EX-99.(C)(1) 2 d18662a1exv99wxcyx1y.txt APPRAISAL RIGHTS COMPLETE APPRAISAL SUMMARY APPRAISAL REPORT OF BRONSON PLACE APARTMENTS 4710 212TH STREET SW MOUNTLAKE TERRACE, WASHINGTON PREPARED FOR: AIMCO 4582 S. ULSTER STREET PARKWAY, SUITE 1100 DENVER, COLORADO 80237 AS OF: APRIL 28, 2004 KTR JOB NO. 8-8-04020 Ms. Martha Long May 10, 2004 Senior Vice President AIMCO 4582 S. Ulster Street Parkway, Suite 1100 Denver, Colorado 80237 Re: Bronson Place Apartments 4710 212th Street SW Mountlake Terrace, Washington Dear Ms. Long: At your request, KTR Newmark Real Estate Services LLC has appraised the above referenced property. The purpose of the appraisal is to estimate the Market Value of the Fee Simple Estate of the subject property, free and clear of financing, as of April 28, 2004. The date of value corresponds to the date the subject property was most recently inspected by the appraiser. The subject property consists of a 4.38-acre tract of land improved with a 70-unit garden-style apartment complex known as the Bronson Place Apartments. Construction of the improvements was completed in 1988, with the balconies being renovated in 1998. The structural improvements were observed to be in average physical condition and consist of three-story wood framing construction with cedar exterior siding and pitched roofs with slate/tile cover. Amenities common to all units include electric kitchen appliances, wood burning fireplace, patio/balcony, cable TV, high speed Internet ready, washer and dryer, and mini-blinds. Community amenities include on-site management/leasing office, one spa, playground, fitness center, outdoor sports court, tanning bed and laundry facilities. Bronson Place Apartments contain 60,110 rentable square feet, which suggests an average unit size of 859 square feet. The following report contains information considered relevant to the valuation of the property and the methods by which collected data have been analyzed in arriving at our value conclusion. Our analysis included an inspection of the premises, interviews with knowledgeable market participants, a review of historical income and expense statements, the current rent roll, and other relevant financial, and market information. As an income-producing property, greatest reliance is placed upon the value derived through the Income Capitalization Approach, with support provided by the conclusion rendered through implementation of the Sales Comparison Approach. This appraisal report has been prepared in order to comply with the reporting requirements set forth under Standards Rule 2-2(b) of the Uniform Standards of Professional Appraisal Practice (USPAP) for a Complete Appraisal in Summary Report format. As such, it presents only summary discussions of the data, reasoning, and analyses that were used in the appraisal process to develop the appraiser's opinion of value. Supporting documentation not presented herein has been retained in the appraiser's file. The depth of discussion contained in this report is specific to the needs of the client and for the intended use stated herein. Ms. Martha Long May 10, 2004 AIMCO Page 2 The attached Summary Appraisal Report describes our investigation and analyses, together with Certification, Basic Assumptions, and Limiting Conditions, upon which we have based our opinion that the market value of the Fee Simple Estate of the subject property, as of April 28, 2004, is: THREE MILLION EIGHT HUNDRED THOUSAND DOLLARS ($3,800,000) It has been a pleasure to be of service to you. Please do not hesitate to call with any questions you may have regarding our assumptions, observations, or conclusion. Very truly yours, KTR NEWMARK REAL ESTATE SERVICES, LLC By: William L. Corbin, MAI By: Stephen O'Rourke Executive Vice President Appraiser Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page i -------------------------------------------------------------------------------- CERTIFICATE OF VALUE 1. We certify that, to the best of our knowledge and belief; 2. The statements of fact contained in this report are true and correct. 3. The reported analyses, opinions and conclusions, are limited only by the reported assumptions and limiting conditions, and is our personal, unbiased professional analyses, opinions, and conclusions. 4. We have no present or prospective interest in the property that is the subject of this report, and we have no personal interest or bias with respect to the parties involved. 5. We have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment. 6. Our engagement in this assignment was not contingent upon developing or reporting predetermined results. 7. Our compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. 8. Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice promulgated by the Appraisal Standard Board of the Appraisal Foundation. 9. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 10. As of the date of this report, William L. Corbin, MAI has completed the requirements for certification under the continuing education program of the Appraisal Institute. 11. Stephen O'Rourke made a personal inspection of the property that is the subject of this report. 12. The undersigned has the knowledge and experience to complete this appraisal assignment and has appraised this property type previously. Please see the Professional Qualifications included in the Addenda to this report for additional information about the appraiser's education and work experience. KTR NEWMARK REAL ESTATE SERVICES LLC By: William L. Corbin, MAI By: Stephen O'Rourke Executive Vice President Appraiser Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page ii -------------------------------------------------------------------------------- BASIC ASSUMPTIONS AND LIMITING CONDITIONS This Appraisal Report is subject to underlying assumptions and limiting conditions qualifying the information contained in the Report as follows: The valuation estimates apply only to the property specifically identified and described in the ensuing Report. Information and data contained in the Report, although obtained from public record and other reliable sources and where possible, carefully checked by the Appraiser, are accepted as satisfactory evidence upon which rests the final expression of property value. The Appraiser has made no legal survey nor has he commissioned one to be prepared and therefore, reference to a sketch, plat, diagram or previous survey appearing in the Report is only for the purpose of assisting the reader in visualizing the property. It is assumed that all information known to the client and relative to the valuation have been accurately furnished and that there are no undisclosed leases, agreements, liens or other encumbrances affecting the use of the property. Ownership and management are assumed to be competent and in responsible hands. No responsibility beyond reasonableness is assumed for matters of a legal nature, whether existing or pending. Information identified as being furnished or prepared by others is believed to be reliable but no responsibility for its accuracy is assumed. The Appraiser, by reason of this appraisal, shall not be required to give testimony as an expert witness in any legal hearing or before any court of law unless justly and fairly compensated for such service. By reason of the Purpose of the Appraisal or Function of the Report herein set forth, the value reported is only applicable to the Property Rights Appraised and the Appraisal Report should not be used for any other purpose. Disclosure of the contents of this report is governed by the by-laws and Regulations of the Appraisal Institute. Unless otherwise stated in this report, the existence of hazardous material, which may or may not be present on the property, was not observed by the appraiser. The appraiser has no knowledge of the existence of such materials on or in the property. The appraiser, however, is not qualified to detect such substances. The presence of substances such as asbestos, urea-formaldehyde foam insulation or other potentially hazardous materials may affect the value of the property. Any value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in this field, if desired. Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page iii -------------------------------------------------------------------------------- In arriving at the value set forth in this appraisal no consideration has been given to the effect of state, local or federal income and gains taxes or of occupancy, hotel, capital levy, gift, estate, succession, inheritance or similar taxes which may be imposed upon any owner, lessee, or mortgagee by reason of any sale, conveyance, transfer, leasing, hypothecation, mortgage, pledge or other disposition of the appraised property. The appraiser was not provided architectural plans for the subject property, thus the square footage as indicated on the rent roll, marketing brochures, and unit mix provided by the client has been utilized. In the event this information is inaccurate, we reserve the right to modify this appraisal if so warranted. Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page iv -------------------------------------------------------------------------------- SUBJECT PHOTOGRAPH [PICTURE] Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page v -------------------------------------------------------------------------------- TABLE OF CONTENTS Title Page Letter of Transmittal Certificate of Value .................................................................i Basic Assumptions and Limiting Conditions ...........................................ii Subject Photograph...................................................................iv Table of Contents.....................................................................v Executive Summary.....................................................................1 Introduction and Premises of the Appraisal ...........................................2 Regional Overview.....................................................................4 Neighborhood Overview.................................................................9 Site Analysis .......................................................................11 Real Estate Taxes ...................................................................12 Zoning ..............................................................................12 Description of Improvements..........................................................13 Apartment Market Overview............................................................15 Economic Rent Analysis...............................................................20 Highest and Best Use.................................................................26 Valuation Procedure..................................................................27 Income Capitalization Approach.......................................................28 Sales Comparison Approach............................................................35 Reconciliation and Final Value Conclusion............................................37
ADDENDA Subject Photographs Comparable Rental Photographs Comparable Sale Photographs Regional Location Map Neighborhood Map Comparable Rentals Map Comparable Sales Map Qualifications Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 1 -------------------------------------------------------------------------------- EXECUTIVE SUMMARY Property: Bronson Place Apartments Location: 4710 212th Street SW, Mountlake Terrace, Washington Assessors Parcel ID No: 27042800100600 - Snohomish County Purpose of Appraisal: To estimate the Market Value of the subject property as of the date of value. Date of Value: April 28, 2004 Date of Report: May 10, 2004 Interest Appraised: Fee Simple Estate Description of Property: The subject property consists of a 4.38-acre tract of land improved with a 70-unit garden-style apartment complex known as the Bronson Place Apartments. Construction of the improvements was completed in 1988, with the balconies being renovated in 1998. Bronson Place Apartments contains 60,110 rentable square feet, which suggests an average unit size of 859 square feet. Location: The subject property is located on the northern border of the City of Mountlake Terrace and the southern border of the City of Lynwood, three blocks east of the intersection of Interstate Freeway (US 5), and the Lynwood exit. Zoning: The subject site is zoned BC-Community Business by the City of Mountlake Terrace. The intended use of land in this zoning district is to provide small commercial areas of Interstate 5 that offer retail and service businesses to serve the needs of the surrounding community. This zoning district is requiring that the maximum structural coverage allowed is 35% of the lot area, with a maximum height of 35 feet. Flood Zone: According to the Federal Emergency Management Agency (FEMA), the property is located within Zone X, an area determined to be outside 500-year floodplain as defined by FEMA. FEMA Map No. 53061C1320-E, dated 11/08/1999. Highest and Best Use: Multifamily residential development. Marketing Period: Less than 12 months Valuation Assumptions: Snohomish County Average Market Rent (per Unit) $779 Market Vacancy/Credit Loss 13.0%
Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 2 -------------------------------------------------------------------------------- Operating Expense Ratio 42% Net Operating Income $268,780 Overall Capitalization Rate 7.0% Final Estimate of Market Value, by Approach Cost Approach: N/A Sales Comparison Approach: $3.800,000 Income Approach: $3.800,000 Final Estimate of Market Value: $3,800,000
