EX-99.(C)(2) 4 d07276a2exv99wxcyx2y.txt APPRAISAL OF QUAIL RUN QUAIL RUN 3509 LAKE AVENUE COLUMBIA, SOUTH CAROLINA MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 27, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] JULY 3, 2003 Apartment Investment and Management Company ("AIMCO") c/o Mr. Steven A. Velkei, Esq. Liner Yankelevitz Sunshine & Regenstreif LLP 1100 Glendon Avenue, 14th Floor Los Angeles, California 90024-3503 Nuanes, et al. ("Plaintiffs") c/o Ms. Joy Kruse Lieff Cabraser Heimann & Bernstein Embarcadero Center West 275 Battery Street, 30th Floor San Francisco, California 94111 RE: QUAIL RUN 3509 LAKE AVENUE COLUMBIA, RICHLAND COUNTY, SOUTH CAROLINA In accordance with your authorization, we have completed the appraisal of the above-referenced property. This complete appraisal is intended to report our analysis and conclusions in a summary format. The subject property consists of an apartment project having 332 units with a total of 411,920 square feet of rentable area. The improvements were built in 1972. The improvements are situated on 34.45 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 93% occupied. It is our understanding the appraisal will be used by the clients to assist the San Mateo Superior Court in the settlement of litigation between the above mentioned clients. The appraisal is intended to conform to the Uniform Standards of Professional Appraisal Practice ("USPAP") as promulgated by the Appraisal Standards Board of the Appraisal Foundation and the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute. The appraisal is presented in a summary report, and the Departure Provision of USPAP has not been invoked in this appraisal. It is entirely inappropriate to use this value conclusion or the report for any purpose other than the one stated. AMERICAN APPRAISAL ASSOCIATES, INC. LETTER OF TRANSMITTAL PAGE 2 QUAIL RUN, COLUMBIA, SOUTH CAROLINA The opinions expressed in this appraisal cover letter can only be completely understood by reading the narrative report, addenda, and other data, which is attached. The appraisal is subject to the attached general assumptions and limiting conditions and general service conditions. As a result of our investigation, it is our opinion that the fee simple market value of the subject, effective May 27, 2003 is: ($17,400,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. /s/ Frank Fehribach ------------------- July 3, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group South Carolina Temporary Practice Permit #095-03 Report By: Jimmy Pat James, MAI South Carolina Temporary Practice Permit #103-03 Assisted By: David Johnsen, MAI AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 QUAIL RUN, COLUMBIA, SOUTH CAROLINA TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary.......................................................... 4 Introduction............................................................... 9 Area Analysis.............................................................. 11 Market Analysis............................................................ 14 Site Analysis ............................................................ 16 Improvement Analysis ...................................................... 16 Highest and Best Use ...................................................... 17 VALUATION Valuation Procedure........................................................ 18 Sales Comparison Approach.................................................. 20 Income Capitalization Approach ............................................ 26 Reconciliation and Conclusion ............................................. 38 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 QUAIL RUN, COLUMBIA, SOUTH CAROLINA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Quail Run LOCATION: 3509 Lake Avenue Columbia, South Carolina INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: Fee simple estate DATE OF VALUE: May 27, 2003 DATE OF REPORT: July 3, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 34.45 acres, or 1,500,642 square feet Assessor Parcel No.: R16712-04-02 Floodplain: Community Panel No. 45079C0115 G (January 19, 1994) Flood Zone X, an area outside the floodplain. Zoning: RG-2 (General Residential) BUILDING: No. of Units: 332 Units Total NRA: 411,920 Square Feet Average Unit Size: 1,241 Square Feet Apartment Density: 9.6 units per acre Year Built: 1972 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ------------------ Monthly Annual Unit Type Feet Per Unit Per SF Income Income --------- ------ -------- ------- ---------- ---------- 1Br/1Ba - 1A10 840 $ 590 $ 0.70 $ 18,880 $ 226,560 1Br/1.5Ba - 1A15 (TH) 870 $ 600 $ 0.69 $ 4,800 $ 57,600 1Br/1Ba -1B10 970 $ 590 $ 0.61 $ 11,800 $ 141,600 1Br/1.5Ba - 1B15 (Loft) 850 $ 590 $ 0.69 $ 4,720 $ 56,640 1Br/1Ba - 1C10 1,050 $ 600 $ 0.57 $ 24,000 $ 288,000 2Br/1.5Ba - 2A15 1,250 $ 650 $ 0.52 $ 13,000 $ 156,000 2Br/2Ba - 2A20 1,280 $ 725 $ 0.57 $ 84,100 $1,009,200 3Br/2Ba - 3 (A-B-C-20) 1,550 $ 840 $ 0.54 $ 73,080 $ 876,960 3Br/2Ba - 3 D-20 1,550 $ 1,099 $ 0.71 $ 1,099 $ 13,188 ------------------------------- Total $ 235,479 $2,825,748 ===============================
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 QUAIL RUN, COLUMBIA, SOUTH CAROLINA OCCUPANCY: 93% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 20 Years REMAINING ECONOMIC LIFE: 25 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] ENTRANCE TO QUAIL RUN STREET SCENE FACING WEST AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 QUAIL RUN, COLUMBIA, SOUTH CAROLINA NEIGHBORHOOD MAP [MAP] HIGHEST AND BEST USE: As Vacant: Hold for future multi-family development As Improved: Continuation as its current use METHOD OF VALUATION: In this instance, the Sales Comparison and Income Approaches to value were utilized. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7 QUAIL RUN, COLUMBIA, SOUTH CAROLINA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
Amount $/Unit ------ ------ DIRECT CAPITALIZATION Potential Rental Income $2,825,748 $8,511 Effective Gross Income $2,754,031 $8,295 Operating Expenses $1,193,462 $3,595 43.3% of EGI Net Operating Income: $1,477,569 $4,451 Capitalization Rate 8.50% DIRECT CAPITALIZATION VALUE $17,400,000 * $52,410 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 13% Stabilized Vacancy & Collection Loss: 9% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 10.00% Discount Rate 11.00% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $17,200,000 * $51,807 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $17,400,000 $52,410 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $32,862 to $56,667 Range of Sales $/Unit (Adjusted) $45,000 to $56,727 VALUE INDICATION - PRICE PER UNIT $17,300,000 * $52,108 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 4.91 to 6.68 Selected EGIM for Subject 6.25 Subject's Projected EGI $2,754,031 EGIM ANALYSIS CONCLUSION $17,200,000 * $51,807 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $16,600,000 * $50,000 / UNIT RECONCILED SALES COMPARISON VALUE $17,000,000 $51,205 / UNIT
----------------- * Value indications are after adjustments for concessions, deferred maintenance, excess land and lease-up costs, if any. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 8 QUAIL RUN, COLUMBIA, SOUTH CAROLINA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $17,300,000 NOI Per Unit $16,600,000 EGIM Multiplier $17,200,000 INDICATED VALUE BY SALES COMPARISON $17,000,000 $51,205 / UNIT INCOME APPROACH: Direct Capitalization Method: $17,400,000 Discounted Cash Flow Method: $17,200,000 INDICATED VALUE BY THE INCOME APPROACH $17,400,000 $52,410 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $17,400,000 $52,410 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 QUAIL RUN, COLUMBIA, SOUTH CAROLINA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 3509 Lake Avenue, Columbia, Richland County, South Carolina. Columbia identifies it as R16712-04-02. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by David Johnsen, MAI on May 27, 2003. Jimmy Pat James, MAI and Frank Fehribach, MAI have not made a personal inspection of the subject property. David Johnsen, MAI assisted Jimmy Pat James, MAI with the research, valuation analysis and writing the report. Frank Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach, MAI, Jimmy Pat James, MAI, and David Johnsen, 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 27, 2003. The date of the report is July 3, 2003. PURPOSE AND USE OF APPRAISAL The purpose of the appraisal is to estimate the market value of the fee simple interest in the subject property. It is understood that the appraisal is intended to assist the clients in litigation settlement proceedings. The appraisal was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. PROPERTY RIGHTS APPRAISED We have appraised the Fee Simple Estate in the subject property (as applied in the Sales & AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 QUAIL RUN, COLUMBIA, SOUTH CAROLINA Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is defined in The Dictionary of Real Estate Appraisal, 3rd ed. (Chicago: Appraisal Institute, 1993), as: "Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat." MARKETING/EXPOSURE PERIOD MARKETING PERIOD: 6 to 12 months EXPOSURE PERIOD: 6 to 12 months HISTORY OF THE PROPERTY Ownership in the subject property is currently vested in Quail Run IV Ltd. Partnership. To the best of our knowledge, no transfers of ownership or offers to purchase the subject are known to have occurred during the past three years. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 11 QUAIL RUN, COLUMBIA, SOUTH CAROLINA AREA / NEIGHBORHOOD ANALYSIS NEIGHBORHOOD ANALYSIS A neighborhood is a group of complementary land uses. The function of the neighborhood analysis is to describe the immediate surrounding environs. The subject is located in the city of Columbia, South Carolina. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - I-77 West - North Trenholm Road South - Route 12 North - Decker Boulevard MAJOR EMPLOYERS Major employers in the subject's area include Fort Jackson (US Army) and the University of South Carolina School of Medicine. Downtown Columbia is within a twenty minute drive of the subject property.. The overall economic outlook for the area is considered favorable. DEMOGRAPHICS We have reviewed demographic data within the neighborhood. The following table summarizes the key data points. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 12 QUAIL RUN, COLUMBIA, SOUTH CAROLINA NEIGHBORHOOD DEMOGRAPHICS
