EX-99.(C)(2) 7 d07280exv99wxcyx2y.txt APPRAISAL OF GLENBRIDGE MANOR GLENBRIDGE MANOR 11513 VILLAGE BROOK DRIVE CINCINNATI, OHIO MARKET VALUE - FEE SIMPLE ESTATE As of November 19, 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] DECEMBER 1, 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: GLENBRIDGE MANOR 11513 VILLAGE BROOK DRIVE CINCINNATI, HAMILTON COUNTY, OHIO 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 290 units with a total of 327,120 square feet of rentable area. The improvements were rebuilt in 2003 as they were destroyed by a tornado previously. The improvements are situated on 32.179 acres. Overall, the improvements are in excellent condition. As of the date of this appraisal, the subject property is 80% 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. AMERICAN APPRAISAL ASSOCIATES, INC. LETTER OF TRANSMITTAL PAGE 2 GLENBRIDGE MANOR, CINCINNATI, OHIO 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. 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 November 19, 2003 is: ($27,500,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. /s/ Frank A. Fehribach ------------------------------------------- December 1, 2003 Frank A. Fehribach, MAI #053272 Managing Principal, Real Estate Group Texas State Certified General Real Estate Appraiser, TX-1323954-G Report By: Shayne G. Hatch Texas Appraiser Trainee, TX-1330454 AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 GLENBRIDGE MANOR, CINCINNATI, OHIO TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary.......................................................... 4 Introduction............................................................... 10 Area Analysis.............................................................. 12 Market Analysis............................................................ 15 Site Analysis.............................................................. 17 Improvement Analysis....................................................... 17 Highest and Best Use ...................................................... 18 VALUATION Valuation Procedure........................................................ 19 Sales Comparison Approach.................................................. 21 Income Capitalization Approach ............................................ 25 Reconciliation and Conclusion.............................................. 37
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 GLENBRIDGE MANOR, CINCINNATI, OHIO EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Glenbridge Manor LOCATION: 11513 Village Brook Drive Cincinnati, Ohio INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: Fee Simple DATE OF VALUE: November 19, 2003 DATE OF REPORT: December 1, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 32.179 acres, or 1,401,717 square feet Assessor Parcel No.: 620-0210-0110-00 Floodplain: Community Panel No. 3902040025B (June 1, 1982) Flood Zone A and C, an area inside the floodplain. Zoning: D and DD (Residence, Multiple Dwellings, Institutions) BUILDING: No. of Units: 290 Units Total NRA: 327,120 Square Feet Average Unit Size: 1,128 Square Feet Apartment Density: 9.0 units per acre Year Built: 2003 AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 GLENBRIDGE MANOR, CINCINNATI, OHIO UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square --------------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income ------------------- ----- ---------- -------- ---------- ---------- 1Bdrm/1Ba-1A10/1B10 629 $ 680 $ 1.08 $ 27,200 $ 326,400 1Bdrm/1Ba-1C10 776 $ 725 $ 0.93 $ 7,250 $ 87,000 1Bdrm/1Ba-1D10 859 $ 800 $ 0.93 $ 36,800 $ 441,600 2Bdrm/2Ba-2A20 1,049 $ 950 $ 0.91 $ 9,500 $ 114,000 2Bdrm/2Ba-2F20 1,134 $ 970 $ 0.86 $ 22,310 $ 267,720 2Bdrm/2Ba-2B20 1,151 $ 900 $ 0.78 $ 4,500 $ 54,000 2Bdrm/2Ba-2D20 1,167 $ 980 $ 0.84 $ 25,480 $ 305,760 2Bdrm/2Ba-2E20 1,219 $ 1,075 $ 0.88 $ 19,350 $ 232,200 2Bdrm/2Ba-2G20 1,238 $ 1,000 $ 0.81 $ 5,000 $ 60,000 2Bdrm/2Ba-2H20 1,266 $ 1,130 $ 0.89 $ 20,340 $ 244,080 2Bdrm/2.5Ba-2A25 1,385 $ 1,180 $ 0.85 $ 12,980 $ 155,760 3Bdrm/2Ba-3B20 1,453 $ 1,400 $ 0.96 $ 43,400 $ 520,800 3Bdrm/2Ba-3A20 1,487 $ 1,300 $ 0.87 $ 22,100 $ 265,200 3Bdrm/2Ba-3C20 1,518 $ 1,350 $ 0.89 $ 40,500 $ 486,000 ---------- ---------- Total $ 296,710 $3,560,520 ========== ==========
OCCUPANCY: 80% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 1 Year REMAINING ECONOMIC LIFE: 44 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDING EXTERIOR - APARTMENT BUILDING AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 GLENBRIDGE MANOR, CINCINNATI, OHIO AREA MAP [MAP] NEIGHBORHOOD MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7 GLENBRIDGE MANOR, CINCINNATI, OHIO HIGHEST AND BEST USE: As Vacant: Hold for future multi-family development As Improved: Continuation as its current use METHOD OF VALUATION: In this instance, the Sales Comparison and Income Approaches to value were utilized. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 8 GLENBRIDGE MANOR, CINCINNATI, OHIO PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit --------------------- ------------------ -------------- Potential Rental Income $3,560,520 $12,278 Effective Gross Income $3,354,784 $11,568 Operating Expenses $1,214,151 $ 4,187 36.2% of EGI Net Operating Income: $2,068,133 $ 7,131 Capitalization Rate 7.50% DIRECT CAPITALIZATION VALUE $27,300,000 * $94,138 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years Stabilized Vacancy & Collection Loss: 7% Lease-up / Stabilization Period 12 months Terminal Capitalization Rate 8.75% Discount Rate 10.00% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $27,200,000 * $93,793 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $27,300,000 $94,138 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $34,439 to $93,373 Range of Sales $/Unit (Adjusted) $64,808 to $98,042 VALUE INDICATION - PRICE PER UNIT $27,600,000 * $95,172 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales N/A Selected EGIM for Subject N/A Subject's Projected EGI N/A EGIM ANALYSIS CONCLUSION N/A NOI PER UNIT ANALYSIS CONCLUSION N/A RECONCILED SALES COMPARISON VALUE $27,600,000 $95,172 / UNIT
---------- * Value indications are after adjustments for concessions, deferred maintenance, excess land and lease-up costs, if any. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 9 GLENBRIDGE MANOR, CINCINNATI, OHIO PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $27,600,000 NOI Per Unit N/A EGIM Multiplier N/A INDICATED VALUE BY SALES COMPARISON $27,600,000 $95,172 / UNIT INCOME APPROACH: Direct Capitalization Method: $27,300,000 Discounted Cash Flow Method: $27,200,000 INDICATED VALUE BY THE INCOME APPROACH $27,300,000 $94,138 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $27,500,000 $94,828 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 GLENBRIDGE MANOR, CINCINNATI, OHIO INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 11513 Village Brook Drive, Cincinnati, Hamilton County, Ohio. Cincinnati identifies it as 620-0210-0110-00. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Shayne G. Hatch on November 19, 2003. Frank A. Fehribach, MAI has not made a personal inspection of the subject property. Shayne G. Hatch performed the research, valuation analysis and wrote the report. Frank A. Fehribach, MAI reviewed the report and concurs with the value. Both, Frank A. Fehribach, MAI and Shayne G. Hatch 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 November 19, 2003. The date of the report is December 1, 2003. PURPOSE AND USE OF APPRAISAL The purpose of the appraisal is to estimate the market value of the fee simple interest in the subject property. It is understood that the appraisal is intended to assist the clients in litigation settlement proceedings. The appraisal was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. PROPERTY RIGHTS APPRAISED We have appraised the Fee Simple Estate in the subject property (as applied in the Sales & Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 11 GLENBRIDGE MANOR, CINCINNATI, OHIO 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 CCIP 2 Village Brooke LLC. To the best of our knowledge, no transfers of ownership or offers to purchase the subject are known to have occurred during the past three years. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 12 GLENBRIDGE MANOR, CINCINNATI, OHIO 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 Cincinnati, Ohio. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being commercial retail. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - North Lebanon Road West - Interstate 71 and East Kemper Road South - East Kemper Road North - Fields Ertel Road MAJOR EMPLOYERS Major employers in the subject's area include A&W Restaurants, Broadwing, Champion International Corp. Cinergy Corp. Convergys, FACS Group, Inc. Federated Department Store, Fifth Third Bank, General Cable, General Electric Aircraft, Kroger Company, Mead Westvaco Corp. Proctor & Gamble Company. The overall economic outlook for the area is considered favorable. DEMOGRAPHICS We have reviewed demographic data within the neighborhood. The following table summarizes the key data points. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 GLENBRIDGE MANOR, CINCINNATI, OHIO NEIGHBORHOOD DEMOGRAPHICS
AREA ------------------------------------------- CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA --------------------------- ------------ ------------ ------------ ---------- POPULATION TRENDS Current Population 6,758 48,564 158,731 1,664,158 5-Year Population 6,760 47,563 158,567 1,714,553 % Change CY-5Y 0.0% -2.1% -0.1% 3.0% Annual Change CY-5Y 0.0% -0.4% 0.0% 0.6% HOUSEHOLDS Current Households 3,029 19,873 64,254 657,789 5-Year Projected Households 3,116 19,956 65,809 690,743 % Change CY - 5Y 2.9% 0.4% 2.4% 5.0% Annual Change CY-5Y 0.6% 0.1% 0.5% 1.0% INCOME TRENDS Median Household Income $ 37,817 $ 48,885 $ 52,908 $ 44,599 Per Capita Income $ 23,662 $ 25,143 $ 25,855 $ 24,315 Average Household Income $ 52,145 $ 60,758 $ 63,830 $ 61,515
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 50.13% 35.31% 33.08% 31.34% 5-Year Projected % Renting 51.73% 35.61% 33.52% 30.41% % of Households Owning 45.08% 59.25% 61.49% 62.66% 5-Year Projected % Owning 43.62% 58.95% 61.19% 63.89%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 14 GLENBRIDGE MANOR, CINCINNATI, OHIO SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Residential South - Commercial East - Residential/Commercial West - Residential/Commercial CONCLUSIONS The subject is well located within the city of Cincinnati. 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 15 GLENBRIDGE MANOR, CINCINNATI, OHIO MARKET ANALYSIS The subject property is located in the city of Cincinnati in Hamilton County. The overall pace of development in the subject's market is more or less decreasing. The subject represents the newest apartment complex within the neighborhood. Five apartment developments have been constructed within the last three years, including the subject, for a total of approximately 1,750 units. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket ----------------- ------ --------- 1998 - 4.7% 1999 - 2.9% 2000 - 4.3% 2001 - 7.3% 2002 - 8.4% 1st Quarter 20003 9.2% 10.5% 2nd Quarter 20003 8.8% 9.2% 3rd Quarter 20003 9.5% 10.2%
Source: REIS Occupancy trends in the subject's market are a decreasing. Historically speaking, the subject's submarket has underperformed the overall market. Market rents in the subject's market have been following an increasing trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change ----------------- ------ -------- --------- -------- 1998 N/A N/A $ 712 - 1999 N/A N/A $ 727 2.1% 2000 N/A N/A $ 745 2.5% 2001 N/A N/A $ 780 4.7% 2002 N/A N/A $ 798 2.3% 1st Quarter 20003 N/A N/A $ 785 -1.6% 2nd Quarter 20003 N/A N/A $ 795 1.3% 3rd Quarter 20003 N/A N/A $ 777 -2.3%
Source: REIS The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 16 GLENBRIDGE MANOR, CINCINNATI, OHIO COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject ------- ----------------------------- ----- ----- ---------- -------------------- R-1 Nantucket 394 88% 2002 0.5 Miles R-2 Bishops Gate 248 85% 2000 0.5 Miles R-3 Twin Fountains 320 75% 2000 1.5 Miles R-4 The Conservatory at Deerfield 498 83% 2001 1 Mile Subject Glenbridge Manor 290 80% 2003
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 GLENBRIDGE MANOR, CINCINNATI, OHIO PROPERTY DESCRIPTION SITE ANALYSIS Site Area 32.179 acres, or 1,401,717 square feet Shape Irregular Topography Level to sloping Utilities All necessary utilities are available to the site Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Good Flood Zone: Community Panel 3902040025B, dated June 1, 1982 Flood Zone Zone A and C Zoning D and DD, the subject improvements represent a legal conforming use of the site REAL ESTATE TAXES
ASSESSED VALUE - 2003 ---------------------------------------- TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES ---------------- ---------- ----------- ----------- ---------- -------- 620-0210-0110-00 $2,699,600 $11,311,600 $14,011,200 0.00228 $ 31,956
IMPROVEMENT ANALYSIS Year Built 2003 Number of Units 290 Net Rentable Area 327,120 Square Feet Construction: Foundation Reinforced concrete slab Frame Reinforced brick or masonry Exterior Walls Brick or masonry Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, spa/jacuzzi, gym room, playground, meeting hall, business office, and secured parking. Unit Amenities Individual unit amenities include a garage, balcony, fireplace, cable TV connection, vaulted ceiling, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, microwave dishwasher, water heater, AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 18 GLENBRIDGE MANOR, CINCINNATI, OHIO garbage disposal, and oven. Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) ------------------- --------------- --------- 1Bdrm/1Ba-1A10/1B10 40 629 1Bdrm/1Ba-1C10 10 776 1Bdrm/1Ba-1D10 46 859 2Bdrm/2Ba-2A20 10 1,049 2Bdrm/2Ba-2F20 23 1,134 2Bdrm/2Ba-2B20 5 1,151 2Bdrm/2Ba-2D20 26 1,167 2Bdrm/2Ba-2E20 18 1,219 2Bdrm/2Ba-2G20 5 1,238 2Bdrm/2Ba-2H20 18 1,266 2Bdrm/2.5Ba-2A25 11 1,385 3Bdrm/2Ba-3B20 31 1,453 3Bdrm/2Ba-3A20 17 1,487 3Bdrm/2Ba-3C20 30 1,518
