EX-99.(C)(4) 6 d07250a2exv99wxcyx4y.txt APPRAISAL OF FOUR WINDS APARTMENTS FOUR WINDS APARTMENTS 8000 PERRY ROAD OVERLAND PARK, KANSAS MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 8, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] JULY 9, 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: FOUR WINDS APARTMENTS 8000 PERRY ROAD OVERLAND PARK, JOHNSON COUNTY, KANSAS 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 350 units with a total of 312,094 square feet of rentable area. The improvements were built in 1986. The improvements are situated on 24.4711 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 92% 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS The opinions expressed in this appraisal cover letter can only be completely understood by reading the narrative report, addenda, and other data, which is attached. The appraisal is subject to the attached general assumptions and limiting conditions and general service conditions. As a result of our investigation, it is our opinion that the fee simple market value of the subject, effective May 8, 2003 is: ($16,500,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Frank Fehribach July 9, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group Texas State Certified General Real Estate Appraiser #TX-1323954-G Report By: Kim Cook AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Four Winds Apartments LOCATION: 8000 Perry Road Overland Park, Kansas INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: Fee simple estate DATE OF VALUE: May 8, 2003 DATE OF REPORT: July 9, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 24.4711 acres, or 1,065,961 square feet Assessor Parcel No.: NP21100000 0002; (Assessed Value) Floodplain: Community Panel No. 2001740202F (June 17, 2002) Flood Zone X, an area outside the floodplain. Zoning: RP-3 (Residential Planned Development District) BUILDING: No. of Units: 350 Units Total NRA: 312,094 Square Feet Average Unit Size: 892 Square Feet Apartment Density: 14.3 units per acre Year Built: 1986 UNIT MIX AND MARKET RENT:
GROSS RENTAL INCOME PROJECTION -------------------------------------------------------------- Square Market Rent Monthly Annual Unit Type Feet Per Unit Per SF Income Income -------------------------------------------------------------- 1Br/1Ba - 1A10 720 $590 $0.82 $ 24,780 $ 297,360 1Br/1Ba - 1B10 740 $560 $0.76 $ 11,200 $ 134,400 1Br/1Ba - 1C10 760 $600 $0.79 $ 56,400 $ 676,800 1Br/1Ba - 1D10 792 $600 $0.76 $ 3,600 $ 43,200 1Br/1Ba - 1E10 800 $699 $0.87 $ 15,378 $ 184,536 2Br/1Ba - 2A10 969 $700 $0.72 $ 49,000 $ 588,000 -------- ---------- Total $233,358 $2,800,296 ============================
OCCUPANCY: 92% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 17 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS REMAINING ECONOMIC LIFE: 28 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [ENTRANCE TO SUBJECT AND VIEW OF 81ST STREET FACING EAST PICTURE] [EXTERIOR - TYPICAL THREE-STORY BUILDING PICTURE]
AREA MAP [AREA MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit Potential Rental Income $ 2,800,296 $8,001 Effective Gross Income $ 2,786,271 $7,961 Operating Expenses $ 1,206,814 $3,448 43.3% of EGI Net Operating Income: $ 1,491,957 $4,263 Capitalization Rate 9.00% DIRECT CAPITALIZATION VALUE $16,500,000 * $47,143 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 9% Stabilized Vacancy & Collection Loss: 8.5% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 10.00% Discount Rate 11.00% Selling Costs 2.00% Growth Rates: Income 2.50% Expenses: 2.50% DISCOUNTED CASH FLOW VALUE $16,500,000 * $47,143 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $16,500,000 $47,143 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $51,121 to $69,324 Range of Sales $/Unit (Adjusted) $44,855 to $50,468 VALUE INDICATION - PRICE PER UNIT $16,600,000 * $47,429 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 6.49 to 7.33 Selected EGIM for Subject 6.00 Subject's Projected EGI $ 2,786,271 EGIM ANALYSIS CONCLUSION $16,600,000 * $47,429 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $16,600,000 * $47,429 / UNIT RECONCILED SALES COMPARISON VALUE $16,600,000 $47,429 / 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $16,600,000 NOI Per Unit $16,600,000 EGIM Multiplier $16,600,000 INDICATED VALUE BY SALES COMPARISON $16,600,000 $47,429 / UNIT INCOME APPROACH: Direct Capitalization Method: $16,500,000 Discounted Cash Flow Method: $16,500,000 INDICATED VALUE BY THE INCOME APPROACH $16,500,000 $47,143 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $16,500,000 $47,143 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 8000 Perry Road, Overland Park, Johnson County, Kansas. Overland Park identifies it as NP21100000 0002. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Kim Cook on May 8, 2003. Frank Fehribach, MAI has not made a personal inspection of the subject property. Kim Cook performed the research, valuation analysis and wrote the report. Frank Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach, MAI and Kim Cook have extensive experience in appraising similar properties and meet the USPAP competency provision. The scope of this investigation comprises the inspection of the property and the collection, verification, and analysis of general and specific data pertinent to the subject property. We have researched current improved sales and leases of similar properties, analyzing them as to their comparability, and adjusting them accordingly. We completed the Sales Comparison and Income Capitalization Approaches to value. From these approaches to value, a concluded overall value was made. DATE OF VALUE AND REPORT This appraisal was made to express the opinion of value as of May 8, 2003. The date of the report is July 9, 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 Properties Growth 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 Overland Park, Kansas. 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 - US 169/Metcalf Avenue West - Interstate 35 South - West 87th Street North - West 75th Street MAJOR EMPLOYERS Major employers in the subject's area include Sprint Corporation (21,173 employees), Applebees International (2,200 employees), Yellow Corporation (1,500 employees), and JC Penney Catalog Logistics Center (1,500 employees). 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS NEIGHBORHOOD DEMOGRAPHICS -------------------------------------------------------------------------------- AREA CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA -------------------------------------------------------------------------------- POPULATION TRENDS Current Population 11,489 107,149 232,047 1,807,569 5-Year Population 11,522 106,201 232,808 1,892,507 % Change CY-5Y 0.3% -0.9% 0.3% 4.7% Annual Change CY-5Y 0.1% -0.2% 0.1% 0.9% HOUSEHOLDS Current Households 5,172 46,227 99,220 709,949 5-Year Projected Households 5,232 46,604 101,430 750,540 % Change CY - 5Y 1.2% 0.8% 2.2% 5.7% Annual Change CY-5Y 0.2% 0.2% 0.4% 1.1% INCOME TRENDS Median Household Income $45,469 $ 58,244 $ 65,788 $ 49,518 Per Capita Income $23,135 $ 27,576 $ 30,666 $ 24,363 Average Household Income $51,889 $ 63,908 $ 71,765 $ 62,029
Source: Demographics Now The subject neighborhood's population is expected to show increases below that of the region. The immediate market offers inferior income levels as compared to the broader market. The following table illustrates the housing statistics in the subject's immediate area, as well as the MSA region.
