EX-99.(C)(6) 8 d07254a2exv99wxcyx6y.txt APPRAISAL OF TAMARAC VILLAGE TAMARAC VILLAGE 3300 SOUTH TAMARAC DRIVE DENVER, COLORADO MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 13, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] 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: TAMARAC VILLAGE 3300 SOUTH TAMARAC DRIVE DENVER, DENVER COUNTY, COLORADO 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 564 units with a total of 411,529 square feet of rentable area. The improvements were built in 1977. The improvements are situated on 25.161 acres. Overall, the improvements are in good condition. As of the date of this appraisal, the subject property is 81% 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 TAMARAC VILLAGE, DENVER, COLORADO 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 13, 2003 is: ($30,000,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Douglas Needham June 28, 2003 Douglas Needham, MAI #053272 Managing Principal, Real Estate Group Colorado State Certified General Real Estate Appraiser #CG40017035 Report By: James Newell AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 TAMARAC VILLAGE, DENVER, COLORADO 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 ............................................................. 16 Improvement Analysis ...................................................... 16 Highest and Best Use ...................................................... 17 VALUATION Valuation Procedure ....................................................... 18 Sales Comparison Approach ................................................. 20 Income Capitalization Approach ............................................ 26 Reconciliation and Conclusion ............................................. 38 ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 TAMARAC VILLAGE, DENVER, COLORADO EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Tamarac Village LOCATION: 3300 South Tamarac Drive Denver, Colorado 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 13, 2003 DATE OF REPORT: June 28, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 25.161 acres, or 1,096,013 square feet Assessor Parcel No.: 06333-00-097-000; 06333-00-098-000 Floodplain: Community Panel No. 0800460025E (September 7, 1998) Flood Zone X, an area outside the floodplain. Zoning: R-2-A (Multi-family Residential) BUILDING: No. of Units: 564 Units Total NRA: 411,529 Square Feet Average Unit Size: 730 Square Feet Apartment Density: 22.4 units per acre Year Built: 1977 UNIT MIX AND MARKET RENT: AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 TAMARAC VILLAGE, DENVER, COLORADO GROSS RENTAL INCOME PROJECTION
Market Rent Square --------------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income --------- ------ -------- ----------- -------- ---------- 1Bd/1Ba 530 $560 $1.06 $ 28,000 $ 336,000 1Bd/1Ba 560 $590 $1.05 $ 69,620 $ 835,440 1Bd/1Ba 660 $630 $0.95 $ 23,940 $ 287,280 1Bd/1Ba 700 $650 $0.93 $ 72,150 $ 865,800 1Bd/1Ba 740 $690 $0.93 $ 55,200 $ 662,400 2Bd/1Ba 900 $780 $0.87 $ 8,580 $ 102,960 2Bd/2Ba 950 $815 $0.86 $ 12,225 $ 146,700 2Bd/2Ba 1,016 $820 $0.81 $ 19,680 $ 236,160 2Bd/2Ba 1,020 $830 $0.81 $ 53,120 $ 637,440 2Bd/2Ba 1,035 $845 $0.82 $ 27,885 $ 334,620 Studio 450 $530 $1.18 $ 10,600 $ 127,200 -------- ---------- Total $381,000 $4,572,000
OCCUPANCY: 81% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 15 Years REMAINING ECONOMIC LIFE: 30 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - ENTRANCE EXTERIOR - LANDSCAPE & PARK AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 TAMARAC VILLAGE, DENVER, COLORADO AREA MAP [MAP] NEIGHBORHOOD MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7 TAMARAC VILLAGE, DENVER, COLORADO 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 8 TAMARAC VILLAGE, DENVER, COLORADO PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit --------------------- ------------------ ------- Potential Rental Income $ 4,572,000 $8,106 Effective Gross Income $ 4,417,860 $7,833 Operating Expenses $ 1,577,313 $ 2,797 35.7% of EGI Net Operating Income: $ 2,727,747 $4,836 Capitalization Rate 9.00% DIRECT CAPITALIZATION VALUE $ 30,200,000 * $53,546 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 14% Stabilized Vacancy & Collection Loss: 12.5% Lease-up / Stabilization Period 6 months Terminal Capitalization Rate 9.50% Discount Rate 11.50% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $ 29,200,000* $51,773 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $ 30,000,000 $53,191 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $43,357 to $87,162 Range of Sales $/Unit (Adjusted) $51,955 to $56,655 VALUE INDICATION - PRICE PER UNIT $ 30,400,000* $53,901 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 5.41 to 8.78 Selected EGIM for Subject 7.00 Subject's Projected EGI $ 4,417,860 EGIM ANALYSIS CONCLUSION $ 30,800,000* $54,610 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $ 29,200,000* $51,773 / UNIT RECONCILED SALES COMPARISON VALUE $ 30,500,000 $54,078 / 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 TAMARAC VILLAGE, DENVER, COLORADO PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $30,400,000 NOI Per Unit $29,200,000 EGIM Multiplier $30,800,000 INDICATED VALUE BY SALES COMPARISON $30,500,000 $54,078 / UNIT INCOME APPROACH: Direct Capitalization Method: $30,200,000 Discounted Cash Flow Method: $29,200,000 INDICATED VALUE BY THE INCOME APPROACH $30,000,000 $53,191 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $30,000,000 $53,191 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 TAMARAC VILLAGE, DENVER, COLORADO INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 3300 South Tamarac Drive, Denver, Denver County, Colorado. Denver identifies it as 06333-00-097-000; 06333-00-098-000. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by James Newell on May 13, 2003. Douglas Needham, MAI has not made a personal inspection of the subject property. James Newell performed the research, valuation analysis and wrote the report. Douglas Needham, MAI reviewed the report and concurs with the value. Douglas Needham, MAI and James Newell 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 13, 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 TAMARAC VILLAGE, DENVER, COLORADO 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 Consolidated Capital Institutional Properties. 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 TAMARAC VILLAGE, DENVER, COLORADO 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 Denver, Colorado. 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 - South Havana Street West - Interstate 25 South - Interstate 225 North - East Evans Avenue MAJOR EMPLOYERS The property is located in the Denver Metropolitan area, within which there are many large employers. 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 TAMARAC VILLAGE, DENVER, COLORADO NEIGHBORHOOD DEMOGRAPHICS
AREA -------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA -------- ------------ ------------ ------------ ------------ POPULATION TRENDS Current Population 19,649 115,634 329,950 2,198,122 5-Year Population 20,642 124,498 351,621 2,428,641 % Change CY-5Y 5.1% 7.7% 6.6% 10.5% Annual Change CY-5Y 1.0% 1.5% 1.3% 2.1% HOUSEHOLDS Current Households 9,837 56,860 152,715 858,219 5-Year Projected Households 10,254 60,676 162,007 942,278 % Change CY - 5Y 4.2% 6.7% 6.1% 9.8% Annual Change CY-5Y 0.8% 1.3% 1.2% 2.0% INCOME TRENDS Median Household Income $ 46,728 $ 50,010 $ 51,506 $ 60,438 Per Capita Income $ 33,373 $ 34,663 $ 34,365 $ 27,463 Average Household Income $ 65,822 $ 70,714 $ 74,336 $ 70,339