Overall Condition Excellent Effective Age 1 years Economic Life 45 years Remaining Economic Life 44 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 2003 and consist of a 290-unit multifamily project. The highest and best use as improved is for a continued multifamily use. Overall, the highest and best use of the subject property is the continued use of the existing apartment project. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 19 GLENBRIDGE MANOR, CINCINNATI, OHIO THE VALUATION PROCEDURE There are three traditional approaches, which can be employed in establishing the market value of the subject property. These approaches and their applicability to the valuation of the subject are summarized as follows: THE COST APPROACH The application of the Cost Approach is based on the principle of substitution. This principle may be stated as follows: no one is justified in paying more for a property than that amount by which he or she can obtain, by purchase of a site and construction of a building, without undue delay, a property of equal desirability and utility. In the case of a new building, no deficiencies in the building should exist. In the case of income-producing real estate, the cost of construction plays a minor and relatively insignificant role in determining market value. The Cost Approach is typically only a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) where the cost of reproducing the improvements is easily and accurately quantified and there is no economic obsolescence. In all instances, the issue of an appropriate entrepreneurial profit - the reward for undertaking the risk of construction, remains a highly subjective factor especially in a market lacking significant speculative development. THE SALES COMPARISON APPROACH The Sales Comparison Approach is an estimate of value based upon a process of comparing recent sales of similar properties in the surrounding or competing areas to the subject property. Inherent in this approach is the principle of substitution. The application of this approach consists of comparing the subject property with similar properties of the same general type which have been sold recently or currently are available for sale in competing areas. This comparative process involves judgment as to the similarity of the subject property and the comparable sale with respect to many value factors such as location, contract rent levels, quality of construction, reputation and prestige, age and condition, among others. The estimated value through this approach represents the probable price at which a willing seller would sell the subject property to a willing and knowledgeable buyer as of the date of value. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 20 GLENBRIDGE MANOR, CINCINNATI, OHIO THE INCOME CAPITALIZATION APPROACH The theory of the Income Capitalization Approach is based on the premise that present value is the value of the cash flow and reversionary value the property will produce over a reasonable holding (ownership) period. The Discounted Cash Flow Analysis will convert equity cash flows (including cash flows and equity reversion) into a present value utilizing an internal rate of return (or discount rate). The Internal Rate of Return (IRR) will be derived from a comparison of alternate investments, a comparative analysis of IRR's used by recent buyers of similar properties, and a review of published industry surveys. The Direct Capitalization Analysis converts one year of income into an overall value using overall capitalization rates from similar sales. The overall rates take into consideration buyers assumptions of the market over the long-term. The results of the Income Capitalization Analysis are usually the primary value indicator for income producing properties. Investors expect a reasonable rate of return on their equity investment based on the ownership risks involved; this approach closely parallels the investment decision process. RECONCILIATION In this instance, we have completed the Sales Comparison and Income Capitalization Approaches to value. As an income producing property, the income approach is a primary approach to value. The Sales Comparison Approach is also considered reliable as investors are buying similar buildings in the market. Our research indicates that market participants are generally not buying, selling, investing, or lending with reliance placed on the methodology of the Cost Approach to establish the value. Therefore, we have decided that the Cost Approach is not a reliable indicator of value for the subject, and this approach has not been utilized. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21 GLENBRIDGE MANOR, CINCINNATI, OHIO SALES COMPARISON APPROACH Use of market or comparable sales requires the collection and analysis of comparable sales data. Similar properties recently sold are compared to the subject and adjusted based on any perceived differences. This method is based on the premise that the costs of acquiring a substitute property would tend to establish a value for the subject property. The premise suggests that if a substitute is unavailable in the market, the reliability of the approach may be subordinate to the other approaches. The reliance on substitute properties produces shortcomings in the validity of this approach. Geographic and demographic characteristics from each submarket restrict which sales may be selected. Recent sales with a similar physical characteristics, income levels, and location are usually limited. The sales we have identified, however, do establish general valuation parameters as well as provide support to our conclusion derived through the income approach method. The standard unit of comparison among similar properties is the sales price per unit and price per square foot of net rentable area. To accurately adjust prices to satisfy the requirements of the sales comparison approach, numerous calculations and highly subjective judgments would be required including consideration of numerous income and expense details for which information may be unreliable or unknown. The sales price per unit and square foot are considered relevant to the investment decision, but primarily as a parameter against which value estimates derived through the income approach can be judged and compared. In examining the comparable sales, we have applied a subjective adjustment analysis, which includes specific adjustments derived from our experience and consulting with the market participants. SALES COMPARISON ANALYSIS Detailed on the following pages are sales transactions involving properties located in the subject's competitive investment market. Photographs of the sale transactions are located in the Addenda. Following the summary of sales is an adjustment grid that is used to arrive at a value. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 GLENBRIDGE MANOR, CINCINNATI, OHIO SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ----------- ------- ---------- ---------- Property Name Glenbridge Manor Cambridge Park Magnolia Pointe LOCATION: Address 11513 Village Brook Drive 1088 E Crescentville Road 484 Old State Route 74 City, State Cincinnati, Ohio West Chester, Ohio Cincinnati, Ohio County Hamilton Butler County Clermont PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 327,120 166,440 129,360 Year Built 2003 1973 1972 Number of Units 290 196 108 Unit Mix: Type Total Type Total Type Total 1Bdrm/1Ba -1A10/1B10 40 1 Bedroom 68 Studio 3 1Bdrm/1Ba -1C10 10 2 Bedroom 104 1 Bedroom 18 1Bdrm/1Ba -1D10 46 3 Bedroom 24 2 Bedroom 84 2Bdrm/2Ba -2A20 10 3 Bedroom 3 2Bdrm/2Ba -2F20 23 2Bdrm/2Ba -2B20 5 2Bdrm/2Ba -2D20 26 2Bdrm/2Ba -2E20 18 2Bdrm/2Ba -2G20 5 2Bdrm/2Ba -2H20 18 2Bdrm/2.5Ba-2A25 11 3Bdrm/2Ba-3B20 31 3Bdrm/2Ba-3A20 17 3Bdrm/2Ba-3C20 30 Average Unit Size (SF) 1,128 849 1,198 Land Area (Acre) 32.1790 13.8900 6.6800 Density (Units/Acre) 9.0 14.1 16.2 Parking Ratio (Spaces/Unit) 1.75 2.04 1.85 Parking Type (Gr., Cov., etc.) Garage, Open Covered None None CONDITION: Good Average Average APPEAL: Good Fair Fair AMENITIES: Pool/Spa Yes/Yes Yes/No Yes/No Gym Room Yes No No Laundry Room No Yes Yes Secured Parking Yes No No Sport Courts Yes No No OCCUPANCY: 80% 95% 95% TRANSACTION DATA: Sale Date August, 2002 August, 2002 Sale Price ($) $6,750,000 $3,850,000 Grantor C-K Cambridge Park (LLC) RL Magnolia (Ltd) Grantee Cambridge Park Apartments N/A Associate (LLC) Sale