HOUSING TRENDS -------------------------------------------------------------------------------- AREA CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA -------------------------------------------------------------------------------- HOUSING TRENDS % of Households Renting 63.19% 36.61% 30.83% 29.10% 5-Year Projected % Renting 58.38% 34.84% 29.50% 28.33% % of Households Owning 30.33% 58.03% 64.23% 62.84% 5-Year Projected % Owning 34.84% 59.74% 65.54% 64.03%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Drainage ditch and retail development South - Aspen Lodge Apartments and single-family residential East - Large vacant site under development with a luxury apartment complex West - Four Winds retail center, Wellesley Inn and Suites, good quality office-warehouse CONCLUSIONS The subject is well located within the city of Overland Park. 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS MARKET ANALYSIS The subject property is located in the city of Overland Park in Johnson County. The overall pace of development in the subject's market is more or less stable. REIS reports that 56 completions are scheduled for 2004, 92 in 2005, 99, 2006 and 107 units in 2007. The following table illustrates historical vacancy rates for the subject's market.
HISTORICAL VACANCY RATE --------------------------------------------------- Period Region Submarket --------------------------------------------------- 1st Quarter 2003 8.0% 8.1% 4th Quarter 2002 7.1% 6.8% Average Per Ending 12/31/02 6.2% 5.8%
Source: REIS, Subtrend Futures, Kansas City Apartment, Overland Park North, 1st Quarter 2003 Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has equated the overall market. Market rents in the subject's market have been following a stable trend. The following table illustrates historical rental rates for the subject's market.
HISTORICAL AVERAGE RENT -------------------------------------------------- Period Region % Change Submarket % Change -------------------------------------------------- 1st Q 2003 NA NA $644 - 1st Q 2002 NA NA $676 5.0% 1st Q 2001 NA NA $652 -3.6% 1st Q 2002 NA NA $671 2.9%
Source: REIS, Subtrend Futures, Kansas City Apartment, Overland Park North, 1st Quarter 2003 The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS
COMPETITIVE PROPERTIES --------------------------------------------------------------------------------------------- No. Property Name Units Ocpy. Year Built Proximity to subject --------------------------------------------------------------------------------------------- R-1 Aspen Lodge 307 99% 1987 Across street from subject R-2 Chesapeake Estates Apartments 568 91% 1987 5 miles SW of the subject R-3 Rosehill Pointe Apartments 500 95% 1987 2.5 miles SW of the subject R-4 Cedar Crest Apartments 466 90% 1987 3.5 miles SE of the subject R-5 Subject Four Winds Apartments 350 92% 1986
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS PROPERTY DESCRIPTION SITE ANALYSIS Site Area 24.4711 acres, or 1,065,961 square feet Shape Irregular Topography Rolling 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 2001740202F, dated June 17, 2002 Flood Zone Zone X Zoning RP-3, 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 NP21100000 0002; (Assessed $145,140 $1,843,716 $1,988,856 0.08178 $162,656 Value)
IMPROVEMENT ANALYSIS Year Built 1986 Number of Units 350 Net Rentable Area 312,094 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Wood or vinyl siding Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, spa/jacuzzi, basketball court, tennis court, gym room, meeting hall, laundry room, business office, and parking area. Unit Amenities Individual unit amenities include a garage, balcony, fireplace, cable TV connection,and washer dryer AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS connection. Appliances available in each unit include a refrigerator, stove, dishwasher, water heater, garbage disposal, and oven. Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) 1Br/1Ba - 1A10 42 720 1Br/1Ba - 1B10 20 740 1Br/1Ba - 1C10 94 760 1Br/1Ba - 1D10 6 792 1Br/1Ba - 1E10 22 800 2Br/1Ba - 2A10 70 969
Overall Condition Average Effective Age 17 years Economic Life 45 years Remaining Economic Life 28 years Deferred Maintenance The deferred maintenance at the subject property was estimated for a total amount of $75,000. 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 350-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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 Property Name Four Winds Apartments Nieman Square Casa de Fuentes LOCATION: Address 8000 Perry Road 11115 West 64th Terrace 11700 Stearns City, State Overland Park, Kansas Shawnee, KS Overland Park, KS County Johnson Johnson County Johnson County PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 312,094 114,359 241,384 Year Built 1986 1986 1986 Number of Units 350 152 288 Unit Mix: Type Total Type Total Type Total 1Br/1Ba - 1A10 42 1Br/1Ba 98 1Br/1Ba NA 1Br/1Ba - 1B10 20 2Br/1Ba 27 2Br/2Ba NA 1Br/1Ba - 1C10 94 2Br/2Ba 27 1Br/1Ba - 1D10 6 1Br/1Ba - 1E10 22 2Br/1Ba - 2A10 70 2Br/2Ba - 2A20 76 3Br/2Ba - 3A20 20 Average Unit Size (SF) 892 752 838 Land Area (Acre) 24.4711 8.5500 30.1400 Density (Units/Acre) 14.3 17.8 9.6 Parking Ratio (Spaces/Unit) 1.86 1.99 1.99 Parking Type (Gr., Cov., etc.) Open 177 Open, 126 Covered 500 Open, 72 Covered CONDITION: Average Average Good APPEAL: Average Average Good AMENITIES: Pool/Spa Yes/Yes Yes/Yes Yes/Yes Gym Room Yes Yes Yes Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts Yes Yes Yes Washer/Dryer Connection Yes (in 2&3 Br units) Yes Yes OCCUPANCY: 92% 91% 89% TRANSACTION DATA: Sale Date August, 2002 July, 2002 Sale Price ($) $7,770,350 $14,900,000 Grantor Five States Associates, LP WXI/SPN Real Estate LP Grantee Cashill, Spalding Coolidge-CLK Casa de Fuentes, LLC Sale Documentation Document 216225 Document 212107 Verification Broker Broker Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,249,988 $8,224 $10.93 $2,438,255 $8,466 $10.10 Vacancy/Credit Loss $ 131,014 $ 862 $ 1.15 $ 260,414 $ 904 $ 1.08 Effective Gross Income $1,118,974 $7,362 $ 9.78 $2,177,841 $7,562 $ 9.02 Operating Expenses $ 480,364 $3,160 $ 4.20 $1,031,690 $3,582 $ 4.27 Net Operating Income $ 638,610 $4,201 $ 5.58 $1,146,151 $3,980 $ 4.75 NOTES: Sale price includes $170,350 The grantee also purchased for repair of siding and Aspen Lodge, Improved paving