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]
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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.