EX-99.(C)(7) 9 d07248a2exv99wxcyx7y.txt APPRAISAL OF WOOD LAKE WOOD LAKE 100 PINHURST DRIVE UNINCORPORATED AREA OF COBB COUNTY, GEORGIA MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 20, 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) LETTER HEAD] JULY 17, 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: WOOD LAKE 100 PINHURST DRIVE UNINCORPORATED AREA OF COBB COUNTY, COBB COUNTY, GEORGIA 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 220 units with a total of 227,000 square feet of rentable area. The improvements were built in 1983. The improvements are situated on 16.97 acres. Overall, the improvements are in good condition. As of the date of this appraisal, the subject property is 95% 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 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA 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 20, 2003 is: ($12,800,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. /s/ Michael Bates July 17, 2003 Michael Bates, MAI #053272 Assistant Manager, Real Estate Group State of Georgia, Certified General Real Property Appraiser #CG00685 Report By: Steven M. Zenkovich, ASA AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA 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 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Wood Lake LOCATION: 100 Pinhurst Drive Unincorporated Area of Cobb County, Georgia 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 20, 2003 DATE OF REPORT: July 17, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 16.97 acres, or 739,213 square feet Assessor Parcel No.: 17095000610 Floodplain: Community Panel No. 130052 0075F (August 18, 1992) Flood Zone X, an area outside the floodplain. Zoning: RM 12 (Residential Multifamily District) BUILDING: No. of Units: 220 Units Total NRA: 227,000 Square Feet Average Unit Size: 1,032 Square Feet Apartment Density: 13.0 units per acre Year Built: 1983 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ------------------ Monthly Annual Unit Type Feet Per Unit Per SF Income Income --------- ------ -------- ------ -------- ---------- 1Br/1Ba - 1A1 705 $ 637 $0.90 $ 31,850 $ 382,200 1Br/1Ba - 1B1 874 $ 627 $0.72 $ 36,366 $ 436,392 1Br/1Ba -1C1 874 $ 699 $0.80 $ 1,398 $ 16,776 2Br/1Ba -2A1 1,111 $ 695 $0.63 $ 8,340 $ 100,080 2Br/2Ba - 2A2 1,111 $ 763 $0.69 $ 13,734 $ 164,808 2Br/2Ba - 2B2 1,213 $ 830 $0.68 $ 41,500 $ 498,000 3Br/2Ba - 3A2 1,511 $1,073 $0.71 $ 32,190 $ 386,280 Total $165,378 $1,984,536
OCCUPANCY: 95%
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 18 Years REMAINING ECONOMIC LIFE: 27 Years
SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - ENTRANCE EXTERIOR - TYPICAL APARTMENT BUILDING AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA 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 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH DIRECT CAPITALIZATION Amount $/Unit --------------------- ------------------ ------- Potential Rental Income $ 1,984,536 $ 9,021 Effective Gross Income $ 1,926,928 $ 8,759 Operating Expenses $ 727,086 $ 3,305 37.7% of EGI Net Operating Income: $ 1,144,841 $ 5,204 Capitalization Rate 9.00% DIRECT CAPITALIZATION VALUE $ 12,600,000* $57,273 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 18% Stabilized Vacancy & Collection Loss: 9% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 9.50% Discount Rate 11.00% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $ 12,900,000* $58,636 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $ 12,800,000 $58,182 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $48,421 to $74,471 Range of Sales $/Unit (Adjusted) $54,926 to $78,194 VALUE INDICATION - PRICE PER UNIT $ 13,100,000* $59,545 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 5.91 to 6.89 Selected EGIM for Subject 6.45 Subject's Projected EGI $ 1,926,928 EGIM ANALYSIS CONCLUSION $ 12,300,000* $55,909 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $ 12,000,000* $54,545 / UNIT RECONCILED SALES COMPARISON VALUE $ 12,500,000 $56,818 / 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 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $13,100,000 NOI Per Unit $12,000,000 EGIM Multiplier $12,300,000 INDICATED VALUE BY SALES COMPARISON $12,500,000 $56,818 / UNIT INCOME APPROACH: Direct Capitalization Method: $12,600,000 Discounted Cash Flow Method: $12,900,000 INDICATED VALUE BY THE INCOME APPROACH $12,800,000 $58,182 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $12,800,000 $58,182 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 100 Pinhurst Drive, Unincorporated Cobb County, Georgia. Cobb County identifies it as 17095000610. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Steven M. Zenkovich, ASA on May 20, 2003. Michael Bates, MAI has not made a personal inspection of the subject property. Steven M. Zenkovich, ASA performed the research, valuation analysis and wrote the report. Michael Bates, MAI reviewed the report and concurs with the value. Michael Bates, MAI and Steven M. Zenkovich, ASA 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 20, 2003. The date of the report is July 17, 2003. PURPOSE AND USE OF APPRAISAL The purpose of the appraisal is to estimate the market value of the fee simple interest in the subject property. It is understood that the appraisal is intended to assist the clients in litigation settlement proceedings. The appraisal was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. PROPERTY RIGHTS APPRAISED We have appraised the Fee Simple Estate in the subject property (as applied in the Sales & Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA defined in The Dictionary of Real Estate Appraisal, 3rd ed. (Chicago: Appraisal Institute, 1993), as: "Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat." MARKETING/EXPOSURE PERIOD MARKETING PERIOD: 6 to 12 months EXPOSURE PERIOD: 6 to 12 months
HISTORY OF THE PROPERTY Ownership in the subject property is currently vested in Century Properties Fund XIX. 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 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA 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 unincorporated Cobb County, Georgia. 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 - Cobb Parkway West - Interstate 285 South - Atlanta Road North - Cobb Parkway MAJOR EMPLOYERS Major employers in the subject's area include Home Depot, Delta Air Lines, and United Parcel Service. Delta Air Lines continues to reduce their work force due to the downturn in the air transportation sector. The unemployment rate in Atlanta is up, but is still much lower than nationally. The overall economic outlook for the area is considered very favorable. DEMOGRAPHICS We have reviewed demographic data within the neighborhood. The following table summarizes the key data points. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 12 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA NEIGHBORHOOD DEMOGRAPHICS
