EX-99.(C)(5) 7 d07250a2exv99wxcyx5y.txt APPRAISAL OF HAMPTON GREENS APARTMENTS HAMPTON GREENS 10911 WOODMEADOW PARKWAY DALLAS, TEXAS MARKET VALUE - FEE SIMPLE ESTATE AS OF APRIL 28, 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 LOGO] [AMERICAN APPRAISAL ASSOCIATES LOGO] [AMERICAN APPRAISAL ASSOCIATES LETTERHEAD] JULY 17, 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: HAMPTON GREENS 10911 WOODMEADOW PARKWAY DALLAS, DALLAS COUNTY, TEXAS 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 309 units with a total of 216,528 square feet of rentable area. The improvements were built in 1985. The improvements are situated on 9 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 85% 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 HAMPTON GREENS, DALLAS, TEXAS 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 April 28, 2003 is: ($8,500,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Frank Fehribach July 17, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group Texas State Certified General Real Estate Appraiser #TX-1323954-G Report By: Shayne Hatch Texas Appraiser Trainee # TX-1330454-T AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 HAMPTON GREENS, DALLAS, TEXAS 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............................................ 39
ADDENDA Exhibit A - Photographs of Subject Property Exhibit B - Summary of Rent Comparables and Photograph of Comparables Exhibit C - Assumptions and Limiting Conditions Exhibit D - Certificate of Appraiser Exhibit E - Qualifications General Service Conditions AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4 HAMPTON GREENS, DALLAS, TEXAS EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Hampton Greens LOCATION: 10911 Woodmeadow Parkway Dallas, Texas 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: April 28, 2003 DATE OF REPORT: July 17, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 9 acres, or 392,040 square feet Assessor Parcel No.: 0085790N00002 Floodplain: Community Panel No. 48113C0360K (February 5, 2003) Flood Zone X, an area outside the floodplain. Zoning: MF-2 (A) (Multi Family District) BUILDING: No. of Units: 309 Units Total NRA: 216,528 Square Feet Average Unit Size: 701 Square Feet Apartment Density: 34.3 units per acre Year Built: 1985 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 523 $430 $0.82 $ 30,960 $ 371,520 1Br/1Ba - 1B10 652 $450 $0.69 $ 56,700 $ 680,400 1Br/1Ba - 1C10 745 $520 $0.70 $ 15,600 $ 187,200 1Br/1Ba - 1D10 748 $575 $0.77 $ 15,525 $ 186,300 2Br/2Ba - 2A20 892 $681 $0.76 $ 12,258 $ 147,096 2Br/2Ba - 2B20 958 $720 $0.75 $ 4,320 $ 51,840 2Br/2Ba - 2C20 1,079 $800 $0.74 $ 24,000 $ 288,000 Total $159,363 $1,912,356
OCCUPANCY: 85% AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 HAMPTON GREENS, DALLAS, TEXAS ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 18 Years REMAINING ECONOMIC LIFE: 27 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR BUILDING EXTERIOR APARTMENT & LAUNDRY BUILDINGS AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 HAMPTON GREENS, DALLAS, TEXAS 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 HAMPTON GREENS, DALLAS, TEXAS PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
Amount $/Unit ------ ------ DIRECT CAPITALIZATION Potential Rental Income $1,912,356 $ 6,189 Effective Gross Income $1,844,720 $ 5,970 Operating Expenses $ 935,899 $ 3,029 50.7% of EGI Net Operating Income: $ 831,572 $ 2,691 Capitalization Rate 9.50% DIRECT CAPITALIZATION VALUE $8,600,000 * $27,832 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 12% Stabilized Vacancy & Collection Loss: 10% Lease-up / Stabilization Period 12 months Terminal Capitalization Rate 10.00% Discount Rate 11.00% Selling Costs 3.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $8,800,000 * $28,479 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $8,700,000 $28,155 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $27,016 to $39,835 Range of Sales $/Unit (Adjusted) $30,015 to $38,222 VALUE INDICATION - PRICE PER UNIT $9,400,000 * $30,421 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 4.24 to 5.50 Selected EGIM for Subject 4.50 Subject's Projected EGI $1,844,720 EGIM ANALYSIS CONCLUSION $8,100,000 * $26,214 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $7,500,000 * $24,272 / UNIT RECONCILED SALES COMPARISON VALUE $8,500,000 $27,508 / 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 HAMPTON GREENS, DALLAS, TEXAS PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $9,400,000 NOI Per Unit $7,500,000 EGIM Multiplier $8,100,000 INDICATED VALUE BY SALES COMPARISON $8,500,000 $27,508 / UNIT INCOME APPROACH: Direct Capitalization Method: $8,600,000 Discounted Cash Flow Method: $8,800,000 INDICATED VALUE BY THE INCOME APPROACH $8,700,000 $28,155 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $8,500,000 $27,508 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 HAMPTON GREENS, DALLAS, TEXAS INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 10911 Woodmeadow Parkway, Dallas, Dallas County, Texas. Dallas identifies it as 0085790N00002. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Shayne Hatch on April 28, 2003. Frank Fehribach, MAI has not made a personal inspection of the subject property. Shayne Hatch performed the research, valuation analysis and wrote the report. Frank Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach, MAI and Shayne Hatch 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 April 28, 2003. The date of the report is July 17, 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 HAMPTON GREENS, DALLAS, TEXAS 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 Hampton Greens CPGF 22 LP. 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 HAMPTON GREENS, DALLAS, TEXAS 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 Dallas, Texas. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being single family residential. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - La Prada Drive and I-635 West - Barnes Bridge Road and Ferguson Road South - La Prada Drive North - I-635 MAJOR EMPLOYERS Major employers in the subject's area include Bank of America, Baylor University Medical Center, Children's Medical Center Dallas Medical City Dallas, Parkland Memorial Hospital, Presbyterian Hospital-Dallas, Southwest Airlines Texas Instruments Headquarters, UT Southwestern Med Center, and Vought. 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 HAMPTON GREENS, DALLAS, TEXAS NEIGHBORHOOD DEMOGRAPHICS