Comparable I-3. PRICE PER UNIT $51,121 $51,736 PRICE PER SQUARE FOOT $ 67.95 $ 61.73 EXPENSE RATIO 42.9% 47.4% EGIM 6.94 6.84 OVERALL CAP RATE 8.22% 7.69% Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 Property Name Aspen Lodge Corinth Place Apartments Concorde Bridge Townhomes (now Sheridan Bridge) LOCATION: Address 8100 Perry Road 3815 Somerset Drive 8403 Carter Street City, State Overland Park, KS Prairie Village, KS Overland Park, KS County Johnson County Johnson County Johnson County PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 277,054 75,280 403,196 Year Built 1987 1986 1971 Number of Units 307 76 248 Unit Mix: Type Total Type Total Type Total 1Br/1Ba NA 1Br/Ba NA 1Br/Ba NA 1Br/1Ba NA 2Br/2Ba NA 2Br/2Ba NA 2Br/1Ba NA 2Br/2Ba NA 3Br/2Ba NA Average Unit Size (SF) 902 991 1,626 Land Area (Acre) 33.5000 6.9000 25.8900 Density (Units/Acre) 9.2 11.0 9.6 Parking Ratio (Spaces/Unit) 1.49 NA 1.99 Parking Type (Gr., Cov., etc.) 304 Open, 154 Covered Open 375 Open, 119 Covered CONDITION: Average Average Average APPEAL: Average Average Average AMENITIES: Pool/Spa Yes/Yes Yes/No Yes/Yes Gym Room Yes Yes Yes Laundry Room Yes Yes Yes Secured Parking No No No Sport Courts Yes Yes No Washer/Dryer Connection Yes Yes Yes OCCUPANCY: 90% 97% 94% TRANSACTION DATA: Sale Date July, 2002 May, 2001 January, 2001 Sale Price ($) $16,850,000 $5,268,658 $16,801,300 Grantor WXI/SPN Real Estate LP Highwoods Realty Limited Capreit Concorde Bridge Partnership Limited Partnership Grantee Coolidge-CLK Aspen, LLC TVO Corinth Place, LLC Sheridan Ridge LLC Sale Documentation Document 212108 Document 190389 Document 184907 Verification Broker Broker Confidential Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $2,713,792 $8,840 $9.80 $737,573 $9,705 $9.80 $ 0 $ 0 $0.00 Vacancy/Credit Loss $ 218,105 $ 710 $0.79 $ 18,520 $ 244 $0.25 $ 0 $ 0 $0.00 Effective Gross Income $2,495,687 $8,129 $9.01 $719,053 $9,461 $9.55 $2,589,305 $10,441 $6.42 Operating Expenses $1,122,740 $3,657 $4.05 $240,912 $3,170 $3.20 $ 829,237 $ 3,344 $2.06 Net Operating Income $1,372,947 $4,472 $4.96 $478,141 $6,291 $6.35 $1,760,068 $ 7,097 $4.37 NOTES: The grantee also purchased This property was purchased The sale price includes Casa de Fuentes, Improved as part of a bulk sale. The $1,201,300 in deferred Comparable I-2. sale price was allocated maintenance and renovation. based on appraisals PRICE PER UNIT $54,886 $69,324 $67,747 PRICE PER SQUARE FOOT $ 60.82 $69.99 $ 41.67 EXPENSE RATIO 45.0% 33.5% 32.0% EGIM 6.75 7.33 6.49 OVERALL CAP RATE 8.15% 9.08% 10.48% Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS IMPROVED SALES MAP [IMPROVED SALES MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $51,121 to $69,324 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 $44,855 to $50,468 per unit with a mean or average adjusted price of $47,825 per unit. The median adjusted price is $47,586 per unit. Based on the following analysis, we have concluded to a value of $47,500 per unit, which results in an "as is" value of $16,600,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 -------------------------------------------------------------------------------------------------------------- Property Name Four Winds Apartments Nieman Square Casa de Fuentes Address 8000 Perry Road 11115 West 64th Terrace 11700 Stearns City Overland Park, Kansas Shawnee, KS Overland Park, KS Sale Date August, 2002 July, 2002 Sale Price ($) $7,770,350 $14,900,000 Net Rentable Area (SF) 312,094 114,359 241,384 Number of Units 350 152 288 Price Per Unit $51,121 $51,736 Year Built 1986 1986 1986 Land Area (Acre) 24.4711 8.5500 30.1400 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 08-2002 2% 07-2002 2% VALUE AFTER TRANS. ADJUST. ($/UNIT) $52,143 $52,771 Location Comparable 0% Comparable 0% Number of Units 350 152 -10% 288 -5% Quality / Appeal Average Comparable 0% Superior -10% Age / Condition 1986 1986 / Average 0% 1986 / Good 0% Occupancy at Sale 92% 91% 0% 89% 0% Amenities Fair Comparable 0% Comparable 0% Average Unit Size (SF) 892 752 5% 838 0% PHYSICAL ADJUSTMENT -5% -15% FINAL ADJUSTED VALUE ($/UNIT) $49,536 $44,855 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 ------------------------------------------------------------------------------------------------------------------- Property Name Aspen Lodge Corinth Place Apartments Concorde Bridge Townhomes (now Sheridan Bridge) Address 8100 Perry Road 3815 Somerset Drive 8403 Carter Street City Overland Park, KS Prairie Village, KS Overland Park, KS Sale Date July, 2002 May, 2001 January, 2001 Sale Price ($) $16,850,000 $5,268,658 $16,801,300 Net Rentable Area (SF) 277,054 75,280 403,196 Number of Units 307 76 248 Price Per Unit $54,886 $69,324 $67,747 Year Built 1987 1986 1971 Land Area (Acre) 33.5000 6.9000 25.8900 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 07-2002 2% 05-2001 4% 01-2001 6% VALUE AFTER TRANS. ADJUST. ($/UNIT) $55,984 $72,097 $71,812 Location Comparable 0% Comparable 0% Comparable 0% Number of Units 307 0% 76 -15% 248 -5% Quality / Appeal Comparable 0% Superior -10% Comparable 0% Age / Condition 1987 / Average 0% 1986 / Average 0% 1971 / Average 5% Occupancy at Sale 90% 0% 97% 0% 94% 0% Amenities Superior -15% Comparable 0% Comparable 0% Average Unit Size (SF) 902 0% 991 -5% 1,626 -35% PHYSICAL ADJUSTMENT -15% -30% -35% FINAL ADJUSTED VALUE ($/UNIT) $47,586 $50,468 $46,678
SUMMARY VALUE RANGE (PER UNIT) $44,855 TO $ 50,468 MEAN (PER UNIT) $47,825 MEDIAN (PER UNIT) $47,586 VALUE CONCLUSION (PER UNIT) $47,500 VALUE OF IMPROVEMENT & MAIN SITE $16,625,000 DEFERRED MAINTENANCE -$75,000 VALUE INDICATED BY SALES COMPARISON APPROACH $16,550,000 ROUNDED $16,600,000
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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS
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-1 152 $7,770,350 8.22% $ 638,610 $1,491,957 1.015 $ 51,867 $ 51,121 $ 4,201 $ 4,263 I-2 288 $14,900,000 7.69% $1,146,151 $1,491,957 1.071 $ 55,416 $ 51,736 $ 3,980 $ 4,263 I-3 307 $16,850,000 8.15% $1,372,947 $1,491,957 0.953 $ 52,316 $ 54,886 $ 4,472 $ 4,263 I-4 76 $ 5,268,658 9.08% $ 478,141 $1,491,957 0.678 $ 46,971 $ 69,324 $ 6,291 $ 4,263 I-5 248 $16,801,300 10.48% $1,760,068 $1,491,957 0.601 $ 40,691 $ 67,747 $ 7,097 $ 4,263 PRICE/UNIT VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT -------------------------------------------------------------------------------------------------- Low High Average Median Estimated Price Per Unit $ 47,500 ----------- Number of Units 350 $40,691 $55,416 $49,452 $51,867 Value $16,625,000 Deferred Maintenance -$75,000 ----------- Value Based on NOI Analysis $16,550,000 Rounded $16,600,000
