EX-99.(C)(1) 3 d07250a2exv99wxcyx1y.txt APPRAISAL OF AUTUMN RUN APARTMENTS AUTUMN RUN APARTMENTS 1627 COUNTRY LAKES DRIVE NAPERVILLE, ILLINOIS MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 30, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] JUNE 28, 2003 Apartment Investment and Management Company ("AIMCO") c/o Mr. Steven A. Velkei, Esq. Liner Yankelevitz Sunshine & Regenstreif LLP 1100 Glendon Avenue, 14th Floor Los Angeles, California 90024-3503 Nuanes, et al.( "Plaintiffs ") c/o Ms. Joy Kruse Lieff Cabraser Heimann & Bernstein Embarcadero Center West 275 Battery Street, 30th Floor San Francisco, California 94111 RE: AUTUMN RUN APARTMENTS 1627 COUNTRY LAKES DRIVE NAPERVILLE, DUPAGE COUNTY, ILLINOIS In accordance with your authorization, we have completed the appraisal of the above-referenced property. This complete appraisal is intended to report our analysis and conclusions in a summary format. The subject property consists of an apartment project having 320 units with a total of 245,748 square feet of rentable area. The improvements were built in 1986. The improvements are situated on 22.6454 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 97% occupied. It is our understanding the appraisal will be used by the clients to assist the San Mateo Superior Court in the settlement of litigation between the above mentioned clients. The appraisal is intended to conform to the Uniform Standards of Professional Appraisal Practice ("USPAP") as promulgated by the Appraisal Standards Board of the Appraisal Foundation and the Code of Professional Ethics and Standards of Professional Practice of the Appraisal Institute. The appraisal is presented in a summary report, and the Departure Provision of USPAP has not been invoked in this appraisal. It is entirely inappropriate to use this value conclusion or the report for any purpose other than the one stated. AMERICAN APPRAISAL ASSOCIATES, INC. LETTER OF TRANSMITTAL PAGE 2 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS The opinions expressed in this appraisal cover letter can only be completely understood by reading the narrative report, addenda, and other data, which is attached. The appraisal is subject to the attached general assumptions and limiting conditions and general service conditions. As a result of our investigation, it is our opinion that the fee simple market value of the subject, effective May 30, 2003 is: ($23,300,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. /s/ Ken Kapecki June 28, 2003 Ken Kapecki, MAI #053272 Managing Principal, Real Estate Group Illinois Certified General Real Estate Appraiser #153000331 Report By: Seamus P. King AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary ......................................................... 4 Introduction .............................................................. 9 Area Analysis ............................................................. 11 Market Analysis ........................................................... 14 Site Analysis ............................................................. 16 Improvement Analysis ...................................................... 16 Highest and Best Use ...................................................... 17 VALUATION Valuation Procedure ....................................................... 18 Sales Comparison Approach ................................................. 20 Income Capitalization Approach ............................................ 26 Reconciliation and Conclusion ............................................. 38
ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Autumn Run Apartments LOCATION: 1627 Country Lakes Drive Naperville, Illinois INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: Fee simple estate DATE OF VALUE: May 30, 2003 DATE OF REPORT: June 28, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 22.6454 acres, or 986,434 square feet Assessor Parcel No.: 07-09-222-007 Floodplain: Community Panel No. 1702130006C (May 18, 1992) Flood Zone C and X, an area inside the floodplain. Zoning: R-4 (High Density Multi-Family Planning and Development) BUILDING: No. of Units: 320 Units Total NRA: 245,748 Square Feet Average Unit Size: 768 Square Feet Apartment Density: 14.1 units per acre Year Built: 1986 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
Market Rent Square ------------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income -------------------------------------------------------------------------- 1Br/1Ba - 1A15 608 $ 675 $ 1.11 $ 21,600 $ 259,200 1Br/1Ba - 2A15 624 $ 700 $ 1.12 $ 22,400 $ 268,800 1Br/1Ba - 3A15 614 $ 700 $ 1.14 $ 28,000 $ 336,000 1Br/1Ba - 4A15 629 $ 725 $ 1.15 $ 29,000 $ 348,000 1Br/1Ba - 5A15 751 $ 775 $ 1.03 $ 31,000 $ 372,000 1Br/1Ba - 6A15 774 $ 800 $ 1.03 $ 32,000 $ 384,000 2Br/1Ba - 1B15 837 $ 950 $ 1.14 $ 11,400 $ 136,800 2Br/1Ba - 2B15 857 $ 950 $ 1.11 $ 11,400 $ 136,800 2Br/2Ba - 1C15 1,035 $ 1,000 $ 0.97 $ 36,000 $ 432,000 2Br/2Ba - 2C15 1,056 $ 1,000 $ 0.95 $ 36,000 $ 432,000 Total $258,800 $3,105,600
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS OCCUPANCY: 97% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 15 Years REMAINING ECONOMIC LIFE: 30 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] SUBJECT PROPERTY LEASING OFFICE AND CLUBHOUSE SUBJECT PROPERTY AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS NEIGHBORHOOD MAP [MAP] HIGHEST AND BEST USE: As Vacant: Hold for future multi-family development As Improved: Continuation as its current use METHOD OF VALUATION: In this instance, the Sales Comparison and Income Approaches to value were utilized. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit --------------------- ----------- -------------- Potential Rental Income $3,105,600 $9,705 Effective Gross Income $3,147,760 $9,837 Operating Expenses $1,249,633 $3,905 39.7% of EGI Net Operating Income: $1,802,127 $5,632 Capitalization Rate 7.75% DIRECT CAPITALIZATION VALUE $23,200,000 * $72,500 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 14% Stabilized Vacancy & Collection Loss: 5% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 8.25% Discount Rate 10.75% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $23,100,000 * $72,188 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $23,200,000 $72,500 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $64,615 to $90,857 Range of Sales $/Unit (Adjusted) $74,308 to $90,857 VALUE INDICATION - PRICE PER UNIT $23,900,000 * $74,688 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 6.76 to 8.74 Selected EGIM for Subject 7.40 Subject's Projected EGI $3,147,760 EGIM ANALYSIS CONCLUSION $23,200,000 * $72,500 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $22,700,000 * $70,938 / UNIT RECONCILED SALES COMPARISON VALUE $23,300,000 $72,813 / UNIT
------------------- * Value indications are after adjustments for concessions, deferred maintenance, excess land and lease-up costs, if any. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 8 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $23,900,000 NOI Per Unit $22,700,000 EGIM Multiplier $23,200,000 INDICATED VALUE BY SALES COMPARISON $23,300,000 $72,813 / UNIT INCOME APPROACH: Direct Capitalization Method: $23,200,000 Discounted Cash Flow Method: $23,100,000 INDICATED VALUE BY THE INCOME APPROACH $23,200,000 $72,500 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $23,300,000 $72,813 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 1627 Country Lakes Drive, Naperville, DuPage County, Illinois. Naperville identifies it as 07-09-222-007. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Seamus P. King on May 30, 2003. Ken Kapecki, MAI has not made a personal inspection of the subject property. Seamus P. King performed the research, valuation analysis and wrote the report. Ken Kapecki, MAI reviewed the report and concurs with the value. Ken Kapecki, MAI and Seamus P. King have extensive experience in appraising similar properties and meet the USPAP competency provision. The scope of this investigation comprises the inspection of the property and the collection, verification, and analysis of general and specific data pertinent to the subject property. We have researched current improved sales and leases of similar properties, analyzing them as to their comparability, and adjusting them accordingly. We completed the Sales Comparison and Income Capitalization Approaches to value. From these approaches to value, a concluded overall value was made. DATE OF VALUE AND REPORT This appraisal was made to express the opinion of value as of May 30, 2003. The date of the report is June 28, 2003. PURPOSE AND USE OF APPRAISAL The purpose of the appraisal is to estimate the market value of the fee simple interest in the subject property. It is understood that the appraisal is intended to assist the clients in litigation settlement proceedings. The appraisal was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. PROPERTY RIGHTS APPRAISED We have appraised the Fee Simple Estate in the subject property (as applied in the Sales & Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS defined in The Dictionary of Real Estate Appraisal, 3rd ed. (Chicago: Appraisal Institute, 1993), as: "Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat." MARKETING/EXPOSURE PERIOD MARKETING PERIOD: 6 to 12 months EXPOSURE PERIOD: 6 to 12 months HISTORY OF THE PROPERTY Ownership in the subject property is currently vested in Century Property Fund XXII. To the best of our knowledge, no transfers of ownership or offers to purchase the subject are known to have occurred during the past three years. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 11 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS AREA / NEIGHBORHOOD ANALYSIS NEIGHBORHOOD ANALYSIS A neighborhood is a group of complementary land uses. The function of the neighborhood analysis is to describe the immediate surrounding environs. The subject is located in the city of Naperville, Illinois. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Kane County Boundary West - Mill Street South - North Aurora Road North - Butterfield Road (Route 56) MAJOR EMPLOYERS Major employers in the subject's area include Lucent Technologies, Argonne National Lab, United Parcel Service, Edward Hospital, Indian Prairie School District, Northern Illinois Gas, Hinsdale Hospital, College of DuPage, DuPage County, Central DuPage Hospital, McMaster Carr Supply, Fermi National Lab, and Elmhurst Hospital. The overall economic outlook for the area is considered favorable. DEMOGRAPHICS We have reviewed demographic data within the neighborhood. The following table summarizes the key data points. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 12 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS NEIGHBORHOOD DEMOGRAPHICS
