EX-99.(C)(1) 3 d07243a2exv99wxcyx1y.txt APPRAISAL OF ST. CHARLESTON VILLAGE ST. CHARLESTON 6501 W. CHARLESTON BLVD LAS VEGAS, NEVADA MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 8, 2003 PREPARED FOR: APARTMENT INVESTMENT AND MANAGEMENT COMPANY (AIMCO) C/O LINER YANKELEVITZ SUNSHINE & REGENSTREIF LLP & LIEFF CABRASER HEIMANN & BERNSTEIN ON BEHALF OF NUANES, ET. AL. [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LOGO] [AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD] JULY 14, 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: ST. CHARLESTON 6501 W. CHARLESTON BLVD LAS VEGAS, CLARK COUNTY, NEVADA 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 312 units with a total of 269,528 square feet of rentable area. The improvements were built in 1980. The improvements are situated on 13.78 acres. Overall, the improvements are in good condition. As of the date of this appraisal, the subject property is 86% 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 ST. CHARLESTON, LAS VEGAS, NEVADA The opinions expressed in this appraisal cover letter can only be completely understood by reading the narrative report, addenda, and other data, which is attached. The appraisal is subject to the attached general assumptions and limiting conditions and general service conditions. As a result of our investigation, it is our opinion that the fee simple market value of the subject, effective May 8, 2003 is: ($14,500,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Douglas Needham July 14, 2003 Douglas Needham, MAI #053272 Managing Principal, Real Estate Group Report By: Bryan Vick, MAI Nevada Temporary Practice Permit #04685 Assisted By: Ryan Tanaka AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 ST. CHARLESTON, LAS VEGAS, NEVADA 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 ST. CHARLESTON, LAS VEGAS, NEVADA EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: St. Charleston LOCATION: 6501 W. Charleston Blvd Las Vegas, Nevada INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: Fee simple estate DATE OF VALUE: May 8, 2003 DATE OF REPORT: July 14, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 13.78 acres, or 600,257 square feet Assessor Parcel No.: 163-02-104-004 Floodplain: Community Panel No. 32003C2165D (August 16, 1995) Flood Zone X, an area outside the floodplain. Zoning: R-3 (Medium to High Density Residential) BUILDING: No. of Units: 312 Units Total NRA: 269,528 Square Feet Average Unit Size: 864 Square Feet Apartment Density: 22.6 units per acre Year Built: 1980 UNIT MIX AND MARKET RENT: GROSS RENTAL INCOME PROJECTION
MARKET RENT ---------------- UNIT TYPE NUMBER OF UNITS SQUARE FEET PER UNIT PER SF MONTHLY INCOME ANNUAL INCOME ---------------------------------------------------------------------------------------- 1Br/1Ba 128 700 $ 570 $ 0.81 $ 72,960 $ 875,520 2Br/1Ba 56 816 $ 630 $ 0.77 $ 35,280 $ 423,360 2Br/2Ba 100 978 $ 660 $ 0.67 $ 66,000 $ 792,000 3Br/2Ba 16 1,194 $ 855 $ 0.72 $ 13,680 $ 164,160 3Br/2Ba 12 1,444 $ 940 $ 0.65 $ 11,280 $ 135,360 Totals $ 199,200 $ 2,390,400
OCCUPANCY: 86% AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 ST. CHARLESTON, LAS VEGAS, NEVADA ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 13 Years REMAINING ECONOMIC LIFE: 32 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: SUBJECT PHOTOGRAPHS [EXTERIOR - APARTMENT PICTURE] [EXTERIOR - WINDOW PANE PICTURE] AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 ST. CHARLESTON, LAS VEGAS, NEVADA 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 ST. CHARLESTON, LAS VEGAS, NEVADA PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit --------------------- ------ ------ Potential Rental Income $2,390,400 $7,662 Effective Gross Income $2,302,224 $7,379 Operating Expenses $934,867 $2,996 40.6% of EGI Net Operating Income: $1,289,357 $4,133 Capitalization Rate 9.00% DIRECT CAPITALIZATION VALUE $14,100,000 * $45,192 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 11% Stabilized Vacancy & Collection Loss: 14% Lease-up / Stabilization Period 12 months Terminal Capitalization Rate 10.00% Discount Rate 11.50% Selling Costs 2.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $14,300,000 * $45,833 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $14,200,000 $45,513 / UNIT SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $50,581 to $81,569 Range of Sales $/Unit (Adjusted) $44,512 to $49,242 VALUE INDICATION - PRICE PER UNIT $14,400,000 * $46,154 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 6.70 to 8.01 Selected EGIM for Subject 6.50 Subject's Projected EGI $2,302,224 EGIM ANALYSIS CONCLUSION $14,700,000 * $47,115 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $14,700,000 * $47,115 / UNIT RECONCILED SALES COMPARISON VALUE $14,700,000 $47,115 / 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 ST. CHARLESTON, LAS VEGAS, NEVADA PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $14,400,000 NOI Per Unit $14,700,000 EGIM Multiplier $14,700,000 INDICATED VALUE BY SALES COMPARISON $14,700,000 $47,115 / UNIT INCOME APPROACH: Direct Capitalization Method: $14,100,000 Discounted Cash Flow Method: $14,300,000 INDICATED VALUE BY THE INCOME APPROACH $14,200,000 $45,513 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $14,500,000 $46,474 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 ST. CHARLESTON, LAS VEGAS, NEVADA INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 6501 W. Charleston Blvd, Las Vegas, Clark County, Nevada. Las Vegas identifies it as 163-02-104-004. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Ryan Tanaka on May 8, 2003. Bryan Vick, MAI and Douglas Needham, MAI have not made a personal inspection of the subject property. Ryan Tanaka assisted Bryan Vick, MAI with the research, valuation analysis and writing the report. Douglas Needham, MAI reviewed the report and concurs with the value. Douglas Needham, MAI, Bryan Vick, MAI, and Ryan Tanaka have extensive experience in appraising similar properties and meet the USPAP competency provision. The scope of this investigation comprises the inspection of the property and the collection, verification, and analysis of general and specific data pertinent to the subject property. We have researched current improved sales and leases of similar properties, analyzing them as to their comparability, and adjusting them accordingly. We completed the Sales Comparison and Income Capitalization Approaches to value. From these approaches to value, a concluded overall value was made. DATE OF VALUE AND REPORT This appraisal was made to express the opinion of value as of May 8, 2003. The date of the report is July 14, 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 & AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 10 ST. CHARLESTON, LAS VEGAS, NEVADA Income Approaches), subject to the existing short-term leases. A Fee Simple Estate is 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 CPF XIV. 