AREA ---------------------------------------- CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA ---------------------------------------------------------------------------------- POPULATION TRENDS Current Population 9,607 63,382 172,664 4,326,075 5-Year Population 10,287 68,252 185,895 4,877,672 % Change CY-5Y 7.1% 7.7% 7.7% 12.8% Annual Change CY-5Y 1.4% 1.5% 1.5% 2.6% HOUSEHOLDS Current Households 5,501 32,507 77,199 1,580,438 5-Year Projected Households 5,840 34,990 82,650 1,773,314 % Change CY - 5Y 6.2% 7.6% 7.1% 12.2% Annual Change CY-5Y 1.2% 1.5% 1.4% 2.4% INCOME TRENDS Median Household Income $ 63,873 $ 59,420 $ 57,720 $ 61,400 Per Capita Income $ 43,841 $ 42,237 $ 40,101 $ 25,922 Average Household Income $ 78,178 $ 83,093 $ 89,178 $ 70,955
Source: Demographics Now The subject neighborhood's population is expected to show increases below that of the region. The immediate market offers superior income levels as compared to the broader market. The following table illustrates the housing statistics in the subject's immediate area, as well as the MSA region. HOUSING TRENDS
AREA --------------------------------------------- CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA ------------------------------------------------------------------------------------------------ HOUSING TRENDS % of Households Renting 67.02% 57.92% 48.10% 30.54% 5-Year Projected % Renting 65.84% 57.30% 47.91% 29.71% % of Households Owning 20.98% 29.72% 39.32% 61.85% 5-Year Projected % Owning 22.43% 30.79% 39.99% 63.29%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North -Multifamily housing South -Vacant land; condominiums under construction East -Multifamily housing West -Offices and proposed condominium development CONCLUSIONS The subject is well located within unincorporated Cobb County. The neighborhood is characterized as being mostly suburban in nature and is currently in the growth stage of development. The economic outlook for the neighborhood is judged to be very favorable with a good economic base. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 14 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA MARKET ANALYSIS The subject property is located in unincorporated Cobb County. The overall pace of development in the subject's market is more or less decreasing. Demand for apartments in the local market has decreased significantly. There are no known projects under construction at this time. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket ---------------------------------------------------------------------------------- 1998 Year-End 6.9% 6.9% 1999 Year-End 6.5% 6.5% 2000 Year-End 4.8% 4.7% 2001 Year-End 9.0% 8.4% 2002 Year-End 10.1% 9.1% 2003 1Q03 11.3% 10.2%
Source: Reis Subtrend Futures, 1st Quarter 2003 Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has outperformed the overall market. Rent concessions have become prevalent over the past 1-2 years. Competing projects are typically offering two months of free rent prorated over a 12-month term. Lease agreements at the subject property typically reflect reduced rent in lieu of free rent concessions. 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 -------------------------------------------------------------------------------- 1998 Year-End N/A - $765 - 1999 Year-End N/A N/A $794 3.8% 2000 Year-End N/A N/A $831 4.7% 2001 Year-End N/A N/A $849 2.2% 2002 Year-End N/A N/A $852 0.4% 2003 1Q03 N/A N/A $853 0.1%
Source: Reis Subtrend Futures, 1st Quarter 2003 The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject ------------------------------------------------------------------------------------------------------------- R-1 Post Crest 410 92% 1996 1-mile west of subject R-2 Gables Walk 310 93% 1996 2-miles southwest of subject R-3 Magnolia Vinings 400 94% 1997 2-miles south of the subject R-4 Paces Station 610 92% 1980-1992 2-miles south of subject R-5 Lakes at Vinings 464 92% 1970 1/2-mile south of the subject Subject Wood Lake 220 95% 1983
The historical rent table reflects average asking rents, and does not reflect rent concessions. Average asking rents outpaced the inflation rate in 1999 and 2000. Growth rates slowed significantly as the market contracted. At present, rental rates remain static, and concessions are routinely offered. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 16.97 acres, or 739,213 square feet Shape Irregular Topography Moderate slope Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Average Flood Zone: Community Panel 130052 0075F, dated August 18, 1992 Flood Zone Zone X Zoning RM 12, 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 -------------------------------------------------------------------------------------------------------------- 17095000610 $1,579,328 $3,683,042 $5,262,370 0.02987 $157,187
IMPROVEMENT ANALYSIS Year Built 1983 Number of Units 220 Net Rentable Area 227,000 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Brick or masonry Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, spa/jacuzzi, sand volleyball, tennis court, gym room, car wash, barbeque equipment, laundry room, and parking area. Unit Amenities Individual unit amenities include a balcony, fireplace, cable TV connection, vaulted ceiling, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, water heater, garbage disposal, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) ---------------------------------------------------------- 1Br/1Ba - 1A1 50 705 1Br/1Ba - 1B1 58 874 1Br/1Ba - 1C1 2 874 2Br/1Ba - 2A1 12 1,111 2Br/2Ba - 2A2 18 1,111 2Br/2Ba - 2B2 50 1,213 3Br/2Ba - 3A2 30 1,511
Overall Condition Good Effective Age 18 years Economic Life 45 years Remaining Economic Life 27 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 1983 and consist of a 220-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 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA 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 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA 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 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA 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 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA SUMMARY OF COMPARABLE SALES -IMPROVED
