-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EK2nlh8mEbxzVmXpNDh5DhdaO/0oFOsCRKS4xdk3aBZwsHqQIIrgmeaPP6eFKSW/ T6YHP6dO1VHqj6RVGNlA/g== 0000898430-98-003851.txt : 19981106 0000898430-98-003851.hdr.sgml : 19981106 ACCESSION NUMBER: 0000898430-98-003851 CONFORMED SUBMISSION TYPE: SC 13E3/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19981105 GROUP MEMBERS: CONAM DOC AFFILIATES LLC GROUP MEMBERS: CONAM PROPERTY SERVICES IV, LTD. GROUP MEMBERS: CONAM REALTY INVESTORS 5 L P GROUP MEMBERS: CONTINENTAL AMERICAN PROPERTIES, LTD. SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CONAM REALTY INVESTORS 5 L P CENTRAL INDEX KEY: 0000761310 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 112712111 STATE OF INCORPORATION: CA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: SC 13E3/A SEC ACT: SEC FILE NUMBER: 005-54771 FILM NUMBER: 98738396 BUSINESS ADDRESS: STREET 1: 1764 SAN DIEGO AVE STREET 2: ATTN: ROBERT J SVATOS CITY: SAN DIEGO STATE: CA ZIP: 92110-1906 BUSINESS PHONE: 2125263237 MAIL ADDRESS: STREET 1: 3 WORLD FINANCIAL CENTER STREET 2: 29TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10285 FORMER COMPANY: FORMER CONFORMED NAME: HUTTON CONAM REALTY INVESTORS 5 DATE OF NAME CHANGE: 19920703 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CONAM REALTY INVESTORS 5 L P CENTRAL INDEX KEY: 0000761310 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 112712111 STATE OF INCORPORATION: CA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: SC 13E3/A BUSINESS ADDRESS: STREET 1: 1764 SAN DIEGO AVE STREET 2: ATTN: ROBERT J SVATOS CITY: SAN DIEGO STATE: CA ZIP: 92110-1906 BUSINESS PHONE: 2125263237 MAIL ADDRESS: STREET 1: 3 WORLD FINANCIAL CENTER STREET 2: 29TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10285 FORMER COMPANY: FORMER CONFORMED NAME: HUTTON CONAM REALTY INVESTORS 5 DATE OF NAME CHANGE: 19920703 SC 13E3/A 1 AMENDMENT #1 TO SCHEDULE 13E-3 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------------- AMENDMENT NO. 1 TO SCHEDULE 13E-3 RULE 13E-3 TRANSACTION STATEMENT (PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934) CONAM REALTY INVESTORS 5, L.P. (NAME OF THE ISSUER) ConAm Realty Investors 5, L.P. Continental American Properties, Ltd. ConAm Property Services IV, Ltd. ConAm DOC Affiliates LLC (NAME OF PERSONS FILING STATEMENT) Units of Limited Partnership Interest (TITLE OF CLASS OF SECURITIES) 44849P503 (CUSIP NUMBER OF CLASS OF SECURITIES) Frederick B. McLane, Esq. O'Melveny & Myers LLP 400 South Hope Street Los Angeles, CA 90071-2899 (213) 430-6000 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF PERSON(S) FILING STATEMENT) This statement is filed in connection with (check the appropriate box): a. [X] The filing of solicitation materials or an information statement subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the Securities Exchange Act of 1934. b. The filing of a registration statement under the Securities Act of 1933. c. A tender offer. d. None of the above. Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies. [X] CALCULATION OF FILING FEE =============================================================================== $19,420,330 $3,885 Transaction Valuation(1) Amount Of Filing Fee =============================================================================== [X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount previously paid: $3,900 Filing party: ConAm Realty Investors 5, L.P. --------------------- ------------------------------- Form or registration no.: Schedule 14A Date filed: August 20, 1998 ------------------- ---------------------------------
Instruction. Eight copies of this statement, including all exhibits, should be filed with the Commission. - -------- (1) For purposes of calculating the filing fee only. The filing fee was calculated in accordance with Rule 0-11 under the Securities Exchange Act of 1934, as amended, and equals 1/50 of one percent of the aggregate amount of cash to be distributed to securityholders in connection with the transaction. CONAM REALTY INVESTORS 5, L.P. 1764 SAN DIEGO AVENUE SAN DIEGO, CALIFORNIA 92110-1906 This Rule 13e-3 Transaction Statement (this "Statement") relates to the proposed sale of the remaining two properties (the "Properties") of ConAm Realty Investors 5, L.P., a California limited partnership (the "Partnership"), to a Delaware limited liability company (the "Purchaser") to be formed if the proposed sale is approved by the Partnership's limited partners. It is anticipated that, shortly after the sale of the Properties, the net proceeds from the sale, together with certain cash reserves, would be distributed to the limited partners and the Partnership would be liquidated. A final distribution of cash from reserves would be distributed to limited partners at the time of liquidation. The general partner of the Partnership is ConAm Property Services IV, Ltd. (the "General Partner"). Continental American Development, Inc., a California corporation ("CADI"), is the general partner of the General Partner. The shareholders of CADI are substantially identical to the partners of Continental American Properties, Ltd. ("CAPL"). CAPL is the managing member of ConAm DOC Affiliates LLC, which will own a 9% interest in the Purchaser. In addition, the shareholders of CADI are identical to the shareholders of ConAm Management Corporation ("ConAm Management"), which will act as the initial property manager for the Purchaser with respect to the Property if the proposed sale is approved. A preliminary consent solicitation statement (the "Consent Solicitation Statement") regarding the proposed sale was filed with the Securities and Exchange Commission on October 30, 1998. The following Cross-Reference Sheet is supplied pursuant to General Instruction F of Schedule 13E-3 and cites the location in the Consent Solicitation Statement of the information required to be included in response to the items of this Statement, which Consent Solicitation Statement is hereby incorporated by reference to the extent so cited. Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Consent Solicitation Statement. The Consent Solicitation Statement will be completed and, if appropriate, amended prior to the time it is first sent or given to limited partners of the Partnership. This Statement will be amended to reflect such completion or amendment of the Consent Solicitation Statement. CROSS-REFERENCE SHEET - -------------------------------------------------------------------------------- Item of Schedule 13E-3 Location in Consent Solicitation Statement - -------------------------------------------------------------------------------- Item 1. Issuer and Class of Security Subject to the Transaction - -------------------------------------------------------------------------------- (a) and (b) Outside Front Cover Page, "SUMMARY--The Partnership," "ACTION BY CONSENT--Record Date," "MARKET FOR THE UNITS," "VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF." - -------------------------------------------------------------------------------- (c) "MARKET FOR THE UNITS." - -------------------------------------------------------------------------------- (d) "DISTRIBUTIONS." - -------------------------------------------------------------------------------- (e) Not applicable. - -------------------------------------------------------------------------------- (f) Not applicable. - -------------------------------------------------------------------------------- Item 2. Identity and This Statement is being filed by the issuer and Background certain affiliates of the issuer named in (b) below. - -------------------------------------------------------------------------------- (a)-(c) ConAm Property Services IV, Ltd. 1764 San Diego Avenue San Diego, California 92110-1906 State of organization: California Principal business: Real estate investment Continental American Properties, Ltd. 1764 San Diego Avenue San Diego, California 92110-1906 State of organization: California Principal business: Real estate investment ConAm DOC Affiliates LLC 1764 San Diego Avenue San Diego, California 92110-1906 State of organization: California Principal business: Real estate investment Continental American Development, Inc. 1764 San Diego Avenue San Diego, California 92110-1906 State of organization: California Principal business: Real estate investment DJE Financial Corp. 1764 San Diego Avenue San Diego, California 92110-1906 State of organization: California Principal business: Real estate investment Daniel J. Epstein Chairman and Chief Executive Officer ConAm Management Corporation 1764 San Diego Avenue San Diego, California 92110-1906 Principal business: Real estate management - -------------------------------------------------------------------------------- 2 - -------------------------------------------------------------------------------- J. Bradley Forrester President ConAm Management Corporation 1764 San Diego Avenue San Diego, California 92110-1906 Principal business: Real estate management E. Scott Dupree, Esq. Senior Vice President and General Counsel ConAm Management Corporation 1764 San Diego Avenue San Diego, California 92110-1906 Principal business: Real estate management Robert J. Svatos Senior Vice President and Chief Financial Officer ConAm Management Corporation 1764 San Diego Avenue San Diego, California 92110-1906 Principal business: Real estate management Ralph W. Tilley Senior Vice President and Treasurer ConAm Management Corporation 1764 San Diego Avenue San Diego, California 92110-1906 Principal business: Real estate management - -------------------------------------------------------------------------------- (d) Daniel J. Epstein has been Chairman and Chief Executive Officer of ConAm Management Corporation since 1983. J. Bradley Forrester has been President of ConAm Management Corporation since 1994. Prior to joining ConAm Management Corporation, Mr. Forrester was Senior Vice President--Commercial Real Estate for First Nationwide Bank from 1991 to 1994. First Nationwide Bank was a national savings bank located at 700 Market Street, San Francisco, California. E. Scott Dupree has been Senior Vice President and General Counsel of ConAm Management Corporation since 1985. Robert J. Svatos has been Senior Vice President and Chief Financial Officer of ConAm Management Corporation since 1988. Ralph W. Tilley has been Senior Vice President and Treasurer of ConAm Management Corporation since 1980. - -------------------------------------------------------------------------------- (e) and (f) During the last five years, neither the Partnership nor any of the persons named in the response to Item 2(a) hereof has been (i) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and, as a result of such proceeding, was or is subject to a judgment, decree or final order enjoining further violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. - -------------------------------------------------------------------------------- 3 - -------------------------------------------------------------------------------- (g) All natural persons named in the response to Item 2(a) are citizens of the United States of America. - -------------------------------------------------------------------------------- Item 3. Past Contacts, Transactions or Negotiations - -------------------------------------------------------------------------------- (a)(1) Not applicable. - -------------------------------------------------------------------------------- (a)(2) "SPECIAL FACTORS--Alternatives Considered to the Sale," "THE PROPOSALS--Background of the Sale." - -------------------------------------------------------------------------------- (b) "SPECIAL FACTORS--Alternatives Considered to the Sale," "THE PROPOSALS--Background of the Sale." - -------------------------------------------------------------------------------- Item 4. Terms of the Transaction - -------------------------------------------------------------------------------- (a) and (b) Outside Front Cover Page, "SUMMARY," "SPECIAL FACTORS--Effects of the Sale," "--Fairness of the Sale," "THE PROPOSALS--The Purchaser," "-- Background of the Sale," "--Conflicts of Interest of the General Partner," "--Terms of the Purchase Agreements," "--The Amendment." - -------------------------------------------------------------------------------- Item 5. Plans or Proposals of the Issuer or Affiliate - -------------------------------------------------------------------------------- (a)-(g) Outside Front Cover Page, "SUMMARY," "SPECIAL FACTORS-- Effects of the Sale," "THE PROPOSALS-- The Purchaser," "--Conflicts of Interest of the General Partner," "--Failure to Approve the Sale." - -------------------------------------------------------------------------------- Item 6. Source and Amounts of Funds or Other Consideration - -------------------------------------------------------------------------------- (a) "THE PROPOSALS--Purchaser's Valuation," "-- Background of the Sale," "--Terms of the Purchase Agreements." - -------------------------------------------------------------------------------- (b) "ACTION BY CONSENT--Action by Consent." - -------------------------------------------------------------------------------- (c) "THE PROPOSALS--Terms of the Purchase Agreements." - -------------------------------------------------------------------------------- (d) Not applicable. - -------------------------------------------------------------------------------- Item 7. Purposes, Alternatives, Reasons and Effects - -------------------------------------------------------------------------------- (a) "SPECIAL FACTORS--Reasons for the Sale," "THE PROPOSALS--Background of the Sale." - -------------------------------------------------------------------------------- (b) "SPECIAL FACTORS--Alternatives Considered to the Sale," "--Fairness of the Sale." - -------------------------------------------------------------------------------- (c) "SPECIAL FACTORS--Reasons for the Sale," "-- Alternatives Considered to the Sale," "--Fairness of the Sale." - -------------------------------------------------------------------------------- (d) Outside Front Cover Page, "SUMMARY," "ACTION BY CONSENT--Matters to be Considered," "SPECIAL FACTORS--Effects of the Sale," "THE PROPOSALS-- The Purchaser," "--Conflicts of Interest of the General Partner," "CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE," "NO APPRAISAL RIGHTS," "MARKET FOR THE UNITS." - -------------------------------------------------------------------------------- 4 - -------------------------------------------------------------------------------- Item 8. Fairness of the Transaction - -------------------------------------------------------------------------------- (a) and (b) "SUMMARY--Fairness of the Sale and Certain Conflicts of Interest," "SPECIAL FACTORS-- Fairness of the Sale." Each filing person reasonably believes that the Sale is fair to the Limited Partners and has adopted the analysis of the General Partner with respect thereto. - -------------------------------------------------------------------------------- (c) Outside Front Cover Page, "SUMMARY--Vote Required," "ACTION BY CONSENT--Action by Consent," "NO APPRAISAL RIGHTS." - -------------------------------------------------------------------------------- (d) "SPECIAL FACTORS--Fairness of the Sale," "THE PROPOSALS--Background of the Sale," "--Conflicts of Interest of the General Partner." - -------------------------------------------------------------------------------- (e) Not applicable. - -------------------------------------------------------------------------------- (f) "SPECIAL FACTORS--Alternatives Considered to the Sale," "THE PROPOSALS--Background of the Sale." - -------------------------------------------------------------------------------- Item 9. Reports, Opinions, Appraisals and Certain Negotiations - -------------------------------------------------------------------------------- (a)-(c) "SUMMARY--Fairness of the Sale and Certain Conflicts of Interest," "SPECIAL FACTORS-- Independent Appraisal." - -------------------------------------------------------------------------------- Item 10. Interest in Securities of the Issuer - -------------------------------------------------------------------------------- (a) "SUMMARY--Security Ownership and Voting Thereof," "VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF." - -------------------------------------------------------------------------------- (b) Not applicable. - -------------------------------------------------------------------------------- Item 11. Contracts, Not applicable. Arrangements or Understandings with Respect to the Issuer's Securities - -------------------------------------------------------------------------------- Item 12. Present Intention and Recommendation of Certain Persons with Regard to the Transaction - -------------------------------------------------------------------------------- (a) "SUMMARY--Security Ownership and Voting Thereof," "VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF." - -------------------------------------------------------------------------------- (b) No recommendation regarding the Sale has been made to date by any person named in paragraph (a) of this Item to any person owning Units in the Partnership. - -------------------------------------------------------------------------------- Item 13. Other Provisions of the Transaction - -------------------------------------------------------------------------------- (a) "NO APPRAISAL RIGHTS." - -------------------------------------------------------------------------------- (b) Not applicable. - -------------------------------------------------------------------------------- (c) Not applicable. - -------------------------------------------------------------------------------- 5 - -------------------------------------------------------------------------------- Item 14. Financial Information - -------------------------------------------------------------------------------- (a) "AVAILABLE INFORMATION," Annex 1 and Annex 2 to Consent Solicitation Statement. The book value per Unit as of the 1997 fiscal year end was $174. - -------------------------------------------------------------------------------- (b) Not applicable. - -------------------------------------------------------------------------------- Item 15. Persons and Assets Employed, Retained or Utilized - -------------------------------------------------------------------------------- (a) "THE PROPOSALS--The Purchaser." - -------------------------------------------------------------------------------- (b) "SUMMARY--Solicitation Agent," "ACTION BY CONSENT-- Action by Consent," "VOTING PROCEDURES." - -------------------------------------------------------------------------------- Item 16. Additional Not applicable. Information - -------------------------------------------------------------------------------- Item 17. Material to be Filed as Exhibits - -------------------------------------------------------------------------------- (a) Not applicable. - -------------------------------------------------------------------------------- (b) Independent Appraisal. - -------------------------------------------------------------------------------- (c) Not applicable. - -------------------------------------------------------------------------------- (d) Previously filed. - -------------------------------------------------------------------------------- (e) Not applicable. - -------------------------------------------------------------------------------- (f) Not applicable. - -------------------------------------------------------------------------------- 6 SIGNATURES After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Statement is true, complete and correct. Dated: November 5, 1998 CONAM REALTY INVESTORS 5, L.P. By: CONAM PROPERTY SERVICES IV, LTD., its General Partner By: CONTINENTAL AMERICAN DEVELOPMENT, INC., its General Partner By: /s/ Daniel J. Epstein ------------------------------ Name: Daniel J. Epstein ---------------------------- Title: President --------------------------- CONAM PROPERTY SERVICES IV, LTD. By: CONTINENTAL AMERICAN DEVELOPMENT, INC., its General Partner By: /s/ Daniel J. Epstein --------------------------------- Name: Daniel J. Epstein ------------------------------- Title: President ------------------------------ CONTINENTAL AMERICAN PROPERTIES, LTD. By: DJE FINANCIAL CORP., its General Partner By: /s/ Daniel J. Epstein --------------------------------- Name: Daniel J. Epstein ------------------------------- Title: President ------------------------------ CONAM DOC AFFILIATES LLC By: CONTINENTAL AMERICAN PROPERTIES, LTD., its Administrative Member By: DJE FINANCIAL CORP., its General Partner By: /s/ Daniel J. Epstein ------------------------------ Name: Daniel J. Epstein ---------------------------- Title: President --------------------------- 7 EX-99.(B) 2 INDEPENDENT APPRAISAL EXHIBIT B =============================================================================== A COMPLETE, SELF-CONTAINED VALUATION OF THE HAMPTONS AT QUAIL HOLLOW 4401 HAMPTON RIDGE DRIVE CHARLOTTE, NORTH CAROLINA FOR HUTTON/CON AM REALTY INVESTORS 5 1764 SAN DIEGO AVENUE SAN DIEGO, CALIFORNIA 92110 AS OF NOVEMBER 30, 1997 BY BACH REALTY ADVISORS, INC. 1221 LAMAR, SUITE 1325 HOUSTON, TEXAS 77010 BRA: 97-067 =============================================================================== TABLE OF CONTENTS - --------------------------------------------------------------------------------
Letter of Transmittal..................................................... 1 Assumptions and Limiting Conditions....................................... 2 Certification............................................................. 4 Salient Facts and Conclusions............................................. 6 Nature of the Assignment.................................................. 7 City/Neighborhood Analysis................................................ 9 Apartment Market Analysis................................................. 17 Site...................................................................... 22 Improvements.............................................................. 24 Highest and Best Use...................................................... 27 Appraisal Procedures...................................................... 31 Sales Comparison Approach................................................. 33 Income Approach........................................................... 37 Reconciliation............................................................ 47
ADDENDA Rent Comparables Improved Sale Comparables Professional Qualifications [LETTERHEAD OF BACH REALTY ADVISORS APPEARS HERE] March 6, 1998 Hutton/Con Am Realty Investors 5 1764 San Diego Avenue San Diego, California 92110 Re: The Hamptons at Quail Hollow, an apartment complex located at 4401 Hampton Ridge Drive, Charlotte, North Carolina; BRA: 97-067 Gentlemen: By your request and authorization, we have inspected the above-referenced property and have investigated the real estate market in the subject area in order to provide the value of the leased fee estate of the subject property as of November 30, 1997. This appraisal is a complete, self-contained report and is in conformance with the guidelines of the Uniform Standards of Professional Appraisal Practice of the Appraisal Institute. The scope of this assignment includes the Sales Comparison and Income Approaches to value. The subject property was inspected in December 1997 and for purposes of this appraisal, it is assumed that all physical and economic conditions are similar on the date of value as they were on the date of inspection. Our analysis of the property focused on the supply and demand factors influencing the Charlotte and subject area apartment markets, the sale of comparable properties, market rent levels, appropriate operating expenses, and acceptable investor returns. As a result of our inspection of the property, investigation of the real estate market, and relying on our experience with similar type properties, it is our opinion that the leased fee market value of the subject property, all cash, on an "as is" basis, as of November 30, 1997 is in the sum of FOURTEEN MILLION TWO HUNDRED THOUSAND DOLLARS ($14,200,000) There follows on the succeeding pages of this report pertinent data as to the valuation conclusions expressed herein. Your attention is also directed to the Assumptions and Limiting Conditions that follow this letter, as they are an integral part of the above stated market value. Thank you for the opportunity to be of service. If there are any questions regarding the valuation, please contact us. Sincerely, BACH REALTY ADVISORS, INC. /s/ Stevan N. Bach Stevan N. Bach, MAI President and Chief Executive Officer SNB/kee ASSUMPTIONS AND LIMITING CONDITIONS - -------------------------------------------------------------------------------- The certification of this appraisal is subject to the following assumptions and limiting conditions. 1. That responsibility is not taken for matters of a legal nature affecting the property appraised or the title thereto and that all legal descriptions furnished are correct. 2. That the title to the property being appraised is good and marketable and is appraised as though under responsible ownership and/or management. 3. That the property is free and clear of all liens and encumbrances, except as stated herein. 4. That a survey of the property has not been made by the appraiser. 5. That the square footage figures are based on floor plans and information supplied to the appraiser by Con Am Management. 6. That the information, estimates, and opinions furnished the appraiser by others and contained in this report are considered reliable and are believed to be true and correct; however, responsibility is not taken for their accuracy. 7. That responsibility is not taken for soil conditions or structural soundness of the improvements that would render the property more or less valuable. 8. That possession of this report does not carry with it the right of publication and that this report, or any parts thereof, may not be reproduced in any form without written permission of the appraiser. 9. That testimony or attendance in court or at any legal proceeding is not a part of this assignment; therefore, any such appearance and/or preparation for testimony will necessitate additional compensation than received for this appraisal report. 10. Where discounted cash flow analyses have been undertaken, the discount rates utilized to bring forecasted future revenues to estimates of present value reflect both our market investigations of yield anticipations and our judgement as to the risks and uncertainties in the subject property and the consequential rates of return required to attract an investor under such risk conditions. There is no guarantee that projected cash flows will actually be achieved. 11. All opinions of the leased fee market value are presented as Bach Realty Advisors, Inc.'s considered opinion based on facts and data provided and appearing in this report. We assume no responsibility for changes in market conditions. 2 12. Bach Realty Advisors, Inc. is not an expert as ----------------------------------------------- to asbestos and will not take any ----------------------------------------------- responsibility for its existence or the ----------------------------------------------- existence of other hazardous materials at the ----------------------------------------------- subject property, analysis for EPA standards, ----------------------------------------------- its removal, and/or its encapsulation. If the ----------------------------------------------- reader of this report and/or any entity or ----------------------------------------------- person relying on the valuations in this report ----------------------------------------------- wishes to know the exact or detailed existence ----------------------------------------------- (if any) of asbestos or other toxic or ----------------------------------------------- hazardous waste at the subject property, then ----------------------------------------------- we not only recommend, but state unequivocally ----------------------------------------------- that they should obtain an independent study ----------------------------------------------- and analysis (including costs to cure such ----------------------------------------------- environmental problems) of asbestos or other ----------------------------------------------- toxic and hazardous waste. ------------------------- 13. In addition, an audit on the subject property to determine its compliance with the Americans with Disabilities Act of 1990 was not available to the appraiser. The appraiser is unable to certify compliance regarding whether the removal of any barriers which may be present at the subject are readily achievable. 3 CERTIFICATION - ------------------------------------------------------------------------------ The undersigned does hereby certify that to the best of our knowledge and belief, except as otherwise noted in this complete, self-contained appraisal report: 1. I do not have any personal interest or bias with respect to the subject matter of this appraisal report or the parties involved. 2. The statements of fact contained in this appraisal report, upon which the analyses, opinions, and conclusions expressed herein are gauged, are true and correct. 3. This appraisal report sets forth all of the limiting conditions (imposed by the terms of our assignment or by the undersigned) affecting the analyses, opinions, and conclusions contained in this report. 4. This appraisal report has been made in conformity with and is subject to the requirements of the Code of Professional Ethics and the Uniform Standards of Professional Appraisal Practice of the Appraisal Institute. 5. That no one other than the undersigned prepared the analyses, conclusions, and opinions concerning the subject property that are set forth in this appraisal report. Stevan N. Bach, MAI inspected the property in December 1997. 6. That use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 7. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions, and conclusions. 8. The Appraisal Institute conducts a program of continuing education for its members. Members who meet the minimum standards of this program are awarded periodic educational certification. As of the date of this report, I, Stevan N. Bach, MAI have completed the requirements under the continuing education program of the Appraisal Institute. 9. Compensation for this assignment is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. 4 10. Based on the knowledge and experience of the undersigned and the information gathered for this report, the estimated leased fee market value, "as is," of the subject property on an all cash basis, as of November 30, 1997 is $14,200,000. /s/ Stevan N. Bach ----------------------- Stevan N. Bach, MAI President and Chief Executive Officer Certified General Real Property Appraiser State of Texas TX-1323079-G 5 SALIENT FACTS AND CONCLUSIONS - ------------------------------------------------------------------------------- Identification: The Hamptons at Quail Hollow 4401 Hampton Ridge Drive Charlotte, North Carolina Location: Southeast corner of Quail Hollow Road and Heathstead Place BRA: 97-067 Legal Description: 33.11 acres, M20-730 Quail Hollow, Charlotte, Mecklenberg County, North Carolina Land Size: 33.11 acres Net Rentable Area: 245,282 square feet Year Built: 1985/86 Mix: 20 1BR/1BA at 770-784 square feet 8 1BR/1BA at 860 square feet 48 2BR/1BA at 945-960 square feet 8 2BR/1BA at 1,040-1,055 square feet 108 2BR/2BA at 1,090-1,105 square feet 20 2BR/2BA at 1,180-1,190 square feet 16 3BR/2BA at 1,295 square feet 4 3BR/2BA at 1,400 square feet --- No. of Units: 232 Average Unit Size: 1,057 square feet Physical Occupancy: 95.7 percent Economic Occupancy: 89.8 percent Highest and Best Use As Vacant: Multifamily residential development As Improved: Multifamily residential, as currently improved Date of Value: November 30, 1997 As Is" Market Value by Sales Comparison Approach: $14,300,000 As Is" Market Value by Income Approach: $14,200,000 As Is" Market Value Conclusion: $14,200,000 6 NATURE OF THE ASSIGNMENT - ------------------------------------------------------------------------------- PURPOSE OF THE APPRAISAL The purpose of this complete, self-contained appraisal is to give an estimate of the "as is" leased fee market value of the subject property on an all cash basis. IDENTIFICATION OF THE PROPERTY The subject property is a 232-unit apartment complex built in 1985/86 known as The Hamptons at Quail Hollow. The subject property is located at the southeast corner of Quail Hollow Road and Heathstead Place with a physical address of 4401 Hampton Ridge Drive (management office), Charlotte, Mecklenburg County, North Carolina. DATE OF THE APPRAISAL All opinions of value expressed in this report reflect physical and economic conditions prevailing as of December 1997, which are assumed to have remained unchanged as of the date of value of November 30, 1997. DEFINITION OF SIGNIFICANT TERMS The Appraisal of Real Estate, Eleventh Edition, ---------------------------- 1996, sponsored by the Appraisal Institute defines Market Value as: "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) Buyer and seller are typically motivated; (2) Both parties are well informed or well advised, and acting in what they consider their own best interests; (3) A reasonable time is allowed for exposure in the open market; (4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale." It is our opinion that a reasonable time period to sell the subject is six months to one year and this ---------------------- is consistent with current marketing conditions. A sale longer than one year may represent a value other than market value and would require discounting for time as per USPAP requirements. 7 Leased Fee Estate: An ownership interest held by a ----------------- landlord with the right of use and occupancy conveyed by lease to others; the rights of lessor or the leased fee owner and leased fee are specified by contract terms contained within the lease. FUNCTION OF THE APPRAISAL It is the understanding of the appraiser that the function of this appraisal is for annual partnership and/or internal purposes. PROPERTY RIGHTS APPRAISED The appraiser has appraised the "as is" leased fee interest subject to short-term leases which are typically 6 to 12 months in duration at the subject property. THREE-YEAR HISTORY According to the Mecklenberg County Assessor's Office, the subject property is currently owned by Hamptons Joint Venture/Con Am and has been since May 30, 1986 (Volume 5233, page 661). No subsequent transactions of the subject property were noted. SCOPE/BASIS OF THE APPRAISAL This appraisal has been made in accordance with accepted techniques, standards, methods, and procedures of the Appraisal Institute. The values set forth herein were estimated after application and analysis by the Sales Comparison and Income Approaches to value. These approaches are more clearly defined in the valuation section of this report. The Cost Approach was not used as this method of valuation is typically the least reliable indicator of value in mid-life projects such as the subject since estimates of depreciation are difficult to accurately measure in the marketplace. Additionally, it is often the perception of investors that cost does not necessarily equate to value and the purchase price is not typically based on construction costs. The scope of our assignment included obtaining pertinent property data from the client regarding income and expense figures, tenant rent rolls, and permission to inspect the subject. Additionally, the appraiser conducted research either alone or through associates to obtain current market rental rates, construction trends, the sale of comparable improved properties, anticipated investor returns, and the supply and demand of competitive apartments in the general and immediate area. After these various items were performed, an analysis was made in order to estimate the leased fee market value of the subject on an "as is" basis. 8 [AREA MAP APPEARS HERE] CITY/NEIGHBORHOOD ANALYSIS - ------------------------------------------------------------------------------- Located along the central region of North Carolina's southern border, the city of Charlotte relies on three strong economic bases: finance, insurance, and real estate; wholesale and retail trade; and services. Uniquely, Charlotte is able to offer the opportunities of a large urban center while maintaining the qualities of a midsized city. The subject property is located within south central Charlotte, one of the city's most affluent areas which is also convenient to Charlotte's Central Business District (CBD). The subject's central location, within a prominent residential area of Charlotte creates a desirable location for an apartment complex. CHARLOTTE CITY DATA OVERVIEW Charlotte is conveniently located between the Appalachian Mountains, two hours to the west, and the Atlantic Ocean, three and one-half hours to the east. Originally settled by Scotch-Irish immigrants in the 1740s, the City of Charlotte, named after England's Queen Charlotte was incorporated into Mecklenburg County in 1768. With the discovery of gold near Charlotte in 1799, the city grew as a financial center. In the late 1800s, the area's cotton production along with the invention of the cotton mill enabled Charlotte to become a leading center for the textile industry. Soon thereafter, wholesale and distribution facilities were constructed in conjunction with the development of railroads and the state highway system. Fortune magazine recently ranked ------- Charlotte as the nation's top city with the best pro- business attitude. Charlotte is now the second largest banking center in the nation, controlling approximately $367 billion in assets, according to the Charlotte Chamber of Commerce. First Union National Bank and NationsBank are headquartered in Charlotte and are both in the top ten of the nation's largest banks. As one of only three southern cities with more than one professional sports franchise, sports have become big business in the Charlotte-Mecklenburg MSA, with the Charlotte Motor Speedway, NBA Charlotte Hornets and the NFL Carolina Panthers. DEMOGRAPHICS Over the past two decades, Charlotte's population has experienced slow, steady growth. The U.S. Census figures indicate that the population of Charlotte grew from 241,420 in 1970 to 315,473 in 1980. This indicates a compound annual growth rate (CAGR) of 2.71 percent over a ten-year period. This growth rate declined slightly in the 1980s with a 2.30 percent CAGR indicated by the population of 395,934 in 1990. By 1995, the population had grown 15 percent to 455,367 or an annual average increase of 3 percent. The population in 1996 was 465,895 an increase of 2.3 percent from 1995. The 1997 population increased more slowly to 470,553, a 1 percent increase from 1996. Between 1980 and 1990, the population of Mecklenburg County grew at a CAGR of 2.38 percent, slightly greater than the growth rate for the city of Charlotte. The 1990 population of Mecklenburg County was 511,433. The 1995 population total for Mecklenburg County was 581,466 a 14 percent increase over 1990. The population for Mecklenburg County grew 2.65 percent for 1996 to 596,875. The 1997 population of Mecklenberg County is 612,095 representing a 2.55 percent increase over 1996. By the year 2000, this figure is projected to increase to 661,091 or grow at 2.65 percent annually. The Charlotte-Gastonia-Rockhill MSA 9 contains an estimated 1997 population of 1,331,740, and is projected to increase 1.72 percent annually for an estimated population of 1,397,600 in the year 2000. Population trends for the city of Charlotte can be found in the following table: CITY OF CHARLOTTE -- 1997 --------------------------------------------- YEAR POPULATION % CHANGE --------------------------------------------- 1950 134,042 ---- 1960 201,564 57.1 1970 241,420 19.8 1980 315,473 30.6 1990 395,934 25.5 1995 455,367 15.0 1996 465,895 2.3 *1997 470,553 1.0 *2000 500,857 6.4 * Estimated as of August 1997 ECONOMIC BASE The Charlotte economy is based on its development as a financial, distribution, and transportation center for the southeastern region of the United States. The U.S. Census Bureau ranks Charlotte as the center of the nation's fifth largest wholesale and distribution area. Major industries in Charlotte include microelectronics, metalworking and vehicle assembly, as well as research and development, high-tech and service-oriented businesses. The merger between NCNB and C&S Sovereign, which formed NationsBank reinforced Charlotte's position as a major financial center. The more than $156 billion in total assets of both NationsBank and First Union have helped to push Charlotte past San Francisco to the second largest financial center in the nation. Charlotte, with a total of $367 billion in assets, is surpassed only by New York in the amount of financial resources. Additionally, 9 of the nation's top 200 banks have a presence in Charlotte, the most of any other city in the Southeast. Please refer to the table on the following page for a listing of Charlotte's major employers.