AREA -------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA ------------------------------------------------------------------------------------------- POPULATION TRENDS Current Population 9,243 56,104 162,332 8,502,982 5-Year Population 10,370 64,958 187,091 9,110,378 % Change CY-5Y 12.2% 15.8% 15.3% 7.1% Annual Change CY-5Y 2.4% 3.2% 3.1% 1.4% HOUSEHOLDS Current Households 4,155 22,504 58,405 3,054,373 5-Year Projected Households 4,711 26,128 67,362 3,264,990 % Change CY - 5Y 13.4% 16.1% 15.3% 6.9% Annual Change CY-5Y 2.7% 3.2% 3.1% 1.4% INCOME TRENDS Median Household Income $ 71,157 $ 87,405 $ 91,517 $ 60,922 Per Capita Income $ 29,563 $ 35,101 $ 33,443 $ 25,978 Average Household Income $ 67,864 $ 88,476 $ 93,118 $ 72,319
Source: Demographics Now The subject neighborhood's population is expected to show increases above that of the region. The immediate market offers superior income levels as compared to the broader market. The following table illustrates the housing statistics in the subject's immediate area, as well as the MSA region. HOUSING TRENDS
AREA ---------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA ------------------------------------------------------------------------------------------------ HOUSING TRENDS % of Households Renting 50.18% 31.26% 25.13% 32.62% 5-Year Projected % Renting 48.60% 30.41% 24.20% 31.47% % of Households Owning 42.10% 63.47% 70.36% 61.13% 5-Year Projected % Owning 44.13% 64.78% 71.70% 62.69%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Offices/commercial businesses South - Residential dwellings East - Apartments/commercial businesses West - Apartments CONCLUSIONS The subject is well located within the city of Naperville. The neighborhood is characterized as being mostly suburban in nature and is currently in the growth stage of development. The economic outlook for the neighborhood is judged to be favorable with a good economic base. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 14 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS MARKET ANALYSIS The subject property is located in the city of Naperville in DuPage County. The overall pace of development in the subject's market is more or less decreasing. The Naperville/Aurora submarket's construction activity is flat for 2003. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket -------------------------------------- 4Q01 4.0% 6.8% 1Q02 5.1% 9.8% 2Q02 5.2% 8.4% 3Q02 5.5% 7.6% 4Q02 6.0% 8.1% 1Q03 6.4% 8.4%
Source: Reis Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has underperformed the overall market. Due to decreasing interest rates, single family housing is becoming more affordable, consequently the renter base has been decreasing driving down rents and occupancy. Also, a shift in demographics has changed, as the majority of the property's tenants are blue collar workers whose annual income is generally less than a white collar worker. As a result the marketing strategies have shifted to attract new tenants by offering concessions throughout the market. Market rents in the subject's market have been following a decreasing trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change ----------------------------------------------------------------------------- 4Q01 $902 - $913 - 1Q02 $894 -0.9% $907 -0.7% 2Q02 $890 -0.4% $902 -0.6% 3Q02 $896 0.7% $912 1.1% 4Q02 $890 -0.7% $898 -1.5% 1Q03 $879 -1.2% $863 -3.9%
Source: Reis The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject -------------------------------------------------------------------------------------------------------- R-1 Country Lakes 640 95% 1984 Next to subject (west) R-2 Chantecleer Lakes 304 96% 1983 1 mile east of the subject R-3 McDowell Place Apartments 400 96% 1988 1 mile east of the subject R-4 Hunters Glen 320 91% 1989 4.5 miles south of the subject Subject Autumn Run Apartments 320 97% 1986
The apartment sector has been adversely affected by the affordability of single-family homes and poor economic conditions. Owners have lowered rents, which has eliminated any opportunity for rent growth. Typically, apartment managers have been either decreasing rent or offering rent concessions (mostly 1-2 months free rent) to attract new tenants. The market is expected to have an upturn by the end of 2003 and continue to see rents increase thereafter. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS PROPERTY DESCRIPTION SITE ANALYSIS Site Area 22.6454 acres, or 986,434 square feet Shape Irregular Topography Level Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Good Flood Zone: Community Panel 1702130006C, dated May 18, 1992 Flood Zone Zone C and X Zoning R-4, the subject improvements represent a legal conforming use of the site. REAL ESTATE TAXES
ASSESSED VALUE - 2002 --------------------------------------------- TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES -------------------------------------------------------------------------------------------------------------- 07-09-222-007 $708,860 $4,965,360 $5,674,220 $0.06836 $387,907
IMPROVEMENT ANALYSIS Year Built 1986 Number of Units 320 Net Rentable Area 245,748 Square Feet Construction: Foundation Concrete pier and beam Frame Wood Exterior Walls Brick or masonry Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include swimming pool, spa/jacuzzi, sand volleyball, tennis court, racquetball court, and parking area. Unit Amenities Individual unit amenities include a balcony, fireplace, cable TV connection, vaulted ceiling, skylights, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, water heater, garbage disposal, washer/dryer, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) ------------------------------------------------------- 1Br/1Ba - 1A15 32 608 1Br/1Ba - 2A15 32 624 1Br/1Ba - 3A15 40 614 1Br/1Ba - 4A15 40 629 1Br/1Ba - 5A15 40 751 1Br/1Ba - 6A15 40 774 2Br/1Ba - 1B15 12 837 2Br/1Ba - 2B15 12 857 2Br/2Ba - 1C15 36 1,035 2Br/2Ba - 2C15 36 1,056
Overall Condition Average Effective Age 15 years Economic Life 45 years Remaining Economic Life 30 years Deferred Maintenance None HIGHEST AND BEST USE ANALYSIS In accordance with the definition of highest and best use, an analysis of the site relating to its legal uses, physical possibilities, and financial feasibility is appropriate. The highest and best use as vacant is to hold for future multi-family development. The subject improvements were constructed in 1986 and consist of a 320-unit multifamily project. The highest and best use as improved is for a continued multifamily use. Overall, the highest and best use of the subject property is the continued use of the existing apartment project. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 18 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS THE VALUATION PROCEDURE There are three traditional approaches, which can be employed in establishing the market value of the subject property. These approaches and their applicability to the valuation of the subject are summarized as follows: THE COST APPROACH The application of the Cost Approach is based on the principle of substitution. This principle may be stated as follows: no one is justified in paying more for a property than that amount by which he or she can obtain, by purchase of a site and construction of a building, without undue delay, a property of equal desirability and utility. In the case of a new building, no deficiencies in the building should exist. In the case of income-producing real estate, the cost of construction plays a minor and relatively insignificant role in determining market value. The Cost Approach is typically only a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) where the cost of reproducing the improvements is easily and accurately quantified and there is no economic obsolescence. In all instances, the issue of an appropriate entrepreneurial profit - the reward for undertaking the risk of construction, remains a highly subjective factor especially in a market lacking significant speculative development. THE SALES COMPARISON APPROACH The Sales Comparison Approach is an estimate of value based upon a process of comparing recent sales of similar properties in the surrounding or competing areas to the subject property. Inherent in this approach is the principle of substitution. The application of this approach consists of comparing the subject property with similar properties of the same general type, which have been sold recently or currently are available for sale in competing areas. This comparative process involves judgment as to the similarity of the subject property and the comparable sale with respect to many value factors such as location, contract rent levels, quality of construction, reputation and prestige, age and condition, among others. The estimated value through this approach represents the probable price at which a willing seller would sell the subject property to a willing and knowledgeable buyer as of the date of value. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 19 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS THE INCOME CAPITALIZATION APPROACH The theory of the Income Capitalization Approach is based on the premise that present value is the value of the cash flow and reversionary value the property will produce over a reasonable holding (ownership) period. The Discounted Cash Flow Analysis will convert equity cash flows (including cash flows and equity reversion) into a present value utilizing an internal rate of return (or discount rate). The Internal Rate of Return (IRR) will be derived from a comparison of alternate investments, a comparative analysis of IRR's used by recent buyers of similar properties, and a review of published industry surveys. The Direct Capitalization Analysis converts one year of income into an overall value using overall capitalization rates from similar sales. The overall rates take into consideration buyers assumptions of the market over the long-term. The results of the Income Capitalization Analysis are usually the primary value indicator for income producing properties. Investors expect a reasonable rate of return on their equity investment based on the ownership risks involved; this approach closely parallels the investment decision process. RECONCILIATION In this instance, we have completed the Sales Comparison and Income Capitalization Approaches to value. As an income producing property, the income approach is a primary approach to value. The Sales Comparison Approach is also considered reliable as investors are buying similar buildings in the market. Our research indicates that market participants are generally not buying, selling, investing, or lending with reliance placed on the methodology of the Cost Approach to establish the value. Therefore, we have decided that the Cost Approach is not a reliable indicator of value for the subject, and this approach has not been utilized. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 20 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS SALES COMPARISON APPROACH Use of market or comparable sales requires the collection and analysis of comparable sales data. Similar properties recently sold are compared to the subject and adjusted based on any perceived differences. This method is based on the premise that the costs of acquiring a substitute property would tend to establish a value for the subject property. The premise suggests that if a substitute is unavailable in the market, the reliability of the approach may be subordinate to the other approaches. The reliance on substitute properties produces shortcomings in the validity of this approach. Geographic and demographic characteristics from each submarket restrict which sales may be selected. Recent sales with a similar physical characteristics, income levels, and location are usually limited. The sales we have identified, however, do establish general valuation parameters as well as provide support to our conclusion derived through the income approach method. The standard unit of comparison among similar properties is the sales price per unit and price per square foot of net rentable area. To accurately adjust prices to satisfy the requirements of the sales comparison approach, numerous calculations and highly subjective judgments would be required including consideration of numerous income and expense details for which information may be unreliable or unknown. The sales price per unit and square foot are considered relevant to the investment decision, but primarily as a parameter against which value estimates derived through the income approach can be judged and compared. In examining the comparable sales, we have applied a subjective adjustment analysis, which includes specific adjustments derived from our experience and consulting with the market participants. SALES COMPARISON ANALYSIS Detailed on the following pages are sales transactions involving properties located in the subject's competitive investment market. Photographs of the sale transactions are located in the Addenda. Following the summary of sales is an adjustment grid that is used to arrive at a value. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS SUMMARY OF COMPARABLE SALES-IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ------------------------------------------------------------------------------------------------------------------ Property Name Autumn Run Apartments Greenway Trail Apartments Sherry Naperville LOCATION: Address 1627 Country Lakes Drive 136 Greenway Trail 1821 Washington Street City, State Naperville, Illinois Carol Stream, IL Naperville, IL County DuPage DuPage DuPage PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 245,748 269,400 156,600 Year Built 1986 1977 1975 Number of Units 320 325 164 Unit Mix: Type Total Type Total Type Total 1Br/1Ba - 1A15 32 Studio/1BH 1 1BR/1BH 128 1Br/1Ba - 2A15 32 1BR/1.5BH 228 2BR/2BH 36 1Br/1Ba - 3A15 40 2BR/1.5BH 96 1Br/1Ba - 4A15 40 1Br/1Ba - 5A15 40 1Br/1 Ba - 6A15 40 2Br/1 Ba - 1B15 12 2Br/1 Ba - 2B15 12 2Br/2 Ba - 1C15 36 2Br/2 Ba - 2C15 36 Average Unit Size (SF) 768 829 955 Land Area (Acre) 22.6454 14.7500 9.0900 Density (Units/Acre) 14.1 22.0 18.0 Parking Ratio (Spaces/Unit) 1.48 Ample 2.00 Parking Type (Gr., Cov., etc.) Open Open Open, Covered CONDITION: Average Average Average APPEAL: Average Good Good AMENITIES: Pool/Spa Yes/Yes Yes/No Yes/No Gym Room No No No Laundry Room No Yes Yes Secured Parking No No No Sport Courts No Yes No Washer/Dryer Connection Yes Yes No Fireplace No No No Balconies Yes Yes Yes OCCUPANCY: 97% 95% 93% TRANSACTION DATA: Sale Date January, 2003 December, 2002 Sale Price ($) $21,000,000 $12,600,000 Grantor 582 Redhill (LLC) Protter Enterprises (Ltd) Grantee Greenway Apts. Ltd. Sherry Apartments (LP) Partnership Sale Documentation R03-072490 R02-347205 Verification Confidential Confidential Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $3,268,260 $10,056 $12.13 $1,549,800 $9,450 $9.90 Vacancy/Credit Loss $ 163,413 $ 503 $ 0.61 $ 108,486 $ 662 $0.69 Effective Gross Income $3,104,847 $ 9,553 $11.53 $1,441,314 $8,789 $9.20 Operating Expenses $1,241,939 $ 3,821 $ 4.61 $ 504,456 $3,076 $3.22 Net Operating Income $1,862,908 $ 5,732 $ 6.92 $ 936,858 $5,713 $5.98 NOTES: None Minor repairs reported PRICE PER UNIT $64,615 $76,829 PRICE PER SQUARE FOOT $ 77.95 $ 80.46 EXPENSE RATIO 40.0% 35.0% EGIM 6.76 8.74 OVERALL CAP RATE 8.87% 7.44% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 -------------------------------------------------------------------------------------------------------------------------------- Property Name Remington Apartments Hunters Glen Apartments Mill Ponds Apartments LOCATION: Address 525 Fair Meadows Drive 245 North Oakhurst Drive 1331 Modaff Road City, State Romeoville, IL Aurora, IL Naperville, IL County Will DuPage DuPage PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 332,206 299,040 205,931 Year Built 1999 1989 1988 Number of Units 350 320 216 Unit Mix: Type Total Type Total Type Total 1BR/1BH 169 1BR/1BH 128 1BR/1BH 72 2BR/2BH 169 2BR/2BH 192 2BR/2BH 144 3BR/2BH 12 Average Unit Size (SF) 949 935 953 Land Area (Acre) 29.1700 14.8700 13.4200 Density (Units/Acre) 12.0 21.5 16.1 Parking Ratio (Spaces/Unit) 2.00 0.46 2.00 Parking Type (Gr., Cov., etc.) Open, Covered Open, Covered Open, Covered CONDITION: Very Good Good Average APPEAL: Good Good Average AMENITIES: Pool/Spa Yes/Yes Yes/No Yes/No Gym Room Yes Yes No Laundry Room Yes No Yes Secured Parking Yes Yes No Sport Courts Yes Yes No Washer/Dryer Connection Yes Yes No Fireplace Yes Yes No Balconies Yes Yes Yes OCCUPANCY: 93% 90% 96% TRANSACTION DATA: Sale Date June, 2002 February, 2002 May, 2001 Sale Price ($) $31,800,000 $22,800,000 $14,684,000 Grantor Fairfield Romeoville (LP) Realty Associates Fund III State Bank of Countryside Grantee JRC Remington (LLC) R.E. Cedar (LP) Mill Ponds Associates Sale Documentation R0-2109715 R02-040364 R01-079063 Verification Confidential Confidential Confidential Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $4,495,020 $12,843 $13.53 $3,732,300 $11,663 $12.48 $2,087,000 $9,662 $10.13 Vacancy/Credit Loss $ 314,651 $ 899 $ 0.95 $ 373,230 $ 1,166 $ 1.25 $ 0 $ 0 $ 0.00 Effective Gross Income $4,180,369 $11,944 $12.58 $3,359,070 $10,497 $11.23 $2,087,000 $9,662 $10.13 Operating Expenses $1,672,148 $ 4,778 $ 5.03 $1,511,582 $ 4,724 $ 5.05 $ 707,520 $3,276 $ 3.44 Net Operating Income $2,508,221 $ 7,166 $ 7.55 $1,847,488 $ 5,773 $ 6.18 $1,379,480 $6,386 $ 6.70 NOTES: None Estimated $1.8 million None worth of work upgrading the clubhouse. (roof and residing) PRICE PER UNIT $90,857 $71,250 $67,981 PRICE PER SQUARE FOOT $ 95.72 $ 76.24 $ 71.31 EXPENSE RATIO 40.0% 45.0% 33.9% EGIM 7.61 6.79 7.04 OVERALL CAP RATE 7.89% 8.10% 9.39% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA ACTUAL