Documentation Bk 6899 Pg 1046 Bk 1497 Pg 2449 Verification No Contact Information Investment Property Advisors Telephone Number 513-241-9800 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,421,664 $7,253 $8.54 $0 $0 $0.00 Vacancy/Credit Loss $ 71,083 $ 363 $0.43 $0 $0 $0.00 Effective Gross Income $1,350,581 $6,891 $8.11 $0 $0 $0.00 Operating Expenses $ 556,464 $2,839 $3.34 $0 $0 $0.00 Net Operating Income $ 794,117 $4,052 $4.77 $0 $0 $0.00 NOTES: PRICE PER UNIT $34,439 $35,648 PRICE PER SQUARE FOOT $ 40.56 $ 29.76 EXPENSE RATIO 41.2% N/A EGIM 5.00 N/A OVERALL CAP RATE 11.76% N/A Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 ----------- ---------- ---------- ---------- Property Name Grandview Summit Conservatory at Deerfield Mayfair of Montgomery LOCATION: Address 651 Napa Valley Lane 8502 Sugar Maple Drive 10555 Montgomery Road City, State Crestview Hill, Kentucky Mason, Ohio Cincinnati, Ohio County Kenton Warren Hamilton PHYSICAL CHARATERISTICS: Net Rentable Area (SF) N/A N/A 184,600 Year Built 1997 2001 1989 Number of Units 192 498 93 Unit Mix: Type Total Type Total Type Total 2 Bedroom N/A N/A 3 Bedroom N/A Average Unit Size (SF) N/A N/A 1,985 Land Area (Acre) 27.6500 36.6272 14.9500 Density (Units/Acre) 6.9 13.6 6.2 Parking Ratio (Spaces/Unit) 0.00 0.00 1.72 Parking Type (Gr., Cov., etc.) 0 Garage, Uncovered Garage CONDITION: Good Good Good APPEAL: Good Good Good AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room Yes Yes Yes Laundry Room No Yes No Secured Parking Yes No Yes Sport Courts No Yes No OCCUPANCY: N/A N/A N/A TRANSACTION DATA: Sale Date June, 2001 October, 2001 March, 2001 Sale Price ($) $14,423,700 $46,500,000 $8,512,795 Grantor Summit Properties Partners Summit Properties Partners TIAA-CREF Grantee Realty Associates Fund VL Metropolitan Life Insurance Wolf Investment Group II (LLC) Sale Documentation Bk 338 Pg 324 N/A Verification Kenton County Warren County Wolf Investment Group Telephone Number 5139850033 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $0 $0 $0 $0 $0 $0 $0.00 Vacancy/Credit Loss $0 $0 $0 $0 $0 $0 $0.00 Effective Gross Income $0 $0 $0 $0 $0 $0 $0.00 Operating Expenses $0 $0 $0 $0 $0 $0 $0.00 Net Operating Income $0 $0 $0 $0 $0 $0 $0.00 NOTES: PRICE PER UNIT $75,123 $93,373 $91,535 PRICE PER SQUARE FOOT N/A N/A $ 46.11 EXPENSE RATIO N/A N/A N/A EGIM N/A N/A N/A OVERALL CAP RATE N/A N/A N/A Cap Rate based on Pro Forma or Actual Income? ACTUAL N/A N/A
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 GLENBRIDGE MANOR, CINCINNATI, OHIO IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $34,439 to $93,373 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 $64,808 to $98,042 per unit with a mean or average adjusted price of $83,758 per unit. The median adjusted price is $86,501 per unit. Sales 3 and 4 are considered the most comparable properties and given the most consideration. Based on the following analysis, we have concluded to a value of $96,000 per unit, which results in an "as is" value of $27,600,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24 GLENBRIDGE MANOR, CINCINNATI, OHIO SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ----------- ------- ---------- ---------- Property Name Glenbridge Manor Cambridge Park Magnolia Pointe Address 11513 Village Brook Drive 1088 E Crescentville Road 484 Old State Route 74 City Cincinnati, Ohio West Chester, Ohio Cincinnati, Ohio Sale Date August, 2002 August, 2002 Sale Price ($) $6,750,000 $3,850,000 Net Rentable Area (SF) 327,120 166,440 129,360 Number of Units 290 196 108 Price Per Unit $34,439 $35,648 Year Built 2003 1973 1972 Land Area (Acre) 32.1790 13.8900 6.6800 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length Arm's Length 0% Arm's Length 0% Date of Sale (Time) 11-2003 08-2002 1% 08-2002 1% VALUE AFTER TRANS. ADJUST. ($/UNIT) $34,783 $36,005 Location Suburban Inferior 30% Inferior 30% Number of Units 290 196 0% 108 -5% Quality / Appeal Very Good Inferior 15% Inferior 15% Age / Condition 2003 1973 / Average 30% 1972 / Average 30% Occupancy at Sale 80% 95% -5% 95% -5% Amenities Good Inferior 15% Inferior 15% Average Unit Size (SF) 1,128 849 30% 1,198 0% PHYSICAL ADJUSTMENT 115% 80% FINAL ADJUSTED VALUE ($/UNIT) $74,784 $64,808 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 ----------- ---------- ---------- ---------- Property Name Grandview Summit Conservatory at Deerfield Mayfair of Montgomery Address 651 Napa Valley Lane 8502 Sugar Maple Drive 10555 Montgomery Road City Crestview Hill, Kentucky Mason, Ohio Cincinnati, Ohio Sale Date June, 2001 October, 2001 March, 2001 Sale Price ($) $14,423,700 $46,500,000 $8,512,795 Net Rentable Area (SF) 184,600 Number of Units 192 498 93 Price Per Unit $75,123 $93,373 $91,535 Year Built 1997 2001 1989 Land Area (Acre) 27.6500 36.6272 14.9500 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 06-2001 5% 10-2001 5% 03-2001 5% VALUE AFTER TRANS. ADJUST. ($/UNIT) $78,880 $98,042 $96,112 Location Inferior 20% Comparable 0% Comparable 0% Number of Units 192 0% 498 0% 93 0% Quality / Appeal Comparable 0% Comparable 0% Comparable 0% Age / Condition 1997 / Good 0% 2001 / Good 0% 1989 / Good 15% Occupancy at Sale N/A 0% N/A 0% N/A 0% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) Comparable 0% Comparable 0% 1,985 -25% PHYSICAL ADJUSTMENT 20% 0% -10% FINAL ADJUSTED VALUE ($/UNIT) $94,656 $98,042 $86,501
SUMMARY VALUE RANGE (PER UNIT) $64,808 TO $98,042 MEAN (PER UNIT) $83,758 MEDIAN (PER UNIT) $86,501 VALUE CONCLUSION (PER UNIT) $96,000
VALUE OF IMPROVEMENT & MAIN SITE $27,840,000 LESS: LEASE-UP COST -$ 244,000 VALUE INDICATED BY SALES COMPARISON APPROACH $27,596,000 ROUNDED $27,600,000
NET OPERATING INCOME (NOI) ANALYSIS Because of a lack of detailed financial information on the sale comparable's income and expenses an NOI analysis was not performed. EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS Because of a lack of detailed financial information on the sale comparable's income and expenses an EGIM analysis was not performed. SALES COMPARISON CONCLUSION The valuation methods in the Sales Comparison Approach are shown below. The overall value via the Sales Comparison Approach is estimated at $27,600,000. Price Per Unit $27,600,000 NOI Per Unit N/A EGIM Analysis N/A Sales Comparison Conclusion $27,600,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 25 GLENBRIDGE MANOR, CINCINNATI, OHIO 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 GLENBRIDGE MANOR, CINCINNATI, OHIO 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 ------------------- --------- -------- ------ --------- 1Bdrm/1Ba-1A10/1B10 629 $ 635 $ 1.01 100.0% 1Bdrm/1Ba-1C10 776 $ 708 $ 0.91 100.0% 1Bdrm/1Ba-1D10 859 $ 747 $ 0.87 89.1% 2Bdrm/2Ba-2A20 1049 $ 922 $ 0.88 70.0% 2Bdrm/2Ba-2F20 1134 $ 957 $ 0.84 73.9% 2Bdrm/2Ba-2B20 1151 $ 747 $ 0.65 60.0% 2Bdrm/2Ba-2D20 1167 $ 940 $ 0.81 88.5% 2Bdrm/2Ba-2E20 1219 $1,097 $ 0.90 94.4% 2Bdrm/2Ba-2G20 1238 $ 984 $ 0.79 40.0% 2Bdrm/2Ba-2H20 1266 $1,123 $ 0.89 66.7% 2Bdrm/2.5Ba-2A25 1385 $1,190 $ 0.86 45.5% 3Bdrm/2Ba-3B20 1453 $1,359 $ 0.94 83.9% 3Bdrm/2Ba-3A20 1487 $1,188 $ 0.80 41.2% 3Bdrm/2Ba-3C20 1518 $1,314 $ 0.87 70.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27 GLENBRIDGE MANOR, CINCINNATI, OHIO RENT ANALYSIS
