 968 615 0.64 Comparable - ----------------------------------------------------------------------------------------------------------------- SUBJECT 2BR/2BA 1,081 659 0.61 L'Auberge Canyon View 2BR/2BA 1,095 875 0.80 Superior The Greens at Ventana 2BR/2BA 1,050 800 0.76 Superior Tierra Catalina 2BR/2BA 1,207 790 0.65 Comparable Arboretum 2BR/2BA 1,001 735 0.73 Comparable Villa Sin Vacas 2BR/2BA 1,195 1,050 0.88 Supenor Colonia Del Rio 2BR/1BA 1,068 680 0.64 Comparable Boulders at La Reserve 2BR/2BA 1,057 740 0.70 Superior La Reserve Villas 2BR/2BA 957 750 0.78 Superior Legends at La Paloma 2BR/2BA 1,036 795 0.77 Superior Pinnacle Canyon 2BR/2BA 1,124 775 0.69 Superior - ----------------------------------------------------------------------------------------------------------------- SUBJECT 2BR/2BA/TH 1,190 759 0.64 L'Auberge Canyon 2BR/2BA 1,095 875 0.80 Superior The Greens at Ventana 2BR/2BA 1,050 800 0.76 Superior Tierra Catalina 2BR/2BA/TH 1,304 890 0.68 Comparable Villa Sin Vacas 2BR/2BA 1,195 1,050 0.88 Superior Colonia Del Rio 2BR/2BA/TH 1,170 795 0.68 Comparable Boulders at La Reserve 2BR/2BA 1,057 740 0.70 Superior Legends at La Paloma 2BR/2BA 1,036 795 0.77 Superior Skyline Bel Aire 2BR/2BA 1,263 815 0.65 Comparable Pinnacle Canyon 2BR/2BA 1,124 775 0.69 Superior =================================================================================================================
average unit size from 811 to 1,125 square feet, and in physical occupancy from 89 to 99 percent. The comparable rentals are summarized on previous pages. All of the comparables surveyed were located within the subject's general vicinity. Rent Comparables 1, 4, and 6 are believed to be most comparable to the subject overall; specifically, in terms of overall physical condition, location, rental rates, and the amenities offered. These comparables indicate average quoted rental rates from $0.68 to $0.73 per square foot per month. The other projects were relatively comparable to the subject and were used as additional indications of market rents in the subject's area. It is important to note that these rents are reflective of the current market. The Tucson area is somewhat seasonal and rents do not tend to be increased during the summer months. Also, a number of new units within the immediate area of the subject have recently opened; therefore, rents are not expected to increase over the short term. In fact, rent concessions are being offered at most of the new projects. The current asking average monthly rent for the subject is $0.65 per square foot. The average contract rent for the subject at $0.60 per square foot is slightly less than the average quoted rent. This spread in rents is typical in a competitive market with changing rental rates due to the time lag in tenant turnover. However, as leases expire and tenants re-lease at market rates, this spread should narrow. After considering each of the aforementioned factors, including the subject's historical performance, we are of the opinion that the subject's asking rentals are reasonable. Given the subject's 88 percent physical occupancy and actual rents, the projected market effective rental rates for the subject are summarized as follows:
BASED ON "RESIDENT PAYS UTILITIES" -------------------------------------------------------------------------------- Total Size Total Rent/ Mo. Rent/ Unit Type Units (SF) (SF) Month Total SF/Mo. -------------------------------------------------------------------------------- lBR/lBA 16 780 12,480 $529 $ 8,464 $0.68 lBR/lBA/Den 20 947 18,940 629 12,580 0.66 2BR/2BA 18 1,081 19,458 659 11,862 0.61 2BR/2BA/TH 6 1,190 7,140 759 4,554 0.64 ---- ----- ------ ---- ------- ----- 60 967 58,018 $624 $37,460 $0.65
Gross Annual Rental Income: $37,460 x 12 months - $449,520 OTHER INCOME In addition to rental income from apartments, other income is generated by laundry and vending machines, forfeited security deposits, late charges, and miscellaneous. Other income in 1991 was reported at $6,813 or $0.12 per square foot. This figure dropped during 1992 to $4,976 or $0.09 per square foot. It increased to $6,174 or $0.11 per square foot in 1993, to $7,766 or $0.13 per square foot in 1994, to $9,374 or $0.16 per square foot in 1995 and 1996. The annualized figures for 1997 (including actual figures for January through October and budgeted figures for November and December) reflect a total of $11,135 or $0.19 per square foot for this category. Based on our experience with similar type properties and the actual performance of the property, it is our opinion that other income of $0.16 per square foot before vacancy is reasonable. This is typical for a project such as the subject. 34
=================================================================================================================================== VILLAGE AT THE FOOTHILLS I APARTMENTS HISTORICAL EXPENSES - ----------------------------------------------------------------------------------------------------------------------------------- EXPENSE ACTUAL 1992 ACTUAL 1993 ACTUAL 1994 ACTUAL 1995 ACTUAL 1996 ANNUALIZED 1997 CATEGORY PER SF PER UNIT PER SF PER UNIT PER SF PER UNIT PER SF PER UNIT PER SF PER UNIT PER SF PER UNIT - ----------------------------------------------------------------------------------------------------------------------------------- Real Estate Taxes $0.49 $ 474 $0.48 $ 467 $0.48 $ 468 $0.53 $ 509 $0.54 $ 523 $0.55 $ 534 Insurance 0.06 57 0.06 61 0.06 62 $0.07 $ 69 $0.07 $ 70 $0.07 $ 70 Personnel 0.49 470 0.53 512 0.58 562 $0.65 $ 624 $0.64 $ 615 $0.66 $ 638 Utilities 0.41 401 0.43 420 0.47 459 $0.54 $ 520 $0.60 $ 576 $0.60 $ 577 Repairs & Maintenance 0.34 332 0.34 332 0.44 426 $0.47 $ 453 $0.42 $ 409 $0.42 $ 407 Contract Services 0.13 128 0.12 114 0.13 125 $0.20 $ 192 $0.19 $ 184 $0.21 $ 200 General Administrative 0.06 62 0.06 62 0.07 63 $0.08 $ 79 $0.18 $ 175 $0.23 $ 222 Management 0.29 282 0.31 297 0.33 317 $0.35 $ 335 $0.35 $ 338 $0.34 $ 325 ----- ------- ----- ------ ----- ------ - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL $2.28 $2 ,206 $2.34 $2,264 $2.57 $2,482 $2.88 $2,781 $2.99 $2,890 $3.08 $2,974 ===================================================================================================================================
=============================================================================================== COMPARABLE EXPENSE ANALYSIS - ----------------------------------------------------------------------------------------------- COMPARABLE 1 2 3 BRA PROJECTIONS - ----------------------------------------------------------------------------------------------- Expense Year 1997 1997 1997 1998 NRA 116,036 140,564 167,500 58,018 No. Units 120 120 168 60 Year Built 1986 1983 1985 1986 Average Unit Size (SF) 967 1171 997 967 - ----------------------------------------------------------------------------------------------- EXPENSES CATEGORY PER SF PER UNIT PER SF PER UNIT PER SF PER UNIT PER SF PER UNIT - ----------------------------------------------------------------------------------------------- Real Estate Taxes $0.59 $ 570 $0.65 $ 759 $0.60 $639 $0.64 $623 Insurance 0.07 69 0.05 57 0.06 61 0.07 $ 70 Personnel 0.65 625 0.64 753 0.57 567 0.62 $603 Utilities 0.59 575 0.50 588 0.39 387 0.52 $503 Repairs & Maintenance 0.39 376 0.38 451 0.43 431 0.48 $463 Contract Services 0.18 176 0.19 222 0.09 93 0.19 $181 General Administrative 0.12 113 0.26 308 0.21 212 0.08 $ 80 Management 0.34 326 0.36 407 0.35 350 0.36 $344 - ----------------------------------------------------------------------------------------------- TOTAL EXPENSES $2.93 $2,830 $3.03 $3,545 $2.70 $2,740 $2.96 $2,867 ===============================================================================================
From this we have arrived at our estimate of scheduled gross income as if 100 percent occupied: Gross Rental Income $449,520 Other Income ($0.16/SF) 9,283 -------- Total Potential Gross Income $458,803 VACANCY AND COLLECTION LOSS ESTIMATE In a stable market, vacancy and collection loss for an apartment complex will be in the 3 to 7 percent range. This covers the time lag during re-leasing and normal refurbishing of apartment units, and the loss of income resulting from bad debt or other vacancies. According to our market analysis, the subject's Northwest area had an annual physical vacancy of 7.6 percent in the Third Quarter 1997 and the overall market was reportedly at 8.7 percent. Quarterly vacancies tend to fluctuate as a result of a seasonal decline in demand during summer months. The vacancy level for both the overall market and the submarket have increased significantly over the past year due to a number of new projects, which have recently been completed. In surveying the established direct competition, the current physical vacancies ranged from 1 to 11 percent. Currently, the subject reportedly has a 12 percent physical vacancy and the subject's economic vacancy given current market rents was 14 percent. The primary difference between the physical and economic vacancy is due to the below market contract rents. Therefore, given this data we have projected a 10 percent economic vacancy in Fiscal Year 1998. In Fiscal Year 1999 and each subsequent year the economic vacancy is projected to be 8 percent. The economic vacancy is not expected to improve beyond this level due to the number of new projects, which have recently been completed or are under construction. EXPENSE ANALYSIS The various expenses necessary in the operation of the subject have been estimated including fixed expenses, operating expenses, and reserves for replacement. Proper appraisal technique demands that an appraiser rely on typical expenses as opposed to actual expenses, which may vary according to management or special circumstances that may not persist. In addition, the total expenses per square foot should be within a range typical for similar projects. Reserves for replacement are estimated based on age, condition, and construction quality. It is re-emphasized that all income, as well as expense estimates, are based on the assumption of competent and prudent management. We have based the following estimate of project expenses on comparable apartment projects located in the subject area, as well as the actual historical performance of the subject property. The facing table summarizes the annualized 1996 expenses reported by three "individually metered" comparable projects, as well as the subject property's actual expenses from 1992 to 1996, annualized 1997 expenses (including actual monthly figures for the period from January through October and budgeted numbers for November and December), and Bach Realty Advisors' 1998 projections. 35 REAL ESTATE TAXES - The Pima County Assessor's Office coordinates the real estate taxes for the Village at the Foothills I. The property is subject to a number of different taxing authorities and there are two assessments. In 1997, the limited cash value assessment was $203,820 and the full cash value assessment was $210,450. Additionally, the subject property personal property assessment was $135,000. The total property tax in 1997 was $35,915.04 or $0.62 per square foot. Based on this information and an expected increase, we have projected the real estate taxes for the first year of our projection at $37,352 or $0.64 per square foot. This was increased at 4 percent per year. INSURANCE - This category includes fire and extended coverage. Insurance costs can vary from one property to another depending upon the type and whether a blanket policy is used. Often times a property owner will insure multiple properties on one policy in an effort to reduce the cost of insurance per project. Our expense estimate is based upon typical costs for an individually insured apartment project in the Tucson area. The subject's actual insurance costs were $0.06 per square foot in 1993, $0.06 per square foot in 1994, $0.07 per square foot in 1995, and $0.7 per square foot in 1996. The annualized expenses for 1997 reflect this expense at $0.07 per square foot. The comparables reflected this expense between $0.05 and $0.07 per square foot. Based on this data, we estimated insurance at $0.07 per square foot in the first year or $4,224. This expense is expected to increase 4 percent annually throughout our projection period. PERSONNEL - This category includes salaries for office managers, leasing agents, maid services, payroll taxes, and FICA. This category is not to be confused with the category of Management. The expense comparables reflected a personnel expense ranging from $0.57 to $0.65 per square foot. Annualized figures for the subject in 1997 indicate this expense at $0.66 per square foot. The subject's actual figures for 1993, 1994, 1995, and 1996 were $0.53, $0.58, $0.65, and $0.64 per square foot, respectively. Based on historical figures at the subject property and tempering them with the market data, we have estimated this expense at $36,203 or $0.62 per square foot. This expense is expected to increase 4 percent annually throughout our projection period. UTILITIES - This expense category includes electric, gas, water, and sewer for the apartment's common area. The subject's actual figures for 1993, 1994, 1995, and 1996 were $0.43, $0.47, $0.54, and $0.60 per square foot, respectively. Annualized figures for 1997 indicate this expense at $0.60 per square foot. The comparables indicated a range from $0.39 to $0.59 per square foot. Based on this data, we have estimated this expense at $0.52 per square foot, or $30,169. This expense is expected to increase 4 percent annually throughout our projection period. REPAIR AND MAINTENANCE - These expenses are necessary in order to keep the property in good repair including plumbing, air-conditioners, electrical, draperies, carpets, janitorial supplies, and decorative costs. The expense comparables indicated a range from $0.38 to $0.43 per square foot. Annualized figures for 1997 indicate this expense at $0.42 per square foot, while actual figures for 1993, 1994, 36 1995, and 1996 were $0.34, $0.44, $0.47, and $0.42 per square foot, respectively. Due to the age, overall condition, and the ongoing maintenance at the subject property, an estimate of $0.48 per square foot or $27,756 has been projected for the subject. This expense is expected to increase 4 percent annually throughout our projection period. CONTRACT SERVICES - This expense category includes landscaping, security, etc. The comparables indicated a range from $0.09 to $0.18 per square foot, respectively. The subject's actual figures for 1993, 1994, 1995, and 1996 were $0.12, $0.13, $0.20, and $0.19 per square foot, respectively. Annualized figures for 1997 indicate this expense at $0.21 per square foot. We have estimated this expense for the subject at $0.19 per square foot or $10,861 and this expense is expected to increase 4 percent annually throughout our projection period. GENERAL ADMINISTRATIVE - This expense category includes professional, legal, and accounting costs, administration costs, promotional expenses, etc. The expense comparables indicate a range of $0.12 to $0.26 per square foot. Actual figures for the subject in 1993, 1994, 1995, and 1996 were $0.06, $0.07, $0.08, and $0.18 per square foot, respectively. Annualized expenses for 1997 were $0.23 per square foot. We have estimated this expense for the subject at $0.08 per square foot or $4,827. This expense is expected to increase 4 percent annually throughout our projection period. MANAGEMENT - This includes the fee to outside management or ownership for managing the property. This expense is typically a percentage of the effective gross income of the property. The industry standard for an apartment complex of this size and quality is between 3 and 5 percent of effective gross income. The management fee for the subject is reportedly 5 percent of effective gross income. The comparables reflected this expense between $0.34 and $0.36 per square foot. The subject's expense in 1993, 1994, 1995, and 1996 appear reasonable at $0.31, $0.33, $0.35, and $0.35 per square foot, respectively. Annualized expenses for 1997 were $0.34 per square foot. Based on this data we have projected the management fee at 5 percent of effective gross income in each year of our analysis which was cross-checked on a per square foot basis. EXPENSE SUMMARY The subject's total expenses were $2.28 per square foot in 1992, $2.34 per square foot in 1993, $2.57 per square foot in 1994, $2.88 per square foot in 1995, and $2.99 in 1996. Annualized expenses for 1997 are $3.08 per square foot and $2,973 per unit. The comparables ranged from $2.70 to $3.03 per square foot and from $2,740 to $3,549 per unit. Considering the size and quality of the subject, the overall expenses appear reasonable. Our estimate of the total expenses for Fiscal Year 1998 is $2.96 per square foot or $2,867 per unit. RESERVES FOR REPLACEMENT A replacement allowance provides for the periodic replacement of building components that wear out more rapidly than the building itself and must be replaced periodically during the building's economic life. These may include roof covering, carpeting, appliances, compressors, parking areas, drives, etc. The subject was constructed in 1986 and appears to have had ongoing maintenance 37 since its construction. It is our opinion that a reserve allowance of $300 per unit or about $0.31 per square foot is adequate to provide for the continued maintenance of the project. This was included in our expenses prior to concluding the net operating income. DEFERRED MAINTENANCE The subject improvements are in good condition and exhibited only minor deferred maintenance at the time of our inspection. This has been estimated at $50,000. This includes appliance repair and replacement, carpet replacement, window covering replacement, interior repairs, roof repairs, air conditioning and equipment repair, pool repair, water heater replacement, landscaping, painting, and paving. DISCOUNTED CASH FLOW ANALYSIS DISCUSSION The most realistic method for estimating value via the Income Approach is through the use of Discounted Cash Flow Analysis. The Market Value of a real estate investment under the Discounted Cash Flow Method is defined as the discounted sum of all net cash inflows plus the property's discounted reversionary value. Primarily, any given property is only worth the value of the income derived from it. The general methodology of Discounted Cash Flow involves the following steps: 1) increasing each year's cash flows by an appropriate appreciation factor; 2) discounting each year's net cash flow by an appropriate discount rate; 3) deriving the property's reversionary value in the final year and discounting it to the present; and 4) the summation of all cash flows, including final year reversion, into an estimate of value. According to the Third Quarter 1997 real estate investor survey compiled by Peter F. Korpacz & Associates, Inc. the apartment market is being flooded with capital, primarily from REIT's, rendering it almost impossible for large institutional investors to land deals. In addition, brokers have fewer properties to market either because long-term holders are buying product before it is ever offered on the market place or because owners are not willing to sell. The main factor is investors are watching to determine if investment locations are the pace of job growth. The slower pace of job growth in many markets, coupled with continued increases in multi-family and single family permits as well as attractive interest rates could combine to negatively effect the apartment market. As such, some investors are increasing overall vacancy allowance in their acquisition analyses and backing off on revenue growth assumptions. However, apartment investment continues to be attractive for pension funds and REIT's and we anticipate investors will continue to find the apartment market a desirable investment. DISCOUNT RATE Over the past several years, the internal rate of return (IRR) has gained greater usefulness and market acceptance as an investment measure. IRR is the yield on an investment based on an initial cash investment, annual cash flows to the property, as well as resale proceeds. IRR allows for return on investment as well as recapture of the original investment when factoring in the reversion. To simulate this process, we have relied upon several investor surveys, which detail reasonable yields or IRR requirements of purchasers. We have used this rate as a discount 38 rate that, when applied to projected cash flows and net resale proceeds (reversion), results in the present value of the property. According to the Third Quarter 1997 investor survey compiled by Peter F. Korpacz & Associates, Inc., investors for apartment properties indicated a return requirement ranging from 10.00 to 12.50 percent with an average of 11.16 percent. This IRR depends on the conservative or aggressive nature of rental and expense growth assumptions, as well as location and other factors. Corporate "Baa" bonds are typically viewed as an alternative investment. Real estate is considered riskier due to illiquidity, competition, burden of management, and market conditions; therefore, approximately 150 basis points or more could be added to this percentage rate in a normal market. Based on the previous data and considering the amount of new construction in the market and the lease-up time required to regain stabilization, we believe a 12.50 percent discount rate is reasonable based on an all cash sale and alternative investments. While this is 134 basis points higher than the indicated average by the previously mentioned survey, we believe it reflects the added risk in the market. CAPITALIZATION RATE The subject property's reversionary value is derived by capitalizing the eleventh year's net operating income. As mortgage rates have fluctuated over the past several years, it becomes difficult to apply a band of investment method to establish a capitalization rate because capitalization rates do not react dramatically to ups and downs of mortgage interest rates. Additionally, the mercurial nature of the recent market creates a large variance of returns depending on property potential. Again, according to the previously cited investor survey, investors of apartment properties indicated a terminal capitalization rate range from 8.0 to 10.25 percent with an average of 9.29 percent. This range appears reasonable after analyzing recent sales in the area, which follow.
Sale Identification Sale Date Capitalization Rate ---------------------------------------------------------------- 4 Sandstone 06/97 10% 5 Hilands I 06/97 11% 6 Windsail 03/97 10% 8 Sundown Village 12/96 10.09% 9 Rio Cancion 12/96 9.42% 10 Sonoran Terrace 08/96 9.39%
Based upon the aforementioned factors and the quality of the subject, it is our opinion that a 9.5 percent "going-in" capitalization rate was appropriate in this market. Typically, the terminal capitalization rate would be higher than the "going-in" capitalization rate due to the greater risk and older age of the property at the end of the projection period. Therefore, we believe a terminal capitalization rate of 10.5 percent is appropriate for the subject property. The resulting value indicates a first year capitalization rate of 9.29 percent before capital items. CASH FLOW ASSUMPTIONS . Rents were based on an average current rental rate of approximately $0.65 per square foot. During the projection period rents were increased at a rate of 0 percent in Year 1 and 4 percent per year thereafter. As previously discussed in the "Apartment Market Analysis" section of this report, the subject area's average rental rates have increased at a healthy pace in the 39
=================================================================================================================================== VILLAGE AT THE FOOTHILL ST APARTMENTS Fiscal Year Ending 1998 1999 2000 2001 2002 2003 2004 2005 2006 - ----------------------------------------------------------------------------------------------------------------------------------- INCOME: Apt. Rents 449,520 467,501 486,201 505,649 525,875 546,910 568,786 591,538 615,199 Rent/SF/Mo. 0.646 0.671 0.698 0.726 0.755 0.786 0.817 0.850 0.884 Other Income/Yr. 9,283 9,654 10,040 10,442 10,860 11,294 11,746 12,216 12,704 ------- ------- ------- ------- ------- ------- ------- ------- ------- Gross Income 458,803 477,155 496,241 516,091 536,734 558,204 580,532 603,753 627,903 % Vacancy 10.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% Vacancy Allowance 45,880 38,172 39,699 41,287 42,939 44,656 46,443 48,300 50,232 ------- ------- ------- ------- ------- ------- ------- ------- ------- Effective Gross Income 412,923 438,983 456,542 474,804 493,796 513,548 534,089 555,453 577,671 ------------- Expenses: $/UNIT $/SF ------------- Real Estate Taxes 623 0.64 37,352 38,846 40,400 42,016 43,697 45,444 47,262 49,153 51,119 ------------- Insurance 70 0.07 4,224 4,393 4,568 4,751 4,941 5,139 5,344 5,558 5,780 ------------- Personnel 603 0.62 36,203 37,651 39,157 40,724 42,353 44,047 45,809 47,641 49,547 ------------- Utilities 503 0.52 30,169 31,376 32,631 33,936 35,294 36,706 38,174 39,701 41,289 ------------- Repairs and Maintenance 463 0.48 27,756 28,866 30,021 31,222 32,470 33,769 35,120 36,525 37,986 ------------- Contract Services 181 0.19 10,861 11,295 11,747 12,217 12,706 13,214 13,743 14,292 14,864 ------------- General Administrative 80 0.08 4,827 5,020 5,221 5,430 5,647 5,873 6,108 6,352 6,606 ------------- Management Fee 5.00% 0.36 20,646 21,949 22,827 23,740 24,690 25,677 26,704 27,773 28,884 ------------- Reserves for Replacement 300 0.31 18,000 18,720 19,469 20,248 21,057 21,900 22,776 23,687 24,634 ------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Expenses 190,038 198,117 206,042 214,283 222,855 231,769 241,040 250,681 260,708 Per SF 3.28 3.41 3.55 3.69 3.84 3.99 4.15 4.32 4.49 ------- ------- ------- ------- ------- ------- ------- ------- ------- Net Operating Income 222,884 240,866 250,500 260,520 270,941 281,779 293,050 304,772 316,963 Per SF 3.84 4.15 4.32 4.49 4.67 4.86 5.05 5.25 5.46 Capital Items: 50,000 0 0 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- ------- ------- ------- Cash Flow 172,884 240,866 250,500 260,520 270,941 281,779 293,050 304,772 316,963 -------- -------- -------- -------- -------- -------- -------- -------- -------- Present Value Factor 12.50% 0.888889 0.790123 0.702332 0.624295 0.554929 0.493270 0.438462 0.389744 0.346439 Present Value of Cash Flow 153,675 190,314 175,934 162,641 150,353 138,993 128,491 118,783 109,808 NOI in 10th Year 342,827 Present Value of Income Stream 1,430,505 Ro at Reversion 10.50% Present Value of Reversion 955,177 --------- ------------------------------------------------- Indicated Reversion 3,265,018 Indicated Value of Subject 2,385,682 Less: Sales Costs 5.00% 163,251 Indicated Value/SF 41.12 --------- Indicated Value/Unit 39,761 Reversion in 10th Yr 3,101,767 GIM at Indicated Value (rent income 5.31 only) Ro at Indicated Value 9.34% ------------------------------------------------- ========================================================================================== VILLAGE AT THE FOOTHILL ST APARTMENTS Fiscal Year Ending 2007 2008 - ------------------------------------------------------------------------------------------ INCOME: Apt. Rents 639,807 655,399 Rent/SF/Mo. 0.919 0.956 Other Income/Yr. 13,212 13,741 -------- -------- Gross Income 653,020 679,140 % Vacancy 8.00% 8.00% Vacancy Allowance 52,242 54,331 -------- -------- Effective Gross Income 600,778 624,809 ------------- Expenses: $/UNIT $/SF ------------- Real Estate Taxes 623 0.64 53,164 55,290 ------------- Insurance 70 0.07 6,012 6,252 ------------- Personnel 603 0.62 51,528 53,590 ------------- Utilities 503 0.52 42,940 44,658 ------------- Repairs and Maintenance 463 0.48 39,505 41,085 ------------- ContractServices 181 0.19 15,459 16,077 ------------- General Administrative 80 0.08 6,870 7,145 ------------- Management Fee 5.00% 0.36 30,039 31,240 ------------- Reserves for Replacement 300 0.31 25,620 26,644 ------------- -------- -------- Total Expenses 271,137 281,982 Per SF 4.67 4.86 -------- -------- Net Operating Income 329,641 342,827 Per SF 5.68 5.91 Capital Items: 0 0 -------- -------- Cash Flow 329,641 342,827 -------- -------- Present Value Factor 12.50% 0.307946 0.000000 Present Value of Cash Flow 101,512 0 NOI in 10th Year Ro at Reversion Indicated Reversion Less: Sales Costs 5.00% Reversion in 10th Yr
========================================================================= CASH FLOW SUMMARY CALENDAR YEAR ANNUAL 12.50% PV OF ENDING 12/31 CASH FLOW NPV FACTOR CASH FLOW ------------ --------- ---------- --------- 1998 $172,884 0.888888889 $ 153,675 1999 240,866 0.790123457 190,314 2000 250,500 0.702331962 175,934 2001 260,520 0.624295077 162,641 2002 270,941 0.554928957 150,353 2003 281,779 0.493270184 138,993 2004 293,050 0.438462386 128,491 2005 304,772 0.389744343 118,783 2006 316,963 0.346439416 109,808 2007 329,641 0.307946148 101,512 ---------- TOTAL NPV OF CASH FLOWS $1,430,505 Projected NOI - 11th Year $ 342,827 Terminal Capitalization Rate 10.50% ---------- Estimated Value of Property at End of 10th Year $3,265,018 Less Sales Cost @ 5.00% (163,251) ---------- Value of Reversion at End of 10th Year $3,101,767 Discount Factor - 10th Year 12.50% 0.307946 ---------- Present Value of the Reversion $ 955,177 Sum of Present Values of Cash Flow 1,430,505 ---------- MARKET VALUE AS OF DECEMBER 31, 1997 $2,385,682 (ROUNDED) $2,390,000 ========== =========================================================================
early 1990's; however, with the significant amount of new construction the growth has slowed. . The subject's current physical vacancy is 12 percent and the economic vacancy rate is about 14 percent. The primary reason for the discrepancy between the physical and economic rent is the difference between market and contract rents as well as discounts given for concessions. Due to the large supply of excess inventory in the current market, we estimate 10 percent vacancy for the first year of the cash flow. It is our opinion that the subject should be capable of obtaining an 8 percent vacancy rate for the for the remainder of the holding. . The property has been appraised based on a "resident pays utilities" status. . Expenses (with the exception of management) have been increased at an average growth rate of 4 percent annually over the 11-year projection period. Management expenses are based on a percentage of effective gross income and increase with occupancy and rental increases. . A discount rate of 12.50 percent was utilized. . A terminal capitalization rate of 10.5 percent was believed reasonable. . A sales cost of 4 percent of the reversionary value was estimated. A cash flow analysis for the subject may be found on the following pages. The estimated leased fee market value for the subject on an "as is" basis via discounted cash flow method is TWO MILLION FOUR HUNDRED THOUSAND DOLLARS ($2,400,000) 40
================================================================================ VILLAGE AT THE FOOTHILLS I APARTMENTS Fiscal Year Ending 12/31 ---- 1998 ---- - -------------------------------------------------------------------------------- Income: Apt. Rents $449,520 Rent/SF/Mo. 0.646 Other Income/Yr. 9,283 -------- Gross Income $458,803 % Vacancy 8.00% Vacancy Allowance 36,704 -------- Effective Gross Income $422,099 ----------------- Expenses: $/Unit $/SF ----------------- Real Estate Taxes 623 0.64 $ 37,352 Insurance 70 0.07 4,224 Personnel 603 0.62 36,203 Utilities 503 0.52 30,169 Repairs and Maintenance 463 0.48 27,756 Contract Services 181 0.19 10,861 General Administrative 80 0.08 4,827 Management Fee 5.00% 0.36 21,105 Reserves for Replacement 300 0.31 18,000 ----------------- -------- Total Expenses $190,497 Per SF 3.28 -------- Net Operating Income $231,602 Per SF 3.99 Capitalization Rate 9.50% -------- Fee Simple Stabilized Market Value $2,437,911 Less: Rent Loss Due to Lease-up $21,446 Deferred Maintenance $50,000 ---------- Leased Fee "As Is" Market Value $2,366,465 Leased Fee "As Is" Market Value (Rounded) $2,400,000 ---------------------------------------------------------------------------- RENT LOSS DUE TO LEASE-UP/CONTRACT RENT --------------------------------------- Year 1 ------ Stabilized NOI $231,602 Projected NOI 208,654 ------- Rent Loss $22,948 PV Factor @ 7.00% 0.934579 -------- PV Income Loss $21,446 CUMULATIVE LOSS $21,446 ============================================================================
DIRECT CAPITALIZATION Direct capitalization is a method used to convert a single year's income estimate into a value indication. In direct capitalization a rate of return for the investor and recapture of the capital invested is implicit in the overall capitalization rate. The overall capitalization rate was chosen after analyzing the comparable apartment sales in our Sales Comparison Approach. These sales indicated a range of "going-in" capitalization rates from 9.39 to 11.00 percent. A "going-in" capitalization rate of 9.5 percent was deemed appropriate due to the quality of the subject, its location, and the current market conditions. The net income is capitalized into a value of $2,437,911 with deductions for rent loss due to lease-up and deferred maintenance made subsequently to reflect a value of $2,366,465 or $2,400,000 rounded. INCOME APPROACH CONCLUSION DCF METHOD.................................. $2,400,000 DIRECT CAPITALIZATION METHOD................ $2,400,000 The two methods of comparison are supportive of each other and we gave equal reliance to each. We are of the opinion that the "as is" market value of the subject property, as of December 31, 1997 is $2,400,000 41 RECONCILIATION - -------------------------------------------------------------------------------- Sales Comparison Approach $2,300,000 Income Approach $2,400,000 The Sales Comparison Approach utilized relatively recent comparable sales of similar properties in the area. The weakness of the Sales Comparison Approach is that no two properties are exactly alike and exact conditions of a sale are often unknown. The strength of this approach is that it indicates market activity based on the willing buyer/willing seller concept. We placed supportive weight on this approach to the Income Approach. The Income Approach attempts to measure investment qualities of the property. Based on actual rental rates in the immediate area of the subject, actual expenses, and investor returns derived from the market, we have estimated value. Actual data on the property, as well as comparable data was considered adequate. Because the Income Approach deals directly with income streams, we feel it is a very good indication of current market conditions. It tends to reflect a value, which an investor of a property would anticipate. We have placed emphasis on the Income Approach. Therefore, it is our opinion that the "as is" leased fee market value of the subject property, on an all cash basis, as of December 31, 1997 is TWO MILLION FOUR HUNDRED THOUSAND DOLLARS ($2,400,000) 42 PINNACLE CANYON - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 1 PROPERTY IDENTIFICATION Job Number 97-073/97-079 Project Name Pinnacle Canyon Address 7050 E. Sunrise Drive City/ State Tucson, Arizona TRANSACTION DATA Sale Date 11/97 Grantor (Seller) Pinnacle Canyon Joint Venture Grantee (Buyer) BRE Property Investors, Inc. Recorded Document 10677-1104 Sale Price $11,727,000 Occupancy 98% Sale Price per Unit $52,120 Sale Price per SF $51.23 Capitalization Rate NA TERMS OF SALE CASH PROPERTY DESCRIPTION Year Built 1995 Last Year Renovated NA Number of Stories 2 Number of Buildings 20 Number of Units 225 Number of Bedrooms 428 Net Rentable Area 228,931 Average Unit Size 1,017 SF Land Area 15.290 Acres Unit Density 14.71 Units per Acre Property Condition Excellent Parking (type) Open, carport and detached garage (500 spaces) Construction Type Wood frame, stucco exterior, concrete foundation, tile roof Unit Amenities Washer/dryer, built-in television, roman tub, microwave Project Amenities Swimming pool, spa, clubhouse, exercise room, computer center Confirmed With Real Data, Inc., Newspaper article (11/30/97), and Bruce Greenberg, MAI Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Comments Detailed income and expense information was not available. The NOI/SF, expenses, and capitalization could not be derived, however, the EGIM is estimated at 5.69. PINNACLE HEIGHTS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 2 PROPERTY IDENTIFICATION Job Number 97-073/97-079 Project Name Pinnacle Heights Address 7990 East Snyder City/ State Tucson, Arizona TRANSACTION DATA Sale Date 11/97 Grantor (Seller) Pinnacle Heights Associates Grantee (Buyer) BRE Property Investors, LLC Recorded Document 10677-1112 Sale Price $16,364,000 Occupancy 97% Sale Price per Unit $52,787 Sale Price per SF $48.22 Capitalization Rate NA TERMS OF SALE Cash PROPERTY DESCRIPTION Year Built 1995 Last Year Renovated NA Number of Stories 2 Number of Buildings 25 Number of Units 310 Number of Bedrooms 562 Net Rentable Area 339,364 Average Unit Size 1,095 SF Land Area 30 Acres Unit Density 10.33 Units per Acre Property Condition Excellent Parking (type) Open, carport, and detached garage (590 spaces) Construction Type Wood frame, stucco exterior, Spanish tile roof Unit Amenities Washer/dryer, microwave, ceiling fans Project Amenities Swimming pool, two spas, exercise room, computer center, and clubhouse Confirmed With Real Data, Inc., Newspaper article (11/30/97), and Bruce Greenberg, MAI Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Comments Detailed income and expense information was not available, however, a 5.60 EGIM has been estimated. FOOTHILLS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 3 PROPERTY IDENTIFICATION Job Number 97-073/97-079 Project Name Foothills Address 5441 N. Swan Road City/ State Tucson, Arizona TRANSACTION DATA Sale Date 11/97 Grantor (Seller) Foothills APB, LP Grantee (Buyer) AIMCO/Foothill LP Recorded Document 10677-2151 Sale Price $7,600,000 Occupancy 97% Sale Price per Unit $28,148 Sale Price per SF $45.26 Capitalization Rate NA TERMS OF SALE CASH PROPERTY DESCRIPTION Year Built 1984 Last Year Renovated NA Number of Stories 2 Number of Buildings 11 Number of Units 270 Number of Bedrooms 300 Net Rentable Area 167,910 Average Unit Size 622 SF Land Area 7.5 Acres Unit Density 36 Units per Acre Property Condition Good Parking (type) Open and covered (380 spaces) Construction Type Wood frame, stucco exterior, and tile roof Unit Amenities Patio/balcony, storage Project Amenities Swimming pool, clubhouse, weight room, racquetball, tennis courts, laundry facility Confirmed With Real Data, Inc., Newspaper article (11/30/97), and Bruce Greenberg, MAI Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Comments No economic information was available, a 5.38 EGIM WAS estimated from knowledge of sales price, rents, and occupancy. SANDSTONE - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 4 PROPERTY IDENTIFICATION Job Number 97-073/97-079 Project Name Sandstone Apartments Address 405 E. Prince Road City/ State Tucson, Arizona TRANSACTION DATA Sale Date 06/97 Grantor (Seller) Tucson Park Ridge, Ltd. Grantee (Buyer) Feigal Sandstone LP Recorded Document 10569-1839 Sale Price $8,849,000 Occupancy 100% Sale Price per Unit $26,815 Sale Price per SF $48.84 Capitalization Rate 10.0% TERMS OF SALE Cash PROPERTY DESCRIPTION Year Built 1986 Last Year Renovated NA Number of Stories 3 Number of Buildings NA Number of Units 330 Number of Bedrooms 363 Net Rentable Area 181,167 Average Unit Size 549 SF Land Area 8.42 Acres Unit Density 39.19 Units per Acre Property Condition Good Parking (type) Covered and open Construction Type Wood frame, stucco exterior, Spanish tile roof Unit Amenities Washer/dryer available, covered parking, balconies Project Amenities Swimming pool, spa, tennis courts, volleyball, laundry room, clubhouse, exercise room Confirmed With Real Data, Inc. and Bruce Greenberg, MAI Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. HILANDS I - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 5 PROPERTY IDENTIFICATION Job Number 97-073/97-079 Project Name Highlands I Address 5755 E. River Road City/State Tucson, Arizona TRANSACTION DATA Sale Date 06/97 Grantor (Seller) Doubletree Finance, Inc. Grantee (Buyer) Northland Hilands Portfolio, LP Recorded Document 10565/255 Sale Price $12,500,000 Occupancy 95% Sale Price per Unit $29,343 Sale Price per SF $53.34 Capitalization Rate 11% TERMS OF SALE Cash PROPERTY DESCRIPTION Year Built 1985 Last Year Renovated NA Number of Stories 3 Number of Buildings NA Number of Units 426 Number of Bedrooms 468 Net Rentable Area 234,324 Average Unit Size 550 SF Land Area 14.71 Acres Unit Density 28.95 Units per Acre Property Condition Good Parking (type) Open and carport (527 spaces) Construction Type Wood frame, stucco exterior, concrete foundation, tile roof Unit Amenities Washer/dryer, patio or balcony w/storage, covered parking Project Amenities 2 Swimming pools, spa, lounge, exercise room, racquetball court, tennis courts, laundry room Confirmed With Real Data, Inc. and Bruce Greenberg, MAI Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Comments Limited economic data available. WINDSAIL - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 6 PROPERTY IDENTIFICATION Job Number 97-073/97-079 Project Name Windsail Address 7300 North Mona Lisa Road City/State Tucson, Arizona TRANSACTION DATA Sale Date 03/97 Grantor (Seller) PTR Holdings Grantee (Buyer) Windsail Properties LLC Recorded Document 10513/2196 Sale Price $10,037,000 Occupancy 94% Sale Price per Unit $33,457 Sale Price per SF $41.14 Capitalization Rate 10% TERMS OF SALE Cash PROPERTY DESCRIPTION Year Built 1985 Last Year Renovated NA Number of Stories 2 Number of Buildings 21 Number of Units 300 Number of Bedrooms 548 Net Rentable Area 243,952 Average Unit Size 813 SF Land Area 11.65 Acres Unit Density 25.8 Units per Acre Property Condition Good Parking (type) Open (150) and Covered (300) Construction Type Wood frame, stucco exterior, Spanish tile roof Unit Amenities Washer/dryer connection, fireplace, microwave, balcony/patio Project Amenities Swimming pool, spa, sauna, exercise room, tennis courts, playground Confirmed With Real Data, Inc. and Bruce Greenberg, MAI Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Comments Limited economic data reveals estimated EGIM of 5.74 COBBLE CREEK - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 7 PROPERTY IDENTIFICATION Job Number 97-073/97-079 Project Name Cobble Creek Address 7700 E. Speedway Blvd. City/ State Tucson, Arizona TRANSACTION DATA Sale Date 11/97 Grantor (Seller) Security Capital Pacific Trust Grantee (Buyer) Cobble Creek Associates, LLC Recorded Document 11463/642 Sale Price $9,250,000 Occupancy 91% Sale Price per Unit $30,731 Sale Price per SF $42.55 Capitalization Rate NA TERMS OF SALE Cash PROPERTY DESCRIPTION Year Built 1980 Last Year Renovated NA Number of Stories 3 Number of Buildings 13 Number of Units 301 Number of Bedrooms 367 Net Rentable Area 217,382 Average Unit Size 722 SF Land Area 9.877 Acres Unit Density 30.47 Units per Acre Property Condition Fair Parking (type) Open and carport (386 spaces) Construction Type Concrete block with stucco exterior, flat built-up roof Unit Amenities Fireplace, balcony/patio Project Amenities Swimming pool, clubhouse, spa, tennis court, racquetball court, basketball court Confirmed With Comps and Real Data, Inc., and Bruce Greenberg, MAI Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Comments Economic information was confidential, however, from knowledge of sales price, rental rates, and occupancy, an EGIM of 6.35 was calculated. SUNDOWN VILLAGE - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 8 PROPERTY IDENTIFICATION Job Number 97-073/97-079 Project Name Sundown Village Address 8215 North Oracle Road City/ State Tucson, Arizona TRANSACTION DATA Sale Date 12/96 Grantor (Seller) Security Capital Pacific Trust Grantee (Buyer) Sundown Associates, LLC Recorded Document 10438/1085 Sale Price $11,350,000 Occupancy 90% Sale Price per Unit $34,394 Sale Price per SF $40.57 Capitalization Rate 10.09% TERMS OF SALE Cash INCOME/EXPENSE DATA Potential Gross Income $2,187,240 Vacancy/Collection Loss 10% $(218,724) Other Income $ 83,970 Effective Gross Income $2,052,486 Operating Expenses $(941,265) Net Operating Income $1,111,221 PROPERTY DESCRIPTION Year Built 1984 Last Year Renovated NA Number of Stories 1, 2 & 3 Number of Buildings 37 Number of Units 330 Number of Bedrooms 486 Net Rentable Area 279,758 Average Unit Size 848 SF Land Area 14.99 Acres Unit Density 22 Units per Acre Property Condition Good Parking (type) Open (82) Covered (250) and Detached Garage (17) Construction Type Wood frame with stucco exterior, tile roof Unit Amenities Fireplace, microwave, washer/dryer hook-up Project Amenities Swimming pool, spa, sauna, clubhouse Confirmed With Bruce Greenberg, MAI Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. RIO CANCION - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 9 PROPERTY IDENTIFICATION Job Number 97-073/97-079 Project Name Rio Cancion Address 2400 East River Road City/ State Tucson, Arizona TRANSACTION DATA Sale Date 12/96 Grantor (Seller) Security Capital Pacific Trust Grantee (Buyer) Rio Cancion Associates, LC Recorded Document 10438/1044 Sale Price $17,400,000 Occupancy 90% Sale Price per Unit $45,910 Sale Price per SF $50.67 Capitalization Rate NA TERMS OF SALE Cash to seller INCOME/EXPENSE DATA Potential Gross Income $ 2,956,200 Vacancy/Collection Loss 10% $ (295,620) Other Income $ 97,200 Effective Gross Income $ 2,757,780 Operating Expenses $(1,1 18,846) Net Operating Income $ 1,638,934 PROPERTY DESCRIPTION Year Built 1983 Last Year Renovated NA Number of Stories 1 & 2 Number of Buildings 35 Number of Units 379 Number of Bedrooms 613 Net Rentable Area 343,370 Average Unit Size 906 SF Land Area 16.323 Acres Unit Density 23.21 Units per Acre Property Condition Good Parking (type) Open and carport (878 spaces) Construction Type Wood frame with stucco exterior, concrete foundation, Spanish tile roof Unit Amenities Fireplace, vaulted ceilings, microwave, balcony/patio, w/d hookup Project Amenities 3 swimming pools, spa, fitness room, basketball court, tennis court, carports, clubhouse Confirmed With Real Data, Inc and Bruce Greenberg, MAI Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. SONORAN TERRACES - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 10 PROPERTY IDENTIFICATION Job Number 97-073/97-079 Project Name Sonoran Terraces Address 7887 N. La Cholla Boulevard City/ State Tucson, Arizona TRANSACTION DATA Sale Date 08/96 Grantor (Seller) Security Capital Pacific Trust Grantee (Buyer) NA Sonoran Terraces 5-1 Recorded Document 10357/907 Sale Price $18,750,000 Occupancy 95% Sale Price per Unit $50,134 Sale Price per SF $45.04 Capitalization Rate 9.39% TERMS OF SALE Cash to seller INCOME/EXPENSE DATA Potential Gross Income $ 2,995,238 Vacancy/Collection Loss 5% $ (149,762) Effective Gross Income $ 2,845,476 Operating Expenses $ 1,084,034 Net Operating Income $ 1,761,442 PROPERTY DESCRIPTION Year Built 1985 Last Year Renovated NA Number of Stories 2 Number of Buildings 60 Number of Units 374 Number of Bedrooms 632 Net Rentable Area 416,256 SF Average Unit Size 1,113 SF Land Area 25.8 10 Acres Unit Density 14.49 Units per Acre Property Condition Good Parking (type) Open and Covered (674 spaces) Construction Type Brick veneer, concrete foundation, Spanish tile roof Unit Amenities Washer/dryer Project Amenities Swimming pools, clubhouse, tennis courts, weight room, covered parking Confirmed With Real Data, Inc and Bruce Greenberg, MAI Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Comments None TIERRA CATALINA - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 1 PROPERTY IDENTIFICATION Job Number: 97-073/97-79 Name of Project: Tierra Catalina Street Address: 3201 East Skyline Drive City/State: Tucson, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1983 Number of Stories: 2 Number of Units: 120 Net Rentable Area (SF): 140,561 Average Unit Size (SF): 1,171 Parking Surface: Asphalt Type of Construction: Painted stucco exterior with flat built-up roofs and red tile pitched roof fronts