AREA -------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA ------------------------------------------------------------------------------------------ POPULATION TRENDS Current Population 17,242 136,112 288,954 3,673,578 5-Year Population 17,880 141,377 304,120 4,073,691 % Change CY-5Y 3.7% 3.9% 5.2% 10.9% Annual Change CY-5Y 0.7% 0.8% 1.0% 2.2% ========================================================================================== HOUSEHOLDS Current Households 7,086 49,590 106,302 1,333,540 5-Year Projected Households 7,223 50,610 109,613 1,464,730 % Change CY - 5Y 1.9% 2.1% 3.1% 9.8% Annual Change CY-5Y 0.4% 0.4% 0.6% 2.0% ========================================================================================== INCOME TRENDS Median Household Income $ 36,931 $ 39,713 $ 41,168 $ 52,302 Per Capita Income $ 20,514 $ 18,987 $ 20,568 $ 25,319 Average Household Income $ 49,922 $ 52,001 $ 55,889 $ 69,747 ==========================================================================================
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 49.80% 38.15% 38.28% 36.71% 5-Year Projected % Renting 49.78% 38.33% 38.39% 36.11% ======================================================================================= % of Households Owning 40.34% 53.74% 52.22% 53.58% 5-Year Projected % Owning 40.07% 53.54% 52.25% 54.86% =======================================================================================
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 HAMPTON GREENS, DALLAS, TEXAS SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Apartments/ I-635 South - Golf Course East - Apartments and Residential West - Apartments and Residential CONCLUSIONS The subject is well located within the city of Dallas. The neighborhood is characterized as being mostly suburban in nature and is currently in the stable stage of development. The economic outlook for the neighborhood is judged to be favorable with a good economic base. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 14 HAMPTON GREENS, DALLAS, TEXAS MARKET ANALYSIS The subject property is located in the city of Dallas in Dallas County. The overall pace of development in the subject's market is more or less stable. There is no new construction in the area of the subject. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket ------------------------------------------ 4Q01 N/A 9.4% 1Q02 N/A 10.1% 2Q02 N/A 9.7% 3Q02 N/A 10.6% 4Q02 8.6% 10.7% 1Q03 9.4% 10.4%
Source: REIS Occupancy trends in the subject's market are stable. Historically speaking, the subject's submarket has underperformed the overall market. Vacancy rates in the subject's submarket have been greater than those of the Dallas market. As of the 4th quarter of 2001 the vacancy rate in the submarket was 9.4%, and this has increased during the last year to 10.4% for the 1st quarter of 2003. 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 ------------------------------------------------------------------------------- 4Q01 N/A - $621 - 1Q02 N/A N/A $609 -1.9% 2Q02 N/A N/A $619 1.6% 3Q02 N/A N/A $617 -0.3% 4Q02 N/A N/A $618 0.2% 1Q03 N/A N/A $619 0.2%
Source: REIS The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 HAMPTON GREENS, DALLAS, TEXAS COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject ---------------------------------------------------------------------------------------------------------- R-1 La Prada Club Unk. NA 1988 0.25 Miles R-2 Oak Meadow Apartments Unk. NA 1989 0.25 Miles R-3 Gables Point Apartments 152 NA 1989 0.25 Miles R-4 Honey Creek Apartments 656 NA 1989 0.75 Miles R-5 Greens Crossing 364 NA 1988 0.25 Miles Subject Hampton Greens 309 85% 1985
The market rental rates have remained virtually unchanged over the last year. At year end 2001, the average rental rate for the subject's submarket was $621 per unit. As of the 1st quarter of 2003 the submarket average rental rate was $619 per unit. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 HAMPTON GREENS, DALLAS, TEXAS PROPERTY DESCRIPTION SITE ANALYSIS Site Area 9 acres, or 392,040 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 Average Flood Zone: Community Panel 48113C0360K, dated February 5, 2003 Flood Zone Zone X Zoning MF-2 (A), the subject improvements represent a legal conforming use of the site. REAL ESTATE TAXES
ASSESSED VALUE - 2002 ---------------------------------------- TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES ---------------------------------------------------------------------------------------------------------- 0085790N00002 $1,176,120 $7,384,710 $8,560,830 0.02803 $239,946
IMPROVEMENT ANALYSIS Year Built 1985 Number of Units 309 Net Rentable Area 216,528 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Brick or masonry Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, spa/jacuzzi, gym room, barbeque equipment, laundry room, business office, and parking area. Unit Amenities Individual unit amenities include a balcony, fireplace, cable TV connection and washer dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, garbage disposal, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 HAMPTON GREENS, DALLAS, TEXAS Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) 1Br/1Ba - 1A10 72 523 1Br/1Ba - 1B10 126 652 1Br/1Ba - 1C10 30 745 1Br/1Ba - 1D10 27 748 2Br/2Ba - 2A20 18 892 2Br/2Ba - 2B20 6 958 2Br/2Ba - 2C20 30 1,079
