EX-99.(C)(1) 5 d16100exv99wxcyx1y.txt APPRAISAL OF FAIRWAY VIEW APARTMENTS FAIRWAY VIEW II APARTMENTS 2245 COLLEGE DRIVE BATON ROUGE, LOUISIANA MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 22, 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 LOGO] UNITED STATES INTERNATIONAL Atlanta Milwaukee Brazil Mexico Boston Minneapolis Canada Morocco Buffalo New Orleans [AMERICAN APPRAISAL ASSOCIATES LOGO] China Peru Charlotte New York Croatia Philippines Chicago Oak Lawn 9441 LBJ Freeway Suite 114 Czech Republic Poland Cincinnati Philadelphia Dallas, Texas 75243 England Portugal Dallas Pittsburgh Germany Russia Denver Princeton Telephone: (972) 994-9100 Greece Spain Detroit Schaumburg Fax: (972) 994-0516 Hong Kong Taiwan Houston St. Louis Hungary Thailand Irvine San Francisco Italy Turkey Jacksonville Seattle Japan Venezuela Los Angeles JULY 17, 2003
Apartment Investment and Management Company ("AIMCO") c/o Mr. Steven A. Velkei, Esq. Liner Yankelevitz Sunshine & Regenstreif LLP 1100 Glendon Avenue, 14th Floor Los Angeles, California 90024-3503 Nuanes, et al.( "Plaintiffs ") c/o Ms. Joy Kruse Lieff Cabraser Heimann & Bernstein Embarcadero Center West 275 Battery Street, 30th Floor San Francisco, California 94111 RE: FAIRWAY VIEW II APARTMENTS 2245 COLLEGE DRIVE BATON ROUGE, EAST BATON ROUGE PARISH COUNTY, LOUISIANA 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 204 units with a total of 167,022 square feet of rentable area. The improvements were built in 1981. The improvements are situated on 10.55 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 92% occupied. It is our understanding the appraisal will be used by the clients to assist the San Mateo Superior Court in the settlement of litigation between the above mentioned clients. The appraisal is intended to conform to the Uniform Standards of Professional Appraisal Practice ("USPAP") as promulgated by the Appraisal Standards Board of the Appraisal Foundation and the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute. The appraisal is presented in a summary report, and the Departure Provision of USPAP has not been invoked in this appraisal. It is entirely inappropriate to use this value conclusion or the report for any purpose other than the one stated. AMERICAN APPRAISAL ASSOCIATES, INC. LETTER OF TRANSMITTAL PAGE 2 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA The opinions expressed in this appraisal cover letter can only be completely understood by reading the narrative report, addenda, and other data, which is attached. The appraisal is subject to the attached general assumptions and limiting conditions and general service conditions. As a result of our investigation, it is our opinion that the fee simple market value of the subject, effective May 22, 2003 is: ($7,700,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. /s/ Frank Fehribach ------------------------------------ July 17, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group Texas State Certified General Real Estate Appraiser #TX-1323954-G Report By: Kim Cook AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary ............................................................. 4 Introduction .................................................................. 9 Area Analysis ................................................................. 11 Market Analysis ............................................................... 14 Site Analysis ................................................................. 16 Improvement Analysis .......................................................... 16 Highest and Best Use .......................................................... 17 VALUATION Valuation Procedure ........................................................... 18 Sales Comparison Approach ..................................................... 20 Income Capitalization Approach ................................................ 26 Reconciliation and Conclusion ................................................. 38
ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Fairway View II Apartments LOCATION: 2245 College Drive Baton Rouge, Louisiana INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: Fee simple estate DATE OF VALUE: May 22, 2003 DATE OF REPORT: July 17, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 10.55 acres, or 459,558 square feet Assessor Parcel No.: 006-1038-0 Floodplain: Community Panel No. 2200580095D (May 17, 1993) Flood Zone X, an area outside the floodplain. Zoning: A-4 (General Residential) BUILDING: No. of Units: 204 Units Total NRA: 167,022 Square Feet Average Unit Size: 819 Square Feet Apartment Density: 19.3 units per acre Year Built: 1981 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ---------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income ---------------- ------- -------- ------ -------- ---------- 1Br/1Ba - 1A10 588 $ 540 $ 0.92 $ 25,920 $ 311,040 1Br/1.5Ba - 1B15 620 $ 500 $ 0.81 $ 4,000 $ 48,000 1Br/1Ba -1C10 706 $ 565 $ 0.80 $ 27,120 $ 325,440 2Br/1Ba - 2A10 889 $ 620 $ 0.70 $ 42,160 $ 505,920 2Br/2Ba - 2A20 944 $ 650 $ 0.69 $ 3,900 $ 46,800 3Br/2Ba - 3A20 1,189 $ 680 $ 0.57 $ 4,080 $ 48,960 3Br/2Ba - 3B20 1,335 $ 700 $ 0.52 $ 14,000 $ 168,000 Total $121,180 $1,454,160
OCCUPANCY: 92% ECONOMIC LIFE: 45 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA EFFECTIVE AGE: 20 Years REMAINING ECONOMIC LIFE: 25 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [EXTERIOR AND ENTRANCE TO SUBJECT MAP] [EXTERIOR - TYPICAL VIEW OF BUILDINGS MAP]
AREA MAP [AREA MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA NEIGHBORHOOD MAP [NEIGHBORHOOD 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 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
Amount $/Unit ------ ------ DIRECT CAPITALIZATION Potential Rental Income $ 1,454,160 $ 7,128 Effective Gross Income $ 1,378,496 $ 6,757 Operating Expenses $ 529,965 $ 2,598 38.4% of EGI Net Operating Income: $ 797,532 $ 3,909 Capitalization Rate 10.50% DIRECT CAPITALIZATION VALUE $ 7,500,000* $ 36,765/UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 8% Stabilized Vacancy & Collection Loss: 8.5% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 11.50% Discount Rate 12.00% Selling Costs 2.00% Growth Rates: Income 2.50% Expenses: 2.50% DISCOUNTED CASH FLOW VALUE $ 7,800,000* $ 38,235/UNIT RECONCILED INCOME CAPITALIZATION VALUE $ 7,600,000 $ 37,255/UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $28,144 to $35,412 Range of Sales $/Unit (Adjusted) $31,350 to $44,796 VALUE INDICATION - PRICE PER UNIT $7,800,000* $ 38,235/UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 4.80 to 5.76 Selected EGIM for Subject 5.75 Subject's Projected EGI $ 1,378,496 EGIM ANALYSIS CONCLUSION $ 7,900,000* $ 38,725/UNIT NOI PER UNIT ANALYSIS CONCLUSION $ 7,700,000* $ 37,745/UNIT RECONCILED SALES COMPARISON VALUE $ 7,800,000 $ 38,235/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 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $7,800,000 NOI Per Unit $7,700,000 EGIM Multiplier $7,900,000 INDICATED VALUE BY SALES COMPARISON $7,800,000 $38,235/UNIT INCOME APPROACH: Direct Capitalization Method: $7,500,000 Discounted Cash Flow Method: $7,800,000 INDICATED VALUE BY THE INCOME APPROACH $7,600,000 $37,255 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $7,700,000 $37,745 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 2245 College Drive, Baton Rouge, East Baton Rouge Parish County, Louisiana. Baton Rouge identifies it as 006-1038-0. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Kim Cook on May 22, 2003. Frank Fehribach, MAI has not made a personal inspection of the subject property. Kim Cook performed the research, valuation analysis and wrote the report. Frank Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach, MAI and Kim Cook have extensive experience in appraising similar properties and meet the USPAP competency provision. The scope of this investigation comprises the inspection of the property and the collection, verification, and analysis of general and specific data pertinent to the subject property. We have researched current improved sales and leases of similar properties, analyzing them as to their comparability, and adjusting them accordingly. We completed the Sales Comparison and Income Capitalization Approaches to value. From these approaches to value, a concluded overall value was made. DATE OF VALUE AND REPORT This appraisal was made to express the opinion of value as of May 22, 2003. The date of the report is July 17, 2003. PURPOSE AND USE OF APPRAISAL The purpose of the appraisal is to estimate the market value of the fee simple interest in the subject property. It is understood that the appraisal is intended to assist the clients in litigation settlement proceedings. The appraisal was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. PROPERTY RIGHTS APPRAISED We have appraised the Fee Simple Estate in the subject property (as applied in the Sales & Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA 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 National Property Investors 7. 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 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA 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 Baton Rouge, Louisiana. 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 - SR 73/Jefferson Highway West - South Acadian Thruway South - Interstate 10 North - Florida Boulevard MAJOR EMPLOYERS Major employers in the subject's area include DSM-Copolymer Rubber & Chemical Co., Placid Refining Company, West Baton Rouge Parish Council, United Parcel Service, Inc., Trinity Industries, Perin Corporation, International Piping Systems, Ltd. and West baton Rouge School Board. 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 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA NEIGHBORHOOD DEMOGRAPHICS
AREA ----------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA -------- ------------ ------------ ------------ --- POPULATION TRENDS Current Population 7,022 86,665 190,375 615,414 5-Year Population 7,082 87,078 194,814 648,890 % Change CY-5Y 0.9% 0.5% 2.3% 5.4% Annual Change CY-5Y 0.2% 0.1% 0.5% 1.1% HOUSEHOLDS Current Households 3,246 35,889 78,915 229,972 5-Year Projected Households 3,371 37,147 82,615 247,839 % Change CY - 5Y 3.9% 3.5% 4.7% 7.8% Annual Change CY-5Y 0.8% 0.7% 0.9% 1.6% INCOME TRENDS Median Household Income $ 42,522 $ 29,007 $ 29,012 $ 37,058 Per Capita Income $ 35,547 $ 22,927 $ 20,835 $ 19,752 Average Household Income $ 80,604 $ 55,202 $ 50,271 $ 52,857
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 38.76% 41.50% 42.36% 28.39% 5-Year Projected % Renting 40.11% 41.99% 42.76% 27.69% % of Households Owning 51.47% 41.62% 42.69% 61.26% 5-Year Projected % Owning 50.61% 41.83% 43.03% 62.64%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Drainage ditch, golf course, residential development South - Fairway View I Apartments, vacant land, residential and retail uses East - Horse farm, pastureland West - Bienville Towers Apartments CONCLUSIONS The subject is well located within the city of Baton Rouge. 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 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA MARKET ANALYSIS The subject property is located in the city of Baton Rouge in East Baton Rouge Parish County. The overall pace of development in the subject's market is more or less stable. Most of the new construction is outside the subject market. The most recent addition near the subject is the Gates at Citiplace, built in 1997 and located one mile south of the subject. This property offers 369 units in the highest quality, garden apartment complex in Baton Rouge. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket ------ ------ --------- Fall 2002 5.9% 5.3% Spring 2002 4.5% 2.0% Fall 2001 5.0% 5.0% Spring 2001 10.7% 7.5%
Source: LSU Real Estate Research Institute Survey of Apartment Complexes in Baton Rouge, Fall 2002 Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has equated the overall market. During 1995-2001, approximately 3,995 new units were added to this region, slowing rental rate increases, increasing vacancies to as high as 8.5% in 1998. As of 1999 and 2000, most of these units were absorbed. However, an additional 1,738 units were added during 2002-2003. Most of these units are currently under construction. For 2004, 617 are planned with another 168 pending. These additions to the existing supply could suppress rent increases for certain sectors of the city during the next 2-3 years. Studies suggest the subject market can absorb approximately 700 units/yr without a significant increase in vacancies. Market rents in the subject's market have been following a decreasing trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change ------ ------ -------- --------- -------- Fall 2002 $ 564 - $ 578 - Spring 2002 $ 563 -0.2% $ 584 1.0% Fall 2001 $ 557 -1.1% $ 570 -2.4% Spring 2001 $ 554 -0.5% $ 568 -0.4%
Source: LSU Real Estate Research Institute Survey of Apartment Complexes in Baton Rouge, Fall 2002 The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject --- ------------- ----- ----- ---------- -------------------- R-1 Bienville Towers 137 97% 1974 Adjacent to subject R-2 Parc Fontaine Apartments 88 99% 1965 One mile north of subject R-3 Cobblestone at Essen 191 93% 1972 Three miles southeast of the subject R-4 Jefferson Place Apartments 234 91% 1986 Three miles east of the subject R-5 Warwick Apartments 188 98% 1992-94 Three miles east of the subject Subject Fairway View II Apartments 204 92% 1981
Vacancy rates were slightly higher in two- and three-bedroom units in the subject submarket and citywide. New properties coming on-line are targeting specific markets such as affluent LSU students. However, most of the units under construction in 2003 are more conventional luxury units. Few of the new properties will offer standard middle-grade units. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 10.55 acres, or 459,558 square feet Shape Rectangular Topography Level Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Good Flood Zone: Community Panel 2200580095D, dated May 17, 1993 Flood Zone Zone X Zoning A-4, 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 ---------------------------------------------------------------------------------- 006-1038-0 $30,000 $418,000 $448,000 0.10403 $46,605
IMPROVEMENT ANALYSIS Year Built 1981 Number of Units 204 Net Rentable Area 167,022 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Stucco wall Roof Built-up asphalt with or without gravel over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, tennis court, gym room, laundry room, business office, and parking area. 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, dishwasher, water heater, garbage AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA disposal, and oven. Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) --------------------------------------------------------- 1Br/1Ba - 1A10 48 588 1Br/1.5Ba - 1B15 8 620 1Br/1Ba -1C10 48 706 2Br/1Ba - 2A10 68 889 2Br/2Ba - 2A20 6 944 3Br/2Ba - 3A20 6 1,189 3Br/2Ba - 3B20 20 1,335