The adjusted sales indicate a range of value between $40,691 and $55,416 per unit, with an average of $49,452 per unit. Based on the subject's competitive position within the improved sales, a value of $47,500 per unit is estimated. This indicates an "as is" market value of $16,600,000 (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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS
EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON ----------------------------------------------------------------------------------------------- COMPARABLE NO. OF SALE PRICE EFFECTIVE OPERATING SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM ----------------------------------------------------------------------------------------------- I-1 152 $ 7,770,350 $1,118,974 $ 480,364 42.93% 6.94 $ 51,121 I-2 288 $14,900,000 $2,177,841 $1,031,690 47.37% 6.84 $ 51,736 I-3 307 $16,850,000 $2,495,687 $1,122,740 44.99% 43.31% 6.75 $ 54,886 I-4 76 $ 5,268,658 $ 719,053 $ 240,912 33.50% 7.33 $ 69,324 I-5 248 $16,801,300 $2,589,305 $ 829,237 32.03% 6.49 $ 67,747 EGIM VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Low High Average Median Estimate EGIM 6.00 Subject EGI $ 2,786,271 6.49 7.33 6.87 6.84 Value $16,717,625 Deferred Maintenance -$75,000 Value Based on EGIM Analysis $16,642,625 Rounded $16,600,000 Value Per Unit $ 47,429
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 43.31% before reserves. The comparable sales indicate a range of expense ratios from 32.03% to 47.37%, while their EGIMs range from 6.49 to 7.33. Overall, we conclude to an EGIM of 6.00, which results in an "as is" value estimate in the EGIM Analysis of $16,600,000. 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 $16,600,000. Price Per Unit $16,600,000 NOI Per Unit $16,600,000 EGIM Analysis $16,600,000 Sales Comparison Conclusion $16,600,000 AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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
Unit Area Average Unit Type (Sq. Ft.) Per Unit Per SF %Occupied 1Br/1Ba - 1A10 720 $592 $0.82 95.3% 1Br/1Ba - 1B10 740 $561 $0.76 77.8% 1Br/1Ba - 1C10 760 $606 $0.80 91.6% 1Br/1Ba - 1D10 792 $582 $0.73 100.0% 1Br/1Ba - 1E10 800 $623 $0.78 90.9% 2Br/1Ba - 2A10 969 $676 $0.70 92.9%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS RENT ANALYSIS
COMPARABLE RENTS ----------------------------------------------------- R-1 R-2 R-3 R-4 R-5 ------------------------------------------------------ Chesapeake Rosehill Aspen Estates Pointe Cedar Crest Lodge Apartments Apartments Apartments ------------------------------------------------------ SUBJECT SUBJECT COMPARISON TO SUBJECT SUBJECT UNIT ACTUAL ASKING ------------------------------------------------------ DESCRIPTION TYPE RENT RENT Similar Superior Similar Superior Superior ----------- ---- ---- ---- ------- -------- ------- -------- -------- Monthly Rent 1BR/1BA - 1A10 $ 592 $ 501 $ 659 $ 575 Unit Area (SF) 720 720 720 644 Monthly Rent Per Sq. Ft. $ 0.82 $ 0.70 $ 0.92 $ 0.89 Monthly Rent 1BR/1BA - 1B10 $ 561 $ 541 $ 575 Unit Area (SF) 740 740 720 Monthly Rent Per Sq. Ft. $ 0.76 $ 0.73 $ 0.80 Monthly Rent 1BR/1BA - 1C10 $ 606 $ 571 $ 559 Unit Area (SF) 760 760 720 Monthly Rent Per Sq. Ft. $ 0.80 $ 0.75 $ 0.78 Monthly Rent 1BR/1BA - 1D10 $ 582 $ 671 $ 590 $ 559 Unit Area (SF) 792 792 794 794 Monthly Rent Per Sq. Ft. $ 0.73 $ 0.85 $ 0.74 $ 0.70 Monthly Rent 1BR/1BA - 1E10 $ 623 $ 720 Unit Area (SF) 800 800 800 Monthly Rent Per Sq. Ft. $ 0.78 $ 0.90 Monthly Rent 2BR/1BA - 2A10 $ 676 $ 765 $ 710 $ 640 $ 709 Unit Area (SF) 969 969 969 906 904 904 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.79 $ 0.78 $ 0.71 $ 0.78 Monthly Rent 2BR/2BA - 2A20 $ 768 $ 840 Unit Area (SF) 1,062 1,062 1,062 Monthly Rent Per Sq. Ft. $ 0.72 $ 0.79 Monthly Rent 3BR/2BA - 3A20 $ 902 $ 980 $ 850 $ 842 $ 837 Unit Area (SF) 1,236 1,236 1,236 1,185 1,263 1,263 Monthly Rent Per Sq. Ft. $ 0.73 $ 0.79 $ 0.72 $ 0.67 $ 0.66 DESCRIPTION MIN MAX MEDIAN AVERAGE ----------- --- --- ------ ------- Monthly Rent $ 575 $ 659 $ 617 $ 617 Unit Area (SF) 644 720 682 682 Monthly Rent Per Sq. Ft. $ 0.89 $ 0.92 $ 0.90 $ 0.90 Monthly Rent $ 575 $ 575 $ 575 $ 575 Unit Area (SF) 720 720 720 720 Monthly Rent Per Sq. Ft. $ 0.80 $ 0.80 $ 0.80 $ 0.80 Monthly Rent $ 559 $ 559 $ 559 $ 559 Unit Area (SF) 720 720 720 720 Monthly Rent Per Sq. Ft. $ 0.78 $ 0.78 $ 0.78 $ 0.78 Monthly Rent $ 559 $ 590 $ 575 $ 575 Unit Area (SF) 794 794 794 794 Monthly Rent Per Sq. Ft. $ 0.70 $ 0.74 $ 0.72 $ 0.72 Monthly Rent $ 720 $ 720 $ 720 $ 720 Unit Area (SF) 800 800 800 800 Monthly Rent Per Sq. Ft. $ 0.90 $ 0.90 $ 0.90 $ 0.90 Monthly Rent $ 640 $ 765 $ 710 $ 706 Unit Area (SF) 904 969 905 921 Monthly Rent Per Sq. Ft. $ 0.71 $ 0.79 $ 0.78 $ 0.77 Monthly Rent $ 840 $ 840 $ 840 $ 840 Unit Area (SF) 1,062 1,062 1,062 1,062 Monthly Rent Per Sq. Ft. $ 0.79 $ 0.79 $ 0.79 $ 0.79 Monthly Rent $ 837 $ 980 $ 846 $ 877 Unit Area (SF) 1,185 1,263 1,250 1,237 Monthly Rent Per Sq. Ft. $ 0.66 $ 0.79 $ 0.69 $ 0.71
CONCLUDED MARKET RENTAL RATES AND TERMS Based on this analysis above, the subject's concluded market rental rates and gross rental income is calculated as follows: GROSS RENTAL INCOME PROJECTION
Market Rent Unit Area ----------------- Monthly Annual Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income --------- --------------- --------- -------- ------ ------ ------ 1Br/1Ba - 1A10 42 720 $ 590 $ 0.82 $ 24,780 $ 297,360 1Br/1Ba - 1B10 20 740 $ 560 $ 0.76 $ 11,200 $ 134,400 1Br/1Ba - 1C10 94 760 $ 600 $ 0.79 $ 56,400 $ 676,800 1Br/1Ba - 1D10 6 792 $ 600 $ 0.76 $ 3,600 $ 43,200 1Br/1Ba - 1E10 22 800 $ 699 $ 0.87 $ 15,378 $ 184,536 2Br/1Ba - 2A10 70 969 $ 700 $ 0.72 $ 49,000 $ 588,000 Total $233,358 $2,800,296