-------------------------------------------------- Unit Mix: Total Unit Size Monthly Monthly Units Type (SF) Rent Rent/SF -------------------------------------------------- 23 1BR/1BA 900 $ 640 $0.71-0.81 18 1BR/lBA 916 625-680 0.74 19 2BR/2BA 1,207 790 0.65 25 2BR/2BA 1,233 850-950 0.69-0.77 17 2BR/2BA/TH 1,304 890-950 0.680.73 18 3BR/2BA/TH 1,525 950-1,070 0.620.70 --------------------------------------------------
Concession: None Unit Amenities: Dishwashers, garbage disposals, microwave ovens, washer/dryer connections, fireplaces, patio/balconies, covered parking Project Amenities: 1 swimming pool, 1 tennis court, jacuzzi, picnic area, clubroom, laundry facility ECONOMIC DATA Percent Occupied: 99% Avg. Monthly Rent/SF of NRA: $0.69 Electricity Paid By: Tenant Length of Lease: 6,9, and 12 months Security Deposit: $175-$275 Confirmed With: On-site agent Date Confirmed: 12/97 by SNB/Bach Realty Advisors, Inc. L'AUBERGE CANYON VIEW - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 2 PROPERTY DESCRIPTION Job Number: 97-073/97-79 Name of Project: L'Auberge Canyon View Street Address: 6650-55 North Kolb Road City/State: Tucson, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1987 Number of Stories: 2 Number of Units: 264 Net Rentable Area (SF): 269,048 Average Unit Size (SF): 1,019 Parking Surface: Asphalt Type of Construction: Masonry with flat built-up roofs Unit Mix:
----------------------------------------- Total Unit Size Monthly Monthly Units Type (SF) Rent Rent/SF ----------------------------------------- 32 1BR/1BA 724 $ 725 $1.00 64 2BR/2BA 909 775 0.85 60 2BR/2BA 1,049 825 0.79 66 2BR/2BA 1,095 875 0.80 12 3BR/2BA 1,223 1,010 0.82 19 3BR/2BA 1,243 1,010 0.81 11 3BR/2BA 1,291 1,010 0.78 -----------------------------------------
Concessions: None Unit Amenities: Dishwashers, garbage disposals, microwave ovens, washer/dryer in units, fireplaces, outdoor-utility closets, covered parking Project Amenities: 1 swimming pool, 1 tennis court, jacuzzi, clubroom ECONOMIC DATA Percent Occupied: 96% Avg. Effective Monthly Rent/SF of NRA: $0.82 Electricity Paid By: Tenant Length of Lease: 7 and 12 months Security Deposit: $225; $200 refundable Confirmed With: RealData Inc./On-Site Agent Date Confirmed: 12/97 by SNB/Bach Realty Advisors, Inc. THE GREENS AT VENTANA CANYON - ------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 3 PROPERTY IDENTIFICATION Job Number: 97-073/97-79 Name of Project: The Greens at Ventana Canyon Street Address: 5800 North Kolb Road City/State: Tucson, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1986 Number of Stories: 2 Number of Units: 265 Net Rentable Area (SF): 267,935 Average Unit Size (SF): 1,011 Parking Surface: Asphalt Type of Construction: Masonry exterior Unit Mix:
-------------------------------------------- Total Unit Size Monthly Monthly Units Type (SF) Rent Rent/SF -------------------------------------------- 22 1BR/1BA/DEN 818 $ 714 $ 0.87 26 1BR/1BA 847 740 0.87 29 2BR/2BA 945 775 0.82 27 2BR/2BA 974 739 0.76 48 2BR/2BA 1,018 787-837 0.77-0.82 65 2BR/2BA 1,050 800 0.76 22 2BR/2BA 1,169 914-964 0.78-0.82 26 2BR/2BA/DEN 1,207 950 0.79 --------------------------------------------
Concessions: 1/2 off first month's rent Unit Amenities: Dishwashers, garbage disposals, microwave ovens, washer/dryer in units, fireplaces, ceiling fans, outdoor utility closets, patio/balconies, covered parking Project Amenities: 1 swimming pool, jacuzzi, picnic area, club room ECONOMIC DATA Percent Occupied: 89% Avg. Monthly Rent/SF of NRA: $0.80 Electricity Paid By: Tenant Length of Lease: 12 months Security Deposit: None (special) Confirmed With: RealData Inc./On-site Agent Date Confirmed: 12/97 by SNB/Bach Realty Advisors, Inc. THE ARBORETUM - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 4 PROPERTY IDENTIFICATION Job Number: 97-073/97-79 Name of Project: The Arboretum Street Address: 4700 North Kolb Road City/State: Tucson, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1986 Number of Stories: 2 Number of Units: 496 Net Rentable Area (SF): 402,272 Average Unit Size (SF): 811 Parking Surface: Asphalt Parking Spaces: 322 open; 352 covered Type of Construction: Frame with stucco exterior and flat built-up roofs and pitched tile and shingle roofs Unit Mix:
----------------------------------------- Total Unit Size Monthly Monthly Units Type W(SF) Rent Rent/SF ----------------------------------------- 32 1BR/1BA 520 $475 $0.91 128 1BR/1BA 616 500 0.81 96 1BR/1BA 686 510 0.74 32 1BR/1BA 767 560 0.73 64 2BR/1BA 984 650 0.66 48 2BR/2BA 995 710 0.71 48 2BR/2BA 1,001 735 0.73 48 3BR/2BA 1,200 799 0.67 -----------------------------------------
Concessions: 1/2 month free rent. $175 off if deposit on 1/st/ visit Unit Amenities: Dishwashers, garbage disposals, microwave ovens, fireplaces, patio/balconies, ceiling fans, covered parking Project Amenities: 3 swimming pools, jacuzzi, picnic area, clubroom, laundry facility, exercise/weight room ECONOMIC DATA Percent Occupied: 99% Avg. Monthly Rent/SF of NRA: 0.734 Electricity Paid By: Tenant Length of Lease: 9 and 12 months Security Deposit: $175 -- 1BR; $200-2BR; $225-3BR Pets Allowed/Deposit: $200 plus $15 per month Confirmed With: RealData Inc./On-Site Agent Date Confirmed: 12/97 by SNE/Bach Realty Advisors, Inc. VILLAS SIN VACAS - -------------------------------------------------------------------------------- PHOTO DID NOT DEVELOP RENT COMPARABLE 5 PROPERTY IDENTIFICATION JOB NUMBER: 97-073/97-79 Name of Project: Villas Sin Vacas Street Address: 7601 North Calle Sin Envidia City/State: Tucson, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1985 Number of Stories: 2 Number of Units: 72 Net Rentable Area (SF): 80,178 Average Unit Size (SF): 1,114 Parking Surface: Asphalt Type of Construction: Open and 72 carports Unit Mix:
-------------------------------------------- Total Unit Size Monthly Monthly Units Type (SF) Rent Rent/SF -------------------------------------------- 38 1BR/1BA/DEN 930 $ 835 $0.90 18 2BR/2BA 1,195 1,050 0.88 16 3BR/2BA 1,458 1,200 0.82 --------------------------------------------
Concessions: None Unit Amenities: Fireplace, washer and dryer, microwave, covered parking Project Amenities: Swimming pool, clubhouse ECONOMIC DATA Percent Occupied: Mid to high 90's % Avg. Monthly Rent/SF of NRA: $0.871 Electricity Paid By: Tenant Length of Lease: 9 and 12 months Security Deposit: $200 Pets Allowed/Deposit $200 Confirmed With: On-Site Agent and Real Data, Inc. Date Confirmed: 12/97 by SNB/Bach Realty Advisors, Inc. COLONIA DEL RIO - -------------------------------------------------------------------------------- PHOTO DID NOT DEVELOP RENT COMPARABLE 6 PROPERTY IDENTIFICATION Job Number: 97-073/97-79 Name of Project: Colonia Del Rio Street Address: 4601 N. Via Entrada City/State: Tucson, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1985 Number of Stories: 2 Number of Units: 176 Net Rentable Area (SF): 177,760 Average Unit Size (SF): 1,010 Parking Surface: Asphalt Parking Spaces: 261 Type of Construction: Masonry exterior with red tile roofs Unit Mix:
-------------------------------------------- Total Unit Size Eff.Mo. Eff. Mo. Units Type (SF) Rent Rent/SF -------------------------------------------- 22 1BR/1BA 713 $ 560 $ 0.79 44 1BR/1BA 796 590 0.74 22 1BR/1BA 1,022 655 0.64 22 2BR/1BA 1,068 680 0.64 44 2BR/2BA/TH 1,170 795 0.68 22 3BR/2BA 1,345 795-810 0.59-0.60 --------------------------------------------
Concessions: $200 off 1/st/ month's rent Unit Amenities: Fireplace, washer and dryer, microwave, covered parking Project Amenities: Swimming pool, spa, exercise room, playground ECONOMIC DATA Percent Occupied: 90's% Avg. Effective Monthly Rent/SF of NRA: $0.683 Electricity Paid By: Tenant Length of Lease: NA Security Deposit: $75 Pets Allowed/Deposit: Yes/$150 Confirmed With: On-site Agent and Real Data, Inc. Date Confirmed: 12/97 by SNB/Bach Realty Advisors, Inc. BOULDERS AT LA RESERVE - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 7 PROPERTY IDENTIFICATION Job Number: 97-073/97-79 Name of Project: Boulders at La Reserve Street Address: 1500 E. Pusch Wilderness Drive City/State: Tucson, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1995 Number of Stories: 2 Number of Units: 240 Net Rentable Area (SF): 239,792 Average Unit Size (SF): 999 Parking Surface: Asphalt Parking Spaces: 375, same garages Type of Construction: Masonry exterior with flat built-up and red tile pitched roofs Unit Mix:
------------------------------------------------- Total Unit Size Monthly Monthly Units Type (SF) Rent Rent/SF ------------------------------------------------- 64 1BR/1BA 725 $595 $0.82 48 1BR/1BA/DEN 929 655 0.71 64 2BR/2BA 1,057 740 0.70 64 3BR/2BA 1,268 860 0.68 -------------------------------------------------
Concessions: 1/2 month free rent on 1BR or 2 BR and 1 month free on 3BR w/12 month lease Unit Amenities: Some fireplaces, washer and dryer, microwave, garage Project Amenities: Swimming pool, spa, exercise room, clubhouse ECONOMIC DATA Percent Occupied: NA Avg. Effective Monthly Rent/SF of NRA: $0.717 Electricity Paid By: Tenant Length of Lease: 7-13 months Security Deposit: $100 Pets Allowed/Deposit: $300 plus $10 per month Confirmed With: On-site Agent and Real Data, Inc. Date Confirmed: 12/97 by SNB/Bach Realty Advisors, Inc. Comments: Garages bring a rental premium of $60 plus. LA RESERVE VILLAS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 8 PROPERTY IDENTIFICATION Job Number: 97-073/97-79 Name of Project: La Reserve Villas Street Address: 10700 N. La Reserve Drive City/State: Tucson, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1988 Number of Stories: 2 Number of Units: 240 Net Rentable Area (SF): 216,008 Average Unit Size (SF): 900 Parking Surface: Asphalt Parking Spaces: Yes, but 240 carports Type of Construction: Masonry exterior with flat built-up and red tile pitched roofs Unit Mix:
-------------------------------------------- Total Unit Size Monthly Monthly Units Type (SF) Rent Rent/SF -------------------------------------------- 64 1BR/1BA 697 $580 $0.83 96 2BR/2BA 943 690 0.73 52 2BR/2BA 957 750 0.78 28 3BR/2BA 1,111 875 0.79 --------------------------------------------
Concessions: None Unit Amenities: Fireplace, washer/dryer, microwave Project Amenities: (2) swimming pools, spa, exercise room, clubhouse ECONOMIC DATA Percent Occupied: 90's% Avg. Effective Monthly Rent/SF of NRA: $0.772 Electricity Paid By: Tenant Length of Lease: 6 mos., 9 mos., 1 year Security Deposit: $140 1BR, $160 2BR, $180 3BR Pets Allowed/Deposit: $300 plus $15 per month Confirmed With: On-site Agent and Real Data, Inc. Date Confirmed: 12/97 by SNB/Bach Realty Advisors, Inc. LEGENDS AT LA PALOMA - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 9 PROPERTY IDENTIFICATION Job Number: 97-073/97-79 Name of Project: Legends at La Paloma Street Address: 3750 E. Via Palomita City/State: Tucson, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1995 Number of Stories: 2 Number of Units: 312 Net Rentable Area (SF): 322,696 Average Unit Size (SF): 1,034 Parking Surface: Asphalt Parking Spaces: 312 carports and open parking Type of Construction: Frame stucco with masonry exterior and sloped tile roof Unit Mix:
--------------------------------------------- Total Unit Size Monthly Monthly Units Type (SF) Rent Rent/SF --------------------------------------------- 72 1BR/1BA 745 $675 $0.91 152 2BR/2BA 1,036 795 0.77 88 3BR/2BA 1,258 975 0.78 ---------------------------------------------
Concessions: 1 month free rent Unit Amenities: Fireplace, washer and dryer, microwave, ceiling fan Project Amenities: (2) swimming pools, spa, exercise room, clubhouse, storage off patio/balcony ECONOMIC DATA Percent Occupied: mid to high 90's% Avg. Effective Monthly Rent/SF of NRA: $0.791 Electricity Paid By: Tenant Length of Lease: 6 mos. to 1 year Security Deposit: $150 1BR, $175 2BR, $200 3BR Pets Allowed/Deposit: $300 plus $10 per month Confirmed With: On-site Agent and Real Data, Inc. Date Confirmed: 12/97 by SNB/Bach Realty Advisors, Inc. SKYLINE BEL AIRE - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 10 PROPERTY IDENTIFICATION Job Number: 97-073/97-79 Name of Project: Skyline Bel Aire Street Address: 6255 Camino Pimeria Alta City/State: Tucson, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1979 Number of Stories: 1-2 Number of Units: 137 Net Rentable Area (SF): 154,151 Average Unit Size (SF): 1,125 Parking Surface: Asphalt Parking Spaces: 136 carports and open parking Type of Construction: Frame stucco with masonry exterior and flat roof Unit Mix:
-------------------------------------------------- Total Unit Size Monthly Monthly Units Type (SF) Rent Rent/SF -------------------------------------------------- 64 1BR/1BA/DEN 968 $615 $0.64 73 2BR/2BA 1,263 815 0.65
Concessions: $25 off rent 1BR $300 off 1st month rent w/12 month lease $150 off 1st month rent w/6 month lease Unit Amenities: Fireplaces, washer and dryer, covered parking Project Amenities: Swimming pool, spa, tennis court, billard room, skylight in several bedrooms ECONOMIC DATA Percent Occupied: Mid 90's% Avg. Effective Monthly Rent/SF of NRA: $0.641 Electricity Paid By: Tenant Length of Lease: 6 mos., 9 mos., 1 year Security Deposit: $125 1BR and $150 2BR Pets Allowed/Deposit: $15 per month Confirmed With: On-site Agent and Real Data, Inc. Date Confirmed: 12/97 by SNB/Bach Realty Advisors, Inc. Comments: One of the large units is the manager's unit. PINNACLE CANYON - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 11 PROPERTY IDENTIFICATION Job Number: 97-073/97-79 Name of Project: Pinnacle Canyon Street Address: 7050 E. Sunrise Road City/State: Tucson, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1995 Number of Stories: 2 Number of Units: 225 Net Rentable Area (SF): 228,931 Average Unit Size (SF): 1,017 Parking Surface: Asphalt Parking Spaces: NA Type of Construction: Masonry exterior with red tile roof Unit Mix:
--------------------------------------------- Total Unit Size Monthly Monthly Units Type (SF) Rent Rent/SF --------------------------------------------- 24 1BR/1BA 795 $650 $0.82 37 1BR/1BA 840 675 0.80 48 2BR/2BA 1,124 775 0.69 74 2BR/2BA 1,152 800 0.69 40 3BR/2BA 1,351 935 0.69
Concessions: 1 month free rent w/12 month lease Unit Amenities: Some fireplaces, washer and dryer, microwave, built-in television, covered parking Project Amenities: Swimming pool, spa, exercise room, clubhouse, computer center ECONOMIC DATA Percent Occupied: 98% Avg. Effective Monthly Rent/SF of NRA: $0.762 Electricity Paid By: Tenant Length of Lease: NA Security Deposit: $100 Pets Allowed/Deposit: $200 plus $15 per month Confirmed With: On-site Agent and Real Data, Inc. Date Confirmed: 12/97 by SNB/Bach Realty Advisors, Inc. PROFESSIONAL QUALIFICATIONS STEVAN N. BACH EXPERIENCE Bach Realty Advisors, Inc. (since June 1997) President. Emphasis in ad valorem tax and intangible value. Real estate valuation and consultation on hotels, major urban properties, and property portfolios. Financial and feasibility analysis, land use, and market studies Bach Thoreen McDermott Incorporated (July 1991 -- May 1997) Chief Executive Officer. Bach Thoreen & Associates, Inc. (1985 -- 1991) President Bach & Associates, Inc. (1980 -- 1984) President Landauer Associates, Inc. (1980 -- 1984) Senior Vice-President and General Manager -- Southwestern Region Coldwell Banker Commercial Group, Inc. (1973 -- 1980) Vice-President and Manager, Appraisal Services. Appraisal Research Associates (1971 -- 1973) Appraiser. Real Estate research valuation on urban and rural properties. Ray R. Hastings, MAI (1964 -- 1971) Appraiser. Real Estate research valuation on urban and rural properties. Residential Real Estate Sales (1963 -- 1964) Salesman. Residential real estate salesman Covina, California. PROFESSIONAL ACTIVITIES Member: Appraisal Institute Appraisal Institute, Houston Chapter 33 Appraisal Institute, Chairman of the Grievance Committee of the Regional Ethics Panel Appraisal Institute, Chairman of the Review and Counseling Committee of the Regional Ethics Panel Appraisal Institute, Co-Chairman of the Education Committee (1980) Appraisal Institute, Chairman of the Education Committee (1983) Appraisal Institute, Candidate Guidance Committee (1987 -- 1992) Appraisal Institute, Subcommittee Chairman, Admissions Committee (1984) AIREA Nonresidential Appraisal Report Grading Committee (1984) Appraisal Institute Expert Witness Video Committee (1990) Licenses: Real Estate Broker, State of Texas Certification: Certified in the Appraisal Institute's voluntary program of continuing education for its designated members (MAIs who meet the minimum standards of this program are awarded periodic education certification). Certified General Real Estate Property appraiser in the State of Texas, Certification No. TX-1323079-G Certified General Real Estate Property appraiser in the State of Colorado, Certification No. CG01323975 EDUCATION B.S. Marketing, University of Southern California (1962) ================================================================================ A COMPLETE, SELF-CONTAINED APPRAISAL OF THE PONTE VEDRA BEACH VILLAGE I APARTMENTS 700 OCEAN PLACE PONTE VEDRA BEACH, FLORIDA FOR HUTTON/CON AM REALTY INVESTORS 2 1764 SAN DIEGO AVENUE SAN DIEGO, CALIFORNIA 92110 AS OF DECEMBER 31, 1997 BY BACH REALTY ADVISORS, INC. 1221 LAMAR, SUITE 1325 HOUSTON, TEXAS 77010 BRA: 97-074 ================================================================================ TABLE OF CONTENTS - -------------------------------------------------------------------------------- Letter of Transmittal................................... 1 Assumptions and Limiting Conditions..................... 2 Certification........................................... 4 Salient Facts and Conclusions........................... 6 Nature of the Assignment................................ 7 City/Neighborhood Analysis.............................. 9 Apartment Market Analysis...............................19 Site Analysis...........................................24 Improvements............................................27 Highest and Best Use....................................29 Appraisal Procedures....................................33 Sales Comparison Approach...............................35 Income Approach.........................................39 Reconciliation..........................................49
ADDENDA Improved Sales Comparables Rent Comparables Legal Description Professional Qualifications [LETTERHEAD OF BACH REALTY ADVISORS APPEARS HERE] March 20, 1998 Hutton/Con Am Realty Investors 2 1764 San Diego Avenue San Diego, California 92110 Re: A Complete, Self-Contained Appraisal Of The 122-Unit Multifamily Complex Known as the Ponte Vedra Beach Village I Apartments Located at 700 Ocean Place in Ponte Vedra Beach, Florida; BRA: 97-074 Gentlemen: By your request and authorization, we have inspected the above-referenced property and have investigated the real estate market in the subject area in order to provide the value of the leased fee estate of the subject property as of December 31, 1997. This complete, self-contained appraisal report is in conformance with the guidelines of the Appraisal Institute. The scope of this assignment includes the Sales Comparison and Income Approaches to value. The property was inspected in December 1997, and for the purposes of this report it is assumed that all physical and economic conditions are similar on the date of value as they were on the date of inspection. Our analysis of the property focused on the supply and demand factors influencing the Jacksonville area apartment market, the sale of comparable properties; market rent levels, appropriate operating expenses, and acceptable investor returns. As a result of our inspection of the property, investigation of the real estate market, and relying on our experience with similar type properties, it is our opinion that the leased fee market value of the subject property, all cash, on an "as is" basis, as of December 31, 1997 is in the sum of EIGHT MILLION DOLLARS ($8,000,000) There follows on the succeeding pages of this report pertinent data as to the valuation conclusions expressed herein. Your attention is also directed to the Assumptions and Limiting Conditions that follow this letter, as they are an integral part of the above stated market value. Thank you for the opportunity to be of service. If there are any questions regarding the valuation, please contact us. Sincerely, BACH REALTY ADVISORS, INC. /s/ Stevan N. Bach Stevan N. Bach, MAI President and Chief Executive Officer ASSUMPTIONS AND LIMITING CONDITIONS - -------------------------------------------------------------------------------- The certification of this appraisal is subject to the following assumptions and limiting conditions. 1. That responsibility is not taken for matters of a legal nature affecting the property appraised or the title thereto and that all legal descriptions furnished are correct. 2. That the title to the property being appraised is good and marketable and is appraised as though under responsible ownership and/or management. 3. That the property is free and clear of all liens and encumbrances, except as otherwise stated. 4. That the sketches in this report are included to assist the reader in visualizing the property and responsibility is not assumed for their accuracy. 5. That a survey of the property has not been made by the appraiser. 6. That the information, estimates, and opinions furnished the appraiser by others and contained in this report are considered reliable and are believed to be true and correct; however, responsibility is not taken for their accuracy. 7. That responsibility is not taken for soil conditions or structural soundness of the improvements that would render the property more or less valuable. 8. That possession of this appraisal does not carry with it the right of publication and that this report, or any parts thereof, may not be reproduced in any form without written permission of the appraiser. 9. That testimony or attendance in court or at a hearing are not a part of this assignment; however, any such appearance and/or preparation for testimony will necessitate additional compensation than received for this appraisal report. 10. That the valuation estimate herein is subject to an all cash or all cash equivalent purchase and does not reflect special or favorable financing in today's market. 11. Where discounted cash flow analyses have been undertaken, the discount rates utilized to bring forecasted future revenues to estimates of present value reflect both our market investigations of yield anticipation's and our judgement as to the risks and uncertainties in the subject property and the consequential rates of return required to attract an investor under such risk conditions. There is no guarantee that projected cash flows will actually be achieved. 2 12. That the square footage figures are based on floor plans and information supplied to the appraiser by Con Am Management. 13. Bach Realty Advisors, Inc. is not an expert as to ------------------------------------------------- asbestos and will not take any responsibility for ------------------------------------------------- its existence or the existence of other hazardous ------------------------------------------------- materials at the subject property, analysis for ----------------------------------------------- EPA standards, its removal, and/or its -------------------------------------- encapsulation. If the reader of this report and/or -------------------------------------------------- any entity or person relying on the valuations in ------------------------------------------------- this report wishes to know the exact or detailed ------------------------------------------------ existence (if any) of asbestos or other toxic or ------------------------------------------------ hazardous waste at the subject property, then we ------------------------------------------------ not only recommend, but state unequivocally that ------------------------------------------------ they should obtain an independent study and ------------------------------------------- analysis (including costs to cure such -------------------------------------- environmental problems) of asbestos or other toxic -------------------------------------------------- and hazardous waste. -------------------- 14. In addition, an audit on the subject property to determine its compliance with the Americans with Disabilities Act of 1990 was not available to the appraiser. The appraiser is unable to certify compliance regarding whether the removal of any barriers which may be present at the subject are readily achievable. 3 CERTIFICATION - -------------------------------------------------------------------------------- The undersigned does hereby certify to the best of his knowledge and belief that, except as otherwise noted in this complete, self-contained appraisal report: 1. I do not have any personal interest or bias with respect to the subject matter of this appraisal report or the parties involved. 2. The statements of fact contained in this appraisal report, upon which the analyses, opinions, and conclusions expressed herein are gauged, are true and correct. 3. This appraisal report sets forth all of the limiting conditions (imposed by terms of our assignment or by the undersigned) affecting the analyses, opinions, and conclusions contained in this report. 4. The analysis, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Uniform Standards of Professional Appraisal Practice of the Appraisal Institute. 5. That no one other than the undersigned prepared the analyses, opinions, and conclusions concerning the subject property that are set forth in this appraisal report. Stevan N. Bach, MAI inspected the property in December 1997. 6. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 7. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions, and conclusions. 8. The Appraisal Institute conducts a program of continuing education for its members. Members who meet the minimum standards of this program are awarded periodic educational certification. As of the date of this report, Stevan N. Bach, MAI has completed the requirements under the continuing education program of the Appraisal Institute. 9. Compensation for this assignment is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. 10. That all physical and economic conditions are the same on the date of value as they were on the date of inspection. 4 11. Based on the knowledge and experience of the undersigned and the information gathered for this report, the estimated leased fee market value, "as is," of the subject property on an all cash basis, as of December 31, 1997 is $8,000,000. /s/ Stevan N. Bach ----------------------------------------------- Stevan N. Bach, MAI President and Chief Executive Officer Certified General Real Property Appraiser State of Texas TX-1323079-G 5 SALIENT FACTS AND CONCLUSIONS - -------------------------------------------------------------------------------- Identification: The Ponte Vedra Beach Village I Apartments 700 Ocean Place Ponte Vedra Beach, Florida Location: East side of State Highway A1A at Ocean Place about three miles south of the Duval/St Johns County line in Ponte Vedra Beach, Florida BRA: 97-074 Legal Description: 21.75-acre tract out of Sections 27 and 46, Township 3 South, Range 29 East, St. Johns County, Florida Land Size: 21.75 acres or 947,430 square feet Building Area: 143,508 square feet of net rentable space plus an approximate 1,500-square-foot leasing office/clubhouse Year Built: 1984 Unit Mix: 38 1BR/1BA/VILLA at 858 square feet 42 2BR/2BA/VILLA at 1,196 square feet 30 2BR/2BA/TH at 1,430 square feet 12 3BR/2BA/TH at 1,481 square feet No. of Units: 122 Average Unit Size: 1,176 square feet Occupancy: Physical: 94.3 percent Economic: 85 percent Highest and Best Use As Vacant: Apartment development As Improved: Current use (as apartments) Date of Value: December 31, 1997 "As Is" Market Value by Sales Comparison Approach: $8,000,000 "As Is" Market Value by Income Approach: $8,000,000 "As Is" Market Value Conclusion: $8,000,000 6 NATURE OF THE ASSIGNMENT - -------------------------------------------------------------------------------- PURPOSE OF THE APPRAISAL The purpose of this complete, self-contained appraisal is to give an estimate of the "as is" leased fee market value of the subject property on an all cash basis. IDENTIFICATION OF THE PROPERTY The subject of this appraisal report is the Ponte Vedra Beach Village I Apartments located at 700 Ocean Place, Ponte Vedra Beach, Florida. DATE OF THE APPRAISAL All opinions of value expressed in this report reflect physical and economic conditions prevailing as of December 31, 1997. DEFINITION OF SIGNIFICANT TERMS The Appraisal of Real Estate, Eleventh Edition, 1996, ---------------------------- sponsored by the Appraisal Institute defines Market Value as: "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) Buyer and seller are typically motivated; (2) Both parties are well informed or well advised, and acting in what they consider their own best interests; (3) A reasonable time is allowed for exposure in the open market; (4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale." Leased Fee Estate - An ownership interest held by a landlord ----------------- with the rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the leased fee are specified by contract terms contained within the lease. - ----------------------------- /1/The Dictionary of Real Estate Appraisal, Third Edition, p. 204. --------------------------------------- 7 FUNCTION OF THE APPRAISAL It is the understanding of the appraisers that the function of this appraisal is for annual partnership and/or internal purposes. PROPERTY RIGHTS APPRAISED The appraisers have appraised the "as is" leased fee interest subject to short-term leases which are typically 6 to 12 months in duration at the subject property. THREE-YEAR HISTORY No transfers of ownership to the subject were discovered during the past three years upon interviews with real estate brokers in the area and research into the grantor/grantee deed records of St. Johns County, Florida. SCOPE/BASIS OF THE APPRAISAL This appraisal has been made in accordance with accepted techniques, standards, methods, and procedures of the Appraisal Institute. The values set forth herein were estimated after application and analysis by the Sales Comparison and Income Approaches to value. These approaches are more clearly defined in the valuation section of this report. The Cost Approach was not used as a method of valuation in this appraisal. The Cost Approach is typically the least reliable indicator because cost does not necessarily reflect value. Moreover, estimates of depreciation are difficult to accurately measure in the marketplace, thereby compounding the speculative nature of the opinions derived in the cost method of valuation. The scope of our assignment included obtaining pertinent property data from the client regarding income and expense figures, tenant rent rolls, and permission to inspect the subject. Additionally, the appraisers conducted research either personally or through associates to obtain current market rental rates, construction trends, the sale of comparable improved properties, anticipated investor returns, and the supply and demand of competitive apartment projects in the general and immediate area. After these examinations were performed, an analysis was made in order to estimate the leased fee market value of the subject on an "as is" basis. 8 [JACKSONVILLE BEACH AREA MAP APPEARS HERE] CITY/NEIGHBORHOOD ANALYSIS - -------------------------------------------------------------------------------- Jacksonville is the seat of Duval County and is situated near the northeastern corner of Florida on the St. Johns River. This location is approximately 150 miles north of Orlando, 165 miles east of Tallahassee, and 15 miles west of the Atlantic Ocean. The city of Jacksonville was consolidated with Duval County in the 1960s and has since been recognized as one of the largest incorporated municipalities in the nation in terms of land area with 841 square miles. In population, Jacksonville is one of the 20 largest cities in the United States and the most populous incorporated city in Florida. In 1990 the U.S. Bureau of the Census estimated the city's population at 648,200 persons. In 1995 this estimate increased to 676,718. The Jacksonville Metropolitan Statistical Area (MSA) includes Duval, Clay, St. Johns, and Nassau Counties. The 1990 MSA population was estimated at 906,727 according to the Census bureau, which indicates that the MSA is the fifth largest MSA in Florida after Tampa-St. Petersburg-Clearwater, Miami-Hialeah, Fort Lauderdale- Hollywood-Pompano Beach, and Orlando. As of January 1, 1997 the Jacksonville MSA stood at 1,025,600 or 13.1 percent higher than the 1990 population. The following chart depicts the Jacksonville MSA population and employment growth over the past two decades.
1970 1980 1990 1994 1995 2005* ---------------------------------------------------------- Population 612,600 722,300 906,727 981,600 994,900 1,140,700 Employment 159,400 281,800 422,700 437,474 460,245 625,690
Source: U.S. Bureau of the Census, Florida Department of Labor and Employment Security *Projection Historical population growth for the Jacksonville MSA from 1980 to 1990 averaged 2.3 percent per year. The growth has decreased slightly to 1.7 percent annually from 1990 to 1995. Population increases are anticipated to continue as job growth rises and as stated above the population estimated as of January 1, 1997 was 1,025,600. The Bureau of Business & Economic Research at the University of Florida projects the Jacksonville MSA population to be between 967,000 and 1,178,000 by the year 2000. The median projection for this time period is a population of 1,063,700. The greatest population growth has recently occurred to the south and east of the St. Johns River in Duval County. Other notable growth has been observed in northeastern Clay County near Orange Park, and in northern St. Johns County particularly along the Atlantic Coast beaches. The median age of the population in the Jacksonville MSA is lower than that found in the retirement havens of southern Florida. The median age in this MSA is 34 years according to the Census Bureau. This compares to about 36 years in Miami, 39 years in Fort Lauderdale, and 40 years in Tampa. The medium age in the city of Jacksonville is slightly less (33.3 years) than for the MSA. 9 Jacksonville was originally known as Florida's industrial city due to its port, shipyards, paper mills, and food processing plants. More recently, however, Jacksonville has become known as a regional center for banking, insurance, medicine and distribution. The Research Department of the Jacksonville Chamber of Commerce reported that the six largest private sector employers in the area were: Winn- Dixie Grocery Company, AT&T, Publix Super Market, Blue Cross/Blue Shield of Florida, Barnett Banks, and CSX Transportation. Two of Florida's largest banks, Barnett Bank and First Union, are officed in Jacksonville, along with 30 insurance companies. Jacksonville is also becoming a major back-office hub, as large corporations set up customer service centers and data processing operations in the area, including Merrill Lynch & Company, AT&T Corporation, and America Online, Inc. in the past few years. In addition, the world-renowned Mayo Clinic has one of its two regional medical centers located in southeastern Jacksonville. The recent additions in these medical and service-related industries have contributed to a more diverse economy in the area, and have helped civic leaders' attempts to transform the city's image from that of an industrial town to a regional distribution, service, and financial center. The largest contributor to the Jacksonville employment market is its three naval installations which include: Cecil Field Naval Air Station, located in the southwest sector of Duval County; Jacksonville Naval Air Station, located on the west bank of the St. Johns River a few miles south of the Central Business District (CBD), and the Mayport Naval Training Center, situated at the mouth of the St. Johns River near the Atlantic Ocean. These military establishments in Jacksonville employ approximately 31,200 civilian and military personnel. More recently, Cecil Field has been placed on the government's list of possible closures due to budget cutting measures. It is due to be closed in August 1999, which should result in the loss of approximately 7,500 military and civilian jobs. Jacksonville created the Cecil Field Development Commission with the task of developing a reuse plan for Cecil Field. The commission was dissolved in May 1997 as it had completed its task and transferred duties and functions to the Jacksonville Economic Development Commission. Infrastructure improvements are being discussed and to date funding has been secured for three major projects: survey of the land for city incorporation; three- phased conversion of the water and sewer systems to the city systems; and a transportation study (completed). The Naval Air Station is increasing in size because of the consolidation of units to the Jacksonville Naval Air Station. The net result in the closure and consolidation is little change in the present number of personnel. Total civilian employment in the Jacksonville MSA as of April 1996 was 480,100 persons according to the Florida Department of Labor and Employment Security. The unemployment rate as of that date was 3.3 percent down from 3.7 percent in February 1996, or lower than the U.S. Department of Labor's 4.8 percent rate for the state of Florida as of the same date. The above is the latest information received from the Jacksonville Chamber of Commerce. 10 The breakdown of nonagricultural employment as of November 1995 in the Jacksonville area is presented below and illustrates the growing diversity of the local employment base.
NONAGRICULTURAL EMPLOYMENT NUMBER PERCENT ---------------------------------------------------------------- Manufacturing 35,500 7.4 Construction 24,200 5.0 Transportation, Communications, Utilities 32,000 6.7 Trade 117,600 24.5 Finance, Insurance, Real Estate 50,300 10.5 Services & Miscellaneous 152,900 31.8 Government 67,200 14.0 Other 400 0.1 ------- ----- Total 480,100 100.0
Source: Florida Department of Labor and Employment Security, November 1995. Note: The 480,100 estimates varies from the earlier stated estimate of 460,245. A surge of new jobs in Jacksonville earned the city a spot as the ninth fastest-growing metro labor market in 1996, according to the latest figures from the U.S. Bureau of Labor Statistics between 1993 and 1995, non-farm employment in Duval, St. Johns, Nassau and Clay Counties jumped 9.6 percent from 438,600 to 480, 800. Despite its Florida location, the tourist/convention industry has a smaller impact on the Jacksonville MSA economy than in other parts of the state. Most area beaches and recreation facilities cater to local residents. The exception would be the Amelia Island Resort located 20 miles northeast of the city on the Atlantic Ocean. Amelia Island features world-class golf and tennis and luxury resort accommodations and is designed to attract vacationers from around the country. The most recent addition to this resort was the 450-room Ritz Carlton Hotel, which opened in June of 1991. The increase in service-oriented industries in Jacksonville has resulted in a substantial increase in income for the area's residents. Per Capita income rose by an average of approximately 1.4 percent per year from 1986 to 1995.