Overall Condition Average Effective Age 20 years Economic Life 45 years Remaining Economic Life 25 years Deferred Maintenance The deferred maintenance at the subject property was estimated for a total amount of $75,000. 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 1981 and consist of a 204-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 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA 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 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA 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 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA 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 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ------------------------------- --------------------------- ---------------------------- ----------------------------- Property Name Fairway View II Apartments Kingston Point Apartments Magnolia Trace Apartment LOCATION: Address 2245 College Drive 1919 Boulevard De Province 11585 N. Harrell's Ferry Rd City, State Baton Rouge, Louisiana Baton Rouge, LA Baton Rouge, LA County East Baton Rouge Parish East Baton Rouge Parish East Baton Rouge Parish PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 167,022 149,853 241,372 Year Built 1981 1974-75 1973 Number of Units 204 156 245 Unit Mix: Type Total Type Total Type Total 1Br/1Ba - 1A10 48 Efficiency 1 1Br/1Ba, Flat 64 1Br/1.5Ba - 1B15 8 1Br/1Ba, Flat 11 2Br/1.5Ba, Flat 59 1Br/1Ba -1C10 48 1Br/1Ba, TH 15 2BR/1.5Ba, TH 52 2Br/1Ba - 2A10 68 2BR/1Ba, Flat 27 3BR/1.5Ba, TH 14 2Br/2Ba - 2A20 6 2BR/1Ba, TH 16 3BR/2.5Ba, TH 56 3Br/2Ba - 3A20 6 2BR/2Ba, Flat 62 3Br/2Ba - 3B20 20 3BR/2Ba, TH 24 Average Unit Size (SF) 819 961 985 Land Area (Acre) 10.5500 7.7420 12.5100 Density (Units/Acre) 19.3 20.1 19.6 Parking Ratio (Spaces/Unit) 1.96 1.99 NA Parking Type (Gr., Cov., etc) Open Open Open CONDITION: Average Average Average APPEAL: Average Average Average AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room Yes No No Laundry Room Yes Yes Yes Secured Parking No Yes No Sport Courts No No Yes Washer/Dryer Connection Yes (in 2&3 Br units) Yes Yes OCCUPANCY: 92% 93% 90% TRANSACTION DATA: Sale Date August, 2001 January, 2001 Sale Price ($) $4,446,000 $6,895,212 Grantor Kingston, Inc. Consolidated Capital Equity Partners, et al Grantee Pointe Camelot, LLC Fairview, Inc. Sale Documentation Document 942-11254 Document 799-11193 Verification Selling Broker, Art Confidential Telephone Number Lancaster ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $947,840 $6,076 $6.33 $1,562,460 $6,377 $6.47 Vacancy/Credit Loss $ 66,439 $ 426 $0.44 $ 124,997 $ 510 $0.52 Effective Gross Income $881,401 $5,650 $5.88 $1,437,463 $5,867 $5.96 Operating Expenses $453,246 $2,905 $3.02 $ 674,485 $2,753 $2.79 Net Operating Income $428,155 $2,745 $2.86 $ 762,978 $3,114 $3.16 NOTES: Property amenities also Complex is a low-rise, two- include a lake and walking story property. bridges Sale price adjusted upward $25,000 for deferred maint PRICE PER UNIT $28,500 $28,144 PRICE PER SQUARE FOOT $ 29.67 $ 28.57 EXPENSE RATIO 51.4% 46.9% EGIM 5.04 4.80 OVERALL CAP RATE 9.63% 11.07% Cap Rate based on Pro Forma or Actual Income? ACTUAL COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 3 I - 4 ------------------------------- --------------------------- ----------------------------- ---------------------------- Property Name Fairway View II Apartments Sable Chase Apartments Sharlo Apartments (now known as Azalea Point LOCATION: Address 2245 College Drive 1860 Boulevard De Province 2000 Brightside Lane City, State Baton Rouge, Louisiana Baton Rouge, LA Baton Rouge, LA County East Baton Rouge Parish East Baton Rouge Parish East Baton Rouge Parish PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 167,022 184,920 173,696 Year Built 1981 1978 1975 Number of Units 204 208 200 Unit Mix: Type Total Type Total Type Total 1Br/1Ba - 1A10 48 1Br/1Ba 52 1Br/1Ba 48 1Br/1.5Ba - 1B15 8 1Br/1Ba 52 2Br/2Ba 112 1Br/1Ba -1C10 48 2 Br/1Ba 56 3Br/2Ba 40 2Br/1Ba - 2A10 68 2 Br/1.5 Ba 28 2Br/2Ba - 2A20 6 3Br/2Ba 16 3Br/2Ba - 3A20 6 4Br/2Ba 4 3Br/2Ba - 3B20 20 Average Unit Size (SF) 819 889 868 Land Area (Acre) 10.5500 9.5210 9.4500 Density (Units/Acre) 19.3 21.8 21.2 Parking Ratio (Spaces/Unit) 1.96 NA 2.00 Parking Type (Gr., Cov., etc) Open Open Open CONDITION: Average Good Good APPEAL: Average Average Average AMENITIES: Pool/Spa Yes/No Yes/Yes Yes/No Gym Room Yes Yes No Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts No Yes Yes Washer/Dryer Connection Yes (in 2&3 Br units) Yes Yes OCCUPANCY: 92% 91% 93% TRANSACTION DATA: Sale Date December, 2000 October, 2000 Sale Price ($) $6,508,000 $7,082,446 Grantor Sablechase @ Sherwood Beal Bank, SSB Partnership Grantee Sable Chase Operating Fairview, Inc. Associates Sale Documentation Document 888-11180 Document 603-11164 Verification David Treppendahl, Confidential Telephone Number Selling Broker ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,241,000 $5,966 $6.71 $1,482,600 $7,413 $8.54 Vacancy/Credit Loss $ 111,690 $ 537 $0.60 $ 103,782 $ 519 $0.60 Effective Gross Income $1,129,310 $5,429 $6.11 $1,378,818 $6,894 $7.94 Operating Expenses $ 528,112 $2,539 $2.86 $ 606,342 $3,032 $3.49 Net Operating Income $ 601,198 $2,890 $3.25 $ 772,476 $3,862 $4.45 NOTES: Opposite Comp 1; SP None includes $175,000 for def maintenance & $92,000 for fav FNMA financing PRICE PER UNIT $31,288 $35,412 PRICE PER SQUARE FOOT $ 35.19 $ 40.77 EXPENSE RATIO 46.8% 44.0% EGIM 5.76 5.14 OVERALL CAP RATE 9.24% 10.91% Cap Rate based on Pro Forma or Actual Income? PRO FORMA COMPARABLE DESCRIPTION SUBJECT I - 5 ------------------------------- --------------------------- ------------------------------ Property Name Fairway View II Apartments Goodwood Place Apartment LOCATION: Address 2245 College Drive 356 Apartment Court City, State Baton Rouge, Louisiana Baton Rouge, LA County East Baton Rouge Parish East Baton Rouge Parish PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 167,022 187,456 Year Built 1981 Late 1960's, updated Number of Units 204 184 Unit Mix: Type Total Type Total 1Br/1Ba - 1A10 48 Efficiency 2 1Br/1.5Ba - 1B15 8 1Br/1Ba 48 1Br/1Ba -1C10 48 2Br/1.5Ba, TH 102 2Br/1Ba - 2A10 68 2Br/2Ba, Flat 32 2Br/2Ba - 2A20 6 3Br/2Ba - 3A20 6 3Br/2Ba - 3B20 20 Average Unit Size (SF) 819 1,019 Land Area (Acre) 10.5500 7.5900 Density (Units/Acre) 19.3 24.2 Parking Ratio (Spaces/Unit) 1.96 NA Parking Type (Gr., Cov., etc) Open Open CONDITION: Average Average APPEAL: Average Average AMENITIES: Pool/Spa Yes/No Yes/No Gym Room Yes No Laundry Room Yes Yes Secured Parking No Yes Sport Courts No No Washer/Dryer Connection Yes (in 2&3 Br units) Yes OCCUPANCY: 92% 98% TRANSACTION DATA: Sale Date January, 2000 Sale Price ($) $5,548,936 Grantor Goodwood Investors, LLC Grantee Sheltering Palms Baton Rouge, LLC Sale Documentation Document 761-11089 Verification Grantee Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Potential Gross Income $1,081,200 $5,876 $5.77 Vacancy/Credit Loss $ 75,684 $ 411 $0.40 Effective Gross Income $1,005,516 $5,465 $5.36 Operating Expenses $ 431,848 $2,347 $2.30 Net Operating Income $ 573,668 $3,118 $3.06 NOTES: None PRICE PER UNIT $30,157 PRICE PER SQUARE FOOT $ 29.60 EXPENSE RATIO 42.9% EGIM 5.52 OVERALL CAP RATE 10.34% Cap Rate based on Pro PRO FORMA Forma or Actual Income?