CHARLOTTE'S LARGEST EMPLOYERS -- 1997 -------------------------------------------------------- NUMBER EMPLOYER EMPLOYED -------------------------------------------------------- Carolinas Health Care System 11,738 First Union Corporation 11,201 Charlotte-Mecklenburg Schools 10,166 NationsBank 9,198 Duke Power Company 7,470 US Air 7,000 Presbyterian Health Services Corporation 5,557 State of North Carolina 5,509 City of Charlotte 4,900 Mecklenburg County 4,506
Source: Charlotte in Detail, Charlotte Chamber of ------------------- Commerce 10 Since 1991, the number of firms and investment in Charlotte has been impressive. In 1991, 860 new firms came to Charlotte employing 10,376 persons. The growth continued in the three year period from 1992 through 1994 with an average of over 1,100 new firms each year adding approximately 35,000 new jobs over this period. This growth continued in 1995 with 1,185 new firms and 18,425 jobs. Year end 1996 realized 1,248 new firms and 13,134 new jobs. The year 1997 is proving to be another impressive year. In early 1997, Charlotte attracted three national call centers, employing over 1,000 people: Vanguard, Inc., a mutual fund group; the life insurance arm of Equitable Companies; and Electronic Data Systems. In addition there have been a number of other economic announcements made recently including: US Airways announced they plan to move 900 jobs from Winston-Salem to Charlotte in 1998; Stanley Works plans to move a Detroit door manufacturing plant to Charlotte creating 250 jobs; Alydaar Software Corporation plans 250 more hires; Metropolitan Property & Casualty Insurance of Rhode Island plans to open a field claims office Charlotte creating 150 new jobs; Propack, a Columbus, NC based packaging company is relocating to Charlotte and plans to employ up to 300 workers; and Wilton Connon Packaging Inc. is expanding and plans to add 150 jobs in its Westinghouse Boulevard complex in southwest Charlotte. The Charlotte unemployment rate in 1990 was 3.0 percent. In 1991, however, the Charlotte unemployment rate jumped to 4.8 percent. The increasing unemployment trend continued in 1992 and averaged 5.0 percent in Mecklenburg County and 5.5 percent in the Charlotte-Gastonia-Rockhill MSA. However, in 1993 and 1994 the unemployment rate for Mecklenburg County dropped, averaging 4.3 and 3.5 percent, respectively. In 1995, the unemployment rate remained relatively unchanged with 3.62 percent in Charlotte-Gastonia- Rockhill MSA. A further decline in the unemployment rate was witnessed in 1996 when Mecklenburg County reported an unemployment rate of 2.9 percent. The 1997 figure for Charlotte-Gastonia- Rockhill MSA reported a slight increase to 3.18 percent. TRANSPORTATION Charlotte is served by various transportation facilities including air, rail, truck, bus, and automobile. The Charlotte/Douglas International Airport provided service to over 7.7 million passengers in 1989, 7.8 million passengers in 1990, and 8.4 million passengers in 1991. In 1993, nearly 8.7 million enplanements were recorded at the Charlotte/Douglas International Airport. With over 10.4 million passengers in 1995, Charlotte's airport is ranked as the 17/th/ largest in total operations in the nation, 20/th/ nationwide in total passengers, 30/th/ nationwide in cargo (freight, mail), and 34/th/ worldwide in total passengers. Eight major airlines and six commuter carriers at this airport average 500 daily flights and offer direct and nonstop service to more than 160 cities and a variety of international destinations. As an expansion of the Douglas International Airport, USAir has completed a $42 million maintenance, training and parts distribution complex and spent $15 million to add six gates to Concourse B. One of the airport's three runways was extended in 1994 in an effort to reduce air traffic congestion. Rail service in Charlotte is provided by Norfolk Southern Railway Corporation and CSX Transportation. Each week, more than 270 trains pass through Charlotte, and approximately 28,000 cars are classified each day through Norfolk Southern's $50 million computerized facility. Also, Amtrak provides passenger service through 11 Charlotte to most of the United States with north/south connections to east/west lines. Charlotte ranks as the 11/th/ largest trucking center and the 5/th/ largest trading area in the nation. Nine of the top ten trucking firms having a base in Charlotte, providing a full range of transport services. Interstate Highways 85 and 77 intersect in northern Charlotte and are part of the national interstate system. Interstate Highway 77 links up with Interstate Highway 40 just to the north of Mecklenburg County, providing east/west passage. Charlotte's road system is also facilitated by U.S. Highways 74, 29, and 21. The State of North Carolina, through its General Assembly approved the Highway Trust Fund in 1989, an extensive $10.0 billion program through the year 2000 to improve rural and urban roads in North Carolina. This program includes the completion of the I-485 Outer Belt around the state's seven largest cities and the completion of a four-lane highway system, which is only 10 miles from 95 percent of the state's population. REAL ESTATE MARKETS Charlotte has one of the nation's most active real estate markets. Permits for $643.8 million of commercial real estate were issued in 1994, followed by another $689.8 million in 1995. In 1996, permits for almost $700 million of commercial real estate were issued. The critical factor driving the growth of the real estate market is the continued migration of new business and job seekers to the Charlotte metropolitan area. Some important developments for Charlotte's downtown real estate market in recent years include the $180 million Ericsson Stadium, home of the NFL Carolina Panthers which was completed in 1996 and has become the centerpiece of interest for the region. Located downtown and designed by HOK Sports Facilities Group of Kansas City, the stadium features a 72,302-seat open air complex with 104 luxury suites and extra-wide concourses. Additionally, the Los Angeles-based Transamerica Life Companies has transferred three divisions to Charlotte since 1992 and has recently completed a 10-story building downtown with NationsBank. NationsBank Chairman Hugh L. Macon estimates his company will require an additional 1.2 million square feet of space in downtown Charlotte by the year 2000 for its expanding workforce. One of the most visible new projects has been Trammel Crow's 750,000 square foot 30-story 201 South Tryon Building. The suburban real estate markets have also been active especially in South Charlotte around the Coliseum, SouthPark and I-77 and in northeast Charlotte around University Research Park. An 18-story office tower is currently planned across from South Park Mall, which will be the tallest building outside downtown Charlotte. The impending completion of I-485 through to Independence Boulevard has set the stage for new development in this are including Bissell Companies' 414-acre Ballantyne development in which 104,000 square feet Ballantyne One building and golf course are nearing completion. A retail community center is also underway as part of this development. Queens Properties began its planned $50 million 500,000 square foot office development, Professional Office Center at University Research Park. Crossland Commercial is developing a major mixed-use project, University East Business Park on a 68 acre site. 12 There has been much speculation as to the development of a fourth regional mall in Charlotte. Some possible locations include Highway 74 in Matthews and Harris Boulevard and I-77 in the North. Simon has announced due diligence on a mall site in the Northeast along I- 85. Plans have been announced for a 1.5 million square foot retail/entertainment complex at King Grant which would be Charlotte's largest enclosed shopping mall. In general, Charlotte's real estate market is strong in certain sectors with most periods of high vacancy directly related to overbuilding rather than to more severe economic problems. Charlotte's diversified economy and high quality of living creates an attractive package for many relocating companies. The following summarizes the major commercial real estate markets in Charlotte. (An analysis of Charlotte's apartment market will follow this section of our report.) RETAIL - In 1994 over 2.4 million square feet of new retail space was added. Since 1995, the city's Northeast submarket near the University City area, and the South submarket near SouthPark and Carolina Place Mall have experienced the highest growth rate. There were two power centers anchored by Best Buy, Wal-Mart, K-Mart, Sam's Club and Home Depot completed in 1995 which added 1.1 million square feet of retail space to the Northeast submarket. 1996 saw considerable activity in the grocery market, where New England based Hannaford entered the market with five stores. In light of this new competition, locally owned, Harris Teeter rehabbed and expanded several locations, built four new stores and announced three new locations. Additionally, Win-Dixie has or is opening nine new stores. Recent development has centered around Pineville and Matthews in the south, the University City area in the northeast and Davidson, Cornelius and Huntersville in theNorth. Recent retail development includes: Phillips Place, a specialty retail center under construction in South Park, being developed by the Harris Group including several restaurants, theater and top-end retailer; Piper Glen Center containing 467,000 square feet; and a new 467,000 square foot community center being developed by Crossland at I-485 and Rea Road in the Southeast. Another major retail projects include the redevelopment of The Cotswold Mall to an upscale shopping center. In 1997, the Charlotte retail market contains 170 retail centers with over 30,000 square feet and over 21 million square feet of retail space. There are three regional malls located in the Charlotte retail market, Southpark, Eastland, and Carolina Place. The recently completed Carolina Pavilion at the intersection of Route 521 and Route 485 is Charlotte's largest, unenclosed retail center totaling 800,000 square feet and featuring tenants such as, Marshall's, Target, the Sports Authority, and an AMC Theater. Another significant recently developed Power Center is the villages at University Place which is approximately 600,000 square feet. Retail sales for Mecklenburg County in 1992, 1993, and 1994 totaled $8.94 billion, $9.99 billion, $10.88 billion, respectively and $12.07 billion in 1995. Retail sales for Mecklenburg County totaled over $12.4 billion in 1996. The retail vacancy rate in Charlotte averaged 8.3 percent during 1992, up slightly from 8.1 percent in 1991. The 1994 average vacancy rate in Charlotte increased slightly to 10.02 percent but declined again in 1995 to 9.0 percent. The 1996 average vacancy rate decreased to 7.8 percent. The retail vacancy rate for 1997 increased to approximately 13 percent. 13 OFFICE - Charlotte's office market is comprised of over 25 million square feet of rentable space with 3.2 million square feet currently available. The office market in Charlotte doubled in size over a period from 1982 to 1992. However, from 1992 to 1995 only 350,000 square feet of space was added. This slow growth trend was reversed in 1996 when 2.75 million square feet was added. There are eight major multi-tenant buildings currently under construction totaling 1.5 million square feet. Development activity is concentrated in the Uptown, Southpark, and Highway 51 markets. The citywide vacancy rate is 13 percent, up from 10.6 percent in 1996. Charlotte's largest concentrations of office space are the CBD (Uptown) and the Interstate Highway 77/Southwest and Southpark submarkets which benefit from proximity to the airport and major highways. The downtown (referred to as Uptown) submarket is Charlotte's largest and contains 10.7 million square feet with a vacancy rate of 9.5 percent. The increase in vacancy from the 9.0 percent rate last year is primarily due to the addition of the new 30-story NationsBank/Trammel Crow project at 201 N. Tryon Street. Other recent developments include Morehead Place, which opened south of Uptown on East Morehead. Another 15-story office tower is planned for North Tryon and several other small buildings are under construction The 1997 average rental rate for class A space in the uptown area is up $0.60 over the past year to $21.04 per square foot. The suburban office market consists of 13.8 million square foot. Southpark is the largest and most prestigious submarket with 3.3 million square feet. Suburban vacancies have increased from 10.2 percent in 1996 to 15.6 percent in 1997. This increase is largely due to the amount of new construction added over the past two years. Recent additions include: Queens Properties' 310,000 square foot 6000 Fairview Building in Southpark; Five Coliseum Center, a six-story building near the Charlotte Coliseum; a new spec building at Koger Equity's office park on Camel Road; two new buildings in the Carnegie development by the Bissell Companies; and in the north, First Union's Customer Service Center recently expanded to 2 million square feet and added two new mid-sized office buildings. Average rents for suburban office space range from $11.57 per square foot in the East to $19.43 per square foot in South Park. INDUSTRIAL - Due to its location, labor supply, and infrastructure, Charlotte is ranked as the nation's 6/th/ largest distribution center, providing employment for over 50,000 workers. In addition to traditional textile and furniture, electronics and metal working have significant presence. The Charlotte industrial market has a vacancy rate in the 12 percent range which is down from 1996 when the vacancy rate was 14.0 percent. Charlotte's largest concentrations of industrial space are located in its southwest submarket. This area contains approximately 40 percent of the city's 17.5 million square feet. New developments in the Southwest include: Childress Klein's Brookwood Business Park; Trammell Crow's Silverlake Distribution Center; and Crescent Reseources' new eight-building park, Lakemont West. North has recently become the second largest submarket with over 2 million square feet added over the past two years. Recent developments in the North include: Crescent Resources' Crosspoint Center near the 77/85 Interchange; Beacon Properties' Long 14 [NEIGHBORHOOD MAP APPEARS HERE] Creek business Center; The Keith Corporation's Twin Lakes business Park; Childress Klein's Northpark on I-77; and Trammel Crow's $20 million 740,000 square foot distribution center at I-77 and Westinghouse which will include four buildings and renovation of the old Sears building LIVABILITY/ QUALITY OF LIFE Charlotte is located 765 feet above sea level, situated east of the Blue Ridge Mountains and west of the Atlantic Ocean, thereby providing a sheltering effect from extreme temperatures. Averages for the month of July are 79 degrees, and January's average temperature registers at 39.3 degrees. Charlotte enjoys a frost-free season of 230 days from mid-March to mid-November. Average annual participation totals 43 inches. Recreational activities abound in Charlotte's 152 city-county parks, 12 public and 13 private golf courses, Paramount's Carowinds Entertainment Park, nearby Lake Norman and Lake Wylie. Charlotte is home to the NFL Carolina Panthers, NBA Charlotte Hornets, Charlotte Knights AAA-baseball team, Charlotte Rage (arena football), Charlotte Checkers (hockey team), Carolina Vipers (soccer), and America's premier NASCAR facility in the Charlotte Motor Speedway. Cultural entertainment is available through The Charlotte Symphony, Opera Carolina, The Mint Museum of Art (with a collection of over 3,000 pieces), the N.C. Dance Theatre and North Carolina Blumenthal Performing Arts Center in uptown Charlotte. AREA CONCLUSION Charlotte's major assets include a diversified economic base, a growing population, low unemployment rate in relation to the nation, and a currently expanding infrastructure. A diversified balance between commerce and industry offers a stabilized economic base, with the current developments in Charlotte's CBD revealing an optimistic outlook for the Charlotte economy. Although commercial lending is more cautious, the general forecast for the Charlotte-Mecklenburg region is for continued growth and a recovery in some overbuilt real estate markets. NEIGHBORHOOD AREA DATA The Appraisal of Real Estate, Eleventh Edition ---------------------------- 1996 defines a neighborhood as: "a group of complimentary land uses." A neighborhood may be characterized by such uses as residential, commercial, industrial, recreational, agricultural, cultural, and civic activities, or a mixture of these uses. Analysis of the neighborhood in which a particular property is located is important since the various economic, social, physical, and governmental forces which affect the neighborhood also directly influence the individual properties located within it. A discussion of these various factors as they affect the value of the subject property is presented as follows. DELINEATION The subject neighborhood is located approximately 6 miles south of Charlotte's CBD. The subject apartments are more specifically located at the southeast corner of Quail Hollow Road and Heathstead Place in the south central region of Charlotte. The Hamptons at Quail Hollow Apartments are both visible and accessible from Quail Hollow Road and Heathstead Place. The subject's main entrance is located on the east side of Quail Hollow Road, which is a two-way, two-lane, asphalt- paved thoroughfare. For purposes of this report, the subject neighborhood is delineated by Fairview Road to the north, State Highway 51 (Pineville Matthews Road) to the south, Providence Road to the east, and Park Road to the west. 15 ACCESS Access to other areas of Charlotte is direct and convenient via several major thoroughfares, which are in the subject neighborhood, and via several major freeways, which are outside, but directly service the neighborhood. Due to the residential nature of the subject neighborhood, most streets in the subject's area are either secondary or residential. Most of Charlotte's major infrastructure leads to the CBD, creating a spoke- like effect. Approximately 3 miles west of the subject is Interstate Highway 77, one of Charlotte's two major freeways, which provides access from southwest Charlotte to the CBD. Additionally, U.S. Highway 74 (Independence Boulevard) which provides access from southeast Charlotte/Matthews to the CBD is approximately 6 miles east of the subject. STAGE OF DEVELOPMENT Land uses in the area vary; however, the land uses immediately surrounding the subject consist primarily of single-family or multifamily dwellings. Commercial development is found on State Route 51 and on Fairview Road. The Southpark Mall, which includes about 120 retailers, and other retail and office developments are located at the intersection of Fairview Road and Sharon Road, only about one mile north of the subject property. Moreover, the currently expanding Harris YMCA which, offers members a full line of recreational facilities is nearby at the intersection of Quail Hollow Road and Sharon Road. The southern area of the subject neighborhood is considered to be one of Charlotte's growth areas. The area between U.S. Highway 521 (Pineville Road) and State Highway 16 (Providence Road) along State Highway 51 (Pineville Matthews Road) is known as Carmel Commons. This area has recently been developed with restaurants, shopping centers, and single-family housing developments. A large retail and office development, The Arboretum, occupies all four corners of the intersection of State Highways 16 and 51. POLITICAL JURISDICTIONS The subject property is located within the city of Charlotte, county of Mecklenburg, and the Charlotte Independent School District. Beverly Woods Elementary School is immediately north of the subject property while Quail Hollow Junior High School and Mecklenburg Senior High School are about 1-mile southwest of the subject property. Additionally, a private school, Charlotte Country Day School, is located about 2 miles northeast of the subject apartment complex. The subject is governed by the City of Charlotte zoning ordinance. UTILITIES/SERVICES All utilities are available to the subject neighborhood. Duke Power Company provides electricity; Piedmont Natural Gas provides gas; the City of Charlotte provides water and sewer; Southern Bell provides telephone service; and the Charlotte Department of Sanitation provides trash service. Police and fire protection is also provided by the City of Charlotte. NEIGHBORHOOD CONCLUSION The subject neighborhood is considered to be convenient to the working and shopping areas of Charlotte. Due to its location, substantial residential base, and nearby retail facilities, it is concluded that the subject neighborhood should continue to be a viable multifamily market in the future. 16 [MARKET AREA MAP APPEARS HERE] APARTMENT MARKET ANALYSIS - -------------------------------------------------------------------------------- The Charlotte apartment market has recently experienced increases in rental rates and absorption; however, occupancies have decreased slightly over the past year with the addition of new apartment projects to the market. Overall, the conservative community of Charlotte is considered to favor single-family detached housing over multifamily development. With steady population growth and expanding construction of new multifamily units underway, the Charlotte apartment market is expected to adjust as vacancy rates begin to rise with the completion of new construction over the next year. In our analysis, we have referenced statistical data developed and published by the Charlotte Apartment Association. The semiannual Charlotte --------- Apartment Report divides Metropolitan Charlotte ---------------- into six pie-shaped submarkets, some of which are broken down even further into two to four sub-submarkets. For purposes of this report, we have referred to the most recent issue, September 15, 1997. The subject is considered to be within Charlotte's Southeast submarket which is generally defined as the area south of Charlotte's CBD, between South Road on the west and Randolph Road/Sardis Road on the east. The Southeast submarket is further divided into three sub-submarkets. The subject apartment complex is located within the "Southeast-3" sub-submarket which is the area of the Southeast market south of a boundary defined from west to east as Fairview Road to Sharon Road to Old Providence Road to Alexander Road to Pineville Matthews Road. Reference is made to the facing map. CHARLOTTE APARTMENT MARKET HISTORICAL OVERVIEW As previously stated, the Charlotte apartment market has recently experienced increases in construction, rental rates, and absorption. The outlook for Charlotte's apartment market continues to be optimistic with significant new apartment construction and expected growth in Charlotte's employment. SUPPLY/INVENTORY In August 1997, the Charlotte and Mecklenburg County apartment market consisted of 56,572 units. Roughly 51 percent of these are two-bedroom units, 39 percent are one-bedroom, and 10 percent are three-bedroom units. Charlotte's largest concentrations of apartment development are in the East submarket (19,568 units, or 34 percent of the Charlotte apartment market), the Southeast submarket (17,937 units, or 32 percent), and the Northeast submarket (10,096 units, or 18 percent). Combined, these three submarkets comprise 84 percent of the metropolitan Charlotte apartment market. Following is a brief history of permit activity in the Charlotte multi-family market. Multi-family construction activity declined sharply in 1990 to 1,555 units 17 compared to 4,183 the previous year. The decline continued in 1991 and 1992 when 642 and 499 units were permitted. In 1993 and 1994 the figures began to increase, but were still low with 697 and 1,720 units added each year. In 1995, the number of permits more than doubled from the previous year with 3,834 units permitted. 1996 was a record year with 4,230 units. Although 1997, has begun to show a decline, the number of permits is still impressive with 3,974 units. Additionally, there were 3,906 apartment units in 21 communities under construction in metropolitan Charlotte as of August 1997, with approximately 2,194 units proposed. The majority of new apartment development has been in the North, in the University area and Lake Norman, although construction activity has also been strong in the South. Most of the new development has been upscale including many amenities. Notable new developments in the subject's Southeast submarket include: Phillips Place developed by Post Properties near South Park Mall; 270 units at Preserve at Ballantyne; 140 unit Reserve developed by Hanover Realty on Sharon Road West; 424 units at Marquis at Carmel Valley on Pineville-Mattews Road; and 310 units at Ballantyne Commons on Ballantyne Commons Parkway. Other significant new developments include: Greystone Crossing, a 300 unit project on Stoney Glen Drive in the East and Huntersville Commons, a 200 unit project in the North. DEMAND/ABSORPTION Absorption for the Charlotte apartment market is an indicator of changes in demand for apartment units in the Charlotte area. In 1990 and 1991, absorption decreased from 1989 levels (2,063) to 1,643 units and 328 units, respectively. However, absorption in 1992 increased to 2,501 units indicating "pent-up" demand, with a decrease in 1993 to 1,097 units seen as a corrective measure within the market. Largely attributable to Charlotte's growing population and the increased rate of apartment construction, the absorption of 1,306 units in 1994 and 1,213 units in 1995 indicated a stabilized absorption. However, stronger than anticipated job growth during 1995 in addition to the surge of new product in the market caused absorption to "spike" with 3,150 units absorbed in 1996. Absorption has continued to be strong in 1997 with 3,073 units having been absorbed. The average annual apartment absorption in Charlotte for the 7-year period from 1990 through August 1997 has been 1,789 units. Historical absorption figures for Charlotte as well as the Southeast submarket can be found in a following table. PHYSICAL OCCUPANCY Continuing the decline from 94.0 percent in 1990, the average physical occupancy rate in the Charlotte apartment market fell to 88.5 percent in 1991, but increased slightly to 91.3 percent in 1992. According to data obtained from the Charlotte Apartment Association, occupancy rose again to 95.0 percent in 1993 and rose again to 96.9 percent in 1994, and remained at that level in 1995. The citywide occupancy rate for Charlotte decreased slightly to 96.0 percent in 1996 and then decreased again to 94.7 percent in 1997. There was an increase in construction 18
- ------------------------------------------------------------------------------------------------------------------------------------ AVERAGE PHYSICAL OCCUPANCY AND MONTHLY RENTAL RATES CHARLOTTE, NORTH CAROLINA - AUGUST 1997 - ------------------------------------------------------------------------------------------------------------------------------------ ALL UNITS ONE-BEDROOM TWO-BEDROOM THREE-BEDROOM - ------------------------------------------------------------------------------------------------------------------------------------ AREA AVG.PHYS. AVG.MO. NO. OF AVG.PHYS. AVG.MO. NO.OF AVG.PHYS. AVG.MO. NO.OF AVG.PHYS. AVG.MO. NO.OF OCCUPANCY RENTS/SF UNITS OCCUPANCY RENT/SF UNITS OCCUPANCY RENT/SF UNITS OCCUPANCY RENT/SF UNITS NE 94.7% $0.69 10,096 96.1% $0.77 3,765 93.9% $0.65 5,154 93.5% $0.63 1,177 E 95.2% 0.69 19,568 96.5% 0.76 8,335 94.5% 0.64 9,614 92.9% 0.59 1,619 SE 94.5% 0.76 17,937 94.6% 0.83 7,090 94.4% 0.72 9,167 94.7% 0.70 1,680 SW 94.3% 0.68 3,782 94.3% 0.76 1,354 94.0% 0.64 1,905 95.6% 0.58 523 NW 97.7% 0.52 3,109 97.8% 0.60 757 97.8% 0.50 1,982 97.0% 0.50 370 N 87.3% 0.80 1,480 89.1% 0.87 549 88.3% 0.75 758 77.5% 0.80 173 DN 93.7% 0.90 600 92.8% 0.92 429 95.9% 0.84 170 100% 0.28 1 - ------------------------------------------------------------------------------------------------------------------------------------ Total 94.7% $0.711 56,572 95.5% $0.79 22,279 94.4% $0.67 28,750 93.6% $0.64 5,543 - ------------------------------------------------------------------------------------------------------------------------------------
with 4,230 new apartment units added in 1996, and a slightly smaller amount (3,974) in 1997. These figures indicate that it may be a couple years before this inventory is absorbed. Therefore occupancy rates are expected to be stable to declining over the next few years. A history of Charlotte's apartment construction, absorption, and average physical occupancy is as follows: HISTORY OF THE CHARLOTTE APARTMENT MARKET --------------------------------------------------- ABSORPTION ------------------- CONSTRUCTION/ BUILDING PERMITS SOUTHEAST AVERAGE YEAR (# OF UNITS) CHARLOTTE SUBMARKET OCCUPANCY --------------------------------------------------- 1986 2,159 2,807 756 90.9% 1987 2,453 2,918 441 92.6% 1988 2,227 1,344 97 94.0% 1989 4,183 2,063 315 93.4% 1990 1,555 1,643 53 92.6% 1991 642 328 335 88.5% 1992 499 2,501 597 91.3% 1993 697 1,097 177 95.0% 1994 1,720 1,306 222 96.9% 1995 3,834 1,213 434 96.9% 1996 4,230 3,150 1,383 96.0% 1997 3,974 3,073 858 94.7% MONTHLY RENTAL RATES Rental rates are determined by supply and demand. Therefore, it can be expected that the trend of apartment rents would be a reflection of the overall multifamily environment. Rental rates typically increase as a result of an increase in demand, or a decrease in supply. Rental rates stagnated from 1990-1992, measuring a paltry 0.8 percent average annual increase; however, over the last three years rates have increased at an average annualized pace of 7.9 percent. According to the Charlotte Apartment Association's survey, Charlotte's August 1997 average overall apartment rental rates increased an average of $30.00 or approximately 5.0 percent since August 1996. As of August 1997, Charlotte's average monthly rents (excluding electricity) for apartment units were: $555 for a one-bedroom unit averaging 706 square feet ($0.79 per square foot):, $653 for a two- bedroom unit averaging 980 square feet ($0.67 per square foot):, and $802 for a three-bedroom unit averaging 1,267 square feet ($0.64 per square foot). The average monthly rent for all Charlotte apartment units was $0.711 per square foot. The highest average monthly rents per square foot are found in the Downtown and North submarkets. A summary of August 1997 average occupancy and monthly rental rates for the entire Charlotte apartment market is shown on the facing page. SUMMARY Approximately 2,240 units have been added to the market during the six month period ending August 15, 1997, yet the Charlotte Apartment Association reports the current supply of vacant units in Charlotte at 2,972 units, or 5.3 percent. Adding the 3,906 units currently under construction, vacant apartment units would increase to 6,878. Charlotte's healthy and expanding economy is currently producing steady population and employment growth estimated at an annual rate 19 of 2.5 and 2.6 percent, respectively. However, as new multifamily construction is completed vacancy rates are expected to rise slightly. With a projected total of 56,572 units in the market, about 5 percent will be physically vacant due to turnover, or 2,829 units. Over the past six years, Charlotte's apartment market has maintained an average annual absorption rate of approximately 1,800 units. Considering this information, annual absorption is projected at 1,800 units; therefore, the remaining 4,049 apartment units (6,878-2,829) will be absorbed in approximately two to two and one half years. As a result of new construction combined with the potential of the 2,194 units currently proposed, supply may begin to outpace demand in Charlotte. The Charlotte apartment market is expected to stabilize at 95 percent physical occupancy. SUBJECT APARTMENT SUBMARKET SUPPLY/INVENTORY The subject's Southeast apartment submarket consists of 17,937 or 32 percent of the entire Charlotte market. As of August 1997, there were a total of 1,864 new apartment units under construction in the submarket with 1,075 new units proposed. Within this submarket, the subject's Southeast-3 submarket consists of 10,415 units, or 58 percent of the Southeast submarket. Of the 1,864 new units under construction in the Southeast submarket, 94% or 1,760 are in the Southeast-3 submarket. Additionally, 81% of the proposed units in the Southeast submarket, or 872 units are proposed for the Southeast-3 submarket. DEMAND/ABSORPTION Recent historical absorption for the subject's Southeast submarket is summarized on page 19. The average annual apartment absorption in Charlotte's Southeast submarket for the six-year period from 1990 through 1995 was 303 units. In 1996 absorption hit an all-time high in the Southeast submarket of 1,383 units. The 1997 absorption, while still a healthy 858 units, declined from the record level of the previous year. PHYSICAL OCCUPANCY The Southeast apartment submarket has one of the highest occupancy rates in the Charlotte apartment market. As of August 1997, the average physical occupancy in the Southeast submarket was 94.5 percent, down from 96.0 and 96.9 percent in 1995 and 1996, respectively. Among the three Southeast sub-submarkets, Southeast-2 indicated the highest occupancy at 96.2 percent while the subject's submarket (SE-3) indicated the lowest occupancy at 93.6 percent. MONTHLY RENTAL RATES For August 1997, the average monthly rental rate for all units in the Southeast submarket was $0.76 per square foot per month, which is about 9.1 and 2.7 percent higher than in August 1995 and 1996, respectively. Among the three Southeast sub- submarkets, Southeast-3 indicated the highest average rental rate at $0.77 per square foot per month, while Southeast-l and Southeast-2 indicated average rental rates of $0.76 per square foot per month. A summary of the Southeast submarket average physical occupancy and monthly rental rates as of August 1997 is shown on the facing page. 20
- ------------------------------------------------------------------------------------------------------------------------------------ AVERAGE PHYSICAL OCCUPANCY AND MONTHLY RENTAL RATES CHARLOTTE, NORTH CAROLINA - AUGUST 1997 - ------------------------------------------------------------------------------------------------------------------------------------ ALL UNITS ONE-BEDROOM TWO-BEDROOM THREE-BEDROOM - ------------------------------------------------------------------------------------------------------------------------------------ AREA AVG. PHYS. AVG. MO. NO. OF AVG. PHYS. AVG. MO. NO. OF AVG. PHYS. AVG. MO. NO. OF AVG. PHYS. AVG. MO. NO. OF OCCUPANCY RENT/SF UNITS OCCUPANCY RENT/SF UNITS OCCUPANCY RENT/SF UNITS OCCUPANCY RENT/SF UNITS SE-1 95.5% $0.76 3,561 95.8% $0.83 1,588 95.0% $0.72 1,732 95.9% $0.70 241 SE-2 96.2% 0.76 3,961 95.2% 0.86 1,272 96.9% 0.72 2,097 96.1% 0.68 592 SE-3 93.6% 0.77 10,415 93.9% 0.83 4,230 93.3% 0.72 5,338 93.4% 0.72 847 - ------------------------------------------------------------------------------------------------------------------------------------ Total 94.5% $0.76 17,937 94.6% $0.84 7,090 94.4% $0.72 9,167 94.7% $0.70 1,680 - ------------------------------------------------------------------------------------------------------------------------------------
SUMMARY The August 1997 supply of vacant units in the subject's Southeast apartment submarket was 983 units. Adding the 1,864 new apartment units under construction reflects 2,847 vacant units. Allowing for a 5 percent stabilized vacancy of all units (existing and under construction) 2,704 units would be available. Based on this analysis the market would have to absorb 1,807 units to achieve a stabilized occupancy of 95 percent. If much of the 1,075 units that are proposed are built, this submarket will see a slight decrease in its occupancy over the short term. A recent rent roll as of November 7, 1997, indicates the subject had 10 out of 232 units vacant or unrented, reflecting a physical occupancy of 95.7 percent. This figure is above the August 1997 average of 94.7 percent indicated by the entire Charlotte apartment market, as well as the August 1997 average indicated by the Southeast submarket of 94.5 percent and the Southeast-3 sub-submarket of 93.6 percent. The economic occupancy of the subject as of November 7, 1997 is 89.2 percent. The difference between physical and economic vacancy is attributable to the difference between contract and market rent, and rent concessions. Due to the subject's location, condition, and overall appeal, it is expected to maintain an economic occupancy of 95 percent in the first year of our discounted cash flow and remain at that stabilized level throughout the remainder of the projection period. 21 [SITE PLAN APPEARS HERE] SITE DESCRIPTION - -------------------------------------------------------------------------------- LOCATION The subject site is located at the southeast corner of Quail Hollow Road and Heathstead Place. The physical address of the subject property is 4401 Hampton Ridge Drive, Charlotte, Mecklenberg County, North Carolina. SIZE AND SHAPE The subject site contains a total of 33.11 acres. The tract has frontage along the east line of Quail Hollow Road and along the south line of Heathstead Place. ACCESS AND VISIBILITY Access to the subject site is provided by a doublewide, asphalt-paved driveway along Quail Hollow Road. Additional ingress and egress is possible on Heathstead Place, which is a two-way, four-laned, asphalt-paved thoroughfare with concrete curbs and sidewalks. Overall, visibility of and accessibility to the site are considered good. LEGAL DESCRIPTION The subject may be legally described as 33.11 acres, M20-730 Quail Hollow, Charlotte, Mecklenberg County, North Carolina. ZONING The subject site is zoned "R-l2MF" Multifamily Residential District by the City of Charlotte. The permitted uses under this district include single-family houses, duplexes, and multifamily buildings and developments. Certain nonresidential uses of a public or semipublic nature are also permitted. Under the "R-l2MF" zoning district, the area, yard, and height regulations applicable to the subject as a multifamily dwelling are as follows: Minimum lot area.....................11,500 SF Minimum lot width...................... 55 feet Minimum side yard...................... 20 feet Minimum setback........................ 30 feet Minimum rear yard...................... 50 feet Minimum unobstructed open space........ 50% Maximum height......................... 40 feet Based on the above, the subject improvements are considered to be a legally conforming use to current applicable zoning regulations. EASEMENTS AND ENCUMBRANCES A physical inspection of the site did not reveal any easements adversely affecting the subject property. For the purpose of this appraisal, the appraisers assume that the subject's value or marketability is not adversely affected by any existing easements. UTILITIES AND DRAINAGE All utilities are available to the site including sanitary sewer, water, electricity, natural gas, and telephone. According to the National Flood Insurance Program, Flood Insurance Rate Map (Community Panel 370158 0355 A, dated February 1, 1981) the site is located in Zone C, an area of minimal flooding. Drainage of the 22 site appears to be adequate; however, the project manager indicated that sump pumps have been installed in two buildings to facilitate drainage. TOPOGRAPHY AND SOIL CONDITIONS The subject site's topography is rolling and generally below street grade. No soil engineer's report was available to the appraisers and no soil tests were performed. The soils are assumed to have an adequate load-bearing capacity. Upon inspection, the soil at the subject site appeared to be a dark clay mixed soil. SURROUNDING PROPERTY USES North: Heathstead Place, with Beverly Woods Elementary School beyond South: Single-family residences East: Condominiums West: Quail Hollow Road, with multifamily development (Alexander Place Apartments) beyond PRESENT USE The subject site is currently improved with a 232- unit apartment project known as The Hamptons at Quail Hollow Apartments which were constructed in 1985/86 and are considered in good condition. Please refer to the following section of this report for further discussion of the subject improvements. REAL ESTATE TAXES According to the Mecklenberg County Assessor's Office, the subject property's tax assessor parcel number is 209-541-01. The subject is located within the City of Charlotte and the County of Mecklenberg taxing jurisdictions. The subject property's 1997 assessment is unchanged since 1994 at $10,075,250, which represents 100 percent of the assessor's appraised value. The 1997 real estate taxes for the subject property based on the operating statement and actual taxes were $134,465. The subject's estimated 1998 taxes, based on a 4% increase from the 1997 figure, are estimated at $139,901. SITE CONCLUSION The subject site is located in the southern portion of the city of Charlotte in North Carolina or more specifically, at the southeast corner of Quail Hollow Road and Heathstead Place. The site contains 33.11 acres. The subject site has good access and visibility and has all utilities available. The size and shape of the subject site lend well to a variety of development possibilities; however, the site's location, surrounding improvements, and current zoning make the site more conducive to multifamily residential usage. 23 [FLOOR PLAN APPEARS HERE] IMPROVEMENTS - -------------------------------------------------------------------------------- The subject site, a 33.11-acre tract of land, is improved with a two-story apartment project (with a sublevel) known as The Hamptons at Quail Hollow Apartments. The improvements consist of 232 apartment units contained in 24 buildings constructed in 1985/86. The net rentable area is 245,282 square feet. Please note the net rentable area has changed slightly from previous reports based on the most recently provided subject rent roll (November 7, 1997). Also situated on the site is a leasing office/clubhouse, swimming pool, jacuzzi, two tennis courts, and one mail room. There are eight basic floor plans for the 232 apartment units. The basic features of these floor plans are as follows:
NO. OF UNITS DESCRIPTION SIZE (SF) TOTAL SF -------------------------------------------------------------- 20 1BR/1BA 770-784 15,512 8 1BR/1BA* 860 6,880 48 2BR/1BA 945-960 45,780 8 2BR/1BA/* 1,040-1,055 8,380 108 2BR/2BA 1,090-1105 118,710 20 2BR/2BA* 1,180-1190 23,700 16 3BR/2BA 1,295 20,720 4 3BR/2BA* 1 400 5,600 --- ----- ------- 232 1,057 245,282
