-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UozevwiTxxN4L4RF4rh8U8Q+FZVUHRarGB21zAwBYR2k725U84vvJbtafjZkl1c2 fWrEIHwpl7RSwaiZsk2PwQ== 0000898430-98-003850.txt : 19981106 0000898430-98-003850.hdr.sgml : 19981106 ACCESSION NUMBER: 0000898430-98-003850 CONFORMED SUBMISSION TYPE: SC 13E3/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19981105 GROUP MEMBERS: CONAM DOC AFFILIATES LLC GROUP MEMBERS: CONAM PROPERTY SERVICES IV, LTD. GROUP MEMBERS: CONAM REALTY INVESTORS 3 L P GROUP MEMBERS: CONTINENTAL AMERICAN PROPERTIES, LTD. SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CONAM REALTY INVESTORS 3 L P CENTRAL INDEX KEY: 0000711389 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 133176625 STATE OF INCORPORATION: CA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: SC 13E3/A SEC ACT: SEC FILE NUMBER: 005-54777 FILM NUMBER: 98738381 BUSINESS ADDRESS: STREET 1: 1764 SAN DIEGO AVE STREET 2: ATTN: ROBERT J SVATOS CITY: SAN DIEGO STATE: CA ZIP: 92100 BUSINESS PHONE: 2125263237 MAIL ADDRESS: STREET 1: 3 WORLD FINANCIAL CENTER STREET 2: 29TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10285 FORMER COMPANY: FORMER CONFORMED NAME: HUTTON CONAM REALTY INVESTORS 3 DATE OF NAME CHANGE: 19920703 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CONAM REALTY INVESTORS 3 L P CENTRAL INDEX KEY: 0000711389 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 133176625 STATE OF INCORPORATION: CA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: SC 13E3/A BUSINESS ADDRESS: STREET 1: 1764 SAN DIEGO AVE STREET 2: ATTN: ROBERT J SVATOS CITY: SAN DIEGO STATE: CA ZIP: 92100 BUSINESS PHONE: 2125263237 MAIL ADDRESS: STREET 1: 3 WORLD FINANCIAL CENTER STREET 2: 29TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10285 FORMER COMPANY: FORMER CONFORMED NAME: HUTTON CONAM REALTY INVESTORS 3 DATE OF NAME CHANGE: 19920703 SC 13E3/A 1 AMENDMENT #1 TO SCHEDULE 13E-3 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------------- AMENDMENT NO. 1 TO SCHEDULE 13E-3 RULE 13E-3 TRANSACTION STATEMENT (PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934) CONAM REALTY INVESTORS 3, L.P. (NAME OF THE ISSUER) ConAm Realty Investors 3, L.P. Continental American Properties, Ltd. ConAm Property Services IV, Ltd. ConAm DOC Affiliates LLC (NAME OF PERSONS FILING STATEMENT) Units of Limited Partnership Interest (TITLE OF CLASS OF SECURITIES) 44849P305 (CUSIP NUMBER OF CLASS OF SECURITIES) Frederick B. McLane, Esq. O'Melveny & Myers LLP 400 South Hope Street Los Angeles, CA 90071-2899 (213) 430-6000 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF PERSON(S) FILING STATEMENT) This statement is filed in connection with (check the appropriate box): a. [X] The filing of solicitation materials or an information statement subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the Securities Exchange Act of 1934. b. The filing of a registration statement under the Securities Act of 1933. c. A tender offer. d. None of the above. Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies. [X] CALCULATION OF FILING FEE =============================================================================== $16,486,647 $3,298 Transaction Valuation(1) Amount of Filing Fee =============================================================================== [X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount previously paid: $3,298 Filing party: ConAm Realty Investors 3, L.P. ------------------- --------------------------------- Form or registration no.: Schedule 13E-3 Date filed: October 30, 1998 ---------------- ----------------------------------
Instruction. Eight copies of this statement, including all exhibits, should be filed with the Commission. - -------- (1) For purposes of calculating the filing fee only. The filing fee was calculated in accordance with Rule 0-11 under the Securities Exchange Act of 1934, as amended, and equals 1/50 of one percent of the aggregate amount of cash to be distributed to securityholders in connection with the transaction. CONAM REALTY INVESTORS 3, L.P. 1764 SAN DIEGO AVENUE SAN DIEGO, CALIFORNIA 92110-1906 This Rule 13e-3 Transaction Statement (this "Statement") relates to the proposed sale of the remaining three properties (the "Properties") of ConAm Realty Investors 3, L.P., a California limited partnership (the "Partnership"), to a Delaware limited liability company (the "Purchaser") to be formed if the proposed sale is approved by the Partnership's limited partners. It is anticipated that, shortly after the sale of the Properties, the net proceeds from the sale, together with certain cash reserves, would be distributed to the limited partners and the Partnership would be liquidated. A final distribution of cash from reserves would be distributed to limited partners at the time of liquidation. The general partner of the Partnership is ConAm Property Services IV, Ltd. (the "General Partner"). Continental American Development, Inc., a California corporation ("CADI"), is the general partner of the General Partner. The shareholders of CADI are substantially identical to the partners of Continental American Properties, Ltd. ("CAPL"). CAPL is the managing member of ConAm DOC Affiliates LLC, which will own a 9% interest in the Purchaser. In addition, the shareholders of CADI are identical to the shareholders of ConAm Management Corporation ("ConAm Management"), which will act as the initial property manager for the Purchaser with respect to the Properties if the proposed sale is approved. A preliminary consent solicitation statement (the "Consent Solicitation Statement") regarding the proposed sale was filed with the Securities and Exchange Commission on October 30, 1998. The following Cross-Reference Sheet is supplied pursuant to General Instruction F of Schedule 13E-3 and cites the location in the Consent Solicitation Statement of the information required to be included in response to the items of this Statement, which Consent Solicitation Statement is hereby incorporated by reference to the extent so cited. Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Consent Solicitation Statement. The Consent Solicitation Statement will be completed and, if appropriate, amended prior to the time it is first sent or given to limited partners of the Partnership. This Statement will be amended to reflect such completion or amendment of the Consent Solicitation Statement. CROSS-REFERENCE SHEET - -------------------------------------------------------------------------------- Item of Schedule 13E-3 Location in Consent Solicitation Statement - -------------------------------------------------------------------------------- Item 1. Issuer and Class of Security Subject to the Transaction - -------------------------------------------------------------------------------- (a) and (b) Outside Front Cover Page, "SUMMARY--The Partnership," "ACTION BY CONSENT--Record Date," "MARKET FOR THE UNITS," "VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF." - -------------------------------------------------------------------------------- (c) "MARKET FOR THE UNITS." - -------------------------------------------------------------------------------- (d) "DISTRIBUTIONS." - -------------------------------------------------------------------------------- (e) Not applicable. - -------------------------------------------------------------------------------- (f) Not applicable. - -------------------------------------------------------------------------------- Item 2. Identity and This Statement is being filed by the issuer and Background certain affiliates of the issuer named in (b) below. - -------------------------------------------------------------------------------- (a)-(c) ConAm Property Services IV, Ltd. 1764 San Diego Avenue San Diego, California 92110-1906 State of organization: California Principal business: Real estate investment Continental American Properties, Ltd. 1764 San Diego Avenue San Diego, California 92110-1906 State of organization: California Principal business: Real estate investment ConAm DOC Affiliates LLC 1764 San Diego Avenue San Diego, California 92110-1906 State of organization: California Principal business: Real estate investment Continental American Development, Inc. 1764 San Diego Avenue San Diego, California 92110-1906 State of organization: California Principal business: Real estate investment DJE Financial Corp. 1764 San Diego Avenue San Diego, California 92110-1906 State of organization: California Principal business: Real estate investment Daniel J. Epstein Chairman and Chief Executive Officer ConAm Management Corporation 1764 San Diego Avenue San Diego, California 92110-1906 Principal business: Real estate management - -------------------------------------------------------------------------------- 2 - -------------------------------------------------------------------------------- J. Bradley Forrester President ConAm Management Corporation 1764 San Diego Avenue San Diego, California 92110-1906 Principal business: Real estate management E. Scott Dupree, Esq. Senior Vice President and General Counsel ConAm Management Corporation 1764 San Diego Avenue San Diego, California 92110-1906 Principal business: Real estate management Robert J. Svatos Senior Vice President and Chief Financial Officer ConAm Management Corporation 1764 San Diego Avenue San Diego, California 92110-1906 Principal business: Real estate management Ralph W. Tilley Senior Vice President and Treasurer ConAm Management Corporation 1764 San Diego Avenue San Diego, California 92110-1906 Principal business: Real estate management - -------------------------------------------------------------------------------- (d) Daniel J. Epstein has been Chairman and Chief Executive Officer of ConAm Management Corporation since 1983. J. Bradley Forrester has been President of ConAm Management Corporation since 1994. Prior to joining ConAm Management Corporation, Mr. Forrester was Senior Vice President--Commercial Real Estate for First Nationwide Bank from 1991 to 1994. First Nationwide Bank was a national savings bank located at 700 Market Street, San Francisco, California. E. Scott Dupree has been Senior Vice President and General Counsel of ConAm Management Corporation since 1985. Robert J. Svatos has been Senior Vice President and Chief Financial Officer of ConAm Management Corporation since 1988. Ralph W. Tilley has been Senior Vice President and Treasurer of ConAm Management Corporation since 1980. - -------------------------------------------------------------------------------- (e) and (f) During the last five years, neither the Partnership nor any of the persons named in the response to Item 2(a) hereof has been (i) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and, as a result of such proceeding, was or is subject to a judgment, decree or final order enjoining further violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. - -------------------------------------------------------------------------------- 3 - -------------------------------------------------------------------------------- (g) All natural persons named in the response to Item 2(a) are citizens of the United States of America. - -------------------------------------------------------------------------------- Item 3. Past Contacts, Transactions or Negotiations - -------------------------------------------------------------------------------- (a)(1) Not applicable. - -------------------------------------------------------------------------------- (a)(2) "SPECIAL FACTORS--Alternatives Considered to the Sale," "THE PROPOSALS--Background of the Sale." - -------------------------------------------------------------------------------- (b) "SPECIAL FACTORS--Alternatives Considered to the Sale," "THE PROPOSALS--Background of the Sale." - -------------------------------------------------------------------------------- Item 4. Terms of the Transaction - -------------------------------------------------------------------------------- (a) and (b) Outside Front Cover Page, "SUMMARY," "SPECIAL FACTORS--Effects of the Sale," "--Fairness of the Sale," "THE PROPOSALS--The Purchaser," "-- Background of the Sale," "--Conflicts of Interest of the General Partner," "--Terms of the Purchase Agreements," "--The Amendment." - -------------------------------------------------------------------------------- Item 5. Plans or Proposals of the Issuer or Affiliate - -------------------------------------------------------------------------------- (a)-(g) Outside Front Cover Page, "SUMMARY," "SPECIAL FACTORS--Effects of the Sale," "THE PROPOSALS-- The Purchaser," "--Conflicts of Interest of the General Partner," "--Failure to Approve the Sale." - -------------------------------------------------------------------------------- Item 6. Source and Amounts of Funds or Other Consideration - -------------------------------------------------------------------------------- (a) "THE PROPOSALS--Purchaser's Valuation," "-- Background of the Sale," "--Terms of the Purchase Agreements." - -------------------------------------------------------------------------------- (b) "ACTION BY CONSENT--Action by Consent." - -------------------------------------------------------------------------------- (c) "THE PROPOSALS--Terms of the Purchase Agreements." - -------------------------------------------------------------------------------- (d) Not applicable. - -------------------------------------------------------------------------------- Item 7. Purposes, Alternatives, Reasons and Effects - -------------------------------------------------------------------------------- (a) "SPECIAL FACTORS--Reasons for the Sale," "THE PROPOSALS--Background of the Sale." - -------------------------------------------------------------------------------- (b) "SPECIAL FACTORS--Alternatives Considered to the Sale," "--Fairness of the Sale." - -------------------------------------------------------------------------------- (c) "SPECIAL FACTORS--Reasons for the Sale," "-- Alternatives Considered to the Sale," "--Fairness of the Sale." - -------------------------------------------------------------------------------- (d) Outside Front Cover Page, "SUMMARY," "ACTION BY CONSENT--Matters to be Considered," "SPECIAL FACTORS--Effects of the Sale," "THE PROPOSALS-- The Purchaser," "--Conflicts of Interest of the General Partner," "CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE," "NO APPRAISAL RIGHTS," "MARKET FOR THE UNITS." - -------------------------------------------------------------------------------- 4 - -------------------------------------------------------------------------------- Item 8. Fairness of the Transaction - -------------------------------------------------------------------------------- (a) and (b) "SUMMARY--Fairness of the Sale and Certain Conflicts of Interest," "SPECIAL FACTORS-- Fairness of the Sale." Each filing person reasonably believes that the Sale is fair to the Limited Partners and has adopted the analysis of the General Partner with respect thereto. - -------------------------------------------------------------------------------- (c) Outside Front Cover Page, "SUMMARY--Vote Required," "ACTION BY CONSENT--Action by Consent," "NO APPRAISAL RIGHTS." - -------------------------------------------------------------------------------- (d) "SPECIAL FACTORS--Fairness of the Sale," "THE PROPOSALS--Background of the Sale," "--Conflicts of Interest of the General Partner." - -------------------------------------------------------------------------------- (e) Not applicable. - -------------------------------------------------------------------------------- (f) "SPECIAL FACTORS--Alternatives Considered to the Sale," "THE PROPOSALS--Background of the Sale." - -------------------------------------------------------------------------------- Item 9. Reports, Opinions, Appraisals and Certain Negotiations - -------------------------------------------------------------------------------- (a)-(c) "SUMMARY--Fairness of the Sale and Certain Conflicts of Interest," "SPECIAL FACTORS-- Independent Appraisal." - -------------------------------------------------------------------------------- Item 10. Interest in Securities of the Issuer - -------------------------------------------------------------------------------- (a) "SUMMARY--Security Ownership and Voting Thereof," "VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF." - -------------------------------------------------------------------------------- (b) Not applicable. - -------------------------------------------------------------------------------- Item 11. Contracts, Not applicable. Arrangements or Understandings with Respect to the Issuer's Securities - -------------------------------------------------------------------------------- Item 12. Present Intention and Recommendation of Certain Persons with Regard to the Transaction - -------------------------------------------------------------------------------- (a) "SUMMARY--Security Ownership and Voting Thereof," "VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF." - -------------------------------------------------------------------------------- (b) No recommendation regarding the Sale has been made to date by any person named in paragraph (a) of this Item to any person owning Units in the Partnership. - -------------------------------------------------------------------------------- Item 13. Other Provisions of the Transaction - -------------------------------------------------------------------------------- (a) "NO APPRAISAL RIGHTS." - -------------------------------------------------------------------------------- (b) Not applicable. - -------------------------------------------------------------------------------- (c) Not applicable. - -------------------------------------------------------------------------------- 5 Item 14. Financial Information - -------------------------------------------------------------------------------- (a) "AVAILABLE INFORMATION," Annex 1 and Annex 2 to Consent Solicitation Statement. The book value per Unit as of the 1997 fiscal year end was $116. - -------------------------------------------------------------------------------- (b) Not applicable. - -------------------------------------------------------------------------------- Item 15. Persons and Assets Employed, Retained or Utilized - -------------------------------------------------------------------------------- (a) "THE PROPOSALS--The Purchaser." - -------------------------------------------------------------------------------- (b) "SUMMARY--Solicitation Agent," "ACTION BY CONSENT-- Action by Consent," "VOTING PROCEDURES." - -------------------------------------------------------------------------------- Item 16. Additional Not applicable. Information - -------------------------------------------------------------------------------- Item 17. Material to be Filed as Exhibits - -------------------------------------------------------------------------------- (a) Not applicable. - -------------------------------------------------------------------------------- (b) Independent Appraisal. - -------------------------------------------------------------------------------- (c) Not applicable. - -------------------------------------------------------------------------------- (d) Previously filed - -------------------------------------------------------------------------------- (e) Not applicable. - -------------------------------------------------------------------------------- (f) Not applicable. - -------------------------------------------------------------------------------- 6 SIGNATURES After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Statement is true, complete and correct. Dated: November 5, 1998 CONAM REALTY INVESTORS 3, L.P. By: CONAM PROPERTY SERVICES IV, LTD., its General Partner By: CONTINENTAL AMERICAN DEVELOPMENT, INC., its General Partner By: /s/ Daniel J. Epstein ---------------------------- Name: Daniel J. Epstein -------------------------- Title: President ------------------------- CONAM PROPERTY SERVICES IV, LTD. By: CONTINENTAL AMERICAN DEVELOPMENT, INC., its General Partner By: /s/ Daniel J. Epstein -------------------------------- Name: Daniel J. Epstein ------------------------------ Title: President ----------------------------- CONTINENTAL AMERICAN PROPERTIES, LTD. By: DJE FINANCIAL CORP., its General Partner By: /s/ Daniel J. Epstein -------------------------------- Name: Daniel J. Epstein ------------------------------ Title: President ----------------------------- CONAM DOC AFFILIATES LLC By: CONTINENTAL AMERICAN PROPERTIES, LTD., its Administrative Member By: DJE FINANCIAL CORP., its General Partner By: /s/ Daniel J. Epstein ---------------------------- Name: Daniel J. Epstein -------------------------- Title: President ------------------------- 7 EX-99.(B) 2 INDEPENDENT APPRAISAL EXHIBIT B ================================================================================ COMPLETE, SELF-CONTAINED VALUATION OF AUTUMN HEIGHTS APARTMENTS 4035 AUTUMN HEIGHTS DRIVE COLORADO SPRINGS, EL PASO COUNTY, COLORADO FOR HUTTON/CON AM REALTY INVESTORS 5 1764 SAN DIEGO AVENUE SAN DIEGO, CALIFORNIA 92110 AS OF NOVEMBER 30, 1997 BY BACH REALTY ADVISORS, INC. 1221 LAMAR, SUITE 1325 HOUSTON, TEXAS 77010 BTM: 97-072 ================================================================================ TABLE OF CONTENTS - --------------------------------------------------------------------------------
Letter of Transmittal........................................................... 1 Assumptions and Limiting Conditions............................................. 2 Certification................................................................... 4 Salient Facts and Conclusions................................................... 6 Nature of the Assignment........................................................ 7 City/Neighborhood Analysis...................................................... 9 Apartment Market Analysis....................................................... 14 Site Analysis................................................................... 18 Improvements.................................................................... 20 Highest and Best Use............................................................ 23 Appraisal Procedures............................................................ 26 Sales Comparison Approach....................................................... 28 Income Approach................................................................. 32 Reconciliation.................................................................. 43
ADDENDA Comparable Apartment Rentals Comparable Apartment Sales Professional Qualifications B A C H Realty Advisors, Inc. Appraisal, Consultation & Litigation February 23, 1998 Hutton/Con Am Realty Investors 5 1764 San Diego Avenue San Diego, California 92110 Re: Complete, self-contained valuation of the Autumn Heights Apartments located at 4035 Autumn Heights Drive, Colorado Springs, El Paso County, Colorado; BRA: 97-072 Gentlemen: By your request and authorization, we have inspected the above-referenced property and have investigated the real estate market in the subject area in order to provide the value of the leased fee estate of the subject property as of November 30, 1997. The property was inspected on December 21, 1997, and for purposes of this report it is assumed that all physical and economic conditions are similar on the date of value as they were on the date of inspection. This appraisal report is in conformance with the guidelines of the Appraisal Institute. The scope of this assignment includes the Sales Comparison and Income Approaches to value. Our analysis of the property focused on the supply and demand factors influencing the area apartment market, the sale of comparable properties; market rent levels, appropriate operating expenses, and acceptable investor returns. These analyses have been considered within the context of market conditions within the subject area. As a result of our inspections of the property, investigation of the real estate market, and relying on our experience with similar type properties, it is our opinion that the leased fee market value of the subject property, all cash, on an "as is" basis, as of November 30, 1997, is in the sum of ELEVEN MLLLION FIVE HUNDRED DOLLARS ($11,500,000) There follows on the succeeding pages of this report pertinent data as to the valuation conclusions expressed herein. Your attention is also directed to the Assumptions and Limiting Conditions that follow this letter, as they are an integral part of the above stated market value. Thank you for the opportunity to be of service. If there are any questions regarding the valuation, please contact us. Sincerely, BACH REALTY ADVISORS, INC. /s/ Stevan N. Bach Stevan N. Bach, MAI President and Chief Executive Officer ASSUMPTIONS AND LIMITING CONDITIONS - -------------------------------------------------------------------------------- The certification of this appraisal is subject to the following assumptions and limiting conditions. 1. That responsibility is not taken for matters of a legal nature affecting the property appraised or the title thereto and that any legal descriptions furnished are correct. 2. That the title to the property being appraised is good and marketable and is appraised as though under responsible ownership and/or management. 3. That the property is free and clear of all liens and encumbrances except as otherwise stated. 4. That the sketches in this report are included to assist the reader in visualizing the property and responsibility is not assumed for their accuracy. 5. That a survey of the property has not been made by the appraisers. 6. That the information, estimates, and opinions furnished the appraisers by others and contained in this report are considered reliable and are believed to be true and correct; however, responsibility is not taken for their accuracy. 7. That responsibility is not taken for soil conditions or structural soundness of the improvements that would render the property more or less valuable. 8. That possession of this appraisal does not carry with it the right of publication and that this letter of opinion, or any parts thereof, may not be reproduced in any form without written permission of the appraisers. 9. That testimony or attendance in court or at a hearing are not a part of this assignment; however, any such appearance and/or preparation for testimony will necessitate additional compensation than received for this appraisal report. 10. That the valuation estimate herein is subject to an all cash purchase and does not reflect special or favorable financing in today's market. 11. Where discounted cash flow analyses have been undertaken, the discount rates utilized to bring forecasted future revenues to estimates of present value reflect both our market investigations of yield anticipations and our judgement as to the risks and uncertainties in the subject property and the consequential rates of return required to attract an investor under such risk conditions. There is no guarantee that projected cash flows will actually be achieved. 2 12. That the square footage figures are based on floor plans and information supplied to the appraisers by Con Am Management. 13. Bach Realty Advisors. Inc. is not an expert ------------------------------------------- as to asbestos and will not take any ------------------------------------ responsibility for its existence or the --------------------------------------- existence of other hazardous materials at ----------------------------------------- the subject property, analysis for EPA -------------------------------------- standards, its removal, and/or its ---------------------------------- encapsulation. If the reader of this report ------------------------------------------- and/or any entity or person relying on the ------------------------------------------ valuations in this report wishes to know the -------------------------------------------- exact or detailed existence (if any) of --------------------------------------- asbestos or other toxic or hazardous waste ------------------------------------------ at the subject property, then we not only ----------------------------------------- recommend, but state unequivocally that --------------------------------------- they should obtain an independent study and ------------------------------------------- analysis (including costs to cure such -------------------------------------- environmental problems) of asbestos or other -------------------------------------------- toxic and hazardous waste. -------------------------- 3 CERTIFICATION - -------------------------------------------------------------------------------- The undersigned do hereby certify that to the best of our knowledge and belief, except as otherwise noted in this complete, self-contained appraisal: 1. We do not have any personal interest or bias with respect to the subject matter of this appraisal or the parties involved. 2. The statements of fact contained in this appraisal, upon which the analyses, opinions, and conclusions expressed herein are gauged, are true and correct. 3. This appraisal report sets forth all of the limiting conditions (imposed by terms of our assignment or by the undersigned) affecting the analyses, opinions, and conclusions contained in this report. 4. The analysis, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Uniform Standards of Professional Appraisal Practice of the Appraisal Institute. 5. That no one other than the undersigned prepared the analyses, conclusions, and opinions concerning the subject property that are set forth in this appraisal report. Stevan N. Bach, MAI inspected the subject property on December 21, 1997. 6. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 7. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions, and conclusions. 8. The Appraisal Institute conducts a program of continuing education for its members. Members who meet the minimum standards of this program are awarded periodic educational certification. As of the date of this report, Stevan N. Bach, MAI has completed the requirements under the continuing education program of the Appraisal Institute. 9. Compensation for this assignment is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. 4 10. Based on the knowledge and experience of the undersigned and the information gathered for this report, the estimated "as is" leased fee market value of the subject property on an all cash basis, as of November 30, 1997, is $11,500,000. /s/ Stevan N. Bach ----------------------------------------- Stevan N. Bach, MAI President and Chief Executive Officer Certified General Real Property Appraiser State of Texas TX-1323079-G 5 SALIENT FACTS AND CONCLUSIONS - -------------------------------------------------------------------------------- Identification: Autumn Heights Apartments 4035 Autumn Heights Drive Colorado Springs, Colorado Location: Southwest corner of Broadmoor Bluff Drive and Star Ranch Road BRA: 97-072 Legal Description: Lot 1, Block 1, Autumn Heights, File 1, City of Colorado Springs, El Paso County, Colorado Land Size: 13.265 acres or 577,823 square feet Building Area: 164,753 square feet of net rentable space Year Built: 1984 Unit Mix: 13 2BR/1BA at 938 square feet 20 1BR/1BA at 1,054 square feet 15 2BR/1.5BA at 1,241 square feet 28 2BR/2BA at 1,137 square feet * 38 2BR/2BA at 1,249 square feet 26 2BR/2BA at 1,291 square feet Number of Units: 140 Average Unit Size: 1,177 square feet Occupancy: Economic -- 88.3 percent Physical -- 95.7 percent Highest and Best Use As Vacant: Multifamily residential As Improved: Multifamily residential, as currently improved Date of Value: November 30, 1997 "As Is" Market Value by Sales Comparison Approach: $11,400,000 "As Is" Market Value by Income Approach: $11,600,000 "As Is" Market Value Conclusion: $11,500,000 * According to the most recent information received from the subject property, the actual square footage of this unit type is 1,139 square feet. However, in order to maintain consistency with previous appraisals, the 1,137 square foot area has been maintained. 6 NATURE OF THE ASSIGNMENT - -------------------------------------------------------------------------------- PURPOSE OF THE APPRAISAL The purpose of this complete, self-contained appraisal is to estimate the "as is" leased fee market value of the subject property on an all cash basis. IDENTIFICATION OF THE PROPERTY The subject property is a two- to three-story apartment project consisting of a total of 164,753 square feet of net rentable area in 140 units. It was constructed in 1984 on 13.265 acres. The subject is identified as Autumn Heights Apartments and is located at 4035 Autumn Heights Drive, Colorado Springs, El Paso County, Colorado. DATE OF THE APPRAISAL All opinions of value expressed in this report reflect conditions prevailing as of November 30, 1997. Our last inspection date was December 21, 1997. DEFINITION OF SIGNIFICANT TERMS The Appraisal of Real Estate, Tenth Edition, 1992, sponsored by the Appraisal Institute, defines Market Value as: "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) Buyer and seller are typically motivated; (2) Both parties are well informed or well advised, and acting in what they consider their own best interests; (3) A reasonable time is allowed for exposure in the open market; (4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale." It is our opinion that a reasonable time period to sell the subject is six months to one year and this is consistent with current marketing conditions. A sale earlier than one year may represent a value other than market value and is reasonably believed to be a value less than our market value stated herein. 7 Leased Fee Estate: An ownership interest held by a landlord with the right of use and occupancy conveyed by lease to others; the rights of lessor or the leased fee owner and leased fee are specified by contract terms contained within the lease. FUNCTION OF THE APPRAISAL It is the understanding of the appraisers that the function of this appraisal is for annual partnership reporting purposes. PROPERTY RIGHTS APPRAISED The appraisers have appraised the property's "as is" leased fee interest, subject to existing short-term leases which are typically 6 to 12 months in duration at the subject property. PROPERTY HISTORY The subject property is currently owned by Broadmoor Pines Joint Venture and has been since the acquisition in 1985. No subsequent transactions were noted for the subject property since 1985. SCOPE/BASIS OF THE APPRAISAL This appraisal has been made in accordance with accepted techniques, standards, methods, and procedures of the Appraisal Institute. The values set forth herein were estimated after application and analysis by the Sales Comparison and Income Approaches to value. These approaches are more clearly defined in the valuation section of this report. The Cost Approach was not used, as this method of valuation is typically the least reliable indicator of value in projects which exhibit a good deal of accrued depreciation. Estimates of depreciation are difficult to accurately measure in the marketplace, thereby compounding the speculative nature of the opinions derived in the cost method of valuation. The scope of our assignment included obtaining pertinent property data from the client regarding income and expense figures, tenant rent rolls, and permission to inspect the subject. Additionally, the appraisers conducted research to obtain current market rental rates, construction trends, the sale of comparable improved properties, anticipated investor returns, and the supply and demand of competitive apartments in the general and immediate area. After these various items were performed, an analysis was made in order to estimate the leased fee market value of the subject on an "as is" basis. 8 [NEIGHBORHOOD MAP APPEARS HERE] CITY/NEIGHBORHOOD ANALYSIS - -------------------------------------------------------------------------------- Colorado Springs, Colorado's second largest city, is a mid-sized metropolitan area located in south central Colorado approximately 60 miles south of Denver, the state capital. The urbanized area covers approximately 180 square miles along Interstate Highway 25. The Colorado Springs Metropolitan Statistical Area (MSA), synonymous with El Paso County within which Colorado Springs is located, is the primary area of focus in our analysis. Included is the city of Manitou on the western edge of the metropolitan area and Pikes Peak, which rises to over 14,000 feet. The Colorado Springs Airport and Peterson Air Force Base are located on the eastern edge of the area with the Falcon Air Station being located approximately 7 miles east of the airport. To the north are the towns of Monument and Palmer Lake, as well as the United States Air Force Academy, and bordering Colorado Springs on the south are the unincorporated areas of Security, Winfield, the city of Fountain, and the Fort Carson Army Base. COLORADO SPRINGS AREA DATA GENERAL INFORMATION Colorado Springs and the Pikes Peak region have, from the very beginning, been developed as a community with quality of life in mind. From its beginning in 1871, Colorado Springs has been known for its beauty, mild climate, its regional resort accommodations, and its outdoor recreation. In the 1890s, Colorado Springs found it was surrounded by more than scenic wealth. Gold was discovered in nearby Cripple Creek, and Colorado Springs found itself a thriving financial center. In 1942, Fort Carson was established on 147,000 acres south of Colorado Springs. The next three decades saw the military play an increasingly important role in the region's economy with the addition of the U.S. Air Force Academy, Peterson Air Force Base, the North American (now Aerospace) Defense Command (NORAD), the Air Force Space Command, the Strategic Defense Initiative National Test Bed, the Consolidated Space Operations Center (CSOC), and the Unified U.S. Space Command. DEMOGRAPHICS Colorado Springs in the past has been classified as a rapid-growth area. During brief periods in the 1970s and again in the 1980s, it was considered one of the fastest growing cities in the United States. Population growth was substantial in 1981, 1984, and 1986 while the period of 1987 to 1991 witnessed nominal growth. The population growth returned to significant increases in 1992. The 1994 population estimate for the Colorado Springs Metropolitan Statistical Area was 454,220. The figure increased 2.6% to 465,885 in 1995. According to the U.S. Census, the 1996 population estimate for the Colorado Springs Metropolitan Statistical Area was 474,455. This annual average figure represents a 1.8 percent increase over the 1995 population estimate. Population estimates for the Colorado Springs MSA in 1997 is 481,967, which represents a modest growth of 1.6 percent from 1996. 9 Compound growth rate during the 1980's averaged 2.5% per year and is expected to continue to increase during the 1990's at an average rate of 2.2% per year. Population projections through the year 2010 are relatively modest with an average annual compound growth rate of about 1.6 percent. The projections assume a decline of 2,500 military positions and a moderate growth in civilian employment. Population is expected to reach 583,100 persons by the year 2010. AREA ECONOMICS The Colorado Springs economy is structured upon a mix including manufacturing, service, and military industries. Manufacturing areas include many national computer, semiconductor, and printing/publishing companies. Service industries include a large number of national headquarters for membership and athletic associations, several religious organizations, and the United States Olympic Committee headquarters and training center. Military operations include the United States Air Force Space Command headquarters, the Consolidated Space Operations Center, the Strategic Defense Initiative Test Bed, the North American Aerospace Defense Command, the Fourth Infantry Division, as well as the United States Air Force Academy. Defense contractors include firms active in military systems research and development, aerospace, and software development. In addition, there are a significant number of area tourist facilities. Employment in the Colorado Springs area remained strong during 1997. Total employment increased 5.0 percent from 1996; this translated into 11,500 new jobs added in 1997. This growth is compared to 4.6 percent growth in 1996, 6.1 percent in 1995 and 8.3% in 1994. The highest employment growth was in the sectors of service, construction, and trade. Service sector jobs have provided the bulk of growth over the past 3 years and now comprise nearly one third of all total wage and salary employment. Currently, most of the employment growth in the construction sector has been in the commercial submarket. However, some of the large commercial construction projects such as Rockwell and Vitesse Semiconductor manufacturing plants and various new hotel constructions were either completed or nearly completed in 1997. Thus, a drop in regional construction employment is likely. Some significant employment gains have been made in the high technology sector of the manufacturing industry, particularly in the defense industry. Less dramatic increases were seen in all other sectors of employment. Despite the fact that the percentage of military influence in the total work force has been decreasing for the past 15 years, the military is still the single largest employer. MCI Telecommunications Corporation is the largest civilian employer with 5,000 employees. As of the third quarter of 1997, the jobless rate was 3.6 percent dropping from the third quarter 1996 rate of 4.3 percent. COMMERCIAL REAL ESTATE The shopping center market consists of over 200 centers with a total space in excess of 12.8 million square feet. Colorado Springs has two regional malls: Chapel Hills in the northern sector and the Citadel in the eastern part of the metro area. The major retail corridor is Academy Boulevard, which runs the full length of the metro area north to south. The vacancy rate in shopping centers is reportedly about 8.1 percent as of the fourth quarter 1997. Absorption totaled 891,430 square feet in 1997 and the average rents were $8.98 NNN per square foot. New 10 construction in 1997 totaled 412,000 square feet and an added 250,000 square feet is currently underway. Over 900,000 square feet is planned for 1998. The Colorado Springs office market consists of about 900 buildings with about 16.3 million square feet of space. Approximately 40 percent of the office space is owner-occupied; however, the multi-tenant leased space reported a vacancy of about 7.9 percent which is the lowest in 15 years. Absorption of office space in 1997 was about 650,000 square feet and the average rental rate for Class A space was about $10.00 to $15 NNN per square foot. Several office facilities were completed in 1997 totaling 346,000 square feet of which 162,800 square feet is speculative office space. Speculative new construction is presently underway with the 115,000 square feet Pacifica Pointe in Briargate and Tech II in The Tech Center, which will contain 145,000 square feet. The office market appears to be in a stabilized position and is expected to continue in the near future. The industrial market consists of almost 1,000 buildings totaling 27.8 million square feet of space, about, half of which is owner occupied. The vacancy rate was reportedly about 6.3 percent and rents increased from 1996 levels. Absorption totaled 633,750 square feet in 1997, which is down from 1996. Leasing activity and absorption are down from last year mainly due to the lack of available space. Thus, as a result owner/users were responsible for most of the new construction. CONCLUSION Colorado Springs has recovered from the late 1980s, when economic growth was only nominal at best. The long-term prospects for the recovery and the area's continued growth are considered very good especially considering that Ft. Carson's long-term stability appears to have improved. Underlying factors for the area such as its pleasant climate and natural amenities, its skilled labor force, the availability of low-cost real estate and development sites, and university research programs give Colorado Springs an advantage over other cities for its continued resurging economy. NEIGHBORHOOD AREA DATA The Appraisal of Real Estate, Eleventh Edition defines a neighborhood as: "a group of complimentary land uses." A neighborhood may be characterized by such uses as residential, commercial, industrial, recreational, agricultural, cultural, and civic activities, or a mixture of these uses. Analysis of the neighborhood in which a particular property is located is important since the various economic, social, physical, and potential forces which affect the neighborhood also directly influence the individual properties located within it. A discussion of these various factors as they affect the value of the subject property is presented as follows. DELINEATION The subject neighborhood is located approximately 4 miles south of the Central Business District (CBD) of the city of Colorado Springs, Colorado. The subject apartments are more specifically located at the southwest corner of Broadmoor Bluffs Drive and Star Ranch Road. For the purpose of this report, the subject neighborhood area is geographically described as the Broadmoor area of southwest Colorado Springs, being bound by State Highway 122 (Lake Avenue) on the north, Pike National Forest on the west, Fort Carson and the North American Defense 11 Command (NORAD) military complexes on the south, and State Highway 115 (Nevada Avenue) on the east. ACCESS Access into downtown Colorado Springs is direct and convenient via State Highway 115 (Nevada Avenue) which carries traffic from downtown Colorado Springs into the suburban areas of southern Colorado Springs and the previously mentioned military complexes to the south, as well as being the major transportation artery from Colorado Springs to Canon City, Colorado. Access into the neighborhood area is also provided by major east/west thoroughfares such as State Highway 83 (Academy Boulevard) and State Highway 122 (Lake Avenue). STAGE OF DEVELOPMENT Land uses in the area vary, and the area is currently in a stable growth stage. New single- family construction is currently underway in the subject neighborhood though primarily for higher- end residential housing. State Highway 115 (Nevada Avenue) gives access to a number of residential subdivisions, both east and west, and is lined with retail outlets, small strip shopping centers, low-rise office buildings, fast-food restaurants, and gas stations. In serving the everyday needs of the typical resident, there is the Southgate Shopping Center, a 1983 community-type shopping center, which contains 131,603 square feet of retail space and is located approximately 2.5 miles north of the subject on the northeast corner of Nevada Avenue and Lake Avenue. Anchoring the Southgate Center is a King Soopers Supermarket, Sears, and Woolworths. The Citadel Mall, a major regional mall, is located approximately 7.5 miles northeast of the subject property and contains 1,035,000 square feet of which 656,000 square feet are major tenants such as JC Penney, May Company, and Dillards. The St. Frances Memorial Hospital is located approximately 5 miles north of the subject and east of the downtown area on Pikes Peak Avenue. POLITICAL JURISDICTIONS The subject property is located within the city of Colorado Springs, county of El Paso, and the Cheyenne Mountain Independent School District (District 12). Students residing at the subject attend Cheyenne Mountain Elementary, Cheyenne Mountain Middle School, and Cheyenne Mountain Senior High School. The subject site is governed by the city of Colorado Springs zoning ordinance. UTILITIES/SERVICES The neighborhood is generally serviced by public utilities inclusive of electric power from Colorado Springs Utilities Company, natural gas service from Colorado Interstate Gas Company, telephone service from U.S. West Telephone Company, and water and sewer utilities provided by the city of Colorado Springs. Police and fire protection is also provided by the city of Colorado Springs. NEIGHBORHOOD CONCLUSIONS The subject neighborhood is considered to be convenient to the working and shopping areas of Colorado Springs primarily due to the proximity of State Highway 115 (Nevada Avenue) which is the main roadway from other areas of Colorado Springs to the Fort Carson and the North American Defense Command (NORAD) military complexes on the south. Public transportation is also readily accessible to the subject neighborhood. It appears that the subject neighborhood is 12 about 70 percent developed. A growth trend in single-family residential housing is occurring presently, while all other forms of construction are moderate at best. Due to its location, substantial residential base, and nearby retail and military use, the subject neighborhood should continue to be a viable residential market in the future. 13 [AREA MAP APPEARS HERE] APARTMENT MARKET ANALYSIS - -------------------------------------------------------------------------------- The Colorado Springs' apartment market has experienced cyclical episodes over the past 20 years, which have generally followed the swings of the economy. The 1980s saw an early upswing in the economy around 1980 and 1981, and new apartment construction occurred at a rapid rate in 1983 and 1984. New construction trickled to a stop in 1988 with considerable overbuilding having occurred, and the economy slowed to a near standstill in 1989 and 1990. Recovery began in 1991 when the apartment market again reversed its position from a renter's market to a landlord's market. Within the last few years, rents have increased at a pace, which has spurred new construction. In our analysis of the Colorado Springs apartment market, we have referenced statistical data from publications including the Pikes Peak Area Council of Governments' (PPACG) Housing Market Analysis, as well as the Palmer McAllister publication, The Apartment Market Report. These publications divide the Colorado Springs apartment market into two categories, Pre-1980 construction and Post-1980 construction, as well as nine different submarkets in the Colorado Springs vicinity. The subject property is considered to be a Class A apartment complex due to its design and construction quality and it was built in 1984. It is located in the "Southwest" submarket area of Colorado Springs. This submarket area is generally defined as being bound on the east by Interstate Highway 25 and Academy Boulevard, on the south by the military complexes of Fort Carson and NORAD, on the north by a combination of Cimmaron Street, Lower Gold Cup Road, Eighth Street, and Camp Road, and on the west by Pike National Forest. COLORADO SPRINGS APARTMENT MARKET SUPPLY/INVENTORY According to PPACG estimates, the Colorado Springs market had an estimated inventory of 47,660 units in 1996, however, this includes condominiums. Palmer McAllister estimates 35,000 apartment units at year-end 1997 were existing or under construction and they surveyed 22,000 units or about 60 to 65 percent of them. PPACG reports that the total multi-family/condo estimates of 47,660 units is up from that reported in 1980 of 35,228 units. Over the ten-year period from 1980 to 1990, the inventory increased to 47,159. However, from 1990 to 1995, the market realized little change. Due to the high occupancy levels and increasing rental rates which is a direct result of a growing population, the market has seen a significant amount of new construction. As of November 1997, there were eleven complexes that had either been recently completed or were near completion, five more were in the early stages of construction, and several others were proposed. Seven projects totaling 1,259 units broke ground in 1995: The Commons at Briargate with 194 units; The Arbors at Mountain Shadows with 140 units; the Grand Centennial with 344 units; Sunset Ridge with 240 units; El Dorado with 120 units; Green Valley; and Sand Creek. Five more projects broke ground in 1996: Spring Canyon with 292 units; Camelback Pointe with 258 units; The Oasis with 14 252 units; The Ridge At Rockrimmon with 126 units; and The Residence At Skyway with 118 units. Additionally, five more projects broke ground in 1997 including Jefferson At Cheyenne Mountain with 276 units; Pine Bluffs with 296 units; Western Terrace II with 208 units; The Meadows with 240 units; and Lynmar with 100 units. There are a few other apartment complexes in various planning stages including a 70 unit complex, Scenic View, which is expected to begin construction within the next 12 months. Therefore, there are over 17 apartment complexes with more than 3,500 units that have either been completed recently, are under construction, or are planned in the Colorado Springs area. DEMAND/ABSORPTION Absorption, the increase in physically occupied units from one period to another, is a key measure of apartment demand. Annual absorption in the Colorado Springs apartment market has been somewhat irregular over the past few years. According to a study prepared by the PPACG, 1,060 units were absorbed in 1991, 2,169 units in 1992, 4,683 units in 1993, 783 units in 1994, and 558 units in 1995. Over the past few years, 1993 reported the highest amount of absorption. The absorption dropped in 1994 and again in 1995; however, this is believed to be a direct result of a lack of available supply. Although an exact absorption figure for 1997 is not available it was learned that a reasonable range would be 750 to 1,250 units. The seven-year average annual absorption for Colorado Springs from 1991 to 1997 was estimated near 1,500 units; however, the 1993 absorption is extreme and causes the average to be high. PHYSICAL VACANCY Since 1980, apartment vacancy within the Colorado Springs area has ranged from a high in 1989 of 20.0 percent to a low in 1994 of 1.9 percent. As previously discussed, significant absorption occurred in 1993 which pushed vacancies down to an all time low in 1994 of 1.9 percent. Vacancy increased slightly in the next two years to 3.7% in 1995, and 4.2% in 1996. The vacancy rate then increased in 1997 to 5.5%. It is important to note that as the new apartment complexes enter the market, it is expected to have an impact on the vacancy levels. As mentioned, over 3,500 units have either recently entered the market, or are under construction. This new product is not expected to destabilize the market long term, however, there may be a period of increased vacancy in the short term as these new units are absorbed. With a forecasted average annual population growth rate of about 1.6 percent through the year 2010, the average physical vacancy in Colorado Springs is expected to remain low over the long term. The following table summarizes the annual vacancy since 1980. 15
COLORADO SPRINGS OVERALL APARTMENT MARKET VACANCY -------------------------------------- DATE VACANCY -------------------------------------- 1980 12.8% 1981 11.8% 1982 10.2% 1983 18.9% 1984 17.7% 1985 19.7% 1986 18.2% 1987 17.6% 1988 18.2% 1989 20.0% 1990 19.6% 1991 17.0% 1992 12.8% 1993 3.0% 1994 1.9% 1995 3.7% 1996 4.2% 1997 5.5%
Source:U.S. Census Bureau for 1990; PPACG estimates; Palmer McAllister estimates As was stated previously, the subject is located within the Southwest submarket. In order to examine the subject's submarket in relation to other areas of the city, we analyzed figures prepared by the Palmer McAllister Company as of December 1997. The following table tracks the vacancy within the various submarkets as compared with the citywide estimates. As can be seen, the subject's submarket commands some of the highest rents and has a vacancy rate lower than the city wide average. It is important to note that this information considers only apartments constructed after 1980.