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA IMPROVED SALES MAP [IMPROVED SALES MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $28,144 to $35,412 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 $31,350 to $44,796 per unit with a mean or average adjusted price of $38,142 per unit. The median adjusted price is $38,698 per unit. Based on the following analysis, we have concluded to a value of $38,500 per unit, which results in an "as is" value of $7,800,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 I - 3 ----------------------------- ---------------------- ----------------------- ------------------------ ------------------------ Property Name Fairway View II Kingston Point Magnolia Trace Apartment Sable Chase Apartments Apartments Apartments Address 2245 College Drive 1919 Boulevard De 11585 N. Harrell's Ferry 1860 Boulevard De Province Rd Province City Baton Rouge, Louisiana Baton Rouge, LA Baton Rouge, LA Baton Rouge, LA Sale Date August, 2001 January, 2001 December, 2000 Sale Price ($) $4,446,000 $6,895,212 $6,508,000 Net Rentable Area (SF) 167,022 149,853 241,372 184,920 Number of Units 204 156 245 208 Price Per Unit $28,500 $28,144 $31,288 Year Built 1981 1974-75 1973 1978 Land Area (Acre) 10.5500 7.7420 12.5100 9.5210 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 08-2001 10% 01-2001 10% 12-2000 15% VALUE AFTER TRANS. ADJUST. ($/UNIT) $31,350 $30,958 $35,982 Location Comparable 0% Comparable 0% Comparable 0% Number of Units 204 156 -5% 245 5% 208 0% Quality / Appeal Good Comparable 0% Inferior 10% Comparable 0% Age / Condition 1981 1974-75 / Average 10% 1973 / Average 10% 1978 / Good 5% Occupancy at Sale 92% 93% 0% 90% 0% 91% 0% Amenities Good Comparable 0% Inferior 5% Comparable 0% Average Unit Size (SF) 819 961 -5% 985 -5% 889 -5% PHYSICAL ADJUSTMENT 0% 25% 0% FINAL ADJUSTED VALUE ($/UNIT) $31,350 $38,698 $35,982 COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 4 I - 5 ----------------------------- ---------------------- ------------------------ ---------------------------- Property Name Fairway View II Sharlo Apartments (now Goodwood Place Apartment Apartments known as Azalea Point Address 2245 College Drive 2000 Brightside 356 Apartment Court Lane City Baton Rouge, Louisiana Baton Rouge, LA Baton Rouge, LA Sale Date October, 2000 January, 2000 Sale Price ($) $7,082,446 $5,548,936 Net Rentable Area (SF) 167,022 173,696 187,456 Number of Units 204 200 184 Price Per Unit $35,412 $30,157 Year Built 1981 1975 Late 1960's, updated Land Area (Acre) 10.5500 9.4500 7.5900 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 10-2000 15% 01-2000 15% VALUE AFTER TRANS. ADJUST. ($/UNIT) $40,724 $34,681 Location Comparable 0% Comparable 0% Number of Units 204 200 0% 184 0% Quality / Appeal Good Comparable 0% Inferior 10% Age / Condition 1981 1975 / Good 10% Late 1960's, updated / A 15% Occupancy at Sale 92% 93% 0% 98% -5% Amenities Good Comparable 0% Inferior 5% Average Unit Size (SF) 819 868 0% 1,019 -10% PHYSICAL ADJUSTMENT 10% 15% FINAL ADJUSTED VALUE ($/UNIT) $44,796 $39,883
SUMMARY VALUE RANGE (PER UNIT) $ 31,350 TO $ 44,796 MEAN (PER UNIT) $ 38,142 MEDIAN (PER UNIT) $ 38,698 VALUE CONCLUSION (PER UNIT) $ 38,500
VALUE OF IMPROVEMENT & MAIN SITE $ 7,854,000 DEFERRED MAINTENANCE -$ 75,000 VALUE INDICATED BY SALES COMPARISON APPROACH $ 7,779,000 ROUNDED $ 7,800,000
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 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA 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-1 156 $4,446,000 9.63% $428,155 $ 797,532 1.424 $ 40,596 $ 28,500 $ 2,745 $ 3,909 I-2 245 $6,895,212 11.07% $762,978 $ 797,532 1.255 $ 35,331 $ 28,144 $ 3,114 $ 3,909 I-3 208 $6,508,000 9.24% $601,198 $ 797,532 1.353 $ 42,320 $ 31,288 $ 2,890 $ 3,909 I-4 200 $7,082,446 10.91% $772,476 $ 797,532 1.012 $ 35,844 $ 35,412 $ 3,862 $ 3,909 I-5 184 $5,548,936 10.34% $573,668 $ 797,532 1.254 $ 37,815 $ 30,157 $ 3,118 $ 3,909
PRICE/UNIT
Low High Average Median $35,331 $42,320 $38,381 $37,815
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 38,000 ---------- Number of Units 204 Value $7,752,000 Deferred Maintenance -$ 75,000 ---------- Value Based on NOI Analysis $7,677,000 Rounded $7,700,000
The adjusted sales indicate a range of value between $35,331 and $42,320 per unit, with an average of $38,381 per unit. Based on the subject's competitive position within the improved sales, a value of $38,000 per unit is estimated. This indicates an "as is" market value of $7,700,000 (rounded after necessary adjustment, if any) for the NOI Per Unit Analysis. EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS The effective gross income multiplier (EGIM) is derived by dividing the sales price by the total effective gross income. The following table illustrates the EGIMs for the comparable improved sales. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON
SALE PRICE COMPARABLE NO. OF ---------- EFFECTIVE OPERATING SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM ---------- ------ ---------- ------------ --------- ----- ------------- ---- I-1 156 $4,446,000 $ 881,401 $ 453,246 51.42% 5.04 $ 28,500 I-2 245 $6,895,212 $ 1,437,463 $ 674,485 46.92% 4.80 $ 28,144 I-3 208 $6,508,000 $ 1,129,310 $ 528,112 46.76% 5.76 $ 31,288 38.45% I-4 200 $7,082,446 $ 1,378,818 $ 606,342 43.98% 5.14 $ 35,412 I-5 184 $5,548,936 $ 1,005,516 $ 431,848 42.95% 5.52 $ 30,157
EGIM
Low High Average Median 4.80 5.76 5.25 5.14
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 5.75 ----------- Subject EGI $1,378,496 Value $7,926,354 Deferred Maintenance -$ 75,000 ----------- Value Based on EGIM Analysis $7,851,354 Rounded $7,900,000 Value Per Unit $ 38,725
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 38.45% before reserves. The comparable sales indicate a range of expense ratios from 42.95% to 51.42%, while their EGIMs range from 4.80 to 5.76. Overall, we conclude to an EGIM of 5.75, which results in an "as is" value estimate in the EGIM Analysis of $7,900,000. 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 $7,800,000. Price Per Unit $7,800,000 NOI Per Unit $7,700,000 EGIM Analysis $7,900,000 Sales Comparison Conclusion $7,800,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA INCOME CAPITALIZATION APPROACH The income capitalization approach is based on the premise that value is created by the expectation of future benefits. We estimated the present value of those benefits to derive an indication of the amount that a prudent, informed purchaser-investor would pay for the right to receive them as of the date of value. This approach requires an estimate of the NOI of a property. The estimated NOI is then converted to a value indication by use of either the direct capitalization or the discounted cash flow analysis (yield capitalization). Direct capitalization uses a single year's stabilized NOI as a basis for a value indication by dividing the income by a capitalization rate. The rate chosen accounts for a recapture of the investment by the investor and should reflect all factors that influence the value of the property, such as tenant quality, property condition, neighborhood change, market trends, interest rates, and inflation. The rate may be extracted from local market transactions or, when transaction evidence is lacking, obtained from trade sources. A discounted cash flow analysis focuses on the operating cash flows expected from the property and the proceeds of a hypothetical sale at the end of a holding period (the reversion). The cash flows and reversion are discounted to their present values using a market-derived discount rate and are added together to obtain a value indication. Because benefits to be received in the future are worth less than the same benefits received in the present, this method weights income in the early years more heavily than the income and the sale proceeds to be received later. The strength of the discounted cash flow method is its ability to recognize variations in projected net income, such as those caused by inflation, stepped leases, neighborhood change, or tenant turnover. Its weakness is that it requires many judgments regarding the actions of likely buyers and sellers of the property in the future. In some situations, both methods yield a similar result. The discounted cash flow method is typically more appropriate for the analysis of investment properties with multiple or long-term leases, particularly leases with cancellation clauses or renewal options. It is especially useful for multi-tenant properties in volatile markets. The direct capitalization AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
