EX-99.(C)(2) 4 d07244a2exv99wxcyx2y.txt APPRAISAL OF PRESTON CREEK PRESTON CREEK APARTMENTS 5902 PRESTON OAKS DALLAS, TEXAS MARKET VALUE - FEE SIMPLE ESTATE AS OF MAY 7, 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) LETTERHEAD] JULY 16, 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: PRESTON CREEK APARTMENTS 5902 PRESTON OAKS DALLAS, DALLAS COUNTY, TEXAS In accordance with your authorization, we have completed the appraisal of the above-referenced property. This complete appraisal is intended to report our analysis and conclusions in a summary format. The subject property consists of an apartment project having 228 units with a total of 216,600 square feet of rentable area. The improvements were built in 1979. The improvements are situated on 11.567 acres. Overall, the improvements are in average condition. As of the date of this appraisal, the subject property is 99% 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 PRESTON CREEK APARTMENTS, DALLAS, TEXAS The opinions expressed in this appraisal cover letter can only be completely understood by reading the narrative report, addenda, and other data, which is attached. The appraisal is subject to the attached general assumptions and limiting conditions and general service conditions. As a result of our investigation, it is our opinion that the fee simple market value of the subject, effective May 7, 2003 is: ($7,900,000) Respectfully submitted, AMERICAN APPRAISAL ASSOCIATES, INC. -s- Frank Fehribach July 16, 2003 Frank Fehribach, MAI #053272 Managing Principal, Real Estate Group Texas State Certified General Real Estate Appraiser #TX-1323954-G Report By: Shayne Hatch Texas Appraiser Trainee #TX-1330454-T AMERICAN APPRAISAL ASSOCIATES, INC. TABLE OF CONTENTS PAGE 3 PRESTON CREEK APARTMENTS, DALLAS, TEXAS TABLE OF CONTENTS Cover Letter of Transmittal Table of Contents APPRAISAL DATA Executive Summary ..................................................... 4 Introduction .......................................................... 9 Area Analysis ......................................................... 11 Market Analysis ....................................................... 14 Site Analysis ......................................................... 16 Improvement Analysis .................................................. 16 Highest and Best Use .................................................. 17 VALUATION Valuation Procedure ................................................... 18 Sales Comparison Approach ............................................. 20 Income Capitalization Approach ........................................ 26 Reconciliation and Conclusion ......................................... 37 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 PRESTON CREEK APARTMENTS, DALLAS, TEXAS EXECUTIVE SUMMARY PART ONE - PROPERTY DESCRIPTION PROPERTY NAME: Preston Creek Apartments LOCATION: 5902 Preston Oaks Dallas, Texas INTENDED USE OF ASSIGNMENT: Court Settlement PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee Simple Estate INTEREST APPRAISED: Fee Simple Estate DATE OF VALUE: May 7, 2003 DATE OF REPORT: July 16, 2003 PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS: SITE: Size: 11.567 acres, or 503,859 square feet Assessor Parcel No.: 00000-7943125-00000 Floodplain: Community Panel No. 48113C0185J (August 23, 2001) Flood Zone X, an area outside the floodplain. Zoning: MF-1 (A) (Multi Family District) BUILDING: No. of Units: 228 Units Total NRA: 216,600 Square Feet Average Unit Size: 950 Square Feet Apartment Density: 19.7 units per acre Year Built: 1979 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 788 $ 550 $ 0.70 $ 46,200 $ 554,400 1Br/1.5Ba -1A15 897 $ 650 $ 0.72 $ 46,800 $ 561,600 2Br/2Ba - 2A20 1,186 $ 750 $ 0.63 $ 45,000 $ 540,000 2Br/2Ba - 2B20 1,222 $ 850 $ 0.70 $ 10,200 $ 122,400 ----------------------- Total $ 148,200 $1,778,400 =======================
OCCUPANCY: 99% ECONOMIC LIFE: 45 Years EFFECTIVE AGE: 24 Years REMAINING ECONOMIC LIFE: 21 Years SUBJECT PHOTOGRAPHS AND LOCATION MAP: AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5 PRESTON CREEK APARTMENTS, DALLAS, TEXAS SUBJECT PHOTOGRAPHS [EXTERIOR - APARTMENT BUILDINGS PICTURE] [EXTERIOR - APARTMENT BUILDING PICTURE] AREA MAP [MAP] AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6 PRESTON CREEK APARTMENTS, DALLAS, TEXAS NEIGHBORHOOD MAP [MAP] HIGHEST AND BEST USE: As Vacant: Hold for future multi-family development As Improved: Continuation as its current use METHOD OF VALUATION: In this instance, the Sales Comparison and Income Approaches to value were utilized. AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 7 PRESTON CREEK APARTMENTS, DALLAS, TEXAS PART TWO - ECONOMIC INDICATORS INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit --------------------- ------ ------ Potential Rental Income $1,778,400 $7,800 Effective Gross Income $1,667,136 $7,312 Operating Expenses $914,845 $4,012 54.9% of EGI Net Operating Income: $695,291 $3,050 Capitalization Rate 9.00% DIRECT CAPITALIZATION VALUE $7,600,000 * $33,333 / UNIT DISCOUNTED CASH FLOW ANALYSIS: Holding Period 10 years 2002 Economic Vacancy 23% Stabilized Vacancy & Collection Loss: 11% Lease-up / Stabilization Period N/A Terminal Capitalization Rate 9.50% Discount Rate 10.50% Selling Costs 3.00% Growth Rates: Income 3.00% Expenses: 3.00% DISCOUNTED CASH FLOW VALUE $7,900,000 * $34,649 / UNIT RECONCILED INCOME CAPITALIZATION VALUE $7,800,000 $34,211 / UNIT
SALES COMPARISON APPROACH PRICE PER UNIT: Range of Sales $/Unit (Unadjusted) $33,654 to $53,444 Range of Sales $/Unit (Adjusted) $34,893 to $42,087 VALUE INDICATION - PRICE PER UNIT $8,300,000 * $36,404 / UNIT EGIM ANALYSIS Range of EGIMs from Improved Sales 4.82 to 6.42 Selected EGIM for Subject 5.00 Subject's Projected EGI $1,667,136 EGIM ANALYSIS CONCLUSION $8,200,000 * $35,965 / UNIT NOI PER UNIT ANALYSIS CONCLUSION $8,100,000 * $35,526 / UNIT RECONCILED SALES COMPARISON VALUE $8,200,000 $35,965 / 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 PRESTON CREEK APARTMENTS, DALLAS, TEXAS PART THREE - SUMMARY OF VALUE CONCLUSIONS SALES COMPARISON APPROACH: Price Per Unit $8,300,000 NOI Per Unit $8,100,000 EGIM Multiplier $8,200,000 INDICATED VALUE BY SALES COMPARISON $8,200,000 $35,965 / UNIT INCOME APPROACH: Direct Capitalization Method: $7,600,000 Discounted Cash Flow Method: $7,900,000 INDICATED VALUE BY THE INCOME APPROACH $7,800,000 $34,211 / UNIT RECONCILED OVERALL VALUE CONCLUSION: $7,900,000 $34,649 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. INTRODUCTION PAGE 9 PRESTON CREEK APARTMENTS, DALLAS, TEXAS INTRODUCTION IDENTIFICATION OF THE SUBJECT The subject property is located at 5902 Preston Oaks, Dallas, Dallas County, Texas. Dallas identifies it as 00000-7943125-00000. SCOPE OF THE ASSIGNMENT The property, neighborhood, and comparables were inspected by Shayne Hatch on May 7, 2003. Frank Fehribach, MAI has not made a personal inspection of the subject property. Shayne Hatch performed the research, valuation analysis and wrote the report. Frank Fehribach, MAI reviewed the report and concurs with the value. Frank Fehribach, MAI and Shayne Hatch have extensive experience in appraising similar properties and meet the USPAP competency provision. The scope of this investigation comprises the inspection of the property and the collection, verification, and analysis of general and specific data pertinent to the subject property. We have researched current improved sales and leases of similar properties, analyzing them as to their comparability, and adjusting them accordingly. We completed the Sales Comparison and Income Capitalization Approaches to value. From these approaches to value, a concluded overall value was made. DATE OF VALUE AND REPORT This appraisal was made to express the opinion of value as of May 7, 2003. The date of the report is July 16, 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 PRESTON CREEK APARTMENTS, DALLAS, TEXAS defined in The Dictionary of Real Estate Appraisal, 3rd ed. (Chicago: Appraisal Institute, 1993), as: "Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat." MARKETING/EXPOSURE PERIOD MARKETING PERIOD: 6 to 12 months EXPOSURE PERIOD: 6 to 12 months HISTORY OF THE PROPERTY Ownership in the subject property is currently vested in Century Partners Fund XV. 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 PRESTON CREEK APARTMENTS, DALLAS, TEXAS AREA / NEIGHBORHOOD ANALYSIS NEIGHBORHOOD ANALYSIS A neighborhood is a group of complementary land uses. The function of the neighborhood analysis is to describe the immediate surrounding environs. The subject is located in the city of Dallas, Texas. Overall, the neighborhood is characterized as a suburban setting with the predominant land use being apartments. The subject's neighborhood is generally defined by the following boundaries. NEIGHBORHOOD BOUNDARIES East - Preston Road West - Montfort Drive South - Spring Valley Road North - Celestial Road MAJOR EMPLOYERS Major employers in the subject's area include Bank of America, Baylor University Medical Center, Children's Medical Center Dallas Medical City Dallas, Parkland Memorial Hospital, Presbyterian Hospital-Dallas, Southwest Airlines Texas Instruments Headquarters, UT Southwestern Med Center, and Vought. The overall economic outlook for the area is considered favorable. DEMOGRAPHICS We have reviewed demographic data within the neighborhood. The following table summarizes the key data points. AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 12 PRESTON CREEK APARTMENTS, DALLAS, TEXAS NEIGHBORHOOD DEMOGRAPHICS