AREA ---------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA -------- ------------ ------------ ------------ --- POPULATION TRENDS Current Population 6,619 49,228 137,284 551,370 5-Year Population 6,376 49,022 136,264 589,900 % Change CY-5Y -3.7% -0.4% -0.7% 7.0% Annual Change CY-5Y -0.7% -0.1% -0.1% 1.4% HOUSEHOLDS Current Households 2,109 18,069 53,816 211,176 5-Year Projected Households 1,986 18,473 55,159 232,278 % Change CY - 5Y -5.8% 2.2% 2.5% 10.0% Annual Change CY-5Y -1.2% 0.4% 0.5% 2.0% INCOME TRENDS Median Household Income $ 39,562 $ 40,669 $ 34,827 $ 40,596 Per Capita Income $ 23,636 $ 23,433 $ 21,388 $ 21,559 Average Household Income $ 71,737 $ 64,066 $ 54,795 $ 56,291
Source: Demographics Now The subject neighborhood's population is expected to show increases below that of the region. The immediate market offers inferior income levels as compared to the broader market. The following table illustrates the housing statistics in the subject's immediate area, as well as the MSA region. HOUSING TRENDS
AREA --------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA -------- ------------ ------------ ------------ --- HOUSING TRENDS % of Households Renting 40.48% 34.14% 41.55% 29.64% 5-Year Projected % Renting 36.77% 34.28% 42.02% 29.06% % of Households Owning 47.33% 59.41% 51.31% 63.62% 5-Year Projected % Owning 50.61% 59.50% 51.07% 64.71%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 QUAIL RUN, COLUMBIA, SOUTH CAROLINA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Single-family South - Multi-family East - I-77 West - Single-family CONCLUSIONS The subject is well located within the city of Columbia. The neighborhood is characterized as being mostly suburban in nature and is currently in the stable stage of development. The economic outlook for the neighborhood is judged to be favorable with a good economic base. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 14 QUAIL RUN, COLUMBIA, SOUTH CAROLINA MARKET ANALYSIS The subject property is located in the city of Columbia in Richland County. The overall pace of development in the subject's market is more or less stable. There are no new apartment projects in the vicinity of the subject property. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket ------ ------ --------- Oct. '00 8.4% 10.7% April '01 8.4% 8.5% Oct. '01 9.2% 7.7% April '02 8.7% 6.8% Oct. '02 8.0% 6.7%
Source: Carolina's Real Data Occupancy trends in the subject's market are a increasing. Historically speaking, the subject's submarket has outperformed the overall market. This market has been exhibiting a decrease in the overall vacancy rate. The East Columbia submarket contains 6,448 apartment units, representing 26.2% of the overall Columbia market. 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 ------ ------ -------- --------- -------- Oct. '00 $595 - $649 - April '01 $601 1.0% $655 0.9% Oct. '01 $613 2.0% $664 1.4% April '02 $619 1.0% $673 1.4% Oct. '02 $624 0.8% $679 0.9%
Source: Carolina's Real Data The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 QUAIL RUN, COLUMBIA, SOUTH CAROLINA COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject --- ------------- ----- ----- ---------- -------------------- R-1 42 Magnolia 196 98% 1993 1 mile west of the subject R-2 Pines at Forest Lake 312 82% 1970 1/2 mile west of the subject R-3 Wellesley Place 100 90% 1975 1 mile north of the subject R-4 Hunt Club Village 200 90% 1986 2 miles north of the subject R-5 The Chimneys at Brookfield 259 93% 1974 4 miles west of the subject Subject Quail Run 332 93% 1972
Overall, this submarket displays higher average rental rates when compared to the overall market. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 QUAIL RUN, COLUMBIA, SOUTH CAROLINA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 34.45 acres, or 1,500,642 square feet Shape Irregular Topography Slightly slope Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Good Flood Zone: Community Panel 45079C0115 G, dated January 19, 1994 Flood Zone Zone X Zoning RG-2, the subject improvements represent a legal conforming use of the site.
REAL ESTATE TAXES
ASSESSED VALUE - 2002 --------------------------------------- TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES ------------- ---------- ---------- ----------- --------- -------- R16712-04-02 $1,205,750 $9,454,097 $10,659,847 0.02065 $220,077
IMPROVEMENT ANALYSIS Year Built 1972 Number of Units 332 Net Rentable Area 411,920 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, tennis court, laundry room, business office, and parking area. Unit Amenities Individual unit amenities include a balcony, cable TV connection, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, water heater, garbage disposal, washer/dryer, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 QUAIL RUN, COLUMBIA, SOUTH CAROLINA Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) ----------------------------------------------------- 1Br/1Ba - 1A10 32 840 1Br/1.5Ba - 1A15 (TH) 8 870 1Br/1Ba -1B10 20 970 1Br/1.5Ba - 1B15 (Loft) 8 850 1Br/1Ba - 1C10 40 1,050 2Br/1.5Ba - 2A15 20 1,250 2Br/2Ba - 2A20 116 1,280 3Br/2Ba - 3 (A-B-C-20) 87 1,550 3Br/2Ba - 3 D-20 1 1,550
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 332-unit multifamily project. The highest and best use as improved is for a continued multifamily use. Overall, the highest and best use of the subject property is the continued use of the existing apartment project. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 18 QUAIL RUN, COLUMBIA, SOUTH CAROLINA THE VALUATION PROCEDURE There are three traditional approaches, which can be employed in establishing the market value of the subject property. These approaches and their applicability to the valuation of the subject are summarized as follows: THE COST APPROACH The application of the Cost Approach is based on the principle of substitution. This principle may be stated as follows: no one is justified in paying more for a property than that amount by which he or she can obtain, by purchase of a site and construction of a building, without undue delay, a property of equal desirability and utility. In the case of a new building, no deficiencies in the building should exist. In the case of income-producing real estate, the cost of construction plays a minor and relatively insignificant role in determining market value. The Cost Approach is typically only a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) where the cost of reproducing the improvements is easily and accurately quantified and there is no economic obsolescence. In all instances, the issue of an appropriate entrepreneurial profit - the reward for undertaking the risk of construction, remains a highly subjective factor especially in a market lacking significant speculative development. THE SALES COMPARISON APPROACH The Sales Comparison Approach is an estimate of value based upon a process of comparing recent sales of similar properties in the surrounding or competing areas to the subject property. Inherent in this approach is the principle of substitution. The application of this approach consists of comparing the subject property with similar properties of the same general type which have been sold recently or currently are available for sale in competing areas. This comparative process involves judgment as to the similarity of the subject property and the comparable sale with respect to many value factors such as location, contract rent levels, quality of construction, reputation and prestige, age and condition, among others. The estimated value through this approach represents the probable price at which a willing seller would sell the subject property to a willing and knowledgeable buyer as of the date of value. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 19 QUAIL RUN, COLUMBIA, SOUTH CAROLINA THE INCOME CAPITALIZATION APPROACH The theory of the Income Capitalization Approach is based on the premise that present value is the value of the cash flow and reversionary value the property will produce over a reasonable holding (ownership) period. The Discounted Cash Flow Analysis will convert equity cash flows (including cash flows and equity reversion) into a present value utilizing an internal rate of return (or discount rate). The Internal Rate of Return (IRR) will be derived from a comparison of alternate investments, a comparative analysis of IRR's used by recent buyers of similar properties, and a review of published industry surveys. The Direct Capitalization Analysis converts one year of income into an overall value using overall capitalization rates from similar sales. The overall rates take into consideration buyers assumptions of the market over the long-term. The results of the Income Capitalization Analysis are usually the primary value indicator for income producing properties. Investors expect a reasonable rate of return on their equity investment based on the ownership risks involved; this approach closely parallels the investment decision process. RECONCILIATION In this instance, we have completed the Sales Comparison and Income Capitalization Approaches to value. As an income producing property, the income approach is a primary approach to value. The Sales Comparison Approach is also considered reliable as investors are buying similar buildings in the market. Our research indicates that market participants are generally not buying, selling, investing, or lending with reliance placed on the methodology of the Cost Approach to establish the value. Therefore, we have decided that the Cost Approach is not a reliable indicator of value for the subject, and this approach has not been utilized. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 20 QUAIL RUN, COLUMBIA, SOUTH CAROLINA SALES COMPARISON APPROACH Use of market or comparable sales requires the collection and analysis of comparable sales data. Similar properties recently sold are compared to the subject and adjusted based on any perceived differences. This method is based on the premise that the costs of acquiring a substitute property would tend to establish a value for the subject property. The premise suggests that if a substitute is unavailable in the market, the reliability of the approach may be subordinate to the other approaches. The reliance on substitute properties produces shortcomings in the validity of this approach. Geographic and demographic characteristics from each submarket restrict which sales may be selected. Recent sales with a similar physical characteristics, income levels, and location are usually limited. The sales we have identified, however, do establish general valuation parameters as well as provide support to our conclusion derived through the income approach method. The standard unit of comparison among similar properties is the sales price per unit and price per square foot of net rentable area. To accurately adjust prices to satisfy the requirements of the sales comparison approach, numerous calculations and highly subjective judgments would be required including consideration of numerous income and expense details for which information may be unreliable or unknown. The sales price per unit and square foot are considered relevant to the investment decision, but primarily as a parameter against which value estimates derived through the income approach can be judged and compared. In examining the comparable sales, we have applied a subjective adjustment analysis, which includes specific adjustments derived from our experience and consulting with the market participants. SALES COMPARISON ANALYSIS Detailed on the following pages are sales transactions involving properties located in the subject's competitive investment market. Photographs of the sale transactions are located in the Addenda. Following the summary of sales is an adjustment grid that is used to arrive at a value. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21 QUAIL RUN, COLUMBIA, SOUTH CAROLINA SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE DESCRIPTION SUBJECT I - 1 ---------------------------------------------------------------------------------------------------------- Property Name Quail Run Raintree LOCATION: Address 3509 Lake Avenue 3500 Fernandina Road City, State Columbia, South Carolina Columbia, SC County Richland Lexington PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 411,920 148,380 Year Built 1972 1972 Number of Units 332 138 Unit Mix: Type Total Type Total 1Br/1Ba - 1A10 32 1Br/1Ba 20 1Br/1.5Ba - 1A15 (TH) 8 1Br/1.5Ba 12 1Br/1Ba -1B10 20 2Br/1.5Ba 100 1Br/1.5Ba - 1B15 (Loft) 8 3Br/2.5Ba 6 1Br/1Ba - 1C10 40 2Br/1.5Ba - 2A15 20 2Br/2Ba - 2A20 116 3Br/2Ba - 3 (A-B-C-20) 87 3Br/2Ba - 3 D-20 1 Average Unit Size (SF) 1,241 1,075 Land Area (Acre) 34.4500 7.7700 Density (Units/Acre) 9.6 17.8 Parking Ratio (Spaces/Unit) 0.00 N/A Parking Type (Gr., Cov., etc.) Open Open CONDITION: Good Good APPEAL: Good Good AMENITIES: Pool/Spa Yes/No Yes/No Gym Room No No Laundry Room Yes Yes Secured Parking No No Sport Courts No No Washer/Dryer Connection Yes Yes OCCUPANCY: 93% 91% TRANSACTION DATA: Sale Date January, 2002 Sale Price ($) $4,535,000 Grantor Raintree Garden Associates Grantee Fernandina Properties Sale Documentation Book 6944, Page 80 Verification Lexington County Records Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF -------------------------------------------------------------------------------------------------------- Potential Gross Income $1,015,373 $7,358 $6.84 Vacancy/Credit Loss $ 91,384 $ 662 $0.62 ---------------------------- Effective Gross Income $ 923,989 $6,696 $6.23 Operating Expenses $ 483,000 $3,500 $3.26 ---------------------------- Net Operating Income $ 440,989 $3,196 $2.97 -------------------------------------------------------------------------------------------------------- NOTES: None PRICE PER UNIT $32,862 PRICE PER SQUARE FOOT $ 30.56 EXPENSE RATIO 52.3% EGIM 4.91 OVERALL CAP RATE 9.72% Cap Rate based on Pro Forma or Actual Income? PRO FORMA COMPARABLE COMPARABLE DESCRIPTION I - 2 I - 3 --------------------------------------------------------------------------------------------------------- Property Name Ashton at Longcreek Stoneycreek LOCATION: Address 1401 Longcreek Drive 18 Berry Hill Road City, State Columbia, SC Columbia, SC County Richland Lexington PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 220,100 183,724 Year Built 1974 1969 Number of Units 220 196 Unit Mix: Type Total Type Total 1Br/1Ba 64 1Br/1Ba 88 2Br/2Ba 140 2Br/1.5Ba 8 3Br/2Ba 16 2Br/2Ba 100 Average Unit Size (SF) 1,000 937 Land Area (Acre) 13.0200 10.5700 Density (Units/Acre) 16.9 18.5 Parking Ratio (Spaces/Unit) N/A N/A Parking Type (Gr., Cov., etc.) Open Open CONDITION: Good Good APPEAL: Good Good AMENITIES: Pool/Spa Yes/No Yes/No Gym Room No No Laundry Room Yes Yes Secured Parking No No Sport Courts No No Washer/Dryer Connection Yes Yes OCCUPANCY: 93% 96% TRANSACTION DATA: Sale Date February, 2001 February, 2001 Sale Price ($) $9,600,000 $7,249,000 Grantor Intermark Associates, II Intermark Associates Grantee AHF-Ahston and Stoneycreek AHF-Ashton and Stoneycreek LLC LLC Sale Documentation Book R0483, Page 2162 Book 6191, Page 182 Verification Richland County Records Lexington County Records Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF ------------------------------------------------------------------------------------------------------ Potential Gross Income $1,544,592 $7,021 $7.02 $1,318,608 $6,728 $7.18 Vacancy/Credit Loss $ 108,121 $ 491 $0.49 $ 65,930 $ 336 $0.36 ------------------------------ ---------------------------- Effective Gross Income $1,436,471 $6,529 $6.53 $1,252,678 $6,391 $6.82 Operating Expenses $ 660,800 $3,004 $3.00 $ 632,932 $3,229 $3.45 ----------------------------------------------------------- Net Operating Income $ 775,671 $3,526 $3.52 $ 619,746 $3,162 $3.37 ------------------------------------------------------------------------------------------------------- NOTES: None None PRICE PER UNIT $43,636 $36,985 PRICE PER SQUARE FOOT $ 43.62 $ 39.46 EXPENSE RATIO 46.0% 50.5% EGIM 6.68 5.79 OVERALL CAP RATE 8.08% 8.55% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA COMPARABLE COMPARABLE DESCRIPTION I - 4 I - 5 --------------------------------------------------------------------------------------------------------- Property Name St. Andrews Broad River Trace LOCATION: Address 601 St. Andrews Road 551 River Hill Circle City, State Columbia, SC Columbia, SC County Lexington Richland PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 255,650 257,340 Year Built 1973 1998 Number of Units 224 240 Unit Mix: Type Total Type Total 1Br/1Ba 40 1Br/1Ba 84 2Br/1.5Ba 64 2Br/2Ba 120 2Br/2Ba 88 3Br/2Ba 36 3Br/2Ba 32 Average Unit Size (SF) 1,141 1,072 Land Area (Acre) 16.8600 38.7400 Density (Units/Acre) 13.3 6.2 Parking Ratio (Spaces/Unit) N/A N/A Parking Type (Gr., Cov., etc.) Open Garage, Open CONDITION: Good Excellent APPEAL: Good Excellent AMENITIES: Pool/Spa Yes/No Yes/Yes Gym Room No Yes Laundry Room Yes Yes Secured Parking No Yes Sport Courts Yes Yes Washer/Dryer Connection Yes Yes OCCUPANCY: 90% 97% TRANSACTION DATA: Sale Date September, 2000 April, 2000 Sale Price ($) $8,000,000 $13,600,000 Grantor Alliance GT4 LP Broad River Trace, LLC Grantee UDR South Carolina Trust SG Broad River Trace-Cola LLC Sale Documentation Book 6014, Page 2 Book R0403, Page 1489 Verification Lexington County Records Richland County Records Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF -------------------------------------------------------------------------------------------------------- Potential Gross Income $1,745,280 $7,791 $6.83 $2,163,600 $9,015 $8.41 Vacancy/Credit Loss $ 