EX-99.(C)(2) 4 d07272a2exv99wxcyx2y.txt APPRAISAL OF WILLIAMSBURG ON THE LAKE APARTMENTS WILLIAMSBURG APARTMENTS 3451 SHERBURNE LANE INDIANAPOLIS, INDIANA MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 8, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] JUNE 28, 2003 Apartment Investment and Management Company ("AIMCO") c/o Mr. Steven A. Velkei, Esq. Liner Yankelevitz Sunshine & Regenstreif LLP 1100 Glendon Avenue, 14th Floor Los Angeles, California 90024-3503 Nuanes, et al.( "Plaintiffs ") c/o Ms. Joy Kruse Lieff Cabraser Heimann & Bernstein Embarcadero Center West 275 Battery Street, 30th Floor San Francisco, California 94111 RE: WILLIAMSBURG APARTMENTS 3451 SHERBURNE LANE INDIANAPOLIS, MARION COUNTY, INDIANA In accordance with your authorization, we have completed the appraisal of the above-referenced property. This complete appraisal is intended to report our analysis and conclusions in a summary format. The subject property consists of an apartment project having 460 units with a total of 392,800 square feet of rentable area. The improvements were built in 1974. The improvements are situated on 31.586 acres. Overall, the improvements are in good condition. As of the date of this appraisal, the subject property is 73% occupied. It is our understanding the appraisal will be used by the clients to assist the San Mateo Superior Court in the settlement of litigation between the above mentioned clients. The appraisal is intended to conform to the Uniform Standards of Professional Appraisal Practice ("USPAP") as promulgated by the Appraisal Standards Board of the Appraisal Foundation and the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute. The appraisal is presented in a summary report, and the Departure Provision of USPAP has not been invoked in this appraisal. It is entirely inappropriate to use this value conclusion or the report for any purpose other than the one stated. AMERICAN APPRAISAL ASSOCIATES, INC. LETTER OF TRANSMITTAL PAGE 2 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA The opinions expressed in this appraisal cover letter can only be completely understood by reading the narrative report, addenda, and other data, which is attached. The appraisal is subject to the attached general assumptions and limiting conditions and general service conditions. As a result of our investigation, it is our opinion that the fee simple market value of the subject, effective May 8, 2003 is: ($15,500,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Kenneth W. Kapecki June 28, 2003 Ken Kapecki, MAI #053272 Managing Principal, Real Estate Group State of Indiana, Certified General Appraiser, #CG49600008 Report By: John Nolan AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary....................................................... 4 Introduction............................................................ 10 Area Analysis........................................................... 12 Market Analysis......................................................... 15 Site Analysis........................................................... 17 Improvement Analysis.................................................... 17 Highest and Best Use.................................................... 18 VALUATION Valuation Procedure..................................................... 19 Sales Comparison Approach............................................... 21 Income Capitalization Approach.......................................... 27 Reconciliation and Conclusion........................................... 39
ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Williamsburg Apartments LOCATION: 3451 Sherburne Lane Indianapolis, Indiana INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: Fee simple estate DATE OF VALUE: May 8, 2003 DATE OF REPORT: June 28, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 31.586 acres, or 1,375,886 square feet Assessor Parcel No.: 008261 Floodplain: Community Panel No. 18097C0129E (January 5, 2001) Flood Zone X, an area outside the floodplain. Zoning: D-6II (Low Density Multifamily District) BUILDING: No. of Units: 460 Units Total NRA: 392,800 Square Feet Average Unit Size: 854 Square Feet Apartment Density: 14.6 units per acre Year Built: 1974 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ------------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income ---------------------------------------------------------------------------------------------- 1Br/1Ba - 1A10 700 $490 $0.70 $ 96,040 $1,152,480 2Br/2Ba - 2A10 900 $570 $0.63 $ 79,800 $ 957,600 2Br/2Ba - 2A15 1,000 $640 $0.64 $ 61,440 $ 737,280 3Br/1.5Ba - 3A15 1,200 $780 $0.65 $ 21,840 $ 262,080 -------- ---------- Total $259,120 $3,109,440 ======== ==========
OCCUPANCY: 73% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 25 Years REMAINING ECONOMIC LIFE: 20 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA SUBJECT PHOTOGRAPHS [EXTERIOR - APARTMENT BUILDING PICTURE] [EXTERIOR - APARTMENT BUILDING PICTURE] AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA NEIGHBORHOOD MAP [MAP] HIGHEST AND BEST USE: As Vacant: Hold for future multi-family development As Improved: Continuation as its current use METHOD OF VALUATION: In this instance, the Sales Comparison and Income Approaches to value were utilized. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
Amount $/Unit ------ ------ DIRECT CAPITALIZATION Potential Rental Income $ 3,109,440 $ 6,760 Effective Gross Income $ 2,922,295 $ 6,353 Operating Expenses $ 1,577,484 $ 3,429 54.0% of EGI Net Operating Income: $ 1,252,811 $ 2,724 Capitalization Rate 7.75% DIRECT CAPITALIZATION VALUE $15,400,000 * $33,478 / Unit DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 17% Stabilized Vacancy & Collection Loss: 10% Lease-up / Stabilization Period 18 months Terminal Capitalization Rate 8.25% Discount Rate 10.50% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $15,600,000 * $33,913 / Unit RECONCILED INCOME CAPITALIZATION VALUE $15,500,000 $33,696 / Unit SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $29,953 to $61,397 Range of Sales $/Unit (Adjusted) $32,555 to $38,391 VALUE INDICATION - PRICE PER UNIT $15,800,000 * $34,348 / Unit EGIM ANALYSIS Range of EGIMs from Improved Sales 5.20 to 6.23 Selected EGIM for Subject 5.75 Subject's Projected EGI $ 2,922,295 EGIM ANALYSIS CONCLUSION $16,000,000 * $34,783 / Unit NOI PER UNIT ANALYSIS CONCLUSION $15,300,000 * $33,261 / Unit RECONCILED SALES COMPARISON VALUE $15,600,000 $33,913
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 8 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA / Unit ---------------------------- * Value indications are after adjustments for concessions, deferred maintenance, excess land and lease-up costs, if any. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 9 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $15,800,000 NOI Per Unit $15,300,000 EGIM Multiplier $16,000,000 INDICATED VALUE BY SALES COMPARISON $15,600,000 $33,913 / Unit INCOME APPROACH: Direct Capitalization Method: $15,400,000 Discounted Cash Flow Method: $15,600,000 INDICATED VALUE BY THE INCOME APPROACH $15,500,000 $33,696 / Unit RECONCILED OVERALL VALUE CONCLUSION: $15,500,000 $33,696 / Unit
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 3451 Sherburne Lane, Indianapolis, Marion County, Indiana. Indianapolis identifies it as 008261. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by John Nolan on May 8, 2003. Ken Kapecki, MAI has not made a personal inspection of the subject property. John Nolan performed the research, valuation analysis and wrote the report. Ken Kapecki, MAI reviewed the report and concurs with the value. Ken Kapecki, MAI and John Nolan have extensive experience in appraising similar properties and meet the USPAP competency provision. The scope of this investigation comprises the inspection of the property and the collection, verification, and analysis of general and specific data pertinent to the subject property. We have researched current improved sales and leases of similar properties, analyzing them as to their comparability, and adjusting them accordingly. We completed the Sales Comparison and Income Capitalization Approaches to value. From these approaches to value, a concluded overall value was made. DATE OF VALUE AND REPORT This appraisal was made to express the opinion of value as of May 8, 2003. The date of the report is June 28, 2003. PURPOSE AND USE OF APPRAISAL The purpose of the appraisal is to estimate the market value of the fee simple interest in the subject property. It is understood that the appraisal is intended to assist the clients in litigation settlement proceedings. The appraisal was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. PROPERTY RIGHTS APPRAISED We have appraised the Fee Simple Estate in the subject property (as applied in the Sales & Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 11 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA defined in The Dictionary of Real Estate Appraisal, 3rd ed. (Chicago: Appraisal Institute, 1993), as: "Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat." MARKETING/EXPOSURE PERIOD MARKETING PERIOD: 6 to 12 months EXPOSURE PERIOD: 6 to 12 months HISTORY OF THE PROPERTY Ownership in the subject property is currently vested in NPI 8. To the best of our knowledge, no transfers of ownership or offers to purchase the subject are known to have occurred during the past three years. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 12 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA AREA / NEIGHBORHOOD ANALYSIS NEIGHBORHOOD ANALYSIS A neighborhood is a group of complementary land uses. The function of the neighborhood analysis is to describe the immediate surrounding environs. The subject is located in the city of Indianapolis, Indiana. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - U.S. 70 West - 56th St. South - I-65 North - I-465 MAJOR EMPLOYERS Major employers in the subject's area include 1) Clarian Health Systems, 2) Eli Lilly and Company, 3) Community Hospitals Indianapolis, 4) Marsh/Village Pantry Supermarkets, 5) St. Vincent Hospital and Health Care, 6) IUPUI, 7) Kroger Central Marketing Area, 8) Rolls Royce, 9) Federal Express, 10) St. Francis Hospital & Health Centers. The overall economic outlook for the area is considered favorable. DEMOGRAPHICS We have reviewed demographic data within the neighborhood. The following table summarizes the key data points. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA NEIGHBORHOOD DEMOGRAPHICS
AREA -------------------------------------------- CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA ------------------------------------------------------------------------------------------ POPULATION TRENDS Current Population 10,123 87,656 254,658 1,646,584 5-Year Population 10,694 89,200 263,551 1,750,376 % Change CY-5Y 5.6% 1.8% 3.5% 6.3% Annual Change CY-5Y 1.1% 0.4% 0.7% 1.3% HOUSEHOLDS Current Households 3,987 35,045 107,520 648,288 5-Year Projected Households 4,232 36,008 112,830 696,995 % Change CY - 5Y 6.1% 2.7% 4.9% 7.5% Annual Change CY-5Y 1.2% 0.5% 1.0% 1.5% INCOME TRENDS Median Household Income $ 39,355 $ 33,894 $ 35,686 $ 47,488 Per Capita Income $ 21,374 $ 18,563 $ 21,207 $ 24,134 Average Household Income $ 54,274 $ 46,266 $ 50,263 $ 61,296
Source: Demographics Now The subject neighborhood's population is expected to show increases below that of the region. The immediate market offers inferior income levels as compared to the broader market. The following table illustrates the housing statistics in the subject's immediate area, as well as the MSA region. HOUSING TRENDS
AREA -------------------------------------------- CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA --------------------------------------------------------------------------------------------- HOUSING TRENDS % of Households Renting 42.68% 39.63% 42.92% 29.55% 5-Year Projected % Renting 41.71% 39.47% 42.53% 28.58% % of Households Owning 50.66% 51.37% 46.55% 63.75% 5-Year Projected % Owning 52.13% 51.88% 47.51% 65.18%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 14 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Single-Family Residential South - Single-Family Residential East - Single-Family Residential West - Single-Family Residential CONCLUSIONS The subject is well located within the city of Indianapolis. The neighborhood is characterized as being mostly suburban in nature and is currently in the gentrification stage of development. The economic outlook for the neighborhood is judged to be favorable with a good economic base. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA MARKET ANALYSIS The subject property is located in the city of Indianapolis in Marion County. The overall pace of development in the subject's market is more or less stable. Approximately 2,550 new units are projected to be constructed in the Indianapolis Metro Area in 2003. This would represent a slight increase from 2002 constructed units of 2,439. The new construction is primarily occurring on the northwest side of town, on the southwest suburbs near the airport, and downtown. No new construction is anticipated in the subject's immediate neighborhood. (Source: CB Richard Ellis) The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket --------------------------------------------- 2002 9.3% 10.4% 2001 9.4% 9.3% 2000 8.8% 9.4% 1999 7.8% 9.2% 1998 7.9% 8.9% 1997 7.8% 6.4% 1996 7.7% 8.1% 1995 7.7% 6.8% 1994 7.7% 6.2%
Source: CB Richard Ellis, US Census Bureau Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has equated the overall market. Vacancy rates in the area have been increasing for the past three years due primarily to the US recession and decreasing mortgage rates. Low mortgage rates have enticed many former renters to purchase homes. To encourage leasing activity, apartment managers have decreased rents, and offered rent concessions such as free rent or waiving security deposits. In addition, many properties have added/improved amenities such as swimming pools, tennis courts, fitness rooms, and clubhouses. While the Indianapolis economy has been affected by the recession of the early 2000's, it's economy is strong relative to other major US cities. Market rents in the subject's market have been following a decreasing trend. The following table illustrates historical rental rates for the subject's market. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 16 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change ------------------------------------------------------------------------------------ 1993 $609 - N/A - 1994 $637 4.6% N/A N/A 1995 $659 3.5% N/A N/A 1996 $684 3.8% N/A N/A 1997 $703 2.8% N/A N/A 1998 $730 3.8% N/A N/A 1999 $747 2.3% N/A N/A 2000 $767 2.7% N/A N/A 2001 $779 1.6% N/A N/A 2002 $787 1.0% N/A N/A
Source:CB Richard Ellis The following table illustrates a summary of the subject's competitive set. COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject -------------------------------------------------------------------------------------------------------- R-1 Abington Apartments 328 95% 1980 1.5 miles NW of subject R-2 Courtyards at Kessler 125 89% 1973 0.25 miles NE of subject R-3 Hunters Run N/A 97% 1972 2 miles NW of subject R-4 Walden 321 85% 1977 0.25 miles E of subject R-5 Wildwood 268 85% 1987 0.25 miles S of subject Subject Williamsburg Apartments 460 73% 1974
The current trend toward low interest rates have increased the percentage of homeowners to renters. Consequently, the market has worsened for rental properties with rents dropping and vacancies increasing. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 31.586 acres, or 1,375,886 square feet Shape Irregular Topography Slightly slope Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Average Flood Zone: Community Panel 18097C0129E, dated January 5, 2001 Flood Zone Zone X Zoning D-6II, the subject improvements represent a legal conforming use of the site. REAL ESTATE TAXES
ASSESSED VALUE - 2002 ---------------------------------------------- TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES 008261 $1,115,800 $8,350,200 $9,466,000 0.04174 $395,158
IMPROVEMENT ANALYSIS Year Built 1974 Number of Units 460 Net Rentable Area 392,800 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Brick or masonry Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, volleyball court, sand volleyball, tennis court, gym room, barbeque equipment, meeting hall, laundry room, lake, and secured parking. Unit Amenities Individual unit amenities include a balcony, cable TV connection, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, water heater, garbage disposal, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 18 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) ----------------------------------------------------------- 1Br/1Ba - 1A10 196 700 2Br/2Ba - 2A10 140 900 2Br/2Ba - 2A15 96 1,000 3Br/1.5Ba - 3A15 28 1,200