Overall Condition Average Effective Age 18 years Economic Life 45 years Remaining Economic Life 27 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 1985 and consist of a 309-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 HAMPTON GREENS, DALLAS, TEXAS 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 HAMPTON GREENS, DALLAS, TEXAS 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 HAMPTON GREENS, DALLAS, TEXAS 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 HAMPTON GREENS, DALLAS, TEXAS SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ----------------------------------------------------------------------------------------------------------------- Property Name Hampton Greens Enfield Apartments Stoney Creek Apartments LOCATION: Address 10911 Woodmeadow Parkway 11330 Amanda Lane 11333 Amanda Lane City, State Dallas, Texas Dallas, TX Dallas, TX County Dallas Dallas Dallas PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 216,528 208,376 276,296 Year Built 1985 1984 1984 Number of Units 309 286 364 Unit Mix: Type Total Type Total Type Total 1Br/1Ba - 1A10 72 1Br/1Ba- A 226 1Br/1Ba- A 288 1Br/1Ba - 1B10 126 2Br/2Ba- 2A 60 2Br/2Ba- 2A 76 1Br/1Ba - 1C10 30 1Br/1Ba - 1D10 27 2Br/2Ba - 2A20 18 2Br/2Ba - 2B20 6 2Br/2Ba- 2C20 30 Average Unit Size (SF) 701 729 759 Land Area (Acre) 9.0000 8.3800 14.7500 Density (Units/Acre) 34.3 34.1 24.7 Parking Ratio (Spaces/Unit) 1.41 1.48 1.37 Parking Type (Gr., Cov., etc.) Open Open Open CONDITION: Average Good Average APPEAL: Average Good Average AMENITIES: Pool/Spa Yes/Yes Yes/Yes Yes/Yes Gym Room Yes Yes No Laundry Room Yes Yes No Secured Parking No Yes No Sport Courts No No No OCCUPANCY: 85% N/A N/A TRANSACTION DATA: Sale Date August, 2001 August, 2001 Sale Price ($) $10,000,000 $14,500,000 Grantor Winthrop Texas Investors Stoney Creek GPGF 22 (LP) Grantee Dallas City Homes-Amanda Stoney Creek (LLC) Lane LLC Sale Documentation DAA-83004 DAA-77912 Verification Oboyle Properties Oboyle Properties Telephone Number 972-934-3400 972-934-3400 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $ 0 $ 0 $0.00 $ 0 $ 0 $0.00 Vacancy/Credit Loss $ 0 $ 0 $0.00 $ 0 $ 0 $0.00 Effective Gross Income $2,040,048 $7,133 $9.79 $2,635,512 $7,240 $9.54 Operating Expenses $ 843,558 $2,950 $4.05 $1,071,671 $2,944 $3.88 Net Operating Income $1,196,490 $4,184 $5.74 $1,563,841 $4,296 $5.66 NOTES: PRICE PER UNIT $34,965 $39,835 PRICE PER SQUARE FOOT $ 47.99 $ 52.48 EXPENSE RATIO 41.3% 40.7% EGIM 4.90 5.50 OVERALL CAP RATE 11.96% 10.79% Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 -------------------------------------------------------------------------------------------------------------------- Property Name Sunflower Apartments Canyon Parke Apartments Meadow Creek Apartments LOCATION: Address 8401 Skillman Street 2202 Hollybush Drive 518 Tacoma Drive City, State Dallas, TX Dallas, TX Garland, TX County Dallas Dallas Dallas PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 178,152 289,853 102,672 Year Built 1978 1975 1979 Number of Units 248 312 128 Unit Mix: Type Total Type Total Type Total 1 Bedroom Units 192 N/A 1Br/1Ba-A 32 2 Bedroom Units 56 2Br/1.5Ba-2A 16 2Br/1.5Ba-2B 16 2Br/1.5Ba-2C 16 2Br/2Ba-2D 32 2Br/2Ba-2E 16 Average Unit Size (SF) 718 929 802 Land Area (Acre) 8.1200 13.5500 7.3900 Density (Units/Acre) 30.5 23.0 17.3 Parking Ratio (Spaces/Unit) 1.44 N/A 1.50 Parking Type (Gr., Cov., etc.) Open Open Open CONDITION: Average Fair Average APPEAL: Average Fair Average AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Gym Room Yes No No Laundry Room Yes Yes Yes Secured Parking No Yes No Sport Courts No No No OCCUPANCY: N/A N/A N/A TRANSACTION DATA: Sale Date December, 2000 April, 2000 February, 2000 Sale Price ($) $6,700,000 $10,000,000 $3,690,000 Grantor Dek Associates Southwest Canyon Park MLD/HI-Life Properties (J.V.) Partners (LP) Grantee Sunflower Apartments Canyon Park 312 (Ltd) Meadow Creek Apartments (LP) Sale Documentation 20237-4945 200068-4892 200032-0517 Verification Oboyle Properties Lewis Mr. Gottsacker Telephone Number 972-934-3400 972-458-7300 214-373-1322 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $ 0 $ 0 $0.00 $ 0 $ 0 $0.00 $ 0 $ 0 $0.00 Vacancy/Credit Loss $ 0 $ 0 $0.00 $ 0 $ 0 $0.00 $ 0 $ 0 $0.00 Effective Gross Income $1,551,295 $6,255 $8.71 $ 0 $ 0 $0.00 $869,864 $6,796 $8.47 Operating Expenses $ 674,956 $2,722 $3.79 $ 0 $ 0 $0.00 $485,944 $3,796 $4.73 Net Operating Income $ 876,339 $3,534 $4.92 $ 0 $ 0 $0.00 $383,920 $2,999 $3.74 NOTES: PRICE PER UNIT $27,016 $32,051 $28,828 PRICE PER SQUARE FOOT $ 37.61 $ 34.50 $ 35.94 EXPENSE RATIO 43.5% N/A 55.9% EGIM 4.32 N/A 4.24 OVERALL CAP RATE 13.08% N/A 10.40% Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 HAMPTON GREENS, DALLAS, TEXAS IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $27,016 to $39,835 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 $30,015 to $38,222 per unit with a mean or average adjusted price of $32,744 per unit. The median adjusted price is $31,058 per unit. Based on the following analysis, we have concluded to a value of $31,000 per unit, which results in an "as is" value of $9,400,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 HAMPTON GREENS, DALLAS, TEXAS SALES ADJUSTMENT GRID
DESCRIPTION SUBJECT COMPARABLE COMPARABLE I - 1 I - 2 Property Name Hampton Greens Enfield Apartments Stoney Creek Apartments Address 10911 Woodmeadow Parkway 11330 Amanda Lane 11333 Amanda Lane City Dallas, Texas Dallas, TX Dallas, TX Sale Date August, 2001 August, 2001 Sale Price ($) $10,000,000 $14,500,000 Net Rentable Area (SF) 216,528 208,376 276,296 Number of Units 309 286 364 Price Per Unit $34,965 $39,835 Year Built 1985 1984 1984 Land Area (Acre) 9.0000 8.3800 14.7500 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 08-2001 1% 08-2001 1% VALUE AFTER TRANS. ADJUST. ($/UNIT) $35,315 $40,234 Location Comparable 0% Comparable 0% Number of Units 309 286 0% 364 0% Quality / Appeal Good Comparable 0% Comparable 0% Age / Condition 1985 1984 / Good 0% 1984 / Average 0% Occupancy at Sale 85% N/A 0% N/A 0% Amenities Good Comparable 0% Comparable 0% Average Unit Size (SF) 701 729 -5% 759 -5% PHYSICAL ADJUSTMENT -5% -5% FINAL ADJUSTED VALUE ($/UNIT) $33,549 $38,222 DESCRIPTION COMPARABLE COMPARABLE COMPARABLE I - 3 I - 4 I - 5 Property Name Sunflower Apartments Canyon Parke Apartments Meadow Creek Apartments Address 8401 Skillman Street 2202 Hollybush Drive 518 Tacoma Drive City Dallas, TX Dallas, TX Garland, TX Sale Date December, 2000 April, 2000 February, 2000 Sale Price ($) $6,700,000 $10,000,000 $3,690,000 Net Rentable Area (SF) 178,152 289,853 102,672 Number of Units 248 312 128 Price Per Unit $27,016 $32,051 $28,828 Year Built 1978 1975 1979 Land Area (Acre) 8.1200 13.5500 7.3900 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 12-2000 1% 04-2000 2% 02-2000 2% VALUE AFTER TRANS. ADJUST. ($/UNIT) $27,286 $32,692 $29,405 Location Comparable 0% Superior -10% Inferior 10% Number of Units 248 0% 312 0% 128 -10% Quality / Appeal Inferior 5% Inferior 5% Inferior 10% Age / Condition 1978 / Average 5% 1975 / Fair 10% 1979 / Average 5% Occupancy at Sale N/A 0% N/A 0% N/A 0% Amenities Comparable 0% Comparable 0% Comparable 0% Average Unit Size (SF) 718 0% 929 -10% 802 -10% PHYSICAL ADJUSTMENT 10% -5% 5% FINAL ADJUSTED VALUE ($/UNIT) $30,015 $31,058 $30,875