COMPARABLE RENTS ----------------------------------------- R-1 R-2 R-3 R-4 ----------------------------------------- The Bishops Twin Conserv. at Nantucket Gate Fountains Deerfield ----------------------------------------- SUBJECT SUBJECT COMPARISION TO SUBJECT SUBJECT UNIT ACTUAL ASKING ----------------------------------------- DESCRIPTION TYPE RENT RENT Similar Similar Similar Similar MIN MAX MEDIAN AVERAGE ----------------------- ------------ ------- ------- ------- ------- ------- ------- ------ ------ ------ ------- Monthly Rent 1Bdrm/1Ba- $ 635 $ 650 $ 653 $ 820 $ 830 $ 770 $ 653 $ 830 $ 795 $ 768 Unit Area (SF) 1A10/1B10 629 629 585 910 882 822 585 910 852 800 Monthly Rent Per Sq. Ft $ 1.01 $ 1.03 $ 1.12 $ 0.90 $ 0.94 $ 0.94 $ 0.90 $ 1.12 $ 0.94 $ 0.97 Monthly Rent 1Bdrm/1Ba- $ 708 $ 710 $ 723 $ 820 $ 830 $ 815 $ 723 $ 830 $ 818 $ 797 Unit Area (SF) 1C10 776 776 687 910 882 934 687 934 896 853 Monthly Rent Per Sq. Ft $ 0.91 $ 0.91 $ 1.05 $ 0.90 $ 0.94 $ 0.87 $ 0.87 $ 1.05 $ 0.92 $ 0.94 Monthly Rent 1Bdrm/1Ba- $ 747 $ 750 $ 768 $ 820 $ 995 $ 870 $ 768 $ 995 $ 845 $ 863 Unit Area (SF) 1D10 859 859 755 910 1,149 1,008 755 1,149 959 956 Monthly Rent Per Sq. Ft $ 0.87 $ 0.87 $ 1.02 $ 0.90 $ 0.87 $ 0.86 $ 0.86 $ 1.02 $ 0.88 $ 0.91 Monthly Rent 2Bdrm/2Ba- $ 922 $ 920 $ 948 $ 1,035 $ 1,090 $ 885 $ 885 $1,090 $ 992 $ 990 Unit Area (SF) 2A20 1,049 1,049 1,020 1,068 1,240 1,140 1,020 1,240 1,104 1,117 Monthly Rent Per Sq. Ft $ 0.88 $ 0.88 $ 0.93 $ 0.97 $ 0.88 $ 0.78 $ 0.78 $ 0.97 $ 0.90 $ 0.89 Monthly Rent 2Bdrm/2Ba- $ 957 $ 960 $ 948 $ 1,035 $ 1,090 $ 885 $ 885 $1,090 $ 992 $ 990 Unit Area (SF) 2F20 1,134 1,134 1,020 1,068 1,240 1,140 $1,020 1,240 $1,104 1,117 Monthly Rent Per Sq. Ft $ 0.84 $ 0.85 $ 0.93 $ 0.97 $ 0.88 $ 0.78 $ 0.78 $ 0.97 $ 0.90 $ 0.89 Monthly Rent 2Bdrm/2Ba- $ 747 $ 750 $ 948 $ 1,035 $ 1,090 $ 885 $ 885 $1,090 $ 992 $ 990 Unit Area (SF) 2B20 1,151 1,151 1,020 $ 1,068 1,240 1,140 1,020 $1,240 1,104 1,117 Monthly Rent Per Sq. Ft $ 0.65 $ 0.65 $ 0.93 $ 0.97 $ 0.88 $ 0.78 $ 0.78 $ 0.97 $ 0.90 $ 0.89 Monthly Rent 2Bdrm/2Ba- $ 940 $ 950 $ 1,118 $ 1,035 $ 1,090 $ 885 $ 885 $1,118 $1,063 $ 1,032 Unit Area (SF) 2D20 1,167 1,167 1,159 1,068 1,240 1,140 1,068 1,240 1,150 1,152 Monthly Rent Per Sq. Ft $ 0.81 $ 0.81 $ 0.96 $ 0.97 $ 0.88 $ 0.78 $ 0.78 $ 0.97 $ 0.92 $ 0.90 Monthly Rent 2Bdrm/2Ba- $ 1,097 $ 1,100 $ 1,118 $ 1,035 $ 1,090 $ 938 $ 938 $1,118 $1,063 $ 1,045 Unit Area (SF) 2E20 1,219 1,219 1,159 1,068 1,240 1,243 1,068 1,243 1,200 1,178 Monthly Rent Per Sq. Ft $ 0.90 $ 0.90 $ 0.96 $ 0.97 $ 0.88 $ 0.75 $ 0.75 $ 0.97 $ 0.92 $ 0.89 Monthly Rent 2Bdrm/2Ba- $ 984 $ 990 $ 1,550 $ 1,105 $ 1,126 $ 938 $ 938 $1,550 $1,116 $ 1,180 Unit Area (SF) 2G20 1,238 1,238 1,407 1,245 1,550 1,243 1,243 1,550 1,326 1,361 Monthly Rent Per Sq. Ft $ 0.79 $ 0.80 $ 1.10 $ 0.89 $ 0.73 $ 0.75 $ 0.73 $ 1.10 $ 0.82 $ 0.87 Monthly Rent 2Bdrm/2Ba- $ 1,123 $ 1,130 $ 1,550 $ 1,105 $ 1,126 $ 938 $ 938 $1,550 $1,116 $ 1,180 Unit Area (SF) 2H20 1,266 1,266 1,407 1,245 1,550 1,243 1,243 1,550 1,326 1,361 Monthly Rent Per Sq. Ft $ 0.89 $ 0.89 $ 1.10 $ 0.89 $ 0.73 $ 0.75 $ 0.73 $ 1.10 $ 0.82 $ 0.87 Monthly Rent 2Bdrm/2.5Ba- $ 1,190 $ 1,200 $ 1,550 $ 1,105 $ 1,126 $ 938 $ 938 $1,550 $1,116 $ 1,180 Unit Area (SF) 2A25 1,385 1,385 1,407 1,245 1,550 1,243 1,243 1,550 1,326 1,361 Monthly Rent Per Sq. Ft $ 0.86 $ 0.87 $ 1.10 $ 0.89 $ 0.73 $ 0.75 $ 0.73 $ 1.10 $ 0.82 $ 0.87 Monthly Rent 3Bdrm/2Ba- $ 1,359 $ 1,375 $ 1,665 $ 1,710 $ 1,294 $ 1,270 $1,270 $1,710 $1,480 $ 1,485 Unit Area (SF) 3B20 1,453 1,453 1,600 1,860 1,467 1,504 1,467 1,860 1,552 1,608 Monthly Rent Per Sq. Ft $ 0.94 $ 0.95 $ 1.04 $ 0.92 $ 0.88 $ 0.84 $ 0.84 $ 1.04 $ 0.90 $ 0.92 Monthly Rent 3Bdrm/2Ba- $ 1,188 $ 1,190 $ 1,665 $ 1,710 $ 1,294 $ 1,270 $1,270 $1,710 $1,480 $ 1,485 Unit Area (SF) 3A20 1,487 1,487 1,600 1,860 1,467 1,504 1,467 1,860 1,552 1,608 Monthly Rent Per Sq. Ft $ 0.80 $ 0.80 $ 1.04 $ 0.92 $ 0.88 $ 0.84 $ 0.84 $ 1.04 $ 0.90 $ 0.92 Monthly Rent 3Bdrm/2Ba- $ 1,314 $ 1,315 $ 1,665 $ 1,710 $ 1,294 $ 1,270 $1,270 $1,710 $1,480 $ 1,485 Unit Area (SF) 3C20 1,518 1,518 1,600 1,860 1,467 1,504 1,467 1,860 1,552 1,608 Monthly Rent Per Sq. Ft $ 0.87 $ 0.87 $ 1.04 $ 0.92 $ 0.88 $ 0.84 $ 0.84 $ 1.04 $ 0.90 $ 0.92
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 GLENBRIDGE MANOR, CINCINNATI, OHIO GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area ------------------- Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income ------------------- --------------- --------- -------- ------ -------- ---------- 1Bdrm/1Ba-1A10/1B10 40 629 $ 680 $ 1.08 $ 27,200 $ 326,400 1Bdrm/1Ba-1C10 10 776 $ 725 $ 0.93 $ 7,250 $ 87,000 1Bdrm/1Ba-1D10 46 859 $ 800 $ 0.93 $ 36,800 $ 441,600 2Bdrm/2Ba-2A20 10 1,049 $ 950 $ 0.91 $ 9,500 $ 114,000 2Bdrm/2Ba-2F20 23 1,134 $ 970 $ 0.86 $ 22,310 $ 267,720 2Bdrm/2Ba-2B20 5 1,151 $ 900 $ 0.78 $ 4,500 $ 54,000 2Bdrm/2Ba-2D20 26 1,167 $ 980 $ 0.84 $ 25,480 $ 305,760 2Bdrm/2Ba-2E20 18 1,219 $1,075 $ 0.88 $ 19,350 $ 232,200 2Bdrm/2Ba-2G20 5 1,238 $1,000 $ 0.81 $ 5,000 $ 60,000 2Bdrm/2Ba-2H20 18 1,266 $1,130 $ 0.89 $ 20,340 $ 244,080 2Bdrm/2.5Ba-2A25 11 1,385 $1,180 $ 0.85 $ 12,980 $ 155,760 3Bdrm/2Ba-3B20 31 1,453 $1,400 $ 0.96 $ 43,400 $ 520,800 3Bdrm/2Ba-3A20 17 1,487 $1,300 $ 0.87 $ 22,100 $ 265,200 3Bdrm/2Ba-3C20 30 1,518 $1,350 $ 0.89 $ 40,500 $ 486,000 -------- ---------- Total $296,710 $3,560,520 ======== ==========
We have placed most of our consideration on the rent comparables in deriving our market rent estimates. The current actual rent rates and quoted rent rates reflect a lease up situation since the subject just opened. 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 29 GLENBRIDGE MANOR, CINCINNATI, OHIO SUMMARY OF HISTORICAL INCOME & EXPENSES
ANNUALIZED 2003 ---------------------- ACTUAL AAA PROJECTION ---------------------- ------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % ----------- ---------- -------- ---------- -------- ------ Revenues Rental Income $ 904,260 $3,118 $3,560,520 $12,278 100.0% Vacancy ($ 320,910) -$1,107 $ 213,631 $ 737 6.0% Credit Loss/Concessions ($ 15,054) -$ 52 $ 35,605 $ 123 1.0% ---------- ------- ---------- ------- ----- Subtotal ($ 335,964) -$1,158 $ 249,236 $ 859 7.0% Laundry Income $ 0 $ 0 $ 0 0.0% Garage Revenue $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 19,965 $ 69 $ 43,500 $ 150 1.2% ---------- ------- ---------- ------- ----- Subtotal Other Income $ 19,965 $ 69 $ 43,500 $ 150 1.2% ---------- ------- ---------- ------- ----- Effective Gross Income $1,260,189 $4,345 $3,354,784 $11,568 100.0% Operating Expenses Taxes $ 18,381 $ 63 $ 628,337 $ 2,167 18.7% Insurance $ 35,889 $ 124 $ 36,250 $ 125 1.1% Utilities $ 14,085 $ 49 $ 174,000 $ 600 5.2% Repair & Maintenance $ 1,593 $ 5 $ 49,300 $ 170 1.5% Cleaning $ 78,033 $ 269 $ 14,500 $ 50 0.4% Landscaping $ 11,571 $ 40 $ 11,600 $ 40 0.3% Security $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 19,404 $ 67 $ 19,720 $ 68 0.6% General Administrative $ 179,673 $ 620 $ 179,800 $ 620 5.4% Management $ 29,757 $ 103 $ 100,644 $ 347 3.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0% ---------- ------- ---------- ------- ----- Total Operating Expenses $ 388,386 $1,339 $1,214,151 $ 4,187 36.2% Reserves $ 0 $ 0 $ 72,500 $ 250 2.2% ---------- ------- ---------- ------- ----- Net Income $ 871,803 $3,006 $2,068,133 $ 7,131 61.6% ---------- ------- ---------- ------- -----