Overall Condition Good Effective Age 25 years Economic Life 45 years Remaining Economic Life 20 years Deferred Maintenance None HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1974 and consist of a 460-unit multifamily project. The highest and best use as improved is for a continued multifamily use. Overall, the highest and best use of the subject property is the continued use of the existing apartment project. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 19 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA THE VALUATION PROCEDURE There are three traditional approaches, which can be employed in establishing the market value of the subject property. These approaches and their applicability to the valuation of the subject are summarized as follows: THE COST APPROACH The application of the Cost Approach is based on the principle of substitution. This principle may be stated as follows: no one is justified in paying more for a property than that amount by which he or she can obtain, by purchase of a site and construction of a building, without undue delay, a property of equal desirability and utility. In the case of a new building, no deficiencies in the building should exist. In the case of income-producing real estate, the cost of construction plays a minor and relatively insignificant role in determining market value. The Cost Approach is typically only a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) where the cost of reproducing the improvements is easily and accurately quantified and there is no economic obsolescence. In all instances, the issue of an appropriate entrepreneurial profit - the reward for undertaking the risk of construction, remains a highly subjective factor especially in a market lacking significant speculative development. THE SALES COMPARISON APPROACH The Sales Comparison Approach is an estimate of value based upon a process of comparing recent sales of similar properties in the surrounding or competing areas to the subject property. Inherent in this approach is the principle of substitution. The application of this approach consists of comparing the subject property with similar properties of the same general type, which have been sold recently or currently are available for sale in competing areas. This comparative process involves judgment as to the similarity of the subject property and the comparable sale with respect to many value factors such as location, contract rent levels, quality of construction, reputation and prestige, age and condition, among others. The estimated value through this approach represents the probable price at which a willing seller would sell the subject property to a willing and knowledgeable buyer as of the date of value. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 20 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA THE INCOME CAPITALIZATION APPROACH The theory of the Income Capitalization Approach is based on the premise that present value is the value of the cash flow and reversionary value the property will produce over a reasonable holding (ownership) period. The Discounted Cash Flow Analysis will convert equity cash flows (including cash flows and equity reversion) into a present value utilizing an internal rate of return (or discount rate). The Internal Rate of Return (IRR) will be derived from a comparison of alternate investments, a comparative analysis of IRR's used by recent buyers of similar properties, and a review of published industry surveys. The Direct Capitalization Analysis converts one year of income into an overall value using overall capitalization rates from similar sales. The overall rates take into consideration buyers assumptions of the market over the long-term. The results of the Income Capitalization Analysis are usually the primary value indicator for income producing properties. Investors expect a reasonable rate of return on their equity investment based on the ownership risks involved; this approach closely parallels the investment decision process. RECONCILIATION In this instance, we have completed the Sales Comparison and Income Capitalization Approaches to value. As an income producing property, the income approach is a primary approach to value. The Sales Comparison Approach is also considered reliable as investors are buying similar buildings in the market. Our research indicates that market participants are generally not buying, selling, investing, or lending with reliance placed on the methodology of the Cost Approach to establish the value. Therefore, we have decided that the Cost Approach is not a reliable indicator of value for the subject, and this approach has not been utilized. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA SALES COMPARISON APPROACH Use of market or comparable sales requires the collection and analysis of comparable sales data. Similar properties recently sold are compared to the subject and adjusted based on any perceived differences. This method is based on the premise that the costs of acquiring a substitute property would tend to establish a value for the subject property. The premise suggests that if a substitute is unavailable in the market, the reliability of the approach may be subordinate to the other approaches. The reliance on substitute properties produces shortcomings in the validity of this approach. Geographic and demographic characteristics from each submarket restrict which sales may be selected. Recent sales with a similar physical characteristics, income levels, and location are usually limited. The sales we have identified, however, do establish general valuation parameters as well as provide support to our conclusion derived through the income approach method. The standard unit of comparison among similar properties is the sales price per unit and price per square foot of net rentable area. To accurately adjust prices to satisfy the requirements of the sales comparison approach, numerous calculations and highly subjective judgments would be required including consideration of numerous income and expense details for which information may be unreliable or unknown. The sales price per unit and square foot are considered relevant to the investment decision, but primarily as a parameter against which value estimates derived through the income approach can be judged and compared. In examining the comparable sales, we have applied a subjective adjustment analysis, which includes specific adjustments derived from our experience and consulting with the market participants. SALES COMPARISON ANALYSIS Detailed on the following pages are sales transactions involving properties located in the subject's competitive investment market. Photographs of the sale transactions are located in the Addenda. Following the summary of sales is an adjustment grid that is used to arrive at a value. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 -------------------------------------------------------------------------------------------------------------------------------- Property Name Williamsburg Apartments Abington Apartments Cross Creek Apartments LOCATION: Address 3451 Sherburne Lane 4656 Edwardian Circle 5756 Cross Creek Dr. City, State Indianapolis, Indiana Indianapolis, IN Indianapolis, IN County Marion Marion Marion PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 392,800 293,676 159,492 Year Built 1974 1980 0 Number of Units 460 328 208 Unit Mix: Type Total Type Total Type Total 1Br/1Ba - 1A10 196 1Br/1Ba 156 1Br/1Ba 20 2Br/2Ba - 2A10 140 2Br/1Ba 56 1Br/1Ba 76 2Br/2Ba - 2A15 96 2Br/2Ba 84 1Br/1Ba 36 3Br/1.5Ba - 3A15 28 3Br/2Ba 32 2Br/2Ba 76 Average Unit Size (SF) 854 895 767 Land Area (Acre) 31.5860 0.0000 0.0000 Density (Units/Acre) 14.6 Parking Ratio (Spaces/Unit) 2.00 2.00 2.00 Parking Type (Gr., Cov., etc.) Garage, Open Covered Open, Covered Open, Covered CONDITION: Good Good Good APPEAL: Good Good Average AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room Yes Yes No Laundry Room Yes Yes No Secured Parking Yes Yes Yes Sport Courts Yes Yes No Washer/Dryer Connection Yes Yes Yes Other Other OCCUPANCY: 73% 95% 87% TRANSACTION DATA: Sale Date July, 2002 December, 2000 Sale Price ($) $11,240,000 $8,714,417 Grantor Glenborough Realty Trust Grantee AIMCO GE Capital Sale Documentation Verification Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $2,276,112 $6,939 $7.75 $1,473,120 $7,082 $9.24 Vacancy/Credit Loss $ 113,806 $ 347 $0.39 $ 73,656 $ 354 $0.46 ----------------------------------------------------------- Effective Gross Income $2,162,306 $6,592 $7.36 $1,399,464 $6,728 $8.77 Operating Expenses $1,189,269 $3,626 $4.05 $ 769,705 $3,701 $4.83 ----------------------------------------------------------- Net Operating Income $ 973,038 $2,967 $3.31 $ 629,759 $3,028 $3.95 NOTES: None None PRICE PER UNIT $34,268 $41,896 PRICE PER SQUARE FOOT $ 38.27 $ 54.64 EXPENSE RATIO 55.0% 55.0% EGIM 5.20 6.23 OVERALL CAP RATE 8.66% 7.23% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 ----------------------------------------------------------------------------------------------------------------------------------- Property Name Idlewood Apartments Forest Hills Apartments Carriagetree Apartments (Monon Place Apts) LOCATION: Address 3543 Idlewood Terrace 5500 Pleasant Hill Circle 5900 Carvel Ave. City, State Indianapolis, IN Indianapolis, IN Indianapolis, IN County Marion Marion Marion PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 266,635 319,470 140,492 Year Built 1990 1972 1966 Number of Units 320 420 136 Unit Mix: Type Total Type Total Type Total 1Br/1Ba 95 1Br/1Ba 114 1Br/1Ba 16 1Br/1Ba 100 2Br/1Ba 264 2Br/1Ba 16 2Br/2Ba 40 3Br/2Ba 42 2Br/2Ba 84 2Br/2Ba 85 3Br/2Ba 20 Average Unit Size (SF) 833 761 1,033 Land Area (Acre) 0.0000 22.0000 8.0000 Density (Units/Acre) 19.1 17.0 Parking Ratio (Spaces/Unit) 2.00 2.00 2.00 Parking Type (Gr., Cov., etc.) Open, Covered Open, Covered