EX-99.(C)(1) 3 d07276a2exv99wxcyx1y.txt APPRAISAL OF BAYMEADOWS APARTMENTS BAYMEADOWS APARTMENTS 7915 BAYMEADOWS CIRCLE EAST JACKSONVILLE, FLORIDA MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 28, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] Apartment Investment and Management JULY 9, 2003 Company ("AIMCO") c/o Mr. Steven A. Velkei, Esq. Liner Yankelevitz Sunshine & Regenstreif LLP 1100 Glendon Avenue, 14th Floor Los Angeles, California 90024-3503 Nuanes, et al.("Plaintiffs") c/o Ms. Joy Kruse Lieff Cabraser Heimann & Bernstein Embarcadero Center West 275 Battery Street, 30th Floor San Francisco, California 94111 RE: BAYMEADOWS APARTMENTS 7915 BAYMEADOWS CIRCLE EAST JACKSONVILLE, DUVAL COUNTY, FLORIDA In accordance with your authorization, we have completed the appraisal of the above-referenced property. This complete appraisal is intended to report our analysis and conclusions in a summary format. The subject property consists of an apartment project having 904 units with a total of 1,100,464 square feet of rentable area. The improvements were built in 1972. The improvements are situated on 93.74 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 96% occupied. It is our understanding the appraisal will be used by the clients to assist the San Mateo Superior Court in the settlement of litigation between the above mentioned clients. The appraisal is intended to conform to the Uniform Standards of Professional Appraisal Practice ("USPAP") as promulgated by the Appraisal Standards Board of the Appraisal Foundation and the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute. The appraisal is presented in a summary report, and the Departure Provision of USPAP has not been invoked in this appraisal. It is entirely inappropriate to use this value conclusion or the report for any purpose other than the one stated. AMERICAN APPRAISAL ASSOCIATES, INC. LETTER OF TRANSMITTAL PAGE 2 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA The opinions expressed in this appraisal cover letter can only be completely understood by reading the narrative report, addenda, and other data, which is attached. The appraisal is subject to the attached general assumptions and limiting conditions and general service conditions. As a result of our investigation, it is our opinion that the fee simple market value of the subject, effective May 28, 2003 is: ($40,000,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Alice MacQueen --------------------------------- July 9, 2003 Alice MacQueen #053272 Vice President, Real Estate Group Florida Certified General Real Estate Appraiser #RZ0002202 Assisted By: Stephen B. Spraberry, MAI AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents
APPRAISAL DATA Executive Summary ................................................. 4 Introduction ...................................................... 10 Area Analysis ..................................................... 12 Market Analysis ................................................... 15 Site Analysis ..................................................... 17 Improvement Analysis .............................................. 17 Highest and Best Use .............................................. 18 VALUATION Valuation Procedure ............................................... 19 Sales Comparison Approach ......................................... 21 Income Capitalization Approach .................................... 27 Reconciliation and Conclusion ..................................... 39
ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Baymeadows Apartments LOCATION: 7915 Baymeadows Circle East Jacksonville, Florida INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: Fee simple estate DATE OF VALUE: May 28, 2003 DATE OF REPORT: July 9, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 93.74 acres, or 4,083,314 square feet Assessor Parcel No.: 099157 0000 Floodplain: Community Panel No. 120077021E (August 15, 1989) Flood Zone X, an area outside the floodplain. Zoning: RMD-E (Medium Density Apartment District) BUILDING: No. of Units: 904 Units Total NRA: 1,100,464 Square Feet Average Unit Size: 1,217 Square Feet Apartment Density: 9.6 units per acre Year Built: 1972 UNIT MIX AND MARKET RENT: AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA GROSS RENTAL INCOME PROJECTION
Market Rent Square --------------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income --------- ---- -------- ------ ------ ------ 1BR/1BA - 1A10 586 $ 500 $ 0.85 $ 12,000 $ 144,000 1BR/1BA - 1A15 724 $ 570 $ 0.79 $ 14,820 $ 177,840 1BR/1BA - 1B10 797 $ 540 $ 0.68 $ 76,680 $ 920,160 1BR/1.5BA - 1C10 1,009 $ 570 $ 0.56 $ 34,200 $ 410,400 2BR/1BA - 2A10 1,084 $ 600 $ 0.55 $ 28,800 $ 345,600 2BR/2BA - 2A20 1,326 $ 750 $ 0.57 $ 14,250 $ 171,000 2BR/2BA - 2A25 1,162 $ 700 $ 0.60 $ 15,400 $ 184,800 2BR/2BA - 2B20 1,062 $ 670 $ 0.63 $ 124,620 $1,495,440 2BR/2.5BA - 2C20 1,467 $ 725 $ 0.49 $ 127,600 $1,531,200 3BR/2BA - 3A20 1,477 $ 850 $ 0.58 $ 13,600 $ 163,200 3BR/2BA - 3A25 1,583 $ 875 $ 0.55 $ 64,750 $ 777,000 3BR/2BA - 3B20 1,631 $ 850 $ 0.52 $ 49,300 $ 591,600 3BR/2.5BA - 3C20 1,698 $ 900 $ 0.53 $ 27,000 $ 324,000 4BR/3BA - 4A30 2,132 $ 1,000 $ 0.47 $ 23,000 $ 276,000 ------------------------- Total $ 626,020 $7,512,240 =========================
OCCUPANCY: 96% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 20 Years REMAINING ECONOMIC LIFE: 25 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR LEASING OFFICE EXTERIOR VIEW OF SUBJECT AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA AREA MAP [MAP] NEIGHBORHOOD MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA HIGHEST AND BEST USE: As Vacant: Hold for future multi-family development As Improved: Continuation as its current use METHOD OF VALUATION: In this instance, the Sales Comparison and Income Approaches to value were utilized. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 8 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
Amount $/Unit ------ ------ DIRECT CAPITALIZATION Potential Rental Income $7,512,240 $8,310 Effective Gross Income $7,544,061 $8,345 Operating Expenses $3,735,563 $4,132 49.5% of EGI Net Operating Income: $3,582,498 $3,963 Capitalization Rate 9.50% DIRECT CAPITALIZATION VALUE $37,700,000 * $41,704 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 8% Stabilized Vacancy & Collection Loss: 8% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 10.50% Discount Rate 11.50% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $39,700,000 * $43,916 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $39,700,000 $43,916 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $52,500 to $78,261 Range of Sales $/Unit (Adjusted) $42,875 to $47,250 VALUE INDICATION - PRICE PER UNIT $40,700,000 * $45,022 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 6.21 to 7.03 Selected EGIM for Subject 5.50 Subject's Projected EGI $7,544,061 EGIM ANALYSIS CONCLUSION $41,500,000 * $45,907 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $40,700,000 * $45,022 / UNIT RECONCILED SALES COMPARISON VALUE $40,700,000 $45,022 / UNIT
---------------------------- * Value indications are after adjustments for concessions, deferred maintenance, excess land and lease-up costs, if any. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 9 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $40,700,000 NOI Per Unit $40,700,000 EGIM Multiplier $41,500,000 INDICATED VALUE BY SALES COMPARISON $40,700,000 $45,022 / UNIT INCOME APPROACH: Direct Capitalization Method: $37,700,000 Discounted Cash Flow Method: $39,700,000 INDICATED VALUE BY THE INCOME APPROACH $39,700,000 $43,916 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $40,000,000 $44,248 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 7915 Baymeadows Circle East, Jacksonville, Duval County, Florida. Jacksonville identifies it as 099157 0000. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Stephen B. Spraberry, MAI on May 28, 2003. Alice MacQueen has not made a personal inspection of the subject property. Stephen B. Spraberry, MAI assisted Alice MacQueen with the research, valuation analysis and wrote the report. Alice MacQueen reviewed the report and concurs with the value. Alice MacQueen and Stephen B. Spraberry, MAI have extensive experience in appraising similar properties and meet the USPAP competency provision. The scope of this investigation comprises the inspection of the property and the collection, verification, and analysis of general and specific data pertinent to the subject property. We have researched current improved sales and leases of similar properties, analyzing them as to their comparability, and adjusting them accordingly. We completed the Sales Comparison and Income Capitalization Approaches to value. From these approaches to value, a concluded overall value was made. DATE OF VALUE AND REPORT This appraisal was made to express the opinion of value as of May 28, 2003. The date of the report is July 9, 2003. PURPOSE AND USE OF APPRAISAL The purpose of the appraisal is to estimate the market value of the fee simple interest in the subject property. It is understood that the appraisal is intended to assist the clients in litigation settlement proceedings. The appraisal was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. PROPERTY RIGHTS APPRAISED We have appraised the Fee Simple Estate in the subject property (as applied in the Sales & Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 11 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA defined in The Dictionary of Real Estate Appraisal, 3rd ed. (Chicago: Appraisal Institute, 1993), as: "Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat." MARKETING/EXPOSURE PERIOD MARKETING PERIOD: 6 to 12 months EXPOSURE PERIOD: 6 to 12 months HISTORY OF THE PROPERTY Ownership in the subject property is currently vested in Shelter Properties, VI, LP. To the best of our knowledge, no transfers of ownership or offers to purchase the subject are known to have occurred during the past three years. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 12 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA AREA / NEIGHBORHOOD ANALYSIS NEIGHBORHOOD ANALYSIS A neighborhood is a group of complementary land uses. The function of the neighborhood analysis is to describe the immediate surrounding environs. The subject is located in the city of Jacksonville, Florida. Overall, the neighborhood is characterized as an urban setting with the predominant land use being residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - State Route 9A West - Interstate Highway 95 South - Baymeadows Road North - Butler Boulevard MAJOR EMPLOYERS Major employers in the subject's area include Mayport Naval Station, Duval County Schools, Ponte Vedra Inn & Club, PGA Tour, Sawgrass Marriott, City of Jacksonville Beach, St. Johns County Schools, Fleet Landing and Vicars Landing. The overall economic outlook for the area is considered favorable. DEMOGRAPHICS We have reviewed demographic data within the neighborhood. The following table summarizes the key data points. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA NEIGHBORHOOD DEMOGRAPHICS
AREA ------------------------------------------- CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA -------- ------------ ------------ ------------ --- POPULATION TRENDS Current Population 11,220 48,455 132,447 1,134,647 5-Year Population 12,149 53,765 144,223 1,224,933 % Change CY-5Y 8.3% 11.0% 8.9% 8.0% Annual Change CY-5Y 1.7% 2.2% 1.8% 1.6% HOUSEHOLDS Current Households 5,723 21,926 55,590 441,107 5-Year Projected Households 6,190 24,375 60,859 481,465 % Change CY - 5Y 8.2% 11.2% 9.5% 9.1% Annual Change CY-5Y 1.6% 2.2% 1.9% 1.8% INCOME TRENDS Median Household Income $ 36,176 $ 44,024 $ 43,314 $ 41,613 Per Capita Income $ 24,201 $ 28,128 $ 25,441 $ 22,610 Average Household Income $ 48,635 $ 62,704 $ 60,283 $ 58,159
Source: Demographics Now The subject neighborhood's population is expected to show increases above that of the region. The immediate market offers inferior income levels as compared to the broader market. The following table illustrates the housing statistics in the subject's immediate area, as well as the MSA region. HOUSING TRENDS
AREA -------------------------------------------- CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA -------- ------------ ------------ ------------ --- HOUSING TRENDS % of Households Renting 67.55% 50.44% 41.44% 29.34% 5-Year Projected % Renting 66.92% 49.72% 41.20% 28.72% % of Households Owning 17.25% 41.03% 51.22% 61.49% 5-Year Projected % Owning 18.16% 42.16% 51.86% 62.72%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 14 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Residential South - Office, Office Tech, Hotel East - Residential West - Residential CONCLUSIONS The subject is well located within the city of Jacksonville. The neighborhood is characterized as being mostly urban in nature and is currently in the stable stage of development. The economic outlook for the neighborhood is judged to be favorable with a good economic base. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA MARKET ANALYSIS The subject property is located in the city of Jacksonville in Duval County. The overall pace of development in the subject's market is more or less stable. There have not been any apartment projects constructed near the subject property for several years. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket ------ ------ --------- 4Q01 N/A 6.3% 1Q02 N/A 6.3% 2Q02 N/A 8.0% 3Q02 N/A 6.3% 4Q02 6.0% 6.2% 1Q03 6.6% 5.3%
Source: REIS Occupancy trends in the subject's market are stable. Historically speaking, the subject's submarket has outperformed the overall market. This market has been exhibiting a slight decrease in the overall vacancy rate and is currently 5.3%. This submarket is still below the overall Jacksonville vacancy rate of 6.6%. Market rents in the subject's market have been following an increasing trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change ------ ------ -------- --------- -------- 4Q01 N/A - $750 - 1Q02 N/A N/A $757 0.9% 2Q02 N/A N/A $754 -0.4% 3Q02 N/A N/A $771 2.3% 4Q02 N/A N/A $764 -0.9% 1Q03 N/A N/A $764 0.0%
Source: Reis The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 16 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject --- ------------- ----- ----- ---------- -------------------- R-1 Avenue Royale Apartments N/A 93% 1990 Two miles south R-2 Reserve at Pointe Meadows N/A 95% 2001 2.5 miles east R-3 Paradise Island N/A 91% 1991 One mile south R-4 Southern Pines N/A 97% 1997 1.5 miles south R-5 Portofino N/A 95% 1997 Two miles northeast Subject Baymeadows Apartments 904 96% 1972
Rental rates have been increasing slightly in this submarket for the previous year. Corresponding vacancy rates reflect this increase. Overall, this market commands slightly higher rates than the overall Jacksonville market. This is partially due to the quality of new projects in this submarket and the lack of developable land parcels. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 93.74 acres, or 4,083,314 square feet Shape Irregular Topography Level Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Good Flood Zone: Community Panel 120077021E, dated August 15, 1989 Flood Zone Zone X Zoning RMD-E, the subject improvements represent a legal conforming use of the site. REAL ESTATE TAXES
ASSESSED VALUE - 2002 --------------------- TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES ------------- ---- -------- ----- --------- ----- 099157 0000 $9,187,459 $14,924,475 $24,111,934 0.01960 $472,707
IMPROVEMENT ANALYSIS Year Built 1972 Number of Units 904 Net Rentable Area 1,100,464 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Brick or masonry Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, spa/jacuzzi, sand volleyball, tennis court, gym room, playground, laundry room, business office, playground, fishing pier, and parking area. Unit Amenities Individual unit amenities include a balcony, cable TV connection, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, water heater, garbage disposal, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 18 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) --------- --------------- --------- 1BR/1BA - 1A10 24 586 1BR/1BA - 1A15 26 724 1BR/1BA - 1B10 142 797 1BR/1.5BA - 1C10 60 1,009 2BR/1BA - 2A10 48 1,084 2BR/2BA - 2A20 19 1,326 2BR/2BA - 2A25 22 1,162 2BR/2BA - 2B20 186 1,062 2BR/2.5BA - 2C20 176 1,467 3BR/2BA - 3A20 16 1,477 3BR/2BA - 3A25 74 1,583 3BR/2BA - 3B20 58 1,631 3BR/2.5BA - 3C20 30 1,698 4BR/3BA - 4A30 23 2,132
Overall Condition Average Effective Age 20 years Economic Life 45 years Remaining Economic Life 25 years Deferred Maintenance None HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1972 and consist of a 904-unit multifamily project. The highest and best use as improved is for a continued multifamily use. Overall, the highest and best use of the subject property is the continued use of the existing apartment project. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 19 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA THE VALUATION PROCEDURE There are three traditional approaches, which can be employed in establishing the market value of the subject property. These approaches and their applicability to the valuation of the subject are summarized as follows: THE COST APPROACH The application of the Cost Approach is based on the principle of substitution. This principle may be stated as follows: no one is justified in paying more for a property than that amount by which he or she can obtain, by purchase of a site and construction of a building, without undue delay, a property of equal desirability and utility. In the case of a new building, no deficiencies in the building should exist. In the case of income-producing real estate, the cost of construction plays a minor and relatively insignificant role in determining market value. The Cost Approach is typically only a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) where the cost of reproducing the improvements is easily and accurately quantified and there is no economic obsolescence. In all instances, the issue of an appropriate entrepreneurial profit - the reward for undertaking the risk of construction, remains a highly subjective factor especially in a market lacking significant speculative development. THE SALES COMPARISON APPROACH The Sales Comparison Approach is an estimate of value based upon a process of comparing recent sales of similar properties in the surrounding or competing areas to the subject property. Inherent in this approach is the principle of substitution. The application of this approach consists of comparing the subject property with similar properties of the same general type, which have been sold recently or currently are available for sale in competing areas. This comparative process involves judgment as to the similarity of the subject property and the comparable sale with respect to many value factors such as location, contract rent levels, quality of construction, reputation and prestige, age and condition, among others. The estimated value through this approach represents the probable price at which a willing seller would sell the subject property to a willing and knowledgeable buyer as of the date of value. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 20 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA THE INCOME CAPITALIZATION APPROACH The theory of the Income Capitalization Approach is based on the premise that present value is the value of the cash flow and reversionary value the property will produce over a reasonable holding (ownership) period. The Discounted Cash Flow Analysis will convert equity cash flows (including cash flows and equity reversion) into a present value utilizing an internal rate of return (or discount rate). The Internal Rate of Return (IRR) will be derived from a comparison of alternate investments, a comparative analysis of IRR's used by recent buyers of similar properties, and a review of published industry surveys. The Direct Capitalization Analysis converts one year of income into an overall value using overall capitalization rates from similar sales. The overall rates take into consideration buyers assumptions of the market over the long-term. The results of the Income Capitalization Analysis are usually the primary value indicator for income producing properties. Investors expect a reasonable rate of return on their equity investment based on the ownership risks involved; this approach closely parallels the investment decision process. RECONCILIATION In this instance, we have completed the Sales Comparison and Income Capitalization Approaches to value. As an income producing property, the income approach is a primary approach to value. The Sales Comparison Approach is also considered reliable as investors are buying similar buildings in the market. Our research indicates that market participants are generally not buying, selling, investing, or lending with reliance placed on the methodology of the Cost Approach to establish the value. Therefore, we have decided that the Cost Approach is not a reliable indicator of value for the subject, and this approach has not been utilized. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA SALES COMPARISON APPROACH Use of market or comparable sales requires the collection and analysis of comparable sales data. Similar properties recently sold are compared to the subject and adjusted based on any perceived differences. This method is based on the premise that the costs of acquiring a substitute property would tend to establish a value for the subject property. The premise suggests that if a substitute is unavailable in the market, the reliability of the approach may be subordinate to the other approaches. The reliance on substitute properties produces shortcomings in the validity of this approach. Geographic and demographic characteristics from each submarket restrict which sales may be selected. Recent sales with a similar physical characteristics, income levels, and location are usually limited. The sales we have identified, however, do establish general valuation parameters as well as provide support to our conclusion derived through the income approach method. The standard unit of comparison among similar properties is the sales price per unit and price per square foot of net rentable area. To accurately adjust prices to satisfy the requirements of the sales comparison approach, numerous calculations and highly subjective judgments would be required including consideration of numerous income and expense details for which information may be unreliable or unknown. The sales price per unit and square foot are considered relevant to the investment decision, but primarily as a parameter against which value estimates derived through the income approach can be judged and compared. In examining the comparable sales, we have applied a subjective adjustment analysis, which includes specific adjustments derived from our experience and consulting with the market participants. SALES COMPARISON ANALYSIS Detailed on the following pages are sales transactions involving properties located in the subject's competitive investment market. Photographs of the sale transactions are located in the Addenda. Following the summary of sales is an adjustment grid that is used to arrive at a value. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ------------------------------------------------------------------------------------------------------------------------------------ Property Name Baymeadows Apartments 54 Magnolia at Deerwood Park The Wimberly at Deerwood Park LOCATION: Address 7915 Baymeadows Circle East 9600 Touchton Road 9727 Touchton Road City, State Jacksonville, Florida Jacksonville, Florida Jacksonville, Florida County Duval Duval Duval PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 1,100,464 299,832 400,000 Year Built 1972 1998 2000 Number of Units 904 276 322 Unit Mix: Type Total Type Total Type Total 1BR/1BA - 1A10 24 1BR/1BA 24 1BR/1BA 88 1BR/1BA - 1A15 26 1BR/1BA 48 2BR/2BA 28 1BR/1BA - 1B10 142 1BR/1BA 36 3BR/2BA 206 1BR/1.5BA - 1C10 60 2BR/2BA 84 2BR/1BA - 2A10 48 2BR/2BA 36 2BR/2BA - 2A20 19 2BR/2BA 24 2BR/2BA - 2A25 22 2BR/2BA 24 2BR/2BA - 2B20 186 2BR/2.5BA - 2C20 176 3BR/2BA - 3A20 16 3BR/2BA - 3A25 74 3BR/2BA - 3B20 58 3BR/2.5BA - 3C20 30 4BR/3BA - 4A30 23 Average Unit Size (SF) 1,217 1,086 1,242 Land Area (Acre) 93.7400 17.9000 33.4000 Density (Units/Acre) 9.6 15.4 9.6 Parking Ratio (Spaces/Unit) 1.73 2.01 N/A Parking Type (Gr., Cov., etc.) Open Open, Covered Open, Covered CONDITION: Average Good Very Good APPEAL: Average Good Very Good AMENITIES: Pool/Spa Yes/Yes Yes/Yes Yes/Yes Gym Room Yes Yes Yes Laundry Room Yes Yes Yes Secured Parking No Yes Yes Sport Courts No Yes Yes Washer/Dryer Connection Yes (Select Units) Yes Yes OCCUPANCY: 96% 95% 95% TRANSACTION DATA: Sale Date March, 2000 December, 2001 Sale Price ($) $20,000,000 $25,200,000 Grantor Estates at Deerwood Park, Ltd. Cat Wimberly Partnership I, Ltd. Grantee Property Reserve, Inc. Palomar Commerce Center, LLC Sale Documentation Book 9583, Page 1754 Book 10269, Page 306 Verification Public Record Public Record Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF ---------- ------- ------ ---------- ------- ------ Potential Gross Income $3,121,010 $11,308 $10.41 $4,201,620 $13,049 $10.50 Vacancy/Credit Loss $ 156,050 $ 565 $ 0.52 $ 210,081 $ 652 $ 0.53 ---------- ------- ------ ---------- ------- ------ Effective Gross Income $2,964,960 $10,743 $ 9.89 $3,991,539 $12,396 $ 9.98 Operating Expenses $ 841,328 $ 3,048 $ 2.81 $1,288,000 $ 4,000 $ 3.22 ---------- ------- ------ ---------- ------- ------ Net Operating Income $2,123,632 $ 7,694 $ 7.08 $2,703,539 $ 8,396 $ 6.76 ---------- ------- ------ ---------- ------- ------ NOTES: None None PRICE PER UNIT $72,464 $78,261 PRICE PER SQUARE FOOT $ 66.70 $63.00 EXPENSE RATIO 28.4% 32.3% EGIM 6.75 6.31 OVERALL CAP RATE 10.62% 10.73% Cap Rate based on Pro Forma or Actual Income? ACTUAL PRO FORMA COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 ------------------------------------------------------------------------------------------------------------------------------------ Property Name St. Johns Plantation Gloucester Apartments St. Johns Plantation LOCATION: Address 7595 Baymeadows Circle West 4915 Baymeadows Road 7595 Baymeadows Circle West City, State Jacksonville, Florida Jacksonville, Florida Jacksonville, Florida County Duval Duval Duval PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 384,956 151,459 384,956 Year Built 1989 1974 1989 Number of Units 400 100 400 Unit Mix: Type Total Type Total Type Total 1BR/1BA 224 2BR/2BA 56 1BR/1BA 224 2BR/2BA 152 3BR/2BA 40 2BR/2BA 152 3BR/2BA 24 4BR/2.5BA 4 3BR/2BA 24 Average Unit Size (SF) 962 1,515 962 Land Area (Acre) 24.1000 6.6200 24.1000 Density (Units/Acre) 16.6 15.1 16.6 Parking Ratio (Spaces/Unit) 3.50 N/A 3.50 Parking Type (Gr., Cov., etc.) Open, Covered Open Open, Covered CONDITION: Good Fair Good APPEAL: Average Fair Average AMENITIES: Pool/Spa Yes/Yes Yes/No Yes/Yes Gym Room Yes No Yes Laundry Room Yes Yes Yes Secured Parking Yes No Yes Sport Courts No No No Washer/Dryer Connection Yes Yes Yes OCCUPANCY: 95% 95% 90% TRANSACTION DATA: Sale Date January, 2003 July, 2002 May, 2001 Sale Price ($) $24,500,000 $5,250,000 $21,617,000 Grantor St. Johns Plantation, LLC Gloucester Realty Associates Bear Capital, J.V. Grantee The Lincoln Property Group Boxwood at Bay Meadows, LLC St. Johns Planation, LLC Sale Documentation N/A Book 10574, Page 1878 Book 9985, Page 671 Verification Public Record Public Record Public Record Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF ---------- ------ ----- -------- ------ ----- ------- ------ ----- Potential Gross Income $3,668,016 $9,170 $9.53 $889,920 $8,899 $5.88 $ 0 $ 0 $0.00 Vacancy/Credit Loss $ 183,401 $ 459 $0.48 $ 44,496 $ 445 $0.29 $ 0 $ 0 $0.00 ---------- ------ ----- -------- ------ ----- ---------- ------ ----- Effective Gross Income $3,484,615 $8,712 $9.05 $845,424 $8,454 $5.58 $ 0 $ 0 $0.00 Operating Expenses $1,280,000 $3,200 $3.33 $315,000 $3,150 $2.08 $ 0 $ 0 $0.00 ---------- ------ ----- -------- ------ ----- ---------- ------ ----- Net Operating Income $2,204,615 $5,512 $5.73 $530,424 $5,304 $3.50 $2,053,653 $5,134 $5.33 ---------- ------ ----- -------- ------ ----- ---------- ------ ----- NOTES: None This project is now known This is the previous sale of as Boxwood at Bay Meadows Comparable Sale I-3. PRICE PER UNIT $61,250 $52,500 $54,043 PRICE PER SQUARE FOOT $ 63.64 $ 34.66 $ 56.15 EXPENSE RATIO 36.7% 37.3% N/A EGIM 7.03 6.21 N/A OVERALL CAP RATE 9.00% 10.10% 9.50% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA ACTUAL
