-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CKtxmEYE+4XdDIkRagPT6ORRVWPV2Af5OYkqoMzSo7HZ/uKkcvAbMxzyU/FsrOS/ A+SkTr4lGfWh+qP/Dovhtg== 0000950134-03-016288.txt : 20031205 0000950134-03-016288.hdr.sgml : 20031205 20031205135609 ACCESSION NUMBER: 0000950134-03-016288 CONFORMED SUBMISSION TYPE: SC TO-T/A PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20031205 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY PROPERTIES GROWTH FUND XXII CENTRAL INDEX KEY: 0000740156 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 942939418 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-T/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-43359 FILM NUMBER: 031039925 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8642391000 MAIL ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 FORMER COMPANY: FORMER CONFORMED NAME: CENTURY PROPERTIES FUND XXI DATE OF NAME CHANGE: 19840918 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY PROPERTIES GROWTH FUND XXII CENTRAL INDEX KEY: 0000740156 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 942939418 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-43359 FILM NUMBER: 031039926 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8642391000 MAIL ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 FORMER COMPANY: FORMER CONFORMED NAME: CENTURY PROPERTIES FUND XXI DATE OF NAME CHANGE: 19840918 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: AIMCO PROPERTIES LP CENTRAL INDEX KEY: 0000926660 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF APARTMENT BUILDINGS [6513] IRS NUMBER: 841275621 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-T/A BUSINESS ADDRESS: STREET 1: 4582 S ULSTER ST PARKWAY STREET 2: SUITE 1100 CITY: DENVER STATE: CO ZIP: 80237 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 4582 S ULSTER ST PARKWAY STREET 2: SUITE 1100 CITY: DENVER STATE: CO ZIP: 80237 SC TO-T/A 1 d07250a2sctovtza.txt AMENDMENT NO. 2 TO SC TO SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 SCHEDULE TO/A (AMENDMENT NO. 2) TENDER OFFER STATEMENT UNDER SECTION 14(D)(1) OR 13(E)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 Century Properties Growth Fund XXII - -------------------------------------------------------------------------------- (Name of Subject Company (Issuer) Apartment Investment and Management Company AIMCO-GP, Inc. Fox Capital Management Corporation AIMCO Properties, L.P. - -------------------------------------------------------------------------------- (Names of Filing Persons - Offerors) Limited Partnership Units - -------------------------------------------------------------------------------- (Title of Class Securities) None - -------------------------------------------------------------------------------- (CUSIP Number of Class Securities) Patrick J. Foye Apartment Investment and Management Company Colorado Center, Tower Two 2000 South Colorado Boulevard, Suite 2-1000 Denver, Colorado 80222 (303) 757-8101 - -------------------------------------------------------------------------------- Name, address, and telephone numbers of person authorized to receive notices and communications on behalf of filing persons) Copy to: Joseph A. Coco Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000 and Jonathan L. Friedman Skadden, Arps, Slate, Meagher & Flom LLP 300 South Grand Avenue Los Angeles, California 90071 (213) 687-5000 1 Calculation of Filing Fee
Transaction valuation* Amount of filing fee - ---------------------- -------------------- $7,036,737.30 $ 569.27
* For purposes of calculating the fee only. This amount assumes the purchase of 36,535.50 units of limited partnership interest of the subject partnership for $192.70 per unit. The amount of the filing fee, calculated in accordance with Section 14(g)(1)(B)(3) and Rule 0-11(d) under the Securities Exchange Act of 1934, as amended, equals $80.90 per million of the aggregate amount of cash offered by the bidder. [X] Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: $569.27 Filing Party: AIMCO Properties, L.P. Form or Registration No.: Schedule TO Date Filed: November 7, 2003 [ ] Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer. Check the appropriate boxes below to designate any transactions to which the statement relates: [X] third-party tender offer subject to Rule 14d-1 [ ] issuer tender offer subject to Rule 13e-4 [X] going-private transaction subject to Rule 13e-3 [ ] amendment to Schedule 13D under Rule 13d-2 Check the following box if the filing is a final amendment reporting the results of the tender offer: [ ] 2 AMENDMENT NO. 2 TO SCHEDULE TO This Amendment No. 2 amends and supplements the Tender Offer Statement and Rule 13e-3 Transaction Statement on Schedule TO, as amended by Amendment No. 1 thereto (the "Schedule TO"), relating to the offer by AIMCO Properties, L.P., a Delaware limited partnership, to purchase units of limited partnership interest ("Units") of Century Properties Growth Fund XXII, a California limited partnership (the "Partnership"), at a price of $192.70 per unit in cash, subject to the conditions set forth in the Offer to Purchase dated November 6, 2003, and in the related Letter of Transmittal (which, together with any supplements or amendments, collectively constitute the "Offer"). Copies of the Offer to Purchase and the Letter of Transmittal are filed as Exhibits (a)(1) and (a)(2), respectively, to the Schedule TO. The item numbers and responses thereto below are in accordance with the requirements of Schedule TO. Unless defined herein, capitalized terms used and not otherwise defined herein have the respective meanings ascribed to such terms in the Offer to Purchase. ITEM 1. SUMMARY TERM SHEET. Item 1 is amended and supplemented as follows: (1) The following paragraph under "THE SUMMARY TERM SHEET" is amended and restated as follows: "Covenant Not to Sue. If you requested exclusion from the settlement but tender your units in this offer, by signing the letter of transmittal, you agree not to bring any action, claim, suit or proceeding against us and those affiliates who were defendants in the class and derivative litigation concerning any of the matters that are the subject of the Stipulation of Settlement approved by the Court in connection with the settlement of such class and derivative litigation, including this Litigation Settlement Offer, other than for violations of federal or state securities laws. If you do not request exclusion from the settlement class, you will already have agreed not to bring any such action, you will already have agreed not to bring any such action, claim, suit or proceeding once the settlement." (2) The following paragraph under "THE SUMMARY TERM SHEET" is amended and restated as follows: "Conflicts of Interest. NHP Management Company (which is our affiliate) receives fees for managing your partnership's property and the general partner of your partnership (which is our affiliate) is entitled to receive asset management fees and reimbursement of certain expenses involving your partnership and its property. As a result, a conflict of interest exists between continuing the partnership and receiving these fees, and the liquidation of the partnership and the termination of these fees. See "The Litigation Settlement Offer -- Section 13. Conflicts of Interest and Transactions with Affiliates" and "-- Section 15. Certain Information Concerning Your Partnership." (3) The following paragraph is added as the eighteenth paragraph under "THE SUMMARY TERM SHEET": "Fairness of the Offer. Although we, Apartment Investment and Management Company ("AIMCO") and AIMCO-GP, Inc. (collectively, the "AIMCO Entities") and your general partner have interests that may conflict with those the partnership's unaffiliated limited partners, each of the AIMCO Entities believes that the offer price and the offer are fair to the unaffiliated limited partners of your partnership. This determination is based on the information and the factors set 3 forth under "The Litigation Settlement Offer -- Section 12. Position of Your General Partner of Your Partnership With Respect to the Offer." ITEM 2. SUBJECT COMPANY INFORMATION. Item 2(a) of the Schedule TO is amended and supplemented as follows: (1) The following paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 15. Certain Information Concerning Your Partnership" is amended and restated as follows: "Ownership and Voting. We, together with IPLP Acquisition, L.L.C. and AIMCO IPLP, L.P. (which are our affiliates), own 46,312.50 units, or 55.90%, of the outstanding units of your partnership. Because we and our affiliates own a majority of the outstanding units, we have the ability to control most votes of the limited partners. See "The Litigation Settlement Offer -- Section 7. Effects of the Offer" and "-- Section 16. Voting Power."" (2) The chart under "THE LITIGATION SETTLEMENT OFFER - Section 15. Certain Information Concerning Your Partnership - Financial Data" is amended by adding the following line items:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ---------------------------- -------------------------------------- 2003 2002 2002 2001 2000 ------------- ------------- ------------- ------------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Income (loss) per unit from continuing operations $ (15.32) $ 1.44 $ (2.39) $ 76.57 $ 27.47 Ratio of earnings to fixed charges (deficit)....... (36%) 3.3% (4.2%) 139.1% 44.3% Book value per limited partnership unit............ 23.26 44.85 41.03 63.80 150.85
ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSON. Item 3(a) - (c) of the Schedule TO is amended and supplemented as follows: (1) The Rule 13e-3 Transaction Statement on Schedule TO is being filed by Apartment Investment and Management Company, a Maryland corporation ("AIMCO"), AIMCO Properties, L.P., a Delaware limited partnership ("AIMCO OP"), AIMCO-GP, Inc. a Delaware corporation ("AIMCO-GP"), and Fox Capital Management Corporation, a Delaware corporation ("Fox Capital"). AIMCO-GP is the general partner of AIMCO OP and a wholly owned subsidiary of AIMCO. Fox Capital is the managing general partner of the Partnership and a wholly owned subsidiary of AIMCO. The principal business of AIMCO, AIMCO-GP, and AIMCO OP is the ownership, acquisition, development, expansion and management of multi-family apartment properties. The business address of AIMCO, AIMCO-GP and AIMCO OP is 4582 Ulster Street Parkway, Suite 1100, Denver, Colorado 80237, and their telephone number is (303) 757-8101. The principal address of Fox Capital is 55 Beattie Place, P.O. Box 1089, Greenville, South Carolina 29602, and its phone number is (864) 239-1000. During the last five years, none of AIMCO, AIMCO-GP, AIMCO OP or Fox Capital nor, to the best of their knowledge, any of the persons listed in Annex I to the Offer to Purchase (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining further violations of or 4 prohibiting activities subject to federal or state securities laws or finding any violation with respect to such laws. (2) The fourth paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 10. Information Concerning Us and Certain of Our Affiliates" is amended and restated as follows: "We and AIMCO are both subject to the information and reporting requirements of the Exchange Act and, in accordance therewith, file reports and other information with the Securities and Exchange Commission relating to our business, financial condition and other matters, including the complete financial statements summarized below. Such reports and other information may be inspected at the public reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material can also be obtained from the Public Reference Room of the SEC in Washington, D.C. at prescribed rates. The SEC also maintains a site on the World Wide Web at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. In addition, information filed by AIMCO with the New York Stock Exchange may be inspected at the offices of the New York Stock Exchange at 20 Broad Street, New York, New York 10005." (3) The following chart under Annex I is amended and restated as follows:
NAME POSITION -------------------------- ------------------------------------- Terry Considine............ Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez......... Vice Chairman, President and Director Harry G. Alcock............ Executive Vice President and Chief Investment Officer Miles Cortez............... Executive Vice President, General Counsel and Secretary Joseph DeTuno.............. Executive Vice President -- Redevelopment Patti K. Fielding.......... Executive Vice President -- Securities and Debt Patrick J. Foye............ Executive Vice President Lance J. Graber............ Executive Vice President -- AIMCO Capital Paul J. McAuliffe.......... Executive Vice President and Chief Financial Officer Ronald D. Monson........... Executive Vice President and Head of Property Operations David Robertson............ Executive Vice President -- President and Chief Executive Officer of AIMCO Capital Jim Purvis................. Executive Vice President -- Human Resources Randall J. Fein............ Executive Vice President -- Student Housing James N. Bailey............ Director Richard S. Ellwood......... Director J. Landis Martin........... Director Thomas L. Rhodes........... Director
ITEM 4. TERMS OF THE TRANSACTION. Item 4(a) of the Schedule TO is amended and supplemented as follows: (1) The following paragraph under "RISK FACTORS" is amended and restated as follows: "THERE MAY BE A POSSIBLE REDUCTION OF AVAILABLE INFORMATION ABOUT YOUR PARTNERSHIP AS A RESULT OF THIS OFFER. 5 If there are less than 300 unitholders in your partnership upon consummation of the offer, your partnership would no longer be required to file periodic reports with the SEC, such as annual reports on Form 10-KSB containing annual audited financial statements, and quarterly reports on Form 10-QSB containing unaudited quarterly financial statements. Such reports are publicly available and can be obtained on the SEC's web site. The lack of such filings could adversely affect the already limited secondary market which currently exists for units in your partnership and may discourage offers to purchase your units. In such a case, you would regularly have access only to the information your partnership's agreement of limited partnership requires your general partner (which is our affiliate) to provide each year, which consists primarily of tax information. See "The Litigation Settlement Offer - Section 7. Effects of the Offer - Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act." (2) Section 1 under "THE LITIGATION SETTLEMENT OFFER" is amended and restated as follows: "1. TERMS OF THE OFFER; EXPIRATION DATE Upon the terms and subject to the conditions of the offer, we will accept (and thereby purchase) any and all units that are validly tendered on or prior to the expiration date and not withdrawn in accordance with the procedures set forth in "The Litigation Settlement Offer -- Section 4. Withdrawal Rights." For purposes of the offer, the term "expiration date" shall mean midnight, New York City time, on December 9, 2003, unless we in our sole discretion shall have extended the period of time for which the offer is open (which may not exceed 90 business days from the date of commencement, as provided in the settlement). See "The Litigation Settlement Offer -- Section 5. Extension of Tender Period; Termination; Amendment; No Subsequent Offering Period," for a description of our right to extend the period of time during which the offer is open and to amend or terminate the offer. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made or declared by your partnership on or after the commencement of our offer and prior to the date on which we acquire your units pursuant to our offer. If the offer price is reduced in this manner, we will notify you and, if necessary, we will extend the offer period so that you will have at least ten business days from the date of our notice to withdraw your units. If, prior to the expiration date, we increase the consideration offered pursuant to the offer, the increased consideration will be paid for all units accepted for payment pursuant to the offer, whether or not the units were tendered prior to the increase in consideration. The offer is conditioned on satisfaction of certain conditions. The offer is not conditioned upon any minimum number of units being tendered. See "The Litigation Settlement Offer -- Section 19. Conditions to the Offer," which sets forth in full the conditions of the offer. We reserve the right (but in no event shall we be obligated), in our reasonable discretion, to waive any or all of those conditions. If, on or prior to the expiration date, any or all of the conditions have not been satisfied or waived, we reserve the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units to tendering limited partners, (ii) waive all the unsatisfied conditions and purchase, subject to the terms of the offer, any and all units validly tendered, (iii) extend the offer and, subject to your withdrawal rights, retain the units that have been tendered during the period or periods for which the offer is extended, or (iv) amend the offer. If we are unable to accept the units tendered in this Litigation Settlement Offer due to a failure of any or all of the conditions of our offer to be satisfied, we will conduct another offer in 6 accordance with the terms of the settlement (which will occur no later than six months after the date of the commencement of this offer). We will continue this process until we have accepted for payment all units properly tendered in an offer conducted in accordance with the terms of the settlement. By executing the letter of transmittal, you will agree that the transfer of units will be deemed to take effect as of the first day of the calendar quarter in which the offer expires. Upon expiration of the offer, the books and records of the partnership will reflect the change in ownership as having occurred as of this date. For tax, accounting and financial reporting purposes, the transfer of tendered units will be deemed to take effect on the first day of the calendar quarter. Accordingly, all profits and losses relating to any tendered units will be allocated to us from and after this date. If we waive any material conditions to our offer (other than those relating to necessary governmental approvals), we will notify you and, if necessary, we will extend the offer period so that you will have at least five business days from the date of our notice to withdraw your units. This offer is being mailed on or about November 7, 2003 to the persons shown by your partnership's records to be limited partners or, in the case of units owned of record by Individual Retirement Accounts and qualified plans, beneficial owners of units." Section 2 under "THE LITIGATION SETTLEMENT OFFER" is amended and restated as follows: "2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, we will purchase, by accepting for payment, and will pay for, any and all units validly tendered promptly following the expiration date. A tendering beneficial owner of units whose units are owned of record by an Individual Retirement Account or other qualified plan will not receive direct payment of the offer price; rather, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed letter of transmittal and other documents required by the letter of transmittal. See "The Litigation Settlement Offer -- Section 3. Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, we will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units, if, as and when we give verbal or written notice to the Information Agent of our acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering limited partners for the purpose of receiving cash payments from us and transmitting cash payments to tendering limited partners. If any tendered units are not accepted for payment by us for any reason, the letter of transmittal with respect to such units not purchased may be destroyed by the Information Agent or us or returned to you. You may withdraw tendered units until the expiration date (including any extensions). In addition, if we have not accepted units for payment by January 6, 2004 you may then withdraw any tendered units. After the expiration date, the Information Agent may, on our behalf, retain tendered units, and those units may not be otherwise withdrawn, if, for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or we are unable to accept for payment, purchase or pay for units tendered pursuant to the offer. Any such action is subject, however, to our obligation under Rule 14e-1(c) under the Exchange Act, to pay you the offer price in respect of units tendered or return those units promptly after termination or withdrawal of the offer. 7 We reserve the right to transfer or assign, in whole or in part, to one or more of our affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve us of our obligations under the offer or prejudice your rights to receive payment for units validly tendered and accepted for payment pursuant to the offer." (3) The first paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 3. Procedure for Tendering Units - Release of Claims" is amended and restated as follows: "Release of Claims. By executing the letter of transmittal, effective upon acceptance for payment of the units tendered by you, you will, on behalf of yourself, your heirs, estate, executor, administrator, successors and assigns, and your partnership, fully, finally and forever release, relinquish and discharge us and our predecessors, successors and assigns and our present and former parents, subsidiaries, affiliates, investors, insurers, reinsurers, officers, directors, employees, agents, administrators, auditors, attorneys, accountants, information and solicitation agents, investment bankers, and other representatives, including but not limited to AIMCO Properties, L.P. (collectively, the "Releasees"), from any and all claims and causes of action, whether brought individually, on behalf of a class, or derivatively, demands, rights, or liabilities, including, but not limited to, claims for negligence, gross negligence, professional negligence, breach of duty of care or loyalty, or breach of duty of candor, fraud, breach of fiduciary duty, mismanagement, corporate waste, malpractice, misrepresentation, whether intentional or negligent, misstatements and omissions to disclose, breach of contract, violations of any state or federal statutes, rules or regulations, whether known claims or unknown claims that have been asserted or that could have been asserted against the Releasees, that arise out of or relate to (a) those matters and claims set forth in the class and derivative litigation described in this Litigation Settlement Offer, (b) the ownership of one or more units in your partnership, including but not limited to, any and all claims related to the management of your partnership or the properties owned by your partnership (whether currently or previously), the payment of management fees or other monies to the general partner of your partnership and its affiliates, prior acquisitions or tender offers and the prior settlement, (c) the purchase, acquisition, holding, sale, tender or voting of one or more units in your partnership, or (d) any of the facts, circumstances, allegations, claims, causes of action, representations, statements, reports, disclosures, transactions, events, occurrences, acts, omissions or failures to act, of whatever kind or character whatsoever, irrespective of the state of mind of the actor performing or omitting to perform the same, that have been or could have been alleged in any pleadings, amended pleading, argument, complaint, amended complaint, brief, motion, report or filing in the class and derivative litigation described in this Litigation Settlement Offer (collectively, the "Released Claims"); provided, however, that the Released Claims are not intended to include (i) any unrelated claims that are unique to a limited partner or settlement class member (e.g., a settlement class member slips and falls on property owned by one of the defendants in the class and derivative litigation, loses or did not receive a distribution check distributed to other limited partners in such partnership, or is an employee of one of the defendants and has an employee related claim) or (ii) any claim based upon violations of federal or state securities laws in connection with this offer." (4) The paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 3. Procedure for Tendering Units - Covenant Not to Sue" is amended and restated as follows: "Covenant Not to Sue. By executing the letter of transmittal, you agree not to bring any action, claim, suit or proceeding against us and those affiliates who were defendants in the class and derivative litigation concerning any of the matters that are the subject of the Stipulation of Settlement approved by the Court in connection with the settlement of such class and derivative litigation, including this Litigation Settlement Offer, other than for violations of federal or state securities laws." 8 (5) The paragraph under "THE LITIGATION SETTLEMENT OFFER -- Procedure for Tendering Units - Section 3. Procedure for Tendering Units -- Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects" is amended and restated as follows: "Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to our offer will be determined by us, in our reasonable discretion, which determination shall be final and binding on all parties. We reserve the absolute right to reject any or all tenders of any particular unit determined by us not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of our counsel, be unlawful. We also reserve the absolute right to waive or amend any of the conditions of the offer that we are legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit of any particular limited partner. If we waive any of the conditions to the offer with respect to the tender of a particular unit, we will waive such condition with respect to all other tenders of units in this offer as well. Our interpretation of the terms and conditions of the offer (including the letter of transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither we, the Information Agent, nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any unit or will incur any liability for failure to give any such notification." (6) The first paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 5. Extension of Tender Period; Termination; Amendment; No Subsequent Offering Period" is amended and restated as follows: "We expressly reserve the right, in our reasonable discretion, at any time and from time to time, (i) to extend the period of time during which our offer is open (but not beyond 90 business days from the date of commencement of the offer) and thereby delay acceptance for payment of, and the payment for, any unit, (ii) to terminate the offer and not accept any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "The Litigation Settlement Offer -- Section 19. Conditions of the Offer" relating to necessary governmental approvals, to delay the acceptance for payment of, or payment for, any units not already accepted for payment or paid for, and (iv) to amend our offer in any respect (including, without limitation, by increasing or decreasing the consideration offered, increasing or decreasing the units being sought, or both). We will not assert any of the conditions to the offer (other than those relating to necessary governmental approvals) subsequent to the expiration of the offer. Notice of any such extension, termination or amendment will promptly be disseminated to you in a manner reasonably designed to inform you of such change. In the case of an extension of the offer, the extension may be followed by a press release or public announcement which will be issued no later than 9:00 a.m., New York City time, on the next business day after the scheduled expiration date of our offer, in accordance with Rule 14e-1(d) under the Exchange Act." (7) The third paragraph under "THE LITIGATION SETTLEMENT OFFER--Section 8. Valuation of Units -- Determination of Offer Price" is amended and restated as follows: "We relied on the direct capitalization method because we believe this is the valuation methodology most often used by the real estate industry to value income producing property. The 9 court appointed independent appraiser also utilized the direct capitalization method as one its valuation methodologies. However, in comparison to our methodology, the independent appraiser relied on pro forma net operating income as opposed to the current property income of your partnership." (8) The first paragraph and the first bullet point under "THE LITIGATION SETTLEMENT OFFER - Section 19. Conditions to the Offer" are amended and restated as follows: "Notwithstanding any other provisions of our offer, we will not be required to accept for payment and pay for any units tendered pursuant to our offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend our offer if at any time on or after the date of this Litigation Settlement Offer and at or before the expiration of our offer (including any extension thereof), any of the following shall occur: o any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that is or could reasonably be expected to be materially adverse to your partnership or the value of your units to us, which change would, individually or in the aggregate, result in, or reasonably be expected to result in, an adverse effect on net operating income of your partnership of more than $10,000 per year, or a decrease in value of an asset of your partnership, or the incurrence of a liability with respect to your partnership, in an amount in excess of $100,000 (a "Material Adverse Effect"), or we shall have become aware of any facts relating to your partnership, its indebtedness or its operations which has had or could reasonably be expected to have a Material Adverse Effect; or" (9) The third bullet point under "THE LITIGATION SETTLEMENT OFFER - Section 19. Conditions to the Offer" is amended and restated as follows: "o there shall have been threatened in writing, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by us of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by us (or any of our affiliates) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in our ability to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by us or any of our affiliates of the entity serving as your general partner (which is our affiliate) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on our ability or any of our affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on our ability or any of our affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by us on all matters properly presented to unitholders or (v) could reasonably be expected to result in a Material Adverse Effect; or 10 (10) The fifth bullet point under "THE LITIGATION SETTLEMENT OFFER - Section 19. Conditions to the Offer" is amended and restated as follows: "o your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, has or could reasonably be expected to have a Material Adverse Effect, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or" (11) The seventh bullet point of "THE LITIGATION SETTLEMENT OFFER - Section 19. Conditions to the Offer" is amended and restated as follows: "o there shall have occurred any event, circumstance, change, effect or development that, individually or in the aggregate with any other events, circumstances, changes, effects or developments, has had or would reasonably be expected to have an adverse effect on our financial condition in an amount in excess of $10,000,000; or" (12) The following bullet point under "THE LITIGATION SETTLEMENT OFFER - - Section 19. Conditions to the Offer" is deleted in its entirety: "o we shall not have adequate cash or financing commitments available to pay for the units validly tendered, which is the result of events or circumstances beyond our reasonable control." (13) The second paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 19. Conditions to the Offer" is amended and restated as follows: "The foregoing conditions are for our sole benefit and may be asserted by us regardless of the circumstances giving rise to such conditions or may be waived by us at any time in our reasonable discretion prior to the expiration of this offer. The failure by us at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances. All conditions to our offer will be satisfied or waived on or before the expiration of our offer." 11 (14) The first paragraph of the Letter of Transmittal is amended and restated as follows: "The undersigned hereto hereby acknowledges that he or she has received (i) the Purchaser's Litigation Settlement Offer, dated the date set forth above (the "Offer Date"), relating to the offer by AIMCO Properties, L.P. (the "Purchaser") to purchase Limited Partnership Interests (the "Units") in the Partnership and (ii) this Letter of Transmittal and the Instructions hereto, as each may be supplemented or amended from time to time (collectively, the "Offer")." (15) The fourth paragraph of the Letter of Transmittal is amended and restated as follows: "By executing this Letter of Transmittal, the undersigned hereby acknowledges that neither the court nor counsel for the parties in the class and derivative litigation make any recommendation regarding whether the undersigned should accept the Offer, and the undersigned hereto represents and warrants to the Purchaser that the undersigned (i) has received the Offer, including the executive summary of the independent appraiser's report attached to the Litigation Settlement Offer, and (ii) has had an opportunity to seek the advice of such undersigned's attorney, tax advisor and/or financial advisor before deciding whether or not to accept the Offer." (16) The sixth paragraph of the Letter of Transmittal is amended and restated as follows: "The undersigned hereto, on behalf of himself or herself, his or her heirs, estate, executor, administrator, successors and assigns, and the Partnership, fully, finally and forever releases, relinquishes and discharges the Purchaser and its predecessors, successors and assigns and its present and former parents, subsidiaries, affiliates, investors, insurers, reinsurers, officers, directors, employees, agents, administrators, auditors, attorneys, accountants, information and solicitation agents, investment bankers, and other representatives, including but not limited to Apartment Investment and Management Company and the general partner of the Partnership (collectively, the "Releasees"), from any and all claims and causes of action, whether brought individually, on behalf of a class, or derivatively, demands, rights, or liabilities, including, but not limited to, claims for negligence, gross negligence, professional negligence, breach of duty of care or loyalty, or breach of duty of candor, fraud, breach of fiduciary duty, mismanagement, corporate waste, malpractice, misrepresentation, whether intentional or negligent, misstatements and omissions to disclose, breach of contract, violations of any state or federal statutes, rules or regulations, whether known claims or unknown claims that have been asserted or that could have been asserted against the Releasees, that arise out of or relate to (a) those matters and claims set forth in the class and derivative litigation described in the Litigation Settlement Offer, (b) the ownership of one or more Units in the Partnership, including but not limited to, any and all claims related to the management of the Partnership or the properties owned by the Partnership (whether currently or previously), the payment of management fees or other monies to the general partner of the Partnership and its affiliates, prior acquisitions or tender offers and the prior settlement, (c) the purchase, acquisition, holding, sale, tender or voting of one or more Units in the Partnership, or (d) any of the facts, circumstances, allegations, claims, causes of action, representations, statements, reports, disclosures, transactions, events, occurrences, acts, omissions or failures to act, of whatever kind or character whatsoever, irrespective of the state of mind of the actor performing or omitting to perform the same, that have been or could have been alleged in any pleadings, amended pleading, argument, complaint, amended complaint, brief, motion, report or filing in the class and derivative litigation described in the Litigation Settlement Offer (collectively, the "Released Claims"); provided, however, that the Released Claims are not intended to include (i) any unrelated claims that are unique to a unitholder or settlement class member (e.g., a settlement class member slips and falls on property owned by one of the defendants in the class and derivative litigation, loses or did not receive a distribution check 12 distributed to other limited partners in such partnership, or is an employee of one of the defendants and has an employee related claim), or (ii) any claim based on violations of federal or state securities laws in connection with the Offer." (17) The tenth paragraph of the Letter of Transmittal is amended and restated as follows: "Subject to and effective upon acceptance for payment of any Unit tendered hereby in accordance with the terms of the Offer, the signatory agrees not to bring any action, claim, suit or proceeding against the Purchaser and its affiliates who were defendants in the class and derivative litigation described in the Litigation Settlement Offer concerning any of the matters that are the subject of the Stipulation of Settlement approved by the Court in connection with the settlement of such class and derivative litigation, including the Offer, other than for violations of federal or state securities laws." (18) The eleventh paragraph of the Letter of Transmittal is amended and restated as follows: "The undersigned hereto irrevocably appoints the Purchaser and its designees as his or her proxy, each with full power of substitution, to the fullest extent of the undersigned's rights with respect to the Units tendered by him or her and accepted for payment by the Purchaser. Such proxy shall be considered coupled with an interest in the tendered Units. Such appointment will be effective upon receipt of this Letter of Transmittal. Upon receipt of this Letter of Transmittal, all prior proxies and consents given by undersigned hereto with respect to the Units will, without further action, be revoked, and no subsequent proxies or consents may be given (and if given will not be effective). The Purchaser and its designees are, as to those Units, empowered to exercise all voting as a limited partner as the Purchaser, in its discretion, may deem proper at any meeting of limited partners, by written consent or otherwise. The Purchaser reserves the right to require that, in order for Units to be deemed validly tendered, immediately upon our acceptance for payment of the Units, the Purchaser must be able to exercise full voting rights with respect to the Units, including voting at any meeting of limited partners then scheduled or acting by written consent without a meeting. By executing this Letter of Transmittal, the undersigned agrees to execute all such documents and take such other actions as shall be reasonably required to enable the Units tendered to be voted in accordance with the Purchaser's directions. The proxy granted by the undersigned hereto to the Purchaser will remain effective and be irrevocable for a period of ten years following the Expiration Date of the Offer." (19) The following paragraph in the Letter of Transmittal is deleted in its entirety: "The undersigned hereto irrevocably constitutes and appoints the Purchaser and any designees of the Purchaser as the true and lawful agent and attorney-in-fact of the undersigned with respect to such Units, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to withdraw any or all of such Units that have been previously tendered in response to any tender or exchange offer provided that the price per unit being offered by the Purchaser is equal to or higher than the price per unit being offered in the other tender or exchange offer. This appointment is effective upon execution and receipt of this Letter of Transmittal and shall continue to be effective unless and until such Units are withdrawn from the Offer by the undersigned prior to the Expiration Date." ITEM 5. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS. Item 5(a) and (b) of the Schedule TO is amended and supplemented as follows: 13 (1) The first, second and third paragraphs of "THE LITIGATION SETTLEMENT OFFER - Section 9. The Lawsuit and the Settlement - The Settlement of the Nuanes and Heller Complaints" is amended and restated as follows: "On December 20, 2002, the parties to the above-entitled litigation executed a Stipulation of Settlement of the two actions. That settlement was the result of over one year of negotiations and the involvement of two separate settlement judges. Class counsel and defendants' counsel first met with the Honorable William J. Cahill, Retired California Superior Court Judge, on two separate occasions. Counsel also met on four separate occasions with the Honorable Margaret J. Kemp, California Superior Court Judge, before reaching a settlement in principle. The parties initially met with Judge Cahill on two occasions in the fall of 2000, but were ultimately unsuccessful in reaching a definitive settlement agreement. At the Court's direction, they renewed formal settlement discussions before Judge Kemp. The parties first attended a settlement conference before Judge Kemp in September or October 2002 and then subsequently met with her on October 28, 2002, November 26, 2002 and December 2, 2002. The parties reached final agreement on the material terms of the settlement at the last settlement conference with Judge Kemp on December 2, 2002 and put the terms of that agreement on the record in open court. In each of the conferences described above, counsel from Lieff Cabraser Heimann & Bernstein LLP, Farella Braun & Martel LLP & Berman Devalerio Pease & Tobacco attended on behalf of the named plaintiffs and the putative settlement class; counsel from Skadden, Arps, Slate, Meagher & Flom LLP attended on behalf of AIMCO and its affiliated entities, including your general partner, and Orrick Herrington & Sutcliffe attended on behalf of the remaining defendants. AIMCO Executive Vice President Patrick Foye also attended each of these meetings. Mr. Vincent Gresham of the Law Offices of Vincent Gresham also participated on behalf of plaintiffs and the putative settlement class in those settlement discussions before the Hon. Cahill, Retired. At these meetings, discussions included possible transactions that could provide liquidity to investors and form the basis of a settlement, the use of a settlement fund and the amount of such fund, the timing and distribution of any settlement fund, selection and use of an appraiser and disclosures that would accompany any contemplated transaction(s). The participants considered but ultimately rejected a merger or roll-up of the various partnerships as possible alternatives to cash tender offers. The parties ultimately concluded, however, that a merger or roll-up could be potentially complicated and time consuming and that a cash tender offer would be a less coercive form of providing liquidity to those investors who desired it. The Settlement Agreement requires each tender offer to attach executive summaries of partnership property appraisals commissioned specifically for the settlement tender offers and to provide an explanation of how the appraised values of the properties compare to the per Unit price(s) being offered. It also requires the payment of an allocable portion of the settlement fund for each unit tendered pursuant to the settlement fund, details the scope of the release and covenants not to sue which will bind class members, requires that tender offers be made no more than one year after final approval of the settlement and imposes certain restrictions on the length of time in which the tender offers can remain open, as well as with regard to other disclosures made therein. On April 4, 2003, the Court preliminarily approved the settlement and, on June 13, 2003, entered an order finally approving the settlement and dismissing both the Heller and Nuanes litigation with prejudice. On August 12, 2003, an objector filed an appeal of the court's order approving the settlement and is seeking to reverse or vacate the Court's order and the judgment entered thereto. Although we reserve our right to terminate or amend our offer if final court approval of the settlement is reversed or vacated, we have nevertheless elected to proceed with this offer under the terms of the settlement. On November 24, 2003, the objector appealing the settlement and judgment entered thereto filed an application requesting the Court order AIMCO to withdraw the settlement tender offers, refrain from making further offers pending the appeal and auction any units tendered to third parties. The objector contends that this offer does not conform with the terms of the Settlement. Alternatively, counsel for the objector has requested the Court on behalf of a settlement class member order AIMCO to pay all non-tendering settlement class members their pro rata share of the Settlement Fund whether or not the settlement and judgment entered thereto is vacated on appeal and to notify settlement class members that the releases and covenant not to sue are not binding unless the settlement and judgment entered thereto is affirmed on appeal. AIMCO asserts that such applications are without merit and is opposing such applications." 14 (2) The second paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 11. Background and Reasons for the Offer - Alternatives Considered by Your General Partner -- Liquidation" is amended and restated as follows: "If your partnership was liquidated, and the properties sold at prices equal to the values recently determined by the independent appraiser (see Annex II), we estimate that your net liquidation proceeds would be $530.61 per unit. See "The Litigation Settlement Offer -- Section 8. Valuation of Units." However, in the opinion of your general partner, which is our affiliate, the present time may not be the most desirable time to sell the real estate assets of your partnership in a private transaction, and the proceeds realized from any such sale would be uncertain. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Although future operating results and sales prices are uncertain, your general partner believes that the operating performance of your partnership's property may improve in the future. This improvement, should it occur, may result in higher property values. Such values, however, are also a function of capitalization rates in the market and the interest rate environment at the time. However, because your general partner and property manager (which are our affiliates) receive fees for managing your partnership and its property, a conflict of interest exists between continuing the partnership and receiving such fees, on the one hand, and the liquidation of the partnership and the termination of such fees, on the other. See "The Litigation Settlement Offer -- Section 15. Certain Information Concerning Your Partnership -- Investment Objectives and Policies; Sale or Financing of Investments" and "--Section 13. Conflicts of Interest and Transactions with Affiliates." The term of the partnership will continue until December 31, 2010, unless the partnership is terminated sooner under the provisions of the partnership agreement." (3) The paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 11. Background and Reasons for the Offer - Alternative Transactions Considered by Us" is amended and restated as follows: "Alternative Transactions Considered by Us. At the present time, we have decided to proceed with this offer pursuant to the court approved settlement. From time to time in the past, we have considered proposing a number of alternative transactions, including the purchase of your partnership's property or a merger of your partnership in which you would receive cash in exchange for your units. We decided not to pursue these alternative transactions because, in each case, we determined that a tender offer would be a less expensive means of acquiring additional interests in your partnership, and would not require the consent or approval of any limited partners (other than those who elect to tender their units). In the future, however, we may consider purchasing your partnership's property or effecting such a merger. See "The Litigation Settlement Offer -- Section 14. Future Plans of the Purchaser." We also considered an offer to exchange units in your partnership for limited partnership interests in AIMCO Properties, L.P. However, because of the expense and delay associated with making such an exchange offer, we decided to make an offer for cash only. In addition, our historical experience has been that when we have offered limited partners an opportunity to receive cash or limited partnership interests in AIMCO Properties, L.P., the limited partners who tender usually prefer the cash option." (4) The first paragraph of "THE LITIGATION SETTLEMENT OFFER - Section 13. Conflicts of Interest and Transactions with Affiliates -- Transactions with Affiliates" is amended and restated as follows: "NHP Management Company (which is our affiliate) received fees of approximately $170,000 and $817,000 for the years ended December 31, 2002 and 2001, respectively, for 15 construction management services. The construction management service fees are calculated based on a percentage of current additions to investment properties." (5) The third paragraph of "THE LITIGATION SETTLEMENT OFFER - Section 13. Conflicts of Interest and Transactions with Affiliates -- Transactions with Affiliates" is amended and restated as follows: "We have made available to the partnership a credit line of up to $150,000 per property owned by the partnership. During the year ended December 31, 2002, we agreed to advance funds in excess of the $150,000 line of credit to fund operating expenses of Plantation Creek Apartments and advanced $329,000 for this purpose. At December 31, 2002, the outstanding balance was approximately $333,000, including accrued interest. The advance was repaid in full subsequent to December 31, 2002. There were no outstanding amounts due under this line of credit at December 31, 2001." ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS. Item 6(a), (c)(1) - (7) of the Schedule TO is amended and supplemented as follows: (1) The first two paragraphs under "THE LITIGATION SETTLEMENT OFFER -- Section 7. Effects of the Offer" are amended and restated as follows: "Because the general partner of your partnership is our affiliate, we have control over the management of your partnership. In addition, we, together with IPLP Acquisition, L.L.C. and AIMCO IPLP, L.P. (which are our affiliates), own 46,312.50, or 55.90%, of the outstanding units of your partnership. Because we and our affiliates own a majority of the outstanding units and control your partnership's general partner, we control the outcome of most voting decisions with respect to your partnership. In general, we will vote the units owned by us in whatever manner we deem to be in our best interests, which may not be in the interest of other limited partners. This could (1) prevent non-tendering limited partners from taking action that they desire but that we oppose and (2) enable us to take action desired by us but opposed by non-tendering limited partners. We are also affiliated with the company that currently manages, and has managed for some time, the property owned by your partnership. In the event that we acquire a substantial number of units pursuant to this offer, removal of the property manager may become more difficult or impossible. If we acquire all of the units that we are seeking in the offer, our interest in your partnership's net earnings ($(1,439,000) for the nine months ended September 30, 2003) and net book value ($(6,301,000) as of September 30, 2003) will increase to 100%. AIMCO-GP owns a 1% interest in AIMCO Properties, L.P. and AIMCO, through its subsidiaries, owns an 89% in AIMCO Properties." (2) The second paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 7. Effects of the Offer - Effect on the Trading Market; Registration Under Section 12(g) of the Exchange Act" is amended and restated as follows: "The units are registered under Section 12(g) of the Exchange Act, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. We do not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Exchange Act. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Exchange Act. Your partnership currently has 3,166 unitholders. The lack of filing periodic 16 reports could affect the already limited secondary market which currently exists for units in your partnership and may result in others not tendering for such units. In such a case, you would regularly have access only to the limited information your partnership's agreement of limited partnership requires your general partner (which is our affiliate) to provide each year, which information consists primarily of tax information. In particular, you will continue to receive a Schedule K-1 each year as well as audited financial statements with respect to your partnership. See "The Litigation Settlement Offer -- Section 1. Terms of the Offer; Expiration Date."" (3) The first, second and third paragraphs of "THE LITIGATION SETTLEMENT OFFER - Section 9. The Lawsuit and the Settlement - The Settlement of the Nuanes and Heller Complaints" is amended and restated as follows: "On December 20, 2002, the parties to the above-entitled litigation executed a Stipulation of Settlement of the two actions. That settlement was the result of over one year of negotiations and the involvement of two separate settlement judges. Class counsel and defendants' counsel first met with the Honorable William J. Cahill, Retired California Superior Court Judge, on two separate occasions. Counsel also met on four separate occasions with the Honorable Margaret J. Kemp, California Superior Court Judge, before reaching a settlement in principle. The parties initially met with Judge Cahill on two occasions in the fall of 2000, but were ultimately unsuccessful in reaching a definitive settlement agreement. At the Court's direction, they renewed formal settlement discussions before Judge Kemp. The parties first attended a settlement conference before Judge Kemp in September or October 2002 and then subsequently met with her on October 28, 2002, November 26, 2002 and December 2, 2002. The parties reached final agreement on the material terms of the settlement at the last settlement conference with Judge Kemp on December 2, 2002 and put the terms of that agreement on the record in open court. In each of the conferences described above, counsel from Lieff Cabraser Heimann & Bernstein LLP, Farella Braun & Martel LLP & Berman Devalerio Pease & Tobacco attended on behalf of the named plaintiffs and the putative settlement class; counsel from Skadden, Arps, Slate, Meagher & Flom LLP attended on behalf of AIMCO and its affiliated entities, including your general partner, and Orrick Herrington & Sutcliffe attended on behalf of the remaining defendants. AIMCO Executive Vice President Patrick Foye also attended each of these meetings. Mr. Vincent Gresham of the Law Offices of Vincent Gresham also participated on behalf of plaintiffs and the putative settlement class in those settlement discussions before the Hon. Cahill, Retired. At these meetings, discussions included possible transactions that could provide liquidity to investors and form the basis of a settlement, the use of a settlement fund and the amount of such fund, the timing and distribution of any settlement fund, selection and use of an appraiser and disclosures that would accompany any contemplated transaction(s). The participants considered but ultimately rejected a merger or roll-up of the various partnerships as possible alternatives to cash tender offers. The parties ultimately concluded, however, that a merger or roll-up could be potentially complicated and time consuming and that a cash tender offer would be a less coercive form of providing liquidity to those investors who desired it. The Settlement Agreement requires each tender offer to attach executive summaries of partnership property appraisals commissioned specifically for the settlement tender offers and to provide an explanation of how the appraised values of the properties compare to the per Unit price(s) being offered. It also requires the payment of an allocable portion of the settlement fund for each unit tendered pursuant to the settlement fund, details the scope of the release and covenants not to sue which will bind class members, requires that tender offers be made no more than one year after final approval of the settlement and imposes certain restrictions on the length of time in which the tender offers can remain open, as well as with regard to other disclosures 17 made therein. On April 4, 2003, the Court preliminarily approved the settlement and, on June 13, 2003, entered an order finally approving the settlement and dismissing both the Heller and Nuanes litigation with prejudice. On August 12, 2003, an objector filed an appeal of the court's order approving the settlement and is seeking to reverse or vacate the Court's order and the judgment entered thereto. Although we reserve our right to terminate or amend our offer if final court approval of the settlement is reversed or vacated, we have nevertheless elected to proceed with this offer under the terms of the settlement. On November 24, 2003, the objector appealing the settlement and judgment entered thereto filed an application requesting the Court order AIMCO to withdraw the settlement tender offers, refrain from making further offers pending the appeal and auction any units tendered to third parties. The objector contends that this offer does not conform with the terms of the Settlement. Alternatively, counsel for the objector has requested the Court on behalf of a settlement class member order AIMCO to pay all non-tendering settlement class members their pro rata share of the Settlement Fund whether or not the settlement and judgment entered thereto is vacated on appeal and to notify settlement class members that the releases and covenant not to sue are not binding unless the settlement and judgment entered thereto is affirmed on appeal. AIMCO asserts that such applications are without merit and is opposing such applications." (4) The second paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 11. Background and Reasons for the Offer - Alternatives Considered by Your General Partner -- Liquidation" is amended and restated as follows: "If your partnership was liquidated, and the properties sold at prices equal to the values recently determined by the independent appraiser (see Annex II), we estimate that your net liquidation proceeds would be $530.61 per unit. See "The Litigation Settlement Offer -- Section 8. Valuation of Units." However, in the opinion of your general partner, which is our affiliate, the present time may not be the most desirable time to sell the real estate assets of your partnership in a private transaction, and the proceeds realized from any such sale would be uncertain. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Although future operating results and sales prices are uncertain, your general partner believes that the operating performance of your partnership's property may improve in the future. This improvement, should it occur, may result in higher property values. Such values, however, are also a function of capitalization rates in the market and the interest rate environment at the time. However, because your general partner and property manager (which are our affiliates) receive fees for managing your partnership and its property, a conflict of interest exists between continuing the partnership and receiving such fees, on the one hand, and the liquidation of the partnership and the termination of such fees, on the other. See "The Litigation Settlement Offer -- Section 15. Certain Information Concerning Your Partnership -- Investment Objectives and Policies; Sale or Financing of Investments" and "--Section 13. Conflicts of Interest and Transactions with Affiliates." The term of the partnership will continue until December 31, 2010, unless the partnership is terminated sooner under the provisions of the partnership agreement." (5) The paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 11. Background and Reasons for the Offer - Alternative Transactions Considered by Us" is amended and restated as follows: "Alternative Transactions Considered by Us. At the present time, we have decided to proceed with this offer pursuant to the court approved settlement. From time to time in the past, we have considered proposing a number of alternative transactions, including the purchase of your partnership's property or a merger of your partnership in which you would receive cash in exchange for your units. We decided not to pursue these alternative transactions because, in each case, we determined that a tender offer would be a less expensive means of acquiring additional interests in your partnership, and would not require the consent or approval of any limited partners (other than those who elect to tender their units). In the future, however, we may consider purchasing your partnership's property or effecting such a merger. See "The Litigation Settlement Offer -- Section 14. Future Plans of the Purchaser." We also considered an offer to exchange units in your partnership for limited partnership interests in AIMCO Properties, L.P. However, because of the expense and delay associated with making such an exchange offer, we decided to make an offer for cash only. In addition, our historical experience has been that when we have offered limited partners an opportunity to receive cash or limited partnership interests in AIMCO Properties, L.P., the limited partners who tender usually prefer the cash option." 18 (6) The fourth and fifth paragraphs under "THE LITIGATION SETTLEMENT OFFER - Section 14. Future Plans of the Purchaser" are amended and restated as follows: "We have been advised that the general partner does not currently expect to consider, on behalf of your partnership any of the following transactions: (i) payment of extraordinary distributions; (ii) refinancing, reducing or increasing existing indebtedness of the partnership; (iii) sales of assets, individually or as part of a complete liquidation; and (iv) mergers or other consolidation transactions involving the partnership. Any such merger or consolidation transaction could involve other limited partnerships in which your general partner or its affiliates serve as general partners, or a combination of the partnership with one or more existing, publicly traded entities (including, possibly, affiliates of AIMCO), in any of which limited partners might receive cash, common stock or other securities or consideration. As discussed under "The Litigation Settlement Offer - Section 15. Certain Information Concerning Your Partnership - Investment Objectives and Policies; Sale or Financing of Investments," the general partner regularly evaluates the real estate and capital markets. The general partner may consider refinancing the partnership's existing indebtedness to the extent that the general partner is able to obtain a lower interest rate or if such indebtedness is approaching maturity. Furthermore, in the event that the general partner receives an attractive offer for any of your partnership's properties, the general partner would give due consideration to such an offer. If any of the transactions referred to above occur, and financial benefits accrue to the limited partners, we will participate in those benefits to the extent of our ownership of units. The agreement of limited partnership prohibits limited partners from voting on actions taken by the partnership, unless otherwise specifically permitted therein. Limited partners may vote on a liquidation, and we will be able to significantly influence or control the outcome of any such vote. Our primary objective in seeking to acquire the units pursuant to the offer is not, however, to influence the vote on any particular transaction, but rather to generate a profit on the investment represented by those units." ITEM 7. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. Item 7(a), (b) and (d) of the Schedule TO is amended and supplemented as follows: (1) The following sentence is added to the end of the first paragraph under "THE LITIGATION SETTLEMENT OFFER -Section 21. Fees and Expenses": "The partnership will not be responsible for paying any of the fees or expenses incurred by us in connection with this offer." (2) The second paragraph under "THE LITIGATION SETTLEMENT OFFER -- Section 21. Fees and Expenses" is amended and restated as follows: "The following is an itemized statement of the aggregate estimated expenses incurred and to be incurred in this offer by us: Information Agent Fees............... $ 7,500 Legal Fees........................... 5,000 Printing Fees........................ 5,000 Tax and Accounting Fees.............. 1,500 Postage.............................. 500 Appraiser............................ 17,500 Depositary........................... 500 ------------ Total.............................. $ 37,500" =============
19 ITEM 8. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. Item 8 of the Schedule TO is amended and supplemented as follows: The following paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 15. Certain Information Concerning Your Partnership" is amended and restated as follows: "Ownership and Voting. We, together with IPLP Acquisition, L.L.C. and AIMCO IPLP, L.P. (which are our affiliates), own 46,312.50 units, or 55.90%, of the outstanding units of your partnership. Because we and our affiliates own a majority of the outstanding units, we have the ability to control most votes of the limited partners. See "The Litigation Settlement Offer -- Section 7. Effects of the Offer" and "-- Section 16. Voting Power."" ITEM 11. ADDITIONAL INFORMATION. Item 11(b) of the Schedule TO is amended and supplemented as follows: Section 16 under "THE LITIGATION SETTLEMENT OFFER" is amended and restated as follows: "16. VOTING POWER Decisions with respect to the day-to-day management of your partnership are the responsibility of the general partner. Because the general partner of your partnership is our affiliate, we control the management of your partnership. Under your partnership's agreement of limited partnership, limited partners holding a majority of the outstanding units must approve certain extraordinary transactions, including the removal of the general partner, most amendments to the partnership agreement and the sale of all or substantially all of your partnership's assets. We, together with IPLP Acquisition, L.L.C. and AIMCO IPLP, L.P. (which are our affiliates) own 46,312.50 units, or 55.90%, of the outstanding units of your partnership. Because we and our affiliates own a majority of the outstanding units, we control most voting decisions made by limited partners. See "The Litigation Settlement Offer -- Section 7. Effects of the Offer."" ITEM 12. EXHIBITS. Item 12 of the Schedule TO is amended and supplemented as follows: (c)(1) Appraisal of Autumn Run Apartments (c)(2) Appraisal of Cooper's Pointe Apartments (c)(3) Appraisal of Copper Mill Apartments (c)(4) Appraisal of Four Winds Apartments (c)(5) Appraisal of Hampton Greens Apartments 20 (c)(6) Appraisal of Plantation Creek Apartments (c)(7) Appraisal of Promontory Point Apartments (c)(8) Appraisal of Wood Creek Apartments ITEM 13. INFORMATION REQUIRED BY SCHEDULE 13E-3. Item 13 of the Schedule TO is amended and supplemented as follows: (1) The thirteenth paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 6. Certain Federal Income Tax Matters" is amended and restated as follows: "Tax Consequences to Your Partnership of Our Offer. Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for United States federal income tax purposes. It is possible that our acquisition of units pursuant to the offer alone or in combination with other transfers of interests in your partnership could result in such a termination of your partnership. If your partnership is not deemed to terminate for tax purposes, there will be no tax effect to your partnership. If your partnership is deemed to terminate for tax purposes, however, the following federal income tax events will be deemed to occur: the terminated partnership will be deemed to have contributed all of its assets (subject to its liabilities) to a new partnership in exchange for an interest in the new partnership and, immediately thereafter, the old partnership will be deemed to have distributed interests in the new partnership to the remaining limited partners in proportion to their respective interests in the old partnership in liquidation of the old partnership. A termination of your partnership for federal income tax purposes may also subject the assets of your partnership to longer depreciable lives than those currently applicable to the assets of your partnership. This would generally decrease the annual average depreciation deductions following our offer, but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Additionally, upon a termination of your partnership, the taxable year of your partnership will close for federal income tax purposes. Elections as to tax matters previously made by the old partnership will not be applicable to the new partnership unless the new partnership chooses to make the same elections. Tax Consequences to Non-Tending and Partially-Tendering Limited Partners. As described above, if 50% or more of such interests are sold or exchanged within a 12 month period, including as a result of our acquisition of units, a deemed tax termination of your partnership will occur for tax purposes. If less than 50% of the total interest in capital and profits of your partnership are sold or exchanged within any 12 month period, there will be no tax effect to you from the offer. You will not recognize any gain or loss upon a deemed tax termination of your partnership, and your capital account in your partnership will carry over to the new partnership. A termination of your partnership for federal income tax purposes may change (and possibly shorten) your holding period with respect to interests in your partnership that you choose to retain. Gain recognized by you on the disposition of retained units with a holding period of 12 months or less may be classified as short-term capital gain and subject to taxation at ordinary income tax rates. A deemed tax termination will also decrease the annual depreciation deductions (as a result of the longer partnership depreciation lives described above) allocable to you (thereby possibly increasing the taxable income allocable to your interests in the partnership each year)." 21 (2) The first two paragraphs under "THE LITIGATION SETTLEMENT OFFER -- Section 7. Effects of the Offer" are amended and restated as follows: "Because the general partner of your partnership is our affiliate, we have control over the management of your partnership. In addition, we, together with IPLP Acquisition, L.L.C. and AIMCO IPLP, L.P. (which are our affiliates), own 46,312.50, or 55.90%, of the outstanding units of your partnership. Because we and our affiliates own a majority of the outstanding units and control your partnership's general partner, we control the outcome of most voting decisions with respect to your partnership. In general, we will vote the units owned by us in whatever manner we deem to be in our best interests, which may not be in the interest of other limited partners. This could (1) prevent non-tendering limited partners from taking action that they desire but that we oppose and (2) enable us to take action desired by us but opposed by non-tendering limited partners. We are also affiliated with the company that currently manages, and has managed for some time, the property owned by your partnership. In the event that we acquire a substantial number of units pursuant to this offer, removal of the property manager may become more difficult or impossible. If we acquire all of the units that we are seeking in the offer, our interest in your partnership's net earnings ($(1,439,000) for the nine months ended September 30, 2003) and net book value ($(6,301,000) as of September 30, 2003) will increase to 100%. AIMCO-GP owns a 1% interest in AIMCO Properties, L.P. and AIMCO, through its subsidiaries, owns an 89% in AIMCO Properties." (3) The second paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 7. Effects of the Offer - Effect on the Trading Market; Registration Under Section 12(g) of the Exchange Act" is amended and restated as follows: "The units are registered under Section 12(g) of the Exchange Act, which means, among other things, that your partnership is required to file periodic reports with the SEC and to comply with the SEC's proxy rules. We do not expect or intend that consummation of the offer will cause the units to cease to be registered under Section 12(g) of the Exchange Act. If the units were to be held by fewer than 300 persons, your partnership could apply to de-register the units under the Exchange Act. Your partnership currently has 3,166 unitholders. The lack of filing periodic reports could affect the already limited secondary market which currently exists for units in your partnership and may result in others not tendering for such units. In such a case, you would regularly have access only to the limited information your partnership's agreement of limited partnership requires your general partner (which is our affiliate) to provide each year, which information consists primarily of tax information. In particular, you will continue to receive a Schedule K-1 each year as well as audited financial statements with respect to your partnership. See "The Litigation Settlement Offer -- Section 1. Terms of the Offer; Expiration Date."" (4) The following subsection under "THE LITIGATION SETTLEMENT OFFER - Section 8. Valuation of Units" is amended and restated as follows: "Estimated Liquidation Proceeds Based on Independent Appraisal SELECTION AND QUALIFICATIONS OF INDEPENDENT APPRAISER. Under the terms of the settlement, your partnership's property was appraised by American Appraisal Associates, Inc. ("AAA"), an independent appraiser appointed by the court. The information was provided to us by AAA with respect to its appraisals. 22 AAA is an experienced independent valuation consulting firm with more than 50 offices on four continents. AAA provides valuation and consulting services for the real estate industry through its specialized industry focus and operates through a team of professionals with different economical, financial, statistical, legal, architectural, urban and engineering knowledge and expertise. FACTORS CONSIDERED. AAA performed complete appraisals of all of your partnership's properties. AAA has represented that its report was prepared in conformity with the Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute. We furnished the appraiser with all of the necessary information requested by AAA in connection with the appraisal. The information furnished to the appraiser was true, correct and complete in all material respects. No limitations were imposed on AAA by us or any of our affiliates. In preparing its valuation of your partnership property, AAA: o inspected and analyzed the exterior of all buildings and site improvements and a representative sample of units; o conducted neighborhood and area research, including major employers, demographics (population trends, number of households, and income trends), housing trends, surrounding uses, and general economic outlook of the area; o conducted market research of rental inventory, historical vacancy rates, historical average rental rates, occupancy trends, concessions, and marketing strategies in the submarket, and occupancy rates at competing properties; o reviewed leasing policy, concessions and history of recent occupancy; o reviewed the historical operating statements for your partnership's property and an operating budget forecast for 2003; o prepared an estimate of stabilized income and expense (for capitalization purposes); o conducted market inquiries into recent sales of similar properties to ascertain sales price per unit, effective gross income multipliers and capitalization rates; and o prepared sales comparison and income capitalization approaches to value. AAA was provided by us with the following management budgets for your partnership's property:
DESCRIPTION AUTUMN RUN COOPER'S POINTE COPPER MILL FOUR WINDS FISCAL YEAR 2003 FISCAL YEAR 2003 FISCAL YEAR 2003 FISCAL YEAR 2003 MANAGEMENT BUDGET MANAGEMENT BUDGET MANAGEMENT BUDGET MANAGEMENT BUDGET TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Revenues Rental Income $3,120,000 $ 9,750 $1,471,500 $ 7,664 $1,805,900 $ 9,406 $2,906,112 $ 8,303 Vacancy 186,725 584 86,500 451 82,135 428 158,300 452 CreditLoss/Concessions 114,520 358 33,180 173 38,210 199 105,000 300 Subtotal $ 301,245 $ 941 $ 119,680 $ 623 $ 120,345 $ 627 $ 263,300 $ 752 Laundry Income $ 0 $ 0 $ 8,400 $ 44 $ 11,004 $ 57 $ 27,708 $ 79 Garage Revenue 0 0 0 0 0 0 0 0 Other Misc. Revenue 197,400 617 117,000 609 105,972 552 236,900 677 Subtotal Other $ 197,400 $ 617 $ 125,400 $ 653 $ 116,976 $ 609 $ 264,608 $ 756 Income Effective Gross Income $3,016,155 $ 9,425 $1,477,220 $ 7,694 $1,802,531 $ 9,388 $2,907,420 $ 8,307 Operating Expenses Taxes $ 384,722 $ 1,202 $ 143,123 745 $ 93,577 $ 487 $ 196,620 $ 562 Insurance 52,740 165 44,396 231 32,130 167 68,780 197 Utilities 173,408 542 78,000 406 86,616 451 106,500 304 Repair & Maintenance 86,316 270 138,500 721 18,480 96 73,464 210 Cleaning 0 0 0 0 50,732 264 0 0 Landscaping 47,305 148 0 0 58,792 306 43,200 123 Security 0 0 0 0 0 0 0 0 Marketing & Leasing 54,222 169 17,100 89 24,000 125 77,900 223 General Administrative 265,730 830 141,274 736 27,348 142 319,704 913 Management 102,400 320 74,061 386 90,200 470 153,000 437 Miscellaneous 90,962 284 0 0 146,946 765 $ 103,360 295 Total Operating Expenses $1,257,805 $ 3,931 $ 636,454 $ 3,315 $ 628,821 $ 3,275 $1,142,528 $ 3,264 Reserves 0 0 0 0 0 0 0 0 Net Income $1,758,350 $ 5,495 $ 840,766 $ 4,379 $1,173,710 $ 6,113 $1,764,892 $ 5,043
23
DESCRIPTION HAMPTON GREENS PLANTATION CREEK PROMONTORY POINTE WOODCREEK FISCAL YEAR 2003 FISCAL YEAR 2003 FISCAL YEAR 2003 FISCAL YEAR 2003 MANAGEMENT BUDGET MANAGEMENT BUDGET MANAGEMENT BUDGET MANAGEMENT BUDGET TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Revenues Rental Income $1,996,072 $ 6,460 $4,195,000 $ 8,667 $1,883,064 $ 7,472 $3,000,681 $ 6,946 Vacancy 117,000 379 634,000 1,310 90,924 361 177,503 411 CreditLoss/Concessions 54,900 178 244,800 506 78,000 310 84,633 196 Subtotal $ 71,900 $ 56 $ 878,800 $ 1,816 $ 168,924 $ 670 $ 262,136 $ 607 Laundry Income $ 21,648 $ 70 $ 0 $ 0 $ 12,516 $ 50 $ 20,148 $ 47 Garage Revenue 0 0 0 0 0 0 0 0 Other Misc. Revenue 94,800 307 261,600 540 63,264 251 234,108 542 Subtotal Other $ 116,448 $ 377 $ 261,600 $ 540 $ 75,780 $ 301 $ 254,256 $ 589 Income Effective Gross Income $1,940,620 $ 6,280 $3,577,800 $ 7,392 $1,789,920 $ 7,103 $2,992,801 $ 6,928 Operating Expenses Taxes $ 240,993 $ 780 $ 381,488 $ 788 $ 277,435 $ 1,101 $ 203,632 $ 471 Insurance 69,531 225 99,274 205 63,218 251 79,326 184 Utilities 108,600 351 362,000 748 86,076 342 249,147 577 Repair & Maintenance 41,100 133 138,000 285 30,528 121 51,840 120 Cleaning 66,600 216 175,000 362 65,604 260 91,000 211 Landscaping 58,136 188 189,500 392 61,248 243 75,800 175 Security 0 0 0 0 0 0 0 0 Marketing & Leasing 44,910 145 102,400 212 32,280 128 53,000 123 General Administrative 205,256 664 354,504 732 183,132 727 365,118 845 Management 100,031 324 202,780 419 91,943 365 147,732 342 Miscellaneous 0 0 0 0 0 0 0 0 Total Operating Expenses $ 935,157 $ 3,026 $2,004,946 $ 4,142 $ 891,464 $ 3,538 $1,316,595 $ 3,048 Reserves 0 0 0 0 0 0 0 0 Net Income $1,005,463 $ 3,254 $1,572,854 $ 3,250 $ 898,456 $ 3,565 $1,676,206 $ 3,880
