EX-99.(C)(3) 5 d07278a2exv99wxcyx3y.txt APPRAISAL OF ROCKY CREEK APARTMENTS ROCKY CREEK APARTMENTS 950 STEVENS CREEK ROAD AUGUSTA, GEORGIA MARKET VALUE - FEE SIMPLE ESTATE AS OF JUNE 1, 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) LETTERHEAD] JULY 10, 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: ROCKY CREEK APARTMENTS 950 STEVENS CREEK ROAD AUGUSTA, RICHMOND COUNTY, GEORGIA In accordance with your authorization, we have completed the appraisal of the above-referenced property. This complete appraisal is intended to report our analysis and conclusions in a summary format. The subject property consists of an apartment project having 120 units with a total of 131,400 square feet of rentable area. The improvements were built in 1979. The improvements are situated on 9.44 acres. Overall, the improvements are in fair condition. As of the date of this appraisal, the subject property is 93% occupied. It is our understanding the appraisal will be used by the clients to assist the San Mateo Superior Court in the settlement of litigation between the above mentioned clients. The appraisal is intended to conform to the Uniform Standards of Professional Appraisal Practice ("USPAP") as promulgated by the Appraisal Standards Board of the Appraisal Foundation and the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute. The appraisal is presented in a summary report, and the Departure Provision of USPAP has not been invoked in this appraisal. It is entirely inappropriate to use this value conclusion or the report for any purpose other than the one stated. AMERICAN APPRAISAL ASSOCIATES, INC. LETTER OF TRANSMITTAL PAGE 2 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA The opinions expressed in this appraisal cover letter can only be completely understood by reading the narrative report, addenda, and other data, which is attached. The appraisal is subject to the attached general assumptions and limiting conditions and general service conditions. As a result of our investigation, it is our opinion that the fee simple market value of the subject, effective June 1, 2003 is: ($3,900,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Michael Bates ------------------------ July 10, 2003 Michael Bates, MAI #053272 Assistant Manager, Real Estate Group State of Georgia, Certified General Real Property Appraiser #CG00685 Report By: Phillip McGinnis AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary....................................................... 4 Introduction............................................................ 9 Area Analysis........................................................... 11 Market Analysis......................................................... 14 Site Analysis........................................................... 16 Improvement Analysis.................................................... 16 Highest and Best Use.................................................... 17 VALUATION Valuation Procedure..................................................... 18 Sales Comparison Approach............................................... 20 Income Capitalization Approach.......................................... 26 Reconciliation and Conclusion........................................... 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 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Rocky Creek Apartments LOCATION: 950 Stevens Creek Road Augusta, Georgia INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: Fee simple estate DATE OF VALUE: June 1, 2003 DATE OF REPORT: July 10, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 9.44 acres, or 411,206 square feet Assessor Parcel No.: 007-0-020-01-0 Floodplain: Community Panel No. 1301580020B (February 4, 1987) Flood Zone C, an area outside the floodplain. Zoning: R-3B (Multiple-Family Residential Zone) BUILDING: No. of Units: 120 Units Total NRA: 131,400 Square Feet Average Unit Size: 1,095 Square Feet Apartment Density: 12.7 units per acre Year Built: 1979 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ---------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income --------------------------------------------------------- 2Br/2Ba-2A20 1,095 $600 $0.55 $72,000 $864,000 ------------------------ Total $72,000 $864,000 ========================
OCCUPANCY: 93% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 20 Years REMAINING ECONOMIC LIFE: 25 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - ENTRANCE DRIVEWAY EXTERIOR - LEASING/CLUBHOUSE AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA NEIGHBORHOOD MAP [MAP] HIGHEST AND BEST USE: As Vacant: Hold for future multi-family development As Improved: Continuation as its current use METHOD OF VALUATION: In this instance, the Sales Comparison and Income Approaches to value were utilized. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit --------------------- ------ ------ Potential Rental Income $ 864,000 $ 7,200 Effective Gross Income $ 828,600 $ 6,905 Operating Expenses $ 423,030 $ 3,525 51.1% of EGI Net Operating Income: $ 384,570 $ 3,205 Capitalization Rate 9.50% DIRECT CAPITALIZATION VALUE $4,000,000 * $33,333 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 10% Stabilized Vacancy & Collection Loss: 10% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 10.00% Discount Rate 12.00% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $3,900,000 * $32,500 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $3,900,000 $32,500 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $19,375 to $39,950 Range of Sales $/Unit (Adjusted) $26,156 to $39,950 VALUE INDICATION - PRICE PER UNIT $3,900,000 * $32,500 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 3.64 to 6.29 Selected EGIM for Subject 4.75 Subject's Projected EGI $ 828,600 EGIM ANALYSIS CONCLUSION $3,900,000 * $32,500 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $3,800,000 * $31,667 / UNIT RECONCILED SALES COMPARISON VALUE $3,900,000 $32,500 / 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 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $3,900,000 NOI Per Unit $3,800,000 EGIM Multiplier $3,900,000 INDICATED VALUE BY SALES COMPARISON $3,900,000 $32,500 / UNIT INCOME APPROACH: Direct Capitalization Method: $4,000,000 Discounted Cash Flow Method: $3,900,000 INDICATED VALUE BY THE INCOME APPROACH $3,900,000 $32,500 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $3,900,000 $32,500 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 950 Stevens Creek Road, Augusta, Richmond County, Georgia. Augusta identifies it as 007-0-020-01-0. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Phillip McGinnis on June 1, 2003. Michael Bates, MAI has not made a personal inspection of the subject property. Phillip McGinnis performed the research, valuation analysis and wrote the report. Michael Bates, MAI reviewed the report and concurs with the value. Michael Bates, MAI and Phillip McGinnis 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 June 1, 2003. The date of the report is July 10, 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 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA defined in The Dictionary of Real Estate Appraisal, 3rd ed. (Chicago: Appraisal Institute, 1993), as: "Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat." MARKETING/EXPOSURE PERIOD MARKETING PERIOD: 6 to 12 months EXPOSURE PERIOD: 6 to 12 months HISTORY OF THE PROPERTY Ownership in the subject property is currently vested in Shelter VI Limited Partnership. To the best of our knowledge, no transfers of ownership or offers to purchase the subject are known to have occurred during the past three years. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 11 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA AREA / NEIGHBORHOOD ANALYSIS NEIGHBORHOOD ANALYSIS A neighborhood is a group of complementary land uses. The function of the neighborhood analysis is to describe the immediate surrounding environs. The subject is located in the city of Augusta, Georgia. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Alexander Drive West - Furys Ferry Road South - Washington Road North - Riverwatch Parkway MAJOR EMPLOYERS Major employers in the subject's area include US Military, local government, and local educational facilities. 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 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA NEIGHBORHOOD DEMOGRAPHICS