Please note that because the subject began operations in mid 2003 very limited income and expense data was available and this was during lease up. Additionally, no 2004 budget was available. 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. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 GLENBRIDGE MANOR, CINCINNATI, OHIO 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. Rental rates in the first year of the cash flow are held flat to reflect a lease up period. After that they are grown at 6% in year 2, 4% in year 3 and 3% thereafter. Expenses are generally grown at 3% per year. 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 7% based on the subject's historical performance, as well as the anticipated future market conditions. RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $250 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $250 per unit should be satisfactory in our reserves for replacement to cover future capital expenditures. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 GLENBRIDGE MANOR, CINCINNATI, OHIO 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. Because of the limited financial data available only one overall rate from a sale comparable could be derived. As this was an older property this capitalization rate was not considered reliable. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 3rd QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES ------------------------------------------------ GOING-IN TERMINAL ------------------- -------------------- LOW HIGH LOW HIGH ----- ----- ----- ------ RANGE 5.50% 9.50% 6.00% 10.00% AVERAGE 7.61% 8.14%
Based on this information, we have concluded the subject's overall capitalization rate should be 7.50%. 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 8.75%. 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 10.00%. 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 AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 GLENBRIDGE MANOR, CINCINNATI, OHIO 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 10.00% indicates a value of $27,200,000. In this instance, the reversion figure contributes approximately 45% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 GLENBRIDGE MANOR, CINCINNATI, OHIO DISCOUNTED CASH FLOW ANALYSIS GLENBRIDGE MANOR
YEAR OCT-2004 OCT-2005 OCT-2006 OCT-2007 OCT-2008 OCT-2009 OCT-2010 FISCAL YEAR 1 2 3 4 5 6 7 ----------- -------- -------- -------- -------- -------- -------- -------- REVENUE Base Rent $3,560,520 $3,560,520 $3,774,151 $3,925,117 $4,042,871 $4,164,157 $ 4,289,082 Vacancy $ 490,288 $ 213,631 $ 226,449 $ 235,507 $ 242,572 $ 249,849 $ 257,345 Credit Loss $ 35,605 $ 35,605 $ 37,742 $ 39,251 $ 40,429 $ 41,642 $ 42,891 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------------------- Subtotal $ 525,893 $ 249,236 $ 264,191 $ 274,758 $ 283,001 $ 291,491 $ 300,236 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 43,500 $ 43,500 $ 46,110 $ 47,954 $ 49,393 $ 50,875 $ 52,401 ----------------------------------------------------------------------------------- Subtotal Other Income $ 43,500 $ 43,500 $ 46,110 $ 47,954 $ 49,393 $ 50,875 $ 52,401 ----------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $3,078,127 $3,354,784 $3,556,071 $3,698,313 $3,809,263 $3,923,541 $ 4,041,247 OPERATING EXPENSES: Taxes $ 628,337 $ 647,187 $ 666,603 $ 686,601 $ 707,199 $ 728,415 $ 750,267 Insurance $ 36,250 $ 37,338 $ 38,458 $ 39,611 $ 40,800 $ 42,024 $ 43,284 Utilities $ 174,000 $ 179,220 $ 184,597 $ 190,134 $ 195,839 $ 201,714 $ 207,765 Repair & Maintenance $ 49,300 $ 50,779 $ 52,302 $ 53,871 $ 55,488 $ 57,152 $ 58,867 Cleaning $ 14,500 $ 14,935 $ 15,383 $ 15,845 $ 16,320 $ 16,809 $ 17,314 Landscaping $ 11,600 $ 11,948 $ 12,306 $ 12,676 $ 13,056 $ 13,448 $ 13,851 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 19,720 $ 20,312 $ 20,921 $ 21,549 $ 22,195 $ 22,861 $ 23,547 General Administrative $ 179,800 $ 185,194 $ 190,750 $ 196,472 $ 202,366 $ 208,437 $ 214,691 Management $ 92,344 $ 100,644 $ 106,682 $ 110,949 $ 114,278 $ 117,706 $ 121,237 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $1,205,851 $1,247,556 $1,288,002 $1,327,709 $1,367,540 $1,408,566 $ 1,450,823 Reserves $ 72,500 $ 74,675 $ 76,915 $ 79,223 $ 81,599 $ 84,047 $ 86,569 ----------------------------------------------------------------------------------- NET OPERATING INCOME $1,799,776 $2,032,553 $2,191,154 $2,291,382 $2,360,124 $2,430,927 $2,503 ,855 Operating Expense Ratio (% of EGI) 39.2% 37.2% 36.2% 35.9% 35.9% 35.9% 35.9% Operating Expense Per Unit $ 4,158 $ 4,302 $ 4,441 $ 4,578 $ 4,716 $ 4,857 $ 5,003 YEAR OCT-2011 OCT-2012 OCT-2013 OCT-2014 FISCAL YEAR 8 9 10 11 ----------- -------- -------- -------- -------- REVENUE Base Rent $4,417,754 $4,550,287 $4,686,795 $4,827,399 Vacancy $ 265,065 $ 273,017 $ 281,208 $ 289,644 Credit Loss $ 44,178 $ 45,503 $ 46,868 $ 48,274 Concessions $ 0 $ 0 $ 0 $ 0 ---------------------------------------------- Subtotal $ 309,243 $ 318,520 $ 328,076 $ 337,918 Laundry Income $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 53,973 $ 55,592 $ 57,260 $ 58,978 ---------------------------------------------- Subtotal Other Income $ 53,973 $ 55,592 $ 57,260 $ 58,978 ---------------------------------------------- EFFECTIVE GROSS INCOME $4,162,484 $4,287,359 $4,415,980 $4,548,459 OPERATING EXPENSES: Taxes $ 772,775 $ 795,959 $ 819,837 $ 844,432 Insurance $ 44,583 $ 45,920 $ 47,298 $ 48,717 Utilities $ 213,998 $ 220,418 $ 227,031 $ 233,841 Repair & Maintenance $ 60,633 $ 62,452 $ 64,325 $ 66,255 Cleaning $ 17,833 $ 18,368 $ 18,919 $ 19,487 Landscaping $ 14,267 $ 14,695 $ 15,135 $ 15,589 Security $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 24,253 $ 24,981 $ 25,730 $ 26,502 General Administrative $ 221,131 $ 227,765 $ 234,598 $ 241,636 Management $ 124,875 $ 128,621 $ 132,479 $ 136,454 Miscellaneous $ 0 $ 0 $ 0 $ 0 ---------------------------------------------- TOTAL OPERATING EXPENSES $1,494,348 $1,539,178 $1,585,353 $1,632,914 Reserves $ 89,166 $ 91,841 $ 94,596 $ 97,434 ---------------------------------------------- NET OPERATING INCOME $2,578,971 $2,656,340 $2,736,030 $2,818,111 Operating Expense Ratio (% of EGI) 35.9% 35.9% 35.9% 35.9% Operating Expense Per Unit $ 5,153 $ 5,308 $ 5,467 $ 5,631
Estimated Stabilized NOI $2,068,133 Sales Expense Rate 2.00% Months to Stabilized 12 Discount Rate 10.00% Stabilized Occupancy 94.0% Terminal Cap Rate 8.75%
"DCF" VALUE ANALYSIS Gross Residual Sale Price $32,206,983 Deferred Maintenance $ 0 Less: Sales Expense $ 644,140 Add: Excess Land $ 0 ----------- Net Residual Sale Price $31,562,844 Other Adjustments $ 0 ----------- PV of Reversion $12,168,843 Value Indicated By "DCF" $27,190,855 Add: NPV of NOI $15,022,012 Rounded $27,200,000 ----------- PV Total $27,190,855
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE -------------------------------------------------------------------------- TOTAL VALUE 9.50% 9.75% 10.00% 10.25% 10.50% ------------------------------------------------------------------------------------------------------- 8.25% $28,909,397 $28,413,333 $27,928,360 $27,454,194 $26,990,559 8.50% $28,512,105 $28,024,999 $27,548,762 $27,083,116 $26,627,791 TERMINAL CAP RATE 8.75% $28,137,515 $27,658,855 $27,190,855 $26,733,242 $26,285,753 9.00% $27,783,736 $27,313,052 $26,852,831 $26,402,806 $25,962,717 9.25% $27,449,080 $26,985,941 $26,533,079 $26,090,231 $25,657,142
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 GLENBRIDGE MANOR, CINCINNATI, OHIO INCOME LOSS DURING LEASE-UP The subject is currently 80% occupied, below our stabilized occupancy projection. We have estimated a 12-month lease-up period. An adjustment must be made to bring the subject to a stabilized operating level. To account for this income loss during lease-up, we have compared the current DCF analysis to an "as stabilized" DCF analysis assuming the subject's occupancy were stabilized. The difference in net operating income during the lease-up period is discounted to a present value figure of $244,000 as shown in the following table.
