EX-99.(C)(1) 6 d07280exv99wxcyx1y.txt APPRAISAL OF CANYON CREST CANYON CREST 5754 S LOWELL WAY (5757 S. KING STREET) LITTLETON, COLORADO MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 13, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] JUNE 27, 2003 Apartment Investment and Management Company ("AIMCO") c/o Mr. Steven A. Velkei, Esq. Liner Yankelevitz Sunshine & Regenstreif LLP 1100 Glendon Avenue, 14th Floor Los Angeles, California 90024-3503 Nuanes, et al.("Plaintiffs") c/o Ms. Joy Kruse Lieff Cabraser Heimann & Bernstein Embarcadero Center West 275 Battery Street, 30th Floor San Francisco, California 94111 RE: CANYON CREST 5754 S LOWELL WAY (5757 S. KING STREET) LITTLETON, ARAPAHOE COUNTY, COLORADO In accordance with your authorization, we have completed the appraisal of the above-referenced property. This complete appraisal is intended to report our analysis and conclusions in a summary format. The subject property consists of an apartment project having 90 units with a total of 92,212 square feet of rentable area. The improvements were built in 1970. The improvements are situated on 3.536 acres. Overall, the improvements are in good condition. As of the date of this appraisal, the subject property is 92% occupied. It is our understanding the appraisal will be used by the clients to assist the San Mateo Superior Court in the settlement of litigation between the above mentioned clients. The appraisal is intended to conform to the Uniform Standards of Professional Appraisal Practice ("USPAP") as promulgated by the Appraisal Standards Board of the Appraisal Foundation and the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute. The appraisal is presented in a summary report, and the Departure Provision of USPAP has not been invoked in this appraisal. It is entirely inappropriate to use this value conclusion or the report for any purpose other than the one stated. AMERICAN APPRAISAL ASSOCIATES, INC. LETTER OF TRANSMITTAL PAGE 2 CANYON CREST, LITTLETON, COLORADO The opinions expressed in this appraisal cover letter can only be completely understood by reading the narrative report, addenda, and other data, which is attached. The appraisal is subject to the attached general assumptions and limiting conditions and general service conditions. As a result of our investigation, it is our opinion that the fee simple market value of the subject, effective May 13, 2003 is: ($4,800,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Douglas Needham June 27, 2003 Douglas Needham, MAI #053272 Managing Principal, Real Estate Group Colorado State Certified General Real Estate Appraiser #CG40017035 Report By: James Newell AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 CANYON CREST, LITTLETON, COLORADO TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary..................................................... 4 Introduction.......................................................... 9 Area Analysis......................................................... 11 Market Analysis....................................................... 14 Site Analysis......................................................... 15 Improvement Analysis.................................................. 15 Highest and Best Use.................................................. 16 VALUATION Valuation Procedure................................................... 17 Sales Comparison Approach............................................. 19 Income Capitalization Approach........................................ 25 Reconciliation and Conclusion......................................... 36 ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 CANYON CREST, LITTLETON, COLORADO EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Canyon Crest LOCATION: 5754 S Lowell Way (5757 S. King Street) Littleton, Colorado INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: Fee Simple Estate DATE OF VALUE: May 13, 2003 DATE OF REPORT: June 27, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 3.536 acres, or 154,028 square feet Assessor Parcel No.: 2077-18-4-15-091 Floodplain: Community Panel No. 0800170005D (September 29, 1989) Flood Zone X, an area outside the floodplain. Zoning: PDR (Planned Development - Residential) BUILDING: No. of Units: 90 Units Total NRA: 92,212 Square Feet Average Unit Size: 1,025 Square Feet Apartment Density: 25.5 units per acre Year Built: 1970 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ----------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income ------------------------------------------------------------------------ 1Bd/1Ba 640 $ 645 $ 1.01 $ 19,350 $232,200 2Bd/1.5Ba 851 $ 740 $ 0.87 $ 22,200 $266,400 2Bd/1.5Ba Townhouse 1,467 $ 1,050 $ 0.72 $ 23,100 $277,200 3Bd/2.5Ba Townhouse 1,901 $ 1,170 $ 0.62 $ 9,360 $112,320 -------- -------- Total $ 74,010 $888,120 ======== ========
OCCUPANCY: 92% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 20 Years REMAINING ECONOMIC LIFE: 25 Years
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 CANYON CREST, LITTLETON, COLORADO SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [EXTERIOR - APARTMENT BUILDING PICTURE] [EXTERIOR - APARTMENT BUILDING PICTURE] AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 CANYON CREST, LITTLETON, COLORADO NEIGHBORHOOD MAP [MAP] HIGHEST AND BEST USE: As Vacant: Hold for future multi-family development As Improved: Continuation as its current use METHOD OF VALUATION: In this instance, the Sales Comparison and Income Approaches to value were utilized. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7 CANYON CREST, LITTLETON, COLORADO PART TWO - ECONOMIC INDICATORS
Amount $/Unit ------ ------ INCOME CAPITALIZATION APPROACH DIRECT CAPITALIZATION Potential Rental Income $888,120 $9,868 Effective Gross Income $820,874 $9,121 Operating Expenses $288,094 $3,201 35.1% of EGI Net Operating Income: $514,780 $5,720 Capitalization Rate 10.50% DIRECT CAPITALIZATION VALUE $4,800,000 * $53,333 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 11% Stabilized Vacancy & Collection Loss: 14% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 11.00% Discount Rate 13.00% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $4,700,000 * $52,222 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $4,800,000 $53,333 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $42,786 to $68,500 Range of Sales $/Unit (Adjusted) $53,265 to $58,225 VALUE INDICATION - PRICE PER UNIT $5,000,000 * $55,556 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 5.01 to 7.64 Selected EGIM for Subject 5.80 Subject's Projected EGI $820,874 EGIM ANALYSIS CONCLUSION $4,700,000 * $52,222 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $4,900,000 * $54,444 / UNIT RECONCILED SALES COMPARISON VALUE $4,900,000 $54,444 / UNIT
---------- * Value indications are after adjustments for concessions, deferred maintenance, excess land and lease-up costs, if any. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 8 CANYON CREST, LITTLETON, COLORADO PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $5,000,000 NOI Per Unit $4,900,000 EGIM Multiplier $4,700,000 INDICATED VALUE BY SALES COMPARISON $4,900,000 $54,444 / UNIT INCOME APPROACH: Direct Capitalization Method: $4,800,000 Discounted Cash Flow Method: $4,700,000 INDICATED VALUE BY THE INCOME APPROACH $4,800,000 $53,333 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $4,800,000 $53,333 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 CANYON CREST, LITTLETON, COLORADO INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 5754 S Lowell Way (5757 S. King Street), Littleton, Arapahoe County, Colorado. Littleton identifies it as 2077-18-4-15-091. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by James Newell on May 13, 2003. Douglas Needham, MAI has not made a personal inspection of the subject property. James Newell performed the research, valuation analysis and wrote the report. Douglas Needham, MAI reviewed the report and concurs with the value. Both Douglas Needham, MAI and James Newell have extensive experience in appraising similar properties and meet the USPAP competency provision. The scope of this investigation comprises the inspection of the property and the collection, verification, and analysis of general and specific data pertinent to the subject property. We have researched current improved sales and leases of similar properties, analyzing them as to their comparability, and adjusting them accordingly. We completed the Sales Comparison and Income Capitalization Approaches to value. From these approaches to value, a concluded overall value was made. DATE OF VALUE AND REPORT This appraisal was made to express the opinion of value as of May 13, 2003. The date of the report is June 27, 2003. PURPOSE AND USE OF APPRAISAL The purpose of the appraisal is to estimate the market value of the fee simple interest in the subject property. It is understood that the appraisal is intended to assist the clients in litigation settlement proceedings. The appraisal was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. PROPERTY RIGHTS APPRAISED We have appraised the Fee Simple Estate in the subject property (as applied in the Sales & Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 CANYON CREST, LITTLETON, COLORADO defined in The Dictionary of Real Estate Appraisal, 3rd ed. (Chicago: Appraisal Institute, 1993), as: "Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat." MARKETING/EXPOSURE PERIOD MARKETING PERIOD: 6 to 12 months EXPOSURE PERIOD: 6 to 12 months HISTORY OF THE PROPERTY Ownership in the subject property is currently vested in Consolidated Capital Equity Partners/Two. To the best of our knowledge, no transfers of ownership or offers to purchase the subject are known to have occurred during the past three years. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 11 CANYON CREST, LITTLETON, COLORADO AREA / NEIGHBORHOOD ANALYSIS NEIGHBORHOOD ANALYSIS A neighborhood is a group of complementary land uses. The function of the neighborhood analysis is to describe the immediate surrounding environs. The subject is located in the city of Littleton, Colorado. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - South Federal Boulevard West - South Sheridan Boulevard South - West Bowles Avenue North - West Berry Avenue MAJOR EMPLOYERS The property is located in the Denver Metropolitan area, within which there are many large employers. The overall economic outlook for the area is considered favorable. DEMOGRAPHICS We have reviewed demographic data within the neighborhood. The following table summarizes the key data points. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 12 CANYON CREST, LITTLETON, COLORADO NEIGHBORHOOD DEMOGRAPHICS