JACKSONVILLE MSA YEAR PER CAPITA INCOME --------------------------- 1986 $14,629 1987 15,482 1988 16,490 1989 14,973 1990 15,695 1995 16,920
Source: U.S. Department of Commerce, Bureau of Economic Analysis According to a demographic profile of Duval County, the medium household effective buying income was $15,712 as of January 1, 1997. Additionally there were 278,800 households with 48 percent owner-occupied. Total Duval County population was 733,500 with projections of 787,000 by the year 2005. 11 Jacksonville is a major distribution center of durable goods for Florida and Georgia. Transportation facilities include an international airport, rail service from various railroad companies, numerous private freight distribution companies, and bus service. Jacksonville has rail facilities with multi-modal transportation capabilities. The Port of Jacksonville, which utilizes the St. Johns River from the east end of the CBD to the Atlantic Ocean, is a leading import center for foreign automobiles. This facility consists of both the Blount Island Marine Terminal (867 acres) and the Talleyrand Docks and Terminals (173 acres) and features a 38-foot-deep channel. The Jacksonville Port Authority has acquired 589 acres of property on Dames Point for its third terminal development, which is the result of demand from new ship lines. A $300,000,000 project to deepen the harbor from 38 to 42 feet has been proposed. The international airport, operated by the Jacksonville Port Authority, has undergone $100 million of improvements, which added two new terminals, twelve new gates, and extended a runway to accommodate larger planes for transcontinental flights. Two major Interstate Highways, Interstate 10 and Interstate 95, intersect near downtown Jacksonville. Interstate 10 travels west from the city to the Gulf Coast communities in the Southeastern U.S., then continues west through the Southwestern U.S. to Los Angeles. Interstate 95 runs north/south along the Eastern Seaboard of the U.S. Interstate 295 provides a bypass around the major urbanized areas of the city to the northeast, northwest, west, and south. Completion of the eastern section of Interstate 295, which would create a beltway around the city, has been proposed with limited access approach roads expected to be in place by 2000. Many of the express roads and highways in Jacksonville formerly were toll roads; however, the toll charges were removed in the mid-1980s. The unified city/county government in Jacksonville and Duval County has been a unique feature of the area since the 1960s. A singular taxing authority collects for schools and municipal services for all residents. Excepted from Jacksonville city authority are the communities of Atlantic Beach, Neptune Beach, and Jacksonville Beach, which are separate incorporated municipalities within Duval County. Twenty miles of beaches along the Atlantic Ocean provide a wealth of recreational opportunities for area residents. The wide St. Johns River south of the CBD is popular with local pleasure craft. The average annual temperature in Jacksonville is 71 degrees with annual rainfall averaging 55 inches. Residents' needs for higher education in the area are served by several local colleges and universities such as Jacksonville University, the University of North Florida, and Florida Community College. Jacksonville is the headquarters for both the Professional Golf Association and Association of Tennis Professionals tours. It is also the home of the newest member of the expanded National Football League, the Jacksonville Jaguars. The team plays in the City's Gator Bowl Stadium, which seats 82,000 after renovation. The area boasts six museums, an active arts association, and one major daily newspaper. In addition, St. Augustine in neighboring St. Johns County to the south is the oldest city in 12 North America, and features numerous historic buildings and landmarks including the Castillo de San Marcos National Monument. The diversification of the economy has affected development in the Jacksonville area over the past several years. According to Reynolds, Smith and Hills, Inc. (RS&H), a local real estate research and development company, the total inventory of office space in the area in 1990 was 12,436,000 square feet. There has been about 1,040,000 square feet of office construction since 1990. Over 5 million square feet of office space has been constructed since 1987, with half in the suburban markets. Most suburban development was intended for single-tenant usage by companies such as Barnett Bank, American Express, CSX, and Blue Cross/Blue Shield. Of these, Barnett Bank developed an 820,000-square- foot nonbanking headquarters facility in a campus-style environment near the intersection of Southside Boulevard and U.S. 1 in southeastern Jacksonville. As of August 1997, the Central Business District (CBD) consisted of 57 buildings with a total of 6,298,533 square feet and a total for Jacksonville of more than 130 buildings with over 13,000,000 square feet, the majority of which are in the Southside (Butler) area at 84 for 5,199,037 square feet. As of August 1997, office announcements indicated eight projects to contain about 876,000 square feet and provide over 3,480 jobs. Additionally seven other projects are to be announced that total over 1.6 million square feet. Companies involved in the announced projects are Atlantic Teleservices, Barnett Banks, Purdential Health Care, Chase Manhatten Corporation, Koger Equity, Gran Central Corporation, and Hallmark Partners. The office market in Jacksonville is active and reports by submarket in the August 15, 1987 issue of Commercial Real Estate indicate a tightening and strong market with new construction justified. Vacancy is now in single digits city-wide and all submarkets have lower vacancy than one year ago except for one submarket. Rents city-wide have increased $1.50 to $3.00 per square foot from 1996 levels and proposed projects are expected to obtain rents in excess of $20 per square foot. The increasing household income in Jacksonville has attracted a substantial amount of retail development in recent years. Most of this development has occurred in suburban markets on the south side and in the beach communities. In September 1990, The Avenues Mall was completed offering over 1.4 million square feet of retail space at Southside Boulevard and U.S. Highway 1. Food Lion, a North Carolina-based grocery chain, constructed 17 strip centers throughout the Jacksonville area during 1988 and 1989. Beach area redevelopment featured the opening of two regional centers known as Sandcastle Plaza and South Beach Center, and several large "power" centers were constructed near two of the regional malls in the area. As of December 31, 1996 the Jacksonville MSA showed total retail sales at $10.155 million, up 30.5 percent since year end 1991. Duval County, which encompasses Jacksonville, had retail sales of 7.644 million or an increase of 26.3 percent since 1991. Based on information from the ULI Market ---------- Profiles: 1996 -------------- 13 [NEIGHBORHOOD MAP APPEARS HERE] rents for retail space have stabilized since 1987 ranging from $30.00 to $50.00 per square foot per year for enclosed mall space. Typical rent levels for smaller centers experienced a slight increase to a range between $9.00 and $14.00 per square foot. Rental rates for older strip centers range from $4.00 to $8.00 per square foot. Retail development is projected to be stable until vacant space within the market is reasonably absorbed. Residential growth in the northern and middle St. Johns County areas, southside-Intracoastal west, and the Avenue-U.S. Highway 1- Southside Boulevard areas of the city is expected to produce retail activity in these markets. Residential, both single and multi-family remains active in development. The October 31, 1997 edition of Homefront identifies over 320 single family developments that are active today. The industrial real estate sector has not experienced the significant vacancy problems incurred by the office and retail markets. This sector is very strong in the Jacksonville area and is experiencing heavy demand for build-to-suit space from industry entering the market. New construction during 1995 totaled over 1.5 million square feet, a new record high. The major projects in the area include Sara Lee's Coach subsidiary; NatureForm, Inc.; Pilot Pen Corporation; Sally Industries; H.J. Heinz Company's Portion Pac, Inc.; Viking Office Products and a Georgia Pacific expansion. The majority of new construction is taking place in the south and west sides of Jacksonville. As established by the NAIOP report in August 1997, the south side submarket has favorably responded to the one-year supply of space, however, there remains 300,000 square feet within six buildings that has not been leased. Activity for this space has been slow. The west side market continues to grow and is said to be a strong market. The north side submarket is strong with minimal vacancy and the Port Authority is expected to spend about $100 million on airport and seaport capital improvements, which were to begin October 1997. Industrial parks of tradeport and Imeson will benefit most from the expenditures. The apartment market is discussed in the Apartment Market Analysis section that follows. NEIGHBORHOOD ANALYSIS The subject is located in the northeast area of St. Johns County approximately 18 aerial miles from the Jacksonville CBD. The neighborhood is generally described as the northernmost portion of St. Johns County, or that area lying west of the Atlantic Ocean and south and east of the St. Johns/Duval County Line immediately south of the city of Jacksonville Beach. Although unincorporated, this neighborhood is better known as the community of Ponte Vedra Beach. Florida State Highway AlA (Highway AlA) is a major thoroughfare, which runs the length of Florida's Atlantic Coast areas from Fernandina Beach at the north end to Miami Beach in the south. Through the subject neighborhood, this divided fourlaned road cuts through the neighborhood in a similar north/south fashion. Just north of the subject neighborhood boundary in Jacksonville Beach, Highway AlA intersects with J. Turner Butler Boulevard, a major roadway connecting 14 Jacksonville with its suburban beach communities. Highway AlA runs generally about 5 blocks west of the Atlantic coast in this neighborhood except at its southern end, where it merges with State Road 203/Ponte Vedra Boulevard. Ponte Vedra Boulevard continues northward from this point immediately along the oceanfront. Major crossroads between these two neighborhood roadways include Corona Road, about 1 mile south of the Duval County Line, and Solana Road, several blocks north of Corona Road. Solana Road is a two- laned street, which continues west from Highway AlA, then turning southwest, and south along the Intracoastal Waterway where its name changes to Roscoe Boulevard. Finally, Palm Valley Road, a two-laned street, branches off to the southwest from Highway AlA about 2 miles south of the county line; Palm Valley Road, also known as State Road 210, continues southwestward providing access to the neighborhood from U.S. Highway 1 and Interstate 95 at the north end of St. Johns County. Approximately half of the land within the neighborhood boundaries is east of the Intracoastal Waterway; this half is approximately 60 percent developed. The area west of this canal lies largely undeveloped and is predominantly marshland. Ponte Vedra Beach enjoys a reputation as a popular resort community and affluent suburban enclave in the Jacksonville MSA. While no official population count exists, area real estate professionals estimate the population of Ponte Vedra Beach to be over 15,000 persons. The area is popular with retirees for its proximity to beaches and for its numerous resort-style subdivisions which often include country clubs, golf courses, and tennis facilities. However, this location within approximately 30 minutes of downtown Jacksonville and even closer to large suburban office parks on the city's south side has attracted local suburban residents as well. The Mayo Clinic's regional facility at San Pablo Road and J. Turner Butler Boulevard is just 4 miles northwest of this neighborhood. The Southpoint and Southside Boulevard office centers to the west are a reasonable 15-minute commute from the neighborhood along Highway AlA and J. Turner Butler Boulevard, which eventually intersects with Interstate 95 to the west. In the retail sector, several neighborhood shopping centers are noted along either side of Highway AlA. Ponte Vedra Square is situated in this neighborhood at the southwest corner of Highway AlA and Solana Road, which Ponte Vedra Point shopping center is at the southwest corner of this highway and Palm Valley Road. Between these two neighborhood centers is a third, known as Sawgrass Village along the west side of the street. Regional shopping can be found at South Beach Regional Center, located just to the north of the neighborhood boundary at the northwest corner of Highway AlA and J. Turner Butler Boulevard in Jacksonville Beach. A planned 250,000-square-foot center was announced in late 1993 and was completed at the southwest corner of Highway AlA and J. Turner Butler Boulevard. Anchor tenants include Target, Publix, and Ace Hardware. Currently there is a zoning change requested for land adjacent to the subject Lakeview Village Apartments for a new shopping center. All of these retail developments are supported by the growth and affluence of the residential sector in Ponte Vedra Beach. The affluence of the neighborhood is illustrated by the location of six country club developments in the area over the past twelve years which feature custom homes generally priced from $150,000 to 15 over $400,000, well above the median home price in the Jacksonville MSA. The residential neighborhoods tend to become more prestigious at the southern end of Ponte Vedra Beach. This southern part of the community is the location of both the Sawgrass and Tournament Players Club (TPC) country club/golf course developments. The Professional Golf Association and the Association of Tennis Professionals both have headquarter offices in Ponte Vedra Beach at the Tournament Players Club development, and each has sponsored major professional tournaments within the community in the last several years. Office development in the Beaches area, which includes Ponte Vedra, is primarily smaller sized buildings less than 30,000 square feet in size. The August 1997 Commercial Real Estate publication surveyed 19 office buildings totaling approximately 600,000 square feet and only 2 buildings were in excess of 30,000 square feet. The current supply of immediately available office space is low. The Ponte Vedra market has more supply, but also has more demand particularly in the law, medical professionals, financial planners, and insurance professionals. Rental rates are in the $19.00 to $21.00 per square foot full service category. Demand is strong in Ponte Vedra and over 150,000 square feet is proposed along the `hot' AlA corridor south of State 202. Several multifamily condominium and apartment projects are located in Ponte Vedra Beach. Condos are typically found immediately along the ocean or with the Sawgrass or TPC developments, while apartments are located at the north end of the neighborhood and along Highway AlA. According to the Jacksonville Planning Department, which publishes a quarterly apartment survey for the region, the Beach area submarket in which Ponte Vedra Beach is located has among the highest monthly average apartment rental rate of the six submarkets in the Jacksonville MSA. Physical occupancy rates in each of the existing apartment communities surveyed were over 90 percent. At subject valuation date, there were several apartment projects being constructed in or near Ponte Vedra. Apartment development was occurring west of AlA and south of J. Turner Butler Boulevard (State 202) and along Hodges Road north of J. Turner Butler Boulevard. The apartment construction in or near Ponte Vedra is more specifically identified as west of the subject apartment complex near the Landing Parkway/Ponte Vedra Lakes Boulevard intersection. Despite the growth in the area, which has generally occurred over the past twelve years, about one-third of the land in the neighborhood lies vacant and ready for development. To the south and west of this neighborhood are typically vacant areas, which contain marshes or land within the Guana River State Park; to the north is the older city of Jacksonville Beach, and to the east is the Atlantic Ocean. The St. Johns District provides bus service to children in the neighborhood attending public schools; Ponte Vedra Beach has its own elementary school at Highway AlA and Corona Road. The University of North Florida is located about 6 miles northwest of this neighborhood at J. Turner Butler Boulevard and St. Johns Bluff Road. Police and fire protection is provided by the county. 16 The neighborhood's access to supporting facilities, Atlantic beaches, along with the location of prestigious golf club communities within Ponte Vedra Beach have made the neighborhood one of the most attractive areas in Jacksonville. Physical occupancy rates in many multifamily developments in this area are above 90 percent. As the result of an improving local economy, there has been new development in retail and multifamily housing. As the economy continues to recover, the appraiser anticipates that the demand for residential units and retail space will become greater, and that space in the subject neighborhood will actively participate in this increased absorption due to all of the neighborhood's positive features stated above. However, as the neighborhood becomes more built-out, it will likely experience a period of stability as it matures in the long-term compared to the period of rapid development this neighborhood enjoyed throughout most of the 1980s. CONCLUSION Jacksonville, with a January 1997 U.S. Census Bureau population of 1,025,600 in its MSA, was known in the past as a military and industrial port city at the northeastern end of Florida. However, the employment base has grown and diversified over the past two decades as major banks, insurance companies and medical service industries have opened regional or headquarter offices in the area. This activity has increased the income of area residents and spurred significant job growth through much of the 1980s. Although Jacksonville is not noted as a major tourist center compared to southern areas of Florida, the area has attractive beaches and a redeveloped downtown riverfront area to serve the local population. The diversification of the employment base ignited office development both downtown and in the south side suburbs during the past ten years. Numerous large retail centers have been built in recent years to support the growing Jacksonville area population and income. Major private employers include Barnett Bank, Blue Cross/Blue Shield of Florida, and CSX Transportation. Nonetheless, the city's naval presence, with over 30,000 personnel, still dominates employment in the area. While new industries and employers such as America Online and AT&T have continued to enter the local employment market with new back-office operation centers, the appraisers anticipate less office development as the focus in the marketplace switches to absorption and renovation of existing vacant space. Bright spots in the Jacksonville real estate market include improving occupancy rates in the apartment market and a relatively low industrial space vacancy rate compared to other industrial markets nationwide. The city of Jacksonville appears to be enjoying a favorable economic climate. Construction permits and absorption of space in some sectors such as single-family residential have increased, while unemployment figures remain low. Although the closing of the Cecil Field Naval Air Station is not favorable, many of the lost jobs could potentially be offset by additions to the area's other two Naval bases and to the reuse plan of Cecil Field. The city's diversifying economic base, good supporting facilities, Florida sunbelt location, and good quality of life should support growth and absorption in all sectors. 17 The Ponte Vedra area is in demand and development activity is present in the apartment, retail, and office areas. This is in the Beaches area and reflects tourism, a retirement population, etc. with a growing need/demand for medical, financial, insurance, and law professionals. It is expected that demand for apartments will continue into the near future. 18 [MARKET AREA MAP APPEARS HERE] APARTMENT MARKET ANALYSIS - -------------------------------------------------------------------------------- Information from two surveys was utilized in the analysis of the Jacksonville apartment market analysis. The first is the Apartment Market Survey for Greater Jacksonville, Florida, Second Quarter, 1996 prepared by the Jacksonville Planning and Development Department and the Northeast Florida Apartment Council. The second is the Jacksonville Apartment Market Survey, Third Quarter 1997, published by Vestcor Realty Management, Inc. Most references are made to the survey prepared by the Vestcor Realty Management, Inc. AS THE FIRST SURVEY WAS NOT MADE IN 1997 BY THE PLANNING DEPARTMENT AND NORTHEAST FLORIDA APARTMENT COUNCIL. Construction of apartment projects in Jacksonville during the late 1980s continued but at lower levels each year from 1985 through 1989. The credit restrictions by lenders and their regulators following the savings and loan scandals in the mid- 1980s contributed to make construction funds scarce for apartment developers nationwide. The chart below illustrates the units constructed per year in Jacksonville since 1985.
YEAR TOTAL UNITS PERMITTED ----------------------------- 1985 5,079 1986 4,521 1987 2,656 1988 1,949 1989 1,407 1990 1,707 1991 1,170 1992 0 1993 278 1994 912 1995 1,073 1996 3,284 1997 978
Source: Jacksonville Planning and Development Department and Vestcor Realty Management, Inc. In 1996 3,284 units were permitted for five or more dwelling units. In 1997 there were 978 units permitted. The outlook for future development of apartment projects in the Jacksonville area appears to be good as occupancies are in the 90 percent to 95 percent range and the economy remains healthy. Construction was visible to the appraiser in the south part of Jacksonville. According to the Jacksonville Planning Department, the current number of apartment units existing in the metropolitan area is approximately 54,000. The Planning Department conducts a survey of the city and area apartment market. This survey is done by mail to the owners and/or managers of apartment complexes in Duval County as well as in northern Clay and St. Johns Counties, and the results of the survey are published every quarter year in the department's Apartment Market Survey. The Second Quarter of ----------------------- this survey, which is stated to 19 reflect the area apartment market as of the end of June 1996, is the most recent available; this survey is compiled based on the responses of owners and/or managers of 27 percent of the total existing apartment units in the area. Of the 27 percent or 14,575 units, there was a physical occupancy rate of 95.58 percent with one bedroom apartments with the highest rate at 96.23 percent and efficiencies with the lowest average occupancy rate this quarter at 92.25 percent. The physical occupancy rates and average monthly rents as of the Second Quarter 1996 are generally higher among those properties, which were built since 1990. The Third Quarter 1997 market survey by Vestcor Realty Management, Inc. reflects the following statistics for average occupancy.
3/RD/ QTR 3/RD/ QTR CHANGE CATEGORY 1997 1996 IN 1 YEAR ------------------------------------------------------ All units 92.8% 92.2% 0.6% Built before 1979 92.1% 89.2% 2.9% Built 1980--1989 94.0% 95.6% (1.6%) Built 1990--1997 90.1% 92.2% (2.1%)
The survey indicates a slight increase in occupancy for all units from one year ago with pre-1979 constructed units receiving the positive occupancy while post 1980 and post 1990 construction showed 1.6 to 2.1 percent decreases in occupancy. The major reason for the decrease appears to be home-buying alternatives. The Vestcor apartment market survey includes every apartment community with more than 100 units. They compared the information received from on-site personnel to their electric meter analysis. Properties undergoing renovation or in lease-up were removed from the database. If occupancy data on properties was not consistent with the electric meter analysis, these properties were also removed. The result was a review of 186 apartment complexes containing 41,572 units or nearly 70 to 75 percent of the units in the Jacksonville area by a 1996 count. Average monthly rental rates per unit were obtained by Vestcor and are delineated below by year of construction.
3/RD/ QTR 3/RD/ QTR CHANGE CATEGORY 1997 1996 IN 1 YEAR --------------------------------------------------------- All units $ 568 $ 565 +3--0.5% Built before 1979 $ 509 $ 504 +5--1.0% Built 1980--1989 $ 605 $ 596 +9--1.5% Built 1990-- 1997t $ 809 $ 791 +18--2.3%
The Vestcor survey for the First Quarter 1996 reported an average monthly rental rate per unit for the Jacksonville area of $540. This compared to $565 per unit during the Third Quarter 1996 indicates an increase in rental rates during the 6 months from the Vestcor survey is 4.6 percent. The survey indicates a slight monthly rental rate increase for all apartment units surveyed, but increases of 1 percent to 2.3 percent for various construction dated classified units. It is important to note that the increases in categories by year 20 built tend to counter the findings of rental increases for all units and indicate that the increase for all units should be between 1 percent to 2.3 percent or on average about 1.65 percent. Secondly, the 2nd Quarter 1997 average monthly rental for all units was $574, which would indicate a $6.00 reduction to the 3rd Quarter 1997 average monthly rent of $568. Overall, the Jacksonville apartment market appears to be healthy. Construction permits recorded for 1992 and 1993 were at their lowest levels in years, or from a high of 5,079 units in 1985 to 0 units permitted for 1992 and 278 in 1993. For 1994 and 1995, there were 912 and 1,073 units permitted, respectively. In 1996, there were 3,284 units permitted, while in 1997 there were 978 units permitted. Physical occupancy as of the Third Quarter 1997 was at 92.8 percent, which is a drop from 1996, but reflects the new construction. Absorption rates in new apartment projects have remained healthy over the past two years. Vacancies of the various apartment markets range from 3 to 7 percent. The appraisers project that the citywide market should reach a stabilized occupancy of 95 percent between one and two years at this rate of growth. SUBMARKET ANALYSIS The subject property is located in the Beaches submarket. This submarket is generally described as the northeastern area of St. Johns County along the Atlantic Ocean at Ponte Vedra Beach and including the Duval County beachfront municipalities of Atlantic Beach, Neptune Beach, and Jacksonville Beach. Vestcor Realty Management, Inc.'s Third Quarter 1997 survey features data on the apartment market within the city of Jacksonville as well as the area within the subject submarket and other immediate suburbs. This Third Quarter 1997 report, which is the most recent published to date, states that the Beaches submarket had a 94.0 percent physical occupancy rate, slightly higher than the average occupancy rate of 92.8 percent of the eight submarkets surveyed. This is a large increase from the 81.4 percent physical occupancy rate experienced in this submarket during the previous quarter and an increase from 93.6 percent in the Third Quarter 1996. Reference is made to the following table: 21
PHYSICAL OCCUPANCY QUARTER/YEAR RATE BEACHES SUBMARKET --------------------------------------- 01/92 93.63% 02/92 86.74% 03/92 88.13% 04/92 92.82% 01/93 94.43% 02/93 96.88% 03/93 91.95% 04/93 91.43% 01/94 92.57% 02/94 94.16% 03/94 95.34% 04/94 91.70% 01/95 98.46% 02/95 91.81% 03/95 95.38% 04/95 95.73% 01/96 94.89% 02/96 93.19% 03/96 93.60% 02/97 81.40% 03/97 94.30%
Source: Vestcor Apartment Market Survey for Greater Jacksonville, Florida, Third Quarter 1997 The Beaches area apartments tend to attract more transient tenants than the city of Jacksonville as a whole. This can be noted in the wide occupancy rate changes from the above table. Beaches area tenants are usually most attracted to the area during the summer months. In addition, the pool of prospective tenants in this submarket fluctuates with the personnel movements at the nearby Mayport Naval Air Station and with the attraction of the retirement populace. The average monthly rental rate in the Beaches submarket, at $606 as of the Second Quarter 1996, was among the highest of all the submarkets in the area. In the Second Quarter of 1997 the average monthly rental increased about 13 percent to $687 and then decreased 1 percent to $680 in Third Quarter 1997. It is believed that some of the changes in rental rates and occupancy is affected by new construction of multi-family, condo, and single family development in the Beaches and adjacent areas. The following table illustrates the trend in rental rates for the subject market according to the surveys by the Jacksonville Planning and Development Department and Vestcor. 22
AVERAGE MONTHLY RENTAL QUARTER/YEAR RATE BEACHES SUBMARKET -------------------------------------------- 01/92 $470 02/92 563 03/92 577 04/92 510 01/93 500 02/93 582 03/93 496 04/93 570 01/94 598 02/94 571 03/94 551 04/94 560 01/95 546 02/95 523 03/95 662 04/95 644 01/96 689 02/96 606 03/96 674 02/97 687 03/97 680
Source: Vestcor Apartment Market Survey for Greater Jacksonville, Florida, Third Quarter 1997 Information regarding the number of new apartment projects, proposed or under construction, was not made available in the Third Quarter survey because the Beaches submarket is located in St. Johns County and construction permits are recorded in that county, not Duval County. There are projects located near US Highway A1A being built in the Ponte Vedra area and Beaches submarket. There are additional projects being built along Hodges Road north of J. Turner Butler Boulevard (State 202) which will contribute competition to the Ponte Vedra apartment communities. The subject's submarket has exhibited a stabilized occupancy of between 90 and 95 percent (with one exception) according to one local apartment survey. The subject property has a current economic occupancy of 84 percent and is considered to be able to reach occupancy stabilization within three years.. Although the Beaches submarket has been an active market in the past, the future expected development of additional apartment units may cause problems for absorption of the existing vacant units unless demand can remain commensurate with construction. Additionally, there is some concern from the effect of the proposed shopping center adjacent to Lakeview Village on rental rates and/or occupancy. 23 [SITE PLAN APPEARS HERE] SITE ANALYSIS - -------------------------------------------------------------------------------- LOCATION The subject site is located along the east side of Highway A1A at a private street known as Ocean Place about 3 miles south of the Duval/St. Johns county line. This location is in the northeastern area of St. Johns County in the community of Ponte Vedra Beach about 18 aerial miles southeast of the Jacksonville CBD. The site is improved with the Ponte Vedra Beach Village I Apartments that have a street address of 700 Ocean Place, Ponte Vedra Beach, Florida. SIZE AND SHAPE A survey of the subject site was provided to the appraisers by the on-site property manager of the apartments. This survey indicates that the site comprises 21.75 acres and has an irregular, L-shaped configuration. The property has about 660 feet of frontage along the east line of Highway A1A and includes the area designated for Ocean Place, a private road running east/west through the site along its southern boundary to an abutting parcel to the south (Ponte Vedra II). ACCESS AND VISIBILITY The property is easily visible from Highway A1A due to its significant frontage on this roadway. Access into the site is provided by Ocean Place, a private roadway 60 feet wide running east across the site from Highway A1A at the west end of the site to the abutting parcel to the east. Highway A1A is a four-laned divided roadway and is the main thoroughfare in Ponte Vedra Beach. Most of the major shopping centers in the area are located on this highway, which is the main arterial providing access to other parts of the Jacksonville area. LEGAL DESCRIPTION A full legal description is contained in the Addenda of this report. The subject site is generally described as being a 21.75-acre tract out of Sections 27 and 46, Township 3 South, Range 29 East, St. Johns County, Florida. ZONING The site is zoned RG1 by St. Johns County which allows for higher density residential uses such as apartments or condominiums. Front and back setbacks are a minimum of 20 feet, with side setbacks at 10 feet. The maximum building height allowed by this zoning designation is 35 feet, with the minimum lot width at 100 feet. The minimum area coverage allowed is 6,000 square feet with an additional 4,350 square feet for each unit over two on the property. The coverage area is credited only to developable land; 40 percent of the undevelopable land on a parcel can also be made available for credit under the zoning regulations. The subject site and improvements appear to conform to these regulations. UTILITIES All utilities are available to the site. Jacksonville Suburban Utilities provides water and sewer service to the site; the Jacksonville Electric Authority supplies electric service. Telephone hookups are in place from Southern Bell, along with cable television lines from Continental Cable. TERRAIN AND DRAINAGE The subject site is generally level to street grade with minor landscaped beams within the site. The site contains four retention lakes and drainage appears to be adequate. A soil survey was not available on the subject site. While the soil appears generally supportive of a wide variety of improvements, the appraiser is not an expert in soil content and was unable to certify this assumption. According 24 to the National Flood Insurance Map 125147-0183D dated September 18, 1985, the site is in Zone C, or "areas of minimal flooding." Numerous native trees are located on the site; however, no significant obstacles to development of the site (such as rock outcroppings, etc.) were evident. Numerous native trees are located on the site; however, no significant obstacles to development of the site (such as rock outcroppings, etc.) were evident. EASEMENTS AND ENCUMBRANCES The survey indicates the location of several utility and right-of-way easements on the site, particularly on the periphery. Most of these easements appear to be minor and of no value consequence to the subject site. However, a 60-foot ingress and egress and utility right-of-way easement runs through the property along Ocean Place. This street is a private paved road on the subject site. The easement allows for ingress and egress to Highway A1A from the subject site and to streets in a single-family subdivision, which abuts the subject site to the east. The easement is stated to be recorded in the St. Johns County Recording Office in ORV 406, page 14 and ORV 568, page 250. The presence of this easement does not appear to have any significant adverse effect on the subject site or its marketability. REAL ESTATE TAXES The subject site and improvements have the following values assessed by the St. Johns County Property Appraiser's Office: Improvements Value.............................. $4,325,060 Land Value...................................... $1,087,500 Total Value..................................... $5,412,560 Total Taxes..................................... $ 99,196 Tax Rate per $1000 Valuation.................... $ 18.3270
The breakdown for the tax rate for the subject taxing district for 1996 is compared to the 1994 and 1995 tax rate:
1995 1996 1997 ------------------------------ General County $ 6.3120 $ 6.0930 $ 6.0930 School-State Law 10.4060 10.0760 10.0760 St. Johns River Water Mgmt. Dist. 0.4820 0.4820 0.4820 Fire District 0.5000 0.7500 0.7500 Mosquito Control 0.3210 0.3140 0.2960 Airport 0.1380 0.1380 0.2800 Florida Island Navigation Dist. 0.0400 0.0380 0.0500 Jail 0.3500 0.2750 0.3000 -------- -------- -------- $18.5490 $18.1660 $18.3270
The assessor's parcel number for the subject site is 061510- 0010. The subject, assessed for $37.72 per square foot or $44,365 per unit, has a higher assessed value than the comparables. The subject's assessed value is lower than the value estimated for the subject in this report. 25 The real estate property taxes for the subject are calculated at $99,196 based on the mileage rate and assessed value and a payment date of March 1997. However, a discount from the tax expense is allowed if paid in the four months prior to March. If paid in November 1997, the taxes for the subject are discounted 4 percent. For purposes of this appraisal, we have assumed an on-time payment of taxes. Therefore, the 1997 property taxes will be paid in 1998. The real estate taxes in the Income Approach section of this report reflect an approximate 4 percent increase (inflation factor) over the 1997 property taxes. Real estate taxes for the subject in 1998 have been estimated at $103,163. SITE CONCLUSION The subject property is located along the east line of Highway A1A in the northeastern area of St. Johns County, Florida, about 3 miles south of the Duval county line. This location is about 18 aerial miles southeast of downtown Jacksonville. The parcel contains 21.75 acres with level terrain. Drainage and soil conditions appear to be adequate and supportive of a variety of improvements. All utilities are available. The site is in the Zone C area of minimal flooding. A survey of the site indicates a 60-foot-wide ingress and egress easement along Ocean Place, a private road known as Ocean Place running east/west through the subject site from Highway A1A and along its southern boundary with the abutting parcel to the immediate south and southwest. While this easement provides access for the abutting east and southwest property owners onto Ocean Place to reach Highway A1A, the influence of this traffic was not considered significantly detrimental to the value or marketability of the subject site. No other adverse easements or encroachments were noted. Direct access and visibility is provided from Highway A1A, a major thoroughfare running along 710.48 feet of the west boundary of the subject site. The property is zoned by the county for high-density residential uses including condominium and/or apartment development, and appears to be physically suitable for such improvements. The apartment market in Ponte Vedra Beach is considered strong and the subject site's location along the east side of A1A is considered excellent for multi-family development. 26 IMPROVEMENTS - -------------------------------------------------------------------------------- The subject site, a 21.75-acre tract of land, is improved with a one- and two-story apartment project known as the Ponte Vedra Beach Village I Apartments. The improvements consist of 122 apartment units contained in 22 buildings constructed in 1984. Also situated on the site is a leasing office/clubhouse with a kitchen and laundry facility, sauna, exterior mail post, deck, swimming pool and jacuzzi surrounded by an iron fence, lighted and fenced tennis court, gazebo, four lakes and a mechanical shed. There are four basic floor plans for the 122 apartment units. The basic features of these floor plans are as follows:
NO. OF UNITS UNIT TYPE SIZE (SF) TOTAL NRA --------------------------------------------- 38 1BR/1BA/VILLA 858 32,604 42 2BR/2BA/VILLA 1,196 50,232 30 2BR/2BA/TH 1,430 42,900 12 3BR/2BA/TH 1,481 17,772 --- ----- ------- 122 1,176 143,508
TH = townhouse (two levels) As seen in the figures above, the total net rentable area of 143,508 in 122 apartment units results in an average of 1,176 square feet per unit. There are a total of 38 one- bedroom units, 72 two-bedroom units, and 12 three-bedroom units. The land area is 21.75 acres equating to a density of 5.61 units per acre. The parking consists of 278 asphalt-paved open spaces, or 2.28 spaces per unit. The parking ratio is within industry and local market standards. The foundation of the buildings is of concrete slab with wood-studded framing. The exterior walls are of stucco with wood frame trim work, and the roof is pitched with a tile covering. Windows are of single-hung aluminum thermal pane construction, with six panel exterior doors. Porches by each exterior door have an exterior light. The interior finish of each unit has painted gypsum board walls and ceilings. Some ceilings feature vaulted or boxed ceiling treatments, while a few walls are accented with decorative wallpaper. Floors have carpeting over pad, with tile floors in the kitchen and bathrooms. Batt insulation is located in the walls and ceilings. The kitchen is equipped with wood and fiberboard cabinetry covered with formica countertops and a double stainless steel sink. Appliances are made by General Electric, and include a range/oven, vent/hood, microwave oven, dishwasher, disposal, and refrigerator with ice maker. Each unit has an electric water heater with a 40-gallon capacity. The kitchen equipment appears to be in good condition. Carpet and tile floors are found in the bathrooms, with additional tile around the tub enclosure. The toilet, bathtub and sink are porcelain, and a formica countertop covers a small vanity. Each bathroom also has a wall mirror and an exhaust fan. 27 Each apartment unit in this project typically has a fireplace, wet bar, ceiling fans, wet bars, washer and dryer closet with connections, miniblinds, an exterior screened-in patio and courtyard. Interior doors are hollow-core wood with some folding closet doors. Each unit is equipped with a fire extinguisher per local fire codes. The mechanical components include standard PVC plumbing pipes with stainless steel fixtures. The units are equipped with electric central heating and air-conditioning which is individually metered. The interior wiring is copper, with 125 amps designated per unit and ample electrical outlets. Each apartment is wired for telephone and cable television. Other than the major site amenities stated above, the grounds feature asphalt-paved parking pads and access roadways, concrete sidewalks, a bridge with brick pavers, and pole-mounted exterior light fixtures. The landscaping features numerous native trees as well as decorative planted shrubbery and lawns. The subject improvements, upon inspection, appear to be in average to good overall condition. The subject property underwent renovation in 1994, which included repairing the porch areas by replacing wood with aluminum. Also, there were many capital expenditures made in 1997. According to the management of the subject, ConAm Management Corporation, the following capital expenditures have been included in the 1998 budget: Asphalt/Seal/Repair....................... $ 20,000 Electrical Breaker Boxes.................. 48,400 Chimney Caps.............................. 25,000 Traffic Control Front Gating.............. 25,000 TOTAL..................................... $118,400
Considering the overall average to good condition of the improvements, we estimate the effective age of the subject property to be equal to the actual age of twelve years. 28 [FLOOR PLAN APPEARS HERE] [FLOOR PLAN APPEARS HERE] SUBJECT PHOTOGRAPHS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] View of clubhouse/leasing office used mutually for Ponte Vedra I and II [PICTURE APPEARS HERE] Interior view of living room in clubhouse. [PICTURE APPEARS HERE] Interior view of exercise room in clubhouse. [PICTURE APPEARS HERE] View of swimming pool at clubhouse. [PICTURE APPEARS HERE] Exterior view of Ponte Vedra I units. [PICTURE APPEARS HERE] Exterior view of Ponte Vedra I property. HIGHEST AND BEST USE - -------------------------------------------------------------------------------- The highest and best use of a property must be determined because market value depends upon the property's most profitable use. The Appraisal of Real Estate, Eleventh ---------------------------- Edition, defines highest and best use as: "The reasonably probable and legal use of vacant land or improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value." There are two distinct types of highest and best use. The first type is the highest and best use of the land as if vacant. The second type is the highest and best use of a parcel as improved. This pertains to the use that should be made of the property as it exists. In determining the highest and best use of a site, four items must be considered: possible physical limitations of the site, possible legal or permissible uses, and what uses are financially feasible, and produce the maximum return on the site. A careful neighborhood and site analysis is essential in estimating the highest and best use of the site as if vacant. The following is our analysis of the highest and best use as it pertains to the subject property and according to the four essential tests. SUBJECT PROPERTY AS IF VACANT LEGALLY PERMISSIBLE - Within the scope of a legal analysis, the subject site would be adaptable to multifamily residential uses as limited by its current zoning of RG-1 by St. Johns County. This zoning designation for the site is intended to restrict and promote the development of the subject to multifamily residential uses. PHYSICAL POSSIBILITY - Many physical characteristics of a site can affect the use to which it can be put. These characteristics can include size, shape, location, road frontage, topography, easements, utility availability, flood plain, and surrounding patterns. The subject site is generally trapezoidal in shape and encompasses a total of 21.75 acres, allowing for full physical utilization of the site. The site has over 710 feet of frontage along the east side of State Highway AlA. The topography of the site is generally level and drainage appears to be adequate. The site is located in Flood Zone "C" which is defined in the previous Site section of this report. The subject's location is on the east side of State Highway AlA at its intersection with a private road known as Ocean Place about 3 miles south of the Duval/St. Johns county line. State Highway AlA is a four-laned divided roadway and is the major thoroughfare in Ponte Vedra Beach. Property uses along this highway in Ponte Vedra Beach predominantly consists of single and multi-family residential 29 uses with supporting retail. The subject has adequate utility capacity, enjoys a relatively good functional size and shape, and is not affected by any adverse easements or restrictions as noted upon inspection. After considering all of the physical characteristics of the site noted above plus other data in the Site section of this appraisal report, physically possible land uses would include a variety of residential development such as apartments, condominiums, cooperatives or townhouses, but are directed to apartment development. The site is 21.75 acres, has 600 feet of AlA frontage, a depth of almost 900 feet, and is flag or L-shaped extending behind or east of the Ponte Vedra Beach Village II site. The site could not reasonably accommodate retail usage only and is too large for the current office development in demand (smaller-sized, in the 15,000 to 30,000 square feet category). FINANCIAL FEASIBILITY - Financial feasibility is directly proportional to the amount of net income that could be derived from the subject. Rents have increased over the previous 12 months and the apartment market overall appears to be favorable. Area realtors report that near-term prospects for condominium and cooperative units in Jacksonville are becoming favorable particularly if they are beach oriented. After having eliminated all other development from our analysis, the financial feasibility of multifamily development must be tested. The subject site is in the "Beaches" apartment submarket area. In the survey conducted by Vestcor Realty Management, Inc., the occupancy level for the apartment projects in the Beaches submarket was 94.3 percent during the third quarter of 1997. This reflects a 2.7 percent decrease from one year earlier During the same one-year period between the Third Quarters 1996 and 1997, rental rates have increased 1.0 percent from $674 to $680 per month. Apartment development has been taking place in the Beaches submarket. From the preceding, apartment development may be feasible. Although occupancy rates have increased slightly during the past year, occupancies have remained at high levels. Rental rates have risen moderately according to the most recent of the two apartment surveys. The following reflects apartment development costs on a square foot basis. Cost to Construct (Class C Average to Good)......... $50.00 Land Acquisitions................................... 4.00 ---- Total Cost of Development........................... $54.00 The preceding indicates that development is feasible for multifamily residential development. As indicated in the Sales Comparison Approach in this report, apartments developed since 1995 reflect sale prices from $60.00 to $75.00 per square foot. Most of the sale prices are at or above the cost of development. 30 MAXIMUM PRODUCTIVITY - After considering the current economic climate and the subject's location and financial feasibility of certain land uses, we are of the opinion that the demand for multifamily apartment units conducive to the subject site would produce the highest net return over the longest period of time. This is due to the subject's location and the popularity of the neighborhood. In summary, the multifamily apartment market has shown signs of increasing health. The site's location near Jacksonville area beaches in the exclusive Ponte Vedra residential and resort communities, and within easy commuting distance to major south side employment facilities, gives it a large base of prospective rent-paying tenants from which to draw. The subject is in an area that is relatively stable after a decade of growth and is now experiencing a renewed demand. Therefore, after considering the alternatives, we believe the highest and best use of the site, as vacant, is for multifamily residential development. SUBJECT PROPERTY AS IMPROVED The property, as improved, is tested for two reasons. First, to identify the improvements that are expected to produce the highest overall return per invested dollar, and the second reason is to help identify comparable properties. The four tests or elements are also applied in this analysis to the subject as follows: LEGALLY PERMISSIBLE - Within the scope of a legal analysis the subject property would be adaptable to multifamily residential uses as limited by the zoning of the site by St. Johns County. PHYSICAL POSSIBILITY - Based on the subject's size (21.75 acres), configuration, and the improvements' positioning relative to the subject site, it is felt that the subject's improvements employ the maximum use and potential of the site as developed. The subject's density of 5.61 units per acre is generally below the market sales, which typically reflect a range in density from 10 to 15, units per acre. Thus, the subject by current standards is under-improved. Zoning regulations should be checked to see if the site can increase its unit density in the future or if it is restricted to its current density status. FINANCIAL FEASIBILITY - The discussion of the financial feasibility of the subject, as if vacant, would also apply to the test as improved. Based on the economic conditions for alternative market segments, it was concluded that the subject's present improvements are satisfactory to fulfill this test. MAXIMUM PRODUCTIVITY - The test for this element is also from the market. The comparables analyzed suggest that under competent and prudent management, the subject produces an adequate return on market value to substantiate its existence. In conclusion, based on the subject's current use, we have determined that as a multifamily apartment complex it positively contributes to the value of the site, and as a result is presently developed according to its highest and best use. There may exist a possibility (after check of zoning regulations) that the property could develop more units. The subject's unit amenities are considered average compared 31 to newer projects in the area. Some of the comparables have better unit amenities. Therefore, the subject's improvements are not considered to be the optimum use. Additionally, there is need for $118,400 of deferred maintenance or capital expenditures. 32 APPRAISAL PROCEDURES - -------------------------------------------------------------------------------- Traditionally, three valuation approaches or techniques are used in the appraisal of real estate. These are the Cost Approach, Sales Comparison Approach, and Income Approach. COST APPROACH In the Cost Approach, the appraisers obtain an estimate of value by adding to the land value the estimated value of the physical improvements. This value is derived by estimating the replacement cost new of the improvements and, when appropriate, deducting the reduction in value caused by accrued depreciation. According to the Appraisal Institute, the basic principle of the Cost Approach is that buyers judge the value of an existing structure by comparing it to the value of a newly constructed building with optimal functional utility, assuming no undue cost due to delay. Thus, the appraiser must estimate the difference in value between the subject property and a newly constructed building with optimal utility. The Cost Approach was not used as a method of valuation in this appraisal. The Cost Approach is typically the least reliable indicator because cost does not necessarily reflect value. Moreover, estimates of depreciation are difficult to accurately measure in the marketplace, thereby compounding the speculative nature of the opinions derived in the cost method of valuation. SALES COMPARISON APPROACH This approach produces an estimate of value by comparing the subject property to sales and/or listings of similar properties in the immediate area or competing areas. The principle of substitution is employed and basically states when a property is replaceable in the market, its value can be set by the cost of acquiring an equally desirable and comparable property. This technique is viewed as the value established by informed buyers and sellers in the market. INCOME APPROACH The measure of value in this approach is capitalization of the net income, which the subject property will produce during the remaining economic life of the improvements. This process consists of two techniques. The first technique estimates the gross income, vacancy, expenses, and other appropriate charges. The resulting net income or net cash flow is then capitalized. The second technique projects the gross income, vacancy, expenses, other appropriate charges, net income, and cash flow over a projected holding period. The resulting cash flow and reversion (future value) are discounted at an appropriate rate and added in order to arrive at an indication of current value from the standpoint of an investment. These methods provide an indication of the present worth of anticipated future benefits (net income or cash flow) to be derived from ownership of the property. Both techniques were utilized in analyzing the subject property. SUMMARY The appraiser, in applying the tools of analysis to the valuation problem, seek to simulate the thought process of the most probable decision-maker. The appraiser's judgment concerns the applicability of alternative tools of analysis to the facts of the problem, the data and information needed to apply these tools, and the selection of the analytical approach and data most responsive to the problem in question. 33 Thus, depending on the type of property appraised or the purpose of the appraisal, one approach may carry more weight or may point to a more reliable indication of the value of the property being appraised than the others. In some instances, because of the inadequacy or unavailability of data, one or two of the approaches may be given little weight in the final value estimate. 34 [IMPROVED SALES MAP APPEARS HERE]