AREA --------------------------------------------------------- CATEGORY 1-MI. RADIUS 3-MI. RADIUS 5-MI. RADIUS MSA ------------------------------------------------------------------------------------------- POPULATION TRENDS Current Population 26,424 131,251 342,351 3,673,578 5-Year Population 30,003 142,973 371,579 4,073,691 % Change CY-5Y 13.5% 8.9% 8.5% 10.9% Annual Change CY-5Y 2.7% 1.8% 1.7% 2.2% HOUSEHOLDS Current Households 13,977 58,399 151,302 1,333,540 5-Year Projected Households 15,535 63,040 163,967 1,464,730 % Change CY - 5Y 11.1% 7.9% 8.4% 9.8% Annual Change CY-5Y 2.2% 1.6% 1.7% 2.0% INCOME TRENDS Median Household Income $ 41,669 $ 53,178 $ 55,928 $ 52,302 Per Capita Income $ 33,280 $ 37,441 $ 36,877 $ 25,319 Average Household Income $ 63,859 $ 83,915 $ 83,261 $ 69,747
Source: Demographics Now The subject neighborhood's population is expected to show increases above 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 75.35% 57.40% 50.34% 36.71% 5-Year Projected % Renting 73.99% 57.86% 49.76% 36.11% % of Households Owning 14.43% 34.41% 42.03% 53.58% 5-Year Projected % Owning 16.58% 34.44% 43.05% 54.86%
Source: Demographics Now AMERICAN APPRAISAL ASSOCIATES, INC. AREA ANALYSIS PAGE 13 PRESTON CREEK APARTMENTS, DALLAS, TEXAS SURROUNDING IMPROVEMENTS The following uses surround the subject property: North - Multi-Family South - Multi-Family East - Multi-Family West - Multi-Family CONCLUSIONS The subject is well located within the city of Dallas. The neighborhood is characterized as being mostly suburban in nature and is currently in the stable stage of development. The economic outlook for the neighborhood is judged to be favorable with a good economic base. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 14 PRESTON CREEK APARTMENTS, DALLAS, TEXAS MARKET ANALYSIS The subject property is located in the city of Dallas in Dallas County. The overall pace of development in the subject's market is more or less stable. There presently is no evidence of new multifamily construction, as the surrounding is mostly developed. The following table illustrates historical vacancy rates for the subject's market. HISTORICAL VACANCY RATE
Period Region Submarket --------------------------------------------------------- 4Q01 N/A 6.5% 1Q02 N/A 7.8% 2Q02 N/A 7.9% 3Q02 N/A 8.6% 4Q02 8.6% 8.5% 1Q03 9.4% 8.5%
Source: REIS Occupancy trends in the subject's market are stable. Historically speaking, the subject's submarket has equated the overall market. Since the fourth quarter 2001 there has been an increase in the vacancy rate within the submarket, although not since 3rd quarter 2002. With the declining rates, concessions became a tool to attract and maintain tenants for the short term. Market rents in the subject's market have been following a stable trend. The following table illustrates historical rental rates for the subject's market. HISTORICAL AVERAGE RENT
Period Region % Change Submarket % Change ------------------------------------------------------------- 4Q01 N/A - $785 - 1Q02 N/A N/A $792 0.9% 2Q02 N/A N/A $793 0.1% 3Q02 N/A N/A $797 0.5% 4Q02 N/A N/A $798 0.1% 1Q03 N/A N/A $796 -0.3%
Source: REIS The following table illustrates a summary of the subject's competitive set. AMERICAN APPRAISAL ASSOCIATES, INC. MARKET ANALYSIS PAGE 15 PRESTON CREEK APARTMENTS, DALLAS, TEXAS COMPETITIVE PROPERTIES
No. Property Name Units Ocpy. Year Built Proximity to subject ------------------------------------------------------------------------------------------- R-1 Oak Run 420 87% 1979 Less than 1 mile R-2 Preston Pointe 600 94% 1981 Less than 1 mile R-3 Creekview Apartments 240 95% 1985 Less than 1 mile R-4 Montford Oaks 276 92% 1980 Less than 1 mile Subject Preston Creek Apartments 228 99% 1979
Market rents have been generally stable for several quarters, following an increase. As of the 4th quarter 2001, the average market rental rate was $785, and has grown to $796 as of the 1st quarter 2003, representing an increase of 1.4%. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 16 PRESTON CREEK APARTMENTS, DALLAS, TEXAS PROPERTY DESCRIPTION SITE ANALYSIS Site Area 11.567 acres, or 503,859 square feet Shape Irregular Topography Level Utilities All necessary utilities are available to the site. Soil Conditions Stable Easements Affecting Site None other than typical utility easements Overall Site Appeal Average Flood Zone: Community Panel 48113C0185J, dated August 23, 2001 Flood Zone Zone X Zoning MF-1 (A), the subject improvements represent a legal conforming use of the site. REAL ESTATE TAXES
ASSESSED VALUE - 2002 ----------------------------------------- TAX RATE / PROPERTY PARCEL NUMBER LAND BUILDING TOTAL MILL RATE TAXES ------------------------------------------------------------------------------------------------------ 00000-7943125-00000 $3,275,080 $3,724,920 $7,000,000 0.02803 $196,198
IMPROVEMENT ANALYSIS Year Built 1979 Number of Units 228 Net Rentable Area 216,600 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, tennis court, laundry room, business office, and parking area. Unit Amenities Individual unit amenities include a balcony, fireplace, cable TV connection, and washer dryer connection. Appliances available in each unit include a refrigerator, stove, dishwasher, garbage disposal, washer/dryer, and oven. AMERICAN APPRAISAL ASSOCIATES, INC. PROPERTY DESCRIPTION PAGE 17 PRESTON CREEK APARTMENTS, DALLAS, TEXAS Unit Mix:
Unit Area Unit Type Number of Units (Sq. Ft.) --------------------------------------------------------- 1Br/1Ba - 1A10 84 788 1Br/1.5Ba -1A15 72 897 2Br/2Ba - 2A20 60 1,186 2Br/2Ba - 2B20 12 1,222
Overall Condition Average Effective Age 24 years Economic Life 45 years Remaining Economic Life 21 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 1979 and consist of a 228-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 PRESTON CREEK APARTMENTS, DALLAS, TEXAS THE VALUATION PROCEDURE There are three traditional approaches, which can be employed in establishing the market value of the subject property. These approaches and their applicability to the valuation of the subject are summarized as follows: THE COST APPROACH The application of the Cost Approach is based on the principle of substitution. This principle may be stated as follows: no one is justified in paying more for a property than that amount by which he or she can obtain, by purchase of a site and construction of a building, without undue delay, a property of equal desirability and utility. In the case of a new building, no deficiencies in the building should exist. In the case of income-producing real estate, the cost of construction plays a minor and relatively insignificant role in determining market value. The Cost Approach is typically only a reliable indicator of value for: (a) new properties; (b) special use properties; and (c) where the cost of reproducing the improvements is easily and accurately quantified and there is no economic obsolescence. In all instances, the issue of an appropriate entrepreneurial profit - the reward for undertaking the risk of construction, remains a highly subjective factor especially in a market lacking significant speculative development. THE SALES COMPARISON APPROACH The Sales Comparison Approach is an estimate of value based upon a process of comparing recent sales of similar properties in the surrounding or competing areas to the subject property. Inherent in this approach is the principle of substitution. The application of this approach consists of comparing the subject property with similar properties of the same general type, which have been sold recently or currently are available for sale in competing areas. This comparative process involves judgment as to the similarity of the subject property and the comparable sale with respect to many value factors such as location, contract rent levels, quality of construction, reputation and prestige, age and condition, among others. The estimated value through this approach represents the probable price at which a willing seller would sell the subject property to a willing and knowledgeable buyer as of the date of value. AMERICAN APPRAISAL ASSOCIATES, INC. VALUATION PROCEDURE PAGE 19 PRESTON CREEK APARTMENTS, DALLAS, TEXAS THE INCOME CAPITALIZATION APPROACH The theory of the Income Capitalization Approach is based on the premise that present value is the value of the cash flow and reversionary value the property will produce over a reasonable holding (ownership) period. The Discounted Cash Flow Analysis will convert equity cash flows (including cash flows and equity reversion) into a present value utilizing an internal rate of return (or discount rate). The Internal Rate of Return (IRR) will be derived from a comparison of alternate investments, a comparative analysis of IRR's used by recent buyers of similar properties, and a review of published industry surveys. The Direct Capitalization Analysis converts one year of income into an overall value using overall capitalization rates from similar sales. The overall rates take into consideration buyers assumptions of the market over the long-term. The results of the Income Capitalization Analysis are usually the primary value indicator for income producing properties. Investors expect a reasonable rate of return on their equity investment based on the ownership risks involved; this approach closely parallels the investment decision process. RECONCILIATION In this instance, we have completed the Sales Comparison and Income Capitalization Approaches to value. As an income producing property, the income approach is a primary approach to value. The Sales Comparison Approach is also considered reliable as investors are buying similar buildings in the market. Our research indicates that market participants are generally not buying, selling, investing, or lending with reliance placed on the methodology of the Cost Approach to establish the value. Therefore, we have decided that the Cost Approach is not a reliable indicator of value for the subject, and this approach has not been utilized. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 20 PRESTON CREEK APARTMENTS, DALLAS, TEXAS SALES COMPARISON APPROACH Use of market or comparable sales requires the collection and analysis of comparable sales data. Similar properties recently sold are compared to the subject and adjusted based on any perceived differences. This method is based on the premise that the costs of acquiring a substitute property would tend to establish a value for the subject property. The premise suggests that if a substitute is unavailable in the market, the reliability of the approach may be subordinate to the other approaches. The reliance on substitute properties produces shortcomings in the validity of this approach. Geographic and demographic characteristics from each submarket restrict which sales may be selected. Recent sales with a similar physical characteristics, income levels, and location are usually limited. The sales we have identified, however, do establish general valuation parameters as well as provide support to our conclusion derived through the income approach method. The standard unit of comparison among similar properties is the sales price per unit and price per square foot of net rentable area. To accurately adjust prices to satisfy the requirements of the sales comparison approach, numerous calculations and highly subjective judgments would be required including consideration of numerous income and expense details for which information may be unreliable or unknown. The sales price per unit and square foot are considered relevant to the investment decision, but primarily as a parameter against which value estimates derived through the income approach can be judged and compared. In examining the comparable sales, we have applied a subjective adjustment analysis, which includes specific adjustments derived from our experience and consulting with the market participants. SALES COMPARISON ANALYSIS Detailed on the following pages are sales transactions involving properties located in the subject's competitive investment market. Photographs of the sale transactions are located in the Addenda. Following the summary of sales is an adjustment grid that is used to arrive at a value. AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 21 PRESTON CREEK APARTMENTS, DALLAS, TEXAS SUMMARY OF COMPARABLE SALES -IMPROVED
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 ---------------------------------------------------------------------------------------------------------------------- Property Name Preston Creek Apartments Polo Club Apartments Courts of McCallum Apartments LOCATION: Address 5902 Preston Oaks 5616 Spring Valley 7777 McCallum Blvd City, State Dallas, Texas Dallas, TX Dallas, TX County Dallas Dallas Dallas PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 216,600 146,960 83,426 Year Built 1979 1978 1984 Number of Units 228 192 144 Unit Mix: Type Total Type Total Type Total 1Br/1Ba - 1A10 84 1Br/1Ba 112 1 Br/1Ba 125 1Br/1.5Ba - 1A15 72 2Br/2Ba 80 2 Br/2Ba 19 2Br/2Ba - 2A20 60 2Br/2Ba - 2B20 12 Average Unit Size (SF) 950 765 579 Land Area (Acre) 11.5670 7.5000 2.4000 Density (Units/Acre) 19.7 25.6 60.0 Parking Ratio (Spaces/Unit) 1.95 1.59 1.49 Parking Type (Gr., Cov., etc.) Open Open Open CONDITION: Average Average Average APPEAL: Average Average Average AMENITIES: Pool/Spa Yes/No Yes/No No/No Gym Room No No No Laundry Room Yes Yes Yes Secured Parking No Yes No Sport Courts No No No OCCUPANCY: 99% 86% 97% TRANSACTION DATA: Sale Date June, 2002 January, 2002 Sale Price ($) $7,000,000 $4,926,000 Grantor PRP/DRR-Texas Limited Texas Courts of McCallum Partnership (LP) Partners (Ltd) Grantee Trivest Residential Courts of McCallum Partners (LP) Sale Documentation 2002116-0109 5097-0854 Verification Mr. Balthrope Mr. Seward Telephone Number 972-450-3300 214-369-6900 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $1,410,048 $ 7,344 $9.59 $935,040 $6,493 $11.21 Vacancy/Credit Loss ($ 197,407) ($ 1,028) ($1.34) ($ 28,051) ($ 195) ($ 0.34) ----------------------------- ----------------------------- Effective Gross Income $1,212,641 $ 6,316 $8.25 $906,989 $6,299 $10.87 Operating Expenses $ 624,000 $ 3,250 $4.25 $455,404 $3,163 $ 5.46 ----------------------------- ----------------------------- Net Operating Income $ 588,641 $ 3,066 $4.01 $451,585 $3,136 $ 5.41 ----------------------------- ----------------------------- NOTES: PRICE PER UNIT $36,458 $34,208 PRICE PER SQUARE FOOT $ 47.63 $ 59.05 EXPENSE RATIO 51.5% 50.2% EGIM 5.77 5.43 OVERALL CAP RATE 8.41% 9.17% Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 -------------------------------------------------------------------------------------------------------------------- Property Name Citiscape Apartments Park on Preston Tiburon Apartments Apartments LOCATION: Address 5734 Preston View Blvd 17878 Preston Road 15411 Preston Road City, State Dallas, TX Dallas, TX Dallas, TX County Dallas Dallas Dallas PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 204,748 182,286 360,118 Year Built 1971 1983 1980 Number of Units 231 286 362 Unit Mix: Type Total Type Total Type Total N/A 1 Br/1Ba 214 1 Br/1Ba 244 2 Br/2/Ba 72 2 Br/2Ba 118 Average Unit Size (SF) 886 637 995 Land Area (Acre) 8.1300 7.0900 21.4300 Density (Units/Acre) 28.4 40.3 16.9 Parking Ratio (Spaces/Unit) 1.65 NA 2.03 Parking Type (Gr., Cov., etc.) Covered/Open Covered/Open Covered/Open CONDITION: Average Average Average APPEAL: Average Average Average AMENITIES: Pool/Spa Yes/No Yes/No Yes/Yes Gym Room Yes Yes Yes Laundry Room Yes Yes Yes Secured Parking Yes Yes No Sport Courts No No No OCCUPANCY: N/A N/A N/A TRANSACTION DATA: Sale Date June, 2000 February, 2000 September, 1999 Sale Price ($) $10,100,000 $9,625,000 $19,346,761 Grantor SWP Remic Properties II-A Heritage-Preston Park Ciri Apartments (LP) (LP) Grantee FPC/Citiscape Apartments Westdale Polo Club (Ltd) Alliance PQ Tiburon (LP) (Ltd) Sale Documentation 2000126-4784 4614-2533 99174-9574 Verification Mr. Goris Mr. Goris Oboyle Propeties Telephone Number 972-458-4800 972-458-4800 972-934-3400 ESTIMATED PRO-FORMA: Total $ $/Unit $/SF Total $ $/Unit $/SF Total $ $/Unit $/SF Potential Gross Income $ 0 $ 0 $0.00 $ 0 $ 0 $ 0.00 $ 0 $ 0 $0.00 Vacancy/Credit Loss $ 0 $ 0 $0.00 $ 0 $ 0 $ 0.00 $ 0 $ 0 $0.00 ------------------------- --------------------------- --------------------------- Effective Gross Income $ 0 $ 0 $0.00 $1,994,880 $6,975 $10.94 $3,012,086 $8,321 $8.36 Operating Expenses $ 0 $ 0 $0.00 $ 916,000 $3,203 $ 5.03 $1,264,712 $3,494 $3.51 ------------------------- --------------------------- --------------------------- Net Operating Income $ 0 $ 0 $0.00 $1,078,880 $3,772 $ 5.92 $1,747,374 $4,827 $4.85 ------------------------- --------------------------- --------------------------- NOTES: PRICE PER UNIT $43,723 $33,654 $53,444 PRICE PER SQUARE FOOT $49.33 $52.80 $ 53.72 EXPENSE RATIO N/A 45.9 % 42.0 % EGIM N/A 4.82 6.42 OVERALL CAP RATE N/A 11.21 % 9.03 % Cap Rate based on Pro Forma or Actual Income? ACTUAL ACTUAL
AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 22 PRESTON CREEK APARTMENTS, DALLAS, TEXAS IMPROVED SALES MAP [MAP] IMPROVED SALES ANALYSIS The improved sales indicate a sales price range from $33,654 to $53,444 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 $34,893 to $42,087 per unit with a mean or average adjusted price of $38,001 per unit. The median adjusted price is $38,664 per unit. Based on the following analysis, we have concluded to a value of $37,000 per unit, which results in an "as is" value of $8,300,000 (rounded after necessary adjustment, if any). AMERICAN APPRAISAL ASSOCIATES, INC. SALES COMPARISON APPROACH PAGE 23 PRESTON CREEK APARTMENTS, DALLAS, TEXAS SALES ADJUSTMENT GRID