THE ABOVE MANAGEMENT BUDGETS ARE INTERNALLY PREPARED OPERATING PROJECTIONS FOR THE PARTNERSHIP'S PROPERTIES. A MANAGEMENT BUDGET DOES NOT REFLECT A PROPERTY'S ACTUAL PERFORMANCE, OR CHANGES IN THE CONDITION OF A PROPERTY, IN THE LOCAL AREA SURROUNDING A PROPERTY OR IN THE ECONOMY IN GENERAL. SUMMARY OF APPROACHES AND METHODOLOGIES EMPLOYED. The following summary describes the material approaches and analyses employed by AAA in preparing the appraisals. The partnership imposed no conditions or limitations on the scope of AAA's investigation or the 24 methods and procedures to be followed in preparing the appraisal. AAA principally relied on two approaches to valuation: (1) the sales comparison approach and (2) the income capitalization approach. The sales comparison approach uses analysis techniques and sales of comparable improved properties in surrounding or competing areas to derive units of comparison that are then used to indicate a value for the subject property. Under this approach, the primary methods of analysis used by the appraiser were: (1) sales price per unit analysis; (2) net operating income analysis; and (3) effective gross income analysis. The purpose of the income capitalization approach is to value an income-producing property by analyzing likely future income and expenses of the property over a reasonable holding period. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive property value. The direct capitalization analysis determines the value of a property by applying a capitalization rate that takes into account all of the factors influencing the value of such property to the net operating income of such property for a single year. The direct capitalization method is normally more appropriate for properties with relatively stable operating histories and expectations. The discounted cash flow analysis determines the value of a property by discounting to present value the estimated operating cash flow of such property and the estimated proceeds of a hypothetical sale of such property at the end of an assumed holding period. The discounted cash flow method is 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. AAA relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach. Although the sales comparison approach is considered a reliable method for valuing property, the income capitalization approach is the primary approach used for valuing income producing property, such as your partnership's property. Summary of independent appraisals of your partnership's property. AAA performed complete appraisals of all eight of your partnership's properties. The summary set forth below describes the material conclusions reached by AAA based on the values determined under the valuation approaches and subject to the assumptions and limitations described below. AAA determined that the estimated total "as is" market value of the fee simple estate of your partnership's property was $119,800,000, which is higher than our estimated total gross valuation of $81,656,281. AUTUMN RUN APARTMENTS Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Autumn Run Apartments that were sold between May 2001 and January 2003 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of two comparable properties as comparable and rated the locations of three comparable properties as inferior to the location of Autumn Run Apartments. AAA rated the quality/appeal of two comparable properties as comparable and rated the locations of three comparable properties as inferior to Autumn Run Apartments. AAA rated the amenities of five comparable properties as comparable to the amenities of Autumn Run Apartments. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Autumn Run Apartments in location, number of units, quality/appeal, age/condition, occupancy 25 at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $74,308 to $90,857 per unit with a mean or average adjusted price of $82,082 per unit and a median adjusted price of $78,519 per unit. Thus, the estimated value based on a $75,000 sales price per unit for the 320 units was approximately $23,900,000 after adjustment for present value of concessions. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Autumn Run Apartments's NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $59,947 and $75,741 per unit, with an average of $68,014 per unit. The appraiser concluded a value of $71,000 per unit for the 320 units of Autumn Run Apartments, resulting in an estimated "as is" market value of $22,700,000 using the NOI analysis after adjustment for present value of concessions. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Autumn Run Apartments to be 39.70% before reserves, with the expense ratios of the five comparable properties ranging from 33.90% to 45.00%, resulting in EGIMs ranging from 6.76 to 8.74. Thus, AAA concluded an EGIM of 7.40 for Autumn Run Apartments and applied the EGIM to the stabilized effective gross income for Autumn Run Apartments (see Income Approach section below), resulting in a value conclusion of approximately $23,200,000 after adjustment for present value of concessions. AAA estimated the value using the price per unit analysis at $23,900,000, the value using the NOI analysis at $22,700,000 and the value using the EGIM analysis at $23,200,000. Based on these three valuation methods, AAA concluded that the reconciled value for Autumn Run Apartments under the sales comparison approach was $23,300,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Autumn Run Apartments. AAA first utilized a discounted cash flow method to analyze the value of Autumn Run Apartments. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA performed a market rent analysis for Autumn Run Apartments to derive a projected rental income. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for Autumn Run Apartments to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Autumn Run Apartment's effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $3,147,760. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Autumn Run Apartments of approximately $1,802,127. AAA performed a pro forma analysis of revenues and expenses for Autumn Run Apartments to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investments criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of Autumn Run Apartments under the income approach included: (1) stabilized vacancy and collection loss rate of 5%; (2) replacement reserve of $300 per unit; (3) overall capitalization rate of 7.75%; (4) terminal capitalization rate of 8.25%; 26 (5) discount rate of 10.75%; (6) 2% cost of sale at reversion; and (7) holding period of 10 years. No adjustment was made for lease-up costs because the property was near or at a stabilized condition. An adjustment was made for concessions, and AAA estimated the present value of concessions to be $52,000. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $23,100,000 through the discounted cash flow method. The reversion value contributed approximately 45% of the value. Under the direct capitalization method, utilizing a capitalization rate of 7.75%, the projected NOI resulted in a value (after rounding) of $23,200,000 after adjustments for lease-up costs and present value of concessions. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Autumn Run Apartments was $23,200,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $23,300,000 and the estimated market value under the income capitalization approach was $23,200,000. After reconciling the various factors, AAA determined that the most appropriate technique for estimating the value of income-producing property was an approach based primarily on income, and thus arrived at a final "as is" market value for Autumn Run Apartments of $23,300,000 as of May 30, 2003. COOPER'S POINTE Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Cooper's Pointe Apartments that were sold between September 1998 and February 2002 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of four comparable properties as comparable and rated the location of one comparable properties as inferior to the location of Cooper's Pointe Apartments. AAA rated the quality/appeal of one comparable property as superior, two comparable properties as comparable and two comparable properties as inferior to the quality/appeal of Cooper's Pointe Apartments. AAA rated the amenities of four comparable 27 properties as comparable and one comparable property as superior to the amenities of Cooper's Pointe Apartments. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Cooper's Pointe Apartments in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $47,214 to $53,362 per unit with a mean or average adjusted price of $50,971 per unit and a median adjusted price of $52,250 per unit. Thus, the estimated value based on a $50,000 sales price per unit for the 192 units was approximately $9,600,000. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Cooper's Pointe Apartments' NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $45,280 and $54,603 per unit, with an average of $51,823 per unit. The appraiser concluded a value of $52,000 per unit for the 192 units of Cooper's Pointe Apartments, resulting in an estimated "as is" market value of $10,000,000 using the NOI analysis. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Cooper's Pointe Apartments to be 42.73% before reserves, with the expense ratios of the five comparable properties ranging from 41.50% to 52.91%, resulting in EGIMs ranging from 4.88 to 7.15. Thus, AAA concluded an EGIM of 6.50 for Cooper's Pointe, and applied the EGIM to the stabilized effective gross income for Cooper's Pointe Apartments (see Income Approach section below), resulting in a value conclusion of approximately $10,100,000. AAA estimated the value using the price per unit analysis at $9,600,000, the value using the NOI analysis at $10,000,000 and the value using the EGIM analysis at $10,100,000. Based on these three valuation methods, AAA concluded that the reconciled value for Cooper's Pointe Apartments under the sales comparison approach was $10,000,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Cooper's Pointe Apartments. AAA first utilized a discounted cash flow method to analyze the value of Cooper's Pointe Apartments. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA performed a market rent analysis for Cooper's Pointe Apartments to derive a projected rental income. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for Cooper's Pointe Apartments to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Cooper's Pointe Apartment's effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $1,547,178. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Cooper's Pointe Apartments of approximately $838,139. AAA performed a pro forma analysis of revenues and expenses for Cooper's Pointe Apartments to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of Cooper's Pointe Apartments under the income approach included: (1) stabilized vacancy and collection loss rate of 6%; (2) replacement reserve of $250 per unit; 28 (3) overall capitalization rate of 8.50%; (4) terminal capitalization rate of 10.00%; (5) discount rate of 11.00%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. No adjustment was made for lease-up costs because the property was near or at a stabilized condition. No adjustment was made for concessions. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $9,800,000 through the discounted cash flow method. The reversion value contributed approximately 40% of the value. Under the direct capitalization method, utilizing a capitalization rate of 8.50%, the projected NOI resulted in a prospective (stabilized) value (after rounding) of $9,900,000. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Cooper's Pointe Apartments was $9,900,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $10,000,000 and the estimated market value under the income capitalization approach was $9,900,000. After reconciling the various factors, AAA determined that the most appropriate technique for estimating the value of income-producing property was an approach based primarily on income, and thus arrived at a final "as is" market value for Cooper's Pointe Apartments of $9,900,000 as of May 28, 2003 . COPPER MILL Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Copper Mill that were sold between September 2000 and June 2001 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of three comparable properties as comparable and two comparable properties as inferior to the location of Copper Mill. AAA rated the quality/appeal of five comparable properties as comparable to the quality/appeal of Copper Mill. AAA rated the amenities of five comparable properties as comparable to the amenities of Copper Mill. 29 AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Copper Mill in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $68,775 to $81,814 per unit with a mean or average adjusted price of $76,139 per unit and a median adjusted price of $78,099 per unit. Thus, the estimated value based on a $72,000 sales price per unit for the 192 units was approximately $13,800,000 after adjustment for present value of concessions. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Copper Mill's NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $63,865 and $71,413 per unit, with an average of $67,561 per unit. The appraiser concluded a value of $72,000 per unit for the 192 units of Copper Mill, resulting in an estimated "as is" market value of $13,800,000 using the NOI analysis after adjustment for present value of concessions. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Copper Mill to be 35.55% before reserves, with the expense ratios of the five comparable properties ranging from 30.33% to 39.36%, resulting in EGIMs ranging from 6.89 to 8.23. Thus, AAA concluded an EGIM of 7.65 for Copper Mill, and applied the EGIM to the stabilized effective gross income for Copper Mill (see Income Approach section below), resulting in a value conclusion of approximately $13,700,000 after adjustment for present value of concessions. AAA estimated the value using the price per unit analysis at $13,800,000, the value using the NOI analysis at $13,800,000 and the value using the EGIM analysis at $13,700,000. Based on these three valuation methods, AAA concluded that the reconciled value for Copper Mill under the sales comparison approach was $13,800,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Copper Mill. AAA first utilized a discounted cash flow method to analyze the value of Copper Mill. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA performed a market rent analysis for Copper Mill to derive a projected rental income. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for Copper Mill to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Copper Mill's effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $1,790,090. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Copper Mill of approximately $1,115,841. AAA performed a pro forma analysis of revenues and expenses for Copper Mill to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of Copper Mill under the income approach included: (1) stabilized vacancy and collection loss rate of 7%; (2) replacement reserve of $200 per unit; 30 (3) overall capitalization rate of 8.75%; (4) terminal capitalization rate of 9.25%; (5) discount rate of 11.00%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. No adjustment was made for lease-up costs because the property was near or at a stabilized condition. An adjustment was made for concessions, and AAA estimated the present value of concessions to be $47,000. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $13,400,000 through the discounted cash flow method. The reversion value contributed approximately 42% of the value. Under the direct capitalization method, utilizing a capitalization rate of 8.75%, the projected NOI resulted in a prospective (stabilized) value (after rounding) of $12,700,000 after adjustments for present value of concessions. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Copper Mill was $13,400,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $13,800,000 and the estimated market value under the income capitalization approach was $13,400,000. After reconciling the various factors, AAA determined that the most appropriate technique for estimating the value of income-producing property was an approach based primarily on income, and thus arrived at a final "as is" market value for Copper Mill of $13,500,000 as of May 7, 2003. FOUR WINDS APARTMENTS Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Four Winds Apartments that were sold between January 2001 and August 2002 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of five comparable properties as comparable to the location of Four Winds Apartments. AAA rated the quality/appeal of two comparable properties as superior 31 and three comparable properties as comparable to the quality/appeal Four Winds Apartments. AAA rated the amenities of one comparable property as superior and four comparable properties as comparable to the amenities of Four Winds Apartments. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Four Winds Apartments in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $44,855 to $50,468 per unit with a mean or average adjusted price of $47,825 per unit and a median adjusted price of $47,586 per unit. Thus, the estimated value based on a $47,500 sales price per unit for the units was approximately $16,600,000 after adjustment for deferred maintenance. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Four Winds Apartments' NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $40,691 and $55,416 per unit, with an average of $49,452 per unit. The appraiser concluded a value of $47,500 per unit for the 350 units of Four Winds Apartments, resulting in an estimated "as is" market value of $16,600,000 using the NOI analysis after adjustment for deferred maintenance. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Four Winds Apartments to be 43.31% before reserves, with the expense ratios of the five comparable properties ranging from 32.03% to 47.37%, resulting in EGIMs ranging from 6.49 to 7.33. Thus, AAA concluded an EGIM of 6.00 for Four Winds Apartments, and applied the EGIM to the stabilized effective gross income for Four Winds Apartments (see Income Approach section below), resulting in a value conclusion of approximately $16,600,000 after adjustment for deferred maintenance. AAA estimated the value using the price per unit analysis at $16,600,000, the value using the NOI analysis at $16,600,000 and the value using the EGIM analysis at $16,600,000. Based on these three valuation methods, AAA concluded that the reconciled value for Four Winds Apartments under the sales comparison approach was $16,600,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Four Winds Apartments. AAA first utilized a discounted cash flow method to analyze the value of Four Winds Apartments. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA performed a market analysis for Four Winds Apartments to derive a projected rental income. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for Four Winds Apartments to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Four Winds Apartment's effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $2,786,271. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Four Winds Apartments of approximately $1,491,957. AAA performed a pro forma analysis of revenues and expenses for Four Winds Apartments to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of Four Winds Apartments under the income approach included: (1) stabilized vacancy and collection loss rate of 8.50%; (2) replacement reserve of $250 per unit; 32 (3) overall capitalization rate of 9.00%; (4) terminal capitalization rate of 10.00%; (5) discount rate of 11.00%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. No adjustment was made for lease-up costs because the property was near or at a stabilized condition. No adjustment was made for concessions. An adjustment was made for deferred maintenance. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $16,500,000 through the discounted cash flow method. The reversion value contributed approximately 39% of the value. Under the direct capitalization method, utilizing a capitalization rate of 9.00%, the projected NOI resulted in a prospective (stabilized) value (after rounding) of $16,500,000 after adjustment for deferred maintenance. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Four Winds Apartments was $16,500,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $16,600,000 and the estimated market value under the income capitalization approach was $16,500,000. After reconciling the various factors, AAA determined that the most appropriate technique for estimating the value of income-producing property was an approach based primarily on income, and thus arrived at a final "as is" market value for Four Winds Apartments of $16,500,000 as of May 8, 2003. HAMPTON GREENS Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Hampton Greens that were sold between February 2000 and August 2001 and 33 located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of one comparable property as superior, three comparable properties as comparable and one comparable properties as inferior to the location of Hampton Greens. AAA rated the quality/appeal of two comparable properties as comparable and three comparable properties as inferior to quality/appeal of Hampton Greens. AAA rated the amenities of five comparable properties as comparable to the amenities of Hampton Greens. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Hampton Greens in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $30,015 to $38,222 per unit with a mean or average adjusted price of $32,744 per unit and a median adjusted price of $31,058 per unit. Thus, the estimated value based on a $31,000 sales price per unit for the 309 units was approximately $9,400,000 after adjustment for lease-up costs and present value of concessions. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Hampton Greens' NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $20,575 and $25,866 per unit, with an average of $23,471 per unit. The appraiser concluded a value of $25,000 per unit for the 309 units of Hampton Greens, resulting in an estimated "as is" market value of $7,500,000 using the NOI analysis after adjustment for lease-up costs and present value of concessions. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Hampton Greens to be 50.73% before reserves, with the expense ratios of the five comparable properties ranging from 40.66% to 55.86%, resulting in EGIMs ranging from 4.24 to 5.50. Thus, AAA concluded an EGIM of 4.50 for Hampton Greens, and applied the EGIM to the stabilized effective gross income for Hampton Greens (see Income Approach section below), resulting in a value conclusion of approximately $8,100,000 after adjustment for lease-up costs and present value of concessions. AAA estimated the value using the price per unit analysis at $9,400,000, the value using the NOI analysis at $7,500,000 and the value using the EGIM analysis at $8,100,000. Based on these three valuation methods, AAA concluded that the reconciled value for Hampton Greens under the sales comparison approach was $8,500,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Hampton Greens. AAA first utilized a discounted cash flow method to analyze the value of Hampton Greens. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA performed a market rent analysis for Hampton Greens to derive a projected rental income. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for Hampton Greens to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Hampton Greens' effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $1,844720. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Hampton Greens of approximately $831,572. AAA performed a pro forma analysis of revenues and expenses for Hampton Greens to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of Hampton Greens under the income approach included: 34 (1) stabilized vacancy and collection loss rate of 10%; (2) replacement reserve of $250 per unit; (3) overall capitalization rate of 9.50%; (4) terminal capitalization rate of 10.00%; (5) discount rate of 11.00%; (6) 3.00% cost of sale at reversion; and (7) holding period of 10 years. In addition, adjustments were made for any assumed lease-up costs and concessions because Hampton Greens' occupancy level was below a stabilized occupancy projection and due to soft market conditions. Thus, AAA assumed a 12-month lease up period and estimated the present value of concessions to be $123,000 through the discounted cash flow method. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $8,800,000. The reversion value contributed approximately 40% of the value. Under the direct capitalization method utilizing a capitalization rate of 9.50%, the projected NOI resulted in a value (after rounding) of $8,600,000 after adjustments for lease-up costs and present value of concessions. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Hampton Greens was $8,700,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $8,500,000 and the estimated market value under the income capitalization approach was $8,700,000. After reconciling the various factors, AAA determined that the most appropriate technique for estimating the value of income-producing property was an approach based primarily on income, and thus arrived at a final "as is" market value for Hampton Greens of $8,500,000 as of April 28, 2003. 35 PLANTATION CREEK Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Plantation Creek that were sold between August 2001 and March 2003 and located in property's real estate market area. Based on its qualitative analysis, AAA rated the locations of one comparable property as superior and four comparable properties as comparable to the location of Plantation Creek. AAA rated the quality/appeal of five comparable properties as comparable to the quality/appeal of Plantation Creek. AAA rated the amenities of five comparable properties as comparable to the amenities of Plantation Creek. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Plantation Creek in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $44,464 to $49,844 per unit with a mean or average adjusted price of $47,282 per unit and a median adjusted price of $47,500 per unit. Thus, the estimated value based on a $47,500 sales price per unit for the 484 units was approximately $22,700,000 after adjustment for present value of concessions. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Plantation Creek's NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $37,829 and $49,350 per unit, with an average of $43,839 per unit. The appraiser concluded a value of $45,000 per unit for the 484 units of Plantation Creek, resulting in an estimated "as is" market value of $21,500,000 using the NOI analysis after adjustment for present value of concessions. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Plantation Creek to be 46.18% before reserves, with the expense ratios of the five comparable properties ranging from 39.21% to 46.35%, resulting in EGIMs ranging from 5.59 to 6.44. Thus, AAA concluded an EGIM of 6.10 for Plantation Creek, and applied the EGIM to the stabilized effective gross income for Plantation Creek (see Income Approach section below), resulting in a value conclusion of approximately $23,600,000 after adjustment for present value of concessions. AAA estimated the value using the price per unit analysis at $22,700,000, the value using the NOI analysis at $21,500,000 and the value using the EGIM analysis at $23,600,000. Based on these three valuation methods, AAA concluded that the reconciled value for Plantation Creek under the sales comparison approach was $22,500,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Plantation Creek. AAA first utilized a discounted cash flow method to analyze the value of Plantation Creek. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA performed a market rent analysis for Plantation Creek to derive a projected rental income. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for Plantation Creek to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Plantation Creek's effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $3,923,374. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Plantation Creek of approximately $1,990,613. AAA performed a pro forma analysis of revenues and expenses for Plantation Creek to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of Plantation Creek under the discount cash flow method included: 36 (1) stabilized vacancy and collection loss rate of 13%; (2) replacement reserve of $250 per unit; (3) overall capitalization rate 9.00%; (4) terminal capitalization rate of 9.50%; (5) discount rate of 11.00%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. No adjustment was made for lease-up costs because the property was near or at a stabilized condition. An adjustment was made for concessions, and AAA estimated the present value of concessions to be $327,000. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $22,200,000 through the discounted cash flow method. The reversion value contributed approximately 41% of the value. Under the direct capitalization method utilizing a capitalization rate of 9.00%, the projected NOI resulted in a prospective (stabilized) value (after rounding) of $21,800,000 after adjustments for present value of concessions. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Plantation Creek was $22,000,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $22,500,000 and the estimated market value under the income capitalization approach was $22,000,000. After reconciling the various factors, AAA determined that the most appropriate technique for estimating the value of income-producing property was an approach based primarily on income, and thus arrived at a final "as is" market value for Plantation Creek of $22,300,000 as of May 22, 2003. 37 PROMONTORY POINTE Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Promontory Pointe that were sold between November 2000 and June 2002 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of four comparable properties as superior one comparable property as comparable to the location of Promontory Pointe. AAA rated the quality/appeal of three comparable properties as superior, one comparable property as comparable and one comparable property as inferior to the quality/appeal of Promontory Pointe. AAA rated the amenities of five comparable properties as comparable to the amenities of Promontory Pointe. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Promontory Pointe in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $30,527 to $38,383 per unit with a mean or average adjusted price of $35,200 per unit and a median adjusted price of $35,396 per unit. Thus, the estimated value based on a $35,000 sales price per unit for the 252 units was approximately $8,600,000 after adjustment for lease-up costs and present value of concessions. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Promontory Pointe's NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $29,647 and $34,158 per unit, with an average of $31,903 per unit. The appraiser concluded a value of $33,000 per unit for the 252 units of Promontory Pointe, resulting in an estimated "as is" market value of $8,100,000 using the NOI analysis after adjustment for lease-up costs and present value of concessions. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Promontory Pointe to be 47.92% before reserves, with the expense ratios of the five comparable properties ranging from 50.06% to 50.47%, resulting in EGIMs ranging from 4.50 to 5.14. Thus, AAA concluded an EGIM of 5.00 for Promontory Point, and applied the EGIM to the stabilized effective gross income for Promontory Pointe (see Income Approach section below), resulting in a value conclusion of approximately $8,400,000 after adjustment for lease-up costs and present value of concessions. AAA estimated the value using the price per unit analysis at $8,600,000, the value using the NOI analysis at $8,100,000 and the value using the EGIM analysis at $8,400,000. Based on these three valuation methods, AAA concluded that the reconciled value for Promontory Pointe under the sales comparison approach was $8,400,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Promontory Pointe. AAA first utilized a discounted cash flow method to analyze the value of Promontory Pointe. Under this method, anticipated future cash flow and a reversionary value are discounted at 38 an appropriate rate of return to arrive at an estimate of present value. AAA performed a market rent analysis for Promontory Pointe to derive a projected rental income. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for Promontory Pointe to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Promontory Pointe's effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $1,712,815. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Promontory Pointe of approximately $829,083. AAA performed a pro forma analysis of revenues and expenses for Promontory Pointe to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of Promontory Pointe under the income approach included: (1) stabilized vacancy and collection loss rate of 12%; (2) replacement reserve of $250 per unit; (3) overall capitalization rate of 9.00%; (4) terminal capitalization rate of 9.50%; (5) discount rate of 10.50%; (6) 3.00% cost of sale at reversion; and (7) holding period of 10 years. In addition, adjustments were made for assumed lease-up costs and concessions because Hampton Greens' occupancy level was below a stabilized occupancy projection and due to soft market conditions. Thus, AAA assumed a 12-month lease up period and estimated the present value of concessions to be $137,000. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $9,200,000 through the discounted cash flow method. The reversion value contributed approximately 42% of the value. Under the direct capitalization method utilizing a capitalization rate of 9.00%, the projected NOI resulted in a prospective (stabilized) value (after rounding) of $9,000,000 after adjustments for lease-up costs and present value of concessions. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Promontory Pointe was $9,100,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of the valuation. AAA concluded that the estimated market value under the sales comparison approach was $8,400,000 and the estimated market value under the income capitalization approach was $9,100,000. After reconciling the various factors, AAA determined that the most appropriate technique for estimating the value of income-producing property was an approach based primarily on income, and thus arrived at a final "as is" market value for Promontory Pointe of $9,000,000 as of May 20, 2003. 39 WOODCREEK Valuation Under Sales Comparison Approach. AAA compared five apartment complexes with Woodcreek that were sold between August 2002 and February 2003 and located in the property's real estate market area. Based on its qualitative analysis, AAA rated the locations of two comparable property superior, one comparable property as comparable and two comparable properties as inferior to the location of Woodcreek. AAA rated the quality/appeal of four comparable properties as superior and one comparable properties as inferior to the quality/appeal of Woodcreek. AAA rated the amenities of two comparable properties as superior, two comparable properties as comparable and one comparable property as inferior to the amenities of Woodcreek. AAA made adjustments to the sales price per unit of each comparable property to reflect differences from Woodcreek in location, number of units, quality/appeal, age/condition, occupancy at sale, amenities and average unit size. Based on the available data, AAA concluded a value range of $35,688 to $42,396 per unit with a mean or average adjusted price of $39,823 per unit and a median adjusted price of $40,091 per unit. Thus, the estimated value based on a $40,000 sales price per unit for the 432 units was approximately $16,800,000 after adjustment for lease-up costs and present value of concessions. As part of the sales comparison approach, AAA also conducted a net operating income ("NOI") analysis. NOI effectively takes into account the various physical, location and operating aspects of the sale. AAA compared Woodcreek's NOI to the NOI of the five comparable properties and arrived at a percentage adjustment. After applying the percentage adjustment to the sales price per unit of each comparable property, the range of value was between $44,477 and $46,568 per unit, with an average of $45,298 per unit. The appraiser concluded a value of $44,000 per unit for the 432 units of Woodcreek, resulting in an estimated "as is" market value of $18,500,000 using the NOI analysis after adjustment for lease-up costs and present value of concessions. AAA also performed an effective gross income multiplier ("EGIM") analysis. The EGIM measures the relationship between the sales price of a property and its effective gross income, which is the total annual income that a property would produce after an allowance for vacancy and credit loss. AAA estimated the operating expense ratio ("OER") of Woodcreek to be 44.70% before reserves, with the expense ratios of the five comparable properties ranging from 36.58% to 45.35%, resulting in EGIMs ranging from 6.73 to 7.88. Thus, AAA concluded an EGIM of 6.00 for Woodcreek, and applied the EGIM to the stabilized effective gross income for Woodcreek (see Income Approach section below), resulting in a value conclusion of approximately $17,600,000 after adjustment for lease-up costs and present value of concessions. AAA estimated the value using the price per unit analysis at $16,800,000, the value using the NOI analysis at $18,500,000 and the value using the EGIM analysis at $17,600,000. Based on these three valuation methods, AAA concluded that the reconciled value for Woodcreek under the sales comparison approach was $17,200,000. AAA assumed a marketing and exposure period of 6 to 12 months. Valuation Under Income Capitalization Approach. Under the income capitalization approach, AAA performed: (1) a direct capitalization analysis and (2) a discounted cash flow analysis to derive a value for Woodcreek. 40 AAA first utilized a discounted cash flow method to analyze the value of Woodcreek. Under this method, anticipated future cash flow and a reversionary value are discounted at an appropriate rate of return to arrive at an estimate of present value. AAA performed a market rent analysis for Woodcreek to derive a projected rental income. AAA also employed a direct capitalization analysis on the property by dividing a forecast of net operating income ("NOI") by an appropriate capitalization rate. AAA performed a market rent analysis for Woodcreek to derive a projected rental income. The analysis included both a review of the subject's current asking and actual rent rates as well as a comparison with comparable apartment properties. AAA calculated Woodcreek's effective gross income ("EGI") by adding apartment rental collections to other income and then making an adjustment for vacancy and collection loss. Under this analysis, AAA arrived at an EGI of $3,014,448. Once the EGI was established, operating expenses were deducted from the EGI in order to arrive at an NOI for Woodcreek of approximately $1,559,086. AAA performed a pro forma analysis of revenues and expenses for Woodcreek to derive the subject's stabilized NOI. AAA relied on the subject's historical and budgeted income and expenses for this estimate. AAA derived appropriate investment criteria, including an overall capitalization rate, terminal capitalization rate and a discount rate based upon analysis of comparable sales and a survey of real estate investors. The assumptions employed by AAA to determine the value of under the discount cash flow method included: (1) stabilized vacancy and collection loss rate of 15%; (2) replacement reserve of $250 per unit; (3) overall capitalization rate of 9.00%; (4) terminal capitalization rate of 9.50%; (5) discount rate of 12.00%; (6) 2.00% cost of sale at reversion; and (7) holding period of 10 years. In addition, adjustments were made for assumed lease-up costs and concessions because Woodcreek's occupancy level was below a stabilized occupancy projection and due to soft market conditions. Thus, AAA assumed a 12-month lease up period and estimated the present value of concessions to be $245,000. Based on these assumptions, AAA's estimate of cash flows for a 10-year period resulted in an indicated value of $16,900,000 through the discounted cash flow method. The reversion value contributed approximately 41% of the value. Under the direct capitalization method utilizing a capitalization rate of 9.00%, the projected NOI resulted in a prospective (stabilized) value (after rounding) of $16,900,000 after adjustments lease-up costs and present value of concessions. Using the income capitalization approach, AAA determined on an as-is basis that the direct capitalization method and the discounted cash flow method indicated the value for Woodcreek was $16,900,000. Reconciliation of Values and Conclusions of Appraisal. The final step in the appraisal process was to reconcile the sales comparison approach and the income capitalization approach values to arrive at a final value conclusion. The reconciliation of the two approaches involved weighing the valuation techniques in relation to their substantiation by market and other sources of data, the relativity and applicability of the approaches to the property type, and the purpose of 41 the valuation. AAA concluded that the estimated market value under the sales comparison approach was $17,200,000 and the estimated market value under the income capitalization approach was $16,900,000. After reconciling the various factors, AAA determined that the most appropriate technique for estimating the value of income-producing property was an approach based primarily on income, and thus arrived at a final "as is" market value for of $16,900,000 as of May 6, 2003. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS OF AAA'S VALUATION. In preparing the appraisal, AAA relied, without independent verification, on the accuracy and completeness of all information supplied or otherwise made available to it by or on behalf of the partnership. In arriving at the appraisal, AAA assumed: o good and marketable title to the property; o validity of owner's claim to the property; o no encumbrances which could not be cleared through normal processes, unless otherwise stated; o accuracy of land areas and descriptions obtained from public records; o no subsurface mineral and use rights or conditions; o no substances such as asbestos, urea-formaldehyde foam insulation, other chemicals, toxic wastes, or other potentially hazardous materials in existence or present on or in the property; o full compliance with applicable federal, state and local environmental regulations and laws, unless otherwise stated, defined and considered; o possession of all required licenses, consents, or other legislative or administrative authority from any local, state, or national government or private entity organization and that the renewal of these items is possible; o compliance with all applicable zoning and use regulations and restrictions, unless a nonconformity has been stated, defined, and considered; o utilization of the land and improvements within property boundaries and no encroachment or trespass of the improvements, unless otherwise stated; o 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 not readily apparent during inspection; and o compliance with the Americans with Disabilities Act of 1992. COMPENSATION OF APPRAISER. AAA was appointed by the court to perform all the real estate appraisals in connection with the settlement and this Litigation Settlement Offer. AAA was paid a fee of $619,100 for the appraisals. We has agreed to pay 50% of the costs of the appraisals, with the other 50% to be paid from the settlement fund. AAA has conducted other appraisals of property in connection with the other offers being made pursuant to the settlement agreement. Other than the appraisals performed in connection with the settlement agreement, during the prior two years, no material relationship has existed between AAA and your partnership or any of its affiliates, including the AIMCO Entities. AVAILABILITY OF APPRAISAL REPORTS. You may obtain a full copy of AAA's appraisals upon request, without charge, by contacting the Information Agent at one of the addresses or the telephone number on the back cover of this Litigation Settlement Offer. Copies of the appraisal for the property are also available for inspection and copying at the principal executive offices of the partnership during regular business hours by any interested unitholder or his or her designated representative at his or her cost. In addition, a copy of the appraisals has been filed with the SEC as an exhibit to the Tender Offer Statement and Rule 13e-3 Transaction Statement on Schedule TO. 42 In estimating the net liquidation proceeds that would be payable per unit based on the total appraised value of your partnership's properties, we applied the same basic methodology as described under "Valuation of Units", except that we did not deduct any amounts that were reflected in the total appraised value nor did we include any payment from the settlement fund. As indicated below, based on the total appraised value of the partnership properties, the estimated net liquidation proceeds per unit is $530.61, which is higher than our offer price of $192.60. Appraised value of partnership properties ............................ $ 119,800,000 Plus: Cash and cash equivalents (net of tenant security deposits) .......................................................... 946,512 Plus: Other partnership assets, including any amounts payable by the general partner and its affiliates upon liquidation ........................................................ 2,088,432 Less: Mortgage debt, including accrued interest and any prepayment penalty ................................................. (75,489,604) Less: Accounts payable and accrued expenses .......................... (656,030) Less: Other liabilities .............................................. (1,607,167) ------------- Partnership valuation before taxes and certain costs ................. $ 45,082,144 Less: Estimated state entity taxes and nonresident withholding ........................................................ (178,249) Less: Extraordinary capital expenditures and deferred maintenance (to the extent not reflected in the appraised value of partnership properties) ................................... (144,600) Less: Estimated closing costs ........................................ (1,466,280) Plus: General partner contribution under deficit restoration provision .......................................................... 1,532,880 ------------- Estimated net liquidation proceeds of your partnership ............... $ 44,825,896 Percentage of estimated net liquidation proceeds allocable to holders of units based on the partnership agreement ............. 98% ------------- Estimated net liquidation proceeds of units .......................... $ 43,960,035 Total number of units .............................................. 82,848.00 ------------- Estimated net liquidation proceeds per unit .......................... $ 530.61" =============
(5) The second paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 11. Background and Reasons for the Offer - Alternatives Considered by Your General Partner -- Liquidation" is amended and restated as follows: "If your partnership was liquidated, and the properties sold at prices equal to the values recently determined by the independent appraiser (see Annex II), we estimate that your net liquidation proceeds would be $530.61 per unit. See "The Litigation Settlement Offer -- Section 8. Valuation of Units." However, in the opinion of your general partner, which is our affiliate, the present time may not be the most desirable time to sell the real estate assets of your partnership in a private transaction, and the proceeds realized from any such sale would be uncertain. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Although future operating results and sales prices are uncertain, your general partner believes that the operating performance of your partnership's property may improve in the future. This improvement, should it occur, may result in higher property values. Such values, however, are also a function of capitalization rates in the market and the interest rate environment at the time. However, because your general partner and property manager (which are our affiliates) receive fees for managing your partnership and its property, a conflict of 43 interest exists between continuing the partnership and receiving such fees, on the one hand, and the liquidation of the partnership and the termination of such fees, on the other. See "The Litigation Settlement Offer -- Section 15. Certain Information Concerning Your Partnership -- Investment Objectives and Policies; Sale or Financing of Investments" and "--Section 13. Conflicts of Interest and Transactions with Affiliates." The term of the partnership will continue until December 31, 2010, unless the partnership is terminated sooner under the provisions of the partnership agreement." (6) The paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 11. Background and Reasons for the Offer - Alternative Transactions Considered by Us" is amended and restated as follows: "Alternative Transactions Considered by Us. At the present time, we have decided to proceed with this offer pursuant to the court approved settlement. From time to time in the past, we have considered proposing a number of alternative transactions, including the purchase of your partnership's property or a merger of your partnership in which you would receive cash in exchange for your units. We decided not to pursue these alternative transactions because, in each case, we determined that a tender offer would be a less expensive means of acquiring additional interests in your partnership, and would not require the consent or approval of any limited partners (other than those who elect to tender their units). In the future, however, we may consider purchasing your partnership's property or effecting such a merger. See "The Litigation Settlement Offer -- Section 14. Future Plans of the Purchaser." We also considered an offer to exchange units in your partnership for limited partnership interests in AIMCO Properties, L.P. However, because of the expense and delay associated with making such an exchange offer, we decided to make an offer for cash only. In addition, our historical experience has been that when we have offered limited partners an opportunity to receive cash or limited partnership interests in AIMCO Properties, L.P., the limited partners who tender usually prefer the cash option." (7) Section 12 under "THE LITIGATION SETTLEMENT OFFER" is amended and restated as follows: "12. POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER The partnership and the general partner of your partnership (which is our affiliate) have provided the following information for inclusion in this Litigation Settlement Offer: Factors in Favor of Fairness Determination. The general partner of your partnership believes the offer price and the structure of the transaction are fair to the unaffiliated limited partners. In support of such determination, the general partner considered the factors and information set forth below, but did not quantify or otherwise attach particular weight to any such factors or information: o the Court's approval of the settlement pursuant to which the offer is being made; o the fact that the interests of the unaffiliated limited partners were represented by counsel in the negotiation of the settlement agreement; o the method we used to determine our offer price is a method commonly relied upon by investors to value income producing property; o the offer gives limited partners an opportunity to make an individual decision on whether to tender their units or to continue to hold them; 44 o there is no established trading market for the limited partnership units, and the offer would provide immediate liquidity for tendering limited partners; o the uncertainty of the resulting proceeds from the possible alternative transactions, particularly a property sale or a liquidation of the partnership, o the fact that no unaffiliated limited partners would be able to participate in the future performance of the partnership following such alternative transactions; o the offer price exceeds the book value per unit of $23.26 at September 30, 2003; o the fact that our offer price does not reflect any discount for minority interests; and o the absence of any other firm offers by third parties for all or substantially all of the partnership's assets, a merger or other extraordinary transaction during the past two years with which to compare the Litigation Settlement Offer. Factors Not in Favor of Fairness Determination. In addition to the foregoing factors, the general partner considered the following countervailing factors: o the recent valuation of your partnership's property by American Appraisal Associates, Inc., an independent appraiser appointed by the Court, which results in an estimate of net liquidation proceeds per unit of $530.61, which is higher than our offer price of $192.60; o the fact that offer prices in our prior tender offers were higher than our current offer price; and o prices at which the units have recently sold were higher than our current offer price. The general partner believes that consideration of the offer was procedurally fair because, among other things, (1) the Court approved the settlement agreement pursuant to which the offer is being made, (2) limited partners are provided the opportunity to retain their units, (3) the unaffiliated limited partners were represented by counsel in the negotiation of the settlement agreement, and (4) limited partners can evaluate our offer price by comparing it to the net liquidation proceeds per unit derived from the independent appraiser's property valuation. While the general partner believes our offer is fair, the general partner also believes that you must make your own decision whether or not to participate in any offer, based upon a number of factors, including several factors that may be personal to you, such as your financial position, your need or desire for liquidity, your preferences regarding the timing of when you might wish to sell your units, other financial opportunities available to you, and your tax position and the tax consequences to you of selling your units. Consequently, the general partner makes no recommendation as to whether or not you should tender or refrain from tendering your units in this offer. YOU ARE ENCOURAGED TO CAREFULLY REVIEW THIS LITIGATION SETTLEMENT OFFER, THE EXECUTIVE SUMMARY OF THE INDEPENDENT APPRAISER'S REPORT (ATTACHED AS ANNEX II) AND ANY OTHER INFORMATION AVAILABLE TO YOU AND TO SEEK ADVICE FROM YOUR INDEPENDENT LAWYER, TAX ADVISOR AND/OR FINANCIAL ADVISOR BEFORE DECIDING WHETHER OR NOT TO ACCEPT THIS LITIGATION SETTLEMENT OFFER. Neither the general partner of your partnership or its affiliates have any plans or arrangements to tender any units. Except as otherwise provided in "The Litigation Settlement Offer -- Section 14. 45 Future Plans of the Purchaser," the general partner does not have any present plans or proposals which relate to or would result in an extraordinary transaction, such as a merger, reorganization or liquidation, involving your partnership; a purchase or sale or transfer of a material amount of your partnership's assets; or any changes in your partnership's present capitalization, indebtedness or distribution policies. For information relating to certain relationships between your partnership and its general partner, on one hand, and AIMCO and its affiliates, on the other, and conflicts of interests with respect to the tender offer, see "The Litigation Settlement Offer -- Section 11. Background and Reasons for the Offer" and "-- Section 13. Conflicts of Interest and Transactions with Affiliates." See also "The Litigation Settlement Offer -- Section 8. Valuation of Units -- Comparison to Alternative Consideration" for certain information regarding transactions with respect to units of your partnership. Your partnership did not receive any report, opinion or appraisal with respect to the fairness of this Litigation Settlement Offer or the offer price being offered to limited partners. However, the partnership did receive the appraisals prepared by AAA, as described above. Although the AIMCO Entities have interests that may be in conflict with those of the partnership's unaffiliated limited partners, each of the AIMCO Entities believes that the offer price and the structure of the transaction are fair to the unaffiliated limited partners based on the information and factors considered by the general partner of your partnership. Each of AIMCO Entities expressly adopts the analysis, and the factors underlying such analysis, of the general partner of your partnership." (8) The first paragraph of "THE LITIGATION SETTLEMENT OFFER - Section 13. Conflicts of Interest and Transactions with Affiliates -- Transactions with Affiliates" is amended and restated as follows: "NHP Management Company (which is our affiliate) received fees of approximately $170,000 and $817,000 for the years ended December 31, 2002 and 2001, respectively, for construction management services. The construction management service fees are calculated based on a percentage of current additions to investment properties." (9) The third paragraph of "THE LITIGATION SETTLEMENT OFFER - Section 13. Conflicts of Interest and Transactions with Affiliates -- Transactions with Affiliates" is amended and restated as follows: "We have made available to the partnership a credit line of up to $150,000 per property owned by the partnership. During the year ended December 31, 2002, we agreed to advance funds in excess of the $150,000 line of credit to fund operating expenses of Plantation Creek Apartments and advanced $329,000 for this purpose. At December 31, 2002, the outstanding balance was approximately $333,000, including accrued interest. The advance was repaid in full subsequent to December 31, 2002. There were no outstanding amounts due under this line of credit at December 31, 2001." (10) The fourth and fifth paragraphs under "THE LITIGATION SETTLEMENT OFFER - Section 14. Future Plans of the Purchaser" are amended and restated as follows: "We have been advised that the general partner does not currently expect to consider, on behalf of your partnership any of the following transactions: (i) payment of extraordinary distributions; (ii) refinancing, reducing or increasing existing indebtedness of the partnership; (iii) sales of assets, individually or as part of a complete liquidation; and (iv) mergers or other consolidation transactions involving the partnership. Any such merger or consolidation 46 transaction could involve other limited partnerships in which your general partner or its affiliates serve as general partners, or a combination of the partnership with one or more existing, publicly traded entities (including, possibly, affiliates of AIMCO), in any of which limited partners might receive cash, common stock or other securities or consideration. As discussed under "The Litigation Settlement Offer - Section 15. Certain Information Concerning Your Partnership - Investment Objectives and Policies; Sale or Financing of Investments," the general partner regularly evaluates the real estate and capital markets. The general partner may consider refinancing the partnership's existing indebtedness to the extent that the general partner is able to obtain a lower interest rate or if such indebtedness is approaching maturity. Furthermore, in the event that the general partner receives an attractive offer for any of your partnership's properties, the general partner would give due consideration to such an offer. If any of the transactions referred to above occur, and financial benefits accrue to the limited partners, we will participate in those benefits to the extent of our ownership of units. The agreement of limited partnership prohibits limited partners from voting on actions taken by the partnership, unless otherwise specifically permitted therein. Limited partners may vote on a liquidation, and we will be able to significantly influence or control the outcome of any such vote. Our primary objective in seeking to acquire the units pursuant to the offer is not, however, to influence the vote on any particular transaction, but rather to generate a profit on the investment represented by those units." (11) The chart under "THE LITIGATION SETTLEMENT OFFER - Section 15. Certain Information Concerning Your Partnership - Financial Data" is amended by adding the following line items:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ----------------------- ------------------------------------ 2003 2002 2002 2001 2000 --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Income (loss) per unit from continuing operations ..... $ (15.32) $ 1.44 $ (2.39) $ 76.57 $ 27.47 Ratio of earnings to fixed charges (deficit) .......... (36%) 3.3% (4.2%) 139.1% 44.3% Book value per limited partnership unit ............... 23.26 44.85 41.03 63.80 150.85
(12) The following chart under Annex I is amended and restated as follows:
NAME POSITION - -------------------------- ------------------------------------------------------------------ Terry Considine............ Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez......... Vice Chairman, President and Director Harry G. Alcock............ Executive Vice President and Chief Investment Officer Miles Cortez............... Executive Vice President, General Counsel and Secretary Joseph DeTuno.............. Executive Vice President -- Redevelopment Patti K. Fielding.......... Executive Vice President -- Securities and Debt Patrick J. Foye............ Executive Vice President Lance J. Graber............ Executive Vice President -- AIMCO Capital Paul J. McAuliffe.......... Executive Vice President and Chief Financial Officer Ronald D. Monson........... Executive Vice President and Head of Property Operations David Robertson............ Executive Vice President -- President and Chief Executive Officer of AIMCO Capital Jim Purvis................. Executive Vice President -- Human Resources Randall J. Fein............ Executive Vice President -- Student Housing James N. Bailey............ Director Richard S. Ellwood......... Director J. Landis Martin........... Director Thomas L. Rhodes........... Director
47 SIGNATURE After due inquiry and to the best of its knowledge and belief, the undersigned hereby certify that the information set forth in this statement is true, complete and correct. Date: December 5, 2003 AIMCO PROPERTIES, L.P. By: AIMCO-GP, INC. Its General Partner By: /s/ Patrick J. Foye ------------------------------- Patrick J. Foye Executive Vice President 48 SCHEDULE 13E-3 After due inquiry and to the best of its knowledge and belief, the undersigned hereby certify that the information set forth in this statement is true, complete and correct. Date: December 5, 2003 AIMCO-GP, INC. By: /s/ Patrick J. Foye ------------------------------- Patrick J. Foye Executive Vice President APARTMENT INVESTMENT AND MANAGEMENT COMPANY By: /s/ Patrick J. Foye ------------------------------- Patrick J. Foye Executive Vice President FOX CAPITAL MANAGEMENT COMPANY By: /s/ Patrick J. Foye ------------------------------- Patrick J. Foye Executive Vice President 49 EXHIBIT INDEX
Exhibit No. Description - ----------- ----------- (c)(1) Appraisal of Autumn Run Apartments (c)(2) Appraisal of Cooper's Pointe Apartments (c)(3) Appraisal of Copper Mill Apartments (c)(4) Appraisal of Four Winds Apartments (c)(5) Appraisal of Hampton Greens Apartments (c)(6) Appraisal of Plantation Creek Apartments (c)(7) Appraisal of Promontory Point Apartments (c)(8) Appraisal of Wood Creek Apartments
50 EX-99.(C)(1) 3 d07250a2exv99wxcyx1y.txt APPRAISAL OF AUTUMN RUN APARTMENTS AUTUMN RUN APARTMENTS 1627 COUNTRY LAKES DRIVE NAPERVILLE, ILLINOIS MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 30, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] JUNE 28, 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: AUTUMN RUN APARTMENTS 1627 COUNTRY LAKES DRIVE NAPERVILLE, DUPAGE COUNTY, ILLINOIS 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 320 units with a total of 245,748 square feet of rentable area. The improvements were built in 1986. The improvements are situated on 22.6454 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 97% 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 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS 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 30, 2003 is: ($23,300,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. /s/ Ken Kapecki June 28, 2003 Ken Kapecki, MAI #053272 Managing Principal, Real Estate Group Illinois Certified General Real Estate Appraiser #153000331 Report By: Seamus P. King AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS 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 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Autumn Run Apartments LOCATION: 1627 Country Lakes Drive Naperville, Illinois 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 30, 2003 DATE OF REPORT: June 28, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 22.6454 acres, or 986,434 square feet Assessor Parcel No.: 07-09-222-007 Floodplain: Community Panel No. 1702130006C (May 18, 1992) Flood Zone C and X, an area inside the floodplain. Zoning: R-4 (High Density Multi-Family Planning and Development) BUILDING: No. of Units: 320 Units Total NRA: 245,748 Square Feet Average Unit Size: 768 Square Feet Apartment Density: 14.1 units per acre Year Built: 1986 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 - 1A15 608 $ 675 $ 1.11 $ 21,600 $ 259,200 1Br/1Ba - 2A15 624 $ 700 $ 1.12 $ 22,400 $ 268,800 1Br/1Ba - 3A15 614 $ 700 $ 1.14 $ 28,000 $ 336,000 1Br/1Ba - 4A15 629 $ 725 $ 1.15 $ 29,000 $ 348,000 1Br/1Ba - 5A15 751 $ 775 $ 1.03 $ 31,000 $ 372,000 1Br/1Ba - 6A15 774 $ 800 $ 1.03 $ 32,000 $ 384,000 2Br/1Ba - 1B15 837 $ 950 $ 1.14 $ 11,400 $ 136,800 2Br/1Ba - 2B15 857 $ 950 $ 1.11 $ 11,400 $ 136,800 2Br/2Ba - 1C15 1,035 $ 1,000 $ 0.97 $ 36,000 $ 432,000 2Br/2Ba - 2C15 1,056 $ 1,000 $ 0.95 $ 36,000 $ 432,000 Total $258,800 $3,105,600
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS OCCUPANCY: 97% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 15 Years REMAINING ECONOMIC LIFE: 30 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] SUBJECT PROPERTY LEASING OFFICE AND CLUBHOUSE SUBJECT PROPERTY AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS NEIGHBORHOOD MAP [MAP] HIGHEST AND BEST USE: As Vacant: Hold for future multi-family development As Improved: Continuation as its current use METHOD OF VALUATION: In this instance, the Sales Comparison and Income Approaches to value were utilized. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit - --------------------- ----------- -------------- Potential Rental Income $3,105,600 $9,705 Effective Gross Income $3,147,760 $9,837 Operating Expenses $1,249,633 $3,905 39.7% of EGI Net Operating Income: $1,802,127 $5,632 Capitalization Rate 7.75% DIRECT CAPITALIZATION VALUE $23,200,000 * $72,500 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 14% Stabilized Vacancy & Collection Loss: 5% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 8.25% Discount Rate 10.75% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $23,100,000 * $72,188 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $23,200,000 $72,500 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $64,615 to $90,857 Range of Sales $/Unit (Adjusted) $74,308 to $90,857 VALUE INDICATION - PRICE PER UNIT $23,900,000 * $74,688 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 6.76 to 8.74 Selected EGIM for Subject 7.40 Subject's Projected EGI $3,147,760 EGIM ANALYSIS CONCLUSION $23,200,000 * $72,500 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $22,700,000 * $70,938 / UNIT RECONCILED SALES COMPARISON VALUE $23,300,000 $72,813 / 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 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $23,900,000 NOI Per Unit $22,700,000 EGIM Multiplier $23,200,000 INDICATED VALUE BY SALES COMPARISON $23,300,000 $72,813 / UNIT INCOME APPROACH: Direct Capitalization Method: $23,200,000 Discounted Cash Flow Method: $23,100,000 INDICATED VALUE BY THE INCOME APPROACH $23,200,000 $72,500 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $23,300,000 $72,813 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 1627 Country Lakes Drive, Naperville, DuPage County, Illinois. Naperville identifies it as 07-09-222-007. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Seamus P. King on May 30, 2003. Ken Kapecki, MAI has not made a personal inspection of the subject property. Seamus P. King performed the research, valuation analysis and wrote the report. Ken Kapecki, MAI reviewed the report and concurs with the value. Ken Kapecki, MAI and Seamus P. King 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 30, 2003. The date of the report is June 28, 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 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS 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 Century Property Fund XXII. 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 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS 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 Naperville, Illinois. 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 - Kane County Boundary West - Mill Street South - North Aurora Road North - Butterfield Road (Route 56) MAJOR EMPLOYERS Major employers in the subject's area include Lucent Technologies, Argonne National Lab, United Parcel Service, Edward Hospital, Indian Prairie School District, Northern Illinois Gas, Hinsdale Hospital, College of DuPage, DuPage County, Central DuPage Hospital, McMaster Carr Supply, Fermi National Lab, and Elmhurst Hospital. 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 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS NEIGHBORHOOD DEMOGRAPHICS
AREA -------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - ------------------------------------------------------------------------------------------- POPULATION TRENDS Current Population 9,243 56,104 162,332 8,502,982 5-Year Population 10,370 64,958 187,091 9,110,378 % Change CY-5Y 12.2% 15.8% 15.3% 7.1% Annual Change CY-5Y 2.4% 3.2% 3.1% 1.4% HOUSEHOLDS Current Households 4,155 22,504 58,405 3,054,373 5-Year Projected Households 4,711 26,128 67,362 3,264,990 % Change CY - 5Y 13.4% 16.1% 15.3% 6.9% Annual Change CY-5Y 2.7% 3.2% 3.1% 1.4% INCOME TRENDS Median Household Income $ 71,157 $ 87,405 $ 91,517 $ 60,922 Per Capita Income $ 29,563 $ 35,101 $ 33,443 $ 25,978 Average Household Income $ 67,864 $ 88,476 $ 93,118 $ 72,319
Source: Demographics Now The subject neighborhood's population is expected to show increases above that of the region. The immediate market offers superior income levels as compared to the broader market. The following table illustrates the housing statistics in the subject's immediate area, as well as the MSA region. HOUSING TRENDS
AREA ---------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - ------------------------------------------------------------------------------------------------ HOUSING TRENDS % of Households Renting 50.18% 31.26% 25.13% 32.62% 5-Year Projected % Renting 48.60% 30.41% 24.20% 31.47% % of Households Owning 42.10% 63.47% 70.36% 61.13% 5-Year Projected % Owning 44.13% 64.78% 71.70% 62.69%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Offices/commercial businesses South - Residential dwellings East - Apartments/commercial businesses West - Apartments CONCLUSIONS The subject is well located within the city of Naperville. The neighborhood is characterized as being mostly suburban in nature and is currently in the growth 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 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS MARKET ANALYSIS The subject property is located in the city of Naperville in DuPage County. The overall pace of development in the subject's market is more or less decreasing. The Naperville/Aurora submarket's construction activity is flat for 2003. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - -------------------------------------- 4Q01 4.0% 6.8% 1Q02 5.1% 9.8% 2Q02 5.2% 8.4% 3Q02 5.5% 7.6% 4Q02 6.0% 8.1% 1Q03 6.4% 8.4%
Source: Reis Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has underperformed the overall market. Due to decreasing interest rates, single family housing is becoming more affordable, consequently the renter base has been decreasing driving down rents and occupancy. Also, a shift in demographics has changed, as the majority of the property's tenants are blue collar workers whose annual income is generally less than a white collar worker. As a result the marketing strategies have shifted to attract new tenants by offering concessions throughout the market. 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 - ----------------------------------------------------------------------------- 4Q01 $902 - $913 - 1Q02 $894 -0.9% $907 -0.7% 2Q02 $890 -0.4% $902 -0.6% 3Q02 $896 0.7% $912 1.1% 4Q02 $890 -0.7% $898 -1.5% 1Q03 $879 -1.2% $863 -3.9%
Source: Reis The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject - -------------------------------------------------------------------------------------------------------- R-1 Country Lakes 640 95% 1984 Next to subject (west) R-2 Chantecleer Lakes 304 96% 1983 1 mile east of the subject R-3 McDowell Place Apartments 400 96% 1988 1 mile east of the subject R-4 Hunters Glen 320 91% 1989 4.5 miles south of the subject Subject Autumn Run Apartments 320 97% 1986
The apartment sector has been adversely affected by the affordability of single-family homes and poor economic conditions. Owners have lowered rents, which has eliminated any opportunity for rent growth. Typically, apartment managers have been either decreasing rent or offering rent concessions (mostly 1-2 months free rent) to attract new tenants. The market is expected to have an upturn by the end of 2003 and continue to see rents increase thereafter. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS PROPERTY DESCRIPTION SITE ANALYSIS Site Area 22.6454 acres, or 986,434 square feet Shape Irregular Topography Level Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Good Flood Zone: Community Panel 1702130006C, dated May 18, 1992 Flood Zone Zone C and X Zoning R-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 - -------------------------------------------------------------------------------------------------------------- 07-09-222-007 $708,860 $4,965,360 $5,674,220 $0.06836 $387,907
IMPROVEMENT ANALYSIS Year Built 1986 Number of Units 320 Net Rentable Area 245,748 Square Feet Construction: Foundation Concrete pier and beam Frame Wood Exterior Walls Brick or masonry Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include swimming pool, spa/jacuzzi, sand volleyball, tennis court, racquetball court, and parking area. Unit Amenities Individual unit amenities include a balcony, fireplace, cable TV connection, vaulted ceiling, skylights, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, water heater, garbage disposal, washer/dryer, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - ------------------------------------------------------- 1Br/1Ba - 1A15 32 608 1Br/1Ba - 2A15 32 624 1Br/1Ba - 3A15 40 614 1Br/1Ba - 4A15 40 629 1Br/1Ba - 5A15 40 751 1Br/1Ba - 6A15 40 774 2Br/1Ba - 1B15 12 837 2Br/1Ba - 2B15 12 857 2Br/2Ba - 1C15 36 1,035 2Br/2Ba - 2C15 36 1,056
Overall Condition Average Effective Age 15 years Economic Life 45 years Remaining Economic Life 30 years Deferred Maintenance None HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1986 and consist of a 320-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 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS 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 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS 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 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS 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 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS SUMMARY OF COMPARABLE SALES-IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ------------------------------------------------------------------------------------------------------------------ Property Name Autumn Run Apartments Greenway Trail Apartments Sherry Naperville LOCATION: Address 1627 Country Lakes Drive 136 Greenway Trail 1821 Washington Street City, State Naperville, Illinois Carol Stream, IL Naperville, IL County DuPage DuPage DuPage PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 245,748 269,400 156,600 Year Built 1986 1977 1975 Number of Units 320 325 164 Unit Mix: Type Total Type Total Type Total 1Br/1Ba - 1A15 32 Studio/1BH 1 1BR/1BH 128 1Br/1Ba - 2A15 32 1BR/1.5BH 228 2BR/2BH 36 1Br/1Ba - 3A15 40 2BR/1.5BH 96 1Br/1Ba - 4A15 40 1Br/1Ba - 5A15 40 1Br/1 Ba - 6A15 40 2Br/1 Ba - 1B15 12 2Br/1 Ba - 2B15 12 2Br/2 Ba - 1C15 36 2Br/2 Ba - 2C15 36 Average Unit Size (SF) 768 829 955 Land Area (Acre) 22.6454 14.7500 9.0900 Density (Units/Acre) 14.1 22.0 18.0 Parking Ratio (Spaces/Unit) 1.48 Ample 2.00 Parking Type (Gr., Cov., etc.) Open Open Open, Covered CONDITION: Average Average Average APPEAL: Average Good Good AMENITIES: Pool/Spa Yes/Yes Yes/No Yes/No Gym Room No No No Laundry Room No Yes Yes Secured Parking No No No Sport Courts No Yes No Washer/Dryer Connection Yes Yes No Fireplace No No No Balconies Yes Yes Yes OCCUPANCY: 97% 95% 93% TRANSACTION DATA: Sale Date January, 2003 December, 2002 Sale Price ($) $21,000,000 $12,600,000 Grantor 582 Redhill (LLC) Protter Enterprises (Ltd) Grantee Greenway Apts. Ltd. Sherry Apartments (LP) Partnership Sale Documentation R03-072490 R02-347205 Verification Confidential Confidential Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $3,268,260 $10,056 $12.13 $1,549,800 $9,450 $9.90 Vacancy/Credit Loss $ 163,413 $ 503 $ 0.61 $ 108,486 $ 662 $0.69 Effective Gross Income $3,104,847 $ 9,553 $11.53 $1,441,314 $8,789 $9.20 Operating Expenses $1,241,939 $ 3,821 $ 4.61 $ 504,456 $3,076 $3.22 Net Operating Income $1,862,908 $ 5,732 $ 6.92 $ 936,858 $5,713 $5.98 NOTES: None Minor repairs reported PRICE PER UNIT $64,615 $76,829 PRICE PER SQUARE FOOT $ 77.95 $ 80.46 EXPENSE RATIO 40.0% 35.0% EGIM 6.76 8.74 OVERALL CAP RATE 8.87% 7.44% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - -------------------------------------------------------------------------------------------------------------------------------- Property Name Remington Apartments Hunters Glen Apartments Mill Ponds Apartments LOCATION: Address 525 Fair Meadows Drive 245 North Oakhurst Drive 1331 Modaff Road City, State Romeoville, IL Aurora, IL Naperville, IL County Will DuPage DuPage PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 332,206 299,040 205,931 Year Built 1999 1989 1988 Number of Units 350 320 216 Unit Mix: Type Total Type Total Type Total 1BR/1BH 169 1BR/1BH 128 1BR/1BH 72 2BR/2BH 169 2BR/2BH 192 2BR/2BH 144 3BR/2BH 12 Average Unit Size (SF) 949 935 953 Land Area (Acre) 29.1700 14.8700 13.4200 Density (Units/Acre) 12.0 21.5 16.1 Parking Ratio (Spaces/Unit) 2.00 0.46 2.00 Parking Type (Gr., Cov., etc.) Open, Covered Open, Covered Open, Covered CONDITION: Very Good Good Average APPEAL: Good Good Average AMENITIES: Pool/Spa Yes/Yes Yes/No Yes/No Gym Room Yes Yes No Laundry Room Yes No Yes Secured Parking Yes Yes No Sport Courts Yes Yes No Washer/Dryer Connection Yes Yes No Fireplace Yes Yes No Balconies Yes Yes Yes OCCUPANCY: 93% 90% 96% TRANSACTION DATA: Sale Date June, 2002 February, 2002 May, 2001 Sale Price ($) $31,800,000 $22,800,000 $14,684,000 Grantor Fairfield Romeoville (LP) Realty Associates Fund III State Bank of Countryside Grantee JRC Remington (LLC) R.E. Cedar (LP) Mill Ponds Associates Sale Documentation R0-2109715 R02-040364 R01-079063 Verification Confidential Confidential Confidential Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $4,495,020 $12,843 $13.53 $3,732,300 $11,663 $12.48 $2,087,000 $9,662 $10.13 Vacancy/Credit Loss $ 314,651 $ 899 $ 0.95 $ 373,230 $ 1,166 $ 1.25 $ 0 $ 0 $ 0.00 Effective Gross Income $4,180,369 $11,944 $12.58 $3,359,070 $10,497 $11.23 $2,087,000 $9,662 $10.13 Operating Expenses $1,672,148 $ 4,778 $ 5.03 $1,511,582 $ 4,724 $ 5.05 $ 707,520 $3,276 $ 3.44 Net Operating Income $2,508,221 $ 7,166 $ 7.55 $1,847,488 $ 5,773 $ 6.18 $1,379,480 $6,386 $ 6.70 NOTES: None Estimated $1.8 million None worth of work upgrading the clubhouse. (roof and residing) PRICE PER UNIT $90,857 $71,250 $67,981 PRICE PER SQUARE FOOT $ 95.72 $ 76.24 $ 71.31 EXPENSE RATIO 40.0% 45.0% 33.9% EGIM 7.61 6.79 7.04 OVERALL CAP RATE 7.89% 8.10% 9.39% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA ACTUAL
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $64,615 to $90,857 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 $74,308 to $90,857 per unit with a mean or average adjusted price of $82,082 per unit. The median adjusted price is $78,519 per unit. Based on the following analysis, we have concluded to a value of $75,000 per unit, which results in an "as is" value of $23,900,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ---------------------------------------------------------------------------------------------------------------- Property Name Autumn Run Apartments Greenway Trail Apartments Sherry Naperville Address 1627 Country Lakes Drive 136 Greenway Trail 1821 Washington Street City Naperville, Illinois Carol Stream, IL Naperville, IL Sale Date January, 2003 December, 2002 Sale Price ($) $21,000,000 $12,600,000 Net Rentable Area (SF) 245,748 269,400 156,600 Number of Units 320 325 164 Price Per Unit $64,615 $76,829 Year Built 1986 1977 1975 Land Area (Acre) 22.6454 14.7500 9.0900 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 01-2003 0% 12-2002 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $64,615 $76,829 Location Inferior 5% Inferior 5% Number of Units 320 325 0% 164 -5% Quality / Appeal Good Inferior 5% Inferior 5% Age / Condition 1986 1977 / Average 5% 1975 / Average 5% Occupancy at Sale 97% 95% 0% 93% 0% Amenities Good Comparable 0% Comparable 0% Average Unit Size (SF) 768 829 0% 955 5% PHYSICAL ADJUSTMENT 15% 15% FINAL ADJUSTED VALUE ($/UNIT) $74,308 $88,354 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ------------------------------------------------------------------------------------------------------------- Property Name Remington Apartments Hunters Glen Apartments Mill Ponds Apartments Address 525 Fair Meadows Drive 245 North Oakhurst Drive 1331 Modaff Road City Romeoville, IL Aurora, IL Naperville, IL Sale Date June, 2002 February, 2002 May, 2001 Sale Price ($) $31,800,000 $22,800,000 $14,684,000 Net Rentable Area (SF) 332,206 299,040 205,931 Number of Units 350 320 216 Price Per Unit $90,857 $71,250 $67,981 Year Built 1999 1989 1988 Land Area (Acre) 29.1700 14.8700 13.4200 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 06-2002 0% 02-2002 0% 05-2001 5% VALUE AFTER TRANS. ADJUST. ($/UNIT) $90,857 $71,250 $71,381 Location Comparable 0% Comparable 0% Inferior 5% Number of Units 350 0% 320 0% 216 -5% Quality / Appeal Comparable 0% Comparable 0% Inferior 5% Age / Condition 1999 / Very Good -5% 1989 / Good 0% 1988 / Average 0% Occupancy at Sale 93% 0% 90% 5% 96% 0% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 949 5% 935 5% 953 5% PHYSICAL ADJUSTMENT 0% 10% 10% FINAL ADJUSTED VALUE ($/UNIT) $90,857 $78,375 $78,519
SUMMARY VALUE RANGE (PER UNIT) $74,308 TO $90,857 MEAN (PER UNIT) $82,082 MEDIAN (PER UNIT) $78,519 VALUE CONCLUSION (PER UNIT) $75,000
VALUE OF IMPROVEMENT & MAIN SITE $24,000,000 PV OF CONCESSIONS -$ 52,000 VALUE INDICATED BY SALES COMPARISON APPROACH $23,948,000 ROUNDED $23,900,000
NET OPERATING INCOME (NOI) ANALYSIS We have also conducted a net operating income (NOI) comparison analysis. The NOI effectively takes into account the various physical, location, and operating aspects of the sale. When the subject's NOI is compared to the sale NOI, a percent adjustment can be arrived at. The following table illustrates this analysis. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS 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-1 325 $21,000,000 8.87% $1,862,908 $1,802,127 0.982 $63,484 $ 64,615 $ 5,732 $ 5,632 I-2 164 $12,600,000 7.44% $ 936,858 $1,802,127 0.986 $75,741 $ 76,829 $ 5,713 $ 5,632 I-3 350 $31,800,000 7.89% $2,508,221 $1,802,127 0.786 $71,400 $ 90,857 $ 7,166 $ 5,632 I-4 320 $22,800,000 8.10% $1,847,488 $1,802,127 0.975 $69,501 $ 71,250 $ 5,773 $ 5,632 I-5 216 $14,684,000 9.39% $1,379,480 $1,802,127 0.882 $59,947 $ 67,981 $ 6,386 $ 5,632
PRICE/UNIT VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT - ------------------------------------------------------------------------------------------------------------ Low High Average Median Estimated Price Per Unit $ 71,000 ----------- $59,947 $75,741 $68,014 $69,501 Number of Units 320 Value $22,720,000 PV of Concessions -$ 52,000 ----------- Value Based on NOI Analysis $22,668,000 Rounded $22,700,000
The adjusted sales indicate a range of value between $59,947 and $75,741 per unit, with an average of $68,014 per unit. Based on the subject's competitive position within the improved sales, a value of $71,000 per unit is estimated. This indicates an "as is" market value of $22,700,000 (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 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS 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-1 325 $21,000,000 $3,104,847 $1,241,939 40.00% 6.76 $ 64,615 I-2 164 $12,600,000 $1,441,314 $ 504,456 35.00% 8.74 $ 76,829 I-3 350 $31,800,000 $4,180,369 $1,672,148 40.00% 39.70% 7.61 $ 90,857 I-4 320 $22,800,000 $3,359,070 $1,511,582 45.00% 6.79 $ 71,250 I-5 216 $14,684,000 $2,087,000 $ 707,520 33.90% 7.04 $ 67,981
EGIM VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES - ------------------------------------------------------------------------------------------------------------- Low High Average Median - --- ---- ------- ------ Estimate EGIM 7.40 ------------- 6.76 8.74 7.39 7.04 Subject EGI $ 3,147,760 Value $ 23,293,424 PV of Concessions -$ 52,000 ------------- Value Based on EGIM Analysis $ 23,241,424 Rounded $ 23,200,000 Value Per Unit $ 72,500
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 39.70% before reserves. The comparable sales indicate a range of expense ratios from 33.90% to 45.00%, while their EGIMs range from 6.76 to 8.74. Overall, we conclude to an EGIM of 7.40, which results in an "as is" value estimate in the EGIM Analysis of $23,200,000. 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 $23,300,000. Price Per Unit $23,900,000 NOI Per Unit $22,700,000 EGIM Analysis $23,200,000 Sales Comparison Conclusion $23,300,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS 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 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS 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 - 1A15 608 $675 $1.11 93.8% 1Br/1Ba - 2A15 624 $734 $1.18 96.9% 1Br/1Ba - 3A15 614 $700 $1.14 97.5% 1Br/1Ba - 4A15 629 $686 $1.09 95.0% 1Br/1Ba - 5A15 751 $740 $0.99 95.0% 1Br/1 Ba- 6A15 774 $769 $0.99 100.0% 2Br/1 Ba - 1B15 837 $855 $1.02 91.7% 2Br/1 Ba - 2B15 857 $844 $0.98 100.0% 2Br/2 Ba - 1C15 1035 $928 $0.90 100.0% 2Br/2 Ba - 2C15 1056 $946 $0.90 97.2%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS RENT ANALYSIS