* sun room As seen in the figures above, the total net rentable area of 245,282 square feet divided by the total of 232 apartment units results in an average of 1,057 square feet per unit. There are a total of 28 one-bedroom units, 184 two-bedroom units, and 20 three-bedroom units. The land area is 33.11 acres, resulting in a density of 7.01 units per acre. Based on the zoning regulations of 50 percent unobstructed open space, the density is 14.01 units per acre. The parking consists of approximately 450 open spaces, of asphalt construction, which is 1.94 spaces per unit. The parking ratio is within industry standards. FOUNDATION Steel reinforced concrete slab. FRAMING Wood framed. ROOF Pitched with asphalt shingles over plywood decking. 24 EXTERIOR Vertical wood siding with aluminum-framed windows. INTERIOR FINISH Ceiling: Painted and textured gypsum board. Walls: Painted and textured gypsum board. Floors: Combination of carpeting over pad and vinyl tile flooring. PLUMBING All fixtures, drainage systems, equipment, and hot water heaters assumed to comply with City of Charlotte and national building codes. HVAC All electric, individual package system which provides heating and cooling with individually controlled thermostats. ELECTRICAL Switch-type circuit breakers, 120/240-volt single- phase service, with each apartment individually metered. Each unit has adequate electrical outlets and ceiling-mounted light fixtures. SITE IMPROVEMENTS Concrete sidewalks, asphalt-paved parking areas, swimming pool, jacuzzi, two concrete tennis courts, leasing office/clubhouse, and a mail room. LANDSCAPING Mature trees and hedges, grass covered common areas and well-maintained flower beds. AGE AND CONDITION The subject property was built in 1985/86 reflecting an actual age of eleven/twelve years. The property has been well maintained and reflects an effective age equal to that of its actual age of about eleven years. SITE AREA The subject site has an irregular shape and contains a total of 33.11 acres. DEFERRED MAINTENANCE The subject improvements are in good condition overall; however, some deferred maintenance was noted upon inspection such as roof replacement, gutter installation, carpet and appliance replacement, pool/jacuzzi repair, and landscaping. Based on estimations of the property manager and further discussions with regional management, the cost to cure the deferred maintenance is $249,152 as outlined below. Roof replacement..........................$72,000 Gutter installation........................15,000 Tie wall replacements......................25,000 Carpet replacement.........................44,000 Appliance replacement.......................5,700 Window cleaning.............................4,000 Pressure wash...............................3,000 Pool furniture..............................6,500 HVAC replacements...........................5,000 25 Interior upgrades..........................18,000 Landscaping................................30,552 Address signage.............................7,000 Pool related................................3,800 Plumbing/Electrical.........................3,000 Strom drain covers..........................2,100 Water heaters...............................4,500 -------- Total: $249,152 CONCLUSIONS The subject improvements, consisting of 232 units contained in 24 buildings, were constructed in 1985/86 on a 33.11-acre site and are in good condition overall. The improvements have been well maintained. 26 SUBJECT PHOTOGRAPHS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] Exterior view of clubhouse/leasing office [PICTURE APPEARS HERE] Exterior rear view of clubhouse/leasing office and pool area [PICTURE APPEARS HERE] Interior view of clubhouse/leasing office entry area [PICTURE APPEARS HERE] Interior view of clubhouse/leasing office living room [PICTURE APPEARS HERE] Exterior view of units [PICTURE APPEARS HERE] View of interior street showing units in the background [PICTURE APPEARS HERE] Interior view of Unit 108 living room (model) [PICTURE APPEARS HERE] Interior view of Unit 108 dining area and kitchen (model) [PICTURE APPEARS HERE] Interior view of Unit 108 bedroom (model) [PICTURE APPEARS HERE] Interior view of Unit 205 living room (vacant) [PICTURE APPEARS HERE] Interior view of Unit 205 kitchen (vacant) HIGHEST AND BEST USE - -------------------------------------------------------------------------------- The highest and best use of a property must be determined because market value depends upon the property's most profitable use. The Appraisal of Real --------------------- Estate, tenth Edition, defines highest and best use as: ------ "The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value." There are two distinct types of highest and best use. The first type is the highest and best use of the land as if vacant. The second type is the highest and best use of a parcel as improved. This pertains to the use that should be made of the property as it exists. In determining the highest and best use of a site, four items must be considered: possible physical limitations of the site, possible legal or permissible uses, and what uses are financially feasible, and produce the maximum return on the site. A careful neighborhood and site analysis is essential in estimating the highest and best use of the site as if vacant. The following is our analysis of the highest and best use as it pertains to the subject property and according to the four essential tests. SUBJECT PROPERTY AS IF VACANT LEGAL PERMISSIBILITY - As discussed in the Site, the subject site is zoned "R-12MF" Multifamily Residential District by the City of Charlotte. The permitted uses under this district include single-family houses, duplexes, and multifamily buildings and developments. PHYSICAL POSSIBILITY - Many physical characteristics of a site can affect the use to which it can be put. These characteristics can include size, shape, location, road frontage, topography, easements, utility availability, flood plain, and surrounding patterns. The subject site has an irregular shape and encompasses a total of 33.11 acres, allowing for full physical utilization of the site. The site has frontage along the east line of Quail Hollow Road and along the south line of Heathstead Place. The topography of the site is rolling. Drainage appears to be adequate. The site is located in Flood Zone "C," an area of minimal flooding. Upon inspection, it was noted that the subject site is not adversely affected by any easements, which traverse the property. The subject site's location, good access, visibility, and surrounding uses make it conducive to most residential uses as permitted under current zoning. However, based upon the subject site's rolling topography and densely wooded acreage, it is believed that apartment development is the most physically feasible. Therefore, 27 after considering all of the physical characteristics of the site noted above plus other data in the Description of the Site section of this appraisal report, physically possible land uses would include a variety of residential development such as apartments, condominiums, townhouses, or single-family detached dwellings. FINANCIAL FEASIBILITY - Financial feasibility is directly proportional to the amount of net income that could be derived from the subject. The financial feasibility of a development can also be viewed as a function of supply and demand. Therefore, the feasibility of single-family and multifamily use for the subject site must be tested. A brief history of Charlotte's single family home market will provide insight into the feasibility of this type of development. Growth for the single-family residential market in Charlotte slowed in 1990 and 1991. From 1989 to 1990, construction of new single- family homes in Charlotte declined from 4,283 to 3,650. The average price of an existing home also declined from $113,931 in 1989 to $113,570 in 1990. The median sale price of a new home in Charlotte was approximately $125,000 in 1990. The slowest home-building year in Charlotte since 1985 was 1991 when only 3,413 units were permitted. This represents a 14.3 percent decline in permitted units from 1990. In 1992, however, permits were up 30 percent and sales of existing houses increased by 17.3 percent. This positive trend reversed itself due to economic uncertainties and fluctuations in mortgage interest rates and the annual growth rate for residential building permits declined from 1993 to 1995. Construction permits issued for single-family construction in 1993, 1994, and 1995 totaled 5,283, 5,505, and 5,520, respectively. These figures calculate to annual growth rates of 16.1, 4.2, and 0.3 percent, respectively. Then, in 1996, sales of single family homes shot up 20 percent and are currently at record levels. The median price increased 7.5 percent, which was the best gain in ten years. Permits were up 20 percent in 1996 and a record 12,000 single-family homes were built. It is not expected that this pace will continue and approximately 10,000 single-family home permits are estimated for 1997. Despite all the recent new development, the market is not expected to become overbuilt due to the stronger than predicted employment growth which continues to attract job seekers. The subject's neighborhood is an affluent older residential area of Charlotte. Most of the land in this area of Charlotte has been developed. Therefore, land values in this area are higher than in less developed areas, further from the CBD. Consequently, development of this property for single-family use would have to be high density in order to achieve the necessary return to the land. It is our opinion that the market would require two or more years before there is a great enough demand for new single-family development in this area of Charlotte. Following is a brief history of the apartment market in Charlotte. Beginning in 1990, the Charlotte apartment market saw significant declines in development activity. From 1989 to 1990, new apartment construction declined from 4,183 to 1,555 units. Construction activity did not resume at significant levels until 1994 when 1,720 units were built. The period from 1995 to 1997 was record levels of activity with 3,834; 4,230; and 3,974 new units each year. Despite all the new product, vacancy has remained low at 3 percent to 4 percent from 1994 to 1996. 28 The vacancy rate has increased slightly to 5.3 percent in 1997. Absorption declined sharply from 1990 (1,643 units) to 1991 when only 328 units were absorbed. Absorption rebounded in 1992 to 2,501 units but then declined in 1993 to 1,097 units. Absorption was 1,306 units and 1,213 units in 1994 and 1995 and then more than doubled in 1996 to 3,150 units. Absorption remained strong in 1997 with 3,073 units. Rental rates remained stable for the three year period from 1990 to 1992 at $.52 and $.53 per square foot. Rates have been steadily increasing since then from $.55 in 1993 to $.58 in 1994, $.63 in 1995, $.67 in 1996 and $.70 in 1997. The Southeast submarket has witnessed similar trends in construction activity, absorption and vacancy, but has historically outperformed the citywide averages for occupancy and average rental rate. The 1997 occupancy rate in the southeast submarket was slighter lower than the citywide average at 94.5 percent and the average rental rate was higher at $.764 per square foot per month. Based on the above, it is our opinion that the subject market's rental rates and occupancies justify a moderate amount of new construction. MAXIMUM PRODUCTIVITY - After considering the current economic climate and the subject's location and financial feasibility of certain land uses, more than likely a present development of the land would produce an adequate return on costs. Due to the subject's location and the socio-economic status of the neighborhood, we are of the opinion that the demand for multifamily apartment units or high-density single- family/townhouses conducive to the subject site would produce the highest net return over the longest period of time. In summary, both the single-family home and the multifamily apartment market have shown signs of improvement over the past tow years after a declining period. The subject is well located in a prominent area of Charlotte. Therefore, after considering the alternatives, we believe the highest and best use of the site, as vacant, is for multifamily residential development. SUBJECT PROPERTY AS IMPROVED The property, as improved, is tested for two reasons. The first reason is to identify the improvements that are expected to produce the highest overall return per invested dollar, and the second reason is to help identify comparable properties. The four tests or elements are also applied in this analysis to the subject as follows: LEGAL PERMISSIBILITY - The subject site is zoned "R-12MF," Multifamily Residential District by the City of Charlotte, allowing single-family, duplex, and multifamily use. The subject has a lot coverage, setbacks, and density, all of which are estimated to be satisfying the current zoning ordinance. The subject property is considered a legally conforming use. 29 PHYSICAL POSSIBILITY - Based on the subject's size (33.11 acres), configuration (irregular), the improvements' positioning relative to the subject site, and the restrictions imposed by the City of Charlotte, it is felt that the subject's improvements employ the maximum use of the site as developed. Moreover, the subject property contains comparable project amenities when compared to competing projects. FINANCIAL FEASIBILITY - The discussion of the financial feasibility of the subject, as if vacant, would also apply to the test as improved. Based on the economic conditions for alternative market segments, it was concluded that the subject's present improvements are satisfactory to fulfill this test. The subject property produces a positive return on market value and hence is financially feasible. In addition, the estimated present value, as improved, exceeds the value of the land. MAXIMUM PRODUCTIVITY - The test for this element is also from the market. The comparables analyzed suggest that under competent and prudent management, the subject produces an adequate return on market value to substantiate its existence. In conclusion, based on the subject's current use, we have determined that as a multifamily apartment complex, it positively contributes to the value of the site, and as a result is presently developed according to its highest and best use. However, the present improvements are not considered to be the optimum use due to the age of the improvements and existing deferred maintenance. 30 APPRAISAL PROCEDURES - -------------------------------------------------------------------------------- Traditionally, three valuation approaches or techniques are used in the appraisal of real estate. These are the Cost Approach, Sales Comparison Approach, and Income Approach. COST APPROACH In the Cost Approach, the appraisers obtain an estimate of value by adding to the land value the estimated value of the physical improvements. This value is derived by estimating the replacement cost new of the improvements and, when appropriate, deducting the reduction in value caused by accrued depreciation. According to the Appraisal Institute, the basic principle of the Cost Approach is that buyers judge the value of an existing structure by comparing it to the value of a newly constructed building with optimal functional utility, assuming no undue cost due to delay. Thus, the appraiser must estimate the difference in value between the subject property and a newly constructed building with optimal utility. The Cost Approach was not used as this method of valuation is typically the least reliable indicator of value in older projects such as the subject since estimates of depreciation are difficult to accurately measure in the marketplace. Additionally, it is often the perception of investors that cost does not necessarily equate to value and the purchase price is not typically based on construction costs. SALES COMPARISON APPROACH This approach produces an estimate of value by comparing the subject property to sales and/or listings of similar properties in the immediate area or competing areas. The principle of substitution is employed and basically states when a property is replaceable in the market, its value can be set by the cost of acquiring an equally desirable and comparable property. This technique is viewed as the value established by informed buyers and sellers in the market. INCOME APPROACH The measure of value in this approach is capitalization of the net income, which the subject property will produce during the remaining economic life of the improvements. This process consists of two techniques. The first technique estimates the gross income, vacancy, expenses, and other appropriate charges. The resulting net income or net cash flow is then capitalized. The second technique projects the gross income, vacancy, expenses, other appropriate charges, net income, and cash flow over a projected holding period. The resulting cash flow and reversion (future value) are discounted at an appropriate rate and added in order to arrive at an indication of current value from the standpoint of an investment. These methods provide an indication of the present worth of anticipated future benefits (net income or cash flow) to be derived from ownership of the property. Both techniques were utilized in analyzing the subject property. 31 SUMMARY The appraisers, in applying the tools of analysis to the valuation problem, seek to simulate the thought process of the most probable decision- maker. The appraisers' judgment concerns the applicability of alternative tools of analysis to the facts of the problem, the data and information needed to apply these tools, and the selection of the analytical approach and data most responsive to the problem in question. Thus, depending on the type of property appraised or the purpose of the appraisal, one approach may carry more weight or may point to a more reliable indication of the value of the property being appraised than the others. In some instances, because of the inadequacy or unavailability of data, one or two of the approaches may be given little weight in the final value estimate. 32 [IMPROVED SALES MAP APPEARS HERE]
- -------------------------------------------------------------------------------------------------------------- NORTH CAROLINA AREA IMPROVED SALES - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- SALE SALE CASH EQUIV. YEAR NO. OF NRA OCCUP. NOI/SF NO. NAME/LOCATION DATE SALE PRICE BUILT UNITS AVG/UNIT AT SALE /UNIT - -------------------------------------------------------------------------------------------------------------- 1 Montclair Parc 08/97 $21,013,000 1995 300 284,256 96% $ 7.11 7201 Shannopin Drive 948 $6,739 Charlotte, NC - -------------------------------------------------------------------------------------------------------------- 2 The Oaks 06/97 $20,250,000 1996 318 280,948 97% $ 6.48 4915 Misty Oaks Drive 883 $5,725 Charlotte, NC - -------------------------------------------------------------------------------------------------------------- 3 Oakwood Gardens 05/97 $23,500,000 1996 288 321,190 80% $ 6.40 2305 New England Street 1,115 $7,140 Charlotte, NC - -------------------------------------------------------------------------------------------------------------- 4 Stoney Pointe 03/97 $17,305,000 1991 400 361,520 91% $ 4.27 4616 Stoney Trace Drive 904 $3,864 Charlotte, NC - -------------------------------------------------------------------------------------------------------------- 5 Providence Square 02/97 $20,510,000 1969 473 620,948 99% $ 3.68 100 Providence Square 1,313 $4,830 Charlotte, NC - -------------------------------------------------------------------------------------------------------------- 6 The Regency 12/96 $11,200,000 1988 178 164,724 94% $ 6.27 4817 Wateer Oak Drive 925 $5,801 Charlotte, NC - -------------------------------------------------------------------------------------------------------------- 7 Fairways at Piper Glen 10/96 $24,500,000 1996 336 317,208 92% $ 7.18 6200 Birkdale Valley Drive 944 $6,781 Charlotte, NC - -------------------------------------------------------------------------------------------------------------- SUBJECT 1985/ 232 245,282 96% $ 5.36 Hampton Apartments 1986 1,057 $5,665 4401 Hampton Ridge Charlotte, NC - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- NORTH CAROLINA AREA IMPROVED SALES - -------------------------------------------------------------------------------------------------------------- CASH EQUIVALENT PRICE - -------------------------------------------------------------------------------------------------------------- SALE PER PER OVEALL EXPENSE NO. NAME/LOCATION SF /UNIT RATE EGRM RATIOS - -------------------------------------------------------------------------------------------------------------- 1 Montclair Parc $73.92 $70,043 9.62% 7.10 .31694 7201 Shannopin Drive Charlotte, NC - -------------------------------------------------------------------------------------------------------------- 2 The Oaks $72.08 $63,679 8.99% 7.23 .34983 4915 Misty Oaks Drive Charlotte, NC - -------------------------------------------------------------------------------------------------------------- 3 Oakwood Gardens $73.17 $81,597 8.75% 7.93 .30613 2305 New England Street Charlotte, NC - -------------------------------------------------------------------------------------------------------------- 4 Stoney Pointe $47.87 $43,263 8.93% 6.36 .43172 4616 Stoney Trace Drive Charlotte, NC - -------------------------------------------------------------------------------------------------------------- 5 Providence Square $33.03 $43,362 11.13% 4.60 .48752 100 Providence Square Charlotte, NC - -------------------------------------------------------------------------------------------------------------- 6 The Regency $67.99 $62,921 9.22% 7.07 .34828 4817 Wateer Oak Drive Charlotte, NC - -------------------------------------------------------------------------------------------------------------- 7 Fairways at Piper Glen $77.24 $72,917 9.30% 7.31 .32060 6200 Birkdale Valley Drive Charlotte, NC - -------------------------------------------------------------------------------------------------------------- SUBJECT .3750 Hampton Apartments 4401 Hampton Ridge Charlotte, NC - --------------------------------------------------------------------------------------------------------------
SALES COMPARISON APPROACH - -------------------------------------------------------------------------------- The Sales Comparison Approach is considered a good valuation method in the event that a sufficient number of similar and recent transactions can be found and accurately verified. The key to the Sales Comparison Approach is that a sufficient number of comparable sales be present to reflect an accurate indication of value. In such an event, market value can be derived directly from the sales, since all complexities involved are properly weighed according to their significance to actual buyers and sellers. This approach is based upon prices paid in actual market transactions. It is a process of correlating and analyzing recently sold properties, which are similar to the subject. The reliability of this technique depends upon (a) the degree of comparability of the property appraised with each sale, (b) the length of time since the sale, (c) the accuracy of the sales data, and (d) the absence of unusual conditions affecting the sale. The comparison process must be based on sales, which constitute acceptable evidence of motivations inherent to the market, occurring under similar market conditions, of similar or reasonably similar apartment projects. These projects were selected since they are reasonably similar to the subject property. A map and a summary of the comparable sales can be found on the preceding pages. The sales used ranged from October of 1996 to August of 1997. Reference is made to the individual sales data included in the Addenda section of this report. SALE 1 is an apartment complex containing 300 units in 284,256 square feet of rentable area. The average unit size of a unit is 948 square feet. The apartment community was developed in 1995 and is situated on 22.35 acres. The unit density is 13.42 units per acre. The property sold in August of 1997 for $73.92 per square foot or $70,043 per unit and totaled $21,013,000. This sale is inferior to the subject in terms of average unit size, but larger in total number of units. This sale is similar to the subject in terms of location and occupancy. The sale is superior to the subject in terms of age, net operating income per square foot and per unit. SALE 2 sold in June of 1997 for $20,250,000. The project includes 318 units built in 1996 and is situated on 26.5 acres. The sale equates to $63,679 per unit and $72.08 per square foot. The average unit size is 883 square feet. This sale is superior to the subject in terms of age, number of units, net operating income per square foot and unit and occupancy. This sale is inferior to the subject in terms of average unit size and location. 33 SALE 3 is a 288-unit complex built in 1996 on 25.018 acres. The sale occurred in May of 1997 in the amount of $23,500,000 translating to $81,597 per unit and $73.17 per square foot. The average unit size is 1,115 square feet. This sale had significant vacancy (20%) at the time of the sale. This sale is superior to the subject in terms of age, number of units, average unit size, net operating per square foot and unit. The sale is inferior to the subject in terms of occupancy and location. SALE 4 sold in March of 1997 for $17,305,000. The property contains 400 units on 28.37 acres with an average unit size of 904 square feet. The sale price equates to $43,263 per unit or $47.87 per square foot. The sale is superior to the subject in terms of age and number of units. The sale is inferior to the subject in terms of average unit size, occupancy, location, net operating income per unit and square foot and location. SALE 5 contains 473 units on 62 acres with an average unit size of 1,313 square feet. The sale occurred in February of 1997 in the amount of $20,510,000 or $43,362 per unit and $33.03 per square foot. The sale is superior to the subject in terms of number of units, average unit size, and occupancy. The sale is inferior to the subject in terms of age and net operating income per square foot and unit. The sale has a similar location to subject. SALE 6 occurred in December of 1996 for $11,200,000. The property includes 178 units on 15.16 acres. The sale price translates to $62,921 per unit or $67.99 per square foot. The sale is superior to the subject in terms of age and net operating income per unit and per square foot. The sale is inferior to the subject in terms of number of units, occupancy, and location. SALE 7 sold in October 1996 for $24,500,000. This price is equivalent to $77.24 per square foot or $72,917 per unit. The apartment buildings were built in 1996 and contain 336 units in 317,208 square feet of rentable space. The average unit size is 944 square feet. Unit density for this property is 13.50 units per acre. This project is newer in year of construction (1996) and has more units than the subject with larger total area, however, the sale has slightly inferior average unit size. This sale is superior in net operating income per unit and net operating income per square foot in relation to the subject. The sale has inferior occupancy to the subject. The sale has a similar location to the subject. In lieu of specific adjustments, we compared the improved sales based on the net operating income (NOI) per unit. This method presents a comparison based on the income which a property is capable of generating. Theoretically, the NOI takes into consideration the various factors, which influence value such as quality, size, amenities offered, location, age, condition etc. Thus, these differing factors can be reduced to the common denominator of net operating income. 34 The various sales reflected NOIs per unit ranging from $2,672 to $7,140 including reserves. The subject NOI has been approximated at $5,665 per unit from the Discounted Cash Flow analysis in the Income Approach section of this report. To estimate an adjustment for each sale, the subject's NOI has been compared to the individual NOI of the comparable sales. The adjustments should account for all the various physical and economic differences in each improved property sale as income is a function of the current market. Market conditions should reflect perceived risk or other factors, which may affect value. Since all the sales occurred over the past year to year and one-half, no adjustment for time is considered necessary or indicated by the data. The following chart presents the adjustment process.
SALE SALE SUBJECT ADJUST. ADJUST. NO. PRICE/UNIT NOI/UNIT NOI/UNIT FACTOR PRICE/UNIT 1 $70,043 $6,739 $5,665 0.84063 $58,880 2 63,679 5,725 5,665 0.98952 63,012 3 81,597 7,140 5,665 0.79342 64,740 4 43,263 3,864 5,665 1.46610 63,428 5 43,362 4,830 5,665 1.17288 50,858 6 62,921 5,801 5,665 0.97656 61,446 7 72,917 6,781 5,665 0.83542 60,917
After adjustment, the sales range in unit price from $50,858 to $64,740 per unit. Sales 2 and 6 are most similar to the subject in terms of economics. These sales represent an adjusted value for the subject of $63,012 and $61,446 per unit. Based on the indications, we have estimated a value for the subject of $62,000 per unit. This calculates to a total value, as follows: 232 units at $62,000/unit ..... $14,400,000 (rounded) A second method of comparison is by use of the effective gross rental multiplier (EGRM). In this analysis, the subject's effective gross rental income is multiplied by a factor estimated from the sales to derive an indication of value. The price for which a property will sell is a function of its relationship between its effective gross rental income and sale price. Thus, in this analysis it is important that only multipliers from properties with vacancy and operating expense ratios similar to the subject property be used for comparison. 35
OPERATING SALE EGRM EXPENSE RATIO EGR/UNIT ------------------------------------------------ 1 7.10 0.31694 $ 9,860 2 7.23 0.34983 8,805 3 7.93 0.30613 10,290 4 6.36 0.43172 6,799 5 4.60 0.48752 9,425 6 7.07 0.34828 8,901 7 7.31 0.32060 9,981 Subject 0.3750 $ 9,064
From the DCF analysis in the Income Approach, the subject is estimated to have a 37.50 percent operating expense ratio and an EGR per unit of $9,063 in the first year of the holding period. The seven sales utilized in this analysis reflect EGRMs ranging from 4.60 to 7.93. Sales 2 and 6 are also most similar to the subject in EGR per unit at $8,805 and $8,901 respectively. The sales reflect a range of 0.30613 to 0.57134 in operating expense ratios with sales 2 and 6 again most similar to the subject at 0.34983 and 0.34828 respectively. Sale 3, which has the highest EGRM (7.93) and lowest Operating Expense Ratio (.30613) is not considered to provide a reliable indication of EGR/Unit for the subject property because of the high vacancy (20%) at the property at the time of sale. Based on the preceding analysis EGRM for the subject has been estimated at 7.0 resulting in a total value indication as follows: $2,102,768 x 7.0.............$14,700,000 (rounded) The NOI per unit method presented a value indication of $14,400,000 and the effective gross income multiplier indicated a value of $14,700,000. Most weight has been given to the net operating income per unit method due to the ability of this method to account for all the various physical and economic differences in each sale. The limitations of the effective gross rent multiplier method to account for differences in vacancy and operating expense ratios render this approach less reliable. The NOI per unit method indicates a market value of $14,500,000. From this value the $249,152 in deferred maintenance is deducted to arrive at the "as is" market value of the subject. Therefore, it is our opinion that the leased fee market value of the subject property based on the indication provided by the Sales Comparison Approach, all cash, on an "as is" basis as of November 30, 1997 is FOURTEEN MILLION THREE HUNDRED THOUSAND DOLLARS ($14,300,000) 36 [AREA MAP OF COMPARABLE RENTALS APPEARS HERE]
- ------------------------------------------------------------------------------------------------------------------------------------ COMPARABLE RENT SUMMARY - ------------------------------------------------------------------------------------------------------------------------------------ YEAR NO. OF AVG. 1997 1997 1997 NO. NAME/LOCATION BUILT UNITS UNIT PHYS. UNIT TYPE UNIT RENT/MO. RENT/SF/M AMENITIES/COMMENTS SIZE (SF) OCCUP. SIZE/SF O. - ------------------------------------------------------------------------------------------------------------------------------------ 1 Alexander Place 1984- 309 1,045 89% 1BR/1BA 900 $750-775 $0.83-0.86 Unit amenities include 6316 Cameron 1985 1BR/1BA/DEN 1,063 805-830 0.76-0.78 fireplaces and W/D. Forest Lane 2BR/2BA 1,093 825-885 0.76-0.81 Some units have microwave, vaulted ceilings, and ceiling fans. Project amenities include 2 swimming pools, 2 clubhouses, tennis courts, hot tub, golf cage, and laundry facilities. There are 47 enclosed garages, which rent for $100 per month. Consessions: $50 off rate for 1 BR - ------------------------------------------------------------------------------------------------------------------------------------ 2 Summit Simsbury 1985 100 874 93% 1BR/1BA 760 $720-735 $0.95-0.97 Unit amenities include 4428 Simsburyd 2BR/2BA 950 855-920 0.90-0.97 fireplaces, w/d, and microwave. Some units have vaulted ceilings. Project amenities include a pool and clubhouse. Concessions: $75-$100 off first month rent. Coupon in Apt. Guide for additional $200 off 1st mo. rent. $50 off rate for 1 BR. - ------------------------------------------------------------------------------------------------------------------------------------ 3 Providence Court 1996 420 1,102 74% 1BR/1BA 773 $650 $0.84 Unit amenities include 8110 Providence 1BR/1BA 875 690-795 0.79-0.91 fireplaces, microwave, 1BR/1BA/DEN 1,003 750-855 0.74-0.85 vaulted ceilings, ceiling 2BR/1BA 1,192 860-1,095 0.72-0.83 fans, W/D connections, 2BR/2BA 1,372 1,020 0.79-0.87 some units have w/d. 3BR/2BA/TH 1,621 1,700 1.05 Project amenities include 2 pools, jacuzzi, tennis court, and a clubhouse. Concessions: 1/2 mo. off first month with 12 mo. lease, 1/4 mo off on 6 mo. lease - ------------------------------------------------------------------------------------------------------------------------------------ 4 Summit Ballentyne 1997 246 1,107 56% 1BR/1BA 837 $670 $0.80 Unit amenities include W/D 13901 Summit Current 2BR/1BA 996 780 0.78 connections. Some units Commons 2BR/2BA 1,155 850 0.74 have washer/dryer, 2BR/2BA/TH 1,400 1,280 0.92 microwave, fireplace, 3BR/2BA 1,315 1,010 0.77 ceiling fan, covered parking. Project amenities include a pool, clubhouse, tennis court, exercise room, and laundry facilities. Concessions: Currently offering one month's fre rent on 12-month leases or free vacation. ====================================================================================================================================
==================================================================================================================================== COMPARABLE RENT SUMMARY (CONT'D) - ------------------------------------------------------------------------------------------------------------------------------------ YEAR NO. OF AVG. 1997 1997 1997 NO. NAME/LOCATION BUILT UNITS UNIT PHYS. UNIT TYPE UNIT RENT/MO. RENT/SF/M AMENITIES/COMMENTS SIZE (SF) OCCUP. SIZE/SF 0. - ------------------------------------------------------------------------------------------------------------------------------------ 5 Crestmont 1996 282 838 74% 1BR/1BA 816 675 0.82 Unit amenities include 9200 Otter 1BR/1BA 890 700 0.78 fireplaces, W/D, covered 1BR/1BA/DE 1,040 765 0.73 parking, microwave. N 1,115 785 0.70 Project amenities include 1BR/1BA/DE 1,201 860 0.70 a pool, 2 tennis courts, N 1,440 1,200 0.83 jacuzzi, exercise room, 2BR/1BA clubhouse, and laundry 3BR/2BA facilities. Concessions: 1/2 mo. free on 2 BR/2BA. - ------------------------------------------------------------------------------------------------------------------------------------ SUBJECT 1985 232 1,051 96% 1BR/1BA 770 665 0.84-0.91 Unit amenities include PROPERTY 1BR/1BA 860 735 0.85 microwaves, fireplaces, THE HAMPTONS 2BR/1BA 960 715 0.74 walk-in closets, outside 4401 HAMPTONS RIDGE 2BR/1BA 1,055 765 0.73 storage, and W/D units. DRIVE 2BR/2BA 1,090 755 0.69 Some units have vaulted 2BR/2BA 1,180 835 0.70 ceilings or bay windows. 3BR/2BA 1,295 905 0.69 Project amenities include 3BR/2BA 1,400 975 0.68 a pool, spa, 2 tennis courts, and a clubhouse. Concessions: Move in by the 5th of month and get next month free. ====================================================================================================================================
INCOME APPROACH - -------------------------------------------------------------------------------- In estimating the market value of the subject property, one method used by the appraisers was the Income Approach. The Income Approach to value is predicated on the assumption that there is a definite relationship between the amount of net income a property will earn and its value. Ultimately, the Income Approach seeks to estimate the present worth of an anticipated net income stream based on an analysis of its quality, quantity, and duration. In accordance with the principle of substitution, a prudent investor would pay no more to receive an income stream from a specified property than any other property producing an equally desirable income stream. Typically, the first step in the Income Approach is to estimate the potential gross income according to market rent. Market rent means the "going rent" in the neighborhood based on past history and present conditions. Other income is also estimated and includes laundry income, pet deposits, etc. Vacancies are then deducted to arrive at effective gross income. Estimated annual expenses are deducted from the effective gross income, resulting in an indication of net operating income before debt service. From the estimated net annual income, annual debt service (if applicable), is subtracted to obtain annual cash flow to equity. This cash flow can be capitalized into an indication of equity value by direct capitalization utilizing an overall equity rate, or if debt does not exist, an overall capitalization rate. It may also be projected into the future over a selected, but appropriate holding period, discounted along with the anticipated equity reversion at the market discount rate, and added in order to arrive at the net present equity value for the subject property. Since our valuation is on a cash basis, no mortgages were considered. In either method, the present mortgage balance (if applicable) would be added to the equity value to obtain the total value of the property. The appraisers have utilized both the discounted cash flow and the direct capitalization methods in valuing the subject property on an all cash basis. ESTIMATED GROSS RENTAL INCOME Income for the subject property is produced by rental income from the various rental units, as well as laundry income, pet deposits, forfeited security deposits, and miscellaneous income. Information provided by the on-site leasing agents indicated the subject's current rent schedule to be as follows: 37
======================================================================================================== SUBJECT - RENT ANALYSIS - -------------------------------------------------------------------------------------------------------- UNIT BASE BASE MONTHLY UNIT TYPE SIZE(SF) RENT/MONTH RENT/SF COMPARABILITY - -------------------------------------------------------------------------------------------------------- SUBJECT 1BR/1BA 770-784 $665-765 $0.86-0.98 -- Summit Simsbury 1BR/1BA 760 730 Ave. 0.96 Superior Providence Court 1BR/1BA 773 650 0.84 Similar Crestmont 1BR/1BA 816 675 0.82 Similar - -------------------------------------------------------------------------------------------------------- SUBJECT 1BR/1BA 860 $735-765 $0.85-0.89 -- Alexander Place 1BR/lBA 900 750-775 0.83-0.86 Similar Providence Court 1BR/1BA 875 690 0.79 Similar Summit Ballentyne 1BR/1BA 837 670 0.80 Slightly Inferior Crestmont 1BR/1BA 890 700 0.78 Slightly Inferior - -------------------------------------------------------------------------------------------------------- SUBJECT 2BR/1BA 945-960 $715-765 $0.76-0.80 -- Alexander Place 1BR/1BA/DEN 1,063 805-830 0.76-0.78 Similar Summit Simsbury 2BR/2BA 950 855-920 0.90-0.97 Superior Summit Ballentyne 2BR/1BA 996 780 0.78 Similar - -------------------------------------------------------------------------------------------------------- SUBJECT 2BR/1BA 1,040-1,055 $765-795 $0.74-0.75 -- Providence Court 2BR/1BA 1,003 750-855 0.74-0.85 Similar Alexander Place 1BR/1BA/DEN 1,063 805-830 0.76-0.78 Similar - -------------------------------------------------------------------------------------------------------- SUBJECT 2BR/2BA 1,090 $755-805 $0.69-0.73 -- Alexander Place 2BR/2BA 1,093 825-885 0.76-0.81 Superior Providence Court 2BR/2BA 1,192 840-860 0.71-0.72 Similar Crestmont 2BR/1BA 1,201 860 0.70 Similar - -------------------------------------------------------------------------------------------------------- SUBJECT 2BR/2BA 1,180-1,190 $755-855 $0.64-0.72 -- Alexander Place 2BR/2BA 1,093 825-885 0.76-0.81 Similar Summit Ballentyne 2BR/2BA 1,155 850 0.74 Similar - -------------------------------------------------------------------------------------------------------- SUBJECT 3BR/2BA 1,295 $905-955 $0.70-0.74 -- Providence Court 3BR/2BA 1,372 1,095-1,020 0.79-0.87 Slightly Superior Summit Ballentyne 3BR/2BA 1,315 1,010 0.77 Slightly Superior - -------------------------------------------------------------------------------------------------------- SUBJECT 3BR/2BA 1,400 $975-1,005 $0.70-0.72 -- Providence Court 3BR/2BA 1,621 1,700 1.05 Superior Crestmont 3BR/2BA 1,440 1,200 0.83 Superior ========================================================================================================
BASED ON "RESIDENT PAYS UTILITIES" --------------------------------------------------------------------------------- PLAN UNIT TYPE UNITS SIZE (SF) RENT/MO. RENT/SF MO. TOTAL --------------------------------------------------------------------------------- 1A1 1BR/1BA 8 770 $ 665 $0.86 $ 5,320 1B1 2BR/1BA 12 945 715 0.76 8,580 1B1SCH 2BR/1BA 4 1,040 765 0.74 4,160 1B2 2BR/2BA 28 1,090 755 0.69 21,140 1C2 3BR/2BA 4 1,295 905 0.70 3,620 2AlB 1BR/1BA 4 770 695 0.90 2,780 2A1S 1BR/1BA 4 860 735 0.86 2,940 2B1 2BR/1BA 8 945 735 0.78 5,880 2B1B 2BR/1BA 8 960 745 0.78 5,960 2B1BVS 2BR/1BA 4 1,055 795 0.76 3,180 2B2 2BR/2BA 14 1,090 775 0.71 10,850 2B2B 2BR/2BA 24 1,105 785 0.71 18,840 2B2S 2BR/2BA 10 1,180 835 0.71 8,350 2C2 3BR/2BA 2 1,295 925 0.71 1,850 2C2B 3BR/2BA 4 1,295 935 0.72 3,740 2C2S 3BR/2BA 2 1,400 975 0.70 1,950 3A1BV 1BR/1BA 8 784 715 0.91 5,720 3A1BVS 1BR1BA 4 860 765 0.89 3,060 3B1BV 2BR/1BA 20 960 765 0.80 15,300 3B2BV 2BR/2BA 42 1,105 805 0.73 33,810 3B2BVS 2BR/2BA 10 1,190 855 0.72 8,550 3C2BV 3BR/2BA 6 1,295 955 0.74 5,730 3C2BVSV 3BR/2BA 2 1,400 1,005 0.72 2,010 --- ----- ----- ---- ------ 232 1,057 $ 785 $0.74 $182,220
S = sun room, B = bay window, V = vaulted ceiling The subject's rents have been compared to closely located and similarly designed apartment complexes in the subject's neighborhood area. For the purpose of this analysis, we have considered five apartment complexes that were found to be most comparable. They range in total number of units from 100 to 309 units, in average unit size from 874 to 1,107 square feet, and in physical occupancy from 74 to 93 percent. These comparable rentals are summarized on a preceding page. All of the comparables surveyed were located within the subject's Southeast submarket. Rent Comparable 1 is the most comparable to the subject overall; specifically, in terms of location, overall physical condition, and average unit size. This comparable indicates an average base rental rate of $0.791 per square foot per month and a current occupancy rate of 89 percent. The other projects used in this analysis were also comparable to the subject and were used as additional indications of market rents in the subject's area. A chart on the facing page provides a detailed rental analysis of the subject and comparables. 38 After accounting for each of the aforementioned factors and the subject's current performance (rent roll dated November 7, 1997), we are of the opinion that all of the subject's current quoted rental rates are at market for all floor plans. Therefore, in consideration of the amount of apartment construction in the overall Charlotte apartment market, as well as the subject's "SE-3" submarket, and in relation to the subject's occupancy and actual rates, the projected market rental income for the subject is summarized as follows: Gross Annual Rental Income: $182,220 x 12 months = $2,186,640 OTHER INCOME In addition to rental income from apartments, other income is generated by vending machines, forfeited security deposits, pet deposits, late charges, and application fees. Other Income in 1989 was reported at $13,485 or $0.06 per square foot. This figure rose by approximately 58 percent during 1990 to $0.09 per square foot, or a total of $21,344. Other Income in 1991 rose another 33 percent to $0.12 per square foot or $29,762. For 1992, other income totaled $24,591 or $0.10 per square foot, and in 1993 grew to $29,141 or $0.12 per square foot. Actual 1994 and 1995 other income totaled $26,115, or $0.11 per square foot and $25,974, or $0.11 per square foot, respectively. Actual figures for 1996 show a total of $26,778 or $0.11 per square foot. The figure for the 12 months ending November 30, 1997 was $19,178 or $0.08/SF. Based on our experience with similar type properties and the actual performance of the property, it is our opinion that other income in the amount of $0.11 per square foot is typical for a project such as the subject. This equates to a total "Other Income" of $26,800. Over the first year, rents are not estimated to increase, thus, the projected potential gross income for Year 1 of the cash flow as if 100 percent occupied is as follows: Gross Rental Income $2,186,640 Other Income ($0.11/SF) 26,800 --------- Total Potential Gross Income $2,213,440 VACANCY AND COLLECTION LOSS ESTIMATE In a stable market, economic vacancy and collection loss for an apartment complex will be in the 3 to 7 percent range. This covers the time lag during re-leasing and normal refurbishing of apartment units, the loss of income resulting from bad debt or other vacancies, and for the lag time between market rent and contract rent locked-in for six to 12 months. It also includes the continuing loss of income due to non-revenue generating units, such as those used for models and for employees. According to our market analysis, the average physical vacancy in the Charlotte apartment market was 5.3 percent in August 1997. This is up from the 1996 average physical vacancy of 4.0 percent and the 3.1 percent reported in August 1994 and 1995. The subject's Southeast submarket had a 5.5% vacancy rate in August 1997 and more specifically, the "SE-3" sub-submarket indicated an average physical vacancy of 6.4 percent in August 1997. In surveying the subject's direct competition, the current physical vacancies ranged from 7 to 11 percent for completed projects. Apartment construction in the Charlotte market has been strong over the past three years. In 1995, 3,834 units were built and 4,230 and 39
================================================================================================================================== HAMPTONS AT QUAIL HOLLOW HISTORICAL EXPENSES RENTABLE SQUARE FEET/UNIT - ---------------------------------------------------------------------------------------------------------------------------------- COMPARABLE 1992 1993 1994 1995 1996 1997 FY 1998 BRA PROJECTION S - ---------------------------------------------------------------------------------------------------------------------------------- NRA (SF) SUBJECT PROPERTY No. Units 243,720 Year Built 232 Average Unit Size (SF) 1985 1,051 - ---------------------------------------------------------------------------------------------------------------------------------- Expense Category $/SF $/Unit $/SF $/Unit $/SF $/Unit $/SF $/Unit $/SF $/Unit $/SF $/Unit $/SF $/Unit - ---------------------------------------------------------------------------------------------------------------------------------- Real Estate Taxes 0.50 525 0.56 588 0.55 576 0.52 560 0.53 50 0.55 580 .57 603 - ---------------------------------------------------------------------------------------------------------------------------------- Insurance 0.05 51 0.05 53 0.05 57 0.06 63 0.06 65 0.06 61 .07 75 - ---------------------------------------------------------------------------------------------------------------------------------- Operating Expenses 0.81 850 0.78 819 0.74 774 0.72 757 0.76 801 0.86 906 .81 858 - ---------------------------------------------------------------------------------------------------------------------------------- Utilities 0.33 348 0.34 357 0.35 368 0.37 388 0.38 399 0.36 375 .42 440 - ---------------------------------------------------------------------------------------------------------------------------------- Repair & 0.25 267 0.30 315 0.30 320 0.32 334 0.32 330 0.29 309 .35 374 Maintenance - ---------------------------------------------------------------------------------------------------------------------------------- Contract Services 0.17 188 0.16 168 0.17 175 0.17 181 0.16 171 0.16 1169 .19 198 (Grounds) - ---------------------------------------------------------------------------------------------------------------------------------- General 0.05 49 0.07 74 0.06 70 0.08 86 0.07 77 0.07 76 .09 99 Administrative - ---------------------------------------------------------------------------------------------------------------------------------- Management 0.32 334 0.34 357 0.36 381 0.39 405 0.41 429 0.41 432 .43 5% - ---------------------------------------------------------------------------------------------------------------------------------- SUBTOTALS $2.48 $2,612 $2.60 $2,798 $2.58 $2,721 $2.63 $2,759 $2.68 $2,832 $2.76 $2,908 2.93 $3,098 EXPENSES ================================================================================================================================== ADJUSTMENT NA NA NA NA NA NA NA NA NA NA NA NA NA NA FACTOR - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL EXPENSES $2.48 $2,612 $2.60 $2,798 $2.58 $2,721 $2.63 $2,759 $2.68 $2,832 $2.76 $2,908 $2.93 $3,098 ==================================================================================================================================