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $52,500 to $78,261 per unit. Adjustments have been made to the sales to reflect differences in location, age/condition and quality/appeal. Generally speaking, larger properties typically have a lower price per unit when compared to smaller properties, all else being equal. Similarly, those projects with a higher average unit size will generally have a higher price per unit. After appropriate adjustments are made, the improved sales demonstrate an adjusted range for the subject from $42,875 to $47,250 per unit with a mean or average adjusted price of $45,241 per unit. The median adjusted price is $45,936 per unit. Based on the following analysis, we have concluded to a value of $45,000 per unit, which results in an "as is" value of $40,700,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ----------------------------------------------------------------------------------------------------------------------------------- Property Name Baymeadows Apartments 54 Magnolia at Deerwood Park The Wimberly at Deerwood Park Address 7915 Baymeadows Circle East 9600 Touchton Road 9727 Touchton Road City Jacksonville, Florida Jacksonville, Florida Jacksonville, Florida Sale Date March, 2000 December, 2001 Sale Price ($) $20,000,000 $25,200,000 Net Rentable Area (SF) 1,100,464 299,832 400,000 Number of Units 904 276 322 Price Per Unit $72,464 $78,261 Year Built 1972 1998 2000 Land Area (Acre) 93.7400 17.9000 33.4000 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 03-2000 0% 12-2001 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $72,464 $78,261 Location Superior -5% Superior -5% Number of Units 904 276 0% 322 0% Quality / Appeal Good Superior -15% Superior -15% Age / Condition 1972 1998 / Good -20% 2000 / Very Good -25% Occupancy at Sale 96% 95% 0% 95% 0% Amenities Good Comparable 0% Comparable 0% Average Unit Size (SF) 1,217 1,086 5% 1,242 0% PHYSICAL ADJUSTMENT -35% -45% FINAL ADJUSTED VALUE ($/UNIT) $47,101 $43,043 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 --------------------------------------------------------------------------------------------------------------------------------- Property Name St. Johns Plantation Gloucester Apartments St. Johns Plantation Address 7595 Baymeadows Circle West 4915 Baymeadows Road 7595 Baymeadows Circle West City Jacksonville, Florida Jacksonville, Florida Jacksonville, Florida Sale Date January, 2003 July, 2002 May, 2001 Sale Price ($) $24,500,000 $5,250,000 $21,617,000 Net Rentable Area (SF) 384,956 151,459 384,956 Number of Units 400 100 400 Price Per Unit $61,250 $52,500 $54,043 Year Built 1989 1974 1989 Land Area (Acre) 24.1000 6.6200 24.1000 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 01-2003 0% 07-2002 0% 05-2001 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $61,250 $52,500 $54,043 Location Superior -10% Superior -10% Superior -10% Number of Units 400 0% 100 0% 400 0% Quality / Appeal Superior -5% Comparable 0% Comparable 0% Age / Condition 1989 / Good -20% 1974 / Fair 5% 1989 / Good -20% Occupancy at Sale 95% 0% 95% 0% 90% 10% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 962 5% 1,515 -5% 962 5% PHYSICAL ADJUSTMENT -30% -10% -15% FINAL ADJUSTED VALUE ($/UNIT) $42,875 $47,250 $45,936
SUMMARY VALUE RANGE (PER UNIT) $42,875 TO $ 47,250 MEAN (PER UNIT) $45,241 MEDIAN (PER UNIT) $45,936 VALUE CONCLUSION (PER UNIT) $45,000 VALUE INDICATED BY SALES $40,680,000 COMPARISON APPROACH ROUNDED $40,700,000
NET OPERATING INCOME (NOI) ANALYSIS We have also conducted a net operating income (NOI) comparison analysis. The NOI effectively takes into account the various physical, location, and operating aspects of the sale. When the subject's NOI is compared to the sale NOI, a percent adjustment can be arrived at. The following table illustrates this analysis. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA NOI PER UNIT COMPARISON
SALE PRICE NOI/ SUBJECT NOI COMPARABLE NO. OF ---------- -------------------------- ADJUSTMENT INDICATED NO. UNITS PRICE/UNIT OAR NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT ---------- ------ ---------- --- -------- -------------- ---------- ---------- I-1 276 $20,000,000 10.62% $2,123,632 $3,582,498 0.515 $37,322 $ 72,464 $ 7,694 $ 3,963 I-2 322 $25,200,000 10.73% $2,703,539 $3,582,498 0.472 $36,939 $ 78,261 $ 8,396 $ 3,963 I-3 400 $24,500,000 9.00% $2,204,615 $3,582,498 0.719 $44,040 $ 61,250 $ 5,512 $ 3,963 I-4 100 $ 5,250,000 10.10% $ 530,424 $3,582,498 0.747 $39,224 $ 52,500 $ 5,304 $ 3,963 I-5 400 $21,617,000 9.50% $2,053,653 $3,582,498 0.772 $41,714 $ 54,043 $ 5,134 $ 3,963
PRICE/UNIT
Low High Average Median $36,939 $44,040 $39,848 $39,224
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 45,000 Number of Units 904 ----------- Value Based on NOI Analysis $40,680,000 Rounded $40,700,000
The adjusted sales indicate a range of value between $36,939 and $44,040 per unit, with an average of $39,848 per unit. Based on the subject's competitive position within the improved sales, a value of $45,000 per unit is estimated. This indicates an "as is" market value of $40,700,000 (rounded after necessary adjustment, if any) for the NOI Per Unit Analysis. EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS The effective gross income multiplier (EGIM) is derived by dividing the sales price by the total effective gross income. The following table illustrates the EGIMs for the comparable improved sales. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 26 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON
SALE PRICE COMPARABLE NO. OF ---------- EFFECTIVE OPERATING SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM ---------- ------ ---------- ------------ ---------- --- ------------- ---- I-1 276 $20,000,000 $2,964,960 $ 841,328 28.38% 6.75 $ 72,464 I-2 322 $25,200,000 $3,991,539 $1,288,000 32.27% 6.31 $ 78,261 I-3 400 $24,500,000 $3,484,615 $1,280,000 36.73% 49.52% 7.03 $ 61,250 I-4 100 $ 5,250,000 $ 845,424 $ 315,000 37.26% 6.21 $ 52,500 I-5 400 $21,617,000 $ 54,043
EGIM
Low High Average Median 6.21 7.03 6.57 6.53
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 5.50 Subject EGI $ 7,544,061 ----------- Value Based on EGIM Analysis $41,492,334 Rounded $41,500,000 Value Per Unit $ 45,907
There is an inverse relationship, which generally holds among EGIMs and operating expenses. Properties, which have higher expense ratios, typically sell for relatively less and therefore produce a lower EGIM. As will be illustrated in the Income Capitalization Approach of this report, the subject's operating expense ratio (OER) is estimated at 49.52% before reserves. The comparable sales indicate a range of expense ratios from 28.38% to 37.26%, while their EGIMs range from 6.21 to 7.03. Overall, we conclude to an EGIM of 5.50, which results in an "as is" value estimate in the EGIM Analysis of $41,500,000. SALES COMPARISON CONCLUSION The three valuation methods in the Sales Comparison Approach are shown below. The overall value via the Sales Comparison Approach is estimated at $40,700,000. Price Per Unit $40,700,000 NOI Per Unit $40,700,000 EGIM Analysis $41,500,000 Sales Comparison Conclusion $40,700,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA INCOME CAPITALIZATION APPROACH The income capitalization approach is based on the premise that value is created by the expectation of future benefits. We estimated the present value of those benefits to derive an indication of the amount that a prudent, informed purchaser-investor would pay for the right to receive them as of the date of value. This approach requires an estimate of the NOI of a property. The estimated NOI is then converted to a value indication by use of either the direct capitalization or the discounted cash flow analysis (yield capitalization). Direct capitalization uses a single year's stabilized NOI as a basis for a value indication by dividing the income by a capitalization rate. The rate chosen accounts for a recapture of the investment by the investor and should reflect all factors that influence the value of the property, such as tenant quality, property condition, neighborhood change, market trends, interest rates, and inflation. The rate may be extracted from local market transactions or, when transaction evidence is lacking, obtained from trade sources. A discounted cash flow analysis focuses on the operating cash flows expected from the property and the proceeds of a hypothetical sale at the end of a holding period (the reversion). The cash flows and reversion are discounted to their present values using a market-derived discount rate and are added together to obtain a value indication. Because benefits to be received in the future are worth less than the same benefits received in the present, this method weights income in the early years more heavily than the income and the sale proceeds to be received later. The strength of the discounted cash flow method is its ability to recognize variations in projected net income, such as those caused by inflation, stepped leases, neighborhood change, or tenant turnover. Its weakness is that it requires many judgments regarding the actions of likely buyers and sellers of the property in the future. In some situations, both methods yield a similar result. The discounted cash flow method is typically more appropriate for the analysis of investment properties with multiple or long-term leases, particularly leases with cancellation clauses or renewal options. It is especially useful for multi-tenant properties in volatile markets. The direct capitalization AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