COMPARABLE RENTS --------------------------------------- R-1 R-2 R-3 R-4 --------------------------------------- McDowell Country Chantecleer Place Hunters Lakes Lakes Apartments Glen --------------------------------------- COMPARISON TO SUBJECT --------------------------------------- SUBJECT SUBJECT SUBJECT UNIT ACTUAL ASKING Slightly Slightly DESCRIPTION TYPE RENT RENT Similar Similar Superior Superior MIN MAX MEDIAN AVERAGE - ---------------------------------------------------------------------------------------------------------------------------------- Monthly Rent 1BR/1BA - 1A15 $ 675 $ 729 Unit Area (SF) 608 608 Monthly Rent Per Sq. Ft. $ 1.11 $ 1.20 Monthly Rent 1BR/1BA - 2A15 $ 734 $ 754 Unit Area (SF) 624 624 Monthly Rent Per Sq. Ft. $ 1.18 $ 1.21 Monthly Rent 1BR/1BA - 3A15 $ 700 $ 759 Unit Area (SF) 614 614 Monthly Rent Per Sq. Ft. $ 1.14 $ 1.24 Monthly Rent 1BR/1BA - 4A15 $ 686 $ 779 $ 709 $ 845 $ 709 $ 845 $ 777 $ 777 Unit Area (SF) 629 629 714 682 682 714 698 698 Monthly Rent Per Sq. Ft. $ 1.09 $ 1.24 $ 0.99 $ 1.24 $ 0.99 $ 1.24 $ 1.12 $ 1.12 Monthly Rent 1BR/1BA - 5A15 $ 740 $ 804 $ 759 $ 865 $ 855 $ 759 $ 865 $ 855 $ 826 Unit Area (SF) 751 751 782 728 746 728 782 746 752 Monthly Rent Per Sq. Ft. $ 0.99 $ 1.07 $ 0.97 $ 1.19 $ 1.15 $ 0.97 $ 1.19 $ 1.15 $ 1.10 Monthly Rent 1BR/1 BA- 6A15 $ 769 $ 824 $ 789 $ 860 $ 789 $ 860 $ 825 $ 825 Unit Area (SF) 774 774 850 800 800 850 825 825 Monthly Rent Per Sq. Ft. $ 0.99 $ 1.06 $ 0.93 $ 1.08 $ 0.93 $ 1.08 $ 1.00 $ 1.00 Monthly Rent 2BR/1 BA - 1B15 $ 855 $ 914 $ 950 $ 950 $ 950 $ 950 $ 950 Unit Area (SF) 837 837 871 871 871 871 871 Monthly Rent Per Sq. Ft. $ 1.02 $ 1.09 $ 1.09 $ 1.09 $ 1.09 $ 1.09 $ 1.09 Monthly Rent 2BR/1 BA - 2B15 $ 844 $ 934 $ 839 $ 975 $ 950 $ 839 $ 975 $ 950 $ 921 Unit Area (SF) 857 857 920 976 875 875 976 920 924 Monthly Rent Per Sq. Ft. $ 0.98 $ 1.09 $ 0.91 $ 1.00 $ 1.09 $ 0.91 $ 1.09 $ 1.00 $ 1.00 Monthly Rent 2BR/2 BA - 1C15 $ 928 $ 984 $ 869 $1,070 $1,028 $ 869 $1,070 $1,028 $ 989 Unit Area (SF) 1,035 1,035 934 1,053 1,017 934 1,053 1,017 1,001 Monthly Rent Per Sq. Ft. $ 0.90 $ 0.95 $ 0.93 $ 1.02 $ 1.01 $ 0.93 $ 1.02 $ 1.01 $ 0.99 Monthly Rent 2BR/2 BA - 2C15 $ 946 $1,019 $ 899 $1,300 $1,070 $1,095 $ 899 $1,300 $1,083 $1,091 Unit Area (SF) 1,056 1,056 1,010 1,147 1,160 1,102 1,010 1,160 1,125 1,105 Monthly Rent Per Sq. Ft. $ 0.90 $ 0.96 $ 0.89 $ 1.13 $ 0.92 $ 0.99 $ 0.89 $ 1.13 $ 0.96 $ 0.98
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS 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 - 1A15 32 608 $ 675 $1.11 $ 21,600 $ 259,200 1Br/1Ba - 2A15 32 624 $ 700 $1.12 $ 22,400 $ 268,800 1Br/1Ba - 3A15 40 614 $ 700 $1.14 $ 28,000 $ 336,000 1Br/1Ba - 4A15 40 629 $ 725 $1.15 $ 29,000 $ 348,000 1Br/1Ba - 5A15 40 751 $ 775 $1.03 $ 31,000 $ 372,000 1Br/1 Ba- 6A15 40 774 $ 800 $1.03 $ 32,000 $ 384,000 2Br/1 Ba - 1B15 12 837 $ 950 $1.14 $ 11,400 $ 136,800 2Br/1 Ba - 2B15 12 857 $ 950 $1.11 $ 11,400 $ 136,800 2Br/2 Ba - 1C15 36 1,035 $1,000 $0.97 $ 36,000 $ 432,000 2Br/2 Ba - 2C15 36 1,056 $1,000 $0.95 $ 36,000 $ 432,000 Total $258,800 $3,105,600
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 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 ------------------------------------------------------------------------------------- ACTUAL ACTUAL ACTUAL ------------------------------------------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT - ------------------------------------------------------------------------------------------------------------------- Revenues Rental Income $3,227,959 $10,08,897 $3,318,897 $ 10,372 $3,135,339 $ 9,798 Vacancy $ 207,246 $ 648 $ 230,767 $ 721 $ 272,305 $ 851 Credit Loss/Concessions $ 176,323 $ 551 $ 139,602 $ 436 $ 158,576 $ 496 ------------------------------------------------------------------------------------- Subtotal $ 383,569 $ 1,199 $ 370,369 $ 1,157 $ 430,881 $ 1,347 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 128,218 $ 401 $ 166,204 $ 519 $ 185,985 $ 581 ------------------------------------------------------------------------------------- Subtotal Other Income $ 128,218 $ 401 $ 166,204 $ 519 $ 185,985 $ 581 ------------------------------------------------------------------------------------- Effective Gross Income $2,972,608 $ 9,289 $3,114,734 $ 9,734 $2,890,443 $ 9,033 Operating Expenses Taxes $ 312,795 $ 977 $ 362,778 $ 1,134 $ 419,487 $ 1,311 Insurance $ 24,523 $ 77 $ 41,414 $ 129 $ 47,224 $ 148 Utilities $ 137,999 $ 431 $ 132,430 $ 414 $ 149,045 $ 466 Repair & Maintenance $ 95,106 $ 297 $ 91,368 $ 286 $ 94,313 $ 295 Cleaning $ 4,790 $ 15 $ 20,323 $ 64 $ 12,418 $ 39 Landscaping $ 24,649 $ 77 $ 26,165 $ 82 $ 30,820 $ 96 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 64,192 $ 201 $ 35,421 $ 111 $ 55,603 $ 174 General Administrative $ 292,613 $ 914 $ 314,080 $ 982 $ 268,247 $ 838 Management $ 156,222 $ 488 $ 161,278 $ 504 $ 146,926 $ 459 Miscellaneous $ 87,669 $ 274 $ 86,654 $ 271 $ 129,139 $ 404 ------------------------------------------------------------------------------------- Total Operating Expenses $1,200,558 $ 3,752 $1,271,911 $ 3,975 $1,353,222 $ 4,229 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------- Net Income $1,772,050 $ 5,538 $1,842,821 $ 5,759 $1,537,221 $ 4,804 FISCAL YEAR 2003 ANNUALIZED 2003 ------------------------------------------------------- MANAGEMENT BUDGET PROJECTION AAA PROJECTION ------------------------------------------------------------------------------------------------ DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % - ------------------------------------------------------------------------------------------------------------------------------ Revenues Rental Income $3,120,000 $ 9,750 $3,066,008 $ 9,581 $3,105,600 $ 9,705 100.0% Vacancy $ 186,725 $ 584 $ 104,512 $ 327 $ 93,168 $ 291 3.0% Credit Loss/Concessions $ 114,520 $ 358 $ 53,684 $ 168 $ 62,112 $ 194 2.0% ------------------------------------------------------------------------------------------------ Subtotal $ 301,245 $ 941 $ 158,196 $ 494 $ 155,280 $ 485 5.0% Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 197,400 $ 617 $ 248,144 $ 775 $ 197,440 $ 617 6.4% ------------------------------------------------------------------------------------------------ Subtotal Other Income $ 197,400 $ 617 $ 248,144 $ 775 $ 197,440 $ 617 6.4% ------------------------------------------------------------------------------------------------ Effective Gross Income $3,016,155 $ 9,425 $3,155,956 $ 9,862 $3,147,760 $ 9,837 100.0% Operating Expenses Taxes $ 384,722 $ 1,202 $ 385,184 $ 1,20 $ 384,640 $ 1,202 12.2% Insurance $ 52,740 $ 165 $ 50,396 $ 157 $ 52,800 $ 165 1.7% Utilities $ 173,408 $ 542 $ 157,128 $ 491 $ 173,440 $ 542 5.5% Repair & Maintenance $ 86,316 $ 270 $ 100,580 $ 314 $ 86,400 $ 270 2.7% Cleaning $ 0 $ 0 $ 19,544 $ 61 $ 0 $ 0 0.0% Landscaping $ 47,305 $ 148 $ 0 $ 0 $ 47,360 $ 148 1.5% Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 54,222 $ 169 $ 46,128 $ 144 $ 54,080 $ 169 1.7% General Administrative $ 265,730 $ 830 $ 309,316 $ 967 $ 265,600 $ 830 8.4% Management $ 102,400 $ 320 $ 155,764 $ 487 $ 94,433 $ 295 3.0% Miscellaneous $ 90,962 $ 284 $ 91,076 $ 285 $ 90,880 $ 284 2.9% ------------------------------------------------------------------------------------------------ Total Operating Expenses $1,257,805 $ 3,931 $1,315,116 $ 4,110 $1,249,633 $ 3,905 39.7% Reserves $ 0 $ 0 $ 0 $ 0 $ 96,000 $ 300 7.7% ------------------------------------------------------------------------------------------------ Net Income $1,758,350 $ 5,495 $1,840,840 $ 5,7553 $1,802,127 $ 5,632 57.3%
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 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 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS 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 $300 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $300 per unit should be satisfactory in our reserves for replacement to cover future capital expenditures. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of the annual cash flows and discounts them, along with the expected equity reversion, to a present value. The present value of the cash flow is added to the present value of the reversion, resulting in a total property value. INVESTMENT CRITERIA Appropriate investment criteria will be derived for the subject based upon analysis of comparable sales and a survey of real estate investors. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 1ST QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES --------------------------------------------------- GOING-IN TERMINAL --------------------------------------------------- LOW HIGH LOW HIGH - --------------------------------------------------------------- RANGE 6.00% 10.00% 7.00% 10.00% AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - ---------------------------------------------------------------------- I-1 Jan-03 95% $64,615 8.87% I-2 Dec-02 93% $76,829 7.44% I-3 Jun-02 93% $90,857 7.89% I-4 Feb-02 90% $71,250 8.10% I-5 May-01 96% $67,981 9.39% High 9.39% Low 7.44% Average 8.34%
LOCAL BROKER SURVEY
BROKER COMPANY MARKET CAP RATE - -------------------------------------------------------------------------------- Class B & C Properties Real Capital Analytics 5.5% - 7.8%
Based on this information, we have concluded the subject's overall capitalization rate should be 7.75%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 8.25%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 10.75%. 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. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 10.75% indicates a value of $23,100,000. In this instance, the reversion figure contributes approximately 45% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 34 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS DISCOUNTED CASH FLOW ANALYSIS AUTUMN RUN APARTMENTS
YEAR MAY-2004 MAY-2005 MAY-2006 MAY-2007 MAY-2008 MAY-2009 FISCAL YEAR 1 2 3 4 5 6 - ------------------------------------------------------------------------------------------------------------------------------------ REVENUE Base Rent $3,105,600 $3,198,768 $3,294,731 $3,393,573 $3,495,380 $3,600,242 Vacancy $ 93,168 $ 95,963 $ 98,842 $ 101,807 $ 104,861 $ 108,007 Credit Loss $ 62,112 $ 63,975 $ 65,895 $ 67,871 $ 69,908 $ 72,005 Concessions $ 57,600 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------------- Subtotal $ 212,880 $ 159,938 $ 164,737 $ 169,679 $ 174,769 $ 180,012 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 197,440 $ 203,363 $ 209,464 $ 215,748 $ 222,220 $ 228,887 ------------------------------------------------------------------------------------------- Subtotal Other Income $ 197,440 $ 203,363 $ 209,464 $ 215,748 $ 222,220 $ 228,887 ------------------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $3,090,160 $3,242,193 $3,339,459 $3,439,642 $3,542,832 $3,649,117 OPERATING EXPENSES: Taxes $ 384,640 $ 396,179 $ 408,065 $ 420,307 $ 432,916 $ 445,903 Insurance $ 52,800 $ 54,384 $ 56,016 $ 57,696 $ 59,427 $ 61,210 Utilities $ 173,440 $ 178,643 $ 184,002 $ 189,523 $ 195,208 $ 201,064 Repair & Maintenance $ 86,400 $ 88,992 $ 91,662 $ 94,412 $ 97,244 $ 100,161 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 47,360 $ 48,781 $ 50,244 $ 51,752 $ 53,304 $ 54,903 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 54,080 $ 55,702 $ 57,373 $ 59,095 $ 60,868 $ 62,694 General Administrative $ 265,600 $ 273,568 $ 281,775 $ 290,228 $ 298,935 $ 307,903 Management $ 92,705 $ 97,266 $ 100,184 $ 103,189 $ 106,285 $ 109,473 Miscellaneous $ 90,880 $ 93,606 $ 96,415 $ 99,307 $ 102,286 $ 105,355 ------------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $1,247,905 $1,287,122 $1,325,735 $1,365,508 $1,406,473 $3,649,117 Reserves $ 96,000 $ 98,880 $ 101,846 $ 104,902 $ 108,049 $ 111,290 ------------------------------------------------------------------------------------------- NET OPERATING INCOME $1,746,255 $1,856,191 $1,911,877 $1,969,233 $2,028,310 $2,089,159 - ------------------------------------------------------------------------------------------------------------------------------------ Operating Expense Ratio (% of EGI) 40.4% 39.7% 39.7% 39.7% 39.7% 39.7% Operating Expense Per Unit $ 3,900 $ 4,022 $ 4,143 $ 4,267 $ 4,395 $ 4,527 - ------------------------------------------------------------------------------------------------------------------------------------ YEAR MAY-2010 MAY-2011 MAY-2012 MAY-2013 MAY-2014 FISCAL YEAR 7 8 9 10 11 - -------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 3,70249 $3,819,496 $3,934,081 $4,052,104 $4,173,667 Vacancy $ 111,247 $ 114,585 $ 118,022 $ 121,563 $ 125,210 Credit Loss $ 74,165 $ 76,390 $ 78,682 $ 81,042 $ 83,473 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------- Subtotal $ 185,412 $ 190,975 $ 196,704 $ 202,605 $ 208,683 --------------------------------------------------------------------------- Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 235,754 $ 242,826 $ 250,111 $ 257,614 $ 265,343 --------------------------------------------------------------------------- Subtotal Other Income $ 235,754 $ 242,826 $ 250,111 $ 257,614 $ 265,343 EFFECTIVE GROSS INCOME $ 3,758590 $3,871,348 $3,987,488 $4,107,113 $4,230,326 OPERATING EXPENSES: Taxes $ 459,280 $ 473,059 $ 487,250 $ 501,868 $ 516,924 Insurance $ 63,046 $ 64,937 $ 66,885 $ 68,892 $ 70,959 Utilities $ 207,096 $ 213,309 $ 219,709 $ 226,300 $ 233,089 Repair & Maintenance $ 103,166 $ 106,261 $ 109,449 $ 112,732 $ 116,114 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 56,550 $ 58,247 $ 59,994 $ 61,794 $ 63,648 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 64,574 $ 66,512 $ 68,507 $ 70,562 $ 72,679 General Administrative $ 317,140 $ 326,654 $ 336,454 $ 346,548 $ 356,944 Management $ 112,758 $ 116,140 $ 119,625 $ 123,213 $ 126,910 Miscellaneous $ 108,515 $ 111,771 $ 115,124 $ 118,578 $ 122,135 --------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $1,492,127 $1,536,891 $1,582,997 $1,630,487 $1,679,402 Reserves $ 114,629 $ 118,068 $ 121,610 $ 125,258 $ 129,016 --------------------------------------------------------------------------- NET OPERATING INCOME $2,151,834 $2,216,389 $2,282,881 $2,351,367 $2,421,908 - -------------------------------------------------------------------------------------------------------------------- Operating Expense Ratio (% of EGI) 39.7% 39.7% 39.7% 39.7% 39.7% Operating Expense Per Unit $ 4,663 $ 4,803 $ 4,947 $ 5,095 $ 5,248 - --------------------------------------------------------------------------------------------------------------------
Gross Residual Sale Price $29,356,464 Deferred Maintenance $ 0 Estimated Stabilized NOI $1,802,127 Sales Expense 2.00% Less: Sales Expense $ 587,129 Add: Excess Land $ 0 Rate ----------- Months to Stabilized 1 Discount Rate 10.75% Net Residual Sale Price $28,769,335 Other Adjustments $ 0 ----------- Stabilized Occupancy 97.0% Terminal Cap Rate 8.25% PV of Reversion $10,363,166 Value Indicated By $23,096,805 "DCF" Add: NPV of NOI $12,733,638 Rounded $23,100,000 ----------- PV Total $23,096,805
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ---------------------------------------------------------------------------------- TOTAL VALUE 10.25% 10.50% 10.75% 11.00% 11.25% - ------------------------------------------------------------------------------------------------------------------ 7.75% $24,586,346 $24,171,266 $23,765,396 $23,368,503 $22,980,357 8.00% $24,225,646 $23,818,644 $23,420,654 $23,031,446 $22,650,799 TERMINAL CAP RATE 8.25% $23,886,807 $23,487,393 $23,096,805 $22,714,818 $22,341,214 8.50% $23,567,899 $23,175,628 $22,792,006 $22,416,814 $22,049,840 8.75% $23,267,215 $22,881,677 $22,504,624 $22,135,840 $21,775,116
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 35 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS INCOME LOSS DURING LEASE-UP The subject is currently near or at stabilized condition. Therefore, there is no income loss during lease-up at the subject property. CONCESSIONS Due to softness in the market, concessions have been utilized at the subject property and within the market. Based on our discussions with the subject's property manager and those at competing properties, these concessions are expected to continue in the near term until the market returns to a stabilized level. Concessions have been included as a line item deduction within the discounted cash flow analysis. The present value of these concessions equates to $52,000 (rounded). This amount has been deducted from the Direct Capitalization analysis, as well as the Sales Comparison Approach value. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 7.75% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 36 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS AUTUMN RUN APARTMENTS
TOTAL PER SQ. FT. PER UNIT %OF EGI - ------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 3,105,600 $12.64 $ 9,705 Less: Vacancy & Collection Loss 5.00% $ 155,280 $ 0.63 $ 485 Plus: Other Income Laundry Income $ 0 $ 0.00 $ 0 0.00% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 197,440 $ 0.80 $ 617 6.27% Subtotal Other Income $ 197,440 $ 0.80 $ 617 6.27% EFFECTIVE GROSS INCOME $ 3,147,760 $12.81 $ 9,837 OPERATING EXPENSES: Taxes $ 384,640 $ 1.57 $ 1,202 12.22% Insurance $ 52,800 $ 0.21 $ 165 1.68% Utilities $ 173,440 $ 0.71 $ 542 5.51% Repair & Maintenance $ 86,400 $ 0.35 $ 270 2.74% Cleaning $ 0 $ 0.00 $ 0 0.00% Landscaping $ 47,360 $ 0.19 $ 148 1.50% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 54,080 $ 0.22 $ 169 1.72% General Administrative $ 265,600 $ 1.08 $ 830 8.44% Management 3.00% $ 94,433 $ 0.38 $ 295 3.00% Miscellaneous $ 90,880 $ 0.37 $ 284 2.89% TOTAL OPERATING EXPENSES $ 1,249,633 $ 5.09 $ 3,905 39.70% Reserves $ 96,000 $ 0.39 $ 300 3.05% ------------------------------------------------- NET OPERATING INCOME $ 1,802,127 $ 7.33 $ 5,632 57.25% - ------------------------------------------------------------------------------------------------------- "GOING IN" CAPITALIZATION RATE 7.75% VALUE INDICATION $23,253,254 $94.62 $72,666 LESS: LEASE-UP COST PV OF CONCESSIONS ($ 52,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $23,201,254 ROUNDED $23,200,000 $94.41 $72,500 - -------------------------------------------------------------------------------------------------------
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 37 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - --------------------------------------------------------------------------- 7.00% $25,692,674 $25,700,000 $80,313 $104.58 7.25% $24,804,927 $24,800,000 $77,500 $100.92 7.50% $23,976,363 $24,000,000 $75,000 $ 97.66 7.75% $23,201,254 $23,200,000 $72,500 $ 94.41 8.00% $22,474,590 $22,500,000 $70,313 $ 91.56 8.25% $21,791,966 $21,800,000 $68,125 $ 88.71 8.50% $21,149,496 $21,100,000 $65,938 $ 85.86
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $23,200,000. 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 $23,100,000 Direct Capitalization Method $23,200,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $23,200,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS 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 $23,300,000 Income Approach $23,200,000 Reconciled Value $23,300,000
The Direct Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of May 30, 2003 the market value of the fee simple estate in the property is: $23,300,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS SUBJECT PHOTOGRAPHS [SUBJECT PROPERTY LEASING OFFICE AND PICTURE] [SUBJECT PROPERTY PICTURE] [LOOKING SOUTH ON COUNTRY LAKES DRIVE PICTURE] [SUBJECT PROPERTY TENNIS COURTS PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 GREENWAY TRAIL APARTMENTS 136 Greenway Trail Carol Stream, IL [PICTURE] COMPARABLE I-2 SHERRY NAPERVILLE 1821 Washington Street Naperville, IL [PICTURE] COMPARABLE I-3 REMINGTON APARTMENTS 525 Fair Meadows Drive Romeoville, IL [PICTURE] COMPARABLE I-4 HUNTERS GLEN APARTMENTS 245 North Oakhurst Drive Aurora, IL [PICTURE] COMPARABLE I-5 MILL PONDS APARTMENTS 1331 Modaff Road Naperville, IL [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 - ----------------------------------------------------------------------------------------------------------------------- Property Name Autumn Run Apartments Country Lakes Management Company AIMCO AIMCO LOCATION: Address 1627 Country Lakes Drive 1598 Fairway Drive City, State Naperville, Illinois Naperville, IL County DuPage DuPage Proximity to Subject Next to subject (west) PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 245,748 583,494 Year Built 1986 1984 Effective Age 15 15 Building Structure Type Brick, wood & vinyl siding; shingle roof Brick; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open Open, Garages Number of Units 320 640 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Br/1Ba - 1A15 608 32 $675 4 1BD/1BH 714 17 $709 2 1Br/1Ba - 2A15 624 32 $734 5 1BD/1BH 782 72 $759 3 1Br/1Ba - 3A15 614 40 $700 6 1BD/1BH 850 34 $789 4 1Br/1Ba - 4A15 629 40 $686 8 2BD/1BH 920 157 $839 5 1Br/1Ba - 5A15 751 40 $740 9 2BD/2BH 934 288 $869 6 1Br/1 Ba - 6A15 774 40 $769 10 2BD/2BH 1,010 72 $899 7 2Br/1 Ba - 1B15 837 12 $855 8 2Br/1 Ba - 2B15 857 12 $844 9 2Br/2 Ba - 1C15 1,035 36 $928 10 2Br/2 Ba - 2C15 1,056 36 $946 Average Unit Size (SF) 768 912 Unit Breakdown: Efficiency 0% 2-Bedroom 30% Efficiency 0% 2-Bedroom 81% 1-Bedroom 70% 3-Bedroom 0% 1-Bedroom 19% 3-Bedroom 0% CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace X Skylights X Fireplace Skylights X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall X Tennis Court Secured Parking Tennis Court X Secured Parking X Racquet Ball Laundry Room Racquet Ball Laundry Room Jogging Track Business Office Jogging Track Business Office Gym Room X Gym Room OCCUPANCY: 97% 95% LEASING DATA: Available Leasing Terms 6 to 12 Months 6 to 12 Months, Variable Concessions $300 off the first month 1 month free rent Pet Deposit $300 $250 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash X Water X Trash Confirmation May 30 2003; Ben Egge (Property Manager) May 28 2003; Property Manager Telephone Number (630) 983-8411 (630) 527-2423 NOTES: None COMPARISON TO SUBJECT: Similar COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 - ------------------------------------------------------------------------------------------------------------------------------------ Property Name Chantecleer Lakes McDowell Place Apartments Management Company Equity Residential Equity Residential LOCATION: Address 1550 Raymond Drive 1647 Westminster Drive City, State Naperville, IL Naperville, IL County DuPage DuPage Proximity to Subject 1 mile east of the subject 1 mile east of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 287,392 406,400 Year Built 1983 1988 Effective Age 15 10 Building Structure Type Brick, wood & vinyl siding; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 304 400 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 5 1BD/1BH 728 48 $ 865 6 1BD/1BH 800 160 $ 860 7 1BD/1BH/Den 871 76 $ 950 10 2BD/2BH 1,140 160 $1,060 8 2BD/1BH 976 72 $ 975 10 2BD/1.5BH 1,200 80 $1,090 9 2BD/2BH 1,053 84 $1,070 10 3BD/2BH 1,147 24 $1,300 Average Unit Size (SF) 945 1,016 Unit Breakdown: Efficiency 0% 2-Bedroom 51% Efficiency 0% 2-Bedroom 60% 1-Bedroom 41% 3-Bedroom 8% 1-Bedroom 40% 3-Bedroom 0% CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace Skylights X Fireplace Skylights X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall 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 Business Office X Gym Room X Gym Room OCCUPANCY: 96% 96% LEASING DATA: Available Leasing Terms 6 to 12 Months, Variable 6 to 12 Months, Variable Concessions $500 off 2BD/2BH 1.5 to 2 Months Free Pet Deposit $200 - $300 $400 - $900 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash X Water X Trash Confirmation May 30 2003; (Property Manager) May 30 2003; (Property Manager) Telephone Number (630) 357-1632 (630) 983-7243 NOTES: None None COMPARISON TO SUBJECT: Similar Slightly Superior COMPARABLE DESCRIPTION R - 4 - ------------------------------------------------------------------------------------- Property Name Hunters Glen Management Company Laramar Group LOCATION: Address 245 North Oakhurst Drive City, State Aurora, IL County DuPage Proximity to Subject 4.5 miles south of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 283,376 Year Built 1989 Effective Age 10 Building Structure Type Brick & vinyl siding walls, asphalt shingle roof Parking Type (Gr., Cov., etc.) Open, Garages Number of Units 320 Unit Mix: Type Unit Qty. Mo. 4 1BD/1BH 682 56 $ 845 5 1BD/1BH 746 72 $ 855 8 2BD/1BH 875 48 $ 950 9 2BD/2BH 975 48 $ 995 9 2BD/2BH 1,050 60 $1,055 10 2BD/2BH Loft 1,102 36 $1,095 Average Unit Size (SF) 886 Unit Breakdown: Efficiency 0% 2-Bedroom 60% 1-Bedroom 40% 3-Bedroom 0% CONDITION: Good APPEAL: Good AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling X Balcony X W/D Connect. X Fireplace Skylights X Cable TV Ready Project Amenities Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment X Volleyball Court Theater Room Sand Volley Ball Meeting Hall X Tennis Court X Secured Parking X Racquet Ball Laundry Room Jogging Track X Business Office X Gym Room OCCUPANCY: 91% LEASING DATA: Available Leasing Terms 6 to 2 Months, Variable Concessions $1400 move in concession with 14 month lease Pet Deposit $350 - $500 Utilities Paid by Tenant: X Electric X Natural Gas X Water X Trash Confirmation May 30 2003; (Property Manager) Telephone Number (630) 820-9399 NOTES: Estimated $1.8 million worth of work upgrading the clubhouse. (roof and residing) COMPARISON TO SUBJECT: Slightly Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COUNTRY LAKES 1598 Fairway Drive Naperville, IL [PICTURE] COMPARABLE R-2 CHANTECLEER LAKES 1550 Raymond Drive Naperville, IL [PICTURE] COMPARABLE R-3 MCDOWELL PLACE APARTMENTS 1647 Westminster Drive Naperville, IL [PICTURE] COMPARABLE R-4 HUNTERS GLEN 245 North Oakhurst Drive Aurora, IL [PICTURE] N/A AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS 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 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS 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 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the American Society of Appraisers or the designations awarded by this organization) shall be disseminated to the public through prospectus, advertising, public relations, news, or any other means of communication without the written consent and approval of American Appraisal Associates, Inc. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS 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. Seamus P. King provided significant real property appraisal assistance in the preparation of this report. I am currently in compliance with the Appraisal Institutes continuing education requirements. -s- KENNETH W. KAPECKI ---------------------------- Ken Kapecki, MAI Managing Principal, Real Estate Group Illinois Certified General Real Estate Appraiser #153000331 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS EXHIBIT E QUALIFICATIONS OF APPRAISER (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS KENNETH W. KAPECKI, MAI MANAGING PRINCIPAL, REAL ESTATE GROUP POSITION Kenneth W. Kapecki is the Managing Principal for the Chicago Real Estate Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Mr. Kapecki has over 17 years of experience in providing valuation services to clients worldwide. He has a diversified background with considerable expertise in the valuation of special-purpose properties, large multilocational holdings, and investment-grade real estate. He has appraised steel mills, chemical plants, food processing facilities, airports, mines, railroad rights-of-way, hotels, and a variety of commercial and manufacturing facilities. Mr. Kapecki's experience further extends to highest and best use studies, feasibility studies, lease valuation analyses, cost segregation analyses, and insurable value analyses. His reports are most frequently prepared for acquisition, ad valorem tax, divestiture, financing, allocation of purchase price, litigation support, and value reporting. Over the years, he has completed appraisals in 50 states representing over $10 billion in value. Mr. Kapecki has developed a core competency in the valuation of hospitality property. He has appraised more than 150 hotels in the last two years alone for financing, acquisition due diligence, cost segregation, and feasibility. These properties consisted of a mixture of limited-service, full-service, and resort hotels located throughout the United States as well as in the Bahamas, Belize, and Guam. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS Court Mr. Kapecki has testified as an expert witness in state and federal district courts and by deposition statements and interrogatory communications. Business Prior to joining AAA in 2001, Mr. Kapecki was a senior manager in the Chicago Valuation Service Group of Arthur Andersen, where he served as the central regional team leader for real estate staff training, hospitality consulting, and the valuation of real estate. Prior to his employment with Arthur Andersen, Mr. Kapecki served as the manager of real estate valuations for Lloyd-Thomas Coats and Burchard Co. EDUCATION University of Wisconsin - La Crosse Bachelor of Science - Geography STATE CERTIFICATIONS State of Illinois, Certified General Real Estate Appraiser, #153000331 State of Indiana, Certified General Appraiser, #CG49600008 State of Michigan, Certified General Appraiser, #1201003145 State of Wisconsin, Certified General Appraiser and Licensed Appraiser, #641 PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS Chicago Chapter, Admissions Committee Member, 1997 - Present AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS VALUATION AND Appraisal Institute SPECIAL COURSES Appraisal Principles Case Studies in Real Estate Valuation Fair Lending and the Appraiser Highest & Best Use and Market Analysis Income Capitalization, Parts A and B Litigation Support: The Appraiser as an Expert Witness Partial Interest Valuation Real Estate Disclosure Report Writing Standards of Professional Practice Valuation of Detrimental Conditions Valuation Theory and Techniques Arthur Andersen, Course Developer Income Capitalization Theory and Techniques Introduction to the Cost Approach Property Inspection and Market Data Collection AMERICAN APPRAISAL ASSOCIATES, INC. AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS 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 ad faith or negligence. Co-Clients will not be liable for any of our acts or omissions. AAA is an equal opportunity employer. EX-99.(C)(2) 4 d07250a2exv99wxcyx2y.txt APPRAISAL OF COOPER'S POINTE APARTMENTS COOPER'S POINTE APARTMENTS 2225 GREENRIDGE ROAD NORTH CHARLESTON, SOUTH CAROLINA MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 28, 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. [LETTER OF American Appraisal Associates (R)] [American Appraisal Associates (R) LOGO] JULY 3, 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: COOPER'S POINTE APARTMENTS 2225 GREENRIDGE ROAD NORTH CHARLESTON, CHARLESTON COUNTY, SOUTH CAROLINA 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 192 units with a total of 161,664 square feet of rentable area. The improvements were built in 1986. The improvements are situated on 14.48 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 99% 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 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA 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 28, 2003 is: ($9,900,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. /s/ Frank Fehribach July 3, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group South Carolina Temporary Practice Permit #095-03 Report By: Jimmy Pat James, MAI South Carolina Temporary Practice Permit #103-03 Assisted By: David Johnsen, MAI AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary 4 Introduction 9 Area Analysis 11 Market Analysis 14 Site Analysis 16 Improvement Analysis 16 Highest and Best Use 17 VALUATION Valuation Procedure 18 Sales Comparison Approach 20 Income Capitalization Approach 26 Reconciliation and Conclusion 37 ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Cooper's Pointe Apartments LOCATION: 2225 Greenridge Road North Charleston, South Carolina 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 28, 2003 DATE OF REPORT: July 3, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 14.48 acres, or 630,749 square feet Assessor Parcel No.: 484-00-00-075 Floodplain: Community Panel No. 4500420005 C (November 5, 1096) Flood Zone C, an area outside the floodplain. Zoning: R-2 (Multi-family residential) BUILDING: No. of Units: 192 Units Total NRA: 161,664 Square Feet Average Unit Size: 842 Square Feet Apartment Density: 13.3 units per acre Year Built: 1986 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Square Market Rent Monthly Annual Unit Type Feet Per Unit Per SF Income Income - --------- ------ -------- ------ -------- ---------- 1Br/1Ba 697 $599 $0.86 $ 45,524 $ 546,288 2Br/2Ba 937 $699 $0.75 $ 81,084 $ 973,008 ----- -------- ---------- Total $126,608 $1,519,296
OCCUPANCY: 99% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 15 Years REMAINING ECONOMIC LIFE: 30 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA SUBJECT PHOTOGRAPHS [PICTURE ENTRANCE INTO PROJECT] [PICTURE INTERIOR OF CLUBHOUSE] AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA NEIGHBORHOOD MAP [MAP] HIGHEST AND BEST USE: As Vacant: Hold for future multi-family development As Improved: Continuation as its current use METHOD OF VALUATION: In this instance, the Sales Comparison and Income Approaches to value were utilized. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit - --------------------- -------------- -------------- Potential Rental Income $ 1,519,296 $ 7,913 Effective Gross Income $ 1,547,178 $ 8,058 Operating Expenses $ 661,039 $ 3,443 42.7% of EGI Net Operating Income: $ 838,139 $ 4,365 Capitalization Rate 8.50% DIRECT CAPITALIZATION VALUE $ 9,900,000 * $51,563 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 12% Stabilized Vacancy & Collection Loss: 6% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 10.00% Discount Rate 11.00% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $ 9,800,000 * $51,042 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $ 9,900,000 $51,563 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $27,691 to $66,383 Range of Sales $/Unit (Adjusted) $47,214 to $53,362 VALUE INDICATION - PRICE PER UNIT $ 9,600,000 * $50,000 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 4.88 to 7.15 Selected EGIM for Subject 6.50 Subject's Projected EGI $1,547,178 EGIM ANALYSIS CONCLUSION $ 10,100,000 * $52,604 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $ 10,000,000 * $52,083 / UNIT RECONCILED SALES COMPARISON VALUE $ 10,000,000 $52,083 / 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 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $ 9,600,000 NOI Per Unit $10,000,000 EGIM Multiplier $10,100,000 INDICATED VALUE BY SALES COMPARISON $10,000,000 $52,083 / UNIT INCOME APPROACH: Direct Capitalization Method: $ 9,900,000 Discounted Cash Flow Method: $ 9,800,000 INDICATED VALUE BY THE INCOME APPROACH $ 9,900,000 $51,563 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $ 9,900,000 $51,563 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 2225 Greenridge Road, North Charleston, Charleston County, South Carolina. North Charleston identifies it as 484-00-00-075. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by David Johnsen, MAI on May 28, 2003. Jimmy Pat James, MAI and Frank Fehribach, MAI have not made a personal inspection of the subject property. David Johnsen, MAI assisted Jimmy Pat James, MAI in the research, valuation analysis and writing the report. Frank Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach, MAI, Jimmy Pat James, MAI, and David Johnsen, MAI 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 28, 2003. The date of the report is July 3, 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 & AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is 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 Century Properties Growth Fund XXII. 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 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA 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 North Charleston, South Carolina. 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 - US-52 West - Interstate Highway 26 South - US-52 Connector North - University Boulevard MAJOR EMPLOYERS Major employers in the subject's area include Trident Regional Hospital, Charleston Southern University, and the Charleston International Airport.. 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 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA NEIGHBORHOOD DEMOGRAPHICS
AREA ---------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - --------------------------- ------------ ------------ ------------ ------- POPULATION TRENDS Current Population 6,808 42,433 103,689 555,374 5-Year Population 7,450 43,187 105,069 573,153 % Change CY-5Y 9.4% 1.8% 1.3% 3.2% Annual Change CY-5Y 1.9% 0.4% 0.3% 0.6% HOUSEHOLDS Current Households 3,161 16,585 37,973 213,507 5-Year Projected Households 3,629 17,370 39,219 225,969 % Change CY - 5Y 14.8% 4.7% 3.3% 5.8% Annual Change CY-5Y 3.0% 0.9% 0.7% 1.2% INCOME TRENDS Median Household Income $38,671 $35,708 $37,117 $37,645 Per Capita Income $20,453 $18,131 $17,494 $20,671 Average Household Income $48,384 $46,704 $48,172 $53,767 Source: Demographics Now
The subject neighborhood's population is expected to show increases above 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 49.57% 43.34% 39.88% 29.38% 5-Year Projected % Renting 48.50% 42.25% 37.35% 28.21% % of Households Owning 45.02% 49.62% 52.78% 60.14% 5-Year Projected % Owning 46.62% 50.93% 55.52% 61.84%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA SURROUNDING IMPROVEMENTS The following uses surround the subject Property: North - Single Family South - Farrington Place Apartments East - Commercial West - Jamison Park Apartments CONCLUSIONS The subject is well located within the city of North Charleston. 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 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA MARKET ANALYSIS The subject property is located in the city of North Charleston in Charleston County. The overall pace of development in the subject's market is more or less decreasing. The most recent apartment construction in the area is Jamison Park (YOC 2001), which borders the subject property to the west. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - ----------------------------- ------ --------- Dec. '00 8.5% 5.7% June '01 8.9% 7.9% Dec. '01 10.2% 8.4% June '02 8.9% 6.4% Dec. '02 8.9% 7.7% Source: Carolina's Real Data
Occupancy trends in the subject's market are an increasing. Historically speaking, the subject's submarket has outperformed the overall market. This market has been exhibiting an increase in the overall vacancy rate; however, it remains below. the overall market as a whole. Market rents in the subject's market have been following increasing trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change - ---------------------------- ------ -------- --------- -------- Dec. '00 $626 - $528 - June '01 $644 2.9% $538 1.9% Dec. '01 $654 1.6% $548 1.9% June '02 $672 2.8% $556 1.5% Dec/ '02 $678 0.9% $558 0.4% Source: Carolina's Real Data
The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject - ------- -------------------------- ----- ----- ---------- --------------------------- R-1 Deer Run 152 95% 1985 1 mile north of the subject R-2 Farrington Place 168 97% 1989 Right next to the subject R-3 Jamison Park 216 94% 2001 Right next to the subject R-4 Springhouse Apartments 248 90% 1985 1 block south of the subject R-5 Audubon Park 228 93% 1991 1 mile east of the subject Subject Cooper's Pointe Apartments 192 99% 1986
reflection of the increasing vacancy rates. Overall, this market commands slightly lower rates than the overall Charleston market. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 14.48 acres, or 630,749 square feet Shape Irregular Topography Level Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Good Flood Zone: Community Panel 4500420005 C, dated November 5, 1096 Flood Zone Zone C Zoning R-2, 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 - ------------- -------- ---------- ---------- --------- -------- 484-00-00-075 $652,000 $7,066,000 $7,718,000 0.01577 $121,692
IMPROVEMENT ANALYSIS Year Built 1986 Number of Units 192 Net Rentable Area 161,664 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Brick or masonry Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, spa/jacuzzi, tennis court, laundry room, business office, and parking area. Unit Amenities Individual unit amenities include a balcony, fireplace, cable TV connection, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, water heater, garbage disposal, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - --------- --------------- --------- 1Br/1Ba 76 697 2Br/2Ba 116 937
Overall Condition Average Effective Age 15 years Economic Life 45 years Remaining Economic Life 30 years Deferred Maintenance None HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1986 and consist of a 192-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 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA 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 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA 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 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA 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 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I -2 I - 3 ----------- ------- ----------- ---------- ---------- Property Name Cooper's Pointe Melrose Park Carrington Place Martin's Creek Apartments LOCATION: Address 2225 Greenridge 2494 Etiwan 1300 Park West 700 Martin's Road Avenue Boulevard Creek Blvd. City, State North Charleston, Charleston, SC Mt. Pleasant SC Summerville, SC South Carolina County Charleston Charleston Charleston Dorchester PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 161,664 141,024 236,128 195,200 Year Built 1986 1972 2000 1985 Number of Units 192 156 244 200 Unit Mix: Type Total Type Total Type Total Type Total 1Br/1Ba 76 1Br/1Ba 102 1Br/1Ba 96 1Br/1Ba 48 2Br/2Ba 116 2Br/1.5Ba 54 2Br/2Ba 128 2Br/2Ba 128 3Br/2Ba 20 3Br/2Ba 24 Average Unit Size (SF) 842 904 968 976 Land Area (Acre) 14.4800 9.0000 19.0000 N/A Density (Units/Acre) 13.3 17.3 12.8 Parking Ratio (Spaces/Unit) 0.00 N/A N/A N/A Parking Type (Gr., Cov., etc.) Open Open Garages, Open Open CONDITION: Good Average Very Good Average APPEAL: Good Average Very Good Average AMENITIES: Pool/Spa Yes/Yes Yes/Yes Yes/Yes Yes/Yes Gym Room No Yes Yes Yes Laundry Room Yes Yes Yes Yes Secured Parking No Yes Yes No Sport Courts No Yes Yes No Washer/Dryer Connection Yes No Yes Yes Fireplaces No No No Yes OCCUPANCY: 99% 95% N/A 96% TRANSACTION DATA: Sale Date February, 2002 June, 2001 December, 2000 Sale Price ($) $6,202,410 $16,197,370 $10,000,000 Grantor N/A The Spanos N/A Corporation Grantee JRC JV Town Place Limited Jupiter Realty Melrose, LLC Partnership, LLC Sale Book K387, Book A375, N/A Documentation Page 564 Page 699 Verification Real Data Confidential Real Data Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,050,840 $6,736 $7.45 $2,416,800 $9,905 $10.24 $1,473,120 $7,366 $7.55 Vacancy/Credit Loss $ 52,542 $ 337 $0.37 $ 145,008 $ 594 $ 0.61 $ 73,656 $ 368 $0.38 Effective Gross Income $ 998,298 $6,399 $7.08 $2,271,792 $9,311 $ 9.62 $1,399,464 $6,997 $7.17 Operating Expenses $ 499,200 $3,200 $3.54 $ 942,748 $3,864 $ 3.99 $ 600,000 $3,000 $3.07 Net Operating Income $ 499,098 $3,199 $3.54 $1,329,044 $5,447 $ 5.63 $ 799,464 $3,997 $4.10 NOTES: None None None PRICE PER UNIT $39,759 $66,383 $50,000 PRICE PER SQUARE FOOT $ 43.98 $ 68.60 $ 51.23 EXPENSE RATIO 50.0% 41.5% 42.9% EGIM 6.21 7.13 7.15 OVERALL CAP RATE 8.05% 8.21% 7.99% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA PRO FORMA COMPARABLE COMPARABLE DESCRIPTION I - 4 I - 5 ----------- ---------- ---------- Property Name Peppertree Westbury Mews LOCATION: Address 4640 Forest 1425 Old Trolley Hills Drive Road City, State N. Charleston, SC Summerville, SC County Charleston Dorchester PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 302,168 118,536 Year Built 1980 1988 Number of Units 353 132 Unit Mix: Type Total Type Total 1Br/1Ba 122 1Br/1Ba 44 2Br/2Ba 231 2Br/1Ba 12 2Br/2Ba 60 3Br/2Ba 16 Average Unit Size (SF) 856 898 Land Area (Acre) N/A N/A Density (Units/Acre) Parking Ratio (Spaces/Unit) N/A N/A Parking Type (Gr., Cov., etc.) Open Open CONDITION: Average Good APPEAL: Average Good AMENITIES: Pool/Spa Yes/Yes Yes/Yes Gym Room No Yes Laundry Room Yes Yes Secured Parking No No Sport Courts No No Washer/Dryer Connection No No Fireplaces No Yes OCCUPANCY: 92% 98% TRANSACTION DATA: Sale Date March, 1999 September, 1998 Sale Price ($) $9,775,000 $6,125,000 Grantor N/A N/A Grantee Peppertree High Associates, I, LLC Ltd. Sale Book F323, N/A Documentation Page 772 Verification Real Data Real Data Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $2,163,648 $6,129 $7.16 $960,384 $7,276 $8.10 Vacancy/Credit Loss $ 162,274 $ 460 $0.54 $ 48,019 $ 364 $0.41 Effective Gross Income $2,001,374 $5,670 $6.62 $912,365 $6,912 $7.70 Operating Expenses $1,059,000 $3,000 $3.50 $396,000 $3,000 $3.34 Net Operating Income $ 942,374 $2,670 $3.12 $516,365 $3,912 $4.36 NOTES: None None PRICE PER UNIT $27,691 $46,402 PRICE PER SQUARE FOOT $ 32.35 $ 51.67 EXPENSE RATIO 52.9% 43.4% EGIM 4.88 6.71 OVERALL CAP RATE 9.64% 8.43% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA [PICTURE IMPROVED SALES ANALYSIS] [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $27,691 to $66,383 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 $47,214 to $53,362 per unit with a mean or average adjusted price of $50,971 per unit. The median adjusted price is $52,250 per unit. Based on the following analysis, we have concluded to a value of $50,000 per unit, which results in an "as is" value of $9,600,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ----------- ------- ---------- ---------- Property Name Cooper's Pointe Apartments MelrosePark Carrington Place Address 2225 Greenridge Road 2494 Etiwan Avenue 1300 Park West Boulevard City North Charleston, South Carolina Charleston, SC Mt. Pleasant, SC Sale Date February, 2002 June, 2001 Sale Price ($) $6,202,410 $16,197,370 Net Rentable Area (SF) 161,664 141,024 236,128 Number of Units 192 156 244 Price Per Unit $39,759 $66,383 Year Built 1986 1972 2000 Land Area (Acre) 14.4800 9.0000 19.0000 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 02-2002 3% June, 2001 5% VALUE AFTER TRANS. ADJUST. ($/UNIT) $40,952 $69,702 Location Comparable 0% Comparable 0% Number of Units 192 156 0% 244 0% Quality / Appeal Good Inferior 20% Superior -10% Age / Condition 1986 1972 / Average 10% 2000 / Very Good -10% Occupancy at Sale 99% 95% 0% N/A 0% Amenities Good Comparable 0% Superior -10% Average Unit Size (SF) 842 904 0% 968 0% PHYSICAL ADJUSTMENT 30% -30% FINAL ADJUSTED VALUE ($/UNIT) $53,237 $48,791 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 ----------- ---------- ---------- ---------- Property Name Martin's Creek Peppertree Westbury Mews Address 700 Martin's Creek Blvd. 4640 Forest Hills Drive 1425 Old Trolley Road City Summerville, SC N. Charleston, SC Summerville, SC Sale Date December, 2000 March, 1999 September, 1998 Sale Price ($) $10,000,000 $9,775,000 $6,125,000 Net Rentable Area (SF) 195,200 302,168 118,536 Number of Units 200 353 132 Price Per Unit $50,000 $27,691 $46,402 Year Built 1985 1980 1988 Land Area (Acre) N/A N/A N/A VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) December, 2000 10% 03-1999 10% 09-1998 15% VALUE AFTER TRANS. ADJUST. ($/UNIT) $55,000 $30,460 $53,362 Location Comparable 0% Inferior 25% Comparable 0% Number of Units 200 0% 353 0% 132 0% Quality / Appeal Comparable 0% Inferior 20% Comparable 0% Age / Condition 1985 / Average 0% 1980 / Average 10% 1988 / Good 0% Occupancy at Sale 96% 0% 92% 0% 98% 0% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 976 -5% 856 0% 898 0% PHYSICAL ADJUSTMENT -5% 55% 0% FINAL ADJUSTED VALUE ($/UNIT) $52,250 $47,214 $53,362
SUMMARY VALUE RANGE (PER UNIT) $47,214 TO $53,362 MEAN (PER UNIT) $50,971 MEDIAN (PER UNIT) $52,250 VALUE CONCLUSION (PER UNIT) $50,000
VALUE INDICATED BY SALES COMPARISON APPROACH $9,600,000 ROUNDED $9,600,000
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 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA NOI PER UNIT COMPARISON
COMPARABLE NO. OF SALE PRICE NOI/ SUBJECT NOI ADJUSTMENT INDICATED NO. UNITS PRICE/UNIT OAR NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT - ---------- ------ ---------- --- -------- -------------- ---------- ---------- I-1 156 $ 6,202,410 8.05% $ 499,098 $838,139 1.364 $54,249 $ 39,759 $ 3,199 $ 4 ,365 I-2 244 $16,197,370 8.21% $1,329,044 $838,139 0.801 $53,201 $ 66,383 $ 5,447 $ 4,365 I-3 200 $10,000,000 7.99% $ 799,464 $838,139 1.092 $54,603 $ 50,000 $ 3,997 $ 4,365 I-4 353 $ 9,775,000 9.64% $ 942,374 $838,139 1.635 $45,280 $ 27,691 $ 2,670 $ 4,365 I-5 132 $ 6,125,000 8.43% $ 516,365 $838,139 1.116 $51,780 $ 46,402 $ 3,912 $ 4,365
PRICE/UNIT VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT ---------- ------------------------------------------------ Low High Average Median Estimated Price Per Unit $ 52,000 Number of Units 192 $45,280 $54,603 $51,823 $53,201 ----------- Value Based on NOI Analysis $ 9,984,000 Rounded $10,000,000
The adjusted sales indicate a range of value between $45,280 and $54,603 per unit, with an average of $51,823 per unit. Based on the subject's competitive position within the improved sales, a value of $52,000 per unit is estimated. This indicates an "as is" market value of $10,000,000 (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 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON
COMPARABLE NO. OF SALE PRICE EFFECTIVE OPERATING SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM - ---------- ------ ---------- ------------ ---------- --- ------------- ----- I-1 156 $ 6,202,410 $ 998,298 $ 499,200 50.01% 6.21 $ 39,759 I-2 244 $16,197,370 $2,271,792 $ 942,748 41.50% 7.13 $ 66,383 I-3 200 $10,000,000 $1,399,464 $ 600,000 42.87% 7.15 $ 50,000 42.73% I-4 353 $ 9,775,000 $2,001,374 $1,059,000 52.91% 4.88 $ 27,691 I-5 132 $ 6,125,000 $ 912,365 $ 396,000 43.40% 6.71 $ 46,402
EGIM VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES ---- -------------------------------------------------- Low High Average Median Estimate EGIM 6.50 Subject EGI $ 1,547,178 4.88 7.15 6.42 6.71 ----------- Value Based on EGIM Analysis $10,056,659 Rounded $10,100,000 Value Per Unit $ 52,604
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 42.73% before reserves. The comparable sales indicate a range of expense ratios from 41.50% to 52.91%, while their EGIMs range from 4.88 to 7.15. Overall, we conclude to an EGIM of 6.50, which results in an "as is" value estimate in the EGIM Analysis of $10,100,000. 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 $10,000,000. Price Per Unit $ 9,600,000 NOI Per Unit $10,000,000 EGIM Analysis $10,100,000 Sales Comparison Conclusion $10,000,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA 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 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA 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 Type Unit Area (Sq.Ft.) Per Unit Per SF %Occupied - ----------- ------------------ -------- -------- --------- 1Br/1Ba 697 $588 $0.84 100.0% 2Br/2Ba 937 $686 $0.73 98.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA RENT ANALYSIS
COMPARABLE RENTS -------------------------------------------------------- R-1 R-2 R-3 R-4 R-5 -------------------------------------------------------- Deer Farrington Jamison Springhouse Audubon Run Place Park Apartments Park SUBJECT SUBJECT SUBJECT -------------------------------------------------------- UNIT ACTUAL ASKING DESCRIPTION TYPE RENT RENT COMPARISON TO SUBJECT - -------------- ------- ------- ------- -------------------------------------------------------- Similar Superior Superior Inferior Similar -------- ---------- -------- ----------- ------- Monthly Rent 1BR/1BA $ 588 $ 599 $ 580 $ 625 $ 625 $ 542 $ 627 Unit Area (SF) 697 697 780 738 692 718 775 Monthly Rent Per Sq. Ft. $0.84 $0.86 $ 0.74 $ 0.85 $ 0.90 $ 0.75 $ 0.81 Monthly Rent 2BR/2BA $ 686 $ 699 $ 660 $ 730 $ 755 $ 659 $ 725 Unit Area (SF) 937 937 960 988 1,000 934 970 Monthly Rent Per Sq. Ft. $0.73 $0.75 $ 0.69 $ 0.74 $ 0.76 $ 0.71 $ 0.75
DESCRIPTION MIN MAX MEDIAN AVERAGE - -------------- ------- ------- ------- -------- Monthly Rent $ 542 $ 627 $ 625 $ 600 Unit Area (SF) 692 780 738 741 Monthly Rent Per Sq. Ft. $0.74 $ 0.90 $ 0.81 $ 0.81 Monthly Rent $ 659 $ 755 $ 725 $ 706 Unit Area (SF) 934 1,000 970 970 Monthly Rent Per Sq. Ft. $0.69 $ 0.76 $ 0.74 $ 0.73
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 76 697 $599 $0.86 $ 45,524 $ 546,288 2Br/2Ba 116 937 $699 $0.75 $ 81,084 $ 973,008 Total $ 126,608 $1,519,296
PRO FORMA ANALYSIS For purposes of this appraisal, we were provided with income and expense data for the subject property. A summary of this data is presented on the following page. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 ------------ ------------ ------------ ------------ ------------ ------------ DESCRIPTION ACTUAL ACTUAL ACTUAL TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT - --------------------------- ------------ ------------ ------------ ------------ ------------ ------------ Revenues Rental Income $ 1,518,195 $ 7,907 $ 1,557,528 $ 8,112 $ 1,482,750 $ 7,723 Vacancy $ 68,484 $ 357 $ 152,502 $ 794 $ 113,354 $ 590 Credit Loss/Concessions $ 57,412 $ 299 $ 125,499 $ 654 $ 65,031 $ 339 ------------ ------------ ------------ ------------ ------------ ------------ Subtotal $ 125,896 $ 656 $ 278,001 $ 1,448 $ 178,385 $ 929 Laundry Income $ 2,607 $ 14 $ 3,950 $ 21 $ 1,617 $ 8 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 93,696 $ 488 $ 90,335 $ 470 $ 143,707 $ 748 ------------ ------------ ------------ ------------ ------------ ------------ Subtotal Other Income $ 96,303 $ 502 $ 94,285 $ 491 $ 145,324 $ 757 ------------ ------------ ------------ ------------ ------------ ------------ Effective Gross Income $ 1,488,602 $ 7,753 $ 1,373,812 $ 7,155 $ 1,449,689 $ 7,550 Operating Expenses Taxes $ 105,946 $ 552 $ 105,131 $ 548 $ 148,277 $ 772 Insurance $ 19,868 $ 103 $ 43,907 $ 229 $ 43,970 $ 229 Utilities $ 78,837 $ 411 $ 74,212 $ 387 $ 83,165 $ 433 Repair & Maintenance $ 131,403 $ 684 $ 127,963 $ 666 $ 134,948 $ 703 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 38,342 $ 200 $ 16,827 $ 88 $ 16,784 $ 87 General Administrative $ 150,301 $ 783 $ 164,798 $ 858 $ 145,806 $ 759 Management $ 75,711 $ 394 $ 74,463 $ 388 $ 76,204 $ 397 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------ ------------ ------------ ------------ ------------ ------------ Total Operating Expenses $ 600,408 $ 3,127 $ 607,301 $ 3,163 $ 649,154 $ 3,381 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------ ------------ ------------ ------------ ------------ ------------ Net Income $888,194 $ 4,626 $ 766,511 $ 3,992 $ 800,535 $ 4,169 ------------ ------------ ------------ ------------ ------------ ------------
FISCAL YEAR 2003 ANNUALIZED 2003 AAA PROJECTION ------------ ------------ ------------ ------------ ------------------------------------- MANAGEMENT BUDGET PROJECTION DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % - --------------------------- ------------ ------------ ------------ ------------ ------------ ------------ ------ Revenues Rental Income $ 1,471,500 $ 7,664 $ 1,479,120 $ 7,704 $ 1,519,296 $ 7,913 100.0% Vacancy $ 86,500 $ 451 $ 53,468 $ 278 $ 75,965 $ 396 5.0% Credit Loss/Concessions $ 33,180 $ 173 $ 46,556 $ 242 $ 15,193 $ 79 1.0% ------------ ------------ ------------ ------------ ------------ ------------ ------ Subtotal $ 119,680 $ 623 $ 100,024 $ 521 $ 91,158 $ 475 6.0% Laundry Income $ 8,400 $ 44 $ 5,992 $ 31 $ 3,840 $ 20 0.3% Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 117,000 $ 609 $ 119,024 $ 620 $ 115,200 $ 600 7.6% ------------ ------------ ------------ ------------ ------------ ------------ ------ Subtotal Other Income $ 125,400 $ 653 $ 125,016 $ 651 $ 119,040 $ 620 7.8% ------------ ------------ ------------ ------------ ------------ ------------ ------ Effective Gross Income $ 1,477,220 $ 7,694 $ 1,504,112 $ 7,834 $ 1,547,178 $ 8,058 100.0% Operating Expenses Taxes $ 143,123 $ 745 $ 156,440 $ 815 $ 153,600 $ 800 9.9% Insurance $ 44,396 $ 231 $ 42,340 $ 221 $ 44,160 $ 230 2.9% Utilities $ 78,000 $ 406 $ 81,320 $ 424 $ 80,640 $ 420 5.2% Repair & Maintenance $ 138,500 $ 721 $ 139,656 $ 727 $ 139,200 $ 725 9.0% Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 17,100 $ 89 $ 18,636 $ 97 $ 17,280 $ 90 1.1% General Administrative $ 141,274 $ 736 $ 149,052 $ 776 $ 148,800 $ 775 9.6% Management $ 74,061 $ 386 $ 78,516 $ 409 $ 77,359 $ 403 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Total Operating Expenses $ 636,454 $ 3,315 $ 665,960 $ 3,469 $ 661,039 $ 3,443 42.7% ------------ ------------ ------------ ------------ ------------ ------------ ------ Reserves $ 0 $ 0 $ 0 $ 0 $ 48,000 $ 250 7.3% ------------ ------------ ------------ ------------ ------------ ------------ ------ Net Income $ 840,766 $ 4,379 $ 838,152 $ 4,365 $ 838,139 $ 4,365 54.2% ------------ ------------ ------------ ------------ ------------ ------------ ------
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 6% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $250 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $250 per unit should be satisfactory in our reserves for replacement to cover future capital expenditures. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of the annual cash flows and discounts them, along with the expected equity reversion, to a present value. The present value of the cash flow is added to the present value of the reversion, resulting in a total property value. INVESTMENT CRITERIA Appropriate investment criteria will be derived for the subject based upon analysis of comparable sales and a survey of real estate investors. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 1ST QUARTER 2003 NATIONAL APARTMENT MARKET CAPITALIZATION RATES
GOING-IN TERMINAL LOW HIGH LOW HIGH RANGE 6.00% 10.00% 7.00% 10.00% AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR I-1 Feb-02 95% $39,759 8.05% I-2 June, 2001 N/A $66,383 8.21% I-3 December, 2000 96% $50,000 7.99% I-4 Mar-99 92% $27,691 9.64% I-5 Sep-98 98% $46,402 8.43% High 9.64% Low 7.99% Average 8.46%
Based on this information, we have concluded the subject's overall capitalization rate should be 8.50%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 10.00%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 11.00%. 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 11.00% indicates a value of $9,800,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA approximately 40% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA DISCOUNTED CASH FLOW ANALYSIS COOPER'S POINTE 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 $1,519,296 $1,564,875 $1,611,821 $1,660,176 $1,709,981 $1,761,280 Vacancy $ 75,965 $ 78,244 $ 80,591 $ 83,009 $ 85,499 $ 88,064 Credit Loss $ 15,193 $ 15,649 $ 16,118 $ 16,602 $ 17,100 $ 17,613 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------------------- Subtotal $ 91,158 $ 93,892 $ 96,709 $ 99,611 $ 102,599 $ 105,677 Laundry Income $ 3,840 $ 3,955 $ 4,074 $ 4,196 $ 4,322 $ 4,452 GarageRevenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 115,200 $ 118,656 $ 122,216 $ 125,882 $ 129,659 $ 133,548 --------------------------------------------------------------------------------------- Subtotal Other Income $ 119,040 $ 122,611 $ 126,290 $ 130,078 $ 133,981 $ 138,000 EFFECTIVE GROSS INCOME $1,547,178 $1,593,594 $1,641,401 $1,690,643 $1,741,363 $1,793,604 OPERATING EXPENSES: Taxes $ 153,600 $ 158,208 $ 162,954 $ 167,843 $ 172,878 $ 178,064 Insurance $ 44,160 $ 45,485 $ 46,849 $ 48,255 $ 49,702 $ 51,194 Utilities $ 80,640 $ 83,059 $ 85,551 $ 88,118 $ 90,761 $ 93,484 Repair & Maintenance $ 139,200 $ 143,376 $ 147,677 $ 152,108 $ 156,671 $ 161,371 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 17,280 $ 17,798 $ 18,332 $ 18,882 $ 19,449 $ 20,032 GeneralAdministrative $ 148,800 $ 153,264 $ 157,862 $ 162,598 $ 167,476 $ 172,500 Management $ 77,359 $ 79,680 $ 82,070 $ 84,532 $ 87,068 $ 89,680 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 661,039 $ 680,870 $ 701,296 $ 722,335 $ 744,005 $ 766,325 Reserves $ 48,000 $ 49,440 $ 50,923 $ 52,451 $ 54,024 $ 55,645 --------------------------------------------------------------------------------------- NET OPERATING INCOME $ 838,139 $ 863,284 $ 889,182 $ 915,857 $ 943,333 $ 971,633 ======================================================================================= Operating Expense Ratio (% of EGI) 42.7% 42.7% 42.7% 42.7% 42.7% 42.7% Operating Expense Per Unit $ 3,443 $ 3,546 $ 3,653 $ 3,762 $ 3,875 $ 3,991 ======================================================================================= YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 - --------------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $1,814,119 $1,868,542 $1,924,599 $1,982,337 $2,041,807 Vacancy $ 90,706 $ 93,427 $ 96,230 $ 99,117 $ 102,090 Credit Loss $ 18,141 $ 18,685 $ 19,246 $ 19,823 $ 20,418 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------- Subtotal $ 108,847 $ 112,113 $ 115,476 $ 118,940 $ 122,508 Laundry Income $ 4,585 $ 4,723 $ 4,864 $ 5,010 $ 5,161 GarageRevenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 137,555 $ 141,681 $ 145,932 $ 150,310 $ 154,819 -------------------------------------------------------------------------- Subtotal Other Income $ 142,140 $ 146,404 $ 150,796 $ 155,320 $ 159,980 EFFECTIVE GROSS INCOME $1,847,412 $1,902,834 $1,959,919 $2,018,717 $2,079,278 OPERATING EXPENSES: Taxes $ 183,406 $ 188,909 $ 194,576 $ 200,413 $ 206,426 Insurance $ 52,729 $ 54,311 $ 55,941 $ 57,619 $ 59,347 Utilities $ 96,288 $ 99,177 $ 102,152 $ 105,217 $ 108,373 Repair & Maintenance $ 166,212 $ 171,198 $ 176,334 $ 181,624 $ 187,073 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 20,633 $ 21,252 $ 21,890 $ 22,546 $ 23,223 GeneralAdministrative $ 177,675 $ 183,005 $ 188,495 $ 194,150 $ 199,975 Management $ 92,371 $ 95,142 $ 97,996 $ 100,936 $ 103,964 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 789,315 $ 812,994 $ 837,384 $ 862,506 $ 888,381 Reserves $ 57,315 $ 59,034 $ 60,805 $ 62,629 $ 64,508 -------------------------------------------------------------------------- NET OPERATING INCOME $1,000,782 $1,030,806 $1,061,730 $1,093,582 $1,126,389 ========================================================================== Operating Expense Ratio (% of EGI) 42.7% 42.7% 42.7% 42.7% 42.7% Operating Expense Per Unit $ 4,111 $ 4,234 $ 4,361 $ 4,492 $ 4,627 ==========================================================================
"DCF" VALUE ANALYSIS Gross Residual Sale Price $11,263,892 Deferred Maintenance $ 0 Estimated Stabilized NOI $838,139 Sales Expense Rate 2.00% Less: Sales Expense $ 225,278 Add: Excess Land $ 0 ----------- Months to Stabilized 1 Discount Rate 11.00% Net Residual Sale Price $11,038,614 Other Adjustments $ 0 ---------- Stabilized Occupancy 95.0% Terminal Cap Rate 10.00% PV of Reversion $ 3,887,628 Value Indicated By "DCF" $9,763,045 Add: NPV of NOI $ 5,875,416 Rounded $9,800,000 ----------- PV Total $ 9,763,045
"DCF" VALUE SENSITIVITY TABLE
TOTAL VALUE DISCOUNT RATE ----------------------------------------------------------------------------------------- TERMINAL CAP RATE 10.50% 10.75% 11.00% 11.25% 11.50% 9.50% $10,298,440 $10,131,226 $9,967,657 $9,807,641 $9,651,089 9.75% $10,188,665 $10,023,904 $9,862,728 $9,705,046 $9,550,771 10.00% $10,084,379 $ 9,921,948 $9,763,045 $9,607,581 $9,455,469 10.25% $ 9,985,180 $ 9,824,966 $9,668,225 $9,514,870 $9,364,816 10.50% $ 9,890,705 $ 9,732,601 $9,577,920 $9,426,574 $9,278,480
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA 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 a the subject property or in the subject's market. Therefore, no adjustment was included for concessions. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 8.50% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA COOPER'S POINTE APARTMENTS
TOTAL PER SQ. FT. PER UNIT %OF EGI - ------------------------------------------------------------------------------------------------------------------------------ REVENUE Base Rent $1,519,296 $9.40 $ 7,913 Less: Vacancy & Collection Loss 6.00% $ 91,158 $0.56 $ 475 Plus: Other Income Laundry Income $ 3,840 $0.02 $ 20 0.25% Garage Revenue $ 0 $0.00 $ 0 0.00% Other Misc. Revenue $ 115,200 $0.71 $ 600 7.45% -------------------------------------------------------------- Subtotal Other Income $ 119,040 $0.74 $ 620 7.69% EFFECTIVE GROSS INCOME $1,547,178 $9.57 $ 8,058 OPERATING EXPENSES: Taxes $ 153,600 $0.95 $ 800 9.93% Insurance $ 44,160 $0.27 $ 230 2.85% Utilities $ 80,640 $0.50 $ 420 5.21% Repair & Maintenance $ 139,200 $0.86 $ 725 9.00% Cleaning $ 0 $0.00 $ 0 0.00% Landscaping $ 0 $0.00 $ 0 0.00% Security $ 0 $0.00 $ 0 0.00% Marketing & Leasing $ 17,280 $0.11 $ 90 1.12% General Administrative $ 148,800 $0.92 $ 775 9.62% Management 5.00% $ 77,359 $0.48 $ 403 5.00% Miscellaneous $ 0 $0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 661,039 $4.09 $ 3,443 42.73% Reserves $ 48,000 $0.30 $ 250 3.10% -------------------------------------------------------------- NET OPERATING INCOME $ 838,139 $5.18 $ 4,365 54.17% -------------------------------------------------------------- "GOING IN" CAPITALIZATION RATE 8.50% VALUE INDICATION $9,860,463 $60.99 $51,357 "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $9,860,463 ROUNDED $9,900,000 $61.24 $51,563
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE CAP RATE VALUE ROUNDED $/UNIT $/SF 7.75% $10,814,701 $10,800,000 $ 56,250 $ 66.81 8.00% $10,476,742 $10,500,000 $ 54,688 $ 64.95 8.25% $10,159,265 $10,200,000 $ 53,125 $ 63.09 8.50% $ 9,860,463 $ 9,900,000 $ 51,563 $ 61.24 8.75% $ 9,578,735 $ 9,600,000 $ 50,000 $ 59.38 9.00% $ 9,312,659 $ 9,300,000 $ 48,438 $ 57.53 9.25% $ 9,060,966 $ 9,100,000 $ 47,396 $ 56.29
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $9,900,000. 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 $9,800,000 Direct Capitalization Method $9,900,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $9,900,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA 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 $10,000,000 Income Approach $ 9,900,000 Reconciled Value $ 9,900,000
The Income Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Income 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 28, 2003 the market value of the fee simple estate in the property is: $9,900,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CARLINA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA SUBJECT PHOTOGRAPHS [ENTRANCE INTO PROJECT PICTURE] [INTERIOR OF CLUBHOUSE PICTURE] [POOL AND SPA PICTURE] [INTERIOR - APARTMENT UNIT PICTURE] [EXTERIOR - APARTMENT UNITS PICTURE] [EXTERIOR - APARTMENT UNITS PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA SUBJECT PHOTOGRAPHS [INTERIOR - LIVING ROOM PICTURE] [INTERIOR - KITCHEN PICTURE] [INTERIOR - BATHROOM PICTURE] [INTERIOR - BEDROOM PICTURE] [EXTERIOR - BALCONY PICTURE] [EXTERIOR - STORAGE CLOSET AND LANDING AREA PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 MELROSE PARK CARRINGTON PLACE MARTIN'S CREEK 2494 Etiwan Avenue 1300 Park West Boulevard 700 Martin's Creek Blvd. Charleston, SC Mt. Pleasant, SC Summerville, SC [PICTURE] [PICTURE] [PICTURE]
COMPARABLE I-4 COMPARABLE I-5 PEPPERTREE WESTBURY MEWS 4640 Forest Hills Drive 1425 Old Trolley Road N. Charleston, SC Summerville, SC [PICTURE] [PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 - ----------------------------------------------------------------------------------------------------------------------------------- Property Name Cooper's Pointe Apartments Deer Run Management Company AIMCO Churchill Forge Properties LOCATION: Address 2225 Greenridge Road 8755 Jenny Lind Street City, State North Charleston, South Carolina North Charleston, South Carolina County Charleston Charleston Proximity to Subject 1 mile north of the subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 161,664 138,080 Year Built 1986 1985 Effective Age 15 15 Building Structure Type Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 192 152 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Br/1Ba 697 76 $588 1 1BD/1BH 780 56 $580 2 2Br/2Ba 937 116 $686 2 2BD/2BH 960 80 $660 0 3BD/2BH 1,100 16 $790 Average Unit Size (SF) 842 908 Unit Breakdown: Efficiency 0% 2-Bedroom 60% Efficiency 0% 2-Bedroom 53% 1-Bedroom 40% 3-Bedroom 0% 1-Bedroom 37% 3-Bedroom 10% CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage X Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace X Fireplace X X Cable TV Ready X Cable TV Ready Full-size washer/dryer Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment X Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall X Sand Volley Ball 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 Gym Room X Gym Room OCCUPANCY: 99% 95% LEASING DATA: Available Leasing Terms 6 to 15 Months 6, 9 & 12 Months Concessions None $40.00 off per month for 1BR units Pet Deposit $300 - $500 $200 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash Water Trash Confirmation May 20, 2003; Karen Burk (Property Manager) May 20, 2003; Renee (Property Manager) Telephone Number (843) 572-1716 (843) 553-5310 NOTES: A $10.00 premium is charged for fireplaces. The rental rates included in this analysis reflect units with fireplaces. COMPARISON TO SUBJECT: Similar COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 - ---------------------------------------------------------------------------------------------------------------------------------- Property Name Farrington Place Jamison Park Management Company HVM Management Company Pendergraph Management LOCATION: Address 7927 St. ives Road 2245 Greenridge Road City, State North Charleston, South Carolina North Charleston, South Carolina County Charleston Charleston Proximity to Subject Right next to the subject Right next to the subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 156,272 208,143 Year Built 1989 2001 Effective Age 10 1 Building Structure Type Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open Garages, Open Number of Units 168 216 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1BR/1BA 738 64 $625 1 1BD/1BH 692 54 $625 2 2BR/2BA 988 80 $730 2 2BD/2BH - Type 1 1,000 63 $755 0 3BR/3BA 1,250 24 $890 0 2BD/2BH - Type 2 1,009 63 $765 0 3BD/2BH 1,228 36 $905 Average Unit Size (SF) 930 964 Unit Breakdown: Efficiency 0% 2-Bedroom 48% Efficiency 0% 2-Bedroom 58% 1-Bedroom 38% 3-Bedroom 14% 1-Bedroom 25% 3-Bedroom 17% CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling X Attach. Garage X 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 X Spa/Jacuzzi Car Wash Spa/Jacuzzi X Car Wash X Basketball Court X BBQ Equipment Basketball Court 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 Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 97% 94% LEASING DATA: Available Leasing Terms 6 to 24 Months 6, 9 & 13 Months Concessions 1 - 1 1/2 Months Free 1 - 1 1/2 Months Free Pet Deposit $300 $200 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas Water Trash X Water Trash Confirmation May 20, 2003; (Property Manager) May 20, 2003; Tracy (Property Manager) Telephone Number (843) 569-3509 (843) 797-5100 NOTES: Project is located immediately south of the Garages are an additional $69 per month, while subject and includes a controlled access storage units are an additional $25 per month. gate. COMPARISON TO SUBJECT: Superior Superior COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 - ---------------------------------------------------------------------------------------------------------------------------------- Property Name Springhouse Apartments Audubon Park Management Company AIMCO Steven D. Bell & Company LOCATION: Address 7930 St. Ives Road 1700 Eagle Landing Boulevard City, State North Charleston Hanahan, South Carolina County Charleston Charleston Proximity to Subject 1 block south of the subject 1 mile east of the subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 214,848 207,554 Year Built 1985 1991 Effective Age 15 10 Building Structure Type Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 248 228 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1BD/1BH - Type 1 680 68 $529 1 1BD/1BA 690 12 $565 1 1BD/1BH - Type 2 826 24 $579 1 1BD/1BA 800 40 $645 0 2BD/1BH 837 24 $639 2 2BD/2BA 960 72 $715 2 2BD/2BH - Type 1 934 92 $659 2 2BD/2BA 1,000 24 $755 0 2BD/2BH - Type 2 1,048 24 $709 0 2BR/2BA 1,070 40 $770 0 3BR/3BA 1,101 16 $849 0 3BD/2BA 1,220 40 $905 Average Unit Size (SF) 866 987 Unit Breakdown: Efficiency 0% 2-Bedroom 56% Efficiency 0% 2-Bedroom 60% 1-Bedroom 37% 3-Bedroom 7% 1-Bedroom 23% 3-Bedroom 17% CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling X 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 Spa/Jacuzzi X Car Wash X Basketball Court BBQ Equipment X Basketball Court 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 X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 90% 93% LEASING DATA: Available Leasing Terms 6 to 13 Months Flexible Concessions 1 - 1 1/2 Months Free None Pet Deposit $250 375 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas Water Trash Water Trash Confirmation May 20, 2003; (Property Manager) May 20, 2003; (Property Manager) Telephone Number (972)234-1231 (843) 569-0055 NOTES: None Garages are an additional $75 per month, while storage units are an additional $45 per month. COMPARISON TO SUBJECT: Inferior Similar
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 DEER RUN FARRINGTON PLACE JAMISON PARK 8755 Jenny Lind Street 7927 St. ives Road 2245 Greenridge Road North Charleston, South Carolina North Charleston, South Carolina North Charleston, South Carolina [PICTURE] [PICTURE] [PICTURE]
COMPARABLE R-4 COMPARABLE R-5 SPRINGHOUSE APARTMENTS AUDUBON PARK 7930 St. Ives Road 1700 Eagle Landing Boulevard North Charleston Hanahan, South Carolina [PICTURE] [PICTURE]
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA 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 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA 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 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the American Society of Appraisers or the designations awarded by this organization) shall be disseminated to the public through prospectus, advertising, public relations, news, or any other means of communication without the written consent and approval of American Appraisal Associates, Inc. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA 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. David Johnsen, MAI and Jimmy Pat James, MAI 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 MAI ------------------------------- Frank Fehribach, MAI Managing Principal, Real Estate Group South Carolina Temporary Practice Permit #095-03 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA 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 COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA 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 -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. COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. COOPER'S POINTE APARTMENTS, NORTH CHARLESTON, SOUTH CAROLINA 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. EX-99.(C)(3) 5 d07250a2exv99wxcyx3y.txt APPRAISAL OF COPPER MILL APARTMENTS COPPER MILL 3400 COPPERMILL TRACE RICHMOND, VIRGINIA MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 7, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] JULY 2, 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: COPPER MILL 3400 COPPERMILL TRACE RICHMOND, HENRICO COUNTY, VIRGINIA 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 192 units with a total of 158,568 square feet of rentable area. The improvements were built in 1987. The improvements are situated on 13.3565 acres. Overall, the improvements are in good condition. As of the date of this appraisal, the subject property is 97% 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 COPPER MILL, RICHMOND, VIRGINIA The opinions expressed in this appraisal cover letter can only be completely understood 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 7, 2003 is: ($13,500,000) Respectfully submitted AMERICAN APPRAISAL ASSOCIATES, INC. /s/ Frank Fehribach July 2, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group Virginia Temporary Certified General Real Estate Appraiser #4001 007252 Report By: Brian Johnson, MAI Virginia Temporary Certification Pending Assisted By: Jonathan Hackerman AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 COPPER MILL, RICHMOND, VIRGINIA TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary .......................................... 4 Introduction ............................................... 9 Area Analysis .............................................. 11 Market Analysis ............................................ 14 Site Analysis .............................................. 16 Improvement Analysis ....................................... 16 Highest and Best Use ....................................... 17 VALUATION Valuation Procedure ........................................ 18 Sales Comparison Approach .................................. 20 Income Capitalization Approach ............................. 26 Reconciliation and Conclusion .............................. 37
ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 COPPER MILL, RICHMOND,VIRGINIA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Copper Mill LOCATION: 3400 Coppermill Trace Richmond, Virginia 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 7, 2003 DATE OF REPORT: July 2, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 13.3565 acres, or 581,809 square feet Assessor Parcel No.: 756-756-1972 Floodplain: Community Panel No. 510077 0050 B (February 4, 1981) Flood Zone C, an area outside the floodplain. Zoning: R-5C (General Residence District) BUILDING: No. of Units: 192 Units Total NRA: 158,568 Square Feet Average Unit Size: 826 Square Feet Apartment Density: 14.4 units per acre Year Built: 1987 UNIT MIX AND MARKET RENT:
GROSS RENTAL INCOME PROJECTION - ---------------------------------------------------------------------------- Market Rent Square --------------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income - ---------------------------------------------------------------------------- 1A10 697 $ 710 $ 1.02 $ 76,680 $ 920,160 2A20 967 $ 860 $ 0.89 $ 30,960 $ 371,520 2B20 1,010 $ 850 $ 0.84 $ 40,800 $ 489,600 - ---------------------------------------------------------------------------- Total $148,440 $ 1,781,280
OCCUPANCY: 97% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 12 Years REMAINING ECONOMIC LIFE: 33 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 COPPER MILL, RICHMOND, VIRGINIA SUBJECT PHOTOGRAPHS [PICTURE] EXTERIOR - APARTMENT BUILDING & LAKE [PICTURE] EXTERIOR - LANDSCAPE & APARTMENT BUILDING AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 COPPER MILL, RICHMOND, VIRGINIA NEIGHBORHOOD MAP [MAP] HIGHEST AND BEST USE: As Vacant: Hold for future multi-family development As Improved: Continuation as its current use METHOD OF VALUATION: In this instance, the Sales Comparison and Income Approaches to value were utilized. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7 COPPER MILL, RICHMOND, VIRGINIA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit --------------------- ------ ------ Potential Rental Income $ 1,781,280 $ 9,278 Effective Gross Income $ 1,790,990 $ 9,328 Operating Expenses $ 636,750 $ 3,316 35.6% of EGI Net Operating Income: $ 1,115,841 $ 5,812 Capitalization Rate 8.75% DIRECT CAPITALIZATION VALUE $ 12,700,000 * $ 66,146 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 8% Stabilized Vacancy & Collection Loss: 7% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 9.25% Discount Rate 11.00% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $ 13,400,000 * $ 69,792 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $ 13,400,000 $ 69,792 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $ 59,545 to $ 81,100 Range of Sales $/Unit (Adjusted) $ 68,775 to $ 81,814 VALUE INDICATION - PRICE PER UNIT $ 13,800,000 * $ 71,875 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 6.89 to 8.23 Selected EGIM for Subject 7.65 Subject's Projected EGI $ 1,790,990 EGIM ANALYSIS CONCLUSION $ 13,700,000 * $ 71,354 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $ 13,800,000 * $ 71,875 / UNIT RECONCILED SALES COMPARISON VALUE $ 13,800,000 $ 71,875 / 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 COPPER MILL, RICHMOND, VIRGINIA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $ 13,800,000 NOI Per Unit $ 13,800,000 EGIM Multiplier $ 13,700,000 INDICATED VALUE BY SALES COMPARISON $ 13,800,000 $ 71,875 / UNIT INCOME APPROACH: Direct Capitalization Method: $ 12,700,000 Discounted Cash Flow Method: $ 13,400,000 INDICATED VALUE BY THE INCOME APPROACH $ 13,400,000 $ 69,792 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $ 13,500,000 $ 70,313 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 COPPER MILL, RICHMOND,VIRGINIA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 3400 Coppermill Trace, Richmond, Henrico County, Virginia. Richmond identifies it as 756-756-1972. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Jonathan Hackerman on May 7, 2003. Brian Johnson, MAI and Frank Fehribach, MAI have not made a personal inspection of the subject property. Jonathan Hackerman assisted Brian Johnson, MAI in the research, valuation analysis and writing the report. Frank Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach, MAI, Brian Johnson, MAI, and Jonathan Hackerman 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 7, 2003. The date of the report is July 2, 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 & AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 COPPER MILL, RICHMOND, VIRGINIA Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is 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 CPGF XXII. 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 COPPER MILL, RICHMOND, VIRGINIA 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 Richmond, Virginia. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being commercial. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Route 250 West - Route 288 South - Route 6 North - I-295 MAJOR EMPLOYERS Major employers in the subject's area include Virginia Power, AlliedSignal, Trignon Blue Cross Blue Shield, Circuit City Stores, Inc., CSX Corporation, James River Corporation of Virginia, Reynolds Metals company, Universal Corporation, Dominion Resources, Signet Banking Corp., Owens & Colony Life and Heilig-myers and Richfood Holdings. 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 COPPER MILL, RICHMOND, VIRGINIA
NEIGHBORHOOD DEMOGRAPHICS - -------------------------------------------------------------------------------------------------- AREA -------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - -------------------------------------------------------------------------------------------------- POPULATION TRENDS Current Population 12,308 78,593 173,599 1,018,759 5-Year Population 13,234 84,532 186,833 1,078,199 % Change CY-5Y 7.5% 7.6% 7.6% 5.8% Annual Change CY-5Y 1.5% 1.5% 1.5% 1.2% HOUSEHOLDS Current Households 6,600 34,284 72,213 398,125 5-Year Projected Households 7,293 37,362 78,476 425,997 % Change CY - 5Y 10.5% 9.0% 8.7% 7.0% Annual Change CY-5Y 2.1% 1.8% 1.7% 1.4% INCOME TRENDS Median Household Income $ 41,039 $ 59,561 $ 61,791 $ 49,684 Per Capita Income $ 27,293 $ 28,466 $ 29,944 $ 24,502 Average Household Income $ 51,503 $ 65,584 $ 72,192 $ 62,697
Source: Demographics Now The subject neighborhood's population is expected to show increases above that of the region. The immediate market offers inferior income levels as compared to the broader market. The following table illustrates the housing statistics in the subject's immediate area, as well as the MSA region.