Open, Covered CONDITION: Good Fair Good APPEAL: Good Fair Good AMENITIES: Pool/Spa Yes/Yes Yes/No Yes/No Gym Room Yes Yes No Laundry Room Yes Yes Yes Secured Parking Yes Yes Yes Sport Courts Yes Yes Yes Washer/Dryer Connection Yes Yes Yes Other Other OCCUPANCY: 92% 96% 98% TRANSACTION DATA: Sale Date July, 2000 September, 2001 April, 2001 Sale Price ($) $15,600,000 $12,580,443 $8,350,000 Grantor Equity Residential Properties New Plan Excel / Solomon Smith Barney Grantee Trinity Westpark LLC Buckingham Management Sale Documentation Verification Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $2,639,100 $8,247 $9.90 $2,373,840 $5,652 $7.43 $1,492,992 $10,978 $10.63 Vacancy/Credit Loss $ 131,955 $ 412 $0.49 $ 118,692 $ 283 $0.37 $ 74,650 $ 549 $ 0.53 ----------------------------------------------------------------------------------------------- Effective Gross Income $2,507,145 $7,835 $9.40 $2,255,148 $5,369 $7.06 $1,418,342 $10,429 $10.10 Operating Expenses $1,378,930 $4,309 $5.17 $1,240,331 $2,953 $3.88 $ 780,088 $ 5,736 $ 5.55 ----------------------------------------------------------------------------------------------- Net Operating Income $1,128,215 $3,526 $4.23 $1,014,817 $2,416 $3.18 $ 638,254 $ 4,693 $ 4.54 NOTES: None None None PRICE PER UNIT $48,750 $29,953 $61,397 PRICE PER SQUARE FOOT $ 58.51 $ 39.38 $ 59.43 EXPENSE RATIO 55.0% 55.0% 55.0% EGIM 6.22 5.58 5.89 OVERALL CAP RATE 7.23% 8.07% 7.64% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $29,953 to $61,397 per unit. Adjustments have been made to the sales to reflect differences in location, age/condition and quality/appeal. Generally speaking, larger properties typically have a lower price per unit when compared to smaller properties, all else being equal. Similarly, those projects with a higher average unit size will generally have a higher price per unit. After appropriate adjustments are made, the improved sales demonstrate an adjusted range for the subject from $32,555 to $38,391 per unit with a mean or average adjusted price of $35,948 per unit. The median adjusted price is $35,944 per unit. Based on the following analysis, we have concluded to a value of $36,000 per unit, which results in an "as is" value of $15,800,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ---------------------------------------------------------------------------------- Property Name Williamsburg Abington Cross Creek Apartments Apartments Apartments Address 3451 4656 5756 Cross Sherburne Lane Edwardian Creek Dr. Circle City Indianapolis, Indianapolis, IN Indianapolis, IN Indiana Sale Date July, 2002 December, 2000 Sale Price ($) $11,240,000 $8,714,417 Net Rentable Area (SF) 392,800 293,676 159,492 Number of Units 460 328 208 Price Per Unit $34,268 $41,896 Year Built 1974 1980 Land Area (Acre) 31.5860 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Fee Simple Fee Simple Fee Simple Conveyed Estate Estate 0% Estate 0% Financing Cash To Cash To Seller 0% Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 07-2002 0% 12-2000 5% VALUE AFTER TRANS. ADJUST. ($/UNIT) $34,268 $43,991 Location Comparable 0% Comparable 0% Number of Units 460 328 -5% 208 -15% Quality / Appeal Good Superior -5% Superior -5% Age / Condition 1974 1980 / Good -5% 0 / Good 0% Occupancy at Sale 73% 95% 0% 87% 0% Amenities Good Inferior 10% Comparable 0% Average Unit Size (SF) 854 895 0% 767 5% PHYSICAL ADJUSTMENT -5% -15% FINAL ADJUSTED VALUE ($/UNIT) $32,555 $37,392 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 ------------------------------------------------------------------------------------------ Property Name Idlewood Forest Hills Carriagetree Apartments Apartments Apartments (Monon Place Apts) Address 3543 5500 5900 Idlewood Pleasant Carvel Ave. Terrace Hill Circle City Indianapolis, IN Indianapolis, IN Indianapolis, IN Sale Date July, 2000 September, April, 2001 2001 Sale Price ($) $15,600,000 $12,580,443 $8,350,000 Net Rentable Area (SF) 266,635 319,470 140,492 Number of Units 320 420 136 Price Per Unit $48,750 $29,953 $61,397 Year Built 1990 1972 1966 Land Area (Acre) 22.0000 8.0000 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Fee Simple Fee Simple Fee Simple Conveyed Estate 0% Estate 0% Estate 0% Financing Cash To Cash To Cash To Seller 0% Seller 0% Seller 0% Conditions of Sale Arm's 0% Arm's 0% Arm's 0% Length Length Length Date of Sale (Time) 07-2000 5% 09-2001 0% 04-2001 5% VALUE AFTER TRANS. ADJUST. ($/UNIT) $51,188 $29,953 $64,467 Location Comparable 0% Comparable 0% Superior -10% Number of Units 320 -5% 420 0% 136 -25% Quality / Appeal Superior -20% Inferior 15% Superior -5% Age / Condition 1990 / Good 0% 1972 / Fair 0% 1966 / Good 5% Occupancy at Sale 92% 0% 96% 0% 98% 0% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 833 0% 761 5% 1,033 -10% PHYSICAL ADJUSTMENT -25% 20% -45% FINAL ADJUSTED VALUE ($/UNIT) $38,391 $35,944 $35,457
SUMMARY VALUE RANGE (PER UNIT) $32,555 TO $ 38,391 MEAN (PER UNIT) $35,948 MEDIAN (PER UNIT) $35,944 VALUE CONCLUSION (PER UNIT) $36,000
VALUE OF IMPROVEMENT & MAIN SITE $16,560,000 LESS: LEASE-UP COST -$ 393,000 PV OF CONCESSIONS -$ 365,000 VALUE INDICATED BY SALES COMPARISON APPROACH $15,802,000 ROUNDED $15,800,000
NET OPERATING INCOME (NOI) ANALYSIS We have also conducted a net operating income (NOI) comparison analysis. The NOI effectively takes into account the various physical, location, and operating aspects of the sale. When the subject's NOI is compared to the sale NOI, a percent adjustment can be arrived at. The following table illustrates this analysis. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA NOI PER UNIT COMPARISON
SALE PRICE NOI/ SUBJECT NOI COMPARABLE NO. OF ----------- ---------- -------------- ADJUSTMENT INDICATED NO. UNITS PRICE/UNIT OAR NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT ----------------------------------------------------------------------------------------------------------------- I-1 328 $11,240,000 8.66% $ 973,038 $1,252,811 0.918 $31,460 $ 34,268 $ 2,967 $ 2,724 I-2 208 $ 8,714,417 7.23% $ 629,759 $1,252,811 0.900 $37,687 $ 41,896 $ 3,028 $ 2,724 I-3 320 $15,600,000 7.23% $1,128,215 $1,252,811 0.772 $37,658 $ 48,750 $ 3,526 $ 2,724 I-4 420 $12,580,443 8.07% $1,014,817 $1,252,811 1.127 $33,763 $ 29,953 $ 2,416 $ 2,724 I-5 136 $ 8,350,000 7.64% $ 638,254 $1,252,811 0.580 $35,630 $ 61,397 $ 4,693 $ 2,724
PRICE/UNIT Low High Average Median --- ---- ------- ------ $31,460 $37,687 $35,240 $35,630
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 35,000 Number of Units 460 Value $16,100,000 Less: Lease-Up Cost -$ 393,000 PV of Concessions -$ 365,000 ------------ Value Based on NOI Analysis $15,342,000 Rounded $15,300,000
The adjusted sales indicate a range of value between $31,460 and $37,687 per unit, with an average of $35,240 per unit. Based on the subject's competitive position within the improved sales, a value of $35,000 per unit is estimated. This indicates an "as is" market value of $15,300,000 (rounded after necessary adjustment, if any) for the NOI Per Unit Analysis. EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS The effective gross income multiplier (EGIM) is derived by dividing the sales price by the total effective gross income. The following table illustrates the EGIMs for the comparable improved sales. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 26 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON
SALE PRICE COMPARABLE NO. OF ---------- EFFECTIVE OPERATING SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM ------------------------------------------------------------------------------------------------------- I-1 328 $11,240,000 $ 2,162,306 $1,189,269 55.00% 5.20 $ 34,268 I-2 208 $ 8,714,417 $ 1,399,464 $ 769,705 55.00% 6.23 $ 41,896 I-3 320 $15,600,000 $ 2,507,145 $1,378,930 55.00% 53.98% 6.22 $ 48,750 I-4 420 $12,580,443 $ 2,255,148 $1,240,331 55.00% 5.58 $ 29,953 I-5 136 $ 8,350,000 $ 1,418,342 $ 780,088 55.00% 5.89 $ 61,397
EGIM
Low High Average Median --- ---- ------- ------ 5.20 6.23 5.82 5.89
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 5.75 Subject EGI $ 2,922,295 Value $16,803,195 Less: Lease-Up Cost -$ 393,000 PV of Concessions -$ 365,000 Value Based on EGIM Analysis $16,045,195 Rounded $16,000,000 Value Per Unit $ 34,783