INTRODUCTION AND PREMISES OF THE APPRAISAL Scope of the Assignment According to the Appraisal Institute's Code of Professional Ethics and Uniform Standards of Professional Appraisal Practice, the scope of the appraisal is cited as "the extent of the process of collecting, confirming, and reporting data" included in an appraisal report. The scope of this appraisal employs all applicable appraisal techniques and constitutes a Complete Appraisal as defined by USPAP. The presentation of data, analyses, and conclusions are presented in summary report format. The data included in this report has been researched from the subject property's influencing market. County and City officials were interviewed regarding taxes, zoning requirements, flood zone information, demographic data, planned construction, recently completed developments, and other economic impacting events. Market participants, including real estate brokers and property managers, were consulted regarding market parameters and activity. Lenders as well as investor surveys were consulted regarding investment parameters. The Sales Comparison and Income Capitalization Approaches to value have been performed in estimating the Market Value of the subject. Sales utilized were confirmed with a principal or representative involved with the sale. Leasing agents for the competitive complexes were interviewed regarding property specific information. Supply and demand factors affecting the local market have been analyzed. Purpose and Use of Appraisal The purpose of the appraisal is to estimate the Market Value of the Fee Simple Estate of the subject property as of April 28, 2004. It is for the internal use of AIMCO to facilitate asset evaluation. Property Rights Appraised The property interest appraised is that of the Fee Simple Estate. A Fee Simple Estate is defined by The Dictionary of Real Estate Appraisal, Second Edition AIREA, as: "Absolute ownership unencumbered by any other interest or estate, subject only to the limitations of the four powers of government (eminent domain, escheat, police power and taxation)". Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 3 -------------------------------------------------------------------------------- Marketing Period The value conclusion reported herein assumes a marketing period of less than one year. According to the Korpacz Real Estate Investor Survey, 1st Quarter 2004, indicates that apartment properties in the national market have an average marketing time of 5.62 months down slightly from 5.81 months a year ago. This estimate seems reasonable, given recent market activity in the influencing area and the profile of the subject property. Property History Property tax records indicate that Bronson Place Apartments/AIMCO/E-Prop Tax is the current owner of record. According to the Snohomish County Assessor, there have not been any sales of this property recorded since July 31, 1999. Thus, no conveyances involving the subject property were noted within the three-year period preceding the effective date of value. To our knowledge there are no contracts of sale pending as of the date this report was prepared, nor are we aware that the property is listed for sale. Most Likely Buyer National and regional and local investors typically purchase multifamily properties of this size in markets such as the subject. Definition of Market Value Market Value, as approved and adopted by the Appraisal Foundation in the Uniform Standards of Professional Appraisal Practice is as follows: "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1. buyer and seller are typically motivated; 2. both parties are well-informed or well advised, and acting in what they consider their best interests; 3. a reasonable time is allowed for exposure in the open market; 4. payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and 5. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale." Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 4 -------------------------------------------------------------------------------- REGIONAL OVERVIEW Overview The subject property is located in the City of Mountlake Terrace, Snohomish County within the Seattle-Everett Metropolitan Statistical Area (MSA). Metropolitan Area The Seattle-Everett MSA is the center of a metropolitan region of more than 3 million, which also contains the Tacoma MSA. The region is recognized as the business and financial capital of the state of Washington. The Seattle MSA occupies two counties---King and Snohomish---in the Central Puget Sound region of Washington State. The Seattle MSA is the largest metropolitan center on the West Coast of the United States outside California, with an estimated population of 2,416,800 as of 2003. Greater Seattle lies along the eastern shore of Puget Sound, approximately 70 miles inland from the Pacific Ocean. Puget Sound is an estuary at the end of the Juan de Fuca Strait, which connects the Sound with the Pacific Ocean. The Olympic Peninsula divides central and southern Puget Sound from the Pacific Ocean, with mountains over 7,000 feet high. The Sound is protected on the east by the Cascade Range. This gives the Seattle area a moderate climate, without the extremes of precipitation that characterize the Pacific Coast or the extremes of temperature that mark central and eastern Washington. The climate, although relatively moist, is moderate compared to most American metropolitan areas and lends desirability to the region along with access to year-round skiing in the Cascades and seaside amenities at the Pacific Ocean approximately 80 miles to the west. Population Greater Seattle contains approximately 60 incorporated cities. The largest by far is the city of Seattle, which has a current population of 570,800. The two counties encompassed by the Seattle MSA are King and Snohomish. The principal city of Snohomish County is Everett, with a current population of 96,070. The following table shows the population of each of the counties that comprise greater Seattle. POPULATION - SEATTLE/EVERETT MSA COUNTIES
------------------------------------------------------------------------------------------------------------------------------------ COUNTY ANN. ANN. ANN. ANN. 1990 CPND. CHG. 2000 CPND. CHG. 2001* CPND. CHG. 2002* CPND. CHG. 2003* ------------------------------------------------------------------------------------------------------------------------------------ King 1,507,305 1.43% 1,737,034 1.22% 1,758,300 0.91% 1,774,300 0.28% 1,779,300 Snohomish 465,628 2.67% 606,024 2.08% 618,600 1.52% 628,000 1.51% 637,500 ------- ----- ------- ----- ------- ----- ------- ----- ------- Seattle 1,972,933 1.73% 2,343,058 1.44% 2,376,900 1.07% 2,402,300 1.07% 2,416,800 ------------------------------------------------------------------------------------------------------------------------------------
Source: State of Washington Office of Financial Management, Forecasting Division * 2001, 2002 and 2003 numbers are State estimates. The April 1, 2003 estimated population for the Seattle-Everett MSA, as shown above, is 2,416,800. The Seattle-Everett MSA comprises approximately 40% of the population of the entire state of Washington, which is estimated at 6,098,300 by the State of Washington Office of Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 5 -------------------------------------------------------------------------------- Financial Management. Although Snohomish grew at a higher percentage rate than King over the past ten years (1990-2000), it added fewer people (140,396 as compared to 229,729 for King). King County is still the single largest county in the state in terms of population. Overall, the regional population has increased at a slower level since 1990. Most of the larger and fastest-growing Seattle area suburbs are in King County and include Des Moines (70.7% population increase since 1990), Bellevue (34.7% since 1990); and Kent (122% since 1990). There are some fast-growing suburbs in Snohomish, however---Edmonds grew by 28.3% since 1990, and Snohomish grew by 31.9% in the same time frame. Bothell straddles the county line, but most of its growth took place on the Snohomish side. Bothell grew by 32.3% between 1990 and 2002. One of the fastest-growing municipalities in the state, Auburn, is also in Snohomish County. It is not really a suburb of Seattle as it is surrounded by rural land, but it represents the current phenomenon of Americans moving to smaller cities within commuting reach of larger ones. Arlington has grown by 229.0% since 1990. The following table shows the population growth of selected municipalities within the Seattle-Everett MSA. POPULATION GROWTH IN SELECTED MUNICIPALITIES IN SEATTLE-EVERETT MSA
---------------------------------------------------------------------------------------------------------------- CITY 1990 2000 2001* 2002* 2003* 90-03 CHANGE ---------------------------------------------------------------------------------------------------------------- King County ----------- Bothell 12,345 16,119 16,244 16,264 16,250 31.6% Des Moines 17,283 29,267 29,600 29,510 29,120 68.5% Bellevue 86,872 109,827 111,500 117,000 116,400 34.0% Federal Way 67,535 83,259 83,890 83,850 83,500 23.6% Issaquah 7,786 11,212 12,950 13,790 15,110 94.1% Kent 37,960 79,524 81,900 84,275 84,210 121.8% Kirkland 40,059 45,054 45,770 45,790 45,630 13.9% Redmond 35,800 45,256 45,490 46,040 46,480 29.8% Seattle 516,259 563,374 568,100 570,800 571,900 10.8% Snohomish County ---------------- Arlington 4,037 11,927 12,770 13,280 14,330 255.0% Edmonds 30,743 39,544 39,590 39,460 39,580 28.7% Everett 69,974 91,488 95,990 96,070 95,470 36.4% Lynnwood 28,637 33,847 34,010 33,990 34,500 20.5% Mountlake Terrace 19,320 20,362 20,370 20,470 20,380 5.5% Mukilteo 6,982 18,019 18,340 18,520 19,190 174.8% Snohomish 6,499 8,494 8,565 8,575 8,640 32.9% ----------------------------------------------------------------------------------------------------------------
Source: State of Washington Office of Financial Management, Forecasting Division * 2001, 2002 and 2003 numbers are State estimates. In the fashion typical of American metropolitan areas, the large central city of the Seattle-Everett MSA has generally not grown as fast as the Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 6 -------------------------------------------------------------------------------- suburban areas; Seattle has grown by 10.8% since 1990, or 571,900 over 516,259. Much of Seattle's recent population increase has taken the form of infill housing, increasingly in the central business district. King County is projected to have a population increase of over 4.63% over the next five years. Snohomish County is expected to post a population increase of 11.32%. The entire Seattle-Everett MSA is projected to grow by 6.37%. These figures are illustrated in the table below. PROJECTED POPULATION GROWTH SEATTLE-EVERETT MSA
--------------------------------------------------------------------------------------------------- County 2000 2005* % Growth --------------------------------------------------------------------------------------------------- King 1,685,600 1,763,634 4.63% Snohomish 593,500 660,682 11.32% Seattle-Everett PMSA 2,279,100 2,424,316 6.37% Washington State 5,803,400 6,291,772 8.42% ---------------------------------------------------------------------------------------------------
Source: State of Washington Department of Information Services. *2005 numbers are estimates Employment The U.S. Bureau of Labor Statistics reports that the Seattle-Everett MSA had a non-farm employee as of December 2003 of 1,353,200 down from 1,356,800 in December 2002 and 1,378,900 in December 2001. The following table shows the diversity of the MSA's workforce. EMPLOYMENT BY SECTOR SEATTLE-EVERETT MSA
--------------------------------------------------------------------------------------------------------------------- SIC Category DEC-98 DEC-99 DEC-00 DEC-01 DEC-02 DEC-03 Mining 2,200 2,000 2,000 1,700 1,600 1,200 Construction 75,300 80,500 85,400 76,500 74,600 76,100 Manufacturing 218,600 198,800 189,600 177,200 157,800 146,500 Trade/Trans/Utilities 281,500 290,900 292,000 276,300 269,500 270,500 Financial Activities 87,300 88,800 88,600 90,400 89,800 91,900 Educ./Health Service 130,400 130,000 132,900 135,000 137,200 138,100 Other Services 47,000 46,900 48,500 47,700 49,000 48,800 Government 187,600 190,600 193,800 201,200 203,300 205,800 Total Non-Farm 1,390,100 1,420,300 1,445,300 1,378,900 1,356,800 1,353,200 Total Change - +30,200 +25,000 -66,400 -22,100 -3,600 MSA Unemployment 2.9% 3.3% 3.6% 6.2% 6.2% 6.5% Washington 4.8% 4.7% 5.2% 6.4% 7.3% 7.5% U.S. 4.5% 4.2% 4.0% 4.7% 5.8% 6.0% ---------------------------------------------------------------------------------------------------------------------
Source: U.S. Bureau of Labor Statistics Total employment dropped 66,400, 22,100, and 3,600 jobs in 2001, 2002 and 2003. This can be attributed to the national economic recession, the softness of the hi-tech industry, and The Boeing Company layoff following 9-11-01 terrorists attacks. However, the area showed a trend toward stabilization as the rate of job loss decreased in 2002 and 2003. Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 7 -------------------------------------------------------------------------------- The following table shows unemployment rates since 1995. HISTORICAL UNEMPLOYMENT
------------------------------------------------------------------------------------------------------------------- 1995 1996 1997 1998 1999 2000 2001 2002 2003 ------------------------------------------------------------------------------------------------------------------- Seattle-Everett MSA 5.3% 5.0% 3.3% 3.1% 3.4% 3.7% 5.2% 6.8% 7.1% Washington State 6.4% 6.5% 4.8% 4.8% 4.7% 5.2% 6.4% 7.3% 7.5% United States 5.6% 5.4% 4.9% 4.5% 4.2% 4.0% 4.7% 5.8% 6.0% -------------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Labor, Bureau of Labor Statistics Along with the national economic recession, the Seattle-Everett region underwent an increasing unemployment rate since 2000. The region's 2003 unemployment rate of 7.1% is 0.4% lower than the State level, but is 1.1% higher than the nation's. MANUFACTURING The region's diversified manufacturing base includes food processing, printing and publishing, fabricated metal products, industrial machinery, transportation equipment, textiles and apparel. King County is also the fifth-largest warehouse and distribution center in the United States. Boeing, the largest aircraft manufacturer in the world, leads King County's manufacturing sector. Boeing is the largest employer and leading exporter in the area. Paccar, K2, Weyerhaeuser, and Genie are other internationally known manufacturers based in King County. HIGH TECHNOLOGY The Seattle region is ranked fifth in the nation for concentration of high tech businesses. There are approximately 230,000 jobs statewide in high tech industries with approximately 47,000 employed in software companies and 13,400 working on a contract basis. King County is Washington's center for technology-based industries, which have increased and become more diversified over time. There are more than 1,100 high technology companies employing over 80,000 workers, with Microsoft Corporation being the largest with over 15,000. Aerospace jobs continue to dominate the high tech sector, but biotechnology, computers, electronic industries and telecommunications are growing rapidly. In the past twenty years, the number of jobs in biotechnology has increased tenfold, and computer/electronics jobs have shown a 300% increase. In the past decade, the electronics industry has generated $2.6 billion in revenues. INTERNATIONAL TRADE Historically, demand for traditional exports of fur, timber and seafood established trade as a cornerstone of life in King County. Today, in the central Puget Sound region, the largest exports are in aerospace, forest, Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 8 -------------------------------------------------------------------------------- computer products and processed food. The Port of Seattle, combined with the Port of Tacoma, comprises the Puget Sound Ports. On a per capita basis, Washington State conducts more international trade than any other state in the country. Nearly three-quarters of Washington's exports are from the central Puget Sound region. Because of its proximity to growing markets in both the Pacific Rim and the European Economic Community, the region is expected to experience continued economic growth through international trade. The dramatic economic development and trade expansion of the Pacific Rim countries has had a significant impact on the Puget Sound region. The economic growth of Japan and its Pacific Rim neighbors have contributed heavily to increased trade, and trans-Pacific trade with the U.S surpassed trans-Atlantic trade for the first time in 1985. As a result of increased total volume and shorter shipping time between Asia and the Northwest, the Puget Sound Ports have been able to increase their share of total U.S. trade considerably. Over the past 10 years, imported cargo volume increased 6.08 percent a year. In contrast, annual growth in exported cargo volume was .095 percent. The following table shows the top Washington State trading partners among other countries in millions of dollars. WASHINGTON STATE TOP TRADING PARTIES