APARTMENT SUBMARKET VACANCIES AND AVERAGE RENTS --------------------------------------------------------------------------------- SUBMARKET VACANCY RATE AVG.RENT/SF --------------------------------------------------------------------------------- North Central 7.1% $0.80 South Central 3.9% 0.81 North 5.9% 0.85 Palmer Park 2.2% 0.72 Rustic Hills 8.6% 0.76 Airport 3.2% 0.76 Security, Widefield, Fountain 4.1% 0.65 Southwest 2.0% 0.75 West 16.5% 0.86 CITYWIDE 3.9% 0.78
Source:Palmer McAllister Company RENTAL RATES Rental rates are determined by supply and demand. Therefore, it can be expected that the trend of apartment rents would be a reflection of the overall multifamily environment. Rents typically increase as a result of an increase in demand, or a decrease in supply. While little construction occurred over the period from 1991 to 16 1995, vacancy declined and demand began to exceed supply. As of December 1997, the average rental rate for Post 1980 constructed apartments citywide was $0.78 per square foot compared to the subject's Southwest submarket of $0.75 per square foot. According to the Palmer McAllister survey average rental rates in 1997 have increased about 3.5% from the 1996 average. Of note, the subject is a Class A project capable of achieving rents in excess of these averages. Over the next year, we have projected an average rental rate of $0.81 per square foot for the subject. MARKET PROJECTIONS The Colorado Springs apartment market is presently experiencing a surge of new apartment development due to the increasing employment base of the area and population growth. Rental rates appear to have reached a level, which is feasible to justify new construction. Also, there appears to be more certainty with respect to the area defense cutbacks and the outlook is optimistic. Therefore, given the expanding economy and a low vacancy level, new development was eminent. In order to test the market's future multifamily requirement, PPACG prepared a forecast through the year 2000. The base scenario assumed a decline of 2,500 military positions and a moderate growth in civilian employment. Population is expected to grow 4.9% by the year 2000. Based on this analysis, the model indicated an annual need of 861 units from 1997 to the year 2000. It is important to note that the current amount of construction is above that of the projection. However, a portion of the new supply will satisfy the "pent-up" demand. It is important to emphasize that these projections are tied to a number of assumptions regarding the local economy. CONCLUSION Available market information indicates the Colorado Springs apartment market has reached a phase of new construction. The overall vacancy rate decreased to a low of 1.9 percent as of the end of 1994 and while it has increased slightly since that time, remains at the low rate of 5.5 percent as of December 1997. Reportedly, there are over 3,500 units either recently completed or under construction and a number are in for approval by the city. The low vacancy rate the area has experienced over the past year has applied upward pressure on rental rates which, appear to have reached a point when new development is feasible. Due to a growing population and area job growth, the economy appears to be thriving. The new apartment projects are expected to relieve some of the "pent-up" demand without creating an unhealthy situation. However, if the amount of new construction is not monitored, it could create a softness, which could have a direct impact on the subject property. Currently, the subject has a physical vacancy of about 4.3 percent and an economic vacancy of 11.7 percent. 17 [SITE PLAN APPEARS HERE] SITE ANALYSIS - -------------------------------------------------------------------------------- LOCATION The subject site is located at the southwest corner of Broadmoor Bluff Drive and Star Ranch Road. The physical address of the subject property is 4035 Autumn Heights Drive, Colorado Springs, El Paso County, Colorado. SIZE AND SHAPE The subject site is irregular and contains a total of 13.265 acres, or approximately 577,823 square feet of land area. The tract has a total of 750.42 feet of frontage along the west line of Broadmoor Bluff Drive and 1,441.34 feet of frontage along the southeast line of Star Ranch Road. ACCESS AND VISIBILITY Access to the subject site is provided by two curb cuts along Broadmoor Bluff Drive leading to interior roadways within the apartment complex. Overall, visibility and accessibility to the site are considered good. LEGAL DESCRIPTION The subject may be legally described as a 13.265- acre tract being Lot 1, Block 1, Autumn Heights, File 1, an addition to the city of Colorado Springs, El Paso County, Colorado. ZONING The subject site is zoned "R-5" Multifamily Residential District by the city of Colorado Springs (note following zoning map). Land uses permitted includes multifamily development under the "R-5" usage. Additionally, portions of the subject site are regulated as hillside overlay areas and are restricted to conserve the natural features and aesthetic qualities of these areas while providing safe and convenient access to hillside areas. EASEMENTS AND ENCUMBRANCES A physical inspection of the site did not reveal any easements adversely affecting the subject property. For the purpose of this appraisal, the appraisers assume that the subject's value or marketability is not adversely affected by any existing easements. UTILITIES AND DRAINAGE All utilities are available to the site, including sanitary sewer, water, electricity, natural gas, and telephone. According to the National Flood Insurance Program, Flood Insurance Rate Map (Community Panel 080060 0290 B, dated December 18, 1986), the site is located in Zone X, an area of minimal flooding. Drainage of the site appears to be adequate. TOPOGRAPHY AND SOIL CONDITIONS The subject site is rolling and appears to drain toward the southwest corner of the site. No soil engineer's report was available to the appraisers and no soil tests were performed. The soils are assumed to have an adequate load-bearing capacity. According to the United States Department of Agriculture Soil Conservation Service for El Paso County, the subject soil is classified as Razor stony clay loam, 5 to 15 percent slopes. This is moderately deep, well-drained soil which is slowly permeable with a moderate water capacity. 18 [ZONING MAP APPEARS HERE] [FLOOD PLAIN MAP APPEARS HERE] SURROUNDING PROPERTY USES North: Star Ranch Road, with single-family residential development beyond South: Single-family residences East: Broadmoor Bluffs Drive, with single- family residences beyond West: Star Ranch Road, with vacant land beyond PRESENT USE The subject site is currently improved with a 140- unit apartment project known as Autumn Heights Apartments, which were constructed in 1984 and are considered in above-average condition. Please refer to the following section of this report for further discussion of the subject improvements. REAL ESTATE TAXES According to the El Paso County Appraisal District, the subject property's tax assessor parcel number is 65064-01-014. The subject is located within El Paso County, City of Colorado Springs, and the Cheyenne Mountain School District 12 taxing jurisdictions. The subject property 1996 assessment is $423,720, which is 10.7 percent of the appraised value of $3,971,075. The taxes paid in 1997 according to the subject property operating statement were $32,767. Assuming a 4 percent increase in the tax rate from the previous year, the total taxes due in 1998 are estimated at $34,078 (including real and personal property). SITE CONCLUSIONS The subject site is located at the southwest corner of Broadmoor Bluff Drive and Star Ranch Road near Fort Carson Military Reservation and the North American Defense Command military complexes in the southern portion of the city of Colorado Springs, El Paso County, Colorado. The site is irregular in shape and contains 13.265 acres, or approximately 577,823 square feet. The subject has good access and visibility and has all utilities available. The size and shape of the subject site lend well to a variety of development possibilities; however, the zoning restrictions limit development to residential usage. 19 [PLAT MAP APPEARS HERE] IMPROVEMENTS - -------------------------------------------------------------------------------- The subject site is improved with a two-story apartment project known as the Autumn Heights Apartments. The improvements consist of 140 units contained in 26 two- to three-story buildings, which were constructed in 1984. Also situated on the site is a one-story leasing office/clubhouse, a swimming pool and jacuzzi, and one laundry room. There are six basic floor plans for the 140 apartment units. The reported square footages of these floor plans and the total net rentable area are as follows:
UNIT TYPE NO. OF UNITS DESCRIPTION SIZE (SF) TOTAL SF GARAGE ------------------------------------------------------------------------------------------------------ Conquistador 13 2BR/1BA 938 12,194 1-car Aspen 20 *lBR/1BA 1,054 21,080 2-car Vail 15 2BR/1.5BA 1,241 18,615 2-car Loveland 28 2BR/2BA 1,137** 31,836 1-car Breckenridge 38 *2B1/2BA 1,249 47,462 2-car Keystone 26 *2BR/2BA 1,291 33,566 2-car -- ----- ------- 140 1,177 164,753
* With additional loft ** According the to the most recent information received from the subject property, the actual square footage of this unit type is 1,139 square feet. However, in order to maintain consistency with previous appraisals, the 1,139 square foot figure has been retained. As seen in the figures above, the total net rentable area of 164,753 square feet and a total of 140 units results in an average of 1,177 square feet per unit. There are a total of 20 one-bedroom units and 120 two-bedroom units. The land area includes 13.265 acres, resulting in a project density of 10.55 units per acre. The parking consists of 40 open spaces of asphalt construction for guest parking. All apartments units have a separate garage (one- or two-car) depending on the unit type. Including the garage parking and the guest surface parking, there is a total of 279 parking spaces or 1.99 spaces per unit. The parking ratio is within industry standards. The subject property is considered atypical when compared to other apartment rental properties in the area. It was originally built as townhouses, though it has never been marketed as such. Numerous townhouse projects in the immediate vicinity were constructed during the late-1970s and early- to mid-1980s, which resemble the subject's design; though each of these properties had been sold-off over time to individual owners, and presently operate as townhouse properties. As a result of the townhouse design of the subject units, it is regarded as one of the premium multifamily properties in the Colorado Springs area, as noted by the rental rate survey contained in the Income Approach. The following is a brief description of the building components, which comprise the improvements located on the subject property site. 20 FOUNDATION Steel reinforced concrete slab with perimeter and interior wire mesh. Second and third levels include wood frame, plywood subfloor with lightweight concrete over. FRAMING Wood-framed. ROOF Pitched with cedar-shake shingles over plywood decking. EXTERIOR Vertical wood siding and stucco. INTERIOR FINISH Ceiling Painted and textured gypsum board. Walls Painted and textured gypsum board. Soundproof double-insulated walls. Floors Combination of carpeting over pad, ceramic tile, and vinyl tile flooring. PLUMBING All fixtures, drainage systems, equipment, and hot water heaters assumed to comply with city of Colorado Springs and national building codes. HVAC All electric, individual system, which provides heating and cooling with individually, controlled thermostats. ELECTRICAL Switch-type circuit breakers, 120/240-volt single- phase service, with each apartment individually metered. Each unit has adequate electrical outlets and ceiling-mounted light fixtures and some with ceiling fans. UNIT FEATURES Frost-free refrigerators, dishwashers, garbage disposals, smoke detectors, walk-in closets, private patios, washer/dryer connections. SITE IMPROVEMENTS Concrete sidewalks and unit driveways, asphalt parking areas, leasing office/clubhouse with sauna and laundry room, swimming pool and jacuzzi. LANDSCAPING Mature trees and hedges, grass-covered common areas, and well-maintained flower beds. AGE AND CONDITION The subject property was built in 1984 reflecting an actual age of 13 years. The property has been well maintained and reflects an effective age equal to that of its actual age of 13 years. SITE AREA The subject site is irregular in shape and contains a total of 13.265 acres, or approximately 577,823 square feet of land area. DEFERRED MAINTENANCE Our inspection revealed that the property has suffered no apparent settlement and/or structural problems. However, Bach Realty Advisors, Incorporated is not qualified to determine the extent of, if any, structural problems, and we highly recommend that a qualified engineer be hired to assess the extent of the problems, if any, and the cost to cure them. Visual inspection of the property as well as estimates by the management revealed several areas of deferred maintenance. Some of these include appliance repair and replacement, interior and exterior repairs, redecoration of amenities and entryways, carpet and tile replacement, window covering replacement, equipment repair and replacement, pool repair, water heater replacement, structural repairs, garage 21 repairs, landscaping, concrete asphalt repairs, roof repairs, etc. The deferred maintenance was estimated at about $487,200. CONCLUSIONS The subject improvements were built in 1984. The project consists of 140 units contained in 26 buildings and the net rentable area of the property totals 164,753 square feet. The property was originally designed as a townhouse project, though has never been sold-off as other townhouse properties in the immediate vicinity had been. Consequently, the property is one of the highest quality apartment complexes in the area at present due to its superior design and construction features. The project is presently in above- average condition overall. The improvements have been well maintained though, as noted above, did exhibit some deferred maintenance typical for a project of its age. 22 [FLOOR PLAN APPEARS HERE] [FLOOR PLAN APPEARS HERE] [FLOOR PLAN APPEARS HERE] SUBJECT PHOTOGRAPHS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] Exterior view of clubhouse/leasing office [PICTURE APPEARS HERE] Interior view of clubhouse/leasing office [PICTURE APPEARS HERE] View of swimming poo1 and subject units [PICTURE APPEARS HERE] Exterior view of Unit 420 [PICTURE APPEARS HERE] Interior view of Unit 420 dining area and kitchen (model) [PICTURE APPEARS HERE] Interior view of Unit 420 living room (model) [PICTURE APPEARS HERE] Interior view of Unit 420 bedroom (model) [PICTURE APPEARS HERE] Interior view of Unit 420 bathroom (model) [PICTURE APPEARS HERE] Interior view of Unit 420 upstairs bedroom (model) [PICTURE APPEARS HERE] View of interior street and exterior of other subject units HIGHEST AND BEST USE - -------------------------------------------------------------------------------- The highest and best use of a property must be determined because market value depends upon the property's most profitable use. The Appraisal of ---------------- Real Estate, Tenth Edition, defines highest and ----------- best use as: "The reasonably probable and legal use of vacant land or improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value." There are two distinct types of highest and best use. The first type is the highest and best use of the land as if vacant. The second type is the highest and best use of a parcel as improved. This pertains to the use that should be made of the property as it exists. In determining the highest and best use of a site, four items must be considered: possible physical limitations of the site, possible legal or permissible uses, and what uses are financially feasible, and produce the maximum return on the site. A careful neighborhood and site analysis is essential in estimating the highest and best use of the site as if vacant. The following is our analysis of the highest and best use as it pertains to the subject property and according to the four essential tests. SUBJECT PROPERTY AS IF VACANT LEGALLY PERMISSIBLE - As discussed in the Description of the Site, the subject site is zoned "R-5" by the city of Colorado Springs. Primary allowable uses include single-family, duplex, and multiple-family dwellings. A portion of the site is within a Hillside Overlay area, which requires an approved developmental plan to protect environmental topography and features. Accordingly, several forms of residential developments are legally permissible on the site. PHYSICAL POSSIBILITY - Many physical characteristics of a site can affect the use to which it can be put. These characteristics can include size, shape, location, road frontage, topography, easements, utility availability, flood plain, and surrounding patterns. The subject site encompasses a total of 13.265 acres and allows for full physical utilization of the site. The site has 750.42 lineal feet of frontage along the west line of Broadmoor Bluff Drive and 1,441.34 feet of frontage along the southeast line of Star Ranch Road Drive. The topography of the site is gently sloping to generally level. Drainage appears to be adequate. The site is located in Flood Zone "X" which is defined in the previous Site section of this report as areas of minimal flooding. The subject site's location, good access and visibility, and the fact that it is not affected by any adverse easements or restrictions as noted upon inspection, make it conducive to almost all property types. However, its zoning code "R-5" and surrounding uses dictate a residential use. The subject site, in general, is too large 23 for development of an individual, single-family use and too small for a residential subdivision. Accordingly, multifamily development is dictated by the physical characteristics of the site. After considering these physical characteristics of the site and other data described in the Site section of this appraisal report, physically possible land uses would include a variety of residential development such as apartments, condominiums, or townhouses, but are directed to multifamily development. The primary deterrents to other types of development were surrounding land use patterns, existing zoning, and the secondary location of Broadmoor Bluff and Star Ranch Road compared to other neighborhood four-lane thoroughfares. FINANCIAL FEASIBILITY - Financial feasibility is directly proportional to the amount of net income that could be derived from the subject. The financial feasibility of a development can also be viewed as a function of supply and demand. As of December 1997, the apartment market in Colorado Springs was reportedly at about 94.5 percent occupancy and about 98.0 percent in the subjects' Southwest quadrant. Due to this low vacancy level and rising rental rates, new construction is occurring in Colorado Springs. However, with the number of new complexes recently completed, under construction, and proposed, the market could once again become overbuilt. MAXIMUM PRODUCTIVITY - After considering the current economic climate, the subject's location, and the financial feasibility of certain land uses, more than likely a present development of the land would produce an adequate return on costs. Due to the subject's location and the socioeconomic status of the neighborhood, we are of the opinion that a multifamily development is conducive to the subject site and would produce the highest net return over the longest period of time. In summary, the multifamily apartment market continues to have a low vacancy rate. The site's southwest location near the Fort Carson Military Reservation and the NORAD complex gives it a large base of prospective rent-paying tenants from which to draw; however, the rents for the majority may be generally too high for military personnel. The subject is in an area that has historically been one of the strongest market areas of Colorado Springs, commanding higher than average rents and having consistently higher occupancies than the overall apartment market in Colorado Springs. Overall, we believe the site as vacant would be economically feasible to develop for multifamily residential use at this time; however, with the amount of new construction this could change as the new product is introduced to the market. Therefore, after considering the alternatives, we believe the highest and best use of the site, as vacant, is for multifamily residential development. SUBJECT PROPERTY AS IMPROVED The property, as improved, is tested for two reasons. First, to identify the improvements that are expected to produce the highest overall return per invested dollar, and the second reason is to help identify comparable properties. The four tests or elements are also applied in this analysis to the subject as follows: 24 LEGALLY PERMISSIBLE - The subject site is zoned "R- 5," Multifamily Residential District. The subject has a lot coverage, setbacks, and density, all of which are estimated to be currently satisfying the zoning requirements. The subject property is considered a legally conforming use. PHYSICAL POSSIBILITY - Based on the subject's size (13.265 acres), configuration (irregular), and the improvements' positioning relative to the subject site, it is felt that the subject's improvements employ the maximum use and potential of the site as developed. The subject property contains comparable project amenities when compared to competing projects. FINANCIAL FEASIBILITY - The discussion of the financial feasibility of the subject, as if vacant, would also apply to the test as improved. The subject property was originally constructed as a townhouse project in 1984, though it has been operated as an apartment project since completed. In our research of the marketplace, we noted several other townhouse properties in the subject's immediate neighborhood, which are more comparable to the subject than are other surrounding apartment projects. Generally speaking, the subject's construction qualities are superior to that of local apartment projects, and their floor plan designs, most specifically their average unit sizes and their garage features adhere to the design of townhouse development in the area. However, these features are expected to help the subject remain competitive as an apartment complex with the new projects and amenities. As an apartment complex or townhouse development, the improvements are expected to produce results greater than the land value. At this time, the subject operating as an apartment complex appears to be most feasible; however, with rental rates rising and interest rates falling, the subject property operating as a townhouse project may be approaching a feasible situation. MAXIMUM PRODUCTIVITY - Analysis of the scenarios presented earlier indicates that operation of the subject property strictly, as a rental property would produce the highest net return over the longest period of time. Consequently, we believe the maximally productive use of the subject property, as improved, is a continuation of its present use as a rental project. In conclusion, based on the subject's current use, we have determined that as a multifamily apartment complex, it positively contributes to the value of the site, and as a result is presently developed according to its highest and best use. Due to the various items of deferred maintenance noted previously, the present improvements are not considered to be the optimum use. 25 APPRAISAL PROCEDURES - -------------------------------------------------------------------------------- Traditionally, three valuation approaches or techniques are used in the appraisal of real estate. These are the Cost Approach, Sales Comparison Approach, and Income Approach. COST APPROACH In the Cost Approach, the appraisers obtain an estimate of value by adding to the land value the estimated value of the physical improvements. This value is derived by estimating the replacement cost new of the improvements and, when appropriate, deducting the reduction in value caused by accrued depreciation. According to the Appraisal Institute, the basic principle of the Cost Approach is that buyers judge the value of an existing structure by comparing it to the value of a newly constructed building with optimal functional utility, assuming no undue cost due to delay. Thus, the appraiser must estimate the difference in value between the subject property and a newly constructed building with optimal utility. The Cost Approach was not used as a method of valuation in this appraisal. The Cost Approach is typically the least reliable indicator because cost does not necessarily reflect value. Additionally, projects are not purchased within the market presently at current replacement cost levels, and estimates of depreciation are difficult to accurately measure in the marketplace, thereby compounding the speculative nature of the opinions derived in the cost method of valuation. SALES COMPARISON APPROACH This approach produces an estimate of value by comparing the subject property to sales and/or listings of similar properties in the immediate area or competing areas. The principle of substitution is employed and basically states when a property is replaceable in the market, its value can be set by the cost of acquiring an equally desirable and comparable property. This technique is viewed as the value established by informed buyers and sellers in the market. INCOME APPROACH The measure of value in this approach is capitalization of the net income which the subject property will produce during the remaining economic life of the improvements. This process consists of two techniques. The first technique estimates the gross income, vacancy, expenses, and other appropriate charges. The resulting net income or net cash flow is then capitalized. The second technique projects the gross income, vacancy, expenses, other appropriate charges, net income, and cash flow over a projected holding period. The resulting cash flow and reversion (future value) are discounted at an appropriate rate and added in order to arrive at an indication of current value from the standpoint of an investment. These methods provide an indication of the present worth of anticipated future benefits (net income or cash flow) to be derived from ownership of the property. Both techniques were utilized in analyzing the subject property. 26 SUMMARY The appraisers, in applying the tools of analysis to the valuation problem, seek to simulate the thought process of the most probable decision maker. The appraisers' judgment concerns the applicability of alternative tools of analysis to the facts of the problem, the data and information needed to apply these tools, and the selection of the analytical approach and data most responsive to the problem in question. Thus, depending on the type of property appraised or the purpose of the appraisal, one approach may carry more weight or may point to a more reliable indication of the value of the property being appraised than the others. In some instances, because of the inadequacy or unavailability of data, one or two of the approaches may be given little weight in the final value estimate. 27 [IMPROVED SALES MAP APPEARS HERE]
- --------------------------------------------------------------------------------------------------------------------- COLORADO AREA IMPROVED SALES SUMMARY - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Sale Sale Cash Equiv. Year No. of NRA Occup. NOI/SF No. Name/Location Date Sale Price Built Units Avg/Unit At Sale /Unit - ---------------------------------------------------------------------------------------------------------------------- 1 Spring Canyon 11/97 $19,917,000* 1997 292 268,396 93.5% $6.49 4510 Spring Canyon Heights Contract 919 $5,961 Colorado Springs, CO - ---------------------------------------------------------------------------------------------------------------------- 2 Western Hills 07/97 $7,350,000 1985 152 114,780 94% $6.92 810 Western Drive 755 $5,226 Colorado Springs, CO - ---------------------------------------------------------------------------------------------------------------------- 3 Grand Centennial 06/97 $22,360,000* 1996 344 313,780 92.5% $6.56 5157 N. Centennial Blvd. 912 $5,987 Colorado Springs, CO - ---------------------------------------------------------------------------------------------------------------------- 4 Templeton Park 02/97 $23,300,000 1984 496 446,672 93% $5.41 4675 Templeton Park Circle 901 $4,869 Colorado Springs, CO - ---------------------------------------------------------------------------------------------------------------------- 5 The Neighborhood 12/96 $10,750,000 1984 191 212,010 94% $4.87 3504A Van Teylingen Drive 1,110 $5,402 Colorado Springs, CO - ---------------------------------------------------------------------------------------------------------------------- 6 Ridgeview Place 11/96 $16,500,000 1984 336 300,952 94% $5.32 3310 Knoll Lane 896 $4,764 Colorado Springs, CO - ---------------------------------------------------------------------------------------------------------------------- Subject 1984 140 164,753 97% $5.89 Autumn Heights 1,177 $6,926 4035 Autumn Heights Drive Colorado Springs, CO - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------ Cash Equivalent Price - ------------------------------------------------------------------------------------ Sale Per Per Oveall Expense No. Name/Location SF /Unit Rate EGIM Ratios - ------------------------------------------------------------------------------------ 1 Spring Canyon $74.21 $68,209 8.74% 7.67 30.8% 4510 Spring Canyon Heights Colorado Springs, CO - ------------------------------------------------------------------------------------ 2 Western Hills $64.04 $48,355 10.81% 6.50 27.0% 810 Western Drive Colorado Springs, CO - ------------------------------------------------------------------------------------ 3 Grand Centennial $71.26 $65,000 9.21% 7.43 29.2% 5157 N. Centennial Blvd. Colorado Springs, CO - ------------------------------------------------------------------------------------ 4 Templeton Park $52.16 $46,976 10.37% 6.51 29.1% 4675 Templeton Park Circle Colorado Springs, CO - ------------------------------------------------------------------------------------ 5 The Neighborhood $50.71 $56,283 9.60% 7.05 29.6% 3504A Van Teylingen Drive Colorado Springs, CO - ------------------------------------------------------------------------------------ 6 Ridgeview Place $54.83 $49,107 9.76% 6.78 30.7% 3310 Knoll Lane Colorado Springs, CO - ------------------------------------------------------------------------------------ Subject 33.4% Autumn Heights 4035 Autumn Heights Drive Colorado Springs, CO - ------------------------------------------------------------------------------------
* - These two apartments were presales predicated upon agreed income. SALES COMPARISON APPROACH - -------------------------------------------------------------------------------- The Sales Comparison Approach is considered a good valuation method in the event that a sufficient number of similar and recent transactions can be found and accurately verified. In such an event, market value can be derived directly from the sales, since all complexities involved are properly weighted according to their significance to actual buyers and sellers. This approach is based upon prices paid in actual market transactions. It is a process of correlating and analyzing recently sold properties, which are similar or nearly similar to the subject. The reliability of this technique depends upon (a) the degree of comparability of the property appraised with each sale, (b) the length of time since the sale, (c) the accuracy of the sales data, and (d) the absence of unusual conditions affecting the sale. The comparison process must be based on sales, which constitute acceptable evidence of motivations inherent to the market, occurring under similar market conditions, of similar or reasonably similar apartment projects. We have included the most recent comparable sales from the Colorado Springs MSA that were considered to be most comparable to the subject property in terms of average unit size and quality. Six sales occurring between November 1996 and November 1997 were identified. The six sales ranged in total units from 152 to 496, in net rentable area from 114,780 to 446,672 square feet, in average unit size from 755 to 1,110 square feet, and in years of construction from 1984 to 1997. A summary of the sales is located on the previous page with a location map facing. IMPROVED SALES ADJUSTMENT ANALYSIS We have analyzed the sales for such differentials as property rights conveyed as well as a check of cash equivalencies. The six sales and their comparisons to the subject are presented in this section. PROPERTY RIGHTS Property rights consists of ownership, legal estate, economic benefits, and financial components. Our valuation is of the leased fee estate on an all cash basis. Since all the sales were reported to be of the leased fee estate, no adjustment was necessary. CASH EQUIVALENCY Standard definitions of market value include payment in "cash or its equivalent." The equivalent includes financing terms generally available in the market. In many cases comparable sales carry atypical financing terms that require an adjustment to cash equivalency. There are basically two areas, which may require adjustments for terms. One is the amount of cash down payment and the other is favorable financing or a low interest rate on the note/mortgage. Where terms were considered to be more favorable than the market at the time of sale, cash equivalency adjustments are made. All of the sales used in this analysis were cash transactions or were considered equivalent and, therefore, did not require a cash equivalent adjustment. 28 NET OPERATING INCOME ANALYSIS In lieu of specific adjustments, we compared the improved sales based on the net operating income (NOI) per square foot and NOI per unit. This method presents a comparison based on the income which a property is capable of generating. Theoretically, the NOI takes into consideration the various factors, which influence value such as quality, size, amenities offered, location, age, condition, etc. Thus, these differing factors can be reduced to the common denominator of net operating income. The various sales reflected NOI's per square foot ranging from $4.87 to $6.92 and NOI's per unit ranging from $4,764 to $5,987. The subject NOI (with reserve expenses) has been approximated at $6.87 per square foot or $8,090 per unit from the Direct Capitalization of this report. To estimate an adjustment for each sale, the subject's NOI has been compared to the individual NOI's of the comparable sales. This adjustment should account for all the various physical and economic differences in each improved property sale, as income is a function of the current market. Market conditions should reflect perceived risk, or other factors, which may affect value. The following chart presents the adjustment process.
SALE SALE SALE SUBJECT ADJUST. ADJUST. NO. PRICE/SF NOI/SF NOI/SF FACTOR PRICE/SF --------------------------------------------------------------------- 1 $74.21 $6.49 $6.87 1.05855 $78.56 2 64.04 6.92 6.87 0.99277 63.58 3 71.26 6.56 6.87 1.04726 74.63 4 52.16 5.41 6.87 1.26987 66.24 5 50.71 4.87 6.87 1.41068 71.54 6 54.83 5.32 6.87 1.29135 70.80
After adjustments, the sales reflected a range in value for the subject from $63.58 to $78.56 per square foot. Sales 1, 2 and 3 are the most recent sales as well as the most similar in economics Placing emphasis on these sales, tempered slightly with the other sales, a value of $72.00 per square foot is estimated for the subject. From this value the $487,200 in deferred maintenance is deducted to arrive at the "as is" value of the subject. The calculation is shown below. 164,753 SF X $72.00/SF............. $11,862,216 Less Deferred Maintenance.......... (487,200) ------------ "As Is" Value via NOI/SF $11,375,016 Rounded $11,380,000
29
SALE SALE SALE SUBJECT ADJUST. ADJUST. NO. PRICE/UNIT NOI/UNIT NOI/UNIT FACTOR PRICE/UNIT ----------------------------------------------------------------- 1 $68,209 $5,961 $8,090 1.35715 $92,570 2 48,355 5,226 8,090 1.54803 74,855 3 65,000 5,987 8,090 1.35126 87,832 4 46,976 4,869 8,090 1.66153 78,052 5 56,238 5,402 8,090 1.49759 84,221 6 49,107 4,764 8,090 1.69815 83,391
After adjustments, the sales reflected a range in value for the subject from $74,855 to $92,570 per unit. Again, sales 1, 2 and 3 are the most recent and are the most similar in terms of economics. Based on this data, $85,000 per unit is estimated for the subject. The following indication reflects an "as is" value per unit for the subject considering the subject's deferred maintenance. 140 units X $85,000/unit.............. $11,900,000 Less: Deferred maintenance............ (487,200) ------------ Value via NOI Price/Unit Method....... $11,412,800 Rounded $11,410,000
EFFECTIVE GROSS INCOME MULTIPLIER METHOD In addition to the NOI price per square foot and price per unit analysis, we have employed an effective gross income multiplier analysis. Unlike the price per unit analysis, EGIMs cannot be adjusted for dissimilar factors when compared to the subject. Instead, certain factors must be closely analyzed for determining comparability of the multiplier to the subject property. These include the timing of the sale and whether market condition changes have occurred between the date of valuation and the sale date, as well as occupancies and expense ratio levels, and the comparability of the sale in terms of its physical features and the resulting income stream potential of the property. Listed below are the details of the sales we felt to be pertinent in our selection of a reasonable EGIM for the subject. All factors were considered in our interpretation of the data leading to the EGIM of the sales.
SALE DATE OF SALE EGIM OCCUPANCY EXPENSE RATIO --------------------------------------------------------- 1 11/97 7.67 93.5% 30.8% 2 07/97 6.50 94% 27.0% 3 06/97 7.43 92.5% 29.2% 4 02/97 6.51 93% 29.1% 5 12/96 7.05 94% 29.6% 6 11/96 6.78 94% 30.7% Subject 96% 30.4%
The sales indicated EGIMs ranging from 6.50 to 7.67, with all sales operating at stabilized levels. We believe an EGIM of 7.2 is supported by the sales. Applying the 7.2 EGIM to the subject's stabilized effective gross income, and deducting for deferred maintenance, results in the following value indication. 7.2 X $1,627,326...................... $11,716,747 Less: Deferred maintenance............ (487,200) ----------- Value via EGIM Method................. $11,229,547 Rounded $11,230,000
30 CONCLUSION The NOI per square foot and per unit methods presented a value indication of $11,380,000 and $11,410,000 respectively and the effective gross income multiplier method indicated a value of $11,230,000. Weight has been given to the net operating income comparisons because this method reflects both income and expense information. The EGIM method only accounts for income and does not take into consideration expenses, which can vary from property to property. Therefore, it is our opinion that the leased fee market value of the subject property based on the indication provided by the Sales Comparison Approach, all cash, on an "as is" basis as of November 30, 1997, is ELEVEN MILLION ONE HUNDRED THOUSAND DOLLARS ($11,400,000) 31 [MAP OF COLORADO SPRINGS APPEARS HERE] [COMPARABLE RENTALS]
==================================================================================================================================== COMPARABLE RENT SUMMARY - ------------------------------------------------------------------------------------------------------------------------------------ YEAR NO. OF OCCUPANCY UNIT EFFECTIVE AMENITIES/COMMENTS NO. NAME/LOCATION BUILT UNITS UNIT TYPE SIZE/SF - ------------------------------------------------------------------------------------------------------------------------------------ RENT/MO. RENT/SF/MO. - ------------------------------------------------------------------------------------------------------------------------------------ 1 L'Auberge Broadmoor 1987 108 94% 1BR/1BA 1,000 $ 875 $0.88 Swimming pool, fitness 5 Watch Hill Drive 2BR/1BA 1,100 995 0.90 center, sauna, whirlpool 2BR/2BA 1,300 1,195 0.92 clubhouse, miniblinds, ceiling fans, alarm, vaulted ceilings, a/c, fireplaces and washer/ dryers in all units individual attached garages. - ------------------------------------------------------------------------------------------------------------------------------------ 2 L'Auberge Cheyenne 1987 108 N/A 1BR/1BA/Den 875 835-855 0.97 Swimming pool, Creek 115 West 2BR/2BA 1,044 955-975 0.92 jacuzzi, clubhouse, Cheyenne Road washer/dryer, fireplaces, covered parking., patio/ balcony. - ------------------------------------------------------------------------------------------------------------------------------------ 3 Cheyenne Crest 1985 208 96.7% 1BR/1BA 546 530-560 1.00 Swimming pool, Apts. 4008 1BR/1BA 714 645-665 0.92 jacuzzi, clubhouse, Westmeadow Drive 1BR/1BA/Den 938 735-760 0.80 sports courts, ceiling 2BR/2BA 990 740-775 0.77 fans, washer/dryer connections, some with fireplaces, balcony/ patio, icemaker, a/c, playground area, storage units. Some carports which rent for $25 per month. Concessions: $300 off 1/st/ months rent for 2 BD/2BA units. - ------------------------------------------------------------------------------------------------------------------------------------ 4 Cheyenne Crossing 1986 220 97.7% STUDIO 460 480-500 1.07 Swimming pool, jacuzzi, Apts. 640 Wycliffe 1BR/1BA 740 580-600 0.80 sauna, exercise room, Drive 2BR/1BA 950 700-720 0.75 clubhouse, ceiling fans, 2BR/2BA 1,000 700-720 0.71 washer/dryer connections, some washer/dryer in units, some with fireplaces, balconies, a/c, vaulted ceilings, ceiling fans, security, playground area. No concessions. - ------------------------------------------------------------------------------------------------------------------------------------ 5 Mountain View Apts. 1984 252 98.8% 1BR/1BA 550 555-565 1.02 Indoor/outdoor 4085 Westmeadow 1BR/1BA 680 650-660 0.96 swimming pool, heated Drive 2BR/1BA 800 695-705 0.88 jacuzzi, sauna, 2BR/2BA 1,000 765-775 0.77 clubhouse, exercise room, ceiling fans, washer/dryer, fireplaces, balconies/ patios. Concessions: $150 off on small 1BR with a 9 to 12 month lease. - ------------------------------------------------------------------------------------------------------------------------------------ 6 Cobblestone Ridge 1985 208 97.1% 1BR/1BA 720 550-560 0.77 Indoor and outdoor Apts. 4125 Pebble 2BR/1BA 840 650-660 0.78 swimming pools, jacuzzi, Ridge Circle 2BR/2BA 1,043 745-765 0.72 sauna, clubhouse, weight 3BR/2BA 1,235 860-870 0.70 room, tennis courts, 3BR/2BA 1,501 935-955 0.63 ceiling fans, a/c, washer/dryer connections, wet bars, ceiling fans, some with fireplaces, playground area. No concessions. - ------------------------------------------------------------------------------------------------------------------------------------ 7 L'Auberge Pine Cliff 1985 96 N/A 1BR/1BA/Den 921 900-950 1.00 Swimming pool, hot tub, 515 Autumn Crest 1BR/1BA 1,028 925-975 0.92 clubhouse, washer/ 2BR/2BA 1,066 975-1,025 0.94 dryers in each storage, 2BR/2BA 1,154 1,160-1,210 1.03 deck, carports (included 2BR/2BA 1,204 1,195-1,245 1.01 in rent). No concessions. - ------------------------------------------------------------------------------------------------------------------------------------ 8 TheOasis 1997 251 N/A 1BR/1BA 605-882 595- 0.96 Fireplace, icemaker, 1495 Farnham Point 840 microwave, vaulted 2BR/1-2BA 950-1238 925-1060 0.90 ceiling, washer/dryer in unit, patio, garage, pool, spa, exercise room ===================================================================================================================================
==================================================================================================================================== COMPARABLE RENT SUMMARY - ------------------------------------------------------------------------------------------------------------------------------------ YEAR NO. OF OCCUPANCY UNIT EFFECTIVE AMENITIES/COMMENTS NO. NAME/LOCATION BUILT UNITS UNIT TYPE SIZE/SF - ------------------------------------------------------------------------------------------------------------------------------------ RENT/MO. RENT/SF/MO. - ------------------------------------------------------------------------------------------------------------------------------------ 9 The Commons/Briar 1996 194 95% 1BR/1BA 701 790 1.13 Fireplace, microwave, 2845 Firewood Point 2BR/1BA 888 900 1.01 washer/dryer, clubhouse, 2BR/2BA 1052 1005 0.96 fitness center, garages, 2BR/2BA 1158 1020 0.88 pool, sauna, whirlpool. 3BR/2BA 1336 1125 0.84 - ------------------------------------------------------------------------------------------------------------------------------------ 10 The Arbors 1996 140 96% 1BR 900- 790- 0.91 Ceiling fans, fireplace, 2192 Denton Grove icemaker, vaulted ceilings, 1045 975 washer/dryer, carports, fitness center, pool, tennis courts. 2BR 208- 1090-1175 0.88 1318 - --------------------------------------------------------------------------------------------------------------------------------- SUBJECT PROPERTY 1984 140 96% 2BR/1BA 938 840 0.90 Swimming pool, jacuzzi, Autumn Heights 1BR/lBA 1,054 885 0.84 sauna, laundry room, Apts. 2BR/1.5BA 1,241 990 0.80 clubhouse, fireplaces, 4035 Autumn 2BR/2BA 1,137 900 0.79 washer/dryer Heights Drive 2BR/2BA 1,249 1,000 0.80 connections, ceiling 2BR/2BA 1,291 1,050-1,070 0.81-0.83 fans, attached garages, security systems. Concessions: None =================================================================================================================================
INCOME APPROACH - -------------------------------------------------------------------------------- In estimating the market value of the subject property, one method used by the appraisers was the Income Approach. The Income Approach to value is predicated on the assumption that there is a definite relationship between the amount of net income a property will earn and its value. Ultimately, the Income Approach seeks to estimate the present worth of an anticipated net income stream based on an analysis of its quality, quantity, and duration. In accordance with the principle of substitution, a prudent investor would pay no more to receive an income stream from a specified property than any other property producing an equally desirable income stream. Typically, the first step in the Income Approach is to estimate the potential gross income according to market rent. Market rent means the "going rent" in the neighborhood based on past history and present conditions. Vacancies are then deducted to arrive at effective gross income. Estimated annual expenses are deducted from the effective gross income, resulting in an indication of net operating income before debt service. From the estimated net annual income, annual debt service, and deferred maintenance (if applicable), are subtracted to obtain annual cash flow to equity. This cash flow can be capitalized into an indication of equity value by direct capitalization utilizing an overall equity rate, or if debt does not exist, an overall capitalization rate. It may also be projected into the future over a selected but appropriate holding period, and discounted along with the anticipated equity reversion at the market discount rate and added in order to arrive at the net present equity value for the subject property. In either method, the present mortgage balance (if applicable) would be added to the equity value to obtain the total value of the property. The appraisers have utilized both methods in valuing the subject property on an all cash basis. ESTIMATED GROSS RENTAL INCOME Income for the subject property is produced by rental income from the various rental units, as well as laundry income, pet deposits, forfeited security deposits, and miscellaneous income. Information provided by the on-site leasing agents indicated the subject's current rent schedule to be as follows:
BASED ON "RESIDENT PAYS UTILITIES" ------------------------------------------------------------------------------- Size Rent/ Rent/ Monthly Unit Type Units (SF) Mo. SF Total ------------------------------------------------------------------------------- Conquistador 2BR/1BA 13 938 $840 $0.90 $10,920 Aspen 1BR/1BA 20 1,054 885 0.84 17,700 Vail 2BR/1.5BA 15 1,241 990 0.80 14,850 Loveland 2BR/2BA 28 1,137* 900 0.79 25,200 Breckenridge 2BR/2BA 38 1,249 1,000 0.80 38,000 Keystone (A) 2BR/2BA 22 1,291 1,050 0.81 23,100 Keystone (B) 2BR/2BA 4 1,291 1,070 0.83 4,280 --- ----- ----- ----- -------- 140 1,177 $958 $0.81 $134,050
* According to the most recent information received from the subject property, the actual square footage of this unit type is 1,139 square feet. However, in order to maintain consistency with the previous appraisals, the 1,137 square foot area has been maintained. 32 These rents have been compared to other apartment complexes in the area which are regarded as the most competitive and comparable to the subject property. For the purpose of this analysis, we have considered ten apartment complexes that were found to be the most comparable to the subject in the Colorado Springs area. They range in total size from 96 to 252 units, in average unit size from 724 to 1,039 square feet, and in occupancy from 94 to 99 percent. These comparable rentals are summarized on a preceding page along with an accompanying map. Most of the comparables surveyed were located within the subject's immediate vicinity. Rent Comparables 1, 2, and 7 are the most comparable to the subject overall; specifically in terms of location, overall quality, physical condition, unit size, rental rates, and in amenities offered. These three comparables indicated an average quoted rental rate range from $0.90 to $0.99 per square foot per month. These properties each feature numerous units with mountain or ridge views which, in the Colorado Springs area, attracts a considerable premium in terms of rental rates. While the subject also has above-average mountain views, the property does not specifically have as good a view as these other properties. Consequently, we have focused on the lowest rental rates of the comparables' unit rent ranges which are those for no or limited views, while the upper end of the range is for units with spectacular views. Comparables 3, 4, 5 and 6 were considered to be slightly inferior to inferior when compared to the subject; however, they were analyzed as additional indications of market rents in the subject's area. Comparables 8, 9, and 10 are new projects, which are considered slightly superior to the subject, however they have been included, as they are competitive with the subject according to the on-site leasing agents. INDIVIDUAL UNIT RENT ANALYSES CONQUISTADOR UNITS - 2BR/1BA (938 SF) The subject property features 13 two-bedroom/one-bathroom unit floor plans, each comprised of a net rentable area of 938 square feet. A summary of the comparable properties' two-bedroom/one-bathroom units considered to be in direct competition with the subject's "Conquistador" unit is as follows:
PROPERTY NAME (RENTAL NO.) SIZE (SF) RENT/MO. RENT/SF/MO. COMPARABILITY ------------------------------------------------------------------------------------- Cheyenne Crossing (4) 950 $ 700 $0.74 Inferior Mountain View (5) 800 $ 695 $0.87 Inferior Cobblestone Ridge (6) 840 $ 650 $0.77 Inferior The Oasis (8) 950 $ 925 $0.97 Superior The Commons/Briar(9) 1052 $1,005 $0.96 Superior Subject Property 938 $ 840 $0.90 -------- (Conquistador Plan)
The subject's two-bedroom/one-bathroom units are presently quoted at a rental rate of $840 or $0.90 per square foot per month. This floor plan currently has only one vacant unit. Analysis of the contracted rental rates of the subject show that the majority of the recent leases are at the current asking rate. Therefore, we believe the market rent for this unit type is $840 or $.90/sf. 33 ASPEN UNITS - 1BR/1BA (1,054 SF) The subject property features 20 one-bedroom/one-bathroom unit floor plans with a net rentable area of 1,054 square feet. The comparable properties with similar one-bedroom/ one-bathroom unit floor plans are as follows:
PROPERTY NAME (RENTAL NO.) SIZE SF) RENT/MO. RENT/SF/MO COMPARABILITY ------------------------------------------------------------------------------------ Broadmoor (1) 1,000 $875 $0.88 Comparable Cheyenne Creek(2) 875 $835 $0.95 Comparable Cheyenne Crest (3) 714 $645 $0.90 Inferior Cheyenne Crossing (4) 740 $580 $0.78 Inferior Mountain View (5) 680 $650 $0.96 Inferior Pine Cliff (7) 921 $900 $0.97 Comparable Pine Cliff (7) 1,028 $925 $0.90 Comparable The Oasis (8) 882 $840 $0.95 Superior The Commons/Briar(9) 888 $900 $1.01 Superior The Arbors(10) 1,045 $975 $0.93 Superior Subject Property 1,054 $885 $0.84 --- (Aspen Plan)
Management is currently quoting a rental rate of $885 or $0.84 per square foot for the subject's one-bedroom/one- bathroom units. This unit type is presently fully occupied. Leases signed at the subject over the past six months have been primarily at the current asking rate. Based on the majority of recent leases, it is our opinion that market rent for these units is reasonable at $885 or $0.84 per square foot. VAIL UNITS - 2BR/1.5BA (1,241 SF) The subject contains 15 two-bedroom/one and one-half- bathroom unit floor plans, which feature a net rentable area of 1,241 square feet. No other two-bedroom/one and one-half- bathroom floor plans were noted within the market; thus, we compared this unit floor plan with those of comparably sized two-bedroom/two-bathroom units. A summary of these comparison units is as follows:
PROPERTY NAME (RENTAL NO.) SIZE (SF) RENT/MO RENT/SF/MO. COMPARABILITY ------------------------------------------------------------------------------------ Broadmoor (1) 1,100 $995 $0.90 Superior Cheyenne Creek (2) 1,044 $955 $0.91 Comparable Cheyenne Crest (3) 990 $740 $0.75 Inferior Cheyenne Crossing (4) 1,000 $700 $0.70 Inferior Mountain View (5) 1,000 $776 $0.78 Inferior Cobblestone Ridge (6) 1,043 $745 $0.71 Inferior Pine Cliff (7) 1,154 $1160 $1.00 Comparable Pine Cliff (7) 1,204 $1195 $0.99 Comparable The Oasis (8) 1,238 $1060 $0.86 Superior The Commons/Briar (9) 1,158 $1020 $0.88 Superior The Arbors(10) 1,208 $1090 $0.90 Superior Subject Property 1,241 $990 $0.80 --- (Vail Plan)
34 The quoted rental rate for the subject's two-bedroom/one and one-half bathroom units is presently $990 or $0.80 per square foot. In this unit type there are currently no vacancies. The subject's recent contracted rents for these units are typically around the asking rent of $990. Therefore, in our opinion, market rent for the subject's two-bedroom/one and one-half bathroom unit is reasonably estimated at $990 or $0.80 per square foot. 2BR/2BA FLOOR PLANS (1,137-1,291 SF) The subject has three separate two-bedroom/two-bathroom floor plans, the smallest of which is the Loveland floor plans at 1,137 square feet of net rentable area. This is followed by the Breckenridge at 1,249 square feet and the Keystone at 1,291 square feet. A summary of the two- bedroom/two-bathroom and three-bedroom/two-bathroom units within the local market which were considered competitive to the subject is as follows:
PROPERTY NAME (RENTAL NO.) SIZE (SF) RENT/MO. RENT/SF/MO. COMPARABILITY ----------------------------------------------------------------------------------------- Broadmoor (1) 1,300 $1,195 $0.92 Superior Cheyenne Creek (2) 1,044 $ 955 $0.92 Comparable Cheyenne Crest (3) 990 $ 740 $0.75 Inferior Cheyenne Crossing (4) 1,000 $ 700 $0.70 Inferior Mountain View (5) 1,000 $ 765 $0.77 Inferior Cobblestone Ridge (6) 1,043 $ 745 $0.71 Inferior Cobblestone Ridge (6) *1,235 $ 860 $0.70 Inferior Pine Cliff (7) 1,154 $1,160 $1.00 Comparable Pine Cliff (7) 1,204 $1,195 $0.99 Comparable The Oasis (8) 1,238 $1,060 $0.86 Superior The Commons/Briar(9) 1,158 $1,020 $0.88 Superior The Arbors (10) 1208-1318 $1,090-1175 $0.90 Superior Subject Property (Loveland Plan) 1,137 $ 900 $0.79 --- (Breckenridge Plan) 1,249 $1,000 $0.80 --- (Keystone Plan) 1,291 $1,050-1,070 $0.81-0.83 ---
* 3BR/2BA units The only comparable properties having two-bedroom/two- bathroom units with a size at or near the subject two- bedroom/two-bathroom units are Rents 1, 7 and 10. Rent #6 has three-bedroom/two-bathroom units with similar size. The subject's smaller two-bedroom/two-bathroom unit, the Loveland floor plan, are quoted at $900 or $0.79 per square foot and there is only one vacant unit. The most recent contract rents are primarily at $900. We believe the quoted rent is reasonable and have estimated a current market rental rate of $900 or $0.79 per square foot for the subject's 1,137-square-foot two-bedroom/two-bathroom unit. The Breckenridge units are quoted at $1,000 per unit with a net rentable area of 1,249 square feet. There is one vacant unit and the majority of recent leases are at $1,000. Attributing emphasis to the rents signed for these units, we believe market 35 rent for the subject's 1,249-square-foot two-bedroom/two- bathroom unit is reasonably estimated at $1,000 or $0.80 per square foot. The subject's largest unit, the Keystone floor plan, is quoted from $1,050 to $1,070 presently, with the difference attributed to four of the units having a superior view compared to the other 22 units. While this difference is acknowledged, the contracted rental rates generally do not differ. The majority of recent leases were contracted at $1,050 with some as high as $1,075. In our opinion, based on the leases signed at the subject in recent months, and considering the market, we have accepted the subject quoted units as $1,050 and $1,070. Based on the preceding rental analysis of the subject units, the current market rental rate estimates for the subject units are summarized as follows:
BASED ON "RESIDENT PAYS UTILITIES" ------------------------------------------------------------------------------------------- Total Size Total Rent/ Rent/ Mo. Plan Unit Type Units (SF) (SF) Month SF/Mo. Total ------------------------------------------------------------------------------------------- Conquistador 2BR/1BA 13 938 12,194 $840 $0.90 $10,920 Aspen 1BR/1BA 20 1,054 21,080 885 0.84 17,700 Vail 2BR/1.5BA 15 1,241 18,615 990 0.80 14,850 Loveland 2BR/2BA 28 1,137 31,836 900 0.79 25,200 Breckenridge 2BR/2BA 38 1,249 47,462 1,000 0.80 38,000 Keystone 2BR/2BA 26 1 291 33,566 1 060 0.82 27,560 --- ----- ------ ----- ----- -------- 140 1,177 164,753 959 $0.82 $134,230
Gross Annual Rental Income: $134,050 x 12 months = $1,608,600. During our projection period, estimated gross rental income was increased at a rate of 2 percent in the first year to reflect stabilized gross potential rent in the Direct Capitalization Analysis and in the first fiscal year of the Cash Flow Analysis to $1,642,975. This was grown at a rate of 4 percent in each year thereafter. OTHER INCOME In addition to rental income from apartments, other income is generated by laundry and vending machines, forfeited security deposits, pet deposits, late charges, and application fees. Actual figures for 1992 through 1996 show a total for Other Income of $19,336, $20,029, $33,560, $57,108, and $55,970 in each respective year. These compute to respective rentable square footage amounts of $0.12, $0.12, $0.20, $0.35, and $0.33 for each year. The substantial increase between 1994 and 1995 is believed to be a result of added furniture income. The figure for 12 months ending November 30, 1997 is $77,535 or $0.47 per square foot. Based on our experience with similar type properties and the actual performance of the subject property, it is our opinion that other income in the amount of $0.42 per square foot, before vacancy, is typical for a project such as the subject. This equates to a total "Other Income" of $70,000 in the first year of our cash flow as well as in the direct capitalization method. During our projection period, "Other Income" was increased at a rate of 4 percent, or our estimate of long-term growth, throughout the holding period. 36
AUTUMN HEIGHTS APARTMENTS HISTORICAL EXPENSES - ------------------------------------------------------------------------------------------------------------------- EXPENSE ACTUAL 1991 ACTUAL 1992 ACTUAL 1993 ACTUAL 1994 CATEGORY PER SF PER UNIT PER SF PER UNIT PER SF PER UNIT PER SF PER UNIT - ------------------------------------------------------------------------------------------------------------------- Real Estate Taxes $0.29 $341 $0.30 $353 $0.30 $356 $0.33 $386 Insurance 0.05 59 0.04 47 0.04 51 0.06 65 Personnel 0.40 471 0.38 447 0.41 484 0.47 556 Utilities 0.30 353 0.33 388 0.29 345 0.32 380 Repair & Maintenance 0.27 318 0.27 318 0.25 290 0.36 420 Contract Services 0.15 177 0.12 141 0.13 157 0.16 186 General & Administration 0.21 247 0.21 247 0.22 256 0.27 318 Management 0.33 388 0.35 412 0.38 448 0.42 490 - ------------------------------------------------------------------------------------------------------------------- TOTAL EXPENSES $2.00 $2,354 $2.00 $2,354 $2.03 $2,387 $2.38 $2,800 - ------------------------------------------------------------------------------------------------------------------- AUTUMN HEIGHTS APARTMENTS HISTORICAL EXPENSES - -------------------------------------------------------------------------------------------- EXPENSE ACTUAL 1995 1996 1997 CATEGORY PER SF PER UNIT PER SF PER UNIT PER SF PER UNIT - -------------------------------------------------------------------------------------------- Real Estate Taxes $0.33 $386 $0.23 $270 $0.20 $234 Insurance 0.08 90 0.08 95 0.07 78 Personnel 0.50 590 0.50 590 0.54 635 Utilities 0.35 417 0.36 428 0.39 454 Repair & Maintenance 0.38 451 0.31 371 0.49 578 Contract Services 0.18 213 0.21 248 0.23 274 General & Administrative 0.44 516 0.41 487 0.47 554 Management 0.45 529 0.47 558 0.45 531 - -------------------------------------------------------------------------------------------- TOTAL EXPENSES $2.71 $3,191 $2.57 $3,046 $2.84 $3,338 - --------------------------------------------------------------------------------------------