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 ST. CHARLESTON, LAS VEGAS, NEVADA 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 Las Vegas, Nevada. 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 - South Decature West - South Rainbow South - W Sahara North - IH-95 MAJOR EMPLOYERS Major employers in the subject's area include MGM Grand, Park Place Entertainment, Clark County School District, Mandalay Bay/ Circus Circus Corp., Sierra Health Services, The Boyd Group, Nellis Air Force Base, International Gaming Technology, Southwest Gas, and Agribio Tech, Inc. 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 ST. CHARLESTON, LAS VEGAS, NEVADA NEIGHBORHOOD DEMOGRAPHICS
AREA ------------------------------------------ CATEGORY 1-Mi. RADIUS 3-Mi. RADIUS 5-Mi. RADIUS MSA ------------------------------------------------------------------------------------- POPULATION TRENDS Current Population 19,985 193,985 461,191 1,698,839 5-Year Population 20,912 227,780 547,081 2,044,801 % Change CY-5Y 4.6% 17.4% 18.6% 20.4% Annual Change CY-5Y 0.9% 3.5% 3.7% 4.1% HOUSEHOLDS Current Households 7,043 73,636 180,584 638,180 5-Year Projected Households 7,296 86,043 212,778 764,252 % Change CY - 5Y 3.6% 16.8% 17.8% 19.8% Annual Change CY-5Y 0.7% 3.4% 3.6% 4.0% INCOME TRENDS Median Household Income $37,996 $ 41,128 $ 42,920 $ 40,882 Per Capita Income $19,457 $ 21,581 $ 24,788 $ 21,738 Average Household Income $54,983 $ 56,783 $ 63,375 $ 57,866
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 41.35% 43.41% 42.47% 35.71% 5-Year Projected % Renting 38.73% 40.24% 39.73% 34.68% % of Households Owning 54.04% 52.11% 51.99% 57.57% 5-Year Projected % Owning 56.31% 55.45% 55.12% 59.22%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 ST. CHARLESTON, LAS VEGAS, NEVADA SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Retail Center/Apartment Complexes South - Apartment Complexes East - Retail Center West - Office Buildings CONCLUSIONS The subject is well located within the city of Las Vegas. The neighborhood is characterized as being mostly suburban in nature and is currently in the growth stage of development. The economic outlook for the neighborhood is judged to be favorable with a good economic base. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 14 ST. CHARLESTON, LAS VEGAS, NEVADA MARKET ANALYSIS The subject property is located in the city of Las Vegas in Clark County. The overall pace of development in the subject's market is more or less decreasing. New construction in the area is a food court located east of property. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket ---------------------------- 1997 4.7% N/A 1998 5.7% N/A 1999 4.6% N/A 2000 4.8% N/A 2001 6.1% 6.3% 2002 7.4% 7.1% 2003 6.5% N/A
Occupancy trends in the subject's market are decreasing. Historically speaking, the subject's submarket has equated the overall market. Market rents in the subject's market have been following an increasing trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change ------------------------------------------------ 1997 $677 - N/A - 1998 $688 1.6% N/A N/A 1999 $699 1.6% N/A N/A 2000 $712 1.9% N/A N/A 2001 $728 2.2% $704 N/A 2002 $734 0.8% $748 6.3% 2003 $741 1.0% N/A N/A
The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 ST. CHARLESTON, LAS VEGAS, NEVADA COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject -------------------------------------------------------------------------------------- R-1 Alpine Village 560 95% 1978 .5-mile north of the subject R-2 Tiffany Place 182 98% 1991 .5-mile north of the subject R-3 Vista Del Rey 144 96% 1988 1-mile south of the subject R-4 Sahara Palms 312 95% 1973 Within 5-mile radius R-5 Silver Shadow 200 91% 1997 1 block from the subject Subject St. Charleston 312 86% 1980
AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 ST. CHARLESTON, LAS VEGAS, NEVADA PROPERTY DESCRIPTION SITE ANALYSIS Site Area 13.78 acres, or 600,257 square feet Shape Rectangular 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 32003C2165D, dated August 16, 1995 Flood Zone Zone X Zoning R-3, the subject improvements represent a legal conforming use of the site. REAL ESTATE TAXES
ASSESSED VALUE - 2002 ------------------------------------- TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES -------------------------------------------------------------------------------- 163-02-104-004 $819,000 $3,453,070 $4,272,070 0.03271 $139,732
IMPROVEMENT ANALYSIS Year Built 1980 Number of Units 312 Net Rentable Area 269,528 Square Feet Construction: Foundation Reinforced concrete slab Frame Heavy or light wood Exterior Walls Wood or vinyl siding Roof Composition shingle over a wood truss structure Project Amenities Amenities at the subject include a swimming pool, spa/jacuzzi, tennis court, gym room, barbeque equipment, meeting hall, laundry room, and parking area. Unit Amenities Individual unit amenities include a balcony, cable TV connection, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, water heater, garbage disposal, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 ST. CHARLESTON, LAS VEGAS, NEVADA Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) --------------------------------------- 1Br/1Ba 128 700 2Br/1Ba 56 816 2Br/2Ba 100 978 3Br/2Ba 16 1,194 3Br/2Ba 12 1,444