AREA --------------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA -------------------------------------------------------------------------------- POPULATION TRENDS Current Population 4,989 44,728 114,658 488,021 5-Year Population 5,238 45,883 117,780 516,255 % Change CY-5Y 5.0% 2.6% 2.7% 5.8% Annual Change CY-5Y 1.0% 0.5% 0.5% 1.2% HOUSEHOLDS Current Households 2,414 18,950 47,708 182,165 5-Year Projected Households 2,588 19,862 49,849 196,305 % Change CY - 5Y 7.2% 4.8% 4.5% 7.8% Annual Change CY-5Y 1.4% 1.0% 0.9% 1.6% INCOME TRENDS Median Household Income $ 38,799 $ 51,529 $ 40,549 $ 36,270 Per Capita Income $ 26,655 $ 30,871 $ 25,387 $ 19,200 Average Household Income $ 55,534 $ 72,441 $ 61,462 $ 51,437
Source: Demographics Now The subject neighborhood's population is expected to show increases below that of the region. The immediate market offers superior income levels as compared to the broader market. The following table illustrates the housing statistics in the subject's immediate area, as well as the MSA region. HOUSING TRENDS
AREA ---------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA ---------------------------------------------------------------------------- HOUSING TRENDS % of Households Renting 50.14% 31.33% 34.69% 27.39% 5-Year Projected % Renting 50.17% 30.72% 34.08% 26.64% % of Households Owning 41.03% 61.33% 56.72% 63.46% 5-Year Projected % Owning 41.26% 62.18% 57.64% 64.78%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Multi-Family Residential South - Multi-Family Residential East - Multi-Family Residential West - Multi-Family Residential CONCLUSIONS The subject is well located within the city of Augusta. 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 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA MARKET ANALYSIS The subject property is located in the city of Augusta in Richmond County. The overall pace of development in the subject's market is more or less stable. There are no new apartment complexes under construction in the local market area. The following table illustrates historical occupancy rates for the subject's market. HISTORICAL OCCUPANCY
Period Region Submarket ------------------------- 1Q03 92.9% 93.3% 4Q02 93.9% 93.6% 3Q02 95.8% 95.7% 2Q02 94.9% 94.3% 1Q02 93.5% 92.7%
{Source: Axiometrics.com Apartment Market Summary, Augusta, GA-SC 1Q03} Occupancy trends in the subject's market are stable. Historically speaking, the subject's submarket has equated the overall market. Occupancy for the region has been declining for the past year and is below its 1Q02 level of 93.5%. The West Augusta submarket has followed a similar trend, however in the 4th quarter of 2002, the submarket has out-performed the regional 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 --------------------------------------------- 1Q02 $551 - $520 - 2Q02 $558 1.3% $523 0.6% 3Q02 $571 2.3% $548 4.8% 4Q02 $566 -0.9% $530 -3.3% 1Q03 $568 0.4% $534 0.8%
The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject ------------------------------------------------------------------------------------------ R-1 Stevens Creek Commons 256 95% 1976 Adjacent to subject. R-2 Ridgecrest Apartments 280 94% 1980 Adjacent to subject. R-3 Iron Horse Apartments 206 92% 1980 .2 miles NW of subject, on same R-4 Westbury Creek 120 94% 1984 Approximately 3 miles R-5 Champion Pines 220 97% 1990 Approximately 3 miles Subject Rocky Creek Apartments 120 93% 1979
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 9.44 acres, or 411,206 square feet Shape Irregular Topography Slightly slope Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Average Flood Zone: Community Panel 1301580020B, dated February 4, 1987 Flood Zone Zone C Zoning R-3B, 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 ---------------------------------------------------------------------- 007-0-020-01-0 $315,000 $2,140,000 $2,455,000 0.01516 $37,228
IMPROVEMENT ANALYSIS Year Built 1979 Number of Units 120 Net Rentable Area 131,400 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Brick or masonry Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, sand volleyball, tennis court, gym room, car wash, barbeque equipment, meeting hall, business office, and parking area. Unit Amenities Individual unit amenities include a balcony, cable TV connection, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, water heater, garbage disposal, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) ---------------------------------------- 2Br/2Ba-2A20 120 1,095
Overall Condition Fair 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 1979 and consist of a 120-unit multifamily project. The highest and best use as improved is for a continued multifamily use. Overall, the highest and best use of the subject property is the continued use of the existing apartment project. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 18 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA THE VALUATION PROCEDURE There are three traditional approaches, which can be employed in establishing the market value of the subject property. These approaches and their applicability to the valuation of the subject are summarized as follows: THE COST APPROACH The application of the Cost Approach is based on the principle of substitution. This principle may be stated as follows: no one is justified in paying more for a property than that amount by which he or she can obtain, by purchase of a site and construction of a building, without undue delay, a property of equal desirability and utility. In the case of a new building, no deficiencies in the building should exist. In the case of income-producing real estate, the cost of construction plays a minor and relatively insignificant role in determining market value. The Cost Approach is typically only a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) where the cost of reproducing the improvements is easily and accurately quantified and there is no economic obsolescence. In all instances, the issue of an appropriate entrepreneurial profit - the reward for undertaking the risk of construction, remains a highly subjective factor especially in a market lacking significant speculative development. THE SALES COMPARISON APPROACH The Sales Comparison Approach is an estimate of value based upon a process of comparing recent sales of similar properties in the surrounding or competing areas to the subject property. Inherent in this approach is the principle of substitution. The application of this approach consists of comparing the subject property with similar properties of the same general type, which have been sold recently or currently are available for sale in competing areas. This comparative process involves judgment as to the similarity of the subject property and the comparable sale with respect to many value factors such as location, contract rent levels, quality of construction, reputation and prestige, age and condition, among others. The estimated value through this approach represents the probable price at which a willing seller would sell the subject property to a willing and knowledgeable buyer as of the date of value. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 19 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA THE INCOME CAPITALIZATION APPROACH The theory of the Income Capitalization Approach is based on the premise that present value is the value of the cash flow and reversionary value the property will produce over a reasonable holding (ownership) period. The Discounted Cash Flow Analysis will convert equity cash flows (including cash flows and equity reversion) into a present value utilizing an internal rate of return (or discount rate). The Internal Rate of Return (IRR) will be derived from a comparison of alternate investments, a comparative analysis of IRR's used by recent buyers of similar properties, and a review of published industry surveys. The Direct Capitalization Analysis converts one year of income into an overall value using overall capitalization rates from similar sales. The overall rates take into consideration buyers assumptions of the market over the long-term. The results of the Income Capitalization Analysis are usually the primary value indicator for income producing properties. Investors expect a reasonable rate of return on their equity investment based on the ownership risks involved; this approach closely parallels the investment decision process. RECONCILIATION In this instance, we have completed the Sales Comparison and Income Capitalization Approaches to value. As an income producing property, the income approach is a primary approach to value. The Sales Comparison Approach is also considered reliable as investors are buying similar buildings in the market. Our research indicates that market participants are generally not buying, selling, investing, or lending with reliance placed on the methodology of the Cost Approach to establish the value. Therefore, we have decided that the Cost Approach is not a reliable indicator of value for the subject, and this approach has not been utilized. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 20 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA SALES COMPARISON APPROACH Use of market or comparable sales requires the collection and analysis of comparable sales data. Similar properties recently sold are compared to the subject and adjusted based on any perceived differences. This method is based on the premise that the costs of acquiring a substitute property would tend to establish a value for the subject property. The premise suggests that if a substitute is unavailable in the market, the reliability of the approach may be subordinate to the other approaches. The reliance on substitute properties produces shortcomings in the validity of this approach. Geographic and demographic characteristics from each submarket restrict which sales may be selected. Recent sales with a similar physical characteristics, income levels, and location are usually limited. The sales we have identified, however, do establish general valuation parameters as well as provide support to our conclusion derived through the income approach method. The standard unit of comparison among similar properties is the sales price per unit and price per square foot of net rentable area. To accurately adjust prices to satisfy the requirements of the sales comparison approach, numerous calculations and highly subjective judgments would be required including consideration of numerous income and expense details for which information may be unreliable or unknown. The sales price per unit and square foot are considered relevant to the investment decision, but primarily as a parameter against which value estimates derived through the income approach can be judged and compared. In examining the comparable sales, we have applied a subjective adjustment analysis, which includes specific adjustments derived from our experience and consulting with the market participants. SALES COMPARISON ANALYSIS Detailed on the following pages are sales transactions involving properties located in the subject's competitive investment market. Photographs of the sale transactions are located in the Addenda. Following the summary of sales is an adjustment grid that is used to arrive at a value. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ----------- ------- ---------- ---------- Property Name Rocky Creek Apartments Rocky Creek Apartments West Eagle Green LOCATION: Address 950 Stevens Creek Road 950 Stevens Creek Road 249 Boy Scout Road City, State Augusta, Georgia Augusta, Georgia Augusta, Georgia County Richmond Richmond Richmond PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 131,400 131,400 150,455 Year Built 1979 1979 1973 Number of Units 120 120 165 Unit Mix: Type Total Type Total Type Total 2Br/2Ba-2A20 120 2Br/2Ba 120 1Br/1Ba 15 2Br/1Ba 100 3Br/1Ba 50 Average Unit Size (SF) 1,095 1,095 912 Land Area (Acre) 9.4400 10.0000 11.5200 Density (Units/Acre) 12.7 12.0 14.3 Parking Ratio (Spaces/Unit) 2.00 N/A 2.00 Parking Type (Gr., Cov., etc.) Open Open Open CONDITION: 0 Average Average APPEAL: 0 Average Average AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room Yes Yes Yes Laundry Room No Yes Yes Secured Parking No No No Sport Courts Yes Yes Yes OCCUPANCY: 93% 93% 95% TRANSACTION DATA: Sale Date Current LOIs March, 2000 Sale Price ($) $4,000,000 $6,591,780 Grantor Cornerstone Realty Grantee Alliance MD Portfolio Sale Documentation Current LOIs 680/1720 Verification AIMCO Public Records Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF ------------------------------------------------------------------------------------------------------------ Potential Gross Income $885,559 $7,380 $6.74 $1,140,000 $6,909 $7.58 Vacancy/Credit Loss $ 83,761 $ 698 $0.64 $ 91,200 $ 553 $0.61 -------------------------------------------------- Effective Gross Income $801,798 $6,682 $6.10 $1,048,800 $6,356 $6.97 Operating Expenses $418,579 $3,488 $3.19 $ 445,000 $2,697 $2.96 -------------------------------------------------- Net Operating Income $383,219 $3,193 $2.92 $ 603,800 $3,659 $4.01 -------------------------------------------------- NOTES: PRICE PER UNIT $33,333 $39,950 PRICE PER SQUARE FOOT $ 30.44 $ 43.81 EXPENSE RATIO 52.2% 42.4% EGIM 4.99 6.29 OVERALL CAP RATE 9.58% 9.16% Cap Rate based on Pro Forma or Actual Income? ACTUAL PRO FORMA COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 ----------- ---------- ---------- Property Name Westchester Apartments Merrick Place LOCATION: Address 2905 Arrowhead Drive 3190 Skinner Mill Road City, State Augusta, Georgia Augusta, Georgia County Richmond Richmond PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 82,595 274,920 Year Built 1970 1973 Number of Units 69 240 Unit Mix: Type Total Type Total 2Br/1Ba 25 1Br/1Ba 57 2Br/2Ba 20 2Br/1.5Ba 75 3Br/2Ba 24 2Br/2Ba 84 3Br/2Ba 24 Average Unit Size (SF) 1,197 1,146 Land Area (Acre) 4.1100 23.4300 Density (Units/Acre) 16.8 10.2 Parking Ratio (Spaces/Unit) N/A N/A Parking Type (Gr., Cov., etc.) Open Open CONDITION: Average Average APPEAL: Average Average AMENITIES: Pool/Spa No/No Yes/No Gym Room No Yes Laundry Room Yes Yes Secured Parking No No Sport Courts No Yes OCCUPANCY: 92% 94% TRANSACTION DATA: Sale Date November, 2002 June, 1999 Sale Price ($) $1,800,000 $4,650,000 Grantor Westchester Apartments Merrick Place Partners Grantee Mulberry-Westchester Merrick Place Apartments, Apartments LLC Sale Documentation 823/209 651/2093 Verification Public Records Public Records Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $457,500 $6,630 $5.54 $1,418,400 $5,910 $5.16 Vacancy/Credit Loss $ 36,600 $ 530 $0.44 $ 141,840 $ 591 $0.52 -------------------------------------------------- Effective Gross Income $420,900 $6,100 $5.10 $1,276,560 $5,319 $4.64 Operating Expenses $225,000 $3,261 $2.72 $ 780,000 $3,250 $2.84 -------------------------------------------------- Net Operating Income $195,900 $2,839 $2.37 $ 496,560 $2,069 $1.81 -------------------------------------------------- NOTES: PRICE PER UNIT $26,087 $19,375 PRICE PER SQUARE FOOT $ 21.79 $ 16.91 EXPENSE RATIO 