SUMMARY VALUE RANGE (PER UNIT) $30,015 TO $ 38,222 MEAN (PER UNIT) $32,744 MEDIAN (PER UNIT) $31,058 VALUE CONCLUSION (PER UNIT) $31,000 VALUE OF IMPROVEMENT & MAIN SITE $9,579,000 LESS: LEASE-UP COST -$ 59,000 PV OF CONCESSIONS -$ 123,000 VALUE INDICATED BY SALES COMPARISON $9,397,000 APPROACH ROUNDED $9,400,000 NET OPERATING INCOME (NOI) ANALYSIS We have also conducted a net operating income (NOI) comparison analysis. The NOI effectively takes into account the various physical, location, and operating aspects of the sale. When the subject's NOI is compared to the sale NOI, a percent adjustment can be arrived at. The following table illustrates this analysis. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24 HAMPTON GREENS, DALLAS, TEXAS NOI PER UNIT COMPARISON
COMPARABLE NO. OF SALE PRICE NOI/ SUBJECT NOI ADJUSTMENT INDICATED NO. UNITS PRICE/UNIT OAR NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT --------------------------------------------------------------------------------------------------------------- I-1 286 $10,000,000 11.96% $1,196,490 $831,572 0.643 $22,492 $ 34,965 $ 4,184 $ 2,691 I-2 364 $14,500,000 10.79% $1,563,841 $831,572 0.626 $24,953 $ 39,835 $ 4,296 $ 2,691 I-3 248 $ 6,700,000 13.08% $ 876,339 $831,572 0.762 $20,575 $ 27,016 $ 3,534 $ 2,691 I-4 312 $10,000,000 N/A $831,572 $ 32,051 $ 2,691 I-5 128 $ 3,690,000 10.40% $ 383,920 $831,572 0.897 $25,866 $ 28,828 $ 2,999 $ 2,691
PRICE/UNIT VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT ----------------------------------------------------------------------------------------------------- Low High Average Median Estimated Price Per Unit $ 25,000 $20,575 $25,866 $23,471 $23,722 Number of Units 309 Value $7,725,000 Less: Lease-Up Cost -$ 59,000 PV of Concessions -$ 123,000 Value Based on NOI Analysis $ 7,543,000 Rounded $ 7,500,000
The adjusted sales indicate a range of value between $20,575 and $25,866 per unit, with an average of $23,471 per unit. Based on the subject's competitive position within the improved sales, a value of $25,000 per unit is estimated. This indicates an "as is" market value of $7,500,000 (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 HAMPTON GREENS, DALLAS, TEXAS 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-1 286 $10,000,000 $2,040,048 $ 843,558 41.35% 4.90 $ 34,965 I-2 364 $14,500,000 $2,635,512 $1,071,671 40.66% 5.50 $ 39,835 I-3 248 $ 6,700,000 $1,551,295 $ 674,956 43.51% 50.73% 4.32 $ 27,016 I-4 312 $10,000,000 $ 32,051 I-5 128 $ 3,690,000 $ 869,864 $ 485,944 55.86% 4.24 $ 28,828
EGIM VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES -------------------------------------- -------------------------------------------------- Low High Average Median Estimate EGIM 4.50 4.24 5.50 4.74 4.61 Subject EGI $1,844,720 Value $8,301,242 Less: Lease-Up Cost -$ 59,000 PV of -$ 123,000 Concessions Value Based on EGIM Analysis $8,119,242 Rounded $8,100,000 Value Per Unit $ 26,214
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 50.73% before reserves. The comparable sales indicate a range of expense ratios from 40.66% to 55.86%, while their EGIMs range from 4.24 to 5.50. Overall, we conclude to an EGIM of 4.50, which results in an "as is" value estimate in the EGIM Analysis of $8,100,000. 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 $8,500,000. Price Per Unit $9,400,000 NOI Per Unit $7,500,000 EGIM Analysis $8,100,000 Sales Comparison Conclusion $8,500,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 HAMPTON GREENS, DALLAS, TEXAS 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 HAMPTON GREENS, DALLAS, TEXAS method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
Average Unit Area ------------------- Unit Type (Sq. Ft.) Per Unit Per SF %Occupied --------------------------------------------------------------------------- 1Br/1Ba - 1A10 523 $413 $0.79 81.9% 1Br/1Ba - 1B10 652 $464 $0.71 85.7% 1Br/1Ba - 1C10 745 $527 $0.71 100.0% 1Br/1Ba - 1D10 748 $529 $0.71 92.6% 2Br/2Ba - 2A20 892 $681 $0.76 83.3% 2Br/2Ba - 2B20 958 $687 $0.72 100.0% 2Br/2Ba- 2C20 1079 $712 $0.66 70.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 HAMPTON GREENS, DALLAS, TEXAS RENT ANALYSIS
COMPARABLE RENTS --------------------------------------------------- R-1 R-2 R-3 R-4 R-5 --------------------------------------------------- Oak Gables Honey La Prada Meadow Point Creek Greens SUBJECT SUBJECT Club Apartments Apartments Apartments Crossing --------------------------------------------------- SUBJECT UNIT ACTUAL ASKING COMPARISON TO SUBJECT --------------------------------------------------- DESCRIPTION TYPE RENT RENT Superior Similar Similar Similar Similar MIN MAX MEDIAN AVERAGE ----------- ---- ---- ---- -------- ------- ------- ------- ------- --- --- ------ ------- Monthly Rent 1BR/1BA - 1A10 $ 413 $ 590 $ 445 $ 420 $ 450 $ 405 $ 405 $ 590 $ 445 $ 462 Unit Area (SF) 523 523 630 456 514 518 512 456 630 514 526 Monthly Rent Per Sq. Ft. $ 0.79 $ 0.94 $ 0.98 $ 0.82 $ 0.87 $ 0.79 $0.79 $0.98 $ 0.87 $ 0.88 Monthly Rent 1BR/1BA - 1B10 $ 464 $ 605 $ 450 $ 503 $ 470 $ 450 $ 605 $ 487 $ 507 Unit Area (SF) 652 652 647 639 686 667 639 686 657 660 Monthly Rent Per Sq. Ft. $ 0.71 $ 0.94 $ 0.70 $ 0.73 $ 0.70 $0.70 $0.94 $ 0.72 $ 0.77 Monthly Rent 1BR/1BA - 1C10 $ 527 $ 695 $ 558 $ 535 $ 535 $ 485 $ 485 $ 695 $ 535 $ 562 Unit Area (SF) 745 745 729 743 723 759 702 702 759 729 731 Monthly Rent Per Sq. Ft. $ 0.71 $ 0.95 $ 0.75 $ 0.74 $ 0.70 $ 0.69 $0.69 $0.95 $ 0.74 $ 0.77 Monthly Rent 1BR/1BA - 1D10 $ 529 $ 685 $ 685 $ 685 $ 685 $ 685 Unit Area (SF) 748 748 940 940 940 940 940 Monthly Rent Per Sq. Ft. $ 0.71 $ 0.73 $0.73 $0.73 $ 0.73 $ 0.73 Monthly Rent 2BR/2BA - 2A20 $ 681 $ 710 $ 655 $ 560 $ 560 $ 710 $ 655 $ 642 Unit Area (SF) 892 892 841 867 852 841 867 852 853 Monthly Rent Per Sq. Ft. $ 0.76 $ 0.84 $ 0.76 $ 0.66 $0.66 $0.84 $ 0.76 $ 0.75 Monthly Rent 2BR/2BA - 2B20 $ 687 $ 840 $ 765 $ 725 $ 720 $ 720 $ 840 $ 745 $ 763 Unit Area (SF) 958 958 987 996 953 927 927 996 970 966 Monthly Rent Per Sq. Ft. $ 0.72 $ 0.85 $ 0.77 $ 0.76 $ 0.78 $0.76 $0.85 $ 0.77 $ 0.79 Monthly Rent 2BR/2BA- 2C20 $ 712 $ 890 $ 809 $ 809 $ 890 $ 850 $ 850 Unit Area (SF) 1,079 1,079 1,059 1,067 1,059 1,067 1,063 1,063 Monthly Rent Per Sq. Ft. $ 0.66 $ 0.84 $ 0.76 $0.76 $0.84 $ 0.80 $ 0.80