From this we have arrived at our first fiscal year estimate of scheduled gross income as if 100 percent occupied: Gross Rental Income $1,642,975 Other Income ($0.42/SF) 70,000 --------- Total Potential Gross Income $1,712,975 VACANCY AND COLLECTION LOSS Normally, in a stable market, vacancy and collection loss for an apartment complex will be in the 3 to 8 percent range. Typically, from 1 to 2 percent of an apartment project's units are non-revenue-generating employee and model units. In addition to revenue losses attributable to physical vacancy, rent-free employee units, and non-revenue- generating model units, a deduction is made for a variance in contract rents versus market rents. Further, losses attributable to tenant turnover, unit "made-ready" time, unit re-leasing and actual collections losses must be factored into total vacancy and collection losses. As previously indicated in our Apartment Market Overview section, the Colorado Springs area overall vacancy was most recently reported at 5.5 percent. The subject has a physical occupancy of 95.7 percent. When the most current income and expense statement is compared to our estimate of market rent at the subject property, an economic occupancy of 88.3 percent is indicated for the subject property. Due to the large number of units, which have either recently come on the market or under construction, we estimate vacancy to increase for the next couple years while these new units are absorbed. Therefore, we have estimated a 15 percent economic vacancy in the first fiscal year of the cash flow and 10 percent in the second year. Given the market and the subject's history, we believe a stabilized economic occupancy of 95 percent to be reasonable for the subject. Therefore, this figure has been utilized for the remainder of the projection period. Assuming that there are no significant changes affecting the market after the first two years of the cash flow, i.e., significant levels of additional construction, increased permit activity, etc., we project that the subject should be capable of maintaining a stabilized economic occupancy level of 95 percent. EXPENSE ANALYSIS The various expenses necessary in the operation of the subject have been estimated including fixed expenses, operating expenses, and reserves for replacement. Reserves for replacement are estimated based on age, condition, and construction quality. It is emphasized that all income and expenses are based on the assumption of competent and prudent management. The facing table summarizes the actual expenses for the subject property from 1991 to 1997. REAL ESTATE TAXES - According to the El Paso County Appraisal District, the subject property's tax assessor parcel number is 65064-01-014. The subject is located within El Paso County, City of Colorado Springs, and the Cheyenne Mountain School District 12 taxing jurisdictions. The subject property 1996 assessment is $423,720, which is 10.7 percent of the appraised value of $3,971,075. The 1997 property taxes according to the subject operating statement were $32,767. Assuming a 4 percent increase in the tax rate from the previous year, the total taxes due in the first year of the cash flow are estimated at $34,078. 37 INSURANCE - This category includes fire and extended coverage. Insurance costs can vary from one property to another depending upon the type and whether a blanket policy is used. Often times a property owner will insure multiple properties on one policy in an effort to reduce the cost of insurance per project. Our expense estimate is based upon typical costs for an individually insured apartment projects in the area. The subject's actual insurance costs were $0.04 per square foot in 1992, $0.04 per square foot in 1993, $0.06 per square foot in 1994, and $0.08 per square foot in 1995 and 1996. For the 12 months ending November 30, 1997 the insurance expense was $10,972 or $0.07 per square foot. Insurance expenses on similar projects typically range from $0.06 to $0.08 per square foot. We have estimated an expense of $0.09 per square foot or $15,421. This was grown in each year of the analysis at 4 percent. PERSONNEL/SALARIES - This category consists of salaries paid to on-site personnel such as manager, assistant manager, leasing agents, and maintenance personnel. Group insurance and payroll taxes are also incorporated in this figure. This category is not to be confused with another discussed category of Management. The subject expenses historically have ranged from $0.38 to $0.54 per square foot. The 1997 expenses for this category are $88,911 or $0.54 per square foot. Based on this data, we have estimated the personnel expense at $0.53 per square foot or $87,385. This expense was grown at 4 percent in each year of our cash flow analysis. UTILITIES - The subject is an "individually metered" complex with the tenant paying for most of the utility usage. Thus the owner's share includes electricity for common area lighting, laundry equipment, heating and air conditioning for the clubhouse and vacant models, water (including the pool), sewer, and gas. The subject's utility expenses ranged from $0.29 to $0.36 per square foot between 1991 and 1996. The utility expense for the 12-month period ending November 1997 was $63,624 or $0.39 per square foot. Based on the aforementioned factors, the subject's present utility expense has been estimated at $0.38 per square foot or $63,397. This expense was grown at 4 percent annually. REPAIRS AND MAINTENANCE - This category consists of the normal expenses to keep the property in good repair and includes maintenance and repairs in the following general categories: plumbing, HVAC, electrical, building, appliances, drapery and carpet, painting and wallpaper, janitorial, and decorating costs. The subject's repairs and maintenance expense ranged from $0.25 to $0.38 per square foot from 1991 to 1996. The 1997 repair and maintenance expense was $80,969 or $0.49 per square foot. The subject's repairs and maintenance expense has been estimated at $0.37 per square foot or $61,684 and it was increased at 4 percent each year thereafter. It's believed that the 1997 repair and maintenance expense included some capital expenditures and some salary items. CONTRACT SERVICES - This category includes pest control, landscaping services, pool maintenance, and other contract labor. The subject's expense ranged from $0.12 to $0.21 per square foot from 1991 to 1996. Expenses for the 12-month period ending November 30, 1997 were $38,387 or $0.23 per square foot. 38 Considering the subject's historical trends, contract service expense has been estimated at $0.22 per square foot, or $35,982. This expense was inflated at 4 percent annually throughout the cash flow analysis. GENERAL AND ADMINISTRATIVE - This expense category includes legal, advertising and promotion, dues, fees, printing, auto, postage, accounting/audit, permits, travel, credit reports, office equipment, telephone, answering service, pagers, miscellaneous employee expenses, and other administrative expenses. Historically, the subject property's expenses have been within a range from $0.21 to $0.44 per square foot. The 1997 expense for this category was $77,563 or $0.47 percent square foot. Considering the subject's history, we have estimated this category at $0.45 per square foot or $73,678. This expense was inflated at 4 percent annually. MANAGEMENT FEE - This expense category covers compensation to a management company for time and personnel to manage the subject property. This expense typically ranges from 3 to 5 percent. The subject property's current management expense is nearly 5 percent of effective gross income, which has resulted in annual expenses from $0.33 to $0.47 per square foot between 1991 and 1996. The 1997 management expense is $74,439 or $0.47 per square foot. Based on the subject's historical expenses, and as these are supported by market indications, we are of the opinion that a management fee of 5.0 percent of effective gross income is reasonable for the subject property. RESERVES FOR REPLACEMENT - This expense is needed for replacement of short-lived items such as kitchen appliances, heating units, and air-conditioners as well a exterior painting, etc. In estimating a reserve for the subject, we have given consideration to the age of the subject and the subject's construction components, which include a wood and stucco exterior. To keep the subject in good repair and maintain a strong position within its competitive area, we have calculated reserves for replacement at $300 per unit, which equates to $42,500 in the first year. This expense was grown at 4 percent in each year of our analysis. In this appraisal, which attempts to accurately reflect current trends, methods, and criteria, reserves for replacements have been deducted from effective gross income as an operating expense to arrive at net operating income. EXPENSE SUMMARY First year expenses (excluding reserves) have been estimated at $486,425 or $2.95 per square foot. Over twenty (20) apartment projects were analyzed as to expenses and they ranged from $2.02 to $4.18 per square foot excluding reserves. The mean average was $3.01 per square foot, while the medium average was $2.84 per square foot. The first year estimate for the subject is well within the range indicated by the comparables and it is well supported by the subject's historicals. DISCOUNTED CASH FLOW ANALYSIS The most realistic method for estimating value via the Income Approach is through the use of Discounted Cash Flow Analysis. The Market Value of a real estate investment under the Discounted Cash Flow Method is defined as the discounted sum of all net cash inflows plus the property's discounted reversionary value. Primarily, any given property is only worth the value of the income derived from it. 39 The general methodology of Discounted Cash Flow involves the following steps: 1)increasing each year's cash flows by an appropriate appreciation factor; 2) discounting each year's net cash flow by an appropriate discount rate; 3) deriving the property's reversionary value in the final year and discounting it to the present; and 4) the summation of all cash flows, including final year reversion, into an estimate of value. According to the Third Quarter 1997 real estate investor survey compiled by Peter F. Korpacz & Associates, Inc. the apartment market is being flooded with capital, primarily from REIT's, rendering it almost impossible for large institutional investors to land deals. In addition, brokers have fewer properties to market either because long-term holders are buying product before it is ever offered on the market place or because owners are not willing to sell. The main factor is investors are watching to determine if investment locations are the pace of job growth. The slower pace of job growth in many markets, coupled with continued increases in multi-family and single family permits as well as attractive interest rates could combine to negatively effect the apartment market. As such, some investors are increasing overall vacancy allowance in their acquisition analyses and backing off on revenue growth assumptions. However, apartment investment continues to be attractive for pension funds and REIT's and we anticipate investors will continue to find the apartment market a desirable investment. DISCOUNT RATE Over the past several years, the internal rate of return (IRR) has gained greater usefulness and market acceptance as an investment measure. IRR is the yield on an investment based on an initial cash investment, annual cash flows to the property, as well as resale proceeds. IRR allows for return on investment as well as recapture of the original investment when factoring in the reversion. To simulate this process, we have relied upon several investor surveys, which detail reasonable yields or IRR requirements of purchasers. We have used this rate as a discount rate that, when applied to projected cash flows and net resale proceeds (reversion), results in the present value of the property. According to the Third Quarter 1997 investor survey compiled by Peter F. Korpacz & Associates, Inc., investors for apartment properties indicated a return requirement ranging from 10.0 to 12.5 percent with an average of 11.16 percent. This IRR depends on the conservative or aggressive nature of rental and expense growth assumptions, as well as location and other factors. Corporate "Baa" bonds are typically viewed as an alternative investment. Real estate is considered riskier due to illiquidity, competition, burden of management, and market conditions; therefore, approximately 150 basis points or more could be added to this percentage rate in a normal market. Based on the previous data and considering the amount of new construction in the market and the lease-up time required we believe a 12 percent discount rate is reasonable based on an all cash sale and alternative investments. While this is 84 basis points higher than the indicated average by the previously mentioned survey, we believe it reflects the added risk in the market. 40 CAPITALIZATION RATE The subject property's reversionary value is derived by capitalizing the eleventh year's net operating income. As mortgage rates have fluctuated over the past several years, it has become difficult to apply a band of investment method to establish a capitalization rate because capitalization rates do not react dramatically to ups and downs of mortgage interest rates. Additionally, the mercurial nature of the recent market creates a large variance of returns that depends on property potential. According to the previously referenced survey, apartment investors have a general criteria of an 8.0 to 10.25 percent terminal capitalization rate with an average of 9.29 percent. The comparables utilized in the Sales Comparison Approach reflected a range of "going-in" capitalization rates from 8.7 to 10.8 percent. Due to the subject's superior qualities, a rate at the lower end of the range appears reasonable for the subject. Consequently, we have selected a going-in capitalization rate of 9.5 percent for the subject. "Going-out" or terminal capitalization rates are generally 50 to 100 basis points higher than "going-in" rates. Based upon hypothetical resale at the end of the holding period, it will be over 20 years old and competing with newer projects with state-of-the-arts efficiency and market amenities. With this in mind, we have utilized a terminal capitalization rate of 10.5 percent. The resulting value indicates a first year capitalization rate of 8.29 percent for the subject and is a reflection of the first year's 15 percent vacancy. CASH FLOW ASSUMPTIONS Rents were based on a current average rental rate of approximately $0.81 per square foot per month. During the projection period, rents were increased at a rate of 2 percent in the first year of our analysis and 4 percent annually thereafter. As previously discussed in the "Apartment Market Analysis" section of this report, the subject area's average rental rates have been increasing at a steady rate and rental rates for Class A properties have shown the strongest increases. The subject's physical occupancy is 95.7 percent and the economic vacancy is 88.3 percent. Due to the influx of new units in the subject's market we expect vacancy to increase over the next two years until the new product is absorbed. Therefore, the vacancy for the first year of the cash flow is estimated at 15 percent. The vacancy for the second year is estimated at 10 percent. It is our opinion that the subject should be capable of maintaining a 5 percent (stabilized) vacancy rate throughout the remainder of our cash flow analysis. The property has been appraised based on a "resident pays utilities" status. Expenses (with the exception of management) have been increased at an average growth rate of 4 percent annually over the 11-year projection period. Management expenses are based on a percentage of effective gross income and increase with occupancy and rental increases. A discount rate of 12.0 percent was utilized. A terminal capitalization rate of 10.5 percent was considered reasonable. A sales cost of 4 percent of the reversionary value was estimated. Deferred maintenance totaling $487,200 was estimated based upon information for scheduled repairs provided by the owner. A cash flow analysis for the subject is presented on the following page. The 41
=============================================================================================================================== SKYLINE VILLAGE APARTMENTS Fiscal Year Ending 11/30-- 1998 1999 2000 2001 2002 2003 - ------------------------------------------------------------------------------------------------------------------------------- Income: Apt. Rents $1,642,975 $1,708,694 $1,777,042 $1,848,124 $1,922,049 $1,998,931 Rent/SF/Mo. 0.831 0.864 0.899 0.935 0.972 1.011 Other Income/Yr. 70,000 72,800 75,712 78,740 81,890 85,166 ---------------------------------------------------------------------------- Gross Income $1,712,975 $1,781,494 $1,852,754 $1,926,864 $2,003,939 $2,084,096 % Vacancy 15.00% 10.00% 5.00% 5.00% 5.00% 5.00% Vacancy Allowance 256,946 178,149 92,638 96,343 100,197 104,205 ----------- ---------- ---------- ---------- ---------- ---------- Eff. Gross Income 1,456,029 1,603,345 1,760,116 1,830,521 1,903,742 1,979,891 ---------------- Expenses: ???? ???? ---------------- Real Estate Taxes 243 $0.21 34,078 35,441 36,859 38,333 39,866 41,461 Insurance 110 $0.09 15,421 16,038 16,679 17,346 18,040 18,762 Personnel/Salaries 624 $0.53 87,385 90,880 94,516 98,296 102,228 106,317 Utilities 453 $0.38 63,397 65,933 68,570 71,313 74,165 77,132 Repairs and Maintenance 441 $0.37 61,684 64,151 66,717 69,386 72,161 75,047 Contract Services 257 $0.22 35,982 37,421 38,918 40,475 42,094 43,778 General & Administrative 526 $0.45 73,678 76,625 79,690 82,877 86,192 89,640 Management 5.00% $0.44 72,801 80,167 88,006 91,526 95,187 98,995 Reserves 300 $0.25 42,000 43,680 45,427 47,244 49,134 51,099 ---------------- ----------- ---------- ---------- ---------- ---------- ---------- Total Expenses 486,425 510,336 535,381 556,797 579,069 602,231 Per SF Per Yr. 2.95 3.10 3.25 3.38 3.51 3.66 ----------- ---------- ---------- ---------- ---------- ---------- Net Operating Income 969,604 1,093,009 1,224,735 1,273,724 1,324,673 1,377,660 NOI/SF 5.89 6.63 7.43 7.73 8.04 8.36 =============================================================================================================================== Capital Items: Deferred maintenance 487,200 0 0 0 0 0 ----------- ---------- ---------- ---------- ---------- ---------- Cash Flow 482,404 1,093,009 1,224,735 1,273,724 1,324,673 1,377,660 Present Value Factor 12.00% 0.89286 0.79719 0.71178 0.63552 0.56743 0.50663 ----------- ---------- ---------- ---------- ---------- ---------- Present Value of Cash Flow 430,717 871,340 871,742 809,475 751,655 697,965 NOI in 11th Year 1,676,134 Ro at Reversion 10.50% ----------- Indicated Reversion 15,963,182 Less: Sales Costs 4.00% (638,527) ----------- Reversion in 11th Yr 15,324,655 =================================================================================================================================== Fiscal Year Ending ????? 2004 2005 2006 2007 2008 - ----------------------------------------------------------------------------------------------------------------------------------- Income: Apt. Rents 2,078,888 2,162,043 2,248,525 2,338,466 2,432,005 Rent/SF/Mo. 1.052 1.094 1.137 1.183 1.230 Other Income/Yr. 88,572 92,115 95,800 99,632 103,617 --------------------------------------------------------------- Gross Income 2,167,460 2,254,159 2,344,325 2,438,098 2,535,622 % Vacancy 5.00% 5.00% 5.00% 5.00% 5.00% Vacancy Allowance 108,373 112,708 117,216 121,905 126,781 ----------- ---------- ---------- ---------- ---------- Effective Gross Income 2,059,087 2,141,451 2,227,109 2,316,193 2,408,841 Expenses: Real Estate Taxes 43,120 44,844 46,638 48,504 50,444 Insurance 19,512 20,293 21,105 21,949 22,827 Personnel/Salaries 110,570 114,993 119,592 124,376 129,351 Utilities 80,217 83,426 86,763 90,234 93,843 Repairs and Maintenance 78,049 81,171 84,418 87,795 91,307 Contract Services 45,529 47,350 49,244 51,214 53,262 General Administrative 93,226 96,955 100,833 104,866 109,061 Management 102,954 107,073 111,355 115,810 120,442 Reserves 53,143 55,269 57,480 59,779 62,170 ----------- ---------- ---------- ---------- ---------- Total Expenses 626,321 651,373 677,428 704,525 732,707 Per SF Per Yr. 3.80 3.95 4.11 4.28 4.45 ----------- ---------- ---------- ---------- ---------- Net Operating Income 1,432,766 1,490,077 1,549,680 1,611,667 1,676,134 NOI/SF 8.70 9.04 9.41 9.78 10.17 =================================================================================================================================== Capital Items: Deferred Maintenance 0 0 0 0 0 ----------- ---------- ---------- ---------- ---------- Cash Flow 1,432,766 1,490,077 1,549,680 1,611,667 1,676,134 Present Value Factor 0.45235 0.40388 0.36061 0.32197 ----------- ---------- ---------- ---------- Present Value of Cash Flow 648,111 601,817 558,830 518,914 NOI in 11th Year Present Value of Income Stream 6,760,567 Ro at Reversion Present Value of Reversion 4,934,129 ----------- ------------------------------------------------- Indicated Reversion Cumulative Present Value 11,694,695 Less: Sales Costs Indicated Value/SF 70.98 Indicated Value/Unit 83,534 Reversion in 11th Yr GIM at Indicated Value 7.12 Ro at Indicated Value 8.29% ------------------------------------------------- ==================================================================================================================
============================================================================ CASH FLOW SUMMARY ------------------------------------------------------------------- Fiscal Year Annual 12.00% PV of Ending 11/30 Cash Flows NPV Factor Cash Flows ------------------------------------------------------------------- 1998 $482,404 0.892857 $430,717 1999 $1,093,009 0.797194 871,340 2000 $1,224,735 0.711780 871,742 2001 $1,273,724 0.635518 809,475 2002 $1,324,673 0.567427 751,655 2003 $1,377,660 0.506631 697,965 2004 $1,432,766 0.452349 648,111 2005 $1,490,077 0.403883 601,817 2006 $1,549,680 0.360610 558,830 2007 $1,611,667 0.321973 518,914 ------- Total $6,760,567 Projected NOI in 11th Year $1,676,134 Going-out Capitalization Rate 10.50% ----- Estimated Value of Property at End of 10th Year $15,963,182 Less Sales Cost @ 4.00% (638,527) -------- Value of Reversion at End of 10th Year $15,324,655 Discount Factor 12.00% 0.321973 -------- Present Value of the Reversion $4,934,129 Sum of Present Values of Cash Flow 6,760,567 --------- Market Value as of November 30, 1997 $11,694,695 Rounded $11,690,000 ============================================================================ ============================================================================== DIRECT CAPITALIZATION Gross Potential Rent $1,642,975 Other Income 70,000 ----------- Gross Income $1,712,975 Stabilized Vacancy 5.00% (85,649) ----------- Effective Gross Income $1,627,326 Expenses: Real Estate Taxes $34,078 Insurance 15,421 Personnel/Salaries 87,385 Utilities 63,397 Repair & Maintenance 61,684 Contract Services 35,982 General & Administrative 73,678 Management 81,366 Reserves 42,000 Total Expenses ($494,990) ----------- Net Operating Income $1,132,336 Capitalization Rate 9.50% ----------- Stabilized Market Value $11,919,328 LESS: Deferred Maintenance (487,200) Rental Loss (232,316) ----------- Fee Simple Market Value $11,199,812 Rounded $11,200,000 ============================================================================== estimated leased fee market value for the subject on an "as is" basis via discounted cash flow method is $11,690,000. DIRECT CAPITALIZATION Direct capitalization is a method used to convert a single year's income estimate into a value indication. In direct capitalization a rate of return for the investor and recapture of the capital invested is implicit in the overall capitalization rate. The overall capitalization rate chosen in the cash flow discussion was considered reasonable of the behavior of buyers and sellers in the local marketplace when considering the subject's investment quality. If the property being appraised has an economic vacancy less than the projected stabilized vacancy, the difference must be discounted to the present and deducted from the stabilized value indication. Also, any deferred maintenance must be deducted from this indication. The subject has a projected first year economic vacancy factor of 15 percent according to the Discounted Cash Flow analysis. The stabilized vacancy factor is 5 percent. Therefore, a rent loss must be calculated. The projected NOI at 15 percent vacancy is subtracted from the stabilized NOI at the 5 percent vacancy factor. Additionally the second year NOI at 10 percent vacancy is subtracted from the stabilized NOI at 5 percent vacancy. The differences are then discounted at 7 percent to Net present value and subtracted from the stabilized market value. In addition, the estimated deferred maintenance of $487,200 was deducted, and the resulting direct capitalization value indication for the subject on an "as is" basis is $11,200,000. The direct capitalization calculations are shown on the facing page. INCOME APPROACH CONCLUSION DCF Method..................................$11,690,000 Direct Capitalization Method................$11,200,000 The two methods of comparison are supportive of each other; however, greatest weight in our value conclusion was given to the discounted cash flow analysis. We are of the opinion that the "as is" leased fee market value of the subject property, as of November 30, 1997 is $11,600,000. 42 RECONCILIATION - -------------------------------------------------------------------------------- Indications of value provided through the appraisal process are summarized as follows and are predicated on an "as is," all cash, basis. Sales Comparison Approach $11,400,000 Income Approach $11,600,000 The Sales Comparison Approach utilized the most recent sales of comparable apartment properties in Colorado Springs. The weakness of the Sales Comparison Approach is that no two properties are exactly alike and exact conditions of a sale are often unknown. The strength of this approach is that it indicates that market activity based on the willing buyer/willing seller concept. Sales activity has been strong over the past twelve months. We were able to identify six sales occurring from 11/96 to 11/97. Therefore, we feel there is sufficient data that the sales comparison approach provides a reliable indication of market value. The Income Approach attempts to measure investment qualities of the property. Based on actual rental rates in the immediate area of the subject, actual expenses, and investor returns within the market, we have estimated value. Actual data on the property, as well as comparable data was considered to lend adequate support. Because the Income Approach deals directly with income streams, we feel it is a very good indication of current market conditions. It tends to reflect a value, which an investor of a property would anticipate. Accordingly, we feel the income approach provides a reliable indication of the market value of the subject. Therefore, relying on the value of the subject supported by both the Sales Comparison and Income Approaches, the value it is our opinion that the "as is" leased fee market value of the subject property, on an all cash basis, as of November 30, 1997 is ELEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($11,500,000) In addition, we have contemplated the possible conversion of the existing apartments units to individual condominium interests. To date, the condominium market in the Colorado Springs area has yet to maximize returns on conversion. Likewise, the maximum return on condominium sales is generally realized on new units in contrast to the resale of previously occupied condominium units. The subject property is currently being operated as a rental apartment project with an occupancy of 95.7 percent. Although condominiums provide a lifestyle free from exterior maintenance, the single-family detached residence remains the residence of choice in El Paso County. At the present time there is an ample supply of single- family residences in Colorado Springs at reasonably low prices. The condominium market in the Colorado Springs area is not presently providing an adequate return, which would justify the risk of conversion. It is our opinion that the subject property should be maintained as an apartment rental complex at this time. 43 L' AUBERGE BROADMOOR - -------------------------------------------------------------------------------- [PHOTO APPEARS HERE] RENT COMPARABLE 1 PROPERTY IDENTIFICATION Job Number: 97-072 Name of Project: L' Auberge Broadmoor Street Address: 5 Watch Hill Drive City/State: Colorado Springs, Colorado PROPERTY DESCRIPTION Year Built/Renovated: 1987 Number of Stories: 2 Number of Units: 108 Net Rentable Area (SF): 110,060 Average Unit Size (SF): 1,019 Parking Surface: Asphalt-paved Parking Spaces: Adequate Type of Construction: Brick veneer and frame Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF ------------------------------------------------------ 25 lBR/2BA 1,000 $ 875 $ 0.88 55 2BR/2BA 1,100 995 0.90 28 2BR/2BA 1,300 1,195 0.92
Unit Amenities: Dishwashers, garbage disposals, washer/dryers, miniblinds, patio/balconies, ceiling fans, fireplaces, alarm, A/C, vaulted ceilings Project Amenities: Swimming pool, fitness center, clubhouse, hot tub, some with attached garages Concessions: None indicated ECONOMIC DATA Percent Occupied: 94% Avg. Monthly Rent/SF of NRA: $0.90 Electricity Paid By: Tenant Length of Lease: 6-12 months Security Deposit: $225 ($30 application fee, $400 pet deposit) Confirmed With: Management on-site and Apartment Appraisers and Consultants Date Confirmed: 12/14/97 L' AUBERGE CHEYENNE CREEK - -------------------------------------------------------------------------------- [PHOTOS APPEARS HERE] RENT COMPARABLE 2 PROPERTY IDENTIFICATION Job Number 97-072 Name of Project: L' Auberge Cheyenne Creek Street Address: 115 West Cheyenne Road (north of Lake Avenue off Nevada Avenue) City/State: Colorado Springs, Colorado PROPERTY DESCRIPTION Year Built/Renovated: 1987 Number of Stories: 3-4 Number of Units: 107 Net Rentable Area (SF): 108,300 Average Unit Size (SF): 992 Parking Surface: Concrete-paved Parking Spaces: Adequate Type of Construction: Masonry veneer and wood frame Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF --------------------------------------------------------- 33 1BR/1BA/Den 875 $835-$855 $0.97 74 2BR/2BA 1,044 $955-$975 $0.92
Unit Amenities: Dishwashers, garbage disposals, washer/dryer in each unit, mini-blinds, patio/balconies, ceiling fans, fireplaces Project Amenities: Swimming pool, jacuzzi, clubhouse, covered parking. Concessions: None ECONOMIC DATA Percent Occupied: N/A Avg. Monthly Rent/SF of NRA: $0.94 Electricity Paid By: Tenant Length of Lease: 6-12 month Security Deposit: None $20 more for top floor units Confirmed With: Apartment Appraisers and Consultants Date Confirmed: 12/14/97 CHEYENNE CREST - -------------------------------------------------------------------------------- [PHOTOS APPEARS HERE] RENT COMPARABLE 3 PROPERTY IDENTIFICATION Job Number: 97-072 Name of Project: Cheyenne Crest Street Address: 4008 Westmeadow Drive City/State: Colorado Springs, Colorado PROPERTY DESCRIPTION Year Built/Renovated: 1985 Number of Stories: 2 Number of Units: 208 Net Rentable Area (SF): 165,524 Average Unit Size (SF): 796 Parking Surface: Asphalt-paved Parking Spaces: Adequate Type of Construction: Brick veneer and frame Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF ------------------------------------------------------------ 63 lBR/1BA 546 $530-560 $1.00 42 lBR/1BA 714 $645-665 $0.92 16 1BR/1BA/DEN 938 $735-760 $0.80 87 2BR/2BA 990 $740-775 $0.77
Unit Amenities: Dishwashers, garbage disposals, washer/dryer connections, mini-blinds, patio/balconies, ceiling fans, some with fireplaces, storage units, balcony/patio, icemaker A/C Project Amenities: Swimming pool, jacuzzi, clubhouse, sports courts, laundry facility, playground area, carports for rent $25 per month. Concessions: $300 off first month's rent for 2BR/2BA units ECONOMIC DATA Percent Occupied: 97% Avg. Monthly Rent/SF of NRA: $0.87 Electricity Paid By: Tenant Length of Lease: 8-12 months Security Deposit: $200 - $250 Confirmed With: Apartment Appraisers and Consultants through on-site management. Date Confirmed: 12/14/97 CHEYENNE CROSSING - -------------------------------------------------------------------------------- [PHOTOS APPEARS HERE] RENT COMPARABLE 4 PROPERTY IDENTIFICATION Job Number: 97-072 Name of Project: Cheyenne Crossing Street Address: 640 Wycliffe Drive City/State: Colorado Springs, Colorado PROPERTY DESCRIPTION Year Built/Renovated: 1986 Number of Stories: 2 Number of Units: 220 Net Rentable Area (SF): 178,720 Average Unit Size (SF): 812 Parking Surface: Asphalt-paved Parking Spaces: Adequate Type of Construction: Brick veneer and frame Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF ------------------------------------------------------- 40 STUDIO 460 $480-500 $1.07 68 1BR/1BA 740 $580-600 $0.80 40 2BR/1BA 950 $700-720 $0.75 72 2BR/2BA 1,000 $700-720 $0.71
Unit Amenities: Dishwashers, garbage disposals, washer/dryer connections, some with washer/dryers, mini- blinds, patio/balconies, ceiling fans, some with fireplaces Project Amenities: Swimming pool, jacuzzi, clubhouse, sauna, laundry facility, playground area, security fencing, security systems, exercise room Concessions: None ECONOMIC DATA Percent Occupied: 98% Avg. Monthly Rent/SF of NRA: $0.78 Electricity Paid By: Tenant Length of Lease: 6-12 months Security Deposit: $300 - 1BR Confirmed With: Apartment Appraisers and Consultants Date Confirmed: 1/6/98 MOUNTAIN VIEW - -------------------------------------------------------------------------------- [PHOTOS APPEARS HERE] RENT COMPARABLE 5 PROPERTY IDENTIFICATION Job Number: 97-072 Name of Project: Mountain View Street Address: 4085 Westmeadow Drive City/State: Colorado Springs, Colorado PROPERTY DESCRIPTION Year Built/Renovated: 1984 Number of Stories: 2 Number of Units: 252 Net Rentable Area (SF): 182,400 Average Unit Size (SF): 724 Parking Surface: Asphalt-paved Parking Spaces: Adequate Type of Construction: Brick veneer and frame Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF -------------------------------------------------- 80 1BR/1BA 555 $555-565 $1.02 80 1BR/1BA 680 $650-660 $0.96 40 2BR/1BA 800 $695-705 $0.88 52 2BR/2BA 1000 $765-775 $0.77
Unit Amenities: Dishwashers, garbage disposals, washer/dryer connections, mini-blinds, patio/balconies, ceiling fans, some with fireplaces Project Amenities: Swimming pool, jacuzzi, clubhouse, sauna, exercise facility, laundry facility, playground area, security fencing, security systems Concessions: $150 off on small 1 BR with a 9 to 12 month lease ECONOMIC DATA Percent Occupied: 99% Avg. Monthly Rent/SF of NRA: $.91 Electricity Paid By: Tenant Length of Lease: 12 months Security Deposit: $200 - 1BR; $250 - 2BR Pets Allowed/Deposit: Yes/$300 ($100 nonrefundable) Confirmed With: Apartment Appraisers and Consultants Date Confirmed: 12/14/97 COBBLESTONE RIDGE - -------------------------------------------------------------------------------- [PICTURES APPEAR HERE] RENT COMPARABLE 6 PROPERTY IDENTIFICATION Job Number: 97-072 Name of Project: Cobblestone Ridge Street Address: 4125 Pebble Ridge Circle City/State: Colorado Springs, Colorado PROPERTY DESCRIPTION Year Built/Renovated: 1985 Number of Stories: 2 Number of Units: 208 Net Rentable Area (SF): 186,368 Average Unit Size (SF): 896 Parking Surface: Asphalt-paved Parking Spaces: Adequate Type of Construction: Brick veneer and frame Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF --------------------------------------------------- 88 1BR/1BA 720 $550-560 $0.77 40 2BR/1BA 840 $650-660 $0.78 60 2BR/2BA 1,043 $745-765 $0.72 12 3BR/2BA 1,235 $860-870 $0.70 8 3BR/2BA 1,501 $935-955 $0.63
Unit Amenities: Dishwashers, garbage disposals, washer/dryer connections, mini-blinds, patio/balconies, ceiling fans, wetbars, some with fireplaces Project Amenities: Indoor and outdoor swimming pools, jacuzzi, clubhouse, sauna, laundry facility, playground area, security fencing, security systems, 2 tennis courts Concessions: None ECONOMIC DATA Percent Occupied: 97% Avg. Monthly Rent/SF of NRA: $0.74 Electricity Paid By: Tenant Length of Lease: 6 months Security Deposit: $200 - 1BR; $250 - 2BR; $300 - 3BR Confirmed With: Apartment Appraisers and Consultants Date Confirmed: 12/14/97 L' AUBERGE PINE CLIFF - -------------------------------------------------------------------------------- [PICTURES APPEAR HERE] RENT COMPARABLE 7 PROPERTY IDENTIFICATION Job Number: 97-072 Name of Project: L'Auberge Pine Cliff Street Address: 515 Autumn Crest Circle City/State: Colorado Springs, Colorado PROPERTY DESCRIPTION Year Built/Renovated: 1985 Number of Stories: 1/2 Number of Units: 96 Net Rentable Area (SF): 101,859 Average Unit Size (SF): 1,039 Parking Surface: Asphalt-paved Parking Spaces: Adequate Type of Construction: Stucco and wood frame Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF ------------------------------------------------- 39 1BR/1BA/Den 921 $900-950 $1.00 14 1BR/1BA 1,028 $925-975 $0.92 12 2BR/2BA 1,066 $975-1,025 $0.94 14 2BR/2BA 1,154 $1,160-1,210 $1.03 17 2BR/2BA 1,204 $1,195-1,245 $1.01
Unit Amenities: Dishwashers, garbage disposals, washer/dryer in units, mini-blinds, fireplaces, ceiling fans, vaulted ceilings, walk-in closets, outdoor utility closets, patio/balconies, carports (included in rent), no garages Project Amenities: Swimming pool, hot tub, and clubhouse Concessions: None ECONOMIC DATA Percent Occupied: NA Avg. Monthly Rent/SF of NRA: $0.99 Electricity Paid By: Tenant Length of Lease: 6-12 months Security Deposit: $455 Confirmed With: Apartment Appraisers and Consultants Date Confirmed: 12/14/97 Remarks: This project was built by the same developer and has equivalent quality as the subject. Higher rents are for units with a view. $50 view premium for about 40% of the units. Carports included in rent. THE OASIS - -------------------------------------------------------------------------------- [PICTURES APPEAR HERE] RENT COMPARABLE 8 Property Identification Job Number: 97-072 Name of Project: The Oasis Street Address: 1495 Farnham Point City/State: Colorado Springs, Colorado Property Description Year Built/Renovated: 1997 Number of Stories: 2 Number of Units: 252 Net Rentable Area (SF): 223,860 Average Unit Size (SF): 892 Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF ------------------------------------------------- 24 1BR/1BA 605 $ 595 $0.98 32 1BR/1BA 669 $ 645 $0.96 40 1BR/1BA 773 $ 725 $0.94 17 1BR/1BA 817 $ 820 $1.00 17 1BR/1BA 877 $ 830 $0.95 17 1BR/1BA 882 $ 840 $0.95 10 2BR 950 $ 925 $0.97 10 2BR 1,015 $ 945 $0.93 24 2BR 1,034 $ 900 $0.87 24 2BR 1,076 $ 975 $0.91 18 2BR 1,147 $1,050 $0.92 18 2BR 1,238 $1,060 $0.86
Unit Amenities: Washer/dryer in units, vaulted ceilings, fireplaces, icemaker, microwave, patios, and garages Project Amenities: Pool, spa, exercise room Concessions: None ECONOMIC DATA Percent Occupied: 95% Avg. Monthly Rent/SF of NRA: $0.93 Electricity Paid By: Tenant Length of Lease: 6-12 months Security Deposit: $250 - $275 plus $35 application fee and $300 pet deposit Confirmed With: On-site personnel Date Confirmed: 12/14/97 THE COMMONS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 9 PROPERTY IDENTIFICATION Job Number: 97-072 Name of Project: The Commons/Briar Street Address: 2845 Firewood Point City/State: Colorado Springs, Colorado PROPERTY DESCRIPTION Year Built/Renovated: 1996 Number of Stories: 2 Number of Units: 194 Net Rentable Area (SF): 194,468 Average Unit Size (SF): 1,034 Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF ------------------------------------------------ 32 1BR/1BA 701 $ 790 $1.13 36 1BR/1BA 888 $ 900 $1.01 50 2BR/ 1,052 $1,005 $0.96 34 2BR/ 1,158 $1,020 $0.88 36 3BR/ 1,236 $1,125 $0.84
Unit Amenities: Washer/dryer in units, fireplaces, ceiling fans, microwaves, and garages Project Amenities: Swimming pool, hot tub, clubhouse, fitness center Concessions: None ECONOMIC DATA Percent Occupied: 95% Avg. Monthly Rent/SF of NRA: $0.96 Electricity Paid By: Tenant Length of Lease: 6-12 months Security Deposit: $335-$370 plus $30 application fee and $400 pet deposit Confirmed With: On-site management Date Confirmed: 12/14/97 THE ARBORS - -------------------------------------------------------------------------------- [PICTURES APPEAR HERE] RENT COMPARABLE 10 PROPERTY IDENTIFICATION Job Number: 97-072 Name of Project: The Arbors Street Address: 2192 Denton Grove City/State: Colorado Springs, Colorado PROPERTY DESCRIPTION Year Built/Renovated: 1996 Number of Stories: 2 Number of Units: 140 Net Rentable Area (SF): N/A Average Unit Size (SF): N/A Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF ---------------------------------------------- N/A 1BR/1BA 900 $ 790 $0.88 1BR/1BA 919 $ 835 0.91 1BR/1BA 955 $ 855 0.90 1BR/1BA 1,045 $ 975 0.93 2BR 1,208 $1,090 0.90 2BR 1,240 $1,080 0.87 2BR 1,277 $1,095 0.86 2BR 1,255 $1,100 0.88 2BR 1,279 $1,155 0.90 2BR 1,318 $1,175 0.89
Unit Amenities: Washer/dryer in units, fireplaces, ceiling fans, vaulted ceilings, ice makers, and carports Project Amenities: Swimming pool, laundry room, fitness center, and tennis courts Concessions: None ECONOMIC DATA Percent Occupied: 94% Avg. Monthly Rent/SF of NRA: $.90 Electricity Paid By: Tenant Length of Lease: 6-12 months Security Deposit: $350 plus $30 application fee and $500 pet deposit Confirmed With: On-site management Date Confirmed: 12/14/97 Comments: On-site management would not provide breakdown on unit mix. SPRING CANYON - -------------------------------------------------------------------------------- [PICTURES APPEAR HERE] COMPARABLE APARTMENT SALE 1 PROPERTY IDENTIFICATION Job Number 97-072 Project Name Spring Canyon Address 4510 Spring Canyon Heights City/County/State Colorado Springs, El Paso County, Colorado TRANSACTION DATA Date of Sale 11/97 (under contract) Grantor (Seller) The Spanos Corporation Grantee (Buyer) Sentinel Acquisition Corporation Recorded Document N/A Sale Price $19,917,000 Occupancy 93.5% Sale Price per Unit $68,209 Sale Price per SF $74.21 Terms of Sale Cash Sale
INCOME/EXPENSE DATA TOTAL PER UNITS OF COMPARISON SF Potential Gross Income $2,652,000 $9.88 Price/Net Rentable SF $74.21 Vacancy/Collection Loss 6.5% ($172,380) $0.64 Indicated G.I.M. $ 7.5lx Other Income $118,734 $0.44 Indicated E.G.I.M. $ 7.67x Effective Gross Income $2,598,354 $9.68 Going-In Capitalization Rate 8.74% Operating Expenses ($799,209) $2.98 Reserves for Replacement ($58,400) $0.22 Net Operating Income $1,740,745 $6.49
PHYSICAL DATA Year Completed 1997 Construction Type Wood frame/stucco Site Area 14.67 acre(s) No. Stories 2-3 No. Buildings N/A Total Units 292 Net Rentable Area 268,396 SF Average Unit Size 919 SF Unit Amenities Washer/Dryer, balcony with storage, fireplaces in 55% of units, alarm, central A/C, microwave, vaulted 9 ft. ceiling, 78 detached garages, and 292 carports Project Amenities Swimming pool, spa, sauna, clubhouse with exercise room, business center, conference room, mini movie theater, and lighted outdoor sports court Confirmed With Apartment Appraisers and Consultants 11/28/97 Comments Closing scheduled upon reaching 80% occupancy. This was a pre-sale. Leasing started 2/1/97. As of 6/97 36 units were completed, but 86 had been pre- leased. WESTERN HILLS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 2 PROPERTY IDENTIFICATION Job Number 97-072 Project Name Western Hills Address 810 Western Drive City/County/State Colorado Springs, El Paso, Colorado TRANSACTION DATA Date of Sale 07/97 Grantor (Seller) Leroy Landhuis Grantee (Buyer) Western Hills Association (Insignia) Recorded Document 97075597 Sale Price $7,350,000 Occupancy 94% Sale Price per Unit $48,355 Sale Price per SF $64.04 Terms of Sale Cash Sale
INCOME/EXPENSE DATA TOTAL PER UNITS OF COMPARISON SF Potential Gross Income $1,120,800 $9.726 Price/Net Rentable SF $64.04 Vacancy/Collection Loss 5.00% ($67,248) $ 0.59 Indicated G.I.M. 6.56x Other Income $76,688 $ .067 Indicated E.G.I.M. 6.50x Effective Gross Income $1,130,240 $ 9.85 Going-In Capitalization Rate 10.81% Operating Expenses $(305,513) $ 2.66 Reserves for Replacement ($30,400) $ 0.26 Net Operating Income Less $794,327 $ 6.92 Reserves
PHYSICAL DATA Year Completed 1985 Construction Type Wood frame/stucco Site Area 7.626 acres No. Stories 2-3 No. Buildings N/A Total Units 152 Net Rentable Area 114,780 SF Average Unit Size 755 SF Unit Amenities Stacked washer/dryer, fireplaces, ceiling fans, and patio/balcony Project Amenities Swimming pool, exercise room, tennis courts, sauna and spa Confirmed With Apartment Appraisers and Consultants 11/28/97 Comments Buyer operates adjacent project. GRAND CENTENNIAL - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 3 PROPERTY IDENTIFICATION Job Number 97-072 Project Name Grand Centennial Address 5157 N. Centennial Boulevard City/County/State Colorado Springs, El Paso, Colorado TRANSACTION DATA Date of Sale 06/97 Grantor (Seller) Westwood Residential Grantee (Buyer) Sentinel Real Estate Corporation Recorded Document 97064903 Sale Price $22,360,000 Occupancy 92.5% Sale Price per Unit $65,000 Sale Price per SF $71.26 Terms of Sale Cash Sale
INCOME/EXPENSE DATA TOTAL PER SF UNITS OF COMPARISON Potential Gross Income $3,097,080 $9.87 Price/Net Rentable SF $71.26 Vacancy/Collection Loss 7.5% ($232,281) $0.74 Indicated G.I.M. 7.22x Other Income $143,600 $0.46 Indicated E.G.I.M. 7.43x Effective Gross Income $3,008,399 $9.59 Going-In Capitalization Rate 9.21% Operating Expenses ($879,916) $2.80 Reserves for Replacement ($68,800) $0.22 Net Operating Income Less $2,059,683 $6.56 Reserves
PHYSICAL DATA Year Completed 1996 Construction Type Wood frame and wood exterior Site Area 23.14 acres No. Stories 3 No. Buildings N/A Total Units 344 Net Rentable Area 313,780 Average Unit Size 912 SF Unit Amenities Washer/dryer hookups, patios, 9 ft. ceilings with crown molding, ice makers, wood burning fire places, microwaves and wired for alarm Project Amenities Swimming pool, spa, clubhouse and exercise facility, 7-acre park, laundry facility, 80 detached garages and 48 carports Confirmed With Apartment Appraisers and Consultants 11/28/97 Comments Closing scheduled upon reaching 75% occupancy. First occupancy 8/1/96. Started leasing 6/26/96. By 1/15/97 206 units built and 191 units leased. TEMPLETON PARK - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 4 PROPERTY IDENTIFICATION Job Number 97-072 Project Name Templeton Park Address 4675 Templeton Park Circle City/County/State Colorado Springs, El Paso, Colorado TRANSACTION DATA Date of Sale 02/97 Grantor (Seller) Templeton Investors Grantee (Buyer) Griffis/Blessing Recorded Document 97019202 Sale Price $23,300,000 Occupancy 93% Sale Price per Unit $46,976 Sale Price per SF $52.16 Terms of Sale $17,475,000 loan at 7.5% with a 25-year amortization, due in 6 years
INCOME/EXPENSE DATA TOTAL PER SF UNITS OF COMPARISON Potential Gross Income $3,758,208 $8.41 Price/Net Rentable SF $52.16 Vacancy/Collection Loss 7% ($263,075) $0.59 Indicated G.I.M. 6.20x Other Income $86,300 $0.19 Indicated E.G.I.M. 6.5lx Effective Gross Income $3,581,433 $8.01 Going-In Capitalization Rate 10.37% Operating Expenses ($1,042,200) $2.33 Reserves for Replacement ($124,000) $0.28 Net Operating Income Less $2,415,233 $5.41 Reserves
PHYSICAL DATA Year Completed 1984 Construction Type Wood frame with vertical wood siding Site Area 20.869 acres No. Stories 2-3 No. Buildings N/A Total Units 496 Net Rentable Area 446,672 SF Average Unit Size 901 SF Unit Amenities Central A/C, walk-in closets, dishwashers, patios/balconies. 184 units have fireplaces and washer/dryer hook-ups. Some units have trash compactors, wet bars, or ceiling fans. Project Amenities 3 pools (indoor & outdoor), spa, men's and women's saunas, 2 tennis courts, basketball court, 2 playgrounds, and a clubhouse with small kitchen, billiards and a weight room. Confirmed With Apartment Appraisers and Consultants 11/28/97 Comments Now known as Sterling Pointe Apartments THE NEIGHBORHOOD - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 5 PROPERTY IDENTIFICATION Job Number 97-072 Project Name The Neighborhood Address 3504 A Van Teylingen Drive City/County/State Colorado Springs, El Paso, Colorado TRANSACTION DATA Date of Sale 12/96 Grantor (Seller) Te-Two Real Estate LP Grantee (Buyer) Investor Realty Trust Recorded Document 96157453 Sale Price $10,750,000 Occupancy 94% Sale Price per Unit $56,283 Sale Price per SF $50.71 Terms of Sale $7,525,000 loan at 7.92% with a 25 year amortization due in 10 years
INCOME/EXPENSE DATA TOTAL PER SF UNITS OF COMPARISON Potential Gross Income $1,592,940 $7.51 Price/Net Rentable SF $50.71 Vacancy/Collection Loss 6% ($95,576) $0.45 Indicated G.I.M. 6.75x Other Income $28,314 $0.13 Indicated E.G.I.M. 7.05x Effective Gross Income $1,525,678 $7.20 Going-In Capitalization Rate 9.6% Operating Expenses ($450,870) $2.13 Reserves for Replacement ($42,975) $0.20 Net Operating Income Less $1,031,833 $4.87 Reserves
PHYSICAL DATA Year Completed 1982 Construction Type Wood frame with wood siding Site Area 14.84 acre(s) No. Stories 2 No. Buildings Unknown Total Units 191 Net Rentable Area 212,010 SF Average Unit Size 1,110 SF Unit Amenities Washer/Dryer hook-ups, balconies, fireplace, storage, dishwasher, no A/C. Project Amenities Volleyball court, no clubhouse or pool. Confirmed With Apartment Appraisers and Consultants Comments This property was under contract for $10.8 million, but fell through. There are 48 units in Phase I that have electric heat and are billed separately for hot water. One unit is the office. RIDGEVIEW PLACE - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 6 PROPERTY IDENTIFICATION Job Number 97-072 Project Name Ridgeview Place Address 3310 Knoll Lane City/County/State Colorado Springs, El Paso, Colorado TRANSACTION DATA Date of Sale 11/96 Grantor (Seller) Ridgeview Place Association Grantee (Buyer) GB Investments, et. al. Recorded Document 96147933 Sale Price $16,400,000 Cash Equivalent Sale Price $16,500,000 Occupancy 94% Sale Price per Unit $49,107 Sale Price per SF $54.83 Terms of Sale $11,250,000 loan at 8.03% 26 year amortization, due in 7 years
INCOME/EXPENSE DATA TOTAL PER SF UNITS OF COMPARISON Potential Gross Income $2,532,551 $8.42 Price/Net Rentable SF $54.83 Vacancy/Collection Loss 6% ($151,953) $0.50 Indicated G.I.M. 6.52x Other Income $52,400 $0.17 Indicated E.G.I.M. 6.78x Effective Gross Income $2,432,998 $8.08 Going-In Capitalization Rate 9.76% Operating Expenses ($746,210) $2.48 Reserves for Replacement ($75,600) $0.25 Net Operating Income Less $1,611,188 $5.60 Reserves
PHYSICAL DATA Year Completed 1984 Construction Type Wood frame and wood siding Site Area 25.17 acres No. Stories 1-2 No. Buildings N/A Total Units 336 Net Rentable Area 300,952 SF Average Unit Size 896 SF Unit Amenities Central A/C, balconies/patios, storage, 2B2 and 3B have fireplaces and washer/dryer hook-ups. Project Amenities 2 swimming pools, 2 saunas, billiards, playground, clubhouse, exercise facility, tennis, basketball, and volleyball courts. Confirmed With Apartment Appraisers and Consultants 11/28/97 Comments Sale price was reduced by $100,000 for termites. Therefore $100,000 was added to the cash equivalent sale price to reflect good condition. PROFESSIONAL QUALIFICATIONS STEVAN N. BACH EXPERIENCE Bach Realty Advisors, Inc. (since June 1997) President. Emphasis in ad valorem tax and intangible value. Real estate valuation and consultation on hotels, major urban properties, and property portfolios. Financial and feasibility analysis, land use, and market studies Bach Thoreen McDermott Incorporated (July 1991-May 1997) Chief Executive Officer. Bach Thoreen & Associates, Inc. (1985-1991) President Bach & Associates, Inc. (1980-1984) President Landauer Associates, Inc. (1980-1984) Senior Vice-President and General Manager-Southwestern Region Coldwell Banker Commercial Group, Inc. (1973-1980) Vice-President and Manager, Appraisal Services. Appraisal Research Associates (1971-1973) Appraiser. Real Estate research valuation on urban and rural properties. Ray R. Hastings, MAI (1964-1971) Appraiser. Real Estate research valuation on urban and rural properties. Residential Real Estate Sales (1963-1964) Salesman. Residential real estate salesman Covina, California. PROFESSIONAL ACTIVITIES Member: Appraisal Institute Appraisal Institute, Houston Chapter 33 Appraisal Institute, Chairman of the Grievance Committee of the Regional Ethics Panel Appraisal Institute, Chairman of the Review and Counseling Committee of the Regional Ethics Panel Appraisal Institute, Co-Chairman of the Education Committee (1980) Appraisal Institute, Chairman of the Education Committee (1983) Appraisal Institute, Candidate Guidance Committee (1987-1992) Appraisal Institute, Subcommittee Chairman, Admissions Committee (1984) AIREA Nonresidential Appraisal Report Grading Committee (1984) Appraisal Institute Expert Witness Video Committee (1990) Licenses: Real Estate Broker, State of Texas Certification: Certified in the Appraisal Institute's voluntary program of continuing education for its designated members (MAIs who meet the minimum standards of this program are awarded periodic education certification). Certified General Real Estate Property appraiser in the State of Texas, Certification No. TX-1323079-G Certified General Real Estate Property appraiser in the State of Colorado, Certification No. CG01323975 EDUCATION B.S. Marketing, University of Southern California (1962) - -------------------------------------------------------------------------------- COMPLETE, SELF-CONTAINED VALUATION OF SKYLINE VILLAGE 6651 NORTH CAMPBELL AVENUE TUCSON, PIMA COUNTY, ARIZONA FOR HUTTON/CON AM REALTY INVESTORS 3 1764 SAN DIEGO AVENUE 29TH FLOOR SAN DIEGO, CALIFORNIA 92110 AS OF NOVEMBER 30, 1997 BY BACH REALTY ADVISORS, INC. 1221 LAMAR, SUITE 1325 HOUSTON, TEXAS 77010 BRA: 97-073 - -------------------------------------------------------------------------------- TABLE OF CONTENTS - ----------------------------------------------------------------------------------------------------------- Letter of Transmittal............................................................ 1 Assumptions and Limiting Conditions.............................................. 2 Certification.................................................................... 4 Salient Facts and Conclusions.................................................... 6 Nature of the Assignment......................................................... 7 City/Neighborhood Analysis....................................................... 9 Apartment Market Analysis........................................................ 13 Site Analysis.................................................................... 18 Improvements..................................................................... 20 Highest and Best Use............................................................. 22 Appraisal Procedures............................................................. 25 Sales Comparison Approach........................................................ 27 Income Approach.................................................................. 31 Reconciliation................................................................... 40
ADDENDA Rent Comparables Improved Sale Comparables Professional Qualifications BACH Realty Advisors, Inc. Appraisal, Consultation & Litigation March 8, 1998 Hutton/Con Am Realty Investors 3 1764 San Diego Avenue San Diego, California 9210 Re: A Complete, Self-Contained Appraisal of the Skyline Village Apartments, Tucson, Arizona; BRA: 97-073 Gentlemen: By your request and authorization, we have inspected the above-referenced property and have investigated the real estate market in the subject area in order to provide the value of the leased fee estate of the subject property as of November 30, 1997. This appraisal report is in conformance with the guidelines of the Appraisal Institute. The scope of this assignment includes the Sales Comparison and Income Approaches to value. The property was inspected in December 1997. Our analysis of the property focused on the supply and demand factors influencing the Tucson and subject area apartment market, the sale of comparable properties, market rent levels, appropriate operating expenses, and acceptable investor returns. As a result of our inspection of the property, investigation of the real estate market, and relying on our experience with similar type properties, it is our opinion that the leased fee market value of the subject property, all cash, on an "as is" basis, as of November 30, 1997 is in the sum of SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($7,500,000) There follows on the succeeding pages of this report pertinent data as to the valuation conclusions expressed herein. Your attention is also directed to the Assumptions and Limiting Conditions that follow this letter, as they are an integral part of the above stated market value. Thank you for the opportunity to be of service. If there are any questions regarding the valuation, please contact us. Sincerely, /s/ Stevan N. Bach Stevan N. Bach, MAI President and Chief Executive Officer Four Houston Center 1221 Lamar, Suite 1325 Houston, TX 77010 (713) 739-0200 Fax (713) 739-0208 ASSUMPTIONS AND LIMITING CONDITIONS - -------------------------------------------------------------------------------- The certification of this complete, self-contained appraisal is subject to the following assumptions and limiting conditions. 1. That responsibility is not taken for matters of a legal nature affecting the property appraised or the title thereto and that all legal descriptions furnished are correct. 2. That the title to the property being appraised is good and marketable and is appraised as though under responsible ownership and/or management. 3. That the property is free and clear of all liens and encumbrances, except as otherwise stated. 4. That the sketches in this report are included to assist the reader in visualizing the property and responsibility is not assumed for their accuracy. 5. That a survey of the property has not been made by the appraiser. 6. That the information, estimates, and opinions furnished the appraiser by others and contained in this report are considered reliable and are believed to be true and correct; however, responsibility is not taken for their accuracy. 7. That responsibility is not taken for soil conditions or structural soundness of the improvements that would render the property more or less valuable. 8. That possession of this appraisal does not carry with it the right of publication and that this report, or any parts thereof, may not be reproduced in any form without written permission of the appraiser. 9. That testimony or attendance in court or at a hearing are not a part of this assignment; however, any such appearance and/or preparation for testimony will necessitate additional compensation than received for this appraisal report. 10. That the valuation estimate herein is subject to an all cash or cash equivalent purchase and does not reflect special or favorable financing in today's market. 11. Where discounted cash flow analyses have been undertaken, the discount rates utilized to bring forecasted future revenues to estimates of present value reflect both our market investigations of yield anticipations and our judgement as to the risks and uncertainties in the subject property and the consequential rates of return required to attract an investor under such risk conditions. There is no guarantee that projected cash flows will actually be achieved. 2 12. That the square footage figures are based on floor plans and information supplied to the appraiser by Con Am Management. 13. Bach Realty Advisors, Inc. is not an expert as to -------------------------------------------------- asbestos and will not take any responsibility for -------------------------------------------------- its existence or the existence of other hazardous -------------------------------------------------- materials at the subject property, analysis for -------------------------------------------------- EPA standards, its removal, and/or its -------------------------------------------------- encapsulation. If the reader of this report and/or -------------------------------------------------- any entity or person relying on the valuations in -------------------------------------------------- this report wishes to know the exact or detailed -------------------------------------------------- existence (if any) of asbestos or other toxic or -------------------------------------------------- hazardous waste at the subject property, then we -------------------------------------------------- not only recommend, but state unequivocally that -------------------------------------------------- they should obtain an independent study and -------------------------------------------------- analysis (including costs to cure such -------------------------------------------------- environmental problems) of asbestos or other toxic -------------------------------------------------- and hazardous waste. ------------------- 14. In addition, an audit on the subject property to determine its compliance with the Americans with Disabilities Act of 1990 was not available to the appraiser. The appraiser are unable to certify compliance regarding whether the removal of any barriers which may be present at the subject are readily achievable. 3 CERTIFICATION - -------------------------------------------------------------------------------- The undersigned does hereby certify to the best of our knowledge and belief that, except as otherwise noted in this complete, self-contained appraisal report: 1. I do not have any personal interest or bias with respect to the subject matter of this appraisal report or the parties involved. 2. The statements of fact contained in this appraisal report, upon which the analyses, opinions, and conclusions expressed herein are gauged, are true and correct. 3. This appraisal report sets forth all of the limiting conditions (imposed by terms of our assignment or by the undersigned) affecting the analyses, opinions, and conclusions contained in this report. 4. The analysis, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Uniform Standards of Professional Appraisal Practice of the Appraisal Institute. 5. That no one other than the undersigned prepared the analyses, opinions, and conclusions concerning the subject property that are set forth in this appraisal report. Stevan N. Bach inspected the property in December 1997. 6. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 7. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions, and conclusions. 8. The Appraisal Institute conducts a program of continuing education for its members. Members who meet the minimum standards of this program are awarded periodic educational certification. As of the date of this report, Stevan N. Bach, MAI has completed the requirements under the continuing education program of the Appraisal Institute. 9. Compensation for this assignment is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. 4 10. Based on the knowledge and experience of the undersigned and the information gathered for this report, the estimated leased fee market value, "as is," of the subject property on an all cash basis, as of November 30, 1997, is $7,500,000. /s/ Stevan N. Bach ----------------------------------------- Stevan N. Bach, MAI President and Chief Executive Officer Certified General Real Property Appraiser State of Texas TX-1323079-G 5 SALIENT FACTS AND CONCLUSIONS - -------------------------------------------------------------------------------- Identification: Skyline Village 6651 North Campbell Avenue Tucson, Arizona Location: West side of North Campbell Avenue just north of East Skyline Drive BRA: 97-073 Legal Description: All of that portion of Block 1 of Casa Conejo Estates, Block 1, Lots 1 and 2, being a subdivision of record in the office of the Pima County, Arizona Recorder in Book 18 of Maps and Plats at Page 76 Land Size: 10.2356 acres or 445,863 square feet Building Area: 167,500 square feet of net rentable area Year Built: 1985 Unit Mix: 48 1BR/1BA at 800 square feet 44 1BR/lBA Den at 1,000 square feet 66 2BR/2BA at 1,100 square feet (including 6 TH) 10 2BR/2BA/TH at 1,200 square feet No. of Units: 168 Average Unit Size 997 square feet Physical Occupancy 93 percent Economic Occupancy: 85 percent Highest and Best Use As Vacant: Multifamily As Improved: Multifamily Date of Value: November 30, 1997 "As Is" Market Value by Sales Comparison Approach: $7,400,000 "As Is" Market Value by Income Approach: $7,500,000 "As Is" Market Value Conclusion: $7,500,000 6 NATURE OF THE ASSIGNMENT - -------------------------------------------------------------------------------- PURPOSE OF THE APPRAISAL The purpose of this complete, self-contained appraisal is to give an estimate of the "as is" leased fee market value of the subject property on an all cash basis. IDENTIFICATION OF THE PROPERTY The subject property contains 18 two-story apartment buildings with 168 units and a total net rentable area of 163,072 square feet. It was constructed in 1985 on 10.2356 acres. It is identified as the Skyline Village Apartments located at 6651 North Campbell Avenue. The complex is situated along the west side of North Campbell Avenue, just north of East Skyline Drive in Tucson, Arizona. DATE OF THE APPRAISAL All opinions of value expressed in this report reflect physical and economic conditions prevailing as of November 30, 1997. The property was inspected in December 1997. DEFINITION OF SIGNIFICANT TERMS The Appraisal of Real Estate, Eleventh Edition, 1996, --------------------------- sponsored by the Appraisal Institute defines Market Value as: "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) Buyer and seller are typically motivated; (2) Both parties are well informed or well advised, and acting in what they consider their own best interests; (3) A reasonable time is allowed for exposure in the open market; (4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale." 7 It is our opinion that a reasonable time period to sell the subject property is six months to one year and this is consistent with current market conditions. A sale earlier than six months to one year may represent a value other than market value and is reasonably believed to be a value less than our market value stated within our appraisal report. Leased Fee Estate/1/ - An ownership interest held by a -------------------- landlord with the rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the leased fee are specified by contract terms contained within the lease. FUNCTION OF THE APPRAISAL It is the understanding of the appraiser that the function of this appraisal is for annual partnership and/or internal reporting purposes. PROPERTY RIGHTS APPRAISED The appraiser have appraised the "as is" leased fee interest subject to short-term leases which are typically 6 to 12 months in duration at the subject property. THREE-YEAR HISTORY According to the Pima County records, the current owner of record is Hutton/Con Am Realty Investors 3. No sale or listing of the subject property is believed to have occurred over the past three years. SCOPE/BASIS OF THE APPRAISAL This appraisal has been made in accordance with accepted techniques, standards, methods, and procedures of the Appraisal Institute. The values set forth herein were estimated after application and analysis by the Sales Comparison and Income Approaches to value. These approaches are more clearly defined in the valuation section of this report. The Cost Approach was not utilized in our analysis due to the age of the property since depreciation is difficult to accurately measure in older properties. Additionally, it is often the perception of investors that cost does not necessarily equate to value and the purchase price is not typically based on construction costs. The scope of our assignment included obtaining pertinent property data from the client regarding income and expense figures, tenant rent rolls, and permission to inspect the subject. Additionally, the appraiser conducted research either personally or through associates to obtain current market rental rates, construction trends, the sale of comparable improved properties, anticipated investor returns, and the supply and demand of competitive apartment projects in the general and immediate area. After these examinations were performed, an analysis was made in order to estimate the leased fee market value of the subject on an "as is" basis. ______________________ /1/The Dictionary of Real Estate Appraisal, Third Edition, p. 204. --------------------------------------- 8 - -------------------------------------------------------------------------------- [AREA MAP APPEARS HERE] - -------------------------------------------------------------------------------- CITY/NEIGHBORHOOD ANALYSIS - -------------------------------------------------------------------------------- The Tucson Metropolitan Area (TMA) encompasses approximately 495 square miles and is located 63 miles north of Mexico and 115 miles southeast of Phoenix. Tucson is the county seat of Pima County and includes four incorporated areas and two Indian reservations. The county is generally separated into the foothills and the flatlands topographical regions. The foothills contain the resorts and more prestigious residential areas, with higher housing prices and higher household incomes. The flatlands contain a more diverse residential population and most of the major employment centers. The geographic boundaries of the TMA are defined by five mountain ranges: the Santa Catalina, Rincon, Santa Rita, Tucson, and Tortolita. The Santa Cruz, Rillito, and Pantano are the three major rivers or washes that traverse the Tucson area. The major transportation arteries in the Tucson area are Interstate Highway 10 and Interstate Highway 19. Interstate Highway 10 is the major highway linking the southwestern United States from El Paso to Los Angeles, and flows in a northwest/southeast direction in the Tucson area. Interstate Highway 19 branches south from Interstate Highway 10 near the traditional downtown and serves the southwestern part of the community. The Tucson International Airport services 13 domestic and international airlines and Amtrak provides passenger rail transportation to the city. LIVABILITY Tucson is in the Sonoran Desert region located in southern Arizona and northern Mexico and is 2,389 feet above sea level. This arid climate produces an average annual rainfall of approximately 11 inches. The three main rivers or washes in the area are dry for the majority of the year and in the summer rainy season collect more than half of the annual rainfall. The average daytime temperature is 82 degrees and the average humidity level is 25 percent. The sunny, dry climate of this area is largely responsible for the population growth over the past twenty years and Tucson has emerged as a popular vacation and tourist destination. Three major resorts are located in the foothills of the mountains around Tucson and there are a number of other smaller resorts, guest ranches, and hotels, which offer year round vacation and recreation facilities. There are more than 30 private and semiprivate golf courses in the area as well as more than 30 private and public tennis facilities. The University of Arizona dominates the field of higher education with a current enrollment of approximately 40,000 students. The University operates 7 colleges, 5 schools, 114 departments, and a medical school/center and is acknowledged as a leader in studies of optical sciences, electronics, scientific instrumentation, and astronomy. Other institutions of higher education in the area are the Pima Community College and the University of Phoenix (private). POPULATION Tucson is the second largest city in Arizona, following Phoenix. Tucson is located in Pima County or the Tucson Metropolitan Area, which has shown strong population growth. In 1980, the estimated population for Pima County was 527,289. This grew at an average annual rate of 2.7 percent to 668,501 in 1990. Since 1990 the population has also grown at an average of 2.7 percent to 794,933 9 in 1997. The Pima Association of Governments projects the population to grow to 846,000 by the year 2000 and to over 1 million by the year 2010. This would represent an average annual growth rate of about 2.0 percent. ECONOMY The economic base of the TMA is heavily oriented toward governmental and educational employment. The U.S. Army Fort Huachuca and the University of Arizona are reported to be the two largest employers with 11,193 and 10,311 employees, respectively. Other substantial government employers include the State of Arizona, Davis-Monthan Air Force Base, Tucson Unified School District, Pima County, and the City of Tucson. During the military cutbacks several years ago, the Davis-Monthan Air Force Base was expecting to suffer huge losses however, employment at the base has actually increased. Manufacturing employment in metropolitan Tucson has more than doubled in the past ten years. This growth is due to the increase of high technology manufacturers locating and expanding in Pima County. These manufacturers include AlliedSignal, Weiser Lock, 3M, Burr-Brown, Environmental Air Products, Inc., Krueger Industries, Inc., and Hughes Missile Company. Hughes Missile Systems and BHP Copper Company are the largest private sector employers. In January 1997 it was announced that Hughes Corporation had been purchased by Raytheon, one of the largest defense contractors in the nation. It is expected that the Hughes operation will increase their engineering employment in Tucson as a result of the acquisition. Another positive impact on the local economy has been Allied Signal's decision to not only remain in Tucson, but to expand their operations. Another area of growth for the local economy is the increase in tourism. According to the Tucson Planning Department, approximately one in four new jobs in the TMA is positively affected by tourism. The following summarizes the Tucson Metropolitan Area Employment as of September 1997.