HOUSING TRENDS - ------------------------------------------------------------------------------------------------ AREA -------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - ------------------------------------------------------------------------------------------------ HOUSING TRENDS % of Households Renting 62.72% 38.00% 32.54% 29.95% 5-Year Projected % Renting 60.00% 36.69% 31.98% 29.09% % of Households Owning 26.14% 55.41% 61.89% 63.93% 5-Year Projected % Owning 29.30% 56.99% 62.70% 65.14%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 COPPER MILL, RICHMOND, VIRGINIA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Commercial/Retail properties South - Apartment Community East - Apartment Community West - Apartment Community CONCLUSIONS The subject is well located within the city of Richmond. The neighborhood is characterized as being mostly suburban in nature and is currently in the growth 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 COPPER MILL, RICHMOND, VIRGINIA MARKET ANALYSIS The subject property is located in the city of Richmond in Henrico County. The overall pace of development in the subject's market is more or less decreasing. There are currently 1,469 units under construction in the Richmond area. Some include the Lofts at Canal Walk (89 units), Todd Hamm Apartments (99 units), Creek Points (214 units), Park at Salisbury (320 units), Reflections at West Creek (290 units) and the Lodge at Hunton Park (300 units). These complexes, although in the Richmond area, are mostly south of the subject and will not directly compete with the subject as the subject's immediate area is already saturated with apartment complexes. The following table illustrates historical vacancy rates for the subject's market.
HISTORICAL VACANCY RATE - -------------------------------------------- Period Region Submarket - -------------------------------------------- 1Q01 5.4% 4.9% 2Q01 6.4% 6.0% 1Q02 6.4% 5.1% 2Q02 6.5% 6.7% 1Q03 9.2% 8.8%
Source: Carolina Real Data Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has outperformed the overall market. Vacancy rates are increasing in the region as well as the submarket and there has been negative absorption over the last 6 months. A main factor for this is that the Richmond area has only gained 3,000 jobs over the past year, an increase of 1%. Unemployment however has decreased to 3.7% in 1Q03 from 4.1% in 1Q02. Also the city was ranked the 5th best place to work and live in the US in Employment Review magazine. So although there are some negative influences in the market over the past year, Richmond is still a desirable place to live and work. Market rents in the subject's market have been following a stable trend. The following table illustrates historical rental rates for the subject's market. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 COPPER MILL, RICHMOND, VIRGINIA
HISTORICAL AVERAGE RENT - ------------------------------------------------------ Period Region % Change Submarket % Change - ------------------------------------------------------ 1Q01 $ 637 - $ 614 - 2Q01 $ 644 1.1% $ 607 -1.1% 1Q02 $ 660 2.5% $ 663 9.2% 2Q02 $ 676 2.4% $ 677 2.1% 1Q03 $ 685 1.3% $ 682 0.7%
Source: Carolina Real Data The following table illustrates a summary of the subject's competitive set.
COMPETITIVE PROPERTIES - ---------------------------------------------------------------------------------------------------- No. Property Name Units Ocpy. Year Built Proximity to subject - ---------------------------------------------------------------------------------------------------- R-1 Hickory Creek 294 93% 1985 1-mile east of the subject R-2 Broadmoor 360 88% 1985 Next to subject R-3 Copper Spring Apartments 366 87% 1990 Next to subject R-4 Sundance Station 300 97% 1969 1/2-mile east of the subject R-5 Culpepper Farms 228 97% 1972 1 1/2-miles north of subject Subject Copper Mill 192 97% 1987
Three-bedroom units had the highest vacancy rates in 1Q03 at 14.2% followed by one bedroom units at 8.4% and then two bedroom units at 8.2%. One and two bedroom vacancy rates have doubled from one year ago while three-bedroom units vacancy has declined slightly. Average rents for all three-unit types have increased by about $20 from 1Q02 to 1Q03. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 COPPER MILL, RICHMOND, VIRGINIA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 13.3565 acres, or 581,809 square feet Shape Generally 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 510077 0050 B, dated February 4, 1981 Flood Zone Zone C Zoning R-5C, the subject improvement represent a legal conforming use of the site. REAL ESTATE TAXES
ASSESSED VALUE - 2003 -------------------------------------------- TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES - ----------------------------------------------------------------------------------------- 756-756-1972 $ 1,728,000 $ 9,953,100 $ 11,681,100 0.00940 $ 109,802
IMPROVEMENT ANALYSIS Year Built 1987 Number of Units 192 Net Rentable Area 158,568 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Wood or vinyl siding Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, spa/jacuzzi, sand volleyball,tennis court, jogging track, gym room, car wash, barbeque equipment, and parking area. Unit Amenities Individual unit amenities include a balcony, fireplace, cable TV connection, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, microwave dishwasher, water heater, garbage disposal, AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 COPPER MILL, RICHMOND, VIRGINIA washer/dryer, and oven. Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) - -------------------------------------------- 1A10 108 697 2A20 36 967 2B20 48 1,010
Overall Condition Good Effective Age 12 years Economic Life 45 years Remaining Economic Life 33 years Deferred Maintenance None HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1987 and consist of a 192-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 COPPER MILL, RICHMOND, VIRGINIA 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 COPPER MILL, RICHMOND, VIRGINIA 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 COPPER MILL, RICHMOND, VIRGINIA 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 COPPER MILL, RICHMOND, VIRGINIA SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 I - 3 - ------------------------------------------------------------------------------------------------------------------------------- Property Name Copper Mill Chase Gayton Oaks @ Gayton Crossings @ Short Pump LOCATION: Address 3400 100 Chase 12520 Gayton Road 3400 Cox Road Coppermill Gayton Drive Trace City, State Richmond, Richmond, VA Richmond, VA Richmond, VA Virginia County Henrico Henrico Henrico Henrico PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 158,568 311,196 179,920 401,152 Year Built 1987 1985 1987 1997 Number of Units 192 328 220 424 Unit Mix: Type Total Type Total Type Total Type Total 1A10 108 1Br/1Ba 156 1Br/1Ba 96 1Br/1Ba 168 2A20 36 2Br/1Ba 54 1Br/1Ba/den 32 2Br/2Ba 208 2B20 48 2Br/2Ba 88 2Br/2Ba 92 3Br/2Ba 48 3Br/2Ba 30 Average Unit Size (SF) 826 949 818 946 Land Area (Acre) 13.3565 27.6190 16.2300 29.2120 Density (Units/Acre) 14.4 11.9 13.6 14.5 Parking Ratio (Spaces/Unit) 1.63 N/A N/A N/A Parking Type (Gr.,Cov.,etc.) Garage,Open Open Open, Covered Open, Garage Covered CONDITION: Good Good Good Very Good APPEAL: Good Good Good Good AMENITIES: Pool/Spa Yes/Yes Yes/Yes Yes/No Yes/No Gym Room Yes Yes Yes Yes Laundry Room No Yes No Yes Secured Parking No No No No Sport Courts No Yes Yes Yes Washer/Dryer Connection Yes No Yes Yes Playground No No No No Sauna No No No No OCCUPANCY: 97% 97% 95% 98% TRANSACTION DATA: Sale Date June, 2001 September, 2000 March, 2001 Sale Price ($) $ 21,175,000 $ 13,100,000 $ 33,500,000 Grantor Principal Archstone Archstone Life Communities Communities Insurance Trust Grantee Cornerstone Carpreit TCRD, LLC Realty Income Sale Documentation Book 3114 Page 2222 Book 5130 Page 357 Book 3081 Page 148 Verification Representative Buyer Grantor of Grantee Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $3,021,720 $9,213 $9.71 $2,000,000 $9,091 $11.12 $4,258,080 $10,043 $10.61 Vacancy/Credit Loss $ 79,320 $ 242 $0.25 $ 100,000 $ 455 $ 0.56 $ 63,684 $ 150 $ 0.16 Effective Gross Income $2,942,400 $8,971 $9.46 $1,900,000 $8,636 $10.56 $4,194,396 $ 9,892 $10.46 Operating Expenses $ 1,082400 $3,300 $3.48 $ 747,80 $3,399 $ 4.16 $1,272,000 $ 3,000 $ 3.17 Net Operating Income $ 1,86000 $5,671 $5.98 $1,192,100 $5,419 $ 6.63 $2,922,396 $ 6,892 $ 7.29 NOTES: The property has 2 Good locale as it is close tennis courts. to major arteries and retail centers. PRICE PER UNIT $64,558 $59,545 $79,009 PRICE PER SQUARE FOOT $ 68.04 $ 72.81 $ 83.51 EXPENSE RATIO 36.8% 39.4% 30.3% EGIM 7.20 6.89 7.99 OVERALL CAP RATE 8.78% 9.10% 8.72% Cap Rate based on Pro Forma or PRO FORMA PRO FORMA ACTUAL Actual Income? COMPARABLE COMPARABLE DESCRIPTION I - 4 I - 5 - --------------------------------------------------------------------------------------- Property Name Addison @ Wyndham Summit Stony Point Apartments LOCATION: Address 11401 Old Nuckols Road 3012 Stony Lake Drive City, State Richmond, VA Richmond, VA County Henrico Henrico PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 293,792 264,610 Year Built 1998 1985 Number of Units 312 250 Unit Mix: Type Total Type Total 1Br/1Ba 128 1Br/1Ba 54 2Br/2Ba 148 1Br/1Ba/den 54 3Br/2Ba 36 2Br/2Ba 142 Average Unit Size (SF) 942 1,058 Land Area (Acre) 21.6640 37.4940 Density (Units/Acre) 14.4 6.7 Parking Ratio (Spaces/Unit) N/A N/A Parking Type (Gr.,Cov.,etc.) Open, Garage Open CONDITION: Very Good Good APPEAL: Good Good AMENITIES: Pool/Spa Yes/No Yes/Yes Gym Room Yes No Laundry Room Yes Yes Secured Parking No No Sport Courts Yes Yes Washer/Dryer Connection Yes Yes Playground Yes No Sauna No Yes OCCUPANCY: 96% 95% TRANSACTION DATA: Sale Date December, 2000 June, 2001 Sale Price ($) $ 24,150,000 $ 20,275,000 Grantor Archstone Communities Stony Point/Summit LP Grantee Addison MGM Assoc., LLC Enterprises Sale Documentation Book 3057 Page 218 N/A Verification Grantor Third party Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $2,968,560 $9,515 $10.10 $2,710,000 $10,840 $10.24 Vacancy/Credit Loss $ 35,760 $ 115 $ 0.12 $ 155,000 $ 620 $ 0.59 Effective Gross Income $2,932,800 $9,400 $ 9.98 $ 2,555,00 $10,220 $ 9.66 Operating Expenses $ 920,400 $2,950 $ 3.13 $ 905,000 $ 3,620 $ 3.42 Net Operating Income $2,012,400 $6,450 $ 6.85 $1,650,000 $ 6,600 $ 6.24 NOTES: New Property at date of sales. PRICE PER UNIT $77,404 $81,100 PRICE PER SQUARE FOOT $ 82.20 $ 76.62 EXPENSE RATIO 31.4% 35.4% EGIM 8.23 7.94 OVERALL CAP RATE 8.33% 8.14% Cap Rate based on Pro Forma or Actual Income? ACTUAL PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 COPPER MILL, RICHMOND, VIRGINIA IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $59,545 to $81,100 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 $68,775 to $81,814 per unit with a mean or average adjusted price of $76,139 per unit. The median adjusted price is $78,099 per unit. Based on the following analysis, we have concluded to a value of $72,000 per unit, which results in an "as is" value of $13,800,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 COPPER MILL, RICHMOND, VIRGINIA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 I - 3 - ---------------------------------------------------------------------------------------------------------------------------------- Property Name Copper Mill Chase Gayton Oaks @ Gayton Crossings @ Short Pump Address 3400 Coppermill Trace 100 Chase Gayton Drive 12520 Gayton Road 3400 Cox Road Nuckols Road City Richmond, Virginia Richmond, VA Richmond, VA Richmond, VA Sale Date June, 2001 September, 2000 March, 2001 Sale Price ($) $21,175,000 $13,100,000 $33,500,000 Net Rentable Area (SF) 158,568 311,196 179,920 401,152 Number of Units 192 328 220 424 Price Per Unit $64,558 $59,545 $79,009 Year Built 1987 1985 1987 1997 Land Area (Acre) 13.3565 27.6190 16.2300 29.2120 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) June, 2001 8% September, 2000 10% March, 2001 9% VALUE AFTER TRANS. ADJUST. ($/UNIT) $69,723 $65,500 $86,120 Location Comparable 0% Inferior 5% Comparable 0% Number of Units 192 328 5% 220 0% 424 10% Quality / Appeal Good Comparable 0% Comparable 0% Comparable 0% Age / Condition 1987 1985 / Good 0% 1987 / Good 0% 1997 / Very Good -10% Occupancy at Sale 97% 97% 0% 95% 0% 98% Amenities Good Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 826 949 -3% 818 0% 946 - 5% PHYSICAL ADJUSTMENT 2% 5% - 5% FINAL ADJUSTED VALUE ($/UNIT) $71,117 $68,775 $81,814 COMPARABLE COMPARABLE DESCRIPTION I - 4 I - 5 - ------------------------------------------------------------------------------------- Property Name Addison @ Wyndham Summit Stony Point Apartments Address 11401 Old Nuckols Road 3012 Stony Lake Drive City Richmond, VA Richmond, VA Sale Date December, 2000 June, 2001 Sale Price ($) $24,150,000 $20,275,000 Net Rentable Area (SF) 293,792 264,610 Number of Units 312 250 Price Per Unit $77,404 $81,100 Year Built 1998 1985 Land Area (Acre) 21.6640 37.4940 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 12-2000 10% 06-2001 7% VALUE AFTER TRANS. ADJUST. ($/UNIT) $85,144 $86,777 Location Inferior 5% Comparable 0% Number of Units 312 5% 250 0% Quality / Appeal Comparable 0% Comparable 0% Age / Condition 1998 / Very Good -10% 1985 / Good 0% Occupancy at Sale 96% 95% Amenities Comparable 0% Comparable 0% Average Unit Size (SF) 942 -5% 1,058 -10% PHYSICAL ADJUSTMENT -5% -10% FINAL ADJUSTED VALUE ($/UNIT) $80,887 $78,099
SUMMARY VALUE RANGE (PER UNIT) $68,775 TO $81,814 MEAN (PER UNIT) $76,139 MEDIAN (PER UNIT) $78,099 VALUE CONCLUSION (PER UNIT) $72,000
VALUE OF IMPROVEMENT & MAIN SITE $13,824,000 PV OF CONCESSIONS -$ 47,000 VALUE INDICATED BY SALES COMPARISON APPROACH $13,777,000 ROUNDED $13,800,000
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 COPPER MILL, RICHMOND, VIRGINIA 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-1 328 $21,175,000 8.78% $1,860,000 $1,115,841 1.025 $66,162 $64,558 $5,671 $5,812 I-2 220 $13,100,000 9.10% $1,192,100 $1,115,841 1.073 $63,865 $59,545 $5,419 $5,812 I-3 424 $33,500,000 8.72% $2,922,396 $1,115,841 0.843 $66,620 $79,009 $6,892 $5,812 I-4 312 $24,150,000 8.33% $2,012,400 $1,115,841 0.901 $69,744 $77,404 $6,450 $5,812 I-5 250 $20,275,000 8.14% $1,650,000 $1,115,841 0.881 $71,413 $81,100 $6,600 $5,812
PRICE/UNIT - -------------------------------------------- Low High Average Median $63,865 $71,413 $67,561 $66,620
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT - ------------------------------------------------ Estimated Price Per Unit $ 72,000 ----------- Number of Units 192 Value $13,824,000 PV of Concessions -$ 47,000 ----------- Value Based on NOI Analysis $13,777,000 Rounded $13,800,000
The adjusted sales indicate a range of value between $63,865 and $71,413 per unit, with an average of $67,561 per unit. Based on the subject's competitive position within the improved sales, a value of $72,000 per unit is estimated. This indicates an "as is" market value of $13,800,000 (rounded after necessary adjustment, if any) for the NOI Per Unit Analysis. EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS The effective gross income multiplier (EGIM) is derived by dividing the sales price by the total effective gross income. The following table illustrates the EGIMs for the comparable improved sales. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25 COPPER MILL, RICHMOND, VIRGINIA 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-1 328 $21,175,000 $2,942,400 $1,082,400 36.79% 7.20 $64,558 I-2 220 $13,100,000 $1,900,000 $ 747,800 39.36% 6.89 $59,545 I-3 424 $33,500,000 $4,194,396 $1,272,000 30.33% 7.99 $79,009 35.55% I-4 312 $24,150,000 $2,932,800 $ 920,400 31.38% 8.23 $77,404 I-5 250 $20,275,000 $2,555,000 $ 905,000 35.42% 7.94 $81,100
EGIM - ---------------------------------------- Low High Average Median 6.89 8.23 7.65 7.94
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES - ----------------------------------------------------- Estimate EGIM 7.65 ------------ Subject EGI $ 1,790,990 Value $ 13,701,077 PV of Concessions -$ 47,000 ------------ Value Based on EGIM Analysis $ 13,654,077 Rounded $ 13,700,000 Value Per Unit $ 71,354
There is an inverse relationship, which generally holds among EGIMs and operating expenses. Properties, which have higher expense ratios, typically sell for relatively less and therefore produce a lower EGIM. As will be illustrated in the Income Capitalization Approach of this report, the subject's operating expense ratio (OER) is estimated at 35.55% before reserves. The comparable sales indicate a range of expense ratios from 30.33% to 39.36%, while their EGIMs range from 6.89 to 8.23. Overall, we conclude to an EGIM of 7.65, which results in an "as is" value estimate in the EGIM Analysis of $13,700,000. SALES COMPARISON CONCLUSION The three valuation methods in the Sales Comparison Approach are shown below. The overall value via the Sales Comparison Approach is estimated at $13,800,000. Price Per Unit $13,800,000 NOI Per Unit $13,800,000 EGIM Analysis $13,700,000 Sales Comparison Conclusion $13,800,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 COPPER MILL, RICHMOND, VIRGINIA 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 COPPER MILL, RICHMOND, VIRGINIA 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 - ------------------------------------------------------ 1A10 697 $719 $1.03 96.0% 2A20 967 $872 $0.90 97.0% 2B20 1010 $901 $0.89 100.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 COPPER MILL, RICHMOND, VIRGINIA RENT ANALYSIS
COMPARABLE RENTS -------------------------------------------------- R-1 R-2 R-3 R-4 R-5 -------------------------------------------------- Copper Hickory Spring Sundance Culpepper Creek Broadmoor Apartments Station Farms -------------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT -------------------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly Slightly DESCRIPTION TYPE RENT RENT Similar Inferior Similar Similar Superior - ------------------------------------------------------------------------------------------------------------- Monthly Rent 1A10 $ 719 $ 735 $ 683 $ 695 $ 718 $ 728 Unit Area (SF) 697 697 862 687 700 665 712 Monthly Rent Per Sq. Ft. $ 1.03 $ 0.85 $0.99 $ 0.99 $1.08 $1.02 Monthly Rent 2A20 $ 872 $ 840 $1,050 $ 815 $ 880 Unit Area (SF) 967 967 930 903 872 957 Monthly Rent Per Sq. Ft. $ 0.90 $0.90 $ 1.16 $0.93 $0.92 Monthly Rent 2B20 $ 901 $ 845 Unit Area (SF) 1,010 1,010 1,030 Monthly Rent Per Sq. Ft. $ 0.89 $ 0.82 DESCRIPTION MIN MAX MEDIAN AVERAGE - ------------------------------------------------------------- Monthly Rent $ 683 $ 735 $ 718 $ 712 Unit Area (SF) 665 862 700 725 Monthly Rent Per Sq. Ft. $ 0.85 $ 1.08 $ 0.99 $ 0.99 Monthly Rent Unit Area (SF) $ 815 $1,050 $ 860 $ 896 Monthly Rent Per Sq. Ft. 872 957 917 915 $ 0.90 $ 1.16 $ 0.93 $ 0.98 Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. $ 845 $ 845 $ 845 $ 845 1,030 1,030 1,030 1,030 $ 0.82 $ 0.82 $ 0.82 $ 0.82
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 - ------------------------------------------------------------------------------------- 1A10 108 697 $710 $1.02 $ 76,680 $ 920,160 2A20 36 967 $860 $0.89 $ 30,960 $ 371,520 2B20 48 1,010 $850 $0.84 $ 40,800 $ 489,600 --------- ----------- Total $148,440 $1,781,280 ========= ===========
PRO FORMA ANALYSIS For purposes of this appraisal, we were provided with income and expense data for the subject property. A summary of this data is presented on the following page. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 COPPER MILL, RICHMOND, VIRGINIA SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 --------------------------------------------------------------------------- ACTUAL ACTUAL ACTUAL --------------------------------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT - ------------------------------------------------------------------------------------------------------- Revenues Rental Income $1,679,384 $ 8,747 $1,760,499 $ 9,169 $1,775,354 $ 9,247 Vacancy $ 54,121 $ 282 $ 51,187 $ 267 $ 82,856 $ 432 Credit Loss/Concessions $ 69,132 $ 360 $ 47,711 $ 248 $ 64,472 $ 336 --------------------------------------------------------------------------- Subtotal $ 123,253 $ 642 $ 98,898 $ 515 $ 147,328 $ 767 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 1,093 $ 6 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 88,999 $ 464 $ 105,627 $ 550 $ 137,517 $ 716 --------------------------------------------------------------------------- Subtotal Other Income $ 88,999 $ 464 $ 105,627 $ 550 $ 138,610 $ 722 --------------------------------------------------------------------------- Effective Gross Income $1,645,130 $ 8,568 $1,767,228 $ 9,204 $1,766,636 $ 9,201 Operating Expenses Taxes $ 87,874 $ 458 $ 91,158 $ 475 $ 91,472 $ 476 Insurance $ 13,372 $ 70 $ 35,206 $ 183 $ 30,774 $ 160 Utilities $ 92,154 $ 480 $ 87,012 $ 453 $ 86,020 $ 448 Repair & Maintenance $ 39,451 $ 205 $ 24,364 $ 127 $ 17,071 $ 89 Cleaning $ 66,467 $ 346 $ 60,073 $ 313 $ 50,668 $ 264 Landscaping $ 37,775 $ 197 $ 42,666 $ 222 $ 56,817 $ 296 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 40,472 $ 211 $ 23,721 $ 124 $ 24,109 $ 126 General Administrative $ 23,067 $ 120 $ 25,329 $ 132 $ 28,712 $ 150 Management $ 83,928 $ 437 $ 91,204 $ 475 $ 94,991 $ 495 Miscellaneous $ 132,938 $ 692 $ 185,982 $ 969 $ 151,359 $ 788 --------------------------------------------------------------------------- Total Operating Expenses $ 617,498 $ 3,216 $ 666,715 $ 3,472 $ 631,993 $ 3,292 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------- Net Income $1,027,632 $ 5,352 $1,100,513 $ 5,732 $1,134,643 $ 5,910 FISCAL YEAR 2003 ANNUALIZED 2003 ------------------------------------------------- MANAGEMENT BUDGET PROJECTION AAA PROJECTION ------------------------------------------------------------------------------------ DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % - ---------------------------------------------------------------------------------------------------------------- Revenues Rental Income $1,805,900 $ 9,406 $1,772,248 $ 9,230 $1,781,280 $ 9,278 100.0% Vacancy $ 82,135 $ 428 $ 89,784 $ 468 $ 80,158 $ 417 4.5% Credit Loss/Concessions $ 38,210 $ 199 $ 60,672 $ 316 $ 44,532 $ 232 2.5% ------------------------------------------------------------------------------------ Subtotal $ 120,345 $ 627 $ 150,456 $ 784 $ 124,690 $ 649 7.0% Laundry Income $ 11,004 $ 57 $ 0 $ 0 $ 0 $ 0 0.0% Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 105,972 $ 552 $ 126,516 $ 659 $ 134,400 $ 700 7.5% ------------------------------------------------------------------------------------ Subtotal Other Income $ 116,976 $ 609 $ 126,516 $ 659 $ 134,400 $ 700 7.5% ------------------------------------------------------------------------------------ Effective Gross Income $1,802,531 $ 9,388 $1,748,308 $ 9,106 $1,790,990 $ 9,328 100.0% Operating Expenses Taxes $ 93,577 $ 487 $ 94,084 $ 490 $ 96,000 $ 500 5.4% Insurance $ 32,130 $ 167 $ 29,356 $ 153 $ 30,720 $ 160 1.7% Utilities $ 86,616 $ 451 $ 106,812 $ 556 $ 88,320 $ 460 4.9% Repair & Maintenance $ 18,480 $ 96 $ 13,056 $ 68 $ 18,240 $ 95 1.0% Cleaning $ 50,732 $ 264 $ 42,608 $ 222 $ 48,000 $ 250 2.7% Landscaping $ 58,792 $ 306 $ 52,540 $ 274 $ 60,480 $ 315 3.4% Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 24,000 $ 125 $ 22,724 $ 118 $ 24,960 $ 130 1.4% General Administrative $ 27,348 $ 142 $ 25,016 $ 130 $ 26,880 $ 140 1.5% Management $ 90,200 $ 470 $ 87,032 $ 453 $ 89,550 $ 466 5.0% Miscellaneous $ 146,946 $ 765 $ 151,160 $ 787 $ 153,600 $ 800 8.6% ------------------------------------------------------------------------------------ Total Operating Expenses $ 628,821 $ 3,275 $ 624,388 $ 3,252 $ 636,750 $ 3,316 35.6% Reserves $ 0 $ 0 $ 0 $ 0 $ 38,400 $ 200 6.0% ------------------------------------------------------------------------------------ Net Income $1,173,710 $ 6,113 $1,123,920 $ 5,854 $1,115,841 $ 5,812 62.3%
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 7% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 COPPER MILL, RICHMOND, VIRGINIA RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $200 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $200 per unit should be satisfactory in our reserves for replacement to cover future capital expenditures. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of the annual cash flows and discounts them, along with the expected equity reversion, to a present value. The present value of the cash flow is added to the present value of the reversion, resulting in a total property value. INVESTMENT CRITERIA Appropriate investment criteria will be derived for the subject based upon analysis of comparable sales and a survey of real estate investors. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 1ST QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES ------------------------------- GOING-IN TERMINAL -------------- -------------- LOW HIGH LOW HIGH ------------------------------- RANGE 6.00% 10.00% 7.00% 10.00% AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 COPPER MILL, RICHMOND, VIRGINIA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - --------------------------------------------------------- I-1 June, 2001 97% $ 64,558 8.78% I-2 September, 2000 95% $ 59,545 9.10% I-3 March, 2001 98% $ 79,009 8.72% I-4 Dec-00 96% $ 77,404 8.33% I-5 Jun-01 95% $ 81,100 8.14% High 9.10% Low 8.14% Average 8.62%
Based on this information, we have concluded the subject's overall capitalization rate should be 8.75%. 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 9.25%. 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 11.00%. 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 11.00% indicates a value of $13,400,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 COPPER MILL, RICHMOND, VIRGINIA approximately 42% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 COPPER MILL, RICHMOND, VIRGINIA DISCOUNTED CASH FLOW ANALYSIS COPPER MILL
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 - ------------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- REVENUE Base Rent $1,781,280 $1,834,718 $1,889,760 $1,946,453 $2,004,846 $2,064,992 Vacancy $ 80,158 $ 82,562 $ 85,039 $ 87,590 $ 90,218 $ 92,925 Credit Loss $ 44,532 $ 45,868 $ 47,244 $ 48,661 $ 50,121 $ 51,625 Concessions $ 35,626 $ 18,347 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- Subtotal $ 160,315 $ 146,777 $ 132,283 $ 136,252 $ 140,339 $ 144,549 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 134,400 $ 138,432 $ 142,585 $ 146,863 $ 151,268 $ 155,806 -------------------------------------------------------------------------------- Subtotal Other Income $ 134,400 $ 138,432 $ 142,585 $ 146,863 $ 151,268 $ 155,806 -------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $1,755,365 $1,826,373 $1,900,062 $1,957,064 $2,015,775 $2,076,249 OPERATING EXPENSES: Taxes $ 96,000 $ 98,880 $ 101,846 $ 104,902 $ 108,049 $ 111,290 Insurance $ 30,720 $ 31,642 $ 32,591 $ 33,569 $ 34,576 $ 35,613 Utilities $ 88,320 $ 90,970 $ 93,699 $ 96,510 $ 99,405 $ 102,387 Repair & Maintenance $ 18,240 $ 18,787 $ 19,351 $ 19,931 $ 20,529 $ 21,145 Cleaning $ 48,000 $ 49,440 $ 50,923 $ 52,451 $ 54,024 $ 55,645 Landscaping $ 60,480 $ 62,294 $ 64,163 $ 66,088 $ 68,071 $ 70,113 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 24,960 $ 25,709 $ 26,480 $ 27,274 $ 28,093 $ 28,935 General Administrative $ 26,880 $ 27,686 $ 28,517 $ 29,373 $ 30,254 $ 31,161 Management $ 87,768 $ 91,319 $ 95,003 $ 97,853 $ 100,789 $ 103,812 Miscellaneous $ 153,600 $ 158,208 $ 162,954 $ 167,843 $ 172,878 $ 178,064 -------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 634,968 $ 654,935 $ 675,528 $ 695,793 $ 716,667 $ 738,167 Reserves $ 38,400 $ 39,552 $ 40,739 $ 41,961 $ 43,220 $ 44,516 -------------------------------------------------------------------------------- NET OPERATING INCOME $1,081,997 $1,131,886 $1,183,796 $1,219,309 $1,255,889 $1,293,565 ================================================================================ Operating Expense Ratio (% of EGI) 36.2% 35.9% 35.6% 35.6% 35.6% 35.6% Operating Expense Per Unit $ 3,307 $ 3,411 $ 3,518 $ 3,624 $ 3,733 $ 3,845 YEAR Apr-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 - ------------------------------------ ---------- ---------- ---------- ---------- ---------- REVENUE Base Rent $2,126,941 $2,190,750 $2,256,472 $2,324,166 $2,393,891 Vacancy $ 95,712 $ 98,584 $ 101,541 $ 104,58 $ 107,725 Credit Loss $ 53,174 $ 54,769 $ 56,412 $ 58,104 $ 59,847 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------- Subtotal $ 148,886 $ 153,352 $ 157,953 $ 162,692 $ 167,572 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 160,481 $ 165,295 $ 170,254 $ 175,362 $ 180,622 ----------------------------------------------------------------- Subtotal Other Income $ 160,481 $ 165,295 $ 170,254 $ 175,362 $ 180,622 ----------------------------------------------------------------- EFFECTIVE GROSS INCOME $2,138,536 $2,202,692 $2,268,773 $2,336,836 $2,406,941 OPERATING EXPENSES: Taxes $ 114,629 $ 118,068 $ 121,610 $ 125,258 $ 129,016 Insurance $ 36,681 $ 37,782 $ 38,915 $ 40,083 $ 41,285 Utilities $ 105,459 $ 108,622 $ 111,881 $ 115,238 $ 118,695 Repair & Maintenance $ 21,780 $ 22,433 $ 23,106 $ 23,799 $ 24,513 Cleaning $ 57,315 $ 59,034 $ 60,805 $ 62,629 $ 64,508 Landscaping $ 72,216 $ 74,383 $ 76,614 $ 78,913 $ 81,280 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 29,804 $ 30,698 $ 31,619 $ 32,567 $ 33,544 General Administrative $ 32,096 $ 33,059 $ 34,051 $ 35,072 $ 36,124 Management $ 106,927 $ 110,135 $ 113,439 $ 116,842 $ 120,347 Miscellaneous $ 183,406 $ 188,909 $ 194,576 $ 200,413 $ 206,426 ----------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 760,312 $ 783,122 $ 806,615 $ 830,814 $ 855,738 Reserves $ 45,852 $ 47,227 $ 48,644 $ 50,103 $ 51,606 ----------------------------------------------------------------- NET OPERATING INCOME $1,332,372 $1,372,344 $1,413,514 $1,455,919 $1,499,597 ================================================================= Operating Expense Ratio (% of EGI) 35.6% 35.6% 35.6% 35.6% 35.6% Operating Expense Per Unit $ 3,960 $ 4,079 $ 4,201 $ 4,327 $ 4,457
Estimated Stabilized NOI $1,115,841 Sales Expense Rate 2.00% Months to Stabilized 1 Discount Rate 11.00% Stabilized Occupancy 95.5% Terminal Cap Rate 9.25%
Gross Residual Sale Price $ 16,211,858 Deferred Maintenance $ 0 Less: Sales Expense $ 324,237 Add: Excess Land $ 0 ------------ Other Adjustments $ 0 Net Residual Sale Price $ 15,887,621 ------------ PV of Reversion $ 5,595,373 Value Indicated By "DCF" $ 13,372,860 Add: NPV of NOI $ 7,777,487 Rounded $ 13,400,000 ------------ PV Total $ 13,372,860
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ----------------------------------------------------------------------------- TOTAL VALUE 10.50% 10.75% 11.00% 11.25% 11.50% - ---------------- ------------- ------------- ------------- ------------- ------------- 8.75% $ 14,154,278 $ 13,920,877 $ 13,692,596 $ 13,469,305 $ 13,250,879 9.00% $ 13,982,382 $ 13,752,822 $ 13,528,288 $ 13,308,652 $ 13,093,792 TERMINAL 9.25% $ 13,819,777 $ 13,593,850 $ 13,372,860 $ 13,156,683 $ 12,945,196 CAP RATE 9.50% $ 13,665,730 $ 13,443,246 $ 13,225,614 $ 13,012,712 $ 12,804,420 9.75% $ 13,519,583 $ 13,300,365 $ 13,085,918 $ 12,876,124 $ 12,670,864
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 COPPER MILL, RICHMOND, VIRGINIA 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 Due to softness in the market, concessions have been utilized at the subject property and within the market. Based on our discussions with the subject's property manager and those at competing properties, these concessions are expected to continue in the near term until the market returns to a stabilized level. Concessions have been included as a line item deduction within the discounted cash flow analysis. The present value of these concessions equates to $47,000 (rounded). This amount has been deducted from the Direct Capitalization analysis, as well as the Sales Comparison Approach value. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 8.75% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 COPPER MILL, RICHMOND, VIRGINIA COPPER MILL
TOTAL PER SQ. FT. PER UNIT % OF EGI ----------- ----------- -------- -------- REVENUE Base Rent $ 1,781,280 $ 11.23 $ 9,278 Less: Vacancy & Collection Loss 7.00% $ 124,690 $ 0.79 $ 649 Plus: Other Income Laundry Income $ 0 $ 0.00 $ 0 0.00% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 134,400 $ 0.85 $ 700 7.50% ---------------------------------------------- Subtotal Other Income $ 134,400 $ 0.85 $ 700 7.50% EFFECTIVE GROSS INCOME $ 1,790,990 $ 11.29 $ 9,328 OPERATING EXPENSES: Taxes $ 96,000 $ 0.61 $ 500 5.36% Insurance $ 30,720 $ 0.19 $ 160 1.72% Utilities $ 88,320 $ 0.56 $ 460 4.93% Repair & Maintenance $ 18,240 $ 0.12 $ 95 1.02% Cleaning $ 48,000 $ 0.30 $ 250 2.68% Landscaping $ 60,480 $ 0.38 $ 315 3.38% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 24,960 $ 0.16 $ 130 1.39% General Administrative $ 26,880 $ 0.17 $ 140 1.50% Management 5.00% $ 89,550 $ 0.56 $ 466 5.00% Miscellaneous $ 153,600 $ 0.97 $ 800 8.58% TOTAL OPERATING EXPENSES $ 636,750 $ 4.02 $ 3,316 35.55% Reserves $ 38,400 $ 0.24 $ 200 2.14% ---------------------------------------------- NET OPERATING INCOME $ 1,115,841 $ 7.04 $ 5,812 62.30% "GOING IN" CAPITALIZATION RATE 8.75% VALUE INDICATION $12,752,467 $ 80.42 $ 66,419 PV OF CONCESSIONS ($ 47,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $12,705,467 ROUNDED $12,700,000 $ 80.09 $ 66,146
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 COPPER MILL, RICHMOND, VIRGINIA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - -------- ----------- ----------- -------- ------ 8.00% $13,901,011 $13,900,000 $ 72,396 $87.66 8.25% $13,478,344 $13,500,000 $ 70,313 $85.14 8.50% $13,080,540 $13,100,000 $ 68,229 $82.61 8.75% $12,705,467 $12,700,000 $ 66,146 $80.09 9.00% $12,351,232 $12,400,000 $ 64,583 $78.20 9.25% $12,016,145 $12,000,000 $ 62,500 $75.68 9.50% $11,698,693 $11,700,000 $ 60,938 $73.79
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $12,700,000. 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 $13,400,000 Direct Capitalization Method $12,700,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $13,400,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37 COPPER MILL, RICHMOND, VIRGINIA 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 $13,800,000 Income Approach $13,400,000 Reconciled Value $13,500,000 The Direct Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of May 7, 2003 the market value of the fee simple estate in the property is: $13,500,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA COPPER MILL, RICHMOND, VIRGINIA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A COPPER MILL, RICHMOND, VIRGINIA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A COPPER MILL, RICHMOND, VIRGINIA SUBJECT PHOTOGRAPHS [PICTURE] EXTERIOR - APARTMENT BUILDING & LAKE [PICTURE] EXTERIOR - LANDSCAPE & APARTMENT BUILDING [PICTURE] EXTERIOR - POOL [PICTURE] INTERIOR - SAUNA [PICTURE] EXTERIOR - TENNIS COURT AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B COPPER MILL, RICHMOND, VIRGINIA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B COPPER MILL, RICHMOND, VIRGINIA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 CHASE GAYTON OAKS @ GAYTON CROSSINGS @ SHORT PUMP 100 Chase Gayton Drive 12520 Gayton Road 3400 Cox Road Richmond, VA Richmond, VA Richmond, VA [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 ADDISON @ WYNDHAM SUMMIT STONY POINT APARTMENTS 11401 Old Nuckols Road 3012 Stony Lake Drive Richmond, VA Richmond, VA [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B COPPER MILL, RICHMOND, VIRGINIA SUMMARY OF COMPARABLE RENTAL PROPERTIES
DESCRIPTION SUBJECT COMPARABLE R - 1 ==================================================================================================================================== Property Name Copper Mill Hickory Creek Management Company Aimco Equity LOCATION: Address 3400 Coppermill Trace 2344 Hickory Creek Drive City, State Richmond, Virginia Richmond, VA County Henrico Henrico Proximity to Subject 1-mile east of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 158,568 280,940 Year Built 1987 1985 Effective Age 12 12 Building Structure Type Wood walls; wood roof Brick veneer; wood roof Parking Type (Gr., Cov., etc.) Open Open, Covered Number of Units 192 294 Unit Mix: Type Unit Qty. Mo.Rent Type Unit Qty. Mo. 1 1A10 697 108 $719 1 1Bd/1Ba 830 124 $720 2 2A20 967 36 $872 1 1Bd/1Ba/den 945 48 $775 3 2B20 1,010 48 $901 3 2Bd/2Ba 1,030 122 $845 Average Unit Size (SF) 826 932 Unit Breakdown: Efficiency 0% 2-Bedroom 44% Efficiency 0% 2-Bedroom 41% 1-Bedroom 56% 3-Bedroom 0% 1-Bedroom 59% 3-Bedroom 0% CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony W/D Connect. X Balcony X W/D Connect. X Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi X Car Wash X Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball Laundry Room Racquet Ball Laundry Room X Jogging Track Business Office Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 97% 93% LEASING DATA: Available Leasing Terms 9 to 12 months 3 to 13 Months Concessions 1 month free on 12 month lease 2 Bdrm for $799 Pet Deposit $250 - $450 $200 - $400 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash X Water Trash Confirmation May 7, 2003; Catherine Mason (Community Manager) May 7, 2003; Property Manager Telephone Number (804) 747-7267 (804) 346-4580 NOTES: Similar COMPARISON TO SUBJECT:
DESCRIPTION COMPARABLE COMPARABLE R - 2 R - 3 ==================================================================================================================================== Property Name Broadmoor Copper Spring Apartments Management Company Semtinel Ram/Post LOCATION: Address 9475 W. Broad Street 3301 Copper Mill Trace Drive City, State Richmond, VA Richmond, VA County Henrico Henrico Proximity to Subject Next to subject Next to subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 259,900 310,100 Year Built 1985 1990 Effective Age 12 7 Building Structure Type Brick walls; wood roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 360 366 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Bd/1Ba 658 220 $670 1 1Bd/1Ba 700 212 $ 695 1 1Bd/1.5Ba 845 40 $755 1 2Bd/1Ba 903 154 $1,050 2 2Bd/2Ba 930 100 $840 Average Unit Size (SF) 754 785 Unit Breakdown: Efficiency 0% 2-Bedroom 28% Efficiency 0% 2-Bedroom 42% 1-Bedroom 72% 3-Bedroom 0% 1-Bedroom 58% 3-Bedroom 0% CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash X Spa/Jacuzzi X Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment X Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball Laundry Room X Racquet Ball Laundry Room Jogging Track Business Office Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 88% 87% LEASING DATA: Available Leasing Terms 6 to 13 Months 12 to 14 Months Concessions 13 to 16 month lease, 2 months free $50 off one month free Pet Deposit $250 $100 to $200 free Utilities Paid by Tenant: X Electric X Natural Gas X Electric Natural Gas Water Trash Water Trash Confirmation May 7 2003; Property Manager May 7 2003; Sean Property Contact Telephone Number 1-866-242-4480 1-866-249-2183 NOTES: Slightly Inferior Similar COMPARISON TO SUBJECT:
DESCRIPTION COMPARABLE COMPARABLE R - 4 R - 5 =================================================================================================================================== Property Name Sundance Station Culpepper Farms Management Company Capreit Capreit LOCATION: Address 3500 Sundance Way 3450 Spendthrift Drive City, State Richmond, VA Richmond, VA County Henrico Henrico Proximity to Subject 1/2-mile east of the subject 1 1/2-miles north of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 284,784 207,554 Year Built 1969 1972 Effective Age 23 20 Building Structure Type Stone veneer; asphalt shingle roof Brick walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 300 228 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Bd/1Ba 644 118 $710 1 1Bd/1Ba 712 136 $728 1 1Bd/1Ba/den 754 28 $750 2 2Bd/1Ba 957 92 $880 2 2Bd/1Ba 798 36 $765 2 2Bd/2Ba 894 118 $830 Average Unit Size (SF) 771 811 Unit Breakdown: Efficiency 0% 2-Bedroom 51% Efficiency 0% 2-Bedroom 40% 1-Bedroom 49% 3-Bedroom 1-Bedroom 60% 3-Bedroom 0% CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court 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 X Tennis Court Secured Parking Racquet Ball Laundry Room X Racquet Ball Laundry Room Jogging Track Business Office Jogging Track Business Office X Gym Room X Gym Room OCCUPANCY: 97% 97% LEASING DATA: Available Leasing Terms 6 to 12 months 6 to 12 months Concessions $100 off vacants, $50 on notice $99 -mth. 1 $75 off per month Pet Deposit $200 - $250 $250 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas Water Trash X Water Trash Confirmation May 7 2003; Property Contact May 7 2003; Property Contact Telephone Number (804)270-7291 (804)346-0726 NOTES: Contains 2 tennis courts and covered parking costs $20/month. Similar Slightly Superior COMPARISON TO SUBJECT:
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B COPPER MILL, RICHMOND, VIRGINIA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 HICKORY CREEK BROADMOOR COPPER SPRING APARTMENTS 2344 Hickory Creek Drive 9475 W. Broad Street 3301 Copper Mill Trace Richmond, VA Richmond, VA Richmond, VA [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 SUNDANCE STATION CULPEPPER FARMS 3500 Sundance Way 3450 Spendthrift Drive Richmond, VA Richmond, VA [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C COPPER MILL, RICHMOND, VIRGINIA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C COPPER MILL, RICHMOND, VIRGINIA 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 COPPER MILL, RICHMOND, VIRGINIA 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 COPPER MILL, RICHMOND, VIRGINIA such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the American Society of Appraisers or the designations awarded by this organization) shall be disseminated to the public through prospectus, advertising, public relations, news, or any other means of communication without the written consent and approval of American Appraisal Associates, Inc. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D COPPER MILL, RICHMOND, VIRGINIA 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. Brian Johnson, MAI and Jonathan Hackerman 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 Temporary Certified General Real Estate Appraiser #4001 007252 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E COPPER MILL, RICHMOND, VIRGINIA EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E COPPER MILL, RICHMOND, VIRGINIA 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 COPPER MILL, RICHMOND, VIRGINIA 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 -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. COPPER MILL, RICHMOND, VIRGINIA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. COPPER MILL, RICHMOND, VIRGINIA 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. EX-99.(C)(4) 6 d07250a2exv99wxcyx4y.txt APPRAISAL OF FOUR WINDS APARTMENTS FOUR WINDS APARTMENTS 8000 PERRY ROAD OVERLAND PARK, KANSAS MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 8, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] JULY 9, 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: FOUR WINDS APARTMENTS 8000 PERRY ROAD OVERLAND PARK, JOHNSON COUNTY, KANSAS 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 350 units with a total of 312,094 square feet of rentable area. The improvements were built in 1986. The improvements are situated on 24.4711 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 8, 2003 is: ($16,500,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Frank Fehribach July 9, 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Four Winds Apartments LOCATION: 8000 Perry Road Overland Park, Kansas 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 8, 2003 DATE OF REPORT: July 9, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 24.4711 acres, or 1,065,961 square feet Assessor Parcel No.: NP21100000 0002; (Assessed Value) Floodplain: Community Panel No. 2001740202F (June 17, 2002) Flood Zone X, an area outside the floodplain. Zoning: RP-3 (Residential Planned Development District) BUILDING: No. of Units: 350 Units Total NRA: 312,094 Square Feet Average Unit Size: 892 Square Feet Apartment Density: 14.3 units per acre Year Built: 1986 UNIT MIX AND MARKET RENT:
GROSS RENTAL INCOME PROJECTION - -------------------------------------------------------------- Square Market Rent Monthly Annual Unit Type Feet Per Unit Per SF Income Income - -------------------------------------------------------------- 1Br/1Ba - 1A10 720 $590 $0.82 $ 24,780 $ 297,360 1Br/1Ba - 1B10 740 $560 $0.76 $ 11,200 $ 134,400 1Br/1Ba - 1C10 760 $600 $0.79 $ 56,400 $ 676,800 1Br/1Ba - 1D10 792 $600 $0.76 $ 3,600 $ 43,200 1Br/1Ba - 1E10 800 $699 $0.87 $ 15,378 $ 184,536 2Br/1Ba - 2A10 969 $700 $0.72 $ 49,000 $ 588,000 -------- ---------- Total $233,358 $2,800,296 ============================
OCCUPANCY: 92% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 17 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS REMAINING ECONOMIC LIFE: 28 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [ENTRANCE TO SUBJECT AND VIEW OF 81ST STREET FACING EAST PICTURE] [EXTERIOR - TYPICAL THREE-STORY BUILDING PICTURE]
AREA MAP [AREA MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS NEIGHBORHOOD MAP [MAP] HIGHEST AND BEST USE: As Vacant: Hold for future multi-family development As Improved: Continuation as its current use METHOD OF VALUATION: In this instance, the Sales Comparison and Income Approaches to value were utilized. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit Potential Rental Income $ 2,800,296 $8,001 Effective Gross Income $ 2,786,271 $7,961 Operating Expenses $ 1,206,814 $3,448 43.3% of EGI Net Operating Income: $ 1,491,957 $4,263 Capitalization Rate 9.00% DIRECT CAPITALIZATION VALUE $16,500,000 * $47,143 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 9% Stabilized Vacancy & Collection Loss: 8.5% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 10.00% Discount Rate 11.00% Selling Costs 2.00% Growth Rates: Income 2.50% Expenses: 2.50% DISCOUNTED CASH FLOW VALUE $16,500,000 * $47,143 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $16,500,000 $47,143 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $51,121 to $69,324 Range of Sales $/Unit (Adjusted) $44,855 to $50,468 VALUE INDICATION - PRICE PER UNIT $16,600,000 * $47,429 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 6.49 to 7.33 Selected EGIM for Subject 6.00 Subject's Projected EGI $ 2,786,271 EGIM ANALYSIS CONCLUSION $16,600,000 * $47,429 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $16,600,000 * $47,429 / UNIT RECONCILED SALES COMPARISON VALUE $16,600,000 $47,429 / 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $16,600,000 NOI Per Unit $16,600,000 EGIM Multiplier $16,600,000 INDICATED VALUE BY SALES COMPARISON $16,600,000 $47,429 / UNIT INCOME APPROACH: Direct Capitalization Method: $16,500,000 Discounted Cash Flow Method: $16,500,000 INDICATED VALUE BY THE INCOME APPROACH $16,500,000 $47,143 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $16,500,000 $47,143 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 8000 Perry Road, Overland Park, Johnson County, Kansas. Overland Park identifies it as NP21100000 0002. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Kim Cook on May 8, 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 8, 2003. The date of the report is July 9, 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 Century Properties Growth Fund XXII. 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 Overland Park, Kansas. 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 - US 169/Metcalf Avenue West - Interstate 35 South - West 87th Street North - West 75th Street MAJOR EMPLOYERS Major employers in the subject's area include Sprint Corporation (21,173 employees), Applebees International (2,200 employees), Yellow Corporation (1,500 employees), and JC Penney Catalog Logistics Center (1,500 employees). 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS NEIGHBORHOOD DEMOGRAPHICS - -------------------------------------------------------------------------------- AREA CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - -------------------------------------------------------------------------------- POPULATION TRENDS Current Population 11,489 107,149 232,047 1,807,569 5-Year Population 11,522 106,201 232,808 1,892,507 % Change CY-5Y 0.3% -0.9% 0.3% 4.7% Annual Change CY-5Y 0.1% -0.2% 0.1% 0.9% HOUSEHOLDS Current Households 5,172 46,227 99,220 709,949 5-Year Projected Households 5,232 46,604 101,430 750,540 % Change CY - 5Y 1.2% 0.8% 2.2% 5.7% Annual Change CY-5Y 0.2% 0.2% 0.4% 1.1% INCOME TRENDS Median Household Income $45,469 $ 58,244 $ 65,788 $ 49,518 Per Capita Income $23,135 $ 27,576 $ 30,666 $ 24,363 Average Household Income $51,889 $ 63,908 $ 71,765 $ 62,029
Source: Demographics Now The subject neighborhood's population is expected to show increases below that of the region. The immediate market offers inferior income levels as compared to the broader market. The following table illustrates the housing statistics in the subject's immediate area, as well as the MSA region.
HOUSING TRENDS - -------------------------------------------------------------------------------- AREA CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - -------------------------------------------------------------------------------- HOUSING TRENDS % of Households Renting 63.19% 36.61% 30.83% 29.10% 5-Year Projected % Renting 58.38% 34.84% 29.50% 28.33% % of Households Owning 30.33% 58.03% 64.23% 62.84% 5-Year Projected % Owning 34.84% 59.74% 65.54% 64.03%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Drainage ditch and retail development South - Aspen Lodge Apartments and single-family residential East - Large vacant site under development with a luxury apartment complex West - Four Winds retail center, Wellesley Inn and Suites, good quality office-warehouse CONCLUSIONS The subject is well located within the city of Overland Park. The neighborhood is characterized as being mostly suburban in nature and is currently in the growth 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS MARKET ANALYSIS The subject property is located in the city of Overland Park in Johnson County. The overall pace of development in the subject's market is more or less stable. REIS reports that 56 completions are scheduled for 2004, 92 in 2005, 99, 2006 and 107 units in 2007. The following table illustrates historical vacancy rates for the subject's market.
HISTORICAL VACANCY RATE - --------------------------------------------------- Period Region Submarket - --------------------------------------------------- 1st Quarter 2003 8.0% 8.1% 4th Quarter 2002 7.1% 6.8% Average Per Ending 12/31/02 6.2% 5.8%
Source: REIS, Subtrend Futures, Kansas City Apartment, Overland Park North, 1st Quarter 2003 Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has equated the overall market. Market rents in the subject's market have been following a stable trend. The following table illustrates historical rental rates for the subject's market.