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 FISCAL YEAR 2003 -------------------------------------------------------------------------------------- ACTUAL ACTUAL ACTUAL MANAGEMENT BUDGET -------------------------------------------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT ----------------------------------------------------------------------------------------------------------------- Revenues Rental Income $3,001,874 $ 8,577 $3,021,007 $ 8,631 $2,931,256 $ 8,375 $2,906,112 $ 8,303 Vacancy $ 166,532 $ 476 $ 189,408 $ 541 $ 130,214 $ 372 $ 158,300 $ 452 Credit Loss/Concessions $ 65,120 $ 186 $ 126,233 $ 361 $ 126,179 $ 361 $ 105,000 $ 300 -------------------------------------------------------------------------------------- Subtotal $ 231,652 $ 662 $ 315,641 $ 902 $ 256,393 $ 733 $ 263,300 $ 752 Laundry Income $ 1,104 $ 3 $ 1,601 $ 5 $ 2,692 $ 8 $ 27,708 $ 79 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 167,567 $ 479 $ 210,754 $ 602 $ 282,034 $ 806 $ 236,900 $ 677 -------------------------------------------------------------------------------------- Subtotal Other Income $ 168,671 $ 482 $ 212,355 $ 607 $ 284,726 $ 814 $ 264,608 $ 756 -------------------------------------------------------------------------------------- Effective Gross Income $2,938,893 $ 8,397 $2,917,721 $ 8,336 $2,959,589 $ 8,456 $2,907,420 $ 8,307 Operating Expenses Taxes $ 177,948 $ 508 $ 173,373 $ 495 $ 255,331 $ 730 $ 196,620 $ 562 Insurance $ 5,798 $ 17 $ 55,089 $ 157 $ 62,407 $ 178 $ 68,780 $ 197 Utilities $ 151,305 $ 432 $ 151,052 $ 432 $ 162,420 $ 464 $ 106,500 $ 304 Repair & Maintenance $ 32,444 $ 93 $ 74,255 $ 212 $ 62,580 $ 179 $ 73,464 $ 210 Cleaning $ 4,702 $ 13 $ 3,029 $ 9 $ 3,317 $ 9 $ 0 $ 0 Landscaping $ 56,129 $ 160 $ 45,486 $ 130 $ 41,775 $ 119 $ 43,200 $ 123 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 134,789 $ 385 $ 89,147 $ 255 $ 85,229 $ 244 $ 77,900 $ 223 General Administrative $ 301,002 $ 860 $ 369,008 $ 1,054 $ 349,563 $ 999 $ 319,704 $ 913 Management $ 150,132 $ 429 $ 152,027 $ 434 $ 146,435 $ 418 $ 153,000 $ 437 Miscellaneous $ 101,846 $ 291 $ 110,777 $ 317 $ 120,124 $ 343 $ 103,360 $ 295 -------------------------------------------------------------------------------------- Total Operating Expenses $1,116,095 $ 3,189 $1,223,243 $ 3,495 $1,289,181 $ 3,683 $1,142,528 $ 3,264 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------------------------------- Net Income $1,822,798 $ 5,208 $1,694,478 $ 4,841 $1,670,408 $ 4,773 $1,764,892 $ 5,043 ANNUALIZED 2003 -------------------- PROJECTION AAA PROJECTION ---------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % -------------------------------------------------------------------------------- Revenues Rental Income $2,822,420 $ 8,064 $2,800,296 $ 8,001 100.0% Vacancy $ 130,968 $ 374 $ 140,015 $ 400 5.0% Credit Loss/Concessions $ 92,192 $ 263 $ 98,010 $ 280 3.5% ---------------------------------------------------- Subtotal $ 223,160 $ 638 $ 238,025 $ 680 8.5% Laundry Income $ 8,348 $ 24 $ 14,000 $ 40 0.5% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 217,860 $ 622 $ 210,000 $ 600 7.5% ---------------------------------------------------- Subtotal Other Income $ 226,208 $ 646 $ 224,000 $ 640 8.0% ---------------------------------------------------- Effective Gross Income $2,825,468 $ 8,073 $2,786,271 $ 7,961 100.0% Operating Expenses Taxes $ 197,312 $ 564 $ 201,250 $ 575 7.2% Insurance $ 65,776 $ 188 $ 66,500 $ 190 2.4% Utilities $ 169,096 $ 483 $ 168,000 $ 480 6.0% Repair & Maintenance $ 56,948 $ 163 $ 63,000 $ 180 2.3% Cleaning $ 6,636 $ 19 $ 7,000 $ 20 0.3% Landscaping $ 5,920 $ 17 $ 45,500 $ 130 1.6% Security $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 64,948 $ 186 $ 78,750 $ 225 2.8% General Administrative $ 369,436 $ 1,056 $ 350,000 $ 1,000 12.6% Management $ 143,304 $ 409 $ 139,314 $ 398 5.0% Miscellaneous $ 98,696 $ 282 $ 87,500 $ 250 3.1% ---------------------------------------------------- Total Operating Expenses $1,178,072 $ 3,366 $1,206,814 $ 3,448 43.3% Reserves $ 0 $ 0 $ 87,500 $ 250 7.3% ---------------------------------------------------- Net Income $1,647,396 $ 4,707 $1,491,957 $ 4,263 53.5%
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 8.5% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 $250 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 some major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an additional $75,000 has been deducted. 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS
SUMMARY OF OVERALL CAPITALIZATION RATES ------------------------------------------------ COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR ------------------------------------------------ I-1 Aug-02 91% $51,121 8.22% I-2 Jul-02 89% $51,736 7.69% I-3 Jul-02 90% $54,886 8.15% I-4 May-01 97% $69,324 9.08% I-5 Jan-01 94% $67,747 10.48% High 10.48% Low 7.69% Average 8.72%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.00%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 10.00%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 11.00%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 11.00% indicates a value of $16,500,000. In this instance, the reversion figure contributes approximately 39% of the total value. Investors surveyed for this assignment indicated they AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 CAPITALIZATION APPROACH PAGE 34 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS DISCOUNTED CASH FLOW ANALYSIS
FOUR WINDS APARTMENTS YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 APR-2010 FISCAL YEAR 1 2 3 4 5 6 7 REVENUE Base Rent $2,800,296 $2,856,302 $2,913,428 $2,971,697 $3,031,130 $3,106,909 $3,184,581 Vacancy $ 140,015 $ 142,815 $ 145,671 $ 148,585 $ 151,557 $ 155,345 $ 159,229 Credit Loss $ 98,010 $ 99,971 $ 101,970 $ 104,009 $ 106,090 $ 108,742 $ 111,460 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------------------------------- Subtotal $ 238,025 $ 242,786 $ 247,641 $ 252,594 $ 257,646 $ 264,087 $ 270,689 Laundry Income $ 14,000 $ 14,280 $ 14,566 $ 14,857 $ 15,154 $ 15,533 $ 15,921 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 210,000 $ 214,200 $ 218,484 $ 222,854 $ 227,311 $ 232,994 $ 238,818 ---------------------------------------------------------------------------------------- Subtotal Other Income $ 224,000 $ 228,480 $ 233,050 $ 237,711 $ 242,465 $ 248,526 $ 254,740 ---------------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $2,786,271 $2,841,996 $2,898,836 $2,956,813 $3,015,949 $3,091,348 $3,168,632 OPERATING EXPENSES: Taxes $ 201,250 $ 205,275 $ 209,381 $ 213,568 $ 217,839 $ 223,285 $ 228,868 Insurance $ 66,500 $ 67,830 $ 69,187 $ 70,570 $ 71,982 $ 73,781 $ 75,626 Utilities $ 168,000 $ 171,360 $ 174,787 $ 178,283 $ 181,849 $ 186,395 $ 191,055 Repair & Maintenance $ 63,000 $ 64,260 $ 65,545 $ 66,856 $ 68,193 $ 69,898 $ 71,646 Cleaning $ 7,000 $ 7,140 $ 7,283 $ 7,428 $ 7,577 $ 7,766 $ 7,961 Landscaping $ 45,500 $ 46,410 $ 47,338 $ 48,285 $ 49,251 $ 50,482 $ 51,744 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 78,750 $ 80,325 $ 81,932 $ 83,570 $ 85,242 $ 87,373 $ 89,557 General Administrative $ 350,000 $ 357,000 $ 364,140 $ 371,423 $ 378,851 $ 388,323 $ 398,031 Management $ 139,314 $ 142,100 $ 144,942 $ 147,841 $ 150,797 $ 154,567 $ 158,432 Miscellaneous $ 87,500 $ 89,250 $ 91,035 $ 92,856 $ 94,713 $ 97,081 $ 99,508 ---------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $1,206,814 $1,230,950 $1,255,569 $1,280,680 $1,306,294 $1,338,951 $1,372,425 Reserves $ 87,500 $ 89,250 $ 91,035 $ 92,856 $ 94,713 $ 97,081 $ 99,508 ---------------------------------------------------------------------------------------- NET OPERATING INCOME $1,491,957 $1,521,796 $1,552,232 $1,583,277 $1,614,943 $1,655,316 $1,696,699 ======================================================================================== Operating Expense Ratio (% of EGI) 43.3% 43.3% 43.3% 43.3% 43.3% 43.3% 43.3% Operating Expense Per Unit $ 3,448 $ 3,517 $ 3,587 $ 3,659 $ 3,732 $ 3,826 $ 3,921 ======================================================================================== FOUR WINDS APARTMENTS YEAR APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 8 9 10 11 REVENUE Base Rent $3,264,196 $3,345,801 $3,429,446 $3,515,182 Vacancy $ 163,210 $ 167,290 $ 171,472 $ 175,759 Credit Loss $ 114,247 $ 117,103 $ 120,031 $ 123,031 Concessions $ 0 $ 0 $ 0 $ 0 ------------------------------------------------- Subtotal $ 277,457 $ 284,393 $ 291,503 $ 298,790 Laundry Income $ 16,319 $ 16,727 $ 17,145 $ 17,574 Garage Revenue $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 244,789 $ 250,909 $ 257,181 $ 263,611 ------------------------------------------------- Subtotal Other Income $ 261,108 $ 267,636 $ 274,327 $ 281,185 ------------------------------------------------- EFFECTIVE GROSS INCOME $3,247,847 $3,329,044 $3,412,270 $3,497,576 OPERATING EXPENSES: Taxes $ 234,589 $ 240,454 $ 246,465 $ 252,627 Insurance $ 77,516 $ 79,454 $ 81,441 $ 83,477 Utilities $ 195,831 $ 200,727 $ 205,745 $ 210,889 Repair & Maintenance $ 73,437 $ 75,273 $ 77,154 $ 79,083 Cleaning $ 8,160 $ 8,364 $ 8,573 $ 8,787 Landscaping $ 53,038 $ 54,364 $ 55,723 $ 57,116 Security $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 91,796 $ 94,091 $ 96,443 $ 98,854 General Administrative $ 407,981 $ 418,181 $ 428,635 $ 439,351 Management $ 162,392 $ 166,452 $ 170,613 $ 174,879 Miscellaneous $ 101,995 $ 104,545 $ 107,159 $ 109,838 ------------------------------------------------- TOTAL OPERATING EXPENSES $1,406,736 $1,441,904 $1,477,952 $1,514,900 Reserves $ 101,995 $ 104,545 $ 107,159 $ 109,838 ------------------------------------------------- NET OPERATING INCOME $1,739,117 $1,782,594 $1,827,159 $1,872,838 ================================================= Operating Expense Ratio (% of EGI) 43.3% 43.3% 43.3% 43.3% Operating Expense Per Unit $ 4,019 $ 4,120 $ 4,223 $ 4,328 =================================================
"DCF" VALUE ANALYSIS Estimated Stabilized NOI $1,491,957 Sales Expense Rate 2.00% Months to Stabilized 0 Discount Rate 11.00% Stabilized Occupancy 95.0% Terminal Cap Rate 10.00%
Gross Residual Sale Price $18,728,383 Deferred Maintenance -$75,000 Less: Sales Expense $ 374,568 Add: Excess Land $ 0 ----------- Other Adjustments $ 0 Net Residual Sale Price $18,353,815 ----------- PV of Reversion $ 6,463,929 Value Indicated By "DCF" $16,495,936 Add: NPV of NOI $10,107,008 Rounded $16,500,000 ----------- PV Total $16,570,936
"DCF" VALUE SENSITIVITY TABLE ------------------------------------------------------------------------------------------ TOTAL VALUE DISCOUNT RATE ------------------------------------------------------------------------------------------ 10.50% 10.75% 11.00% 11.25% 11.50% 9.50% $17,466,180 $17,185,615 $16,911,143 $16,642,612 $16,379,873 9.75% $17,283,657 $17,007,171 $16,736,678 $16,472,028 $16,213,075 TERMINAL CAP RATE 10.00% $17,110,262 $16,837,650 $16,570,936 $16,309,974 $16,054,618 10.25% $16,945,324 $16,676,398 $16,413,280 $16,155,824 $15,903,890 10.50% $16,788,240 $16,522,824 $16,263,130 $16,009,015 $15,760,339
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS INCOME LOSS DURING LEASE-UP The subject is currently near or at a stabilized condition. Therefore, there is no income loss during lease-up at the subject property. CONCESSIONS Concessions have historically not been utilized at the subject property or in the subject's market. Therefore, no adjustment was included for concessions. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 9.00% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS
FOUR WINDS APARTMENTS TOTAL PER SQ. FT. PER UNIT %OF EGI REVENUE Base Rent $ 2,800,296 $ 8.97 $ 8,001 Less: Vacancy & Collection Loss 8.50% $ 238,025 $ 0.76 $ 680 Plus: Other Income Laundry Income $ 14,000 $ 0.04 $ 40 0.50% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 210,000 $ 0.67 $ 600 7.54% ------------------------------------------ Subtotal Other Income $ 224,000 $ 0.72 $ 640 8.04% EFFECTIVE GROSS INCOME $ 2,786,271 $ 8.93 $ 7,961 OPERATING EXPENSES: Taxes $ 201,250 $ 0.64 $ 575 7.22% Insurance $ 66,500 $ 0.21 $ 190 2.39% Utilities $ 168,000 $ 0.54 $ 480 6.03% Repair & Maintenance $ 63,000 $ 0.20 $ 180 2.26% Cleaning $ 7,000 $ 0.02 $ 20 0.25% Landscaping $ 45,500 $ 0.15 $ 130 1.63% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 78,750 $ 0.25 $ 225 2.83% General Administrative $ 350,000 $ 1.12 $ 1,000 12.56% Management 5.00% $ 139,314 $ 0.45 $ 398 5.00% Miscellaneous $ 87,500 $ 0.28 $ 250 3.14% TOTAL OPERATING EXPENSES $ 1,206,814 $ 3.87 $ 3,448 43.31% Reserves $ 87,500 $ 0.28 $ 250 3.14% ------------------------------------------ NET OPERATING INCOME $ 1,491,957 $ 4.78 $ 4,263 53.55% ========================================== "GOING IN" CAPITALIZATION RATE 9.00% VALUE INDICATION $16,577,303 $53.12 $47,364 DEFERRED MAINTENANCE ($ 75,000) LESS: LEASE-UP COST {OTHER VALUE ADJUSTMENTS} "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $16,502,303 ROUNDED $16,500,000 $52.87 $47,143
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS
DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE --------------------------------------------------- CAP RATE VALUE ROUNDED $/UNIT $/SF --------------------------------------------------- 8.25% $18,009,331 $18,000,000 $51,429 $57.67 8.50% $17,477,439 $17,500,000 $50,000 $56.07 8.75% $16,975,941 $17,000,000 $48,571 $54.47 9.00% $16,502,303 $16,500,000 $47,143 $52.87 9.25% $16,054,268 $16,100,000 $46,000 $51.59 9.50% $15,629,814 $15,600,000 $44,571 $49.98 9.75% $15,227,126 $15,200,000 $43,429 $48.70
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $16,500,000. 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 $16,500,000 Direct Capitalization Method $16,500,000 Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $16,500,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 $16,600,000 Income Approach $16,500,000 Reconciled Value $16,500,000 The Income Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of May 8, 2003 the market value of the fee simple estate in the property is: $16,500,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS SUBJECT PHOTOGRAPHS [PICTURE] ENTRANCE TO SUBJECT AND VIEW OF 81ST STREET [PICTURE] EXTERIOR - TYPICAL THREE-STORY BUILDING [PICTURE] TYPICAL TWO-STORY BUILDING [PICTURE] POOL [PICTURE] VIEW OF TENNIS COURTS [PICTURE] VIEW OF OFFICE/CLUBHOUSE AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS SUBJECT PHOTOGRAPHS [PICTURE] INTERIOR VIEW - MODEL [PICTURE] INTERIOR VIEW -MODEL [PICTURE] INTERIOR - VACANT APARTMENT UNIT [PICTURE] INTERIOR -VACANT APARTMENT UNIT [PICTURE] CLUBHOUSE INTERIOR VIEW [PICTURE] VIEW OF TYPICAL CARPORT AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 NIEMAN SQUARE CASA DE FUENTES ASPEN LODGE 11115 West 64th Terrace 11700 Stearns 8100 Perry Road Shawnee, KS Overland Park, KS Overland Park, KS [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 CORINTH PLACE APARTMENTS CONCORDE BRIDGE TOWNHOMES (NOW SHERIDAN BRIDGE) 3815 Somerset Drive 8403 Carter Street Prairie Village, KS Overland Park, KS [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 ----------- ------- ----- Property Name Four Winds Apartments Aspen Lodge Management Company AIMCO LEDIC Management Group LOCATION: Address 8000 Perry Road 8100 Perry Road City, State Overland Park, Kansas Overland Park, KS County Johnson Johnson Proximity to Subject Across street from subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 312,094 277,054 Year Built 1986 1987 Effective Age 17 16 Building Structure Type Viny1 siding, flat roofs Wood siding, pitched composition shingle roofs Parking Type (Gr., Cov., etc.) Open, carports Open, carports Number of Units 350 307 Unit Mix: Type Unit Qty. Mo.Rent Type Unit Qty. Mo. ---- ---- ---- ------- ---- ---- ---- --- 1 1Br/1Ba - 1A10 720 42 $ 592 1 1Br/1Ba 720 NA $ 659 2 1Br/1Ba - 1B10 740 20 $ 561 5 1Br/1Ba 800 NA $ 720 3 1Br/1Ba - 1C10 760 94 $ 606 6 2Br/1Ba 969 NA $ 765 4 1Br/1Ba - 1D10 792 6 $ 582 7 2Br/2Ba 1,062 NA $ 840 5 1Br/1Ba - 1E10 800 22 $ 623 8 3Br/2Ba 1,236 NA $ 980 6 2Br/1Ba - 2A10 969 70 $ 676 7 2Br/2Ba - 2A20 1,062 76 $ 768 8 3Br/2Ba - 3A20 1,236 20 $ 902 Average Unit Size (SF) 892 902 Unit Breakdown: Efficiency 0% 2-Bedroom 39% Efficiency 0% 2-Bedroom NA 1-Bedroom 61% 3-Bedroom 0% 1-Bedroom NA 3-Bedroom NA CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities X Attach. Garage Vaulted Ceiling Attach. Garage X Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash X Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 92% 99% LEASING DATA: Available Leasing Terms 6 to 12 Months 12 months Concessions 1/2 Month free rent on one-bedrooms Pet Deposit $300 $300 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash X Water Trash Confirmation May __, 2003; Roxane Tevis (Property May 28, 2003; (Leasing Agent) Manager) Telephone Number (913)648-4339 (877)895-7785 NOTES: COMPARISON TO SUBJECT: Similar COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 ----------- ----- ----- Property Name Chesapeake Estates Apartments Rosehill Pointe Apartments Management Company Price Management Company Equity Apartments LOCATION: Address 9250 Lichtenauer Drive 12701 West 88th Street City, State Lenexa, KS Lenexa, KS County Johnson County Johnson County Proximity to Subject 5 miles SW of the subject 2.5 miles SW of the subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 493,430 393,776 Year Built 1987 1987 Effective Age 16 16 Building Structure Type Brick, siding, pitched composition Wood siding, pitched composition shingle shingle roofs roof Parking Type (Gr., Cov., etc.) Open, carports Open, carports Number of Units 568 500 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. ---- ---- ---- --- ---- ---- ---- --- 1 1Br/1Ba 610 NA $ 565 2 1Br/1Ba 720 NA $ 575 1 1Br/1Ba 678 NA $ 585 4 1Br/1Ba 794 NA $ 590 6 2Br/2Ba 906 NA $ 710 6 2Br/1Ba 904 NA $ 640 8 2Br/2Ba 1,185 NA $ 850 8 2Br/2Ba 1,263 NA $ 754 8 2Br/2Ba 1,263 NA $ 929 Average Unit Size (SF) 869 788 Unit Breakdown: Efficiency 0% 2-Bedroom 0% Efficiency 0% 2-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% CONDITION: Good Average APPEAL: Good Average 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 Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash X Spa/Jacuzzi X Car Wash Basketball Court X BBQ Equipment X Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball X Meeting Hall Sand Volley Ball X Meeting Hall X Tennis Court Secured Parking X Tennis Court X Secured Parking X Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 91% 95% LEASING DATA: Available Leasing Terms 6 or 12 months 6 to 12 months Concessions Discounts on selected units None Pet Deposit $150 $300 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash X Water Trash Confirmation May 28, 2003; (Leasing Agent) May 28, 2003; (Leasing Agent) Telephone Number (913)888-1505 (877)566-3702 NOTES: COMPARISON TO SUBJECT: Superior Similar COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 ----------- ----- ----- Property Name Cedar Crest Apartments Management Company Equity Apartments LOCATION: Address 6500 West 91st Street City, State Overland Park, KS County Johnson County Proximity to Subject 3.5 miles SE of the subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) NA Year Built 1987 Effective Age 16 Building Structure Type Wood siding, composition shingle roofs Parking Type (Gr., Cov., etc.) Open, carports Number of Units 466 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. ---- ---- ---- --- ---- ---- ---- --- 3 1Br/1Ba 720 $ 559 4 1Br/1Ba 794 $ 