COMPARABLE COMPARABLE DESCRIPTION SUBJECT I - 1 I - 2 --------------------------------------------------------------------------------------------------------------------------- Property Name Preston Creek Apartments Polo Club Apartments Courts of McCallum Apartments Address 5902 Preston Oaks 5616 Spring Valley 7777 McCallum Blvd City Dallas, Texas Dallas, TX Dallas, TX Sale Date June, 2002 January, 2002 Sale Price ($) $7,000,000 $4,926,000 Net Rentable Area (SF) 216,600 146,960 83,426 Number of Units 228 192 144 Price Per Unit $36,458 $34,208 Year Built 1979 1978 1984 Land Area (Acre) 11.5670 7.5000 2.4000 VALUE ADJUSTMENTS DESCRIPTION DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Date of Sale (Time) 06-2002 1% 01-2002 2% VALUE AFTER TRANS. ADJUST. ($/UNIT) $36,823 $34,893 Location Comparable 0% Comparable 0% Number of Units 228 192 0% 144 -10% Quality / Appeal Good Comparable 0% Superior -5% Age / Condition 1979 1978 / Average 0% 1984 / Average 0% Occupancy at Sale 99% 86% 10% 97% 0% Amenities Good Superior -10% Inferior 5% Average Unit Size (SF) 950 765 5% 579 10% PHYSICAL ADJUSTMENT 5% 0% FINAL ADJUSTED VALUE ($/UNIT) $38,664 $34,893 COMPARABLE COMPARABLE COMPARABLE DESCRIPTION I - 3 I - 4 I - 5 ---------------------------------------------------------------------------------------------------------------------------- Property Name Citiscape Apartments Park on Preston Apartments Tiburon Apartments Address 5734 Preston View Blvd 17878 Preston Road 15411 Preston Road City Dallas, TX Dallas, TX Dallas, TX Sale Date June, 2000 February, 2000 September, 1999 Sale Price ($) $10,100,000 $9,625,000 $19,346,761 Net Rentable Area (SF) 204,748 182,286 360,118 Number of Units 231 286 362 Price Per Unit $43,723 $33,654 $53,444 Year Built 1971 1983 1980 Land Area (Acre) 8.1300 7.0900 21.4300 VALUE ADJUSTMENTS DESCRIPTION ADJ. DESCRIPTION ADJ. DESCRIPTION ADJ. Property Rights Conveyed Fee Simple Estate 0% Fee Simple Estate 0% Fee Simple Estate 0% Financing Cash To Seller 0% Cash To Seller 0% Cash To Seller 0% Conditions of Sale Arm's Length 0% Arm's Length 0% Arm's Length 0% Date of Sale (Time) 06-2000 5% 02-2000 5% 09-1999 5% VALUE AFTER TRANS. ADJUST. ($/UNIT) $45,909 $35,337 $56,116 Location Comparable 0% Superior -10% Superior -10% Number of Units 231 0% 286 0% 362 0% Quality / Appeal Superior -10% Comparable 0% Superior -15% Age / Condition 1971 / Average 0% 1983 / Average 0% 1980 / Average 0% Occupancy at Sale N/A 0% N/A 0% N/A 0% Amenities Superior -5% Comparable 0% Comparable 0% Average Unit Size (SF) 886 0% 637 10% 995 0% PHYSICAL ADJUSTMENT -15% 0% -25% FINAL ADJUSTED VALUE ($/UNIT) $39,023 $35,337 $42,087
SUMMARY VALUE RANGE (PER UNIT) $34,893 TO $ 42,087 MEAN (PER UNIT) $38,001 MEDIAN (PER UNIT) $38,664 VALUE CONCLUSION (PER UNIT) $37,000
VALUE OF IMPROVEMENT & MAIN SITE $8,436,000 PV OF CONCESSIONS -$ 129,000 VALUE INDICATED BY SALES COMPARISON APPROACH $8,307,000 ROUNDED $8,300,000
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 PRESTON CREEK APARTMENTS, DALLAS, TEXAS 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-1 192 $ 7,000,000 8.41% $ 588,641 $ 695,291 0.995 $ 36,264 $ 36,458 $ 3,066 $ 3,050 I-2 144 $ 4,926,000 9.17% $ 451,585 $ 695,291 0.972 $ 33,265 $ 34,208 $ 3,136 $ 3,050 I-3 231 $10,100,000 0.00% $ 695,291 $ 43,723 $ 3,050 I-4 286 $ 9,625,000 11.21% $ 1,078,880 $ 695,291 0.808 $ 27,206 $ 33,654 $ 3,772 $ 3,050 I-5 362 $19,346,761 9.03% $ 1,747,374 $ 695,291 0.632 $ 33,764 $ 53,444 $ 4,827 $ 3,050
PRICE/UNIT
Low High Average Median $27,206 $36,264 $32,625 $33,514
VALUE ANALYSIS BASED ON COMPARABLES NOI PER UNIT Estimated Price Per Unit $ 36,000 Number of Units 228 Value $8,208,000 PV of Concessions -$ 129,000 ---------- Value Based on NOI Analysis $8,079,000 Rounded $8,100,000
The adjusted sales indicate a range of value between $27,206 and $36,264 per unit, with an average of $32,625 per unit. Based on the subject's competitive position within the improved sales, a value of $36,000 per unit is estimated. This indicates an "as is" market value of $8,100,000 (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 PRESTON CREEK APARTMENTS, DALLAS, TEXAS 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-1 192 $ 7,000,000 $ 1,212,641 $ 624,000 51.46% 5.77 $ 36,458 I-2 144 $ 4,926,000 $ 906,989 $ 455,404 50.21% 5.43 $ 34,208 I-3 231 $10,100,000 54.88% $ 43,723 I-4 286 $ 9,625,000 $ 1,994,880 $ 916,000 45.92% 4.82 $ 33,654 I-5 362 $19,346,761 $ 3,012,086 $ 1,264,712 41.99% 6.42 $ 53,444
EGIM
Low High Average Median --- ---- ------- ------ 4.82 6.42 5.61 5.60
VALUE ANALYSIS BASED ON EGIM'S OF COMPARABLE SALES Estimate EGIM 5.00 Subject EGI $1,667,136 Value $8,335,680 PV of Concessions -$ 129,000 ---------- Value Based on EGIM Analysis $8,206,680 Rounded $8,200,000 Value Per Unit $ 35,965
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 54.88% before reserves. The comparable sales indicate a range of expense ratios from 41.99% to 51.46%, while their EGIMs range from 4.82 to 6.42. Overall, we conclude to an EGIM of 5.00, which results in an "as is" value estimate in the EGIM Analysis of $8,200,000. SALES COMPARISON CONCLUSION The three valuation methods in the Sales Comparison Approach are shown below. The overall value via the Sales Comparison Approach is estimated at $8,200,000. Price Per Unit $8,300,000 NOI Per Unit $8,100,000 EGIM Analysis $8,200,000 Sales Comparison Conclusion $8,200,000
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 26 PRESTON CREEK APARTMENTS, DALLAS, TEXAS INCOME CAPITALIZATION APPROACH The income capitalization approach is based on the premise that value is created by the expectation of future benefits. We estimated the present value of those benefits to derive an indication of the amount that a prudent, informed purchaser-investor would pay for the right to receive them as of the date of value. This approach requires an estimate of the NOI of a property. The estimated NOI is then converted to a value indication by use of either the direct capitalization or the discounted cash flow analysis (yield capitalization). Direct capitalization uses a single year's stabilized NOI as a basis for a value indication by dividing the income by a capitalization rate. The rate chosen accounts for a recapture of the investment by the investor and should reflect all factors that influence the value of the property, such as tenant quality, property condition, neighborhood change, market trends, interest rates, and inflation. The rate may be extracted from local market transactions or, when transaction evidence is lacking, obtained from trade sources. A discounted cash flow analysis focuses on the operating cash flows expected from the property and the proceeds of a hypothetical sale at the end of a holding period (the reversion). The cash flows and reversion are discounted to their present values using a market-derived discount rate and are added together to obtain a value indication. Because benefits to be received in the future are worth less than the same benefits received in the present, this method weights income in the early years more heavily than the income and the sale proceeds to be received later. The strength of the discounted cash flow method is its ability to recognize variations in projected net income, such as those caused by inflation, stepped leases, neighborhood change, or tenant turnover. Its weakness is that it requires many judgments regarding the actions of likely buyers and sellers of the property in the future. In some situations, both methods yield a similar result. The discounted cash flow method is typically more appropriate for the analysis of investment properties with multiple or long-term leases, particularly leases with cancellation clauses or renewal options. It is especially useful for multi-tenant properties in volatile markets. The direct capitalization AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 27 PRESTON CREEK APARTMENTS, DALLAS, TEXAS method is normally more appropriate for properties with relatively stable operating histories and expectations. A pro forma analysis for the first year of the investment is made to estimate a reasonable potential net operating income for the Subject Property. Such an analysis entails an estimate of the gross income the property should command in the marketplace. From this total gross income must be deducted an allowance for vacancy/collection loss and operating expenses as dictated by general market conditions and the overall character of the subject's tenancy and leased income to arrive at a projected estimate of net operating income. Conversion of the net operating income to an indication of value is accomplished by the process of capitalization, as derived primarily from market data. MARKET RENT ANALYSIS In order to determine a market rental rate for the subject, a survey of competing apartment communities was performed. This survey was displayed previously in the market analysis section of the report. Detailed information pertaining to each of the comparable rental communities, along with photographs, is presented in the Addenda of this report. The following charts display the subject's current asking and actual rent rates as well as a comparison with the previous referenced comparable rental properties. SUMMARY OF ACTUAL AVERAGE RENTS
Average Unit Area ---------------------- Unit Type (Sq. Ft.) Per Unit Per SF %Occupied ------------------------------------------------------------------------------- 1Br/1Ba - 1A10 788 $509 $ 0.65 98.8% 1Br/1.5Ba -1A15 897 $608 $ 0.68 98.6% 2Br/2Ba - 2A20 1186 $729 $ 0.61 98.3% 2Br/2Ba - 2B20 1222 $839 $ 0.69 100.0%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 28 PRESTON CREEK APARTMENTS, DALLAS, TEXAS RENT ANALYSIS