HISTORICAL AVERAGE RENT - -------------------------------------------------- Period Region % Change Submarket % Change - -------------------------------------------------- 1st Q 2003 NA NA $644 - 1st Q 2002 NA NA $676 5.0% 1st Q 2001 NA NA $652 -3.6% 1st Q 2002 NA NA $671 2.9%
Source: REIS, Subtrend Futures, Kansas City Apartment, Overland Park North, 1st Quarter 2003 The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS
COMPETITIVE PROPERTIES - --------------------------------------------------------------------------------------------- No. Property Name Units Ocpy. Year Built Proximity to subject - --------------------------------------------------------------------------------------------- R-1 Aspen Lodge 307 99% 1987 Across street from subject R-2 Chesapeake Estates Apartments 568 91% 1987 5 miles SW of the subject R-3 Rosehill Pointe Apartments 500 95% 1987 2.5 miles SW of the subject R-4 Cedar Crest Apartments 466 90% 1987 3.5 miles SE of the subject R-5 Subject Four Winds Apartments 350 92% 1986
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS PROPERTY DESCRIPTION SITE ANALYSIS Site Area 24.4711 acres, or 1,065,961 square feet Shape Irregular Topography Rolling 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 2001740202F, dated June 17, 2002 Flood Zone Zone X Zoning RP-3, 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 NP21100000 0002; (Assessed $145,140 $1,843,716 $1,988,856 0.08178 $162,656 Value)
IMPROVEMENT ANALYSIS Year Built 1986 Number of Units 350 Net Rentable Area 312,094 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Wood or vinyl siding Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, spa/jacuzzi, basketball court, tennis court, gym room, meeting hall, laundry room, business office, and parking area. Unit Amenities Individual unit amenities include a garage, balcony, fireplace, cable TV connection,and washer dryer AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS connection. Appliances available in each unit include a refrigerator, stove, dishwasher, water heater, garbage disposal, and oven. Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) 1Br/1Ba - 1A10 42 720 1Br/1Ba - 1B10 20 740 1Br/1Ba - 1C10 94 760 1Br/1Ba - 1D10 6 792 1Br/1Ba - 1E10 22 800 2Br/1Ba - 2A10 70 969
Overall Condition Average Effective Age 17 years Economic Life 45 years Remaining Economic Life 28 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 1986 and consist of a 350-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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 Property Name Four Winds Apartments Nieman Square Casa de Fuentes LOCATION: Address 8000 Perry Road 11115 West 64th Terrace 11700 Stearns City, State Overland Park, Kansas Shawnee, KS Overland Park, KS County Johnson Johnson County Johnson County PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 312,094 114,359 241,384 Year Built 1986 1986 1986 Number of Units 350 152 288 Unit Mix: Type Total Type Total Type Total 1Br/1Ba - 1A10 42 1Br/1Ba 98 1Br/1Ba NA 1Br/1Ba - 1B10 20 2Br/1Ba 27 2Br/2Ba NA 1Br/1Ba - 1C10 94 2Br/2Ba 27 1Br/1Ba - 1D10 6 1Br/1Ba - 1E10 22 2Br/1Ba - 2A10 70 2Br/2Ba - 2A20 76 3Br/2Ba - 3A20 20 Average Unit Size (SF) 892 752 838 Land Area (Acre) 24.4711 8.5500 30.1400 Density (Units/Acre) 14.3 17.8 9.6 Parking Ratio (Spaces/Unit) 1.86 1.99 1.99 Parking Type (Gr., Cov., etc.) Open 177 Open, 126 Covered 500 Open, 72 Covered CONDITION: Average Average Good APPEAL: Average Average Good AMENITIES: Pool/Spa Yes/Yes Yes/Yes Yes/Yes Gym Room Yes Yes Yes Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts Yes Yes Yes Washer/Dryer Connection Yes (in 2&3 Br units) Yes Yes OCCUPANCY: 92% 91% 89% TRANSACTION DATA: Sale Date August, 2002 July, 2002 Sale Price ($) $7,770,350 $14,900,000 Grantor Five States Associates, LP WXI/SPN Real Estate LP Grantee Cashill, Spalding Coolidge-CLK Casa de Fuentes, LLC Sale Documentation Document 216225 Document 212107 Verification Broker Broker Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,249,988 $8,224 $10.93 $2,438,255 $8,466 $10.10 Vacancy/Credit Loss $ 131,014 $ 862 $ 1.15 $ 260,414 $ 904 $ 1.08 Effective Gross Income $1,118,974 $7,362 $ 9.78 $2,177,841 $7,562 $ 9.02 Operating Expenses $ 480,364 $3,160 $ 4.20 $1,031,690 $3,582 $ 4.27 Net Operating Income $ 638,610 $4,201 $ 5.58 $1,146,151 $3,980 $ 4.75 NOTES: Sale price includes $170,350 The grantee also purchased for repair of siding and Aspen Lodge, Improved paving Comparable I-3. PRICE PER UNIT $51,121 $51,736 PRICE PER SQUARE FOOT $ 67.95 $ 61.73 EXPENSE RATIO 42.9% 47.4% EGIM 6.94 6.84 OVERALL CAP RATE 8.22% 7.69% Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 Property Name Aspen Lodge Corinth Place Apartments Concorde Bridge Townhomes (now Sheridan Bridge) LOCATION: Address 8100 Perry Road 3815 Somerset Drive 8403 Carter Street City, State Overland Park, KS Prairie Village, KS Overland Park, KS County Johnson County Johnson County Johnson County PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 277,054 75,280 403,196 Year Built 1987 1986 1971 Number of Units 307 76 248 Unit Mix: Type Total Type Total Type Total 1Br/1Ba NA 1Br/Ba NA 1Br/Ba NA 1Br/1Ba NA 2Br/2Ba NA 2Br/2Ba NA 2Br/1Ba NA 2Br/2Ba NA 3Br/2Ba NA Average Unit Size (SF) 902 991 1,626 Land Area (Acre) 33.5000 6.9000 25.8900 Density (Units/Acre) 9.2 11.0 9.6 Parking Ratio (Spaces/Unit) 1.49 NA 1.99 Parking Type (Gr., Cov., etc.) 304 Open, 154 Covered Open 375 Open, 119 Covered CONDITION: Average Average Average APPEAL: Average Average Average AMENITIES: Pool/Spa Yes/Yes Yes/No Yes/Yes Gym Room Yes Yes Yes Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts Yes Yes No Washer/Dryer Connection Yes Yes Yes OCCUPANCY: 90% 97% 94% TRANSACTION DATA: Sale Date July, 2002 May, 2001 January, 2001 Sale Price ($) $16,850,000 $5,268,658 $16,801,300 Grantor WXI/SPN Real Estate LP Highwoods Realty Limited Capreit Concorde Bridge Partnership Limited Partnership Grantee Coolidge-CLK Aspen, LLC TVO Corinth Place, LLC Sheridan Ridge LLC Sale Documentation Document 212108 Document 190389 Document 184907 Verification Broker Broker Confidential Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $2,713,792 $8,840 $9.80 $737,573 $9,705 $9.80 $ 0 $ 0 $0.00 Vacancy/Credit Loss $ 218,105 $ 710 $0.79 $ 18,520 $ 244 $0.25 $ 0 $ 0 $0.00 Effective Gross Income $2,495,687 $8,129 $9.01 $719,053 $9,461 $9.55 $2,589,305 $10,441 $6.42 Operating Expenses $1,122,740 $3,657 $4.05 $240,912 $3,170 $3.20 $ 829,237 $ 3,344 $2.06 Net Operating Income $1,372,947 $4,472 $4.96 $478,141 $6,291 $6.35 $1,760,068 $ 7,097 $4.37 NOTES: The grantee also purchased This property was purchased The sale price includes Casa de Fuentes, Improved as part of a bulk sale. The $1,201,300 in deferred Comparable I-2. sale price was allocated maintenance and renovation. based on appraisals PRICE PER UNIT $54,886 $69,324 $67,747 PRICE PER SQUARE FOOT $ 60.82 $69.99 $ 41.67 EXPENSE RATIO 45.0% 33.5% 32.0% EGIM 6.75 7.33 6.49 OVERALL CAP RATE 8.15% 9.08% 10.48% Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS IMPROVED SALES MAP [IMPROVED SALES MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $51,121 to $69,324 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 $44,855 to $50,468 per unit with a mean or average adjusted price of $47,825 per unit. The median adjusted price is $47,586 per unit. Based on the following analysis, we have concluded to a value of $47,500 per unit, which results in an "as is" value of $16,600,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - -------------------------------------------------------------------------------------------------------------- Property Name Four Winds Apartments Nieman Square Casa de Fuentes Address 8000 Perry Road 11115 West 64th Terrace 11700 Stearns City Overland Park, Kansas Shawnee, KS Overland Park, KS Sale Date August, 2002 July, 2002 Sale Price ($) $7,770,350 $14,900,000 Net Rentable Area (SF) 312,094 114,359 241,384 Number of Units 350 152 288 Price Per Unit $51,121 $51,736 Year Built 1986 1986 1986 Land Area (Acre) 24.4711 8.5500 30.1400 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 08-2002 2% 07-2002 2% VALUE AFTER TRANS. ADJUST. ($/UNIT) $52,143 $52,771 Location Comparable 0% Comparable 0% Number of Units 350 152 -10% 288 -5% Quality / Appeal Average Comparable 0% Superior -10% Age / Condition 1986 1986 / Average 0% 1986 / Good 0% Occupancy at Sale 92% 91% 0% 89% 0% Amenities Fair Comparable 0% Comparable 0% Average Unit Size (SF) 892 752 5% 838 0% PHYSICAL ADJUSTMENT -5% -15% FINAL ADJUSTED VALUE ($/UNIT) $49,536 $44,855 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - ------------------------------------------------------------------------------------------------------------------- Property Name Aspen Lodge Corinth Place Apartments Concorde Bridge Townhomes (now Sheridan Bridge) Address 8100 Perry Road 3815 Somerset Drive 8403 Carter Street City Overland Park, KS Prairie Village, KS Overland Park, KS Sale Date July, 2002 May, 2001 January, 2001 Sale Price ($) $16,850,000 $5,268,658 $16,801,300 Net Rentable Area (SF) 277,054 75,280 403,196 Number of Units 307 76 248 Price Per Unit $54,886 $69,324 $67,747 Year Built 1987 1986 1971 Land Area (Acre) 33.5000 6.9000 25.8900 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 07-2002 2% 05-2001 4% 01-2001 6% VALUE AFTER TRANS. ADJUST. ($/UNIT) $55,984 $72,097 $71,812 Location Comparable 0% Comparable 0% Comparable 0% Number of Units 307 0% 76 -15% 248 -5% Quality / Appeal Comparable 0% Superior -10% Comparable 0% Age / Condition 1987 / Average 0% 1986 / Average 0% 1971 / Average 5% Occupancy at Sale 90% 0% 97% 0% 94% 0% Amenities Superior -15% Comparable 0% Comparable 0% Average Unit Size (SF) 902 0% 991 -5% 1,626 -35% PHYSICAL ADJUSTMENT -15% -30% -35% FINAL ADJUSTED VALUE ($/UNIT) $47,586 $50,468 $46,678
SUMMARY VALUE RANGE (PER UNIT) $44,855 TO $ 50,468 MEAN (PER UNIT) $47,825 MEDIAN (PER UNIT) $47,586 VALUE CONCLUSION (PER UNIT) $47,500 VALUE OF IMPROVEMENT & MAIN SITE $16,625,000 DEFERRED MAINTENANCE -$75,000 VALUE INDICATED BY SALES COMPARISON APPROACH $16,550,000 ROUNDED $16,600,000
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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS
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-1 152 $7,770,350 8.22% $ 638,610 $1,491,957 1.015 $ 51,867 $ 51,121 $ 4,201 $ 4,263 I-2 288 $14,900,000 7.69% $1,146,151 $1,491,957 1.071 $ 55,416 $ 51,736 $ 3,980 $ 4,263 I-3 307 $16,850,000 8.15% $1,372,947 $1,491,957 0.953 $ 52,316 $ 54,886 $ 4,472 $ 4,263 I-4 76 $ 5,268,658 9.08% $ 478,141 $1,491,957 0.678 $ 46,971 $ 69,324 $ 6,291 $ 4,263 I-5 248 $16,801,300 10.48% $1,760,068 $1,491,957 0.601 $ 40,691 $ 67,747 $ 7,097 $ 4,263 PRICE/UNIT VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT - -------------------------------------------------------------------------------------------------- Low High Average Median Estimated Price Per Unit $ 47,500 ----------- Number of Units 350 $40,691 $55,416 $49,452 $51,867 Value $16,625,000 Deferred Maintenance -$75,000 ----------- Value Based on NOI Analysis $16,550,000 Rounded $16,600,000
The adjusted sales indicate a range of value between $40,691 and $55,416 per unit, with an average of $49,452 per unit. Based on the subject's competitive position within the improved sales, a value of $47,500 per unit is estimated. This indicates an "as is" market value of $16,600,000 (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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS
EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON - ----------------------------------------------------------------------------------------------- COMPARABLE NO. OF SALE PRICE EFFECTIVE OPERATING SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM - ----------------------------------------------------------------------------------------------- I-1 152 $ 7,770,350 $1,118,974 $ 480,364 42.93% 6.94 $ 51,121 I-2 288 $14,900,000 $2,177,841 $1,031,690 47.37% 6.84 $ 51,736 I-3 307 $16,850,000 $2,495,687 $1,122,740 44.99% 43.31% 6.75 $ 54,886 I-4 76 $ 5,268,658 $ 719,053 $ 240,912 33.50% 7.33 $ 69,324 I-5 248 $16,801,300 $2,589,305 $ 829,237 32.03% 6.49 $ 67,747 EGIM VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Low High Average Median Estimate EGIM 6.00 Subject EGI $ 2,786,271 6.49 7.33 6.87 6.84 Value $16,717,625 Deferred Maintenance -$75,000 Value Based on EGIM Analysis $16,642,625 Rounded $16,600,000 Value Per Unit $ 47,429
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 43.31% before reserves. The comparable sales indicate a range of expense ratios from 32.03% to 47.37%, while their EGIMs range from 6.49 to 7.33. Overall, we conclude to an EGIM of 6.00, which results in an "as is" value estimate in the EGIM Analysis of $16,600,000. 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 $16,600,000. Price Per Unit $16,600,000 NOI Per Unit $16,600,000 EGIM Analysis $16,600,000 Sales Comparison Conclusion $16,600,000 AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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
Unit Area Average Unit Type (Sq. Ft.) Per Unit Per SF %Occupied 1Br/1Ba - 1A10 720 $592 $0.82 95.3% 1Br/1Ba - 1B10 740 $561 $0.76 77.8% 1Br/1Ba - 1C10 760 $606 $0.80 91.6% 1Br/1Ba - 1D10 792 $582 $0.73 100.0% 1Br/1Ba - 1E10 800 $623 $0.78 90.9% 2Br/1Ba - 2A10 969 $676 $0.70 92.9%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS RENT ANALYSIS
COMPARABLE RENTS ----------------------------------------------------- R-1 R-2 R-3 R-4 R-5 ------------------------------------------------------ Chesapeake Rosehill Aspen Estates Pointe Cedar Crest Lodge Apartments Apartments Apartments ------------------------------------------------------ SUBJECT SUBJECT COMPARISON TO SUBJECT SUBJECT UNIT ACTUAL ASKING ------------------------------------------------------ DESCRIPTION TYPE RENT RENT Similar Superior Similar Superior Superior ----------- ---- ---- ---- ------- -------- ------- -------- -------- Monthly Rent 1BR/1BA - 1A10 $ 592 $ 501 $ 659 $ 575 Unit Area (SF) 720 720 720 644 Monthly Rent Per Sq. Ft. $ 0.82 $ 0.70 $ 0.92 $ 0.89 Monthly Rent 1BR/1BA - 1B10 $ 561 $ 541 $ 575 Unit Area (SF) 740 740 720 Monthly Rent Per Sq. Ft. $ 0.76 $ 0.73 $ 0.80 Monthly Rent 1BR/1BA - 1C10 $ 606 $ 571 $ 559 Unit Area (SF) 760 760 720 Monthly Rent Per Sq. Ft. $ 0.80 $ 0.75 $ 0.78 Monthly Rent 1BR/1BA - 1D10 $ 582 $ 671 $ 590 $ 559 Unit Area (SF) 792 792 794 794 Monthly Rent Per Sq. Ft. $ 0.73 $ 0.85 $ 0.74 $ 0.70 Monthly Rent 1BR/1BA - 1E10 $ 623 $ 720 Unit Area (SF) 800 800 800 Monthly Rent Per Sq. Ft. $ 0.78 $ 0.90 Monthly Rent 2BR/1BA - 2A10 $ 676 $ 765 $ 710 $ 640 $ 709 Unit Area (SF) 969 969 969 906 904 904 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.79 $ 0.78 $ 0.71 $ 0.78 Monthly Rent 2BR/2BA - 2A20 $ 768 $ 840 Unit Area (SF) 1,062 1,062 1,062 Monthly Rent Per Sq. Ft. $ 0.72 $ 0.79 Monthly Rent 3BR/2BA - 3A20 $ 902 $ 980 $ 850 $ 842 $ 837 Unit Area (SF) 1,236 1,236 1,236 1,185 1,263 1,263 Monthly Rent Per Sq. Ft. $ 0.73 $ 0.79 $ 0.72 $ 0.67 $ 0.66 DESCRIPTION MIN MAX MEDIAN AVERAGE ----------- --- --- ------ ------- Monthly Rent $ 575 $ 659 $ 617 $ 617 Unit Area (SF) 644 720 682 682 Monthly Rent Per Sq. Ft. $ 0.89 $ 0.92 $ 0.90 $ 0.90 Monthly Rent $ 575 $ 575 $ 575 $ 575 Unit Area (SF) 720 720 720 720 Monthly Rent Per Sq. Ft. $ 0.80 $ 0.80 $ 0.80 $ 0.80 Monthly Rent $ 559 $ 559 $ 559 $ 559 Unit Area (SF) 720 720 720 720 Monthly Rent Per Sq. Ft. $ 0.78 $ 0.78 $ 0.78 $ 0.78 Monthly Rent $ 559 $ 590 $ 575 $ 575 Unit Area (SF) 794 794 794 794 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.74 $ 0.72 $ 0.72 Monthly Rent $ 720 $ 720 $ 720 $ 720 Unit Area (SF) 800 800 800 800 Monthly Rent Per Sq. Ft. $ 0.90 $ 0.90 $ 0.90 $ 0.90 Monthly Rent $ 640 $ 765 $ 710 $ 706 Unit Area (SF) 904 969 905 921 Monthly Rent Per Sq. Ft. $ 0.71 $ 0.79 $ 0.78 $ 0.77 Monthly Rent $ 840 $ 840 $ 840 $ 840 Unit Area (SF) 1,062 1,062 1,062 1,062 Monthly Rent Per Sq. Ft. $ 0.79 $ 0.79 $ 0.79 $ 0.79 Monthly Rent $ 837 $ 980 $ 846 $ 877 Unit Area (SF) 1,185 1,263 1,250 1,237 Monthly Rent Per Sq. Ft. $ 0.66 $ 0.79 $ 0.69 $ 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 42 720 $ 590 $ 0.82 $ 24,780 $ 297,360 1Br/1Ba - 1B10 20 740 $ 560 $ 0.76 $ 11,200 $ 134,400 1Br/1Ba - 1C10 94 760 $ 600 $ 0.79 $ 56,400 $ 676,800 1Br/1Ba - 1D10 6 792 $ 600 $ 0.76 $ 3,600 $ 43,200 1Br/1Ba - 1E10 22 800 $ 699 $ 0.87 $ 15,378 $ 184,536 2Br/1Ba - 2A10 70 969 $ 700 $ 0.72 $ 49,000 $ 588,000 Total $233,358 $2,800,296
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 $3,001,874 $ 8,577 $3,021,007 $ 8,631 $2,931,256 $ 8,375 $2,906,112 $ 8,303 Vacancy $ 166,532 $ 476 $ 189,408 $ 541 $ 130,214 $ 372 $ 158,300 $ 452 Credit Loss/Concessions $ 65,120 $ 186 $ 126,233 $ 361 $ 126,179 $ 361 $ 105,000 $ 300 -------------------------------------------------------------------------------------- Subtotal $ 231,652 $ 662 $ 315,641 $ 902 $ 256,393 $ 733 $ 263,300 $ 752 Laundry Income $ 1,104 $ 3 $ 1,601 $ 5 $ 2,692 $ 8 $ 27,708 $ 79 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 167,567 $ 479 $ 210,754 $ 602 $ 282,034 $ 806 $ 236,900 $ 677 -------------------------------------------------------------------------------------- Subtotal Other Income $ 168,671 $ 482 $ 212,355 $ 607 $ 284,726 $ 814 $ 264,608 $ 756 -------------------------------------------------------------------------------------- Effective Gross Income $2,938,893 $ 8,397 $2,917,721 $ 8,336 $2,959,589 $ 8,456 $2,907,420 $ 8,307 Operating Expenses Taxes $ 177,948 $ 508 $ 173,373 $ 495 $ 255,331 $ 730 $ 196,620 $ 562 Insurance $ 5,798 $ 17 $ 55,089 $ 157 $ 62,407 $ 178 $ 68,780 $ 197 Utilities $ 151,305 $ 432 $ 151,052 $ 432 $ 162,420 $ 464 $ 106,500 $ 304 Repair & Maintenance $ 32,444 $ 93 $ 74,255 $ 212 $ 62,580 $ 179 $ 73,464 $ 210 Cleaning $ 4,702 $ 13 $ 3,029 $ 9 $ 3,317 $ 9 $ 0 $ 0 Landscaping $ 56,129 $ 160 $ 45,486 $ 130 $ 41,775 $ 119 $ 43,200 $ 123 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 134,789 $ 385 $ 89,147 $ 255 $ 85,229 $ 244 $ 77,900 $ 223 General Administrative $ 301,002 $ 860 $ 369,008 $ 1,054 $ 349,563 $ 999 $ 319,704 $ 913 Management $ 150,132 $ 429 $ 152,027 $ 434 $ 146,435 $ 418 $ 153,000 $ 437 Miscellaneous $ 101,846 $ 291 $ 110,777 $ 317 $ 120,124 $ 343 $ 103,360 $ 295 -------------------------------------------------------------------------------------- Total Operating Expenses $1,116,095 $ 3,189 $1,223,243 $ 3,495 $1,289,181 $ 3,683 $1,142,528 $ 3,264 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------------- Net Income $1,822,798 $ 5,208 $1,694,478 $ 4,841 $1,670,408 $ 4,773 $1,764,892 $ 5,043 ANNUALIZED 2003 -------------------- PROJECTION AAA PROJECTION ---------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % - -------------------------------------------------------------------------------- Revenues Rental Income $2,822,420 $ 8,064 $2,800,296 $ 8,001 100.0% Vacancy $ 130,968 $ 374 $ 140,015 $ 400 5.0% Credit Loss/Concessions $ 92,192 $ 263 $ 98,010 $ 280 3.5% ---------------------------------------------------- Subtotal $ 223,160 $ 638 $ 238,025 $ 680 8.5% Laundry Income $ 8,348 $ 24 $ 14,000 $ 40 0.5% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 217,860 $ 622 $ 210,000 $ 600 7.5% ---------------------------------------------------- Subtotal Other Income $ 226,208 $ 646 $ 224,000 $ 640 8.0% ---------------------------------------------------- Effective Gross Income $2,825,468 $ 8,073 $2,786,271 $ 7,961 100.0% Operating Expenses Taxes $ 197,312 $ 564 $ 201,250 $ 575 7.2% Insurance $ 65,776 $ 188 $ 66,500 $ 190 2.4% Utilities $ 169,096 $ 483 $ 168,000 $ 480 6.0% Repair & Maintenance $ 56,948 $ 163 $ 63,000 $ 180 2.3% Cleaning $ 6,636 $ 19 $ 7,000 $ 20 0.3% Landscaping $ 5,920 $ 17 $ 45,500 $ 130 1.6% Security $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 64,948 $ 186 $ 78,750 $ 225 2.8% General Administrative $ 369,436 $ 1,056 $ 350,000 $ 1,000 12.6% Management $ 143,304 $ 409 $ 139,314 $ 398 5.0% Miscellaneous $ 98,696 $ 282 $ 87,500 $ 250 3.1% ---------------------------------------------------- Total Operating Expenses $1,178,072 $ 3,366 $1,206,814 $ 3,448 43.3% Reserves $ 0 $ 0 $ 87,500 $ 250 7.3% ---------------------------------------------------- Net Income $1,647,396 $ 4,707 $1,491,957 $ 4,263 53.5%
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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS
SUMMARY OF OVERALL CAPITALIZATION RATES - ------------------------------------------------ COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - ------------------------------------------------ I-1 Aug-02 91% $51,121 8.22% I-2 Jul-02 89% $51,736 7.69% I-3 Jul-02 90% $54,886 8.15% I-4 May-01 97% $69,324 9.08% I-5 Jan-01 94% $67,747 10.48% High 10.48% Low 7.69% Average 8.72%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.00%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 10.00%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 11.00%. 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 11.00% indicates a value of $16,500,000. In this instance, the reversion figure contributes approximately 39% of the total value. Investors surveyed for this assignment indicated they AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS DISCOUNTED CASH FLOW ANALYSIS
FOUR WINDS APARTMENTS YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 APR-2010 FISCAL YEAR 1 2 3 4 5 6 7 REVENUE Base Rent $2,800,296 $2,856,302 $2,913,428 $2,971,697 $3,031,130 $3,106,909 $3,184,581 Vacancy $ 140,015 $ 142,815 $ 145,671 $ 148,585 $ 151,557 $ 155,345 $ 159,229 Credit Loss $ 98,010 $ 99,971 $ 101,970 $ 104,009 $ 106,090 $ 108,742 $ 111,460 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------------------------------- Subtotal $ 238,025 $ 242,786 $ 247,641 $ 252,594 $ 257,646 $ 264,087 $ 270,689 Laundry Income $ 14,000 $ 14,280 $ 14,566 $ 14,857 $ 15,154 $ 15,533 $ 15,921 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 210,000 $ 214,200 $ 218,484 $ 222,854 $ 227,311 $ 232,994 $ 238,818 ---------------------------------------------------------------------------------------- Subtotal Other Income $ 224,000 $ 228,480 $ 233,050 $ 237,711 $ 242,465 $ 248,526 $ 254,740 ---------------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $2,786,271 $2,841,996 $2,898,836 $2,956,813 $3,015,949 $3,091,348 $3,168,632 OPERATING EXPENSES: Taxes $ 201,250 $ 205,275 $ 209,381 $ 213,568 $ 217,839 $ 223,285 $ 228,868 Insurance $ 66,500 $ 67,830 $ 69,187 $ 70,570 $ 71,982 $ 73,781 $ 75,626 Utilities $ 168,000 $ 171,360 $ 174,787 $ 178,283 $ 181,849 $ 186,395 $ 191,055 Repair & Maintenance $ 63,000 $ 64,260 $ 65,545 $ 66,856 $ 68,193 $ 69,898 $ 71,646 Cleaning $ 7,000 $ 7,140 $ 7,283 $ 7,428 $ 7,577 $ 7,766 $ 7,961 Landscaping $ 45,500 $ 46,410 $ 47,338 $ 48,285 $ 49,251 $ 50,482 $ 51,744 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 78,750 $ 80,325 $ 81,932 $ 83,570 $ 85,242 $ 87,373 $ 89,557 General Administrative $ 350,000 $ 357,000 $ 364,140 $ 371,423 $ 378,851 $ 388,323 $ 398,031 Management $ 139,314 $ 142,100 $ 144,942 $ 147,841 $ 150,797 $ 154,567 $ 158,432 Miscellaneous $ 87,500 $ 89,250 $ 91,035 $ 92,856 $ 94,713 $ 97,081 $ 99,508 ---------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $1,206,814 $1,230,950 $1,255,569 $1,280,680 $1,306,294 $1,338,951 $1,372,425 Reserves $ 87,500 $ 89,250 $ 91,035 $ 92,856 $ 94,713 $ 97,081 $ 99,508 ---------------------------------------------------------------------------------------- NET OPERATING INCOME $1,491,957 $1,521,796 $1,552,232 $1,583,277 $1,614,943 $1,655,316 $1,696,699 ======================================================================================== Operating Expense Ratio (% of EGI) 43.3% 43.3% 43.3% 43.3% 43.3% 43.3% 43.3% Operating Expense Per Unit $ 3,448 $ 3,517 $ 3,587 $ 3,659 $ 3,732 $ 3,826 $ 3,921 ======================================================================================== FOUR WINDS APARTMENTS YEAR APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 8 9 10 11 REVENUE Base Rent $3,264,196 $3,345,801 $3,429,446 $3,515,182 Vacancy $ 163,210 $ 167,290 $ 171,472 $ 175,759 Credit Loss $ 114,247 $ 117,103 $ 120,031 $ 123,031 Concessions $ 0 $ 0 $ 0 $ 0 ------------------------------------------------- Subtotal $ 277,457 $ 284,393 $ 291,503 $ 298,790 Laundry Income $ 16,319 $ 16,727 $ 17,145 $ 17,574 Garage Revenue $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 244,789 $ 250,909 $ 257,181 $ 263,611 ------------------------------------------------- Subtotal Other Income $ 261,108 $ 267,636 $ 274,327 $ 281,185 ------------------------------------------------- EFFECTIVE GROSS INCOME $3,247,847 $3,329,044 $3,412,270 $3,497,576 OPERATING EXPENSES: Taxes $ 234,589 $ 240,454 $ 246,465 $ 252,627 Insurance $ 77,516 $ 79,454 $ 81,441 $ 83,477 Utilities $ 195,831 $ 200,727 $ 205,745 $ 210,889 Repair & Maintenance $ 73,437 $ 75,273 $ 77,154 $ 79,083 Cleaning $ 8,160 $ 8,364 $ 8,573 $ 8,787 Landscaping $ 53,038 $ 54,364 $ 55,723 $ 57,116 Security $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 91,796 $ 94,091 $ 96,443 $ 98,854 General Administrative $ 407,981 $ 418,181 $ 428,635 $ 439,351 Management $ 162,392 $ 166,452 $ 170,613 $ 174,879 Miscellaneous $ 101,995 $ 104,545 $ 107,159 $ 109,838 ------------------------------------------------- TOTAL OPERATING EXPENSES $1,406,736 $1,441,904 $1,477,952 $1,514,900 Reserves $ 101,995 $ 104,545 $ 107,159 $ 109,838 ------------------------------------------------- NET OPERATING INCOME $1,739,117 $1,782,594 $1,827,159 $1,872,838 ================================================= Operating Expense Ratio (% of EGI) 43.3% 43.3% 43.3% 43.3% Operating Expense Per Unit $ 4,019 $ 4,120 $ 4,223 $ 4,328 =================================================
"DCF" VALUE ANALYSIS Estimated Stabilized NOI $1,491,957 Sales Expense Rate 2.00% Months to Stabilized 0 Discount Rate 11.00% Stabilized Occupancy 95.0% Terminal Cap Rate 10.00%
Gross Residual Sale Price $18,728,383 Deferred Maintenance -$75,000 Less: Sales Expense $ 374,568 Add: Excess Land $ 0 ----------- Other Adjustments $ 0 Net Residual Sale Price $18,353,815 ----------- PV of Reversion $ 6,463,929 Value Indicated By "DCF" $16,495,936 Add: NPV of NOI $10,107,008 Rounded $16,500,000 ----------- PV Total $16,570,936
"DCF" VALUE SENSITIVITY TABLE - ------------------------------------------------------------------------------------------ TOTAL VALUE DISCOUNT RATE - ------------------------------------------------------------------------------------------ 10.50% 10.75% 11.00% 11.25% 11.50% 9.50% $17,466,180 $17,185,615 $16,911,143 $16,642,612 $16,379,873 9.75% $17,283,657 $17,007,171 $16,736,678 $16,472,028 $16,213,075 TERMINAL CAP RATE 10.00% $17,110,262 $16,837,650 $16,570,936 $16,309,974 $16,054,618 10.25% $16,945,324 $16,676,398 $16,413,280 $16,155,824 $15,903,890 10.50% $16,788,240 $16,522,824 $16,263,130 $16,009,015 $15,760,339
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS INCOME LOSS DURING LEASE-UP The subject is currently near or at a stabilized condition. Therefore, there is no income loss during lease-up at the subject property. CONCESSIONS Concessions have historically not been utilized at the subject property or in the subject's market. Therefore, no adjustment was included for concessions. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 9.00% 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS
FOUR WINDS APARTMENTS TOTAL PER SQ. FT. PER UNIT %OF EGI REVENUE Base Rent $ 2,800,296 $ 8.97 $ 8,001 Less: Vacancy & Collection Loss 8.50% $ 238,025 $ 0.76 $ 680 Plus: Other Income Laundry Income $ 14,000 $ 0.04 $ 40 0.50% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 210,000 $ 0.67 $ 600 7.54% ------------------------------------------ Subtotal Other Income $ 224,000 $ 0.72 $ 640 8.04% EFFECTIVE GROSS INCOME $ 2,786,271 $ 8.93 $ 7,961 OPERATING EXPENSES: Taxes $ 201,250 $ 0.64 $ 575 7.22% Insurance $ 66,500 $ 0.21 $ 190 2.39% Utilities $ 168,000 $ 0.54 $ 480 6.03% Repair & Maintenance $ 63,000 $ 0.20 $ 180 2.26% Cleaning $ 7,000 $ 0.02 $ 20 0.25% Landscaping $ 45,500 $ 0.15 $ 130 1.63% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 78,750 $ 0.25 $ 225 2.83% General Administrative $ 350,000 $ 1.12 $ 1,000 12.56% Management 5.00% $ 139,314 $ 0.45 $ 398 5.00% Miscellaneous $ 87,500 $ 0.28 $ 250 3.14% TOTAL OPERATING EXPENSES $ 1,206,814 $ 3.87 $ 3,448 43.31% Reserves $ 87,500 $ 0.28 $ 250 3.14% ------------------------------------------ NET OPERATING INCOME $ 1,491,957 $ 4.78 $ 4,263 53.55% ========================================== "GOING IN" CAPITALIZATION RATE 9.00% VALUE INDICATION $16,577,303 $53.12 $47,364 DEFERRED MAINTENANCE ($ 75,000) LESS: LEASE-UP COST {OTHER VALUE ADJUSTMENTS} "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $16,502,303 ROUNDED $16,500,000 $52.87 $47,143
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS
DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE - --------------------------------------------------- CAP RATE VALUE ROUNDED $/UNIT $/SF - --------------------------------------------------- 8.25% $18,009,331 $18,000,000 $51,429 $57.67 8.50% $17,477,439 $17,500,000 $50,000 $56.07 8.75% $16,975,941 $17,000,000 $48,571 $54.47 9.00% $16,502,303 $16,500,000 $47,143 $52.87 9.25% $16,054,268 $16,100,000 $46,000 $51.59 9.50% $15,629,814 $15,600,000 $44,571 $49.98 9.75% $15,227,126 $15,200,000 $43,429 $48.70
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $16,500,000. 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 $16,500,000 Direct Capitalization Method $16,500,000 Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $16,500,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 $16,600,000 Income Approach $16,500,000 Reconciled Value $16,500,000 The Income Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of May 8, 2003 the market value of the fee simple estate in the property is: $16,500,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS SUBJECT PHOTOGRAPHS [PICTURE] ENTRANCE TO SUBJECT AND VIEW OF 81ST STREET [PICTURE] EXTERIOR - TYPICAL THREE-STORY BUILDING [PICTURE] TYPICAL TWO-STORY BUILDING [PICTURE] POOL [PICTURE] VIEW OF TENNIS COURTS [PICTURE] VIEW OF OFFICE/CLUBHOUSE AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS SUBJECT PHOTOGRAPHS [PICTURE] INTERIOR VIEW - MODEL [PICTURE] INTERIOR VIEW -MODEL [PICTURE] INTERIOR - VACANT APARTMENT UNIT [PICTURE] INTERIOR -VACANT APARTMENT UNIT [PICTURE] CLUBHOUSE INTERIOR VIEW [PICTURE] VIEW OF TYPICAL CARPORT AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 NIEMAN SQUARE CASA DE FUENTES ASPEN LODGE 11115 West 64th Terrace 11700 Stearns 8100 Perry Road Shawnee, KS Overland Park, KS Overland Park, KS [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 CORINTH PLACE APARTMENTS CONCORDE BRIDGE TOWNHOMES (NOW SHERIDAN BRIDGE) 3815 Somerset Drive 8403 Carter Street Prairie Village, KS Overland Park, KS [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 ----------- ------- ----- Property Name Four Winds Apartments Aspen Lodge Management Company AIMCO LEDIC Management Group LOCATION: Address 8000 Perry Road 8100 Perry Road City, State Overland Park, Kansas Overland Park, KS County Johnson Johnson Proximity to Subject Across street from subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 312,094 277,054 Year Built 1986 1987 Effective Age 17 16 Building Structure Type Viny1 siding, flat roofs Wood siding, pitched composition shingle roofs Parking Type (Gr., Cov., etc.) Open, carports Open, carports Number of Units 350 307 Unit Mix: Type Unit Qty. Mo.Rent Type Unit Qty. Mo. ---- ---- ---- ------- ---- ---- ---- --- 1 1Br/1Ba - 1A10 720 42 $ 592 1 1Br/1Ba 720 NA $ 659 2 1Br/1Ba - 1B10 740 20 $ 561 5 1Br/1Ba 800 NA $ 720 3 1Br/1Ba - 1C10 760 94 $ 606 6 2Br/1Ba 969 NA $ 765 4 1Br/1Ba - 1D10 792 6 $ 582 7 2Br/2Ba 1,062 NA $ 840 5 1Br/1Ba - 1E10 800 22 $ 623 8 3Br/2Ba 1,236 NA $ 980 6 2Br/1Ba - 2A10 969 70 $ 676 7 2Br/2Ba - 2A20 1,062 76 $ 768 8 3Br/2Ba - 3A20 1,236 20 $ 902 Average Unit Size (SF) 892 902 Unit Breakdown: Efficiency 0% 2-Bedroom 39% Efficiency 0% 2-Bedroom NA 1-Bedroom 61% 3-Bedroom 0% 1-Bedroom NA 3-Bedroom NA CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities X Attach. Garage 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 X Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash X Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 92% 99% LEASING DATA: Available Leasing Terms 6 to 12 Months 12 months Concessions 1/2 Month free rent on one-bedrooms Pet Deposit $300 $300 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash X Water Trash Confirmation May __, 2003; Roxane Tevis (Property May 28, 2003; (Leasing Agent) Manager) Telephone Number (913)648-4339 (877)895-7785 NOTES: COMPARISON TO SUBJECT: Similar COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 ----------- ----- ----- Property Name Chesapeake Estates Apartments Rosehill Pointe Apartments Management Company Price Management Company Equity Apartments LOCATION: Address 9250 Lichtenauer Drive 12701 West 88th Street City, State Lenexa, KS Lenexa, KS County Johnson County Johnson County Proximity to Subject 5 miles SW of the subject 2.5 miles SW of the subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 493,430 393,776 Year Built 1987 1987 Effective Age 16 16 Building Structure Type Brick, siding, pitched composition Wood siding, pitched composition shingle shingle roofs roof Parking Type (Gr., Cov., etc.) Open, carports Open, carports Number of Units 568 500 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. ---- ---- ---- --- ---- ---- ---- --- 1 1Br/1Ba 610 NA $ 565 2 1Br/1Ba 720 NA $ 575 1 1Br/1Ba 678 NA $ 585 4 1Br/1Ba 794 NA $ 590 6 2Br/2Ba 906 NA $ 710 6 2Br/1Ba 904 NA $ 640 8 2Br/2Ba 1,185 NA $ 850 8 2Br/2Ba 1,263 NA $ 754 8 2Br/2Ba 1,263 NA $ 929 Average Unit Size (SF) 869 788 Unit Breakdown: Efficiency 0% 2-Bedroom 0% Efficiency 0% 2-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% CONDITION: Good Average APPEAL: Good Average AMENITIES: Unit Amenities 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 X Spa/Jacuzzi Car Wash X Spa/Jacuzzi X Car Wash Basketball Court X BBQ Equipment X Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X Tennis Court X Secured Parking X 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: 91% 95% LEASING DATA: Available Leasing Terms 6 or 12 months 6 to 12 months Concessions Discounts on selected units None Pet Deposit $150 $300 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash X Water Trash Confirmation May 28, 2003; (Leasing Agent) May 28, 2003; (Leasing Agent) Telephone Number (913)888-1505 (877)566-3702 NOTES: COMPARISON TO SUBJECT: Superior Similar COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 ----------- ----- ----- Property Name Cedar Crest Apartments Management Company Equity Apartments LOCATION: Address 6500 West 91st Street City, State Overland Park, KS County Johnson County Proximity to Subject 3.5 miles SE of the subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) NA Year Built 1987 Effective Age 16 Building Structure Type Wood siding, composition shingle roofs Parking Type (Gr., Cov., etc.) Open, carports Number of Units 466 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. ---- ---- ---- --- ---- ---- ---- --- 3 1Br/1Ba 720 $ 559 4 1Br/1Ba 794 $ 559 6 2Br/1Ba 904 $ 709 8 2Br/2Ba 1,263 $ 785 8 2Br/2Ba 1,263 $ 889 Average Unit Size (SF) NA Unit Breakdown: Efficiency 0% 2-Bedroom 0% Efficiency 0% 2-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. Balcony W/D Connect. X Fireplace Fireplace X Cable TV Ready Cable TV Ready Project Amenities X Swimming Pool Swimming Pool X Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash X Basketball Court X BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball Meeting Hall X Tennis Court X Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball Laundry Room Jogging Track X Business Office Jogging Track Business Office X Gym Room Gym Room OCCUPANCY: 90% LEASING DATA: Available Leasing Terms 6 to 12 Months Concessions None Pet Deposit $700 Utilities Paid by Tenant: X Electric Natural Gas Electric Natural Gas X Water Trash Water Trash Confirmation May 27, 2003; (Leasing Agent) Telephone Number (504)394-6161 NOTES: COMPARISON TO SUBJECT: Superior Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 ASPEN LODGE CHESAPEAKE ESTATES APARTMENTS ROSEHILL POINTE APARTMENTS 8100 Perry Road 9250 Lichtenauer Drive 12701 West 88th Street Overland Park, KS Lenexa, KS Lenexa, KS [PICTURE OF LODGE] [PICTURE OF LODGE] [PICTURE OF LODGE] COMPARABLE R-4 COMPARABLE R-5 CEDAR CREST APARTMENTS 6500 West 91st Street Overland Park, KS [PICTURE OF LODGE] N/A AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS PROFESSIONAL Appraisal Institute, MAI Designated Member Candidate Member of AFFILIATIONS 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. FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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. EX-99.(C)(5) 7 d07250a2exv99wxcyx5y.txt APPRAISAL OF HAMPTON GREENS APARTMENTS HAMPTON GREENS 10911 WOODMEADOW PARKWAY DALLAS, TEXAS MARKET VALUE - FEE SIMPLE ESTATE AS OF APRIL 28, 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] [AMERICAN APPRAISAL ASSOCIATES LOGO] [AMERICAN APPRAISAL ASSOCIATES LETTERHEAD] 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: HAMPTON GREENS 10911 WOODMEADOW PARKWAY DALLAS, DALLAS COUNTY, TEXAS 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 309 units with a total of 216,528 square feet of rentable area. The improvements were built in 1985. The improvements are situated on 9 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 85% 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 HAMPTON GREENS, DALLAS, TEXAS 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 April 28, 2003 is: ($8,500,000) 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: Shayne Hatch Texas Appraiser Trainee # TX-1330454-T AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 HAMPTON GREENS, DALLAS, TEXAS 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............................................ 39
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 HAMPTON GREENS, DALLAS, TEXAS EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Hampton Greens LOCATION: 10911 Woodmeadow Parkway Dallas, Texas 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: April 28, 2003 DATE OF REPORT: July 17, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 9 acres, or 392,040 square feet Assessor Parcel No.: 0085790N00002 Floodplain: Community Panel No. 48113C0360K (February 5, 2003) Flood Zone X, an area outside the floodplain. Zoning: MF-2 (A) (Multi Family District) BUILDING: No. of Units: 309 Units Total NRA: 216,528 Square Feet Average Unit Size: 701 Square Feet Apartment Density: 34.3 units per acre Year Built: 1985 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Square Market Rent Monthly Annual Unit Type Feet Per Unit Per SF Income Income 1Br/1Ba - 1A10 523 $430 $0.82 $ 30,960 $ 371,520 1Br/1Ba - 1B10 652 $450 $0.69 $ 56,700 $ 680,400 1Br/1Ba - 1C10 745 $520 $0.70 $ 15,600 $ 187,200 1Br/1Ba - 1D10 748 $575 $0.77 $ 15,525 $ 186,300 2Br/2Ba - 2A20 892 $681 $0.76 $ 12,258 $ 147,096 2Br/2Ba - 2B20 958 $720 $0.75 $ 4,320 $ 51,840 2Br/2Ba - 2C20 1,079 $800 $0.74 $ 24,000 $ 288,000 Total $159,363 $1,912,356
OCCUPANCY: 85% AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 HAMPTON GREENS, DALLAS, TEXAS ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 18 Years REMAINING ECONOMIC LIFE: 27 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR BUILDING EXTERIOR APARTMENT & LAUNDRY BUILDINGS AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 HAMPTON GREENS, DALLAS, TEXAS NEIGHBORHOOD MAP [MAP] HIGHEST AND BEST USE: As Vacant: Hold for future multi-family development As Improved: Continuation as its current use METHOD OF VALUATION: In this instance, the Sales Comparison and Income Approaches to value were utilized. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7 HAMPTON GREENS, DALLAS, TEXAS PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
Amount $/Unit ------ ------ DIRECT CAPITALIZATION Potential Rental Income $1,912,356 $ 6,189 Effective Gross Income $1,844,720 $ 5,970 Operating Expenses $ 935,899 $ 3,029 50.7% of EGI Net Operating Income: $ 831,572 $ 2,691 Capitalization Rate 9.50% DIRECT CAPITALIZATION VALUE $8,600,000 * $27,832 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 12% Stabilized Vacancy & Collection Loss: 10% Lease-up / Stabilization Period 12 months Terminal Capitalization Rate 10.00% Discount Rate 11.00% Selling Costs 3.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $8,800,000 * $28,479 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $8,700,000 $28,155 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $27,016 to $39,835 Range of Sales $/Unit (Adjusted) $30,015 to $38,222 VALUE INDICATION - PRICE PER UNIT $9,400,000 * $30,421 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 4.24 to 5.50 Selected EGIM for Subject 4.50 Subject's Projected EGI $1,844,720 EGIM ANALYSIS CONCLUSION $8,100,000 * $26,214 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $7,500,000 * $24,272 / UNIT RECONCILED SALES COMPARISON VALUE $8,500,000 $27,508 / 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 HAMPTON GREENS, DALLAS, TEXAS PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $9,400,000 NOI Per Unit $7,500,000 EGIM Multiplier $8,100,000 INDICATED VALUE BY SALES COMPARISON $8,500,000 $27,508 / UNIT INCOME APPROACH: Direct Capitalization Method: $8,600,000 Discounted Cash Flow Method: $8,800,000 INDICATED VALUE BY THE INCOME APPROACH $8,700,000 $28,155 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $8,500,000 $27,508 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 HAMPTON GREENS, DALLAS, TEXAS INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 10911 Woodmeadow Parkway, Dallas, Dallas County, Texas. Dallas identifies it as 0085790N00002. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Shayne Hatch on April 28, 2003. Frank Fehribach, MAI has not made a personal inspection of the subject property. Shayne Hatch performed the research, valuation analysis and wrote the report. Frank Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach, MAI and Shayne Hatch have extensive experience in appraising similar properties and meet the USPAP competency provision. The scope of this investigation comprises the inspection of the property and the collection, verification, and analysis of general and specific data pertinent to the subject property. We have researched current improved sales and leases of similar properties, analyzing them as to their comparability, and adjusting them accordingly. We completed the Sales Comparison and Income Capitalization Approaches to value. From these approaches to value, a concluded overall value was made. DATE OF VALUE AND REPORT This appraisal was made to express the opinion of value as of April 28, 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 HAMPTON GREENS, DALLAS, TEXAS 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 Hampton Greens CPGF 22 LP. 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 HAMPTON GREENS, DALLAS, TEXAS 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 Dallas, Texas. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being single family residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - La Prada Drive and I-635 West - Barnes Bridge Road and Ferguson Road South - La Prada Drive North - I-635 MAJOR EMPLOYERS Major employers in the subject's area include Bank of America, Baylor University Medical Center, Children's Medical Center Dallas Medical City Dallas, Parkland Memorial Hospital, Presbyterian Hospital-Dallas, Southwest Airlines Texas Instruments Headquarters, UT Southwestern Med Center, and Vought. 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 HAMPTON GREENS, DALLAS, TEXAS NEIGHBORHOOD DEMOGRAPHICS
AREA -------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - ------------------------------------------------------------------------------------------ POPULATION TRENDS Current Population 17,242 136,112 288,954 3,673,578 5-Year Population 17,880 141,377 304,120 4,073,691 % Change CY-5Y 3.7% 3.9% 5.2% 10.9% Annual Change CY-5Y 0.7% 0.8% 1.0% 2.2% ========================================================================================== HOUSEHOLDS Current Households 7,086 49,590 106,302 1,333,540 5-Year Projected Households 7,223 50,610 109,613 1,464,730 % Change CY - 5Y 1.9% 2.1% 3.1% 9.8% Annual Change CY-5Y 0.4% 0.4% 0.6% 2.0% ========================================================================================== INCOME TRENDS Median Household Income $ 36,931 $ 39,713 $ 41,168 $ 52,302 Per Capita Income $ 20,514 $ 18,987 $ 20,568 $ 25,319 Average Household Income $ 49,922 $ 52,001 $ 55,889 $ 69,747 ==========================================================================================
Source: Demographics Now The subject neighborhood's population is expected to show increases below that of the region. The immediate market offers inferior income levels as compared to the broader market. The following table illustrates the housing statistics in the subject's immediate area, as well as the MSA region. HOUSING TRENDS
AREA --------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - --------------------------------------------------------------------------------------- HOUSING TRENDS % of Households Renting 49.80% 38.15% 38.28% 36.71% 5-Year Projected % Renting 49.78% 38.33% 38.39% 36.11% ======================================================================================= % of Households Owning 40.34% 53.74% 52.22% 53.58% 5-Year Projected % Owning 40.07% 53.54% 52.25% 54.86% =======================================================================================
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 HAMPTON GREENS, DALLAS, TEXAS SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Apartments/ I-635 South - Golf Course East - Apartments and Residential West - Apartments and Residential CONCLUSIONS The subject is well located within the city of Dallas. 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 HAMPTON GREENS, DALLAS, TEXAS MARKET ANALYSIS The subject property is located in the city of Dallas in Dallas County. The overall pace of development in the subject's market is more or less stable. There is no new construction in the area of the subject. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - ------------------------------------------ 4Q01 N/A 9.4% 1Q02 N/A 10.1% 2Q02 N/A 9.7% 3Q02 N/A 10.6% 4Q02 8.6% 10.7% 1Q03 9.4% 10.4%
Source: REIS Occupancy trends in the subject's market are stable. Historically speaking, the subject's submarket has underperformed the overall market. Vacancy rates in the subject's submarket have been greater than those of the Dallas market. As of the 4th quarter of 2001 the vacancy rate in the submarket was 9.4%, and this has increased during the last year to 10.4% for the 1st quarter of 2003. Market rents in the subject's market have been following a stable trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change - ------------------------------------------------------------------------------- 4Q01 N/A - $621 - 1Q02 N/A N/A $609 -1.9% 2Q02 N/A N/A $619 1.6% 3Q02 N/A N/A $617 -0.3% 4Q02 N/A N/A $618 0.2% 1Q03 N/A N/A $619 0.2%
Source: REIS The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 HAMPTON GREENS, DALLAS, TEXAS COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject - ---------------------------------------------------------------------------------------------------------- R-1 La Prada Club Unk. NA 1988 0.25 Miles R-2 Oak Meadow Apartments Unk. NA 1989 0.25 Miles R-3 Gables Point Apartments 152 NA 1989 0.25 Miles R-4 Honey Creek Apartments 656 NA 1989 0.75 Miles R-5 Greens Crossing 364 NA 1988 0.25 Miles Subject Hampton Greens 309 85% 1985
The market rental rates have remained virtually unchanged over the last year. At year end 2001, the average rental rate for the subject's submarket was $621 per unit. As of the 1st quarter of 2003 the submarket average rental rate was $619 per unit. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 HAMPTON GREENS, DALLAS, TEXAS PROPERTY DESCRIPTION SITE ANALYSIS Site Area 9 acres, or 392,040 square feet Shape Irregular Topography Level Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Average Flood Zone: Community Panel 48113C0360K, dated February 5, 2003 Flood Zone Zone X Zoning MF-2 (A), 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 - ---------------------------------------------------------------------------------------------------------- 0085790N00002 $1,176,120 $7,384,710 $8,560,830 0.02803 $239,946
IMPROVEMENT ANALYSIS Year Built 1985 Number of Units 309 Net Rentable Area 216,528 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Brick or masonry Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, spa/jacuzzi, gym room, barbeque equipment, laundry room, business office, and parking area. Unit Amenities Individual unit amenities include a balcony, fireplace, cable TV connection and washer dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, garbage disposal, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 HAMPTON GREENS, DALLAS, TEXAS Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) 1Br/1Ba - 1A10 72 523 1Br/1Ba - 1B10 126 652 1Br/1Ba - 1C10 30 745 1Br/1Ba - 1D10 27 748 2Br/2Ba - 2A20 18 892 2Br/2Ba - 2B20 6 958 2Br/2Ba - 2C20 30 1,079
Overall Condition Average Effective Age 18 years Economic Life 45 years Remaining Economic Life 27 years Deferred Maintenance None HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1985 and consist of a 309-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 HAMPTON GREENS, DALLAS, TEXAS 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 HAMPTON GREENS, DALLAS, TEXAS 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 HAMPTON GREENS, DALLAS, TEXAS 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 HAMPTON GREENS, DALLAS, TEXAS SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 - ----------------------------------------------------------------------------------------------------------------- Property Name Hampton Greens Enfield Apartments Stoney Creek Apartments LOCATION: Address 10911 Woodmeadow Parkway 11330 Amanda Lane 11333 Amanda Lane City, State Dallas, Texas Dallas, TX Dallas, TX County Dallas Dallas Dallas PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 216,528 208,376 276,296 Year Built 1985 1984 1984 Number of Units 309 286 364 Unit Mix: Type Total Type Total Type Total 1Br/1Ba - 1A10 72 1Br/1Ba- A 226 1Br/1Ba- A 288 1Br/1Ba - 1B10 126 2Br/2Ba- 2A 60 2Br/2Ba- 2A 76 1Br/1Ba - 1C10 30 1Br/1Ba - 1D10 27 2Br/2Ba - 2A20 18 2Br/2Ba - 2B20 6 2Br/2Ba- 2C20 30 Average Unit Size (SF) 701 729 759 Land Area (Acre) 9.0000 8.3800 14.7500 Density (Units/Acre) 34.3 34.1 24.7 Parking Ratio (Spaces/Unit) 1.41 1.48 1.37 Parking Type (Gr., Cov., etc.) Open Open Open CONDITION: Average Good Average APPEAL: Average Good Average AMENITIES: Pool/Spa Yes/Yes Yes/Yes Yes/Yes Gym Room Yes Yes No Laundry Room Yes Yes No Secured Parking No Yes No Sport Courts No No No OCCUPANCY: 85% N/A N/A TRANSACTION DATA: Sale Date August, 2001 August, 2001 Sale Price ($) $10,000,000 $14,500,000 Grantor Winthrop Texas Investors Stoney Creek GPGF 22 (LP) Grantee Dallas City Homes-Amanda Stoney Creek (LLC) Lane LLC Sale Documentation DAA-83004 DAA-77912 Verification Oboyle Properties Oboyle Properties Telephone Number 972-934-3400 972-934-3400 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $ 0 $ 0 $0.00 $ 0 $ 0 $0.00 Vacancy/Credit Loss $ 0 $ 0 $0.00 $ 0 $ 0 $0.00 Effective Gross Income $2,040,048 $7,133 $9.79 $2,635,512 $7,240 $9.54 Operating Expenses $ 843,558 $2,950 $4.05 $1,071,671 $2,944 $3.88 Net Operating Income $1,196,490 $4,184 $5.74 $1,563,841 $4,296 $5.66 NOTES: PRICE PER UNIT $34,965 $39,835 PRICE PER SQUARE FOOT $ 47.99 $ 52.48 EXPENSE RATIO 41.3% 40.7% EGIM 4.90 5.50 OVERALL CAP RATE 11.96% 10.79% Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 - -------------------------------------------------------------------------------------------------------------------- Property Name Sunflower Apartments Canyon Parke Apartments Meadow Creek Apartments LOCATION: Address 8401 Skillman Street 2202 Hollybush Drive 518 Tacoma Drive City, State Dallas, TX Dallas, TX Garland, TX County Dallas Dallas Dallas PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 178,152 289,853 102,672 Year Built 1978 1975 1979 Number of Units 248 312 128 Unit Mix: Type Total Type Total Type Total 1 Bedroom Units 192 N/A 1Br/1Ba-A 32 2 Bedroom Units 56 2Br/1.5Ba-2A 16 2Br/1.5Ba-2B 16 2Br/1.5Ba-2C 16 2Br/2Ba-2D 32 2Br/2Ba-2E 16 Average Unit Size (SF) 718 929 802 Land Area (Acre) 8.1200 13.5500 7.3900 Density (Units/Acre) 30.5 23.0 17.3 Parking Ratio (Spaces/Unit) 1.44 N/A 1.50 Parking Type (Gr., Cov., etc.) Open Open Open CONDITION: Average Fair Average APPEAL: Average Fair 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 No OCCUPANCY: N/A N/A N/A TRANSACTION DATA: Sale Date December, 2000 April, 2000 February, 2000 Sale Price ($) $6,700,000 $10,000,000 $3,690,000 Grantor Dek Associates Southwest Canyon Park MLD/HI-Life Properties (J.V.) Partners (LP) Grantee Sunflower Apartments Canyon Park 312 (Ltd) Meadow Creek Apartments (LP) Sale Documentation 20237-4945 200068-4892 200032-0517 Verification Oboyle Properties Lewis Mr. Gottsacker Telephone Number 972-934-3400 972-458-7300 214-373-1322 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $ 0 $ 0 $0.00 $ 0 $ 0 $0.00 $ 0 $ 0 $0.00 Vacancy/Credit Loss $ 0 $ 0 $0.00 $ 0 $ 0 $0.00 $ 0 $ 0 $0.00 Effective Gross Income $1,551,295 $6,255 $8.71 $ 0 $ 0 $0.00 $869,864 $6,796 $8.47 Operating Expenses $ 674,956 $2,722 $3.79 $ 0 $ 0 $0.00 $485,944 $3,796 $4.73 Net Operating Income $ 876,339 $3,534 $4.92 $ 0 $ 0 $0.00 $383,920 $2,999 $3.74 NOTES: PRICE PER UNIT $27,016 $32,051 $28,828 PRICE PER SQUARE FOOT $ 37.61 $ 34.50 $ 35.94 EXPENSE RATIO 43.5% N/A 55.9% EGIM 4.32 N/A 4.24 OVERALL CAP RATE 13.08% N/A 10.40% Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 HAMPTON GREENS, DALLAS, TEXAS IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $27,016 to $39,835 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 $30,015 to $38,222 per unit with a mean or average adjusted price of $32,744 per unit. The median adjusted price is $31,058 per unit. Based on the following analysis, we have concluded to a value of $31,000 per unit, which results in an "as is" value of $9,400,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 HAMPTON GREENS, DALLAS, TEXAS SALES ADJUSTMENT GRID
DESCRIPTION SUBJECT COMPARABLE COMPARABLE I - 1 I - 2 Property Name Hampton Greens Enfield Apartments Stoney Creek Apartments Address 10911 Woodmeadow Parkway 11330 Amanda Lane 11333 Amanda Lane City Dallas, Texas Dallas, TX Dallas, TX Sale Date August, 2001 August, 2001 Sale Price ($) $10,000,000 $14,500,000 Net Rentable Area (SF) 216,528 208,376 276,296 Number of Units 309 286 364 Price Per Unit $34,965 $39,835 Year Built 1985 1984 1984 Land Area (Acre) 9.0000 8.3800 14.7500 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 08-2001 1% 08-2001 1% VALUE AFTER TRANS. ADJUST. ($/UNIT) $35,315 $40,234 Location Comparable 0% Comparable 0% Number of Units 309 286 0% 364 0% Quality / Appeal Good Comparable 0% Comparable 0% Age / Condition 1985 1984 / Good 0% 1984 / Average 0% Occupancy at Sale 85% N/A 0% N/A 0% Amenities Good Comparable 0% Comparable 0% Average Unit Size (SF) 701 729 -5% 759 -5% PHYSICAL ADJUSTMENT -5% -5% FINAL ADJUSTED VALUE ($/UNIT) $33,549 $38,222 DESCRIPTION COMPARABLE COMPARABLE COMPARABLE I - 3 I - 4 I - 5 Property Name Sunflower Apartments Canyon Parke Apartments Meadow Creek Apartments Address 8401 Skillman Street 2202 Hollybush Drive 518 Tacoma Drive City Dallas, TX Dallas, TX Garland, TX Sale Date December, 2000 April, 2000 February, 2000 Sale Price ($) $6,700,000 $10,000,000 $3,690,000 Net Rentable Area (SF) 178,152 289,853 102,672 Number of Units 248 312 128 Price Per Unit $27,016 $32,051 $28,828 Year Built 1978 1975 1979 Land Area (Acre) 8.1200 13.5500 7.3900 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 12-2000 1% 04-2000 2% 02-2000 2% VALUE AFTER TRANS. ADJUST. ($/UNIT) $27,286 $32,692 $29,405 Location Comparable 0% Superior -10% Inferior 10% Number of Units 248 0% 312 0% 128 -10% Quality / Appeal Inferior 5% Inferior 5% Inferior 10% Age / Condition 1978 / Average 5% 1975 / Fair 10% 1979 / Average 5% Occupancy at Sale N/A 0% N/A 0% N/A 0% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 718 0% 929 -10% 802 -10% PHYSICAL ADJUSTMENT 10% -5% 5% FINAL ADJUSTED VALUE ($/UNIT) $30,015 $31,058 $30,875
SUMMARY VALUE RANGE (PER UNIT) $30,015 TO $ 38,222 MEAN (PER UNIT) $32,744 MEDIAN (PER UNIT) $31,058 VALUE CONCLUSION (PER UNIT) $31,000 VALUE OF IMPROVEMENT & MAIN SITE $9,579,000 LESS: LEASE-UP COST -$ 59,000 PV OF CONCESSIONS -$ 123,000 VALUE INDICATED BY SALES COMPARISON $9,397,000 APPROACH ROUNDED $9,400,000 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 HAMPTON GREENS, DALLAS, TEXAS NOI PER UNIT COMPARISON
COMPARABLE NO. OF SALE PRICE NOI/ SUBJECT NOI ADJUSTMENT INDICATED NO. UNITS PRICE/UNIT OAR NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT - --------------------------------------------------------------------------------------------------------------- I-1 286 $10,000,000 11.96% $1,196,490 $831,572 0.643 $22,492 $ 34,965 $ 4,184 $ 2,691 I-2 364 $14,500,000 10.79% $1,563,841 $831,572 0.626 $24,953 $ 39,835 $ 4,296 $ 2,691 I-3 248 $ 6,700,000 13.08% $ 876,339 $831,572 0.762 $20,575 $ 27,016 $ 3,534 $ 2,691 I-4 312 $10,000,000 N/A $831,572 $ 32,051 $ 2,691 I-5 128 $ 3,690,000 10.40% $ 383,920 $831,572 0.897 $25,866 $ 28,828 $ 2,999 $ 2,691
PRICE/UNIT VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT - ----------------------------------------------------------------------------------------------------- Low High Average Median Estimated Price Per Unit $ 25,000 $20,575 $25,866 $23,471 $23,722 Number of Units 309 Value $7,725,000 Less: Lease-Up Cost -$ 59,000 PV of Concessions -$ 123,000 Value Based on NOI Analysis $ 7,543,000 Rounded $ 7,500,000
The adjusted sales indicate a range of value between $20,575 and $25,866 per unit, with an average of $23,471 per unit. Based on the subject's competitive position within the improved sales, a value of $25,000 per unit is estimated. This indicates an "as is" market value of $7,500,000 (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 HAMPTON GREENS, DALLAS, TEXAS EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON
COMPARABLE NO. OF SALE PRICE EFFECTIVE OPERATING SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM - ------------------------------------------------------------------------------------------------------- I-1 286 $10,000,000 $2,040,048 $ 843,558 41.35% 4.90 $ 34,965 I-2 364 $14,500,000 $2,635,512 $1,071,671 40.66% 5.50 $ 39,835 I-3 248 $ 6,700,000 $1,551,295 $ 674,956 43.51% 50.73% 4.32 $ 27,016 I-4 312 $10,000,000 $ 32,051 I-5 128 $ 3,690,000 $ 869,864 $ 485,944 55.86% 4.24 $ 28,828
EGIM VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES - -------------------------------------- -------------------------------------------------- Low High Average Median Estimate EGIM 4.50 4.24 5.50 4.74 4.61 Subject EGI $1,844,720 Value $8,301,242 Less: Lease-Up Cost -$ 59,000 PV of -$ 123,000 Concessions Value Based on EGIM Analysis $8,119,242 Rounded $8,100,000 Value Per Unit $ 26,214
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 50.73% before reserves. The comparable sales indicate a range of expense ratios from 40.66% to 55.86%, while their EGIMs range from 4.24 to 5.50. Overall, we conclude to an EGIM of 4.50, which results in an "as is" value estimate in the EGIM Analysis of $8,100,000. 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 $8,500,000. Price Per Unit $9,400,000 NOI Per Unit $7,500,000 EGIM Analysis $8,100,000 Sales Comparison Conclusion $8,500,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 HAMPTON GREENS, DALLAS, TEXAS 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 HAMPTON GREENS, DALLAS, TEXAS 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 523 $413 $0.79 81.9% 1Br/1Ba - 1B10 652 $464 $0.71 85.7% 1Br/1Ba - 1C10 745 $527 $0.71 100.0% 1Br/1Ba - 1D10 748 $529 $0.71 92.6% 2Br/2Ba - 2A20 892 $681 $0.76 83.3% 2Br/2Ba - 2B20 958 $687 $0.72 100.0% 2Br/2Ba- 2C20 1079 $712 $0.66 70.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 HAMPTON GREENS, DALLAS, TEXAS RENT ANALYSIS
COMPARABLE RENTS --------------------------------------------------- R-1 R-2 R-3 R-4 R-5 --------------------------------------------------- Oak Gables Honey La Prada Meadow Point Creek Greens SUBJECT SUBJECT Club Apartments Apartments Apartments Crossing --------------------------------------------------- SUBJECT UNIT ACTUAL ASKING COMPARISON TO SUBJECT --------------------------------------------------- DESCRIPTION TYPE RENT RENT Superior Similar Similar Similar Similar MIN MAX MEDIAN AVERAGE ----------- ---- ---- ---- -------- ------- ------- ------- ------- --- --- ------ ------- Monthly Rent 1BR/1BA - 1A10 $ 413 $ 590 $ 445 $ 420 $ 450 $ 405 $ 405 $ 590 $ 445 $ 462 Unit Area (SF) 523 523 630 456 514 518 512 456 630 514 526 Monthly Rent Per Sq. Ft. $ 0.79 $ 0.94 $ 0.98 $ 0.82 $ 0.87 $ 0.79 $0.79 $0.98 $ 0.87 $ 0.88 Monthly Rent 1BR/1BA - 1B10 $ 464 $ 605 $ 450 $ 503 $ 470 $ 450 $ 605 $ 487 $ 507 Unit Area (SF) 652 652 647 639 686 667 639 686 657 660 Monthly Rent Per Sq. Ft. $ 0.71 $ 0.94 $ 0.70 $ 0.73 $ 0.70 $0.70 $0.94 $ 0.72 $ 0.77 Monthly Rent 1BR/1BA - 1C10 $ 527 $ 695 $ 558 $ 535 $ 535 $ 485 $ 485 $ 695 $ 535 $ 562 Unit Area (SF) 745 745 729 743 723 759 702 702 759 729 731 Monthly Rent Per Sq. Ft. $ 0.71 $ 0.95 $ 0.75 $ 0.74 $ 0.70 $ 0.69 $0.69 $0.95 $ 0.74 $ 0.77 Monthly Rent 1BR/1BA - 1D10 $ 529 $ 685 $ 685 $ 685 $ 685 $ 685 Unit Area (SF) 748 748 940 940 940 940 940 Monthly Rent Per Sq. Ft. $ 0.71 $ 0.73 $0.73 $0.73 $ 0.73 $ 0.73 Monthly Rent 2BR/2BA - 2A20 $ 681 $ 710 $ 655 $ 560 $ 560 $ 710 $ 655 $ 642 Unit Area (SF) 892 892 841 867 852 841 867 852 853 Monthly Rent Per Sq. Ft. $ 0.76 $ 0.84 $ 0.76 $ 0.66 $0.66 $0.84 $ 0.76 $ 0.75 Monthly Rent 2BR/2BA - 2B20 $ 687 $ 840 $ 765 $ 725 $ 720 $ 720 $ 840 $ 745 $ 763 Unit Area (SF) 958 958 987 996 953 927 927 996 970 966 Monthly Rent Per Sq. Ft. $ 0.72 $ 0.85 $ 0.77 $ 0.76 $ 0.78 $0.76 $0.85 $ 0.77 $ 0.79 Monthly Rent 2BR/2BA- 2C20 $ 712 $ 890 $ 809 $ 809 $ 890 $ 850 $ 850 Unit Area (SF) 1,079 1,079 1,059 1,067 1,059 1,067 1,063 1,063 Monthly Rent Per Sq. Ft. $ 0.66 $ 0.84 $ 0.76 $0.76 $0.84 $ 0.80 $ 0.80
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
Unit Area Market Rent Monthly Annual -------------------- Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income --------- --------------- --------- -------- ------ ------ ------ 1Br/1Ba - 1A10 72 523 $ 430 $ 0.82 $ 30,960 $ 371,520 1Br/1Ba - 1B10 126 652 $ 450 $ 0.69 $ 56,700 $ 680,400 1Br/1Ba - 1C10 30 745 $ 520 $ 0.70 $ 15,600 $ 187,200 1Br/1Ba - 1D10 27 748 $ 575 $ 0.77 $ 15,525 $ 186,300 2Br/2Ba - 2A20 18 892 $ 681 $ 0.76 $ 12,258 $ 147,096 2Br/2Ba - 2B20 6 958 $ 720 $ 0.75 $ 4,320 $ 51,840 2Br/2Ba- 2C20 30 1,079 $ 800 $ 0.74 $ 24,000 $ 288,000 Total $159,363 $1,912,356
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 HAMPTON GREENS, DALLAS, TEXAS 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 HAMPTON GREENS, DALLAS, TEXAS 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 $2,069,227 $ 6,697 $2,117,656 $ 6,853 $2,017,162 $ 6,528 $1,996,072 $ 6,460 Vacancy $ 106,289 $ 344 $ 207,934 $ 673 $ 159,602 $ 517 $ 117,000 $ 379 Credit Loss/Concessions $ 53,567 $ 173 $ 139,312 $ 451 $ 87,571 $ 283 $ 54,900 $ 178 ---------- -------- ---------- -------- ---------- -------- ---------- -------- Subtotal $ 159,856 $ 517 $ 347,246 $ 1,124 $ 247,173 $ 800 $ 171,900 $ 556 Laundry Income $ 0 $ 0 $ 19,884 $ 64 $ 21,119 $ 68 $ 21,648 $ 70 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 116,425 $ 377 $ 85,668 $ 277 $ 102,481 $ 332 $ 94,800 $ 307 ---------- -------- ---------- -------- ---------- -------- ---------- -------- Subtotal Other Income $ 116,425 $ 377 $ 105,552 $ 342 $ 123,600 $ 400 $ 116,448 $ 377 ---------- -------- ---------- -------- ---------- -------- ---------- -------- Effective Gross Income $2,025,796 $ 6,556 $1,875,962 $ 6,071 $1,893,589 $ 6,128 $1,940,620 $ 6,280 Operating Expenses Taxes $ 211,131 $ 683 $ 266,704 $ 863 $ 232,061 $ 751 $ 240,993 $ 780 Insurance $ 25,556 $ 83 $ 39,968 $ 129 $ 60,483 $ 196 $ 69,531 $ 225 Utilities $ 87,433 $ 283 $ 106,706 $ 345 $ 80,283 $ 260 $ 108,600 $ 351 Repair & Maintenance $ 25,147 $ 81 $ 32,240 $ 104 $ 32,139 $ 104 $ 41,100 $ 133 Cleaning $ 73,357 $ 237 $ 77,563 $ 251 $ 61,393 $ 199 $ 66,600 $ 216 Landscaping $ 42,015 $ 136 $ 48,555 $ 157 $ 54,259 $ 176 $ 58,136 $ 188 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 34,489 $ 112 $ 32,543 $ 105 $ 30,105 $ 97 $ 44,910 $ 145 General Administrative $ 238,119 $ 771 $ 223,854 $ 724 $ 249,357 $ 807 $ 205,256 $ 664 Management $ 103,790 $ 336 $ 93,354 $ 302 $ 97,526 $ 316 $ 100,031 $ 324 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- -------- ---------- -------- ---------- -------- ---------- -------- Total Operating Expenses $ 841,037 $ 2,722 $ 921,487 $ 2,982 $ 897,606 $ 2,905 $ 935,157 $ 3,026 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- -------- ---------- -------- ---------- -------- ---------- -------- Net Income $1,184,759 $ 3,834 $ 954,475 $ 3,089 $ 995,983 $ 3,223 $1,005,463 $ 3,254 ANNUALIZED 2003 ------------------- PROJECTION AAA PROJECTION ----------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % - ----------- ----- -------- ----- -------- -- Revenues Rental Income $1,899,076 $ 6,146 $1,912,356 $ 6,189 100.0% Vacancy $ 194,376 $ 629 $ 152,988 $ 495 8.0% Credit Loss/Concessions $ 135,136 $ 437 $ 38,247 $ 124 2.0% ---------- -------- ---------- -------- ----- Subtotal $ 329,512 $ 1,066 $ 191,236 $ 619 10.0% Laundry Income $ 28,704 $ 93 $ 21,630 $ 70 1.1% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 111,064 $ 359 $ 101,970 $ 330 5.3% ---------- -------- ---------- -------- ----- Subtotal Other Income $ 139,768 $ 452 $ 123,600 $ 400 6.5% ---------- -------- ---------- -------- ----- Effective Gross Income $1,709,332 $ 5,532 $1,844,720 $ 5,970 100.0% Operating Expenses Taxes $ 241,460 $ 781 $ 254,925 $ 825 13.8% Insurance $ 68,792 $ 223 $ 69,525 $ 225 3.8% Utilities $ 87,152 $ 282 $ 92,700 $ 300 5.0% Repair & Maintenance $ 20,248 $ 66 $ 33,990 $ 110 1.8% Cleaning $ 51,912 $ 168 $ 69,525 $ 225 3.8% Landscaping $ 55,036 $ 178 $ 55,620 $ 180 3.0% Security $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 35,552 $ 115 $ 38,625 $ 125 2.1% General Administrative $ 261,892 $ 848 $ 247,200 $ 800 13.4% Management $ 89,148 $ 289 $ 73,789 $ 239 4.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0% Total Operating Expenses $ 911,192 $ 2,949 $ 935,899 $ 3,029 50.7% ---------- -------- ---------- -------- ----- Reserves $ 0 $ 0 $ 77,250 $ 250 8.3% ---------- -------- ---------- -------- ----- Net Income $ 798,140 $ 2,583 $ 831,572 $ 2,691 45.1%
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 10% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 HAMPTON GREENS, DALLAS, TEXAS RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $250 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $250 per unit should be satisfactory in our reserves for replacement to cover future capital expenditures. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of 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 HAMPTON GREENS, DALLAS, TEXAS SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - ----------------------------------------------------------- I-1 Aug-01 N/A $34,965 11.96% I-2 Aug-01 N/A $39,835 10.79% I-3 Dec-00 N/A $27,016 13.08% I-4 Apr-00 N/A $32,051 N/A I-5 Feb-00 N/A $28,828 10.40% ============================================================ High 13.08% Low 10.40% Average 11.56%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.50%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 10.00%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 11.00%. 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 3.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 11.00% indicates a value of $8,800,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 HAMPTON GREENS, DALLAS, TEXAS approximately 40% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 HAMPTON GREENS, DALLAS, TEXAS DISCOUNTED CASH FLOW ANALYSIS HAMPTON GREENS
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 APR-2010 FISCAL YEAR 1 2 3 4 5 6 7 REVENUE Base Rent $1,912,356 $1,912,356 $1,950,603 $2,009,121 $2,069,395 $2,131,477 $2,195,421 Vacancy $ 220,973 $ 152,988 $ 156,048 $ 160,730 $ 165,552 $ 170,518 $ 175,634 Credit Loss $ 38,247 $ 38,247 $ 39,012 $ 40,182 $ 41,388 $ 42,630 $ 43,908 Concessions $ 57,371 $ 38,247 $ 19,506 $ 20,091 $ 20,694 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Subtotal $ 316,591 $ 229,483 $ 214,566 $ 221,003 $ 227,633 $ 213,148 $ 219,542 Laundry Income $ 21,630 $ 21,630 $ 22,063 $ 22,724 $ 23,406 $ 24,108 $ 24,832 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 101,970 $ 101,970 $ 104,009 $ 107,130 $ 110,344 $ 113,654 $ 117,063 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 123,600 $ 123,600 $ 126,072 $ 129,854 $ 133,750 $ 137,762 $ 141,895 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Effective Gross Income $1,719,365 $1,806,473 $1,862,109 $1,917,972 $1,975,511 $2,056,091 $2,117,774 Operating Expenses: Taxes $ 254,925 $ 262,573 $ 270,450 $ 278,563 $ 286,920 $ 295,528 $ 304,394 Insurance $ 69,525 $ 71,611 $ 73,759 $ 75,972 $ 78,251 $ 80,599 $ 83,016 Utilities $ 92,700 $ 95,481 $ 98,345 $ 101,296 $ 104,335 $ 107,465 $ 110,689 Repair & Maintenance $ 33,990 $ 35,010 $ 36,060 $ 37,142 $ 38,256 $ 39,404 $ 40,586 Cleaning $ 69,525 $ 71,611 $ 73,759 $ 75,972 $ 78,251 $ 80,599 $ 83,016 Landscaping $ 55,620 $ 57,289 $ 59,007 $ 60,777 $ 62,601 $ 64,479 $ 66,413 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 38,625 $ 39,784 $ 40,977 $ 42,207 $ 43,473 $ 44,777 $ 46,120 General Administrative $ 247,200 $ 254,616 $ 262,254 $ 270,122 $ 278,226 $ 286,573 $ 295,170 Management $ 68,775 $ 72,259 $ 74,484 $ 76,719 $ 79,020 $ 82,244 $ 84,711 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Operating Expenses $ 930,885 $ 960,232 $ 989,097 $1,018,770 $1,049,333 $1,081,665 $1,114,115 Reserves $ 77,250 $ 79,568 $ 81,955 $ 84,413 $ 86,946 $ 89,554 $ 92,241 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Operating Income $ 711,231 $ 766,674 $ 791,057 $ 814,789 $ 839,233 $ 884,872 $ 911,418 Operating Expense Ratio (% of EGI) 54.1% 53.2% 53.1% 53.1% 53.1% 52.6% 52.6% Operating Expense Per Unit $ 3,013 $ 3,108 $ 3,201 $ 3,297 $ 3,396 $ 3,501 $ 3,606 YEAR APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 8 9 10 11 REVENUE Base Rent $2,261,284 $2,329,122 $2,398,996 $2,470,966 Vacancy $ 180,903 $ 186,330 $ 191,920 $ 197,677 Credit Loss $ 45,226 $ 46,582 $ 47,980 $ 49,419 Concessions $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- Subtotal $ 226,128 $ 232,912 $ 239,900 $ 247,097 Laundry Income $ 25,577 $ 26,344 $ 27,134 $ 27,948 Garage Revenue $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 120,575 $ 124,193 $ 127,918 $ 131,756 ---------- ---------- ---------- ---------- Subtotal Other Income $ 146,152 $ 150,537 $ 155,053 $ 159,704 ---------- ---------- ---------- ---------- Effective Gross Income $2,181,307 $2,246,746 $2,314,149 $2,383,573 Operating Expenses: Taxes $ 313,526 $ 322,931 $ 332,619 $ 342,598 Insurance $ 85,507 $ 88,072 $ 90,714 $ 93,436 Utilities $ 114,009 $ 117,430 $ 120,952 $ 124,581 Repair & Maintenance $ 41,803 $ 43,058 $ 44,349 $ 45,680 Cleaning $ 85,507 $ 88,072 $ 90,714 $ 93,436 Landscaping $ 68,406 $ 70,458 $ 72,571 $ 74,749 Security $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 47,504 $ 48,929 $ 50,397 $ 51,909 General Administrative $ 304,025 $ 313,146 $ 322,540 $ 332,216 Management $ 87,252 $ 89,870 $ 92,566 $ 95,343 Miscellaneous $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- Total Operating Expenses $1,147,539 $1,181,965 $1,217,424 $1,253,947 Reserves $ 95,008 $ 97,858 $ 100,794 $ 103,818 ---------- ---------- ---------- ---------- Net Operating Income $ 938,761 $ 966,923 $ 995,931 $1,025,809 Operating Expense Ratio (% of EGI) 52.6% 52.6% 52.6% 52.6% Operating Expense Per Unit $ 3,714 $ 3,825 $ 3,940 $ 4,058
Gross Residual Deferred Sale Price $10,258,091 Maintenance $ 0 Estimated Stabilized NOI $831,572 Sales Less: Sales Expense $307,743 Add: Excess Land $ 0 Expense Rate 3.00% -------- Months to Stabilized 12 Discount Rate 11.00% Net Residual Sale Price $9,950,348 Other Adjustments $ 0 ---------- Stabilized Occupancy 92.0% Terminal Cap PV of Reversion $3,504,358 Value Rate 10.00% Indicated By "DCF" $8,754,193 Add: NPV of NOI $5,249,835 Rounded $8,800,000 -------- PV Total $8,754,193
"DCF" VALUE SENSITIVITY TABLE
TOTAL VALUE DISCOUNT RATE ----------------------------------------------------------------------------- 10.50% 10.75% 11.00% 11.25% 11.50% - ----------------------------------------------------------------------------------------------------- 9.50% $9,237,080 $9,086,210 $8,938,633 $8,794,266 $8,653,028 TERMINAL 9.75% $9,138,127 $8,989,468 $8,844,048 $8,701,785 $8,562,600 CAP 10.00% $9,044,122 $8,897,564 $8,754,193 $8,613,929 $8,476,694 RATE 10.25% $8,954,703 $8,810,143 $8,668,721 $8,530,358 $8,394,978 10.50% $8,869,542 $8,726,884 $8,587,319 $8,450,767 $8,317,154
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 HAMPTON GREENS, DALLAS, TEXAS INCOME LOSS DURING LEASE-UP The subject is currently 85% occupied, below our stabilized occupancy projection. We have estimated a 12-month lease-up period. An adjustment must be made to bring the subject to a stabilized operating level. To account for this income loss during lease-up, we have compared the current DCF analysis to an "as stabilized" DCF analysis assuming the subject's occupancy were stabilized. The difference in net operating income during the lease-up period is discounted to a present value figure of $59,000 as shown in the following table.