DESCRIPTION YEAR 1 ----------- ------ "As Is" Net Operating Income $1,799,776 Stabilized Net Operating Income $2,068,133 ---------- Difference $ 268,357 PV of Income Loss During Lease-Up $ 243,961 ---------- Rounded $ 244,000 ----------
CONCESSIONS Concessions have historically not been utilized a the subject property or in the subject's market. Therefore, no adjustment was included for concessions. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 7.50% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 GLENBRIDGE MANOR, CINCINNATI, OHIO GLENBRIDGE MANOR
TOTAL PER SQ. FT. PER UNIT %OF EGI ----- ----------- -------- ------- REVENUE Base Rent $ 3,560,520 $10.88 $12,278 Less: Vacancy & Collection Loss 7.00% $ 249,236 $ 0.76 $ 859 Plus: Other Income Laundry Income $ 0 $ 0.00 $ 0 0.00% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 43,500 $ 0.13 $ 150 1.30% ----------- ------ ------- ----- Subtotal Other Income $ 43,500 $ 0.13 $ 150 1.30% EFFECTIVE GROSS INCOME $ 3,354,784 $10.26 $11,568 OPERATING EXPENSES: Taxes $ 628,337 $ 1.92 $ 2,167 18.73% Insurance $ 36,250 $ 0.11 $ 125 1.08% Utilities $ 174,000 $ 0.53 $ 600 5.19% Repair & Maintenance $ 49,300 $ 0.15 $ 170 1.47% Cleaning $ 14,500 $ 0.04 $ 50 0.43% Landscaping $ 11,600 $ 0.04 $ 40 0.35% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 19,720 $ 0.06 $ 68 0.59% General Administrative $ 179,800 $ 0.55 $ 620 5.36% Management 3.00% $ 100,644 $ 0.31 $ 347 3.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 1,214,151 $ 3.71 $ 4,187 36.19% Reserves $ 72,500 $ 0.22 $ 250 2.16% ----------- ------ ------- ----- NET OPERATING INCOME $ 2,068,133 $ 6.32 $ 7,131 61.65% ----------- ------ ------- ----- "GOING IN" CAPITALIZATION RATE 7.50% VALUE INDICATION $27,575,108 $84.30 $95,087 LESS: LEASE-UP COST ($ 244,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $27,331,108 ROUNDED $27,300,000 $83.46 $94,138
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 GLENBRIDGE MANOR, CINCINNATI, OHIO DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF -------- ----- ------- ------ ---- 6.75% $30,395,009 $30,400,000 $104,828 $92.93 7.00% $29,300,758 $29,300,000 $101,034 $89.57 7.25% $28,281,974 $28,300,000 $ 97,586 $86.51 7.50% $27,331,108 $27,300,000 $ 94,138 $83.46 7.75% $26,441,588 $26,400,000 $ 91,034 $80.70 8.00% $25,607,664 $25,600,000 $ 88,276 $78.26 8.25% $24,824,280 $24,800,000 $ 85,517 $75.81
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $27,300,000. 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 $27,200,000 Direct Capitalization Method $27,300,000 Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $27,300,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37 GLENBRIDGE MANOR, CINCINNATI, OHIO 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 $ 27,600,000 Income Approach $ 27,300,000 Reconciled Value $ 27,500,000
The Income Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of November 19, 2003 the market value of the fee simple estate in the property is: $27,500,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA GLENBRIDGE MANOR, CINCINNATI, OHIO ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A GLENBRIDGE MANOR, CINCINNATI, OHIO EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A GLENBRIDGE MANOR, CINCINNATI, OHIO SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] [EXTERIOR - APARTMENT BUILDING] [EXTERIOR - APARTMENT BUILDING] [PICTURE] [PICTURE] [EXTERIOR - APARTMENT BUILDING] [EXTERIOR - APARTMENT BUILDING] [PICTURE] [PICTURE] [INTERIOR - LIVING AREA] [INTERIOR - KITCHEN] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A GLENBRIDGE MANOR, CINCINNATI, OHIO SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] [INTERIOR - GARAGE] [INTERIOR - UTILITY ROOM] [PICTURE] [PICTURE] [EXTERIOR - POOL] [INTERIOR - LEASING OFFICE] [PICTURE] [PICTURE] [INTERIOR - LIVING AREA] [INTERIOR - HALF BATH] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B GLENBRIDGE MANOR, CINCINNATI, OHIO EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B GLENBRIDGE MANOR, CINCINNATI, OHIO PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 CAMBRIDGE PARK MAGNOLIA POINTE GRANDVIEW SUMMIT 1088 E Crescentville Road 484 Old State Route 74 651 Napa Valley Lane West Chester, Ohio Cincinnati, Ohio Crestview Hill, Kentucky N/A [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 CONSERVATORY AT DEERFIELD MAYFAIR OF MONTGOMERY 8502 Sugar Maple Drive 10555 Montgomery Road Mason, Ohio Cincinnati, Ohio [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B GLENBRIDGE MANOR, CINCINNATI, OHIO SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 -------------------------------- --------------------------------------------- --------------------------------------- Property Name Glenbridge Manor Nantucket Management Company AIMCO LOCATION: Address 11513 Village Brook Drive 3569 Nantucket Circle City, State Cincinnati, Ohio Loveland, OH County Hamilton Hamilton Proximity to Subject 0.5 Miles PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 327,120 N/A Year Built 2003 2002 Effective Age 1 1 Building Structure Type Siding/Shingle/Stone Parking Type (Gr., Cov., etc.) Garage/Uncovered Number of Units 290 394 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Bdrm/1Ba-1A10/1B10 629 40 $ 635 1 1Bdrm/1Ba 585 $ 653 2 1Bdrm/1Ba-1C10 776 10 $ 708 2 1Bdrm/1Ba 687 $ 723 3 1Bdrm/1Ba-1D10 859 46 $ 747 3 1Bdrm/1Ba 755 $ 768 4 2Bdrm/2Ba-2A20 1,049 10 $ 922 4 2Bdrm/2Ba 1,020 $ 948 5 2Bdrm/2Ba-2F20 1,134 23 $ 957 5 2Bdrm/2Ba 1,020 $ 948 6 2Bdrm/2Ba-2B20 1,151 5 $ 747 6 2Bdrm/2Ba 1,020 $ 948 7 2Bdrm/2Ba-2D20 1,167 26 $ 940 7 2Bdrm/2Ba 1,159 $1,118 8 2Bdrm/2Ba-2E20 1,219 18 $1,097 8 2Bdrm/2Ba 1,159 $1,118 9 2Bdrm/2Ba-2G20 1,238 5 $ 984 9 2Bdrm/2Ba Twnhse 1,407 $1,550 10 2Bdrm/2Ba-2H20 1,266 18 $1,123 10 2Bdrm/2Ba Twnhse 1,407 $1,550 11 2Bdrm/2.5Ba-2A25 1,385 11 $1,190 11 2Bdrm/2Ba Twnhse 1,407 $1,550 12 3Bdrm/2Ba-3B20 1,453 31 $1,359 12 3Bdrm/2Ba 1,600 $1,665 13 3Bdrm/2Ba-3A20 1,487 17 $1,188 13 3Bdrm/2Ba 1,600 $1,665 14 3Bdrm/2Ba-3C20 1,518 30 $1,314 14 3Bdrm/2Ba 1,600 $1,665 Average Unit Size (SF) 1,128 Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Very Good Very Good APPEAL: Very Good Very Good AMENITIES: Unit Amenities X Attach. Garage X Vaulted Ceiling Attach. Garage X Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment X Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball Meeting Hall Tennis Court X Secured Parking Tennis Court X Secured Parking Racquet Ball Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room X Gym Room X Play Ground Play Ground OCCUPANCY: 80% 88% LEASING DATA: Available Leasing Terms 15 to 24 mo. Concessions 2 months Pet Deposit 400 Utilities Paid by Tenant: Electric Natural Gas X Electric X Natural Gas Water Trash X Water Trash Confirmation Julie Telephone Number 513 -697 -0100 NOTES: COMPARISON TO SUBJECT: Similar COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 -------------------------------- ------------------------------------- ------------------------------------------------ Property Name Bishops Gate Twin Fountains Management Company LOCATION: Address 8075 Somerset Chase 7402 Twin Fountains Boulevard City, State Cincinnati, OH Mason, OH County Hamilton Hamilton Proximity to Subject 0.5 Miles 1.5 Miles PHYSICAL CHARATERISTICS: Net Rentable Area (SF) N/A N/A Year Built 2000 2000 Effective Age 3 3 Building Structure Type Siding/Brick Siding/Brick/Stone Parking Type (Gr., Cov., etc.) Attached garage/Uncovered/Covered Attached garage/Uncovered