Note: Columns may not total due to rounding. 3,974 units have been added to the apartment market in 1996 and 1997, respectively. An additional 2,194 units are proposed for 1998. As new units become available, vacancy rates will begin to increase. As of November 7, 1997, the subject's physical vacancy was 4.3 percent, while its economic vacancy was 10.2 percent. Economic vacancy is calculated by dividing the collected rent by market rent. Typically, economic vacancy can lag physical vacancy by two to eight percent. Based on our analysis, we have applied an economic vacancy allowance of 5 percent in the first fiscal year and remain at that stabilized level throughout the remainder of our cash flow analysis. EXPENSE ANALYSIS The various expenses necessary in the operation of the subject have been estimated including fixed expenses, operating expenses, and reserves for replacement. Proper appraisal technique requires that an appraiser rely on typical expenses as opposed to actual expenses, which may vary according to management or special circumstances that may not persist in the market. In addition, the total expenses per square foot should be within a range typical for similar projects. Reserves for replacement are estimated based on age, condition, and construction quality. It is re- emphasized that all income, as well as expense estimates, are based on the assumption of competent and prudent management. We have based our estimate of project expenses on comparable apartment projects as well as the actual historical performance of the subject property. The subject property's actual 1992, 1993, 1994, 1995, and 1996 expenses as well as fiscal year end 1997 (the 12 months ending November 30, 1997) are shown. Bach Realty Advisor's estimated expenses for the subject property in Fiscal Year 1998 are also displayed. The sales comparables adjusted for time, range in expenses from $2.88 to $3.61 generally without reserves. The newer projects reflect the lower expenses in the range. Primarily based upon the analysis of the subject historically, we have developed the following expense estimates for the subject. REAL ESTATE TAXES - The Mecklenberg County Assessor's Office coordinates the real estate taxes for the subject apartments. The property is subject to the City of Charlotte and the County of Mecklenberg taxing jurisdictions. The 1997 real estate tax amount was $134,465 according to the subject property's operating statement. The subject's estimated taxes for the first year of our cash flow is $139,901 or $.057 per square foot and $603 per unit. This expense is increased 4 percent per year for the duration of the holding period. INSURANCE - This category includes fire and extended coverage. Insurance costs can vary from one property to another, depending upon the type, and whether a blanket policy is used. Often times a property owner will insure multiple properties on one policy in an effort to reduce the cost of insurance per project. Our expense estimate is based upon typical costs for an individually insured apartment project in the Charlotte area. The subject's actual figures for 1992, 1993, 1994, 1995, and 1996 were $0.05 per square foot, $0.05 per square foot, $0.05 per square foot, $0.06 per square foot, and $0.06 per square foot, respectively. The 1997 insurance expense was $0.06 per square foot. These 40 historical expenses appear reasonable but at the lower end of the range in relation to Expense Comparables 1 through 3 which indicated an insurance expense range from $0.07 to $0.10 per square foot. We estimated the subject's insurance expense at $0.07 per square foot or $75 per unit in the first year of our projection for a total of $17,285. This expense is increased by 4 percent annually throughout our projection period. OPERATING EXPENSE - This category includes salaries for office managers and leasing agents, maid services, payroll taxes, and FICA, security, advertising, and promotions. The subject's actual 1992, 1993, 1994, 1995 and 1996 expenses were $0.81 per square foot, $0.78 per square foot, $0.74 per square foot, $0.72 and $0.76 per square foot, respectively. The 1997 expense for the 12 months ending November 30, 1997 was $0.86 per square foot. The expense comparables indicated an operating expense range from $0.41 to $1.17 per square foot, or from $369 to $814 per unit. Comparable 2 had significantly higher operating expenses on a square foot basis due to its small average unit size. Based on the subject's historical expenses and those of the comparables, the appraisers have estimated a 1998 Fiscal Year operating expense of $198,973 or $0.81 per square foot. The per unit expense is $858. This expense is increased 4 percent annually throughout our projection period. UTILITIES - This expense category includes electricity, gas, water, and sewer for the apartment's common area and vacant units. The subject's 1992, 1993, 1994, 1995 and 1996 expenses were $0.33, $0.34, $0.35, $0.37 and $0.38 per square foot, respectively. The subject's utility expense in 1997 was $0.36 per square foot. Utility expenses for the comparables ranged from $0.37 to $0.49 per square foot. Based on the subject's historical, budgeted, and year-to- date utility expense and comparing these figures with those of the expense comparables, the appraisers have estimated a 1998 Fiscal Year utility expense of $0.42 per square foot or $440 per unit for a total of $102,037. This expense is increased 4 percent annually throughout our projection period. REPAIR AND MAINTENANCE - These expenses are necessary in order to keep the property in good repair including plumbing, air-conditioners, electrical, draperies, carpets, janitorial supplies, and decorative costs. The 1992, 1993, 1994, 1995, and 1996 expenses were $0.25 per square foot, $0.30 per square foot, $0.30 per square foot, $0.32 per square foot and $0.32 per square foot respectively. The subject's repair and maintenance expense in 1997 was $0.29 per square foot. The expense comparables offered a repair and maintenance expense range from $0.51 to $0.66 per square foot. Due to the age, overall condition, and ongoing maintenance of the subject property, the appraisers have estimated a repair and maintenance expense of $0.35 per square foot or $374 per unit which, is a total of $86,732. This expense is increased 4 percent annually throughout our projection period. CONTRACT SERVICES - This expense category includes mainly landscaping services. The subject's actual figures for 1992, 1993, 1994, 1995, and 1996 were $0.17 per square foot, $0.16 per square foot, $0.17 per square foot, $0.17 per square foot, and $0.16 per square foot, respectively. The 1997 contract services expense was $0.16 per square foot. Believing that the expense comparable's grounds expense 41 category is most similar to the subject's contract services expense category, the appraisers have compared these two categories. The expense comparables offered a range from $0.15 to $0.28 per square foot. Based on the subject's expenses as well as those offered by the expense comparables, the appraisers have estimated the Fiscal Year 1998 contract services expense to be $0.19 per square foot or $198 per unit. The total estimated contract services expense for the subject is $45,917. This expense is increased 4 percent annually throughout our projection period. GENERAL ADMINISTRATIVE - This expense category includes professional, legal, and accounting costs, administration costs, etc. This expense, however, does not include management. The actual 1992, 1993, 1994, 1995, and 1996 expenses were $0.05 per square foot, $0.07 per square foot, $0.06 per square foot, $0.08 per square foot, and $0.07 per square foot, respectively. The 1997 General Administrative expense was $0.07 per square foot. The expense comparables offered a range from $0.12 to $0.48 per square foot. For Fiscal Year 1998, we have estimated this expense for the subject at $0.09 per square foot or $99 per unit. Combining administrative and operating expenses for the subject totals $0.90 per square foot. For the comparables, the same combination yields a range from $0.54 to $1.29 per square foot. Therefore, the estimated General Administrative expenses for the subject appear reasonable. This estimated expense of $22,958 is increased 4 percent annually throughout our projection period. MANAGEMENT - This includes the fee to outside management or ownership for managing the property. This expense is typically a percentage of the effective gross income of the property. The industry standard for an apartment complex of this size and quality is between 3 and 5 percent of effective gross income. The subject is reportedly at 5 percent of effective gross income. The subject's actual 1992, 1993, 1994, 1995, and 1996 expenses were $0.32, $0.34, $0.36, $0.39, and $0.41 per square foot, respectively. The management expense in 1997 was $0.41 per square foot. Based on the subject's historical and annualized management expenses, we have projected the subject's management fee at 5 percent of effective gross income in each year of our analysis. This amount equates to $105,138 or $0.43 per square foot in the first fiscal year. This expense equals $453 per unit . EXPENSE SUMMARY The subject's total expenses in 1992, 1993, 1994, 1995, and 1996 were $2.48, $2.60, $2.58, $2.63, and $2.68 per square foot, respectively and an expense per unit range from $2,612 to $2,832. The 1997 total expense was $2.76 per square foot or $2,908 per unit. The expense comparables offered an adjusted total expense range from $2.51 to $3.69 per square foot or $2,256 to $2,972 per unit. Based on the preceding analysis, the appraisers have estimated a 1998 Fiscal Year total expense of $2.93 per square foot or $3,098 per unit. This is within the range indicated by the comparables and the appraisers believe this estimation is reasonable in relation to the market and is reflective of the subject's current expense operations. When reserves are included the expenses are $3.21/SF and $3,398/Unit and in line with other complexes. 42 RESERVES FOR REPLACEMENT A replacement allowance provides for the periodic replacement of building components that wear out more rapidly than the building itself and must be replaced periodically during the building's economic life. These may include roof covering, carpeting, appliances, compressors, parking areas, drives, etc. The subject was constructed in 1985/86 and appears to have had ongoing maintenance since its construction. It is our opinion that a reserve allowance of $0.28 per square foot or $300 per unit is adequate to provide for the continued maintenance of the project. This reserve allowance was included in our expenses prior to concluding the net operating income and is consistent with the market's handling of reserves. DEFERRED MAINTENANCE This category includes replacement of flooring, roof repairs, HVAC repair, exterior repairs such as tie wall replacements, gutter installation, asphalt repair, and landscaping and shrubs that need to be made in 1997 according to on-site management. The subject improvements are in good condition and exhibited only minor deferred maintenance at the time of our inspection. Based on information provided by the subject's regional management, this has been estimated at $249,152 for the subject property and is taken as a lump sum deduction of $250,000 from value which, is what a prospective buyer would do. This amount includes items proposed by on-site management for Fiscal Year 1998 and an itemized list can be found in the Improvements section of this report. DISCOUNTED CASH FLOW ANALYSIS DISCUSSION A reasonable method for estimating value via the Income Approach is through the use of Discounted Cash Flow Analysis. The Market Value of a real estate investment under the Discounted Cash Flow Method is defined as the discounted sum of all net cash inflows plus the property's discounted reversionary value. Primarily, any given property is only worth the value of the income derived from it. The general methodology of Discounted Cash Flow involves the following steps: 1) increasing each year's cash flows by an appropriate appreciation factor; 2) discounting each year's net cash flow by an appropriate discount rate; 3) deriving the property's reversionary value in the final year and discounting it to the present; and 4) the summation of all cash flows, including final year reversion, into an estimate of value. According to the Third Quarter 1997 real estate investor survey compiled by Peter F. Korpacz & Associates, Inc. the apartment market is being flooded with capital, primarily from REIT's, rendering it almost impossible for large institutional investors to land deals. In addition, brokers have fewer properties to market either because long-term holders are buying product before it is ever offered on the market place or because owners are not willing to sell. The main factor is investors are watching to determine if investment locations are the pace of job growth. The slower pace of job growth in many markets, coupled with continued increases in multi-family and single family permits as well as attractive interest rates could combine to negatively effect the apartment market. As such, some investors are increasing overall vacancy allowance in their acquisition analyses and 43 backing off on revenue growth assumptions. However, apartment investment continues to be attractive for pension funds and REIT's and we anticipate investors will continue to find the apartment market a desirable investment. DISCOUNT RATE Over the past several years, the internal rate of return (IRR) has gained greater usefulness and market acceptance as an investment measure. IRR is the yield on an investment based on an initial cash investment, annual cash flows to the property, as well as resale proceeds. IRR allows for return on investment as well as recapture of the original investment when factoring in the reversion. To simulate this process, we have relied upon several investor surveys, which detail reasonable yields or IRR requirements of purchasers. We have used this rate as a discount rate that, when applied to projected cash flows and net resale proceeds (reversion), results in the present value of the property. According to the Third Quarter 1997 Korpacz Real Estate ------------------- Investor Survey which is compiled by Peter F. Korpacz for --------------- apartment properties, indicated a return requirement ranging from 10.0 to 12.5 percent which has not changed from a year earlier. This IRR depends on the conservative or aggressive nature of rental and expense growth assumptions, as well as location and other factors. Corporate "Baa" bonds are typically viewed as an alternative investment. Real estate is considered riskier due to illiquidity, competition, burden of management, and market conditions; therefore, approximately 50-150 basis points (0.50 to 1.5 percent) could be added to "Baa" bond rates in a normal market. Due to the current construction taking place in the Charlotte apartment market and the subject's submarket, we believe additional risk exists. Based on the previous data, we believe additional risk is inherent in the subject property, and therefore, a 12.0 percent discount rate is reasonable in the current market based on an all cash sale and alternative investments. CAPITALIZATION RATE The subject property's reversionary value is derived by capitalizing the eleventh year's net operating income. As mortgage rates have fluctuated over the past several years, it becomes difficult to apply a band of investment method to establish a capitalization rate because capitalization rates do not react dramatically to ups and downs of mortgage interest rates. Additionally, the mercurial nature of the recent market creates a large variance of returns depending on property potential. Again, according to the previously cited investor survey, investors for apartment properties indicated a terminal capitalization rate range from 7.5 to 10.5 percent. The most comparable sales indicate "going-in" capitalization rates as follows:
SALE IDENTIFICATION SALE DATE CAPITALIZATION RATE ------------------------------------------------------------------ 1 Montclair Park 08/97 9.62% 2 The Oaks 06/97 8.99% 3 Oakwood Gardens 05/97 8.75% 4 Stoney Point 03/97 8.93% 5 Providence Square 02/97 11.13% 6 The Regency 12/96 9.22% 7 Fairway @ Piper Glen 10/96 9.30%
44 The 8.75 to 11.13 percent capitalization rate range presented above includes reserves. The sales most similar to the subject in terms of net operating income per unit are Sales 2 and 6 and these sales reflect "going-in" capitalization rates of 8.99 and 9.22 percent respectively. The most recent sales are Sales 1 and 2 with 9.62 percent and 8.99 percent capitalization rates. Therefore, after consideration of the above discussion it is our opinion that a 9.25 percent "going-in" capitalization rate is appropriate and reasonable in this market for the subject property. Typically, the terminal capitalization rate would be higher than the "going-in" capitalization rate due to the greater risk and older age of the property at the end of the projection period; therefore, 0.75 percent is added to the "going-in" capitalization rate for these factors. A terminal capitalization rate of 10.0 percent is felt to be appropriate for the subject property. CASH FLOW ASSUMPTIONS Rents were based on an average current monthly rental rate of approximately $0.74 per square foot per month. During the projection period, rents were not increased during the first fiscal year (1998) and they were increased at a rate of 4 percent every year thereafter. As construction continues, rents are expected to level off while new units are absorbed and then increase at a 4 percent per year rate. Other Income is held flat for the first year of the cash flow, then increased at the same rate as rents. The subject's current physical vacancy rate is 4.3% while the economic vacancy rate is 10.2%. The difference between the two vacancy rates is attributable to the difference between contract and market rents as well as concessions. It is our opinion that the subject will maintain a 5.0 percent economic vacancy rate in the first year and remain at that stabilized economic vacancy rate throughout the remainder of the cash flow projection. . The property has been appraised based on a "resident pays utilities" status. . Expenses (with the exception of management) have been increased at an average growth rate of 4 percent annually over the 11-year projection period. Management expenses are based on a percentage of effective gross income and increase with occupancy and rental increases. . A discount rate of 12 percent was utilized. . A terminal capitalization rate of 10.0 percent was believed reasonable. . A sales cost of 4 percent of the reversionary value was estimated. . A cash flow analysis for the subject may be found on the following facing page. The estimated leased fee market value for the subject on an "as is" basis via the discounted cash flow method is FOURTEEN MILLION FOUR HUNDRED THOUSAND DOLLARS ($14,400,000) 45
- ----------------------------------------------------------------------------------------------------------------------------------- The Hamptons at Quail Hollow Period 1 2 3 4 5 6 7 Fiscal Year ending Nov 30 1998 1999 2000 2001 2002 2003 2004 - ----------------------------------------------------------------------------------------------------------------------------------- Apt. Rents 2,186,640 2,274,106 2,365,070 2,459,673 2,558,060 2,660,382 2,766,797 Rent/SF/Mo. 0.743 0.773 0.804 0.836 0.869 0.904 0.940 Other Income/Yr. 0.11 26,800 27,872 28,987 30,146 31,352 32,606 33,911 --------- --------- --------- --------- --------- --------- --------- Gross Income: 2,213,440 2,301,978 2,394,057 2,489,819 2,589,412 2,692,988 2,800,708 % Vacancy 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% Vacancy Allowance 110,672 115,099 119,703 124,491 129,471 134,649 140,035 --------- --------- --------- --------- --------- --------- --------- Eff. Gross Income: 2,102,768 2,186,879 2,274,354 2,365,328 2,459,941 2,558,339 2,660,672 -------------- Expenses: Unit SF -------------- Real Estate Taxes 603 0.57 139,901 145,497 151,317 157,370 163,664 170,211 177,019 Insurance 75 0.07 17,285 17,976 18,695 19,443 20,221 21,030 21,871 Operating Expenses 858 0.81 198,973 206,932 215,209 223,817 232,770 242,081 251,764 Utilities 440 0.42 102,037 106,119 110,364 114,778 119,369 124,144 129,110 Repairs & Maintenance 374 0.35 86,732 90,201 93,809 97,561 101,464 105,522 109,743 Contract Services 198 0.19 45,917 47,753 49,664 51,650 53,716 55,865 58,099 General & Administrative 99 0.09 22,958 23,877 24,832 25,825 26,858 27,932 29,050 Management Fee 5.00% 0.43 105,138 109,344 113,718 118,266 122,997 127,917 133,034 Reserves 300 0.28 69,600 72,384 75,279 78,291 81,422 84,679 88,066 ----- ---- --------- --------- --------- --------- --------- --------- --------- Total Expenses: 3,399 3.21 788,541 820,083 852,886 887,002 922,482 959,381 997,756 -------------- Per SF Per Yr. 3.21 3.34 3.48 3.62 3.76 3.91 4.07 Per Unit Per Yr. 3,399 3,535 3,676 3,823 3,976 4,135 4,301 --------- --------- --------- --------- --------- --------- --------- Net Operating Income: 1,314,227 1,366,796 1,421,468 1,478,326 1,537,460 1,598,958 1,662,916 Per SF Per Yr. 5.36 5.57 5.80 6.03 6.27 6.52 6.78 Per Unit Per Yr. 5,665 5,891 6,127 6,372 6,627 6,892 7,168 - ----------------------------------------------------------------------------------------------------------------------------------- Capital Items: Deterred Maintenance 250,000 --------- --------- --------- --------- --------- --------- --------- Cash Flow: 1,064,227 1,366,796 1,421.468 1,478,326 1,537,460 1,598,958 1,662,916 --------- --------- --------- --------- --------- --------- --------- Present Value Factor 12.00% 0.892857 0.797194 0.711780 0.635518 0.567427 0.506631 0.452349 Present Value of Cash Flow 950,203 1,089,601 1,011,773 939.503 872,396 810,082 752,219 NOI in 11th Year 1,945,377 Present Value of Income Stream 8,375,130 Ro at Reversion 10.00% Present Value of Reversion 6,013,049 ---------- ---------------------------------------------- Indicated Reversion 19,453,768 Indicated Value of Subject 14,388,179 Less: Sales Costs 4.00% 778,151 Indicated Value/SF 58.66 ---------- Reversion in 11th Yr 18,675,617 Indicated Value/Unit 62,018 GIM at Indicated Value 6.58 Ro at Indicated Value 9.13% ---------------------------------------------- - ----------------------------------------------------------------------------------------- Period 8 9 10 11 Fiscal Year ending Nov 30 2005 2006 2007 2008 - ----------------------------------------------------------------------------------------- Income: Apt. Rents 2,877,469 2,992,568 3,112,271 3,236,761 Rent/SF/Mo. 0.978 1.017 1.057 1.100 Other Income/Yr. 35,267 36,678 38,145 39,671 --------- --------- --------- --------- Gross Income: 2,912,736 3,029,245 3,150,415 3,276,432 % Vacancy 5.00% 5.00% 5.00% 5.00% Vacancy Allowance 145,637 151,462 157,521 163,822 --------- --------- --------- --------- Eff. Gross Income: 2,767,099 2,877,783 2,992,895 3,112,610 Expenses: Real Estate Taxes 184,100 191,464 199,123 207,088 Insurance 22,746 23,655 24,602 25,586 Operating Expenses 261,835 272,308 283,200 294,528 Utilities 134,274 139,645 145,231 151,040 Repairs & Maintenance 114,133 118,698 123,446 128,384 Contract Services 60,423 62,840 65,354 67,968 General & Administrative 30,212 31,420 32,677 33,984 Management Fee 138,355 143,889 149,645 155,631 Reserves 91,589 95,252 99,063 103,025 Total Expenses: 1,037,666 1,079,173 1,122,340 1,167,234 Per SF Per Yr. 4.23 4.40 4.58 4.76 Per Unit Per Yr. 4,473 4,652 4,838 5,031 --------- --------- --------- --------- Net Operating Income: 1,729,433 1,798,610 1,870,555 1,945,377 Per SF Per Yr. 7.05 7.33 7.63 7.93 Per Unit Per Yr. 7,454 7,753 8,063 8,385 - ----------------------------------------------------------------------------------------- Capital Items: Deterred Maintenance --------- --------- --------- --------- Cash Flow: 1,729,433 1,798,610 1,870,555 1,945,377 --------- --------- --------- --------- Present Value Factor 0.403883 0.360610 0.321973 0.287476 Present Value of Cash Flow 698,489 648,597 602,269 559,249 NOI in 11th Year Ro at Reversion Indicated Reversion Less: Sales Costs Reversion in 11th Yr
================================================================================ CASH FLOW SUMMARY ------------------------------------------------------------------ Fiscal Year Annual 12.00% PV of Ending 11/30 Cash Flows NPV Factor Cash Flows ------------------------------------------------------------------ 1998 $1,064,227 0.892857 $950,203 1999 $1,366,796 0.797194 1,089,601 2000 $1,421,468 0.711780 1,011,773 2001 $1,478,326 0.635518 939,503 2002 $1,537,460 0.567427 872,396 2003 $1,598,958 0.506631 810,082 2004 $1,662,916 0.452349 752,219 2005 $1,729,433 0.403883 698,489 2006 $1,798,610 0.360610 648,597 2007 $1,870,555 0.321973 602,269 ------- Total $8,375,130 Projected NOI in 11th Year $1,945,377 Going-out Capitalization Rate 10.00% ----- Estimated Value of Property at End of 10th Year $19,453,768 Less Sales Cost @ 4.00% (778,151) --------- Value of Reversion at End of 10th Year $18,675,617 Discount Factor 12.00% 0.321973 -------- Present Value of the Reversion $6,013,049 Sum of Present Values of Cash Flow 8,375,130 --------- Market Value as of November 30, 1997 $14,388,179 Rounded $14,400,000 ================================================================================ ========================================================================================================= DIRECT CAPITALIZATION Gross Potential Rental Income 2,186,640 Other Income 26,800 Total 2,213,440 Gross Income 2,213,440 Vacancy 5.00% 110,672 Effective Gross Income 2,102,768 Expenses Real Estate Taxes 139,901 Insurance 17,285 Operating Expenses 198,973 Utilities 102,037 Repairs & Maintenance 86,732 Contract Services 45,917 General Administrative 22,958 Management Fee 105,138 Reserves for Replacement 69,600 Total Expenses 788,541 Net Operating Income 1,314,227 Capitalization Rate 9.25% Fee Simple Stabilized Market value 14,207,858 Less: Deferred Maintenance 250,000 Rent Loss Due to Lease Up 7,120 Leased Fee "As Is" Market Value 13,950,737 (Rounded) 14,000,000 Rent Loss Due to Lease-up - --------------------------------------------------------------------------------------------------------- Year 1 Year 2 ------------- ------------- Stabilized NOI 1,314,227 1,314,227 Projected NOI 1,306,608 1,366,796 ------------- ------------- Rent Loss 7,619 0 PV Factor 7.00% 0.934579439 0.873438728 ------------- ------------- PV Income Loss 7,120 0 Cumulative Total 7,120 =========================================================================================================
DIRECT CAPITALIZATION Direct capitalization is a method used to convert a single year's income estimate into a value indication. In direct capitalization, a rate of return for the investor and recapture of the capital invested is implicit in the overall capitalization rate. The overall capitalization rate was chosen after analyzing the comparable apartment sales in our Sales Comparison Approach. These sales indicated a range of "going-in" capitalization rates adjusted for reserves from 8.75 to 11.13 percent. As previously discussed, a "going-in" capitalization rate of 9.25 percent was deemed appropriate after adjusting for reserves. Since the subject is estimated to have attained a stabilized occupancy in Year 1, it is not necessary to deduct the rent loss due to lease-up/contract rents. However, deferred maintenance expenditures are deducted to derive the subject's "as is" value by this approach. This methodology is illustrated above. The final value by this method is as follows: FOURTEEN MILLION DOLLARS ($14,000,000) INCOME APPROACH CONCLUSION DCF Method......................................$14,400,000 Direct Capitalization Method....................$14,000,000 The two methods of comparison are supportive of each other. We are of the opinion that the "as is" leased fee market value of the subject property, as of November 30, 1997 is $14,200,000 as indicated by the Income Approach. 46 RECONCILIATION - -------------------------------------------------------------------------------- SALES COMPARISON APPROACH $14,300,000 INCOME APPROACH $14,200,000 The Sales Comparison Approach utilized recent comparable sales of similar properties in the area. The weakness of the Sales Comparison Approach is that no two properties are exactly alike and exact conditions of a sale are often unknown. The strength of this approach is that it indicates, that market activity based on the willing buyer/willing seller concept. Because the market data provided a number of recent sales which are considered relatively comparable and in the subject's general area, we have placed weight on this approach. The Income Approach attempts to measure investment qualities of the property. Based on rental rates in the immediate area of the subject, estimated expenses, and investor returns derived from the market, we have estimated value. Actual data on the property, as well as comparable data was considered adequate. Because the Income Approach deals directly with income streams, we feel it is a very good indication of current market conditions. It tends to reflect a value which an investor of a property would anticipate. We have also placed weight on the Income Approach. The two approaches are supportive of each other. Therefore, it is our opinion that the "as is" leased fee market value of the subject property, on an all cash basis, as of November 30, 1997 is THIRTEEN MILLION EIGHT HUNDRED THOUSAND DOLLARS ($14,200,000) 47 MONTCLAIR PARC - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 1 PROPERTY IDENTIFICATION Job Number 97-067 Project Name Montclair Parc Address 7201 Shannopin Drive City/ State Charlotte, N.C. TRANSACTION DATA Sale Date 08/97 Grantor (Seller) Charlotte Montclair L.P. Grantee (Buyer) CWS Harbor Cove/Montclair Associates Ltd., et al. Recorded Document 9199-105 Sale Price $21,013,000 Occupancy 96% Sale Price per Unit $70,043 Sale Price per SF $73.92 Capitalization Rate 9.62% TERMS OF SALE Cash to seller; $16,000,000 mortgage to Connecticut General Life INCOME/EXPENSE DATA Potential Gross Income $3,082,980 Vacancy/Collection Loss $ (123,319) Effective Gross Income $2,959,661 Operating Expenses $ (938,045) est. Net Operating Income $2,021,616 est. PROPERTY DESCRIPTION Year Built 1995 Last Year Renovated NA Number of Stories 2-3 Number of Units 300 Number of Bedrooms 468 Net Rentable Area 284,256 SF Average Unit Size 948 SF Land Area 22.35 Acres Unit Density 13.42 Units per Acre Property Condition Excellent Parking (type) Open, asphalt paved and carport, some garages Construction Type Wood frame with brick and wood siding, composition roof Confirmed With Harvey Jeffers, Yandle-Jeffers Group & Charlotte Apartment Report (9/97) Date Confirmed 11/14/97 and 11/24/97 by Stevan Bach, Bach Realty Advisors Comments Amenities include swimming pool, clubhouse, rec center, business center, and security alarm. Garage parking is $65/month and carports are $20/month premium in the monthly rent. THE OAKS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 2 PROPERTY IDENTIFICATION Job Number 97-067 Project Name The Oaks Address 4915 Misty Oaks Drive City/ State Charlotte, N.C. TRANSACTION DATA Sale Date 06/97 Grantor (Seller) Allegience Group, AGI Grantee (Buyer) Merryland Recorded Document 9111-675 Sale Price $20,250,000 Occupancy 97.2% Sale Price per Unit $63,679 Sale Price per SF $72.08 Capitalization Rate 8.99% TERMS OF SALE Cash to seller INCOME/EXPENSE DATA Potential Gross Income $2,880,658 Vacancy/Collection Loss $(80,658) Effective Gross Income $2,800,000 Operating Expenses $(979,525) Net Operating Income $1,820,475 PROPERTY DESCRIPTION Year Built 1996 Last Year Renovated NA Number of Stories 2 Number of Units 318 Number of Bedrooms 460 Net Rentable Area 280,948 SF Average Unit Size 883 SF Land Area 26.5 Acres Unit Density 12 Units per Acre Property Condition Excellent Parking (type) 112 Garages Construction Type Wood frame with masonite siding and brick veneer Project Amenities: Outdoor pool, tennis court, sport court, clubhouse, fitness center, picnic/grill areas, controlled access gate. Confirmed With Murray Williams, First Union Corp. Date Confirmed 11/12/97 by Stevan Bach, Bach Realty Advisors, Inc. OAKWOOD GARDENS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 3 PROPERTY IDENTIFICATION Job Number 97-067 Project Name Oakwood Gardens Address 2305 New England Street City/ State Charlotte, N.C. TRANSACTION DATA Sale Date 05/97 Grantor (Seller) Dominion HBA, L.P. Grantee (Buyer) Oakwood Gardens -- Coronado, L.P. Recorded Document 9061-147 Sale Price $23,500,000 Occupancy 80% Sale Price per Unit $81,597 SalePriceper SF $73.17 Capitalization Rate 8.75% TERMS OF SALE Cash to seller INCOME/EXPENSE DATA Potential Gross Income $3,704,313 Vacancy/Collection Loss $ (740,863) Effective Gross Income $2,963,450 Operating Expenses $ (907,200) Net Operating Income $2,056,250 PROPERTY DESCRIPTION Year Built 1996 Last Year Renovated NA Number of Stories 2 and 3 Number of Units 288 Number of Bedrooms 518 Net Rentable Area 321,190 SF Average Unit Size 1,115 SF Land Area 25.018 Acres Unit Density 11.51 Units per Acre Property Condition Excellent Parking (type) 38 detached and 37 attached garages Construction Type Wood frame w/stone veneer/Board siding Project Amenities Tennis, exercise facility, outdoor pool, basketball court, clubhouse, picnic area, laundry room, volleyball court, business center Confirmed With Murray Williams, First Union Corporation Date Confirmed 11/12/97 by Stevan Bach, Bach Realty Advisors, Inc. Comments Approximately 30% of the units were planned for conversion to corporate apartment rental by buyer STONEY POINTE - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 4 PROPERTY IDENTIFICATION Job Number 97-067 Project Name Stoney Pointe Address 4616 Stoney Trace Drive City/ State Charlotte, N.C. TRANSACTION DATA Sale Date 03/97 Grantor (Seller) Capers Properties, L.P. Grantee (Buyer) UDRT of N.C., L.L.C. Recorded Document 8955-483 Sale Price $17,305,000 Occupancy 91% Sale Price per Unit $43,263 Sale Price per SF $47.87 Capitalization Rate 8.93% TERMS OF SALE Cash to assumed mortgage of $12,629,698 INCOME/EXPENSE DATA Potential Gross Income $2,988,480 est. Vacancy/Collection Loss $(268,963) Effective Gross Income $2,719,517 Operating Expenses $(1,174,063) Net Operating Income $1,545,454 PROPERTY DESCRIPTION Year Built 1991 Last Year Renovated NA Number of Stories 3 Number of Units 400 Number of Bedrooms 800 Net Rentable Area 361,520 SF Average Unit Size 904 SF Land Area 28.37 Acres Unit Density 14.10 Units per Acre Property Condition Good Parking (type) Open asphalt Construction Type Wood frame with wood siding and gable composition shingle roof Project Amenities Clubhouse, pool, tennis court, exercise facility, laundry, and fireplaces Confirmed With Harvey Jeffers, Yandle-Jeffers Group & Charlotte Apartment Report (9/97) Date Confirmed 11/14/97 and 11/24/97 by Stevan Bach, Bach Realty Advisors, Inc. PROVIDENCE SQUARE - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 5 PROPERTY IDENTIFICATION Job Number 97-067 Project Name Providence Square Address 100 Providence Square City/ State Charlotte, N.C. TRANSACTION DATA Sale Date 02/97 Grantor (Seller) 100 Providence Square, L.P. Grantee (Buyer) The Corner, L.P. Recorded Document 8939-490 Sale Price $20,510,000 Occupancy 99% Sale Price per Unit $43,362 Sale Price per SF $33.03 Capitalization Rate 11.13% TERMS OF SALE Cash to mortgage with balance of $16,789,620 INCOME/EXPENSE DATA Potential Gross Income $4,502,915 Vacancy/Collection Loss $($45,029) Effective Gross Income $4,457,886 Operating Expenses $(2,173,318) est. Net Operating Income $2,284,568 PROPERTY DESCRIPTION Year Built 1969 Last Year Renovated Unknown Number of Stories 2 Number of Units 473 Number of Bedrooms 1,187 Net Rentable Area 620,948 SF Average Unit Size 1,313 SF Land Area 62 Acres Unit Density 7.63 Units per Acre Property Condition Good Parking (type) Open spaces, asphalt paved Construction Type Wood frame with brick and wood exterior, gable composition shingle roof Confirmed With Harvey Jeffers, Yandle-Jeffers Group Date Confirmed 11/14/97 by Stevan Bach, Bach Realty Advisors, Inc. Comments Amenities are clubhouse, pool, tennis court, playground, storage and fireplaces. THE REGENCY - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 6 PROPERTY IDENTIFICATION Job Number 97-067 Project Name The Regency Address 4817 Water Oak Road City/ State Charlotte, N.C. TRANSACTION DATA Sale Date 12/96 Grantor (Seller) PERA Regency, Inc. (Invesco Realty Advisors) Grantee (Buyer) Merry Land Recorded Document NA Sale Price $11,200,000 Occupancy 94% Sale Price per Unit $62,921 Sale Price per SF $67.99 Capitalization Rate 9.22% TERMS OF SALE Cash to seller INCOME/EXPENSE DATA Potential Gross Income $1,645,821 Vacancy/Collection Loss $(61,485) Effective Gross Income $1,584,336 Operating Expenses $(551,800) Net Operating Income $1,032,536 PROPERTY DESCRIPTION Year Built 1988 Last Year Renovated N/A Number of Stories 2 and 3 Number of Units 178 Number of Bedrooms 314 Net Rentable Area 164,724 SF Average Unit Size 925 SF Land Area 15.16 Acres Unit Density 11.74 Units per Acre Property Condition Good Parking (type) Open, asphalt paved and carports Construction Type Wood frame/stucco and brick exterior Project Amenities Clubhouse, pool, tennis court, and laundry rooms. Units have microwaves and some units have fireplaces Confirmed With Murray Williams, First Union Corp. Date Confirmed 11/12/97 by Stevan Bach, Bach Realty Advisors, Inc. Comments Carports bring a $25/month rent premium FAIRWAYS AT PIPER GLEN - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 7 PROPERTY IDENTIFICATION Job Number 97-067 Project Name Fairways at Piper Glen Address 6200 Birkdale Valley Drive City/ State Charlotte, N.C. TRANSACTION DATA Sale Date 10/97 Grantor (Seller) Fairfield Communities/Graystone Realty, Ing. Grantee (Buyer) Ing Recorded Document 6777-646 Sale Price $24,500,000 Occupancy 92% Sale Price per Unit $72,917 Sale Price per SF $77.24 Capitalization Rate 9.30% TERMS OF SALE Cash to seller, assumed mortgage of $12,629,698 INCOME/EXPENSE DATA Potential Gross Income $3,645,326 Vacancy/Collection Loss $(291,626) Effective Gross Income $3,353,700 Operating Expenses $(1,075,200) Net Operating Income $2,278,500 PROPERTY DESCRIPTION Year Built 1996 Last Year Renovated NA Number of Stories 2 and 3 Number of Units 336 Number of Bedrooms 520 Net Rentable Area 317,208 SF Average Unit Size 944 SF Land Area 24.884 Acres Unit Density 13.50 Units per Acre Property Condition Excellent Parking (type) Detached and attached garages and open asphalt paved spaces Construction Type Wood frame/Brick veneer/Board siding, composition shingle roof Project Amenities Pool, clubhouse, exercise facility Unit Amenities Fireplaces, microwaves, ceiling fans, 9 ft. ceilings, crown molding, security alarm Confirmed With Murray Williams, First Union Corporation Date Confirmed 11/12/97 by Stevan Bach, Bach Realty Advisors, Inc. Comments Luxury class apartments. This was a pre-sale of a property that was in lease-up at sale date. ALEXANDER PLACE - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] [PICTURE APPEARS HERE] RENT COMPARABLE 1 PROPERTY IDENTIFICATION Name of Project: Alexander Place Street Address: 6316 Cameron Forest Lane City/State: Charlotte, North Carolina PROPERTY DESCRIPTION Year Built/Renovated: 1984/85 Number of Buildings: 22 Number of Stories: 2 and 3 Number of Units: 309 Net Rentable Area (SF): 323,019 Average Unit Size (SF): 1,045 Parking Surface: Asphalt Type of Construction: Wood siding with pitched composition shingle roofs Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF ------------------------------------------------------------ 66 1BR/1BA 900 $750-775 $0.833-0.861 66 1BR/1BA/DEN 1,063 805-830 0.757-0.781 177 2BR/2BA 1,093 825-885 0.755-0.81
Unit Amenities: Fireplaces and washer/dryer. Some units have microwave, vaulted ceilings, and ceiling fans. Project Amenities: (2) swimming pools, (2) tennis courts, (2) hot tubs, clubrooms, golf cage, and laundry facility ECONOMIC DATA Percent Occupied: 89% Avg. Monthly Rent/SF of NRA: $0.791 Electricity Paid By: Tenant Length of Lease: 6 through 12 months Security Deposit: $150/1 BR $250/2 BR Pets Allowed/Deposit: $300 deposit with $10 monthly pet fee ($150 nonrefundable) Confirmed With: 1997 Carolinas Real Data and on-site management Date Confirmed: 12/97 by Stevan Bach, Bach Realty Advisors, Inc. Comments: This management company requires a $150 application fee. Across the street from subject property. This property resurfaced and restriped parking areas and painted the exteriors of its buildings in 1996. There are 47 newly constructed enclosed garages at $100 per month additional rent. Concessions $75-$ 100 off each month rent. Coupon in Apartment Guides gives additional $200 off 1st month rent. SUMMIT SIMSBURY - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 2 PROPERTY IDENTIFICATION Name of Project: Summit Simsbury Street Address: 4428 Simsbury Road City/State: Charlotte, North Carolina PROPERTY DESCRIPTION Year Built/Renovated: 1985 Number of Buildings: Unknown Number of Stories: 2-3 Number of Units: 100 Net Rentable Area (SF): 87,400 Average Unit Size (SF): 874 Parking Surface: Asphalt Type of Construction: Wood frame with brick and wood exterior, composition shingle roof Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF ----------------------------------------------------- 40 1BR/1BA 760 $720-735 $0.947- 60 2BR/2BA 950 855-920 0.967 0.900-0.968
Unit Amenities: Washer/dryer units and connections, microwaves, fireplaces, storage. Project Amenities: Indoor/outdoor swimming pool, laundry room, clubroom, and security alarms. ECONOMIC DATA Percent Occupied: 93% Avg. Monthly Rent/SF of NRA: $0.942 Electricity Paid By: Tenant Length of Lease: 6 and 12 months Security Deposit: $300 Pets Allowed/Deposit: $400 Confirmed With: On-site management and 1997 Carolinas Real Data Date Confirmed: 12/97 by Stevan Bach, Bach Realty Advisors, Inc. Comments: $50 off rent for 1 bedroom PROVIDENCE COURT - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] [PICTURE APPEARS HERE] RENT COMPARABLE 3 PROPERTY IDENTIFICATION Name of Project: Providence Court Street Address: 8110 Providence Court Lane City/State: Charlotte, North Carolina Property Description Year Built/Renovated: 1996 Number of Buildings: Unknown Number of Stories: 2 Number of Units: 420 Net Rentable Area (SF): 453,804 Average Unit Size (SF): 1,080 Parking Surface: Asphalt Type of Construction: Wood frame with brick and wood siding, composition shingle roof Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF ------------------------------------------------------------- 72 lBR/lBA 773 $650 $0.841 72 lBR/1BA 875 690-795 0.789-0.909 36 2BR/lBA 1,003 750-855 0.748-0.852 168 2BR/2BA 1,192 860-985 0.721-0.826 72 3BR/lBA 1,372 1,090-1,200 0.794-0.875
Unit Amenities: Washer/dryer connections (some w/d), fireplaces, microwave, vaulted ceilings, and ceiling fans Project Amenities: 2 swimming pools, fitness center, spa, tennis court, clubroom, controlled access, storage, security alarm. ECONOMIC DATA Percent Occupied: 74% Avg. Monthly Rent/SF of NRA: $0.808 Electricity Paid By: Tenant Length of Lease: 6 and 12 months Security Deposit: $150/1BR $250/2 BR Pets Allowed/Deposit: $300 Confirmed With: On-site management and Carolina Real Data Date Confirmed: 12/97 by Stevan Bach, Bach Realty Advisors, Inc. Comments: Move in by December 25/th/, 1/2 month off 1/st/ month rent with 12 month lease - 1/4month off on 6 month lease SUMMIT BALLENTYNE - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 4 PROPERTY IDENTIFICATION Name of Project: Summit Ballentyne Street Address: 13901 Summit Commons City/State: Charlotte, North Carolina PROPERTY DESCRIPTION Year Built/Renovated: 1997 Number of Buildings: Unknown Number of Stories: 3 Number of Units: 220 (current) -- take over 240 Net Rentable Area (SF): 243,503 Average Unit Size (SF): 1,107 Parking Surface: Asphalt Type of Construction: Wood frame with brick and wood exterior, composition shingle roof Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF ---------------------------------------------------- 52 1BR/1BA 837 $670 $0.80 26 2BR/1BA 996 780 0.78 84 2BR/2BA 1,155 850 0.74 13 2BR/2BATH 1,400 1,280 0.92 45 3BR/2BA 1,315 1,010 0.77
Unit Amenities: Washer/dryer connections, some units have w/d, microwave, fireplace, ceiling fan, covered parking. Project Amenities: Swimming pool, tennis court, clubhouse, laundry facility, fitness center, garages ECONOMIC DATA Percent Occupied: 56% (in lease-up) Avg. Monthly Rent/SF of NRA: $0.78 Electricity Paid By: Tenant Length of Lease: 6, 9, and 12 months Security Deposit: $200/1 BR $300/2 BR Pets Allowed/Deposit: $300/$150 refundable per pet (refundable) Confirmed With: On-site management and Carolina Real Data Date Confirmed: 12/97 by Stevan Bach, Bach Realty Advisors, Inc. Comments: Free vacation or 1 month free for 12 to 18 month leases. Still finishing construction. CRESTMONT - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 5 PROPERTY IDENTIFICATION Name of Project: Crestmont at Ballantyne Street Address: 9200 Otter Creek Drive City/State: Charlotte, North Carolina PROPERTY DESCRIPTION Year Built/Renovated: 1997 Number of Buildings: Unknown Number of Stories: 2-3 Number of Units: 282 Net Rentable Area (SF): 237,275 Average Unit Size (SF): 838 Parking Surface: Asphalt Type of Construction: Wood frame with brick and wood veneer, composition shingle roof Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SF) RENT RENT/SF ------------------------------------------------------------- 36 lBR/1BA 816 $675 $0.82 24 lBR/lBA 890 700 0.78 31 1BR/1BA/DEN 1,040 765 0.73 20 lBR/lBA/DEN 1,115 785 0.70 146 2BR/1BA 1,201 860 0.70 26 3BR/2BA 1,440 1,200 0.83
