EX-99.(C)(1) 3 d07257a2exv99wxcyx1y.txt APPRAISAL OF COLONY OF SPRINGDALE COLONY OF SPRINGDALE 1 KENILWORTH AVENUE SPRINGDALE, OHIO MARKET VALUE - FEE SIMPLE ESTATE AS OF APRIL 29, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] JUNE 30, 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: COLONY OF SPRINGDALE 1 KENILWORTH AVENUE SPRINGDALE, HAMILTON COUNTY, OHIO 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 261 units with a total of 215,680 square feet of rentable area. The improvements were built in 1969. The improvements are situated on 22.0479 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 88% 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 COLONY OF SPRINGDALE, SPRINGDALE, OHIO 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 29, 2003 is: ($10,100,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Brian Johnson June 30, 2003 Brian Johnson, MAI #053272 Managing Principal, Real Estate Group Report By: Richard Mupo AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 COLONY OF SPRINGDALE, SPRINGDALE, OHIO 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 COLONY OF SPRINGDALE, SPRINGDALE, OHIO EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Colony of Springdale LOCATION: 1 Kenilworth Avenue Springdale, Ohio 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 29, 2003 DATE OF REPORT: June 30, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 22.0479 acres, or 960,407 square feet Assessor Parcel No.: 599-0042-0200-00 Floodplain: Community Panel No. 390877-5B (December 5, 1990) Flood Zone X, an area outside the floodplain. Zoning: RMH-H (Residential Multiple Household High Density) BUILDING: No. of Units: 261 Units Total NRA: 215,680 Square Feet Average Unit Size: 826 Square Feet Apartment Density: 11.8 units per acre Year Built: 1969 UNIT MIX AND MARKET RENT:
GROSS RENTAL INCOME PROJECTION --------------------------------------------------------------------------------- Market Rent Square ----------------- Monthly Annual Unit Type Feet Per Unit Per SF Income Income -------------- ------ -------- ------ -------- ---------- 1Br/1Ba - 1A10 620 $ 510 $ 0.82 $ 40,800 $ 489,600 2Br/1Ba - 2A10 890 $ 620 $ 0.70 $ 59,520 $ 714,240 2B/1.5B-2A15 920 $ 650 $ 0.71 $ 35,100 $ 421,200 3B/1.5B-3A15 1,020 $ 825 $ 0.81 $ 24,750 $ 297,000 Effic. - EA10 360 $ 450 $ 1.25 $ 450 $ 5,400 -------- ---------- Total $160,620 $1,927,440 ======== ==========
OCCUPANCY: 88% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 20 Years AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 COLONY OF SPRINGDALE, SPRINGDALE, OHIO REMAINING ECONOMIC LIFE: 25 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [EXTERIOR - TYPICAL RESIDENTIAL BUILDING [EXTERIOR - STREET SCENE (RTE 4) PICTURE] PICTURE] AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 COLONY OF SPRINGDALE, SPRINGDALE, OHIO 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 COLONY OF SPRINGDALE, SPRINGDALE, OHIO PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit Potential Rental Income $1,927,440 $7,385 Effective Gross Income $1,982,045 $7,594 Operating Expenses $922,557 $3,535 46.5% of EGI Net Operating Income: $994,238 $3,809 Capitalization Rate 9.75% DIRECT CAPITALIZATION VALUE $9,900,000 * $37,931 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 12% Stabilized Vacancy & Collection Loss: 8% Lease-up / Stabilization Period 24 months Terminal Capitalization Rate 10.25% Discount Rate 11.50% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $10,200,000* $39,080 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $10,100,000 $38,697 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $30,130 to $59,942 Range of Sales $/Unit (Adjusted) $34,189 to $43,650 VALUE INDICATION - PRICE PER UNIT $9,900,000 * $37,931 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 4.92 to 7.13 Selected EGIM for Subject 5.25 Subject's Projected EGI $1,982,045 EGIM ANALYSIS CONCLUSION $10,100,000 * $38,697 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $9,900,000 * $37,931 / UNIT RECONCILED SALES COMPARISON VALUE $10,000,000 $38,314 / 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 COLONY OF SPRINGDALE, SPRINGDALE, OHIO PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $9,900,000 NOI Per Unit $9,900,000 EGIM Multiplier $10,100,000 INDICATED VALUE BY SALES COMPARISON $10,000,000 $38,314 / UNIT INCOME APPROACH: Direct Capitalization Method: $9,900,000 Discounted Cash Flow Method: $10,200,000 INDICATED VALUE BY THE INCOME APPROACH $10,100,000 $38,697 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $10,100,000 $38,697 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 COLONY OF SPRINGDALE, SPRINGDALE, OHIO INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 1 Kenilworth Avenue, Springdale, Hamilton County, Ohio. Springdale identifies it as 599-0042-0200-00. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Richard Mupo on April 29, 2003. Brian Johnson, MAI has not made a personal inspection of the subject property. Richard Mupo performed the research, valuation analysis and wrote the report. Brian Johnson, MAI reviewed the report and concurs with the value. Brian Johnson, MAI and Richard Mupo 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 29, 2003. The date of the report is June 30, 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 COLONY OF SPRINGDALE, SPRINGDALE, OHIO 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 Colony of Springdale Associates Ltd.. 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 COLONY OF SPRINGDALE, SPRINGDALE, OHIO 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 Springdale, Ohio. 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 - I-747 West - Cameron Road South - Glen Sharon Road North - Northland Boulevard MAJOR EMPLOYERS Major employers in the subject's area include John Morrel Meat Packing, Avon, and Fox Foods. 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 COLONY OF SPRINGDALE, SPRINGDALE, OHIO
NEIGHBORHOOD DEMOGRAPHICS ---------------------------------------------------------------------------------------- AREA ------------------------------------------ CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA ---------------------------------------------------------------------------------------- POPULATION TRENDS Current Population 6,758 48,564 158,731 1,664,158 5-Year Population 6,760 47,563 158,567 1,714,553 % Change CY-5Y 0.0% -2.1% - 0.1% 3.0% Annual Change CY-5Y 0.0% -0.4% 0.0% 0.6% HOUSEHOLDS Current Households 3,029 19,873 64,254 657,789 5-Year Projected Households 3,116 19,956 65,809 690,743 % Change CY - 5Y 2.9% 0.4% 2.4% 5.0% Annual Change CY-5Y 0.6% 0.1% 0.5% 1.0% INCOME TRENDS Median Household Income $37,817 $48,885 $ 52,908 $ 44,599 Per Capita Income $23,662 $25,143 $ 25,855 $ 24,315 Average Household Income $52,145 $60,758 $ 63,830 $ 61,515
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 50.13% 35.31% 33.08% 31.34% 5-Year Projected % Renting 51.73% 35.61% 33.52% 30.41% % of Households Owning 45.08% 59.25% 61.49% 62.66% 5-Year Projected % Owning 43.62% 58.95% 61.19% 63.89%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 COLONY OF SPRINGDALE, SPRINGDALE, OHIO SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Assisted Living Facility South - Retirement Residential Community East - Commercial Buildings West - Route 4 / Small Office Buildings CONCLUSIONS The subject is well located within the city of Springdale. 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 COLONY OF SPRINGDALE, SPRINGDALE, OHIO MARKET ANALYSIS The subject property is located in the city of Springdale in Hamilton County. The overall pace of development in the subject's market is more or less decreasing. There has been no new construction in the subject's immediate neighborhood. Most of the activity has occurred in the Northeast Submarket and to the north of the subject along the West Chester / I-75 corridor. New development has slowed considerably since it reached its peak in 2001, when over 2,500 units were delivered to the market. Most current activity is tied to projects that were initiated prior to 2002. New delivery in 2002 declined to roughly 1,200 units. The following table illustrates historical vacancy rates for the subject's market.