- ----------------------------------------------------------------------------------------------------------------------------------- Jacksonville Area Improved Sales Summary - ------------------------------------------------------------------------------------------------------------------------------------ CASH EQUIVALENT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ SALE NO. NAME/LOCATION SALE CASH/EQUIV. YEAR NO. OF NRA OCCUP. NOI/SF PER PER OVEALL DATE SALE PRICE BUILT UNITS AVG./SF AT SALE /UNIT SF /UNIT RATE - ------------------------------------------------------------------------------------------------------------------------------------ 1 The Links @ Windsor Parke 08/97 $20,500,000 1995 280 296,616 95% $5.92 $69.11 $73,214 8.56% 13700 Sutton Park Dr. North 1,059 Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------ 2 San Pablo 06/97 $ 5,350,000 1974 200 184,750 90% $3.16 $28.96 $26,750 10.90% 14401 Jose Vedra Blvd. 924 Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------ 3 Oaks of Deerwood 05/97 $15,200,000 1987 336 294,888 92% $4.00 $51.54 $45,238 7.76% 10100 Baymeadows Road 878 Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------ 4 Woodhollow 04/97 $16,700,000 1986 450 342,162 94% $4.69 $48.79 $37,111 9.60% 1715 Hodges Blvd. 760 Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------ 5 The Courts @ Ponte Vedra 01/97 $19,000,000 1996 253 252,162 95% $6.26 $75.12 $75,099 8.34% 101 Vera Cruz Drive 1,000 Ponte Vedra, FL - ------------------------------------------------------------------------------------------------------------------------------------ 6 The Huntington @ Hidden 08/96 $ 7,225,000 1986 224 179,476 98% $3.85 $40.26 $32,254 9.56% Mills 801 3333 Monument Road Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------ 7 The Antlers 05/96 $15,000,000 1985 400 327,728 97% $4.65 $45.77 $37,500 10.20% 8433 Southside Blvd. 819 Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------ 8 Westland Park 05/96 $16,950,000 1989 405 403,010 97% $4.26 $42.06 $44,852 10.10% 6710 Collins Road 995 Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Jacksonville Area Improved Sales Summary - ------------------------------------------------------------------------------------------------------------------------------------ CASH EQUIVALENT VALUE - ------------------------------------------------------------------------------------------------------------------------------------ SALE NO. NAME/LOCATION EGIM - ------------------------------------------------------------------------------------------------------------------------------------ 1 The Links @ Windsor Parke 7.80 13700 Sutton Park Dr. North Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------ 2 San Pablo 4.56 14401 Jose Vedra Blvd. Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------ 3 Oaks of Deerwood 6.74 10100 Baymeadows Road Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------ 4 Woodhollow 5.47 1715 Hodges Blvd. Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------ 5 The Courts @ Ponte Vedra 7.31 101 Vera Cruz Drive Ponte Vedra, FL - ------------------------------------------------------------------------------------------------------------------------------------ 6 The Huntington @ Hidden 5.48 Mills 3333 Monument Road Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------ 7 The Antlers 5.63 8433 Southside Blvd. Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------ 8 Westland Park 6.01 6710 Collins Road Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------
SALES COMPARISON APPROACH - -------------------------------------------------------------------------------- The Sales Comparison Approach is considered a good valuation method in the event that a sufficient number of similar and recent transactions can be found and accurately verified. The key to the Sales Comparison Approach is that a sufficient number of comparable sales be present to reflect an accurate indication of value. In such an event, market value can be derived directly from the sales, since all complexities involved are properly weighed according to their significance to actual buyers and sellers. This approach is based upon prices paid in actual market transactions. It is a process of correlating and analyzing recently sold properties, which are similar to the subject. The reliability of this technique depends upon (a) the degree of comparability of the property appraised with each sale, (b) the length of time since the sale, (c) the accuracy of the sales data, and (d) the absence of unusual conditions affecting the sale. The comparison process must be based on sales, which constitute acceptable evidence of motivations inherent to the market, occurring under similar market conditions, of similar or reasonably similar apartment projects. These projects were selected since they are reasonably similar to the subject property. A map and a summary of the comparable sales can be found on the preceding pages. The transaction dates of the sales used ranged from October 1994 to August 1996. Reference is made to the individual sales data included in the Addenda section of this report. SALE 1, known as the Links at Windsor Park Apartments, sold in August 1997 for $20,500,000. There are 280 units totaling 296,616 square feet. The property sold at $69.11 per square foot or $73,214 per unit. It was built in 1995 and was in excellent condition. The Links was 90 percent occupied at sale date. It sits on 23.36 acres of land and reflects density at 11.98 units per acre. The property's construction is described as wood frame with wood siding and some stucco. SALE 2, known as the San Pablo Apartments, sold in June 1997. It has 200 units and 184,750 square feet. The sales price was $5,350,000 and the property was 90 percent occupied at sale date. Unit prices indicated are $28.96 per square foot and $26,750 per unit. The sale reflected a 10.8 percent capitalization rate and was in need of substantial repair and renovation work. The rate is 14,24 acres and the unit density indicated is 14.04 units per acre. The property at sale date was inferior to the subject. SALE 3, known as Hunter's Ridge, (formerly known as Oaks at Deerwood) sold for $15,200,000 or $45,238 per unit in May 1987. It has 294,,888 square feet and indicates a unit price of $51.54 per square foot. Land area is 34.70 acres and shows unit density at 9.68 units per acre. The capitalization rate was 7.76 percent, however, the property needed some attention and had good upside potential. 35 SALE 4, known as the Woodhollow Apartments sold in April 1997 for $16,700,000 or $48.99 square foot and $37,111 per unit. The property contains 450 units and 342,162 square feet. At date of sale, occupancy was 94 percent and the terms were cash at a $10,350,000 mortgage at 7.5 percent interest due in 7 years, amortized over 25 years. The property has 38.65 acres and indicates a unit density of 11.6 units per acre. Construction is wood frame with stucco and wood siding. SALE 5, known as The Courts at Ponte Vedra, is located in Ponte Vedra Beach. It sold in January 1997 for $19,000,000. The property was built in 1996 and has 253 units with 252,916 total square feet.. Unit prices indicated by the sale are $75.12 per square foot and $75,099 per unit. Construction is wood frame with stucco and some masonry. The site contains 9.23 acres and indicates a unit density of 27.41 units per acre. Capitalization rate at times of sale was 8.34 percent and the project had 95 percent occupancy. SALE 6, known as the Huntington at Hidden Mills, (formerly known as Cozumel), sold for $40.26 per square foot net rentable area or $32,254 per unit in August 1996. The sale price was $7,225,000. The property contains 14.92 acres and has a unit density of 15 units per acre. There are 179,476 square feet of rentable area within 224 units. The average unit size is 801 square feet. Approximately 98 percent of the units were occupied at the time of sale. The sales price of $7,225,000 was adjusted upward by $350,000 for a re- plumbing required and was a credit given by the seller. SALE 7 is the Antlers containing 400 units and 527,728 square feet of rentable area. The average size of a unit is 819 square feet. Developed in 1985, the project is situated 42.51 acres of land and has a unit density of 9.4 units per acre. The property sold in May 1996 for $45.77 per square foot net rentable area or $37,500 per unit and totaled $15,000,000. At the time of sale the units were 97 percent physically occupied. SALE 8 sold in May 1996 for $16,950,060 which is equivalent to $42.06 per square foot net rentable area or $41,852 per unit. The project, Westland Park, was built in 1989/90 and contains 405 units and 403,010 square feet of rentable space. The average unit size is 995 square feet. Unit density for this property is 14.9 units per acre. Occupancy at the time of sale was reported at 97 percent. In lieu of specific adjustments, we compared the improved sales based on the net operating income (NOI) per square foot and per unit. This method presents a comparison based on the income which a property is capable of generating. Theoretically, the NOI takes into consideration the various factors, which influence value such as quality, size, amenities offered, location, condition etc. Thus, these differing factors can be reduced to the common denominator of net operating income. 36
================================================================================ Sales Comparison - NOI Adjustments ---------------------------------- Sale Sale Subject Adjust. Adjust. No. Price/SF NOI/SF NOI/SF Factor Price/SF - --- ------- ------ ----- ------ --------- 1 $69.11 $5.92 $5.40 0.91216 $ 63.04 2 $28.96 $3.16 $5.40 1.70886 $ 49.49 3 $51.54 $4.00 $5.40 1.35000 $ 69.58 4 $48.99 $4.69 $5.40 1.15139 $ 56.41 5 $75.12 $6.26 $5.40 0.86262 $ 64.80 6 $40.26 $3.85 $5.40 1.40260 $ 56.47 7 $45.77 $4.65 $5.40 1.16129 $ 53.15 8 $42.06 $4.26 $5.40 1.26761 $ 53.32 Mean = 58.28 Value @ mean $8,364,005 Sale Sale Subject Adjust. Adjust. No. Price/Unit NOI/Unit NOI/Unit Factor Price/Unit --- --------- -------- -------- ------ ---------- 1 $73,214 $6,267 $6,348 1.01292 $ 74,160 2 $26,750 $2,916 $6,348 2.17695 $ 58,234 3 $45,238 $3,510 $6,348 1.80855 $ 81,815 4 $37,111 $3,562 $6,348 1.78214 $ 66,137 5 $75,099 $6,263 $6,348 1.01357 $ 76,118 6 $32,254 $3,083 $6,348 2.05903 $ 66,412 7 $37,500 $3,811 $6,348 1.66570 $ 62,464 8 $41,852 $4,240 $6,348 1.49717 $ 62,660 Mean = $ 68,500 Value @ mean $8,357,000 ===============================================================================
The various sales reflected NOIs per square foot ranging from $3.16 to $6.26 and NOIs per unit ranging from $2,916 to $6,267. The subject NOI (without reserve expenses) has been approximated at $5.40 per square foot or $6,348 per unit from the first year of the Discounted Cash Flow analysis in the Income Approach section of this report. To estimate an adjustment for each sale, the subject's NOI has been compared to the individual NOI of the comparable sales. The adjustments should account for all the various physical and economic differences in each improved property sale as income is a function of the current market. Market conditions should reflect perceived risk, or other factors, which may affect value. Time differences do not need further adjustment as any drop in value would theoretically be the function of a drop in income. There would need to be an adjustment for age in order to recognize differences in the length of the income streams. The chart on the facing page presents the adjustment process for NOI per square foot and NOI per unit. After adjustment, the sales range in price from $49.49 to $69.58 per square foot and $58,234 to $81,815 per unit. The simple average adjusted prices (not weighted) per square foot and per unit of the comparable sales was calculated at $58.28 and $68,500, respectively. Applying an age adjustment based on square foot area and number of units indicates value at $55.50 per square foot and $65,300 per unit 143,508 SF at $55.50/SF, Rounded........... $8,000,000 122 units at $65,300/unit.................. $8,000,000 A second method of comparison is by use of the effective gross rental multiplier (EGRM). In this analysis, the subject's effective gross income is multiplied by a factor estimated from the sales to derive an indication of value. The sales utilized in this analysis reflect EGRMs ranging from 4.56 to 7.80 as shown on the following facing page. Expense ratios range from 33.26 to 50.27 percent. From the Direct Capitalization analysis in the Income Approach, the subject is estimated to have a 36.74 percent operating expense ratio (excluding reserves). This is most similar to Sales 1, 5, and 8. These sales have EGRMs ranging from 6.01 to 7.80 with expense ratios from 33.26 to 39.14 percent. Based on the preceding analysis, an EGRM for the subject has been estimated at 6.90 resulting in a total value indication as follows: $1,224,277 X 6.90, Rounded.................. $8,400,000 The NOI per square foot and per unit methods presented a value indication of $8,000,000 each and the effective gross income multiplier method indicated a value of $8,400,000. Weight has been given to all methods. From the proceeding, a value for the subject is estimated at $8,200,000. From this, a 37
================================================================================ SALES COMPARISON - EGRM ANALYSIS - ------------------------------------------------------------------------------- EFFECTIVE EFFECTIVE GROSS OPERATING SALE NO. GROSS REVENUE/SF REVENUE MULTIPLIER EXPENSE RATIO 1 $8.86 7.80 33.26% 2 6.35 4.56 50.27% 3 7.65 6.74 47.70% 4 8.92 5.47 47.45% 5 10.27 7.31 39.00% 6 7.35 5.48 47.63% 7 8.13 5.63 42.80% 8 7.00 6.01 39.14% ===============================================================================
deduction for capital expenditures of $118,400 and a rent loss due to lease-up to stabilized occupancy of $69,593 is made as follows: Indicated Value $8,200,000 Less: Capital Expenditures (118,400) Rent Loss (69,593) "As Is" Value $8,012,007 Rounded $8,000,000 Therefore, it is our opinion that the leased fee market value of the subject property based on the indication provided by the Sales Comparison Approach, all cash, on an "as is" basis as of December 31, 1997, is EIGHT MILLION DOLLARS ($8,000,000) 38 [AREA MAP OF COMPARABLE RENTALS APPEARS HERE]
==================================================================================================================================== RENT COMPARABLE ANALYSIS PONTE VEDRA BEACH VILLAGE I - ------------------------------------------------------------------------------------------------------------------------------------ COMP. YEAR NO. NRA AVERAGE 1995 1996 NO. NAME OF PROJECT BUILT UNITS (SF) UNIT SIZE OCCUP. RATE OCCUP. RATE - ------------------------------------------------------------------------------------------------------------------------------------ 1 The Greens at Marsh 1989 192 201,848 1,051 88.5% NA Landings 1800 The Greens way - ------------------------------------------------------------------------------------------------------------------------------------ 2 Marsh Cove Apts. 1983 86 96,176 1,118 95% 99% 1220 Marsh Cove Lane - ------------------------------------------------------------------------------------------------------------------------------------ 3 The Fairways Apts. 1984 216 186,600 864 88% 93% 100 Fairway Park Blvd. ----------------------------------------------------------------------------------------------------------------------------------- 4 Arbor Club Apts. 1992 251 288,924 1,151 100% 95% 1 Arbor Club Drive - ------------------------------------------------------------------------------------------------------------------------------------ 5 Ocean Links 1993 192 251,000 1,308 93% NA% 310 Soland Road - ------------------------------------------------------------------------------------------------------------------------------------ Ponte Vedra Beach 1984 122 103,880 851 94.2% 95% Village I 700 Ocean Place SUBJECT ==================================================================================================================================== ==================================================================================================================================== COMP. SQUARE 1996 MONTHLY 1997 NO. NAME OF PROJECT FLOOR PLANS FEET RATE RENT/SF AMENITIES/COMMENTS - ------------------------------------------------------------------------------------------------------------------------------------ 1 The Greens at Marsh 1BR/1BA 770 $ 756 $ 0.982 Microwave ovens, screened Landings 2BR/1BA 1,065 865 0.812 patios, fireplaces, alarms, 1800 The Green Way 3BR/2BA 1,256 1,050 0.836 garages, pool and spa, fitness center, car care center. - ------------------------------------------------------------------------------------------------------------------------------------ 2 Marsh Cove Apts. 2BR/2BA/FL 980 $ 740 $ 0.755 Microwave ovens, washer/ 1220 Marsh Cove Lane 2BR/2BA/FL 1,100 780 0.709 dryer connections, 2BR/2BA/LOFT 1,242 850 0.684 fireplaces, outdoor 2BR/2.5BA/TH 1,050 760 0.724 utility closets, pool, 2BR/2.5BA/TH 1,220 810 0.664 tennis court, hot tub 3BR/3BA 1,430 1,010 0.706 - ------------------------------------------------------------------------------------------------------------------------------------ 3 The Fairways Apts. 1BR/1BA 550 $ 555 $ 1.01 Washer/dryer connections, 100 Fairway Park Blvd. 1BR/1BA 600 615 1.03 miniblinds, fireplaces, 2BR/2BA/FL 950 700 0.737 pool, tennis courts, 1BR/1BA/TH 750 650 0.867 hot tub, exercise/weight 2BR/2BA/TH 1,100 740 0.673 room, clubroom, laundry 2BR/1.5BA/TH 1,050 705 0.671 facility, lake - ------------------------------------------------------------------------------------------------------------------------------------ 4 Arbor Club Apts. 1BR/1BA 881 $ 655-685 $0.743-0.778 Microwave ovens, washer/dryer 1 Arbor Club Drive 1BR/1BA/LOFT 1,102 740-760 0.672-0.690 connections, miniblinds, 2BR/2BA 1,181 790-820 0.669-0.694 fireplaces, vaulted ceilings, 2BR/2BA 1,254 825-855 0.658-0.682 burglar alarms, pool, tennis 3BR/2BA 1,426 980-1,000 0.687-0.701 courts, jacuzzi, exercise/ 3BR/2BA 1,493 1,025-1,050 0.687-0.703 weight room, clubroom, laundry facility, garages - ------------------------------------------------------------------------------------------------------------------------------------ 5 Ocean Links 1BR/1BA 943 $ 690-790 $0.732-0.838 Microwave ovens, washer/dryer 310 Soland Road 2BR/2BA 1,294 860-980 0.665-0.757 connections, panic buttons, 2BR/2BA 1,304 970-990 0.744-0.759 fireplaces, ceiling fans, vaulted 3BR/2BA 1,605 990-1,100 0.617-0.692 ceilings, skylights, alarms, pool, tennis court, fitness center, spa, ceiling fans, clubroom. - ------------------------------------------------------------------------------------------------------------------------------------ Ponte Vedra Beach 1BR/1BA/VILLA 858 $ 700 0.816 Microwave ovens, washer/dryer Village I 2BR/2BA/VILLA 1,196 890 0.744 connections, miniblinds, 700 Ocean Place 2BR/2BA/TH 1,430 930 0.650 fireplaces, ceiling fans, vaulted SUBJECT 3BR/2BA/TH 1,481 1,000 0.675 ceilings, outdoor utility closets, wet bars, pool, tennis court, hot tub sauna, clubroom, laundry facility ====================================================================================================================================
DN = downstairs; UP = upstairs; TH = townhouse INCOME APPROACH - -------------------------------------------------------------------------------- In estimating the market value of the subject property, one method used by the appraisers was the Income Approach. The Income Approach to value is predicated on the assumption that there is a definite relationship between the amount of net income a property will earn and its value. Ultimately, the Income Approach seeks to estimate the present worth of an anticipated net income stream based on an analysis of its quality, quantity, and duration. In accordance with the principle of substitution, a prudent investor would pay no more to receive an income stream from a specified property than any other property producing an equally desirable income stream. Typically, the first step in the Income Approach is to estimate the potential gross income according to market rent. Market rent means the "going rent" in the neighborhood based on past history and present conditions. Vacancies are then deducted to arrive at effective gross income. Estimated annual expenses are deducted from the effective gross income, resulting in an indication of net operating income before debt service. From the estimated net annual income, annual debt service (if applicable) is subtracted to obtain annual cash flow to equity. This cash flow can be capitalized into an indication of equity value by direct capitalization utilizing an overall equity rate, or if debt does not exist, an overall capitalization rate. It may also be projected into the future over a selected but appropriate holding period, and discounted along with the anticipated equity reversion at the market discount rate and added in order to arrive at the net present equity value for the subject property. Since our valuation is on a cash basis, no mortgage was considered. In either method, the present mortgage balance (if applicable) would be added to the equity value to obtain the total value of the property. The appraisers have utilized both methods in valuing the subject property on an all cash basis. ESTIMATED GROSS RENTAL INCOME Income for the subject property is produced by rental income from the various rental units, as well as any laundry income, pet deposits, forfeited security deposits, and miscellaneous income. Information provided by the on-site leasing agents indicated the subject's current rent schedule to be as follows:
BASED ON "RESIDENT PAYS UTILITIES" ------------------------------------------------------------------ UNIT TYPE UNITS SIZE RENT/MO RENT/SF MO. TOTAL (SF) ------------------------------------------------------------------- A 1BR/lBA/Villa 38 858 $ 600 $0.816 $ 26,600 B 2BR/2BA/Villa 42 1,196 890 0.744 37,380 C 2BR/2BR/TH 30 1,430 930 0.650 27,900 D 3BR/2BA/TH 12 1,481 1,000 0.675 12,000 --- -------- 122 $103,880
These rents have been compared to closely located and similarly designed apartment complexes in the subject's neighborhood area. For the purpose of this analysis, we have considered five apartment complexes that were identified by 39
====================================================================================================== SUBJECT - RENT ANALYSIS PONTE VEDRA BEACH VILLAGE I - ------------------------------------------------------------------------------------------------------ UNIT AVG. AVG. MONTHLY PROJECT/UNIT UNIT TYPE SIZE (SF) RENT/MONTH RENT/SF AMENITIES ----------------------------------------------------------------------------------------------------- SUBJECT lBR/lBA/VILLA 858 $700 $0.816 Good/Good Greens at Marsh Landings 1BR/1BA 770 756 0.982 Good/Good The Fairways 1BR/1BA/TH 750 650 0.867 Good/Good Arbor Club 1BR/1BA 881 655-685 0.743-0.778 Good/Good - ------------------------------------------------------------------------------------------------------ SUBJECT 2BR/2BA/VILLA 1,196 890 0.744 Good/Good Greens at Marsh Landings 2BR/2BA 1,065 865 0.812 Good/Good Marsh Cove 2BR/2BA 1,100 780 0.709 Good/Good Arbor Club 2BR/2BA 1,181 790-820 0.669-0.694 Good/Good Ocean Links 2BR/2BA 1,294 860-980 0.665-0.757 Good/Good - ------------------------------------------------------------------------------------------------------ SUBJECT 2BR/2BA/TH 1,430 930 0.650 Good/Good Marsh Cove 2BR/2BA/TH 1,220 810 0.664 Good/Good Arbor Club 2BR/2BA 1,254 825-855 0.658-0.682 Good/Good Ocean Links 2BR/2BA 1,294 860-980 0.665-0.757 Good/Good Ocean Links 2BR/2BA 1,304 970-990 0.744-0.759 Good/Good - ------------------------------------------------------------------------------------------------------ SUBJECT 3BR/2BA/TH 1,481 1,000 0.675 Good/Good Marsh Cove 3BR/2BA 1,430 1,110 0.706 Good/Good Arbor Club 3BR/2BA 1,426 980-1,000 0.687-0.701 Good/Good Arbor Club 3BR/2BA 1,493 1,025-1,050 0.687-0.703 Good/Good Ocean Links 3BR/2BA 1,605 990-1,110 0.617-0.692 Good/Good ======================================================================================================
TH = townhouse management and found by the appraiser to be reasonably comparable. They range in total unit size from 86 to 251 units and in occupancy from 88 to 100 percent. These comparable rentals are summarized on a previous page. All of the comparables surveyed were located within the subject's immediate vicinity. Each is comparable to the subject overall, particularly in terms of overall physical condition, unit size, rental rates, and the amenities offered. These comparables indicate an average effective rental rate range from $0.693 to $0.845 per square foot per month. On the table on the facing page, each of the subject's four floor plans is compared to similar floor plans obtained from the rent comparables. All of the comparable rentals have competitive project amenities for an apartment in this market which include a pool, tennis court, clubhouse, hot tub/jacuzzi, and landscaped grounds. Apartments which have project amenities, which are rated "good" on this chart additionally have a car wash stand, indoor racquetball courts, basketball court, and/or volleyball area. Unit amenities for standard or average apartment units include typical built-in kitchen appliances, miniblinds, a fireplace, a patio or deck, and average finish. Good unit amenities on a given apartment unit also include a microwave oven, washer and dryer, vaulted ceilings and ceiling fans, and/or burglar alarms. According to the Rent Analysis summary, the subject's Plan A is most comparable to the units offered at Arbor Club; however, the subject is considered a villa. The 1 bedroom units at the Fairways and Greens at Marsh Landings are smaller with both renting at a higher rate per square foot than the subject's unit. The subject's Plan A has average asking rents of $700 per unit or $0.816 per square foot. The subject's rent is in the mid-range of those for Plan A of the comparable properties. This is due to the superior amenities of the comparable properties. The subject rent for Plan A is believed to be market. Plan B (a villa) containing 1,196 square feet from the subject is also most similar in size and amenities to two-bedroom units displayed at Arbor Club and Ocean Links. These competitive units have an average monthly rental rate of $805 and $920 respectively or $0.681 to $0.711 per square foot respectively. The Arbor Club unit is a flat and considered inferior overall, while the Ocean Links unit is reasonably comparable even though a flat and newer in age. Plan B has average asking rents of $890 per month or $0.744 per square foot. Thus, the current asking rent is comparable to the per square foot range provided by the rent comparables. The subject's Plan C with 1,430 square feet has an average asking rent of $930 per month or $0.65 per square foot. It is a townhouse unit. This plan is most similar to the two-bedroom townhouse plan from Marsh Cove, but the subject is larger. This comparable unit has a monthly rental $810 which equates to $0.664 per square foot, but is slightly inferior to the subject. The remaining three comparable units at Arbor Club and Ocean Links are smaller in size than the subject unit and are not townhouse units. Their monthly rent is $0.658 to $0.759 per square foot and 40 reflects the above issues as well as Ocean Links is a newer project. The subject unit has a market rental rate at its quoted current rental. The subject's Plan D is a 3 bedroom/2 bath townhouse containing 1,481 square feet and renting for $1,000 per month or $0.65 per square foot. It garners a higher rent per square foot than the Plan C because it is more attractive to families and/or sharing by several people (tenants). No 3 bedroom townhouse units were uncovered that were considered comparable, therefore units at Marsh Cove, Arbor Club, and Ocean Links, that are 3 bedroom flats were used for comparison purposes. The units at Marsh Cove and Arbor Club were comparable as to size with 1,426 to 1,493 square feet and rents from $0.687 to $0.706 per square foot. The Ocean Links 3 bedroom unit has 1,605 square feet and rents for an average of $1,050 per month or $0.654 per square foot. The subject unit rents below the Marsh Cove and Arbor Club units, but above the Ocean Links unit, which is a much larger unit. After consideration of the age, amenities, and size of the comparable units, it is believed that the current subject rental is at market. There are currently seven vacant units in the subject complex. This equates to a current physical occupancy rate of 94.3 percent. Physical occupancy one year ago was 95.1 percent. These numbers indicate a slight downward movement in physical occupancy for the subject property, however, this could easily be explained as a result of competition or current turnover at date of value. Economic occupancy is estimated near 85 percent. The most recent leases for Plans A, B, C, and D indicate that the subject is obtaining the quoted rental rates. Therefore, we estimate that the current quoted rental rates for the subject are indicative of market rates. After considering the subject's physical occupancy and actual rates the projected market rental rates for the subject are summarized below.
BASED ON "RESIDENT PAYS UTILITIES" -------------------------------------------------------------------- UNIT TYPE UNITS SIZE RENT/MO RENT/SF MO. TOTAL (SF) -------------------------------------------------------------------- A lBR/lBA/Villa 38 858 $ 600 $0.816 $ 26,600 B 2BR/2BA/Villa 42 1,196 890 0.744 37,380 C 2BR/2BA/TH 30 1,430 930 0.650 27,900 D 3BR/2BA/TH 12 1,481 1,000 0.675 12,000 --- -------- 122 $103,880
Gross Annual Rental Income: $103,880 x 12 months = $1,246,560 Our cash flow analysis, as well as our direct capitalization method, indicates a gross rental income of $1,271,491. This figure is the result of a 2 percent increase in rental rates during the first year of our projection period. 41
=================================================================================================================================== SUBJECT - EXPENSE ANALYSIS PONTE VEDRE BEACH VILLAGE I - ----------------------------------------------------------------------------------------------------------------------------------- Comparable No. 1 2 3 SUBJECT PROPERTY Year Built 1984 1986 1985 1984 Net Rentable Square Feet 142,792 100,750 117,980 143,508 Number of Units 120 110 124 122 Average Unit Size 1,190 916 951 1,176 - ------------------------------------------------------------------------------------------------------------------------------------ 1997 1997 1997 1993 1994 1995 1996-YTD 1997 BRA PROJECTIONS ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ANNUALIZED ACTUAL CALENDAR YEAR PSF PSF PSF PSF PSF PSF PSF PSF ENDING 12/31/97 - ------------------------------------------------------------------------------------------------------------------------------------ /SF /UNIT - ------------------------------------------------------------------------------------------------------------------------------------ EXPENSES Real Estate Taxes $0.72 $0.80 $0.71 $0.67 $0.73 $0.73 $0.79 $0.67 $0.72 $ 846 Insurance 0.16 0.18 0.16 0.10 0.17 0.21 0.21 0.21 0.22 257 Operating Expenses 0.55 0.68 0.65 0.61 0.57 0.57 0.58 0.64 0.62 734 Utilities 0.68 0.94 0.86 0.31 0.30 0.30 0.33 0.36 0.45 529 Repairs & Maintenance 0.52 0.58 0.43 0.27 0.27 0.33 0.35 0.35 0.36 428 Contract Services 0.21 0.21 0.30 0.20 0.22 0.20 0.22 0.25 0.23 269 Management 0.34 0.37 0.39 0.35 0.37 0.37 0.38 0.38 0.40 475 General Administrative 0.15 0.18 0.18 0.07 0.09 0.10 0.13 0.15 0.10 122 ----- ----- ----- ----- ----- ----- ----- ----- ----- ------ Total Expenses $3.33 $3.94 $3.68 $2.58 $2.72 $2.80 $2.99 $3.01 *$3.10 *$3,660 ====================================================================================================================================
* There may be differences due to rounding OTHER INCOME In addition to rental income from apartments, other income is generated by laundry and vending machines, forfeited security deposits, pet deposits, late charges, and application fees. Figures for 1993, 1994, and 1995 show other income ranging from $0.12 to $0.17 per square foot. Figures for annualized 1996 amount to $$0.12 per square foot and actual and budgeted other income for 1997 ranges between $18,420 to $20,292 or $0.13 to $0.14 per square foot. Based on our experience with similar type properties and the actual performance of the subject property it is our opinion that other income in the amount of $0.12 per square foot is typical for a project such as the subject. This equates to a total "Other Income" of $17,221 in the first fiscal year of our projected cash flow as well as in the direct capitalization method. From this we have arrived at our estimate of scheduled gross income as if 100 percent occupied for the beginning of the first fiscal year of our projection period: Gross Rental Income $ 1,271,491 Other Income 17,221 ---------- Total Potential Gross Income $ 1,288,712 VACANCY AND COLLECTION LOSS ESTIMATE In a stable market, vacancy and collection loss for an apartment complex will be in the 3 to 10 percent range. This covers the time lag during re-leasing and normal refurbishing of apartment units and the loss of income resulting from bad debt or other vacancies. The subject's current 94.3 percent physical occupancy is at the 94.3 percent Third Quarter physical occupancy rate enjoyed by the Beaches submarket. The subject property has a current economic occupancy rate of 85 percent, which is considered below stabilized occupancy for the subject. A 95.0 percent stabilized economic occupancy has been utilized for the subject during the holding period and a deduction is taken for rent loss as the stabilized occupancy is believed achievable in year 2. Also the economic vacancy is s comparison of actual rents obtained at year and versus market rents estimated. EXPENSE ANALYSIS The various expenses necessary in the operation of the subject have been estimated including fixed expenses, operating expenses, and reserves for replacement. Proper appraisal technique demands that an appraiser rely on typical expenses as opposed to actual expenses, which may vary according to management or special circumstances that may not persist. In addition, the total expenses per square foot should be within a range typical for similar projects. Reserves for replacement are estimated based on age, condition, and construction quality. It is re-emphasized that all income, as well as expense estimates, are based on the assumption of competent and prudent management. We have based our estimate of projected expenses on comparable apartment projects located in the subject area, as well as the actual historical performance of the subject property. The Expense Analysis Chart on the facing page summarizes the actual and/or annualized 1997 expenses reported by three (3) "individually metered" projects, as well as the subject property's actual 1993, 1994, 1995, and 1996 expense figures. The 1997 actual and budget figures were available to the 42 appraiser also at the time of the report. They are shown in the chart on the facing page. Bach Realty Advisors' estimated expenses for the subject property in Fiscal Year 1998 are also displayed. Based upon the analysis of the comparables, we have developed the following expense estimates for the subject. REAL ESTATE TAXES - The Ponte Vedra Beach Village I Apartments are subject to the taxing authorities of St. Johns County. The county distributes the tax receipts from property owners to different authorities as specified in the Site section of this report. The subject's 1997 assessed value is $5,412,560 the total tax liability is $99,196 or $0.69 per square foot. After examining the tax liabilities of the comparables used in our expense analysis (which exhibited a range from $0.71 to $0.80 per square foot), we have reflected the actual 1997 real estate taxes plus an approximate 4 percent inflation factor in our estimate of the 1998 taxes. Thus, real estate taxes have been estimated at $0.72 per square foot or $846 per unit and totaling $103,163. The estimate has also considered personal property taxes. This amount is increased at a rate of 4 percent per year throughout our projection period. INSURANCE - For the first fiscal year, we have estimated insurance at a market cost of $0.22 per square foot or $31,340. All of the expense comparables utilized exhibit a range of insurance costs from $0.16 to $0.18 per square foot for 1997. The subject's actual insurance costs have been fluctuated from $0.10 to $0.21 per square foot since 1993 with $0.21 per square foot holding for the past three years. The appraisers believe that the insurance expense for the subject is appropriate and is generally supported by the expense comparables. The expense per unit is $257. Insurance expense is increased 4 percent annually for the duration of the holding period. OPERATING EXPENSES - This category includes salaries for office managers and leasing agents, maid services, payroll taxes and FICA, security, advertising, and promotional items. The subject's actual figures for 1993, 1994, 1995, and 1996, were $0.57 to $0.64 per square foot. The annualized 1997 operating expense is $0.64 per square foot. The expense comparables indicate a range of operating expenses from $0.55 to $0.68 per square foot. Based on the subject's historical expenses and a comparison of operating expenses of comparable properties, the appraisers have estimated a 1997/98 year operating expense of $89,549 which is equivalent to $0.62 per square foot or $734 per unit. This expense is expected to increase 4 percent annually throughout our projection period. UTILITIES - The expense comparables' 1997 utility expenses have a range from $0.68 to $0.94 per square foot. The subject's annualized 1997 year-to-date expense is $0.36 per square foot. This expense category includes electricity to the common areas, water, sewer, and garbage collection. The subject's 1998 expense for utilities has been estimated by the appraiser to be $0.45 per square foot or $529 per unit, below the lower end of the comparables range but 25 percent higher than 1997. This equates to a total utility expense estimate of $64,579 for the subject property 43 in the first year. Utility expenses are increased 4 percent annually throughout the projection period. REPAIRS AND MAINTENANCE - The 1996 annualized actual year-to-date repairs and maintenance costs are $0.35 per square foot for the subject, which shows a slight increase in expenses of from the previous year. Repairs and maintenance expenses are necessary in order to keep the property in good repair and consist of repairs required on plumbing, air-conditioners, electrical components, miniblinds, carpeting, janitorial services, and decorative costs. The expense comparables indicate a range from $0.43 to $0.58 per square foot and the subject's 1997 annualized expense is $0.36 per square foot. Repairs and maintenance costs of $0.36 per square foot or $428 per unit and totaling $52,237 have been projected for the subject for the first year of our cash flow analysis and increased 4 percent annually. Reliance was placed on the subject's historical experience. CONTRACT SERVICES - The contract services category includes mainly landscaping services. Our surveyed expense comparables reported 1997 contract services expenses between $0.21 and $0.30 per square foot. Actual expenses for the subject in for the 1997 contract services expense are estimated at $0.25 per square foot. The appraiser has emphasized the historical and budgeted expenses for the subject when estimating the per square foot contract services expense for the property of $0.23 per square foot or $269 per unit and totaling $32,835 in the first year of the cash flow. These expenses are expected to increase annually at a rate of 4 percent. MANAGEMENT - This figure for apartment projects is typically expressed as a percentage of the effective gross income of the property. The industry standard for an apartment complex of this size and quality is about 5 percent of effective gross income. This includes the fee to outside management or ownership for managing the property. According to the actual income and expense statements from 1993 forward provided by the client, management fees at the subject have been approximately 5 percent. We have also relied upon indicators from the market to determine typical expenses for this category. A management fee of 5 percent of the projected effective gross income for each year of the cash flow is estimated. GENERAL AND ADMINISTRATIVE - This expense category includes legal expenses, dues, fees, printing, auto costs, postage, accounting/audit, permits, travel, credit, reports, office equipment, telephone, and all other miscellaneous and administrative costs. Our surveyed expense comparables indicated actual administrative expenses ranging from $0.15 to $0.18 per square foot. The subject's historical experience indicated a range of $0.07 to $0.15 per square foot. The 1997 expense was $0.15 per square foot. The appraiser utilized a $0.10 per square foot figure or $122 per unit and totaling $14,924, supported by the comparables' range. This expense increases at a rate of 4 percent for each year in the cash flow. EXPENSE SUMMARY In conclusion, vacancy loss has been estimated at 5 percent throughout the holding period. The total estimated 1997 calendar year expenses for the Ponte Vedra Beach Village Apartments, excluding reserves for replacement, 44 equates to $3.10 per net rentable square foot or $3,660 per unit. This is within the range indicated by the expense comparables and is reasonable and well supported by actual historical figures indicated by the subject property. Five comparables were reviewed for 1997 and indicated a range for expenses of $3,300 to $3,900 per unit. RESERVES FOR REPLACEMENT A replacement allowance provides for the periodic replacement of building components that wear out more rapidly than the building itself and must be replaced periodically during the building's economic life. These may include roof covering, carpeting, appliances, compressors, parking areas, drives, etc. The subject was constructed in 1984 and appears to have had ongoing maintenance since its construction. It is our opinion that a reserve allowance of $0.26 per square foot or $300 per unit is adequate to provide for the continued maintenance of the project given the on-going termite problem and weather related conditions as mentioned below. Reserves for replacement total $36,600 and are grown at 4 percent for the duration of the holding period. Reserves were included in our expenses prior to concluding the net operating income. DEFERRED MAINTENANCE/ CAPITAL EXPENDITURES The subject has numerous items requiring capital expenditures. Capital expenditures listed by management in the 1998 budget total $118,400 as detailed in the Improvements section of this report. DISCOUNTED CASH FLOW ANALYSIS DISCUSSION a reasonable method for estimating value via the Income Approach in a stabilized market is through the use of Discounted Cash Flow Analysis. The Market Value of a real estate investment under the Discounted Cash Flow Method is defined as the discounted sum of all net cash inflows plus the property's discounted reversionary value. Primarily, any given property is only worth the value of the income derived from it. The general methodology of Discounted Cash Flow involves the following steps: 1) increasing each year's cash flows by an appropriate appreciation factor; 2) discounting each year's net cash flow by an appropriate discount rate; 3) deriving the property's reversionary value in the final year and discounting it to the present; and 4) the summation of all cash flows, including final year reversion, into an estimate of value. Real Estate Investment Trusts (REITS) have been the major players among new apartment acquisitions over the past, few years which has resulted in upward pressure on selling prices as capitalization rates have dropped. More recently, REITs are strong in the market. Capitalization rates are lower this year than last year due to many buyers pursuing limited inventory. Survey participants in RERC's Emerging Trends in Real Estate: 1997 indicate that multifamily is still a viable investment vehicle, but its desirability is ebbing as short-term rental growth has already peaked in some markets. Expectations for 45 1998 are an increased interest in apartments as markets stabilize and new construction comes on-line. Since 1994 returns for apartments have averaged near 12 percent, above all other categories. Solid returns in the 9 to 10 percent area are expected to continue with 9 percent and below for new Class A product, much of which may be pre-sold. Apartment investment fits the portfolio profiles of pension funds and REITs who want immediate high cash flows with predictable capital costs and national vacancy rates in relative equilibrium at 5 percent to 8 percent and a growing population, the risk in the multifamily market is steady and we anticipate that investors will continue to find their niche the market. DISCOUNT RATE Over the past several years, the internal rate of return (IRR) has gained greater usefulness and market acceptance as an investment measure. IRR is the yield on an investment based on an initial cash investment, annual cash flows to the property, as well as resale proceeds. IRR allows for return on investment as well as recapture of the original investment when factoring in the reversion. To simulate this process, we have relied upon several investor surveys, which detail reasonable yields or IRR requirements of purchasers. We have used this rate as a discount rate that, when applied to projected cash flows and net resale proceeds (reversion), results in the present value of the property. According to the Third Quarter 1997 investor survey compiled by Peter F. Korpacz & Associates, Inc., investors for apartment properties indicated a return requirement ranging from 10.00 to 12.50 percent with an average of 11.16 percent. This IRR depends on the conservative or aggressive nature of rental and expense growth assumptions, as well as location and other factors. Real Estate is considered riskier than bonds due to illiquidity, competition, burden of management, and market conditions; therefore approximately 150 basis points or more could be added to the Corporate "Baa" bond rate in a normal market. Based on the previous data and recognizing new construction, we believe a 12 percent discount rate is reasonable in the current market based on an all cash sale and alternative investments. CAPITALIZATION RATE The subject property's reversionary value is derived by capitalizing the eleventh year's net operating income. As mortgage rates have fluctuated over the past several years, it becomes difficult to apply a band of investment method to establish a capitalization rate because capitalization rates do not react dramatically to ups and downs of mortgage interest rates. Additionally, the mercurial nature of the recent market creates a large variance of returns depending on property potential. Again, according to the previously cited investor survey, investors for apartment properties indicated a terminal capitalization rate range from 8.0 to 10.25 percent or an average of 9.29 percent to attract investment. Going-in capitalization rates of the comparable sales in the Sales Comparison Approach could be calculated based on the data provided. Most had a relatively similar occupancy rate as the subject at their respective times of sale. The range of going-in capitalization rates from these sales was from 7.76 to 10.9 percent (without reserves). A going-in capitalization rate in the middle of this range is considered appropriate. The going-in rate is typically lower than the terminal capitalization rate stated above due to the older age of the property and the risk of the market ten 46