DESCRIPTION SUBJECT COMPARABLE COMPARABLE I - 1 I - 2 ---------------------------------------------------------------------------------------------------------------------------- Property Name Wood Lake Cumberland Pines Concord Crossing LOCATION: Address 100 Pinhurst Drive 3339 Seven Pines Court 2935 Old Concord Road SE City, State Unincorporated Cobb County, Atlanta, GA Smyrna, GA County Cobb Cobb Cobb PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 227,000 185,246 207,460 Year Built 1983 1973 1975 Number of Units 220 216 190 Unit Mix: Type Total Type Total Type Total 1Br/1Ba - 1A1 50 1Br/1Ba 90 1Br/1Ba 30 1Br/1Ba - 1B1 58 2Br/2Ba 118 2Br/2Ba 127 1Br/1Ba -1C1 2 3Br/2Ba 8 3Br/2Ba 33 2Br/1Ba -2A1 12 2Br/2Ba - 2A2 18 2Br/2Ba - 2B2 50 3Br/2Ba - 3A2 30 Average Unit Size (SF) 1,032 858 1,092 Land Area (Acre) 16.9700 13.6000 15.7800 Density (Units/Acre) 13.0 15.9 12.0 Parking Ratio (Spaces/Unit) 2.00 2.50 N/A Parking Type (Gr., Cov., etc.) Open Open Open CONDITION: Good Good Good APPEAL: Good Fair Fair AMENITIES: Pool/Spa Yes/Yes Yes/Yes Yes/Yes Gym Room Yes Yes Yes Laundry Room Yes Yes No Secured Parking No No No Sport Courts No Yes Yes Washer/Dryer Connection Yes Yes Yes OCCUPANCY: 95% 90% 91% TRANSACTION DATA: Sale Date March, 2003 July, 2002 Sale Price ($) $10,800,000 $9,200,000 Grantor Earl Phillips (LLC) Garden Woodsong Grantee Vinings Vista (LLC) Woodsong Apartments Sale Documentation Book 13703, Page 4724 Book 13561, Page 2533 Verification AAA Files, Comps Inc. AAA Files, Comps Inc. Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF ----------------------------------------------------------- Potential Gross Income $1,864,080 $8,630 $10.06 $1,601,328 $8,428 $7.72 Vacancy/Credit Loss $ 186,408 $ 863 $ 1.01 $ 160,133 $ 843 $0.77 ----------------------------------------------------------- Effective Gross Income $1,677,672 $7,767 $ 9.06 $1,441,195 $7,585 $6.95 Operating Expenses $ 777,600 $3,600 $ 4.20 $ 627,000 $3,300 $3.02 ----------------------------------------------------------- Net Operating Income $ 900,072 $4,167 $ 4.86 $ 814,195 $4,285 $3.92 ----------------------------------------------------------- NOTES: None None PRICE PER UNIT $50,000 $48,421 PRICE PER SQUARE FOOT $ 58.30 $ 44.35 EXPENSE RATIO 46.3% 43.5% EGIM 6.44 6.38 OVERALL CAP RATE 8.33% 8.85% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA DESCRIPTION COMPARABLE COMPARABLE COMPARABLE I - 3 I - 4 I - 5 ------------------------------------------------------------------------------------------------------------------------------ Property Name Summer Lake Madison at Forest Glen Worthing Crest LOCATION: Address 6901 Glenlake Parkway NE 4236 Austell Road 3200 Spring Hill Road City, State Atlanta, GA Austell, GA Smyrna, GA 30080 County Fulton Cobb Cobb PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 348,992 290,700 417,920 Year Built 1982 1986 1987 Number of Units 270 264 378 Unit Mix: Type Total Type Total Type Total 1Br/1Ba 78 1Br/1Ba 60 1Br/1Ba 150 2Br/2Ba 172 2Br/2Ba 204 2Br/2Ba 228 3Br/2Ba 20 3Br/2Ba 3Br/2Ba Average Unit Size (SF) 1,293 1,101 1,106 Land Area (Acre) 29.8900 26.4000 25.0300 Density (Units/Acre) 9.0 10.0 15.1 Parking Ratio (Spaces/Unit) N/A 2.00 2.09 Parking Type (Gr., Cov., etc.) Open, Garages Open Open CONDITION: Very Good Good Very Good APPEAL: Very Good Good Very Good AMENITIES: Pool/Spa Yes/Yes Yes/Yes Yes/Yes Gym Room Yes Yes Yes Laundry Room Yes Yes No Secured Parking Yes Yes Yes Sport Courts Yes Yes Yes Washer/Dryer Connection Yes Yes Yes OCCUPANCY: 90% 93% 92% TRANSACTION DATA: Sale Date December, 2001 February, 2002 February, 2001 Sale Price ($) $19,475,000 $13,810,000 $28,150,000 Grantor Connecticut General Life Lincoln Walden Vinings Apartments Group Grantee Beechnut Bayou Company Forest Glen Apartments Worthing Cameron Crest Sale Documentation Book 31465, Page 0403 Book 13501, Page 2716 Book 13334, Page 5127 Verification AAA Files, Comps Inc. AAA Files, Comps Inc. AAA Files, Comps Inc. Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF ------------------------------------------------------------------------------------------ Potential Gross Income $3,378,000 $12,511 $9.68 $2,513,592 $9,521 $8.65 N/A Vacancy/Credit Loss $ 337,800 $ 1,251 $0.97 $ 175,951 $ 666 $0.61 N/A ------------------------------------------------------------------------------------------ Effective Gross Income $3,040,200 $11,260 $8.71 $2,337,641 $8,855 $8.04 $4,085,160 $10,807 $9.77 Operating Expenses $ 945,000 $ 3,500 $2.71 $1,003,200 $3,800 $3.45 $1,134,000 $ 3,000 $2.71 ------------------------------------------------------------------------------------------ Net Operating Income $2,095,200 $ 7,760 $6.00 $1,334,441 $5,055 $4.59 $2,951,160 $ 7,807 $7.06 ------------------------------------------------------------------------------------------ NOTES: None None None PRICE PER UNIT $72,130 $52,311 $74,471 PRICE PER SQUARE FOOT $55.80 $ 47.51 $ 67.36 EXPENSE RATIO 31.1% 42.9% 27.8% EGIM 6.41 5.91 6.89 OVERALL CAP RATE 10.76% 9.66% 10.48% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA ACTUAL
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $48,421 to $74,471 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 $54,926 to $78,194 per unit with a mean or average adjusted price of $62,991 per unit. The median adjusted price is $60,526 per unit. Based on the following analysis, we have concluded to a value of $60,000 per unit, which results in an "as is" value of $13,100,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 -------------------------------------------------------------------------------------------------------------------------- Property Name Wood Lake Cumberland Pines Concord Crossing Address 100 Pinhurst Drive 3339 Seven Pines Court 2935 Old Concord Road SE City Unincorporated Cobb County, Atlanta, GA Smyrna, GA Sale Date March, 2003 July, 2002 Sale Price ($) $10,800,000 $9,200,000 Net Rentable Area (SF) 227,000 185,246 207,460 Number of Units 220 216 190 Price Per Unit $50,000 $48,421 Year Built 1983 1973 1975 Land Area (Acre) 16.9700 13.6000 15.7800 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 03-2003 0% 07-2002 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $50,000 $48,421 Location Comparable 0% Inferior 10% Number of Units 220 216 0% 190 0% Quality / Appeal Good Inferior 5% Inferior 5% Age / Condition 1983 1973 / Good 10% 1975 / Good 10% Occupancy at Sale 95% 90% 0% 91% 0% Amenities Good Comparable 0% Comparable 0% Average Unit Size (SF) 1,032 858 5% 1,092 0% PHYSICAL ADJUSTMENT 20% 25% FINAL ADJUSTED VALUE ($/UNIT) $60,000 $60,526
COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 ------------------------------------------------------------------------------------------------------------------------- Property Name Summer Lake Madison at Forest Glen Worthing Crest Address 6901 Glenlake Parkway NE 4236 Austell Road 3200 Spring Hill Road City Atlanta, GA Austell, GA Smyrna, GA 30080 Sale Date December, 2001 February, 2002 February, 2001 Sale Price ($) $19,475,000 $13,810,000 $28,150,000 Net Rentable Area (SF) 348,992 290,700 417,920 Number of Units 270 264 378 Price Per Unit $72,130 $52,311 $74,471 Year Built 1982 1986 1987 Land Area (Acre) 29.8900 26.4000 25.0300 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 12-2001 0% 02-2002 0% 02-2001 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $72,130 $52,311 $74,471 Location Superior -5% Inferior 10% Inferior 10% Number of Units 270 0% 264 0% 378 5% Quality / Appeal Comparable 0% Comparable 0% Comparable 0% Age / Condition 1982 / Very Good 0% 1986 / Good -5% 1987 / Very Good -10% Occupancy at Sale 90% 0% 93% 0% 92% 0% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 1,293 -10% 1,101 0% 1,106 0% PHYSICAL ADJUSTMENT -15% 5% 5% FINAL ADJUSTED VALUE ($/UNIT) $61,310 $54,926 $78,194