Unit Amenities: Washer/dryer, fireplaces, covered parking, microwaves Project Amenities: Swimming pool, 2 tennis courts, hot tub, exercise room, clubroom, laundry ECONOMIC DATA Percent Occupied: 74% (in lease-up) Avg. Monthly Rent/SF of NRA: $0.74 Electricity Paid By: Tenant Length of Lease: 6-12 months Security Deposit: $200 Pets Allowed/Deposit: $250 nonrefundable pet fee Confirmed With: On-site management and Carolina Real Data Date Confirmed: 12/97 by Stevan Bach, Bach Realty Advisors, Inc. Comments: Half month free on any 2 BR/2 BA PROFESSIONAL QUALIFICATIONS STEVAN N. BACH EXPERIENCE Bach Realty Advisors, Inc. (since June 1997) President. Emphasis in ad valorem tax and intangible value. Real estate valuation and consultation on hotels, major urban properties, and property portfolios. Financial and feasibility analysis, land use, and market studies Bach Thoreen McDermott Incorporated (July 1991-May 1997) Chief Executive Officer. Bach Thoreen & Associates, Inc. (1985-1991) President Bach & Associates, Inc. (1980-1984) President Landauer Associates, Inc. (1980-1984) Senior Vice-President and General Manager-Southwestern Region Coldwell Banker Commercial Group, Inc. (1973-1980) Vice-President and Manager, Appraisal Services. Appraisal Research Associates (1971-1973) Appraiser. Real Estate research valuation on urban and rural properties. Ray R. Hastings, MAI (1964-1971) Appraiser. Real Estate research valuation on urban and rural properties. Residential Real Estate Sales (1963-1964) Salesman. Residential real estate salesman Covina, California. PROFESSIONAL ACTIVITIES Member: Appraisal Institute Appraisal Institute, Houston Chapter 33 Appraisal Institute, Chairman of the Grievance Committee of the Regional Ethics Panel Appraisal Institute, Chairman of the Review and Counseling Committee of the Regional Ethics Panel Appraisal Institute, Co-Chairman of the Education Committee (1980) Appraisal Institute, Chairman of the Education Committee (1983) Appraisal Institute, Candidate Guidance Committee (1987-1992) Appraisal Institute, Subcommittee Chairman, Admissions Committee (1984) AIREA Nonresidential Appraisal Report Grading Committee (1984) Appraisal Institute Expert Witness Video Committee (1990) Licenses: Real Estate Broker, State of Texas Certification: Certified in the Appraisal Institute's voluntary program of continuing education for its designated members (MAIs who meet the minimum standards of this program are awarded periodic education certification). Certified General Real Estate Property appraiser in the State of Texas, Certification No. TX-1323079-G Certified General Real Estate Property appraiser in the State of Colorado, Certification No. CG01323975 EDUCATION B.S. Marketing, University of Southern California (1962) ================================================================================ A COMPLETE, SELF-CONTAINED APPRAISAL OF THE LAKEVIEW VILLAGE APARTMENTS 100 LAKE VISTA DRIVE PONTE VEDRA BEACH, FLORIDA FOR HUTTON/CON AM REALTY INVESTORS 5 1764 SAN DIEGO AVENUE SAN DIEGO, CALIFORNIA 92110 AS OF NOVEMBER 30, 1997 BY BACH REALTY ADVISORS, INC. 1221 LAMAR, SUITE 1325 HOUSTON, TEXAS 77010 BRA: 97-068 ================================================================================ TABLE OF CONTENTS - -------------------------------------------------------------------------------- Letter of Transmittal.............................. 1 Assumptions and Limiting Conditions................ 2 Certification...................................... 4 Salient Facts and Conclusions...................... 6 Nature of the Assignment........................... 7 City/Neighborhood Analysis......................... 9 Apartment Market Analysis..........................19 Site Description...................................24 Improvements.......................................26 Highest and Best Use...............................28 Appraisal Procedures...............................31 Sales Comparison Approach..........................33 Income Approach....................................37 Reconciliation.....................................47
ADDENDA Improved Sales Comparables Rent Comparables Legal Description Professional Qualifications BACH Realty Advisors, Inc. Appraisal, Consultation & Litigation March 14, 1998 Hutton/Con Am Realty Investors 5 1764 San Diego Avenue San Diego, California 92110 Re: A Complete, Self-Contained Appraisal Of The 240-Unit Multifamily Apartment Complex Known As the Lakeview Village Apartments Located At 100 Lake Vista Drive in Ponte Vedra Beach, Florida; BRA: 97-068 Gentlemen: By your request and authorization, we have inspected the above-referenced property and have investigated the real estate market in the subject area in order to provide the value of the leased fee estate of the subject property as of November 30, 1997. This complete, self-contained appraisal report is in conformance with the guidelines of the Appraisal Institute. The scope of this assignment includes the Sales Comparison and Income Approaches to value. The property was inspected in December 1997, and for the purposes of this report it is assumed that all physical and economic conditions are similar on the date of value as they were on the date of inspection. Our analysis of the property focused on the supply and demand factors influencing the Jacksonville area apartment market, the sale of comparable properties, market rent levels, appropriate operating expenses, and acceptable investor returns. As a result of our inspection of the property, investigation of the real estate market, and relying on our experience with similar type properties, it is our opinion that the leased fee market value of the subject property, all cash, on an "as is" basis, as of November 30, 1997 is in the sum of ELEVEN MILLION SEVEN HUNDRED THOUSAND DOLLARS ($11,700,000) There follows on the succeeding pages of this report pertinent data as to the valuation conclusions expressed herein. Your attention is also directed to the Assumptions and Limiting Conditions that follow this letter, as they are an integral part of the above stated market value. Thank you for the opportunity to be of service. If there are any questions regarding the valuation, please contact us. Sincerely, BACH REALTY ADVISORS, INC. /s/ Stevan N. Bach Stevan N. Bach, MAI President and Chief Executive Officer Four Houston Center 1221 Lamar, Suite 1325 Houston, TX 77010 (713) 739-0200 Fax (713) 739-0208 ASSUMPTIONS AND LIMITING CONDITIONS - -------------------------------------------------------------------------------- The certification of this appraisal is subject to the following assumptions and limiting conditions. 1. That responsibility is not taken for matters of a legal nature affecting the property appraised or the title thereto and that any legal descriptions furnished are correct. 2. That the title to the property being appraised is good and marketable and is appraised as though under responsible ownership and/or management. 3. That the property is free and clear of all liens and encumbrances except as otherwise stated. 4. That the sketches in this report are included to assist the reader in visualizing the property and responsibility is not assumed for their accuracy. 5. That a survey of the property has not been made by the appraiser. 6. That the information, estimates, and opinions furnished the appraiser by others and contained in this report are considered reliable and are believed to be true and correct; however, responsibility is not taken for their accuracy. 7. That responsibility is not taken for soil conditions or structural soundness of the improvements that would render the property more or less valuable. 8. That possession of this appraisal does not carry with it the right of publication and that this appraisal report, or any parts thereof, may not be reproduced in any form without written permission of the appraiser. 9. That testimony or attendance in court or at a hearing are not a part of this assignment; however, any such appearance and/or preparation for testimony will necessitate additional compensation than received for this appraisal report. 10. That the valuation estimate herein is subject to an all cash or cash equivalent purchase and does not reflect special or favorable financing in today's market. 11. Where discounted cash flow analyses have been undertaken, the discount rates utilized to bring forecasted future revenues to estimates of present value reflect both our market investigations of yield anticipations and our judgement as to the risks and uncertainties in the subject property and the consequential rates of return required to attract an investor under such risk conditions. There is no guarantee that projected cash flows will 2 actually be achieved. Further, deductions from the cash flow for deferred maintenance are based on our conversations with representatives of ConAm Management. 12. That the square footage figures are based on floor plans and information supplied to the appraiser by ConAm Management. 13. Bach Realty Advisors. Inc. is not an expert as to ------------------------------------------------- asbestos and will not take any responsibility for its ----------------------------------------------------- existence or the existence of other hazardous --------------------------------------------- materials at the subject property, analysis for EPA --------------------------------------------------- standards, its removal, and/or its encapsulation. If ---------------------------------------------------- the reader of this report and/or any entity or person ----------------------------------------------------- relying on the valuations in this report wishes to -------------------------------------------------- know the exact or detailed existence (if any) of ------------------------------------------------ asbestos or other toxic or hazardous waste at the ------------------------------------------------- subject property, then we not only recommend, but ------------------------------------------------- state unequivocally that they should obtain an ---------------------------------------------- independent study and analysis (including costs to -------------------------------------------------- cure such environmental problems) of asbestos or other ------------------------------------------------------ toxic and hazardous waste. ------------------------- 14. In addition, an audit on the subject property to determine its compliance with the Americans with Disabilities Act of 1990 was not available to the appraiser. The appraiser is unable to certify compliance regarding whether the removal of any barriers which may be present at the subject are readily achievable. 3 CERTIFICATION - -------------------------------------------------------------------------------- The undersigned does hereby certify to the best of his knowledge and belief that, except as otherwise noted in this complete, self-contained appraisal report: 1. I do not have any personal interest or bias with respect to the subject matter of this appraisal report or the parties involved. 2. The statements of fact contained in this appraisal report, upon which the analyses, opinions, and conclusions expressed herein are gauged, are true and correct. 3. This appraisal report sets forth all of the limiting conditions (imposed by terms of our assignment or by the undersigned) affecting the analyses, opinions, and conclusions contained in this report. 4. The analysis, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Uniform Standards of Professional Appraisal Practice of the Appraisal Institute. 5. That no one other than the undersigned prepared the analyses, opinions, and conclusions concerning the subject property that are set forth in this appraisal report. Stevan N. Bach, MAI inspected the property in December 1997. 6. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 7. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions, and conclusions. 8. The Appraisal Institute conducts a program of continuing education for its members. Members who meet the minimum standards of this program are awarded periodic educational certification. As of the date of this report, Stevan N. Bach, MAI has completed the requirements under the continuing education program of the Appraisal Institute. 9. Compensation for this assignment is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. 10. That all physical and economic conditions are the same on the date of value as they were on the date of inspection. 4 11. Based on the knowledge and experience of the undersigned and the information gathered for this report, the estimated leased fee market value, "as is," of the subject property on an all cash basis, as of November 30, 1997 is $11,700,000. /s/ Stevan N. Bach ------------------------------------------------ Stevan N. Bach, MAI President Certified General Real Property Appraiser State of Texas TX-1323079-G 5 SALIENT FACTS AND CONCLUSIONS - -------------------------------------------------------------------------------- Identification: Lakeview Village Apartments 100 Lake Vista Drive Ponte Vedra Beach, Florida Location: West of State Highway AlA on the north side of Ponte Vedra Lakes Drive south of the Duval/St. Johns county line in Ponte Vedra Beach, Florida BRA: 97-068 Legal Description: 19.47-acre tract out of Government Lot 2, Section 16, Township 3 South, Range 29 East, St. Johns County, Florida Land Size: 19.47 acres or 848,113 square feet Building Area: 263,424 square feet of net rentable space plus a 1,500-square-foot clubhouse/leasing office Year Built: 1984 Unit Mix: 48 lBR/1BA at 867 square feet 80 lBR/1BA/DEN at 1,059 square feet 112 2BR/2BA at 1,224 square feet Total Units: 240 No. of Units: 240 Average Unit Size: 1,098 square feet Occupancy Physical: 91.25 percent Economic: 84.2 percent Highest and Best Use As Vacant: An apartment development As Improved: Current use (as apartments) Date of Value: November 30, 1997 "As Is" Market Value by Sale Comparison Approach: $11,500,000 "As Is" Market Value by Income Approach: $11,700,000 "As Is" Market Value Conclusion: - $11,700,000 6 NATURE OF THE ASSIGNMENT - -------------------------------------------------------------------------------- PURPOSE OF THE APPRAISAL The purpose of this appraisal is to give an estimate of the "as is" leased fee market value of the subject property on an all cash basis. IDENTIFICATION OF THE PROPERTY The subject of this appraisal report is the Lakeview Village Apartments located at 100 Lake Vista Drive, Ponte Vedra Beach, Florida. DATE OF THE APPRAISAL All opinions of value expressed in this report reflect physical and economic conditions prevailing as of November 30, 1997 DEFINITION OF SIGNIFICANT TERMS The Appraisal of Real Estate, Eleventh Edition, 1996, ---------------------------- sponsored by the Appraisal Institute defines Market Value as: "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) Buyer and seller are typically motivated; (2) Both parties are well informed or well advised, and acting in what they consider their own best interests; (3) A reasonable time is allowed for exposure in the open market; (4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale." Leased Fee Estate - An ownership interest held by a ----------------- landlord with the rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the leased fee are specified by contract terms contained within the lease./1/ - ---------------------------------- /1/ The Dictionary of Real Estate Appraisal, Third Edition, p. 204. --------------------------------------- 7 FUNCTION OF THE APPRAISAL It is the understanding of the appraiser that the function of this appraisal is for annual partnership and/or internal purposes. PROPERTY RIGHTS APPRAISED The appraiser have appraised the "as is" leased fee interest subject to short-term leases which are typically 6 to 12 months in duration at the subject property. THREE-YEAR HISTORY No transfers of ownership to the subject were discovered during the past three years upon interviews with real estate brokers in the area and research into the grantor/grantee deed records of St. Johns County, Florida. SCOPE/BASIS OF THE APPRAISAL This appraisal has been made in accordance with accepted techniques, standards, methods, and procedures of the Appraisal Institute. The values set forth herein were estimated after application and analysis by the Sales Comparison and Income Approaches to value. These approaches are more clearly defined in the valuation section of this report. The Cost Approach was not used as a method of valuation in this appraisal. The Cost Approach is typically the least reliable indicator because cost does not necessarily reflect value. Moreover, estimates of depreciation are difficult to accurately measure in the marketplace, thereby compounding the speculative nature of the opinions derived in the cost method of valuation. The scope of our assignment included obtaining pertinent property data from the client regarding income and expense figures, tenant rent rolls, and permission to inspect the subject. Additionally, the appraiser conducted research either personally or through associates to obtain current market rental rates, construction trends, the sale of comparable improved properties, anticipated investor returns, and the supply and demand of competitive apartment projects in the general and immediate area. After these examinations were performed, an analysis was made in order to estimate the leased fee market value of the subject on an "as is" basis. 8 (AREA MAP APPEARS HERE) --------------------- CITY/NEIGHBORHOOD ANALYSIS - -------------------------------------------------------------------------------- Jacksonville is the seat of Duval County and is situated near the northeastern corner of Florida on the St. Johns River. This location is approximately 150 miles north of Orlando, 165 miles east of Tallahassee, and 15 miles west of the Atlantic Ocean. The city of Jacksonville was consolidated with Duval County in the 1960s and has since been recognized as one of the largest incorporated municipalities in the nation in terms of land area with 841 square miles. In population, Jacksonville is one of the 20 largest cities in the United States and the most populous incorporated city in Florida. In 1990 the U.S. Bureau of the Census estimated the city's population at 648,200 persons. In 1995 this estimate increased to 676,718. The Jacksonville Metropolitan Statistical Area (MSA) includes Duval, Clay, St. Johns, and Nassau Counties. The 1990 MSA population was estimated at 906,727 according to the Census bureau, which indicates that the MSA is the fifth largest MSA in Florida after Tampa-St. Petersburg-Clearwater, Miami-Hialeah, Fort Lauderdale-Hollywood-Pompano Beach, and Orlando. As of January 1, 1997 the Jacksonville MSA stood at 1,025,600 or 13.1 percent higher than the 1990 population. The following chart depicts the Jacksonville MSA population and employment growth over the past two decades.
1970 1980 1990 1994 1995 2005* ------------------------------------------------------ Population 612,600 722,300 906,727 981,600 994,900 1,140,700 Employment 159,400 281,800 422,700 437,474 460,245 625,690
Source: U.S. Bureau of the Census, Florida Department of Labor and Employment Security *Projection Historical population growth for the Jacksonville MSA from 1980 to 1990 averaged 2.3 percent per year. The growth has decreased slightly to 1.7 percent annually from 1990 to 1995. Population increases are anticipated to continue as job growth rises and as stated above the population estimated as of January 1, 1997 was 1,025,600. The Bureau of Business & Economic Research at the University of Florida projects the Jacksonville MSA population to be between 967,000 and 1,178,000 by the year 2000. The median projection for this time period is a population of 1,063,700. The greatest population growth has recently occurred to the south and east of the St. Johns River in Duval County. Other notable growth has been observed in northeastern Clay County near Orange Park, and in northern St. Johns County particularly along the Atlantic Coast beaches. The median age of the population in the Jacksonville MSA is lower than that found in the retirement havens of southern Florida. The median age in this MSA is 34 years according to the Census Bureau. This compares to about 36 years in Miami, 39 years in Fort Lauderdale, and 40 years in Tampa. The medium age in the city of Jacksonville is slightly less (33.3 years) than for the MSA. 9 Jacksonville was originally known as Florida's industrial city due to its port, shipyards, paper mills, and food processing plants. More recently, however, Jacksonville has become known as a regional center for banking, insurance, medicine and distribution. The Research Department of the Jacksonville Chamber of Commerce reported that the six largest private sector employers in the area were: Winn- Dixie Grocery Company, AT&T, Publix Super Market, Blue Cross/Blue Shield of Florida, Barnett Banks, and CSX Transportation. Two of Florida's largest banks, Barnett Bank and First Union, are officed in Jacksonville, along with 30 insurance companies. Jacksonville is also becoming a major back-office hub, as large corporations set up customer service centers and data processing operations in the area, including Merrill Lynch & Company, AT&T Corporation, and America Online, Inc. in the past few years. In addition, the world-renowned Mayo Clinic has one of its two regional medical centers located in southeastern Jacksonville. The recent additions in these medical and service-related industries have contributed to a more diverse economy in the area, and have helped civic leaders' attempts to transform the city's image from that of an industrial town to a regional distribution, service, and financial center. The largest contributor to the Jacksonville employment market is its three naval installations which include: Cecil Field Naval Air Station, located in the southwest sector of Duval County; Jacksonville Naval Air Station, located on the west bank of the St. Johns River a few miles south of the Central Business District (CBD), and the Mayport Naval Training Center, situated at the mouth of the St. Johns River near the Atlantic Ocean. These military establishments in Jacksonville employ approximately 31,200 civilian and military personnel. More recently, Cecil Field has been placed on the government's list of possible closures due to budget cutting measures. It is due to be closed in August 1999, which should result in the loss of approximately 7,500 military and civilian jobs. Jacksonville created the Cecil Field Development Commission with the task of developing a reuse plan for Cecil Field. The commission was dissolved in May 1997 as it had completed its task and transferred duties and functions to the Jacksonville Economic Development Commission. Infrastructure improvements are being discussed and to date funding has been secured for three major projects: survey of the land for city incorporation; three-phased conversion of the water and sewer systems to the city systems; and a transportation study (completed). The Naval Air Station is increasing in size because of the consolidation of units to the Jacksonville Naval Air Station. The net result in the closure and consolidation is little change in the present number of personnel. Total civilian employment in the Jacksonville MSA as of April 1996 was 480,100 persons according to the Florida Department of Labor and Employment Security. The unemployment rate as of that date was 3.3 percent down from 3.7 percent in February 1996, or lower than the U.S. Department of Labor's 4.8 percent rate for the state of Florida as of the same date. The above is the latest information received from the Jacksonville Chamber of Commerce. 10 The breakdown of nonagricultural employment as of November 1995 in the Jacksonville area is presented below and illustrates the growing diversity of the local employment base.
NONAGRICULTURAL EMPLOYMENT NUMBER PERCENT --------------------------------------------------------------- Manufacturing 35,500 7.4 Construction 24,200 5.0 Transportation, Communications, Utilities 32,000 6.7 Trade 117,600 24.5 Finance, Insurance, Real Estate 50,300 10.5 Services & Miscellaneous 152,900 31.8 Government 67,200 14.0 Other 400 0.1 ------- ----- Total 480,100 100.0
Source: Florida Department of Labor and Employment Security, November 1995. Note: The 480,100 estimates varies from the earlier stated estimate of 460,245. A surge of new jobs in Jacksonville earned the city a spot as the ninth fastest-growing metro labor market in 1996, according to the latest figures from the U.S. Bureau of Labor Statistics between 1993 and 1995, non-farm employment in Duval, St. Johns, Nassau and Clay Counties jumped 9.6 percent from 438,600 to 480, 800. Despite its Florida location, the tourist/convention industry has a smaller impact on the Jacksonville MSA economy than in other parts of the state. Most area beaches and recreation facilities cater to local residents. The exception would be the Amelia Island Resort located 20 miles northeast of the city on the Atlantic Ocean. Amelia Island features world-class golf and tennis and luxury resort accommodations and is designed to attract vacationers from around the country. The most recent addition to this resort was the 450-room Ritz Carlton Hotel, which opened in June of 1991. The increase in service-oriented industries in Jacksonville has resulted in a substantial increase in income for the area's residents. Per Capita income rose by an average of approximately 1.4 percent per year from 1986 to 1995.
JACKSONVILLE MSA YEAR PER CAPITA INCOME -------------------------- 1986 $14,629 1987 15,482 1988 16,490 1989 14,973 1990 15,695 1995 16,920
Source: U.S. Department of Commerce, Bureau of Economic Analysis According to a demographic profile of Duval County, the medium household effective buying income was $15,712 as of January 1, 1997. Additionally there were 278,800 households with 48 percent owner-occupied. Total Duval County population was 733,500 with projections of 787,000 by the year 2005. 11 Jacksonville is a major distribution center of durable goods for Florida and Georgia. Transportation facilities include an international airport, rail service from various railroad companies, numerous private freight distribution companies, and bus service. Jacksonville has rail facilities with multi-modal transportation capabilities. The Port of Jacksonville, which utilizes the St. Johns River from the east end of the CBD to the Atlantic Ocean, is a leading import center for foreign automobiles. This facility consists of both the Blount Island Marine Terminal (867 acres) and the Talleyrand Docks and Terminals (173 acres) and features a 38-foot-deep channel. The Jacksonville Port Authority has acquired 589 acres of property on Dames Point for its third terminal development, which is the result of demand from new ship lines. A $300,000,000 project to deepen the harbor from 38 to 42 feet has been proposed. The international airport, operated by the Jacksonville Port Authority, has undergone $100 million of improvements, which added two new terminals, twelve new gates, and extended a runway to accommodate larger planes for transcontinental flights. Two major Interstate Highways, Interstate 10 and Interstate 95, intersect near downtown Jacksonville. Interstate 10 travels west from the city to the Gulf Coast communities in the Southeastern U.S., then continues west through the Southwestern U.S. to Los Angeles. Interstate 95 runs north/south along the Eastern Seaboard of the U.S. Interstate 295 provides a bypass around the major urbanized areas of the city to the northeast, northwest, west, and south. Completion of the eastern section of Interstate 295, which would create a beltway around the city, has been proposed with limited access approach roads expected to be in place by 2000. Many of the express roads and highways in Jacksonville formerly were toll roads; however, the toll charges were removed in the mid-1980s. The unified city/county government in Jacksonville and Duval County has been a unique feature of the area since the 1960s. A singular taxing authority collects for schools and municipal services for all residents. Excepted from Jacksonville city authority are the communities of Atlantic Beach, Neptune Beach, and Jacksonville Beach, which are separate incorporated municipalities within Duval County. Twenty miles of beaches along the Atlantic Ocean provide a wealth of recreational opportunities for area residents. The wide St. Johns River south of the CBD is popular with local pleasure craft. The average annual temperature in Jacksonville is 71 degrees with annual rainfall averaging 55 inches. Residents' needs for higher education in the area are served by several local colleges and universities such as Jacksonville University, the University of North Florida, and Florida Community College. Jacksonville is the headquarters for both the Professional Golf Association and Association of Tennis Professionals tours. It is also the home of the newest member of the expanded National Football League, the Jacksonville Jaguars. The team plays in the City's Gator Bowl Stadium, which seats 82,000 after renovation. The area boasts six museums, an active arts association, and one major daily newspaper. In addition, St. Augustine in neighboring St. Johns County to the south is the oldest city in 12 North America, and features numerous historic buildings and landmarks including the Castillo de San Marcos National Monument. The diversification of the economy has affected development in the Jacksonville area over the past several years. According to Reynolds, Smith and Hills, Inc. (RS&H), a local real estate research and development company, the total inventory of office space in the area in 1990 was 12,436,000 square feet. There has been about 1,040,000 square feet of office construction since 1990. Over 5 million square feet of office space has been constructed since 1987, with half in the suburban markets. Most suburban development was intended for single-tenant usage by companies such as Barnett Bank, American Express, CSX, and Blue Cross/Blue Shield. Of these, Barnett Bank developed an 820,000-square-foot nonbanking headquarters facility in a campus-style environment near the intersection of Southside Boulevard and U.S. 1 in southeastern Jacksonville. As of August 1997, the Central Business District (CBD) consisted of 57 buildings with a total of 6,298,533 square feet and a total for Jacksonville of more than 130 buildings with over 13,000,000 square feet, the majority of which are in the Southside (Butler) area at 84 for 5,199,037 square feet. As of August 1997, office announcements indicated eight projects to contain about 876,000 square feet and provide over 3,480 jobs. Additionally seven other projects are to be announced that total over 1.6 million square feet. Companies involved in the announced projects are Atlantic Teleservices, Barnett Banks, Purdential Health Care, Chase Manhatten Corporation, Koger Equity, Gran Central Corporation, and Hallmark Partners. The office market in Jacksonville is active and reports by submarket in the August 15, 1997 issue of Commercial Real Estate indicate a tightening and strong market with new construction justified. Vacancy is now in single digits city-wide and all submarkets have lower vacancy than one year ago except for one submarket. Rents city-wide have increased $1.50 to $3.00 per square foot from 1996 levels and proposed projects are expected to obtain rents in excess of $20 per square foot. The increasing household income in Jacksonville has attracted a substantial amount of retail development in recent years. Most of this development has occurred in suburban markets on the south side and in the beach communities. In September 1990, The Avenues Mall was completed offering over 1.4 million square feet of retail space at Southside Boulevard and U.S. Highway 1. Food Lion, a North Carolina-based grocery chain, constructed 17 strip centers throughout the Jacksonville area during 1988 and 1989. Beach area redevelopment featured the opening of two regional centers known as Sandcastle Plaza and South Beach Center, and several large "power" centers were constructed near two of the regional malls in the area. As of December 31, 1996 the Jacksonville MSA showed total retail sales at $10.155 million, up 30.5 percent since year end 1991. Duval County, which encompasses Jacksonville, had retail sales of 7.644 million or an increase of 26.3 percent since 1991. Based on information from the ULI Market Profiles: 1996 ------------------------- 13 [NEIGHBORHOOD MAP APPEARS HERE] rents for retail space have stabilized since 1987 ranging from $30.00 to $50.00 per square foot per year for enclosed mall space. Typical rent levels for smaller centers experienced a slight increase to a range between $9.00 and $14.00 per square foot. Rental rates for older strip centers range from $4.00 to $8.00 per square foot. Retail development is projected to be stable until vacant space within the market is reasonably absorbed. Residential growth in the northern and middle St. Johns County areas, southside-Intracoastal west, and the Avenue-U.S. Highway 1- Southside Boulevard areas of the city is expected to produce retail activity in these markets. Residential, both single and multi-family remains active in development. The October 31, 1997 edition of Homefront identifies over 320 single family developments that are active today. The industrial real estate sector has not experienced the significant vacancy problems incurred by the office and retail markets. This sector is very strong in the Jacksonville area and is experiencing heavy demand for build-to-suit space from industry entering the market. New construction during 1995 totaled over 1.5 million square feet, a new record high. The major projects in the area include Sara Lee's Coach subsidiary; NatureForm, Inc.; Pilot Pen Corporation; Sally Industries; H.J. Heinz Company's Portion Pac, Inc.; Viking Office Products and a Georgia Pacific expansion. The majority of new construction is taking place in the south and west sides of Jacksonville. As established by the NAIOP report in August 1997, the south side submarket has favorably responded to the one-year supply of space, however, there remains 300,000 square feet within six buildings that has not been leased. Activity for this space has been slow. The west side market continues to grow and is said to be a strong market. The north side submarket is strong with minimal vacancy and the Port Authority is expected to spend about $100 million on airport and seaport capital improvements, which were to begin October 1997. Industrial parks of tradeport and Imeson will benefit most from the expenditures. The apartment market is discussed in the Apartment Market Analysis section that follows. NEIGHBORHOOD ANALYSIS The subject is located in the northeast area of St. Johns County approximately 18 aerial miles from the Jacksonville CBD. The neighborhood is generally described as the northernmost portion of St. Johns County, or that area lying west of the Atlantic Ocean and south and east of the St. Johns/Duval County Line immediately south of the city of Jacksonville Beach. Although unincorporated, this neighborhood is better known as the community of Ponte Vedra Beach. Florida State Highway AlA (Highway AlA) is a major thoroughfare, which runs the length of Florida's Atlantic Coast areas from Fernandina Beach at the north end to Miami Beach in the south. Through the subject neighborhood, this divided fourlaned road cuts through the neighborhood in a similar north/south fashion. Just north of the subject neighborhood boundary in Jacksonville Beach, Highway AlA intersects with J. Turner Butler Boulevard, a major roadway connecting 14 Jacksonville with its suburban beach communities. Highway AlA runs generally about 5 blocks west of the Atlantic coast in this neighborhood except at its southern end, where it merges with State Road 203/Ponte Vedra Boulevard. Ponte Vedra Boulevard continues northward from this point immediately along the oceanfront. Major crossroads between these two neighborhood roadways include Corona Road, about 1 mile south of the Duval County Line, and Solana Road, several blocks north of Corona Road. Solana Road is a two- laned street, which continues west from Highway AlA, then turning southwest, and south along the Intracoastal Waterway where its name changes to Roscoe Boulevard. Finally, Palm Valley Road, a two-laned street, branches off to the southwest from Highway AlA about 2 miles south of the county line; Palm Valley Road, also known as State Road 210, continues southwestward providing access to the neighborhood from U.S. Highway 1 and Interstate 95 at the north end of St. Johns County. Approximately half of the land within the neighborhood boundaries is east of the Intracoastal Waterway; this half is approximately 60 percent developed. The area west of this canal lies largely undeveloped and is predominantly marshland. Ponte Vedra Beach enjoys a reputation as a popular resort community and affluent suburban enclave in the Jacksonville MSA. While no official population count exists, area real estate professionals estimate the population of Ponte Vedra Beach to be over 15,000 persons. The area is popular with retirees for its proximity to beaches and for its numerous resort-style subdivisions which often include country clubs, golf courses, and tennis facilities. However, this location within approximately 30 minutes of downtown Jacksonville and even closer to large suburban office parks on the city's south side has attracted local suburban residents as well. The Mayo Clinic's regional facility at San Pablo Road and J. Turner Butler Boulevard is just 4 miles northwest of this neighborhood. The Southpoint and Southside Boulevard office centers to the west are a reasonable 15-minute commute from the neighborhood along Highway AlA and J. Turner Butler Boulevard, which eventually intersects with Interstate 95 to the west. In the retail sector, several neighborhood shopping centers are noted along either side of Highway AlA. Ponte Vedra Square is situated in this neighborhood at the southwest corner of Highway AlA and Solana Road, which Ponte Vedra Point shopping center is at the southwest corner of this highway and Palm Valley Road. Between these two neighborhood centers is a third, known as Sawgrass Village along the west side of the street. Regional shopping can be found at South Beach Regional Center, located just to the north of the neighborhood boundary at the northwest corner of Highway AlA and J. Turner Butler Boulevard in Jacksonville Beach. A planned 250,000-square-foot center was announced in late 1993 and was completed at the southwest corner of Highway AlA and J. Turner Butler Boulevard. Anchor tenants include Target, Publix, and Ace Hardware. Currently there is a zoning change requested for land adjacent to the subject Lakeview Village Apartments for a new shopping center. All of these retail developments are supported by the growth and affluence of the residential sector in Ponte Vedra Beach. The affluence of the neighborhood is illustrated by the location of six country club developments in the area over the past twelve years which feature custom homes generally priced from $150,000 to 15 over $400,000, well above the median home price in the Jacksonville MSA. The residential neighborhoods tend to become more prestigious at the southern end of Ponte Vedra Beach. This southern part of the community is the location of both the Sawgrass and Tournament Players Club (TPC) country club/golf course developments. The Professional Golf Association and the Association of Tennis Professionals both have headquarter offices in Ponte Vedra Beach at the Tournament Players Club development, and each has sponsored major professional tournaments within the community in the last several years. Office development in the Beaches area, which includes Ponte Vedra, is primarily smaller sized buildings less than 30,000 square feet in size. The August 1997 Commercial Real Estate publication surveyed 19 office buildings totaling approximately 600,000 square feet and only 2 buildings were in excess of 30,000 square feet. The current supply of immediately available office space is low. The Ponte Vedra market has more supply, but also has more demand particularly in the law, medical professionals, financial planners, and insurance professionals. Rental rates are in the $19.00 to $21.00 per square foot full service category. Demand is strong in Ponte Vedra and over 150,000 square feet is proposed along the `hot' AlA corridor south of State 202. Several multifamily condominium and apartment projects are located in Ponte Vedra Beach. Condos are typically found immediately along the ocean or with the Sawgrass or TPC developments, while apartments are located at the north end of the neighborhood and along Highway AlA. According to the Jacksonville Planning Department, which publishes a quarterly apartment survey for the region, the Beach area submarket in which Ponte Vedra Beach is located has among the highest monthly average apartment rental rate of the six submarkets in the Jacksonville MSA. Physical occupancy rates in each of the existing apartment communities surveyed were over 90 percent. At subject valuation date, there were several apartment projects being constructed in or near Ponte Vedra. Apartment development was occurring west of AlA and south of J. Turner Butler Boulevard (State 202) and along Hodges Road north of J. Turner Butler Boulevard. The apartment construction in or near Ponte Vedra is more specifically identified as west of the subject apartment complex near the Landing Parkway/Ponte Vedra Lakes Boulevard intersection. Despite the growth in the area, which has generally occurred over the past twelve years, about one-third of the land in the neighborhood lies vacant and ready for development. To the south and west of this neighborhood are typically vacant areas, which contain marshes or land within the Guana River State Park; to the north is the older city of Jacksonville Beach, and to the east is the Atlantic Ocean. The St. Johns District provides bus service to children in the neighborhood attending public schools; Ponte Vedra Beach has its own elementary school at Highway AlA and Corona Road. The University of North Florida is located about 6 miles northwest of this neighborhood at J. Turner Butler Boulevard and St. Johns Bluff Road. Police and fire protection is provided by the county. 16 The neighborhood's access to supporting facilities, Atlantic beaches, along with the location of prestigious golf club communities within Ponte Vedra Beach have made the neighborhood one of the most attractive areas in Jacksonville. Physical occupancy rates in many multifamily developments in this area are above 90 percent. As the result of an improving local economy, there has been new development in retail and multifamily housing. As the economy continues to recover, the appraiser anticipates that the demand for residential units and retail space will become greater, and that space in the subject neighborhood will actively participate in this increased absorption due to all of the neighborhood's positive features stated above. However, as the neighborhood becomes more built-out, it will likely experience a period of stability as it matures in the long-term compared to the period of rapid development this neighborhood enjoyed throughout most of the 1980s. CONCLUSION Jacksonville, with a January 1997 U.S. Census Bureau population of 1,025,600 in its MSA, was known in the past as a military and industrial port city at the northeastern end of Florida. However, the employment base has grown and diversified over the past two decades as major banks, insurance companies and medical service industries have opened regional or headquarter offices in the area. This activity has increased the income of area residents and spurred significant job growth through much of the 1980s. Although Jacksonville is not noted as a major tourist center compared to southern areas of Florida, the area has attractive beaches and a redeveloped downtown riverfront area to serve the local population. The diversification of the employment base ignited office development both downtown and in the south side suburbs during the past ten years. Numerous large retail centers have been built in recent years to support the growing Jacksonville area population and income. Major private employers include Barnett Bank, Blue Cross/Blue Shield of Florida, and CSX Transportation. Nonetheless, the city's naval presence, with over 30,000 personnel, still dominates employment in the area. While new industries and employers such as America Online and AT&T have continued to enter the local employment market with new back-office operation centers, the appraisers anticipate less office development as the focus in the marketplace switches to absorption and renovation of existing vacant space. Bright spots in the Jacksonville real estate market include improving occupancy rates in the apartment market and a relatively low industrial space vacancy rate compared to other industrial markets nationwide. The city of Jacksonville appears to be enjoying a favorable economic climate. Construction permits and absorption of space in some sectors such as single-family residential have increased, while unemployment figures remain low. Although the closing of the Cecil Field Naval Air Station is not favorable, many of the lost jobs could potentially be offset by additions to the area's other two Naval bases and to the reuse plan of Cecil Field. The city's diversifying economic base, good supporting facilities, Florida sunbelt location, and good quality of life should support growth and absorption in all sectors. 17 The Ponte Vedra area is in demand and development activity is present in the apartment, retail, and office areas. This is in the Beaches area and reflects tourism, a retirement population, etc. with a growing need/demand for medical, financial, insurance, and law professionals. It is expected that demand for apartments will continue into the near future. 18 [MAP OF MARKET AREA APPEARS HERE] APARTMENT MARKET ANALYSIS - -------------------------------------------------------------------------------- Information from two surveys was utilized in the analysis of the Jacksonville apartment market analysis. The first is the Apartment Market Survey for Greater Jacksonville, Florida, Second Quarter, 1996 prepared by the Jacksonville Planning and Development Department and the Northeast Florida Apartment Council. The second is the Jacksonville Apartment Market Survey, Third Quarter 1997, published by Vestcor Realty Management, Inc. Most references are made to the survey prepared by the Vestcor Realty Management, Inc. AS THE FIRST SURVEY WAS NOT MADE IN 1997 BY THE PLANNING DEPARTMENT AND NORTHEAST FLORIDA APARTMENT COUNCIL. Construction of apartment projects in Jacksonville during the late 1980s continued but at lower levels each year from 1985 through 1989. The credit restrictions by lenders and their regulators following the savings and loan scandals in the mid-1980s contributed to make construction funds scarce for apartment developers nationwide. The chart below illustrates the units constructed per year in Jacksonville since 1985.