AREA ----------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA ----------------------------------------------------------------------------------------------- POPULATION TRENDS Current Population 9,517 87,266 268,685 2,198,122 5-Year Population 10,229 93,144 288,227 2,428,641 % Change CY-5Y 7.5% 6.7% 7.3% 10.5% Annual Change CY-5Y 1.5% 1.3% 1.5% 2.1% HOUSEHOLDS Current Households 4,429 35,985 106,515 858,219 5-Year Projected Households 4,923 38,851 115,098 942,278 % Change CY - 5Y 11.2% 8.0% 8.1% 9.8% Annual Change CY-5Y 2.2% 1.6% 1.6% 2.0% INCOME TRENDS Median Household Income $ 53,694 $ 62,698 $ 66,522 $ 60,438 Per Capita Income $ 34,904 $ 29,548 $ 29,459 $ 27,463 Average Household Income $ 75,976 $ 71,598 $ 74,264 $ 70,339
Source: Demographics Now The subject neighborhood's population is expected to show increases below that of the region. The immediate market offers inferior income levels as compared to the broader market. The following table illustrates the housing statistics in the subject's immediate area, as well as the MSA region. HOUSING TRENDS
AREA ----------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA ------------------------------------------------------------------------------------------ HOUSING TRENDS % of Households Renting 32.25% 29.11% 26.26% 30.19% 5-Year Projected % Renting 29.25% 27.74% 25.16% 28.87% % of Households Owning 63.60% 64.78% 67.73% 61.93% 5-Year Projected % Owning 66.96% 66.55% 69.15% 63.83%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 CANYON CREST, LITTLETON, COLORADO SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Single-family housing South - Rollerskating rink and multiple retail uses East - Single-family housing West - Industrial machine shop CONCLUSIONS The subject is well located within the city of Littleton. The neighborhood is characterized as being mostly suburban in nature and is currently in the stable stage of development. The economic outlook for the neighborhood is judged to be favorable with a good economic base. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 14 CANYON CREST, LITTLETON, COLORADO MARKET ANALYSIS The subject property is located in the city of Littleton in Arapahoe County. The overall pace of development in the subject's market is more or less stable. There are no new projects currently under construction or recently completed in the subject's neighborhood at this time. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket -------------------------------------------------------------- 2002 7.8% 8.1% 2001 6.2% 5.9%
Source: Hendricks & Partners: Midsize Apartment Update, Denver Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has underperformed the overall market. Vacancy rates in the southern edges of metropolitan Denver have increased due to the affordability of apartments closer to the central business districts of Denver. This will continue until rates begin to rise and force residents to find more affordable housing choices. Market rents in the subject's market have been following increasing trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change ----------------------------------------------------------------------------------- 2001 $682 - $622 - 2002 $681 -0.1% $626 0.6%
The following table illustrates a summary of the subject's competitive set. COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject --------------------------------------------------------------------------------------------------------------- R-1 Falcon Run 94 90% 1975 2 miles north of subject R-2 Columbine Meadows 277 82% 1999 4 miles southwest of subject R-3 Chateau Lynwood 56 93% 1970 1.5 east of the subject R-4 Golden Nugget 204 90% 1970 Approx. 2 miles north of subject R-5 Riverside 248 88% 1987 Approx. 2 miles north of subject Subject Canyon Crest 90 92% 1970
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 15 CANYON CREST, LITTLETON, COLORADO PROPERTY DESCRIPTION SITE ANALYSIS Site Area 3.536 acres, or 154,028 square feet Shape Irregular Topography Level Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Poor Flood Zone: Community Panel 0800170005D; 08005C0435J, dated September 29, 1989; August 16, 1995 Flood Zone Zone X; X Zoning PDR, the subject improvements represent a legal conforming use of the site. REAL ESTATE TAXES
ASSESSED VALUE - 2002 ------------------------------ TAX RATE/ PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES ------------------------------------------------------------------------- 2077-18-4-15-091 $166,760 $203,820 $370,580 $0.07447 $27,596
IMPROVEMENT ANALYSIS Year Built 1970 Number of Units 90 Net Rentable Area 92,212 Square Feet Construction: Foundation Reinforced concrete slab Frame Composite concrete or brick and steel Exterior Walls Brick or masonry Roof Built-up asphalt with or without gravel over a wood truss structure Project Amenities Amenities at the subject include swimming pool, spa/jacuzzi, laundry room, and parking area. Unit Amenities Individual unit amenities include a baleony, cable TV connection, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 CANYON CREST, LITTLETON, COLORADO dishwasher, garbage disposal, and oven. Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) --------------------------------------------------- 1Bd/1Ba 30 640 2Bd/1.5Ba 30 851 2Bd/1.5Ba Townhouse 22 1,467 3Bd/2.5Ba Townhouse 8 1,901
Overall Condition Good Effective Age 20 years Economic Life 45 years Remaining Economic Life 25 years Deferred Maintenance None
HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1970 and consist of a 90-unit multifamily project. The highest and best use as improved is for a continued multifamily use. Overall, the highest and best use of the subject property is the continued use of the existing apartment project. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 17 CANYON CREST, LITTLETON, COLORADO THE VALUATION PROCEDURE There are three traditional approaches, which can be employed in establishing the market value of the subject property. These approaches and their applicability to the valuation of the subject are summarized as follows: THE COST APPROACH The application of the Cost Approach is based on the principle of substitution. This principle may be stated as follows: no one is justified in paying more for a property than that amount by which he or she can obtain, by purchase of a site and construction of a building, without undue delay, a property of equal desirability and utility. In the case of a new building, no deficiencies in the building should exist. In the case of income-producing real estate, the cost of construction plays a minor and relatively insignificant role in determining market value. The Cost Approach is typically only a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) where the cost of reproducing the improvements is easily and accurately quantified and there is no economic obsolescence. In all instances, the issue of an appropriate entrepreneurial profit - the reward for undertaking the risk of construction, remains a highly subjective factor especially in a market lacking significant speculative development. THE SALES COMPARISON APPROACH The Sales Comparison Approach is an estimate of value based upon a process of comparing recent sales of similar properties in the surrounding or competing areas to the subject property. Inherent in this approach is the principle of substitution. The application of this approach consists of comparing the subject property with similar properties of the same general type, which have been sold recently or currently are available for sale in competing areas. This comparative process involves judgment as to the similarity of the subject property and the comparable sale with respect to many value factors such as location, contract rent levels, quality of construction, reputation and prestige, age and condition, among others. The estimated value through this approach represents the probable price at which a willing seller would sell the subject property to a willing and knowledgeable buyer as of the date of value. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 18 CANYON CREST, LITTLETON, COLORADO THE INCOME CAPITALIZATION APPROACH The theory of the Income Capitalization Approach is based on the premise that present value is the value of the cash flow and reversionary value the property will produce over a reasonable holding (ownership) period. The Discounted Cash Flow Analysis will convert equity cash flows (including cash flows and equity reversion) into a present value utilizing an internal rate of return (or discount rate). The Internal Rate of Return (IRR) will be derived from a comparison of alternate investments, a comparative analysis of IRR's used by recent buyers of similar properties, and a review of published industry surveys. The Direct Capitalization Analysis converts one year of income into an overall value using overall capitalization rates from similar sales. The overall rates take into consideration buyers assumptions of the market over the long-term. The results of the Income Capitalization Analysis are usually the primary value indicator for income producing properties. Investors expect a reasonable rate of return on their equity investment based on the ownership risks involved; this approach closely parallels the investment decision process. RECONCILIATION In this instance, we have completed the Sales Comparison and Income Capitalization Approaches to value. As an income producing property, the income approach is a primary approach to value. The Sales Comparison Approach is also considered reliable as investors are buying similar buildings in the market. Our research indicates that market participants are generally not buying, selling, investing, or lending with reliance placed on the methodology of the Cost Approach to establish the value. Therefore, we have decided that the Cost Approach is not a reliable indicator of value for the subject, and this approach has not been utilized. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 19 CANYON CREST, LITTLETON, COLORADO SALES COMPARISON APPROACH Use of market or comparable sales requires the collection and analysis of comparable sales data. Similar properties recently sold are compared to the subject and adjusted based on any perceived differences. This method is based on the premise that the costs of acquiring a substitute property would tend to establish a value for the subject property. The premise suggests that if a substitute is unavailable in the market, the reliability of the approach may be subordinate to the other approaches. The reliance on substitute properties produces shortcomings in the validity of this approach. Geographic and demographic characteristics from each submarket restrict which sales may be selected. Recent sales with a similar physical characteristics, income levels, and location are usually limited. The sales we have identified, however, do establish general valuation parameters as well as provide support to our conclusion derived through the income approach method. The standard unit of comparison among similar properties is the sales price per unit and price per square foot of net rentable area. To accurately adjust prices to satisfy the requirements of the sales comparison approach, numerous calculations and highly subjective judgments would be required including consideration of numerous income and expense details for which information may be unreliable or unknown. The sales price per unit and square foot are considered relevant to the investment decision, but primarily as a parameter against which value estimates derived through the income approach can be judged and compared. In examining the comparable sales, we have applied a subjective adjustment analysis, which includes specific adjustments derived from our experience and consulting with the market participants. SALES COMPARISON ANALYSIS Detailed on the following pages are sales transactions involving properties located in the subject's competitive investment market. Photographs of the sale transactions are located in the Addenda. Following the summary of sales is an adjustment grid that is used to arrive at a value. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 20 CANYON CREST, LITTLETON, COLORADO SUMMARY OF COMPARABLE SALES -IMPROVED
DESCRIPTION SUBJECT COMPARABLE COMPARABLE I - 1 I - 2 ------------------------------------------------------------------------------------------------------- Property Name Canyon Crest Sierra Vista Sheridan South LOCATION: Address 5754 S Lowell 8851 E 5601 W Green Way (5757 S. Florida Meadows Place King Street) Avenue City, State Littleton, Denver, Denver, Colorado Colorado Colorado County Arapahoe Arapahoe Denver PHYSICAL CHARACTERISTICS: Net Rentable Area 92,212 133,860 144,106 (SF) Year Built 1970 1976 1961 Number of Units 90 209 201 Unit Mix: Type Total Type Total Type Total 1Bd/1Ba 30 1Bd/1Ba 152 1Bd/1Ba 103 2Bd/1.5Ba 30 2Bd/1Ba 57 2Bd/1Ba 82 2Bd/1.5Ba 22 3Bd/2Ba 16 Townhouse 3Bd/2.5Ba 8 Townhouse Average Unit Size 1,025 640 717 (SF) Land Area (Acre) 3.5360 5.9700 5.4000 Density (Units/Acre) 25.5 35.0 37.2 Parking Ratio 1.50 1.05 1.69 (Spaces/Unit) Parking Type (Gr., Open Open Open Cov., etc.) CONDITION: 0 Fair Average APPEAL: 0 Fair Average AMENITIES: Pool/Spa Yes/Yes No/No No/No Gym Room No No No Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts No No No OCCUPANCY: 92% 95% 90% TRANSACTION DATA: Sale Date March, 2003 August, 2002 Sale Price ($) $9,400,000 $8,600,000 Grantor Sundance Kinnickinnic Housing Assoc Realty Company Grantee Coolidge Sheridan Sierra Family Partnership Sale Documentation 3018857 N/A Verification Buyer's Broker Public Records Telephone Number 720-528-6300 ------------------------------------------------------------------------------------------------- ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF ------------------------------------------------------------------------------------------------- Potential Gross Income $ 1,741,656 $8,333 $13.01 $1,439,400 $7,161 $9.99 Vacancy/Credit Loss $ 87.083 $ 417 $ 0.65 $ 143,940 $ 716 $1.00 ----------------------------------------------------- Effective Gross Income $ 1,654,573 $7,917 $12.36 $1,295,460 $6,445 $8.99 Operating Expenses $ 724,283 $3,465 $ 5.41 $ 582,957 $2,900 $4.05 ----------------------------------------------------- Net Operating Income $ 930,290 $4,451 $ 6.95 $ 712,503 $3,545 $4.94 ------------------------------------------------------------------------------------------------- NOTES: PRICE PER UNIT $ 44,976 $ 42,786 PRICE PER SQUARE FOOT $ 70.22 $ 59.68 EXPENSE RATIO 43.8% 45.0% EGIM 5.68 6.64 OVERALL CAP RATE 9.90% 8.28% Cap Rate based on Pro Forma or Actual PRO FORMA PRO FORMA Income? DESCRIPTION COMPARABLE COMPARABLE COMPARABLE I - 3 I - 4 I - 5 ------------------------------------------------------------------------------------------------------- Property Name Fairview Orchard Glen Forest Manor LOCATION: Address 14594 E 3131 W Mexico 615 S Forest Mississippi Avenue Street Avenue City, State Aurora, Denver, Denver, Colorado Colorado Colorado County Arapahoe Denver Denver PHYSICAL CHARACTERISTICS: Net Rentable Area 77,640 86,994 75,650 (SF) Year Built 1974 1973 1974 Number of Units 100 114 103 Unit Mix: Type Total Type Total Type Total 1Bd/1Ba 20 1Bd/1Ba 9 1Bd/1Ba 45 2Bd/1Ba 50 2Bd/1Ba 39 2Bd/1Ba 58 3Bd/1.5Ba 20 3Bd/2Ba 50 4Bd/1.5 10 4Bd/2Ba 9 5Bd/2Ba 7 Average Unit Size 776 763 734 (SF) Land Area (Acre) 7.0600 4.3900 2.4300 Density (Units/Acre) 14.2 26.0 42.4 Parking Ratio 1.94 1.30 1.61 (Spaces/Unit) Parking Type (Gr., Open Open Open Cov., etc.) CONDITION: Average Average Average APPEAL: Average Average Average AMENITIES: Pool/Spa No/No No/No No/No Gym Room No No No Laundry Room Yes Yes No Secured Parking No No No Sport Courts No No No OCCUPANCY: 95% 98% 94% TRANSACTION DATA: Sale Date February, 2003 November, 2002 January, 2002 Sale Price ($) $6,850,000 $6,800,000 $5,775,000 Grantor Vision Real McKinney Forest Estate Mason Street Investments, Inc. Company Grantee Apache 10 Sandra Forest Enterprises Foxley Manor Sale Documentation APA-11592 N/A N/A Verification Buyer's Broker Broker Public Records Telephone Number 303-321-5888 ----------------------------------------------------------------------------------------------------- ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF ----------------------------------------------------------------------------------------------------- Potential Gross Income $1,021,800 $10,218 $13.16 $1,428,105 $12,527 $16.42 $803,380 $7,805 $10.63 Vacancy/Credit Loss $ 51,090 $ 511 $ 0.66 $ 71,405 $ 626 $ 0.82 $ 48,233 $ 468 $ 0.64 ----------------------------------------------------------------------------- Effective Gross Income $ 970,710 $ 9,707 $12.50 $1,356,700 $11,901 $15.60 $755,647 $7,336 $ 9.99 Operating Expenses $ 281,339 $ 2,813 $ 3.62 $ 649,715 $ 5,699 $ 7.47 $377,824 $3,668 $ 4.99 ----------------------------------------------------------------------------- Net Operating Income $ 689,371 $ 6,894 $ 8.88 $ 706,985 $ 6,202 $ 8.13 $377,823 $3,668 $ 4.99 ----------------------------------------------------------------------------------------------------- NOTES: PRICE PER UNIT $68,500 $59,649 $56,068 PRICE PER SQUARE FOOT $88.23 $78.17 $76.34 EXPENSE RATIO 29.0% 47.9% 50.0% EGIM 7.06 5.01 7.64 OVERALL CAP RATE 10.06% 10.40% 6.54% Cap Rate based on Pro Forma or Actual PRO FORMA PRO FORMA PRO FORMA Income?