53.5% 61.1% EGIM 4.28 3.64 OVERALL CAP RATE 10.88% 10.68% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $19,375 to $39,950 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 $26,156 to $39,950 per unit with a mean or average adjusted price of $32,686 per unit. The median adjusted price is $32,319 per unit. Based on the following analysis, we have concluded to a value of $32,500 per unit, which results in an "as is" value of $3,900,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ---------------------------------------------------------------------------------------------------------- Property Name Rocky Creek Apartments Rocky Creek Apartments West Eagle Green Address 950 Stevens Creek Road 950 Stevens Creek Road 249 Boy Scout Road City Augusta, Georgia Augusta, Georgia Augusta, Georgia Sale Date Current LOIs March, 2000 Sale Price ($) $4,000,000 $6,591,780 Net Rentable Area (SF) 131,400 131,400 150,455 Number of Units 120 120 165 Price Per Unit $33,333 $39,950 Year Built 1979 1979 1973 Land Area (Acre) 9.4400 10.0000 11.5200 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) Current LOIs 0% 03-2000 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $33,333 $39,950 Location Comparable 0% Comparable 0% Number of Units 120 120 0% 165 0% Quality / Appeal Good Comparable 0% Comparable 0% Age / Condition 1979 1979 / Average 0% 1973 / Average 5% Occupancy at Sale 93% 93% 0% 95% 0% Amenities Good Comparable 0% Superior -10% Average Unit Size (SF) 1,095 1,095 0% 912 5% PHYSICAL ADJUSTMENT 0% 0% FINAL ADJUSTED VALUE ($/UNIT) $33,333 $39,950 COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 ----------------------------------------------------------------------------------- Property Name Westchester Apartments Merrick Place Address 2905 Arrowhead Drive 3190 Skinner Mill Road City Augusta, Georgia Augusta, Georgia Sale Date November, 2002 June, 1999 Sale Price ($) $1,800,000 $4,650,000 Net Rentable Area (SF) 82,595 274,920 Number of Units 69 240 Price Per Unit $26,087 $19,375 Year Built 1970 1973 Land Area (Acre) 4.1100 23.4300 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) November, 2002 0% June, 1999 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $26,087 $19,375 Location Comparable 0% Comparable 0% Number of Units 69 0% 240 20% Quality / Appeal Comparable 0% Inferior 10% Age / Condition 1970 / Average 5% 1973 / Average 5% Occupancy at Sale 92% 0% 94% 0% Amenities Inferior 15% Comparable 0% Average Unit Size (SF) 1,197 0% 1,146 0% PHYSICAL ADJUSTMENT 20% 35% FINAL ADJUSTED VALUE ($/UNIT) $31,304 $26,156
SUMMARY VALUE RANGE (PER UNIT) $26,156 TO $39,950 MEAN (PER UNIT) $32,686 MEDIAN (PER UNIT) $32,319 VALUE CONCLUSION (PER UNIT) $32,500
VALUE INDICATED BY SALES COMPARISON APPROACH $3,900,000 ROUNDED $3,900,000
NET OPERATING INCOME (NOI) ANALYSIS We have also conducted a net operating income (NOI) comparison analysis. The NOI effectively takes into account the various physical, location, and operating aspects of the sale. When the subject's NOI is compared to the sale NOI, a percent adjustment can be arrived at. The following table illustrates this analysis. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA NOI PER UNIT COMPARISON
SALE PRICE NOI/ SUBJECT NOI COMPARABLE NO. OF ---------- -------- -------------- ADJUSTMENT INDICATED NO. UNITS PRICE/UNIT OAR NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT ---------------------------------------------------------------------------------------- I-1 120 $4,000,000 9.58% $383,219 $384,570 1.004 $33,451 $ 33,333 $ 3,193 $ 3,205 I-2 165 $6,591,780 9.16% $603,800 $384,570 0.876 $34,987 $ 39,950 $ 3,659 $ 3,205 I-3 69 $1,800,000 10.88% $195,900 $384,570 1.129 $29,446 $ 26,087 $ 2,839 $ 3,205 I-4 240 $4,650,000 10.68% $496,560 $384,570 1.549 $30,011 $ 19,375 $ 2,069 $ 3,205
PRICE/UNIT
Low High Average Median ----------------------------------- $29,446 $34,987 $31,974 $31,731
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 32,000 Number of Units 120 ---------- Value Based on NOI Analysis $3,840,000 Rounded $3,800,000
The adjusted sales indicate a range of value between $29,446 and $34,987 per unit, with an average of $31,974 per unit. Based on the subject's competitive position within the improved sales, a value of $32,000 per unit is estimated. This indicates an "as is" market value of $3,800,000 (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. EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON
SALE PRICE EFFECTIVE SUBJECT COMPARABLE NO. OF ---------- ------------ OPERATING ------------- NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM ------------------------------------------------------------------------------------ I-1 120 $4,000,000 $ 801,798 $418,579 52.21% 4.99 $ 33,333 I-2 165 $6,591,780 $1,048,800 $445,000 42.43% 6.29 $ 39,950 51.05% I-3 69 $1,800,000 $ 420,900 $225,000 53.46% 4.28 $ 26,087 I-4 240 $4,650,000 $1,276,560 $780,000 61.10% 3.64 $ 19,375
EGIM
Low High Average Median --------------------------- 3.64 6.29 4.80 4.63
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES
Estimate EGIM 4.75 Subject EGI $ 828,600 ---------- Value Based on EGIM Analysis $3,935,850 Rounded $3,900,000 Value Per Unit $ 32,500
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA 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 51.05% before reserves. The comparable sales indicate a range of expense ratios from 42.43% to 61.10%, while their EGIMs range from 3.64 to 6.29. Overall, we conclude to an EGIM of 4.75, which results in an "as is" value estimate in the EGIM Analysis of $3,900,000. 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 $3,900,000. Price Per Unit $3,900,000 NOI Per Unit $3,800,000 EGIM Analysis $3,900,000 Sales Comparison Conclusion $3,900,000 AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA INCOME CAPITALIZATION APPROACH The income capitalization approach is based on the premise that value is created by the expectation of future benefits. We estimated the present value of those benefits to derive an indication of the amount that a prudent, informed purchaser-investor would pay for the right to receive them as of the date of value. This approach requires an estimate of the NOI of a property. The estimated NOI is then converted to a value indication by use of either the direct capitalization or the discounted cash flow analysis (yield capitalization). Direct capitalization uses a single year's stabilized NOI as a basis for a value indication by dividing the income by a capitalization rate. The rate chosen accounts for a recapture of the investment by the investor and should reflect all factors that influence the value of the property, such as tenant quality, property condition, neighborhood change, market trends, interest rates, and inflation. The rate may be extracted from local market transactions or, when transaction evidence is lacking, obtained from trade sources. A discounted cash flow analysis focuses on the operating cash flows expected from the property and the proceeds of a hypothetical sale at the end of a holding period (the reversion). The cash flows and reversion are discounted to their present values using a market-derived discount rate and are added together to obtain a value indication. Because benefits to be received in the future are worth less than the same benefits received in the present, this method weights income in the early years more heavily than the income and the sale proceeds to be received later. The strength of the discounted cash flow method is its ability to recognize variations in projected net income, such as those caused by inflation, stepped leases, neighborhood change, or tenant turnover. Its weakness is that it requires many judgments regarding the actions of likely buyers and sellers of the property in the future. In some situations, both methods yield a similar result. The discounted cash flow method is typically more appropriate for the analysis of investment properties with multiple or long-term leases, particularly leases with cancellation clauses or renewal options. It i s especially useful for multi-tenant properties in volatile markets. The direct capitalization AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