COMPARABLE RENTS --------------------------------------- R-1 R-2 R-3 R-4 --------------------------------------- Preston Creekview Montford Oak Run Pointe Apartments Oaks --------------------------------------- COMPARISON TO SUBJECT SUBJECT SUBJECT --------------------------------------- SUBJECT UNIT ACTUAL ASKING Slightly DESCRIPTION TYPE RENT RENT Similar Similar Superior Similar ----------------------------------------------------------------------------------------------------------- Monthly Rent 1Br/1Ba - 1A10 $ 509 $ 539 $ 506 $ 654 $ 730 $ 645 Unit Area (SF) 788 788 779 723 773 711 Monthly Rent Per Sq. Ft. $ 0.65 $ 0.68 $ 0.65 $ 0.90 $ 0.94 $ 0.91 Monthly Rent 1Br/1.5Ba - 1A15 $ 608 $ 639 $ 449 $ 789 $ 750 Unit Area (SF) 897 897 826 876 852 Monthly Rent Per Sq. Ft. $ 0.68 $ 0.71 $ 0.54 $ 0.90 $ 0.88 Monthly Rent 2Br/2Ba - 2A20 $ 729 $ 759 $ 689 $ 819 $ 830 Unit Area (SF) 1,186 1,186 1,177 1,000 971 Monthly Rent Per Sq. Ft. $ 0.61 $ 0.64 $ 0.59 $ 0.82 $ 0.85 Monthly Rent 2Br/2Ba - 2B20 $ 839 $ 859 $ 739 Unit Area (SF) 1,222 1,222 1,240 Monthly Rent Per Sq. Ft. $ 0.69 $ 0.70 $ 0.60 DESCRIPTION MIN MAX MEDIAN AVERAGE ---------------------------------------------------------------- Monthly Rent $ 506 $ 730 $ 650 $ 634 Unit Area (SF) 711 779 748 747 Monthly Rent Per Sq. Ft. $ 0.65 $ 0.94 $ 0.91 $ 0.85 Monthly Rent $ 449 $ 789 $ 750 $ 663 Unit Area (SF) 826 876 852 851 Monthly Rent Per Sq. Ft. $ 0.54 $ 0.90 $ 0.88 $ 0.77 Monthly Rent $ 689 $ 830 $ 819 $ 779 Unit Area (SF) 971 1,177 1,000 1,049 Monthly Rent Per Sq. Ft. $ 0.59 $ 0.85 $ 0.82 $ 0.75 Monthly Rent $ 739 $ 739 $ 739 $ 739 Unit Area (SF) 1,240 1,240 1,240 1,240 Monthly Rent Per Sq. Ft. $ 0.60 $ 0.60 $ 0.60 $ 0.60
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 84 788 $550 $0.70 $ 46,200 $ 554,400 1Br/1.5Ba - 1A15 72 897 $650 $0.72 $ 46,800 $ 561,600 2Br/2Ba - 2A20 60 1,186 $750 $0.63 $ 45,000 $ 540,000 2Br/2Ba - 2B20 12 1,222 $850 $0.70 $ 10,200 $ 122,400 ---------------------- Total $148,200 $1,778,400 ======================
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 PRESTON CREEK APARTMENTS, DALLAS, TEXAS SUMMARY OF HISTORICAL INCOME & EXPENSES
FISCAL YEAR 2000 FISCAL YEAR 2001 FISCAL YEAR 2002 FISCAL YEAR 2003 ----------------------------------------------------------------------------------------------------- ACTUAL ACTUAL ACTUAL MANAGEMENT BUDGET ----------------------- ----------------------- ----------------------- ----------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT ------------------------------------------------------------------------------------------------------------------------------------ Revenues Rental Income $2,016,048 $ 8,842 $2,021,849 $ 8,868 $1,835,704 $ 8,051 $1,763,592 $ 7,735 Vacancy $ 132,850 $ 583 $ 227,940 $ 1,000 $ 261,617 $ 1,147 $ 102,000 $ 447 Credit Loss/Concessions $ 137,491 $ 603 $ 195,939 $ 859 $ 160,319 $ 703 $ 66,000 $ 289 Subtotal $ 270,341 $ 1,186 $ 423,879 $ 1,859 $ 421,936 $ 1,851 $ 168,000 $ 737 Laundry Income $ 0 $ 0 $ 20,699 $ 91 $ 14,570 $ 64 $ 10,296 $ 45 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 100,992 $ 443 $ 62,329 $ 273 $ 79,160 $ 347 $ 60,000 $ 263 Subtotal Other Income $ 100,992 $ 443 $ 83,028 $ 364 $ 93,730 $ 411 $ 70,296 $ 308 Effective Gross Income $1,846,699 $ 8,100 $1,680,998 $ 7,373 $1,507,498 $ 6,612 $1,665,888 $ 7,307 Operating Expenses Taxes $ 213,675 $ 937 $ 235,861 $ 1,034 $ 208,895 $ 916 $ 199,602 $ 875 Insurance $ 20,566 $ 90 $ 29,860 $ 131 $ 55,479 $ 243 $ 64,834 $ 284 Utilities $ 101,393 $ 445 $ 109,683 $ 481 $ 98,707 $ 433 $ 135,750 $ 595 Repair & Maintenance $ 45,636 $ 200 $ 50,443 $ 221 $ 44,653 $ 196 $ 45,735 $ 201 Cleaning $ 70,250 $ 308 $ 96,241 $ 422 $ 114,208 $ 501 $ 98,500 $ 432 Landscaping $ 50,439 $ 221 $ 61,809 $ 271 $ 75,656 $ 332 $ 48,000 $ 211 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 51,211 $ 225 $ 44,392 $ 195 $ 51,579 $ 226 $ 39,690 $ 174 General Administrative $ 186,383 $ 817 $ 220,793 $ 968 $ 225,401 $ 989 $ 187,048 $ 820 Management $ 97,926 $ 430 $ 85,838 $ 376 $ 79,922 $ 351 $ 85,994 $ 377 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Total Operating Expenses $ 837,479 $ 3,673 $ 934,920 $ 4,101 $ 954,500 $ 4,186 $ 905,153 $ 3,970 Reserves $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Net Income $1,009,220 $ 4,426 $ 746,078 $ 3,272 $ 552,998 $ 2,425 $ 760,735 $ 3,337 ANNUALIZED 2003 ----------------------- PROJECTION AAA PROJECTION ----------------------- ------------------------------------- DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT % ---------------------------------------------------------------------------------------------- Revenues Rental Income $1,687,112 $ 7,400 $1,778,400 $ 7,800 100.0% Vacancy $ 23,652 $ 104 $ 142,272 $ 624 8.0% Credit Loss/Concessions $ 31,760 $ 139 $ 53,352 $ 234 3.0% Subtotal $ 55,412 $ 243 $ 195,624 $ 858 11.0% Laundry Income $ 20,108 $ 88 $ 15,960 $ 70 0.9% Garage Revenue $ 0 $ 0 $ 0 $ 0 0.0% Other Misc. Revenue $ 45,044 $ 198 $ 68,400 $ 300 3.8% Subtotal Other Income $ 65,152 $ 286 $ 84,360 $ 370 4.7% Effective Gross Income $1,696,852 $ 7,442 $1,667,136 $ 7,312 100.0% Operating Expenses Taxes $ 198,704 $ 872 $ 205,200 $ 900 12.3% Insurance $ 64,580 $ 283 $ 62,700 $ 275 3.8% Utilities $ 95,604 $ 419 $ 102,600 $ 450 6.2% Repair & Maintenance $ 19,540 $ 86 $ 45,600 $ 200 2.7% Cleaning $ 67,376 $ 296 $ 102,600 $ 450 6.2% Landscaping $ 56,236 $ 247 $ 62,700 $ 275 3.8% Security $ 0 $ 0 $ 0 $ 0 0.0% Marketing & Leasing $ 28,908 $ 127 $ 45,600 $ 200 2.7% General Administrative $ 230,072 $ 1,009 $ 221,160 $ 970 13.3% Management $ 86,032 $ 377 $ 66,685 $ 292 4.0% Miscellaneous $ 0 $ 0 $ 0 $ 0 0.0% Total Operating Expenses $ 847,052 $ 3,715 $ 914,845 $ 4,012 54.9% Reserves $ 0 $ 0 $ 57,000 $ 250 6.2% Net Income $ 849,800 $ 3,727 $ 695,291 $ 3,050 41.7%
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 11% based on the subject's historical performance, as well as the anticipated future market conditions. AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 30 PRESTON CREEK APARTMENTS, DALLAS, TEXAS RESERVES FOR REPLACEMENT "Reserves for replacements" is a contingency account allocated to the expenses of the property to provide for replacement of short-lived items and for unforeseen necessary capital expenditures. We have utilized the Korpacz Real Estate Investor Survey of the national apartment market, which reports a range of replacement reserves between $150 and $400 per unit. For purposes of this analysis, we have included an allowance of $250 per unit for reserves for replacement. CAPITAL EXPENDITURES Capital expenditures represent expenses for immediate repair or replacement of items that have average to long lives. Based on our inspection of the property as well as discussions with property management personnel, there are no major items remaining in need of repair or replacement that would require an expense beyond our reserves for replacement. Therefore an allowance of $250 per unit should be satisfactory in our reserves for replacement to cover future capital expenditures. DISCOUNTED CASH FLOW ANALYSIS As the subject is a multi-tenant income property, the Discounted Cash Flow Method is considered appropriate. This method is especially meaningful in that it isolates the timing of the annual cash flows and discounts them, along with the expected equity reversion, to a present value. The present value of the cash flow is added to the present value of the reversion, resulting in a total property value. INVESTMENT CRITERIA Appropriate investment criteria will be derived for the subject based upon analysis of comparable sales and a survey of real estate investors. The following table summarizes the findings of Korpacz National Investor Survey for the most recent period. KORPACZ NATIONAL INVESTOR SURVEY 1ST QUARTER 2003 NATIONAL APARTMENT MARKET
CAPITALIZATION RATES ---------------------------------------------------------------------- GOING-IN TERMINAL ---------------------------------------------------------------------- LOW HIGH LOW HIGH ---------------------------------------------------------------------- RANGE 6.00% 10.00% 7.00% 10.00% AVERAGE 8.14% 8.47%
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 31 PRESTON CREEK APARTMENTS, DALLAS, TEXAS SUMMARY OF OVERALL CAPITALIZATION RATES
COMP. NO. SALE DATE OCCUP. PRICE/UNIT OAR ----------------------------------------------------------- I-1 Jun-02 86% $36,458 8.41% I-2 Jan-02 97% $34,208 9.17% I-3 Jun-00 N/A $43,723 N/A I-4 Feb-00 N/A $33,654 11.21% I-5 Sep-99 N/A $53,444 9.03% High 11.21% Low 8.41% Average 9.46%
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 9.50%. Finally, the subject's discount rate or yield rate is estimated based on the previous investor survey and an examination of returns available on alternative investments in the market. Based on this analysis, the subject's discount rate is estimated to be 10.50%. 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 3.00% of the sale amount is applied. DISCOUNTED CASH FLOW CONCLUSION Discounting the annual cash flows and the equity reversion at the selected rate of 10.50% indicates a value of $7,900,000. In this instance, the reversion figure contributes AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 32 PRESTON CREEK APARTMENTS, DALLAS, TEXAS approximately 42% 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 PRESTON CREEK APARTMENTS, DALLAS, TEXAS DISCOUNTED CASH FLOW ANALYSIS PRESTON CREEK APARTMENTS