There is an inverse relationship, which generally holds among EGIMs and operating expenses. Properties, which have higher expense ratios, typically sell for relatively less and therefore produce a lower EGIM. As will be illustrated in the Income Capitalization Approach of this report, the subject's operating expense ratio (OER) is estimated at 53.98% before reserves. The comparable sales indicate a range of expense ratios from 55.00% to 55.00%, while their EGIMs range from 5.20 to 6.23. Overall, we conclude to an EGIM of 5.75, which results in an "as is" value estimate in the EGIM Analysis of $16,000,000. SALES COMPARISON CONCLUSION The three valuation methods in the Sales Comparison Approach are shown below. The overall value via the Sales Comparison Approach is estimated at $15,600,000. Price Per Unit $15,800,000 NOI Per Unit $15,300,000 EGIM Analysis $16,000,000 Sales Comparison Conclusion $15,600,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA INCOME CAPITALIZATION APPROACH The income capitalization approach is based on the premise that value is created by the expectation of future benefits. We estimated the present value of those benefits to derive an indication of the amount that a prudent, informed purchaser-investor would pay for the right to receive them as of the date of value. This approach requires an estimate of the NOI of a property. The estimated NOI is then converted to a value indication by use of either the direct capitalization or the discounted cash flow analysis (yield capitalization). Direct capitalization uses a single year's stabilized NOI as a basis for a value indication by dividing the income by a capitalization rate. The rate chosen accounts for a recapture of the investment by the investor and should reflect all factors that influence the value of the property, such as tenant quality, property condition, neighborhood change, market trends, interest rates, and inflation. The rate may be extracted from local market transactions or, when transaction evidence is lacking, obtained from trade sources. A discounted cash flow analysis focuses on the operating cash flows expected from the property and the proceeds of a hypothetical sale at the end of a holding period (the reversion). The cash flows and reversion are discounted to their present values using a market-derived discount rate and are added together to obtain a value indication. Because benefits to be received in the future are worth less than the same benefits received in the present, this method weights income in the early years more heavily than the income and the sale proceeds to be received later. The strength of the discounted cash flow method is its ability to recognize variations in projected net income, such as those caused by inflation, stepped leases, neighborhood change, or tenant turnover. Its weakness is that it requires many judgments regarding the actions of likely buyers and sellers of the property in the future. In some situations, both methods yield a similar result. The discounted cash flow method is typically more appropriate for the analysis of investment properties with multiple or long-term leases, particularly leases with cancellation clauses or renewal options. It is especially useful for multi-tenant properties in volatile markets. The direct capitalization AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
Average Unit Area -------------------- Unit Type (Sq. Ft.) Per Unit Per SF %Occupied ---------------------------------------------------------------------------- 1Br/1Ba - 1A10 700 $492 $0.70 75.5% 2Br/2Ba - 2A10 900 $586 $0.65 65.0% 2Br/2Ba - 2A15 1000 $667 $0.67 80.2% 3Br/1.5Ba - 3A15 1200 $839 $0.70 75.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA RENT ANALYSIS
COMPARABLE RENTS -------------------------------------------------------- R-1 R-2 R-3 R-4 R-5 -------------------------------------------------------- Abington Courtyards Apartments at Kessler Hunters Run Walden Wildwood -------------------------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT SUBJECT -------------------------------------------------------- UNIT ACTUAL ASKING Slightly DESCRIPTION TYPE RENT RENT Superior Inferior Similar Inferior Similar ---------------------------------------------------------------------------------------------------------------- Monthly Rent 1Br/1Ba - 1A10 $ 492 $ 479 $ 469 $ 529 $ 514 $ 432 Unit Area (SF) 700 700 671 700 775 659 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.68 $ 0.70 $ 0.76 $ 0.66 $ 0.66 Monthly Rent 2Br/2Ba - 2A10 $ 586 $ 569 $ 599 $ 610 $ 675 $ 548 Unit Area (SF) 900 900 960 900 877 916 Monthly Rent Per Sq. Ft. $ 0.65 $ 0.63 $ 0.62 $ 0.68 $ 0.77 $ 0.60 Monthly Rent 2Br/2Ba - 2A15 $ 667 $ 659 $ 599 $ 575 $ 630 $ 638 $ 662 Unit Area (SF) 1,000 1,000 975 1,020 1,100 1,021 1,064 Monthly Rent Per Sq. Ft. $ 0.67 $ 0.66 $ 0.61 $ 0.56 $ 0.57 $ 0.62 $ 0.62 Monthly Rent 3Br/1.5Ba - 3A15 $ 839 $ 829 $ 749 $ 702 $ 674 $ 750 Unit Area (SF) 1,200 1,200 1,239 1,240 1,240 1,275 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.69 $ 0.60 $ 0.57 $ 0.54 $ 0.59 DESCRIPTION MIN MAX MEDIAN AVERAGE ------------------------------------------------------------ Monthly Rent $ 432 $ 529 $ 491 $ 486 Unit Area (SF) 659 775 686 701 Monthly Rent Per Sq. Ft. $ 0.66 $ 0.76 $ 0.68 $0.69 Monthly Rent $ 548 $ 675 $ 605 $ 608 Unit Area (SF) 877 960 908 913 Monthly Rent Per Sq. Ft. $ 0.60 $ 0.77 $0.65 $ 0.67 Monthly Rent $ 575 $ 662 $ 630 $ 621 Unit Area (SF) 975 1,100 1,021 1,036 Monthly Rent Per Sq. Ft. $ 0.56 $ 0.62 $ 0.61 $ 0.60 Monthly Rent $ 674 $ 750 $ 725 $ 719 Unit Area (SF) 1,239 1,275 1,240 1,249 Monthly Rent Per Sq. Ft. $ 0.54 $ 0.60 $ 0.58 $ 0.58
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows: GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area -------------------- Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income ------------------------------------------------------------------------------------------------------------------ 1Br/1Ba - 1A10 196 700 $490 $0.70 $ 96,040 $1,152,480 2Br/2Ba - 2A10 140 900 $570 $0.63 $ 79,800 $ 957,600 2Br/2Ba - 2A15 96 1,000 $640 $0.64 $ 61,440 $ 737,280 3Br/1.5Ba - 3A15 28 1,200 $780 $0.65 $ 21,840 $ 262,080 Total $259,120 $3,109,440
PRO FORMA ANALYSIS For purposes of this appraisal, we were provided with income and expense data for the subject property. A summary of this data is presented on the following page. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 ------------------------------------------------------------------------------------ ACTUAL ACTUAL ACTUAL ------------------------------------------------------------------------------------ DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT ------------------------------------------------------------------------------------------------------------------------- Revenues Rental Income $3,099,322 $ 6,738 $3,215,999 $ 6,991 $3,135,563 $ 6,816 Vacancy $ 225,100 $ 489 $ 272,602 $ 593 $ 425,444 $ 925 Credit Loss/Concessions $ 90,851 $ 198 $ 132,347 $ 288 $ 96,251 $ 209 ------------------------------------------------------------------------------------ Subtotal $ 315,951 $ 687 $ 404,949 $ 880 $ 521,695 $ 1,134 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 12,263 $ 27 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 144,480 $ 314 $ 194,261 $ 422 $ 120,193 $ 261 ------------------------------------------------------------------------------------ Subtotal Other Income $ 156,743 $ 341 $ 194,261 $ 422 $ 120,193 $ 261 ------------------------------------------------------------------------------------ Effective Gross Income $2,940,114 $ 6,392 $3,005,311 $ 6,533 $2,734,061 $ 5,944 Operating Expenses Taxes $ 339,641 $ 738 $ 300,926 $ 654 $ 389,527 $ 847 Insurance $ 36,649 $ 80 $ 56,497 $ 123 $ 70,689 $ 154 Utilities $ 160,441 $ 349 $ 177,364 $ 386 $ 180,667 $ 393 Repair & Maintenance $ 181,954 $ 396 $ 182,527 $ 397 $ 290,312 $ 631 Cleaning $ 24,507 $ 53 $ 21,420 $ 47 $ 16,400 $ 36 Landscaping $ 88,591 $ 193 $ 80,328 $ 175 $ 70,795 $ 154 Security $ 21,444 $ 47 $ 10,277 $ 22 $ 9,503 $ 21 Marketing & Leasing $ 43,841 $ 95 $ 33,792 $ 73 $ 46,379 $ 101 General Administrative $ 380,193 $ 827 $ 409,669 $ 891 $ 315,407 $ 686 Management $ 150,330 $ 327 $ 158,366 $ 344 $ 136,958 $ 298 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------ Total Operating Expenses $1,427,591 $ 3,103 $1,431,166 $ 3,111 $1,526,637 $ 3,319 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------ Net Income $1,512,523 $ 3,288 $1,574,145 $ 3,422 $1,207,424 $ 2,625 FISCAL YEAR 2003 ANNUALIZED YEAR 2003 ---------------------------------------------------- MANAGEMENT BUDGET PROJECTION AAA PROJECTION ----------------------------------------------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % ------------------------------------------------------------------------------------------------------------------------------- Revenues Rental Income $3,229,630 $ 7,021 $3,055,176 $ 6,642 $3,109,440 $ 6,760 100.0% Vacancy $ 438,207 $ 953 $ 819,320 $ 1,781 $ 248,755 $ 541 8.0% Credit Loss/Concessions $ 99,139 $ 216 $ 79,156 $ 172 $ 62,189 $ 135 2.0% ------------------------------------------------------------------------------------------ Subtotal $ 537,346 $ 1,168 $ 898,476 $ 1,953 $ 310,944 $ 676 10.0% Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 123,799 $ 269 $ 176,236 $ 383 $ 123,799 $ 269 4.0% ------------------------------------------------------------------------------------------ Subtotal Other Income $ 123,799 $ 269 $ 176,236 $ 383 $ 123,799 $ 269 4.0% ------------------------------------------------------------------------------------------ Effective Gross Income $2,816,083 $ 6,122 $2,332,936 $ 5,072 $2,922,295 $ 6,353 100.0% Operating Expenses Taxes $ 401,213 $ 872 $ 488,820 $ 1,063 $ 401,213 $ 872 13.7% Insurance $ 72,810 $ 158 $ 74,128 $ 161 $ 72,810 $ 158 2.5% Utilities $ 186,087 $ 405 $ 201,308 $ 438 $ 186,087 $ 405 6.4% Repair & Maintenance $ 299,021 $ 650 $ 239,780 $ 521 $ 299,021 $ 650 10.2% Cleaning $ 16,892 $ 37 $ 22,880 $ 50 $ 16,892 $ 37 0.6% Landscaping $ 72,919 $ 159 $ 36,712 $ 80 $ 72,919 $ 159 2.5% Security $ 9,788 $ 21 $ 10,340 $ 22 $ 9,788 $ 21 0.3% Marketing & Leasing $ 47,770 $ 104 $ 31,688 $ 69 $ 47,770 $ 104 1.6% General Administrative $ 324,869 $ 706 $ 319,260 $ 694 $ 324,869 $ 706 11.1% Management $ 141,067 $ 307 $ 120,560 $ 262 $ 146,115 $ 318 5.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% ------------------------------------------------------------------------------------------ Total Operating Expenses $1,572,436 $ 3,418 $1,545,476 $ 3,360 $1,577,484 $ 3,429 54.0% Reserves $ 0 $ 0 $ 0 $ 0 $ 92,000 $ 200 5.8% ------------------------------------------------------------------------------------------ Net Income $1,243,647 $ 2,704 $ 787,460 $ 1,712 $1,252,811 $ 2,724 42.9%