- ----------------------------------------------------------------------------------------------------------------------------------- PONTE VEDRA VILLAGE 1 - ----------------------------------------------------------------------------------------------------------------------------------- Period 1 2 3 4 5 6 7 1998 1999 2000 2001 2002 2003 2004 - ----------------------------------------------------------------------------------------------------------------------------------- INCOME: Apt. Rents 1,271,491 1,322,351 1,375,245 1,430,255 1,487,465 1,546,963 1,608,842 Rent/SF/Mo. 0.738 0.768 0.799 0.831 0.864 0.898 0.934 Other Income/Yr. 17,221 17,910 18,626 19,371 20,146 20,952 21,790 ---------- ---------- ---------- ---------- ---------- ---------- --------- Gross Income 1,288,712 1,340,261 1,393,871 1,449,626 1,507,611 1,567,915 1,630,632 % Vacancy 10.00% 5.00% 5.00% 5.00% 5.000% 5.00% 5.00% Vacancy Allowance 128,871 67,013 69,694 72,481 75,381 78,396 81,532 ---------- ---------- ---------- ---------- ---------- ---------- --------- Eff. Gross Income 1,159,841 1,273,248 1,324,178 1,377,145 1,432,230 1,489,520 1,549,100 ------------------- EXPENSES: Per/Unit Per/SF ------------------- Real Estate Taxes 846 0.72 103,163 107,290 111,581 116,044 120,686 125,514 130,534 Insurance 257 0.22 31,340 32,594 33,898 35,254 36,664 38,130 39,656 Operating Expenses 734 0.62 89,549 93,131 96,856 100,731 104,760 108,950 113,308 Utilities 529 0.45 64,579 67,162 69,848 72,642 75,548 78,570 81,713 Repairs & Maintenance 428 0.36 52,237 54,327 56,500 58,760 61,110 63,554 66,097 Contract Services 269 0.23 32,835 34,148 35,514 36,935 38,412 39,949 41,547 Management Fee 5.00% 0.40 57,992 63,662 66,209 68,857 71,612 74,476 77,455 General & Administrative 122 0.10 14,924 15,521 16,142 16,787 17,459 18,157 18,884 Reserves 300 0.26 36,600 38,064 39,587 41,170 42,817 44,529 46,311 ---------- ---------- ---------- ---------- ---------- ---------- --------- Total Expenses $3,961 $ 3.37 483,219 505,899 526,135 547,180 569,067 591,830 615,503 ------ ------ Per SF 3.37 3.53 3.67 3.81 3.97 4.12 4.29 Per Unit 3,961 4,147 4,313 4,485 4,664 4,851 5,045 ---------- ---------- ---------- ---------- ---------- ---------- --------- Net Operating Income $ 676,622 $ 767,349 $ 798,043 $ 829,965 $ 863,163 $ 897,690 $ 933,597 ========== ========== ========== ========== ========== ========== ========= Per SF $ 4.71 $ 5.35 $ 5.56 $ 5.78 $ 6.01 $ 6.26 $ 6.51 Per Unit $ 5,546 $ 6,290 $ 6,541 $ 6,803 $ 7,075 $ 7,358 $ 7,652 =================================================================================================================================== Capital Items: 118,400 ---------- ---------- ---------- ---------- ---------- ---------- --------- Cash Flow 558,222 767,349 798,043 829,965 863,163 897,690 933,597 ---------- ---------- ---------- ---------- ---------- ---------- --------- Present Value Factor 12.00% 0.892857 0.797194 0.711780 0.635518 0.567427 0.506631 0.452349 Present Value of Cash Flow 498,412 611,726 568,031 527,458 489,782 454,798 422,312 NOI in 11th Year 1,092,177 Present Value of Income Stream 4,666,928 Ro at Reversion 10.00% Present Value of Reversion 3,375,857 ---------- ------------------------------------------------------------ Indicated Reversion 10,921,769 Indicated Value of Subject 8,042,785 Less: Sales Costs 4.00% 436,871 Indicated Value/SF 56.04 ---------- Indicated Value/Unit 65,924 Reversion in 10th Yr 10,484,898 GIM at Indicated Value 6.33 Ro at Indicated Value 8.41% - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ Period 8 9 10 Reversion 2005 2006 2007 2008 - ------------------------------------------------------------------------------------------------ INCOME: Apt. Rents 1,673,196 1,740,124 1,809,728 1,882,118 Rent/SF/Mo. 0.972 1.010 1.051 1.093 Other Income/Yr. 22,662 23,568 24,511 25,491 ---------- ---------- ---------- ---------- Gross Income 1,695,857 1,763,692 1,834,239 1,907,609 % Vacancy 5.00% 5.00% 5.00% 5.00% Vacancy Allowance 84,793 88,185 91,712 95,380 ---------- ---------- ---------- ---------- Eff. Gross Income 1,611,064 1,675,507 1,742,527 1,812,228 EXPENSES: Real Estate Taxes 135,755 141,186 146,833 152,706 Insurance 41,242 42,892 44,607 46,391 Operating Expenses 117,841 122,554 127,456 132,555 Utilities 84,981 88,380 91,915 95,592 Repairs & Maintenance 68,740 71,490 74,350 77,324 Contract Services 43,208 44,937 46,734 48,604 Management Fee 80,553 83,775 87,126 90611 General & Administrative 19,639 20,425 21,242 22,091 Reserves 48,163 50,090 52,093 54,177 ---------- ---------- ---------- ---------- Total Expenses 640,123 665,728 692,357 720,052 Per SF 4.46 4.64 4.82 5.02 Per Unit 5,247 5,457 5,675 5,902 ---------- ---------- ---------- ---------- Net Operating Income $ 970,941 $1,009,779 $1,050,170 $1,092,177 ========== ========== ========== ========== Per SF $ 6.77 $ 7.04 $7.32 $7.61 Per Unit $ 7,959 $ 8,277 $ 8,608 $ 8,952 ================================================================================================ Capital Items: ---------- ---------- ---------- ---------- Cash Flow 970,941 1,009,779 1,050,170 1,092,177 ========== ========== ========== ========== Present Value Factor 0.403883 0.360610 0.321973 1.000000 Present Value of Cash Flow 392,147 364,136 338,127 1,092,177
====================================================================== CASH FLOW SUMMARY CALENDAR YEAR ANNUAL 12.00% PV OF ENDING 12/31 CASH FLOW NPV FACTOR CASH FLOW ------------ --------- ---------- --------- 1998 $ 558,222 0.892857 $ 498,412 1999 767,349 0.797194 611,726 2000 798,043 0.711780 568,031 2001 829,965 0.635518 527,458 2002 863,163 0.567427 489,782 2003 897,690 0.506631 454,798 2004 933,597 0.452349 422,312 2005 970,941 0.403883 392,147 2006 1,009,779 0.360610 364,136 2007 1,050,170 0.321973 338,127 ------- TOTAL NPV OF CASH FLOWS $ 4,666,928 Projected NOI - 11th Year $ 1,092,177 Terminal Capitalization Rate 10.00% ------ Estimated Value of Property at End of 10th Year $10,921,769 Sales Cost 4.00% (436,871) --------- Value of Reversion at End of 10th Year $10,484,898 Discount Factor 12.00% 0.321973 -------- Present Value of Reversion $ 3,375,857 Sum of Present Values of Cash Flow 4,666,928 --------- MARKET VALUE AS OF DECEMBER 31, 1997 $ 8,042,785 (ROUNDED) $ 8,000,000 =========== ======================================================================
years hence. Based upon the aforementioned factors, the terminal capitalization rate for the subject should be above the average going-in capitalization rate exhibited by the comparable sales in the Sales Comparison Approach. Therefore, a terminal capitalization rate of 10.0 percent appears appropriate for the subject property based on the Korpacz survey. CASH FLOW ASSUMPTIONS . Rents were based on an average rental rate of approximately $0.724 per square foot per month. During the projection period rents are expected to increase at 2 percent during 1997. Rents increase 4 percent in the second year of our analysis and each year thereafter. . The subject property's current physical occupancy rate is 94.3 percent. The economic occupancy rate of 85 percent as of December 1997 is below the estimated stabilized occupancy rate of 95.0 percent. It is our opinion that the subject, after the first year (10% vacancy), should be capable of averaging 95.0 percent economic occupancy throughout the holding period of our cash flow analysis. . Other income is increased at 4 percent per year after the first year of the cash flow. . The property has been appraised based on a "resident pays utilities" status. . Expenses (with the exception of management) have been increased at an average growth rate of 4 percent annually over the ten-year projection period. Management expenses are based on a percentage of gross income and increase with occupancy and rental increases. Reserves are calculated at $0.306 per square foot or $300 per unit in the first year and also increase at 4 percent per year thereafter. . A discount rate of 12.0 percent was utilized. . A terminal capitalization rate of 10.0 percent was felt reasonable. . A sales cost of 4 percent of the reversionary value was estimated. A cash flow analysis and summary for the subject beginning January 1, 1998 may be found on the preceding pages. The estimated leased fee market value for the subject on an "as is" basis as of December 31, 1997 via discounted cash flow method is EIGHT MILLION DOLLARS ($8,000,000) 47 ================================================================================ DIRECT CAPITALIZATION
========================================================================================= TOTAL UNIT /SF - ----------------------------------------------------------------------------------------- Potential Gross Rental Income $1,271,491 $10,422 $ 8.86 Ancillary Income 17,221 141 0.12 ------ --- --- Potential Gross Income $1,288,712 $10,563 $ 8.98 Less: Vacancy & Credit Loss @ 5.00% 64,436 528 0.45 ------ --- ---- Effective Gross Income $1,224,277 $10,035 $ 8.53 FIXED EXPENSES - -------------- Real Estate Taxes $ 103,163 $ 846 $ 0.72 Insurance 31,340 257 0.22 ------ ---- ---- Total Fixed $ 134,503 $ 1,102 $ 0.94 VARIABLE EXPENSES - ----------------- Operating Expenses $ 89,549 $ 734 $ 0.62 Utilities 64,579 529 0.45 Repairs & Maintenance 52,237 428 0.36 Contract Services 32,835 269 0.23 Management Fee 5.00% 61,214 502 0.43 General & Administrative 14,924 122 0.10 Reserves for Replacement 36,600 300 0.26 ------ --- ---- Total Variable $ 351,938 $ 2,885 $ 2.45 Total Expenses $ 486,441 $ 3,987 $ 3.39 ---------- ------- ------ Net Operating Income $ 737,836 $ 6,048 $ 5.14 Capitalization Rate 9.00% ---- Leased Fee Stabilized Market Value $8,198,173 $67,198 $57.13 Less: Rent Loss Due to Lease Up 69,593 570 0.48 Capital Expenditures 118,400 970 0.83 ------- --- ---- LEASED FEE "AS IS" MARKET VALUE $8,010,180 $65,657 $55.82 ROUNDED $8,000,000 ==========
================================================================================ RENT LOSS DUE TO LEASE-UP/CONTRACT RENT --------------------------------------- Year 1 Year 2 ------ ------ Stabilized NOI $737,836 $737,836 Projected NOI 663,371 767,349 ------- ------- Rent Loss $74,465 $0 7.00% PV Factor 0.934579 0.873439 -------- -------- PV Income Loss $69,593 $0 CUMULATIVE LOSS $69,593 ================================================================================ DIRECT CAPITALIZATION Direct capitalization is a method used to convert a single year's income estimate into a value indication. In direct capitalization a rate of return for the investor and recapture of the capital invested is implicit in the overall capitalization rate. The overall capitalization rate was chosen after analyzing the comparable apartment sales in our Sales Comparison Approach. These sales indicated a range of "going-in" capitalization rates from 7.76 to 10.90 percent. The Korpacz investor survey previously quoted indicated an average desired going-in capitalization rate of 9.29 percent. Some weight in this analysis is given to the comparable market sales since these transactions best illustrate the behavior of investor/purchasers in this marketplace. Investors' greater aversion to risk in the market caused by the recent national recession and credit constriction indicates that the range of capitalization rates from the comparables, which sold prior to this phase in the economy may be optimistic. Therefore, from these findings an overall rate of 9.00 percent was chosen for application to the subject. This rate is 1.0 percentage point lower than the terminal capitalization rate utilized for the subject in the preceding discounted cash flow analysis. The direct capitalization method indicates a value of $8,000,000 and is shown on the facing page. INCOME APPROACH CONCLUSION DCF Method........................................$8,000,000 Direct Capitalization Method......................$8,000,000 Consideration is given to both the discounted cash flow method and the direct capitalization approach. These have been rounded to the nearest ten thousand dollars, however, for purposes of the income approach conclusion, the value is rounded to the nearest fifty thousand. From the above analysis provided by the Income Approach, we estimate the leased fee market value of the subject property on an "as is" all cash basis, as of December 31, 1997, to be EIGHT MILLION DOLLARS ($8,000,000) 48 RECONCILIATION - -------------------------------------------------------------------------------- Sales Comparison Approach $8,000,000 Income Approach $8,000,000 The Sales Comparison Approach utilized recent comparable sales of similar properties in the area. The weakness of the Sales Comparison Approach is that no two properties are exactly alike and exact conditions of a sale are often unknown. The strength of this approach is that it indicates the market activity based on the willing buyer/willing seller concept. Eight recent sales, dating from May 1996 through August 1997 were utilized in the Sales Comparison Approach. Each is similar to the subject property in several characteristics including occupancy, location, age, construction quality, amenities, and/or condition. The data on the comparable sales was considered to be reasonably accurate and reliable. The methods of comparison utilized in this analysis were the net operating income per square foot and per unit and the effective gross rental multiplier (EGRM) methods. These indicators rely on a comparison of income rather than physical attributes. Thus, adjustments for physical factors are not necessary as economics are the common denominator. A final market value estimate for the subject was made based on the analysis presented in the Sales Comparison Approach. The Income Approach attempts to measure investment qualities of the property. Based on actual rents in the immediate area of the subject, actual expenses, and investor returns derived from the market, we have estimated value. Actual data on the property, as well as comparable data from nearby similar properties, were considered to be adequate. Because the Income Approach deals directly with income streams, we believe it is a very good indication of current market conditions. It tends to reflect a value, which an investor of a property would anticipate. In the Income Approach, comparable properties from the subject Ponte Vedra Beach area were utilized when deriving the subject property's economic market rents and projected expenses. For this reasoning, the Income Approach is given greatest weight in the final analysis. Therefore, it is our opinion that the market value of the leased fee estate of the subject property on an "as is" all cash basis, as of December 31, 1997, is EIGHT MILLION DOLLARS ($8,000,000) 49 THE LINKS AT WINDSOR PARKE - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 1 PROPERTY IDENTIFICATION Job Number 97-074 Project Name The Links at Windsor Park Address 13700 Sutton Park Drive North City/County/State Jacksonville, Florida TRANSACTION DATA Sale Date 08/97 Grantor (Seller) Windsor Park Apartments, Ltd. Grantee (Buyer) Rancho Bernardo Corporate Center Recorded Document 8726-846 Sale Price $20,500,000 Occupancy 95% Sale Price per Unit $73,214 Sale Price per SF $69.11 Capitalization Rate 8.56% TERMS OF SALE Said to be cash INCOME/EXPENSE DATA Potential Gross Income $2,767,693 Vacancy/Collection Loss ($138,385) Effective Gross Income $2,629,308 Operating Expenses $(874,508) Net Operating Income $1,754,800 PROPERTY DESCRIPTION Year Built 1995 Number of Stories 2 and 3 Number of Units 280 Number of Bedrooms NA Net Rentable Area 296,616 SF Average Unit Size 1,059 SF Land Area 23.36 acres Unit Density 11.98 Units per Acre Property Condition Excellent Parking (type) Open Construction Type Wood frame/Wood Siding/Stucco Confirmed With Steve Coley, Barnett Bank Date Confirmed 11/18/97 Comments: Was completed in early 1995 and was in excellent condition at time of sale. Complex amenities include security fencing with remote entry gate, swimming pool, sun deck, tennis courts, clubhouse with fitness center, playground, and amenity lake with partial frontage along golf course fairways. Units have installation alarms, washer/dryer, appliances ceiling fans, window coverings, and built-in bookcases. SAN PABLO - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 2 PROPERTY IDENTIFICATION Job Number 97-074 Project Name San Pablo Address 14401 Jose Vedra Blvd.. City/County/State Jacksonville, Florida TRANSACTION DATA Sale Date 06/97 Grantor (Seller) N/A Grantee (Buyer) N/A Recorded Document N/A Sale Price $5,350,000 Occupancy 90% Sale Price per Unit $26,750 Sale Price per SF $28.96 Capitalization Rate 10.8% TERMS OF SALE Cash INCOME/EXPENSE DATA Potential Gross Income $1,302,800 Vacancy/Collection Loss ($130,280) Effective Gross Income $1,172,520 Operating Expenses ($589,370) Net Operating Income $583,150 PROPERTY DESCRIPTION Year Built 1974 Number of Stories 2 Number of Units 200 Number of Bedrooms 350 Net Rentable Area 184,750 Average Unit Size 924 SF Land Area 14.24 acres Unit Density 14.04 Units per Acre Property Condition Average Parking (type) Open parking Construction Type Concrete block with masonry and wood veneer Confirmed With David V. Allen, CB Commercial Real Estate Group, Inc. Date Confirmed 11/18/97 Comments San Pablo Apartments needed new plumbing system, wood replacement, some roof replacement and other repairs at time of sale. The property has tennis courts, basketball courts, full size pool, and playground. Expenses do not include reserves. HUNTER'S RIDGE - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 3 PROPERTY IDENTIFICATION Job Number 97-074 Project Name Hunter's Ridge (previously Oaks at Deerwood) Address 10100 Baymeadows Road City/County/State Jacksonville, Florida TRANSACTION DATA Sale Date 05/97 Grantor (Seller) Oaks at Baymeadows II Associates, Ltd. Grantee (Buyer) Mid-America Apartments of Duval, L.P. Recorded Document 8653-596 Sale Price $15,200,000 Occupancy 92% Sale Price per Unit $45,238 Sale Price per SF $51.54 Capitalization Rate 7.76% TERMS OF SALE Said to be cash INCOME/EXPENSE DATA Potential Gross Income $2,451,409 Vacancy/Collection Loss ($196,113) Effective Gross Income $2,255,296 Operating Expenses $1,075,776 Net Operating Income $1,179,520 PROPERTY DESCRIPTION Year Built 1987 Number of Stories 2 and 3 Number of Units 336 Number of Bedrooms NA Net Rentable Area 294,888 SF Average Unit Size 878 SF Land Area 34.70 acres Unit Density 9.68 Units per Acre Property Condition Average Parking (type) Open parking Construction Type Wood frame/Wood Siding/Shingle roof Confirmed With Steve Coley, Barnett Bank Date Confirmed 11/18/97 Comments Property had a name change after the sale and is now known as Hunter's Ridge. Clubhouse has a tile roof covering and entry is paved with brick payers. Well landscaped and treed. Amenities include a pool with hot tub, tennis courts, fitness facility in clubhouse, car care center, racquet ball/volleyball court, outdoor storage for each unit, mini-blinds, and washer/dryer connections. WOODHOLLOW - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 4 PROPERTY IDENTIFICATION Job Number 97-074 Project Name Woodhollow Apartments Address 1715 Hodges Blvd. City/County/State Jacksonville, Florida TRANSACTION DATA Sale Date 04/97 Grantor (Seller) Woodhollow Apartments, LP Grantee (Buyer) Mid-America Apartments, LP Recorded Document 8590-2406 Sale Price $16,700,000 Occupancy 94% Sale Price per Unit $37,111 Sale Price per SF $48.99 Capitalization Rate 9.60% TERMS OF SALE Cash to mortgage of $10,350,000 @ 7.5% Due in 7 years, based on 25 amortization schedule INCOME/EXPENSE DATA Potential Gross Income $3,245,490 Vacancy/Collection Loss ($194,729) Effective Gross Income $3,050,761 Operating Expenses ($1,447,561) Net Operating Income $1,603,200 PROPERTY DESCRIPTION Year Built 1986 Number of Stories 2 Number of Units 450 Number of Bedrooms 690 Net Rentable Area 342,162 SF Average Unit Size 760 SF Land Area 38.65 acres Unit Density 11.6 Units per Acre Property Condition Average Plus Parking (type) Open parking Construction Type Wood frame Confirmed With David V. Allen, CB Commercial Real Estate Group, Inc. Date Confirmed 11/18/97 Comments The cap rate does not include a deduction for reserves. Amenities are a 6-acre lake, olympic size pool with large cool deck, jacuzzi, 2 tennis courts, 2 volleyball courts, BBQ and picnic areas, large playground, and a gated boat storage. THE COURTS AT PONTE VEDRA - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 5 PROPERTY IDENTIFICATION Job Number 97-074 Project Name The Courts at Ponte Vedra Address 101 Vera Cruz Drive City/County/State Ponte Vedra Beach, FL TRANSACTION DATA Sale Date 01/97 Grantor (Seller) Windsor Apartments, L.P. Grantee (Buyer) Metropolitan Life Insurance Corporation Recorded Document 01220-01824 Sale Price $19,000,000 Occupancy 95% Sale Price per Unit $75,099 Sale Price per SF $75.12 Capitalization Rate 8.34% TERMS OF SALE Said to be cash INCOME/EXPENSE DATA Potential Gross Income $2,734,426 Vacancy/Collection Loss ($136,721) Effective Gross Income $2,597,705 Operating Expenses ($1,013,105) Net Operating Income $1,584,600 PROPERTY DESCRIPTION Year Built 1996 Number of Stories 3 Number of Units 253 Number of Bedrooms N/A Net Rentable Area 252,916 SF Average Unit Size 1,000 SF Land Area 9.23 acres Unit Density 27.41 Units per Acre Property Condition Excellent Parking (type) Open parking Construction Type Wood frame/Masonry/Stucco Confirmed With Steve Coley, Barnett Bank Date Confirmed 11/18/97 Comments Built in late 1996 and sold on 95% proforma. Leasing was ahead of schedule at time of sale. Complex was in excellent condition. Property had very attractive architectural design features at windows and roof lines. Amenities include security gate entry, fountain, brick pavers, lap pool, heated spa, and clubhouse with business center. Property had higher unit density than most projects in Ponte Vedra. THE HUNTINGTON AT HIDDEN MILLS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 6 PROPERTY IDENTIFICATION Job Number 97-074 Project Name The Huntington at Hidden Mills (formerly Cozumel) Address 3333 Monument Road Location East side of Monument Road, north of SR 10 (Atlantic Blvd.) City/County/State Jacksonville, Duval, Florida TRANSACTION DATA Date of Sale 8/8/96 Grantor (Seller) Private Syndication Grantee (Buyer) Walden Residential Recorded Document NA Sale Price $7,225,000 Occupancy 98% Sale Price per Unit $32,254.46 Sale Price per SF $40.26 TERMS OF SALE Cash INCOME/EXPENSE DATA Potential Gross Income $1,356,839 Vacancy/Collection Loss 2.8% $ 37,991 Effective Gross Income $1,318,848 Operating Expenses $628,166 Net Operating Income $690,682 PHYSICAL DATA Year Built 1986 Number of Stories 2-3 Number of Units 224 Number of Bedrooms 376 Net Rentable Area 179,476 SF Average Unit Size 801 SF Land Area 14.92 acres Unit Density 15 Property Condition Average Parking (type) Asphalt, open Construction Type Stucco/wood siding with composition roofs Confirmed With Dan Allen/CB Commercial/(904) 630-6362 Date Confirmed 10/10/96/LW/Bach Thoreen McDermott Inc. Comments Price adjusted upward by $350,000 for required re- plumbing and was a credit given by the seller. The net operating income (NOI) does not include an allowance for reserve for replacement expenses. THE ANTLERS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 7 PROPERTY IDENTIFICATION Job Number 97-074 Project Name The Antlers Address 8433 Southside Blvd. Location East side of Southside Blvd., south of J. Turner Butler Blvd. City/County/State Jacksonville, Duval, Florida TRANSACTION DATA Grantor (Seller) Balcor Grantee (Buyer) United Dominion Real Estate Date of Sale 5/29/96 Sale Price $15,000,000 Occupancy 97% Terms of Sale Cash Sale Price per Unit $37,500.00 Sale Price per SF $45.77 TERMS OF SALE Cash INCOME/EXPENSE DATA Potential Gross Income $2,752,915 Vacancy/Collection Loss 3.2% $ 88,093 Effective Gross Income $2,664,822 Operating Expenses $1,140,493 Net Operating Income $1,524,329 PHYSICAL DATA Year Built 1985 Number of Stories 2-3 Number of Units 400 Number of Bedrooms 504 Site Area 42.51 acre(s) Net Rentable Area 327,728 SF Average Unit Size 819 SF Land Area 42.51 acres Unit Density 9.4 Property Condition Average Parking (type) Asphalt, open Construction Type Stucco/Wood siding with composition roofs Confirmed With Dan Allen/CB Commercial/(904) 630-6362 Date Confirmed 10/10/96/LW/Bach Thoreen McDermott Inc. Comments The net operating income (NOI) does not include an allowance for reserve for replacement expenses. WESTLAND PARK - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 8 PROPERTY IDENTIFICATION Job Number 97-074 Project Name Westland Park Address 6710 Collins Road Location North side of Collins Road, north of I-295 City/County/State Jacksonville, Duval, Florida TRANSACTION DATA Grantor (Seller) Vestcor Grantee (Buyer) United Dominion Real Estate Sale Date 5/9/96 Sale Price $16,950,060 Occupancy 97% Terms of Sale Cash Sale Price per Unit $41,852.00 Sale Price per SF $42.06 TERMS OF SALE Cash INCOME/EXPENSE DATA Potential Gross Income $2,929,883 Vacancy/Collection Loss 3.7% $108,406 Effective Gross Income $2,821,477 Operating Expenses $1,104,247 Net Operating Income $1,717,230 PHYSICAL DATA Year Built 1989 Number of Stories 2-3 Number of Units 405 Number of Bedrooms 723 Net Rentable Area 403,010 SF Average Unit Size 995 SF Land Area 27.17 Unit Density 14.9 Property Condition Average Parking (type) Asphalt, open Construction Type Stucco/Wood siding with composition roofs Confirmed With Dan Allen/CB Commercial/(904) 630-6362 Date Confirmed 10/10/96/LW/Bach Thoreen McDermott Inc. Comments The net operating income (NOI) does not include an allowance for reserve for replacement expenses. THE GREENS AT MARSH LANDING - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 1 PROPERTY IDENTIFICATION Project No.: 97-074 Name of Project: The Greens at Marsh Landings Street Address: 1800 The Greens Way City/State: Ponte Vedra, Florida PROPERTY DESCRIPTION Year Built/Renovated: 1989 Number of Buildings: NA Number of Stories: 2 Number of Units: 192 Net Rentable Area (SF): 201,848 Average Unit Size (SF): 1,051 Parking Surface: Asphalt Parking Spaces: Unknown, has garages Type of Construction: Wood frame with stucco exterior and composition roof Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF ----------------------------------------------------- 40 1BR/1BA 770 $ 756 $ 0.982 104 2BR/2BA 1,065 865 0.812 48 3BR/2BA 1,256 1,050 0.836
Unit Amenities: Microwaves, screened-in patios, washer/dryer, glass enclosed fireplace, ceiling fans, walk-in closets, and alarms. Project Amenities: Garages with remote control, swimming pool and spa, fitness center, and car care center. ECONOMIC DATA Percent Occupied: 88.5% Avg. Monthly Rent/SF of NRA: $0.845 Electricity Paid By: Tenant Length of Lease: 7 to 12 months Security Deposit: $275 Pets Allowed/Deposit: Yes; $300 - $500 deposit Confirmed With: On-site agent and ConAm Agent's survey Date Confirmed: December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Remarks: One month free on 3 bedroom -- one year lease, 1/2 month free rent on 7 month lease. MARSH COVE - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 2 PROPERTY IDENTIFICATION Project No. 97-068/97-074 Name of Project: Marsh Apartments Street Address: 1220 Marsh Cove Lane City/State: Ponte Vedra, Florida PROPERTY DESCRIPTION Year Built/Renovated: 1983 Number of Buildings: 15 Number of Stories: 1-2 Number of Units: 86 Net Rentable Area (SF): 96,176 Average Unit Size (SF): 1,118 Parking Surface: Asphalt Parking Spaces: Open parking Type of Construction: Frame and stucco walls with composition roofs Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF --------------------------------------------- 18 2BR/2BA/FL 980 $ 740 $0.755 12 2BR/2BA/FL 1,100 780 0.709 8 2BR/2BA/LOFT 1,242 850 0.684 26 2BR/2.5BA/TH 1,050 760 0.724 16 2BR/2.5BA/TH 1,220 810 0.664 6 3BR/3BA 1,430 1,010 0.706
FL = flat; TH = townhouse Unit Amenities: Dishwashers, garbage disposals, microwave ovens, washer/dryer connections, miniblinds, fireplaces, outdoor utility closets, patio/balconies Project Amenities: 1 swimming pool, 1 tennis court, hot tub ECONOMIC DATA Percent Occupied: 95.0% Avg. Monthly Rent/SF of NRA: $0.71 Electricity Paid By: Tenant Length of Lease: 7 or 12 months Security Deposit: $200 Pets Allowed/Deposit: Yes, 25 pounds maximum $200 nonrefundable Confirmed With: Leasing agent and ConAm on-site agent survey Date Confirmed: December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Remarks: There is an extra $10/month rent surcharge for seven-month leases. There is also a premium of $10 per month for lake view units. No concessions are give. THE FAIRWAYS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 3 PROPERTY IDENTIFICATION Project No. 97-068/97-069/97-074 Name of Project: The Fairways Apartments Street Address: 100 Fairway Park Boulevard City/State: Ponte Vedra, Florida PROPERTY DESCRIPTION Year Built/Renovated: 1984 Number of Buildings: 21 Number of Stories: 2-3 Number of Units: 216 Net Rentable Area (SF): 186,600 Average Unit Size (SF): 864 Parking Surface: Asphalt Parking Spaces: Open parking Type of Construction: Frame and stucco walls with composition roof Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF --------------------------------------------- 8 1BR/1BA 500 $555 $ 1.01 18 1BR/1BA 600 615 1.03 86 2BR/2BA/FL 950 700 0.737 68 2BR/1BA/TH 750 650 0.867 18 2BR/2BA/TH 1,100 740 0.673 18 2BR/1.5BA/TH 1,050 705 0.671
FL = flat; TH = townhouse Unit Amenities: Dishwashers, garbage disposals, washer/dryer in units, miniblinds, fireplaces, outdoor utility closets, patio/balconies Project Amenities: 1 swimming pool, 2 tennis courts, hot tub, exercise/weight room, clubroom, laundry facility, lake ECONOMIC DATA Percent Occupied: 88% Avg. Monthly Rent/SF of NRA: $0.782 Electricity Paid By: Tenant Length of Lease: 7 to 12 months Security Deposit: $275 Pets Allowed/Deposit: Yes; 20 pounds maximum, $300-500 nonrefundable Confirmed With: Leasing Agent and ConAm on-site agent survey Date Confirmed: December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Remarks: Differences in rental rates between individual floor plans are due to screened-in porches and fireplaces. THE ARBOR CLUB - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 4 PROPERTY IDENTIFICATION Project No. 97-068/97-069/97-074 Name of Project: Arbor Club Apartments Street Address: 1 Arbor Club Drive City/State: Ponte Vedra, Florida PROPERTY DESCRIPTION Year Built/Renovated: 1992 Number of Buildings: 13 plus 12 garage buildings Number of Stories: 2-3 Number of Units: 251 Net Rentable Area (SF): 288,924 Average Unit Size (SF): 1,151 Parking Surface: Asphalt Parking Spaces: Open and garage space ($55/month) Type of Construction: Wood/stucco siding Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF ------------------------------------------------------ 52 1BR/1BA 881 $ 655-685 $0.743-0.778 52 1BR/1BA/LOFT 1,102 740-760 0.672-0.690 60 2BR/2BA 1,181 790-82- 0.669-0.694 60 2BR/2BA 1,254 825-855 0.658-0.682 9 3BR/2BA 1,426 980-1,000 0.687-0.701 18 2BR/2BA 1,493 1,025-1,050 0.687-0.703
Unit Amenities: Dishwashers, garbage disposals, microwave ovens, washer/dryer connections, miniblinds, fireplaces, vaulted ceilings, walk-in closets, burglar alarms Project Amenities: 1 swimming pool, 2 tennis court, jacuzzi, exercise/weight room, clubroom, laundry facility, on-site security, garages ECONOMIC DATA Percent Occupied: 100% Avg. Monthly Rent/SF of NRA: $0.693 Electricity Paid By: Tenant Length of Lease: 7 or 12 months Security Deposit: $175 Pets Allowed/Deposit: 25-pound limit; $300 pet fee (nonrefundable) Confirmed With: Leasing Agent and ConAm on-site agent survey Date Confirmed: December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Remarks: This project opened in April 1992. Differences in rental rates for individual units are due to fireplaces, lake view, and upstairs/downstairs. There is also a $70 per month garage fee. One month free rent with a 12-month lease. OCEAN LINKS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] [PICTURE APPEARS HERE] RENT COMPARABLE 5 PROPERTY IDENTIFICATION Project No. 97-074 Name of Project: Ocean Links Street Address: 310 Solano Road City/State: Ponte Vedra, Florida PROPERTY DESCRIPTION Year Built/Renovated: 1993 Number of Buildings: NA Number of Stories: 2 Number of Units: 192 Net Rentable Area (SF): 251,100 Average Unit Size (SF): 1,308 Parking Surface: Asphalt Parking Spaces: Open and private garages Type of Construction: Wood frame with stucco exterior and composition shingle roof Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF ------------------------------------------------- 36 1BR/1BA 943 $690-790 $0.732-0.838 72 2BR/2BA 1,294 860-980 0.665-0.757 36 2BR/2BA 1,304 970-990 0.744-0.759 48 3BR/2BA 1,605 990-1,110 0.617-0.692
Unit Amenities: Ceiling fans, fireplaces, intrusion alarm, panic buttons, microwaves, sky lights, vaulted ceilings, and washer/dryer Project Amenities: Swimming pool, tennis court, sauna, spa, garages, clubhouse, and fitness center. ECONOMIC DATA Percent Occupied: 93% Avg. Monthly Rent/SF of NRA: $0.711 Electricity Paid By: Tenant Length of Lease: 7 or 12 months Security Deposit: $200 Pets Allowed/Deposit: Yes $250 deposit Confirmed With: Leasing Agent and ConAm on-site agent survey Date Confirmed: December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Remarks: One month free is given on a 12-month lease. LEGAL DESCRIPTION Phase I: - -------- A part of Section 27 and 46, Township 3 South, Range 29 East, St. Johns County, Florida, and being more particularly described as follows: Commence at the southeast corner of said Section 27 and run S. 74 degrees 22'30" west a distance of 12.00 feet to the point of beginning; thence S. 15 degrees 37'30" east a distance of 340.31 feet, thence S. 83 degrees 30'30" west a distance of 440.00 feet; thence north 2 degrees 39'15" west a distance of 584.99 feet; thence north 71 degrees 33'30" west a distance of 70.00 feet, to the point of curvature of a curve to the right, said curve being concave northeasterly and having a radius of 367.96 feet; thence northwesterly along the arc of said curve through a central angle of 13 degrees 30'00", an arc distance of 86.70 feet, said arc being subtended by a chord bearing and distance of north 64 degrees 48'30" west, 86.50 feet to the point of tangency of said curve; thence north 58 degrees 03'30" west a distance of 200.00 feet to the point of curvature of a curve to the left, said curve being concave southwesterly and having a radius of 400.00 feet; thence northwesterly along the arc of said curve, through a central angle of 35 degrees 43'44", an arc distance of 249.43 feet, said arc being subtended by a chord bearing and distance of north 75 degrees 55'22" west 245.41 feet to a point of reverse curvature of a curve to the right, said curve being concave northeasterly and having a radius of 460.00 feet; thence northwesterly along the arc of said curve through a central angle of 12 degrees 50'04", an arc distance of 103.04 feet, said arc being subtended by a chord bearing and distance of north 87 feet 22'12" west 102.83 feet to a point of reverse curvature of a curve to the left, said curve being concave southwesterly and having a radius of 470.00 feet; thence northwesterly along the arc of said curve, through a central angle of 12 degrees 58'20", an arc distance of 106.41 feet, said arc being subtended by a chord bearing and distance of north 87 degrees 26'20" west 106.18 feet to the point of tangency of said curve said point lying in the easterly right-of-way line of State Road A-I-A as now established; thence north 03 degrees 55'30" east a distance of 338.66 feet; thence south 15 degrees 37'30" east a distance of 432.31 feet; thence north 76 degrees 50'30" east a distance of 18.02 feet; thence south 15 degrees 37'30" east a distance of 374.79 feet to the point of beginning. Containing 21.75 acres more of less being the same land as described as Exhibit "A" of official records Volume 568, Pages 263 through 266, of the Public Records of said county. PROFESSIONAL QUALIFICATIONS STEVAN N. BACH EXPERIENCE Bach Realty Advisors, Inc. (since June 1997) President. Emphasis in ad valorem tax and intangible value. Real estate valuation and consultation on hotels, major urban properties, and property portfolios. Financial and feasibility analysis, land use, and market studies Bach Thoreen McDermott Incorporated (July 1991-May 1997) Chief Executive Officer. Bach Thoreen & Associates, Inc. (1985-1991) President Bach & Associates, Inc. (1980-1984) President Landauer Associates, Inc. (1980-1984) Senior Vice-President and General manager-Southwestern Region Coldwell Banker Commercial Group, Inc. (1973-1980) Vice-president and Manager, Appraisal Services. Appraisal Research Associates (1971-1973) Appraiser. Real Estate research valuation on urban and rural properties. Ray R. Hastings, MAI (1964-1971) Appraiser. Real Estate research valuation on urban and rural properties. Residential Real Estate Sales (1963-1964) Salesman. Residential real estate salesman Covina, California. PROFESSIONAL ACTIVITIES Member: Appraisal Institute Appraisal Institute, Houston Chapter 33 Appraisal Institute, Chairman of the Grievance Committee of the Regional Ethics Panel Appraisal Institute, Chairman of the Review and Counseling Committee of the Regional Ethics Panel Appraisal Institute, Co-Chairman of the Education Committee (1980) Appraisal Institute, Chairman of the Education Committee (1983) Appraisal Institute, Candidate Guidance Committee (1987-1992) Appraisal Institute, Subcommittee Chairman, Admissions Committee (1984) AIREA Nonresidential Appraisal Report Grading Committee (1984) Appraisal Institute Expert Witness Video Committee (1990) Licenses: Real Estate Broker, State of Texas Certification: Certified in the Appraisal Institute's voluntary program of continuing education for its designated members (MAIs who meet the minimum standards of this program are awarded periodic education certification). Certified General Real Estate Property appraiser in the State of Texas, Certification No. TX-1323079-G Certified General Real Estate Property appraiser in the State of Colorado, Certification No. CG01323975 EDUCATION B.S. Marketing, University of Southern California (1962) COMPLETE, SELF-CONTAINED VALUATION OF RANCHO ANTIGUA 8787 EAST MOUNTAIN VIEW ROAD SCOTTSDALE, ARIZONA FOR HUTTON/CON AM REALTY INVESTORS 2 1764 SAN DIEGO AVENUE SAN DIEGO, CALIFORNIA 92110 AS OF DECEMBER 31, 1997 BY BACH REALTY ADVISORS, INC. 1221 LAMAR, SUITE 1325 HOUSTON, TEXAS 77010 BRA: 97-081 Rancho Antigua Bach Realty Advisors, Inc. Table of Contents
TABLE OF CONTENTS - -------------------------------------------------------------------------------- Letter of Transmittal.......................................... 1 Assumptions and Limiting Conditions............................ 2 Certification.................................................. 4 Salient Facts and Conclusions.................................. 6 Nature of the Assignment....................................... 7 City/Neighborhood Analysis..................................... 9 Apartment Market Analysis...................................... 16 Site Analysis.................................................. 20 Improvements................................................... 23 Highest and Best Use........................................... 25 Appraisal Procedures........................................... 28 Sales Comparison Approach...................................... 34 Income Approach................................................ 34 Reconciliation................................................. 43
ADDENDUM Rent Comparables Improved Sale Comparables Professional Qualifications B.A.C.H Realty Advisors, Inc. Appraisal, Consultation & Litigation March 26, 1998 Hutton/Con Am Realty Investors 2 1764 San Diego Avenue San Diego, California 92110 Re: A Complete, Self-Contained Appraisal of Rancho Antigua Apartments, Scottsdale, Arizona; BRA 97-081 Gentlemen: By your request and authorization, we have inspected the above-referenced property and have investigated the real estate market in the subject area in order to provide the value of the leased fee estate of the subject property as of December 31, 1997. This complete, self-contained appraisal report is in conformance with the guidelines of the Appraisal Institute. The scope of this assignment includes the Sales Comparison and Income Approaches to value. The property was inspected in December 1997, and for the purposes of this report it is assumed that all physical and economic conditions are similar on the date of value as they were on the date of inspection. Our analysis of the property focused on the supply and demand factors influencing the Phoenix and subject area apartment market, the sale of comparable properties, market rent levels, appropriate operating expenses, and acceptable investor returns. As a result of our inspection of the property, investigation of the real estate market, and relying on our experience with similar type properties, it is our opinion that the leased fee market value of the subject property, all cash, on an "as is" basis, as of December 31, 1997 is in the sum of TWELVE MILLION SIX HUNDRED THOUSAND DOLLARS ($12,600,000) There follows on the succeeding pages of this report pertinent data as to the valuation conclusions expressed herein. Your attention is also directed to the Assumptions and Limiting Conditions that follow this letter, as they are an integral part of the above stated market value. Thank you for the opportunity to be of service. If there are any questions regarding the valuation, please contact us. Sincerely, BACH REALTY ADVISORS,INC. /s/ Stevan N. Bach Stevan N. Bach, MAI President and Chief Executive Officer Four Houston Center 1221 Lamar, Suite 1325 Houston, TX 77010 (713) 739-0200 Fax (713) 739-0208 Rancho Antigua Bach Realty Advisors, Inc. Assumptions and Limiting Conditions ASSUMPTIONS AND LIMITING CONDITIONS - -------------------------------------------------------------------------------- The certification of this complete, self-contained appraisal is subject to the following assumptions and limiting conditions. 1. That responsibility is not taken for matters of a legal nature affecting the property appraised or the title thereto and that all legal descriptions furnished are correct. 2. That the title to the property being appraised is good and marketable and is appraised as though under responsible ownership and/or management. 3. That the property is free and clear of all liens and encumbrances, except as otherwise stated. 4. That the sketches in this report are included to assist the reader in visualizing the property and responsibility is not assumed for their accuracy. 5. That a survey of the property has not been made by the appraiser. 6. That the information, estimates, and opinions furnished the appraiser by others and contained in this report are considered reliable and are believed to be true and correct; however, responsibility is not taken for their accuracy. 7. That responsibility is not taken for soil conditions or structural soundness of the improvements that would render the property more or less valuable. 8. That possession of this appraisal does not carry with it the right of publication and that this report, or any parts thereof, may not be reproduced in any form without written permission of the appraiser. 9. That testimony or attendance in court or at a hearing are not a part of this assignment; however, any such appearance and/or preparation for testimony will necessitate additional compensation than received for this appraisal report. 10. That the valuation estimate herein is subject to an all cash or cash equivalent purchase and does not reflect special or favorable financing in today's market. 11. Where discounted cash flow analyses have been undertaken, the discount rates utilized to bring forecasted future revenues to estimates of present value reflect both our market investigations of yield anticipations and our judgement as to the risks and uncertainties in the subject property and the consequential rates of return required to attract an investor under such risk conditions. There is no guarantee that projected cash flows will actually be achieved. 2 12. That the square footage figures are based on floor plans and information supplied to the appraiser by Con Am Management. 13. Bach Realty Advisors, Inc. is not an expert as to ------------------------------------------------- asbestos and will not take any responsibility for its ----------------------------------------------------- existence or the existence of other hazardous materials ------------------------------------------------------- at the subject property, analysis for EPA standards, ---------------------------------------------------- its removal, and/or its encapsulation. If the reader of ------------------------------------------------------- this report and/or any entity or person relying on the ------------------------------------------------------ valuations in this report wishes to know the exact or ----------------------------------------------------- detailed existence (if any) of asbestos or other toxic ------------------------------------------------------ or hazardous waste at the subject property, then we not ------------------------------------------------------- only recommend, but state unequivocally that they ---- -------------------------------------------- should obtain an independent study and analysis ----------------------------------------------- (including costs to cure such environmental problems) ----------------------------------------------------- of asbestos or other toxic and hazardous waste. ----------------------------------------------- 14. In addition, an audit on the subject property to determine its compliance with the Americans with Disabilities Act of 1990 was not available to the appraiser. The appraiser is unable to certify compliance regarding whether the removal of any barriers which may be present at the subject are readily achievable. 3 CERTIFICATION - -------------------------------------------------------------------------------- The undersigned does hereby certify to the best of my knowledge and belief that, except as otherwise noted in this complete, self-contained appraisal report: 1. I do not have any personal interest or bias with respect to the subject matter of this appraisal report or the parties involved. 2. The statements of fact contained in this appraisal report, upon which the analyses, opinions, and conclusions expressed herein are gauged, are true and correct. 3. This appraisal report sets forth all of the limiting conditions (imposed by terms of our assignment or by the undersigned) affecting the analyses, opinions, and conclusions contained in this report. 4. The analysis, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Uniform Standards of Professional Appraisal Practice of the Appraisal Institute. 5. That no one other than the undersigned prepared the analyses, opinions, and conclusions concerning the subject property that are set forth in this appraisal report. Stevan N. Bach inspected the property in December 1997. 6. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 7. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are my personal, unbiased professional analyses, opinions, and conclusions. 8. The Appraisal Institute conducts a program of continuing education for its members. Members who meet the minimum standards of this program are awarded periodic educational certification. As of the date of this report, Stevan N. Bach, MAI has completed the requirements under the continuing education program of the Appraisal Institute. 9. Compensation for this assignment is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. 4 Rancho Antigua Bach Realty Advisors, Inc. Certification 10. Based on the knowledge and experience of the undersigned and the information gathered for this report, the estimated leased fee market value, "as is," of the subject property on an all cash basis, as of December 31, 1997, is $12,600,000. /S/ Stevan N. Bach ------------------------------------------ Stevan N. Bach, MAI President and Chief Executive Office Certified General Real Property Appraiser State of Texas TX-1323079-G 5 SALIENT FACTS AND CONCLUSIONS - -------------------------------------------------------------------------------- Identification: Rancho Antigua Location: 8787 East Mountain View Road BRA: 97-081 Legal Description: A parcel of land situated in Section 25 T3N, R4E Section 30 T3N, R5E, G&SRB&M, Maricopa County, Arizona Land Size: 13.795 acres or 600,910 square feet Building Area: 217,758 square feet Year Built: 1982 Unit Mix: 60 1BR/lBA at 809 square feet 30 2BR/2BA at 961 square feet 28 lBR/1.5BA/DEN at 961 square feet 62 2BR/2BA at 1,020 square feet 20 2BP/2BA/TH at 1,202 square feet 20 3BR/2BA at 1,310 square feet No. of Units: 220 Average Unit Size: 990 square feet Physical Occupancy: 95 percent Economic Occupancy: 89 percent Highest and Best Use As Vacant: Multifamily As Improved: Multifamily Date of Value: December 31, 1997 "As Is" Market Value by Sales Comparison Approach: $12,700,000 "As Is" Market Value by Income Approach: $12,600,000 "As Is" Market Value Conclusion: $12,600,000 6 Rancho Antigua Bach Realty Advisors, Inc. Nature of the Assignment NATURE OF THE ASSIGNMENT - -------------------------------------------------------------------------------- PURPOSE OF THE APPRAISAL The purpose of this complete, self-contained appraisal is to give an estimate of the "as is" leased fee market value of the subject property on an all cash basis. IDENTIFICATION OF THE PROPERTY The subject property contains 21 two-story buildings with 220 units and a total net rentable area of 217,758 square feet. It was constructed in 1982 on 13.795 acres. It is identified as Rancho Antigua Apartments located at 8787 East Mountain View Road at the southwest corner of Hayden Road in Scottsdale, Arizona. DATE OF THE APPRAISAL All opinions of value expressed in this report reflect physical and economic conditions prevailing as of December 31, 1997 which are assumed to be the same as our most recent inspection date of December 1997. DEFINITION OF SIGNIFICANT TERMS The Appraisal of Real Estate, Eleventh Edition, 1996, sponsored by the Appraisal Institute defines Market Value as: "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) Buyer and seller are typically motivated; (2) Both parties are well informed or well advised, and acting in what they consider their own best interests; (3) A reasonable time is allowed for exposure in the open market; (4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale." 7 Rancho Antigua Bach Realty Advisors, Inc. Nature of the Assignment It is our opinion that a reasonable time period to sell the subject property is six months to one year and this is ---------------------- consistent with current market conditions. A sale earlier than six months to one year may represent a value other than market value and is reasonably believed to be a value less than our market value stated within our appraisal report. Leased Fee Estate/1/ - An ownership interest held by a ----------------- landlord with the rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the leased fee are specified by contract terms contained within the lease. FUNCTION OF THE APPRAISAL It is the understanding of the appraiser that the function of this appraisal is for annual partnership reporting and/or internal purposes. PROPERTY RIGHTS APPRAISED The appraiser have appraised the "as is" leased fee interest subject to short-term leases which are typically 6 to 12 months in duration at the subject property. THREE-YEAR HISTORY According to the Maricopa County records, the current owner is Hutton/Con Am Realty Investors 2. No sale or listing is believed to have occurred over the past three years. SCOPE/BASIS OF THE APPRAISAL This appraisal has been made in accordance with accepted techniques, standards, methods, and procedures of the Appraisal Institute. The values set forth herein were estimated after application and analysis by the Sales Comparison and Income Approaches to value. These approaches are more clearly defined in the valuation section of this report. The Cost Approach was not utilized in our analysis due to the age of the property since depreciation is difficult to accurately measure in older properties. Additionally, it is often the perception of investors that cost does not necessarily equate to value and the purchase price is not typically based on construction costs. The scope of our assignment included obtaining pertinent property data from the client regarding income and expense figures, tenant rent rolls, and permission to inspect the subject. Additionally, the appraiser conducted research either personally or through associates to obtain current market rental rates, construction trends, the sale of comparable improved properties, anticipated investor returns, and the supply and demand of competitive apartment projects in the general and immediate area. After these examinations were performed, an analysis was made in order to estimate the leased fee market value of the subject on an "as is" basis. __________________________ /1/The Dictionary of Real Estate Appraisal, Third Edition, p. 204. --------------------------------------- 8 [AREA MAP APPEARS HERE] CITY/NEIGHBORHOOD ANALYSIS - -------------------------------------------------------------------------------- INTRODUCTION Metropolitan Phoenix covers 9,127 square miles and it is the nucleus of Maricopa County along with 23 additional surrounding communities. Metropolitan Phoenix is part of a geographic area in South Central Arizona known as "the golden corridor," an area of world-class resorts and spas, and a governmental and commercial center for the state. The city of Phoenix is already well developed within the city limits, and the city serves as the core of the metropolitan area's office and commercial development. The expansion of the freeway system has opened up new markets in the western and southern regions. POPULATION The state's capital and the largest city in Arizona, Phoenix is the seventh largest city in the nation. Phoenix is one of the fastest growing major metropolitan areas in the country and was fourth in the nation in absolute growth from 1980 to 1990. In 1996, the Phoenix metropolitan area was second to Las Vegas as the fastest growing metropolitan area in the nation. The population of Phoenix in 1995 was estimated at about 1.1 million and it is projected to be about 1.2 million in 1997. In addition, the population in the Metropolitan Area was estimated at 2.4 million and it is projected to reach approximately 2.7 million in the year 2000. Population figures obtained for Maricopa County indicate the dynamic growth experienced by the Phoenix area. The increase in population is composed largely of net migration into the area due to new employment opportunities, a relatively reasonable cost of living, and a favorable climate. The following summarizes the population growth of the metropolitan area since 1977.