174,528 $ 779 $0.68 $ 108,130 $ 451 $0.42 ------------------------------------------------------------ Effective Gross Income $1,570,752 $7,012 $6.14 $2,055,470 $8,564 $7.99 Operating Expenses $ 785,376 $3,506 $3.07 $ 839,477 $3,498 $3.26 ------------------------------------------------------------ Net Operating Income $ 785,376 $3,506 $3.07 $1,215,993 $5,067 $4.73 -------------------------------------------------------------------------------------------------------- NOTES: None None PRICE PER UNIT $35,714 $56,667 PRICE PER SQUARE FOOT $ 31.29 $ 52.85 EXPENSE RATIO 50.0% 40.8% EGIM 5.09 6.62 OVERALL CAP RATE 9.82% 8.94% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 QUAIL RUN, COLUMBIA, SOUTH CAROLINA IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $32,862 to $56,667 per unit. Adjustments have been made to the sales to reflect differences in location, age/condition and quality/appeal. Generally speaking, larger properties typically have a lower price per unit when compared to smaller properties, all else being equal. Similarly, those projects with a higher average unit size will generally have a higher price per unit. After appropriate adjustments are made, the improved sales demonstrate an adjusted range for the subject from $45,000 to $56,727 per unit with a mean or average adjusted price of $51,558 per unit. The median adjusted price is $51,922 per unit. Based on the following analysis, we have concluded to a value of $52,000 per unit, which results in an "as is" value of $17,300,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 QUAIL RUN, COLUMBIA, SOUTH CAROLINA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ----------- ------- ----- ----- Property Name Quail Run Raintree Ashton at Longcreek Address 3509 Lake Avenue 3500 Fernandina Road 1401 Longcreek Drive City Columbia, South Carolina Columbia, SC Columbia, SC Sale Date January, 2002 February, 2001 Sale Price ($) $4,535,000 $9,600,000 Net Rentable Area (SF) 411,920 148,380 220,100 Number of Units 332 138 220 Price Per Unit $32,862 $43,636 Year Built 1972 1972 1974 Land Area (Acre) 34.4500 7.7700 13.0200 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 01-2002 0% 02-2001 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $32,862 $43,636 Location Inferior 30% Inferior 10% Number of Units 332 138 0% 220 0% Quality / Appeal Good Inferior 20% Inferior 10% Age / Condition 1972 1972 / Good 0% 1974 / Good 0% Occupancy at Sale 93% 91% 0% 93% 0% Amenities Good Inferior 5% Inferior 5% Average Unit Size (SF) 1,241 1,075 3% 1,000 5% PHYSICAL ADJUSTMENT 58% 30% FINAL ADJUSTED VALUE ($/UNIT) $51,922 $56,727 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 ----------- ----- ----- ----- Property Name Stoneycreek St. Andrews Broad River Trace Address 18 Berry Hill Road 601 St. Andrews Road 551 River Hill Circle City Columbia, SC Columbia, SC Columbia, SC Sale Date February, 2001 September, 2000 April, 2000 Sale Price ($) $7,249,000 $8,000,000 $13,600,000 Net Rentable Area (SF) 183,724 255,650 257,340 Number of Units 196 224 240 Price Per Unit $36,985 $35,714 $56,667 Year Built 1969 1973 1998 Land Area (Acre) 10.5700 16.8600 38.7400 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 02-2001 0% 09-2000 5% 04-2000 5% VALUE AFTER TRANS. ADJUST. ($/UNIT) $36,985 $37,500 $59,500 Location Inferior 10% Comparable 0% Inferior 10% Number of Units 196 0% 224 0% 240 0% Quality / Appeal Inferior 20% Inferior 20% Superior -10% Age / Condition 1969 / Good 0% 1973 / Good 0% 1998 / Excellent -10% Occupancy at Sale 96% 0% 90% 0% 97% 0% Amenities Inferior 5% Comparable 0% Superior -5% Average Unit Size (SF) 937 5% 1,141 0% 1,072 3% PHYSICAL ADJUSTMENT 40% 20% -12% FINAL ADJUSTED VALUE ($/UNIT) $51,779 $45,000 $52,360
SUMMARY VALUE RANGE (PER UNIT) $45,000 TO $ 56,727 MEAN (PER UNIT) $51,558 MEDIAN (PER UNIT) $51,922 VALUE CONCLUSION (PER UNIT) $52,000 VALUE INDICATED BY SALES COMPARISON APPROACH $17,264,000 ROUNDED $17,300,000
NET OPERATING INCOME (NOI) ANALYSIS We have also conducted a net operating income (NOI) comparison analysis. The NOI effectively takes into account the various physical, location, and operating aspects of the sale. When the subject's NOI is compared to the sale NOI, a percent adjustment can be arrived at. The following table illustrates this analysis. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24 QUAIL RUN, COLUMBIA, SOUTH CAROLINA 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-1 138 $ 4,535,000 9.72% $ 440,989 $ 1,477,569 1.393 $ 45,768 $ 32,862 $ 3,196 $ 4,451 I-2 220 $ 9,600,000 8.08% $ 775,671 $ 1,477,569 1.262 $ 55,081 $ 43,636 $ 3,526 $ 4,451 I-3 196 $ 7,249,000 8.55% $ 619,746 $ 1,477,569 1.408 $ 52,056 $ 36,985 $ 3,162 $ 4,451 I-4 224 $ 8,000,000 9.82% $ 785,376 $ 1,477,569 1.269 $ 45,334 $ 35,714 $ 3,506 $ 4,451 I-5 240 $13,600,000 8.94% $ 1,215,993 $ 1,477,569 0.878 $ 49,776 $ 56,667 $ 5,067 $ 4,451
PRICE/UNIT ------------------------------------------ Low High Average Median ------------------------------------------- $ 45,334 $ 55,081 $ 49,603 $ 49,776
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT ------------------------------------------------ Estimated Price $ 50,000 ----------- Number of Units 332 ----------- Value Based on NOI Analysis $16,600,000 Rounded $16,600,000
The adjusted sales indicate a range of value between $45,334 and $55,081 per unit, with an average of $49,603 per unit. Based on the subject's competitive position within the improved sales, a value of $50,000 per unit is estimated. This indicates an "as is" market value of $16,600,000 (rounded after necessary adjustment, if any) for the NOI Per Unit Analysis. EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS The effective gross income multiplier (EGIM) is derived by dividing the sales price by the total effective gross income. The following table illustrates the EGIMs for the comparable improved sales. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25 QUAIL RUN, COLUMBIA, SOUTH CAROLINA 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-1 138 $ 4,535,000 $ 923,989 $ 483,000 52.27% 4.91 $ 32,862 I-2 220 $ 9,600,000 $ 1,436,471 $ 660,800 46.00% 6.68 $ 43,636 I-3 196 $ 7,249,000 $ 1,252,678 $ 632,932 50.53% 43.34% 5.79 $ 36,985 I-4 224 $ 8,000,000 $ 1,570,752 $ 785,376 50.00% 5.09 $ 35,714 I-5 240 $13,600,000 $ 2,055,470 $ 839,477 40.84% 6.62 $ 56,667
EGIM Low High Average Median 4.91 6.68 5.82 5.79
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 6.25 ----------- Subject EGI $ 2,754,031 ----------- Value Based on EGIM Analysis $17,212,692 Rounded $17,200,000 Value Per Unit $ 51,807
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 43.34% before reserves. The comparable sales indicate a range of expense ratios from 40.84% to 52.27%, while their EGIMs range from 4.91 to 6.68. Overall, we conclude to an EGIM of 6.25, which results in an "as is" value estimate in the EGIM Analysis of $17,200,000. 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 $17,000,000. Price Per Unit $17,300,000 NOI Per Unit $16,600,000 EGIM Analysis $17,200,000 Sales Comparison Conclusion $17,000,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 QUAIL RUN, COLUMBIA, SOUTH CAROLINA INCOME CAPITALIZATION APPROACH The income capitalization approach is based on the premise that value is created by the expectation of future benefits. We estimated the present value of those benefits to derive an indication of the amount that a prudent, informed purchaser-investor would pay for the right to receive them as of the date of value. This approach requires an estimate of the NOI of a property. The estimated NOI is then converted to a value indication by use of either the direct capitalization or the discounted cash flow analysis (yield capitalization). Direct capitalization uses a single year's stabilized NOI as a basis for a value indication by dividing the income by a capitalization rate. The rate chosen accounts for a recapture of the investment by the investor and should reflect all factors that influence the value of the property, such as tenant quality, property condition, neighborhood change, market trends, interest rates, and inflation. The rate may be extracted from local market transactions or, when transaction evidence is lacking, obtained from trade sources. A discounted cash flow analysis focuses on the operating cash flows expected from the property and the proceeds of a hypothetical sale at the end of a holding period (the reversion). The cash flows and reversion are discounted to their present values using a market-derived discount rate and are added together to obtain a value indication. Because benefits to be received in the future are worth less than the same benefits received in the present, this method weights income in the early years more heavily than the income and the sale proceeds to be received later. The strength of the discounted cash flow method is its ability to recognize variations in projected net income, such as those caused by inflation, stepped leases, neighborhood change, or tenant turnover. Its weakness is that it requires many judgments regarding the actions of likely buyers and sellers of the property in the future. In some situations, both methods yield a similar result. The discounted cash flow method is typically more appropriate for the analysis of investment properties with multiple or long-term leases, particularly leases with cancellation clauses or renewal options. It is especially useful for multi-tenant properties in volatile markets. The direct capitalization AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27 QUAIL RUN, COLUMBIA, SOUTH CAROLINA method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