HISTORICAL VACANCY RATE ----------------------------------------------------------------------- Period Region Submarket ------ ------ --------- 2Q00 4.4% 4.1% 4Q00 7.3% 6.2% 2Q01 6.6% 5.9% 4Q01 11.9% 9.4% 2Q02 8.5% 7.5% 4Q02 12.4% 11.1% Source - CB Richard Ellis Apartment Report
Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has outperformed the overall market. Occupancy has been on a general decline since 2000 due to weakening economic conditions, increasing new development and declining absorption rates. As previously indicated, new construction has diminished and the market is likely to stabilize over the next 12 months. Rental concessions equal to one free month of rent are typical, and are likely to remain in place until the market recovers. The subject's submarket has slightly outperformed the overall market over the past few years. Occupancy for Class B properties tends to be higher than that of newer Class A product. Market rents in the subject's market have been following a decreasing trend. The following table illustrates historical rental rates for the subject's market. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 COLONY OF SPRINGDALE, SPRINGDALE, OHIO
HISTORICAL AVERAGE RENT -------------------------------------------------------------------------------------------- Period Region % Change Submarket % Change ------ ------ -------- --------- -------- 2Q00 $620 - $ 608 - 4Q00 $640 3.2% $ 606 - 0.3% 2Q01 $650 1.6% $ 626 3.3% 4Q01 $653 0.5% $ 615 - 1.8% 2Q02 $662 1.4% $ 631 2.6% 4Q02 $641 - 3.2% $ 600 - 4.9% Source - CB Richard Ellis Apartment Report
The following table illustrates a summary of the subject's competitive set.
COMPETITIVE PROPERTIES -------------------------------------------------------------------------------------------------------------- No. Property Name Units Ocpy. Year Built Proximity to subject --- ------------- ----- ----- ---------- -------------------- R-1 Waterstone Place 173 85% 1965 2 Miles east of the subject R-2 Forest Park Apartments 412 96% 1965 1/2 Mile west of the subject R-3 Versailles Village 180 96% 1970 1/2 Mile west of the subject R-4 Carriage Court 192 96% 1987 1/2 Mile north of subject Subject Colony of Springdale 261 88% 1969
Effective rents have generally declined in 2002 and are projected to remain stagnant or decline further into 2003. Discussions with area property managers revealed that larger 3-BR units maintain the highest occupancy levels and are the least effected by the noted decline in rents. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 COLONY OF SPRINGDALE, SPRINGDALE, OHIO PROPERTY DESCRIPTION SITE ANALYSIS Site Area 22.0479 acres, or 960,407 square feet Shape Irregular Topography Level Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Good Flood Zone: Community Panel 390877-5B, dated December 5, 1990 Flood Zone Zone X Zoning RMH-H, 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 ----------------------------------------------------------------------------------------- 599-0042-0200-00 $508,240 $2,620,660 $3,128,900 0.04516 $ 141,303
IMPROVEMENT ANALYSIS Year Built 1969 Number of Units 261 Net Rentable Area 215,680 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, basketball court, tennis court, playground, barbeque equipment, meeting hall, laundry room, business office, and secured parking. Unit Amenities Individual unit amenities include a balcony, cable TV connection, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 COLONY OF SPRINGDALE, SPRINGDALE, OHIO dishwasher, water heater, garbage disposal, and oven. Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) --------- --------------- --------- 1Br/1Ba - 1A10 80 620 2Br/1Ba - 2A10 96 890 2B/1.5B-2A15 54 920 3B/1.5B-3A15 30 1,020 Effic. - EA10 1 360
Overall Condition Average Effective Age 20 years Economic Life 45 years Remaining Economic Life 25 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 1969 and consist of a 261-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 COLONY OF SPRINGDALE, SPRINGDALE, OHIO 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 COLONY OF SPRINGDALE, SPRINGDALE, OHIO 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 COLONY OF SPRINGDALE, SPRINGDALE, OHIO 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 COLONY OF SPRINGDALE, SPRINGDALE, OHIO SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 I - 3 ---------------------------------------------------------------------------------------------------------------------------------- Property Name Colony of Springdale Goldcrest Apartments Magnolia Pointe Cambridge Park LOCATION: Address 1 Kenilworth Avenue 11365 Lippelman Road 484 Old State Rt 74 1088 E. Crescentville Rd City, State Springdale, Ohio Cincinnati, OH Cincinnati, OH West Chester Twp, OH County Hamilton Hamilton Hamilton Butler PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 215,680 156,320 129,360 166,440 Year Built 1969 1965 1972 1973 Number of Units 261 173 108 196 Unit Mix: Type Total Type Total Type Total Type Total 1Br/1Ba - 1A10 80 1Br/1Ba 59 1Br/1Ba 18 1Br/1Ba 68 2Br/1Ba - 2A10 96 2Br/1Ba 114 2Br/1Ba 84 2Br/1.5Ba 104 2B/1.5B - 2A15 54 3Br/1Ba 3 3Br/2Ba 24 3B/1.5B - 3A15 30 Efficiency 3 Effic. - EA10 1 Average Unit Size (SF) 826 904 1,198 849 Land Area (Acre) 22.0479 8.8000 6.6800 13.8950 Density (Units/Acre) 11.8 19.7 16.2 14.1 Parking Ratio (Spaces/Unit) 2.67 1.73 1.85 2.04 Parking Type (Gr., Cov., etc.) Garage, Open Covered Open, Covered Open, Covered Open, Covered CONDITION: Average Fair Average Average APPEAL: Average Average Average Average AMENITIES: Pool/Spa Yes/No Yes/No Yes/No Yes/No Gym Room No Yes No No Laundry Room Yes Yes Yes Yes Secured Parking Yes No No Yes Sport Courts Yes No No No Washer/Dryer Connection No No No Yes Clubhouse OCCUPANCY: 88% 90% 95% 95% TRANSACTION DATA: Sale Date May, 2002 August, 2002 September, 2001 Sale Price ($) $5,212,500 $3,850,000 $7,108,000 Grantor C-K Goldcrest LLC RL Magnolia Ltd. New Plan Excel Realty Grantee Goldcrest LLC M. & D. Weigel C-K Cambridge Park Sale Documentation Book 8920, Page 1813 Book 1497, Page 2449 Book 6684, Page 934 Verification Seller Buyer Seller Telephone Number 516-466-9440 513-489-3363 212-869-3000 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,176,780 $6,802 $7.53 $660,960 $6,120 $ 5.11 $1,421,664 $7,253 $8.54 Vacancy/Credit Loss $ 117,678 $ 680 $0.75 $ 33,660 $ 312 $ 0.26 $ 71,083 $ 363 $0.43 Effective Gross Income $1,059,102 $6,122 $6.78 $627,300 $5,808 $ 4.85 $1,350,581 $6,891 $8.11 Operating Expenses $ 504,252 $2,915 $3.23 $240,000 $2,222 $ 1.86 $ 526,090 $2,684 $3.16 Net Operating Income $ 554,850 $3,207 $3.55 $387,300 $3,586 $ 2.99 $ 824,491 $4,207 $4.95 NOTES: This property previously None None sold in September 2001 for $30,462 per unit. Complex needed renovation at sale. PRICE PER UNIT $ 30,130 $ 35,648 $ 36,265 PRICE PER SQUARE FOOT $ 33.35 $ 29.76 $ 42.71 EXPENSE RATIO 47.6% 38.3% 39.0% EGIM 4.92 6.14 5.26 OVERALL CAP RATE 10.64% 10.06% 11.60% Cap Rate based on Pro Forma or PRO FORMA PRO FORMA PRO FORMA Actual Income?