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
Unit Area Market Rent Monthly Annual -------------------- Unit Type Number of Units (Sq. Ft.) Per Unit Per SF Income Income --------- --------------- --------- -------- ------ ------ ------ 1Br/1Ba - 1A10 72 523 $ 430 $ 0.82 $ 30,960 $ 371,520 1Br/1Ba - 1B10 126 652 $ 450 $ 0.69 $ 56,700 $ 680,400 1Br/1Ba - 1C10 30 745 $ 520 $ 0.70 $ 15,600 $ 187,200 1Br/1Ba - 1D10 27 748 $ 575 $ 0.77 $ 15,525 $ 186,300 2Br/2Ba - 2A20 18 892 $ 681 $ 0.76 $ 12,258 $ 147,096 2Br/2Ba - 2B20 6 958 $ 720 $ 0.75 $ 4,320 $ 51,840 2Br/2Ba- 2C20 30 1,079 $ 800 $ 0.74 $ 24,000 $ 288,000 Total $159,363 $1,912,356
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 29 HAMPTON GREENS, DALLAS, TEXAS 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 HAMPTON GREENS, DALLAS, TEXAS 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 $2,069,227 $ 6,697 $2,117,656 $ 6,853 $2,017,162 $ 6,528 $1,996,072 $ 6,460 Vacancy $ 106,289 $ 344 $ 207,934 $ 673 $ 159,602 $ 517 $ 117,000 $ 379 Credit Loss/Concessions $ 53,567 $ 173 $ 139,312 $ 451 $ 87,571 $ 283 $ 54,900 $ 178 ---------- -------- ---------- -------- ---------- -------- ---------- -------- Subtotal $ 159,856 $ 517 $ 347,246 $ 1,124 $ 247,173 $ 800 $ 171,900 $ 556 Laundry Income $ 0 $ 0 $ 19,884 $ 64 $ 21,119 $ 68 $ 21,648 $ 70 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 116,425 $ 377 $ 85,668 $ 277 $ 102,481 $ 332 $ 94,800 $ 307 ---------- -------- ---------- -------- ---------- -------- ---------- -------- Subtotal Other Income $ 116,425 $ 377 $ 105,552 $ 342 $ 123,600 $ 400 $ 116,448 $ 377 ---------- -------- ---------- -------- ---------- -------- ---------- -------- Effective Gross Income $2,025,796 $ 6,556 $1,875,962 $ 6,071 $1,893,589 $ 6,128 $1,940,620 $ 6,280 Operating Expenses Taxes $ 211,131 $ 683 $ 266,704 $ 863 $ 232,061 $ 751 $ 240,993 $ 780 Insurance $ 25,556 $ 83 $ 39,968 $ 129 $ 60,483 $ 196 $ 69,531 $ 225 Utilities $ 87,433 $ 283 $ 106,706 $ 345 $ 80,283 $ 260 $ 108,600 $ 351 Repair & Maintenance $ 25,147 $ 81 $ 32,240 $ 104 $ 32,139 $ 104 $ 41,100 $ 133 Cleaning $ 73,357 $ 237 $ 77,563 $ 251 $ 61,393 $ 199 $ 66,600 $ 216 Landscaping $ 42,015 $ 136 $ 48,555 $ 157 $ 54,259 $ 176 $ 58,136 $ 188 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 34,489 $ 112 $ 32,543 $ 105 $ 30,105 $ 97 $ 44,910 $ 145 General Administrative $ 238,119 $ 771 $ 223,854 $ 724 $ 249,357 $ 807 $ 205,256 $ 664 Management $ 103,790 $ 336 $ 93,354 $ 302 $ 97,526 $ 316 $ 100,031 $ 324 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- -------- ---------- -------- ---------- -------- ---------- -------- Total Operating Expenses $ 841,037 $ 2,722 $ 921,487 $ 2,982 $ 897,606 $ 2,905 $ 935,157 $ 3,026 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- -------- ---------- -------- ---------- -------- ---------- -------- Net Income $1,184,759 $ 3,834 $ 954,475 $ 3,089 $ 995,983 $ 3,223 $1,005,463 $ 3,254 ANNUALIZED 2003 ------------------- PROJECTION AAA PROJECTION ----------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % ----------- ----- -------- ----- -------- -- Revenues Rental Income $1,899,076 $ 6,146 $1,912,356 $ 6,189 100.0% Vacancy $ 194,376 $ 629 $ 152,988 $ 495 8.0% Credit Loss/Concessions $ 135,136 $ 437 $ 38,247 $ 124 2.0% ---------- -------- ---------- -------- ----- Subtotal $ 329,512 $ 1,066 $ 191,236 $ 619 10.0% Laundry Income $ 28,704 $ 93 $ 21,630 $ 70 1.1% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 111,064 $ 359 $ 101,970 $ 330 5.3% ---------- -------- ---------- -------- ----- Subtotal Other Income $ 139,768 $ 452 $ 123,600 $ 400 6.5% ---------- -------- ---------- -------- ----- Effective Gross Income $1,709,332 $ 5,532 $1,844,720 $ 5,970 100.0% Operating Expenses Taxes $ 241,460 $ 781 $ 254,925 $ 825 13.8% Insurance $ 68,792 $ 223 $ 69,525 $ 225 3.8% Utilities $ 87,152 $ 282 $ 92,700 $ 300 5.0% Repair & Maintenance $ 20,248 $ 66 $ 33,990 $ 110 1.8% Cleaning $ 51,912 $ 168 $ 69,525 $ 225 3.8% Landscaping $ 55,036 $ 178 $ 55,620 $ 180 3.0% Security $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 35,552 $ 115 $ 38,625 $ 125 2.1% General Administrative $ 261,892 $ 848 $ 247,200 $ 800 13.4% Management $ 89,148 $ 289 $ 73,789 $ 239 4.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0% Total Operating Expenses $ 911,192 $ 2,949 $ 935,899 $ 3,029 50.7% ---------- -------- ---------- -------- ----- Reserves $ 0 $ 0 $ 77,250 $ 250 8.3% ---------- -------- ---------- -------- ----- Net Income $ 798,140 $ 2,583 $ 831,572 $ 2,691 45.1%
REVENUES AND EXPENSES The subject's revenue and expense projections are displayed on the previous chart. Rental income is based on the market analysis previously discussed. Other income consists of forfeited deposits, laundry income, late rent payments, month to month fees, pet fees, vending machine revenue, etc. We forecasted the property's annual operating expenses after reviewing its historical performance at the subject property. We analyzed each item of expense and attempted to forecast amounts a typical informed investor would consider reasonable. VACANCY AND COLLECTION LOSS An investor is primarily interested in the annual revenue an income property is likely to produce over a specified period of time, rather than the income it could produce if it were always 100% occupied and all tenants were paying their rent in full and on time. An investor normally expects some income loss as tenants vacate, fail to pay rent, or pay their rent late. We have projected a stabilized vacancy and collection loss rate of 10% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 HAMPTON GREENS, DALLAS, TEXAS 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 no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $250 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 HAMPTON GREENS, DALLAS, TEXAS SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR ----------------------------------------------------------- I-1 Aug-01 N/A $34,965 11.96% I-2 Aug-01 N/A $39,835 10.79% I-3 Dec-00 N/A $27,016 13.08% I-4 Apr-00 N/A $32,051 N/A I-5 Feb-00 N/A $28,828 10.40% ============================================================ High 13.08% Low 10.40% Average 11.56%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.50%. 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 3.00% 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 $8,800,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 33 HAMPTON GREENS, DALLAS, TEXAS approximately 40% of the total value. Investors surveyed for this assignment indicated they would prefer to have the cash flow contribute anywhere from 50% to 60%. Overall, the blend seems reasonable. The cash flow and pricing matrix are located on the following pages. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 HAMPTON GREENS, DALLAS, TEXAS DISCOUNTED CASH FLOW ANALYSIS HAMPTON GREENS