YEAR TOTAL UNITS PERMITTED ------------------------------- 1985 5,079 1986 4,521 1987 2,656 1988 1,949 1989 1,407 1990 1,707 1991 1,170 1992 0 1993 278 1994 912 1995 1,073 1996 3,284 1997 978
Source: Jacksonville Planning and Development Department In 1996 3,284 units were permitted for five or more dwelling units. In 1997 there were 978 units permitted. The outlook for future development of apartment projects in the Jacksonville area appears to be good as occupancies are in the 90 percent to 95 percent range and the economy remains healthy. Construction was visible to the appraiser in the south part of Jacksonville. According to the Jacksonville Planning Department, the current number of apartment units existing in the metropolitan area is approximately 54,000. The Planning Department conducts a survey of the city and area apartment market. This survey is done by mail to the owners and/or managers of apartment complexes in Duval County as well as in northern Clay and St. Johns Counties, and the results of the survey are published every quarter year in the department's Apartment Market Survey. The Second Quarter of ----------------------- this survey, which is stated to reflect the area apartment market as of the end of June 1996, is the most recent 19 available; this survey is compiled based on the responses of owners and/or managers of 27 percent of the total existing apartment units in the area. Of the 27 percent or 14,575 units, there was a physical occupancy rate of 95.58 percent with one bedroom apartments with the highest rate at 96.23 percent and efficiencies with the lowest average occupancy rate this quarter at 92.25 percent. The physical occupancy rates and average monthly rents as of the Second Quarter 1996 are generally higher among those properties, which were built since 1990. The Third Quarter 1997 market survey by Vestcor Realty Management, Inc. reflects the following statistics for average occupancy.
3rd QTR 3rd QTR CHANGE CATEGORY 1997 1996 IN 1 YEAR --------------------------------------------------------- All units 92.8% 92.2% 0.6% Built before 1979 92.1% 89.2% 2.9% Built 1980--1989 94.0% 95.6% (1.6%) Built 1990--1997 90.1% 92.2% (2.1%)
The survey indicates a slight increase in occupancy for all units from one year ago with pre-1979 constructed units receiving the positive occupancy while post 1980 and post 1990 construction showed 1.6 to 2.1 percent decreases in occupancy. The major reason for the decrease appears to be home-buying alternatives. The Vestcor apartment market survey includes every apartment community with more than 100 units. They compared the information received from on-site personnel to their electric meter analysis. Properties undergoing renovation or in lease-up were removed from the database. If occupancy data on properties was not consistent with the electric meter analysis, these properties were also removed. The result was a review of 186 apartment complexes containing 41,572 units or nearly 70 to 75 percent of the units in the Jacksonville area by a 1996 count. Average monthly rental rates per unit were obtained by Vestcor and are delineated below by year of construction.
3rd QTR 3rd QTR CHANGE CATEGORY 1997 1996 IN 1 YEAR -------------------------------------------------------- All units $ 568 $ 565 +3--0.5% Built before 1979 $ 509 $ 504 +5--1.0% Built 1980--1989 $ 605 $ 596 +9--1.5% Built 1990-- 1997t $ 809 $ 791 +18--2.3%
The Vestcor survey for the First Quarter 1996 reported an average monthly rental rate per unit for the Jacksonville area of $540. This compared to $565 per unit during the Third Quarter 1996 indicates an increase in rental rates during the 6 months from the Vestcor survey is 4.6 percent. The survey indicates a slight monthly rental rate increase for all apartment units surveyed, but increases of 1 percent to 2.3 percent for various construction dated classified units. It is important to note that the increases in categories by year built tend to counter the findings of rental increases for all units and indicate that 20 the increase for all units should be between 1 percent to 2.3 percent or on average about 1.65 percent. Secondly, the 2nd Quarter 1997 average monthly rental for all units was $574, which would indicate a $6.00 reduction to the 3rd Quarter 1997 average monthly rent of $568. Overall, the Jacksonville apartment market appears to be healthy. Construction permits recorded for 1992 and 1993 were at their lowest levels in years, or from a high of 5,079 units in 1985 to 0 units permitted for 1992 and 278 in 1993. For 1994 and 1995, there were 912 and 1,073 units permitted, respectively. In 1996, there were 3,284 units permitted, while in 1997 there were 978 units permitted. Physical occupancy as of the Third Quarter 1997 was at 92.8 percent, which is a drop from 1996, but reflects the new construction. Absorption rates in new apartment projects have remained healthy over the past two years. Vacancies of the various apartment markets range from 3 to 7 percent. The appraisers project that the citywide market should reach a stabilized occupancy of 95 percent between one and two years at this rate of growth. SUBMARKET ANALYSIS The subject property is located in the Beaches submarket. This submarket is generally described as the northeastern area of St. Johns County along the Atlantic Ocean at Ponte Vedra Beach and including the Duval County beachfront municipalities of Atlantic Beach, Neptune Beach, and Jacksonville Beach. Vestcor Realty Management, Inc.'s Third Quarter 1997 survey features data on the apartment market within the city of Jacksonville as well as the area within the subject submarket and other immediate suburbs. This Third Quarter 1997 report, which is the most recent published to date, states that the Beaches submarket had a 94.0 percent physical occupancy rate, slightly higher than the average occupancy rate of 92.8 percent of the eight submarkets surveyed. This is a large increase from the 81.4 percent physical occupancy rate experienced in this submarket during the previous quarter and an increase from 93.6 percent in the Third Quarter 1996. Reference is made to the following table: 21
PHYSICAL OCCUPANCY QUARTER/YEAR RATE BEACHES SUBMARKET -------------------------------------- 01/92 93.63% 02/92 86.74% 03/92 88.13% 04/92 92.82% 01/93 94.43% 02/93 96.88% 03/93 91.95% 04/93 91.43% 01/94 92.57% 02/94 94.16% 03/94 95.34% 04/94 91.70% 01/95 98.46% 02/95 91.81% 03/95 95.38% 04/95 95.73% 01/96 94.89% 02/96 93.19% 03/96 93.60% 02/97 81.40% 03/97 94.30%
Source: Vestcor Apartment Market Survey for Greater Jacksonville, Florida, Third Quarter 1997 The Beaches area apartments tend to attract more transient tenants than the city of Jacksonville as a whole. This can be noted in the wide occupancy rate changes from the above table. Beaches area tenants are usually most attracted to the area during the summer months. In addition, the pool of prospective tenants in this submarket fluctuates with the personnel movements at the nearby Mayport Naval Air Station and with the attraction of the retirement populace. The average monthly rental rate in the Beaches submarket, at $606 as of the Second Quarter 1996, was among the highest of all the submarkets in the area. In the Second Quarter of 1997 the average monthly rental increased about 13 percent to $687 and then decreased 1 percent to $680 in Third Quarter 1997. It is believed that some of the changes in rental rates and occupancy is affected by new construction of multi-family, condo, and single family development in the Beaches and adjacent areas. The following table illustrates the trend in rental rates for the subject market according to the surveys by the Jacksonville Planning and Development Department and Vestcor. 22
AVERAGE MONTHLY RENTAL QUARTER/YEAR RATE BEACHES SUBMARKET --------------------------------------- 01/92 $470 02/92 563 03/92 577 04/92 510 01/93 500 02/93 582 03/93 496 04/93 570 01/94 598 02/94 571 03/94 551 04/94 560 01/95 546 02/95 523 03/95 662 04/95 644 01/96 689 02/96 606 03/96 674 02/97 687 03/97 680
Source: Vestcor Apartment Market Survey for Greater Jacksonville, Florida, Third Quarter 1997 Information regarding the number of new apartment projects, proposed or under construction, was not made available in the Third Quarter survey because the Beaches submarket is located in St. Johns County and construction permits are recorded in that county, not Duval County. There are projects located near US Highway A1A being built in the Ponte Vedra area and Beaches submarket. There are additional projects being built along Hodges Road north of J. Turner Butler Boulevard (State 202) which will contribute competition to the Ponte Vedra apartment communities. The subject's submarket has exhibited a stabilized occupancy of between 90 and 95 percent (with one exception) according to one local apartment survey. The subject property has a current economic occupancy of 84 percent and is considered to be able to reach occupancy stabilization within three years.. Although the Beaches submarket has been an active market in the past, the future expected development of additional apartment units may cause problems for absorption of the existing vacant units unless demand can remain commensurate with construction. Additionally, there is some concern from the effect of the proposed shopping center adjacent to Lakeview Village on rental rates and/or occupancy. 23 [SITE PLAN APPEARS HERE] SITE DESCRIPTION - -------------------------------------------------------------------------------- LOCATION The subject site is located along the north side of Ponte Vedra Lakes Drive west of Highway AlA just south of the Duval/St. Johns county line. This location is in the northeastern area of St. Johns County in the community of Ponte Vedra Beach about 18 aerial miles southeast of the Jacksonville CBD. The site is improved with the Lakeside Village Apartments, which have a street address of 100 Lake Vista Drive, Ponte Vedra Beach, Florida. SIZE AND SHAPE A survey of the subject site was not available. A tax plat map is provided to the reader on the facing page. However, information provided by the client indicates that the site comprises 19.47 acres. The front footage along the north line of Ponte Vedra Lakes Drive was not provided; however, a visual inspection of the property indicated that the site has significant frontage on the street. ACCESS AND VISIBILITY The property is easily visible from Ponte Vedra Lakes Drive due to its adequate frontage on this street. Access into the site is provided by Lake Vista Drive, a private roadway running north from Ponte Vedra Lakes Drive into the site. Ponte Vedra Lakes Drive is an asphalt-paved, two-laned neighborhood thoroughfare which runs west from Highway AlA through an area predominated by residential apartments and town homes. Indirect access to the property is provided via Highway AlA to the east of the subject. Highway AlA is a four- laned divided roadway and is the main thoroughfare in Ponte Vedra Beach. LEGAL DESCRIPTION A legal description of the subject is contained in the Addenda of this report. The subject site is generally described as being a 19.47-acre tract out of Government Lot 2, Section 16, Township 3 South, Range 29 East, St. Johns County, Florida. ZONING The site is zoned R-PUD 83-59, Ordinance 84-3, as part of a residential planned development area by St. Johns County. This zoning allows for higher density residential uses such as apartments or condominiums. UTILITIES All utilities are available to the site. Jacksonville Suburban Utilities provides water and sewer service to the site; the Jacksonville Beach Electric Authority supplies electrical service. Telephone hookups are in place from Southern Bell, along with cable television lines from Continental Cable. TERRAIN AND DRAINAGE The subject site is generally level to street grade, with minor landscaped berms within the site. The site contains three retention lakes and drainage appears to be adequate. A soil survey was not available on the subject site. While the soil appears generally supportive of a wide variety of improvements, the appraiser is not an expert in soil content and was unable to certify this assumption. According to the National Flood Insurance Map 125147-0184D dated September 18, 1985, the site is in Zone C, or "areas of minimal flooding." Numerous native trees are located on the site; however, no significant obstacles to development of the site (such as rock outcroppings, etc.) were evident. 24 EASEMENTS AND ENCUMBRANCES As stated above, a survey, which would indicate the location of any easements or encroachments on the site, was unavailable. A visual inspection of the property indicated no significant easements or encumbrances, which would adversely affect the marketability of this site. REAL ESTATE TAXES The subject site and improvements have the following values assessed by the St. Johns County Property Appraiser's Office: Property Value..............................$10,339,660 Personal Property Value.....................$ 134,427 Total Value.................................$10,474,087 Total Taxes.................................$ 179,199 Approximate Tax Rate per $1000 Valuation..........17.11
The assessor's parcel number for the subject site is 051070-0000. The subject, assessed for $39.76 per square foot or $43,642 per unit including personal property. The real estate property taxes for the subject are calculated at $179,199 based on the mileage rate and assessed value and a payment date of March 1998. However, a discount from the tax expense is allowed if paid in the four months prior to March. If paid in November 1997, the taxes for the subject are discounted 4 percent. For purposes of this appraisal, we have assumed an on-time payment of taxes. Therefore, the 1998 property taxes will be paid in 1999. The real estate taxes in the Income Approach section of this report reflect an approximate 4 percent increase (inflation factor) over the 1997 property taxes. Real estate taxes for the subject in 1998 have been estimated at $186,366. SITE CONCLUSION The subject property is in the northeastern area of St. Johns County, Florida, just south of the Duval county line. This location is about 18 aerial miles southeast of downtown Jacksonville. The parcel contains 19.47 acres with level terrain. Drainage and soil conditions appear to be adequate and supportive of a variety of improvements. All utilities are available. The site is in the Zone C area of minimal flooding. While a survey of the site was not available, no adverse easements or encroachments were noted during a physical inspection of the site. Direct access and visibility is provided from Ponte Vedra Lakes Drive, with indirect access from Highway AlA just east of the site. The property is zoned by the county for high-density residential uses including condominium and/or apartment development, and appears to be physically suitable for such improvements. 25 IMPROVEMENTS - -------------------------------------------------------------------------------- The subject site, a 19.47-acre tract of land, is improved with a two-story apartment project known as the Lakeview Village Apartments. The improvements consist of 240 apartment units contained in 30 buildings constructed in 1984. Also situated on the site is a leasing office/clubhouse with a kitchen and laundry facility, sauna, exterior mail post, deck, swimming pool and jacuzzi surrounded by an iron fence, lighted and fenced tennis court, gazebo, three lakes, and a mechanical shed. There are three basic floor plans for the 240 apartment units. The basic features of these floor plans are as follows:
NO. OF UNITS UNIT TYPE SIZE (SF) TOTAL NRA --------------------------------------------- 24 lBR/lBA/DN 867 20,808 24 lBR/1BA/UP 867 20,808 40 2BR/2BA/DN 1,059 42,360 40 2BR/2BA/UP 1,059 42,360 56 2BR/2BA/DN 1,224 68,544 56 2BR/2BA/UP 1 224 --- ----- ------- 240 1,098 263,424
DN = downstairs; UP = upstairs As seen in the figures above, the total net rentable area of 263,424 in 240 apartment units results in an average of 1,098 square feet per unit. There are a total of 48 one- bedroom units and 192 two-bedroom units. The land area is 19.47 acres equating to a density of 12.33 units per acre. The parking consists of 350 asphalt-paved open spaces or 1.46 spaces per unit. The parking ratio is within industry and local market standards. The foundation of the buildings is of concrete slab with wood-studded framing. The exterior walls are of stucco with wood frame trim work, and the roof is pitched with a tile covering except for a flat surface at the top of some of the buildings covered by a built-up tar and gravel surface. Windows are of single-hung aluminum thermal pane construction, with six panel exterior doors. Porches by each exterior door have an exterior light. Upper-level units can be reached using exterior staircases with metal supports and handrails and cement risers and landings. The interior finish of each unit has painted gypsum board walls and ceilings. Some ceilings feature vaulted or boxed ceilings, while a few walls are accented with decorative wallpaper. Floors have carpeting over pad with tile floors in the kitchen and bathrooms. The kitchen is equipped with wood and fiberboard cabinetry covered with formica countertops and a double stainless steel sink. Appliances are made by General Electric, and include a range/oven, vent/hood, microwave oven, dishwasher, disposal, and refrigerator with icemaker. Each unit 26 has an electric water heater with a 40-gallon capacity. Kitchen equipment appears to be original, but in good condition. Carpet and tile floors are found in the bathrooms, with additional tile around the tub enclosure. The toilet, bathtub and sink are porcelain, and a formica countertop covers a small vanity. Each bathroom also has a wall mirror and an exhaust fan. Each apartment unit in this project typically has a fireplace, ceiling fans, wet bars, washer and dryer closet with connections, miniblinds, and an exterior screened-in porch or deck. Interior doors are hollow core wood with some folding closet doors. Each unit is equipped with a fire extinguisher per local fire codes. The mechanical components include standard PVC plumbing pipes with stainless steel fixtures. The units are equipped with electric central heating and air-conditioning which is individually metered. The interior wiring is copper, with 125 amps designated per unit and ample electrical outlets. Each apartment is wired for telephone and cable television. Other than the major site amenities stated above, the grounds feature asphalt-paved parking pads and access roadways, concrete sidewalks, two bridges with brick pavers, and pole-mounted exterior light fixtures. The landscaping features numerous native trees as well as decorative planted shrubbery and lawns. The subject improvements appear to be in average overall condition. The project underwent renovation in 1994 and 1995, which included the re-roofing of several buildings. According to ConAm Management Corporation, there are several expenditures due in 1998, which are listed as follows: Chimney Cap Repair $ 38,000 Irrigation Time Clocks/ Line Repair Pumps 30,000 Plumbing Shower Pans/Leaks 40,000 Asphalt Repair/Seal Parking Lot 40,000 Traffic Control Gating/Front Entry 50,000 TOTAL $198,000
Considering the current condition of the property at the time of inspection, the effective age is estimated to be equal to the actual age of thirteen years. Further, the wooded areas of vacant land to the north and east of the subject site which front on major roadways have been partially cleared because of retail development. The clearing of land and the loss of the wooded buffer from the roadways to the east and north of the subject and new retail construction may have a detrimental effect upon the aesthetics of the subject and therefore rents and/or occupancy. 27 [FLOOR PLAN APPEARS HERE] SUBJECT PHOTOGRAPHS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] View of clubhouse/leasing office exterior [PICTURE APPEARS HERE] View of apartment building and interior lake. [PICTURE APPEARS HERE] View of interior street, bridge, and clubhouse/leasing office. [PICTURE APPEARS HERE] View of swimming poo1 as part of clubhouse. [PICTURE APPEARS HERE] View of interior of clubhouse/leasing office. [PICTURE APPEARS HERE] Interior view of the living room in Unit 131. [PICTURE APPEARS HERE] Interior view of kitchen in Unit 131. [PICTURE APPEARS HERE] Interior view of dining room in Unit 239 HIGHEST AND BEST USE - -------------------------------------------------------------------------------- The highest and best use of a property must be determined because market value depends upon the property's most profitable use. The Appraisal of Real Estate, Eleventh ---------------------------- Edition, defines highest and best use as: "The reasonably probable and legal use of vacant land or improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value." There are two distinct types of highest and best use. The first type is the highest and best use of the land as if vacant. The second type is the highest and best use of a parcel as improved. This pertains to the use that should be made of the property as it exists. In determining the highest and best use of a site, four items must be considered: possible physical limitations of the site, possible legal or permissible uses, and what uses are financially feasible, and produce the maximum return on the site. A careful neighborhood and site analysis is essential in estimating the highest and best use of the site as if vacant. The following is our analysis of the highest and best use as it pertains to the subject property and according to the four essential tests. SUBJECT PROPERTY AS IF VACANT LEGALLY PERMISSIBLE - Within the scope of a legal analysis, the subject site would be adaptable to multifamily residential uses as limited by its current zoning of R-PUD 83-59 Ordinance 84-3 by St. Johns County. This zoning designation for the site is intended to restrict and promote the development of the subject to multifamily residential uses. PHYSICAL POSSIBILITY - Many physical characteristics of a site can affect the use to which it can be put. These characteristics can include size, shape, location, road frontage, topography, easements, utility availability, flood plain, and surrounding patterns. The subject site is generally trapezoidal in shape and encompasses a total of 19.47 acres, allowing for full physical utilization of the site. The site appears to have significant frontage along the north side of Ponte Vedra Lakes Drive. The topography of the site is generally level, and drainage appears to be adequate. The site is located in Flood Zone "C" which is defined in the previous Site Description section of this report. The subject's location is on the north side of Ponte Vedra Lakes Drive just west of its corner with State Highway AlA, the major thoroughfare in Ponte Vedra Beach. Property uses along Ponte Vedra Lakes Drive Road predominantly consist of apartment complexes with some town homes and vacant land. Ponte Vedra Lakes 28 Drive is a two-laned residential street with local traffic, which travels east/west from State Highway AlA at its east end. The subject has adequate utility capacity, enjoys a relatively good functional size and shape, and is not affected by any adverse easements or restrictions as noted upon inspection. After considering all of the physical characteristics of the site noted above plus other data in the Site section of this appraisal report, physically possible land uses would include a variety of residential development such as apartments, condominiums, cooperatives or townhouses, but are directed to apartment development. The primary deterrents to other types of development were surrounding land use patterns and the lack of significant traffic along Ponte Vedra Lakes Drive. FINANCIAL FEASIBILITY - Financial feasibility is directly proportional to the amount of net income that could be derived from the subject. Rents have slightly increased over the previous 12 months and the apartment market overall appears to be favorable. Area realtors indicate that condominium and cooperative unit developments favor on-beach locations and the subject is a distance from the actual beach. After having eliminated all other development from our analysis, the financial feasibility of multifamily development must be tested. The subject site is in the "Beaches" apartment submarket area. The survey conducted by Vestcor Realty Management, Inc., the occupancy level for the apartment projects in the Beaches submarket was 94.3 percent during the Third Quarter 1997. This reflects a 0.7 percent increase from one year earlier and 15.8 percent increase from the previous quarter (Second Quarter 1997). During the same one-year period between the Third Quarters 1996 and 1997, rental rates have increased about 1.0 percent from $674 to $680 per month. Apartment development has been taking place in the Beaches submarket. From the preceding, apartment development appears feasible. Occupancy rates have increased only slightly during the past year and rental rates have risen moderately according to the most recent apartment survey. The following reflects apartment development costs on a square foot basis.