SUMMARY VALUE RANGE (PER UNIT) $54,926 TO $ 78,194 MEAN (PER UNIT) $62,991 MEDIAN (PER UNIT) $60,526 VALUE CONCLUSION (PER UNIT) $60,000 VALUE OF IMPROVEMENT & MAIN SITE $13,200,000 PV OF CONCESSIONS -$ 104,000 VALUE INDICATED BY SALES COMPARISON APPROACH $13,096,000 ROUNDED $13,100,000
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 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA 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-1 216 $10,800,000 8.33% $ 900,072 $ 1,144,841 1.249 $62,441 $ 50,000 $ 4,167 $ 5,204 I-2 190 $ 9,200,000 8.85% $ 814,195 $ 1,144,841 1.214 $58,801 $ 48,421 $ 4,285 $ 5,204 I-3 270 $19,475,000 10.76% $2,095,200 $ 1,144,841 0.671 $48,370 $ 72,130 $ 7,760 $ 5,204 I-4 264 $13,810,000 9.66% $1,334,441 $ 1,144,841 1.030 $53,854 $ 52,311 $ 5,055 $ 5,204 I-5 378 $28,150,000 10.48% $2,951,160 $ 1,144,841 0.667 $49,637 $ 74,471 $ 7,807 $ 5,204
PRICE/UNIT
Low High Average Median ------------------------------------------------- $48,370 $62,441 $54,621 $53,854
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 55,000 ------------ Number of Units 220 Value $12,100,000 PV of Concessions -$ 104,000 ------------ Value Based on NOI Analysis $11,996,000 Rounded $12,000,000
The adjusted sales indicate a range of value between $48,370 and $62,441 per unit, with an average of $54,621 per unit. Based on the subject's competitive position within the improved sales, a value of $55,000 per unit is estimated. This indicates an "as is" market value of $12,000,000 (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 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON
COMPARABLE NO. OF SALE PRICE EFFECTIVE OPERATING SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM ---------- ------ ---------- ------------ ---------- --- ------------- ----- I-1 216 $10,800,000 $1,677,672 $ 777,600 46.35% 6.44 $ 50,000 I-2 190 $ 9,200,000 $1,441,195 $ 627,000 43.51% 6.38 $ 48,421 I-3 270 $19,475,000 $3,040,200 $ 945,000 31.08% 6.41 37.73% $ 72,130 I-4 264 $13,810,000 $2,337,641 $1,003,200 42.92% 5.91 $ 52,311 I-5 378 $28,150,000 $4,085,160 $1,134,000 27.76% 6.89 $ 74,471
EGIM VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES ---- -------------------------------------------------- Low High Average Median Estimate EGIM 6.45 Subject EGI $ 1,926,928 5.91 6.89 6.41 6.41 Value $12,428,684 PV of Concessions -$ 104,000 ------------ Value Based on EGIM Analysis $12,324,684 Rounded $12,300,000 Value Per Unit $ 55,909
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 37.73% before reserves. The comparable sales indicate a range of expense ratios from 27.76% to 46.35%, while their EGIMs range from 5.91 to 6.89. Overall, we conclude to an EGIM of 6.45, which results in an "as is" value estimate in the EGIM Analysis of $12,300,000. SALES COMPARISON CONCLUSION The three valuation methods in the Sales Comparison Approach are shown below. The overall value via the Sales Comparison Approach is estimated at $12,500,000. Price Per Unit $13,100,000 NOI Per Unit $12,000,000 EGIM Analysis $12,300,000 Sales Comparison Conclusion $12,500,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA 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 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA 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 - 1A1 705 $ 637 $ 0.90 96.0% 1Br/1Ba - 1B1 874 $ 627 $ 0.72 98.3% 1Br/1Ba -1C1 874 $ 699 $ 0.80 100.0% 2Br/1Ba -2A1 1111 $ 695 $ 0.63 91.7% 2Br/2Ba - 2A2 1111 $ 763 $ 0.69 94.4% 2Br/2Ba - 2B2 1213 $ 830 $ 0.68 96.0% 3Br/2Ba - 3A2 1511 $1,073 $ 0.71 86.7%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA RENT ANALYSIS
COMPARABLE RENTS ------------------------------------------------------- R-1 R-2 R-3 R-4 R-5 --------- -------- -------- ------- -------- Gables Magnolia Paces Lakes at Post Crest Walk Vinings Station Vinings ------------------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT ------------------------------------------------------- SUBJECT UNIT ACTUAL ASKING Very Slightly DESCRIPTION TYPE RENT RENT Superior Superior Superior Similar Superior ----------- ------------ ------- ------- -------- -------- -------- ------- -------- Monthly Rent 1BR/1BA - 1A1 $ 637 $ 720 $ 769 $ 870 $ 790 $ 723 $ 754 Unit Area (SF) 705 705 650 855 663 586 730 Monthly Rent Per Sq. Ft. $ 0.90 $ 1.02 $ 1.18 $ 1.02 $ 1.19 $ 1.23 $ 1.03 Monthly Rent 1BR/1BA - 1B1 $ 627 $ 685 $ 961 $ 915 $ 815 $ 961 $ 771 Unit Area (SF) 874 874 875 902 860 840 770 Monthly Rent Per Sq. Ft. $ 0.72 $ 0.78 $ 1.10 $ 1.01 $ 0.95 $ 1.14 $ 1.00 Monthly Rent 1BR/1BA -1C1 $ 699 $ 699 $ 968 $ 915 $ 810 $ 911 $ 931 Unit Area (SF) 874 874 900 902 967 949 1,100 Monthly Rent Per Sq. Ft. $ 0.80 $ 0.80 $ 1.08 $ 1.01 $ 0.84 $ 0.96 $ 0.85 Monthly Rent 2BR/1BA -2A1 $ 695 $ 889 $ 1,098 $1,150 $ 955 $ 891 $ 931 Unit Area (SF) 1,111 1,111 1,000 1,294 1,040 1,019 1,100 Monthly Rent Per Sq. Ft. $ 0.63 $ 0.80 $ 1.10 $ 0.89 $ 0.92 $ 0.87 $ 0.85 Monthly Rent 2BR/2BA - 2A2 $ 763 $ 922 $ 1,203 $1,150 $1,100 $1,030 $ 929 Unit Area (SF) 1,111 1,111 1,200 1,294 1,113 1,296 1,086 Monthly Rent Per Sq. Ft. $ 0.69 $ 0.83 $ 1.00 $ 0.89 $ 0.99 $ 0.79 $ 0.86 Monthly Rent 2BR/2BA - 2B2 $ 830 $ 954 $ 1,317 $1,230 $1,100 $1,030 $1,039 Unit Area (SF) 1,213 1,213 1,320 1,349 1,113 1,296 1,168 Monthly Rent Per Sq. Ft. $ 0.68 $ 0.79 $ 1.00 $ 0.91 $ 0.99 $ 0.79 $ 0.89 Monthly Rent 3BR/2BA - 3A2 $1,073 $1,262 $ 1,489 $1,370 $1,325 $1,227 Unit Area (SF) 1,511 1,511 1,400 1,450 1,366 1,366 Monthly Rent Per Sq. Ft. $ 0.71 $ 0.84 $ 1.06 $ 0.94 $ 0.97 $ 0.90 DESCRIPTION MIN MAX MEDIAN AVERAGE ----------- --- --- ------ ------- Monthly Rent $ 723 $ 870 $ 769 $ 781 Unit Area (SF) 586 855 663 697 Monthly Rent Per Sq. Ft. $ 1.02 $ 1.23 $ 1.18 $ 1.13 Monthly Rent $ 771 $ 961 $ 915 $ 885 Unit Area (SF) 770 902 860 849 Monthly Rent Per Sq. Ft. $ 0.95 $ 1.14 $ 1.01 $ 1.04 Monthly Rent $ 810 $ 968 $ 915 $ 907 Unit Area (SF) 900 1,100 949 964 Monthly Rent Per Sq. Ft. $ 0.84 $ 1.08 $ 0.96 $ 0.95 Monthly Rent $ 891 $1,150 $ 955 $1,005 Unit Area (SF) 1,000 1,294 1,040 1,091 Monthly Rent Per Sq. Ft. $ 0.85 $ 1.10 $ 0.89 $ 0.93 Monthly Rent $ 929 $1,203 $1,100 $1,082 Unit Area (SF) 1,086 1,296 1,200 1,198 Monthly Rent Per Sq. Ft. $ 0.79 $ 1.00 $ 0.89 $ 0.91 Monthly Rent $1,030 $1,317 $1,100 $1,143 Unit Area (SF) 1,113 1,349 1,296 1,249 Monthly Rent Per Sq. Ft. $ 0.79 $ 1.00 $ 0.91 $ 0.92 Monthly Rent $1,227 $1,489 $1,348 $1,353 Unit Area (SF) 1,366 1,450 1,383 1,396 Monthly Rent Per Sq. Ft. $ 0.90 $ 1.06 $ 0.96 $ 0.97