Overall Condition Good Effective Age 13 years Economic Life 45 years Remaining Economic Life 32 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 1980 and consist of a 312-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 ST. CHARLESTON, LAS VEGAS, NEVADA 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 ST. CHARLESTON, LAS VEGAS, NEVADA 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 ST. CHARLESTON, LAS VEGAS, NEVADA 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 ST. CHARLESTON, LAS VEGAS, NEVADA SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 --------------------------------------------------------------------------------------------------------------------------------- Property Name St. Charleston San Michele Alicante Villa Apt Homes LOCATION: Address 6501 W. Charleston Blvd 5800 W. Lake Mead Blvd 4370 S. Grand Canyon Dr City, State Las Vegas, Nevada Las Vegas, NV Las Vegas, NV County Clark Clark Clark PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 269,528 174,152 253,432 Year Built 1980 1997 2001 Number of Units 312 216 232 Unit Mix: Type Total Type Total Type Total 1Br/1Ba 128 1Br 96 1Br 80 2Br/1Ba 56 2Br 120 2Br 128 2Br/2Ba 100 3Br 24 3Br/2Ba 16 3Br/2Ba 12 Average Unit Size (SF) 864 806 1,092 Land Area (Acre) 13.7800 8.5200 11.9200 Density (Units/Acre) 22.6 25.4 19.5 Parking Ratio (Spaces/Unit) 1.96 1.66 1.60 Parking Type (Gr., Cov., etc.) Garage, Open Covered Open, Covered Open, Covered CONDITION: Good Good Very Good APPEAL: Good Good Good AMENITIES: Pool/Spa Yes/Yes Gym Room Yes Laundry Room Yes Secured Parking No Sport Courts Yes Washer/Dryer Connection Yes OCCUPANCY: 86% 91% 92% TRANSACTION DATA: Sale Date November, 2002 September, 2002 Sale Price ($) $11,750,000 $18,924,000 Grantor Jack P. Libby Family Trust Grand Rochelle Grantee San Michele Gary Alicante Villa Apartments LLC Sale Documentation Verification Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,776,960 $ 8,227 $10.20 $2,566,696 $11,063 $10.13 Vacancy/Credit Loss $ 159,926 $ 740 $ 0.92 $ 205,336 $ 885 $ 0.81 Effective Gross Income $1,617,034 $ 7,486 $ 9.29 $2,361,360 $10,178 $ 9.32 Operating Expenses $ 486,131 $ 2,251 $ 2.79 $ 735,958 $ 3,172 $ 2.90 Net Operating Income $1,130,903 $ 5,236 $ 6.49 $1,625,402 $ 7,006 $ 6.41 NOTES: None None PRICE PER UNIT $54,398 $81,569 PRICE PER SQUARE FOOT $ 67.47 $ 74.67 EXPENSE RATIO 30.1% 31.2% EGIM 7.27 8.01 OVERALL CAP RATE 9.62% 8.59% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 --------------------------------------------------------------------------------------------------------------------------------- Property Name Pleasant Hills Villas Rancho Del Ray Apts Conejo Villas Apartments LOCATION: Address 5550 Pleasant Hill Ave 2701 N Decatur Blvd 5060 W. Hacienda Ave City, State Las Vegas, NV Las Vegas, NV Las Vegas, NV County Clark Clark Clark PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 165,992 163,840 213,624 Year Built 1988 1996 1999 Number of Units 172 192 252 Unit Mix: Type Total Type Total Type Total 1Br 60 1Br 80 1Br 72 2Br 112 2Br 96 2Br 180 3Br 16 Average Unit Size (SF) 965 853 848 Land Area (Acre) 8.3900 8.7500 13.2100 Density (Units/Acre) 20.5 21.9 19.1 Parking Ratio (Spaces/Unit) 2.16 1.78 1.50 Parking Type (Gr., Cov., etc.) Open, Covered Garage, Open, Covered Open, Covered CONDITION: Very Good Very Good Very Good APPEAL: Average Fair Very Good AMENITIES: Pool/Spa Gym Room Laundry Room Secured Parking Sport Courts Washer/Dryer Connection OCCUPANCY: 92% 92% 91% TRANSACTION DATA: Sale Date April, 2002 April, 2002 March, 2002 Sale Price ($) $8,700,000 $10,500,000 $15,550,000 Grantor Royal Pleasant Hill LLC Rancho Del Rey Conejo Apartments Grantee Pleasant Hill Villas Rancho Del Ray Apartments Conejo Villas Apartments LP Sale Documentation Verification Telephone Number ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,360,000 $ 7,907 $8.19 $1,703,520 $ 8,873 $10.40 $2,257,200 $ 8,957 $10.57 Vacancy/Credit Loss $ 108,800 $ 633 $0.66 $ 136,282 $ 710 $ 0.83 $ 203,148 $ 806 $ 0.95 Effective Gross Income $1,251,200 $ 7,274 $7.54 $1,567,238 $ 8,163 $ 9.57 $2,054,052 $ 8,151 $ 9.62 Operating Expenses $ 533,200 $ 3,100 $3.21 $ 623,457 $ 3,247 $ 3.81 $ 718,918 $ 2,853 $ 3.37 Net Operating Income $ 718,000 $ 4,174 $4.33 $ 943,781 $ 4,916 $ 5.76 $1,335,134 $ 5,298 $ 6.25 NOTES: None None None PRICE PER UNIT $50,581 $54,688 $61,706 PRICE PER SQUARE FOOT $ 52.41 $ 64.09 $ 72.79 EXPENSE RATIO 42.6% 39.8% 35.0% EGIM 6.95 6.70 7.57 OVERALL CAP RATE 8.25% 8.99% 8.59% Cap Rate based on Pro Forma or Actual Income? PRO FORMA PRO FORMA PRO FORMA
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 ST. CHARLESTON, LAS VEGAS, NEVADA IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $50,581 to $81,569 per unit. Adjustments have been made to the sales to reflect differences in location, age/condition and quality/appeal. Generally speaking, larger properties typically have a lower price per unit when compared to smaller properties, all else being equal. Similarly, those projects with a higher average unit size will generally have a higher price per unit. After appropriate adjustments are made, the improved sales demonstrate an adjusted range for the subject from $44,512 to $49,242 per unit with a mean or average adjusted price of $46,936 per unit. The median adjusted price is $47,106 per unit. Based on the following analysis, we have concluded to a value of $47,000 per unit, which results in an "as is" value of $14,400,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 ST. CHARLESTON, LAS VEGAS, NEVADA
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 --------------------------------------------------------------------------------------------------------------- Property Name St. Charleston San Michele Alicante Villa Apt Homes Address 6501 W. Charleston Blvd 5800 W. Lake Mead Blvd 4370 S. Grand Canyon Dr City Las Vegas, Nevada Las Vegas, NV Las Vegas, NV Sale Date November, 2002 September, 2002 Sale Price ($) $11,750,000 $18,924,000 Net Rentable Area (SF) 269,528 174,152 253,432 Number of Units 312 216 232 Price Per Unit $54,398 $81,569 Year Built 1980 1997 2001 Land Area (Acre) 13.7800 8.5200 11.9200 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) 11-2002 5% 09-2002 5% VALUE AFTER TRANS. ADJUST. $57,118 $85,647 ($/UNIT) Location Inferior 10% Superior -15% Number of Units 312 216 0% 232 0% Quality / Appeal Good Superior -10% Superior -15% Age / Condition 1980 1997 / Good 0% 2001 / Very Good 0% Occupancy at Sale 86% 91% 0% 92% 0% Amenities Good Superior -20% Superior -10% Average Unit Size (SF) 864 806 0% 1,092 -5% PHYSICAL ADJUSTMENT -20% -45% FINAL ADJUSTED VALUE ($/UNIT) $45,694 $47,106 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 ---------------------------------------------------------------------------------------------------------------- Property Name