Cost to Construct (Class C Average to Good)........ $50.00 Land Acquisitions.................................. 4.00 ------ Total Cost of Development.......................... $54.00
The preceding indicates that development is feasible for multifamily residential development. As indicated in the Sales Comparison Approach in this report, apartments developed since 1995 reflect sale prices in the $60 to $75 per square foot category. Most of the sale prices are above the cost of development. 29 MAXIMUM PRODUCTIVITY - After considering the current economic climate and the subject's location and financial feasibility of certain land uses, we are of the opinion that the demand for multifamily apartment units conducive to the subject site would produce the highest net return over the longest period of time. This is due to the subject's location and the popularity of the neighborhood. In summary, the multifamily apartment market has shown signs of increasing health. The site's location near Jacksonville area beaches in the exclusive Ponte Vedra residential and resort communities, and within easy commuting distance to major south side employment facilities, gives it a large base of prospective rent- paying tenants from which to draw. The subject is in an area that is relatively stable after a decade of growth. Therefore, after considering the alternatives, we believe the highest and best use of the site, as vacant, is for multifamily residential development. SUBJECT PROPERTY AS IMPROVED The property, as improved, is tested for two reasons. First, to identify the improvements that are expected to produce the highest overall return per invested dollar, and the second reason is to help identify comparable properties. The four tests or elements are also applied in this analysis to the subject as follows: LEGALLY PERMISSIBLE - Within the scope of a legal analysis the subject property would be adaptable to multifamily residential uses as limited by the zoning of the site by St. Johns County. PHYSICAL POSSIBILITY - Based on the subject's size (19.47 acres), configuration (roughly trapezoidal), and the improvements' positioning relative to the subject site, it is felt that the subject's improvements employ the maximum use and potential of the site as developed. The subject's density of 12.33 units per acre is in line with the market sales, which reflect a range in density from 10 to 20.5, units per acre. FINANCIAL FEASIBILITY - The discussion of the financial feasibility of the subject, as if vacant, would also apply to the test as improved. Based on the economic conditions for alternative market segments, it was concluded that the subject's present improvements are satisfactory to fulfill this test. MAXIMUM PRODUCTIVITY - The test for this element is also from the market. The comparables analyzed suggest that under competent and prudent management, the subject could produce an adequate return on market value to substantiate its existence. In conclusion, based on the subject's current use, we have determined that as a multifamily apartment complex it positively contributes to the value of the site, and as a result is presently developed according to its highest and best use. The project's amenities are considered average compared to other projects in the area. Some of the comparables have better project amenities and the subject requires capital expenditures for deferral maintenance. Therefore, the subject's improvements are not considered to be the optimum use. 30 APPRAISAL PROCEDURES - -------------------------------------------------------------------------------- Traditionally, three valuation approaches or techniques are used in the appraisal of real estate. These are the Cost Approach, Sales Comparison Approach, and Income Approach. COST APPROACH In the Cost Approach, the appraisers obtain an estimate of value by adding to the land value the estimated value of the physical improvements. This value is derived by estimating the replacement cost new of the improvements and, when appropriate, deducting the reduction in value caused by accrued depreciation. According to the Appraisal Institute, the basic principle of the Cost Approach is that buyers judge the value of an existing structure by comparing it to the value of a newly constructed building with optimal functional utility, assuming no undue cost due to delay. Thus, the appraiser must estimate the difference in value between the subject property and a newly constructed building with optimal utility. The Cost Approach was not used as a method of valuation in this appraisal. The Cost Approach is typically the least reliable indicator because cost does not necessarily reflect value. Moreover, estimates of depreciation are difficult to accurately measure in the marketplace, thereby compounding the speculative nature of the opinions derived in the cost method of valuation. SALES COMPARISON APPROACH This approach produces an estimate of value by comparing the subject property to sales and/or listings of similar properties in the immediate area or competing areas. The principle of substitution is employed and basically states when a property is replaceable in the market, its value can be set by the cost of acquiring an equally desirable and comparable property. This technique is viewed as the value established by informed buyers and sellers in the market. INCOME APPROACH The measure of value in this approach is capitalization of the net income, which the subject property will produce during the remaining economic life of the improvements. This process consists of two techniques. The first technique estimates the gross income, vacancy, expenses, and other appropriate charges. The resulting net income or net cash flow is then capitalized. The second technique projects the gross income, vacancy, expenses, other appropriate charges, net income, and cash flow over a projected holding period. The resulting cash flow and reversion (future value) are discounted at an appropriate rate and added in order to arrive at an indication of current value from the standpoint of an investment. These methods provide an indication of the present worth of anticipated future benefits (net income or cash flow) to be derived from ownership of the property. Both techniques were utilized in analyzing the subject property. SUMMARY The appraiser, in applying the tools of analysis to the valuation problem, seek to simulate the thought process of the most probable decision-maker. The appraiser's judgment concerns the applicability of alternative tools of analysis to the facts of the problem, the data and information needed to apply these tools, and the selection of the analytical approach and data most responsive to the problem in question. 31 Thus, depending on the type of property appraised or the purpose of the appraisal, one approach may carry more weight or may point to a more reliable indication of the value of the property being appraised than the others. In some instances, because of the inadequacy or unavailability of data, one or two of the approaches may be given little weight in the final value estimate. 32 [IMPROVED SALES MAP APPEARS HERE]
JACKSONVILLE AREA IMPROVED SALES SUMMARY - ------------------------------------------------------------------------------------------------------------------------------------ SALE NAME/LOCATION SALE CASH EQUIV. YEAR NO. OF NRA OCCUP. NOI/SF NO. DATE SALE PRICE BUILT UNITS AVG/SF AT SALE /UNIT - ------------------------------------------------------------------------------------------------------------------------------------ 1 The Links @ Windsor Parke 08/97 $20,500,000 1995 280 296,616 95% $5.92 13700 Sutton Park Dr. North 1,059 Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------ 2 San Pablo 06/97 $ 5,350,000 1974 200 184,750 90% $3.16 14401 Jose Vedra Blvd. 924 Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------ 3 Hunter's Ridge(formerly Oaks of 05/97 $15,200,000 1987 336 294,888 92% $4.00 Deerwood) 878 10100 Baymeadows Road Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------ 4 Woodhollow 04/97 $16,700,000 1986 450 342,162 94% $4.69 1715 Hodges Blvd. 760 Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------ 5 The Courts @ Ponte Vedra 01/97 $19,000,000 1996 253 252,162 95% $6.26 101 Vera Cruz Drive 1,000 Ponte Vedra, FL - ------------------------------------------------------------------------------------------------------------------------------------ 6 The Huntington @ Hidden Mills 08/96 $ 7,225,000 1986 224 179,476 98% $3.85 3333 Monument Road 801 Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------ 7 The Antlers 05/96 $15,000,000 1985 400 327,728 97% $4.65 8433 Southside Blvd. 819 Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------ 8 Westland Park 05/96 $16,950,000 1989 405 403,010 97% $4.26 6710 Collins Road 995 Jacksonville, FL - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ CASH EQUIVALENT PRICE - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ SALE NAME/LOCATION PER PER OVEALL NO. SF /UNIT RATE EGIM - ------------------------------------------------------------------------------ 1 The Links @ Windsor Parke $69.11 $73,214 8.56% 7.80 13700 Sutton Park Dr. North Jacksonville, FL - ------------------------------------------------------------------------------ 2 San Pablo $28.96 $26,750 10.90% 4.56 14401 Jose Vedra Blvd. Jacksonville, FL - ------------------------------------------------------------------------------ 3 Hunter's Ridge(formerly Oaks of $51.54 $45,238 7.76% 6.74 Deerwood) 10100 Baymeadows Road Jacksonville, FL - ------------------------------------------------------------------------------ 4 Woodhollow $48.79 $37,111 9.60% 5.47 1715 Hodges Blvd. Jacksonville, FL - ------------------------------------------------------------------------------ 5 The Courts @ Ponte Vedra $75.12 $75,099 8.34% 7.31 101 Vera Cruz Drive Ponte Vedra, FL - ------------------------------------------------------------------------------ 6 The Huntington @ Hidden Mills $40.26 $32,254 9.56% 5.48 3333 Monument Road Jacksonville, FL - ------------------------------------------------------------------------------ 7 The Antlers $45.77 $37,500 10.20% 5.63 8433 Southside Blvd. Jacksonville, FL - ------------------------------------------------------------------------------ 8 Westland Park $42.06 $44,852 10.10% 6.01 6710 Collins Road Jacksonville, FL - ------------------------------------------------------------------------------
SALES COMPARISON APPROACH - -------------------------------------------------------------------------------- The Sales Comparison Approach is considered a good valuation method in the event that a sufficient number of similar and recent transactions can be found and accurately verified. The key to the Sales Comparison Approach is that a sufficient number of comparable sales be present to reflect an accurate indication of value. In such an event, market value can be derived directly from the sales, since all complexities involved are properly weighed according to their significance to actual buyers and sellers. This approach is based upon prices paid in actual market transactions. It is a process of correlating and analyzing recently sold properties, which are similar to the subject. The reliability of this technique depends upon (a) the degree of comparability of the property appraised with each sale, (b) the length of time since the sale, (c) the accuracy of the sales data, and (d) the absence of unusual conditions affecting the sale. The comparison process must be based on sales, which constitute acceptable evidence of motivations inherent to the market, occurring under similar market conditions, of similar or reasonably similar apartment projects. These projects were selected since they are reasonably similar to the subject property. A map and a summary of the comparable sales can be found on the preceding pages. The transaction dates of the sales used ranged from October 1994 to August 1996. Reference is made to the individual sales data included in the Addenda section of this report. SALE 1, known as the Links at Windsor Park Apartments, sold in August 1997 for $20,500,000. There are 280 units totaling 296,616 square feet. The property sold at $69.11 per square foot or $73,214 per unit. It was built in 1995 and was in excellent condition. The Links was 90 percent occupied at sale date. It sits on 23.36 acres of land and reflects density at 11.98 units per acre. The property's construction is described as wood frame with wood siding and some stucco. SALE 2, known as the San Pablo Apartments, sold in June 1997. It has 200 units and 184,750 square feet. The sales price was $5,350,000 and the property was 90 percent occupied at sale date. Unit prices indicated are $28.96 per square foot and $26,750 per unit. The sale reflected a 10.8 percent capitalization rate and was in need of substantial repair and renovation work. The rate is 14,24 acres and the unit density indicated is 14.04 units per acre. The property at sale date was inferior to the subject. SALE 3, known as Hunter's Ridge, (formerly known as Oaks at Deerwood) sold for $15,200,000 or $45,238 per unit in May 1987. It has 294,,888 square feet and indicates a unit price of $51.54 per square foot. Land area is 34.70 acres and shows unit density at 9.68 units per acre. The capitalization rate was 7.76 percent, however, the property needed some attention and had good upside potential. 33 SALE 4, known as the Woodhollow Apartments sold inn April 1997 for $16,700,000 or $48.99 square foot and $37,111 per unit. The property contains 450 units and 342,162 square feet. At date of sale, occupancy was 94 percent and the terms were cash at a $10,350,000 mortgage at 7.5 percent interest due in 7 years, amortized over 25 years. The property has 38.65 acres and indicates a unit density of 11.6 units per acre. Construction is wood frame with stucco and wood siding. SALE 5, known as The Courts at Ponte Vedra, is located in Ponte Vedra Beach. It sold in January 1997 for $19,000,000. The property was built in 1996 and has 253 units with 252,916 total square feet. Unit prices indicated by the sale are $75.12 per square foot and $75,099 per unit. Construction is wood frame with stucco and some masonry. The site contains 9.23 acres and indicates a unit density of 27.41 units per acre. Capitalization rate at times of sale was 8.34 percent and the project had 95 percent occupancy. SALE 6, known as the Huntington at Hidden Mills, (formerly known as Cozumel), sold for $40.26 per square foot net rentable area or $32,254 per unit in August 1996. The sale price was $7,225,000. The property contains 14.92 acres and has a unit density of 15 units per acre. There are 179,476 square feet of rentable area within 224 units. The average unit size is 801 square feet. Approximately 98 percent of the units were occupied at the time of sale. The sales price of $7,225,000 was adjusted upward by $350,000 for a re-plumbing required and was a credit given by the seller. SALE 7 is the Antlers containing 400 units and 527,728 square feet of rentable area. The average size of a unit is 819 square feet. Developed in 1985, the project is situated 42.51 acres of land and has a unit density of 9.4 units per acre. The property sold in May 1996 for $45.77 per square foot net rentable area or $37,500 per unit and totaled $15,000,000. At the time of sale the units were 97 percent physically occupied. SALE 8 sold in May 1996 for $16,950,060 which is equivalent to $42.06 per square foot net rentable area or $41,852 per unit. The project, Westland Park, was built in 1989/90 and contains 405 units and 403,010 square feet of rentable space. The average unit size is 995 square feet. Unit density for this property is 14.9 units per acre. Occupancy at the time of sale was reported at 97 percent. In lieu of specific adjustments, we compared the improved sales based on the net operating income (NOI) per square foot and per unit. This method presents a comparison based on the income which a property is capable of generating. Theoretically, the NOI takes into consideration the various factors, which influence value such as quality, size, amenities offered, location, condition etc. Thus, these differing factors can be reduced to the common denominator of net operating income. 34 ================================================================================ Sales Comparison - NOI Adjustments -----------------------------------
Sale Sale Subject Adjust. Adjust. No. Price/SF NOI/SF NOI/SF Factor Price/SF - ---- -------- ------ ------- ------ -------- 1 $ 69.11 $ 5.92 $ 4.44 0.750000 $51.83 2 $ 28.96 $ 3.16 $ 4.44 1.405063 $40.69 3 $ 51.54 $ 4.00 $ 4.44 1.110000 $57.21 4 $ 48.99 $ 4.69 $ 4.44 0.946695 $46.38 5 $ 75.12 $ 6.26 $ 4.44 0.709265 $53.28 6 $ 40.26 $ 3.85 $ 4.44 1.153247 $46.43 7 $ 45.77 $ 4.65 $ 4.44 0.954839 $43.70 8 $ 42.06 $ 4.26 $ 4.44 1.042254 $43.84 Mean= $47.92 Value @ mean $12,623,278 Sale Sale Subject Adjust. Adjust. No. Price/Unit NOI/Unit NOI/Unit Factor Price/Unit - ---- ---------- -------- -------- ------ ---------- 1 $73,214 $6,267 4,871 0.777246 56,905 2 $26,750 $2,916 4,871 1.670439 44,684 3 $45,238 $3,510 4,871 1.387749 62,779 4 $37,111 $3,562 4,871 1.367490 50,749 5 $75,099 $6,263 4,871 0.777742 58,408 6 $32,254 $3,083 4,871 1.579955 50,960 7 $37,500 $3,811 4,871 1.278142 47,930 8 $41,852 $4,240 4,871 1.148821 48,080 Mean= $52,562 Value @ mean $12,614,830 ================================================================================
The various sales reflected NOIs per square foot ranging from $3.16 to $6.26 and NOIs per unit ranging from $2,916 to $6,267. The subject NOI (without reserve expenses) has been approximated at $4.44 per square foot or $4,871 per unit from the first year of the Discounted Cash Flow analysis in the Income Approach section of this report. To estimate an adjustment for each sale, the subject's NOI has been compared to the individual NOI of the comparable sales. The adjustments should account for all the various physical and economic differences in each improved property sale as income is a function of the current market. Market conditions should reflect perceived risk, or other factors, which may affect value. Time differences do not need further adjustment as any drop in value would theoretically be the function of a drop in income. There would need to be an adjustment for age in order to recognize differences in the length of the income streams. The chart on the facing page presents the adjustment process for NOI per square foot and NOI per unit. After adjustment, the sales range in price from $40.69 to $57.21 per square foot and $44,684 to $62,779 per unit. The simple average adjusted prices (not weighted) per square foot and per unit of the comparable sales was calculated at $47.92 and $52,562, respectively. Applying an age adjustment based on square foot area and number of units indicates value at $46.00 per square foot and $52,000 per unit 263,424 SF at $46.00/SF, Rounded...............$12,100,000 240 units at $52,000/unit......................$12,000,000 A second method of comparison is by use of the effective gross rental multiplier (EGRM). In this analysis, the subject's effective gross income is multiplied by a factor estimated from the sales to derive an indication of value. The sales utilized in this analysis reflect EGRMs ranging from 4.56 to 7.80 as shown on the facing page. Expense ratios range from 33.26 to 50.27 percent. From the capitalization rate in the Income Approach, the subject is estimated to have a 44.69 percent operating expense ratio (excluding reserves). This is most similar to Sales 3, 4, 6, and 7. These sales have EGRMs ranging from 5.47 to 6.74 with expense ratios from 42.80 to 47.70 percent. Sales 4 and 6 were apartments built in 1986 and Sale 3 was built in 1987. Sale 7 was constructed in 1985. Based on the preceding analysis, an EGRM for the subject has been estimated at 6.00 resulting in a total value indication as follows: $1,983,246 x 6.00, Rounded......................$11,900,000 The NOI per square foot and per unit methods presented a value indication between $12,100,000 and $12,000,000 and the effective gross income multiplier method indicated a value of $11,900,000. Weight has been given to all methods with emphasis on the method using net operating income because these methods 35
============================================================== SALES COMPARISON - EGRM ANALYSIS -------------------------------------------------------------- EFFECTIVE EFFECTIVE GROSS OPERATING SALE NO. GROSS REVENUE/SF REVENUE MULTIPLIER EXPENSE RATIO -------------------------------------------------------------- 1 $ 8.86 7.80 33.26% 2 6.35 4.56 50.27% 3 7.65 6.74 47.70% 4 8.92 5.47 47.45% 5 10.27 7.31 39.00% 6 7.35 5.48 47.63% 7 8.13 5.63 42.80% 8 7.00 6.01 39.14% ==============================================================
reflect both income and expense information. The EGRM method was used as support. From the proceeding, a value for the subject is estimated at $12,000,000. From this, a deduction for capital expenditures of $198,000 and for rent loss of $340,605 is made as follows: Indicated Value $12,000,000 Less: Capital Expenditures (198,000) Rent Loss (340,605) "As Is" Value $11,461,395 Rounded $11,500,000
Therefore, it is our opinion that the leased fee market value of the subject property based on the indication provided by the Sales Comparison Approach, all cash, on an "as is" basis as of November 30, 1997, is ELEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($11,500,000) 36 [SITE PLAN OF COMPARABLE RENTALS APPEARS HERE]
============================================================================================================================= RENT COMPARABLE ANALYSIS - ----------------------------------------------------------------------------------------------------------------------------- COMP. YEAR NO. NRA AVERAGE 1997 1996 SQUARE 1997 MONTHLY NO. NAME OF PROJECT BUILT UNITS (SF) UNIT SIZE OCCUP. RATE OCCUP. RATE FLOOR PLANS FEET RATE - ----------------------------------------------------------------------------------------------------------------------------- 1 The Remington Apts. 1985 344 302,904 881 95.0% 92.6% 1BR/1BA 683 605-615 611 Ponte Vedra Blvd. 1BR/1BA 755 635-670 2BR/1BA 886 670-680 2BR/2BA 977 735-745 2BR/2BA 1,043 765-775 2BR/2BA 1,155 825-835 - ----------------------------------------------------------------------------------------------------------------------------- 2 Marsh Cove Apts. 1983 86 96,176 1,118 95.0% 99% 2BR/2BA/FL 908 740 1220 Marsh Cove Lane 2BR/2BA/FL 1,100 780 2BR/2BA/LOFT 1,242 850 2BR/2.5BA/TH 1,050 760 2BR/2.5BA/TH 1,220 810 3BR/3BA 1,430 1,010 - ----------------------------------------------------------------------------------------------------------------------------- 3 The Fairways Apts. 1984 216 186,600 864 88.0% 93% 1BR/1BA 550 555 100 Fairway Park Blvd. 1BR/1BA 600 615 2BR/2BA/FL 950 700 1BR/1BA/TH 750 650 2BR/2BA/TH 1,100 740 2BR/1.5BA/TH 1,050 705 - ----------------------------------------------------------------------------------------------------------------------------- 4 Colonial Grand 1987 240 211,640 882 97.0% 99.5% 1BR/1BA 672 575-615 125 Great Harbour Way 1BR/1BA 760 620-660 1BR/1BA/DEN 937 670-710 2BR/2BA 974 705-745 - ----------------------------------------------------------------------------------------------------------------------------- 5 Arbor Club Apts. 1992 251 288,924 1,151 100% 95% 1BR/1BA 881 655-685 1 Arbor Club Drive 1BR/1BA/LOFT 1,102 740-760 2BR/2BA 1,181 790-820 2BR/2BA 1,254 825-855 3BR/2BA 1,426 980-1,000 3BR/2BA 1,493 1,025-1,050 - ----------------------------------------------------------------------------------------------------------------------------- Lakeview Village 1984 240 263,424 1,098 96% 94% 1BR/1BA/DN 867 615 100 Lake Vista 1BR/1BA/UP 867 625 SUBJECT 2BR/2BA/DN 1,059 680 2BR/2BA/UP 1,059 690 2BR/2BA/DN 1,224 740 2BR/2BA/UP 1,224 750 ============================================================================================================================= - ---------------------------------------------------------------------------------------------------- COMP. 1997 NO. NAME OF PROJECT RENT/SF AMENITIES/COMMENTS - ---------------------------------------------------------------------------------------------------- 1 The Remington Apts. 0.886-0.900 Microwave ovens, miniblinds, vaulted ceilings, 611 Ponte Vedra Blvd. O.841-0.887 ceiling fans, outdoor utility closets, pools, tennis 0.756-0.767 court, racquetball court, hot tub, sauna, 0.752-0.763 exercise/weight room, clubroom, lake 0.733-0.743 0.714-0.723 - ---------------------------------------------------------------------------------------------------- 2 Marsh Cove Apts. 0.755 Microwave ovens, washer/dryer connections, 1220 Marsh Cove Lane 0.709 fireplaces, outdoor utility closets, pool, tennis 0.684 court, hot tub 0.724 0.664 0.706 - ---------------------------------------------------------------------------------------------------- 3 The Fairways Apts. 1.01 100 Fairway Park Blvd. 1.03 Washer/dryer connections, miniblinds, fireplaces, 0.737 pool, tennis courts, hot tub, exercise/weight 0.867 room, clubroom, laundry facility, lake 0.673 0.671 - ---------------------------------------------------------------------------------------------------- 4 Colonial Grand 0.856-0.915 Microwave ovens. washer/dryer connections, 125 Great Harbour Way 0.816-0.868 miniblinds, fireplaces, ceiling fans vaulted 0.715-0.758 ceilings, outdoor utility closets, pool, tennis court, 0.724-0.765 racquetball courts, basketball court, hot tub, sauna, exercise/weight room, clubroom, volleyball court - ---------------------------------------------------------------------------------------------------- 5 Arbor Club Apts. 0.743-0.778 Microwave ovens. washer/dryer connections, 1 Arbor Club Drive 0.672-0.690 miniblinds, fireplaces, vaulted ceilings, burglar 0.669-0.694 alarms, pool, tennis courts, jacuzzi, 0.658-0.682 exercise/weight room, clubroom, laundry facility, 0.687-0.701 garages 0.687-0.703 - ---------------------------------------------------------------------------------------------------- Lakeview Village 0.709 Washer/dryer connections, miniblinds, fireplaces, 100 Lake Vista 0.721 outdoor utility closets, wet bars, pool, tennis SUBJECT 0.642 court, hot tub, sauna, exercise/weight room, 0.652 clubroom, laundry facility, lake 0.605 0.613 ====================================================================================================
DN = downstairs; UP = upstairs; TH = townhouse INCOME APPROACH - -------------------------------------------------------------------------------- In estimating the market value of the subject property, one method used by the appraisers was the Income Approach. The Income Approach to value is predicated on the assumption that there is a definite relationship between the amount of net income a property will earn and its value. Ultimately, the Income Approach seeks to estimate the present worth of an anticipated net income stream based on an analysis of its quality, quantity, and duration. In accordance with the principle of substitution, a prudent investor would pay no more to receive an income stream from a specified property than any other property producing an equally desirable income stream. Typically, the first step in the Income Approach is to estimate the potential gross income according to market rent. Market rent means the "going rent" in the neighborhood based on past history and present conditions. Vacancies are then deducted to arrive at effective gross income. Estimated annual expenses are deducted from the effective gross income, resulting in an indication of net operating income before debt service. From the estimated net annual income, annual debt service (if applicable) is subtracted to obtain annual cash flow to equity. This cash flow can be capitalized into an indication of equity value by direct capitalization utilizing an overall equity rate, or if debt does not exist, an overall capitalization rate. It may also be projected into the future over a selected but appropriate holding period, and discounted along with the anticipated equity reversion at the market discount rate and added in order to arrive at the net present equity value for the subject property. Since our valuation is on a cash basis, no mortgage was considered. In either method, the present mortgage balance (if applicable) would be added to the equity value to obtain the total value of the property. The appraisers have utilized both methods in valuing the subject property on an all cash basis. ESTIMATED GROSS RENTAL INCOME Income for the subject property is produced by rental income from the various rental units, as well as any laundry income, pet deposits, forfeited security deposits, and miscellaneous income. Information provided by the on- site leasing agents indicated the subject's current rent schedule to be as follows:
BASED ON "RESIDENT PAYS UTILITIES" ------------------------------------------------------------------------------ UNIT TYPE UNITS SIZE (SF) RENT/MO. RENT/SF MO. TOTAL ------------------------------------------------------------------------------ A 1BR/1BA 24 867 $615 $0.709 $14,760 A 1BR/1BA 24 867 $625 $0.721 $15,000 B 2BR/2BA 40 1,059 $680 $0.642 $27,200 B 2BR/2BA 40 1,059 $690 $0.652 $27,600 C 2BR/2BA 56 1,224 $740 $0.605 $41,440 C 2BR/2BA 56 1,224 $750 $0.613 $42,000 --- -------- 240 $168,000
The separate A, B, and C plans above represent differentials in asking rent between upper and lower level units. Upper-level units carry the premium asking rent for each plan. 37
=================================================================================================== SUBJECT - RENT ANALYSIS LAKEVIEW VILLAGE - --------------------------------------------------------------------------------------------------- UNIT AGV. AVG.MONTHLY PROJECT/UNIT UNIT TYPE SIZE (SF) RENT/MONTH RENT/SF AMENITIES - --------------------------------------------------------------------------------------------------- SUBJECT 1BR/1BA 867 $615-625 $ 0.709-0.721 Average/Good The Remington 1BR/1BA 755 $635-670 $ 0.841-0.887 Good/Good Arbor Club 1BR/1BA 881 $655-685 $ 0.743-0.777 Good/Good - --------------------------------------------------------------------------------------------------- SUBJECT 2BR/2BA 1,059 $680-690 $ 0.642-0.652 Average/Good The Remington 2BR/2BA 1,043 $765-775 $ 0.733-0.743 Good/Good Polos at Ponte Vedra 2BR/2BA 974 $705-745 $ 0.724-0.765 Good/Good Arbor Club 2BR/2BA 1,181 $790-820 $ 0.669-0.694 Good/Good - --------------------------------------------------------------------------------------------------- SUBJECT 2BR/2BA 1,224 $740-750 $ 0.605 0.613 Average/Good The Remington 2BR/2BA 1,155 $825-835 $ 0.714-0.723 Good/Good Marsh Cove 2BR/2BA 1,100 $ 780 $ 0.709 Average/Average Arbor Club 2BR/2BA 1,254 $825-855 $ 0.658-0.682 Good/Good ===================================================================================================
These rents have been compared to closely located and similarly designed apartment complexes in the subject's neighborhood area. For the purpose of this analysis, we have considered five apartment complexes that were identified by management and found by the appraiser to be most comparable. They range in total unit size from 86 to 344 units and in occupancy from 88 to 100 percent. These comparable rentals are summarized on a previous page. (Note: Other Comparables: The Tides At Marsh Landing, Ocean Links, The Greens At Marsh Landings, Bay Club, The Courts At Ponte Vedra, The Boardwalk, and Marsh Cove were surveyed; however, the five comparables used were believed adequate for the appraiser to estimate market rents for the subject. All of the comparables surveyed were located within the subject's immediate vicinity. Each is comparable to the subject overall, particularly in terms of overall physical condition, unit size, rental rates, and the amenities offered. These comparables indicate an average effective rental rate range from $0.693 to $0.79 per square foot per month. On the table on the facing page, each of the subject's three floor plans is compared to similar floor plans obtained from the rent comparables. All of the comparable rentals have at least average project amenities for an apartment in this market which include a pool, tennis court, clubhouse, hot tub/jacuzzi, and landscaped grounds. Apartments which have project amenities, which are rated "good" on this chart additionally have a car wash stand, indoor racquetball courts, basketball court, and/or volleyball area. Unit amenities for standard or average apartment units include typical built-in kitchen appliances, miniblinds, a fireplace, a patio or deck, and average finish. Good unit amenities on a given apartment unit also include a microwave oven, washer and dryer, vaulted ceilings and ceiling fans, and/or burglar alarms. According to the Rent Analysis summary, the subject's Plan A is most comparable to the units offered at Arbor Club. This plan is also similar to the one-bedroom unit at Remington. These comparables range in monthly rental asking prices from $635 to $655 or from $0.743 to $0.887 per square foot. The subject's Plan A has average asking rents of $620 per unit or $0.715 per square foot. The subject's rent is below the low end of the range of those for Plan A of the comparable properties. This is due to the superior amenities of the comparable properties. Additionally, the subject units' rent for $530 and $540 per month for downstairs and upstairs units respectively and these rents are believed market. Plan B containing 1,059 square feet from the subject is also most similar in size and amenities to similar two- bedroom units displayed from Arbor Club and Remington.. These comparable units have a monthly rental rate of $770 and $805 or $0.682 to $0.738 per square foot. Thus, the current subject asking rent is below the per square foot range provided by the rent comparables. This again is due to the superior amenities of the comparables and again the subject rent differs from up or down units. The current asking rent of $680 to $690 for the subject is believed to be market. 38 The subject's largest plan, Plan C, with 1,224 square feet has an average asking rent of $745 per month or $0.609 per square foot. This plan is most similar in size and amenities to the two-bedroom plan from the Arbor Club. This comparable unit ranges in monthly rental from $825 to $855, which equates to $0.658 to $0.682 per square foot. Each has a higher rent per square foot than the subject because of superior amenities. The subject plan at $740 and $750 per month is accepted as market rent. There are currently twenty-one (21) vacant units in the subject complex. This equates to a current physical occupancy rate of 91.25 percent. Physical occupancy one year ago was 91.67 percent. These numbers indicate a slight downward movement in physical occupancy for the subject property, but it can be considered as about equal to last year. Economic occupancy is estimated near 84 percent. The most recent leases for Plans A, B, and C indicate that the subject is obtaining the quoted rental rates. Therefore, we estimate that the current quoted rental rates for the subject are indicative of market rates. After considering the subject's physical occupancy and actual rates the projected market rental rates for the subject are summarized below.
BASED ON "RESIDENT PAYS UTILITIES" ------------------------------------------------------------------------------ UNIT TYPE UNITS SIZE (SF) RENT/MO. RENT/SF MO. TOTAL ------------------------------------------------------------------------------ A 1BR/1BA 24 867 $615 $0.709 $14,760 A 1BR/1BA 24 867 $625 $0.721 $15,000 B 2BR/2BA 40 1,059 $680 $0.642 $27,200 B 2BR/2BA 40 1,059 $690 $0.652 $27,600 C 2BR/2BA 56 1,224 $740 $0.605 $41,440 C 2BR/2BA 56 1,224 $750 $0.613 $42,000 --- -------- 240 $168,000
Gross Annual Rental Income: $168,000 x 12 months = $2,016,000 Our cash flow analysis, as well as our direct capitalization method, indicates a gross apartment rental income of $2,056,320. This figure is the result of a 2 percent increase in rental rates during the first year of our projection period. OTHER INCOME In addition to rental income from apartments, other income is generated by laundry and vending machines, forfeited security deposits, pet deposits, late charges, and application fees. The 1997 figures for other income showed $30,693 or about $0.12 per square foot for this category. In comparison with other similar type apartment projects in the subject area other income was approximately $0.15 to $0.25 per square foot. Based on our experience with similar type properties and the actual performance of the subject property it is our opinion that other income in the amount of $0.12 per square foot is typical for a project such as the subject. This equates to a total "Other Income" of $31,307 in the first fiscal year of our projected cash flow as 39
==================================================================================================================================== SUBJECT - EXPENSE ANALYSIS LAKEVIEW VILLAGE APARTMENTS (FISCAL YEAR ENDING 11/30) - ------------------------------------------------------------------------------------------------------------------------------------ Comparable No. 1 2 3 SUBJECT PROPERTY Year Built 1984 1985 1986 1985 Net Rentable Square Feet 142,792 117,980 156,688 263,424 Number of Units 120 124 160 240 Average Unit Size 1,190 951 979 1,098 ----------------------------------------------------------------------------------------------------------------------------------- 1997 1997 1995 1993 1994 1995 1996-YTD 1997-YTD BTM PROJECTIONS ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ANNUALIZED ANNUALIZED FISCAL YEAR PSF PSF PSF PSF PSF PSF PSF PSF ENDING 11/30/97 - ------------------------------------------------------------------------------------------------------------------------------------ 10 MONTHS /SF /UNIT - ------------------------------------------------------------------------------------------------------------------------------------ EXPENSES Real Estate Taxes $ 0.72 $ 0.71 $ 0.69 $ 0.63 $ 0.64 $ 0.64 $ 0.66 $ 0.70 $ 0.71 $ 777 Insurance 0.16 0.16 0.13 0.09 0.15 0.17 0.17 0.17 0.19 205 Operating Expenses 0.55 0.65 0.69 0.49 0.53 0.55 0.56 0.72 0.61 673 Utilities 0.68 0.86 0.70 0.50 0.55 0.56 0.55 0.49 0.59 651 Repairs & Maintenance 0.52 0.43 0.53 0.34 0.34 0.35 0.37 0.63 0.36 400 Contract Services 0.21 0.30 0.18 0.14 0.12 0.12 0.14 0.14 0.14 148 Management 0.34 0.39 0.32 0.32 0.32 0.33 0.35 0.32 0.34 370 General Administrative 0.15 0.18 0.15 0.08 0.11 0.11 0.11 0.15 0.11 126 -------- -------- -------- ------ ------ ------ -------- ------ ------ ------- Total Expenses $ 3.33 $ 3.68 $ 3.39 $ 2.59 $2.76 $2.83 $ 2.91 $ 3.32 $ 3.05 $ 3,350 ====================================================================================================================================
* There may be differences due to rounding well as in our direct capitalization method. This figure is grown at the same rate as the rental rates after the first year of the holding period. Gross Rental Income $2,056,320 Other Income 31,307 ---------- Total Potential Gross Income $2,087,627 VACANCY AND COLLECTION LOSS ESTIMATE In a stable market, vacancy and collection loss for an apartment complex will be in the 3 to 10 percent range. This covers the time lag during re-leasing and normal refurbishing of apartment units and the loss of income resulting from bad debt or other vacancies. The subject's current 91.25 percent physical occupancy is below the approximate 94.3 percent Third Quarter physical occupancy rate enjoyed by the Beaches submarket. The subject property has a current economic occupancy rate of 84 percent, which is below stabilized occupancy for the subject. A 95.0 percent stabilized economic occupancy has been utilized for the subject during the holding period beginning in year three and deduction is taken for rent loss in years 1 and 2 of the cash flow. EXPENSE ANALYSIS The various expenses necessary in the operation of the subject have been estimated including fixed expenses, operating expenses, and reserves for replacement. Proper appraisal technique demands that an appraiser rely on typical expenses as opposed to actual expenses, which may vary according to management or special circumstances that may not persist. In addition, the total expenses per square foot should be within a range typical for similar projects. Reserves for replacement are estimated based on age, condition, and construction quality. It is re-emphasized that all income, as well as expense estimates, are based on the assumption of competent and prudent management. We have based our estimate of projected expenses on comparable apartment projects located in the subject area, as well as the actual historical performance of the subject property. The following Expense Analysis Chart on the facing page summarizes the actual and/or annualized 1997 expenses reported by three (3) "individually metered" projects, as well as the subject property's actual 1993, 1994, 1995, and 1996 expense figures. The 1997 actual figures were available to the appraisers at the time of the report and are shown in the chart on the facing page. Bach Realty Advisors' estimated expenses for the subject property in Fiscal Year 1998 are also displayed. Based upon the analysis of the comparables, we have developed the following expense estimates for the subject. REAL ESTATE TAXES - The Lakeview Village Apartments are subject to the taxing authorities of St. Johns County. The county distributes the tax receipts from property owners to different authorities as specified in the Site section of this report. The subject's 1997 assessed value is $10,474,087 the total tax liability is $179,199 or $0.68 per square foot. After examining the tax liabilities of the comparables used in our expense analysis (which exhibited a range from $0.69 to 40 $0.72 per square foot), we have reflected the actual 1997 real estate taxes plus an approximate 2 percent inflation factor in our estimate of the 1998 taxes. Thus, real estate taxes have been estimated at $0.71 per square foot or $777 per unit and total $186,366. This amount is increased at a rate of 4 percent per year throughout our projection period. INSURANCE - For the first fiscal year, we have estimated insurance at a market cost of $0.19 per square foot or $49,312. All of the expense comparables utilized exhibit a range of insurance costs from $0.13 to $0.16 per square foot for 1997. The subject's actual insurance costs have been fluctuating from $0.09 to $0.17 per square foot since 1993. The annualized 1996 insurance costs are projected at $0.19 per square foot. The appraisers believe that the insurance expense for the subject is appropriate, but is generally higher than the expense comparables. The expense per unit is $205. Insurance expense is increased 4 percent annually for the duration of the holding period. OPERATING EXPENSES - This category includes salaries for office managers and leasing agents, maid services, payroll taxes and FICA, security, advertising, and promotional items. The subject's actual figures for 1993, 1994, 1995, and 1996, ranged between $0.49 to $0.72 with the latter expense appearing to be an anomaly. The annualized 1997 operating expense is $0.61 per square foot. The expense comparables indicate a range of operating expenses from $0.55 to $0.69 per square foot. Based on the subject's historical expenses and a comparison of operating expenses of comparable properties, the appraisers have estimated a 1998 year operating expense of $161,637 which is equivalent to $0.61 per square foot or $673 per unit. This expense is expected to increase 4 percent annually throughout our projection period. UTILITIES - The expense comparables' 1997 utility expenses have a range from $0.68 to $0.87 per square foot. The subject's annualized 1996 year-to-date expense was $0.55 per square foot. The 1997 expense is $0.49 per square foot. This expense category includes electricity to the common areas, water, sewer, and garbage collection. The subject's 1998 expense for utilities has been estimated by the appraiser to be $0.59 per square foot or $651 per unit, below the lower end of the comparables range. The appraiser relied on subject historical utility expenses. REPAIRS AND MAINTENANCE - The 1996 annualized actual year- to-date repairs and maintenance costs are $0.63 per square foot for the subject, which shows a increase in expenses of $0.26 per square foot from the previous year. Repairs and maintenance expenses are necessary in order to keep the property in good repair and consist of repairs required on plumbing, air-conditioners, electrical components, miniblinds, carpeting, janitorial services, and decorative costs. The expense comparables indicate a range from $0.43 to $0.53 per square foot and the subject's 1997 annualized expense is $0.63 per square foot. The subject's historical repair and maintenance is in a range from $0.34 to $0.37 per square foot and the 1997 expense at $0.63 per square foot was substantially uncommon. The appraiser believes that some deferred maintenance or capitalization expenditures may have been included. The 1997 expense of $0.63 per square foot was tempered and the 41 1998 expense estimate was returned to $0.36 per square foot. This expense is increased 4 percent annually. CONTRACT SERVICES - The contract services category includes mainly landscaping services. Our surveyed expense comparables reported 1997 contract services expenses between $0.18 and $0.30 per square foot. Actual expenses for the subject in for the 1996 contract services expense are estimated at $0.14 per square foot, while 1997 indicated $0.14 per square foot. The appraiser has emphasized the historical and budgeted expenses for the subject when estimating the per square foot contract services expense for the property of $0.14 per square foot or $148 per unit and totaling $35,615 in the first year of the cash flow. These expenses are expected to increase annually at a rate of 4 percent. MANAGEMENT - This figure for apartment projects is typically expressed as a percentage of the effective gross income of the property. The industry standard for an apartment complex of this size and quality is about 5 percent of effective gross income. This includes the fee to outside management or ownership for managing the property. According to the actual income and expense statements from 1992 forward provided by the client, management fees at the subject have been approximately 5 percent including both on-site and headquarter charges. We have also relied upon indicators from the market to determine typical expenses for this category. A management fee of 5 percent of the projected effective gross income for each year of the cash flow is estimated. GENERAL AND ADMINISTRATIVE - This expense category includes legal expenses, dues, fees, printing, auto costs, postage, accounting/audit, permits, travel, credit, reports, office equipment, telephone, and all other miscellaneous and administrative costs. Our surveyed expense comparables indicated actual administrative expenses ranging from $0.15 to $0.18 per square foot. The subject's annualized year-to- date 1996 costs are in this range at $0.15 per square foot. The subject's historical G&A expense has ranged from $0.08 to $0.11 per square foot and has stayed at $0.11 for 3 years. The 1997 expense was $0.15 per square foot. The appraiser utilized an $0.11 per square foot figure or $126 per unit and totaling $30,134, supported by the comparables' range and the subject's history. This expense increases at a rate of 4 percent for each year in the cash flow. EXPENSE SUMMARY In conclusion, stabilized vacancy loss has been estimated at 5 percent beginning in year three and continuing throughout the holding period. The total estimated 1997 calendar year expenses for the Lakeview Village Apartments, excluding reserves for replacement, equates to $3.05 per net rentable square foot or $3,350 per unit. This is below the range indicated by the expense comparables but is reasonable and is well supported by actual historical figures indicated by the subject property. RESERVES FOR REPLACEMENT A replacement allowance provides for the periodic replacement of building components that wear out more rapidly than the building itself and must be replaced periodically during the building's economic life. These may include roof covering, carpeting, appliances, compressors, parking areas, drives, etc. The 42 subject was constructed in 1985 and appears to have had ongoing maintenance since its construction. It is our opinion that a reserve allowance of $0.27 per square foot or $300 per unit is adequate to provide for the continued maintenance of the project given the on-going termite problem and weather related conditions as mentioned below. Reserves for replacement total $72,000 and are grown at 4 percent for the duration of the holding period. Reserves were included in our expenses prior to concluding the net operating income. DEFERRED MAINTENANCE/ CAPITAL EXPENDITURES The subject has numerous items requiring capital expenditures. Capital expenditures listed by management in the 1997 budget total $138,000 as detailed in the Improvements section of this report. DISCOUNTED CASH FLOW ANALYSIS DISCUSSION A reasonable method for estimating value via the Income Approach in a stabilized market is through the use of Discounted Cash Flow Analysis. The Market Value of a real estate investment under the Discounted Cash Flow Method is defined as the discounted sum of all net cash inflows plus the property's discounted reversionary value. Primarily, any given property is only worth the value of the income derived from it. The general methodology of Discounted Cash Flow involves the following steps: 1) increasing each year's cash flows by an appropriate appreciation factor; 2) discounting each year's net cash flow by an appropriate discount rate; 3) deriving the property's reversionary value in the final year and discounting it to the present; and 4) the summation of all cash flows, including final year reversion, into an estimate of value. Real Estate Investment Trusts (REITS) have been the major players among new apartment acquisitions over the past, few years which has resulted in upward pressure on selling prices as capitalization rates have dropped. More recently, REITs are strong in the market. Capitalization rates are lower this year than last year due to many buyers pursuing limited inventory. Survey participants in RERC's Emerging Trends in Real Estate: 1997 indicate that multifamily is still a viable investment vehicle, but its desirability is ebbing as short-term rental growth has already peaked in some markets. Expectations for 1998 are an increased interest in apartments as markets stabilize and new construction comes on-line. Since 1994 returns for apartments have averaged near 12 percent, above all other categories. Solid returns in the 9 to 10 percent area are expected to continue with 9 percent and below for new Class A product, much of which may be pre-sold. Apartment investment fits the portfolio profiles of pension funds and REITs who want immediate high cash flows with predictable capital costs and national vacancy rates in relative equilibrium at 5 percent to 8 percent and a growing population, the risk in the multifamily market is steady and we anticipate that investors will continue to find their niche the market. 