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 10% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $200 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $200 per unit should be satisfactory in our reserves for replacement to cover future capital expenditures. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of the annual cash flows and discounts them, along with the expected equity reversion, to a present value. The present value of the cash flow is added to the present value of the reversion, resulting in a total property value. INVESTMENT CRITERIA Appropriate investment criteria will be derived for the subject based upon analysis of comparable sales and a survey of real estate investors. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 1ST QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES --------------------------------------------------- GOING-IN TERMINAL --------------------------------------------------- LOW HIGH LOW HIGH --------------------------------------------------------------- RANGE 6.00% 10.00% 7.00% 10.00% AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR ------------------------------------------------------------------------------ I-1 Jul-02 95% $34,268 8.66% I-2 Dec-00 87% $41,896 7.23% I-3 Jul-00 92% $48,750 7.23% I-4 Sep-01 96% $29,953 8.07% I-5 Apr-01 98% $61,397 7.64% High 8.66% Low 7.23% Average 7.77%
Based on this information, we have concluded the subject's overall capitalization rate should be 7.75%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 8.25%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 10.50%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 10.50% indicates a value of $15,600,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA approximately 47% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 34 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA DISCOUNTED CASH FLOW ANALYSIS WILLIAMSBURG APARTMENTS
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 --------------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $3,109,440 $3,202,723 $3,298,805 $3,397,769 $3,499,702 $3,604,693 Vacancy $ 653,527 $ 314,586 $ 263,904 $ 271,822 $ 279,976 $ 288,375 Credit Loss $ 62,189 $ 64,054 $ 65,976 $ 67,955 $ 69,994 $ 72,094 Concessions $ 233,208 $ 128,109 $ 65,976 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------- Subtotal $ 948,924 $ 506,749 $ 395,857 $ 339,777 $ 349,970 $ 360,469 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 123,799 $ 127,513 $ 131,338 $ 135,278 $ 139,337 $ 143,517 ------------------------------------------------------------------------------------- Subtotal Other Income $ 123,799 $ 127,513 $ 131,338 $ 135,278 $ 139,337 $ 143,517 ------------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $2,284,315 $2,823,487 $3,034,286 $3,193,270 $3,289,069 $3,387,741 OPERATING EXPENSES: Taxes $ 401,213 $ 413,249 $ 425,647 $ 438,416 $ 451,569 $ 465,116 Insurance $ 72,810 $ 74,994 $ 77,244 $ 79,561 $ 81,948 $ 84,406 Utilities $ 186,087 $ 191,670 $ 197,420 $ 203,342 $ 209,443 $ 215,726 Repair & Maintenance $ 299,021 $ 307,992 $ 317,232 $ 326,749 $ 336,551 $ 346,648 Cleaning $ 16,892 $ 17,399 $ 17,921 $ 18,458 $ 19,012 $ 19,582 Landscaping $ 72,919 $ 75,106 $ 77,360 $ 79,680 $ 82,071 $ 84,533 Security $ 9,788 $ 10,082 $ 10,384 $ 10,696 $ 11,017 $ 11,347 Marketing & Leasing $ 47,770 $ 49,203 $ 50,680 $ 52,200 $ 53,766 $ 55,379 General Administrative $ 324,869 $ 334,615 $ 344,654 $ 354,993 $ 365,643 $ 376,612 Management $ 114,216 $ 141,174 $ 151,714 $ 159,664 $ 164,453 $ 169,387 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $1,545,585 $1,615,485 $1,670,254 $1,723,759 $1,775,472 $1,828,736 Reserves $ 92,000 $ 94,760 $ 97,603 $ 100,531 $ 103,547 $ 106,653 ------------------------------------------------------------------------------------- NET OPERATING INCOME $ 646,730 $1,113,242 $1,266,430 $1,368,980 $1,410,049 $1,452,351 Operating Expense Ratio (% of EGI) 67.7% 57.2% 55.0% 54.0% 54.0% 54.0% Operating Expense Per Unit $ 3,360 $ 3,512 $ 3,631 $ 3,747 $ 3,860 $ 3,976 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 --------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $3,712,834 $3,824,219 $3,938,946 $4,057,114 $4,178,827 Vacancy $ 297,027 $ 305,938 $ 315,116 $ 324,569 $ 334,306 Credit Loss $ 74,257 $ 76,484 $ 78,779 $ 81,142 $ 83,577 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------------- Subtotal $ 371,283 $ 382,422 $ 393,895 $ 405,711 $ 417,883 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 147,822 $ 152,257 $ 156,825 $ 161,529 $ 166,375 ---------------------------------------------------------------------- Subtotal Other Income $ 147,822 $ 152,257 $ 156,825 $ 161,529 $ 166,375 ---------------------------------------------------------------------- EFFECTIVE GROSS INCOME $3,489,373 $3,594,054 $3,701,876 $3,812,932 $3,927,320 OPERATING EXPENSES: Taxes $ 479,069 $ 493,441 $ 508,244 $ 523,492 $ 539,196 Insurance $ 86,939 $ 89,547 $ 92,233 $ 95,000 $ 97,850 Utilities $ 222,198 $ 228,864 $ 235,729 $ 242,801 $ 250,085 Repair & Maintenance $ 357,047 $ 367,759 $ 378,791 $ 390,155 $ 401,860 Cleaning $ 20,170 $ 20,775 $ 21,398 $ 22,040 $ 22,701 Landscaping $ 87,069 $ 89,681 $ 92,371 $ 95,143 $ 97,997 Security $ 11,687 $ 12,038 $ 12,399 $ 12,771 $ 13,154 Marketing & Leasing $ 57,040 $ 58,752 $ 60,514 $ 62,329 $ 64,199 General Administrative $ 387,911 $ 399,548 $ 411,535 $ 423,881 $ 436,597 Management $ 174,469 $ 179,703 $ 185,094 $ 190,647 $ 196,366 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------------- TOTAL OPERATING EXPENSES $1,883,599 $1,940,106 $1,998,310 $2,058,259 $2,120,007 Reserves $ 109,853 $ 113,148 $ 116,543 $ 120,039 $ 123,640 ---------------------------------------------------------------------- NET OPERATING INCOME $1,495,921 $1,540,799 $1,587,023 $1,634,634 $1,683,673 Operating Expense Ratio (% of EGI) 54.0% 54.0% 54.0% 54.0% 54.0% Operating Expense Per Unit $ 4,095 $ 4,218 $ 4,344 $ 4,474 $ 4,609
Estimated Stabilized NOI $1,252,811 Sales Expense Rate 2.00% Months to Stabilized 18 Discount Rate 10.50% Stabilized Occupancy 92.0% Terminal Cap Rate 8.25%
"DCF" VALUE ANALYSIS Gross Residual Sale Price $20,408,155 Deferred Maintenance $ 0 Less: Sales Expense $ 408,163 Add: Excess Land $ 0 ----------- Net Residual Sale Price $19,999,992 Other Adjustments $ 0 ----------- PV of Reversion $ 7,368,974 Value Indicated By "DCF" $15,623,190 Add: NPV of NOI $ 8,254,216 Rounded $15,600,000 ----------- PV Total $15,623,190
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ---------------------------------------------------------------------------------- TOTAL VALUE 10.00% 10.25% 10.50% 10.75% 11.00% --------------------------------------------------------------------------------------------------------------- 7.75% $16,678,002 $16,385,026 $16,098,608 $15,818,581 $15,544,781 TERMINAL 8.00% $16,421,491 $16,134,273 $15,853,471 $15,578,921 $15,310,465 CAP RATE 8.25% $16,180,527 $15,898,717 $15,623,190 $15,353,786 $15,090,349 8.50% $15,953,737 $15,677,017 $15,406,456 $15,141,895 $14,883,182 8.75% $15,739,906 $15,467,986 $15,202,106 $14,942,111 $14,687,853
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 35 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA INCOME LOSS DURING LEASE-UP The subject is currently 73% occupied, below our stabilized occupancy projection. We have estimated a 18-month lease-up period. An adjustment must be made to bring the subject to a stabilized operating level. To account for this income loss during lease-up, we have compared the current DCF analysis to an "as stabilized" DCF analysis assuming the subject's occupancy were stabilized. The difference in net operating income during the lease-up period is discounted to a present value figure of $393,000 as shown in the following table.