Pleasant Hills Villas Rancho Del Ray Apts Conejo Villas Apartments Address 5550 Pleasant Hill Ave 2701 N Decatur Blvd 5060 W. Hacienda Ave City Las Vegas, NV Las Vegas, NV Las Vegas, NV Sale Date April, 2002 April, 2002 March, 2002 Sale Price ($) $8,700,000 $10,500,000 $15,550,000 Net Rentable Area (SF) 165,992 163,840 213,624 Number of Units 172 192 252 Price Per Unit $50,581 $54,688 $61,706 Year Built 1988 1996 1999 Land Area (Acre) 8.3900 8.7500 13.2100 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) 04-2002 10% 04-2002 10% 03-2002 14% VALUE AFTER TRANS. ADJUST. $55,640 $60,156 $70,345 ($/UNIT) Location Superior -20% Superior -20% Superior -15% Number of Units 172 0% 192 0% 252 0% Quality / Appeal Comparable 0% Comparable 0% Superior -10% Age / Condition 1988 / Very Good 0% 1996 / Very Good 0% 1999 / Very Good 0% Occupancy at Sale 92% 0% 92% 0% 91% 0% Amenities Comparable 0% Comparable 0% Superior -5% Average Unit Size (SF) 965 0% 853 0% 848 0% PHYSICAL ADJUSTMENT -20% -20% -30% FINAL ADJUSTED VALUE ($/UNIT) $44,512 $48,125 $49,242
SUMMARY VALUE RANGE (PER UNIT) $44,512 TO $49,242 MEAN (PER UNIT) $46,936 MEDIAN (PER UNIT) $47,106 VALUE CONCLUSION (PER UNIT) $47,000
VALUE OF IMPROVEMENT & Main Site $14,664,000 LESS: LEASE-UP COST -$ 31,000 PV OF CONCESSIONS -$ 201,000 VALUE INDICATED BY SALES COMPARISON APPROACH $14,432,000 ROUNDED $14,400,000
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 ST. CHARLESTON, LAS VEGAS, NEVADA NOI PER UNIT COMPARISON
SALE PRICE NOI/ SUBJECT NOI COMPARABLE NO. OF ----------- ---------- -------------- ADJUSTMENT INDICATED NO. UNITS PRICE/UNIT OAR NOI/UNIT SUBJ. NOI/UNIT FACTOR VALUE/UNIT ---------------------------------------------------------------------------------------------- I-1 216 $11,750,000 9.62% $1,130,903 $ 1,289,357 0.789 $42,937 ----------- --------------------------- $ 54,398 $ 5,236 $ 4,133 I-2 232 $18,924,000 8.59% $1,625,402 $ 1,289,357 0.590 $48,114 ----------- --------------------------- $ 81,569 $ 7,006 $ 4,133 I-3 172 $ 8,700,000 8.25% $ 718,000 $ 1,289,357 0.990 $50,074 ----------- --------------------------- $ 50,581 $ 4,174 $ 4,133 I-4 192 $10,500,000 8.99% $ 943,781 $ 1,289,357 0.841 $45,977 ----------- --------------------------- $ 54,688 $ 4,916 $ 4,133 I-5 252 $15,550,000 8.59% $1,335,134 $ 1,289,357 0.780 $48,131 ----------- --------------------------- $ 61,706 $ 5,298 $ 4,133
PRICE/UNIT
Low High Average Median $42,937 $50,074 $47,047 $48,114
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 48,000 ------------ Number of Units 312 Value $14,976,000 Less: Lease-Up Cost -$ 31,000 PV of Concessions -$ 201,000 ------------ Value Based on NOI Analysis $14,744,000 Rounded $14,700,000
The adjusted sales indicate a range of value between $42,937 and $50,074 per unit, with an average of $47,047 per unit. Based on the subject's competitive position within the improved sales, a value of $48,000 per unit is estimated. This indicates an "as is" market value of $14,700,000 (rounded after necessary adjustment, if any) for the NOI Per Unit Analysis. EFFECTIVE GROSS INCOME MULTIPLIER (EGIM) ANALYSIS The effective gross income multiplier (EGIM) is derived by dividing the sales price by the total effective gross income. The following table illustrates the EGIMs for the comparable improved sales. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 25 ST. CHARLESTON, LAS VEGAS, NEVADA EFFECTIVE GROSS INCOME MULTIPLIER COMPARISON
SALE PRICE COMPARABLE NO. OF ---------- EFFECTIVE OPERATING SUBJECT NO. UNITS PRICE/UNIT GROSS INCOME EXPENSE OER PROJECTED OER EGIM ------------------------------------------------------------------------------------------- I-1 216 $11,750,000 $ 1,617,034 $486,131 30.06% 7.27 ----------- $ 54,398 I-2 232 $18,924,000 $ 2,361,360 $735,958 31.17% 8.01 ----------- $ 81,569 I-3 172 $ 8,700,000 $ 1,251,200 $533,200 42.62% 6.95 ----------- $ 50,581 40.61% I-4 192 $10,500,000 $ 1,567,238 $623,457 39.78% 6.70 ----------- $ 54,688 I-5 252 $15,550,000 $ 2,054,052 $718,918 35.00% 7.57 ----------- $ 61,706
EGIM
Low High Average Median 6.70 8.01 7.30 7.27
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 6.50 Subject EGI $ 2,302,224 Value $14,964,456 Less: Lease-Up Cost -$ 31,000 PV of Concessions -$ 201,000 ------------ Value Based on EGIM Analysis $14,732,456 Rounded $14,700,000 Value Per Unit $ 47,115
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 40.61% before reserves. The comparable sales indicate a range of expense ratios from 30.06% to 42.62%, while their EGIMs range from 6.70 to 8.01. Overall, we conclude to an EGIM of 6.50, which results in an "as is" value estimate in the EGIM Analysis of $14,700,000. 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 $14,700,000. Price Per Unit $14,400,000 NOI Per Unit $14,700,000 EGIM Analysis $14,700,000 Sales Comparison Conclusion $14,700,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 ST. CHARLESTON, LAS VEGAS, NEVADA 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 ST. CHARLESTON, LAS VEGAS, NEVADA 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 700 $549 $0.78 84.4% 2Br/1Ba 816 $627 $0.77 83.9% 2Br/2Ba 978 $655 $0.67 87.0% 3Br/2Ba 1194 $852 $0.71 93.8% 3Br/2Ba 1444 $933 $0.65 100.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 ST. CHARLESTON, LAS VEGAS, NEVADA RENT ANALYSIS
COMPARABLE RENTS ------------------------------------------------ R-1 R-2 R-3 R-4 R-5 ------------------------------------------------ Alpine Tiffany Vista Del Sahara Silver Village Place Rey Palms Shadow ------------------------------------------------ COMPARISON TO SUBJECT SUBJECT SUBJECT ------------------------------------------------ SUBJECT UNIT ACTUAL ASKING Slightly DESCRIPTION TYPE RENT RENT Superior Superior Superior Superior Superior ---------------------------------------------------------------------------------------------------------- Monthly Rent 1Br/1Ba $ 549 $ 580 $ 570 $ 665 $ 650 $ 580 $ 705 Unit Area (SF) 700 700 680 750 700 680 686 Monthly Rent Per Sq. Ft. $ 0.78 $ 0.83 $ 0.84 $ 0.89 $ 0.93 $ 0.85 $ 1.03 Monthly Rent 2Br/1Ba $ 627 $ 640 $ 640 $ 765 $ 750 $ 670 Unit Area (SF) 816 816 890 1,150 900 816 Monthly Rent Per Sq. Ft. $ 0.77 $ 0.78 $ 0.72 $ 0.67 $ 0.83 $ 0.82 Monthly Rent 2Br/2Ba $ 655 $ 670 $ 810 $ 900 $ 860 $ 690 $ 835 Unit Area (SF) 978 978 802 1,250 1,076 910 1,030 Monthly Rent Per Sq. Ft. $ 0.67 $ 0.69 $ 1.01 $ 0.72 $ 0.80 $ 0.76 $ 0.81 Monthly Rent 3Br/2Ba $ 852 $ 859 $ 900 Unit Area (SF) 1,194 1,194 1,194 Monthly Rent Per Sq. Ft. $ 0.71 $ 0.72 $ 0.75 Monthly Rent 3Br/2Ba $ 933 $ 959 $ 990 $ 935 Unit Area (SF) 1,444 1,444 1,444 1,113 Monthly Rent Per Sq. Ft. $ 0.65 $ 0.66 $ 0.69 $ 0.84 DESCRIPTION MIN MAX MEDIAN AVERAGE --------------------------------------------------------- Monthly Rent $ 570 $ 705 $ 650 $ 634 Unit Area (SF) 680 750 686 699 Monthly Rent Per Sq. Ft. $ 0.84 $ 1.03 $ 0.89 $ 0.91 Monthly Rent $ 640 $ 765 $ 710 $ 706 Unit Area (SF) 816 1,150 895 939 Monthly Rent Per Sq. Ft. $ 0.67 $ 0.83 $ 0.77 $ 0.76 Monthly Rent $ 690 $ 900 $ 835 $ 819 Unit Area (SF) 802 1,250 1,030 1,014 Monthly Rent Per Sq. Ft. $ 0.72 $ 1.01 $ 0.80 $ 0.82 Monthly Rent $ 900 $ 450 $ 900 Unit Area (SF) 1,194 597 1,194 Monthly Rent Per Sq. Ft. $ 0.75 $ 0.75 $ 0.75 $ 0.75 Monthly Rent $ 935 $ 990 $ 963 $ 963 Unit Area (SF) 1,113 1,444 1,279 1,279 Monthly Rent Per Sq. Ft. $ 0.69 $ 0.84 $ 0.76 $ 0.76
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 128 700 $ 570 $ 0.81 $ 72,960 $ 875,520 2Br/1Ba 56 816 $ 630 $ 0.77 $ 35,280 $ 423,360 2Br/2Ba 100 978 $ 660 $ 0.67 $ 66,000 $ 792,000 3Br/2Ba 16 1,194 $ 855 $ 0.72 $ 13,680 $ 164,160 3Br/2Ba 12 1,444 $ 940 $ 0.65 $ 11,280 $ 135,360 Total $199,200 $2,390,400
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 ST. CHARLESTON, LAS VEGAS, NEVADA SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 --------------------- --------------------- --------------------- ACTUAL ACTUAL ACTUAL --------------------- --------------------- --------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT ------------------------------------------------------------------------------------------------- Revenues Rental Income $ 2,293,193 $ 7,350 $ 2,372,959 $ 7,606 $ 2,366,248 $ 7,584 Vacancy $ 159,445 $ 511 $ 154,880 $ 496 $ 190,262 $ 610 Credit Loss/Concessions $ 53,723 $ 172 $ 69,088 $ 221 $ 70,599 $ 226 ------------------------------------------------------------------- Subtotal $ 213,168 $ 683 $ 223,968 $ 718 $ 260,861 $ 836 Laundry Income $ 24,102 $ 77 $ 21,350 $ 68 $ 20,812 $ 67 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 85,805 $ 275 $ 128,986 $ 413 $ 194,469 $ 623 ------------------------------------------------------------------- Subtotal Other Income $ 109,907 $ 352 $ 150,336 $ 482 $ 215,281 $ 690 ------------------------------------------------------------------- Effective Gross Income $ 2,189,932 $ 7,019 $ 2,299,327 $ 7,370 $ 2,320,668 $ 7,438 Operating Expenses Taxes $ 139,055 $ 446 $ 136,257 $ 437 $ 141,520 $ 454 Insurance $ 20,956 $ 67 $ 61,506 $ 197 $ 47,404 $ 152 Utilities $ 164,577 $ 527 $ 170,613 $ 547 $ 169,517 $ 543 Repair & Maintenance $ 58,510 $ 188 $ 40,842 $ 131 $ 46,440 $ 149 Cleaning $ 80,721 $ 259 $ 86,186 $ 276 $ 93,393 $ 299 Landscaping $ 45,571 $ 146 $ 41,634 $ 133 $ 41,760 $ 134 Security $ 12,361 $ 40 $ 14,513 $ 47 $ 16,499 $ 53 Marketing & Leasing $ 49,876 $ 160 $ 40,744 $ 131 $ 45,072 $ 144 General Administrative $ 272,640 $ 874 $ 285,662 $ 916 $ 259,190 $ 831 Management $ 103,434 $ 332 $ 115,271 $ 369 $ 115,101 $ 369 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------- Total Operating Expenses $ 947,701 $ 3,038 $ 993,228 $ 3,183 $ 975,896 $ 3,128 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ------------------------------------------------------------------- Net Income $ 1,242,231 $ 3,982 $ 1,306,099 $ 4,186 $ 1,344,772 $ 4,310 FISCAL YEAR 2003 ANNUALIZED 2003 --------------------- -------------------- MANAGEMENT BUDGET PROJECTION AAA PROJECTION --------------------- -------------------- ---------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT % ------------------------------------------------------------------------------------------------------- Revenues Rental Income $ 2,340,816 $ 7,503 $2,371,120 $ 7,600 $2,390,400 $ 7,662 100.0% Vacancy $ 155,000 $ 497 $ 322,512 $ 1,034 $ 262,944 $ 843 11.0% Credit Loss/Concessions $ 58,500 $ 188 $ 151,160 $ 484 $ 71,712 $ 230 3.0% ------------------------------------------------------------------------ Subtotal $ 213,500 $ 684 $ 473,672 $ 1,518 $ 334,656 $ 1,073 14.0% Laundry Income $ 27,200 $ 87 $ 20,456 $ 66 $ 20,280 $ 65 0.8% Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 196,400 $ 629 $ 230,264 $ 738 $ 226,200 $ 725 9.5% ------------------------------------------------------------------------ Subtotal Other Income $ 223,600 $ 717 $ 250,720 $ 804 $ 246,480 $ 790 10.3% ------------------------------------------------------------------------ Effective Gross Income $ 2,350,916 $ 7,535 $2,148,168 $ 6,885 $2,302,224 $ 7,379 100.0% Operating Expenses Taxes $ 146,946 $ 471 $ 142,636 $ 457 $ 165,360 $ 530 7.2% Insurance $ 52,281 $ 168 $ 51,040 $ 164 $ 48,360 $ 155 2.1% Utilities $ 143,535 $ 460 $ 127,992 $ 410 $ 140,400 $ 450 6.1% Repair & Maintenance $ 29,000 $ 93 $ 92,580 $ 297 $ 46,800 $ 150 2.0% Cleaning $ 71,925 $ 231 $ 87,104 $ 279 $ 85,800 $ 275 3.7% Landscaping $ 118,032 $ 378 $ 27,456 $ 88 $ 54,600 $ 175 2.4% Security $ 0 $ 0 $ 16,416 $ 53 $ 17,160 $ 55 0.7% Marketing & Leasing $ 42,000 $ 135 $ 41,360 $ 133 $ 42,120 $ 135 1.8% General Administrative $ 254,450 $ 816 $ 303,872 $ 974 $ 265,200 $ 850 11.5% Management $ 117,546 $ 377 $ 113,264 $ 363 $ 69,067 $ 221 3.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0.0% ------------------------------------------------------------------------ Total Operating Expenses $ 975,715 $ 3,127 $1,003,720 $ 3,217 $ 934,867 $ 2,996 40.6% Reserves $ 0 $ 0 $ 0 $ 0 $ 78,000 $ 250 8.3% ------------------------------------------------------------------------ Net Income $ 1,375,201 $ 4,408 $1,144,448 $ 3,668 $1,289,357 $ 4,133 56.0%
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 14% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 ST. CHARLESTON, LAS VEGAS, NEVADA 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 ST. CHARLESTON, LAS VEGAS, NEVADA SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR ---------------------------------------------------- I-1 Nov-02 91% $54,398 9.62% I-2 Sep-02 92% $81,569 8.59% I-3 Apr-02 92% $50,581 8.25% I-4 Apr-02 92% $54,688 8.99% I-5 Mar-02 91% $61,706 8.59% High 9.62% Low 8.25% Average 8.81%