COMPARABLE COMPARABLE DESCRIPTION I - 4 I - 5 ------------------------------------------------------------------------------------ Property Name Windsor at Union Station The Huntington LOCATION: Address 8197 Meeting Street 11755 Norbourne Drive City, State West Chester, OH Cincinnati, OH County Butler Hamilton PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 318,571 161,573 Year Built 1989 1985 Number of Units 347 212 Unit Mix: Type Total Type Total 1Br/1Ba 207 1Br/1Ba 122 2Br/2Ba 140 2Br/1Ba 24 2Br/2Ba 66 Average Unit Size (SF) 918 762 Land Area (Acre) 11.7500 14.0810 Density (Units/Acre) 29.5 15.1 Parking Ratio (Spaces/Unit) 1.88 N/A Parking Type (Gr., Cov., etc.) Open, Covered Garage, Open, Covered CONDITION: Good Good APPEAL: Good Average AMENITIES: Pool/Spa Yes/Yes Yes/Yes Gym Room Yes Yes Laundry Room No No Secured Parking Yes Yes Sport Courts Yes No Washer/Dryer Connection Yes Yes Clubhouse Clubhouse OCCUPANCY: 94% 92% TRANSACTION DATA: Sale Date March, 2001 February, 2001 Sale Price ($) $20,800,000 $9,700,000 Grantor Windsor at Union Station Aetna Life Insurance Co. LP Grantee Union Station of Huntington Advisors LLC Westchester LLC Sale Documentation Book 6573, Page 753 Book 8500, Page 1477 Verification Buyer Seller Telephone Number 937-434-3095 860-275-2140 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $3,103,680 $8,944 $9.74 $1,716,636 $8,097 $10.62 Vacancy/Credit Loss $ 186,221 $ 537 $0.58 $ 137,331 $ 648 $ 0.85 Effective Gross Income $2,917,459 $8,408 $9.16 $1,579,305 $7,450 $ 9.77 Operating Expenses $ 875,238 $2,522 $2.75 $ 697,575 $3,290 $ 4.32 Net Operating Income $2,042,221 $5,885 $6.41 $ 881,730 $4,159 $ 5.46 NOTES: Younger Class A complex Younger complex. in superior location. PRICE PER UNIT $ 59,942 $ 45,755 PRICE PER SQUARE FOOT $ 65.29 $ 60.03 EXPENSE RATIO 30.0% 44.2% EGIM 7.13 6.14 OVERALL CAP RATE 9.82% 9.09% Cap Rate based on Pro Forma or ACTUAL PRO FORMA Actual Income?
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 COLONY OF SPRINGDALE, SPRINGDALE, OHIO IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $30,130 to $59,942 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 $34,189 to $43,650 per unit with a mean or average adjusted price of $38,894 per unit. The median adjusted price is $38,179 per unit. Based on the following analysis, we have concluded to a value of $39,000 per unit, which results in an "as is" value of $9,900,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 COLONY OF SPRINGDALE, SPRINGDALE, OHIO SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 I - 3 ----------------------------------------------------------------------------------------------------------------------------------- Property Name Colony of Springdale Goldcrest Apartments Magnolia Pointe Cambridge Park Address 1 Kenilworth Avenue 11365 Lippelman Road 484 Old State Rt 74 1088 E. Crescentville Rd City Springdale, Ohio Cincinnati, OH Cincinnati, OH West Chester Twp, OH Sale Date May, 2002 August, 2002 September, 2001 Sale Price ($) $5,212,500 $3,850,000 $7,108,000 Net Rentable Area (SF) 215,680 156,320 129,360 166,440 Number of Units 261 173 108 196 Price Per Unit $30,130 $35,648 $36,265 Year Built 1969 1965 1972 1973 Land Area (Acre) 22.0479 8.8000 6.6800 13.8950 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 05-2002 3% 08-2002 2% 09-2001 5% VALUE AFTER TRANS. ADJUST. ($/UNIT) $30,959 $36,361 $37,988 Location Comparable 0% Inferior 20% Comparable 0% Number of Units 261 173 0% 108 -5% 196 0% Quality / Appeal Good Comparable 0% Comparable 0% Comparable 0% Age / Condition 1969 1965 / Fair 20% 1972 / Average 0% 1973 / Average 0% Occupancy at Sale 88% 90% 0% 95% -5% 95% -5% Amenities Good Comparable 0% Comparable 0% Superior -5% Average Unit Size (SF) 826 904 0% 1,198 -5% 849 0% PHYSICAL ADJUSTMENT 20% 5% -10% FINAL ADJUSTED VALUE ($/UNIT) $37,150 $38,179 $34,189
COMPARABLE COMPARABLE DESCRIPTION I - 4 I - 5 ------------------------------------------------------------------------------------- Property Name Windsor at Union Station The Huntington Address 8197 Meeting Street 11755 Norbourne Drive City West Chester, OH Cincinnati, OH Sale Date March, 2001 February, 2001 Sale Price ($) $20,800,000 $9,700,000 Net Rentable Area (SF) 318,571 161,573 Number of Units 347 212 Price Per Unit $59,942 $45,755 Year Built 1989 1985 Land Area (Acre) 11.7500 14.0810 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 03-2001 6% 02-2001 6% VALUE AFTER TRANS. ADJUST. ($/UNIT) $63,539 $48,500 Location Superior -10% Comparable 0% Number of Units 347 0% 212 0% Quality / Appeal Superior -10% Comparable 0% Age / Condition 1989 / Good -5% 1985 / Good -5% Occupancy at Sale 94% -5% 92% 0% Amenities Superior -5% Superior -5% Average Unit Size (SF) 918 0% 762 0% PHYSICAL ADJUSTMENT -35% -10% FINAL ADJUSTED VALUE ($/UNIT) $41,300 $43,650
SUMMARY VALUE RANGE (PER UNIT) $34,189 TO $43,650 MEAN (PER UNIT) $38,894 MEDIAN (PER UNIT) $38,179 VALUE CONCLUSION (PER UNIT) $39,000
VALUE OF IMPROVEMENT & MAIN SITE $10,179,000 LESS: LEASE-UP COST -$ 121,000 PV OF CONCESSIONS -$ 191,000 VALUE INDICATED BY SALES COMPARISON APPROACH $ 9,867,000 ROUNDED $ 9,900,000
NET OPERATING INCOME (NOI) ANALYSIS We have also conducted a net operating income (NOI) comparison analysis. The NOI effectively takes into account the various physical, location, and operating aspects of the sale. When the subject's NOI is compared to the sale NOI, a percent adjustment can be arrived at. The following table illustrates this analysis. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 24 COLONY OF SPRINGDALE, SPRINGDALE, OHIO NOI PER UNIT COMPARISON