DESCRIPTION YEAR 1 YEAR 2 --------------------------------------------------------------------- "As Is" Net Operating Income $ 646,730 $1,113,242 Stabilized Net Operating Income $1,031,263 $1,168,692 ---------- ---------- Difference $ 384,533 $ 55,450 PV of Income Loss During Lease-Up $ 393,406 ---------- Rounded $ 393,000 ----------
CONCESSIONS Due to softness in the market, concessions have been utilized at the subject property and within the market. Based on our discussions with the subject's property manager and those at competing properties, these concessions are expected to continue in the near term until the market returns to a stabilized level. Concessions have been included as a line item deduction within the discounted cash flow analysis. The present value of these concessions equates to $365,000 (rounded). This amount has been deducted from the Direct Capitalization analysis, as well as the Sales Comparison Approach value. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 36 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 7.75% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 37 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA WILLIAMSBURG APARTMENTS
TOTAL PER Sq. Ft. PER UNIT % OF EGI ---------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 3,109,440 $ 7.92 $ 6,760 Less: Vacancy & Collection Loss 10.00% $ 310,944 $ 0.79 $ 676 Plus: Other Income Laundry Income $ 0 $ 0.00 $ 0 0.00% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 123,799 $ 0.32 $ 269 4.24% --------------------------------------------------------- Subtotal Other Income $ 123,799 $ 0.32 $ 269 4.24% EFFECTIVE GROSS INCOME $ 2,922,295 $ 7.44 $ 6,353 OPERATING EXPENSES: Taxes $ 401,213 $ 1.02 $ 872 13.73% Insurance $ 72,810 $ 0.19 $ 158 2.49% Utilities $ 186,087 $ 0.47 $ 405 6.37% Repair & Maintenance $ 299,021 $ 0.76 $ 650 10.23% Cleaning $ 16,892 $ 0.04 $ 37 0.58% Landscaping $ 72,919 $ 0.19 $ 159 2.50% Security $ 9,788 $ 0.02 $ 21 0.33% Marketing & Leasing $ 47,770 $ 0.12 $ 104 1.63% General Administrative $ 324,869 $ 0.83 $ 706 11.12% Management 5.00% $ 146,115 $ 0.37 $ 318 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 1,577,484 $ 4.02 $ 3,429 53.98% Reserves $ 92,000 $ 0.23 $ 200 3.15% --------------------------------------------------------- NET OPERATING INCOME $ 1,252,811 $ 3.19 $ 2,724 42.87% --------------------------------------------------------- "GOING IN" CAPITALIZATION RATE 7.75% VALUE INDICATION $ 16,165,299 $ 41.15 $ 35,142 LESS: LEASE-UP COST ($ 393,000) PV OF CONCESSIONS ($ 365,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $ 15,407,299 ROUNDED $ 15,400,000 $ 39.21 $ 33,478
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 38 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF --------------------------------------------------------------------------- 7.00% $17,139,295 $17,100,000 $37,174 $43.53 7.25% $16,522,147 $16,500,000 $35,870 $42.01 7.50% $15,946,142 $15,900,000 $34,565 $40.48 7.75% $15,407,299 $15,400,000 $33,478 $39.21 8.00% $14,902,134 $14,900,000 $32,391 $37.93 8.25% $14,427,584 $14,400,000 $31,304 $36.66 8.50% $13,980,949 $14,000,000 $30,435 $35.64
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $15,400,000. CORRELATION AND CONCLUSION BY THE INCOME APPROACH The two methods used to estimate the market value of the subject property by the income approach resulted in the following indications of value: Discounted Cash Flow Analysis $15,600,000 Direct Capitalization Method $15,400,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $15,500,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 39 WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA RECONCILIATION AND CONCLUSION This appraisal was made to express an opinion as of the Market Value of the fee simple estate in the property. AS IS MARKET VALUE OF THE FEE SIMPLE ESTATE Cost Approach Not Utilized Sales Comparison Approach $ 15,600,000 Income Approach $ 15,500,000 Reconciled Value $ 15,500,000
The Direct Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of May 8, 2003 the market value of the fee simple estate in the property is: $15,500,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDING EXTERIOR - APARTMENT BUILDING [PICTURE] [PICTURE] EXTERIOR - CLUBHOUSE INTERIOR - ENTRANCE GATE [PICTURE] [PICTURE] EXTERIOR - TENNIS COURT EXTERIOR - CARPORT AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] INTERIOR - LIVING ROOM INTERIOR - LIVING ROOM [PICTURE] [PICTURE] INTERIOR - BEDROOM INTERIOR - BATHROOM [PICTURE] [PICTURE] INTERIOR - BALCONY INTERIOR - CLUBHOUSE AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 ABINGTON APARTMENTS CROSS CREEK APARTMENTS IDLEWOOD APARTMENTS 4656 Edwardian Circle 5756 Cross Creek Dr. 3543 Idlewood Terrace Indianapolis, IN Indianapolis, IN Indianapolis, IN [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 FOREST HILLS APARTMENTS CARRIAGETREE APARTMENTS 5500 Pleasant Hill Circle (MONON PLACE APTS) Indianapolis, IN 5900 Carvel Ave. Indianapolis, IN [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 ----------------------------------------------------------------------------------------------------------------------------------- Property Name Williamsburg Apartments Abington Apartments Management Company AIMCO LOCATION: Address 3451 Sherburne Lane 4656 Edwardian Cir City, State Indianapolis, Indiana Indianapolis, IN County Marion Marion Proximity to Subject 1.5 miles NW of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 392,800 293,676 Year Built 1974 1980 Effective Age 25 20 Building Structure Type Wood, w/ brick & siding facade; asphalt shingle Wood, w/ brick & siding facade; asphalt roof shingle roof Parking Type (Gr., Cov., etc.) Garage, Open Covered Open, Covered Number of Units 460 328 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Br/1Ba - 1A10 700 196 $492 1 1BD/1BH 671 156 $469 2 2Br/2Ba - 2A10 900 140 $586 2 2BD/1BH 960 56 $599 3 2Br/2Ba - 2A15 1,000 96 $667 3 2BD/2BH 975 32 $599 4 3Br/1.5Ba - 3A15 1,200 28 $839 4 2BD/1.5BH 1,170 52 $699 4 3BD/2BH 1,350 32 $829 Average Unit Size (SF) 854 895 Unit Breakdown: Efficiency 0% 2-Bedroom 39% Efficiency 0% 2-Bedroom 43% 1-Bedroom 61% 3-Bedroom 0% 1-Bedroom 48% 3-Bedroom 10% CONDITION: Good Very Good APPEAL: Average Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Basketball Court X BBQ Equipment X Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court X Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track Business Office X Gym Room X Lake Gym Room Lake OCCUPANCY: 73% 95% LEASING DATA: Available Leasing Terms 3 to 12 Months Concessions None Pet Deposit $150 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas Water Trash X Water Trash Confirmation Telephone Number NOTES: NONE COMPARISON TO SUBJECT: Slightly Superior COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 ----------------------------------------------------------------------------------------------------------------------------------- Property Name Courtyards at Kessler Hunters Run Management Company Van Rooy Properties LOCATION: Address 3035 West 39th St 5005 Lily Lane City, State Indianapolis, IN Indianapolis, IN County Marion Marion Proximity to Subject 0.25 miles NE of subject 2 miles NW of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 147,339 165,000 Year Built 1973 1972 Effective Age 25 25 Building Structure Type Wood, w/ brick & siding facade; asphalt shingle Wood, w/ brick & siding facade; asphalt roof shingle roof Parking Type (Gr., Cov., etc.) Open, Covered Open, Covered Number of Units 125 N/A Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 3 1BD/1BH 1,020 35 $575 1 Studio/1BH 550 0 $419 4 2BD/1.5BH 1,200 30 $655 1 1BD/1BH 700 160 $529 4 2BD/1BH 1,217 51 $700 2 2BD/1BH 900 88 $610 4 3BD/2BH 1,508 9 $870 3 2BD/1BH 1,100 0 $630 4 2BD/2BH 1,240 0 $674 Average Unit Size (SF) 1,179 771 Unit Breakdown: Efficiency 0% 2-Bedroom 65% Efficiency 0% 2-Bedroom 0% 1-Bedroom 28% 3-Bedroom 7% 1-Bedroom 0% 3-Bedroom 0% CONDITION: Average Good APPEAL: Average Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony W/D Connect. X Balcony X W/D Connect. Fireplace Other Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Basketball Court X BBQ Equipment Volleyball Court Theater Room X Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball Meeting Hall Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track Business Office Gym Room Lake X Gym Room Lake OCCUPANCY: 89% 97% LEASING DATA: Available Leasing Terms 6 to 12 Months 12 Months Concessions 1 Month Free None Pet Deposit $200 $200 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash X Water Trash Confirmation Telephone Number NOTES: None COMPARISON TO SUBJECT: Inferior Similar COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 ---------------------------------------------------------------------------------------------------------------------------------- Property Name Walden Wildwood Management Company Comprehensive Mgmt Services LOCATION: Address 3120 Nobscot 3491 Timbersedge Dr City, State Indianapolis, IN Indianapolis, IN County Marion Marion Proximity to Subject 0.25 miles E of subject 0.25 miles S of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 311,511 199,786 Year Built 1977 1987 Effective Age 25 15 Building Structure Type Wood, w/ brick & siding facade; asphalt Wood, w/ brick & siding facade; asphalt shingle shingle roof roof Parking Type (Gr., Cov., etc.) Open, Covered Open, Covered Number of Units 321 268 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1BD/1BH 772 102 $495 1 1BD/1BH 649 160 $429 1 2BD/1BH 798 12 $675 1 1BD/1BH 750 18 $460 2 2BD/1BH 877 13 $675 2 2BD/1BH 853 22 $524 3 2BD/1.5BH 986 70 $625 2 2BD/2BH 966 28 $567 3 2BD/2BH 1,056 70 $650 3 2BD/2BH 1,064 40 $662 4 3BD/2BH 1,275 54 $750 Average Unit Size (SF) 970 768 Unit Breakdown: Efficiency 0% 2-Bedroom 55% Efficiency 0% 2-Bedroom 34% 1-Bedroom 29% 3-Bedroom 16% 1-Bedroom 66% 3-Bedroom 0% CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities X Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash X Basketball Court X BBQ Equipment Basketball Court X BBQ Equipment X Volleyball Court Theater Room X Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track Business Office Jogging Track X Business Office Gym Room Lake Gym Room Lake OCCUPANCY: 85% 85% LEASING DATA: Available Leasing Terms 6 to 12 Months 6 to 12 Months Concessions Decreased rent / deposit Decreased rent / deposit Pet Deposit $300 $200 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash X Water Trash Confirmation Telephone Number NOTES: COMPARISON TO SUBJECT: Inferior Similar