Year No. Persons Annual Change -------------------------------------------------------- 1977 estimate 1,329,800 -- 1980 census 1,509,052 4.31% 1990 census 2,122,101 3.47% 1991 estimate 2,173,135 2.40% 1992 estimate 2,238,000 2.98% 1993 estimate 2,291,200 2.38% 1994 estimate 2,355,900 2.82% 1995 estimate 2,551,765 8.31% 1996 estimate 2,634,625 3.25% 2000 estimate 2,715,097 1.01% 2005 estimate 3,031,348 2.23%
EMPLOYMENT AND LABOR FORCE The tremendous growth of Metropolitan Phoenix and its location has led to a diverse economy and strong business climate. Over the past few years, more than 50 new companies have opened offices in the Phoenix area, which is home to over 80 national and regional headquarters, ranging from major hotel and restaurant chains to high-tech manufacturers and airlines. There has recently been an influx of cost conscious firms relocating from California seeking a location with a lower cost of doing business. Also, Phoenix has become a popular regional hub location for companies with several regional offices. Service industries and trade account for just over half of the employment base in the Phoenix area and are projected to continue to be the largest source of employment growth for the next few years. The economic stability of the region, and the abundant labor force make Phoenix a 9 viable location for information-based industries such as data processing, telecommunications and customer service operations. Many financial services and banking institutions have established data processing, credit card, and customer service operations in the area during the past five years. These include processing and/or regional headquarters operations for American Express, Chase Bank, Bank of America, Discover Card Services, and Well Fargo Bank. Additionally, the electronics and high technology industries have a tremendous presence in Phoenix. High technology/basic manufacturing comprises 10.8 percent of non-agricultural employment with an emphasis on the high technology sector. Motorola is the region's largest private employer, with about 20,000 workers. Additional major electronic and technology-based employers include Honeywell, Intel, Continental Circuits, Medtronic Micro. Rel., Microchip Technology, EF Data Corp., Varian Tempe Electronics Center, ADFlex Solutions, and Litton Electro Optical Systems. Also, since Phoenix is the capital city of Arizona and the county seat for Maricopa County, there is a significant amount of government employment. About 13 percent of the employment distribution in Phoenix is in the government and public sector. The following table indicates the fifteen largest employers in the Phoenix/Scottsdale Metropolitan (Metro) area.
FIFTEEN LARGEST EMPLOYERS -- METRO AREA ---------------------------------------------------------------- FIRM FULL-TIME EMPLOYEES ---------------------------------------------------------------- State of Arizona 60,592 Motorola Inc. 19,350 Maricopa County . 12,025 City of Phoenix 11,393 U.S. Postal Service 10,833 Samaritan Health System 10,800 Allied-Signal Aerospace Co. 8,755 Arizona State University 7,672 Pinnacle West Capital Corporation 7,335 US West Inc. 7,300 American Express Travel Related Services 7,200 Bank America Corp. 7,100 Intel Corp. 6,600 Banc One Corporation 6,500 Mesa Public Schools 6,378
EMPLOYMENT Metropolitan Phoenix, with more than half of the states labor force, has a well-developed and diversified economic base. In part, due to this diversified economy, the unemployment rate in the Phoenix area has fallen over the past few years. The economic recovery began in 1993 with increases in labor force and number of employed persons in every subsequent year. Since a high of 6.4 percent in 1992, the unemployment rate has been below 5 percent in each year since and witnessed a low of 3.3 percent in 1997. The following summarizes this trend. 10
-------------------------------------------------------------------- MARICOPA COUNTY LABOR FORCE DATA -------------------------------------------------------------------- 1980 1990 1991 1992 -------------------------------------------------------------------- Civilian Labor Force 752,908 1,074,500 1,067,900 1,057,200 Employed 708,291 1,028,100 1,016,400 989,800 Unemployed 44,617 46,400 51,500 67,400 Unemployment Rate 5.9% 4.3% 4.8% 6.4%
-------------------------------------------------------------------------------- MARICOPA COUNTY LABOR FORCE DATA (CONT'D) -------------------------------------------------------------------------------- 1993 1994 1995 1996 1997 -------------------------------------------------------------------------------- Civilian Labor Force 1,074,600 1,217,900 1,293,300 1,335,100 1,481,400 Employed 1,025,600 1,158,000 1,244,000 1,289,700 1,433,100 Unemployed 49,000 59,900 49,300 45,500 48,300 Unemployment Rate 4.6% 4.9% 3.8% 3.4% 3.3%
Source: Arizona Department of Economic Security The Greater Phoenix area has a labor force of approximately 1.5 million people, with a mix of managers, professionals, and production workers. Projected employment by occupation shows continued strengthening of the area's professional and technical work force, with service employment increasing as well. TOURISM The Phoenix area enjoys 300 days of sunny skies and warm temperatures each year and it is situated amidst scenic countryside. It is not surprising that Phoenix has become one of the most popular resort areas in America. The metropolitan area has nearly 200 major golf courses, 1,000 tennis courts, and more five-star resorts than any other part of the country. The city understands the impact tourism has on its economy and takes great care to cultivate and promote this aspect of its economy. The outlook for the metropolitan Phoenix lodging market over the next few years is very positive. The market as a whole continues to demonstrate solid growth and has since 1992. According to Lodging Outlook published by Smith Travel Research, the --------------- Phoenix area hotel occupancies have been improving. The 1996 year-end occupancy reached 72.2 percent, a solid growth over the 71.9 percent level in 1995. Also, the average daily room rate showed substantial improvements between 1995 and 1996. In 1995, the average daily room rate was $88.36 and it increased to $94.72 in 1996, which is an increase of 7.2 percent. Obviously, the increases in tourism have created greater business for the Phoenix Sky Harbor International Airport, which is currently, the eleventh busiest airport in the nation. The number of passengers passing through the airport in 1995 was 27.8 million. In 1997, an estimated 31.5 million passengers are expected and by the year 2007 this is anticipated to increase to approximately 44.7 million passengers. Currently, twenty-three airlines offer about 1,100 daily flights. A fourth terminal with 48 gates at a cost of $170 million was opened in late 1990. Additionally, a third runway is planned by the end of the decade. REAL ESTATE The metropolitan Phoenix single family home market has witnessed an unprecedented seven years of increasing or strong housing markets with record setting absorption and price increases. As of the Fourth Quarter 1997, the number of single-family building permits anticipated for 1997 was about 27,719. This was 11 down slightly from the record setting level in 1996 when 28,157 units were permitted. The number of permits is expected to drop to 24,750 in 1998 and 22,594 in 1999. The number of multifamily permits (including apartments and condominiums) are estimated at 6,900 units in 1997. This is expected to drop to 6,400 in 1998 and rise to 6,500 in 1999. The Apartment market is discussed in further detail in the Apartment Market Analysis section of this report. Over the next few years, commercial construction is expected to remain strong and vacancy rates in most sectors are expected to remain relatively stable. The metropolitan Phoenix office market contained approximately 38.1 million square feet in 1996 to which 1.4 million square feet was added in 1997. In 1997 a total of 1.3 million square feet was absorbed. Further gains are expected in 1998 and 1999 of 1.8 million square feet each year with absorption estimated at 1.5 million square feet in each year. The office vacancy rate in 1997 8.9 percent and office vacancy rates are anticipated to stabilize at approximately 9 percent in 1998 and 1999. In 1997, 2.7 million square feet of retail space was added to the 79.5 million square feet already existing. The amount of new construction is expected to decline to 2.1 million in 1998 and 2.0 million in 1999. Absorption in 1997 was a healthy 2.4 million square feet, which is expected to decrease slightly to 2.1 million square feet in 1998, and 2.0 square feet in 1999. The retail vacancy rate in 1997 is 8.8 percent. Vacancy rates in retail space are expected to remain stable at 8.5 percent through 1999. In 1997, 9.1 million square feet of industrial space was added. It is expected that this will decrease to 7.8 million in 1998 and 7.7 million in 1999. The 1997 vacancy for industrial space is 6.9 percent. The forecast for industrial activity includes an estimated vacancy in 1998 and 1999 of 7.1 percent. In 1997 7.9 million square feet were absorbed and it is predicted this will decrease to 7.3 million square feet in 1998 and 7.0 million square feet in 1999. LIVABILITY Recreation and culture are important resources of Phoenix, enhancing its appeal and livability. The city has its own symphony, Phoenix Museum of Fine Arts, Heard Museum, and countless recreational facilities including Phoenix South Mountain Preserve, the largest municipal park in the world. Professional sports, yearly professional golf and tennis events, horse, dog, and auto racing also contribute to the diverse recreational pursuits available in Phoenix. The Phoenix Metropolitan area is served by more than 50 school districts with slightly more than 350 elementary and greater than 55 high schools. In addition, there are approximately 40 parochial and 40 private schools in the area, as well as 10 institutions of higher learning (including Arizona State University-West), and about 80 private technical and business colleges. There are 42 hospitals with over 8,100 beds serving the metropolitan area and 6 emergency medical facilities. All community services are well represented throughout the Phoenix area. Phoenix is also an economically viable area in which to locate. The Metro Phoenix median household income as of January 1997 was $36,078. SUMMARY AND OUTLOOK The outlook for Phoenix continues to be promising; however, it is expected to see a slowdown from the growth experienced over the past few years. Overall, commercial real estate markets should stay strong. Vacancy rates will remain low, and the environment for commercial real estate markets should remain healthy. 12 Single-family activity, on the other hand, is expected to moderate from the very high levels of the last three years. The consensus forecast calls for a moderate reduction in population growth which will impact the remaining indicators. Total personal income is on the rise mainly due to population inflows. Retail sales growth depends on that influx of personal income and on retail spending generated by single-family homebuyers. In the long-term, the outlook is positive based on the areas continued success as a resort capital, growth in tourism, favorable climate, growth in the corporate group sector and rising household incomes. Barring any unforeseen national economic downturn, the Metro Phoenix area is expected to continue a general upward trend over the next decade but at a slower pace than that experienced over the past few years. CITY OF SCOTTSDALE Scottsdale is located 8 miles northeast of the center of Phoenix. The city was incorporated over 30 years ago and it has experienced significant growth over the past 20 years. The estimated Scottsdale population in 1996 was estimated at about 178,525 which places it as the fifth largest city in the state. The population of Scottsdale has increased 6.2 percent from the 1995 figure of 168,176 and 37 percent from 1990 (130,069) which equates to an annual average growth rate of approximately 5 percent from that time. Strong population growth is also projected to continue into the future with 186,091 in the year 2000 and 212,154 in 2005. The median household income in 1996 was reportedly $57,490, which was significantly greater than that reported for Maricopa County at $40,233. The unemployment rate in 1996 in Scottsdale was 2.6 percent, which was lower than either Maricopa County or the State of Arizona. In its formative years, Scottsdale was primarily a bedroom community. However, it has experienced an increase in corporate office headquarters and clean industry. Also, Scottsdale has become a destination location for tourism with a number of luxury resort hotels. A major element in the city's growth has been the development of the 4,236-acre McCormick Ranch, the largest of several planned communities in the county. It incorporates a variety of developments in a well-designed environment. One of the most prestigious multiplanned developments in the area is the 640-acre Gainey Ranch, which is between Scottsdale Road and Hayden Road, just south of Shea Boulevard. This project has a resort hotel and 3 nine-hole golf courses, upper-income single and multifamily residential, office, and retail projects. Another master-planned community is the 1,119-acre Scottsdale Ranch located east of McCormick Ranch and north of the Salt River Indian Reservation. The development provides for over 4,000 residential units and 15 acres of office and commercial use. Major retail developments have recently been expanded to serve the affluent residents of Scottsdale and the tourism industry. Significant development has occurred near Scottsdale Road and Camelback Road with the expansion of the Scottsdale Fashion Square and Camelview Plaza. Also, the Scottsdale Galleria near the Scottsdale downtown area contains approximately 1.35 million square feet of high-end retail/mixed-use space. It is important to note that Scottsdale has rigid 13 [NEIGHBORHOOD MAP APPEARS HERE] zoning and building ordinances, which have helped development conform and blend well with the area given landscaping requirements. Scottsdale is expected to continue to grow northerly in an orderly manner and remain one of the area's most prestigious locations. NEIGHBORHOOD The subject is situated in the northern portion of the Scottsdale area. It is about 17 miles northeast of the Phoenix Central Business District (CBD). More specifically, it is situated at the southwest corner of East Mountain View Road and Pima Road. The neighborhood boundaries may be defined as Scottsdale Road to the west, 96th Street to the east, Indian Bend to the south, and Cactus Road to the north. The neighborhood appears to be well established with the majority of the residential development having occurred over the past 20 years. However, the area does not show signs of decline. In fact, the subject is in the middle of some of the most exclusive residential communities in the area including McCormick Ranch, Gainey Ranch, and Scottsdale Ranch. Also, this area has a number of upper-end townhomes, condominiums, and apartments. As a result of the residential development, there are sufficient support facilities and amenities in proximity to the subject such as parks, which include Nature Trail, Comanche, and Mountain View. Area public schools include Saguaro High School and Cochise Elementary School. Also, a number of country clubs and golf courses are in the area such as McCormick Ranch, Gainey Ranch, Scottsdale Country Club, and Pima Golf Resort. Access to the area is reasonably good and public transportation is provided along major thoroughfares. The general area is relatively well developed with some vacant land available. The major thoroughfares tend to include a variety of residential and commercial development. Scottsdale, Pima, and Hayden Roads are main north/south arteries, which connect the subject to other major thoroughfares and business centers. Scottsdale Road has a number of development types such as hotels/motels, restaurants, retail, office, and some residential projects. Hayden and Pima Roads tend to have townhome and condominium development with retail and recreational support. Within the subject's more immediate area there are a few community and neighborhood centers. Mountain View Center is located just to the west of the subject on Hayden Road and it provides a variety of service tenants. Just southeast of the subject is the McCormick Ranch Center on Pima Road. It provides a Smitty's Supermarket, car repair, fast-food, etc. Also, just northeast of the subject is a new retail project, the Scottsdale Fiesta with a Smiths supermarket, a K-Mart, Comp USA, AMC Theater, Office Max, among others. Also, a new shopping center has opened at the northwest corner of Pima Road and Shea Boulevard. Tenants include a Basha's supermarket, a Blockbuster Video, Popular, Perkins Family Restaurant, Sherwin Williams, and Stein Mart. The nearest shopping mall/complex is located near Camelback Road. This includes Scottsdale Fashion Square, Camelview Plaza, and Camelback Mall. Scottsdale Fashion Square and Camelview Plaza offer over 55 retail outlets in over 1 million square feet and are only a few miles south of the subject. Another important part of the area is the Scottsdale Memorial Hospital and professional buildings just northeast of the subject. This provides a service to the area and provides additional employment opportunities. Also, in this area is the 14 Meridian Point Rehabilitation Center and the Paradise Memorial Gardens Cemetery. In the more immediate area, development is primarily residential. Within the McCormick Ranch Development, the subject is surrounded by various multifamily projects including Sun Canyon townhomes and Country Horizons townhomes. Additionally, north of the subject on Arabian are the Casabella Apartments and the Tierra Santa townhomes. Also, there are numerous upper-middle- income single-family residential developments in the area. Overall, the subject neighborhood is projected to continue to prosper in future years and it is estimated to be about 70 percent developed. Population and number of households are expected to increase moderately. The immediate area is well developed along major thoroughfares with predominately residential development along secondary streets. City zoning helps regulate future development patterns; therefore, the neighborhood is believed to have a healthy future. For the most part, the Rancho Antigua Apartments are perceived as being a positive attribute to the area providing a quality facility well screened by the extensive landscaping. The apartments benefit from its close in location and the abundance of retail outlets and office development in the area. 15 [MARKET AREA MAP APPEARS HERE]
================================================================================================== APARTMENT MARKET STATISTICS METROPOLITAN PHOENIX - -------------------------------------------------------------------------------------------------- YEAR INVENTORY NEW CONSTRUCTION PERMIT ACTIVITY ABSORPTION VACANCY RATE - -------------------------------------------------------------------------------------------------- 1980 127,853 --- 8,343 6,773 6.4% - -------------------------------------------------------------------------------------------------- 1981 135,812 7,959 7,894 9,609 5.8% - -------------------------------------------------------------------------------------------------- 1982 143,934 8,122 11,410 5,284 6.3% - -------------------------------------------------------------------------------------------------- 1983 158,718 14,784 21,229 9,064 7.7% - -------------------------------------------------------------------------------------------------- 1984 182,102 23,384 32,547 20,305 8.1% - -------------------------------------------------------------------------------------------------- 1985 208,679 26,577 24,113 19,661 9.9% - -------------------------------------------------------------------------------------------------- 1986 230,478 21,799 16,327 18,340 10.5% - -------------------------------------------------------------------------------------------------- 1987 243,271 12,793 8,427 5,621 13.1% - -------------------------------------------------------------------------------------------------- 1988 251,326 8,055 5,457 4,186 14.5% - -------------------------------------------------------------------------------------------------- 1989 257,110 5,784 1,689 6,809 14.1% - -------------------------------------------------------------------------------------------------- 1990 258,992 1,882 1,891 10,482 11.5% - -------------------------------------------------------------------------------------------------- 1991 260,501 1,509 710 2,734 10.5% - -------------------------------------------------------------------------------------------------- 1992 261,095 594 1,234 4,394 9.6% - -------------------------------------------------------------------------------------------------- 1993 262,930 1,835 1,791 12,135 6.3% - -------------------------------------------------------------------------------------------------- 1994 264,663 1,733 6,015 5,484 4.5% - -------------------------------------------------------------------------------------------------- 1995 266,849 2,186 7,864 211 4.5% - -------------------------------------------------------------------------------------------------- 1996 274,919 8,070 8,545 7,820 4.5% - -------------------------------------------------------------------------------------------------- 1997 284,220 9,301 7,936 8,001 4.8% - --------------------------------------------------------------------------------------------------
Source: Phoenix Metropolitan Housing Study APARTMENT MARKET ANALYSIS - ------------------------------------------------------------------------------ In order to understand the current apartment market and make future projections, we analyzed information found in Apartment Trends, Third Quarter 1997, published by ---------------- RealData, Inc. and the Phoenix Metropolitan Housing Study, ---------------------------------- Fourth Quarter 1997 published by the Phoenix Metropolitan Housing Study Committee. These semiannual publications compile information obtained from surveys of "garden-style" apartment projects in the Metro Phoenix area. Each survey divides the Greater Phoenix area into submarkets and provides information on inventory, permit activity, absorption, and vacancy rates. According to the Phoenix ------- Metropolitan Housing Study, the subject is located in the -------------------------- Scottsdale submarket (District 1N and 1S) and also influenced by the Paradise Valley submarket (District 2N and 2S). CONSTRUCTION According to the Phoenix Metropolitan Housing Study, the Greater Phoenix apartment market had a total of 284,220 units as of the Fourth Quarter 1997. Geographically, the majority of apartment units are in Mesa, Tempe, Glendale, Central Phoenix, and Scottsdale. These include Mesa with 36,799 units, Tempe with 25,770 units, Scottsdale with 24,007 units, Glendale with 16,140 units, and Sunnyslope with 16,283 units. The majority of construction since 1980 occurred between 1983 and 1987 with 99,337 units or about 35 percent of the current inventory. Since 1980, the highest annual construction occurred in 1985 with 26,577 units. In 1988, new construction dropped significantly and hit a low of 594 units in 1992. Construction activity began to increase in 1993 when 1,835 units were constructed. Activity continued at this pace in 1995 and 1996 with 1,733 units and 2,186 units added. Construction really took off again in 1996 when 8,070 units were added to the market. The number of units constructed continued to increase in 1997 to 9,301 units The largest amount of permits issued was in 1984 with 32,547 units. However, in the late 1980s and early 1990s, the amount of new permits issued slowed. In 1991, new permits were issued for 710 units, citywide. This represented the smallest number of new apartment unit permits issued in one year over the past fifteen years. However, this increased to 1,234 in 1992 and to 1,791 in 1993. In 1994, permit activity increased significantly to 6,015 units. In 1995 the number of permits issued was reportedly 7,864 units and this rose to 8,545 permits in 1996. A slight decline was witnessed in 1997 when 7,963 permits were issued. Reference is made to the table on the facing page for a summary of the total inventory, new construction, and permit activity since 1980. Since the late 1980s, a significant amount of the new construction has occurred in the subject's submarket. The largest amount of new units entered the submarket in 1988 with 2,621 followed by 1,853 units in 1989. In 1992, there were only 80 new units introduced into the market; however, there were: 1,058 new units during 1993; 1,533 units in 1994; 1,084 units in 1995; and 1,511 units in 1996. In 1997 a total of 1,883 units entered the market and there were 1,957 units permitted. 16 VACANCY The following vacancy statistics are available in the Metropolitan Housing study. Over the past decade, annual vacancy citywide has responded to the amount of new construction. In 1980, apartment vacancy was 6.4 percent, which was followed by a drop in 1981 to 5.8 percent. However, in 1982 vacancy levels began a slow increase as new inventory was added to the market. The vacancy level climbed from 6.3 percent in 1982 to a high of 14.5 percent in 1988. However, since the decline of new construction in 1988, vacancies in the Greater Phoenix area have shown relatively steady decline through 1996. In 1989, the overall vacancy was estimated at 14.1 percent and this declined to 4.4 percent in 1996. The largest drop occurred between 1992 and 1993 when the vacancy level dropped from 9.6 percent to 6.3 percent. The vacancy level experienced a further decline in 1994 dropping to 4.5 percent. This was the lowest vacancy level since 1980. The vacancy level remained relatively flat through 1996 and then edged up slightly in 1997 to 4.8%. However, it is important to note that according to the Real Data publication, the overall vacancy is somewhat higher. Real Data reported fourth quarter 1996 vacancy at 6.4 percent which is 1.9 percent higher than the vacancy rate reported by the Phoenix Metropolitan Housing Study for the same period. The most current available vacancy rate reported by Real Data is for third quarter 1997 was 6.4% which is also higher than the Phoenix Metropolitan Housing Study figure for the same period at 5.2%. This discrepancy is believed to be due to a different sampling set. Also, the apartment market is affected by seasonality. Vacancies increase during the summer months due to the extreme temperatures; however, the market tightens up considerably during the remainder of the year due to the university and winter visitors. Vacancies in the Scottsdale/Paradise Valley submarket have followed a similar pattern as the metro area. Over the past decade, the average vacancy dropped from a high of 13.7 percent in 1989 to a low of 3.8 percent in fourth quarter 1997 according to the Phoenix Metropolitan Housing Study. RealData reports the same submarket at about 6.5 percent vacancy for the third quarter of 1997 which is 2.2 percent higher than the Phoenix Metropolitan Housing study figure for the same period at 4.3 percent. The increase in population had a direct impact on vacancy in the early 1990s. Considering a number of new projects are under construction in the subject's submarket and a number have been completed, vacancies are expected to experience an increase. However, if the amount of new construction would slow, the overall population is expected to increase, which would have a direct impact on the apartment market and the subject. A survey of the projects, which are considered to be direct competition to the subject, reported vacancies typically from 2 to 5 percent. The higher quality projects with a full range of amenities in good locations are expected to outperform the market. A summary of the annual overall vacancy for the Greater Phoenix area and the Scottsdale/Phoenix submarket as published in the Metropolitan Housing study follows. Reference is made to the Income Approach section for a summary of the occupancy status of the projects considered to be direct competitors. 17
=============================================================================================== APARTMENT MARKET STATISTICS SCOTTSDALE/PARADISE VALLEY SUBMARKET - ----------------------------------------------------------------------------------------------- YEAR INVENTORY SF IN INVENTORY PERMIT ACTIVITY ABSORPTION VACANCY RATE - ----------------------------------------------------------------------------------------------- 1982 12,003 --- 1,159 35 5.4% - ----------------------------------------------------------------------------------------------- 1983 13,431 1,428 1,491 380 5.6% - ----------------------------------------------------------------------------------------------- 1984 15,215 1,784 2,544 346 5.9% - ----------------------------------------------------------------------------------------------- 1985 16,961 1,746 1,465 541 8.5% - ----------------------------------------------------------------------------------------------- 1986 18,636 1,675 1,419 664 8.7% - ----------------------------------------------------------------------------------------------- 1987 19,481 845 2,209 584 9.2% - ----------------------------------------------------------------------------------------------- 1988 22,102 2,621 1,178 1,682 12.0% - ----------------------------------------------------------------------------------------------- 1989 23,955 1,853 799 1,262 13.7% - ----------------------------------------------------------------------------------------------- 1990 24,382 427 1,328 674 8.2% - ----------------------------------------------------------------------------------------------- 1991 25,566 1,184 84 474 8.2% - ----------------------------------------------------------------------------------------------- 1992 25,646 80 664 630 7.1% - ----------------------------------------------------------------------------------------------- 1993 26,704 1,058 1,330 1,433 4.6% - ----------------------------------------------------------------------------------------------- 1995 29,321 1,804 1,938 784 5.1% - ----------------------------------------------------------------------------------------------- 1996 30,832 1,511 989 1,461 4.0% - ----------------------------------------------------------------------------------------------- 1997 32,715 1,883 1,957 1,858 3.8% - -----------------------------------------------------------------------------------------------
Source: Phoenix Metropolitan Housing Study HISTORICAL VACANCIES ------------------------------------------------- YEAR GREATER PHOENIX SUBMARKET ------------------------------------------------- 1982 6.3% 5.4% 1983 7.7% 5.6% 1984 8.1% 5.9% 1985 9.9% 8.5% 1986 10.5% 8.7% 1987 13.1% 9.2% 1988 14.5% 12.0% 1989 14.1% 13.7% 1990 11.5% 8.2% 1991 10.5% 8.2% 1992 9.6% 7.1% 1993 6.3% 4.6% 1994 4.5% N/A 1995 4.5% 5.1% 1996 4.4% 4.0% 1997 4.8% 3.8% After considering the historical vacancy and the location of the new complexes under construction, we believe the subject and its competitors should be able to maintain a relatively stabilized occupancy level. Citywide, the additional units may negatively impact occupancy if the absorption levels do not continue to keep pace. ABSORPTION The improving occupancies in the early 1990s was the result of positive absorption levels. Absorption from 1984 to 1986 was the highest with annual figures of 18,340 units to 20,305 units, citywide. However, new construction was at a peak during these years and occupancy levels did not begin to improve until 1989. In 1990, the market experienced an absorption of 10,482 units, which dropped the vacancy by 2.6 percent. Absorption in 1991 was down from the 1990 figure to 2,734 units; nevertheless, the vacancy dropped by 1 percent. In 1992, absorption increased to 4,394 units and the vacancy dropped 0.90 percent. In 1993, the absorption level increased dramatically with a total of 12,135 units and the vacancy dropped by 3.3 percent. Again in 1994, the overall market experienced a strong positive absorption level and the vacancy dropped again to 4.5 percent. In 1995, the absorption level fell to 211 units and the vacancy remained level at 4.5 percent. In 1996, the absorption rebounded to 7,820 units and the vacancy level remained unchanged at 4.5 percent. Absorption continued to be strong in 1997 with 8,001 units however, due to the large amount of new construction, the vacancy rate increased slightly to 4.8%. The newer projects appear to be faring much better than the older projects. Some of the older units are expected to be lost to attrition over the next few years. Considering the amount of new supply entering the market, occupancy is not expected to improve drastically and the newer projects are expected to capture a greater share of the market. The average annual absorption since 1990 has been approximately 5,800 units. Assuming the projects under construction, scheduled for construction, and in the final development/design process are completed, there could be approximately 13,000 new units entering the market over the next few years which is expected to cause the vacancy level to increase. Despite the expected population growth, we believe 18 the overall Phoenix apartment market could take a couple years to regain a stabilized vacancy level upon completion of the new units. Absorption in the subject's submarket over the past few years has been relatively similar to the overall market. In 1989, about 1,262 units were absorbed which accounts for the decrease in vacancy from 13.7 percent in 1989 to 8.2 percent in 1990. Since 1990, the annual absorption level averaged about 900 units with 1997 reflecting a fifteen year high absorption of 1,858 units. The result of the positive absorption during 1990-1997 resulted in a decrease in vacancy. Overall, from 1990 to 1997, the resultant change in vacancy was from 8.2 to 3.8 percent. Based on the average annual absorption in the submarket since 1990 of 900 units and the completion of new units within the overall submarket, which are either under construction or permitted, we believe it could take almost two years to regain a stabilized vacancy. A summary of the average annual absorption for the Greater Phoenix area and the subject's submarket follow.
HISTORICAL ABSORPTION (UNITS) ----------------------------------------------------------- YEAR GREATER PHOENIX SUBMARKET ----------------------------------------------------------- 1982 5,284 35 1983 9,064 380 1984 20,305 346 1985 19,661 541 1986 18,340 664 1987 5,621 584 1988 4,186 1,682 1989 6,809 1,262 1990 10,482 674 1991 2,734 474 1992 4,394 630 1993 12,135 1,433 1994 5,484 1,383 1995 211 784 1996 7,820 1,461 1997 8,001 1,858
CONCLUSIONS In the early 1990s, the Greater Phoenix apartment market improved from the overbuilding which occurred in the mid- 1980s. Since 1989, the vacancy rate has improved each year except for a slight upswing reported in 1997. Given the number of new units entering the market, the vacancy level may increase over the next few years until demand can catch up with the new supply. The submarket revealed a relatively similar pattern as the overall market. The vacancy rate reflected improvements during the early 1990s and it was not until 1995 that the rate began to increase only to drop again to a fifteen year low in 1997. Once again, the submarket has experienced a significant amount of new construction over the past few years and the demand does not appear to be keeping the same pace. However, the subject submarket is one of the more desirable areas, commanding the highest average rents in the metropolitan Phoenix area. Overall, the subject is expected to remain reasonably well- leased and command competitive rents; however, if the market becomes saturated with new products, it may become harder to retain tenants. 19 [PLAT MAP APPEARS HERE] SITE ANALYSIS - -------------------------------------------------------------------------------- LOCATION The subject is located at the southwest corner of East Mountain View Road and Pima Road in Scottsdale, Maricopa County, Arizona. It is more specifically situated at 8787 East Mountain View Road. SIZE AND SHAPE The site is irregularly shaped with a total of 13.795 acres or 600,910 square feet. It has frontage on East Mountain View Road and Pima Road. ACCESS AND VISIBILITY THE subject property is located along the south side of East Mountain View Road and the west side of Pima Road. The site is situated about 17 miles northeast of the Phoenix Central Business District (CBD). Access to the subject from the CBD and the Sky Harbor International Airport is provided by a number of north/south and east/west thoroughfares. From the Sky Harbor International Airport one of the most direct routes is by heading north on either 24th Street, 32nd Street, or 40th Street to Camelback Road then heading east to Pima Road then north to East Mountain View Road. Similar access is available from the CBD. Other major north/south thoroughfares, which lead to Camelback Road and connect to Pima Road are 7th Avenue, Central Avenue, and 7th Street. Immediate access to the subject is provided by East Mountain View Road. The main entry to the complex is off this thoroughfare. There are two curb cuts along the east/west artery which provide direct access. Pima Road provides visibility to the site; however, access to the subject is not available from this thoroughfare. East Mountain View Road - a lighted four-lane, asphalt- paved, east/west artery with concrete curbs and sidewalks, planted median, and turn lane at intersections. Pima Road is a four-land, asphalt-paved, north/south thoroughfare with planted median, turn lane, concrete curbs and sidewalks, and greenbelt along the west side. ZONING The subject property is zoned "R-5" Multiple-Family Residential under the City of Scottsdale Zoning Ordinance and subject to the restrictions of the McCormick Ranch Development. This district is intended to provide for development of multiple-family residential and allows a high density of population with a proportional increase in amenities as the density rises. Permitted uses include multiple-family dwellings, single-family dwellings, boardinghouse or lodging house, accessory buildings or other accessory uses, municipal uses, school, and temporary sales office or construction office. Uses permitted by conditional use permit include a church, commercial radio and television antennas, recreational uses, community buildings or recreational fields, convent, day nursery or preschool, golf course, guest ranch, hotel, motel, and time share project with ten units or more, orphanage, plant nursery, private club, private lake, private school, public buildings, and residential health care facility. Open Space Requirements: Minimum of one-half of open space requirement shall be incorporated as frontage open space and shall not be required to exceed 50 square feet per 20 1 foot of street frontage and not less than 20 square feet per 1 foot of frontage. Building Height: No building shall exceed 36 feet in height. Shall not exceed one story within 50 feet of adjacent property zoned to lower density. Setbacks: If abutting adjacent property zoned to lower density, a yard of not less than 15 feet. If adjacent property is zoned to higher density, a building may be constructed on building line. Distance Between Buildings: Not less than 10 feet between an accessory building and a main building or between two main buildings. UTILITIES The site is serviced by the following authorities: Electricity........................... Salt River Project Water................................. City of Scottsdale Sewer................................. City of Scottsdale Gas................................... Southwest Gas Co. Telephone.. AT&T, U.S. West Communications, Mountain Bell TERRAIN AND DRAINAGE The site is basically level and slightly above street grade. Upon site inspection, the drainage appeared to be adequate. According to the Federal Flood Insurance Rate Maps, the subject lies within Zone B. Zone B is defined as areas between limits of the 100-year flood and 500-year flood. SOIL AND SUBSOIL CONDITIONS No soil engineer's report was available to the appraisers, and no soil tests were performed. The soils are assumed to have an adequate load-bearing capacity. EASEMENTS AND ENCUMBRANCES A physical inspection of the site did not reveal any easements adversely affecting the subject property. For purposes of this assignment, the appraisers assume that the subject's value or marketability is not adversely affected by the typical utility easements, which traverse the property. The following lists some of the more significant easements at various areas of the subject site. . various water and sewer easements throughout the property . various access easements throughout the property RELATIONSHIP OF SITE TO SURROUNDINGS North: Sun Canyon (townhomes) South: Linear Park East: Vacant land West: Country Horizons (townhomes) 21 REAL ESTATE TAXES Real estate taxes and assessments for the Rancho Antigua Apartments are coordinated by the Maricopa County Assessor's office. The property is subject to a number of different taxing authorities and the taxes are calculated two ways. A portion of the total tax liability is calculated based on the "limited cash value" intended to create a ceiling on the assessment. The limited cash value is multiplied by a 10 percent assessment ratio then multiplied by the rate per $100 of assessed value. This is considered the primary tax rate and includes the school district, junior college, city, county, and state taxes. In 1996, the total tax rate was 7.5996 per $100 of assessed value. The remainder of the tax liability is based on the "full cash value" or current market value. This value is multiplied by the 10 percent assessment ratio then multiplied by the tax rate per $100 of assessed value. Full cash value assessments are the secondary assessments and apply to various taxing authorities including bonds, budget overrides, library, volunteer fire department, etc. In 1996, the applicable tax rate was 3.2192 per $100 of assessed value. In 1997, from information received from Con Am Management, the taxes were $102,480 for the real estate. The following is the tax parcel number used to identify the subject parcel and the 1997 primary and secondary assessed values. PRIMARY ASSESSED SECONDARY ASSESSED TAX PARCEL No. VALUE (LIMITED) VALUE (FULL CASH) ----------------------------------------------------- 217 36075 $933,488 $933,488 Reportedly, the personal property was included in the real property assessment and not taxed separately. We have estimated the 1998 taxes at $0.51 per square foot or $110,969, which would include personal property at the subject apartment. CONCLUSION The subject site is irregularly shaped with 13.795 acres and relatively level terrain. There are a few easements, which traverse the property; however, none are believed to adversely affect the site. The parcel is easily accessible with frontage on East Mountain View Road and visibility from Pima Road. The subject is zoned "R-5" Multiple-Family Residential by the City of Scottsdale and it is within the McCormick Ranch planned development. It is believed to be in compliance. The size and shape of the site provide flexibility for a variety of development and it blends well with the predominately multifamily projects which surround it. 22 [FLOOD PLAIN MAP APPEARS HERE] [ZONING MAP APPEARS HERE] [SITE PLAN APPEARS HERE] IMPROVEMENTS - -------------------------------------------------------------------------------- The subject site, a 13.795-acre tract of land, is improved with a two-story apartment project known as the Rancho Antigua Apartments. The improvements consist of 220 apartment units contained in 21 buildings constructed in 1982. Also situated on the site is a leasing office/clubhouse, three swimming pools, three spas, a tennis court, and covered parking. There are six basic floor plans for the 220 apartment units. The basic features of these floor plans are as follows:
UNIT TYPE NO. OF UNITS DESCRIPTION SIZE (SF) TOTAL SF ---------------------------------------------------------------------- A 60 lBR/lBA 809 48,540 B 30 2BR/2BA 961 28,830 B 28 lBR/1.5BA/DEN 961 26,908 C 62 2BR/2BA 1,020 63,240 D 20 2BR/2BA/TH 1,202 24,040 E 20 3BR/2BA 1,310 26,200
As seen in the figures above, the total net rentable area of 217,758 square feet and a total of 220 apartment units results in an average of 990 square feet per unit. There are a total of 88 one-bedroom units, 112 two-bedroom units, and 20 three-bedroom units. The land area is 13.795 acres, resulting in a density of 15.95 units per acre. The parking consists of approximately 392 spaces (220 covered) with asphalt construction or 1.8 spaces per unit. The parking ratio is within industry standards. A more detailed description is as follows: FOUNDATION Steel reinforced concrete slab with perimeter and interior wire mesh. Second floors include wood frame, plywood sub-floor, and lightweight concrete. FRAMING Wood ROOF A combination of flat built-up and pitched red tile. EXTERIOR Masonry with painted stucco finish. SECOND-STORY ACCESS Wrought iron supports and handrails with cement stair risers and landings. BALCONIES Concrete supports with wood handrails and cement flooring. INTERIOR FINISHES Living, Dining, and Bedrooms: Painted and textured gypsum board walls and ceilings, carpeting over pad, hollow-core wood doors, miniblinds, incandescent lighting, and fireplaces. Vinyl tile floor coverings, porcelain tub with ceramic tile shower, Bathrooms: textured and painted gypsum board walls and ceilings, fiberboard vanities with laminate counters, porcelain sink, and commode. 23 Kitchens: Vinyl tile floor coverings, formica countertops, laminated fiberboard cabinets. Kitchen equipment includes a range/oven, refrigerator, disposal, and dishwasher. PLUMBING Adequate and meets city code. HVAC Central air-conditioning and heating provided by individual, roof-mounted compressor units. ELECTRICAL Switch-type circuit breakers, 120/240-volt, and single- phase service with each unit individually metered. Each unit has adequate electrical outlets and ceiling-mounted light fixtures. The copper wiring is in compliance with city code. INSULATION Batt-type in ceilings and walls. SITE IMPROVEMENTS Asphalt-paved parking, covered metal carports, pole lighting, concrete sidewalks, three swimming pools, three spas, a tennis court, and picnic areas. LANDSCAPING Extensive mature landscaping. AGE AND CONDITION The effective age of the subject is fifteen years which approximates the actual age and the remaining economic life is estimated to be 25 years. SITE AREA 13.795 acres or 600,910 square feet DEFERRED MAINTENANCE Visual inspection of the property as well as estimates by the management revealed a few items of deferred maintenance including appliance repair and replacement, floor and drapery replacement, furniture and fixtures repair, air-conditioning and equipment repair, interior repairs, landscaping, exterior paint, roof repairs, and water heater repair and replacement. The deferred maintenance was estimated at $181,900, which has been rounded to $185,000. It is itemized below.