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 37.89% 42.41% 38.18% 30.19% 5-Year Projected % Renting 37.73% 41.84% 37.20% 28.87% % of Households Owning 52.74% 49.03% 53.77% 61.93% 5-Year Projected % Owning 53.27% 49.97% 55.09% 63.83%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 14 TAMARAC VILLAGE, DENVER, COLORADO SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Apartments and single-family housing South - Condominiums East - Single-family housing West - Retail Center CONCLUSIONS The subject is well located within the city of Denver. The neighborhood is characterized as being mostly suburban in nature and is currently in the stable stage of development. The economic outlook for the neighborhood is judged to be favorable with a good economic base. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 TAMARAC VILLAGE, DENVER, COLORADO MARKET ANALYSIS The subject property is located in the city of Denver in Denver County. The overall pace of development in the subject's market is more or less stable. There has been no known new construction in the subject's neighborhood. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket ------ ------ --------- 1Q2002-1Q2003 (Annualized) 8.6% 7.1% 1Q2000-1Q2003 (Annualized) 6.1% 5.1% 4Q2002 8.6% 8.8% 1Q2003 11.5% 9.6%
Source: Reis: SubTrend Futures: Denver, Apartment: Denver-Far Southeast - 1st Quarter 2003 Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has outperformed the overall market. Market rents in the subject's market have been following a decreasing trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change ------ ------ -------- --------- -------- 2001 $682 - $807 - 2002 $671 -1.6% $775 -4.0% 1Q2003 $663 -1.2% $764 -1.4%
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 The Willows at Tamarac 214 86% 1972 1/2 mile east of subject R-2 The Glen 300 90% 1975 3/4 mile east of subject R-3 The Lodge 376 79% 1973 1/4 mile east of subject R-4 Stone Creek 450 80% 1974 3/4 mile east of subject R-5 The Prescott 125 89% 1974 Across the street from subject Subject Tamarac Village 564 81% 1977
The newer properties in the subject's neighborhood, built since 1994, have outperformed the rest of the market in recent months, with an average vacancy of 8.5%. The subject's age range has an average vacancy of 10.1%. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 TAMARAC VILLAGE, DENVER, COLORADO PROPERTY DESCRIPTION SITE ANALYSIS Site Area 25.161 acres, or 1,096,013 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 Good Flood Zone: Community Panel 0800460025E, dated September 7, 1998 Flood Zone Zone X Zoning R-2-A, the subject improvements represent a legal conforming use of the site. REAL ESTATE TAXES
ASSESSED VALUE - 2002 -------------------------------------------- TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES ------------- -------- ---------- ---------- --------- -------- 06333-00-097- 000; 06333-00- 098-000 $591,250 $2,572,700 $3,163,950 $0.05985 $189,378
IMPROVEMENT ANALYSIS Year Built 1977 Number of Units 564 Net Rentable Area 411,529 Square Feet Construction: Foundation Reinforced concrete slab Frame Reinforced brick or masonry Exterior Walls Brick or masonry Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, spa/jacuzzi, sand volleyball, tennis court, racquetball court, gym room, meeting hall, laundry room, business office, and parking area. Unit Amenities Individual unit amenities include a balcony, fireplace, cable TV connection, vaulted ceiling, and washer dryer AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 TAMARAC VILLAGE, DENVER, COLORADO connection. Appliances available in each unit include a refrigerator, stove, dishwasher, garbage disposal, and oven. Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) --------- --------------- --------- 1Bd/1Ba 50 530 1Bd/1Ba 118 560 1Bd/1Ba 38 660 1Bd/1Ba 111 700 1Bd/1Ba 80 740 2Bd/1Ba 11 900 2Bd/2Ba 15 950 2Bd/2Ba 24 1,016 2Bd/2Ba 64 1,020 2Bd/2Ba 33 1,035 Studio 20 450
Overall Condition Good Effective Age 15 years Economic Life 45 years Remaining Economic Life 30 years Deferred Maintenance None HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1977 and consist of a 564-unit multifamily project. The highest and best use as improved is for a continued multifamily use. Overall, the highest and best use of the subject property is the continued use of the existing apartment project. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 18 TAMARAC VILLAGE, DENVER, COLORADO THE VALUATION PROCEDURE There are three traditional approaches, which can be employed in establishing the market value of the subject property. These approaches and their applicability to the valuation of the subject are summarized as follows: THE COST APPROACH The application of the Cost Approach is based on the principle of substitution. This principle may be stated as follows: no one is justified in paying more for a property than that amount by which he or she can obtain, by purchase of a site and construction of a building, without undue delay, a property of equal desirability and utility. In the case of a new building, no deficiencies in the building should exist. In the case of income-producing real estate, the cost of construction plays a minor and relatively insignificant role in determining market value. The Cost Approach is typically only a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) where the cost of reproducing the improvements is easily and accurately quantified and there is no economic obsolescence. In all instances, the issue of an appropriate entrepreneurial profit - the reward for undertaking the risk of construction, remains a highly subjective factor especially in a market lacking significant speculative development. THE SALES COMPARISON APPROACH The Sales Comparison Approach is an estimate of value based upon a process of comparing recent sales of similar properties in the surrounding or competing areas to the subject property. Inherent in this approach is the principle of substitution. The application of this approach consists of comparing the subject property with similar properties of the same general type, which have been sold recently or currently are available for sale in competing areas. This comparative process involves judgment as to the similarity of the subject property and the comparable sale with respect to many value factors such as location, contract rent levels, quality of construction, reputation and prestige, age and condition, among others. The estimated value through this approach represents the probable price at which a willing seller would sell the subject property to a willing and knowledgeable buyer as of the date of value. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 19 TAMARAC VILLAGE, DENVER, COLORADO THE INCOME CAPITALIZATION APPROACH The theory of the Income Capitalization Approach is based on the premise that present value is the value of the cash flow and reversionary value the property will produce over a reasonable holding (ownership) period. The Discounted Cash Flow Analysis will convert equity cash flows (including cash flows and equity reversion) into a present value utilizing an internal rate of return (or discount rate). The Internal Rate of Return (IRR) will be derived from a comparison of alternate investments, a comparative analysis of IRR's used by recent buyers of similar properties, and a review of published industry surveys. The Direct Capitalization Analysis converts one year of income into an overall value using overall capitalization rates from similar sales. The overall rates take into consideration buyers assumptions of the market over the long-term. The results of the Income Capitalization Analysis are usually the primary value indicator for income producing properties. Investors expect a reasonable rate of return on their equity investment based on the ownership risks involved; this approach closely parallels the investment decision process. RECONCILIATION In this instance, we have completed the Sales Comparison and Income Capitalization Approaches to value. As an income producing property, the income approach is a primary approach to value. The Sales Comparison Approach is also considered reliable as investors are buying similar buildings in the market. Our research indicates that market participants are generally not buying, selling, investing, or lending with reliance placed on the methodology of the Cost Approach to establish the value. Therefore, we have decided that the Cost Approach is not a reliable indicator of value for the subject, and this approach has not been utilized. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 20 TAMARAC VILLAGE, DENVER, COLORADO SALES COMPARISON APPROACH Use of market or comparable sales requires the collection and analysis of comparable sales data. Similar properties recently sold are compared to the subject and adjusted based on any perceived differences. This method is based on the premise that the costs of acquiring a substitute property would tend to establish a value for the subject property. The premise suggests that if a substitute is unavailable in the market, the reliability of the approach may be subordinate to the other approaches. The reliance on substitute properties produces shortcomings in the validity of this approach. Geographic and demographic characteristics from each submarket restrict which sales may be selected. Recent sales with a similar physical characteristics, income levels, and location are usually limited. The sales we have identified, however, do establish general valuation parameters as well as provide support to our conclusion derived through the income approach method. The standard unit of comparison among similar properties is the sales price per unit and price per square foot of net rentable area. To accurately adjust prices to satisfy the requirements of the sales comparison approach, numerous calculations and highly subjective judgments would be required including consideration of numerous income and expense details for which information may be unreliable or unknown. The sales price per unit and square foot are considered relevant to the investment decision, but primarily as a parameter against which value estimates derived through the income approach can be judged and compared. In examining the comparable sales, we have applied a subjective adjustment analysis, which includes specific adjustments derived from our experience and consulting with the market participants. SALES COMPARISON ANALYSIS Detailed on the following pages are sales transactions involving properties located in the subject's competitive investment market. Photographs of the sale transactions are located in the Addenda. Following the summary of sales is an adjustment grid that is used to arrive at a value. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21 TAMARAC VILLAGE, DENVER, COLORADO SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 -------------------------------- ---------------------------- ------------------------- ------------------------- Property Name Tamarac Village The Colonnade Sierra Vista LOCATION: Address 3300 South Tamarac Drive 15301 E Ford Circle 8851 E Florida Avenue City, State Denver, Colorado Aurora, Colorado Aurora, Colorado County Denver County Arapahoe County Arapahoe County PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 411,529 115,968 133,860 Year Built 1977 1984 1976 Number of Units 564 138 209 Unit Mix: Type Total Type Total Type Total 1Bd/1Ba 50 1Bd/1Ba 72 1Bd/1Ba 152 1Bd/1Ba 118 2Bd/2Ba 66 2Bd/2Ba 57 1Bd/1Ba 38 1Bd/1Ba 111 1Bd/1Ba 80 2Bd/1Ba 11 2Bd/2Ba 15 2Bd/2Ba 24 2Bd/2Ba 64 2Bd/2Ba 33 Studio 20 Average Unit Size (SF) 730 840 640 Land Area (Acre) 25.1610 5.2700 5.9700 Density (Units/Acre) 22.4 26.2 35.0 Parking Ratio (Spaces/Unit) 1.57 1.72 1.05 Parking Type (Gr., Cov., etc.) Open Covered, open Open Open CONDITION: 0 Good Average APPEAL: 0 Good Average AMENITIES: Pool/Spa Yes/Yes Yes/Yes Yes/No Gym Room Yes Yes No Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts Yes Yes No OCCUPANCY: 81% 94% 95% TRANSACTION DATA: Sale Date August, 2002 March, 2003 Sale Price ($) $9,000,000 $9,400,000 Grantor WXI/SPN Real Estate Sundance Housing Assoc. Grantee Kinnickinnic Realty Coolidge Sierra Sale Documentation 2155658 3018857 Verification Seller's Broker Buyer's Broker Telephone Number 720-528-6300 720-528-6300 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,257,528 $ 9,113 $10.84 $1,741,656 $ 8,333 $13.01 Vacancy/Credit Loss $ 75,452 $ 547 $ 0.65 $ 87,083 $ 417 $ 0.65 Effective Gross Income $1,182,076 $ 8,566 $10.19 $1,654,573 $ 7,917 $12.36 Operating Expenses $ 481,471 $ 3,489 $ 4.15 $ 724,283 $ 3,465 $ 5.41 Net Operating Income $ 700,605 $ 5,077 $ 6.04 $ 930,290 $ 4,451 $ 6.95 NOTES: PRICE PER UNIT $65,217 $ 44,976 PRICE PER SQUARE FOOT $ 77.61 $ 70.22 EXPENSE RATIO 40.7% 43.8% EGIM 7.61 5.68 OVERALL CAP RATE 7.78% 9.90% 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 Knollwood Windsor Court Cascade Village LOCATION: Address 15196 E Lousiana Drive 1570 Joliet 6880 W 91st Street City, State Aurora, Colorado Aurora, Colorado Westminster, Colorado County Arapahoe County Arapahoe County Jefferson County PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 96,296 102,408 340,548 Year Built 1982 1973 1987 Number of Units 110 143 444 Unit Mix: Type Total Type Total Type Total 1Bd/1Ba 38 1Bd/1Ba 72 1Bd/1Ba 222 2Bd/2Ba 72 2Bd/2Ba 71 2Bd/2Ba 222 Average Unit Size (SF) 875 716 767 Land Area (Acre) 5.6900 3.9200 16.9200 Density (Units/Acre) 19.3 36.5 26.2 Parking Ratio (Spaces/Unit) 2.82 1.50 2.04 Parking Type (Gr., Cov., etc.) Open covered, open Open Open covered, open CONDITION: Good Average Good APPEAL: Good Average Good AMENITIES: Pool/Spa Yes/Yes Yes/No Yes/Yes Gym Room Yes No Yes Laundry Room Yes Yes Yes Secured Parking Yes Yes No Sport Courts No No Yes OCCUPANCY: 95% 95% 90% TRANSACTION DATA: Sale Date May, 2002 January, 2003 December, 2002 Sale Price ($) $6,350,000 $6,200,000 $38,700,000 Grantor Scott Properties Windsor Court Housing LBK 3 Associates Grantee F. Malcolm & Kathryn Wall Coolidge Windsor Henderson Global Investors Sale Documentation 2080847 1085774 N/A Verification Broker Buyer's Broker Seller's Broker Telephone Number 303-320-1300 720-528-6300 303-730-1675 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $936,000 $8,509 $9.72 $1,205,899 $8,433 $11.78 $4,898,856 $11,033 $14.39 Vacancy/Credit Loss $ 46,800 $ 425 $0.49 $ 60,295 $ 422 $ 0.59 $ 489,886 $ 1,103 $ 1.44 Effective Gross Income $889,200 $8,084 $9.23 $1,145,604 $8,011 $11.19 $4,408,970 $ 9,930 $12.95 Operating Expenses $355,680 $3,233 $3.69 $ 525,454 $3,675 $ 5.13 $1,198,800 $ 2,700 $ 3.52 Net Operating Income $533,520 $4,850 $5.54 $ 620,150 $4,337 $ 6.06 $3,210,170 $ 7,230 $ 9.43 NOTES: PRICE PER UNIT $ 57,727 $ 43,357 $ 87,162 PRICE PER SQUARE FOOT $ 65.94 $ 60.54 $ 113.64 EXPENSE RATIO 40.0% 45.9% 27.2% EGIM 7.14 5.41 8.78 OVERALL CAP RATE 8.40% 10.00% 8.30% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA ACTUAL