Average Unit Area ---------------- Unit Type (Sq. Ft.) Per Unit Per SF %Occupied ---------------------------------------------------- 2Br/2Ba-2A20 1095 $618 $0.56 92.5%
RENT ANALYSIS
COMPARABLE RENTS ------------------------------------------------ R-1 R-2 R-3 R-4 R-5 ------------------------------------------------ Stevens Creek Ridgecrest Iron Horse Westbury Champion Commons Apartments Apartments Creek Pines ------------------------------------------------ COMPARISON TO SUBJECT SUBJECT SUBJECT ----------------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly Slightly DESCRIPTION TYPE RENT RENT Superior Superior Inferior Superior Superior MIN MAX MEDIAN AVERAGE ------------------------------------------------------------------------------------------------------------------------------------ Monthly Rent 2Br/2Ba-2A20 $ 618 $ 629 $ 645 $ 650 $ 530 $ 635 $ 630 $ 530 $ 650 $ 635 $ 618 Unit Area (SF) 1,095 1,095 1,004 1,000 1,028 1,020 1,100 1,000 1,100 1,020 1,030 Monthly Rent Per Sq. Ft. $ 0.56 $ 0.57 $ 0.64 $ 0.65 $ 0.52 $ 0.62 $ 0.57 $ 0.52 $ 0.65 $ 0.62 $ 0.60
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA 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 ------------------------------------------------------------------------------- 2Br/2Ba-2A20 120 1,095 $600 $0.55 $72,000 $864,000 ------------------ Total $72,000 $864,000 ==================
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 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA 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 $869,250 $ 7,244 $871,183 $ 7,260 $840,842 $ 7,007 $842,400 $ 7,020 Vacancy $ 70,364 $ 586 $ 45,540 $ 380 $ 61,267 $ 511 $ 38,500 $ 321 Credit Loss/Concessions $ 57,223 $ 477 $ 40,868 $ 341 $ 22,494 $ 187 $ 23,400 $ 195 ------------------------------------------------------------------------------------- Subtotal $127,587 $ 1,063 $ 86,408 $ 720 $ 83,761 $ 698 $ 61,900 $ 516 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 49,261 $ 411 $ 56,117 $ 468 $ 44,717 $ 373 $ 50,400 $ 420 ------------------------------------------------------------------------------------- Subtotal Other Income $ 49,261 $ 411 $ 56,117 $ 468 $ 44,717 $ 373 $ 50,400 $ 420 ------------------------------------------------------------------------------------- Effective Gross Income $790,924 $ 6,591 $840,892 $ 7,007 $801,798 $ 6,682 $830,900 $ 6,924 Operating Expenses Taxes $ 32,952 $ 275 $ 32,450 $ 270 $ 39,684 $ 331 $ 48,945 $ 408 Insurance $ 20,007 $ 167 $ 25,257 $ 210 $ 22,740 $ 190 $ 21,894 $ 182 Utilities $ 60,439 $ 504 $ 52,790 $ 440 $ 58,743 $ 490 $ 54,000 $ 450 Repair & Maintenance $ 44,441 $ 370 $ 68,333 $ 569 $ 60,053 $ 500 $ 40,000 $ 333 Cleaning $ 67,623 $ 564 $ 54,228 $ 452 $ 54,942 $ 458 $ 48,000 $ 400 Landscaping $ 14,510 $ 121 $ 16,378 $ 136 $ 14,875 $ 124 $ 36,000 $ 300 Security $ 7,278 $ 61 $ 7,375 $ 61 $ 7,988 $ 67 $ 0 $ 0 Marketing & Leasing $ 41,922 $ 349 $ 13,418 $ 112 $ 15,546 $ 130 $ 18,000 $ 150 General Administrative $129,907 $ 1,083 $115,234 $ 960 $103,130 $ 859 $101,898 $ 849 Management $ 41,139 $ 343 $ 49,021 $ 409 $ 40,878 $ 341 $ 41,190 $ 343 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------- Total Operating Expenses $460,218 $ 3,835 $434,484 $ 3,621 $418,579 $ 3,488 $409,927 $ 3,416 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------- Net Income $330,706 $ 2,756 $406,408 $ 3,387 $383,219 $ 3,193 $420,973 $ 3,508 ANNUALIZED 2003 ------------------- PROJECTION AAA PROJECTION ------------------- ---------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % ----------------------------------------------------------------------------- Revenues Rental Income $851,412 $ 7,095 $864,000 $ 7,200 100.0% Vacancy $ 98,320 $ 819 $ 60,480 $ 504 7.0% Credit Loss/Concessions $100,912 $ 841 $ 25,920 $ 216 3.0% ------------------------------------------------- Subtotal $199,232 $ 1,660 $ 86,400 $ 720 10.0% Laundry Income $ 0 $ 0 $ 0 $ 0 0.0% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 50,652 $ 422 $ 51,000 $ 425 5.9% ------------------------------------------------- Subtotal Other Income $ 50,652 $ 422 $ 51,000 $ 425 5.9% ------------------------------------------------- Effective Gross Income $702,832 $ 5,857 $828,600 $ 6,905 100.0% Operating Expenses Taxes $ 51,108 $ 426 $ 45,000 $ 375 5.4% Insurance $ 22,240 $ 185 $ 22,800 $ 190 2.8% Utilities $ 60,388 $ 503 $ 57,000 $ 475 6.9% Repair & Maintenance $ 34,996 $ 292 $ 51,000 $ 425 6.2% Cleaning $ 58,720 $ 489 $ 55,200 $ 460 6.7% Landscaping $ 16,700 $ 139 $ 16,800 $ 140 2.0% Security $ 6,192 $ 52 $ 7,800 $ 65 0.9% Marketing & Leasing $ 17,920 $ 149 $ 18,000 $ 150 2.2% General Administrative $ 90,456 $ 754 $108,000 $ 900 13.0% Management $ 36,524 $ 304 $ 41,430 $ 345 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0% ------------------------------------------------- Total Operating Expenses $395,244 $ 3,294 $423,030 $ 3,525 51.1% Reserves $ 0 $ 0 $ 21,000 $ 175 5.0% ------------------------------------------------- Net Income $307,588 $ 2,563 $384,570 $ 3,205 46.4%
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 10% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $175 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 $175 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 31 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR ----------------------------------------------------- I-1 Current LOIs 93% $33,333 9.58% I-2 Mar-00 95% $39,950 9.16% I-3 November, 2002 92% $26,087 10.88% I-4 June, 1999 94% $19,375 10.68% I-5 Jan-00 0% N/A High 10.88% Low 9.16% Average 10.08%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.50%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 10.00%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 12.00%. 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 12.00% indicates a value of $3,900,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA approximately 38% 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 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA DISCOUNTED CASH FLOW ANALYSIS ROCKY CREEK APARTMENTS
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 ----------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 864,000 $ 872,640 $ 885,730 $ 903,444 $ 926,030 $ 953,811 Vacancy $ 60,480 $ 61,085 $ 62,001 $ 63,241 $ 64,822 $ 66,767 Credit Loss $ 25,920 $ 26,179 $ 26,572 $ 27,103 $ 27,781 $ 28,614 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- Subtotal $ 86,400 $ 87,264 $ 88,573 $ 90,344 $ 92,603 $ 95,381 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 51,000 $ 51,510 $ 52,283 $ 53,328 $ 54,662 $ 56,301 -------------------------------------------------------------------------------- Subtotal Other Income $ 51,000 $ 51,510 $ 52,283 $ 53,328 $ 54,662 $ 56,301 -------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $ 828,600 $ 836,886 $ 849,439 $ 866,428 $ 888,089 $ 914,731 OPERATING EXPENSES: Taxes $ 45,000 $ 46,350 $ 47,741 $ 49,173 $ 50,648 $ 52,167 Insurance $ 22,800 $ 23,484 $ 24,189 $ 24,914 $ 25,662 $ 26,431 Utilities $ 57,000 $ 58,710 $ 60,471 $ 62,285 $ 64,154 $ 66,079 Repair & Maintenance $ 51,000 $ 52,530 $ 54,106 $ 55,729 $ 57,401 $ 59,123 Cleaning $ 55,200 $ 56,856 $ 58,562 $ 60,319 $ 62,128 $ 63,992 Landscaping $ 16,800 $ 17,304 $ 17,823 $ 18,358 $ 18,909 $ 19,476 Security $ 7,800 $ 8,034 $ 8,275 $ 8,523 $ 8,779 $ 9,042 Marketing & Leasing $ 18,000 $ 18,540 $ 19,096 $ 19,669 $ 20,259 $ 20,867 General Administrative $ 108,000 $ 111,240 $ 114,577 $ 118,015 $ 121,555 $ 125,202 