SALE PRICE NOI/ SUBJECT NOI COMPARABLE NO. OF ---------- OAR ----------- -------------- ADJUSTMENT INDICATED NO. UNITS PRICE/UNIT NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT --------------------------------------------------------------------------------------------- I-1 173 $ 5,212,500 10.64% $ 554,850 $ 994,238 1.188 $ 35,787 $ 30,130 $ 3,207 $ 3,809 I-2 108 $ 3,850,000 10.06% $ 387,300 $ 994,238 1.062 $ 37,867 $ 35,648 $ 3,586 $ 3,809 I-3 196 $ 7,108,000 11.60% $ 824,491 $ 994,238 0.906 $ 32,841 $ 36,265 $ 4,207 $ 3,809 I-4 347 $ 20,800,000 9.82% $ 2,042,221 $ 994,238 0.647 $ 38,798 $ 59,942 $ 5,885 $ 3,809 I-5 212 $ 9,700,000 9.09% $ 881,730 $ 994,238 0.916 $ 41,907 $ 45,755 $ 4,159 $ 3,809
PRICE/UNIT VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT ---------------------------------------- ---------------------------------------------------- Low High Average Median Estimated Price Per Unit $ 39,000 ------------ $32,841 $41,907 $37,440 $37,867 Number of Units 261 Value $ 10,179,000 Less: Lease-Up Cost -$ 121,000 PV of Concessions -$ 191,000 ------------ Value Based on NOI Analysis $ 9,867,000 Rounded $ 9,900,000
The adjusted sales indicate a range of value between $32,841 and $41,907 per unit, with an average of $37,440 per unit. Based on the subject's competitive position within the improved sales, a value of $39,000 per unit is estimated. This indicates an "as is" market value of $9,900,000 (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 COLONY OF SPRINGDALE, SPRINGDALE, OHIO EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON
---------------------------------------------------------------------------------------------- SALE PRICE COMPARABLE NO. OF ---------- EFFECTIVE OPERATING OER SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE PROJECTED OER EGIM ---------------------------------------------------------------------------------------------- I-1 173 $ 5,212,500 $ 1,059,102 $ 504,252 47.61% 4.92 $ 30,130 I-2 108 $ 3,850,000 $ 627,300 $ 240,000 38.26% 6.14 $ 35,648 I-3 196 $ 7,108,000 $ 1,350,581 $ 526,090 38.95% 5.26 46.55% $ 36,265 I-4 347 $ 20,800,000 $ 2,917,459 $ 875,238 30.00% 7.13 $ 59,942 I-5 212 $ 9,700,000 $ 1,579,305 $ 697,575 44.17% 6.14 $ 45,755
EGIM VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES ---------------------------------------- ---------------------------------------------------- Low High Average Median Estimate EGIM 5.25 4.92 7.13 5.92 6.14 Subject EGI $ 1,982,045 Value $ 10,405,735 Less: Lease-Up Cost -$ 121,000 PV of Concessions -$ 191,000 ------------ Value Based on EGIM Analysis $ 10,093,735 Rounded $ 10,100,000 Value Per Unit $ 38,697
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 46.55% before reserves. The comparable sales indicate a range of expense ratios from 30.00% to 47.61%, while their EGIMs range from 4.92 to 7.13. Overall, we conclude to an EGIM of 5.25, which results in an "as is" value estimate in the EGIM Analysis of $10,100,000. 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 $10,000,000. Price Per Unit $ 9,900,000 NOI Per Unit $ 9,900,000 EGIM Analysis $ 10,100,000 Sales Comparison Conclusion $ 10,000,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 COLONY OF SPRINGDALE, SPRINGDALE, OHIO 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 COLONY OF SPRINGDALE, SPRINGDALE, OHIO 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 620 $ 517 $ 0.83 90.0% 2Br/1Ba - 2A10 890 $ 628 $ 0.71 80.2% 2B/1.5B - 2A15 920 $ 690 $ 0.75 96.3% 3B/1.5B - 3A15 1020 $ 844 $ 0.83 90.0% Effic. - EA10 360 $ 459 $ 1.28 100.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 COLONY OF SPRINGDALE, SPRINGDALE, OHIO RENT ANALYSIS
COMPARABLE RENTS ------------------------------------------ R-1 R-2 R-3 R-4 ------------------------------------------ Waterstone Forest Park Versailles Carriage Place Apartments Village Court ------------------------------------------ COMPARISON TO SUBJECT SUBJECT SUBJECT ------------------------------------------ SUBJECT UNIT ACTUAL ASKING DESCRIPTION TYPE RENT RENT Similar Similar Similar Superior MIN MAX MEDIAN AVERAGE ------------------------ ------------------------------------------------------------------------------------------------------- Monthly Rent 1BR/1BA - 1A10 $ 517 $ 539 $ 555 $ 520 $ 555 $ 670 $ 520 $ 670 $ 555 $ 575 Unit Area (SF) 620 620 750 662 610 950 610 950 706 743 Monthly Rent Per Sq. Ft. $ 0.83 $ 0.87 $ 0.74 $ 0.79 $ 0.91 $ 0.71 $ 0.71 $ 0.91 $ 0.76 $ 0.79 Monthly Rent 2BR/1BA - 2A10 $ 628 $ 649 $ 634 $ 590 $ 645 $ 590 $ 645 $ 634 $ 623 Unit Area (SF) 890 890 888 850 900 850 900 888 879 Monthly Rent Per Sq. Ft. $ 0.71 $ 0.73 $ 0.71 $ 0.69 $ 0.72 $ 0.69 $ 0.72 $ 0.71 $ 0.71 Monthly Rent 2B/1.5B-2A15 $ 690 $ 709 $ 670 $ 625 $ 675 $ 738 $ 625 $ 738 $ 673 $ 677 Unit Area (SF) 920 920 1,050 1,183 1,090 1,083 1,050 1,183 1,087 1,102 Monthly Rent Per Sq. Ft. $ 0.75 $ 0.77 $ 0.64 $ 0.53 $ 0.62 $ 0.68 $ 0.53 $ 0.68 $ 0.63 $ 0.62 Monthly Rent 3B/1.5B-3A15 $ 844 $ 869 $ 730 $ 750 $ 730 $ 750 $ 740 $ 740 Unit Area (SF) 1,020 1,020 1,295 1,455 1,295 1,455 1,375 1,375 Monthly Rent Per Sq. Ft. $ 0.83 $ 0.85 $ 0.56 $ 0.52 $ 0.52 $ 0.56 $ 0.54 $ 0.54 Monthly Rent EFFIC. - EA10 $ 459 $ 459 Unit Area (SF) 360 360 Monthly Rent Per Sq. Ft. $ 1.28 $ 1.28
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 80 620 $ 510 $ 0.82 $ 40,800 $ 489,600 2Br/1Ba - 2A10 96 890 $ 620 $ 0.70 $ 59,520 $ 714,240 2B/1.5B-2A15 54 920 $ 650 $ 0.71 $ 35,100 $ 421,200 3B/1.5B-3A15 30 1,020 $ 825 $ 0.81 $ 24,750 $ 297,000 Effic. - EA10 1 360 $ 450 $ 1.25 $ 450 $ 5,400 Total $ 160,620 $ 1,927,440