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $64,615 to $90,857 per unit. Adjustments have been made to the sales to reflect differences in location, age/condition and quality/appeal. Generally speaking, larger properties typically have a lower price per unit when compared to smaller properties, all else being equal. Similarly, those projects with a higher average unit size will generally have a higher price per unit. After appropriate adjustments are made, the improved sales demonstrate an adjusted range for the subject from $74,308 to $90,857 per unit with a mean or average adjusted price of $82,082 per unit. The median adjusted price is $78,519 per unit. Based on the following analysis, we have concluded to a value of $75,000 per unit, which results in an "as is" value of $23,900,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ---------------------------------------------------------------------------------------------------------------- Property Name Autumn Run Apartments Greenway Trail Apartments Sherry Naperville Address 1627 Country Lakes Drive 136 Greenway Trail 1821 Washington Street City Naperville, Illinois Carol Stream, IL Naperville, IL Sale Date January, 2003 December, 2002 Sale Price ($) $21,000,000 $12,600,000 Net Rentable Area (SF) 245,748 269,400 156,600 Number of Units 320 325 164 Price Per Unit $64,615 $76,829 Year Built 1986 1977 1975 Land Area (Acre) 22.6454 14.7500 9.0900 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 01-2003 0% 12-2002 0% VALUE AFTER TRANS. ADJUST. ($/UNIT) $64,615 $76,829 Location Inferior 5% Inferior 5% Number of Units 320 325 0% 164 -5% Quality / Appeal Good Inferior 5% Inferior 5% Age / Condition 1986 1977 / Average 5% 1975 / Average 5% Occupancy at Sale 97% 95% 0% 93% 0% Amenities Good Comparable 0% Comparable 0% Average Unit Size (SF) 768 829 0% 955 5% PHYSICAL ADJUSTMENT 15% 15% FINAL ADJUSTED VALUE ($/UNIT) $74,308 $88,354 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 ------------------------------------------------------------------------------------------------------------- Property Name Remington Apartments Hunters Glen Apartments Mill Ponds Apartments Address 525 Fair Meadows Drive 245 North Oakhurst Drive 1331 Modaff Road City Romeoville, IL Aurora, IL Naperville, IL Sale Date June, 2002 February, 2002 May, 2001 Sale Price ($) $31,800,000 $22,800,000 $14,684,000 Net Rentable Area (SF) 332,206 299,040 205,931 Number of Units 350 320 216 Price Per Unit $90,857 $71,250 $67,981 Year Built 1999 1989 1988 Land Area (Acre) 29.1700 14.8700 13.4200 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 06-2002 0% 02-2002 0% 05-2001 5% VALUE AFTER TRANS. ADJUST. ($/UNIT) $90,857 $71,250 $71,381 Location Comparable 0% Comparable 0% Inferior 5% Number of Units 350 0% 320 0% 216 -5% Quality / Appeal Comparable 0% Comparable 0% Inferior 5% Age / Condition 1999 / Very Good -5% 1989 / Good 0% 1988 / Average 0% Occupancy at Sale 93% 0% 90% 5% 96% 0% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 949 5% 935 5% 953 5% PHYSICAL ADJUSTMENT 0% 10% 10% FINAL ADJUSTED VALUE ($/UNIT) $90,857 $78,375 $78,519
SUMMARY VALUE RANGE (PER UNIT) $74,308 TO $90,857 MEAN (PER UNIT) $82,082 MEDIAN (PER UNIT) $78,519 VALUE CONCLUSION (PER UNIT) $75,000
VALUE OF IMPROVEMENT & MAIN SITE $24,000,000 PV OF CONCESSIONS -$ 52,000 VALUE INDICATED BY SALES COMPARISON APPROACH $23,948,000 ROUNDED $23,900,000
NET OPERATING INCOME (NOI) ANALYSIS We have also conducted a net operating income (NOI) comparison analysis. The NOI effectively takes into account the various physical, location, and operating aspects of the sale. When the subject's NOI is compared to the sale NOI, a percent adjustment can be arrived at. The following table illustrates this analysis. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS NOI PER UNIT COMPARISON
SALE PRICE NOI/ SUBJECT NOI COMPARABLE NO. OF ----------- --------- -------------- ADJUSTMENT INDICATED NO. UNITS PRICE/UNIT OAR NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT ---------------------------------------------------------------------------------------------------- I-1 325 $21,000,000 8.87% $1,862,908 $1,802,127 0.982 $63,484 $ 64,615 $ 5,732 $ 5,632 I-2 164 $12,600,000 7.44% $ 936,858 $1,802,127 0.986 $75,741 $ 76,829 $ 5,713 $ 5,632 I-3 350 $31,800,000 7.89% $2,508,221 $1,802,127 0.786 $71,400 $ 90,857 $ 7,166 $ 5,632 I-4 320 $22,800,000 8.10% $1,847,488 $1,802,127 0.975 $69,501 $ 71,250 $ 5,773 $ 5,632 I-5 216 $14,684,000 9.39% $1,379,480 $1,802,127 0.882 $59,947 $ 67,981 $ 6,386 $ 5,632
PRICE/UNIT VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT ------------------------------------------------------------------------------------------------------------ Low High Average Median Estimated Price Per Unit $ 71,000 ----------- $59,947 $75,741 $68,014 $69,501 Number of Units 320 Value $22,720,000 PV of Concessions -$ 52,000 ----------- Value Based on NOI Analysis $22,668,000 Rounded $22,700,000
The adjusted sales indicate a range of value between $59,947 and $75,741 per unit, with an average of $68,014 per unit. Based on the subject's competitive position within the improved sales, a value of $71,000 per unit is estimated. This indicates an "as is" market value of $22,700,000 (rounded after necessary adjustment, if any) for the NOI Per Unit Analysis. EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS The effective gross income multiplier (EGIM) is derived by dividing the sales price by the total effective gross income. The following table illustrates the EGIMs for the comparable improved sales. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON
SALE PRICE COMPARABLE NO. OF ---------- EFFECTIVE OPERATING SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM ----------------------------------------------------------------------------------------------------- I-1 325 $21,000,000 $3,104,847 $1,241,939 40.00% 6.76 $ 64,615 I-2 164 $12,600,000 $1,441,314 $ 504,456 35.00% 8.74 $ 76,829 I-3 350 $31,800,000 $4,180,369 $1,672,148 40.00% 39.70% 7.61 $ 90,857 I-4 320 $22,800,000 $3,359,070 $1,511,582 45.00% 6.79 $ 71,250 I-5 216 $14,684,000 $2,087,000 $ 707,520 33.90% 7.04 $ 67,981
EGIM VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES ------------------------------------------------------------------------------------------------------------- Low High Average Median --- ---- ------- ------ Estimate EGIM 7.40 ------------- 6.76 8.74 7.39 7.04 Subject EGI $ 3,147,760 Value $ 23,293,424 PV of Concessions -$ 52,000 ------------- Value Based on EGIM Analysis $ 23,241,424 Rounded $ 23,200,000 Value Per Unit $ 72,500
There is an inverse relationship, which generally holds among EGIMs and operating expenses. Properties, which have higher expense ratios, typically sell for relatively less and therefore produce a lower EGIM. As will be illustrated in the Income Capitalization Approach of this report, the subject's operating expense ratio (OER) is estimated at 39.70% before reserves. The comparable sales indicate a range of expense ratios from 33.90% to 45.00%, while their EGIMs range from 6.76 to 8.74. Overall, we conclude to an EGIM of 7.40, which results in an "as is" value estimate in the EGIM Analysis of $23,200,000. SALES COMPARISON CONCLUSION The three valuation methods in the Sales Comparison Approach are shown below. The overall value via the Sales Comparison Approach is estimated at $23,300,000. Price Per Unit $23,900,000 NOI Per Unit $22,700,000 EGIM Analysis $23,200,000 Sales Comparison Conclusion $23,300,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS INCOME CAPITALIZATION APPROACH The income capitalization approach is based on the premise that value is created by the expectation of future benefits. We estimated the present value of those benefits to derive an indication of the amount that a prudent, informed purchaser-investor would pay for the right to receive them as of the date of value. This approach requires an estimate of the NOI of a property. The estimated NOI is then converted to a value indication by use of either the direct capitalization or the discounted cash flow analysis (yield capitalization). Direct capitalization uses a single year's stabilized NOI as a basis for a value indication by dividing the income by a capitalization rate. The rate chosen accounts for a recapture of the investment by the investor and should reflect all factors that influence the value of the property, such as tenant quality, property condition, neighborhood change, market trends, interest rates, and inflation. The rate may be extracted from local market transactions or, when transaction evidence is lacking, obtained from trade sources. A discounted cash flow analysis focuses on the operating cash flows expected from the property and the proceeds of a hypothetical sale at the end of a holding period (the reversion). The cash flows and reversion are discounted to their present values using a market-derived discount rate and are added together to obtain a value indication. Because benefits to be received in the future are worth less than the same benefits received in the present, this method weights income in the early years more heavily than the income and the sale proceeds to be received later. The strength of the discounted cash flow method is its ability to recognize variations in projected net income, such as those caused by inflation, stepped leases, neighborhood change, or tenant turnover. Its weakness is that it requires many judgments regarding the actions of likely buyers and sellers of the property in the future. In some situations, both methods yield a similar result. The discounted cash flow method is typically more appropriate for the analysis of investment properties with multiple or long-term leases, particularly leases with cancellation clauses or renewal options. It is especially useful for multi-tenant properties in volatile markets. The direct capitalization AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