-------------------------------------------------------------------------------------------------------- Rank 2000 2001 00-01 -------------------------------------------------------------------------------------------------------- 1 Japan 4,594,777,536 3,383,788,203 -26% 2 Singapore 609,767,053 2,990,909,085 390% 3 China 1,900,659,005 2,928,721,420 54% 4 United Kingdom 3,266,712,940 2,737,333,612 -16% 5 Canada 2,875,862,883 2,737,287,980 -5% 6 Korea 1,743,433,028 2,131,280,028 22% 7 Germany 2,057,141,530 1,843,345,838 -10% 8 Taiwan 1,451,803,997 1,594,182,881 10% 9 France 1,003,112,200 1,252,883,804 25% 10 Saudi Arabia 619,224,519 1,097,585,520 77% --------------------------------------------------------------------------------------------------------
Source: Economic Development Council, 2001 The largest volume is with Japan. The other countries are on the Pacific Rim, with the exceptions of the United Kingdom, France, and Germany. SERVICES Service industries provide added resilience and opportunities to the region's economy. Engineering, architecture, advertising, finance, computer, and other professional services meet the needs of the region's producers and add value to their output. Health care employment is projected to continue growing dramatically, while higher education and research are more important than ever as the demand for a highly Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 9 -------------------------------------------------------------------------------- educated workforce increases across all industries. TOURISM King County is a domestic and international tourism destination, featuring scenic beauty, temperate climate, both metropolitan and rural activities and easy accessibility by air, land, and water. Tourism is the state's fourth largest industry and the Western Washington region accounts for over half of the statewide tourism industry. Over the years King County has gained a reputation for providing excellent venues for conferences and conventions. The county has approximately eighty hotels with conference or convention meeting space and about 28,000 hotel rooms. Transportation The Seattle MSA occupies a central location in the Pacific Northwest, accessible by interstate to major California markets as well as the Rocky Mountain markets. Within greater Seattle, there are over 50 miles of limited access roadways, with I-5, I-405, and I-90 being the three principal ones. Surface streets in the MSA are influenced by the area's hilly and watery terrain and long connective thoroughfares are few. Access over the large bodies of water that separate the various portions of the MSA is by limited access highway only. As yet, buses provide the only significant public transportation in the MSA. Amtrak and Greyhound also serve greater Seattle. The metropolitan area is served by Seattle-Tacoma International Airport (Sea-Tac), which serves most major airlines and has several daily non-stop flights to the Far East. Sea-Tac is the primary air transportation hub of the State of Washington and the northwestern United States. The airport is located 12 miles south of Seattle and 20 miles north of Tacoma. Over 40 airlines serve more than 27.7 million passengers a year, making Sea-Tac the 17th busiest US airport, with an average of 1,200 flights per day. The airport is estimated to generate $6 billion annually, directly or indirectly, through its traffic. Due to its northerly latitude, Seattle is roughly equidistant between Tokyo and London, with nine hours' flying time from Sea-Tac to each of those cities. The airport is closer to the Pacific Rim than almost any other in the United States outside Alaska. Conclusion While the region is still under the recovery of the recession, the long-term prospects for the region are positive, given the size of the high-tech sector and levels of population and household growth. NEIGHBORHOOD OVERVIEW Location: The subject property is located on the northern border of the City of Mountlake Terrace and the southern border of the City of Lynwood, three blocks east of the intersection of Interstate Freeway (US 5), and the Lynwood exit. This city is located in the County of Snohomish, located in close proximity to US 5 Freeway, an interstate north/south freeway in Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 10 -------------------------------------------------------------------------------- Washington. Due to the subject properties close proximity to the US 5 Freeway; access is accessible to neighborhood services and employment centers. The location of the subject property is rated as good. Access: Mountlake Terrace is centrally located within the region, just 25 miles north of the Seattle-Tacoma International Airport, 15 miles north of Seattle and 65 miles north of Tacoma. Interstate 5 extends in a north/south direction through the center of the city. State Routes 99, 104 and 524 are other major highways traversing through the city. Union Pacific and Burlington Railroads run along the eastern edge of the city. Access to ports in Puget Sound and Lake Washington is approximately ten to twenty minutes south of Mountlake Terrace. Land Use: The subject neighborhood is a relatively new and maturing residential district. The area realized much of its growth from the 1970s through the early 1990s. Most of the apartments in the area were built in the 1980s and 1990s. As the growth pattern of the Mountlake Terrace area continues north, much of the land in the subject neighborhood has been developed. Approximately 85% of the land area is developed with ever decreasing land available to accommodate additional development. Multifamily and commercial development is prevalent along the primary roadways. The predominate land use in the neighborhood is residential, consisting of both single and multifamily developments. Adjacent Land Uses: South: Multifamily North: Single family/Multifamily East: Multifamily West: Multifamily New Construction: Due to the limited availability of vacant land suitable for development, and the soft leasing market, no new construction was noted in the immediate vicinity of the subject property. After discussions with the City of Mountlake Terrace Planning Department, brokers and leasing agents from the area, we noted that there has not been any new apartment construction in the city within the past year. Change in Current Use The neighborhood can be classified as being in the stabilization stage of its life cycle. As a result of its good location in the Seattle-Everett MSA and the City of Mountlake Terrace, growth in the area is anticipated to slowly continue, in the form of new development on vacant and underutilized sites. The city has limited amounts of vacant and underutilized land, which would be available to develop or redevelop into additional apartment complexes. Conclusion The property is located in the northern growth pattern of the Seattle-Everett MSA, within the city of Mountlake Terrace. The area is easily accessible form all parts of Seattle and Everett due to its proximity to Interstate Freeway (US 5). As a result of its good location, the area has Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 11 -------------------------------------------------------------------------------- proven to be a desirable residential and commercial location. Major employers are located in close proximity to the subject neighborhood, along Interstate 5, including Boeing and Amgen being located in Everett, 15 miles to the north of Mountlake Terrace. The presence of major employers in the area has enhanced the desirability of the neighborhood as a residential location. Area residents are offered a broad range of services and excellent access to other parts of the Seattle-Everett area. Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 12 -------------------------------------------------------------------------------- SITE ANALYSIS Location The subject property is located on the northern border of the City of Mountlake Terrace and the southern border of the City of Lynwood, three blocks east of the intersection of Interstate Freeway (US 5), and the Lynwood exit. Size The site is irregular in shape and consists of a total land area of 4.38 acres. Excess Land None Topography Generally level and on grade with the bounding street Site Improvements The 4.38-acre site is improved with a 70-unit garden-style apartment community known as the Bronson Place Apartments. See Description of the Improvements section of this report for details concerning site improvements. Street Improvements 212th Street SW is a neighborhood collector street that provides access along the northern boarder of Mountlake Terrace. 212th Street SW is oriented in a west/east direction. Desirability of Location Good Access to Major Arteries Good Access to Local Arteries Average Curb Appeal Good Ingress/Egress Good Visibility from Road Very Good Public Transportation Average Neighborhood Appearance Average Flood Zone Map According to the Federal Emergency Management Agency (FEMA), the property is located within Zone X, an area determined to be outside 500-year floodplain as defined by FEMA. FEMA Map No. 53061C1320-E, dated 11/08/1999. Easements The appraisers were not provided with a site survey or title documents that provide information on the existence of easements and encroachments. Other than typical utility easements, visual observation of the site did not reveal the existence of adverse easements or encroachments, however in the absence of a site survey and title documents, the appraiser makes no representation as to the presence of adverse easements or encroachments. Soil Conditions Visual observation does not indicate any surface or subsurface soil conditions that are unusual for the area. Based on our inspection, it appears that the soil is of adequate load bearing capacity to support the subject improvements. No major foundation cracks were visible upon inspection of the subject improvements that would indicate the subsoil conditions are not stable. No nuisances or hazards were noted. We did not review any soil studies for the subject property performed by experts, which we are not. However we did review the Critical Areas: Geological Features map from the City of Mountlake Terrace Comprehensive Plan, which indicated the subject may be partially located on an area of erosive soils. Land Use Restrictions The appraisers are unaware of any deed restrictions, which may adversely affect the utility of the subject site; however, this is not a Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 13 -------------------------------------------------------------------------------- guarantee that such restrictions may exist. Therefore, it is recommended that a current title policy be obtained for the subject property, which would disclose any land use restrictions, which may exist. Utilities All municipal utilities (water and sewer) and private services (electric, gas, telephone) are available to the site. Police and Fire Protection Provided to the site by the city of Mountlake Terrace Conclusion The subject represents a desirable site for multifamily development. REAL ESTATE TAXES Assessor's Parcel No: 27042800100600 (Snohomish County) Ad ValoremTax rate (2004) 10.738086 per $1000 of assessed value or 1.0738086% Equalization Rate 100% Payments Due Date Taxes are paid in two semi annual payments due by April 30th and October 31st. 2004 Assessed Value $4,590,500 Tax Analysis: The subject property is situated within the taxing jurisdictions of the State of Washington, Snohomish County, City of Mountlake Terrace, Edmonds School District, and Stevens Memorial Hospital. The Snohomish County Assessor's Office assesses the property for all of the applicable taxing jurisdictions. Property assessments are determined every four years and typically certified in the 3rd quarter of the year. After assessments for the county tax roll have been certified, tax rates for each taxing jurisdiction are determined. The assessment and tax rate data presented above is reflective of the 2004 tax year, which has just reassessed all property values. The 2004 assessment of $4,590,500 represents a 14.05% increase from the 2003 assessment of $4,025,000, as the property is reassessed every four years. A review of assessments for competing apartment properties located in the influencing area suggests that the subject's current assessment is equitable. The current assessment is processed against the most current tax rate for valuation purposes. Estimated Tax Liability $49,293.19 ($4,459,500 / 1,000=4,590.50; 4,590.50 x 10.738086) ZONING Zoning: The site is zoned Community Business District (BC) by the City of Mountlake Terrace. Permitted Use The BC zoning designation is intended to provide small commercial areas of Interstate 5 that offer retail and service businesses to serve the needs of the surrounding community. Maximum Height: 35 feet Maximum Density: 35% of the lot area. Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 14 -------------------------------------------------------------------------------- Set Backs: Front Yard - 30 feet Side Yard - 10 feet, or none if abutting BC, CG and LI/OP Districts Rear Yard - 20 feet, or none if abutting BC, CG and LI/OP Districts Parking Requirements 2 parking spaces per dwelling unit. With the subject's present unit count, the required parking calculates to 140 total spaces. According to the manager, the subject reportedly provides 140 parking spaces. Comments: It appears as though the existing improvements represent a legal and conforming use of the site with regard to zoning. DESCRIPTION OF IMPROVEMENTS The subject improvements consist of a 70-unit garden-style apartment complex known as the Bronson Place Apartments. The following offers a description of the improvements. KTR Site Inspector: Stephen R. O'Rourke Date of Inspection: April 28, 2004 Property Contact: Patricia Mendoza - On-site Manager Year Built: 1988 Number Units: 70 Configuration/Stories: Garden-style complex, 2 and 3-story residential structures Net Rentable Area: 60,110 square feet EXTERIOR Foundations: Grid Style monolithic concrete slabs with integral grade beams Frame: Wood frame Exterior Walls: Cedar wood siding Roof: Pitched with Slate/Tile covers Doors and Windows: Exterior entrance doors are hollow core metal. Interior doors are hollow core wood. The windows are single-pane glass set in aluminum frames with wood trim. HVAC: There is no air conditioning of any kind in any unit, electric heat Plumbing: Kitchens contain sink and dishwasher. Bathrooms contain porcelain toilet, sink, and fiberglass bathtub/shower combinations. Off of the kitchens are washer/dryer rooms. One electric water heater in each apartment provides hot water. Electrical: Property is sub-metered for electric; the tenant pays electricity. There are four transformers lactated on the property with all equipment being manufactured by Challenger. Parking and Walkways: The parking areas and internal roadways are asphalt paved. The streets and parking areas have concrete curbs. Walkways are concrete paved. There is adequate on-site parking provided, some of which is covered. INTERIOR Walls and Ceilings: Walls are painted sheetrock and the gypsum ceilings are covered with a sprayed-on textured surface. Floors: Interior floors are carpet over padding in living areas and bedrooms with sheet vinyl in the kitchens and bathroom. Kitchen Equipment: Built-in wood cabinets with laminate counter tops and stainless steel sink. Appliances include a combination range/oven, exhaust fan, and sink disposal, dishwasher, and refrigerator/freezer. Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 15 -------------------------------------------------------------------------------- PROJECT AMENITIES Security: No Swimming Pool: No Fitness Center: Yes Clubroom: Yes Tennis Court: No On-site Management Office: Yes Laundry Room: In each unit Microwave: No Compactor: No Fireplace: Yes Ceiling Fans: In living area Cable TV: Yes Balconies/Patios: Yes Perimeter Fencing: Yes Access Controlled Entry: No Other: Covered parking, washer/dryer, outdoor spa, tanning bed, playground, and storage. The following chart illustrates the property's unit breakdown and size. BRONSON PLACE APARTMENTS - UNIT MIX