Average Unit Area -------------------- Unit Type (Sq. Ft.) Per Unit Per SF %Occupied ---------------- --------- -------- ------ --------- 1Br/1Ba - 1A10 588 $ 481 $ 0.82 95.8% 1Br/1.5Ba - 1B15 620 $ 507 $ 0.82 100.0% 1Br/1Ba - 1C10 706 $ 531 $ 0.75 95.8% 2Br/1Ba - 2A10 889 $ 625 $ 0.70 86.8% 2Br/2Ba - 2A20 944 $ 791 $ 0.84 100.0% 3Br/2Ba - 3A20 1189 $ 786 $ 0.66 100.0% 3Br/2Ba - 3B20 1335 $ 819 $ 0.61 85.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA RENT ANALYSIS
COMPARABLE RENTS ---------------------------------------------------------- R-1 R-2 R-3 R-4 R-5 ---------------------------------------------------------- Parc Jefferson Bienville Fontaine Cobblestone Place Warwick Towers Apartments at Essen Apartments Apartments ---------------------------------------------------------- COMPARISON TO SUBJECT ---------------------------------------------------------- SUBJECT SUBJECT SUBJECT UNIT ACTUAL ASKING Slightly Slightly Slightly DESCRIPTION TYPE RENT RENT Inferior Inferior Superior Superior Superior ------------------------------------------------------------------------------------------------------------------------ Monthly Rent 1BR/1BA - 1A10 $ 481 $ 501 $ 525 $ 665 Unit Area (SF) 588 588 620 648 Monthly Rent Per Sq. Ft. $ 0.82 $ 0.85 $ 0.85 $ 1.03 Monthly Rent 1BR/1.5BA - 1B15 $ 507 $ 541 $ 550 Unit Area (SF) 620 620 740 Monthly Rent Per Sq. Ft. $ 0.82 $ 0.87 $ 0.74 Monthly Rent 1BR/1BA -1C10 $ 531 $ 571 $ 575 $ 640 Unit Area (SF) 706 706 740 750 Monthly Rent Per Sq. Ft. $ 0.75 $ 0.81 $ 0.78 $ 0.85 Monthly Rent 2BR/1BA - 2A10 $ 625 $ 671 $ 634 $ 615 $ 890 $ 740 Unit Area (SF) 889 889 923 970 995 990 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.75 $ 0.69 $ 0.63 $ 0.89 $ 0.75 Monthly Rent 2BR/2BA - 2A20 $ 791 $ 871 $ 655 $ 625 $ 774 $ 740 Unit Area (SF) 944 944 1,156 970 1,070 1,029 Monthly Rent Per Sq. Ft. $ 0.84 $ 0.92 $ 0.57 $ 0.64 $ 0.72 $ 0.72 Monthly Rent 3BR/2BA - 3A20 $ 786 $ 861 $ 705 $ 871 $ 772 Unit Area (SF) 1,189 1,189 1,084 1,250 1,047 Monthly Rent Per Sq. Ft. $ 0.66 $ 0.72 $ 0.65 $ 0.70 $ 0.74 Monthly Rent 3BR/2BA - 3B20 $ 819 $ 889 $ 855 $ 715 $ 975 $ 1,086 $ 960 Unit Area (SF) 1,335 1,335 1,120 1,270 1,265 1,559 1,242 Monthly Rent Per Sq. Ft. $ 0.61 $ 0.67 $ 0.76 $ 0.56 $ 0.77 $ 0.70 $ 0.77 SUBJECT UNIT DESCRIPTION TYPE MIN MAX MEDIAN AVERAGE ----------------------------------------------------------------------------------- Monthly Rent 1BR/1BA - 1A10 $ 525 $ 665 $ 595 $ 595 Unit Area (SF) 620 648 634 634 Monthly Rent Per Sq. Ft. $ 0.85 $ 1.03 $ 0.94 $ 0.94 Monthly Rent 1BR/1.5BA - 1B15 $ 550 $ 550 $ 550 $ 550 Unit Area (SF) 740 740 740 740 Monthly Rent Per Sq. Ft. $ 0.74 $ 0.74 $ 0.74 $ 0.74 Monthly Rent 1BR/1BA -1C10 $ 575 $ 640 $ 608 $ 608 Unit Area (SF) 740 750 745 745 Monthly Rent Per Sq. Ft. $ 0.78 $ 0.85 $ 0.82 $ 0.82 Monthly Rent 2BR/1BA - 2A10 $ 615 $ 890 $ 687 $ 720 Unit Area (SF) 923 995 980 970 Monthly Rent Per Sq. Ft. $ 0.63 $ 0.89 $ 0.72 $ 0.74 Monthly Rent 2BR/2BA - 2A20 $ 625 $ 774 $ 698 $ 698 Unit Area (SF) 970 1,156 1,049 1,056 Monthly Rent Per Sq. Ft. $ 0.57 $ 0.72 $ 0.68 $ 0.66 Monthly Rent 3BR/2BA - 3A20 $ 705 $ 871 $ 772 $ 783 Unit Area (SF) 1,047 1,250 1,084 1,127 Monthly Rent Per Sq. Ft. $ 0.65 $ 0.74 $ 0.70 $ 0.69 Monthly Rent 3BR/2BA - 3B20 $ 715 $ 1,086 $ 960 $ 918 Unit Area (SF) 1,120 1,559 1,265 1,291 Monthly Rent Per Sq. Ft. $ 0.56 $ 0.77 $ 0.76 $ 0.71
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows: GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area ---------------- Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income -------------------------------------------------------------------------------------- 1Br/1Ba - 1A10 48 588 $ 540 $ 0.92 $ 25,920 $ 311,040 1Br/1.5Ba - 1B15 8 620 $ 500 $ 0.81 $ 4,000 $ 48,000 1Br/1Ba -1C10 48 706 $ 565 $ 0.80 $ 27,120 $ 325,440 2Br/1Ba - 2A10 68 889 $ 620 $ 0.70 $ 42,160 $ 505,920 2Br/2Ba - 2A20 6 944 $ 650 $ 0.69 $ 3,900 $ 46,800 3Br/2Ba - 3A20 6 1,189 $ 680 $ 0.57 $ 4,080 $ 48,960 3Br/2Ba - 3B20 20 1,335 $ 700 $ 0.52 $ 14,000 $ 168,000 --------- ----------- Total $ 121,180 $ 1,454,160 ========= ===========
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA PRO FORMA ANALYSIS For purposes of this appraisal, we were provided with income and expense data for the subject property. A summary of this data is presented on the following page. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA 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 $1,454,014 $ 7,128 $1,476,535 $ 7,238 $1,455,951 $ 7,137 $1,473,368 $ 7,222 Vacancy $ 95,280 $ 467 $ 115,670 $ 567 $ 96,940 $ 475 $ 159,548 $ 782 Credit Loss/Concessions $ 48,299 $ 237 $ 41,849 $ 205 $ 16,213 $ 79 $ 17,712 $ 87 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Subtotal $ 143,579 $ 704 $ 157,519 $ 772 $ 113,153 $ 555 $ 177,260 $ 869 Laundry Income $ 2,726 $ 13 $ 3,738 $ 18 $ 5,855 $ 29 $ 19,984 $ 98 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 36,484 $ 179 $ 40,363 $ 198 $ 70,489 $ 346 $ 35,348 $ 173 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 39,210 $ 192 $ 44,101 $ 216 $ 76,344 $ 374 $ 55,332 $ 271 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Effective Gross Income $1,349,645 $ 6,616 $1,363,117 $ 6,682 $1,419,142 $ 6,957 $1,351,440 $ 6,625 Operating Expenses Taxes $ 55,031 $ 270 $ 36,528 $ 179 $ 60,309 $ 296 $ 48,000 $ 235 Insurance $ 22,956 $ 113 $ 40,373 $ 198 $ 32,029 $ 157 $ 33,468 $ 164 Utilities $ 69,939 $ 343 $ 79,320 $ 389 $ 77,011 $ 378 $ 81,904 $ 401 Repair & Maintenance $ 32,444 $ 159 $ 19,897 $ 98 $ 21,789 $ 107 $ 14,836 $ 73 Cleaning $ 7,498 $ 37 $ 5,625 $ 28 $ 5,096 $ 25 $ 0 $ 0 Landscaping $ 25,041 $ 123 $ 22,962 $ 113 $ 22,781 $ 112 $ 42,816 $ 210 Security $ 16,405 $ 80 $ 16,199 $ 79 $ 17,831 $ 87 $ 0 $ 0 Marketing & Leasing $ 21,391 $ 105 $ 10,429 $ 51 $ 15,823 $ 78 $ 13,912 $ 68 General Administrative $ 112,236 $ 550 $ 119,934 $ 588 $ 157,678 $ 773 $ 140,236 $ 687 Management $ 68,592 $ 336 $ 57,636 $ 283 $ 70,909 $ 348 $ 74,088 $ 363 Miscellaneous $ 48,116 $ 236 $ 40,808 $ 200 $ 51,254 $ 251 $ 45,160 $ 221 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Operating Expenses $ 479,649 $ 2,351 $ 449,711 $ 2,204 $ 532,510 $ 2,610 $ 494,420 $ 2,424 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Income $ 869,996 $ 4,265 $ 913,406 $ 4,477 $ 886,632 $ 4,346 $ 857,020 $ 4,201 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