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows: GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area ------------------- Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income --------- --------------- --------- -------- ------ ------- ------ 1Br/1Ba - 1A1 50 705 $ 637 $0.90 $ 31,850 $ 382,200 1Br/1Ba - 1B1 58 874 $ 627 $0.72 $ 36,366 $ 436,392 1Br/1Ba -1C1 2 874 $ 699 $0.80 $ 1,398 $ 16,776 2Br/1Ba -2A1 12 1,111 $ 695 $0.63 $ 8,340 $ 100,080 2Br/2Ba - 2A2 18 1,111 $ 763 $0.69 $ 13,734 $ 164,808 2Br/2Ba - 2B2 50 1,213 $ 830 $0.68 $ 41,500 $ 498,000 3Br/2Ba - 3A2 30 1,511 $1,073 $0.71 $ 32,190 $ 386,280 Total $165,378 $1,984,536
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA 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 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 ACTUAL ACTUAL ACTUAL ----------------------- ----------------------- ----------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT ----------- ------------ -------- ------------ -------- ------------ -------- Revenues Rental Income $ 2,188,314 $ 9,947 $ 2,281,989 $ 10,373 $ 2,170,942 $ 9,868 Vacancy $ 120,614 $ 548 $ 191,143 $ 869 $ 310,832 $ 1,413 Credit Loss/Concessions $ 76,322 $ 347 $ 166,539 $ 757 $ 87,307 $ 397 ------------ -------- ------------ -------- ------------ -------- Subtotal $ 196,936 $ 895 $ 357,682 $ 1,626 $ 398,139 $ 1,810 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 73,831 $ 336 $ 124,180 $ 564 $ 116,344 $ 529 ------------ -------- ------------ -------- ------------ -------- Subtotal Other Income $ 73,831 $ 336 $ 124,180 $ 564 $ 116,344 $ 529 ------------ -------- ------------ -------- ------------ -------- Effective Gross Income $ 2,065,209 $ 9,387 $ 2,048,487 $ 9,311 $ 1,889,147 $ 8,587 Operating Expenses Taxes $ 170,688 $ 776 $ 154,349 $ 702 $ 158,452 $ 720 Insurance $ 20,839 $ 95 $ 42,148 $ 192 $ 45,286 $ 206 Utilities $ 65,597 $ 298 $ 76,136 $ 346 $ 85,485 $ 389 Repair & Maintenance $ 29,100 $ 132 $ 20,112 $ 91 $ 31,638 $ 144 Cleaning $ 57,900 $ 263 $ 32,940 $ 150 $ 55,247 $ 251 Landscaping $ 23,709 $ 108 $ 23,155 $ 105 $ 23,379 $ 106 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 43,715 $ 199 $ 49,716 $ 226 $ 47,187 $ 214 General Administrative $ 192,754 $ 876 $ 207,851 $ 945 $ 140,053 $ 637 Management $ 106,294 $ 483 $ 112,340 $ 511 $ 98,154 $ 446 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------ -------- ------------ -------- ------------ -------- Total Operating Expenses $ 710,596 $ 3,230 $ 718,747 $ 3,267 $ 684,881 $ 3,113 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------ -------- ------------ -------- ------------ -------- Net Income $ 1,354,613 $ 6,157 $ 1,329,740 $ 6,044 $ 1,204,266 $ 5,474 FISCAL YEAR 2003 ANNUALIZED 2003 MANAGEMENT BUDGET PROJECTION AAA PROJECTION ----------------------- ----------------------- ----------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % ----------- ------------ -------- ------------ -------- ------------ -------- ------ Revenues Rental Income $ 2,128,000 $ 9,673 $ 2,022,400 $ 9,193 $ 1,984,536 $ 9,021 100.0% Vacancy $ 257,280 $ 1,169 $ 226,068 $ 1,028 $ 138,918 $ 631 7.0% Credit Loss/Concessions $ 103,760 $ 472 $ 202,720 $ 921 $ 39,691 $ 180 2.0% ------------ -------- ------------ -------- ------------ -------- ----- Subtotal $ 361,040 $ 1,641 $ 428,788 $ 1,949 $ 178,608 $ 812 9.0% Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 160,800 $ 731 $ 131,664 $ 598 $ 121,000 $ 550 6.1% ------------ -------- ------------ -------- ------------ -------- ----- Subtotal Other Income $ 160,800 $ 731 $ 131,664 $ 598 $ 121,000 $ 550 6.1% ------------ -------- ------------ -------- ------------ -------- ----- Effective Gross Income $ 1,927,760 $ 8,763 $ 1,725,276 $ 7,842 $ 1,926,928 $ 8,759 100.0% Operating Expenses Taxes $ 164,239 $ 747 $ 164,004 $ 745 $ 164,340 $ 747 8.5% Insurance $ 48,445 $ 220 $ 46,088 $ 209 $ 48,400 $ 220 2.5% Utilities $ 94,800 $ 431 $ 102,080 $ 464 $ 93,500 $ 425 4.9% Repair & Maintenance $ 33,000 $ 150 $ 65,468 $ 298 $ 33,000 $ 150 1.7% Cleaning $ 46,500 $ 211 $ 113,504 $ 516 $ 44,000 $ 200 2.3% Landscaping $ 43,020 $ 196 $ 35,144 $ 160 $ 44,000 $ 200 2.3% Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 30,000 $ 136 $ 96,820 $ 440 $ 44,000 $ 200 2.3% General Administrative $ 115,935 $ 527 $ 201,344 $ 915 $ 159,500 $ 725 8.3% Management $ 98,404 $ 447 $ 82,112 $ 373 $ 96,346 $ 438 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% ------------ -------- ------------ -------- ------------ -------- ----- Total Operating Expenses $ 674,343 $ 3,065 $ 906,564 $ 4,121 $ 727,086 $ 3,305 37.7% Reserves $ 0 $ 0 $ 0 $ 0 $ 55,000 $ 250 7.6% ------------ -------- ------------ -------- ------------ -------- ----- Net Income $ 1,253,417 $ 5,697 $ 818,712 $ 3,721 $ 1,144,841 $ 5,204 59.4%
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 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA 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 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR --------- --------- ------ ---------- --- I-1 Mar-03 90% $50,000 8.33% I-2 Jul-02 91% $48,421 8.85% I-3 Dec-01 90% $72,130 10.76% I-4 Feb-02 93% $52,311 9.66% I-5 Feb-01 92% $74,471 10.48% High 10.76% Low 8.33% Average 9.62%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.00%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 9.50%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 11.00%. 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 $12,900,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA approximately 41% 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 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA DISCOUNTED CASH FLOW ANALYSIS WOOD LAKE
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 ----------- - - - - - - REVENUE Base Rent $1,984,536 $1,984,536 $2,044,072 $2,105,394 $2,168,556 $2,233,613 Vacancy $ 138,918 $ 138,918 $ 143,085 $ 147,378 $ 151,799 $ 156,353 Credit Loss $ 39,691 $ 39,691 $ 40,881 $ 42,108 $ 43,371 $ 44,672 Concessions $ 79,381 $ 39,691 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal $ 257,990 $ 218,299 $ 183,966 $ 189,485 $ 195,170 $ 201,025 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 121,000 $ 121,000 $ 124,630 $ 128,369 $ 132,220 $ 136,187 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 121,000 $ 121,000 $ 124,630 $ 128,369 $ 132,220 $ 136,187 ---------- ---------- ---------- ---------- ---------- ---------- EFFECTIVE GROSS INCOME $1,847,546 $1,887,237 $1,984,736 $2,044,278 $2,105,606 $2,168,774 OPERATING EXPENSES: Taxes $ 164,340 $ 169,270 $ 174,348 $ 179,579 $ 184,966 $ 190,515 Insurance $ 48,400 $ 49,852 $ 51,348 $ 52,888 $ 54,475 $ 56,109 Utilities $ 93,500 $ 96,305 $ 99,194 $ 102,170 $ 105,235 $ 108,392 Repair & Maintenance $ 33,000 $ 33,990 $ 35,010 $ 36,060 $ 37,142 $ 38,256 Cleaning $ 44,000 $ 45,320 $ 46,680 $ 48,080 $ 49,522 $ 51,008 Landscaping $ 44,000 $ 45,320 $ 46,680 $ 