Average Unit Area ------------------- Unit Type (Sq. Ft.) Per Unit Per SF %Occupied ------------------------------------------------------------------- 1Br/1Ba - 1A10 840 $ 557 $ 0.66 84.4% 1Br/1.5Ba - 1A15 (TH) 870 $ 584 $ 0.67 100.0% 1Br/1Ba -1B10 970 $ 560 $ 0.58 80.0% 1Br/1.5Ba - 1B15 (Loft) 850 $ 596 $ 0.70 87.5% 1Br/1Ba - 1C10 1050 $ 563 $ 0.54 95.0% 2Br/1.5Ba - 2A15 1250 $ 619 $ 0.50 80.0% 2Br/2Ba - 2A20 1280 $ 684 $ 0.53 100.0% 3Br/2Ba - 3 (A-B-C-20) 1550 $ 828 $ 0.53 92.0% 3Br/2Ba - 3 D-20 1550 $1,099 $ 0.71 100.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 QUAIL RUN, COLUMBIA, SOUTH CAROLINA RENT ANALYSIS
COMPARABLE RENTS ---------------------------------------------------------- R-1 R-2 R-3 R-4 R-5 ---------------------------------------------------------- The Pines at Wellesley Hunt Club Chimneys at 42 Magnolia Forest Lake Place Village Brookfield ---------------------------------------------------------- SUBJECT SUBJECT COMPARISON TO SUBJECT SUBJECT UNIT ACTUAL ASKING ---------------------------------------------------------- DESCRIPTION TYPE RENT RENT Superior Inferior Inferior Similar Inferior ------------------------------------------------------------------------------------------------------------------------ Monthly Rent 1Br/1Ba - 1A10 $ 557 $ 609 $ 763 $ 489 $ 525 $ 560 $ 497 Unit Area (SF) 840 840 741 700 1,000 750 929 Monthly Rent Per Sq. Ft. $ 0.66 $ 0.73 $ 1.03 $ 0.70 $ 0.53 $ 0.75 $ 0.53 Monthly Rent 1Br/1.5Ba - $ 584 $ 629 Unit Area (SF) 1A15 (TH) 870 870 Monthly Rent Per Sq. Ft. $ 0.67 $ 0.72 Monthly Rent 1Br/1Ba -1B10 $ 560 $ 609 Unit Area (SF) 970 970 Monthly Rent Per Sq. Ft. $ 0.58 $ 0.63 Monthly Rent 1Br/1.5Ba - 1B15 $ 596 $ 629 Unit Area (SF) (LOFT) 850 850 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.74 Monthly Rent 1Br/1Ba - 1C10 $ 563 $ 619 Unit Area (SF) 1,050 1,050 Monthly Rent Per Sq. Ft. $ 0.54 $ 0.59 Monthly Rent 2Br/1.5Ba - $ 619 $ 729 $ 529 $ 610 $ 580 Unit Area (SF) 2A15 1,250 1,250 800 1,000 950 Monthly Rent Per Sq. Ft. $ 0.50 $ 0.58 $ 0.66 $ 0.61 $ 0.61 Monthly Rent 2Br/2Ba - 2A20 $ 684 $ 739 $ 913 $ 625 $ 650 $ 588 Unit Area (SF) 1,280 1,280 1,017 1,250 1,100 1,111 Monthly Rent Per Sq. Ft. $ 0.53 $ 0.58 $ 0.90 $ 0.50 $ 0.59 $ 0.53 Monthly Rent 3Br/2Ba - 3 (A-B $ 828 $ 849 $1,450 $ 642 $ 725 $ 770 $ 699 Unit Area (SF) C-20) 1,550 1,550 1,485 1,015 1,550 1,200 1,291 Monthly Rent Per Sq. Ft. $ 0.53 $ 0.55 $ 0.98 $ 0.63 $ 0.47 $ 0.64 $ 0.54 Monthly Rent 3Br/2Ba - 3 D-20 $ 1,099 $ 1,099 Unit Area (SF) 1,550 1,550 Monthly Rent Per Sq. Ft. $ 0.71 $ 0.71 DESCRIPTION MIN MAX MEDIAN AVERAGE ------------------------------------------------------------- Monthly Rent $ 489 $ 763 $ 525 $ 567 Unit Area (SF) 700 1,000 750 824 Monthly Rent Per Sq. Ft. $ 0.53 $ 1.03 $ 0.70 $ 0.71 Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent $ 529 $ 610 $ 580 $ 573 Unit Area (SF) 800 1,000 950 917 Monthly Rent Per Sq. Ft. $ 0.61 $ 0.66 $ 0.61 $ 0.63 Monthly Rent $ 588 $ 913 $ 638 $ 694 Unit Area (SF) 1,017 1,250 1,106 1,119 Monthly Rent Per Sq. Ft. $ 0.50 $ 0.90 $ 0.56 $ 0.63 Monthly Rent $ 642 $ 1,450 $ 725 $ 857 Unit Area (SF) 1,015 1,550 1,291 1,308 Monthly Rent Per Sq. Ft. $ 0.47 $ 0.98 $ 0.63 $ 0.65 Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft.
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 QUAIL RUN, COLUMBIA, SOUTH CAROLINA GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area ------------------- Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income ---------------------------------------------------------------------------------------------------- 1Br/1Ba - 1A10 32 840 $ 590 $ 0.70 $ 18,880 $ 226,560 1Br/1.5Ba - 1A15 (TH) 8 870 $ 600 $ 0.69 $ 4,800 $ 57,600 1Br/1Ba - 1B10 20 970 $ 590 $ 0.61 $ 11,800 $ 141,600 1Br/1.5Ba - 1B15 (Loft) 8 850 $ 590 $ 0.69 $ 4,720 $ 56,640 1Br/1Ba - 1C10 40 1,050 $ 600 $ 0.57 $ 24,000 $ 288,000 2Br/1.5Ba - 2A15 20 1,250 $ 650 $ 0.52 $ 13,000 $ 156,000 2Br/2Ba - 2A20 116 1,280 $ 725 $ 0.57 $ 84,100 $1,009,200 3Br/2Ba - 3 (A-B-C-20) 87 1,550 $ 840 $ 0.54 $ 73,080 $ 876,960 3Br/2Ba - 3 D-20 1 1,550 $ 1,099 $ 0.71 $ 1,099 $ 13,188 Total $235,479 $2,825,748
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 30 QUAIL RUN, COLUMBIA, SOUTH CAROLINA SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 FISCAL YEAR 2003 ------------------------ ----------------------- ---------------------- ----------------------- ACTUAL ACTUAL ACTUAL MANAGEMENT BUDJECT ------------------------ ----------------------- ---------------------- ----------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT -------------------------------------------------------------------------------------------------------------------------------- Revenues Rental Income $2,715,420 $ 8,179 $2,780,225 $ 8,374 $2,721,458 $ 8,197 $2,738,500 $ 8,248 Vacancy $ 241,416 $ 727 $ 177,179 $ 534 $ 268,773 $ 810 $ 191,500 $ 577 Credit Loss/Concessions $ 137,467 $ 414 $ 168,017 $ 506 $ 92,140 $ 278 $ 44,940 $ 135 ----------------------------------------------------------------------------------------------------- Subtotal $ 378,883 $ 1,141 $ 345,196 $ 1,040 $ 360,913 $ 1,087 $ 236,440 $ 712 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 150,753 $ 454 $ 175,578 $ 529 $ 179,692 $ 541 $ 171,600 $ 517 ----------------------------------------------------------------------------------------------------- Subtotal Other Income $ 150,753 $ 454 $ 175,578 $ 529 $ 179,692 $ 541 $ 171,600 $ 517 ----------------------------------------------------------------------------------------------------- Effective Gross Income $2,487,290 $ 7,492 $2,610,607 $ 7,863 $2,540,237 $ 7,651 $2,673,660 $ 8,053 Operating Expenses Taxes $ 198,623 $ 598 $ 194,467 $ 586 $ 225,475 $ 679 $ 198,867 $ 599 Insurance $ 40,557 $ 122 $ 69,668 $ 210 $ 67,481 $ 203 $ 73,718 $ 222 Utilities $ 159,166 $ 479 $ 190,056 $ 572 $ 186,680 $ 562 $ 180,000 $ 542 Repair & Maintenance $ 379,031 $ 1,142 $ 319,777 $ 963 $ 276,583 $ 833 $ 294,000 $ 886 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 $ 79,807 $ 240 $ 26,875 $ 81 $ 30,563 $ 92 $ 19,500 $ 59 General Administrative $ 278,092 $ 838 $ 302,670 $ 912 $ 217,190 $ 654 $ 213,690 $ 644 Management $ 129,412 $ 390 $ 143,053 $ 431 $ 132,927 $ 400 $ 133,568 $ 402 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------------------------------------- Total Operating Expenses $1,264,688 $ 3,809 $1,246,566 $ 3,755 $1,136,899 $ 3,424 $1,113,343 $ 3,353 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------------------------------------- Net Income $1,222,602 $ 3,683 $1,364,041 $ 4,109 $1,403,338 $ 4,227 $1,560,317 $ 4,700 ----------------------------------------------------------------------------------------------------- ANNUALIZED 2003 ---------------------- PROJECTION AAA PROJECTION ---------------------- ---------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % ---------------------------------------------------------------------------------------- Revenues Rental Income $2,699,332 $ 8,131 $2,825,748 $ 8,511 100.0% Vacancy $ 428,096 $ 1,289 $ 169,545 $ 511 6.0% Credit Loss/Concessions $ 92,832 $ 280 $ 84,772 $ 255 3.0% -------------------------------------------------------------- Subtotal $ 520,928 $ 1,569 $ 254,317 $ 766 9.0% Laundry Income $ 0 $ 0 $ 0 $ 0 0.0% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 186,560 $ 562 $ 182,600 $ 550 6.5% -------------------------------------------------------------- Subtotal Other Income $ 186,560 $ 562 $ 182,600 $ 550 6.5% -------------------------------------------------------------- Effective Gross Income $2,364,964 $ 7,123 $2,754,031 $ 8,295 100.0% Operating Expenses Taxes $ 202,276 $ 609 $ 219,120 $ 660 8.0% Insurance $ 71,696 $ 216 $ 73,040 $ 220 2.7% Utilities $ 198,132 $ 597 $ 199,200 $ 600 7.2% Repair & Maintenance $ 201,088 $ 606 $ 298,800 $ 900 10.8% Cleaning $ 0 $ 0 $ 0 $ 0 0.0% Landscaping $ 0 $ 0 $ 0 $ 0 0.0% Security $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 39,752 $ 120 $ 33,200 $ 100 1.2% General Administrative $ 230,468 $ 694 $ 232,400 $ 700 8.4% Management $ 118,892 $ 358 $ 137,702 $ 415 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0% -------------------------------------------------------------- Total Operating Expenses $1,062,304 $ 3,200 $1,193,462 $ 3,595 43.3% Reserves $ 0 $ 0 $ 83,000 $ 250 7.0% -------------------------------------------------------------- Net Income $1,302,660 $ 3,924 $1,477,569 $ 4,451 53.7% --------------------------------------------------------------