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21 CANYON CREST, LITTLETON, COLORADO IMPROVED SALES MAP [IMPROVED SALES MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $42,786 to $68,500 per unit. Adjustments have been made to the sales to reflect differences in location, age/condition and quality/appeal. Generally speaking, larger properties typically have a lower price per unit when compared to smaller properties, all else being equal. Similarly, those projects with a higher average unit size will generally have a higher price per unit. After appropriate adjustments are made, the improved sales demonstrate an adjusted range for the subject from $53,265 to $58,225 per unit with a mean or average adjusted price of $56,428 per unit. The median adjusted price is $56,667 per unit. Based on the following analysis, we have concluded to a value of $56,000 per unit, which results in an "as is" value of $5,000,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 CANYON CREST, LITTLETON, COLORADO SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ----------------------------------------------------------------------------------------------------------------------------------- Property Name Canyon Crest Sierra Vista Sheridan South Address 5754 S Lowell Way (5757 S. 8851 E Florida Avenue 5601 W Green Meadows Place King Street) City Littleton, Colorado Denver, Colorado Denver, Colorado Sale Date March, 2003 August, 2002 Sale Price ($) $9,400,000 $8,600,000 Net Rentable Area (SF) 92,212 133,860 144,106 Number of Units 90 209 201 Price Per Unit $44,976 $42,786 Year Built 1970 1976 1961 Land Area (Acre) 3,5360 5,9700 5,4000 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 03-2003 0% 08-2002 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $44,976 $42,786 Location Inferior 10% Comparable 0% Number of Units 90 209 5% 201 5% Quality / Appeal Average Comparable 0% Inferior 10% Age / Condition 1970 1976 / Fair 0% 1961 / Average 10% Occupancy at Sale 92% 95% 0% 90% 0% Amenities Average Comparable 0% Comparable 0% Average Unit Size (SF) 1,025 640 10% 717 10% PHYSICAL ADJUSTMENT 25% 35% FINAL ADJUSTED VALUE ($/UNIT) $56,220 $57,761 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 --------------------------------------------------------------------------------------------------------------------------------- Property Name Fairview Orchard Glen Forest Manor Address 14594 E Mississippi Avenue 3131 W Mexico Avenue 615 S Forest Street City Aurora, Colorado Denver, Colorado Denver, Colorado Sale Date February, 2003 November, 2002 January, 2002 Sale Price ($) $6,850,000 $6,800,000 $5,775,000 Net Rentable Area (SF) 77,640 86,994 75,650 Number of Units 100 114 103 Price Per Unit $68,500 $59,649 $56,068 Year Built 1974 1973 1974 Land Area (Acre) 7,0600 4,3900 2,4300 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 02-2003 0% 11-2002 0% 01-2002 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $68,500 $59,649 $56,068 Location Comparable 0% Comparable 0% Comparable 0% Number of Units 100 0% 114 0% 103 0% Quality / Appeal Superior -20% Superior -10% Superior -10% Age / Condition 1974 / Average 0% 1973 / Average 0% 1974 / Average 0% Occupancy at Sale 95% 0% 98% 0% 94% 0% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 776 5% 763 5% 734 5% PHYSICAL ADJUSTMENT -15% -5% -5% FINAL ADJUSTED VALUE ($/UNIT) $58,225 $56,667 $53,265
SUMMARY VALUE RANGE (PER UNIT) $53,265 TO $58,225 MEAN (PER UNIT) $56,428 MEDIAN (PER UNIT) $56,667 VALUE CONCLUSION (PER UNIT) $56,000
VALUE OF IMPROVEMENT & MAIN SITE $5,040,000 PV OF CONCESSIONS -$ 66,000 VALUE INDICATED BY SALES COMPARISON APPROACH $4,974,000 ROUNDED $5,000,000
NET OPERATING INCOME (NOI) ANALYSIS We have also conducted a net operating income (NOI) comparison analysis. The NOI effectively takes into account the various physical, location, and operating aspects of the sale. When the subject's NOI is compared to the sale NOI, a percent adjustment can be arrived at. The following table illustrates this analysis. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 CANYON CREST, LITTLETON, COLORADO
NOI PER UNIT COMPARISON ----------------------------------------------------------------------------------------------- SALE PRICE NOI/ SUBJECT NOI COMPARABLE NO. OF ---------- -------- -------------- ADJUSTMENT INDICATED NO. UNITS PRICE/UNIT OAR NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT ----------------------------------------------------------------------------------------------- I-1 209 $9,400,000 9.90% $930,290 $514,780 1.285 $57,795 $ 44,976 $ 4,451 $ 5,720 I-2 201 $8,600,000 8.28% $712,503 $514,780 1.614 $69,038 $ 42,786 $ 3,545 $ 5,720 I-3 100 $6,850,000 10.06% $689,371 $514,780 0.830 $56,835 $ 68,500 $ 6,894 $ 5,720 I-4 114 $6,800,000 10.40% $706,985 $514,780 0.922 $55,015 $ 59,649 $ 6,202 $ 5,720 I-5 103 $5,775,000 6.54% $377,823 $514,780 1.559 $87,426 $ 56,068 $ 3,668 $ 5,720
PRICE/UNIT VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT ------------------------------------------------------------------------------------------------------- Low High Average Median Estimated Price Per Unit $ 55,500 ---------- $55,015 $87,426 $65,222 $57,795 Number of Units 90 Value $4,995,000 PV of Concessions -$ 66,000 ---------- Value Based on NOI Analysis $4,929,000 Rounded $4,900,000
The adjusted sales indicate a range of value between $55,015 and $87,426 per unit, with an average of $65,222 per unit. Based on the subject's competitive position within the improved sales, a value of $55,500 per unit is estimated. This indicates an "as is" market value of $4,900,000 (rounded after necessary adjustment, if any) for the NOI Per Unit Analysis. EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS The effective gross income multiplier (EGIM) is derived by dividing the sales price by the total effective gross income. The following table illustrates the EGIMs for the comparable improved sales. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24 CANYON CREST, LITTLETON, COLORADO
EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON -------------------------------------------------------------------------------------------- SALE PRICE COMPARABLE NO. OF ---------- EFFECTIVE OPERATING SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM -------------------------------------------------------------------------------------------- I-1 209 $9,400,000 $1,654,573 $ 724,283 43.77% 5.68 $ 44,976 I-2 201 $8,600,000 $1,295,460 $ 582,957 45.00% 6.64 $ 42,786 I-3 100 $6,850,000 $ 970,710 $ 281,339 28.98% 7.06 $ 68,500 35.10% I-4 114 $6,800,000 $1,356,700 $ 649,715 47.89% 5.01 $ 59,649 I-5 103 $5,775,000 $ 755,647 $ 377,824 50.00% 7.64 $ 56,068
EGIM VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES ------------------------------------------------------------------------------------------------------ Low High Average Median Estimate EGIM 5.80 ---------- 5.01 7.64 6.41 6.64 Subject EGI $ 820,874 Value $4,761,068 PV of Concessions -$ 66,000 ---------- Value Based on EGIM Analysis $4,695,068 Rounded $4,700,000 Value Per Unit $ 52,222
There is an inverse relationship, which generally holds among EGIMs and operating expenses. Properties, which have higher expense ratios, typically sell for relatively less and therefore produce a lower EGIM. As will be illustrated in the Income Capitalization Approach of this report, the subject's operating expense ratio (OER) is estimated at 35.10% before reserves. The comparable sales indicate a range of expense ratios from 28.98% to 50.00%, while their EGIMs range from 5.01 to 7.64. Overall, we conclude to an EGIM of 5.80, which results in an "as is" value estimate in the EGIM Analysis of $4,700,000. SALES COMPARISON CONCLUSION The three valuation methods in the Sales Comparison Approach are shown below. The overall value via the Sales Comparison Approach is estimated at $4,900,000. Price Per Unit $5,000,000 NOI Per Unit $4,900,000 EGIM Analysis $4,700,000 Sales Comparison Conclusion $4,900,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 25 CANYON CREST, LITTLETON, COLORADO INCOME CAPITALIZATION APPROACH The income capitalization approach is based on the premise that value is created by the expectation of future benefits. We estimated the present value of those benefits to derive an indication of the amount that a prudent, informed purchaser-investor would pay for the right to receive them as of the date of value. This approach requires an estimate of the NOI of a property. The estimated NOI is then converted to a value indication by use of either the direct capitalization or the discounted cash flow analysis (yield capitalization). Direct capitalization uses a single year's stabilized NOI as a basis for a value indication by dividing the income by a capitalization rate. The rate chosen accounts for a recapture of the investment by the investor and should reflect all factors that influence the value of the property, such as tenant quality, property condition, neighborhood change, market trends, interest rates, and inflation. The rate may be extracted from local market transactions or, when transaction evidence is lacking, obtained from trade sources. A discounted cash flow analysis focuses on the operating cash flows expected from the property and the proceeds of a hypothetical sale at the end of a holding period (the reversion). The cash flows and reversion are discounted to their present values using a market-derived discount rate and are added together to obtain a value indication. Because benefits to be received in the future are worth less than the same benefits received in the present, this method weights income in the early years more heavily than the income and the sale proceeds to be received later. The strength of the discounted cash flow method is its ability to recognize variations in projected net income, such as those caused by inflation, stepped leases, neighborhood change, or tenant turnover. Its weakness is that it requires many judgments regarding the actions of likely buyers and sellers of the property in the future. In some situations, both methods yield a similar result. The discounted cash flow method is typically more appropriate for the analysis of investment properties with multiple or long-term leases, particularly leases with cancellation clauses or renewal options. It is especially useful for multi-tenant properties in volatile markets. The direct capitalization AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 CANYON CREST, LITTLETON, COLORADO method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties.