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 ABINGTON APARTMENTS COURTYARDS AT KESSLER HUNTERS RUN 4656 Edwardian Cir 3035 West 39th St 5005 Lily Lane Indianapolis, IN Indianapolis, IN Indianapolis, IN [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 WALDEN WILDWOOD 3120 Nobscot 3491 Timbersedge Dr Indianapolis, IN Indianapolis, IN [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA No responsibility is assumed for matters legal in nature. No investigation has been made of the title to or any liabilities against the property appraised. In this appraisal, it is presumed that, unless otherwise noted, the owner's claim is valid, the property rights are good and marketable, and there are no encumbrances which cannot be cleared through normal processes. To the best of our knowledge, all data set forth in this report are true and accurate. Although gathered from reliable sources, no guarantee is made nor liability assumed for the accuracy of any data, opinions, or estimates identified as being furnished by others which have been used in formulating this analysis. Land areas and descriptions used in this appraisal were obtained from public records and have not been verified by legal counsel or a licensed surveyor. No soil analysis or geological studies were ordered or made in conjunction with this report, nor were any water, oil, gas, or other subsurface mineral and use rights or conditions investigated. Substances such as asbestos, urea-formaldehyde foam insulation, other chemicals, toxic wastes, or other potentially hazardous materials could, if present, adversely affect the value of the property. Unless otherwise stated in this report, the existence of hazardous substance, which may or may not be present on or in the property, was not considered by the appraiser in the development of the conclusion of value. The stated value estimate is predicated on the assumption that there is no material on or in the property that would cause such a loss in value. No responsibility is assumed for any such conditions, and the client has been advised that the appraiser is not qualified to detect such substances, quantify the impact on values, or develop the remedial cost. No environmental impact study has been ordered or made. Full compliance with applicable federal, state, and local environmental regulations and laws is assumed unless otherwise stated, defined, and considered in the report. It is also assumed that all required licenses, consents, or other legislative or administrative authority from any local, state, or national government or private entity organization either have been or can be obtained or renewed for any use which the report covers. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA It is assumed that all applicable zoning and use regulations and restrictions have been complied with unless a nonconformity has been stated, defined, and considered in the appraisal report. Further, it is assumed that the utilization of the land and improvements is within the boundaries of the property described and that no encroachment or trespass exists unless noted in the report. The Americans with Disabilities Act ("ADA") became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property together with a detailed analysis of the requirements of the ADA could reveal that the property is not in compliance with one or more of the requirements of the act. If so, this fact could have a negative effect on the value of the property. Since we have no direct evidence relating to this issue, we did not consider the possible noncompliance with the requirements of ADA in estimating the value of the property. We have made a physical inspection of the property and noted visible physical defects, if any, in our report. This inspection was made by individuals generally familiar with real estate and building construction. However, these individuals are not architectural or structural engineers who would have detailed knowledge of building design and structural integrity. Accordingly, we do not opine on, nor are we responsible for, the structural integrity of the property including its conformity to specific governmental code requirements, such as fire, building and safety, earthquake, and occupancy, or any physical defects which were not readily apparent to the appraiser during the inspection. The value or values presented in this report are based upon the premises outlined herein and are valid only for the purpose or purposes stated. The date of value to which the conclusions and opinions expressed apply is set forth in this report. The value opinion herein rendered is based on the status of the national business economy and the purchasing power of the U.S. dollar as of that date. Testimony or attendance in court or at any other hearing is not required by reason of this appraisal unless arrangements are previously made within a reasonable time in advance for AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the American Society of Appraisers or the designations awarded by this organization) shall be disseminated to the public through prospectus, advertising, public relations, news, or any other means of communication without the written consent and approval of American Appraisal Associates, Inc. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D CERTIFICATE OF APPRAISER I certify that, to the best of my knowledge and belief: The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and represent the unbiased professional analyses, opinions, and conclusions of American Appraisal Associates, Inc. American Appraisal Associates, Inc. and I personally, have no present or prospective interest in the property that is the subject of this report and have no personal interest or bias with respect to the parties involved. Compensation for American Appraisal Associates, Inc. is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. The analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. I personally did not inspect the subject property. John Nolan provided significant real property appraisal assistance in the preparation of this report. I am currently in compliance with the Appraisal Institutes continuing education requirements. -s- Kenneth W. Kapecki ---------------------- Ken Kapecki, MAI Managing Principal, Real Estate Group State of Indiana, Certified General Appraiser, #CG49600008 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA EXHIBIT E QUALIFICATIONS OF APPRAISER (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA KENNETH W. KAPECKI, MAI MANAGING PRINCIPAL, REAL ESTATE GROUP POSITION Kenneth W. Kapecki is the Managing Principal for the Chicago Real Estate Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Mr. Kapecki has over 17 years of experience in providing valuation services to clients worldwide. He has a diversified background with considerable expertise in the valuation of special-purpose properties, large multilocational holdings, and investment-grade real estate. He has appraised steel mills, chemical plants, food processing facilities, airports, mines, railroad rights-of-way, hotels, and a variety of commercial and manufacturing facilities. Mr. Kapecki's experience further extends to highest and best use studies, feasibility studies, lease valuation analyses, cost segregation analyses, and insurable value analyses. His reports are most frequently prepared for acquisition, ad valorem tax, divestiture, financing, allocation of purchase price, litigation support, and value reporting. Over the years, he has completed appraisals in 50 states representing over $10 billion in value. Mr. Kapecki has developed a core competency in the valuation of hospitality property. He has appraised more than 150 hotels in the last two years alone for financing, acquisition due diligence, cost segregation, and feasibility. These properties consisted of a mixture of limited-service, full-service, and resort hotels located throughout the United States as well as in the Bahamas, Belize, and Guam. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA Court Mr. Kapecki has testified as an expert witness in state and federal district courts and by deposition statements and interrogatory communications. Business Prior to joining AAA in 2001, Mr. Kapecki was a senior manager in the Chicago Valuation Service Group of Arthur Andersen, where he served as the central regional team leader for real estate staff training, hospitality consulting, and the valuation of real estate. Prior to his employment with Arthur Andersen, Mr. Kapecki served as the manager of real estate valuations for Lloyd-Thomas Coats and Burchard Co. EDUCATION University of Wisconsin - La Crosse Bachelor of Science - Geography STATE State of Illinois, Certified General Real Estate Appraiser, CERTIFICATIONS #153000331 State of Indiana, Certified General Appraiser, #CG49600008 State of Michigan, Certified General Appraiser, #1201003145 State of Wisconsin, Certified General Appraiser and Licensed Appraiser, #641 PROFESSIONAL Appraisal Institute, MAI Designated Member Chicago Chapter, AFFILIATIONS Admissions Committee Member, 1997 - Present AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA VALUATION AND Appraisal Institute SPECIAL COURSES Appraisal Principles Case Studies in Real Estate Valuation Fair Lending and the Appraiser Highest & Best Use and Market Analysis Income Capitalization, Parts A and B Litigation Support: The Appraiser as an Expert Witness Partial Interest Valuation Real Estate Disclosure Report Writing Standards of Professional Practice Valuation of Detrimental Conditions Valuation Theory and Techniques Arthur Andersen, Course Developer Income Capitalization Theory and Techniques Introduction to the Cost Approach Property Inspection and Market Data Collection AMERICAN APPRAISAL ASSOCIATES, INC. WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. WILLIAMSBURG APARTMENTS, INDIANAPOLIS, INDIANA GENERAL SERVICE CONDITIONS The services(s) provided by AAA will be performed in accordance with professional appraisal standards. Our compensation is not contingent in any way upon our conclusions of value. We assume, without independent verification, the accuracy of all data provided to us. We will act as an independent contractor and reserve the right to use subcontractors. All files, workpapers or documents developed by us during the course of the engagement will be our property. We will retain this data for at least five years. Our report is to be used only for the specific purpose stated herein; and any other use is invalid. No reliance may be made by any third party without our prior written consent. You may show our report in its entirety to those third parties who need to review the information contained herein. No one should rely on our report as a substitute for their own due diligence. We understand that our reports will be described in public tender offer documents distributed to limited partners. We reserve the right to review the public tender offer documents prior to their issuance to confirm that disclosures of facts from the current appraisals are accurate. No reference to our name or our report, in whole or in part, in any other SEC filing or private placement memorandum you prepare and/or distribute to third parties may be made without our prior written consent. The Tender Offer Partnerships, as that term is defined in the Settlement Agreement, agree to indemnify and hold us harmless against and from any and all losses, claims, actions, damages, expenses or liabilities, including reasonable attorneys' fees, to which we may become subject in connection with this engagement except where such losses, claims, actions, damages, expenses or liabilities, including reasonable attorney's fees, arise or result from AAA's misconduct, bad faith or negligence. Co-Clients will not be liable for any of our acts or omissions. AAA is an equal opportunity employer.