-------------------------------------------------------------------------------- No. of Unit Type Units Size (SF) Total (SF) -------------------------------------------------------------------------------- 1BR/1BA 14 657 9,198 2BR/1BA 16 819 13,104 2BR/2BA 24 912 21,888 3BR/2BA 16 995 15,920 -------------------------------------------------------------------------------- Totals/Average 70 859 60,110 --------------------------------------------------------------------------------
CONDITION/MAINTENANCE Overall Condition: Average to Good Landscaping: Good Parking: Adequate Sidewalks/Curbs: Average Walls/Fences: Average Refuse Area: Average Basement: N/A Health Club: Average Club Room: Average Exterior Walls: Good Roofs: Good Stairs: Average Lobby/Hallways: Average Entry Doors: Average Patios/Balconies: Average Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 16 -------------------------------------------------------------------------------- Elevators: N/A Apartment Interiors: Overall: Average Kitchen Equipment: Average Mechanical Equipment: Average Bathroom: Average Walls/Ceilings: Average Layout: Average Light and View Quality: Average Cosmetic Repairs: Our physical inspection revealed that the subject property is in average condition. Deferred Maintenance: The rain gutters need to be repaired or replaced as they are beginning to break down. In addition to the preceding, some material elements of deferred maintenance were noted during the appraiser's inspection of the property, such as no basketball hoop on the basketball court. The on-site manager additionally reported that the west drainage channel has been proposed to be cleaned out. Also proposed, as need maintenance is the removal of moss on the roof, and repairing of the perimeter fence. Comparability: Similar to competing properties of the same vintage. Observed Effective Age: 16 years (similar to the actual age of the improvements) Economic Life: 50 years (per Marshall Valuation Service) Remaining Economic Life: 34 years General Comments: Based on our inspection, the subject property is considered to be of average quality construction and to be in average condition overall. It competes effectively with other properties of the same vintage. SNOHOMISH COUNTY APARTMENT MARKET OVERVIEW Seattle Overview The following table depicts the relative differences of the nine apartment Seattle apartment submarkets. SEATTLE APARTMENT SUB-MARKETS
------------------------------------------------------------------------------------------------------ VACANCY AVERAGE RENT SUB MARKET 2003 2002 2003 2002 ------------------------------------------------------------------------------------------------------ Seattle Downtown 6.6% 9.1% $1,100 $1,114 South Seattle 8.6% 8.4% $738 $745 North Seattle 6.1% 6.9% $837 $838 Redmond/Bothell 6.9% 5.8% $994 $1,029 Issaquah/Bellvue 6.8% 8.0% $997 $1,031 Renton/Burien 8.2% 7.0% $797 $815 Federal Way/Kent/Auburn 6.6% 5.4% $729 $752 EVERETT/E. SNOHOMISH 8.2% 7.9% $763 $794 Lynwood/Edmonds 7.6% 7.0% $771 $792 ------------------------------------------------------------------------------------------------------
Source: Hendricks Partners Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 17 -------------------------------------------------------------------------------- The subject's Everett/E. Snohomish submarket has maintained an average occupancy performance compared to the nine submarkets over the last two years; nonetheless it experienced a large drop in the market rent. Vacancy and Rental Rates We have reviewed the findings of the March 2004 RealFacts Apartment Properties Survey for the Snohomish County apartment market and its 7 sub-markets. The study summarizes trends that have occurred over the last two years. It separates buildings by categories, including age, size, and rent level. We have also reviewed market statistics published by Hendricks Partners, a brokerage firm with 22 offices in the western United States specializing in apartment investment sales. In addition, we have interviewed managers, owners, and leasing agents in the subject's area regarding their views of the current market conditions. The chart below summarizes the current countywide inventory characteristics. SNOHOMISH COUNTY APARTMENT MARKET CHARACTERISTICS ------------------------------------------------------ Number of Complexes 74 Total Unit Inventory 17,297 Avg. No. Units Per Complex 234 Avg. Occupancy Rate 91.1% Avg. Year Built 1987 Avg. Unit Size (SF) 895 Avg. Rent/Unit/Month $779 Average Rent PSF/Month $0.87 ------------------------------------------------------
Source: RealFacts The following tables show the historical apartment rent growth by unit type and total market occupancy rates for Snohomish County. SNOHOMISH COUNTY HISTORICAL RENT AND OCCUPANCY TREND BY UNIT TYPE
--------------------------------------------------------------------------------------------------------------------- UNIT CMP. AVG. TYPE 1998 1999 2000 2001 2002 2003 2004 % CHG. ------------------------------------------------------------------------------------------------------------- 0/1 $507 $518 $535 $552 $547 $513 $487 2.0% 1/1 624 636 653 689 678 649 635 2.2% 2/1 724 730 749 796 787 761 746 2.2% 2/2 794 796 810 864 871 841 840 2.4% 2 TH 890 890 921 1,177 1,158 1,155 1,157 7.5% 3/2 943 953 973 1,060 1,058 1,036 1,029 3.0% 3 TH 1,052 1,162 1,208 1,687 1,642 1,599 1,472 14.0% ------------------------------------------------------------------------------------------------------------- Wtg. Avg. $739 $745 $762 $819 $817 $788 $779 3.2% Ann. % Chg. 0.8% 2.3% 7.5% -0.2% -3.5% -1.1% Cumm. % Chg. 0.8% 1.5% 3.5% 2.5% 1.3% 0.9% Occupancy 96.1% 95.7% 96.4% 95.0% 92.1% 92.2% 91.1% - ---------------------------------------------------------------------------------------------------------------------
Source: RealFacts Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 18 -------------------------------------------------------------------------------- SNOHOMISH COUNTY HISTORICAL RENT AND OCCUPANCY TREND
---------------------------------------------------------------------------------------------------- UNIT TYPE 1998 1999 2000 2001 2002 2003 -------------------------------------------------------------------------------------------- Wtg. Avg. Rent $716 $745 $769 $799 $783 $760 Ann. % Chg. - 4.1% 3.2% 3.9% -2.0% -2.9% Cumm. % Chg. 4.1% 3.6% 3.7% 2.3% 1.2% Occupancy 94.7% 93.5% 96.4% 93.4% 92.3% 92.4% ----------------------------------------------------------------------------------------------------
Source: Hendricks Partners The data shows a contrast between the higher rent growth that occurred from 1998 to 2001 and the negative rent growth for 2002 and 2003. However, on an absolute level, the slight negative rent growth that occurred in 2002 and 2003 is mild compared to expectations of local real estate professionals based on the soft economic conditions. The following table shows the King County trend in apartment rents and occupancy quarter-by-quarter over the last 24 months. This data gives a more detailed look at recent market trends. SNOHOMISH COUNTY RECENT RENT AND OCCUPANCY TREND
----------------------------------------------------------------------------------------------------------------------------------- UNIT LAST YR. AVG. ANN. TYPE 2Q '02 3Q '02 4Q '02 1Q '03 2Q '03 3Q '03 4Q '03 1Q '04 % CHG. % CHG. -------------------------------------------------------------------------------------------------------------------------- 0/1 $553 $537 $535 $525 $521 $515 $507 $487 -7.2% -6.0% 1/1 683 675 670 653 646 645 640 635 -2.8% -3.5% 2/1 788 788 776 770 763 762 755 746 -3.1% -2.7% 2/2 873 867 859 850 841 849 838 840 -1.2% -1.9% 2 TH 1,167 1,167 1,147 1,135 1,147 1,159 1,157 1,157 1.9% -0.4% 3/2 1,060 1,058 1,044 1,038 1,031 1,039 1,032 1,029 -0.9% -1.5% 3 TH 1,645 1,631 1,615 1,636 1,571 1,571 1,571 1,472 -10.0% -5.3% -------------------------------------------------------------------------------------------------------------------------- Wtg. Avg. $819 $814 $805 $795 $788 $791 $782 $779 -2.0% -2.4% Occupancy 91.9% 92.3% 92.2% 92.2% 91.4% 92.6% 92.7% 91.1% - - -----------------------------------------------------------------------------------------------------------------------------------
Source: RealFacts While the prior table showed Snohomish County market rent peaked in 2001, the above table more specifically shows that market rent continually decreased rapidly in the second half of 2002. It has incrementally declined since, with the 1st quarter of 2003, while the average market rent has not been higher than the 2ond quarter 2002 amount. The data also shows that market occupancy has slightly fluctuated in each of the last eight quarters, which suggests that the rental market has not stabilized. Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 19 -------------------------------------------------------------------------------- The following table shows the current market performance of Edmonds, Everett, and Lynnwood sub-markets in March 2004. This data shows low occupancy in the three sub-markets, slightly lower than that of Snohomish County as whole. COMPETITIVE SUB-MARKET PERFORMANCE - MARCH 2004
--------------------------------------------------------------------------------------------- NO. AVG. AVG. AVG. SUB-MARKET UNITS PROP. SIZE OCCUP. RENT ------------------------------------------------------------------------------------- Edmonds 985 246 91.0% $750 Everett 6,652 230 90.7% $763 Lynnwood 5,282 211 90.4% $771 ------------------------------------------------------------------------------------- Tot./Wtg. Avg. 12,919 229 90.6% $765 ---------------------------------------------------------------------------------------------
Source: RealFacts The following table shows the comparison of units delivered in the Seattle apartment market compared with absorption. SEATTLE APRATMENT MARKET SUPPLY AND ABSORPTION
---------------------------------------------------------------------------------------------------------------------- 1996 1997 1998 1999 2000 2001 2002 2003 ------------------------------------------------------------------------------------------------------------- Marcus & Milichap ----------------- Completions - - - 5,950 6,081 4,496 4,239 2,600 Hendricks Partners ------------------ Absorption 3,400 4,200 1,700 6,600 6,950 650 1,228 1,087 Permits 6,200 6,500 11,000 10,000 8,700 6,200 3,348 4,439 ----------------------------------------------------------------------------------------------------------------------
The data generally indicates supply and demand had been in balance until 2001, when the economy softened. The data also shows permits have substantially exceeded absorption and completions, indicating all permitted properties are not constructed. However, it does indicate a greater potential of new units. The subject's local market is mature and little desirable land is available to new apartment development. Absorption dramatically dropped in 2001 and remained well below historical amounts in 2002 and 2003, which contributed to the rise in vacancy and related decline in rents Micromarket Overview The appraisers surveyed five competitive properties in the immediate vicinity of the subject property. These properties are outlined in detail in the forthcoming Economic Rent Analysis section of this report. The occupancy levels reported for these properties range from 92% to 96% as presented in the following chart. The weighted average occupancy of the sample surveyed equates to 93%. The subject is directly influenced by the Edmonds and Lynnwood submarkets, which have lower average Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 20 -------------------------------------------------------------------------------- occupancies than the competitive set. Due to competition for tenants, concessions are prevalent at area apartments. Concessions typically consist of reduced or free rent over a portion of the lease term. SUMMARY OF COMPETITIVE OCCUPANCY LEVELS
-------------------------------------------------- Property Name No. of Occupancy Units -------------------------------------------------- Silver Oak 88 96% Maple Glen 106 92% Creekside Village 508 92% Terrace Heights 144 93% Victorian Woods 66 92% -------------------------------------------------- Totals/Average 912 93% --------------------------------------------------
Appeal to Market: The subject property has a tenant profile similar to other properties of similar vintage in the area. Its presentation, condition, appearance and rental rate structure are all within market parameters. No adverse conditions are evident which would effect its future competitive position. Conclusion The Seattle-Everett area's apartment market has suffered during the past few years due to several factors. One factor is the stagnant economy, both national and local. Corporate layoffs, particularly in the high-tech and manufacturing industries, have had a major impact. Other factors impacting multifamily housing are low mortgage interest rates that have attracted many first time buyers, people who move out of apartments and into single-family housing. Supply and demand factors have not been in equilibrium, resulting in lowered occupancy levels and rental rates. The occupancy level for area apartments within the subject submarket appears to be slowly stabilizing. Local real estate professionals and published market reports forecast occupancy levels to increase slightly over the next 12 months. When economic conditions begin to improve, demand for rental housing should follow suit. Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 21 -------------------------------------------------------------------------------- ECONOMIC RENT ANALYSIS Five competitive properties follow. They are located in the influencing area of the subject property and define the range of property type and rents available. The information regarding the rent comparables was obtained through physical inspections and interviews of rental agents and property managers. The rents commanded by competitive properties in the influencing area are utilized to determine the economic rent potential for the subject property. RENT COMPARABLE #1 Address: Silver Oak Apartments 21412 48th Avenue W Mountlake Terrace, Washington Number of Units: 88 Year Built: 1986 Description: Garden-style apartments with two-story residential buildings. Wood exterior walls, pitched roofs with composition shingle covers and asphalt-paved parking area. Amenities: Apartment features include wood burning fireplace, electric kitchen appliances including refrigerator with freezer, dishwasher, washer/dryer, mini-blinds, patio/balcony and cable TV and Internet available. Property Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 22 -------------------------------------------------------------------------------- features include clubhouse, fitness center, pool, sauna/spa, detached garages, storage, and on-site management. Rental Data:
----------------------------------------------------------------------------------------------- Unit Type Mix Size (SF) Total Area Quoted Rent/Unit Quoted Rent/SF Total Rent ----------------------------------------------------------------------------------------------- 1BR/1BA 32 640 20,480 $600 $0.94 $19,200 2BR/1BA 24 836 20,064 $700 $0.84 $16,800 2BR/2BA 32 880 28,160 $750 $0.85 $24,000 ----------------------------------------------------------------------------------------------- Totals/Average 88 781 68,704 $683 $0.88 $60,000 -----------------------------------------------------------------------------------------------
Occupancy: 96% Concessions: 1st month's rent-free Comments: This property is located just south of the subject property. It is similar to the subject property in terms of age, physical characteristics, and amenities. This comparable is slightly inferior due to location as it is on a less traveled street. Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 23 -------------------------------------------------------------------------------- RENT COMPARABLE #2 Address: Maple Glen Apartments 5424 212th Street SW Mountlake Terrace, Washington Number of Units: 106 Year Built: 1986 Description: Garden-style apartments with two- and three-story residential buildings. Wood exterior walls, pitched roofs with composition shingle covers and asphalt-paved parking area. Amenities: Apartment features include wood burning fireplace, some crown molding, vaulted ceilings in top floors, attached garages, electric kitchen appliances including refrigerator with freezer, dishwasher, washer/dryer, mini-blinds, patio/balcony and cable TV and internet available. Property features include clubhouse, fitness center, outdoor sports court, pool, sauna/spa, carports, storage, and on-site management. Rental Data:
------------------------------------------------------------------------------------------------- Unit Type Mix Size (SF) Total Area Quoted Rent/Unit Quoted Rent/SF Total Rent ------------------------------------------------------------------------------------------------- 1BR/1BA 31 661 20,491 $695 $1.05 $21,545 1BR/1BA Handicap 5 666 4,326 $700 $1.05 $3,500 1BR/1BA 6 721 4,326 $725 $1.01 $4,260 2BR/1BA Loft 16 820 13,120 $850 $1.04 $13,600 2BR/1BA 14 865 12,110 $875 $1.01 $12,250 2BR/2BA 34 910 30,940 $915 $1.01 $30,600 ------------------------------------------------------------------------------------------------- Totals/Average 106 805 85,313 $793 $1.03 $85,755 -------------------------------------------------------------------------------------------------
Occupancy: 92% Concessions: 1st month's rent-free Comments: This property is located approximately 4 blocks west of the subject property. Its location is slightly superior to the subject property in terms of proximity to the Interstate 5 Freeway. This comparable is superior to the subject property in terms of location, physical characteristics, and amenities while having the same age. Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 24 -------------------------------------------------------------------------------- RENT COMPARABLE #3 Address: Creekside Village Apartments 4208 236th Street SW Mountlake Terrace, Washington Number of Units: 508 Age: 1986 Description: Garden-style apartments with three-story residential buildings. Wood exterior walls, pitched roofs with composition shingle covers and asphalt-paved parking area. Amenities: Apartment features include wood burning fireplace, vaulted ceilings in top floors, attached garages, electric kitchen appliances including refrigerator with freezer, dishwasher, stack washer/dryer, mini-blinds, patio/balcony and cable TV and internet available. Property features include clubhouse, fitness center, indoor and outdoor sports court, playground, pool (2), sauna/spa, carports, storage, and on-site management. Rental Data:
----------------------------------------------------------------------------------------------- Unit Type Mix Size (SF) Total Area Quoted Rent/Unit Quoted Rent/SF Total Rent ----------------------------------------------------------------------------------------------- 1BR/1BA 242 644 155,848 $602 $0.93 $145,684 2BR/1BA 116 884 102,544 $739 $0.84 $85,724 2BR/2BA 118 908 107,144 $749 $0.83 $88,382 3BR/2BA 32 1,208 38,656 $1,079 $0.89 $34,528 ----------------------------------------------------------------------------------------------- Totals/Average 508 796 404192 $792.25 $0.87 $354318 -----------------------------------------------------------------------------------------------
Occupancy: 92% Concessions: N/A-Reduced rent is their concessions Comments: This property is located approximately 1 mile southeast of the subject property. Its location is slightly inferior to the subject property in terms of visibility on a heavier traveled roadway and proximity to the Interstate 5 Freeway. This comparable is superior to the subject property in terms of physical characteristics and amenities while having the same age. Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 25 -------------------------------------------------------------------------------- RENT COMPARABLE #4 Address Terrace Heights Apartments 4713 216th Street SW Mountlake Terrace, Washington Number of Units: 144 Age: 1990 Description: Garden-style apartments with two- and three-story residential buildings. Wood exterior walls, pitched roofs with composition shingle covers and asphalt-paved parking area. Amenities: Apartment features include wood burning fireplace, built in bookshelves in some apartments, open attached garages, electric kitchen appliances including refrigerator with freezer, dishwasher, stack washer/dryer, mini-blinds, patio/balcony and cable TV and internet available. Property features include clubhouse, fitness center, and playground, outdoor sports court, pool, spa, carports, storage, and on-site management. Rental Data:
-------------------------------------------------------------------------------------------------- Unit Type Mix Size (SF) Total Area Quoted Rent/Unit Quoted Rent/SF Total Rent -------------------------------------------------------------------------------------------------- 1BR/1BA Garage 40 685 27,400 $660 $0.96 $26,400 1BR/1BA 20 720 14,400 $700 $0.97 $14,000 2BR/1BA 24 890 21,360 $790 $0.89 $18,960 2BR/2BA 30 920 27,600 $840 $0.91 $25,200 3BR/2BA 30 1,142 34,260 $965 $0.85 $28,950 -------------------------------------------------------------------------------------------------- Totals/Average 144 868 125,020 $791 $0.92 $113,510 --------------------------------------------------------------------------------------------------
Occupancy: 93% Concessions: 6 weeks rent-free with a 12 month lease Comments: This property is situated approximately 1 and 1/2 blocks south of the subject property in a slightly inferior location along a less traveled roadway. This comparable is superior to the subject property in terms of age, physical characteristics, and amenities. Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 26 -------------------------------------------------------------------------------- RENT COMPARABLE #5 Address: Victorian Woods Apartments 4004 212th Street SW Mountlake Terrace, Washington Number of Units: 66 Year Built: 1984 Description: Garden-style apartments with two- and three-story residential buildings. Wood exterior walls, pitched roofs with composition shingle covers and asphalt-paved parking area. Amenities: Apartment features include wood burning fireplace, vaulted ceilings in all top floor apartments, electric kitchen appliances including refrigerator with freezer, dishwasher, stack washer/dryer, mini-blinds, patio/balcony and cable TV and internet available. Property features include clubhouse, fitness center, pool, spa, carports, storage, and on-site management. Rental Data:
-------------------------------------------------------------------------------------------------- Unit Type Mix Size (SF) Total Area Quoted Rent/Unit Quoted Rent/SF Total Rent -------------------------------------------------------------------------------------------------- 1BR/1BA 24 731 17,544 $650 $0.89 $15,600 2BR/1BA 20 866 17,320 $745 $0.86 $14,900 2BR/2BA 12 994 11,928 $850 $0.86 $10,200 3BR/2BA 10 1,180 11,800 $995 $0.84 $9,950 -------------------------------------------------------------------------------------------------- Totals/Average 66 888 58,592 $810 $0.86 $50,650 --------------------------------------------------------------------------------------------------
Occupancy: 92% Concessions: 1-2 months free Comments: This property is situated two miles south of the subject property in a similar location. It is slightly inferior to the subject property in terms of age, location, physical characteristics, and amenities. Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 27 -------------------------------------------------------------------------------- ANALYSIS The subject property is situated in a good location in Mountlake Terrace along 212th Street SW, less than one mile east of Interstate 5 Freeway. It is competitive with other properties in terms of location, condition, amenities, and unit size. The tables below illustrate the comparables with the most similar floor plans in relation to the subject's floor plans. ONE-BEDROOM FLOOR PLANS
------------------------------------------------------------------------ Comparable # Unit Size (SF) Rent/Month Rent/SF ------------------------------------------------------------------------ Subject 657 $709 $1.08 Silver Oak 640 $600 $0.94 Maple Glen Small 661 $695 $1.05 Maple Glen Handicap 666 $700 $1.05 Maple Glen Large 721 $725 $1.01 Creekside Village 644 $602 $0.93 Terrace Heights w/ Garage 685 $660 $0.96 Terrace Heights no Garage 720 $700 $0.97 Victorian Woods 731 $650 $0.89 ------------------------------------------------------------------------
TWO-BEDROOM FLOOR PLANS
------------------------------------------------------------------------- Comparable # Unit Size (SF) Rent/Month Rent/SF ------------------------------------------------------------------------- Subject - One Bath 819 $769 $0.94 Subject - Two Bath 912 $799 $0.88 Silver Oak - One Bath 836 $700 $0.84 Silver Oak - Two Bath 880 $750 $0.85 Maple Glen Loft - One Bath 820 $850 $1.04 Maple Glen - One Bath 865 $875 $1.01 Maple Glen - Two Bath 910 $900 $0.99 Creekside Village - One Bath 884 $739 $0.84 Creekside Village- Two Bath 908 $749 $0.83 Terrace Heights - One Bath 890 $790 $0.89 Terrace Heights - Two Bath 920 $840 $0.91 Victorian Woods - One Bath 970 $830 $0.86 Victorian Woods - Two Bath 1,070 $850 $0.79 -------------------------------------------------------------------------
The subject is most similar to Silver Oak and Creekside Village in terms of location, age and physical attributes and amenities. The Victorian Woods property is slightly inferior in terms of age, location, amenities, and overall appearance. The subject is inferior to Maple Glen, Terrace Heights, and slightly inferior to Creekside Village in terms of age, physical location and amenities. Upward adjustments are required to the Victorian Woods property for inferior location, age physical characteristics, and amenities. In general, the subject's rental rates should be aligned below the rents indicated by Maple Glen, slightly below the rent indicated by Terrace Heights, similar to the rents illustrated by Silver Oak and Creekside Village, and slightly above the rents identified for Victorian Woods. As indicated above, the rent for the subject's one and two bedroom floor plans are well above the range of rents illustrated by Silver Oak and Creekside Village, the properties rated as being most similar. Its rental rate structure is inappropriately aligned above the rents illustrated by the superior Maple Glen and Terrace Heights properties and well above the rent indicted by Victorian Woods. Based on a review of market rental data, the subject's quoted rent structure could be a cause of the subject property's low occupancy rate. We have considered this in our estimate of stabilized occupancy in the Income Approach. The rates listed do not include a deduction for up-front free rent, even though it is commonly given by all properties. We have estimated a free rent deduction, which is applied in the Direct Capitalization Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 28 -------------------------------------------------------------------------------- Method calculation. Concessions are a component of this market and will vary seasonally, by property specific issues, and by unit type. The subject leased 5 one-bedroom/one-bathroom, 7 two-bedroom/one-bathroom, 7 two-bedroom/two-bathroom, and 11 three-bedroom/two-bathroom units from January 1, 2004 through April 28, 2004, excluding month-to-month leases. The majority of the leases signed have achieved asking rents. Therefore, we have estimated market (economic) rent at the quoted rates. Based upon the rents illustrated by the competing properties and rent actually commanded by the subject property, the following rents will be processed as the property's economic rent potential for valuation purposes. The following table summarizes the economic rent structure estimated for the subject property. MONTHLY ECONOMIC RENT POTENTIAL-BRONSON PLACE APARTMENTS
--------------------------------------------------------------------------------------------------- Size Total Quoted Quoted Economic Economic Unit Type Mix (SF) Area Rent/Unit Rent/SF Rent/Unit Rent/SF Total Rent --------------------------------------------------------------------------------------------------- 1BR/1BA 14 657 9,198 $709 $1.08 $709 $1.08 $9,926 2BR/1BA 16 819 13,104 $769 $0.94 $769 $0.94 $12,304 2BR/2BA 24 912 21,888 $799 $0.88 $799 $0.88 $19,176 2BR/2BA 16 995 15,920 $989 $0.99 $989 $0.99 $15,824 --------------------------------------------------------------------------------------------------- Totals/Average 70 846 60,110 $817 $0.97 $817 $0.97 $57,230 ---------------------------------------------------------------------------------------------------