Total Employment 365,000 Total Wage and Salary Employment 314,600 Manufacturing 29,800 Durable 23,900 Non-durable 5,900 Mining 2,300 Contract Construction 19,300 Transport., Communications and Public Utilities 13,500 Finance, Insurance and Real Estate 12,800 Trade 68,400 Wholesale 10,500 Retail 57,900 Services 100,200 Government 68,300 Total Civilian Labor Force 378,300 Unemployment Rate (Seasonally Adjusted) 3.2%
10 - -------------------------------------------------------------------------------- [NEIGHBORHOOD MAP APPEARS HERE] - -------------------------------------------------------------------------------- ECONOMIC OUTLOOK Over the past few years, Tucson's economy has been mixed. Citywide, job growth fell off in the late 1980's and early 1990's and the unemployment rate began to creep up. However, since 1995 this trend appears to have subsided. The unemployment rate has decreased from 3.6 percent in March 1995 to 3.2 percent in September 1997. It is important to note that the Davis-Monthan Air Force base was not included on the Base Realignment and Closure Commission's list. However, in recent years there has been a closing of Lockheed Aeromod, which was reportedly, offset somewhat by the expansions at Gates Learjet. Both the City of Tucson and Pima County are actively seeking new employees to relocate to the area. The Tucson Economic Development Corporation reports that over 6,000 new jobs could be added to Tucson due to the entrance of new companies. Moderate and steady growth is projected for the Tucson economy in the coming year. Population and job growth is expected to increase. Single family home-building and sales activity has improved over the last two years. The multi- family home market experienced it's first growth since recovery from the overbuilding of the 1980's. However, caution is warranted in order to not recreate the same scenario of over supply. Renewed consumer confidence, along with the decline in mortgage interest rates are the primary factors behind the strong sales performance. The commercial sector continues to exhibit over supply in all sectors, retail, industrial, and office. However, with little new, construction taking place all markets are improving and equilibrium is forecasted within the next two years. Tucson's long-range outlook is optimistic due to its diversified economic base featuring industry sectors expected to prosper over time, a growing tourism industry, and expanding service sector. This coupled with the relative affordability of real estate compared with either coast is expected to continue to lure employers/employees as well as retirement in-migration. NEIGHBORHOOD The subject property is located in the northern portion of the Tucson metropolitan area (unincorporated Pima County) near the foothills of the Santa Catalina mountains. The boundaries of the neighborhood are Oracle Road to the west, Ina Road, and residential areas north of Skyline Drive and Sunrise Drive to the north, Sabino Canyon Road to the east, and River Road to the south. Oracle Road, Campbell Avenue, Swan Road, and Craycroft Road are the major north/south traffic thoroughfares, which provide access to the neighborhood from the employment centers of the central and eastern areas of Tucson. Ina Road, Skyline Drive, and Sunrise Drive accommodate east/west traffic flow in the northern section near the subject. River Road, which runs parallel to the Rillito River, defines the southern boundary of the neighborhood and accommodates the east/west traffic flow in the southern section. Generally, the subject neighborhood is residential in nature and is populated by middle- to upper-income households. Commercial uses are located along the major traffic thoroughfares and are mainly support uses for the area residential base. The most recent commercial developments in the area have been typically confined to major intersections, due to the development plan and existing zoning of Pima County. The closest major intersection to the subject is at Sunrise Drive and Swan Road. Sunrise Village and Plaza Bel Air are two community shopping centers at this location with grocery store anchors as well as branch banking 11 facilities, fast-food restaurants, and a number of other local tenants. The area's most recent major commercial construction is the new Muscular Dystrophy Association (MDA) headquarters building on Sunrise Drive near the subject and the new U.S. Postal facility near the intersection of River Road and Campbell Road. Also, the new Catalina Foothills High School has been completed on Sunrise Drive. The subject is located just west of the La Paloma master-planned community, an 800-acre development which was approved in 1983 for a total of 2000 single-family and multifamily units as well as a number of ancillary commercial uses along Sunrise Drive. The centerpiece of the La Paloma development is a Mobil Travel Guide four- star resort and country club which includes a 27-hole golf facility designed by Jack Nicklaus. The most recent construction was The Legends at La Paloma which is a new 312 unit luxury apartment complex. Water and sewer service is provided to a majority of the neighborhood by the City of Tucson and the subject property is located within the County Foothills School District 16. Fire protection and police service is provided by Pima County. In order to better understand and analyze the population and trends of the subject area, a study was prepared by Equifax Decision Systems which provided demographics within a 1-, 3-, and 5-mile radii of the subject area. The population estimates for 1990 were estimated at 5,676 within a 1-mile radius; 28,751 within a 3-mile radius; and 118,142 within a 5-mile radius. Population increased 198.48 percent between 1970 and 1980 and 67.58 percent between 1980 and 1990 within a 1-mile radius of the subject. Within 3 miles, growth was similar during 1970-1980 with a 208.21 percent increase and 73.05 percent from 1980 to 1990. Within a 5-mile radius, the percentage population growth was substantially less with increases of 49.58 and 32.37 percent from 1970 to 1980 and 1980 to 1990, respectively. Residential units in the subject area within the 1- and 3-mile radii are predominately owner-occupied as opposed to renter-occupied (77.58 to 79.56 percent and 22.42 to 20.44 percent, respectively). These figures are consistent with the impressions by visual inspection of the area that there are a greater number of exclusive single-family residences than apartment complexes. Substantial levels of household income in the immediate area of the subject suggest a relatively affluent population. Estimated 1990 income levels for households within a 1-mile and 3-mile radius of the subject property indicate a median income of $51,397 and $53,264 per year, respectively. The education level of the area population is high and most probably contributes to the high income levels. Approximately 85 percent of the area residents are high school graduates and 40 percent have completed college. The population is predominately between 25 and 54 years old within the 1- and 3-mile radii, with about 13 percent being 65 years and older. NEIGHBORHOOD CONCLUSION The subject property is perceived as being a positive attribute to the area by providing a quality multifamily development which blends well with the upper income residential communities nearby. Overall, the subject neighborhood is projected to continue to prosper in future years. 12 [MARKET AREA MAP APPEARS HERE] APARTMENT MARKET ANALYSIS - -------------------------------------------------------------------------------- In our analysis of the Tucson Metropolitan (Metro) housing market and more specifically the Northwest and Catalina Foothills submarkets, we utilized data from the Metropolitan Tucson Land Use Study with information from the Statistics/Trends Summary published by RealData, Inc. It is important to note that prior to 1995, a publication titled "Market Strategies Apartment Survey Report" was utilized for the data now reported by RealData, Inc. Therefore, there could be some discrepancies in the presentation of data between 1995 and 1996. Both the Northwest and Catalina Foothills submarkets were included due to proximity and similarities; however, the subject is actually situated in the Catalina Foothills submarket. The study revealed an ever-changing market and a summary of the data follows. INVENTORY The rapid residential growth of the mid-1980s slowed during the late 1980s as a result of the general slowdown in the local economy and overbuilding. The multifamily sector experienced declines in activity with a drastic decrease in new building. Nevertheless, over the past two years there have been a number of new projects completed and more are under construction or are in the planning stage. As of the Third Quarter 1997, the metro Tucson area had a total inventory of 90,680 multi-family units with 6,928 units in the Northwest submarket and 8,185 units in the Catalina Foothills submarket. The submarkets represent about 17 percent of the total inventory. As of the Third Quarter 1997, there were 811 multi-family units under construction citywide and this does not include a number of units which are nearing completion and have begun lease-up. There are 1,277 units permitted across the city; however, all of these projects may not proceed. VACANCY Vacancy levels for Metro Tucson and the submarkets showed improvements from 1990 to 1994. However, in 1995, there was a noticeable upswing. The following table summarizes the vacancy rates from the Second Quarter 1990 through the Third Quarter 1997. It is important to note that there is typically a swing in vacancy during the year due to seasonal demand. The summer months tend to report higher vacancies as some residents temporarily move and the winter months are much stronger due to the increase of extended stay visitors. 13
VACANCY RATES --------------------------------------------------------------------------- METRO CATALINA Q:YEAR TUCSON NORTHWEST FOOTHILLS --------------------------------------------------------------------------- III:97 8.66% 7.55% 7.02% II:97 10.39% 8.82% 8.98% I:97 8.3% 7.92% 8.6% IV:96 9.2% 7.72% 10.71% III:96 9.38% 7.5% 12.46% II:96 11.1% 9.3% 15.5% I:96 7.4% 7.9% 8.1% IV:95 7.9% 7.6% 8.6% III:95 7.9% 6.3% 11.0% II:95 8.9% 9.7% 9.0% I:95 3.6% 3.9% 3.8% IV:94 4.0% 5.0% 3.4% III:94 4.2% 4.2% 2.4% II:94 5.9% 4.4% 4.1% I:94 3.8% 3.4% 3.2% IV:93 5.8% 4.1% 3.9% III:93 7.9% 5.6% 6.2% II:93 8.3% 3.9% 7.7% I:93 6.6% 3.8% 5.6% IV:92 7.7% 5.4% 5.5% III:92 9.9% 8.2% 5.8% II:92 10.8% 8.9% 7.7% I:92 8.6% 7.7% 4.4% IV:91 8.0% 7.7% 4.3% III:91 10.4% 7.7% 5.9% II:91 14.5% 8.9% 9.8% I:91 11.4% 7.9% 8.0% IV:90 12.3% 8.7% 8.5% III:90 14.8% 10.6% 14.5% II:90 18.7% 19.8% 18.9%
Source: Marketing Strategies from II:90 to I:95 RealData, Inc. from II:95 to III:97 In summary, the overall vacancy citywide and in the submarkets declined from the Second Quarter 1990 through the First Quarter, 1995. The vacancy in Metro Tucson dropped from 18.7 percent in the Second Quarter 1990 to 3.6 percent in the First Quarter 1995. There were similar drops in both of the submarkets with the Northwest submarket dropping from 19.8 percent in the Second Quarter 1990 to 3.9 percent in the First Quarter 1995. The Catalina Foothills dropped from 18.9 percent in the Second Quarter 1990 to 3.8 percent in the First Quarter 1995. However, in 1995, both the citywide apartment market and the submarkets noticed an upswing in vacancies. The Metro Tucson vacancy rate increased to 8.9 percent in the Second Quarter of 1995 and has fluctuated from 7.9 percent to 11.1 percent since then. The overall vacancy rate as of the Third Quarter 1997 was 8.66 percent, which was down from the 9.38 percent rate for the same period the previous year. The Northwest and Catalina markets saw similar trends with vacancy increasing to 9.7 and 9.0 percent respectively in the Second Quarter 1995. 14 In the Northwest submarket, the Third Quarter 1997 vacancy rate was 7.55 percent virtually unchanged from from 7.5 percent the previous year. In the Catalina Foothills, the Third Quarter 1997 vacancy rate was 7.02 percent down from 12.46 percent the previous year. The higher vacancy rates since 1995 are a direct result of the affordability of home ownership and the over saturation of the market with new apartments. Overall, Pima County is continuing to see population increases, due primarily to an in-migration of people seeking affordable housing and a higher than average per capita income. With the slowdown in apartment development, the Metro Tucson apartment market should continue to stabilize from the effects of excessive building. However, due to the amount of new construction many projects are feeling the impact and have sacrificed rents to to maintain their occupancy levels. The following summarizes the current physical occupancy level at some of the competitive properties.
CURRENT PHYSICAL APARTMENT COMPLEX YEAR BUILT NO. OF UNITS OCCUPANCY -------------------------------------------------------------------------------------------------------- Tierra Catalina 1983 120 92% L'Auberge Canyon View 1987 264 96% Greens at Ventana 1986 265 89% The Arboretum 1986 352 99% Pinnacle Canyon 1995 225 98%
ABSORPTION According to Market Strategies, absorption of apartment units in the Metro Tucson area has fluctuated significantly each quarter over the past few years. In 1990, absorption was estimated to be about 2,741 units. The Second Quarter 1990 showed a significant decline in absorption with a negative (2,765) units; however, this was followed by a substantial increase in the Third and Fourth Quarters with 2,335 units, and 2,111 units, respectively. Similarly in 1991 there was a negative absorption in the Second Quarter with a loss of (1,634) units followed by an increase in the Third Quarter to a positive 2,315 units and in the Fourth Quarter to 1,350 units. Overall, there was a slight decline in the overall annual absorption with 2,679 units in 1991. In 1992, the first two quarters reflected a negative absorption of (1,444) units; however, this rebounded in the second half of the year with 2,289 units. Overall, 1992 reflected a total absorption of 845 units. This was down from 1990 and 1991. In 1993, the second quarter was again one of the worst in terms of absorption. Overall absorption for the year was 1,408 units. In 1994, the absorption dropped somewhat to 1,084 units with the Second Quarter reporting a negative absorption of (1,211) units. These figures are according to Market Strategies. However, according to RealData, Inc., the annual absorption in 1994 was a negative (424) units. In 1995, RealData, Inc. reported another devastating year with a negative (447) units and the second quarter reported the worst figures. The first half of 1996 appears to have improved slightly over 1995 when comparing the first two quarters of the year; however, it reported a negative absorption of (667) units. Beginning in the Third Quarter 1996 the trend changed. Absorption was 1,561 in the Third Quarter 1996 and 755 in the Fourth Quarter. First Quarter 1997 also showed significant absorption of 755 units. However, Second Quarter again showed a negative absorption of 866 units. The Third Quarter rebounded with positive absorption of 1,135 units. Overall the last four 15 quarters showed positive absorption of 1,779 units, which is the best performance since 1991. RENTAL RATES The average rental rate of all projects in the Metro area was $0.68 per square foot as of the Third Quarter of 1997. The rents on the various unit types increased approximately 1.5 percent in the year ending Third Quarter 1997 from 1996. The following summarizes the average rent per square foot by unit type excluding utilities for the Third Quarter 1997.
AVERAGE RENT/SF EXCLUDING UTILITIES ------------------------------------------------------------------------------------------------------ CATALINA UNIT TYPE METRO TUCSON NORTHWEST FOOTHILLS ------------------------------------------------------------------------------------------------------ Studio $0.82 $0.82 $0.93 1BR/1BA 0.72 0.74 0.78 1BR/1BA/DEN 0.62 ---- 0.62 2BR/1BA 0.65 0.67 0.74 2BR/2BA 0.65 0.62 0.69 3BR/2BA 0.64 0.67 0.71
The average rents on all unit types is greater in the Catalina Foothills submarket than the overall Metro area and is the second highest of all submarkets (exception University). Given the quality, desirable location, and amenities, apartment rents in the Catalina Foothills submarket have historically been the highest in the area. The Northwest area has tracked relatively close to the citywide average. However, due to the amount of new construction, rents are not expected to increase over the next year. A summary of the current average asking rent per square foot for several of the subject's competitive projects follows.
AVERAGE UNIT AVERAGE ASKING PROPERTY SIZE/SF RENT/SF ------------------------------------------------------------------------------------------ Tierra Catalina 1,172 $0.61 L'Auberge Canyon View Ventana 1,019 $0.82 The Greens at Ventana Canyon 1,011 $0.80 The Arboretum 846 NA Villa Sin Vacas 1,028 NA Colonia Del Rio 1,010 NA Boulders at La Reserve 999 NA La Reserve Villas 927 NA Legends at La Paloma 1,013 NA Skyline Bel Aire 1,116 NA San Ventana 1,067 NA Pinnacle Canyon 1,107 $0.72
CONCLUSION In 1995, vacancies for the Tucson Metro area began to increase after several years at low levels. As of the Third Quarter 1995, the overall vacancy level was 7.9 percent up from 4.0 percent at the same period in 1994. The vacancy rate for Third Quarter 1996 was 9.38 percent. The Third Quarter 1997 figures show a decrease to 8.66 percent, reflecting a return to stabilization. Absorption levels began to decline in 1994 with negative absorption in 1995 due to the significant amount of new construction primarily in the Northwest and Catalina Foothills submarkets. 16 Absorption levels appear to be stabilizing in 1997 although there remains a significant amount of new construction. The Northwest and Catalina Foothills submarkets have traditionally been healthier than the overall citywide market with a lower vacancy and generally higher rents. However, there is a considerable amount of vacant land zoned for multifamily development in these submarkets and a number of new projects have been developed with a few more planned. This could pose a threat to the market if supply is not carefully monitored in keeping pace with demand. Also, the single-family residential market provides an alternative to the housing rental market. Home loan interest rates have been reasonable and many potential home buyers appear to be electing home ownership. 17 [SKYLINE VILLAGE SITE PLAN APPEARS HERE] SITE ANALYSIS - -------------------------------------------------------------------------------- LOCATION The subject is located along the west side of North Campbell Avenue, just north of East Skyline Drive in Tucson, Pima County, Arizona. It is more specifically situated at 6651 North Campbell Avenue. SIZE AND SHAPE The site is irregularly shaped with a total of 10.2356 acres or 445,863 square feet. It has frontage on North Campbell Avenue. ACCESS AND VISIBILITY The subject property is located along the west side of North Campbell Avenue, just north of East Skyline Drive. The site is situated about ten miles northeast of the Tucson Central Business District (CBD) and about 12 miles northeast of the Tucson International Airport. Access to the subject from these major activity centers is provided by a number of north/south and east/west thoroughfares. From both the CBD and the airport, one of the most direct routes is by heading north on Campbell Avenue just past East Skyline Drive to the subject property. Other major north/south thoroughfares, which lead to East Skyline Drive or Sunrise Drive, are 1st Avenue, Oracle Road, and Swan Road. Immediate access to the subject is provided by North Campbell Avenue. The main entry to the complex is off this thoroughfare. There are two entrances along the north/south artery providing access. North Campbell Avenue - a two-laned, asphalt-paved, north/south artery with asphalt-paved shoulders. ZONING The subject property is zoned "TR" Transitional under the City of Tucson Zoning Ordinance. Permitted uses include single-family dwellings, accessory buildings, churches, parks, public or private schools, agricultural uses, duplex dwellings, multiple dwellings, recreational facilities, mobile housing, colleges, community service agencies, libraries or museums, hospitals, clinics, clubs, private clubs, community storage garages, child care centers, professional offices, real estate offices, motel/hotels, and research facilities. UTILITIES The site is serviced by the following authorities. Electricity.....................Tucson Electric Company Telephone....U.S. West Communications and Mountain Bell Water....................................City of Tucson Sanitary and Storm Sewers...................Pima County TERRAIN AND DRAINAGE The site is sloping and at street grade. Upon site inspection, the drainage appeared to be adequate. According to the Federal Flood Insurance Rate Maps the subject lies within Zone C. Zone C is defined as "areas of minimal flooding." SOIL AND SUBSOIL CONDITIONS No soil engineer's report was available to the appraisers, and no soil tests were performed. The soils are assumed to have an adequate load-bearing capacity. 18 [ZONING MAP APPEARS HERE] EASEMENTS AND ENCUMBRANCES A physical inspection of the site did not reveal any easements adversely affecting the subject property. For purposes of this assignment, the appraisers assume that the subject's value or marketability is not adversely affected by the typical utility easements, which traverse the property. RELATIONSHIP OF SITE TO SURROUNDINGS North: Manzanita School South: Vacant land East: The Foothills subdivision (residential) West: Residential REAL ESTATE TAXES Real estate taxes and assessments for the Skyline Village Apartments are coordinated by the Pima County Assessor's office. The property is subject to a number of different taxing authorities and the taxes are calculated two ways. A portion of the total tax liability is calculated based on the "limited cash value" intended to create a ceiling on the assessment. The limited cash value is multiplied by a 10 percent assessment ratio then multiplied by the rate per $100 of assessed value. This is considered the primary tax rate and includes the school district, community college, county, and state taxes. In 1997, the total tax rate is 9.7932 per $100 of assessed value. The remainder of the tax liability is based on the "full cash value" or current market value. This value is multiplied by 10 percent and then multiplied by the tax rate of 5.0276 per $100 of assessed value. Full cash value assessments are the secondary assessments and apply to various taxing authorities including bonds, school district, library, and special districts. The following is a summary of the tax parcel number used to identify the subject property, the 1997 primary and secondary assessed values, and the total tax for 1997.
PRIMARY ASSESSED SECONDARY ASSESSED TAX PARCEL NO. VALUE (LIMITED) (FULL CASH) VALUE TOTAL TAX ----------------------------------------------------------------------------------- 1080205503 $730,800 $730,800 $106,384.02
The 1997 real estate taxes were $106,384 based on the above assessment. Additionally there is a personal property tax of $1,763.85 and the total taxes equate to $108,148. This amount is grown at 4 percent to reflect the 1998 estimated taxes at $112,474 or $0.67 per square foot of livable area. CONCLUSION The subject site is irregularly shaped containing 10.2356 acres with sloping terrain. There are a few easements, which traverse the property; however, none are believed to adversely affect the site. The parcel is easily accessible with frontage on North Campbell Avenue. The subject is zoned "TR" Transitional, by the City of Tucson, and it is believed to be in compliance. The size and shape of the site provide flexibility for a variety of development. 19 [FLOOD PLAIN MAP APPEARS HERE] IMPROVEMENTS - -------------------------------------------------------------------------------- The subject site, a 10.2356-acre tract of land, is improved with a two-story apartment project known as Skyline Village. The improvements consist of 168 apartment units contained in 18 buildings constructed in 1985. Also situated on the site is a clubhouse, swimming pool, tennis court, and covered parking. There are five basic floor plans for the 168 apartment units. The basic features of these floor plans are as follows:
NO. OF UNITS DESCRIPTION SIZE (SF) TOTAL SF -------------------------------------------------------------- 48 1BR/1BA 800 38,400 44 1BR/1BA Den 1,000 44,000 60 2BR/2BA 1,100 66,000 6 2BR/2BA TH 1,100 6,600 10 2BR/2BA TH 1,250 12,500 --- ----- -------- 168 997 167,500
The total net rentable area of 167,500 square feet within 168 apartment units results in an average of 997 square feet per unit. There are a total of 92 one- bedroom units and 76 two-bedroom units. Please note the total net rentable area and individual unit sizes have changed slightly from previous reports based on the most recent subject rent rolls received from the property owner. The land area is 10.2356 acres, resulting in a density of 16.41 units per acre. The parking consists of approximately 270 spaces with 160 covered, which is 1.61 spaces per unit. The parking ratio is within industry standards. A more detailed description is as follows: FOUNDATION Steel reinforced concrete slab with perimeter and interior wire mesh. Second floors include wood frame, plywood subfloor, and lightweight concrete. FRAMING Wood. ROOF Pitched red tile and flat built-up. EXTERIOR Masonry with painted stucco finish. SECOND-STORY ACCESS Metal stair rails with concrete risers and landings. BALCONIES Concrete and concrete supports with metal handrails. INTERIOR FINISHES Living, Dining, and Bedrooms: Painted and textured gypsum board walls and ceilings, carpeting over pad, hollow-core wood doors, miniblinds, incandescent lighting, and fireplaces. 20 Bathrooms: Vinyl tile floor coverings, porcelain tub with ceramic tile shower, textured and painted gypsum board walls and ceilings, fiberboard vanities with laminate counters, porcelain sink, and commode. Kitchens: Vinyl tile floor coverings, formica countertops, laminated fiberboard cabinets. Kitchen equipment includes a range/oven, refrigerator, disposal, microwave oven, and dishwasher. PLUMBING Adequate and meets city code. HVAC Central air-conditioning and heating provided by individual, compressor units. ELECTRICAL Switch-type circuit breakers, 120/240-volt, single- phase service with each unit individually metered. Each unit has adequate electrical outlets and ceiling- mounted light fixtures. The copper wiring is in compliance with city code. INSULATION Batt-type in ceilings and walls. SITE IMPROVEMENTS Asphalt-paved parking, covered metal carports, pole lighting, concrete sidewalks, a swimming pool, clubhouse, and tennis court. LANDSCAPING Extensive mature landscaping. AGE AND CONDITION The effective age of the subject is 12 years which approximates the actual age and the remaining economic life is estimated to be 28 years. SITE AREA 10.2356 acres or 445,863 square feet. DEFERRED MAINTENANCE Visual inspection of the property as well as estimates by the management revealed several areas of deferred maintenance. Some of these include general interior and exterior repairs, HVAC repairs, pool repairs, parking lot repairs, roof replacement, etc. The deferred maintenance was estimated at about $120,100 and rounded to $125,000. CONCLUSION Upon a detailed inspection of the property, the facility is believed to be of good quality and workmanship. The design and layout are felt to be functional and aesthetically appealing. The project has been well maintained and has an ongoing maintenance program; however, there are a few items previously listed as deferred maintenance. Overall, the apartments are in reasonably good shape and we believe the effective age of the improvements is about 12 years with a remaining economic life of 28 years. 21 [FLOOR PLAN APPEARS HERE] SUBJECT PHOTOGRAPHS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] View of clubhouse/leasing office [PICTURE APPEARS HERE] Interior view of clubhouse/leasing office [PICTURE APPEARS HERE] View of swimming pool [PICTURE APPEARS HERE] View of tennis courts [PICTURE APPEARS HERE] Interior view of Unit 111 living room (model) [PICTURE APPEARS HERE] Interior view of Unit 111 kitchen (model) [PICTURE APPEARS HERE] Interior view of Unit 111 bedroom (model) [PICTURE APPEARS HERE] Exterior view of units [PICTURE APPEARS HERE] View of interior street HIGHEST AND BEST USE - -------------------------------------------------------------------------------- The highest and best use of a property must be determined because market value depends upon the property's most profitable use. The Appraisal of Real Estate, Tenth Edition, ---------------------------- defines highest and best use as: "The reasonably probable and legal use of vacant land or improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value." There are two distinct types of highest and best use. The first type is the highest and best use of the land as if vacant. The second type is the highest and best use of a parcel as improved. This pertains to the use that should be made of the property as it currently exists. In determining the highest and best use of a site, four items must be considered: possible physical limitations of the site, possible legal or permissible uses, and what uses are financially feasible, and produce the maximum return on the site. A careful neighborhood and site analysis is essential in estimating the highest and best use of the site as if vacant. The following is our analysis of the highest and best use as it pertains to the subject property and according to the four essential tests. SUBJECT PROPERTY AS IF VACANT LEGALLY PERMISSIBLE - Within the scope of a legal analysis, the subject site is zoned "TR" Transitional under the City of Tucson Zoning Ordinance. This district is intended to provide for development of single-family dwellings, accessory buildings, churches, parks, public or private schools, agricultural uses, duplex dwellings, multiple dwellings, recreational facilities, mobile housing, colleges, community service agencies, libraries or museums, hospitals, clinics, clubs, private clubs, community storage, garages, child care centers, professional offices, real estate offices, motel/hotels, and research facilities. PHYSICAL POSSIBILITY - Many physical characteristics of a site can affect the use to which it can be put. These characteristics can include size, shape, location, road frontage, topography, easements, utility availability, flood plain, and surrounding patterns. The subject site is irregularly shaped and encompasses 10.2356 acres, allowing for reasonable flexibility in developing the site. It has frontage along the west side of North Campbell Avenue. The topography of the site is sloping and drainage appears to be good. Development in the immediate area is primarily multifamily and single-family residential. The area appears most conducive to multifamily development given the surrounding projects and terrain. The subject site has adequate utility capacity, enjoys a functional size and shape, and is not affected by any adverse easements or restrictions. 22 After considering all of the physical characteristics of the site noted above plus other data in the Site section of this appraisal report, physically possible land uses are limited to multifamily development. The primary deterrents to other types of development were the subject's location, terrain, zoning, and surrounding use patterns which helped to eliminate other site improvements such as commercial, single-family, and office development from our analysis. FINANCIAL FEASIBILITY - In view of the present market conditions, financial feasibility is directly proportional to the amount of net income that could be derived from the subject. After having eliminating all other development from our analysis, the financial feasibility of multifamily development must be tested. The subject is located in the Catalina Foothills submarket, which is experiencing an overall vacancy as of Third Quarter 1997 of 7.02 percent. Physical vacancy at the subject property is 7 percent. The Catalina Foothills submarket vacancy level has increased significantly from the 2.4 percent reported in the Third Quarter of 1994 due to an abundance of new apartment construction. In the early 1990's, rental rates had been increasing at a strong pace; however, with the large number of new units under construction or recently completed, rental rates have stabilized. The average rents in the submarket range from $0.62 to $0.93 per square foot depending on the size of the unit. The average rent at the newer complexes typically ranged from $0.75 to $1.00 per square foot, which is within the feasible range at which to build. However, as previously mentioned, the market has experienced an abundance of new construction and the new projects are offering rent concessions of up to one month free. Therefore, given the number of units either recently completed or under construction, additional apartment construction does not appear to be feasible at this time until the supply has been absorbed. MAXIMUM PRODUCTIVITY - After considering the current economic climate, the subject's location, and financial feasibility of certain land uses, more than likely a present development of the land would not produce a positive cash flow for multifamily development which would be sufficient to satisfy the developer of the project. However, due to the subject's location and the socio-economic status of the neighborhood, we are of the opinion that multifamily apartment units conducive to the subject site would produce the highest net return over the longest period of time. The site's location along the west side of North Campbell Avenue gives it good access and visibility, within an affluent single-family residential area, which is conducive to apartment development. Therefore, after considering the alternatives, we believe the highest and best use of the site, as vacant, is to hold for future apartment development. SUBJECT PROPERTY AS IMPROVED The property, as improved, is tested for two reasons. First to identify the use of the property that is expected to produce the highest overall return per invested dollar, and the second reason is to help in identifying comparable properties. The four tests or elements are also applied in this analysis. LEGALLY PERMISSIBLE - Within the scope of a legal analysis, the subject site utilized for apartment use is reasonable since it is a legal use. 23 PHYSICAL POSSIBILITY - Based on the subject's land size (10.2356 acres), terrain, configuration, and the improvement's positioning relative to the subject site, it is felt that it would not be physically possible to increase the size of the current improvements and remain competitive. The density of the subject is approximately 16.41 units per acre. Thus, based on the aforementioned factors, it is judged that the improvements represent the largest amount of space that could currently be developed under current site conditions. FINANCIALLY FEASIBLE - The discussion of the financial feasibility of the subject, as if vacant, would also apply to the test as improved. Based on the economic conditions for alternative market segments, it was concluded that the subject's present improvements are satisfactory to fulfill this test. In the Income Approach section of this report, the appraisers estimated income and expenses for the subject. The net operating income derived suggests that the property is capable of generating income in excess of operating expenses, exclusive of return on investment requirements and debt service. The net operating income was capitalized into a value indication that was supported by the Sales Comparison Approach. Additionally, the value indication is in excess of the estimated value of the land. This indicates that the subject "as improved" is a feasible entity. MAXIMUM PRODUCTIVITY - The test for this element is also from the market. The comparables analyzed suggest that under competent and prudent management, the subject could produce an adequate return to substantiate its existence. Based on the subject's current use, we have determined that as a multifamily apartment complex, it positively contributes to the value of the site, and as a result is presently developed according to its highest and best use. However, the subject does not represent the "optimum" use due to some deferred maintenance. 24 APPRAISAL PROCEDURES - -------------------------------------------------------------------------------- Traditionally, three valuation approaches or techniques are used in the appraisal of real estate. These are the Cost Approach, Sales Comparison Approach, and Income Approach. COST APPROACH In the Cost Approach, the appraisers obtain an estimate of value by adding to the land value the estimated value of the physical improvements. This value is derived by estimating the replacement cost new of the improvements and, when appropriate, deducting the reduction in value caused by accrued depreciation. According to the Appraisal Institute, the basic principle of the Cost Approach is that buyers judge the value of an existing structure by comparing it to the value of a newly constructed building with optimal functional utility, assuming no undue cost due to delay. Thus, the appraiser must estimate the difference in value between the subject property and a newly constructed building with optimal utility. The Cost Approach was not used as this method of valuation is typically the least reliable indicator of value in older projects such as the subject since estimates of depreciation are difficult to accurately measure in the marketplace. Additionally, it is often the perception of investors that cost does not necessarily equate to value and the purchase price is not typically based on construction costs. SALES COMPARISON APPROACH This approach produces an estimate of value by comparing the subject property to sales and/or listings of similar properties in the immediate area or competing areas. The principle of substitution is employed and basically states when a property is replaceable in the market, its value can be set by the cost of acquiring an equally desirable and comparable property. This technique is viewed as the value established by informed buyers and sellers in the market. INCOME APPROACH The measure of value in this approach is capitalization of the net income, which the subject property will produce during the remaining economic life of the improvements. This process consists of two techniques. The first technique estimates the gross income, vacancy, expenses, and other appropriate charges. The resulting net income or net cash flow is then capitalized. The second technique projects the gross income, vacancy, expenses, other appropriate charges, net income, and cash flow over a projected holding period. The resulting cash flow and reversion (future value) are discounted at an appropriate rate and added in order to arrive at an indication of current value from the standpoint of an investment. These methods provide an indication of the present worth of anticipated future benefits (net income or cash flow) to be derived from ownership of the property. Both techniques were utilized in analyzing the subject property. SUMMARY The appraisers, in applying the tools of analysis to the valuation problem, seek to simulate the thought process of the most probable decision-maker. The appraisers' judgment concerns the applicability of alternative tools of analysis to the facts of the problem, the data and information needed to apply these tools, and the selection of the analytical approach and data most responsive to the problem in question. 25 Thus, depending on the type of property appraised or the purpose of the appraisal, one approach may carry more weight or may point to a more reliable indication of the value of the property being appraised than the other approach. In some instances, because of the inadequacy or unavailability of data, one of the approaches may be given little weight in the final value estimate. 26 [IMPROVED SALES MAP APPEARS HERE]
- ---------------------------------------------------------------------------------------------------------------------- TUCSON AREA IMPROVED SALES SUMMARY - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- SALE SALE CASH EQUIV. YEAR NO. OF NRA OCCUP. NOI/SF NO. NAME/LOCATION DATE SALE PRICE BUILT UNITS AVG/UNIT AT SALE /UNIT - ---------------------------------------------------------------------------------------------------------------------- 1 Pinnacle Canyon 11/97 $11,727,000 1995 225 228,931 98% N/A 7050 E. Sunrise Drive 1,017 Tucson, AZ - ---------------------------------------------------------------------------------------------------------------------- 2 Pinnacle Heights 11/97 $16,364,000 1995 310 339,364 97% N/A 7990 E. Snyder Road. 1,095 Tucson, AZ - ---------------------------------------------------------------------------------------------------------------------- 3 Foothills 11/97 $ 7,600,000 1984 270 167,910 97% N/A 5441 N. Swan Road 622 Tucson, AZ - ---------------------------------------------------------------------------------------------------------------------- 4 Sandstone 06/97 $ 8,849,000 1986 330 181,167 100% $ 4.88 405 E. Prince Road 549 $2,682 Tucson, AZ - ---------------------------------------------------------------------------------------------------------------------- 5 Hilands I 06/97 $12,500,000 1985 426 234,324 95% $ 5.87 5755 E. River Road 550 $3,228 Tucson, AZ - ---------------------------------------------------------------------------------------------------------------------- 6 Windsail 03/97 $10,037,000 1985 300 243,952 94% $ 4.11 7300 N. Mona Lisa Road 813 $3,346 Tucson, AZ - ---------------------------------------------------------------------------------------------------------------------- 7 Cobble Creek 01/97 $ 9,250,000 1980 301 217,382 91% N/A 7700 E. Speedway Blvd. 722 Tucson, AZ - ---------------------------------------------------------------------------------------------------------------------- 8 Sundown Village 12/96 $11,350,000 1984 330 279,758 90% $ 3.97 8215 Oracle Road 848 $3,367 Tucson, AZ - ---------------------------------------------------------------------------------------------------------------------- 9 Rio Cancion 12/96 $17,400,000 1983 379 343,370 90% $ 4.77 2400 E. River Road 906 $4,324 Tucson, AZ - ---------------------------------------------------------------------------------------------------------------------- 10 Sonoran Terraces 08/96 $18,750,000 1985 374 416,256 90% $ 4.23 7887 N. La Cholla Blvd. 1,113 $4,710 Tucson, AZ - ---------------------------------------------------------------------------------------------------------------------- SUBJECT 1985 168 165,700 93% $ 4.33 Skyline Village 977 $4,313 6651 N. Campbell Avenue Tucson, Az - ---------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ CASH EQUIVALENT PRICE - ------------------------------------------------------------------------------ SALE PER PER OVEALL NO. NAME/LOCATION SF /UNIT RATE EGIM - ------------------------------------------------------------------------------ 1 Pinnacle Canyon $51.23 $52,120 N/A 5.69 7050 E. Sunrise Drive Tucson, AZ - ------------------------------------------------------------------------------ 2 Pinnacle Heights $48.22 $52,787 N/A 5.60 7990 E. Snyder Road. Tucson, AZ - ------------------------------------------------------------------------------- 3 Foothills $45.26 $28,148 N/A 5.38 5441 N. Swan Road Tucson, AZ - ------------------------------------------------------------------------------- 4 Sandstone $48.84 $26,815 10.0% N/A 405 E. Prince Road Tucson, AZ - ------------------------------------------------------------------------------- 5 Hilands I $53.34 $29,343 11.0% N/A 5755 E. River Road Tucson, AZ - ------------------------------------------------------------------------------- 6 Windsail $41.14 $33,457 10.0% 5.74 7300 N. Mona Lisa Road Tucson, AZ - ------------------------------------------------------------------------------- 7 Cobble Creek $42.55 $30,731 N/A 6.35 7700 E. Speedway Blvd. Tucson, AZ - ------------------------------------------------------------------------------- 8 Sundown Village $40.57 $34,394 10.09% 5.53 8215 Oracle Road Tucson, AZ - ------------------------------------------------------------------------------- 9 Rio Cancion $50.67 $45,910 9.42% 6.31 2400 E. River Road Tucson, AZ - ------------------------------------------------------------------------------- 10 Sonoran Terraces $45.04 $50,134 9.39% 6.59 7887 N. La Cholla Blvd. Tucson, AZ - ------------------------------------------------------------------------------- SUBJECT Skyline Village 6651 N. Campbell Avenue Tucson, Az - -------------------------------------------------------------------------------
SALES COMPARISON APPROACH - -------------------------------------------------------------------------------- The Sales Comparison Approach is considered a good valuation method in the event that a sufficient number of similar and recent transactions can be found and accurately verified. The key to the Sales Comparison Approach is that a sufficient number of comparable sales be present to reflect an accurate indication of value. In such an event, market value can be derived directly from the sales, since all complexities involved are properly weighed according to their significance to actual buyers and sellers. This approach is based upon prices paid in actual market transactions. It is a process of correlating and analyzing recently sold properties, which are similar to the subject. The reliability of this technique depends upon (a) the degree of comparability of the property appraised with each sale, (b) the length of time since the sale, (c) the accuracy of the sales data, and (d) the absence of unusual conditions affecting the sale. The comparison process must be based on sales, which constitute acceptable evidence of motivations inherent to the market, occurring under similar market conditions, of similar or reasonably similar apartment projects. These projects were selected since they are reasonably comparable to the subject property. A map and a summary of the comparable sales can be found on the preceding pages. The sales ranged in time from August 1996 to November 1997. Reference is made to the individual sales data included in the Addenda section of this report. In our analysis of the sales data, important considerations as to comparability were condition of the property, gross income when combined with percent (%) occupied at sale date, unit size, terms of sale, location, and motivation. The sales provide units of comparison, which can be adjusted and then applied, to the subject to derive an estimate of value. Because these individual factors are difficult to quantify, we compared the improved sales based on net operating income (NOI) per square foot and per unit. Theoretically, the NOI takes into consideration the various physical factors, which influence value. An analysis of NOI likewise considers economic differences in each improved property sale because income is also a function of the current market. Thus, with this analysis, all the factors affecting a sale can be reduced to the common denominator of net operating income. Also, we considered the effective gross income multiplier method. There follows a discussion of our analysis and value conclusion by the Sales Comparison Approach. SALES ADJUSTMENT ANALYSIS PROPERTY RIGHTS Property rights consists of ownership, legal estate, economic benefits, and financial components. Our valuation is of the leased fee estate on an all cash basis. Since all the sales were reported to be of the leased fee estate, no adjustment was necessary. 27 CASH EQUIVALENCY Standard definitions of market value include payment in "cash or its equivalent." The equivalent includes financing terms generally available in the market. In many cases comparable sales carry atypical financing terms that require an adjustment to cash equivalency. There are basically two areas, which may require adjustments for terms. One is the amount of cash down payment and the other is favorable financing or a low interest rate on the note/mortgage. Where terms were considered to be more favorable than the market at the time of sale, cash equivalency adjustments are made. All of the sales used in this analysis were cash transactions or were considered equivalent and therefore, did not require a cash equivalent adjustment. CONDITION OF SALE Adjustments for condition of sale usually reflect the motivations of the buyer and the seller. Although conditions of sale are perceived as applying only to sales that are not arm's length transactions, some arm's length sales may reflect atypical motivations or sale conditions due to unusual tax considerations, sale at legal auction, lack of exposure on the open market, etc. The sales utilized in our analysis were not reported to be reflective of such situations; therefore, no adjustment was necessary. NET OPERATING INCOME ANALYSIS In lieu of specific adjustments, we compared the improved sales based on the net operating income (NOI) per square foot and NOI per unit. This method presents a comparison based on the income which a property is capable of generating. Theoretically, the NOI takes into consideration the various factors, which influence value such as quality, size, amenities offered, location, age, condition etc. Thus, these differing factors can be reduced to the common denominator of net operating income. The various sales reflected NOIs per square foot ranging from $3.97 to $5.87 and NOIs per unit ranging from $2,682 to $4,710. The subject NOI (with reserve expenses) has been approximated at $4.33 per square foot or $4,313 per unit from the Direct Capitalization analysis in the Income Approach section of this report. To estimate an adjustment for each sale, the subject's NOI has been compared to the individual NOI of the comparable sales. This adjustment should account for all the various physical and economic differences in each improved property sale as income is a function of the current market. Market conditions should reflect perceived risk, or other factors, which may affect value. The following chart presents the adjustment process. 28
SALE SALE SALE SUBJECT ADJUST. ADJUST. NO. PRICE/SF NOI/SF NOI/SF FACTOR PRICE/SF ---------------------------------------------------------- 1 $51.23 NA $4.33 NA NA 2 48.22 NA 4.33 NA NA 3 45.26 NA 4.33 NA NA 4 48.84 4.88 4.33 0.88730 43.34 5 53.34 5.87 4.33 0.73765 39.35 6 41.14 4.11 4.33 1.05353 43.34 7 42.55 NA 4.33 NA NA 8 40.57 3.97 4.33 1.09068 44.25 9 50.67 4.77 4.33 0.90776 46.00 10 45.04 4.23 4.33 1.02364 46.10
After adjustments, the sales reflected a range in value for the subject from $39.35 to $46.10 per square foot. Sales 6 and 10 have the most similar net operating incomes per square foot and they reflect values of $43.34 and $46.10 per square foot. Placing emphasis on these sales, tempered with the other sales, a value of $45.00 per square foot is estimated for the subject. From this value the $125,000 in deferred maintenance is deducted to arrive at the "as is" value of the subject. The calculation is shown below. 165,700 SF x $45.00/SF.......................... $7,456,500 Less Deferred Maintenance....................... (125,000) --------- "As Is" Value via NOI/SF........................ $7,331,500 Rounded $7,300,000
SALE SALE SALE SUBJECT ADJUST. ADJUST. NO. PRICE/UNIT NOI/UNIT NOI/UNIT FACTOR PRICE/UNIT ------------------------------------------------------------ 1 $52,120 NA $4,313 NA NA 2 52,787 NA 4,313 NA NA 3 28,148 NA 4,313 NA NA 4 26,815 2,682 4,313 1.60813 43,122 5 29,343 3,228 4,313 1.33612 39,206 6 33,457 3,346 4,313 1.28900 43,126 7 30,730 NA 4,313 NA NA 8 34,394 3,367 4,313 1.28096 44,057 9 45,910 4,324 4,313 0.99746 45,793 10 50,134 4,710 4,313 0.91571 45,908
After adjustments, the sales reflected a range in value for the subject from $39,206 to $45,908 per unit. Sales 9 and 10 reflected the most similar NOI per unit to the subject and had adjusted values of $45,793 and $45,908 per unit. Based on all the data, we estimated a value for the subject of $45,000 per unit. The following indication reflects an "as is" value per unit for the subject considering the subject's deferred maintenance. 168 units x $45,000/unit........................ $7,560,000 Less: Deferred maintenance...................... (125,000) ---------- Value via NOI Price/Unit Method................. $7,435,000 Rounded $7,400,000 29 EFFECTIVE GROSS INCOME MULTIPLIER METHOD In addition to the NOI price per square foot and price per unit analysis, we have employed an effective gross income multiplier analysis to the sales based on the sales' actual effective gross income multipliers (EGIM). Unlike the price per unit analysis, EGIMs cannot be adjusted for dissimilar factors when compared to the subject. Instead, certain factors must be closely analyzed for determining comparability of the multiplier to the subject property. These include the timing of the sale and whether market condition changes have occurred between the date of valuation and the sale date, as well as occupancies and expense ratio levels, and the comparability of the sale in terms of its physical features and the resulting income stream potential. Listed below are the details of the sales we felt to be pertinent in our selection of a reasonable EGIM for the subject. All factors were considered in our interpretation of the data leading to the EGIM of the sales.