Based on this information, we have concluded the subject's overall capitalization rate should be 9.00%. The terminal capitalization rate is applied to the net operating income estimated for the year following the end of the holding period. Based on the concluded overall capitalization rate, the age of the property and the surveyed information, we have concluded the subject's terminal capitalization rate to be 10.00%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 11.50%. 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 $14,300,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 ST. CHARLESTON, LAS VEGAS, NEVADA 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 ST. CHARLESTON, LAS VEGAS, NEVADA DISCOUNTED CASH FLOW ANALYSIS ST. CHARLESTON
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 FISCAL YEAR 1 2 3 4 5 ---------------------------------------------------------------------------------------------------- REVENUE Base Rent $2,390,400 $2,462,112 $2,535,975 $2,612,055 $2,690,416 Vacancy $ 298,866 $ 270,832 $ 278,957 $ 287,326 $ 295,946 Credit Loss $ 71,712 $ 73,863 $ 76,079 $ 78,362 $ 80,712 Concessions $ 224,640 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------- Subtotal $ 595,218 $ 344,696 $ 355,037 $ 365,688 $ 376,658 Laundry Income $ 20,280 $ 20,888 $ 21,515 $ 22,161 $ 22,825 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 226,200 $ 232,986 $ 239,976 $ 247,175 $ 254,590 -------------------------------------------------------------- Subtotal Other Income $ 246,480 $ 253,874 $ 261,491 $ 269,335 $ 277,415 -------------------------------------------------------------- EFFECTIVE GROSS INCOME $2,041,662 $2,371,291 $2,442,429 $2,515,702 $2,591,173 OPERATING EXPENSES: Taxes $ 165,360 $ 170,321 $ 175,430 $ 180,693 $ 186,114 Insurance $ 48,360 $ 49,811 $ 51,305 $ 52,844 $ 54,430 Utilities $ 140,400 $ 144,612 $ 148,950 $ 153,419 $ 158,021 Repair & Maintenance $ 46,800 $ 48,204 $ 49,650 $ 51,140 $ 52,674 Cleaning $ 85,800 $ 88,374 $ 91,025 $ 93,756 $ 96,569 Landscaping $ 54,600 $ 56,238 $ 57,925 $ 59,663 $ 61,453 Security $ 17,160 $ 17,675 $ 18,205 $ 18,751 $ 19,314 Marketing & Leasing $ 42,120 $ 43,384 $ 44,685 $ 46,026 $ 47,406 General Administrative $ 265,200 $ 273,156 $ 281,351 $ 289,791 $ 298,485 Management $ 61,250 $ 71,139 $ 73,273 $ 75,471 $ 77,735 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 -------------------------------------------------------------- TOTAL OPERATING EXPENSES $ 927,050 $ 962,913 $ 991,800 $1,021,554 $1,052,201 Reserves $ 78,000 $ 80,340 $ 82,750 $ 85,233 $ 87,790 -------------------------------------------------------------- NET OPERATING INCOME $1,036,612 $1,328,038 $1,367,879 $1,408,916 $1,451,183 Operating Expense Ratio (% of EGI) 45.4% 40.6% 40.6% 40.6% 40.6% Operating Expense Per Unit $ 2,971 $ 3,086 $ 3,179 $ 3,274 $ 3,372 YEAR APR-2009 APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 6 7 8 9 10 11 ----------------------------------------------------------------------------------------------------------------- REVENUE Base Rent $2,771,129 $2,854,263 $2,939,890 $3,028,087 $3,118,930 $3,212,498 Vacancy $ 304,824 $ 313,969 $ 323,388 $ 333,090 $ 343,082 $ 353,375 Credit Loss $ 83,134 $ 85,628 $ 88,197 $ 90,843 $ 93,568 $ 96,375 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------- Subtotal $ 387,958 $ 399,597 $ 411,585 $ 423,932 $ 436,650 $ 449,750 Laundry Income $ 23,510 $ 24,215 $ 24,942 $ 25,690 $ 26,461 $ 27,255 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 262,228 $ 270,095 $ 278,197 $ 286,543 $ 295,140 $ 303,994 --------------------------------------------------------------------------- Subtotal Other Income $ 285,738 $ 294,310 $ 303,139 $ 312,233 $ 321,600 $ 331,249 --------------------------------------------------------------------------- EFFECTIVE GROSS INCOME $2,668,909 $2,748,976 $2,831,445 $2,916,388 $3,003,880 $3,093,997 OPERATING EXPENSES: Taxes $ 191,698 $ 197,448 $ 203,372 $ 209,473 $ 215,757 $ 222,230 Insurance $ 56,062 $ 57,744 $ 59,477 $ 61,261 $ 63,099 $ 64,992 Utilities $ 162,762 $ 167,645 $ 172,674 $ 177,855 $ 183,190 $ 188,686 Repair & Maintenance $ 54,254 $ 55,882 $ 57,558 $ 59,285 $ 61,063 $ 62,895 Cleaning $ 99,466 $ 102,450 $ 105,523 $ 108,689 $ 111,950 $ 115,308 Landscaping $ 63,296 $ 65,195 $ 67,151 $ 69,166 $ 71,241 $ 73,378 Security $ 19,893 $ 20,490 $ 21,105 $ 21,738 $ 22,390 $ 23,062 Marketing & Leasing $ 48,829 $ 50,293 $ 51,802 $ 53,356 $ 54,957 $ 56,606 General Administrative $ 307,439 $ 316,663 $ 326,163 $ 335,947 $ 346,026 $ 356,407 Management $ 80,067 $ 82,469 $ 84,943 $ 87,492 $ 90,116 $ 92,820 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 --------------------------------------------------------------------------- TOTAL OPERATING EXPENSES $1,083,767 $1,116,280 $1,149,768 $1,184,261 $1,219,789 $1,256,383 Reserves $ 90,423 $ 93,136 $ 95,930 $ 98,808 $ 101,772 $ 104,825 --------------------------------------------------------------------------- NET OPERATING INCOME $1,494,718 $1,539,560 $1,585,747 $1,633,319 $1,682,319 $1,732,788 Operating Expense Ratio (% of EGI) 40.6% 40.6% 40.6% 40.6% 40.6% 40.6% Operating Expense Per Unit $ 3,474 $ 3,578 $ 3,685 $ 3,796 $ 3,910 $ 4,027
Estimated Stabilized NOI $1,289,357 Sales Expense Rate 2.00% Months to Stabilized 12 Discount Rate 11.50% Stabilized Occupancy 89.0% Terminal Cap Rate 10.00%
Gross Residual Sale Price $17,327,884 Deferred Maintenance $ 0 Less: Sales Expense $ 346,558 Add: Excess Land $ 0 ----------- Net Residual Sale Price $16,981,326 Other Adjustments $ 0 ----------- PV of Reversion $ 5,717,721 Value Indicated By "DCF" $14,319,207 Add: NPV of NOI $ 8,601,487 Rounded $14,300,000 ----------- PV Total $14,319,207
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ------------------------------------------------------------------------ TOTAL VALUE 11.00% 11.25% 11.50% 11.75% 12.00% ------------------------------------------------------------------------------------------- TERMINAL CAP RATE 9.50% $15,106,113 $14,860,463 $14,620,140 $14,385,010 $14,154,943 9.75% $14,944,695 $14,702,636 $14,465,815 $14,234,103 $14,007,371 10.00% $14,791,347 $14,552,699 $14,319,207 $14,090,742 $13,867,178 10.25% $14,645,480 $14,410,077 $14,179,751 $13,954,374 $13,733,823 10.50% $14,506,558 $14,274,246 $14,046,935 $13,824,500 $13,606,819
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 ST. CHARLESTON, LAS VEGAS, NEVADA INCOME LOSS DURING LEASE-UP The subject is currently 86% 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 $31,000 as shown in the following table.