HIGHEST AND BEST USE HIGHEST AND BEST USE AS IF VACANT Surrounding Land Uses Predominately multifamily developments along 212th Street and single-family residential subdivisions to the north. Multifamily developments are also prevalent along the 48th Avenue W frontage to the south. Physically Possible Being situated on a heavier traveled neighborhood collector street, the subject site benefits from visibility to traffic and enjoys good accessibility. Multifamily use would benefit from the site's exposure to passing traffic. Legally Permissible Multifamily use is the intended use of the site. Financial Feasible Multifamily development has been occurring throughout the Seattle-Everett area over the past ten years but the rate of new development has recently curtailed. The curtailment of development is the result of soft market conditions that prevail at this time. Soft market conditions are the result of diminished job growth caused by recessionary economic conditions. Economic conditions appear to be improving and as new employment opportunities present themselves, added demand for rental housing should follow. Conclusion Holding period until market conditions and demand justify the cost of new multifamily development. HIGHEST AND BEST USE AS IMPROVED Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 29 -------------------------------------------------------------------------------- Current Improvements 70-unit multifamily apartment complex. The existing improvements contribute significantly to overall property value indicating that the value of the improved property greatly exceeds the value of the site assuming it to be vacant. Conclusion Continued use of the existing improvements Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 30 -------------------------------------------------------------------------------- VALUATION There are three traditional approaches that can be employed in establishing Market Value. These approaches and their applicability to the valuation of the subject property are summarized as follows: THE COST APPROACH This method estimates the replacement or reproduction cost of the improvements, less the estimated depreciation (physical, functional, economic), plus the estimated market value of the land, in order to arrive at a final value indication. This approach is based on the premise that an informed purchaser would pay no more for a property than the cost of constructing a building of similar utility and condition. The Cost Approach is a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) properties where the cost of reproducing the improvement is easily and accurately quantified and there is no external or economic obsolescence. Due to the age of the improvements, they have incurred physical deterioration due to normal wear and usage. Given the inherent inaccuracies and subjectivity involved in estimating substantial degrees of physical deterioration, the cost approach is not considered a reliable, independent approach to value in this instance THE SALES COMPARISON APPROACH Using this technique, the property value is indicated by comparing the subject to similar, nearby properties that have recently sold. Essentially, the procedure is to gather bona fide, recent arm's length sales of comparable properties and compare the most important characteristics of the sales to the subject. Adjustments are then made to the comparable properties for differences such as terms of financing, date of sale, location, and physical characteristics. Attaining data with a high degree of comparability is most important when this technique is utilized. The reliability is dependent upon the availability of comparable sales data, the verification of the sales data, the degree of comparability and extent of adjustment necessary for differences and the absence of non-typical conditions affecting the sales price. As numerous sales of properties similar to the subject have occurred in the Dallas area, this approach has been employed in the valuation process. THE INCOME CAPITALIZATION APPROACH The Income Capitalization Approach is a process in which the anticipated flow of future benefits is capitalized into a value indication. The Income Capitalization Approach is widely applied in appraising income-producing properties. The reliability of this technique is dependent upon the reliability of the net income estimate and the capitalization rate. Since the subject is income producing realty and anticipated to continue to be so, this approach has been employed in the valuation of the Fee Simple Estate. RECONCILIATION AND FINAL VALUE ESTIMATE The final step in the Appraisal Process is the reconciliation of the value indicators into a single value estimate. In the reconciliation or correlation, the appraiser considers the relative applicability of each of the three approaches, examines the range between the value indications and places major emphasis on the approach that appears to produce the most reliable solution to the specific appraisal problem. The purpose of the appraisal, the type of property and the adequacy and reliability of the data are analyzed and appropriate weight is given to each of the approaches to value. Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 31 -------------------------------------------------------------------------------- THE INCOME CAPITALIZATION APPROACH Investment properties are normally valued in proportion to their ability to produce income; hence, an analysis of the property in terms of its ability to provide a sufficient net annual return on invested capital is an important means of valuing any asset. Value is estimated by deducting an appropriate vacancy and collection allowance and all applicable expenses from the anticipated gross annual income to arrive at a projected net operating income, which is then capitalized at an interest rate, or investment, yield, commensurate with the risk inherent in the ownership of the property. Such a conversion of projected income considers competitive returns offered by alternative investments. There are two primary income capitalization methods: Direct Capitalization, which converts a single year's net operating income into an indication of value and the Discounted Cash Flow Analysis (DCF), which estimates the present worth through the process of discounting the forecasted net income and the reversionary sale over the course of an anticipated investment period. The Direct Capitalization technique is employed in this analysis. DIRECT CAPITALIZATION The basic steps in the Direct Capitalization method are as follows: 1. Calculate POTENTIAL GROSS INCOME from the dwelling units; 2. Estimate VACANCY AND CREDIT LOSS to arrive at Effective Gross Income; 3. Estimate OPERATING EXPENSES to arrive at the stabilized Net Operating Income; 4. Develop the OVERALL CAPITALIZATION RATE; 5. Divide NOI by the CAP RATE to arrive at VALUE. REVENUE: As presented in the Economic Rent Analysis section of this report, the monthly economic rent potential is estimated at $57,230. The annual gross rent potential estimated for the apartment units total $686,750. Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 32 -------------------------------------------------------------------------------- LOSS-TO-LEASE: Loss-to-lease is the difference between our estimate of market rent and actual achieved rent, which is lower. Historically the loss-to-lease factor has fluctuated over time, and due to the current market conditions and the subject's current occupancy, we are using a factor that is more reflective of the subject's current position. We have created a recent move-in table identifying the difference between asking (market rent) and actual rent. LOSS-TO-LEASE RECENT MOVE-IN
------------------------------------------------------------------------------------------- TYPE UNIT NO. DATE ACTUAL ASK DIFFERENTIAL ------------------------------------------------------------------------------------------- 1B/1B 10-204 Mar-04 649 709 ($60) 1B/1B 16-103 Mar-04 659 709 ($50) 1B/1B 16-105 Feb-04 604 709 ($105) 1B/1B 10-202 Jan-04 705 709 ($4) 1B/1B 16-203 Jan-04 609 709 ($100) ------------------------------------------------------------------------------------------- 1B/1B WG'D AVG. $645 $709 ($64) 2B/1B 18-202 Apr-04 769 769 $0 2B/1B 18-207 Mar-04 679 769 ($90) 2B/1B 18-105 Mar-04 729 769 ($40) 2B/1B 18-206 Mar-04 729 769 ($40) 2B/1B 18-101 Feb-04 839 769 $70 2B/1B 18-108 Jan-04 699 769 ($70) 2B/1B 18-203 Jan-04 709 769 ($60) ------------------------------------------------------------------------------------------- 2B/1B WG'D AVG. $736 $769 ($33) 2B/2B 12-204 Apr-04 769 799 ($30) 2B/2B 12-205 Mar-04 779 799 ($20) 2B/2B 14-206 Mar-04 724 799 ($75) 2B/2B 16-108 Mar-04 869 799 $70 2B/2B 12-106 Feb-04 799 799 $0 2B/2B 12-103 Jan-04 819 799 $20 2B/2B 14-106 Jan-04 749 799 ($50) ------------------------------------------------------------------------------------------- 2B/2B WG'D AVG. $787 $799 ($12) 3B/2B 12-207 Apr-04 869 989 ($120) 3B/2B 14-102 Apr-04 889 989 ($100) 3B/2B 12-202 Mar-04 979 989 ($10) 3B/2B 12-201 Feb-04 809 989 ($180) 3B/2B 14-108 Feb-04 979 989 ($10) 3B/2B 12-108 Feb-04 809 989 ($180) 3B/2B 12-208 Jan-04 799 989 ($190) 3B/2B 12-101 Jan-04 779 989 ($210) 3B/2B 12-102 Jan-04 879 989 ($110) 3B/2B 14-201 Jan-04 869 989 ($120) ------------------------------------------------------------------------------------------- 3B/2B WG'D AVG. $866 $989 ($123) -------------------------------------------------------------------------------------------
LOSS-TO-LEASE CALCULATION 1B/1B--14 (units) times $768 ($64 X 12 months)=$10,752 2B/1B--16 (units) times $396 ($33 X 12 months)=$6,336 2B/2B--24 (units) times $144 ($12 X 12 months)=$3,456 3B/2B--16 (units) times $1,476 ($123 X 12 months)=$23,616 ------ Total Loss-to-Lease=$44,160 CONCESSIONS: Rent concessions in the market are prevalent in an attempt to bolster occupancy at area apartments. Concessions usually consist of reduced or free rent over a portion of the lease term. As a Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 33 -------------------------------------------------------------------------------- percentage of the property's gross rent potential, concessions amounted to 1.5% in 2001, decreasing to 0.9% in 2002 and 0.4% in 2003. On a stabilized basis, concessions are projected at 1.0% of the estimated gross rent potential or $6,868. VACANCY AND OTHER LOSS: As of the date of inspection, the subject property was 85% occupied. During 2003, the average occupancy at the subject property was approximately 90%. Properties identified as income comparables within the Economic Rent Analysis section of this report illustrate occupancy levels that range from 92% to 96%. The weighted average occupancy of the income comparables surveyed equates to approximately 93%. Information presented in the Apartment Market Overview section of this report indicates that the average occupancy within the subject's Snohomish County apartment submarket is 92.2%, an amount similar to the weighted average occupancy produced by primary comparables in the immediate area of the subject property. We have based our estimate on the subject's historical and current vacancy and credit loss, which has ranged for 10% to 18% over the last three years, but have also considered the better performance of the directly competitive properties. In light of the higher asking rents at the subject, which may be contributing to its higher vacancy, we have used a stabilized vacancy factor of 10% of the total income. BAD DEBT LOSS: Included in this category is the loss from tenants with the inability to make payments to the ownership. As a percentage of the property's total income, bad debt expenses range from 1.96% in to 2001, to 3.24% in 2003. Bad debt is budgeted at 2.53% for 2004. Based on historical and budgeted bad debt expenses, we have estimated bad debt to be 3.0% of the total income. UTILITY INCOME: Included in this category is the revenue received from tenants paying or reimbursing ownership for their share of water and sewer usage. Total utility income in 2002 was $482 per unit increasing to $519 per unit in 2003. Reimbursement revenue is budgeted at $548 per unit for 2004. We have identified the percentage decrease of utility charges by the city and applied that same percentage change to the 2004 budget in order to determine the utility reimbursement going forward. Upon doing so we obtained a value of $520 feet, which correlates to the actual 2003 figure. Based on the historical and budgeted utility income receipts, as well as our understanding, we have estimated Utility Income to be $520 per unit or $36,400. OTHER INCOME: Included within this category is the revenue received from such items as application fees, forfeited deposits, and late fees. As a percentage of the property's gross rent potential, Other Income receipts range from 3.5% to 5.6%. Other income is budgeted at 5.8% for 2004. Based on historical and budgeted other income receipts, we have estimated Other Income to be 5.0% of the gross rent potential or $491 per unit. EXPENSES: In order to project expenses for valuation purposes, the expenses historically incurred in the operation of the subject property have been reviewed. The operating budget for the current year has also been considered. Typical operating expenses for garden apartments in the Snohomish County area, as reported by IREM have been reviewed and analyzed. The following table summarizes the three-year operating history for the subject property and outlines the operating budget for the current year. Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 34 -------------------------------------------------------------------------------- SUMMARY OF OPERATING HISTORY AND BUDGET - BRONSON PLACE APARTMENTS
-------------------------------------------------------------------------------------------------------- 2001 2002 2003 2004 Budget Item Actual Per Unit Actual Per Unit Actual Per Unit Total Per Unit -------------------------------------------------------------------------------------------------------- Gross Rent Potential $713,920 $10,199 $689,960 $9,857 $671,900 $9,599 $671,580 $9,594 Loss to Lease ($12,382) ($176) ($4,521) ($65) ($23,751) ($339) ($10,949) ($156) Concessions ($10,465) ($150) ($6,267) ($90) ($2,751) ($39) ($14,638) ($209) Vacancy/Other Loss ($55,583) ($794) ($91,370) ($1,305) ($95,743) ($1,368) ($79,115) ($1,130) Bad Debt ($13,099) ($187) ($14,723) ($210) ($19,541) ($279) ($15,900) ($227) Utility Income $22,549 $322 $33,737 $482 $36,313 $519 $38,345 $548 Other Income $24,769 $ 354 $35,380 $ 505 $37,359 $534 $39,036 $558 -------- ----- -------- ----- -------- ----- -------- ---- Effective Gross Income $669,709 $ 9,567 $642,196 $ 9,174 $603,786 $8,626 $628,359 $8,977 Utilities $40,171 $ 574 $51,276 $733 $63,666 $910 $60,480 $864 Contract Services $11,778 $ 168 $53,596 $ 766 $40,870 $584 $33,504 $479 Repairs & Maintenance $16,481 $ 235 $16,236 $ 232 $12,661 $181 $11,327 $162 Turnover Expense $10,733 $ 153 $18,001 $257 $17,949 $256 $17,100 $244 Administrative $17,978 $257 $18,046 $ 258 $27,844 $398 $15,455 $221 Marketing $20,729 $ 296 $18,581 $ 265 $24,766 $354 $20,149 $288 Payroll $73,806 $ 1,054 $55,102 $ 787 $54,483 $778 $51,156 $731 Management $34,647 $ 495 $32,278 $ 461 $31,525 $450 $32,109 $459 Insurance $11,463 $ 164 $10,762 $ 154 $11,536 $165 $11,824 $169 Real Estate Taxes $53,971 $ 771 $53,394 $ 763 $52,575 $751 $55,516 $793 -------- ----- -------- ----- -------- ----- -------- ---- Total Expenses $291,703 $ 4,167 $327,272 $ 4,675 $337,875 $4,827 $308,620 $4,409 Net Operating Income $378,006 $ 5,400 $314,924 $ 4,499 $265,911 $3,799 $319,739 $4,568 --------------------------------------------------------------------------------------------------------