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 $1,912,356 $1,912,356 $1,950,603 $2,009,121 $2,069,395 $2,131,477 $2,195,421 Vacancy $ 220,973 $ 152,988 $ 156,048 $ 160,730 $ 165,552 $ 170,518 $ 175,634 Credit Loss $ 38,247 $ 38,247 $ 39,012 $ 40,182 $ 41,388 $ 42,630 $ 43,908 Concessions $ 57,371 $ 38,247 $ 19,506 $ 20,091 $ 20,694 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Subtotal $ 316,591 $ 229,483 $ 214,566 $ 221,003 $ 227,633 $ 213,148 $ 219,542 Laundry Income $ 21,630 $ 21,630 $ 22,063 $ 22,724 $ 23,406 $ 24,108 $ 24,832 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 101,970 $ 101,970 $ 104,009 $ 107,130 $ 110,344 $ 113,654 $ 117,063 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Subtotal Other Income $ 123,600 $ 123,600 $ 126,072 $ 129,854 $ 133,750 $ 137,762 $ 141,895 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Effective Gross Income $1,719,365 $1,806,473 $1,862,109 $1,917,972 $1,975,511 $2,056,091 $2,117,774 Operating Expenses: Taxes $ 254,925 $ 262,573 $ 270,450 $ 278,563 $ 286,920 $ 295,528 $ 304,394 Insurance $ 69,525 $ 71,611 $ 73,759 $ 75,972 $ 78,251 $ 80,599 $ 83,016 Utilities $ 92,700 $ 95,481 $ 98,345 $ 101,296 $ 104,335 $ 107,465 $ 110,689 Repair & Maintenance $ 33,990 $ 35,010 $ 36,060 $ 37,142 $ 38,256 $ 39,404 $ 40,586 Cleaning $ 69,525 $ 71,611 $ 73,759 $ 75,972 $ 78,251 $ 80,599 $ 83,016 Landscaping $ 55,620 $ 57,289 $ 59,007 $ 60,777 $ 62,601 $ 64,479 $ 66,413 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 38,625 $ 39,784 $ 40,977 $ 42,207 $ 43,473 $ 44,777 $ 46,120 General Administrative $ 247,200 $ 254,616 $ 262,254 $ 270,122 $ 278,226 $ 286,573 $ 295,170 Management $ 68,775 $ 72,259 $ 74,484 $ 76,719 $ 79,020 $ 82,244 $ 84,711 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Operating Expenses $ 930,885 $ 960,232 $ 989,097 $1,018,770 $1,049,333 $1,081,665 $1,114,115 Reserves $ 77,250 $ 79,568 $ 81,955 $ 84,413 $ 86,946 $ 89,554 $ 92,241 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net Operating Income $ 711,231 $ 766,674 $ 791,057 $ 814,789 $ 839,233 $ 884,872 $ 911,418 Operating Expense Ratio (% of EGI) 54.1% 53.2% 53.1% 53.1% 53.1% 52.6% 52.6% Operating Expense Per Unit $ 3,013 $ 3,108 $ 3,201 $ 3,297 $ 3,396 $ 3,501 $ 3,606 YEAR APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 8 9 10 11 REVENUE Base Rent $2,261,284 $2,329,122 $2,398,996 $2,470,966 Vacancy $ 180,903 $ 186,330 $ 191,920 $ 197,677 Credit Loss $ 45,226 $ 46,582 $ 47,980 $ 49,419 Concessions $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- Subtotal $ 226,128 $ 232,912 $ 239,900 $ 247,097 Laundry Income $ 25,577 $ 26,344 $ 27,134 $ 27,948 Garage Revenue $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 120,575 $ 124,193 $ 127,918 $ 131,756 ---------- ---------- ---------- ---------- Subtotal Other Income $ 146,152 $ 150,537 $ 155,053 $ 159,704 ---------- ---------- ---------- ---------- Effective Gross Income $2,181,307 $2,246,746 $2,314,149 $2,383,573 Operating Expenses: Taxes $ 313,526 $ 322,931 $ 332,619 $ 342,598 Insurance $ 85,507 $ 88,072 $ 90,714 $ 93,436 Utilities $ 114,009 $ 117,430 $ 120,952 $ 124,581 Repair & Maintenance $ 41,803 $ 43,058 $ 44,349 $ 45,680 Cleaning $ 85,507 $ 88,072 $ 90,714 $ 93,436 Landscaping $ 68,406 $ 70,458 $ 72,571 $ 74,749 Security $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 47,504 $ 48,929 $ 50,397 $ 51,909 General Administrative $ 304,025 $ 313,146 $ 322,540 $ 332,216 Management $ 87,252 $ 89,870 $ 92,566 $ 95,343 Miscellaneous $ 0 $ 0 $ 0 $ 0 ---------- ---------- ---------- ---------- Total Operating Expenses $1,147,539 $1,181,965 $1,217,424 $1,253,947 Reserves $ 95,008 $ 97,858 $ 100,794 $ 103,818 ---------- ---------- ---------- ---------- Net Operating Income $ 938,761 $ 966,923 $ 995,931 $1,025,809 Operating Expense Ratio (% of EGI) 52.6% 52.6% 52.6% 52.6% Operating Expense Per Unit $ 3,714 $ 3,825 $ 3,940 $ 4,058
Gross Residual Deferred Sale Price $10,258,091 Maintenance $ 0 Estimated Stabilized NOI $831,572 Sales Less: Sales Expense $307,743 Add: Excess Land $ 0 Expense Rate 3.00% -------- Months to Stabilized 12 Discount Rate 11.00% Net Residual Sale Price $9,950,348 Other Adjustments $ 0 ---------- Stabilized Occupancy 92.0% Terminal Cap PV of Reversion $3,504,358 Value Rate 10.00% Indicated By "DCF" $8,754,193 Add: NPV of NOI $5,249,835 Rounded $8,800,000 -------- PV Total $8,754,193
"DCF" VALUE SENSITIVITY TABLE
TOTAL VALUE DISCOUNT RATE ----------------------------------------------------------------------------- 10.50% 10.75% 11.00% 11.25% 11.50% ----------------------------------------------------------------------------------------------------- 9.50% $9,237,080 $9,086,210 $8,938,633 $8,794,266 $8,653,028 TERMINAL 9.75% $9,138,127 $8,989,468 $8,844,048 $8,701,785 $8,562,600 CAP 10.00% $9,044,122 $8,897,564 $8,754,193 $8,613,929 $8,476,694 RATE 10.25% $8,954,703 $8,810,143 $8,668,721 $8,530,358 $8,394,978 10.50% $8,869,542 $8,726,884 $8,587,319 $8,450,767 $8,317,154
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 35 HAMPTON GREENS, DALLAS, TEXAS INCOME LOSS DURING LEASE-UP The subject is currently 85% occupied, below our stabilized occupancy projection. We have estimated a 12-month lease-up period. An adjustment must be made to bring the subject to a stabilized operating level. To account for this income loss during lease-up, we have compared the current DCF analysis to an "as stabilized" DCF analysis assuming the subject's occupancy were stabilized. The difference in net operating income during the lease-up period is discounted to a present value figure of $59,000 as shown in the following table.