DESCRIPTION YEAR 1 ---------------------------------------------- "As Is" Net Operating Income $1,036,612 Stabilized Net Operating Income $1,071,456 ---------- Difference $ 34,845 PV of Income Loss During Lease-Up $ 31,251 Rounded $ 31,000 ----------
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 $201,000 (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 ST. CHARLESTON, LAS VEGAS, NEVADA After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 9.00% percent is applicable to the subject. The results of our direct capitalization analysis are as follows: AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 ST. CHARLESTON, LAS VEGAS, NEVADA ST. CHARLESTON
TOTAL PER SQ. FT. PER UNIT %OF EGI ----------------------------------------------------------------------------------------------- REVENUE Base Rent $ 2,390,400 $ 8.87 $ 7,662 Less: Vacancy & Collection Loss 14.00% $ 334,656 $ 1.24 $ 1,073 Plus: Other Income Laundry Income $ 20,280 $ 0.08 $ 65 0.88% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 226,200 $ 0.84 $ 725 9.83% --------------------------------------------- Subtotal Other Income $ 246,480 $ 0.91 $ 790 10.71% EFFECTIVE GROSS INCOME $ 2,302,224 $ 8.54 $ 7,379 OPERATING EXPENSES: Taxes $ 165,360 $ 0.61 $ 530 7.18% Insurance $ 48,360 $ 0.18 $ 155 2.10% Utilities $ 140,400 $ 0.52 $ 450 6.10% Repair & Maintenance $ 46,800 $ 0.17 $ 150 2.03% Cleaning $ 85,800 $ 0.32 $ 275 3.73% Landscaping $ 54,600 $ 0.20 $ 175 2.37% Security $ 17,160 $ 0.06 $ 55 0.75% Marketing & Leasing $ 42,120 $ 0.16 $ 135 1.83% General Administrative $ 265,200 $ 0.98 $ 850 11.52% Management 3.00% $ 69,067 $ 0.26 $ 221 3.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 934,867 $ 3.47 $ 2,996 40.61% Reserves $ 78,000 $ 0.29 $ 250 3.39% --------------------------------------------- NET OPERATING INCOME $ 1,289,357 $ 4.78 $ 4,133 56.00% "GOING IN" CAPITALIZATION RATE 9.00% VALUE INDICATION $14,326,192 $ 53.15 $ 45,917 LESS: LEASE-UP COST ($ 31,000) PV OF CONCESSIONS ($ 201,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $14,094,192 ROUNDED $14,100,000 $ 52.31 $ 45,192
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 37 ST. CHARLESTON, LAS VEGAS, NEVADA DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF ------------------------------------------------------ 8.25% $15,396,573 $15,400,000 $49,359 $57.14 8.50% $14,936,909 $14,900,000 $47,756 $55.28 8.75% $14,503,512 $14,500,000 $46,474 $53.80 9.00% $14,094,192 $14,100,000 $45,192 $52.31 9.25% $13,706,998 $13,700,000 $43,910 $50.83 9.50% $13,340,182 $13,300,000 $42,628 $49.35 9.75% $12,992,177 $13,000,000 $41,667 $48.23
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $14,100,000. 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 $14,300,000 Direct Capitalization Method $14,100,000
Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $14,200,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 38 ST. CHARLESTON, LAS VEGAS, NEVADA 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 $14,700,000 Income Approach $14,200,000 Reconciled Value $14,500,000
The Income Capitalization Method is considered a reliable indicator of value. Income and expenses were estimated and projected based on historical operating statements and market oriented expenses. This method is primarily used by investors in their underwriting analysis. Furthermore, there was good support for an overall rate in the Direct Capitalization Method. The Sales Comparison Approach to value supported the value conclusion by the Income Approach and was given secondary consideration. Investment-grade, income-producing properties such as the subject are not typically traded based on cost. Therefore, the Cost Approach has not been considered in our valuation. FINAL VALUE - FEE SIMPLE ESTATE Based on the investigation and premise outlined, it is our opinion that as of May 8, 2003 the market value of the fee simple estate in the property is: $14,500,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA ST. CHARLESTON, LAS VEGAS, NEVADA ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A ST. CHARLESTON, LAS VEGAS, NEVADA EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A ST. CHARLESTON, LAS VEGAS, NEVADA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - APARTMENT EXTERIOR - WINDOW PANE [PICTURE] [PICTURE] INTERIOR - FLOOR EXTERIOR - PARKING LOT [PICTURE] [PICTURE] EXTERIOR - SWIMMING POOL EXTERIOR - APARTMENT BUILDING AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A ST. CHARLESTON, LAS VEGAS, NEVADA SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDING INTERIOR- LIVING ROOM [PICTURE] [PICTURE] EXTERIOR - STAIR CASE EXTERIOR-APARTMENT BUILDING [PICTURE] [PICTURE] INTERIOR-LIVING ROOM INTERIOR-KITCHEN AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B ST. CHARLESTON, LAS VEGAS, NEVADA EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B ST. CHARLESTON, LAS VEGAS, NEVADA PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 SAN MICHELE 5800 W. Lake Mead Blvd Las Vegas, NV [PICTURE] COMPARABLE I-2 ALICANTE VILLA APT HOMES 4370 S. Grand Canyon Dr Las Vegas, NV N/A COMPARABLE I-3 PLEASANT HILLS VILLAS 5550 Pleasant Hill Ave Las Vegas, NV [PICTURE] COMPARABLE I-4 RANCHO DEL RAY APTS 2701 N Decatur Blvd Las Vegas, NV [PICTURE] COMPARABLE I-5 CONEJO VILLAS APARTMENTS 5060 W. Hacienda Ave Las Vegas, NV [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B ST. CHARLESTON, LAS VEGAS, NEVADA SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 ------------------------------ ---------------------------------------------- ------------------------------------------------ Property Name St. Charleston Alpine Village Management Company LOCATION: Address 6501 W. Charleston Blvd 901 Brush St City, State Las Vegas, Nevada Las Vegas, NV County Clark Clark Proximity to Subject .5-mile north of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 269,528 557,766 Year Built 1980 1978 Effective Age 13 5 Building Structure Type Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Garage, Open Covered Open, Covered Number of Units 312 560 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo 1 1Br/1Ba 700 128 $549 1 1BD/1BH 680 $570 2 2Br/1Ba 816 56 $627 2 1BD/1BH 890 $640 3 2Br/2Ba 978 100 $655 3 2BD/2BH 960 $680 4 3Br/2Ba 1,194 16 $852 3 3BD/1BH $825 5 3Br/2Ba 1,444 12 $933 3 3BD/2BH 1,445 $925 Average Unit Size (SF) 864 Unit Breakdown: Efficiency 0% 2-Bedroom 39% Efficiency 0% 2-Bedroom 38% 1-Bedroom 61% 3-Bedroom 0% 1-Bedroom 31% 3-Bedroom 16% CONDITION: Good Good APPEAL: Average Good AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling X Attach. Garage X Vaulted Ceiling X Balcony X Balcony X Fireplace X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool X Spa/Jacuzzi Car Wash Spa/JacuzzX X Car Wash Basketball Court X BBQ Equipment Basketball Court X BBQ Equipment Volleyball Court Theater Room X 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 Business Office X Jogging Track X X Business Office X Gym Room X Gym Room OCCUPANCY: 86% 95% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 to 15 Months Concessions 1 - 1 1/2 Months Free $399 move in special Pet Deposit $300 - $500 $300 - $500 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas X Water Trash X Water Trash Confirmation May 1 2003: Joseph Beard (Property Manager) Property Manager - Call Friday on this afternoon Telephone Number (972)234-1231 702-870-3044 NOTES: None COMPARISON TO SUBJECT: Slightly Superior DESCRIPTION COMPARABLE COMPARABLE R - 2 R - 3 ------------------------------ ---------------------------------------------- ------------------------------------------------ Property Name Tiffany place Vista Del Rev Management Company LOCATION: Address 5800 W. Charleston 6701 Del Rey Ave City, State Las Vegas, NV Las Vegas, NV County Clark Clarkc Proximity to Subject .5-mile north of the subject 1-mile south of the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 515,236 357,168 Year Built 1991 1988 Effective Age 5 6 Building Structure Type Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Open, Covered Open, Covered Number of Units 182 144 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1BR/1BA 750 $665 1 1BR/1BA 700 32 $650 2 2BR/2BA 1,150 $765 2 2BR/2BA 900 80 $750 3 3BD/2BA 1,250 $900 3 3BR/2BA 1,076 32 $860 4 6 Average Unit Size (SF) 895 Unit Breakdown: Efficiency 0% 2-Bedroom 43% Efficiency 0% 2-Bedroom 56% 1-Bedroom 49% 3-Bedroom 8% 1-Bedroom 22% 3-Bedroom 22% CONDITION: Very Good Very Good APPEAL: Very Good Very Good AMENITIES: Unit Amenities X Attach. Garage X Vaulted Ceiling X Attach. Garage X Vaulted Ceiling X Balcony X X Balcony X X Fireplace X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi X Car Wash Spa/Jacuzzi X Car Wash X Basketball Court X BBQ Equipment X Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball X Meeting Hall X 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 X Jogging Track X Business Office X Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 98% 96% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 to 15 Months Concessions 1 - 1 1/2 Months Free 1 - 1 1/2 Months Free Pet Deposit $300 - $500 $300 - $500 Utilities Paid by Tenant: X Electric X Natural Gas X Electric X Natural Gas Water Trash X Water Trash Confirmation Property Manager - call Friday Allsion property Property Manager - call later this afternoon Telephone Number 702-258-4404 702-258-7368 NOTES: None COMPARISON TO SUBJECT: Superior Superior DESCRIPTION COMPARABLE COMPARABLE R - 4 R - 5 ------------------------------ -------------------------------------------- -------------------------------------------------- Property Name Sahara Palms Silver Shadow Management Company LOCATION: Address 2900 El Camino Ave 830 W. Charleston City, State Las Vegas, NV Las Vegas, NV County Clark Clarck Proximity to Subject Within 5-mile radius 1 block from the subject PHYSICAL CHARACTERISTICS: Net Rentable Area (SF) 286,922 207,554 Year Built 1973 1997 Effective Age 7 6 Building Structure Type Brick & wood siding walls; asphalt shingle roof Brick & wood siding walls; asphalt shingle roof Parking Type (Gr., Cov., etc.) Garage, Open, Covered Open, Covered Number of Units 312 200 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1 1BD/1BH 680 152 $580 1 1BD/1BH 686 32 $705 2 2BD/1BH 816 48 $670 3 2BD/2BH 1,030 104 $835 3 2BD/2BH 910 88 $690 5 3BD/2BH 1,113 64 $935 4 3BD/2BH 1,194 16 $900 5 3BD/2BH 1,444 8 $990 Average Unit Size (SF) 812 1,002 Unit Breakdown: Efficiency 0% 2-Bedroom 44% Efficiency 0% 2-Bedroom 52% 1-Bedroom 49% 3-Bedroom 8% 1-Bedroom 16% 3-Bedroom 32% CONDITION: Very Good Very Good APPEAL: Very Good Very Good AMENITIES: Unit Amenities X Attach. Garage X Vaulted Ceiling X Attach. Garage X Vaulted Ceiling X Balcony X X Balcony X X Fireplace X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/JacuzziX X Car Wash Spa/Jacuzzi X Car Wash X Basketball Court X BBQ Equipment X Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room X Sand Volley Ball X Meeting Hall X Sand Volley Ball X Meeting Hall X Tennis Court X Secured Parking X Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room X Jogging Track X Business Office X Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 95% 91% LEASING DATA: Available Leasing Terms 6 to 15 Months 6 to 15 Months Concessions 1 - 1 1/2 Months Free 1 - 1 1/2 Months Free Pet Deposit $300 - $500 $300 - $500 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash Water Trash Confirmation Property Manager Property Manager Telephone Number 702-873-6887 702-254-7880 NOTES: None None COMPARISON TO SUBJECT: Superior Superior
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B ST. CHARLESTON, LAS VEGAS, NEVADA PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 ALPINE VILLAGE 901 Brush St Las Vegas, NV [PICTURE] COMPARABLE R-2 TIFFANY PLACE 5800 W. Charleston Las Vegas, NV [PICTURE] COMPARABLE R-3 VISTA DEL REY 6701 Del Rey Ave Las Vegas, NV [PICTURE] COMPARABLE R-4 SAHARA PALMS 2900 El Camino Ave Las Vegas, NV [PICTURE] COMPARABLE R-5 SILVER SHADOW 830 W. Charleston Las Vegas, NV [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C ST. CHARLESTON, LAS VEGAS, NEVADA EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C ST. CHARLESTON, LAS VEGAS, NEVADA 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 ST. CHARLESTON, LAS VEGAS, NEVADA 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 ST. CHARLESTON, LAS VEGAS, NEVADA 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 ST. CHARLESTON, LAS VEGAS, NEVADA 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. Bryan Vick, MAI and Ryan Tanaka 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/ Douglas Needham -------------------------- Douglas Needham, MAI Managing Principal, Real Estate Group AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E ST. CHARLESTON, LAS VEGAS, NEVADA EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E ST. CHARLESTON, LAS VEGAS, NEVADA DOUGLAS A. NEEDHAM, MAI MANAGING PRINCIPAL, REAL ESTATE ADVISORY GROUP POSITION Douglas A. Needham is a Managing Principal for the Irvine Real Estate Advisory Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Mr. Needham has appraised all types of major commercial real estate including apartments, hotels/motels, light and heavy industrial facilities, self-storage facilities, mobile home parks, offices, retail shopping centers, service stations, special-use properties, and vacant land. Business Mr. Needham joined AAA in 1998. Prior to joining AAA, he was a senior associate at Koeppel Tener, a senior analyst at Great Western Appraisal Group, and an associate appraiser at R. L. McLaughlin & Associates. EDUCATION Texas A&M University Bachelor of Business Administration - Finance STATE CERTIFICATIONS State of Arizona, Certified General Real Estate Appraiser, #30943 State of California, Certified General Real Estate Appraiser, #AG025443 State of Colorado, Certified General Appraiser, #CG40017035 State of Oregon, Certified General Appraiser, #C000686 State of Washington, Certified General Real Estate Appraiser, #1101111 PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E ST. CHARLESTON, LAS VEGAS, NEVADA VALUATION AND Appraisal Institute Advanced Income Capitalization SPECIAL COURSES Appraisal Principles Appraisal Procedures Basic Income Capitalization Standards of Professional Practice AMERICAN APPRAISAL ASSOCIATES, INC. ST. CHARLESTON, LAS VEGAS, NEVADA GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. ST. CHARLESTON, LAS VEGAS, NEVADA 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.