Utilities This expense covers the cost of electricity, water and sewer and gas usage for the property. The subject's historical utilities expense ranges from a low of $574 per unit in 2001 to a high of $910 per unit in 2003. An amount equivalent to $864 per unit is budgeted for 2004. Based on historical expenditures, the budget amount appears appropriate. Utilities are processed at $864 per unit or $60,480. Contract Services: This category includes the costs for HVAC, elevator, pest control, trash removal, and fire/life/safety contract services. This expense has ranged from $168 to $766 per unit per year from 2001 to date. However for 2004 management budget was at a lower rate than that of the 2002 high, or $479 per unit per year. As a result, we have relied on the actual 2003 value for this expense at $584 per unit or $40,870, based on its history and current operating experience. Repair & Maintenance: This category includes general repair and maintenance items, and contracted services. The subject's historical repair and maintenance expense ranges from a low of $181 per unit in 2003 to a high of $235 per unit in 2001. An amount equivalent to $162 per unit is budgeted for 2004. The repairs and maintenance expense is estimated at $162 per unit or $11,327. Turnover Expense: This category includes turnover expenses incurred upon tenants vacating the space. The subject's historical turnover expense ranges from a low of $153 per unit in 2001 to a high of $257 per unit in 2002. An amount equivalent to $244 per unit is budgeted for 2004. The turnover expense is estimated at $244 per unit or $17,100, which is consistent with the last two years values. Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 35 -------------------------------------------------------------------------------- Administrative Office expenses, telephone, management unit expenses, computer maintenance and supplies, professional fees and miscellaneous expenses are covered in this category. The subject's historical administrative expense ranges from a low of $257 per unit in 2001 to a high of $398 per unit in 2003. An amount equivalent to $221 per unit is budgeted for 2004. Administrative expenses are projected at $221 per unit or $15,470. Marketing Included in this category are all newspaper and printed advertising, payments to locator services, leasing commissions, and resident referrals. The subject's historical marketing expense ranges from a low of $265 per unit in 2002 to a high of $354 per unit in 2003. An amount equivalent to $288 per unit is budgeted for 2004. Administrative expenses are projected at $300 per unit or $21,000. Payroll: This expense covers salaries, payroll taxes, and workers compensation insurance for on site management, leasing, and maintenance personnel. The subject's historical payroll expense ranges from a low of $778 per unit in 2003 to a high of $1,054 per unit in 2001. An amount equivalent to $731 per unit is budgeted for 2004. Due to additional discussions we noted that for the year 2004 it has been agreed that Bronson Place will employ 3 personnel. This was not reflected in the 2004 budget, but is reflective of the 2001 figure. We have concluded that payroll expenses will be closer related to the 2001 figure rather than the 2004 budget. Payroll expenses are projected at $1,000 per unit or $70,000. Management A typical management fee on a property of this type is 3% to 5% of the effective gross income. The subject's historical management fee has been based on an amount equivalent to approximately 4.6% of Effective Gross Income. A market-oriented fee of 4.0% is considered reasonable. Based on the preceding estimate of Effective Gross Income, the subject's management fee is estimated to be $392 per unit or $27,470. Insurance This expense item covers the building and includes fire, extended coverage, vehicle, and owner's liability. The subject's historical insurance expense ranges from a low of $154 per unit in 2002 to a high of $165 per unit in 2003. An amount equivalent to $169 per unit is budgeted for 2004. Insurance expenses are projected at $169 per unit or $11,830. Taxes As discussed in the Real Estate Tax section, the tax burden for the subject property is estimated at $49,293, or $703 per unit. Reserves for Replacements In addition to the repairs and maintenance expenditures, the property will incur annual capital expenditures to keep it in prime condition. A reserve category is typical for multifamily property; therefore we have included reserves as an additional budget item. Reserves for replacement for a property of this vintage typically range from $200 to Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 36 -------------------------------------------------------------------------------- $300 per unit. A reserve for replacement allowance of $300 per unit or $21,000 is estimated for the subject property. Total Expenses Total expenses have been estimated at $345,840 or $4,941 per unit inclusive of reserves. Information provided by the Institute of Real Estate Management (IREM) indicates that operating expenses for Seattle-Everett area apartment complexes range from $3,697 to $4,257 per unit, exclusive of a reserve allowance. Exclusive of reserves, the total operating expenses projected for the subject property fall above this range. Industry standard expense data suggests that the total expenses estimated for the subject property are reasonable, but high. NET OPERATING INCOME: The Net Operating Income is that amount of the income remaining after paying all operating expenses. This affords the owner capital to satisfy debt service, if any, and provides a return on owner's equity. We have estimated the NOI to be $268,780. The subject's income and expense pro forma is summarized below. OPERATING PRO FORMA
-------------------------------------------------------- Line Item Total Per Unit -------------------------------------------------------- Gross Potential Rent $686,750 $9,810 Loss to Lease ($44,160) ($631) Concessions ($6,868) ($98) Utility Income $36,400 $520 Other Income $34,338 $491 ------------ -------- ---- Total Income $706,460 $10,092 Vacancy/Other Loss ($70,646) ($1,009) Bad Debt ($21,194) ($303) -------- --------- ------ Effective Gross Income $614,620 $8,780 Utilities $60,480 $864 Contract Services $40,870 $584 Repairs & Maintenance $11,327 $162 Turnover Expense $17,100 $244 Administrative $15,470 $221 Marketing $21,000 $300 Payroll $70,000 $1,000 Management $27,470 $392 Insurance $11,830 $169 Real Estate Taxes $49,293 $704 Reserves $21,000 $300 -------- ---- Total Expenses $345,840 $4,941 Net Operating Income $268,780 $3,840 --------------------------------------------------------
CAPITALIZATION: Capitalization rates express relationships between net income and total value. The rate employed must be consistent with and reflective of those rates currently employed by investors active in the market place. In order to perform this analysis, estimates of an appropriate capitalization rate must be formed. By its nature this is a judgmental process, however, selected rates should approximate the investment perimeters expected to be employed by the most probable buyer for the subject property. Several approaches are typically followed in selecting the investment parameters; review and analysis of alternative real estate and non-real estate investments; review and analysis of published real estate Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 37 -------------------------------------------------------------------------------- investor surveys; derivation of rates from empirical market data; and use of in-house experience with similar types of investments. Most Probable Buyer Considering the size and quality of the asset, the subject buyer would most likely attract national or regional investors. Market Extraction The following table summarizes the market derived overall rates. The sales are further detailed in the Sales Comparison Approach. Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 38 -------------------------------------------------------------------------------- SUMMARY OF MARKET DERIVED OVERALL RATES
------------------------------------------------------------------------------------ Sale 1 Sale 2 Sale 3 Sale 4 Sale 5 ------------------------------------------------------------------------------------ Name Meadowdale Weatherly Forest Creek Nordic Pines Sunrise Sale Date Listing Jan-04 Dec-03 Oct-03 Oct-03 Cap Rate (OAR) 7.35% 6.81% 7.03% 7.31% 6.52% ------------------------------------------------------------------------------------
The sales exhibit overall rates that range from 6.52% to 7.35% and produce an average of 7.0%. The sales represent recent transactions of late 1980s and early 1990s vintage apartment complexes that are generally similar to the subject property in terms of construction and physical characteristics. The comparable properties are situated in the Seattle-Everett area locations that demonstrate generally similar demographic characteristics of the subject neighborhood. The capitalization rates indicated by the sales data are representative of an appropriate rate that would be applicable to the subject property. Based on the indicators exhibited by market data, a capitalization rate in the range of approximately 6.5% to 7.5% is suggested. A rate of 7.0% is concluded. Our discussions with local investment sale brokers unanimously support our conclusion. Survey of Investors The most useful approach used to estimate an approximate rate of return required by the most probable buyer is to analyze the current investment parameters applied by institutional investors and advisors to real estate pension and portfolio funds when acquiring real estate. According to the First Quarter 2004 Korpacz Real Estate Investor Survey, prepared by Price Waterhouse Coopers, capitalization rates for institutional grade apartment properties range from 5.50% to 9.25% with an average of 7.25%. According to the same survey, non-institutional grade properties exhibit a range of cap rates of 6.00% to 11.00% with an average of 8.46%. The subject property fits the profile of a Class "D" apartment complex. As a Class D asset, an appropriate rate for the property is reasoned to fall below the average for higher-grade institutional assets and well below the average for non-institutional grade properties. A capitalization rate in the range of 6.0% to 8.0% is suggested for the subject property. Conclusion The sales exhibit overall rates that range from 6.52% to 7.35% and produce an average of 7.0%. These rates fall within the ranges reported by the published investor surveys. Based on the indicators exhibited by the sales data and supported by investor surveys, and our discussions with local brokers, an appropriate cap rate for the subject property is concluded to be 7.0%. VALUATION: Capitalizing the estimated Net Operating Income of $268,780 by a 7.0% rate results in a value conclusion of $3,800,000, rounded ($268,780 NOI / 7.0% OAR = $3,839,714.29). FINAL VALUE: $3,800,000 Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 39 -------------------------------------------------------------------------------- THE SALES COMPARISON APPROACH The Sales Comparison Approach to value is the process of comparing recent sales of competitive properties. The estimated value derived via this approach represents the probable price at which the subject property would be sold by a willing seller to a willing buyer as of the date of value. To estimate the property value by the Sales Comparison Approach, five multifamily apartment building sales, which are summarized in the following table, have been examined and analyzed. All of the sales are garden style apartments with similar physical characteristics within the Dallas area apartment market. The appraisal indicators exhibited by the sales data outlined in the following chart are utilized for purposes of estimating a value for the subject via the Sale Comparison Approach. The price per apartment unit has been relied upon as the unit of comparison in this approach. The comparative process involves judgment as to the similarity between the subject property and the comparable sale property with regard to a variety of factors affecting value such as location, age and condition of the structure, market conditions, rent levels, property rights conveyed, financing terms, conditions of sale, operational efficiencies and other factors. ANALYSIS OF SALES: This approach relies on an active market. Sufficient data from the Dallas area exists to formulate a value via the Sales Comparison Approach. Below are five sale comparables of similar vintage garden style apartments with similar characteristics to the subject property. SUMMARY OF COMPARABLE BUILDING SALES Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 40 --------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------- PROPERTY SALE NO. 1 SALE NO. 2 SALE NO. 3 ---------------------------------------------------------------------------------------------------------------- NAME MEADOWDALE APT. WEATHERLY APT. FOREST CREEK APT. ADDRESS 5011 168th St. SW 1522 NE 175th St. 1717 W Casino Rd. CITY Lynnwood, WA Seattle, WA 98155 Everett, WA 98204 98037 STORIES 2-sty walk-up 4-sty walk-up 3-sty walk-up YEAR BUILT 1987 1987 1999 TOTAL SIZE (SF) 103,648 49,533 28,195 TOTAL UNITS 108 47 30 AVE. UNIT SIZE (SF) 960 848 880 STUDIO - #/SF - - - 1/1 - #/SF (32) 759 SF (11) 715 SF (9) 765 SF 2/1 - #/SF (32) 965 SF - (12) 870 SF 2/2 - #/SF (24) 980 SF (36) 890 SF (4) 960 SF 3/2 - #/SF (20) 1,248 SF - (5) 1,050 SF LOCATION Very Good Good Excellent FUNCTIONAL UTILITY Very Good Good Good CONDITION Very Good Good Good TRANSACTION GRANTOR - Weatherly Appartments M/M John P&Audrey Roberts GRANTEE - James P & Margret McCready Rakesh Parashar DATE OF SALE Listing 26-Jan-04 19-Dec-03 SALE PRICE $7,400,000 $3,850,000 $2,050,020 CONDITIONS OF SALE Arm's-Length Arm's-Length Arm's-Length OCCUPANCY AT SALE - 95% 77% ECONOMIC UNITS PRICE/UNIT $68,519 $81,915 $68,334 NOI/UNIT $5,036 $5,578 $4,804 EXP. %GRS OR /UNIT $4,095 $3,566 $3,417 OAR - YR. 1 7.35% 6.81% 7.03% NOI - YR. 1 $543,900 $262,185 $144,116 ----------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------- PROPERTY SALE NO. 4 SALE NO. 5 ------------------------------------------------------------------------------------------- NAME NORDIC PINES APT. SUNRISE APT. ADDRESS 18410-18512 52nd Ave. W 12522 8th Ave. W CITY Lynnwood, WA 98037 Everett, WA 98204 STORIES 2-sty walk-up 2 & 3-sty walk-up YEAR BUILT 1977 2000 TOTAL SIZE (SF) 45,600 133,706 TOTAL UNITS 38 131 AVE. UNIT SIZE (SF) 1200 1060 STUDIO - #/SF - - 1/1 - #/SF - (24) 741 SF 2/1 - #/SF (38) 1,200 SF (40) 1,102 SF 2/2 - #/SF - (37) 1,052 SF 3/2 - #/SF - (30) 1,270 SF LOCATION Very Good Excellent FUNCTIONAL UTILITY Good Very Good CONDITION Good Very Good TRANSACTION GRANTOR Prospect Invest. Corp Gibson Road Investm. GRANTEE Dewar Properties LLC Sunrise Lane Apar DATE OF SALE 1-Oct-03 1-Oct-03 SALE PRICE $2,594,300 $11,500,000 CONDITIONS OF SALE Arm's-Length Arm's-Length OCCUPANCY AT SALE 95% 94% ECONOMIC UNITS PRICE/UNIT $68,271 $87,786 NOI/UNIT $4,991 $5,724 EXP. %GRS OR /UNIT $3,984 $4,684 OAR - YR. 1 7.31% 6.52% NOI - YR. 1 $189,643 $749,800 -------------------------------------------------------------------------------------------