SALE DATE OF SALE EGIM OCCUPANCY EXPENSE RATIO -------------------------------------------------------- 1 11/97 5.59 98% N/A 2 11/97 5.60 97% N/A 3 11/97 5.38 97% N/A 6 03/97 5.74 94% 42.58% 8 12/96 5.53 90% 45.86% 9 12/96 6.31 90% 40.57% 10 8/96 6.59 90% 39.48% Subject 93% 44.08%
The sales indicated EGIMs ranging from 5.38 to 6.59, with all sales operating at or near stabilized levels. Based on this data, we believe an EGIM of 5.8 is reasonable for the subject considering the subject's quality and expense ratio. Applying the 5.8 EGIM to the subject's stabilized effective gross income, and deducting for deferred maintenance, results in the following value indication. 5.80 x $1,276,270............................... $7,402,366 Less: Deferred maintenance...................... (125,000) ----------- Value via EGIM Method........................... $7,277,366 Rounded $7,300,000 CONCLUSION The NOI per square foot and per unit methods presented a value indication between $7,300,000 and $7,400,000 and the effective gross income multiplier method indicated a value of $7,300,000. Weight has been given to the net operating income comparisons because this method reflects both income and expense information. The EGIM method only accounts for income and does not take into consideration expenses, which can vary from property to property. Therefore, it is our opinion that the leased fee market value of the subject property based on the indication provided by the Sales Comparison Approach, all cash, on an "as is" basis as of November 30, 1997, is SEVEN MILLION FOUR HUNDRED THOUSAND DOLLARS ($7,400,000) 30 [MAP OF COMPARABLE RENTALS APPEARS HERE]
==================================================================================================================================== COMPARABLE RENT SUMMARY - ------------------------------------------------------------------------------------------------------------------------------------ CURRENT YEAR NO. OF AVG. UNIT PHYSICAL UNIT EFFECTIVE EFFECTIVE NO. NAME/LOCATION BUILT UNITS SIZE(SF) OCCUP. UNIT TYPE SIZE/SF RENT/MO RENT/SF/MO. AMENITIES/COMMENTS - ------------------------------------------------------------------------------------------------------------------------------------ 1 Tiena Catalina 1983 120 1,172 92% 1BR/1BA 900 $640 0.71 Amenities include a swiming 3201 E Skyline Drive 1BR/1BA 916 680 0.74 pool, spa, tennis court, 2BR/2BA 1,207 790 0.65 clubroom, covered parking, 2BR/2BA 1,233 850 0.69 washer/dryer hook-ups, 2BR/2BA/TH 1,304 890 0.68 mocrowave, fireplace 3BR/2BA/TH 1,525 950 0.62 Concessions: None - ------------------------------------------------------------------------------------------------------------------------------------ 2 L'Auberge Canyon view 1987 264 1,019 96% 1BR/1BA 724 $ 725 1.00 Amenities include a swimming 6650-55 N Kolb Road 2BR/2BA 909 775 0,85 pool, tennis court, washer/ 2BR/2BA 1,049 825 0.79 dryer, microwave, fireplace, 2BR/2BA 1,095 875 0.80 jacuzzi, clubroom, and 3BR/2BA 1,223 1,010 0.82 covered parking. 3BR/2BA 1,243 1,010 0.81 Concessions: None 3BR/2BA 1,291 1,010 0.78 - ------------------------------------------------------------------------------------------------------------------------------------ 3 The Greens at Ventana 1986 265 1,011 89% 1BR/1BA/DEN 818 $ 714 0.87 Amenities include 3 swimming 5800 N Kolb Road 1BR/1BA/DEN 847 740 0.87 pools,spa, washer/dryer, 2BR/2BA 945 775 0.82 microwave,fireplace, club 2BR/2BA 974 739 0.76 room, and covered parking. 2BR/2BA 1,018 787-737 0.77-0.82 Concessions: One-half month 2BR/2BA 1,050 800 0.76 free. 2BR/2BA/DEN 1,169 914-964 0.78-0.82 2BR/2BA/DEN 1,207 950 0.79 - ------------------------------------------------------------------------------------------------------------------------------------ 4 The Arboretum 1986 496 811 99% 1BR/1BA 520 475 0.91 Amenities include 3 swimming 4700 N Kolb Rd. 1BR/1BA 616 500 0.81 pools, club-room, exercise 1BR/1BA 686 510 0.74 room, laundry facilities, 1BR/1BA 767 560 0.73 washer/dryer hook-ups, 2BR/1BA 984 650 0.66 fireplace, and covered 2BRI2BA 995 710 0.71 parking. Concessions: 2BR/2BA 1,001 735 0.73 One-half month free rent. 3BR/2BA 1,200 799 0.67 $175 off if deposit on l/st/ visit. - ------------------------------------------------------------------------------------------------------------------------------------ 5 Villa Sin Vacas 1985 72 1,114 90's 1BR/1BA/DEN 930 835 0.90 Amenities include washer 7601 N. Calle Sin 2BR/2BA 1,195 1,050 0.88 dryer, fireplace, microwave, Envidia 3BR/2BA 1,458 1,200 0.82 covered parking, clubhouse, Concessions: None - ------------------------------------------------------------------------------------------------------------------------------------ 6 Colonia Del Rio 4601 1985 176 1,010 90's 1BR/1BA 713 560 0.79 Amenities include washer/ N. Via Entrada 1BR/1BA 796 590 0.74 dryer, microwave, pool, lBR/1BA 1,022 655 0.64 covered parking, fireplace, 2BR/1BA 1,068 680 0.64 exercise facility, 2BR/2BA/TH 1,170 795 0.68 playground, spa Concessions: 3BR/2BA 1,345 795-810 0.59-0.60 $200 off first month's rent ====================================================================================================================================
==================================================================================================================================== COMPARABLE RENT SUMMARY (Cont'd) - ------------------------------------------------------------------------------------------------------------------------------------ CURRENT YEAR NO. OF AVG. UNIT PHYSICAL UNIT EFFECTIVE EFFECTIVE NO. NAME/LOCATION BUILT UNITS SIZE(SF) OCCUP. UNIT TYPE SIZE/SF RENT/MO RENT/SF/MO. AMENITIES/COMMENTS - ------------------------------------------------------------------------------------------------------------------------------------ 7 Boulders at La 1995 240 999 N/A 1BR/1BA 725 595 0.82 Amenities include pool, spa, Reserve 1500 E. Pusch 1BR/1BA/DEN 929 655 0.71 microwave, some fireplaces, Wilderness 2BR/2BA 1,057 740 0.70 garages, fitness center 3BR/2BA 1,268 860 0.68 Concessions: 1/2 mo. free rent on 1-2BR and 1 mo. free rent on 3 BR with 12 mo. lease. - ------------------------------------------------------------------------------------------------------------------------------------ 8 La Reserve Villas 1988 240 900 90's 1BR/1BA 697 580 0.83 Amenities include 2 pools, 10700 N. La Reserve 2BR/2BA 943 690 0.73 spa, washer/dryer, 2BR/2BA 957 750 0.78 microwave, some fireplaces, 3BR/2BA 1,111 875 0.79 fitness center, clubhouse Concessions: None - ------------------------------------------------------------------------------------------------------------------------------------ 9 Legends at La Paloma 1995 312 1,034 90's 1BR/1BA 745 675 0.91 Amenities include 2 pools, 3750 E. Via Palomita 2BR/2BA 1,036 795 0.77 spa, washer/dryer, 3BR/2BA 1,258 975 0.78 microwave, fireplace, fitness center, clubhouse. Concessions: 1 mo. free - ------------------------------------------------------------------------------------------------------------------------------------ 10 Skyline Bel Aire 1979 136 1,125 90's 1BR/1BA/DEN 968 615 0.64 Amenities include pool, spa, 6255 Camino 2BR/2BA 1,263 815 0.65 2 tennis courts, washer/ Pimeria Alta dryer, fireplace, covered parking, clubhouse. Concessions: 1 BR $590/mo.; $300 off first mo. on a 12 mo. lease and $150 off first mo. on a 6 mo. lease. - ------------------------------------------------------------------------------------------------------------------------------------ 11 Pinnacle Canyon 1995 225 1,017 98% 1BR/1BA 795 650 0.82 Amenities include pool, spa, 7050 E. Sunrise 1BR/1BA 840 675 0.80 washer/dryer, microwave, Road 2BR/2BA 1,124 775 0.69 built in TV, garages 2BR/2BA 1,152 800 0.69 available, clubhouse, 3BR/2BA 1,351 935 0.69 exercise facility, computer center Concessions: 1 mo. free for 12 mo. lease. - ------------------------------------------------------------------------------------------------------------------------------------ SUBJECT PROPERTY 1985 168 997 91% 1BR/1BA 800 550 0.69 Amenities include a Skyline Village 1BR/1BA/DEN 1,000 650 0.65 swimming pool, tennis court, 6651 N Campbell 2BR/2BA 1,100 750-800 0.68--0.73 clubroom, laundry facility, Avenue 2BR/2BA/TH 1,100 850 0.77 and covered parking. 2BR/2BA/TH 1,250 850 0.68 Concessions: $250 off the first month's rent. ====================================================================================================================================
INCOME APPROACH - -------------------------------------------------------------------------------- In estimating the market value of the subject property, one method used by the appraisers was the Income Approach. The Income Approach to value is predicated on the assumption that there is a definite relationship between the amount of net income a property will earn and its value. Ultimately, the Income Approach seeks to estimate the present worth of an anticipated net income stream based on an analysis of its quality, quantity, and duration. In accordance with the principle of substitution, a prudent investor would pay no more to receive an income stream from a specified property than any other property producing an equally desirable income stream. Typically, the first step in the Income Approach is to estimate the potential gross income according to market rent. Market rent means the "going rent" in the neighborhood based on past history and present conditions. Vacancies are then deducted to arrive at effective gross income. Estimated annual expenses are deducted from the effective gross income, resulting in an indication of net operating income before debt service. From the estimated net annual income, annual debt service and deferred maintenance (if applicable), are subtracted to obtain annual cash flow to equity. This cash flow can be capitalized into an indication of equity value by direct capitalization utilizing an overall equity rate, or if debt does not exist, an overall capitalization rate. It may also be projected into the future over a selected but appropriate holding period, and discounted along with the anticipated equity reversion at the market discount rate and added in order to arrive at the net present equity value for the subject property. In either method, the present mortgage balance (if applicable) would be added to the equity value to obtain the total value of the property. Since our valuation is on a cash basis, no mortgages were considered. The appraisers have utilized both methods in valuing the subject property on an all cash basis. ESTIMATED GROSS RENTAL INCOME Income for the subject property is produced by rental income from the various rental units, as well as laundry income, forfeited security deposits, and miscellaneous income. Information provided by the on-site leasing agents indicated the following current rent schedule:
BASED ON "RESIDENT PAYS UTILITIES" -------------------------------------------------------- TYPE UNITS SIZE (SF) RENT/MO. RENT/SF MO. TOTAL -------------------------------------------------------- 1BR/1BA 48 800 $550 $0.69 $ 26,400 lBR/1BA/Den 44 1,000 650 0.65 28,600 2BR/2BA 59 1,100 750 0.68 44,250 2BR/2BA 1 1,100 800 0.73 800 2BR/2BA/TH 6 1,100 850 0.77 8,500 2BR/2BA/TH 10 1 250 850 0.68 5,100 --- ----- ---- ----- -------- 168 997 $676 $0.68 $113,650
These rents have been compared to closely located and similarly designed apartment complexes in the subject's general area. For the purpose of this analysis, we have considered twelve apartment complexes that were found to be most comparable. They range in total size from 140,644 to 269,048 square feet, in 31
==================================================================================================================================== SUBJECT - RENT ANALYSIS - ------------------------------------------------------------------------------------------------------------------------------------ UNIT AVG. AVG. UNIT TYPE SIZE (SF) RENT/MONTHLY RENT/MONTHLY COMPARABILITY - ------------------------------------------------------------------------------------------------------------------------------------ SUBJECT lBR/lBA 800 $550 $0.69 L'Auberge Canyon View The lBR/lBA 724 725 1.00 Superior Greens at Ventana lBR/lBA/DEN 818 714 0.87 Superior Tierra Catalina lBR/lBA 900 640 0.71 Comparable The Arboretum 1BR/lBA 767 560 0.73 Comparable Colonia Del Rio 1BR/lBA 796 590 0.74 Comparable Boulders at La Reserve lBR/lBA 725 595 0.82 Superior La Reserve Villas 1BR/lBA 697 580 0.83 Superior Legends at La Paloma lBR/1BA 745 675 0.91 Superior Pinnacle Canyon 1BR/1BA 795 650 0.82 Superior - ------------------------------------------------------------------------------------------------------------------------------------ SUBJECT lBR/lBA/DEN 1,000 650 0.65 Tierra Catalina lBR/lBA 916 680 0.74 Comparable The Arboretum 2BR/lBA 984 650 0.66 Comparable Villa Sin Vacas lBR/lBA/DEN 930 835 0.90 Superior Colonia Del Rio lBR/1BA 1,022 655 0.74 Comparable Boulders at La Reserve lBR/lBA/DEN 929 655 0.71 Comparable Skyline Bel Aire lBR/lBA/DEN 968 615 0.64 Comparable - ------------------------------------------------------------------------------------------------------------------------------------ SUBJECT 2BR/2BA 1,100 750-800 0.68-.73 L'Auberge Canyon View 2BR/2BA 1,095 875 0.80 Superior The Greens at Ventana 2BR/2BA 1,050 800 0.76 Comparable Tierra Catalina 2BR/2BA 1,207 790 0.65 Comparable Arboretum 2BR/2BA 1,001 735 0.73 Comparable Villa Sin Vacas 2BR/2BA 1,195 1,050 0.88 Superior Colonia Del Rio 2BR/2BA 1,068 680 0.64 Comparable Boulders at La Reserve 2BR/2BA 1,057 740 0.70 Comparable La Reserve Villas 2BR/2BA 957 750 0.78 Comparable Legends at La Paloma 2BR/2BA 1,036 795 0.77 Comparable Pinnacle Canyon 2BR/2BR/2BA 1,124 775 0.69 Comparable - ------------------------------------------------------------------------------------------------------------------------------------ SUBJECT 2BR/2BA 1,100 850 0.77 L'Auberge Canyon 2BR/2BA 1,095 875 0.80 Comparable The Greens at Ventana 2BR/2BA 1,050 800 0.76 Comparable Tierra Catalina 2BR/2BA 1,207 790 0.65 Inferior Arboretum 2BR/2BA 1,001 735 0.73 Comparable Villa Sin Vacas 2BR/2BA 1,195 1,050 0.88 Superior Colonia Del Rio 2BR/2BA 1,068 680 0.64 Inferior Boulders at La Reserve 2BR/2BA 1,057 740 0.70 Inferior La Reserve Villas 2BR/2BA 957 750 0.78 Comparable Legends at La Paloma 2BR/2BA 1,036 795 0.77 Comparable Pinnacle Canyon 2BR/2BA/TH 1,024 775 0.69 Inferior - ------------------------------------------------------------------------------------------------------------------------------------ SUBJECT 2BR/2BA/TH 1,250 850 0.68 L'Auberge Canyon View 2BR/2BA/TH 1,243 1,010 0.81 Superior The Greens at Ventana 2BR/2BA/TH 1,207 950 0.79 Superior Tierra Catalina 3BR/2BA 1,304 890 0.68 Comparable Arboretum 2BR/2BA/TH 1,200 799 0.67 Comparable Colonia Del Rio 3BR/2BA 1,170 795 0.64 Comparable Boulders at La Reserve 3BR/2BA 1,268 860 0.68 Comparable La Reserve Villas 3BR/2BA 1,111 875 0.79 Comparable Legends at La Paloma 2BR/2BA 1,258 975 0.78 Superior Skyline Bel Aire 3BR/2BA 1,263 815 0.65 Comparable Pinnacle Canyon 3BR/2BA 1,351 935 0.69 Comparable ====================================================================================================================================
average unit size from 846 to 1,172 square feet, and in physical occupancy from 89 to 99 percent. The comparable rentals are summarized on the previous page. All of the comparables surveyed were located within the subject's general vicinity. The comparables average rent ranged from $0.61 to $0.82 per square foot. Rent Comparables 1, 4, and 6 are believed to be most comparable to the subject overall, specifically, in terms of overall physical condition, location, rental rates, and the amenities offered. It is important to note that these rents are reflective of the current market. The Tucson area is somewhat seasonal and rents do not tend to be increased during the summer months. Also, a number of new units within the market have recently been completed and more are under construction; therefore, rents are not expected to increase over the short term. In fact, rent concessions are reportedly being offered. The current asking average monthly rent for the subject is $0.68 per square foot and the actual contract rents average about $0.63 per square foot. After considering each of the aforementioned factors, including the subject's historical performance, we are of the opinion that the subject's asking rentals are reasonable. Given the subject's 93 percent physical occupancy and actual rents, the projected market effective rental rates for the subject are summarized as follows:
BASED ON "RESIDENT PAYS UTILITIES" -------------------------------------------------------------------- TOTAL SIZE TOTAL RENT/ MO. RENT/ UNIT TYPE UNITS (SF) (SF) MONTH TOTAL SF/MO. -------------------------------------------------------------------- 1BR/1BA 48 800 38,400 $550 $ 26,400 $0.69 1BR/1BA/Den 44 1,000 44,000 650 28,600 0.65 2BR/2BA 59 1,100 64,900 750 45,000 0.68 2BR/2BA 1 1,100 1,100 800 800 0.73 2BR/2BA/TH 6 1,100 6,600 850 5,100 0.77 2BR/2BA/TH 10 1,250 12,500 850 8,500 0.68 --- ----- ------- ---- -------- ----- 168 997 167,500 $676 $113,650 $0.68
Gross Annual Rental Income: $113,650 x 12 months = $1,363,800 OTHER INCOME In addition to rental income from apartments, other income is generated by laundry and vending machines, forfeited security deposits, late charges, and miscellaneous items. Other income in 1991 was reported at $34,062 or $0.21 per square foot. In 1992, other income dropped to $25,501 or $0.16 per square foot, in 1993 it was $26,394 or $0.16 per square foot, in 1994 it was $28,391 or $0.17 per square foot, 1995 it was $25,233 or $0.15 per square foot, in 1996 it was $0.16 per square foot. The 1997 figure is $22,348 or $0.13 per square foot. Based on our experience with similar type properties and the actual performance of the subject, we have estimated other income at $23,450 or $0.14 per square foot. From this we have arrived at our estimate of scheduled gross income as if 100 percent occupied: Gross Rental Income $1,363,800 Other Income ($0.14/SF) 23,450 ---------- Total Potential Gross Income $1,387,250
32
================================================================================================================================ SKYLINE VILLAGE HISTORICAL EXPENSES - -------------------------------------------------------------------------------------------------------------------------------- EXPENSE ACTUAL 1991 ACTUAL 1992 ACTUAL 1993 ACTUAL 1994 ACTUAL 1995 CATEGORY PER SF PER UNIT PER SF PER UNIT PER SF PER UNIT PER SF PER UNIT PER SF PER UNIT - -------------------------------------------------------------------------------------------------------------------------------- Real Estate Taxes $0.59 $570 $0.65 $759 $0.55 $534 $0.58 $567 $0.60 $580 Insurance 0.07 69 0.05 57 0.07 70 0.06 63 0.07 69 Personnel 0.65 625 0.64 753 0.66 638 0.48 467 0.50 482 Utilities 0.59 575 0.50 588 0.60 577 0.41 396 0.42 404 Repairs & Maintenance 0.39 376 0.38 451 0.42 407 0.35 342 0.46 444 Contract Services 0.18 176 0.19 222 0.21 200 0.11 108 0.10 102 General Administrative 0.12 113 0.26 308 0.23 222 0.19 187 0.16 158 Management 0.34 326 0.36 407 0.34 325 0.36 352 0.38 364 ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ TOTAL $2.93 $2,830 $3.03 $3,545 $3.08 $2,973 $2.56 $2,482 $2.68 $2,602 ================================================================================================================================ - -------------------------------------------------------------------- EXPENSE ACTUAL 1996 ACTUAL 1997 CATEGORY PER SF PER UNIT PER SF PER UNIT - -------------------------------------------------------------------- Real Estate Taxes $0.66 $639 $0.60 $595 Insurance 0.07 72 0.06 61 Personnel 0.52 517 0.57 567 Utilities 0.42 420 0.39 387 Repairs & Maintenance 0.45 450 0.43 431 Contract Services 0.10 95 0.09 93 General Administrative 0.16 164 0.21 212 Management 0.36 356 0.35 350 ----- ------ ----- --- TOTAL $2.74 $2,713 $2.70 26% ====================================================================
============================================================================================================ COMPARABLE EXPENSE ANALYSIS - ------------------------------------------------------------------------------------------------------------ COMPARABLE 1 2 3 BRA PROJECTIONS - ------------------------------------------------------------------------------------------------------------ Expense Year 1997 1997 1997 1998 NRA 116,084 140,564 58,018 167,500 No. units 120 120 60 168 Year Built 1986 1983 1986 1985 Average Unit Size(SF) 967 1171 967 977 - ------------------------------------------------------------------------------------------------------------ EXPENSE CATEGORY PER SF PER UNIT PER SF PER UNIT PER SF PER UNIT PER SF PER UNIT - ------------------------------------------------------------------------------------------------------------ Real Estate Taxes $0.59 $570 $0.65 $759 $0.55 $534 $0.67 $669 Insurance 0.07 69 0.05 57 0.07 70 0.07 73 Personnel 0.65 625 0.64 753 0.66 638 0.58 581 Utilities 0.59 575 0.50 588 0.60 577 0.49 489 Repairs & Maintenance 0.39 376 0.38 451 0.42 407 0.48 477 Contract Services 0.18 176 0.19 222 0.21 200 0.14 140 General Administrative 0.12 113 0.26 308 0.23 222 0.18 176 Management 0.34 036 0.36 407 0.34 325 0.37 5.00% ----- ------ ----- ------ ----- ------ ----- ------ TOTAL EXPENSES $2.93 $2,830 $3.03 $3,515 $3.08 $2,973 $2.98 $2,976 ============================================================================================================
VACANCY AND COLLECTION LOSS ESTIMATE In a stable market, vacancy and collection loss for an apartment complex will be in the 3 to 7 percent range. This covers the time lag during re-leasing and normal refurbishing of apartment units, and the loss of income resulting from bad debt or other vacancies. According to our market analysis, the subject's Catalina Foothills area had a physical vacancy of 7.02 percent in the Third Quarter 1997 and the overall market was reportedly at 8.66 percent. Quarterly vacancies tend to fluctuate as a result of a seasonal decline in demand during the summer months. The vacancy level for both the overall market and the submarket increased significantly in 1995 due to a number of new projects, which have recently been completed. The current vacancy rates have showed some improvements, signaling a return to stabilization. In surveying the direct competition, the current physical vacancies have decreased slightly from those reported last year however, they remain at levels which tend to indicate an over-built market. Currently, the subject reportedly has a 7 percent physical vacancy and the subject's economic vacancy given current market rents is 15 percent. The primary difference between the physical and economic vacancy is due to the difference between market and contract rents and discounts given for concessions. Given this data we have projected a 10 percent economic vacancy in Fiscal Year 1998. We estimate after the first year of the cash flow some of the excess inventory will be absorbed and the subject property should be capable of maintaining a stabilized vacancy of 8 percent. EXPENSE ANALYSIS The various expenses necessary in the operation of the subject have been estimated including fixed expenses, operating expenses, and reserves for replacement. Proper appraisal technique demands that an appraiser rely on typical expenses as opposed to actual expenses, which may vary according to management or special circumstances. In addition, the total expenses per square foot should be within a range typical for similar projects. Reserves for replacement are estimated based on age, condition, and construction quality. It is re-emphasized that all income, as well as expense estimates, are based on the assumption of competent and prudent management. We have based the following estimate of project expenses on comparable apartment projects located in the subject area, as well as the actual historical performance of the subject property. The facing table summarizes annualized 1997 expenses reported by three "individually metered" comparable projects, as well as the subject property's actual expenses from 1991 through 1997. REAL ESTATE TAXES - The Pima County Assessor's Office coordinates the real estate taxes for Skyline Village. The property is subject to a number of different taxing authorities and there are two assessments. In 1997, both the limited cash value and full cash value assessments will be $730,800. The 1997 taxes were $100,035 or $0.60 per square foot based on the subject property operating statement. The taxes for Fiscal Year 1998 have been estimated at $112,474 or $0.67 per square foot. INSURANCE - This category includes fire and extended coverage. Insurance costs can vary from one property to another depending upon the type and whether a blanket policy is used. Often times a property owner will insure multiple properties 33 on one policy in an effort to reduce the cost of insurance per project. Our expense estimate is based upon typical costs for an individually insured apartment project in the Tucson area. The subject's actual insurance costs were $0.06 per square foot in 1991, $0.05 per square foot in 1992, $0.06 per square foot in 1993, $0.06 per square foot in 1994, $0.07 per square foot in 1995, and $0.7 per square foot in 1996. The 1997 expense was $0.06 per square foot. The comparables reflected this expense between $0.05 and $0.07 per square foot. Based on this data, we estimated insurance at $0.07 per square foot in the first year or $12,194. This expense is expected to increase 4 percent annually throughout our projection period. PERSONNEL - This category includes salaries for office managers, leasing agents, maid services, payroll taxes, and FICA. This category is not to be confused with the category of Management. The expense comparables reflected a personnel expense ranging from $0.64 to $0.66 per square foot. Figures for the subject in 1997 indicate this expense at $0.57 per square foot. The subject's actual figures for 1993, 1994, 1995, and 1996 were $0.47, $0.48, $0.50, and $0.52 per square foot, respectively. Based on historical figures at the subject property and tempering them with the market data, we have estimated this expense at $97,552 or $0.58 per square foot. This expense is expected to increase 4 percent annually throughout our projection period. UTILITIES - This expense category includes electric, gas, water, and sewer for the apartment's common area. The subject's actual figures for 1993, 1994, 1995, and 1996 were $0.39, $0.41, $0.42, and $0.42 per square foot, respectively. Figures for 1997 indicate this expense at $0.39 per square foot. The comparables indicated a range from $0.50 to $0.60 per square foot. Based on this data, we have estimated this expense at $0.49 per square foot, or $82,075. This expense is expected to increase 4 percent annually throughout our projection period. REPAIR AND MAINTENANCE - These expenses are necessary in order to keep the property in good repair including plumbing, air-conditioners, electrical, draperies, carpets, janitorial supplies, and decorative costs. The expense comparables indicated a range from $0.38 to $0.42 per square foot. Figures for 1997 indicate this expense at $0.43 per square foot, while actual figures for 1993, 1994, 1995, and 1996 were $0.28, $0.35, $0.46, and $0.45 per square foot, respectively. Due to the age, overall condition, and the ongoing maintenance at the subject property, an estimate of $0.48 per square foot or $80,132 has been projected for the subject. This expense is expected to increase 4 percent annually throughout our projection period. CONTRACT SERVICES - This expense category includes landscaping, security, etc. The comparables range between $0.18 and $0.21 per square foot. The subject's actual figures for 1993, 1994, 1995, and 1996 were $0.10, $0.11, $0.10, and $0.10 per square foot, respectively. Figures for 1997 indicate this expense at $0.09 per square foot. We have estimated this expense for the subject at $0.14 per square foot or $23,450 and this expense is expected to increase 4 percent annually throughout our projection period. 34 GENERAL ADMINISTRATIVE - This expense category includes professional, legal, and accounting costs, administration costs, promotional expenses, etc. The expense comparables indicate a range of $0.12 to $0.26 per square foot. Actual figures for the subject in 1993, 1994, 1995, and 1996 were $0.20, $0.19, $0.16, and $0.16 per square foot, respectively. The figures for the subject in 1997 are $0.21 per square foot. We have estimated this expense for the subject at $0.18 per square foot or $29,614. This expense is expected to increase 4 percent annually throughout our projection period. MANAGEMENT - This includes the fee to outside management or ownership for managing the property. This expense is typically a percentage of the effective gross income of the property. The industry standard for an apartment complex of this size and quality is between 3 and 5 percent of effective gross income. The management fee for the subject is reportedly 5 percent of effective gross income. The comparables reflected this expense between $0.34 and $0.36 per square foot. The subject's expense in 1993, 1994, 1995, and 1996 appear reasonable at $0.34, $0.36, $0.38, and $0.36 per square foot, respectively. The expenses for 1997 are at $0.35 per square foot. Based on this data we have projected the management fee at 5 percent of effective gross income in each year of our analysis, which was cross-checked on a per-square-foot basis. EXPENSE SUMMARY The subject's total expenses were $2.40 per square foot in 1993, $2.56 per square foot in 1994, $2.68 per square foot in 1995, and $2.74 per square foot in 1996. Expenses for 1997 are $2.70 per square foot. The expense comparables ranged from $2.93 to $3.08 per square foot and from $2,830 to $3,515 per unit. Considering the size and quality of the subject, the overall expenses appear reasonable. Our estimate of the total expenses for Fiscal Year 1998 at $2.98 per square foot or $2,976 per unit. RESERVES FOR REPLACEMENT A replacement allowance provides for the periodic replacement of building components that wear out more rapidly than the building itself and must be replaced periodically during the building's economic life. These may include roof covering, carpeting, appliances, compressors, parking areas, drives, etc. The subject was constructed in 1985 and appears to have had ongoing maintenance since its construction. It is our opinion that a reserve allowance of $300 per unit or about $0.30 per square foot is adequate to provide for the continued maintenance of the project. This was included in our expenses prior to concluding the net operating income. DEFERRED MAINTENANCE The subject improvements are in good condition; however, there is some deferred maintenance. This has been estimated at about $125,000. This includes appliance repair and replacement, carpet replacement, window covering replacement, interior and exterior repairs, roof repairs, air-conditioning and equipment repair, pool repair, water heater replacement, landscaping, painting, and paving. 35 DISCOUNTED CASH FLOW ANALYSIS DISCUSSION The most realistic method for estimating value via the Income Approach is through the use of Discounted Cash Flow Analysis. The Market Value of a real estate investment under the Discounted Cash Flow Method is defined as the discounted sum of all net cash inflows plus the property's discounted reversionary value. Primarily, any given property is only worth the value of the income derived from it. The general methodology of Discounted Cash Flow involves the following steps: 1) increasing each year's cash flows by an appropriate appreciation factor; 2) discounting each year's net cash flow by an appropriate discount rate; 3) deriving the property's reversionary value in the final year and discounting it to the present; and 4) the summation of all cash flows, including final year reversion, into an estimate of value. According to the Third Quarter 1997 real estate investor survey compiled by Peter F. Korpacz & Associates, Inc. the apartment market is being flooded with capital, primarily from REIT's, rendering it almost impossible for large institutional investors to land deals. In addition, brokers have fewer properties to market either because long-term holders are buying product before it is ever offered on the market place or because owners are not willing to sell. The main factor is investors are watching to determine if investment locations are the pace of job growth. The slower pace of job growth in many markets, coupled with continued increases in multi-family and single family permits as well as attractive interest rates could combine to negatively effect the apartment market. As such, some investors are increasing overall vacancy allowance in their acquisition analyses and backing off on revenue growth assumptions. However, apartment investment continues to be attractive for pension funds and REIT's and we anticipate investors will continue to find the apartment market a desirable investment. DISCOUNT RATE Over the past several years, the internal rate of return (IRR) has gained greater usefulness and market acceptance as an investment measure. IRR is the yield on an investment based on an initial cash investment, annual cash flows to the property, as well as resale proceeds. IRR allows for return on investment as well as recapture of the original investment when factoring in the reversion. To simulate this process, we have relied upon several investor surveys, which detail reasonable yields or IRR requirements of purchasers. We have used this rate as a discount rate that, when applied to projected cash flows and net resale proceeds (reversion), results in the present value of the property. According to the Third Quarter 1997 investor survey compiled by Peter F. Korpacz & Associates, Inc., investors for apartment properties indicated a return requirement ranging from 10.00 to 12.50 percent with an average of 11.16 percent. This TRR depends on the conservative or aggressive nature of rental and expense growth assumptions, as well as location and other factors. Corporate "Baa" bonds are typically viewed as an alternative investment. As of October 11, 1996, the yield was 8.07 percent up from 7.71 percent one year earlier. Real estate is considered riskier due to illiquidity, competition, burden of management, and market conditions; therefore, approximately 150 basis points or more could be 36 added to this percentage rate in a normal market. Based on the previous data and considering the amount of new construction in the market and the lease-up time required to regain stabilization, we believe a 12.50 percent discount rate is reasonable based on an all cash sale and alternative investments. While this is 134 basis points higher than the indicated average by the previously mentioned survey, we believe it reflects the added risk in the market. CAPITALIZATION RATE The subject property's reversionary value is derived by capitalizing the eleventh year's net operating income. As mortgage rates have fluctuated over the past several years, it becomes difficult to apply a band of investment method to establish a capitalization rate because capitalization rates do not react dramatically to ups and downs of mortgage interest rates. Additionally, the mercurial nature of the recent market creates a large variance of returns depending on property potential. Again, according to the previously cited investor survey, investors of apartment properties indicated a terminal capitalization rate range from 8.0 to 10.25 percent with an average of 9.29 percent. This range appears reasonable after analyzing recent sales in the area, which follow.
SALE IDENTIFICATION SALE DATE CAPITALIZATION RATE ------------------------------------------------------------------ 4 Sandstone 06/97 10% 5 Hilands I 06/97 11% 6 Windsail 03/97 10% 8 Sundown Village 12/96 10.09% 9 Rio Cancion 12/96 9.42% 10 Sonoran Terrace 08/96 9.39%
Based upon the aforementioned factors and the quality of the subject, it is our opinion that a 9.5 percent "going-in" capitalization rate was appropriate in this market. Typically, the terminal capitalization rate would be higher than the "going-in" capitalization rate due to the greater risk and older age of the property at the end of the projection period. Therefore, we believe a terminal capitalization rate of 10.5 percent is appropriate for the subject property. The resulting value indicates a first year capitalization rate of 9.28 percent. CASH FLOW ASSUMPTIONS . Rents were based on an average current rental rate of approximately $0.68 per square foot. During the projection period rents were increased at a rate of 0 percent in Year 1 and 4 percent per year thereafter. As previously discussed in the "Apartment Market Analysis" section of this report, the subject area's average rental rates have increased at a healthy pace in the early 1990's; however, with the significant amount of new construction the growth has slowed. . The subject's current physical vacancy is 7 percent and the economic vacancy rate is about 15 percent. The primary reason for the discrepancy between the physical and economic rent is the difference between market and contract rents as well as discounts given for concessions. Due to the large supply of excess inventory in the current market, we estimate 10 percent vacancy for the first year of the cash flow. It is our opinion that the subject should be capable of obtaining an 8 percent vacancy rate for the for the remainder of the holding. 37 . The property has been appraised based on a "resident pays utilities" status. . Expenses (with the exception of management) have been increased at an average growth rate of 4 percent annually over the 11-year projection period. Management expenses are based on a percentage of effective gross income and increase with occupancy and rental increases. . A discount rate of 12.50 percent was utilized. . A terminal capitalization rate of 10.5 percent was believed reasonable. . A sales cost of 4 percent of the reversionary value was estimated. A cash flow analysis for the subject may be found on the following pages. The estimated leased fee market value for the subject on an "as is" basis via discounted cash flow method is SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($7,500,000) 38
=============================================================================================================================== SKYLINE VILLAGE APARTMENTS Fiscal Year Ending 11/30 1998 1999 2000 2001 2002 2003 - ------------------------------------------------------------------------------------------------------------------------------- Income: Apt. Rents $1,363,800 $1,418,352 $1,475,086 $1,534,090 $1,595,453 $1,659,271 Rent/SF/Mo. 0.679 0.706 0.734 0.763 0.794 0.826 Other Income/Yr. 23,450 24,388 25,364 26,378 27,433 28,531 ----------- ---------- ---------- ---------- ---------- ---------- Gross Income $1,387,250 $1,442,740 $1,500,450 $1,560,468 $1,622,886 $1,687,802 % Vacancy 10.00% 8.00% 8.00% 8.00% 8.00% 8.00% Vacancy Allowance 138,725 115,419 120,036 124,837 129,831 135,024 ----------- ---------- ---------- ---------- ---------- ---------- Effective Gross Income $1,248,525 $1,327,321 $1,380,414 $1,435,630 $1,493,055 $1,552,778 ---------------- Expenses: $/UNIT $/SF ---------------- Real Estate Taxes 669 0.67 $ 112,474 $ 116,973 $ 121,652 $ 126,518 $ 131,579 $ 136,842 ---------------- Insurance 73 0.07 12,194 12,682 13,189 13,717 14,265 14,836 ---------------- Personnel 581 0.58 97,552 101,454 105,512 109,733 114,122 118,687 ---------------- Utilities 489 0.49 82,075 85,358 88,772 92,323 96,016 99,857 ---------------- Repairs and Maintenance 477 0.48 80,132 83,337 86,671 90,138 93,743 97,493 ---------------- Contract Services 140 0.14 23,450 24,388 25,364 26,378 27,433 28,531 ---------------- General Administrative 176 0.18 29,614 30,799 32,031 33,312 34,644 36,030 ---------------- Management Fee 5.00% 0.37 62,426 66,366 69,021 71,782 74,653 77,639 ---------------- Reserves for Replacement 300 0.30 50,400 52,416 54,513 56,693 58,961 61,319 ---------------- ----------- ---------- ---------- ---------- ---------- ---------- Total Expenses $ 550,317 $ 573,773 $ 596,724 $ 620,593 $ 645,416 $ 671,233 Per SF 3.29 3.43 3.56 3.71 3.85 4.01 ----------- ---------- ---------- ---------- ---------- ---------- Net Operating Income $ 698,208 $ 753,548 $ 783,690 $ 815,038 $ 847,639 $ 881,545 Per SF 4.17 4.50 4.68 4.87 5.06 5.26 Capital Items: 125,000 0 0 0 0 0 ----------- ---------- ---------- ---------- ---------- ---------- Cash Flow $ 573,208 $ 753,548 $ 783,690 $ 815,038 $ 847,639 $ 881,545 ----------- ---------- ---------- ---------- ---------- ---------- Present Value Factor 12.50% 0.888889 0.790123 0.702332 0.624295 0.554929 0.493270 Present Value of Cash Flow $ 509,518 $ 595,396 $ 550,411 $ 508,824 $ 470,380 $ 434,840 NOI in 10th Year $1,072,534 Present Value of Income Stream Ro at Reversion 10.50% Present Value of Reversion ----------- -------------------------------------------------------------- Indicated Reversion $10,214,609 Indicated Value of Subject Less: Sales Costs 4.00% 408,584 Indicated Value/SF ----------- Indicated Value/Unit Reversion in 10th Yr $9,806,025 GIM at Indicated Value Ro at Indicated Value ================================================================================================================== Fiscal Year Ending 11/30 2004 2005 2006 2007 2008 - ------------------------------------------------------------------------------------------------------------------ Income: Apt. Rents $1,725,642 $1,794,668 $1,866,454 $1,941,113 $2,018,757 Rent/SF/Mo. 0.859 0.893 0.929 0.966 1.004 Other Income/Yr. 29,672 30,859 32,093 33,377 34,712 ----------- ---------- ---------- ---------- ---------- Gross Income $1,755,314 $1,825,526 $1,898,547 $1,974,489 $2,053,469 % Vacancy 8.00% 8.00% 8.00% 8.00% 8.00% Vacancy Allowance 140,425 146,042 151,884 157,959 164,278 ----------- ---------- ---------- ---------- ---------- Effective Gross Income $1,614,889 $1,679,484 $1,746,664 $1,816,530 $1,889,191 Expenses: Real Estate Taxes $ 142,315 $ 148,008 $ 153,928 $ 160,086 $ 166,489 Insurance 15,429 16,046 16,688 17,356 18,050 Personnel 123,434 128,372 133,507 138,847 144,401 Utilities 103,851 108,005 112,325 116,818 121,491 Repairs and Maintenance 101,393 105,448 109,666 114,053 118,615 Contract Services 29,672 30,859 32,093 33,377 34,712 General Administrative 37,471 38,970 40,529 42,150 43,836 Management Fee 80,744 83,974 87,333 90,827 94,460 Reserves for Replacement 63,772 66,323 68,976 71,735 74,604 ----------- ---------- ---------- ---------- ---------- Total Expenses $ 698,082 $ 726,005 $ 755,046 $ 785,248 $ 816,657 Per SF 4.17 4.33 4.51 4.69 4.88 ----------- ---------- ---------- ---------- ---------- Net Operating Income $ 916,807 $ 953,479 $ 991,618 $1,031,283 $1,072,534 Per SF 5.47 5.69 5.92 6.16 6.40 Capital Items: 0 0 0 0 0 ----------- ---------- ---------- ---------- ---------- Cash Flow $ 916,807 $ 953,479 $ 991,618 $1,031,283 $1,072,534 ----------- ---------- ---------- ---------- ---------- Present Value Factor 0.438462 0.389744 0.346439 0.307946 0.000000 Present Value of Cash Flow $ 401,985 $ 371,613 $ 343,536 $ 317,580 $ 0 NOI in 10th Year Present Value of Income Stream $4,504,081 Ro at Reversion Present Value of Reversion 3,019,727 ------------ Indicated Reversion Indicated Value of Subject $7,523,809 Less: Sales Costs Indicated Value/SF $ 44.92 Indicated Value/Unit $ 44,785 Reversion in 10th Yr GIM at Indicated Value 5.52 Ro at Indicated Value 9.28% ===============================================================================================================================
================================================================================ CASH FLOW SUMMARY -------------------------------------------------------------- Fiscal Year Annual 12.50% PV of Ending 11/30 Cash Flows NPV Factor Cash Flows -------------------------------------------------------------- 1998 $ 573,208 0.888889 $ 509,518 1999 $ 753,548 0.790123 595,396 2000 $ 783,690 0.702332 550,411 2001 $ 815,038 0.624295 508,824 2002 $ 847,639 0.554929 470,380 2003 $ 881,545 0.493270 434,840 2004 $ 916,807 0.438462 401,985 2005 $ 953,479 0.389744 371,613 2006 $ 991,618 0.346439 343,536 2007 $1,031,283 0.307946 317,580 ------- Total $ 4,504,081 Projected NOI in 11th Year $ 1,072,534 Going-out Capitalization Rate 10.50% ----------- Estimated Value of Property at End of 10th Year $10,214,609 Less Sales Cost @ 4.00% (408.584) ----------- Value of Reversion at End of 10th Year $ 9,806,025 Discount Factor 12.50% 0.307946 ----------- Present Value of the Reversion $ 3,019,727 Sum of Present Values of Cash Flow 4,504.081 ----------- Market Value as of November 30, 1997 $ 7,523,809 Rounded $ 7,520,000 ================================================================================
============================================================================== SKYLINE VILLAGE APARTMENTS Fiscal Year Ending 11/30-- 1998 - ------------------------------------------------------------------------------- Income: Apt. Rents $1,363,800 Rent/SF/Mo. 0.679 Other Income/Yr. 23,450 ---------- Gross Income $1,387,250 % Vacancy 8.00% Vacancy Allowance 110,980 ---------- Effective Gross Income $1,276,270 ------------------- Expenses: $/Unit $/SE ------------------- Real Estate Taxes 669 0.67 $ 112,474 ------------------- Insurance 73 0.07 12,194 ------------------- Personnel 581 0.58 97,552 ------------------- Utilities 489 0.49 82,075 ------------------- Repairs and Maintenance 477 0.48 80,132 ------------------- Contract Services 140 0.14 23,450 ------------------- General Administrative 176 0.18 29,614 ------------------- Management Fee 5.00% 0.37 63,814 ------------------- Reserves for Replacement 300 0.30 50,400 ------------------- ---------- Total Expenses $ 551,705 Per SF 3.29 ---------- Net Operating Income $ 724,566 Per SF 4.33 Capitalization Rate 9.50% ---------- Fee Simple Stabilized Market Value $7,627,005 Less: Rent Loss Due to Lease-up $ 16,803 Deferred Maintenance $ 125,000 ---------- Leased Fee "As Is" Market Value $7,485,202 Leased Fee "As Is" Market Value (Rounded) $7,490,000 =============================================================================== RENT LOSS DUE TO LEASE-UP/CONTRACT RENT --------------------------------------- Year 1 ------ Stabilized NOI $ 724,566 Projected NOI $ 706,586 ---------- Rent Loss $ 17,980 PV Factor @ 7.00% 0.934579 ---------- PV Income Loss $ 16,803 CUMULATIVE LOSS $ 16,803 ===============================================================================
DIRECT CAPITALIZATION Direct capitalization is a method used to convert a single year's income estimate into a value indication. In direct capitalization a rate of return for the investor and recapture of the capital invested is implicit in the overall capitalization rate. The overall capitalization rate was chosen after analyzing the comparable apartment sales in our Sales Comparison Approach. These sales indicated a range of "going-in" capitalization rates from 9.39 to 11.00 percent. A "going-in" capitalization rate of 9.5 percent was deemed appropriate due to the quality of the subject, its location, and the current market conditions. The net income is capitalized into a value of $7,627,005 with deductions for rent loss due to lease-up and deferred maintenance made subsequently to reflect a value of $7,490,000 or $7,500,000 rounded. INCOME APPROACH CONCLUSION DCF METHOD..................................$7,500,000 DIRECT CAPITALIZATION METHOD................$7,500,000 The two methods of comparison are supportive of each other and we gave equal reliance to each. We are of the opinion that the "as is" market value of the subject property, as of November 30, 1997 is $7,500,000. 39 RECONCILIATION - -------------------------------------------------------------------------------- Sales Comparison Approach $7,400,000 Income Approach $7,500,000 The Sales Comparison Approach utilized relatively recent comparable sales of similar properties in the area. The weakness of the Sales Comparison Approach is that no two properties are exactly alike and exact conditions of a sale are often unknown. The strength of this approach is that it indicates market activity based on the willing buyer/willing seller concept. We placed weight on this approach in our conclusions. The Income Approach attempts to measure investment qualities of the property. Based on actual rental rates in the immediate area of the subject, actual expenses, and investor returns derived from the market, we have estimated value. Actual data on the property, as well as comparable data was considered adequate. Because the Income Approach deals directly with income streams, we feel it is a very good indication of current market conditions. It tends to reflect a value, which an investor of a property would anticipate. We have placed considerable emphasis on the Income Approach. Therefore, it is our opinion that the "as is" leased fee market value of the subject property, on an all cash basis, as of November 30, 1997 is SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($7,500,000) In addition, the appraisers have contemplated the possible conversion of the existing apartment units to individual condominium interests. To date, the condominium market in the Tucson area has yet to maximize returns on conversion. Likewise, the maximum return on condominium sales is generally realized on new units in contrast to the resale of previously occupied condominium units. The subject property is currently being operated as a rental apartment project with an economic occupancy of 85 percent and a physical occupancy of 93 percent. Despite a relatively strong condominium market in the past, the condominium market in the Tucson area is not presently providing an adequate return, which would justify the risk of conversion. Given the age of the complex, it is our opinion that the subject property should be maintained as an apartment rental complex. 40 PINNACLE CANYON - -------------------------------------------------------------------------------- [PHOTO APPEARS HERE] COMPARABLE APARTMENT SALE 1 PROPERTY IDENTIFICATION Job Number 97-073 Project Name Pinnacle Canyon Address 7050 E. Sunrise Drive City/ State Tucson, Arizona TRANSACTION DATA Sale Date 11/97 Grantor (Seller) Pinnacle Canyon Joint Venture Grantee (Buyer) BRE Property Investors, Inc. Recorded Document 10677-1104 Sale Price $11,727,000 Occupancy 98% Sale Price per Unit $52,120 Sale Price per SF $51.23 Capitalization Rate NA TERMS OF SALE CASH PROPERTY DESCRIPTION Year Built 1995 Last Year Renovated NA Number of Stories 2 Number of Buildings 20 Number of Units 225 Number of Bedrooms 428 Net Rentable Area 228,931 Average Unit Size 1,017 SF Land Area 15.290 Acres Unit Density 14.71 Units per Acre Property Condition Excellent Parking (type) Open, carport and detached garage (500 spaces) Construction Type Wood frame, stucco exterior, concrete foundation, tile roof Unit Amenities Washer/dryer, built-in television, roman tub, microwave Project Amenities Swimming pool, spa, clubhouse, exercise room, computer center Confirmed With Real Data, Inc., Newspaper article (11/30/97), and Bruce Greenberg, MAI Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Comments Detailed income and expense information was not available. The NOT/SF, expenses, and capitalization could not be derived, however, the EGIM is estimated at 5.69. PINNACLE HEIGHTS - -------------------------------------------------------------------------------- [PHOTO APPEARS HERE] COMPARABLE APARTMENT SALE 2 PROPERTY IDENTIFICATION Job Number 97-073 Project Name Pinnacle Heights Address 7990 East Snyder City/ State Tucson, Arizona TRANSACTION DATA Sale Date 11/97 Grantor (Seller) Pinnacle Heights Associates Grantee (Buyer) BRE Property Investors, LLC Recorded Document 10677-1112 Sale Price $16,364,000 Occupancy 97% Sale Price per Unit $52,787 Sale Price per SF $48.22 Capitalization Rate NA TERMS OF SALE Cash PROPERTY DESCRIPTION Year Built 1995 Last Year Renovated NA Number of Stories 2 Number of Buildings 25 Number of Units 310 Number of Bedrooms 562 Net Rentable Area 339,364 Average Unit Size 1,095 SF Land Area 30 Acres Unit Density 10.33 Units per Acre Property Condition Excellent Parking (type) Open, carport, and detached garage (590 spaces) Construction Type Wood frame, stucco exterior, Spanish tile roof Unit Amenities Washer/dryer, microwave, ceiling fans Project Amenities Swimming pool, two spas, exercise room, computer center, and clubhouse Confirmed With Real Data, Inc., Newspaper article (11/30/97), and Bruce Greenberg, MAI Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Comments Detailed income and expense information was not available, however, a 5.60 EGIM has been estimated. FOOTHILLS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 3 PROPERTY IDENTIFICATION Job Number 97-073 Project Name Foothills Address 5441 N. Swan Road City/ State Tucson, Arizona TRANSACTION DATA Sale Date 11/97 Grantor (Seller) Foothills APB, LP Grantee (Buyer) AIMCO/Foothill LP Recorded Document 10677-2151 Sale Price $7,600,000 Occupancy 97% Sale Price per Unit $28,148 Sale Price per SF $45.26 Capitalization Rate NA TERMS OF SALE Cash PROPERTY DESCRIPTION Year Built 1984 Last Year Renovated NA Number of Stories 2 Number of Buildings 11 Number of Units 270 Number of Bedrooms 300 Net Rentable Area 167,910 Average Unit Size 622 SF Land Area 7.5 Acres Unit Density 36 Units per Acre Property Condition Good Parking (type) Open and covered (380 spaces) Construction Type Wood frame, stucco exterior, and tile roof Unit Amenities Patio/balcony, storage Project Amenities Swimming pool, clubhouse, weight room, racquetball, tennis courts, laundry facility Confirmed With Real Data, Inc., Newspaper article (11/30/97), and Bruce Greenberg, MAI Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Comments No economic information was available, a 5.38 EGIM was estimated from knowledge of sales prices, rents, and occupancy. STANDSTONE - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 4 PROPERTY IDENTIFICATION Job Number 97-073 Project Name Sandstone Apartments Address 405 E. Prince Road City/ State Tucson, Arizona TRANSACTION DATA Sale Date 06/97 Grantor (Seller) Tucson Park Ridge, Ltd. Grantee (Buyer) Feigal Sandstone LP Recorded Document 10569-1839 Sale Price $8,849,000 Occupancy 100% Sale Price per Unit $26,815 Sale Price per SF $48.84 Capitalization Rate 10.0% TERMS OF SALE Cash PROPERTY DESCRIPTION Year Built 1986 Last Year Renovated NA Number of Stories 3 Number of Buildings NA Number of Units 330 Number of Bedrooms 363 Net Rentable Area 181,167 Average Unit Size 549 SF Land Area 8.42 Acres Unit Density 39.19 Units per Acre Property Condition Good Parking (type) Covered and open Construction Type Wood frame, stucco exterior, Spanish tile roof Unit Amenities Washer/dryer available, covered parking, balconies Project Amenities Swimming pool, spa, tennis courts, volleyball, laundry room, clubhouse, exercise room Confirmed With Real Data, Inc. and Bruce Greenberg, MAI Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Comments HILANDS I - -------------------------------------------------------------------------------- [PICUTRE APPEARS HERE] COMPARABLE APARTMENT SALE 5 PROPERTY IDENTIFICATION Job Number 97-073 Project Name Highlands I Address 5755 E. River Road City/ State Tucson, Arizona TRANSACTION DATA Sale Date 06/97 Grantor (Seller) Doubletree Finance, Inc. Grantee (Buyer) Northland Hilands Portfolio, LP Recorded Document 10565/255 Sale Price $12,500,000 Occupancy 95% Sale Price per Unit $29,343 Sale Price per SF $53.34 Capitalization Rate 11% TERMS OF SALE Cash PROPERTY DESCRIPTION Year Built 1985 Last Year Renovated NA Number of Stories 3 Number of Buildings NA Number of Units 426 Number of Bedrooms 468 Net Rentable Area 234,324 Average Unit Size 550 SF Land Area 14.71 Acres Unit Density 28.95 Units per Acre Property Condition Good Parking (type) Open and carport (527 spaces) Construction Type Wood frame, stucco exterior, concrete foundation, tile roof Unit Amenities Washer/dryer, patio or balcony w/storage, covered parking Project Amenities 2 Swimming pools, spa, lounge, exercise room, racquetball court, tennis courts, laundry room Confirmed With Real Data, Inc. and Bruce Greenberg, MAI Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Comments Limited economic data available. WINDSAIL - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 6 PROPERTY IDENTIFICATION Job Number 97-073 Project Name Windsail Address 7300 North Mona Lisa Road City/ State Tucson, Arizona TRANSACTION DATA Sale Date 03/97 Grantor (Seller) PTR Holdings Grantee (Buyer) Windsail Properties LLC Recorded Document 10513/2196 Sale Price $10,037,000 Occupancy 94% Sale Price per Unit $33,457 Sale Price per SF $41.14 Capitalization Rate 10% TERMS OF SALE Cash PROPERTY DESCRIPTION Year Built 1985 Last Year Renovated NA Number of Stories 2 Number of Buildings 21 Number of Units 300 Number of Bedrooms 548 Net Rentable Area 243,952 Average Unit Size 813 SF Land Area 11.65 Acres Unit Density 25.8 Units per Acre Property Condition Good Parking (type) Open (150) and Covered (300) Construction Type Wood frame, stucco exterior, Spanish tile roof Unit Amenities Washer/dryer connection, fireplace, microwave, balcony/patio Project Amenities Swimming pool, spa, sauna, exercise room, tennis courts, playground Confirmed With Real Data, Inc. and Bruce Greenberg, MAI Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Comments Limited economic data reveals estimated EGIM of 5.74 COBBLE CREEK - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 7 PROPERTY IDENTIFICATION Job Number 97-073 Project Name Cobble Creek Address 7700 E. Speedway Blvd. City/ State Tucson, Arizona TRANSACTION DATA Sale Date 11/97 Grantor (Seller) Security Capital Pacific Trust Grantee (Buyer) Cobble Creek Associates, LLC Recorded Document 11463/642 Sale Price $9,250,000 Occupancy 91% Sale Price per Unit $30,731 Sale Price per SF $42.55 Capitalization Rate NA TERMS OF SALE Cash PROPERTY DESCRIPTION Year Built 1980 Last Year Renovated NA Number of Stories 3 Number of Buildings 13 Number of Units 301 Number of Bedrooms 367 Net Rentable Area 217,382 Average Unit Size 722 SF Land Area 9.877 Acres Unit Density 30.47 Units per Acre Property Condition Fair Parking (type) Open and carport (386 spaces) Construction Type Concrete block with stucco exterior, flat built-up roof Unit Amenities Fireplace, balcony/patio Project Amenities Swimming pool, clubhouse, spa, tennis court, racquetball court, basketball court Confirmed With Comps and Real Data, Inc., and Bruce Greenberg, MAI Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Comments Economic information was confidential, however, from knowledge of sales price, rental rates, and occupancy, an EGIM of 6.35 was calculated. SUNDOWN VILLAGE - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 8 PROPERTY IDENTIFICATION Job Number 97-073 Project Name Sundown Village Address 8215 North Oracle Road City/ State Tucson, Arizona TRANSACTION DATA Sale Date 12/96 Grantor (Seller) Security Capital Pacific Trust Grantee (Buyer) Sundown Associates, LLC Recorded Document 10438/1085 Sale Price $11,350,000 Occupancy 90% Sale Price per Unit $34,394 Sale Price per SF $40.57 Capitalization Rate 10.09% TERMS OF SALE Cash INCOME/EXPENSE DATA Potential Gross Income $2,187,240 Vacancy/Collection Loss 10% $ (218,724) Other Income $ 83,970 Effective Gross Income $2,052,486 Operating Expenses $ (941,265) Net Operating Income $1,111,221 PROPERTY DESCRIPTION Year Built 1984 Last Year Renovated NA Number of Stories 1, 2 & 3 Number of Buildings 37 Number of Units 330 Number of Bedrooms 486 Net Rentable Area 279,758 Average Unit Size 848 SF Land Area 14.99 Acres Unit Density 22 Units per Acre Property Condition Good Parking (type) Open (82) Covered (250) and Detached Garage (17) Construction Type Wood frame with stucco exterior, tile roof Unit Amenities Fireplace, microwave, washer/dryer hook-up Project Amenities Swimming pool, spa, sauna, clubhouse Confirmed With Bruce Greenberg, MAI Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Comments RIO CANCION - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 9 PROPERTY IDENTIFICATION Job Number 97-073 Project Name Rio Cancion Address 2400 East River Road City/ State Tucson, Arizona TRANSACTION DATA Sale Date 12/96 Grantor (Seller) Security Capital Pacific Trust Grantee (Buyer) Rio Cancion Associates, LC Recorded Document 10438/1044 Sale Price $17,400,000 Occupancy 90% Sale Price per Unit $45,910 Sale Price per SF $50.67 Capitalization Rate NA TERMS OF SALE Cash to seller INCOME/EXPENSE DATA Potential Gross Income $ 2,956,200 Vacancy/Collection Loss 10% $ (295,620) Other Income $ 97,200 Effective Gross Income $ 2,757,780 Operating Expenses $(1,118,846) Net Operating Income $ 1,638,934 PROPERTY DESCRIPTION Year Built 1983 Last Year Renovated NA Number of Stories 1 & 2 Number of Buildings 35 Number of Units 379 Number of Bedrooms 613 Net Rentable Area 343,370 Average Unit Size 906 SF Land Area 16.323 Acres Unit Density 23.21 Units per Acre Property Condition Good Parking (type) Open and carport (878 spaces) Construction Type Wood frame with stucco exterior, concrete foundation, Spanish tile roof Unit Amenities Fireplace, vaulted ceilings, microwave, balcony/patio, w/d hookup Project Amenities 3 swimming pools, spa, fitness room, basketball court, tennis court, carports, clubhouse Confirmed With Real Data, Inc and Bruce Greenberg, MAI Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Comments SONORAN TERRACES - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 10 PROPERTY IDENTIFICATION Job Number 97-073 Project Name Sonoran Terraces Address 7887 N. La Cholla Boulevard City/ State Tucson, Arizona TRANSACTION DATA Sale Date 08/96 Grantor (Seller) Security Capital Pacific Trust Grantee (Buyer) NA Sonoran Terraces 5-1 Recorded Document 10357/907 Sale Price $18,750,000 Occupancy 95% Sale Price per Unit $50,134 Sale Price per SF $45.04 Capitalization Rate 93% TERMS OF SALE Cash to seller INCOME/EXPENSE DATA Potential Gross Income $2,995,238 Vacancy/Collection Loss 5% $ (149,762) Effective Gross Income $2,845,476 Operating Expenses $1,084,034 Net Operating Income $1,761,442 PROPERTY DESCRIPTION Year Built 1985 Last Year Renovated NA Number of Stories 2 Number of Buildings 60 Number of Units 374 Number of Bedrooms 632 Net Rentable Area 416,256 SF Average Unit Size 1,113 SF Land Area 25.810 Acres Unit Density 14.49 Units per Acre Property Condition Good Parking (type) Open and Covered (674 spaces) Construction Type Brick veneer, concrete foundation, Spanish tile roof Unit Amenities Washer/dryer Project Amenities Swimming pools, clubhouse, tennis courts, weight room, covered parking Confirmed With Real Data, Inc and Bruce Greenberg, MAI Date Confirmed December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Comments None TIERRA CATALINA - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 1 PROPERTY IDENTIFICATION Job Number: 97-073 Name of Project: Tierra Catalina Street Address: 3201 East Skyline Drive City/State: Tucson, Arizona PROPERTY DESCRIPTION Year built/Renovated: 1983 Number of Stories: 2 Number of Units: 120 Net Rentable Area (SF): 140,644 Average Unit Size (SF): 1,172 Parking Surface: Asphalt Type of Construction: Painted stucco exterior with flat built-up roofs and red tile pitched roof fronts Unit Mix:
---------------------------------------------- Total Unit Size Monthly Monthly Units Type (SF) Rent Rent/SF ---------------------------------------------- 18 1BR/1BA 900 $640 $0.71 23 1BR/1BA 916 680 0.74 19 2BR/2BA 1,207 790 0.65 25 2BR/2BA 1,233 850 0.69 17 2BR/2BATH 1,304 890 0.68 18 3BR/2BATH 1,525 950 0.62 ----------------------------------------------
Concession: None Unit Amenities: Dishwashers, garbage disposals, microwave ovens, washer/dryer connections, fireplaces, patio/balconies, covered parking Project Amenities: 1 swimming pool, 1 tennis court, jacuzzi, picnic area, clubroom, laundry facility ECONOMIC DATA Percent Occupied: 92% Avg. Monthly Rent/SF of NRA: $0.61 Electricity Paid By: Tenant Length of Lease: 6,9, and 12 months Security Deposit: $175-$275 Confirmed With: On-site agent Date Confirmed: 12/97 by SNB/Bach Realty Advisors, Inc. L' AUBERGE CANYON VIEW - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 2 PROPERTY DESCRIPTION Job Number: 97-073 Name of Project: L'Auberge Canyon View Street Address: 6650-55 North Kolb Road City/State: Tucson, Arizona PROPERTY DESCRIPTION Year built/Renovated: 1987 Number of Stories: 2 Number of Units: 264 Net Rentable Area (SF): 269,048 Average Unit Size (SF): 1,019 Parking Surface: Asphalt Type of Construction: Masonry with flat built-up roofs Unit Mix:
--------------------------------------------- Total Unit Size Monthly Monthly Units Type (SF) Rent Rent/SF --------------------------------------------- 32 1BR/1BA 724 $ 725 $1.00 64 2BR/2BA 909 775 0.85 60 2BR/2BA 1,049 825 0.79 66 2BR/2BA 1,095 875 0.80 12 3BR/2BA 1,223 1,010 0.82 19 3BR/2BA 1,243 1,010 0.81 11 3BR/2BA 1,291 1,010 0.78 ---------------------------------------------
Concessions: None Unit Amenities: Dishwashers, garbage disposals, microwave ovens, washer/dryer in units, fireplaces, outdoor- utility closets, covered parking Project Amenities: 1 swimming pool, 1 tennis court, jacuzzi, clubroom ECONOMIC DATA Percent Occupied: 96% Avg. Effective Monthly Rent/SF of NRA: $0.82 Electricity Paid By: Tenant Length of Lease: 7 and 12 months Security Deposit: $225; $200 refundable Confirmed With: RealData Inc./On-Site Agent Date Confined: 12/97 by SNB/Bach Realty Advisors, Inc. THE GREENS AT VENTANA CANYON - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 3 PROPERTY IDENTIFICATION Job Number: 97-073 Name of Project: The Greens at Ventana Canyon Street Address: 5800 North Kolb Road City/State: Tucson, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1986 Number of Stories: 2 Number of Units: 265 Net Rentable Area (SF): 267,935 Average Unit Size (SF): 1,011 Parking Surface: Asphalt Type of Construction: Masonry exterior Unit Mix:
---------------------------------------------------- Total Unit Size Monthly Monthly Units Type (SF) Rent Rent/SF ---------------------------------------------------- 22 1BR/1BA/DEN 818 $ 714 $ 0.87 26 1BR/1BA 847 740 0.87 29 2BR/2BA 945 775 0.82 27 2BR/2BA 974 739 0.76 48 2BR/2BA 1,018 787-837 0.77-0.82 65 2BR/2BA 1,050 800 0.76 22 2BR/2BA 1,169 914-964 0.78-0.82 26 2BR/2BA/DEN 1,207 950 0.79 ----------------------------------------------------
Concessions: 1/2 off first month's rent Unit Amenities: Dishwashers, garbage disposals, microwave ovens, washer/dryer in units, fireplaces, ceiling fans, outdoor utility closets, patio/balconies, covered parking Project Amenities: 1 swimming pool, jacuzzi, picnic area, club room ECONOMIC DATA Percent Occupied: 89% Avg. Monthly Rent/SF of NRA: $0.80 Electricity Paid By: Tenant Length of Lease: 12 months Security Deposit: None (special) Confirmed With: RealData Inc./On-site Agent Date Confirmed: 12/97 by SNB/Bach Realty Advisors, Inc. THE ARBORETUM - ------------------------------------------------------------------------------- [PHOTO APPEARS HERE] RENT COMPARABLE 4 PROPERTY IDENTIFICATION Job Number: 97-073 Name of Project: The Arboretum Street Address: 4700 North Kolb Road City/State: Tucson, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1986 Number of Stories: 2 Number of Units: 496 Net Rentable Area (SF): 402,272 Average Unit Size (SF): 811 Parking Surface: Asphalt Parking Spaces: 322 open; 352 covered Type of Construction: Frame with stucco exterior and flat built-up roofs and pitched tile and shingle roofs Unit Mix: ---------------------------------------------- Total Unit Size Monthly Monthly Units Type W(SF) Rent Rent/SF ---------------------------------------------- 32 1BR/1BA 520 $475 $0.91 128 1BR/1BA 616 500 0.81 96 1BR/1BA 686 510 0.74 32 1BR/1BA 767 560 0.73 64 2BR/1BA 984 650 0.66 48 2BR/2BA 995 710 0.71 48 2BR/2BA 1,001 735 0.73 48 3BR/2BA 1,200 799 0.67 ---------------------------------------------- Concessions: 1/2 month free rent. $175 off if deposit on 1/st/ visit Unit Amenities: Dishwashers, garbage disposals, microwave ovens, fireplaces, patio/balconies, ceiling fans, covered parking Project Amenities: 3 swimming pools, jacuzzi, picnic area, clubroom, laundry facility, exercise/weight room ECONOMIC DATA Percent Occupied: 99% Avg. Monthly Rent/SF of NRA: 0.734 Electricity Paid By: Tenant Length of Lease: 9 and 12 months Security Deposit: $175-1BR; $200-2BR; $225-3BR Pets Allowed/Deposit: $200 plus $15 per month Confirmed With: RealData Inc./On-Site Agent Date Confirmed: 12/97 by SNB/Bach Realty Advisors, Inc. VILLAS SIN VACAS - -------------------------------------------------------------------------------- PHOTO DID NOT DEVELOP RENT COMPARABLE 5 PROPERTY IDENTIFICATION Job Number: 97-073 Name of Project: Villas Sin Vacas Street Address: 7601 North Calle Sin Envidia City/State: Tucson, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1985 Number of Stories: 2 Number of Units: 72 Net Rentable Area (SF): 80,178 Average Unit Size (SF): 1,114 Parking Surface: Asphalt Type of Construction: Open and 72 carports Unit Mix: --------------------------------------------------- Total Unit Size Monthly Monthly Units Type (SF) Rent Rent/SF --------------------------------------------------- 38 1BR/1BA/DEN 930 $835 $0.90 18 2BR/2BA 1,195 1,050 0.88 16 3BR/2BA 1,458 1,200 0.82 --------------------------------------------------- Concessions: None Unit Amenities: Fireplace, washer and dryer, microwave, covered parking Project Amenities: Swimming pool, clubhouse ECONOMIC DATA Percent Occupied: Mid to high 90's % Avg. Monthly Rent/SF of NRA: $0.871 Electricity Paid By: Tenant Length of Lease: 9 and 12 months Security Deposit: $200 Pets Allowed/Deposit $200 Confirmed With: On-Site Agent and Real Data, Inc. Date Confirmed: 12/97 by SNB/Bach Realty Advisors, Inc. COLONIA DEL RIO - -------------------------------------------------------------------------------- PHOTO DID NOT DEVELOP RENT COMPARABLE 6 PROPERTY IDENTIFICATION Job Number: 97-073 Name of Project: Colonia Del Rio Street Address: 4601 N. Via Entrada City/State: Tucson, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1985 Number of Stories: 2 Number of Units: 176 Net Rentable Area (SF): 177,760 Average Unit Size (SF): 1,010 Parking Surface: Asphalt Parking Spaces: 261 Type of Construction: Masonry exterior with red tile roofs Unit Mix: ---------------------------------------------- Total Unit Size Eff.Mo. Eff. Mo. Units Type (SF) Rent Rent/SF ---------------------------------------------- 22 1BR/1BA 713 $560 $0.79 44 1BR/1BA 796 590 0.74 22 1BR/1BA 1,022 655 0.74 22 2BR/1BA 1,068 680 0.64 44 2BR/2BA/TH 1,170 795 0.68 22 3BR/2BA 1,345 795-810 0.59-0.60 ---------------------------------------------- Concessions: $200 off 1st month's rent Unit Amenities: Fireplace, washer and dryer, microwave, covered parking Project Amenities: Swimming pool, spa, exercise room, playground ECONOMIC DATA Percent Occupied: 90's Avg. Effective Monthly Rent/SF of NRA: $0.683 Electricity Paid By: Tenant Length of Lease: NA Security Deposit: $75 Pets Allowed/Deposit: Yes/$150 Confirmed With: On-site Agent and Real Data, Inc. Date Confirmed: 12/97 by SNB/Bach Realty Advisors, Inc. BOULDERS AT LA RESERVE - -------------------------------------------------------------------------------- [PHOTO APPEARS HERE] RENT COMPARABLE 7 PROPERTY IDENTIFICATION Job Number: 97-073 Name of Project: Boulders at La Reserve Street Address: 1500 E. Pusch Wilderness Drive City/State: Tucson, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1995 Number of Stories: 2 Number of Units: 240 Net Rentable Area (SF): 239,792 Average Unit Size (SF): 999 Parking Surface: Asphalt Parking Spaces: 375, same garages Type of Construction: Masonry exterior with flat built-up and red tile pitched roofs Unit Mix: ------------------------------------------- Total Unit Size Monthly Monthly Units Type (SF) Rent Rent/SF ------------------------------------------- 64 lBR/1BA 725 $595 $0.82 48 lBR/1BA/DEN 929 655 0.71 64 2BR/2BA 1,057 740 0.70 64 3BR/2BA 1,268 860 0.68 ------------------------------------------- Concessions: 1/2 A month free rent on lBR or 2BR and 1 month free on 3BR w/12 month lease Unit Amenities: Some fireplaces, washer and dryer, microwave, garage Project Amenities: Swimming pool, spa, exercise room, clubhouse ECONOMIC DATA Percent Occupied: NA Avg. Effective Monthly Rent/SF of NRA: $0.717 Electricity Paid By: Tenant Length of Lease: 7-13 months Security Deposit: $100 Pets Allowed/Deposit: $300 plus $10 per month Confirmed With: On-site Agent and Real Data, Inc. Date Confirmed: 12/97 by SNB/Bach Realty Advisors, Inc. Comments: Garages bring a rental premium of $60 plus. LA RESERVE VILLAS - -------------------------------------------------------------------------------- [PHOTO APPEARS HERE] RENT COMPARABLE 8 PROPERTY IDENTIFICATION Job Number: 97-073 Name of Project: La Reserve Villas Street Address: 10700 N. LaReserve Drive City/State: Tucson, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1988 Number of Stories: 2 Number of Units: 240 Net Rentable Area (SF): 216,008 Average Unit Size (SF): 900 Parking Surface: Asphalt Parking Spaces: Yes, but 240 carports Type of Construction: Masonry exterior with flat built-up and red tile pitched roofs Unit Mix: ---------------------------------------------- Total Unit Size Monthly Monthly Units Type (SF) Rent Rent/SF ---------------------------------------------- 64 1BR/1BA 697 $580 $0.83 96 2BR/2BA 943 690 0.73 52 2BR/2BA 957 750 0.78 28 3BR/2BA 1,111 875 0.79 ---------------------------------------------- Concessions: None Unit Amenities: Fireplace, washer/dryer, microwave Project Amenities: (2) swimming pools, spa, exercise room, clubhouse ECONOMIC DATA Percent Occupied: 90's% Avg. Effective Monthly Rent/SF of NRA: $0.772 Electricity Paid By: Tenant Length of Lease: 6 mos., 9 mos., 1 year Security Deposit: $140 1BR, $160 2BR, $180 3BR Pets Allowed/Deposit: $300 plus $15 per month Confirmed With: On-site Agent and Real Data, Inc. Date Confirmed: 12/97 by SNB/Bach Realty Advisors, Inc. LEGENDS AT LA PALOMA - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 9 PROPERTY IDENTIFICATION Job Number: 97-073 Name of Project: Legends at La Paloma Street Address: 3750 E. Via Palomita City/State: Tucson, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1995 Number of Stories: 2 Number of Units: 312 Net Rentable Area (SF): 322,696 Average Unit Size (SF): 1,034 Parking Surface: Asphalt Parking Spaces: 312 carports and open parking Type of Construction: Frame stucco with masonry exterior and sloped tile roof Unit Mix: --------------------------------------------- Total Unit Size Monthly Monthly Units Type (SF) Rent Rent/SF ---------------------------------------------- 72 lBR/lBA 745 $675 $0.91 152 2BR/2BA 1,036 795 0.77 88 3BR/2BA 1,258 975 0.78 ---------------------------------------------- Concessions: 1 month free rent Unit Amenities: Fireplace, washer and dryer, microwave, ceiling fan Project Amenities: (2) swimming pools, spa, exercise room, clubhouse, storage off patio/balcony ECONOMIC DATA Percent Occupied: mid to high 90's Avg. Effective Monthly Rent/SF of NRA: $0.791 Electricity Paid By: Tenant Length of Lease: 6 mos. to 1 year Security Deposit: $150 1BR, $175 2BR, $200 3BR Pets Allowed/Deposit: $300 plus $10 per month Confirmed With: On-site Agent and Real Data, Inc. Date Confirmed: 12/97 by SNB/Bach Realty Advisors, Inc. SKYLINE BEL AIRE - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 10 PROPERTY IDENTIFICATION Job Number: 97-073 Name of Project: Skyline Bel Aire Street Address: 6255 Camino Pimeria Alta City/State: Tucson, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1979 Number of Stories: 1-2 Number of Units: 137 Net Rentable Area (SF): 154,151 Average Unit Size (SF): 1,125 Parking Surface: Asphalt Parking Spaces: 136 carports and open parking Type of Construction: Frame stucco with masonry exterior and flat roof Unit Mix: ---------------------------------------------- Total Unit Size Monthly Monthly Units Type (SF) Rent Rent/SF ---------------------------------------------- 64 1BR/1BA 968 $615 $0.64 73 2BR/2BA 1,263 815 0.65 ---------------------------------------------- Concessions: $25 off rent 1BR $300 off 1st month rent w/12 month lease $150 off 1st month rent w/6 month lease Unit Amenities: Fireplaces, washer and dryer, covered parking Project Amenities: Swimming pool, spa, tennis court, billard room, skylight in several bedrooms ECONOMIC DATA Percent Occupied: Mid 90s Avg. Effective Monthly Rent/SF of NRA: $0.641 Electricity Paid By: Tenant Length of Lease: 6 mos., 9 mos., 1 year Security Deposit: $125 1BR and $150 2BR Pets Allowed/Deposit: $15 per month Confirmed With: On-site Agent and Real Data, Inc. Date Confirmed: 12/97 by SNB/Bach Realty Advisors, Inc. Comments: One of the large units is the manager's unit. PINNACLE CANYON - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 11 PROPERTY IDENTIFICATION Job Number: 97-073 Name of Project: Pinnacle Canyon Street Address: 7050 E. Sunrise Road City/State: Tucson, Arizona PROPERTY DESCRIPTION Year Built/Renovated: 1995 Number of Stories: 2 Number of Units: 225 Net Rentable Area (SF): 228,931 Average Unit Size (SF): 1,017 Parking Surface: Asphalt Parking Spaces: NA Type of Construction: Masonry exterior with red tile roof Unit Mix: ---------------------------------------------- Total Unit Size Monthly Monthly Units Type (SF) Rent Rent/SF ---------------------------------------------- 24 1BR/1BA 795 $650 $0.82 37 1BR/1BA 840 675 0.80 48 2BR/2BA 1,124 775 0.69 74 2BR/2BA 1,152 800 0.69 40 3BR/2BA 1,351 935 0.69 ---------------------------------------------- Concessions: 1 month free rent w/12 month lease Unit Amenities: Some fireplaces, washer and dryer, microwave, built-in television, covered parking Project Amenities: Swimming pool, spa, exercise room, clubhouse, computer center ECONOMIC DATA Percent Occupied: 98% Avg. Effective Monthly Rent/SF of NRA: $0.762 Electricity Paid By: Tenant Length of Lease: NA Security Deposit: $100 Pets Allowed/Deposit: $200 plus $15 per month Confirmed With: On-site Agent and Real Data, Inc. Date Confirmed: 12/97 by SNB/Bach Realty Advisors, Inc. PROFESSIONAL QUALIFICATIONS STEVAN N. BACH EXPERIENCE Bach Realty Advisors, Inc. (since June 1997) President. Emphasis in ad valorem tax and intangible value. Real estate valuation and consultation on hotels, major urban properties, and property portfolios. Financial and feasibility analysis, land use, and market studies Bach Thoreen McDermott Incorporated (July 1991 -- May 1997) Chief Executive Officer. Bach Thoreen & Associates, Inc. (1985 -- 1991) President Bach & Associates, Inc. (1980 -- 1984) President Landauer Associates, Inc. (1980 -- 1984) Senior Vice-President and General Manager -- Southwestern Region Coldwell Banker Commercial Group, Inc. (1973 -- 1980) Vice-President and Manager, Appraisal Services. Appraisal Research Associates (1971 -- 1973) Appraiser. Real Estate research valuation on urban and rural properties. Ray R. Hastings, MAI (1964 -- 1971) Appraiser. Real Estate research valuation on urban and rural properties. Residential Real Estate Sales (1963 -- 1964) Salesman. Residential real estate salesman Covina, California. PROFESSIONAL ACTIVITIES Member: Appraisal Institute Appraisal Institute, Houston Chapter 33 Appraisal Institute, Chairman of the Grievance Committee of the Regional Ethics Panel Appraisal Institute, Chairman of the Review and Counseling Committee of the Regional Ethics Panel Appraisal Institute, Co-Chairman of the Education Committee (1980) Appraisal Institute, Chairman of the Education Committee (1983) Appraisal Institute, Candidate Guidance Committee (1987 -- 1992) Appraisal Institute, Subcommittee Chairman, Admissions Committee (1984) AIREA Nonresidential Appraisal Report Grading Committee (1984) Appraisal Institute Expert Witness Video Committee (1990) Licenses: Real Estate Broker, State of Texas Certification: Certified in the Appraisal Institute's voluntary program of continuing education for its designated members (MAIs who meet the minimum standards of this program are awarded periodic education certification). Certified General Real Estate Property appraiser in the State of Texas, Certification No. TX-1323079-G Certified General Real Estate Property appraiser in the State of Colorado, Certification No. CG01323975 EDUCATION B.S. Marketing, University of Southern California (1962) A COMPLETE, SELF-CONTAINED APPRAISAL OF THE PONTE VEDRA BEACH VILLAGE II APARTMENTS 949 SHORELINE CIRCLE PONTE VEDRA BEACH, FLORIDA FOR HUTTON/CON AM REALTY INVESTORS 3 1764 SAN DIEGO AVENUE SAN DIEGO, CALIFORNIA 92110 AS OF NOVEMBER 30, 1997 BY BACH REALTY ADVISORS, INC. 1221 LAMAR, SUITE 1325 HOUSTON, TEXAS 77010 BRA: 97-069 TABLE OF CONTENTS - -------------------------------------------------------------------------------- Letter of Transmittal........................................ 1 Assumptions and Limiting Conditions.......................... 2 Certification................................................ 4 Salient Facts and Conclusions................................ 6 Nature of the Assignment..................................... 7 City/Neighborhood Analysis................................... 9 Apartment Market Analysis....................................19 Site Analysis................................................24 Improvements.................................................27 Highest and Best Use.........................................29 Appraisal Procedures.........................................32 Sales Comparison Approach....................................34 Income Approach..............................................38 Reconciliation...............................................48
ADDENDA Improved Sales Comparables Rent Comparables Legal Description Professional Qualifications [LETTERHEAD OF BACH REALTY ADVISORS APPEARS HERE] March 17, 1998 Hutton/Con Am Realty Investors 3 1764 San Diego Avenue San Diego, California 92110 Re: A Complete, Self-Contained Appraisal of the 124-unit Multifamily Complex Known As the Ponte Vedra Beach Village II Apartments Located at 949 Shoreline Circle in Ponte Vedra Beach, Florida; BRA: 97-069 Gentlemen: By your request and authorization, we have inspected the above-referenced property and have investigated the real estate market in the subject area in order to provide the value of the leased fee estate of the subject property as of November 30, 1997. This appraisal report is in conformance with the guidelines of the Appraisal Institute. The scope of this assignment includes the Sales Comparison and Income Approaches to value. The property was inspected in December 1997 and for the purposes of this report it is assumed that all physical and economic conditions are similar on the date of value as they were on the date of inspection. Our analysis of the property focused on the supply and demand factors influencing the Jacksonville area apartment market, the sale of comparable properties, market rent levels, appropriate operating expenses, and acceptable investor returns. As a result of our inspection of the property, investigation of the real estate market, and relying on our experience with similar type properties, it is our opinion that the leased fee market value of the subject property, all cash, on an "as is" basis, as of November 30, 1997 is in the sum of SIX MILLION DOLLARS ($6,000,000) There follows on the succeeding pages of this report pertinent data as to the valuation conclusions expressed herein. Your attention is also directed to the Assumptions and Limiting Conditions that follow this letter, as they are an integral part of the above stated market value. Thank you for the opportunity to be of service. If there are any questions regarding the valuation, please contact us. Sincerely, BACH REALTY ADVISORS, INC. /s/ Stevan N. Bach Stevan N. Bach, MAI President and Chief Executive Officer ASSUMPTIONS AND LIMITING CONDITIONS - -------------------------------------------------------------------------------- The certification of this appraisal is subject to the following assumptions and limiting conditions. 1. That responsibility is not taken for matters of a legal nature affecting the property appraised or the title thereto and that all legal descriptions furnished are correct. 2. That the title to the property being appraised is good and marketable and is appraised as though under responsible ownership and/or management. 3. That the property is free and clear of all liens and encumbrances, except as otherwise stated. 4. That the sketches in this report are included to assist the reader in visualizing the property and responsibility is not assumed for their accuracy. 5. That a survey of the property has not been made by the appraiser. 6. That the information, estimates, and opinions furnished the appraiser by others and contained in this report are considered reliable and are believed to be true and correct; however, responsibility is not taken for their accuracy. 7. That responsibility is not taken for soil conditions or structural soundness of the improvements that would render the property more or less valuable. 8. That possession of this appraisal does not carry with it the right of publication and that this report, or any parts thereof, may not be reproduced in any form without written permission of the appraiser. 9. That testimony or attendance in court or at a hearing are not a part of this assignment; however, any such appearance and/or preparation for testimony will necessitate additional compensation than received for this appraisal report. 10. That the valuation estimate herein is subject to an all-cash or all cash equivalent purchase and does not reflect special or favorable financing in today's market. 11. Where discounted cash flow analyses have been undertaken, the discount rates utilized to bring forecasted future revenues to estimates of present value reflect both our market investigations of yield anticipation's and our judgement as to the risks and uncertainties in the subject property and the consequential rates of return required to attract an investor under such risk conditions. There is no guarantee that projected cash flows will actually be achieved. 2 12. That the square footage figures are based on floor plans and information supplied to the appraiser by Con Am Management. 13. Bach Realty Advisors, Inc. is not an expert as to -------------------------------------------------- asbestos and will not take any responsibility for its ----------------------------------------------------- existence or the existence of other hazardous materials ------------------------------------------------------- at the subject property, analysis for EPA standards, ---------------------------------------------------- its removal, and/or its encapsulation. If the reader of ------------------------------------------------------- this report and/or any entity or person relying on the --------------------------------------- -------------- valuations in this report wishes to know the exact or ----------------------------------------------------- detailed existence (if any) of asbestos or other toxic ---------------------- ------- ----------------------- or hazardous waste at the subject property, then we not --------------------------------- ----------------- --- only recommend, but state unequivocally that they ---- ---------------------------------------- ---- should obtain an independent study and analysis ----------------------------------------------- (including costs to cure such environmental problems) ----------------------------------------------------- of asbestos or other toxic and hazardous waste. ---------------------------------------------- 14. In addition, an audit on the subject property to determine its compliance with the Americans with Disabilities Act of 1990 was not available to the appraiser. The appraiser is unable to certify compliance regarding whether the removal of any barriers which may be present at the subject are readily achievable. 3 CERTIFICATION - -------------------------------------------------------------------------------- The undersigned does hereby certify to the best of his knowledge and belief that, except as otherwise noted in this complete, self-contained appraisal report: 1. I do not have any personal interest or bias with respect to the subject matter of this appraisal report or the parties involved. 2. The statements of fact contained in this appraisal report, upon which the analyses, opinions, and conclusions expressed herein are gauged, are true and correct. 3. This appraisal report sets forth all of the limiting conditions (imposed by terms of our assignment or by the undersigned) affecting the analyses, opinions, and conclusions contained in this report. 4. The analysis, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Uniform Standards of Professional Appraisal Practice of the Appraisal Institute. 5. That no one other than the undersigned prepared the analyses, opinions, and conclusions concerning the subject property that are set forth in this appraisal report. Stevan N. Bach, MAI inspected the property in December 1997. 6. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 7. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions, and conclusions. 8. The Appraisal Institute conducts a program of continuing education for its members. Members who meet the minimum standards of this program are awarded periodic educational certification. As of the date of this report, Stevan N. Bach, MAI has completed the requirements under the continuing education program of the Appraisal Institute. 9. Compensation for this assignment is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. 10. That all, physical and economic conditions are the same on the date of value as they were on the date of inspection. 4 11. Based on the knowledge and experience of the undersigned and the information gathered for this report, the estimated leased fee market value, "as is," of the subject property on an all cash basis, as of November 30, 1997 is $6,000,000. /s/ Stevan N. Bach ------------------------------------- Stevan N. Bach, MAI President Certified General Real Property Appraiser State of Texas TX-1323079-G 5 SALIENT FACTS AND CONCLUSIONS - -------------------------------------------------------------------------------- Identification: The Ponte Vedra Beach Village II Apartments 949 Shoreline Circle Ponte Vedra Beach, Florida Location: East side of State Highway A1A at Ocean Place about 3 miles south of the Duval/St. Johns County line, Ponte Vedra Beach, Florida BRA: 97-069 Legal Description: A 13.29-acre tract out of Sections 27 and 46, Township 3 South, Range 29 East, St. Johns County, Florida Land Size: 13.29 acres or 578,912 square feet Building Area: 117,980 square feet of net rentable area plus a 1,500-square-foot clubhouse Year Built: 1985 Unit Mix: 32 1BR/1BA at 780 square feet 48 1BR/1BA/DEN at 947 square feet 44 2BR/2BA at 1,081 square feet No. of Units: 124 Average Unit Size: 951 square feet Occupancy Physical: 94.4 percent Economic: 92.7 percent Highest and Best Use As Vacant: Apartment development As Improved: Current use (as apartments) Date of Value: November 30, 1997 "As Is" Market Value by Sales Comparison Approach: $6,000,000 "As Is" Market Value by Income Approach: $6,000,000 "As Is" Market Value Conclusion: $6,000,000 6 NATURE OF THE ASSIGNMENT - -------------------------------------------------------------------------------- PURPOSE OF THE APPRAISAL The purpose of this complete, self-contained appraisal is to give an estimate of the "as is" leased fee market value of the subject property on an all cash basis. IDENTIFICATION OF THE PROPERTY The subject of this appraisal report is the Ponte Vedra Beach Village II Apartments located at 949 Shoreline Circle, Ponte Vedra Beach, Florida. DATE OF THE APPRAISAL All opinions of value expressed in this report reflect physical and economic conditions prevailing as of November 30, 1997. DEFINITION OF SIGNIFICANT TERMS The Appraisal of Real Estate, Eleventh Edition, 1996, ---------------------------- sponsored by the Appraisal Institute defines Market Value as: "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) Buyer and seller are typically motivated; (2) Both parties are well informed or well advised, and acting in what they consider their own best interests; (3) A reasonable time is allowed for exposure in the open market; (4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale." Leased Fee Estate - An ownership interest held by a landlord with the ----------------- rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the leased fee are specified by contract terms contained within the lease./1/ _______________________________ /1/ The Dictionary of Real Estate Appraisal, Third Edition, p. 204. --------------------------------------- 7 FUNCTION OF THE APPRAISAL It is the understanding of the appraisers that the function of this appraisal is for annual partnership and/or internal purposes. PROPERTY RIGHTS APPRAISED The appraisers have appraised the "as is" leased fee interest subject to short-term leases which are typically 6 to 12 months in duration at the subject property. THREE-YEAR HISTORY No transfers of ownership to the subject were discovered during the past three years upon interviews with real estate brokers in the area and research into the grantor/grantee deed records of St. Johns County, Florida. SCOPE/BASIS OF THE APPRAISAL This appraisal has been made in accordance with accepted techniques, standards, methods, and procedures of the Appraisal Institute. The values set forth herein were estimated after application and analysis by the Sales Comparison and Income Approaches to value. These approaches are more clearly defined in the valuation section of this report. The Cost Approach was not used as a method of valuation in this appraisal. The Cost Approach is typically the least reliable indicator because cost does not necessarily reflect value. Moreover, estimates of depreciation are difficult to accurately measure in the marketplace, thereby compounding the speculative nature of the opinions derived in the cost method of valuation. The scope of our assignment included obtaining pertinent property data from the client regarding income and expense figures, tenant rent rolls, and permission to inspect the subject. Additionally, the appraisers conducted research either personally or through associates to obtain current market rental rates, construction trends, the sale of comparable improved properties, anticipated investor returns, and the supply and demand of competitive apartment projects in the general and immediate area. After these examinations were performed, an analysis was made in order to estimate the leased fee market value of the subject on an "as is" basis. 8 [AREA MAP OF JACKSONVILLE BEACH APPEARS HERE] CITY/NEIGHBORHOOD ANALYSIS - -------------------------------------------------------------------------------- Jacksonville is the seat of Duval County and is situated near the northeastern corner of Florida on the St. Johns River. This location is approximately 150 miles north of Orlando, 165 miles east of Tallahassee, and 15 miles west of the Atlantic Ocean. The city of Jacksonville was consolidated with Duval County in the 1960s and has since been recognized as one of the largest incorporated municipalities in the nation in terms of land area with 841 square miles. In population, Jacksonville is one of the 20 largest cities in the United States and the most populous incorporated city in Florida. In 1990 the U.S. Bureau of the Census estimated the city's population at 648,200 persons. In 1995 this estimate increased to 676,718. The Jacksonville Metropolitan Statistical Area (MSA) includes Duval, Clay, St. Johns, and Nassau Counties. The 1990 MSA population was estimated at 906,727 according to the Census bureau, which indicates that the MSA is the fifth largest MSA in Florida after Tampa-St. Petersburg-Clearwater, Miami-Hialeah, Fort Lauderdale- Hollywood-Pompano Beach, and Orlando. As of January 1, 1997 the Jacksonville MSA stood at 1,025,600 or 13.1 percent higher than the 1990 population. The following chart depicts the Jacksonville MSA population and employment growth over the past two decades.
1970 1980 1990 1994 1995 2005* ------------------------------------------------------------ Population 612,600 722,300 906,727 981,600 994,900 1,140,700 Employment 159,400 281,800 422,700 437,474 460,245 625,690
Source: U.S. Bureau of the Census, Florida Department of Labor and Employment Security *Projection Historical population growth for the Jacksonville MSA from 1980 to 1990 averaged 2.3 percent per year. The growth has decreased slightly to 1.7 percent annually from 1990 to 1995. Population increases are anticipated to continue as job growth rises and as stated above the population estimated as of January 1, 1997 was 1,025,600. The Bureau of Business & Economic Research at the University of Florida projects the Jacksonville MSA population to be between 967,000 and 1,178,000 by the year 2000. The median projection for this time period is a population of 1,063,700. The greatest population growth has recently occurred to the south and east of the St. Johns River in Duval County. Other notable growth has been observed in northeastern Clay County near Orange Park, and in northern St. Johns County particularly along the Atlantic Coast beaches. The median age of the population in the Jacksonville MSA is lower than that found in the retirement havens of southern Florida. The median age in this MSA is 34 years according to the Census Bureau. This compares to about 36 years in Miami, 39 years in Fort Lauderdale, and 40 years in Tampa. The medium age in the city of Jacksonville is slightly less (33.3 years) than for the MSA. 9 Jacksonville was originally known as Florida's industrial city due to its port, shipyards, paper mills, and food processing plants. More recently, however, Jacksonville has become known as a regional center for banking, insurance, medicine and distribution. The Research Department of the Jacksonville Chamber of Commerce reported that the six largest private sector employers in the area were: Winn- Dixie Grocery Company, AT&T, Publix Super Market, Blue Cross/Blue Shield of Florida, Barnett Banks, and CSX Transportation. Two of Florida's largest banks, Barnett Bank and First Union, are officed in Jacksonville, along with 30 insurance companies. Jacksonville is also becoming a major back-office hub, as large corporations set up customer service centers and data processing operations in the area, including Merrill Lynch & Company, AT&T Corporation, and America Online, Inc. in the past few years. In addition, the world-renowned Mayo Clinic has one of its two regional medical centers located in southeastern Jacksonville. The recent additions in these medical and service-related industries have contributed to a more diverse economy in the area, and have helped civic leaders' attempts to transform the city's image from that of an industrial town to a regional distribution, service, and financial center. The largest contributor to the Jacksonville employment market is its three naval installations which include: Cecil Field Naval Air Station, located in the southwest sector of Duval County; Jacksonville Naval Air Station, located on the west bank of the St. Johns River a few miles south of the Central Business District (CBD), and the Mayport Naval Training Center, situated at the mouth of the St. Johns River near the Atlantic Ocean. These military establishments in Jacksonville employ approximately 31,200 civilian and military personnel. More recently, Cecil Field has been placed on the government's list of possible closures due to budget cutting measures. It is due to be closed in August 1999, which should result in the loss of approximately 7,500 military and civilian jobs. Jacksonville created the Cecil Field Development Commission with the task of developing a reuse plan for Cecil Field. The commission was dissolved in May 1997 as it had completed its task and transferred duties and functions to the Jacksonville Economic Development Commission. Infrastructure improvements are being discussed and to date funding has been secured for three major projects: survey of the land for city incorporation; three- phased conversion of the water and sewer systems to the city systems; and a transportation study (completed). The Naval Air Station is increasing in size because of the consolidation of units to the Jacksonville Naval Air Station. The net result in the closure and consolidation is little change in the present number of personnel. Total civilian employment in the Jacksonville MSA as of April 1996 was 480,100 persons according to the Florida Department of Labor and Employment Security. The unemployment rate as of that date was 3.3 percent down from 3.7 percent in February 1996, or lower than the U.S. Department of Labor's 4.8 percent rate for the state of Florida as of the same date. The above is the latest information received from the Jacksonville Chamber of Commerce. 10 The breakdown of nonagricultural employment as of November 1995 in the Jacksonville area is presented below and illustrates the growing diversity of the local employment base.
NONAGRICULTURAL EMPLOYMENT NUMBER PERCENT ------------------------------------------------------------- Manufacturing 35,500 7.4 Construction 24,200 5.0 Transportation, Communications, Utilities 32,000 6.7 Trade 117,600 24.5 Finance, Insurance, Real Estate 50,300 10.5 Services & Miscellaneous 152,900 31.8 Government 67,200 14.0 Other 400 0.1 ------- ----- Total 480,100 100.0
Source: Florida Department of Labor and Employment Security, November 1995. Note: The 480,100 estimates varies from the earlier stated estimate of 460,245. A surge of new jobs in Jacksonville earned the city a spot as the ninth fastest-growing metro labor market in 1996, according to the latest figures from the U.S. Bureau of Labor Statistics between 1993 and 1995, non-farm employment in Duval, St. Johns, Nassau and Clay Counties jumped 9.6 percent from 438,600 to 480,800. Despite its Florida location, the tourist/convention industry has a smaller impact on the Jacksonville MSA economy than in other parts of the state. Most area beaches and recreation facilities cater to local residents. The exception would be the Amelia Island Resort located 20 miles northeast of the city on the Atlantic Ocean. Amelia Island features world-class golf and tennis and luxury resort accommodations and is designed to attract vacationers from around the country. The most recent addition to this resort was the 450-room Ritz Carlton Hotel, which opened in June of 1991. The increase in service-oriented industries in Jacksonville has resulted in a substantial increase in income for the area's residents. Per Capita income rose by an average of approximately 1.4 percent per year from 1986 to 1995.
JACKSONVILLE MSA YEAR PER CAPITA INCOME --------------------------- 1986 $ 14,629 1987 15,482 1988 16,490 1989 14,973 1990 15,695 1995 16,920
Source: U.S. Department of Commerce, Bureau of Economic Analysis According to a demographic profile of Duval County, the medium household effective buying income was $15,712 as of January 1, 1997. Additionally there were 278,800 households with 48 percent owner-occupied. Total Duval County population was 733,500 with projections of 787,000 by the year 2005. 11 Jacksonville is a major distribution center of durable goods for Florida and Georgia. Transportation facilities include an international airport, rail service from various railroad companies, numerous private freight distribution companies, and bus service. Jacksonville has rail facilities with multi-modal transportation capabilities. The Port of Jacksonville, which utilizes the St. Johns River from the east end of the CBD to the Atlantic Ocean, is a leading import center for foreign automobiles. This facility consists of both the Blount Island Marine Terminal (867 acres) and the Talleyrand Docks and Terminals (173 acres) and features a 38-foot-deep channel. The Jacksonville Port Authority has acquired 589 acres of property on Dames Point for its third terminal development, which is the result of demand from new ship lines. A $300,000,000 project to deepen the harbor from 38 to 42 feet has been proposed. The international airport, operated by the Jacksonville Port Authority, has undergone $100 million of improvements, which added two new terminals, twelve new gates, and extended a runway to accommodate larger planes for transcontinental flights. Two major Interstate Highways, Interstate 10 and Interstate 95, intersect near downtown Jacksonville. Interstate 10 travels west from the city to the Gulf Coast communities in the Southeastern U.S., then continues west through the Southwestern U.S. to Los Angeles. Interstate 95 runs north/south along the Eastern Seaboard of the U.S. Interstate 295 provides a bypass around the major urbanized areas of the city to the northeast, northwest, west, and south. Completion of the eastern section of Interstate 295, which would create a beltway around the city, has been proposed with limited access approach roads expected to be in place by 2000. Many of the express roads and highways in Jacksonville formerly were toll roads; however, the toll charges were removed in the mid-1980s. The unified city/county government in Jacksonville and Duval County has been a unique feature of the area since the 1960s. A singular taxing authority collects for schools and municipal services for all residents. Excepted from Jacksonville city authority are the communities of Atlantic Beach, Neptune Beach, and Jacksonville Beach, which are separate incorporated municipalities within Duval County. Twenty miles of beaches along the Atlantic Ocean provide a wealth of recreational opportunities for area residents. The wide St. Johns River south of the CBD is popular with local pleasure craft. The average annual temperature in Jacksonville is 71 degrees with annual rainfall averaging 55 inches. Residents' needs for higher education in the area are served by several local colleges and universities such as Jacksonville University, the University of North Florida, and Florida Community College. Jacksonville is the headquarters for both the Professional Golf Association and Association of Tennis Professionals tours. It is also the home of the newest member of the expanded National Football League, the Jacksonville Jaguars. The team plays in the City's Gator Bowl Stadium, which seats 82,000 after renovation. The area boasts six museums, an active arts association, and one major daily newspaper. In addition, St. Augustine in neighboring St. Johns County to the south is the oldest city in 12 North America, and features numerous historic buildings and landmarks including the Castillo de San Marcos National Monument. The diversification of the economy has affected development in the Jacksonville area over the past several years. According to Reynolds, Smith and Hills, Inc. (RS&H), a local real estate research and development company, the total inventory of office space in the area in 1990 was 12,436,000 square feet. There has been about 1,040,000 square feet of office construction since 1990. Over 5 million square feet of office space has been constructed since 1987, with half in the suburban markets. Most suburban development was intended for single-tenant usage by companies such as Barnett Bank, American Express, CSX, and Blue Cross/Blue Shield. Of these, Barnett Bank developed an 820,000-square- foot nonbanking headquarters facility in a campus-style environment near the intersection of Southside Boulevard and U.S. 1 in southeastern Jacksonville. As of August 1997, the Central Business District (CBD) consisted of 57 buildings with a total of 6,298,533 square feet and a total for Jacksonville of more than 130 buildings with over 13,000,000 square feet, the majority of which are in the Southside (Butler) area at 84 for 5,199,037 square feet. As of August 1997, office announcements indicated eight projects to contain about 876,000 square feet and provide over 3,480 jobs. Additionally seven other projects are to be announced that total over 1.6 million square feet. Companies involved in the announced projects are Atlantic Teleservices, Barnett Banks, Purdential Health Care, Chase Manhatten Corporation, Koger Equity, Gran Central Corporation, and Hallmark Partners. The office market in Jacksonville is active and reports by submarket in the August 15, 1987 issue of Commercial Real Estate indicate a tightening and strong market with new construction justified. Vacancy is now in single digits city-wide and all submarkets have lower vacancy than one year ago except for one submarket. Rents city-wide have increased $1.50 to $3.00 per square foot from 1996 levels and proposed projects are expected to obtain rents in excess of $20 per square foot. The increasing household income in Jacksonville has attracted a substantial amount of retail development in recent years. Most of this development has occurred in suburban markets on the south side and in the beach communities. In September 1990, The Avenues Mall was completed offering over 1.4 million square feet of retail space at Southside Boulevard and U.S. Highway 1. Food Lion, a North Carolina-based grocery chain, constructed 17 strip centers throughout the Jacksonville area during 1988 and 1989. Beach area redevelopment featured the opening of two regional centers known as Sandcastle Plaza and South Beach Center, and several large "power" centers were constructed near two of the regional malls in the area. As of December 31, 1996 the Jacksonville MSA showed total retail sales at $10.155 million, up 30.5 percent since year end 1991. Duval County, which encompasses Jacksonville, had retail sales of 7.644 million or an increase of 26.3 percent since 1991. Based on information from the ULI Market ---------- Profiles: 1996 -------------- 13 [JACKSONVILLE BEACH NEIGHBORHOOD MAP APPEAR HERE] rents for retail space have stabilized since 1987 ranging from $30.00 to $50.00 per square foot per year for enclosed mall space. Typical rent levels for smaller centers experienced a slight increase to a range between $9.00 and $14.00 per square foot. Rental rates for older strip centers range from $4.00 to $8.00 per square foot. Retail development is projected to be stable until vacant space within the market is reasonably absorbed. Residential growth in the northern and middle St. Johns County areas, southside-Intracoastal west, and the Avenue-U.S. Highway 1- Southside Boulevard areas of the city is expected to produce retail activity in these markets. Residential, both single and multi-family remains active in development. The October 31, 1997 edition of Homefront identifies over 320 single family developments that are active today. The industrial real estate sector has not experienced the significant vacancy problems incurred by the office and retail markets. This sector is very strong in the Jacksonville area and is experiencing heavy demand for build-to-suit space from industry entering the market. New construction during 1995 totaled over 1.5 million square feet, a new record high. The major projects in the area include Sara Lee's Coach subsidiary; NatureForm, Inc.; Pilot Pen Corporation; Sally Industries; H.J. Heinz Company's Portion Pac, Inc.; Viking Office Products and a Georgia Pacific expansion. The majority of new construction is taking place in the south and west sides of Jacksonville. As established by the NAIOP report in August 1997, the south side submarket has favorably responded to the one-year supply of space, however, there remains 300,000 square feet within six buildings that has not been leased. Activity for this space has been slow. The west side market continues to grow and is said to be a strong market. The north side submarket is strong with minimal vacancy and the Port Authority is expected to spend about $100 million on airport and seaport capital improvements, which were to begin October 1997. Industrial parks of tradeport and Imeson will benefit most from the expenditures. The apartment market is discussed in the Apartment Market Analysis section that follows. NEIGHBORHOOD ANALYSIS The subject is located in the northeast area of St. Johns County approximately 18 aerial miles from the Jacksonville CBD. The neighborhood is generally described as the northernmost portion of St. Johns County, or that area lying west of the Atlantic Ocean and south and east of the St. Johns/Duval County Line immediately south of the city of Jacksonville Beach. Although unincorporated, this neighborhood is better known as the community of Ponte Vedra Beach. Florida State Highway AlA (Highway AlA) is a major thoroughfare, which runs the length of Florida's Atlantic Coast areas from Fernandina Beach at the north end to Miami Beach in the south. Through the subject neighborhood, this divided four-laned road cuts through the neighborhood in a similar north/south fashion. Just north of the subject neighborhood boundary in Jacksonville Beach, Highway AlA intersects with J. Turner Butler Boulevard, a major roadway connecting 14 Jacksonville with its suburban beach communities. Highway AlA runs generally about 5 blocks west of the Atlantic coast in this neighborhood except at its southern end, where it merges with State Road 203/Ponte Vedra Boulevard. Ponte Vedra Boulevard continues northward from this point immediately along the oceanfront. Major crossroads between these two neighborhood roadways include Corona Road, about 1 mile south of the Duval County Line, and Solana Road, several blocks north of Corona Road. Solana Road is a two- laned street, which continues west from Highway AlA, then turning southwest, and south along the Intracoastal Waterway where its name changes to Roscoe Boulevard. Finally, Palm Valley Road, a two-laned street, branches off to the southwest from Highway AlA about 2 miles south of the county line; Palm Valley Road, also known as State Road 210, continues southwestward providing access to the neighborhood from U.S. Highway 1 and Interstate 95 at the north end of St. Johns County. Approximately half of the land within the neighborhood boundaries is east of the Intracoastal Waterway; this half is approximately 60 percent developed. The area west of this canal lies largely undeveloped and is predominantly marshland. Ponte Vedra Beach enjoys a reputation as a popular resort community and affluent suburban enclave in the Jacksonville MSA. While no official population count exists, area real estate professionals estimate the population of Ponte Vedra Beach to be over 15,000 persons. The area is popular with retirees for its proximity to beaches and for its numerous resort-style subdivisions which often include country clubs, golf courses, and tennis facilities. However, this location within approximately 30 minutes of downtown Jacksonville and even closer to large suburban office parks on the city's south side has attracted local suburban residents as well. The Mayo Clinic's regional facility at San Pablo Road and J. Turner Butler Boulevard is just 4 miles northwest of this neighborhood. The Southpoint and Southside Boulevard office centers to the west are a reasonable 15-minute commute from the neighborhood along Highway AlA and J. Turner Butler Boulevard, which eventually intersects with Interstate 95 to the west. In the retail sector, several neighborhood shopping centers are noted along either side of Highway AlA. Ponte Vedra Square is situated in this neighborhood at the southwest corner of Highway AlA and Solana Road, which Ponte Vedra Point shopping center is at the southwest corner of this highway and Palm Valley Road. Between these two neighborhood centers is a third, known as Sawgrass Village along the west side of the street. Regional shopping can be found at South Beach Regional Center, located just to the north of the neighborhood boundary at the northwest corner of Highway AlA and J. Turner Butler Boulevard in Jacksonville Beach. A planned 250,000-square-foot center was announced in late 1993 and was completed at the southwest corner of Highway AlA and J. Turner Butler Boulevard. Anchor tenants include Target, Publix, and Ace Hardware. Currently there is a zoning change requested for land adjacent to the subject Lakeview Village Apartments for a new shopping center. All of these retail developments are supported by the growth and affluence of the residential sector in Ponte Vedra Beach. The affluence of the neighborhood is illustrated by the location of six country club developments in the area over the past twelve years which feature custom homes generally priced from $150,000 to 15 over $400,000, well above the median home price in the Jacksonville MSA. The residential neighborhoods tend to become more prestigious at the southern end of Ponte Vedra Beach. This southern part of the community is the location of both the Sawgrass and Tournament Players Club (TPC) country club/golf course developments. The Professional Golf Association and the Association of Tennis Professionals both have headquarter offices in Ponte Vedra Beach at the Tournament Players Club development, and each has sponsored major professional tournaments within the community in the last several years. Office development in the Beaches area, which includes Ponte Vedra, is primarily smaller sized buildings less than 30,000 square feet in size. The August 1997 Commercial Real Estate publication surveyed 19 office buildings totaling approximately 600,000 square feet and only 2 buildings were in excess of 30,000 square feet. The current supply of immediately available office space is low. The Ponte Vedra market has more supply, but also has more demand particularly in the law, medical professionals, financial planners, and insurance professionals. Rental rates are in the $19.00 to $21.00 per square foot full service category. Demand is strong in Ponte Vedra and over 150,000 square feet is proposed along the `hot' AlA corridor south of State 202. Several multifamily condominium and apartment projects are located in Ponte Vedra Beach. Condos are typically found immediately along the ocean or with the Sawgrass or TPC developments, while apartments are located at the north end of the neighborhood and along Highway AlA. According to the Jacksonville Planning Department, which publishes a quarterly apartment survey for the region, the Beach area submarket in which Ponte Vedra Beach is located has among the highest monthly average apartment rental rate of the six submarkets in the Jacksonville MSA. Physical occupancy rates in each of the existing apartment communities surveyed were over 90 percent. At subject valuation date, there were several apartment projects being constructed in or near Ponte Vedra. Apartment development was occurring west of AlA and south of J. Turner Butler Boulevard (State 202) and along Hodges Road north of J. Turner Butler Boulevard. The apartment construction in or near Ponte Vedra is more specifically identified as west of the subject apartment complex near the Landing Parkway/Ponte Vedra Lakes Boulevard intersection. Despite the growth in the area, which has generally occurred over the past twelve years, about one-third of the land in the neighborhood lies vacant and ready for development. To the south and west of this neighborhood are typically vacant areas, which contain marshes or land within the Guana River State Park; to the north is the older city of Jacksonville Beach, and to the east is the Atlantic Ocean. The St. Johns District provides bus service to children in the neighborhood attending public schools; Ponte Vedra Beach has its own elementary school at Highway AlA and Corona Road. The University of North Florida is located about 6 miles northwest of this neighborhood at J. Turner Butler Boulevard and St. Johns Bluff Road. Police and fire protection is provided by the county. 16 The neighborhood's access to supporting facilities, Atlantic beaches, along with the location of prestigious golf club communities within Ponte Vedra Beach have made the neighborhood one of the most attractive areas in Jacksonville. Physical occupancy rates in many multifamily developments in this area are above 90 percent. As the result of an improving local economy, there has been new development in retail and multifamily housing. As the economy continues to recover, the appraiser anticipates that the demand for residential units and retail space will become greater, and that space in the subject neighborhood will actively participate in this increased absorption due to all of the neighborhood's positive features stated above. However, as the neighborhood becomes more built-out, it will likely experience a period of stability as it matures in the long-term compared to the period of rapid development this neighborhood enjoyed throughout most of the 1980s. CONCLUSION Jacksonville, with a January 1997 U.S. Census Bureau population of 1,025,600 in its MSA, was known in the past as a military and industrial port city at the northeastern end of Florida. However, the employment base has grown and diversified over the past two decades as major banks, insurance companies and medical service industries have opened regional or headquarter offices in the area. This activity has increased the income of area residents and spurred significant job growth through much of the 1980s. Although Jacksonville is not noted as a major tourist center compared to southern areas of Florida, the area has attractive beaches and a redeveloped downtown riverfront area to serve the local population. The diversification of the employment base ignited office development both downtown and in the south side suburbs during the past ten years. Numerous large retail centers have been built in recent years to support the growing Jacksonville area population and income. Major private employers include Barnett Bank, Blue Cross/Blue Shield of Florida, and CSX Transportation. Nonetheless, the city's naval presence, with over 30,000 personnel, still dominates employment in the area. While new industries and employers such as America Online and AT&T have continued to enter the local employment market with new back-office operation centers, the appraisers anticipate less office development as the focus in the marketplace switches to absorption and renovation of existing vacant space. Bright spots in the Jacksonville real estate market include improving occupancy rates in the apartment market and a relatively low industrial space vacancy rate compared to other industrial markets nationwide. The city of Jacksonville appears to be enjoying a favorable economic climate. Construction permits and absorption of space in some sectors such as single-family residential have increased, while unemployment figures remain low. Although the closing of the Cecil Field Naval Air Station is not favorable, many of the lost jobs could potentially be offset by additions to the area's other two Naval bases and to the reuse plan of Cecil Field. The city's diversifying economic base, good supporting facilities, Florida sunbelt location, and good quality of life should support growth and absorption in all sectors. 17 The Ponte Vedra area is in demand and development activity is present in the apartment, retail, and office areas. This is in the Beaches area and reflects tourism, a retirement population, etc. with a growing need/demand for medical, financial, insurance, and law professionals. It is expected that demand for apartments will continue into the near future. 18 [MARKET AREA MAP APPEARS HERE] APARTMENT MARKET ANALYSIS - -------------------------------------------------------------------------------- Information from two surveys was utilized in the analysis of the Jacksonville apartment market analysis. The first is the Apartment Market Survey for Greater Jacksonville, Florida, Second Quarter, 1996 prepared by the Jacksonville Planning and Development Department and the Northeast Florida Apartment Council. The second is the Jacksonville Apartment Market Survey, Third Quarter 1997, published by Vestcor Realty Management, Inc. Most references are made to the survey prepared by the Vestcor Realty Management, Inc. AS THE FIRST SURVEY WAS NOT MADE IN 1997 BY THE PLANNING DEPARTMENT AND NORTHEAST FLORIDA APARTMENT COUNCIL. Construction of apartment projects in Jacksonville during the late 1980s continued but at lower levels each year from 1985 through 1989. The credit restrictions by lenders and their regulators following the savings and loan scandals in the mid- 1980s contributed to make construction funds scarce for apartment developers nationwide. The chart below illustrates the units constructed per year in Jacksonville since 1985.