YEAR APR-2004 APR-2005 APR-2006 APR-2007 APR-2008 APR-2009 FISCAL YEAR 1 2 3 4 5 6 ------------------------------------------------------------------------------------------------------------------------ REVENUE Base Rent $1,778,400 $1,778,400 $1,831,752 $1,886,705 $1,943,306 $2,001,605 Vacancy $ 142,272 $ 142,272 $ 146,540 $ 150,936 $ 155,464 $ 160,128 Credit Loss $ 53,352 $ 53,352 $ 54,953 $ 56,601 $ 58,299 $ 60,048 Concessions $ 53,352 $ 35,568 $ 36,635 $ 18,867 $ 19,433 $ 0 Subtotal $ 248,976 $ 231,192 $ 238,128 $ 226,405 $ 233,197 $ 220,177 Laundry Income $ 15,960 $ 15,960 $ 16,439 $ 16,932 $ 17,440 $ 17,963 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 68,400 $ 68,400 $ 70,452 $ 72,566 $ 74,743 $ 76,985 Subtotal Other Income $ 84,360 $ 84,360 $ 86,891 $ 89,498 $ 92,182 $ 94,948 EFFECTIVE GROSS INCOME $1,613,784 $1,631,568 $1,680,515 $1,749,798 $1,802,291 $1,876,376 OPERATING EXPENSES: Taxes $ 205,200 $ 211,356 $ 217,697 $ 224,228 $ 230,954 $ 237,883 Insurance $ 62,700 $ 64,581 $ 66,518 $ 68,514 $ 70,569 $ 72,686 Utilities $ 102,600 $ 105,678 $ 108,848 $ 112,114 $ 115,477 $ 118,942 Repair & Maintenance $ 45,600 $ 46,968 $ 48,377 $ 49,828 $ 51,323 $ 52,863 Cleaning $ 102,600 $ 105,678 $ 108,848 $ 112,114 $ 115,477 $ 118,942 Landscaping $ 62,700 $ 64,581 $ 66,518 $ 68,514 $ 70,569 $ 72,686 Security $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 45,600 $ 46,968 $ 48,377 $ 49,828 $ 51,323 $ 52,863 General Administrative $ 221,160 $ 227,795 $ 234,629 $ 241,668 $ 248,918 $ 256,385 Management $ 64,551 $ 65,263 $ 67,221 $ 69,992 $ 72,092 $ 75,055 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 TOTAL OPERATING EXPENSES $ 912,711 $ 938,868 $ 967,034 $ 996,799 $1,026,703 $1,058,305 Reserves $ 57,000 $ 58,710 $ 60,471 $ 62,285 $ 64,154 $ 66,079 NET OPERATING INCOME $ 644,073 $ 633,990 $ 653,010 $ 690,713 $ 711,434 $ 751,993 Operating Expense Ratio (% of EGI) 56.6% 57.5% 57.5% 57.0% 57.0% 56.4% Operating Expense Per Unit $ 4,003 $ 4,118 $ 4,241 $ 4,372 $ 4,503 $ 4,642 YEAR APR-2010 APR-2011 APR-2012 APR-2013 APR-2014 FISCAL YEAR 7 8 9 10 11 --------------------------------------------------------------------------------------------------------- REVENUE Base Rent $2,061,653 $2,123,503 $2,187,208 $2,252,824 $2,320,409 Vacancy $ 164,932 $ 169,880 $ 174,977 $ 180,226 $ 185,633 Credit Loss $ 61,850 $ 63,705 $ 65,616 $ 67,585 $ 69,612 Concessions $ 0 $ 0 $ 0 $ 0 $ 0 Subtotal $ 226,782 $ 233,585 $ 240,593 $ 247,811 $ 255,245 Laundry Income $ 18,502 $ 19,057 $ 19,629 $ 20,218 $ 20,824 Garage Revenue $ 0 $ 0 $ 0 $ 0 $ 0 Other Misc. Revenue $ 79,294 $ 81,673 $ 84,123 $ 86,647 $ 89,246 Subtotal Other Income $ 97,796 $ 100,730 $ 103,752 $ 106,865 $ 110,071 EFFECTIVE GROSS INCOME $1,932,668 $1,990,648 $2,050,367 $2,111,878 $2,175,234 OPERATING EXPENSES: Taxes $ 245,020 $ 252,370 $ 259,941 $ 267,739 $ 275,772 Insurance $ 74,867 $ 77,113 $ 79,426 $ 81,809 $ 84,264 Utilities $ 122,510 $ 126,185 $ 129,971 $ 133,870 $ 137,886 Repair & Maintenance $ 54,449 $ 56,082 $ 57,765 $ 59,498 $ 61,283 Cleaning $ 122,510 $ 126,185 $ 129,971 $ 133,870 $ 137,886 Landscaping $ 74,867 $ 77,113 $ 79,426 $ 81,809 $ 84,264 Security $ 0 $ 0 $ 0 $ 0 $ 0 Marketing & Leasing $ 54,449 $ 56,082 $ 57,765 $ 59,498 $ 61,283 General Administrative $ 264,077 $ 271,999 $ 280,159 $ 288,564 $ 297,221 Management $ 77,307 $ 79,626 $ 82,015 $ 84,475 $ 87,009 Miscellaneous $ 0 $ 0 $ 0 $ 0 $ 0 TOTAL OPERATING EXPENSES $1,090,054 $1,122,756 $1,156,438 $1,191,132 $1,226,865 Reserves $ 68,061 $ 70,103 $ 72,206 $ 74,372 $ 76,603 NET OPERATING INCOME $ 774,552 $ 797,789 $ 821,723 $ 846,374 $ 871,766 Operating Expense Ratio (% of EGI) 56.4% 56.4% 56.4% 56.4% 56.4% Operating Expense Per Unit $ 4,781 $ 4,924 $ 5,072 $ 5,224 $ 5,381
Estimated Stabilized NOI $695,291 Sales Expense Rate 3.00% Months to Stabilized 0 Discount Rate 10.50% Stabilized Occupancy 92.0% Terminal Cap Rate 9.50%
Gross Residual Sale Price $9,176,480 Deferred Maintenance $ 0 Less: Sales Expense $ 275,294 Add: Excess Land $ 0 ---------- Net Residual Sale Price $8,901,186 Other Adjustments $ 0 ---------- PV of Reversion $3,279,632 Value Indicated By "DCF" $7,854,968 Add: NPV of NOI $4,575,337 Rounded $7,900,000 ---------- PV Total $7,854,968
"DCF" VALUE SENSITIVITY TABLE
DISCOUNT RATE ----------------------------------------------------------------------------- TOTAL VALUE 10.00% 10.25% 10.50% 10.75% 11.00% -------------------------------------------------------------------------------------------------------------- TERMINAL CAP RATE 9.00% $8,310,530 $8,172,325 $8,037,170 $7,904,987 $7,775,702 9.25% $8,212,626 $8,076,619 $7,943,607 $7,813,515 $7,686,269 9.50% $8,119,875 $7,985,950 $7,854,968 $7,726,857 $7,601,543 9.75% $8,031,880 $7,899,930 $7,770,875 $7,644,643 $7,521,162 10.00% $7,948,285 $7,818,211 $7,690,987 $7,566,540 $7,444,800
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 34 PRESTON CREEK APARTMENTS, DALLAS, TEXAS INCOME LOSS DURING LEASE-UP The subject is currently near or at a stabilized condition. Therefore, there is no income loss during lease-up at the subject property. CONCESSIONS 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 $129,000 (rounded). This amount has been deducted from the Direct Capitalization analysis, as well as the Sales Comparison Approach value. DIRECT CAPITALIZATION METHOD After having projected the income and expenses for the property, the next step in the valuation process is to capitalize the net income into an estimate of value. The selected overall capitalization rate ("OAR") covers both return on and return of capital. It is the overall rate of return an investor expects. After considering the market transactions and the investor surveys, we previously conclude that an overall rate of 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 35 PRESTON CREEK APARTMENTS, DALLAS, TEXAS PRESTON CREEK APARTMENTS
TOTAL PER SQ. FT. PER UNIT % OF EGI ---------- ---------- -------- -------- REVENUE Base Rent $1,778,400 $ 8.21 $ 7,800 Less: Vacancy & Collection Loss 11.00% $ 195,624 $ 0.90 $ 858 Plus: Other Income Laundry Income $ 15,960 $ 0.07 $ 70 0.96% Garage Revenue $ 0 $ 0.00 $ 0 0.00% Other Misc. Revenue $ 68,400 $ 0.32 $ 300 4.10% ------------------------------------------------------ Subtotal Other Income $ 84,360 $ 0.39 $ 370 5.06% EFFECTIVE GROSS INCOME $1,667,136 $ 7.70 $ 7,312 OPERATING EXPENSES: Taxes $ 205,200 $ 0.95 $ 900 12.31% Insurance $ 62,700 $ 0.29 $ 275 3.76% Utilities $ 102,600 $ 0.47 $ 450 6.15% Repair & Maintenance $ 45,600 $ 0.21 $ 200 2.74% Cleaning $ 102,600 $ 0.47 $ 450 6.15% Landscaping $ 62,700 $ 0.29 $ 275 3.76% Security $ 0 $ 0.00 $ 0 0.00% Marketing & Leasing $ 45,600 $ 0.21 $ 200 2.74% General Administrative $ 221,160 $ 1.02 $ 970 13.27% Management 4.00% $ 66,685 $ 0.31 $ 292 4.00% Miscellaneous $ 0 $ 0.00 $ 0 0.00% TOTAL OPERATING EXPENSES $ 914,845 $ 4.22 $ 4,012 54.88% Reserves $ 57,000 $ 0.26 $ 250 3.42% ------------------------------------------------------ NET OPERATING INCOME $ 695,291 $ 3.21 $ 3,050 41.71% ====================================================== "GOING IN" CAPITALIZATION RATE 9.00% VALUE INDICATION $7,725,451 $35.67 $33,884 PV OF CONCESSIONS ($ 129,000) "AS IS" VALUE INDICATION (DIRECT CAPITALIZATION APPROACH) $7,596,451 ROUNDED $7,600,000 $35.09 $33,333
AMERICAN APPRAISAL ASSOCIATES, INC. INCOME CAPITALIZATION APPROACH PAGE 36 PRESTON CREEK APARTMENTS, DALLAS, TEXAS DIRECT CAPITALIZATION VALUE SENSITIVITY TABLE
CAP RATE VALUE ROUNDED $/UNIT $/SF -------- ---------- ---------- ------- ------ 8.25% $8,298,764 $8,300,000 $36,404 $38.32 8.50% $8,050,889 $8,100,000 $35,526 $37.40 8.75% $7,817,178 $7,800,000 $34,211 $36.01 9.00% $7,596,451 $7,600,000 $33,333 $35.09 9.25% $7,387,655 $7,400,000 $32,456 $34.16 9.50% $7,189,848 $7,200,000 $31,579 $33.24 9.75% $7,002,185 $7,000,000 $30,702 $32.32
CONCLUSION BY THE DIRECT CAPITALIZATION METHOD Applying the capitalization rate to our estimated NOI results in an estimated value of $7,600,000. CORRELATION AND CONCLUSION BY THE INCOME APPROACH The two methods used to estimate the market value of the subject property by the income approach resulted in the following indications of value: Discounted Cash Flow Analysis $7,900,000 Direct Capitalization Method $7,600,000 Giving consideration to the indicated values provided by both techniques, we have concluded the estimated value by the income capitalization approach to be $7,800,000. AMERICAN APPRAISAL ASSOCIATES, INC. RECONCILIATION AND CONCLUSION PAGE 37 PRESTON CREEK APARTMENTS, DALLAS, TEXAS RECONCILIATION AND CONCLUSION This appraisal was made to express an opinion as of the Market Value of the fee simple estate in the property. AS IS MARKET VALUE OF THE FEE SIMPLE ESTATE Cost Approach Not Utilized Sales Comparison Approach $8,200,000 Income Approach $7,800,000 Reconciled Value $7,900,000