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 TAMARAC VILLAGE, DENVER, COLORADO IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $43,357 to $87,162 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 $51,955 to $56,655 per unit with a mean or average adjusted price of $54,009 per unit. The median adjusted price is $53,971 per unit. Based on the following analysis, we have concluded to a value of $54,000 per unit, which results in an "as is" value of $30,400,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 TAMARAC VILLAGE, DENVER, COLORADO SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 -------------------------------------- ------------------------ ------------------------- -------------------------- Property Name Tamarac Village The Colonnade Sierra Vista Address 3300 South Tamarac Drive 15301 E Ford Circle 8851 E Florida Avenue City Denver, Colorado Aurora, Colorado Aurora, Colorado Sale Date August, 2002 March, 2003 Sale Price ($) $9,000,000 $9,400,000 Net Rentable Area (SF) 411,529 115,968 133,860 Number of Units 564 138 209 Price Per Unit $65,217 $44,976 Year Built 1977 1984 1976 Land Area (Acre) 25.1610 5.2700 5.9700 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 08-2002 0% 03-2003 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $65,217 $44,976 Location Comparable 0% Comparable 0% Number of Units 564 138 -10% 209 -5% Quality / Appeal Good Superior -10% Inferior 5% Age / Condition 1977 1984 / Good -5% 1976 / Average 0% Occupancy at Sale 81% 94% 0% 95% 0% Amenities Good Inferior 10% Inferior 15% Average Unit Size (SF) 730 840 0% 640 5% PHYSICAL ADJUSTMENT -15% 20% FINAL ADJUSTED VALUE ($/UNIT) $55,435 $53,971 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 -------------------------------------- -------------------------- ------------------------- -------------------------- Property Name Knollwood Windsor Court Cascade Village Address 15196 E Lousiana Drive 1570 Joliet 6880 W 91st Street City Aurora, Colorado Aurora, Colorado Westminster, Colorado Sale Date May, 2002 January, 2003 December, 2002 Sale Price ($) $6,350,000 $6,200,000 $38,700,000 Net Rentable Area (SF) 96,296 102,408 340,548 Number of Units 110 143 444 Price Per Unit $57,727 $43,357 $87,162 Year Built 1982 1973 1987 Land Area (Acre) 5.6900 3.9200 16.9200 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 05-2002 0% 01-2003 0% 12-2002 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $57,727 $43,357 $87,162 Location Comparable 0% Inferior 5% Superior -10% Number of Units 110 -10% 143 -10% 444 0% Quality / Appeal Superior -5% Inferior 5% Superior -15% Age / Condition 1982 / Good -5% 1973 / Average 5% 1987 / Good -15% Occupancy at Sale 95% 0% 95% 0% 90% 0% Amenities Inferior 10% Inferior 15% Inferior 5% Average Unit Size (SF) 875 0% 716 0% 767 0% PHYSICAL ADJUSTMENT -10% 20% -35% FINAL ADJUSTED VALUE ($/UNIT) $51,955 $52,028 $56,655
SUMMARY VALUE RANGE (PER UNIT) $51,955 TO $ 56,655 MEAN (PER UNIT) $54,009 MEDIAN (PER UNIT) $53,971 VALUE CONCLUSION (PER UNIT) $54,000
VALUE OF IMPROVEMENT & MAIN SITE $30,456,000 LESS: LEASE-UP COST -$ 100,000 VALUE INDICATED BY SALES COMPARISON APPROACH $30,356,000 ROUNDED $30,400,000
NET OPERATING INCOME (NOI) ANALYSIS We have also conducted a net operating income (NOI) comparison analysis. The NOI effectively takes into account the various physical, location, and operating aspects of the sale. When the subject's NOI is compared to the sale NOI, a percent adjustment can be arrived at. The following table illustrates this analysis. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24 TAMARAC VILLAGE, DENVER, COLORADO 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-1 138 $ 9,000,000 7.78% $ 700,605 $ 2,727,747 0.953 $ 62,129 $ 65,217 $ 5,077 $ 4,836 I-2 209 $ 9,400,000 9.90% $ 930,290 $ 2,727,747 1.087 $ 48,869 $ 44,976 $ 4,451 $ 4,836 I-3 110 $ 6,350,000 8.40% $ 533,520 $ 2,727,747 0.997 $ 57,564 $ 57,727 $ 4,850 $ 4,836 I-4 143 $ 6,200,000 10.00% $ 620,150 $ 2,727,747 1.115 $ 48,353 $ 43,357 $ 4,337 $ 4,836 I-5 444 $38,700,000 8.30% $ 3,210,170 $ 2,727,747 0.669 $ 58,305 $ 87,162 $ 7,230 $ 4,836
PRICE/UNIT
Low High Average Median $48,353 $62,129 $55,044 $57,564
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 52,000 Number of Units 564 Value $29,328,000 Less: Lease-Up Cost -$ 100,000 ------------ Value Based on NOI Analysis $29,228,000 Rounded $29,200,000
The adjusted sales indicate a range of value between $48,353 and $62,129 per unit, with an average of $55,044 per unit. Based on the subject's competitive position within the improved sales, a value of $52,000 per unit is estimated. This indicates an "as is" market value of $29,200,000 (rounded after necessary adjustment, if any) for the NOI Per Unit Analysis. EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS The effective gross income multiplier (EGIM) is derived by dividing the sales price by the total effective gross income. The following table illustrates the EGIMs for the comparable improved sales. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25 TAMARAC VILLAGE, DENVER, COLORADO 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-1 138 $ 9,000,000 $ 1,182,076 $ 481,471 40.73% 7.61 $ 65,217 I-2 209 $ 9,400,000 $ 1,654,573 $ 724,283 43.77% 5.68 $ 44,976 I-3 110 $ 6,350,000 $ 889,200 $ 355,680 40.00% 7.14 35.70% $ 57,727 I-4 143 $ 6,200,000 $ 1,145,604 $ 525,454 45.87% 5.41 $ 43,357 I-5 444 $38,700,000 $ 4,408,970 $ 1,198,800 27.19% 8.78 $ 87,162
EGIM
Low High Average Median --- ---- ------- ------ 5.41 8.78 6.93 7.14
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 7.00 Subject EGI $ 4,417,860 Value $30,925,020 Less: Lease-Up Cost -$ 100,000 ----------- Value Based on EGIM Analysis $30,825,020 Rounded $30,800,000 Value Per Unit $ 54,610
There is an inverse relationship, which generally holds among EGIMs and operating expenses. Properties, which have higher expense ratios, typically sell for relatively less and therefore produce a lower EGIM. As will be illustrated in the Income Capitalization Approach of this report, the subject's operating expense ratio (OER) is estimated at 35.70% before reserves. The comparable sales indicate a range of expense ratios from 27.19% to 45.87%, while their EGIMs range from 5.41 to 8.78. Overall, we conclude to an EGIM of 7.00, which results in an "as is" value estimate in the EGIM Analysis of $30,800,000. 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 $30,500,000. Price Per Unit $30,400,000 NOI Per Unit $29,200,000 EGIM Analysis $30,800,000 Sales Comparison Co $30,500,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 TAMARAC VILLAGE, DENVER, COLORADO INCOME CAPITALIZATION APPROACH The income capitalization approach is based on the premise that value is created by the expectation of future benefits. We estimated the present value of those benefits to derive an indication of the amount that a prudent, informed purchaser-investor would pay for the right to receive them as of the date of value. This approach requires an estimate of the NOI of a property. The estimated NOI is then converted to a value indication by use of either the direct capitalization or the discounted cash flow analysis (yield capitalization). Direct capitalization uses a single year's stabilized NOI as a basis for a value indication by dividing the income by a capitalization rate. The rate chosen accounts for a recapture of the investment by the investor and should reflect all factors that influence the value of the property, such as tenant quality, property condition, neighborhood change, market trends, interest rates, and inflation. The rate may be