48,080 $ 49,522 $ 51,008 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 44,000 $ 45,320 $ 46,680 $ 48,080 $ 49,522 $ 51,008 General Administrative $ 159,500 $ 164,285 $ 169,214 $ 174,290 $ 179,519 $ 184,904 Management $ 92,377 $ 94,362 $ 99,237 $ 102,214 $ 105,280 $ 108,439 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $ 723,117 $ 744,024 $ 768,389 $ 791,441 $ 815,184 $ 839,639 Reserves $ 55,000 $ 56,650 $ 58,350 $ 60,100 $ 61,903 $ 63,760 ---------- ---------- ---------- ---------- ---------- ---------- NET OPERATING INCOME $1,069,429 $1,086,563 $1,157,997 $1,192,737 $1,228,519 $1,265,375 ========== ========== ========== ========== ========== ========== Operating Expense Ratio (% of EGI) 39.1% 39.4% 38.7% 38.7% 38.7% 38.7% Operating Expense Per Unit $ 3,287 $ 3,382 $ 3,493 $ 3,597 $ 3,705 $ 3,817 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 ----------- - - - -- -- REVENUE Base Rent $2,300,621 $2,369,640 $2,440,729 $2,513,951 $2,589,369 Vacancy $ 161,043 $ 165,875 $ 170,851 $ 175,977 $ 181,256 Credit Loss $ 46,012 $ 47,393 $ 48,815 $ 50,279 $ 51,787 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- Subtotal $ 207,056 $ 213,268 $ 219,666 $ 226,256 $ 233,043 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 140,272 $ 144,480 $ 148,815 $ 153,279 $ 157,878 ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 140,272 $ 144,480 $ 148,815 $ 153,279 $ 157,878 ---------- ---------- ---------- ---------- ---------- EFFECTIVE GROSS INCOME $2,233,837 $2,300,853 $2,369,878 $2,440,974 $2,514,204 OPERATING EXPENSES: Taxes $ 196,231 $ 202,117 $ 208,181 $ 214,426 $ 220,859 Insurance $ 57,792 $ 59,526 $ 61,312 $ 63,151 $ 65,046 Utilities $ 111,644 $ 114,993 $ 118,443 $ 121,996 $ 125,656 Repair & Maintenance $ 39,404 $ 40,586 $ 41,803 $ 43,058 $ 44,349 Cleaning $ 52,538 $ 54,114 $ 55,738 $ 57,410 $ 59,132 Landscaping $ 52,538 $ 54,114 $ 55,738 $ 57,410 $ 59,132 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 52,538 $ 54,114 $ 55,738 $ 57,410 $ 59,132 General Administrative $ 190,451 $ 196,165 $ 202,050 $ 208,111 $ 214,355 Management $ 111,692 $ 115,043 $ 118,494 $ 122,049 $ 125,710 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $ 864,828 $ 890,773 $ 917,496 $ 945,021 $ 973,372 Reserves $ 65,673 $ 67,643 $ 69,672 $ 71,763 $ 73,915 ---------- ---------- ---------- ---------- ---------- NET OPERATING INCOME $1,303,336 $1,342,436 $1,382,709 $1,424,191 $1,466,916 ========== ========== ========== ========== ========== Operating Expense Ratio (% of EGI) 38.7% 38.7% 38.7% 38.7% 38.7% Operating Expense Per Unit $ 3,931 $ 4,049 $ 4,170 $ 4,296 $ 4,424
Gross Residual Deferred Sale Price $15,441,224 Maintenance $0 Estimated Stabilized NOI $1,144,841 Sales Expense Rate 2.00% Less Sales Expense $308,824 Add: Excess Land $0 ----------- Net Residual Months to Stabilized 1 Discount Rate 11.00% Sale Price $15,132,399 Other Adjustments $0 ----------- Value Indicated Stabilized Occupancy 93.0% Terminal Cap Rate 9.50% PV of Reversion $5,329,396 by "DCF" $12,930,545 Add: NPV of NOI $7,601,149 Rounded $12,900,000 ----------- PV Total $12,930,545
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ------------- TOTAL VALUE 10.50% 10.75% 11.00% 11.25% 11.50% ------ ------ ------ ------ ------ TERMINAL CAP RATE 9.00% $13,670,714 $13,446,210 $13,226,623 $13,011,827 $12,801,702 9.25% $13,511,652 $13,290,703 $13,074,583 $12,863,169 $12,656,344 9.50% $13,360,963 $13,143,381 $12,930,545 $12,722,336 $12,518,636 9.75% $13,218,001 $13,003,614 $12,793,894 $12,588,724 $12,387,991 10.00% $13,082,187 $12,870,835 $12,664,075 $12,461,794 $12,263,878
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA INCOME LOSS DURING LEASE-UP The subject is currently near or at a stabilized condition. Therefore, there is no income loss during lease-up at the subject property. CONCESSIONS Due to softness in the market, concessions have been utilized at the subject property and within the market. Based on our discussions with the subject's property manager and those at competing properties, these concessions are expected to continue in the near term until the market returns to a stabilized level. Concessions have been included as a line item deduction within the discounted cash flow analysis. The present value of these concessions equates to $104,000 (rounded). This amount has been deducted from the Direct Capitalization analysis, as well as the Sales Comparison Approach value. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 9.00% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA WOOD LAKE
TOTAL PER SQ. FT. PER UNIT %OF EGI ----- ----------- -------- ------- REVENUE Base Rent $ 1,984,536 $ 8.74 $ 9,021 Less: Vacancy & Collection Loss 9.00% $ 178,608 $ 0.79 $ 812 Plus: Other Income Laundry Income $ 0 $ 0.00 $ 0 0.00% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 121,000 $ 0.53 $ 550 6.28% ----------- ------ ------- ----- Subtotal Other Income $ 121,000 $ 0.53 $ 550 6.28% EFFECTIVE GROSS INCOME $ 1,926,928 $ 8.49 $ 8,759 OPERATING EXPENSES: Taxes $ 164,340 $ 0.72 $ 747 8.53% Insurance $ 48,400 $ 0.21 $ 220 2.51% Utilities $ 93,500 $ 0.41 $ 425 4.85% Repair & Maintenance $ 33,000 $ 0.15 $ 150 1.71% Cleaning $ 44,000 $ 0.19 $ 200 2.28% Landscaping $ 44,000 $ 0.19 $ 200 2.28% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 44,000 $ 0.19 $ 200 2.28% General Administrative $ 159,500 $ 0.70 $ 725 8.28% Management 5.00% $ 96,346 $ 0.42 $ 438 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 727,086 $ 3.20 $ 3,305 37.73% Reserves $ 55,000 $ 0.24 $ 250 2.85% ----------- ------ ------- ----- NET OPERATING INCOME $ 1,144,841 $ 5.04 $ 5,204 59.41% "GOING IN" CAPITALIZATION RATE 9.00% VALUE INDICATION $12,720,460 $56.04 $57,820 PV OF CONCESSIONS ($ 104,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $12,616,460 ROUNDED $12,600,000 $55.51 $57,273
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF -------- ----- ------- ------ ---- 8.25% $13,772,865 $13,800,000 $62,727 $60.79 8.50% $13,364,722 $13,400,000 $60,909 $59.03 8.75% $12,979,901 $13,000,000 $59,091 $57.27 9.00% $12,616,460 $12,600,000 $57,273 $55.51 9.25% $12,272,663 $12,300,000 $55,909 $54.19 9.50% $11,946,962 $11,900,000 $54,091 $52.42 9.75% $11,637,963 $11,600,000 $52,727 $51.10
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $12,600,000. CORRELATION AND CONCLUSION BY THE INCOME APPROACH The two methods used to estimate the market value of the subject property by the income approach resulted in the following indications of value: Discounted Cash Flow Analysis $12,900,000 Direct Capitalization Method $12,600,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $12,800,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA RECONCILIATION AND CONCLUSION This appraisal was made to express an opinion as of the Market Value of the fee simple estate in the property. AS IS MARKET VALUE OF THE FEE SIMPLE ESTATE