DESCRIPTION YEAR 1 ----------- ------ "As Is" Net Operating Income $ 711,231 Stabilized Net Operating Income $ 776,496 --------- Difference $ 65,265 PV of Income Loss During Lease-Up $ 58,797 --------- Rounded $ 59,000 ---------
CONCESSIONS Due to softness in the market, concessions have been utilized at the subject property and within the market. Based on our discussions with the subject's property manager and those at competing properties, these concessions are expected to continue in the near term until the market returns to a stabilized level. Concessions have been included as a line item deduction within the discounted cash flow analysis. The present value of these concessions equates to $123,000 (rounded). This amount has been deducted from the Direct Capitalization analysis, as well as the Sales Comparison Approach value. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 HAMPTON GREENS, DALLAS, TEXAS After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 9.50% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37 HAMPTON GREENS, DALLAS, TEXAS HAMPTON GREENS
TOTAL PER SQ. FT. PER UNIT % OF EGI REVENUE Base Rent $1,912,356 $ 8.83 $ 6,189 Less: Vacancy & Collection Loss 10.00% $ 191,236 $ 0.88 $ 619 Plus: Other Income Laundry Income $ 21,630 $ 0.10 $ 70 1.17% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 101,970 $ 0.47 $ 330 5.53% ---------- ------- ------- ----- Subtotal Other Income $ 123,600 $ 0.57 $ 400 6.70% EFFECTIVE GROSS INCOME $1,844,720 $ 8.52 $ 5,970 OPERATING EXPENSES: Taxes $ 254,925 $ 1.18 $ 825 13.82% Insurance $ 69,525 $ 0.32 $ 225 3.77% Utilities $ 92,700 $ 0.43 $ 300 5.03% Repair & Maintenance $ 33,990 $ 0.16 $ 110 1.84% Cleaning $ 69,525 $ 0.32 $ 225 3.77% Landscaping $ 55,620 $ 0.26 $ 180 3.02% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 38,625 $ 0.18 $ 125 2.09% General Administrative $ 247,200 $ 1.14 $ 800 13.40% Management 4.00% $ 73,789 $ 0.34 $ 239 4.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 935,899 $ 4.32 $ 3,029 50.73% Reserves $ 77,250 $ 0.36 $ 250 4.19% ---------- ------- ------- ----- NET OPERATING INCOME $ 831,572 $ 3.84 $ 2,691 45.08% "GOING IN" CAPITALIZATION RATE 9.50% VALUE INDICATION $8,753,385 $ 40.43 $28,328 LESS: LEASE-UP COST ($ 59,000) PV OF CONCESSIONS ($ 123,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $8,571,385 ROUNDED $8,600,000 $ 39.72 $27,832
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 38 HAMPTON GREENS, DALLAS, TEXAS
DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE CAP RATE VALUE ROUNDED $/UNIT $/SF - ---------------------------------------------------------------------- 8.75% $ 9,321,675 $ 9,300,000 $ 30,097 $ 42.95 9.00% $ 9,057,684 $ 9,100,000 $ 29,450 $ 42.03 9.25% $ 8,807,963 $ 8,800,000 $ 28,479 $ 40.64 9.50% $ 8,571,385 $ 8,600,000 $ 27,832 $ 39.72 9.75% $ 8,346,939 $ 8,300,000 $ 26,861 $ 38.33 10.00% $ 8,133,716 $ 8,100,000 $ 26,214 $ 37.41 10.25% $ 7,930,894 $ 7,900,000 $ 25,566 $ 36.48
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $8,600,000. 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 $8,800,000 Direct Capitalization Method $8,600,000 Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $8,700,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 39 HAMPTON GREENS, DALLAS, TEXAS 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 $ 8,500,000 Income Approach $ 8,700,000 Reconciled Value $ 8,500,000
The Income Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of April 28, 2003 the market value of the fee simple estate in the property is: $8,500,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA HAMPTON GREENS, DALLAS, TEXAS ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A HAMPTON GREENS, DALLAS, TEXAS EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A HAMPTON GREENS, DALLAS, TEXAS SUBJECT PHOTOGRAPHS [EXTERIOR BUILDING PICTURE] [EXTERIOR APARTMENT & LAUNDRY BUILDINGS PICTURE] [PARKING AREA VIEW PICTTURE] [ACROSS ROAD VIEW PICTURE] [FRONT VIEW PICTURE] [INTERIOR BEDROOM PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A HAMPTON GREENS, DALLAS, TEXAS SUBJECT PHOTOGRAPHS [INTERIOR KITCHEN PICTURE] [EXTERIOR LAUNDRY BUILDING PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B HAMPTON GREENS, DALLAS, TEXAS EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B HAMPTON GREENS, DALLAS, TEXAS PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 ENFIELD APARTMENTS STONEY CREEK APARTMENTS SUNFLOWER APARTMENTS 11330 Amanda Lane 11333 Amanda Lane 8401 Skillman Street Dallas, TX Dallas, TX Dallas, TX [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 CANYON PARKE APARTMENTS MEADOW CREEK APARTMENTS 2202 Hollybush Drive 518 Tacoma Drive Dallas, TX Garland, TX AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B HAMPTON GREENS, DALLAS, TEXAS SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R- 1 ================================================================================================================== Property Name Hampton Greens La Prada Club Management Company AIMCO NA LOCATION: Address 10911 Woodmeadow Parkway 1901 Pinehurst Lane City, State Dallas, Texas Dallas, TX County Dallas Dallas Proximity to Subject 0.25 Miles PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 216,528 N/A Year Built 1985 1988 Effective Age 18 15 Building Structure Type Brick Wood/Brick Parking Type Open Covered, Open (Gr., Cov., etc.) Number of Units 309 Unk. Unit Mix: Type Unit Qty Mo Type Unit Qty Mo 1 1 Br/1Ba - 1 A10 523 72 $ 413 1 1 Br/1Ba - A1 630 $590 2 1 Br/1Ba - 1 B10 652 126 $ 464 2 1 Br/1Ba - A2 647 3 1 Br/1Ba - 1 C10 745 30 $ 527 3 1 Br/1Ba - A3 729 4 1 Br/1Ba - 1 D10 748 27 $ 529 6 2 Br/2.5Ba - B1 987 5 2 Br/2Ba - 2 A20 892 18 $ 681 7 2 Br/2.5Ba - B2 1,059 6 2 Br/2Ba - 2 B20 958 6 $ 687 7 2 Br/2Ba - 2 C20 1,079 30 $ 712 Average Unit Size (SF) 701 Unit Breakdown: Efficiency 0% 2-Bedroom 17% Efficiency N/A 2-Bedroom N/A 1-Bedroom 83% 3-Bedroom 0% 1-Bedroom N/A 3-Bedroom CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony X W/D Connect. Balcony X W/D Connect. X Fireplace X Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall 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: 85% N/A LEASING DATA: Available Leasing Terms 6-12 months 6 and 12 months Concessions Lowered rental rates 1 month free Pet Deposit 250 350 Utilities Paid by Tenant: X Electric Natural Gas X Electric X Natural Gas X Water X Trash X Water X Trash Confirmation Greg Telephone Number 972-686-1980 NOTES: COMPARISON TO SUBJECT: Superior COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 ========================================================================================================================= Property Name Honey Creek Apartments Greens Crossing Management Company NA NA LOCATION: Address 11611 Ferguson Road 10700 Woodmeadow Apartments City, State Dallas, TX Dallas, TX County Dallas Dallas Proximity to Subject 0.75 Miles 0.25 Miles PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) N/A 105,824 Year Built 1989 1989 Effective Age 14 14 Building Structure Type Wood/Brick Wood/Brick Parking Type Covered, Open No Covered (Gr., Cov., etc.) Number of Units Unk. 152 Unit Mix: Type Unit Qty Mo Type Unit Qty Mo 1 1Br/1Ba- A1 456 $445 1 1Br/1Ba- A1 514 24 $420 1Br/1Ba- A2 521 $480 2 1Br/1Ba- A2 639 80 $ 4 3 1Br/1Ba- A3 743 $558 3 1Br/1Ba- A3 723 16 $ 5 5 1Br/Den/1Ba- A4 841 $710 4 2Br/2.5Ba- B1 940 16 $ 6 2Br/2Ba- B1 941 $735 2Br/2.5Ba- B2 985 16 $ 7 6 2Br/2Ba- B2 996 $765 Average Unit Size (SF) 696 Unit Breakdown: Efficiency N/A 2-Bedroom N/A Efficiency 0% 2-Bedroom 21% 1-Bedroom N/A 3-Bedroom N/A 1-Bedroom 79% 3-Bedroom 0% CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony W/D Connect. X Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall Tennis Court X 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: N/A N/A LEASING DATA: Available Leasing Terms 6,7,8 and 9 months 7 and 12 months Concessions 0 deposit 1 month free Pet Deposit 250 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash Water Trash Confirmation Gwenn Nicole Telephone Number 972-686-4380 972-279-4018 NOTES: COMPARISON TO SUBJECT: Similar Similar COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 ======================================================================================================================= Property Name Honey Creek Apartments Greens Crossing Apartments Management Company NA NA LOCATION: Address 11611 Ferguson Road 10700 Woodmeadow Apartments City, State Dallas, TX Dallas, TX County Dallas Dallas Proximity to Subject 0.75 Miles 0.25 Miles PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 487,368 N/A Year Built 1989 1988 Effective Age 14 15 Building Structure Type Wood/Brick Brick/Wood Parking Type No Covered Covered, Open (Gr., Cov., etc.) Number of Units 656 364 Unit Mix: Type Unit Qty Mo Type Unit Qty Mo 1 1Br/1Ba- A1 518 84 $450 1 1Br/1Ba- 1A 512 $405 2 1Br/1Ba- A2 686 276 $503 1Br/1Ba- 1B 606 $455 3 1Br/1Ba- A3 759 96 $535 2 1Br/1Ba- 1C 667 $470 5 2Br/2.5Ba- B1 867 104 $655 3 1Br/1Ba- 1D 702 $485 6 2Br/2.5Ba- B2 953 96 $725 5 1Br/1Ba- 1E 852 $560 6 2Br/2Ba- 2A 927 $720 2Br/2Ba- 2B 991 $750 7 2Br/2Ba- 2C 1,067 $809 Average Unit Size (SF) 743 Unit Breakdown: Efficiency 0% 2-Bedroom 30% Efficiency N/A 2-Bedroom N/A 1-Bedroom 48% 3-Bedroom 0% 1-Bedroom N/A 3-Bedroom N/A CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling X Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall Tennis Court Secured Parking Tennis Court X Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office Gym Room X Gym Room OCCUPANCY: N/A N/A LEASING DATA: Available Leasing Terms 6 and 12 months 6 and 12 months Concessions $109 move in Half of Deposit Pet Deposit 400 300 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X X Water Trash X Water Trash Confirmation Ariceli Garcia Phillip Telephone Number 1-888-923-8207 972-279-1485 NOTES: COMPARISON TO SUBJECT: Similar Similar
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B HAMPTON GREENS, DALLAS, TEXAS PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 LA PRADA CLUB OAK MEADOW APARTMENTS GABLES POINT APARTMENTS 1901 Pinehurst Lane 11050 Woodmeadow 11111 Woodmeadow Apartments Dallas, TX Dallas, TX Dallas, TX [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 HONEY CREEK APARTMENTS GREENS CROSSINGS 11611 Ferguson Road 10700 Woodmeadow Parkway Dallas, TX Dallas, TX AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C HAMPTON GREENS, DALLAS, TEXAS EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C HAMPTON GREENS, DALLAS, TEXAS 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 HAMPTON GREENS, DALLAS, TEXAS 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 HAMPTON GREENS, DALLAS, TEXAS 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 HAMPTON GREENS, DALLAS, TEXAS EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D CERTIFICATE OF APPRAISER I certify that, to the best of my knowledge and belief: The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and represent the unbiased professional analyses, opinions, and conclusions of American Appraisal Associates, Inc. American Appraisal Associates, Inc. and I personally, have no present or prospective interest in the property that is the subject of this report and have no personal interest or bias with respect to the parties involved. Compensation for American Appraisal Associates, Inc. is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. The analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. I personally did not inspect the subject property. Shayne Hatch provided significant real property appraisal assistance in the preparation of this report. I am currently in compliance with the Appraisal Institute's continuing education requirements. /s/ Frank 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 HAMPTON GREENS, DALLAS, TEXAS EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E HAMPTON GREENS, DALLAS, TEXAS 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 HAMPTON GREENS, DALLAS, TEXAS 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 -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. HAMPTON GREENS, DALLAS, TEXAS GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. HAMPTON GREENS, DALLAS, TEXAS 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. EX-99.(C)(6) 8 d07250a2exv99wxcyx6y.txt APPRAISAL OF PLANTATION CREEK APARTMENTS PLANTATION CREEK 6925 ROSWELL ROAD ATLANTA, GEORGIA 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(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] JUNE 27, 2003 Apartment Investment and Management Company ("AIMCO") c/o Mr. Steven A. Velkei, Esq. Liner Yankelevitz Sunshine & Regenstreif LLP 1100 Glendon Avenue, 14th Floor Los Angeles, California 90024-3503 Nuanes, et al.( "Plaintiffs ") c/o Ms. Joy Kruse Lieff Cabraser Heimann & Bernstein Embarcadero Center West 275 Battery Street, 30th Floor San Francisco, California 94111 RE: PLANTATION CREEK 6925 ROSWELL ROAD ATLANTA, FULTON COUNTY, GEORGIA In accordance with your authorization, we have completed the appraisal of the abovereferenced 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 484 units with a total of 550,360 square feet of rentable area. The improvements were built in 1976. The improvements are situated on 34.96 acres. Overall, the improvements are in good condition. As of the date of this appraisal, the subject property is 98% 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 PLANTATION CREEK, ATLANTA, GEORGIA The opinions expressed in this appraisal cover letter can only be completely understood by reading the narrative report, addenda, and other data, which is attached. The appraisal is subject to the attached general assumptions and limiting conditions and general service conditions. As a result of our investigation, it is our opinion that the fee simple market value of the subject, effective May 22, 2003 is: ($22,300,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Michael Bates June 27, 2003 Michael Bates, MAI #053272 Assistant Manager, Real Estate Group State of Georgia, Certified General Real Property Appraiser #CG00685 Report By: Steven M. Zenkovich, ASA State of Georgia, Certified General Real Property Appraiser #CG004796 AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 PLANTATION CREEK, ATLANTA, GEORGIA TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary............................................................... 4 Introduction.................................................................... 9 Area Analysis................................................................... 11 Market Analysis................................................................. 14 Site Analysis................................................................... 16 Improvement Analysis............................................................ 16 Highest and Best Use............................................................ 17 VALUATION Valuation Procedure............................................................. 18 Sales Comparison Approach....................................................... 20 Income Capitalization Approach.................................................. 26 Reconciliation and Conclusion................................................... 37
ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 PLANTATION CREEK, ATLANTA, GEORGIA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Plantation Creek LOCATION: 6925 Roswell Road Atlanta, Georgia INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: Fee simple estate DATE OF VALUE: May 22, 2003 DATE OF REPORT: June 27, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 34.96 acres, or 1,522,858 square feet Assessor Parcel No.: 17-0073-LL-041-1; 17-0073-LL-042-9 Floodplain: Community Panel No. 135160 0153E (June 22, 1998) Flood Zone X, an area outside the floodplain. Zoning: A (Medium Density Apartment District) BUILDING: No. of Units: 484 Units Total NRA: 550,360 Square Feet Average Unit Size: 1,137 Square Feet Apartment Density: 13.8 units per acre Year Built: 1976 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 810 $ 616 $ 0.76 $ 76,384 $ 916,608 2Br/1Ba-2A10 1,080 $ 700 $ 0.65 $ 56,000 $ 672,000 2Br/2Ba-2A2 1,100 $ 714 $ 0.65 $ 49,980 $ 599,760 2Br/2.5Ba-2A25 1,380 $ 852 $ 0.62 $ 20,448 $ 245,376 2Br/2Ba-2B2 1,300 $ 754 $ 0.58 $ 96,512 $ 1,158,144 3Br/2Ba-3A2 1,500 $ 839 $ 0.56 $ 48,662 $ 583,944 ------ -------- ----------- Total $347,986 $ 4,175,832
OCCUPANCY: 98% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 20 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 PLANTATION CREEK, ATLANTA, GEORGIA REMAINING ECONOMIC LIFE: 25 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [EXTERIOR - TYPICAL APARTMENT BUILDING PICTURE] [LEASING OFFICE PICTURE] AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 PLANTATION CREEK, ATLANTA, GEORGIA NEIGHBORHOOD MAP [MAP] HIGHEST AND BEST USE: As Vacant: Hold for future multi-family development As Improved: Continuation as its current use METHOD OF VALUATION: In this instance, the Sales Comparison and Income Approaches to value were utilized. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7 PLANTATION CREEK, ATLANTA, GEORGIA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit - --------------------- ------------ -------------- Potential Rental Income $4,175,832 $8,628 Effective Gross Income $3,923,374 $8,106 Operating Expenses $1,811,761 $3,743 46.2% of EGI Net Operating Income: $1,990,613 $4,113 Capitalization Rate 9.00% DIRECT CAPITALIZATION VALUE $21,800,000 * $45,041 / Unit DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 30% Stabilized Vacancy & Collection Loss: 13% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 9.50% Discount Rate 11.00% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $22,200,000 * $45,868 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $22,000,000 $45,455 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $45,313 to $52,311 Range of Sales $/Unit (Adjusted) $44,464 to $49,844 VALUE INDICATION - PRICE PER UNIT $22,700,000 * $46,901 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 5.59 to 6.44 Selected EGIM for Subject 6.10 Subject's Projected EGI $3,923,374 EGIM ANALYSIS CONCLUSION $23,600,000 * $48,760 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $21,500,000 * $44,421 / UNIT RECONCILED SALES COMPARISON VALUE $22,500,000 $46,488 / 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 PLANTATION CREEK, ATLANTA, GEORGIA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $22,700,000 NOI Per Unit $21,500,000 EGIM Multiplier $23,600,000 INDICATED VALUE BY SALES COMPARISON $22,500,000 $46,488 / UNIT INCOME APPROACH: Direct Capitalization Method: $21,800,000 Discounted Cash Flow Method: $22,200,000 INDICATED VALUE BY THE INCOME APPROACH $22,000,000 $45,455 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $22,300,000 $46,074 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 PLANTATION CREEK, ATLANTA, GEORGIA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 6925 Roswell Road, Atlanta, Fulton County, Georgia. Atlanta identifies it as 17-0073-LL-041-1; 17-0073-LL-042-9. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Steven M. Zenkovich, ASA on May 22, 2003. Michael Bates, MAI has not made a personal inspection of the subject property. Steven M. Zenkovich, ASA performed the research, valuation analysis and wrote the report. Michael Bates, MAI reviewed the report and concurs with the value. Both, Michael Bates, MAI and Steven M. Zenkovich, ASA 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 June 27, 2003. PURPOSE AND USE OF APPRAISAL The purpose of the appraisal is to estimate the market value of the fee simple interest in the subject property. It is understood that the appraisal is intended to assist the clients in litigation settlement proceedings. The appraisal was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. PROPERTY RIGHTS APPRAISED We have appraised the Fee Simple Estate in the subject property (as applied in the Sales & Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 PLANTATION CREEK, ATLANTA, GEORGIA defined in The Dictionary of Real Estate Appraisal, 3rd ed. (Chicago: Appraisal Institute, 1993), as: "Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat." MARKETING/EXPOSURE PERIOD MARKETING PERIOD: 6 to 12 months EXPOSURE PERIOD: 6 to 12 months HISTORY OF THE PROPERTY Ownership in the subject property is currently vested in Century Properties Growth Find XXII. 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 PLANTATION CREEK, ATLANTA, GEORGIA AREA / NEIGHBORHOOD ANALYSIS NEIGHBORHOOD ANALYSIS A neighborhood is a group of complementary land uses. The function of the neighborhood analysis is to describe the immediate surrounding environs. The subject is located in the city of Atlanta, Georgia. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Georgia Highway 400 West - Roswell Road South - Abernathy Road North - Dalrymple Road MAJOR EMPLOYERS Major employers in the subject's area include Home Depot, Delta Air Lines, and United Parcel Service, which are the largest employers in Atlanta. Delta Air Lines continues to reduce their work force due to the downturn in the air transportation sector. The unemployment rate in Atlanta is up, but is still much lower than nationally. The overall economic outlook for the area is considered very 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 PLANTATION CREEK, ATLANTA, GEORGIA NEIGHBORHOOD DEMOGRAPHICS
AREA -------------------------------------------- CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA - --------------------------- ------------ ------------ ------------ ---------- POPULATION TRENDS Current Population 11,752 75,371 184,145 4,326,075 5-Year Population 12,656 82,660 198,191 4,877,672 % Change CY-5Y 7.7% 9.7% 7.6% 12.8% Annual Change CY-5Y 1.5% 1.9% 1.5% 2.6% HOUSEHOLDS Current Households 5,374 34,445 79,857 1,580,438 5-Year Projected Households 5,815 38,272 86,828 1,773,314 % Change CY - 5Y 8.2% 11.1% 8.7% 12.2% Annual Change CY-5Y 1.6% 2.2% 1.7% 2.4% INCOME TRENDS Median Household Income $66,324 $68,715 $ 76,846 $ 61,400 Per Capita Income $37,315 $43,848 $ 46,779 $ 25,922 Average Household Income $80,938 $94,890 $108,163 $ 70,955
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 49.41% 47.12% 38.21% 30.54% 5-Year Projected % Renting 51.08% 49.08% 39.53% 29.71% % of Households Owning 35.28% 43.71% 53.53% 61.85% 5-Year Projected % Owning 34.51% 42.41% 52.68% 63.29%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 PLANTATION CREEK, ATLANTA, GEORGIA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Multifamily housing South - Multifamily housing East - Multifamily housing West - Roswell Road and multifamily housing CONCLUSIONS The subject is well located within the city of Atlanta. 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 very favorable with a good economic base. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 14 PLANTATION CREEK, ATLANTA, GEORGIA MARKET ANALYSIS The subject property is located in the city of Atlanta in Fulton County. The overall pace of development in the subject's market is more or less decreasing. Demand for new apartment development in the local market has decreased significantly. There are no known projects under construction at this time. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
PERIOD REGION SUBMARKET - ------------- ------ --------- 1998 Year-End 6.9% 6.8% 1999 Year-End 6.5% 6.3% 2000 Year-End 4.8% 5.1% 2001 Year-End 9.0% 7.9% 2002 Year-End 10.1% 9.2% 2003 1Q03 11.3% 9.9%
Source: Reis Subtrend Futures, 1st Quarter 2003 Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has outperformed the overall market. Rent concessions have become prevalent over the past 1-2 years. Competing projects are typically offering two months of free rent prorated over a 12-month term. Lease agreements at the subject property typically reflect reduced rent in lieu of free rent concessions. 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 - ------------- ------ -------- --------- -------- 1998 Year-End N/A - $874 - 1999 Year-End N/A N/A $902 3.2% 2000 Year-End N/A N/A $939 4.1% 2001 Year-End N/A N/A $947 0.9% 2002 Year-End N/A N/A $958 1.2% 2003 1Q03 N/A N/A $958 0.0%
Source: Reis Subtrend Futures, 1st Quarter 2003 The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 PLANTATION CREEK, ATLANTA, GEORGIA COMPETITIVE PROPERTIES
NO. PROPERTY NAME UNITS OCPY. YEAR BUILT PROXIMITY TO SUBJECT - ------- ----------------------------- ----- ----- ---------- --------------------------- R-1 The Magnolia at Sandy Springs 268 93% 1980 1-mile north of subject R-2 Greystone Apartments 150 78% 1965 Directly across the street R-3 Morgan Falls 972 85% 1986, 1991 3-miles north of the subject R-4 The Cliffs of Dunwoody 419 77% 1969 2-miles north of subject R-5 Stonecourt of Sandy Springs 147 92% 1973 Directly across the street Subject Plantation Creek 484 98% 1976
The above table reflects average asking rents, and does not reflect rent concessions. Average asking rents outpaced the inflation rate in 1999 and 2000. Growth rates slowed significantly as the market contracted. At present, rental rates remain static, and concessions are routinely offered. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 PLANTATION CREEK, ATLANTA, GEORGIA PROPERTY DESCRIPTION
SITE ANALYSIS Site Area 34.96 acres, or 1,522,858 square feet Shape Irregular Topography Moderate slope Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Average Flood Zone: Community Panel 135160 0153E, dated June 22, 1998 Flood Zone Zone X Zoning A, 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 - --------------- ---------- ---------- ---------- --------- -------- 17-0073-LL-041- 1; 17-0073-LL- 042-9 $1,336,200 $8,401,120 $9,737,320 $0.03630 $353,426
IMPROVEMENT ANALYSIS Year Built 1976 Number of Units 484 Net Rentable Area 550,360 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Wood or vinyl siding Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, tennis court, car wash, barbeque equipment, laundry room, picnic area, and parking area. Unit Amenities Individual unit amenities include a balcony, cable TV connection, alarm system, and washer dryer connection. Appliances available in each unit include a refrigerator,
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 PLANTATION CREEK, ATLANTA, GEORGIA stove, dishwasher, water heater, garbage disposal, and oven.
Unit Mix:
UNIT AREA UNIT TYPE NUMBER OF UNITS (SQ. FT.) - -------------- --------------- --------- 1Br/1Ba-1A10 124 810 2Br/1Ba-2A10 80 1,080 2Br/2Ba-2A2 70 1,100 2Br/2.5Ba-2A25 24 1,380 2Br/2Ba-2B2 128 1,300 3Br/2Ba-3A2 58 1,500
Overall Condition Good Effective Age 20 years Economic Life 45 years Remaining Economic Life 25 years Deferred Maintenance None HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1976 and consist of a 484-unit multifamily project. The highest and best use as improved is for 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 PLANTATION CREEK, ATLANTA, GEORGIA THE VALUATION PROCEDURE There are three traditional approaches, which can be employed in establishing the market value of the subject property. These approaches and their applicability to the valuation of the subject are summarized as follows: THE COST APPROACH The application of the Cost Approach is based on the principle of substitution. This principle may be stated as follows: no one is justified in paying more for a property than that amount by which he or she can obtain, by purchase of a site and construction of a building, without undue delay, a property of equal desirability and utility. In the case of a new building, no deficiencies in the building should exist. In the case of income-producing real estate, the cost of construction plays a minor and relatively insignificant role in determining market value. The Cost Approach is typically only a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) where the cost of reproducing the improvements is easily and accurately quantified and there is no economic obsolescence. In all instances, the issue of an appropriate entrepreneurial profit - the reward for undertaking the risk of construction, remains a highly subjective factor especially in a market lacking significant speculative development. THE SALES COMPARISON APPROACH The Sales Comparison Approach is an estimate of value based upon a process of comparing recent sales of similar properties in the surrounding or competing areas to the subject property. Inherent in this approach is the principle of substitution. The application of this approach consists of comparing the subject property with similar properties of the same general type, which have been sold recently or currently are available for sale in competing areas. This comparative process involves judgment as to the similarity of the subject property and the comparable sale with respect to many value factors such as location, contract rent levels, quality of construction, reputation and prestige, age and condition, among others. The estimated value through this approach represents the probable price at which a willing seller would sell the subject property to a willing and knowledgeable buyer as of the date of value. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 19 PLANTATION CREEK, ATLANTA, GEORGIA THE INCOME CAPITALIZATION APPROACH The theory of the Income Capitalization Approach is based on the premise that present value is the value of the cash flow and reversionary value the property will produce over a reasonable holding (ownership) period. The Discounted Cash Flow Analysis will convert equity cash flows (including cash flows and equity reversion) into a present value utilizing an internal rate of return (or discount rate). The Internal Rate of Return (IRR) will be derived from a comparison of alternate investments, a comparative analysis of IRR's used by recent buyers of similar properties, and a review of published industry surveys. The Direct Capitalization Analysis converts one year of income into an overall value using overall capitalization rates from similar sales. The overall rates take into consideration buyers assumptions of the market over the long-term. The results of the Income Capitalization Analysis are usually the primary value indicator for income producing properties. Investors expect a reasonable rate of return on their equity investment based on the ownership risks involved; this approach closely parallels the investment decision process. RECONCILIATION In this instance, we have completed the Sales Comparison and Income Capitalization Approaches to value. As an income producing property, the income approach is a primary approach to value. The Sales Comparison Approach is also considered reliable as investors are buying similar buildings in the market. Our research indicates that market participants are generally not buying, selling, investing, or lending with reliance placed on the methodology of the Cost Approach to establish the value. Therefore, we have decided that the Cost Approach is not a reliable indicator of value for the subject, and this approach has not been utilized. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 20 PLANTATION CREEK, ATLANTA, GEORGIA SALES COMPARISON APPROACH Use of market or comparable sales requires the collection and analysis of comparable sales data. Similar properties recently sold are compared to the subject and adjusted based on any perceived differences. This method is based on the premise that the costs of acquiring a substitute property would tend to establish a value for the subject property. The premise suggests that if a substitute is unavailable in the market, the reliability of the approach may be subordinate to the other approaches. The reliance on substitute properties produces shortcomings in the validity of this approach. Geographic and demographic characteristics from each submarket restrict which sales may be selected. Recent sales with a similar physical characteristics, income levels, and location are usually limited. The sales we have identified, however, do establish general valuation parameters as well as provide support to our conclusion derived through the income approach method. The standard unit of comparison among similar properties is the sales price per unit and price per square foot of net rentable area. To accurately adjust prices to satisfy the requirements of the sales comparison approach, numerous calculations and highly subjective judgments would be required including consideration of numerous income and expense details for which information may be unreliable or unknown. The sales price per unit and square foot are considered relevant to the investment decision, but primarily as a parameter against which value estimates derived through the income approach can be judged and compared. In examining the comparable sales, we have applied a subjective adjustment analysis, which includes specific adjustments derived from our experience and consulting with the market participants. SALES COMPARISON ANALYSIS Detailed on the following pages are sales transactions involving properties located in the subject's competitive investment market. Photographs of the sale transactions are located in the Addenda. Following the summary of sales is an adjustment grid that is used to arrive at a value. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21 PLANTATION CREEK, ATLANTA, GEORGIA SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ----------- ------- ---------- ---------- Property Name Plantation Creek Cumberland Pines Concord Crossing LOCATION: Address 6925 Roswell Road 3339 Seven Pines Court 2935 Old Concord Road SE City, State Atlanta, Georgia Atlanta, GA Smyrna, GA County Fulton Cobb Cobb PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 550,360 185,246 207,460 Year Built 1976 1973 1975 Number of Units 484 216 190 Unit Mix: Type Total Type Total Type Total 1Br/1Ba - 1A10 124 1Br/1Ba 90 1Br/1Ba 30 2Br/1Ba - 2A10 80 2Br/2Ba 118 2Br/2Ba 127 2Br/2Ba -2A2 70 3Br/2Ba 8 3Br/2Ba 33 2Br/2.5Ba-2A25 24 2Br/2Ba - 2B2 128 3Br/2Ba - 3A2 58 Average Unit Size (SF) 1,137 858 1,092 Land Area (Acre) 34.9600 13.6000 15.7800 Density (Units/Acre) 13.8 15.9 12.0 Parking Ratio (Spaces/Unit) 2.00 2.50 N/A Parking Type (Gr., Cov., etc.) Open Open Open CONDITION: Good Good Good APPEAL: Good Fair Fair AMENITIES: Pool/Spa Yes/No Yes/Yes Yes/Yes Gym Room No Yes Yes Laundry Room Yes Yes No Secured Parking No No No Sport Courts No Yes Yes Washer/Dryer Connection Yes Yes Yes Other Other OCCUPANCY: 98% 90% 91% TRANSACTION DATA: Sale Date March, 2003 July, 2002 Sale Price ($) $10,800,000 $9,200,000 Grantor Earl Phillips (LLC) Garden Woodsong Grantee Vinings Vista (LLC) Woodsong Apartments Sale Documentation Book 13703, Page 4724 Book 13561, Page 2533 Verification AAA Files, Comps Inc. AAA Files, Comps Inc. Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF - ---------------------------------------------------------------------------------------------------------------------------- Potential Gross Income $1,864,080 $8,630 $10.06 $1,601,328 $8,428 $7.72 Vacancy/Credit Loss $ 186,408 $ 863 $ 1.01 $ 160,133 $ 843 $0.77 ----------------------------------------------------------- Effective Gross Income $1,677,672 $7,767 $ 9.06 $1,441,195 $7,585 $6.95 Operating Expenses $ 777,600 $3,600 $ 4.20 $ 627,000 $3,300 $3.02 ----------------------------------------------------------- Net Operating Income $ 900,072 $4,167 $ 4.86 $ 814,195 $4,285 $3.92 ----------------------------------------------------------- NOTES: None None PRICE PER UNIT $50,000 $48,421 PRICE PER SQUARE FOOT $ 58.30 $ 44.35 EXPENSE RATIO 46.3% 43.5% EGIM 6.44 6.38 OVERALL CAP RATE 8.33% 8.85% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 ----------- ---------- ---------- ---------- Property Name Copper Mill Madison at Forest Glen Silver Oaks LOCATION: Address 6860 Bebout Drive 4236 Austell Road 3640 Peachtree Corners Circle City, State Norcross, GA Austell, GA Norcross, GA County Gwinnett Cobb Gwinnett PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 263,028 290,700 115,400 Year Built 1970 1986 1975 Number of Units 320 264 108 Unit Mix: Type Total Type Total Type Total 1Br/1Ba 166 1Br/1Ba 60 1Br/1Ba 48 2Br/2Ba 128 2Br/2Ba 204 2Br/2Ba 60 3Br/2Ba 26 3Br/2Ba 3Br/2Ba Average Unit Size (SF) 822 1,101 1,069 Land Area (Acre) 20.7600 26.4000 12.5500 Density (Units/Acre) 15.4 10.0 8.6 Parking Ratio (Spaces/Unit) N/A 2.00 1.96 Parking Type (Gr., Cov., etc.) Open Open Open CONDITION: Good Good Good APPEAL: Fair Good Good AMENITIES: Pool/Spa Yes/Yes Yes/Yes Yes/Yes Gym Room Yes Yes Yes Laundry Room Yes Yes Yes Secured Parking Yes Yes Yes Sport Courts Yes Yes Yes Washer/Dryer Connection Yes Yes Yes Other Other OCCUPANCY: 90% 93% 92% TRANSACTION DATA: Sale Date October, 2001 February, 2002 August, 2001 Sale Price ($) $14,500,000 $13,810,000 $5,250,000 Grantor Atlanta Ridgecrest (LP) Lincoln Walden Atlanta Pineland Woods (LP) Grantee Dunwoody Forest Assoc. Forest Glen Apartments DR Sanctuary (LLC) Sale Documentation Book 24867, Page 0047 Book 13501, Page 2716 Book 24316, Page 0045 Verification AAA Files, Comps Inc. AAA Files, Comps Inc. AAA Files, Comps Inc. Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF - -------------------------------------------------------------------------------------------------------------------------- Potential Gross Income $2,715,660 $8,486 $10.32 $2,513,592 $9,521 $8.65 N/A Vacancy/Credit Loss $ 271,566 $ 849 $ 1.03 $ 175,951 $ 666 $0.61 N/A ----------------------------------------------------------------------------------------- Effective Gross Income $2,444,094 $7,638 $ 9.29 $2,337,641 $8,855 $8.04 $938,880 $8,693 $8.14 Operating Expenses $1,056,562 $3,302 $ 4.02 $1,003,200 $3,800 $3.45 $368,093 $3,408 $3.19 ----------------------------------------------------------------------------------------- Net Operating Income $1,387,532 $4,336 $ 5.28 $1,334,441 $5,055 $4.59 $570,787 $5,285 $4.95 ----------------------------------------------------------------------------------------- NOTES: None None None PRICE PER UNIT $45,313 $52,311 $48,611 PRICE PER SQUARE FOOT $ 55.13 $ 47.51 $ 45.49 EXPENSE RATIO 43.2% 42.9% 39.2% EGIM 5.93 5.91 5.59 OVERALL CAP RATE 9.57% 9.66% 10.87% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA ACTUAL
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 PLANTATION CREEK, ATLANTA, GEORGIA IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $45,313 to $52,311 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 $44,464 to $49,844 per unit with a mean or average adjusted price of $47,282 per unit. The median adjusted price is $47,500 per unit. Based on the following analysis, we have concluded to a value of $47,500 per unit, which results in an "as is" value of $22,700,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 PLANTATION CREEK, ATLANTA, GEORGIA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE COMPARABLE COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 I - 3 I - 4 I - 5 - -------------- ------------ ----------------- --------------------- ------------------- ------------------- ------------------- Property Name Plantation Cumberland Concord Crossing Copper Mill Madison at Silver Oaks Creek Pines Forest Glen Address 6925 Roswell 3339 Seven 2935 Old Concord 6860 Bebout 4236 Austell 3640 Peachtree Road Pines Court Road SE Drive Road Corners Circle City Atlanta, Atlanta, GA Smyrna, GA Norcross, GA Austell, GA Norcross, GA Georgia Sale Date March, 2003 July, 2002 October, 2001 February, 2002 August, 2001 Sale Price ($) $10,800,000 $9,200,000 $14,500,000 $13,810,000 $5,250,000 Net Rentable Area 550,360 185,246 207,460 263,028 290,700 115,400 (SF) Number of Units 484 216 190 320 264 108 Price Per Unit $ 50,000 $ 48,421 $ 45,313 $ 52,311 $ 48,611 Year Built 1976 1973 1975 1970 1986 1975 Land Area (Acre) 34.9600 13.6000 15.7800 20.7600 26.4000 12.5500 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Fee Simple Fee Simple 0% Fee Simple 0% Fee Simple 0% Fee Simple 0% Fee Simple 0% Conveyed Estate Estate Estate Estate Estate Estate Financing Cash To 0% Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Seller Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale 03-2003 0% 07-2002 0% 10-2001 0% 02-2002 0% 08-2001 0% (Time) VALUE AFTER $50,000 $48,421 $45,313 $52,311 $48,611 TRANS. ADJUST. ($/UNIT) Location Superior -5% Comparable 0% Comparable 0% Comparable 0% Comparable 0% Number of Units 484 216 -5% 190 0% 320 0% 264 -5% 108 -5% Quality / Appeal Good Comparable 0% Comparable 0% Comparable 0% Comparable 0% Comparable 0% Age / Condition 1976 1973 / Good 0% 1975 / Good 0% 1970 / Good 5% 1986 / Good -10% 1975 / Good 0% Occupancy at Sale 98% 90% 0% 91% 0% 90% 0% 93% 0% 92% 0% Amenities Good Comparable 0% Comparable 0% Comparable 0% Comparable 0% Comparable 0% Average Unit Size 1,137 858 5% 1,092 0% 822 5% 1,101 0% 1,069 0% (SF) PHYSICAL -5% 0% 10% -15% -5% ADJUSTMENT FINAL ADJUSTED $47,500 $48,421 $49,844 $44,464 $46,181 VALUE ($/UNIT)
SUMMARY VALUE RANGE (PER UNIT) $44,464 TO $49,844 MEAN (PER UNIT) $47,282 MEDIAN (PER UNIT) $47,500 VALUE CONCLUSION (PER UNIT) $47,500
VALUE OF IMPROVEMENT & MAIN SITE $ 22,990,000 PV OF CONCESSIONS -$ 327,000 VALUE INDICATED BY SALES COMPARISON APPROACH $ 22,663,000 ROUNDED $ 22,700,000
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 PLANTATION CREEK, ATLANTA, GEORGIA NOI PER UNIT COMPARISON
COMPARABLE NO. OF SALE PRICE NOI/ SUBJECT NOI ADJUSTMENT INDICATED NO. UNITS PRICE/UNIT OAR NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT - ---------- ------ ------------ ------ ---------- -------------- ---------- ---------- I-1 216 $10,800,000 8.33% $ 900,072 $1,990,613 0.987 $ 49,350 $ 50,000 $ 4,167 $ 4,113 I-2 190 $ 9,200,000 8.85% $ 814,195 $1,990,613 0.960 $ 46,473 $ 48,421 $ 4,285 $ 4,113 I-3 320 $14,500,000 9.57% $1,387,532 $1,990,613 0.949 $ 42,980 $ 45,313 $ 4,336 $ 4,113 I-4 264 $13,810,000 9.66% $1,334,441 $1,990,613 0.814 $ 42,563 $ 52,311 $ 5,055 $ 4,113 I-5 108 $ 5,250,000 10.87% $ 570,787 $1,990,613 0.778 $ 37,829 $ 48,611 $ 5,285 $ 4,113
PRICE/UNIT ---------- Low High Average Median $37,829 $49,350 $ 43,839 $42,980
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT ------------------------------------------------ Estimated Price Per Unit $ 45,000 Number of Units 484 Value $21,780,000 PV of Concessions -$ 327,000 ----------- Value Based on NOI Analysis $21,453,000 Rounded $21,500,000
The adjusted sales indicate a range of value between $37,829 and $49,350 per unit, with an average of $43,839 per unit. Based on the subject's competitive position within the improved sales, a value of $45,000 per unit is estimated. This indicates an "as is" market value of $21,500,000 (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 PLANTATION CREEK, ATLANTA, GEORGIA EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON
COMPARABLE NO. OF SALE PRICE EFFECTIVE OPERATING SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM - ---------- ------ ---------- ------------ --------- --- ------------- ---- I-1 216 $10,800,000 $1,677,672 $ 777,600 46.35% 6.44 $ 50,000 I-2 190 $ 9,200,000 $1,441,195 $ 627,000 43.51% 6.38 $ 48,421 I-3 320 $14,500,000 $2,444,094 $1,056,562 43.23% 5.93 46.18% $ 45,313 I-4 264 $13,810,000 $2,337,641 $1,003,200 42.92% 5.91 $ 52,311 I-5 108 $ 5,250,000 $ 938,880 $ 368,093 39.21% 5.59 $ 48,611
EGIM ---- LOW HIGH AVERAGE MEDIAN - ---- ---- ------- ------ 5.59 6.44 6.05 5.93
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES - -------------------------------------------------- Estimate EGIM 6.10 Subject EGI $ 3,923,374 Value $23,932,580 PV of Concessions -$ 327,000 ------------ Value Based on EGIM Analysis $23,605,580 Rounded $23,600,000 Value Per Unit $ 48,760
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 46.18% before reserves. The comparable sales indicate a range of expense ratios from 39.21% to 46.35%, while their EGIMs range from 5.59 to 6.44. Overall, we conclude to an EGIM of 6.10, which results in an "as is" value estimate in the EGIM Analysis of $23,600,000. 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 $22,500,000. Price Per Unit $22,700,000 NOI Per Unit $21,500,000 EGIM Analysis $23,600,000 Sales Comparison Conclusion $22,500,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 PLANTATION CREEK, ATLANTA, GEORGIA INCOME CAPITALIZATION APPROACH The income capitalization approach is based on the premise that value is created by the expectation of future benefits. We estimated the present value of those benefits to derive an indication of the amount that a prudent, informed purchaser-investor would pay for the right to receive them as of the date of value. This approach requires an estimate of the NOI of a property. The estimated NOI is then converted to a value indication by use of either the direct capitalization or the discounted cash flow analysis (yield capitalization). Direct capitalization uses a single year's stabilized NOI as a basis for a value indication by dividing the income by a capitalization rate. The rate chosen accounts for a recapture of the investment by the investor and should reflect all factors that influence the value of the property, such as tenant quality, property condition, neighborhood change, market trends, interest rates, and inflation. The rate may be extracted from local market transactions or, when transaction evidence is lacking, obtained from trade sources. A discounted cash flow analysis focuses on the operating cash flows expected from the property and the proceeds of a hypothetical sale at the end of a holding period (the reversion). The cash flows and reversion are discounted to their present values using a market-derived discount rate and are added together to obtain a value indication. Because benefits to be received in the future are worth less than the same benefits received in the present, this method weights income in the early years more heavily than the income and the sale proceeds to be received later. The strength of the discounted cash flow method is its ability to recognize variations in projected net income, such as those caused by inflation, stepped leases, neighborhood change, or tenant turnover. Its weakness is that it requires many judgments regarding the actions of likely buyers and sellers of the property in the future. In some situations, both methods yield a similar result. The discounted cash flow method is typically more appropriate for the analysis of investment properties with multiple or long-term leases, particularly leases with cancellation clauses or renewal options. It is especially useful for multi-tenant properties in volatile markets. The direct capitalization AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27 PLANTATION CREEK, ATLANTA, GEORGIA method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
AVERAGE UNIT AREA ----------------- UNIT TYPE (SQ. FT.) PER UNIT PER SF %OCCUPIED - ------------- --------- -------- ------ ---------- 1Br/1Ba-1A10 810 $616 $0.76 95.0% 2Br/1Ba-2A10 1080 $700 $0.65 100.0% 2Br/2Ba-2A2 1100 $714 $0.65 99.0% 2Br/2.5Ba-2A25 1380 $852 $0.62 100.0% 2Br/2Ba-2B2 1300 $754 $0.58 99.0% 3Br/2Ba-3A2 1500 $839 $0.56 98.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 PLANTATION CREEK, ATLANTA, GEORGIA RENT ANALYSIS
COMPARABLE RENTS --------------------------------------------------------------- R-1 R-2 R-3 R-4 R-5 --------------------------------------------------------------- The Magnolia at The Cliffs Stonecourt Sandy Greystone Morgan of of Sandy Springs Apartments Falls Dunwoody Springs --------------------------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT --------------------------------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly Slightly DESCRIPTION TYPE RENT RENT Similar Inferior Superior Inferior Inferior - ------------------------ ---------------- ------- ------- ------------- ---------- ---------- --------- ---------- Monthly Rent 1Br/1Ba - 1A10 $ 616 $ 699 $ 780 $ 744 $ 738 $ 703 $ 751 Unit Area (SF) 810 810 854 900 747 771 750 Monthly Rent Per Sq. Ft. $ 0.76 $ 0.86 $ 0.91 $ 0.83 $ 0.99 $ 0.91 $ 1.00 Monthly Rent 2Br/1Ba - 2A10 $ 700 $ 799 $ 975 $ 861 $ 780 $ 745 $ 846 Unit Area (SF) 1,080 1,080 1,142 1,000 906 950 1,050 Monthly Rent Per Sq. Ft. $ 0.65 $ 0.74 $ 0.85 $ 0.86 $ 0.86 $ 0.78 $ 0.81 Monthly Rent 2Br/2Ba -2A2 $ 714 $ 829 $ 975 $ 861 $ 868 $ 825 $ 903 Unit Area (SF) 1,100 1,100 1,142 1,000 1,097 1,105 1,200 Monthly Rent Per Sq. Ft. $ 0.65 $ 0.75 $ 0.85 $ 0.86 $ 0.79 $ 0.75 $ 0.75 Monthly Rent 2Br/2.5Ba-2A25 $ 852 $ 999 $ 950 $ 861 $ 933 $ 840 $ 956 Unit Area (SF) 1,380 1,380 1,350 1,000 1,250 1,155 1,300 Monthly Rent Per Sq. Ft. $ 0.62 $ 0.72 $ 0.70 $ 0.86 $ 0.75 $ 0.73 $ 0.74 Monthly Rent 2Br/2Ba - 2B2 $ 754 $ 849 $ 980 $ 861 $ 860 $ 825 $ 956 Unit Area (SF) 1,300 1,300 1,350 1,000 1,190 1,105 1,300 Monthly Rent Per Sq. Ft. $ 0.58 $ 0.65 $ 0.73 $ 0.86 $ 0.72 $ 0.75 $ 0.74 Monthly Rent 3Br/2Ba - 3A2 $ 839 $ 1,029 $ 1,040 $ 999 $1,048 $ 975 $1,218 Unit Area (SF) 1,500 1,500 1,530 1,200 1,300 1,305 1,600 Monthly Rent Per Sq. Ft. $ 0.56 $ 0.69 $ 0.68 $ 0.83 $ 0.81 $ 0.75 $ 0.76 DESCRIPTION MIN MAX MEDIAN AVERAGE - ------------------------ ------ ------ ------ ------- Monthly Rent $ 703 $ 780 $ 744 $ 743 Unit Area (SF) 747 900 771 804 Monthly Rent Per Sq. Ft. $ 0.83 $ 1.00 $ 0.91 $ 0.93 Monthly Rent $ 745 $ 975 $ 846 $ 841 Unit Area (SF) 906 1,142 1,000 1,010 Monthly Rent Per Sq. Ft. $ 0.78 $ 0.86 $ 0.85 $ 0.83 Monthly Rent $ 825 $ 975 $ 868 $ 886 Unit Area (SF) 1,000 1,200 1,105 1,109 Monthly Rent Per Sq. Ft. $ 0.75 $ 0.86 $ 0.79 $ 0.80 Monthly Rent $ 840 $ 956 $ 933 $ 908 Unit Area (SF) 1,000 1,350 1,250 1,211 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.86 $ 0.74 $ 0.75 Monthly Rent $ 825 $ 980 $ 861 $ 896 Unit Area (SF) 1,000 1,350 1,190 1,189 Monthly Rent Per Sq. Ft. $ 0.72 $ 0.86 $ 0.74 $ 0.76 Monthly Rent $ 975 $1,218 $1,040 $1,056 Unit Area (SF) 1,200 1,600 1,305 1,387 Monthly Rent Per Sq. Ft. $ 0.68 $ 0.83 $ 0.76 $ 0.77
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 124 810 $616 $0.76 $ 76,384 $ 916,608 2Br/1Ba-2A10 80 1,080 $700 $0.65 $ 56,000 $ 672,000 2Br/2Ba-2A2 70 1,100 $714 $0.65 $ 49,980 $ 599,760 2Br/2.5Ba-2A25 24 1,380 $852 $0.62 $ 20,448 $ 245,376 2Br/2Ba-2B2 128 1,300 $754 $0.58 $ 96,512 $1,158,144 3Br/2Ba-3A2 58 1,500 $839 $0.56 $ 48,662 $ 583,944 Total $347,986 $4,175,832
PRO FORMA ANALYSIS For purposes of this appraisal, we were provided with income and expense data for the subject property. A summary of this data is presented on the following page. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 PLANTATION CREEK, ATLANTA, GEORGIA SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 ----------------------- ---------------------- ----------------------- ACTUAL ACTUAL ACTUAL ----------------------- ---------------------- ----------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT ----------- ---------- -------- ---------- -------- ---------- ---------- Revenues Rental Income $4,647,424 $9,602 $4,819,248 $9,957 $4,395,964 $9,083 Vacancy $ 339,212 $ 701 $ 501,295 $1,036 $ 724,795 $1,498 Credit Loss/Concessions $ 206,229 $ 426 $ 548,383 $1,133 $ 574,550 $1,187 Subtotal $ 545,441 $1,127 $1,049,678 $2,169 $1,299,345 $2,685 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 190,385 $ 393 $ 287,330 $ 594 $ 363,885 $ 752 Subtotal Other Income $ 190,385 $ 393 $ 287,330 $ 594 $ 363,885 $ 752 Effective Gross Income $4,292,368 $8,869 $4,056,900 $8,382 $3,460,504 $7,150 Operating Expenses Taxes $ 400,231 $ 827 $ 392,022 $ 810 $ 363,573 $ 751 Insurance $ 54,477 $ 113 $ 87,614 $ 181 $ 94,128 $ 194 Utilities $ 296,931 $ 613 $ 300,564 $ 621 $ 365,512 $ 755 Repair & Maintenance $ 61,038 $ 126 $ 61,468 $ 127 $ 214,206 $ 443 Cleaning $ 94,184 $ 195 $ 117,903 $ 244 $ 218,210 $ 451 Landscaping $ 41,739 $ 86 $ 64,362 $ 133 $ 97,031 $ 200 Security $ 25,936 $ 54 $ 37,811 $ 78 $ 33,408 $ 69 Marketing & Leasing $ 69,691 $ 144 $ 70,572 $ 146 $ 111,711 $ 231 General Administrative $ 407,840 $ 843 $ 417,324 $ 862 $ 431,597 $ 892 Management $ 221,893 $ 458 $ 211,739 $ 437 $ 191,108 $ 395 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Total Operating Expenses $1,673,960 $3,459 $1,761,379 $3,639 $2,120,484 $4,381 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Net Income $2,618,408 $5,410 $2,295,521 $4,743 $1,340,020 $2,769 FISCAL YEAR 2003 ANNUALIZED 2003 ---------------------- ----------------------- MANAGEMENT BUDGET PROJECTION AAA PROJECTION ---------------------- ----------------------- --------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % ----------- ---------- -------- ---------- -------- ---------- -------- ------ Revenues Rental Income $4,195,000 $8,667 $3,982,676 $8,229 $4,175,832 $8,628 100.0% Vacancy $ 634,000 $1,310 $ 552,092 $1,141 $ 375,825 $ 776 9.0% Credit Loss/Concessions $ 244,800 $ 506 $ 339,268 $ 701 $ 167,033 $ 345 4.0% Subtotal $ 878,800 $1,816 $ 891,360 $1,842 $ 542,858 $1,122 13.0% Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 261,600 $ 540 $ 357,432 $ 738 $ 290,400 $ 600 7.0% Subtotal Other Income $ 261,600 $ 540 $ 357,432 $ 738 $ 290,400 $ 600 7.0% Effective Gross Income $3,577,800 $7,392 $3,448,748 $7,126 $3,923,374 $8,106 100.0% Operating Expenses Taxes $ 381,488 $ 788 $ 372,692 $ 770 $ 381,392 $ 788 9.7% Insurance $ 99,274 $ 205 $ 97,480 $ 201 $ 99,220 $ 205 2.5% Utilities $ 362,000 $ 748 $ 439,776 $ 909 $ 363,000 $ 750 9.3% Repair & Maintenance $ 138,000 $ 285 $ 88,252 $ 182 $ 84,700 $ 175 2.2% Cleaning $ 175,000 $ 362 $ 219,552 $ 454 $ 145,200 $ 300 3.7% Landscaping $ 189,500 $ 392 $ 81,972 $ 169 $ 82,280 $ 170 2.1% Security $ 0 $ 0 $ 16,080 $ 33 $ 24,200 $ 50 0.6% Marketing & Leasing $ 102,400 $ 212 $ 52,196 $ 108 $ 72,600 $ 150 1.9% General Administrative $ 354,504 $ 732 $ 409,056 $ 845 $ 363,000 $ 750 9.3% Management $ 202,780 $ 419 $ 149,956 $ 310 $ 196,169 $ 405 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Total Operating Expenses $2,004,946 $4,142 $1,927,012 $3,981 $1,811,761 $3,743 46.2% Reserves $ 0 $ 0 $ 0 $ 0 $ 121,000 $ 250 6.7% Net Income $1,572,854 $3,250 $1,521,736 $3,144 $1,990,613 $4,113 50.7%
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 13% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 PLANTATION CREEK, ATLANTA, GEORGIA RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $250 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $250 per unit should be satisfactory in our reserves for replacement to cover future capital expenditures. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of the annual cash flows and discounts them, along with the expected equity reversion, to a present value. The present value of the cash flow is added to the present value of the reversion, resulting in a total property value. INVESTMENT CRITERIA Appropriate investment criteria will be derived for the subject based upon analysis of comparable sales and a survey of real estate investors. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 1ST QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES ------------------------------------------------ GOING-IN TERMINAL ------------------- ------------------- LOW HIGH LOW HIGH ----- ------ ----- ------ RANGE 6.00% 10.00% 7.00% 10.00% AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 PLANTATION CREEK, ATLANTA, GEORGIA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - --------- --------- ------ ---------- --- I-1 Mar-03 90% $ 50,000 8.33% I-2 Jul-02 91% $ 48,421 8.85% I-3 Oct-01 90% $ 45,313 9.57% I-4 Feb-02 93% $ 52,311 9.66% I-5 Aug-01 92% $ 48,611 10.87% High 10.87% Low 8.33% Average 9.46%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.00%. 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 9.50%. 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 11.00%. 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 11.00% indicates a value of $22,200,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 PLANTATION CREEK, ATLANTA, GEORGIA approximately 41% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 33 PLANTATION CREEK, ATLANTA, GEORGIA DISCOUNTED CASH FLOW ANALYSIS PLANTATION CREEK
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 - ----------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $4,175,832 $4,175,832 $4,301,107 $4,430,140 $4,563,044 $4,699,936 Vacancy $ 375,825 $ 375,825 $ 387,100 $ 398,713 $ 410,674 $ 422,994 Credit Loss $ 167,033 $ 167,033 $ 172,044 $ 177,206 $ 182,522 $ 187,997 Concessions $ 250,550 $ 125,275 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- Subtotal $ 793,408 $ 668,133 $ 559,144 $ 575,918 $ 593,196 $ 610,992 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 290,400 $ 290,400 $ 299,112 $ 308,085 $ 317,328 $ 326,848 -------------------------------------------------------------------------------- Subtotal Other Income $ 290,400 $ 290,400 $ 299,112 $ 308,085 $ 317,328 $ 326,848 -------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $3,672,824 $3,798,099 $4,041,075 $4,162,307 $4,287,177 $4,415,792 OPERATING EXPENSES: Taxes $ 381,392 $ 392,834 $ 404,619 $ 416,757 $ 429,260 $ 442,138 Insurance $ 99,220 $ 102,197 $ 105,262 $ 108,420 $ 111,673 $ 115,023 Utilities $ 363,000 $ 373,890 $ 385,107 $ 396,660 $ 408,560 $ 420,816 Repair & Maintenance $ 84,700 $ 87,241 $ 89,858 $ 92,554 $ 95,331 $ 98,191 Cleaning $ 145,200 $ 149,556 $ 154,043 $ 158,664 $ 163,424 $ 168,327 Landscaping $ 82,280 $ 84,748 $ 87,291 $ 89,910 $ 92,607 $ 95,385 Security $ 24,200 $ 24,926 $ 25,674 $ 26,444 $ 27,237 $ 28,054 Marketing & Leasing $ 72,600 $ 74,778 $ 77,021 $ 79,332 $ 81,712 $ 84,163 General Administrative $ 363,000 $ 373,890 $ 385,107 $ 396,660 $ 408,560 $ 420,816 Management $ 183,641 $ 189,905 $ 202,054 $ 208,115 $ 214,359 $ 220,790 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $1,799,233 $1,853,965 $1,916,035 $1,973,516 $2,032,722 $2,093,704 Reserves $ 121,000 $ 124,630 $ 128,369 $ 132,220 $ 136,187 $ 140,272 -------------------------------------------------------------------------------- NET OPERATING INCOME $1,752,591 $1,819,504 $1,996,671 $2,056,571 $2,118,268 $2,181,816 ================================================================================ Operating Expense Ratio (% of EGI) 49.0% 48.8% 47.4% 47.4% 47.4% 47.4% Operating Expense Per Unit $ 3,717 $ 3,831 $ 3,959 $ 4,078 $ 4,200 $ 4,326 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 - --------------------------------------------------------------------------------------------------------- REVENUE Base Rent $4,840,934 $4,986,162 $5,135,747 $5,289,819 $5,448,514 Vacancy $ 435,684 $ 448,755 $ 462,217 $ 476,084 $ 490,366 Credit Loss $ 193,637 $ 199,446 $ 205,430 $ 211,593 $ 217,941 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ Subtotal $ 629,321 $ 648,201 $ 667,647 $ 687,676 $ 708,307 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 336,653 $ 346,753 $ 357,155 $ 367,870 $ 378,906 ------------------------------------------------------------------ Subtotal Other Income $ 336,653 $ 346,753 $ 357,155 $ 367,870 $ 378,906 ------------------------------------------------------------------ EFFECTIVE GROSS INCOME $4,548,266 $4,684,714 $4,825,255 $4,970,013 $5,119,113 OPERATING EXPENSES: Taxes $ 455,402 $ 469,064 $ 483,136 $ 497,630 $ 512,559 Insurance $ 118,474 $ 122,028 $ 125,689 $ 129,460 $ 133,343 Utilities $ 433,441 $ 446,444 $ 459,838 $ 473,633 $ 487,842 Repair & Maintenance $ 101,136 $ 104,170 $ 107,295 $ 110,514 $ 113,830 Cleaning $ 173,376 $ 178,578 $ 183,935 $ 189,453 $ 195,137 Landscaping $ 98,247 $ 101,194 $ 104,230 $ 107,357 $ 110,577 Security $ 28,896 $ 29,763 $ 30,656 $ 31,576 $ 32,523 Marketing & Leasing $ 86,688 $ 89,289 $ 91,968 $ 94,727 $ 97,568 General Administrative $ 433,441 $ 446,444 $ 459,838 $ 473,633 $ 487,842 Management $ 227,413 $ 234,236 $ 241,263 $ 248,501 $ 255,956 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ TOTAL OPERATING EXPENSES $2,156,515 $2,221,210 $2,287,846 $2,356,482 $2,427,176 Reserves $ 144,480 $ 148,815 $ 153,279 $ 157,878 $ 162,614 ------------------------------------------------------------------ NET OPERATING INCOME $2,247,271 $2,314,689 $2,384,129 $2,455,653 $2,529,323 ================================================================== Operating Expense Ratio (% of EGI) 47.4% 47.4% 47.4% 47.4% 47.4% Operating Expense Per Unit $ 4,456 $ 4,589 $ 4,727 $ 4,869 $ 5,015
Estimated Stabilized NOI $1,990,613 Sales Expense Rate 2.00% Months to Stabilized 1 Discount Rate 11.00% Stabilized Occupancy 91.0% Terminal Cap Rate 9.50%
Gross Residual Sale Price $26,624,452 Deferred Maintenance $ 0 Less: Sales Expense $ 532,489 Add: Excess Land $ 0 ----------- Net Residual Sale Price $26,091,962 Other Adjustments $ 0 ----------- PV of Reversion $ 9,189,184 Value Indicated By "DCF" $22,169,289 Add: NPV of NOI $12,980,105 Rounded $22,200,000 =========== PV Total $22,169,289
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ------------------------------------------------------------------------------------------- TOTAL VALUE 10.50% 10.75% 11.00% 11.25% 11.50% - --------------------------------------------------------------------------------------------------------------- 9.00% $23,444,751 $23,058,039 $22,679,800 $22,309,820 $21,947,893 9.25% $23,170,491 $22,789,907 $22,417,646 $22,053,498 $21,697,260 TERMINAL CAP RATE 9.50% $22,910,665 $22,535,887 $22,169,289 $21,810,667 $21,459,819 9.75% $22,664,164 $22,294,894 $21,933,669 $21,580,289 $21,234,554 10.00% $22,429,987 $22,065,950 $21,709,830 $21,361,429 $21,020,552
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 34 PLANTATION CREEK, ATLANTA, GEORGIA INCOME LOSS DURING LEASE-UP The subject is currently near or at stabilized condition. Therefore, there is no income loss during lease-up at the subject property. CONCESSIONS Due to softness in the market, concessions have been utilized at the subject property and within the market. Based on our discussions with the subject's property manager and those at competing properties, these concessions are expected to continue in the near term until the market returns to a stabilized level. Concessions have been included as a line item deduction within the discounted cash flow analysis. The present value of these concessions equates to $327,000 (rounded). This amount has been deducted from the Direct Capitalization analysis, as well as the Sales Comparison Approach value. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 9.00% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 35 PLANTATION CREEK, ATLANTA, GEORGIA PLANTATION CREEK
TOTAL PER SQ.FT. PER UNIT %OF EGI - ------------------------------------------------------------------------------------------------------------ REVENUE Base Rent $ 4,175,832 $ 7.59 $ 8,628 Less: Vacancy & Collection Loss 13.00% $ 542,858 $ 0.99 $ 1,122 Plus: Other Income Laundry Income $ 0 $ 0.00 $ 0 0.00% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 290,400 $ 0.53 $ 600 7.40% ----------- ------------ ----------- --------- Subtotal Other Income $ 290,400 $ 0.53 $ 600 7.40% EFFECTIVE GROSS INCOME $ 3,923,374 $ 7.13 $ 8,106 OPERATING EXPENSES: Taxes $ 381,392 $ 0.69 $ 788 9.72% Insurance $ 99,220 $ 0.18 $ 205 2.53% Utilities $ 363,000 $ 0.66 $ 750 9.25% Repair & Maintenance $ 84,700 $ 0.15 $ 175 2.16% Cleaning $ 145,200 $ 0.26 $ 300 3.70% Landscaping $ 82,280 $ 0.15 $ 170 2.10% Security $ 24,200 $ 0.04 $ 50 0.62% Marketing & Leasing $ 72,600 $ 0.13 $ 150 1.85% General Administrative $ 363,000 $ 0.66 $ 750 9.25% Management 5.00% $ 196,169 $ 0.36 $ 405 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 1,811,761 $ 3.29 $ 3,743 46.18% Reserves $ 121,000 $ 0.22 $ 250 3.08% ----------- ------------ ----------- --------- NET OPERATING INCOME $ 1,990,613 $ 3.62 $ 4,113 50.74% =========== ============ =========== ========= "GOING IN" CAPITALIZATION RATE 9.00% VALUE INDICATION $22,117,924 $ 40.19 $ 45,698 PV OF CONCESSIONS ($ 327,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $21,790,924 ROUNDED $21,800,000 $ 39.61 $ 45,041
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 36 PLANTATION CREEK, ATLANTA, GEORGIA
DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE - -------------------------------------------------------------------------- CAP RATE VALUE ROUNDED $/UNIT $/SF - -------------------------------------------------------------------------- 8.25% $23,801,644 $23,800,000 $49,174 $43.24 8.50% $23,091,978 $23,100,000 $47,727 $41.97 8.75% $22,422,865 $22,400,000 $46,281 $40.70 9.00% $21,790,924 $21,800,000 $45,041 $39.61 9.25% $21,193,142 $21,200,000 $43,802 $38.52 9.50% $20,626,823 $20,600,000 $42,562 $37.43 9.75% $20,089,545 $20,100,000 $41,529 $36.52
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $21,800,000. CORRELATION AND CONCLUSION BY THE INCOME APPROACH The two methods used to estimate the market value of the subject property by the income approach resulted in the following indications of value: Discounted Cash Flow Analysis $22,200,000 Direct Capitalization Method $21,800,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $22,000,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37 PLANTATION CREEK, ATLANTA, GEORGIA RECONCILIATION AND CONCLUSION This appraisal was made to express an opinion as of the Market Value of the fee simple estate in the property. AS IS MARKET VALUE OF THE FEE SIMPLE ESTATE Cost Approach Not Utilized Sales Comparison Approach $22,500,000 Income Approach $22,000,000 Reconciled Value $22,300,000