The sales indicate per unit prices ranging from $68,271 to $87,786. Three of the comparables represent sales of apartments that are of similar construction componentry as the subject. All of the sales are of the same general vintage as the subject property, with two being much newer, and generally similar in terms of physical condition. Situated in throughout the Seattle-Everett metro area, minor differences exist as to the specific location of each comparable and subject property. The primary difference between the comparables and the subject are location and average unit size. The most value influencing difference between the subject and the comparable sales is the amount of net operating income generated on a per unit basis. In an attempt to quantify appropriate adjustments to the prices indicated by the comparables, we have analyzed the difference between the net operating incomes (NOI) per unit of the comparables relative to the NOI of the subject property. In this analysis we have adjusted the sale price of the comparables based on the percentage difference in net income. This factor takes into account the adjustments necessary for the aforementioned factors that are considered to have the most impact on value. As discussed in the Income Approach section of the report, the NOI estimated for the subject property is $268,780which equates to $3,840 per unit. The adjustments applied to the comparable sales are depicted below. PRICE PER UNIT ANALYSIS
---------------------------------------------------------------------------------------------------------- Sale No. Price/Unit Subject NOI/Unit Comparable NOI/Unit Adjustment Factor Adjusted Price/Unit ---------------------------------------------------------------------------------------------------------- 1 $68,519 $3,840 $5,036 0.76 $52,074 2 $81,915 $3,840 $5,578 0.69 $56,521 3 $68,334 $3,840 $4,804 0.80 $54,667 4 $68,271 $3,840 $4,991 0.77 $52,569 5 $87,786 $3,840 $5,724 0.67 $58,817 ----------------------------------------------------------------------------------------------------------
*Adjustment Factor = (Subject NOI per Unit / Comparable NOI per Unit) Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 41 -------------------------------------------------------------------------------- The adjusted per unit indicators fall within a narrower range than the unadjusted per unit prices. The adjusted range of per unit prices is $52,074 to $58,817. The mean and median adjusted unit price is $54,930 and $54,667. As no one sale requires a significant degree of adjustment, equal emphasis is placed on each in concluding to a value of $54,800 per unit for the subject property. Utilizing this per unit value estimate, the total value of the subject property is estimated at $3,800,000, rounded. $54,800 x 70 units = $3,836,000 EGIM ANALYSIS: The sales illustrate EGIMs that range from 7.2 to 8.7. Important in selecting an appropriate EGIM is the review of corresponding operating expenses. 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. The operating expense ratios for the sales range from 37% to 45%. In selecting an appropriate EGIM, consideration must be given to the operating expense ratio estimated for the subject. Based on the income and expenses estimated for the subject property in Income Approach, the subject's operating expense ratio is calculated at 56%. The subject's expense ratio is aligned well above the range of ratios exhibited by the sales data. As such, an EGIM aligned in the well below end of the range indicated by the sales data would be considered reasonable. In consideration of the preceding, an EGIM of 6.25 is concluded. Based on the effective gross income of $614,620 estimated for the subject property, a value indication of $4,300,000 (rounded) is concluded. $614,620 x 6.25 = $3,841,375, or $3,800,000, rounded CONCLUSION: The noted value indicators utilizing the sales price per unit and EGIM methods are $3,800,000 and $3,800,000, respectively. Due to the similarity of the resulting value indicators, relatively equal consideration was given to both techniques when concluding to a final value via the Sales Comparison Approach of $3,800,000. As such, the Market Value of the subject property's Fee Simple Interest via the Sales Comparison Approach is therefore estimated at: VALUE VIA THE SALES COMPARISON APPROACH $3,800,000 RECONCILIATION Cost Approach N/A Income Capitalization Approach $3,800,000 Sales Comparison Approach $3,800,000 Income and Sales approaches to value were employed in the appraisal of the subject property. Buyers and sellers rarely rely on the Cost Approach to price commercial real estate. Furthermore, the age of the improvements and subjectivity involved in estimating substantial degrees of physical deterioration Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Page 42 -------------------------------------------------------------------------------- reduces the reliability of this approach. As such, a Cost Approach was not employed. The value derived from the Income Capitalization Approach is well documented and market oriented. The local market is active in terms of investment sales of similar apartment complexes and sufficient sales data was available to develop a defensible value via the Sales Comparison Approach. The value derived through use of the Sales Comparison Approach supports the value concluded for the property via the Income Capitalization Approach. Due to the income producing nature of the subject property, the results of the Income Capitalization Approach are emphasized. FINAL ESTIMATE OF VALUE $3,800,000 Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Addenda -------------------------------------------------------------------------------- ADDENDA Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Addenda -------------------------------------------------------------------------------- SUBJECT PHOTOGRAPHS Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Addenda -------------------------------------------------------------------------------- [PHOTO] VIEW OF ENTRANCE TO PROPERTY ON 212TH STREET [PHOTO] VIEW OF ENTRANCE TO PROPERTY AND FRONTAGE ALONG 212TH STREET Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Addenda -------------------------------------------------------------------------------- [PHOTO] VIEW OF MAIN COURTYARD AND TYPICAL BUILDINGS [PHOTO] VIEW OF TYPICAL BUILDING ELEVATION Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Addenda -------------------------------------------------------------------------------- [PHOTO] VIEW OF TYPICAL PATIO/BALCONY [PHOTO] VIEW OF COVERED PARKING Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Addenda -------------------------------------------------------------------------------- [PHOTO] VIEW OF PLAYGROUND FACILITIES [PHOTO] VIEW OF SPORTS COURT WITH NO BASKETBALL HOOP Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Addenda -------------------------------------------------------------------------------- [PHOTO] VIEW OF SPA [PHOTO] VIEW OF FITNESS CENTER Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Addenda -------------------------------------------------------------------------------- [PHOTO] VIEW OF LIVING ROOM AND FIREPLACE [PHOTO] VIEW OF TYPICAL KITCHEN Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Addenda -------------------------------------------------------------------------------- COMPARABLE RENTAL PHOTOGRAPHS Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Addenda -------------------------------------------------------------------------------- [PHOTO] COMPARABLE #1 [PHOTO] COMPARABLE #2 Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Addenda -------------------------------------------------------------------------------- [PHOTO] COMPARABLE #3 [PHOTO] COMPARABLE #4 Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Addenda -------------------------------------------------------------------------------- [PHOTO] COMPARABLE #5 Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Addenda -------------------------------------------------------------------------------- COMPARABLE SALE PHOTOGRAPHS Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Addenda -------------------------------------------------------------------------------- [PHOTO] IMPROVED SALE #1 [PHOTO] IMPROVED SALE #2 Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Addenda -------------------------------------------------------------------------------- [PHOTO] IMPROVED SALE #3 [PHOTO] IMPROVED SALE #4 Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Addenda -------------------------------------------------------------------------------- [PHOTO] IMPROVED SALE #5 Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Addenda -------------------------------------------------------------------------------- REGIONAL LOCATION MAP [MAP] Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Addenda -------------------------------------------------------------------------------- NEIGHBORHOOD MAP [MAP] Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Addenda -------------------------------------------------------------------------------- COMPARABLE RENTALS MAP [MAP] Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Addenda -------------------------------------------------------------------------------- COMPARABLE SALES MAP [MAP] Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Addenda -------------------------------------------------------------------------------- QUALIFICATIONS Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Addenda -------------------------------------------------------------------------------- WILLIAM L. CORBIN, MAI EXECUTIVE VICE PRESIDENT WILLIAM CORBIN, MAI is Executive Vice President and manager of the Western Regional Office of KTR Newmark Real Estate Services LLC, located at 10866 Wilshire Boulevard, Los Angeles, California 90024. His direct telephone number is 310/ 234-4754. EDUCATION University of California at Los Angeles, 1977 Bachelor of Arts Major in Economics University of Southern California, 1980 Master of Business Administration Concentration in Real Estate and Finance DESIGNATIONS MAI Member - Appraisal Institute LICENSES California Certified General Real Estate Appraiser Arizona Certified General Real Estate Appraiser AFFILIATIONS National Council of Real Estate Investment Fiduciaries (NCREIF) designated representative - Valuation sub-committee Chairperson for Standardized Commercial Appraisal Report Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Addenda -------------------------------------------------------------------------------- WILLIAM L. CORBIN, MAI EXPERIENCE Mr. Corbin began his career with an intensive education in real estate market analysis as a consultant with ROBERT CHARLES LESSER & CO. from 1980 to 1983. With RCLCo, he performed over 75-market supply and demand, economic feasibility, and strategic planning assignments for prominent regional and national clients. During this very active construction period, nationally, Mr. Corbin had the opportunity to visit and analyze commercial real estate market conditions is over 20 major metropolitan areas in the Western and Central U.S. As a mortgage banker from 1983 to 1992, Mr. Corbin arranged a wide variety of financing structures with institutional lenders and equity investors, including permanent loans, construction loans, and joint ventures. In total with GEORGE SMITH FINANCIAL SERVICES/GRUBB & ELLIS and Center Financial Group, he worked with over 90 institutions and closed over 150 transactions totaling in excess of $700,000,000. As an appraiser, Mr. Corbin has performed numerous current value narrative appraisals for national and regional institutional lenders and investors. His previous experience in commercial real estate finance gives him particular insight to the capital and investment markets and their impact on institutional real estate activity and values. He has performed a wide variety of appraisals of warehouse distribution buildings, industrial and business parks, office buildings, shopping centers, and apartments. He worked with LANDAUER ASSOCIATES from 1992 to 1995, managing the Aetna Realty Investors account for western region property appraisals. Currently with KTR NEWMARK eight years, Mr. Corbin is responsible for managing the Los Angeles regional office, developing and managing institutional accounts, as well as performing direct valuation work for those clients. He also heads KTR Newmark's national pension fund valuation practice and is the firm's designated representative to NCREIF, a national organization of pension fund advisors that creates and implements operational policy standards for the industry. Mr. Corbin is currently the chairperson for NCREIF's valuation sub-committee that is contributing to developing a standardized commercial appraisal report in conjunction with the Appraisal Institute that will become the valuation industry standard. In addition to professional experience, Mr. Corbin has served as a real estate course instructor and conference collaborator for UCLA Extension. Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Addenda -------------------------------------------------------------------------------- WILLIAM L. CORBIN, MAI Following is a list of representative clients Mr. Corbin has performed services for: CLIENTS - AS APPRAISER AND CONSULTANT Aetna Realty Investors, Inc. Massachusetts Mutual Life Bechtel Corporation McCullough Oil Properties CALTRANS Mobil Land Development Catellus Corp. Chevron Land Development Philips, North America Home Savings of America KOAR Hotel Group Safeway Stores Copley Institutional Realty Santa Anita Realty Estate of James Campbell Santa Fe Land Improvement Co. Franklin Properties, Inc. Taft Broadcasting Co. Triton Energy Corp Comerica Bank Union Oil/Moreland Development Trammell Crow Company Kaiser Aluminum Corp. Bank of New York Lockheed Air Terminal, Inc. Majestic Realty Hong Kong and Shanghai Bank Corp. Canadian Imperial Bank of Commerce PNC Bank Sakura Bank CALSTRS Newfield Enterprises Heller Financial J. P. Morgan Mortgage Capital Chase Commercial Mortgage Banking Lend Lease Mortgage Capital Daiwa Securities America Whitehall Fund II Lennar Partners AMB Institutional Realty Advisors SSR Realty Advisors TA Associates Realty Douglas, Emmett Realty Advisors LACERA Dresdner Bank Henderson Global Investors Prudential Mortgage Capital Prudential Insurance Company of America TIAA-CREF INVESCO Principal Real Estate Investors Cornerstone Real Estate Advisers Deutsche Bank Eurohypo Bank CLIENTS - AS MORTGAGE BANKER AEtna Life & Casualty AFL-CIO Housing Trust BALCOR Bank of America Citicorp REIG Creative Artists Agency
Bronson Place Apartments May 10, 2004 Mountlake Terrace, Washington Addenda -------------------------------------------------------------------------------- Forest City Properties General Electric Credit Heller Financial Services Hollywood Center Studios Home Savings of America Industrial Bank of Japan MetroBank Massachusetts Mutual Life Principal Mutual Life Security Pacific National Bank Societe Generale Textron Financial Services U.S. Bancorp Union Bank William Morris Agency DeAnza Group, Inc. IBEW Pension Fund Nationwide Life
STEPHEN R. O'ROURKE APPRAISER STEPHEN O'ROURKE is an appraiser with the Los Angeles office of KTR Newmark Real Estate Services LLC. HIS experience in real estate valuation assignments includes retail, office, industrial, and apartments. EXPERIENCE Mr. O'Rourke has been employed with KTR Newmark Real Estate Services since February 2003. He has successfully completed several real estate appraisal courses offered by the Appraisal Institute and Anthony Schools. He is currently pursuing additional courses with the Appraisal Institute toward the California State Appraisal Certified General License and MAI designation of the Appraisal Institute. EDUCATION Mr. O'Rourke received a Bachelor of Business Management from the University of Southern California in 2000.