Cost Approach Not Utilized Sales Comparison Approach $12,500,000 Income Approach $12,800,000 Reconciled Value $12,800,000
The Income Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of May 20, 2003 the market value of the fee simple estate in the property is: $12,800,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - ENTRANCE EXTERIOR - TYPICAL APARTMENT BUILDING [PICTURE] [PICTURE] SWIMMING POOL EXTERIOR - LEASING OFFICE [PICTURE] [PICTURE] INTERIOR - APARTMENT UNIT INTERIOR - APARTMENT UNIT AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 CUMBERLAND PINES CONCORD CROSSING SUMMER LAKE 3339 Seven Pines Court 2935 Old Concord Road SE 6901 Glenlake Parkway NE Atlanta, GA Smyrna, GA Atlanta, GA [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 MADISON AT FOREST GLEN WORTHING CREST 4236 Austell Road 3200 Spring Hill Road Austell, GA Smyrna, GA 30080 [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA SUMMARY OF COMPARABLE RENTAL PROPERTIES
DESCRIPTION SUBJECT COMPARABLE R - 1 ----------------------------------------------------------------------------------------------------------------------------------- Property Name Wood Lake Post Crest Management Company AIMCO Post Properties LOCATION: Address 100 Pinhurst Drive 50 Adams Lake Boulevard City, State Unincorporated Cobb County, Georgia Atlanta, GA County Cobb Cobb Proximity to Subject 1-mile west of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 227,000 N/A Year Built 1983 1996 Effective Age 18 7 Building Structure Type Brick & wood siding walls; asphalt shingle roof Wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Garage, Open Covered Open, Garages Number of Units 220 410 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Br/1Ba - 1A1 705 50 $ 637 1 1BD/1BH - Plan A3 650 $ 792 2 1Br/1Ba - 1B1 874 58 $ 627 1 1BD/1BH - Plan A4 650 $ 745 3 1Br/1Ba-1C1 874 2 $ 699 2 1BD/1BH - Plan G 850 $ 953 4 2Br/1Ba-2A1 1,111 12 $ 695 2 1BD/1BH - Plan Z 900 $ 968 5 2Br/2Ba - 2A2 1,111 18 $ 763 3 1BD/1BH - Plan Z 900 $ 968 6 2Br/2Ba - 2B2 1,213 50 $ 830 4 2BD/1BH - Plan D 1,000 $1,098 7 3Br/2Ba - 3A2 1,511 30 $1,073 5 2BD/2BH - Plan J 1,200 $1,203 6 2BD/2BH - Plan E 1,320 $1,317 7 3BD/2BH - Plan K 1,400 $1,489 Average Unit Size (SF) 1,032 Unit Breakdown: Efficiency 0% 2-Bedroom 39% Efficiency 0% 2-Bedroom 0% 1-Bedroom 61% 3-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% CONDITION: Good Very Good APPEAL: Fair Very Good AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling X Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi X Car Wash Spa/Jacuzzi X Car Wash Basketball Court X BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall X Tennis Court Secured Parking X Tennis Court X Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 95% 92% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 to 12 Months Concessions 1 - 1 1/2 Months Free 1 - 2 Months Free Pet Deposit $300 - $500 N/A Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash X Water Trash Confirmation May 1, 2003; Joseph Beard (Property Manager) May 20, 2003; Jean Scott, Senior Leasing Telephone Number (972)234-1231 770-333-3000 NOTES: Modern garden style apartment complex Located one block from Cumberland Mall COMPARISON TO SUBJECT: Superior DESCRIPTION COMPARABLE COMPARABLE R - 2 R - 3 ---------------------------------------------------------------------------------------------------------------------------------- Property Name Gables Walk Magnolia Vinings Management Company Gables Residential Trammell Crow Residential Services LOCATION: Address 2158 Cumberland Parkway 2151 Cumberland Parkway City, State Atlanta, GA Atlanta, GA County Cobb Cobb Proximity to Subject 2-miles southwest of subject 2-miles south of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) N/A N/A Year Built 1996 1997 Effective Age 7 6 Building Structure Type Wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open, Garages Open, Garages Number of Units 310 400 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1BD/1BH - Plan A2 855 $ 870 1 1BD/1BH - Willow 572 $ 760 2 1BD/1BH - Plan A2 902 $ 915 1 1BD/1BH - Pine 753 $ 820 3 1BD/1BH - Plan A2 902 $ 915 2 1BD/1BH - Pine 753 $ 820 4 2BD/2BH - Plan B1 1,294 $1,150 3 1BD/1BH -Dogwood 967 $ 810 5 2BD/2BH - Plan B1 1,294 $1,150 2 1BD/1BH -Dogwood 967 $ 810 6 2BD/2BH - Plan B3 1,349 $1,230 4 1BD/1BH -Dogwood 967 $ 810 7 3BD/2BH - Plan C1 1,450 $1,370 4 2BD/2BH-Sycamore 1,113 $1,100 5 2BD/2BH-Sycamore 1,113 $1,100 6 2BD/2BH-Sycamore 1,113 $1,100 7 3BD/2BH-Magnolia 1,366 $1,325 Average Unit Size (SF) Unit Breakdown: Efficiency 0% 2-Bedroom 0% Efficiency 0% 2-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% CONDITION: Very Good Excellent APPEAL: Very Good Excellent AMENITIES: Unit Amenities X Attach. Garage Vaulted Ceiling X 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 X Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court X BBQ Equipment Volleyball Court X Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court X Secured Parking X Tennis Court X Secured Parking Racquet Ball Laundry Room Racquet Ball Laundry Room Jogging Track X Business Office X Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 93% 94% LEASING DATA: Available Leasing Terms 6 to 12 Months 6 to 12 Months Concessions Yes; actual provision not 2 Months Free reported Pet Deposit $400 $300 - $500 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash X Water Trash Confirmation May 20, 2003; Jacqueline Wamaitha, Leasing May 20, 2003; Amy Sanders, Community Manager Telephone Number 770-803-5000 770-801-3600 NOTES: Modern garden style apartment complex Modern garden style apartment complex COMPARISON TO SUBJECT: Superior Very Superior DESCRIPTION COMPARABLE COMPARABLE R - 4 R - 5 -------------------------------------------------------------------------------------------------------------------------------- Property Name Paces Station Lakes at Vinings Management Company Equity Residential Equity Residential LOCATION: Address 3000 Paces Walk 2800 Paces Ferry Road City, State Atlanta, GA Atlanta, GA County Cobb Cobb Proximity to Subject 2-miles south of subject 1/2-mile south of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) N/A N/A Year Built 1980 - 1992 1970 Effective Age 20 33 Building Structure Type Wood siding walls; asphalt shingle roof Vinyl siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Garage, Open Open Number of Units 610 464 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1BD/1BH-Fairfield 522 $ 706 1 1BD/1BH 702 $ 749 1 1BD/1BH-Tuxedo 650 $ 740 1 1BD/1BH 758 $ 759 2 1BD/1BH-Westbr'k 840 $ 961 2 1BD/1BH 770 $ 771 3 1BD/1BH-Conway 880 $ 861 3 2BD/ 1 & 3/4 BH 1,100 $ 931 3 2BD/1BH-Stratford 1,017 $ 961 4 2BD/ 1 & 3/4 BH 1,100 $ 931 4 2BD/1BH-Wesley 1,019 $ 891 5 2BD/2BH 1,051 $ 931 5 2BD/2BH-Rembr'dt 1,248 $1,036 6 2BD/2BH 1,048 $ 927 5 2BD/2BH-Clairmont 1,343 $1,023 5 2BD/2BH 1,121 $ 927 