559 6 2Br/1Ba 904 $ 709 8 2Br/2Ba 1,263 $ 785 8 2Br/2Ba 1,263 $ 889 Average Unit Size (SF) NA Unit Breakdown: Efficiency 0% 2-Bedroom 0% Efficiency 0% 2-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% 1-Bedroom 0% 3-Bedroom 0% CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. Balcony W/D Connect. X Fireplace Fireplace X Cable TV Ready Cable TV Ready Project Amenities X Swimming Pool Swimming Pool X Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash X Basketball Court X BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Sand Volley Ball Meeting Hall X Tennis Court X Secured Parking 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 Gym Room OCCUPANCY: 90% LEASING DATA: Available Leasing Terms 6 to 12 Months Concessions None Pet Deposit $700 Utilities Paid by Tenant: X Electric Natural Gas Electric Natural Gas X Water Trash Water Trash Confirmation May 27, 2003; (Leasing Agent) Telephone Number (504)394-6161 NOTES: COMPARISON TO SUBJECT: Superior Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 ASPEN LODGE CHESAPEAKE ESTATES APARTMENTS ROSEHILL POINTE APARTMENTS 8100 Perry Road 9250 Lichtenauer Drive 12701 West 88th Street Overland Park, KS Lenexa, KS Lenexa, KS [PICTURE OF LODGE] [PICTURE OF LODGE] [PICTURE OF LODGE] COMPARABLE R-4 COMPARABLE R-5 CEDAR CREST APARTMENTS 6500 West 91st Street Overland Park, KS [PICTURE OF LODGE] N/A AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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 Appraisal Institute 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 FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS 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. Kim Cook provided significant real property appraisal assistance in the preparation of this report. I am currently in compliance with the Appraisal Institute's continuing education requirements. -s- Frank Fehribach Frank Fehribach, MAI Managing Principal, Real Estate Group Texas State Certified General Real Estate Appraiser #TX-1323954-G AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS FRANK A. FEHRIBACH, MAI MANAGING PRINCIPAL, REAL ESTATE GROUP POSITION Frank A. Fehribach is a Managing Principal for the Dallas Real Estate Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Mr. Fehribach has experience in valuations for resort hotels; Class A office buildings; Class A multifamily complexes; industrial buildings and distribution warehousing; multitract mixed-use vacant land; regional malls; residential subdivision development; and special-purpose properties such as athletic clubs, golf courses, manufacturing facilities, nursing homes, and medical buildings. Consulting assignments include development and feasibility studies, economic model creation and maintenance, and market studies. Mr. Fehribach also has been involved in overseeing appraisal and consulting assignments in Mexico and South America. Business Mr. Fehribach joined AAA as an engagement director in 1998. He was promoted to his current position in 1999. Prior to that, he was a manager at Arthur Andersen LLP. Mr. Fehribach has been in the business of real estate appraisal for over ten years. EDUCATION University of Texas - Arlington Master of Science - Real Estate University of Dallas Master of Business Administration - Industrial Management Bachelor of Arts - Economics STATE State of Arizona CERTIFICATIONS Certified General Real Estate Appraiser, #30828 State of Arkansas State Certified General Appraiser, #CG1387N State of Colorado Certified General Appraiser, #CG40000445 State of Georgia Certified General Real Property Appraiser, #218487 State of Michigan Certified General Appraiser, #1201008081 State of Texas Real Estate Salesman License, #407158 (Inactive) State of Texas State Certified General Real Estate Appraiser, #TX-1323954-G AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS PROFESSIONAL Appraisal Institute, MAI Designated Member Candidate Member of AFFILIATIONS the CCIM Institute pursuing Certified Commercial Investment Member (CCIM) designation PUBLICATIONS "An Analysis of the Determinants of Industrial Property Valuation," Co-authored with Dr. Ronald C. Rutherford and Dr. Mark Eakin, The Journal of Real Estate Research, Vol. 8, No. 3, Summer 1993, p. 365. AMERICAN APPRAISAL ASSOCIATES, INC. FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. FOUR WINDS APARTMENTS, OVERLAND PARK, KANSAS GENERAL SERVICE CONDITIONS The services(s) provided by AAA will be performed in accordance with professional appraisal standards. Our compensation is not contingent in any way upon our conclusions of value. We assume, without independent verification, the accuracy of all data provided to us. We will act as an independent contractor and reserve the right to use subcontractors. All files, workpapers or documents developed by us during the course of the engagement will be our property. We will retain this data for at least five years. Our report is to be used only for the specific purpose stated herein; and any other use is invalid. No reliance may be made by any third party without our prior written consent. You may show our report in its entirety to those third parties who need to review the information contained herein. No one should rely on our report as a substitute for their own due diligence. We understand that our reports will be described in public tender offer documents distributed to limited partners. We reserve the right to review the public tender offer documents prior to their issuance to confirm that disclosures of facts from the current appraisals are accurate. No reference to our name or our report, in whole or in part, in any other SEC filing or private placement memorandum you prepare and/or distribute to third parties may be made without our prior written consent. The Tender Offer Partnerships, as that term is defined in the Settlement Agreement, agree to indemnify and hold us harmless against and from any and all losses, claims, actions, damages, expenses or liabilities, including reasonable attorneys' fees, to which we may become subject in connection with this engagement except where such losses, claims, actions, damages, expenses or liabilities, including reasonable attorney's fees, arise or result from AAA's misconduct, bad faith or negligence. Co-Clients will not be liable for any of our acts or omissions. AAA is an equal opportunity employer.