Number of Units 248 320 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Bdrm/1Ba 910 $ 820 1 1Bdrm/1Ba 882 $ 830 2 1Bdrm/1Ba 910 $ 820 2 1Bdrm/1Ba 882 $ 830 3 1Bdrm/1Ba 910 $ 820 3 1Bdrm/1Ba 1,149 $ 995 4 2Bdrm/2Ba 1,068 $1,035 4 2Bdrm/2Ba 1,240 $1,090 5 2Bdrm/2Ba 1,068 $1,035 5 2Bdrm/2Ba 1,240 $1,090 6 2Bdrm/2Ba 1,068 $1,035 6 2Bdrm/2Ba 1,240 $1,090 7 2Bdrm/2Ba 1,068 $1,035 7 2Bdrm/2Ba 1,240 $1,090 8 2Bdrm/2Ba 1,068 $1,035 8 2Bdrm/2Ba 1,240 $1,090 9 2Bdrm/2Ba 1,245 $1,105 9 2Bdrm/2Ba 1,550 $1,126 10 2Bdrm/2Ba 1,245 $1,105 10 2Bdrm/2Ba 1,550 $1,126 11 2Bdrm/2Ba 1,245 $1,105 11 2Bdrm/2Ba 1,550 $1,126 12 3Bdrm/2.5Ba 1,860 $1,710 12 3Bdrm/2Ba 1,467 $1,294 13 3Bdrm/2.5Ba 1,860 $1,710 13 3Bdrm/2Ba 1,467 $1,294 14 3Bdrm/2.5Ba 1,860 $1,710 14 3Bdrm/2Ba 1,467 $1,294 Average Unit Size (SF) Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Very Good Very Good APPEAL: Very Good Very Good AMENITIES: Unit Amenities X Attach. Garage X Vaulted Ceiling X Attach. Garage X Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court X Theater Room Sand Volley Ball X Meeting Hall X Sand Volley Ball X Meeting Hall X Tennis Court X Secured Parking Tennis Court X Secured Parking Racquet Ball Laundry Room Racquet Ball Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room X Gym Room Play Ground Play Ground OCCUPANCY: 85% 75% LEASING DATA: Available Leasing Terms 6 or 13 mo. 6 to 13 mo. Concessions 1 months 2 months Pet Deposit None N/A Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash X Water Trash Confirmation Trista Vicki Telephone Number 513-489-3575 513-754-0366 NOTES: COMPARISON TO SUBJECT: Similar Similar COMPARABLE DESCRIPTION R - 4 ------------------------------- -------------------------------------- Property Name The Conservatory at Deerfield Management Company Lincoln Property LOCATION: Address 8502 Sugar Maple Drive City, State Mason, OH County Hamilton Proximity to Subject 1 Mile PHYSICAL CHARATERISTICS: Net Rentable Area (SF) N/A Year Built 2001 Effective Age 2 Building Structure Type Wood/Stone Parking Type (Gr., Cov., etc.) Attached garage/Detached garage/ Number of Units 498 Unit Mix: Type Unit Qty. Mo. 1 1Bdrm/1Ba 822 $ 770 2 1Bdrm/1Ba 934 $ 815 3 1Bdrm/Den/1Ba 1,008 $ 870 4 2Bdrm/2Ba 1,140 $ 885 5 2Bdrm/2Ba 1,140 $ 885 6 2Bdrm/2Ba 1,140 $ 885 7 2Bdrm/2Ba 1,140 $ 885 8 2Bdrm/2Ba 1,243 $ 938 9 2Bdrm/2Ba 1,243 $ 938 10 2Bdrm/2Ba 1,243 $ 938 11 2Bdrm/2Ba 1,243 $ 938 12 3Bdrm/2Ba 1,504 $1,270 13 3Bdrm/2Ba 1,504 $1,270 14 3Bdrm/2Ba 1,504 $1,270 Average Unit Size (SF) Unit Breakdown: Efficiency 2-Bedroom 1-Bedroom 3-Bedroom CONDITION: Very Good APPEAL: Very Good AMENITIES: Unit Amenities X Attach. Garage X Vaulted Ceiling X Balcony X W/D Connect. X Fireplace Other X Cable TV Ready Project Amenities X Swimming Pool Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Volleyball Court Theater Room Sand Volley Ball X Meeting Hall X Tennis Court Secured Racquet Ball X Laundry Room Jogging Track X Business Office X Gym Room X Play Ground OCCUPANCY: 83% LEASING DATA: Available Leasing Terms 6 to 12 mo. Concessions 2 months Pet Deposit N/A Utilities Paid by Tenant: X Electric X Natural Gas X Water Trash Confirmation Maria Telephone Number 513 -754-8781 NOTES: COMPARISON TO SUBJECT: Similar
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B GLENBRIDGE MANOR, CINCINNATI, OHIO PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 NANTUCKET BISHOPS GATE TWIN FOUNTAINS 3569 Nantucket Circle 8075 Somerset Chase 7402 Twin Fountains Boulevard Loveland, OH Cincinnati, OH Mason, OH [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 THE CONSERVATORY AT DEERFIELD N/A 8502 Sugar Maple Drive Mason, OH [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C GLENBRIDGE MANOR, CINCINNATI, OHIO EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C GLENBRIDGE MANOR, CINCINNATI, OHIO 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 GLENBRIDGE MANOR, CINCINNATI, OHIO 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 GLENBRIDGE MANOR, CINCINNATI, OHIO such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the Appraisal Institute or the designations awarded by this organization) shall be disseminated to the public through prospectus, advertising, public relations, news, or any other means of communication without the written consent and approval of American Appraisal Associates, Inc. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D GLENBRIDGE MANOR, CINCINNATI, OHIO 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. Shayne G. Hatch provided significant real property appraisal assistance in the preparation of this report. I am currently in compliance with the Appraisal Institute's continuing education requirements. /s/ Frank A. Fehribach ---------------------- Frank A. Fehribach, MAI Managing Principal, Real Estate Group Texas State Certified General Real Estate Appraiser, TX-1323954-G AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E GLENBRIDGE MANOR, CINCINNATI, OHIO EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E GLENBRIDGE MANOR, CINCINNATI, OHIO FRANK A. FEHRIBACH, MAI MANAGING PRINCIPAL, REAL ESTATE GROUP POSITION Frank A. Fehribach is a Managing Principal for the Dallas Real Estate Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Mr. Fehribach has experience in valuations for resort hotels; Class A office buildings; Class A multifamily complexes; industrial buildings and distribution warehousing; multitract mixed-use vacant land; regional malls; residential subdivision development; and special-purpose properties such as athletic clubs, golf courses, manufacturing facilities, nursing homes, and medical buildings. Consulting assignments include development and feasibility studies, economic model creation and maintenance, and market studies. Mr. Fehribach also has been involved in overseeing appraisal and consulting assignments in Mexico and South America. Business Mr. Fehribach joined AAA as an engagement director in 1998. He was promoted to his current position in 1999. Prior to that, he was a manager at Arthur Andersen LLP. Mr. Fehribach has been in the business of real estate appraisal for over ten years. EDUCATION University of Texas - Arlington Master of Science - Real Estate University of Dallas Master of Business Administration - Industrial Management Bachelor of Arts - Economics AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E GLENBRIDGE MANOR, CINCINNATI, OHIO STATE CERTIFICATIONS State of Arizona, Certified General Real Estate Appraiser, #30828 State of Arkansas, State Certified General Appraiser, #CG1387N State of Colorado, Certified General Appraiser, #CG40000445 State of Georgia, Certified General Real Property Appraiser, #218487 State of Michigan, Certified General Appraiser, #1201008081 State of Texas, Real Estate Salesman License, #407158 (Inactive) State of Texas, State Certified General Real Estate Appraiser, #TX-1323954-G PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS Candidate Member of the CCIM Institute pursuing Certified Commercial Investment Member (CCIM) designation PUBLICATIONS "An Analysis of the Determinants of Industrial Property Valuation," Co-authored with Dr. Ronald C. Rutherford and Dr. Mark Eakin, The Journal of Real Estate Research, Vol. 8, No. 3, Summer 1993, p. 365.
AMERICAN APPRAISAL ASSOCIATES, INC. GLENBRIDGE MANOR, CINCINNATI, OHIO GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. GLENBRIDGE MANOR, CINCINNATI, OHIO 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.