43 DISCOUNT RATE Over the past several years, the internal rate of return (IRR) has gained greater usefulness and market acceptance as an investment measure. IRR is the yield on an investment based on an initial cash investment, annual cash flows to the property, as well as resale proceeds. IRR allows for return on investment as well as recapture of the original investment when factoring in the reversion. To simulate this process, we have relied upon several investor surveys, which detail reasonable yields or IRR requirements of purchasers. We have used this rate as a discount rate that, when applied to projected cash flows and net resale proceeds (reversion), results in the present value of the property. According to the Third Quarter 1997 investor survey compiled by Peter F. Korpacz & Associates, Inc., investors for apartment properties indicated a return requirement ranging from 10.00 to 12.50 percent with an average of 11.16 percent. This IRR depends on the conservative or aggressive nature of rental and expense growth assumptions, as well as location and other factors. Real Estate is considered riskier than bonds due to illiquidity, competition, burden of management, and market conditions; therefore approximately 150 basis points or more could be added to the Corporate "Baa" bond rate in a normal market. Based on the previous data and recognizing new construction, we believe a 12 percent discount rate is reasonable in the current market based on an all cash sale and alternative investments. CAPITALIZATION RATE The subject property's reversionary value is derived by capitalizing the eleventh year's net operating income. As mortgage rates have fluctuated over the past several years, it becomes difficult to apply a band of investment method to establish a capitalization rate because capitalization rates do not react dramatically to ups and downs of mortgage interest rates. Additionally, the mercurial nature of the recent market creates a large variance of returns depending on property potential. Again, according to the previously cited investor survey, investors for apartment properties indicated a terminal capitalization rate range from 8.0 to 10.25 percent or an average of 9.29 percent to attract investment. Going-in capitalization rates of the comparable sales in the Sales Comparison Approach could be calculated based on the data provided. Most had a relatively similar occupancy rate as the subject at their respective times of sale. The range of going-in capitalization rates from these sales was from 7.76 to 10.9 percent (without reserves). A going-in capitalization rate in the middle of this range is considered appropriate. The going-in rate is typically lower than the terminal capitalization rate stated above due to the older age of the property and the risk of the market ten years hence. Based upon the aforementioned factors, the terminal capitalization rate for the subject should be above the average going- in capitalization rate exhibited by the comparable sales in the Sales Comparison Approach. Therefore, a terminal capitalization rate of 10.0 percent appears appropriate for the subject property based on the Korpacz survey. CASH FLOW ASSUMPTIONS . Rents were based on an average rental rate of approximately $0.63 8 per square foot per month. During the projection period rents are expected to increase at 2 percent during 1997. Rents increase 4 percent in the second year of our analysis and each year thereafter. 44
==================================================================================================================================== LAKEVIEW VILLAGE Period 1 2 3 4 5 6 7 - ------------------------------------------------------------------------------------------------------------------------------------ 1998 1999 2000 2001 2002 2003 2004 - ------------------------------------------------------------------------------------------------------------------------------------ Income: Apt. Rents 2,056,320 2,138,573 2,224,116 2,313,080 2,405,604 2,501,828 2,601,901 Rent/SF/Mo. 0.651 0.677 0.704 0.732 0.761 0.791 0.823 Other Income/Yr. 31,307 32,559 33,862 35,216 36,625 38,090 39,613 --------- --------- --------- --------- --------- --------- --------- Gross Income 2,087,627 2,171,132 2,257,977 2,348,296 2,442,228 2,539,917 2,641,514 % Vacancy 15.000/, 10.00% 5.00% 5.00% 5.00'/o 5.00% 5.00% Vacancy Allowance 313,144 217,113 112,899 117,415 122,111 126,996 132,076 --------- --------- --------- --------- --------- --------- --------- Eff. Gross Income 1,774,483 1,954,019 2,145,078 2,230,882 2,320,117 2,412,922 2,509,438 -------------------- Expenses: $/unit $/SF -------------------- Real Estate Taxes 777 0.71 186,366 193,821 201,573 209,636 218,022 226,743 235,812 Insurance 205 0.19 49,312 51,284 53,335 55,469 57,688 59,995 62.395 Operating Expenses 673 0.61 161,637 168,102 174,826 181,819 189,092 196,656 204,522 Utilities 651 0.59 156,156 162,402 168,898 175,654 182,680 189,988 197,587 Repairs & Maintenance 400 0.36 95,888 99,724 103,712 107,861 112,175 116,662 121,329 Contract Services 148 0.14 35,615 37,039 38,521 40,062 41,664 43,331 45,064 Management 5.00% 0.34 88,724 97,701 107,254 111,544 116,006 120,646 125,472 General & Administrative 126 0.11 30,134 31,339 32,593 33,897 35,253 36,663 38,129 Reserves 300 0.27 72,000 74,880 77,875 80,990 84,230 87,599 91,103 ---- ----- --------- --------- --------- --------- --------- --------- --------- Total Expenses 875,831 916,292 958,589 996,933 1,036,810 1,078,282 1,121,414 Per SF 332 3.48 3.64 3.78 3.94 4.09 4.26 Per Unit 3,649 3,818 3,994 4,154 4,320 4,493 4,673 --------- --------- --------- --------- --------- --------- --------- Net Operating Income 898,652 1,037,726 1,186,489 1,233,949 1,283,307 1,334,639 1,388,025 Per Sf 3.41 3.94 4.50 4.68 4.87 5.07 5.27 Per Unit 3,744 4,324 4,944 5,141 5,347 5,561 5,783 ==================================================================================================================================== Capital Items: 198,000 --------- --------- --------- --------- --------- --------- --------- Cash Flow 700,652 1,037,726 1,186,489 1,233,949 1,283,307 1,334,639 1,388,025 --------- --------- --------- --------- --------- --------- --------- Present Value Factor 12.00% 0.892857 0.797194 0.711780 0.635518 0.567427 0.506631 0.452349 Present Value of Cash Flow 625,582 827,269 844,520 784,197 728,183 676,170 627,872 NOI in 11th Year 1,523,793 Present Value of Income Stream 6,740,905 Ro at Reversion 10.00% Present Value of Reversion 5,071,333 ---------- Indicated Reversion 16,237,927 Less: Sales Costs 3.00% 487,138 ---------- Reversion in 10th Yr 15,750,789 ------------------------------------------------------------- Indicated Value of Subject 11,812,237 Indicated Value/SF 44.84 Indicated Value/Unit 49,218 GIM At Indicated Value 5.74 Ro at Indicated Value 7.61% ------------------------------------------------------------- ================================================================================ Period 8 9 10 - ----------------------------------------------------------------------------------------------------------------------------------- Reversion 2005 2006 2007 2008 - -------------------------------------------------------------------------------- Income: Apt. Rents 2,705,977 2,814,216 2,926,785 3,043,856 Rent/sf/mo. 0.856 0.890 0.926 0.963 Other Income/yr. 41,198 42,846 44,560 46,342 ---------- --------- ---------- ---------- Gross Income 2,747,175 2,857,062 2,971,344 3,090,198 % Vacancy 5.00% 5.00% 5.00% 5.00% Vacancy Allowance 137,359 142,853 148,567 154,510 ---------- --------- ---------- ---------- 2,609,816 2,714,209 2,822,777 2,935,688 Eff. Gross Income Expenses: Real Estate Taxes 245,245 255,055 265,257 275,867 Insurance 64,891 67,486 70,186 72,993 Operating Expenses 212,703 221,211 230,060 239,262 Utilities 205,491 213,710 222,259 231,149 Repairs& Maintenance 126,182 131,229 136,479 141,938 Contract Services 46,867 48,741 50,691 52,719 Management 130,491 135,710 141,139 146,784 General & Administrative 39,654 41,240 42,890 44,606 Reserves 94,747 98,537 102,478 106,578 ---------- --------- ---------- ---------- Total Expenses 1,166,270 1,212,921 1,261,438 1,311,895 Per Sf 4.43 4.60 4.79 4.98 Per Unit 4,859 5,054 5,256 5,466 ---------- --------- --------- --------- Net Operating Income 1,443,546 1,501,288 1,561,339 1,623,793 Per Sf 5.48 5.70 5.93 6.16 Per Unit 6,015 6,255 6,506 6,766 ============================================================================= Capital Items: ---------- --------- --------- --------- Cash Flow 1,443,546 1,501,288 1,561,339 1,623,793 ---------- --------- --------- --------- Present Value Factor 0.403883 0.360610 0.321973 1.000000 Present Value Of Cash Flow 583,024 541,379 502,709 1,623,793 Not In 11th Year Ro At Reversion Indicated Reversion Less: Sales Costs Reversion In 10th Yr
================================================================================ CASH FLOW SUMMARY ---------------------------------------------------------------------- Fiscal Year Annual 12.00% PV of Ending 11/30 Cash Flows NPV Factor Cash Flows ---------------------------------------------------------------------- 1998 $ 700,652 0.892857 $625,582 1999 1,037,726 0.797194 827,26 2000 1,186,489 0.711780 844,520 2001 1,233,949 0.635518 784,197 2002 1,283,307 0.567427 728,183 2003 1,334,639 0.506631 676,170 2004 1,388,025 0.452349 627,872 2005 1,443,546 0.403883 583,024 2006 1,501,288 0.360610 541,379 2007 1,561,339 0.321973 502,709 ------- Total $ 6,740,905 Projected NOI in 11th Year $ 1,623,793 Going-out Capitalization Rate 10.00% ------------ Estimated Value of Property at End of 10th Year $16,237,927 Less Sales Cost @ 3.00% (487.138) ----------- Value of Reversion at End of 10th Year $15,750,789 Discount Factor 12.00% 0.321973 ----------- Present Value of the Reversion $ 5,071,333 Sum of Present Values of Cash Flow 6,740,905 ----------- Market Value as of November 30, 1997 $11,812,237 Rounded $11,810,000 ================================================================================
. The subject property's current physical occupancy rate is 91.25 percent. The economic occupancy rate of 84 percent as of November 1997 is below the estimated stabilized occupancy rate of 95.0 percent. It is our opinion that the subject should be capable of averaging 95.0 percent economic occupancy beginning in year three and throughout the holding period of our cash flow analysis. . Other income is increased at 4 percent per year after the first year of the cash flow. . The property has been appraised based on a "resident pays utilities" status. . Expenses (with the exception of management) have been increased at an average growth rate of 4 percent annually over the ten-year projection period. Management expenses are based on a percentage of gross income and increase with occupancy and rental increases. Reserves are calculated at $0.273 per square foot or $300 per unit in the first year and also increase at 4 percent per year thereafter. . A discount rate of 12.0 percent was utilized. . A terminal capitalization rate of 10.0 percent was felt reasonable. . A sales cost of 3 percent of the reversionary value was estimated. A cash flow analysis and summary for the subject beginning December 1, 1997 may be found on the preceding pages. The estimated leased fee market value for the subject on an "as is" basis as of November 30, 1997 via discounted cash flow method is ELEVEN MILLION EIGHT HUNDRED TEN THOUSAND DOLLARS ($11,810,000) 45 ================================================================================ DIRECT CAPITALIZATION Gross Potential Rental Income $2,056,320 Other Income 31,307 ------ Total $2,087,627 Gross Income $2,087,627 Vacancy @ 5.00% (104,381) -------- Effective Gross Income $ 1,983,246 Expenses: Real Estate Taxes $186,366 Insurance 49,312 Operating Expenses 161,637 Utilities 156,156 Repairs & Maintenance 95,888 Contract Services 35,615 Management Fee 5.00% 99,162 General Administrative 30,134 Reserves for Replacement 72,000 ------ Total Expenses 886,269 ------- Net Operating Income $ 1,096,976 Capitalization Rate 9.00% ---- Fee Simple Stabilized Market Value $12,188,624 Less: Deferred Maintenance 198,000 Rent Loss Due to Lease Up 340,605 ------- Lease Fee "As Is" Market Value $11,650,019 $11,650,000 ================================================================================ Rent Loss Due to Lease Up - ----------- ----------- ------------ ----------- ----------- ----------- Year 1 Year 2 ----------- ----------- Stabilized NOI $1,096,976 $1,096,976 Projected NOI 787,902 1,037,726 --------- --------- Rent Loss $ 309,074 $ 59,250 PV Factor 7.00% 0.934579 0.873439 --------- --------- PV Income Loss $ 288,854 $ 51,751 $ 340,605 ================================================================================ DIRECT CAPITALIZATION Direct capitalization is a method used to convert a single year's income estimate into a value indication. In direct capitalization a rate of return for the investor and recapture of the capital invested is implicit in the overall capitalization rate. The overall capitalization rate was chosen after analyzing the comparable apartment sales in our Sales Comparison Approach. These sales indicated a range of "going-in" capitalization rates from 7.76 to 10.90 percent. The Korpacz investor survey previously quoted indicated an average desired going-in capitalization rate of 9.29 percent. Some weight in this analysis is given to the comparable market sales since these transactions best illustrate the behavior of investor/purchasers in this marketplace. Investors' greater aversion to risk in the market caused by the recent national recession and credit constriction indicates that the range of capitalization rates from the comparables, which sold prior to this phase in the economy may be optimistic. Therefore, from these findings an overall rate of 9.00 percent was chosen for application to the subject. This rate is 1.0 percentage point lower than the terminal capitalization rate utilized for the subject in the preceding discounted cash flow analysis. The direct capitalization method indicates a value of $11,650,000 and is shown on the facing page. INCOME APPROACH CONCLUSION DCF Method...................................... $11,810,000 Direct Capitalization Method.................... $11,650,000 Consideration is given to both the discounted cash flow method and the direct capitalization approach. These have been rounded to the nearest ten thousand dollars, however, for purposes of the income approach conclusion, the value is rounded to the nearest fifty thousand. From the above analysis provided by the Income Approach, we estimate the leased fee market value of the subject property on an "as is" all cash basis, as of November 30, 1997, to be ELEVEN MILLION SEVEN HUNDRED THOUSAND DOLLARS ($11,700,000) 46 RECONCILIATION - -------------------------------------------------------------------------------- Sales Comparison Approach $11,500,000 Income Approach $11,700,000 The Sales Comparison Approach utilized recent comparable sales of similar properties in the area. The weakness of the Sales Comparison Approach is that no two properties are exactly alike and exact conditions of a sale are often unknown. The strength of this approach is that it indicates the market activity based on the willing buyer/willing seller concept. Eleven recent sales, dating from May 1996 through August 1997 were utilized in the Sales Comparison Approach. Each is similar to the subject property in one or more characteristics including occupancy, location, age, construction quality, amenities, and/or condition. The data on the comparable sales was considered to be reasonably accurate and reliable. The methods of comparison utilized in this analysis were the net operating income per square foot and per unit and the effective gross rental multiplier (EGRM) methods. These indicators rely on a comparison of income rather than physical attributes. Thus, adjustments for physical factors are not necessary as economics are the common denominator. A final market value estimate for the subject was made based on the analysis presented in the Sales Comparison Approach. The Income Approach attempts to measure investment qualities of the property. Based on actual rents in the immediate area of the subject, actual expenses, and investor returns derived from the market, we have estimated value. Actual data on the property, as well as comparable data from nearby similar properties, were considered to be adequate. Because the Income Approach deals directly with income streams, we believe it is a very good indication of current market conditions. It tends to reflect a value, which an investor of a property would anticipate. In the Income Approach, comparable properties from the subject Ponte Vedra Beach area were utilized when deriving the subject property's economic market rents and projected expenses. For this reasoning, the Income Approach is given greatest weight in the final analysis. Therefore, it is our opinion that the market value of the leased fee estate of the subject property on an "as is" all cash basis, as of November 30, 1997, is ELEVEN MILLION SEVEN HUNDRED THOUSAND DOLLARS ($11,700,000) 47 It is important to note that the development of a shopping center adjacent to the subject property during 1998 may have an adverse effect on the Lakeview Village market rents or occupancy. 48 THE LINKS AT WINDSOR PARKE - -------------------------------------------------------------------------------- [PICTURES APPEAR HERE] COMPARABLE APARTMENT SALE 1 PROPERTY IDENTIFICATION Job Number 97-075 Project Name The Links at Windsor Park Address 13700 Sutton Park Drive North City/County/State Jacksonville, Florida TRANSACTION DATA Sale Date 08/97 Grantor (Seller) Windsor Park Apartments, Ltd. Grantee (Buyer) Rancho Bernardo Corporate Center Recorded Document 8726-846 Sale Price $20,500,000 Occupancy 95% Sale Price per Unit $73,214 Sale Price per SF $69.11 Capitalization Rate 8.56% TERMS OF SALE Said to be cash INCOME/EXPENSE DATA Potential Gross Income $2,767,693 Vacancy/Collection Loss ($138,385) Effective Gross Income $2,629,308 Operating Expenses $(874,508) Net Operating Income $1,754,800 PROPERTY DESCRIPTION Year Built 1995 Number of Stories 2 and 3 Number of Units 280 Number of Bedrooms NA Net Rentable Area 296,616 SF Average Unit Size 1,059 SF Land Area 23.36 acres Unit Density 11.98 Units per Acre Property Condition Excellent Parking (type) Open Construction Type Wood frame/Wood Siding/Stucco Confirmed With Steve Coley, Barnett Bank Date Confirmed 11/18/97 Comments: Was completed in early 1995 and was in excellent condition at time of sale. Complex amenities include security fencing with remote entry gate, swimming pool, sun deck, tennis courts, clubhouse with fitness center, playground, and amenity lake with partial frontage along golf course fairways. Units have installation alarms, washer/dryer, appliances ceiling fans, window coverings, and built-in bookcases. SAN PABLO - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 2 PROPERTY IDENTIFICATION Job Number 97-075 Project Name San Pablo Address 14401 Jose Vedra Blvd.. City/County/State Jacksonville, Florida TRANSACTION DATA Sale Date 06/97 Grantor (Seller) N/A Grantee (Buyer) N/A Recorded Document N/A Sale Price $5,350,000 Occupancy 90% Sale Price per Unit $26,750 Sale Price per SF $28.96 Capitalization Rate 10.8% TERMS OF SALE Cash INCOME/EXPENSE DATA Potential Gross Income $1,302,800 Vacancy/Collection Loss ($130,280) Effective Gross Income $1,172,520 Operating Expenses ($589,370) Net Operating Income $583,150 PROPERTY DESCRIPTION Year Built 1974 Number of Stories 2 Number of Units 200 Number of Bedrooms 350 Net Rentable Area 184,750 Average Unit Size 924 SF Land Area 14.24 acres Unit Density 14.04 Units per Acre Property Condition Average Parking (type) Open parking Construction Type Concrete block with masonry and wood veneer Confirmed With David V. Allen, CB Commercial Real Estate Group, Inc. Date Confirmed 11/18/97 Comments San Pablo Apartments needed new plumbing system, wood replacement, some roof replacement and other repairs at time of sale. The property has tennis courts, basketball courts, full size pool, and playground. Expenses do not include reserves. HUNTER'S RIDGE - -------------------------------------------------------------------------------- [PICTURES APPEAR HERE] COMPARABLE APARTMENT SALE 3 PROPERTY IDENTIFICATION Job Number 97-075 Project Name Hunter's Ridge (previously Oaks at Deerwood) Address 10100 Baymeadows Road City/County/State Jacksonville, Florida TRANSACTION DATA Sale Date 05/97 Grantor (Seller) Oaks at Baymeadows II Associates, Ltd. Grantee (Buyer) Mid-America Apartments of Duval, L.P. Recorded Document 8653-596 Sale Price $15,200,000 Occupancy 92% Sale Price per Unit $45,238 Sale Price per SF $51.54 Capitalization Rate 7.76% TERMS OF SALE Said to be cash INCOME/EXPENSE DATA Potential Gross Income $2,451,409 Vacancy/Collection Loss ($196,113) Effective Gross Income $2,255,296 Operating Expenses $1,075,776 Net Operating Income $1,179,520 PROPERTY DESCRIPTION Year Built 1987 Number of Stories 2 and 3 Number of Units 336 Number of Bedrooms NA Net Rentable Area 294,888 SF Average Unit Size 878 SF Land Area 34.70 acres Unit Density 9.68 Units per Acre Property Condition Average Parking (type) Open parking Construction Type Wood frame/Wood Siding/Shingle roof Confirmed With Steve Coley, Barnett Bank Date Confirmed 11/18/97 Comments Property had a name change after the sale and is now known as Hunter's Ridge. Clubhouse has a tile roof covering and entry is paved with brick pavers. Well landscaped and treed. Amenities include a pool with hot tub, tennis courts, fitness facility in clubhouse, car care center, racquet ball/volleyball court, outdoor storage for each unit, mini-blinds, and washer/dryer connections. WOODHOLLOW ---------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 4 PROPERTY IDENTIFICATION Job Number 97-075 Project Name Woodhollow Apartments Address 1715 Hodges Blvd. City/County/State Jacksonville, Florida TRANSACTION DATA Sale Date 04/97 Grantor (Seller) Woodhollow, LP Grantee (Buyer) Mid-America Apartments, LP Recorded Document 8590-2406 Sale Price $16,700,000 Occupancy 94% Sale Price per Unit $37,111 Sale Price per SF $48.99 Capitalization Rate 9.60% TERMS OF SALE Cash to mortgage of $10,350,000 @ 7.5% Due in 7 years, based on 25 amortization schedule INCOME/EXPENSE DATA Potential Gross Income $3,245,490 Vacancy/Collection Loss ($194,729) Effective Gross Income $3,050,761 Operating Expenses ($1,447,561) Net Operating Income $1,603,200 PROPERTY DESCRIPTION Year Built 1986 Number of Stories 2 Number of Units 450 Number of Bedrooms 690 Net Rentable Area 342,162 SF Average Unit Size 760 SF Land Area 38.65 acres Unit Density 11.6 Units per Acre Property Condition Average Plus Parking (type) Open parking Construction Type Wood frame Confirmed With David V. Allen, CB Commercial Real Estate Group, Inc. Date Confirmed 11/18/97 Comments The cap rate does not include a deduction for reserves. Amenities are a 6-acre lake, olympic size pool with large cool deck, jacuzzi, 2 tennis courts, 2 volleyball courts, BBQ and picnic areas, large playground, and a gated boat storage. THE COURTS AT PONTE VEDRA ---------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 5 PROPERTY IDENTIFICATION Job Number 97-075 Project Name The Courts at Ponte Vedra Address 101 Vera Cruz Drive City/County/State Ponte Vedra Beach, FL TRANSACTION DATA Sale Date 01/97 Grantor (Seller) Windsor Apartments, L.P. Grantee (Buyer) Metropolitan Life Insurance Corporation Recorded Document 01220-01824 Sale Price $19,000,000 Occupancy 95% Sale Price per Unit $75,099 Sale Price per SF $75.12 Capitalization Rate 8.34% TERMS OF SALE Said to be cash INCOME/EXPENSE DATA Potential Gross Income $2,734,426 Vacancy/Collection Loss ($136,721) Effective Gross Income $2,597,705 Operating Expenses ($1,013,105) Net Operating Income $1,584,600 PROPERTY DESCRIPTION Year Built 1996 Number of Stories 3 Number of Units 253 Number of Bedrooms N/A Net Rentable Area 252,916 SF Average Unit Size 1,000 SF Land Area 9.23 acres Unit Density 27.41 Units per Acre Property Condition Excellent Parking (type) Open parking Construction Type Wood frame/Masonry/Stucco Confirmed With Steve Coley, Barnett Bank Date Confirmed 11/18/97 Comments Built in late 1996 and sold on 95% proforma. Leasing was ahead of schedule at time of sale. Complex was in excellent condition. Property had very attractive architectural design features at windows and roof lines. Amenities include security gate entry, fountain, brick pavers, lap pool, heated spa, and clubhouse with business center. Property had higher unit density than most projects in Ponte Vedra. THE HUNTINGTON AT HIDDEN MILLS ---------------------------------------------------------------------- [PICTURE APPEARS HERE] COMPARABLE APARTMENT SALE 6 PROPERTY IDENTIFICATION Job Number 97-071 Project Name The Huntington at Hidden Mills (formerly Cozumel) Address 3333 Monument Road Location East side of Monument Road, north of SR 10 (Atlantic Blvd.) City/County/State Jacksonville, Duval, Florida TRANSACTION DATA Date of Sale 8/8/96 Grantor (Seller) Private Syndication Grantee (Buyer) Walden Residential Recorded Document NA Sale Price $7,225,000 Occupancy 98% Sale Price per Unit $32,254.46 Sale Price per SF $40.26 TERMS OF SALE Cash INCOME/EXPENSE DATA Potential Gross Income $1,356,839 Vacancy/Collection Loss 2.8% $ 37,991 Effective Gross Income $1,318,848 Operating Expenses $ 628,166 Net Operating Income $ 690,682 PHYSICAL DATA Year Built 1986 Number of Stories 2-3 Number of Units 224 Number of Bedrooms 376 Net Rentable Area 179,476 SF Average Unit Size 801 SF Land Area 14.92 acres Unit Density 15 Property Condition Average Parking (type) Asphalt, open Construction Type Stucco/wood siding with composition roofs Confirmed With Dan Allen/CB Commercial/(904) 630-6362 Date Confirmed 10/10/96/LW/Bach Thoreen McDermott Inc. Comments Price adjusted upward by $350,000 for required re- plumbing and was a credit given by the seller. The net operating income (NOI) does not include an allowance for reserve for replacement expenses. THE ANTLERS ---------------------------------------------------------------------- [PICTURES APPEARS HERE] COMPARABLE APARTMENT SALE 7 PROPERTY IDENTIFICATION Job Number 97-071 Project Name The Antlers Address 8433 Southside Blvd. Location East side of Southside Blvd., south of J. Turner Butler Blvd. City/County/State Jacksonville, Duval, Florida TRANSACTION DATA Grantor (Seller) Balcor Grantee (Buyer) United Dominion Real Estate Date of Sale 5/29/96 Sale Price $15,000,000 Occupancy 97% Terms of Sale Cash Sale Price per Unit $37,500.00 Sale Price per SF $45.77 TERMS OF SALE Cash INCOME/EXPENSE DATA Potential Gross Income $2,752,915 Vacancy/Collection Loss 3.2% $88,093 Effective Gross Income $2,664,822 Operating Expenses $1,140,493 Net Operating Income $1,524,329 PHYSICAL DATA Year Built 1985 Number of Stories 2-3 Number of Units 400 Number of Bedrooms 504 Site Area 42.51 acre(s) Net Rentable Area 327,728 SF Average Unit Size 819 SF Land Area 42.51 acres Unit Density 9.4 Property Condition Average Parking (type) Asphalt, open Construction Type Stucco/Wood siding with composition roofs Confirmed With Dan Allen/CB Commercial/(904) 630-6362 Date Confirmed 10/10/96/LW/Bach Thoreen McDermott Inc. Comments The net operating income (NOI) does not include an allowance for reserve for replacement expenses. WESTLAND PARK ---------------------------------------------------------------------- [PICTURES APPEAR HERE] COMPARABLE APARTMENT SALE 8 PROPERTY IDENTIFICATION Job Number 97-071 Project Name Westland Park Address 6710 Collins Road Location North side of Collins Road, north of I-295 City/County/State Jacksonville, Duval, Florida TRANSACTION DATA Grantor (Seller) Vestcor Grantee (Buyer) United Dominion Real Estate Sale Date 5/9/96 Sale Price $16,950,060 Occupancy 97% Terms of Sale Cash Sale Price per Unit $41,852.00 Sale Price per SF $42.06 TERMS OF SALE Cash INCOME/EXPENSE DATA Potential Gross Income $2,929,883 Vacancy/Collection Loss 3.7% $108,406 Effective Gross Income $2,821,477 Operating Expenses $1,104,247 Net Operating Income $1,717,230 PHYSICAL DATA Year Built 1989 Number of Stories 2-3 Number of Units 405 Number of Bedrooms 723 Net Rentable Area 403,010 SF Average Unit Size 995 SF Land Area 27.17 Unit Density 14.9 Property Condition Average Parking (type) Asphalt, open Construction Type Stucco/Wood siding with composition roofs Confirmed With Dan Allen/CB Commercial/(904) 630-6362 Date Confirmed 10/10/96/LW/Bach Thoreen McDermott Inc. Comments The net operating income (NOI) does not include an allowance for reserve for replacement expenses. THE REMINGTON - -------------------------------------------------------------------------------- [PICTURE APPEARS] RENT COMPARABLE 1 PROPERTY IDENTIFICATION Job No. 97-068/97-069 Name of Project: The Remington Apartments Street Address: 611 Ponte Vedra Lakes Boulevard City/State: Ponte Vedra, Florida PROPERTY DESCRIPTION Year Built/Renovated: 1985 Number of Buildings: 43 Number of Stories: 2 Number of Units: 344 Net Rentable Area (SF): 302,904 Average Unit Size (SF): 881 Parking Surface: Asphalt Parking Spaces: Open parking Type of Construction: Stucco walls with tile roofs Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY Units Type (SE) Rent Rent/SF -------------------------------------------- 64 1BR/lBA 683 $605-615 $0.886-0.900 72 1BR/1BA 755 635-670 0.841-0.887 64 2BR/1BA 886 670-680 0.756-0.767 72 2BR/2BA 977 735-745 0.752-0.763 48 2BR/2BA 1,043 765-775 0.733-0.743 24 2BR/2BA 1,155 825-835 0.714-0.723
Unit Amenities: Dishwashers, garbage disposals, microwave ovens, miniblinds, fireplaces, ceiling fans, vaulted ceilings, outdoor utility closets, patio/balconies Project Amenities: 2 swimming pools, 1 tennis court, 1 racquetball court, hot tub, sauna, exercise/weight room, clubroom, lake ECONOMIC DATA Percent Occupied: 95.0% Avg. Monthly Rent/SF of NRA: $0.79 Electricity Pald By: Tenant Length of Lease: 7 or 12 months Security Deposit: $220 for 1BR; $270 for 2BR Pets Allowed/Deposit: Yes, $200-300, 1/2 refundable Confirmed With: Leasing Agent and ConAm on-site agent survey Date Confirmed: December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Remarks: Upper units lease at a premium; some upper units have ceiling treatments and fireplaces. MARSH COVE - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 2 PROPERTY IDENTIFICATION Job No. 97-068/97-074 Name of Project: Marsh Apartments Street Address: 1220 Marsh Cove Lane City/State: Ponte Vedra, Florida PROPERTY DESCRIPTION Year Built/Renovated: 1983 Number of Buildings: 15 Number of Stories: 1-2 Number of Units: 86 Net Rentable Area (SF): 96,176 Average Unit Size (SF): 1,118 Parking Surface: Asphalt Parking Spaces: Open parking Type of Construction: Frame and stucco walls with composition roofs Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY UNITS TYPE (SE) RENT RENT/SF -------------------------------------------- 18 2BR/2BA/FL 980 $ 740 $0.755 12 2BR/2BA/FL 1,100 780 0.709 8 2BR/2BA/LOFT 1,242 850 0.684 26 2BR/2.5BA/TH 1,050 760 0.724 16 2BR/2.5BA/TH 1,220 810 0.664 6 3BR/3BA 1,430 1,010 0.706
FL = flat; TH = townhouse Unit Amenities: Dishwashers, garbage disposals, microwave ovens, washer/dryer connections, miniblinds, fireplaces, outdoor utility closets, patio/balconies Project Amenities: 1 swimming pool, 1 tennis court, hot tub ECONOMIC DATA Percent Occupied: 95.0% Avg. Monthly Rent/SF of NRA: $0.71 Electricity Paid By: Tenant Length of Lease: 7 or 12 months Security Deposit: $200 Pets Allowed/Deposit: Yes, 25 pounds maximum $200 nonrefundable Confirmed With: Leasing agent and ConAm on-site agent survey Date Confirmed: December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Remarks: There is an extra $10/month rent surcharge for seven-month leases. There is also a premium of $10 per month for lake view units. THE FAIRWAYS - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 3 PROPERTY DESCRIPTION Project No. 97-068/97-069 Name of Project: The Fairways Street Address: 100 Fairway Park Boulevard City/State: Ponte Vedra, Florida PROPERTY DESCRIPTION Year Built/Renovated: 1984 Number of Buildings: 21 Number of Stories: 2-3 Number of Units: 216 Net Rentable Area (SF): 186,600 Average Unit Size (SF): 864 Parking Surface: Asphalt Parking Spaces: Open parking Type of Construction: Frame and stucco walls with composition roof Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY Units Type (SE) Rent Rent/SF -------------------------------------------- 8 1BR/1BA 550 $555 $ 1.01 18 1BR/1BA 600 615 1.03 86 2BR/2BA/FL 950 700 0.737 68 2BR/1BA/TH 750 650 0.867 18 2BR/2BA/TH 1,100 740 0.673 18 2BRIl.SBAFFH 1,050 705 0.671
FL = flat; TH = townhouse Unit Amenities: Dishwashers, garbage disposals, washer/dryer connections, miniblinds, fireplaces, patio/balconies Project Amenities: 1 swimming pool, 2 tennis courts, hot tub, exercise/weight room, clubroom, laundry facility, lake ECONOMIC DATA Percent Occupied: 88% Avg. Monthly Rent/SF of NRA: $0.782 Electricity Paid By: Tenant Length of Lease: 7 or 12 months Security Deposit: $275 Pets Allowed/Deposit: Yes, 20 pounds maximum, $300-500 nonrefundable Confirmed With: Leasing agent and ConAm on-site agent survey Date Confirmed: December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. COLONIAL GRAND - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 4 PROPERTY IDENTIFICATION Job No. 97-068/97-069 Name of Project: Colonial Grand Street Address: 125 Great Harbour Way City/State: Ponte Vedra, Florida PROPERTY DESCRIPTION Year Built/Renovated: 1987 Number of Buildings: 31 Number of Stories: 2 Number of Units: 240 Net Rentable Area (SF): 211,640 Average Unit Size (SF): 882 Parking Surface: Asphalt Parking Spaces: Open parking Type of Construction: Stucco walls with tile roofs Unit Mix:
Total Unit Size Monthly Monthly Units Type (SE) Rent Rent/SF ---------------------------------------------- 40 1BR/1BA 672 $575-615 $0.856-0.915 40 1BR/1BA 760 620-660 0.816-0.868 40 1BR/1BA/DEN 937 670-710 0.715-0.758 120 2BR/2BA 974 705-745 0.724-0.765
Unit Amenities: Dishwashers, garbage disposals, microwave ovens, washer/dryer connections, miniblinds, fireplaces, ceiling fans, vaulted ceilings, walk-in closets, outdoor utility closets, patio/balconies Project Amenities: 1 swimming pool, 1 tennis court, 2 racquetball courts, 1 basketball court, hot tub, sauna, exercise/weight room, clubroom, lakes, volleyball court ECONOMIC DATA Percent Occupied: 97.0% Avg. Monthly Rent/SF of NRA: $0.775 Electricity Paid By: Tenant Length of Lease: 7 or 12 months Security Deposit: $175 Pets Allowed/Deposit: Yes, 25-pound weight limit; $300 nonrefundable Confirmed With: Leasing Agent and ConAm on-site agent survey Date Confirmed: December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Remarks: Differences in rental rates of individual floor plans are due to location and fireplaces. Upstairs units cost an additional $10 per month. There is an additional charge of $10 per month for seven-month leases. THE ARBOR CLUB - -------------------------------------------------------------------------------- [PICTURE APPEARS HERE] RENT COMPARABLE 5 PROPERTY IDENTIFICATION Project No. 97-068/97-069/97-074 Name of Project: Arbor Club Apartments Street Address: 1 Arbor Club Drive City/State: Ponte Vedra, Florida Property Description Year Built/Renovated: 1992 Number of Buildings: 13 plus 12 garage buildings Number of Stories: 2-3 Number of Units: 251 Net Rentable Area (SF): 288,924 Average Unit Size (SF): 1,151 Parking Surface: Asphalt Parking Spaces: Open and garage space ($55/month) Type of Construction: Wood/stucco siding Unit Mix:
TOTAL UNIT SIZE MONTHLY MONTHLY Units Type (SE) Rent Rent/SF ---------------------------------------------------- 52 1BR/1BA 881 $ 655-685 $0.743-0.778 52 1BR/1BA/LOFT 1,102 740-760 0.672-0.690 60 2BR/2BA 1,181 790-820 0.669-0.694 60 2BR/2BA 1,254 825-855 0.658-0.682 9 3BR/2BA 1,426 980-1,000 0.687-0.701 18 3BR/2BA 1,493 1,025-1,050 0.687-0.703
Unit Amenities: Dishwashers, garbage disposals, microwave ovens, washer/dryer connections, miniblinds, fireplaces, vaulted ceilings, walk-in closets, burglar alarms Project Amenities: 1 swimming pool, 2 tennis courts, jacuzzi, exercise/weight room, clubroom, laundry facility, on-site security, garages ECONOMIC DATA Percent Occupied: 100% Avg. Monthly Rent/SF of NRA: $0.693 Electricity Paid By: Tenant Length of Lease: 7 or 12 months SECURITY DEPOSIT: $175 Pets Allowed/Deposit: 25-pound limit; $300 pet fee (nonrefundable) Confirmed With: Leasing agent and ConAm on-site agent survey Date Confirmed: December 1997 by Stevan N. Bach, Bach Realty Advisors, Inc. Remarks: This project opened in April 1992. Differences in rental rates for individual units are due to fireplaces, lake view, and upstairs/downstairs. There is also a $70 per month garage fee. ORDINANCE NUMBER: 84-3 P.U.D. OFF. REC. INTRODUCED BY: Commissioner Waldron BOOK B PAGE 1 -- -- AN ORDINANCE OF THE COUNTY OF ST. JOHNS, STATE OF FLORIDA, REZONING LANDS DESCRIBED REFERENCED HEREIN AS (GOVERNMENT LOT 2, SECTION 16, TOWNSHIP 3 SOUTH, RANGE 29 EAST, ST. JOHNS COUNTY, FLORIDA, CONTAINING 40 ACRES MORE OR LESS) FROM PRESENT ZONING CLASSIFICATION OF OPEN RURAL TO PLANNED UNIT DEVELOPMENT. BE IT ORDAINED BY THE BOARD OF COUNTY COMMISSIONERS OF ST. JOHNS COUNTY, FLORIDA: SECTION 1. As requested by Epoch Properties, Inc., in its application for - --------- zoning change filed November 17, 1983. (hereinafter called the "Lakeview Village PUD Application"), the zoning classification of the real property described in said application is hereby changed from Open Rural to Planned Unit Development (Hereinafter called the "Lakeview Village PUD"). SECTION 2. All materials, stipulations, exhibits, surveys, site plans, traffic - --------- studies and other maps included in and attached to the Lakeview Village PUD Application No. R-PUD-83-59 which are described as, but are not limited to, the following: The Planned Unit Development Application for Zoning Change, Compliance with Article 8 (Planned Unit Development-PUD) Exhibits attached to the Compliance with Article 8 (Warranty Deeds (2), Authorizations of Agency (3), List of Adjacent Property Owners, Survey of the subject Real Property, Topographical Survey of the Subject Real Property, Schedule of Development, Lakeview Village Project Data, Lakeview Village Land Usage Data, Lakeview Village Building Data, Lakeview Village Apartment Community Planned Unit Development Plan (and other information thereto), revised Schedule of Development, revised Lakeview Village Apartment Community Planned Unit Development Plan and other such renderings necessary of the Lakeview Village Planned Unit Development - all of which are hereby incorporated in and made a part of this Ordinance. ORDINANCE B00K 5 PAGE 492 PROFESSIONAL QUALIFICATIONS STEVAN N. BACH EXPERIENCE Bach Realty Advisors, Inc. (since June 1997) President. Emphasis in ad valorem tax and intangible value. Real estate valuation and consultation on hotels, major urban properties, and property portfolios. Financial and feasibility analysis, land use, and market studies Bach Thoreen McDermott Incorporated (July 1991-May 1997) Chief Executive Officer. Bach Thoreen & Associates, Inc. (1985-1991) President Bach & Associates, Inc. (1980-1984) President Landauer Associates, Inc. (1980-1984) Senior Vice-President and General Manager-Southwestern Region Coldwell Banker Commercial Group, Inc. (1973-1980) Vice-president and Manager, Appraisal Services. Appraisal Research Associates (1971-1973) Appraiser. Real Estate research valuation on urban and rural properties. Ray R. Hastings, MAI (1964-1971) Appraiser. Real Estate research valuation on urban and rural properties. Residential Real Estate Sales (1963-1964) Salesman. Residential real estate salesman Covina, California. PROFESSIONAL ACTIVITIES Member: Appraisal institute Appraisal institute, Houston Chapter 33 Appraisal institute, Chairman of the Grievance Committee of the Regional Ethics panel Appraisal institute, Chairman of the Review and Counseling Committee of the Regional Ethics Panel Appraisal institute, Co-Chairman of the Education Committee (1980) Appraisal institute, Chairman of the Education Committee (1983) Appraisal institute, Candidate Guidance Committee (1987-1992) Appraisal institute, Subcommittee Chairman, Admissions Committee (1984) AIREA Nonresidential Appraisal Report Grading Committee (1984) Appraisal Institute Expert Witness Video Committee (1990) Licenses: Real Estate Broker, State of Texas Certification: Certified in the Appraisal Institute's voluntary program of continuing education for its designated members (MAIs who meet the minimum standards of this program are awarded periodic education certification). Certified General Real Estate Property appraiser in the State of Texas, Certification No. TX-1323079-G Certified General Real Estate Property appraiser in the State of Colorado, Certification No. CG01323975 EDUCATION B.S. Marketing, University of Southern California (1962) -----END PRIVACY-ENHANCED MESSAGE-----