6 2BD/2BH-Rembr'dt 1,248 $1,036 6 2BD/2BH 1,288 $1,151 6 2BD/2BH-Clairmont 1,343 $1,023 7 3BD/2BH 1,366 $1,227 Average Unit Size (SF) Unit Breakdown: Efficiency 0% 2-Bedroom 0% Efficiency 0% 2-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% CONDITION: Good Good APPEAL: Fair Fair AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace 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 X Sand Volley Ball X Meeting Hall X Tennis Court X Secured Parking X Tennis Court X Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office X Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 92% 92% LEASING DATA: Available Leasing Terms 6 to 12 Months 6 to 12 Months Concessions 1 - 2 Months Free 2 Months Free Pet Deposit N/A N/A Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash X Water Trash Confirmation May 20, 2003; Courtney Bates, General Manager May 20, 2003; Gabrielle Deaton, Leasing Telephone Number 770-436-4400 770-432-5105 NOTES: Older facility located south of Paces Ferry Older complex with a central location on Paces Road Ferry Road in the center of Vinings COMPARISON TO SUBJECT: Similar Slightly Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 POST CREST GABLES WALK MAGNOLIA VININGS 50 Adams Lake Boulevard 2158 Cumberland Parkway 2151 Cumberland Parkway Atlanta, GA Atlanta, GA Atlanta, GA [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 PACES STATION LAKES AT VININGS 3000 Paces Walk 2800 Paces Ferry Road Atlanta, GA Atlanta, GA [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA 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 s uch 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 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA 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 WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the Appraisal Institute or the designations awarded by this organization) shall be disseminated to the public through prospectus, advertising, public relations, news, or any other means of communication without the written consent and approval of American Appraisal Associates, Inc. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA 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. Steven M. Zenkovich, ASA 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/ Michael Bates --------------------------------------- Michael Bates, MAI Assistant Manager, Real Estate Group State of Georgia, Certified General Real Property Appraiser #CG00685 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA EXHIBIT E QUALIFICATIONS OF APPRAISER (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA MICHAEL P. BATES, MAI DIRECTOR - HEALTHCARE REAL ESTATE AND ASSISTANT MANAGER, REAL ESTATE GROUP POSITION Michael P. Bates is the Assistant Manager of the Atlanta Real Estate Group of American Appraisal Associates, Inc. ("AAA"). He shares responsibility for the management, quality control, and review of commercial real estate assignments principally in the southeast United States. Mr. Bates is also the national Director - Healthcare Real Estate for AAA and is responsible for the management and valuation process for specialty health care facility assignments. EXPERIENCE Valuation Mr. Bates has 17 years of commercial appraisal experience. He has performed appraisals in 43 states and Canada, and he is currently a certified general appraiser in 21 states. Court Mr. Bates has been accepted as an expert witness and given testimony in federal bankruptcy court in Delaware. He has prepared many other appraisals that were submitted as expert evidence to federal bankruptcy court, but those cases were settled prior to testimony being required. Mr. Bates has testified in property tax appeal cases in California, Missouri, and Texas, and his hospital appraisals have been submitted in tax appeal cases in Pennsylvania, South Carolina, and South Dakota. Business Mr. Bates joined AAA in 1997. Prior to joining AAA, he was president of his own valuation company and was previously a vice president for both Gulf/Atlantic Valuation Services, Inc., and Valuation Counselors. Prior to gaining his appraisal experience, Mr. Bates worked seven years in commercial mortgage financing. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA EDUCATION University of Tennessee - Knoxville Master of Business Administration - Finance and Management Bachelor of Science - Marketing STATE State of Alabama, Certified General Real Property Appraiser, CERTIFICATIONS #G00503 State of Arizona, Certified General Real Estate Appraiser, #31067 State of Arkansas, State Certified General Appraiser, #CG1414N State of California, Certified General Real Estate Appraiser, #AG026120 State of Colorado, Certified General Appraiser, #CG40023849 State of Delaware, Certified General Appraiser, #X1-0000352 State of Florida, Certified General Appraiser, #0002494 State of Georgia, Certified General Real Property Appraiser, #CG00685 State of Illinois, State Certified General Real Estate Appraiser, #153001243 State of Maryland, Certified General Real Estate Appraiser, #10814 State of Michigan, Certified General Appraiser, #1201069262 State of Mississippi, State Certified General Real Estate Appraiser, #GA-629 State of New Jersey, General Appraiser, #42KG00195600 State of New York, Real Estate General Appraiser, #46000041317 State of North Carolina, Certified General Real Estate Appraiser, #A4095 Commonwealth of Pennsylvania, Certified General Appraiser, #GA001817R State of South Carolina, Certified Real Estate Appraiser, #CG3059 State of Tennessee, Certified General Real Estate Appraiser, AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA #00051881 State of Texas, State Certified General Real Estate Appraiser, #TX-1328483-G Commonwealth of Virginia, Certified General Real Estate Appraiser, #4001005254 State of Washington, Certified General Real Estate Appraiser, #1100998 PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS VALUATION AND Appraisal Institute SPECIAL All required courses COURSES Standards of Professional Practice, Parts A and B The Appraiser as an Expert Witness: Preparation and Testimony Litigation Appraising: Specialized Topics and Applications Separating Real and Personal Property from Intangible Business Assets Specialty Courses Hotel/Motel Valuation and Investment Seminar Valuation of Special-Purpose Properties PUBLICATIONS "Estimating Hospital Real Property Values for Ad Valorem Tax Purposes," Journal of Property Tax Management, Fall 1997, republished by Appraisal Institute in A Business Enterprise Value Anthology, 2001 Co-authored "Abnormal Investor Returns Resulting from the Burroughs and Memorex Merger," Mergers & Acquisitions, June 1984 AMERICAN APPRAISAL ASSOCIATES, INC. WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. WOOD LAKE, UNINCORPORATED AREA OF COBB COUNTY, GEORGIA 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.