YEAR Total Units Permitted ------------------------------------- 1985 5,079 1986 4,521 1987 2,656 1988 1,949 1989 1,407 1990 1,707 1991 1,170 1992 0 1993 278 1994 912 1995 1,073 1996 3,284 1997 978
Source: Jacksonville Planning and Development Department and Vestcor Realty Management, Inc. In 1996 3,284 units were permitted for five or more dwelling units. In 1997 there were 978 units permitted. The outlook for future development of apartment projects in the Jacksonville area appears to be good as occupancies are in the 90 percent to 95 percent range and the economy remains healthy. Construction was visible to the appraiser in the south part of Jacksonville. According to the Jacksonville Planning Department, the current number of apartment units existing in the metropolitan area is approximately 54,000. The Planning Department conducts a survey of the city and area apartment market. This survey is done by mail to the owners and/or managers of apartment complexes in Duval County as well as in northern Clay and St. Johns Counties, and the results of the survey are published every quarter year in the department's Apartment Market Survey. The Second Quarter of ----------------------- this survey, which is stated to 19 reflect the area apartment market as of the end of June 1996, is the most recent available; this survey is compiled based on the responses of owners and/or managers of 27 percent of the total existing apartment units in the area. Of the 27 percent or 14,575 units, there was a physical occupancy rate of 95.58 percent with one bedroom apartments with the highest rate at 96.23 percent and efficiencies with the lowest average occupancy rate this quarter at 92.25 percent. The physical occupancy rates and average monthly rents as of the Second Quarter 1996 are generally higher among those properties, which were built since 1990. The Third Quarter 1997 market survey by Vestcor Realty Management, Inc. reflects the following statistics for average occupancy.
3RD QTR 3RD QTR CHANGE CATEGORY 1997 1996 IN 1 YEAR ----------------------------------------------------- All units 92.8% 92.2% 0.6% Built before 1979 92.1% 89.2% 2.9% Built 1980--1989 94.0% 95.6% (1.6%) Built 1990--1997 90.1% 92.2% (2.1%)
The survey indicates a slight increase in occupancy for all units from one year ago with pre-1979 constructed units receiving the positive occupancy while post 1980 and post 1990 construction showed 1.6 to 2.1 percent decreases in occupancy. The major reason for the decrease appears to be home-buying alternatives. The Vestcor apartment market survey includes every apartment community with more than 100 units. They compared the information received from on-site personnel to their electric meter analysis. Properties undergoing renovation or in lease-up were removed from the database. If occupancy data on properties was not consistent with the electric meter analysis, these properties were also removed. The result was a review of 186 apartment complexes containing 41,572 units or nearly 70 to 75 percent of the units in the Jacksonville area by a 1996 count. Average monthly rental rates per unit were obtained by Vestcor and are delineated below by year of construction.
3RD QTR 3RD QTR CHANGE CATEGORY 1997 1996 IN 1 YEAR ----------------------------------------------------- All units $ 568 $ 565 +3--0.5% Built before 1979 $ 509 $ 504 +5--1.0% Built 1980--1989 $ 605 $ 596 +9--1.5% Built 1990-- 1997t $ 809 $ 791 +18--2.3%
The Vestcor survey for the First Quarter 1996 reported an average monthly rental rate per unit for the Jacksonville area of $540. This compared to $565 per unit during the Third Quarter 1996 indicates an increase in rental rates during the 6 months from the Vestcor survey is 4.6 percent. The survey indicates a slight monthly rental rate increase for all apartment units surveyed, but increases of 1 percent to 2.3 percent for various construction dated classified units. It is important to note that the increases in categories by year 20 built tend to counter the findings of rental increases for all units and indicate that the increase for all units should be between 1 percent to 2.3 percent or on average about 1.65 percent. Secondly, the 2nd Quarter 1997 average monthly rental for all units was $574, which would indicate a $6.00 reduction to the 3rd Quarter 1997 average monthly rent of $568. Overall, the Jacksonville apartment market appears to be healthy. Construction permits recorded for 1992 and 1993 were at their lowest levels in years, or from a high of 5,079 units in 1985 to 0 units permitted for 1992 and 278 in 1993. For 1994 and 1995, there were 912 and 1,073 units permitted, respectively. In 1996, there were 3,284 units permitted, while in 1997 there were 978 units permitted. Physical occupancy as of the Third Quarter 1997 was at 92.8 percent, which is a drop from 1996, but reflects the new construction. Absorption rates in new apartment projects have remained healthy over the past two years. Vacancies of the various apartment markets range from 3 to 7 percent. The appraisers project that the citywide market should reach a stabilized occupancy of 95 percent between one and two years at this rate of growth. SUBMARKET ANALYSIS The subject property is located in the Beaches submarket. This submarket is generally described as the northeastern area of St. Johns County along the Atlantic Ocean at Ponte Vedra Beach and including the Duval County beachfront municipalities of Atlantic Beach, Neptune Beach, and Jacksonville Beach. Vestcor Realty Management, Inc.'s Third Quarter 1997 survey features data on the apartment market within the city of Jacksonville as well as the area within the subject submarket and other immediate suburbs. This Third Quarter 1997 report, which is the most recent published to date, states that the Beaches submarket had a 94.0 percent physical occupancy rate, slightly higher than the average occupancy rate of 92.8 percent of the eight submarkets surveyed. This is a large increase from the 81.4 percent physical occupancy rate experienced in this submarket during the previous quarter and an increase from 93.6 percent in the Third Quarter 1996. Reference is made to the following table: 21
PHYSICAL OCCUPANCY QUARTER/YEAR RATE BEACHES SUBMARKET ---------------------------------------- 01/92 93.63% 02/92 86.74% 03/92 88.13% 04/92 92.82% 01/93 94.43% 02/93 96.88% 03/93 91.95% 04/93 91.43% 01/94 92.57% 02/94 94.16% 03/94 95.34% 04/94 91.70% 01/95 98.46% 02/95 91.81% 03/95 95.38% 04/95 95.73% 01/96 94.89% 02/96 93.19% 03/96 93.60% 02/97 81.40% 03/97 94.30%
Source: Vestcor Apartment Market Survey for Greater Jacksonville, Florida, Third Quarter 1997 The Beaches area apartments tend to attract more transient tenants than the city of Jacksonville as a whole. This can be noted in the wide occupancy rate changes from the above table. Beaches area tenants are usually most attracted to the area during the summer months. In addition, the pool of prospective tenants in this submarket fluctuates with the personnel movements at the nearby Mayport Naval Air Station and with the attraction of the retirement populace. The average monthly rental rate in the Beaches submarket, at $606 as of the Second Quarter 1996, was among the highest of all the submarkets in the area. In the Second Quarter of 1997 the average monthly rental increased about 13 percent to $687 and then decreased 1 percent to $680 in Third Quarter 1997. It is believed that some of the changes in rental rates and occupancy is affected by new construction of multi-family, condo, and single family development in the Beaches and adjacent areas. The following table illustrates the trend in rental rates for the subject market according to the surveys by the Jacksonville Planning and Development Department and Vestcor. 22
AVERAGE MONTHLY RENTAL QUARTER/YEAR RATE BEACHES SUBMARKET ------------------------------------------- 01/92 $470 02/92 563 03/92 577 04/92 510 01/93 500 02/93 582 03/93 496 04/93 570 01/94 598 02/94 571 03/94 551 04/94 560 01/95 546 02/95 523 03/95 662 04/95 644 01/96 689 02/96 606 03/96 674 02/97 687 03/97 680
Source: Vestcor Apartment Market Survey for Greater Jacksonville, Florida, Third Quarter 1997 Information regarding the number of new apartment projects, proposed or under construction, was not made available in the Third Quarter survey because the Beaches submarket is located in St. Johns County and construction permits are recorded in that county, not Duval County. There are projects located near US Highway A1A being built in the Ponte Vedra area and Beaches submarket. There are additional projects being built along Hodges Road north of J. Turner Butler Boulevard (State 202) which will contribute competition to the Ponte Vedra apartment communities. The subject's submarket has exhibited a stabilized occupancy of between 90 and 95 percent (with one exception) according to one local apartment survey. The subject property has a current economic occupancy of 84 percent and is considered to be able to reach occupancy stabilization within three years.. Although the Beaches submarket has been an active market in the past, the future expected development of additional apartment units may cause problems for absorption of the existing vacant units unless demand can remain commensurate with construction. Additionally, there is some concern from the effect of the proposed shopping center adjacent to Lakeview Village on rental rates and/or occupancy. 23 [SITE PLAN APPEARS HERE] SITE DESCRIPTION - -------------------------------------------------------------------------------- LOCATION The subject site is located along the east side of Highway A1A at a private street known as Ocean Place about 3 miles south of the Duval/St. Johns County Line. This location is in the northeastern area of St. Johns County in the community of Ponte Vedra Beach about 18 aerial miles southeast of the Jacksonville CBD. The site is improved with the Ponte Vedra Beach Village II Apartments which have a street address of 949 Shoreline Circle, Ponte Vedra Beach, Florida. SIZE AND SHAPE A survey of the subject site was provided to the appraiser by the on-site property manager of the apartments. This survey indicates that the site comprises 13.29 acres and has a generally trapezoidal configuration. The property has a significant 903.41 feet of frontage along the east line of Highway A1A and 810.92 feet of frontage along the south line of Ocean Place, a private roadway. ACCESS AND VISIBILITY The property is easily visible from Highway A1A due to its significant frontage on this roadway. Direct access into the site is provided by Ocean Place, a private roadway 60 feet wide running east and dividing the subject site from the site to the north. A recorded ingress and egress easement given to the subject site owners along this Ocean Place allows for direct access onto Ocean Place. This access easement is recorded at the St. Johns County Recording Office in O.R.V. 406, page 14 and O.R.V. 568, page 250. Highway A1A is a four-lane divided roadway and is the main thoroughfare in Ponte Vedra Beach. Most of the major shopping centers in the area are located on this highway, which is the main arterial providing access to other parts of the Jacksonville area. LEGAL DESCRIPTION A legal description of the subject is contained in the Addenda of this report. The subject site is generally described as being a 13.29-acre tract out of Sections 27 and 46, Township 3 South, Range 29 East, St. Johns County, Florida. ZONING The site is zoned RG1 by St. Johns County which allows for higher density residential uses such as apartments or condominiums. Front and back setbacks are a minimum of 20 feet with side setbacks at 10 feet. The maximum building height allowed by this zoning designation is 35 feet with the minimum lot width at 100 feet. The minimum area coverage allowed is 6,000 square feet with an additional 4,350 square feet for each unit over two on the property. The coverage area is credited only to developable land; 40 percent of the undevelopable land on a parcel can also be made available for credit under the zoning regulations. The subject site and improvements appear to conform to these regulations. UTILITIES All utilities are available to the site. Jacksonville Suburban Utilities provides water and sewer service to the site; the Jacksonville Electric Authority supplies electrical service. Telephone hookups are in place from Southern Bell, along with cable television lines from Continental Cable. TERRAIN AND DRAINAGE The subject site is generally level to street grade, with minor landscaped berms within the site. The site contains three retention lakes and drainage appears to be adequate. A soil survey was not available on the subject site. While the soil appears generally supportive of a wide variety of improvements, the appraiser is 24 not an expert in soil content and was unable to certify this assumption. According to the National Flood Insurance Map 125147-0183D dated September 18, 1985, the site is in Zone C, or "areas of minimal flooding." Numerous native trees were noted on the site; however, no significant obstacles to development of the site (such as rock outcroppings, etc.) were evident. EASEMENTS AND ENCUMBRANCES The survey indicates the location of several utility and right-of-way easements on the site, particularly on the periphery. Most of these easements appear to be minor and of no value consequence to the subject site. However, a 60-foot ingress and egress and utility right-of-way easement runs through the abutting property to the north along Ocean Place. This street is a private paved road from which access can be gained onto the subject property from Shoreline Circle, another private road on the subject site. The ingress and egress easement allows for access to the subject site from Highway A1A. REAL ESTATE TAXES The subject site and improvements have the following values assessed by the St. Johns County Property Appraiser's Office.
1997 ------------ Improvements Value $3,661,330 Land Value 652,500 ---------- Total Value $4,313,830 Total Taxes $79,060 Tax Rate per $1,000 Valuation 18.3270
The breakdown for the tax rate for the subject-taxing district for 1997 is compared to the 1994 through 1996 tax rates:
1995 1996 1997 ----------------------------- General County $ 6.312 $ 6.0930 $ 6.0930 School-State Law 10.4060 10.0760 10.0760 St. Johns River Water Mgmt. Dist. 0.4820 0.4820 0.4820 Fire District 0.5000 0.7500 0.7500 Mosquito Control 0.3210 0.3140 0.2960 Airport 0.1380 0.1380 0.2800 Florida Inland Navigation Dist. 0.0400 0.0380 0.0500 Jail 0.3500 0.2750 0.3000 -------- -------- -------- $18.5490 $18.1660 $18.3270
The assessor's parcel number for the subject site is 061510-0000. The subject, assessed for $36.56 per square foot or $34,789 per unit is assessed lower than the value estimated in this report. The real estate property taxes for the subject are calculated at $79,060 based on the mileage rate and assessed value and a payment date of March 1998. However, a discount from the tax expense is allowed if paid in the four months prior to March. For purposes of this appraisal, we have assumed an on- time payment of taxes. The real estate taxes in the Income Approach section of this report reflect an approximate 3 percent increase (inflation factor) over the 1997 property taxes. 25 Real estate taxes for the subject in 1998 have been estimated at $81,561. This estimate also provides for personal property taxes. SITE CONCLUSION The subject property is located along the east line of Highway A1A in the northeastern area of St. Johns County, Florida, about 3 miles south of the Duval county line. This location is about 18 aerial miles southeast of downtown Jacksonville. The parcel contains 13.29 acres with level terrain. Drainage and soil conditions appear to be adequate and supportive of a variety of improvements. All utilities are available. The site is in the Zone C area of minimal flooding. A survey of the site indicates a 60-foot- wide ingress and egress easement along Ocean Place, a private road running east/west and dividing the subject site from the site to the north. No other adverse easements or encroachments were noted. Visibility for the property is provided from Highway A1A, a major thoroughfare running along 903.41 feet of the west boundary of the subject site. The property is zoned by the county for high-density residential uses including condominium and/or apartment development, and appears to be physically suitable for such improvements. The apartment market in Ponte Vedra Beach is considered strong and the subject site's location along the east side A1A is considered excellent for multi-family development. 26 IMPROVEMENTS - -------------------------------------------------------------------------------- The subject site, a 13.29-acre tract of land, is improved with a one- and two-story apartment project known as the Ponte Vedra Beach Village II Apartments. The improvements consist of 124 apartment units contained in 14 buildings constructed in 1985. Also situated on the site is a clubhouse with a kitchen and laundry facility, exercise room and sauna, exterior mail post, deck, swimming pool and jacuzzi surrounded by an iron fence, lighted and fenced tennis court, three lakes, and a mechanical shed. There are three basic floor plans for the 124 apartment units. The basic features of these floor plans are as follows:
NO. OF UNITS UNIT TYPE SIZE (SF) TOTAL NRA ------------------------------------------------------ 12 lBR/lBA/DN 780 9,360 12 lBR/lBA/UP 780 9,360 8 1BR/1BA/VILLA 780 6,240 20 1BR/1BA/DEN/DN 947 18,940 20 lBR/lBA/DEN/UP 947 18,940 8 1BR/1BA/DEN/VILLA 947 7,576 18 2BR/2BA/DN 1,081 19,458 18 2BR/2BA/UP 1,081 19,458 8 2BR/2BA/V 1,081 8,648 --- ----- ------- 124 951 117,980
DN = downstairs; UP = upstairs As seen in the figures above, the total net rentable area of 117,980 in 124 apartment units results for an average of 951 square feet per unit. There are a total of 80 one-bedroom units and 44 two-bedroom units. The land area is 13.29 acres equating to a density of 9.33 units per acre. The parking consists of 239 asphalt-paved open spaces, or 1.93 spaces per unit. The parking ratio is within industry and local market standards. The foundation of the buildings is of concrete slab with wood-studded framing. The exterior walls are of stucco with wood frame trim work, and the roof is pitched with a tile covering. Windows are of single- hung aluminum thermal pane construction, with six panel exterior doors. Porches by each exterior door have an exterior light. Exterior stairwells have metal stairs and supports with concrete risers and landings. The interior finish of each unit has painted gypsum board walls and ceilings. Some walls are accented with decorative wallpaper. Floors have carpeting over pad, with sheet vinyl floors in the kitchen. Batt insulation is located in the walls and ceilings. 27 The kitchen is equipped with wood and fiberboard cabinetry covered with formica countertops and a double stainless steel sink. Appliances are made by General Electric, and include a range/oven, vent/hood, dishwasher, disposal, and refrigerator. Each unit has an electric water heater with a 40- gallon capacity. The kitchen equipment appears to be original but is considered to be in good condition. Carpet and tile floors are found in the bathrooms, with additional tile around the tub enclosure. The toilet, bathtub, and sink are porcelain, and a formica countertop covers a small vanity. Each bathroom also has a wall mirror and an exhaust fan. Each floor plan in this project has a fireplace, and all of the units have a washer and dryer closet with connections, miniblinds, and an exterior screened-in patio or deck with utility closet. Interior doors are hollow core wood with some folding closet doors. Each unit is equipped with a fire extinguisher per local fire codes. The mechanical components include standard PVC plumbing pipes with stainless steel fixtures. The units are equipped with electric central heating and air-conditioning which is individually metered. The interior wiring is copper with 125 amps designated per unit and ample electrical outlets. Each apartment is wired for telephone and cable television. Other than the major site amenities stated above, the grounds feature asphalt-paved parking pads and access roadways, concrete sidewalks, a bridge with brick pavers, and pole-mounted exterior light fixtures. The landscaping features numerous native trees as well as decorative planted shrubbery and lawns. The subject improvements appear to be in good overall condition. The subject property underwent renovation in 1994, which included general exterior repair, exterior painting, asphalt/concrete repair, stairs/balconies repair, and roof repairs and in 1997 there was a significant amount of capital expenditures. Capital items due to be expensed in 1998, according to ConAm Management Corporation, include the following: Asphalt/Seal/Repair................... $ 20,000 Electrical Breaker Repairs............ 30,800 Chimney Caps.......................... 25,000 Traffic Control Gating @ Entry Way.... 25,000 ------ TOTAL................................. $100,800
Considering the overall good condition after renovation of the improvements, we estimate the effective age of the subject property to be equal to the actual age of twelve years. 28 [FLOOR PLAN APPEARS HERE] [FLOOR PLAN APPEARS HERE] SUBJECT PHOTOGRAPHS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] Exterior view of Ponte Vedra II units. [PICTURE APPEARS HERE] Interior view of living room in Unit 827. [PICTURE APPEARS HERE] Interior view of bedroom in Unit 827. [PICTURE APPEARS HERE] Interior view of kitchen in Unit 703. [PICTURE APPEARS HERE] Interior view of dining area in Unit 703. [PICTURE APPEARS HERE] Interior view of bedroom in Unit 703. [PICTURE APPEARS HERE] View of screened porch in Unit 703. [PICTURE APPEARS HERE] View of Unit 703's exterior. [PICTURE APPEARS HERE] View of Unit 727's (townhouse) exterior. [PICTURE APPEARS HERE] View of living room in Unit 727. HIGHEST AND BEST USE - -------------------------------------------------------------------------------- The highest and best use of a property must be determined because market value depends upon the property's most profitable use. The Appraisal of Real Estate, Eleventh ---------------------------- Edition, defines highest and best use as: "The reasonably probable and legal use of vacant land or improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value." There are two distinct types of highest and best use. The first type is the highest and best use of the land as if vacant. The second type is the highest and best use of a parcel as improved. This pertains to the use that should be made of the property as it exists. In determining the highest and best use of a site, four items must be considered: possible physical limitations of the site, possible legal or permissible uses, and what uses are financially feasible, and produce the maximum return on the site. A careful neighborhood and site analysis is essential in estimating the highest and best use of the site as if vacant. The following is our analysis of the highest and best use as it pertains to the subject property and according to the four essential tests. SUBJECT PROPERTY AS IF VACANT LEGALLY PERMISSIBLE - Within the scope of a legal analysis, the subject site would be adaptable to multifamily residential uses as limited by its current zoning of RMD-E by the city of Jacksonville. This zoning designation for the site is intended to restrict and promote the development of the subject to medium density residential uses of up to 20 dwelling units per acre. PHYSICAL POSSIBILITY - Many physical characteristics of a site can affect the use to which it can be put. These characteristics can include size, shape, location, road frontage, topography, easements, utility availability, flood plain, and surrounding patterns. The subject site is generally trapezoidal in shape and encompasses a total of 13.29 acres, allowing for full physical utilization of the site. The site has over 900 feet of frontage along the east side of State Highway AlA. The topography of the site is generally level, and drainage appears to be adequate. The site is located in Flood Zone "C" which is defined in the previous Site Description section of this report. The subject's location is on the east side of State Highway AlA at its intersection with a private road known as Ocean Place about 3 miles south of the Duval/St. Johns county line. State Highway AlA is a four-laned divided roadway and is the major thoroughfare in Ponte Vedra Beach. Property uses along this highway in Ponte Vedra Beach predominantly consist of single and multifamily residential 29 uses with supporting retail. The subject has adequate utility capacity, enjoys a relatively good functional size and shape, and is not affected by any adverse easements or restrictions as noted upon inspection. After considering all of the physical characteristics of the site noted above plus other data in the Site section of this appraisal report, physically possible land uses would include a variety of residential development such as apartments, condominiums, cooperatives or townhouses, but are directed to apartment development. The shape and size of the subject site would present a deterrent to retail or office development. The site is 13.29 acres, however, its depth to frontage is approximately 2 to 1, and retail usage generally does not extend beyond 300-400 feet in depth, while the subject has over 735 feet in depth. Office usage is limited by size and shape as the subject acreage is much larger than the typical smaller office developments in Ponte Vedra. FINANCIAL FEASIBILITY - Financial feasibility is directly proportional to the amount of net income that could be derived from the subject. Rents have increased over the previous 12 months and the apartment market overall appears to be favorable. Area realtors report that near-term prospects for condominium and cooperative units in Jacksonville are becoming favorable particularly if they are beach oriented. After having eliminated all other development from our analysis, the financial feasibility of multifamily development must be tested. The subject site is in the "Beaches" apartment submarket area. In the survey conducted by Vestcor Realty Management, Inc., the occupancy level for the apartment projects in the Beaches submarket was 94.3 percent during the third quarter of 1997. This reflects a 2.7 percent decrease from one year earlier During the same one-year period between the Third Quarters 1996 and 1997, rental rates have increased 1.0 percent from $674 to $680 per month. Apartment development has been taking place in the Beaches submarket. From the preceding, apartment development may be feasible. Although occupancy rates have increased slightly during the past year, occupancies have remained at high levels. Rental rates have risen moderately according to the most recent of the two apartment surveys. The following reflects apartment development costs on a square foot basis.
Cost to Construct (Class C Average to Good)... $50.00 Land Acquisitions............................. 4.00 ------ Total Cost of Development..................... $54.00
The preceding indicates that development is feasible for multifamily residential development. As indicated in the Sales Comparison Approach in this report, apartments developed since 1995 reflect sale prices from $60.00 to $75.00 per square foot. Most of the sale prices are at or above the cost of development. 30 MAXIMUM PRODUCTIVITY - After considering the current economic climate and the subject's location and financial feasibility of certain land uses, we are of the opinion that the demand for multifamily apartment units conducive to the subject site would produce the highest net return over the longest period of time. This is due to the subject's location and the popularity of the neighborhood. In summary, the multifamily apartment market has shown signs of increasing health. The site's location near Jacksonville area beaches in the exclusive Ponte Vedra residential and resort communities, and within easy commuting distance to major south side employment facilities, gives it a large base of prospective rent-paying tenants from which to draw. The subject is in an area that is relatively stable after a decade of growth and is now experiencing a renewed demand. Therefore, after considering the alternatives, we believe the highest and best use of the site, as vacant, is for multifamily residential development. SUBJECT PROPERTY As IMPROVED The property, as improved, is tested for two reasons. First, to identify the improvements that are expected to produce the highest overall return per invested dollar, and the second reason is to help identify comparable properties. The four tests or elements are also applied in this analysis to the subject as follows: LEGALLY PERMISSIBLE - Within the scope of a legal analysis the subject property would be adaptable to multifamily residential uses as limited by the zoning of the site by St. Johns County. PHYSICAL POSSIBILITY - Based on the subject's size (13.29 acres), configuration, and the improvements' positioning relative to the subject site, it is felt that the subject's improvements employ the maximum use and potential of the site as developed. The subject's density of 9.33 units per acre is approximately in line with the market sales, which reflect a range in density from 10 to 20.5, units per acre. FINANCIAL FEASIBILITY - The discussion of the financial feasibility of the subject, as if vacant, would also apply to the test as improved. Based on the economic conditions for alternative market segments, it was concluded that the subject's present improvements are satisfactory to fulfill this test. MAXIMUM PRODUCTIVITY - The test for this element is also from the market. The comparables analyzed suggest that under competent and prudent management, the subject produces an adequate return on market value to substantiate its existence. In conclusion, based on the subject's current use, we have determined that as a multifamily apartment complex it positively contributes to the value of the site, and as a result is presently developed according to its highest and best use. The subject's unit amenities are considered average compared to newer projects in the area. Some of the comparables have better unit amenities. Therefore, the subject's improvements are not considered to be the optimum use. Additionally, there is need for $100,800 of deferred maintenance or capital expenditures. 31 APPRAISAL PROCEDURES - -------------------------------------------------------------------------------- Traditionally, three valuation approaches or techniques are used in the appraisal of real estate. These are the Cost Approach, Sales Comparison Approach, and Income Approach. COST APPROACH In the Cost Approach, the appraisers obtain an estimate of value by adding to the land value the estimated value of the physical improvements. This value is derived by estimating the replacement cost new of the improvements and, when appropriate, deducting the reduction in value caused by accrued depreciation. According to the Appraisal Institute, the basic principle of the Cost Approach is that buyers judge the value of an existing structure by comparing it to the value of a newly constructed building with optimal functional utility, assuming no undue cost due to delay. Thus, the appraiser must estimate the difference in value between the subject property and a newly constructed building with optimal utility. The Cost Approach was not used as a method of valuation in this appraisal. The Cost Approach is typically the least reliable indicator because cost does not necessarily reflect value. Moreover, estimates of depreciation are difficult to accurately measure in the marketplace, thereby compounding the speculative nature of the opinions derived in the cost method of valuation. SALES COMPARISON APPROACH This approach produces an estimate of value by comparing the subject property to sales and/or listings of similar properties in the immediate area or competing areas. The principle of substitution is employed and basically states when a property is replaceable in the market, its value can be set by the cost of acquiring an equally desirable and comparable property. This technique is viewed as the value established by informed buyers and sellers in the market. INCOME APPROACH The measure of value in this approach is capitalization of the net income, which the subject property will produce during the remaining economic life of the improvements. This process consists of two techniques. The first technique estimates the gross income, vacancy, expenses, and other appropriate charges. The resulting net income or net cash flow is then capitalized. The second technique projects the gross income, vacancy, expenses, other appropriate charges, net income, and cash flow over a projected holding period. The resulting cash flow and reversion (future value) are discounted at an appropriate rate and added in order to arrive at an indication of current value from the standpoint of an investment. These methods provide an indication of the present worth of anticipated future benefits (net income or cash flow) to be derived from ownership of the property. Both techniques were utilized in analyzing the subject property. SUMMARY The appraiser, in applying the tools of analysis to the valuation problem, seek to simulate the thought process of the most probable decision-maker. The appraiser's judgment concerns the applicability of alternative tools of analysis to the facts of the problem, the data and information needed to apply these tools, and the selection of the analytical approach and data most responsive to the problem in question. 32 Thus, depending on the type of property appraised or the purpose of the appraisal, one approach may carry more weight or may point to a more reliable indication of the value of the property being appraised than the others. In some instances, because of the inadequacy or unavailability of data, one or two of the approaches may be given little weight in the final value estimate. 33 [IMPROVED SALES MAP APPEARS HERE]
==================================================================================================================================== JACKSONVILLE AREA IMPROVED SALES SUMMARY - ------------------------------------------------------------------------------------------------------------------------------------ CASH EQUIVALENT PRICE - ------------------------------------------------------------------------------------------------------------------------------------ SALE SALE CASH EQUIV. YEAR NO. OF NRA OCCUP. NOI/SF PER PER OVERALL NO. NAME/LOCATION DATE SALE PRICE BUILT UNITS AVG./SF AT SALE /UNIT SF /UNIT RATE EGIM - ------------------------------------------------------------------------------------------------------------------------------------ 1 The Links @ Windsor Parke 08/97 $20,500,000 1995 280 296,616 95% $5.92 $69.11 $73,214 8.56% 7.80 13700 Sutton Park Dr. North 1,059 Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------ 2 San Pablo 06/97 $5,350,000 1974 200 184,750 90% $3.16 $28.96 $26,750 10.90% 4.56 14401 Jose Vedra Blvd. 924 Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------ 3 Hunter's Ridge (formerly 05/97 $15,200,000 1987 336 294,888 92% $4.00 $51.54 $45,238 7.76% 6.74 Oaks of Deerwood) 878 10100 Baymeadows Road Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------ 4 Woodhollow 04/97 $16,700,000 1986 450 342,162 94% $4.69 $48.79 $37,111 9.60% 5.47 1715 Hodges Blvd. 760 Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------ 5 The Courts @ Ponte Vedra 01/97 $19,000,000 1996 253 252,162 95% $6.26 $75.12 $75,099 8.34% 7.31 101 Vera Cruz Drive 1,000 Ponte Vedra, FL - ------------------------------------------------------------------------------------------------------------------------------------ 6 The Huntington @ Hidden Mills 08/96 $ 7,225,000 1996 224 179,476 98% $3.85 $40.26 $32,254 9.56% 5.48 3333 Monument Road 801 Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------ 7 The Antlers 05/96 $15,000,000 1985 400 327,728 97% $4.65 $45.77 $37,500 10.20% 5.63 8433 Southside Blvd. 819 Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------ 8 Westland Park 05/96 $16,950,000 1989 405 403,010 97% $4.26 $42.06 $44,852 10.10% 6.01 6710 Collins Road 995 Jacksonville, FL ====================================================================================================================================
SALES COMPARISON APPROACH - -------------------------------------------------------------------------------- The Sales Comparison Approach is considered a good valuation method in the event that a sufficient number of similar and recent transactions can be found and accurately verified. The key to the Sales Comparison Approach is that a sufficient number of comparable sales be present to reflect an accurate indication of value. In such an event, market value can be derived directly from the sales, since all complexities involved are properly weighed according to their significance to actual buyers and sellers. This approach is based upon prices paid in actual market transactions. It is a process of correlating and analyzing recently sold properties, which are similar to the subject. The reliability of this technique depends upon (a) the degree of comparability of the property appraised with each sale, (b) the length of time since the sale, (c) the accuracy of the sales data, and (d) the absence of unusual conditions affecting the sale. The comparison process must be based on sales, which constitute acceptable evidence of motivations inherent to the market, occurring under similar market conditions, of similar or reasonably similar apartment projects. These projects were selected since they are reasonably similar to the subject property. A map and a summary of the comparable sales can be found on the preceding pages. The transaction dates of the sales used ranged from October 1994 to August 1996. Reference is made to the individual sales data included in the Addenda section of this report. SALE 1, known as the Links at Windsor Park Apartments, sold in August 1997 for $20,500,000. There are 280 units totaling 296,616 square feet. The property sold at $69.11 per square foot or $73,214 per unit. It was built in 1995 and was in excellent condition. The Links was 90 percent occupied at sale date. It sits on 23.36 acres of land and reflects density at 11.98 units per acre. The property's construction is described as wood frame with wood siding and some stucco. SALE 2, known as the San Pablo Apartments, sold in June 1997. It has 200 units and 184,750 square feet. The sales price was $5,350,000 and the property was 90 percent occupied at sale date. Unit prices indicated are $28.96 per square foot and $26,750 per unit. The sale reflected a 10.8 percent capitalization rate and was in need of substantial repair and renovation work. The rate is 14,24 acres and the unit density indicated is 14.04 units per acre. The property at sale date was inferior to the subject. Sale 3, known as Hunter's Ridge, (formerly known as Oaks at Deerwood) sold for $15,200,000 or $45,238 per unit in May 1987. It has 294,,888 square feet and indicates a unit price of $51.54 per square foot. Land area is 34.70 acres and shows unit density at 9.68 units per acre. The capitalization rate was 7.76 percent, however, the property needed some attention and had good upside potential. 34 SALE 4, known as the Woodhollow Apartments sold inn April 1997 for $16,700,000 or $48.99 square foot and $37,111 per unit. The property contains 450 units and 342,162 square feet. At date of sale, occupancy was 94 percent and the terms were cash at a $10,350,000 mortgage at 7.5 percent interest due in 7 years, amortized over 25 years. The property has 38.65 acres and indicates a unit density of 11.6 units per acre. Construction is wood frame with stucco and wood siding. SALE 5, known as The Courts at Ponte Vedra, is located in Ponte Vedra Beach. It sold in January 1997 for $19,000,000. The property was built in 1996 and has 253 units with 252,916 total square feet.. Unit prices indicated by the sale are $75.12 per square foot and $75,099 per unit. Construction is wood frame with stucco and some masonry. The site contains 9.23 acres and indicates a unit density of 27.41 units per acre. Capitalization rate at times of sale was 8.34 percent and the project had 95 percent occupancy. SALE 6, known as the Huntington at Hidden Mills, (formerly known as Cozumel), sold for $40.26 per square foot net rentable area or $32,254 per unit in August 1996. The sale price was $7,225,000. The property contains 14.92 acres and has a unit density of 15 units per acre. There are 179,476 square feet of rentable area within 224 units. The average unit size is 801 square feet. Approximately 98 percent of the units were occupied at the time of sale. The sales price of $7,225,000 was adjusted upward by $350,000 for a re- plumbing required and was a credit given by the seller. SALE 7 is the Antlers containing 400 units and 527,728 square feet of rentable area. The average size of a unit is 819 square feet. Developed in 1985, the project is situated 42.51 acres of land and has a unit density of 9.4 units per acre. The property sold in May 1996 for $45.77 per square foot net rentable area or $37,500 per unit and totaled $15,000,000. At the time of sale the units were 97 percent physically occupied. SALE 8 sold in May 1996 for $16,950,060 which is equivalent to $42.06 per square foot net rentable area or $41,852 per unit. The project, Westland Park, was built in 1989/90 and contains 405 units and 403,010 square feet of rentable space. The average unit size is 995 square feet. Unit density for this property is 14.9 units per acre. Occupancy at the time of sale was reported at 97 percent. In lieu of specific adjustments, we compared the improved sales based on the net operating income (NOI) per square foot and per unit. This method presents a comparison based on the income which a property is capable of generating. Theoretically, the NOI takes into consideration the various factors, which influence value such as quality, size, amenities offered, location, condition etc. Thus, these differing factors can be reduced to the common denominator of net operating income. 35 ================================================================ Sales Comparison - NOI Adjustments ----------------------------------
Sale Sale Subject Adjust. Adjust. No. Price/SF NOI/SF NOI/SF Factor Price/SF -- -------- ------ ------- ------ -------- 1 $ 69.11 $ 5.92 $ 4.67 0.78885 $ 54.52 2 $ 28.96 $ 3.16 $ 4.67 1.47785 $ 42.80 3 $ 51.54 $ 4.00 $ 4.67 1.16750 $ 60.17 4 $ 48.99 $ 4.69 $ 4.67 0.99574 $ 48.78 5 $ 75.12 $ 6.26 $ 4.67 0.74601 $ 56.04 6 $ 40.26 $ 3.85 $ 4.67 1.21299 $ 48.83 7 $ 45.77 $ 4.65 $ 4.67 1.00430 $ 45.97 8 $ 42.06 $ 4.26 $ 4.67 1.09624 $ 46.11 Mean= $ 50.40 Value @ mean $5,946,192 Sale Sale Subject Adjust. Adjust. No. Price/SF NOI/Unit NOI/Unit Factor Price/Unit -- -------- -------- -------- ------ ---------- 1 $73,214 $6,267 4,450 0.71007 51,987 2 $26,750 $2,916 4,450 1.52606 40,822 3 $45,238 $3,510 4,450 1.26781 57,353 4 $37,111 $3,562 4,450 1.24930 46,363 S $75,099 $6,263 4,450 0.71052 53,360 6 $32,254 $3,083 4,450 1.44340 46,555 7 $37,500 $3,811 4,450 1.16767 43,788 8 $41,852 $4,240 4,450 1.049S3 43,925 Mean= $ 48,019 Value @ mean $5,954,356 ================================================================
The various sales reflected NOIs per square foot ranging from $3.16 to $6.26 and NOIs per unit ranging from $2,916 to $6,267. The subject NOI (without reserve expenses) has been approximated at $3.84 per square foot or $3,756 per unit from the first year of the Discounted Cash Flow analysis in the Income Approach section of this report. To estimate an adjustment for each sale, the subject's NOI has been compared to the individual NOI of the comparable sales. The adjustments should account for all the various physical and economic differences in each improved property sale as income is a function of the current market. Market conditions should reflect perceived risk, or other factors, which may affect value. Time differences do not need further adjustment as any drop in value would theoretically be the function of a drop in income. There would need to be an adjustment for age in order to recognize differences in the length of the income streams. The chart on the facing page presents the adjustment process for NOI per square foot and NOI per unit. After adjustment, the sales range in price from $35.19 to $49.48 per square foot and $34,456 to $48,409 per unit. The simple average adjusted prices (not weighted) per square foot and per unit of the comparable sales was calculated at $41.43 and $40,530, respectively. Applying an age adjustment based on square foot area and number of units indicates value at $37.66 per square foot and $37,058 per unit 156,688 SF at $37.66/SF, Rounded................. $5,900,000 160 units at $37,058/unit........................ $5,930,000 A second method of comparison is by use of the effective gross rental multiplier (EGRM). In this analysis, the subject's effective gross income is multiplied by a factor estimated from the sales to derive an indication of value. The sales utilized in this analysis reflect EGRMs ranging from 4.56 to 7.80 as shown on the following facing page. Expense ratios range from 33.26 to 50.27 percent. From the DCF analysis in the Income Approach, the subject is estimated to have a 47.32 percent operating expense ratio (excluding reserves) in the first year of the holding period. This is most similar to Sales 3, 4, and 6. These sales have EGRMs ranging from 5.47 to 6.74 with expense ratios from 47.45 to 47.70 percent. Sales 4 and 6 were apartments built in 1986 and Sale 3 was built in 1987. Most emphasis was placed on Sales 4 and 6. Based on the preceding analysis, an EGRM for the subject has been estimated at 5.60 resulting in a total value indication as follows: $1,151,639 x 5.60, Rounded........................$6,450,000 36
=============================================================== SALES COMPARISON - EGRM ANALYSIS --------------------------------------------------------------- EFFECTIVE EFFECTIVE GROSS OPERATING SALE NO. GROSS REVENUE/SF REVENUE MULTIPLIER EXPENSE RATIO --------------------------------------------------------------- 1 $ 8.86 7.80 33.26% 2 6.35 4.56 50.27% 3 7.65 6.74 47.70% 4 8.92 5.47 47.45% 5 10.27 7.31 39.00% 6 7.35 5.48 47.63% 7 8.13 5.63 42.80% 8 7.00 6.01 39.14% ===============================================================
The NOI per square foot and per unit methods presented a value indication between $5,900,000 and $5,930,000 and the effective gross income multiplier method indicated a value of $6,450,000. Weight has been given to all methods with emphasis on the method using net operating income because these methods reflect both income and expense information. The EGRM method was used as support. From the proceeding, a value for the subject is estimated at $6,200,000. From this, a deduction for capital expenditures of $138,000 is made as follows: Indicated Value $6,200,000 Less: Capital Expenditures (138,000) "As Is" Value $6,062,000 Rounded $6,050,000 Therefore, it is our opinion that the leased fee market value of the subject property based on the indication provided by the Sales Comparison Approach, all cash, on an "as is" basis as of November 30, 1997, is SIX MILLION FIFTY THOUSAND DOLLARS ($6,050,000) 37 [MAP OF COMPARABLE RENTALS APPEARS HERE]
========================================================================================================================== RENT COMPARABLE ANALYSIS - -------------------------------------------------------------------------------------------------------------------------- COMP. YEAR NO. NRA AVERAGE 1997 1996 SQUARE NO. NAME OF PROJECT BUILT UNITS (SF) UNIT SIZE OCCUP. RATE OCCUP. RATE FLOOR PLANS FEET - -------------------------------------------------------------------------------------------------------------------------- 1 The Remington Apts. 1985 344 302,904 881 95.0% 92.6% 1BR/1BA 683 611 Ponte Vedra Blvd. 1BR/1BA 755 2BR/1BA 886 2BR/2BA 977 2BR/2BA 1,043 2BR/2BA 1,155 - -------------------------------------------------------------------------------------------------------------------------- 2 The Fairways Apts. 1984 216 186,600 864 88.0% 93% 1BR/1BA 550 100 Fairway Park Blvd. 1BR/1BA 600 2BR/2BA/FL 950 1BR/1BA/TH 1,100 2BR/1.5BA/TH 1,050 - -------------------------------------------------------------------------------------------------------------------------- 3 Colonial Grand 1987 240 211,640 882 97.0% 99.5% 1BR/1BA 672 125 Great Harbour Way 1BR/1BA 760 1BR/1BA/DEN 937 2BR/2BA 974 - -------------------------------------------------------------------------------------------------------------------------- 4 Arbor Club Apts. 1992 251 288,924 1,151 100% 95% 1BR/1BA 881 1 Arbor Club Drive 1BR/1BA/LOFT 1,102 2BR/2BA 1,181 2BR/2BA 1,254 3BR/2BA 1,426 3BR/2BA 1,493 - -------------------------------------------------------------------------------------------------------------------------- Ponte Vedra Beach 1985 124 117,980 951 94.4% 94% 1BR/1BA 780 Village II 1BR/1BA/DEN 947 949 Shoreline Circle 2BR/2BA 1,081 SUBJECT ========================================================================================================================== ========================================================================================================================== - ------------------------------------------------------------------------------------------------------------------------- COMP. 1997 MONTHLY 1997 NO. NAME OF PROJECT RATE RENT/SF AMENITIES/COMMENTS - ------------------------------------------------------------------------------------------------------------------------- 1 The Remington Apts. 605-615 0.886-0.900 Microwave ovens, miniblinds, vaulted ceilings, 611 Ponte Vedra Blvd. 635-670 0.841-0.887 ceiling fans, outdoor utility closets, pools, tennis 670-680 0.756-0.767 court, racquetball court, hot tub, sauna, 735-745 0.752-0.763 exercise/weight room, clubroom, lake 765-775 0.733-0.743 825-835 0.714-0.723 - ------------------------------------------------------------------------------------------------------------------------- 2 The Fairways Apts. 555 1.01 Washer/dryer connections, miniblinds, fireplaces, 100 Fairway Park Blvd. 615 1.03 pool, tennis courts, hot tub, exercise/weight room, 700 0.737 clubroom, laundry facility, lake 650 0.867 740 0.673 705 0.671 - ------------------------------------------------------------------------------------------------------------------------- 3 Colonial Grand 575-615 0.856-0.915 Microwave ovens, washer/dryer connections, 125 Great Harbour Way 620-660 0.816-0.868 miniblinds, fireplaces, ceiling fans, vaulted 670-710 0.715-0.758 ceilings, outdoor utility closets, pool, tennis court, 705-745 0.724-0.765 racquetball courts, basketball court, hot tub, sauna, exercise/weight room, clubroom, volleyball court - ------------------------------------------------------------------------------------------------------------------------- 4 Arbor Club Apts. 655-685 0.743-0.778 Microwave ovens, washer/dryer connections, 1 Arbor Club Drive 740-760 0.672-0.690 miniblinds, fireplaces, vaulted ceilings, burglar 790-820 0.669-0.694 alarms, pool, tennis courts, jacuzzi, 825-855 0.658-0.682 exercise/weight room, clubroom, laundry facility, 980-1,000 0.687-0.701 garages 1,025-1,050 0.687-0.703 - ------------------------------------------------------------------------------------------------------------------------- Ponte Vedra Beach 615-665 0.788-0.840 Washer/dryer connections, miniblinds, fireplaces, Village II 655-705 0.702-0.744 outdoor utility closets, wet bars, pool, tennis courts, 949 Shoreline Circle 725-765 0.671-0.708 hot tub, sauna, exercise/weight room, clubroom, SUBJECT laundry facility, lake =========================================================================================================================
DN = downstairs; UP = upstairs; TH = townhouse INCOME APPROACH - -------------------------------------------------------------------------------- In estimating the market value of the subject property, one method used by the appraisers was the Income Approach. The Income Approach to value is predicated on the assumption that there is a definite relationship between the amount of net income a property will earn and its value. Ultimately, the Income Approach seeks to estimate the present worth of an anticipated net income stream based on an analysis of its quality, quantity, and duration. In accordance with the principle of substitution, a prudent investor would pay no more to receive an income stream from a specified property than any other property producing an equally desirable income stream. Typically, the first step in the Income Approach is to estimate the potential gross income according to market rent. Market rent means the "going rent" in the neighborhood based on past history and present conditions. Vacancies are then deducted to arrive at effective gross income. Estimated annual expenses are deducted from the effective gross income, resulting in an indication of net operating income before debt service. From the estimated net annual income, annual debt service (if applicable) is subtracted to obtain annual cash flow to equity. This cash flow can be capitalized into an indication of equity value by direct capitalization utilizing an overall equity rate, or if debt does not exist, an overall capitalization rate. It may also be projected into the future over a selected but appropriate holding period, and discounted along with the anticipated equity reversion at the market discount rate and added in order to arrive at the net present equity value for the subject property. Since our valuation is on a cash basis, no mortgage was considered. In either method, the present mortgage balance (if applicable) would be added to the equity value to obtain the total value of the property. The appraisers have utilized both methods in valuing the subject property on an all cash basis. ESTIMATED GROSS RENTAL INCOME Income for the subject property is produced by rental income from the various rental units, as well as any laundry income, pet deposits, forfeited security deposits, and miscellaneous income. Information provided by the on-site leasing agents indicated the subject's current rent schedule to be as follows:
BASED ON "RESIDENT PAYS UTILITIES" ------------------------------------------------------------------------ UNIT TYPE UNITS SIZE (SF) RENT/MO. RENT/SF MO.TOTAL ------------------------------------------------------------------------ A 1BR/1BA/DN 12 780 $615 $0.788 $ 7380 A 1BR/1BA/UP 12 780 625 0.801 7,500 A 1BR/1BA/V 8 780 655 0.840 5,240 B 1BR/1BA/Den 20 947 665 0.702 13,300 B 1BR/1BA/Den 20 947 675 0.713 13,500 B 1BR/1BA/Den 8 947 705 0.744 5,640 C 2BR/2BA/DN 18 1,081 725 0.671 13,050 C 2BR/2BA/UP 18 1,081 735 0.680 13,230 C 2BR/2BA/V 8 1,081 765 0.708 6,120 --- ------- 124 $84,960
38 These rents have been compared to closely located and similarly designed apartment complexes in the subject's neighborhood area. For the purpose of this analysis, we have considered four apartment complexes that were identified by management and found by the appraiser to be most comparable. They range in total unit size from 216 to 344 units and in occupancy from 88 to 100 percent. These comparable rentals are summarized on a previous page. (Note: Other Comparables: The Tides At Marsh Landing, Ocean Links, The Greens At Marsh Landings, Bay Club, The Courts At Ponte Vedra, The Boardwalk, and Marsh Cove were surveyed; however, the four comparables used were believed adequate for the appraiser to estimate market rents for the subject. All of the comparables surveyed were located within the subject's immediate vicinity. Each is comparable to the subject overall, particularly in terms of overall physical condition, unit size, rental rates, and the amenities offered. These comparables indicate an average effective rental rate range from $0.693 to $0.79 per square foot per month. On the table on the facing page, each of the subject's three floor plans is compared to similar floor plans obtained from the rent comparables. All of the comparable rentals have at least average project amenities for an apartment in this market which include a pool, tennis court, clubhouse, hot tub/jacuzzi, and landscaped grounds. Apartments which have project amenities, which are rated "good" on this chart additionally have a car wash stand, indoor racquetball courts, basketball court, and/or volleyball area. Unit amenities for standard or average apartment units include typical built-in kitchen appliances, miniblinds, a fireplace, a patio or deck, and average finish. Good unit amenities on a given apartment unit also include a microwave oven, washer and dryer, vaulted ceilings and ceiling fans, and/or burglar alarms. According to the Rent Analysis summary, the subject's Plan A is most comparable in size to the units offered at The Remington, the Colonial Grand, and the Arbor Club. These comparables range in monthly rental asking prices from $635 to $685 or from $0.743 to $0.887 per square foot. Although the subject's rates, $0.79 to $0.84 per square foot, are within the range of the comparable rentals, the comparables generally have superior unit amenities. Recent leases indicate that the subject property is attaining quoted rental rates. Therefore, the Plan A subject floor plans appear to have asking rents which are typical of the market rate. Plan B from the subject is most similar in size and amenities to similar one-bedroom/den units displayed from the Colonial Grand. These comparable units have a monthly rental range from $670 to $710 or from $0.715 to $0.758 per square foot. Plan B has asking rents from $665 to $705 per month or $0.702 and $0.744 per square foot. Plan B's asking rates are in the middle part of the range. Again, recent leases indicate that the quoted rental rates are being attained. Thus, this subject floor plan's asking rent is believed to be appropriate as the effective economic rent. 39
========================================================================================== SUBJECT - RENT ANALYSIS THE PONTE VEDRA BEACH VILLAGE II APARTMENTS - ------------------------------------------------------------------------------------------ UNIT AVG. AVG. MONTHLY PROJECT/UNIT UNIT TYPE SIZE (SF) RENT/MONTH RENT/SF AMENITIES - ------------------------------------------------------------------------------------------ SUBJECT 1BR/1BA 780 $615-655 $0.788-0.846 Good/Average The Remmington 1BR/1BA 755 635-670 0.841-0.887 Good/Good Colonial Grand 1BR/1BA 760 640-660 0.816-0.868 Good/Good Arbor Club 1BR/1BA 881 655-685 0.743-0.777 Good/Good - ------------------------------------------------------------------------------------------ SUBJECT 1BR/1BA/DEN 947 $665-705 $0.702-0.744 Good/Average Colonial Grand 1BR/1BA/DEN 937 670-710 0.715-0.758 Good/Good Arbor Club 1BR/1BA/LOFT 1,102 740-760 0.672-0.690 Good/Good - ------------------------------------------------------------------------------------------ SUBJECT 2BR/2BA 1,081 $725-765 $0.671-0.708 Good/Average The Remmington 2BR/2BA 1,155 825-835 0.714-0.723 Good/Good Colonial Grand 2BR/2BA 974 705-745 0.724-0.765 Good/Good Arbor Club 2BR/2BA 1,254 825-855 0.658-0.682 Good/Good ==========================================================================================
The subject's largest plan with 1,081 square feet has asking rents from $725 to $765 per month. This plan is most similar in size and amenities to the 1,155 square-foot plan from The Remington Apartments, the 974-square-foot plan from Colonial Grand, and the 1,254-square-foot floor plan of the Arbor Club. These comparable units range in monthly rental amounts from $705 to $855, which equates to a range from $0.66 to $0.765 per square foot per month. The subject Plan C has per square foot rents in the middle portion of this range, from $0.67 1 and $0.708 per square foot per month. Considering the preceding, the subject's Plan C asking rates are considered to be at market. There are currently seven (7) vacant units in the subject complex. This equates to a current physical occupancy rate of 94.4 percent. Physical occupancy one year ago was 91.90 percent. These numbers indicate an upward movement in physical occupancy for the subject property, and it can be considered reflective of its highway frontage and beach proximity. Economic occupancy is estimated near 92.7 percent. The most recent leases for Plans A, B, and C indicate that the subject is obtaining the quoted rental rates. Therefore, we estimate that the current quoted rental rates for the subject are indicative of market rates. After considering the subject's physical occupancy and actual rates the projected market rental rates for the subject are summarized below.