extracted from local market transactions or, when transaction evidence is lacking, obtained from trade sources. A discounted cash flow analysis focuses on the operating cash flows expected from the property and the proceeds of a hypothetical sale at the end of a holding period (the reversion). The cash flows and reversion are discounted to their present values using a market-derived discount rate and are added together to obtain a value indication. Because benefits to be received in the future are worth less than the same benefits received in the present, this method weights income in the early years more heavily than the income and the sale proceeds to be received later. The strength of the discounted cash flow method is its ability to recognize variations in projected net income, such as those caused by inflation, stepped leases, neighborhood change, or tenant turnover. Its weakness is that it requires many judgments regarding the actions of likely buyers and sellers of the property in the future. In some situations, both methods yield a similar result. The discounted cash flow method is typically more appropriate for the analysis of investment properties with multiple or long-term leases, particularly leases with cancellation clauses or renewal options. It is especially useful for multi-tenant properties in volatile markets. The direct capitalization AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27 TAMARAC VILLAGE, DENVER, COLORADO 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 --------- --------- -------- ------ --------- 1Bd/1Ba 530 $537 $1.01 92.0% 1Bd/1Ba 560 $560 $1.00 87.3% 1Bd/1Ba 660 $605 $0.92 65.8% 1Bd/1Ba 700 $615 $0.88 86.5% 1Bd/1Ba 740 $615 $0.83 71.3% 2Bd/1Ba 900 $749 $0.83 81.8% 2Bd/2Ba 950 $779 $0.82 86.7% 2Bd/2Ba 1016 $801 $0.79 87.5% 2Bd/2Ba 1020 $799 $0.78 73.4% 2Bd/2Ba 1035 $816 $0.79 78.8% Studio 450 $512 $1.14 60.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 TAMARAC VILLAGE, DENVER, COLORADO RENT ANALYSIS
COMPARABLE RENTS ------------------------------------------------------------ R-1 R-2 R-3 R-4 R-5 ---------- -------- --------- ---------- ------------ The Willows at Tamarac The Glen The Lodge Stone Creek The Prescott ------------------------------------------------------------ COMPARISON TO SUBJECT SUBJECT SUBJECT ------------------------------------------------------------ SUBJECT UNIT ACTUAL ASKING Slightly Slightly DESCRIPTION TYPE RENT RENT Inferior Similar Inferior Similar Similar ----------- ------------ ------- ------- ---------- ------- -------- ------- ------- Monthly Rent 1Bd/1Ba $ 537 $ 635 $ 500 Unit Area (SF) 530 530 545 Monthly Rent Per Sq. Ft. $ 1.01 $ 1.20 $0.92 Monthly Rent 1Bd/1Ba $ 560 $ 705 $ 500 Unit Area (SF) 560 560 572 Monthly Rent Per Sq. Ft. $ 1.00 $ 1.26 $0.87 Monthly Rent 1Bd/1Ba $ 605 $ 685 $ 525 $ 615 $ 579 $ 615 Unit Area (SF) 660 660 621 660 625 660 Monthly Rent Per Sq. Ft. $ 0.92 $ 1.04 $0.85 $0.93 $0.93 $ 0.93 Monthly Rent 1Bd/1Ba $ 615 $ 715 $ 625 $ 720 Unit Area (SF) 700 700 705 713 Monthly Rent Per Sq. Ft. $ 0.88 $ 1.02 $0.89 $ 1.01 Monthly Rent 1Bd/1Ba $ 615 $ 735 $ 680 $ 635 Unit Area (SF) 740 740 735 742 Monthly Rent Per Sq. Ft. $ 0.83 $ 0.99 $ 0.93 $ 0.86 Monthly Rent 2Bd/1Ba $ 749 $ 835 Unit Area (SF) 900 900 Monthly Rent Per Sq. Ft. $ 0.83 $ 0.93 Monthly Rent 2Bd/2Ba $ 779 $ 850 $ 725 $ 769 $ 808 Unit Area (SF) 950 950 873 825 940 Monthly Rent Per Sq. Ft. $ 0.82 $ 0.89 $0.83 $0.93 $ 0.86 Monthly Rent 2Bd/2Ba $ 801 $ 860 $ 750 Unit Area (SF) 1,016 1,016 1,000 Monthly Rent Per Sq. Ft. $ 0.79 $ 0.85 $ 0.75 Monthly Rent 2Bd/2Ba $ 799 $ 880 $ 770 Unit Area (SF) 1,020 1,020 1,040 Monthly Rent Per Sq. Ft. $ 0.78 $ 0.86 $ 0.74 Monthly Rent 2Bd/2Ba $ 816 $ 900 $ 980 $ 817 Unit Area (SF) 1,035 1,035 1,085 1,082 Monthly Rent Per Sq. Ft. $ 0.79 $ 0.87 $ 0.90 $ 0.76 Monthly Rent STUDIO $ 512 $ 530 $ 535 $ 499 $ 500 Unit Area (SF) 450 450 440 425 460 Monthly Rent Per Sq. Ft. $ 1.14 $ 1.18 $1.22 $1.17 $ 1.09 DESCRIPTION MIN MAX MEDIAN AVERAGE ----------- --- --- ------ ------- Monthly Rent $ 500 $ 500 $ 500 $ 500 Unit Area (SF) 545 545 545 545 Monthly Rent Per Sq. Ft. $ 0.92 $ 0.92 $ 0.92 $ 0.92 Monthly Rent $ 500 $ 500 $ 500 $ 500 Unit Area (SF) 572 572 572 572 Monthly Rent Per Sq. Ft. $ 0.87 $ 0.87 $ 0.87 $ 0.87 Monthly Rent $ 525 $ 615 $ 597 $ 584 Unit Area (SF) 621 660 643 642 Monthly Rent Per Sq. Ft. $ 0.85 $ 0.93 $ 0.93 $ 0.91 Monthly Rent $ 625 $ 720 $ 673 $ 673 Unit Area (SF) 705 713 709 709 Monthly Rent Per Sq. Ft. $ 0.89 $ 1.01 $ 0.95 $ 0.95 Monthly Rent $ 635 $ 680 $ 658 $ 658 Unit Area (SF) 735 742 739 739 Monthly Rent Per Sq. Ft. $ 0.86 $ 0.93 $ 0.89 $ 0.89 Monthly Rent Unit Area (SF) Monthly Rent Per Sq. Ft. Monthly Rent $ 725 $ 808 $ 769 $ 767 Unit Area (SF) 825 940 873 879 Monthly Rent Per Sq. Ft. $ 0.83 $ 0.93 $ 0.86 $ 0.87 Monthly Rent $ 750 $ 750 $ 750 $ 750 Unit Area (SF) 1,000 1,000 1,000 1,000 Monthly Rent Per Sq. Ft. $ 0.75 $ 0.75 $ 0.75 $ 0.75 Monthly Rent $ 770 $ 770 $ 770 $ 770 Unit Area (SF) 1,040 1,040 1,040 1,040 Monthly Rent Per Sq. Ft. $ 0.74 $ 0.74 $ 0.74 $ 0.74 Monthly Rent $ 817 $ 980 $ 898 $ 898 Unit Area (SF) 1,082 1,085 1,083 1,083 Monthly Rent Per Sq. Ft. $ 0.76 $ 0.90 $ 0.83 $ 0.83 Monthly Rent $ 499 $ 535 $ 500 $ 511 Unit Area (SF) 425 460 440 442 Monthly Rent Per Sq. Ft. $ 1.09 $ 1.22 $ 1.17 $ 1.16
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 TAMARAC VILLAGE, DENVER, COLORADO GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area ------------------ Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income --------- --------------- --------- -------- ------ ------- ---------- 1Bd/1Ba 50 530 $560 $1.06 $ 28,000 $ 336,000 1Bd/1Ba 118 560 $590 $1.05 $ 69,620 $ 835,440 1Bd/1Ba 38 660 $630 $0.95 $ 23,940 $ 287,280 1Bd/1Ba 111 700 $650 $0.93 $ 72,150 $ 865,800 1Bd/1Ba 80 740 $690 $0.93 $ 55,200 $ 662,400 2Bd/1Ba 11 900 $780 $0.87 $ 8 ,580 $ 102,960 2Bd/2Ba 15 950 $815 $0.86 $ 12,225 $ 146,700 2Bd/2Ba 24 1,016 $820 $0.81 $ 19,680 $ 236,160 2Bd/2Ba 64 1,020 $830 $0.81 $ 53,120 $ 637,440 2Bd/2Ba 33 1,035 $845 $0.82 $ 27,885 $ 334,620 Studio 20 450 $530 $1.18 $ 10,600 $ 127,200 -------- ---------- Total $381,000 $4,572,000 ======== ==========
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 TAMARAC VILLAGE, DENVER, COLORADO SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 -------------------------- ----------------------------- -------------------------- ACTUAL ACTUAL ACTUAL -------------------------- ----------------------------- -------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT ----------------------------------------------------------- ----------------------------- -------------------------- Revenues Rental Income $ 4,464,024 $ 7,915 $ 4,698,263 $ 8,330 $ 4,531,060 $ 8,034 Vacancy $ 179,454 $ 318 $ 335,951 $ 596 $ 547,227 $ 970 Credit Loss/Concessions $ 15,925 $ 28 $ 59,705 $ 106 $ 109,716 $ 195 ----------------------------------------------------------------------------------- Subtotal $ 195,379 $ 346 $ 395,656 $ 702 $ 656,943 $ 1,165 Laundry Income $ 30,807 $ 55 $ 35,701 $ 63 $ 23,735 $ 42 Garage Revenue $ 18,346 $ 33 $ 19,122 $ 34 $ 15,661 $ 28 Other Misc. Revenue $ 359,110 $ 637 $ 447,796 $ 794 $ 342,604 $ 607 ----------------------------------------------------------------------------------- Subtotal Other Income $ 408,263 $ 724 $ 502,619 $ 891 $ 382,000 $ 677 ----------------------------------------------------------------------------------- Effective Gross Income $ 4,676,908 $ 8,292 $ 4,805,226 $ 8,520 $ 4,256,117 $ 7,546 Operating Expenses Taxes $ 145,930 $ 259 $ 225,831 $ 400 $ 173,587 $ 308 