Average Unit Area ------------------------ Unit Type (Sq. Ft.) Per Unit Per SF %Occupied --------- --------- -------- ------ --------- 1BR/1BA - 1A10 586 $ 494 $ 0.84 83.3% 1BR/1BA - 1A15 724 $ 607 $ 0.84 96.2% 1BR/1BA - 1B10 797 $ 538 $ 0.68 97.2% 1BR/1.5BA - 1C10 1009 $ 568 $ 0.56 100.0% 2BR/1BA - 2A10 1084 $ 598 $ 0.55 91.7% 2BR/2BA - 2A20 1326 $ 752 $ 0.57 89.5% 2BR/2BA - 2A25 1162 $ 790 $ 0.68 95.5% 2BR/2BA - 2B20 1062 $ 663 $ 0.62 98.4% 2BR/2.5BA - 2C20 1467 $ 715 $ 0.49 96.0% 3BR/2BA - 3A20 1477 $ 837 $ 0.57 93.8% 3BR/2BA - 3A25 1583 $ 867 $ 0.55 93.2% 3BR/2BA - 3B20 1631 $ 832 $ 0.51 94.8% 3BR/2.5BA - 3C20 1698 $ 889 $ 0.52 86.7% 4BR/3BA - 4A30 2132 $1,084 $ 0.51 100.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA
COMPARABLE RENTS --------------------------------------------------------- R-1 R-2 R-3 R-4 R-5 ---------- ---------- -------- -------- --------- Avenue Reserve at Royale Pointe Paradise Southern Apartments Meadows Island Pine Portofino --------------------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT --------------------------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly Slightly Slightly Slightly DESCRIPTION TYPE RENT RENT Superior Superior Superior Superior Superior ----------- ------------ ------- ------- -------- -------- -------- -------- --------- Monthly Rent 1BR/1BA - 1A10 $ 494 $ 539 Unit Area (SF) 586 586 Monthly Rent Per Sq. Ft. $ 0.84 $ 0.92 Monthly Rent 1BR/1BA - 1A15 $ 607 $ 569 Unit Area (SF) 724 724 Monthly Rent Per Sq. Ft. $ 0.84 $ 0.79 Monthly Rent 1BR/1BA - 1B10 $ 538 $ 599 $ 780 $ 725 Unit Area (SF) 797 797 767 831 Monthly Rent Per Sq. Ft. $ 0.68 $ 0.75 $ 1.02 $ 0.87 Monthly Rent 1BR/1.5BA - $ 568 $ 669 $ 795 $ 875 $ 725 $ 775 $ 870 Unit Area (SF) 1C10 1,009 1,009 859 905 831 830 917 Monthly Rent Per Sq. Ft. $ 0.56 $ 0.66 $ 0.93 $ 0.97 $ 0.87 $ 0.93 $ 0.95 Monthly Rent 2BR/1BA - 2A10 $ 598 $ 679 Unit Area (SF) 1,084 1,084 Monthly Rent Per Sq. Ft. $ 0.55 $ 0.63 Monthly Rent 2BR/2BA - 2A20 $ 752 $ 799 $ 995 Unit Area (SF) 1,326 1,326 1,195 Monthly Rent Per Sq. Ft. $ 0.57 $ 0.60 $ 0.83 Monthly Rent 2BR/2BA - 2A25 $ 790 $ 699 Unit Area (SF) 1,162 1,162 Monthly Rent Per Sq. Ft. $ 0.68 $ 0.60 Monthly Rent 2BR/2BA - 2B20 $ 663 $ 769 $ 990 $ 1,017 $ 860 Unit Area (SF) 1,062 1,062 1,182 1,219 1,169 Monthly Rent Per Sq. Ft. $ 0.62 $ 0.72 $ 0.84 $ 0.83 $ 0.74 Monthly Rent 2BR/2.5BA - $ 715 $ 829 $ 1,180 $ 1,072 $ 1,005 $ 995 $ 1,065 Unit Area (SF) 2C20 1,467 1,467 1,464 1,267 1,224 1,195 1,397 Monthly Rent Per Sq. Ft. $ 0.49 $ 0.57 $ 0.81 $ 0.85 $ 0.82 $ 0.83 $ 0.76 Monthly Rent 3BR/2BA - 3A20 $ 837 $ 879 $ 1,395 $ 1,327 $ 1,035 $ 1,130 Unit Area (SF) 1,477 1,477 1,457 1,424 1,352 1,380 Monthly Rent Per Sq. Ft. $ 0.57 $ 0.60 $ 0.96 $ 0.93 $ 0.77 $ 0.82 Monthly Rent 3BR/2BA - 3A25 $ 867 $ 889 Unit Area (SF) 1,583 1,583 Monthly Rent Per Sq. Ft. $ 0.55 $ 0.56 Monthly Rent 3BR/2BA - 3B20 $ 832 $ 919 $ 1,250 $ 1,035 Unit Area (SF) 1,631 1,631 1,384 1,352 Monthly Rent Per Sq. Ft. $ 0.51 $ 0.56 $ 0.90 $ 0.77 Monthly Rent 3BR/2.5BA - $ 889 $ 929 $ 1,395 $ 1,327 $ 1,035 $ 1,130 $ 1,330 DESCRIPTION MIN MAX MEDIAN AVERAGE ----------- --- --- ------ ------- Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent $ 725 $ 780 $ 753 $ 753 Unit Area (SF) 767 831 799 799 Monthly Rent Per Sq. Ft. $ 0.87 $ 1.02 $ 0.94 $ 0.94 Monthly Rent $ 725 $ 875 $ 795 $ 808 Unit Area (SF) 830 917 859 868 Monthly Rent Per Sq. Ft. $ 0.87 $ 0.97 $ 0.93 $ 0.93 Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent $ 995 $ 995 $ 995 $ 995 Unit Area (SF) 1,195 1,195 1,195 1,195 Monthly Rent Per Sq. Ft. $ 0.83 $ 0.83 $ 0.83 $ 0.83 Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent $ 860 $1,017 $ 990 $ 956 Unit Area (SF) 1,169 1,219 1,182 1,190 Monthly Rent Per Sq. Ft. $ 0.74 $ 0.84 $ 0.83 $ 0.80 Monthly Rent $ 995 $1,180 $1,065 $ 1,063 Unit Area (SF) 1,195 1,464 1,267 1,309 Monthly Rent Per Sq. Ft. $ 0.76 $ 0.85 $ 0.82 $ 0.81 Monthly Rent $1,035 $1,395 $1,229 $ 1,222 Unit Area (SF) 1,352 1,457 1,402 1,403 Monthly Rent Per Sq. Ft. $ 0.77 $ 0.96 $ 0.88 $ 0.87 Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent $1,035 $1,250 $1,143 $ 1,143 Unit Area (SF) 1,352 1,384 1,368 1,368 Monthly Rent Per Sq. Ft. $ 0.77 $ 0.90 $ 0.83 $ 0.83 Monthly Rent $1,035 $1,395 $1,327 $ 1,243
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA GROSS RENTAL INCOME PROJECTION
Market Rent Number Unit Area ---------------- Monthly Annual Unit Type of Units (Sq. Ft.) Per Unit Per SF Income Income --------- -------- --------- -------- ------ ------- ------ 1BR/1BA - 1A10 24 586 $ 500 $0.85 $ 12,000 $ 144,000 1BR/1BA - 1A15 26 724 $ 570 $0.79 $ 14,820 $ 177,840 1BR/1BA - 1B10 142 797 $ 540 $0.68 $ 76,680 $ 920,160 1BR/1.5BA - 1C10 60 1,009 $ 570 $0.56 $ 34,200 $ 410,400 2BR/1BA - 2A10 48 1,084 $ 600 $0.55 $ 28,800 $ 345,600 2BR/2BA - 2A20 19 1,326 $ 750 $0.57 $ 14,250 $ 171,000 2BR/2BA - 2A25 22 1,162 $ 700 $0.60 $ 15,400 $ 184,800 2BR/2BA - 2B20 186 1,062 $ 670 $0.63 $124,620 $1,495,440 2BR/2.5BA - 2C20 176 1,467 $ 725 $0.49 $127,600 $1,531,200 3BR/2BA - 3A20 16 1,477 $ 850 $0.58 $ 13,600 $ 163,200 3BR/2BA - 3A25 74 1,583 $ 875 $0.55 $ 64,750 $ 777,000 3BR/2BA - 3B20 58 1,631 $ 850 $0.52 $ 49,300 $ 591,600 3BR/2.5BA - 3C20 30 1,698 $ 900 $0.53 $ 27,000 $ 324,000 4BR/3BA - 4A30 23 2,132 $1,000 $0.47 $ 23,000 $ 276,000 -------- ---------- Total $626,020 $7,512,240 ======== ==========
PRO FORMA ANALYSIS For purposes of this appraisal, we were provided with income and expense data for the subject property. A summary of this data is presented on the following page. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 FISCAL YEAR 2003 ---------------- ---------------- ---------------- ---------------- ACTUAL ACTUAL ACTUAL MANAGEMENT BUDGET ------ ------ ------ ----------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT ----------- ----- -------- ----- -------- ----- -------- ----- -------- Revenues Rental Income $7,156,895 $ 7,917 $7,355,506 $ 8,137 $7,511,338 $ 8,309 $7,588,446 $ 8,394 Vacancy $ 497,100 $ 550 $ 321,817 $ 356 $ 314,408 $ 348 $ 290,555 $ 321 Credit Loss/Concessions $ 283,271 $ 313 $ 248,517 $ 275 $ 259,462 $ 287 $ 221,688 $ 245 --------------------------------------------------------------------------------------------- Subtotal $ 780,371 $ 863 $ 570,334 $ 631 $ 573,870 $ 635 $ 512,243 $ 567 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 261,686 $ 289 $ 517,461 $ 572 $ 671,572 $ 743 $ 662,873 $ 733 --------------------------------------------------------------------------------------------- Subtotal Other Income $ 261,686 $ 289 $ 517,461 $ 572 $ 671,572 $ 743 $ 662,873 $ 733 --------------------------------------------------------------------------------------------- Effective Gross Income $6,638,210 $ 7,343 $7,302,633 $ 8,078 $7,609,040 $ 8,417 $7,739,076 $ 8,561 Operating Expenses Taxes $ 461,950 $ 511 $ 456,145 $ 505 $ 460,364 $ 509 $ 495,968 $ 549 Insurance $ 138,229 $ 153 $ 326,631 $ 361 $ 369,683 $ 409 $ 395,735 $ 438 Utilities $ 608,660 $ 673 $ 418,002 $ 462 $ 331,097 $ 366 $ 350,724 $ 388 Repair & Maintenance $ 906,585 $ 1,003 $ 958,408 $ 1,060 $1,138,477 $ 1,259 $1,120,980 $ 1,240 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 52,230 $ 58 $ 85,762 $ 95 $ 76,535 $ 85 $ 82,008 $ 91 General Administrative $ 956,586 $ 1,058 $1,005,449 $ 1,112 $ 705,620 $ 781 $ 732,878 $ 811 Management $ 341,763 $ 378 $ 384,500 $ 425 $ 379,555 $ 420 $ 386,151 $ 427 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------------------------- Total Operating Expenses $3,466,003 $ 3,834 $3,634,897 $ 4,021 $3,461,331 $ 3,829 $3,564,444 $ 3,943 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------------------------- Net Income $3,172,207 $ 3,509 $3,667,736 $ 4,057 $4,147,709 $ 4,588 $4,174,632 $ 4,618 ANNUALIZED 2003 --------------- PROJECTION AAA PROJECTION ---------- ------------------------------ DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % ----------- ----- -------- ----- -------- - Revenues Rental Income $7,613,664 $ 8,422 $7,512,240 $ 8,310 100.0% Vacancy $ 353,044 $ 391 $ 450,734 $ 499 6.0% Credit Loss/Concessions $ 145,208 $ 161 $ 150,245 $ 166 2.0% ----------------------------------------------------- Subtotal $ 498,252 $ 551 $ 600,979 $ 665 8.0% Laundry Income $ 0 $ 0 $ 0 $ 0 0.0% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 515,472 $ 570 $ 632,800 $ 700 8.4% ----------------------------------------------------- Subtotal Other Income $ 515,472 $ 570 $ 632,800 $ 700 8.4% ----------------------------------------------------- Effective Gross Income $7,630,884 $ 8,441 $7,544,061 $ 8,345 100.0% Operating Expenses Taxes $ 490,940 $ 543 $ 587,600 $ 650 7.8% Insurance $ 386,288 $ 427 $ 397,760 $ 440 5.3% Utilities $ 359,316 $ 397 $ 361,600 $ 400 4.8% Repair & Maintenance $1,244,624 $ 1,377 $1,175,200 $ 1,300 15.6% Cleaning $ 0 $ 0 $ 0 $ 0 0.0% Landscaping $ 0 $ 0 $ 0 $ 0 0.0% Security $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 83,488 $ 92 $ 90,400 $ 100 1.2% General Administrative $ 689,392 $ 763 $ 745,800 $ 825 9.9% Management $ 388,428 $ 430 $ 377,203 $ 417 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0% ----------------------------------------------------- Total Operating Expenses $3,642,476 $ 4,029 $3,735,563 $ 4,132 49.5% Reserves $ 0 $ 0 $ 226,000 $ 250 6.0% ----------------------------------------------------- Net Income $3,988,408 $ 4,412 $3,582,498 $ 3,963 47.5%