Management $ 41,430 $ 41,844 $ 42,472 $ 43,321 $ 44,404 $ 45,737 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 423,030 $ 434,892 $ 447,311 $ 460,306 $ 473,899 $ 488,116 Reserves $ 21,000 $ 21,630 $ 22,279 $ 22,947 $ 23,636 $ 24,345 -------------------------------------------------------------------------------- NET OPERATING INCOME $ 384,570 $ 380,364 $ 379,849 $ 383,175 $ 390,554 $ 402,271 Operating Expense Ratio (% of EGI) 51.1% 52.0% 52.7% 53.1% 53.4% 53.4 Operating Expense Per Unit $ 3,525 $ 3,624 $ 3,728 $ 3,836 $ 3,949 $ 4,068 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 --------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 982,426 $1,011,898 $1,042,255 $1,073,523 $1,105,729 Vacancy $ 68,770 $ 70,833 $ 72,958 $ 75,147 $ 77,401 Credit Loss $ 29,473 $ 30,357 $ 31,268 $ 32,206 $ 33,172 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ Subtotal $ 98,243 $ 101,190 $ 104,226 $ 107,352 $ 110,573 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 57,990 $ 59,730 $ 61,522 $ 63,368 $ 65,269 ------------------------------------------------------------------ Subtotal Other Income $ 57,990 $ 59,730 $ 61,522 $ 63,368 $ 65,269 ------------------------------------------------------------------ EFFECTIVE GROSS INCOME $ 942,173 $ 970,439 $ 999,552 $1,029,538 $1,060,424 OPERATING EXPENSES: Taxes $ 53,732 $ 55,344 $ 57,005 $ 58,715 $ 60,476 Insurance $ 27,224 $ 28,041 $ 28,882 $ 29,749 $ 30,641 Utilities $ 68,061 $ 70,103 $ 72,206 $ 74,372 $ 76,603 Repair & Maintenance $ 60,897 $ 62,724 $ 64,605 $ 66,543 $ 68,540 Cleaning $ 65,912 $ 67,889 $ 69,926 $ 72,023 $ 74,184 Landscaping $ 20,060 $ 20,662 $ 21,282 $ 21,920 $ 22,578 Security $ 9,314 $ 9,593 $ 9,881 $ 10,177 $ 10,483 Marketing & Leasing $ 21,493 $ 22,138 $ 22,802 $ 23,486 $ 24,190 General Administrative $ 128,958 $ 132,826 $ 136,811 $ 140,916 $ 145,143 Management $ 47,109 $ 48,522 $ 49,978 $ 51,477 $ 53,021 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ TOTAL OPERATING EXPENSES $ 502,759 $ 517,842 $ 533,377 $ 549,378 $ 565,860 Reserves $ 25,075 $ 25,827 $ 26,602 $ 27,400 $ 28,222 ------------------------------------------------------------------ NET OPERATING INCOME $ 414,339 $ 426,769 $ 439,573 $ 452,760 $ 466,342 Operating Expense Ratio (% of EGI) 53.4% 53.4% 53.4% 53.4% 53.4% Operating Expense Per Unit $ 4,190 $ 4,315 $ 4,445 $ 4,578 $ 4,715
Estimated Stabilized NOI $384,570 Months to Stabilized 1 Stabilized Occupancy 93.0% Sales Expense Rate 2.00% Discount Rate 12.00% Terminal Cap Rate 10.00%
Gross Residual Sale Price $4,663,425 Less: Sales Expense $ 93,268 ---------- Net Residual Sale Price $4,570,156 PV of Reversion $1,471,468 Add: NPV of NOI $2,384,032 ---------- PV Total $3,855,500 Deferred Maintenance $ 0 Add: Excess Land $ 0 Other Adjustments $ 0 ---------- Value Indicated By "DCF" $3,855,500 Rounded $3,900,000
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ----------------------------------------------------------- TOTAL VALUE 11.50% 11.75% 12.00% 12.25% 12.50% -------------------------------------------------------------------------------------- 9.50% $4,058,889 $3,995,235 $3,932,945 $3,871,987 $3,812,326 TERMINAL CAP RATE 9.75% $4,017,356 $3,954,621 $3,893,230 $3,833,147 $3,774,341 10.00% $3,977,899 $3,916,039 $3,855,500 $3,796,249 $3,738,255 10.25% $3,940,368 $3,879,338 $3,819,610 $3,761,151 $3,703,929 10.50% $3,904,623 $3,844,385 $3,785,430 $3,727,724 $3,671,238
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA INCOME LOSS DURING LEASE-UP The subject is currently near or at a stabilized condition. Therefore, there is no income loss during lease-up at the subject property. CONCESSIONS Concessions have historically not been utilized at the subject property or in the subject's market. Therefore, no adjustment was included for concessions. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 9.50% 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 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA ROCKY CREEK APARTMENTS
TOTAL PER SQ. FT. PER UNIT %OF EGI REVENUE Base Rent $ 864,000 $ 6.58 $ 7,200 Less: Vacancy & Collection Loss 10.00% $ 86,400 $ 0.66 $ 720 Plus: Other Income Laundry Income $ 0 $ 0.00 $ 0 0.00% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 51,000 $ 0.39 $ 425 6.15% ---------------------------------------- Subtotal Other Income $ 51,000 $ 0.39 $ 425 6.15% EFFECTIVE GROSS INCOME $ 828,600 $ 6.31 $ 6,905 OPERATING EXPENSES: Taxes $ 45,000 $ 0.34 $ 375 5.43% Insurance $ 22,800 $ 0.17 $ 190 2.75% Utilities $ 57,000 $ 0.43 $ 475 6.88% Repair & Maintenance $ 51,000 $ 0.39 $ 425 6.15% Cleaning $ 55,200 $ 0.42 $ 460 6.66% Landscaping $ 16,800 $ 0.13 $ 140 2.03% Security $ 7,800 $ 0.06 $ 65 0.94% Marketing & Leasing $ 18,000 $ 0.14 $ 150 2.17% General Administrative $ 108,000 $ 0.82 $ 900 13.03% Management 5.00% $ 41,430 $ 0.32 $ 345 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 423,030 $ 3.22 $ 3,525 51.05% Reserves $ 21,000 $ 0.16 $ 175 2.53% ---------------------------------------- NET OPERATING INCOME $ 384,570 $ 2.93 $ 3,205 46.41%
"GOING IN" CAPITALIZATION RATE 9.50% VALUE INDICATION $4,048,105 $30.81 $33,734 "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $4,048,105 ROUNDED $4,000,000 $30.44 $33,333
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF ------------------------------------------------- 8.75% $4,395,086 $4,400,000 $36,667 $33.49 9.00% $4,273,000 $4,300,000 $35,833 $32.72 9.25% $4,157,514 $4,200,000 $35,000 $31.96 9.50% $4,048,105 $4,000,000 $33,333 $30.44 9.75% $3,944,308 $3,900,000 $32,500 $29.68 10.00% $3,845,700 $3,800,000 $31,667 $28.92 10.25% $3,751,902 $3,800,000 $31,667 $28.92
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $4,000,000. 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 $3,900,000 Direct Capitalization Method $4,000,000 Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $3,900,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA RECONCILIATION AND CONCLUSION This appraisal was made to express an opinion as of the Market Value of the fee simple estate in the property. AS IS MARKET VALUE OF THE FEE SIMPLE ESTATE Cost Approach Not Utilized Sales Comparison Approach $3,900,000 Income Approach $3,900,000 Reconciled Value $3,900,000 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 June 1, 2003 the market value of the fee simple estate in the property is: $3,900,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - ENTRANCE DRIVEWAY EXTERIOR - LEASING/CLUBHOUSE [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDING INTERIOR - APARTMENT UNIT [PICTURE] [PICTURE] INTERIOR - APARTMENT UNIT INTERIOR - APARTMENT UNIT AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - POOL AREA EXTERIOR - TENNIS COURT [PICTURE] [PICTURE] EXTERIOR - STORAGE/MAINTENANCE SHED VIEW OF BBQ/DECK AND PLAYGROUND AREA [PICTURE] [PICTURE] VIEW OF CAR WASH AREA VIEW NORTH ALONG STEVENS CREEK ROAD AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 ROCKY CREEK APARTMENTS WEST EAGLE GREEN WESTCHESTER APARTMENTS 950 Stevens Creek Road 249 Boy Scout Road 2905 Arrowhead Drive Augusta, Georgia Augusta, Georgia Augusta, Georgia [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 MERRICK PLACE 3190 Skinner Mill Road Augusta, Georgia [PICTURE] N/A AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 ------------------------------------------------------------------------------------------------------------------------ Property Name Rocky Creek Apartments Stevens Creek Commons Management Company AIMCO Concoran LOCATION: Address 950 Stevens Creek Road 100 Bon Air Drive City, State Augusta, Georgia Augusta, Georgia 30907 County Richmond Richmond Proximity to Subject Adjacent to subject. PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 131,400 240,914 Year Built 1979 1976 Effective Age 20 27 Building Structure Type Brick & Wood Frame Brick & Wood Frame Parking Type (Gr., Cov., etc.) Open Open Number of Units 120 256 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 2Br/2Ba-2A20 1,095 120 $618 1 2Br/2Ba 1,004 166 $645 2 1Br/1Ba 825 90 $550 Average Unit Size (SF) 1,095 941 Unit Breakdown: Efficiency 2-Bedroom 100% Efficiency 2-Bedroom 65% 1-Bedroom 3-Bedroom 1-Bedroom 35% 3-Bedroom CONDITION: Good APPEAL: Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X Balcony Fireplace X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi X Car Wash Spa/Jacuzzi X Car Wash Basketball Court X BBQ Equipment Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball Laundry Room Racquet Ball Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room Gym Room OCCUPANCY: 93% 95% LEASING DATA: Available Leasing Terms 12 Months 12 Months Concessions Pet Deposit $200 Does Not Accept Pets Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas Water Trash Water Trash Confirmation Telephone Number Subject 706-868-5020 NOTES: COMPARISON TO SUBJECT: Slightly Superior COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 ---------------------------------------------------------------------------------------------------------------------- Property Name Ridgecrest Apartments Iron Horse Apartments Management Company McKinley ATC Development LOCATION: Address 926 Stevens Creek Road Stevens Creek Road City, State Augusta, Georgia 30907 Augusta, Georgia 30907 County Richmond Richmond Proximity to Subject Adjacent to subject. .2 miles NW of subject, on same road. PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 271,600 194,020 Year Built 1980 1980 Effective Age 23 23 Building Structure Type Brick & Wood Frame Wood frame with siding. Parking Type (Gr., Cov., etc.) Open Open Number of Units 280 206 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 2Br/2Ba 1,000 224 $650 1 2Br/2Ba 1,028 155 $530 2 1Br/1Ba 850 56 $550 2 1Br/1Ba 680 51 $425 Average Unit Size (SF) 970 942 Unit Breakdown: Efficiency 2-Bedroom 80% Efficiency 2-Bedroom 75% 1-Bedroom 20% 3-Bedroom 0% 1-Bedroom 25% 3-Bedroom CONDITION: Good APPEAL: Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony Balcony X Fireplace X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool Swimming Pool X Spa/Jacuzzi X Car Wash Spa/Jacuzzi X Car Wash Basketball Court X BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball Meeting Hall X Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball Laundry Room Jogging Track X Business Office Jogging Track Business Office X Gym Room Gym Room OCCUPANCY: 94% 92% LEASING DATA: Available Leasing Terms 12 Months 12 Months Concessions Pet Deposit $300 $200 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas Water Trash Water Trash Confirmation Telephone Number 706-868-0196 706-736-4748 NOTES: COMPARISON TO SUBJECT: Superior Inferior COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 -------------------------------------------------------------------------------------------------------------------------- Property Name Westbury Creek Champion Pines Management Company Mid-America Bradford Group LOCATION: Address 222 Boy Scout Road 1500 Champion Pines City, State Augusta, Georgia Augusta, Georgia County Richmond Richmond Proximity to Subject Approximately 3 miles Approximately 3 miles PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 110,784 224,840 Year Built 1984 1990 Effective Age 19 13 Building Structure Type Frame/Siding Parking Type (Gr., Cov., etc.) Open Open Number of Units 120 220 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 2Br/2Ba 1,020 96 $635 1 2Br/2Ba 1,100 154 $630 2 1Br/1Ba 688 24 $529 2 1Br/1Ba 840 66 $500 Average Unit Size (SF) 954 1,022 Unit Breakdown: Efficiency 2-Bedroom 80% Efficiency 2-Bedroom 70% 1-Bedroom 20% 3-Bedroom 1-Bedroom 30% 3-Bedroom CONDITION: APPEAL: AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X Balcony X Fireplace X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi X Car Wash X Spa/Jacuzzi X Car Wash Basketball Court BBQ Equipment Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office Gym Room X Gym Room OCCUPANCY: 94% 97% LEASING DATA: Available Leasing Terms 12 Months 12 months Concessions Pet Deposit $200 $150 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas Water Trash Water Trash Confirmation Telephone Number 706-738-1069 706-733-1600 NOTES: COMPARISON TO SUBJECT: Superior Slightly Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 STEVENS CREEK COMMONS RIDGECREST APARTMENTS IRON HORSE APARTMENTS 100 Bon Air Drive 926 Stevens Creek Road Stevens Creek Road Augusta, Georgia 30907 Augusta, Georgia 30907 Augusta, Georgia 30907 [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 WESTBURY CREEK CHAMPION PINES 222 Boy Scout Road 1500 Champion Pines Augusta, Georgia Augusta, Georgia [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA No responsibility is assumed for matters legal in nature. No investigation has been made of the title to or any liabilities against the property appraised. In this appraisal, it is presumed that, unless otherwise noted, the owner's claim is valid, the property rights are good and marketable, and there are no encumbrances which cannot be cleared through normal processes. To the best of our knowledge, all data set forth in this report are true and accurate. Although gathered from reliable sources, no guarantee is made nor liability assumed for the accuracy of any data, opinions, or estimates identified as being furnished by others which have been used in formulating this analysis. Land areas and descriptions used in this appraisal were obtained from public records and have not been verified by legal counsel or a licensed surveyor. No soil analysis or geological studies were ordered or made in conjunction with this report, nor were any water, oil, gas, or other subsurface mineral and use rights or conditions investigated. Substances 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 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA It is assumed that all applicable zoning and use regulations and restrictions have been complied with unless a nonconformity has been stated, defined, and considered in the appraisal report. Further, it is assumed that the utilization of the land and improvements is within the boundaries of the property described and that no encroachment or trespass exists unless noted in the report. The Americans with Disabilities Act ("ADA") became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property together with a detailed analysis of the requirements of the ADA could reveal that the property is not in compliance with one or more of the requirements of the act. If so, this fact could have a negative effect on the value of the property. Since we have no direct evidence relating to this issue, we did not consider the possible noncompliance with the requirements of ADA in estimating the value of the property. We have made a physical inspection of the property and noted visible physical defects, if any, in our report. This inspection was made by individuals generally familiar with real estate and building construction. However, these individuals are not architectural or structural engineers who would have detailed knowledge of building design and structural integrity. Accordingly, we do not opine on, nor are we responsible for, the structural integrity of the property including its conformity to specific governmental code requirements, such as fire, building and safety, earthquake, and occupancy, or any physical defects which were not readily apparent to the appraiser during the inspection. The value or values presented in this report are based upon the premises outlined herein and are valid only for the purpose or purposes stated. The date of value to which the conclusions and opinions expressed apply is set forth in this report. The value opinion herein rendered is based on the status of