SUMMARY OF ACTUAL AVERAGE RENTS --------------------------------------------------------------- Average Unit Area ----------------- Unit Type (Sq. Ft.) Per Unit Per SF %Occupied --------------------------------------------------------------- 1Bd/1Ba 640 $ 638 $1.00 93.1% 2Bd/1.5Ba 851 $ 762 $0.90 86.7% 2Bd/1.5Ba Townhouse 1467 $1,088 $0.74 95.5% 3Bd/2.5Ba Townhouse 1901 $1,183 $0.62 100.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27 CANYON CREST, LITTLETON, COLORADO RENT ANALYSIS
COMPARABLE RENTS -------------------------------------------------------------------- R-1 R-2 R-3 R-4 R-5 -------------------------------------------------------------------- Columbine Chateau Golden Falcon Run Meadows Lynwood Nugget Riverside -------------------------------------------------------------------- SUBJECT SUBJECT COMPARISON TO SUBJECT SUBJECT UNIT ACTUAL ASKING -------------------------------------------------------------------- DESCRIPTION TYPE RENT RENT Similar Very Superior Slightly Inferior Similar Superior --------------------------------------------------------------------------------------------------------------------------------- Monthly Rent 1BD/1BA $ 638 $ 649 $ 675 $ 680 $ 709 Unit Area (SF) 640 640 642 700 756 Monthly Rent Per Sq.Ft. $ 1.00 $ 1.01 $ 1.05 $0.97 $ 0.94 Monthly Rent 2BD/1.5BA $ 762 $ 739 $ 830 $ 780 $ 819 Unit Area (SF) 851 851 949 900 925 Monthly Rent Per Sq.Ft. $ 0.90 $ 0.87 $ 0.87 $0.87 $ 0.89 Monthly Rent 2BD/1.5BA $1,088 $1,049 $ 943 $1,089 Unit Area (SF) TOWNHOUSE 1,467 1,467 1,436 1,158 Monthly Rent Per Sq.Ft. $ 0.74 $ 0.72 $ 0.66 $ 0.94 Monthly Rent 3BD/2.5BA $1,183 $1,170 $1,015 $1,028 Unit Area (SF) TOWNHOUSE 1,901 1,901 1,064 1,552 Monthly Rent Per Sq.Ft. $ 0.62 $ 0.62 $ 0.95 $ 0.66 DESCRIPTION MIN MAX MEDIAN AVERAGE ------------------------------------------------------------- Monthly Rent $ 709 $ 678 $ 688 Unit Area (SF) 756 671 699 Monthly Rent Per Sq.Ft. $ 0.94 $ 1.05 $ 0.97 $ 0.99 Monthly Rent $ 830 $ 800 $ 810 Unit Area (SF) 949 913 925 Monthly Rent Per Sq.Ft. $ 0.87 $ 0.89 $ 0.87 $ 0.88 Monthly Rent $ 943 $1,089 $1,016 $1,016 Unit Area (SF) 1,158 1,436 1,297 1,297 Monthly Rent Per Sq.Ft. $ 0.66 $ 0.94 $ 0.80 $ 0.80 Monthly Rent $1,015 $1,028 $1,021 $1,021 Unit Area (SF) 1,064 1,552 1,308 1,308 Monthly Rent Per Sq.Ft. $ 0.66 $ 0.95 $ 0.81 $ 0.81
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows:
GROSS RENTAL INCOME PROJECTION ------------------------------------------------------------------------------------------------ Market Rent Unit Area ------------------ Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income ------------------------------------------------------------------------------------------------ 1Bd/1Ba 30 640 $ 645 $1.01 $19,350 $232,200 2Bd/1.5Ba 30 851 $ 740 $0.87 $22,200 $266,400 2Bd/1.5Ba Townhouse 22 1,467 $1,050 $0.72 $23,100 $277,200 3Bd/2.5Ba Townhouse 8 1,901 $1,170 $0.62 $ 9,360 $112,320 ------- -------- Total $74,010 $888,120 ------- --------
PRO FORMA ANALYSIS For purposes of this appraisal, we were provided with income and expense data for the subject property. A summary of this data is presented on the following page. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 CANYON CREST, LITTLETON, COLORADO SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 FISCAL YEAR 2003 ------------------------------------------------------------------------------------------------------ ACTUAL ACTUAL ACTUAL MANAGEMENT BUDGET ------------------------------------------------------------------------------------------------------ DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT ----------------------------------------------------------------------------------------------------------------------------------- Revenues Rental Income $ 870,341 $ 9,670 $ 910,911 $ 10,121 $ 555,024 $ 6,167 $ 876,000 $ 9,733 Vacancy $ 41,105 $ 457 $ 45,565 $ 506 $ 52,007 $ 578 $ 98,000 $ 1,089 Credit Loss/Concessions $ 4,638 $ 52 $ 13,093 $ 145 $ 10,334 $ 115 $ 21,500 $ 239 ---------------------------------------------------------------------------------------------------- Subtotal $ 45,743 $ 508 $ 58,658 $ 652 $ 62,341 $ 693 $ 119,500 $ 1,328 Laundry Income $ 8,339 $ 93 $ 7,447 $ 83 $ 3,758 $ 42 $ 9,449 $ 105 Garage Revenue $ 5,068 $ 56 $ 5,891 $ 65 $ 3,193 $ 35 $ 0 $ 0 Other Misc. Revenue $ 48,872 $ 543 $ 42,097 $ 468 $ 43,235 $ 480 ($ 9,054) -$ 101 ---------------------------------------------------------------------------------------------------- Subtotal Other Income $ 62,279 $ 692 $ 55,435 $ 616 $ 50,186 $ 558 $ 395 $ 4 ---------------------------------------------------------------------------------------------------- Effective Gross Income $ 886,877 $ 9,854 $ 907,688 $ 10,085 $ 542,869 $ 6,032 $ 756,895 $ 8,410 Operating Expenses Taxes $ 26,612 $ 296 $ 45,966 $ 511 $ 35,505 $ 395 $ 45,120 $ 501 Insurance $ 8,820 $ 98 $ 11,909 $ 132 $ 41,320 $ 459 $ 4,184 $ 46 Utilities $ 58,204 $ 647 $ 69,269 $ 770 $ 33,833 $ 376 $ 55,000 $ 611 Repair & Maintenance $ 42,254 $ 469 $ 27,202 $ 302 $ 29,928 $ 333 $ 33,750 $ 375 Cleaning $ 19,053 $ 212 $ 14,667 $ 163 $ 10,157 $ 113 $ 4,000 $ 44 Landscaping $ 4,297 $ 48 $ 4,744 $ 53 $ 1,044 $ 12 $ 4,000 $ 44 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 15,978 $ 178 $ 6,438 $ 72 $ 9,937 $ 110 $ 9,500 $ 106 General Administrative $ 87,367 $ 971 $ 72,019 $ 800 $ 59,966 $ 666 $ 104,300 $ 1,159 Management $ 45,301 $ 503 $ 51,146 $ 568 $ 28,667 $ 319 $ 45,430 $ 505 Miscellaneous ($ 15,199) -$ 169 ($ 19,455) -$ 216 ($ 152) -$ 2 $ 0 $ 0 ---------------------------------------------------------------------------------------------------- Total Operating Expenses $ 292,687 $ 3,252 $ 283,905 $ 3,155 $ 250,205 $ 2,780 $ 305,284 $ 3,392 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------------------------------------------- Net Income $ 594,190 $ 6,602 $ 623,783 $ 6,931 $ 292,664 $ 3,252 $ 451,611 $ 5,018 ANNUALIZED 2003 ---------------------- PROJECTION AAA PROJECTION ------------------------------------------------------ DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % ----------------------------------------------------------------------------------- Revenues Rental Income $ 839,560 $ 9,328 $ 888,120 $ 9,868 100.0% Vacancy $ 136,332 $ 1,515 $ 97,693 $ 1,085 11.0% Credit Loss/Concessions $ 27,188 $ 302 $ 22,203 $ 247 2.5% ---------------------------------------------------- Subtotal $ 163,520 $ 1,817 $ 119,896 $ 1,332 13.5% Laundry Income $ 6,100 $ 68 $ 4,500 $ 50 0.5% Garage Revenue $ 5,060 $ 56 $ 4,500 $ 50 0.5% Other Misc. Revenue $ 55,764 $ 620 $ 43,650 $ 485 4.9% ---------------------------------------------------- Subtotal Other Income $ 66,924 $ 744 $ 52,650 $ 585 5.9% ---------------------------------------------------- Effective Gross Income $ 742,964 $ 8,255 $ 820,874 $ 9,121 100.0% Operating Expenses Taxes $ 51,200 $ 569 $ 35,550 $ 395 4.3% Insurance $ 16,808 $ 187 $ 16,200 $ 180 2.0% Utilities $ 58,776 $ 653 $ 54,000 $ 600 6.6% Repair & Maintenance $ 57,884 $ 643 $ 31,500 $ 350 3.8% Cleaning $ 16,228 $ 180 $ 10,350 $ 115 1.3% Landscaping $ 800 $ 9 $ 2,700 $ 30 0.3% Security $ 5,596 $ 62 $ 5,400 $ 60 0.7% Marketing & Leasing $ 31,824 $ 354 $ 10,350 $ 115 1.3% General Administrative $ 104,204 $ 1,158 $ 81,000 $ 900 9.9% Management $ 40,196 $ 447 $ 41,044 $ 456 5.0% Miscellaneous $ 2,856 $ 32 $ 0 $ 0 0.0% ---------------------------------------------------- Total Operating Expenses $ 386,372 $ 4,293 $ 288,094 $ 3,201 35.1% Reserves $ 0 $ 0 $ 18,000 $ 200 6.2% ---------------------------------------------------- Net Income $ 356,592 $ 3,962 $ 514,780 $ 5,720 62.7%
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 14% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 CANYON CREST, LITTLETON, COLORADO RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $200 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $200 per unit should be satisfactory in our reserves for replacement to cover future capital expenditures. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of the annual cash flows and discounts them, along with the expected equity reversion, to a present value. The present value of the cash flow is added to the present value of the reversion, resulting in a total property value. INVESTMENT CRITERIA Appropriate investment criteria will be derived for the subject based upon analysis of comparable sales and a survey of real estate investors. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 1ST QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES ------------------------------------------- GOING-IN TERMINAL ------------------------------------------- LOW HIGH LOW HIGH ------------------------------------------- RANGE 6.00% 10.00% 7.00% 10.00% AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 CANYON CREST, LITTLETON, COLORADO SUMMARY OF OVERALL CAPITALIZATION RATES
--------------------------------------------------------- COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR --------------------------------------------------------- I-1 Mar-03 95% $44,976 9.90% I-2 Aug-02 90% $42,786 8.28% I-3 Feb-03 95% $68,500 10.06% I-4 Nov-02 98% $59,649 10.40% I-5 Jan-02 94% $56,068 6.54% ------------------ High 10.40% ------------------ Low 6.54% ------------------ Average 9.04% ------------------