DESCRIPTION YEAR 1 ----------- ------ "As Is" Net Operating Income $ 711,231 Stabilized Net Operating Income $ 776,496 --------- Difference $ 65,265 PV of Income Loss During Lease-Up $ 58,797 --------- Rounded $ 59,000 ---------
CONCESSIONS Due to softness in the market, concessions have been utilized at the subject property and within the market. Based on our discussions with the subject's property manager and those at competing properties, these concessions are expected to continue in the near term until the market returns to a stabilized level. Concessions have been included as a line item deduction within the discounted cash flow analysis. The present value of these concessions equates to $123,000 (rounded). This amount has been deducted from the Direct Capitalization analysis, as well as the Sales Comparison Approach value. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 HAMPTON GREENS, DALLAS, TEXAS After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 9.50% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37 HAMPTON GREENS, DALLAS, TEXAS HAMPTON GREENS
TOTAL PER SQ. FT. PER UNIT % OF EGI REVENUE Base Rent $1,912,356 $ 8.83 $ 6,189 Less: Vacancy & Collection Loss 10.00% $ 191,236 $ 0.88 $ 619 Plus: Other Income Laundry Income $ 21,630 $ 0.10 $ 70 1.17% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 101,970 $ 0.47 $ 330 5.53% ---------- ------- ------- ----- Subtotal Other Income $ 123,600 $ 0.57 $ 400 6.70% EFFECTIVE GROSS INCOME $1,844,720 $ 8.52 $ 5,970 OPERATING EXPENSES: Taxes $ 254,925 $ 1.18 $ 825 13.82% Insurance $ 69,525 $ 0.32 $ 225 3.77% Utilities $ 92,700 $ 0.43 $ 300 5.03% Repair & Maintenance $ 33,990 $ 0.16 $ 110 1.84% Cleaning $ 69,525 $ 0.32 $ 225 3.77% Landscaping $ 55,620 $ 0.26 $ 180 3.02% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 38,625 $ 0.18 $ 125 2.09% General Administrative $ 247,200 $ 1.14 $ 800 13.40% Management 4.00% $ 73,789 $ 0.34 $ 239 4.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 935,899 $ 4.32 $ 3,029 50.73% Reserves $ 77,250 $ 0.36 $ 250 4.19% ---------- ------- ------- ----- NET OPERATING INCOME $ 831,572 $ 3.84 $ 2,691 45.08% "GOING IN" CAPITALIZATION RATE 9.50% VALUE INDICATION $8,753,385 $ 40.43 $28,328 LESS: LEASE-UP COST ($ 59,000) PV OF CONCESSIONS ($ 123,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $8,571,385 ROUNDED $8,600,000 $ 39.72 $27,832
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 38 HAMPTON GREENS, DALLAS, TEXAS
DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE CAP RATE VALUE ROUNDED $/UNIT $/SF ---------------------------------------------------------------------- 8.75% $ 9,321,675 $ 9,300,000 $ 30,097 $ 42.95 9.00% $ 9,057,684 $ 9,100,000 $ 29,450 $ 42.03 9.25% $ 8,807,963 $ 8,800,000 $ 28,479 $ 40.64 9.50% $ 8,571,385 $ 8,600,000 $ 27,832 $ 39.72 9.75% $ 8,346,939 $ 8,300,000 $ 26,861 $ 38.33 10.00% $ 8,133,716 $ 8,100,000 $ 26,214 $ 37.41 10.25% $ 7,930,894 $ 7,900,000 $ 25,566 $ 36.48
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $8,600,000. 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 $8,800,000 Direct Capitalization Method $8,600,000 Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $8,700,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 39 HAMPTON GREENS, DALLAS, TEXAS 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 $ 8,500,000 Income Approach $ 8,700,000 Reconciled Value $ 8,500,000
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 April 28, 2003 the market value of the fee simple estate in the property is: $8,500,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA HAMPTON GREENS, DALLAS, TEXAS ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A HAMPTON GREENS, DALLAS, TEXAS EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A HAMPTON GREENS, DALLAS, TEXAS SUBJECT PHOTOGRAPHS [EXTERIOR BUILDING PICTURE] [EXTERIOR APARTMENT & LAUNDRY BUILDINGS PICTURE] [PARKING AREA VIEW PICTTURE] [ACROSS ROAD VIEW PICTURE] [FRONT VIEW PICTURE] [INTERIOR BEDROOM PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A HAMPTON GREENS, DALLAS, TEXAS SUBJECT PHOTOGRAPHS [INTERIOR KITCHEN PICTURE] [EXTERIOR LAUNDRY BUILDING PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B HAMPTON GREENS, DALLAS, TEXAS EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B HAMPTON GREENS, DALLAS, TEXAS PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 ENFIELD APARTMENTS STONEY CREEK APARTMENTS SUNFLOWER APARTMENTS 11330 Amanda Lane 11333 Amanda Lane 8401 Skillman Street Dallas, TX Dallas, TX Dallas, TX [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 CANYON PARKE APARTMENTS MEADOW CREEK APARTMENTS 2202 Hollybush Drive 518 Tacoma Drive Dallas, TX Garland, TX AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B HAMPTON GREENS, DALLAS, TEXAS SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R- 1 ================================================================================================================== Property Name Hampton Greens La Prada Club Management Company AIMCO NA LOCATION: Address 10911 Woodmeadow Parkway 1901 Pinehurst Lane City, State Dallas, Texas Dallas, TX County Dallas Dallas Proximity to Subject 0.25 Miles PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 216,528 N/A Year Built 1985 1988 Effective Age 18 15 Building Structure Type Brick Wood/Brick Parking Type Open Covered, Open (Gr., Cov., etc.) Number of Units 309 Unk. Unit Mix: Type Unit Qty Mo Type Unit Qty Mo 1 1 Br/1Ba - 1 A10 523 72 $ 413 1 1 Br/1Ba - A1 630 $590 2 1 Br/1Ba - 1 B10 652 126 $ 464 2 1 Br/1Ba - A2 647 3 1 Br/1Ba - 1 C10 745 30 $ 527 3 1 Br/1Ba - A3 729 4 1 Br/1Ba - 1 D10 748 27 $ 529 6 2 Br/2.5Ba - B1 987 5 2 Br/2Ba - 2 A20 892 18 $ 681 7 2 Br/2.5Ba - B2 1,059 6 2 Br/2Ba - 2 B20 958 6 $ 687 7 2 Br/2Ba - 2 C20 1,079 30 $ 712 Average Unit Size (SF) 701 Unit Breakdown: Efficiency 0% 2-Bedroom 17% Efficiency N/A 2-Bedroom N/A 1-Bedroom 