Insurance $ 47,078 $ 83 $ 75,277 $ 133 $ 83,965 $ 149 Utilities $ 327,789 $ 581 $ 367,386 $ 651 $ 273,696 $ 485 Repair & Maintenance $ 184,541 $ 327 $ 186,974 $ 332 $ 152,090 $ 270 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 93,354 $ 166 $ 59,730 $ 106 $ 104,832 $ 186 General Administrative $ 524,192 $ 929 $ 463,398 $ 822 $ 430,000 $ 762 Management $ 233,712 $ 414 $ 258,778 $ 459 $ 214,771 $ 381 Miscellaneous ($ 53,740) -$ 95 ($ 39,884) -$ 71 $ 12,025 $ 21 ----------------------------------------------------------------------------------- Total Operating Expenses $ 1,502,856 $ 2,665 $ 1,597,490 $ 2,832 $ 1,444,966 $ 2,562 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ----------------------------------------------------------------------------------- Net Income $ 3,174,052 $ 5,628 $ 3,207,736 $ 5,687 $ 2,811,151 $ 4,984 FISCAL YEAR 2003 ANNUALIZED 2003 ------------------------- ------------------------- MANAGEMENT BUDGET PROJECTION AAA PROJECTION ------------------------- ---------------------------- ---------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % ---------------------------------------------------------- ---------------------------- ---------------------------------- Revenues Rental Income $ 4,378,722 $ 7,764 $ 4,251,288 $ 7,538 $ 4,572,000 $ 8,106 100.0% Vacancy $ 462,200 $ 820 $ 607,612 $ 1,077 $ 480,060 $ 851 10.5% Credit Loss/Concessions $ 10,000 $ 18 $ 94,608 $ 168 $ 91,440 $ 162 2.0% ----------------------------------------------------------------------------------------- Subtotal $ 472,200 $ 837 $ 702,220 $ 1,245 $ 571,500 $ 1,013 12.5% Laundry Income $ 52,522 $ 93 $ 33,012 $ 59 $ 33,840 $ 60 0.7% Garage Revenue $ 0 $ 0 $ 12,604 $ 22 $ 16,920 $ 30 0.4% Other Misc. Revenue $ 361,906 $ 642 $ 304,552 $ 540 $ 366,600 $ 650 8.0% ----------------------------------------------------------------------------------------- Subtotal Other Income $ 414,428 $ 735 $ 350,168 $ 621 $ 417,360 $ 740 9.1% ----------------------------------------------------------------------------------------- Effective Gross Income $ 4,320,950 $ 7,661 $ 3,899,236 $ 6,914 $ 4,417,860 $ 7,833 100.0% Operating Expenses Taxes $ 197,606 $ 350 $ 193,696 $ 343 $ 197,400 $ 350 4.5% Insurance $ 93,438 $ 166 $ 91,204 $ 162 $ 93,060 $ 165 2.1% Utilities $ 328,207 $ 582 $ 388,120 $ 688 $ 327,120 $ 580 7.4% Repair & Maintenance $ 186,098 $ 330 $ 253,412 $ 449 $ 186,120 $ 330 4.2% Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 119,466 $ 212 $ 144,168 $ 256 $ 121,260 $ 215 2.7% General Administrative $ 422,606 $ 749 $ 434,668 $ 771 $ 431,460 $ 765 9.8% Management $ 228,465 $ 405 $ 208,120 $ 369 $ 220,893 $ 392 5.0% Miscellaneous $ 0 $ 0 $ 36,368 $ 64 $ 0 $ 0 0.0% ----------------------------------------------------------------------------------------- Total Operating Expenses $ 1,575,886 $ 2,794 $ 1,749,756 $ 3,102 $ 1,577,313 $ 2,797 35.7% Reserves $ 0 $ 0 $ 0 $ 0 $ 112,800 $ 200 7.2% ----------------------------------------------------------------------------------------- Net Income $ 2,745,064 $ 4,867 $ 2,149,480 $ 3,811 $ 2,727,747 $ 4,836 61.7%
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 12.5% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 TAMARAC VILLAGE, DENVER, COLORADO 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 TAMARAC VILLAGE, DENVER, COLORADO SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR --------------------------------------------------------------------------------- I-1 Aug-02 94% $65,217 7.78% I-2 Mar-03 95% $44,976 9.90% I-3 May-02 95% $57,727 8.40% I-4 Jan-03 95% $43,357 10.00% I-5 Dec-02 90% $87,162 8.30% High 10.00% Low 7.78% Average 8.88%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.00%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 9.50%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 11.50%. 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 11.50% indicates a value of $29,200,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 TAMARAC VILLAGE, DENVER, COLORADO approximately 40% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 34 TAMARAC VILLAGE, DENVER, COLORADO DISCOUNTED CASH FLOW ANALYSIS
TAMARAC VILLAGE ----------------------------------------------------------------------------------------------------------------------- YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 ----------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $4,572,000 $4,572,000 $4,617,720 $4,756,252 $4,898,939 $5,045,907 Vacancy $ 597,626 $ 480,060 $ 484,861 $ 499,406 $ 514,389 $ 529,820 Credit Loss $ 91,440 $ 91,440 $ 92,354 $ 95,125 $ 97,979 $ 100,918 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- Subtotal $ 689,066 $ 571,500 $ 577,215 $ 594,531 $ 612,367 $ 630,738 Laundry Income $ 33,840 $ 33,840 $ 34,178 $ 35,204 $ 36,260 $ 37,348 Garage Revenue $ 16,920 $ 16,920 $ 17,089 $ 17,602 $ 18,130 $ 18,674 Other Misc. Revenue $ 366,600 $ 366,600 $ 370,266 $ 381,374 $ 392,815 $ 404,600 -------------------------------------------------------------------------------- Subtotal Other Income $ 417,360 $ 417,360 $ 421,534 $ 434,180 $ 447,205 $ 460,621 -------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $4,300,294 $4,417,860 $4,462,039 $4,595,900 $4,733,777 $4,875,790 OPERATING EXPENSES: Taxes $ 197,400 $ 203,322 $ 209,422 $ 215,704 $ 222,175 $ 228,841 Insurance $ 93,060 $ 95,852 $ 98,727 $ 101,689 $ 104,740 $ 107,882 Utilities $ 327,120 $ 336,934 $ 347,042 $ 357,453 $ 368,176 $ 379,222 Repair & Maintenance $ 186,120 $ 191,704 $ 197,455 $ 203,378 $ 209,480 $ 215,764 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 121,260 $ 124,898 $ 128,645 $ 132,504 $ 136,479 $ 140,574 General Administrative $ 431,460 $ 444,404 $ 457,736 $ 471,468 $ 485,612 $ 500,180 Management $ 215,015 $ 220,893 $ 223,102 $ 229,795 $ 236,689 $ 243,790 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $1,571,435 $1,618,006 $1,662,128 $1,711,992 $1,763,351 $1,816,252 Reserves $ 112,800 $ 116,184 $ 119,670 $ 123,260 $ 126,957 $ 130,766 -------------------------------------------------------------------------------- NET OPERATING INCOME $2,616,060 $2,683,670 $2,680,241 $2,760,648 $2,843,468 $2,928,772 ================================================================================ Operating Expense Ratio (% of EGI) 36.5% 36.6% 37.3% 37.3% 37.3% 37.3% Operating Expense Per Unit $ 2,786 $ 2,869 $ 2,947 $ 3,035 $ 3,127 $ 3,220 ================================================================================ TAMARAC VILLAGE --------------------------------------------------------------------------------------------------------- YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 --------------------------------------------------------------------------------------------------------- REVENUE Base Rent $5,197,285 $5,353,203 $5,513,799 $5,679,213 $5,849,590 Vacancy $ 545,715 $ 562,086 $ 578,949 $ 596,317 $ 614,207 Credit Loss $ 103,946 $ 107,064 $ 110,276 $ 113,584 $ 116,992 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ Subtotal $ 649,661 $ 669,150 $ 689,225 $ 709,902 $ 731,199 Laundry Income $ 38,468 $ 39,622 $ 40,811 $ 42,035 $ 43,296 Garage Revenue $ 19,234 $ 19,811 $ 20,405 $ 21,018 $ 21,648 Other Misc. Revenue $ 416,738 $ 429,240 $ 442,117 $ 455,380 $ 469,042 ------------------------------------------------------------------ Subtotal Other Income $ 474,440 $ 488,673 $ 503,333 $ 518,433 $ 533,986 ------------------------------------------------------------------ EFFECTIVE GROSS INCOME $5,022,064 $5,172,726 $5,327,907 $5,487,745 $5,652,377 OPERATING EXPENSES: Taxes $ 235,706 $ 242,777 $ 250,060 $ 257,562 $ 265,289 Insurance $ 111,119 $ 114,452 $ 117,886 $ 121,422 $ 125,065 Utilities $ 390,598 $ 402,316 $ 414,386 $ 426,817 $ 439,622 Repair & Maintenance $ 222,237 $ 228,904 $ 235,771 $ 242,844 $ 250,130 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 144,791 $ 149,135 $ 153,609 $ 158,217 $ 162,963 General Administrative $ 515,186 $ 530,641 $ 546,561 $ 562,957 $ 579,846 Management $ 251,103 $ 258,636 $ 266,395 $ 274,387 $ 282,619 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------ TOTAL OPERATING EXPENSES $1,870,740 $1,926,862 $1,984,668 $2,044,208 $2,105,534 Reserves $ 134,689 $ 138,730 $ 142,892 $ 147,178 $ 151,594 ------------------------------------------------------------------ NET OPERATING INCOME $3,016,635 $3,107,134 $3,200,348 $3,296,359 $3,395,249 ================================================================== Operating Expense Ratio (% of EGI) 37.3% 37.3% 37.3% 37.3% 37.3% Operating Expense Per Unit $ 3,317 $ 3,416 $ 3,519 $ 3,624 $ 3,733 ==================================================================