Based on this information, we have concluded the subject's overall capitalization rate should be 10.50%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 11.00%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 13.00%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 13.00% indicates a value of $4,700,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 CANYON CREST, LITTLETON, COLORADO approximately 36% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 32 CANYON CREST, LITTLETON, COLORADO DISCOUNTED CASH FLOW ANALYSIS CANYON CREST
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 ------------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 888,120 $ 888,120 $ 897,001 $ 923,911 $ 951,629 $ 980,177 Vacancy $ 97,693 $ 97,693 $ 98,670 $ 101,630 $ 104,679 $ 107,820 Credit Loss $ 22,203 $ 22,203 $ 22,425 $ 23,098 $ 23,791 $ 24,504 Concessions $ 74,520 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- Subtotal $ 194,416 $ 119,896 $ 121,095 $ 124,728 $ 128,470 $ 132,324 Laundry Income $ 4,500 $ 4,500 $ 4,545 $ 4,681 $ 4,822 $ 4,966 Garage Revenue $ 4,500 $ 4,500 $ 4,545 $ 4,681 $ 4,822 $ 4,966 Other Misc. Revenue $ 43,650 $ 43,650 $ 44,087 $ 45,409 $ 46,771 $ 48,175 -------------------------------------------------------------------------------- Subtotal Other Income $ 52,650 $ 52,650 $ 53,177 $ 54,772 $ 56,415 $ 58,107 -------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $ 746,354 $ 820,874 $ 829,083 $ 853,955 $ 879,574 $ 905,961 OPERATING EXPENSES: Taxes $ 35,550 $ 36,617 $ 37,715 $ 38,846 $ 40,012 $ 41,212 Insurance $ 16,200 $ 16,686 $ 17,187 $ 17,702 $ 18,233 $ 18,780 Utilities $ 54,000 $ 55,620 $ 57,289 $ 59,007 $ 60,777 $ 62,601 Repair & Maintenance $ 31,500 $ 32,445 $ 33,418 $ 34,421 $ 35,454 $ 36,517 Cleaning $ 10,350 $ 10,661 $ 10,980 $ 11,310 $ 11,649 $ 11,998 Landscaping $ 2,700 $ 2,781 $ 2,864 $ 2,950 $ 3,039 $ 3,130 Security $ 5,400 $ 5,562 $ 5,729 $ 5,901 $ 6,078 $ 6,260 Marketing & Leasing $ 10,350 $ 10,661 $ 10,980 $ 11,310 $ 11,649 $ 11,998 General Administrative $ 81,000 $ 83,430 $ 85,933 $ 88,511 $ 91,166 $ 93,901 Management $ 37,318 $ 41,044 $ 41,454 $ 42,698 $ 43,979 $ 45,298 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 284,368 $ 295,505 $ 303,549 $ 312,656 $ 322,036 $ 331,697 Reserves $ 18,000 $ 18,540 $ 19,096 $ 19,669 $ 20,259 $ 20,867 -------------------------------------------------------------------------------- NET OPERATING INCOME $ 443,986 $ 506,829 $ 506,437 $ 521,630 $ 537,279 $ 553,397 Operating Expense Ratio (% of EGI) 38.1% 36.0% 36.6% 36.6% 36.6% 36.6% Operating Expense Per Unit $ 3,160 $ 3,283 $ 3,373 $ 3,474 $ 3,578 $ 3,686 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 ---------------------------------------------------------------------------------------------------------- REVENUE Base Rent $1,009,583 $1,039,870 $1,071,066 $1,103,198 $1,136,294 Vacancy $ 111,054 $ 114,386 $ 117,817 $ 121,352 $ 124,992 Credit Loss $ 25,240 $ 25,997 $ 26,777 $ 27,580 $ 28,407 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ Subtotal $ 136,294 $ 140,382 $ 144,594 $ 148,932 $ 153,400 Laundry Income $ 5,115 $ 5,269 $ 5,427 $ 5,590 $ 5,757 Garage Revenue $ 5,115 $ 5,269 $ 5,427 $ 5,590 $ 5,757 Other Misc. Revenue $ 49,620 $ 51,108 $ 52,642 $ 54,221 $ 55,847 ------------------------------------------------------------------ Subtotal Other Income $ 59,851 $ 61,646 $ 63,496 $ 65,400 $ 67,362 ------------------------------------------------------------------ EFFECTIVE GROSS INCOME $ 933,140 $ 961,134 $ 989,968 $1,019,667 $1,050,257 OPERATING EXPENSES: Taxes $ 42,449 $ 43,722 $ 45,034 $ 46,385 $ 47,776 Insurance $ 19,344 $ 19,924 $ 20,522 $ 21,137 $ 21,771 Utilities $ 64,479 $ 66,413 $ 68,406 $ 70,458 $ 72,571 Repair & Maintenance $ 37,613 $ 38,741 $ 39,903 $ 41,100 $ 42,333 Cleaning $ 12,358 $ 12,729 $ 13,111 $ 13,504 $ 13,910 Landscaping $ 3,224 $ 3,321 $ 3,420 $ 3,523 $ 3,629 Security $ 6,448 $ 6,641 $ 6,841 $ 7,046 $ 7,257 Marketing & Leasing $ 12,358 $ 12,729 $ 13,111 $ 13,504 $ 13,910 General Administrative $ 96,718 $ 99,620 $ 102,608 $ 105,687 $ 108,857 Management $ 46,657 $ 48,057 $ 49,498 $ 50,983 $ 52,513 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ TOTAL OPERATING EXPENSES $ 341,648 $ 351,897 $ 362,454 $ 373,328 $ 384,527 Reserves $ 21,493 $ 22,138 $ 22,802 $ 23,486 $ 24,190 ------------------------------------------------------------------ NET OPERATING INCOME $ 569,999 $ 587,099 $ 604,712 $ 622,853 $ 641,539 Operating Expense Ratio (% of EGI) 36.6% 36.6% 36.6% 36.6% 36.6% Operating Expense Per Unit $ 3,796 $ 3,910 $ 4,027 $ 4,148 $ 4,273
Gross Residual Sale Deferred Maintenance $ 0 Price $5,832,173 Estimated Stabilized NOI $514,780 Sales Expense Rate 2.00% Less: Sales Expense $ 116,643 Add: Excess Land $ 0 Months to Stabilized 9 Discount Rate 13.00% ---------- Stabilized Occupancy 89.0% Terminal Cap Rate 11.00% Net Residual Sale Price $5,715,530 Other Adjustments $ 0 PV of Reversion $1,683,729 ---------- Add: NPV of NOI $3,033,321 Value Indicated By "DCF" $4,717,050 ---------- Rounded $4,700,000 PV Total $4,717,050
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE -------------------------------------------------------------- TOTAL VALUE 12.50% 12.75% 13.00% 13.25% 13.50% ---------------------------------------------------------------------------------- 10.50% $4,947,115 $4,871,375 $4,797,227 $4,724,634 $4,653,558 10.75% $4,904,234 $4,829,435 $4,756,206 $4,684,510 $4,614,308 TERMINAL 11.00% $4,863,302 $4,789,401 $4,717,050 $4,646,209 $4,576,843 CAP RATE 11.25% $4,824,190 $4,751,147 $4,679,633 $4,609,611 $4,541,043 11.50% $4,786,777 $4,714,556 $4,643,844 $4,574,604 $4,506,799
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 33 CANYON CREST, LITTLETON, COLORADO INCOME LOSS DURING LEASE-UP The subject is currently near or at stabilized condition. Therefore, there is no income loss during lease-up at the subject property. CONCESSIONS Due to softness in the market, concessions have been utilized at the subject property and within the market. Based on our discussions with the subject's property manager and those at competing properties, these concessions are expected to continue in the near term until the market returns to a stabilized level. Concessions have been included as a line item deduction within the discounted cash flow analysis. The present value of these concessions equates to $66,000 (rounded). This amount has been deducted from the Direct Capitalization analysis, as well as the Sales Comparison Approach value. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 10.50% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 34 CANYON CREST, LITTLETON, COLORADO CANYON CREST
TOTAL PER SQ. FT. PER UNIT %OF EGI ---------------------------------------------------- REVENUE Base Rent $ 888,120 $ 9.63 $ 9,868 Less: Vacancy & Collection Loss 13.50% $ 119,896 $ 1.30 $ 1,332 Plus: Other Income Laundry Income $ 4,500 $ 0.05 $ 50 0.55% Garage Revenue $ 4,500 $ 0.05 $ 50 0.55% Other Misc. Revenue $ 43,650 $ 0.47 $ 485 5.32% -------------------------------------------------- Subtotal Other Income $ 52,650 $ 0.57 $ 585 6.41% EFFECTIVE GROSS INCOME $ 820,874 $ 8.90 $ 9,121 OPERATING EXPENSES: Taxes $ 35,550 $ 0.39 $ 395 4.33% Insurance $ 16,200 $ 0.18 $ 180 1.97% Utilities $ 54,000 $ 0.59 $ 600 6.58% Repair & Maintenance $ 31,500 $ 0.34 $ 350 3.84% Cleaning $ 10,350 $ 0.11 $ 115 1.26% Landscaping $ 2,700 $ 0.03 $ 30 0.33% Security $ 5,400 $ 0.06 $ 60 0.66% Marketing & Leasing $ 10,350 $ 0.11 $ 115 1.26% General Administrative $ 81,000 $ 0.88 $ 900 9.87% Management 5.00% $ 41,044 $ 0.45 $ 456 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 288,094 $ 3.12 $ 3,201 35.10% Reserves $ 18,000 $ 0.20 $ 200 2.19% -------------------------------------------------- NET OPERATING INCOME $ 514,780 $ 5.58 $ 5,720 62.71% "GOING IN" CAPITALIZATION RATE 10.50% VALUE INDICATION $ 4,902,668 $ 53.17 $ 54,474 PV OF CONCESSIONS ($66,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $ 4,836,668 ROUNDED $ 4,800,000 $ 52.05 $ 53,333
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 35 CANYON CREST, LITTLETON, COLORADO DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF -------------------------------------------------------------- 9.75% $5,213,796 $5,200,000 $57,778 $56.39 10.00% $5,081,801 $5,100,000 $56,667 $55.31 10.25% $4,956,245 $5,000,000 $55,556 $54.22 10.50% $4,836,668 $4,800,000 $53,333 $52.05 10.75% $4,722,652 $4,700,000 $52,222 $50.97 11.00% $4,613,819 $4,600,000 $51,111 $49.89 11.25% $4,509,823 $4,500,000 $50,000 $48.80
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $4,800,000. CORRELATION AND CONCLUSION BY THE INCOME APPROACH The two methods used to estimate the market value of the subject property by the income approach resulted in the following indications of value: Discounted Cash Flow Analysis $4,700,000 Direct Capitalization Method $4,800,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $4,800,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 36 CANYON CREST, LITTLETON, COLORADO RECONCILIATION AND CONCLUSION This appraisal was made to express an opinion as of the Market Value of the fee simple estate in the property. AS IS MARKET VALUE OF THE FEE SIMPLE ESTATE Cost Approach Not Utilized Sales Comparison Approach $4,900,000 Income Approach $4,800,000 Reconciled Value $4,800,000