The Direct Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of May 22, 2003 the market value of the fee simple estate in the property is: $22,300,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA PLANTATION CREEK, ATLANTA, GEORGIA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A PLANTATION CREEK, ATLANTA, GEORGIA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A PLANTATION CREEK, ATLANTA, GEORGIA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - TYPICAL APARTMENT BUILDING LEASING OFFICE [PICTURE] [PICTURE] EXTERIOR - TYPICAL APARTMENT BUILDING EXTERIOR - TYPICAL APARTMENT BUILDING [PICTURE] [PICTURE] INTERIOR - APARTMENT UNIT INTERIOR - APARTMENT UNIT AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B PLANTATION CREEK, ATLANTA, GEORGIA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B PLANTATION CREEK, ATLANTA, GEORGIA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 CUMBERLAND PINES CONCORD CROSSING COPPER MILL 3339 Seven Pines Court 2935 Old Concord Road SE 6860 Bebout Drive Atlanta, GA Smyrna, GA Norcross, GA [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 MADISON AT FOREST GLEN SILVER OAKS 4236 Austell Road 3640 Peachtree Corners Circle Austell, GA Norcross, GA [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B PLANTATION CREEK, ATLANTA, GEORGIA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 ----------- ------- ---------- Property Name Plantation Creek The Magnolia at Sandy Springs Management Company AIMCO Capreit LOCATION: Address 6925 Roswell Road 7100 Roswell Road City, State Atlanta, Georgia Atlanta, GA County Fulton Fulton Proximity to Subject 1-mile north of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 550,360 N/A Year Built 1976 1980 Effective Age 20 23 Building Structure Type Brick & wood siding walls; asphalt shingle roof Wood and stucco walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Garage, Open Covered Open Number of Units 484 268 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Br/1Ba - 1A10 810 124 $616 1 1BD/1BH - Heather 854 $ 780 2 2Br/1Ba - 2A10 1,080 80 $700 2 2BD/2BH - Iris 1,142 $ 975 3 2Br/2Ba -2A2 1,100 70 $714 3 2BD/2BH - Iris 1,142 $ 975 4 2Br/2.5Ba-2A25 1,380 24 $852 4 2BD/2BH - Laurel 1,350 $ 950 5 2Br/2Ba - 2B2 1,300 128 $754 5 2BD/2BH - Laurel 1,350 $ 950 6 3Br/2Ba - 3A2 1,500 58 $839 5 2BD/2BH - Lily 1,350 $1,010 6 3BD/2BH-Magnolia 1,530 $1,040 Average Unit Size (SF) 1,137 Unit Breakdown: Efficiency 0% 2-Bedroom 39% Efficiency 0% 2-Bedroom 0% 1-Bedroom 61% 3-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% CONDITION: Good Good APPEAL: Fair Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. Fireplace X Alarm System X Fireplace Alarm System X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi X Car Wash Spa/Jacuzzi X Car Wash Basketball Court X BBQ Equipment Basketball Court 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 X Tennis Court X Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track X Business Office Gym Room X Picnic Area X Gym Room Picnic Area OCCUPANCY: 98% 93% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 to 24 Months Concessions 1 - 1 1/2 Months Free Up to 1 Month Free Pet Deposit $300 - $500 $350 - $500 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash X Water Trash Confirmation May 1, 2003; Joseph Beard (Property Manager) May 22, 2003; Carl Vitner, Service Manager Telephone Number (972)234-1231 770-393-9999 NOTES: COMPARISON TO SUBJECT: Similar COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 ----------- ---------- ---------- Property Name Greystone Apartments Morgan Falls Management Company Equity Residential LBK Management LOCATION: Address 6940 Roswell Road 7600 Roswell Road City, State Atlanta, GA Atlanta, GA County Fulton Fulton Proximity to Subject Directly across the street 3-miles north of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) N/A N/A Year Built 1965 1986, 1991 Effective Age 28 16 Building Structure Type Wood and brick walls; asphalt shingle roof Wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 150 972 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1BD/1BH 900 $744 1 1BD/1BH - A 565 $ 668 2 2BD/1.5BH 1,000 $861 1 1BD/1BH - A-1 745 $ 738 3 2BD/1.5BH 1,000 $861 1 1BD/1BH - A-S 800 $ 773 4 2BD/1.5BH 1,000 $861 1 1BD/1BH -A-M 878 $ 773 5 2BD/1.5BH 1,000 $861 2 2BD/1BH - B 906 $ 780 6 3BD/1.5BH 1,200 $999 3 2BD/2BH - B-1 1,077 $ 848 3 2BD/2BH - B-2 1,116 $ 888 5 2BD/2BH - B-2M 1,190 $ 860 4 2BD/2BH - B-3 1,250 $ 933 6 2BD/2BH - B-2 1,300 $1,048 Average Unit Size (SF) Unit Breakdown: Efficiency 0% 2-Bedroom 0% Efficiency 0% 2-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% CONDITION: Good Very Good APPEAL: Fair Very Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage X Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. Fireplace X Alarm System X Fireplace Alarm System 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 Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall X Sand Volley Ball Meeting Hall Tennis Court Secured Parking X Tennis Court X Secured Parking Racquet Ball X Laundry Room X Racquet Ball X Laundry Room Jogging Track Business Office X Jogging Track X Business Office Gym Room X Picnic Area X Gym Room X Picnic Area OCCUPANCY: 78% 85% LEASING DATA: Available Leasing Terms 6 to 14 Months 6 to 12 Months Concessions Up to $200 per month discount $116 - $201 off per month Pet Deposit $200 $350 - $500 Utilities Paid by Tenant: X Electric Natural Gas X Electric X Natural Gas X Water Trash X Water Trash Confirmation May 22, 2003; Shawn Phillips, Leasing May 2, 2003; Amanda Westbrook, Leasing Consultant Telephone Number 770-396-1222 770-396-0222 NOTES: Older community with inferior appeal and Modern garden style apartment complex amenities COMPARISON TO SUBJECT: Inferior Superior COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 ----------- ---------- ---------- Property Name The Cliffs of Dunwoody Stonecourt of Sandy Springs Management Company AMD Management GJMG Realty LOCATION: Address 7275 Roswell Road 6980 Roswell Road City, State Atlanta, GA Atlanta, GA County Fulton Fulton Proximity to Subject 2-miles north of subject Directly across the street PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) N/A N/A Year Built 1969 1973 Effective Age 34 30 Building Structure Type Wood and brick walls; asphalt shingle roof Brick siding walls; asphalt and wood shingle roof Parking Type (Gr., Cov., etc.) Garage Open Number of Units 419 147 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1BD/1BH - A-1 612 $670 1 1BD/1BH-C'bridge 600 $ 713 1 1BD/1BH - A-2 950 $745 1 1BD/1.5BH-C'bury 900 $ 788 1 1BD/1BH - A-3 750 $695 2 1BD/1.5BH-C'bury 900 $ 788 2 2BD/1BH - B-1 950 $745 2 2BD/1BH-Oxford 1,200 $ 903 2 2BD/1BH - B-2 950 $745 3 2BD/1BH-Oxford 1,200 $ 903 3 2BD/2BH - B-3 1,105 $825 4 2BD/1BH-Oxford 1,200 $ 903 4 2BD/2BH - B-4 1,155 $840 5 2BD/1BH-Oxford 1,200 $ 903 5 2BD/2BH - B-5 1,105 $825 4 2BD/1.5BH-Hunt'n 1,400 $1,008 6 3BD/2BH - C-1 1,305 $975 5 2BD/1.5BH-Hunt'n 1,400 $1,008 6 3BD/2.5BH-Buck'm 1,600 $1,218 Average Unit Size (SF) Unit Breakdown: Efficiency 0% 2-Bedroom 0% Efficiency 0% 2-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% CONDITION: Good Good APPEAL: Fair Fair AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace Alarm System Fireplace Alarm System 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 X BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall Tennis Court Secured Parking Tennis Court X 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 Picnic Area X Gym Room Picnic Area OCCUPANCY: 77% 92% LEASING DATA: Available Leasing Terms 6 to 12 Months 6 to 12 Months Concessions 2 months free 2 Months Free Pet Deposit $250 - $450 200 - $300 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash X Water Trash Confirmation May 22, 2003; Holly Caine, Assistant May 22, 2003; April McPherson, Assistant Manager Manager Telephone Number 770-393-0550 770-393-3723 NOTES: Older facility located north of the Older complex with inferior amenities. subject COMPARISON TO SUBJECT: Slightly Inferior Slightly Inferior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B PLANTATION CREEK, ATLANTA, GEORGIA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 THE MAGNOLIA AT SANDY SPRINGS 7100 Roswell Road Atlanta, GA [PICTURE] COMPARABLE R-2 GREYSTONE APARTMENTS 6940 Roswell Road Atlanta, GA [PICTURE] COMPARABLE R-3 MORGAN FALLS 7600 Roswell Road Atlanta, GA [PICTURE] COMPARABLE R-4 THE CLIFFS OF DUNWOODY 7275 Roswell Road Atlanta, GA [PICTURE] COMPARABLE R-5 STONECOURT OF SANDY SPRINGS 6980 Roswell Road Atlanta, GA [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C PLANTATION CREEK, ATLANTA, GEORGIA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C PLANTATION CREEK, ATLANTA, GEORGIA No responsibility is assumed for matters legal in nature. No investigation has been made of the title to or any liabilities against the property appraised. In this appraisal, it is presumed that, unless otherwise noted, the owner's claim is valid, the property rights are good and marketable, and there are no encumbrances which cannot be cleared through normal processes. To the best of our knowledge, all data set forth in this report are true and accurate. Although gathered from reliable sources, no guarantee is made nor liability assumed for the accuracy of any data, opinions, or estimates identified as being furnished by others which have been used in formulating this analysis. Land areas and descriptions used in this appraisal were obtained from public records and have not been verified by legal counsel or a licensed surveyor. No soil analysis or geological studies were ordered or made in conjunction with this report, nor were any water, oil, gas, or other subsurface mineral and use rights or conditions investigated. Substances such as asbestos, urea-formaldehyde foam insulation, other chemicals, toxic wastes, or other potentially hazardous materials could, if present, adversely affect the value of the property. Unless otherwise stated in this report, the existence of hazardous substance, which may or may not be present on or in the property, was not considered by the appraiser in the development of the conclusion of value. The stated value estimate is predicated on the assumption that there is no material on or in the property that would cause such a loss in value. No responsibility is assumed for any such conditions, and the client has been advised that the appraiser is not qualified to detect such substances, quantify the impact on values, or develop the remedial cost. No environmental impact study has been ordered or made. Full compliance with applicable federal, state, and local environmental regulations and laws is assumed unless otherwise stated, defined, and considered in the report. It is also assumed that all required licenses, consents, or other legislative or administrative authority from any local, state, or national government or private entity organization either have been or can be obtained or renewed for any use which the report covers. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C PLANTATION CREEK, ATLANTA, GEORGIA It is assumed that all applicable zoning and use regulations and restrictions have been complied with unless a nonconformity has been stated, defined, and considered in the appraisal report. Further, it is assumed that the utilization of the land and improvements is within the boundaries of the property described and that no encroachment or trespass exists unless noted in the report. The Americans with Disabilities Act ("ADA") became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property together with a detailed analysis of the requirements of the ADA could reveal that the property is not in compliance with one or more of the requirements of the act. If so, this fact could have a negative effect on the value of the property. Since we have no direct evidence relating to this issue, we did not consider the possible noncompliance with the requirements of ADA in estimating the value of the property. We have made a physical inspection of the property and noted visible physical defects, if any, in our report. This inspection was made by individuals generally familiar with real estate and building construction. However, these individuals are not architectural or structural engineers who would have detailed knowledge of building design and structural integrity. Accordingly, we do not opine on, nor are we responsible for, the structural integrity of the property including its conformity to specific governmental code requirements, such as fire, building and safety, earthquake, and occupancy, or any physical defects which were not readily apparent to the appraiser during the inspection. The value or values presented in this report are based upon the premises outlined herein and are valid only for the purpose or purposes stated. The date of value to which the conclusions and opinions expressed apply is set forth in this report. The value opinion herein rendered is based on the status of the national business economy and the purchasing power of the U.S. dollar as of that date. Testimony or attendance in court or at any other hearing is not required by reason of this appraisal unless arrangements are previously made within a reasonable time in advance for AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C PLANTATION CREEK, ATLANTA, GEORGIA such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the American Society of Appraisers or the designations awarded by this organization) shall be disseminated to the public through prospectus, advertising, public relations, news, or any other means of communication without the written consent and approval of American Appraisal Associates, Inc. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D PLANTATION CREEK, ATLANTA, GEORGIA EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D CERTIFICATE OF APPRAISER I certify that, to the best of my knowledge and belief: The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and represent the unbiased professional analyses, opinions, and conclusions of American Appraisal Associates, Inc. American Appraisal Associates, Inc. and I personally, have no present or prospective interest in the property that is the subject of this report and have no personal interest or bias with respect to the parties involved. Compensation for American Appraisal Associates, Inc. is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. The analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. I personally did not inspect the subject property. Steven M. Zenkovich, ASA provided significant real property appraisal assistance in the preparation of this report. I am currently in compliance with the Appraisal Institutes continuing education requirements. -s- Michael Bates ------------------------------------ Michael Bates, MAI Assistant Manager, Real Estate Group State of Georgia, Certified General Real Property Appraiser #CG00685 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E PLANTATION CREEK, ATLANTA, GEORGIA EXHIBIT E QUALIFICATIONS OF APPRAISER (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E PLANTATION CREEK, ATLANTA, GEORGIA MICHAEL P. BATES, MAI DIRECTOR - HEALTHCARE REAL ESTATE AND ASSISTANT MANAGER, REAL ESTATE GROUP POSITION Michael P. Bates is the Assistant Manager of the Atlanta Real Estate Group of American Appraisal Associates, Inc. ("AAA"). He shares responsibility for the management, quality control, and review of commercial real estate assignments principally in the southeast United States. Mr. Bates is also the national Director - Healthcare Real Estate for AAA and is responsible for the management and valuation process for specialty health care facility assignments. EXPERIENCE Valuation Mr. Bates has 17 years of commercial appraisal experience. He has performed appraisals in 43 states and Canada, and he is currently a certified general appraiser in 21 states. Court Mr. Bates has been accepted as an expert witness and given testimony in federal bankruptcy court in Delaware. He has prepared many other appraisals that were submitted as expert evidence to federal bankruptcy court, but those cases were settled prior to testimony being required. Mr. Bates has testified in property tax appeal cases in California, Missouri, and Texas, and his hospital appraisals have been submitted in tax appeal cases in Pennsylvania, South Carolina, and South Dakota. Business Mr. Bates joined AAA in 1997. Prior to joining AAA, he was president of his own valuation company and was previously a vice president for both Gulf/Atlantic Valuation Services, Inc., and Valuation Counselors. Prior to gaining his appraisal experience, Mr. Bates worked seven years in commercial mortgage financing. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E PLANTATION CREEK, ATLANTA, GEORGIA EDUCATION University of Tennessee - Knoxville Master of Business Administration - Finance and Management Bachelor of Science - Marketing STATE State of Alabama, Certified General Real Property CERTIFICATIONS Appraiser, #G00503 State of Arizona, Certified General Real Estate Appraiser, #31067 State of Arkansas, State Certified General Appraiser, #CG1414N State of California, Certified General Real Estate Appraiser, #AG026120 State of Colorado, Certified General Appraiser, #CG40023849 State of Delaware, Certified General Appraiser, #X1-0000352 State of Florida, Certified General Appraiser, #0002494 State of Georgia, Certified General Real Property Appraiser, #CG00685 State of Illinois, State Certified General Real Estate Appraiser, #153001243 State of Maryland, Certified General Real Estate Appraiser, #10814 State of Michigan, Certified General Appraiser, #1201069262 State of Mississippi, State Certified General Real Estate Appraiser, #GA-629 State of New Jersey, General Appraiser, #42KG00195600 State of New York, Real Estate General Appraiser, #46000041317 State of North Carolina, Certified General Real Estate Appraiser, #A4095 Commonwealth of Pennsylvania, Certified General Appraiser, #GA001817R State of South Carolina, Certified Real Estate Appraiser, #CG3059 State of Tennessee, Certified General Real Estate Appraiser, AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E PLANTATION CREEK, ATLANTA, GEORGIA #00051881 State of Texas, State Certified General Real Estate Appraiser, #TX-1328483-G Commonwealth of Virginia, Certified General Real Estate Appraiser, #4001005254 State of Washington, Certified General Real Estate Appraiser, #1100998 PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS VALUATION AND Appraisal Institute SPECIAL All required courses COURSES Standards of Professional Practice, Parts A and B The Appraiser as an Expert Witness: Preparation and Testimony Litigation Appraising: Specialized Topics and Applications Separating Real and Personal Property from Intangible Business Assets Specialty Courses Hotel/Motel Valuation and Investment Seminar Valuation of Special-Purpose Properties AMERICAN APPRAISAL ASSOCIATES, INC. PLANTATION CREEK, ATLANTA, GEORGIA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. PLANTATION CREEK, ATLANTA, GEORGIA GENERAL SERVICE CONDITIONS The services(s) provided by AAA will be performed in accordance with professional appraisal standards. Our compensation is not contingent in any way upon our conclusions of value. We assume, without independent verification, the accuracy of all data provided to us. We will act as an independent contractor and reserve the right to use subcontractors. All files, workpapers or documents developed by us during the course of the engagement will be our property. We will retain this data for at least five years. Our report is to be used only for the specific purpose stated herein; and any other use is invalid. No reliance may be made by any third party without our prior written consent. You may show our report in its entirety to those third parties who need to review the information contained herein. No one should rely on our report as a substitute for their own due diligence. We understand that our reports will be described in public tender offer documents distributed to limited partners. We reserve the right to review the public tender offer documents prior to their issuance to confirm that disclosures of facts from the current appraisals are accurate. No reference to our name or our report, in whole or in part, in any other SEC filing or private placement memorandum you prepare and/or distribute to third parties may be made without our prior written consent. The Tender Offer Partnerships, as that term is defined in the Settlement Agreement, agree to indemnify and hold us harmless against and from any and all losses, claims, actions, damages, expenses or liabilities, including reasonable attorneys' fees, to which we may become subject in connection with this engagement except where such losses, claims, actions, damages, expenses or liabilities, including reasonable attorney's fees, arise or result from AAA's misconduct, bad faith or negligence. Co-Clients will not be liable for any of our acts or omissions. AAA is an equal opportunity employer. EX-99.(C)(7) 9 d07250a2exv99wxcyx7y.txt APPRAISAL OF PROMONTORY POINT APARTMENTS PROMONTORY POINTE 2250 RIDGEPOINT DRIVE AUSTIN, TEXAS MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 20, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] JULY 16, 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: PROMONTORY POINTE 2250 RIDGEPOINT DRIVE AUSTIN, TRAVIS COUNTY, TEXAS 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 252 units with a total of 183,600 square feet of rentable area. The improvements were built in 1983. The improvements are situated on 9.1 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 85% 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 PROMONTORY POINTE, AUSTIN, TEXAS 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 20, 2003 is: ($9,000,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Frank Fehribach July 16, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group Texas State Certified General Real Estate Appraiser #TX-1323954-G Report By: Shayne Hatch Texas Appraiser Trainee #TX-1330454-T AMERICAN APPRAISAL ASSOCIATES, INC. LETTER OF TRANSMITTAL PAGE 3 PROMONTORY POINTE, AUSTIN, TEXAS TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents
APPRAISAL DATA Executive Summary ......................................................... 4 Introduction .............................................................. 9 Area Analysis ............................................................. 11 Market Analysis ........................................................... 14 Site Analysis ............................................................. 15 Improvement Analysis ...................................................... 15 Highest and Best Use ...................................................... 16 VALUATION Valuation Procedure ....................................................... 17 Sales Comparison Approach ................................................. 19 Income Capitalization Approach ............................................ 25 Reconciliation and Conclusion ............................................. 37
ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions AMERICAN APPRAISAL ASSOCIATES, INC. LETTER OF TRANSMITTAL PAGE 4 PROMONTORY POINTE, AUSTIN, TEXAS EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Promontory Pointe LOCATION: 2250 Ridgepoint Drive Austin, Texas 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 20, 2003 DATE OF REPORT: July 16, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 9.1 acres, or 396,396 square feet Assessor Parcel No.: 229230204 Floodplain: Community Panel No. 48453C0120E (June 16, 1993) Flood Zone X, an area outside the floodplain. Zoning: MF-3 (Multi-Family Residence-Medium Density) BUILDING: No. of Units: 252 Units Total NRA: 183,600 Square Feet Average Unit Size: 729 Square Feet Apartment Density: 27.7 units per acre Year Built: 1983 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 - EA10 513 $520 $1.01 $ 24,960 $ 299,520 1Br/1Ba - 1A10 699 $590 $0.84 $ 84,960 $1,019,520 2Br/2Ba - 2A20 972 $750 $0.77 $ 45,000 $ 540,000 -------- ---------- Total $154,920 $1,859,040 ======== ==========
OCCUPANCY: 85% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 20 Years REMAINING ECONOMIC LIFE: 25 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: AMERICAN APPRAISAL ASSOCIATES, INC. LETTER OF TRANSMITTAL PAGE 5 PROMONTORY POINTE, AUSTIN, TEXAS SUBJECT PHOTOGRAPHS [EXTERIOR - ENTRANCE PICTURE] [EXTERIOR - LANDSCAPE PICTURE] [AREA MAP] AMERICAN APPRAISAL ASSOCIATES, INC. LETTER OF TRANSMITTAL PAGE 6 PROMONTORY POINTE, AUSTIN, TEXAS [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. LETTER OF TRANSMITTAL PAGE 7 PROMONTORY POINTE, AUSTIN, TEXAS PART TWO - ECONOMIC INDICATORS
Amount $/Unit ------ ------ INCOME CAPITALIZATION APPROACH DIRECT CAPITALIZATION Potential Rental Income $ 1,859,040 $ 7,377 Effective Gross Income $ 1,712,815 $ 6,797 Operating Expenses $ 820,733 $ 3,257 47.9% of EGI Net Operating Income: $ 829,083 $ 3,290 Capitalization Rate 9.00% DIRECT CAPITALIZATION VALUE $ 9,000,000 * $35,714 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 19% Stabilized Vacancy & Collection Loss: 12% Lease-up / Stabilization Period 12 months Terminal Capitalization Rate 9.50% Discount Rate 10.50% Selling Costs 3.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $ 9,200,000 * $36,508 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $ 9,100,000 $36,111 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $39,138 to $ 53,758 Range of Sales $/Unit (Adjusted) $30,527 to $ 38,383 VALUE INDICATION - PRICE PER UNIT $ 8,600,000 * $34,127 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 4.50 to 5.14 Selected EGIM for Subject 5.00 Subject's Projected EGI $ 1,712,815 EGIM ANALYSIS CONCLUSION $ 8,400,000 * $33,333 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $ 8,100,000 * $32,143 / UNIT RECONCILED SALES COMPARISON VALUE $ 8,400,000 $33,333 / UNIT
- ---------------------------- * Value indications are after adjustments for concessions, deferred maintenance, excess land and lease-up costs, if any. AMERICAN APPRAISAL ASSOCIATES, INC. LETTER OF TRANSMITTAL PAGE 8 PROMONTORY POINTE, AUSTIN, TEXAS PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $8,600,000 NOI Per Unit $8,100,000 EGIM Multiplier $8,400,000 INDICATED VALUE BY SALES COMPARISON $8,400,000 $33,333 / UNIT INCOME APPROACH: Direct Capitalization Method: $9,000,000 Discounted Cash Flow Method: $9,200,000 INDICATED VALUE BY THE INCOME APPROACH $9,100,000 $36,111 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $9,000,000 $35,714 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 PROMONTORY POINTE, AUSTIN, TEXAS INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 2250 Ridgepoint Drive, Austin, Travis County, Texas. Austin identifies it as 229230204. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Shayne Hatch on May 20, 2003. Frank Fehribach, MAI has not made a personal inspection of the subject property. Shayne Hatch performed the research, valuation analysis and wrote the report. Frank Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach, MAI and Shayne Hatch have extensive experience in appraising similar properties and meet the USPAP competency provision. The scope of this investigation comprises the inspection of the property and the collection, verification, and analysis of general and specific data pertinent to the subject property. We have researched current improved sales and leases of similar properties, analyzing them as to their comparability, and adjusting them accordingly. We completed the Sales Comparison and Income Capitalization Approaches to value. From these approaches to value, a concluded overall value was made. DATE OF VALUE AND REPORT This appraisal was made to express the opinion of value as of May 20, 2003. The date of the report is July 16, 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 PROMONTORY POINTE, AUSTIN, TEXAS 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 CPGF XXII. 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 PROMONTORY POINTE, AUSTIN, TEXAS 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 Austin, Texas. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being office. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Highway 290 and Springdale Road West - Cameron Road South - Highway 183 North - Ferguson Lane MAJOR EMPLOYERS Major employers in the subject's area include University of Texas, Dell Computer Corp, Motorola, Inc, City of Austin, Austin ISD HEB Grocery Co, Seton Healthcare, IBM Corp, IRS/Austin Center, Advanced Micro Devices, Solectron Texas, Round Rock ISD, Walmart Stores, Travis County Government, and Applied Materials. 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 PROMONTORY POINTE, AUSTIN, TEXAS NEIGHBORHOOD DEMOGRAPHICS
AREA ---------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - -------- ------------ ------------ ------------ ------------ POPULATION TRENDS Current Population 12,123 101,797 251,861 1,325,373 5-Year Population 13,653 112,935 272,657 1,519,629 % Change CY-5Y 12.6% 10.9% 8.3% 14.7% Annual Change CY-5Y 2.5% 2.2% 1.7% 2.9% HOUSEHOLDS Current Households 4,429 37,519 98,793 499,355 5-Year Projected Households 4,834 40,562 105,227 568,372 % Change CY - 5Y 9.1% 8.1% 6.5% 13.8% Annual Change CY-5Y 1.8% 1.6% 1.3% 2.8% INCOME TRENDS Median Household Income $32,086 $ 31,931 $ 33,251 $ 53,521 Per Capita Income $14,447 $ 15,850 $ 18,310 $ 25,860 Average Household Income $41,119 $ 42,940 $ 46,710 $ 68,635
Source: Demographics Now The subject neighborhood's population is expected to show increases below that of the region. The immediate market offers inferior income levels as compared to the broader market. The following table illustrates the housing statistics in the subject's immediate area, as well as the MSA region. HOUSING TRENDS
AREA ---------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - -------- ------------ ------------ ------------ ------------ HOUSING TRENDS % of Households Renting 61.09% 54.96% 53.44% 37.39% 5-Year Projected % Renting 60.31% 54.71% 52.35% 35.82% % of Households Owning 27.18% 31.61% 35.33% 54.10% 5-Year Projected % Owning 28.60% 32.58% 36.92% 56.38%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 PROMONTORY POINTE, AUSTIN, TEXAS SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Commercial/Industrial South - Commercial/Residential East - Commercial/Industrial West - Residential CONCLUSIONS The subject is well located within the city of Austin. The neighborhood is characterized as being mostly suburban in nature and is currently in the growth 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 PROMONTORY POINTE, AUSTIN, TEXAS MARKET ANALYSIS The subject property is located in the city of Austin in Travis County. The overall pace of development in the subject's market is more or less decreasing. No new construction is evident in the submarket area. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - ------ ------ --------- 4Q01 N/A 10.5% 1Q02 N/A N/A 2Q02 N/A N/A 3Q02 N/A N/A 4Q02 N/A 9.6% 1Q03 N/A 8.8%
Source: REIS Occupancy trends in the subject's market are increasing. Historically speaking, the subject's submarket has equated the overall market. Vacancy rates in the subject's submarket have slowly been decreasing since the 4th quarter 2001. As of the 1st quarter 2003, the vacancy rate has fallen to 8.8%, or a total of 1.7 percentage points since the 4th quarter of 2001. The following table illustrates a summary of the subject's competitive set. COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject --- ------------- ----- ----- ---------- -------------------- R-1 Anderson Springs 325 85% 1983 0.5 Miles R-2 Salado at Walnut Creek 290 92% 1983 0.5 Miles R-3 Penbrook Club Apartments 176 92% 1987 0.5 Miles R-4 Oakwood Austin at Cross Park 284 N/A 1998 0.5 Miles Subject Promontory Pointe 252 85% 1983
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 15 PROMONTORY POINTE, AUSTIN, TEXAS PROPERTY DESCRIPTION SITE ANALYSIS Site Area 9.1 acres, or 396,396 square feet Shape Irregular Topography Slightly slope Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Average Flood Zone: Community Panel 48453C0120E, dated June 16, 1993 Flood Zone Zone X Zoning MF-3, 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 - ------------- ---------- ---------- ---------- ---------- ---------- 229230204 $ 594,528 $8,769,072 $9,363,600 0.02690 $ 251,862
IMPROVEMENT ANALYSIS Year Built 1983 Number of Units 252 Net Rentable Area 183,600 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Brick or masonry Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, spa/jacuzzi, gym room, barbecue equipment, meeting hall, laundry room, business office, and secured parking. Unit Amenities Individual unit amenities include a balcony, fireplace, cable TV connection, and washer dryer connection. Appliances available in each unit include refrigerator, stove, dishwasher, garbage disposal, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 PROMONTORY POINTE, AUSTIN, TEXAS Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) --------- --------------- --------- 1Br/1Ba - EA10 48 513 1Br/1Ba - 1A10 144 699 2Br/2Ba - 2A20 60 972
Overall Condition Average Effective Age 20 years Economic Life 45 years Remaining Economic Life 25 years Deferred Maintenance None HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1983 and consist of a 252-unit multifamily project. The highest and best use as improved is for a continued multifamily use. Overall, the highest and best use of the subject property is the continued use of the existing apartment project. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 17 PROMONTORY POINTE, AUSTIN, TEXAS THE VALUATION PROCEDURE There are three traditional approaches, which can be employed in establishing the market value of the subject property. These approaches and their applicability to the valuation of the subject are summarized as follows: THE COST APPROACH The application of the Cost Approach is based on the principle of substitution. This principle may be stated as follows: no one is justified in paying more for a property than that amount by which he or she can obtain, by purchase of a site and construction of a building, without undue delay, a property of equal desirability and utility. In the case of a new building, no deficiencies in the building should exist. In the case of income-producing real estate, the cost of construction plays a minor and relatively insignificant role in determining market value. The Cost Approach is typically only a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) where the cost of reproducing the improvements is easily and accurately quantified and there is no economic obsolescence. In all instances, the issue of an appropriate entrepreneurial profit - the reward for undertaking the risk of construction, remains a highly subjective factor especially in a market lacking significant speculative development. THE SALES COMPARISON APPROACH The Sales Comparison Approach is an estimate of value based upon a process of comparing recent sales of similar properties in the surrounding or competing areas to the subject property. Inherent in this approach is the principle of substitution. The application of this approach consists of comparing the subject property with similar properties of the same general type, which have been sold recently or currently are available for sale in competing areas. This comparative process involves judgment as to the similarity of the subject property and the comparable sale with respect to many value factors such as location, contract rent levels, quality of construction, reputation and prestige, age and condition, among others. The estimated value through this approach represents the probable price at which a willing seller would sell the subject property to a willing and knowledgeable buyer as of the date of value. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 18 PROMONTORY POINTE, AUSTIN, TEXAS THE INCOME CAPITALIZATION APPROACH The theory of the Income Capitalization Approach is based on the premise that present value is the value of the cash flow and reversionary value the property will produce over a reasonable holding (ownership) period. The Discounted Cash Flow Analysis will convert equity cash flows (including cash flows and equity reversion) into a present value utilizing an internal rate of return (or discount rate). The Internal Rate of Return (IRR) will be derived from a comparison of alternate investments, a comparative analysis of IRR's used by recent buyers of similar properties, and a review of published industry surveys. The Direct Capitalization Analysis converts one year of income into an overall value using overall capitalization rates from similar sales. The overall rates take into consideration buyers assumptions of the market over the long-term. The results of the Income Capitalization Analysis are usually the primary value indicator for income producing properties. Investors expect a reasonable rate of return on their equity investment based on the ownership risks involved; this approach closely parallels the investment decision process. RECONCILIATION In this instance, we have completed the Sales Comparison and Income Capitalization Approaches to value. As an income producing property, the income approach is a primary approach to value. The Sales Comparison Approach is also considered reliable as investors are buying similar buildings in the market. Our research indicates that market participants are generally not buying, selling, investing, or lending with reliance placed on the methodology of the Cost Approach to establish the value. Therefore, we have decided that the Cost Approach is not a reliable indicator of value for the subject, and this approach has not been utilized. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 19 PROMONTORY POINTE, AUSTIN, TEXAS SALES COMPARISON APPROACH Use of market or comparable sales requires the collection and analysis of comparable sales data. Similar properties recently sold are compared to the subject and adjusted based on any perceived differences. This method is based on the premise that the costs of acquiring a substitute property would tend to establish a value for the subject property. The premise suggests that if a substitute is unavailable in the market, the reliability of the approach may be subordinate to the other approaches. The reliance on substitute properties produces shortcomings in the validity of this approach. Geographic and demographic characteristics from each submarket restrict which sales may be selected. Recent sales with a similar physical characteristics, income levels, and location are usually limited. The sales we have identified, however, do establish general valuation parameters as well as provide support to our conclusion derived through the income approach method. The standard unit of comparison among similar properties is the sales price per unit and price per square foot of net rentable area. To accurately adjust prices to satisfy the requirements of the sales comparison approach, numerous calculations and highly subjective judgments would be required including consideration of numerous income and expense details for which information may be unreliable or unknown. The sales price per unit and square foot are considered relevant to the investment decision, but primarily as a parameter against which value estimates derived through the income approach can be judged and compared. In examining the comparable sales, we have applied a subjective adjustment analysis, which includes specific adjustments derived from our experience and consulting with the market participants. SALES COMPARISON ANALYSIS Detailed on the following pages are sales transactions involving properties located in the subject's competitive investment market. Photographs of the sale transactions are located in the Addenda. Following the summary of sales is an adjustment grid that is used to arrive at a value. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 20 PROMONTORY POINTE, AUSTIN, TEXAS SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 I - 3 ----------- ------- ---------- ---------- ---------- Property Name Promontory Pointe Meadowood Apartments The Ridge Apartments Longspur Crossing Apartments LOCATION: Address 2250 Ridgepoint Drive 9601 Middle Fiskville 3456 N Hills Drive 701 W Longspur Boulevard Road City, State Austin, Texas Austin, TX Austin, TX Austin, TX County Travis Travis Travis Travis PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 183,600 182,080 N/a 186,424 Year Built 1983 1983 1980 1984 Number of Units 252 200 326 252 Unit Mix: Type Total Type Total Type Total Type Total 1Br/1Ba - EA10 48 1Br/1Ba 32 1Br/1Ba 30 Studio Units 32 1Br/1Ba - 1A10 144 2Br/2Ba 168 1Br/1Ba 168 1 Bedroom Units 132 2Br/2Ba - 2A20 60 2Br/2Ba 128 2 Bedroom Units 88 Average Unit Size (SF) 729 910 740 Land Area (Acre) 9.1000 9.0600 11.2600 11.1100 Density (Units/Acre) 27.7 22.1 29.0 22.7 Parking Ratio (Spaces/Unit) 1.68 1.60 2.05 N/A Parking Type (Gr., Cov., etc.) Open Open Covered, Open Open CONDITION: Average Fair Average Average APPEAL: Average Fair Average Average AMENITIES: Pool/Spa Yes/Yes Yes/No Yes/No Yes/Yes Gym Room Yes No Yes Yes Laundry Room Yes Yes Yes Yes Secured Parking Yes Yes No Yes Sport Courts Yes No No No OCCUPANCY: 85% N/A N/A N/A TRANSACTION DATA: Sale Date June, 2002 February, 2002 January, 2001 Sale Price ($) $8,535,000 $17,525,000 $10,825,000 Grantor Texas Bay Northcape EB Ridge (LP) Glenborough Fund X Limited Partners Grantee San Antonio Alt. Ridge-Austin Apartments Westdale Fanny Housing Corp. #15 (LP) (et al) Properties (Ltd) Sale Documentation 2002108317 2002029923 2001000443 Verification Jones & Jones Transwestern Westdale Fanny Enterprises, Inc Commercial Properties (Ltd) Telephone Number 512-288-8522 512-328-5600 214-515-7000 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $0 $0 $0.00 $0 $0 $0 $0 $0.00 Vacancy/Credit Loss $0 $0 $0.00 $0 $0 $0 $0 $0.00 Effective Gross Income $0 $0 $0.00 $0 $0 $0 $0 $0.00 Operating Expenses $0 $0 $0.00 $0 $0 $0 $0 $0.00 Net Operating Income $0 $0 $0.00 $0 $0 $0 $0 $0.00 NOTES: PRICE PER UNIT $42,675 $53,758 $42,956 PRICE PER SQUARE FOOT $ 46.88 $ 58.07 EXPENSE RATIO N/A N/A N/A EGIM N/A N/A N/A OVERALL CAP RATE N/A N/A N/A Cap Rate based on Pro Forma or Actual Income? COMPARABLE COMPARABLE DESCRIPTION I - 4 I - 5 ----------- ---------- ---------- Property Name Wildwood Apartments Club Creek Apartments LOCATION: Address 7610 Cameron Road 502 W Longspur Boulevard City, State Austin, TX Austin, TX TX County Travis Travis PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 236,904 130,292 Year Built 1984 1984 Number of Units 344 160 Unit Mix: Type Total Type Total 1 Bedroom Units 312 1 Bedroom Units 52 2 Bedroom Units 32 2 Bedroom Units 108 Average Unit Size (SF) 689 814 Land Area (Acre) 12.2100 6.0400 Density (Units/Acre) 28.2 26.5 Parking Ratio (Spaces/Unit) 1.42 1.40 Parking Type (Gr., Cov., etc.) Open Covered Open CONDITION: Average Average APPEAL: Average Average AMENITIES: Pool/Spa Yes/Yes Yes/No Gym Room Yes Yes Laundry Room Yes Yes Secured Parking Yes Yes Sport Courts No No OCCUPANCY: N/A N/A TRANSACTION DATA: Sale Date November, 2000 November, 2000 Sale Price ($) $13,550,000 $6,262,000 Grantor WC Wildwood (LP) WC Wildwood (LP) Grantee WXIII/WCI Real Estate WXIII/WCI Real Estate (LP) (LP) Sale Documentation 2000181382 2000181376 Verification Oboyle Properties Oboyle Properties Telephone Number 972-934-3400 972-934-3400 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $ 0 $ 0 $0.00 $ 0 $ 0 $ 0.00 Vacancy/Credit Loss $ 0 $ 0 $0.00 $ 0 $ 0 $ 0.00 Effective Gross Income $2,635,10 $7,660 $11.1 $1,391,51 $8,697 $10.68 Operating Expenses $1,330,00 $3,866 $5.61 $ 696,606 $4,354 $ 5.35 Net Operating Income $1,305,10 $3,794 $5.51 $ 694,904 $4,343 $ 5.33 NOTES: PRICE PER UNIT $39,390 $39,138 PRICE PER SQUARE FOOT $ 57.20 $ 48.06 EXPENSE RATIO 50.5% 50.1% EGIM 5.14 4.50 OVERALL CAP RATE 9.63% 11.10% Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21 PROMONTORY POINTE, AUSTIN, TEXAS [IMPROVED SALES MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $39,138 to $53,758 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 $30,527 to $38,383 per unit with a mean or average adjusted price of $35,200 per unit. The median adjusted price is $35,396 per unit. Based on the following analysis, we have concluded to a value of $35,000 per unit, which results in an "as is" value of $8,600,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 PROMONTORY POINTE, AUSTIN, TEXAS SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ----------- ------- ---------- ---------- Property Name Promontory Pointe Meadowood Apartments The Ridge Apartments Address 2250 Ridgepoint Drive 9601 Middle Fiskville Road 3456 N Hills Drive City Austin, Texas Austin, TX Austin, TX Sale Date June, 2002 February, 2002 Sale Price ($) $8,535,000 $17,525,000 Net Rentable Area (SF) 183,600 182,080 N/a Number of Units 252 200 326 Price Per Unit $42,675 $53,758 Year Built 1983 1983 1980 Land Area (Acre) 9.1000 9.0600 11.2600 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 06-2002 2% 02-2002 2% VALUE AFTER TRANS. ADJUST. ($/UNIT) $43,529 $54,833 Location Superior -20% Superior -20% Number of Units 252 200 0% 326 0% Quality / Appeal Good Inferior 5% Superior -10% Age / Condition 1983 1983 / Fair 5% 1980 / Average 0% Occupancy at Sale 85% N/A 0% N/A 0% Amenities Good Comparable 0% Comparable 0% Average Unit Size (SF) 729 910 -10% 0% PHYSICAL ADJUSTMENT -20% -30% FINAL ADJUSTED VALUE ($/UNIT) $34,823 $38,383 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 ----------- ---------- ---------- ---------- Property Name Longspur Crossing Wildwood Apartments Club Creek Apartments Apartments Address 701 W Longspur Boulevard 7610 Cameron Road 502 W Longspur Boulevard City Austin, TX Austin, TX Austin, TX Sale Date January, 2001 November, 2000 November, 2000 Sale Price ($) $10,825,000 $13,550,000 $6,262,000 Net Rentable Area (SF) 186,424 236,904 130,292 Number of Units 252 344 160 Price Per Unit $42,956 $39,390 $39,138 Year Built 1984 1984 1984 Land Area (Acre) 11.1100 12.2100 6.0400 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 01-2001 3% 11-2000 4% 11-2000 4% VALUE AFTER TRANS. ADJUST. ($/UNIT) $44,245 $40,965 $40,703 Location Superior -20% Comparable 0% Superior -10% Number of Units 252 0% 344 0% 160 -5% Quality / Appeal Comparable 0% Superior -10% Superior -10% Age / Condition 1984 / Average 0% 1984 / Average 0% 1984 / Average 0% Occupancy at Sale N/A 0% N/A 0% N/A 0% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 740 0% 689 0% 814 0% PHYSICAL ADJUSTMENT -20% -10% -25% FINAL ADJUSTED VALUE ($/UNIT) $35,396 $36,869 $30,527
SUMMARY VALUE RANGE (PER UNIT) $30,527 TO $ 38,383 MEAN (PER UNIT) $35,200 MEDIAN (PER UNIT) $35,396 VALUE CONCLUSION (PER UNIT) $35,000 VALUE OF IMPROVEMENT & MAIN SITE $8,820,000 LESS: LEASE-UP COST -$ 65,000 PV OF CONCESSIONS -$ 137,000 VALUE INDICATED BY SALES COMPARISON APPROACH $8,618,000 ROUNDED $8,600,000
NET OPERATING INCOME (NOI) ANALYSIS We have also conducted a net operating income (NOI) comparison analysis. The NOI effectively takes into account the various physical, location, and operating aspects of the sale. When the subject's NOI is compared to the sale NOI, a percent adjustment can be arrived at. The following table illustrates this analysis. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 PROMONTORY POINTE, AUSTIN, TEXAS
NOI PER UNIT COMPARISON - ----------------------------------------------------------------------------------------------------------------------------------- COMPARABLE NO. OF SALE PRICE NOI/ SUBJECT NOI ADJUSTMENT INDICATED NO. UNITS PRICE/UNIT OAR NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT - ----------------------------------------------------------------------------------------------------------------------------------- I-1 200 $ 8,535,000 N/A $ 829,083 $ 42,675 $ 3,290 I-2 326 $ 17,525,000 N/A $ 829,083 $ 53,758 $ 3,290 I-3 252 $ 10,825,000 N/A $ 829,083 $ 42,956 $ 3,290 I-4 344 $ 13,550,000 9.63% $ 1,305,106 $ 829,083 0.867 $34,158 $ 39,390 $ 3,794 $ 3,290 I-5 160 $ 6,262,000 11.10% $ 694,904 $ 829,083 0.758 $29,647 $ 39,138 $ 4,343 $ 3,290
PRICE/UNIT VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT - ----------------------------------------------------------------------------------------------------------------------------------- Low High Average Median Estimated Price Per Unit $ 33,000 $29,647 $34,158 $31,903 $31,903 Number of Units 252 Value $ 8,316,000 Less: Lease-Up Cost -$ 65,000 PV of Concessions -$ 137,000 ------------ Value Based on NOI Analysis $ 8,114,000 Rounded $ 8,100,000
The adjusted sales indicate a range of value between $29,647 and $34,158 per unit, with an average of $31,903 per unit. Based on the subject's competitive position within the improved sales, a value of $33,000 per unit is estimated. This indicates an "as is" market value of $8,100,000 (rounded after necessary adjustment, if any) for the NOI Per Unit Analysis. EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS The effective gross income multiplier (EGIM) is derived by dividing the sales price by the total effective gross income. The following table illustrates the EGIMs for the comparable improved sales. AMERICAN APPRAISAL ASSOCIATES, INC SALES COMPARISON APPROACH PAGE 24 PROMONTORY POINTE, AUSTIN, TEXAS
EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON - ----------------------------------------------------------------------------------------------------------------------------------- COMPARABLE NO. OF SALE PRICE EFFECTIVE OPERATING SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM - ----------------------------------------------------------------------------------------------------------------------------------- I-1 200 $ 8,535,000 $ 42,675 I-2 326 $ 17,525,000 $ 53,758 I-3 252 $ 10,825,000 47.92% $ 42,956 I-4 344 $ 13,550,000 $ 2,635,106 $ 1,330,000 50.47% 5.14 $ 39,390 I-5 160 $ 6,262,000 $ 1,391,510 $ 696,606 50.06% 4.50 $ 39,138
- ----------------------------------------------------------------------------------------------------------------------------------- EGIM VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES - ----------------------------------------------------------------------------------------------------------------------------------- Low High Average Median Estimate EGIM 5.00 - --- ---- ------- ------ ------------ Subject EGI $ 1,712,815 4.50 5.14 4.82 4.82 Value $ 8,564,076 Less: Lease-Up Cost -$ 65,000 PV of Concessions -$ 137,000 ------------ Value Based on EGIM $ 8,362,076 Analysis Rounded $ 8,400,000 Value Per Unit $ 33,333
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 47.92% before reserves. The comparable sales indicate a range of expense ratios from 50.06% to 50.47%, while their EGIMs range from 4.50 to 5.14. Overall, we conclude to an EGIM of 5.00, which results in an "as is" value estimate in the EGIM Analysis of $8,400,000. 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 $8,400,000. Price Per Unit $8,600,000 NOI Per Unit $8,100,000 EGIM Analysis $8,400,000 Sales Comparison Conclusion $8,400,000
AMERICAN APPRAISAL ASSOCIATES, INC SALES COMPARISON APPROACH PAGE 25 PROMONTORY POINTE, AUSTIN, TEXAS INCOME CAPITALIZATION APPROACH The income capitalization approach is based on the premise that value is created by the expectation of future benefits. We estimated the present value of those benefits to derive an indication of the amount that a prudent, informed purchaser-investor would pay for the right to receive them as of the date of value. This approach requires an estimate of the NOI of a property. The estimated NOI is then converted to a value indication by use of either the direct capitalization or the discounted cash flow analysis (yield capitalization). Direct capitalization uses a single year's stabilized NOI as a basis for a value indication by dividing the income by a capitalization rate. The rate chosen accounts for a recapture of the investment by the investor and should reflect all factors that influence the value of the property, such as tenant quality, property condition, neighborhood change, market trends, interest rates, and inflation. The rate may be extracted from local market transactions or, when transaction evidence is lacking, obtained from trade sources. A discounted cash flow analysis focuses on the operating cash flows expected from the property and the proceeds of a hypothetical sale at the end of a holding period (the reversion). The cash flows and reversion are discounted to their present values using a market-derived discount rate and are added together to obtain a value indication. Because benefits to be received in the future are worth less than the same benefits received in the present, this method weights income in the early years more heavily than the income and the sale proceeds to be received later. The strength of the discounted cash flow method is its ability to recognize variations in projected net income, such as those caused by inflation, stepped leases, neighborhood change, or tenant turnover. Its weakness is that it requires many judgments regarding the actions of likely buyers and sellers of the property in the future. In some situations, both methods yield a similar result. The discounted cash flow method is typically more appropriate for the analysis of investment properties with multiple or long-term leases, particularly leases with cancellation clauses or renewal options. It is especially useful for multi-tenant properties in volatile markets. The direct capitalization AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 PROMONTORY POINTE, AUSTIN, TEXAS 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 Type Unit Area ------------------- (Sq. Ft.) Per Unit Per SF %Occupied - -------------------------------------------------------------------------------- 1Br/1Ba - EA10 513 $518 $1.01 85.4% 1Br/1Ba - 1A10 699 $585 $0.84 84.0% 2Br/2Ba - 2A20 972 $711 $0.73 85.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27 PROMONTORY POINTE, AUSTIN, TEXAS RENT ANALYSIS
SUBJECT SUBJECT DESCRIPTION SUBJECT UNIT ACTUAL ASKING TYPE RENT RENT - ---------------------------------------------------------- Monthly Rent 1BR/1BA - $ 518 $ 459 EA10 Unit Area (SF) 513 513 Monthly Rent Per Sq. Ft. $ 1.01 $ 0.89 Monthly Rent 1BR/1BA - $ 585 $ 509 1A10 Unit Area (SF) 699 699 Monthly Rent Per Sq. Ft. $ 0.84 $ 0.73 Monthly Rent 2BR/2BA - $ 711 $ 689 2A20 Unit Area (SF) 972 972 Monthly Rent Per Sq. Ft. $ 0.73 $ 0.71 COMPARABLE RENTS --------------------------------------------------- R-1 R-2 R-3 R-4 --------------------------------------------------- Anderson Salado at Penbrook Oakwood Springs Walnut Club Austin at Creek Apartments Cross Park --------------------------------------------------- COMPARISON TO SUBJECT - -------------------------------------------------------------------------------- DESCRIPTION Slightly Slightly Slightly Inferior Similar Inferior Inferior - -------------------------------------------------------------------------------- Monthly Rent $ 539 $ 499 $ 395 $ 525 Unit Area (SF) 495 499 400 516 Monthly Rent Per Sq. Ft $ 1.09 $ 1.00 $ 0.99 $ 1.02 Monthly Rent $ 575 $ 549 $ 500 $ 650 Unit Area (SF) 703 652 700 744 Monthly Rent Per Sq. Ft $ 0.82 $ 0.84 $ 0.71 $ 0.87 Monthly Rent $ 825 $ 649 $ 675 $ 859 Unit Area (SF) 1,071 980 1,050 1,111 Monthly Rent Per Sq. Ft $ 0.77 $ 0.66 $ 0.64 $ 0.77 DESCRIPTION MIN MAX MEDIAN AVERAGE - --------------------------------------------------------------------------------- Monthly Rent $ 395 $ 539 $ 512 $ 490 Unit Area (SF) 400 516 497 478 Monthly Rent Per Sq. Ft $ 0.99 $ 1.09 $ 1.01 $ 1.02 Monthly Rent $ 500 $ 650 $ 562 $ 569 Unit Area (SF) 652 744 702 700 Monthly Rent Per Sq. Ft $ 0.71 $ 0.87 $ 0.83 $ 0.81 Monthly Rent $ 649 $ 859 $ 750 $ 752 Unit Area (SF) 980 1,111 1,061 1,053 Monthly Rent Per Sq. Ft $ 0.64 $ 0.77 $ 0.72 $ 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 - EA10 48 513 $520 $1.01 $ 24,960 $ 299,520 1Br/1Ba - 1A10 144 699 $590 $0.84 $ 84,960 $ 1,019,520 2Br/2Ba - 2A20 60 972 $750 $0.77 $ 45,000 $ 540,000 --------- ----------- Total $ 154,920 $ 1,859,040
PRO FORMA ANALYSIS For purposes of this appraisal, we were provided with income and expense data for the subject property. A summary of this data is presented on the following page. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 PROMONTORY POINTE, AUSTIN, TEXAS SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 ------------------------------------------------------------------------------------- ACTUAL ACTUAL ACTUAL ------------------------------------------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT - ----------------------------------------------------------------------------------------------------------------------- Revenues Rental Income $2,053,172 $ 8,148 $2,197,696 $ 8,721 $2,010,245 $ 7,977 Vacancy $ 92,179 $ 366 $ 217,457 $ 863 $ 255,872 $ 1,015 Credit Loss/Concessions $ 44,690 $ 177 $ 148,951 $ 591 $ 117,875 $ 468 ------------------------------------------------------------------------------------- Subtotal $ 136,869 $ 543 $ 366,408 $ 1,454 $ 373,747 $ 1,483 Laundry Income $ 0 $ 0 $ 10,759 $ 43 $ 13,958 $ 55 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 134,885 $ 535 $ 52,072 $ 207 $ 60,162 $ 239 ------------------------------------------------------------------------------------- Subtotal Other Income $ 134,885 $ 535 $ 62,831 $ 249 $ 74,120 $ 294 ------------------------------------------------------------------------------------- Effective Gross Income $2,051,188 $ 8,140 $1,894,119 $ 7,516 $1,710,618 $ 6,788 Operating Expenses Taxes $ 314,003 $ 1,246 $ 233,254 $ 926 $ 274,648 $ 1,090 Insurance $ 20,815 $ 83 $ 40,826 $ 162 $ 64,502 $ 256 Utilities $ 57,253 $ 227 $ 68,651 $ 272 $ 58,122 $ 231 Repair & Maintenance $ 33,948 $ 135 $ 32,616 $ 129 $ 27,399 $ 109 Cleaning $ 41,836 $ 166 $ 73,380 $ 291 $ 67,514 $ 268 Landscaping $ 45,467 $ 180 $ 61,759 $ 245 $ 63,647 $ 253 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 49,893 $ 198 $ 47,779 $ 190 $ 34,564 $ 137 General Administrative $ 186,679 $ 741 $ 241,990 $ 960 $ 208,474 $ 827 Management $ 104,218 $ 414 $ 102,599 $ 407 $ 89,220 $ 354 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------- Total Operating Expenses $ 854,112 $ 3,389 $ 902,854 $ 3,583 $ 888,090 $ 3,524 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------- Net Income $1,197,076 $ 4,750 $ 991,265 $ 3,934 $ 822,528 $ 3,264 ------------------------------------------------------------------------------------- FISCAL YEAR 2003 ANNUALIZED 2003 ------------------------------------------------------ MANAGEMENT BUDGET PROJECTION AAA PROJECTION ------------------------------------------------------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % - ----------------------------------------------------------------------------------------------------------------------------------- Revenues Rental Income $1,883,064 $ 7,472 $1,841,344 $ 7,307 $1,859,040 $ 7,377 100.0% Vacancy $ 90,924 $ 361 $ 209,292 $ 831 $ 148,723 $ 590 8.0% Credit Loss/Concessions $ 78,000 $ 310 $ 59,928 $ 238 $ 74,362 $ 295 4.0% ------------------------------------------------------------------------------------------------- Subtotal $ 168,924 $ 670 $ 269,220 $ 1,068 $ 223,085 $ 885 12.0% Laundry Income $ 12,516 $ 50 $ 14,908 $ 59 $ 13,860 $ 55 0.7% Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 63,264 $ 251 $ 56,296 $ 223 $ 63,000 $ 250 3.4% ------------------------------------------------------------------------------------------------- Subtotal Other Income $ 75,780 $ 301 $ 71,204 $ 283 $ 76,860 $ 305 4.1% ------------------------------------------------------------------------------------------------- Effective Gross Income $1,789,920 $ 7,103 $1,643,328 $ 6,521 $1,712,815 $ 6,797 100.0% Operating Expenses Taxes $ 277,435 $ 1,101 $ 298,460 $ 1,184 $ 226,800 $ 900 13.2% Insurance $ 63,218 $ 251 $ 62,428 $ 248 $ 63,000 $ 250 3.7% Utilities $ 86,076 $ 342 $ 57,564 $ 228 $ 60,480 $ 240 3.5% Repair & Maintenance $ 30,528 $ 121 $ 27,352 $ 109 $ 31,500 $ 125 1.8% Cleaning $ 65,604 $ 260 $ 34,284 $ 136 $ 68,040 $ 270 4.0% Landscaping $ 61,248 $ 243 $ 70,880 $ 281 $ 63,000 $ 250 3.7% Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 32,280 $ 128 $ 26,740 $ 106 $ 37,800 $ 150 2.2% General Administrative $ 183,132 $ 727 $ 189,928 $ 754 $ 201,600 $ 800 11.8% Management $ 91,943 $ 365 $ 89,524 $ 355 $ 68,513 $ 272 4.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% ------------------------------------------------------------------------------------------------- Total Operating Expenses $ 891,464 $ 3,538 $ 857,160 $ 3,401 $ 820,733 $ 3,257 47.9% Reserves $ 0 $ 0 $ 0 $ 0 $ 63,000 $ 250 7.7% ------------------------------------------------------------------------------------------------- Net Income $ 898,456 $ 3,565 $ 786,168 $ 3,120 $ 829,083 $ 3,290 48.4% -------------------------------------------------------------------------------------------------
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 12% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 PROMONTORY POINTE, AUSTIN, TEXAS RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $250 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $250 per unit should be satisfactory in our reserves for replacement to cover future capital expenditures. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of the annual cash flows and discounts them, along with the expected equity reversion, to a present value. The present value of the cash flow is added to the present value of the reversion, resulting in a total property value. INVESTMENT CRITERIA Appropriate investment criteria will be derived for the subject based upon analysis of comparable sales and a survey of real estate investors. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 1ST QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES ------------------------------------------------- GOING-IN TERMINAL -------------------- ------------------ LOW HIGH LOW HIGH ---- ----- ---- ---- RANGE 6.00% 10.00% 7.00% 10.00% AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 PROMONTORY POINTE, AUSTIN, TEXAS SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - -------------------------------------------------------------------------------- I-1 Jun-02 N/A $42,675 N/A I-2 Feb-02 N/A $53,758 N/A I-3 Jan-01 N/A $42,956 N/A I-4 Nov-00 N/A $39,390 9.63% I-5 Nov-00 N/A $39,138 11.10% High 11.10% Low 9.63% Average 10.37%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.00%. 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 9.50%. 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 10.50%. 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 3.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 10.50% indicates a value of $9,200,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 PROMONTORY POINTE, AUSTIN, TEXAS approximately 42% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 PROMONTORY POINTE, AUSTIN, TEXAS DISCOUNTED CASH FLOW ANALYSIS
PROMONTORY POINTE - ----------------------------------------------------------------------------------------------------------------------------------- YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 - ----------------------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $1,859,040 $1,859,040 $1,896,221 $1,953,107 $2,011,701 $2,072,052 Vacancy $ 224,007 $ 148,723 $ 151,698 $ 156,249 $ 160,936 $ 165,764 Credit Loss $ 74,362 $ 74,362 $ 75,849 $ 78,124 $ 80,468 $ 82,882 Concessions $ 55,771 $ 55,771 $ 37,924 $ 19,531 $ 0 $ 0 ----------------------------------------------------------------------------------------- Subtotal $ 354,140 $ 278,856 $ 265,471 $ 253,904 $ 241,404 $ 248,646 Laundry Income $ 13,860 $ 13,860 $ 14,137 $ 14,561 $ 14,998 $ 15,448 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 63,000 $ 63,000 $ 64,260 $ 66,188 $ 68,173 $ 70,219 ----------------------------------------------------------------------------------------- Subtotal Other Income $ 76,860 $ 76,860 $ 78,397 $ 80,749 $ 83,172 $ 85,667 ----------------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $1,581,760 $1,657,044 $1,709,147 $1,779,953 $1,853,468 $1,909,072 OPERATING EXPENSES: Taxes $ 226,800 $ 233,604 $ 240,612 $ 247,830 $ 255,265 $ 262,923 Insurance $ 63,000 $ 64,890 $ 66,837 $ 68,842 $ 70,907 $ 73,034 Utilities $ 60,480 $ 62,294 $ 64,163 $ 66,088 $ 68,071 $ 70,113 Repair & Maintenance $ 31,500 $ 32,445 $ 33,418 $ 34,421 $ 35,454 $ 36,517 Cleaning $ 68,040 $ 70,081 $ 72,184 $ 74,349 $ 76,580 $ 78,877 Landscaping $ 63,000 $ 64,890 $ 66,837 $ 68,842 $ 70,907 $ 73,034 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 37,800 $ 38,934 $ 40,102 $ 41,305 $ 42,544 $ 43,821 General Administrative $ 201,600 $ 207,648 $ 213,877 $ 220,294 $ 226,903 $ 233,710 Management $ 63,270 $ 66,282 $ 68,366 $ 71,198 $ 74,139 $ 76,363 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 815,490 $ 841,068 $ 866,396 $ 893,169 $ 920,769 $ 948,392 Reserves $ 63,000 $ 64,890 $ 66,837 $ 68,842 $ 70,907 $ 73,034 ----------------------------------------------------------------------------------------- NET OPERATING INCOME $ 703,270 $ 751,086 $ 775,914 $ 817,942 $ 861,792 $ 887,646 ----------------------------------------------------------------------------------------- Operating Expense Ratio (% of EGI) 51.6% 50.8% 50.7% 50.2% 49.7% 49.7% Operating Expense Per Unit $ 3,236 $ 3,338 $ 3,438 $ 3,544 $ 3,654 $ 3,763 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 - ----------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $2,134,213 $2,198,240 $2,264,187 $2,332,112 $2,402,076 Vacancy $ 170,737 $ 175,859 $ 181,135 $ 186,569 $ 192,166 Credit Loss $ 85,369 $ 87,930 $ 90,567 $ 93,284 $ 96,083 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------- Subtotal $ 256,106 $ 263,789 $ 271,702 $ 279,853 $ 288,249 Laundry Income $ 15,912 $ 16,389 $ 16,881 $ 17,387 $ 17,909 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 72,325 $ 74,495 $ 76,730 $ 79,032 $ 81,403 ----------------------------------------------------------------------- Subtotal Other Income $ 88,237 $ 90,884 $ 93,610 $ 96,419 $ 99,311 ----------------------------------------------------------------------- EFFECTIVE GROSS INCOME $1,966,344 $2,025,335 $2,086,095 $2,148,678 $2,213,138 OPERATING EXPENSES: Taxes $ 270,811 $ 278,935 $ 287,303 $ 295,923 $ 304,800 Insurance $ 75,225 $ 77,482 $ 79,807 $ 82,201 $ 84,667 Utilities $ 72,216 $ 74,383 $ 76,614 $ 78,913 $ 81,280 Repair & Maintenance $ 37,613 $ 38,741 $ 39,903 $ 41,100 $ 42,333 Cleaning $ 81,243 $ 83,681 $ 86,191 $ 88,777 $ 91,440 Landscaping $ 75,225 $ 77,482 $ 79,807 $ 82,201 $ 84,667 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 45,135 $ 46,489 $ 47,884 $ 49,320 $ 50,800 General Administrative $ 240,721 $ 247,943 $ 255,381 $ 263,042 $ 270,934 Management $ 78,654 $ 81,013 $ 83,444 $ 85,947 $ 88,526 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 976,844 $1,006,149 $1,036,334 $1,067,424 $1,099,446 Reserves $ 75,225 $ 77,482 $ 79,807 $ 82,201 $ 84,667 ----------------------------------------------------------------------- NET OPERATING INCOME $ 914,275 $ 941,704 $ 969,955 $ 999,053 $1,029,025 Operating Expense Ratio (% of EGI) 49.7% 49.7% 49.7% 49.7% 49.7% Operating Expense Per Unit $ 3,876 $ 3,993 $ 4,112 $ 4,236 $ 4,363
"DCF" VALUE ANALYSIS Gross Residual Sale Deferred Price $10,831,841 Maintenance $ 0 Estimated Stabilized NOI $829,083 Sales Expense Rate 3.00% Less: Sales Expense $ 324,955 Add: Excess Land $ 0 Months to Stabilized 12 Discount Rate 10.50% Net Residual Sale Price $10,506,886 Other Adjustments $ 0 Stabilized Occupancy 92.0% Terminal Cap Rate 9.50% PV of Reversion $ 3,871,250 Value Indicated By "DCF" $9,241,517 Add: NPV of NOI $ 5,370,266 Rounded $9,200,000 PV Total $ 9,241,517
"DCF" VALUE SENSITIVITY TABLE TOTAL VALUE DISCOUNT RATE - ------------------------------------------------------------------------------------------------------------- 10.00% 10.25% 10.50% 10.75% 11.00% 9.00% $9,779,434 $9,616,209 $9,456,586 $9,300,473 $9,147,782 9.25% $9,663,869 $9,503,238 $9,346,145 $9,192,500 $9,042,216 9.50% $9,554,387 $9,396,213 $9,241,517 $9,090,210 $8,942,206 TERMINAL CAP RATE 9.75% $9,450,518 $9,294,676 $9,142,254 $8,993,165 $8,847,325 10.00% $9,351,844 $9,198,216 $9,047,954 $8,900,972 $8,757,188
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 PROMONTORY POINTE, AUSTIN, TEXAS INCOME LOSS DURING LEASE-UP The subject is currently 85% occupied, below our stabilized occupancy projection. We have estimated a 12-month lease-up period. An adjustment must be made to bring the subject to a stabilized operating level. To account for this income loss during lease-up, we have compared the current DCF analysis to an "as stabilized" DCF analysis assuming the subject's occupancy were stabilized. The difference in net operating income during the lease-up period is discounted to a present value figure of $65,000 as shown in the following table.