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 29 COLONY OF SPRINGDALE, SPRINGDALE, OHIO 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 $ 1,917,937 $ 7,348 $ 1,927,685 $ 7,386 $ 1,940,742 $ 7,436 $ 1,969,960 $ 7,548 Vacancy $ 156,914 $ 601 $ 159,637 $ 612 $ 137,205 $ 526 $ 87,500 $ 335 Credit Loss/Concessions $ 63,036 $ 242 $ 177,813 $ 681 $ 97,381 $ 373 $ 130,400 $ 500 ----------- ------- ----------- ------- ----------- ------- ----------- ------- Subtotal $ 219,950 $ 843 $ 337,450 $ 1,293 $ 234,586 $ 899 $ 217,900 $ 835 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 118,471 $ 454 $ 185,159 $ 709 $ 239,089 $ 916 $ 207,870 $ 796 ----------- ------- ----------- ------- ----------- ------- ----------- ------- Subtotal Other Income $ 118,471 $ 454 $ 185,159 $ 709 $ 239,089 $ 916 $ 207,870 $ 796 ----------- ------- ----------- ------- ----------- ------- ----------- ------- Effective Gross Income $ 1,816,458 $ 6,960 $ 1,775,394 $ 6,802 $ 1,945,245 $ 7,453 $ 1,959,930 $ 7,509 Operating Expenses Taxes $ 156,356 $ 599 $ 102,211 $ 392 $ 144,676 $ 554 $ 150,549 $ 577 Insurance $ 33,602 $ 129 $ 35,228 $ 135 $ 39,314 $ 151 $ 43,271 $ 166 Utilities $ 102,112 $ 391 $ 117,947 $ 452 $ 99,308 $ 380 $ 99,099 $ 380 Repair & Maintenance $ 62,763 $ 240 $ 65,539 $ 251 $ 35,512 $ 136 $ 50,400 $ 193 Cleaning $ 82,275 $ 315 $ 99,246 $ 380 $ 70,162 $ 269 $ 78,000 $ 299 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 43,354 $ 166 $ 54,952 $ 211 $ 37,576 $ 144 $ 36,000 $ 138 General Administrative $ 37,431 $ 143 $ 40,782 $ 156 $ 31,975 $ 123 $ 30,000 $ 115 Management $ 91,554 $ 351 $ 96,361 $ 369 $ 114,844 $ 440 $ 99,317 $ 381 Miscellaneous $ 317,885 $ 1,218 $ 352,076 $ 1,349 $ 306,078 $ 1,173 $ 266,561 $ 1,021 ----------- ------- ----------- ------- ----------- ------- ----------- ------- Total Operating Expenses $ 927,332 $ 3,553 $ 964,342 $ 3,695 $ 879,445 $ 3,370 $ 853,197 $ 3,269 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ----------- ------- ----------- ------- ----------- ------- ----------- ------- Net Income $ 889,126 $ 3,407 $ 811,052 $ 3,107 $ 1,065,800 $ 4,084 $ 1,106,733 $ 4,240
ANNUALIZED 2003 --------------------- PROJECTION AAA PROJECTION ---------------------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % ------------------------------------------------------------------------------- Revenues Rental Income $ 1,950,748 $ 7,474 $ 1,927,440 $ 7,385 100.0% Vacancy $ 215,404 $ 825 $ 96,372 $ 369 5.0% Credit Loss/Concessions $ 160,008 $ 613 $ 57,823 $ 222 3.0% ----------- ------- ----------- ------- ----- Subtotal $ 375,412 $ 1,438 $ 154,195 $ 591 8.0% Laundry Income $ 0 $ 0 $ 0 $ 0 0.0% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 238,728 $ 915 $ 208,800 $ 800 10.8% ----------- ------- ----------- ------- ----- Subtotal Other Income $ 238,728 $ 915 $ 208,800 $ 800 10.8% ----------- ------- ----------- ------- ----- Effective Gross Income $ 1,814,064 $ 6,950 $ 1,982,045 $ 7,594 100.0% Operating Expenses Taxes $ 157,004 $ 602 $ 156,600 $ 600 7.9% Insurance $ 40,900 $ 157 $ 44,370 $ 170 2.2% Utilities $ 151,996 $ 582 $ 99,180 $ 380 5.0% Repair & Maintenance $ 77,944 $ 299 $ 52,200 $ 200 2.6% Cleaning $ 122,548 $ 470 $ 84,825 $ 325 4.3% Landscaping $ 0 $ 0 $ 0 $ 0 0.0% Security $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 53,724 $ 206 $ 39,150 $ 150 2.0% General Administrative $ 50,136 $ 192 $ 33,930 $ 130 1.7% Management $ 95,292 $ 365 $ 99,102 $ 380 5.0% Miscellaneous $ 273,412 $ 1,048 $ 313,200 $ 1,200 15.8% ----------- ------- ----------- ------- ----- Total Operating Expenses $ 1,022,956 $ 3,919 $ 922,557 $ 3,535 46.5% Reserves $ 0 $ 0 $ 65,250 $ 250 7.1% ----------- ------- ----------- ------- ----- Net Income $ 791,108 $ 3,031 $ 994,238 $ 3,809 50.2%
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% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 COLONY OF SPRINGDALE, SPRINGDALE, OHIO 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 31 COLONY OF SPRINGDALE, SPRINGDALE, OHIO SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR ---------------------------------------------------- I-1 May-02 90% $ 30,130 10.64% I-2 Aug-02 95% $ 35,648 10.06% I-3 Sep-01 95% $ 36,265 11.60% I-4 Mar-01 94% $ 59,942 9.82% I-5 Feb-01 92% $ 45,755 9.09% High 11.60% Low 9.09% Average 10.24%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.75%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 10.25%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 11.50%. HOLDING PERIOD The survey of investors indicates that most investors are completing either 10-year cash flows or extending the analysis to the end of the lease if it is more than 10-years. A 10-year period has been used in the analysis of the subject with the eleventh year stabilized NOI used to determine the reversion. SELLING COSTS Sales of similar size properties are typically accomplished with the aid of a broker and will also incur legal and other transaction related cost. Based on our survey of brokers and a review of institutional investor projections, an allowance of 2.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 11.50% indicates a value of $10,200,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 COLONY OF SPRINGDALE, SPRINGDALE, OHIO 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 33 COLONY OF SPRINGDALE, SPRINGDALE, OHIO DISCOUNTED CASH FLOW ANALYSIS