the national business economy and the purchasing power of the U.S. dollar as of that date. Testimony or attendance in court or at any other hearing is not required by reason of this appraisal unless arrangements are previously made within a reasonable time in advance for AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the Appraisal Institute 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 ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D CERTIFICATE OF APPRAISER I certify that, to the best of my knowledge and belief: The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and represent the unbiased professional analyses, opinions, and conclusions of American Appraisal Associates, Inc. American Appraisal Associates, Inc. and I personally, have no present or prospective interest in the property that is the subject of this report and have no personal interest or bias with respect to the parties involved. Compensation for American Appraisal Associates, Inc. is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. The analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. I personally did not inspect the subject property. Phillip McGinnis provided significant real property appraisal assistance in the preparation of this report. I am currently in compliance with the Appraisal Institute's continuing education requirements. -s- Michael Bates ----------------------- Michael Bates, MAI Assistant Manager, Real Estate Group State of Georgia, Certified General Real Property Appraiser #CG00685 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA EXHIBIT E QUALIFICATIONS OF APPRAISER (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA MICHAEL P. BATES, MAI DIRECTOR - HEALTHCARE REAL ESTATE AND ASSISTANT MANAGER, REAL ESTATE GROUP POSITION Michael P. Bates is the Assistant Manager of the Atlanta Real Estate Group of American Appraisal Associates, Inc. ("AAA"). He shares responsibility for the management, quality control, and review of commercial real estate assignments principally in the southeast United States. Mr. Bates is also the national Director - Healthcare Real Estate for AAA and is responsible for the management and valuation process for specialty health care facility assignments. EXPERIENCE Valuation Mr. Bates has 17 years of commercial appraisal experience. He has performed appraisals in 43 states and Canada, and he is currently a certified general appraiser in 21 states. Court Mr. Bates has been accepted as an expert witness and given testimony in federal bankruptcy court in Delaware. He has prepared many other appraisals that were submitted as expert evidence to federal bankruptcy court, but those cases were settled prior to testimony being required. Mr. Bates has testified in property tax appeal cases in California, Missouri, and Texas, and his hospital appraisals have been submitted in tax appeal cases in Pennsylvania, South Carolina, and South Dakota. Business Mr. Bates joined AAA in 1997. Prior to joining AAA, he was president of his own valuation company and was previously a vice president for both Gulf/Atlantic Valuation Services, Inc., and Valuation Counselors. Prior to gaining his appraisal experience, Mr. Bates worked seven years in commercial mortgage financing. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA EDUCATION University of Tennessee - Knoxville Master of Business Administration - Finance and Management Bachelor of Science - Marketing STATE State of Alabama, Certified General Real Property Appraiser, #G00503 CERTIFICATIONS State of Arizona, Certified General Real Estate Appraiser, #31067 State of Arkansas, State Certified General Appraiser, #CG1414N State of California, Certified General Real Estate Appraiser, #AG026120 State of Colorado, Certified General Appraiser, #CG40023849 State of Delaware, Certified General Appraiser, #X1-0000352 State of Florida, Certified General Appraiser, #0002494 State of Georgia, Certified General Real Property Appraiser, #CG00685 State of Illinois, State Certified General Real Estate Appraiser, #153001243 State of Maryland, Certified General Real Estate Appraiser, #10814 State of Michigan, Certified General Appraiser, #1201069262 State of Mississippi, State Certified General Real Estate Appraiser, #GA-629 State of New Jersey, General Appraiser, #42KG00195600 State of New York, Real Estate General Appraiser, #46000041317 State of North Carolina, Certified General Real Estate Appraiser, #A4095 Commonwealth of Pennsylvania, Certified General Appraiser, #GA001817R State of South Carolina, Certified Real Estate Appraiser, #CG3059 State of Tennessee, Certified General Real Estate Appraiser, AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA #00051881 State of Texas, State Certified General Real Estate Appraiser, #TX-1328483-G Commonwealth of Virginia, Certified General Real Estate Appraiser, #4001005254 State of Washington, Certified General Real Estate Appraiser, #1100998 PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS VALUATION AND Appraisal Institute SPECIAL All required courses COURSES Standards of Professional Practice, Parts A and B The Appraiser as an Expert Witness: Preparation and Testimony Litigation Appraising: Specialized Topics and Applications Separating Real and Personal Property from Intangible Business Assets Specialty Courses Hotel/Motel Valuation and Investment Seminar Valuation of Special-Purpose Properties PUBLICATIONS "Estimating Hospital Real Property Values for Ad Valorem Tax Purposes," Journal of Property Tax Management, Fall 1997, republished by Appraisal Institute in A Business Enterprise Value Anthology, 2001 Co-authored "Abnormal Investor Returns Resulting from the Burroughs and Memorex Merger," Mergers & Acquisitions, June 1984 AMERICAN APPRAISAL ASSOCIATES, INC. ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. ROCKY CREEK APARTMENTS, AUGUSTA, GEORGIA GENERAL SERVICE CONDITIONS The services(s) provided by AAA will be performed in accordance with professional appraisal standards. Our compensation is not contingent in any way upon our conclusions of value. We assume, without independent verification, the accuracy of all data provided to us. We will act as an independent contractor and reserve the right to use subcontractors. All files, workpapers or documents developed by us during the course of the engagement will be our property. We will retain this data for at least five years. Our report is to be used only for the specific purpose stated herein; and any other use is invalid. No reliance may be made by any third party without our prior written consent. You may show our report in its entirety to those third parties who need to review the information contained herein. No one should rely on our report as a substitute for their own due diligence. We understand that our reports will be described in public tender offer documents distributed to limited partners. We reserve the right to review the public tender offer documents prior to their issuance to confirm that disclosures of facts from the current appraisals are accurate. No reference to our name or our report, in whole or in part, in any other SEC filing or private placement memorandum you prepare and/or distribute to third parties may be made without our prior written consent. The Tender Offer Partnerships, as that term is defined in the Settlement Agreement, agree to indemnify and hold us harmless against and from any and all losses, claims, actions, damages, expenses or liabilities, including reasonable attorneys' fees, to which we may become subject in connection with this engagement except where such losses, claims, actions, damages, expenses or liabilities, including reasonable attorney's fees, arise or result from AAA's misconduct, bad faith or negligence. Co-Clients will not be liable for any of our acts or omissions. AAA is an equal opportunity employer.