Average Unit Area ------------------ Unit Type (Sq. Ft.) Per Unit Per SF %Occupied -------------------------------------------------------------------------- 1Br/1Ba - 1A15 608 $675 $1.11 93.8% 1Br/1Ba - 2A15 624 $734 $1.18 96.9% 1Br/1Ba - 3A15 614 $700 $1.14 97.5% 1Br/1Ba - 4A15 629 $686 $1.09 95.0% 1Br/1Ba - 5A15 751 $740 $0.99 95.0% 1Br/1 Ba- 6A15 774 $769 $0.99 100.0% 2Br/1 Ba - 1B15 837 $855 $1.02 91.7% 2Br/1 Ba - 2B15 857 $844 $0.98 100.0% 2Br/2 Ba - 1C15 1035 $928 $0.90 100.0% 2Br/2 Ba - 2C15 1056 $946 $0.90 97.2%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS RENT ANALYSIS
COMPARABLE RENTS --------------------------------------- R-1 R-2 R-3 R-4 --------------------------------------- McDowell Country Chantecleer Place Hunters Lakes Lakes Apartments Glen --------------------------------------- COMPARISON TO SUBJECT --------------------------------------- SUBJECT SUBJECT SUBJECT UNIT ACTUAL ASKING Slightly Slightly DESCRIPTION TYPE RENT RENT Similar Similar Superior Superior MIN MAX MEDIAN AVERAGE ---------------------------------------------------------------------------------------------------------------------------------- Monthly Rent 1BR/1BA - 1A15 $ 675 $ 729 Unit Area (SF) 608 608 Monthly Rent Per Sq. Ft. $ 1.11 $ 1.20 Monthly Rent 1BR/1BA - 2A15 $ 734 $ 754 Unit Area (SF) 624 624 Monthly Rent Per Sq. Ft. $ 1.18 $ 1.21 Monthly Rent 1BR/1BA - 3A15 $ 700 $ 759 Unit Area (SF) 614 614 Monthly Rent Per Sq. Ft. $ 1.14 $ 1.24 Monthly Rent 1BR/1BA - 4A15 $ 686 $ 779 $ 709 $ 845 $ 709 $ 845 $ 777 $ 777 Unit Area (SF) 629 629 714 682 682 714 698 698 Monthly Rent Per Sq. Ft. $ 1.09 $ 1.24 $ 0.99 $ 1.24 $ 0.99 $ 1.24 $ 1.12 $ 1.12 Monthly Rent 1BR/1BA - 5A15 $ 740 $ 804 $ 759 $ 865 $ 855 $ 759 $ 865 $ 855 $ 826 Unit Area (SF) 751 751 782 728 746 728 782 746 752 Monthly Rent Per Sq. Ft. $ 0.99 $ 1.07 $ 0.97 $ 1.19 $ 1.15 $ 0.97 $ 1.19 $ 1.15 $ 1.10 Monthly Rent 1BR/1 BA- 6A15 $ 769 $ 824 $ 789 $ 860 $ 789 $ 860 $ 825 $ 825 Unit Area (SF) 774 774 850 800 800 850 825 825 Monthly Rent Per Sq. Ft. $ 0.99 $ 1.06 $ 0.93 $ 1.08 $ 0.93 $ 1.08 $ 1.00 $ 1.00 Monthly Rent 2BR/1 BA - 1B15 $ 855 $ 914 $ 950 $ 950 $ 950 $ 950 $ 950 Unit Area (SF) 837 837 871 871 871 871 871 Monthly Rent Per Sq. Ft. $ 1.02 $ 1.09 $ 1.09 $ 1.09 $ 1.09 $ 1.09 $ 1.09 Monthly Rent 2BR/1 BA - 2B15 $ 844 $ 934 $ 839 $ 975 $ 950 $ 839 $ 975 $ 950 $ 921 Unit Area (SF) 857 857 920 976 875 875 976 920 924 Monthly Rent Per Sq. Ft. $ 0.98 $ 1.09 $ 0.91 $ 1.00 $ 1.09 $ 0.91 $ 1.09 $ 1.00 $ 1.00 Monthly Rent 2BR/2 BA - 1C15 $ 928 $ 984 $ 869 $1,070 $1,028 $ 869 $1,070 $1,028 $ 989 Unit Area (SF) 1,035 1,035 934 1,053 1,017 934 1,053 1,017 1,001 Monthly Rent Per Sq. Ft. $ 0.90 $ 0.95 $ 0.93 $ 1.02 $ 1.01 $ 0.93 $ 1.02 $ 1.01 $ 0.99 Monthly Rent 2BR/2 BA - 2C15 $ 946 $1,019 $ 899 $1,300 $1,070 $1,095 $ 899 $1,300 $1,083 $1,091 Unit Area (SF) 1,056 1,056 1,010 1,147 1,160 1,102 1,010 1,160 1,125 1,105 Monthly Rent Per Sq. Ft. $ 0.90 $ 0.96 $ 0.89 $ 1.13 $ 0.92 $ 0.99 $ 0.89 $ 1.13 $ 0.96 $ 0.98
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area --------------------- Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income ----------------------------------------------------------------------------------------------------------- 1Br/1Ba - 1A15 32 608 $ 675 $1.11 $ 21,600 $ 259,200 1Br/1Ba - 2A15 32 624 $ 700 $1.12 $ 22,400 $ 268,800 1Br/1Ba - 3A15 40 614 $ 700 $1.14 $ 28,000 $ 336,000 1Br/1Ba - 4A15 40 629 $ 725 $1.15 $ 29,000 $ 348,000 1Br/1Ba - 5A15 40 751 $ 775 $1.03 $ 31,000 $ 372,000 1Br/1 Ba- 6A15 40 774 $ 800 $1.03 $ 32,000 $ 384,000 2Br/1 Ba - 1B15 12 837 $ 950 $1.14 $ 11,400 $ 136,800 2Br/1 Ba - 2B15 12 857 $ 950 $1.11 $ 11,400 $ 136,800 2Br/2 Ba - 1C15 36 1,035 $1,000 $0.97 $ 36,000 $ 432,000 2Br/2 Ba - 2C15 36 1,056 $1,000 $0.95 $ 36,000 $ 432,000 Total $258,800 $3,105,600
PRO FORMA ANALYSIS For purposes of this appraisal, we were provided with income and expense data for the subject property. A summary of this data is presented on the following page. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 ------------------------------------------------------------------------------------- ACTUAL ACTUAL ACTUAL ------------------------------------------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT ------------------------------------------------------------------------------------------------------------------- Revenues Rental Income $3,227,959 $10,08,897 $3,318,897 $ 10,372 $3,135,339 $ 9,798 Vacancy $ 207,246 $ 648 $ 230,767 $ 721 $ 272,305 $ 851 Credit Loss/Concessions $ 176,323 $ 551 $ 139,602 $ 436 $ 158,576 $ 496 ------------------------------------------------------------------------------------- Subtotal $ 383,569 $ 1,199 $ 370,369 $ 1,157 $ 430,881 $ 1,347 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 128,218 $ 401 $ 166,204 $ 519 $ 185,985 $ 581 ------------------------------------------------------------------------------------- Subtotal Other Income $ 128,218 $ 401 $ 166,204 $ 519 $ 185,985 $ 581 ------------------------------------------------------------------------------------- Effective Gross Income $2,972,608 $ 9,289 $3,114,734 $ 9,734 $2,890,443 $ 9,033 Operating Expenses Taxes $ 312,795 $ 977 $ 362,778 $ 1,134 $ 419,487 $ 1,311 Insurance $ 24,523 $ 77 $ 41,414 $ 129 $ 47,224 $ 148 Utilities $ 137,999 $ 431 $ 132,430 $ 414 $ 149,045 $ 466 Repair & Maintenance $ 95,106 $ 297 $ 91,368 $ 286 $ 94,313 $ 295 Cleaning $ 4,790 $ 15 $ 20,323 $ 64 $ 12,418 $ 39 Landscaping $ 24,649 $ 77 $ 26,165 $ 82 $ 30,820 $ 96 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 64,192 $ 201 $ 35,421 $ 111 $ 55,603 $ 174 General Administrative $ 292,613 $ 914 $ 314,080 $ 982 $ 268,247 $ 838 Management $ 156,222 $ 488 $ 161,278 $ 504 $ 146,926 $ 459 Miscellaneous $ 87,669 $ 274 $ 86,654 $ 271 $ 129,139 $ 404 ------------------------------------------------------------------------------------- Total Operating Expenses $1,200,558 $ 3,752 $1,271,911 $ 3,975 $1,353,222 $ 4,229 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------- Net Income $1,772,050 $ 5,538 $1,842,821 $ 5,759 $1,537,221 $ 4,804 FISCAL YEAR 2003 ANNUALIZED 2003 ------------------------------------------------------- MANAGEMENT BUDGET PROJECTION AAA PROJECTION ------------------------------------------------------------------------------------------------ DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % ------------------------------------------------------------------------------------------------------------------------------ Revenues Rental Income $3,120,000 $ 9,750 $3,066,008 $ 9,581 $3,105,600 $ 9,705 100.0% Vacancy $ 186,725 $ 584 $ 104,512 $ 327 $ 93,168 $ 291 3.0% Credit Loss/Concessions $ 114,520 $ 358 $ 53,684 $ 168 $ 62,112 $ 194 2.0% ------------------------------------------------------------------------------------------------ Subtotal $ 301,245 $ 941 $ 158,196 $ 494 $ 155,280 $ 485 5.0% Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 197,400 $ 617 $ 248,144 $ 775 $ 197,440 $ 617 6.4% ------------------------------------------------------------------------------------------------ Subtotal Other Income $ 197,400 $ 617 $ 248,144 $ 775 $ 197,440 $ 617 6.4% ------------------------------------------------------------------------------------------------ Effective Gross Income $3,016,155 $ 9,425 $3,155,956 $ 9,862 $3,147,760 $ 9,837 100.0% Operating Expenses Taxes $ 384,722 $ 1,202 $ 385,184 $ 1,20 $ 384,640 $ 1,202 12.2% Insurance $ 52,740 $ 165 $ 50,396 $ 157 $ 52,800 $ 165 1.7% Utilities $ 173,408 $ 542 $ 157,128 $ 491 $ 173,440 $ 542 5.5% Repair & Maintenance $ 86,316 $ 270 $ 100,580 $ 314 $ 86,400 $ 270 2.7% Cleaning $ 0 $ 0 $ 19,544 $ 61 $ 0 $ 0 0.0% Landscaping $ 47,305 $ 148 $ 0 $ 0 $ 47,360 $ 148 1.5% Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 54,222 $ 169 $ 46,128 $ 144 $ 54,080 $ 169 1.7% General Administrative $ 265,730 $ 830 $ 309,316 $ 967 $ 265,600 $ 830 8.4% Management $ 102,400 $ 320 $ 155,764 $ 487 $ 94,433 $ 295 3.0% Miscellaneous $ 90,962 $ 284 $ 91,076 $ 285 $ 90,880 $ 284 2.9% ------------------------------------------------------------------------------------------------ Total Operating Expenses $1,257,805 $ 3,931 $1,315,116 $ 4,110 $1,249,633 $ 3,905 39.7% Reserves $ 0 $ 0 $ 0 $ 0 $ 96,000 $ 300 7.7% ------------------------------------------------------------------------------------------------ Net Income $1,758,350 $ 5,495 $1,840,840 $ 5,7553 $1,802,127 $ 5,632 57.3%
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 5% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $300 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $300 per unit should be satisfactory in our reserves for replacement to cover future capital expenditures. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of the annual cash flows and discounts them, along with the expected equity reversion, to a present value. The present value of the cash flow is added to the present value of the reversion, resulting in a total property value. INVESTMENT CRITERIA Appropriate investment criteria will be derived for the subject based upon analysis of comparable sales and a survey of real estate investors. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 1ST QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES --------------------------------------------------- GOING-IN TERMINAL --------------------------------------------------- LOW HIGH LOW HIGH --------------------------------------------------------------- RANGE 6.00% 10.00% 7.00% 10.00% AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR ---------------------------------------------------------------------- I-1 Jan-03 95% $64,615 8.87% I-2 Dec-02 93% $76,829 7.44% I-3 Jun-02 93% $90,857 7.89% I-4 Feb-02 90% $71,250 8.10% I-5 May-01 96% $67,981 9.39% High 9.39% Low 7.44% Average 8.34%