COLONY OF SPRINGDALE ------------------------------------------------------------------------------------------------------------------------------- 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 $1,927,400 $1,927,440 $1,985,263 $2,044,821 $2,106,166 $2,169,351 $2,234,431 Vacancy $ 204,244 $ 134,273 $ 99,263 $ 102,241 $ 105,308 $ 108,468 $ 111,722 Credit Loss $ 57,823 $ 57,823 $ 59,558 $ 61,345 $ 63,185 $ 65,081 $ 67,033 Concessions $ 160,614 $ 57,823 $ 0 $ 0 $ 0 $ 0 $ 0 ---------------------------------------------------------------------------------------- Subtotal $ 422,681 $ 249,919 $ 158,821 $ 163,586 $ 168,493 $ 173,548 $ 178,754 Laundry Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 208,800 $ 208,800 $ 215,064 $ 221,516 $ 228,161 $ 235,006 $ 242,056 ---------------------------------------------------------------------------------------- Subtotal Other Income $ 208,800 $ 208,800 $ 215,064 $ 221,516 $ 228,161 $ 235,006 $ 242,056 ---------------------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $1,713,559 $1,886,559 $2,041,506 $2,102,751 $2,165,834 $2,230,809 $2,297,733 OPERATING EXPENSES: Taxes $ 156,600 $ 161,298 $ 166,137 $ 171,121 $ 176,255 $ 181,542 $ 186,989 Insurance $ 44,370 $ 45,701 $ 47,072 $ 48,484 $ 49,939 $ 51,437 $ 52,980 Utilities $ 99,180 $ 102,155 $ 105,220 $ 108,377 $ 111,628 $ 114,977 $ 118,426 Repair & Maintenance $ 52,200 $ 53,766 $ 55,379 $ 57,040 $ 58,752 $ 60,514 $ 62,330 Cleaning $ 84,825 $ 87,370 $ 89,991 $ 92,691 $ 95,471 $ 98,335 $ 101,285 Landscaping $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 39,150 $ 40,325 $ 41,534 $ 42,780 $ 44,064 $ 45,386 $ 46,747 General Administrative $ 33,930 $ 34,948 $ 35,996 $ 37,076 $ 38,189 $ 39,334 $ 40,514 Management $ 85,678 $ 94,316 $ 102,075 $ 105,138 $ 108,292 $ 111,540 $ 114,887 Miscellaneous $ 313,200 $ 322,596 $ 332,274 $ 342,242 $ 352,509 $ 363,085 $ 373,977 ---------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 909,133 $ 942,475 $ 975,679 $1,004,949 $1,035,098 $1,066,150 $1,098,135 Reserves $ 65,250 $ 67,208 $ 69,224 $ 71,300 $ 73,439 $ 75,643 $ 77,912 ---------------------------------------------------------------------------------------- NET OPERATING INCOME $ 739,176 $ 876,638 $ 996,604 $1,026,502 $1,057,297 $1,089,016 $1,121,686 ---------------------------------------------------------------------------------------- Operating Expense Ratio (% of EGI) 53.1% 50.0% 47.8% 47.8% 47.8% 47.8% 47.8% Operating Expense Per Unit $ 3,483 $ 3,611 $ 3,738 $ 3,850 $ 3,966 $ 4,085 $ 4,207
COLONY OF SPRINGDALE ---------------------------------------------------------------------------------------- YEAR APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 8 9 10 11 ---------------------------------------------------------------------------------------- REVENUE Base Rent $2,301,464 $2,370,508 $2,441,623 $2,514,872 Vacancy $ 115,073 $ 118,525 $ 122,081 $ 125,744 Credit Loss $ 69,044 $ 71,115 $ 73,249 $ 75,446 Concessions $ 0 $ 0 $ 0 $ 0 ------------------------------------------------- Subtotal $ 184,117 $ 189,641 $ 195,330 $ 201,190 Laundry Income $ 0 $ 0 $ 0 $ 0 GarageRevenue $ 0 $ 0 $ 0 $ 0 ------------------------------------------------- Other Misc. Revenue $ 249,318 $ 256,798 $ 264,502 $ 272,437 ------------------------------------------------- Subtotal Other Income $ 249,318 $ 256,798 $ 264,502 $ 272,437 EFFECTIVE GROSS INCOME $2,366,665 $2,437,665 $2,510,795 $2,586,119 OPERATING EXPENSES: Taxes $ 192,598 $ 198,376 $ 204,327 $ 210,457 Insurance $ 54,570 $ 56,207 $ 57,893 $ 59,630 Utilities $ 121,979 $ 125,638 $ 129,407 $ 133,290 Repair & Maintenance $ 64,199 $ 66,125 $ 68,109 $ 70,152 Cleaning $ 104,324 $ 107,454 $ 110,677 $ 113,998 Landscaping $ 0 $ 0 $ 0 $ 0 Security $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 48,150 $ 49,594 $ 51,082 $ 52,614 General Administrative $ 41,730 $ 42,982 $ 44,271 $ 45,599 Management $ 118,333 $ 121,883 $ 125,540 $ 129,306 Miscellaneous $ 385,196 $ 396,752 $ 408,655 $ 420,915 ------------------------------------------------- TOTAL OPERATING EXPENSES $1,131,079 $1,165,011 $1,199,962 $1,235,961 Reserves $ 80,249 $ 82,657 $ 85,136 $ 87,691 ------------------------------------------------- NET OPERATING INCOME $1,155,337 $1,189,997 $1,225,697 $1,262,468 ------------------------------------------------- Operating Expense Ratio (% of EGI) 47.8% 47.8% 47.8% 47.8% Operating Expense Per Unit $ 4,334 $ 4,464 $ 4,598 $ 4,735
Gross Residual Sale Price $12,316,759 Deferred Maintenance $ 0 Estimated Stabilized NOI $994,238 Sales Expense Rate 2.00% Less: Sales Expense $ 246,335 Add: Excess Land $ 0 ----------- Months to Stabilized 24 Discount Rate 11.50% Net Residual Sale Price $12,070,423 Other Adjustments $ 0 ----------- Stabilized Occupancy 95.0% Terminal Cap Rate 10.25% PV of Reversion $ 4,064,188 Value Indicated By Add: NPV of NOI $ 6,179,272 "DCF" $10,243,460 ----------- PV Total $10,243,460 Rounded $10,200,000
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ------------------------------------------------------------------------------------------ TOTAL VALUE 11.00% 11.25% 11.50% 11.75% 12.00% ------------------------------------------------------------------------------------------ 9.75% $10,800,055 $10,624,060 $10,451,880 $10,283,419 $10,118,585 10.00% $10,688,329 $10,514,820 $10,345,065 $10,178,970 $10,016,443 TERMINAL CAP RATE 10.50% $10,480,839 $10,311,946 $10,146,694 $ 9,984,992 $ 9,826,752 10.75% $10,384,332 $10,217,586 $10,054,428 $ 9,894,770 $ 9,738,524
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 COLONY OF SPRINGDALE, SPRINGDALE, OHIO INCOME LOSS DURING LEASE-UP The subject is currently 88% occupied, below our stabilized occupancy projection. We have estimated a 24-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 $121,000 as shown in the following table.