CATEGORY COST CATEGORY COST -------------------------------------------------------------------------------------------- Appliances $24,000 General Interior $ 18,000 Carpet 42,000 Landscape 20,000 Window Cover 9,600 Exterior Paint 15,000 Equipment 2,000 Stairs Repair 3,000 Furniture 1,900 Roof Repair/Replacement 36,000 Air Conditioning 8,000 Water Heaters 2,400 -------- Total (Rounded) $185,000
CONCLUSION Upon a detailed inspection of the property, the facility is believed to be of good quality and workmanship. The design and layout are felt to be functional and aesthetically appealing. The project has been well maintained and has an ongoing maintenance program; however, there are a few items previously listed as deferred maintenance. Overall, the apartments are in reasonably good shape and we believe the effective age of the improvements is about fifteen years with a remaining economic life of 25 years. 24 [FLOOR PLAN APPEARS HERE] SUBJECT PHOTOGRAPHS - ------------------------------------------------------------------------------ [PICTURE APPEARS HERE] Exterior view of leasing office/clubhouse. [PICTURE APPEARS HERE] View of swimming pool and spa. [PICTURE APPEARS HERE] Interior view of clubhouse. [PICTURE APPEARS HERE] Interior view of fitness center in clubhouse. [PICTURE APPEARS HERE] View of tennis court. [PICTURE APPEARS HERE] View of Building 3 and carport area. [PICTURE APPEARS HERE] Interior view of bedroom in model unit. [PICTURE APPEARS HERE] Interior view of dining area model unit. [PICTURE APPEARS HERE] Interior view of kitchen in model unit. [PICTURE APPEARS HERE] Interior view of den or second bedroom in model unit. HIGHEST AND BEST USE - -------------------------------------------------------------------------------- The highest and best use of a property must be determined because market value depends upon the property's most profitable use. The Appraisal of Real Estate, Eleventh ---------------------------- Edition, defines highest and best use as: "The reasonably probable and legal use of vacant land or improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value." There are two distinct types of highest and best use. The first type is the highest and best use of the land as if vacant. The second type is the highest and best use of a parcel as improved. This pertains to the use that should be made of the property as it currently exists. In determining the highest and best use of a site, four items must be considered: possible physical limitations of the site, possible legal or permissible uses, and what uses are financially feasible, and produce the maximum return on the site. A careful neighborhood and site analysis is essential in estimating the highest and best use of the site as if vacant. The following is our analysis of the highest and best use as it pertains to the subject property and according to the four essential tests. SUBJECT PROPERTY AS IF VACANT LEGALLY PERMISSIBLE - Within the scope of a legal analysis, the subject site is zoned "R-5" Multiple-Family Residential under the City of Scottsdale Zoning Ordinance. This district is intended to provide for development of multiple-family residential with other allowable uses including single- family dwellings, municipal buildings, and boardinghouses. Some conditional uses include recreational uses, pre-school, golf course, hotel/motel, private club, and health care facilities. Therefore, a variety of uses are permissible. PHYSICAL POSSIBILITY - Many physical characteristics of a site can affect the use to which it can be put. These characteristics can include size, shape, location, road frontage, topography, easements, utility availability, flood plain, and surrounding patterns. The subject site is irregularly shaped and encompasses 13.795 acres, allowing for reasonable flexibility in developing the site. It has frontage along the south side of East Mountain View Road and the west side of Pima Road. The topography of the site is basically level, and drainage appears to be good. Development in the immediate area is primarily multifamily or single-family residential with commercial projects to the east. The area appears most conducive to multifamily development given the surrounding projects. The subject site has adequate utility capacity, enjoys a functional size and shape, and is not affected by any adverse easements or restrictions. 25 After considering all of the physical characteristics of the site noted above plus other data in the Site section of this appraisal report, physically possible land uses are limited to multifamily development. The primary deterrents to other types of development were the subject's location, and surrounding use patterns, which helped to eliminate other site improvements such as retail/commercial, light industrial, single family, and office development from our analysis. In addition, prudent land management suggests that multifamily utilization of the subject site provides a buffer between the surrounding single-family residential and commercial developments. FINANCIAL FEASIBILITY - In view of the present market conditions, financial feasibility is directly proportional to the amount of net income that could be derived from the subject. After having eliminating all other development from our analysis, the financial feasibility of multifamily development must be tested. The subject is located in the affluent Scottsdale/Paradise Valley area, which is experiencing an overall annual physical vacancy of about 3.8 percent. However, a number of new apartment complexes have been built in the general area and the average vacancy is expected to rise until the new supply is absorbed. The average rents in the Scottsdale/Paradise Valley submarket average about $0.79 to $0.84 per square foot. The new projects, however, are achieving a higher average rent. As discussed in the preceding Apartment Market Analysis section of this report, it is concluded that new construction appears reasonable; however, it may take a couple of years to absorb the existing and proposed supply. MAXIMUM PRODUCTIVITY - After considering the current economic climate and the subject's location and financial feasibility of certain land uses, more than likely a present development of the land would produce a positive cash flow for multifamily development. Due to the subject's location and the socio-economic status of the neighborhood, we are of the opinion that the demand for apartment units conducive to the subject site would produce the highest net return over the longest period of time. In summary, the site's location along the south side of East Mountain View Road and the west side of Pima Road gives it good access and visibility, a characteristic conducive to apartment development. In addition, the amenity package offered and general appeal of the property in comparison to its competition is good. Therefore, after considering the alternative, we believe the highest and best use of the site, as vacant, is for apartment development. SUBJECT PROPERTY AS IMPROVED The property, as improved, is tested for two reasons. First to identify the use of the property that is expected to produce the highest overall return per invested dollar, and the second reason is to help in identifying comparable properties. The four tests or elements are also applied in this analysis. 26 LEGALLY PERMISSIBLE - Within the scope of a legal analysis, the subject site utilized for apartment use is most reasonable since it is a legal use. PHYSICAL POSSIBILITY - Based on the subject's land size (13.795 acres) and configuration, and the improvement's positioning relative to the subject site, it is felt that it would not be physically possible to increase the size of the current improvements and remain competitive. The density of the subject is approximately 15.95 units per acre. Thus, based on the aforementioned factors, it is judged that the improvements represent the largest amount of space that could currently be developed under current site conditions. FINANCIALLY FEASIBLE - The discussion of the financial feasibility of the subject, as if vacant, would also apply to the test as improved. Based on the economic conditions for alternative market segments, it was concluded that the subject's present improvements are satisfactory to fulfill this test. In the Income Approach section of this report, the appraisers estimated income and expenses for the subject. The net operating income derived suggests that the property is capable of generating income in excess of operating expenses, exclusive of return on investment requirements and debt service. The net operating income was capitalized into a value indication that was supported by the Sales Comparison Approach. Additionally, the value indication is in excess of the estimated value of the land. This indicates that the subject "as improved" is a feasible entity. MAXIMUM PRODUCTIVITY - The test for this element is also from the market. The comparables analyzed suggest that under competent and prudent management, the subject could produce an adequate return to substantiate its existence. Based on the subject's current use, we have determined that as a multifamily apartment complex, it positively contributes to the value of the site, and as a result is presently developed according to its highest and best use. However, the subject does not represent the "optimum use" due to some deferred maintenance and the need for state of the art amenities possessed by new apartment projects. 27 APPRAISAL PROCEDURES - -------------------------------------------------------------------------------- Traditionally, three valuation approaches or techniques are used in the appraisal of real estate. These are the Cost Approach, Sales Comparison Approach, and Income Approach. COST APPROACH In the Cost Approach, the appraisers obtain an estimate of value by adding to the land value the estimated value of the physical improvements. This value is derived by estimating the replacement cost new of the improvements and, when appropriate, deducting the reduction in value caused by accrued depreciation. According to the Appraisal Institute, the basic principle of the Cost Approach is that buyers judge the value of an existing structure by comparing it to the value of a newly constructed building with optimal functional utility, assuming no undue cost due to delay. Thus, the appraiser must estimate the difference in value between the subject property and a newly constructed building with optimal utility. The Cost Approach was not used as this method of valuation is typically the least reliable indicator of value in older projects such as the subject since estimates of depreciation are difficult to accurately measure in the marketplace. Additionally, it is often the perception of investors that cost does not necessarily equate to value and the purchase price is not typically based on construction costs. SALES COMPARISON APPROACH This approach produces an estimate of value by comparing the subject property to sales and/or listings of similar properties in the immediate area or competing areas. The principle of substitution is employed and basically states when a property is replaceable in the market, its value can be set by the cost of acquiring an equally desirable and comparable property. This technique is viewed as the value established by informed buyers and sellers in the market. INCOME APPROACH The measure of value in this approach is capitalization of the net income, which the subject property will produce during the remaining economic life of the improvements. This process consists of two techniques. The first technique estimates the gross income, vacancy, expenses, and other appropriate charges. The resulting net income or net cash flow is then capitalized. The second technique projects the gross income, vacancy, expenses, other appropriate charges, net income, and cash flow over a projected holding period. The resulting cash flow and reversion (future value) are discounted at an appropriate rate and added in order to arrive at an indication of current value from the standpoint of an investment. These methods provide an indication of the present worth of anticipated future benefits (net income or cash flow) to be derived from ownership of the property. Both techniques were utilized in analyzing the subject property. SUMMARY The appraisers, in applying the tools of analysis to the valuation problem, seek to simulate the thought process of the most probable decision-maker. The appraisers' judgment concerns the applicability of alternative tools of analysis to the facts of the problem, the data and information needed to apply these tools, and the selection of the analytical approach and data most responsive to the problem in question. 28 Rancho Antigua Bach Realty Advisors, Inc. Appraisal Procedures Thus, depending on the type of property appraised or the purpose of the appraisal, one approach may carry more weight or may point to a more reliable indication of the value of the property being appraised than the other approach. In some instances, because of the inadequacy or unavailability of data, one of the approaches may be given little weight in the final value estimate. 29 [IMPROVED SALES MAP APPEARS HERE]
==================================================================================================================================== PHOENIX/SCOTTSDALE AREA IMPROVED SALES SUMMARY - ------------------------------------------------------------------------------------------------------------------------------------ CASH EQUIVALENT PRICE - ------------------------------------------------------------------------------------------------------------------------------------ SALE SALE CASH EQUIV. YEAR NO. OF NRA OCCUP. NOI/SF PER PER OVEALL NO. NAME/LOCATION DATE SALE PRICE BUILT UNITS AVG./SF AT SALE /UNIT SF /UNIT RATE EGIM - ------------------------------------------------------------------------------------------------------------------------------------ 1 Villa Antigua 10/97 $ 9,230,000 1986 130 134,530 95% $ 6.17 $68.61 $71,000 9.00% N/A 5950 N. 78th Street 1,035 $6,390 Scottsdale, AZ - ------------------------------------------------------------------------------------------------------------------------------------ 2 Joshua Tree 09/97 $17,000,000 1988 330 261,092 95% $ 5.53 $65.11 $51,515 8.50% 7.05 11545 N. Frank Lloyd Wright 791 $4,379 Scottsdale, AZ - ------------------------------------------------------------------------------------------------------------------------------------ 3 Paradise Trails 06/97 $ 7,660,000 1985 174 143,058 97% N/A $53.54 $44,023 N/A 5.68 4502 E. Paradise Village 822 Phoenix, AZ - ------------------------------------------------------------------------------------------------------------------------------------ 4 The Overlook 04/97 $11,163,720 1987 224 189,120 N/A N/A $59.03 $49,838 N/A N/A 11620 E. Sahuaro Drive 844 Scottsdale, AZ - ------------------------------------------------------------------------------------------------------------------------------------ 5 Salado Springs 04/97 $ 7,500,000 1986 144 121,712 91% $ 5.28 $61.62 $52,083 8.57% 6.97 242 S. Beck Avenue 845 $4,464 Tempe, AZ - ------------------------------------------------------------------------------------------------------------------------------------ 6 Elliot's Crossing 03/97 $12,400,000 1987 247 199,096 96% $ 5.45 $62.28 $50,202 8.76% 7.22 7250 S. Kyrene Road 806 $4,396 Tempe, AZ - ------------------------------------------------------------------------------------------------------------------------------------ 7 The Pinnacle 01/97 $15,350,000 1992 248 249,150 97% $ 5.36 $61.61 $61,895 8.70% 7.21 3033 E. Thunderbird Road 1,005 $5,387 Phoenix, AZ - ------------------------------------------------------------------------------------------------------------------------------------ 8 Sonterra 12/96 $17,400,000 1996 274 257,890 90% $ 5.82 $67.47 $63,504 8.63% 7.32 17440 N. Tatum Blvd. 941 $5,480 Phoenix, AZ - ------------------------------------------------------------------------------------------------------------------------------------ 9 The Palisades 12/96 $33,600,000 1990 536 496,550 95% $ 5.68 $67.67 $62,687 8.40% 6.92 13440 N. 44th St. 926 $5,266 Phoenix, AZ - ------------------------------------------------------------------------------------------------------------------------------------ SUBJECT 1982 220 217,758 95% 5.57 8787 East Mountain View Road 990 $5,514 Scottsdale, Arizona ====================================================================================================================================
SALES COMPARISON APPROACH - -------------------------------------------------------------------------------- The Sales Comparison Approach is considered a good valuation method in the event that a sufficient number of similar and recent transactions can be found and accurately verified. The key to the Sales Comparison Approach is that a sufficient number of comparable sales be present to reflect an accurate indication of value. In such an event, market value can be derived directly from the sales, since all complexities involved are properly weighed according to their significance to actual buyers and sellers. This approach is based upon prices paid in actual market transactions. It is a process of correlating and analyzing recently-sold properties, which are similar to the subject. The reliability of this technique depends upon (a) the degree of comparability of the property appraised with each sale, (b) the length of time since the sale, (c) the accuracy of the sales data, and (d) the absence of unusual conditions affecting the sale. The comparison process must be based on sales, which constitute acceptable evidence of motivations inherent to the market, occurring under similar market conditions, of similar or reasonably similar apartment projects. These projects were selected since they are reasonably comparable to the subject property. A map and a summary of the nine comparable sales can be found on the preceding pages. The sales ranged in time from December 1996 to October 1997. Reference is made to the individual sales data included in the Addenda section of this report. In our analysis of the sales data, important considerations as to comparability were condition of the property, gross income when combined with percent (%) occupied at sale date, unit size, terms of sale, location, and motivation. The sales provide units of comparison, which can be adjusted and then applied, to the subject to derive an estimate of value. Because these individual factors are difficult to quantify, we compared the improved sales based on net operating income (NOI) per square foot and per unit. Theoretically, the NOI takes into consideration the various physical factors, which influence value. An analysis of NOI likewise considers economic differences in each improved property sale because income is also a function of the current market. Thus, with this analysis, all the factors affecting a sale can be reduced to the common denominator of net operating income. Also, we considered the effective gross income multiplier method. There follows a discussion of our analysis and value conclusion by the Sales Comparison Approach. SALES ADJUSTMENT ANALYSIS PROPERTY RIGHTS Property rights consists of ownership, legal estate, economic benefits, and financial components. Our valuation is of the leased fee estate on an all cash basis. Since all the sales were reported to be of the leased fee estate, no adjustment was necessary. CASH EQUIVALENCY Standard definitions of market value include payment in "cash or its equivalent." The equivalent includes financing terms generally available in the market. In many cases comparable sales carry atypical financing terms that require an adjustment to 30 cash equivalency. There are basically two areas, which may require adjustments for terms. One is the amount of cash down payment and the other is favorable financing or a low interest rate on the note/mortgage. Where terms were considered to be more favorable than the market at the time of sale, cash equivalency adjustments are made. All of the sales used in this analysis were cash transactions or were considered equivalent and therefore, did not require a cash equivalent adjustment. CONDITION OF SALE Adjustments for condition of sale usually reflect the motivations of the buyer and the seller. Although conditions of sale are perceived as applying only to sales that are not arm's length transactions, some arm's length sales may reflect atypical motivations or sale conditions due to unusual tax considerations, sale at legal auction, lack of exposure on the open market, etc. The sales utilized in our analysis were not reported to be reflective of such situations; therefore, no adjustment was necessary. NET OPERATING INCOME ANALYSIS In lieu of specific adjustments, we compared the improved sales based on the net operating income (NOI) per square foot and NOI per unit. This method presents a comparison based on the income which a property is capable of generating. Theoretically, the NOI takes into consideration the various factors, which influence value such as quality, size, amenities offered, location, age, condition etc. Thus, these differing factors can be reduced to the common denominator of net operating income. The various sales reflected NOIs per square foot ranging from $5.28 to $6.17 and NOIs per unit ranging from $4,379 to $6,390. The subject NOI (with reserves considered) has been approximated at $5.57 per square foot or $5,514 per unit from the Direct Capitalization analysis in the Income Approach section of this report. To estimate an adjustment for each sale, the subject's NOI has been compared to the individual NOI of the comparable sales. This adjustment should account for all the various physical and economic differences in each improved property sale, as income is a function of the current market. Market conditions should reflect perceived risk, or other factors, which may affect value. The following chart presents the adjustment process.
SALE SALE SALE SUBJECT ADJUST. ADJUST. NO. PRICE/SF NOI/SF NOI/SF FACTOR PRICE/SF -------------------------------------------------- 1 $68.61 $6.17 $5.57 0.90276 $61.94 2 65.11 5.53 5.57 1.00723 65.58 3 53.54 NA 5.57 NA NA 4 59.03 NA 5.57 NA NA 5 61.62 5.28 5.57 1.05492 65.00 6 62.28 5.45 5.57 1.02202 63.65 7 61.61 5.36 5.57 1.03918 64.02 8 67.47 5.82 5.57 0.95704 64.57 9 67.67 5.68 5.57 0.98063 66.36
31 After adjustments, the sales reflected a range in value for the subject from $61.94 to $66.36 per square foot. Please note that no NOI information was available for Sales 3 and 4 and therefore no adjustments were able to be made. Sale 1 is the most recent, but reflected a significantly higher NOI per square foot than the subject. The adjusted price of the sale is $61.94 per square foot. Sales 2 and 6 have the most similar net operating income per square foot and reflect values of $65.58 and $63.65 per square foot. Based on all the data, a value of $65.00 per square foot is estimated for the subject. The subject apartment project is about 6 years older than the mean average age of the comparables, therefore an adjustment downward was made for age as it effects the duration of the income stream. After adjusting for age, the subject has a market value of $60 per square foot. From this value the $185,000 in deferred maintenance and the $34,121 rent loss is deducted to arrive at the "as is" value of the subject. The calculation is shown as follows: 217,758 SF x $60.00/SF................ $13,065,480 Less Deferred Maintenance............. (185,000) Less Rent Loss........................ (34,121) "As Is" Value via NOI/SF.............. $12,846,359 Rounded $12,800,000
Sale Sale Sale Subject Adjust. Adjust. No. Price/Unit NOI/Unit NOI/Unit Factor Price/Unit ----------------------------------------------------------- 1 $71,000 $6,390 $5,514 0.86291 $ 61,267 2 51,515 4,379 5,514 1.25919 64,867 3 40,023 NA 5,514 NA NA 4 49,838 NA 5,514 NA NA 5 52,083 4,464 5,514 1.23522 64,334 6 50,202 4,396 5,514 1.25432 62,969 7 61,895 5,387 5,514 1.02358 63,354 8 63,504 5,480 5,514 1.00620 63,898 9 62,687 5,266 5,514 1.05511 66,142
After adjustments, the sales reflected a range in value for the subject from $61,267 to $66,142 per unit. Again, please note no NOI information was available for Sales 3 and 4. Sale 1 is the most recent sale, but it reflected a significantly higher NOI per unit than the subject. The adjusted value by this sale was $61,267 per unit. Sales 7 and 8 are most similar in NOI per unit and these sales reflected values of $63,354 and $63,898 per unit. Additionally, an age adjustment was made. Based on all the data, we estimated a value for the subject of $58,000 per unit. The following indication reflects an "as is" value per unit for the subject considering the subject's deferred maintenance and rent loss. 220 units x $58,000/unit.............. $12,760,000 Less: Deferred maintenance............ (185,000) Less Rent Loss........................ (34,121) Value via NOI Price/Unit Method....... $12,540,879 Rounded $12,500,000
EFFECTIVE GROSS INCOME MULTIPLIER METHOD In addition to the NOI price per square foot and price per unit analysis, we have employed an effective gross income multiplier (EGIM) analysis to the sales. Unlike the price per unit analysis, EGIMs cannot be adjusted for dissimilar factors when compared to the subject. Instead, certain factors must be closely analyzed for 32 determining comparability of the multiplier to the subject property. These include the timing of the sale and whether market condition changes have occurred between the date of valuation and the sale date, as well as occupancies and expense ratio levels, and the comparability of the sale in terms of its physical features and the resulting income stream potential. Listed below are the details of the sales we felt to be pertinent in our selection of a reasonable EGIM for the subject. All factors were considered in our interpretation of the data leading to the EGIM of the sales.
SALE DATE OF SALE EGIM OCCUPANCY EXPENSE RATIO -------------------------------------------------- 2 09/97 7.05 95% NA 3 06/97 5.68 97% NA 5 04/97 6.97 91% 40.28% 6 03/97 7.22 96% 36.76% 7 01/97 7.21 97% 37.26% 8 12/96 7.32 90% 36.84% 9 12/96 6.92 95% 41.87% Subject 95% 37.28%
The sales indicated EGIMs ranging from 5.68 to 7.32, with all sales operating at or near stabilized levels. Based on this data, we believe an EGIM of 6.90 is reasonable for the subject considering the subject's quality and expense ratio. Applying the 6.90 EGIM to the subject's stabilized effective gross income, and deducting for deferred maintenance and rent loss, results in the following value indication. 6.90 X $1,933,958.......................... $13,334,310 Less: Deferred maintenance................. (185,000) Less Rent Loss............................. (34,121) -------- Value via EGIM Method...................... $13,125,189 Rounded $13,100,000
CONCLUSION The NOI per square foot and per unit methods presented a value indication between $12,800,000 and $12,500,000 and the effective gross income multiplier method indicated a value of $13,100,000. Weight has been given to the net operating income comparisons because this method reflects both income and expense information. The EGIM method accounts for income and does not take into consideration expenses, which can vary from property to property. Furthermore, the EGIM when used for valuation cannot be adjusted, yet as seen in the NOI methods there is a need for an age adjustment. Thus, the EGIM appears on the high side. Therefore, it is our opinion that the leased fee market value of the subject property based on the indication provided by the Sales Comparison Approach, all cash, on an "as is" basis as of December 31, 1997, is TWELVE MILLION SEVEN HUNDRED THOUSAND DOLLARS ($12,700,000) 33 [COMPARABLE RENTALS MAP APPEARS HERE]
- --------------------------------------------------------------------------------------------------------------- COMPARABLE RENT SUMMARY - --------------------------------------------------------------------------------------------------------------- YEAR NO. OF AVG. UNIT OCCUP. UNIT TYPE UNIT RENT/MO. RENT/SF/MO. NO. NAME/LOCATION BUILT UNITS SIZE (SF) SIZE/SF - --------------------------------------------------------------------------------------------------------------- 1 Joshua Tree 1988 330 791 97% 1BR/1BA 650 $595-625 $0.92-0.96 11545 Frank Lloyd 1BR/1BA 710 625-655 0.88-0.92 Wright 2BR/2BA 868 690-720 0.79-0.83 2BR/2BA 942 740-770 0.79-0.82 - --------------------------------------------------------------------------------------------------------------- 2 The Equestrian 1986 202 746 98% 1BR/1BA 668 540 $ 0.81 11100 N 115th Street 1BR/2BA/DEN 835 640 0.77 2BR/2BA 888 650 0.75 - --------------------------------------------------------------------------------------------------------------- 3 Villa Montana 1986 208 779 95% 1BR/1BA 530 520 $ 0.98 11350 E Sahuaro 1BR/1BA 615 545-585 0.89-0.95 Drive 1BR/1BA 745 610-620 0.82-0.83 2BR/1BA 912 665-675 0.73-0.74 1BR/1BA/DEN 900 695-705 0.77-0.78 2BR/2BA 970 745-755 0.77-0.78 2BR/2BA 1,050 805 0.77 - --------------------------------------------------------------------------------------------------------------- 4 La Privada 1985 350 1,195 96% 1BR/1BA 857 722-742 $0.84-0.87 10255 Via Linda 2BR/2BA 1,213 847-867 0.70-0.71 2BR/2BA 1,360 967-997 0.71-0.73 2BR/2BA/TH 1,600 1,277 0.80 - --------------------------------------------------------------------------------------------------------------- 5 Dos Caminos 1983 264 1,007 97% 1BR/1BA 711 715 $ 1.01 10115 E Mountain 1BR/1BA 728 730-745 1.00-1.02 View Road 2BR/2BA 911 780 0.86 2BR/2BA 1,102 880 0.80 2BR/2.5BA/TH 1,263 980 0.78 - --------------------------------------------------------------------------------------------------------------- 6 Presidio at McCormick 1989 164 1,001 95% 1BR/1BA 750 675-695 $0.90-0.93 Ranch 2BR/1BA 964 765-785 0.79-0.81 9600 N 96th Street 2BR/2BA 1,091 790-810 0.72-0.74 2BR/2BA 1,105 825-845 0.75-0.76 3BR/2BA 1,265 960-980 0.76-0.77 - --------------------------------------------------------------------------------------------------------------- 7 Anacosta at 1988 160 865 98% 1BR/1BA 650 630 $ 0.97 McCormick Ranch 1BR/1BA 750 660 0.88 9750 N 96th Street 1BR/1BA/DEN 912 710 0.78 2BR/2BA 968 760 0.79 2BR/2BA 1,045 830 0.79 - --------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------- NO. NAME/LOCATION AMENITIES/COMMENTS - ------------------------------------------------------------------------- 1 Joshua Tree Amenities include 2 swimming pools, a 11545 Frank Lloyd tennis court, hot tub, exercise room, and Wright clubroom. No concessions. Rent ranges based on fireplace or view. - ------------------------------------------------------------------------- 2 The Equestrian Amenities include 2 swimming pools, a hot 11100 N 115th Street tub, clubhouse, and laundry facility. No concessions. Rents increase $30 with washer/dryer and $20 with 6-month lease. - ------------------------------------------------------------------------- 3 Villa Montana Amenities include a swimming pool, hot tub, 11350 E Sahuaro exercise room, clubhouse, and laundry Drive facility. No concessions. Rent ranges based on fireplace or washer/dryer. Rents increase $10 for covered parking. - ------------------------------------------------------------------------- 4 La Privada Amenities include a swimming pool, 2 tennis 10255 Via Linda courts, an exercise room, racquetball court, and clubhouse. No concessions. Rents vary due to location. Rents increase $50 with attached carport. - ------------------------------------------------------------------------- 5 Dos Caminos Amenities include 2 swimming pools, hot 10115 E Mountain tub, clubhouse, and garages. Concessions: View Road $450 off move-in. - ------------------------------------------------------------------------- 6 Presidio at McCormick Amenities include a swimming pool, hot tub, Ranch exercise room, clubhouse, and laundry 9600 N 96th Street facilities. No concessions. Rental rates vary due to fireplace, views, and upstairs or downstairs units. - ------------------------------------------------------------------------- 7 Anacosta at Amenities include 3 swimming pools, hot McCormick Ranch tub, exercise room, clubhouse, and laundry 9750 N 96th Street room. No concessions. Rents vary due to location. - -------------------------------------------------------------------------
- ------------------------------------------------------------------------------- COMPARABLE RENT SUMMARY (cont'd) - -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------- YEAR NO. OF AVG. UNIT UNIT TYPE UNIT RENT/MO. NO. NAME/LOCATION BUILT UNITS SIZE(SF) OCCUP. SIZE/SF - -------------------------------------------------------------------------------------------------------------------------- Phase 1 ------- 8 Scottsdale Cove 1991 316 927 96% 1BR/1BA 673 $ 645-$660 9450 E Becker Lane and 1BR/1BA 738 680 1994 2BR/2BA 973 770-780 2BR/2BA 984 775-785 3BR/2BA 1,220 955-1,005 Phase II -------- 1BR/1BA 718 645-660 2BR/2BA 1,012 835-905 2BR/2BA 1,021 775-785 3BR/2BA 1,220 955-1,060 - -------------------------------------------------------------------------------------------------------------------------- 9 The Tower at 1979 158 1,005 96% 1BR/1BA 755 $ 670 McCormick Ranch 1BR/1BA 874 730 8250 E Arabian Trail 1BR/1BA/DEN 987 760 2BR/2BA 1,157 860 2BR/2BA 1,315 1,035 - -------------------------------------------------------------------------------------------------------------------------- SUBJECT 1982 220 990 95% 1BR/1BA 809 $ 660 PROPERTY 2BR/2BA 961 750 Rancho Antigua 1BR/1.5BA/DEN 961 730 8787 E Mountain 2BR/2BA 1,020 790 View Road 2BR/2BA/TH 1,202 890 3BR/2BA 1,310 990 - -------------------------------------------------------------------------------------------------------------------------- NO. NAME/LOCATION RENT/SF/MO AMENITIES/COMMENTS - -------------------------------------------------------------------------------------------------------------- 8 Scottsdale Cove $0.96-$0.98 Amenities include 2 swimming pools, a hot tub, 9450 E Becker Lane 0.92 exercise room, and clubhouse. No concessions. Rent 0.79-0.80 varies with location and view. 0.79-0.80 0.82 0.90-0.92 0.83-0.89 0.76-0.78 0.78-0.87 - -------------------------------------------------------------------------------------------------------------- 9 The Tower at 0.89 Amenities include 2 swimming pools, a hot tub, McCormick Ranch 0.84 exercise room, and clubhouse. Concessions: Waive 8250 E Arabian Trail 0.77 deposit and redecorating fee. 0.74 0.79 - -------------------------------------------------------------------------------------------------------------- SUBJECT $ 0.82 Amenities include a clubhouse, 3 swimming pools, 3 spas, PROPERTY 0.78 a tennis court, and covered parking. Rancho Antigua 0.76 8787 E Mountain 0.78 View Road 0.74 0.76 - --------------------------------------------------------------------------------------------------------------
INCOME APPROACH - -------------------------------------------------------------------------------- In estimating the market value of the subject property, one method used by the appraisers was the Income Approach. The Income Approach to value is predicated on the assumption that there is a definite relationship between the amount of net income a property will earn and its value. Ultimately, the Income Approach seeks to estimate the present worth of an anticipated net income stream based on an analysis of its quality, quantity, and duration. In accordance with the principle of substitution, a prudent investor would pay no more to receive an income stream from a specified property than any other property producing an equally desirable income stream. Typically, the first step in the Income Approach is to estimate the potential gross income according to market rent. Market rent means the "going rent" in the neighborhood based on past history and present conditions. Vacancies are then deducted to arrive at effective gross income. Estimated annual expenses are deducted from the effective gross income, resulting in an indication of net operating income before debt service. From the estimated net annual income, annual debt service and deferred maintenance (if applicable), are subtracted to obtain annual cash flow to equity. This cash flow can be capitalized into an indication of equity value by direct capitalization utilizing an overall equity rate, or if debt does not exist, an overall capitalization rate. It may also be projected into the future over a selected but appropriate holding period, and discounted along with the anticipated equity reversion at the market discount rate and added in order to arrive at the net present equity value for the subject property. In either method, the present mortgage balance (if applicable) would be added to the equity value to obtain the total value of the property. Since our valuation is on a cash basis, no mortgages were considered. The appraisers have utilized both methods in valuing the subject property on an all cash basis. ESTIMATED GROSS RENTAL INCOME Income for the subject property is produced by rental income from the various rental units, as well as laundry income, forfeited security deposits, and miscellaneous income. Information provided by the on-site leasing agents indicated the subject's current rent schedule to be as follows:
BASED ON "RESIDENT PAYS UTILITIES" ------------------------------------------------------------------ UNIT TYPE UNITS SIZE (SF) RENT/MO. RENT/SF MO. TOTAL ------------------------------------------------------------------ A 1BR/1BA 60 809 $660 $0.82 $48,540 B 2BR/2BA 30 961 750 0.78 28,830 B 1BR/1.5BA DEN 28 961 730 0.76 26,908 C 2BR/2BA 62 1,020 790 0.78 63,240 D 2BR/2BA/TH 20 1,202 890 0.74 24,040 E 3BR/2BA 20 1,310 990 0.76 26,200 --- ----- ---- ----- -------- 220 990 $755 $0.78 $169,120
The rent range presented in the previous table is due to location variances. The monthly averages and total are based on the average rent. 34
=========================================================================================================================== SUBJECT - RENT ANALYSIS RANCHO ANTIGUA - --------------------------------------------------------------------------------------------------------------------------- UNIT AVG. AVG. MO. UNIT TYPE SIZE (SF) RENT/MO. RENT/SF COMPARABILITY - --------------------------------------------------------------------------------------------------------------------------- SUBJECT (A PLAN) 1BR/1BA 809 $ 660 $ 0.82 Joshua Tree 1BR/1BA 710 625-655 0.88-0.92 Superior Villa Montana 1BR/1BA 745 610-620 0.82-0.83 Comparable La Privada 1BR/1BA 857 722-742 0.84-0.87 Comparable Dos Caminos 1BR/1BA 728 730-745 1.00-1.02 Superior Presidio at McCormick Ranch 1BR/1BA 750 675-695 0.90-0.93 Superior Anacosta at McCormick Ranch 1BR/1BA 750 660 0.88 Superior Scottsdale Cove 1BR/1BA 738 680 0.92 Superior The Tower at McCormick Ranch lBR/1BA 755 670 0.89 Superior - --------------------------------------------------------------------------------------------------------------------------- SUBJECT (B PLAN) 2BR/2BA 961 750 $ 0.78 Joshua Tree 2BR/2BA 942 740-770 0.79-0.82 Comparable The Equestrian 2BR/2BA 888 650 0.75 Slightly Inferior Villa Montana 2BR/2BA 970 745-755 0.77-0.78 Slightly Inferior Dos Caminos 2BR/2BA 911 780 0.86 Superior Anacosta at McCormick Ranch 2BR/2BA 968 760 0.79 Comparable Scottsdale Cove 2BR/2BA 973 770-780 0.79-0.80 Superior - --------------------------------------------------------------------------------------------------------------------------- SUBJECT (B PLAN) 1BR/1.5BA/DEN 961 730 0.76 Joshua Tree 2BR/2BA 942 740-770 0.79-0.82 Comparable The Equestrian 1BR/1BA/DEN 835 640 0.77 Comparable Villa Montana lBR/1BA/DEN 900 695-705 0.73-0.74 Slightly Inferior Dos Caminos 2BR/2BA 911 780 0.86 Superior Anacosta at McCormick Ranch 1BR/1BA/DEN 912 710 0.78 Superior Scottsdale Cove 2BR/2BA 973 770-780 0.79-0.80 Superior - --------------------------------------------------------------------------------------------------------------------------- SUBJECT (C PLAN) 2BR/2BA 1,020 790 0.78 Joshua Tree 2BR/2BA 942 740-770 0.79-0.82 Comparable Villa Montana 2BR/2BA 1,050 805 0.77 Comparable Dos Caminos 2BR/2BA 1,102 880 0.80 Comparable Presidio at McCormick Ranch 2BR/2BA 1,091 790-810 0.72-0.74 Inferior Anacosta at McCormick Ranch 2BR/2BA 1,045 830 0.79 Comparable Scottsdale Cove 2BR/2BA 1,021 775-785 0.76-0.78 Comparable - --------------------------------------------------------------------------------------------------------------------------- SUBJECT (D PLAN) 2BR/2BA/TH 1,202 890 0.74 Villa Montana 2BR/2BA 1,050 805 0.77 Comparable La Privada 2BR/2BA 1,213 847-867 0.70-0.71 Inferior Dos Caminos 2BR/2.5BA/TH 1,263 980 0.78 Comparable Presidio at McCormick Ranch 2BR/2BA 1,105 825-845 0.75-0.76 Comparable The Tower at McCormick Ranch 2BR/2BA 1,157 860 0.74 Slightly Inferior - --------------------------------------------------------------------------------------------------------------------------- SUBJECT (E PLAN) 3BR/2BA 1,310 990 0.76 LaPrivada 2BR/2BA 1,360 967-997 0.71-0.73 Inferior Dos Caminos 2BR/2.5BA/TH 1,263 980 0.78 Comparable Scottsdale Cove 3BR/2BA 1,220 955-1,060 0.78-0.87 Superior Presidio at McCormick Ranch 3BR/2BA 1,265 960-980 0.76-0.77 Comparable The Tower at McCormick Ranch 2BR/2BA 1,315 1,035 0.79 Superior ===========================================================================================================================
These rents have been compared to closely located and similarly designed apartment complexes in the subject's area. For the purpose of this analysis, we have considered nine apartment complexes that were found to be most comparable. They range in total size from 150,738 to 418,297 units, in average unit size from 746 to 1,195 square feet, and in occupancy from 95 to 98 percent. These comparable rentals are summarized on the preceding page. All of the comparables surveyed were located within the subject's immediate vicinity. These projects are comparable to the subject overall; specifically, in terms of overall physical condition, unit size, rental rates, and the amenities offered. These comparables indicate an average quoted rental rate range from $0.75 to $0.87 per square foot per month. After considering each of the aforementioned factors and the subject's historical performance, we are of the opinion that the subject's asking rentals are reasonable. Given the subject's 95 percent physical occupancy and actual rents, the projected market effective rental rates for the subject are summarized as follows:
BASED ON "RESIDENT PAYS UTILITIES" ---------------------------------------------------------------------------- MO. MO. UNIT TYPE UNITS SIZE (SF) TOTAL (SF) RENT/MO. TOTAL RENT/SF ---------------------------------------------------------------------------- A lBR/lBA 60 809 48,540 $660 $ 39,600 $0.82 B 2BR/2BA 30 961 28,830 750 22,500 0.78 B lBR/l.5BA DEN 28 961 26,908 730 20,440 0.76 C 2BR/2BA 62 1,020 63,240 790 48,980 0.78 D 2BR/2BA/TH 20 1,202 24,040 890 17,800 0.74 E 3BR/2BA 20 1,310 26,200 990 19,800 0.76 --- ----- ------- ---- -------- ----- 220 990 217,758 $769 $169,120 $0.78
Gross Annual Rental Income: $169,120 x 12 months = $2,029,440 OTHER INCOME In addition to rental income from apartments, other income is generated by laundry and vending machines, forfeited security deposits, late charges, and furniture. Other Income in 1990 was reported at $41,540 or $0.19 per square foot. This figure rose in 1991 to $44,187 or $0.20 per square foot. In 1992, other income dropped to $40,411 or $0.19 per square foot and in 1993 it dropped to $39,071 or $0.18 per square foot. In 1994 other income was reportedly $46,828 or $0.22 per square foot, in 1995 it was $39,233 or $0.18 per square foot, and in 1996 it was $45,889 or $0.21 per square foot. The 1997 other income reflected $0.20 per square foot or about $44,500. Based on our experience with similar type properties and the actual performance of the property it is our opinion that other income in the amount of $0.23 per square foot is typical for a project such as the subject. In the first year of our analysis, this equates to $0.21 per square foot after vacancy. From this we have arrived at our estimate of scheduled gross income as if 100 percent occupied: 35
======================================================================================================================== RANCHO ANTIGUA HISTORICAL EXPENSES - ------------------------------------------------------------------------------------------------------------------------ EXPENSE ACTUAL 1993 ACTUAL 1994 ACTUAL 1995 ACTUAL 1996 ANNUALIZED 1997 CATEGORY PER SF PER UNIT PER SF PER UNIT PER SF PER UNIT PER SF PER UNIT PER SF PER UNIT - ------------------------------------------------------------------------------------------------------------------------ Real Estate Taxes $0.42 $418 $0.42 $418 $0.45 $441 $0.47 $466 $0.47 $466 Insurance 0.06 59 0.06 63 0.07 69 0.07 70 $0.07 $ 64 Personnel 0.56 558 0.58 579 0.63 622 0.65 641 $0.71 $702 Utilities 0.36 360 0.42 419 0.45 442 0.50 496 $0.53 $528 Repairs & Maintenance 0.30 292 0.40 393 0.43 421 0.49 481 $0.49 $480 Contract Services 0.15 144 0.14 143 0.15 147 0.16 162 $0.20 $200 General Administrative 0.15 152 0.14 135 0.21 208 0.12 123 $0.15 $152 Management 0.35 349 0.37 370 0.38 380 0.41 409 $0.42 $420 ---- --- ---- --- ---- --- ---- --- ----- ------ TOTAL $2.36 $2,332 $2.54 $2,519 $2.76 $2,730 $2.88 $2,848 $3.04 $3,012 ======================================================================================================================= - -------------------------------------------- EXPENSE CATEGORY - -------------------------------------------- BRA PROJECTIONS 1998 PER SF PER UNIT - -------------------------------------------- Real Estate Taxes $0.51 $ 504 Insurance 0.08 $ 82 Personnel 0.65 $ 643 Utilities 0.50 $ 494 Repairs & Maintenance 0.45 $ 443 Contract Services 0.17 $ 165 General Administrative 0.21 $ 206 Mananagement 0.43 $ 430 ---- ------ TOTAL $3.00 $2,968 ===============
======================================================================================================================= COMPARABLE EXPENSE ANALYSIS ======================================================================================================================= COMPARABLE 1 Expense Year 1997 NRA 252,700 No. Units 300 Year Built 1981 Average Unit Size 842 - --------------------------------------------- -------------------------------------------------------------------- EXPENSE CATEGORY PER SF PER UNIT COMPARABLE AVG UNIT SF, EXPENSES/SF EXPENSES/UNIT - --------------------------------------------- -------------------------------------------------------------------- Real Estate Taxes $0.50 $ 421 Joshua Tree 781 $3.69 $2,918 Insurance 0.06 48 Salado Springs 845 $3.56 $3,011 Personnel 0.67 564 Elliot's Crossing 806 $3.36 $2,711 Utilities 0.51 429 The Pinnacle 1,004 $3.19 $3,200 Repairs & Maintenance 0.41 346 Sonterra 941 $3.40 $3,200 Contract Services 0.22 185 The Palisades 924 $4.09 $3,793 General Administrative 0.08 67 Management 0.42 351 ----- ----- TOTAL $2.87 $2411 ========================================================================================================================
Gross Rental Income $2,029,440 Other Income ($0.23SF) 50,084 --------- Total Potential Gross Income $2,079,524 VACANCY AND COLLECTION LOSS ESTIMATE In a stable market, vacancy and collection loss for an apartment complex will be in the 3 to 7 percent range. This covers the time lag during re-leasing and normal refurbishing of apartment units, and the loss of income resulting from bad debt or other vacancies. Over the past decade, the average vacancy in the Scottsdale/Paradise Valley area has dropped from a high of 13.7 percent in 1989 to a low of 3.8 percent as of the Fourth Quarter of 1997. Due to the amount of new construction, the market is expected to take a couple of years to reach stabilization. In surveying the direct competition, the current physical vacancies are typically below 10 percent. The subject's economic vacancy is currently about 11 percent and the physical vacancy is about 5 percent. The primary difference between the physical and economic vacancies is due to the lower-than-market contract rents. Considering the amount of new construction, we have projected a 9 percent economic vacancy in 1998. After the first year of the cash flow, we have estimated the vacancy rate will stabilize at 7 percent and remain at that level for the remainder of the holding period. This recognizes the supply/demand dynamics of the Scottsdale apartment market. EXPENSE ANALYSIS The various expenses necessary in the operation of the subject have been estimated including fixed expenses, operating expenses, and reserves for replacement. Proper appraisal technique demands that an appraiser rely on typical expenses as opposed to actual expenses, which may vary according to management or special circumstances that may not persist. In addition, the total expenses per square foot should be within a range typical for similar projects. Reserves for replacement are estimated based on age, condition, and construction quality. It is re-emphasized that all income, as well as expense estimates, are based on the assumption of competent and prudent management. We have based our estimate of project expenses on a comparable apartment project located in the subject area, expenses at the comparable sales properties, as well as the actual historical performance of the subject property. The facing chart summarizes the actual expenses reported by an "individually metered" project, as well as the subject property's actual 1991 through 1996 and annualized 1997 expense figures (actual figures for January through December). Based upon the analysis of the comparables, we have developed the following expense estimates for the subject. REAL ESTATE TAXES - The Maricopa County Assessor's Office coordinates the real estate taxes for the Las Colinas Apartments. The property is subject to a number of different taxing authorities and there are two assessments. Reportedly, the personal property was included in the real property assessment and not taxed separately. The 1997 real estate taxes were $102,070 based on the subject property operating statement. We estimated the 1998 taxes at $0.51 per square foot or $110,969. 36 INSURANCE - This category includes fire and extended coverage. Insurance costs can vary from one property to another depending upon the type and whether a blanket policy is used. Often times a property owner will insure multiple properties on one policy in an effort to reduce the cost of insurance per project. Our expense estimate is based upon typical costs for individually insured apartment projects in the Phoenix area. The subject's actual figures from 1991 to 1996 were between $0.06 and $0.07 square foot. Annualized figures for 1997 reflect insurance at $0.07 per square foot. The one comparable indicated $0.06 per square foot. Given this information, we estimated insurance at $0.08 per square foot or $18,117 in the first year. This expense is expected to increase 4 percent annually throughout our projection period. PERSONNEL - This category includes salaries for office managers, leasing agents, maid services, payroll taxes, and FICA. This category is not to be confused with the category of Management. The expense comparable showed a personnel expense of $0.67 per square foot. Annualized figures for the subject in 1997 indicate this expense at $0.64 per square foot. The subject's actual figures for 1993, 1994, 1995, and 1996 were $0.56, $0.58, $0.63, and $0.65 per square foot, respectively. Based on historical figures at the subject property and tempering them with the market data, we have estimated this expense at $141,543 or $0.65 per square foot. This expense is expected to increase 4 percent annually throughout our projection period. UTILITIES - This expense category includes electric, gas, water, and sewer for the apartment's common area. The subject's actual figures for 1993, 1994, 1995, and 1996 were $0.36, $0.42, $0.45, and $0.50 per square foot, respectively. Annualized figures for 1997 indicate this expense at $0.53 per square foot. The comparable indicated $0.51 per square foot. Based on this data, we have estimated this expense at $0.50 per square foot or $108,705. This expense is expected to increase 4 percent annually throughout our projection period. REPAIR AND MAINTENANCE - These expenses are necessary in order to keep the property in good repair including plumbing, air-conditioners, electrical, draperies, carpets, janitorial supplies, and decorative costs. The expense comparable indicated $0.41 per square foot. Annualized figures for the subject in 1997 indicate this expense at $0.49 per square foot, while actual figures for 1993, 1994, 1995, and 1996 were $0.30, $0.40, $0.43, and $0.49 per square foot, respectively. Due to the age, overall condition, and the ongoing maintenance at the subject property, an estimate of $0.45 per square foot or $97,381 has been projected for the subject. This expense is expected to increase 4 percent annually throughout our projection period. CONTRACT SERVICES - This expense category includes landscaping, security, etc. The expense comparables varied with some combining these items with the maintenance and repair category above. The comparable indicated $0.22 per square foot. The subject's annual figures for 1993, 1994, 1995, and 1996 were $0.15, $0.14, $0.15, and $0.16 per square foot. Annualized figures for 1997 indicate this expense at $0.20 per square foot. We have estimated this expense for 37 the subject at $0.17 per square foot or $36,235 and this expense is expected to increase 4 percent annually throughout our projection period. GENERAL ADMINISTRATIVE - This expense category includes professional, legal, and accounting costs, administration costs, promotional expenses, etc. The expense comparable indicated $0.08 per square foot, which is believed low. Annualized figures for the subject in 1997 indicate $0.20 per square foot, while actual figures for 1993, 1994, 1995, and 1996 were $0.15, $0.14, $0.21, and $0.12 per square foot, respectively. We have estimated this expense for the subject at $0.21 per square foot or $45,294. This expense is expected to increase 4 percent annually throughout our projection period. MANAGEMENT - This includes the fee to outside management or ownership for managing the property. This expense is typically a percentage of the effective gross income of the property. The industry standard for an apartment complex of this size and quality is between 3 and 5 percent of effective gross income. The subject is reportedly at 5 percent of effective gross income. The comparable reflected this expense at $0.42 per square foot. The annualized 1997 expense is $0.42 per square foot. The subject's expenses in 1993, 1994, 1995, and 1996 appear reasonable at $0.35, $0.37, $0.38, and $0.41 per square foot, respectively. Based on this data we have projected the management fee at 5 percent ($0.43 per square foot for 1998) of effective gross income in each year of our analysis which was crosschecked on a per square foot basis. EXPENSE SUMMARY The subject's total expenses in 1995 were $2.76 per square foot, in 1996 total expenses were $2.88 per square foot and annualized 1997 expenses are $3.04 per square foot. The comparable indicated $2.87 per square foot. Six of the sale properties indicated a range of $3.19 to $4.09 per square foot. Considering the subject's size and age, the expenses appear reasonable. Based on the data previously discussed, we have projected total expenses for the subject in 1998 at $3.00 per square foot or $2,968 per unit, without reserves. RESERVES FOR REPLACEMENT A replacement allowance provides for the periodic replacement of building components that wear out more rapidly than the building itself and must be replaced periodically during the building's economic life. These include roof covering, carpeting, appliances, compressors, parking areas, drives, etc. The subject was constructed in 1982 and appears to have had ongoing maintenance since its construction. It is our opinion that a reserve allowance of $300 per unit or $0.30 per square foot is adequate to provide for the continued maintenance of the project. This was included in our expenses prior to concluding the net operating income. DEFERRED MAINTENANCE The subject improvements are in good condition and exhibited only minor deferred maintenance at the time of our inspection. This has been estimated at $181,900, which has been rounded to $185,000. This includes appliance replacement, floor and drapery replacement, exterior repairs, furniture and fixtures repair, air-conditioning and equipment repairs, interior repairs, landscaping, painting, roof repairs, and water heater replacement. 38 DISCOUNTED CASH FLOW ANALYSIS DISCUSSION The most realistic method for estimating value via the Income Approach is through the use of Discounted Cash Flow Analysis. The Market Value of a real estate investment under the Discounted Cash Flow Method is defined as the discounted sum of all net cash inflows plus the property's discounted reversionary value. Primarily, any given property is only worth the value of the income derived from it. The general methodology of Discounted Cash Flow involves the following steps: 1) increasing each year's cash flows by an appropriate appreciation factor; 2) discounting each year's net cash flow by an appropriate discount rate; 3) deriving the property's reversionary value in the final year and discounting it to the present; and 4) the summation of all cash flows, including final year reversion, into an estimate of value. According to the Third Quarter 1997 real estate investor survey compiled by Peter F. Korpacz & Associates, Inc. the apartment market is being flooded with capital, primarily from REIT's, rendering it almost impossible for large institutional investors to land deals. In addition, brokers have fewer properties to market either because long-term holders are buying product before it is ever offered on the market place or because owners are not willing to sell. The main factor is investors are watching to determine if investment locations are the pace of job growth. The slower pace of job growth in many markets, coupled with continued increases in multi-family and single family permits as well as attractive interest rates could combine to negatively effect the apartment market. As such, some investors are increasing overall vacancy allowance in their acquisition analyses and backing off on revenue growth assumptions. However, apartment investment continues to be attractive for pension funds and REIT's and we anticipate investors will continue to find the apartment market a desirable investment. DISCOUNT RATE Over the past several years, the internal rate of return (IRR) has gained greater usefulness and market acceptance as an investment measure. IRR is the yield on an investment based on an initial cash investment, annual cash flows to the property, as well as resale proceeds. IRR allows for return on investment as well as recapture of the original investment when factoring in the reversion. To simulate this process, we have relied upon several investor surveys, which detail reasonable yields or IRR requirements of purchasers. We have used this rate as a discount rate that, when applied to projected cash flows and net resale proceeds (reversion), results in the present value of the property. According to the Third Quarter 1997 investor survey compiled by Peter F. Korpacz & Associates, Inc., investors for apartment properties indicated a return requirement ranging from 10.00 to 12.50 percent with an average of 11.16 percent. This IRR depends on the conservative or aggressive nature of rental and expense growth assumptions, as well as location and other factors. Corporate "Baa" bonds are typically viewed as an alternative investment. Real estate is considered riskier due to illiquidity, competition, burden of management, and market conditions; therefore, approximately 150 basis points or more could be added to this bond 39 percentage rate in a normal market. Based on the previous data and considering the amount of new construction in the market and the lease-up time required to regain stabilization, we believe a 12.50 percent discount rate is reasonable based on an all cash sale and alternative investments. While this is higher than the indicated average by the previously mentioned survey, we believe it reflects the added risk in the market. CAPITALIZATION RATE The subject property's reversionary value is derived by capitalizing the eleventh year's net operating income. As mortgage rates have fluctuated over the past several years, it becomes difficult to apply a band of investment method to establish a capitalization rate because capitalization rates do not react dramatically to ups and downs of mortgage interest rates. Additionally, the mercurial nature of the recent market creates a large variance of returns depending on property potential. Again, according to the previously cited investor survey, investors of apartment properties indicated a terminal capitalization rate range from 8.0 to 10.25 percent with an average of 9.29 percent. This range appears reasonable after analyzing the most recent sales in the area, which follow.