83% 3-Bedroom 0% 1-Bedroom N/A 3-Bedroom CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling Balcony X W/D Connect. Balcony X W/D Connect. X Fireplace X Other X Fireplace Other 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 X BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 85% N/A LEASING DATA: Available Leasing Terms 6-12 months 6 and 12 months Concessions Lowered rental rates 1 month free Pet Deposit 250 350 Utilities Paid by Tenant: X Electric Natural Gas X Electric X Natural Gas X Water X Trash X Water X Trash Confirmation Greg Telephone Number 972-686-1980 NOTES: COMPARISON TO SUBJECT: Superior COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 ========================================================================================================================= Property Name Honey Creek Apartments Greens Crossing Management Company NA NA LOCATION: Address 11611 Ferguson Road 10700 Woodmeadow Apartments City, State Dallas, TX Dallas, TX County Dallas Dallas Proximity to Subject 0.75 Miles 0.25 Miles PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) N/A 105,824 Year Built 1989 1989 Effective Age 14 14 Building Structure Type Wood/Brick Wood/Brick Parking Type Covered, Open No Covered (Gr., Cov., etc.) Number of Units Unk. 152 Unit Mix: Type Unit Qty Mo Type Unit Qty Mo 1 1Br/1Ba- A1 456 $445 1 1Br/1Ba- A1 514 24 $420 1Br/1Ba- A2 521 $480 2 1Br/1Ba- A2 639 80 $ 4 3 1Br/1Ba- A3 743 $558 3 1Br/1Ba- A3 723 16 $ 5 5 1Br/Den/1Ba- A4 841 $710 4 2Br/2.5Ba- B1 940 16 $ 6 2Br/2Ba- B1 941 $735 2Br/2.5Ba- B2 985 16 $ 7 6 2Br/2Ba- B2 996 $765 Average Unit Size (SF) 696 Unit Breakdown: Efficiency N/A 2-Bedroom N/A Efficiency 0% 2-Bedroom 21% 1-Bedroom N/A 3-Bedroom N/A 1-Bedroom 79% 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 W/D Connect. X Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court 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 X Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room Gym Room OCCUPANCY: N/A N/A LEASING DATA: Available Leasing Terms 6,7,8 and 9 months 7 and 12 months Concessions 0 deposit 1 month free Pet Deposit 250 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash Water Trash Confirmation Gwenn Nicole Telephone Number 972-686-4380 972-279-4018 NOTES: COMPARISON TO SUBJECT: Similar Similar COMPARABLE COMPARABLE DESCRIPTION R - 4 R - 5 ======================================================================================================================= Property Name Honey Creek Apartments Greens Crossing Apartments Management Company NA NA LOCATION: Address 11611 Ferguson Road 10700 Woodmeadow Apartments City, State Dallas, TX Dallas, TX County Dallas Dallas Proximity to Subject 0.75 Miles 0.25 Miles PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 487,368 N/A Year Built 1989 1988 Effective Age 14 15 Building Structure Type Wood/Brick Brick/Wood Parking Type No Covered Covered, Open (Gr., Cov., etc.) Number of Units 656 364 Unit Mix: Type Unit Qty Mo Type Unit Qty Mo 1 1Br/1Ba- A1 518 84 $450 1 1Br/1Ba- 1A 512 $405 2 1Br/1Ba- A2 686 276 $503 1Br/1Ba- 1B 606 $455 3 1Br/1Ba- A3 759 96 $535 2 1Br/1Ba- 1C 667 $470 5 2Br/2.5Ba- B1 867 104 $655 3 1Br/1Ba- 1D 702 $485 6 2Br/2.5Ba- B2 953 96 $725 5 1Br/1Ba- 1E 852 $560 6 2Br/2Ba- 2A 927 $720 2Br/2Ba- 2B 991 $750 7 2Br/2Ba- 2C 1,067 $809 Average Unit Size (SF) 743 Unit Breakdown: Efficiency 0% 2-Bedroom 30% Efficiency N/A 2-Bedroom N/A 1-Bedroom 48% 3-Bedroom 0% 1-Bedroom N/A 3-Bedroom N/A CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling X Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace Other X Fireplace Other X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash X Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall Tennis Court Secured Parking Tennis Court X Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office Gym Room X Gym Room OCCUPANCY: N/A N/A LEASING DATA: Available Leasing Terms 6 and 12 months 6 and 12 months Concessions $109 move in Half of Deposit Pet Deposit 400 300 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X X Water Trash X Water Trash Confirmation Ariceli Garcia Phillip Telephone Number 1-888-923-8207 972-279-1485 NOTES: COMPARISON TO SUBJECT: Similar Similar
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B HAMPTON GREENS, DALLAS, TEXAS PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 LA PRADA CLUB OAK MEADOW APARTMENTS GABLES POINT APARTMENTS 1901 Pinehurst Lane 11050 Woodmeadow 11111 Woodmeadow Apartments Dallas, TX Dallas, TX Dallas, TX [PICTURE] [PICTURE] COMPARABLE R-4 COMPARABLE R-5 HONEY CREEK APARTMENTS GREENS CROSSINGS 11611 Ferguson Road 10700 Woodmeadow Parkway Dallas, TX Dallas, TX AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C HAMPTON GREENS, DALLAS, TEXAS EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C HAMPTON GREENS, DALLAS, TEXAS 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 HAMPTON GREENS, DALLAS, TEXAS 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 HAMPTON GREENS, DALLAS, TEXAS 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 HAMPTON GREENS, DALLAS, TEXAS 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. Shayne Hatch 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 HAMPTON GREENS, DALLAS, TEXAS EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E HAMPTON GREENS, DALLAS, TEXAS 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 HAMPTON GREENS, DALLAS, TEXAS PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS Candidate Member of the CCIM Institute pursuing Certified Commercial Investment Member (CCIM) designation PUBLICATIONS "An Analysis of the Determinants of Industrial Property -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. HAMPTON GREENS, DALLAS, TEXAS GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. HAMPTON GREENS, DALLAS, TEXAS 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.