BASED ON "RESIDENT PAYS UTILITIES" --------------------------------------------------------------------- UNIT TYPE UNITS SIZE (SF) RENT/MO. RENT/SF MO. TOTAL --------------------------------------------------------------------- A 1BR/1BA/DN 12 780 $615 $0.788 $ 7380 A 1BR/1BA/UP 12 780 625 0.801 7,500 A 1BR/1BA/V 8 780 655 0.840 5,240 B 1BR/1BA/Den 20 947 665 0.702 13,300 B 1BR/1BA/Den 20 947 675 0.713 13,500 B 1BR/1BA/Den 8 947 705 0.744 5,640 C 2BR/2BA/DN 18 1,081 725 0.671 13,050 C 2BR/2BA/UP 18 1,081 735 0.680 13,230 C 2BR/2BA/V 8 1,081 765 0.708 6,120 --- ------- 124 $84,960
Gross Annual Rental Income: $84,960 x 12 months = $1,019,520 Our cash flow analysis, as well as our direct capitalization method, indicates a gross rental income of $1,039,910. This figure is the result of a 2 percent increase in rental rates during the first year of our projection period. OTHER INCOME In addition to rental income from apartments, other income is generated by laundry and vending machines, forfeited security deposits, pet deposits, late charges, and application fees. The 1997 figures for other income showed $17,414 or about $0.15 per square foot for this category. In comparison with other similar type apartment projects in the subject area other income was approximately $0.15 to $0.25 per square foot. Based 40
==================================================================================================================================== SUBJECT - EXPENSE ANALYSIS PONTE VEDRA BEACH VILLAGE II APARTMENTS (FISCAL YEAR ENDING 11/30) ==================================================================================================================================== Comparable No. 1 2 3 SUBJECT PROPERTY Year Built 1984 1984 1986 1985 Net Rentable Square Feet 142,792 156,6884 100,750 117,980 Number of Units 120 160 110 124 Average Unit Size 1,190 979 916 951 - ------------------------------------------------------------------------------------------------------------------------------------ 1997 1997 1997 1993 1994 1995 1996-YTD BTM PROJECTIONS ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ANNUALIZED 1997 FISCAL YEAR PSF PSF PSF PSF PSF PSF PSF ACTIVE PSF ENDING 11/30/97 - ------------------------------------------------------------------------------------------------------------------------------------ (10 MONTHS) /SF /UNIT - ------------------------------------------------------------------------------------------------------------------------------------ EXPENSES Real Estate Taxes $0.72 $0.69 $0.80 $0.69 $0.72 $0.71 $0.77 $0.65 $0.69 $658 Insurance 0.16 0.13 0.18 0.10 0.15 0.16 0.16 0.16 0.18 168 Operating Expenses 0.55 0.69 0.68 0.72 0.71 0.64 0.71 0.77 0.72 683 Utilities 0.68 0.70 0.94 0.61 0.71 0.68 0.75 0.86 0.75 712 Repairs & Maintenance 0.52 0.53 0.58 0.32 0.32 0.40 0.39 0.43 0.42 396 Contract Services 0.21 0.18 0.21 0.22 0.21 0.23 0.24 0.30 0.24 228 Management 0.34 0.32 0.37 0.35 0.36 0.36 0.38 0.39 0.40 385 General Administrative 0.15 0.15 0.18 0.07 0.10 0.12 0.13 0.18 0.12 119 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total Expenses $3.33 $3.39 $3.94 $3.09 $3.28 $3.30 $3.53 $3.74 *$3.52 *$3,349 ====================================================================================================================================
* Numbers may vary due to rounding. on our experience with similar type properties and the actual performance of the subject property it is our opinion that other income in the amount of $0.17 per square foot is typical for a project such as the subject. This equates to a total "Other Income" of $20,000 in the first fiscal year of our projected cash flow as well as in our direct capitalization method. This figure is grown at the same rate as the rental rates after the first year of the holding period. Gross Rental Income $1,039,910 Other Income 20,000 ---------- Total Potential Gross Income $1,059,910 VACANCY AND COLLECTION LOSS ESTIMATE In a stable market, vacancy and collection loss for an apartment complex will be in the 3 to 10 percent range. This covers the time lag during re-leasing and normal refurbishing of apartment units and the loss of income resulting from bad debt or other vacancies. The subject's current 94.4 percent physical occupancy is at the approximate 94.3 percent Third Quarter physical occupancy rate enjoyed by the Beaches submarket. The subject property has a current economic occupancy rate of 92.7 percent, which is below stabilized occupancy for the subject. A 95.0 percent stabilized economic occupancy has been utilized for the subject during the holding period beginning in year two and deduction is taken for rent loss in year 1 of the cash flow. (Note: When the subject's actual collected rent is compared to Bach Realty Advisors' estimated March rent, an 87.3 percent economic occupancy exists.) EXPENSE ANALYSIS The various expenses necessary in the operation of the subject have been estimated including fixed expenses, operating expenses, and reserves for replacement. Proper appraisal technique demands that an appraiser rely on typical expenses as opposed to actual expenses, which may vary according to management or special circumstances that may not persist. In addition, the total expenses per square foot should be within a range typical for similar projects. Reserves for replacement are estimated based on age, condition, and construction quality. It is re-emphasized that all income, as well as expense estimates, are based on the assumption of competent and prudent management. We have based our estimate of projected expenses on comparable apartment projects located in the subject area, as well as the actual historical performance of the subject property. The following Expense Analysis Chart on the facing page summarizes the actual and/or annualized 1997 expenses reported by three (3) "individually metered" projects, as well as the subject property's actual 1993, 1994, 1995, and 1996 expense figures. The 1997 actual figures were available to the appraisers at the time of the report and are shown in the chart on the facing page. Bach Realty Advisors' estimated expenses for the subject property in Fiscal Year 1998 are also displayed. Based upon the analysis of the comparables, we have developed the following expense estimates for the subject. 41 REAL ESTATE TAXES - The Lakeview Village Apartments are subject to the taxing authorities of St. Johns County. The county distributes the tax receipts from property owners to different authorities as specified in the Site section of this report. The subject's 1997 assessed value is $4,313,830 the total tax liability is $79,060 or $0.67 per square foot. After examining the tax liabilities of the comparables used in our expense analysis (which exhibited a range from $0.69 to $0.80 per square foot), we have reflected the actual 1997 real estate taxes plus an approximate 3 percent inflation factor in our estimate of the 1998 taxes. Thus, real estate taxes have been estimated at $0.69 per square foot or $658 per unit and total $81,561. This amount is increased at a rate of 4 percent per year throughout our projection period. INSURANCE - For the first fiscal year, we have estimated insurance at a market cost of $0.18 per square foot or $20,892. All of the expense comparables utilized exhibit a range of insurance costs from $0.13 to $0.18 per square foot for 1997. The subject's actual insurance costs have been fluctuating from $0.10 to $0.16 per square foot since 1993. The annualized 1996 insurance costs were projected at $0.16 per square foot. The appraisers believe that the insurance expense for the subject is appropriate, but is generally higher than the expense comparables. The expense per unit is $168. Insurance expense is increased 4 percent annually for the duration of the holding period. OPERATING EXPENSES - This category includes salaries for office managers and leasing agents, maid services, payroll taxes and FICA, security, advertising, and promotional items. The subject's actual figures for 1993, 1994, 1995, and 1996, ranged between $0.64 to $0.71. The annualized 1997 operating expense is $0.77 per square foot, which appears high. The expense comparables indicate a range of operating expenses from $0.55 to $0.69 per square foot. Based on the subject's historical expenses and a comparison of operating expenses of comparable properties, the appraisers have estimated a 1998 year operating expense of $84,727 which is equivalent to $0.72 per square foot or $673 per unit. This expense is expected to increase 4 percent annually throughout our projection period. UTILITIES - The expense comparables' 1997 utility expenses have a range from $0.68 to $0.94 per square foot. The subject's annualized 1996 year-to-date expense was $0.75 per square foot. The 1997 expense is $0.86 per square foot. This expense category includes electricity to the common areas, water, sewer, and garbage collection. The subject's 1998 expense for utilities has been estimated by the appraiser to be $0.75 per square foot or $712 per unit, near the lower end of the comparables range. The appraiser relied on subject historical utility expenses. REPAIRS AND MAINTENANCE - The 1996 annualized actual year- to-date repairs and maintenance costs are $0.39 per square foot for the subject. Repairs and maintenance expenses are necessary in order to keep the property in good repair and consist of repairs required on plumbing, air-conditioners, electrical components, miniblinds, carpeting, janitorial services, and decorative costs. The expense comparables indicate a range from $0.52 to $0.58 per square foot and the subject's 1997 annualized expense is $0.43 per square foot. The subject's historical repair and maintenance is in a range from $0.32 to $0.40 per square foot. The 1998 42 expense estimate was $0.42 per square foot or $49,134. This expense is increased 4 percent annually. CONTRACT SERVICES - The contract services category includes mainly landscaping services. Our surveyed expense comparables reported 1997 contract services expenses between $0.18 and $0.21 per square foot. Actual expenses for the subject in for the 1996 contract services expense are estimated at $0.24 per square foot, while 1997 indicated $0.30 per square foot. The appraiser has emphasized the historical and budgeted expenses for the subject when estimating the per square foot contract services expense for the property of $0.24 per square foot or $228 per unit and totaling $28,242 in the first year of the cash flow. These expenses are expected to increase annually at a rate of 4 percent. MANAGEMENT - This figure for apartment projects is typically expressed as a percentage of the effective gross income of the property. The industry standard for an apartment complex of this size and quality is about 5 percent of effective gross income. This includes the fee to outside management or ownership for managing the property. According to the actual income and expense statements from 1993 forward provided by the client, management fees at the subject have been approximately 5 percent including both on-site and headquarter charges. We have also relied upon indicators from the market to determine typical expenses for this category. A management fee of 5 percent of the projected effective gross income for each year of the cash flow is estimated. GENERAL AND ADMINISTRATIVE - This expense category includes legal expenses, dues, fees, printing, auto costs, postage, accounting/audit, permits, travel, credit, reports, office equipment, telephone, and all other miscellaneous and administrative costs. Our surveyed expense comparables indicated actual administrative expenses ranging from $0.15 to $0.18 per square foot. The subject's annualized year-to- date 1996 costs are in this range at $0.13 per square foot. The subject's historical G&A expense has ranged from $0.07 to $0.13 per square foot and has slowly climbed over the years. The 1997 expense was $0.18 per square foot. The appraiser utilized an $0.12 per square foot figure or $126 per unit and totaling $14,701, supported by the subject's history. This expense increases at a rate of 4 percent for each year in the cash flow. EXPENSE SUMMARY In conclusion, stabilized vacancy loss has been estimated at 5 percent beginning in year two and continuing throughout the holding period. The total estimated 1997 calendar year expenses for the Ponte Vedra Beach Village II Apartments, excluding reserves for replacement, equates to $3.52 per net rentable square foot or $3,349 per unit. This is below the range indicated by the expense comparables but is reasonable and is well supported by actual historical figures indicated by the subject property. RESERVES FOR REPLACEMENT A replacement allowance provides for the periodic replacement of building components that wear out more rapidly than the building itself and must be replaced periodically during the building's economic life. These may include roof covering, carpeting, appliances, compressors, parking areas, drives, etc. The 43 subject was constructed in 1985 and appears to have had ongoing maintenance since its construction. It is our opinion that a reserve allowance of $0.32 per square foot or $300 per unit is adequate to provide for the continued maintenance of the project given the on-going termite problem and weather related conditions as mentioned below. Reserves for replacement total $37,200 and are grown at 4 percent for the duration of the holding period. Reserves were included in our expenses prior to concluding the net operating income. DEFERRED MAINTENANCE/ CAPITAL EXPENDITURES The subject has numerous items requiring capital expenditures. Capital expenditures listed by management in the 1997 budget total $108,800 as detailed in the Improvements section of this report. DISCOUNTED CASH FLOW ANALYSIS DISCUSSION A reasonable method for estimating value via the income approach in a stabilized market is through the use of Discounted Cash Flow Analysis. The Market Value of a real estate investment under the Discounted Cash Flow Method is defined as the discounted sum of all net cash inflows plus the property's discounted reversionary value. Primarily, any given property is only worth the value of the income derived from it. The general methodology of Discounted Cash Flow involves the following steps: 1) increasing each year's cash flows by an appropriate appreciation factor; 2) discounting each year's net cash flow by an appropriate discount rate; 3) deriving the property's reversionary value in the final year and discounting it to the present; and 4) the summation of all cash flows, including final year reversion, into an estimate of value. Real Estate Investment Trusts (REITS) have been the major players among new apartment acquisitions over the past, few years which has resulted in upward pressure on selling prices as capitalization rates have dropped. More recently, REITs are strong in the market. Capitalization rates are lower this year than last year due to many buyers pursuing limited inventory. Survey participants in RERC's Emerging Trends in Real Estate: 1997 indicate that multifamily is still a viable investment vehicle, but its desirability is ebbing as short-term rental growth has already peaked in some markets. Expectations for 1998 are an increased interest in apartments as markets stabilize and new construction comes on-line. Since 1994 returns for apartments have averaged near 12 percent, above all other categories. Solid returns in the 9 to 10 percent area are expected to continue with 9 percent and below for new Class A product, much of which may be pre-sold. Apartment investment fits the portfolio profiles of pension funds and REITs who want immediate high cash flows with predictable capital costs and national vacancy rates in relative equilibrium at 5 percent to 8 percent and a growing population, the risk in the multifamily market is steady and we anticipate that investors will continue to find their niche the market. DISCOUNT RATE Over the past several years, the internal rate of return (IRR) has gained greater usefulness and market acceptance as an investment measure. IRR is the yield on an 44 investment based on an initial cash investment, annual cash flows to the property, as well as resale proceeds. IRR allows for return on investment as well as recapture of the original investment when factoring in the reversion. To simulate this process, we have relied upon several investor surveys, which detail reasonable yields or IRR requirements of purchasers. We have used this rate as a discount rate that, when applied to projected cash flows and net resale proceeds (reversion), results in the present value of the property. According to the Third Quarter 1997 investor survey compiled by Peter F. Korpacz & Associates, Inc., investors for apartment properties indicated a return requirement ranging from 10.00 to 12.50 percent with an average of 11.16 percent. This IRR depends on the conservative or aggressive nature of rental and expense growth assumptions, as well as location and other factors. Real Estate is considered riskier than bonds due to illiquidity, competition, burden of management, and market conditions; therefore approximately 150 basis points or more could be added to the Corporate "Baa" bond rate in a normal market. Based on the previous data and recognizing new construction, we believe a 12 percent discount rate is reasonable in the current market based on an all cash sale and alternative investments. CAPITALIZATION RATE The subject property's reversionary value is derived by capitalizing the eleventh year's net operating income. As mortgage rates have fluctuated over the past several years, it becomes difficult to apply a band of investment method to establish a capitalization rate because capitalization rates do not react dramatically to ups and downs of mortgage interest rates. Additionally, the mercurial nature of the recent market creates a large variance of returns depending on property potential. Again, according to the previously cited investor survey, investors for apartment properties indicated a terminal capitalization rate range from 8.0 to 10.25 percent or an average of 9.29 percent to attract investment. Going-in capitalization rates of the comparable sales in the Sales Comparison Approach could be calculated based on the data provided. Most had a relatively similar occupancy rate as the subject at their respective times of sale. The range of going-in capitalization rates from these sales was from 7.76 to 10.9 percent (without reserves). A going-in capitalization rate in the middle of this range is considered appropriate. The going-in rate is typically lower than the terminal capitalization rate stated above due to the older age of the property and the risk of the market ten years hence. Based upon the aforementioned factors, the terminal capitalization rate for the subject should be above the average going- in capitalization rate exhibited by the comparable sales in the Sales Comparison Approach. Therefore, a terminal capitalization rate of 10.0 percent appears appropriate for the subject property based on the Korpacz survey. CASH FLOW ASSUMPTIONS . Rents were based on an average rental rate of approximately $0.72 per square foot per month. During the projection period rents are expected to increase at 2 percent during 1997. Rents increase 4 percent in the second year of our analysis and each year thereafter. 45
- ------------------------------------------------------------------------------------------------------------------------- PONTE VEDRA VILLAGE - ------------------------------------------------------------------------------------------------------------------------- 1 2 3 4 5 6 Period 1998 1999 2000 2001 2002 2003 - ------------------------------------------------------------------------------------------------------------------------- INCOME: Apt. Rents 1,039,910 1,081,507 1,124,767 1,169,758 1,216,548 1,265,210 Rent/SF/Mo. 0.735 0.764 0.794 0.826 0.859 0.894 Other Income/Yr. 20,000 20,800 21,632 22,497 23,397 24,333 --------- --------- --------- --------- --------- --------- Gross Income 1,059,910 1,102,307 1,146,399 1,192,255 1,239,945 1,289,543 % Vacancy 10.00% 5.00% 5.00% 5.00% 5.00% 5.00% Vacancy Allowance 105,991 55,115 57,320 59,613 61,997 64,477 --------- --------- --------- --------- --------- --------- Eff. Gross Income 953,919 1,047,191 1,089,079 1,132,642 1,177,948 1,225,066 ----------------- EXPENSES: Per Unit Per SF ----------------- Real Estate Taxes 658 0.69 81,561 84,823 88,216 91,745 95,415 99,231 Insurance 168 0.18 20,892 21,727 22,596 23,500 24,440 25,418 Operating Expense 683 0.72 84,727 88,116 91,640 95,306 99,118 103,083 Utilities 712 0.75 88,338 91,871 95,546 99,368 103,342 107,476 Repair & Maintenance 396 0.42 49,134 51,099 53,143 55,269 57,480 59,779 Contract Services 228 0.24 28,242 29,372 30,547 31,769 33,039 34,361 Management Fee 5.00% 0.40 47,696 52,360 54,454 56,632 58,897 61,253 General & Administrative 119 0.12 14,701 15,289 15,901 16,537 17,199 17,887 Reserves 300 0.32 37,200 38,688 40,236 41,845 43,519 45,259 --------- --------- --------- --------- --------- --------- Total Expenses $3,649 $ 3.84 452,490 473,346 492,279 511,971 532,449 553,747 ---------------- Per SF Per Yr. 3.84 4.01 4.17 4.34 4.51 4.69 Per Unit Per Yr. 3,649 3,817 3,970 4,129 4,294 4,466 NET OPERATING INCOME $ 501,429 $573,846 $596,800 $620,672 $645,499 $671,319 ========= ======== ======== ======== ======== ========= Per SF $ 4.25 $ 4.86 $ 5.06 $ 5.26 $ 5.47 $ 5.69 Per Unit $ 4,044 $ 4,628 $ 4,813 $ 5,005 $ 5,206 $ 5,414 ========================================================================================================================== Capital Items: 100,800 --------- --------- --------- --------- --------- --------- Cash Flow 400,629 573,846 596,800 620,672 645,499 671,319 --------- --------- --------- --------- --------- --------- Present Value Factor 12.00% 0.892857 0.797194 0.711780 0.635518 0.567427 0.506631 Present Value of Cash Flow 357,705 457,466 424,790 394,448 366,273 340,111 NOI in 11th Year 816,762 Present Value of Income Stream Ro at Reversion 10.00% Present Value of Reversion --------- ------------------------------------------------ Indicated Reversion 8,167,616 Indicated Value of Subject Less: Sales Costs 4.00% 326,705 Indicated Value/SF --------- Reversion in 10th Yr 7,840,912 Indicated Value/Unit GIM at Indicated Value Ro at Indicated Value ------------------------------------------------ - ----------------------------------------------------------------------------------------------------------------- 7 8 9 10 Reversion 2004 2005 2006 2007 2008 - ----------------------------------------------------------------------------------------------------------------- INCOME: Apt. Rents 1,315,818 1,368,415 1,423,189 1,480,117 1,539,321 Rent/SF/Mo. 0.929 0.967 1.005 1.045 1.087 Other Income/Yr. 25,306 26,319 27,371 24,466 29,605 --------- --------- --------- --------- --------- Gross Income 1,341,125 1,394,770 1,450,561 1,508,583 1,568,926 % Vacancy 5.00% 5.00% 5.00% 5.00% 5.00% Vacancy Allowance 67,056 69,738 72,528 75,429 78,446 --------- --------- --------- --------- --------- Eff. Gross Income 1,274,069 1,325,031 1,378,033 1,433,154 1,490,480 EXPENSES: Real Estate Taxes 103,201 107,329 111,622 116,087 120,730 Insurance 26,434 27,492 28,591 29,735 30,925 Operating Expense 107,206 111,495 115,954 120,593 125,416 Utilities 111,775 116,246 120,896 125,732 130,761 Repair & Maintenance 62,170 64,657 67,243 69,933 72,730 Contract Services 35,735 37,165 38,651 40,198 41,805 Management Fee 63,703 66,252 68,902 71,658 74,524 General & Administrative 18,602 19,346 20,120 20,925 21,762 Reserves 47,070 48,953 50,911 52,947 55,065 --------- --------- --------- --------- --------- Total Expenses 575,897 598,933 622,890 647,806 673,718 Per SF Per Yr. 4.88 5.08 5.28 5.49 5.71 Per Unit Per Yr. 4,644 4,830 5,023 5,224 5,433 --------- --------- --------- --------- --------- NET OPERATING INCOME $698,171 $726,098 $755,142 $785,348 $816,762 ========= ========= ========= ========= ========= Per SF $5.92 $6.15 $6.40 $6.66 $6.92 Per Unit $5,630 $5,856 $6,090 $6,333 $6,587 ================================================================================================== Capital Items: --------- --------- --------- --------- --------- Cash Flow 698,171 726,098 755,142 785,348 816,762 --------- --------- --------- --------- --------- Present Value Factor 0.452349 0.403883 0.360610 0.321973 1.000000 Present Value of Cash Flow 315,817 293,259 272,312 252,861 816,762 NOI in 11th Year 3,475,042 Ro at Reversion 2,524,564 - --------------------------------------- Indicated Reversion 5,999,606 Lens: Sales Costs 50.85 48,384 Reversion in 10th Yr 5.77 8.36% - ---------------------------------------
================================================================================ CASH FLOW SUMMARY FISCAL YEAR ANNUAL 12.00% PV OF ENDING 11/30 CASH FLOW NPV FACTOR CASH FLOWS ------------ --------- ---------- ---------- 1998 $400,629 0.892857 $357,705 1999 573,846 0.797194 457,466 2000 596,800 0.711780 424,790 2001 620,672 0.635518 394,448 2002 645,499 0.567427 366,273 2003 671,319 0.506631 340,111 2004 698,171 0.452349 315,817 2005 726,098 0.403883 293,259 2006 755,142 0.360610 272,312 2007 785,348 0.321973 252,861 ------- TOTAL NPV OF CASH FLOWS $3,475,042 Projected NOI - 11TH YEAR $ 816,762 Terminal Capitalization Rate 10.00% ------ Estimated Value of Property at End of 10th Year $8,167,616 Sales Cost 4.00% (326,705) --------- Value of Reversion at End of 10th Year $7,840,912 Discount Factor 12.00% 0.32193 ------- Present Value of the Reversion $2,524,564 Sum of Present Values of Cash Flow 3,475,042 --------- MARKET VALUE AS OF NOVEMBER 30, 1997 $5,999,606 (ROUNDED) $6,000,000 ========== ================================================================================ . The subject property's current physical occupancy rate is 94.4 percent. The economic occupancy rate of 92.7 percent as of November 1997 is below the estimated stabilized occupancy rate of 95.0 percent. It is our opinion that the subject should be capable of averaging 95.0 percent economic occupancy beginning in year two and throughout the holding period of our cash flow analysis. . Other income is increased at 4 percent per year after the first year of the cash flow. . The property has been appraised based on a "resident pays utilities" status. . Expenses (with the exception of management) have been increased at an average growth rate of 4 percent annually over the ten-year projection period. Management expenses are based on a percentage of gross income and increase with occupancy and rental increases. Reserves are calculated at $0.273 per square foot or $300 per unit in the first year and also increase at 4 percent per year thereafter. . A discount rate of 12.0 percent was utilized. . A terminal capitalization rate of 10.0 percent was felt reasonable. . A sales cost of 4 percent of the reversionary value was estimated. A cash flow analysis and summary for the subject beginning December 1, 1997 may be found on the preceding pages. The estimated leased fee market value for the subject on an "as is" basis as of November 30, 1997 via discounted cash flow method is SIX MILLION DOLLARS ($6,000,000) 46 ================================================================================ DIRECT CAPITALIZATION
================================================================================ Total /Unit /SF Potential Gross Rental Income $1,039,910 $ 8,386 $ 8.81 Other Income 20,000 161 0.17 ------- ------ ----- Potential Gross Income $1,059,910 $ 8,548 $ 8.98 Less: Vacancy & Credit Loss @ 5.00% 52,996 427 0.45 ------- ------ ----- Effective Gross Income $1,006,915 $ 8,120 $ 8.53 FIXED EXPENSES - -------------- Real Estate Taxes $ 81,561 $ 658 $ 0.69 Insurance 20,892 168 0.18 ------- ------ ----- Total Fixed $ 102,452 $ 826 $ 0.87 Operating Expenses $ 84,727 $ 683 $ 0.72 Utilities 88,338 712 0.75 Repairs & Maintenance 49,134 396 0.42 Contract Services 28,242 228 0.24 Management Fee 5.00% 50,346 406 0.43 General Administrative 14,701 119 0.12 Reserves for Replacement 37,200 300 0.32 ------- ------ ----- Total Variable $ 352,688 $ 2,844 $ 2.99 Total Expenses $ 455,140 $ 3,670 $ 3.86 ------- ------ ----- Net Operating Income $ 551,775 $ 4,450 $ 4.68 Capitalization Rate 9.00% ---- Fee Simple Stabilized Market Value $6,130,832 $49,442 $51.97 Less: Rent Loss Due to Lease Up 69,194 558 0.59 Capital Expenditures 100,800 813 0.85 ------- ------ ----- LEASED FEE "AS IS" MARKET VALUE $5,960,838 $48,071 $50.52 ROUNDED $6,000,000 ========== ================================================================================
RENT LOSS DUE TO LEASE-UP/CONTRACT RENT ---------------------------------------
Year 1 Year 2 ------ ------ Stabilized NOI $551,775 $551,775 Projected NOI 477,737 573,846 ------- ------- Rent Loss $74,038 $0 7.00% PV Factor 0.934579439 0.873438728 ----------- ----------- PV Income Loss $ 69,194 $0 CUMULATIVE TOTAL $ 69,194 ================================================================================
DIRECT CAPITALIZATION Direct capitalization is a method used to convert a single year's income estimate into a value indication. In direct capitalization a rate of return for the investor and recapture of the capital invested is implicit in the overall capitalization rate. The overall capitalization rate was chosen after analyzing the comparable apartment sales in our Sales Comparison Approach. These sales indicated a range of "going-in" capitalization rates from 7.76 to 10.90 percent. The Korpacz investor survey previously quoted indicated an average desired going-in capitalization rate of 9.29 percent. Some weight in this analysis is given to the comparable market sales since these transactions best illustrate the behavior of investor/purchasers in this marketplace. Investors' greater aversion to risk in the market caused by the recent national recession and credit constriction indicates that the range of capitalization rates from the comparables, which sold prior to this phase in the economy may be optimistic. Therefore, from these findings an overall rate of 9.00 percent was chosen for application to the subject. This rate is 1.0 percentage point lower than the terminal capitalization rate utilized for the subject in the preceding discounted cash flow analysis. The direct capitalization method indicates a value of $6,000,000 and is shown on the facing page. INCOME APPROACH CONCLUSION DCF Method...................................... $6,000,000 Direct Capitalization Method.................... $6,000,000 Consideration is given to both the discounted cash flow method and the direct capitalization approach. These have been rounded to the nearest ten thousand dollars, however, for purposes of the income approach conclusion, the value is rounded to the nearest fifty thousand. From the above analysis provided by the Income Approach, we estimate the leased fee market value of the subject property on an "as is" all cash basis, as of November 30, 1997, to be SIX MILLION DOLLARS ($6,000,000) 47 RECONCILIATION - -------------------------------------------------------------------------------- Sales Comparison Approach $6,000,000 Income Approach $6,000,000 The Sales Comparison Approach utilized recent comparable sales of similar properties in the area. The weakness of the Sales Comparison Approach is that no two properties are exactly alike and exact conditions of a sale are often unknown. The strength of this approach is that it indicates the market activity based on the willing buyer/willing seller concept. Eight recent sales, dating from May 1986 through August 1997 were utilized in the Sales Comparison Approach. Each is similar to the subject property in one or more characteristics including occupancy, location, age, construction quality, amenities, and/or condition. The data on the comparable sales was considered to be reasonably accurate and reliable. The methods of comparison utilized in this analysis were the net operating income per square foot and per unit and the effective gross rental multiplier (EGRM) methods. These indicators rely on a comparison of income rather than physical attributes. Thus, adjustments for physical factors are not necessary as economics are the common denominator. A final market value estimate for the subject was made based on the analysis presented in the Sales Comparison Approach. The Income Approach attempts to measure investment qualities of the property. Based on actual rents in the immediate area of the subject, actual expenses, and investor returns derived from the market, we have estimated value. Actual data on the property, as well as comparable data from nearby similar properties, were considered to be adequate. Because the Income Approach deals directly with income streams, we believe it is a very good indication of current market conditions. It tends to reflect a value which an investor of a property would anticipate. In the Income Approach, comparable properties from the subject Ponte Vedra Beach area were utilized when deriving the subject property's economic market rents and projected expenses. For this reasoning, the Income Approach is given greatest weight in the final analysis. The Sales Comparison Approach totally supported the Income Approach conclusion. Therefore, it is our opinion that the market value of the leased fee estate of the subject property on an "as is" all cash basis, as of November 30, 1997, is SIX MILLION DOLLARS ($6,000,000) 48 THE LINKS AT WINDSOR PARKE - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 1 PROPERTY IDENTIFICATION Job Number 97-075 Project Name The Links at Windsor Park Address 13700 Sutton Park Drive North City/County/State Jacksonville, Florida TRANSACTION DATA Sale Date 08/97 Grantor (Seller) Windsor Park Apartments, Ltd. Grantee (Buyer) Rancho Bernardo Corporate Center Recorded Document 8726-846 Sale Price $20,500,000 Occupancy 95% Sale Price per Unit $73,214 Sale Price per SF $69.11 Capitalization Rate 8.56% TERMS OF SALE SAID TO BE CASH INCOME/EXPENSE DATA Potential Gross Income $2,767,693 Vacancy/Collection Loss ($138,385) Effective Gross Income $2,629,308 Operating Expenses $(874,508) Net Operating Income $1,754,800 PROPERTY DESCRIPTION Year Built 1995 Number of Stories 2 and 3 Number of Units 280 Number of Bedrooms NA Net Rentable Area 296,616 SF Average Unit Size 1,059 SF Land Area 23.36 acres Unit Density 11.98 Units per Acre Property Condition Excellent Parking (type) Open Construction Type Wood frame/Wood Siding/Stucco Confirmed With Steve Coley, Barnett Bank Date Confirmed 11/18/97 Comments: Was completed in early 1995 and was in excellent condition at time of sale. Complex amenities include security fencing with remote entry gate, swimming pool, sun deck, tennis courts, clubhouse with fitness center, playground, and amenity lake with partial frontage along golf course fairways. Units have installation alarms, washer/dryer, appliances ceiling fans, window coverings, and built-in bookcases. SAN PABLO - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 2 PROPERTY IDENTIFICATION Job Number 97-075 Project Name San Pablo Address 14401 Jose Vedra Blvd.. City/County/State Jacksonville, Florida TRANSACTION DATA Sale Date 06/97 Grantor (Seller) N/A Grantee (Buyer) N/A Recorded Document N/A Sale Price $5,350,000 Occupancy 90% Sale Price per Unit $26,750 Sale Price per SF $28.96 Capitalization Rate 10.8% TERMS OF SALE Cash INCOME/EXPENSE DATA Potential Gross Income $1,302,800 Vacancy/Collection Loss ($130,280) Effective Gross Income $1,172,520 Operating Expenses ($589,370) Net Operating Income $583,150 PROPERTY DESCRIPTION Year Built 1974 Number of Stories 2 Number of Units 200 Number of Bedrooms 350 Net Rentable Area 184,750 Average Unit Size 924 SF Land Area 14.24 acres Unit Density 14.04 Units per Acre Property Condition Average Parking (type) Open parking Construction Type Concrete block with masonry and wood veneer Confirmed With David V. Allen, CB Commercial Real Estate Group, Inc. Date Confirmed 11/18/97 Comments San Pablo Apartments needed new plumbing system, wood replacement, some roof replacement and other repairs at time of sale. The property has tennis courts, basketball courts, full size pool, and playground. Expenses do not include reserves. HUNTER'S RIDGE - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 3 PROPERTY IDENTIFICATION Job Number 97-075 Project Name Hunter's Ridge (previously Oaks at Deerwood) Address 10100 Baymeadows Road City/County/State Jacksonville, Florida TRANSACTION DATA Sale Date 05/97 Grantor (Seller) Oaks at Baymeadows II Associates, Ltd. Grantee (Buyer) Mid-America Apartments of Duval, L.P. Recorded Document 8653-596 Sale Price $15,200,000 Occupancy 92% Sale Price per Unit $45,238 Sale Price per SF $51.54 Capitalization Rate 7.76% TERMS OF SALE SAID TO BE CASH INCOME/EXPENSE DATA Potential Gross Income $2,451,409 Vacancy/Collection Loss ($196,113) Effective Gross Income $2,255,296 Operating Expenses $1,075,776 Net Operating Income $1,179,520 PROPERTY DESCRIPTION Year Built 1987 Number of Stories 2 and 3 Number of Units 336 Number of Bedrooms NA Net Rentable Area 294,888 SF Average Unit Size 878 SF Land Area 34.70 acres Unit Density 9.68 Units per Acre Property Condition Average Parking (type) Open parking Construction Type Wood frame/Wood Siding/Shingle roof Confirmed With Steve Coley, Barnett Bank Date Confirmed 11/18/97 Comments Property had a name change after the sale and is now known as Hunter's Ridge. Clubhouse has a tile roof covering and entry is paved with brick payers. Well landscaped and treed. Amenities include a pool with hot tub, tennis courts, fitness facility in clubhouse, car care center, racquet ball/volleyball court, outdoor storage for each unit, mini-blinds, and washer/dryer connections. WOODHOLIOW - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 4 PROPERTY IDENTIFICATION Job Number 97-075 Project Name Woodhollow Apartments Address 1715 Hodges Blvd. City/County/State Jacksonville, Florida TRANSACTION DATA Sale Date 04/97 Grantor (Seller) Woodhollow, LP Grantee (Buyer) Mid-America Apartments, LP Recorded Document 8590-2406 Sale Price $16,700,000 Occupancy 94% Sale Price per Unit $37,111 Sale Price per SF $48.99 Capitalization Rate 9.60% TERMS OF SALE Cash to mortgage of $10,350,000 @ 7.5% Due in 7 years, based on 25 amortization schedule INCOME/EXPENSE DATA Potential Gross Income $3,245,490 Vacancy/Collection Loss ($194,729) Effective Gross Income $3,050,761 Operating Expenses ($1,447,561) Net Operating Income $1,603,200 PROPERTY DESCRIPTION Year Built 1986 Number of Stories 2 Number of Units 450 Number of Bedrooms 690 Net Rentable Area 342,162 SF Average Unit Size 760 SF Land Area 38.65 acres Unit Density 11.6 Units per Acre Property Condition Average Plus Parking (type) Open parking Construction Type Wood frame Confirmed With David V. Allen, CB Commercial Real Estate Group, Inc. Date Confirmed 11/18/97 Comments The cap rate does not include a deduction for reserves. Amenities are a 6-acre lake, olympic size pool with large cool deck, jacuzzi, 2 tennis courts, 2 volleyball courts, BBQ and picnic areas, large playground, and a gated boat storage. THE COURTS AT PONTE VEDRA - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 5 PROPERTY IDENTIFICATION Job Number 97-075 Project Name The Courts at Ponte Vedra Address 101 Vera Cruz Drive City/County/State Ponte Vedra Beach, FL TRANSACTION DATA Sale Date 01/97 Grantor (Seller) Windsor Apartments, L.P. Grantee (Buyer) Metropolitan Life Insurance Corporation Recorded Document 01220-01824 Sale Price $19,000,000 Occupancy 95% Sale Price per Unit $75,099 Sale Price per SF $75.12 Capitalization Rate 8.34% TERMS OF SALE Said to be cash INCOME/EXPENSE DATA Potential Gross Income $2,734,426 Vacancy/Collection Loss ($136,721) Effective Gross Income $2,597,705 Operating Expenses ($1,013,105) Net Operating Income $1,584,600 PROPERTY DESCRIPTION Year Built 1996 Number of Stories 3 Number of Units 253 Number of Bedrooms N/A Net Rentable Area 252,916 SF Average Unit Size 1,000 SF Land Area 9.23 acres Unit Density 27.41 Units per Acre Property Condition Excellent Parking (type) Open parking Construction Type Wood frame/Masonry/Stucco Confirmed With Steve Coley, Barnett Bank Date Confirmed 11/18/97 Comments Built in late 1996 and sold on 95% proforma. Leasing was ahead of schedule at time of sale. Complex was in excellent condition. Property had very attractive architectural design features at windows and roof lines. Amenities include security gate entry, fountain, brick pavers, lap pool, heated spa, and clubhouse with business center. Property had higher unit density than most projects in Ponte Vedra. THE HUNTINGTON AT HIDDEN MILLS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 6 PROPERTY IDENTIFICATION Job Number 97-071 Project Name The Huntington at Hidden Mills (formerly Cozumel) Address 3333 Monument Road Location East side of Monument Road, north of SR 10 (Atlantic Blvd.) City/County/State Jacksonville, Duval, Florida TRANSACTION DATA Date of Sale 8/8/96 Grantor (Seller) Private Syndication Grantee (Buyer) Walden Residential Recorded Document NA Sale Price $7,225,000 Occupancy 98% Sale Price per Unit $32,254.46 Sale Price per SF $40.26 TERMS OF SALE Cash INCOME/EXPENSE DATA Potential Gross Income $1,356,839 Vacancy/Collection Loss 2.8% $37,991 Effective Gross Income $1,318,848 Operating Expenses $628,166 Net Operating Income $690,682 PHYSICAL DATA Year Built 1986 Number of Stories 2-3 Number of Units 224 Number of Bedrooms 376 Net Rentable Area 179,476 SF Average Unit Size 801 SF Land Area 14.92 acres Unit Density 15 Property Condition Average Parking (type) Asphalt, open Construction Type Stucco/wood siding with composition roofs Confirmed With Dan Allen/CB Commercial/(904) 630-6362 Date Confirmed 10/10/96/LW/Bach Thoreen McDermott Inc. Comments Price adjusted upward by $350,000 for required re- plumbing and was a credit given by the seller. The net operating income (NOI) does not include an allowance for reserve for replacement expenses. THE ANTLERS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 7 PROPERTY IDENTIFICATION Job Number 97-071 Project Name The Antlers Address 8433 Southside Blvd. Location East side of Southside Blvd., south of J. Turner Butler Blvd. City/County/State Jacksonville, Duval, Florida TRANSACTION DATA Grantor (Seller) Balcor Grantee (Buyer) United Dominion Real Estate Date of Sale 5/29/96 Sale Price $15,000,000 Occupancy 97% Terms of sale Cash Sale Price per Unit $37,500.00 Sale Price per SF $45.77 TERMS OF SALE Cash INCOME/EXPENSE DATA Potential Gross Income $2,752,915 Vacancy/Collection Loss 3.2% $88,093 Effective Gross Income $2,664,822 Operating Expenses $1,140,493 Net Operating Income $1,524,329 PHYSICAL DATA Year Built 1985 Number of Stories 2-3 Number of Units 400 Number of Bedrooms 504 Site Area 42.51 acre(s) Net Rentable Area 327,728 SF Average Unit Size 819 SF Land Area 42.51 acres Unit Density 9.4 Property Condition Average Parking (type) Asphalt, open Construction Type Stucco/Wood siding with composition roofs Confirmed With Dan Allen/CB Commercial/(904) 630-6362 Date Confirmed 10/10/96/LW/Bach Thoreen McDermott Inc. Comments The net operating income (NOI) does not include an allowance for reserve for replacement expenses. WESTLAND PARK - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 8 PROPERTY IDENTIFICATION Job Number 97-071 Project Name Westland Park Address 6710 Collins Road Location North side of Collins Road, north of I-295 City/County/State Jacksonville, Duval, Florida TRANSACTION DATA Grantor (Seller) Vestcor Grantee (Buyer) United Dominion Real Estate Sale Date 5/9/96 Sale Price $16,950,060 Occupancy 97% Terms of Sale Cash Sale Price per Unit $41,852.00 Sale Price per SF $42.06 TERMS OF SALE Cash INCOME/EXPENSE DATA Potential Gross Income $2,929,883 Vacancy/Collection Loss 3.7% $108,406 Effective Gross Income $2,821,477 Operating Expenses $1,104,247 Net Operating Income $1,717,230 PHYSICAL DATA Year Built 1989 Number of Stories 2-3 Number of Units 405 Number of Bedrooms 723 Net Rentable Area 403,010 SF Average Unit Size 995 SF Land Area 27.17 Unit Density 14.9 Property Condition Average Parking (type) Asphalt, open Construction Type Stucco/Wood siding with composition roofs Confirmed With Dan Allen/CB Commercial/(904) 630-6362 Date Confirmed 10/10/96/LW/Bach Thoreen McDermott Inc. Comments The net operating income (NOI) does not include an allowance for reserve for replacement expenses. THE REMINGTON - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 1 PROPERTY IDENTIFICATION Project No. 97-068/97-069 Name of Project: The Remington Street Address: 611 Ponte Vedra Lakes City/State: Ponte Vedra, Florida PROPERTY DESCRIPTION Year Built/Renovated: 1985 Number of Buildings: 43 Number of Stories: 2 Number of Units: 344 Net Rentable Area (SF): 302,904 Average Unit Size (SF): 881 Parking Surface: Asphalt Parking Spaces: Open Parking Type of Construction: Stucco walls with tile roof Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF ------------------------------------------------ 64 1BR/1BA 638 $605-615 $0.886-0.900 72 1BR/1BA 755 635-670 0.841-0.887 64 2BR/1BA 886 670-680 0.756-0.767 72 2BR/2BA 977 735-745 0.752-0.763 48 2BR/2BA 1,043 765-775 0.733-0.743 24 2BR/2BA 1,155 825-835 0.714-0.723
Unit Amenities: Dishwashers, garbage disposals, microwave ovens, miniblinds, fireplaces, ceiling fans, vaulted ceilings, outdoor utility closets, patio/balconies Project Amenities: 2 swimming pool, 1 tennis court, 2 racquetball court, hot tub, sauna, exercise/weight room, clubroom, and lake ECONOMIC DATA Percent Occupied: 95% Avg. Monthly Rent/SF of NRA: $0.79 Electricity Paid By: Tenant Length of lease: 7 or 12 months Security Deposit: $220 for 1BR; $270 for 2BR Pets Allowed/Deposit: Yes, $200-300, 1/2 refundable Confirmed With: Leasing Agent and ConAm on-site agent survey Date Confirmed: December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Remarks: Upper units lease at a premium; some upper units have ceiling treatments and fireplaces. THE FAIRWAYS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 2 PROPERTY IDENTIFICATION Project No. 97-068/97-069 Name of Project: The Fairways Apartments Street Address: 100 Fairway Park Boulevard City/State: Ponte Vedra, Florida PROPERTY DESCRIPTION Year Built/Renovated: 1984 Number of Buildings: 21 Number of Stories: 2-3 Number of Units: 216 Net Rentable Area (SF): 186,600 Average Unit Size (SF): 864 Parking Surface: Asphalt Parking Spaces: Open parking Type of Construction: Frame and stucco walls with composition roof Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF ------------------------------------------------ 8 1BR/1BA 550 $555 $ 1.01 18 1BR/1BA 600 615 1.03 86 2BR/2BA/FL 950 700 0.737 68 2BR/1BA/TH 750 650 0.867 18 2BR/2BA/TH 1,100 740 0.673 18 2BR/1.5BA/TH 1,050 705 0.671
FL = flat; TH = townhouse Unit Amenities: Dishwashers, garbage disposals, washer/dryer in units, miniblinds, fireplaces, outdoor utility closets, patio/balconies Project Amenities: 1 swimming pool, 2 tennis courts, hot tub, exercise/weight room, clubroom, laundry facility, lake ECONOMIC DATA Percent Occupied: 88% Avg. Monthly Rent/SF of NRA: $0.782 Electricity Paid By: Tenant Length of Lease: 7 to 12 months Security Deposit: $275 Pets Allowed/Deposit: Yes; 20 pounds maximum, $300-500 nonrefundable Confirmed With: Leasing Agent and ConAm on-site agent survey Date Confirmed: December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Remarks: Differences in rental rates between individual floor plans are due to screened-in porches and fireplaces. COLONIAL GRAND - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 3 PROPERTY IDENTIFICATION Project No. 97-068/97-069 Name of Project: Colonial Grand Street Address: 125 Great Harbour Way City/State: Ponte Vedra, Florida PROPERTY DESCRIPTION Year Built/Renovated: 1987 Number of Buildings: 31 Number of Stories: 2 Number of Units: 240 Net Rentable Area (SF): 211,640 Average Unit Size (SF): 822 Parking Surface: Asphalt Parking Spaces: Open parking Type of Construction: Stucco walls with tile roof Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF -------------------------------------------------- 40 1BR/1BA 672 $575-615 $0.856-0.915 40 1BR/1BA 760 620-660 0.816-0.868 40 1BR/1BA/DEN 937 670-710 0.715-0.758 120 2BR/2BA 974 705-745 0.724-0.765
Unit Amenities: Dishwashers, garbage disposals, microwave ovens, washer/dryer connections, miniblinds, fireplaces, ceiling fans, vaulted ceilings, walk-in closets, outdoor utility closets, patio/balconies Project Amenities: 1 swimming pool 1 tennis court, 2 racquetball courts, 1 basketball court, hot tub, sauna, exercise/weight room, clubroom, lakes, volleyball court ECONOMIC DATA Percent Occupied: 97.0% Avg. Monthly Rent/SF of NRA: $0.755 Electricity Paid By: Tenant Length of lease: 7 or 12 months Security Deposit: $175 Pets Allowed/Deposit: Yes, 25-pound weight limit; $300 nonrefundable Confirmed With: Leasing Agent and ConAm on-site agent survey Date Confirmed: December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Remarks: Differences in rental rates of individual floor plans are due to location and fireplaces. Upstairs units cost an additional $10 per month. There is an additional charge of $10 per month for seven- month leases. THE ARBOR CLUB - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 4 PROPERTY IDENTIFICATION Project No. 97-068/97-069/97-074 Name of Project: Arbor Club Apartments Street Address: 1 Arbor Club Drive City/State: Ponte Vedra, Florida PROPERTY DESCRIPTION Year Built/Renovated: 1992 Number of Buildings: 13 plus 12 garage buildings Number of Stories: 2-3 Number of Units: 251 Net Rentable Area (SF): 288,924 Average Unit Size (SF): 1,151 Parking Surface: Asphalt Parking Spaces: Open and garage space ($55/month) Type of Construction: Wood/stucco siding Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF --------------------------------------------------------- 52 1BR/1BA 881 $ 655-685 $0.743-0.778 52 1BR/1BA/LOFT 1,102 740-760 0.672-0.690 60 2BR/2BA 1,181 790-82- 0.669-0.694 60 2BR/2BA 1,254 825-855 0.658-0.682 9 3BR/2BA 1,426 980-1,000 0.687-0.701 18 2BR/2BA 1,493 1,025-1,050 0.687-0.703
Unit Amenities: Dishwashers, garbage disposals, microwave ovens, washer/dryer connections, miniblinds, fireplaces, vaulted ceilings, walk-in closets, burglar alarms Project Amenities: 1 swimming pool, 2 tennis court, jacuzzi, exercise/weight room, clubroom, laundry facility, on-site security, garages ECONOMIC DATA Percent Occupied: 100% Avg. Monthly Rent/SF of NRA: $0.693 Electricity Paid By: Tenant Length of Lease: 7 or 12 months Security Deposit: $175 Pets Allowed/Deposit: 25-pound limit; $300 pet fee (nonrefundable) Confirmed With: Leasing Agent and ConAm on-site agent survey Date Confirmed: December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Remarks: This project opened in April 1992. Differences in rental rates for individual units are due to fireplaces, lake view, and upstairs/downstairs. There is also a $70 per month garage fee. ORDINANCE NUMBER: 84-3 P. U. D. OFF. REC. - INTRODUCED BY: Commissioner Waldron BOOK B PAGE 1 - - AN ORDINANCE OF THE COUNTY OF ST. JOHNS, STATE OF FLORIDA, REZONING LANDS DESCRIBED REFERENCED HEREIN AS (GOVERNMENT LOT 2, SECTION 16, TOWNSHIP 3 SOUTH, RANGE 29 EAST, ST. JOHNS COUNTY, FLORIDA, CONTAINING 40 ACRES MORE OR LESS) FROM PRESENT ZONING CLASSIFICATION OF OPEN RURAL TO PLANNED UNIT DEVELOPMENT. BE IT ORDAINED BY THE BOARD OF COUNTY COMMISSIONERS OF ST. JOHNS COUNTY, FLORIDA: SECTION 1. As requested by Epoch Properties, Inc., in its app1ication for - --------- zoning change filed November 17, 1983, (hereinafter called the "Lakeview Village PUD Application"), the zoning classification of the real property described in said application is hereby changed from Open Rural to Planned Unit Development (Hereinafter called the "Lakeview Village PUD"). SECTION 2. All materials, stipulations, exhibits, surveys, site plans, traffic - --------- studies and other maps included in and attached to the Lakeview Village PUD Application No. R-PUD-83-59 which are described as, but are not limited to, the following: The Planned Unit Development Application for Zoning Change, Compliance with Article 8 (Planned Unit Development-PUD), Exhibits attached to the Compliance with Article 8 (Warranty Deeds (2), Authorizations of Agency (3), List of Adjacent Property Owners, Survey of the subject Real Property, TopographiCal Survey of the Subject Real Property, Schedule of Development, Lakeview Village Project Data, Lakeview Village Land Usage Data, Lakeview Village Building Data, Lakeview Village Apartment Community Planned Unit Development Plan (and other information thereto), revised Schedule of Development, revised Lakeview Village Apartment Community Planned Unit Development Plan and other such renderings necessary of the Lakeview Village Planned Unit Development - all of which are hereby incorporated in and made a part of this Ordinance. ORDINANCE BOOK 5 PAGE 492 PROFESSIONAL QUALIFICATIONS STEVAN N. BACH EXPERIENCE Bach Realty Advisors, Inc. (since June 1997) President. Emphasis in ad valorem tax and intangible value. Real estate valuation and consultation on hotels, major urban properties, and property portfolios. Financial and feasibility analysis, land use, and market studies Bach Thoreen McDermott Incorporated (July 1991 -- May 1997) Chief Executive Officer. Bach Thoreen & Associates, Inc. (1985 -- 1991) President Bach & Associates, Inc. (1980 -- 1984) President Landauer Associates, Inc. (1980 -- 1984) Senior Vice-President and General Manager -- Southwestern Region Coldwell Banker Commercial Group, Inc. (1973 -- 1980) Vice-President and Manager, Appraisal Services. Appraisal Research Associates (1971 -- 1973) Appraiser. Real Estate research valuation on urban and rural properties. Ray R. Hastings, MAI (1964 -- 1971) Appraiser. Real Estate research valuation on urban and rural properties. Residential Real Estate Sales (1963 -- 1964) Salesman. Residential real estate salesman Covina, California. PROFESSIONAL ACTIVITIES Member: Appraisal Institute Appraisal Institute, Houston Chapter 33 Appraisal Institute, Chairman of the Grievance Committee of the Regional Ethics Panel Appraisal Institute, Chairman of the Review and Counseling Committee of the Regional Ethics Panel Appraisal Institute, Co-Chairman of the Education Committee (1980) Appraisal Institute, Chairman of the Education Committee (1983) Appraisal Institute, Candidate Guidance Committee (1987 -- 1992) Appraisal Institute, Subcommittee Chairman, Admissions Committee (1984) AIREA Nonresidential Appraisal Report Grading Committee (1984) Appraisal Institute Expert Witness Video Committee (1990) Licenses: Real Estate Broker, State of Texas Certification: Certified in the Appraisal Institute's voluntary program of continuing education for its designated members (MAIs who meet the minimum standards of this program are awarded periodic education certification). Certified General Real Estate Property appraiser in the State of Texas, Certification No. TX-1323079-G Certified General Real Estate Property appraiser in the State of Colorado, Certification No. CG01323975 EDUCATION B.S. Marketing, University of Southern California (1962) -----END PRIVACY-ENHANCED MESSAGE-----