SALE IDENTIFICATION SALE DATE CAPITALIZATION RATE ------------------------------------------------------- 1 Villa Antigua 10/97 9.00% 2 Joshua Tree 09/97 8.50% 3 Paradise Trails 06/97 NA 4 The Overlook 04/97 NA 5 Salado Springs 04/97 8.57% 6 Elliot's Crossing 03/97 8.76% 7 The Pinacle 01/97 8.70% 8 Sonterra 12/96 8.63% 9 The Palisades 12/96 8.40%
Based upon the aforementioned factors and the quality of the subject, it is our opinion that a 9.5 percent "going- in" capitalization rate was appropriate in this market considering the subject's attributes and on-going apartment construction. Typically, the terminal capitalization rate would be higher than the "going-in" capitalization rate due to the greater risk and older age of the property at the end of the projection period. Therefore, we believe a terminal capitalization rate of 10.5 percent is appropriate for the subject property. The resulting value indicates a first year capitalization rate of 9.24 percent. CASH FLOW ASSUMPTIONS . Rents were based on an average current rental rate of approximately $0.78 per square foot. During the projection period rents were increased at a rate of 0 percent in Year 1 and 4 percent per year thereafter. As previously discussed in the "Apartment Market Analysis" section of this report, the subject area's average rental rates have increased at a healthy pace in the early 1990's; however, with the significant amount of new construction the growth has slowed. 40
==================================================================================================================================== RANCHO ANTIGUA APARTMENTS Fiscal Year Ending 12/31 1998 1999 2000 2001 2002 2003 2004 2005 2006 - ------------------------------------------------------------------------------------------------------------------------------------ Income: Apt. Rents 2,029,440 2,110,618 2,195,042 2,282,844 2,374,158 2,469,124 2,567,889 2,670,605 2,777,429 Rent/SF/Mo. 0.777 0.808 0.840 0.874 0.909 0.945 0.983 1.022 1.063 Other Income/Yr. 50,084 52,088 54,171 56,338 58,592 60,935 63,373 65,908 68,544 ---------- --------- --------- --------- --------- --------- --------- --------- --------- Gross Income 2,079,524 2,162,705 2,249,214 2,339,182 2,432,749 2,530,059 2,631,262 2,736,512 2,845,973 % Vacancy 9.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% Vacancy Allowance 187,157 151,389 157,445 163,743 170,292 177,104 184,188 191,556 199,218 ---------- --------- --------- --------- --------- --------- --------- --------- --------- Effective Gross Income 1,892,367 2,011,316 2,091,769 2,175,439 2,262,457 2,352,955 2,447,073 2,544,956 2,646,755 Expenses: Real Estate Taxes 110,969 115,408 120,025 124,826 129,819 135,011 140,412 146,028 151,869 Insurance 18,117 18,842 19,596 20,380 21,195 22,043 22,924 23,841 24,795 Personnel 141,543 147,204 153,093 159,216 165,585 172,208 179,097 186,261 193,711 Utilities 108,705 113,053 117,575 122,278 127,169 132,256 137,546 143,048 148,770 Repairs and Maintenance 97,381 101,277 105,328 109,541 113,922 118,479 123,219 128,147 133,273 Contract Services 36,235 37,684 39,192 40,759 42,390 44,085 45,849 47,683 49,590 General Administrative 45,294 47,105 48,990 50,949 52,987 55,107 57,311 59,603 61,988 Management Fee 94,618 100,566 104,588 108,772 113,123 117,648 122,354 127,248 132,338 Reserves for Replacement 66,000 68,640 71,386 74,241 77,211 80,299 83,511 86,851 90,326 ---------- --------- --------- --------- --------- --------- --------- --------- --------- Total Expenses 718,863 749,780 779,771 810,962 843,401 877,137 912,222 948,711 986,659 Per SF 3.30 3.44 3.58 3.72 3.87 4.03 4.19 4.36 4.53 ---------- --------- --------- --------- --------- --------- --------- --------- --------- Net Operating Income 1,173,504 1,261,536 1,311,997 1,364,477 1,419,056 1,475,819 1,534,851 1,596,245 1,660,095 Per SF 5.39 5.79 6.03 6.27 6.52 6.78 7.05 7.33 7.62 Capital Items: 185,000 0 0 0 0 0 0 0 0 ---------- --------- --------- --------- --------- --------- --------- --------- --------- Cash Flow 988,504 1,261,536 1,311,997 1,364,477 1,419,056 1,475,819 1,534,851 1,596,245 1,660,095 ---------- --------- --------- --------- --------- --------- --------- --------- --------- Present Value Factor 12.50% 0.888889 0.790123 0.702332 0.624295 0.554929 0.493270 0.438462 0.389744 0.346439 Present Value of Cash Flow 878,671 996,769 921,458 851,836 787,475 727,977 672,975 622,128 575,122 NOI in 10th Year 1,795,559 Ro at Reversion 10.50% ---------- Indicated Reversion 17,100,562 Less: Sales Costs 3.00% 513,017 ---------- Reversion in 10th Yr 16,587,545 ================================================================= 2007 2008 - ----------------------------------------------------------------- Income: Apt. Rents 2,888,526 3,004,067 Rent/SF/Mo. 1.105 1.150 Other Income/Yr. 71,286 74,137 ---------- ---------- Gross Income 2,959,812 3,078,204 % Vacancy 7.00% 7.00% Vacancy Allowance 207,187 215,474 ---------- ---------- Effective Gross Income 2,752,625 2,862,730 Expenses: Real Estate Taxes 157,944 164,262 Insurance 25,787 26,818 Personnel 201,459 209,518 Utilities 154,721 160,910 Repairs and Maintenance 138,604 144,148 Contract Services 51,574 53,637 General Administrative 64,467 67,046 Management Fee 137,631 143,136 Reserves for Replacement 93,939 97,696 ---------- --------- Total Expenses 1,026,126 1,067,171 Per SF 4.71 4.90 ---------- --------- Net Operating Income 1,726,499 1,795,559 Per SF 7.93 8.25 Capital Items: 0 0 ---------- --------- Cash Flow 1,726,499 1,795,559 ---------- --------- Present Value Factor 0.307946 0.0000000 Present Value of Cash Flow 531,669 0 NOI in 10th Year Present Value of Income Stream 7,566,080 Ro at Reversion Present Value of Reversion 5,108,071 ------------------------------------------------------- Indicated Reversion Indicated Value of 12,674,151 Less: Sales Costs Subject Indicated Value/SF 58.20 Reversion in 10th Yr Indicated Value/Unit 57,610 GIM at Indicated Value (rent income only) 6.25 Ro at Indicated Value 9.26% -------------------------------------------------------- ====================================================================================================================================
--------------------------------------- Expenses: $/Unit $/SF --------------------------------------- Real Estate Taxes 504 0.51 --------------------------------------- Insurance 82 0.08 --------------------------------------- Personnel 643 0.65 --------------------------------------- Utilities 494 0.50 --------------------------------------- Repairs and Maintenance 443 0.45 --------------------------------------- Contract Services 165 0.17 --------------------------------------- General Administrative 206 0.21 --------------------------------------- Management Fee 5.00% 0.43 --------------------------------------- Reserves for Replacement 300 0.30 --------------------------------------- =============================================================================== CASH FLOW SUMMARY
CALENDAR YEAR ANNUAL 12.50% PV OF ENDING 12/31 CASH FLOW NPV FACTOR CASH FLOW ------------- --------- ---------- --------- 1998 $ 988,504 0.888888889 $ 878,671 1999 1,261,536 0.790123457 996,769 2000 1,311,997 0.702331962 921,458 2001 1,364,477 0.624295077 851,836 2002 1,419,056 0.554928957 787,475 2003 1,475,819 0.493270184 727,977 2004 1,534,851 0.438462386 672,975 2005 1,596,245 0.389744343 622,128 2006 1,660,095 0.346439416 575,122 2007 1,726,499 0.307946148 531,669 -------- TOTAL NPV OF CASH FLOWS $ 7,566,080 Projected NOI - 11th Year $ 1,795,559 Terminal Capitalization Rate 10.50% ------ Estimated Value of Property at End of 10th Year $17,100,562 Less Sales Cost @ 3.00% (513,017) ------- Value of Reversion at End of 10th Year $16,587,545 Discount Factor - 10th Year 12.50% 0.307946 -------- Present Value of the Reversion $ 5,108,071 Sum of Present Values of Cash Flow 7,566,080 --------- MARKET VALUE AS OF DECEMBER 31, 1997 $12,674,151 (ROUNDED) $12,700,000 ===========
=============================================================================== . The subject's current economic vacancy rate is about 11 percent. It is our opinion that the subject should be capable of obtaining a 9 percent vacancy rate for the entry point year (1998). After that, a 7 percent stabilized vacancy rate can be achieved. . The property has been appraised based on a "resident pays utilities" status. . Expenses (with the exception of management) have been increased at an average growth rate of 4 percent annually over the 11-year projection period. Management expenses are based on a percentage of effective gross income and increase with occupancy and rental increases. . A discount rate of 12.50 percent was utilized. . A terminal capitalization rate of 10.50 percent was believed reasonable. . A sales cost of 3 percent of the reversionary value was estimated. A cash flow analysis for the subject may be found on the following pages. The estimated leased fee market value for the subject on an "as is" basis via discounted cash flow method is TWELVE MILLION SEVEN HUNDRED DOLLARS ($12,700,000) 41 ================================================================================ RANCHO ANTIGUA APARTMENTS
Fiscal Year Ending 12/31 1998 ---- Income: Apt. Rents $ 2,029,440 Rent/SF/Mo. 0.777 Other Income/Yr. 50,084 ----------- Gross Income $ 2,079,524 % Vacancy 7.00% Vacancy Allowance 145,567 ----------- Effective Gross Income $ 1,933,958 ------------------------------- Expenses: $/Unit $/SF ------------------------------- Real Estate Taxes 504 0.51 $ 110,969 ------------------------------- Insurance 82 0.08 18,117 ------------------------------- Personnel 643 0.65 141,543 ------------------------------- Utilities 494 0.50 108,705 ------------------------------- Repairs and Maintenance 443 0.45 97,381 ------------------------------- Contract Services 165 0.17 36,235 ------------------------------- General Administrative 206 0.21 45,294 ------------------------------- Management Fee 5.00% 0.43 96,698 ------------------------------- Reserves for Replacement 300 0.30 66,000 ------------------------------- ----------- Total Expenses $ 720,942 Per SF 3.31 ----------- Net Operating Income $ 1,213,015 Per SF 5.57 Capitalization Rate 9.50% ----------- Fee Simple Stabilized Market Value $12,768,583 Less: Rent Loss Due to Lease-up $ 34,121 Deferred Maintenance $ 185,000 ----------- Leased Fee "As Is" Market Value $12,549,462 Leased Fee "As Is" Market Value (Rounded) $12,550,000 - ----------------------------------------------------------------------------------------------------
RENT LOSS DUE TO LEASE-UP/CONTRACT RENT ---------------------------------------
Year 1 ------ Stabilized NOI $1,213,015 Projected NOI 1,176,506 --------- Rent Loss $ 36,509 PV Factor@ 7.00% 0.934579 -------- PV Income Loss $ 34,121 CUMULATIVE LOSS $ 34,121
================================================================================ DIRECT CAPITALIZATION Direct capitalization is a method used to convert a single year's income estimate into a value indication. In direct capitalization a rate of return for the investor and recapture of the capital invested is implicit in the overall capitalization rate. The overall capitalization rate was chosen after analyzing the comparable apartment sales in our Sales Comparison Approach. These sales indicated a range of "going-in" capitalization rates from 8.4 to 9.00 percent. Additionally the appraiser considered the subject's attributes and its age as well as the on-going apartment construction in Scottsdale/Phoenix. A "going-in" capitalization rate of 9.5 percent was deemed appropriate due to the quality of the subject, its location, and the current market conditions. Deductions are made for rent loss and deferred maintenance. After these adjustments this valuation method indicates a $12,550,000 subject value. INCOME APPROACH CONCLUSION DCF Method ..................................... $12,700,000 Direct Capitalization Method ................... $12,550,000 The two methods of comparison are supportive of each other and we gave most reliance to the discounted cash flow analysis. We are of the opinion that the "as is" market value of the subject property, as of December 31, 1997 is $12,600,000. 42 RECONCILIATION - -------------------------------------------------------------------------------- Sales Comparison Approach $12,700,000 Income Approach $12,600,000 The Sales Comparison Approach utilized relatively recent comparable sales of similar properties in the area. The weakness of the Sales Comparison Approach is that no two properties are exactly alike and exact conditions of a sale are often unknown. The strength of this approach is that it indicates market activity based on the willing buyer/willing seller concept. This approach is supportive of the Income Approach. The Income Approach attempts to measure investment qualities of the property. Based on actual rental rates in the immediate area of the subject, actual expenses, and investor returns derived from the market, we have estimated value. Actual data on the property, as well as comparable data was considered adequate. Because the Income Approach deals directly with income streams, we feel it is a very good indication of current market conditions. It tends to reflect a value, which an investor of a property would anticipate. We have placed primary emphasis on the Income Approach. Therefore, it is our opinion that the "as is" leased fee market value of the subject property, on an all cash basis, as of December 31, 1997 is TWELVE MILLION SIX HUNDRED THOUSAND DOLLARS ($12,600,000) 43 VILLA ANTIGUA - ---------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 1 PROPERTY IDENTIFICATION Job Number 97-081 Project Name Villa Antigua Address 5950 N. 78th City/State Scottsdale, Arizona TRANSACTION DATA Sale Date 10/97 Grantor (Seller) Cluster Housing Properties (et al) Grantee (Buyer) Villa Antigua Condominium Ventures Recorded Document 711812 Sale Price $1,070,000 Occupancy 95% Sale Price per Unit $71,000 Sale Price per SF $68.61 Capitalization Rate 9% TERMS OF SALE Cash PROPERTY DESCRIPTION Year Built 1986 Number of Stories 1&2 Number of Buildings 16 Number of Units 130 Number of Bedrooms 250 Net Rentable Area 134,530 SF Average Unit Size 1,035 SF Land Area 7.35 Acres Unit Density 17.69 Units per Acre Property Condition Good Parking (type) Open (95) Covered (130 spaces) Total Spaces (225) Construction Type Concrete foundation, wood framing, stucco exterior and Spanish tile roof Unit Amenities Fireplace, washer/dryer, microwave, balcony/patio, storage locker Project Amenities 2 swimming pools, spa, recreation room, tennis court, fitness center, and business center Confirmed With COMPS Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Comments Buyer planned to convert to condominium complex. Limited financial information available due to condominium conversion. Bach Realty Advisors, Inc. Rancho Antigua Apartments Sales Comparable Photographs JOSHUA TREE - ---------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 2 PROPERTY IDENTIFICATION Job Number 97-081 Project Name Joshua Tree Address 11545 N. Frank Lloyd Wright City/ State Scottsdale, Arizona TRANSACTION DATA Sale Date 09/97 Grantor (Seller) Joshua Tree, L.P. Grantee (Buyer) Joshua Tree Holdings, LLC Recorded Document 682094 Sale Price $17,000,000 Occupancy 95% Sale Price per Unit $51,515 Sale Price per SF $65.11 Capitalization Rate 8.5% TERMS OF SALE Cash PROPERTY DESCRIPTION Year Built 1988 Number of Stories 1&2 Number of Buildings 22 Number of Units 330 Number of Bedrooms 494 Net Rentable Area 261,092 SF Average Unit Size 791 SF Land Area 13.87 Acres Unit Density 23.79 Units per Acre Property Condition Average Parking (type) Open (155) Covered (330) Total (485) Construction Type Concrete foundation, wood framing, stucco exterior Unit Amenities Patio/balcony, dishwasher, some fireplaces, microwave Project Amenities 2 swimming pools, 2 spas, gym, recreation room, tennis court, and sauna Confirmed With COMPS Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Comments An EGIM of 7.05 was calculated based on income at time of sale. PARADISE TRAILS - ---------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 3 PROPERTY IDENTIFICATION Job Number 97-081 Project Name Paradise Trails Address 4502 E. Paradise Village City/ State Phoenix, Arizona TRANSACTION DATA Sale Date 06/97 Grantor (Seller) Paradise Trails Associates Grantee (Buyer) Paradise Trails Apartments, L.P. Recorded Document 435389 Sale Price $7,660,000 Occupancy 97% Sale Price per Unit $44,022 Sale Price per SF $53.54 Capitalization Rate NA TERMS OF SALE Cash PROPERTY DESCRIPTION Year Built 1985 Number of Stories 1&3 Number of Buildings 9 Number of Units 174 Number of Bedrooms 228 Net Rentable Area 143,058 SF Average Unit Size 822 SF Land Area 4.73 Acres Unit Density 36.78 Units per Acre Property Condition Average Parking (type) Open (83) and Carport (170) Total (253 spaces) Construction Type Concrete slab, wood frame, stucco exterior, and flat built up roof Unit Amenities Fireplace, balcony/patio, and washer/dryer, and dishwasher Project Amenities Swimming pool, spa, recreation room, gym, and racquetball Confirmed With COMPS Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Comments An EGIM of 5.68 was calculated based on income information. Further details, including expense data was undisclosed. THE OVERLOOK - ---------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 4
PROPERTY IDENTIFICATION Job Number 97-081 Project Name The Overlook Address 11620 E. Sahuaro Drive City/ State Scottsdale, Arizona TRANSACTION DATA Sale Date 04/97 Grantor (Seller) Cigna Income Realty-I, LP Grantee (Buyer) Glenborough Properties, LP Recorded Document 283548 Sale Price $11,163,720 Occupancy NA Sale Price per Unit $49,838 Sale Price per SF $59.03 Capitalization Rate NA TERMS OF SALE Cash PROPERTY DESCRIPTION Year Built 1987 Number of Stories 1&2 Number of Buildings 16 Number of Units 224 Number of Bedrooms 320 Net Rentable Area 189,120 SF Average Unit Size 844 SF Land Area 9.3 Acres Unit Density 24.09 Units per Acre Property Condition Average Parking (type) Open (205) Carport (112) Total (317) Construction Type Concrete foundation, wood framing, stucco exterior, Spanish tile roof Unit Amenities Fireplace, balcony/patio, dishwasher, washer/dryer hook-up Project Amenities Swimming pool, spa, gym, tennis court, laundry, and recreation room Confirmed With COMPS Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Comments This transaction was part of a 6-priority nationwide portfolio sale by Cigna Properties. No income information available.
SALADO SPRINGS - ---------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 5 PROPERTY IDENTIFICATION Job Number 97-081 Project Name Salado Springs Address 242 S. Beck City/State Tempe, Arizona TRANSACTION DATA Sale Date 02/97 Grantor (Seller) Salado Springs Associates, LP Grantee (Buyer) Salado Springs Apartment, LLC Recorded Document 234918 Sale Price $7,500,000 Occupancy 95% Sale Price per Unit $52,083 Sale Price per SF $61.62 Capitalization Rate 8.57% TERMS OF SALE Cash PROPERTY DESCRIPTION Year Built 1986 Number of Stories 2 Number of Buildings 19 Number of Units 144 Number of Bedrooms 256 Net Rentable Area 121,712 SF Average Unit Size 845 SF Land Area 10.09 Acres Unit Density 14.27 Units per Acre Property Condition Average Parking (type) Open (154) Carport (187) Total (341) Construction Type Concrete foundation, wood frame, stucco exterior, Spanish tile roof Unit Amenities Fireplace, washer/dryer, patio/balcony, storage locker Project Amenities Swimming pool, spa Confirmed With COMPS Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Comments An EGIM of 6.97 was calculated based on income information at time of sale. Expense ratio reportedly 40.28%. ELLIOT'S CROSSING - ---------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 6 PROPERTY IDENTIFICATION Job Number 97-081 Project Name Elliot's Crossing Address 7520 S. Kyrene City/ State Tempe, Arizona TRANSACTION DATA Sale Date 03/97 Grantor (Seller) Elliot's Crossing Partners, Ltd. Grantee (Buyer) LBK 2, LP Recorded Document 149826 Sale Price $12,400,000 Occupancy 96% Sale Price per Unit $50,202 Sale Price per SF $62.28 Capitalization Rate 8.76% TERMS OF SALE Cash PROPERTY DESCRIPTION Year Built 1987 Number of Stories 2 Number of Buildings 26 Number of Units 247 Number of Bedrooms 327 Net Rentable Area 199,096 SF Average Unit Size 806 SF Land Area 10.08 Acres Unit Density 24.51 Units per Acre Property Condition Average Parking (type) Open (260) and Carport (122) Total (382) Construction Type Concrete foundation, wood frame, stucco exterior, Spanish tile roof Unit Amenities Washer/dryer hook-ups, fireplace, balcony/patio Project Amenities Swimming pool, spa, laundry, recreation room, gym Confirmed With COMPS Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Comments Additional charges of $10/month for wood burning stove, washer/dryer hook-ups, vaulted ceiling, and covered parking. $40/month charge for washer/dryer. An EGIM of 7.22 was calculated based on income at time of sale. Expense ratio reported at 36.76%. THE PINNACLE - ---------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 7 PROPERTY IDENTIFICATION Job Number 97-081 Project Name The Pinnacle Address 3033 East Thunderbird Road City/ State Phoenix, Arizona TRANSACTION DATA Sale Date 01/97 Grantor (Seller) Unicume-Scottsdale Partnership Grantee (Buyer) TMT Pinnacle Apartments, Inc. Recorded Document 025879 Sale Price $15,350,000 Occupancy 97% Sale Price per Unit $61,895 Sale Price per SF $61.61 Capitalization Rate 8.70% TERMS OF SALE Cash PROPERTY DESCRIPTION Year Built 1992 Number of Stories 2 Number of Buildings 16 Number of Units 248 Number of Bedrooms 420 Net Rentable Area 249,150 SF Average Unit Size 1,004 SF Land Area 14.83 Acres Unit Density 16.7 Units per Acre Property Condition Excellent Parking (type) Open (153) Covered (248) including RV Parking (31 covered and 24 open) Total (401) Construction Type Wood frame, stucco exterior, concrete slab foundation, composition shingle roof Unit Amenities 2 swimming pools, 2 spas, laundry, clubhouse, racquetball, tennis, volleyball Project Amenities Swimming pool, clubhouse, spa, tennis court, racquetball court, basketball court Confirmed With COMPS and Ralph J. Brekan & Company, Inc. Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Comments An EGIM of 7.21 was calculated based on reported income at time of sale. Expenses reported at $3,000/unit result in expense ratio of 37.26%. SONTERRA - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 8 PROPERTY IDENTIFICATION Job Number 97-081 Project Name Sonterra Address 17440 North Tatum Boulevard City/ State Phoenix, Arizona TRANSACTION DATA Sale Date 12/96 Grantor (Seller) Specified Properties VII-PX, LB Grantee (Buyer) Knickerbocker Properties, Inc. XIX Recorded Document NA Sale Price $17,400,000 Occupancy 90% Sale Price per Unit $63,504 Sale Price per SF $67.47 Capitalization Rate 8.63% TERMS OF SALE Cash PROPERTY DESCRIPTION Year Built 1996 Number of Stories 3 Number of Buildings 12 Number of Units 274 Number of Bedrooms 486 Net Rentable Area 257,890 SF Average Unit Size 941 SF Land Area 10.44 Acres Unit Density 26.2 Units per Acre Property Condition Good Parking (type) Open, attached and detached garages Construction Type Stucco exterior with Spanish tile roof Unit Amenities Fireplace, washer/dryer hook-up, microwave Project Amenities Fitness center, clubhouse, business center, and pool Confirmed With Ralph J. Brekan & Company, Inc. Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Comments: Information concerning income and expenses were said to be confidential and was not disclosed. However, the confirming party stated that the project was operating at income and expense levels typical of the market. Gross scheduled income was derived from rents at the time of sale. Ancillary income of $240 per unit annually was estimated by the appraiser. Market expenses were estimated at $3,200 per unit (including reserves). THE PALISADES - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 9 PROPERTY IDENTIFICATION Job Number 97-081 Project Name The Palisades Address 13440 North 44th Street City/ State Phoenix, Arizona TRANSACTION DATA Sale Date 12/96 Grantor (Seller) State of California Public Employee's Retirement System (CALPERS) Grantee (Buyer) Palisades Acquisition Recorded Document NA Sale Price $33,600,000 Occupancy 95% Sale Price per Unit $62,686 Sale Price per SF $67.67 Capitalization Rate 8.4% TERMS OF SALE Cash INCOME/EXPENSE DATA Potential Gross Income $4,975,363 Vacancy/Collection Loss 5% $ (248,768) Other Income: $ 128,640 Effective Gross Income $4,855,240 Operating Expenses $2,032,840 Net Operating Income $2,822,400 PROPERTY DESCRIPTION Year Built 1990 Number of Stories 2 Number of Buildings 35 Number of Units 536 Number of Bedrooms 924 Net Rentable Area 496,550 SF Average Unit Size 926 SF Land Area 21.95 Acres Unit Density 24.4 Units per Acre Property Condition Good Parking (type) Open and covered Construction Type Stucco with Spanish tile roof Unit Amenities Washer/dryer, fireplace, microwave, patio/balcony Project Amenities 3 swimming pools, fitness center, tennis courts, volleyball court, and 2 spas Confirmed With Ralph J. Brekan & Company, Inc. Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Comments Gross scheduled income was derived from rents at time of sale. Ancillary income of $240 per unit annually was estimated by the appraiser. JOSHUA TREE - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 1 PROPERTY IDENTIFICATION Job Number: 97-081 Name of Project: Joshua Tree Street Address: 11545 Frank Lloyd Wright City/State: Scottsdale, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1988 Number of Stories: 2 Number of Units: 330 Net Rentable Area (SF): 261,092 Average Unit Size (SF): 791 Parking Surface: Asphalt Type of Construction: Masonry exterior with flat built-up roofs Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF --------------------------------------------------- 84 1BR/1BA 650 $595-625 $0.92-0.96 82 1BR/1BA 710 625-655 0.88-0.92 84 2BR/2BA 868 690-720 0.79-0.83 80 2BR/2BA 942 740-770 0.79-0.82
Unit Amenities: Dishwashers, garbage disposals, microwave ovens, washer/dryer in units, fireplaces in some units, ceiling fans, walk-in closets, outdoor utility closets, patio/balconies Project Amenities: 2 swimming pools, 1 tennis court, sauna, exercise/weight room, clubroom, covered parking ECONOMIC DATA Percent Occupied: 97% Avg. Monthly Rent/SF of NRA: $0.86 Electricity Paid By: Tenant Length of Lease: 6 and 12 months Security Deposit: $150 plus $125 redecorating fee = $375 total Confirmed With: Real Data, Inc. Date Confirmed: December 1997, Stevan N. Bach, MAI Remarks: No concessions. Rent ranges based on view or fireplace. THE EQUESTRIAN - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 2 PROPERTY IDENTIFICATION Job Number: 97-081 Name of Project: The Equestrian Street Address: 11100 North 115th Street City/State: Scottsdale, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1986 Number of Stories: 2 & 3 Number of Units: 202 Net Rentable Area (SF): 150,738 Average Unit Size (SF): 746 Parking Surface: Asphalt Type of Construction: Stucco exterior with flat built-up roofs Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF ----------------------------------------------------- 120 1BR/1BA 668 $540 $0.81 20 1BR/2BA/DEN 835 640 0.77 62 2BR/2BA 888 650 0.75
Unit Amenities: Dishwashers, garbage disposals, microwave ovens, washer/dryer connections, fireplaces, ceiling fans, outdoor utility closets, patio/balconies Project Amenities: 2 swimming pools, jacuzzi, clubroom, laundry facility ECONOMIC DATA Percent Occupied: 98% Avg. Monthly Rent/SF of NRA: $0.79 Electricity Paid By: Tenant Length of Lease: 6, 9, 12-months Security Deposit: $100 deposit plus $100 redecorating fee = $200 total
Confirmed With: Real Data, Inc. Date Confirmed: December 1997, Stevan N. Bach, MAI Remarks: No concessions. Rents increase $30 with washer/dryer and $20 with 6-month lease. VILLA MONTANA - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 3 PROPERTY IDENTIFICATION Job Number: 97-081 Name of Project: Villa Montana Street Address: 11350 East Sahuaro Drive City/State: Scottsdale, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1986 Number of Stories: 2 Number of Units: 208 Net Rentable Area (SF): 162,032 Average Unit Size (SF): 779 Parking Surface: Asphalt Type of Construction: Stucco exteriors with pitched red tile roofs Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF -------------------------------------------------------- 24 1BR/1BA 530 $ 520 $ 0.98 48 1BR/1BA 615 545-585 0.89-0.95 48 1BR/1BA 745 610-620 0.82-0.83 16 2BR/1BA 912 665-675 0.73-0.74 24 1BR/1BA/DEN 900 695-705 0.77-0.78 32 2BR/2BA 970 745-755 0.77-0.78 16 2BR/2BA 1,050 805 0.77
Unit Amenities: Dishwashers, washer/dryer connections in some units, fireplaces, ceiling fans, walk-in closets, patio/balconies Project Amenities: 1 swimming pool, jacuzzi, exercise/weight room, clubroom, laundry facility, covered parking ECONOMIC DATA Percent Occupied: 95% Avg. Monthly Rent/SF of NRA: $0.84 Electricity Paid By: Tenant Length of Lease: 10-12 months Security Deposit: $200 deposit plus $125 redecorating fee = $325 total Confirmed With: Real Data, Inc. Date Confirmed: December 1997, Stevan N. Bach, MAI Remarks: No concessions. Rent ranges based on fireplace or washer/dryer. Rents increase $10 for covered parking. LA PRIVADA - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 4 PROPERTY IDENTIFICATION Job Number: 97-081 Name of Project: La Privada Street Address: 10255 Via Linda City/State: Scottsdale, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1985 Number of Stories: 2 Number of Units: 350 Net Rentable Area (SF): 418,297 Average Unit Size (SF): 1,195 Parking Surface: Asphalt Type of Construction: Stucco exteriors with pitched red tile roof fronts Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF ---------------------------------------------------------------- 72 1BR/1BA 857 $722-742 $0.84-0.87 209 2BR/2BA 1,217 847-867 0.70-0.71 34 2BR/2BA 1,360 967-997 0.71-0.73 35 3BR/2BA/TH 1,600 1,277 0.80
Unit Amenities: Dishwashers, garbage disposals, washer/dryer in units, fireplaces, outdoor-utility closets, patio/balconies Project Amenities: 1 swimming pool, 2 tennis courts, exercise/weight room, 1 racquetball court, clubroom ECONOMIC DATA Percent Occupied: 96% Avg. Monthly Rent/SF of NRA: $0.75 Electricity Paid By: Tenant Length of Lease: 12 months Security Deposit: $300 deposit on 1-bedroom unit, $325 on 2-bedroom unit, $400 on 3BR with 50% redecorating fee retained on move-out Confirmed With: Real Data, Inc. Date Confirmed: December 1997, Stevan N. Bach, MAI Remarks: No concessions. Rent ranges based on 2nd floor locations. Rent increases $50 with attached carport. DOS CAMINOS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 5 PROPERTY IDENTIFICATION Job Number: 97-081 Name of Project: Dos Caminos Street Address: 10115 East Mountain View Road City/State: Scottsdale, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1983 Number of Stories: 2 Number of Units: 264 Net Rentable Area (SF): 265,884 Average Unit Size (SF): 1,007 Parking Surface: Asphalt Type of Construction: Stucco with Spanish tile roof Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF --------------------------------------------------------------- 48 1BR/1BA 711 $ 715 $ 1.01 36 1BR/1BA 728 730-745 1.00-1.02 18 2BR/2BA 911 780 0.86 96 2BR/2BA 1,102 880 0.80 66 2BR/2.5BA/TH 1,263 980 0.78
Unit Amenities: Dishwashers, garbage disposals, washer/dryer in units, fireplaces, vaulted ceilings, walk-in closets, outdoor utility closets, patio/balconies, garages, and skylights Project Amenities: 2 swimming pools, jacuzzi, clubroom ECONOMIC DATA Percent Occupied: 97% Avg. Monthly Rent/SF of NRA: $0.87 Electricity and Water Paid By: Tenant Length of Lease: 6 and 12 months Security Deposit: $150 security deposit plus $150 redecorating fee = $300 total Confirmed With: Real Data, Inc. Date Confirmed: December 1997, Stevan N. Bach, MAI Remarks: Concessions: $450 off move-in. Rent ranges based on location or view. PRESIDIO AT MCCORMICK RANCH - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 6 PROPERTY IDENTIFICATION Job No. 97-081 Name of Project: Presidio at McCormick Ranch Street Address: 9600 North 96th Street City/State: Scottsdale, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1989 Number of Stories: 2 Number of Units: 164 Net Rentable Area (SF): 164,132 Average Unit Size (SF): 1,001 Parking Surface: Asphalt Type of Construction: Painted stucco exteriors with pitched red tile roofs Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF --------------------------------------------------------------- 48 1BR/1BA 750 $675-695 $ 0.90-0.93 24 2BR/1BA 964 765-785 0.79-0.81 36 2BR/2BA 1,091 790-810 0.72-0.74 32 2BR/2BA 1,105 825-845 0.75-0.76 24 3BR/2BA 1,265 960-980 0.76-0.77
Unit Amenities: Dishwashers, garbage disposals, microwave ovens, washer/dryer in units, washer/dryer connections, fireplaces, ceiling fans, vaulted ceilings, walk-in closets, outdoor utility closets, patio/balconies Project Amenities: 1 swimming pool, jacuzzi, exercise/weight room, clubroom, laundry facility, covered parking ECONOMIC DATA Percent Occupied: 95% Avg. Monthly Rent/SF of NRA: $0.80 Electricity Paid By: Tenant Length of Lease: 9, and 12 months Security Deposit: $150 deposit plus $125 redecorating fee = $275 total Confirmed With: Real Data, Inc. Date Confirmed: December 1997, Stevan N. Bach, MAI Remarks: No concessions. Rental rates vary due to fireplace, views, and upstairs or downstairs location. ANACOSTA - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 7 PROPERTY IDENTIFICATION Job Number: 97-081 Name of Project: Anacosta Street Address: 9750 North 96th Street City/State: Scottsdale, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1988 Number of Stories: 2 Number of Units: 160 Net Rentable Area (SF): 138,400 Average Unit Size (SF): 865 Parking Surface: Asphalt Type of Construction: Painted stucco exteriors with pitched red tile roofs Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF --------------------------------------------------------------- 32 1BR/1BA 650 $630 $0.97 32 1BR/1BA 750 660 0.88 32 1BR/1BA 912 710 0.78 32 2BR/2BA 968 760 0.79 32 2BR/2BA 1,045 830 0.79
Unit Amenities: Dishwashers, garbage disposals, washer/dryer in units, washer/dryer, fireplaces, ceiling fans available, walk-in closets, outdoor utility closets, patio/balconies Project Amenities: 1 swimming pool, jacuzzi, exercise/weight room, clubroom, laundry facility, covered parking ECONOMIC DATA Percent Occupied: 98% Avg. Monthly Rent/SF of NRA: $0.84 Electricity Paid By: Tenant Length of Lease: 6-12 months Security Deposit: $150 deposit plus $150 redecorating fee $300 total Confirmed With: Real Data, Inc. Date Confirmed: December 1997, Stevan N. Bach, MAI Remarks: No concessions. Rents vary due to upstairs or downstairs location. SCOTTSDALE COVE - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 8 PROPERTY IDENTIFICATION Job Number: 97-081 Name of Project: Scottsdale Cove I & II Street Address: 9450 East Becker Lane City/State: Scottsdale, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1991 & 1994 Number of Stories: 1 and 2 Number of Units: 316 Net Rentable Area (SF): 292,940 Average Unit Size (SF): 927 Parking Surface: Asphalt Type of Construction: Painted stucco exteriors with red tile roof fronts Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF --------------------------------------------------------------- 32 1BR/1BA 673 $ 645-660 $0.96-0.98 14 1BR/1BA 738 680 0.92 72 2BR/2BA 973 770-780 0.79-0.80 60 2BR/2BA 984 775-785 0.79-0.80 14 3BR/2BA 1,220 995-1,005 0.82 8 3BR/2BA 1,220 $ 1,080 0.89 Phase II 48 1BR/1BA 718 $ 645-660 0.92 3 2BR/2BA 1,012 905 0.89 34 2BR/2BA 1,012 835 0.83 8 2BR/2BA 1,021 775-785 0.76-0.77 1 3BR/2BA 1,220 1,040-1,060 0.85-0.87 22 3BR/2BA 1,220 955 0.78
Unit Amenities: Dishwashers, garbage disposals, microwave ovens, washer/dryer in units, fireplaces, ceiling fans, walk-in closets, outdoor utility closets, patio/balconies Project Amenities: 3 swimming pools, jacuzzi, exercise/weight room, clubroom, covered parking ECONOMIC DATA Percent Occupied: 96% Avg. Monthly Rent/SF of NRA: $0.81 Electricity Paid By: Tenant Length of Lease: 9-12 months Security Deposit: 1-bedroom - $150 deposit plus $150 redecorating fee = $300 total 2-bedroom - $175 deposit plus $175 redecorating fee = $350 total 3-bedroom - $200 deposit plus $200 redecorating fee = $400 total Confirmed With: Real Data, Inc. Date Confirmed: December 1997, Stevan N. Bach, MAI Remarks: No concessions. Rent ranges based on location and view. Rents increase $15 with covered parking. THE TOWER - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 9 PROPERTY IDENTIFICATION Job Number: 97-081 Name of Project: The Tower at McCormick Ranch Street Address: 8250 East Arabian Tr. City/State: Scottsdale, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1979 Number of Stories: 2 Number of Units: 158 Net Rentable Area (SF): 158,826 Average Unit Size (SF): 1,005 Parking Surface: Asphalt Type of Construction: Painted stucco exterior Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF --------------------------------------------------------------- 22 1BR/1BA 755 $ 670 $0.89 48 1BR/1BA 874 730 0.84 24 1BR/1BA/DEN 987 760 0.77 48 2BR/2BA 1,157 860 0.74 16 2BR/2BA 1,315 1,035 0.79
Unit Amenities: Dishwashers, garbage disposals, microwave ovens, washer/dryer in units, walk-in closets, outdoor utility-closets, patio/balconies Project Amenities: 2 swimming pools, jacuzzi, exercise/weight room, clubroom ECONOMIC DATA Percent Occupied: 96% Avg. Monthly Rent/SF of NRA: $0.80 Electricity Paid By: Tenant Length of Lease: 6-14 months to a year Security Deposit: $150 deposit plus $150 cleaning fee $300 total Confirmed With: Real Data, Inc. Date Confirmed: December 1997, Stevan N. Bach, MAI Remarks: Concessions: Waive deposit and redecorating fee. PROFESSIONAL QUALIFICATIONS STEVAN N. BACH EXPERIENCE Bach Realty Advisors, Inc. (since June 1997) President. Emphasis in ad valorem tax and intangible value. Real estate valuation and consultation on hotels, major urban properties, and property portfolios. Financial and feasibility analysis, land use, and market studies Bach Thoreen McDermott Incorporated (July 1991 -- May 1997) Chief Executive Officer. Bach Thoreen & Associates, Inc. (1985 -- 1991) President Bach & Associates, Inc. (1980 -- 1984) President Landauer Associates, Inc. (1980 -- 1984) Senior Vice-President and General Manager -- Southwestern Region Coldwell Banker Commercial Group, Inc. (1973 -- 1980) Vice-President and Manager, Appraisal Services. Appraisal Research Associates (1971 -- 1973) Appraiser. Real Estate research valuation on urban and rural properties. Ray R. Hastings, MAI (1964 -- 1971) Appraiser. Real Estate research valuation on urban and rural properties. Residential Real Estate Sales (1963 -- 1964) Salesman. Residential real estate salesman Covina, California. PROFESSIONAL ACTIVITIES Member: Appraisal Institute Appraisal Institute, Houston Chapter 33 Appraisal Institute, Chairman of the Grievance Committee of the Regional Ethics Panel Appraisal Institute, Chairman of the Review and Counseling Committee of the Regional Ethics Panel Appraisal Institute, Co-Chairman of the Education Committee (1980) Appraisal Institute, Chairman of the Education Committee (1983) Appraisal Institute, Candidate Guidance Committee (1987 -- 1992) Appraisal Institute, Subcommittee Chairman, Admissions Committee (1984) AIREA Nonresidential Appraisal Report Grading Committee (1984) Appraisal Institute Expert Witness Video Committee (1990) Licenses: Real Estate Broker, State of Texas Certification: Certified in the Appraisal Institute's voluntary program of continuing education for its designated members (MAIs who meet the minimum standards of this program are awarded periodic education certification). Certified General Real Estate Property appraiser in the State of Texas, Certification No. TX-1323079-G Certified General Real Estate Property appraiser in the State of Colorado, Certification No. CG01323975 EDUCATION B.S. Marketing, University of Southern California (1962) -----END PRIVACY-ENHANCED MESSAGE-----