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 9% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 QUAIL RUN, COLUMBIA, SOUTH CAROLINA RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $250 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $250 per unit should be satisfactory in our reserves for replacement to cover future capital expenditures. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of the annual cash flows and discounts them, along with the expected equity reversion, to a present value. The present value of the cash flow is added to the present value of the reversion, resulting in a total property value. INVESTMENT CRITERIA Appropriate investment criteria will be derived for the subject based upon analysis of comparable sales and a survey of real estate investors. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 1ST QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES ------------------------------------------------- GOING-IN TERMINAL ------------------------------------------------- LOW HIGH LOW HIGH ------------------------------------------------- RANGE 6.00% 10.00% 7.00% 10.00% AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 QUAIL RUN, COLUMBIA, SOUTH CAROLINA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR --------- --------- ------ ---------- ----- I-1 Jan-02 91% $32,862 9.72% I-2 Feb-01 93% $43,636 8.08% I-3 Feb-01 96% $36,985 8.55% I-4 Sep-00 90% $35,714 9.82% I-5 Apr-00 97% $56,667 8.94% High 9.82% Low 8.08% Average 9.02%
Based on this information, we have concluded the subject's overall capitalization rate should be 8.50%. 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 10.00%. 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 11.00%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 11.00% indicates a value of $17,200,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 QUAIL RUN, COLUMBIA, SOUTH CAROLINA approximately 40% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 QUAIL RUN, COLUMBIA, SOUTH CAROLINA DISCOUNTED CASH FLOW ANALYSIS
QUAIL RUN ---------------------------------------------------------------------------------------------------------------------------- YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 ---------------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 2,825,748 $ 2,910,520 $ 2,997,836 $ 3,087,771 $ 3,180,404 $ 3,275,816 Vacancy $ 169,545 $ 174,631 $ 179,870 $ 185,266 $ 190,824 $ 196,549 Credit Loss $ 84,772 $ 87,316 $ 89,935 $ 92,633 $ 95,412 $ 98,274 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------------- Subtotal $ 254,317 $ 261,947 $ 269,805 $ 277,899 $ 286,236 $ 294,823 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 182,600 $ 188,078 $ 193,720 $ 199,532 $ 205,518 $ 211,683 -------------------------------------------------------------------------------------- Subtotal Other Income $ 182,600 $ 188,078 $ 193,720 $ 199,532 $ 205,518 $ 211,683 -------------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $ 2,754,031 $ 2,836,652 $ 2,921,751 $ 3,009,404 $ 3,099,686 $ 3,192,676 OPERATING EXPENSES: Taxes $ 219,120 $ 225,694 $ 232,464 $ 239,438 $ 246,621 $ 254,020 Insurance $ 73,040 $ 75,231 $ 77,488 $ 79,813 $ 82,207 $ 84,673 Utilities $ 199,200 $ 205,176 $ 211,331 $ 217,671 $ 224,201 $ 230,927 Repair & Maintenance $ 298,800 $ 307,764 $ 316,997 $ 326,507 $ 336,302 $ 346,391 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 33,200 $ 34,196 $ 35,222 $ 36,279 $ 37,367 $ 38,488 General Administrative $ 232,400 $ 239,372 $ 246,553 $ 253,950 $ 261,568 $ 269,415 Management $ 137,702 $ 141,833 $ 146,088 $ 150,470 $ 154,984 $ 159,634 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 1,193,462 $ 1,229,265 $ 1,266,143 $ 1,304,128 $ 1,343,251 $ 1,383,549 Reserves $ 83,000 $ 85,490 $ 88,055 $ 90,696 $ 93,417 $ 96,220 -------------------------------------------------------------------------------------- NET OPERATING INCOME $ 1,477,569 $ 1,521,896 $ 1,567,553 $ 1,614,580 $ 1,663,017 $ 1,712,908 ====================================================================================== Operating Expense Ratio (% of EGI) 43.3% 43.3% 43.3% 43.3% 43.3% 43.3% Operating Expense Per Unit $ 3,595 $ 3,703 $ 3,814 $ 3,928 $ 4,046 $ 4,167 ====================================================================================== QUAIL RUN -------------------------------------------------------------------------------------------------------------- YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 -------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 3,374,091 $ 3,475,314 $ 3,579,573 $ 3,686,960 $ 3,797,569 Vacancy $ 202,445 $ 208,519 $ 214,774 $ 221,218 $ 227,854 Credit Loss $ 101,223 $ 104,259 $ 107,387 $ 110,609 $ 113,927 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------- Subtotal $ 303,668 $ 312,778 $ 322,162 $ 331,826 $ 341,781 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 218,034 $ 224,575 $ 231,312 $ 238,252 $ 245,399 ----------------------------------------------------------------------- Subtotal Other Income $ 218,034 $ 224,575 $ 231,312 $ 238,252 $ 245,399 ----------------------------------------------------------------------- EFFECTIVE GROSS INCOME $ 3,288,457 $ 3,387,110 $ 3,488,724 $ 3,593,385 $ 3,701,187 OPERATING EXPENSES: Taxes $ 261,641 $ 269,490 $ 277,575 $ 285,902 $ 294,479 Insurance $ 87,214 $ 89,830 $ 92,525 $ 95,301 $ 98,160 Utilities $ 237,855 $ 244,991 $ 252,341 $ 259,911 $ 267,708 Repair & Maintenance $ 356,783 $ 367,486 $ 378,511 $ 389,866 $ 401,562 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 39,643 $ 40,832 $ 42,057 $ 43,318 $ 44,618 General Administrative $ 277,498 $ 285,823 $ 294,397 $ 303,229 $ 312,326 Management $ 164,423 $ 169,356 $ 174,436 $ 179,669 $ 185,059 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 1,425,055 $ 1,467,807 $ 1,511,841 $ 1,557,197 $ 1,603,913 Reserves $ 99,106 $ 102,080 $ 105,142 $ 108,296 $ 111,545 ----------------------------------------------------------------------- NET OPERATING INCOME $ 1,764,295 $ 1,817,224 $ 1,871,740 $ 1,927,893 $ 1,985,729 ======================================================================= Operating Expense Ratio (% of EGI) 43.3% 43.3% 43.3% 43.3% 43.3% Operating Expense Per Unit $ 4,292 $ 4,421 $ 4,554 $ 4,690 $ 4,831 =======================================================================
Estimated Stabilized NOI $ 1,477,569 Sales Expense 2.00% Months to Stabilized 0 Discount Rate 11.00% Stabilized Occupancy 94.0% Terminal Cap Rate 10.00%
Gross Residual Sale Price $19,857,294 Deferred Maintenance $ 0 Less: Sales Expense $ 397,146 Add: Excess Land $ 0 ----------- Net Residual Sale $19,460,148 Other Adjustments $ 0 ----------- PV of Reversion $ 6,853,562 Value Indicated by "DCF" $17,211,427 Add: NPV of NOI $10,357,865 Rounded $17,200,000 ----------- PV Total $17,211,427
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ----------------------------------------------------------------------- TOTAL VALUE 10.50% 10.75% 11.00% 11.25% 11.50% --------------------------------------------------------------------------------------------------- 9.50% $18,155,284 $17,860,499 $17,572,141 $17,290,046 $17,014,058 9.75% $17,961,760 $17,671,300 $17,387,159 $17,109,180 $16,837,206 TERMINAL CAP RATE 10.00% $17,777,912 $17,491,560 $17,211,427 $16,937,357 $16,669,197 10.25% $17,603,033 $17,320,588 $17,044,267 $16,773,915 $16,509,384 10.50% $17,436,480 $17,157,758 $16,885,067 $16,618,257 $16,357,180
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 QUAIL RUN, COLUMBIA, SOUTH CAROLINA INCOME LOSS DURING LEASE-UP The subject is currently near or at a stabilized condition. Therefore, there is no income loss during lease-up at the subject property. CONCESSIONS Concessions have historically not been utilized at the subject property or in the subject's market. Therefore, no adjustment was included for concessions. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 8.50% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 QUAIL RUN, COLUMBIA, SOUTH CAROLINA QUAIL RUN
TOTAL PER SQ. FT. PER UNIT %OF EGI ----- ----------- -------- ------- REVENUE Base Rent $ 2,825,748 $ 6.86 $ 8,511 Less: Vacancy & Collection Loss 9.00% $ 254,317 $ 0.62 $ 766 Plus: Other Income Laundry Income $ 0 $ 0.00 $ 0 0.00% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 182,600 $ 0.44 $ 550 6.63% -------------------------------------------- Subtotal Other Income $ 182,600 $ 0.44 $ 550 6.63% EFFECTIVE GROSS INCOME $ 2,754,031 $ 6.69 $ 8,295 OPERATING EXPENSES: Taxes $ 219,120 $ 0.53 $ 660 7.96% Insurance $ 73,040 $ 0.18 $ 220 2.65% Utilities $ 199,200 $ 0.48 $ 600 7.23% Repair & Maintenance $ 298,800 $ 0.73 $ 900 10.85% Cleaning $ 0 $ 0.00 $ 0 0.00% Landscaping $ 0 $ 0.00 $ 0 0.00% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 33,200 $ 0.08 $ 100 1.21% General Administrative $ 232,400 $ 0.56 $ 700 8.44% Management 5.00% $ 137,702 $ 0.33 $ 415 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 1,193,462 $ 2.90 $ 3,595 43.34% Reserves $ 83,000 $ 0.20 $ 250 3.01% -------------------------------------------- NET OPERATING INCOME $ 1,477,569 $ 3.59 $ 4,451 53.65% "GOING IN" CAPITALIZATION RATE 8.50% VALUE INDICATION $17,383,166 $ 42.20 $ 52,359 "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $17,383,166 ROUNDED $17,400,000 $ 42.24 $ 52,410
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37 QUAIL RUN, COLUMBIA, SOUTH CAROLINA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF -------------------------------------------------------- 7.75% $19,065,408 $19,100,000 $57,530 $46.37 8.00% $18,469,614 $18,500,000 $55,723 $44.91 8.25% $17,909,929 $17,900,000 $53,916 $43.46 8.50% $17,383,166 $17,400,000 $52,410 $42.24 8.75% $16,886,505 $16,900,000 $50,904 $41.03 9.00% $16,417,435 $16,400,000 $49,398 $39.81 9.25% $15,973,720 $16,000,000 $48,193 $38.84