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 7, 2003 the market value of the fee simple estate in the property is: $7,900,000 AMERICAN APPRAISAL ASSOCIATES, INC. ADDENDA PRESTON CREEK APARTMENTS,DALLAS, TEXAS ADDENDA AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A PRESTON CREEK APARTMENTS, DALLAS, TEXAS EXHIBIT A SUBJECT PHOTOGRAPHS AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A PRESTON CREEK APARTMENTS, DALLAS, TEXAS SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] EXTERIOR - APARTMENT BUILDINGS EXTERIOR - APARTMENT BUILDING [PICTURE] [PICTURE] EXTERIOR - FRONTAGE INTERIOR - LIVING ROOM [PICTURE] [PICTURE] EXTERIOR - TENNIS COURT INTERIOR - LAUNDRY ROOM AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT A PRESTON CREEK APARTMENTS, DALLAS, TEXAS SUBJECT PHOTOGRAPHS [PICTURE] [PICTURE] INTERIOR - BEDROOM INTERIOR - BEDROOM [PICTURE] [PICTURE] INTERIOR - KITCHEN EXTERIOR - APARTMENT UNIT [PICTURE] [PICTURE] INTERIOR - ENTRANCE / KITCHEN INTERIOR - BEDROOM / BATH AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B PRESTON CREEK APARTMENTS, DALLAS, TEXAS EXHIBIT B SUMMARY OF RENT COMPARABLES AND PHOTOGRAPH OF COMPARABLES AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B PRESTON CREEK APARTMENTS, DALLAS, TEXAS PHOTOGRAPHS OF COMPARABLE SALE PROPERTIES COMPARABLE I-1 COMPARABLE I-2 COMPARABLE I-3 POLO CLUB APARTMENTS COURTS OF MCCALLUM APARTMENTS CITISCAPE APARTMENTS 5616 Spring Valley 7777 McCallum Blvd 5734 Preston View Blvd Dallas, TX Dallas, TX Dallas, TX [PICTURE] [PICTURE] [PICTURE] COMPARABLE I-4 COMPARABLE I-5 PARK ON PRESTON APARTMENTS TIBURON APARTMENTS 17878 Preston Road 15411 Preston Road Dallas, TX Dallas, TX [PICTURE] [PICTURE] AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B PRESTON CREEK APARTMENTS, DALLAS, TEXAS SUMMARY OF COMPARABLE RENTAL PROPERTIES
COMPARABLE DESCRIPTION SUBJECT R - 1 ----------------------------------------------------------------------------------------------------------------------------------- Property Name Preston Creek Apartments Oak Run Management Company AIMCO AIMCO LOCATION: Address 5902 Preston Oaks 5801 Preston Oaks City, State Dallas, Texas Dallas, TX County Dallas Dallas Proximity to Subject Less than 1 mile PHYSICAL CHARATERISTICS: Net Rentable Area (SF) 216,600 308,284 Year Built 1979 1979 Effective Age 24 24 Building Structure Type Stucco/Siding Brick/Wood Parking Type (Gr., Cov., etc.) Open Open Number of Units 228 420 Unit Mix: Type Unit Qty. Mo. Rent Type Unit Qty. Mo. 1 1Br/1Ba - 1A10 788 84 $509 1Br/1Ba- EA10 443 30 $429 2 1Br/1.5Ba -1A15 897 72 $608 1Br/1Ba- 1A10 553 114 $435 3 2Br/2Ba - 2A20 1,186 60 $729 1Br/1Ba- 1B10 687 108 $487 4 2Br/2Ba - 2B20 1,222 12 $839 1 1Br/1Ba- 1C10 779 36 $506 1Br/1Ba- 1D10 821 40 $581 2 1Br/1Ba- 1E10 826 24 $449 1Br/1Ba- 1F10 977 8 $579 2Br/2Ba- 2A20 1,032 20 $439 3 2Br/2Ba- 2B20 1,177 16 $689 4 2Br/2Ba- 2C20 1,240 24 $739 Average Unit Size (SF) 950 734 Unit Breakdown: Efficiency 0% 2-Bedroom 32% Efficiency 7% 2-Bedroom 14% 1-Bedroom 68% 3-Bedroom 0% 1-Bedroom 79% 3-Bedroom 0% CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony X W/D Connect. X Fireplace X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court X BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall X Sand Volley Ball Meeting Hall X Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office Gym Room X Gym Room OCCUPANCY: 99% 87% LEASING DATA: Available Leasing Terms 6 to 12 months 6 to 12 months Concessions 1 month 1 month Pet Deposit 300 250 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash X Water Trash Confirmation Jessica Telephone Number NOTES: COMPARISON TO SUBJECT: Similar COMPARABLE COMPARABLE DESCRIPTION R - 2 R - 3 ---------------------------------------------------------------------------------------------------------------------------------- Property Name Preston Pointe Creekview Apartments Management Company N/A N/A LOCATION: Address 14041 Preston Road 14255 Preston Road City, State Dallas, TX Dallas, TX County Dallas Dallas Proximity to Subject Less than 1 mile Less than 1 mile PHYSICAL CHARATERISTICS: Net Rentable Area (SF) N/A N/A Year Built 1981 1985 Effective Age 22 18 Building Structure Type Brick/Wood Brick/Wood Parking Type (Gr., Cov., etc.) Covered/Open Covered/Open Number of Units 600 240 Unit Mix: Type Unit Qty. Mo. Type Unit Qty. Mo. 1Br/1Ba- 1A 509 $529 1Br/1Ba- 1A 579 $640 1Br/1Ba- 1B 624 $599 1Br/1Ba- 1B 674 $685 1 1Br/1Ba- 1C 723 $654 1 1Br/1Ba- 1C 773 $730 1Br/1Ba- 1D 836 $689 1Br/1Ba- 1D 973 $825 2 2Br/2Ba- 2A 876 $789 2Br/2Ba- 2A 987 $890 3 2Br/2Ba- 2A 1,000 $819 Average Unit Size (SF) Unit Breakdown: Efficiency N/A 2-Bedroom N/A Efficiency N/A 2-Bedroom N/A 1-Bedroom N/A 3-Bedroom N/A 1-Bedroom N/A 3-Bedroom N/A CONDITION: Average Average APPEAL: Average Average AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Balcony W/D Connect. X Fireplace X Fireplace X Cable TV Ready X Cable TV Ready Project Amenities X Swimming Pool X Swimming Pool Spa/Jacuzzi Car Wash Spa/Jacuzzi Car Wash Basketball Court BBQ Equipment Basketball Court BBQ Equipment Volleyball Court Theater Room Volleyball Court Theater Room Sand Volley Ball Meeting Hall Sand Volley Ball Meeting Hall Tennis Court Secured Parking Tennis Court Secured Parking Racquet Ball X Laundry Room Racquet Ball X Laundry Room Jogging Track X Business Office Jogging Track X Business Office X Gym Room X Gym Room OCCUPANCY: 94% 95% LEASING DATA: Available Leasing Terms 3 to 14 6 to 15 months Concessions 1 month free 2 to 6 weeks free Pet Deposit 300 400 Utilities Paid by Tenant: X Electric Natural Gas X Electric Natural Gas X Water Trash X Water Trash Confirmation Holly Christi Telephone Number 888-549-4806 972-458-8138 NOTES: COMPARISON TO SUBJECT: Similar Slightly Superior COMPARABLE DESCRIPTION R - 4 ----------------------------------------------------------------------------------- Property Name Montford Oaks Management Company N/A LOCATION: Address 14100 Montfort Drive City, State Dallas, TX County Dallas Proximity to Subject Less than 1 mile PHYSICAL CHARATERISTICS: Net Rentable Area (SF) N/A Year Built 1980 Effective Age 23 Building Structure Type Brick/Wood Parking Type (Gr., Cov., etc.) Open Number of Units 276 Unit Mix: Type Unit Qty. Mo. 1Br/1Ba- 1A 643 $605 1Br/1Ba- 1B 686 $619 1 1Br/1Ba- 1C 711 $645 2 1Br/1Ba- 1D 852 $750 2Br/2Ba- 2A 921 $762 3 2br/2Ba- 2B 971 $830 Average Unit Size (SF) Unit Breakdown: Efficiency N/A 2-Bedroom N/A 1-Bedroom N/A 3-Bedroom N.A CONDITION: APPEAL: AMENITIES: Unit Amenities Attach. Garage Vaulted Ceiling X Balcony X W/D Connect. X Fireplace X Cable TV Ready Project Amenities X Swimming Pool X Spa/Jacuzzi Car Wash Basketball Court X BBQ Equipment Volleyball Court Theater Room Sand Volley Ball Meeting Hall X Tennis Court Secured Parking Racquet Ball X Laundry Room Jogging Track X Business Office X Gym Room OCCUPANCY: 92% LEASING DATA: Available Leasing Terms 7 to 13 months Concessions 1 month free Pet Deposit 350 Utilities Paid by Tenant: X Electric Natural Gas X Water X Trash Confirmation Joyce Telephone Number 972-980-7717 NOTES: COMPARISON TO SUBJECT: Similar
AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT B PRESTON CREEK APARTMENTS, DALLAS, TEXAS PHOTOGRAPHS OF COMPARABLE RENT PROPERTIES COMPARABLE R-1 COMPARABLE R-2 COMPARABLE R-3 OAK RUN PRESTON POINTE CREEKVIEW APARTMENTS 5801 Preston Oaks 14041 Preston Road 14255 Preston Road Dallas, TX Dallas, TX Dallas, TX [PICTURE] [PICTURE] [PICTURE] COMPARABLE R-4 MONTFORD OAKS 14100 Montfort Drive Dallas, TX [PICTURE] N/A AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C PRESTON CREEK APARTMENTS, DALLAS, TEXAS EXHIBIT C ASSUMPTIONS AND LIMITING CONDITIONS (3 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C PRESTON CREEK APARTMENTS, DALLAS, TEXAS No responsibility is assumed for matters legal in nature. No investigation has been made of the title to or any liabilities against the property appraised. In this appraisal, it is presumed that, unless otherwise noted, the owner's claim is valid, the property rights are good and marketable, and there are no encumbrances which cannot be cleared through normal processes. To the best of our knowledge, all data set forth in this report are true and accurate. Although gathered from reliable sources, no guarantee is made nor liability assumed for the accuracy of any data, opinions, or estimates identified as being furnished by others which have been used in formulating this analysis. Land areas and descriptions used in this appraisal were obtained from public records and have not been verified by legal counsel or a licensed surveyor. No soil analysis or geological studies were ordered or made in conjunction with this report, nor were any water, oil, gas, or other subsurface mineral and use rights or conditions investigated. Substances such as asbestos, urea-formaldehyde foam insulation, other chemicals, toxic wastes, or other potentially hazardous materials could, if present, adversely affect the value of the property. Unless otherwise stated in this report, the existence of hazardous substance, which may or may not be present on or in the property, was not considered by the appraiser in the development of the conclusion of value. The stated value estimate is predicated on the assumption that there is no material on or in the property that would cause such a loss in value. No responsibility is assumed for any such conditions, and the client has been advised that the appraiser is not qualified to detect such substances, quantify the impact on values, or develop the remedial cost. No environmental impact study has been ordered or made. Full compliance with applicable federal, state, and local environmental regulations and laws is assumed unless otherwise stated, defined, and considered in the report. It is also assumed that all required licenses, consents, or other legislative or administrative authority from any local, state, or national government or private entity organization either have been or can be obtained or renewed for any use which the report covers. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C PRESTON CREEK APARTMENTS, DALLAS, TEXAS It is assumed that all applicable zoning and use regulations and restrictions have been complied with unless a nonconformity has been stated, defined, and considered in the appraisal report. Further, it is assumed that the utilization of the land and improvements is within the boundaries of the property described and that no encroachment or trespass exists unless noted in the report. The Americans with Disabilities Act ("ADA") became effective January 26, 1992. We have not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property together with a detailed analysis of the requirements of the ADA could reveal that the property is not in compliance with one or more of the requirements of the act. If so, this fact could have a negative effect on the value of the property. Since we have no direct evidence relating to this issue, we did not consider the possible noncompliance with the requirements of ADA in estimating the value of the property. We have made a physical inspection of the property and noted visible physical defects, if any, in our report. This inspection was made by individuals generally familiar with real estate and building construction. However, these individuals are not architectural or structural engineers who would have detailed knowledge of building design and structural integrity. Accordingly, we do not opine on, nor are we responsible for, the structural integrity of the property including its conformity to specific governmental code requirements, such as fire, building and safety, earthquake, and occupancy, or any physical defects which were not readily apparent to the appraiser during the inspection. The value or values presented in this report are based upon the premises outlined herein and are valid only for the purpose or purposes stated. The date of value to which the conclusions and opinions expressed apply is set forth in this report. The value opinion herein rendered is based on the status of the national business economy and the purchasing power of the U.S. dollar as of that date. Testimony or attendance in court or at any other hearing is not required by reason of this appraisal unless arrangements are previously made within a reasonable time in advance for AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT C PRESTON CREEK APARTMENTS, DALLAS, TEXAS such testimony, and then such testimony shall be at American Appraisal Associates, Inc.'s, prevailing per diem for the individuals involved. Possession of this report or any copy thereof does not carry with it the right of publication. No portion of this report (especially any conclusion to use, the identity of the appraiser or the firm with which the appraiser is connected, or any reference to the Appraisal Institute or the designations awarded by this organization) shall be disseminated to the public through prospectus, advertising, public relations, news, or any other means of communication without the written consent and approval of American Appraisal Associates, Inc. AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D PRESTON CREEK APARTMENTS, DALLAS, TEXAS EXHIBIT D CERTIFICATE OF APPRAISER (1 PAGE) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT D CERTIFICATE OF APPRAISER I certify that, to the best of my knowledge and belief: The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and represent the unbiased professional analyses, opinions, and conclusions of American Appraisal Associates, Inc. American Appraisal Associates, Inc. and I personally, have no present or prospective interest in the property that is the subject of this report and have no personal interest or bias with respect to the parties involved. Compensation for American Appraisal Associates, Inc. is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. The analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Uniform Standards of Professional Appraisal Practice and the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. I personally did not inspect the subject property. Shayne Hatch provided significant real property appraisal assistance in the preparation of this report. I am currently in compliance with the Appraisal Institute's continuing education requirements. -s- Frank Fehribach -------------------------- Frank Fehribach, MAI Managing Principal, Real Estate Group Texas State Certified General Real Estate Appraiser #TX-1323954-G AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E PRESTON CREEK APARTMENTS, DALLAS, TEXAS EXHIBIT E QUALIFICATIONS OF APPRAISER (2 PAGES) AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E PRESTON CREEK APARTMENTS, DALLAS, TEXAS FRANK A. FEHRIBACH, MAI MANAGING PRINCIPAL, REAL ESTATE GROUP POSITION Frank A. Fehribach is a Managing Principal for the Dallas Real Estate Group of American Appraisal Associates, Inc. ("AAA"). EXPERIENCE Valuation Mr. Fehribach has experience in valuations for resort hotels; Class A office buildings; Class A multifamily complexes; industrial buildings and distribution warehousing; multitract mixed-use vacant land; regional malls; residential subdivision development; and special-purpose properties such as athletic clubs, golf courses, manufacturing facilities, nursing homes, and medical buildings. Consulting assignments include development and feasibility studies, economic model creation and maintenance, and market studies. Mr. Fehribach also has been involved in overseeing appraisal and consulting assignments in Mexico and South America. Business Mr. Fehribach joined AAA as an engagement director in 1998. He was promoted to his current position in 1999. Prior to that, he was a manager at Arthur Andersen LLP. Mr. Fehribach has been in the business of real estate appraisal for over ten years. EDUCATION University of Texas - Arlington Master of Science - Real Estate University of Dallas Master of Business Administration - Industrial Management Bachelor of Arts - Economics STATE State of Arizona CERTIFICATIONS Certified General Real Estate Appraiser, #30828 State of Arkansas State Certified General Appraiser, #CG1387N State of Colorado Certified General Appraiser, #CG40000445 State of Georgia Certified General Real Property Appraiser, #218487 State of Michigan Certified General Appraiser, #1201008081 State of Texas Real Estate Salesman License, #407158 (Inactive) State of Texas State Certified General Real Estate Appraiser, #TX-1323954-G AMERICAN APPRAISAL ASSOCIATES, INC. EXHIBIT E PRESTON CREEK APARTMENTS, DALLAS, TEXAS PROFESSIONAL Appraisal Institute, MAI Designated Member AFFILIATIONS Candidate Member of the CCIM Institute pursuing Certified Commercial Investment Member (CCIM) designation PUBLICATIONS "An Analysis of the Determinants of Industrial Property Valuation," Co-authored with Dr. Ronald C. Rutherford and Dr. Mark Eakin, The Journal of Real Estate Research, Vol. 8, No. 3, Summer 1993, p. 365. AMERICAN APPRAISAL ASSOCIATES, INC. PRESTON CREEK APARTMENTS, DALLAS, TEXAS GENERAL SERVICE CONDITIONS AMERICAN APPRAISAL ASSOCIATES, INC. PRESTON CREEK APARTMENTS, DALLAS, TEXAS GENERAL SERVICE CONDITIONS The services(s) provided by AAA will be performed in accordance with professional appraisal standards. Our compensation is not contingent in any way upon our conclusions of value. We assume, without independent verification, the accuracy of all data provided to us. We will act as an independent contractor and reserve the right to use subcontractors. All files, workpapers or documents developed by us during the course of the engagement will be our property. We will retain this data for at least five years. Our report is to be used only for the specific purpose stated herein; and any other use is invalid. No reliance may be made by any third party without our prior written consent. You may show our report in its entirety to those third parties who need to review the information contained herein. No one should rely on our report as a substitute for their own due diligence. We understand that our reports will be described in public tender offer documents distributed to limited partners. We reserve the right to review the public tender offer documents prior to their issuance to confirm that disclosures of facts from the current appraisals are accurate. No reference to our name or our report, in whole or in part, in any other SEC filing or private placement memorandum you prepare and/or distribute to third parties may be made without our prior written consent. The Tender Offer Partnerships, as that term is defined in the Settlement Agreement, agree to indemnify and hold us harmless against and from any and all losses, claims, actions, damages, expenses or liabilities, including reasonable attorneys' fees, to which we may become subject in connection with this engagement except where such losses, claims, actions, damages, expenses or liabilities, including reasonable attorney's fees, arise or result from AAA's misconduct, bad faith or negligence. Co-Clients will not be liable for any of our acts or omissions. AAA is an equal opportunity employer.