Estimated Stabilized NOI $2,727,747 Sales Expense Rate 2.00% Months to Stabilized 6 Discount Rate 11.50% Stabilized Occupancy 89.5% Terminal Cap Rate 9.50%
Gross Residual Sale Price $35,739,467 Deferred Maintenance $ 0 Less: Sales Expense $ 714,789 Add: Excess Land $ 0 ----------- Net Residual Sale Price $35,024,677 Other Adjustments $ 0 ----------- PV of Reversion $11,793,032 Value Indicated By "DCF" $29,237,035 Add: NPV of NOI $17,444,004 Rounded $29,200,000 ----------- PV Total $29,237,035
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE --------------------------------------------------------------- TOTAL VALUE 11.00% 11.25% 11.50% 11.75% 12.00% ----------------------------------------------------------------------------------------- 9.00% $30,877,499 $30,379,443 $29,892,204 $29,415,509 $28,949,096 9.25% $30,525,596 $30,035,368 $29,555,766 $29,086,523 $28,627,379 TERMINAL CAP RATE 9.50% $30,192,213 $29,709,402 $29,237,035 $28,774,851 $28,322,595 9.75% $29,875,927 $29,400,152 $28,934,650 $28,479,163 $28,033,441 10.00% $29,575,456 $29,106,365 $28,647,384 $28,198,259 $27,758,745
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 35 TAMARAC VILLAGE, DENVER, COLORADO INCOME LOSS DURING LEASE-UP The subject is currently 81% occupied, below our stabilized occupancy projection. We have estimated a 06-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 $100,000 as shown in the following table.
DESCRIPTION YEAR 1 ---------------------------------------------------- "As Is" Net Operating Income $2,616,060 Stabilized Net Operating Income $2,727,747 ---------- Difference $ 111,687 PV of Income Loss During Lease-Up $ 100,168 ---------- Rounded $ 100,000 ----------
CONCESSIONS Concessions have historically not been utilized a the subject property or in the subject's market. Therefore, no adjustment was included for concessions. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 9.00% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 36 TAMARAC VILLAGE, DENVER, COLORADO TAMARAC VILLAGE
TOTAL PER SQ. FT. PER UNIT %OF EGI ----------- ----------- -------- ------- REVENUE Base Rent $ 4,572,000 $ 11.11 $ 8,106 Less: Vacancy & Collection Loss 12.50% $ 571,500 $ 1.39 $ 1,013 Plus: Other Income Laundry Income $ 33,840 $ 0.08 $ 60 0.77% Garage Revenue $ 16,920 $ 0.04 $ 30 0.38% Other Misc. Revenue $ 366,600 $ 0.89 $ 650 8.30% ----------- ----------- -------- ----- Subtotal Other Income $ 417,360 $ 1.01 $ 740 9.45% EFFECTIVE GROSS INCOME $ 4,417,860 $ 10.74 $ 7,833 OPERATING EXPENSES: Taxes $ 197,400 $ 0.48 $ 350 4.47% Insurance $ 93,060 $ 0.23 $ 165 2.11% Utilities $ 327,120 $ 0.79 $ 580 7.40% Repair & Maintenance $ 186,120 $ 0.45 $ 330 4.21% Cleaning $ 0 $ 0.00 $ 0 0.00% Landscaping $ 0 $ 0.00 $ 0 0.00% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 121,260 $ 0.29 $ 215 2.74% General Administrative $ 431,460 $ 1.05 $ 765 9.77% Management 5.00% $ 220,893 $ 0.54 $ 392 5.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 1,577,313 $ 3.83 $ 2,797 35.70% Reserves $ 112,800 $ 0.27 $ 200 2.55% ----------- ----------- -------- ----- NET OPERATING INCOME $ 2,727,747 $ 6.63 $ 4,836 61.74% =========== =========== ======== ===== "GOING IN" CAPITALIZATION RATE 9.00% VALUE INDICATION $30,308,300 $ 73.65 $ 53,738 LESS: LEASE-UP COST ($ 100,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $30,208,300 ROUNDED $30,200,000 $ 73.38 $ 53,546
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 37 TAMARAC VILLAGE, DENVER, COLORADO DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF -------- ----------- ----------- ------- ------ 8.25% $32,963,600 $33,000,000 $58,511 $80.19 8.50% $31,991,141 $32,000,000 $56,738 $77.76 8.75% $31,074,251 $31,100,000 $55,142 $75.57 9.00% $30,208,300 $30,200,000 $53,546 $73.38 9.25% $29,389,157 $29,400,000 $52,128 $71.44 9.50% $28,613,126 $28,600,000 $50,709 $69.50 9.75% $27,876,892 $27,900,000 $49,468 $67.80
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $30,200,000. CORRELATION AND CONCLUSION BY THE INCOME APPROACH The two methods used to estimate the market value of the subject property by the income approach resulted in the following indications of value: Discounted Cash Flow Analysis $29,200,000 Direct Capitalization Method $30,200,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $30,000,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 TAMARAC VILLAGE, DENVER, COLORADO 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 $30,500,000 Income Approach $30,000,000 Reconciled Value $30,000,000
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 13, 2003 the market value of the fee simple estate in the property is: $30,000,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA TAMARAC VILLAGE, DENVER, COLORADO ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A TAMARAC VILLAGE, DENVER, COLORADO EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A TAMARAC VILLAGE, DENVER, COLORADO SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - ENTRANCE EXTERIOR - LANDSCAPE & PARK [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDING INTERIOR - APARTMENT UNIT [PICTURE] [PICTURE] INTERIOR - APARTMENT UNIT INTERIOR - APARTMENT UNIT AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A TAMARAC VILLAGE, DENVER, COLORADO SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDING EXTERIOR - PARKING [PICTURE] [PICTURE] INTERIOR - CLUBHOUSE INTERIOR - CLUBHOUSE GYM [PICTURE] [PICTURE] INTERIOR - CLUBHOUSE EXTERIOR - POOL AREA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B TAMARAC VILLAGE, DENVER, COLORADO EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B TAMARAC VILLAGE, DENVER, COLORADO PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 THE COLONNADE SIERRA VISTA KNOLLWOOD 15301 E Ford Circle 8851 E Florida Avenue 15196 E Lousiana Drive Aurora, Colorado Aurora, Colorado Aurora, Colorado [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 WINDSOR COURT CASCADE VILLAGE 1570 Joliet 6880 W 91st Street Aurora, Colorado Westminster, Colorado [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B TAMARAC VILLAGE, DENVER, COLORADO SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 ------------------------------------------------------------------------------------------------------------------------ Property Name Tamarac Village The Willows at Tamarac Management Company AIMCO Terry Johnson & Associates LOCATION: Address 3300 South Tamarac Drive 8525 E Hampden Avenue City, State Denver, Colorado Denver, Colorado County Denver County Denver County Proximity to Subject 1/2 mile