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $17,400,000. 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 $17,200,000 Direct Capitalization Method $17,400,000 Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $17,400,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 QUAIL RUN, COLUMBIA, SOUTH CAROLINA RECONCILIATION AND CONCLUSION This appraisal was made to express an opinion as of the Market Value of the fee simple estate in the property. AS IS MARKET VALUE OF THE FEE SIMPLE ESTATE Cost Approach Not Utilized Sales Comparison Approach $17,000,000 Income Approach $17,400,000 Reconciled Value $17,400,000 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 27, 2003 the market value of the fee simple estate in the property is: $17,400,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA QUAIL RUN, COLUMBIA, SOUTH CAROLINA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A QUAIL RUN, COLUMBIA, SOUTH CAROLINA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A QUAIL RUN, COLUMBIA, SOUTH CAROLINA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] ENTRANCE TO QUAIL RUN STREET SCENE FACING WEST [PICTURE] [PICTURE] EXTERIOR - OFFICE INTERIOR - CLUBHOUSE [PICTURE] [PICTURE] SWIMMING POOL - CLUBHOUSE TENNIS COURTS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A QUAIL RUN, COLUMBIA, SOUTH CAROLINA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDINGS EXTERIOR - APARTMENT BUILDINGS [PICTURE] [PICTURE] INTERIOR - LIVING ROOM INTERIOR - BEDROOM [PICTURE] [PICTURE] INTERIOR - BEDROOM INTERIOR - BATHROOM AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B QUAIL RUN, COLUMBIA, SOUTH CAROLINA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B QUAIL RUN, COLUMBIA, SOUTH CAROLINA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 RAINTREE ASHTON AT LONGCREEK STONEYCREEK 3500 Fernandina Road 1401 Longcreek Drive 18 Berry Hill Road Columbia, SC Columbia, SC Columbia, SC [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 ST. ANDREWS BROAD RIVER TRACE 601 St. Andrews Road 551 River Hill Circle Columbia, SC Columbia, SC [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B QUAIL RUN, COLUMBIA, SOUTH CAROLINA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 ------------------------------------------------------------------------------------------------------------------------------------ Property Name Quail Run 42 Magnolia Management Company AIMCO Carter-Haston LOCATION: Address 3509 Lake Avenue 5150 Forest Drive City, State Columbia, South Carolina Columbia, SC County Richland Richland Proximity to Subject 1 mile west of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 411,920 186,984 Year Built 1972 1993 Effective Age 20 10 Building Structure Type Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open Garage, Open Number of Units 332 196 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Br/1Ba - 1A10 840 32 $ 557 1 1BD/1BA - Type 1 674 24 $ 710 2 1Br/1.5Ba - 1A15 (TH) 870 8 $ 584 1 1BD/1BA - Type 2 775 48 $ 790 3 1Br/1Ba - 1B10 970 20 $ 560 7 2BD/2BA - Type 1 954 72 $ 845 4 1Br/1.5Ba - 1B15 (Loft) 850 8 $ 596 7 2BD/2BA - Type 2 1,072 28 $ 970 5 1Br/1Ba - 1C10 1,050 40 $ 563 7 2BD/2BA - Type 3 1,387 8 $1,325 6 2Br/1.5Ba - 2A15 1,250 20 $ 619 8 3BD/2BA 1,485 16 $1,450 7 2Br/2Ba - 2A20 1,280 116 $ 684 8 3Br/2Ba - 3 (A-B-C-) 1,550 87 $ 828 9 3Br/2Ba - 3 D-20 1,550 1 $1,099 Average Unit Size (SF) 1,241 954 Unit Breakdown: Efficiency 0% 2-Bedroom 51% Efficiency 0% 2-Bedroom 55% 1-Bedroom 26% 3-Bedroom 23% 1-Bedroom 37% 3-Bedroom 8% 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 Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office Gym Room X Gym Room OCCUPANCY: 93% 98% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 and 12 Months Concessions $50 off select units None Pet Deposit $400 $400 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash X Water Trash Confirmation May 27, 2003; (Property Manager) June 4, 2003; (Property Manager) Telephone Number (803) 772-5737 (803) 790-4663 NOTES: None COMPARISON TO SUBJECT: Superior COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 ------------------------------------------------------------------------------------------------------------------------------------ Property Name Pines at Forest Lake Wellesley Place Management Company Pinnacle Realty Intermark Management LOCATION: Address 325 Percival Road 3611 Ranch Road City, State Columbia, SC Columbia, SC County Richland Richland Proximity to Subject 1/2 mile west of the subject 1 mile north of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 248,352 126,200 Year Built 1970 1975 Effective Age 20 20 Building Structure Type Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 312 100 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1BD/1BA - Type 1 700 56 $485 1 1BD/1BA 1,000 24 $525 1 1BR/1BA - Type 2 700 31 $495 7 2BD/2BA 1,250 52 $625 6 2BR/1BA - Type 1 700 55 $515 8 3BD/2BA 1,550 24 $725 6 2BR/1BA - Type 2 825 100 $525 6 2BR/1BA - Type 3 825 18 $555 6 2BR/1BA - Type 4 955 17 $575 8 3BR/1.5BA -Type 1 1,000 31 $635 8 3BR/1.5BA -Type 2 1,130 4 $700 Average Unit Size (SF) 796 1,262 Unit Breakdown: Efficiency 0% 2-Bedroom 61% Efficiency 0% 2-Bedroom 52% 1-Bedroom 28% 3-Bedroom 11% 1-Bedroom 24% 3-Bedroom 24% CONDITION: Average Good APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony W/D Connect. X Balcony X W/D Connect. Fireplace Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office Gym Room Gym Room OCCUPANCY: 82% 90% LEASING DATA: Available Leasing Terms 6 and 12 Months 6 and 12 Months Concessions 1 month free for all floor plans $50 off 2BR plan Pet Deposit $400 $300 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas Water Trash Water Trash Confirmation June 4, 2003; (Property Manager) June 4, 2003; (Property Manager) Telephone Number (803) 782-7854 (803) 798-4400 NOTES: None None COMPARISON TO SUBJECT: Inferior Inferior COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 ------------------------------------------------------------------------------------------------------------------------------------ Property Name Hunt Club Village The Chimneys at Brookfield Management Company Owner managed Alliance Management LOCATION: Address 7502 Hunt Club Road 7501 Brookfield Road City, State Columbia, SC Columbia, SC County Richland Richland Proximity to Subject 2 miles north of the subject 4 miles west of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 180,400 268,842 Year Built 1986 1974 Effective Age 10 20 Building Structure Type Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 200 259 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 0 1BD/1BA - Efficiency 550 16 $490 1 1BD/1BA - Type 1 850 56 $495 1 1BD/1BA 750 88 $560 1 1BD/1BA - Type 2 1,077 30 $500 6 2BD/1BA 1,000 8 $610 6 2BD/1.5BA 950 64 $580 7 2BD/2BA 1,100 80 $650 7 2BR/2BA 1,100 48 $580 8 3BD/2BA 1,200 8 $770 7 2BR/2.5BA 1,135 22 $605 8 3BR/2BA - Type 1 1,150 8 $695 8 3BR/2BA - Type 2 1,318 20 $695 8 3BR/2.5BA 1,344 11 $710 Average Unit Size (SF) 902 1,038 Unit Breakdown: Efficiency 8% 2-Bedroom 44% Efficiency 0% 2-Bedroom 52% 1-Bedroom 44% 3-Bedroom 4% 1-Bedroom 33% 3-Bedroom 15% CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling Attach. Garage X Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball Laundry Room X Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office Gym Room X Gym Room OCCUPANCY: 90% 93% LEASING DATA: Available Leasing Terms 12 Months Flexible Concessions None 1 month free for 12 months lease Pet Deposit $125 175 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas Water Trash Water Trash Confirmation June 4, 2003; (Property Manager) June 4, 2003; (Property Manager) Telephone Number (803) 736-5050 (803) 788-0539 NOTES: Full-size washer/dryer in each unit None COMPARISON TO SUBJECT: Similar Inferior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B QUAIL RUN, COLUMBIA, SOUTH CAROLINA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 42 MAGNOLIA PINES AT FOREST LAKE WELLESLEY PLACE 5150 Forest Drive 325 Percival Road 3611 Ranch Road Columbia, SC Columbia, SC Columbia, SC [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 HUNT CLUB VILLAGE THE CHIMNEYS AT BROOKFIELD 7502 Hunt Club Road 7501 Brookfield Road Columbia, SC Columbia, SC [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C QUAIL RUN, COLUMBIA, SOUTH CAROLINA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C QUAIL RUN, COLUMBIA, SOUTH CAROLINA No responsibility is assumed for matters legal in nature. No investigation has been made of the title to or any liabilities against the property appraised. In this appraisal, it is presumed that, unless otherwise noted, the owner's claim is valid, the property rights are good and marketable, and there are no encumbrances which cannot be cleared through normal processes. To the best of our knowledge, all data set forth in this report are true and accurate. Although gathered from reliable sources, no guarantee is made nor liability assumed for the accuracy of any data, opinions, or estimates identified as being furnished by others which have been used in formulating this analysis. Land areas and descriptions used in this appraisal were obtained from public records and have not been verified by legal counsel or a licensed surveyor. No soil analysis or geological studies were ordered or made in conjunction with this report, nor were any water, oil, gas, or other subsurface mineral and use rights or conditions investigated. Substances such as asbestos, urea-formaldehyde foam insulation, other chemicals, toxic wastes, or other potentially hazardous materials could, if present, adversely affect the value of the property. Unless otherwise stated in this report, the existence of hazardous substance, which may or may not be present on or in the property, was not considered by the appraiser in the development of the conclusion of value. The stated value estimate is predicated on the assumption that there is no material on or in the property that would cause such a loss in value. No responsibility is assumed for any such conditions, and the client has been advised that the appraiser is not qualified to detect such substances, quantify the impact on values, or develop the remedial cost. No environmental impact study has been ordered or made. Full compliance with applicable federal, state, and local environmental regulations and laws is assumed unless otherwise stated, defined, and considered in the report. It is also assumed that all required licenses, consents, or other legislative or administrative authority from any local, state, or national government or private entity organization either have been or can be obtained or renewed for any use which the report covers. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C QUAIL RUN, COLUMBIA, SOUTH CAROLINA It is assumed that all applicable zoning and use regulations and restrictions have been complied with unless a nonconformity has been stated, defined, and considered in the appraisal report. Further, it is assumed that the utilization of the land and improvements is within the boundaries of the property described and that no encroachment or trespass exists unless noted in the report. The Americans with Disabilities Act ("ADA") became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property together with a detailed analysis of the requirements of the ADA could reveal that the property is not in compliance with one or more of the requirements of the act. If so, this fact could have a negative effect on the value of the property. Since we have no direct evidence relating to this issue, we did not consider the possible noncompliance with the requirements of ADA in estimating the value of the property. We have made a physical inspection of the property and noted visible physical defects, if any, in our report. This inspection was made by individuals generally familiar with real estate and building construction. However, these individuals are not architectural or structural engineers who would have detailed knowledge of building design and structural integrity. Accordingly, we do not opine on, nor are we responsible for, the structural integrity of the property including its conformity to specific governmental code requirements, such as fire, building and safety, earthquake, and occupancy, or any physical defects which were not readily apparent to the appraiser during the inspection. The value or values presented in this report are based upon the premises outlined herein and are valid only for the purpose or purposes stated. The date of value to which the conclusions and opinions expressed apply is set forth in this report. The value opinion herein rendered is based on the status of the national business economy and the purchasing power of the U.S. dollar as of that date. Testimony or attendance in court or at any other hearing is not required by reason of this appraisal unless arrangements are previously made within a reasonable time in advance for AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C QUAIL RUN, COLUMBIA, SOUTH CAROLINA such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the American Society of Appraisers or the designations awarded by this organization) shall be disseminated to the public through prospectus, advertising, public relations, news, or any other means of communication without the written consent and approval of American Appraisal Associates, Inc. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D QUAIL RUN, COLUMBIA, SOUTH CAROLINA EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D CERTIFICATE OF APPRAISER I certify that, to the best of my knowledge and belief: The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and represent the unbiased professional analyses, opinions, and conclusions of American Appraisal Associates, Inc. American Appraisal Associates, Inc. and I personally, have no present or prospective interest in the property that is the subject of this report and have no personal interest or bias with respect to the parties involved. Compensation for American Appraisal Associates, Inc. is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. The analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. I personally did not inspect the subject property. Jimmy Pat James, MAI and David Johnsen, MAI provided significant real property appraisal assistance in the preparation of this report. I am currently in compliance with the Appraisal Institute's continuing education requirements. -s- Frank Fehribach ------------------------ Frank Fehribach, MAI Managing Principal, Real Estate Group South Carolina Temporary Practice Permit #095-03 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E QUAIL RUN, COLUMBIA, SOUTH CAROLINA EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E QUAIL RUN, COLUMBIA, SOUTH CAROLINA FRANK A. FEHRIBACH, MAI MANAGING PRINCIPAL, REAL ESTATE GROUP POSITION Frank A. Fehribach is a Managing Principal for the Dallas Real Estate Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Mr. Fehribach has experience in valuations for resort hotels; Class A office buildings; Class A multifamily complexes; industrial buildings and distribution warehousing; multitract mixed-use vacant land; regional malls; residential subdivision development; and special-purpose properties such as athletic clubs, golf courses, manufacturing facilities, nursing homes, and medical buildings. Consulting assignments include development and feasibility studies, economic model creation and maintenance, and market studies. Mr. Fehribach also has been involved in overseeing appraisal and consulting assignments in Mexico and South America. Business Mr. Fehribach joined AAA as an engagement director in 1998. He was promoted to his current position in 1999. Prior to that, he was a manager at Arthur Andersen LLP. Mr. Fehribach has been in the business of real estate appraisal for over ten years. EDUCATION University of Texas - Arlington Master of Science - Real Estate University of Dallas Master of Business Administration - Industrial Management Bachelor of Arts - Economics STATE State of Arizona CERTIFICATIONS Certified General Real Estate Appraiser, #30828 State of Arkansas State Certified General Appraiser, #CG1387N State of Colorado Certified General Appraiser, #CG40000445 State of Georgia Certified General Real Property Appraiser, #218487 State of Michigan Certified General Appraiser, #1201008081 State of Texas Real Estate Salesman License, #407158 (Inactive) State of Texas State Certified General Real Estate Appraiser, #TX-1323954-G AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E QUAIL RUN, COLUMBIA, SOUTH CAROLINA PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS Candidate Member of the CCIM Institute pursuing Certified Commercial Investment Member (CCIM) designation PUBLICATIONS "An Analysis of the Determinants of Industrial Property Valuation," Co-authored with Dr. Ronald C. Rutherford and Dr. Mark Eakin, The Journal of Real Estate Research, Vol. 8, No. 3, Summer 1993, p. 365. AMERICAN APPRAISAL ASSOCIATES, INC. QUAIL RUN, COLUMBIA, SOUTH CAROLINA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. QUAIL RUN, COLUMBIA, SOUTH CAROLINA GENERAL SERVICE CONDITIONS The services(s) provided by AAA will be performed in accordance with professional appraisal standards. Our compensation is not contingent in any way upon our conclusions of value. We assume, without independent verification, the accuracy of all data provided to us. We will act as an independent contractor and reserve the right to use subcontractors. All files, workpapers or documents developed by us during the course of the engagement will be our property. We will retain this data for at least five years. Our report is to be used only for the specific purpose stated herein; and any other use is invalid. No reliance may be made by any third party without our prior written consent. You may show our report in its entirety to those third parties who need to review the information contained herein. No one should rely on our report as a substitute for their own due diligence. We understand that our reports will be described in public tender offer documents distributed to limited partners. We reserve the right to review the public tender offer documents prior to their issuance to confirm that disclosures of facts from the current appraisals are accurate. No reference to our name or our report, in whole or in part, in any other SEC filing or private placement memorandum you prepare and/or distribute to third parties may be made without our prior written consent. The Tender Offer Partnerships, as that term is defined in the Settlement Agreement, agree to indemnify and hold us harmless against and from any and all losses, claims, actions, damages, expenses or liabilities, including reasonable attorneys' fees, to which we may become subject in connection with this engagement except where such losses, claims, actions, damages, expenses or liabilities, including reasonable attorney's fees, arise or result from AAA's misconduct, bad faith or negligence. Co-Clients will not be liable for any of our acts or omissions. AAA is an equal opportunity employer.