The Direct Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of May 13, 2003 the market value of the fee simple estate in the property is: $4,800,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA CANYON CREST, LITTLETON, COLORADO ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A CANYON CREST, LITTLETON, COLORADO EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A CANYON CREST, LITTLETON, COLORADO SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDING EXTERIOR - APARTMENT BUILDING] [PICTURE] [PICTURE] EXTERIOR - PARKING LOT EXTERIOR - FRONT YARD AREA [PICTURE] [PICTURE] INTERIOR - APARTMENT UNIT INTERIOR - APARTMENT UNIT] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A CANYON CREST, LITTLETON, COLORADO SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] INTERIOR - UNFINISHED BASEMENT INTERIOR - APARTMENT UNIT [PICTURE] [PICTURE] INTERIOR - LAUNDRY ROOM INTERIOR - STORAGE UNITS [PICTURE] [PICTURE] EXTERIOR - POOL AREA EXTERIOR - PLAYGROUND AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B CANYON CREST, LITTLETON, COLORADO EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B CANYON CREST, LITTLETON, COLORADO PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 SIERRA VISTA 8851 E Florida Avenue Denver, Colorado [PICTURE] COMPARABLE I-2 SHERIDAN SOUTH 5601 W Green Meadows Place Denver, Colorado [PICTURE] COMPARABLE I-3 FAIRVIEW 14594 E Mississippi Avenue Aurora, Colorado [PICTURE] COMPARABLE I-4 ORCHARD GLEN 3131 W Mexico Avenue Denver, Colorado [PICTURE] COMPARABLE I-5 FOREST MANOR 615 S Forest Street Denver, Colorado [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B CANYON CREST, LITTLETON, COLORADO SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 ---------------------------------------------------------------------------------------------------------- Property Name Canyon Crest Falcon Run Management Company AIMCO OMNI LOCATION: Address 5754 S Lowell Way (5757 S. 3488 W. Quincy Avenue King Street) Sheridan, Colorado City, State Littleton, Colorado Arapahoe County Arapahoe 2 miles north of subject County Proximity to Subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 92,212 Year Built 1970 1975 Effective Age 20 25 Building Structure Type Parking Type (Gr., Cov., etc.) Open, Open Covered Open Number of Units 90 94 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Bd/1Ba 640 30 $638 1 1Bd/1Ba 642 $ 675 2 2Bd/1.5Ba 851 30 $762 2 2Bd/1.5Ba 949 $ 830 3 2Bd/1.5Ba 4 3Bd/2Ba 1,064 $ 1,015 Townhouse 1,467 22 ###### 4 3Bd/2.5Ba Townhouse 1,901 8 ###### Average Unit Size (SF) 1,025 Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X Balcony Fireplace Fireplace X Cable TV X Cable TV Ready Ready Project Amenities X Swimming X Swimming Pool Pool X Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball BBQ Basketball BBQ Equipment Court Equipment Court Volleyball Theater Volleyball Theater Room Court Room Court Sand Volley Meeting Sand Meeting Hall Ball Hall Volley Ball Tennis Court Secured Tennis Secured Parking Parking Court Racquet Ball X Laundry Racquet X Laundry Room Room Ball Jogging Business Jogging Business Office Track Office Track Gym Room Gym Room OCCUPANCY: 92% 90% LEASING DATA: Available Leasing Terms 6-12 month leases 6-12 month leases Concessions $100 off each month on some 2 Bd/1.5 Ba none Pet Deposit $200 $150 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash X Water X Trash Confirmation Kathy Ross (Property Manager) Leasing agent Telephone Number 303-797-6422 303-795-2658 NOTES: COMPARISON TO SUBJECT: Similar COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 ---------------------------------------------------------------------------------------------------------- Property Name Columbine Meadows Chateau Lynwood Management Company LOCATION: Address 8214 West Ken Caryl Place, #B 5579 South Windermere Street City, State Littleton, Colorado Littleton, Colorado County Arapahoe County Arapahoe County Proximity to Subject 4 miles southwest of subject 1.5 east of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) Year Built 1999 1970 Effective Age 2 30 Building Structure Type Parking Type (Gr., Cov., etc.) Garage, Open Open Number of Units 277 56 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 3 2Bd/2.5Ba 1,416 $ 920 1 1Bd/1Ba 3 2Bd/2.5Ba 1,455 $ 965 2 2Bd/1Ba 4 3Bd/2.5Ba 1,565 $1,035 4 3Bd/3Ba 1,539 $1,020 Average Unit Size (SF) Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Average Fair APPEAL: Average Fair AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Garage Ceiling Garage X Balcony Balcony X Fireplace Fireplace X Cable TV X Cable TV Ready Ready Project Amenities X Swimming Swimming Pool Pool X Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball BBQ Basketball BBQ Equipment Court Equipment Court Volleyball Theater Volleyball Theater Room Court Room Court Sand Volley Meeting Sand Volley Meeting Hall Ball Hall Ball Tennis Court Secured Tennis Court Secured Parking Parking Racquet Ball X Laundry Racquet Ball Laundry Room Room Jogging Business Jogging Business Office Track Office Track Gym Room Gym Room OCCUPANCY: 82% 93% LEASING DATA: Available Leasing Terms 6-12 month leases 6-12 month leases Concessions $100 off each month none Pet Deposit none allowed $250 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash X Water X Trash Confirmation Leasing agent Leasing Agent Telephone Number 303-972-2967 N/A NOTES: COMPARISON TO SUBJECT: Very Superior Slightly Inferior
COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 ------------------------------------------------------------------------------------------------------ Property Name Golden Nugget Riverside Management Company AIMCO LOCATION: Address 291 W Belleview Avenue 4957 S Prince Court City, State Englewood, Colorado Littleton, Colorado County Arapahoe County Arapahoe Proximity to Subject Approx. 2 miles Approx. 2 miles north of subject north of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) Year Built 1970 1987 Effective Age 30 10 Building Structure Type Parking Type (Gr., Cov., etc.) Open Garage, Open Number of Units 204 248 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. studio 550 $550 1 1Bd/1Ba 590 $ 599 1 1Bd/1Ba 700 $680 1 1Bd/1Ba 706 $ 629 2 2Bd/1Ba 900 $780 1 1Bd/1Ba 726 $ 649 1 1Bd/1Ba 744 $ 749 2 2Bd/1.5Ba 860 $ 789 2 2Bd/2Ba 990 $ 849 1 1Bd/1Ba 875 $ 799 3 2Bd/2Ba 1,158 $1,089 1 1Bd/1Ba 894 $ 829 Studio 606 $ 609 Average Unit Size (SF) Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage X Vaulted Ceiling Balcony X Balcony Fireplace X Fireplace X Cable TV X Cable TV Ready Ready Project Amenities X Swimming X Swimming Pool Pool Spa/Jacuzzi Car Wash X Spa/Jacuz Car Wash Basketball BBQ Basketball BBQ Equipment Court Equipment Court Volleyball Theater Volleyball Theater Room Court Room Court Sand Volley Meeting Sand Volley Meeting Hall Ball Hall Ball Tennis Court Secured Tennis Secured Parking Parking Court Racquet Ball X Laundry Racquet Laundry Room Room Ball Jogging Business Jogging Business Office Track Office Track Gym Room X Gym Room OCCUPANCY: 90% 88% LEASING DATA: Available Leasing Terms 6-12 month leases 6-12 month leases Concessions none 2 months free on select units Pet Deposit $250 $250 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash X Water X Trash Confirmation Leasing agent Leasing agent Telephone Number N/A N/A NOTES: COMPARISON TO SUBJECT: Similar Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B CANYON CREST, LITTLETON, COLORADO PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 FALCON RUN 3488 W. Quincy Avenue Sheridan, Colorado [PICTURE] COMPARABLE R-2 COLUMBINE MEADOWS 8214 West Ken Caryl Place, #B Littleton, Colorado [PICTURE] COMPARABLE R-3 CHATEAU LYNWOOD 5579 South Windermere Street Littleton, Colorado [PICTURE] COMPARABLE R-4 GOLDEN NUGGET 291 W Belleview Avenue Englewood, Colorado [PICTURE] COMPARABLE R-5 RIVERSIDE 4957 S Prince Court Littleton, Colorado [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C CANYON CREST, LITTLETON, COLORADO EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C CANYON CREST, LITTLETON, COLORADO No responsibility is assumed for matters legal in nature. No investigation has been made of the title to or any liabilities against the property appraised. In this appraisal, it is presumed that, unless otherwise noted, the owner's claim is valid, the property rights are good and marketable, and there are no encumbrances which cannot be cleared through normal processes. To the best of our knowledge, all data set forth in this report are true and accurate. Although gathered from reliable sources, no guarantee is made nor liability assumed for the accuracy of any data, opinions, or estimates identified as being furnished by others which have been used in formulating this analysis. Land areas and descriptions used in this appraisal were obtained from public records and have not been