DESCRIPTION YEAR 1 YEAR 2 ------------------------------------------------------------ "As Is" Net Operating Income $739,176 $876,638 Stabilized Net Operating Income $841,655 $912,644 --------------------- Difference $102,479 $36,006 PV of Income Loss During Lease-Up $120,871 -------- Rounded $121,000 --------
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 $191,000 (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 35 COLONY OF SPRINGDALE, SPRINGDALE, OHIO After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 9.75% 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 COLONY OF SPRINGDALE, SPRINGDALE, OHIO COLONY OF SPRINGDALE
TOTAL PER SQ. FT. PER UNIT %OF EGI ---------------------------------------------- REVENUE Base Rent $ 1,927,440 $ 8.94 $ 7,385 Less: Vacancy & Collection Loss 8.00% $ 154,195 $ 0.71 $ 591 Plus: Other Income Laundry Income $ 0 $ 0.00 $ 0 0.00% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 208,800 $ 0.97 $ 800 10.53% -------------------------------------------- Subtotal Other Income $ 208,800 $ 0.97 $ 800 10.53% EFFECTIVE GROSS INCOME $ 1,982,045 $ 9.19 $ 7,594 OPERATING EXPENSES: Taxes $ 156,600 $ 0.73 $ 600 7.90% Insurance $ 44,370 $ 0.21 $ 170 2.24% Utilities $ 99,180 $ 0.46 $ 380 5.00% Repair & Maintenance $ 52,200 $ 0.24 $ 200 2.63% Cleaning $ 84,825 $ 0.39 $ 325 4.28% Landscaping $ 0 $ 0.00 $ 0 0.00% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 39,150 $ 0.18 $ 150 1.98% General Administrative $ 33,930 $ 0.16 $ 130 1.71% Management 5.00% $ 99,102 $ 0.46 $ 380 5.00% Miscellaneous $ 313,200 $ 1.45 $ 1,200 15.80% TOTAL OPERATING EXPENSES $ 922,557 $ 4.28 $ 3,535 46.55% Reserves $ 65,250 $ 0.30 $ 250 3.29% -------------------------------------------- NET OPERATING INCOME $ 994,238 $ 4.61 $ 3,809 50.16% -------------------------------------------- "GOING IN" CAPITALIZATION RATE 9.75% VALUE INDICATION $10,197,308 $47.28 $39,070 LESS: LEASE-UP COST ($ 121,000) PV OF CONCESSIONS ($ 191,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $ 9,885,308 ROUNDED $ 9,900,000 $45.90 $37,931
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37 COLONY OF SPRINGDALE, SPRINGDALE, OHIO DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF ------------------------------------------------------------------------ 9.00% $10,735,084 $10,700,000 $40,996 $49.61 9.25% $10,436,514 $10,400,000 $39,847 $48.22 9.50% $10,153,659 $10,200,000 $39,080 $47.29 9.75% $ 9,885,308 $ 9,900,000 $37,931 $45.90 10.00% $ 9,630,376 $ 9,600,000 $36,782 $44.51 10.25% $ 9,387,879 $ 9,400,000 $36,015 $43.58 10.50% $ 9,156,929 $ 9,200,000 $35,249 $42.66
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $9,900,000. 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 $10,200,000 Direct Capitalization Method $ 9,900,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $10,100,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 COLONY OF SPRINGDALE, SPRINGDALE, OHIO 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 $10,000,000 Income Approach $10,100,000 Reconciled Value $10,100,000
The Direct Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of April 29, 2003 the market value of the fee simple estate in the property is: $10,100,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA COLONY OF SPRINGDALE, SPRINGDALE, OHIO ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A COLONY OF SPRINGDALE, SPRINGDALE, OHIO EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A COLONY OF SPRINGDALE, SPRINGDALE, OHIO SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - TYPICAL RESIDENTIAL BUILDING EXTERIOR - STREET SCENE (RTE 4) [PICTURE] [PICTURE] EXTERIOR - POOL INTERIOR - TYPICAL KITCHEN [PICTURE] [PICTURE] INTERIOR - TYPICAL BATH INTERIOR - TYPICAL LIVING AREA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B COLONY OF SPRINGDALE, SPRINGDALE, OHIO EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B COLONY OF SPRINGDALE, SPRINGDALE, OHIO PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 GOLDCREST APARTMENTS MAGNOLIA POINTE CAMBRIDGE PARK 11365 Lippelman Road 484 Old State Rt 74 1088 E. Crescentville Rd Cincinnati, OH Cincinnati, OH West Chester Twp, OH [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 WINDSOR AT UNION STATION THE HUNTINGTON 8197 Meeting Street 11755 Norbourne Drive West Chester, OH Cincinnati, OH [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B COLONY OF SPRINGDALE, SPRINGDALE, OHIO SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 --------------------------------------------------------------------------------------------------------------------- Property Name Colony of Springdale Waterstone Place Management Company Aimco Domain Equity LOCATION: Address 1 Kenilworth Avenue 11365 Lippelman Road City, State Springdale, Ohio Cincinnati, Ohio County Hamilton Hamilton Proximity to Subject 2 Miles east of the subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 215,680 156,320 Year Built 1969 1965 Effective Age 20 10 Building Structure Type Brick & wood siding walls; asphalt Brick siding walls; flat built-up shingle roof roof Parking Type (Gr., Cov., etc.) Open, Covered Open, Covered Number of Units 261 173 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Br/1Ba - 1A10 620 80 $517 1 1BR/1BTH 750 59 $555 2 2Br/1Ba - 2A10 890 96 $628 2 2BR/1BTH - Type 1 850 11 $615 3 2B/1.5B-2A15 920 54 $690 2 2BR/1BTH - Type 2 900 36 $640 4 3B/1.5B-3A15 1,020 30 $844 3 2BR/1BTH - Type 3 1,050 67 $670 5 Effic. - EA10 360 1 $459 Average Unit Size (SF) 826 904 Unit Breakdown: Efficiency 1% 2-Bedroom 57% Efficiency 0% 2-Bedroom 66% 1-Bedroom 31% 3-Bedroom 11% 1-Bedroom 34% 3-Bedroom 0% CONDITION: Average Good APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony W/D Connect. X Balcony W/D Connect. Fireplace Other 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 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 X Meeting Hall X 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 Gym Room X Gym Room X Playground Playground OCCUPANCY: 88% 85% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 to 18 Months Concessions 1 Month Free None Pet Deposit $200 - $300 $200 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash X Water X Trash Confirmation April 29, 2003; Marianne King (PM) April 29, 2003; Marianne King (PM) and Domain Telephone Number (513) 333-0580 (513) 333-0580 NOTES: None COMPARISON TO SUBJECT: Similar COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 ------------------------------------------------------------------------------------------------------------------- Property Name Forest Park Apartments Versailles Village Management Company Metro-Prop Realty Goldcrest Realty LOCATION: Address 580 Dewdrop Circle 151 Versailles Drive City, State Cincinnati, Ohio Cincinnati, Ohio County Hamilton Hamilton Proximity to Subject 1/2 Mile west of the subject 1/2 Mile west of the subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 413,944 173,340 Year Built 1965 1970 Effective Age 20 20 Building Structure Type Brick siding walls; flat Brick siding walls; asphalt built-up roof shingle roof Parking Type (Gr., Cov., etc.) Open, Covered Open, Covered Number of Units 412 180 Unit Mix: Type Unit Qty Mo. Type Unit Qty. Mo. 1 1BR/1BTH 662 68 $520 1 1BR/1BTH 610 28 $555 2 2BR/1BTH 850 154 $590 2 2BR/1BTH 900 58 $645 3 2BR/1.5BTH 1,183 76 $625 3 2BR/1.5BTH 1,090 14 $675 4 3BR/1.5BTH 1,295 110 $730 4 3BR/2BTH 1,455 24 $750 Average Unit Size (SF) 1,001 963 Unit Breakdown: Efficiency 0% 2-Bedroom 56% Efficiency 0% 2-Bedroom 40% 1-Bedroom 17% 3-Bedroom 27% 1-Bedroom 16% 3-Bedroom 13% CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony W/D Connect. X Balcony W/D Connect. 