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 8% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $250 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $250 per unit should be satisfactory in our reserves for replacement to cover future capital expenditures. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of the annual cash flows and discounts them, along with the expected equity reversion, to a present value. The present value of the cash flow is added to the present value of the reversion, resulting in a total property value. INVESTMENT CRITERIA Appropriate investment criteria will be derived for the subject based upon analysis of comparable sales and a survey of real estate investors. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 1ST QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES -------------------- GOING-IN TERMINAL -------- -------- LOW HIGH LOW HIGH --- ---- --- ---- RANGE 6.00% 10.00% 7.00% 10.00% AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR --------- --------- ------ ---------- --- I-1 Mar-00 95% $ 72,464 10.62% I-2 Dec-01 95% $ 78,261 10.73% I-3 Jan-03 95% $ 61,250 9.00% I-4 Jul-02 95% $ 52,500 10.10% I-5 May-01 90% $ 54,043 9.50% High 10.73% Low 9.00% Average 9.99%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.50%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 10.50%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 11.50%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 11.50% indicates a value of $39,700,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA approximately 38% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 35 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA DISCOUNTED CASH FLOW ANALYSIS BAYMEADOWS APARTMENTS
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 ----------- -------- -------- -------- ------- -------- -------- REVENUE Base Rent $ 7,512,240 $ 7,737,607 $ 7,969,735 $ 8,208,827 $ 8,455,092 $ 8,708,745 Vacancy $ 450,734 $ 464,256 $ 478,184 $ 492,530 $ 507,306 $ 522,525 Credit Loss $ 150,245 $ 154,752 $ 159,395 $ 164,177 $ 169,102 $ 174,175 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------------- Subtotal $ 600,979 $ 619,009 $ 637,579 $ 656,706 $ 676,407 $ 696,700 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 632,800 $ 651,784 $ 671,338 $ 691,478 $ 712,222 $ 733,589 -------------------------------------------------------------------------------------- Subtotal Other Income $ 632,800 $ 651,784 $ 671,338 $ 691,478 $ 712,222 $ 733,589 EFFECTIVE GROSS INCOME $ 7,544,061 $ 7,770,383 $ 8,003,494 $ 8,243,599 $ 8,490,907 $ 8,745,634 OPERATING EXPENSES: Taxes $ 587,600 $ 605,228 $ 623,385 $ 642,086 $ 661,349 $ 681,189 Insurance $ 397,760 $ 409,693 $ 421,984 $ 434,643 $ 447,682 $ 461,113 Utilities $ 361,600 $ 372,448 $ 383,621 $ 395,130 $ 406,984 $ 419,194 Repair & Maintenance $ 1,175,200 $ 1,210,456 $ 1,246,770 $ 1,284,173 $ 1,322,698 $ 1,362,379 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 90,400 $ 93,112 $ 95,905 $ 98,783 $ 101,746 $ 104,798 General Administrative $ 745,800 $ 768,174 $ 791,219 $ 814,956 $ 839,404 $ 864,587 Management $ 377,203 $ 388,519 $ 400,175 $ 412,180 $ 424,545 $ 437,282 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 3,735,563 $ 3,847,630 $ 3,963,059 $ 4,081,951 $ 4,204,409 $ 4,330,541 Reserves $ 226,000 $ 232,780 $ 239,763 $ 246,956 $ 254,365 $ 261,996 -------------------------------------------------------------------------------------- NET OPERATING INCOME $ 3,582,498 $ 3,689,973 $ 3,800,672 $ 3,914,692 $ 4,032,133 $ 4,153,097 Operating Expense Ratio (% of EGI) 49.5% 49.5% 49.5% 49.5% 49.5% 49.5% Operating Expense Per Unit $ 4,132 $ 4,256 $ 4,384 $ 4,515 $ 4,651 $ 4,790 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 ----------- -------- -------- -------- ------- -------- REVENUE Base Rent $ 8,970,007 $ 9,239,108 $ 9,516,281 $ 9,801,769 $10,095,822 Vacancy $ 538,200 $ 554,346 $ 570,977 $ 588,106 $ 605,749 Credit Loss $ 179,400 $ 184,782 $ 190,326 $ 196,035 $ 201,916 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------- Subtotal $ 717,601 $ 739,129 $ 761,302 $ 784,142 $ 807,666 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 755,596 $ 778,264 $ 801,612 $ 825,660 $ 850,430 ----------------------------------------------------------------------- Subtotal Other Income $ 755,596 $ 778,264 $ 801,612 $ 825,660 $ 850,430 ----------------------------------------------------------------------- EFFECTIVE GROSS INCOME $ 9,008,003 $ 9,278,243 $ 9,556,591 $ 9,843,288 $10,138,587 OPERATING EXPENSES: Taxes $ 701,625 $ 722,674 $ 744,354 $ 766,685 $ 789,685 Insurance $ 474,946 $ 489,195 $ 503,870 $ 518,987 $ 534,556 Utilities $ 431,769 $ 444,722 $ 458,064 $ 471,806 $ 485,960 Repair & Maintenance $ 1,403,250 $ 1,445,348 $ 1,488,708 $ 1,533,369 $ 1,579,371 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 107,942 $ 111,181 $ 114,516 $ 117,951 $ 121,490 General Administrative $ 890,524 $ 917,240 $ 944,757 $ 973,100 $ 1,002,293 Management $ 450,400 $ 463,912 $ 477,830 $ 492,164 $ 506,929 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 4,460,458 $ 4,594,271 $ 4,732,099 $ 4,874,062 $ 5,020,284 Reserves $ 269,856 $ 277,951 $ 286,290 $ 294,879 $ 303,725 ----------------------------------------------------------------------- NET OPERATING INCOME $ 4,277,690 $ 4,406,020 $ 4,538,201 $ 4,674,347 $ 4,814,577 Operating Expense Ratio (% of EGI) 49.5% 49.5% 49.5% 49.5% 49.5% Operating Expense Per Unit $ 4,934 $ 5,082 $ 5,235 $ 5,392 $ 5,553
Estimated Stabilized NOI $3,582,498 Sales Expense Rate 2.00% Months to Stabilized 1 Discount Rate 11.50% Stabilized Occupancy 94.0% Terminal Cap Rate 10.50%
Gross Residual Sale Price $45,853,118 Deferred Maintenance $ 0 Less: Sales Expense $ 917,062 Add: Excess Land $ 0 ----------- Other Adjustments $ 0 Net Residual Sale Price $44,936,056 ----------- PV of Reversion $15,130,256 Value Indicated By "DCF" $39,659,438 Add: NPV of NOI $24,529,181 Rounded $39,700,000 ----------- PV Total $39,659,438
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE -------------------------------------------------------------- TOTAL VALUE 11.00% 11.25% 11.50% 11.75% 12.00% ----------- ------ ------ ------ ------ ------ 10.00% $41,730,635 $41,066,127 $40,415,950 $39,779,747 $39,157,168 TERMINAL 10.25% $41,325,340 $40,669,849 $40,028,468 $39,400,846 $38,786,641 CAP RATE 10.50% $40,939,346 $40,292,441 $39,659,438 $39,039,989 $38,433,758 10.75% $40,571,304 $39,932,587 $39,307,571 $38,695,915 $38,097,288 11.00% $40,219,992 $39,589,090 $38,971,699 $38,367,482 $37,776,112
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 36 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA INCOME LOSS DURING LEASE-UP The subject is currently near or at a stabilized condition. Therefore, there is no income loss during lease-up at the subject property. CONCESSIONS Concessions have historically not been utilized at the subject property or in the subject's market. Therefore, no adjustment was included for concessions. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 9.50% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 37 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA BAYMEADOWS APARTMENTS
TOTAL PER SQ. FT. PER UNIT %OF EGI ----- ----------- -------- ------- REVENUE Base Rent $ 7,512,240 $ 6.83 $ 8,310 Less: Vacancy & Collection Loss 8.00% $ 600,979 $ 0.55 $ 665 Plus: Other Income Laundry Income $ 0 $ 0.00 $ 0 0.00% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 632,800 $ 0.58 $ 700 8.39% ----------- -------- -------- ---- Subtotal Other Income $ 632,800 $ 0.58 $ 700 8.39% EFFECTIVE GROSS INCOME $ 7,544,061 $ 6.86 $ 8,345 OPERATING EXPENSES: Taxes $ 587,600 $ 0.53 $ 650 7.79% Insurance $ 397,760 $ 0.36 $ 440 5.27% Utilities $ 361,600 $ 0.33 $ 400 4.79% Repair & Maintenance $ 1,175,200 $ 1.07 $ 1,300 15.58% Cleaning $ 0 $ 0.00 $ 0 0.00% Landscaping $ 0 $ 0.00 $ 0 0.00% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 90,400 $ 0.08 $ 100 1.20% General Administrative $ 745,800 $ 0.68 $ 825 9.89% Management 5.00% $ 377,203 $ 0.34 $ 417 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 3,735,563 $ 3.39 $ 4,132 49.52% Reserves $ 226,000 $ 0.21 $ 250 3.00% ----------- -------- -------- ----- NET OPERATING INCOME $ 3,582,498 $ 3.26 $ 3,963 47.49% =========== ======== ======== ===== "GOING IN" CAPITALIZATION RATE 9.50% VALUE INDICATION $37,710,503 $ 34.27 $ 41,715 "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $37,710,503 ROUNDED $37,700,000 $ 34.26 $ 41,704
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 38 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF -------- ----- ------- ------ ---- 8.75% $40,942,832 $40,900,000 $45,243 $37.17 9.00% $39,805,531 $39,800,000 $44,027 $36.17 9.25% $38,729,706 $38,700,000 $42,810 $35.17 9.50% $37,710,503 $37,700,000 $41,704 $34.26 9.75% $36,743,567 $36,700,000 $40,597 $33.35 10.00% $35,824,978 $35,800,000 $39,602 $32.53 10.25% $34,951,198 $35,000,000 $38,717 $31.80