LOCAL BROKER SURVEY
BROKER COMPANY MARKET CAP RATE -------------------------------------------------------------------------------- Class B & C Properties Real Capital Analytics 5.5% - 7.8%
Based on this information, we have concluded the subject's overall capitalization rate should be 7.75%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 8.25%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 10.75%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 10.75% indicates a value of $23,100,000. In this instance, the reversion figure contributes approximately 45% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 34 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS DISCOUNTED CASH FLOW ANALYSIS AUTUMN RUN APARTMENTS
YEAR MAY-2004 MAY-2005 MAY-2006 MAY-2007 MAY-2008 MAY-2009 FISCAL YEAR 1 2 3 4 5 6 ------------------------------------------------------------------------------------------------------------------------------------ REVENUE Base Rent $3,105,600 $3,198,768 $3,294,731 $3,393,573 $3,495,380 $3,600,242 Vacancy $ 93,168 $ 95,963 $ 98,842 $ 101,807 $ 104,861 $ 108,007 Credit Loss $ 62,112 $ 63,975 $ 65,895 $ 67,871 $ 69,908 $ 72,005 Concessions $ 57,600 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------------- Subtotal $ 212,880 $ 159,938 $ 164,737 $ 169,679 $ 174,769 $ 180,012 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 197,440 $ 203,363 $ 209,464 $ 215,748 $ 222,220 $ 228,887 ------------------------------------------------------------------------------------------- Subtotal Other Income $ 197,440 $ 203,363 $ 209,464 $ 215,748 $ 222,220 $ 228,887 ------------------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $3,090,160 $3,242,193 $3,339,459 $3,439,642 $3,542,832 $3,649,117 OPERATING EXPENSES: Taxes $ 384,640 $ 396,179 $ 408,065 $ 420,307 $ 432,916 $ 445,903 Insurance $ 52,800 $ 54,384 $ 56,016 $ 57,696 $ 59,427 $ 61,210 Utilities $ 173,440 $ 178,643 $ 184,002 $ 189,523 $ 195,208 $ 201,064 Repair & Maintenance $ 86,400 $ 88,992 $ 91,662 $ 94,412 $ 97,244 $ 100,161 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 47,360 $ 48,781 $ 50,244 $ 51,752 $ 53,304 $ 54,903 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 54,080 $ 55,702 $ 57,373 $ 59,095 $ 60,868 $ 62,694 General Administrative $ 265,600 $ 273,568 $ 281,775 $ 290,228 $ 298,935 $ 307,903 Management $ 92,705 $ 97,266 $ 100,184 $ 103,189 $ 106,285 $ 109,473 Miscellaneous $ 90,880 $ 93,606 $ 96,415 $ 99,307 $ 102,286 $ 105,355 ------------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $1,247,905 $1,287,122 $1,325,735 $1,365,508 $1,406,473 $3,649,117 Reserves $ 96,000 $ 98,880 $ 101,846 $ 104,902 $ 108,049 $ 111,290 ------------------------------------------------------------------------------------------- NET OPERATING INCOME $1,746,255 $1,856,191 $1,911,877 $1,969,233 $2,028,310 $2,089,159 ------------------------------------------------------------------------------------------------------------------------------------ Operating Expense Ratio (% of EGI) 40.4% 39.7% 39.7% 39.7% 39.7% 39.7% Operating Expense Per Unit $ 3,900 $ 4,022 $ 4,143 $ 4,267 $ 4,395 $ 4,527 ------------------------------------------------------------------------------------------------------------------------------------ YEAR MAY-2010 MAY-2011 MAY-2012 MAY-2013 MAY-2014 FISCAL YEAR 7 8 9 10 11 -------------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 3,70249 $3,819,496 $3,934,081 $4,052,104 $4,173,667 Vacancy $ 111,247 $ 114,585 $ 118,022 $ 121,563 $ 125,210 Credit Loss $ 74,165 $ 76,390 $ 78,682 $ 81,042 $ 83,473 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------- Subtotal $ 185,412 $ 190,975 $ 196,704 $ 202,605 $ 208,683 --------------------------------------------------------------------------- Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 235,754 $ 242,826 $ 250,111 $ 257,614 $ 265,343 --------------------------------------------------------------------------- Subtotal Other Income $ 235,754 $ 242,826 $ 250,111 $ 257,614 $ 265,343 EFFECTIVE GROSS INCOME $ 3,758590 $3,871,348 $3,987,488 $4,107,113 $4,230,326 OPERATING EXPENSES: Taxes $ 459,280 $ 473,059 $ 487,250 $ 501,868 $ 516,924 Insurance $ 63,046 $ 64,937 $ 66,885 $ 68,892 $ 70,959 Utilities $ 207,096 $ 213,309 $ 219,709 $ 226,300 $ 233,089 Repair & Maintenance $ 103,166 $ 106,261 $ 109,449 $ 112,732 $ 116,114 Cleaning $ 0 $ 0 $ 0 $ 0 $ 0 Landscaping $ 56,550 $ 58,247 $ 59,994 $ 61,794 $ 63,648 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 64,574 $ 66,512 $ 68,507 $ 70,562 $ 72,679 General Administrative $ 317,140 $ 326,654 $ 336,454 $ 346,548 $ 356,944 Management $ 112,758 $ 116,140 $ 119,625 $ 123,213 $ 126,910 Miscellaneous $ 108,515 $ 111,771 $ 115,124 $ 118,578 $ 122,135 --------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $1,492,127 $1,536,891 $1,582,997 $1,630,487 $1,679,402 Reserves $ 114,629 $ 118,068 $ 121,610 $ 125,258 $ 129,016 --------------------------------------------------------------------------- NET OPERATING INCOME $2,151,834 $2,216,389 $2,282,881 $2,351,367 $2,421,908 -------------------------------------------------------------------------------------------------------------------- Operating Expense Ratio (% of EGI) 39.7% 39.7% 39.7% 39.7% 39.7% Operating Expense Per Unit $ 4,663 $ 4,803 $ 4,947 $ 5,095 $ 5,248 --------------------------------------------------------------------------------------------------------------------
Gross Residual Sale Price $29,356,464 Deferred Maintenance $ 0 Estimated Stabilized NOI $1,802,127 Sales Expense 2.00% Less: Sales Expense $ 587,129 Add: Excess Land $ 0 Rate ----------- Months to Stabilized 1 Discount Rate 10.75% Net Residual Sale Price $28,769,335 Other Adjustments $ 0 ----------- Stabilized Occupancy 97.0% Terminal Cap Rate 8.25% PV of Reversion $10,363,166 Value Indicated By $23,096,805 "DCF" Add: NPV of NOI $12,733,638 Rounded $23,100,000 ----------- PV Total $23,096,805
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ---------------------------------------------------------------------------------- TOTAL VALUE 10.25% 10.50% 10.75% 11.00% 11.25% ------------------------------------------------------------------------------------------------------------------ 7.75% $24,586,346 $24,171,266 $23,765,396 $23,368,503 $22,980,357 8.00% $24,225,646 $23,818,644 $23,420,654 $23,031,446 $22,650,799 TERMINAL CAP RATE 8.25% $23,886,807 $23,487,393 $23,096,805 $22,714,818 $22,341,214 8.50% $23,567,899 $23,175,628 $22,792,006 $22,416,814 $22,049,840 8.75% $23,267,215 $22,881,677 $22,504,624 $22,135,840 $21,775,116
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 35 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS INCOME LOSS DURING LEASE-UP The subject is currently near or at stabilized condition. Therefore, there is no income loss during lease-up at the subject property. CONCESSIONS Due to softness in the market, concessions have been utilized at the subject property and within the market. Based on our discussions with the subject's property manager and those at competing properties, these concessions are expected to continue in the near term until the market returns to a stabilized level. Concessions have been included as a line item deduction within the discounted cash flow analysis. The present value of these concessions equates to $52,000 (rounded). This amount has been deducted from the Direct Capitalization analysis, as well as the Sales Comparison Approach value. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 7.75% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 36 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS AUTUMN RUN APARTMENTS
TOTAL PER SQ. FT. PER UNIT %OF EGI ------------------------------------------------------------------------------------------------------- REVENUE Base Rent $ 3,105,600 $12.64 $ 9,705 Less: Vacancy & Collection Loss 5.00% $ 155,280 $ 0.63 $ 485 Plus: Other Income Laundry Income $ 0 $ 0.00 $ 0 0.00% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 197,440 $ 0.80 $ 617 6.27% Subtotal Other Income $ 197,440 $ 0.80 $ 617 6.27% EFFECTIVE GROSS INCOME $ 3,147,760 $12.81 $ 9,837 OPERATING EXPENSES: Taxes $ 384,640 $ 1.57 $ 1,202 12.22% Insurance $ 52,800 $ 0.21 $ 165 1.68% Utilities $ 173,440 $ 0.71 $ 542 5.51% Repair & Maintenance $ 86,400 $ 0.35 $ 270 2.74% Cleaning $ 0 $ 0.00 $ 0 0.00% Landscaping $ 47,360 $ 0.19 $ 148 1.50% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 54,080 $ 0.22 $ 169 1.72% General Administrative $ 265,600 $ 1.08 $ 830 8.44% Management 3.00% $ 94,433 $ 0.38 $ 295 3.00% Miscellaneous $ 90,880 $ 0.37 $ 284 2.89% TOTAL OPERATING EXPENSES $ 1,249,633 $ 5.09 $ 3,905 39.70% Reserves $ 96,000 $ 0.39 $ 300 3.05% ------------------------------------------------- NET OPERATING INCOME $ 1,802,127 $ 7.33 $ 5,632 57.25% ------------------------------------------------------------------------------------------------------- "GOING IN" CAPITALIZATION RATE 7.75% VALUE INDICATION $23,253,254 $94.62 $72,666 LESS: LEASE-UP COST PV OF CONCESSIONS ($ 52,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $23,201,254 ROUNDED $23,200,000 $94.41 $72,500 -------------------------------------------------------------------------------------------------------
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME APPROACH PAGE 37 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF --------------------------------------------------------------------------- 7.00% $25,692,674 $25,700,000 $80,313 $104.58 7.25% $24,804,927 $24,800,000 $77,500 $100.92 7.50% $23,976,363 $24,000,000 $75,000 $ 97.66 7.75% $23,201,254 $23,200,000 $72,500 $ 94.41 8.00% $22,474,590 $22,500,000 $70,313 $ 91.56 8.25% $21,791,966 $21,800,000 $68,125 $ 88.71 8.50% $21,149,496 $21,100,000 $65,938 $ 85.86