ANNUALIZED 2003 ----------------------- PROJECTION AAA PROJECTION ----------------------- ---------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % ----------- ---------- ---------- ---------- ---------- ------ Revenues Rental Income $1,470,752 $ 7,210 $1,454,160 $ 7,128 100.0% Vacancy $ 124,492 $ 610 $ 101,791 $ 499 7.0% Credit Loss/Concessions $ 15,156 $ 74 $ 21,812 $ 107 1.5% ---------- ---------- ---------- ---------- ----- Subtotal $ 139,648 $ 685 $ 123,604 $ 606 8.5% Laundry Income $ 5,224 $ 26 $ 7,140 $ 35 0.5% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 50,164 $ 246 $ 40,800 $ 200 2.8% ---------- ---------- ---------- ---------- ----- Subtotal Other Income $ 55,388 $ 272 $ 47,940 $ 235 3.3% ---------- ---------- ---------- ---------- ----- Effective Gross Income $1,386,492 $ 6,797 $1,378,496 $ 6,757 100.0% Operating Expenses Taxes $ 48,692 $ 239 $ 56,100 $ 275 4.1% Insurance $ 33,888 $ 166 $ 34,680 $ 170 2.5% Utilities $ 79,860 $ 391 $ 81,600 $ 400 5.9% Repair & Maintenance $ 32,684 $ 160 $ 25,500 $ 125 1.8% Cleaning $ 10,572 $ 52 $ 8,160 $ 40 0.6% Landscaping $ 32,356 $ 159 $ 28,560 $ 140 2.1% Security $ 20,356 $ 100 $ 18,360 $ 90 1.3% Marketing & Leasing $ 12,088 $ 59 $ 14,280 $ 70 1.0% General Administrative $ 166,592 $ 817 $ 142,800 $ 700 10.4% Management $ 73,184 $ 359 $ 68,925 $ 338 5.0% Miscellaneous $ 97,828 $ 480 $ 51,000 $ 250 3.7% ---------- ---------- ---------- ---------- ----- Total Operating Expenses $ 608,100 $ 2,981 $ 529,965 $ 2,598 38.4% Reserves $ 0 $ 0 $ 51,000 $ 250 9.6% ---------- ---------- ---------- ---------- ----- Net Income $ 778,392 $ 3,816 $ 797,532 $ 3,909 57.9% ---------- ---------- ---------- ---------- -----
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 8.5% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA 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 some major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an additional $75,000 has been deducted. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of the annual cash flows and discounts them, along with the expected equity reversion, to a present value. The present value of the cash flow is added to the present value of the reversion, resulting in a total property value. INVESTMENT CRITERIA Appropriate investment criteria will be derived for the subject based upon analysis of comparable sales and a survey of real estate investors. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 1ST QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES -------------------------------------------------------- GOING-IN TERMINAL ---------------------- ------------------ LOW HIGH LOW HIGH ---- ----- ---- ----- RANGE 6.00% 10.00% 7.00% 10.00% AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR --------- --------- ------ ---------- ----- I-1 Aug-01 93% $ 28,500 9.63% I-2 Jan-01 90% $ 28,144 11.07% I-3 Dec-00 91% $ 31,288 9.24% I-4 Oct-00 93% $ 35,412 10.91% I-5 Jan-00 98% $ 30,157 10.34% High 11.07% Low 9.24% Average 10.24%
Based on this information, we have concluded the subject's overall capitalization rate should be 10.50%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 11.50%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 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 $7,800,000. In this instance, the reversion figure contributes approximately 35% of the total value. Investors surveyed for this assignment indicated they AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA DISCOUNTED CASH FLOW ANALYSIS FAIRWAY VIEW II 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 $1,454,160 $1,483,243 $1,512,908 $1,543,166 $1,574,030 $1,613,380 Vacancy $ 101,791 $ 103,827 $ 105,904 $ 108,022 $ 110,182 $ 112,937 Credit Loss $ 21,812 $ 22,249 $ 22,694 $ 23,147 $ 23,610 $ 24,201 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal $ 123,604 $ 126,076 $ 128,597 $ 131,169 $ 133,793 $ 137,137 Laundry Income $ 7,140 $ 7,283 $ 7,428 $ 7,577 $ 7,729 $ 7,922 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 40,800 $ 41,616 $ 42,448 $ 43,297 $ 44,163 $ 45,267 ---------- ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 47,940 $ 48,899 $ 49,877 $ 50,874 $ 51,892 $ 53,189 ---------- ---------- ---------- ---------- ---------- ---------- EFFECTIVE GROSS INCOME $1,378,496 $1,406,066 $1,434,188 $1,462,871 $1,492,129 $1,529,432 OPERATING EXPENSES: Taxes $ 56,100 $ 57,222 $ 58,366 $ 59,534 $ 60,724 $ 62,243 Insurance $ 34,680 $ 35,374 $ 36,081 $ 36,803 $ 37,539 $ 38,477 Utilities $ 81,600 $ 83,232 $ 84,897 $ 86,595 $ 88,326 $ 90,535 Repair & Maintenance $ 25,500 $ 26,010 $ 26,530 $ 27,061 $ 27,602 $ 28,292 Cleaning $ 8,160 $ 8,323 $ 8,490 $ 8,659 $ 8,833 $ 9,053 Landscaping $ 28,560 $ 29,131 $ 29,714 $ 30,308 $ 30,914 $ 31,687 Security $ 18,360 $ 18,727 $ 19,102 $ 19,484 $ 19,873 $ 20,370 Marketing & Leasing $ 14,280 $ 14,566 $ 14,857 $ 15,154 $ 15,457 $ 15,844 General Administrative $ 142,800 $ 145,656 $ 148,569 $ 151,541 $ 154,571 $ 158,436 Management $ 68,925 $ 70,303 $ 71,709 $ 73,144 $ 74,606 $ 76,472 Miscellaneous $ 51,000 $ 52,020 $ 53,060 $ 54,122 $ 55,204 $ 56,584 ---------- ---------- ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $ 529,965 $ 540,564 $ 551,375 $ 562,403 $ 573,651 $ 587,992 Reserves $ 51,000 $ 52,020 $ 53,060 $ 54,122 $ 55,204 $ 56,584 ---------- ---------- ---------- ---------- ---------- ---------- NET OPERATING INCOME $ 797,532 $ 813,482 $ 829,752 $ 846,347 $ 863,274 $ 884,856 ========== ========== ========== ========== ========== ========== Operating Expense Ratio (% of EGI) 38.4% 38.4% 38.4% 38.4% 38.4% 38.4% Operating Expense Per Unit $ 2,598 $ 2,650 $ 2,703 $ 2,757 $ 2,812 $ 2,882
YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 ----------- ---------- ---------- ---------- ---------- ---------- REVENUE Base Rent $1,653,715 $1,695,058 $1,737,434 $1,780,870 $1,825,392 Vacancy $ 115,760 $ 118,654 $ 121,620 $ 124,661 $ 127,777 Credit Loss $ 24,806 $ 25,426 $ 26,062 $ 26,713 $ 27,381 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- Subtotal $ 140,566 $ 144,080 $ 147,682 $ 151,374 $ 155,158 Laundry Income $ 8,120 $ 8,323 $ 8,531 $ 8,744 $ 8,963 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 46,399 $ 47,559 $ 48,748 $ 49,967 $ 51,216 ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 54,519 $ 55,882 $ 57,279 $ 58,711 $ 60,179 ---------- ---------- ---------- ---------- ---------- EFFECTIVE GROSS INCOME $1,567,668 $1,606,860 $1,647,031 $1,688,207 $1,730,412 OPERATING EXPENSES: Taxes $ 63,799 $ 65,394 $ 67,028 $ 68,704 $ 70,422 Insurance $ 39,439 $ 40,425 $ 41,436 $ 42,472 $ 43,533 Utilities $ 92,798 $ 95,118 $ 97,496 $ 99,933 $ 102,432 Repair & Maintenance $ 28,999 $ 29,724 $ 30,467 $ 31,229 $ 32,010 Cleaning $ 9,280 $ 9,512 $ 9,750 $ 9,993 $ 10,243 Landscaping $ 32,479 $ 33,291 $ 34,124 $ 34,977 $ 35,851 Security $ 20,880 $ 21,402 $ 21,937 $ 22,485 $ 23,047 Marketing & Leasing $ 16,240 $ 16,646 $ 17,062 $ 17,488 $ 17,926 General Administrative $ 162,396 $ 166,456 $ 170,618 $ 174,883 $ 179,255 Management $ 78,383 $ 80,343 $ 82,352 $ 84,410 $ 86,521 Miscellaneous $ 57,999 $ 59,449 $ 60,935 $ 62,458 $ 64,020 ---------- ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $ 602,692 $ 617,759 $ 633,203 $ 649,033 $ 665,259 Reserves $ 57,999 $ 59,449 $ 60,935 $ 62,458 $ 64,020 ---------- ---------- ---------- ---------- ---------- NET OPERATING INCOME $ 906,977 $ 929,651 $ 952,893 $ 976,715 $1,001,133 ========== ========== ========== ========== ========== Operating Expense Ratio (% of EGI) 38.4% 38.4% 38.4% 38.4% 38.4% Operating Expense Per Unit $ 2,954 $ 3,028 $ 3,104 $ 3,182 $ 3,261
Estimated Stabilized NOI $ 797,532 Sales Expense Rate 2.00% Months to Stabilized 1 Discount Rate 12.00% Stabilized Occupancy 93.0% Terminal Cap Rate 11.50%
"DCF" VALUE ANALYSIS Gross Residual Sale Price $8,705,504 Deferred Maintenance -$ 75,000 Less: Sales Expense $ 174,110 Add: Excess Land $ 0 ---------- Net Residual Sale Price $8,531,394 Other Adjustments $ 0 ---------- PV of Reversion $2,746,881 Value Indicated By "DCF" $7,830,717 Add: NPV of NOI $5,158,836 Rounded $7,800,000 ---------- PV Total $7,905,717
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ---------------------------------------------------------------------- TOTAL VALUE 11.50% 11.75% 12.00% 12.25% 12.50% ----------- ---------- ---------- ---------- ---------- ---------- 11.00% $8,281,744 $8,154,815 $8,030,575 $7,908,956 $7,789,894 11.25% $8,215,007 $8,089,557 $7,966,759 $7,846,547 $7,728,858 TERMINAL CAP RATE 11.50% $8,151,172 $8,027,136 $7,905,717 $7,786,851 $7,670,475 11.75% $8,090,053 $7,967,371 $7,847,273 $7,729,695 $7,614,577 12.00% $8,031,481 $7,910,096 $7,791,264 $7,674,921 $7,561,008