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $37,700,000. CORRELATION AND CONCLUSION BY THE INCOME APPROACH The two methods used to estimate the market value of the subject property by the income approach resulted in the following indications of value: Discounted Cash Flow Analysis $39,700,000 Direct Capitalization Method $37,700,000 Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $39,700,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 39 BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA RECONCILIATION AND CONCLUSION This appraisal was made to express an opinion as of the Market Value of the fee simple estate in the property. AS IS MARKET VALUE OF THE FEE SIMPLE ESTATE Cost Approach Not Utilized Sales Comparison Approach $ 40,700,000 Income Approach $ 39,700,000 Reconciled Value $ 40,000,000
The Income Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of May 28, 2003 the market value of the fee simple estate in the property is: $40,000,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA SUBJECT PHOTOGRAPHS [PICTURE] EXTERIOR LEASING OFFICE [PICTURE] EXTERIOR VIEW OF SUBJECT [PICTURE] EXTERIOR - APARTMENT BUILDING [PICTURE] INTERIOR - APARTMENT UNIT [PICTURE] EXTERIOR - TENNIS COURT [PICTURE] EXTERIOR BUILDING VIEW AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA SUBJECT PHOTOGRAPHS [PICTURE] TYPICAL KITCHEN [PICTURE] TYPICAL BATHROOM [PICTURE] EXTERIOR - PARKING AND DRIVES [PICTURE] INTERIOR - APARTMENT UNIT [PICTURE] STREET SCENE [PICTURE] STREET SCENE AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 54 MAGNOLIA AT DEERWOOD PARK 9600 Touchton Road Jacksonville, Florida [PICTURE] COMPARABLE I-2 THE WIMBERLY AT DEERWOOD PARK 9727 Touchton Road Jacksonville, Florida [PICTURE] COMPARABLE I-3 ST. JOHNS PLANTATION 7595 Baymeadows Circle West Jacksonville, Florida [PICTURE] COMPARABLE I-4 GLOUCESTER APARTMENTS 4915 Baymeadows Road Jacksonville, Florida [PICTURE] COMPARABLE I-5 ST. JOHNS PLANTATION 7595 Baymeadows Circle West Jacksonville, Florida [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 ----------- ------- ---------- Property Name Baymeadows Apartments Avenue Royale Apartments Management Company AIMCO LOCATION: Address 7915 Baymeadows Circle East 7635 Timberlin Park Boulevard City, State Jacksonville, Florida Jacksonville, Florida County Duval Duval Proximity to Subject Two miles south PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 1,100,464 N/A Year Built 1972 1990 Effective Age 20 10 Building Structure Type Brick & wood siding walls; asphalt shingle roof Stucco and wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Garage, Open Covered Open Number of Units 904 N/A Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. ---- ---- ---- -------- ---- ---- ---- --- 1 1BR/1BA - 1A10 586 24 $ 494 3 1BR/1BA 767 $ 780 2 1BR/1BA - 1A15 724 26 $ 607 4 1BR/1BA 859 $ 795 3 1BR/1BA - 1B10 797 142 $ 538 8 2BR/2BA 1,182 $ 990 4 1BR/1.5BA - 1C10 1,009 60 $ 568 9 2BR/2BA 1,464 $1,180 5 2BR/1BA - 2A10 1,084 48 $ 598 10 3BR/2BA 1,457 $1,395 6 2BR/2BA - 2A20 1,326 19 $ 752 12 3BR/2BA 1,384 $1,250 7 2BR/2BA - 2A25 1,162 22 $ 790 13 3BR/2BA 1,457 $1,395 8 2BR/2BA - 2B20 1,062 186 $ 663 9 2BR/2.5BA - 2C20 1,467 176 $ 715 10 3BR/2BA - 3A20 1,477 16 $ 837 11 3BR/2BA - 3A25 1,583 74 $ 867 12 3BR/2BA - 3B20 1,631 58 $ 832 13 3BR/2.5BA - 3C20 1,698 30 $ 889 14 4BR/3BA - 4A30 2,132 23 $1,084 Average Unit Size (SF) 1,217 Unit Breakdown: Efficiency 0% 2-Bedroom 50% Efficiency 2-Bedroom 1-Bedroom 28% 3-Bedroom 20% 1-Bedroom 3-Bedroom CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. Fireplace Other X Fireplace Other X Cable TV Ready Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball Meeting Hall X Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track Business Office X Gym Room X Playground X Gym Room Playground X Playground X Fishing Pier Playground Fishing Pier OCCUPANCY: 96% 93% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 to 15 Months Concessions 1 - 1 1/2 Months Free 1 - 1 1/2 Months Free Pet Deposit $250 $200 - $500 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash X Water Trash Confirmation May 28, 2003; Fern Easterday (Property Manager) 5/28/03 Telephone Number (904) 739-1013 (904) 363-1192 NOTES: None COMPARISON TO SUBJECT: Slightly Superior COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 ----------- ---------- ---------- Property Name Reserve at Pointe Meadows Paradise Island Management Company LOCATION: Address 7800 Pointe Meadows Drive 8787 Southside Boulevard City, State Jacksonville, Florida Jacksonville, Florida County Duval Duval Proximity to Subject 2.5 miles east One mile south PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) N/A N/A Year Built 2001 1991 Effective Age 2 10 Building Structure Type Stucco and wood siding walls; asphalt shingle Stucco and wood siding walls; asphalt shingle roof roof Parking Type (Gr., Cov., etc.) Open, Covered Open Number of Units N/A N/A Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. ---- ---- ---- --- ---- ---- ---- --- 4 1BR/1BA 905 $ 875 3 1BR/1BA 831 $ 725 8 2BR/2BA 1,219 $1,017 4 1BR/1BA 831 $ 725 9 2BR/2BA 1,267 $1,072 8 2BR/2BA 1,169 $ 860 10 3BR/2BA 1,424 $1,327 9 2BR/2BA 1,224 $1,005 13 3BR/2BA 1,424 $1,327 10 3BR/2BA 1,352 $1,035 12 3BR/2BA 1,352 $1,035 13 3BR/2BA 1,352 $1,035 Average Unit Size (SF) Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Very Good Good APPEAL: Very Good Good AMENITIES: Unit Amenities X Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball X Meeting Hall X Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track Business Office X Gym Room Playground X Gym Room Playground Playground Fishing Pier Playground Fishing Pier OCCUPANCY: 95% 91% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 to 15 Months Concessions 1 - 1 1/2 Months Free 1 - 1 1/2 Months Free Pet Deposit $300 - $500 $300 - $500 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas Water Trash X Water Trash Confirmation 5/28/03 5/28/03 Telephone Number (904) 642-9990 (904) 363-2200 NOTES: None None COMPARISON TO SUBJECT: Superior Slightly Superior COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 ----------- ---------- ---------- Property Name Southern Pines Portofino Management Company LOCATION: Address 10010 Belle Rive 10135 Gate Parkway North City, State Jacksonville, Florida Jacksonville, Florida County Duval Duval Proximity to Subject 1.5 miles south Two miles northeast PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) N/A N/A Year Built 1997 1997 Effective Age 5 5 Building Structure Type Stucco and wood siding walls; asphalt shingle Stucco and wood siding walls; asphalt shingle roof roof Parking Type (Gr., Cov., etc.) Open Open Number of Units N/A N/A Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. ---- ---- ---- --- ---- ---- ---- --- 4 1BR/1BA 830 $ 775 4 1BR/1BA 917 $ 870 6 2BR/2BA 1,195 $ 995 9 2BR/2BA 1,397 $1,065 9 2BR/2BA 1,195 $ 995 13 3BR/2BA 1,601 $1,330 10 3BR/2BA 1,380 $1,130 13 3BR/2BA 1,380 $1,130 Average Unit Size (SF) Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Good Good APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball X Meeting Hall X Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track Business Office X Gym Room Playground X Gym Room Playground Playground Fishing Pier Playground Fishing Pier OCCUPANCY: 97% 95% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 to 15 Months Concessions 1 - 1 1/2 Months Free 1 - 1 1/2 Months Free Pet Deposit $300 - $500 $300 - $500 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash X Water Trash Confirmation 5/28/03 5/28/03 Telephone Number (904) 565-9899 (904) 731-1200 NOTES: None None COMPARISON TO SUBJECT: Slightly Superior Slightly Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 AVENUE ROYALE APARTMENTS RESERVE AT POINTE MEADOWS 7635 Timberlin Park Boulevard 7800 Pointe Meadows Drive Jacksonville, Florida Jacksonville, Florida [PICTURE] [PICTURE] COMPARABLE R-3 COMPARABLE R-4 PARADISE ISLAND SOUTHERN PINES 8787 Southside Boulevard 10010 Belle Rive Jacksonville, Florida Jacksonville, Florida [PICTURE] [PICTURE] COMPARABLE R-5 PORTOFINO 10135 Gate Parkway North Jacksonville, Florida [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA No responsibility is assumed for matters legal in nature. No investigation has been made of the title to or any liabilities against the property appraised. In this appraisal, it is presumed that, unless otherwise noted, the owner's claim is valid, the property rights are good and marketable, and there are no encumbrances which cannot be cleared through normal processes. To the best of our knowledge, all data set forth in this report are true and accurate. Although gathered from reliable sources, no guarantee is made nor liability assumed for the accuracy of any data, opinions, or estimates identified as being furnished by others which have been used in formulating this analysis. Land areas and descriptions used in this appraisal were obtained from public records and have not been verified by legal counsel or a licensed surveyor. No soil analysis or geological studies were ordered or made in conjunction with this report, nor were any water, oil, gas, or other subsurface mineral and use rights or conditions investigated. Substances such as asbestos, urea-formaldehyde foam insulation, other chemicals, toxic wastes, or other potentially hazardous materials could, if present, adversely affect the value of the property. Unless otherwise stated in this report, the existence of hazardous substance, which may or may not be present on or in the property, was not considered by the appraiser in the development of the conclusion of value. The stated value estimate is predicated on the assumption that there is no material on or in the property that would cause such a loss in value. No responsibility is assumed for any such conditions, and the client has been advised that the appraiser is not qualified to detect such substances, quantify the impact on values, or develop the remedial cost. No environmental impact study has been ordered or made. Full compliance with applicable federal, state, and local environmental regulations and laws is assumed unless otherwise stated, defined, and considered in the report. It is also assumed that all required licenses, consents, or other legislative or administrative authority from any local, state, or national government or private entity organization either have been or can be obtained or renewed for any use which the report covers. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA It is assumed that all applicable zoning and use regulations and restrictions have been complied with unless a nonconformity has been stated, defined, and considered in the appraisal report. Further, it is assumed that the utilization of the land and improvements is within the boundaries of the property described and that no encroachment or trespass exists unless noted in the report. The Americans with Disabilities Act ("ADA") became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property together with a detailed analysis of the requirements of the ADA could reveal that the property is not in compliance with one or more of the requirements of the act. If so, this fact could have a negative effect on the value of the property. Since we have no direct evidence relating to this issue, we did not consider the possible noncompliance with the requirements of ADA in estimating the value of the property. We have made a physical inspection of the property and noted visible physical defects, if any, in our report. This inspection was made by individuals generally familiar with real estate and building construction. However, these individuals are not architectural or structural engineers who would have detailed knowledge of building design and structural integrity. Accordingly, we do not opine on, nor are we responsible for, the structural integrity of the property including its conformity to specific governmental code requirements, such as fire, building and safety, earthquake, and occupancy, or any physical defects which were not readily apparent to the appraiser during the inspection. The value or values presented in this report are based upon the premises outlined herein and are valid only for the purpose or purposes stated. The date of value to which the conclusions and opinions expressed apply is set forth in this report. The value opinion herein rendered is based on the status of the national business economy and the purchasing power of the U.S. dollar as of that date. Testimony or attendance in court or at any other hearing is not required by reason of this appraisal unless arrangements are previously made within a reasonable time in advance for AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the American Society of Appraisers or the designations awarded by this organization) shall be disseminated to the public through prospectus, advertising, public relations, news, or any other means of communication without the written consent and approval of American Appraisal Associates, Inc. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D CERTIFICATE OF APPRAISER I certify that, to the best of my knowledge and belief The statements of fact contained in this report are true and correct. The report analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and represent the impartial and unbiased professional analyses, opinions, and conclusions of American Appraisal Associates, Inc. American Appraisal Associates, Inc., and I personally have no present or prospective interest in or bias with respect to the property that is the subject of this report and have no personal interest or bias with respect to the parties involved. The engagement of American Appraisal Associates, Inc., and myself personally in this assignment and compensation for American Appraisal Associates, Inc., are not contingent on the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. The analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice and the Principles of Appraisal Practice and Code of Ethics of the American Society of Appraisers. I personally did not inspect the subject property. Stephen B. Spraberry, MAI provided significant real property appraisal assistance in the preparation of this report. -s- Alice MacQueen ----------------------------- Alice MacQueen Vice President, Real Estate Group Florida Certified General Real Estate Appraiser #RZ0002202 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA ALICE MacQUEEN VICE PRESIDENT AND PRINCIPAL, REAL ESTATE GROUP POSITION Alice MacQueen serves as a Vice President and Principal for the Dallas Real Estate Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Ms. MacQueen specializes in the appraisal of investment real estate and is annually involved in the valuation of several billion dollars of real property. The purposes of these valuations include allocation of purchase price, charitable donation, financing, purchase, sale, and syndication. She has also been involved in land planning analyses for major mixed-use developments. She has appraised various types of real estate including congregate care facilities, industrial properties, manufacturing facilities, office buildings, recreational subdivisions and planned unit developments, single- and multifamily residential properties, and shopping centers. Special-purpose properties she has appraised include campgrounds, churches, country clubs, golf courses, historic landmarks, proprietary cemeteries, and schools. In addition to market value opinions, Ms. MacQueen has provided feasibility and highest and best use studies. She has also been involved in several research projects, providing background studies involving major property tax appeal cases. These studies included the impact of inflation, rate of return considerations, sales-assessment ratio analyses, and the applicability of income capitalization to commercial and industrial properties. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA Ms. MacQueen has appraised real estate in 46 U.S. states, Mexico, and Puerto Rico. Business Ms. MacQueen joined AAA in 1983. She served as Regional Real Estate Director for the southeastern United States from 1987 to 1992 and as National Director of the Real Estate Valuation Group from 1992 through 1995, when she assumed her current position. Before joining the firm, she was involved in property management for five years and spent an additional five years as an appraiser, consultant, and research analyst. EDUCATION Realtors Institute of Virginia Greenbrier College for Women - Liberal Arts STATE State of Arizona, Certified General Real Estate Appraiser, CERTIFICATIONS #30987 State of Florida, Certified General Appraiser, #RZ0002202 State of Georgia, Certified General Real Property Appraiser, #239776 State of Minnesota, Certified General Real Property Appraiser, #AP-20144872 State of New Mexico, General Certified Appraiser, #001626-G State of Utah, State Certified General Appraiser, #CG00057001 PROFESSIONAL American Society of Appraisers, Candidate AFFILIATIONS AMERICAN APPRAISAL ASSOCIATES, INC. BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. BAYMEADOWS APARTMENTS, JACKSONVILLE, FLORIDA GENERAL SERVICE CONDITIONS The services(s) provided by AAA will be performed in accordance with professional appraisal standards. Our compensation is not contingent in any way upon our conclusions of value. We assume, without independent verification, the accuracy of all data provided to us. We will act as an independent contractor and reserve the right to use subcontractors. All files, workpapers or documents developed by us during the course of the engagement will be our property. We will retain this data for at least five years. Our report is to be used only for the specific purpose stated herein; and any other use is invalid. No reliance may be made by any third party without our prior written consent. You may show our report in its entirety to those third parties who need to review the information contained herein. No one should rely on our report as a substitute for their own due diligence. We understand that our reports will be described in public tender offer documents distributed to limited partners. We reserve the right to review the public tender offer documents prior to their issuance to confirm that disclosures of facts from the current appraisals are accurate. No reference to our name or our report, in whole or in part, in any other SEC filing or private placement memorandum you prepare and/or distribute to third parties may be made without our prior written consent. The Tender Offer Partnerships, as that term is defined in the Settlement Agreement, agree to indemnify and hold us harmless against and from any and all losses, claims, actions, damages, expenses or liabilities, including reasonable attorneys' fees, to which we may become subject in connection with this engagement except where such losses, claims, actions, damages, expenses or liabilities, including reasonable attorney's fees, arise or result from AAA's misconduct, bad faith or negligence. Co-Clients will not be liable for any of our acts or omissions. AAA is an equal opportunity employer.