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $23,200,000. CORRELATION AND CONCLUSION BY THE INCOME APPROACH The two methods used to estimate the market value of the subject property by the income approach resulted in the following indications of value: Discounted Cash Flow Analysis $23,100,000 Direct Capitalization Method $23,200,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $23,200,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS RECONCILIATION AND CONCLUSION This appraisal was made to express an opinion as of the Market Value of the fee simple estate in the property. AS IS MARKET VALUE OF THE FEE SIMPLE ESTATE Cost Approach Not Utilized Sales Comparison Approach $23,300,000 Income Approach $23,200,000 Reconciled Value $23,300,000
The Direct Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of May 30, 2003 the market value of the fee simple estate in the property is: $23,300,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS SUBJECT PHOTOGRAPHS [SUBJECT PROPERTY LEASING OFFICE AND PICTURE] [SUBJECT PROPERTY PICTURE] [LOOKING SOUTH ON COUNTRY LAKES DRIVE PICTURE] [SUBJECT PROPERTY TENNIS COURTS PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 GREENWAY TRAIL APARTMENTS 136 Greenway Trail Carol Stream, IL [PICTURE] COMPARABLE I-2 SHERRY NAPERVILLE 1821 Washington Street Naperville, IL [PICTURE] COMPARABLE I-3 REMINGTON APARTMENTS 525 Fair Meadows Drive Romeoville, IL [PICTURE] COMPARABLE I-4 HUNTERS GLEN APARTMENTS 245 North Oakhurst Drive Aurora, IL [PICTURE] COMPARABLE I-5 MILL PONDS APARTMENTS 1331 Modaff Road Naperville, IL [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 ----------------------------------------------------------------------------------------------------------------------- Property Name Autumn Run Apartments Country Lakes Management Company AIMCO AIMCO LOCATION: Address 1627 Country Lakes Drive 1598 Fairway Drive City, State Naperville, Illinois Naperville, IL County DuPage DuPage Proximity to Subject Next to subject (west) PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 245,748 583,494 Year Built 1986 1984 Effective Age 15 15 Building Structure Type Brick, wood & vinyl siding; shingle roof Brick; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open Open, Garages Number of Units 320 640 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1Br/1Ba - 1A15 608 32 $675 4 1BD/1BH 714 17 $709 2 1Br/1Ba - 2A15 624 32 $734 5 1BD/1BH 782 72 $759 3 1Br/1Ba - 3A15 614 40 $700 6 1BD/1BH 850 34 $789 4 1Br/1Ba - 4A15 629 40 $686 8 2BD/1BH 920 157 $839 5 1Br/1Ba - 5A15 751 40 $740 9 2BD/2BH 934 288 $869 6 1Br/1 Ba - 6A15 774 40 $769 10 2BD/2BH 1,010 72 $899 7 2Br/1 Ba - 1B15 837 12 $855 8 2Br/1 Ba - 2B15 857 12 $844 9 2Br/2 Ba - 1C15 1,035 36 $928 10 2Br/2 Ba - 2C15 1,056 36 $946 Average Unit Size (SF) 768 912 Unit Breakdown: Efficiency 0% 2-Bedroom 30% Efficiency 0% 2-Bedroom 81% 1-Bedroom 70% 3-Bedroom 0% 1-Bedroom 19% 3-Bedroom 0% CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace X Skylights X Fireplace Skylights X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall X Tennis Court Secured Parking Tennis Court X Secured Parking X Racquet Ball Laundry Room Racquet Ball Laundry Room Jogging Track Business Office Jogging Track Business Office Gym Room X Gym Room OCCUPANCY: 97% 95% LEASING DATA: Available Leasing Terms 6 to 12 Months 6 to 12 Months, Variable Concessions $300 off the first month 1 month free rent Pet Deposit $300 $250 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash X Water X Trash Confirmation May 30 2003; Ben Egge (Property Manager) May 28 2003; Property Manager Telephone Number (630) 983-8411 (630) 527-2423 NOTES: None COMPARISON TO SUBJECT: Similar COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 ------------------------------------------------------------------------------------------------------------------------------------ Property Name Chantecleer Lakes McDowell Place Apartments Management Company Equity Residential Equity Residential LOCATION: Address 1550 Raymond Drive 1647 Westminster Drive City, State Naperville, IL Naperville, IL County DuPage DuPage Proximity to Subject 1 mile east of the subject 1 mile east of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 287,392 406,400 Year Built 1983 1988 Effective Age 15 10 Building Structure Type Brick, wood & vinyl siding; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open Open Number of Units 304 400 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 5 1BD/1BH 728 48 $ 865 6 1BD/1BH 800 160 $ 860 7 1BD/1BH/Den 871 76 $ 950 10 2BD/2BH 1,140 160 $1,060 8 2BD/1BH 976 72 $ 975 10 2BD/1.5BH 1,200 80 $1,090 9 2BD/2BH 1,053 84 $1,070 10 3BD/2BH 1,147 24 $1,300 Average Unit Size (SF) 945 1,016 Unit Breakdown: Efficiency 0% 2-Bedroom 51% Efficiency 0% 2-Bedroom 60% 1-Bedroom 41% 3-Bedroom 8% 1-Bedroom 40% 3-Bedroom 0% CONDITION: Good Good APPEAL: Good Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace Skylights X Fireplace Skylights X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball Laundry Room Jogging Track X Business Office Jogging Track Business Office X Gym Room X Gym Room OCCUPANCY: 96% 96% LEASING DATA: Available Leasing Terms 6 to 12 Months, Variable 6 to 12 Months, Variable Concessions $500 off 2BD/2BH 1.5 to 2 Months Free Pet Deposit $200 - $300 $400 - $900 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash X Water X Trash Confirmation May 30 2003; (Property Manager) May 30 2003; (Property Manager) Telephone Number (630) 357-1632 (630) 983-7243 NOTES: None None COMPARISON TO SUBJECT: Similar Slightly Superior COMPARABLE DESCRIPTION R - 4 ------------------------------------------------------------------------------------- Property Name Hunters Glen Management Company Laramar Group LOCATION: Address 245 North Oakhurst Drive City, State Aurora, IL County DuPage Proximity to Subject 4.5 miles south of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 283,376 Year Built 1989 Effective Age 10 Building Structure Type Brick & vinyl siding walls, asphalt shingle roof Parking Type (Gr., Cov., etc.) Open, Garages Number of Units 320 Unit Mix: Type Unit Qty. Mo. 4 1BD/1BH 682 56 $ 845 5 1BD/1BH 746 72 $ 855 8 2BD/1BH 875 48 $ 950 9 2BD/2BH 975 48 $ 995 9 2BD/2BH 1,050 60 $1,055 10 2BD/2BH Loft 1,102 36 $1,095 Average Unit Size (SF) 886 Unit Breakdown: Efficiency 0% 2-Bedroom 60% 1-Bedroom 40% 3-Bedroom 0% CONDITION: Good APPEAL: Good AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling X Balcony X W/D Connect. X Fireplace Skylights X Cable TV Ready Project Amenities Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment X Volleyball Court Theater Room Sand Volley Ball Meeting Hall X Tennis Court X Secured Parking X Racquet Ball Laundry Room Jogging Track X Business Office X Gym Room OCCUPANCY: 91% LEASING DATA: Available Leasing Terms 6 to 2 Months, Variable Concessions $1400 move in concession with 14 month lease Pet Deposit $350 - $500 Utilities Paid by Tenant: X Electric X Natural Gas X Water X Trash Confirmation May 30 2003; (Property Manager) Telephone Number (630) 820-9399 NOTES: Estimated $1.8 million worth of work upgrading the clubhouse. (roof and residing) COMPARISON TO SUBJECT: Slightly Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COUNTRY LAKES 1598 Fairway Drive Naperville, IL [PICTURE] COMPARABLE R-2 CHANTECLEER LAKES 1550 Raymond Drive Naperville, IL [PICTURE] COMPARABLE R-3 MCDOWELL PLACE APARTMENTS 1647 Westminster Drive Naperville, IL [PICTURE] COMPARABLE R-4 HUNTERS GLEN 245 North Oakhurst Drive Aurora, IL [PICTURE] N/A AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS No responsibility is assumed for matters legal in nature. No investigation has been made of the title to or any liabilities against the property appraised. In this appraisal, it is presumed that, unless otherwise noted, the owner's claim is valid, the property rights are good and marketable, and there are no encumbrances which cannot be cleared through normal processes. To the best of our knowledge, all data set forth in this report are true and accurate. Although gathered from reliable sources, no guarantee is made nor liability assumed for the accuracy of any data, opinions, or estimates identified as being furnished by others which have been used in formulating this analysis. Land areas and descriptions used in this appraisal were obtained from public records and have not been verified by legal counsel or a licensed surveyor. No soil analysis or geological studies were ordered or made in conjunction with this report, nor were any water, oil, gas, or other subsurface mineral and use rights or conditions investigated. Substances such as asbestos, urea-formaldehyde foam insulation, other chemicals, toxic wastes, or other potentially hazardous materials could, if present, adversely affect the value of the property. Unless otherwise stated in this report, the existence of hazardous substance, which may or may not be present on or in the property, was not considered by the appraiser in the development of the conclusion of value. The stated value estimate is predicated on the assumption that there is no material on or in the property that would cause such a loss in value. No responsibility is assumed for any such conditions, and the client has been advised that the appraiser is not qualified to detect such substances, quantify the impact on values, or develop the remedial cost. No environmental impact study has been ordered or made. Full compliance with applicable federal, state, and local environmental regulations and laws is assumed unless otherwise stated, defined, and considered in the report. It is also assumed that all required licenses, consents, or other legislative or administrative authority from any local, state, or national government or private entity organization either have been or can be obtained or renewed for any use which the report covers. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS It is assumed that all applicable zoning and use regulations and restrictions have been complied with unless a nonconformity has been stated, defined, and considered in the appraisal report. Further, it is assumed that the utilization of the land and improvements is within the boundaries of the property described and that no encroachment or trespass exists unless noted in the report. The Americans with Disabilities Act ("ADA") became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property together with a detailed analysis of the requirements of the ADA could reveal that the property is not in compliance with one or more of the requirements of the act. If so, this fact could have a negative effect on the value of the property. Since we have no direct evidence relating to this issue, we did not consider the possible noncompliance with the requirements of ADA in estimating the value of the property. We have made a physical inspection of the property and noted visible physical defects, if any, in our report. This inspection was made by individuals generally familiar with real estate and building construction. However, these individuals are not architectural or structural engineers who would have detailed knowledge of building design and structural integrity. Accordingly, we do not opine on, nor are we responsible for, the structural integrity of the property including its conformity to specific governmental code requirements, such as fire, building and safety, earthquake, and occupancy, or any physical defects which were not readily apparent to the appraiser during the inspection. The value or values presented in this report are based upon the premises outlined herein and are valid only for the purpose or purposes stated. The date of value to which the conclusions and opinions expressed apply is set forth in this report. The value opinion herein rendered is based on the status of the national business economy and the purchasing power of the U.S. dollar as of that date. Testimony or attendance in court or at any other hearing is not required by reason of this appraisal unless arrangements are previously made within a reasonable time in advance for AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the American Society of Appraisers or the designations awarded by this organization) shall be disseminated to the public through prospectus, advertising, public relations, news, or any other means of communication without the written consent and approval of American Appraisal Associates, Inc. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D CERTIFICATE OF APPRAISER I certify that, to the best of my knowledge and belief: The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and represent the unbiased professional analyses, opinions, and conclusions of American Appraisal Associates, Inc. American Appraisal Associates, Inc. and I personally, have no present or prospective interest in the property that is the subject of this report and have no personal interest or bias with respect to the parties involved. Compensation for American Appraisal Associates, Inc. is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. The analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. I personally did not inspect the subject property. Seamus P. King provided significant real property appraisal assistance in the preparation of this report. I am currently in compliance with the Appraisal Institutes continuing education requirements. -s- KENNETH W. KAPECKI ---------------------------- Ken Kapecki, MAI Managing Principal, Real Estate Group Illinois Certified General Real Estate Appraiser #153000331 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS EXHIBIT E QUALIFICATIONS OF APPRAISER (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS KENNETH W. KAPECKI, MAI MANAGING PRINCIPAL, REAL ESTATE GROUP POSITION Kenneth W. Kapecki is the Managing Principal for the Chicago Real Estate Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Mr. Kapecki has over 17 years of experience in providing valuation services to clients worldwide. He has a diversified background with considerable expertise in the valuation of special-purpose properties, large multilocational holdings, and investment-grade real estate. He has appraised steel mills, chemical plants, food processing facilities, airports, mines, railroad rights-of-way, hotels, and a variety of commercial and manufacturing facilities. Mr. Kapecki's experience further extends to highest and best use studies, feasibility studies, lease valuation analyses, cost segregation analyses, and insurable value analyses. His reports are most frequently prepared for acquisition, ad valorem tax, divestiture, financing, allocation of purchase price, litigation support, and value reporting. Over the years, he has completed appraisals in 50 states representing over $10 billion in value. Mr. Kapecki has developed a core competency in the valuation of hospitality property. He has appraised more than 150 hotels in the last two years alone for financing, acquisition due diligence, cost segregation, and feasibility. These properties consisted of a mixture of limited-service, full-service, and resort hotels located throughout the United States as well as in the Bahamas, Belize, and Guam. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS Court Mr. Kapecki has testified as an expert witness in state and federal district courts and by deposition statements and interrogatory communications. Business Prior to joining AAA in 2001, Mr. Kapecki was a senior manager in the Chicago Valuation Service Group of Arthur Andersen, where he served as the central regional team leader for real estate staff training, hospitality consulting, and the valuation of real estate. Prior to his employment with Arthur Andersen, Mr. Kapecki served as the manager of real estate valuations for Lloyd-Thomas Coats and Burchard Co. EDUCATION University of Wisconsin - La Crosse Bachelor of Science - Geography STATE CERTIFICATIONS State of Illinois, Certified General Real Estate Appraiser, #153000331 State of Indiana, Certified General Appraiser, #CG49600008 State of Michigan, Certified General Appraiser, #1201003145 State of Wisconsin, Certified General Appraiser and Licensed Appraiser, #641 PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS Chicago Chapter, Admissions Committee Member, 1997 - Present AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS VALUATION AND Appraisal Institute SPECIAL COURSES Appraisal Principles Case Studies in Real Estate Valuation Fair Lending and the Appraiser Highest & Best Use and Market Analysis Income Capitalization, Parts A and B Litigation Support: The Appraiser as an Expert Witness Partial Interest Valuation Real Estate Disclosure Report Writing Standards of Professional Practice Valuation of Detrimental Conditions Valuation Theory and Techniques Arthur Andersen, Course Developer Income Capitalization Theory and Techniques Introduction to the Cost Approach Property Inspection and Market Data Collection AMERICAN APPRAISAL ASSOCIATES, INC. AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. AUTUMN RUN APARTMENTS, NAPERVILLE, ILLINOIS GENERAL SERVICE CONDITIONS The services(s) provided by AAA will be performed in accordance with professional appraisal standards. Our compensation is not contingent in any way upon our conclusions of value. We assume, without independent verification, the accuracy of all data provided to us. We will act as an independent contractor and reserve the right to use subcontractors. All files, workpapers or documents developed by us during the course of the engagement will be our property. We will retain this data for at least five years. Our report is to be used only for the specific purpose stated herein; and any other use is invalid. No reliance may be made by any third party without our prior written consent. You may show our report in its entirety to those third parties who need to review the information contained herein. No one should rely on our report as a substitute for their own due diligence. We understand that our reports will be described in public tender offer documents distributed to limited partners. We reserve the right to review the public tender offer documents prior to their issuance to confirm that disclosures of facts from the current appraisals are accurate. No reference to our name or our report, in whole or in part, in any other SEC filing or private placement memorandum you prepare and/or distribute to third parties may be made without our prior written consent. The Tender Offer Partnerships, as that term is defined in the Settlement Agreement, agree to indemnify and hold us harmless against and from any and all losses, claims, actions, damages, expenses or liabilities, including reasonable attorneys' fees, to which we may become subject in connection with this engagement except where such losses, claims, actions, damages, expenses or liabilities, including reasonable attorney's fees, arise or result ad faith or negligence. Co-Clients will not be liable for any of our acts or omissions. AAA is an equal opportunity employer.