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 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 Gym Room Gym Room Playground Playground OCCUPANCY: 96% 96% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 to 15 Months Concessions 1 Month Free 1 Month Free Pet Deposit $200 - $300 $200 - $300 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water X Trash X Water X Trash Confirmation April 29, 2003; Marianne King April 29, 2003; Marianne King (PM) and Metro- (PM) and Goldcrest Telephone Number (513) 333-0580 (513) 333-0580 NOTES: None None COMPARISON TO SUBJECT: Similar Similar COMPARABLE DESCRIPTION R - 4 ------------------------------------------------------------------------------------ Property Name Carriage Court Management Company Ackerman Enterprises LOCATION: Address 11580 Olde Gate Drive City, State Springdale, Ohio County Hamilton Proximity to Subject 1/2 Mile north of subject PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 201,600 Year Built 1987 Effective Age 15 Building Structure Type Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open, Covered Number of Units 192 Unit Mix: Type Unit Qty. Mo. 1 1BR/1.5BTH 950 48 $670 3 1BR/1.5BTH 1,000 48 $705 3 2BR/2BTH 1,050 48 $738 3 2BR/2BTH 1,200 48 $770 Average Unit Size (SF) 1,050 Unit Breakdown: Efficiency 0% 2-Bedroom 50% 1-Bedroom 50% 3-Bedroom CONDITION: Slightly Superior APPEAL: Good AMENITIES: Unit Amenities Attach. Garage X Vaulted Ceiling X Balcony W/D Connect. X Fireplace Other X Cable TV Ready Project Amenities X Swimming Pool X Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Volleyball Court Theater Room Sand Volley Ball X Meeting Hall Tennis Court Secured Parking Racquet Ball X Laundry Room Jogging Track X Business Office X Gym Room Playground OCCUPANCY: 96% LEASING DATA: Available Leasing Terms 6 to 15 Months Concessions 1 Month Free Pet Deposit $200 - $300 Utilities Paid by Tenant: X Electric X Natural Gas X Water X Trash Confirmation April 29, 2003; Marianne King (PM) and Ackerman Telephone Number (513) 333-0580 NOTES: None COMPARISON TO SUBJECT: Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B COLONY OF SPRINGDALE, SPRINGDALE, OHIO PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 WATERSTONE PLACE FOREST PARK APARTMENTS VERSAILLES VILLAGE 11365 Lippelman Road 580 Dewdrop Circle 151 Versailles Drive Cincinnati, Ohio Cincinnati, Ohio Cincinnati, Ohio [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 CARRIAGE COURT 11580 Olde Gate Drive Springdale, Ohio [PICTURE] N/A AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C COLONY OF SPRINGDALE, SPRINGDALE, OHIO EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C COLONY OF SPRINGDALE, SPRINGDALE, OHIO 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 COLONY OF SPRINGDALE, SPRINGDALE, OHIO 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 COLONY OF SPRINGDALE, SPRINGDALE, OHIO such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the American Society of Appraisers or the designations awarded by this organization) shall be disseminated to the public through prospectus, advertising, public relations, news, or any other means of communication without the written consent and approval of American Appraisal Associates, Inc. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D COLONY OF SPRINGDALE, SPRINGDALE, OHIO 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. Richard Mupo 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- F. Brian Johnson ---------------------------- Brian Johnson, MAI Managing Principal, Real Estate Group AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E COLONY OF SPRINGDALE, SPRINGDALE, OHIO EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E COLONY OF SPRINGDALE, SPRINGDALE, OHIO F. BRIAN JOHNSON, MAI MANAGING PRINCIPAL, REAL ESTATE ADVISORY GROUP POSITION F. Brian Johnson is the Managing Principal of the New York Real Estate Advisory Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Mr. Johnson has completed appraisals for securitization and pension funds/insurance industries. Analyses he has performed involve various types of investment-grade real estate throughout the continental United States including apartments, cooperatives, hotels, industrial and research and development parks, office buildings, regional shopping centers, and undeveloped acreage. Additional experience includes the valuation of existing and proposed investment-grade real estate, market and feasibility studies and offering memorandums for debt placement, equity investments and acquisitions, and disposition analysis. Court Mr. Johnson is qualified as an expert witness for the New Jersey Supreme Court. Business Mr. Johnson joined AAA in 1998 and was promoted to his current position in 1999. Prior to joining AAA, Mr. Johnson was a Senior Vice President at Koeppel Tener Real Estate Services and a Vice President at L. W. Ellwood & Co. EDUCATION Fairleigh Dickinson Bachelor of Science - Finance STATE CERTIFICATIONS State of New Jersey, General Appraiser, #42RG00158300 AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E COLONY OF SPRINGDALE, SPRINGDALE, OHIO PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS VALUATION AND Several courses are completed on an annual basis as SPECIAL COURSES part of the continuing education requirements of the Appraisal Institute. In addition, Mr. Johnson attends real estate and financial industry-related conferences and seminars. PUBLICATIONS "Operational Items to Consider When Appraising a Regional Mall," Appraisal Journal, 1991 AMERICAN APPRAISAL ASSOCIATES, INC. COLONY OF SPRINGDALE, SPRINGDALE, OHIO GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. COLONY OF SPRINGDALE, SPRINGDALE, OHIO 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.