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA 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 10.50% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA FAIRWAY VIEW II APARTMENTS
TOTAL PER SQ. FT. PER UNIT %OF EGI ----------- ----------- --------- ------- REVENUE Base Rent $1,454,160 $ 8.71 $ 7,128 Less: Vacancy & Collection Loss 8.50% $ 123,604 $ 0.74 $ 606 Plus: Other Income Laundry Income $ 7,140 $ 0.04 $ 35 0.52% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 40,800 $ 0.24 $ 200 2.96% ---------- ----------- --------- ------- Subtotal Other Income $ 47,940 $ 0.29 $ 235 3.48% EFFECTIVE GROSS INCOME $1,378,496 $ 8.25 $ 6,757 OPERATING EXPENSES: Taxes $ 56,100 $ 0.34 $ 275 4.07% Insurance $ 34,680 $ 0.21 $ 170 2.52% Utilities $ 81,600 $ 0.49 $ 400 5.92% Repair & Maintenance $ 25,500 $ 0.15 $ 125 1.85% Cleaning $ 8,160 $ 0.05 $ 40 0.59% Landscaping $ 28,560 $ 0.17 $ 140 2.07% Security $ 18,360 $ 0.11 $ 90 1.33% Marketing & Leasing $ 14,280 $ 0.09 $ 70 1.04% General Administrative $ 142,800 $ 0.85 $ 700 10.36% Management 5.00% $ 68,925 $ 0.41 $ 338 5.00% Miscellaneous $ 51,000 $ 0.31 $ 250 3.70% TOTAL OPERATING EXPENSES $ 529,965 $ 3.17 $ 2,598 38.45% Reserves $ 51,000 $ 0.31 $ 250 3.70% ---------- ----------- --------- ------- NET OPERATING INCOME $ 797,532 $ 4.78 $ 3,909 57.86% ========== =========== ========= ======= "GOING IN" CAPITALIZATION RATE 10.50% VALUE INDICATION $7,595,539 $ 45.48 $ 37,233 DEFERRED MAINTENANCE ($ 75,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $7,520,539 ROUNDED $7,500,000 $ 44.90 $ 36,765
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF -------- ---------- ---------- ------- ------ 9.75% $8,104,811 $8,100,000 $39,706 $48.50 10.00% $7,900,316 $7,900,000 $38,725 $47.30 10.25% $7,705,796 $7,700,000 $37,745 $46.10 10.50% $7,520,539 $7,500,000 $36,765 $44.90 10.75% $7,343,898 $7,300,000 $35,784 $43.71 11.00% $7,175,287 $7,200,000 $35,294 $43.11 11.25% $7,014,170 $7,000,000 $34,314 $41.91
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $7,500,000. 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 $7,800,000 Direct Capitalization Method $7,500,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $7,600,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA 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 $ 7,800,000 Income Approach $ 7,600,000 Reconciled Value $ 7,700,000
The Income Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of May 22, 2003 the market value of the fee simple estate in the property is: $7,700,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR AND ENTRANCE TO SUBJECT EXTERIOR - TYPICAL VIEW OF BUILDINGS [PICTURE] [PICTURE] REAR VIEW OF APARTMENT COMPLEX POOL [PICTURE] [PICTURE] VIEW OF DRAINAGE DITCH AT REAR OF THE SITE TYPICAL LAUNDRY ROOM AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] FITNESS CENTER EXTERIOR INTERIOR VIEW OF FITNESS CENTER [PICTURE] [PICTURE] INTERIOR - APARTMENT UNIT INTERIOR - APARTMENT UNIT AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B FAIRWAY VIEW I I APARTMENTS, BATON ROUGE, LOUISIANA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 KINGSTON POINT APARTMENTS MAGNOLIA TRACE APARTMENT SABLE CHASE APARTMENTS 1919 Boulevard De 11585 N. Harrell's Ferry Rd 1860 Boulevard De Province Baton Rouge, LA Baton Rouge, LA Province Baton Rouge, LA [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 SHARLO APARTMENTS (NOW KNOWN AS AZALEA POINT GOODWOOD PLACE APARTMENT 2000 Brightside Lane 356 Apartment Court Baton Rouge, LA Baton Rouge, LA [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 ------------------------------- ---------------------------------------- ---------------------------------- Property Name Fairway View II Apartments Bienville Towers Management Company AIMCO Patrician Management LOCATION: Address 2245 College Drive 2100 College Drive City, State Baton Rouge, Louisiana Baton Rouge, LA County East Baton Rouge Parish East Baton Rouge Parish Proximity to Subject Adjacent to subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 167,022 126,251 Year Built 1981 1974 Effective Age 20 25 Building Structure Type Vinyl siding, flat roofs Brick veneer, mansard-style roofs Parking Type (Gr., Cov., etc.) Open Open Number of Units 204 137 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Br/1Ba - 1A10 588 48 $481 3 1Br/1Ba 740 44 $575 2 1Br/1.5Ba - 1B15 620 8 $507 2 1Br/1Ba, TH 740 1 $550 3 1Br/1Ba-1C10 706 48 $531 4 2Br/1Ba 900 18 $625 4 2Br/1Ba - 2A10 889 68 $625 4 2Br/1Ba 940 25 $640 5 2Br/2Ba - 2A20 944 6 $791 5 2Br/1.5Ba 1,156 1 $655 6 3Br/2Ba - 3A20 1,189 6 $786 6 2Br/2Ba 1,075 19 $690 7 3Br/2Ba - 3B20 1,335 20 $819 6 2Br/2Ba 1,090 27 $715 7 3Br/2Ba 1,120 2 $855 Average Unit Size (SF) 819 922 Unit Breakdown: Efficiency 0% 2-Bedroom 39% Efficiency 0% 2-Bedroom 66% 1-Bedroom 61% 3-Bedroom 0% 1-Bedroom 33% 3-Bedroom 1% CONDITION: Good Average APPEAL: Average Average AMENITIES: Unit Amenities X Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. Balcony X W/D Connect. X Fireplace Fireplace 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 X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall X Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room Gym Room OCCUPANCY: 92% 97% LEASING DATA: Available Leasing Terms 6 to 12 Months 7 to 13 months Concessions 1/2 to 1.5 Months Free on select units Waive $25 App fee; decorative accent wall Pet Deposit $300 $300 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation May 22, 2003; Deborah Zumo (Property Manager) May 27, 2003, Missy (Leasing Agent) Telephone Number (225)926-9717 (225)928-9137 NOTES: Chosen for its proximity to the subject COMPARISON TO SUBJECT: Slightly Inferior COMPARABLE DESCRIPTION SUBJECT R - 2 ------------------------------- ---------------------------------------- ----------------------------------------------- Property Name Fairway View II Apartments Parc Fontaine Apartments Management Company AIMCO Patrician Management LOCATION: Address 2245 College Drive 1100 South Foster Drive City, State Baton Rouge, Louisiana Baton Rouge, LA County East Baton Rouge Parish East Baton Rouge Parish Proximity to Subject One mile north of subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 167,022 81,060 Year Built 1981 1965 Effective Age 20 25 Building Structure Type Vinyl siding, flat roofs Vinyl siding, pitched composition shingle roofs Parking Type (Gr., Cov., etc.) Open Open Number of Units 204 88 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Br/1Ba - 1A10 588 48 $481 1 1Br/1Ba 620 26 $525 2 1Br/1.5Ba - 1B15 620 8 $507 4 2Br/1Ba 970 30 $615 3 1Br/1Ba-1C10 706 48 $531 5 2Br/1.5Ba 970 16 $625 4 2Br/1Ba - 2A10 889 68 $625 7 3Br/2Ba 1,270 16 $715 5 2Br/2Ba - 2A20 944 6 $791 6 3Br/2Ba - 3A20 1,189 6 $786 7 3Br/2Ba - 3B20 1,335 20 $819 Average Unit Size (SF) 819 921 Unit Breakdown: Efficiency 0% 2-Bedroom 39% Efficiency 0% 2-Bedroom 52% 1-Bedroom 61% 3-Bedroom 0% 1-Bedroom 30% 3-Bedroom 18% CONDITION: Good Average APPEAL: Average Average AMENITIES: Unit Amenities X Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. Balcony X W/D Connect. X Fireplace Fireplace 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 X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall X Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room Gym Room OCCUPANCY: 92% 99% LEASING DATA: Available Leasing Terms 6 to 12 Months 7 to 13 months Concessions 1/2 to 1.5 Months Free on select units None Pet Deposit $300 $300 