east of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 411,529 Year Built 1977 1972 Effective Age 15 25 Building Structure Type Parking Type (Gr., Cov., etc.) Open Covered, open open Number of Units 564 214 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Bd/1Ba 530 50 $537 1 1Bd/1Ba Jr 545 $500 2 1Bd/1Ba 560 118 $560 2 1Bd/1Ba 572 $500 3 1Bd/1Ba 660 38 $605 3 1Bd/1Ba 621 $525 4 1Bd/1Ba 700 111 $615 4 1Bd/1Ba 705 $625 5 1Bd/1Ba 740 80 $615 2Bd/1Ba 890 $725 6 2Bd/1Ba 900 11 $749 2Bd/2Ba 977 $750 7 2Bd/2Ba 950 15 $779 1Bd/1.5Ba TH 832 $650 8 2Bd/2Ba 1,016 24 $801 3Bd/2.5Ba TH 1,432 $900 9 2Bd/2Ba 1,020 64 $799 10 2Bd/2Ba 1,035 33 $816 11 Studio 450 20 $512 Average Unit Size (SF) 730 Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X Balcony X Fireplace X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball X Meeting Hall Sand Volley Ball Meeting Hall X Tennis Court Secured Parking Tennis Court Secured Parking X Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track Business Office X Gym Room X Gym Room OCCUPANCY: 81% 86% LEASING DATA: Available Leasing Terms 6-12 month leases 6-12 Month leases Concessions $199 deposit, $40 application fees 1 month free w/ 12 month lease Pet Deposit $250 none allowed Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash Water Trash Confirmation Trish Cuda (property manager) Leasing Agent Telephone Number 303-750-0124 NOTES: COMPARISON TO SUBJECT: Slightly Inferior COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 ---------------------------------------------------------------------------------------------------------------------- Property Name The Glen The Lodge Management Company Asher AIMCO LOCATION: Address 9600 E Girard 8405 East Hampden Avenue City, State Denver, Colorado Denver, Colorado County Denver County Denver County Proximity to Subject 3/4 mile east of subject 1/4 mile east of subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 223,400 Year Built 1975 1973 Effective Age 25 25 Building Structure Type Parking Type (Gr., Cov., etc.) Open Open covered, open Number of Units 300 376 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 11 Studio 440 $535 11 Studio 425 $499 3 1Bd/1Ba 660 $615 3 1Bd/1Ba 625 $579 7 2Bd/2Ba 873 $725 7 2Bd/2Ba 825 $769 Average Unit Size (SF) Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X Balcony X Fireplace Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall X Sand Volley Ball Meeting Hall Tennis Court Secured Parking 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 Gym Room OCCUPANCY: 90% 79% LEASING DATA: Available Leasing Terms 6-12 month leases 6-12 month leases Concessions none $99 move-in Pet Deposit none allowed $250 Utilities Paid by Tenant: X Electric X Natural Gas X Electric Natural Gas Water X Trash X Water X Trash Confirmation Leasing agent Leasing agent Telephone Number 303-755-5117 303-755-1872 NOTES: COMPARISON TO SUBJECT: Similar Slightly Inferior COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 ------------------------------------------------------------------------------------------------------------------------ Property Name Stone Creek The Prescott Management Company OMNI LOCATION: Address 9825 E Girard Avenue 3150 South Tamarac Drive City, State Denver, Colorado Denver, Colorado County Denver County Denver County Proximity to Subject 3/4 mile east of subject Across the street from subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) Year Built 1974 1974 Effective Age 25 25 Building Structure Type Parking Type (Gr., Cov., etc.) Open covered, open Open Number of Units 450 125 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 5 1Bd/1Ba 735 $ 680 3 1Bd/1Ba 660 $615 4 1Bd/1Ba loft 713 $ 720 5 1Bd/1Ba 742 $635 1Bd/1Ba TH 910 $ 780 1Bd/1Ba 932 $725 7 2Bd/2Ba 940 $ 785 8 2Bd/2Ba 1,000 $750 7 2Bd/2.5Ba 940 $ 830 9 2Bd/2Ba 1,040 $770 10 3Bd/2Ba 1,085 $ 980 10 2Bd/2Ba 1,060 $800 3Bd/1.5Ba TH 1,072 $1,050 10 2Bd/2Ba 1,085 $820 10 2Bd/2Ba 1,100 $830 11 Studio 460 $500 Studio 606 $515 Average Unit Size (SF) Unit Breakdown: Efficiency 2-Bedroom Efficiency 2-Bedroom 1-Bedroom 3-Bedroom 1-Bedroom 3-Bedroom CONDITION: APPEAL: AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X Balcony X Fireplace Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 80% 89% LEASING DATA: Available Leasing Terms 6-12 month leases 6-12 Month leases Concessions $100-200 off each month none Pet Deposit $300 $250 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash Water Trash Confirmation Leasing agent Leasing agent Telephone Number 303-755-2978 N/A NOTES: COMPARISON TO SUBJECT: Similar Similar
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B TAMARAC VILLAGE, DENVER, COLORADO PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 THE WILLOWS AT TAMARAC THE GLEN THE LODGE 8525 E Hampden Avenue 9600 E Girard 8405 East Hampden Avenue Denver, Colorado Denver, Colorado Denver, Colorado [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 STONE CREEK THE PRESCOTT 9825 E Girard Avenue 3150 South Tamarac Drive Denver, Colorado Denver, Colorado [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C TAMARAC VILLAGE, DENVER, COLORADO EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C TAMARAC VILLAGE, DENVER, COLORADO 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 TAMARAC VILLAGE, DENVER, COLORADO 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 TAMARAC VILLAGE, DENVER, COLORADO 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 TAMARAC VILLAGE, DENVER, COLORADO 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. James Newell 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- Douglas Needham --------------------------- Douglas Needham, MAI Managing Principal, Real Estate Group Colorado State Certified General Real Estate Appraiser #CG40017035 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E TAMARAC VILLAGE, DENVER, COLORADO EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E TAMARAC VILLAGE, DENVER, COLORADO DOUGLAS A. NEEDHAM, MAI MANAGING PRINCIPAL, REAL ESTATE ADVISORY GROUP POSITION Douglas A. Needham is a Managing Principal for the Irvine Real Estate Advisory Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Mr. Needham has appraised all types of major commercial real estate including apartments, hotels/motels, light and heavy industrial facilities, self-storage facilities, mobile home parks, offices, retail shopping centers, service stations, special-use properties, and vacant land. Business Mr. Needham joined AAA in 1998. Prior to joining AAA, he was a senior associate at Koeppel Tener, a senior analyst at Great Western Appraisal Group, and an associate appraiser at R. L. McLaughlin & Associates. EDUCATION Texas A&M University Bachelor of Business Administration - Finance STATE CERTIFICATIONS State of Arizona, Certified General Real Estate Appraiser, #30943 State of California, Certified General Real Estate Appraiser, #AG025443 State of Colorado, Certified General Appraiser, #CG40017035 State of Oregon, Certified General Appraiser, #C000686 State of Washington, Certified General Real Estate Appraiser, #1101111 PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E TAMARAC VILLAGE, DENVER, COLORADO VALUATION AND Appraisal Institute Advanced Income Capitalization SPECIAL COURSES Appraisal Principles Appraisal Procedures Basic Income Capitalization Standards of Professional Practice AMERICAN APPRAISAL ASSOCIATES, INC. TAMARAC VILLAGE, DENVER, COLORADO GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. TAMARAC VILLAGE, DENVER, COLORADO 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.