verified by legal counsel or a licensed surveyor. No soil analysis or geological studies were ordered or made in conjunction with this report, nor were any water, oil, gas, or other subsurface mineral and use rights or conditions investigated. Substances such as asbestos, urea-formaldehyde foam insulation, other chemicals, toxic wastes, or other potentially hazardous materials could, if present, adversely affect the value of the property. Unless otherwise stated in this report, the existence of hazardous substance, which may or may not be present on or in the property, was not considered by the appraiser in the development of the conclusion of value. The stated value estimate is predicated on the assumption that there is no material on or in the property that would cause such a loss in value. No responsibility is assumed for any such conditions, and the client has been advised that the appraiser is not qualified to detect such substances, quantify the impact on values, or develop the remedial cost. No environmental impact study has been ordered or made. Full compliance with applicable federal, state, and local environmental regulations and laws is assumed unless otherwise stated, defined, and considered in the report. It is also assumed that all required licenses, consents, or other legislative or administrative authority from any local, state, or national government or private entity organization either have been or can be obtained or renewed for any use which the report covers. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C CANYON CREST, LITTLETON, COLORADO It is assumed that all applicable zoning and use regulations and restrictions have been complied with unless a nonconformity has been stated, defined, and considered in the appraisal report. Further, it is assumed that the utilization of the land and improvements is within the boundaries of the property described and that no encroachment or trespass exists unless noted in the report. The Americans with Disabilities Act ("ADA") became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property together with a detailed analysis of the requirements of the ADA could reveal that the property is not in compliance with one or more of the requirements of the act. If so, this fact could have a negative effect on the value of the property. Since we have no direct evidence relating to this issue, we did not consider the possible noncompliance with the requirements of ADA in estimating the value of the property. We have made a physical inspection of the property and noted visible physical defects, if any, in our report. This inspection was made by individuals generally familiar with real estate and building construction. However, these individuals are not architectural or structural engineers who would have detailed knowledge of building design and structural integrity. Accordingly, we do not opine on, nor are we responsible for, the structural integrity of the property including its conformity to specific governmental code requirements, such as fire, building and safety, earthquake, and occupancy, or any physical defects which were not readily apparent to the appraiser during the inspection. The value or values presented in this report are based upon the premises outlined herein and are valid only for the purpose or purposes stated. The date of value to which the conclusions and opinions expressed apply is set forth in this report. The value opinion herein rendered is based on the status of the national business economy and the purchasing power of the U.S. dollar as of that date. Testimony or attendance in court or at any other hearing is not required by reason of this appraisal unless arrangements are previously made within a reasonable time in advance for AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C CANYON CREST, LITTLETON, COLORADO such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the American Society of Appraisers or the designations awarded by this organization) shall be disseminated to the public through prospectus, advertising, public relations, news, or any other means of communication without the written consent and approval of American Appraisal Associates, Inc. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D CANYON CREST, LITTLETON, COLORADO EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D CERTIFICATE OF APPRAISER I certify that, to the best of my knowledge and belief: The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and represent the unbiased professional analyses, opinions, and conclusions of American Appraisal Associates, Inc. American Appraisal Associates, Inc. and I personally, have no present or prospective interest in the property that is the subject of this report and have no personal interest or bias with respect to the parties involved. Compensation for American Appraisal Associates, Inc. is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. The analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. I personally did not inspect the subject property. James Newell provided significant real property appraisal assistance in the preparation of this report. I am currently in compliance with the Appraisal Institutes continuing education requirements. /s/ Douglas Needham -------------------------- Douglas Needham, MAI Managing Principal, Real Estate Group Colorado State Certified General Real Estate Appraiser #CG40017035 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E CANYON CREST, LITTLETON, COLORADO EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E CANYON CREST, LITTLETON, COLORADO DOUGLAS A. NEEDHAM, MAI MANAGING PRINCIPAL, REAL ESTATE ADVISORY GROUP POSITION Douglas A. Needham is a Managing Principal for the Irvine Real Estate Advisory Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Mr. Needham has appraised all types of major commercial real estate including apartments, hotels/motels, light and heavy industrial facilities, self-storage facilities, mobile home parks, offices, retail shopping centers, service stations, special-use properties, and vacant land. Business Mr. Needham joined AAA in 1998. Prior to joining AAA, he was a senior associate at Koeppel Tener, a senior analyst at Great Western Appraisal Group, and an associate appraiser at R. L. McLaughlin & Associates. EDUCATION Texas A&M University Bachelor of Business Administration - Finance STATE CERTIFICATIONS State of Arizona, Certified General Real Estate Appraiser, #30943 State of California, Certified General Real Estate Appraiser, #AG025443 State of Colorado, Certified General Appraiser, #CG40017035 State of Oregon, Certified General Appraiser, #C000686 State of Washington, Certified General Real Estate Appraiser, #1101111 PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E CANYON CREST, LITTLETON, COLORADO VALUATION AND Appraisal Institute SPECIAL COURSES Advanced Income Capitalization Appraisal Principles Appraisal Procedures Basic Income Capitalization Standards of Professional Practice AMERICAN APPRAISAL ASSOCIATES, INC. CANYON CREST, LITTLETON, COLORADO GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. CANYON CREST, LITTLETON, COLORADO GENERAL SERVICE CONDITIONS The services(s) provided by AAA will be performed in accordance with professional appraisal standards. Our compensation is not contingent in any way upon our conclusions of value. We assume, without independent verification, the accuracy of all data provided to us. We will act as an independent contractor and reserve the right to use subcontractors. All files, workpapers or documents developed by us during the course of the engagement will be our property. We will retain this data for at least five years. Our report is to be used only for the specific purpose stated herein; and any other use is invalid. No reliance may be made by any third party without our prior written consent. You may show our report in its entirety to those third parties who need to review the information contained herein. No one should rely on our report as a substitute for their own due diligence. We understand that our reports will be described in public tender offer documents distributed to limited partners. We reserve the right to review the public tender offer documents prior to their issuance to confirm that disclosures of facts from the current appraisals are accurate. No reference to our name or our report, in whole or in part, in any other SEC filing or private placement memorandum you prepare and/or distribute to third parties may be made without our prior written consent. The Tender Offer Partnerships, as that term is defined in the Settlement Agreement, agree to indemnify and hold us harmless against and from any and all losses, claims, actions, damages, expenses or liabilities, including reasonable attorneys' fees, to which we may become subject in connection with this engagement except where such losses, claims, actions, damages, expenses or liabilities, including reasonable attorney's fees, arise or result from AAA's misconduct, bad faith or negligence. Co-Clients will not be liable for any of our acts or omissions. AAA is an equal opportunity employer.