DESCRIPTION YEAR 1 - -------------------------------------------------- "As Is" Net Operating Income $703,270 Stabilized Net Operating Income $775,542 -------- Difference $72,272 PV of Income Loss During Lease-Up $65,405 -------- Rounded $65,000
CONCESSIONS Due to softness in the market, concessions have been utilized at the subject property and within the market. Based on our discussions with the subject's property manager and those at competing properties, these concessions are expected to continue in the near term until the market returns to a stabilized level. Concessions have been included as a line item deduction within the discounted cash flow analysis. The present value of these concessions equates to $137,000 (rounded). This amount has been deducted from the Direct Capitalization analysis, as well as the Sales Comparison Approach value. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 PROMONTORY POINTE, AUSTIN, TEXAS After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 9.00% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 PROMONTORY POINTE, AUSTIN, TEXAS
PROMONTORY POINTE TOTAL PER SQ. FT. PER UNIT %OF EGI - ------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 1,859,040 $ 10.13 $ 7,377 Less: Vacancy & Collection Loss 12.00% $ 223,085 $ 1.22 $ 885 Plus: Other Income Laundry Income $ 13,860 $ 0.08 $ 55 0.81% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 63,000 $ 0.34 $ 250 3.68% -------------------------------------------------- Subtotal Other Income $ 76,860 $ 0.42 $ 305 4.49% EFFECTIVE GROSS INCOME $ 1,712,815 $ 9.33 $ 6,797 OPERATING EXPENSES: Taxes $ 226,800 $ 1.24 $ 900 13.24% Insurance $ 63,000 $ 0.34 $ 250 3.68% Utilities $ 60,480 $ 0.33 $ 240 3.53% Repair & Maintenance $ 31,500 $ 0.17 $ 125 1.84% Cleaning $ 68,040 $ 0.37 $ 270 3.97% Landscaping $ 63,000 $ 0.34 $ 250 3.68% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 37,800 $ 0.21 $ 150 2.21% General Administrative $ 201,600 $ 1.10 $ 800 11.77% Management 4.00% $ 68,513 $ 0.37 $ 272 4.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 820,733 $ 4.47 $ 3,257 47.92% Reserves $ 63,000 $ 0.34 $ 250 3.68% -------------------------------------------------- NET OPERATING INCOME $ 829,083 $ 4.52 $ 3,290 48.40% "GOING IN" CAPITALIZATION RATE 9.00% VALUE INDICATION $ 9,212,029 $50.17 $36,556 LESS: LEASE-UP COST ($65,000) PV OF CONCESSIONS ($137,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $9,010,029 ROUNDED $9,000,000 $49.02 $35,714
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 PROMONTORY POINTE, AUSTIN, TEXAS DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - --------- ---------- ---------- ---------- ---------- 8.25% $9,847,486 $9,800,000 $38,889 $53.38 8.50% $9,551,913 $9,600,000 $38,095 $52.29 8.75% $9,273,230 $9,300,000 $36,905 $50.65 9.00% $9,010,029 $9,000,000 $35,714 $49.02 9.25% $8,761,055 $8,800,000 $34,921 $47.93 9.50% $8,525,185 $8,500,000 $33,730 $46.30 9.75% $8,301,411 $8,300,000 $32,937 $45.21
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $9,000,000. CORRELATION AND CONCLUSION BY THE INCOME APPROACH The two methods used to estimate the market value of the subject property by the income approach resulted in the following indications of value: Discounted Cash Flow Analysis $9,200,000 Direct Capitalization Method $9,000,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $9,100,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37 PROMONTORY POINTE, AUSTIN, TEXAS 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 $8,400,000 Income Approach $9,100,000 Reconciled Value $9,000,000
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 20, 2003 the market value of the fee simple estate in the property is: $9,000,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA PROMONTORY POINTE, AUSTIN, TEXAS ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A PROMONTORY POINTE, AUSTIN, TEXAS EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A PROMONTORY POINTE, AUSTIN, TEXAS SUBJECT PHOTOGRAPHS [EXTERIOR - ENTRANCE PICTURE] [EXTERIOR - LANDSCAPE PICTURE] [EXTERIOR - PARKING LOT PICTURE] [INTERIOR - KITCHEN PICTURE] [INTERIOR - LIVING ROOM PICTURE] [INTERIOR - LIVING ROOM PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A PROMONTORY POINTE, AUSTIN, TEXAS SUBJECT PHOTOGRAPHS [EXTERIOR - BUILDING PICTURE] [EXTERIOR - APARTMENT UNIT PICTURE] [EXTERIOR - POOL AREA PICTURE] [EXTERIOR - LEASING OFFICE PICTURE] [INTERIOR - BATHROOM PICTURE] [INTERIOR - ENTRANCE AND LIVING AREA PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B PROMONTORY POINTE, AUSTIN, TEXAS EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B PROMONTORY POINTE, AUSTIN, TEXAS PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 MEADOWOOD APARTMENTS THE RIDGE APARTMENTS LONGSPUR CROSSING APARTMENTS 9601 Middle Fiskville Road 3456 N Hills Drive 701 W Longspur Boulevard Austin, TX Austin, TX Austin, TX [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 WILDWOOD APARTMENTS CLUB CREEK APARTMENTS 7610 Cameron Road 502 W Longspur Boulevard Austin, TX Austin, TX [PICTURE] [PICTURE] N/A
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B PROMONTORY POINTE, AUSTIN, TEXAS SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 - --------------------------------------------------------------------------------------------------------------------------------- Property Name Promontory Pointe Anderson Springs Management Company AIMCO Alliance Residential - --------------------------------------------------------------------------------------------------------------------------------- LOCATION: - --------------------------------------------------------------------------------------------------------------------------------- Address 2250 Ridgepoint Drive 1901 East Anderson Lane City, State Austin, Texas Austin, TX County Travis Travis Proximity to Subject 0.5 Miles - --------------------------------------------------------------------------------------------------------------------------------- PHYSICAL CHARACTERISTICS: - --------------------------------------------------------------------------------------------------------------------------------- Net Rentable Area (SF) 183,600 N/A Year Built 1983 1983 Effective Age 20 20 Building Structure Type Brick/Siding Stucco/Wood Parking Type Open Open Parking (Gr., Cov., etc.) - --------------------------------------------------------------------------------------------------------------------------------- Number of Units 252 325 - --------------------------------------------------------------------------------------------------------------------------------- Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Br/1Ba - EA10 513 48 $518 1 1Br/1Ba- 1A 495 $539 2 1Br/1Ba - 1A10 699 144 $585 1Br/1Ba- 1B 560 $569 3 2Br/2Ba - 2A20 972 60 $711 2 1Br/1Ba- 1C 703 $575 1Br/1Ba- 1D 786 $659 2Br/2Ba- 2A 943 $739 3 2Br/2Ba- 2B 1,071 $825 2Br/2Ba- 2C 1,296 $989 - --------------------------------------------------------------------------------------------------------------------------------- Average Unit Size (SF) 729 Unit Breakdown: Efficiency 0% 2-Bedroom 24% Efficiency N/A 2-Bedroom N/A 1-Bedroom 76% 3-Bedroom 0% 1-Bedroom N/A 3-Bedroom N/A CONDITION: Average Fair APPEAL: Average Average - --------------------------------------------------------------------------------------------------------------------------------- AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling X 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 ------------------------------------------------------------------------------------------------------ X Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball Meeting Hall Tennis Court X Secured Parking Tennis Court 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: 85% 85% LEASING DATA: Available Leasing Terms 6 to 12 6,9,12 Months Concessions $200 off 1st month and 99 Reduced Rent $100 to $150 deposit Pet Deposit $300 Utilities Paid by Tenant: X Electric Natural Gas X Electric X Natural Gas X Water Trash X Water X Trash ------------------------------------------------------------------------------------------------------ Confirmation Jessica Cordero Misty Telephone Number 512-929-3320 866-762-5543 - --------------------------------------------------------------------------------------------------------------------------------- NOTES: - --------------------------------------------------------------------------------------------------------------------------------- COMPARISON TO SUBJECT: Slightly Inferior - --------------------------------------------------------------------------------------------------------------------------------- COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 - ------------------------------------------------------------------------------------------------------------------------------------ Property Name Salado at Walnut Creek Penbrook Club Apartments Management Company N/A Carlisle Apartments Inc. - ------------------------------------------------------------------------------------------------------------------------------------ LOCATION: - ------------------------------------------------------------------------------------------------------------------------------------ Address 2104 E Anderson Lane 7227 Highway 290 East City, State Austin, TX Austin, TX County Travis Travis Proximity to Subject 0.5 Miles 0.5 Miles - ------------------------------------------------------------------------------------------------------------------------------------ PHYSICAL CHARACTERISTICS: - ------------------------------------------------------------------------------------------------------------------------------------ Net Rentable Area (SF) N/A N/A Year Built 1983 1987 Effective Age 20 16 Building Structure Type Brick/Wood Wood/Brick Parking Type Open Parking Open Parking (Gr., Cov., etc.) - ------------------------------------------------------------------------------------------------------------------------------------ Number of Units 290 176 - ------------------------------------------------------------------------------------------------------------------------------------ Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Br/1Ba- A1 499 $499 1 1Br/1Ba- 1A 400 $395 1Br/1Ba- A2 604 $499 2 1Br/1Ba- 1B 700 $500 2 1Br/1Ba- A3 652 $549 2Br/1Ba- 2A 960 $625 2Br/1Ba- B1 782 $599 3 2Br/2Ba- 2B 1,050 $675 3 2Br/2Ba-B2 980 $649 2Br/2Ba- B2-1 990 $649 2Br/2Ba- B3 1,043 $699 - ------------------------------------------------------------------------------------------------------------------------------------ Average Unit Size (SF) Unit Breakdown: Efficiency N/A 2-Bedroom N/A Efficiency N/A 2-Bedroom N/A 1-Bedroom N/A 3-Bedroom N/A 1-Bedroom N/A 3-Bedroom N/A CONDITION: Average Average APPEAL: Average Average - ------------------------------------------------------------------------------------------------------------------------------------ AMENITIES: Unit Amenities Attach. Garage 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 BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall 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% 92% LEASING DATA: Available Leasing Terms 6 to 12 months 6, 9, 12 months Concessions Lowered Rents None Pet Deposit $400 N/A Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash Water Trash ------------------------------------------------------------------------------------------------------ Confirmation Mike Maria Telephone Number 888-665-0083 512-929-3150 - ------------------------------------------------------------------------------------------------------------------------------------ NOTES: - ------------------------------------------------------------------------------------------------------------------------------------ COMPARISON TO SUBJECT: Similar Slightly Inferior - ------------------------------------------------------------------------------------------------------------------------------------ COMPARABLE DESCRIPTION R - 4 - -------------------------------------------------------------------------------- Property Name Oakwood Austin at Cross Park Management Company N/A - -------------------------------------------------------------------------------- LOCATION: - -------------------------------------------------------------------------------- Address 8054 Exchange Drive City, State Austin, TX County Travis Proximity to Subject 0.5 Miles - -------------------------------------------------------------------------------- PHYSICAL CHARACTERISTICS: - -------------------------------------------------------------------------------- Net Rentable Area (SF) N/A Year Built 1998 Effective Age 5 Building Structure Type Stucco Parking Type Covered/Open (Gr., Cov., etc.) - -------------------------------------------------------------------------------- Number of Units 284 - -------------------------------------------------------------------------------- Unit Mix: Type Unit Qty. Mo. 1 1Br/1Ba- 1A 516 $525 2 1Br/1Ba- 1B 744 $650 1Br/1Ba- 1C 772 $675 3 2Br/2Ba- 2A 1,111 $859 2Br/2Ba- 2B 1,148 $859 - -------------------------------------------------------------------------------- Average Unit Size (SF) Unit Breakdown: Efficiency N/A 2-Bedroom N/A 1-Bedroom N/A 3-Bedroom N/A CONDITION: APPEAL: - -------------------------------------------------------------------------------- AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Fireplace X Cable TV Ready Project Amenities X Swimming Pool -------------------------------------------------- Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Volleyball Court Theater Room Sand Volley Ball Meeting Hall Tennis Court Secured Parking -------------------------------------------------- Racquet Ball X Laundry Room Jogging Track X Business Office X Gym Room - -------------------------------------------------------------------------------- OCCUPANCY: N/A LEASING DATA: Available Leasing Terms 3 to 12 months Concessions $125 to $200 Pet Deposit N/A Utilities Paid by Tenant: X Electric X Natural Gas X Water X Trash -------------------------------------------------- Confirmation Mindy Telephone Number 866-231-5537 - -------------------------------------------------------------------------------- NOTES: - -------------------------------------------------------------------------------- COMPARISON TO SUBJECT: Slightly Inferior - --------------------------------------------------------------------------------
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B PROMONTORY POINTE, AUSTIN, TEXAS PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 ANDERSON SPRINGS SALADO AT WALNUT CREEK PENBROOK CLUB APARTMENTS 1901 East Anderson Lane 2104 E Anderson Lane 7227 Highway 290 East Austin, TX Austin, TX Austin, TX [PICTURE] [PICTURE] N/A COMPARABLE R-4 OAKWOOD AUSTIN AT CROSS PARK 8054 Exchange Drive Austin, TX N/A N/A AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C PROMONTORY POINTE, AUSTIN, TEXAS EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C PROMONTORY POINTE, AUSTIN, TEXAS 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 PROMONTORY POINTE, AUSTIN, TEXAS 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 PROMONTORY POINTE, AUSTIN, TEXAS 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 PROMONTORY POINTE, AUSTIN, TEXAS EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D PROMONTORY POINTE, AUSTIN, TEXAS CERTIFICATE OF APPRAISER I certify that, to the best of my knowledge and belief: The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and represent the unbiased professional analyses, opinions, and conclusions of American Appraisal Associates, Inc. American Appraisal Associates, Inc. and I personally, have no present or prospective interest in the property that is the subject of this report and have no personal interest or bias with respect to the parties involved. Compensation for American Appraisal Associates, Inc. is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. The analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. I personally did not inspect the subject property. Shayne Hatch provided significant real property appraisal assistance in the preparation of this report. I am currently in compliance with the Appraisal Institute's continuing education requirements. -s- Frank 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 PROMONTORY POINTE, AUSTIN, TEXAS EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E PROMONTORY POINTE, AUSTIN, TEXAS 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 PROMONTORY POINTE, AUSTIN, TEXAS 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. PROMONTORY POINTE, AUSTIN, TEXAS GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. PROMONTORY POINTE, AUSTIN, TEXAS 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. EX-99.(C)(8) 10 d07250a2exv99wxcyx8y.txt APPRAISAL OF WOOD CREEK APARTMENTS WOODCREEK 1710 S. GILBERT RD MESA, ARIZONA MARKET VALUE - FEE SIMPLE ESATE AS OF MAY 6, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, et. al. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO]
UNITED STATES INTERNATIONAL Atlanta Milwaukee Brazil Mexico Boston Minneapolis [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] Canada Morocco Buffalo New Orleans China Peru Charlotte New York Croatia Philippines Chicago Oak Lawn Czech Republic Poland Cincinnati Philadelphia 9441 LBJ Freeway Suite 114 England Portugal Dallas Pittsburgh Dallas, Texas 75243 Germany Russia Denver Princeton Greece Spain Detroit Schaumburg Hong Kong Taiwan Houston St. Louis Telephone: (972) 994-9100 Hungary Thailand Irvine San Francisco Fax: (972) 994-0516 Italy Turkey Jacksonville Seattle Japan Venezuela Los Angeles
JULY 10, 2003 Apartment Investment and Management Company ("AIMCO") c/o Mr. Steven A. Velkei, Esq. Liner Yankelevitz Sunshine & Regenstreif LLP 1100 Glendon Avenue, 14th Floor Los Angeles, California 90024-3503 Nuanes, et al.( "Plaintiffs ") c/o Ms. Joy Kruse Lieff Cabraser Heimann & Bernstein Embarcadero Center West 275 Battery Street, 30th Floor San Francisco, California 94111 RE: WOODCREEK 1710 S. GILBERT RD MESA, MARICOPA COUNTY, ARIZONA 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 432 units with a total of 353,760 square feet of rentable area. The improvements were built in 1985. The improvements are situated on 19.37 acres. Overall, the improvements are in good condition. As of the date of this appraisal, the subject property is 75% 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 WOODCREEK, MESA, ARIZONA 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 6, 2003 is: ($16,800,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. July 10, 2003 -s- Douglas Needham #053272 Douglas Needham, MAI Managing Principal, Real Estate Group Arizona State Certified General Real Estate Appraiser #30943 Report By: Ryan Tanaka AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 WOODCREEK, MESA, ARIZONA 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 .................................................... 39
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 WOODCREEK, MESA, ARIZONA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Woodcreek LOCATION: 1710 S. Gilbert Rd Mesa, Arizona 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 6, 2003 DATE OF REPORT: July 10, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 19.37 acres, or 843,757 square feet Assessor Parcel No.: 139-09-002-D Floodplain: Community Panel No. 04013c2195f (July 19, 2001) Flood Zone X, an area outside the floodplain. Zoning: R-3 (Multi Residential/High Density) BUILDING: No. of Units: 432 Units Total NRA: 353,760 Square Feet Average Unit Size: 819 Square Feet Apartment Density: 22.3 units per acre Year Built: 1985
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 579 $ 556 $ 0.96 $ 17,792 $ 213,504 1Br/1Ba 700 $ 590 $ 0.84 $ 47,200 $ 566,400 1Br/1Ba 740 $ 583 $ 0.79 $ 37,312 $ 447,744 1Br/1Ba 768 $ 611 $ 0.80 $ 48,880 $ 586,560 2Br/1Ba 882 $ 662 $ 0.75 $ 31,776 $ 381,312 2Br/2Ba 957 $ 668 $ 0.70 $ 32,064 $ 384,768 Total $ 272,240 $3,266,880
OCCUPANCY: 75% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 13 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 WOODCREEK, MESA, ARIZONA REMAINING ECONOMIC LIFE: 32 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [EXTERIOR - OFFICE PICTURE] [EXTERIOR - LANDSCAPE & PARK PICTURE] [AREA MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 WOODCREEK, MESA, ARIZONA [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 WOODCREEK, MESA, ARIZONA PART TWO - ECONOMIC INDICATORS
Amount $/Unit ------------------ -------------- INCOME CAPITALIZATION APPROACH DIRECT CAPITALIZATION Potential Rental Income $ 3,266,880 $ 7,562 Effective Gross Income $ 3,014,448 $ 6,978 Operating Expenses $ 1,347,362 $ 3,119 44.7% of EGI Net Operating Income: $ 1,559,086 $ 3,609 Capitalization Rate 9.00% DIRECT CAPITALIZATION VALUE $ 16,900,000* $39,120 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 24% Stabilized Vacancy & Collection Loss: 15% Lease-up / Stabilization Period 12 months Terminal Capitalization Rate 9.50% Discount Rate 12.00% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $ 16,900,000* $39,120 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $ 16,900,000 $39,120 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $23,500 to $77,083 Range of Sales $/Unit (Adjusted) $35,688 to $42,396 VALUE INDICATION - PRICE PER UNIT $ 16,800,000* $38,889 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 6.73 to 7.88 Selected EGIM for Subject 6.00 Subject's Projected EGI $ 3,014,448 EGIM ANALYSIS CONCLUSION $ 17,600,000* $40,741 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $ 18,500,000* $42,824 / UNIT RECONCILED SALES COMPARISON VALUE $ 17,200,000 $39,815 / 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 WOODCREEK, MESA, ARIZONA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $ 16,800,000 NOI Per Unit $ 18,500,000 EGIM Multiplier $ 17,600,000 INDICATED VALUE BY SALES COMPARISON $ 17,200,000 $39,815 / UNIT INCOME APPROACH: Direct Capitalization Method: $ 16,900,000 Discounted Cash Flow Method: $ 16,900,000 INDICATED VALUE BY THE INCOME APPROACH $ 16,900,000 $39,120 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $ 16,900,000 $39,120 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 WOODCREEK, MESA, ARIZONA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 1710 S. Gilbert Rd, Mesa, Maricopa County, Arizona. Mesa identifies it as 139-09-002-D. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Ryan Tanaka on May 6, 2003. Douglas Needham, MAI has not made a personal inspection of the subject property. Ryan Tanaka performed the research, valuation analysis and wrote the report. Douglas Needham, MAI reviewed the report and concurs with the value. Douglas Needham, MAI and Ryan Tanaka 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 6, 2003. The date of the report is July 10, 2003. PURPOSE AND USE OF APPRAISAL The purpose of the appraisal is to estimate the market value of the fee simple interest in the subject property. It is understood that the appraisal is intended to assist the clients in litigation settlement proceedings. The appraisal was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. PROPERTY RIGHTS APPRAISED We have appraised the Fee Simple Estate in the subject property (as applied in the Sales & Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 WOODCREEK, MESA, ARIZONA 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 Century Properties Growth Fund XXII. 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 WOODCREEK, MESA, ARIZONA 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 Mesa, Arizona. 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 - S. Lindsay Rd West - N. Saddle St South - E. Baseline Dr North - W. Southern Ave MAJOR EMPLOYERS Major employers in the subject's area include Wells Fargo, Intel, State of Arizona, Wal-Mart Stores Inc, Motorola Inc, Bank One Corp, Walgreen Co, Target Corp, American Express Co, and Honeywell International Inc.. 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 WOODCREEK, MESA, ARIZONA NEIGHBORHOOD DEMOGRAPHICS
AREA -------------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA - -------- -------------- -------------- -------------- -------------- POPULATION TRENDS Current Population 16,584 161,771 390,270 3,441,350 5-Year Population 17,404 184,113 445,785 3,928,765 % Change CY-5Y 4.9% 13.8% 14.2% 14.2% Annual Change CY-5Y 1.0% 2.8% 2.8% 2.8% HOUSEHOLDS Current Households 5,620 54,006 137,795 1,259,651 5-Year Projected Households 5,904 60,851 155,813 1,426,007 % Change CY - 5Y 5.1% 12.7% 13.1% 13.2% Annual Change CY-5Y 1.0% 2.5% 2.6% 2.6% INCOME TRENDS Median Household Income $ 53,277 $ 48,530 $ 51,637 $ 44,128 Per Capita Income $ 19,555 $ 19,625 $ 21,168 $ 22,676 Average Household Income $ 58,572 $ 58,801 $ 60,113 $ 61,951 Source: Demographics Now
The subject neighborhood's population is expected to show increases above 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 33.89% 27.70% 27.62% 27.76% 5-Year Projected % Renting 31.94% 27.62% 27.24% 26.96% % of Households Owning 56.48% 57.24% 56.19% 60.59% 5-Year Projected % Owning 58.13% 58.44% 57.87% 62.26%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 WOODCREEK, MESA, ARIZONA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Fwy/Residential South - Residential East - Retail, Multifamily Residential West - Movie, Retail Center, Multifamily CONCLUSIONS The subject is well located within the city of Mesa. 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 WOODCREEK, MESA, ARIZONA MARKET ANALYSIS The subject property is located in the city of Mesa in Maricopa County. The overall pace of development in the subject's market is more or less decreasing. There is no new construction coming into the market. The overall economic downturn in the subject's market has limited new construction. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket - ------ ------ --------- 1997 5.8% 1998 6.3% 1999 7.3% 2000 6.9% 2001 8.6% 8.6% 2002 10.5% 11.5% 2003 11.0%
Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has equated the overall market. The Arizona economy is primarily dependent upon Hi-Tech and manufacturing. The decline in these industries has created less jobs and less renters in the neighborhood area. 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 - ------ ------ -------- --------- -------- 1997 $598 - - 1998 $626 4.7% 1999 $650 3.8% 2000 $676 4.0% 2001 $686 1.5% $657 - 2002 $691 0.7% $648 -1.4% 2003 $694 0.4%
The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 WOODCREEK, MESA, ARIZONA COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject --- ------------- ----- ----- ---------- -------------------- R-1 University Green 0 96% 1984 .4 miles from subject R-2 Windemere 224 95% 1985 .4 miles from the subject R-3 The Township Apartments 160 85% 1997 1-mile south of the subject R-4 Gilbert Meadows Apartments 0 96% 1984 Within.5-mile radius R-5 Superstition Villas 246 88% 1983 .2 miles away from subject Subject Woodcreek 432 75% 1985
The submarket of rental rates are lower due to the decline in the Hi-Tech industry that the submarket was dependent upon. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 WOODCREEK, MESA, ARIZONA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 19.37 acres, or 843,757 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 04013c2195f, dated July 19, 2001 Flood Zone Zone X Zoning R-3, 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 ------------- ---------- ----------- ----------- ---------- -------- 139-09-002-D $1,265,963 $15,885,037 $17,151,000 0.01175 $201,526
IMPROVEMENT ANALYSIS Year Built 1985 Number of Units 432 Net Rentable Area 353,760 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Stucco wall Roof Tile over a Tile structure Project Amenities Amenities at the subject include a swimming pool, spa/jacuzzi, basketball court, volleyball court, sand volleyball, tennis court, gym room, car wash, barbeque equipment, business office, and parking area. Unit Amenities Individual unit amenities include a balcony, fireplace, cable TV connection, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, washer/dryer, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 WOODCREEK, MESA, ARIZONA Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) --------- --------------- --------- 1Br/1Ba 32 579 1Br/1Ba 80 700 1Br/1Ba 64 740 1Br/1Ba 80 768 2Br/1Ba 48 882 2Br/2Ba 48 957
Overall Condition Good Effective Age 13 years Economic Life 45 years Remaining Economic Life 32 years Deferred Maintenance None HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1985 and consist of a 432-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 WOODCREEK, MESA, ARIZONA 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 WOODCREEK, MESA, ARIZONA 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 WOODCREEK, MESA, ARIZONA 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 WOODCREEK, MESA, ARIZONA SUMMARY OF COMPARABLE SALES -IMPROVED
Comparable Comparable Description Subject I - 1 I - 2 - ----------- ------- ---------- ---------- Property Name Woodcreek Lakeview at Superstition The Ridge Springs LOCATION: Address 1710 S. Gilbert Rd 1849 S. Power Rd 15202 N. 40th St City, State Mesa, Arizona Mesa, AZ 85206 Phoenix, AZ 85032 County Maricopa Maricopa Maricopa PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 353,760 650,392 278,424 Year Built 1985 1995 1986 Number of Units 432 676 380 Unit Mix: Type Total Type Total Type Total 1Br/1Ba 32 1BR 230 Studio 44 1Br/1Ba 80 2BR 374 1BR 168 1Br/1Ba 64 3BR 72 2BR 168 1Br/1Ba 80 2Br/1Ba 48 2Br/2Ba 48 2Br/2Ba 48 2Br/1Ba 32 Average Unit Size (SF) 819 962 733 Land Area (Acre) 19.3700 38.0000 13.1100 Density (Units/Acre) 22.3 17.8 29.0 Parking Ratio (Spaces/Unit) 1.00 1.55 1.40 Parking Type (Gr., Cov., etc.) Garage, Open Covered Open, Covered Open, Covered CONDITION: Good Very Good Average APPEAL: Good Very Good Average AMENITIES: Pool/Spa Yes/Yes Gym Room Yes Laundry Room No Secured Parking No Sport Courts No Washer/Dryer Connection Yes Other Other OCCUPANCY: 75% 86% 97% TRANSACTION DATA: Sale Date December, 2002 December, 2002 Sale Price ($) $48,250,000 $17,800,000 Grantor Mesa 306 LLC Archstone-Smith Operating Trust Grantee Nearon Lakeview LLC Sale Documentation Verification Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $7,116,416 $10,527 $10.94 $ 0 $ 0 $0.00 Vacancy/Credit Loss $ 994,163 $ 1,471 $ 1.53 $ 0 $ 0 $0.00 Effective Gross Income $6,122,253 $ 9,057 $ 9.41 $ 0 $ 0 $0.00 Operating Expenses $2,239,524 $ 3,313 $ 3.44 $ 0 $ 0 $0.00 Net Operating Income $3,882,729 $ 5,744 $ 5.97 $1,379,500 $ 3,630 $4.95 NOTES: None None PRICE PER UNIT $71,376 $46,842 PRICE PER SQUARE FOOT $ 74.19 $ 63.93 EXPENSE RATIO 36.6% N/A EGIM 7.88 N/A OVERALL CAP RATE 8.05% 7.75% Cap Rate based on Pro Forma or Actual Income? Pro Forma Actual Comparable Comparable Comparable Description I - 3 I - 4 I - 5 - ----------- ---------- ---------- ---------- Property Name Indigo Springs Paradise Falls Apartments The Commons at Papago Park LOCATION: Address 1464 S. Stapley Dr 15611 N 31st St 1010 N 48th ST City, State Mesa, AZ 85204 Phoenix, AZ 85032 Phoenix, AZ County Maricopa Maricopa Maricopa PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 222,870 171,845 120,000 Year Built 1999 1986 1982 Number of Units 240 220 200 Unit Mix: Type Total Type Total Type Total 1BR 90 1BR 108 1BR 100 2BR 120 2BR 112 2BR 100 3BR 30 Average Unit Size (SF) 929 781 600 Land Area (Acre) 9.8000 7.7600 4.7400 Density (Units/Acre) 24.5 28.4 42.2 Parking Ratio (Spaces/Unit) 2.03 1.36 1.33 Parking Type (Gr., Cov., etc.) Open, Covered Open, Covered Open, Covered CONDITION: Very Good Very Good Average APPEAL: Very Good Very Good Average AMENITIES: Pool/Spa Gym Room Laundry Room Secured Parking Sport Courts Washer/Dryer Connection Other Other OCCUPANCY: N/A 86% N/A TRANSACTION DATA: Sale Date August, 2002 February, 2003 August, 2002 Sale Price ($) $18,500,000 $9,800,000 $4,700,000 Grantor Indigo Springs LLC SWP Properties I Los Verdes LLC Grantee Indigo Acquisitions LLC Paradise Falls N/A Sale Documentation Verification Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $ 0 $ 0 $0.00 $1,700,000 $7,727 $9.89 $ 0 $ 0 $0.00 Vacancy/Credit Loss $ 0 $ 0 $0.00 $ 244,800 $1,113 $1.42 $ 0 $ 0 $0.00 Effective Gross Income $ 0 $ 0 $0.00 $1,455,200 $6,615 $8.47 $ 0 $ 0 $0.00 Operating Expenses $ 0 $ 0 $0.00 $ 660,000 $3,000 $3.84 $ 0 $ 0 $0.00 Net Operating Income $ 0 $ 0 $0.00 $ 795,200 $3,615 $4.63 $ 0 $ 0 $0.00 NOTES: None None None PRICE PER UNIT $77,083 $44,545 $23,500 PRICE PER SQUARE FOOT $ 83.01 $57.03 $ 39.17 EXPENSE RATIO N/A 45.4% N/A EGIM N/A 6.73 N/A OVERALL CAP RATE N/A 8.11% N/A Cap Rate based on Pro Forma or Actual Income? Pro Forma
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 WOODCREEK, MESA, ARIZONA [IMPROVED SALES MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $23,500 to $77,083 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 $35,688 to $42,396 per unit with a mean or average adjusted price of $39,823 per unit. The median adjusted price is $40,091 per unit. Based on the following analysis, we have concluded to a value of $40,000 per unit, which results in an "as is" value of $16,800,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 WOODCREEK, MESA, ARIZONA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ----------- ------- ----- ----- Property Name Woodcreek Lakeview at Superstition The Ridge Springs Address 1710 S. Gilbert Rd 1849 S. Power Rd 15202 N. 40th St City Mesa, Arizona Mesa, AZ 85206 Phoenix, AZ 85032 Sale Date December, 2002 December, 2002 Sale Price ($) $48,250,000 $17,800,000 Net Rentable Area (SF) 353,760 650,392 278,424 Number of Units 432 676 380 Price Per Unit $71,376 $46,842 Year Built 1985 1995 1986 Land Area (Acre) 19.3700 38.0000 13.1100 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 12-2002 0% 12-2002 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $71,376 $46,842 Location Superior -10% Comparable 0% Number of Units 432 676 5% 380 5% Quality / Appeal Good Superior -20% Superior -20% Age / Condition 1985 1995 / Very Good -15% 1986 / Average 0% Occupancy at Sale 75% 86% 0% 97% 0% Amenities Good Superior -5% Comparable 0% Average Unit Size (SF) 819 962 -5% 733 0% PHYSICAL ADJUSTMENT -50% 15% FINAL ADJUSTED VALUE ($/UNIT) $35,688 $39,816
COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 ----------- ----- ----- ----- Property Name Indigo Springs Paradise Falls Apartments The Commons at Papago Park Address 1464 S. Stapley Dr 15611 N 31st St 1010 N 48th ST City Mesa, AZ 85204 Phoenix, AZ 85032 Phoenix, AZ Sale Date August, 2002 February, 2003 August, 2002 Sale Price ($) $18,500,000 $9,800,000 $4,700,000 Net Rentable Area (SF) 222,870 171,845 120,000 Number of Units 240 220 200 Price Per Unit $77,083 $44,545 $23,500 Year Built 1999 1986 1982 Land Area (Acre) 9.8000 7.7600 4.7400 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 08-2002 0% February, 2003 0% 08-2002 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $77,083 $44,545 $23,500 Location Superior -5% Inferior 15% Inferior 20% Number of Units 240 -5% 220 -10% 200 -10% Quality / Appeal Superior -10% Superior -10% Inferior 20% Age / Condition 1999 / Very Good-15% 1986 / Very Good -5% 1982 / Average 15% Occupancy at Sale N/A 0% 86% 0% N/A 0% Amenities Superior -5% Comparable 0% Inferior 20% Average Unit Size (SF) 929 -5% 781 0% 600 10% PHYSICAL ADJUSTMENT -45% -10% 75% FINAL ADJUSTED VALUE ($/UNIT) $42,396 $40,091 $41,125
SUMMARY VALUE RANGE (PER UNIT) $35,688 TO $42,396 MEAN (PER UNIT) $39,823 MEDIAN (PER UNIT) $40,091 VALUE CONCLUSION (PER UNIT) $40,000 VALUE OF IMPROVEMENT & MAIN SITE $17,280,000 LESS: LEASE-UP COST -$221,000 PV OF CONCESSIONS -$245,000 VALUE INDICATED BY SALES COMPARISON APPROACH $16,814,000 ROUNDED $16,800,000
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 SWOODCREEK, MESA, ARIZONA
NOI PER UNIT COMPARISON - ---------------------------------------------------------------------------------------------------------------------------------- COMPARABLE NO. OF SALE PRICE OAR NOI/ SUBJECT NOI ADJUSTMENT INDICATED NO. UNITS PRICE/UNIT NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT - ---------------------------------------------------------------------------------------------------------------------------------- I-1 676 $48,250,000 8.05% $3,882,729 $1,559,086 0.628 $44,848 $ 71,376 $ 5,744 $ 3,609 I-2 380 $17,800,000 7.75% $1,379,500 $1,559,086 0.994 $46,568 $ 46,842 $ 3,630 $ 3,609 I-3 240 $18,500,000 0.00% $1,559,086 $ 77,083 $ 3,609 I-4 220 $ 9,800,000 8.11% $ 795,200 $1,559,086 0.998 $44,477 $ 44,545 $ 3,615 $ 3,609 I-5 200 $ 4,700,000 0.00% $1,559,086 $ 23,500 $ 3,609
PRICE/UNIT VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT - ---------------------------------------------------------------------------------------------------------------------------------- Low High Average Median Estimated Price Per Unit $ 44,000 Number of Units 432 $44,477 $46,568 $45,298 $44,848 Value $19,008,000 Less: Lease-Up Cost -$ 221,000 PV of Concessions -$ 245,000 Value Based on NOI Analysis $18,542,000 Rounded $18,500,000
The adjusted sales indicate a range of value between $44,477 and $46,568 per unit, with an average of $45,298 per unit. Based on the subject's competitive position within the improved sales, a value of $44,000 per unit is estimated. This indicates an "as is" market value of $18,500,000 (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 WOODCREEK, MESA, ARIZONA
EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON - ---------------------------------------------------------------------------------------------------------------------------------- COMPARABLE NO. OF SALE PRICE EFFECTIVE OPERATING SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM - ---------------------------------------------------------------------------------------------------------------------------------- I-1 676 $48,250,000 $6,122,253 $2,239,524 36.58% 7.88 $71,376 I-2 380 $17,800,000 $46,842 I-3 240 $18,500,000 $77,083 I-4 220 $9,800,000 $1,455,200 $660,000 45.35% 6.73 $44,545 I-5 200 $4,700,000 $23,500
EGIM VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES - ---------------------------------------------------------------------------------------------------------------------------------- Low High Average Median Estimate EGIM 6.00 --- ---- ------- ------ Subject EGI $3,014,448 6.73 7.88 7.31 7.31 Value $18,086,688 Less: Lease-Up Cost -$221,000 PV of Concessions -$245,000 ----------- Value Based on EGIM Analysis $17,620,688 Rounded $17,600,000 Value Per Unit $40,741
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 44.70% before reserves. The comparable sales indicate a range of expense ratios from 36.58% to 45.35%, while their EGIMs range from 6.73 to 7.88. Overall, we conclude to an EGIM of 6.00, which results in an "as is" value estimate in the EGIM Analysis of $17,600,000. 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 $17,200,000. Price Per Unit $16,800,000 NOI Per Unit $18,500,000 EGIM Analysis $17,600,000 Sales Comparison Conclusion $17,200,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 WOODCREEK, MESA, ARIZONA 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 WOODCREEK, MESA, ARIZONA 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 579 $556 $0.96 71.9% 1Br/1Ba 700 $559 $0.80 62.5% 1Br/1Ba 740 $583 $0.79 64.1% 1Br/1Ba 768 $611 $0.80 81.3% 2Br/1Ba 882 $662 $0.75 85.4% 2Br/2Ba 957 $668 $0.70 81.3%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 WOODCREEK, MESA, ARIZONA RENT ANALYSIS
SUBJECT SUBJECT SUBJECT UNIT ACTUAL ASKING DESCRIPTION TYPE RENT RENT - -------------------------------------------------------------------- Monthly Rent 1BR/1BA $ 556 $ 569 Unit Area (SF) 579 579 Monthly Rent Per Sq. Ft. $ 0.96 $ 0.98 Monthly Rent 1BR/1BA $ 559 $ 609 Unit Area (SF) 700 700 Monthly Rent Per Sq. Ft. $ 0.80 $ 0.87 Monthly Rent 1BR/1BA $ 583 $ 649 Unit Area (SF) 740 740 Monthly Rent Per Sq. Ft. $ 0.79 $ 0.88 Monthly Rent 1BR/1BA $ 611 $ 659 Unit Area (SF) 768 768 Monthly Rent Per Sq. Ft. $ 0.80 $ 0.86 Monthly Rent 2BR/1BA $ 662 $ 689 Unit Area (SF) 882 882 Monthly Rent Per Sq. Ft. $ 0.75 $ 0.78 Monthly Rent 2BR/2BA $ 668 $ 699 Unit Area (SF) 957 957 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.73 Monthly Rent 2BR/2BA $ 714 $ 719 Unit Area (SF) 1,017 1,017 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.71 Monthly Rent 2BR/1BA $ 729 $ 739 Unit Area (SF) 1,042 1,042 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.71 COMPARABLE RENTS ----------------------------------------------------- R-1 R-2 R-3 R-4 R-5 ----------------------------------------------------- The Gilbert University Township Meadows Separations Green Windemere Apartments Apartments Villas ----------------------------------------------------- COMPARISON TO SUBJECT - -------------------------------------------------------------------------------- Slightly DESCRIPTION Superior Similar Superior Superior Superior - -------------------------------------------------------------------------------- Monthly Rent $ 525 $ 629 $ 700 $ 525 $ 450 Unit Area (SF) 579 704 730 608 600 Monthly Rent Per Sq. Ft. $ 0.91 $ 0.89 $ 0.96 $ 0.86 $ 0.75 Monthly Rent $ 585 $ 654 $ 700 $ 550 Unit Area (SF) 700 740 730 672 Monthly Rent Per Sq. Ft. $ 0.84 $ 0.88 $ 0.96 $ 0.82 Monthly Rent $ 627 $ 733 $ 805 $ 650 $ 550 Unit Area (SF) 802 932 1,000 840 700 Monthly Rent Per Sq. Ft. $ 0.78 $ 0.79 $ 0.81 $ 0.77 $ 0.79 Monthly Rent $ 685 $ 756 $ 805 Unit Area (SF) 957 964 1,000 Monthly Rent Per Sq. Ft. $ 0.72 $ 0.78 $ 0.81 Monthly Rent $ 710 $ 791 Unit Area (SF) 1,017 982 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.81 Monthly Rent $ 719 $ 804 Unit Area (SF) 1,042 1,049 Monthly Rent Per Sq. Ft. $ 0.69 $ 0.77 Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. DESCRIPTION MIN MAX MEDIAN AVERAGE - -------------------------------------------------------------------------- Monthly Rent $ 450 $ 700 $ 525 $ 566 Unit Area (SF) 579 730 608 644 Monthly Rent Per Sq. Ft. $ 0.75 $ 0.96 $ 0.89 $ 0.87 Monthly Rent $ 550 $ 700 $ 620 $ 622 Unit Area (SF) 672 740 715 711 Monthly Rent Per Sq. Ft. $ 0.82 $ 0.96 $ 0.86 $ 0.87 Monthly Rent $ 550 $ 805 $ 650 $ 673 Unit Area (SF) 700 1,000 840 855 Monthly Rent Per Sq. Ft. $ 0.77 $ 0.81 $ 0.79 $ 0.79 Monthly Rent $ 685 $ 805 $ 756 $ 749 Unit Area (SF) 957 1,000 964 974 Monthly Rent Per Sq. Ft. $ 0.72 $ 0.81 $ 0.78 $ 0.77 Monthly Rent $ 710 $ 791 $ 751 $ 751 Unit Area (SF) 982 1,017 1,000 1,000 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.81 $ 0.75 $ 0.75 Monthly Rent $ 719 $ 804 $ 762 $ 762 Unit Area (SF) 1,042 1,049 1,046 1,046 Monthly Rent Per Sq. Ft. $ 0.69 $ 0.77 $ 0.73 $ 0.73 Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft.
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 32 579 $556 $0.96 $ 17,792 $ 213,504 1Br/1Ba 80 700 $590 $0.84 $ 47,200 $ 566,400 1Br/1Ba 64 740 $583 $0.79 $ 37,312 $ 447,744 1Br/1Ba 80 768 $611 $0.80 $ 48,880 $ 586,560 2Br/1Ba 48 882 $662 $0.75 $ 31,776 $ 381,312 2Br/2Ba 48 957 $668 $0.70 $ 32,064 $ 384,768 -------- ---------- Total $272,240 $3,266,880
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 WOODCREEK, MESA, ARIZONA 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 WOODCREEK, MESA, ARIZONA SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 ---------------------------------------------------------------------------------- DESCRIPTION ACTUAL ACTUAL ACTUAL ---------------------------------------------------------------------------------- TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT ---------------------------------------------------------------------------------- Revenues Rental Income $ 3,297,414 $ 7,633 $ 3,405,567 $ 7,883 $ 3,333,537 $ 7,717 Vacancy $ 205,922 $ 477 $ 182,860 $ 423 $ 545,942 $ 1,264 Credit Loss/Concessions $ 146,192 $ 338 $ 205,348 $ 475 $ 255,314 $ 591 ---------------------------------------------------------------------------------- Subtotal $ 352,114 $ 815 $ 388,208 $ 899 $ 801,256 $ 1,855 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 139,700 $ 323 $ 208,449 $ 483 $ 289,243 $ 670 ---------------------------------------------------------------------------------- Subtotal Other Income $ 139,700 $ 323 $ 208,449 $ 483 $ 289,243 $ 670 ---------------------------------------------------------------------------------- Effective Gross Income $ 3,085,000 $ 7,141 $ 3,225,808 $ 7,467 $ 2,821,524 $ 6,531 Operating Expenses Taxes $ 207,030 $ 479 $ 200,198 $ 463 $ 201,961 $ 468 Insurance $ 44,874 $ 104 $ 52,041 $ 120 $ 74,176 $ 172 Utilities $ 222,502 $ 515 $ 261,404 $ 605 $ 251,439 $ 582 Repair & Maintenance $ 83,057 $ 192 $ 86,098 $ 199 $ 63,106 $ 146 Cleaning $ 89,163 $ 206 $ 114,083 $ 264 $ 111,553 $ 258 Landscaping $ 59,081 $ 137 $ 48,736 $ 113 $ 51,948 $ 120 Security $ (161) $ 0 $ 3,750 $ 9 $ 1,523 $ 4 Marketing & Leasing $ 50,722 $ 117 $ 35,960 $ 83 $ 44,435 $ 103 General Administrative $ 375,721 $ 870 $ 359,962 $ 833 $ 356,854 $ 826 Management $ 160,548 $ 372 $ 170,600 $ 395 $ 139,212 $ 322 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------------------------- Total Operating Expenses $ 1,292,537 $ 2,992 $ 1,332,832 $ 3,085 $ 1,296,207 $ 3,000 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------------------------- Net Income $ 1,792,463 $ 4,149 $ 1,892,976 $ 4,382 $ 1,525,317 $ 3,531 ---------------------------------------------------------------------------------- FISCAL YEAR 2003 ANNUALIZED 2003 ----------------------------------------------------- DESCRIPTION MANAGEMENT BUDGET PROJECTION AAA PROJECTION ----------------------------------------------------- --------------------------------------- TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % ----------------------------------------------------- --------------------------------------- Revenues Rental Income $ 3,000,681 $ 6,946 $ 3,218,408 $ 7,450 $ 3,266,880 $ 7,562 100.0% Vacancy $ 177,503 $ 411 $ 925,988 $ 2,143 $ 326,688 $ 756 10.0% Credit Loss/Concessions $ 84,633 $ 196 $ 314,344 $ 728 $ 163,344 $ 378 5.0% ----------------------------------------------------------------------------------------------- Subtotal $ 262,136 $ 607 $ 1,240,332 $ 2,871 $ 490,032 $ 1,134 15.0% Laundry Income $ 20,148 $ 47 $ 0 $ 0 $ 0 $ 0 0.0% Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 234,108 $ 542 $ 286,284 $ 663 $ 237,600 $ 550 7.3% ----------------------------------------------------------------------------------------------- Subtotal Other Income $ 254,256 $ 589 $ 286,284 $ 663 $ 237,600 $ 550 7.3% ----------------------------------------------------------------------------------------------- Effective Gross Income $ 2,992,801 $ 6,928 $ 2,264,360 $ 5,242 $ 3,014,448 $ 6,978 100.0% Operating Expenses Taxes $ 203,632 $ 471 $ 204,224 $ 473 $ 201,744 $ 467 6.7% Insurance $ 79,326 $ 184 $ 75,848 $ 176 $ 75,600 $ 175 2.5% Utilities $ 249,147 $ 577 $ 219,316 $ 508 $ 237,600 $ 550 7.9% Repair & Maintenance $ 51,840 $ 120 $ 95,096 $ 220 $ 73,440 $ 170 2.4% Cleaning $ 91,000 $ 211 $ 161,732 $ 374 $ 118,800 $ 275 3.9% Landscaping $ 75,800 $ 175 $ 57,592 $ 133 $ 56,160 $ 130 1.9% Security $ 0 $ 0 $ 5,212 $ 12 $ 1,296 $ 3 0.0% Marketing & Leasing $ 53,000 $ 123 $ 73,924 $ 171 $ 60,480 $ 140 2.0% General Administrative $ 365,118 $ 845 $ 424,180 $ 982 $ 371,520 $ 860 12.3% Management $ 147,732 $ 342 $ 121,668 $ 282 $ 150,722 $ 349 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% ----------------------------------------------------------------------------------------------- Total Operating Expenses $ 1,316,595 $ 3,048 $ 1,438,792 $ 3,331 $ 1,347,362 $ 3,119 44.7% Reserves $ 0 $ 0 $ 0 $ 0 $ 108,000 $ 250 8.0% ----------------------------------------------------------------------------------------------- Net Income $ 1,676,206 $ 3,880 $ 825,568 $ 1,911 $ 1,559,086 $ 3,609 51.7% -----------------------------------------------------------------------------------------------
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 15% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 WOODCREEK, MESA, ARIZONA RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $250 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $250 per unit should be satisfactory in our reserves for replacement to cover future capital expenditures. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of 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 WOODCREEK, MESA, ARIZONA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR - ---------------------------------------------------------------------------- I-1 Dec-02 86% $71,376 8.05% I-2 Dec-02 97% $46,842 7.75% I-3 Aug-02 N/A $77,083 N/A I-4 February, 2003 86% $44,545 8.11% I-5 Aug-02 N/A $23,500 N/A High 8.11% Low 7.75% Average 7.97%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.00%. 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 9.50%. 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 $16,900,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 WOODCREEK, MESA, ARIZONA approximately 41% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 WOODCREEK, MESA, ARIZONA - -------------------------------------------------------------------------------- DISCOUNTED CASH FLOW ANALYSIS
WOODCREEK - ------------------------------------------------------------------------------------------------------------------------ YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 - ------------------------------------------------------------------------------------------------------------------------ REVENUE Base Rent $3,266,880 $3,364,886 $3,465,833 $3,569,808 $3,676,902 $3,787,209 Vacancy $ 587,796 $ 336,489 $ 346,583 $ 356,981 $ 367,690 $ 378,721 Credit Loss $ 163,344 $ 168,244 $ 173,292 $ 178,490 $ 183,845 $ 189,360 Concessions $ 274,752 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- Subtotal $1,025,892 $ 504,733 $ 519,875 $ 535,471 $ 551,535 $ 568,081 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 237,600 $ 244,728 $ 252,070 $ 259,632 $ 267,421 $ 275,444 -------------------------------------------------------------------------------- Subtotal Other Income $ 237,600 $ 244,728 $ 252,070 $ 259,632 $ 267,421 $ 275,444 -------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $2,478,588 $3,104,881 $3,198,028 $3,293,969 $3,392,788 $3,494,571 OPERATING EXPENSES: Taxes $ 201,744 $ 207,796 $ 214,030 $ 220,451 $ 227,065 $ 233,877 Insurance $ 75,600 $ 77,868 $ 80,204 $ 82,610 $ 85,088 $ 87,641 Utilities $ 237,600 $ 244,728 $ 252,070 $ 259,632 $ 267,421 $ 275,444 Repair & Maintenance $ 73,440 $ 75,643 $ 77,912 $ 80,250 $ 82,657 $ 85,137 Cleaning $ 118,800 $ 122,364 $ 126,035 $ 129,816 $ 133,710 $ 137,722 Landscaping $ 56,160 $ 57,845 $ 59,580 $ 61,368 $ 63,209 $ 65,105 Security $ 1,296 $ 1,335 $ 1,375 $ 1,416 $ 1,459 $ 1,502 Marketing & Leasing $ 60,480 $ 62,294 $ 64,163 $ 66,088 $ 68,071 $ 70,113 General Administrative $ 371,520 $ 382,666 $ 394,146 $ 405,970 $ 418,149 $ 430,694 Management $ 123,929 $ 155,244 $ 159,901 $ 164,698 $ 169,639 $ 174,729 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $1,320,569 $1,387,783 $1,429,417 $1,472,299 $1,516,468 $1,561,962 Reserves $ 108,000 $ 111,240 $ 114,577 $ 118,015 $ 121,555 $ 125,202 -------------------------------------------------------------------------------- NET OPERATING INCOME $1,050,018 $1,605,858 $1,654,034 $1,703,655 $1,754,765 $1,807,408 -------------------------------------------------------------------------------- Operating Expense Ratio (% of EGI) 53.3% 44.7% 44.7% 44.7% 44.7% 44.7% Operating Expense Per Unit $ 3,057 $ 3,212 $ 3,309 $ 3,408 $ 3,510 $ 3,616 WOODCREEK - ---------------------------------------------------------------------------------------------------------- YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 - ---------------------------------------------------------------------------------------------------------- REVENUE Base Rent $3,900,826 $4,017,850 $4,138,386 $4,262,537 $4,390,414 Vacancy $ 390,083 $ 401,785 $ 413,839 $ 426,254 $ 439,041 Credit Loss $ 195,041 $ 200,893 $ 206,919 $ 213,127 $ 219,521 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ Subtotal $ 585,124 $ 602,678 $ 620,758 $ 639,381 $ 658,562 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 283,707 $ 292,218 $ 300,985 $ 310,014 $ 319,315 ------------------------------------------------------------------ Subtotal Other Income $ 283,707 $ 292,218 $ 300,985 $ 310,014 $ 319,315 ------------------------------------------------------------------ EFFECTIVE GROSS INCOME $3,599,409 $3,707,391 $3,818,613 $3,933,171 $4,051,166 OPERATING EXPENSES: Taxes $ 240,893 $ 248,120 $ 255,563 $ 263,230 $ 271,127 Insurance $ 90,270 $ 92,978 $ 95,768 $ 98,641 $ 101,600 Utilities $ 283,707 $ 292,218 $ 300,985 $ 310,014 $ 319,315 Repair & Maintenance $ 87,691 $ 90,322 $ 93,032 $ 95,823 $ 98,697 Cleaning $ 141,853 $ 146,109 $ 150,492 $ 155,007 $ 159,657 Landscaping $ 67,058 $ 69,070 $ 71,142 $ 73,276 $ 75,474 Security $ 1,547 $ 1,594 $ 1,642 $ 1,691 $ 1,742 Marketing & Leasing $ 72,216 $ 74,383 $ 76,614 $ 78,913 $ 81,280 General Administrative $ 443,614 $ 456,923 $ 470,630 $ 484,749 $ 499,292 Management $ 179,970 $ 185,370 $ 190,931 $ 196,659 $ 202,558 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ TOTAL OPERATING EXPENSES $1,608,821 $1,657,086 $1,706,798 $1,758,002 $1,810,742 Reserves $ 128,958 $ 132,826 $ 136,811 $ 140,916 $ 145,143 ------------------------------------------------------------------ NET OPERATING INCOME $1,861,630 $1,917,479 $1,975,003 $2,034,253 $2,095,281 ------------------------------------------------------------------ Operating Expense Ratio (% of EGI) 44.7% 44.7% 44.7% 44.7% 44.7% Operating Expense Per Unit $ 3,724 $ 3,836 $ 3,951 $ 4,069 $ 4,192
"DCF" VALUE ANALYSIS Gross Residual Sale Price $22,055,586 Deferred Estimated Stabilized Maintenance $ 0 NOI $1,559,086 Sales Expense Rate 2.00% Less: Sales Expense $ 441,112 Add: Excess Land $ 0 Months to Stabilized 12 Discount Rate 12.00% Net Residual Sale Price $21,614,474 Other Adjustments $ 0 Stabilized Occupancy 90.0% Terminal Cap Rate 9.50% PV of Reversion $ 6,959,282 Value Indicated By Add: NPV of NOI $ 9,975,166 "DCF" $16,934,449 PV Total $16,934,449 Rounded $16,900,000
"DCF" VALUE SENSITIVITY TABLE - ------------------------------------------------------------------------------------------------------- DISCOUNT RATE - ------------------------------------------------------------------------------------------------------- TOTAL VALUE 11.50% 11.75% 12.00% 12.25% 12.50% - ------------------------------------------------------------------------------------------------------- 9.00% $ 17,900,467 $ 17,607,602 $ 17,321,075 $ 17,040,729 $ 16,766,408 TERMINAL 9.25% $ 17,692,844 $ 17,404,578 $ 17,122,537 $ 16,846,569 $ 16,576,520 CAP RATE 9.50% $ 17,496,149 $ 17,212,238 $ 16,934,449 $ 16,662,627 $ 16,396,625 9.75% $ 17,309,540 $ 17,029,763 $ 16,756,006 $ 16,488,119 $ 16,225,956 10.00% $ 17,132,262 $ 16,856,411 $ 16,586,485 $ 16,322,336 $ 16,063,821
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 WOODCREEK, MESA, ARIZONA INCOME LOSS DURING LEASE-UP The subject is currently 75% occupied, below our stabilized occupancy projection. We have estimated a 12-month lease-up period. An adjustment must be made to bring the subject to a stabilized operating level. To account for this income loss during lease-up, we have compared the current DCF analysis to an "as stabilized" DCF analysis assuming the subject's occupancy were stabilized. The difference in net operating income during the lease-up period is discounted to a present value figure of $221,000 as shown in the following table.
DESCRIPTION YEAR 1 YEAR 2 YEAR 3 - --------------------------------------------------------------------------------------- "As Is" Net Operating Income $ 1,050,018 $ 0 $ 0 Stabilized Net Operating Income $ 1,298,071 $ 0 $ 0 --------------------------------------- Difference $ 248,053 $ 0 $ 0 PV of Income Loss During Lease-Up $ 221,476 ----------- Rounded $ 221,000
CONCESSIONS Due to softness in the market, concessions have been utilized at the subject property and within the market. Based on our discussions with the subject's property manager and those at competing properties, these concessions are expected to continue in the near term until the market returns to a stabilized level. Concessions have been included as a line item deduction within the discounted cash flow analysis. The present value of these concessions equates to $245,000 (rounded). This amount has been deducted from the Direct Capitalization analysis, as well as the Sales Comparison Approach value. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 WOODCREEK, MESA, ARIZONA After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 9.00% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37 WOODCREEK, MESA, ARIZONA WOODCREEK
TOTAL PER SQ. FT. PER UNIT %OF EGI -------------------------------------------------------------------------- REVENUE Base Rent $ 3,266,880 $9.23 $7,562 Less: Vacancy & Collection Loss 15.00% $ 490,032 $1.39 $1,134 Plus: Other Income Laundry Income $ 0 $0.00 $ 0 0.00% Garage Revenue $ 0 $0.00 $ 0 0.00% Other Misc. Revenue $ 237,600 $0.67 $ 550 7.88% -------------------------------------------------------------- Subtotal Other Income $ 237,600 $0.67 $ 550 7.88% EFFECTIVE GROSS INCOME $ 3,014,448 $8.52 $6,978 OPERATING EXPENSES: Taxes $ 201,744 $0.57 $ 467 6.69% Insurance $ 75,600 $0.21 $ 175 2.51% Utilities $ 237,600 $0.67 $ 550 7.88% Repair & Maintenance $ 73,440 $0.21 $ 170 2.44% Cleaning $ 118,800 $0.34 $ 275 3.94% Landscaping $ 56,160 $0.16 $ 130 1.86% Security $ 1,296 $0.00 $ 3 0.04% Marketing & Leasing $ 60,480 $0.17 $ 140 2.01% General Administrative $ 371,520 $1.05 $ 860 12.32% Management 5.00% $ 150,722 $0.43 $ 349 5.00% Miscellaneous $ 0 $0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 1,347,362 $3.81 $3,119 44.70% Reserves $ $108,000 $0.31 $ 250 3.58% -------------------------------------------------------------- NET OPERATING INCOME $ 1,559,086 $4.41 $3,609 51.72% -------------------------------------------------------------- "GOING IN" CAPITALIZATION RATE 9.00% VALUE INDICATION $17,323,173 $48.97 $40,100 LESS: LEASE-UP COST $ (221,000) PV OF CONCESSIONS $ (245,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $16,857,173 ROUNDED $16,900,000 $47.77 $39,120
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 38 WOODCREEK, MESA, ARIZONA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF - -------- ----------- ----------- ------- ------ 8.25% $18,432,007 $18,400,000 $42,593 $52.01 8.50% $17,876,184 $17,900,000 $41,435 $50.60 8.75% $17,352,121 $17,400,000 $40,278 $49.19 9.00% $16,857,173 $16,900,000 $39,120 $47.77 9.25% $16,388,979 $16,400,000 $37,963 $46.36 9.50% $15,945,427 $15,900,000 $36,806 $44.95 9.75% $15,524,622 $15,500,000 $35,880 $43.82
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $16,900,000. 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 $16,900,000 Direct Capitalization Method $16,900,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $16,900,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 39 WOODCREEK, MESA, ARIZONA 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 $17,200,000 Income Approach $16,900,000 Reconciled Value $16,900,000
The Income Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of May 6, 2003 the market value of the fee simple estate in the property is: $16,900,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA WOODCREEK, MESA, ARIZONA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A WOODCREEK, MESA, ARIZONA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A WOODCREEK, MESA, ARIZONA SUBJECT PHOTOGRAPHS [EXTERIOR - OFFICE PICTURE] [EXTERIOR - LANDSCAPE & PARK PICTURE] [INTERIOR - APARTMENT UNIT PICTURE] [INTERIOR - APARTMENT UNIT PICTURE] [EXTERIOR - PARKING LOT PICTURE] [INTERIOR - APARTMENT UNIT PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A WOODCREEK, MESA, ARIZONA SUBJECT PHOTOGRAPHS [EXTERIOR - APARTMENT BUILDING PICTURE] [INTERIOR -APARTMENT UNIT PICTURE] [EXTERIOR - APARTMENT BUILDING PICTURE] [EXTERIOR - APARTMENT BUILDING PICTURE] [INTERIOR - APARTMENT UNIT PICTURE] [INTERIOR - APARTMENT UNIT PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B WOODCREEK, MESA, ARIZONA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B WOODCREEK, MESA, ARIZONA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 LAKEVIEW AT SUPERSTITION SPRINGS THE RIDGE INDIGO SPRINGS 1849 S. Power Rd 15202 N. 40th St 1464 S. Stapley Dr Mesa, AZ 85206 Phoenix, AZ 85032 Mesa, AZ 85204 [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 PARADISE FALLS APARTMENTS THE COMMONS AT PAPAGO PARK 15611 N 31st St 1010 N 48th ST Phoenix, AZ 85032 Phoenix, AZ [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B WOODCREEK, MESA, ARIZONA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 - ---------------------------------------------------------------------------------------------------------------------------------- Property Name Woodcreek University Green Management Company - ---------------------------------------------------------------------------------------------------------------------------------- LOCATION: - ---------------------------------------------------------------------------------------------------------------------------------- Address 1710 S. Gilbert Rd 265 N. Gilbert Road City, State Mesa, Arizona Mesa, Arizona County Maricopa Maricopa Proximity to Subject .4 miles from subject - ---------------------------------------------------------------------------------------------------------------------------------- PHYSICAL CHARATERISTICS: - ---------------------------------------------------------------------------------------------------------------------------------- Net Rentable Area (SF) 353,760 312,952 Year Built 1985 1984 Effective Age 13 10 Building Structure Type Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Garage, Open Covered Open, Covered - ---------------------------------------------------------------------------------------------------------------------------------- Number of Units 432 - ---------------------------------------------------------------------------------------------------------------------------------- Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Br/1Ba 579 32 $556 1 1BD/1BH 579 64 $525 2 1Br/1Ba 700 80 $559 2 1BD/1BH 700 72 $585 3 1Br/1Ba 740 64 $583 3 1BD/1BH 768 56 $615 4 1Br/1Ba 768 80 $611 3 1BD/1BH 740 32 $600 5 2Br/1Ba 882 48 $662 3 2BD/1BH 882 48 $660 6 2Br/2Ba 957 48 $668 4 2BD/2BH 957 40 $685 7 2Br/2Ba 1,017 48 $714 5 2BD/2BH 1,017 40 $710 8 2Br/1Ba 1,042 32 $729 6 3BD/2BH 1,042 36 $719 - ---------------------------------------------------------------------------------------------------------------------------------- Average Unit Size (SF) 819 807 Unit Breakdown: Efficiency 0% 2-Bedroom 39% Efficiency 0% 2-Bedroom 38% 1-Bedroom 61% 3-Bedroom 0% 1-Bedroom 31% 3-Bedroom 16% CONDITION: Good Average APPEAL: Average Average - ---------------------------------------------------------------------------------------------------------------------------------- AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony W/D Connect. Balcony W/D Connect. X Fireplace Other X Fireplace Other X Cable TV Ready Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool ------------------------------------------------------------------------------------------------- X Spa/Jacuzzi X Car Wash X Spa/Jacuzzi Car Wash X Basketball CourtX BBQ Equipment Basketball Court X BBQ Equipment X Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking ------------------------------------------------------------------------------------------------- Racquet Ball Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room Gym Room - ---------------------------------------------------------------------------------------------------------------------------------- OCCUPANCY: 75% 96% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 to 15 Months Concessions 1 - 1 1/2 Months Free 1 Month Free Pet Deposit $300 - $500 $335 Utilities Paid by Tenant: X Electric X Natural Gas Electric Natural Gas X Water Trash Water Trash Confirmation May 1, 2003; Joseph Beard (Property Manager) Property Manager Telephone Number (972)234-1231 480-835-7200 - ---------------------------------------------------------------------------------------------------------------------------------- NOTES: None - ---------------------------------------------------------------------------------------------------------------------------------- COMPARISON TO SUBJECT: Slightly Superior - ---------------------------------------------------------------------------------------------------------------------------------- COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 - ---------------------------------------------------------------------------------------------------------------------------------- Property Name Windemere The Township Apartments Management Company - ---------------------------------------------------------------------------------------------------------------------------------- LOCATION: - ---------------------------------------------------------------------------------------------------------------------------------- Address 2020 E. Inverness 1295 N. Ash St City, State Mesa, AZ 85204 Gilbert, AZ 85233 County Maricopa Maricopa Proximity to Subject .4 miles from the subject 1-mile south of the subject - ---------------------------------------------------------------------------------------------------------------------------------- PHYSICAL CHARATERISTICS: - ---------------------------------------------------------------------------------------------------------------------------------- Net Rentable Area (SF) 190,820 Year Built 1985 1997 Effective Age 10 10 Building Structure Type Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open, Covered Open, Covered - ---------------------------------------------------------------------------------------------------------------------------------- Number of Units 224 160 - ---------------------------------------------------------------------------------------------------------------------------------- Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1BD/1BH 704 56 $629 1 1BD/1BH 730 $700 2 1BD/1BH 740 56 $654 2 1BD/1BH 730 $700 3 2BD/2BH 932 28 $733 3 2BD/1BH 1,000 $805 4 2BD/2BH 964 28 $756 4 2BD/2BH 1,000 $805 5 2BD/2BH 982 28 $791 6 2BD/2BH 1,049 28 $804 - ---------------------------------------------------------------------------------------------------------------------------------- Average Unit Size (SF) 852 Unit Breakdown: Efficiency 0% 2-Bedroom 43% Efficiency 0% 2-Bedroom 50% 1-Bedroom 49% 3-Bedroom 8% 1-Bedroom 37% 3-Bedroom 13% CONDITION: Excellent Very Good APPEAL: Excellent Very Good - ---------------------------------------------------------------------------------------------------------------------------------- AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony W/D Connect. X Balcony X W/D Connect. X Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool ------------------------------------------------------------------------------------------------- X Spa/Jacuzzi X Car Wash X Spa/Jacuzzi X Car Wash X Basketball Court X BBQ Equipment X Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball X Meeting Hall X Sand Volley Ball Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking ------------------------------------------------------------------------------------------------- Racquet Ball Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office X Jogging Track X Business Office X Gym Room X Gym Room - ---------------------------------------------------------------------------------------------------------------------------------- OCCUPANCY: 95% 85% LEASING DATA: Available Leasing Terms 6 to 12 Months 6 to 15 Months Concessions 1 - 1 1/2 Months Free 1 - 1 1/2 Months Free Pet Deposit $300 - $500 $150 Utilities Paid by Tenant: Electric Natural Gas X Electric X Natural Gas Water Trash Water X Trash Confirmation Property Manager Property Manager Telephone Number 480-497-9416 (972)234-1231 - ---------------------------------------------------------------------------------------------------------------------------------- NOTES: None Located in area close to industrial area in the south - ---------------------------------------------------------------------------------------------------------------------------------- COMPARISON TO SUBJECT: Superior Superior - ---------------------------------------------------------------------------------------------------------------------------------- COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 - -------------------------------------------------------------------------------------------------------------------------------- Property Name Gilbert Meadows Apartments Superstition Villas Management Company - -------------------------------------------------------------------------------------------------------------------------------- LOCATION: - -------------------------------------------------------------------------------------------------------------------------------- Address 275 West Juniper Ave 2055 E. Hampton City, State Gilbert, AZ Mesa, AZ County Maricopa Maricopa Proximity to Subject Within.5-mile radius .2 miles away from subject - -------------------------------------------------------------------------------------------------------------------------------- PHYSICAL CHARATERISTICS: - -------------------------------------------------------------------------------------------------------------------------------- Net Rentable Area (SF) 160,000 Year Built 1984 1983 Effective Age 10 10 Building Structure Type Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Garage, Open, Covered Open, Covered - -------------------------------------------------------------------------------------------------------------------------------- Number of Units 246 - -------------------------------------------------------------------------------------------------------------------------------- Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1BD/1BH 608 $525 1 1BD/1BH 600 122 $450 2 2BD/2BH 672 $550 3 2BD/2BH 700 124 $550 3 2BD/2BH 840 $650 - -------------------------------------------------------------------------------------------------------------------------------- Average Unit Size (SF) 650 Unit Breakdown: Efficiency 0% 2-Bedroom 55% Efficiency 0% 2-Bedroom 41% 1-Bedroom 29% 3-Bedroom 16% 1-Bedroom 50% 3-Bedroom CONDITION: Good Good APPEAL: Good Good - -------------------------------------------------------------------------------------------------------------------------------- AMENITIES: Unit Amenities X Attach. Garage X Vaulted Ceiling X Attach. Garage X Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool ----------------------------------------------------------------------------------------------- Spa/Jacuzzi X Car Wash Spa/Jacuzzi X Car Wash X Basketball Court X BBQ Equipment X Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball X 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 X Laundry Room X Jogging Track X Business Office X Jogging Track X Business Office X Gym Room X Gym Room - -------------------------------------------------------------------------------------------------------------------------------- OCCUPANCY: 96% 88% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 to 15 Months Concessions 1 - 1 1/2 Months Free 8 weeks free went Months Free Pet Deposit $300 - $500 $200 Utilities Paid by Tenant: X Electric X Natural Gas X Electric Natural Gas X Water Trash X Water Trash Confirmation Property Manager Property Manager Telephone Number 480-892-7577 480-892-2468 - -------------------------------------------------------------------------------------------------------------------------------- NOTES: None None - -------------------------------------------------------------------------------------------------------------------------------- COMPARISON TO SUBJECT: Superior Superior - --------------------------------------------------------------------------------------------------------------------------------
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B WOODCREEK, MESA, ARIZONA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 UNIVERSITY GREEN WINDEMERE THE TOWNSHIP APARTMENTS 265 N. Gilbert Road 2020 E. Inverness 1295 N. Ash St Mesa, Arizona Mesa, AZ 85204 Gilbert, AZ 85233 [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 GILBERT MEADOWS APARTMENTS SUPERSTITION VILLAS 275 West Juniper Ave 2055 E. Hampton Gilbert, AZ Mesa, AZ [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C WOODCREEK, MESA, ARIZONA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C WOODCREEK, MESA, ARIZONA 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 WOODCREEK, MESA, ARIZONA It is assumed that all applicable zoning and use regulations and restrictions have been complied with unless a nonconformi ty 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 WOODCREEK, MESA, ARIZONA 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 WOODCREEK, MESA, ARIZONA 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. Ryan Tanaka 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- Douglas Needham --------------------------------------------- Douglas Needham, MAI Managing Principal, Real Estate Group Arizona State Certified General Real Estate Appraiser #30943 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E WOODCREEK, MESA, ARIZONA EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E WOODCREEK, MESA, ARIZONA DOUGLAS A. NEEDHAM, MAI MANAGING PRINCIPAL, REAL ESTATE ADVISORY GROUP POSITION Douglas A. Needham is a Managing Principal for the Irvine Real Estate Advisory Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Mr. Needham has appraised all types of major commercial real estate including apartments, hotels/motels, light and heavy industrial facilities, self-storage facilities, mobile home parks, offices, retail shopping centers, service stations, special-use properties, and vacant land. Business Mr. Needham joined AAA in 1998. Prior to joining AAA, he was a senior associate at Koeppel Tener, a senior analyst at Great Western Appraisal Group, and an associate appraiser at R. L. McLaughlin & Associates. EDUCATION Texas A&M University Bachelor of Business Administration - Finance AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E WOODCREEK, MESA, ARIZONA STATE CERTIFICATIONS State of Arizona, Certified General Real Estate Appraiser, #30943 State of California, Certified General Real Estate Appraiser, #AG025443 State of Colorado, Certified General Appraiser, #CG40017035 State of Oregon, Certified General Appraiser, #C000686 State of Washington, Certified General Real Estate Appraiser, #1101111 PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS VALUATION AND Appraisal Institute Advanced Income Capitalization SPECIAL COURSES Appraisal Principles Appraisal Procedures Basic Income Capitalization Standards of Professional Practice AMERICAN APPRAISAL ASSOCIATES, INC. WOODCREEK, MESA, ARIZONA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. WOODCREEK, MESA, ARIZONA 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. -----END PRIVACY-ENHANCED MESSAGE-----