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation May 22, 2003; Deborah Zumo (Property Manager) May 27, 2003; Emily (Leasing Agent) Telephone Number (225)926-9717 (225)924-2738 NOTES: Renovated in 2000-2001 Chosen for its proximity to the subject COMPARISON TO SUBJECT: Slightly Inferior COMPARABLE DESCRIPTION SUBJECT R - 3 ------------------------------- ---------------------------------------- -------------------------------------- Property Name Fairway View II Apartments Cobblestone at Essen Management Company AIMCO Wampold Management LOCATION: Address 2245 College Drive 5431 Essen Lane City, State Baton Rouge, Louisiana Baton Rouge, LA County East Baton Rouge Parish East Baton Rouge Parish Proximity to Subject Three miles southeast of the subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 167,022 194,480 Year Built 1981 1972 Effective Age 20 25 Building Structure Type Vinyl siding, flat roofs Brick, pitched composition shingle roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 204 191 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Br/1Ba - 1A10 588 48 $481 1 1Br/1Ba 648 24 $665 2 1Br/1.5Ba - 1B15 620 8 $507 4 2Br/1Ba 995 28 $890 3 1Br/1Ba-1C10 706 48 $531 5 2Br/1.5Ba, TH 1,152 71 $745 4 2Br/1Ba - 2A10 889 68 $625 5 2Br/1.5Ba 966 56 $810 5 2Br/2Ba - 2A20 944 6 $791 7 3Br/2Ba 1,265 12 $975 6 3Br/2Ba - 3A20 1,189 6 $786 7 3Br/2Ba - 3B20 1,335 20 $819 Average Unit Size (SF) 819 1,018 Unit Breakdown: Efficiency 0% 2-Bedroom 39% Efficiency 0% 2-Bedroom 81% 1-Bedroom 61% 3-Bedroom 0% 1-Bedroom 13% 3-Bedroom 6% CONDITION: Good Good APPEAL: Average Good AMENITIES: Unit Amenities X Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi 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 Meeting Hall X Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 92% 93% LEASING DATA: Available Leasing Terms 6 to 12 Months 6, 9, or 12 months Concessions 1/2 to 1.5 Months Free on select units None Pet Deposit $300 $300 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation May 22, 2003; Deborah Zumo (Property Manager)May 27, 2003; Ashley (Leasing Agent) Telephone Number (225)926-9717 (225)766-1851 NOTES: None COMPARISON TO SUBJECT: Slightly Superior COMPARABLE DESCRIPTION SUBJECT R - 4 ------------------------------- ---------------------------------------- --------------------------------------- Property Name Fairway View II Apartments Jefferson Place Apartments Management Company AIMCO AIMCO LOCATION: Address 2245 College Drive 7975 N. Jefferson Place Circle City, State Baton Rouge, Louisiana Baton Rouge, LA County East Baton Rouge Parish East Baton Rouge Parish Proximity to Subject Three miles east of the subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 167,022 325,300 Year Built 1981 1986 Effective Age 20 15 Building Structure Type Vinyl siding, flat roofs Brick veneer, composition shingle roofs Parking Type (Gr., Cov., etc.) Open Open Number of Units 204 234 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Br/1Ba - 1A10 588 48 $481 6 2Br/2Ba 1,250 128 $ 871 2 1Br/1.5Ba - 1B15 620 8 $507 7 3Br/2Ba 1,500 76 $1,041 3 1Br/1Ba-1C10 706 48 $531 7 3Br/2Ba 1,710 30 $1,199 4 2Br/1Ba - 2A10 889 68 $625 5 2Br/2Ba - 2A20 944 6 $791 6 3Br/2Ba - 3A20 1,189 6 $786 7 3Br/2Ba - 3B20 1,335 20 $819 Average Unit Size (SF) 819 1,390 Unit Breakdown: Efficiency 0% 2-Bedroom 39% Efficiency 0% 2-Bedroom 55% 1-Bedroom 61% 3-Bedroom 0% 1-Bedroom 0% 3-Bedroom 45% CONDITION: Good Good APPEAL: Average 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 X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment X Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall X Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room Gym Room OCCUPANCY: 92% 91% LEASING DATA: Available Leasing Terms 6 to 12 Months 6 to 12 Months Concessions 1/2 to 1.5 Months Free on select units 1 - 1 1/2 Months Free Pet Deposit $300 $300 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation May 22, 2003; Deborah Zumo (Property Manager) May 27, 2003; Kristen (Leasing Agent) Telephone Number (225)926-9717 (225)924-5921 NOTES: None COMPARISON TO SUBJECT: Superior COMPARABLE DESCRIPTION SUBJECT R - 5 ------------------------------- ---------------------------------------- ---------------------------------------- Property Name Fairway View II Apartments Warwick Apartments Management Company AIMCO Patrician Management LOCATION: Address 2245 College Drive 8001 Jefferson Highway City, State Baton Rouge, Louisiana Baton Rouge, LA County East Baton Rouge Parish East Baton Rouge Parish Proximity to Subject Three miles east of the subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 167,022 172,244 Year Built 1981 1992-94 Effective Age 20 8 Building Structure Type Vinyl siding, flat roofs Brick veneer, composition shingle roofs Parking Type (Gr., Cov., etc.) Open Open Number of Units 204 188 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Br/1Ba - 1A10 588 48 $481 3 1Br/1Ba 750 80 $640 2 1Br/1.5Ba - 1B15 620 8 $507 4 2Br/1.5Ba, TH 990 24 $740 3 1Br/1Ba-1C10 706 48 $531 5 2Br/1Ba 1,029 12 $740 4 2Br/1Ba - 2A10 889 68 $625 6 2Br/2Ba 1,036 8 $790 5 2Br/2Ba - 2A20 944 6 $791 6 2Br/2Ba 1,046 20 $800 6 3Br/2Ba - 3A20 1,189 6 $786 6 2Br/1.5Ba, TH 1,049 40 $755 7 3Br/2Ba - 3B20 1,335 20 $819 7 3Br/2Ba 1,242 4 $960 Average Unit Size (SF) 819 916 Unit Breakdown: Efficiency 0% 2-Bedroom 39% Efficiency 0% 2-Bedroom 55% 1-Bedroom 61% 3-Bedroom 0% 1-Bedroom 43% 3-Bedroom 2% CONDITION: Good Good APPEAL: Average Good AMENITIES: Unit Amenities X Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi 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 Meeting Hall X Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 92% 98% LEASING DATA: Available Leasing Terms 6 to 12 Months 7 to 13 months Concessions 1/2 to 1.5 Months Free on select units 1 - 1 1/2 Months Free Pet Deposit $300 $300 - $500 Utilities Paid by Tenant: X Electric Natural Gas Electric X Natural Gas Water Trash Water Trash Confirmation May 22, 2003; Deborah Zumo (Property Manager) May 27, 2003; (Leasing Agent) Telephone Number (225)926-9717 (225)924-1421 NOTES: None COMPARISON TO SUBJECT: Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 BIENVILLE TOWERS PARC FONTAINE APARTMENTS COBBLESTONE AT ESSEN 2100 College Drive 1100 South Foster Drive 5431 Essen Lane Baton Rouge, LA Baton Rouge, LA Baton Rouge, LA [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 JEFFERSON PLACE APARTMENTS WARWICK APARTMENTS 7975 N. Jefferson Place Circle 8001 Jefferson Highway Baton Rouge, LA Baton Rouge, LA [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA 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 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA 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 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA 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 FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA 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. Kim Cook 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 Fehribach ----------------------------------------- Frank Fehribach, MAI Managing Principal, Real Estate Group Texas State Certified General Real Estate Appraiser #TX-1323954-G AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA 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 STATE State of Arizona CERTIFICATIONS 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 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA 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. FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. FAIRWAY VIEW II APARTMENTS, BATON ROUGE, LOUISIANA 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.